<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1998
File No. 33-xxxxx
File No. 811-7924
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AND
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940
POST-EFFECTIVE AMENDMENT NO. 12
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
LINCOLN BENEFIT LIFE COMPANY
(Name of Depositor)
206 South 13th Street
Lincoln, Nebraska 68508
(Complete Address of Depositor's Principal Office)
JOHN MORRIS
Lincoln Benefit Life Company
206 South 13th Street
Lincoln, Nebraska 68508
1-800-865-5237
(Name and Complete Address of Agent for Service)
Copy to:
JOAN E. BOROS, ESQ.
Jorden Burt Boros Cicchetti
Berenson & Johnson LLP
1025 Thomas Jefferson Street N.W.
Suite 400 East
Washington, D.C. 20007-0805
------------------------
SECURITIES BEING OFFERED: FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY
CONTRACTS
APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER THE
EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
AN INDEFINITE NUMBER OF SHARES ARE DEEMED TO BE REGISTERED AND NO FILING FEE IS
DUE BECAUSE OF RELIANCE ON SECTION 24(F) OF THE INVESTMENT COMPANY ACT OF 1940.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS MAY BE
NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER
AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES
ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET
Showing Location in Part A (Prospectus) and Part B of Registration Statement of
Additional Information Required by Form N-4
<TABLE>
<CAPTION>
ITEM OF FORM N-4
<C> <S> <C>
PART A: INFORMATION REQUIRED IN A PROSPECTUS
1. Cover Page..................................... Cover Page
2. Definitions.................................... Definitions
3. Synopsis....................................... Questions and Answers About your Contract; Fee
Tables; Examples; Explanation of Fee Tables
and Examples
4. Condensed Financial Information
(a) Accumulation Unit Values................... Not Applicable
(b) Explanation of Calculation of
Performance.................................. Appendix A: Portfolios and Performance Data
(c) Location of Other Financial Statements..... Condensed Financial Data
5. General Description of Registrant, Depositor,
and Portfolio Companies
(a) Depositor.................................. Lincoln Benefit Life Company
(b) Registrant................................. Separate Account
(c) Portfolio Companies........................ The Portfolios
(d) Portfolio Company Prospectuses............. The Portfolios
(e) Voting Rights.............................. Voting Rights
(f) Administrators............................. Administration
6. Deductions
(a) General.................................... Contract Charges
(b) Sales Load Percent......................... Sales Charges
(c) Special Purchase Plans..................... Sales Charges
(d) Commissions................................ Distribution of the Contracts
(e) Portfolio Expenses......................... Other Expenses
(f) Operating Expenses......................... Fee Tables; Contract Charges
7. General Description of Contracts
(a) Persons with Rights........................ Description of the Contracts; Annuity Benefits;
Other Contract Benefits; Voting Rights;
Beneficiary
(b) (i) Allocation of Purchase Payments....... Allocation of Purchase Payments
(ii) Transfers.............................. Purchases and Contract Value; Transfers During
Annuity Period
(iii) Exchanges............................. Not Applicable
(c) Changes.................................... Modification of the Contract
(d) Inquiries.................................. Questions and Answers about Your Contract: Who
Should I Contact for More Information
8. Annuity Period................................. Annuity Benefits; Enhanced Death Benefit and
Income Benefit Rider
9. Death Benefit.................................. Death Benefit; Enhanced Death Benefit Rider;
Enhanced Death Benefit and Income Benefit
Rider
10. Purchases and Contract Value................... Purchases and Contract Value; Distribution of
the Contracts
11. Redemptions
(a) By Owners.................................. Withdrawals (Redemptions); Substantially Equal
Periodic Payments; Systematic Withdrawal
Program
(b) By Annuitant............................... Annuity Options
(c) Texas ORP.................................. Not Applicable
(d) Lapse...................................... Minimum Contract Value
(e) Free Look.................................. Free Look Period
12. Taxes.......................................... Taxes
13. Legal Proceedings.............................. Legal Proceedings
14. Table of Contents of SAI....................... Table of Contents of SAI
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
15. Cover Page..................................... Cover Page
16. Table of Contents.............................. Table of Contents
17. General Information and History
(a) Depositor's Name........................... Not Applicable
(b) Assets of Subaccount....................... Not Applicable
(c) Control of Depositor....................... Prospectus: Lincoln Benefit Life Company
18. Services
(a) Fees and Expenses of Registrant............ Not Applicable
(b) Management Contracts....................... Not Applicable
(c) Custodian.................................. Prospectus: Separate Account
Independent Public Accountant.................. Prospectus: Experts
(d) Assets of Registrant....................... Prospectus: Separate Account
(e) Affiliated Persons......................... Not Applicable
(f) Principal Underwriter...................... Prospectus: Distribution of the Contracts
19. Purchase of Securities Being Offered........... Prospectus: Distribution of the Contracts
20. Underwriters................................... Prospectus: Distribution of the Contracts
21. Calculation of Performance Data................ Prospectus: Appendix A: Portfolios and
Performance Data; Separate Account Performance
22. Annuity Payments............................... SAI: The Contract
23. Financial Statements
(a) Financial Statements of Registrant......... SAI: Financial Statements
(b) Financial Statements of Depositor.......... Prospectus: Financial Statements
PART C: OTHER INFORMATION
The information required to be provided in Part C is separately identified by Item number.
</TABLE>
<PAGE>
FLEXIBLE PREMIUM
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
LINCOLN BENEFIT LIFE COMPANY
IN CONNECTION WITH
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STREET ADDRESS: 206 SOUTH 13TH ST., LINCOLN, NE 68508-1993
MAILING ADDRESS: P. O. BOX 82532, LINCOLN, NE 68501-2532
TELEPHONE NUMBER: 1-800-865-5237
This prospectus describes a Flexible Premium Individual Deferred Variable
Annuity Contract ("Contract") offered by Lincoln Benefit Life Company ("we" or
"Lincoln Benefit"). Lincoln Benefit is owned by Allstate Life Insurance Company.
The Contract is a deferred annuity contract designed to aid you in long-term
financial planning. You may purchase it on either a tax qualified or non-tax
qualified basis.
Because this is a flexible premium annuity contract, you may pay multiple
premiums. We allocate your premium to the investment options under the Contract
and our Fixed Account in the proportions that you choose. The Contract currently
offers thirty-seven investment options, each of which is a subaccount of the
Lincoln Benefit Life Variable Annuity Account ("Separate Account"). Each
Subaccount invests exclusively in shares of one of the following Portfolios:
JANUS ASPEN SERIES: Flexible Income Portfolio, Balanced Portfolio, Growth
Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio
FEDERATED INSURANCE MANAGEMENT SERIES: Utility Fund II, Fund for U.S. Government
Securities II, High Income Bond Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: Money Market Portfolio, Equity-Income
Portfolio, Growth Portfolio, Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: Asset Manager Portfolio,
Contrafund Portfolio, Index 500 Portfolio
THE ALGER AMERICAN FUND: Income and Growth Portfolio, Small Capitalization
Portfolio, Growth Portfolio, MidCap Growth Portfolio, Leveraged AllCap Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND: Bond Portfolio, Balanced Portfolio,
Growth and Income Portfolio, Global Discovery Portfolio, International Portfolio
STRONG VARIABLE INSURANCE FUNDS, INC.: Discovery Fund II, Opportunity Fund II,
Growth Fund II
T. ROWE PRICE INTERNATIONAL SERIES, INC.: International Stock Portfolio
T. ROWE PRICE EQUITY SERIES, INC.: New America Growth Portfolio, Mid-Cap Growth
Portfolio, Equity Income Portfolio
MFS VARIABLE INSURANCE TRUST: Growth with Income Series, Research Series,
Emerging Growth Series, Total Return Series, New Discovery Series
We may make available other investment options in the future.
You may not purchase a Contract if either you or the Annuitant are 90 years old
or older before we receive your application.
Your Contract Value will vary daily as a function of the investment performance
of the Subaccounts to which you have allocated Purchase Payments and any
interest credited to the Fixed Account. We do not guarantee any minimum Contract
Value for amounts allocated to the Subaccounts. Benefits provided by this
Contract, when based on the Fixed Account, are subject to a Market Value
Adjustment, which may result in an upwards or downwards adjustment in withdrawal
benefits, death benefits, settlement values, transfers to the Subaccounts, or
periodic income payments.
In certain states the Contract may be offered as a group contract with
individual ownership represented by Certificates. The discussion of Contracts in
this prospectus applies equally to Certificates under group contracts, unless
the content specifies otherwise.
This prospectus sets forth the information you ought to know about the Contract.
You should read it before investing and keep it for future reference.
We have filed a Statement of Additional Information with the Securities and
Exchange Commission ("SEC"). The current Statement of Additional Information is
dated April 17, 1998. The information in the Statement of Additional Information
is incorporated by reference in this
(continued on next page)
- --------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS APRIL 19, 1998.
1
<PAGE>
prospectus. You can obtain a free copy by writing us or calling us at the
telephone number given above. The Table of Contents of the Statement of
Additional Information appears on page 43 of this prospectus.
At least once each year we will send you an annual statement. The annual
statement details values and specific information for your Contract. It does not
contain our financial statements. Our financial statements begin on page F-1 of
this prospectus. Lincoln Benefit will file annual and quarterly reports and
other information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference room in Washington, D.C.
You can obtain copies of these documents by writing to the SEC and paying a
duplicating fee. Please call the SEC at 1-800-SEC-0330 for further information
as to the operation of the public reference room. Our SEC filings are also
available to the public on the SEC Internet site (http://www.sec.gov.)
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES
FOR THE PORTFOLIOS LISTED ABOVE. IF ANY OF THESE PROSPECTUSES IS MISSING OR
OUTDATED, PLEASE CONTACT US AND WE WILL SEND YOU THE PROSPECTUS YOU NEED.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS...................................................... 5
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT........................ 6
FEE TABLES....................................................... 10
EXAMPLES......................................................... 12
EXPLANATION OF FEE TABLES AND EXAMPLES........................... 13
CONDENSED FINANCIAL INFORMATION.................................. 13
DESCRIPTION OF THE CONTRACTS..................................... 13
Summary.......................................................... 13
Contract Owner................................................... 13
Annuitant........................................................ 13
Modification of the Contract..................................... 13
Assignment....................................................... 13
Free Look Period................................................. 14
PURCHASES AND CONTRACT VALUE..................................... 14
Minimum Purchase Payment......................................... 14
Automatic Payment Plan........................................... 14
Allocation of Purchase Payments.................................. 14
Contract Value................................................... 15
Separate Account Accumulation Unit Value......................... 15
Transfer During Accumulation Period.............................. 15
Transfers Authorized by Telephone................................ 15
Automatic Dollar Cost Averaging Program.......................... 15
Portfolio Rebalancing............................................ 16
THE INVESTMENT AND FIXED ACCOUNT OPTIONS......................... 16
Separate Account Investments..................................... 16
The Portfolios................................................... 16
Voting Rights.................................................... 20
Additions, Deletions, and Substitutions of Securities............ 20
The Fixed Account................................................ 20
General.......................................................... 20
Guaranteed Maturity Fixed Account Option......................... 21
Market Value Adjustment.......................................... 22
Dollar Cost Averaging Fixed Account Option....................... 22
ANNUITY BENEFITS................................................. 22
Annuity Date..................................................... 22
Annuity Options.................................................. 23
Other Options.................................................... 23
Annuity Payments: General........................................ 23
Variable Annuity Payments........................................ 24
Fixed Annuity Payments........................................... 24
Transfers During Annuity Period.................................. 24
Death Benefit During Annuity Period.............................. 24
Certain Employee Benefit Plans................................... 24
OTHER CONTRACT BENEFITS.......................................... 24
Death Benefit.................................................... 24
Enhanced Death Benefit Rider..................................... 26
Enhanced Death and Income Benefit Rider.......................... 26
Beneficiary...................................................... 26
Contract Loans for 401(a), 401(k), and 403(b) Contracts.......... 27
Withdrawals (Redemptions)........................................ 28
Substantially Equal Periodic Payments............................ 29
Systematic Withdrawal Program.................................... 29
ERISA Plans...................................................... 29
Minimum Contract Value........................................... 29
CONTRACT CHARGES................................................. 29
Mortality and Expense Risk Charge................................ 30
Administrative Charges........................................... 30
Contract Maintenance Charge...................................... 30
Administrative Expense Charge.................................... 30
Transfer Fee..................................................... 30
Sales Charges.................................................... 30
Withdrawal Charge................................................ 30
Free Withdrawal.................................................. 31
Waiver Benefits.................................................. 31
General.......................................................... 31
Confinement Waiver Benefit....................................... 31
Terminal Illness Waiver Benefit.................................. 31
Unemployment Waiver Benefit...................................... 31
Waiver of Withdrawal Charge for Certain Qualified Plan
Withdrawals..................................................... 32
Premium Taxes.................................................... 32
Deduction for Separate Account Income Taxes...................... 32
Other Expenses................................................... 32
TAXES............................................................ 32
General.......................................................... 32
Withholding Tax on Distributions................................. 33
Tax Treatment of Assignments..................................... 34
Tax Treatment of Withdrawals..................................... 34
Qualified Plans.................................................. 34
Non-Qualified Plans.............................................. 34
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE
ACCOUNT.......................................................... 34
Lincoln Benefit Life Company..................................... 34
Financial Statements of Lincoln Benefit.......................... 35
Selected Financial Data.......................................... 35
Investments by Lincoln Benefit................................... 35
Management's Discussion and Analysis of Financial Condition and
Results of Operation............................................ 36
Competition...................................................... 39
Employees........................................................ 39
Properties....................................................... 39
Executive Officers and Directors of Lincoln Benefit.............. 39
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Executive Compensation........................................... 40
State Regulation of Lincoln Benefit.............................. 41
Separate Account................................................. 41
ADMINISTRATION................................................... 42
MARKET TIMING AND ASSET ALLOCATION SERVICES...................... 42
DISTRIBUTION OF CONTRACTS........................................ 42
LEGAL PROCEEDINGS................................................ 42
LEGAL MATTERS.................................................... 42
EXPERTS.......................................................... 42
REGISTRATION STATEMENT........................................... 42
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION......... S-1
FINANCIAL STATEMENTS............................................. F-1
APPENDIX A--PORTFOLIOS AND PERFORMANCE DATA...................... A-1
APPENDIX B--EXAMPLES OF MARKET VALUE ADJUSTMENTS................. B-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
4
<PAGE>
DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION PERIOD - The period, beginning on the Issue Date, during which
Contract Value builds up under your Contract.
ACCUMULATION UNIT - A unit of measurement which we use to calculate Contract
Value.
ANNUITANT - The natural person on whose life the annuity benefits under a
Contract are based.
ANNUITIZATION - The process to begin annuity payments under the Contract.
ANNUITIZED VALUE - The Contract Value adjusted by any applicable Market Value
Adjustment and less any applicable taxes.
ANNUITY DATE - The date on which annuity payments are scheduled to begin.
ANNUITY PERIOD - The period during which annuity payments are paid. The Annuity
Period begins on the Annuity Date.
ANNUITY UNIT - A unit of measurement which we use to calculate the amount of
Variable Annuity payments.
BENEFICIARY(IES) - The person(s) designated to receive any death benefits under
the Contract.
COMPANY ("WE," "US," "OUR," "LINCOLN BENEFIT") - Lincoln Benefit Life Company.
CONTRACT ANNIVERSARY - Each anniversary of the Issue Date.
CONTRACT OWNER ("YOU") - The person(s) having the privileges of ownership
defined in the Contract. If your Contract is issued as part of a retirement
plan, your ownership privileges may be modified by the plan.
CONTRACT VALUE - The sum of the values of your interests in the Subaccounts of
the Separate Account and the Fixed Account.
CONTRACT YEAR - Each twelve-month period beginning on the Issue Date and each
Contract Anniversary.
CONTRIBUTION YEAR - Each twelve-month period beginning on the date a Purchase
Payment is allocated to a Subaccount, or each anniversary of that date.
FIXED ACCOUNT - The portion of the Contract Value allocated to our general
account.
FIXED ANNUITY - A series of annuity payments that are fixed in amount.
GUARANTEE PERIODS - A period of years for which we have guaranteed a specific
effective annual interest rate on an amount allocated to the Fixed Account.
ISSUE DATE - The date when the Contract becomes effective.
LATEST ANNUITY DATE - The latest date by which you must begin annuity payments
under the Contract.
LOAN ACCOUNT - An account established for amounts transferred from the
Subaccounts or the Fixed Account as security for outstanding Contract loans.
MARKET VALUE ADJUSTMENT - An amount added to or subtracted from certain
transactions involving your interest in the Fixed Account, to reflect the impact
of changing interest rates.
NET INVESTMENT FACTOR - The factor used to determine the value of an
Accumulation Unit and Annuity Unit in any Valuation Period. We determine the Net
Investment Factor separately for each Subaccount.
NON-QUALIFIED PLAN - A retirement plan which does not receive special tax
treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code.
PORTFOLIO(S) - The underlying mutual funds in which the Subaccounts invest. Each
Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PURCHASE PAYMENTS - Amounts paid to us as premium for the Contract by you or on
your behalf.
QUALIFIED PLAN - A retirement plan which receives special tax treatment under
Sections 401, 403(b), 408 or 408A of the Tax Code or a deferred compensation
plan for a state and local government or another tax exempt organization under
Section 457 of the Tax Code.
SEPARATE ACCOUNT - The Lincoln Benefit Life Variable Annuity Account, which is a
segregated investment account of the Company.
SUBACCOUNT - A subdivision of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SURRENDER VALUE - The amount paid upon complete surrender of the Contract, equal
to the Contract Value, less any applicable premium taxes, Withdrawal Charge, and
the contract maintenance charge and increased or decreased by any Market Value
Adjustment.
TAX CODE - The Internal Revenue Code of 1986, as amended.
TREASURY RATE - The U.S. Treasury Note Constant Maturity Yield for the preceding
week as reported in Federal Reserve Bulletin Release H.15.
VALUATION DATE - Each day the New York Stock Exchange is open for business.
VALUATION PERIOD - The period of time over which we determine the change in the
value of the Subaccounts in order to price Accumulation Units and Annuity Units.
Each Valuation Period begins at the close of normal trading on the New York
Stock Exchange ("NYSE") currently 4:00 p.m. Eastern time on each Valuation Date
and ends at the close of the NYSE on the next Valuation Date.
VARIABLE ANNUITY - A series of annuity payments that vary in amount based on
changes in the value of the Subaccounts to which your Contract Value has been
allocated.
WITHDRAWAL CHARGE - The contingent deferred sales charge that may be required
upon some withdrawals.
5
<PAGE>
QUESTIONS AND ANSWERS
ABOUT YOUR CONTRACT
The following are answers to some of the questions you may have about some of
the more important features of the Contract. The Contract is more fully
described in the rest of the Prospectus. Please read the Prospectus carefully.
1. WHAT IS THE CONTRACT?
The Contract is a flexible premium deferred variable annuity contract. It is
designed for tax-deferred retirement investing. The Contract is available for
non-qualified or qualified retirement plans. The Contract, like all deferred
annuity contracts, has two phases: the Accumulation Period and the Annuity
Period. During the Accumulation Period, earnings accumulate on a tax-deferred
basis and are taxed as income when you make a withdrawal. The Annuity Period
begins when you begin receiving payments under one of the annuity payment
options described in the answer to Question 2. The amount of money accumulated
under your Contract during the Accumulation Period will be used to determine the
amount of your annuity payments during the Annuity Period.
Your premiums are invested in one or more of the Subaccounts of the Separate
Account or allocated to the Fixed Account, as you instruct us. You may allocate
your Contract Value to up to twenty-one options under the Contract, counting
each Subaccount and the Fixed Account as one option. We will treat all of your
Contract Value allocated to the Fixed Account as one option for purposes of this
limit, even if you have chosen more than one Guarantee Period. The value of your
Contract will depend on the investment performance of the Subaccounts and the
amount of interest we credit to the Fixed Account.
Each Subaccount will invest in a single investment portfolio (a "Portfolio") of
a mutual fund. The Portfolios offer a range of investment objectives, from
conservative to aggressive. You bear the entire investment risk on amounts
allocated to the Subaccounts. The investment policies and risks of each
Portfolio are described in the accompanying prospectuses for the Portfolios.
In some states, you may also allocate all or part of your Contract Value to the
"Fixed Account", as described in the answer to Question 5.
2. WHAT ANNUITY OPTIONS DOES THE CONTRACT OFFER?
You may receive annuity payments on a fixed or a variable basis or a combination
of the two. We offer a variety of annuity options including:
- - a life annuity with payments guaranteed for five to twenty years;
- - a joint and full survivorship annuity, with payments guaranteed for five to
twenty years; and
- - fixed payments for a specified period of five to thirty years.
Call us to inquire about other options.
You may change your annuity option at any time before annuitization. You may
select the date to annuitize the Contract. The date you select, however, may be
no later than the later of the tenth Contract Anniversary or the Annuitant's
90th birthday. If your Contract was issued in connection with a qualified plan,
different deadlines may apply.
If you select annuity payments on a variable basis, the amount of our payments
to you will be affected by the investment performance of the Subaccounts you
have selected. The fixed portion of your annuity payments, on the other hand,
generally will be equal in amount to the initial payment we determine. As
explained in more detail below, however, during the Annuity Period you will have
a limited ability to change the relative weighting of the Subaccounts on which
your variable annuity payments are based or to increase the portion of your
annuity payments consisting of Fixed Annuity payments.
3. HOW DO I BUY A CONTRACT?
You can obtain a Contract application from your Lincoln Benefit agent. You must
pay at least $1,200 in Purchase Payments during the first Contract Year.
Purchase Payments must be at least $100, unless you enroll in an automatic
payment plan. Your periodic payments in an automatic payment plan must be at
least $25 per month. We may lower these minimums at our sole discretion. We will
not issue a Contract to you if either you or the Annuitant is age 90 or older
before we receive your application.
4. WHAT ARE MY INVESTMENT CHOICES UNDER THE CONTRACT?
You can allocate and reallocate your investment among the Subaccounts, each of
which in turn invests in a single Portfolio. Under the Contract, the Separate
Account currently invests in the following Portfolios:
<TABLE>
<CAPTION>
Fund Portfolio(s)
- ----------------------------- -----------------------------
<S> <C>
- ------------------------------------------------------------
Janus Aspen Series Flexible Income Portfolio
Balanced Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
- ------------------------------------------------------------
Federated Insurance Utility Fund II
Management Series Fund for U.S. Government
Securities II
High Income Bond Fund II
- ------------------------------------------------------------
Fidelity Variable Insurance Money Market Portfolio
Products Fund Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
- ------------------------------------------------------------
Fidelity Variable Insurance Asset Manager Portfolio
Products Fund II Contrafund Portfolio
Index 500 Portfolio
- ------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Fund Portfolio(s)
- ----------------------------- -----------------------------
<S> <C>
- ------------------------------------------------------------
The Alger American Fund Income and Growth Portfolio
Small Capitalization
Portfolio
Growth Portfolio
MidCap Growth Portfolio
Leveraged AllCap Portfolio
- ------------------------------------------------------------
Scudder Variable Life Bond Portfolio
Investment Fund Balanced Portfolio
Growth and Income Portfolio
Global Discovery Portfolio
International Portfolio
- ------------------------------------------------------------
Strong Variable Insurance Discovery Fund II
Funds, Inc. Opportunity Fund II
Growth Fund II
- ------------------------------------------------------------
T. Rowe Price International International Stock Portfolio
Series, Inc.
- ------------------------------------------------------------
T. Rowe Price Equity Series, New America Growth Portfolio
Inc. Mid-Cap Growth Portfolio
Equity Income Portfolio
- ------------------------------------------------------------
MFS Variable Insurance Trust Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
- ------------------------------------------------------------
</TABLE>
Each Portfolio holds its assets separately from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies which
are described in the accompanying prospectuses for the Portfolios.
5. WHAT IS THE FIXED ACCOUNT OPTION?
We offer two Fixed Account interest crediting options: the Guaranteed Maturity
Fixed Account Option and the Dollar Cost Averaging Fixed Account Option.
We will credit interest to amounts allocated to the Guaranteed Maturity Fixed
Account Option at a specified rate for a specified Guarantee Period. You select
the Guarantee Period for each amount that you allocate to the Guaranteed
Maturity Fixed Account Option. We will tell you what interest rates and
Guarantee Periods we are offering at a particular time. At the end of each
Guarantee Period, you may select a new Guarantee Period from among the choices
we are then making available or transfer or withdraw the relevant amount from
the Fixed Account without any Market Value Adjustment.
We may offer Guarantee Periods ranging from one to ten years in length. We are
currently offering Guarantee Periods of one, three, five, seven, and ten years
in length. In the future we may offer Guarantee Periods of different lengths or
stop offering some Guarantee Periods.
We will not change the interest rate credited to a particular allocation until
the end of the relevant Guarantee Period. From time to time, however, we may
change the interest rate that we offer to credit to new allocations to the
Guaranteed Maturity Fixed Account Option and to amounts rolled over in the Fixed
Account for new Guarantee Periods.
In addition, if you participate in our dollar cost averaging program, you may
designate amounts to be held in the Dollar Cost Averaging Fixed Account Option
until they are transferred to the Subaccounts or Guarantee Periods of your
choosing. When you make an allocation to the Fixed Account for this purpose, we
will set an interest rate applicable to that amount. We will then credit
interest at that rate to that amount until it has been entirely transferred to
your chosen Subaccounts or Guarantee Periods. We will complete the transfers
within one year of the allocation. In our discretion we may change the rate that
we set for new allocations to the Fixed Account for the dollar cost averaging
program. We will never, however, set a rate less than an effective annual rate
of 3%.
A Market Value Adjustment may increase or decrease the amount of certain
transactions involving the Fixed Account, to reflect changes in interest rates.
As a general rule, we will apply a Market Value Adjustment to the following
transactions: (1) when you withdraw funds from the Guaranteed Maturity Fixed
Account Option in an amount greater than the Free Withdrawal Amount (which is
described in the answer to Question 6); (2) when you transfer funds from the
Guaranteed Maturity Fixed Account Option to the Subaccounts; (3) when you
allocate part of your interest in the Guaranteed Maturity Fixed Account Option
to a new Guarantee Period before the end of the existing Guarantee Period; (4)
when you annuitize your Contract; and (5) when we pay a death benefit. We will
not apply a Market Value Adjustment to a transaction to the extent that: (1) it
occurs within 30 days after the end of a Guarantee Period applicable to the
funds involved in the transaction; (2) it is part of a dollar cost averaging
program; or (3) it is necessary to meet IRS minimum withdrawal requirements. We
determine the amount of a Market Value Adjustment using a formula that takes
into consideration: (1) whether current interest rates differ from interest
rates at the beginning of the applicable Guarantee Period; and (2) how many
years are left until the end of the Guarantee Period. As a general rule, if
interest rates have dropped, the Market Value Adjustment will be an addition; if
interest rates have risen, the Market Value Adjustment will be a deduction. It
is therefore possible that if you withdraw an amount from the Fixed Account
during a Guarantee Period, a Market Value Adjustment may cause you to receive
less than you initially allocated to the Fixed Account.
6. WHAT ARE MY EXPENSES UNDER THE CONTRACT?
CONTRACT MAINTENANCE CHARGE. During the Accumulation Period, each year we
subtract an annual contract maintenance charge of $35 from your Contract Value
allocated to the Subaccounts. We will waive this charge if you pay $50,000 or
more in Purchase Payments or if you allocate all of your Contract Value to the
Fixed Account.
7
<PAGE>
During the Annuity Period, we will subtract the annual contract maintenance
charge in equal parts from your annuity payments. We waive this charge if on the
Annuity Date your Contract Value is $50,000 or more or if all payments are Fixed
Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE AND MORTALITY AND EXPENSE RISK CHARGE. We impose a
mortality and expense risk charge at an annual rate of 1.15% of average daily
net assets and an administrative expense charge at an annual rate of .10% of
average daily net assets. If you select one of our optional enhanced benefit
riders, however, we may charge you a higher mortality and expense risk charge.
These charges are assessed each day during the Accumulation Period and the
Annuity Period. We guarantee that we will not raise these charges.
TRANSFER FEE. We currently do not charge a transfer fee. The Contract permits us
to charge you up to $10 per transfer for each transfer after the first transfer
in each month.
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE). During the accumulation
period, you may withdraw all or part of the value of your Contract before your
death or, if the Contract is owned by a company or other legal entity, before
the Annuitant's death. Certain withdrawals may be made without payment of any
Withdrawal Charge, which is a contingent deferred sales charge. Other
withdrawals are subject to the Withdrawal Charge. In most states, we also may
waive the Withdrawal Charge if you: (1) require long-term medical or custodial
care outside the home; (2) become unemployed; or (3) are diagnosed with a
terminal illness. These provisions will apply to the Annuitant, if the Contract
is owned by a company or other legal entity. Additional restrictions and costs
may apply to Contracts issued in connection with qualified plans. In addition,
withdrawals may trigger tax liabilities and penalties. You should consult with
your tax counselor to determine what effect a withdrawal might have on your tax
liability. As described in the answer to Question 3, we may increase or decrease
certain withdrawals by a Market Value Adjustment.
Each year, free of Withdrawal Charge or any otherwise applicable Market Value
Adjustment, you may withdraw the Free Withdrawal Amount, which equals:
(a) the greater of:
- earnings not previously withdrawn; or
- 15% of your total Purchase Payments made in the most recent seven
years; plus
(b) an amount equal to your total Purchase Payments made more than seven
years ago, to the extent not previously withdrawn.
The Withdrawal Charge will vary depending on the year the Purchase Payment(s)
and withdrawals are made.
<TABLE>
<CAPTION>
CONTRIBUTION APPLICABLE
YEAR CHARGE
- ------------ ----------
<S> <C>
1-2 7%
3-4 6%
5 5%
6 4%
7 3%
8+ 0%
</TABLE>
In determining Withdrawal Charges, we will deem your Purchase Payments to be
withdrawn on a first-in first-out basis.
PREMIUM TAXES. Certain states impose a premium tax on annuity purchase payments
received by insurance companies. Any premium taxes relating to the Contract may
be deducted from purchase payments or the contract value when the tax is
incurred or at a later time. State premium taxes generally range from 0% to
3.5%.
OTHER EXPENSES. In addition to our charges under the Contract, each Portfolio
deducts amounts from its assets to pay its investment advisory fees and other
expenses.
7. HOW WILL MY INVESTMENT IN THE CONTRACT BE TAXED?
You should consult a qualified tax adviser for personalized answers. Generally,
earnings under variable annuities are not taxed until amounts are withdrawn or
distributions are made. This deferral of taxes is designed to encourage
long-term personal savings and supplemental retirement plans. The taxable
portion of a withdrawal or distribution is taxed as ordinary income.
Special rules apply if the Contract is owned by a company or other legal entity.
Generally, such an owner must include in income any increase in the excess of
the Contract Value over the "investment in the contract" during the taxable
year.
8. DO I HAVE ACCESS TO MY MONEY?
At any time during the Accumulation Period, we will pay you all or part of the
value of your Contract, minus any applicable charge, if you surrender your
Contract or request a partial withdrawal. Under some plans, you may also take a
loan against the value of your Contract. Generally, a partial withdrawal must
equal at least $50, and after the withdrawal your remaining Contract Value must
at least equal $500.
Although you have access to your money during the Accumulation Period, certain
charges, such as the contract maintenance charge, the Withdrawal Charge, and
premium tax charges, may be deducted on a surrender or withdrawal. You may also
incur federal income tax liability or tax penalties. In addition, if you have
allocated some of the value of your Contract to the Fixed Account, the amount of
your surrender proceeds or withdrawal may be increased or decreased by a Market
Value Adjustment.
8
<PAGE>
After annuitization, under certain settlement options you may be entitled to
withdraw the commuted value of the remaining payments.
9. WHAT IS THE DEATH BENEFIT?
We will pay a death benefit while the Contract is in force and before the
Annuity Date, if the Contract Owner dies, or if the Annuitant dies and the
Contract Owner is not a natural person. To obtain payment of the Death Benefit,
the Beneficiary must submit to us written proof of death as specified in the
Contract.
The standard death benefit is the greatest of the following:
(1) your total Purchase Payments reduced proportionately for any prior partial
withdrawals;
(2) your Contract Value;
(3) the amount you would have received by surrendering your Contract; or
(4) your Contract Value on each Contract Anniversary evenly divisible by seven,
increased by the total Purchase Payments since that anniversary and reduced
proportionately by any partial withdrawals since that anniversary.
We also offer two optional enhanced death benefit riders, which are described
later in this prospectus.
We will determine the value of the death benefit on the day that we receive all
of the information that we need to process the claim.
10. WHAT ELSE SHOULD I KNOW?
ALLOCATION OF PURCHASE PAYMENTS. You allocate your initial Purchase Payment
among the Subaccounts and the Fixed Account in your Contract application. You
may make your allocations in specific dollar amounts or percentages, which must
be whole numbers that add up to 100%. When you make subsequent Purchase
Payments, you may again specify how you want your payments allocated. If you do
not, we will automatically allocate the payment based on your most recent
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
TRANSFERS. During the Accumulation Period, you may freely transfer Contract
Value among the Subaccounts and from the Subaccounts to the Fixed Account. You
may not make a transfer, however, that would result in your allocating your
Contract Value to more than twenty-one options under the Contract. While you may
also transfer amounts from the Fixed Account, a Market Value Adjustment may
apply. You may instruct us to transfer Contract Value by writing or calling us.
You may also use our automatic dollar cost averaging or portfolio rebalancing
programs. You may not use both programs at the same time.
Under the dollar cost averaging program, amounts are automatically transferred
at regular intervals from the Fixed Account or a Subaccount of your choosing to
up to eight options, including other Subaccounts or the Fixed Account. Transfers
may be made monthly, quarterly, or annually. You do not pay a Market Value
Adjustment on transfers that are part of a dollar cost averaging program.
Under the portfolio rebalancing program, you can maintain the percentage of your
Contract Value allocated to each Subaccount at a pre-set level. Investment
results will shift the balance of your Contract Value allocations. If you elect
rebalancing, we will automatically transfer your Contract Value back to the
specified percentages at the frequency (monthly, quarterly, semiannually,
annually) that you specify. You may not include the Fixed Account in a portfolio
rebalancing program. You also may not elect rebalancing after annuitization.
During the Annuity Period, you may not make any transfers for the first six
months after the Annuity Date. Thereafter, you may make transfers among the
Subaccounts or from the Subaccounts to increase your Fixed Annuity payments.
Your transfers, however, must be at least six months apart. You may not,
however, convert any portion of your right to receive Fixed Annuity payments
into Variable Annuity payments.
FREE-LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or after whatever longer period may be permitted by
state law. You may return it by delivering it or mailing it to us. If you return
the Contract, the Contract terminates and, in most states, we will pay you an
amount equal to the Contract Value on the date we receive the Contract from you.
The Contract Value may be more or less than your Purchase Payments. In some
states, we are required to send you the amount of your Purchase Payments. Since
state laws differ as to the consequences of returning a Contract, you should
refer to your Contract for specific information about your circumstances.
11. WHO CAN I CONTACT FOR MORE INFORMATION?
You can write to us at Lincoln Benefit Life Company, P.O. Box 82532, Lincoln,
Nebraska 68501-2532, or call us at (800) 865-5237.
9
<PAGE>
FEE TABLES
CONTRACT OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge -- Withdrawal Charge
(as a percentage of Purchase Payments)
<TABLE>
<CAPTION>
CONTRIBUTION APPLICABLE CONTRIBUTION APPLICABLE
YEAR CHARGE YEAR CHARGE
- ------------ ---------- ------------ ----------
<S> <C> <C> <C>
1-2 7% 6 4%
3-4 6% 7 3%
5 5% 8+ 0
</TABLE>
<TABLE>
<S> <C>
ANNUAL CONTRACT MAINTENANCE CHARGE........................................... $ 35.00
TRANSFER FEE (Applies solely to the second and
subsequent transfers within a calendar month.
We are currently waiving the transfer fee).................................. $ 10.00
SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF
DAILY NET ASSET VALUE DEDUCTED FROM EACH OF THE
SUBACCOUNTS OF THE SEPARATE ACCOUNT)
Mortality and Expense Risk Charge*................................... 1.15%
Administrative Expense Charge........................................ 0.10%
---------
Total Separate Account Annual Expenses............................... 1.25%
</TABLE>
- ------------------------
* If you select the Enhanced Death Benefit Rider, the Mortality and Expense Risk
Charge will be equal to 1.35% of your Contract's average daily net assets in
the Separate Account. If you select the Enhanced Death and Income Benefit
Rider, the Mortality and Expense Risk Charge will be equal to 1.55% of your
Contract's average daily net assets in the Separate Account.
PORTFOLIO COMPANY ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
AGGRESSIVE WORLDWIDE
JANUS ASPEN SERIES FLEXIBLE INCOME BALANCED(1) GROWTH(1) GROWTH(1) GROWTH(1)
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 0.65% 0.76% 0.73% 0.66% 0.65%
Other: 0.10% 0.07% 0.03% 0.08% 0.05%
Total: 0.75% 0.83% 0.76% 0.74% 0.70%
<CAPTION>
U.S. GOVERNMENT
SECURITIES HIGH INCOME
FEDERATED INSURANCE MANAGEMENT SERIES UTILITY II(2) II(2) BOND II(2)
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 0.48% 0.15% 0.51%
Other: 0.37% 0.65% 0.29%
Total: 0.85% 0.80% 0.80%
<CAPTION>
FIDELITY VARIABLE INSURANCE PRODUCTS MONEY EQUITY-
FUND MARKET INCOME(3) GROWTH(3) OVERSEAS(3)
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 0.21% 0.50% 0.60% 0.75%
Other: 0.10% 0.08% 0.09% 0.17%
Total: 0.31% 0.58% 0.69% 0.92%
<CAPTION>
FIDELITY VARIABLE INSURANCE PRODUCTS ASSET
FUND II MANAGER(3) CONTRAFUND(3) INDEX 500
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 0.55% 0.60% 0.24%
Other: 0.10% 0.11% 0.04%
Total: 0.65% 0.71% 0.28%
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
INCOME AND SMALL LEVERAGED
THE ALGER AMERICAN FUND GROWTH CAPITALIZATION GROWTH MIDCAP GROWTH ALLCAP(4)
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 0.625% 0.85% 0.75% 0.80% 0.85%
Other: 0.115% 0.04% 0.04% 0.04% 0.15%
Total: 0.740% 0.89% 0.79% 0.84% 1.00%
<CAPTION>
GROWTH AND GLOBAL
SCUDDER VARIABLE LIFE INVESTMENT FUND BOND BALANCED INCOME DISCOVERY INTERNATIONAL
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 0.48% 0.48% 0.48% 0.67% 0.83%
Other: 0.14% 0.09% 0.10% 0.83% 0.17%
Total: 0.62% 0.57% 0.58% 1.50% 1.00%
<CAPTION>
STRONG VARIABLE INSURANCE FUNDS, INC. DISCOVERY II OPPORTUNITY II GROWTH II
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 1.00% 1.00% 1.00%
Other: 0.18% 0.15% 0.20%
Total: 1.18% 1.15% 1.20%
<CAPTION>
INTERNATIONAL
T. ROWE PRICE INTERNATIONAL SERIES, INC. STOCK
---------------
<S> <C> <C> <C> <C> <C>
Management: 1.05%
Other: 0.00%
Total: 1.05%
<CAPTION>
NEW AMERICA
T. ROWE PRICE EQUITY SERIES, INC. GROWTH MID-CAP GROWTH EQUITY INCOME
--------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 0.85% 0.85% 0.85%
Other: 0.00% 0.00% 0.00%
Total: 0.85% 0.85% 0.85%
<CAPTION>
GROWTH WITH NEW
MFS VARIABLE INSURANCE TRUST INCOME(5) RESEARCH EMERGING GROWTH TOTAL RETURN(5) DISCOVERY(5)
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Management: 0.75% 0.75% 0.75% 0.75% 0.90%
Other: 0.25% 0.17% 0.15% 0.25% 0.25%
Total: 1.00% 0.92% 0.90% 1.00% 1.15%
</TABLE>
- --------------------------
(1) The expense figures shown are net of certain waivers or fee reductions from
Janus Capital Corporation. Without such waivers or reductions, Management
Fees, Other Expenses, and Total Portfolio Annual Expenses for the Portfolios
for the fiscal year ended December 31, 1997, would have been 0.77%, 0.06%,
and 0.83%, respectively, for Balanced Portfolio, 0.74%, 0.04%, and 0.78%,
respectively, for Aggressive Growth Portfolio; 0.74%, 0.04%, and 0.78%
respectively, for Growth Portfolio; and 0.72%, 0.09%, and 0.81%,
respectively, for Worldwide Growth Portfolio.
(2) The expense figures shown reflect the voluntary waiver of all or a portion
of the Management Fee. The maximum Management Fees for the indicated
Portfolios and the Total Portfolio Expenses absent the voluntary waiver are
as follows: 0.75% and 1.12%, respectively, for the Utility Fund II; 0.06%
and 1.25%, respectively, for the U.S. Government Securities II; and 0.60%
and 0.89%, respectively, for the High Income Bond Fund II. The expense
figures for U.S. Government Securities II are also net of expense
reimbursements from the investment adviser.
(3) A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. Without this reduction, total operating expenses would have
been for Equity Income -- 0.57%, for Growth -- 0.67%, for Overseas -- 0.90%,
for Asset Manager -- 0.64%, and for Contrafund -- 0.68%.
(4) Included in the Other Expenses of this Portfolio is 0.04% of interest
expense.
(5) Each Portfolio has an expense offset arrangement with its custodian and
dividend agent. Without this arrangement, Other Expenses would have been for
Growth with Income -- 0.35%, for Total Return -- 0.27%, and for New
Discovery -- 0.47% (estimate).
11
<PAGE>
EXAMPLES
IF YOU SURRENDER YOUR CONTRACT AT THE END OF THE APPLICABLE TIME PERIOD, YOU
WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING 5% ANNUAL
RETURN ON ASSETS.
<TABLE>
<CAPTION>
JANUS JANUS JANUS FEDERATED FIDELITY
FLEXIBLE JANUS JANUS AGGRESSIVE WORLDWIDE FEDERATED U.S. GOV'T. FEDERATED HIGH MONEY
INCOME BALANCED GROWTH GROWTH GROWTH UTILITY II SECURITIES II INCOME BOND II MARKET
------------- ------------- -------- ---------- ---------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 87 $ 87 $ 86 $ 87 $ 86 $ 88 $ 87 $ 87 $ 82
3 years $ 126 $ 128 $ 124 $ 126 $ 126 $ 129 $ 127 $ 127 $ 113
<CAPTION>
FIDELITY
FIDELITY FIDELITY FIDELITY FIDELITY ASSET FIDELITY ALGER INCOME ALGER SMALL ALGER
EQUITY-INCOME GROWTH OVERSEAS CONTRAFUND MANAGER INDEX 500 AND GROWTH CAPITALIZATION GROWTH
------------- ------------- -------- ---------- ---------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 85 $ 86 $ 88 $ 86 $ 86 $ 82 $ 86 $ 88 $ 87
3 years $ 121 $ 124 $ 131 $ 125 $ 123 $ 112 $ 126 $ 130 $ 127
<CAPTION>
ALGER SCUDDER SCUDDER STRONG
ALGER MIDCAP LEVERAGED SCUDDER SCUDDER GROWTH AND GLOBAL SCUDDER STRONG OPPORTUNITY
GROWTH ALLCAP BOND BALANCED INCOME DISCOVERY INTERNATIONAL DISCOVERY II II
------------- ------------- -------- ---------- ---------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 87 $ 89 $ 85 $ 85 $ 85 $ 94 $ 89 $ 91 $ 90
3 years $ 128 $ 133 $ 122 $ 121 $ 121 $ 147 $ 133 $ 138 $ 137
<CAPTION>
T. ROWE
PRICE T. ROWE T. ROWE
T. ROWE PRICE NEW PRICE PRICE MFS GROWTH
STRONG GROWTH INTERNATIONAL AMERICA MID-CAP EQUITY WITH MFS EMERGING MFS TOTAL
II STOCK GROWTH GROWTH INCOME INCOME MFS RESEARCH GROWTH RETURN
------------- ------------- -------- ---------- ---------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 91 $ 89 $ 88 $ 88 $ 88 $ 89 $ 88 $ 88 $ 89
3 years $ 139 $ 134 $ 129 $ 129 $ 129 $ 133 $ 131 $ 130 $ 130
</TABLE>
<TABLE>
<CAPTION>
MFS NEW DISCOVERY
-----------------
<S> <C>
1 year $ 90
3 years $ 137
</TABLE>
IF YOU ANNUITIZE OR IF YOU DO NOT SURRENDER YOUR CONTRACT AT THE END OF THE
APPLICABLE TIME PERIOD, YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000
INVESTMENT, ASSUMING 5% ANNUAL RETURN ON ASSETS.
<TABLE>
<CAPTION>
JANUS JANUS JANUS FEDERATED FIDELITY
FLEXIBLE JANUS JANUS AGGRESSIVE WORLDWIDE FEDERATED U.S. GOV'T. FEDERATED HIGH MONEY
INCOME BALANCED GROWTH GROWTH GROWTH UTILITY II SECURITIES II INCOME BOND II MARKET
------------- ------------- -------- ---------- ---------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 21 $ 22 $ 21 $ 22 $ 21 $ 22 $ 22 $ 22 $ 17
3 years $ 66 $ 69 $ 65 $ 67 $ 66 $ 69 $ 68 $ 68 $ 53
<CAPTION>
FIDELITY
FIDELITY FIDELITY FIDELITY FIDELITY ASSET FIDELITY ALGER INCOME ALGER SMALL ALGER
EQUITY-INCOME GROWTH OVERSEAS CONTRAFUND MANAGER INDEX 500 AND GROWTH CAPITALIZATION GROWTH
------------- ------------- -------- ---------- ---------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 20 $ 21 $ 23 $ 21 $ 20 $ 17 $ 21 $ 23 $ 22
3 years $ 61 $ 64 $ 71 $ 65 $ 63 $ 52 $ 66 $ 71 $ 67
<CAPTION>
ALGER SCUDDER SCUDDER STRONG
ALGER MIDCAP LEVERAGED SCUDDER SCUDDER GROWTH AND GLOBAL SCUDDER STRONG OPPORTUNITY
GROWTH ALLCAP BOND BALANCED INCOME DISCOVERY INTERNATIONAL DISCOVERY II II
------------- ------------- -------- ---------- ---------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 22 $ 24 $ 20 $ 20 $ 20 $ 29 $ 24 $ 26 $ 25
3 years $ 69 $ 74 $ 62 $ 61 $ 61 $ 89 $ 74 $ 79 $ 78
<CAPTION>
T. ROWE
PRICE T. ROWE T. ROWE
T. ROWE PRICE NEW PRICE PRICE MFS GROWTH
STRONG GROWTH INTERNATIONAL AMERICA MID-CAP EQUITY WITH MFS EMERGING MFS TOTAL
II STOCK GROWTH GROWTH INCOME INCOME MFS RESEARCH GROWTH RETURN
------------- ------------- -------- ---------- ---------- ---------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 26 $ 24 $ 22 $ 22 $ 22 $ 24 $ 23 $ 23 $ 24
3 years $ 80 $ 75 $ 69 $ 69 $ 69 $ 74 $ 71 $ 71 $ 74
</TABLE>
<TABLE>
<CAPTION>
MFS NEW DISCOVERY
-----------------
<S> <C>
1 year $ 25
3 years $ 78
</TABLE>
* We will not charge a Withdrawal Charge on Annuitization if you select a
Payment Option that provides payments over at least five years or over the
Annuitant's lifetime.
12
<PAGE>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. We have included the table and examples shown above to assist you in
understanding the costs and expenses that you will bear directly or indirectly
by investing in the Separate Account. The table reflects expenses of the
Separate Account as well as the Portfolios. For additional information, you
should read "Contract Charges," which begins on page 29 below; you should also
read the sections relating to expenses of the Portfolios in their prospectuses.
The examples do not include any taxes or tax penalties you may be required to
pay if you surrender your Contract.
2. The examples assume that you did not make any transfers. We are currently
waiving the transfer fee, but in the future, we may decide to charge $10 for the
second and each subsequent transfer within a calendar month. Premium taxes are
not reflected. Currently, we deduct premium taxes (which range from 0% to 3.5%)
from Contract Value upon full surrender, death or annuitization.
3. To reflect the contract maintenance charge in the examples, we estimated an
equivalent percentage charge, which we calculated by dividing the total amount
of contract maintenance charges expected to be collected during a year by the
total estimated average net assets of the Subaccounts and the Fixed Account
attributable to the Contracts.
4. The examples reflect any Free Withdrawal Amounts.
NEITHER THE FEE TABLES NOR THE EXAMPLES SHOULD BE CONSIDERED REPRESENTATIONS OF
PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. SIMILARLY, THE ANNUAL RATE OF RETURN OF 5% ASSUMED IN THE EXAMPLE IS NOT
AN ESTIMATE OR GUARANTEE OF FUTURE INVESTMENT PERFORMANCE.
CONDENSED FINANCIAL INFORMATION
We have included the financial statements of the Separate Account in the
Statement of Additional Information. These financial statements do not reflect
any assets attributable to the Contracts, because we did not sell the Contracts
during the period covered by these financial statements. The Statement of
Additional Information also includes a brief explanation of how performance of
the Subaccounts is calculated.
DESCRIPTION OF THE CONTRACTS
SUMMARY. The Contract is a deferred annuity contract designed to aid you in
long-term financial planning. You may add to the Contract Value by making
additional Purchase Payments. In addition, the Contract Value will change to
reflect the performance of the Subaccounts to which you allocate your Purchase
Payments and your Contract Value, as well as to reflect interest credited to
amounts allocated to the Fixed Account. You may withdraw your Contract Value by
making a partial withdrawal or by surrendering your Contract. Upon
Annuitization, we will pay you benefits under the Contract in the form of an
annuity, either for the life of the Annuitant or for a fixed number of years.
All of these features are described in more detail below.
CONTRACT OWNER. As the Contract Owner, you are the person usually entitled to
exercise all rights of ownership under the Contract. You usually are also the
person entitled to receive benefits under the Contract or to choose someone else
to receive benefits. If your Contract was issued under a Qualified Plan,
however, the Plan may limit or modify your rights and privileges under the
Contract and may limit your right to choose someone else to receive benefits. We
will not issue a Contract to a purchaser who has attained age 90, or where the
Annuitant has attained age 90.
ANNUITANT. The Annuitant is the living person whose life span is used to
determine annuity payments. You initially designate an Annuitant in your
application. You may change the Annuitant at any time before annuity payments
begin. If your Contract was issued under a plan qualified under Section 403(b),
408 or 408A of the Tax Code, you must be the Annuitant. You may also designate a
Co-Annuitant, who is a second person on whose life annuity payments depend.
Additional restrictions may apply in the case of Qualified Plans. If you are not
the Annuitant and the Annuitant dies before annuity payments begin, then either
you become the new Annuitant or you must name another person as the new
Annuitant. You must attest that the Annuitant is alive in order to annuitize
your Contract.
MODIFICATION OF THE CONTRACT. Only a Lincoln Benefit officer may approve a
change in or waive any provision of the Contract. Any change or waiver must be
in writing. None of our agents has the authority to change or waive the
provisions of the Contract.
We are permitted to change the terms of the Contract if it is necessary to
comply with changes in the law. If a provision of the Contract is inconsistent
with state law, we will follow state law.
ASSIGNMENT. Before the Annuity Date, if the Annuitant is still alive, you may
assign a Contract issued under a Non-Qualified Plan that is not subject to Title
1 of the Employee Retirement Income Security Act of 1974 ("ERISA"). If a
Contract is issued pursuant to a Qualified Plan or a Non-Qualified Plan that is
subject to Title 1 of ERISA, the law prohibits some types of assignments,
pledges and transfers and imposes special conditions on others. An assignment
may also result in taxes or tax penalties.
We will not be bound by any assignment until we receive written notice of it.
Accordingly, until we receive written
13
<PAGE>
notice of an assignment, we will continue to act as though the assignment had
not occurred. We are not responsible for the validity of any assignment.
BECAUSE OF THE POTENTIAL TAX CONSEQUENCES AND ERISA ISSUES ARISING FROM AN
ASSIGNMENT, YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR
CONTRACT.
FREE LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or within whatever longer period may be permitted by
state law. You may return it by delivering it to your agent or mailing it to us.
If you return the Contract, the Contract terminates and, in most states, we will
pay you an amount equal to the Contract Value on the date we receive the
Contract from you. The Contract Value at that time may be more or less than your
Purchase Payments.
In some states, if you exercise your "free look" rights, we are required to
return the amount of your Purchase Payments. Currently, if you live in one of
those states,on the Issue Date we will allocate your Purchase Payment to the
Subaccounts and the Fixed Account Options as you specified in your application.
However, we reserve the right in the future to delay allocating your Purchase
Payments to the Subaccounts you have selected or to the Fixed Account until 20
days after the Issue Date or, if your state's free look period is longer than
ten days, for ten days plus the period required by state law. During that time,
we will allocate your Purchase Payment to the Fidelity Money Market Subaccount.
Your Contract will contain specific information about your free-look rights in
your state.
PURCHASES AND CONTRACT VALUE
MINIMUM PURCHASE PAYMENT. The minimum initial Purchase Payment for a Contract is
$1,200. You may pay it in a lump sum or in installments of your choice over the
first Contract Year. You may not pay more than $1 million in Purchase Payments
without our prior approval. As a general rule, subsequent Purchase Payments may
be made in amounts of $100 or more. Subsequent Purchase Payments made as part of
an Automatic Payment Plan, however, may be as small as $25 per month. We may
lower these minimums if we choose. We may refuse any Purchase Payment at any
time.
AUTOMATIC PAYMENT PLAN. You may make scheduled Purchase Payments of $25 or more
per month by automatic payment through your bank account. Call or write us for
an enrollment form.
ALLOCATION OF PURCHASE PAYMENTS. Your Purchase Payments are allocated to the
Subaccount(s) and the Fixed Account in the proportions that you have selected.
You must specify your allocation in your Contract application, either as
percentages or specific dollar amounts. If you make your allocation in
percentages, the total must equal 100%. We will allocate your subsequent
Purchase Payments in those percentages, until you give us new allocation
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
You initially may allocate your Purchase Payments to up to twenty-one options,
counting each Subaccount and the Fixed Account as one option. For this purpose,
we will treat all of your allocations to the Fixed Account as one option, even
if you choose more than one Guarantee Period. You may add or delete Subaccounts
and/or the Fixed Account from your allocation instructions, but we will not
execute instructions that would cause you to have Contract Value in more than
twenty-one options. In the future, we may waive this limit.
If your application is complete, we will issue your Contract within two business
days of its receipt at our P.O. Box shown on the first page of this prospectus.
If your application for a Contract is incomplete, we will notify you and seek to
complete the application within five business days. For example, if you do not
fill in allocation percentages, we will contact you to obtain the missing
percentages. If we cannot complete your application within five business days
after we receive it, we will return your application and your Purchase Payment,
unless you expressly permit us to take a longer time.
Usually, we will allocate your initial Purchase Payment to the Subaccounts and
the Fixed Account, as you have instructed us, on the Issue Date. We will
allocate your subsequent Purchase Payments on the date that we receive them at
the next computed Accumulation Unit Value.
In some states, however, we are required to return at least your Purchase
Payment if you cancel your Contract during the "free-look" period. In those
states, we currently will allocate your Purchase Payments on the Issue Date as
you have instructed us, as described above. In the future, however, we reserve
the right, if you live in one of those states, to allocate all Purchase Payments
received during the "free-look period" to the Fidelity Money Market Subaccount.
If we exercise that right and your state's free look period is ten days, we will
transfer your Purchase Payments to your specified Subaccounts or the Fixed
Account 20 days after the Issue Date; if your state's free look period is
longer, we will transfer your Purchase Payment after ten days plus the period
required by state law have passed.
We determine the number of Accumulation Units in each Subaccount to allocate to
your Contract by dividing that portion of your Purchase Payment allocated to a
Subaccount by that Subaccount's Accumulation Unit Value on the Valuation Date
when the allocation occurs.
14
<PAGE>
CONTRACT VALUE. We will establish an account for you and will maintain your
account during the Accumulation Period. The total value of your Contract at any
time is equal to the sum of the value of your Accumulation Units in the
Subaccounts you have selected, plus the value of your interest in the Fixed
Account.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE. As a general matter, the Accumulation
Unit Value for each Subaccount will rise or fall to reflect changes in the share
price of the Portfolio in which the Subaccount invests. In addition, we subtract
from Accumulation Unit Value amounts reflecting the mortality and expense risk
charge, administrative expense charge, and any provision for taxes that have
accrued since we last calculated the Accumulation Unit Value. We determine
Withdrawal Charges, transfer fees and contract maintenance charges separately
for each Contract. They do not affect Accumulation Unit Value. Instead, we
obtain payment of those charges and fees by redeeming Accumulation Units.
We determine a separate Accumulation Unit Value for each Subaccount. We also
determine a separate set of Accumulation Unit Values reflecting the cost of the
enhanced benefit riders described on page 26 below. If we elect or are required
to assess a charge for taxes, we may calculate a separate Accumulation Unit
Value for Contracts issued in connection with Non-Qualified and Qualified Plans,
respectively, within each Subaccount. We will determine the Accumulation Unit
Value for each Subaccount Monday through Friday on each day that the New York
Stock Exchange is open for business.
You should refer to the prospectuses for the Portfolios which accompany this
prospectus for a description of how the assets of each Portfolio are valued,
since that determination has a direct bearing on the Accumulation Unit Value of
the corresponding Subaccount and, therefore, your Contract Value.
TRANSFER DURING ACCUMULATION PERIOD. During the Accumulation Period, you may
transfer Contract Value among the Fixed Account and the Subaccounts in writing
or by telephone. Currently, there is no minimum transfer amount. The Contract
permits us to set a minimum transfer amount in the future. You may not make a
transfer that would result in your allocating your Contract Value to more than
twenty-one options under the Contract at one time.
As a general rule, we only make transfers on days when we and the NYSE are open
for business. If we receive your request on one of those days, we will make the
transfer that day. Otherwise, we will make the transfer on the first subsequent
day on which we and the NYSE are open.
If you transfer an amount from the Fixed Account to a Subaccount before the end
of the applicable Guarantee Period or you allocate an amount in the Fixed
Account to a new Guarantee Period before the end of the existing Guarantee
Period, we usually will increase or decrease the amount by a Market Value
Adjustment. The calculation of the Market Value Adjustment is described in
"Market Value Adjustment" on page 22 below. The following types of transfers are
not subject to a Market Value Adjustment:
- - transfers within 30 days after the end of the applicable Guarantee Period;
and
- - transfers that are part of a dollar cost averaging program.
The Contract permits us to defer transfers from the Fixed Account for up to six
months from the date you ask us.
You may not transfer Contract Value into the Dollar Cost Averaging Fixed Account
Option. You may not transfer Contract Value out of the Dollar Cost Averaging
Fixed Account Option except as part of a Dollar Cost Averaging program.
TRANSFERS AUTHORIZED BY TELEPHONE. You may make transfers by telephone, if you
first send us a completed authorization form. The cut off time for telephone
transfer requests is 4:00 p.m. Eastern time. Calls completed before 4:00 p.m.
will be effected on that day at that day's price. Calls completed after 4:00
p.m. will be effected on the next day on which we and the NYSE are open for
business, at that day's price.
We may charge you the transfer fee described on page 30 below, although we
currently are waiving it. In addition, we may suspend, modify or terminate the
telephone transfer privilege at any time without notice.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM. Under our Automatic Dollar Cost
Averaging program, you may authorize us to transfer a fixed dollar amount at
fixed intervals from the Dollar Cost Averaging Fixed Account Option or a
Subaccount of your choosing to up to eight options, including other Subaccounts
or the Guaranteed Maturity Fixed Account Option. The interval between transfers
may be monthly, quarterly, or annually, at your option. The transfers will be
made at the Accumulation Unit Value on the date of the transfer. The transfers
will continue until you instruct us otherwise, or until your chosen source of
transfer payments is exhausted. Currently, the minimum transfer amount is $100
per transfer. However, if you wish to Dollar Cost Average to a Guaranteed
Maturity Fixed Account Option, the minimum amount that must be transferred into
any one Option is $500. We may change this minimum or grant exceptions. If you
elect this program, the first transfer will occur one interval after your Issue
Date. You may not use
15
<PAGE>
the Dollar Cost Averaging program to transfer amounts from the Guaranteed
Maturity Fixed Account Option.
Your request to participate in this program will be effective when we receive
your completed application at the P.O. Box given on the first page of this
prospectus. Call or write us for a copy of the application. You may elect to
increase, decrease or change the frequency or amount of transfers under a Dollar
Cost Averaging program. We do not apply a Market Value Adjustment to transfers
made as part of a Dollar Cost Averaging program.
The theory of dollar cost averaging is that you will purchase greater numbers of
units when the unit prices are relatively low rather than when the prices are
higher. As a result, when purchases are made at fluctuating prices, the average
cost per unit is less than the average of the unit prices on the purchase dates.
However, participation in this program does not assure you of a greater profit
from your purchases under the program; nor will it prevent or necessarily reduce
losses in a declining market. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time.
PORTFOLIO REBALANCING. Portfolio Rebalancing allows you to maintain the
percentage of your Contract Value allocated to each Subaccount at a pre-set
level. For example, you could specify that 30% of your Contract Value should be
in the Balanced Portfolio, 40% in the Growth Portfolio-Janus Aspen Series and
30% in Federated High Income Bond Fund II. Over time, the variations in each
Subaccount's investment results will shift the balance of your Contract Value
allocations. Under the Portfolio Rebalancing feature, each period, if the
allocations change from your desired percentages, we will automatically transfer
your Contract Value, including new Purchase Payments (unless you specify
otherwise), back to the percentages you specify. Portfolio Rebalancing is
consistent with maintaining your allocation of investments among market
segments, although it is accomplished by reducing your Contract Value allocated
to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually until your Annuity Date. Portfolio Rebalancing is not available after
you annuitize. We will not charge a transfer fee for Portfolio Rebalancing. No
more than eight Subaccounts can be included in a Portfolio Rebalancing program
at one time. You may not include the Fixed Account in a Portfolio Rebalancing
program.
You may request Portfolio Rebalancing at any time before your Annuity Date by
submitting a completed written request to us at the P.O. Box given on the first
page of this prospectus. Please call or write us for a copy of the request form.
If you stop Portfolio Rebalancing, you must wait 30 days to begin again. In your
request, you may specify a date for your first rebalancing. If you specify a
date fewer than 30 days after your Issue Date, your first rebalance will be
delayed one month. If you request Portfolio Rebalancing in your Contract
application and do not specify a date for your first rebalancing, your first
rebalance will occur one period after the Issue Date. For example, if you
specify quarterly rebalancing, your first rebalance will occur three months
after your Issue Date. Otherwise, your first rebalancing will occur one period
after we receive your completed request form. All subsequent rebalancing will
occur at the intervals you have specified on the day of the month that coincides
with the same day of the month as your Contract Anniversary Date.
Generally, you may change the allocation percentages, frequency, or choice of
Subaccounts at any time. If your total Contract Value subject to rebalancing
falls below any minimum value that we may establish, we may prohibit or limit
your use of Portfolio Rebalancing. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time. We may change, terminate, limit, or
suspend Portfolio Rebalancing at any time.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
SEPARATE ACCOUNT INVESTMENTS
THE PORTFOLIOS. Each of the Subaccounts of the Separate Account invests in the
shares of one of the Portfolios. Each Portfolio is either an open-end management
investment company registered under the Investment Company Act of 1940 or a
separate investment series of an open-end management investment company. We have
briefly described the Portfolios below. You should consult the current
prospectuses for the Portfolios for more detailed and complete information
concerning the Portfolios. If you do not have a prospectus for a Portfolio,
contact us and we will send you a copy. Appendix A contains a description of how
advertised performance data for the Subaccounts are computed.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Subaccounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Subaccounts invest. You bear the investment risk that
those Portfolios possibly will not meet their investment objectives. You should
carefully review their prospectuses before allocating amounts to the Subaccounts
of the Separate Account.
JANUS ASPEN SERIES (investment adviser: Janus Capital Corporation)
FLEXIBLE INCOME PORTFOLIO seeks to maximize total return from a combination of
current income and capital appreciation, with an emphasis on current income.
This Portfolio invests in all types of income-producing securities. This
Portfolio may have substantial holdings of debt securities rated below
investment grade. Investments in such securities present special risks; you are
urged to carefully read the risk disclosure in the accompanying Prospectus for
the Portfolio before allocating amounts to the Janus Flexible Income Subaccount.
BALANCED PORTFOLIO seeks long term growth of capital balanced by current income.
This Portfolio normally invests 40-60% of
16
<PAGE>
its assets in securities selected primarily for their growth potential and
40-60% of its assets in securities selected primarily for their income
potential.
GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily in a
diversified portfolio of common stocks of a large number of issuers of any size.
Generally, this Portfolio emphasizes issuers with larger market capitalizations.
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. It is a
non-diversified fund. It normally invests at least 50% of its equity assets in
securities issued by medium-sized companies, which are companies whose market
capitalizations at the time of purchase by the Portfolio fall within the same
range as companies in the S&P MidCap 400 Index. This range is expected to change
on a regular basis. This Portfolio may invest its remaining assets in smaller or
larger issuers.
WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of any
size. This Portfolio normally invests in issuers from at least five different
countries including the United States.
FEDERATED INSURANCE MANAGEMENT SERIES (investment adviser: Federated Advisers)
FEDERATED UTILITY FUND II'S investment objective is to achieve high current
income and moderate capital appreciation. The Portfolio invests primarily in
equity and debt securities of utility companies that produce, transmit, or
distribute gas and electric energy, as well as those companies that provide
communications facilities, such as telephone and telegraph companies.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II'S investment objective is to
provide current income. The Portfolio invests in direct obligations of the U.S.
Government or its agencies or instrumentalities, and securities guaranteed by
the U.S. Government, its agencies, or instrumentalities. This Portfolio may also
invest in certain collateralized mortgage obligations and repurchase agreements.
FEDERATED HIGH INCOME BOND FUND II'S investment objective is to seek high
current income. This Portfolio invests at least 65% of its assets in lower rated
corporate debt obligations, such as preferred stocks, bonds, debentures, notes,
equipment lease certificates and equipment trust certificates. Some of these
fixed income securities may involve equity features. Under normal circumstances,
this Portfolio will not invest more than 10% of the value of its total assets in
equity securities.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (investment adviser: Fidelity
Management & Research Company)
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. This Portfolio will
invest in high quality U.S. dollar-denominated money market securities of
domestic and foreign insurers, including U.S. government securities and
repurchase agreements.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. The goal is to achieve a higher yield than
the composite yield of the S&P 500 Composite Stock Price Index. At least 65% of
this Portfolio's assets will be invested in income-producing common or preferred
stock. The Portfolio, however, has the flexibility to invest the balance in all
types of domestic and foreign securities, including bonds.
GROWTH PORTFOLIO seeks to achieve capital appreciation. This Portfolio usually
purchases common stocks, although its investments are not restricted to any one
type of security.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. At least 65% of this Portfolio's assets will
be invested in securities of issuers outside of the United States. The Portfolio
normally diversifies its investments across countries and regions.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (investment adviser: Fidelity
Management & Research Company)
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced risk over
the long term by allocating its assets among domestic and foreign stocks, bonds,
and short-term money market securities. Usually, this Portfolio's assets will be
allocated within the following guidelines: 30-70% in stocks (equities); 20-60%
in bonds (intermediate to long-term); and 0-50% in short-term instruments.
CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in equity
securities of companies whose value the Portfolio's adviser believes is not
fully recognized by the public. This Portfolio usually invests primarily in
common stock and securities convertible into common stock, but it may invest in
other types of securities.
INDEX 500 PORTFOLIO seeks long-term capital growth through the purchase of a
portfolio of securities that broadly represents the U.S. stock market, as
measured by the S&P 500. By investing to match the return of the S&P 500, the
Portfolio seeks to keep expenses low.
THE ALGER AMERICAN FUND (investment adviser: Fred Alger Management, Inc.)
INCOME AND GROWTH PORTFOLIO seeks primarily to provide a high level of dividend
income. Capital appreciation is a secondary objective of the Portfolio. Except
during temporary defensive periods, the Portfolio attempts to invest 100%, and
it is a fundamental policy of the Portfolio to invest at least 65%, of its total
assets in dividend paying equity securities.
SMALL CAPITALIZATION PORTFOLIO seeks long-term capital appreciation. Except
during temporary defensive periods, the Portfolio invests at least 65% of its
total assets in equity securities of companies that at the time of purchase have
total market
17
<PAGE>
capitalization within the range of companies included in the Russell 2000 Growth
Index or the S&P SmallCap 600 Index. The Portfolio may invest its remaining
assets in larger or smaller issuers.
GROWTH PORTFOLIO seeks long-term capital appreciation. Under normal
circumstances, the Portfolio invests at least 65% of its total assets in equity
securities of companies that have total market capitalization of $1 billion or
greater. The Portfolio may invest up to 35% of its total assets in equity
securities of companies that have total market capitalization of less than $1
billion.
MIDCAP GROWTH PORTFOLIO seeks long-term capital appreciation. Under normal
circumstances, the Portfolio invests at least 65% of its total assets in equity
securities of companies that have total market capitalization within the range
of companies included in the S&P MidCap 400 Index.
LEVERAGED ALLCAP PORTFOLIO seeks long-term capital appreciation. Except during
temporary defensive periods, the Portfolio invests at least 85% of its net
assets in equity securities of companies of any size. The Portfolio may purchase
put and call options and sell (write) covered call and put options on securities
and securities indexes to increase gain and to hedge against the risk of
unfavorable price movements, and may enter into futures contracts on securities
indexes and purchase and sell call and put options on these futures contracts.
The Portfolio may also borrow money for the purchase of additional securities.
SCUDDER VARIABLE LIFE INVESTMENT FUND (investment adviser: Scudder, Kemper
Investments, Inc.) The Scudder Variable Life Investment Fund has two classes of
shares. The Subaccounts invest in Class A shares, which do not impose
distribution fees.
BOND PORTFOLIO seeks high income from a high quality portfolio of debt
securities. Under normal circumstances, this Portfolio invests at least 65% of
its assets in bonds including those of the U.S. Government and its agencies and
those of corporations and other notes and bonds paying high current income. This
Portfolio can invest in a broad range of short, intermediate and long-term
securities.
BALANCED PORTFOLIO seeks a balance of growth and income from a diversified
portfolio of equity and fixed income securities. The Portfolio also seeks
long-term preservation of capital through a quality-oriented investment approach
that is designed to reduce risk. The Portfolio will invest its assets in equity
securities, debt securities with maturities generally exceeding one year, and
money market instruments and other debt securities with maturities generally not
exceeding thirteen months. Not more than 75% of this Portfolio's net assets may
be invested in stocks or other equity investments. Generally, 25%-50% of the
Portfolio's net assets are invested in bonds.
GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital, current income
and growth of income. In pursuing these three objectives, the Portfolio invests
primarily in common stocks, preferred stocks, and securities convertible into
common stocks of companies which offer the prospect for growth of earnings while
paying higher than average current dividends. The Portfolio allocates its
investments among different industries and companies, and changes its portfolio
securities for investments considerations and not for trading purposes.
GLOBAL DISCOVERY PORTFOLIO seeks above-average capital appreciation over the
long term by investing primarily in the equity securities of small companies
located throughout the world. The Portfolio is designed for investors looking
for above-average appreciation potential (when compared with the overall
domestic stock market as reflected by the S&P 500 Stock Composite Price Index)
and the benefits of investing globally, but who are willing to accept
above-average stock market risk, the impact of currency fluctuation, and little
or no current income. The Portfolio generally invests in small, rapidly growing
companies that offer the potential for above-average returns relative to larger
companies, yet are frequently overlooked and thus undervalued by the market.
INTERNATIONAL 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 to have represented in its holdings business activities in not
less than three different countries, excluding the United States. The Portfolio
invests primarily in equity securities of established companies, listed on
foreign exchanges, which the adviser believes have favorable characteristics. It
may also invest in fixed income securities of foreign governments and companies.
STRONG VARIABLE INSURANCE FUNDS, INC. (investment adviser: Strong Capital
Management, Inc.)
DISCOVERY FUND II seeks capital growth. The Portfolio usually emphasizes equity
investments, although it has the flexibility to invest in any security the
adviser believes has the potential for capital appreciation. The Portfolio's
strategy is to invest in a blend of small, mid- and large-cap companies that are
in good businesses, are headed by capable and driven management, and trade at
attractive valuations.
OPPORTUNITY FUND II seeks capital growth. The Portfolio currently emphasizes
medium-sized companies that the adviser believes are under-researched and
attractively valued. To achieve its investment goals, the Portfolio seeks to
find well-managed companies that have sustainable growth prospects but that are
selling at prices below their private market values.
GROWTH FUND II seeks capital growth. The Portfolio invests primarily in equity
securities that the adviser believes have above-average growth prospects and are
selling at reasonable valuations. The Portfolio generally has over half of its
assets in small- and mid-cap issues as these companies tend to have the highest
growth rates.
18
<PAGE>
T. ROWE PRICE INTERNATIONAL SERIES, INC. (investment adviser: Rowe Price-Fleming
International, Inc., a joint venture between, T. Rowe Price & Associates, Inc.
and Robert Fleming Holdings, Ltd.)
INTERNATIONAL STOCK PORTFOLIO seeks long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies. The
Portfolio invests substantially all of its assets outside the United States and
broadly diversifies its investments among countries throughout the
world--developed, newly industrialized and emerging.
T. ROWE PRICE EQUITY SERIES, INC. (investment adviser: T. Rowe Price Associates,
Inc.)
NEW AMERICA GROWTH PORTFOLIO seeks long-term growth of capital through
investment primarily in the common stocks of U.S. growth companies which operate
in service industries. The Portfolio will invest most of its assets in service
companies, regardless of size, that the adviser believes to be above average
performers in their fields. The Portfolio may invest up to 25% of its assets
outside the service sector.
MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital by investing
primarily in the common stocks of companies with medium-sized market
capitalizations and the potential for above-average earnings growth. Most of the
assets will be invested in U.S. common stocks, but the Portfolio also may invest
in other types of securities, such as foreign securities, when consistent with
the Portfolio's investment objective.
EQUITY INCOME PORTFOLIO seeks to provide high current dividend income as well as
long-term capital appreciation by investing primarily in common stocks of
established companies. Under normal circumstances, the Portfolio usually will
invest at least 65% of its assets in common stocks of established companies
paying above-average dividends which are expected to have favorable prospects
for dividend growth and capital appreciation. The Portfolio may also invest in
other securities such as fixed income and convertible securities.
MFS VARIABLE INSURANCE TRUST (investment adviser: Massachusetts Financial
Services)
GROWTH WITH INCOME SERIES seeks reasonable current income, as well as long-term
growth of capital and income. The Portfolio invests in stocks of companies that
the adviser considers to be of high or improving investment quality. The
Portfolio has the flexibility to invest in derivative securities when its
managers believe such securities can provide better value relative to direct
investments in stocks and bonds.
RESEARCH SERIES seeks to provide long-term growth of capital and future income.
The Portfolio invests in the common stocks of companies the adviser believes
possess better-than-average prospects for long-term growth. The Portfolio may
invest up to 20% of its net assets in foreign and emerging market securities.
Investing in foreign and emerging market securities involves special risks and
may increase share price volatility. The Portfolio has the flexibility to invest
in derivative securities when its adviser believes such securities can provide
better value relative to direct investments in stocks and bonds.
EMERGING GROWTH SERIES seeks to provide long-term growth of capital. The
Portfolio invests primarily in common stocks of companies that are early in
their life cycles but which have the potential to become major enterprises. The
Portfolio may also invest in more established companies whose earnings growth
the adviser expects to accelerate because of special factors. Investing in
emerging growth companies involves greater risk than is customarily associated
with more established companies. The Portfolio also may invest up to 25% of its
net assets in foreign and emerging market securities. The Portfolio has the
flexibility to invest in derivative securities when its adviser believes such
securities can provide better value relative to direct investments in stocks or
bonds.
TOTAL RETURN SERIES seeks to provide above-average current income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. The Portfolio also seeks to provide reasonable
opportunity for growth of capital and income. The Portfolio invests in both
equities and fixed income securities. The equity segment is actively managed
with a value-oriented style of investing. The fixed income segment is actively
managed through shifts in maturity, duration, and sector components. The
Portfolio may invest up to 20% of its assets in foreign and emerging market
securities. The Portfolio has the flexibility to invest in derivative securities
when its adviser believes such securities can provide better value relative to
direct investments in stocks or bonds.
NEW DISCOVERY SERIES seeks capital appreciation. This Portfolio seeks to achieve
its objective by investing under normal market conditions at least 65% of its
total assets in companies that its adviser believes offer superior prospects for
growth. Those securities may either be listed on securities exchanges or traded
in the over-the-counter markets and may be U.S. or foreign companies.
Each Portfolio is subject to certain investment restrictions and policies which
may not be changed without the approval of a majority of the shareholders of the
Portfolio. See the accompanying Prospectuses of the Portfolios for further
information.
We automatically reinvest all dividends and capital gains distributions from the
Portfolios in shares of the distributing Portfolio at their net asset value. The
income and realized and unrealized gains or losses on the assets of each
Subaccount are separate and are credited to or charged against the particular
Subaccount without regard to income, gains or losses from any other Subaccount
or from any other part of our business. We will use the net Purchase Payments
you allocate to a Subaccount to purchase shares in the corresponding Portfolio
and will redeem shares in the Portfolios to meet Contract obligations or make
adjustments in
19
<PAGE>
reserves. The Portfolios are required to redeem their shares at net asset value
and to make payment within seven days.
Certain of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Lincoln Benefit will bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Subaccounts to which you have allocated
your Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed. We will also provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of shares for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, before the Annuity Date, you are the person entitled to give
voting instructions. After the Annuity Date, the payee is that person.
Retirement plans, however, may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Contract Owners.
We may, when required by state insurance regulatory authorities, disregard
Contract Owner voting instructions if the instructions require that the shares
be voted so as to cause a change in the sub-classification or investment
objective of one or more of the Portfolios or to approve or disapprove an
investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Contract Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios are no longer available for investment by the Separate Account or
if, in the judgment of our Board of Directors, further investment in the shares
of a Portfolio is no longer appropriate in view of the purposes of the Contract,
we may add or substitute shares of another Portfolio or mutual fund for
Portfolio shares already purchased or to be purchased in the future by Purchase
Payments under the Contract. Any substitution of securities will comply with the
requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the
Separate Account and the Subaccounts:
(a) to operate the Separate Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
(c) to transfer assets from one Subaccount to another, or from any subaccount
to our general account;
(d) to add, combine, or remove Subaccounts in the Separate Account; and
(e) to change the way in which we assess charges, as long as the total charges
do not exceed the maximum amount that may be charged the Separate Account and
the Portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal
requirements.
THE FIXED ACCOUNT
GENERAL. You may allocate part or all of your Purchase Payments to the Fixed
Account in states where it is available. Amounts allocated to the Fixed Account
become part of the general assets of Lincoln Benefit. Allstate Life invests the
assets of the general account in accordance with applicable laws governing the
investments of insurance company general accounts. The Fixed Account may not be
available in all states. Please contact us at 1-800-865-5237 for current
information.
20
<PAGE>
GUARANTEED MATURITY FIXED ACCOUNT OPTION. We will credit interest to each amount
allocated to the Guaranteed Maturity Fixed Account Option at a specified rate
for a specified Guarantee Period. You select the Guarantee Period for each
amount that you allocate to this option. We will declare the interest rate that
we will guarantee to credit to that amount for that Guarantee Period. Each
amount allocated to a Guarantee Period under this option must be at least $500.
We reserve the right to limit the number of additional Purchase Payments that
may be allocated to this option.
We will tell you what interest rates and Guarantee Periods we are offering at a
particular time. We may offer Guarantee Periods ranging from one to ten years in
length. We will decide in our discretion which Guarantee Periods to offer.
Currently, we offer Guarantee Periods of one, three, five, seven and ten years.
In the future we may offer Guarantee Periods of different lengths or stop
offering some Guarantee Periods.
We will credit interest daily to each amount allocated to a Guarantee Period
under this option at a rate which compounds to the effective annual interest
rate that we declared at the beginning of the applicable Guarantee Period. We
will not change the interest rate credited to a particular allocation until the
end of the relevant Guarantee Period. We may declare different interest rates
for Guarantee Periods of the same length that begin at different times.
The following example illustrates how a Purchase Payment allocated to this
option would grow, given an assumed Guarantee Period and effective annual
interest rate:
EXAMPLE
Purchase Payment $10,000
Guarantee Period 5 years
Effective Annual Rate 4.50%
END OF CONTRACT YEAR
<TABLE>
<CAPTION>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Contract Value $10,000.00
X (1 + Effective Annual Rate) X 1.045
---------
$10,450.00
Contract Value at end of Contract Year $10,450.00
X (1 + Effective Annual Rate) X 1.045
---------
$10,920.25
Contract Value at end of Contract Year $10,920.25
X (1 + Effective Annual Rate) X 1.045
---------
$11,411.66
Contract Value at end of Contract Year $11,411.66
X (1 + Effective Annual Rate) X 1.045
---------
$11,925.19
Contract Value at end of Contract Year $11,925.19
X (1 + Effective Annual Rate) X 1.045
---------
$12,461.82
</TABLE>
Total Interest Credited During Guarantee Period = $2,461.82 ($12,461.82 -
$10,000)
NOTE: This example assumes no withdrawals during the entire five year Guarantee
Period. If you were to make a partial withdrawal, you might be required to pay a
Withdrawal Charge and the amount withdrawn might be increased or decreased by a
Market Value Adjustment. The hypothetical interest rate is for illustrative
purposes only and is not intended to predict future interest rates to be
declared under the Contract.
We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
relevant factors such as then current interest rates, regulatory and tax
requirements, our sales commission and administrative expenses, general economic
trends, and competitive factors. For current interest rate information, please
contact us at 1-800-865-5237.
WE WILL DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE
CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE.
At the end of each Guarantee Period, we will mail you a notice asking you what
to do with the relevant amount, including the accrued interest. During the
30-day period after the end of the Guarantee Period, you may:
(1) take no action. If so, we will automatically keep the relevant amount in the
Guaranteed Maturity Fixed Account Option. The new Guarantee Period will be the
same length as the expiring Guarantee Period and will begin on the day the
previous Guarantee Period ends. The new interest rate will be our then current
declared rate for Guarantee Periods of that length; or
21
<PAGE>
(2) allocate the relevant Contract Value to one or more new Guarantee Periods of
your choice in the Guaranteed Maturity Fixed Account Option. The new Guarantee
Period(s) will begin on the day the previous Guarantee Period ends. The new
interest rate will be our then current declared rate for those Guarantee
Periods; or
(3) instruct us to transfer all or a portion of the relevant amount to one or
more Subaccounts. We will effect the transfer on the day we receive your
instructions. We will not adjust the amount transferred to include a Market
Value Adjustment; or
(4) withdraw all or a portion of the relevant amount through a partial
withdrawal. You may be required to pay a Withdrawal Charge, but we will not
adjust the amount withdrawn to include a Market Value Adjustment. The amount
withdrawn will be deemed to have been withdrawn on the day the Guarantee Period
ends.
Under our Automatic Laddering Program, you may choose, in advance, to use
Guarantee Periods of the same length for all renewals in the Guaranteed Maturity
Fixed Account Option. You can select this program at any time during the
Accumulation Period, including on the Issue Date. We will apply renewals to
Guarantee Periods of the selected length until you direct us in writing to stop.
We may stop offering this program at any time. For additional information,
please call us at 1-800-865-5237.
MARKET VALUE ADJUSTMENT. We may increase or decrease the amount of some
transactions involving your interest in the Fixed Account to include a Market
Value Adjustment. The formula for determining Market Value Adjustments reflects
changes in interest rates since the beginning of the relevant Guarantee Period.
As a result, you will bear some of the investment risk on amounts allocated to
the Guaranteed Maturity Fixed Account Option.
As a general rule, we will apply a Market Value Adjustment to the following
transactions involving your Fixed Account balance:
(1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option in
an amount greater than the Free Withdrawal Amount, as described on page 31
below;
(2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to
the Subaccounts;
(3) when you allocate part of your balance in the Guaranteed Maturity Fixed
Account Option to a new Guarantee Period before the end of the existing
Guarantee Period;
(4) when you annuitize your Contract; and
(5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction, to the extent
that: (1) it occurs within 30 days after the end of a Guarantee Period
applicable to the funds involved in the transaction; (2) it is part of Dollar
Cost Averaging program; or (3) you make a withdrawal to satisfy the IRS'
required minimum distribution rules for this Contract.
The formula for calculating Market Value Adjustments is set forth in Appendix B
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment. This formula primarily compares: (1) the
Treasury Rate at the time of the relevant transaction for a maturity equal in
length to the relevant Guarantee Period; and (2) the Treasury Rate at the
beginning of the Guarantee Period for a maturity equal in length to the
Guarantee Period. Generally, if the Treasury Rate at the beginning of the
Guarantee Period is higher than the corresponding current Treasury Rate, then
the Market Value Adjustment will increase the amount payable to you or
transferred. Similarly, if the Treasury Rate at the beginning of the Guarantee
Period is lower than the corresponding current Treasury Rate, then the Market
Value Adjustment will reduce the amount payable to you or transferred.
For example, assume that you purchased a Contract and selected an initial
Guarantee Period of five years and the five-year Treasury Rate for that duration
is 4.50%. Assume that at the end of three years, you make a partial withdrawal.
If, at that later time, the current five-year Treasury Rate is 4.20%, then the
Market Value Adjustment will be positive, which will result in an increase in
the amount payable to you. Similarly, if the current five-year Treasury Rate is
4.80%, then the Market Value Adjustment will be negative, which will result in a
decrease in the amount payable to you.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may also allocate Purchase
Payments to the Dollar Cost Averaging Fixed Account Option. We will credit
interest to Purchase Payments allocated to this option for up to one year at the
current rate that we declare when you make the allocation. The effective annual
rate will never be less than 3%. You may not transfer funds to this option from
the Subaccounts or the Guaranteed Maturity Fixed Account Option. We will follow
your instructions in transferring amounts from this option to the Subaccounts or
the Guaranteed Maturity Fixed Account Option, as described in "Automatic Dollar
Cost Averaging Program" on pages 15-16 of this prospectus. We will not adjust
the amounts transferred by a Market Value Adjustment.
ANNUITY BENEFITS
ANNUITY DATE. You may select the Annuity Date, which is the date on which
annuity payments are to begin, in your application. The Annuity Date must always
be the business day immediately following the tenth day of a calendar month.
22
<PAGE>
The Annuity Date may be no later than the Latest Annuity Date. As a general
rule, the Latest Annuity Date is the later of the 10th Contract Anniversary or
the Annuitant's 90th birthday. If your Contract was issued pursuant to a
Qualified Plan, however, the Tax Code generally requires you to begin to take at
least a minimum distribution by the later of:
- - the year of your separation from service; or
- - April 1 of the calendar year following the calendar year in which you attain
age 70 1/2.
If your Contract is issued pursuant to Section 408 of the Tax Code (traditional
IRAs), you must begin taking minimum distributions by April 1 of the calendar
year following the calendar year in which you reach age 70 1/2. No minimum
distributions are required by the Tax Code for Contracts issued pursuant to
Section 408A (Roth IRAs).
If you are in a Qualified Plan, we may require you to annuitize by the date
required by the Tax Code, unless you show us that you are meeting the minimum
distribution requirements in some other way.
If you do not select an Annuity Date, the Latest Annuity Date will automatically
become the Annuity Date. You may change the Annuity Date by writing to us at the
address given on the first page of the prospectus.
ANNUITY OPTIONS. You may elect an Annuity Option at any time before the Annuity
Date. As part of your election, you may choose the length of the applicable
guaranteed payment period within the limits available for your chosen Option. If
you do not select an Annuity Option, we will pay monthly annuity payments in
accordance with the applicable default Option. The default Options are:
- - Option A with 10 years (120 months) guaranteed, if you have designated only
one Annuitant; and
- - Option B with 10 years (120 months) guaranteed, if you have designated joint
Annuitants.
You may freely change your choice of Annuity Option, as long as you request the
change at least thirty days before the Annuity Date.
Three Annuity Options are generally available under the Contract. Each is
available in the form of:
- - a Fixed Annuity;
- - a Variable Annuity; or
- - a combination of both Fixed and Variable Annuity.
The three Annuity Options are:
OPTION A, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS. We make
periodic payments at least as long as the Annuitant lives. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION B, JOINT AND SURVIVOR ANNUITY, WITH PAYMENTS GUARANTEED FOR 5 TO 20
YEARS. We make periodic payments at least as long as either the Annuitant or the
joint Annuitant is alive. If both the Annuitant and the Joint Annuitant die
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION C, PAYMENTS FOR A SPECIFIED PERIOD CERTAIN OF 5 YEARS TO 30 YEARS. We
make periodic payments for the period you have chosen. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
If you purchased your Contract under a retirement plan, you may have a more
limited selection of Annuity Options to choose from. You should consult your
Plan documents to see what is available.
You may not "annuitize" your Contract for a lump sum payment. Instead, before
the Annuity Date you may surrender your Contract for a lump sum. As described in
pages 21-22 above, however, we will subtract any applicable Withdrawal Charge
and increase or decrease your surrender proceeds by any applicable Market Value
Adjustment.
OTHER OPTIONS. We may have other Annuity Options available. You may obtain
information about them by writing or calling us.
If your Contract is issued under Sections 401, 403(b), 408 or 408A of the Tax
Code, we will only make payments to you and/or your spouse.
ANNUITY PAYMENTS: GENERAL. On the Annuity Date, we will apply the Annuitized
Value of your Contract to the Annuity Option you have chosen. Your annuity
payments may consist of Variable Annuity payments or Fixed Annuity payments or a
combination of the two. We will determine the amount of your annuity payments as
described in "Variable Annuity Payments" and "Fixed Annuity Payments" on page 24
below.
You must notify us in writing at least 30 days before the Annuity Date how you
wish to allocate your Annuitized Value between Variable Annuity and Fixed
Annuity payments. You must apply at least the Contract Value in the Fixed
Account on the Annuity Date to Fixed Annuity payments. If you wish to apply any
portion of your Fixed Account balance to your Variable Annuity payments, you
should plan ahead and transfer that amount to the Subaccounts prior to the
Annuity Date.
Annuity payments begin on the Annuity Date. We make subsequent annuity payments
on the tenth of the month or, if the NYSE is closed on that day, the next day on
which the NYSE is open for business.
Annuity payments will be made in monthly, quarterly, semi-annual or annual
installments as you select. If the amount available to apply under an Annuity
Option is less than $5,000, however, and state law permits, we may pay you a
lump sum instead of the periodic payments you have chosen.
23
<PAGE>
In addition, if the first annuity payment would be less than $50, and state law
permits us, we may reduce the frequency of payments so that the initial payment
will be at least $50.
We may defer for up to 15 days the payment of any amount attributable to a
Purchase Payment made by check to allow the check reasonable time to clear.
YOU MAY NOT WITHDRAW CONTRACT VALUE DURING THE ANNUITY PERIOD, IF WE ARE MAKING
PAYMENTS TO YOU UNDER ANY ANNUITY OPTION INVOLVING LIFE CONTINGENCIES.
VARIABLE ANNUITY PAYMENTS. One basic objective of the Contract is to provide
Variable Annuity Payments which will to some degree respond to changes in the
economic environment. The amount of your Variable Annuity Payments will depend
upon the investment results of the Subaccounts you have selected, any premium
taxes, the age and sex of the Annuitant, and the Annuity Option chosen. We
guarantee that the Payments will not be affected by (1) actual mortality
experience and (2) the amount of our administration expenses.
We cannot predict the total amount of your Variable Annuity payments. The
Variable Annuity payments may be more or less than your total Purchase Payments
because (a) Variable Annuity payments vary with the investment results of the
underlying Portfolios; and (b) Annuitants may die before their actuarial life
expectancy is achieved.
The length of any guaranteed payment period under your selected Annuity Option
will affect the dollar amounts of each Variable Annuity payment. As a general
rule, longer guarantee periods result in lower periodic payments, all other
things being equal. For example, if a life Annuity Option with no minimum
guaranteed payment period is chosen, the Variable Annuity payments will be
greater than Variable Annuity payments under an Annuity Option for a minimum
specified period and guaranteed thereafter for life.
The investment results of the Subaccounts to which you have allocated your
Contract Value will also affect the amount of your periodic payment. In
calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3 1/2%. If the actual net
investment return is less than the assumed investment rate, then the dollar
amount of the Variable Annuity payments will decrease. The dollar amount of the
Variable Annuity payments will stay level if the net investment return equals
the assumed investment rate and the dollar amount of the Variable Annuity
payments will increase if the net investment return exceeds the assumed
investment rate. You should consult the Statement of Additional Information for
more detailed information as to how we determine Variable Annuity Payments.
FIXED ANNUITY PAYMENTS. You may choose to apply a portion of your Annuitized
Value to provide Fixed Annuity payments. We determine the Fixed Annuity payment
amount by applying the applicable Annuitized Value to the Annuity Option you
have selected.
As a general rule, subsequent Fixed Annuity payments will be equal in amount to
the initial payment. However, as described in "Transfers During the Annuity
Period" below, after the Annuity Date, you will have a limited ability to
increase the amount of your Fixed Annuity payments by making transfers from the
Subaccounts.
We may defer making Fixed Annuity payments for a period of up to six months or
whatever shorter time state law may require. During the deferral period, we
credit interest at a rate at least as high as state law requires.
TRANSFERS DURING THE ANNUITY PERIOD. During the Annuity Period, you will have a
limited ability to make transfers among the Subaccounts so as to change the
relative weighting of the Subaccounts on which your Variable Annuity payments
will be based. In addition, you will have a limited ability to make transfers
from the Subaccounts to increase the proportion of your annuity payments
consisting of Fixed Annuity payments. You may not, however, convert any portion
of your right to receive Fixed Annuity payments into Variable Annuity payments.
You may not make any transfers for the first six months after the Annuity Date.
Thereafter, you may make transfers among the Subaccounts or make transfers from
the Subaccounts to increase your Fixed Annuity payments. Your transfers must be
at least six months apart.
DEATH BENEFIT DURING ANNUITY PERIOD. After annuity payments begin, upon the
death of the Annuitant and any Joint Annuitant, we will make any remaining
annuity payments to the Beneficiary. The amount and number of these annuity
payments will depend on the Annuity Option in effect at the time of the
Annuitant's death. After the Annuitant's death, any remaining interest will be
distributed at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
CERTAIN EMPLOYEE BENEFIT PLANS. In some states, the Contracts offered by this
prospectus contain life annuity tables that provide for different benefit
payments to men and women of the same age. In certain employment-related
situations, however, the U.S. Supreme Court's decision in ARIZONA GOVERNING
COMMITTEE V. NORRIS requires employers to use the same annuity tables for men
and women. Accordingly, if the Contract is to be used in connection with an
employment-related retirement or benefit plan and we do not offer unisex annuity
tables in your state, you should consult with legal counsel as to whether the
purchase of a Contract is appropriate under NORRIS.
OTHER CONTRACT BENEFITS
DEATH BENEFIT. We will pay a distribution on death, if:
(1) the Contract is in force;
24
<PAGE>
(2) annuity payments have not begun; and
(3) either:
(a) you die; or
(b) if the Contract is owned by a company or other legal entity, the
Annuitant dies.
Currently, we will pay a distribution on death equal in amount to the Death
Benefit or Enhanced Death Benefit, as appropriate. Under the Contract, however,
we have the right to pay a distribution equal in amount to the Surrender Value
unless:
(1) the Beneficiary chooses to receive the Death Benefit in a lump sum within
180 days of the date of death; and
(2) the Beneficiary requests that the Death Benefit be paid as of the date we
receive the completed claim for a distribution on death.
We currently are waiving this 180 day limitation, but we may enforce it in the
future. If we do, we will calculate the distribution as of the earlier of the
requested distribution date or the fifth anniversary of the date of death.
We determine the Death Benefit as of the date we receive all of the information
we need to process the Death Benefit claim. The standard Death Benefit under the
Contract is the greatest of the following:
(1) your total Purchase Payments, less a withdrawal adjustment for any prior
partial withdrawals;
(2) your Contract Value;
(3) the amount you would have received by surrendering your Contract; or
(4) your Contract Value on the seventh Contract Anniversary and each subsequent
Contract Anniversary evenly divisible by seven, increased by the total Purchase
Payments since that anniversary and reduced by a withdrawal adjustment for any
partial withdrawals since that anniversary.
The withdrawal adjustment for the Death Benefit will equal (a) divided by (b),
with the result multiplied by (c), where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the value of the applicable Death Benefit immediately before the
withdrawal.
A claim for a distribution on death must be submitted before the Annuity Date.
As part of the claim, the Beneficiary must provide "Due Proof of Death". We will
accept the following documentation as Due Proof of Death:
- - a certified original copy of the Death Certificate;
- - a certified copy of a court decree as to the finding of death; or
- - a written statement of a medical doctor who attended the deceased at the time
of death.
In addition, in our discretion we may accept other types of proof.
If the Beneficiary is a natural person, the Beneficiary may choose from the
following alternative ways of receiving the distribution:
- - the Beneficiary may receive the distribution as a lump sum payment;
- - the Beneficiary may apply the distribution to receive a series of equal
periodic payments over the life of the Beneficiary, over a fixed period no
longer than the Beneficiary's life expectancy, or over the life of the
Beneficiary with payments guaranteed for a period not to exceed the life
expectancy of the Beneficiary (the payments must begin within one year of the
date of death); or
- - if there is only one Beneficiary, he or she may defer payment for up to five
years from the date of death. Any remaining funds must be distributed at the
end of the five-year period. An Annuitant is necessary for this option. If
prior to your death you were the Annuitant, the Beneficiary will become the
new Annuitant.
If your spouse is the Beneficiary, he or she may choose to continue the Contract
as the new Contract Owner. If your spouse chooses to continue the Contract, the
following conditions apply:
(1) On the day the Contract is continued, the Contract Value will be set to
equal the Death Benefit or Enhanced Death Benefit, as appropriate,
calculated as of the date on which we receive all of the information we need
to process the claim for a distribution at death;
(2) Within one year of the date of death, your spouse may withdraw one lump sum
without paying any Withdrawal Charge or incurring any Market Value
Adjustment;
(3) During the continuation period we will pay a distribution on death equal to
the Death Benefit or Enhanced Death Benefit, as appropriate. As described
above, however, under the Contract we reserve the right to pay a
distribution equal in amount to the Surrender Value.
(4) If before your death you were the Annuitant, your surviving spouse becomes
the Annuitant.
(5) If you selected the Enhanced Death Benefit Rider or The Enhanced Death and
Income Benefit Rider, that rider will continue during the continuation
period. Your spouse will be treated as the Contract Owner under the
applicable Rider.
Your surviving spouse may also select one of the options listed above.
25
<PAGE>
If the Beneficiary is a company or other legal entity, then the Beneficiary must
receive the Death Benefit in a lump sum, and the options listed above are not
available.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
ENHANCED DEATH BENEFIT RIDER. When you purchase your Contract, you may select
the Enhanced Death Benefit Rider. If you are not an individual, the Enhanced
Death Benefit applies only to the Annuitant's death. If you select this rider,
the Death Benefit will be the greater of the value provided in your Contract or
the Enhanced Death Benefit. The Enhanced Death Benefit will be the greater of
Enhanced Death Benefit A and Enhanced Death Benefit B. As described below, we
will charge a higher mortality and expense risk charge if you select this Rider.
ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the
initial Purchase Payment. After issue, Enhanced Death Benefit A is adjusted
whenever you pay a Purchase Payment or make a withdrawal and on each Contract
Anniversary as follows:
- - When you pay a Purchase Payment, we will increase Enhanced Death Benefit A by
the amount of the Purchase Payment;
- - When you make a withdrawal, we will decrease Enhanced Death Benefit A by a
withdrawal adjustment, as described below; and
- - On each Contract Anniversary, we will set Enhanced Death Benefit A equal to
the greater of the Contract Value on that Contract Anniversary or the most
recently calculated Death Benefit A.
If you do not pay any additional purchase payments or make any withdrawals,
Enhanced Death Benefit A will equal the highest of the Contract Value on the
Issue Date and all Contract Anniversaries prior to the date we calculate the
Death Benefit.
We will continuously adjust Enhanced Death Benefit A as described above until
the oldest Contract Owner's 85th birthday or, if the Contract Owner is not a
living individual, the Annuitant's 85th birthday. Thereafter, we will adjust
Enhanced Death Benefit A only for Purchase Payments and withdrawals.
ENHANCED DEATH BENEFIT B. Enhanced Death Benefit B is equal to (a) your total
Purchase Payments, (b) reduced by any withdrawal adjustments and (c) accumulated
daily at an effective annual rate of 5% per year, until: (1) the first day of
the month following the oldest Contract owner's 85th birthday or (2) if the
Contract Owner is a company or other legal entity, the Annuitant's 85th
birthday. Thereafter, we will only adjust Enhanced Death Benefit B to reflect
additional Purchase Payments and withdrawals. Enhanced Death Benefit B will
never be greater than the maximum death benefit allowed by any nonforfeiture
laws which govern the Contract.
The withdrawal adjustment for both Enhanced Death Benefit A and Enhanced Death
Benefit B will equal (a) divided by (b), with the result multiplied by (c),
where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the most recently calculated Enhanced Death Benefit A or B, as
appropriate.
ENHANCED DEATH AND INCOME BENEFIT RIDER. You may choose the Enhanced Death and
Income Benefit Rider. This rider provides the same Enhanced Death Benefit as the
Enhanced Death Benefit Rider. In addition, this Rider may enable you to receive
higher annuity payments in certain circumstances. As described below, we will
charge a higher mortality and expense risk charge if you select this Rider.
The Enhanced Income Benefit is equal to the value of the Enhanced Death Benefit
on the Annuity Date. We will not increase or decrease the Enhanced Income
Benefit amount by any Market Value Adjustment. To be eligible for the Enhanced
Income Benefit, you must select an Annuity Date that is on or after the tenth
Contract Anniversary, but before the Annuitant's age 90. If the Enhanced Income
Benefit is greater than the Annuitized Value on the Annuity Date, you may apply
the Enhanced Income Benefit to an Annuity Option that provides for payments
guaranteed for either a single or joint lives with a period certain of (a) at
least 10 years, if the youngest Annuitant's age is 80 or less on the Annuity
Date; or (b) at least 5 years, if the youngest Annuitant's age is greater than
80 on the Annuity Date. If you wish to select a different Annuity Option, you
must apply the Annuitized Value and not the Enhanced Income Benefit.
BENEFICIARY. You name the Beneficiary. You may name a Beneficiary in the
application. You may change the Beneficiary or add additional Beneficiaries at
any time before the Annuity Date. We will provide a form to be signed and filed
with us.
Your changes in Beneficiary take effect when we receive them, effective as of
the date you signed the form. Until we receive your change instructions, we are
entitled to rely on your most recent instructions in our files. We are not
liable for making a payment to a Beneficiary shown in our files or treating that
person in any other respect as the Beneficiary. Accordingly, if you wish to
change your beneficiary, you should deliver your instructions to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer
living, the Beneficiary will be:
- - your spouse if he or she is still alive; or, if he or she is no longer alive,
26
<PAGE>
- - your surviving children equally; or if you have no surviving children,
- - your estate.
If you name more than one Beneficiary, we will divide the Death Benefit among
your Beneficiaries according to your most recent written instructions. If you
have not given us written instructions, we will pay the Death Benefit in equal
shares to the Beneficiaries. If one of the Beneficiaries dies before you, we
will divide the Death Benefit among the surviving Beneficiaries.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
CONTRACT LOANS FOR 401(a), 401(k), AND 403(b) CONTRACTS. Subject to the
restrictions described below, we will make loans to the Owner of a Contract used
in connection with a Tax Sheltered Annuity Plan ("TSA Plan") under Section
403(b) of the Tax Code, or an Owner of a Contract purchased by a pension,
profit-sharing, or other similar plan qualified under Section 401(a) of the Tax
Code (a "401 Plan"), including a Section 401(k) plan, where a plan trustee is
the Owner. Loans are not available under Non-Qualified Contracts. We will only
make loans after the free look period and before annuitization. All loans are
subject to the terms of the Contract, the relevant Plan, and the Tax Code, which
impose restrictions on loans.
We will not make a loan to you if the total of the requested loan and your
unpaid outstanding loans will be greater than the Surrender Value of your
Contract on the date of the loan. In addition, we will not make a loan to you if
the total of the requested loan and all of the plan participant's Contract loans
under TSA plans and 401 plans is more than the lesser of (a) or (b) where:
(a) equals $50,000 minus the excess of the highest outstanding loan balance
during the prior 12 months over the current outstanding loan balance; and
(b) equals the greater of $10,000 or 1/2 of the Surrender Value.
The minimum loan amount is $1,000.
To request a Contract loan, write to us at the address given on the first page
of the prospectus. You alone are responsible for ensuring that your loan and
repayments comply with tax requirements. Loans made before the Annuity Date are
generally treated as distributions under the Contract, and may be subject to
withholding and tax penalties for early distributions. Some of these
requirements are stated in Section 72 of the Tax Code and Title 1 of ERISA.
Please seek advice from your plan administrator or tax advisor.
When we make a loan, we will transfer an amount equal to the loan amount from
the Separate Account and/or the Fixed Account to the Loan Account as collateral
for the loan. You may select from which account(s) to transfer the loan value.
However, we will not transfer amounts from the Fixed Account in an amount
greater than the total amount of the loan multiplied by the ratio of the value
of the Fixed Account to the Contract Value immediately before the loan. If you
do not give us instructions, we will first transfer to the Loan Account amounts
from the Separate Account in proportion to the assets in each Subaccount. If
your loan amount is greater than your Contract Value in the Subaccounts, we will
transfer the remaining required collateral from the Fixed Account.
We will not charge a Withdrawal Charge on the loan or on the transfer from the
Subaccounts or the Fixed Account. We may, however, apply a Market Value
Adjustment to a transfer from the Fixed Account to the Loan Account. If we do,
we will increase or decrease the amount remaining in the Fixed Account by the
amount of the Market Value Adjustment, so that the net amount transferred to the
Loan Account will equal the desired loan amount.
We will credit interest to the amounts in the Loan Account. The annual interest
rate credited to the Loan Account will be the greater of: (a) 3%; or (b) the
loan interest rate minus 2.25%. The value of the amounts in the Loan Account are
not affected by the changes in the value of the Subaccounts.
When you take out a loan, we will set the loan interest rate. That rate will
apply to your loan until it is repaid. From time to time, we may change the loan
interest rate applicable to new loans. We also reserve the right to change the
terms of new loans.
We will subtract the outstanding Contract loan balance, including accrued but
unpaid interest, from:
(1) the Death Benefit;
(2) surrender proceeds;
(3) the amount available for partial withdrawal; and
(4) the amount applied on the Annuity Date to provide annuity payments.
Usually you must repay a Contract loan within five years of the date the loan is
made. Scheduled payments must be level, amortized over the repayment period, and
made at least quarterly. We may permit a repayment period of 15 or 30 years if
the loan proceeds are used to acquire your principal residence. We may also
permit other repayment periods.
You must mark your loan repayments as such. We will assume that any payment
received from you is a Purchase Payment, unless you tell us otherwise.
If you do not make a loan payment when due, we will continue to charge interest
on your loan. We also will declare the entire loan in default. We will subtract
the defaulted loan balance plus accrued interest from any future distribution
under the Contract and keep it in payment of your loan. Any defaulted amount
plus interest will be treated as a distribution for tax purposes (as permitted
by law). As a result, you may be required to pay taxes on the defaulted amount,
incur
27
<PAGE>
the early withdrawal tax penalty, and be subject to mandatory 20% federal
withholding.
If the total loan balance exceeds the Surrender Value, we will mail written
notice to your last known address. The notice will state the amount needed to
maintain the Contract in force. If we do not receive payment of this amount
within 31 days after we mail this notice, we will terminate your Contract.
We may defer making any loan for 6 months after you ask us for a loan, unless
the loan is to pay a premium to us.
WITHDRAWALS (REDEMPTIONS). Except as explained below, you may redeem a Contract
for all or a portion of its Contract Value before the Annuity Date. We may
impose a Withdrawal Charge, which would reduce the amount paid to you upon
redemption. The Withdrawal Charges are described on page 30 below. Withdrawals
from the Fixed Account may be increased or decreased by a Market Value
Adjustment, as described in "Market Value Adjustment" on page 22 above.
In general, you must withdraw at least $50 at a time. You may also withdraw a
lesser amount if you are withdrawing your entire interest in a Subaccount. If
your request for a partial withdrawal would reduce the Contract Value to less
than $500, we may treat it as a request for a withdrawal of your entire Contract
Value, as described in "Minimum Contract Value" on page 29. Your Contract will
terminate if you withdraw all of your Contract Value.
We may be required to withhold 20% of withdrawals and distributions from
Contracts issued in connection with certain Qualified Plans, as described on
pages 33-34 below. Withdrawals also may be subject to a 10% penalty tax, as
described on page 34 below.
To make a withdrawal, you must send us a written withdrawal request or
systematic withdrawal program enrollment form. You may obtain the required forms
from us at the address and phone number given on the first page of this
prospectus. We will not honor your request unless the required form includes
your Tax I.D. Number (E.G., Social Security Number) and provides instructions
regarding withholding of income taxes.
For partial withdrawals, you may allocate the amount among the Subaccounts and
the Fixed Account. If we do not receive allocation instructions from you, we
usually will allocate the partial withdrawal proportionately among the
Subaccounts and the Fixed Account in the same proportions as you have instructed
us to allocate your Purchase Payments. If you have Contract Value in the
Guaranteed Maturity Fixed Account Option that is allocated entirely to Guarantee
Periods of the same length, we will subtract the partial withdrawal first from
the most recently created Guarantee Period. If your Contract Value in the
Guaranteed Maturity Fixed Account Option is allocated to Guarantee Periods of
different lengths, you must provide us with allocation instructions, and we will
not process your withdrawal request until we receive your instructions. You may
not make a partial withdrawal from the Fixed Account in an amount greater than
the total amount of the partial withdrawal multiplied by the ratio of the value
of the Fixed Account to the Contract Value immediately before the partial
withdrawal.
If you request a total withdrawal, you must send us your Contract. The Surrender
Value will equal the Contract Value minus any applicable Withdrawal Charge and
adjusted by any applicable Market Value Adjustment. We also will deduct a
contract maintenance charge of $35, unless we have waived the contract
maintenance charge on your Contract as described on page 30 below. We determine
the Surrender Value based on the Contract Value next computed after we receive a
properly completed surrender request. We will usually pay the Surrender Value
within seven days after the day we receive a completed request form. However, we
may suspend the right of withdrawal from the Separate Account or delay payment
for withdrawals for more than seven days in the following circumstances:
(1) whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
(2) when trading on the NYSE is restricted or an emergency exists, as determined
by the SEC, so that disposal of the Separate Account's investments or
determination of Accumulation Unit Values is not reasonably practicable; or
(3) at any other time permitted by the SEC for your protection.
In addition, we may delay payment of the Surrender Value in the Fixed Account
for up to 6 months or a shorter period if required by law. If we delay payment
from the Fixed Account for more than 30 days, we will pay interest as required
by applicable law.
You may withdraw amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Section 403(b)(11) of the Tax Code) only
in the following circumstances:
(1) when you attain age 59 1/2;
(2) when you terminate your employment with the plan sponsor;
(3) upon your death;
(4) upon your disability as defined in Section 72(m)(7) of the Tax Code; or
(5) in the case of hardship.
If you seek a hardship withdrawal, you may only withdraw amounts attributable to
your Purchase Payments; you may
28
<PAGE>
not withdraw any earnings. These limitations on withdrawals apply to:
(1) salary reduction contributions made after December 31, 1988;
(2) income attributable to such contributions; and
(3) income attributable to amounts held as of December 31, 1988.
The limitations on withdrawals do not affect transfers between certain Qualified
Plans. Additional restrictions and limitations may apply to distributions from
any Qualified Plan. Tax penalties may also apply. You should seek tax advice
regarding any withdrawals or distributions from Qualified Plans.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. In general, earnings on annuities are
taxable as ordinary income upon withdrawal. As described on page 33 below, a 10%
tax penalty is imposed on certain "premature" payments under annuity contracts.
The tax penalty applies to any payment received before age 59 1/2, to the extent
it is includable in income and is not subject to an exception. The Tax Reform
Act of 1986 clarified an exception to this tax penalty. This exception is known
as "substantially equal periodic payments."
Generally, under this exception you may take "substantially equal periodic
payments" before age 59 1/2 without incurring the tax penalty. These "payments"
are withdrawals, as opposed to an annuitization of the Contract. Accordingly,
you may need to pay a Withdrawal Charge.
To qualify for this exception, the payments must meet the following
requirements:
1) The payments must continue to the later of age 59 1/2 or for five years.
2) Payments must be established under one of the approved methods detailed by
the IRS in IRS Notice 89-25.
3) You must have separated from service, if you purchased your Contract under a
qualified retirement plan or tax sheltered annuity.
If you modify the payment stream in any way, except for reason of death or
disability, you will loose the exception. Modification includes changing the
amount or timing of the payments, or making additional Purchase Payments. Any
subsequent periodic payment will be subject to the penalty tax, unless it
qualifies for a different exception. In addition, in the year of the
modification, you will be required to pay the penalty tax (plus interest) that
you would have been required to pay on the earlier payments if this exception
had not applied.
SYSTEMATIC WITHDRAWAL PROGRAM. If your Contract was issued in connection with a
Non-Qualified Plan or IRA, you may participate in our Systematic Withdrawal
Program. You must complete an enrollment form and send it to us. You must
complete the withholding election section of the enrollment form before the
systematic withdrawals will begin. You may choose withdrawal payments of a flat
dollar amount, earnings, or a percentage of Purchase Payments. Systematic
withdrawals are treated the same as partial withdrawals for purposes of
determining if a Withdrawal Charge or Market Value Adjustment applies. You may
choose to receive systematic withdrawal payments on a monthly, quarterly, semi-
annual, or annual basis.
Depending on fluctuations in the net asset value of the Subaccounts and the
value of the Fixed Account, systematic withdrawals may reduce or even exhaust
the Contract Value. The minimum amount of each systematic withdrawal is $50.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
ERISA PLANS. A married participant may need spousal consent to receive a
distribution from a Contract issued in connection with a Qualified Plan or a
Non-Qualified Plan covered by to Title 1 of ERISA. You should consult an
adviser.
MINIMUM CONTRACT VALUE. If as a result of withdrawals your Contract Value would
be less than $500 and you have not made any Purchase Payments during the
previous three full calendar years, we may terminate your Contract and
distribute its Surrender Value to you. Before we do this, we will give you 60
days notice. We will not terminate your Contract on this ground if the Contract
Value has fallen below $500 due to either a decline in Accumulation Unit Value
or the imposition of fees and charges. In addition, in some states we are not
permitted to terminate Contracts on this ground. Different rules may apply to
Contracts issued in connection with Qualified Plans.
CONTRACT CHARGES
We assess charges under the Contract in three ways:
(1) as deductions from Contract Value for contract maintenance charges and, if
applicable, for premium taxes;
(2) as charges against the assets of the Separate Account for administrative
expenses or for the assumption of mortality and expense risks; and
(3) as Withdrawal Charges (contingent deferred sales charges) subtracted from
withdrawal and surrender payments.
In addition, certain deductions are made from the assets of the Portfolios for
investment management fees and expenses. Those fees and expenses are summarized
in the Fee Tables on pages 10-13, and described more fully in the Prospectuses
and Statements of Additional Information for the Portfolios.
29
<PAGE>
MORTALITY AND EXPENSE RISK CHARGE. We deduct a mortality and expense risk charge
from each Subaccount during each Valuation Period. The mortality and expense
risk charge is equal, on an annual basis, to 1.15% of the average net asset
value of each Subaccount. The mortality risks arise from our contractual
obligations:
(1) to make annuity payments after the Annuity Date for the life of the
Annuitant(s);
(2) to waive the Withdrawal Charge upon your death; and
(3) to provide the Death Benefit prior to the Annuity Date. A detailed
explanation of the Death Benefit may be found beginning on page [39] above.
The expense risk is that it may cost us more to administer the Contracts and the
Separate Account than we receive from the contract maintenance charge and the
administrative expense charge. We guarantee the mortality and expense risk
charge and we cannot increase it. We assess the mortality and expense risk
charge during both the Accumulation Period and the Annuity Period.
If you select the Enhanced Death Benefit Rider, your mortality and expense risk
charge will be 1.35% of average net asset value of each Subaccount. If you
select the Enhanced Death and Income Benefit Rider, your mortality and expense
risk charge will be 1.55% of average daily net asset value of each Subaccount,
We charge a higher mortality and expense risk charge for the Riders to
compensate us for the additional risk that we accept by providing the Riders. We
will calculate a separate Accumulation Unit Value for the base Contract, and for
Contracts with each type of Rider, in order to reflect the difference in the
mortality and expense risk charges.
ADMINISTRATIVE CHARGES.
CONTRACT MAINTENANCE CHARGE. We charge an annual contract maintenance charge of
$35 on your Contract. The amount of this charge is guaranteed not to increase.
This charge reimburses us for our expenses incurred in maintaining your
Contract.
Before the Annuity Date, we assess the contract maintenance charge on each
Contract Anniversary. To obtain payment of this charge, on a pro rata basis we
will allocate this charge among the Subaccounts and the Fixed Account to which
you have allocated your Contract Value, and redeem Accumulation Units and reduce
your interest in the Fixed Account accordingly. We will waive this charge if you
pay more than $50,000 in Purchase Payments or if you allocate all of your
Contract Value to the Fixed Account. If you surrender your Contract, we will
deduct the full $35 charge as of the date of surrender, unless your Contract
qualifies for a waiver.
After the Annuity Date, we will subtract this charge in equal parts from each of
your annuity payments. We will waive this charge if on the Annuity Date your
Contract Value is $50,000 or more or if all of your annuity payments are Fixed
Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE. We deduct an administrative expense charge from
each Subaccount during each Valuation Period. This charge is equal, on an annual
basis, to 0.10% of the average net asset value of the Subaccounts. This charge
is designed to compensate us for the cost of administering the Contracts and the
Separate Account. The administrative expense charge is assessed during both the
Accumulation Period and the Annuity Period.
TRANSFER FEE. We currently are not charging a transfer fee. The Contract,
however, permits us to charge a transfer fee of $10 on the second and each
subsequent transaction in each calendar month in which transfer(s) are effected
between Subaccount(s) and/or the Fixed Account. We will notify you if we begin
to charge this fee.
The transfer fee will be deducted from Contract Value that remains in the
Subaccount(s) or Fixed Account from which the transfer was made. If that amount
is insufficient to pay the transfer fee, we will deduct the fee from the
transferred amount.
SALES CHARGES.
WITHDRAWAL CHARGE. We may charge a Withdrawal Charge, which is a contingent
deferred sales charge, upon certain withdrawals. No Withdrawal Charge is applied
in the following situations:
- - on annuitization;
- - the payment of a death benefit;
- - a free withdrawal amount, as described on page 31 below;
- - certain withdrawals for Contracts issued under 403(b) plans or 401 plans
under our prototype as described on page 31 below;
- - withdrawals taken to satisfy IRS minimum distribution rules;
- - withdrawals that qualify for one of the waiver benefits described at pages
31-32 below; and
- - withdrawal under Contracts issued to employees of Lincoln Benefit Life
Company or its affiliates to their spouses or minor children.
We will never waive or eliminate a Withdrawal Charge where such waiver or
elimination would be unfairly discriminatory to any person or where it is
prohibited by state law.
As a general rule, the Withdrawal Charge equals a percentage of Purchase
Payments withdrawn that are: (a) less than seven years old; and (b) not eligible
for a free withdrawal. The applicable percentage depends on how many years ago
30
<PAGE>
you made the Purchase Payment being withdrawn, as shown in this chart:
<TABLE>
<CAPTION>
CONTRIBUTION WITHDRAWAL CHARGE
YEAR PERCENTAGE
- --------------------------------------- ------------------
<S> <C>
First and Second....................... 7%
Third and Fourth....................... 6%
Fifth.................................. 5%
Sixth.................................. 4%
Seventh................................ 3%
Eighth and later....................... 0%
</TABLE>
When we calculate the Withdrawal Charge, we do not take any applicable Market
Value Adjustment into consideration.
We subtract the Withdrawal Charge from the Contract Value remaining after your
withdrawal. As a result, the decrease in your Contract Value will be greater
than the withdrawal amount requested and paid.
For purposes of determining the Withdrawal Charge, the Contract Value is deemed
to be withdrawn in the following order:
FIRST. Earnings -- the current Contract Value minus all Purchase Payments that
have not previously been withdrawn;
SECOND. "Old Purchase Payments" -- Purchase Payments received by us more than
seven years before the date of withdrawal that have not been previously
withdrawn;
THIRD. Any additional amounts available as a "Free Withdrawal," as described
below;
FOURTH. "New Purchase Payments" -- Purchase Payments received by us less than
seven years before the date of withdrawal. These Payments are deemed to be
withdrawn on a first-in, first-out basis.
We use the amounts obtained from the Withdrawal Charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts. To the extent that the Withdrawal Charge does not cover all sales
commissions and other promotional or distribution expenses, we may use any of
our corporate assets, including potential profit which may arise from the
mortality and expense risk charge or any other charges or fee described above,
to make up any difference.
Withdrawals may also be subject to tax penalties or income tax. The amount of
your withdrawal may be affected by a Market Value Adjustment. Additional
restrictions may apply to Contracts held in Qualified Plans. We outline the tax
requirements applicable to withdrawals on page 34 below. You should consult your
own tax counsel or other tax advisers regarding any withdrawals.
FREE WITHDRAWAL. Withdrawals of the following amounts are never subject to the
Withdrawal Charge:
- - In any Contract Year, the greater of: (a) earnings that have not previously
been withdrawn; or (b) 15 percent of New Purchase Payments; and
- - Any Old Purchase Payments that have not been previously withdrawn.
However, even if you do not owe a Withdrawal Charge on a particular withdrawal,
you may still owe taxes or penalty taxes. The tax treatment of withdrawals is
summarized in page 34 below.
WAIVER BENEFITS
GENERAL. If approved in your state, we will offer the three waiver benefits
described below. In general, if you qualify for one of these benefits, we will
permit you to make one or more partial or full withdrawals without paying any
otherwise applicable Withdrawal Charge or Market Value Adjustment. While we have
summarized those benefits here, you should consult your Contract for the precise
terms of the waiver benefits.
Some Qualified Plans may not permit you to utilize these benefits. Also, even if
you do not need to pay our Withdrawal Charge because of these benefits, you
still may be required to pay taxes or tax penalties on the amount withdrawn. You
should consult your tax adviser to determine the effect of a withdrawal on your
taxes.
CONFINEMENT WAIVER BENEFIT. Under this benefit, we will waive the Withdrawal
Charge and Market Value Adjustment on all withdrawals under your Contract if the
following conditions are satisfied:
(1) Any Contract owner or the Annuitant, if the Contract is owned by a company
or other legal entity, is confined to a long term care facility or a
hospital for at least 90 consecutive days. The insured must enter the long
term care facility or hospital at least 30 days after the Issue Date;
(2) You request the withdrawal no later than 90 days following the end of the
Insured's stay at the long term care facility or hospital. You must provide
written proof of the stay with your withdrawal request; and
(3) A physician must have prescribed the stay and the stay must be medically
necessary.
You may not claim this benefit if the physician prescribing the insured's stay
in a long term care facility is the insured or a member of the insured's
immediate family.
TERMINAL ILLNESS WAIVER BENEFIT. Under this benefit, we will waive any
Withdrawal Charge and Market Value Adjustment on all withdrawals under your
Contract if, at least 30 days after the Issue Date, you or the Annuitant are
diagnosed with a terminal illness. We may require confirmation of the diagnosis
as provided in the Contract.
UNEMPLOYMENT WAIVER BENEFIT. Under this benefit, we will waive any Withdrawal
Charge and Market Value Adjustment on one partial or full withdrawal from your
Contract, if you meet the following requirements:
(1) you become unemployed at least 10 days after the Issue Date;
31
<PAGE>
(2) you receive unemployment compensation for at least 30 days as a result of
that unemployment; and
(3) you claim this benefit within 180 days of your initial receipt of
unemployment compensation.
You may exercise this benefit once before the Annuity Date.
WAIVER OF WITHDRAWAL CHARGE FOR CERTAIN QUALIFIED PLAN WITHDRAWALS. For
Contracts issued under a Section 403(b) plan or a Section 401 plan under our
prototype, we will waive the Withdrawal Charge when:
(1) the Annuitant becomes disabled (as defined in Section 72(m)(7)) of the Tax
Code;
(2) the Annuitant reaches age 59 1/2 and at least 5 Contract Years have passed
since the Contract was issued;
(3) at least 15 Contract Years have passed since the Contract was issued.
Our prototype is a Section 401 Defined Contribution Qualified Retirement plan.
This plan may be established as a Money Purchase plan, a Profit Sharing plan, or
a paired plan (Money Purchase and Profit Sharing). For more information about
our prototype plan, call us at 1-800-865-5237.
PREMIUM TAXES. We will charge premium taxes or other state or local taxes
against the Contract Value, including Contract Value that results from amounts
transferred from existing policies (Section 1035 exchange) issued by us or other
insurance companies. Some states assess premium taxes when Purchase Payments are
made; others assess premium taxes when annuity payments begin. We will deduct
any applicable premium taxes upon full surrender, death, or annuitization.
Premium taxes generally range from 0% to 3.5%.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES. We are not currently maintaining a
provision for taxes. In the future, however, we may establish a provision for
taxes if we determine, in our sole discretion, that we will incur a tax as a
result of the operation of the Separate Account. We will deduct for any taxes we
incur as a result of the operation of the Separate Account, whether or not we
previously made a provision for taxes and whether or not it was sufficient. Our
status under the Tax Code is briefly described on page 32 below.
OTHER EXPENSES. You indirectly bear the charges and expenses of the Portfolios
whose shares are held by the Subaccounts to which you allocate your Contract
Value. For a summary of current estimates of those charges and expenses, see
pages 10-13 above. For more detailed information about those charges and
expenses, please refer to the prospectuses for the appropriate Portfolios. We
may receive compensation from the investment advisers or administrators of the
Portfolios in connection with administrative service and cost savings
experienced by the investment advisers or administrators.
TAXES
NOTE: We based the following description upon our understanding of current
federal income tax law applicable to annuities in general. We cannot predict the
probability that any changes in those laws will be made. Also, we do not
guarantee the tax status of the Contracts. You bear the complete risk that the
Contracts may not be treated as "annuity contracts" under federal income tax
laws. You should seek tax advice concerning the effect on your personal tax
liability of the transactions permitted under the Contract, as well as any other
questions you may have concerning the tax status of the Contract or the
possibility of changes in the tax law.
GENERAL. Section 72 of the Tax Code governs taxation of annuities in general. As
a general rule, if you are a natural person, you will not be taxed on increases
in the value of a Contract until a distribution occurs, either in the form of a
non-annuity distribution or as annuity payments under an Annuity Option. For a
lump sum payment received as a total surrender of the Contract (total
redemption), you will be taxed on the portion of the payment that exceeds the
cost basis of the Contract. For a partial withdrawal (partial redemption), your
federal tax liability will be determined on a last-in, first-out basis, meaning
that taxable earnings are treated as being withdrawn before the cost basis of
the Contract is withdrawn. For Contracts issued in connection with Non-Qualified
Plans, the cost basis generally equals the Purchase Payments. A Contract issued
in connection with a Qualified Plan, however, may have no cost basis, because
the Purchase Payments were excluded from income in the year they were made. The
taxable portion of the lump sum payment is taxed at ordinary income tax rates.
Tax penalties may also apply to surrenders and withdrawals before the payee
reaches age 59 1/2, except in certain circumstances described below.
For annuity payments, the taxable portion is determined by a formula which
establishes the ratio that the cost basis of the Contract bears to the total
value of annuity payments for the term of the annuity payments. The taxable
portion is taxed at ordinary income tax rates. Before making a distribution,
Contract Owners, Annuitants and Beneficiaries under the Contracts should consult
a tax adviser about the tax consequences.
All Non-Qualified annuity contracts that are issued by us (or our affiliates) to
the same Contract Owner during any calendar year will be aggregated and treated
as one annuity contract for purposes of determining the taxable amount.
Accordingly, you should consult a tax adviser before purchasing more than one
Non-Qualified annuity contract.
If you or the Annuitant dies, the Beneficiary will be taxed on the portion of
any lump sum payment that exceeds your cost basis in the Contract. If the
Beneficiary chooses to receive annuity payments, however, the Death Benefit will
be taxed like other annuity payments. In order to be treated as an annuity
contract, the terms of the Contract must provide the
32
<PAGE>
following two distribution rules: (1) if any Contract Owner dies on or after the
date annuity payments commence, and before the entire interest in the Contract
has been distributed, the remainder of his interest will not be distributed
under a slower distribution schedule than that provided for in the method in
effect on the Contract Owner's death; and (2) if any Contract Owner dies before
the date annuity payments commence, his entire interest must generally be
distributed within five years after the date of death provided that if such
interest is payable to a designated Beneficiary, then such interest may be made
over the life of that designated Beneficiary or over a period not extending
beyond the life expectancy of that Beneficiary, so long as payments commence
within one year after the Contract Owner's death. If the sole designated
Beneficiary is the spouse of the Contract Owner, the Contract may be continued
in the name of the spouse as Contract Owner. The designated Beneficiary is the
natural person designated by the terms of the Contract or by the Contract Owner
as the individual to whom ownership of the Contract passes by reason of the
Contract Owner's death. If the Contract Owner is not an individual, then for
purposes of the distribution at death rules, the Annuitant is considered the
Contract Owner. In addition, when the Contract Owner is not an individual, a
change in the Annuitant is treated as the death of the Contract Owner.
Distributions made to a Beneficiary upon the Contract Owner's death from a
Qualified Plan must be made pursuant to the rules in Section 401(a)(9) of the
Tax Code.
The tax treatment of Death Benefits described above is less favorable than the
income tax-free treatment applicable to a person who inherits and sells
appreciated mutual fund shares outside of a Qualified Plan. Accordingly, if you
are considering purchasing a Contract in a Non-Qualified Plan, you should also
take these factors into consideration in weighing the tax advantages and
disadvantages of the Contract.
If you transfer ownership of a Contract, designate an Annuitant or Beneficiary
other than yourself or a joint owner, assign a Contract or exchange a Contract,
you may incur tax liabilities or tax penalties. We do not discuss these
consequences here. If you are contemplating a transfer, assignment, or exchange
of a Contract, you should consult a tax adviser concerning the potential tax
effects of the transaction.
For a Contract to be treated as an annuity for federal income tax purposes, the
investments in the Separate Account must be "adequately diversified" in
accordance with the standards provided in Treasury Department regulations. If
the investments in the Separate Account are not adequately diversified, then the
Contract will not be treated as an annuity contract for federal income tax
purposes and you may be taxed on the earnings on the Contract in the year in
which they are earned. Although we do not have control over the Portfolios or
their investments, we expect the Portfolios to meet the diversification
requirements.
If the Annuitant will have reached an advanced age, e.g., age 85, at the
Contract's scheduled maturity date, it is possible that the Contract would not
be treated as an annuity for tax purposes. In that event, you might be taxed on
the income and gains under the Contract.
Lincoln Benefit is taxed as a life insurance company under the Tax Code. For
federal income tax purposes, the Separate Account is not treated as a separate
entity and its operations form a part of Lincoln Benefit.
WITHHOLDING TAX ON DISTRIBUTIONS. The Tax Code generally requires us or, in some
cases, plan administrators to withhold tax on the taxable portion of any
distribution or withdrawal from a Contract.
For "eligible rollover distributions" from Contracts issued under certain types
of Qualified Plans, we must withhold 20% of the distribution, unless you elect
to have the distribution "rolled over" to another eligible plan. An "eligible
rollover distribution" is the estimated taxable portion of any amount received
by a covered employee from a plan qualified under Section 401(a) or 403(a) of
the Tax Code, or from a tax-sheltered annuity qualified under Section 403(b) of
the Tax Code, other than:
(1) annuity payments for the life (or life expectancy) of the employee, or joint
lives (or joint life expectancies) of the employee and his or her designated
beneficiary, or for a specified period of ten years or more; and
(2) distributions required to be made under the Tax Code.
An "Eligible Rollover Distribution" may be rolled over into any plan qualified
under Sections 401(a) or 403(a) of the Tax Code, an individual retirement
account described in Section 408(a) of the Tax Code, or an individual retirement
annuity under Section 408(b) of the Tax Code, other than an endowment contract.
In most instances, you may avoid withholding by making the transfer directly
from "trustee to trustee". If you ask us to pay the eligible rollover
distribution directly to you, we are required to withhold 20% of the
distribution. You could be subject to taxes and tax penalties on the amount paid
to you unless you pay an amount equal to the entire eligible rollover
distribution to another eligible plan within 60 days. To avoid taxation, and tax
penalties, the amount paid into the new plan must equal the entire eligible
rollover distribution. The amount withheld by us is not treated as being "rolled
over" into the new plan, although you may apply it against your other tax
liabilities.
We will impose withholding on the estimated taxable portion of withdrawals or
distributions other than eligible rollover distributions, unless you waive the
withholding requirement. We use the following rates to determine the amounts
withheld:
(1) for periodic payments, we use the rates applicable to wages; and
33
<PAGE>
(2) for other distributions, we withhold 10% of the distribution.
We will ask you for a withholding exemption certificate (W-4 form). If you do
not provide us with a W-4 form, we will use the withholding rate applicable to
married individuals claiming 3 withholding exemptions.
In addition, some states may require that state income tax be withheld.
TAX TREATMENT OF ASSIGNMENTS. An assignment of a Contract may result in tax
liability. In addition, some assignments are prohibited by ERISA. You should
therefore consult your legal advisers before assigning your Contract.
TAX TREATMENT OF WITHDRAWALS
QUALIFIED PLANS. The Tax Code provides that withdrawals from Qualified Plans are
taxable as ordinary income. In addition, Section 72(t) of the Tax Code imposes a
10% penalty tax on the taxable portion of any early distribution from qualified
retirement plans, including Contracts issued and qualified under Sections 401
(H.R. 10 and Corporate Pension and Profit Sharing Plans), 403(b) (Tax-Sheltered
Annuities), 408(b) (traditional IRAs) and 408A (Roth IRAs) of the Tax Code.
The penalty tax will not apply to the following distributions from plans
qualified under Sections 401 and 403(b) of the Tax Code:
(1) distributions made on or after the date on which you reach age 59 1/2;
(2) distributions following the death or disability of you or the Annuitant (as
applicable). For this purpose, "disability" is defined in Section 72(m)(7) of
the Tax Code;
(3) distributions that are part of substantially equal periodic payments made
not less frequently than annually for the life (or life expectancy) of you or
the Annuitant (as applicable) or the joint lives (or joint life expectancies) of
you or the Annuitant (as applicable) and his or her designated beneficiary;
(4) distributions to you or the Annuitant (as applicable) who has separated from
service after he or she has attained age 55;
(5) distributions made to you or the Annuitant (as applicable) to pay for
medical expenses that are deductible under Tax Code Section 213; and
(6) distributions made to an alternate payee pursuant to a qualified domestic
relations order.
The tax penalty does not apply to distributions from plans qualified under
Section 408(b) (traditional IRAs) that meet any of the first three exceptions
stated above, or are: (1) distributions made for higher educational expenses; or
(2) distributions for a qualified first-time home purchase.
The tax penalty does not apply to distributions from plans qualified under
Section 408A (Roth IRAs), if a five year holding period is satisfied and the
distribution is:
(1) made on or after the date on which you reach age 59 1/2;
(2) made to a Beneficiary (or your estate) on or after your death;
(3) upon your total disability, as "disability" is defined in Section 72(m)(7)
of the Tax Code; or
(4) made to pay for a qualified first-time home purchase.
The Tax Code's limitations on withdrawals from tax-sheltered annuities are
described on page 32 above.
Under some circumstances, you may "roll over" the taxable portion of a
withdrawal or distribution from Contracts issued under certain types of plans
into another eligible plan so as to continue to defer income tax. Such treatment
is available for any "eligible rollover distribution" as described on page 33
above. Amounts received from IRAs may also be rolled over into other IRAs,
individual retirement accounts, Roth IRAs, or certain other plans, subject to
limitations set forth in the Tax Code.
NON-QUALIFIED PLANS. Section 72 of the Tax Code provides that if the Contract
Value exceeds the total Purchase Payments made, any amount withdrawn from a
Non-Qualified Contract will be treated as coming first from the earnings and
then, only after the earnings portion is exhausted, as coming from the
principal. Withdrawn earnings are includable in a taxpayer's gross income as
ordinary income. Section 72 further provides that a 10% tax penalty will apply
to the income portion of all distributions from a Non-Qualified Contract, except
for amounts received:
(1) after the taxpayer reaches age 59 1/2;
(2) upon the death of the Contract Owner or Annuitant (as applicable);
(3) upon total disability of the taxpayer. For this purpose, "disability" is
defined in Section 72(m)(7) of the Tax Code;
(4) in a series of substantially equal periodic payments made for the life of
the taxpayer or for the joint lives of the taxpayer and his Beneficiary;
(5) under an immediate annuity; or
(6) which are allocable to Purchase Payments made prior to August 14, 1982.
DESCRIPTION OF LINCOLN BENEFIT LIFE
COMPANY AND THE SEPARATE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY. Lincoln Benefit Life Company is a stock life
insurance company organized under the laws of the state of Nebraska in 1938. Our
legal domicile and principal business address is 206 South 13th Street, Lincoln,
Nebraska. Lincoln Benefit is a wholly owned subsidiary of Allstate Life
Insurance Company ("Allstate Life or ALIC"),
34
<PAGE>
a stock life insurance company incorporated under the laws of the State of
Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance
Company ("AIC"), a stock property-liability insurance company incorporated under
the laws of Illinois. All outstanding capital stock of Allstate is owned by The
Allstate Corporation ("Allstate").
We are authorized to conduct life insurance and annuity business in the District
of Columbia, Guam and all states except New York. We intend to market the
Contract everywhere we conduct variable annuity business. The Contracts offered
by this prospectus are issued by us and will be funded in the Separate Account
and/or the Fixed Account.
Under our reinsurance agreement with Allstate Life, all contract related
transactions are transferred to Allstate Life. Through our reinsurance agreement
with Allstate Life, all of the assets backing our reinsured liabilities are
owned by Allstate Life. These assets represent our general account and are
invested and managed by Allstate Life. Accordingly, the results of operations
with respect to applications received and contracts issued by Lincoln Benefit
are not reflected in our financial statements. The amounts reflected in our
financial statements relate only to the investment of those assets of Lincoln
Benefit that are not transferred to Allstate Life under the reinsurance
agreement. While the reinsurance agreement provides us with financial backing
from Allstate Life, it does not create a direct contractual relationship between
Allstate Life and you.
Lincoln Benefit is highly rated by independent agencies, including A.M. Best,
Moody's, and Standard & Poor's. These ratings are based on our reinsurance
agreement with Allstate Life, and reflect financial soundness and strong
operating performance. The ratings are not intended to reflect the financial
strength or investment experience of the Separate Account. We may from time to
time advertise these ratings in our sales literature.
FINANCIAL STATEMENTS OF LINCOLN BENEFIT. The Company's consolidated financial
statements and notes thereto are included in this Prospectus beginning on page
F-1. You should consider those financial statements only as bearing on Lincoln
Benefit's ability to meet its obligations under the Policy. They do not relate
to the investment performance of the assets held in the Separate Account. The
financial statements for the Separate Account are set forth in the Statement of
Additional Information.
SELECTED FINANCIAL DATA. The following selected financial data for the Company
should be read in conjunction with the consolidated financial statements and
notes thereto included in the prospectus beginning on page F-1.
LINCOLN BENEFIT LIFE COMPANY
SELECTED FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR-END FINANCIAL DATA 1997 1996 1995 1994
- ----------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
For the Years Ended
December 31: Income
Before Income Tax
Expense............. $10,587 $8,603 $7,838 $4,641
Net Income............. 6,852 5,583 5,093 3,036
As of December 31:
Total Assets........... $7,507,203 $7,108,502 $6,347,097 $5,319,707
</TABLE>
Financial information prepared in accordance with generally accepted accounting
principles ("GAAP") is not available for previous fiscal years, because the
Company followed statutory accounting methods at that time, and statutory
accounting methods are not comparable with the GAAP methods used in subsequent
years.
INVESTMENTS BY LINCOLN BENEFIT. Our general account assets, like the general
account assets of other insurance companies, including Allstate Life, must be
invested in accordance with applicable state laws. These laws govern the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit us, within specified limits and
subject to certain qualifications, to invest in federal, state, and municipal
obligations, corporate bonds, preferred stocks, real estate mortgages, real
estate and certain other investments. All of our general account assets are
available to meet our obligations.
We will primarily invest our general account assets in investment-grade fixed
income securities including the following:
Securities issued by the United States Government or its agencies or
instrumentalities, which may or may not be guaranteed by the United States
Government;
Debt instruments, including issues of or guaranteed by banks or bank holding
companies, and of corporations, which our management deems to have qualities
appropriate for inclusion in our general account;
Commercial mortgages, mortgage-backed securities collateralized by real estate
mortgage loans, or securities collateralized by other assets, that are insured
or guaranteed by the Federal Home Loan Mortgage Association, the Federal
National Mortgage Association or the Government National Mortgage Association,
or that have an investment grade at time of purchase within the four highest
grades assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or Baa),
Standard & Poor's Corporation (AAA, AA, A or BBB) or any other nationally
recognized rating service;
Commercial paper, cash or cash equivalents, and other short-term investments
having a maturity of less than one year that our management considers to have
investment quality comparable to securities having the ratings stated above.
35
<PAGE>
In addition, interest rate swaps, futures, options, rate caps, and other hedging
instruments may be used solely for non-speculative hedging purposes. Anticipated
use of these financial instruments shall be limited to protecting the value of
portfolio sales or purchases, or to enhance yield through the creation of a
synthetic security.
In addition, Lincoln Benefit maintains certain unitized separate accounts which
invest in shares of open-end investment companies registered under the
Investment company Act of 1940, as amended. The Subaccounts under this Contract
are subdivisions of one of those Separate Accounts. These separate account
assets do not support our obligations under the Fixed Account provisions of the
Contracts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion highlights significant factors influencing consolidated
results of operations and changes in financial position of Lincoln Benefit Life
Company (the "Company") and its wholly owned subsidiary, Lincoln Benefit
Financial Services, Inc. It should be read in conjunction with the consolidated
financial statements and related notes.
The Company, a wholly owned subsidiary of Allstate Life, which is wholly owned
by Allstate Insurance Company, a wholly owned subsidiary of The Allstate
Corporation, markets life insurance and annuity products through independent
agents.
The Company issues flexible premium deferred variable annuity contracts and
variable life policies, the assets and liabilities of which are legally
segregated and reflected as Separate Account assets and liabilities. Separate
Account assets and liabilities are carried at fair value in the statements of
financial position. Investment income and realized gains and losses of the
Separate Accounts accrue directly to the contractholders (net of fees) and,
therefore, are not included in the Company's consolidated statements of
operations.
RESULTS OF OPERATIONS ($ IN THOUSANDS).
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net investment income $ 10,789 $ 9,951 $ 8,796
--------- --------- ---------
--------- --------- ---------
Realized capital gains and
losses, after-tax $ 17 $ 6 $ 258
--------- --------- ---------
--------- --------- ---------
Operating costs and expenses $ 219 $ 889 $ 754
--------- --------- ---------
--------- --------- ---------
Net Income $ 6,852 $ 5,583 $ 5,093
--------- --------- ---------
--------- --------- ---------
Investments $ 151,505 $ 142,296 $ 143,116
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company and ALIC have reinsurance agreements under which all contract and
policy related transactions are transferred to ALIC. The Company's consolidated
results of operations include only investment income and realized capital gains
and losses earned on the assets of the Company that are not transferred to ALIC
under the reinsurance agreements, and underwriting expense allowances for
services provided by the Company's broker dealer, Lincoln Benefit Financial
Services, Inc. Prior to December 31, 1996, the Company retained a small block of
paid up life insurance, which was ceded to ALIC on that date.
Net income for 1997 and 1996 increased $1,269,000 and $490,000, respectively. In
1997, the increase was attributable to the underwriting expense allowance and
increased net investment income. In 1996, increased investment income was
partially offset by lower realized capital gains.
Pretax net investment income increased by $838,000, or 8.4% in 1997 and
$1,155,000, or 13.1% in 1996. The additional investment income was earned on a
higher base of investments arising from positive cash flows from operating
activities, partially offset by increased investment expenses.
In 1997, operating costs and expenses decreased as a result of the cession of
the small block of paid up life insurance and the expenses on that block of
business that were incurred in 1996.
Realized capital gains were $17,000 and $6,000 after tax in 1997 and 1996,
respectively, and arose principally from prepayments on fixed income securities.
No securities were sold in 1997 or 1996. Realized capital gains in 1995 of
$258,000 after tax were primarily the result of a sale of a fixed income
security, the remainder was due to prepayments on fixed income securities.
FINANCIAL POSITION ($ IN THOUSANDS).
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Fixed income securities(1) $ 147,911 $ 137,638
Real Estate 2,574 2,797
Short-term investments 1,020 1,861
----------- -----------
Total investments $ 151,505 $ 142,296
----------- -----------
----------- -----------
Reinsurance recoverable from Allstate
Life $ 6,732,755 $ 6,544,750
----------- -----------
----------- -----------
Separate Account assets and liabilities $ 447,658 $ 255,881
----------- -----------
----------- -----------
Contractholder funds $ 6,607,130 $ 6,422,126
----------- -----------
----------- -----------
</TABLE>
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $141,553 and $134,866 at December 31, 1997 and 1996,
respectively.
The Company's fixed income securities portfolio consists of mortgage-backed
securities, publicly traded corporate bonds, and U.S. government bonds. The
Company generally holds its fixed income securities until maturity, but has
classified all of these securities as available for sale to allow maximum
flexibility in portfolio management.
Investments grew $9.2 million, or 6.5%, during 1997 primarily due to the
investment of positive operating cash flows and an increase in the unrealized
capital gain position on fixed income securities. At December 31, 1997, net
unrealized capital gains on fixed income securities were $4.1 million
36
<PAGE>
compared to $1.8 million as of December 31, 1996. The increase in the net
unrealized capital gain position is primarily attributable to lower interest
rates.
At the end of 1997, all of the Company's fixed income securities portfolio is
rated investment grade; 99.7% of the portfolio has a National Association of
Insurance Commissioners ("NAIC") rating of 1 or a Moody's rating of Aaa, Aa or
A. The remaining .3% has an NAIC rating of 2.
At December 31, 1997 and 1996, $55.1 million and $61.0 million, respectively, of
the fixed income portfolio were invested in mortgage-backed securities ("MBS").
At December 31, 1997, all of the MBS had underlying collateral that is
guaranteed by U.S. government entities, thus credit risk was minimal.
MBS, however, are subject to interest rate risk as the duration and ultimate
realized yield are affected by the rate of repayment of the underlying
mortgages. The Company attempts to limit interest rate risk by purchasing MBS
whose cost does not significantly exceed par value, and with repayment
protection to provide a more certain cash flow to the Company. At December 31,
1997, the amortized cost of the MBS portfolio was below par value by $2.8
million and 15% of the MBS portfolio was invested in planned amortization class
bonds. This type of MBS is purchased to provide additional protection against
rising interest rates.
The Company closely monitors its fixed income portfolio for declines in value
that are other than temporary. Securities are placed on non-accrual status when
they are in default or when the receipt of interest payments is in doubt.
The Company's short-term investment portfolio was $1.0 million and $1.9 million
at December 31, 1997 and 1996, respectively. The Company invests available cash
balances, primarily in taxable short-term securities having a final maturity
date or redemption date of one year or less.
During 1997, contractholder funds increased by $185 million and reinsurance
recoverable from ALIC under reinsurance agreements increased by $188.0 million.
Interest credited to contractholders and sales of fixed annuity contracts
exceeded the fixed annuity surrenders, withdrawals, policyholder transfers from
fixed annuity contracts to flexible premium deferred variable annuity contracts,
and benefits paid. Reinsurance recoverable from Allstate Life relates to
contract benefit obligations ceded to Allstate Life.
Separate Account assets and liabilities increased by $191.8 million, primarily
attributable to sales of flexible premium deferred variable annuity contracts,
the favorable investment performance of the Separate Account investment
portfolios and transfers from fixed annuity contracts, partially offset by
variable annuity surrenders and withdrawals.
MARKET RISK. Market risk is the risk that the Company will incur losses due to
adverse changes in market rates and prices. The Company's primary market risk
exposure is to changes in interest rates. Interest rate risk is the risk that
the Company will incur economic losses due to adverse changes in interest rates,
as the Company invests substantial funds in interest-sensitive assets.
One way to quantify this exposure is duration. Duration measures the sensitivity
of the fair value of assets to changes in interest rates. For example, if
interest rates increase 1%, the fair value of an asset with a duration of 5
years is expected to decrease in value by approximately 5%. At December 31,
1997, the Company's asset duration was approximately 4.6 years.
To calculate duration, the Company projects asset cash flows and discounts them
to a net present value basis using a risk-free market rate adjusted for credit
quality, sector attributes, liquidity and other specific risks. The projections
include assumptions (based upon historical market and Company specific
experience) reflecting the impact of changing interest rates on the prepayment
and/or option features of instruments, where applicable. Such assumptions relate
primarily to mortgage-backed securities, collateralized mortgage obligations,
and municipal and corporate obligations.
Based upon the information and assumptions the Company uses in its duration
calculation and in effect at December 31, 1997, management estimates that a 100
basis point immediate, parallel increase in interest rates ("rate shock") would
decrease the net fair value of its assets identified above by approximately $6.9
million. The selection of a 100 basis point immediate rate shock should not be
construed as a prediction by the Company's management of future market events;
but rather, to illustrate the potential impact of such an event.
To the extent that actual results differ from the assumptions utilized, the
Company's duration and rate shock measures could be significantly impacted.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.
In formulating and implementing policies for investing new and existing funds,
AIC, as parent company of ALIC, administers and oversees investment risk
management processes primarily through three oversight bodies: the Boards of
Directors and Investment Committees of its operating subsidiaries, and the
Credit and Risk Management Committee ("CRMC"). The Boards of Directors and
Investment Committees provide executive oversight of investment activities. The
CRMC is a senior management committee consisting of the Chief Investment
Officer, the Investment Risk Manager, and other investment officers who are
responsible for the day-to-day management of market risk. The CRMC meets at
least monthly to provide detailed oversight of investment risk, including market
risk.
AIC has investment guidelines that define the overall framework for managing
market and other investment risks,
37
<PAGE>
including the accountabilities and controls over these activities. In addition,
AIC has specific investment policies for each of its affiliates, including the
Company, that delineate the investment limits and strategies that are
appropriate for the Company's liquidity, surplus and regulatory requirements.
LIQUIDITY AND CAPITAL RESOURCES. Under the terms of reinsurance agreements,
premiums and deposits, excluding those relating to Separate Accounts, are
transferred to ALIC, which maintains the investment portfolios supporting the
Company's products. Payments of policyholder claims, benefits, contract
maturities, contract surrenders and withdrawals and operating costs are
reimbursed by ALIC, also under the terms of the reinsurance agreements. The
primary sources for the remainder of the Company's funds are collection of
principal and interest from the investment portfolio and capital contributions
from ALIC. The primary uses for the remainder of the Company's funds are to
purchase investments and pay costs associated with the maintenance of the
Company's investment portfolio. The Company continues to have primary liability
as a direct insurer for risks reinsured.
The NAIC has a standard for assessing the solvency of insurance companies, which
is referred to as risk-based capital ("RBC"). The requirement consists of a
formula for determining each insurer's RBC and a model law specifying regulatory
actions if an insurer's RBC falls below specified levels. The RBC formula for
life insurance companies establishes capital requirements relating to insurance,
business, asset, and interest rate risks. At December 31, 1997, RBC for the
Company was significantly above levels that would require regulatory action.
YEAR 2000. The Company is heavily dependent upon complex computer systems for
all phases of its operations, including customer service, and policy and
contract administration. Since many of the Company's older computer software
programs recognize only the last two digits of the year in any date, some
software may fail to operate properly in or after the year 1999, if the software
is not reprogrammed or replaced ("Year 2000 Issue"). The Company believes that
many of its suppliers and counterparties also have Year 2000 Issues which could
affect the Company. In 1995, AIC commenced a plan intended to mitigate and/or
prevent the adverse effects of Year 2000 Issues. These strategies include normal
development and enhancement of new and existing systems, upgrades to operating
systems already covered by maintenance agreements and modifications to existing
systems to make them Year 2000 compliant. The plan also includes the Company
actively working with its major external counterparties and suppliers to assess
their compliance efforts and the Company's exposure to them. The Company
presently believes that it will resolve the Year 2000 Issue in a timely manner,
and the financial impact will not materially affect its results of operations,
liquidity, or financial position. Year 2000 costs are and will be expensed as
incurred.
PENDING ACCOUNTING STANDARDS. In December 1996, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 127 delayed the implementation of certain
provisions of SFAS No. 125. "Accounting for Transfers of Financial Assets and
Extinguishments of Liabilities" until January 1, 1998. The deferred provisions
of SFAS No. 125 will be adopted effective January 1, 1998 and are not expected
to have a material impact on the financial position of the Company.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" and
SFAS No. 131 "Disclosures About Segments of an Enterprise and Related
Information".
SFAS No. 130 requires the presentation of comprehensive income in the financial
statements. Comprehensive income is a measurement of all changes in equity that
result from transactions and other economic events other than transactions with
shareholders. The requirements of this statement will be adopted effective
January 1, 1998.
SFAS No. 131 redefines how segments are determined and requires additional
segment disclosures for both annual and quarterly reporting. Under this
statement, segments are determined using the "management approach" for financial
statement reporting. The management approach is based on the way an enterprise
makes operating decisions and assesses performance of its businesses. The
Company is currently reviewing the requirements of this SFAS and has yet to
determine its impact on its current reporting segments. The requirements of this
statement will be adopted effective December 31, 1998.
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position ("SOP")
97-3, "Accounting by Insurance and Other Enterprises for Insurance-related
Assessments". The SOP provides guidance concerning when to recognize a liability
for insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: a) an assessment has been
imposed or it is probable that an assessment will be imposed, b) the event
obligating an entity to pay an assessment has occurred and c) the amount of the
assessment can be reasonably estimated. The requirements of this standard will
be adopted in 1999 and are not expected to have a material impact on the results
of operations, cash flows or financial position of the Company.
In March 1998, the Accounting Standards Executive Committee of the AICPA issued
SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use." The SOP provides guidance on accounting for the costs of
computer software developed or obtained for internal use. Specifically, certain
external, payroll and payroll related costs should be capitalized during the
application
38
<PAGE>
development state of a project and depreciated over the computer software's
useful life. The Company currently expenses these costs as incurred and is
evaluating the effects of this SOP on its accounting for internally developed
software. The SOP is expected to be adopted in 1998.
FORWARD-LOOKING STATEMENTS. The statements contained in this Management's
Discussion and Analysis that are not historical information are forward-looking
statements that are based on management's estimates, assumptions and
projections. The Private Securities Litigation Reform Act of 1995 provides a
safe harbor under the Securities Act of 1933 and the Securities Exchange Act of
1934 for forward-looking statements.
COMPETITION. Lincoln Benefit is engaged in a business that is highly
competitive. Many other life insurance companies and other entities sell
insurance and annuities. There are approximately 1,700 insurers in business in
the United States. As of April 1, 1998, A.M. Best Company assigns a rating of A+
(Superior) to Allstate Life, which automatically reinsures all net general
account business of Lincoln Benefit. A.M. Best Company also assigns Lincoln
Benefit a rating of A+(r), because Lincoln Benefit automatically reinsures all
general account business with Allstate Life. Standard & Poor's Insurance Rating
Services assigns an AA+ (Excellent) rating to Lincoln Benefit's claims paying
ability. Moody's assigns an Aa2 (Excellent) financial stability rating to
Lincoln Benefit. Lincoln Benefit shares the same ratings as its parent, Allstate
Life.
EMPLOYEES. As of December 31, 1997, Lincoln Benefit had approximately 585
employees at its home office in Lincoln, Nebraska.
PROPERTIES. Lincoln Benefit owns and leases office space in Lincoln, Nebraska.
The combined owned and leased spaces are used for home office administrative
operations.
EXECUTIVE OFFICERS AND DIRECTORS OF LINCOLN BENEFIT. Our directors and executive
officers are listed below, together with information as to their ages, dates of
election and principal business occupations during the last five years (if other
than their present occupation).
JANET P. ANDERBERY, 39, VICE PRESIDENT AND CONTROLLER, 1994; Associate Vice
President and Controller, 5/84-4/94, Lincoln Benefit Life Company; Vice
President and Controller, 1/94-present, Surety Life Insurance Company; Vice
President and Controller, 5/93-present, Lincoln Benefit Financial Services, Inc.
DOUGLAS F. GAER, 51, EXECUTIVE VICE PRESIDENT, 1997, DIRECTOR, 1981; Senior Vice
President, 4/95-2/97, Senior Vice President and Treasurer, 4/94-3/95, Vice
President, 3/81-4/94, Director, 1981-present, Lincoln Benefit Life Company;
Senior Vice President and Treasurer, 1/94-present, Director, 6/95-present,
Surety Life Insurance Company; Director, 5/93-present, Lincoln Benefit Financial
Services, Inc.
PETER H. HECKMAN, 52, VICE CHAIRMAN OF THE BOARD, 1996, DIRECTOR, 1990; Vice
President, Director, 4/92-present, Glenbrook Life & Annuity Company; Vice
President, 11/90-12/97, Director, 9/90-12/97, Glenbrook Life Insurance Company;
Vice President, 6/89-present, Director, 7/90-present, Allstate Life Insurance
Company of New York; Vice President, 4/89-present, Director, 12/88-present,
Allstate Life Insurance Company; Vice President, 12/88-present, Director,
12/88-present, Northbrook Life Insurance Company; Director, 5/90-present, Surety
Life Insurance Company; Director, 5/90-present, Lincoln Benefit Life Company;
Director 5/91-9/93, Allstate Life Financial Services.
LOUIS G. LOWER, II, 52, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, 1989,
DIRECTOR, 1989; Chairman of the Board and President, 4/92-6/95, Chairman of the
Board and Chief Executive Officer, 6/95-present, Glenbrook Life and Annuity
Company; Chairman of the Board and President, 1/91-12/95, Chairman of the Board
and Chief Executive Officer, 12/95-12/97, Director, 9/90-12/97, Glenbrook Life
Insurance Company; President, 1/90-present, Executive Vice President, 1/89-1/90,
Senior Vice President and Treasurer, 10/86-12/88, Director, Allstate Life
Insurance Company; Chairman of the Board and Chief Executive Officer,
6/95-present, Chairman of the Board and President, 4/90-6/95, Chairman of the
Board, 4/90-7/90, Executive Vice President, 1/89-4/90, Senior Vice President and
Treasurer, 10/86-4/89, Director, Northbrook Life Insurance Company; Chairman of
the Board and President, 6/90-present, Vice President and Treasurer 12/86-6/90,
Director, Allstate Life Insurance Company of New York; Chairman of the Board and
Chief Executive Officer, Director, 5/90-present, Lincoln Benefit Life Company;
Chairman of the Board and Chief Executive Officer, 3/90-present, Director,
5/89-present, Surety Life Insurance Company; Group Vice President, 1976-1989,
Director, Allstate Insurance Company; Director, 4/90-present, Allstate
Settlement Company; Director, 5/91-present, Allstate Life Financial Services.
JOHN J. MORRIS, 61, SENIOR VICE PRESIDENT/SECRETARY, 1994, DIRECTOR, 1987;
Senior Vice President and Secretary, 4/94-present, Vice President and Secretary,
8/85-4/94, Director, 1987-present, Lincoln Benefit Life Company; Senior Vice
President, 9/96-present, Director, 6/95-present, Surety Life Insurance Company;
Vice President and Secretary, Director, 5/93-present, Lincoln Benefit Financial
Services Inc.
ROBERT E. RICH, 43, EXECUTIVE VICE PRESIDENT, 1996, DIRECTOR, 1987; Senior Vice
President/Chief Actuary and Treasurer, 4/95-5/96, Senior Vice President,
Assistant Secretary, 4/94-3/95, Vice President/Assistant Secretary, 1/84-4/94,
Director, 1987-present, Lincoln Benefit Life Company; Executive Vice President,
7/96-present, Senior Vice President and Chief Actuary, 1/94-6/96, Director,
9/93-present, Surety Life Insurance Company; Director, 5/93-present, Lincoln
Benefit Financial Services, Inc.
KEVIN R. SLAWIN, 40, DIRECTOR, 1996; Director and Vice President-Finance and
Planning, 1996-present, Allstate Life
39
<PAGE>
Insurance Company; Director, 1996-present, Allstate Life Insurance Company of
New York; Director, 1996-present, Laughlin Group Holdings, Inc.; Director,
1996-present, Northbrook Life Insurance Company; Director, 1996-12/97, Surety
Life Insurance Company; Director, 1996-present, Glenbrook Life Insurance
Company; Assistant Vice President, Assistant Treasurer, 1995-1996, Allstate
Insurance Company.
MICHAEL J. VELOTTA, 51, DIRECTOR, 1992; Vice President, Secretary and General
Counsel, 1/93-present, Director, 12/92-present, Allstate Life Insurance Company;
Vice President, Secretary and General Counsel, 1/93-12/97, Director,
12/92-12/97, Glenbrook Life Insurance Company; Vice President, Secretary and
General Counsel, 1/93-present, Director, 12/92-present, Glenbrook Life and
Annuity Company; Vice President, Secretary and General Counsel, 1/93-present,
Director, 12/92-present, Allstate Life Insurance Company of New York; Vice
President, Secretary and General Counsel, 1/93-present, Director, 12/92-present,
Northbrook Life Insurance Company; Vice President, Secretary and General
Counsel, 1/93-present, Director, 12/92-present, Surety Life Insurance Company;
Assistant Vice President and Assistant General Counsel, 1989, Allstate Insurance
Company; Director, 12/92-present, Lincoln Benefit Life Company.
RANDY J. VON FUMETTI, 41, SENIOR VICE PRESIDENT, 1996, DIRECTOR, 1996; Senior
Vice President, 9/96-present, Director, 9/96-present, Surety Life Insurance
Company; Senior Actuary and Director, 8/87-9/96, Allstate Life Insurance
Company.
CAROL S. WATSON, 45, SENIOR VICE PRESIDENT/GENERAL COUNSEL, 1994, DIRECTOR,
1992; Senior Vice President and General Counsel, 4/94-present, Vice President
and General Counsel, 7/91-4/94, Director, 5/92-present, Lincoln Benefit Life
Company; Senior Vice President, Corporate Secretary and General Counsel,
1/98-present, Senior Vice President, Assistant Secretary and General Counsel,
Director, 6/95-present, Surety Life Insurance Company; President, 12/96-present,
Vice President and General Counsel, 5/93-11/96, Director, 5/93-present, Lincoln
Benefit Financial Services, Inc.
PATRICIA W. WILSON, 45, DIRECTOR, 1997; Assistant Vice President/Assistant
Secretary/Assistant Treasurer, 7/97-present, Assistant Vice President,
1/93-7/97, Allstate Life Insurance Company; Assistant Vice President,
6/91-present, Director, 6/97-present, Allstate Life Insurance Company of New
York; Assistant Treasurer, 7/97-12/97, Glenbrook Life Insurance Company;
Assistant Treasurer, 7/97-present, Glenbrook Life Annuity Company; Assistant
Vice President/Assistant Secretary/Assistant Treasurer, 7/97-present, Northbrook
Life Insurance Company; Director, 7/97-present, Surety Life Insurance Company.
B. EUGENE WRAITH, 52, PRESIDENT, CHIEF OPERATING OFFICER, 1996, DIRECTOR, 1984;
President and Chief Operating Officer, 3/96-present, Senior Vice President,
4/94-3/96, Vice President, 12/81-4/94, Director, 1984-present, Lincoln Benefit
Life Company; President and Chief Operating Officer, 3/96-present, Executive
Vice President, 1/94-3/96, Director, 9/93-present, Surety Life Insurance
Company; Chairman of the Board, 1/97-present, Director, 5/93-present, President,
5/93-11/96, Lincoln Benefit Financial Services, Inc.
EXECUTIVE COMPENSATION
Certain executive officers of Lincoln Benefit also serve as officers of Allstate
Life and receive no compensation directly from Lincoln Benefit. Some officers
also serve as executive officers of other companies affiliated with Lincoln
Benefit. Allocations have been made as to each individual's time devoted to his
or her duties as an executive officer of Lincoln Benefit. Those allocations are
reflected in the Summary Compensation Table set forth below, except that the
figures for Mr. Lower reflect his total compensation from Lincoln Benefit, its
affiliates, and parent company Allstate Life Insurance Company. Lincoln
Benefit's directors receive no compensation for serving as directors, in
addition to their compensation as employees at Lincoln Benefit, Allstate Life,
or their affiliates.
40
<PAGE>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------
PAYOUTS
AWARDS ------------
ANNUAL COMPENSATION -------------
------------------------------- (f) (g)
(a) (e) ------------ -----------
- ----------------------------------------------- (b) (c) (d) ------------- SECURITIES UNDERLYING
NAME AND PRINCIPAL --------- --------- --------- OTHER ANNUAL RESTRICTED OPTIONS/
POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARS(#)
- ----------------------------------------------- --------- --------- --------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Louis G. Lower II 1997 $ 453,225 $ 500,000 $ 27,768 $ 280,589 25,914
Chief Executive Officer 1996 $ 436,800 $ 246,781 $ 10,246 0 18,258
Chairman of the Board 1995 $ 416,000 $ 286,650 $ 17,044 0 89,359
--------- --------- --------- ------------- ------------ -----------
Bernard Eugene Wraith 1997 99,500 24,733 4,887 0 1,002
President 1996 90,750 26,500 10,435 0 14,275
1995 75,468 10,000 9,861 0 769
--------- --------- --------- ------------- ------------ -----------
Robert Edwin Rich 1997 77,772 20,206 18,461 0 456
Executive Vice President 1996 71,824 23,500 19,611 0 132
and Chief Actuary 1995 67,624 9,000 9,846 0 679
--------- --------- --------- ------------- ------------ -----------
Douglas Ford Gaer 1997 73,750 17,888 15,978 0 434
Executive Vice President 1996 57,875 18,550 12,996 0 100
1995 51,902 6,850 15,231 0 523
--------- --------- --------- ------------- ------------ -----------
John H. Coleman, III 1997 109,776 28,620 12,709 0 0
Vice President 1996 101,088 25,500 3,047 0 0
1995 94,000 25,010 3,835 0 0
<CAPTION>
(a) (h) (i)
- ----------------------------------------------- ----------- ---------------
NAME AND PRINCIPAL LTIP ALL OTHER
POSITION PAYOUTS($) COMPENSATION
- ----------------------------------------------- ----------- ---------------
<S> <C> <C>
Louis G. Lower II $ 570,068 $ 8,000(1)
Chief Executive Officer 0 $ 5,250(1)
Chairman of the Board $ 411,122 $ 5,250(1)
----------- ------
Bernard Eugene Wraith 0 0
President 0 0
0 0
----------- ------
Robert Edwin Rich 0 0
Executive Vice President 0 0
and Chief Actuary 0 0
----------- ------
Douglas Ford Gaer 0 0
Executive Vice President 0 0
0 0
----------- ------
John H. Coleman, III 0 0
Vice President 0 0
0 0
</TABLE>
- ------------------------
(1) Amount received by Mr. Lower which represents the value allocated to his
account from employer contributions under The Savings and Profit Sharing
Fund of Allstate Employees and prior to 1996 to The Profit Sharing Fund and
to its predecessor, The Savings and Profit Sharing Fund of Sears employees.
Shares of the Company and Allstate Life are not directly owned by any of our
directors or executive officers. The percentage of shares of The Allstate
Corporation beneficially owned by any director, and by all of our directors and
executive officers as a group does not exceed one percent of the class
outstanding.
STATE REGULATION OF LINCOLN BENEFIT. We are subject to the laws of Nebraska and
regulated by the Nebraska Department of Insurance. Every year we file an annual
statement with the Department of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Department of Insurance to verify our contract
liabilities and reserves. We also are examined periodically by the NAIC. Our
books and records are subject to review by the Department of Insurance at all
times. We are also subject to regulation under the insurance laws of every
jurisdiction in which we operate.
SEPARATE ACCOUNT. Lincoln Benefit Life Variable Annuity Account was originally
established in 1992, as a segregated asset account of Lincoln Benefit. The
Separate Account meets the definition of a "separate account" under the federal
securities laws and is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940. The SEC does not supervise the management of
the Separate Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Contract
Value of the Contracts offered by this prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains, or losses. Our obligations arising under the
Contracts are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Subaccounts. The assets of each Subaccount
are invested in the shares of one of the Portfolios. We do not guarantee the
investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account and the amount of Variable
Annuity payments will rise and fall with the values of shares of the Portfolios
and are also reduced by Contract charges. We may also use the Separate Account
to fund our other annuity contracts. We will account separately for each type of
annuity contract funded by the Separate Account.
We have included additional information about the Separate Account in the
Statement of Additional Information. You may obtain a copy of the Statement of
Additional Information by writing to us or calling us at 1-800-865-5237. We have
reproduced the Table of Contents of the Statement of Additional Information on
page 43 below.
41
<PAGE>
ADMINISTRATION
We have primary responsibility for all administration of the Contracts and the
Separate Account. Our mailing address is P.O. Box 82532, Lincoln, Nebraska
68501-2532.
We provide the following administrative services, among others: issuance of the
Contracts; maintenance of Contract Owner records; Contract Owner services;
calculation of unit values; maintenance of the Separate Account; and preparation
of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least
quarterly. You should notify us promptly in writing of any address change. You
should read your statements and confirmations carefully and verify their
accuracy. You should contact us promptly if you have a question about a periodic
statement. We will investigate all complaints and make any necessary adjustments
retroactively, but you must notify us of a potential error within a reasonable
time after the date of the questioned statement. If you wait too long, we will
make the adjustment as of the date that we receive notice of the potential
error.
We will also provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
MARKET TIMING AND ASSET
ALLOCATION SERVICES
Certain third parties offer market timing and asset allocation services in
connection with the Contracts. In certain situations, we will honor transfer
instructions from third party market timing and asset allocation services if
they comply with our administrative systems, rules and procedures, which we may
modify at any time. PLEASE NOTE that fees and charges assessed for third party
market timing and asset allocation services are separate and distinct from the
Contract fees and charges set forth herein. We neither recommend nor discourage
the use of market timing and asset allocation services.
DISTRIBUTION OF CONTRACTS
The Contracts described in this prospectus are sold by registered
representatives of broker-dealers who are our licensed insurance agents, either
individually or through an incorporated insurance agency. Commissions paid to
broker-dealers may vary, but we estimate that the total commissions paid on all
Contract sales will not exceed 6% of all Purchase Payments (on a present value
basis). From time to time, we may offer additional sales incentives of up to 1%
of Purchase Payments to broker-dealers who maintain certain sales volume levels.
We do not pay commission on Contract sales to our employees, our affiliate's
employees or their spouses or minor children.
Lincoln Benefit Financial Services, Inc. ("LBFS") serves as distributor of the
Contracts. LBFS is located at 206 South 13th Street, Lincoln, Nebraska
68508-1993. LBFS is our wholly owned subsidiary. It is registered as a
broker-dealer under the Securities Exchange Act of 1934, and is a member of the
National Association of Securities Dealers, Inc.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Lincoln
Benefit and its subsidiaries are engaged in routine law suits which, in our
management's judgment, are not of material importance to their respective total
assets or material with respect to the Separate Account.
LEGAL MATTERS
Legal matters relating to the federal securities laws in connection with the
Contracts described in this prospectus are being passed upon by the law firm of
Jorden Burt Boros Cicchetti Berenson & Johnson, 1025 Thomas Jefferson St., East
Lobby-Suite 400, Washington, D.C. 20007-0805.
EXPERTS
The consolidated financial statements of Lincoln Benefit Life Company and
subsidiary as of December 31, 1997 and 1996, and for each of three years in the
period ended December 31, 1997, included in this prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, under the Securities Act of
1933 as amended, with respect to the Contracts offered by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits filed as part of the registration statement. You
should refer to the registration statement and the exhibits for further
information concerning the Separate Account, Lincoln Benefit, and the Contracts.
The descriptions in this prospectus of the Contracts and other legal instruments
are summaries. You should refer to those instruments as filed for the precise
terms of those instruments. You may inspect and obtain copies of the
registration statements as described on the cover page of this prospectus.
42
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
<S> <C>
The Contract................................................ 2
Annuity Payments........................................ 2
Annuity Unit Value...................................... 3
Illustrative Example of Variable Annuity Payments....... 5
Additional Federal Income
Tax Information............................................. 6
Diversification--Separate Account Investments........... 6
Owner Control........................................... 6
Multiple Contracts...................................... 7
Qualified Plans......................................... 7
Separate Account Performance................................ 10
Experts..................................................... 14
Financial Statements........................................ 14
</TABLE>
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
LINCOLN BENEFIT LIFE COMPANY:
We have audited the accompanying consolidated statements of financial position
of Lincoln Benefit Life Company and subsidiary (wholly owned by Allstate Life
Insurance Company) as of December 31, 1997 and 1996, and the related
consolidated statements of operations, shareholder's equity and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lincoln Benefit Life Company and
subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997 in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying
supplemental schedule is presented for the purpose of additional analysis and is
not a required part of the basic consolidated financial statements. This
schedule is the responsibility of the Company's management. Such schedule has
been subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic consolidated
financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
March 20, 1998
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
($ in thousands) 1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized
cost $141,553 and $134,866) $ 147,911 $ 137,638
Investment in home office real estate 2,574 2,797
Short-term 1,020 1,861
------------- -------------
Total investments 151,505 142,296
Reinsurance recoverable from Allstate Life
Insurance Company 6,732,755 6,544,750
Reinsurance recoverable from third parties 127,182 115,965
Receivable from Allstate Life Insurance
Company
and affiliates, net 14,481 19,923
Cash 4,220 7,412
Other assets 29,402 22,275
Separate Accounts 447,658 255,881
------------- -------------
Total assets $ 7,507,203 $ 7,108,502
------------- -------------
------------- -------------
LIABILITIES
Reserve for life-contingent contract benefits $ 252,195 $ 239,449
Contractholder funds 6,607,130 6,422,126
Income taxes payable 1,128 923
Deferred income taxes 4,149 3,480
Other liabilities and accrued expenses 43,609 44,482
Separate Accounts 447,658 255,881
------------- -------------
Total liabilities 7,355,869 6,966,341
------------- -------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE
8)
SHAREHOLDER'S EQUITY
Common stock, $100 par value, 30,000 shares
authorized, 25,000 issued and outstanding 2,500 2,500
Additional capital paid-in 116,750 116,750
Unrealized net capital gains 4,132 1,801
Retained income 27,952 21,110
------------- -------------
Total shareholder's equity 151,334 142,161
------------- -------------
Total liabilities and shareholder's equity $ 7,507,203 $ 7,108,502
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
($ in thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Net investment income $ 10,789 $ 9,951 $ 8,796
Realized capital gains and losses 17 6 258
--------- --------- ---------
10,806 9,957 9,054
COSTS AND EXPENSES
Provision for policy benefits (net of reinsurance
recoveries of $464,154, $419,936 and $375,662) - 465 462
Operating costs and expenses 219 889 754
--------- --------- ---------
219 1,354 1,216
--------- --------- ---------
INCOME BEFORE INCOME TAX EXPENSE 10,587 8,603 7,838
INCOME TAX EXPENSE 3,735 3,020 2,745
--------- --------- ---------
NET INCOME $ 6,852 $ 5,583 $ 5,093
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
($ in thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
COMMON STOCK $ 2,500 $ 2,500 $ 2,500
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year 116,750 116,750 96,750
Capital contribution - - 20,000
--------- --------- ---------
Balance, end of year 116,750 116,750 116,750
--------- --------- ---------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year 1,801 4,998 (2,630)
Net change 2,331 (3,197) 7,628
--------- --------- ---------
Balance, end of year 4,132 1,801 4,998
--------- --------- ---------
RETAINED INCOME
Balance, beginning of year 21,110 18,060 12,967
Dividend-in-kind (10) (2,533) -
Net income 6,852 5,583 5,093
--------- --------- ---------
Balance, end of year 27,952 21,110 18,060
--------- --------- ---------
Total shareholder's equity $ 151,334 $ 142,161 $ 142,308
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
($ in thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 6,852 $ 5,583 $ 5,093
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation, amortization and other non-cash items 20 50 96
Realized capital gains and losses (17) (6) (258)
Increase (decrease) in life-contingent contract
benefits and contractholder funds 427 (4,918) (130)
Change in deferred income taxes (586) (62) (156)
Changes in other operating assets and liabilities (4,261) 11,083 (5,940)
--------- --------- ---------
Net cash provided by (used in) operating
activities 2,435 11,730 (1,295)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales
Fixed income securities - - 5,633
Equity securities - - 108,255
Investment collections
Fixed income securities 11,980 8,759 13,769
Investment purchases
Fixed income securities (18,307) (17,570) (34,372)
Equity securities - - (108,255)
Real estate (140) (405) (644)
Change in short-term investments, net 840 4,489 (2,920)
Change in policy loans, net - - 24
--------- --------- ---------
Net cash used in investing activities (5,627) (4,727) (18,510)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution - - 20,000
--------- --------- ---------
Net cash provided by financing activities - - 20,000
--------- --------- ---------
NET (DECREASE) INCREASE IN CASH (3,192) 7,003 195
CASH AT BEGINNING OF YEAR 7,412 409 214
--------- --------- ---------
CASH AT END OF YEAR $ 4,220 $ 7,412 $ 409
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activity:
Dividend-in-kind to Allstate Life Insurance Company $ (10) $ (2,533) $ -
--------- --------- ---------
--------- --------- ---------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Lincoln Benefit Life Company (the "Company") and its wholly owned subsidiary,
Lincoln Benefit Financial Services, Inc. ("LBFS"), a registered broker-dealer.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"), a wholly
owned subsidiary of The Allstate Corporation (the "Corporation"). On June 30,
1995, Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership in the
Corporation to Sears common shareholders through a tax-free dividend (the
"Distribution"). These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. All significant
intercompany accounts and transactions have been eliminated.
To conform with the 1997 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets a broad line of life insurance and annuity products
countrywide. Life insurance policies include traditional products such as whole
life and term life insurance, as well as variable life universal life and other
interest-sensitive life products. Annuities include deferred annuities, such as
variable annuities and fixed rate single and flexible premium annuities, and
immediate annuities. The Company distributes its products primarily through
independent agents and brokers specializing in life insurance and annuities.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary withdrawal or surrender by the customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses. In
order to support competitive crediting rates and limit interest rate risk, ALIC
as the Company's primary reinsurer adheres to a basic philosophy of matching
assets with related liabilities, while maintaining adequate liquidity and a
prudent and diversified level of credit risk.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be new and proposed federal
and state regulation and legislation which would allow banks greater
participation in the securities and insurance businesses, which will present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Enacted and pending state legislation to permit mutual insurance companies to
covert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; (2) increasing competition in capital
markets; and (3) reopening stock/mutual company disagreements related to such
issues as taxation disparity between mutual and stock insurance companies.
The Company is authorized to sell life and annuity products in all states except
New York, as well as in the District of Columbia, Guam and the U.S. Virgin
Islands. The top geographic locations for statutory premiums earned by the
Company are California, Florida, Illinois, Virginia and Wisconsin for the year
ended December 31, 1997. No other jurisdiction accounted for more than 5% of
statutory premiums and deposits. Substantially all premiums and contract charges
are ceded to ALIC under reinsurance agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net
6
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
of deferred income taxes, is reflected as a component of shareholder's equity.
Provisions are recognized for declines in the value of fixed income securities
that are other than temporary. Such writedowns are included in realized capital
gains and losses.
Short-term investments are carried at cost which approximates fair value. Real
estate represents property owned and occupied by the Company, and is carried at
depreciated cost.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgaged-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
REINSURANCE
The Company has reinsurance agreements whereby all premiums, contract charges,
credited interest, policy benefits and certain expenses are primarily ceded to
ALIC and reflected net of such cessions in the statements of operations. The
amounts shown in the Company's statements of operations relate to the
consolidated investment of those assets of the Company that are not transferred
to ALIC under reinsurance agreements. Reinsurance recoverable and the related
reserve for life-contingent contract benefits and contractholder funds are
reported separately in the statements of financial position. The Company
continues to have primary liability as the direct insurer for risks reinsured.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Premiums for traditional life insurance are recognized as revenue when due.
Accident and disability premiums are earned on a pro rata basis over the policy
period. Revenues on interest-sensitive life insurance policies are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on most annuities, which are considered
investment contracts, include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied against
the contract balances. Gross premium in excess of the net premium of limited
payment contracts are deferred and recognized over the contract period.
INCOME TAXES
The income tax provision is calculated under the liability method. Deferred tax
assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates. Deferred income taxes also arise from unrealized capital gains or losses
on fixed income securities carried at fair value.
SEPARATE ACCOUNTS
The Company issues flexible premium deferred variable annuity contracts and
flexible premium variable life policies, the assets and liabilities of which are
legally segregated and reflected in the accompanying consolidated statements of
financial position as assets and liabilities of the Separate Accounts. (Lincoln
Benefit Life Variable Annuity Account and Lincoln Benefit Life Variable Life
Account, unit investment trusts registered with the Securities and Exchange
Commission.) Assets of the Separate Accounts are carried at fair value.
Investment income and realized capital gains and losses of the Separate Accounts
accrue directly to the policy and contractholders and, therefore, are not
included in the Company's consolidated statements of operations. Revenues to the
Company from the Separate Accounts consist of contract maintenance fees,
administration fees and mortality and expense risk charges, all of which are
ceded to ALIC.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to traditional
life, annuities with life contingencies, and disability insurance and accident
insurance, is computed on the basis of assumptions as to future investment
yields, mortality, morbidity, terminations and expenses. These assumptions,
which for traditional life are applied using the net level premium method,
include provisions for adverse deviation and generally vary by such
characteristics as type of coverage, year of issue and policy duration. Reserve
interest rates ranged from 4.0% to 8.75% during 1997.
7
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most annuities and
universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. During 1997, credited interest rates on
contractholder funds ranged from 5.0% to 8.75% for those contracts with fixed
interest rates and from 4.0% to 14.0% for those contracts with flexible rates.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company previously reinsured all of its annuities and approximately one
third of its life insurance with ALIC. Effective December 31, 1996, the
reinsurance treaty with ALIC was amended to also include a paid up block of life
business which was previously retained by the Company. The reinsurance premium
related to the transfer was $8,255 on a statutory accounting basis and $5,712
based upon generally accepted accounting principles, creating a dividend-in-kind
of $2,543. The premium is equal to the sum of the aggregate policy reserves and
policyholder dividend accumulations on this block of business as of December 31,
1996. The policy loans and accrued interest relating to this block of business
totaled $554 and were also ceded to ALIC as of December 31, 1996, creating a
non-cash financing transaction.
Premiums and contract charges ceded to ALIC were $34,834 and $87,061 in 1997,
$48,111 and $73,659 in 1996, and $56,008 and $44,655 in 1995. Credited interest,
policy benefits and expenses ceded to ALIC amounted to $533,369, $496,735 and
$466,508 in 1997, 1996, and 1995. Investment income earned on the assets which
support contractholder funds is not included in the Company's consolidated
financial statements as those assets are owned and managed by ALIC under the
terms of the reinsurance agreements.
BUSINESS OPERATIONS
The Company utilizes services and business facilities owned or leased, and
operated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $34,947, $25,094 and $16,083 in 1997, 1996 and 1995, respectively. All of
these costs are ceded to ALIC under reinsurance agreements.
8
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------------- FAIR
AT DECEMBER 31, 1997 COST GAINS (LOSSES) VALUE
- ----------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
U.S. government and agencies $ 14,598 $ 1,760 $ - $ 16,358
Corporate 71,602 1,839 (297) 73,144
Foreign government 3,040 229 - 3,269
Mortgage-backed securities 52,313 2,845 (18) 55,140
----------- --------- ----------- ---------
Total fixed income securities $ 141,553 $ 6,673 $ (315) $ 147,911
----------- --------- ----------- ---------
----------- --------- ----------- ---------
<CAPTION>
AT DECEMBER 31, 1996
- -----------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and agencies $ 16,960 $ 780 $ (25) $ 17,715
Corporate 55,778 1,178 (1,274) 55,682
Foreign government 3,048 225 - 3,273
Mortgage-backed securities 59,080 2,493 (605) 60,968
----------- --------- ----------- ---------
Total fixed income securities $ 134,866 $ 4,676 $ (1,904) $ 137,638
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities at December 31, 1997 are as
follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- ---------
<S> <C> <C>
Due in one year or less $ 375 $ 375
Due after one year through five years 17,195 17,599
Due after five years through ten years 58,369 59,867
Due after ten years 13,301 14,930
----------- ---------
89,240 92,771
Mortgage-backed securities 52,313 55,140
----------- ---------
Total $ 141,553 $ 147,911
----------- ---------
----------- ---------
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
NET INVESTMENT INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Fixed income securities $ 10,723 $ 9,825 $ 8,710
Short-term investments 160 215 177
Other investments 66 31 31
--------- --------- ---------
Investment income, before expense 10,949 10,071 8,918
Investment expense 160 120 122
--------- --------- ---------
Net investment income $ 10,789 $ 9,951 $ 8,796
--------- --------- ---------
--------- --------- ---------
</TABLE>
9
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
REALIZED CAPITAL GAINS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Fixed income securities $ 17 $ 6 $ 258
Income tax expense 6 2 90
--------- --------- ---------
Realized capital gains and losses, after tax $ 11 $ 4 $ 168
--------- --------- ---------
--------- --------- ---------
</TABLE>
Gains of $251 were realized on sales of fixed income securities during 1995,
excluding calls and prepayments.
UNREALIZED NET CAPITAL GAINS
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
COST/ UNREALIZED
AMORTIZED FAIR NET
COST VALUE GAINS
----------- --------- -----------
<S> <C> <C> <C>
Fixed income securities $ 141,553 $ 147,911 $ 6,357
----------- ---------
----------- ---------
Deferred income taxes 2,225
-----------
Unrealized net capital gains $ 4,132
-----------
-----------
</TABLE>
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
- ----------------------------------------------------- --------- --------- ---------
<S> <C> <C> <C>
Fixed income securities $ 3,585 $ (4,918) $ 11,735
Deferred income taxes 1,254 1,721 (4,107)
--------- --------- ---------
Change in unrealized net capital gains and losses $ 2,331 $ (3,197) $ 7,628
--------- --------- ---------
--------- --------- ---------
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1997, fixed income securities with a carrying value of $8,581
were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including deferred income
taxes and reserve for life-contingent contract benefits) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial instruments, such as accrued investment income
and cash, are generally of a short-term nature. It is assumed that their
carrying value approximates fair value.
10
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
---------------------- ----------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Fixed income securities $ 147,911 $ 147,911 $ 137,638 $ 137,638
Short-term investments 1,020 1,020 1,861 1,861
Separate Accounts 447,658 447,658 255,881 255,881
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Non-quoted securities are valued based on discounted cash flows using current
interest rates for similar securities. Short-term investments are highly liquid
investments with maturities of less than one year whose carrying value
approximates fair value. Separate Accounts assets are carried in the
consolidated statements of financial position at fair value.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Contractholder funds on investment contracts $ 5,188,474 $ 4,941,732 $ 5,180,396 $ 4,921,842
Separate Accounts 447,658 447,658 255,881 255,881
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
6. INCOME TAXES
The Company joins the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate Group")
and is party to a federal income tax allocation agreement (the "Tax Sharing
Agreement"). Under the Tax Sharing Agreement, the Company paid to or received
from the Corporation the amount, if any, by which the Allstate Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this results in the
Company's annual income tax provision being computed, with adjustments, as if
the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement"). Under the Sears Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed as if the Allstate Group
filed a separate consolidated return, except that items such as net operating
losses, capital losses or similar items, which might not be recognized in a
separate return, were allocated according to the Sears Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution ("Consolidated Tax Years"). The agreement
11
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
provides that all Consolidated Tax Years will continue to be governed by the Tax
Sharing Agreement with respect to the Allstate Group's federal income tax
liability.
The components of the deferred income tax assets and liabilities at December 31,
are as follow:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
DEFERRED ASSETS
Separate accounts $ 393 $ -
DEFERRED LIABILITIES
Difference in tax bases of investments (2,265) (2,510)
Unrealized net capital gains (2,225) (970)
Other (52) -
--------- ---------
Total deferred tax liabilities (4,542) (3,480)
--------- ---------
Net deferred tax liability $ (4,149) $ (3,480)
--------- ---------
--------- ---------
</TABLE>
The components of the income tax expense for the year ended at December 31, are
as follow:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Current $ 4,321 $ 3,082 $ 2,901
Deferred (586) (62) (156)
--------- --------- ---------
Total income tax expense $ 3,735 $ 3,020 $ 2,745
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company paid income taxes of $4,116, $2,864 and $3,125 in 1997, 1996 and
1995, respectively, to ALIC.
Prior to January 1, 1984, the Company was entitled to exclude certain amounts
from taxable income and accumulate such amounts in a "policyholder surplus"
account. The balance in this account at December 31, 1997, approximately $340
will result in federal income taxes payable of $119 if distributed by the
Company to ALIC. No provision for taxes has been made as the Company has no plan
to distribute amounts from this account. No further additions to the account
have been permitted since the Tax Reform Act of 1984.
12
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
7. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, as reported herein in conformity with
generally accepted accounting principles with statutory net income and capital
and surplus, determined in accordance with statutory accounting practices
prescribed or permitted by insurance regulatory authorities.
<TABLE>
<CAPTION>
NET INCOME
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance per generally accepted accounting principles $ 6,852 $ 5,583 $ 5,093
Deferred income taxes (586) (62) (156)
Statutory investment reserves 36 38 446
Other 363 2 638
--------- --------- ---------
Balance per statutory accounting practices $ 6,665 $ 5,561 $ 6,021
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Balance per generally accepted accounting principles $ 151,334 $ 142,161
Deferred income taxes 4,149 3,480
Unrealized gain/loss on fixed income securities (4,132) (1,801)
Non-admitted assets and statutory investment
reserves (15,994) (14,838)
Other 3,304 4,034
--------- ---------
Balance per statutory accounting practices $ 138,661 $ 133,036
--------- ---------
--------- ---------
</TABLE>
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Nebraska
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners,
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a material effect on statutory surplus or risk-based
capital.
The NAIC has approved revised statutory accounting principles, as a result of
the codification project to be effective January 1, 1999. Dates for adoption and
implementation, however, will be determined on an individual state basis. The
requirements are not expected to have a material impact on the statutory surplus
of the Company.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1998 without prior approval of the Nebraska Department of Insurance is
$6,665.
13
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
8. LEASE COMMITMENTS
The Company leases certain office facilities. Total rent expense for all leases
was $1,274, $1,039 and $741 in 1997, 1996, and 1995, respectively. Minimum
rental commitments under non-cancelable operating leases with a remaining term
of more than one year as of December 31, are as follows:
<TABLE>
<S> <C>
1998 $ 1,370
1999 1,170
2000 1,095
2001 1,080
2002 542
Thereafter -
---------
$ 5,257
---------
---------
</TABLE>
Included in the table above is $982 for commitments beyond 1998 which relate to
a certain lease for office space. The Company has the option to cancel the
agreement for office space subject to a cancellation charge of an amount equal
to one year's rent.
14
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
SUPPLEMENTAL SCHEDULE - REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED NET AMOUNT
- ----------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Life insurance in force $72,754,000 $72,754,000 $ -
---------- ---------- -------------
---------- ---------- -------------
Premiums and contract charges:
Life and annuities $ 299,838 $ 299,838 $ -
---------- ---------- -------------
---------- ---------- -------------
<CAPTION>
GROSS
YEAR ENDED DECEMBER 31, 1996 AMOUNT CEDED NET AMOUNT
- ----------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Life insurance in force $51,514,000 $51,514,000 $ -
---------- ---------- -------------
---------- ---------- -------------
Premiums and contract charges:
Life and annuities $ 200,853 $ 200,853 $ -
---------- ---------- -------------
---------- ---------- -------------
<CAPTION>
GROSS
YEAR ENDED DECEMBER 31, 1995 AMOUNT CEDED NET AMOUNT
- ----------------------------------------------------- ---------- ---------- -------------
<S> <C> <C> <C>
Life insurance in force $28,215,000 $28,200,000 $ 15,000
---------- ---------- -------------
---------- ---------- -------------
Premiums and contract charges:
Life and annuities $ 128,975 $ 128,975 $ -
---------- ---------- -------------
---------- ---------- -------------
</TABLE>
15
<PAGE>
APPENDIX A
PORTFOLIOS AND PERFORMANCE DATA
PERFORMANCE DATA
From time to time the Separate Account may advertise the Fidelity Money Market
Subaccount's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Fidelity Money Market Subaccount refers to the net income earned
by the Subaccount over the seven-day period stated in the advertisement. This
income is then "annualized." That is, the amount of income earned during that
week is assumed to be generated each week 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 the investment is assumed to be
reinvested at the end of each seven-day period. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital gains or losses that might have occurred
during the seven day period, nor do they reflect the impact of any premium tax
charge or Withdrawal Charges. The impact of other, recurring charges on both
yield figures is, however, reflected in them to the same extent it would affect
the yield (or effective yield) for a Contract of average size.
In addition, the Separate Account may advertise an annualized 30-day (or one
month) yield figure for Subaccounts other than the Fidelity Money Market
Subaccount. These yield figures are based upon the actual performance of the
Subaccount over a 30-day (or one month) period ending on a date specified in the
advertisement. Like the money market yield data described above, the 30-day (or
one month) yield data will reflect the effect of all recurring Contract charges,
but will not reflect any Withdrawal Charges or premium tax charge. The yield
figure is derived from net investment gain (or loss) over the period expressed
as a fraction of the investment's value at the end of the period.
The Separate Account may also advertise standardized and non-standardized "total
return" data for its Subaccounts. Like the yield figures described above, total
return figures are based on historical data and are not intended to indicate
future performance. The standardized "total return" compares the value of a
hypothetical investment made at the beginning of the period to the value of the
same hypothetical investment at the end of the period. Standardized total return
figures reflect the deduction of any Withdrawal Charge that would be imposed
upon a complete redemption of the Contract at the end of the period. Recurring
Contract charges are reflected in the standardized total return figures in the
same manner as they are reflected in the yield data for Contracts funded through
the Money Market Subaccount.
In addition to the standardized "total return," the Separate Account may
advertise non-standardized "total return." Non-standardized total return is
calculated in a similar manner and for the same time periods as the standardized
total return except that the Withdrawal Charge is not deducted. Further, we
assumed an initial hypothetical investment of $30,000, because $30,000 is closer
to the average Purchase Payment of a Contract which we expect to write.
Standardized total return, on the other hand, assumes an initial hypothetical
investment of $1,000.
The Separate Account may also disclose yield and non-standardized total return
for time periods before the date the Separate Account commenced operations. In
this case, performance data for the Subaccounts is calculated based on the
performance of the Portfolios and assumes that the Subaccounts existed during
the same time period as the Portfolios, with recurring Contract charges equal to
those currently assessed against the Subaccounts.
Our advertisements may also compare the performance of our Subaccounts with: (a)
certain unmanaged market indices, including but the Dow Jones Industrial
Average, the Standard & Poor's 500, and the Shearson Lehman Bond Index; and/or
(b) other management investment companies with investment objectives similar to
the underlying funds being compared. Our advertisements also may include the
performance ranking assigned by various publications, including the Wall Street
Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today, and
statistical services, including Lipper Analytical Services Mutual Fund Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey,
and SEI.
The Contract charges are described in more detail on pages 29-32. We have
described the computation of advertised performance data for the Separate
Account in more detail beginning on page S-10 of the Statement of Additional
Information.
A-1
<PAGE>
APPENDIX B
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
<TABLE>
<S> <C>
Purchase Payment: $40,000.00
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
5-year Treasury Rate at
Time of Purchase Payment: 6%
</TABLE>
The following examples illustrate how the Market Value Adjustment and the
Withdrawal Charge may affect the values of a Contract upon a withdrawal. The 5%
assumed Guaranteed Interest Rate is the rate required to be used in the "Summary
of Expenses." In these examples, the withdrawal occurs one year after the Issue
Date. The Market Value Adjustment operates in a similar manner for transfers,
except that there is no free amount for transfers. No Withdrawal Charge applies
to transfers.
Assuming that the entire $40,000.00 Purchase Payment is allocated to the
Guaranteed Maturity Fixed Account for the Guarantee Period specified above, at
the end of the five-year Guarantee Period the Contract Value would be
$51,051.26. After one year, when the withdrawals occur in these examples, the
Contract Value would be $42,000.00. We have assumed that no prior partial
withdrawals or transfers have occurred.
The Market Value Adjustment and the Withdrawal Charge only apply to the portion
of a withdrawal that is greater than the Free Withdrawal Amount. Accordingly,
the first step is to calculate the Free Withdrawal Amount.
The Free Withdrawal Amount is equal to:
(a) the greater of:
- earnings non previously withdrawn; or
- 15% of your total Purchase Payments in the most recent seven years;
plus
(b) an amount equal to your total Purchase Payments made more than seven
years ago, to the extent not previously withdrawn.
Here, (a) equals $6,000.00, because 15% of the total Purchase Payments in the
most recent seven years ($6,000.00 = 15% X $40,000.00) is greater than the
earnings not previously withdrawn ($2,000.00). (B) equals $0, because all of the
Purchase Payments were made less than seven years age. Accordingly, the Free
Withdrawal Amount is $6,000.00.
The formula that we use to determine the amount of the Market Value Adjustment
is:
.9 X (I-J) X N,
<TABLE>
<S> <C> <C> <C>
where: I = the Treasury Rate for a maturity equal to the relevant Guarantee Period for the week
preceding the beginning of the Guarantee Period;
J = the Treasury Rate for a maturity equal to the relevant Guarantee Period for the week
preceding our receipt of your withdrawal request, death benefit request, transfer request,
or annuity option request; and
N = the number of whole and partial years from the date we receive your request until the end of
the relevant Guarantee Period.
</TABLE>
We will base the Market Value Adjustment on the current Treasury Rate for a
maturity corresponding in length to the relevant Guarantee Period. These
examples also show the Withdrawal Charge (if any), which would be calculated
separately from the Market Value Adjustment.
B-1
<PAGE>
EXAMPLE OF A DOWNWARD MARKET VALUE ADJUSTMENT
A downward Market Value Adjustment results from a full or partial withdrawal
that occurs when interest rates have increased. Assume interest rates have
increased one year after the Purchase Payment, such that the five-year Treasury
Rate is now 6.5%. Upon a withdrawal, the market value adjustment factor would
be:
.9 X (.06 - .065) X 4 = -.0180
The Market Value Adjustment is a reduction of $648.00 from the amount withdrawn:
$648.00 = -.0180 X ($42,000.00 - $6,000.00)
A Withdrawal Charge of 7% would be assessed against the Purchase Payments
withdrawn that are less than seven years old and are not eligible for free
withdrawal. Under the Contract, earnings are deemed to be withdrawn before
Purchase Payments. Accordingly, in this example, the amount of the Purchase
Payment eligible for free withdrawal would equal the Free Withdrawal Amount less
the interest credited or $4,000.00 ($6,000.00 - $2,000.00).
Therefore, the Withdrawal Charge would be:
$2,520.00 = 7% X (40,000.00 - $4,000.00)
As a result, the net amount payable to you would be:
$38,832.00 = $42,000.00 - $648.00 - $2,520.00
EXAMPLE OF AN UPWARD MARKET VALUE ADJUSTMENT
An upward Market Value Adjustment results from a withdrawal that occurs when
interest rates have decreased. Assume interest rates have decreased one year
after the Purchase Payment, such that the five-year Treasury Rate is now 5.5%.
Upon a withdrawal, the market value adjustment factor would be:
.9 X (.06 - .055) X 4 = .0180
The Market Value Adjustment would increase the amount withdrawn by $648.00, as
follows:
$648.00 = .0180 X ($42,000.00 - $6,000.00)
As above, in this example, the amount of the Purchase Payment eligible for free
withdrawal would equal the Free Withdrawal Amount less the interest credited or
$4,000.00 ($6,000.00 - $2,000.00). Therefore, the Withdrawal Charge would be:
$2,520.00 = 7% X ($40,000.00 - $4,000.00)
As a result, the net amount payable to you would be:
$40,128.00 = $42,000.00 + $648.00 - $2,520.00
EXAMPLE OF A PARTIAL WITHDRAWAL
If you request a partial withdrawal from a Guarantee Period, we can either (1)
withdraw the specified amount of Contract Value and pay you that amount as
adjusted by any applicable Market Value Adjustment or (2) pay you the amount
requested, and subtract an amount from your Contract Value that equals the
requested amount after application of the Market Value Adjustment and Withdrawal
Charge. Unless you instruct us otherwise, when you request a partial withdrawal
we will assume that you wish to receive the amount requested. We will make the
necessary calculations and on your request provide you with a statement showing
our calculations.
For example, if in the first example you wished to receive $20,000.00 as a
partial withdrawal, the Market Value Adjustment and Withdrawal Charge would be
calculated as follows:
<TABLE>
<S> <C> <C> <C>
let: AW = the total amount to be withdrawn from your contract value
MVA = Market Value Adjustment
WC = Withdrawal Charge
AW' = amount subject to Market Value Adjustment and Withdrawal Charge
Then AW - $20,000.00 = MVA + WC
</TABLE>
Since neither the Market Value Adjustment nor the Withdrawal Charge apply to the
free withdrawal amount, we can solve directly for the amount subject to the
Market Value Adjustment and the Withdrawal Charge (i.e., AW'), which equals AW -
$6,000.00. Then, AW = AW' + $6,000, and AW' + $6,000.00 - $20,000.00 = MVA + WC.
<TABLE>
<S> <C> <C> <C>
MVA = .018 X AW'
WC = .07 X AW'
</TABLE>
B-2
<PAGE>
(since the Market Value Adjustment is a reduction from amount withdrawn, it
operates in the same direction as the Withdrawal Charge)
<TABLE>
<S> <C> <C> <C>
MVA + WC = .088AW'
AW' - $14,000.00 = .088AW'
AW' = $14,000.00 / (1 - .088) = $15,350.88
MVA = .018 X $15,350.88 = $276.32
WC = .07 X $15,350.88 = $1,074.56
</TABLE>
AW = Total amount withdrawn = $15,350.88 + $6,000.00 = $21,350.88
You receive $20,000.00; the total amount subtracted from your contract is
$21,350.88; the Market Value Adjustment is $276.32; and the Withdrawal Charge is
$1,074.56. Your remaining Contract Value is $20,649.12.
If, however, in the same example, you wished to withdraw $20,000.00 from your
Contract Value and receive the adjusted amount, the calculations would be as
follows:
By definition, AW = total amount withdrawn from your Contract Value =
$20,000.00
<TABLE>
<S> <C> <C> <C>
AW' = amount that MVA & WC are applied to
= amount withdrawn in excess of Free Amount = $20,.000.00 - $6,000.00 = $14,000.00
MVA = .018 X $14,000.00 = $252.00
WC = .07 X $14,000.00 = $980.00
</TABLE>
You would receive $20,000.00 - $252.00 - $980.00 = $18,768.00; the total amount
subtracted from your Contract Value is $20,000.00. Your remaining Contract Value
would be $22,000.00.
EXAMPLE OF FREE WITHDRAWAL AMOUNT
Assume that in the foregoing example, after four years $8,620.25 in interest had
been credited and that the Contract Value in the Fixed Account equaled
$48,620.25. In this example, if no prior withdrawals have been made, you could
withdraw up to $8,620.25 without incurring a Market Value Adjustment or a
Withdrawal Charge. The Free Withdrawal Amount would be $8,620.25, because the
interest credited ($8,620.25) is greater than 15% of the Total Purchase Payments
in the most recent seven years ($40,000.00 X .15 = $6,000.00).
B-3
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
DEPOSITOR: LINCOLN BENEFIT LIFE COMPANY
This Statement of Additional Information is not a prospectus. You should also
read the prospectus relating to the annuity contracts described above. You may
obtain a copy of the prospectus without charge by calling us at 1-800-865-5237
or writing to us at the following address:
Lincoln Benefit Life Company
P.O. Box 82532
Lincoln, Nebraska 68501-2532
The date of this Statement of Additional Information
and of the related Prospectus is: April [ ], 1998.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE CONTRACT...................................... S-2
ANNUITY PAYMENTS................................ S-2
ANNUITY UNIT VALUE.............................. S-3
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY
PAYMENTS...................................... S-4
ADDITIONAL FEDERAL INCOME TAX INFORMATION......... S-4
DIVERSIFICATION -- SEPARATE ACCOUNT
INVESTMENTS................................... S-4
OWNER CONTROL................................... S-5
MULTIPLE CONTRACTS.............................. S-5
QUALIFIED PLANS................................. S-5
SEPARATE ACCOUNT PERFORMANCE...................... S-7
EXPERTS........................................... S-9
FINANCIAL STATEMENTS.............................. S-9
</TABLE>
S-1
<PAGE>
THE CONTRACT
ANNUITY PAYMENTS
The amount of your annuity payments will depend on the following factors:
(a) the amount of your Contract Value on the Valuation Date next preceding
the Annuity Date, minus any applicable premium tax charge and adjusted by
any applicable Market Value Adjustment;
(b) the Payment Option you have selected;
(c) the payment frequency you have selected;
(d) the age and, in some cases, the sex of the Annuitant and any Joint
Annuitant; and
(e) for Variable Annuity Payments only, the investment performance after the
Annuity Date of the Subaccounts you have selected.
INITIAL MONTHLY ANNUITY PAYMENT
For both Fixed and Variable Annuity payments, we determine the amount of your
initial annuity payment as follows. First, we subtract any applicable premium
tax charge from your Contract Value on the Valuation Date next preceding the
Annuity Date. We will also increase or decrease your Fixed Account balance by
any applicable Market Value Adjustment. Next, we apply that amount to the
Payment Option you have selected. For Fixed Annuity payments, we will use either
the Payment Option Tables in the Contract or our annuity tables in effect for
single premium immediate annuities at the time of the calculation, whichever
table is more favorable to the payee. For Variable Annuity payments, we will use
the Payment Options tables in the Contract (which reflect the assumed investment
rate of 3.5% which is used in calculating subsequent Variable Annuity payments,
as described below). The tables show the amount of the periodic payment a payee
could receive based on $1,000 of Contract Value. To determine the initial
payment amount, we divide your Contract Value, adjusted as described above, by
$1,000 and multiply the result by the relevant annuity factor for the
Annuitant's age and sex (if we are permitted to consider that factor) and the
frequency of the payments you have selected.
In some states and under certain Qualified Plans and other employer-sponsored
employee benefit plans, we are not permitted to take the Annuitant's sex into
consideration in determining the amount of periodic annuity payments. In those
states, we use the same annuity table for men and women.
SUBSEQUENT MONTHLY PAYMENTS
For a Fixed Annuity, the amount of the second and each subsequent monthly
annuity payment is usually the same as the first monthly payment. However, after
the Annuity Date you will have a limited ability to increase your Fixed Annuity
payments by making transfers from the Subaccounts, as described in "Transferred
after the Annuity Date" on page S-3 below. After each such transfer, however,
your subsequent annuity payments will remain at the new level until and unless
you make an additional transfer to your Fixed Annuity payments.
For a Variable Annuity, the amount of the second and each subsequent monthly
payment will vary depending on the investment performance of the Subaccounts to
which you allocated your Contract Value. We calculate separately the portion of
the monthly annuity payment attributable to each Subaccount you have selected as
follows. When we calculate your initial annuity payment, we also will determine
the number of Annuity Units in each Subaccount to allocate to your Contract for
the remainder of the Annuity Period. For each Subaccount, we divide the portion
of the initial annuity payment attributable to that Subaccount by the Annuity
Unit Value for that Subaccount on the Valuation Date next preceding the Annuity
Date. The number of Annuity Units so determined for your Contract is fixed for
the duration of the Annuity Period. We will determine the amount of each
subsequent monthly payment attributable to each Subaccount by multiplying the
number of Annuity Units allocated to your Contract by the Annuity Unit Value for
that Subaccount as of the Valuation Period next preceding the date on which the
annuity payment is due. Since the number of Annuity Units is fixed, the amount
of each subsequent Variable Annuity payment will reflect the investment
performance of the Subaccounts elected by you.
TRANSFERS AFTER THE ANNUITY DATE
The Contract provides that during the Annuity Period, you may make transfers
among the Subaccounts or increase the proportion of your annuity payments
consisting of Fixed Annuity payments. We will effect a transfer among the
Subaccounts at their Annuity Unit Value next determined after we receive your
instructions. After the transfer, your subsequent Variable Annuity payments will
be based on your new Annuity Unit balances. If you wish to transfer value from
the Subaccounts to increase your Fixed Annuity payments, we will determine the
amount of your additional Fixed Annuity payments as follows. First, we will
determine the Annuitized Value represented by the Annuity Units that you wish to
apply to a Fixed Annuity
S-2
<PAGE>
payment. Then, we will apply that amount to the appropriate factor for the
Payment Option you have selected, using either the Payment Option Tables in the
Contract or our annuity tables for single premium immediate annuities at the
time of the calculation, whichever table is more favorable to the payee.
ANNUITY UNIT VALUE
We determine the value of an Annuity Unit independently for each Subaccount.
Initially, the Annuity Unit Value for each Subaccount was set at $100.00.
The Annuity Unit Value for each Subaccount will vary depending on how much the
actual net investment return of the Subaccount differs from the assumed
investment rate that was used to prepare the annuity tables in the Contract.
Those annuity tables are based on a 3.5% per year assumed investment rate. If
the actual net investment rate of a Subaccount exceeds 3.5%, the Annuity Unit
Value will increase and Variable Annuity payments derived from allocations to
that Subaccount will increase over time. Conversely, if the actual rate is less
than 3.5%, the Annuity Unit Value will decrease and the Variable Annuity
payments will decrease over time. If the net investment rate equals 3.5%, the
Annuity Unit Value will stay the same, as will the Variable Annuity payments. If
we had used a higher assumed investment rate, the initial monthly payment would
be higher, but the actual net investment rate would also have to be higher in
order for annuity payments to increase (or not to decrease).
For each Subaccount, we determine the Annuity Unit Value for any Valuation
Period by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the Net Investment Factor for the current Valuation Period.
The result is then divided by a second factor which offsets the effect of the
assumed net investment rate of 3.5% per year.
The Net Investment Factor measures the net investment performance of a
Subaccount from one Valuation Date to the next. The Net Investment Factor may be
greater or less than or equal to one; therefore, the value of an Annuity Unit
may increase, decrease or remain the same.
To determine the Net Investment Factor for a Subaccount for a Valuation Period,
we divide (a) by (b), and then subtract (c) from the result, where:
(a) is the total of:
(1) the net asset value of a Portfolio share held in the Subaccount
determined as of the Valuation Date at the end of the Valuation Period;
plus
(2) the per share amount of any dividend or other distribution
declared by the Portfolio for which the "ex-dividend" date occurs during
the Valuation Period; plus or minus
(3) a per share credit or charge for any taxes which we paid or for
which we reserved during the Valuation Period and which we determine to
be attributable to the operation of the Subaccount. As described in the
prospectus, currently we do not pay or reserve for federal income taxes;
(b) is the net asset value of the Portfolio share determined as of the
Valuation Date at the end of the preceding Valuation Period; and
(c) is the mortality and expense risk charge and the administrative expense
risk charge.
ILLUSTRATIVE EXAMPLE OF ANNUITY UNIT VALUE CALCULATION
Assume that one share of a given Subaccount's underlying Portfolio had a net
asset value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on
a Tuesday; that its net asset value had been $11.44 at the close of the NYSE on
Monday, the day before; and that no dividends or other distributions on that
share had been made during the intervening Valuation Period. The Net Investment
Factor for the Valuation Period ending on Tuesday's close of the NYSE is
calculated as follows:
Net Investment Factor = ($11.46/$11.44) - 0.0000384 = 1.0017140
The amount subtracted from the ratio of the two net asset values (0.0000343) is
the daily equivalent of the annual asset-based expense charges against the
Subaccount of 1.25%.
In the example given above, if the Annuity Unit value for the Subaccount was
$101.03523 on Monday, the Annuity Unit Value on Tuesday would have been:
<TABLE>
<S> <C>
$101.03523 X 1.0017140 = $101.19886
- ---------------------
1.0000943
</TABLE>
S-3
<PAGE>
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENTS
Assume that a male Contract owner, P, owns a Contract in connection with which P
has allocated all of his Contract Value to a single Subaccount. P is also the
sole Annuitant. At age 60, P chooses to annuitize his Contract under Option B,
Life and 10 Years Certain. As of the last Valuation Date preceding the Annuity
Date, P's Account was credited with 7543.2456 Accumulation Units each having a
value of $15.432655. Accordingly, P's Account Value at that Date is equal to
7543.2456 X $15.432655 = $116,412.31. There are no premium tax charges payable
upon annuitization. Assume also that the Annuity Unit Value for the Subaccount
at that same Date is $132.56932, and that the Annuity Unit Value on the
Valuation Date immediately prior to the second annuity payment date is
$133.27695.
P's first Variable Annuity payment is determined from the annuity rate tables in
P's Contract, using the information assumed above. The tables supply monthly
annuity payments for each $1,000 of applied Contract Value. Accordingly, P's
first Variable Annuity payment is determined by multiplying the monthly
installment of $5.44 by the result of dividing P's Account Value by $1,000:
First Payment = $5.44 X ($116,412.31/$1,000) = $633.28
The number of P's Annuity Units is also determined at this time. It is equal to
the amount of the first Variable Annuity payment divided by the value of an
Annuity Unit at the Valuation Date immediately prior to annuitization:
Annuity Units = $633.28 DIVIDED BY $132.56932 = 4.77697
P's second Variable Annuity payment is determined by multiplying the number of
Annuity Units by the Annuity Unit value as of the Valuation Date immediately
prior to the second payment due date:
Second Payment = 4.77697 X $133.27695 = $636.66
P's third and subsequent Variable Annuity payments are computed in the same
manner.
The amount of the first Variable Annuity payment depends on the Contract Value
in the relevant Subaccount on the Annuity Date. Thus, it reflects the investment
performance of the Subaccount net of fees and charges during the Accumulation
Period. The amount of the first Variable Annuity payment determines the number
of Annuity Units allocated to P's Contract for the Annuity Period. That number
will remain constant throughout the Annuity Period, unless the Contract owner
makes a transfer. The amount of the second and subsequent Variable Annuity
payments depends on changes in the Annuity Unit Value, which will continuously
reflect changes in the net investment performance of the Subaccount during the
Annuity Period.
ADDITIONAL FEDERAL INCOME TAX INFORMATION
DIVERSIFICATION -- SEPARATE ACCOUNT INVESTMENTS
Section 817(h) of the Tax Code requires that the underlying assets of variable
annuity contracts be diversified. The Tax Code provides that a variable annuity
contract will not be treated as an annuity contract for federal income tax
purposes for any period and any subsequent period for which the investments are
not adequately diversified. If the Contract were disqualified for this reason,
you would lose the tax deferral advantages of the Contract and would be subject
to current federal income taxes on all earnings allocable to the Contract.
The Tax Code provides that annuity contracts such as the Contracts meet the
diversification requirements if, as of the close of each quarter, the underlying
assets meet the diversification standards for a regulated investment company,
and no more than 55% of the total assets consist of cash, cash items, U.S.
Government securities and securities of other regulated investment companies.
For purposes of determining whether or not the diversification standards of
Section 817(h) of the Tax Code have been met, each United States government
agency or instrumentality is treated as a separate issuer.
The United States Treasury Department (the "Treasury Department") also has
issued regulations that establish diversification requirements for the
investment accounts underlying variable contracts such as the Contracts. These
regulations amplify the diversification requirements set forth in the Tax Code
and provide an alternative to the provision described above. Under these
regulations, an investment account will be deemed adequately diversified if: (1)
no more than 55% of the value of the total assets of the account is represented
by any one investment; (2) no more than 70% of the value of the total assets of
the account is represented by any two investments; (3) no more than 80% of the
value of the total assets of the account is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
account is represented by any four investments.
These diversification standards are applied to each Subaccount of the Separate
Account by applying them to the investments of the Portfolio underlying the
Subaccount. One of our criteria in selecting the Portfolios is that their
investment managers intend to manage them in compliance with these
diversification requirements.
S-4
<PAGE>
OWNER CONTROL
In certain circumstances, variable annuity contract owners will be considered
the owners, for tax purposes, of Separate Account assets underlying their
contracts. In those circumstances, the contract owners could be subject to
taxation on the income and gains from the Separate Account assets.
In published rulings, the Internal Revenue Service has stated that a variable
annuity contract owner will be considered the owner of separate account assets,
if the owner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. When the diversification
regulations were issued, the Treasury Department announced that in the future it
would provide guidance on the extent to which variable contract owners could
direct their investments among subaccounts without being treated as owners of
the underlying assets of the Separate Account. As of the date of this
prospectus, no such guidance has been issued.
The ownership rights under the Contract are similar in many respects to those
described in IRS rulings in which the contract owners were not deemed to own the
separate account assets. In some respects, however, they differ. For example,
under the Contract you have many more investment options to choose from than
were available under the contracts involved in the published rulings, and you
may be able to transfer Contract Value among the investment options more
frequently than in the published rulings. Because of these differences, it is
possible that you could be treated as the owner, for tax purposes, of the
Portfolio shares underlying your Contract and therefore subject to taxation on
the income and gains on those shares. Moreover, it is possible that the
Treasury's position, when announced, may adversely affect the tax treatment of
existing contracts. We therefore reserve the right to modify the Contract as
necessary to attempt to prevent you from being considered the owner for tax
purposes of the underlying assets.
MULTIPLE CONTRACTS
Under Federal tax law, if you purchase more than one annuity contract within a
calendar year from us or our affiliates, those contracts are treated as one
annuity contract for purposes of determining the tax consequences of any
distribution. As a result, you might pay more in taxes than you would if you had
purchased each contract in a different calendar year. You should consult your
tax adviser before purchasing more than one annuity contract in any calendar
year.
QUALIFIED PLANS
We intend the Contracts offered by the prospectus to be suitable for use under
various types of Qualified Plans. If you acquired your Contract under a
Qualified Plan, your taxation will depend upon the specific type of plan and the
specific terms and conditions of the plan. In addition, benefits under a
Qualified Plan will depend on the specific terms and conditions of the Plan. If
the terms and conditions of your Contract differ from the terms and conditions
of the Plan under which your Contract was issued, the provisions of the Plan are
controlling.
When we issue Contracts pursuant to Qualified Plans, we include special Contract
provisions that may differ from some of the Contract provisions that may
otherwise be available and are described in this prospectus. For example,
Contracts issued pursuant to Qualified Plans generally are not transferable
except upon surrender or annuitization. You may also be required to pay penalty
tax or excise tax on contributions or distributions that violate applicable
limitations. Furthermore, certain withdrawal penalties and restrictions may
apply to surrenders from Contracts issued under Qualified Plans.
Following are general descriptions of the types of Qualified Plans with which
the Contracts may be used. These descriptions may not include all of the
information you would like to know about a particular type of Qualified Plan.
Moreover, we do not intend to provide you with advice about the advantages or
disadvantages of particular types of Plans or whether you should purchase a
Contract offered under a particular type of Qualified Plan. For more detailed
information or advice, you should consult the plan documents and/or a qualified
adviser. The tax rules regarding Qualified Plans are very complex and will have
differing applications depending on your individual circumstances. Anyone
considering establishing a Qualified Plan or purchasing a Contract issued under
a Qualified Plan should obtain advice as to the tax treatment and suitability of
the Plan or an investment under the Plan.
(a) H.R. 10 PLANS
Section 401 of the Tax Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees. This type of plan is
commonly referred to as an "H.R. 10" or "Keogh" Plan. Contributions made to
the Plan for the benefit of the employees will not be included in the
employees' gross income until distributed from the Plan. The tax
consequences to employers will depend upon the particular Plan design.
However, the Tax Code contains requirements and limits for items such as:
amounts of allowable contributions; form, manner and timing of
distributions; vesting and nonforfeitability of interests; nondiscrimination
in eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders.
S-5
<PAGE>
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the Tax Code permits the purchase of "Tax-Sheltered
Annuities" by public schools and certain charitable, educational and
scientific organizations described in Section 501(c)(3) of the Tax Code.
These qualifying employers may make contributions to the Contracts for the
benefit of their employees. Contributions made to the Plan for the benefit
of the employees will not be included in the employees' gross income until
distributed from the Plan. The amount of employer contributions may not
exceed certain limits imposed by the Tax Code. Furthermore, the Tax Code
sets forth additional restrictions governing such items as transferability,
distributions, nondiscrimination and withdrawals.
(c) INDIVIDUAL RETIREMENT ANNUITIES
Section 408(b) of the Tax Code permits eligible individuals to contribute to
an individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Contributions to an IRA are deductible from the individual's gross
income. The annual contribution may not exceed a specified amount. IRAs are
subject to limitations and requirements as to eligibility, contributions,
transferability and distributions. In addition, the Tax Code requires that
certain informational disclosure be given to persons who wish to establish
an IRA.
(d) SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS)
Sections 408(p) and 401(k) of the Tax Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE
plans may be structured as a SIMPLE retirement account using an employee's
IRA to hold the assets or as a Section 401(k) qualified cash or deferred
arrangement. In general, a SIMPLE plan consists of a salary deferral program
for eligible employees and matching or nonelective contributions made by
employers.
(e) SIMPLIFIED EMPLOYEE PENSION PLANS
Section 408(k) of the Tax Code allows employers to establish simplified
employee pension plans for their employees using the employees' IRAs. Under
these plans the employer may, within specified limits, make deductible
contributions on behalf of the employees to their IRAs.
Employers should consider that an IRA generally may not provide life
insurance, but it may provide a death benefit that equals the greater of the
premiums paid and the contract's cash value. The Contract provides a death
benefit that in certain circumstances may exceed the greater of the premium
payments and the Contract Value. It is possible that the Death Benefit could
be viewed as violating the prohibition on investment in life insurance
contracts with the result that the Contract would not be viewed as
satisfying the requirements of an IRA.
(f) CORPORATE PENSION AND PROFIT-SHARING PLANS
Sections 401(a) and 401(k) of the Tax Code permit corporate employers to
establish various types of retirement plans for employees. These retirement
plans may permit the purchase of the Contracts to provide benefits under the
plan. Contributions to the plan for the benefit of employees are not
included in the gross income of the employee until distributed from the
plan. The tax consequences to employers will depend upon the particular plan
design. However, the Tax Code places limitations on all plans on items such
as amount of allowable contributions; form, manner and timing of
distributions; vesting and nonforfeitability of interests; nondiscrimination
in eligibility and participation; and the tax treatment of distributions,
withdrawals and surrenders.
(g) DEFERRED COMPENSATION PLANS -- SECTION 457
Section 457 of the Tax Code provides that governmental and certain other tax
exempt employers may establish deferred compensation plans for the benefit
of their employees and that these plans may invest in annuity contracts.
While Section 457 plans generally are not considered "Qualified Plans", as
that term usually is used, the tax benefits are similar. Under these plans,
contributions made for the benefit of the employees are not included in the
employees' gross income until distributed from the plan. However, all the
deferred compensation remains solely the property of the employer, subject
only to the claims of the employer's general creditors, until it is
distributed to an employee or a beneficiary, until December 31, 1998, or
such earlier date as may be established by plan amendment. However, amounts
deferred under a Section 457 plan created on or after August 20, 1996 and
amounts deferred under any Section 457 plan after December 31, 1998 must be
held in trust, custodial account or annuity contract for the exclusive
benefit of plan participants and their beneficiaries. The Tax Code
establishes limitations and restrictions on eligibility, contributions, and
distributions.
(h) ROTH INDIVIDUAL RETIREMENT ANNUITIES -- SECTION 408A
Section 408A of the Tax Code permits eligible individuals to make
nondeductible contributions to an individual retirement program known as a
Roth Individual Retirement Annuity. Section 408A includes limits on how much
you may contribute to a Roth Individual Retirement Annuity and when
distributions may commence. Qualified distributions from
S-6
<PAGE>
Roth Individual Retirement Annuities are excluded from taxable gross income.
"Qualified distributions" are distributions which (a) are made more than
five years after the taxable year of the first contribution to the Roth
Individual Retirement Annuity, and (b) meet any of the following conditions:
(1) the annuity owner has reached age 59 1/2; (2) the distribution is paid
to a beneficiary after the owner's death; (3) the annuity owner is disabled;
or (4) the distribution will be used for a first time home purchase.
(Qualified distributions for first time home purchases may not exceed
$10,000.) Nonqualified distributions are includible in taxable gross income
only to the extent that they exceed the contributions made to the Roth
Individual Retirement Annuity. The taxable portion of a nonqualified
distribution may be subject to the 10% penalty tax.
Subject to certain limitations, you may convert a traditional Individual
Retirement Account or Annuity to a Roth Individual Retirement Annuity. You
will be required to include the taxable portion of the conversion in your
taxable gross income, but you will not be required to pay the 10% penalty
tax.
SEPARATE ACCOUNT PERFORMANCE
Performance data for the various Subaccounts are computed in the manner
described below.
FIDELITY MONEY MARKET SUBACCOUNT
The current yield is the annual yield on the Fidelity Money Market Subaccount
assuming no reinvestment of dividends and excluding all realized or unrealized
capital gains. We compute current yield by first determining the Base Period
Return on a hypothetical Contract having a balance of one Accumulation Unit at
the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV)/(SV)
where:
<TABLE>
<C> <C> <S>
SV = value of one Accumulation Unit at the start of a 7 day period
EV = value of one Accumulation Unit at the end of the 7 day period
</TABLE>
We determine the value of the Accumulation Unit at the end of the period (EV)
by:
(1) adding, to the value of the Unit at the beginning of the period (SV),
the investment income from the underlying Variable Insurance Products
Fund Money Market Portfolio attributed to the Unit over the period; and
(2) subtracting, from the result, the sum of:
(a) the portion of the annual Mortality and Expense Risk and
Administrative Expense Charges allocable to the 7 day period (obtained
by multiplying the annually-based charges by the fraction 7/365); and
(b) a prorated portion of the annual contract maintenance charge of $35
per Contract. The contract maintenance charge is allocated among the
Subaccounts in proportion to the total Contract Values similarly
allocated. The charge is further reduced, for purposes of the yield
computation, by multiplying it by the ratio that the value of the
hypothetical Contract bears to the value of an account of average size
for Contracts funded by the Fidelity Money Market Subaccount. The Charge
is then multiplied by the fraction 7/365 to arrive at the portion
attributable to the 7 day period.
The current yield is then obtained by annualizing the Base Period Return:
Current Yield = (Base Period Return) X (365/7)
The Fidelity Money Market Subaccount also quotes an "effective yield". Effective
yield differs from current yield in that effective yield takes into account the
effect of dividend reinvestment. The effective yield, like the current yield, is
derived from the Base Period Return over a 7 day period. However, the effective
yield accounts for the reinvestment of dividends in the Variable Insurance
Products Fund Money Market Portfolio by compounding the current yield according
to the formula:
Effective Yield = [(Base Period Return + 1)to the power of 365/7 - 1].
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not. The yield quotations also do not reflect any impact
of premium tax charges, transfer fees, or Withdrawal Charges.
The yields quoted do not represent the yield of the Fidelity Money Market
Subaccount in the future, because the yield is not fixed. Actual yields will
differ depending on the type, quality and maturities of the investments held by
the Variable Insurance Products Fund Money Market Portfolio and changes in
interest rates on those investments. In addition, your yield also will be
affected by factors specific to your Contract. For example, if your account is
smaller than average, your yield will be lower, because the fixed dollar expense
charges will affect the yield on small accounts more than they will affect the
yield on larger accounts.
S-7
<PAGE>
Yield information may be useful in reviewing the performance of the Fidelity
Money Market Subaccount and for providing a basis for comparison with other
investment alternatives. However, the Fidelity Money Market Subaccount's yield
may vary on a daily basis, unlike bank deposits or other investments that
typically pay a fixed yield for a stated period of time.
The Fidelity Money Market Portfolio's yield for the seven-day period ended
December 31, 1997 was 4.05% and the effective yield for the same seven day
period was 4.13%.
OTHER SUBACCOUNTS
We compute the performance of the other Subaccounts in terms of an annualized
"yield" and/or as "total return".
YIELD
Yield will be expressed as an annualized percentage based on the Subaccount's
performance over a stated 30-day (or one month) period. The annualized yield
figures will reflect all recurring Contract charges and will not reflect
Withdrawal Charges, transfer fees or premium tax charges. To arrive at the yield
percentage over the 30-day (or one month) period, the net income per
Accumulation Unit of the Subaccount during the period is divided by the value of
an Accumulation Unit as of the end of the period. The yield figure is then
annualized by assuming monthly compounding of the 30-day (or one month) figure
over a six-month period and then doubling the result.
The formula used in computing the yield figure is:
Yield = 2 X ( ((a-b) + 1)to the power of 6 - 1)
cd
where:
<TABLE>
<C> <C> <S>
a = net investment income earned during the period by the underlying
Portfolio attributable to its shares held in the Subaccount;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of Accumulation Units outstanding during the
period; and
d = the net asset value of an Accumulation Unit on the last day of
the period.
</TABLE>
These yield figures reflect all recurring Contract charges, as described in the
explanation of the yield computation for the Fidelity Money Market Subaccount.
Like the Fidelity Money Market Subaccount's yield figures, the yield figures for
the other Subaccounts are based on past performance and should not be taken as
predictive of future results.
STANDARDIZED TOTAL RETURN
Standardized total return for a Subaccount represents a single computed annual
rate of return that, when compounded annually over a specified time period (one,
five, and ten years, or since inception) and applied to a hypothetical initial
investment in a Contract funded by that Subaccount made at the beginning of the
period, will produce the same Contract Value at the end of the period that the
hypothetical investment would have produced over the same period. The
standardized total rate of return (T) is computed so that it satisfies the
following formula:
P(1+T)to the power of n = ERV
where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one, five, or ten year period as of the end
of the period (or fractional portion thereof).
</TABLE>
The standardized total return figures reflect the effect of both non-recurring
and recurring charges, as discussed herein. Recurring charges are taken into
account in a manner similar to that used for the yield computations for the
Fidelity Money Market Subaccount, described above. The applicable Withdrawal
Charge (if any) is deducted as of the end of the period, to reflect the effect
of the assumed complete redemption. The effect of the contract maintenance
charge on your account usually will differ from that assumed in the computation,
due to differences between most actual allocations and the assumed one, as well
as differences due to varying account sizes. Accordingly, your total return on
an investment in the Subaccount over the
S-8
<PAGE>
same time periods usually would have differed from those produced by the
computation. As with the Fidelity Money Market and other Subaccount yield
figures, standardized total return figures are based on historical data and are
not intended to be a projection of future performance.
NON-STANDARDIZED TOTAL RETURN
Non-standardized total return for a Subaccount represents a single computed
annual rate of return that, when compounded annually over a specified time
period (one, five, and ten years, or since inception) and applied to a
hypothetical initial investment in a Contract funded by that Subaccount made at
the beginning of the period, will produce the same Contract Value at the end of
the period that the hypothetical investment would have produced over the same
period. The total rate of return (T) is computed so that it satisfies the
formula:
P(1+T)to the power of n = ERV
where:
<TABLE>
<C> <C> <S>
P = a hypothetical initial payment of $30,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $30,000 payment made at
the beginning of the one, five, or ten year period as of the end
of the period (or fractional portion thereof).
</TABLE>
Our non-standardized total return differs standardized total return in that in
calculating non-standardized total return, we assumed an initial hypothetical
investment of $30,000. We chose $30,000, because it is closer to the average
Purchase Payment of a Contract that we expect to write. For standardized total
return, we used an initial hypothetical investment of $1,000, as required by SEC
regulations. The non-standardized total return figures reflect the effect of
recurring charges, as discussed herein. Because the impact of the contract
maintenance charge on your account will usually differ from that assumed in the
computation, due to differences between most actual allocations and the assumed
one, as well as differences due to varying account sizes, your total return on
an investment in the Subaccount over the same time periods usually would have
differed from those produced by the computation. As with the standardized total
return figures, non-standardized total return figures are based on historical
data and are not intended to be a projection of future performance.
TIME PERIODS BEFORE THE DATE THE SEPARATE ACCOUNT COMMENCED OPERATIONS
The Separate Account may also disclose yield and non-standardized total return
for time periods before the Separate Account commenced operations. This
performance data is based on the actual performance of the Portfolios since
their inception, adjusted to reflect the effect of the recurring Contract
charges at the rates currently charged against the Subaccounts.
TABLES OF TOTAL RETURN QUOTATIONS
The following tables include average annual total return and non-standardized
total return for various periods as of December 31, 1997.
S-9
<PAGE>
STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1997
ASSUMING CONTRACT SURRENDERED
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (3)
---------------------------------------------------------
INCEPTION SINCE
DATE (2) 1 YEAR (%) 5 YEAR (%) 10 YEAR (%) INCEPTION (%)
---------- -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
JANUS
Flexible Income................................. [ ] 4.79% N/A N/A [ ]
Balanced (4).................................... [ ] 15.54% N/A N/A [ ]
Growth (4)...................................... [ ] 16.51% N/A N/A [ ]
Aggressive Growth (4)........................... [ ] 6.78% N/A N/A [ ]
Worldwide Growth (4)............................ [ ] 16.33% N/A N/A [ ]
FEDERATED
Utility II (4).................................. [ ] 19.33% N/A N/A [ ]
U.S. Gov't II (4)............................... [ ] 0.85% N/A N/A [ ]
High Income Bond (4)............................ [ ] 6.81% N/A N/A [ ]
FIDELITY VIP
Money Market (1)................................ [ ] N/A N/A N/A N/A
Equity Income (4)............................... [ ] 24.14% N/A N/A [ ]
Growth (4)...................................... [ ] 19.86% N/A N/A [ ]
Overseas (4).................................... [ ] 6.72% N/A N/A [ ]
FIDELITY VIP II
Asset Manager (4)............................... [ ] 15.61% N/A N/A [ ]
Contrafund (4).................................. [ ] 18.21% N/A N/A [ ]
Index 500....................................... [ ] N/A N/A N/A [ ]
ALGER
Income and Growth............................... [ ] N/A N/A N/A [ ]
Small Capitalization............................ [ ] N/A N/A N/A [ ]
Growth.......................................... [ ] N/A N/A N/A [ ]
MidCap.......................................... [ ] N/A N/A N/A [ ]
Leveraged AllCap (4)............................ [ ] N/A N/A N/A [ ]
SCUDDER
Bond............................................ [ ] 4.27% N/A N/A [ ]
Balanced........................................ [ ] 20.03% N/A N/A N/A
Growth and Income............................... [ ] N/A N/A N/A N/A
Global Discovery................................ [ ] N/A N/A N/A N/A
International................................... [ ] N/A N/A N/A N/A
STRONG
Discovery II.................................... [ ] N/A N/A N/A N/A
Opportunity II.................................. [ ] N/A N/A N/A N/A
Growth II....................................... [ ] N/A N/A N/A N/A
T. ROWE PRICE INTERNATIONAL
International Stock............................. [ ] N/A N/A N/A N/A
T. ROWE PRICE
New America..................................... [ ] N/A N/A N/A N/A
Mid-Cap Growth.................................. [ ] N/A N/A N/A N/A
Equity Income................................... [ ] N/A N/A N/A N/A
</TABLE>
S-10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (3)
---------------------------------------------------------
INCEPTION SINCE
DATE (2) 1 YEAR (%) 5 YEAR (%) 10 YEAR (%) INCEPTION (%)
---------- -------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
MFS
Growth with Income (4).......................... [ ] N/A N/A N/A N/A
Research........................................ [ ] N/A N/A N/A N/A
Emerging Growth................................. [ ] N/A N/A N/A N/A
Total Return (4)................................ [ ] N/A N/A N/A N/A
New Discovery (4)............................... [ ] N/A N/A N/A N/A
</TABLE>
- ------------------------
(1) An investment in Fidelity Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that Fidelity Money Market
will maintain a stable $1.00 share price. The Fidelity Money Market Fund
does not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until on or about July
1, 1998, although it has offered other annuity contracts that are not
offered by the prospectus to which this Statement of Additional Information
relates. Accordingly, this table reflects hypothetical performance for the
periods covered, applying the contract charges under the Contract to the
investment performance of the underlying Portfolios. Standardized
performance data for periods after the inception of Contract sales will
reflect the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an
initial hypothetical investment of $1,000, as required by the SEC; and (3)
reflect the deduction of 1.25% annual asset charges, a $35 annual contract
maintenance charge, and a maximum 7% contingent deferred sales charge
(declining after two years). The investment return and value of a Contract
will fluctuate so that a Contract, when surrendered, may be worth more or
less than the amount of the Purchase Payments.
(4) Total returns reflect that the investment adviser waived all or part of its
fee or reimbursed the Portfolio for a portion of its expenses. Otherwise,
total returns would have been lower.
N/A Certain recently established subaccounts do not yet have meaningful
standardized return data. In the future, as such data becomes available,
standardized total return will be calculated as described above.
S-11
<PAGE>
NON-STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1997
ASSUMING CONTRACT NOT SURRENDERED
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(3)
------------------------------
PORTFOLIO MONTHLY TOTAL
INCEPTION RETURN RETURN 1 YEAR 5 YEAR 10 YEAR
DATE (2) (%) YTD (%) (%) (%) (%)
--------- ------- -------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
JANUS
Flexible Income................................. 9/13/93 1.23% 10.24% 10.24% N/A N/A
Balanced (4).................................... 9/13/93 1.44% 20.44% 20.44% N/A N/A
Growth (4)...................................... 9/13/93 0.81% 21.08% 21.08% N/A N/A
Aggressive Growth (4)........................... 9/13/93 3.56% 11.14% 11.14% N/A N/A
Worldwide Growth (4)............................ 9/13/93 1.44% 20.49% 20.49% N/A N/A
FEDERATED
Utility II (4).................................. 2/11/94 5.26% 24.91% 24.91% N/A N/A
U.S. Gov't II (4)............................... 3/28/94 0.74% 7.10% 7.10% N/A N/A
High Income Bond (4)............................ 3/1/94 1.18% 12.29% 12.29% N/A N/A
FIDELITY VIP
Money Market (1)................................ 4/1/82 N/A N/A N/A N/A N/A
Equity Income (4)............................... 10/9/86 2.03% 26.37% 26.37% 18.52% 15.13%
Growth (4)...................................... 10/9/86 0.10% 21.80% 21.80% 16.41% 15.59%
Overseas (4).................................... 1/28/87 0.72% 10.04% 10.04% 12.57% 7.22%
FIDELITY VIP II
Asset Manager (4)............................... 9/6/89 1.40% 19.01% 19.01% 11.45% N/A
Contrafund (4).................................. 1/3/95 1.72% 22.46% 22.46% N/A N/A
Index 500....................................... 8/27/92 1.57% 31.02% 31.02% 18.29% N/A
ALGER
Income and Growth............................... 11/15/88 2.11% 34.44% 34.44% 15.81% N/A
Small Capitalization............................ 9/21/88 0.60% 9.88% 9.88% 11.12% N/A
Growth.......................................... 1/9/89 (0.49)% 24.04% 24.04% 17.66% N/A
MidCap.......................................... 5/3/93 (2.65)% 13.44% 13.44% N/A N/A
Leveraged AllCap (4)............................ 1/25/95 (1.85)% 18.06% 18.06% N/A N/A
SCUDDER
Bond............................................ 7/16/85 0.76% 7.62% 7.62% 5.79% 7.08%
Balanced........................................ 7/16/85 1.49% 22.52% 22.52% 11.59% 11.37%
Growth and Income............................... 5/2/94 1.12% 28.70% 28.70% N/A N/A
Global Discovery................................ 5/1/96 2.64% 10.86% 10.86% N/A N/A
International................................... 5/1/87 0.81% 7.59% 7.59% 12.16% 10.28%
STRONG
Discovery II.................................... 5/8/92 (3.41)% 9.88% 9.88% 10.37% N/A
Opportunity II.................................. 5/8/92 1.39% 23.75% 23.75% 17.70% N/A
Growth II....................................... 12/31/96 2.20% 27.98% 27.98% N/A N/A
T.ROWE PRICE INTERNATIONAL
International Stock............................. 3/31/94 0.43% 1.69% 1.69% N/A N/A
T. ROWE PRICE
New America..................................... 3/31/94 2.67% 19.47% 19.47% N/A N/A
Mid-Cap Growth.................................. 12/31/96 4.27% 17.19% 17.19% N/A N/A
Equity Income................................... 3/31/94 2.86% 27.10% 27.10% N/A N/A
<CAPTION>
SINCE
INCEPTION
(%)
--------------
<S> <C>
JANUS
Flexible Income................................. 8.42%
Balanced (4).................................... 13.42%
Growth (4)...................................... 15.43%
Aggressive Growth (4)........................... 14.46%
Worldwide Growth (4)............................ 17.84%
FEDERATED
Utility II (4).................................. 12.21%
U.S. Gov't II (4)............................... 4.92%
High Income Bond (4)............................ 9.86%
FIDELITY VIP
Money Market (1)................................ N/A
Equity Income (4)............................... 13.07%
Growth (4)...................................... 14.06%
Overseas (4).................................... 8.01%
FIDELITY VIP II
Asset Manager (4)............................... 11.38%
Contrafund (4).................................. 26.50%
Index 500....................................... 18.26%
ALGER
Income and Growth............................... 12.26%
Small Capitalization............................ 17.44%
Growth.......................................... 17.17%
MidCap.......................................... 19.35%
Leveraged AllCap (4)............................ 33.01%
SCUDDER
Bond............................................ 6.73%
Balanced........................................ 10.42%
Growth and Income............................... 21.06%
Global Discovery................................ 7.75%
International................................... 9.04%
STRONG
Discovery II.................................... 9.64%
Opportunity II.................................. 18.10%
Growth II....................................... 28.01%
T.ROWE PRICE INTERNATIONAL
International Stock............................. 6.61%
T. ROWE PRICE
New America..................................... 21.99%
Mid-Cap Growth.................................. 17.20%
Equity Income................................... 22.04%
</TABLE>
S-12
<PAGE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
(3)
------------------------------
PORTFOLIO MONTHLY TOTAL
INCEPTION RETURN RETURN 1 YEAR 5 YEAR 10 YEAR
DATE (2) (%) YTD (%) (%) (%) (%)
--------- ------- -------------- ------ ------ --------------
<S> <C> <C> <C> <C> <C> <C>
MFS
Growth with Income (4).......................... 10/9/95 1.61% 28.02% 28.02% N/A N/A
Research........................................ 7/26/95 0.07% 18.63% 18.63% N/A N/A
Emerging Growth................................. 7/24/95 (1.10)% 20.25% 20.25% N/A N/A
Total Return (4)................................ 1/3/95 1.53% 19.65% 19.65% N/A N/A
New Discovery (4)............................... 5/1/98 N/A N/A N/A N/A N/A
<CAPTION>
SINCE
INCEPTION
(%)
--------------
<S> <C>
MFS
Growth with Income (4).......................... 28.74%
Research........................................ 20.57%
Emerging Growth................................. 21.84%
Total Return (4)................................ 20.36%
New Discovery (4)............................... N/A
</TABLE>
- ------------------------
(1) An investment in Fidelity Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that Fidelity Money Market
will maintain a stable $1.00 share price. The Fidelity Money Market Fund
does not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until on or about July
1, 1998, although it has offered other annuity contracts that are not
offered by the prospectus to which this Statement of Additional Information
relates. Accordingly, this table reflects hypothetical performance for the
periods covered, applying the contract charges under the Contract to the
investment performance of the underlying Portfolios since their inception.
Nonstandardized performance data for periods after the inception of Contract
sales will reflect the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an
initial hypothetical investment of $30,000, since this is closer to the
average Purchase Payment of a contract expected to be written, rather than
the $1,000 required by the SEC for the standardized returns shown in the
table on pages S-[15-16]; and (3) reflect the deduction of 1.25% annual
asset charges and a $35 annual contract maintenance charge, but do not
reflect the applicable contingent deferred sales charge. The impact of the
contract maintenance charge on investment returns will vary depending on the
size of the Contract. The investment return and value of a Contract will
fluctuate so that a Contract, when surrendered, may be worth more or less
than the amount of the Purchase Payments.
(4) Total returns reflect that the investment adviser waived all or part of its
fee or reimbursed the Portfolio for a portion of its expenses. Otherwise,
total returns would have been lower.
N/A Certain Portfolios do not have meaningful performance for the periods
indicated. In the future, as such data becomes available, total return will
be calculated as described above.
S-13
<PAGE>
NON-STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1997
ASSUMING CONTRACT NOT SURRENDERED
<TABLE>
<CAPTION>
CUMULATIVE
TOTAL
PORTFOLIO RETURN SINCE CALENDAR YEAR RETURN (3)
INCEPTION INCEPTION (%) ------------------------------------------------
DATE (2) (3) 1995 (%) 1996 (%) 1997 (%)
--------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
JANUS
Flexible Income................................. 9/13/93 41.55% 22.18% 7.71% 10.24%
Balanced (4).................................... 9/13/93 71.85% 23.10% 14.61% 20.44%
Growth (4)...................................... 9/13/93 85.27% 28.38% 16.85% 21.08%
Aggressive Growth (4)........................... 9/13/93 78.70% 25.75% 6.49% 11.14%
Worldwide Growth (4)............................ 9/13/93 102.49% 25.64% 27.29% 20.49%
FEDERATED
Utility II (4).................................. 2/11/94 56.45% 22.47% 10.05% 24.91%
U.S. Gov't II (4)............................... 3/28/94 19.82% 7.28% 2.79% 7.10%
High Income Bond (4)............................ 3/1/94 43.44% 18.72% 12.76% 12.29%
FIDELITY VIP
Money Market (1)................................ 4/1/82 N/A N/A N/A N/A
Equity Income (4)............................... 10/9/86 296.98% 33.23% 12.73% 26.37%
Growth (4)...................................... 10/9/86 337.83% 33.53% 13.15% 21.80%
Overseas (4).................................... 1/28/87 131.95% 8.19% 11.68% 10.04%
FIDELITY VIP II
Asset Manager (4)............................... 9/6/89 145.08% 15.36% 13.05% 19.01%
Contrafund (4).................................. 1/3/95 102.09% N/A 19.66% 22.46%
Index 500....................................... 8/27/92 145.05% 35.33% 21.05% 37.02%
ALGER
Income and Growth............................... 11/15/88 187.31% 33.30% 18.05% 34.44%
Small Capitalization............................ 9/4/88 344.18% 42.35% 2.77% 9.88%
Growth.......................................... 1/9/89 314.67% 34.52% 11.81% 24.04%
MidCap.......................................... 5/3/93 128.13% 42.49% 10.38% 13.44%
Leveraged AllCap (4)............................ 1/25/95 130.80% N/A 10.52% 18.06%
SCUDDER
Bond............................................ 7/16/85 125.13% 16.57% 1.42% 7.62%
Balanced........................................ 7/16/85 243.92% 24.95% 10.37% 22.52%
Growth and Income............................... 5/2/94 101.52% 29.95% 20.51% 28.70%
Global Discovery................................ 5/1/96 13.25% N/A N/A 10.86%
International................................... 5/1/87 151.76% 9.61% 13.23% 7.59%
STRONG
Discovery II.................................... 5/8/92 68.17% 33.42% (0.56)% 9.88%
Opportunity II.................................. 5/8/92 155.94% 24.11% 16.55% 23.75%
Growth II....................................... 12/31/96 27.98% N/A N/A 27.98%
T. ROWE PRICE INTERNATIONAL
International Stock............................. 3/31/94 27.14% 9.67% 13.14% 1.69%
T. ROWE PRICE
New America..................................... 3/31/94 110.86% 49.03% 18.46% 19.47%
Mid-Cap Growth.................................. 12/31/96 17.19% N/A N/A 17.19%
Equity Income................................... 3/31/94 111.17% 32.93% 17.85% 27.10%
</TABLE>
S-14
<PAGE>
<TABLE>
<CAPTION>
CUMULATIVE
TOTAL
PORTFOLIO RETURN SINCE CALENDAR YEAR RETURN (3)
INCEPTION INCEPTION (%) ------------------------------------------------
DATE (2) (3) 1995 (%) 1996 (%) 1997 (%)
--------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
MFS
Growth with Income (4).......................... 10/9/95 75.60% N/A 22.77% 28.02%
Research........................................ 7/26/95 57.68% N/A 20.67% 18.63%
Emerging Growth................................. 7/24/95 61.90% N/A 15.40% 20.25%
Total Return (4)................................ 1/3/95 74.11% N/A 12.82% 19.65%
New Discovery (4)............................... 5/1/98 N/A N/A N/A N/A
</TABLE>
- ------------------------
(1) An investment in Fidelity Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that Fidelity Money Market
will maintain a stable $1.00 share price. The Fidelity Money Market Fund
does not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until on or about July
1, 1998, although it has offered other annuity contracts that are not
offered by the prospectus to which this Statement of Additional Information
relates. Accordingly, this table reflects hypothetical performance for the
periods covered, applying the contract charges under the Contract to the
investment performance of the underlying Portfolios since their inception.
Nonstandardized performance data for periods after the inception of Contract
sales will reflect the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an
initial hypothetical investment of $30,000, since this is closer to the
average Purchase Payment of a contract expected to be written, rather than
the $1,000 required by the SEC for the standardized returns shown in the
table on pages S-10 and S-11; and (3) reflect the deduction of 1.25% annual
asset charges and a $35 annual contract maintenance charge, but do not
reflect the applicable contingent deferred sales charge. The impact of the
contract maintenance charge on investment returns will vary depending on the
size of the Contract. The investment return and value of a Contract will
fluctuate so that a Contract, when surrendered, may be worth more or less
than the amount of the Purchase Payments.
(4) Total returns reflect that the investment adviser waived all or part of its
fee or reimbursed the Portfolio for a portion of its expenses. Otherwise,
total returns would have been lower.
N/A Certain Portfolios do not have meaningful performance for the periods
indicated. In the future, as such data becomes available, total return will
be calculated as described above.
EXPERTS
The financial statements of Lincoln Benefit Life Variable Annuity Account as of
December 31, 1997, and for each of the two years ended December 31, 1997,
included in this statement of additional information have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
This Statement of Additional Information contains financial statements for the
Separate Account which reflect assets attributable to other variable annuity
contracts offered by Lincoln Benefit through the Separate Account. As of the
date of this Statement of Additional Information, no assets attributable to the
Contracts are reflected, because the Contracts were not offered before that
date. In addition, the financial statements for the Separate Account reflect
Subaccounts that are not available under the Contract.
S-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF
LINCOLN BENEFIT LIFE COMPANY:
We have audited the accompanying statement of net assets of Lincoln Benefit Life
Variable Annuity Account (the "Account") as of December 31, 1997, and the
related statement of operations for the year then ended and the statements of
changes in net assets for each of the two years ended December 31, 1997 of the
Flexible Income, Balanced, Growth, Aggressive Growth, and Worldwide Growth
portfolios of Janus Aspen Series; the Regional, Reserve, and Balanced portfolios
of IAI Retirement Funds, Inc.; the Asset Manager and Contrafund portfolios of
Fidelity's Variable Insurance Products Fund II; the Money Market, Equity Income,
Growth, and Overseas portfolios of Fidelity's Variable Insurance Products Fund;
the High Income Bond Fund II, Utility Fund II, and U.S. Government Securities
Fund II portfolios of Federated Insurance Series; and the Bond and Balanced
portfolios of Scudder Variable Life Investment Fund that comprise the Account.
These financial statements are the responsibility of the Account's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1997. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Account as of December 31, 1997, and the
results of its operations for the year then ended and the changes in its net
assets for each of the two years in the period then ended, of each of the
portfolios comprising the Account, in conformity with generally accepted
accounting principles.
/s/ DeLoitte & Touche, LLP
Lincoln, Nebraska
March 20, 1998
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
($ and shares in thousands)
<TABLE>
<S> <C>
NET ASSETS
Investments in Janus Aspen Series Portfolios:
Flexible Income, 482 shares (cost $5,407) $ 5,675
Balanced, 925 shares (cost $13,914) 16,160
Growth, 1,756 shares (cost $27,689) 32,460
Aggressive Growth, 1,071 shares (cost $18,841) 22,011
Worldwide Growth, 2,134 shares (cost $42,205) 49,908
Investments in IAI Retirement Funds, Inc. Portfolios:
Regional, 881 shares (cost $12,650) 14,363
Reserve, 82 shares (cost $820) 821
Balanced, 145 shares (cost $1,792) 2,071
Investments in Fidelity's Variable Insurance Products
Fund II Portfolios:
Asset Manager, 870 shares (cost $13,525) 15,664
Contrafund, 955 shares (cost $17,403) 19,034
Investments in Fidelity's Variable Insurance Products
Fund Portfolios:
Money Market, 25,099 shares (cost $25,099) 25,099
Equity Income, 2,485 shares (cost $50,089) 60,325
Growth, 1,022 shares (cost $31,579) 37,898
Overseas, 741 shares (cost $13,482) 14,223
Investments in Federated Insurance Series Portfolios:
High Income Bond Fund II, 1,056 shares (cost
$10,962) 11,559
Utility Fund II, 489 shares (cost $5,665) 6,990
U.S. Government Securities Fund II, 270 shares
(cost $2,760) 2,848
Investments in Scudder Variable Life Investment Fund
Portfolios:
Bond, 593 shares (cost $4,008) 4,072
Balanced, 753 shares (cost $8,621) 10,013
---------
Net assets $ 351,194
---------
---------
</TABLE>
See notes to financial statements.
2
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
-------------------------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 311 $ 415 $ 781 $ - $ 652
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (58) (152) (324) (234) (502)
Administrative expense (7) (18) (40) (28) (60)
----------- ----------- --------- ----------- -----------
Net investment income (loss) 246 245 417 (262) 90
----------- ----------- --------- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales 3,580 3,326 10,054 9,503 13,256
Cost of investments sold (3,497) (2,986) (8,796) (8,782) (11,791)
----------- ----------- --------- ----------- -----------
Net realized gains (losses) 83 340 1,258 721 1,465
----------- ----------- --------- ----------- -----------
CHANGE IN UNREALIZED GAINS (LOSSES) 132 1,586 2,930 1,881 4,835
----------- ----------- --------- ----------- -----------
Net gains (losses) on investments 215 1,926 4,188 2,602 6,300
----------- ----------- --------- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 461 $ 2,171 $ 4,605 $ 2,340 $ 6,390
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</TABLE>
See notes to financial statements.
3
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
FIDELITY'S
VARIABLE INSURANCE
PRODUCTS FUND II
IAI RETIREMENT FUNDS, INC. PORTFOLIOS PORTFOLIOS
------------------------------------- ------------------------
ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 541 $ 23 $ 57 $ 1,352 $ 218
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (157) (6) (21) (165) (159)
Administrative expense (18) (1) (2) (20) (19)
----------- ----- ----- ----------- -----------
Net investment income (loss) 366 16 34 1,167 40
----------- ----- ----- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales 2,675 339 178 1,711 22,251
Cost of investments sold (2,428) (340) (159) (1,594) (21,362)
----------- ----- ----- ----------- -----------
Net realized gains (losses) 247 (1) 19 117 889
----------- ----- ----- ----------- -----------
CHANGE IN UNREALIZED GAINS (LOSSES) 746 (1) 166 969 1,519
----------- ----- ----- ----------- -----------
Net gains (losses) on investments 993 (2) 185 1,086 2,408
----------- ----- ----- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,359 $ 14 $ 219 $ 2,253 $ 2,448
----------- ----- ----- ----------- -----------
----------- ----- ----- ----------- -----------
</TABLE>
See notes to financial statements.
4
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
PORTFOLIOS
--------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,111 $ 3,572 $ 983 $ 985
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (260) (582) (408) (168)
Administrative expense (32) (70) (49) (20)
--------- --------- --------- -----------
Net investment income (loss) 819 2,920 526 797
--------- --------- --------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sale of investments:
Proceeds from sales 123,967 10,484 14,694 11,338
Cost of investments sold (123,967) (9,523) (13,243) (10,665)
--------- --------- --------- -----------
Net realized gains (losses) - 961 1,451 673
--------- --------- --------- -----------
CHANGE IN UNREALIZED GAINS (LOSSES) - 6,598 4,133 (321)
--------- --------- --------- -----------
Net gains (losses) on investments - 7,559 5,584 352
--------- --------- --------- -----------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 819 $ 10,479 $ 6,110 $ 1,149
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See notes to financial statements.
5
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
FEDERATED INSURANCE SERIES PORTFOLIOS
------------------------------------------- SCUDDER VARIABLE LIFE
U.S. INVESTMENT FUND
HIGH GOVERNMENT PORTFOLIOS
INCOME BOND UTILITY SECURITIES ----------------------
FUND II FUND II FUND II BOND BALANCED TOTAL
------------- ----------- --------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 397 $ 193 $ 90 $ 172 $ 542 $ 12,395
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (94) (60) (30) (34) (98) (3,512)
Administrative expense (11) (7) (4) (5) (12) (423)
------------- ----------- ------- --------- ----------- ---------
Net investment income (loss) 292 126 56 133 432 8,460
------------- ----------- ------- --------- ----------- ---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sale of
investments:
Proceeds from sales 7,472 1,135 1,854 698 1,824 240,339
Cost of investments sold (7,279) (1,025) (1,845) (696) (1,648) (231,626)
------------- ----------- ------- --------- ----------- ---------
Net realized gains (losses) 193 110 9 2 176 8,713
------------- ----------- ------- --------- ----------- ---------
CHANGE IN UNREALIZED GAINS (LOSSES) 384 934 92 75 921 27,579
------------- ----------- ------- --------- ----------- ---------
Net gains (losses) on investments 577 1,044 101 77 1,097 36,292
------------- ----------- ------- --------- ----------- ---------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 869 $ 1,170 $ 157 $ 210 $ 1,529 $ 44,752
------------- ----------- ------- --------- ----------- ---------
------------- ----------- ------- --------- ----------- ---------
</TABLE>
See notes to financial statements.
6
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
-------------------------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 246 $ 245 $ 417 $ (262) $ 90
Net realized gains (losses) 83 340 1,258 721 1,465
Change in unrealized gains (losses) 132 1,586 2,930 1,881 4,835
----------- ----------- --------- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 461 2,171 4,605 2,340 6,390
----------- ----------- --------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Deposits 1,262 2,990 5,536 2,989 10,053
Benefit payments (80) (213) (155) (93) (252)
Payments on termination (100) (586) (1,203) (919) (1,619)
Loans - net - - (39) (3) (19)
Contract administration charge (1) (4) (13) (13) (19)
Transfers among the portfolios and with the Fixed Account
- net 579 3,496 6,008 2,028 9,874
----------- ----------- --------- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 1,660 5,683 10,134 3,989 18,018
----------- ----------- --------- ----------- -----------
INCREASE IN NET ASSETS 2,121 7,854 14,739 6,329 24,408
NET ASSETS AT BEGINNING OF YEAR 3,554 8,306 17,721 15,682 25,500
----------- ----------- --------- ----------- -----------
NET ASSETS AT END OF YEAR $ 5,675 $ 16,160 $ 32,460 $ 22,011 $ 49,908
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 13.97 $ 16.43 $ 17.87 $ 17.25 $ 18.62
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
UNITS OUTSTANDING AT END OF YEAR 406 983 1,816 1,276 2,680
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</TABLE>
See notes to financial statements.
7
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND
IAI RETIREMENT FUNDS, INC. PORTFOLIOS II PORTFOLIOS
------------------------
------------------------------------- ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 366 $ 16 $ 34 $ 1,167 $ 40
Net realized gains (losses) 247 (1) 19 117 889
Change in unrealized gains (losses) 746 (1) 166 969 1,519
----------- ----------- ----------- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,359 14 219 2,253 2,448
----------- ----------- ----------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Deposits 1,831 400 308 1,946 5,083
Benefit payments (154) (24) - (215) (25)
Payments on termination (575) (44) (60) (433) (434)
Loans - net - - - - (11)
Contract administration charge (6) - (1) (6) (4)
Transfers among the portfolios and with the Fixed
Account - net 2,066 42 307 1,201 6,431
----------- ----------- ----------- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 3,162 374 554 2,493 11,040
----------- ----------- ----------- ----------- -----------
INCREASE IN NET ASSETS 4,521 388 773 4,746 13,488
NET ASSETS AT BEGINNING OF YEAR 9,842 433 1,298 10,918 5,546
----------- ----------- ----------- ----------- -----------
NET ASSETS AT END OF YEAR $ 14,363 $ 821 $ 2,071 $ 15,664 $ 19,034
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 17.03 $ 11.17 $ 14.39 $ 14.10 $ 13.64
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
UNITS OUTSTANDING AT END OF YEAR 843 74 144 1,111 1,395
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
See notes to financial statements.
8
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
PORTFOLIOS
--------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 819 $ 2,920 $ 526 $ 797
Net realized gains (losses) - 961 1,451 673
Change in unrealized gains (losses) - 6,598 4,133 (321)
--------- --------- --------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 819 10,479 6,110 1,149
--------- --------- --------- -----------
FROM CAPITAL TRANSACTIONS
Deposits 62,385 9,140 4,411 2,289
Benefit payments (139) (207) (122) (80)
Payments on termination (1,566) (2,285) (1,723) (543)
Loans - net (44) (21) (8) (2)
Contract administration charge (5) (25) (23) (7)
Transfers among the portfolios and with the
Fixed Account - net (52,987) 9,941 2,486 363
--------- --------- --------- -----------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 7,644 16,543 5,021 2,020
--------- --------- --------- -----------
INCREASE IN NET ASSETS 8,463 27,022 11,131 3,169
NET ASSETS AT BEGINNING OF YEAR 16,636 33,303 26,767 11,054
--------- --------- --------- -----------
NET ASSETS AT END OF YEAR $ 25,099 $ 60,325 $ 37,898 $ 14,223
--------- --------- --------- -----------
--------- --------- --------- -----------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 11.59 $ 19.50 $ 17.88 $ 12.88
--------- --------- --------- -----------
--------- --------- --------- -----------
UNITS OUTSTANDING AT END OF YEAR 2,166 3,094 2,119 1,104
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See notes to financial statements.
9
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
FEDERATED INSURANCE SERIES PORTFOLIOS
----------------------------------------- SCUDDER VARIABLE LIFE
U.S. INVESTMENT FUND
HIGH GOVERNMENT PORTFOLIOS
INCOME BOND UTILITY SECURITIES ----------------------
FUND II FUND II FUND II BOND BALANCED TOTAL
------------- ----------- ------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 292 $ 126 $ 56 $ 133 $ 432 $ 8,460
Net realized gains (losses) 193 110 9 2 176 8,713
Change in unrealized gains (losses) 384 934 92 75 921 27,579
------------- ----------- ------ --------- ----------- ---------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 869 1,170 157 210 1,529 44,752
------------- ----------- ------ --------- ----------- ---------
FROM CAPITAL TRANSACTIONS
Deposits 2,861 1,017 461 922 1,830 117,714
Benefit payments (4) (98) (7) (4) (97) (1,969)
Payments on termination (446) (208) (151) (69) (658) (13,622)
Loans - net (4) - - 1 (4) (154)
Contract administration charge (2) (2) (1) (1) (4) (137)
Transfers among the portfolios and with the
Fixed Account - net 3,109 1,070 67 779 1,396 (1,744)
------------- ----------- ------ --------- ----------- ---------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 5,514 1,779 369 1,628 2,463 100,088
------------- ----------- ------ --------- ----------- ---------
INCREASE IN NET ASSETS 6,383 2,949 526 1,838 3,992 144,840
NET ASSETS AT BEGINNING OF YEAR 5,176 4,041 2,322 2,234 6,021 206,354
------------- ----------- ------ --------- ----------- ---------
NET ASSETS AT END OF YEAR $ 11,559 $ 6,990 $ 2,848 $ 4,072 $ 10,013 $ 351,194
------------- ----------- ------ --------- ----------- ---------
------------- ----------- ------ --------- ----------- ---------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 14.27 $ 15.98 $ 11.88 $ 11.79 $ 16.01
------------- ----------- ------ --------- -----------
------------- ----------- ------ --------- -----------
UNITS OUTSTANDING AT END OF YEAR 810 437 239 345 626
------------- ----------- ------ --------- -----------
------------- ----------- ------ --------- -----------
</TABLE>
See notes to financial statements.
10
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
-------------------------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
----------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 187 $ 81 $ 185 $ (38) $ 86
Net realized gains (losses) 65 142 257 285 1,101
Change in unrealized gains (losses) 40 419 1,214 210 2,102
----------- ----------- --------- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 292 642 1,656 457 3,289
----------- ----------- --------- ----------- -----------
FROM CAPITAL TRANSACTIONS
Deposits 502 378 1,152 1,325 2,050
Benefit payments - (9) (67) (53) (75)
Payments on termination - (129) (310) (305) (346)
Loans - net - (10) (15) (8) (26)
Contract administration charge (1) (2) (5) (7) (6)
Transfers among the portfolios and with the Fixed Account
- net 1,052 4,999 8,622 6,316 14,288
----------- ----------- --------- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 1,553 5,227 9,377 7,268 15,885
----------- ----------- --------- ----------- -----------
INCREASE (DECREASE) IN NET ASSETS 1,845 5,869 11,033 7,725 19,174
NET ASSETS AT BEGINNING OF YEAR 1,709 2,437 6,688 7,957 6,326
----------- ----------- --------- ----------- -----------
NET ASSETS AT END OF YEAR $ 3,554 $ 8,306 $ 17,721 $ 15,682 $ 25,500
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 12.67 $ 13.65 $ 14.77 $ 15.52 $ 15.46
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
UNITS OUTSTANDING AT END OF YEAR 280 609 1,200 1,010 1,650
----------- ----------- --------- ----------- -----------
----------- ----------- --------- ----------- -----------
</TABLE>
See notes to financial statements.
11
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND II
IAI RETIREMENT FUNDS, INC. PORTFOLIOS PORTFOLIOS
--------------------------
------------------------------------- ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 276 $ 27 $ 4 $ 305 $ (14)
Net realized gains (losses) 109 (3) 6 89 121
Change in unrealized gains (losses) 262 3 75 617 112
----------- ----------- ----------- ----------- ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 647 27 85 1,011 219
----------- ----------- ----------- ----------- ------
FROM CAPITAL TRANSACTIONS
Deposits 678 63 53 482 308
Benefit payments (41) - - (25) -
Payments on termination (131) (27) (18) (232) (34)
Loans - net (9) - - (5) -
Contract administration charge (3) - (1) (5) -
Transfers among the portfolios and with the Fixed
Account - net 4,209 (340) 483 3,463 5,053
----------- ----------- ----------- ----------- ------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 4,703 (304) 517 3,678 5,327
----------- ----------- ----------- ----------- ------
INCREASE (DECREASE) IN NET ASSETS 5,350 (277) 602 4,689 5,546
NET ASSETS AT BEGINNING OF YEAR 4,492 710 696 6,229 -
----------- ----------- ----------- ----------- ------
NET ASSETS AT END OF YEAR $ 9,842 $ 433 $ 1,298 $ 10,918 $ 5,546
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 15.23 $ 10.82 $ 12.52 $ 11.85 $ 11.15
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
UNITS OUTSTANDING AT END OF YEAR 646 40 104 921 498
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
</TABLE>
See notes to financial statements.
12
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND PORTFOLIOS
--------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 590 $ 369 $ 734 $ 45
Net realized gains (losses) - 314 535 100
Change in unrealized gains (losses) - 2,258 933 813
--------- --------- --------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 590 2,941 2,202 958
--------- --------- --------- -----------
FROM CAPITAL TRANSACTIONS
Deposits 93,786 2,654 2,382 1,067
Benefit payments (50) (76) (84) (67)
Payments on termination (295) (635) (519) (194)
Loans - net 19 (74) (48) (10)
Contract administration charge (3) (11) (11) (5)
Transfers among the portfolios and with the Fixed Account - net (88,806) 14,460 9,488 3,012
--------- --------- --------- -----------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 4,651 16,318 11,208 3,803
--------- --------- --------- -----------
INCREASE (DECREASE) IN NET ASSETS 5,241 19,259 13,410 4,761
NET ASSETS AT BEGINNING OF YEAR 11,395 14,044 13,357 6,293
--------- --------- --------- -----------
NET ASSETS AT END OF YEAR $ 16,636 $ 33,303 $ 26,767 $ 11,054
--------- --------- --------- -----------
--------- --------- --------- -----------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 11.14 $ 15.44 $ 14.68 $ 11.71
--------- --------- --------- -----------
--------- --------- --------- -----------
UNITS OUTSTANDING AT END OF YEAR 1,493 2,157 1,823 944
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>
See notes to financial statements.
13
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
FEDERATED INSURANCE SERIES
PORTFOLIOS SCUDDER VARIABLE LIFE
---------------------------------
HIGH U.S. INVESTMENT FUND
INCOME GOVERNMENT PORTFOLIOS
BOND UTILITY SECURITIES ---------------------
FUND II FUND II FUND II BOND BALANCED TOTAL
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 352 $ 97 $ 76 $ 140 $ 127 $ 3,629
Net realized gains (losses) 108 86 4 (13) 24 3,330
Change in unrealized gains (losses) 168 177 (28) (72) 271 9,574
--------- --------- --------- --------- --------- ---------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS 628 360 52 55 422 16,533
--------- --------- --------- --------- --------- ---------
FROM CAPITAL TRANSACTIONS
Deposits 393 319 83 218 355 108,248
Benefit payments (14) (23) - (14) (25) (623)
Payments on termination (106) (83) (120) (41) (153) (3,678)
Loans - net (11) (2) - (9) - (208)
Contract administration charge (1) (1) (1) (1) (2) (66)
Transfers among the portfolios and with the
Fixed Account - net 1,913 1,178 1,152 572 2,947 (5,939)
--------- --------- --------- --------- --------- ---------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 2,174 1,388 1,114 725 3,122 97,734
--------- --------- --------- --------- --------- ---------
INCREASE (DECREASE) IN NET ASSETS 2,802 1,748 1,166 780 3,544 114,267
NET ASSETS AT BEGINNING OF YEAR 2,374 2,293 1,156 1,454 2,477 92,087
--------- --------- --------- --------- --------- ---------
NET ASSETS AT END OF YEAR $ 5,176 $ 4,041 $ 2,322 $ 2,234 $ 6,021 $ 206,354
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 12.72 $ 12.80 $ 11.13 $ 10.96 $ 13.07
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
UNITS OUTSTANDING AT END OF YEAR 407 316 209 204 461
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
See notes to financial statements.
14
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
TWO YEARS ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION
Lincoln Benefit Life Variable Annuity Account (the "Account"), a unit
investment trust registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, is a Separate Account of Lincoln
Benefit Life Company ("Lincoln Benefit"). The assets of the Account are
legally segregated from those of Lincoln Benefit. Lincoln Benefit is wholly
owned by Allstate Life Insurance Company, a wholly owned subsidiary of
Allstate Insurance Company, which is wholly owned by The Allstate
Corporation.
Lincoln Benefit writes certain annuity contracts, the proceeds of which are
invested at the direction of the contractholder. Contractholders primarily
invest in units of the portfolios comprising the Account, for which they bear
all of the investment risk, but may also invest in the general account of
Lincoln Benefit (the "Fixed Account"). The Fixed Account option is not
available in all states. The Account is divided into 19 subaccounts. Each
subaccount invests solely in the shares of one of the following portfolios:
the Flexible Income, Balanced, Growth, Aggressive Growth, and Worldwide
Growth portfolios of Janus Aspen Series; the Regional, Reserve, and Balanced
portfolios of IAI Retirement Funds, Inc.; the Asset Manager and Contrafund
(added May 1, 1996) portfolios of Fidelity's Variable Insurance Products Fund
II; the Money Market, Equity Income, Growth, and Overseas portfolios of
Fidelity's Variable Insurance Products Fund; the High Income Bond Fund II,
Utility Fund II, and U.S. Government Securities Fund II portfolios of
Federated Insurance Series; and the Bond and Balanced portfolios of Scudder
Variable Life Investment Fund (collectively the "Funds").
To conform with the 1997 presentation, certain amounts in the prior year's
financial statements and notes have been reclassified.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Funds and
are stated at fair value based on quoted market prices.
RECOGNITION OF INVESTMENT INCOME - Investment income consists of dividends
declared by the Funds and is recognized on the date of record.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of shares by the Account and the
cost of such shares, which is determined on a weighted average basis.
CONTRACTHOLDER ACCOUNT ACTIVITY - Account activity is reflected in individual
contractholder accounts on a daily basis.
FEDERAL INCOME TAXES - The Account is intended to qualify as a segregated
asset account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included with and taxed as a part of Lincoln
Benefit. Lincoln Benefit is taxed as a life insurance company under the Code.
Under current law, no federal income taxes are payable by the Account.
ACCOUNT VALUE - Certain calculations that could be made in the financial
statements may differ from published amounts due to the truncation of actual
Account values.
3. CONTRACT CHARGES
For each year or portion of a year a contract is in effect, Lincoln Benefit
deducts a fixed annual contract administration charge of $25 as a
reimbursement for expenses related to the maintenance of each contract and
the Account. The amount of this charge is guaranteed not to increase over
the life of the contract. This charge is not assessed during the annuity
period and is waived if the contract value is $75,000 or greater on a
contract anniversary date.
Lincoln Benefit assumes mortality and expense risks related to the operations
of the Account and deducts charges daily at a rate equal to 1.25% per annum
of the daily net assets of the Account. Lincoln Benefit guarantees that the
rate of this charge will not increase over the life of the contract. The
mortality and expense risk charge is assessed during the accumulation period
and the annuity period.
Lincoln Benefit deducts administrative expense charges daily at a rate equal
to .15% per annum of the daily net assets of the Account. This charge is
designed to cover administrative expenses.
15
<PAGE>
Lincoln Benefit may assess other charges to the contractholder related to
premium taxes, surrenders, partial withdrawals and certain transfers between
the portfolios and/or the fixed account.
4. FINANCIAL INSTRUMENTS
The investments of the Account are carried at fair value, based on quoted
market prices.
5. UNITS ISSUED AND REDEEMED
Units issued and redeemed by the Account during 1997 were as follows:
(Units in thousands)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
-----------------------------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding at beginning of year 280 609 1,200 1,010 1,650
Unit activity during 1997:
Issued 397 591 1,203 863 1,786
Redeemed (271) (217) (587) (597) (756)
----- ----- ----------- ----------- ------
Units outstanding at end of year 406 983 1,816 1,276 2,680
<CAPTION>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND II
PORTFOLIOS
IAI RETIREMENT FUNDS, INC. PORTFOLIOS --------------------------
------------------------------------- ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Units outstanding at beginning of year 646 40 104 921 498
Unit activity during 1997:
Issued 361 65 53 322 2,651
Redeemed (164) (31) (13) (132) (1,754)
----- ----- ----------- ----------- ------
Units outstanding at end of year 843 74 144 1,111 1,395
----- ----- ----------- ----------- ------
----- ----- ----------- ----------- ------
</TABLE>
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND
PORTFOLIOS
------------------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Units outstanding at beginning of year 1,493 2,157 1,823 944
Unit activity during 1997:
Issued 11,294 1,524 1,193 1,032
Redeemed (10,621) (587) (897) (872)
--------- ----------- ----------- -----------
Units outstanding at end of year 2,166 3,094 2,119 1,104
--------- ----------- ----------- -----------
--------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
FEDERATED INSURANCE SERIES PORTFOLIOS
------------------------------------------- SCUDDER VARIABLE LIFE
U.S. INVESTMENT FUND
HIGH GOVERNMENT PORTFOLIOS
INCOME BOND UTILITY SECURITIES ------------------------
FUND II FUND II FUND II BOND BALANCED
--------------- ----------- ------------- ----- -----------
<S> <C> <C> <C> <C> <C>
Units outstanding at beginning of year 407 316 209 204 461
Unit activity during 1997:
Issued 950 202 193 202 287
Redeemed (547) (81) (163) (61) (122)
----- ----- ----- ----- -----
Units outstanding at end of year 810 437 239 345 626
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
16
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in Part A of the
Registration Statement:
The consolidated financial statements (prepared on a GAAP basis of
accounting) for Lincoln Benefit Life Company and subsidiary as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997.
The following financial statements are included in Part B of the
Registration Statement:
The financial statements of the Separate Account as of December 31, 1997 and
for the years ended December 31, 1997 and 1996.
The following financial statements are included in Part C of the
Registration Statement:
None
(b) Exhibits
(1) Resolution of the Board of Directors of Lincoln Benefit Life Company
authorizing the establishment of the Lincoln Benefit Life Variable
Annuity Account (filed herewith)
(2) Custody Agreements (not applicable)
(3) (a) Form of Principal Underwriting Agreement (filed herewith)
(b) Form of Selling Agreement*
(4) Variable Annuity Contract (filed herewith)
(5) Application for Contract (filed herewith)
(6) Depositor--Corporate Documents
(a) Articles of Incorporation of Lincoln Benefit Life Company, as
amended*
(b) By-Laws of Lincoln Benefit Life Company*
(7) Reinsurance Contract (filed herewith)
(8) Participation Agreements:
(a) Fund Participation Agreement between Janus Aspen Series and Lincoln
Benefit Life Company*
(b) Participation Agreement among Lincoln Benefit Life Company, Variable
Insurance Products Fund and Fidelity Distributors Corporation*
(c) Participation Agreement among Lincoln Benefit Life Company, Variable
Insurance Products Fund II and Fidelity Distributors Corporation*
(d) (1) Participation Agreement among The Alger American Fund, Lincoln
Benefit Life Company and Fred Alger and Company, Incorporated*
(2) Service Agreement between Fred Alger Management, Inc. And Lincoln
Benefit Life Company*
(e) (1) Participation Agreement between Scudder Variable Life Investment
Fund and Lincoln Benefit Life Company*
(2) Reimbursement Agreement by and between Scudder, Stevens & Clark,
Inc. And Lincoln Benefit Life Company*
(3) Participating Contract and Policy Agreement between Scudder
Investor Services, Inc. and Lincoln Benefit Financial Services*
C-1
<PAGE>
(f) Form of Participation Agreement among Lincoln Benefit Life Company,
Strong Variable Insurance Funds, Inc., Strong Opportunity Fund II,
Inc., Strong Capital Management, Inc., and Strong Funds Distributors,
Inc.*
(g) Form of Participation Agreement among T. Rowe Price Equity Series,
Inc., T. Rowe Price International Series, Inc., T. Rowe Price
Investment Services, Inc., and Lincoln Benefit Life Company*
(h) Form of Participation Agreement among MFS Variable Insurance Trust,
Lincoln Benefit Life Company, and Massachusetts Financial Services
Company*
(i) Fund Participation Agreement between Lincoln Benefit Life Company,
Insurance Management Series and Federated Securities Corp.*
(9) Opinion and Consent of Counsel (to be filed by pre-effective amendment)
(10) Consent of Independent Accountants (filed herewith)
(11) Financial Statements Omitted from Item 23 (not applicable)
(12) Initial Capitalization Agreement (not applicable)
(13) Performance Computations (to be filed by pre-effective amendment)
(27) Financial Data Schedules (not applicable)
- ------------------------
* Registration Statement on Form S-6 for Lincoln Benefit Life Variable Life
Account, File No. 333-47717, filed March 11, 1998
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and principal officers of Lincoln Benefit Life Company are
listed below. Their principal business address is 206 South 13th Street,
Lincoln, Nebraska 68508.
<TABLE>
<CAPTION>
NAME POSITION/OFFICE WITH DEPOSITOR
- --------------------------- ------------------------------------------------------------------------------------------------
<S> <C>
Louis G. Lower, III Chairman of the Board of Directors and Chief Executive Officer
Peter H. Heckman Vice Chairman of the Board of Directors
B. Eugene Wraith Director, President and Chief Operating Officer
Douglas F. Gaer Director, Executive Vice President
Janet P. Anderbery Vice President and Controller
John J. Morris Director, Senior Vice President and Secretary
Robert E. Rich Director, Executive Vice President and Assistant Secretary
Kevin R. Slawin Director
Michael J. Velotta Director and Assistant Secretary
Randy J. Von Fumetti Director, Senior Vice President and Treasurer
Carol S. Watson Director, Senior Vice President, General Counsel, and Assistant Secretary
Patricia W. Wilson Director
Thomas R. Ashley Vice President
David A. Behrens Vice President
Thomas J. Berney Vice President
John H. Coleman III Vice President
Marvin P. Ehly Vice President
Kenny L. Gettman Vice President
Rodger A. Hergenrader Vice President
Thomas S. Holt Vice President
Sharyn L. Jensen Vice President
Theodore J. Kooser Vice President
Gregory C. Sernett Vice President
Stanley G. Shelley Vice President
Randy E. Tillis Vice President
Dean M. Way Vice President
</TABLE>
C-2
<PAGE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
See Annual Report on Form 10-K of The Allstate Corporation, File No.
1-11840, filed March 27, 1998.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of the filing date of this Registration Statement, the Registrant has no
contract owners as it has not commenced sales of the variable annuity contracts
covered by the Registration Statement.
ITEM 28. INDEMNIFICATION
The Articles of Incorporation of Lincoln Benefit Life Company (Depositor)
provide for the indemnification of its directors and officers against expenses,
judgments, fines and amounts paid in settlement as incurred by such person, so
long as such person shall not have been adjudged to be liable for negligence or
misconduct in the performance of a duty to the Company. This right of indemnity
is not exclusive of other rights to which a director or officer may otherwise be
entitled.
The By-Laws of Lincoln Benefit Financial Services, Inc. (Distributor)
provide that the corporation will indemnify a director, officer, employee or
agent of the corporation to the full extent of Delaware law. In general,
Delaware law provides that a corporation may indemnify a director, officer,
employee or agent against expenses, judgments, fines and amounts paid in
settlement if that individual acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. No indemnification
shall be made for expenses, including attorney's fees, if the person shall have
been judged to be liable to the corporation unless a court determines such
person is entitled to such indemnity. Expenses incurred by such individual in
defending any action or proceeding may be advanced by the corporation so long as
the individual agrees to repay the corporation if it is later determined that he
or she is not entitled to such indemnification.
Under the terms of the form of Underwriting Agreement, the Depositor agrees
to indemnify the Distributor for any liability that the latter may incur to a
Contract owner or party-in-interest under a Contract, (a) arising out of any act
or omission in the course of or in connection with rendering services under such
Agreement, or (b) arising out of the purchase, retention or surrender of a
Contract; provided, that the Depositor will not indemnify the Distributor for
any such liability that results from the latter's willful misfeasance, bad faith
or gross negligence, or from the reckless disregard by the latter of its duties
and obligations under the Underwriting Agreement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the forgoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Lincoln Benefit Financial Services, Inc. ("LBFS") serves as distributor
for the Registrant. LBFS also serves as distributor for the Lincoln Benefit Life
Variable Life Account, which is another separate account of Lincoln Benefit. The
following are the directors and officers of Lincoln Benefit Financial Services,
Inc. Their principal business address is 206 South 13th Street, Lincoln,
Nebraska 68508.
<TABLE>
<CAPTION>
NAME POSITION WITH DISTRIBUTOR
- ------------------------- -------------------------------------------
<S> <C>
B. Eugene Wraith Chairman of the Board of Directors
Carol S. Watson Director and President
Janet P. Anderbery Vice President and Controller
David A. Behrens Vice President
Rick W. Small Chief Compliance Officer
John J. Morris Director, Vice President and Secretary
Douglas F. Gaer Director
Robert E. Rich Director
Gregory C. Sernett Vice President and General Counsel
Randy J. Von Fumetti Director
</TABLE>
C-3
<PAGE>
(b) The following commissions and other compensation were received by each
principal underwriter, directly or indirectly,
from the Registrant during the Registrant's last fiscal year:
<TABLE>
<CAPTION>
(2)
(1) NET UNDERWRITING (3) (4)
NAME OF PRINCIPAL DISCOUNTS AND COMPENSATION BROKERAGE (5)
UNDERWRITER COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
Lincoln Benefit Financial Services, Inc. $7,553,486
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The Depositor, Lincoln Benefit Life Company, is located at 206 South 13th
Street, Lincoln, Nebraska 68508.
The Distributor, Lincoln Benefit Financial Services, Inc., is located at 134
South 13th Street, Lincoln, Nebraska 68508.
Each company maintains those accounts and records required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the rules
promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
Registrant undertakes (1) to file post-effective amendments to this
Registration Statement as frequently as is necessary to ensure that the audited
financial statements in the Registration Statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted; (2) to include either (A) as part of any application to purchase a
Contract offered by the prospectus forming part of this Registration Statement,
a space that an applicant can check to request a Statement of Additional
Information, or (B) a post card or similar written communication affixed to or
included in the prospectus that the applicant can remove to send for a Statement
of Additional Information, and (3) to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form N-4 promptly upon written or oral request.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter
issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including
the prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection
with the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by
Section 403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (a) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment
alternatives available under the employer's Section 403(b) arrangement to
which the participant may elect to transfer his contract value.
SECTION 26(e) REPRESENTATIONS
The Company further represents that fees and charges deducted under the
Contract, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Company.
C-4
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Registration Statement and
Post-Effective Amendment to be signed on its behalf, in the City of Lincoln, and
the State of Nebraska, on this 20th day of April, 1998.
<TABLE>
<S> <C> <C>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
(Registrant)
By: LINCOLN BENEFIT LIFE COMPANY
------------------------------------------
(DEPOSITOR)
By: /s/ B. EUGENE WRAITH
------------------------------------------
B. Eugene Wraith
PRESIDENT AND CHIEF OPERATING OFFICER
</TABLE>
As required by the Securities Act of 1933, this Registration Statement and
Post-Effective Amendment has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ B. EUGENE WRAITH
- ------------------------------ President, Chief Operating
B. Eugene Wraith Officer and Director April 20, 1998
(PRINCIPAL EXECUTIVE OFFICER)
/s/ ROBERT E. RICH
- ------------------------------ Executive Vice President April 20, 1998
Robert E. Rich and Director
/s/ RANDY J. VON FUMETTI
- ------------------------------ Senior Vice President
Randy J. Von Fumetti Treasurer and Director April 20, 1998
(PRINCIPAL FINANCIAL OFFICER)
/s/ JANET P. ANDERBERY
- ------------------------------ Vice President and
Janet P. Anderbery Controller April 20, 1998
(PRINCIPAL ACCOUNTING OFFICER)
- ------------------------------ Vice Chairman of the Board April , 1998
Peter H. Heckman of Directors
Chairman of the Board of
- ------------------------------ Directors and Chief April , 1998
Louis G. Lower, II Executive Officer
</TABLE>
C-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ JOHN J. MORRIS
- ------------------------------ Director April 20, 1998
John J. Morris
/s/ DOUGLAS F. GAER
- ------------------------------ Director April 20, 1998
Douglas F. Gaer
- ------------------------------ Director April , 1998
Kevin Slawin
- ------------------------------ Director April , 1998
Michael J. Velotta
/s/ CAROL S. WATSON
- ------------------------------ Director April 20, 1998
Carol S. Watson
- ------------------------------ Director April , 1998
Patricia W. Wilson
</TABLE>
C-6
<PAGE>
INDEX TO EXHIBITS
FOR
REGISTRATION STATEMENT ON FORM N-4
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
<TABLE>
<CAPTION>
EXHIBIT NO. SEQUENTIAL PAGE NO.
- ----------- -----------------------------------------
<S> <C>
(1) Resolution of the Board of Directors
(3)(a) Underwriting Agreement
(4) Variable Annuity Contract
(5) Application for Contract
(7) Reinsurance Contract
(10) Consent of Independent Accountants
</TABLE>
C-7
<PAGE>
SECRETARY'S CERTIFICATE
I, John J. Morris, Secretary of Lincoln Benefit Life Company, a Nebraska
corporation (this "Company"), do hereby certify that the Board of Directors of
this Corporation, by a unanimous written consent dated August 3, 1992, adopted
the following resolution and that said resolution is in full force and effect:
RESOLVED, that the officers of this Company be, and they hereby are,
authorized to establish the Variable Annuity Account ("Separate Account")
in accordance with the insurance laws of the State of Nebraska, to provide
the investment medium for contracts to be issued by this Company
("Contracts") as may be designated as participating therein. The Separate
Account shall receive, hold, invest and reinvest only the monies arising
from: (1) premiums, contributions or payments made pursuant to Contracts
participating therein; (2) such assets of this Company as may be deemed
necessary for the orderly operation of such Separate Account; and (3) the
dividends, interest and gains produced by the foregoing; and
RESOLVED FURTHER, that the Separate Account may be divided into
various sub-accounts as determined necessary by the officers of this
Company to fund the Contracts. Purchase payments (net of any applicable
deductions) remitted to this Company under the Contract allocated to the
Separate Account shall be allocated to the Separate Account or appropriate
sub-account in accordance with the terms of the Contracts. The Separate
Account or each sub-account, in turn, shall invest in the shares of a
registered management investment company (or one or more registered
management investment companies, or designated investment series thereof),
as specified for investment by it, at a net asset value per share next to
be determined following receipt of an order for purchase by such
sub-account. To the extent that such registered management investment
company, or companies, establish additional investment series, the officers
of this Company are empowered and authorized to establish such additional
sub-accounts to the Separate Account as there are additional investment
series, with each such sub-account to invest solely in the shares of a
specified additional investment series; and
RESOLVED FURTHER, that the income, gains and losses of the Separate
Account shall be credited to or charged solely against the assets held
in the Separate Account, without regard to any other income arising out
of other business that this Company may conduct. The assets of such
Separate Accounts shall not be chargeable with the liabilities arising
out of any other business that this Company may conduct; and
RESOLVED FURTHER, that the income (including capital gains, or
losses, if any) of each account or sub-account shall be credited to or
charged against the assets held in that account or sub-account in
accordance with the terms of the Contracts funded therein, without regard
to other income of the remaining account or sub-accounts or arising out of
any other business that this Company may conduct. The assets of each
sub-account shall not be chargeable with liabilities arising out of the
business conducted by another sub-account, nor shall a sub-account be
chargeable with liabilities arising out of any other business that this
Company may conduct; and
<PAGE>
RESOLVED FURTHER, that the officers of this Company be, and they
hereby are, authorized:
(i) to take whatever actions are necessary to register the
Contracts under the provisions of the Securities Act of 1933 to the
extent that they determine that such registration is necessary;
(ii) to take whatever actions are necessary to register the
Separate Account under the provisions of the Investment Company Act of
1940 to the extent that they determine that such registration is
necessary;
(iii) to prepare, execute and file such amendments to any
registration statements filed under the aforementioned Acts (including
such pre-effective and post-effective amendments), supplements and
exhibits thereto as they may deem necessary or desirable;
(iv) to apply for exemption from those provisions of the
aforementioned Acts and the rules promulgated thereunder as they may
deem necessary or desirable and to take any and all other actions
which they may deem necessary, desirable or appropriate in connection
with such Acts;
(v) to take whatever actions are necessary to assure that the
Contracts are filed with the appropriate state insurance regulatory
authorities and to prepare and execute all necessary documents to
obtain approval of the insurance regulatory authorities;
(vi) to prepare or have prepared and executed all necessary
documents to obtain approval of, or clearance with, or other
appropriate actions required by, any other regulatory authority that
may be necessary in connection with the foregoing matters;
(vii) to enter into agreements with appropriate entities for
the provision of administrative and other required services on behalf
of the Separate Account and for the safekeeping of assets of such
Separate Account; and
RESOLVED FURTHER, that the form of any resolutions required by any
state authority to be filed in connection with any of the documents or
instruments referred to in any of the preceding resolutions be, and the
same hereby are, adopted as fully set forth herein if (i) in the opinion of
the officers of this Company the adoption of the resolutions is advisable;
and (ii) the Corporate Secretary or Assistant Secretary of this Company
evidences such adoption by inserting into these minutes copies of such
resolutions; and
RESOLVED FURTHER, that the officers of this Company and each of them
are hereby authorized to prepare and to execute the necessary documents and
to take such further actions as may be deemed necessary or appropriate, in
their discretion, to implement the purpose of the foregoing resolutions.
<PAGE>
RESOLVED FURTHER, that this resolution replaces the resolution
authorizing the establishment of a Variable Annuity Separate Account passed
by this board on May 17, 1990.
Standards of Suitability regarding the purchase of variable annuity
policies need to be adopted by the Board.
RESOLVED, that no recommendation shall be made to an applicant to
purchase a variable annuity policy and no variable annuity shall be issued
in the absence of reasonable grounds to believe that the purchase of such
policy is not unsuitable for such applicant concerning the applicant's
insurance and investment objectives, financial situation and needs, and any
other information known to the Company or to the agent making the
recommendation.
IN WITNESS WHEREOF, I have hereunto set my hand as Secretary of the Company
and affixed the corporate seal this 7th day of February, 1994.
/s/John J. Morris
-----------------------------------
John J. Morris, Secretary
(SEAL)
<PAGE>
UNDERWRITING AGREEMENT
THIS AGREEMENT, is entered into on this 3rd day of January, 1994, by and
among LINCOLN BENEFIT LIFE COMPANY, ("LBL" or "COMPANY") a life insurance
company organized under the laws of the State of Nebraska on its own and on
behalf of the LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT, ("Separate
Account") a separate account established pursuant to the insurance laws of the
State of Nebraska, and LINCOLN BENEFIT FINANCIAL SERVICES, INC., ("Principal
Underwriter"), a corporation organized under the laws of the State of Delaware.
RECITALS
WHEREAS, the Company proposes to issue to the public certain variable
annuity contracts identified in the Attachment A ("Contracts"); and
WHEREAS, Company, by resolution adopted on August 3, 1992, established
the Separate Account for the purpose of issuing the Contracts; and
WHEREAS, the Separate Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment trust under the
Investment Company Act of 1940 (File No. 811-7924); and
1
<PAGE>
WHEREAS, the Contracts to be issued by Company are registered with the
Commission under the Securities Act of 1933 (File No. 33-66786) for offer and
sale to the public and otherwise are in compliance with all applicable laws; and
WHEREAS, Principal Underwriter, a broker/dealer registered under the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. ("NASD"), proposes to act as principal underwriter on
an agency (best efforts) basis in the marketing and distribution of said
Contracts; and
WHEREAS, Company desires to obtain the services of Principal Underwriter
as an underwriter and distributor of said Contracts issued by Company through
the Separate Account;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other goods and valuable
considerations the Company, the Separate Account, and the Principal Underwriter
hereby agree as follows:
1. AUTHORITY AND DUTIES
(a) Principal Underwriter will serve as an underwriter and distributor
on an agency basis for the Contracts which will be issued by the
Company through the Separate Account.
(b) Principal Underwriter will use its best efforts to provide
information and marketing assistance to licensed insurance agents
and broker/dealers on a continuing basis. However, Principal
Underwriter shall be responsible
2
<PAGE>
for compliance with the requirements of state broker/dealer
regulations and the Securities Exchange Act of 1934 as each
applies to Principal Underwriter in connection with its duties as
distributor of said Contracts. Moreover, Principal Underwriter
shall conduct its affairs in accordance with the Rules of Fair
Practice of the NASD.
(c) Subject to agreement with the Company, Principal Underwriter may
enter into selling agreements with broker/dealers which are
registered under the Securities Exchange Act of 1934 and
authorized by applicable law to sell variable annuity contracts
issued by Company through the Separate Account. Any such
contractual arrangement is expressly made subject to this
Agreement, and Principal Underwriter will at all times be
responsible to Company for supervision of compliance with the
federal securities laws regarding distribution of Contracts.
2. WARRANTIES
(a) The Company represents and warrants to Principal Underwriter that:
(i) Registration Statements on Form N-4 for each of the
Contracts identified in Attachment A have been filed with
the Commission in the form previously delivered to
Principal Underwriter and that copies of any and all
amendments thereto will be forwarded to Principal
Underwriter at the time that they are filed with
Commission;
(ii) The Registration Statement and any further amendments or
supplements thereto will, when they become effective,
conform in all material respects to the requirements of the
Securities Act of
3
<PAGE>
1933 and the Investment Company Act of 1940, and the rules
and regulations of the Commission under such Acts, and will
not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or
necessary to make the statements therein not misleading;
provided, however, that this representation and warranty
shall not apply to any statement or omission made in
reliance upon and in conformity with information furnished
in writing to Company by Principal Underwriter expressly
for use therein;
(iii) The Company is validly existing as a stock life insurance
company in good standing under the laws of the State of
Nebraska, with power to own its properties and conduct its
business as described in the Prospectus, and has been duly
qualified for the transaction of business and is in good
standing under the laws of each other's jurisdiction in
which it owns or leases properties, or conducts any
business;
(iv) The Contracts to be issued through the Separate Account and
offered for sale by Principal Underwriter on behalf of the
Company hereunder have been duly and validly authorized
and, when issued and delivered with payment therefore as
provided herein, will be duly and validly issued and will
conform to the description of such Contracts contained in
the Prospectuses relating thereto;
(v) Those persons who offer and sell the Contracts are to be
appropriately licensed or appointed to comply with the
state insurance laws;
4
<PAGE>
(vi) The performance of this Agreement and the consummation of
the transactions contemplated by this Agreement will not
result in a violation of any of the provisions of or
default under any statute, indenture, mortgage, deed of
trust, note agreement or other agreement or instrument to
which Company is a party or by Company is bound (including
Company's Charter of By-laws as a stock life insurance
company, or any order, rule or regulation of any court of
governmental agency or body having jurisdiction over
Company or any of its properties);
(vii) There are no material legal or governmental proceedings
pending to which Company or the Separate Account is a party
or of which any property of Company or the Separate Account
is the subject (other than as set forth in the Prospectus
relating to the Contracts, or litigation incident of the
kind of business conducted by the Company) which, if
determined adversely to Company, would individually or in
the aggregate have a material adverse effect on the
financial position, surplus or operations of Company.
(b) Principal Underwriter represents and warrants to Company that:
(i) It is a broker/dealer duly registered with the Commission
pursuant to the Securities Exchange Act of 1934, is a
member in good standing of the NASD, and is in compliance
with the securities laws in those states in which it
conducts business as a broker/dealer.
5
<PAGE>
(ii) As a principal underwriter, it shall permit the offer and
sale of Contracts to the public only by and through persons
who are appropriately licensed under the securities laws
and who are appointed in writing by the Company to be
authorized insurance agents;
(iii) The performance of this Agreement and the consummation of
the transactions herein contemplated will not result in a
breach or violation of any of the terms or provisions of or
constitute a default under any stature, indenture,
mortgage, deed of trust, note agreement or other agreement
or instrument to which Principal Underwriter is a party or
by which Principal Underwriter is bound (including the
Certificate of Incorporation or Bylaws of Principal
Underwriter or any order, rule or regulation of any court
or governmental agency or body having jurisdiction over
either Principal Underwriter or its property); and
(iv) To the extent that any statements made in the Registration
Statement or any amendment or supplement thereto, are made
in reliance upon and in conformity with written information
furnished to Company by Principal Underwriter expressly for
use therein, such statements will, when they become
effective or are filed with the Commission, as the case may
be, conform in all material respects to the requirements of
the Securities Act of 1933 and the rules and regulations of
the Commission thereunder, and will not contain any untrue
statement of a material fact or omit to state any
6
<PAGE>
material fact required to be stated therein or necessary to
make the statements therein not misleading.
3. BOOKS AND RECORDS
(a) Principal Underwriter shall keep, in a manner and form approved by
Company and in accordance with Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, correct records and books or
account as required to be maintained by a registered
broker/dealer, acting as principal underwriter, of all
transactions entered into on behalf of Company with respect to its
activities under this Agreement. Principal Underwriter shall make
such records and books of account available for inspection by the
Commission, and Company shall have the right to inspect, make
copies of or take possession of such records and books of account
at any time upon demand.
(b) Subject to applicable Commission or NASD restrictions, Company
will send confirmation of Contract transactions to Contract
Owners. Company will make such confirmations and records of
transactions available to Principal Underwriter upon request.
4. SALES MATERIALS
(a) After authorization to commence the activities contemplated
herein, Principal Underwriter will utilize the currently effective
prospectus relating to the subject Contracts in connection with
its underwriting, marketing and distribution efforts. As to other
types of sales material, Principal Underwriter hereby agrees and
will require any participating or selling
7
<PAGE>
broker/dealers to agree that they will use only sales material
which have been authorized for use by Company, which conform to
the requirements of federal and state laws and regulations, and
which have been filed where necessary with the appropriate
regulatory authorities, including the NASD.
(b) Principal Underwriter will not distribute any prospectus, sales
literature or any other printed matter or material in the
underwriting and distribution of any Contract if, to the knowledge
of Principal Underwriter, any of the foregoing misstates the
duties, obligation or liabilities of Company or Principal
Underwriter.
5. COMPENSATION
Principal Underwriter shall be entitled to such remuneration for its services
and reimbursement for its fees, charges and expenses as will be determined
between the parties.
6. PURCHASE PAYMENTS
Principal Underwriter shall arrange that all purchase payments collected on the
sale of the Contracts are promptly and properly transmitted to Company for
immediate allocation to the Separate Account in accordance with the procedures
of Company and the directions furnished by the purchasers of such Contracts at
the time of purchase.
7. UNDERWRITING TERMS
(a) Principal Underwriter makes no representations or warranties
regarding the number of Contracts to be sold by licensed
broker/dealers and
8
<PAGE>
registered representatives of broker/dealers or the amount to be
paid thereunder. Principal Underwriter does, however, represent
that it will actively engage in its duties under this Agreement on
a continuous basis while there is an effective registration
statement with the Commission.
(b) Principal Underwriter will use its best efforts to ensure that the
Contracts shall be offered for sale by registered broker/dealers
and registered representatives (who are duly licensed as insurance
agents) on the terms described in the currently effective
prospectus describing such Contracts.
(c) It is understood and agreed that Principal Underwriter may render
similar services to other companies in the distribution of other
variable contracts.
(d) The Company will use its best efforts to assure that the Contracts
are continuously registered under the Securities Act of 1933 (and
under any applicable state "blue sky" laws) and to file for
approval under state insurance laws when necessary.
(e) The Company reserves the right at any time to suspend or limit the
public offering of the subject Contracts upon one day's written
notice to Principal Underwriter.
9
<PAGE>
8. LEGAL AND REGULATORY ACTIONS
(a) The Company agrees to advise Principal Underwriter immediately of:
(i) any request by the Commission for amendment of the
Registration Statement or for additional information
relating to the Contracts;
(ii) the issuance by the Commission of any stop order suspending
the effectiveness of the Registration Statement relating to
the Contracts or the initiation of any proceedings for that
purpose; and
(iii) the happening of any known material even which makes untrue
any statement made in the Registration Statement relating
to the Contracts or which requires the making of a change
therein in order to make any statement made therein not
misleading.
(b) Each of the undersigned parties agrees to notify the other in
writing upon being apprised of the institution of any proceeding,
investigation or hearing involving the offer or sale of the
subject Contracts.
(c) During any legal action or inquiry, Company will furnish to
Principal Underwriter such information with respect to the
Separate Account and Contracts in such form and signed by such of
its officers as Principal Underwriter may reasonably request and
will warrant that the statements therein contained when so signed
are true and correct.
9. TERMINATION
(a) This Agreement will terminate automatically upon its assignment;
(b) This Agreement shall terminate without the payment of any penalty
by either party upon sixty (60) days' advance written notice.
10
<PAGE>
(c) This Agreement shall terminate at the option of the Company upon
institution of formal proceedings against Principal Underwriter by
the NASD or by the Commission, or if Principal Underwriter or any
representative thereof at any time:
(i) employs any device, scheme, artifice, statement or omission
to defraud any person;
(ii) fails to account and pay over promptly to the Company money
due it according to the Company's records; or
(iii) violates the conditions of this Agreement.
10. INDEMNIFICATION
The company agrees to indemnify Principal Underwriter for any liability that it
may incur to a Contract owner or party-in-interest under a Contract:
(a) arising out of any act or omission in the course of or in
connection with rendering services under this Agreement; or
(b) arising out of the purchase, retention or surrender of a contract;
provided, however, that the Company will not indemnify Principal
Underwriter for any such liability that results from the willful
misfeasance, bad faith or gross negligence of Principal
Underwriter or from the reckless disregard by such Principal
Underwriter of its duties and obligations arising under this
Agreement.
11. GENERAL PROVISION
(a) This Agreement shall be subject to the laws of the State of
Nebraska.
11
<PAGE>
(b) This Agreement, along with any Schedules attached hereto and
incorporated herein by reference, may be amended from time to time
by the mutual agreement and consent of the undersigned parties.
(c) In case any provision in this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the
remaining provision shall not in any way be affected or impaired
thereby.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to
be duly executed, to be effective as of January 3, 1994.
LINCOLN BENEFIT LIFE COMPANY
(and LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT II)
BY: /s/ Fred H. Jonske 1/3/94
----------------------------------- -------------------------------
President Date
LINCOLN BENEFIT FINANCIAL SERVICES, INC.
BY: /s/ B.E. Wraith 1/3/94
----------------------------------- -------------------------------
President Date
12
<PAGE>
ATTACHMENT A
UNDERWRITING AGREEMENT
"CONTRACTS" FORM #
- ----------- ------
Investors Select Variable Annuity VAP 9330
13
<PAGE>
AMENDMENT #1 TO THE
UNDERWRITING AGREEMENT
(HEREINAFTER "AGREEMENT")
BETWEEN
LINCOLN BENEFIT LIFE COMPANY
(HEREINAFTER "LBL")
ON BEHALF OF THE
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
(HEREINAFTER "SEPARATE ACCOUNT")
AND
LINCOLN BENEFIT FINANCIAL SERVICES
(HEREINAFTER "LBFS")
IT IS HEREBY AGREED, that the Underwriting Agreement effective January 3, 1994
between LBL and LBFS, is amended as provided below.
Paragraph 5, "COMPENSATION" is hereby amended by deleting said Paragraph in its
entirety, and replacing it with the following new Paragraph 5:
5. COMPENSATION
Principal Underwriter shall be entitled to remuneration of its services
in the amount of 6.25% for all variable annuity premiums received on
policies issued by Company. Such remuneration shall be reduced by the
amount of commissions payable to broker/dealers receiving compensation
pursuant to selling agreements with Company and Principal Underwriter, or
registered representatives affiliated with Principal Underwriter.
Page 1 of 2
<PAGE>
This Amendment shall be effective as of January 3, 1994. Except as amended
hereby, the Agreement shall remain unchanged.
IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be
duly executed in duplicate by their duly authorized officers on the dates shown
below.
LINCOLN BENEFIT LIFE COMPANY
By: /s/Fred H. Jonske Attested
----------------------------
Title: President By: /s/Carol S. Watson
---------------------------- -------------------------------
Date: February 19, 1996 Date: February 19, 1996
---------------------------- -------------------------------
LINCOLN BENEFIT FINANCIAL SERVICES, INC.
By: /s/B. E. Wraith Attested
---------------------------- -------------------------------
Title: President By: /s/Carol S. Watson
---------------------------- -------------------------------
Date: February 19, 1996 Date: February 19, 1996
---------------------------- -------------------------------
Page 2 of 2
<PAGE>
AMENDMENT #2 TO THE
UNDERWRITING AGREEMENT
(HEREINAFTER "AGREEMENT"
BETWEEN
LINCOLN BENEFIT LIFE COMPANY
(HEREINAFTER "LBL")
ON BEHALF OF THE
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
(HEREINAFTER "SEPARATE ACCOUNT")
AND
LINCOLN BENEFIT FINANCIAL SERVICES, INC.
(HEREINAFTER "LBFS")
IT IS HEREBY AGREED, that the Underwriting Agreement effective January 3, 1994
between LBL and LBFS is hereby amended as provided below:
Effective March 1, 1998, in addition to those contracts identified in Attachment
A, the contracts listed in the attached Attachment A are hereby incorporated and
subject to the terms of the Agreement.
Paragraph 5, "COMPENSATION" is hereby amended by adding the following:
Principal Underwriter shall be entitled to remuneration of its services
in the amount of 7.5% for all variable annuity premiums received on Form VAP
9830 and Form VAP 9840 contracts issued by Company. Such remuneration shall be
reduced by the amount of commissions payable to brokers/dealers receiving
compensation pursuant to selling agreements with Company and Principal
Underwriter, or registered representatives affiliated with Principal
Underwriter.
Except as amended hereby, the Agreement shall remain unchanged.
<PAGE>
IT WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be
duly executed in duplicate by their respective officers on the dates shown
below.
LINCOLN BENEFIT LIFE COMPANY
By: /s/B. E. Wraith Attested
----------------------------
Title: President By: /s/John J. Morris
---------------------------- -------------------------------
Date: March 1, 1998 Date: March 1, 1998
---------------------------- -------------------------------
LINCOLN BENEFIT FINANCIAL SERVICES, INC.
By: /s/Carol S. Watson Attested
----------------------------
Title: President By: /s/John J. Morris
---------------------------- -------------------------------
Date: March 1, 1998 Date: March 1, 1998
---------------------------- -------------------------------
<PAGE>
ATTACHMENT A
UNDERWRITING AGREEMENT
"CONTRACTS" FORM #
- -------------------------- --------
(To be Determined) VAP 9830
(To be Determined) VAP 9840
<PAGE>
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
OWNER: [JOHN DOE]
ANNUITANT: [JOHN DOE]
CONTRACT NUMBER: [SPECIMEN] ISSUE AGE: [35]
ANNUITY DATE: [03/01/2033] ISSUE DATE: [03/01/1998]
THIS IS A LEGAL CONTRACT - READ IT CAREFULLY
LINCOLN BENEFIT LIFE COMPANY promises to pay to you a monthly annuity starting
on the annuity date stated on Page 3. If you die prior to the annuity date, we
will pay a death benefit to the beneficiary, upon receipt of due proof of death.
PLEASE EXAMINE THE APPLICATION. We issued this contract based upon the answers
in the application (copy included). If all answers are not complete and true,
the contract may be affected.
RIGHT TO CANCEL YOUR CONTRACT. IF YOU ARE NOT SATISFIED WITH THIS CONTRACT FOR
ANY REASON, YOU MAY RETURN IT TO LINCOLN BENEFIT LIFE COMPANY, PO BOX 82532,
LINCOLN, NE 68501-2532, OR OUR AGENT WITHIN 10 DAYS AFTER YOU RECEIVE IT. WE
WILL REFUND ANY PURCHASE PAYMENTS ALLOCATED TO THE SEPARATE ACCOUNT, ADJUSTED TO
REFLECT INVESTMENT GAIN OR LOSS FROM THE DATE OF ALLOCATION TO THE DATE OF
CANCELLATION, PLUS ANY PURCHASE PAYMENTS ALLOCATED TO THE FIXED ACCOUNT. IF
THIS CONTRACT IS QUALIFIED UNDER SECTION 408 OF THE INTERNAL REVENUE CODE, WE
WILL REFUND THE GREATER OF ANY PURCHASE PAYMENTS OR THE CONTRACT VALUE. READ
YOUR CONTRACT CAREFULLY.
Executed for the company at its home office in Lincoln, Nebraska on its issue
date.
Vice President and Secretary President
LINCOLN BENEFIT LIFE COMPANY
Lincoln Benefit Life Centre
Lincoln, NE 68501
800-525-9287
A Legal Reserve Stock Life Insurance Company
Nonparticipating
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
Flexible Premium Payments
Benefit Paid in the Event of Death Prior to the Annuity Date
Withdrawal and Surrender Rights
THE DOLLAR AMOUNT OF ANNUITY PAYMENTS OR OTHER VALUES PROVIDED BY THIS CONTRACT,
WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, WILL VARY TO
REFLECT THE PERFORMANCE OF THE SEPARATE ACCOUNT. FOR AMOUNTS IN THE GUARANTEED
MATURITY FIXED ACCOUNT, THE WITHDRAWAL BENEFIT, THE DEATH BENEFIT, TRANSFERS TO
OTHER INVESTMENT ALTERNATIVES AND ANY PERIODIC ANNUITY PAYMENTS MAY BE SUBJECT
TO A MARKET VALUE ADJUSTMENT WHICH MAY RESULT IN AN UPWARD OR DOWNWARD
ADJUSTMENT OF THE AMOUNT DISTRIBUTED.
VAP 9830 Page 1
<PAGE>
SUMMARY OF CONTRACT
This flexible premium deferred variable annuity provides a monthly annuity which
will be paid to you starting on the annuity date. If you die before the annuity
date, a death benefit will be paid to the beneficiary.
The premium for this contract is flexible and may be established by you subject
to the terms of this contract.
During the lifetime of the annuitant, and prior to the annuity date, you may:
... withdraw any portion of the surrender value (a withdrawal charge
and market value adjustment may apply);
... change the beneficiary;
... assign an interest in the contract;
... change the annuity date;
... exercise the other rights provided, subject to the rights of any
irrevocable beneficiary or assignee.
This is only a summary of the contract terms. The detailed provisions of this
contract will control. The provisions are set forth in the following sections:
Annuity Data Page 3
Definitions Page 4
Annuity Benefit Page 5
Purchase Payments Page 8
Contract Value Page 10
Surrender Value Page 12
Death Benefit Page 14
Beneficiary Page 15
Ownership Page 16
Other Terms of your Contract Page 16
VAP 9830 Page 2
<PAGE>
ANNUITY DATA
OWNER: [JOHN DOE]
ANNUITANT: [JOHN DOE]
CONTRACT NUMBER: [SPECIMEN] ISSUE AGE: [35]
ANNUITY DATE: [03/01/2033] ISSUE DATE: [03/01/1998]
Initial Purchase Payment: $10,000.00
Tax Qualification: IRA
INITIAL ALLOCATION OF PURCHASE PAYMENT:
<TABLE>
<CAPTION>
Allocated
Variable Sub-Accounts Amount (%)
--------------------- ----------
<S> <C>
Sub-account A 10%
Sub-account B 10%
Sub-account C 10%
Sub-account D 10%
</TABLE>
<TABLE>
<CAPTION>
Rate
Allocated Guaranteed Guaranteed
Guaranteed Maturity Fixed Account Amount (%) Interest Rate Through
-------- ------------- -------
<S> <C> <C> <C>
1 Year Guarantee Period 10% 5.00% 03/01/1999
3 Year Guarantee Period 10% 6.40% 03/01/2001
5 Year Guarantee Period 10% 7.00% 03/01/2003
7 Year Guarantee Period 10% 7.20% 03/01/2005
10 year Guarantee Period 10% 7.35% 03/01/2008
Dollar Cost Averaging Fixed Account
1 Year Guarantee Period 10% 5.00% 03/01/1999
</TABLE>
<TABLE>
<CAPTION>
Minimum Guaranteed Rate
Dollar Cost Averaging Fixed Account 3.00%
Relationship
Beneficiary To Owner Percentage
----------- -------- ----------
<S> <C> <C>
Jane Doe Wife 100%
</TABLE>
VAP 9830 Page 3
<PAGE>
DEFINITIONS
When these words are used in this contract, they have the meaning stated:
"ACCUMULATION UNIT"
A unit of measurement which we use to calculate the value of a subaccount before
annuity payments begin.
"ANNUITANT"
The natural person named on Page 3 whose life determines the annuity payment
made under this contract.
"ANNUITIZED VALUE"
The amount applied to purchase annuity payments under the contract, equal to the
contract value adjusted by any market value adjustment and less any applicable
taxes.
"ANNUITY DATE"
The date on which annuity payments are scheduled to begin.
"ANNUITY UNIT"
A unit of measurement which we use to calculate the amount of variable annuity
payments.
"APP"
The application which you completed requesting this policy
"BENEFICIARY(IES)"
The person(s) designated to receive any death benefit under the contract.
"CONTRACT ANNIVERSARY"
The anniversary of the issue date in subsequent years.
"CONTRACT VALUE"
The sum of the values of your interests in the subaccounts of the Separate
Account and the Fixed Account.
"CONTRACT YEAR"
A period of twelve months beginning on the issue date or any contract
anniversary.
"CONTRIBUTION YEAR"
A twelve month period beginning on the date a purchase payment is applied to the
contract value, or an anniversary of that date.
"DUE PROOF OF DEATH"
(1) A certified copy of a death certificate; or (2) a certified copy of a
decree of a court of competent jurisdiction as to the finding of death; or
(3) a written statement by a medical doctor who attended the deceased at the
time of death; or (4) any other proof satisfactory to us.
"FIXED ACCOUNT"
The portion of contract value allocated to our general account.
"FIXED ANNUITY"
Annuity payments that are fixed in amount.
"INVESTMENT ALTERNATIVE"
A subaccount of the separate account, a guarantee period of the Guaranteed
Maturity Fixed Account, and the Dollar Cost Averaging Fixed Account.
"ISSUE AGE"
The age of the annuitant at the time this contract was issued (issue date)
determined by the annuitant's last birthday.
"ISSUE DATE"
The date when this contract becomes effective if the annuitant is then living
and the initial premium has been paid. The issue date is shown on Page 3.
VAP 9830 Page 4
<PAGE>
"NATURAL PERSON"
A living individual or trust entity that is treated as an individual for Federal
Income Tax purposes under the Internal Revenue Code.
"NET INVESTMENT FACTOR"
An index applied to measure the net investment performance of a subaccount from
one valuation date to the next. It is used to determine the value of an
accumulation unit and annuity unit in any valuation period.
"PORTFOLIO(S)"
The underlying mutual fund(s) (or investment series thereof) in which the
subaccounts invest.
"PURCHASE PAYMENTS"
Amounts paid to us in the form of a premium for the contract by or on behalf of
an owner.
"SUBACCOUNT"
A subdivision the Separate account invested wholly in shares of one of the
portfolios.
"SURRENDER VALUE"
The amount you would receive upon surrender of this contract, equal to the
contract value adjusted by any market value adjustment, less any applicable
taxes and withdrawal charges.
"VALUATION DATE"
Each day the New York Stock Exchange ("NYSE") is open for business.
"VALUATION PERIOD"
The period commencing at the close of normal trading on the NYSE (currently 4:00
p.m. Eastern time) on each valuation date and ending at the close of the NYSE on
the next succeeding valuation date.
"SEPARATE ACCOUNT"
A segregated investment account of the Company entitled Lincoln Benefit Life
Separate Variable Annuity Account.
"VARIABLE ANNUITY"
Annuity payments which vary in accordance with the investment experience of the
subaccounts to which contract values have been allocated.
""WE", "US", "OUR""
Our Company, Lincoln Benefit Life Company.
"YOU"
The owner of the contract.
ANNUITY BENEFIT
ANNUITANT
The annuitant is the person named on Page 3. The annuitant must be a living
individual. If the annuitant dies prior to the annuity date, the new annuitant
will be:
- - the youngest owner; otherwise,
- - the youngest beneficiary.
ANNUITY DATE
The monthly annuity will begin on the annuity date. The annuity date must
always be the business day on or immediately following the tenth calendar day of
a month. The annuity date is the date the annuitized value is applied to an
annuity option. The anticipated annuity date is shown on Page 3. You may
change the annuity date by writing us at least 30 days prior to this date.
The annuity date must be on or before the later of:
- - the annuitant's 90th birthday; or
- - the 10th anniversary of the contract issue date.
VAP 9830 Page 5
<PAGE>
The initial payment purchased by each $1000 of annuitized value depends upon the
annuity option selected and the age and sex of the annuitant on the annuity
date. The payments are based upon the 1983a Annuity Mortality table and 3.5%
interest.
ANNUITY OPTIONS
The following annuity options are available under the contract. Each is
available in the form of either a fixed annuity or a variable annuity (or a
combination of both fixed and variable annuity). Fixed account contract values
will be applied to provide a fixed annuity
OPTION A, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS
Monthly payments are made beginning on the annuity date. Payment will continue
as long as the annuitant lives. If the annuitant dies before all of the
guaranteed payments have been made, we will continue installments of the
guaranteed payments to the beneficiary.
OPTION B, JOINT AND SURVIVOR ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS
Monthly payments are made beginning with the annuity date. Payments will
continue as long as either the annuitant or the joint annuitant is alive.
If both the annuitant and the joint annuitant die before all of the guaranteed
payments have been made, we will continue installments of the guaranteed
payments to the beneficiary.
OPTION C, PAYMENTS FOR A SPECIFIED PERIOD CERTAIN OF 5 TO 30 YEARS
Monthly payments are made starting on the annuity date and continuing for the
specified period of time as elected. If the annuitant dies before all of the
guaranteed payments have been made, we will continue installments of the
guaranteed payments to the beneficiary. Payments for less than 120 months may
be subject to a withdrawal charge.
We reserve the right to make available other annuity options.
No lump sum settlement option is available under the contract. You may
surrender the contract prior to the annuity date; however, any applicable
withdrawal charges will be deducted from the contract value.
The initial monthly payments purchased per $1000 applied for Option A, with 120
months guaranteed are shown below. The factors for other options will be
calculated using the same basis as those shown and are available by writing to
us.
<TABLE>
<CAPTION>
Monthly Annuity
Payment for 120
Annuitant's Age on Months & Lifetime
Annuity Date For Each $1,000.00
Male Female
<S> <C> <C>
50 4.53 4.19
51 4.60 4.25
52 4.67 4.31
53 4.75 4.38
54 4.84 4.45
55 4.93 4.52
56 5.02 4.60
57 5.12 4.68
58 5.22 4.77
59 5.33 4.86
60 5.44 4.95
61 5.56 5.05
62 5.69 5.16
63 5.82 5.27
64 5.96 5.39
65 6.11 5.52
66 6.26 5.65
67 6.41 5.79
68 6.57 5.94
69 6.74 6.10
</TABLE>
VAP 9830 Page 6
<PAGE>
<TABLE>
<CAPTION>
Monthly Annuity
Payment for 120
Annuitant's Age on Months & Lifetime
Annuity Date For Each $1,000.00
------------ ------------------
Male Female
<S> <C> <C>
70 6.91 6.26
71 7.08 6.43
72 7.25 6.61
73 7.43 6.79
74 7.61 6.98
75 7.78 7.18
76 7.96 7.38
77 8.13 7.58
78 8.29 7.79
79 8.45 7.98
80 8.61 8.17
81 8.75 8.36
82 8.89 8.54
83 9.01 8.71
84 9.13 8.86
85 or over 9.23 9.01
</TABLE>
ANNUITY PAYMENTS
The contract provides for two types of annuity payments. "Variable annuity
payments" vary in amount based on changes in the subaccounts that you have
selected. "Fixed annuity payments" do not vary in amount and are paid in an
amount determined when you annuitize. Your annuity payments may consist of a
mixture of the two types of payments or may be entirely one or the other. The
method of calculating the initial payment is different for the two accounts.
The contract maintenance charge will be deducted in equal payments from each
annuity payment. The contract maintenance charge will be waived if the
contract value on the annuity date is $50,000 or more or if all payments are
fixed amount annuity payments.
PAYMENT TERMS AND CONDITIONS
The annuity payments are subject to the following terms and conditions:
If the contract value is less than $5,000, or not enough to provide an initial
payment of at least $50, and state law permits, we reserve the right to:
- - change the payment frequency to make the payment at least $50 or
- - terminate the contract and pay you the contract value adjusted by any
market value adjustment and less any applicable taxes in a lump sum.
If we do not receive a written choice of an annuity option from you at least 30
days before the annuity date, the income plan will be Life Income with
Guaranteed Payments for 120 months.
If you choose an annuity option which depends on any person's life, we may
require:
- - proof of age and sex before income payments begin; and
- - proof that the annuitant or joint annuitant is still alive before we make
each payment.
After the annuity date, the annuity option cannot be changed and withdrawals
cannot be made unless annuity payments are being made from the separate account
under annuity Option C. You may terminate annuity payments being made from the
separate account under annuity Option C at any time and withdraw their value,
subject to withdrawal charges.
If any owner dies before all annuity payments have been made, the remaining
annuity payments will be paid to the successor owner as scheduled.
VAP 9830 Page 7
<PAGE>
FIXED ANNUITY
You may choose to apply a portion of your annuitized value to purchase a fixed
annuity. You must notify us, within 30 days of the annuity date, of that
portion of your annuitized value with which you wish to purchase a fixed
annuity. Any annuitized value in the fixed account will be automatically
applied to provide a fixed annuity. We will reduce your interest in the
subaccounts on the annuity date to reflect your choice.
The initial annuity payment for any portion of the annuitized value applied to
purchase a fixed annuity is determined by applying it to the per $1000 payment
factors for the annuity option selected. Subsequent payments will be fixed in
amount, equal to the initial payment, and paid according to the annuity option
selected.
VARIABLE ANNUITY AND ANNUITY UNITS
The initial annuity payment attributable to a subaccount is determined by
applying the annuitized value attributable to that subaccount on the annuity
date to the annuity option selected. The initial annuity payment for a
subaccount is divided by the subaccount's annuity unit value on the annuity date
to determine the number of annuity units purchased. Subsequent annuity payments
attributable to a subaccount will be equal to the number of annuity units for
the subaccount multiplied by the annuity unit value for the subaccount on the
payment date. The total variable annuity payment will be the sum of the
payments attributable to each subaccount in which you have an interest.
ANNUITY UNIT VALUE
The annuity unit value of a subaccount for any valuation period is calculated by
multiplying the annuity unit value at the end of the immediately preceding
valuation period by the subaccount's net investment factor for the valuation
period and dividing this product by 1.000 plus the assumed investment rate for
the period. The assumed investment rate is an effective annual rate of 3.5%.
The net investment factor is described in detail on pages 10 and 11.
PURCHASE PAYMENTS
Purchase payments for this contract are flexible. The initial purchase payment
shown on Page 3 must be paid on the issue date. Thereafter, you may make
payments of at least $100 at any time prior to the annuity date. We may limit
the maximum amount of premium payments we will accept.
Purchase payments are payable to us at our home office. We will supply a
receipt if you ask us.
ALLOCATION OF PURCHASE PAYMENTS
We will invest the purchase payments in the investment alternatives as you have
selected. You may allocate any portion of your purchase payment, in whole
percents from 0% to 100%, or in exact dollar amounts to any of the subaccounts
or the fixed account options. The total allocation must equal 100%. The
allocation of the initial purchase payment is shown on page 3. Allocation of
each subsequent purchase payment will be the same as the allocation for the most
recent purchase payment unless you change the allocation. You may change the
allocation percentages at any time by writing us. Any change will be effective
when we receive it.
FIXED ACCOUNT OPTIONS
The fixed account options are the Dollar Cost Averaging Fixed Account Option and
the Guaranteed Maturity Fixed Account.
VAP 9830 Page 8
<PAGE>
DOLLAR COST AVERAGING FIXED ACCOUNT
Money allocated to the Dollar Cost Averaging Fixed Account option will earn
interest for one year at the current rate in effect at the time of allocation.
Each purchase payment and associated interest in the Dollar Cost Averaging Fixed
Account option must be transferred to other investment alternatives in equal
monthly installments. The number of monthly installments must be no more than
12. At the end of 12 months from the date of a purchase payment allocation to
the Dollar Cost Averaging Fixed Account, any remaining portion of the purchase
payment and interest in the Dollar Cost Averaging Fixed Account will be
allocated to other investment alternatives as defined by the current Dollar Cost
Averaging Fixed Account allocation. You may only allocate money to the Dollar
Cost Averaging Fixed Account option by allocating a portion of a purchase
payment. No amount may be transferred into the Dollar Cost Averaging Fixed
Account.
GUARANTEED MATURITY FIXED ACCOUNT OPTION
We will pay a specified interest rate for a specified Guarantee Period on each
amount allocated to the Guaranteed Maturity Fixed Account Option. You choose
the applicable Guarantee Period from among the choices that we make available at
our discretion. Each Guarantee Period we offer may have a different interest
rate. We may change the rate we offer for new Guarantee Periods at any time at
our discretion.
New Guarantee Periods begin when:
- - you make a purchase payment; or
- - you select a new Guarantee Period after the prior Guarantee Period expires;
or
- - you transfer an amount from an existing subaccount of the separate account,
from the Dollar Cost Averaging Fixed Account option, or you allocate funds
in the fixed account to a new Guarantee Period before the end of the
existing Guarantee Period.
You must select the Guarantee Period for all purchase payments and transfers
allocated to the Guaranteed Maturity Fixed Account option. If you do not select
a Guarantee Period for a purchase payment or transfer, we will assign the same
period(s) as used for the most recent purchase payment.
We will mail you a notice prior to the expiration of a Guarantee Period
outlining the options available at the end of the Guarantee Period. During the
30 day period after a Guarantee Period expires you may:
- - take no action and we will automatically apply the relevant amount to a new
Guarantee Period of the same duration as the expiring Guarantee Period
beginning on the day the previous guarantee period expired. The interest
rate will be the rate we are then offering for Guarantee Periods of that
duration, or
- - notify us to allocate the relevant amount to one or more new Guarantee
Periods beginning on the day the previous guarantee period expired; or
- - notify us to allocate the relevant amount to one or more subaccounts on the
day we receive the notification; or
- - withdraw all or a portion of the relevant amount through a partial
withdrawal. You may be required to pay a withdrawal charge, but we will
not adjust the amount withdrawn to include a Market Value Adjustment. In
this case, the amount withdrawn will be deemed to have been withdrawn on
the day the guarantee period expired.
CREDITING INTEREST
We credit interest daily to money allocated to the fixed account options at a
rate which compounds over one year to the interest rate we guaranteed when the
money was
VAP 9830 Page 9
<PAGE>
allocated. We will credit interest on the initial purchase payment from the
issue date. We will credit interest to subsequent purchase payments from the
date we receive them. We will credit interest to transfers from the date the
transfer is made. The interest rate for the Dollar Cost Averaging Fixed Account
will never be less than the minimum guaranteed rate shown on Page 3.
CONTRACT VALUE
On the issue date of the contract, the contract value is equal to the initial
purchase payment. After the issue date, the contract value is equal to the sum
of:
- - the number of accumulation units you hold in each subaccount of the
separate account multiplied by the accumulation unit value for that
subaccount on the most recent valuation date; plus
- - the total value you have in the Dollar Cost Averaging Fixed Account Option;
plus
- - the total values you have in the Guaranteed Maturity Fixed Account Option.
If you withdraw the entire contract value, you may receive an amount greater or
less than the contract value because a market value adjustment, a withdrawal
charge, income tax withholding, and a premium tax charge may apply.
SUBACCOUNT VALUES
The value of a subaccount is equal to the number of accumulation units you hold
for that subaccount multiplied by the accumulation unit value for that
subaccount on the most recent valuation date.
ACCUMULATION UNITS AND ACCUMULATION UNIT VALUES
Amounts which are allocated to a subaccount are used to purchase accumulation
units in that subaccount. The number of accumulation units purchased is
determined by dividing the amount allocated by the subaccount's accumulation
unit value as of the end of the valuation period when the allocation occurs.
Accumulation unit value is determined Monday through Friday on each day that the
New York Stock Exchange is open for business. A separate accumulation unit
value is determined for each subaccount. The accumulation unit value for each
subaccount will vary with the price of a share in the portfolio the subaccount
invests in, and in accordance with the mortality and expense risk charge,
administrative expense charge, and any provision for taxes. Assessments of
withdrawal charges, transfers and contract maintenance charges are done
separately for each contract. They are made by redemption of accumulation units
and do not affect accumulation unit value.
The accumulation unit value of a subaccount for any valuation period equals the
accumulation unit value as of the immediately preceding valuation period,
multiplied by the net investment factor for that subaccount for the current
valuation period.
NET INVESTMENT FACTOR
The net investment factor for any subaccount of the separate account for any
valuation period is (1) divided by (2) minus (3) where:
1. is the net result of:
- the net asset value of a portfolio share held in the the mutual
fund underlying the subaccount determined at the end of the
valuation period, plus
- the per share amount of any dividend or capital gain
distributions declared by the portfolio underlying the
VAP 9830 Page 10
<PAGE>
subaccount during the current valuation period, plus or minus
- a per share credit or charge with respect to any taxes which we
paid or for which we reserved during the valuation period which
are determined by us to be attributable to the operation of the
subaccount (no federal income taxes are applicable under present
law).
2. is the net asset value per share of a portfolio share held in the
subaccount as of the end of the immediately preceding valuation period; and
3. is the sum of the annualized mortality and expense risk charge and the
annualized administrative expense charge divided by the number of days in
the current calendar year and then multiplied by the number of calendar
days in the current valuation period.
The net investment factor may be greater or less than or equal to one;
therefore, the value of an accumulation unit may increase, decrease, or remain
the same.
MORTALITY AND EXPENSE RISK CHARGE
Both before and after the annuity date, we deduct a mortality and expense risk
charge from each subaccount during the valuation period. The annualized
aggregate mortality and expense risk charge is equal to 1.15% of the net asset
value of each subaccount. Our expense and mortality experience will not
adversely affect the dollar amount of variable benefits or other contractual
payments or values under this contract.
ADMINISTRATIVE EXPENSE CHARGE
Both before and after the annuity date, we deduct an administrative expense
charge from each subaccount during the valuation period. The annualized
administrative expense charge is .10% of the net asset value of the subaccount.
This charge compensates us for the cost of administering the contracts and the
separate account.
CONTRACT MAINTENANCE CHARGE
Prior to the annuity date, a contract maintenance charge will be deducted from
your contract value on each contract anniversary. The charge is only deducted
from the subaccounts. The charge will be deducted on a pro-rata basis from each
subaccount of the separate account in the proportion that your value in each
bears to your total value in all subaccounts. A full contract maintenance
charge will be deducted if the contract is terminated on any date other than a
contract anniversary. The annualized charge will never be greater than $35 per
contract year. The contract maintenance charge will be waived if total purchase
payments are $50,000 or more or if all money is allocated to the fixed account
options on the contract anniversary.
After the annuity date the contract maintenance charge will be deducted in equal
parts from each annuity payment. The contract maintenance charge will be waived
if the contract value on the annuity date is $50,000 or more or if all payments
are fixed amount annuity payments.
TRANSFERS AND TRANSFER FEE
You may transfer amounts between investment alternatives prior to the annuity
date. We reserve the right to impose a $10 transfer fee on the second transfer
within a calendar month, and to impose a minimum size on transfer amounts.
Transfers are subject to the following restrictions:
- - Any transfer from a Fixed Account will be subject to a Market Value
adjustment unless:
- the transfer occurs during the 30 day period after the applicable
guarantee period expires; or
- the transfer is made as part of a dollar cost averaging program.
VAP 9830 Page 11
<PAGE>
- - At the end of 12 months from the date of a purchase payment allocation to
the dollar cost averaging fixed account, any remaining portion of the
purchase payment and interest in the dollar cost averaging fixed account
will be allocated to other investment alternatives as defined by the
current dollar cost averaging fixed account allocation.
- - No amount may be transferred into the dollar cost averaging fixed account.
We reserve the right to waive the transfer fees and restrictions contained in
this contract.
ANNUITY TRANSFERS
After the annuity date, no transfers may be made from the fixed amount annuity
payment. Transfers between subaccounts, or from the variable amount annuity
payment to the fixed amount annuity payment may not be made for six months after
the annuity date. Transfers may be made once every six months thereafter.
TAXES
Any premium taxes or income tax withholding relating to the contract may be
deducted from purchase payments or the contract value when the tax is incurred
or at a later time.
SURRENDER VALUE
SURRENDER
You may surrender this contract before the annuity date. We will pay you the
surrender value upon surrender.
The surrender value is equal to the contract value, adjusted by any market value
adjustment, less any applicable taxes and withdrawal charges.
A surrender stops coverage under this contract.
WITHDRAWAL
You have the right to withdraw part or all of your surrender value before the
annuity date. You must specify the investment alternative(s) from which you wish
to make a withdrawal. When you make a withdrawal, your contract value will be
reduced by the amount paid to you and any applicable withdrawal charge, market
value adjustment, and taxes. A contract maintenance charge will also be
deducted if the contract is terminated. Any withdrawal charge will be waived on
withdrawals taken to satisfy IRS minimum distribution rules. This waiver is
permitted only for withdrawals which satisfy distributions resulting from this
contract.
Each withdrawal must be at least $50. If any withdrawal reduces the contract
value to less than $500, we will treat the request as a withdrawal of the
entire contract value. If you withdraw the entire contract value, the contract
will terminate.
WITHDRAWAL CHARGE
A withdrawal charge may be imposed on certain withdrawals. The withdrawal
charge is a percentage of purchase payments withdrawn that are less than seven
years old and not eligible for a free withdrawal, in accordance with the table
shown below:
<TABLE>
<CAPTION>
Contribution Withdrawal Charge
Year Percentage
----------------- ----------
<S> <C>
First and Second 7
Third and Fourth 6
Fifth 5
Sixth 4
Seventh 3
Eighth and Later 0
</TABLE>
VAP 9830 Page 12
<PAGE>
The withdrawal charge is deducted from remaining contract value so that the
actual reduction in contract value as a result of the withdrawal will be greater
than the withdrawal amount requested and paid.
For purposes of determining the withdrawal charge, the contract value is deemed
to be withdrawn in the following order:
First. Earnings--The amount of contract value in excess of all purchase
payments that have not previously been withdrawn;
Second. Old Purchase Payments--Purchase payments received by us more than seven
years prior to the date of withdrawal which have not been previously withdrawn;
Third. Any additional amounts available as a free withdrawal, as described
below; and
Fourth. New Purchase Payments--Purchase payments received by us less than seven
years prior to the date of withdrawal. These payments are deemed to be
withdrawn on a first-in, first-out basis.
For each purchase payment withdrawal the contribution year in the table is
measured from the date we received the purchase payment. The withdrawal charge
is determined by multiplying the percentage corresponding to the contribution
year times that part of each purchase payment withdrawal that is in excess of
the free withdrawal amount.
FREE WITHDRAWAL
Withdrawals of the following amounts are never subject to the withdrawal
charge:
a. In any contract year, the greater of earnings not previously withdrawn, or
15 percent of new purchase payments; and
b. Any old purchase payments which have not been previously withdrawn.
The withdrawal charge will be waived if a settlement option is selected which
provides for payments over at least 5 years or over the annuitant's lifetime.
MARKET VALUE ADJUSTMENT
Activities in the Fixed Account that may be subject to a market value adjustment
are withdrawals in excess of the free withdrawal amount, transfers, death
benefits, and amounts applied to an annuity option. Any activity will be
subject to a market value adjustment unless:
- - it occurs during the 30 day period after the applicable guarantee period
expires; or
- - it is a transfer that is part of a dollar cost averaging program.
A market value adjustment is an increase or decrease in the amount reflecting
changes in the level of interest rates since the beginning of the applicable
Guarantee Period. As used in this provision, 'treasury rate' means the U.S.
Treasury Note Constant Maturity yield as reported in Federal Reserve Bulletin
Release H.15. The market value adjustment is based on the following:
I = the Treasury Rate for a maturity equal to the guarantee period for the week
preceding the beginning of the Guarantee Period;
J = the Treasury Rate for a maturity equal to the guarantee period for the week
preceding the receipt of the withdrawal request, death benefit request, transfer
request, or annuity option request.
N = the number of whole and partial years from the date we receive the
withdrawal, transfer, or death benefit request, or from the annuity date, to the
end of the guarantee period.
VAP 9830 Page 13
<PAGE>
An adjustment factor is determined from the following formula:
.9 x (I - J) x N
The amount subject to a market value adjustment that is deducted from the
guaranteed maturity fixed account is multiplied by the adjustment factor to
determine the amount of the market value adjustment.
Any market value adjustment will be waived on withdrawals taken to satisfy IRS
minimum distribution rules. This waiver is permitted only for withdrawals which
satisfy distributions resulting from this contract.
DEATH BENEFIT
DEATH OF OWNER OR ANNUITANT
We will pay the death benefit when we receive due proof of death while this
contract is in force and before the annuity date, if
- -- any owner dies; or
- -- the annuitant dies and the owner is not a natural person.
If the owner eligible to receive a benefit is not a natural person, the owner
may elect to receive the benefit in one or more distributions. Otherwise, if
the owner is a living individual, the owner may elect to receive a benefit
either in one or more distributions or by annuity payments through an annuity
option.
A death benefit will be paid if:
- - the owner elects to receive the death benefit within 180 days of the date
of death, and
- - payment is made as of the date we determine the value of the death benefit,
as defined at the end of the death benefit provision.
Otherwise, the settlement value will be paid. In any event, the entire value of
the contract must be distributed within five (5) years after the date of death
unless an annuity option is elected or a surviving spouse continues the contract
in accordance with the following provisions. We reserve the right to extend the
180 day period when we will pay the death benefit.
If an annuity option is elected, payments from the annuity option must begin
within one year of the date of death and must be payable throughout:
- - the life of the owner; or
- - a period not to exceed the life expectancy of the owner; or
- - the life of the owner with payments guaranteed for a period not to exceed
the life expectancy of the owner.
If the beneficiary is your spouse, and death occurs prior to the annuity
date, then the contract can continue as if death had not occurred. If the
contract is continued, the surviving spouse may make a single withdrawal of
any amount within one year of the date of death without incurring a
withdrawal charge or a market value adjustment.
VAP 9830 Page 14
<PAGE>
If there is no annuitant at that time, the new annuitant will be the surviving
spouse. The surviving spouse may also select one of the annuity options listed
above.
If the beneficiary is not a natural person, then the beneficiary must receive
the death benefit in a lump sum, and the options listed above are not available.
DEATH BENEFIT
Prior to the annuity date, the death benefit is equal to the greatest of the
following death benefit alternatives:
- - the sum of all purchase payments reduced by a withdrawal adjustment, as
defined below; or
- - the contract value on the date we determine the death benefit; or
- - the amount that would have been payable in the event of a full withdrawal
of the contract value on the date we determine the death benefit; or
- - the contract value on each death benefit anniversary prior to the date we
determine the death benefit, increased by any purchase payments made since
that death benefit anniversary and reduced by a withdrawal adjustment, as
defined below.
The first death benefit anniversary is the 7th contract anniversary. Subsequent
death benefit anniversaries are those contract anniversaries that are multiples
of 7 contract years, beginning with the 14th contract anniversary. For example,
the 7th, 14th, and 21st contract anniversaries are the first three death benefit
anniversaries.
The withdrawal adjustment is equal to (a) divided by (b), with the result
multiplied by (c) where:
(a) equals the withdrawal amount.
(b) equals the contract value immediately prior to the withdrawal
(c) equals the value of the applicable death benefit alternative immediately
prior to the withdrawal.
We will determine the value of the death benefit as of the end of the valuation
period during which we receive a complete request for payment of the death
benefit. A complete request includes due proof of death.
SETTLEMENT VALUE
The settlement value is the same amount that would be paid in the event of a
full withdrawal of the contract value. We will calculate the settlement value
at the end of the valuation period coinciding with the requested distribution
date for payment or on the mandatory distribution date of 5 years after the date
of death, whichever is earlier.
BENEFICIARY
The beneficiary will receive the death benefit when any owner dies. The
beneficiaries are as stated in the app unless changed.
If you do not name a beneficiary or if the beneficiary named is no longer
living, the beneficiary will be:
... your spouse if living, otherwise;
... your children equally if living, otherwise;
... your estate.
VAP 9830 Page 15
<PAGE>
We will pay the death benefit to the beneficiaries according to the most recent
written instruction we have received from you. If we do not have any written
instructions, we will pay the death benefit in equal shares to the beneficiaries
who are to share the funds. If there is more than one beneficiary in a class
and one of the beneficiaries predeceases you, the death benefit will be paid to
the surviving beneficiaries in that class.
You may name new beneficiaries. We will provide a form to be signed. You must
file it with us. Upon receipt, it is effective as of the date you signed the
form, subject to any action we have taken before we received it.
OWNERSHIP
The annuitant is the owner if no other person is named in the app as owner.
Unless you provide otherwise, as owner, you may exercise all rights granted by
the contract, subject to the rights of any irrevocable beneficiary, without the
consent of anyone else.
You may name a new annuitant before the annuity date. You may also name a new
owner. We will provide a form to be signed to request these changes. You must
file it with us. Upon receipt, it is effective as of the date you signed the
form. We are not liable for any payment we make or other action we take before
receiving any written request for a change from you.
You may assign this contract or an interest in it to another. You must do so in
writing and file the assignment with us. No assignment is binding on us until
we receive it. When we receive it your rights and those of the beneficiary will
be subject to the assignment. We are not responsible for the validity of any
assignment you make.
OTHER TERMS OF YOUR CONTRACT
OUR CONTRACT WITH YOU
These pages, including any endorsements and any riders are your entire contract
with us. We issued it based upon your app and the payment of the purchase
payment by you.
We will not use any statements, except those made in the app to challenge any
claim or to avoid any liability under this contract. The statements made in the
app will be treated as representations and not as warranties.
Only our officers have authority to change this contract. No agent may do this.
Any change must be written.
INCONTESTABILITY
This contract will be incontestable after its issue date. This means that we
cannot use any misstatement by you in the application to challenge any claim or
to avoid liability under this contract after this time.
MISSTATEMENT OF AGE OR SEX
If any age or has been misstated, we will pay the amounts which would have been
paid at the correct age and sex.
CONFORMITY WITH STATE LAW
This contract is subject to the laws of the state in which it is delivered. If
any part of the contract does not comply with the law, it will be treated by us
as if it did.
NONPARTICIPATING
This policy does not participate in our earnings.
EVIDENCE OF SURVIVAL
We may require evidence of the survival of the annuitant.
VAP 9830 Page 16
<PAGE>
SETTLEMENTS
We may require that this contract be returned to us prior to any settlement.
We must receive due proof of death of the owner or annuitant prior to settlement
of death claim.
Any surrender or death benefit under this contract will not be less than the
minimum benefits required by the statute of the state in which the contract is
delivered.
DEFERMENT OF PAYMENTS
We will pay any amounts due under the separate account under this contract
within seven days, unless:
- - The New York Stock Exchange is closed for other than usual weekends or
holiday, or trading on such exchange is restricted;
- - An emergency exists as defined by the Securities and Exchange Commission;
or
- - The Securities and Exchange Commission permits delay for the protection of
contract holders.
In addition, we may defer payment or transfers from the fixed account options
for up to 6 months after you ask for it. If we defer payment from the fixed
account for more than 30 days we will pay interest as required by applicable
law. Any interest would be payable from the date the withdrawal request is
received by us to the date the payment is made.
ANNUAL REPORT
At least once a year, prior to the annuity date, we will send you a statement
containing contract information. We will provide you with contract value
information at any time upon request. The information presented will comply
with any applicable law.
SEPARATE ACCOUNT MODIFICATIONS
We reserve the right, subject to applicable law, to make additions to, deletions
from, or substitutions for the mutual fund shares underlying the subaccounts.
We will not substitute any share attributable to your interest in a subaccount
without notice to you and prior approval of the Securities and Exchange
Commission, to the extend required by the Investment Company Act of 1940, as
amended.
We reserve the right to establish additional subaccounts each of which would
invest in shares of another mutual fund. You may then instruct us to allocate
purchase payments or transfers to such subaccounts, subject to any terms set by
us or the mutual fund.
In the event of any such substitution or change, we may by endorsement make sure
changes as may be necessary or appropriate to reflect such substitution or
change.
If we deem it to be in the best interests of the persons having voting rights
under the contracts, the separate account may be operated as a management
company under the Investment Company Act of 1940, as amended or it may be
deregistered under such Act in the event such registration is no longer
required.
VAP 9830 Page 17
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
ENHANCED DEATH BENEFIT RIDER
This rider was issued because you selected the Enhanced Death Benefit at the
time you applied for this annuity.
ENHANCED DEATH BENEFIT
The Death Benefit provision of your Contract is modified as follows:
The Death Benefit will be the greater of the values stated in your contract, or
the value of the Enhanced Death Benefit.
The Enhanced Death Benefit is equal to the greater of the Enhanced Death Benefit
A or Enhanced Death Benefit B. The Enhanced Death Benefit will cease on the
date we determine the value of the Death Benefit.
ENHANCED DEATH BENEFIT A
At issue, the Enhanced Death Benefit A is equal to the initial purchase payment.
After issue, the Enhanced Death Benefit A is recalculated when a purchase
payment or withdrawal is made or on a contract anniversary as follows:
1. For purchase payments, the Enhanced Death Benefit A is equal to the most
recently calculated Enhanced Death Benefit A plus the purchase payment.
2. For withdrawals, the Enhanced Death Benefit A is equal to the most recently
calculated Enhanced Death Benefit A reduced by a withdrawal adjustment
defined below.
3. On each contract anniversary, the Enhanced Death Benefit A is equal to the
greater of the contract value or the most recently calculated Enhanced
Death Benefit A.
In the absence of any withdrawals or purchase payments, the Enhanced Death
Benefit A will be the greatest of all contract anniversary contract values on
or prior to the date we calculate the death benefit.
The Enhanced Death Benefit A will be recalculated for purchase payments,
with-drawals and on contract anniversaries until the oldest owner or the
annuitant, if the owner is not a living individual, attains age 85.
After age 85, the Enhanced Death Benefit A will be recalculated only for
purchase payments and withdrawals.
ENHANCED DEATH BENEFIT B
The Enhanced Death Benefit B is equal to total purchase payments made reduced by
a withdrawal adjustment defined below. Each purchase payment and each
withdrawal adjustment will accumulate daily at a rate equivalent to 5% per year
until the earlier of:
1. the date we determine the death benefit, or
2. the first day of the month following the oldest owner's or, if the owner is
not a living individual, the annuitant's 85th birthday.
The Enhanced Death Benefit B will never be greater than the maximum death
benefit allowed by any nonforfeiture laws which govern the contract.
VAR 9831 Page 1
<PAGE>
WITHDRAWAL ADJUSTMENT
The withdrawal adjustment is equal to (a) divided by (b), with the result
multiplied by (c) where:
(a) equals the withdrawal amount.
(b) equals the contract value immediately prior to the withdrawal.
(c) equals the most recently calculated Enhanced Death Benefit A or B, as
applicable.
MORTALITY AND EXPENSE RISK CHARGE
The Mortality and Expense Risk Charge provision of your contract is modified as
follows:
The annualized mortality and expense risk charge of 1.15% is changed to 1.35%.
After the death of the owner, if the surviving spouse elects to continue the
contract, then the annualized mortality and expense risk charge of 1.35% will be
changed to 1.15%. The effective date of this change will be the date we
determine the value of the death benefit.
Except as amended in this rider, the contract remains unchanged.
B. Eugene Wraith
President
VAR 9831 Page 2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
ENHANCED DEATH AND INCOME BENEFIT COMBINATION RIDER
This rider was issued because you selected the Enhanced Death Benefit and
Enhanced Income Benefit at the time you applied for this annuity.
ENHANCED DEATH BENEFIT
The Death Benefit provision of your Contract is modified as follows:
The Death Benefit will be the greater of the values stated in your contract, or
the value of the Enhanced Death Benefit.
The Enhanced Death Benefit is equal to the grater of the Enhanced Death Benefit
A or Enhanced Death Benefit B. The Enhanced Death Benefit will cease on the
date we determine the value of the Death Benefit.
ENHANCED DEATH BENEFIT A
At issue, the Enhanced Death Benefit A is equal to the initial purchase payment.
After issue, the Enhanced Death Benefit A is recalculated when a purchase
payment or withdrawal is made or on a contract anniversary as follows:
1. For purchase payments, the Enhanced Death Benefit A is equal to the most
recently calculated Enhanced Death Benefit A plus the purchase payment.
2. For withdrawals, the Enhanced Death Benefit A is equal to the most recently
calculated Enhanced Death Benefit A reduced by a withdrawal adjustment
defined below.
3. On each contract anniversary, the Enhanced Death Benefit A is equal to the
greater of the contract value or the most recently calculated Enhanced
Death Benefit A.
In the absence of any withdrawals or purchase payments, the Enhanced Death
Benefit A will be the greatest of all contract
anniversary contract values on or prior to the date we calculate the death
benefit.
The Enhanced Death Benefit A will be recalculated for purchase payments,
withdrawals and on contract anniversaries until the oldest owner or the
annuitant, if the owner is not a living individual, attains age 85.
After age 85, the Enhanced Death Benefit A will be recalculated only for
purchase payments and withdrawals.
ENHANCED DEATH BENEFIT B
The Enhanced Death Benefit B is equal to total purchase payments made reduced by
a withdrawal adjustment defined below. Each purchase payment and each
withdrawal adjustment will accumulate daily at a rate equivalent to 5% per year
until the earlier of:
1. the date we determine the death benefit, or
2. the first day of the month following the oldest owner's or, if the owner is
not a living individual, the annuitant's 85th birthday.
VAR 9832 Page 1
<PAGE>
The Enhanced Death Benefit B will never be greater than the maximum death
benefit allowed by any nonforfeiture laws which govern the contract.
WITHDRAWAL ADJUSTMENT
The withdrawal adjustment is equal to (a) divided by (b), with the result
multiplied by (c) where:
(a) = the withdrawal amount.
(b) = the contract value immediately prior to the withdrawal.
(c) = the most recently calculated Enhanced Death Benefit A or B, as
applicable.
ENHANCED INCOME BENEFIT
The following is added to your contract:
I. The Enhanced Income Benefit will apply if the owner elects an annuity date
that:
- - is on or after the tenth contact anniversary, and
- - is prior to the annuitant's age 90.
Throughout the contract value section of your contract, the term "contract
value" is replaced with "the greater of the contract value or the Enhanced
Income Benefit" however, no market value adjustment will be applied to the
Enhanced Income Benefit amount.
If the amount applied to an income plan is the Enhanced Income Benefit, then the
annuity option must provide payments guaranteed for either single or joint life
with a period certain of at least:
- - 10 years, if the youngest annuitant's age is 80 or less on the date the
amount is applied, or
- - 5 years, if the youngest annuitant's age is greater than 80 on the date the
amount is applied.
If the amount applied to an income plan is the contract value, then the annuity
option may be any plan then offered by us.
II. The Enhanced Income Benefit is equal to what the value of the Enhanced
Death Benefit would be on the annuity date.
MORTALITY AND EXPENSE RISK CHARGE
The Mortality and Expense Risk Charge provision of your contract is modified as
follows:
The annualized mortality and expense risk charge of 1.15% is changed to 1.55%.
After the death of the owner, if the surviving spouse elects to continue the
contract, then the annualized mortality and expense risk charge of 1.55% will be
changed to 1.15%. The effective date of this change will be the date we
determine the value of the death benefit.
Except as amended in this rider, the contract remains unchanged.
B. Eugene Wraith
President
VAR 9832 Page 2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONTRACT AMENDMENT FOR WAIVER OF CHARGES
The following provisions are added to your contract:
The benefits provided by this contract amendment do not impact any tax
liabilities or IRS penalties incurred as a result of a withdrawal. You are
responsible for all such liabilities and penalties.
WAIVER FOR CONFINEMENT IN LONG TERM CARE FACILITY OR HOSPITAL
We will waive any withdrawal charge and market value adjustment prior to the
annuity date if at least 30 days after the issue date any owner, or, if the
owner is not a living individual, the annuitant is first confined to a Long
Term Care Facility or Hospital under the following conditions:
- - confinement is for at least 90 consecutive days;
- - confinement is prescribed by a physician;
- - confinement is medically necessary; and
- - the request for a withdrawal and due proof of confinement are received by
us no later than 90 days after discharge.
"PHYSICIAN"
A licensed medical doctor (M.D.) or a licensed doctor of osteopathy (D.O.)
practicing within the scope of his or her license. Physician does not include
the individual, a spouse, children, parents, grandparents, grandchildren,
siblings, or in-laws.
"DUE PROOF"
Includes, but is not limited to, a letter signed by a Physician stating the
dates the owner or annuitant was confined, the name and location of the Long
Term Care Facility or Hospital, a statement that the confinement was Medically
Necessary, and, if released, the date the owner or annuitant was released from
the Long Term Care Facility or Hospital.
"MEDICALLY NECESSARY"
Confinement, care or treatment which is appropriate and consistent with the
diagnosis in accord with accepted standards of practice, and which could not
have been omitted without adversely affecting the individual's condition.
"LONG TERM CARE FACILITY"
A facility which:
1. is located in the United States or its territories;
2. is licensed by the jurisdiction in which it is located;
3. provides custodial care under the supervision of a registered nurse (R.N.);
and
4. can accommodate three or more persons.
"HOSPITAL"
A facility which:
1. is licensed as a hospital by the jurisdiction in which it is located;
2. is supervised by a staff of licensed physicians;
3. provides nursing services 24 hours a day, or under the supervision, of a
registered nurse (R.N.);
4. operates primarily for the care and treatment of sick or injured persons as
inpatients for a charge; and
VAR 9833 Page 1
<PAGE>
5. has access to medical, diagnostic and major surgical facilities.
WAIVER FOR TERMINAL ILLNESS
We will waive any withdrawal charge and market value adjustment prior to the
annuity date if at least 30 days after the issue date any owner, or, if the
owner is not a living individual, the annuitant is first diagnosed by a
Physician as having a terminal illness. The request for the withdrawal must be
received by us at least 30 days after the issue date. Due proof of the
diagnosis must be given to us prior to, or at the time of, the withdrawal
request. We may require a second opinion at our expense by a Physician chosen
by us. In the event that the first and second Physicians disagree, we will
require a third opinion at our expense by a Physician chosen by us. We will
honor a consensus of any two of the three Physicians.
"PHYSICIAN"
A licensed l medical doctor (M.D.) or a licensed doctor of osteopathy (D.O.)
practicing within the scope of his or her license. Physician does not include
the individual, a spouse, children, parents, grandparents, grandchildren,
siblings, or in-laws.
"DUE PROOF"
Includes, but is not limited to, a letter signed by a Physician stating the
owner or annuitant has a Terminal Illness and the date the Terminal Illness was
first diagnosed.
"TERMINAL ILLNESS"
A condition which is expected to result in death within one year from the date
of onset for 80% of the diagnosed cases.
WAIVER FOR UNEMPLOYMENT
You may request a one time waiver of any withdrawal charge and market value
adjustment on a partial or full withdrawal prior to the annuity date if:
1. you become unemployed at least 1 year after the issue date of the contract;
and
2. you receive unemployment compensation for at least 30 consecutive days as a
result of that unemployment; and
3. this benefit is exercised within 180 days of your initial receipt of
unemployment compensation.
This benefit may be exercised only once prior to the annuity date.
Before we waive withdrawal charges, you must give us due proof that you have
been unemployed and have been granted unemployment compensation for at least 30
consecutive days. You must give us due proof prior to, or at the time of, the
withdrawal request.
"UNEMPLOYMENT COMPENSATION"
Unemployment compensation received from a unit of government in the U.S. (state
or federal).
"DUE PROOF"
Includes, but is not limited to, a legible photocopy of an unemployment
compensation payment that meets the above described criteria with regard to
dates and a signed letter from you stating that you meet the above described
criteria.
Except as amended in this amendment, the contract remains unchanged.
B. Eugene Wraith
President
VAR 9833 Page 2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONTRACT AMENDMENT FOR JOINT ANNUITANTS
The following changes are made to your contract because you elected joint
annuitants at the time of application or changed the annuitant to joint
annuitants as provided in the owner provision of the contract.
I. The "ANNUITANT" provision is modified as follows:
Prior to the annuity date, joint annuitants may be named. The primary
annuitant will be the youngest joint annuitant. On the death of the
last surviving joint annuitant, a new annuitant will be determined as
defined in the annuitant provision of the contract.
II. The "Death of Owner or Annuitant" provision is modified as follows
The following paragraph replaces the first paragraph of this provision
if the contract is treated as an annuity contract under Section 72(u)
of the Internal Revenue Code.
A benefit may be paid to the owner determined immediately
after the death if, prior to the annuity date:
- any owner dies; or
- the Primary annuitant dies and the owner is not a natural
person.
The following paragraph replaces the first paragraph of this provision
if the contract is treated as an annuity contract under Section 72(u)
of the Internal Revenue Code.
Prior to the annuity date, a benefit may be paid on the
death of the last surviving joint annuitant. Payment will
be made to the owner determined immediately after the death.
III. The following replaces the second paragraph of the "ANNUITY DATE"
provision:
The annuity date must be on or before the later of :
- the youngest annuitant's 90th birthday; or
- the 10th anniversary of the contract's issue date.
Except as amended in this amendment, the contract remains unchanged.
B. Eugene Wraith
President
VAR 9834 Page 1
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------------
APPLICATION FOR CONSULTANT I AND II VARIABLE ANNUITY
LINCOLN BENEFIT LIFE COMPANY, P.O. BOX 82532, LINCOLN, NE 68501-2532
- ----------------------------------------------------------------------------------------------------------------------------------
IMPORTANT NOTICE: Any person who, with intent to defraud or knowing that he is facilitating a fraud against an insurer, submits
an application or files a claim containing a false or deceptive statement is guilty of insurance fraud.
- ----------------------------------------------------------------------------------------------------------------------------------
ANNUITANT: Name______________________________________________ Birth Date _____-_____-_____ Age _____________________
Soc. Sec. No. ______-_____-______ Telephone Number (_______) _______-____________________ Sex _______Male _______Female
Street Address______________________________________________ City _______________ State__________ ZIP ________ - _____
- ----------------------------------------------------------------------------------------------------------------------------------
OWNER (IF OTHER): Name__________________________________________________________________ Soc. Sec. No. _______-______-______
Street Address______________________________________________ City _______________ State__________ ZIP ________-_______
Birth Date ______-______-______ Relationship to Annuitant______________________________________________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
PRIMARY BENEFICIARY: Name ____________________________________________________________ Soc. Sec. No. ______-_______-______
Street Address______________________________________________ City ______________ State _________ ZIP ________-_______
Relationship to Owner ____________________________________________________________________ Soc. Sec. No. ______-______-_______
- ----------------------------------------------------------------------------------------------------------------------------------
CONTINGENT BENEFICIARY: Name ____________________________________________________________ Soc. Sec. No. _______-______-______
Street Address______________________________________________ City ______________ State _________ ZIP ________-_______
Relationship to Owner ____________________________________________________________________ Soc. Sec. No. _______-______-______
- ----------------------------------------------------------------------------------------------------------------------------------
PURCHASE PAYMENT INFORMATION: First Purchase Payment of $ ______________________ submitted herewith (Check or Money Order should
be payable to Lincoln Benefit Life Company). A copy of this application duly signed by the agent will constitute receipt for such
amount. If this application is declined, there will be no liability on the part of the Company, and any sums submitted with this
application will be refunded. The Contract Owner intends to make subsequent purchase payments of $_________________ on a
/ / monthly(PAM) / / quarterly / / semi-annually / / annual basis / / single payment.
- ----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------
PURCHASE PAYMENT ALLOCATION: (WHOLE PERCENTAGES ONLY AND MUST EQUAL 100%)
- --------------------------------------------------------------------------
MFS VARIABLE INSURANCE TRUST FIDELITY VIPF FIDELITY VIPF II
________% Growth with Income ________% Money Market ________% Asset Manager
________% Research ________% Equity Income ________% Contrafund
________% Emerging Growth ________% Overseas ________% Index 500
________% Total Return ________% Growth SCUDDER VARIABLE LIFE INVESTMENT FUND
________% New Discovery ALGER AMERICAN FUND ________% Bond
JANUS ASPEN SERIES ________% Income & Growth ________% Balanced
________% Flexible Income ________% Small Capitalization ________% Growth and Income
________% Balanced ________% Growth ________% Global Discovery
________% Growth ________% MidCap Growth ________% International
________% Aggressive Growth ________% Leveraged AllCap FEDERATED INSURANCE MANAGEMENT SERIES
________% Worldwide Growth T. ROWE PRICE EQUITY SERIES ________% Utility Fund II
STRONG VARIABLE INSURANCE FUNDS, INC. ________% New America Growth ________% Fund for U.S. Gov't Securities
________% Discovery Fund II ________% MidCap Growth ________% High Income Bond Fund II
________% Opportunity Fund II ________% Equity Income GUARANTEED MATURITY FIXED ACCOUNT
________% Growth Fund II FIXED ACCOUNT ________% 1 year in Guarantee Period
T. ROWE PRICE INTERNATIONAL SERIES, INC. ________% ________% 3 year in Guarantee Period
________% International Stock ________% 5 year in Guarantee Period
________% 7 year in Guarantee Period
________% 10 year in Guarantee Period
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
VAA 9830 Page 1
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------------
Plan Name/ Form Number:______________________________________ (If not designated, app will be processed for Consultant I.)
- ----------------------------------------------------------------------------------------------------------------------------------
PAM (PRE-AUTHORIZED METHOD) I authorize the Company to collect $_____________________, on the due date specified, by initiating
electronic debit entries to my account. A balance must exist before the program can commence. ATTACH VOIDED CHECK. (Credit
unions and savings accounts are not eligible.)
Signature of Authorized Account Owner ____________________________________________________ Date ______________________________
- ----------------------------------------------------------------------------------------------------------------------------------
Will this annuity replace or change any existing policy? __Yes ___ No If Yes, give name of company, policy issue date,
policy number and cost basis._____________________________________________________________________________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
- --------------
TAX QUALIFIED?
- --------------
/ / IRA / / SEP-IRA / / Other__________________________
/ / 401 (a) / / {LBL Prototype / / Funding Vehicle}
/ / 401 (k) / / {LBL Prototype / / Funding Vehicle}
/ / 403 (b) / / Simple IRA / / Roth IRA
Tax year for which contribution is to be applied______________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
I declare: To the best of my knowledge and belief, all statements and answers are true, complete and correctly reported. Lincoln
Benefit Life may correct or endorse this application. No change shall be made in the annuity amount or plan or issue age by such
endorsement or correction. Under penalties of perjury, I certify that the Social Security Number stated herein is my correct
taxpayer ID number, and I am not subject to backup withholding. I UNDERSTAND THAT ANNUITY PAYMENTS AND SURRENDER VALUES PROVIDED
UNDER THE SEPARATE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT. RECEIPT OF A CURRENT VARIABLE ANNUITY
PROSPECTUS IS HEREBY ACKNOWLEDGED.
/ / Please send me a copy of the Statement of Additional Information to the Prospectus.
Signed at ________________________________________________________________ On (date) _____________-____________-_____________
City/State Month Day Year
Owner's Signature ________________________________________________________________________________________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
TO THE AGENT: To the best of your knowledge will this annuity replace or change any existing life insurance or annuity in this
or any other company? / / Yes / / No
Agent Name ___________________________________________________ Agent's Signature _______________________________________________
Agent Number _________________________________________________ Agent's Phone No. _______________________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
TO THE REGISTERED REPRESENTATIVE/BROKER-DEALER: CHOOSE OPTION:
/ / OPTION A / / OPTION B / / OPTION C
Broker/Dealer _____________________________________________ Telephone _______________________________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
VAA 9830 Page 2
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------------
- -----------------------
TRANSFER AUTHORIZATION:
- -----------------------
/ / I authorize Lincoln Benefit Life Company ("LBL") to act upon the written or telephone instructions from the person named
below to 1) change the allocation of payments and deductions between and among the subaccounts; and 2) transfer amounts among
the subaccounts. Neither LBL nor any person authorized by us will be responsible for any claim, loss, liability, or expense
in connection with such transfer authorization if LBL, or its employees, acts upon transfer instructions in good faith. LBL
may establish procedures to determine the proper identification of the person requesting the transfer.
Name and Relationship of Authorized Person:
Name________________________________________________ Relationship_____________________________ SS#___________________________
Signature of Owner_______________________________________________________________ Date_________________________________________
- ----------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------
DOLLAR COST AVERAGING/PORTFOLIO REBALANCING:
- --------------------------------------------
MFS VARIABLE INSURANCE TRUST FIDELITY VIPF FIDELITY VIPF II
DCA PR DCA PR DCA PR
$____ ____% Growth with Income $____ ____% Money Market $____ ____% Asset Manager
$____ ____% Research $____ ____% Equity Income $____ ____% ContraFund
$____ ____% Emerging Growth $____ ____% Overseas $____ ____% Index 500
$____ ____% Total Return $____ ____% Growth
$____ ____% New Discovery
JANUS ASPEN SERIES ALGER AMERICAN FUND SCUDDER VARIABLE LIFE INVESTMENT FUND
DCA PR DCA PR DCA PR
$____ ____% Flexible Income $____ ____% Income & Growth $____ ____% Bond
$____ ____% Balanced $____ ____% Small Capitalization $____ ____% Balanced
$____ ____% Growth $____ ____% Growth $____ ____% Growth and Income
$____ ____% Aggressive Growth $____ ____% MidCap Growth $____ ____% Global Discovery
$____ ____% Worldwide Growth $____ ____% Leveraged AllCap $____ ____% International
STRONG VARIABLE INSURANCE FUNDS, INC. T. ROWE PRICE EQUITY SERIES FEDERATED INSURANCE MANAGEMENT SERIES
DCA PR DCA PR DCA PR
$____ ____% Discovery Fund II $____ ____% New America Growth $____ ____% Utility Fund II
$____ ____% Opportunity Fund II $____ ____% MidCap Growth $____ ____% Fund for U.S. Gov't Securities II
$____ ____% Growth Fund II $____ ____% Equity Income $____ ____% High Income Bond Fund II
T. ROWE PRICE INTERNATIONAL SERIES, INC. FIXED ACCOUNT GUARANTEED MATURITY FIXED ACCOUNT
DCA PR DCA PR DCA PR
$____ ____% International Stock $____ ____% (Restrictions apply $____ ____% 1 Year Guarantee Period
for DCA--see prospectus for details) $____ ____% 3 Year Guarantee Period
$____ ____% 5 Year Guarantee Period
$____ ____% 7 Year Guarantee Period
$____ ____% 10 Year Guarantee Period
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
VAA 9830 Page 3
<PAGE>
<TABLE>
<CAPTION>
<S><C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------
SYSTEMATIC WITHDRAWALS: ($50.00 Minimum Withdrawal)
- ----------------------------------------------------
I authorize systematic withdrawals of :
/ / $___________________ / / Interest Earnings / / % Percentage of Purchase Payments
from my contract value to commence during the month of ________________________. Withdrawals may be subject to penalties and/or
a Deferred Sales Charge. Additional restrictions may apply to contracts held as a Qualified Plan.
Frequency: ____ Monthly _____Quarterly _____Semi-Annual _____Annual
Please indicate the amount or percentage of the withdrawal from the chosen Subaccount(s)
/ / Dollar Amount Specified
/ / Percentage Specified
/ / Or mark this box if the withdrawal is to be taken from the account value on a Pro Rata basis.
MFS VARIABLE INSURANCE TRUST FIDELITY VIPF FIDELITY VIPF II
_________ Growth with Income _________ Money Market _________ Asset Manager
_________ Research _________ Equity Income _________ ContraFund
_________ Emerging Growth _________ Overseas _________ Index 500
_________ Total Return _________ Growth
_________ New Discovery
JANUS ASPEN SERIES ALGER AMERICAN FUND SCUDDER VARIABLE LIFE INVESTMENT FUND
_________ Flexible Income _________ Income & Growth _________ Bond
_________ Balanced _________ Small Capitalization _________ Balanced
_________ Growth _________ Growth _________ Growth and Income
_________ Aggressive Growth _________ MidCap Growth _________ Global Discovery
_________ Worldwide Growth _________ Leveraged AllCap _________ International
STRONG VARIABLE INSURANCE FUNDS, INC. T. ROWE PRICE EQUITY SERIES FEDERATED INSURANCE MANAGEMENT SERIES
_________ Discovery Fund II _________ New America Growth _________ Utility Fund II
_________ Opportunity Fund II _________ MidCap Growth _________ Fund for U.S. Gov't Securities II
_________ Growth Fund II _________ Equity Income _________ High Income Bond Fund II
T. ROWE PRICE INTERNATIONAL SERIES, INC. FIXED ACCOUNT GUARANTEED MATURITY FIXED ACCOUNT
_________ International Stock _________ ________ 1 Year Guarantee Period
________ 3 Year Guarantee Period
________ 5 Year Guarantee Period
________ 7 Year Guarantee Period
________ 10 Year Guarantee Period
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
VAA 9830 Page 4
<PAGE>
REINSURANCE AGREEMENT
BETWEEN
LINCOLN BENEFIT LIFE COMPANY, LINCOLN NEBRASKA
(HEREINAFTER "LBL")
AND
ALLSTATE LIFE INSURANCE COMPANY, NORTHBROOK, ILLINOIS
(HEREINAFTER, "ALLSTATE")
ARTICLE I
BASIS OF REINSURANCE
--------------------
1. ALLSTATE will indemnify and LBL will automatically reinsure with ALLSTATE,
according to the terms and conditions hereof, the net liability for
applications received and contracts issued subsequent to the Effective Date
by LBL on the contracts listed in Schedule A.
2. The indemnity reinsurance provided hereunder shall be on a modified
coinsurance basis. LBL shall retain, maintain, and own all assets held in
relation to the Reserve, as defined in Article II of this Agreement.
3. In no event will reinsurance on an application or a policy under this
Agreement be in force unless the corresponding application is pending with
LBL or policy issued by LBL, or the reinsurance accepted by LBL as the case
may be, is in force.
ARTICLE II
LIABILITY OF ALLSTATE
----------------------
1. The liability of ALLSTATE with respect to any contract reinsured hereunder
will begin simultaneously with that of LBL. ALLSTATE'S liability with
respect to any contract reinsured hereunder will terminate on the date
LBL'S liability on such contract terminates or the date this Agreement is
terminated, whichever is earlier. However, termination of this Agreement
will not terminate ALLSTATE'S liability for benefit payments incurred prior
to the date of termination.
2. For the purpose of his Agreement, the term "Reserve" will be the "Total
Liabilities" of LBL'S Variable Annuity Separate Accounts (corresponding to
amounts shown on page 3, line 17 of the 1992 Separate Accounts Statutory
Statements).
1
<PAGE>
ARTICLE III
MONTHLY SETTLEMENTS
-------------------
1. While this Agreement is in effect, LBL shall pay to ALLSTATE on a daily
basis, with respect to eligible policies under this Agreement, a
reinsurance premium equal to the sum of Items (a) and (b) below, less the
sum of Items (c) and (d) below.
(a) Gross premiums (direct and reinsurance assumed) collected by LBL.
(b) Reserves transferred from the LBL General Account to an LBL Separate
Account.
(c) Gross premiums refunded by LBL to policyholders.
(d) Reserves transferred from an LBL Separate Account to the LBL General
Account.
2. While this Agreement is in effect, ALLSTATE shall pay to LBL on a daily
basis a benefit and expense allowance equal to the sum of Items (a), (b),
(c) and (d) below.
(a) Net benefits (as defined in Paragraph 3 of this Article III) paid by
LBL with respect to the contracts reinsured under this Agreement.
(b) Commissions and other sales compensation incurred by LBL with
respect to the contracts reinsured under this Agreement.
(c) General insurance expenses incurred by LBL with respect to the
contracts reinsured under this Agreement.
(d) Insurance taxes, licenses and fees (excluding Federal Income Tax)
incurred by LBL with respect to the contracts reinsured under this
Agreement.
3. Net Benefits are defined as follows:
(a) For a contract issued directly by LBL and reinsured under this
Agreement, net benefits are the actual amounts payable by LBL to the
contractholder, less any amounts payable to LBL by another reinsurer
with respect to the contract. These payments include death
benefits, endowment benefits, annuity benefits, disability benefits,
benefits under A & H policies, withdrawals, surrender benefits and
payments on supplementary contracts with and without life
contingencies.
(b) For contracts reinsured by LBL and retroceded under this Agreement,
net benefits and commission and expense allowances are the actual
amounts
2
<PAGE>
payable by LBL to the ceding company with respect to the contract
reinsured by LBL.
4. ALLSTATE shall pay to LBL, no less frequently than annually, any taxes
incurred by LBL as a result of Section 848 of the Internal Revenue Code
which concerns capitalization of policy acquisition costs.
ARTICLE IV
DAILY RESERVE ADJUSTMENTS
-------------------------
While this Agreement is in effect, on a daily basis a reserve adjustment
equal to the amount defined below shall be paid.
Let:
RC = The Reserve change in LBL'S Variable Life Separate
Accounts from the end of the prior accounting period to
the end of the current accounting period for the reinsured
contracts (corresponding to the sum of the amounts on page
4, lines 10,11,12 and 13 of 1992 Separate Account
Statutory Statements).
NII = The net investment income in LBL'S Variable Life Separate
Accounts (corresponding to the sum of the amounts on page
4, line 2 of 1992 Separate Account Statutory Statements),
minus interest income on LBL'S capital investment in the
Separate Accounts.
If RC is greater than NII then a reserve adjustment of RC-NII is
payable by ALLSTATE to LBL.
If NII is greater than RC, then a reserve adjustment of NII-RC is
payable by LBL to ALLSTATE.
ARTICLE V
OVERSIGHTS
----------
ALLSTATE shall be bound as LBL is bound, and it is expressly understood and
agreed that if failure to reinsure or failure to comply with any terms of this
Agreement is shown to be unintentional and the result of misunderstanding or
oversight on the part of either LBL or ALLSTATE, both LBL and ALLSTATE shall be
restored to the positions they would have occupied had such error or oversight
not occurred.
3
<PAGE>
ARTICLE VI
INSPECTION OF RECORDS
---------------------
LBL and ALLSTATE shall have the right, at any reasonable time, to examine at the
office of the other, any books, documents, reports or records which pertain in
any way to the contracts reinsured under Agreement.
ARTICLE VII
INSOLVENCY
----------
1. In the event of the insolvency of LBL, reinsurance hereunder is payable by
ALLSTATE on the basis of its liability hereunder without diminution because
of the insolvency of LBL.
2. Further, in the event of the insolvency of LBL, the liquidator, receiver or
statutory successor of the insolvent LBL shall give written notice to
ALLSTATE of the pendency of any obligation of the insolvent LBL on any
policy reinsured, whereupon ALLSTATE may investigate such claim and
interpose at its own expense, in the proceeding where such claim is to be
adjudicated, any defense or defenses which it may deem available to LBL or
its liquidator or statutory successor. The expense thus incurred by
ALLSTATE shall be chargeable, subject to court approval, against the
insolvent LBL as part of the expenses of liquidation to the extent of a
proportionate share of the benefit which may accrue to LBL solely as a
result of the defense undertaken by ALLSTATE.
3. All moneys due LBL or ALLSTATE under this agreement shall be offset against
each other, dollar for dollar, regardless of any insolvency of either
party.
ARTICLE VII
ARBITRATION
-----------
Any dispute arising with respect to this Agreement which is not settled by
mutual agreement of the parties shall be referred to arbitration. Within twenty
(20) days from receipt of written notice from one party that an arbitrator has
been appointed, the other party shall also name an arbitrator. The two
arbitrators shall choose a third arbitrator and shall forthwith notify the
contracting parties of such choice. Each arbitrator shall be a present or
former officer of a life insurance company and should have no present or past
affiliation with this Agreement or with either party. The arbitrators shall
consider this Agreement as an honorable engagement rather than merely as a legal
obligation, and shall be relieved of all judicial formalities. The decision of
the arbitrators shall be final and binding upon the parties hereto. Each party
shall bear the expenses of its own arbitrator and shall jointly and equally bear
the expenses of the third arbitrator and of the arbitration. Any such
arbitration shall take place at the Home Office of LBL, unless some other
location is mutually agreed upon.
4
<PAGE>
ARTICLE IX
PARTIES TO AGREEMENT
--------------------
This Agreement is solely between LBL and ALLSTATE. The acceptance of
reinsurance hereunder shall not create any right or legal relation whatever
between ALLSTATE and any party in interest under any contract of LBL reinsured
hereunder. LBL shall be and remain solely liable to any insured, contract
owner, or beneficiary under any contract reinsured hereunder.
ARTICLE X
DURATION OF AGREEMENT
---------------------
This Agreement will be effective as of January 1, 1994, and will be unlimited as
to its duration; provided, however, it may be terminated with respect to the
reinsurance of new business by either party giving the other party sixty (60)
days prior written notice of termination.
ARTICLE XI
ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire contract between ALLSTATE and LBL. No
variation, modification or changes to this Agreement shall be binding unless in
writing and signed by an officer of each party.
IN WITNESS HEREOF, the parties to this Agreement have caused it to be duly
executed in duplicate by their respective officers on the dates shown below.
LINCOLN BENEFIT LIFE COMPANY OF LINCOLN, NEBRASKA
By /s/ Robert Rich
------------------------------------------
Title Vice President & Actuary
------------------------------------------
Date January 3, 1994
------------------------------------------
ALLSTATE LIFE INSURANCE COMPANY OF NORTHBROOK, ILLINOIS
By /s/ C. Nelson Strom
------------------------------------------
Title Assistant Vice President
------------------------------------------
Date January 10, 1994
------------------------------------------
5
<PAGE>
SCHEDULE A
CONTRACTS SUBJECT TO REINSURANCE
--------------------------------
Any annuity contract whose reserve is invested, in whole or in part, in any
account designated as a Lincoln Benefit Variable Annuity Separate Account shall
be reinsured under this Agreement; provided, however, that the portion of any
such contract which is not so invested is not covered under this Agreement.
6
<PAGE>
AMENDMENT #1 TO THE
REINSURANCE AGREEMENT
BETWEEN
LINCOLN BENEFIT LIFE COMPANY, LINCOLN, NEBRASKA
(HEREINAFTER "LBL")
AND
ALLSTATE LIFE INSURANCE COMPANY, NORTHBROOK, ILLINOIS
(HEREINAFTER "ALLSTATE")
WHEREAS, LBL and Allstate entered into a Reinsurance Agreement regarding
variable annuity contracts issued by LBL (hereinafter "Agreement") having an
effective date of January 1, 1994; and
WHEREAS, LBL and Allstate desire to amend the Agreement as stated below.
NOW THEREFORE, the Agreement is hereby amended as follows:
1.) Article IV, "DAILY RESERVE ADJUSTMENTS", is hereby amended by adding
the following sentence to the definition of RC:
"Accounting period for purposes of this paragraph is one day".
2.) Article VII, "INSOLVENCY", is hereby amended by deleting said
Article in its entirety, and replacing it with the following new Article VII:
ARTICLE VII
-----------
INSOLVENCY
----------
1. The portion of any risk or obligation assumed by Allstate, when
such portion is ascertained, shall be payable on demand of LBL,
at the same time as LBL shall pay its net retained portion of
such risk or obligation, with reasonable provision for
verification before payment, and the reinsurance shall be
payable by Allstate, on the basis of the liability of LBL under
the contract or contracts reinsured without diminution because
of the insolvency of LBL.
2. In the event of the insolvency and the appointment of a
conservator, liquidator or statutory successor of LBL, such
portion shall be payable to such conservator, liquidator or
statutory successor immediately upon demand, with reasonable
Page 1 of 2
<PAGE>
provision for verification, on the basis of claims allowed against
LBL by any court of competent jurisdiction or by any conservator,
liquidator or statutory successor of LBL to allow such claims,
without diminution because of such insolvency or because such
conservator, liquidator, or statutory successor has failed to pay
all or a portion of any claims.
3.) Article VIII, "ARBITRATION", shall be amended to include the
following language at the end of that article:
The decision of the Arbitrators shall be handed down
within 45 days of the date on which the arbitration is
concluded.
4.) Article X, "DURATION OF AGREEMENT", shall be deleted in its entirety
and shall be replaced with the following language:
This Agreement will be effective as of January 1, 1994,
and will be unlimited as to its duration; provided,
however, it may be terminated with respect to the
reinsurance of new business by either party giving the
other party ninety (90) days prior written notice of
termination.
5.) In addition, a new Article XII is added to the Agreement, as follows:
ARTICLE XII
-----------
OFFSET
------
Any debts or credits, liquidated or unliquidated, in favor of or
against either Allstate of LBL with respect to this Agreement only
shall be set-off and only the balance shall be allowed or paid.
Except as amended hereby, the Agreement shall remain unchanged.
IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be
duly executed in duplicate by their respective officers on the dates shown
below.
LINCOLN BENEFIT LIFE COMPANY ALLSTATE LIFE INSURANCE COMPANY
By: /s/ Carol S. Watson By: /s/ Michael Velotta
------------------------- ------------------------------
Title: Senior Vice President Title: Vice President
------------------------- ------------------------------
Date: March 21, 1995 Date: March 24, 1995
------------------------- ------------------------------
Page 2 of 2
<PAGE>
AMENDMENT #2
TO THE REINSURANCE AGREEMENT
EFFECTIVE JANUARY 1, 1994
BETWEEN
LINCOLN BENEFIT LIFE COMPANY
(HEREINAFTER CALLED "LBL")
AND
ALLSTATE LIFE INSURANCE COMPANY
(HEREINAFTER CALLED "ALLSTATE")
IT IS HEREBY AGREED, that the Reinsurance Agreement effective January 1, 1994,
between LBL and ALLSTATE (hereinafter "Agreement"), is amended as provided
below.
Effective January 1, 1994, Article III is hereby amended by adding the following
new paragraph:
ALLSTATE and LBL agree to an election under Treasury Regulations 1-848-2(g)(8)
as follows:
(a) For each taxable year under this Agreement, the party with net
positive consideration, as defined in the regulations promulgated
under Treasury Code Section 848, will capitalize specified policy
acquisition expenses with respect to this Agreement without regard
to the general deductions limitation of Section 848(c)(1);
(b) LBL and ALLSTATE agree to exchange information pertaining to the
amount of net consideration for all reinsurance agreements in force
between them to ensure consistency for purposes of computing
specified policy acquisition expenses. LBL and ALLSTATE shall agree
on the amount of such net consideration for each taxable year no
later than the May 1 following the end of such year.
(c) This election shall be effective for 1994 and for all subsequent
taxable years for which this Agreement remains in effect.
Pag 1 of 2
<PAGE>
Except as amended hereby, the Agreement shall remain unchanged.
IN WITNESS HEREOF, the parties to the Agreement have caused this Amendment to be
duly executed in duplicate by their respective officers on the dates shown
below.
LINCOLN BENEFIT LIFE COMPANY
By: /s/ Robert Rich
------------------------------------------------------------
Title: Senior Vice President, Chief Actuary & Treasurer
------------------------------------------------------------
Date: August 10, 1995
------------------------------------------------------------
ALLSTATE LIFE INSURANCE COMPANY
By: /s/ C. Nelson Strom
------------------------------------------------------------
Title: Assistant Vice President
------------------------------------------------------------
Date: August 10, 1995
------------------------------------------------------------
Page 2 of 2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Lincoln Benefit Life
Variable Annuity Account on Form N-4 of our report dated March 20, 1998 on
the consolidated financial statements of Lincoln Benefit Life Company and
subsidiary, appearing in the Prospectus, which is part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
April 17, 1998
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Lincoln Benefit Life
Variable Annuity Account on Form N-4 of our report dated March 20, 1998 on the
financial statements of Lincoln Benefit Life Variable Annuity Account, appearing
in the Statement of Additional Information, which is part of this Registration
Statement, and to the reference to us under the heading "Experts" in such
Statement of Additional Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
April 17, 1998
