<PAGE>
As filed with the Securities and Exchange Commission on
April 28, 1998
'33 Act File No. 33-66786
'40 Act File No. 811-7924
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [_]
Pre-Effective Amendment No. [_]
----------
Post-Effective Amendment No. 10 [X]
----------
REGISTRATION STATEMENT UNDER THE INVESTMENT ACT OF 1940 [_]
Amendment No. 14 [X]
-----------
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
LINCOLN BENEFIT LIFE COMPANY
Depositor
206 South 13/th/ Street
Lincoln, Nebraska 68508
--------
JOHN MORRIS
Lincoln Benefit Life Company
206 South 13/th/ Street
Lincoln, Nebraska 68508
Approximate Date of Proposed Public Offering: As soon as practicable after
effective date.
It is proposed that this filling will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
-----
X on May 1, 1998 pursuant to paragraph (b) of Rule 485
-----
60 days after filing pursuant to paragraph (a) of Rule 485
-----
on May 1, 1998 pursuant to paragraph (a) of Rule 485
-----
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite amount of securities under the Securities Act of
1933. A 24F-2 notice for the fiscal year ending December 31, 1997 was filed on
March 25, 1998.
<PAGE>
<TABLE>
<CAPTION>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
CROSS REFERENCE SHEET
ITEM NUMBER IN FORM N-4 CAPTION
- ----------------------- -------
PART A - PROSPECTUS
-------------------
<S> <C>
1. Cover Page..................................... Cover Page
2. Definitions.................................... Definitions
3. Synopsis....................................... Questions & Answers About the Contract
4. Condensed Financial Information................ Condensed Financial Information
5. General Description of Registrant,............. Description of Lincoln Benefit Life
Depositor & Portfolio Companies Company & the Separate Account;
Separate Account Investments
6. Deductions..................................... Contract Charges
7. General Description of Variable................ Description of the Contracts; Annuity
Period; Purchases, Withdrawals &
Contract Value; Administration
8. Annuity Period................................. Annuity Period
9. Death Benefit.................................. Description of the Contracts; Annuity
Period
10. Purchases & Contract Value..................... Purchases, Withdrawals & Contract Value
11. Redemptions.................................... Questions & Answers About the Contract;
Purchases, Withdrawals & Contract Value
12. Taxes.......................................... Taxes
13. Legal Proceedings.............................. Legal Proceedings
14. Table of Contents of the Statement............. Additional Information about the
of Additional Information Separate Account
</TABLE>
i
<PAGE>
PART B - STATEMENT OF ADDITIONAL INFORMATION
--------------------------------------------
Certain information required in Part B of the Registration Statement has been
included within the Prospectus forming part of this Registration Statement; the
following cross-references suffixed with ("P") are made by reference to the
captions in the Prospectus:
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-4 CAPTION
- ----------------------- -------
<S> <C>
15. Cover Page................................... Cover Page
16. Table of Contents............................ Table of Contents
17. General Information & History................ Description of Lincoln Benefit Life Company
& the Separate Account (P); Separate
Account Investments (P)
18. Services..................................... Contract Charges (P); Custodian (P);
Financial Statements
19. Purchase of Securities Being Offered......... Purchases, Withdrawals & Contract
Value (P); Contract Charges (P)
20. Underwriters................................. Distribution of Contracts (P)
21. Calculation of Performance Data.............. Separate Account Performance
22. Annuity Payments............................. The Contract
23. Financial Statements......................... Financial Statements
</TABLE>
PART C
------
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
ii
<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 An-
nuity Contract ("Contract") offered by Lincoln Benefit Life Company ("Compa-
ny"). The Contract is a deferred annuity designed to aid you in long-term fi-
nancial planning. It is offered to you on either a tax qualified or non-tax
qualified basis.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company.
Contract values will be allocated to the Lincoln Benefit Life Variable Annuity
Account ("Separate Account") and/or the Fixed Account, discussed further on
pages 11 and 13. The Separate Account has a series of subaccounts which cur-
rently invest in shares of these mutual funds:
JANUS ASPEN SERIES: Flexible Income Portfolio; Balanced Portfolio; Growth
Portfolio; Aggressive Growth Portfolio; Worldwide Growth Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: Money Market Portfolio; Equity-
Income Portfolio; Growth Portfolio; Overseas Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II: Asset Manager Portfolio;
Contrafund Portfolio; Index 500 Portfolio
IAI RETIREMENT FUNDS, INC.: IAI Regional Portfolio; IAI Balanced Portfolio;
IAI Reserve Portfolio
FEDERATED INSURANCE MANAGEMENT SERIES: Federated Utility Fund II; Federated
Fund for U.S. Government Securities II; Federated High Income Bond Fund II
SCUDDER VARIABLE LIFE INVESTMENT FUND: Bond Portfolio; Balanced Portfolio
ALGER AMERICAN FUND: Small Capitalization; MidCap Growth; Growth; Leveraged
AllCap; Income & Growth
Other investment options may be made available in the future.
A Contract may not be issued to a prospective Contract Owner if either you or
the Annuitant has attained age 86 prior to the time the application is re-
ceived by the Company.
This prospectus sets forth the information you ought to know before investing.
You should read it and keep it for future reference.
A Statement of Additional Information, which has the same date as this Pro-
spectus, has been filed with the Securities and Exchange Commission and is in-
corporated herein by reference. You can obtain a free copy of it from us 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 26 of this
prospectus.
This prospectus is valid only when accompanied or preceded by current prospec-
tuses for the Janus Aspen Series; the Fidelity's Variable Insurance Products
Fund and Variable Insurance Products Fund II; the IAI Retirement Funds, Inc.;
the Federated Insurance Management Series; the Scudder Variable Life Invest-
ment Fund; and the Alger American Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Definitions................................................................. 3
Questions and Answers About the Contract.................................... 4
Fee Tables.................................................................. 6
Examples.................................................................... 8
Explanation of Fee Tables and Examples...................................... 9
Condensed Financial Information............................................. 9
Description of Lincoln Benefit Life Company and the Investment Options...... 11
Lincoln Benefit Life Company............................................. 11
Separate Account......................................................... 11
Separate Account Investments................................................ 11
The Portfolios........................................................... 11
Voting Rights............................................................ 13
Substitution of Securities............................................... 13
The Fixed Account........................................................... 13
Contract Charges............................................................ 14
Mortality and Expense Risk Charge........................................ 14
Administrative Charges................................................... 14
Contract Administration Charge......................................... 14
Administrative Expense Charge.......................................... 14
Transfer Fee........................................................... 14
Sales Charges............................................................ 14
Withdrawal Charge...................................................... 14
Free Withdrawal........................................................ 15
Waiver of Withdrawal Charge for Certain Qualified Plan Withdrawals..... 16
Premium Taxes............................................................ 16
Deduction for Separate Account Income Taxes.............................. 16
Other Expenses........................................................... 16
Description of the Contracts................................................ 16
Summary.................................................................. 16
Contract Owner........................................................... 16
Annuitant................................................................ 16
Modification of the Contract............................................. 16
Assignment............................................................... 17
Death Benefit............................................................ 17
Beneficiary.............................................................. 17
Voting Rights of Contract Owners......................................... 17
Purchases, Withdrawals and Contract Value................................... 17
Minimum Purchase Payment................................................. 17
</TABLE>
<TABLE>
<S> <C>
Automatic Payment Plan................................................... 18
Automatic Dollar Cost Averaging Program.................................. 18
Portfolio Rebalancing.................................................... 18
Contract Value........................................................... 18
Separate Account Accumulation Unit Value................................. 18
Allocation of Purchase Payments.......................................... 19
Transfer During Accumulation Period...................................... 19
Transfers Authorized by Telephone........................................ 19
Contract Loans for 401(a), 401(k), and 403(b) Contracts ................. 20
Withdrawals (Redemptions)................................................ 20
Systematic Withdrawal Program............................................ 21
ERISA Plans.............................................................. 21
Minimum Contract Value................................................... 21
Annuity Period.............................................................. 21
Annuity Date............................................................. 21
Deferment of Payments.................................................... 21
Annuity Options.......................................................... 22
Substantially Equal Periodic Payments.................................... 22
Other Options............................................................ 22
Death Benefit During Annuity Period...................................... 22
Variable Annuity Payments................................................ 23
Administration.............................................................. 23
Taxes....................................................................... 23
General.................................................................. 23
Withholding Tax on Distributions......................................... 24
Tax Treatment of Assignments............................................. 24
Tax Treatment of Withdrawals............................................. 24
Qualified Plans........................................................ 24
Non-Qualified Plans.................................................... 25
Distribution of Contracts................................................... 25
Market Timing and Asset Allocation Services................................. 25
Legal Proceedings........................................................... 25
Legal Matters............................................................... 25
Registration Statement...................................................... 25
Financial Statements ....................................................... 25
Additional Information About the Separate Account........................... 26
Table of Contents of Statement of Additional Information.................... 26
Appendix--Portfolios and Performance Data................................... 26
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN
WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHO-
RIZE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN
THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
2
<PAGE>
DEFINITIONS
The following terms, as used in this prospectus, have the indicated meanings:
ACCUMULATION PERIOD - The period between the Issue Date and the Annuity Date,
the build-up phase under the 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 Con-
tract are based.
ANNUITIZATION - The process by which you convert from the Accumulation Period
to the Annuity Period. Upon Annuitization, the Contract is converted from the
build-up phase to the phase during which you or other payee(s) receive peri-
odic annuity payments.
ANNUITY DATE - The date on which annuity payments are to begin.
ANNUITY PERIOD - The period starting on the Annuity Date, the payout phase un-
der the Contract.
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 un-
der the Contract.
CODE - The Internal Revenue Code.
COMPANY ("WE," "US," "OUR," "LINCOLN BENEFIT LIFE") - Lincoln Benefit Life
Company.
CONTRACT ANNIVERSARY - The anniversary of the Issue Date in subsequent years.
CONTRACT OWNER ("YOU") - The person(s) having the privileges of ownership de-
fined in the Contract. Such privileges may be restricted by a retirement plan
pursuant to which the Contract is issued.
CONTRACT VALUE - The sum of the values of your interests in the Subaccounts of
the Separate Account and the Fixed Account.
CONTRACT YEAR - A twelve-month period beginning on the Issue Date or any Con-
tract Anniversary.
CONTRIBUTION YEAR - A twelve-month period beginning on the date a Purchase
Payment is applied to a Subaccount, or any anniversary of that date.
DUE PROOF OF DEATH - (1) A certified original copy of the 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 at-
tended the deceased at the time of death; or (4) any other proof satisfactory
to the Company.
FIXED ACCOUNT - The portion of the Contract Value invested in our general ac-
count.
FIXED ANNUITY - A series of payments made during the Annuity Period to a payee
under a Contract that are fixed in amount.
ISSUE DATE - The date when the Contract becomes effective if the annuitant is
then living and the initial Purchase Payment has been paid.
LATEST ANNUITY DATE - The later of ten years from Issue Date or tenth day of
the month following the Annuitant's 90th birthday. In the case of Contracts
issued in connection with Qualified Plans, the Code generally requires that a
minimum distribution is taken by the later of separation from service or April
1 of the calendar year following the calendar year in which you attain age 70
1/2. Accordingly, if you are in a Qualified Plan, we may require you to
annuitize by such date unless you demonstrate that the minimum distribution is
otherwise being made.
LOAN ACCOUNT - An account established for amounts transferred from the
Subaccounts or the Fixed Account as security for outstanding Contract loans.
NET INVESTMENT FACTOR - The factor for a particular Subaccount used to deter-
mine the value of an Accumulation Unit and Annuity Unit in any Valuation Peri-
od.
NON-QUALIFIED PLAN - A retirement plan which does not receive special tax
treatment under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code.
PORTFOLIO(S) - The underlying mutual fund(s) (or investment series thereof) in
which the Subaccounts invest.
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 a state and local government or other Tax Exempt
Organization Deferred Compensation Plan under Section 457 of the Internal Rev-
enue Code.
SEPARATE ACCOUNT - A segregated investment account of the Company entitled
Lincoln Benefit Life Variable Annuity Account.
SUBACCOUNT - A subdivision of the Separate Account invested wholly in shares
of one of the Portfolios.
SURRENDER VALUE - The amount paid upon surrender of the Contract, equal to the
Contract Value less any applicable premium tax charges, withdrawal charges and
the Contract Administration Charge.
VALUATION DATE - Each day the New York Stock Exchange is open for business.
VALUATION PERIOD - The period commencing 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 ending at the close of the NYSE on the next succeeding Val-
uation Date.
VARIABLE ANNUITY - A series of payments made during the Annuity Period to a
payee under a Contract which vary in amount in accordance with the investment
experience of the Subaccounts to which Contract Values have been allocated.
WITHDRAWAL CHARGE - The contingent deferred sales charge assessed against cer-
tain withdrawals.
3
<PAGE>
QUESTIONS & ANSWERS
ABOUT THE CONTRACT
The following is a compilation of answers to selected questions that you might
have about some of the most important features of the Contract. The remainder
of the prospectus, which follows immediately afterwards, contains a more com-
plete discussion of these and other matters.
1. WHAT IS THE PURPOSE OF THE CONTRACT?
This Contract is designed for tax deferred retirement investing. Contract Val-
ues accumulate based on the experience of the underlying funds and the Fixed
Account. You may receive annuity payments on a fixed or variable basis. The
Contract is available for non-qualified or qualified plans. You can allocate
Purchase Payments to the Fixed Account or to any of the Subaccounts of the
Separate Account, each of which will invest in a mutual fund or separate in-
vestment Portfolio thereof. You bear the entire investment risk during the Ac-
cumulation Period on amounts allocated to the Separate Account. You will also
bear the entire investment risk during the Annuity Period if you choose to re-
ceive annuity payments on a variable basis.
2. IN WHICH MUTUAL FUNDS DOES THE SEPARATE ACCOUNT INVEST?
The Separate Account currently invests exclusively in shares of these mutual
funds:
<TABLE>
<CAPTION>
Fund Portfolio(s)
---- -----------
<S> <C>
Janus Aspen Series Flexible Income Portfolio
Balanced Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
- ------------------------------------------------------------------------------
Fidelity's Variable Money Market Portfolio
Insurance Equity-Income Portfolio
Products Fund Growth Portfolio
Overseas Portfolio
- ------------------------------------------------------------------------------
Fidelity's Variable Asset Manager Portfolio
Insurance Contrafund Portfolio
Products Fund II Index 500 Portfolio
- ------------------------------------------------------------------------------
IAI Retirement IAI Regional Portfolio
Funds, Inc. IAI Balanced Portfolio
IAI Reserve Portfolio
- ------------------------------------------------------------------------------
Federated Insurance Federated Utility Fund II
Management Series Federated U.S. Government
Securities II
Federated High Income Bond
Fund II
- ------------------------------------------------------------------------------
Scudder Variable Life Bond Portfolio
Investment Fund Balanced Portfolio
- ------------------------------------------------------------------------------
Alger American Fund Small Capitalization Portfolio
MidCap Growth Portfolio
American Growth Portfolio
Leveraged AllCap Portfolio
Income and Growth Portfolio
- ------------------------------------------------------------------------------
</TABLE>
The assets of each Portfolio are held separately from the other Portfolios and
each has distinct investment objectives and policies which are described in
the accompanying prospectuses for the funds.
3. HOW DO I BUY A CONTRACT?
You must pay at least $1,200 during the first Contract Year. Subsequent Pur-
chase Payments must be $100 ($25 under an automatic payment plan (see page
18)). We may lower these minimums at our sole discretion. A Contract may not
be issued if either you or the Annuitant has attained age 86 before we receive
your application.
4. HOW IS MY PURCHASE PAYMENT ALLOCATED?
You allocate your Purchase Payment among the Subaccounts and the Fixed Account
in states where it is available when you apply for the Contract. Percentages
must be in whole numbers and the total allocation must equal 100%. When you
make subsequent Purchase Payments, you should again specify how you want your
payments allocated. If you do not, we will automatically allocate the payment
based on the then current Purchase Payment allocation (see page 19).
5. CAN I TRANSFER MY CONTRACT VALUES AMONG SUBACCOUNTS AND THE FIXED ACCOUNT?
Yes, during the Accumulation Period. You may transfer Contract Values by writ-
ten request or telephone authorization. No such transfers are permitted after
the Annuity Date. There are additional transfer restrictions for the Fixed Ac-
count. (See page 19).
You may also want to take advantage of our automatic dollar cost averaging or
portfolio rebalancing programs. Under the dollar cost averaging program, your
values are automatically transferred from the Fixed Account or a Subaccount of
your choosing to up to eight options, including other Subaccounts or the Fixed
Account, at regular intervals. Transfers may be made monthly, quarterly, or
annually. (See "Automatic Dollar Cost Averaging Program" page 18.)
Under the portfolio rebalancing program, you can maintain the percentage of
your Contract Value allocated to each Subaccount at a pre-set level prior to
annuitization. Investment results will shift this balance of your Contract
Value allocations. If you elect rebalancing, we will automatically transfer
your Contract Value back to the pecentages at the frequency (monthly, quarter-
ly, semiannually, annually) that you specify. (See "Portfolio Rebalancing"
page 18.)
6. HOW CAN I WITHDRAW MY FUNDS?
All or part of the Contract Value may be withdrawn before the Annuity Date,
the owner's death, or if the owner is not a natural person, the Annuitant's
death. Each year, free of charge, you may withdraw the greater of 15% of new
Purchase Payments (Purchase Payments made less than seven years before the
withdrawal date) or earnings not previously withdrawn. In the event withdraw-
als of 15% of new Purchase Payments are not approved in your state, the appli-
cable percentage will be 10% of new Purchase Payments. You may also withdraw
free of charge any old Purchase Payments (Purchase Payments made more than
seven years before the withdrawal date) not previously withdrawn. The with-
drawal charge may be waived under the terms of our confinement waiver benefit.
(This benefit is not available in all states.) (See "Free Withdrawal" page
15.)
4
<PAGE>
Other withdrawals may be subject to a withdrawal charge, which is a contingent
deferred sales charge. The withdrawal charge will vary depending on the year
the Purchase Payment(s) and withdrawals are made. (See "Withdrawal Charge"
page 14.) Additional restrictions may apply to Contracts issued in connection
with Qualified Plans (see "Taxes" page 23).
7. WHAT ARE MY CONTRACT CHARGES AND DEDUCTIONS?
Charges against the Separate Account consist of an annual mortality and ex-
pense risk charge of 1.25% of net asset value and an annual administrative ex-
pense charge of 0.15% of net asset value. These charges are assessed on a
daily basis during both the Accumulation Period and Annuity Period. An annual
contract administration charge of $25 is assessed during the Accumulation Pe-
riod only. We cannot increase the amount of these charges. A transfer fee of
$25 may be assessed after the first transfer in each calendar month. We cur-
rently are waiving this fee. Any applicable premium taxes are deducted from
the Contract Value upon surrender, death, or annuitization. Premium taxes gen-
erally range from 0% to 3.5%. Finally, the withdrawal charge, a contingent de-
ferred sales load, is referenced above. (See "Contract Charges" page 14.)
8. WHAT IS THE DEATH BENEFIT?
The death benefit is payable while the Contract is in force and before the An-
nuity Date if the Contract Owner dies, or the Annuitant dies and the Contract
Owner is not a natural person. We must receive Due Proof of Death.
The death benefit is the greater of 1) all Purchase Payments less prior with-
drawals accumulated at 4% per year prior to the Contract Anniversary next fol-
lowing your 75th birthday and at 0% per year thereafter (the "floor value"
calculation) or 2) the Contract Value less any premium tax. If the Contract
Value exceeds the floor value on the seventh Contract Anniversary, the floor
value will be raised to the level of the Contract Value. In such event, floor
values for years 8 and beyond will be calculated using the "stepped up" value
on the seventh anniversary.
9. CAN I RETURN THIS CONTRACT AFTER IT HAS BEEN DELIVERED?
You may return the Contract to us within 10 days (or longer period if required
by state law) after you receive it by delivering or mailing it to us. If the
Contract is returned, it will be terminated and, unless otherwise required by
state law, we will pay an amount equal to the Contract Value on the date we
receive the Contract. The Contract Value may be more or less than the Purchase
Payment made. Since state laws differ as to the consequences of returning a
Contract, you should refer to your Contract for information about your circum-
stances.
5
<PAGE>
FEE TABLES
CONTRACT OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge-Withdrawal Charge (as a percentage of Pur-
chase Payments)
<TABLE>
<CAPTION>
Contribution Applicable Contribution Applicable
Year Charge Year Charge
------------ ---------- ------------ ----------
<S> <C> <C> <C>
1-2 7% 6 3%
3 6% 7 2%
4 5% 8+ 0%
5 4%
</TABLE>
Annual Contract Administration Charge................................... $25.00
Transfer Fee (Applies solely to the second and subsequent transfers within
a calendar month. We are currently waiving the transfer fee)............ $25.00
SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED
FROM EACH OF THE SUBACCOUNTS OF THE SEPARATE ACCOUNT)
<TABLE>
<S> <C>
Mortality Risk Charge............................ 0.85%
Expense Risk Charge.............................. 0.40%
Administrative Expense Charge.................... 0.15%
-----
Total Separate Account Annual Expenses........... 1.40%
</TABLE>
PORTFOLIO COMPANY ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
Flexible Aggressive Worldwide
Income Balanced* Growth* Growth* Growth*
-------- --------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
JANUS ASPEN
SERIES:
Management:............. 0.65% 0.76% 0.73% 0.65% 0.66%
Other:.................. 0.10% 0.07% 0.03% 0.05% 0.08%
----- ----- ----- ----- -----
Total:.................. 0.75% 0.83% 0.76% 0.70% 0.74%
<CAPTION>
Money Equity-
Market Income** Growth** Overseas**
------ -------- -------- ----------
<S> <C> <C> <C> <C> <C>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND
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>
Asset
Manager** Contrafund** Index 500
--------- ------------ ---------
<S> <C> <C> <C> <C> <C>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS FUND
II
Management:............. 0.55% 0.60% 0.24%
Other:.................. 0.10% 0.11% 0.04%
----- ----- -----
Total:.................. 0.65% 0.71% 0.28%
<CAPTION>
IAI IAI IAI
Regional Balanced*** Reserve***
-------- ----------- ----------
<S> <C> <C> <C> <C> <C>
IAI RETIREMENT FUNDS,
INC.:
Management:............. 0.65% 0.65% 0.45%
Other:.................. 0.25% 0.60% 0.40%
----- ----- -----
Total:.................. 0.90% 1.25% 0.85%
<CAPTION>
U.S. Gov't High
Utility Securities Income
II+ II+ Bond II
------- ---------- -------
<S> <C> <C> <C> <C> <C>
FEDERATED INSURANCE
MANAGEMENT SERIES:
Management:............. 0.48% 0.15% 0.51%
Other:.................. 0.37% 0.65% 0.29%
----- ----- -----
Total:.................. 0.85% 0.80% 0.80%
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Bond Balanced
---- --------
<S> <C> <C> <C> <C> <C>
SCUDDER VARIABLE
LIFE INVESTMENT FUND
Management:...................... 0.48% 0.48%
Other:........................... 0.14% 0.09%
------ -----
Total:........................... 0.62% 0.57%
<CAPTION>
Income
and Small MidCap Leveraged
Growth Capitalization Growth Growth AllCap++
------ -------------- ------ ------ ---------
<S> <C> <C> <C> <C> <C>
ALGER AMERICAN FUND
Management:...................... 0.625% 0.85% 0.75% 0.80% 0.85%
Other:........................... 0.115% 0.04% 0.04% 0.04% 0.15%
------ ----- ----- ----- -----
Total:........................... 0.74% 0.89% 0.79% 0.84% 1.00%
</TABLE>
*The expense figures shown are net of certain expense waivers or fee reduc-
tions from Janus Capital Corporation. Without such waivers or reductions, Man-
agement 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; 0.72%, 0.09%, and 0.81%, respec-
tively, for Worldwide Growth Portfolio.
**A portion of the brokerage commissions the fund paid was used to reduce its
expenses. Without this reduction total operating expenses would have been for
VIP Equity Income--0.57%, for VIP Growth--0.67%, for VIP Overseas--0.90%, for
VIP II Asset Manager--0.64%, and for VIP II Contrafund--0.68%.
***The expense figures shown are net of expense reimbursements from Investment
Advisers, Inc. Without such reimbursements, Management Fees and Total Portfo-
lio Expenses for the Portfolios are estimated as follows: 0.65% and 1.34% for
Balanced Portfolio, and 0.45% and 2.25% for Reserve Portfolio.
+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; 0.60% and 1.25%, re-
spectively, for the U.S. Government Securities II; and 0.60% and 0.89%, re-
spectively, for the High Income Bond Fund II. The expense figures for U.S.
Government Securities II are also net of expense reimbursements from the in-
vestment advisor.
++Included in the other expenses of the Alger American Leveraged AllCap is
0.04% of interest expense.
7
<PAGE>
EXAMPLES
IF YOU SURRENDER YOUR CONTRACT AT THE END OF THE PERIOD YOU WOULD PAY THE FOL-
LOWING EXPENSES ON A $1,000 INVESTMENT IN EACH INDICATED SUBACCOUNT ASSUMING
5% ANNUAL RETURN ON ASSETS:
<TABLE>
<CAPTION>
Fidelity Fidelity
Janus Janus Janus VIP VIP Fidelity Fidelity Fidelity
Flexible Janus Janus Aggressive Worldwide Money Equity- VIP VIP VIP II
Income Balanced Growth Growth Growth Market Income Growth Overseas Contrafund
-------- -------- ------ ---------- --------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 88 $ 89 $ 87 $ 88 $ 88 $ 84 $ 86 $ 87 $ 89 $ 87
3 years 130 132 128 130 129 117 125 128 134 128
5 years 160 164 158 161 160 138 152 157 169 158
10 years 258 266 253 259 257 212 241 252 276 254
</TABLE>
<TABLE>
<CAPTION>
Federated Alger
Fidelity Fidelity U.S. Federated American Alger
VIP II VIP II Federated Govt High Small American Alger
Asset Index IAI IAI IAI Utility Securities Income Scudder Scudder Capital- MidCap American
Manager 500 Regional Balanced Reserve II II Bond II Bond Balanced ization Growth Growth
-------- -------- -------- -------- ------- --------- ---------- --------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 87 $83 $ 89 $ 92 $ 89 $ 89 $ 88 $ 88 $ 87 $ 86 $ 89 $ 89 $ 88
3 years 127 116 134 144 132 132 131 131 126 124 134 132 131
5 years 155 136 168 186 165 165 163 163 154 151 168 165 162
10 years 248 209 274 308 268 268 263 263 245 240 273 267 262
<CAPTION>
Alger Alger
American American
Leveraged Income &
AllCap Growth
--------- --------
<S> <C> <C>
1 year $ 90 $ 88
3 years 137 129
5 years 173 160
10 years 284 257
</TABLE>
IF YOU ANNUITIZE* AT THE END OF THE PERIOD YOU WOULD PAY THE FOLLOWING EX-
PENSES ON A $1,000 INVESTMENT IN EACH INDICATED SUBACCOUNT ASSUMING 5% ANNUAL
RETURN ON ASSETS:
<TABLE>
<CAPTION>
Fidelity Fidelity
Janus Janus Janus VIP VIP Fidelity Fidelity Fidelity
Flexible Janus Janus Aggressive Worldwide Money Equity- VIP VIP VIP II
Income Balanced Growth Growth Growth Market Income Growth Overseas Contrafund
-------- -------- ------ ---------- --------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 23 $ 24 $ 22 $ 23 $ 23 $ 18 $ 21 $ 22 $ 25 $ 22
3 years 70 73 69 71 70 57 65 68 75 69
5 years 120 124 118 121 120 98 112 117 129 118
10 years 258 266 253 259 257 212 241 252 276 254
</TABLE>
<TABLE>
<CAPTION>
Fidelity Fidelity Federated Federated Alger
VIP II VIP II Federated U.S. Govt High Alger American American
Asset Index IAI IAI IAI Utility Securities Income Scudder Scudder Small MidCap
Manager 500 Regional Balanced Reserve II II Bond II Bond Balanced Capitalization Growth
-------- -------- -------- -------- ------- --------- ---------- --------- ------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 22 $18 $ 24 $ 28 $ 24 $ 24 $ 23 $ 23 $ 21 $ 21 $ 24 $ 24
3 years 67 56 75 85 73 73 72 72 66 65 75 73
5 years 115 96 128 146 125 125 123 123 114 111 128 125
10 years 248 209 274 308 268 268 263 263 245 240 273 267
<CAPTION>
Alger Alger
Alger American American
American Leveraged Income &
Growth AllCap Growth
-------- --------- --------
<S> <C> <C> <C>
1 year $ 23 $ 25 $ 23
3 years 72 78 70
5 years 122 133 120
10 years 262 284 257
</TABLE>
IF YOU DO NOT SURRENDER YOUR CONTRACT YOU WOULD PAY THE FOLLOWING EXPENSES ON
A $1,000 INVESTMENT IN EACH INDICATED SUBACCOUNT ASSUMING 5% ANNUAL RETURN ON
ASSETS:
<TABLE>
<CAPTION>
Janus Janus Janus Fidelity Fidelity
Flexible Janus Janus Aggressive Worldwide Money Equity- Fidelity Fidelity Fidelity
Income Balanced Growth Growth Growth Market Income Growth Overseas Contrafund
-------- -------- ------ ---------- --------- -------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 23 $ 24 $ 22 $ 23 $ 23 $ 18 $ 21 $ 22 $ 25 $ 22
3 years 70 73 69 71 70 57 65 68 75 69
5 years 120 124 118 121 120 98 112 117 129 118
10 years 258 266 253 259 257 212 241 252 276 254
</TABLE>
<TABLE>
<CAPTION>
Federated Federated Alger
Fidelity Fidelity Federated U.S. Govt High Alger American American
Asset Index IAI IAI IAI Utility Securities Income Scudder Scudder Small MidCap
Manager 500 Regional Balanced Reserve II II Bond II Bond Balanced Capitalization Growth
-------- -------- -------- -------- ------- --------- ---------- --------- ------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 year $ 22 18 $ 24 $ 28 $ 24 $ 24 $ 23 $ 23 $ 22 $ 21 $ 24 $ 24
3 years 67 56 75 85 73 73 72 72 66 65 75 73
5 years 115 96 128 146 125 125 123 123 114 111 128 125
10 years 248 209 274 308 268 268 263 263 245 240 273 267
<CAPTION>
Alger Alger
Alger American American
American Leveraged Income &
Growth AllCap Growth
-------- --------- --------
<S> <C> <C> <C>
1 year $ 23 $ 25 $ 23
3 years 72 78 70
5 years 122 133 120
10 years 262 284 257
</TABLE>
*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.
8
<PAGE>
EXPLANATION OF FEE TABLES AND EXAMPLES
1. The purpose of the foregoing table and examples is to assist you in under-
standing the various costs and expenses that you will bear directly or indi-
rectly by investing in the Separate Account. The table reflects expenses of
the Separate Account as well as the Portfolios. For additional information see
"Contract Charges," beginning on Page 13 of this prospectus; see also the sec-
tions relating to management of the Portfolios in their respective prospectus-
es. The examples do not illustrate the tax consequences of surrendering a Con-
tract.
2. The examples assume that there were no transactions which would result in
the imposition of the transfer fee. We are currently waiving this fee, but re-
serve the right to charge $25 to the second and each subsequent transfer
within a calendar month. Premium taxes are not reflected. Presently, premium
taxes (which range from 0% to 3.5%) are deducted from Contract Value upon full
surrender, death or annuitization.
3. For purposes of the amounts reported in the Examples, the Contract Adminis-
tration Charge is reflected by applying a percentage equivalent charge, ob-
tained by dividing the total amount of such charges anticipated to be col-
lected during the 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.
5. NEITHER THE FEE TABLES NOR THE EXAMPLES ARE REPRESENTATIONS OF PAST OR FU-
TURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
CONDENSED FINANCIAL INFORMATION
The following tables present condensed financial information with respect to
each Subaccount of the Separate Account. The table should be read in conjunc-
tion with the Separate Account's financial statements, which are in the Sepa-
rate Account's Annual Report dated as of December 31, 1997, contained in the
Statement of Additional Information.
Selected Accumulation Unit Value/1/ information throughout each period indi-
cated is as follows:
<TABLE>
<CAPTION>
ACCUMULATION
UNIT ACCUMULATION
VALUE/1/ UNIT VALUE/1/ NUMBER OF UNITS
BEGINNING ENDING OUTSTANDING AT
FUND $ $ END OF YEAR/2/ YEAR
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity VIP Money Market 11.14 11.59 2,166,046 1997
10.72 11.14 1,493,297 1996
10.27 10.72 1,063,044 1995
10.00 10.27 249,473 1994
- ------------------------------------------------------------------------------
Fidelity VIP Growth 14.68 17.88 2,119,475 1997
12.98 14.68 1,822,777 1996
9.73 12.98 1,028,768 1995
10.00 9.73 247,556 1994
- ------------------------------------------------------------------------------
Fidelity VIP Equity-Income 15.44 19.50 3,093,518 1997
13.70 15.44 2,157,454 1996
10.28 13.70 1,025,219 1995
10.00 10.28 145,290 1994
- ------------------------------------------------------------------------------
Fidelity VIP Overseas 11.71 12.88 1,104,305 1997
10.49 11.71 944,146 1996
9.70 10.49 599,989 1995
10.00 9.70 166,871 1994
- ------------------------------------------------------------------------------
Fidelity VIP II Asset Manager 11.85 14.10 1,110,906 1997
10.49 11.85 921,269 1996
9.09 10.49 593,918 1995
10.00 9.09 226,936 1994
- ------------------------------------------------------------------------------
Fidelity VIP II Contrafund* 11.15 13.64 1,395,072 1997
10.00 11.15 497,571 1996
- ------------------------------------------------------------------------------
Scudder Bond 10.96 11.79 345,499 1997
10.81 10.96 203,879 1996
9.27 10.81 134,527 1995
10.00 9.27 4,615 1994
- ------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
ACCUMULATION
UNIT ACCUMULATION
VALUE/1/ UNIT VALUE/1/ NUMBER OF UNITS
BEGINNING ENDING OUTSTANDING AT
FUND $ $ END OF YEAR/2/ YEAR
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Scudder Balanced 13.07 16.01 625,526 1997
11.85 13.07 460,749 1996
9.48 11.85 209,087 1995
10.00 9.48 55,482 1994
- -----------------------------------------------------------------------------------
Janus Flexible Income 12.67 13.97 406,324 1997
11.77 12.67 280,447 1996
9.64 11.77 145,173 1995
10.00 9.64 9,271 1994
- -----------------------------------------------------------------------------------
Janus Balanced 13.65 16.43 983,350 1997
11.91 13.65 608,590 1996
9.68 11.91 204,556 1995
10.00 9.68 54,218 1994
- -----------------------------------------------------------------------------------
Janus Growth 14.77 17.87 1,816,216 1997
12.64 14.77 1,200,179 1996
9.85 12.64 529,026 1995
10.00 9.85 91,020 1994
- -----------------------------------------------------------------------------------
Janus Aggressive Growth 15.52 17.25 1,276,192 1997
14.58 15.52 1,010,157 1996
11.60 14.58 545,594 1995
10.00 11.60 78,193 1994
- -----------------------------------------------------------------------------------
Janus Worldwide Growth 15.46 18.62 2,680,262 1997
12.15 15.46 1,649,612 1996
9.67 12.15 520,639 1995
10.00 9.67 109,298 1994
- -----------------------------------------------------------------------------------
Federated High Income Bond Fund
II 12.72 14.27 809,791 1997
11.28 12.72 407,045 1996
9.50 11.28 210,460 1995
10.00 9.50 28,352 1994
- -----------------------------------------------------------------------------------
Federated Utility Fund II 12.80 15.98 437,287 1997
11.64 12.80 315,710 1996
9.50 11.64 197,013 1995
10.00 9.50 44,207 1994
- -----------------------------------------------------------------------------------
Federated U.S. Gov't. Securities
II 11.13 11.88 239,114 1997
10.83 11.13 208,602 1996
10.10 10.83 106,437 1995
10.00 10.10 36,563 1994
- -----------------------------------------------------------------------------------
Investment Advisors, Inc. Regional 15.23 17.03 843,183 1997
13.80 15.23 646,379 1996
10.48 13.80 325,443 1995
10.00 10.48 71,368 1994
- -----------------------------------------------------------------------------------
Investment Advisors, Inc. Reserve 10.82 11.17 73,556 1997
10.46 10.82 39,968 1996
10.09 10.46 67,843 1995
10.00 10.09 51,928 1994
- -----------------------------------------------------------------------------------
Investment Advisors, Inc. Balanced 12.52 14.39 143,880 1997
11.56 12.52 103,719 1996
10.09 11.56 60,190 1995
10.00 10.09 18,173 1994
- -----------------------------------------------------------------------------------
</TABLE>
* Began 5/1/96
/1/Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount for any Valuation Period. An Accumu-
lation Unit Value does not reflect deduction of certain charges under the Con-
tract that are deducted from your Contract Value, such as the Contract Admin-
istration Charge, and Administrative Expense Charge.
/2/The Alger American Fund (Small Capitalization; MidCap Growth; Growth;
Leveraged AllCap; Income & Growth) and the Fidelity Index 500 portfolio were
not offered as of December 31, 1997.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
10
<PAGE>
LINCOLN BENEFIT LIFE COMPANY AND
THE INVESTMENT OPTIONS
LINCOLN BENEFIT LIFE
Lincoln Benefit Life is a stock life insurance company organized under the
laws of the state of Nebraska in 1938. Its legal domicile and principal busi-
ness address is 206 South 13th Street, Lincoln, Nebraska. Lincoln Benefit Life
is a wholly owned subsidiary of Allstate Life Insurance Company, a stock life
insurance company incorporated under the laws of the State of Illinois.
Allstate Life Insurance Company is a wholly owned subsidiary of Allstate In-
surance Company ("Allstate"), a stock property-liability insurance company in-
corporated under the laws of Illinois. All outstanding Capital stock of
Allstate is owned by the Allstate Corporation ("Corporation").
We are admitted to conduct life insurance and annuity business in the District
of Columbia, Guam and in all states except New York. The Contract will be mar-
keted in all of the jurisdictions in which we are admitted to 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.
Lincoln Benefit Life is highly rated by independent agencies, including A.M.
Best, Moody's, and Standard & Poor's. These ratings are based on the Company's
reinsurance agreement with Allstate Life Insurance Company, as explained be-
low, and reflect financial soundness and strong operating performance. The
ratings are not intended to reflect the financial strength or investment expe-
rience of the Separate Account. We may from time to time advertise these rat-
ings in our sales literature.
We receive our ratings through Allstate Life Insurance Company, which
reinsures all net new business from the Lincoln Benefit Life fixed account.
Through the reinsurance agreement, all of the assets backing Lincoln Benefit
Life's reinsured liabilities are owned by Allstate Life Insurance Company.
These assets represent our fixed account and are invested and managed by
Allstate Life Insurance Company. While the reinsurance agreement provides Lin-
coln Benefit Life with financial backing from Allstate Life Insurance Company,
it does not create any direct contractual relationship with individual Lincoln
Benefit Life policyholders.
SEPARATE ACCOUNT
Lincoln Benefit Life Variable Annuity Account was originally established by
Lincoln Benefit Life Company on August 3, 1992, pursuant to the provisions of
Nebraska law, as a segregated asset account of the Company. The Separate Ac-
count meets the definition of a "separate account" under the federal securi-
ties laws and is registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940. This registra-
tion does not involve supervision of the management of the Separate Account or
the Company by the Securities and Exchange Commission.
The assets of the Separate Account are our property. However, the assets of
the Separate Account, equal to its reserves and other contract liabilities,
are not chargeable with liabilities arising out of any other business we may
conduct. Our obligations arising under the Contracts are general corporate ob-
ligations of Lincoln Benefit Life.
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.
The Separate Account is divided into Subaccounts, with the assets of each
Subaccount invested in the shares of one of the Portfolios. We do not guaran-
tee the investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account and the amount of Vari-
able Annuity payments will vary with the values of shares of the Portfolios,
and are also reduced by Contract charges. The Separate Account may also fund
other annuity contracts issued by Lincoln Benefit Life, which will be ac-
counted for separately.
SEPARATE ACCOUNT INVESTMENTS
THE PORTFOLIOS
Each of the Subaccounts of the Separate Account invests in the shares of one
of the Portfolios, which are open-end management investment companies
("Funds") registered under the Investment Company Act of 1940 (commonly known
as "mutual funds"), or separate investment series of such Funds. Following is
a summary description of the Portfolios in which the Subaccounts invest. More
detailed information concerning the Portfolios appears in the respective ac-
companying prospectuses for the Funds. The Appendix on page 26 contains a de-
scription of how advertised performance data for the Subaccounts are computed.
ALGER AMERICAN FUND (Investment advisor: Fred Alger Management, Inc.)
ALGER AMERICAN 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.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO seeks long-term capital appreci-
ation. 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 a total market capitalization within the range of com-
panies included in the Russell 2000 Growth Index or the S&P SmallCap 600 In-
dex. The Portfolio may invest up to 35% of its total assets in equity securi-
ties of companies that, at the time of purchase, have total market
capitalization outside of this combined range, and in excess of that amount
(up to 100% of its assets) during temporary defensive periods.
ALGER AMERICAN GROWTH 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 have total market capital-
ization
11
<PAGE>
of $1 billion or greater. The Portfolio may invest up to 35% of its total as-
sets in equity securities of companies that have total market capitalization
of less than $1 billion.
ALGER AMERICAN MIDCAP GROWTH seeks long-term capital appreciation. Except dur-
ing temporary defensive periods, the Portfolio invests at least 65% of its to-
tal assets in equity securities of companies that have total market capital-
ization within the range of companies included in the S&P MidCap 400 Index.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO seeks long-term capital apprecia-
tion. 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 and purchase and sell call
and put options on these futures contracts. The Portfolio may also borrow
money for the purchase of additional securities.
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 the income compo-
nent of total return. Flexible Income Portfolio invests in all types of in-
come-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 relating to the Portfolio before allocating
amounts to the Janus Flexible Income Subaccount.
BALANCED PORTFOLIO seeks long-term growth of capital balanced by current in-
come. Balanced Portfolio normally invests 40-60% of its assets in securities
selected primarily for their growth potential and 40-60% of its assets in se-
curities 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 capital-
izations.
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. The Portfolio
is a non-diversified fund that pursues its objective by normally investing at
least 50% of its equity assets in securities issued by medium-sized companies,
those whose market capitalizations fall within the range of companies in the
S&P MidCap 400 Index (the "MidCap Index"). Companies whose capitalization
falls outside this range after the Portfolio's initial purchase continue to be
considered medium-sized companies for the purpose of this policy. The range of
the MidCap Index is expected to change on a regular basis. Subject to the
above policy, the Portfolio may also invest 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. Worldwide Growth Portfolio normally invests in issuers from at least
five different countries including the United States.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (investment adviser: Fidelity Man-
agement & Research Company)
VIP MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income
as is consistent with preserving capital and providing liquidity. The Portfo-
lio will invest in high-quality U.S. Dollar-denominated money market securi-
ties of domestic and foreign issuers, including U.S. Government Securities and
repurchase agreements.
VIP 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 pre-
ferred stock. The fund has the flexibility, however, to invest the balance in
all types of domestic securities, including bonds.
VIP GROWTH PORTFOLIO seeks to achieve capital appreciation. This Portfolio
normally purchases common stocks, although its investments are not restricted
to any one type of security.
VIP OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through in-
vestments in foreign securities. At least 65% of the Portfolio's assets will
be invested in securities of issuers outside of the United States. The fund
normally diversifies its investments across different countries and regions.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (investment adviser: Fidelity
Management & Research Company)
VIP II 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. Normally, the Portfo-
lio's assets will be allocated within the following investment parameters: 30-
70% in stocks (equities); 20-60% in bonds (intermediate to long-term); and 0-
50% in short-term instruments.
VIP II 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. The Portfolio usually invests primarily in
common stock and securities convertible into common stock, but it may invest
in other types of securities.
VIP II INDEX 500 PORTFOLIO seeks long-term capital growth through the purchase
of a portfolio 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 portfolio does not expect to achieve poten-
tially greater results than could be obtained by a fund that aggressively
seeks growth.
IAI RETIREMENT FUNDS, INC. (investment adviser: Investment Advisers, Inc.)
IAI REGIONAL PORTFOLIO pursues its objective of capital appreciation by in-
vesting at least 80% of its equity investments in companies which have their
headquarters in Minnesota, Wisconsin, Iowa, Illinois, Nebraska, Montana, North
Dakota or South Dakota.
12
<PAGE>
IAI BALANCED PORTFOLIO'S investment objective is to maximize total return to
investors. Balanced Portfolio pursues its objective by investing in a broadly
diversified portfolio of stocks, bonds and short-term instruments. The Portfo-
lio's assets will be allocated among these three classes of assets. Under nor-
mal market conditions, the Portfolio will hold between 25% and 75% of its as-
sets in stocks and other equity securities, between 25% and 75% of its assets
in bonds and other fixed income securities, and up to 50% of its assets in
short term instruments.
IAI RESERVE PORTFOLIO'S investment objectives are to provide its shareholders
with high levels of capital stability and liquidity and, to the extent consis-
tent with these primary objectives, a high level of current income. Reserve
Portfolio pursues its investment objectives by investing primarily in a diver-
sified portfolio of investment grade bonds and other debt securities of simi-
lar quality. Reserve Portfolio's dollar weighted average maturity will not ex-
ceed twenty-five (25) months.
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 guaran-
teed by the U.S. Government, its agencies, or instrumentalities. This Portfo-
lio may also invest in certain collateralized mortgage obligations and repur-
chase agreements.
FEDERATED HIGH INCOME BOND FUND II'S investment objective is to seek high cur-
rent 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 cir-
cumstances, this Portfolio will not invest more than 10% of the value of its
total assets in equity securities.
SCUDDER VARIABLE LIFE INVESTMENT FUND (investment adviser: Scudder, Kemper In-
vestments, Inc.) The Scudder Variable Life Investment Fund has two classes of
shares. The Subaccounts invest in Class A shares, which do not impose distri-
bution fees.
BOND PORTFOLIO seeks high income from a high quality portfolio of debt securi-
ties. 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.
The 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 ap-
proach 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.
There is no assurance that the investment objective of any of the Portfolios
will be met. Detailed information about the Portfolios is contained in the ac-
companying current prospectuses of the Funds. You should carefully review
those prospectuses before allocating amounts to be invested in the Subaccounts
of the Separate Account.
VOTING RIGHTS
To the extent required by applicable law, we will vote the shares of the Port-
folios held in the Separate Account at meetings of the shareholders of the
Funds in accordance with instructions received from persons having the voting
interest in the corresponding Subaccounts. We will vote shares for which we
have not received instructions in the same proportion as we vote shares for
which we have received instructions.
The number of shares which a person has a right to vote will be determined as
of a date to be chosen by the relevant Fund prior to the meeting of the re-
spective Fund's shareholders. Voting instructions will be solicited by written
communication in advance of such meeting. Except as may be limited by the
terms of the retirement plan pursuant to which the Contract was issued, the
person having such voting rights before the Annuity Date will be you; thereaf-
ter the payee entitled to receive payments under the Contract.
SUBSTITUTION OF SECURITIES
If the shares of any of the Portfolios should no longer be available for in-
vestment by the Separate Account or if, in the judgment of our Board of Direc-
tors, further investment in the shares of a Portfolio is no longer appropriate
in view of the purposes of the Contract, we may substitute shares of another
mutual fund (or series thereof) for Portfolio shares already purchased and/or
to be purchased in the future by Purchase Payments under the Contract. No such
substitution of securities may take place without prior approval of the Secu-
rities and Exchange Commission and under such conditions as the Commission may
impose.
THE FIXED ACCOUNT
The portion of the Contract relating to the Fixed Account is not registered
under the Securities Act of 1933 ("1933 Act") and the Fixed Account is not
registered as an
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Investment Company under the Investment Company Act of 1940 ("1940 Act"). Ac-
cordingly, neither the Fixed Account nor any interests therein are subject to
the provisions or restrictions of the 1933 Act or the 1940 Act, and the dis-
closure regarding the Fixed Account has not been reviewed by the staff of the
Securities and Exchange Commission. The following disclosure about the Fixed
Account may be subject to certain generally applicable provisions of the fed-
eral securities laws regarding the accuracy and completeness of disclosure.
You may allocate part or all of your Purchase Payments to the Fixed Account in
states where it is available, and any such amounts become part of the general
assets of Lincoln Benefit. Pursuant to the reinsurance agreement discussed on
page 11, Allstate Life Insurance Company invests the assets of the general ac-
count in accordance with applicable laws governing the investments of insur-
ance company general accounts.
We guarantee that the interest rate credited to the Fixed Account will be at
least an annual effective rate of 3%. We may credit interest above the minimum
rate at 3%, but we are not obligated to do so. Any interest credited to the
Fixed Account in excess of the minimum guaranteed rate will be determined by
us at our sole discretion. You assume the risk that interest credited to the
Fixed Account may not exceed the minimum guaranteed rate of 3%.
Transfers from the Fixed Account are subject to certain limitations (see
Transfers, page 19). Also, we reserve the right to limit payment of partial
withdrawals or Surrender Value from the Fixed Account for up to 6 months (see
page 21).
CONTRACT CHARGES
As is more fully described below, charges under the Contract offered by this
prospectus are assessed in three ways: (1) as deductions for Contract adminis-
trative charges and, if applicable, for premium taxes; (2) as charges against
the assets of the Separate Account for administrative expenses or for the as-
sumption of mortality and expense risks; and (3) as Withdrawal Charges (con-
tingent deferred sales charges). In addition, certain deductions are made from
the assets of the Portfolios for investment management fees and expenses;
those fees and expenses, which are summarized in the Fee Tables on page 6, are
described more fully in the Prospectuses and Statements of Additional Informa-
tion for the Funds.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a Mortality and Expense Risk Charge from each Subaccount during each
Valuation Period. The aggregate Mortality and Expense Risk Charge is equal, on
an annual basis, to 1.25% of the net asset value of each Subaccount (approxi-
mately 0.85% is for mortality risks and approximately 0.40% is for expense
risks). The mortality risks which we assume arise from our contractual obliga-
tions: (1) to make annuity payments after the Annuity Date for the life of the
Annuitant(s); (2) to waive the Withdrawal Charge in the event of your death;
and (3) to provide the Death Benefit prior to the Annuity Date. A detailed ex-
planation of the Death Benefit may be found under "Description of the Con-
tracts--Death Benefit," on page 17.
The expense risk which we assume is that the costs of administering the Con-
tracts and the Separate Account will exceed the amount received from the Con-
tract Administration Charge and the Administrative Expense Charge. (See "Ad-
ministrative Charges" below.) We guarantee the Expense Risk Charge and it
cannot be increased. The Mortality and Expense Risk Charge is assessed during
both the Accumulation Period and the Annuity Period.
ADMINISTRATIVE CHARGES
CONTRACT ADMINISTRATION CHARGE
An annual Contract Administration Charge of $25 is charged against each Con-
tract. The amount of this charge is guaranteed and will not increase. This
charge reimburses us for expenses incurred in maintaining your Contract. The
Contract Administration Charge will be assessed on each Contract Anniversary
that occurs on or prior to the Annuity Date. In the event that a total surren-
der of Contract Value is made, the Charge will be assessed as of the date of
surrender without proration. This Charge is not assessed during the Annuity
Period.
The total Contract Administration Charge is allocated between the Subaccounts
and the Fixed Account in proportion to the respective Contract Values simi-
larly allocated.
The Contract Administration Charge will be waived if on any Contract Anniver-
sary the Contract Value is $75,000 or greater.
ADMINISTRATIVE EXPENSE CHARGE
We deduct an Administrative Expense Charge from each Subaccount during each
Valuation Period which is equal, on an annual basis, to 0.15% of the net asset
value of the Subaccount. 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
In general, a transfer fee of $25 may be assessed on the second and each sub-
sequent transaction in each calendar month in which transfer(s) are effected
between Subaccount(s) and/or the Fixed Account. We currently are waiving this
fee.
The transfer fee will be deducted from Contract Values which remain in the
Subaccount(s) or Fixed Account from which the transfer was made. If such re-
maining Contract Value is insufficient to pay the transfer fee, then the fee
will be deducted from transferred Contract Values.
SALES CHARGES
WITHDRAWAL CHARGE
Withdrawals may be subject to penalties or income tax. Additional restrictions
may apply to Contracts held in Qualified Plans. Subject to those limitations,
the Contract Value may be withdrawn at any time during the Accumulation Peri-
od. You should consult your own tax counsel or other tax
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advisers regarding any withdrawals. (See "Taxes--Tax Treatment of Withdrawals"
on page 24.)
A contingent deferred sales charge, which is referred to as the Withdrawal
Charge, may be imposed upon certain withdrawals. No withdrawal charge is ap-
plied in the following situations: (1) On annuitization (unless the settlement
option chosen is payment over a period certain of less than 5 years); (2) the
payment of a death benefit; (3) Withdrawal of an Old Purchase Payment or an
amount available as a free withdrawal (see p. 15); (4) Certain withdrawals for
Contracts issued under 403(b) plans or 401 plans under our prototype (See
Waiver of Withdrawal Charge for Certain Qualified Plan Withdrawals, p. 16);
(5) Withdrawal under Contracts issued to employees of Lincoln Benefit Life
Company or its affiliates or issued to spouses or minor children of such em-
ployees.
In no event will a withdrawal charge be waived or eliminated where such waiver
or elimination would be unfairly discriminatory to any person or where it is
prohibited by state law.
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 accor-
dance with the Withdrawal Charge Table shown below:
WITHDRAWAL CHARGE TABLE
<TABLE>
<CAPTION>
Withdrawal
Contribution Charge
Year Percentage
------------ ----------
<S> <C>
First and Second 7
Third 6
Fourth 5
Fifth 4
Sixth 3
Seventh 2
Eighth and later 0
</TABLE>
The Withdrawal Charge is deducted from the 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 Pay-
ments 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;
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.
The amounts obtained from the Withdrawal Charge will be used to pay sales com-
missions and other promotional or distribution expenses associated with the
marketing of the Contracts. To the extent that the Withdrawal Charge is insuf-
ficient to 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, above, to make up
any difference.
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.
However, see "Tax Treatment of Withdrawals," on page 23.
In the event withdrawals of 15% are not approved in your state, the applicable
percentage will be 10% of new Purchase Payments.
In addition, in states where available, a Confinement Waiver benefit provides
that any applicable Withdrawal Charge will be waived if the following condi-
tions are satisfied:
1. The Annuitant must be confined to a Long Term Care Facility or a Hospital
for at least 60 consecutive days. Confinement must begin after the Issue Date;
2. You must request the withdrawal no later than 90 days following the date
that confinement has ceased. Written proof of confinement must accompany the
withdrawal request; and
3. For confinements in a Long Term Care Facility, confinement must be pre-
scribed by a physician and be medically necessary.
LONG TERM CARE FACILITY means a facility located in the United States of Amer-
ica which is licensed by the jurisdiction in which it is located and operated
as a Custodial Care Facility or other facility which provides a level of care
and services at least as great as those provided by a Custodial Care Facility.
Long Term Care Facility does not include any place owned or operated by a mem-
ber of the insured's immediate family.
CUSTODIAL CARE FACILITY means a facility which:
1. Provides custodial care under the supervision of a Registered Nurse; and
2. Can accommodate three or more persons at those persons' expense.
HOSPITAL means a facility which:
1. Is licensed by the jurisdiction in which it is located and operated as a
hospital;
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<PAGE>
2. Is supervised by a staff of licensed physicians;
3. Provides continuous nursing service 24 hours a day by or under the supervi-
sion of a Registered Nurse;
4. Operates primarily for the care and treatment of sick or injured persons as
inpatients for a charge; and
5. Has medical, diagnostic and major surgical facilities or has access to such
facilities.
MEDICALLY NECESSARY means confinement, care or treatment which is appropriate
and consistent with the diagnosis in accordance with accepted standards of
practice, and which could not have been omitted without adversely affecting
the insured's condition.
PHYSICIAN means a licensed medical doctor (M.D.) or a licensed doctor of oste-
opathy (D.O.) operating within the scope of his or her license. The term does
not include the insured or a member of the insured's immediate family.
REGISTERED NURSE means a registered graduate professional nurse (R.N.).
IMMEDIATE FAMILY means the insured's spouse, children, parents, grandparents,
grandchildren, siblings, or corresponding in-laws.
This benefit will not be applicable to the extent it does not comply with the
provisions of the Qualified Plan for which the Contract is issued. Also see
"Taxes" on page 23 for a discussion of the tax issues involved.
WAIVER OF WITHDRAWAL CHARGE FOR CERTAIN QUALIFIED PLAN WITHDRAWALS
For contracts issued under a 403(b) plan or a 40l plan under our prototype, we
will waive the Withdrawal Charge when: (1) the annuitant becomes disabled (as
defined in Code Section 72(m) (7)); or (2) the annuitant attains age 59 1/2
and at least 5 Contract Years have elapsed; or (3) at least 15 Contract Years
have elapsed. Our prototype is a Section 401 Defined Contribution Qualified
Retirement plan. This is a prototype plan which may be established as a Money
Purchase plan, a Profit Sharing plan, or a paired plan (Money Purchase and
Profit Sharing).
PREMIUM TAXES
Premium taxes or other taxes payable to a state or other governmental entity
will be charged against the Contract Values, including Contract Values that
result from funds transferred from existing policies (Section 1035 exchange)
issued by this Company or any other company. Some states assess premium taxes
at the time Purchase Payments are made; others assess premium taxes at the
time 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
While we are not currently maintaining a provision for taxes, we have reserved
the right to establish such a provision for taxes in the future if we deter-
mine, in our sole discretion, that we will incur a tax as a result of the op-
eration 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 there was a
provision for taxes and whether or not it was sufficient. (See "Taxes," Page
23.)
OTHER EXPENSES
The charges and expenses applicable to the various Portfolios are borne indi-
rectly by Contract Owners having Contract Values allocated to the Subaccounts
that invest in the respective Funds. For a summary of current estimates of
those charges and expenses, see "Fee Tables," Page 6. For more detailed infor-
mation about those charges and expenses, please refer to the prospectuses for
the appropriate Fund(s). Lincoln Benefit Life may receive compensation from
the investment advisors or administrators in connection with administrative
service and cost savings experienced by the investment advisors or administra-
tors.
DESCRIPTION OF THE CONTRACTS
SUMMARY
The Contracts provide for the accumulation of Contract Values during the Accu-
mulation Period. See "Purchases, Withdrawals and Contract Value," beginning at
Page 17. Upon Annuitization, benefits are payable under the Contracts in the
form of an annuity, either for the life of the Annuitant or for a fixed number
of years. See, "Annuity Period--Annuity Options," Page 22.
CONTRACT OWNER
The Contract Owner ("You") is the person normally entitled to exercise all
rights of ownership under the Contracts. You are also normally the person en-
titled to receive benefits under the Contract, although you may, subject to
limitations in the case of Qualified Plans, designate an alternative payee.
ANNUITANT
The Annuitant is the natural person on whose life annuity payments under a
Contract depend. You may change the designated Annuitant at any time prior to
the Annuity Date. In the case of a Contract issued in connection with a plan
qualified under Section 403(b) or 408 of the Code, you are the Annuitant. You
may also designate a second person on whose life, together with that of the
Annuitant, annuity payments depend. Additional restrictions may apply in the
case of Qualified Plans (See "Taxes," page 23). If you are not the Annuitant
and the Annuitant dies before the Annuity Date, then you become the new Annui-
tant unless you name another person as the new Annuitant. You must attest to
the Annuitant being alive before we will annuitize a Contract.
MODIFICATION OF THE CONTRACT
Only a Lincoln Benefit Life officer may approve a change in or waive any pro-
visions of the Contract. Any change or waiver must be in writing. No agent has
the authority to change or waive the provisions of the Contract.
We reserve the right to change the terms of the Contract as may be necessary
to comply with changes in applicable law. If a provision or provisions of the
Contract are inconsistent with state law, state law will control.
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<PAGE>
ASSIGNMENT
You may assign Contracts issued pursuant to Non-Qualified Plans that are not
subject to Title 1 of the Employee Retirement Income Security Act of 1974
("ERISA") at any time during the lifetime of the Annuitant prior to the Annu-
ity Date. We will not be bound by any assignment until we receive written no-
tice of it. We are not responsible for the validity of any assignment. An as-
signment will not affect any payments we may make or actions we may take
before we receive notice of the assignment.
If the Contract is issued pursuant to a Qualified Plan (or a Non-Qualified
Plan that is subject to Title 1 of ERISA), it may not be assigned, pledged or
otherwise transferred except under such conditions as may be allowed under ap-
plicable law.
BECAUSE AN ASSIGNMENT MAY BE A TAXABLE EVENT, YOU SHOULD CONSULT A COMPETENT
TAX ADVISER SHOULD YOU WISH TO ASSIGN YOUR CONTRACT.
DEATH BENEFIT
We will pay the Death Benefit when due proof of death is received while the
Contract is in force and before the Annuity Date, if:
the Contract Owner dies; or
the Annuitant dies and the Contract Owner is not a natural person.
The Beneficiary will become the new Contract Owner and may elect, within 60
days of the date of death, to receive the Death Benefit in a lump sum or apply
the Death Benefit to receive a series of equal payments over the life of the
Beneficiary or a period not to exceed the life expectancy of the Beneficiary.
Lifetime or life expectancy payments must begin within one year of the de-
ceased Contract Owner's death.
If there is only one Beneficiary, he or she may elect to defer payment of the
Contract Value 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 to continue the Contract between the date of death and the final
distribution. If there is no Annuitant at that time, the Beneficiary will be
the new Annuitant.
If the Beneficiary is the Contract Owner's spouse, then the Contract can con-
tinue as if death had not occurred. If there is no Annuitant at that time, the
new Annuitant will be the surviving spouse. The surviving spouse may also se-
lect one of the 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 avail-
able.
Similar rules may apply to Contracts issued in connection with Qualified
Plans.
The Death Benefit is calculated as of the date of settlement. At a minimum,
the Death Benefit is the greater of:
(1) All Purchase Payments less prior withdrawals, accumulated at 4% per year
prior to the Contract Anniversary next following your 75th birthday, and at 0%
per year thereafter (This is called the "Floor Value" calculation); or
(2) The Contract Value less any applicable premium tax. In addition, if the
Contract Value on the 7th Contract Anniversary is greater than the Floor Value
at that time, the Floor Value will be raised to the level of the Contract Val-
ue. In such event, Floor Values for years 8 and beyond will be calculated us-
ing the "stepped-up" value on the seventh anniversary.
BENEFICIARY
The Beneficiary will receive the Death Benefit when the Contract Owner dies.
The Beneficiary is as stated in the application unless changed.
If a Beneficiary is not named or if the Beneficiary named is no longer living,
the beneficiary will be:
the Contract Owner's spouse if living, otherwise;
the Contract Owner's children equally if living, otherwise;
the Contract Owner's estate.
If there is more than one Beneficiary, the Company will pay the Death Benefit
to the Beneficiaries according to the most recent written instructions re-
ceived from you. If there are no written instructions the Company will pay the
Death Benefit in equal shares to the Beneficiaries who are to share the funds.
If one of the Beneficiaries predeceases the Contract Owner, the Death Benefit
will be paid to the surviving Beneficiaries.
You may name new Beneficiaries. We will provide a form to be signed and filed
with us. Upon receipt, it is effective as of the date you signed the form,
subject to any action we have taken before it was received.
Other rules may apply to Contracts issued in connection with Qualified Plans.
VOTING RIGHTS OF CONTRACT OWNERS
Except to the extent restricted by the retirement plan pursuant to which a
Contract was issued, you have a voting interest in each Subaccount to which
you have allocated your Contract Value. The voting interest in a Subaccount is
based upon your proportionate interest in the Subaccount as measured by Accu-
mulation and Annuity Units. (See "Separate Account Investments--Voting
Rights," Page 13, and "Purchases, Withdrawals and Contract Value--Allocation
of Purchase Payments," Page 19).
PURCHASES, WITHDRAWALS AND
CONTRACT VALUE
MINIMUM PURCHASE PAYMENT
The minimum initial Purchase Payment for a Contract is $1,200 (payable over
the first Contract Year) and the total of all Purchase Payments may not exceed
$1 million without our prior approval. Minimum subsequent Purchase Payments
may be made in amounts of $100 or more ($25 or more if made in connection with
an Automatic Payment Plan, described below). We may lower these minimums at
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<PAGE>
our sole discretion. We reserve the right to refuse any Purchase Payment at
any time. We may not issue a Contract to a Purchaser who has attained age 86,
or where the Annuitant has attained age 86.
AUTOMATIC PAYMENT PLAN
You may make scheduled subsequent Purchase Payments of $25.00 or more per
month by automatic payment through your bank account. An enrollment form for
this program is available through us.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM
Owners who wish to purchase units of the Subaccounts or the Fixed Account over
a period of time may be able to do so through the Automatic Dollar Cost Aver-
aging ("DCA") Program. Under this program, you may authorize the automatic
transfer of a fixed dollar amount from the Fixed Account or a Subaccount of
your choosing (the "Source Subaccount") to up to eight options, including
other Subaccounts or the Fixed Account, at the unit values determined on the
dates of the transfers. The interval between transfers may be monthly, quar-
terly, or annually, at your option. The transfers will continue until you in-
struct otherwise, or until there is not enough money in the Source Subaccount
to make the transfer, whichever is earlier. Currently, the minimum transfer
amount from the Source Subaccount is $100, subject to the company's discre-
tion. If you elect DCA, the first DCA will occur one period after your issue
date. Your request for DCA will be effective when we receive it in good form.
Special DCA considerations apply with respect to transfers from the Fixed Ac-
count. (See Transfers, Page 19.)
The theory of dollar cost averaging is that greater numbers of units are pur-
chased at times when the unit prices are relatively low than are purchased
when the prices are higher. This has the effect, when purchases are made at
fluctuating prices, of reducing the aggregate average cost per unit to less
than the average of the unit prices on the same purchase dates. However, par-
ticipation in the DCA Program does not assure you of a greater profit from
your purchases under the Program; nor will it prevent or necessarily alleviate
losses in a declining market. You may not use dollar cost averaging and port-
folio rebalancing at the same time.
You may elect to increase, decrease or change the frequency or amount of Pur-
chase Payments under a Dollar Cost Averaging Program. The application and any
Purchase Payments should be sent to Lincoln Benefit Life Company, P.O. Box
82532, Lincoln, Nebraska 68501-2532.
PORTFOLIO REBALANCING
Portfolio rebalancing allows you to maintain the percentage of your Contract
Value allocated to each Subaccount at a pre-set level prior to annuitization.
For example, you could specify that 30% of your Contract Values 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 this balance of your Contract Value
allocations. If you elect the portfolio rebalancing feature, we will automati-
cally transfer your Contract Value, including new premium (unless you specify
otherwise), back to the percentages you specify, but only if investment re-
sults shift greater than minimum requirements that we establish.
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. No Transfer Fees will be charged for portfolio rebalancing. No
more than eight Subaccounts can be included for portfolio rebalancing at any
time. If you include the Fixed Account for Portfolio Rebalancing, you may not
make more than two changes in any given twelve month period to the allocation
percentages with the net cumulative change to the Fixed Account being adjusted
during the period no more than 20%. The Company reserves the right to waive
this restriction.
Procedures for selecting portfolio rebalancing are generally the same as those
discussed in detail above for selecting dollar cost averaging. When you estab-
lish Portfolio Rebalancing, the restrictions described under Fixed Account
will apply. You may make your request at any time prior to your Annuity Date,
and it will be effective when we receive the request in good form. If you stop
portfolio rebalancing, you must wait 30 days to begin again. You may specify a
date for your first rebalance, or your first rebalancing, and all rebalancing
thereafter will occur on the day of the month (following receipt of your re-
quest) that coincides with the same day of the month as your Contract Anniver-
sary date. If you specify a date fewer than 30 days after your Issue Date,
your first rebalance will be delayed one month and if you request rebalancing
on your application but do not specify a date for the first rebalance, it will
occur one period after your Issue Date. If those Subaccounts, collectively,
selected for rebalancing fall below any minimum value that we may establish,
we have the right, at our option, to prohibit or limit the 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.
CONTRACT VALUE
We will establish an account for you and will maintain your account during the
Accumulation Period. The value of a Contract for any Valuation Period is equal
to the sum of the variable Accumulation Unit Values of the Subaccounts for
that Valuation Period, plus the value of the Fixed Account.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE
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. If we
elect or are required to assess a charge for taxes, a separate Accumulation
Unit Value may be calculated for Contracts issued in connection with Non-Qual-
ified and Qualified Plans, respectively, within each Subaccount.
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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 pro-
vision for taxes. Assessments of Withdrawal Charges, transfer fees and Con-
tract Administration Charges are made separately for each Contract. They are
effected 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. The Net Investment Factor is a number representing the
change on successive Valuation Dates in value of Subaccount assets due to in-
vestment income, realized or unrealized capital gains and losses, deductions
for taxes, if any, and deductions for the Mortality and Expense Risk Charge
and Administrative Expense Charge. If the Net Investment Factor for a
Subaccount is greater than one, the Accumulation Unit Value of that Subaccount
has increased. If the Net Investment Factor is less than one, the Subaccount's
Accumulation Unit value has decreased.
ALLOCATION OF PURCHASE PAYMENTS
Purchase Payments are allocated to the Subaccount(s) and Fixed Account as you
have selected. When you make your initial Purchase Payment, you must specify
your allocation on the application for a Contract. Percentages must be in
whole numbers and the total allocation must equal 100%. If the application is
in good order, we will allocate Purchase Payments, as you have selected, and
issue the Contract within two business days of receipt at the Company's P.O.
Box identified on the first page of this prospectus. The number of Accumula-
tion Units in a Subaccount is determined by dividing that portion which is al-
located to the Subaccount by that Subaccount's Accumulation Unit value as of
the end of the Valuation Period when the allocation occurs. If state law re-
quires us to return at least your Purchase Payment during the "free-look" pe-
riod, initial Purchase Payments may be allocated to the Fidelity Money Market
Subaccount for twenty days following the Issue Date, or longer if required by
state law. They will then be allocated to the Fixed Account and/or Subaccounts
you have selected.
If the application for a Contract is not in good order, we will attempt to
rectify it within five business days of our receipt. An example of an applica-
tion not being in good order would be one in which no allocation was speci-
fied. We will credit the initial Purchase Payment within two business days af-
ter the application has been rectified. Unless the prospective Contract Owner
consents otherwise, the application and the initial Purchase Payment will be
returned if the application cannot be put in good order within five business
days of such receipt.
When you make subsequent Purchase Payments, you should specify how you want
your payments allocated. Otherwise, we will automatically process the purchase
payment based on the then current Purchase Payment allocation.
TRANSFER DURING ACCUMULATION PERIOD
During the Accumulation Period, you may transfer Contract Values among the
Fixed Account and Subaccounts by written request or telephone authorization.
NO SUCH TRANSFERS ARE PERMITTED AFTER THE ANNUITY DATE. Currently, there is no
minimum transfer amount required. We reserve the right to impose a minimum
amount that may be transferred among the investment options under the Con-
tract. Request for transfers will be effective on the date of receipt if it is
a Valuation Date and a date that we are open for business. Additional restric-
tions apply to transfers from/to the Fixed Account as described below.
Transfers from the Fixed Account to the Subaccounts may only be made during
the 60 day period beginning on the issue date or the Contract Anniversary un-
less the transfer is made by Dollar Cost Averaging or Portfolio Rebalancing.
The maximum amount which may be transferred from the Fixed Account during a
Contract Year is the greater of 30% of the Fixed Account balance as of the
last Contract Anniversary or the greatest amount of any prior transfer from
the Fixed Account. If desired, you may elect to have the above amount trans-
ferred quarterly or monthly via Dollar Cost Averaging. Alternatively, you may
elect to transfer the entire Fixed Account balance to the Subaccount(s) via
Dollar Cost Averaging. The maximum monthly amount allowed would be 1/36 of the
Fixed Account Balance at the time of the first transfer. The Company reserves
the right to waive or modify this restriction. No additional transfers or pay-
ments may be made into the Fixed Account if transfers are being made out via
Dollar Cost Averaging.
Notwithstanding the above, we will allow 100% of the Fixed Account balance to
be transferred to the Subaccount(s) if either (a) or (b) occurs:
(a) If, on the last Contract Anniversary, the interest rate credited to the
Fixed Account is less than it was on the immediately preceding anniversary (or
on the issue date for the first Contract Anniversary).
(b) The credited interest rate on the last Contract Anniversary is less than
4%.
This offer will apply for 60 days following the date we mail notification to
you.
We reserve the right to defer transfers from the Fixed Account for up to six
months from the date you ask us. Also, we reserve the right to restrict trans-
fers from the Subaccounts to the Fixed Account each Contract Year to no more
than 30% of the Separate Account balances as of the last Contract Anniversary.
We currently are not imposing this restriction.
TRANSFERS AUTHORIZED BY TELEPHONE
Telephone calls authorizing transfers must be completed by 4:00 p.m. Eastern
time on both a day that the Company is open for business and a Valuation Date
in order to be effected at the price determined on such Date. Transfer autho-
rizations, whether written or by telephone, which are received after 4:00 p.m.
Eastern time will be processed as of
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the next Valuation Date. A proper telephone authorization form for transfers
must be on file. A transfer fee may be assessed in connection with transfers
(see "Contract Charges--Administrative Charges--Transfer Fee," Page 14). Also,
the telephone transfer privilege may be suspended, modified or terminated at
any time without notice.
We utilize procedures that we believe provide reasonable assurance that tele-
phone authorized transfers are genuine. Such procedures include taping of tel-
ephone conversations with persons purporting to authorize such transfers and
requesting identifying information from such persons. Accordingly, we disclaim
any liability for losses resulting from such transfers by reason of their al-
legedly not having been properly authorized. However, if we do not take rea-
sonable steps to help ensure that such authorizations are valid, we may be li-
able for such losses.
CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS
During the Accumulation Period but after the "free look" period, the Owner of
a Contract used in connection with a Tax Sheltered Annuity Plan ("TSA Plan")
under Section 403(b) of the Code, or an Owner of a Contract purchased by a
pension, profit-sharing, or other similar plan qualified under Section 401(a)
of the Code (a "401 Plan"), including a Section 401(k) plan, where a plan
trustee is the Owner, may receive a loan from the Surrender Value subject to
the terms of the Contract, the Plan, and the Code, which impose restrictions
on loans.
The loan amount cannot exceed an amount which when added to any existing loan
exceeds the Surrender Value on the date of the loan. In addition, the total
loan, when added to the outstanding loan balance under all other plans of the
participant, may not exceed the lesser of (a) or (b) where:
(a) is $50,000 reduced by the excess of the highest outstanding loan balance
during the prior 12 month period over the outstanding balance of loans; and
(b) is the greater of $10,000 or 1/2 of the Surrender Value.
The minimum loan amount is $1,000.
A written request must be sent to us for a loan. The Owner has the sole re-
sponsibility for requesting loans and making loan repayments that comply with
applicable tax requirements. Loans must comply with the applicable provisions
of Section 72 of the Code and Title 1 of ERISA. Please seek advice from your
plan administrator or tax advisor.
When a loan is made, a portion of the Surrender Value sufficient to secure the
loan will be transferred to the Loan Account reducing the Contract Value in
the Separate Account and/or the Fixed Account. Unless instructed to the con-
trary by the Contract Owner, we will first transfer to the Loan Account
amounts from the Separate Account in proportion to the assets in each
Subaccount until the required balance is reached or all such variable units
are exhausted. The remaining required collateral will next be transferred from
the Fixed Account. No withdrawal charges are deducted at the time of the loan,
or on the transfer from the Variable Account to the Fixed Account.
Amounts transferred to the Loan Account will accrue interest at an annual rate
2.25% less than the loan interest rate fixed by us for the term of the loan.
However, the interest rate credited to the Loan Account will never be less
than the Fixed Account guaranteed rate of 3%. Amounts transferred to the Loan
Account will no longer be affected by the investment experience of the Sepa-
rate Account.
The Death Benefit and Contract Value available for partial withdrawal or sur-
render, as well as the amount applied on the Annuity Date to provide annuity
payments will be reduced by the amount of the loan outstanding plus accrued
interest.
You must repay any loan within five years of the date the loan is made. Sched-
uled payments must be level, amortized over the repayment period, and made at
least quarterly. A repayment period of 15 or 30 years is acceptable if the
loan proceeds are used to acquire a dwelling unit which is to be used by you
as a principal residence. Other repayment periods may be available at our dis-
cretion.
Loan repayments must be identified as such; otherwise, they may be credited to
the Contract as Purchase Payments.
If a loan payment is not made when due, interest will continue to accrue. We
will declare the entire loan in default. The defaulted loan balance plus ac-
crued interest will be deducted from any future Distribution under the Con-
tract and paid to us. Any defaulted amount plus interest will be treated as a
Distribution (as permitted by law) and may be taxable to the borrower, may be
subject to the early withdrawal tax penalty, and will be subject to the manda-
tory 20% federal withholding.
If the total loan amount exceeds the Surrender Value, we will mail written no-
tice to your last known address. The notice will state the amount needed to
maintain the Contract in force. If payment of this amount is not received
within 31 days after the date this notice is mailed, the Contract will termi-
nate.
We reserve the right to defer making any loan for 6 months after you ask us
for it, 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 during the Accumulation Period. Withdrawal Charges may be
applicable, however, which would reduce the Contract Value upon redemption.
(See "Contract Charges--Withdrawal Charge" on Page 14 for additional informa-
tion.)
Withdrawals and distributions from Contracts issued in connection with certain
Qualified Plans may be subject to a mandatory 20% withholding requirement.
(See "Taxes--Withholding Tax on Distributions," on Page 24.) Withdrawals from
non-qualified annuities may be subject to a 10% penalty tax. (See "Taxes--Non-
Qualified Plans," on Page 25.)
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance
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with Section 403(b)(11) of the Code) are limited to circumstances only: when
you attain age 59 1/2, separate from service, die, become disabled (within the
meaning of Section 72(m)(7) of the Code), or in the case of hardship. With-
drawals for hardship are restricted to the portion of the Contract Value which
represents your contributions and does not include any investment results.
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 limi-
tations 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 competent
tax advice regarding any withdrawals or distributions from Qualified Plans.
(See "Tax Treatment of Withdrawals," beginning at Page 24.) Except in connec-
tion with a Systematic Withdrawal Program, described below, the minimum par-
tial withdrawal amount is $250, or, if less, your entire interest in the
Subaccount from which a withdrawal is requested.
A written withdrawal request or systematic withdrawal program enrollment form,
as the case may be, must be sent to us. For partial withdrawals, you may allo-
cate the amount among the Subaccounts of the Separate Account. The required
program form will not be in good order unless it includes your Tax I.D. Number
(e.g., Social Security Number) and provides instructions regarding withholding
of income taxes. We provide the required forms. The amount of the partial
withdrawal will be allocated proportionately from the Subaccounts and the
Fixed Account, unless you specify otherwise.
If the request is for total withdrawal, the Contract must be submitted. The
Surrender Value is determined on the basis of the Contract Value next computed
following receipt of a request in proper order. The Surrender Value will nor-
mally be paid within seven days after the day we receive a proper request.
However, we may suspend the right of withdrawal from the Separate Account or
delay payment for such withdrawal more than seven days: (1) during any period
when 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 Securities and Exchange Commission so
that disposal of the Separate Account's investments or determination of Accu-
mulation Unit values is not reasonably practicable; or (3) for such other pe-
riods as the Securities and Exchange Commission, by order, may permit 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 applica-
ble law).
SYSTEMATIC WITHDRAWAL PROGRAM
Owners of Contracts issued in connection with Non-Qualified Plans and IRAs may
choose to participate in a Systematic Withdrawal Program. You must complete an
enrollment form and send it to us. The withholding election section of the en-
rollment form must be complete before the Systematic Withdrawals will begin.
Systematic Withdrawals of a flat dollar amount, earnings, or a percentage of
Purchase Payments are available. Systematic Withdrawals are treated the same
as partial withdrawals for purposes of determining if a withdrawal charge ap-
plies. Systematic Withdrawals are offered on a monthly, quarterly, semi-annu-
al, 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.
Systematic Withdrawal payments are made to you or your designated payee. We
reserve the right to modify or suspend the Systematic Withdrawal Program and
to charge a processing fee for the service. If we modify or suspend the Sys-
tematic Withdrawal Program, existing Systematic Withdrawal payments will not
be affected.
ERISA PLANS
Spousal consent may be required when a married Participant seeks a distribu-
tion from a Contract that has been issued in connection with a Qualified Plan
(or a Non-Qualified Plan that is subject to Title 1 of ERISA). You should ob-
tain competent advice.
MINIMUM CONTRACT VALUE
If the Contract Value is less than $250 and no Purchase Payments have been
made during the previous three full calendar years, we reserve the right, af-
ter 60 days written notice to you, to terminate the Contract and distribute
its Surrender Value to you. This privilege will be exercised only if the Con-
tract Value has been reduced to less than $250 as a result of withdrawals, and
state law permits. In no instance shall such termination occur if the value
has fallen below $250 due to either decline in Accumulation Unit value or the
imposition of fees and charges. Other rules may apply to Contracts issued in
connection with Qualified Plans.
ANNUITY PERIOD
ANNUITY DATE
You select an Annuity Date (the date on which annuity payments are to begin)
at the time of application. The Annuity Date must always be the tenth day of a
calendar month. Also, we reserve the right to require the Annuity Date be at
least two years from the Issue Date, unless an earlier date is required by
law. Annuity payments will begin in any event no later than the Latest Annuity
Date. If no Annuity Date is selected, the Annuity Date will be the Latest An-
nuity Date. You may change the Annuity Date at any time at least seven days
prior to the Annuity Date then indicated on our records by sending written no-
tice to us.
DEFERMENT OF PAYMENTS
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. We
may defer making Fixed Annuity payments for a period of up to six months or
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such lesser time as state law may require. Interest, subject to state law re-
quirements, will be credited during the deferral period.
ANNUITY OPTIONS
No lump sum settlement option is available under the contract. You may surren-
der the contract prior to the Annuity Date; however, any applicable withdrawal
charge will be deducted from the Contract Value. You may elect an Annuity Op-
tion at any time prior to the Annuity Date. A change of Annuity Option is per-
mitted if made at least seven days before the Annuity Date. If no other Annu-
ity Option is elected, monthly annuity payments will be made in accordance
with Option B below, with 10 years (120 months) guaranteed (or Option C in the
case where payments are to be made for the joint lives of the Annuitant and a
designated second person and for the life of the survivor). Annuity payments
will be made in monthly, quarterly, semi-annual or annual installments as you
select. However, if the amount available to apply under an Annuity Option is
less than $5,000, and state law permits, we have the right to pay the annuity
in one lump sum. In addition, if the first payment provided would be less than
$50, and state law permits, we shall have the right to require the frequency
of payments be at quarterly, semi-annual or annual intervals so as to result
in an initial payment of at least $50.
NO WITHDRAWALS OF CONTRACT VALUE ARE PERMITTED DURING THE ANNUITY PERIOD FOR
ANY ANNUITY OPTION INVOLVING LIFE CONTINGENCIES.
The following Annuity Options are generally 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. However, there may be restrictions
in the retirement plan pursuant to which a Contract has been purchased. Annu-
ity payments are made on the Valuation Date on or immediately following the
tenth of the month, beginning on the Annuity Date.
Option A, Life Annuity. Monthly payments are made during the Annuitant's life,
starting with the Annuity Date. No payments will be made after the Annuitant
dies. It is possible for the payee to receive only one payment under this op-
tion, if the Annuitant dies before the second payment is due.
Option B, Life Annuity with Payments Guaranteed for 5 to 20 Years. Monthly
payments are made starting on the Annuity Date. Payments 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 pay-
ments to the Beneficiary.
Option C, Joint and Full Survivor Annuity. Monthly payments are made starting
with the Annuity Date. Payments will continue as long as either the Annuitant
or the joint Annuitant is alive. Payments will stop when both the Annuitant
and the joint Annuitant have died. It is possible for the payee or payees un-
der this option to receive only one payment, if both Annuitants die before the
second payment is due.
Option D, Payments for a Specified Period Certain, 5 Years to 25 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 guar-
anteed payments to the Beneficiary.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS
Earnings on annuities are taxable as ordinary income upon withdrawal. A 10%
tax penalty is imposed in certain "premature" payments under annuity con-
tracts. The tax applies to any payment received to the extent it is includable
in income and is not subject to an exception. The Tax Reform Act of 1986 (TRA-
86) clarified an exception to the 10% premature distribution tax penalty. This
exception is known as "substantially equal periodic payments."
Generally, this exception permits individuals to take substantially equal pe-
riodic payments prior to age 59 1/2 and not have the 10% premature distribu-
tion penalty tax apply to these amounts. These "payments" are withdrawals, as
opposed to an annuitization of the contract.
The rules for establishing substantially equal periodic payments are as fol-
lows:
1) Payments, once established, must continue to the later of age 59 1/2 or for
five (5) years. If the payment stream is modified* in any way during the pay-
out period (except by reason of death or disability), the individual's tax is
increased in the first year of modification by an amount equal to the tax
which would have been imposed (plus interest) had the exception not applied.
*Modification includes changing the withdrawal stream in any way, or adding
contributions to the contract.
2) Payments must be established under one of the approved methods detailed by
the IRS in IRS Notice 89-25.
3) Separation from service is required prior to establishing substantially
equal periodic payments for qualified retirement plans and tax sheltered annu-
ities.
OTHER OPTIONS
We may have other annuity options available. Information about them may be ob-
tained by writing or calling us.
With respect to Contracts issued under Sections 401, 403(b) or 408 of the In-
ternal Revenue Code, any payments will be made only to you and/or your spouse.
DEATH BENEFIT DURING ANNUITY PERIOD
If the Annuitant dies after the Annuity Date while the Contract is in force,
the death proceeds, if any, will depend upon the Annuity Option in effect at
the time of the payee's death. If the Annuitant dies after the Annuity Date
and before the entire interest in the Contract has been distributed, the re-
maining interest, if any, as provided for in the Option elected, will be dis-
tributed at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
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VARIABLE ANNUITY PAYMENTS
The basic objective of a Variable Annuity Contract is to provide Variable An-
nuity payments which will be to some degree responsive to changes in the eco-
nomic environment. The amount of Variable Annuity Payments ("Payments") de-
pends upon the investment experience of the Portfolios you have selected, any
premium taxes, the age and sex of the Annuitant, and the Annuity Option cho-
sen. We guarantee that the Payments will not be affected by (1) actual mortal-
ity experience and (2) the amount of our administration expenses.
The Contracts offered by this prospectus (except in states which require uni-
sex annuity tables) contain life annuity tables that provide for different
benefit payments to men and women of the same age. Nevertheless, in accordance
with the U.S. Supreme Court's decision in Arizona Governing Committee v.
Norris, in certain employment-related situations, annuity tables that do not
vary on the basis of sex may be used. Accordingly, if the Contract is to be
used in connection with an employment-related retirement or benefit plan, con-
sideration should be given, in consultation with legal counsel, to the impact
of Norris on any such plan before making any contributions under these Con-
tracts.
The Payments may be more or less than the total Purchase Payments made because
(a) Payments vary with the investment results of the underlying Portfolios;
(b) you bear the investment risk with respect to all amounts allocated to the
Separate Account, and (c) Annuitants may die before the actuarial life expec-
tancy is achieved. As such, the amount of the Payments cannot be predicted.
The duration of the Annuity Option will affect the dollar amounts of each Pay-
ment. For example, if an annuity option guaranteed for life is chosen, the
Payments will be greater than Payments under an annuity option for a minimum
specified period and guaranteed thereafter for life.
If the actual net investment experience is less than the assumed investment
rate, then the dollar amount of the Payments will decrease. The dollar amount
of the Payments will stay level if the net investment experience equals the
assumed investment rate and the dollar amount of the Payments will increase if
the net investment experience exceeds the assumed investment rate. The assumed
annual investment rate is 3 1/2%.
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, and our telephone number is 1-800-865-5237.
The administrative services provided include, but are not limited to: issuance
of the Contracts; maintenance of Contract Owner records; Contract Owner serv-
ices; calculation of unit values; and preparation of Contract Owner reports.
Contract statements and transaction confirmations are mailed to you at least
quarterly. You should therefore give us prompt written notice of any address
change. You should read your statements and confirmations carefully and verify
their accuracy. Questions about periodic statements should be communicated to
us promptly. We will investigate all complaints and make any necessary adjust-
ments retroactively, provided that we have received notice of a potential er-
ror within a reasonable time period after the date of the questioned state-
ment. If we have not received notice of a potential error within this time,
any adjustment shall be made as of the date that we receive notice of the po-
tential error.
We will also provide you with such additional periodic and other reports, in-
formation and prospectuses as may be required by federal securities laws.
TAXES
NOTE: The following description is based upon our understanding of current
federal income tax law applicable to annuities in general. We cannot predict
the probability that any changes in such laws will be made. Purchasers are
cautioned to seek competent tax advice regarding the possibility of such
changes. We do not guarantee the tax status of the Contracts. Purchasers bear
the complete risk that the Contracts may not be treated as "annuity contracts"
under federal income tax laws.
GENERAL
Section 72 of the Internal Revenue Code of 1986, as amended (the "Code") gov-
erns taxation of annuities in general. A Contract Owner who is a natural per-
son is not taxed on increases in the value of a Contract until distribution
occurs, either in the form of a non-annuity distribution or as annuity pay-
ments under the Annuity Option elected. For a lump sum payment received as a
total surrender (total redemption), the recipient is taxed on the portion of
the payment that exceeds the cost basis of the Contract. For a payment re-
ceived as a withdrawal (partial redemption), federal tax liability is deter-
mined on a last-in, first-out basis, meaning taxable income is withdrawn be-
fore the cost basis of the Contract is withdrawn. For Contracts issued in
connection with Non-Qualified Plans, the cost basis is generally the Purchase
Payments, while for Contracts issued in connection with Qualified Plans there
may be no cost basis. The taxable portion of the lump sum payment is taxed at
ordinary income tax rates. Tax penalties may also apply.
For annuity payments, the taxable portion is determined by a formula which es-
tablishes the ratio that the cost basis of the Contract bears to the total
value of annuity payments for the term of the annuity Contract. The taxable
portion is taxed at ordinary income tax rates. Contract Owners, Annuitants and
Beneficiaries under the Contracts should seek competent financial advice about
the tax consequences of distributions under the retirement plan under which
the Contracts are purchased.
All Non-Qualified annuity Contracts that are issued by the Company (or its af-
filiates) to the same Contract Owner during any calendar year will be aggre-
gated and treated as one annuity Contract for purposes of determining the
amount includable in gross income under section 72(e) of the Code. According-
ly, an Contract Owner should consult a competent
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tax adviser before purchasing more than one Non-Qualified annuity Contract.
Further, if a Non-Qualified Contract has an Owner who is not a natural person,
a change of Annuitant will cause the Contract to be treated as if the Contract
Owner died.
A transfer of ownership of a Contract, the designation of an Annuitant or
other Beneficiary who is not also the Contract Owner, an assignment of a Con-
tract or the exchange of a Contract may result in certain tax consequences to
the Contract Owner that are not discussed herein. A Contract Owner contemplat-
ing any such transfer, assignment, or exchange of a Contract should contact a
competent tax adviser with respect to the potential tax effects of such a
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 the 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 in-
come tax purposes and the income on the contract will be taxed as ordinary in-
come received or accrued by the owner during the taxable year. Although the
Company does not have control over the Portfolios or their investments, the
Company expects the Portfolios to meet the diversification requirements.
If the contract's scheduled maturity date is at a time when the annuitant has
reached an advanced age, e.g., past age 85, it is possible that the contract
would not be treated as an annuity. In that event, the income and gains under
the contract would be currently includible in the owner's income.
We are taxed as a life insurance company under the Code. For federal income
tax purposes, the Separate Account is not a separate entity from us and its
operations form a part of the Company.
WITHHOLDING TAX ON DISTRIBUTIONS
The Code generally requires us (or, in some cases, a plan administrator) 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, 20% of the distribution must be withheld,
unless the payee elects to have the distribution "rolled over" to another eli-
gible plan in a direct "trustee to trustee" transfer. This requirement is man-
datory and cannot be waived by the Contract Owner. Withholding on other types
of distributions can be waived. An "eligible rollover distribution" is the es-
timated taxable portion of any amount received by a covered employee from a
plan qualified under Section 401(a) or 403(a) of the Code (these rules do not
apply to Section 408(b) Contracts), or from a tax-sheltered annuity qualified
under section 403(b) of the Code (other than (1) annuity payments for the life
(or life expectancy) of the employee, or joint lives (or joint life expectan-
cies) of the employee and his or her designated beneficiary, or for a speci-
fied period of ten years or more; and (2) distributions required to be made
under the Code). Failure to "roll over" the entire amount of an eligible
rollover distribution (including an amount equal to the 20% portion of the
distribution that was withheld) could have adverse tax consequences, including
the imposition of a penalty tax on premature withdrawals, described later in
this section.
Withdrawals or distributions from a Contract other than eligible rollover dis-
tributions are also subject to withholding on the estimated taxable portion of
the distribution, but the Contract Owner may elect in such cases to waive the
withholding requirement. If not waived, withholding is imposed (1) for peri-
odic payments, at the rate that would be imposed if the payments were wages,
or (2) for other distributions, at the rate of 10%. If no withholding exemp-
tion certificate is in effect for the payee, the rate under (1) above is com-
puted by treating the payee as a married individual claiming 3 withholding ex-
emptions.
In addition, some states may require that state income tax be withheld.
TAX TREATMENT OF ASSIGNMENTS
An assignment of a Contract may have tax consequences, and may also be prohib-
ited by ERISA in some circumstances. Owners should therefore consult competent
legal advisers should they wish to assign their Contracts.
TAX TREATMENT OF WITHDRAWALS
QUALIFIED PLANS
Section 72(t) of the Code imposes a 10% penalty tax on the taxable portion of
any early distribution from qualified retirement plans, including contracts
issued and qualified under Code Sections 401 (H.R. 10 and Corporate Pension
and Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities) and 408(b) (IRAs).
The tax penalty will not apply to the following distributions: (1) if distri-
bution is made on or after the date on which the Contract Owner reaches age 59
1/2; (2) distributions following the death or disability of the Contract Owner
or Annuitant (as applicable) (for this purpose "disability" is defined in Sec-
tion 72(m)(7) of the Code); (3) distributions that are part of substantially
equal periodic payments made not less frequently than annually for the life
(or life expectancy) of the Contract Owner or Annuitant (as applicable) or the
joint lives (or joint life expectancies) of such Contract Owner or Annuitant
(as applicable) and his or her designated beneficiary; (4) distributions to a
Contract Owner or Annuitant (as applicable) who has separated from service af-
ter he or she has attained age 55; (5) distributions made to the Contract
Owner or Annuitant (as applicable) to the extent such distributions do not ex-
ceed the amount allowable as a deduction under Code Section 213 to the Con-
tract Owner or Annuitant (as applicable) for amounts paid during the taxable
year for medical care; and (6) distributions made to an alternate payee pursu-
ant to a qualified domestic relations order.
The exceptions stated in items (4), (5) and (6) above do not apply in the case
of an IRA.
Limitations imposed by the Code on withdrawals from tax-sheltered annuities
are described above under "Purchases, Withdrawals and Contract Value -- With-
drawals (Redemptions)," on Page 20.
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The taxable portion of a withdrawal or distribution from Contracts issued un-
der certain types of plans may, under some circumstances, be "rolled over"
into another eligible plan so as to continue to defer income tax on the tax-
able portion. Effective January 1, 1993, such treatment is available for any
"eligible rollover distribution" made by certain types of plans (as described
above under "Taxes--Withholding Tax on Distributions," page 23) that is trans-
ferred within 60 days of receipt into a plan qualified under section 401(a) or
403(a) of the Code, a tax-sheltered annuity, an IRA, or an individual retire-
ment account described in section 408(a) of the Code. Plans making such eligi-
ble rollover distributions are also required, with some exceptions specified
in the Code, to provide for a direct "trustee to trustee" transfer of the dis-
tribution to an eligible transferee plan designated by the recipient.
Amounts received from IRAs may also be rolled over into other IRAs, individual
retirement accounts or certain other plans, subject to limitations set forth
in the Code.
NON-QUALIFIED PLANS
Section 72 of the Code governs treatment of distributions from annuity con-
tracts. It provides that if the Contract Value exceeds the aggregate Purchase
Payments made, any amount withdrawn not in the form of an annuity payment will
be treated as coming first from the earnings and then, only after the income
portion is exhausted, as coming from the principal. Withdrawn earnings are
includable in a taxpayer's gross income. Section 72 further provides that a
10% penalty will apply to the income portion of any premature distribution.
The penalty is not imposed on amounts received: (1) after the taxpayer reaches
59 1/2; (2) upon the death of the Contract Owner or Annuitant (as applicable);
(3) if the taxpayer is totally disabled; (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.
Separate tax withdrawal penalties and restrictions apply to Qualified Plan
Contracts.
DISTRIBUTION OF CONTRACTS
Contracts are sold by registered representatives of broker-dealers who are our
licensed insurance agents, either individually or through an incorporated in-
surance agency. Commissions paid to broker-dealers may vary, but in the aggre-
gate are not anticipated to exceed 6% of all Purchase Payments (on a present
value basis). From time to time, additional sales incentives (up to 1% of Pur-
chase Payments) may be provided to broker-dealers maintaining certain sales
volume levels.
Lincoln Benefit Financial Services, Inc. ("LBFS") located at 206 South 13th
Street, Lincoln, Nebraska 68508-1993 serves as distributor of the Contracts.
LBFS is a wholly owned subsidiary of Lincoln Benefit Life Company. It is reg-
istered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers,
Inc.
During 1997, 1996, and 1995, the Company paid to LBFS gross commissions of ap-
proximately $16,468,765, $13,766,684, and $8,354,160, respectively. Of the
gross commissions received, LBFS (as principal underwriter) retained $530,231,
$538,415, and $375,508, respectively. The amounts not retained by LBFS were
paid to other independent broker/dealers and registered representatives of
LBFS for distribution of the contracts.
MARKET TIMING AND ASSET ALLOCATION SERVICES
Certain third parties offer market timing and asset allocation services in
connection with the Contracts. In certain situations, the Company will honor
transfer instructions from such third parties provided such market timing and
asset allocation services comply with the Company's administrative systems,
rules and procedures, which may be modified by the Company at any time. PLEASE
NOTE that fees and charges assessed for such market timing and asset alloca-
tion services are separate and distinct from the Contract fees and charges set
forth herein. The Company neither recommends nor discourages such market tim-
ing and asset allocation services.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. The
Company and its subsidiaries are engaged in various kinds of routine litiga-
tion which, in management's judgment, is 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 herein are being passed upon by the law firm of Jordan
Burt Boros Cichetti Berenson & Johnson, 1025 Thomas Jefferson St., East Lobby-
Suite 400, Washington, D.C. 20007-0805.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange Com-
mission, Washington, D.C., 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, to all of which refer-
ence is hereby made for further information concerning the Separate Account,
the Company, and the Contracts. Statements found in this prospectus as to the
terms of the Contracts and other legal instruments are summaries, and refer-
ence is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements for Lincoln Benefit Life Company and the Separate Ac-
count are set forth in the Statement of Additional Information.
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ADDITIONAL INFORMATION ABOUT THE SEPARATE ACCOUNT
Additional information concerning the operations of the Separate Account is
contained in a Statement of Additional Information, which is available without
charge upon written request or by calling us at 1-800-865-5237. The contents
of the Statement of Additional Information are tabulated below.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<S> <C>
The Contract................................................................ 3
Annuity Payments.......................................................... 3
Annuity Unit Value........................................................ 3
Variable Annuity Payments--Illustrative Example........................... 4
Additional Federal Income Tax Information................................... 5
Diversification--Separate Account Investments............................. 5
Multiple Contracts........................................................ 6
Qualified Plans........................................................... 6
Separate Account Performance................................................ 8
Financial Statements........................................................ 13
</TABLE>
APPENDIX
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 a seven-day period (which period will be 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 ef-
fective yield takes into consideration the effect of any capital changes that
might have occurred during the seven day period, nor do they reflect the im-
pact of premium taxes or any Withdrawal Charges. The impact of other, recur-
ring charges on both yield figures is, however, reflected in them to the same
extent it would effect the yield (or effective yield) for a Contract of aver-
age 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 total return 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 taxes). The
yield figure is derived from net investment gain (or loss) over the period ex-
pressed as a fraction of the investment's value at the end of the period.
The Separate Account may also advertise standardized and non-standardized "to-
tal return" data for its Subaccounts. Like the yield figures described above,
total return figures are based on historical data and are not intended to in-
dicate 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 (asssuming the
deduction of any withdrawal charge 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 re-
flected in the yield data for Contracts funded through the Money Market
Subaccount. The effect of applicable Withdrawal Charges are reflected in the
standardized return figures.
In addition to the standardized "total return," the Separate Account may ad-
vertise non-standardized "total return." Non-standardized total return is cal-
culated in a similar manner and for the same time periods as the standardized
total return except that the Withdrawal Charge is not deducted. Further, an
initial hypothetical investment of $20,000 is assumed (rather than the initial
hypothetical investment of $1,000 used in computing standardized total re-
turn), since $20,000 is closer to the average Purchase Payment of a Contract
which we expect to write.
The Separate Account may also disclose yield, standardized total return 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 Underlying Funds and
assumes that the Subaccounts existed during the same time period as those of
the Underlying Funds, with recurring contract charges equal to those currently
assessed against the Subaccounts.
Advertisements we distribute may also compare the performance of our
Subaccounts with: (a) certain unmanaged market indices, including but not lim-
ited to 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.
This may include the performance ranking assigned by various publications, in-
cluding but not limited to The Wall Street Journal, Forbes, Fortune, Money,
Barron's, Business Week, USA Today, and statistical services, including but
not limited to Lipper Analytical Services Mutual Fund Survey, Lipper Annuity
and Closed End Survey, the Variable Annuity Research Data Survey, and SEI.
For a more complete description of Contract charges, see "Contract Charges,"
beginning at Page 14. More detailed information on the computation of adver-
tised performance data for the Separate Account is contained in the Statement
of Additional Information.
26
<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; it should
be read with the prospectus relating to the annuity contracts described above, a
copy of which may be obtained without charge by written request addressed to:
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: MAY 1, 1998.
LBL-1610, Rev. 2/98
1
<PAGE>
TABLE OF CONTENTS
Page
----
THE CONTRACT............................................................ 3
ANNUITY PAYMENTS................................................... 3
ANNUITY UNIT VALUE................................................. 3
VARIABLE ANNUITY PAYMENTS
- ILLUSTRATIVE EXAMPLE............................................ 4
ADDITIONAL FEDERAL INCOME TAX INFORMATION............................... 5
DIVERSIFICATION - SEPARATE ACCOUNT INVESTMENTS..................... 5
MULTIPLE CONTRACTS................................................. 6
QUALIFIED PLANS.................................................... 6
SEPARATE ACCOUNT PERFORMANCE............................................ 8
FINANCIAL STATEMENTS.................................................... 13
2
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THE CONTRACT
Annuity Payments
Initial Monthly Annuity Payment
The initial annuity payment is determined by applying the Contract Value on the
Valuation Date next preceding the Annuity Date, less any state premium tax
payable and any applicable Withdrawal Charges, to the annuity table specified in
the Contract (or, if more favorable to the payee, the annuity tables in effect
as of the Annuity Date for similar immediate annuity contracts issued by the
Company). Those tables are based on a set amount per $1,000 of proceeds applied.
The appropriate rate must be determined by the sex (except where, as in the case
of certain Qualified Plans and other employer-sponsored retirement plans, such
classification is not permitted) and age of the Annuitant and designated second
person, if any.
The dollars applied are then divided by 1,000 and the result multiplied by the
appropriate annuity factor appearing in the table to compute the amount of the
first monthly annuity payment. In the case of a Variable Annuity, that amount is
divided by the value of an Annuity Unit as of the Valuation Date next preceding
the Annuity Date to establish the number of Annuity Units representing each
Variable Annuity payment (a separate computation is made for each Subaccount
funding the Variable Annuity). The number of Annuity Units for each Subaccount
determined for the first Variable Annuity payment remains constant for the
second and subsequent monthly Variable Annuity payments from that Subaccount.
Subsequent Monthly Payments
For a Fixed Annuity, the amount of the second and each subsequent monthly
annuity payment is the same as that determined above for the first monthly
payment.
The amount of the second and each subsequent monthly Variable Annuity payment
from each Subaccount is determined by multiplying the number of Annuity Units,
as determined in connection with the determination of the initial monthly
payment, above, by the Annuity Unit Value of the Subaccount as of the Valuation
Period next preceding the date on which each annuity payment is due.
Annuity Unit Value
The value of an Annuity Unit is determined independently for each Subaccount,
but was initially set at $100.00.
The annuity tables contained in the Contract are based on a 3.5% per annum
assumed investment rate. If the actual net investment rate experienced by a
Subaccount exceeds 3.5%, Variable Annuity payments derived from allocations to
that Subaccount will increase over time. Conversely, if the actual rate is less
than 3.5%, the Variable Annuity payments will decrease over time. If the net
investment rate equals 3.5%, the Variable Annuity payments will remain constant.
If a higher assumed investment rate had been used, 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).
The payee receives the value of a fixed number of Annuity Units each month from
each Subaccount funding the Variable Annuity. The value of a fixed number of
Annuity Units will reflect the investment performance of the Subaccounts
elected, and the amount of each annuity payment will vary accordingly.
For each Subaccount, the value of an Annuity Unit for any Valuation Period is
determined by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the Net Investment Factor for the Valuation Period for which
the Annuity Unit Value is being calculated. The result is then divided by a
second factor which offsets the effect of the assumed net investment rate of
3.5% per annum which is built into the annuity tables contained in the Contract.
The Net Investment Factor is described below.
Net Investment Factor
The Net Investment Factor is an index applied to measure 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.
3
<PAGE>
The Net Investment Factor for any Subaccount for any Valuation Period is
determined by dividing (a) by (b) and then subtracting (c) from the result
where:
(a) is the net result 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 if the "ex-dividend" date occurs during
the Valuation Period, plus or minus
(3) 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);
(b) is the net asset value of the Portfolio share held in the Subaccount
determined as of the Valuation Date at the end of the preceding
Valuation Period; and
(c) is the asset charge factor we determine for the Valuation Period to
reflect charges for assuming the mortality and expense risks and for
the administrative expense charge.
Illustrative Example
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:
Net Investment Factor = ($11.46/$11.44) - 0.0000384 = 1.0017099
The amount subtracted from the ratio of the two net asset values (0.0000384) is
the daily equivalent of the annual asset charge against the Subaccount of 1.40%.
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:
$101.03523 x 1.0017099 = $101.19845
----------------------
1.0000943
Variable Annuity Payments -- Illustrative Example
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 and, at age 60, has elected 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. (i.e., P's Account Value at that Date is equal to
7543.2456 x $15.432655 = $116,412.31). There are no premium taxes payable upon
annuitization and no Withdrawal Charges are applicable. 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. From the tables, which supply
monthly annuity payments for each $1,000 of applied Contract Value, 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 and 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:
4
<PAGE>
Annuity Units = $633.28 / $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
The third and subsequent Variable Annuity payments are computed in a manner
similar to the second Variable Annuity payment.
Note that the amount of the first Variable Annuity payment depends on the
Contract Value in the relevant Subaccount on the Annuity Date and thus reflects
the investment performance of the Subaccount net of fees and charges during the
Accumulation Period. The amount of that payment determines the number of Annuity
Units, which will remain constant during the Annuity Period. The net investment
performance of the Subaccount during the Annuity Period is reflected in
continuing changes during that Period in the Annuity Unit value, which
determines the amounts of the second and subsequent Variable Annuity payments.
ADDITIONAL FEDERAL INCOME TAX INFORMATION
Diversification - Separate Account Investments
Section 817(h) of the Code imposes certain diversification standards on the
underlying assets of variable annuity contracts. The Code provides that a
variable annuity contract will not be treated as an annuity contract for any
period (and any subsequent period) for which the investments are not adequately
diversified, in accordance with regulations prescribed by the United States
Treasury Department ("Treasury Department"). Disqualification of the Contract as
an annuity contract would result in imposition of federal income tax to the
Contract Owner with respect to earnings allocable to the Contract prior to the
receipt of payments under the Contract. The Code contains a safe harbor
provision which 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 imposed
on the underlying assets of variable contracts by Section 817(h) of the Code
have been met, each United States government agency or instrumentality is
treated as a separate issuer.
The Treasury Department has issued Regulations that establish diversification
requirements for the investment accounts underlying variable contracts such as
the Contracts. The Regulations amplify the diversification requirements for
variable contracts set forth in the Code and provide an alternative to the safe
harbor provision described above. Under the 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.
The Company intends that each of the Portfolios will be managed by its
respective investment adviser in such a manner as to comply with these
diversification requirements.
In connection with the issuance of the regulations on diversification
requirements, the Treasury announced that such regulations do not provide
guidance concerning the extent to which Owners may direct their investments
among Subaccounts of a Variable Account. The Internal Revenue Service has
previously stated in published rulings that a variable 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. At the time of the issuance of the diversification regulations,
the Treasury announced that guidance would be issued in the future on the extent
to which owners could direct their investments among subaccounts without being
treated as owners of the underlying assets of the Variable Account. As of the
date of this prospectus, no such guidance has been issued. It is possible that
the Treasury's position, when
5
<PAGE>
announced, may adversely affect the tax treatment of existing contracts. The
Company, therefore, reserves the right to modify the contract as necessary to
attempt to prevent the Owner from being considered the owner of the assets of
the Variable Account or otherwise to attempt to qualify the contract for
favorable tax treatment.
MULTIPLE CONTRACTS
Federal tax law provides that multiple annuity contracts which are issued within
a calendar year to the same contract owner by one company or its affiliates are
treated as one annuity contract for purposes of determining the tax consequences
of any distribution. Such treatment may result in adverse tax consequences
including more rapid taxation of the distributed amounts from such multiple
contracts. Contract Owners should consult a tax adviser prior to purchasing more
than one annuity contract in any calendar year.
QUALIFIED PLANS
The Contracts offered by this prospectus are designed to be suitable for use
under various types of Qualified Plans. Taxation of Contract Owners in Qualified
Plans varies with the type of plan and terms and conditions of each specific
plan. Contract Owners, Annuitants and Beneficiaries are cautioned that benefits
under a Qualified Plan may be subject to the terms and conditions of the Plan,
regardless of the terms and conditions of the Contracts issued pursuant to the
plan.
Following are general descriptions of the types of Qualified Plans with which
the Contracts may be used. Such descriptions are not exhaustive and are for
general information purposes only. The tax rules regarding Qualified Plans are
very complex and will have differing applications depending on individual facts
and circumstances. Each purchaser should obtain competent tax advice prior to
purchasing a Contract issued under a Qualified Plan.
Contracts issued pursuant to Qualified Plans include special provisions
restricting Contract provisions that may otherwise be available and described in
this prospectus. Generally, Contracts issued pursuant to Qualified Plans are
not transferable except upon surrender or annuitization. Various penalty and
excise taxes may apply to contributions or distributions made in violation of
applicable limitations. Furthermore, certain withdrawal penalties and
restrictions may apply to surrenders from Contracts issued under Qualified
Plans.
(a) H.R. 10 PLANS
Section 401 of the Code permits self-employed individuals to establish
Qualified Plans for themselves and their employees, commonly referred to as
"H.R. 10" or "Keogh" Plans. Contributions made to the Plan for the benefit
of the employees will not be included in the gross income of the employees
until distributed from the Plan. The tax consequences to employers may vary
depending upon the particular Plan design. However, the Code places
limitations and restrictions on all Plans on such items 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. Purchasers of Contracts for use with an H.R. 10 Plan should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
(b) TAX-SHELTERED ANNUITIES
Section 403(b) of the 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 Code. These
qualifying employers may make contributions to the Contracts for the
benefit of their employees. Such contributions are not includible in the
gross income of the employee until the employee receives distributions from
the Contract. The amount of contributions to the Tax-Sheltered Annuity is
limited to certain maximums imposed by the Code. Furthermore, the Code sets
forth additional restrictions governing such items as transferability,
distributions, nondiscrimination and withdrawals. Any employee should
obtain competent tax advice as to the tax treatment and suitability of such
an investment.
6
<PAGE>
(c) Individual Retirement Annuities
Section 408(b) of the Code permits eligible individuals to contribute to an
individual retirement program known as an "Individual Retirement Annuity"
("IRA"). Under applicable limitations, certain amounts may be contributed
to an IRA which will be deductible from the individual's gross income.
These IRAs are subject to limitations on eligibility, contributions,
transferability and distributions. Sales of Contracts for use with IRAs are
subject to special requirements imposed by the Code, including the
requirement that certain informational disclosure be given to persons
desiring to establish an IRA. Purchasers of Contracts to be qualified as
IRAs should obtain competent tax advice as to the tax treatment and
suitability of such an investment.
(d) Savings Incentive Match Plans for Employees (SIMPLE Plans)
Sections 408(p) and 401(k) of the 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. Employers intending to use the contract in conjunction
with SIMPLE plans should seek competent tax and legal advice.
(e) Simplified Employee Pension Plans
Section 408(k) of the Code allows employers to establish simplified
employee pension plans for their employees using the employees' individual
retirement annuities if certain criteria are met. Under these plans the
employer may, within specified limits, make deductible contributions on
behalf of the employees to their individual retirement annuities. Employers
intending to use the contract in connection with such plans should seek
comptetent advice. In particular, 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 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 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 will not
be includible in the gross income of the employee until distributed from
the plan. The tax consequences to employers may vary depending upon the
particular plan design. However, the Code places limitations on all plans
on such items 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. Purchasers of Contracts for
use with corporate pension or profit sharing plans should obtain competent
tax advice as to the tax treatment and suitability of such an investment.
(g) Deferred Compensation Plans - Section 457
Section 457 of the Code, while not actually providing for a Qualified Plan
as that term is normally used, provides that governmental and certain other
tax exempt employers may establish deferred compensation plans for the
benefit of their employees which may invest in annuity contracts. The Code,
as in the case of Qualified Plans, establishes limitations and restrictions
on eligibility, contributions, and distributions. Under these plans,
contributions made for the benefit of the employees will not be includible
in the employees' gross income until distributed from the plan. However,
under a 457 plan all the compensation deferred under the plan must remain
solely the property of the employer, subject only to the claims of the
employer's general creditors, until such time as made available to an
employee or a beneficiary.
(h) Roth Individual Retirement Annuities
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement plan known as a Roth Individual
Retirement Annuity. Roth Individual Retirement Annuities are subject to
limitations on the amount that can be contributed and on the time when
distributions may commence. "Qualified distributions" from Roth Individual
Retirement Annuities are not includable in gross income. "Qualified
distributions" are any distributions made more than five taxable years
after the taxable year of the first contribution to the Roth Individual
Retirement Annuity, and which are made on or after the date the individual
attains age 59 1/2, made to a beneficiary after the owner's death,
attributable to the owner being disabled or for a first time home purchase
(first time home purchases are subject to a lifetime limit of $10,000).
"Nonqualified distributions" are treated as made from contributions first
and are includable in gross income to the extent such distributions 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 on premature distributions. Subject to certain limitations, a
traditional Individual Retirement Account or Annuity may be converted or
"rolled over" to a Roth Individual Retirement Annuity. The taxable portion
of a conversion or rollover distribution is includable in gross income, but
is exempted from the 10% penalty tax on premature distributions.
7
<PAGE>
SEPARATE ACCOUNT PERFORMANCE
Performance data for the various Subaccounts are computed in the manner
described below.
FIDELITY MONEY MARKET SUBACCOUNT
Current yield is computed by first determining the Base Period Return
attributable to 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:
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
The value of the Accumulation Unit at the end of the period (EV) is determined
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 Administration Charge of $25 per
contract. The total Contract Administration Charge is allocated between the
Subaccounts in proportion to the respective 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. Finally, as is done with the other charges discussed
above, the result is 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" that
differs from the current yield given above in that it takes into account the
effect of dividend reinvestment in the Variable Insurance Products Fund Money
Market Portfolio. 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 dividend reinvestment by compounding the current yield according to
the formula:
Effective Yield = [(Base Period Return + 1)/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 taxes, transfer fees, or Withdrawal Charges.
The yields quoted should not be considered a representation of the yield of the
Fidelity Money Market Subaccount in the future since the yield is not fixed.
Actual yields will depend not only 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 such investments, but also on factors such as a
Contract Owner's account size (since the impact of fixed dollar charges will be
greater for small accounts than for larger accounts).
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
fluctuates, unlike bank deposits or other investments that typically pay a fixed
yield for a stated period of time.
OTHER SUBACCOUNTS
Subaccounts of the Separate Account other than the Money Market Subaccount
compute their performance data in terms of an annualized "yield" and/or as
"total return".
8
<PAGE>
Yield
Yield will be expressed as an annualized percentage derived from the
Subaccount's performance over a stated 30-day (or one month) period. Like the
yield figures for the Fidelity Money Market Subaccount, the 30-day (or one
month) annualized yield figures will reflect all recurring Contract charges and
will not reflect Withdrawal Charges, transfer fees or premium taxes. 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 ( ((a-b) + 1)/6/-1)
-----
cd
where:
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.
The yield figures for the Subaccounts other than the Fidelity Money Market
Subaccount 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 derived from 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
formula:
P(1+T)/n/ = ERV
where: 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).
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. Because the impact of Contract
Administration Charges on a particular Contract Owner's account will generally
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, the total return experienced by an actual Subaccount over the
same time periods would generally have been different from those produced by the
computation. As with the Fidelity Money Market and other Subaccount yield
figures, standardized total return figures are derived from historical data and
are not intended to be a projection of future performance.
9
<PAGE>
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)/n/=ERV
where: P = a hypothetical initial payment of $20,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $20,000 payment made at
the beginning of the one, five, or ten year period as of the end
of the period (or fractional portion thereof).
An initial hypothetical investment of $20,000 is assumed (rather than the
initial hypothetical investment of $1,000 used in computing standardized total
return) since $20,000 is closer to the average Purchase Payment of a Contract
which we expect to write. The non-standardized total return figures reflect the
effect of recurring charges, as discussed herein. Because the impact of Contract
Administration Charges on a particular Contract Owner's account will generally
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, the total return experienced by the actual Subaccount over the
same time periods would generally have been different from those produced by the
computation. As with the standardized total return figures, non-standardized
total return figures are derived from 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, standardized total return 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 Underlying Funds and assumes that the
Subaccounts existed during the same time period as those of the Underlying
Funds, with recurring contract charges equal to those currently assessed against
the Subaccounts.
10
<PAGE>
TOTAL RETURN -- AS OF DECEMBER 31, 1997 -- ASSUMING CONTRACT SURRENDERED
<TABLE>
<CAPTION>
-------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURN/3/
-------------------------------------------------------------
1 Year 5 Year 10 Years Since Inception
Inception Date/2/ % % % %
----------------- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIDELITY
VIP Money Market/1/ 4/1/82 n/a n/a n/a n/a
VIP Growth 10/9/86 19.63 n/a n/a 15.05
VIP Equity-Income 10/9/86 23.90 n/a n/a 17.99
VIP Overseas 1/28/87 6.49 n/a n/a 6.18
VIP II Asset Manager 9/6/89 15.39 n/a n/a 8.32
VIP II Contrafund 1/3/95 18.01 n/a n/a 25.03
SCUDDER
Bond 7/16/85 4.04 n/a n/a 3.25
Balanced 7/16/85 19.79 n/a n/a 11.94
JANUS
Flexible Income 9/13/93 4.59 n/a n/a 7.96
Balanced 9/13/93 15.32 n/a n/a 12.94
Growth 9/13/93 16.29 n/a n/a 15.45
Aggressive Growth 9/13/93 6.58 n/a n/a 13.31
Worldwide Growth 9/13/93 16.12 n/a n/a 16.83
FEDERATED
High Income Bond Fund II 3/1/94 6.60 n/a n/a 8.67
Utility Fund II 2/11/94 19.10 n/a n/a 11.09
U.S. Gov't. Securities II 3/28/94 0.65 n/a n/a 3.57
INVESTMENT ADVISERS, INC. (IAI)
Regional 1/31/94 6.95 n/a n/a 12.51
Reserve 4/7/94 -3.42 n/a n/a 1.73
Balanced 2/3/94 9.14 n/a n/a 8.25
</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.
2 Some of the underlying investment options were active before January 2,
1994, the effective date of the Investor's Select Separate Account. Performance
for SEC required returns includes performance of the investment options since
the inception of the investment options, but only if the inception of the
investment options occurred later than the inception of the Subaccounts within
the Separate Account. If not, the returns shown will reflect performance since
the inception of the Subaccounts within the Separate Account.
3 Total returns include change 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 Securities and Exchange
Commission (SEC); and (3) reflect the deduction of 1.4% annual asset charges, a
$25 annual contract administration charge, and a maximum 7% contingent deferred
sales charge (declining after two years). The investment return and value of an
Investor's Select contract will fluctuate so that a contract, when surrendered,
may be worth more or less than the amount of its purchase payments.
n/a- Performance data has not been available for some investment options for the
full 1, 5, or 10 year periods (see Inception Date). Investment options with a
9/13/93 inception date or later will not have meaningful performance to report
for many of the periods indicated.
11
<PAGE>
TOTAL RETURN -- AS OF DECEMBER 31, 1997 -- ASSUMING CONTRACT NOT SURRENDERED
---
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN/5/
---------------------------------
Monthly Return/5/ Total Return YTD/5/ 1 Year 5 Year Since Inception
INVESTMENT OPTIONS Inception Date/4/ % % % % %
----------------- ----------------- ------------------- ------ ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
FIDELITY
VIP Money Market/1/ 4/1/82 n/a n/a n/a n/a n/a
VIP Growth 10/9/86 0.09 21.61 21.61 16.22 13.88
VIP Equity-Income 10/9/86 2.01 26.17 26.17 18.34 12.89
VIP Overseas 1/28/87 0.71 9.87 9.87 12.39 7.84
VIP II Asset Manager 9/6/89 1.39 18.82 18.82 11.27 11.20
VIP II Contrafund 1/3/95 1.71 22.26 22.26 n/a 26.30
SCUDDER
Bond 7/16/85 0.75 7.45 7.45 5.62 6.56
Balanced 7/16/85 1.47 22.33 22.33 11.41 10.25
JANUS
Flexible Income/2/ 9/13/93 1.22 10.07 10.07 n/a 8.25
Balanced 9/13/93 1.43 20.25 20.25 n/a 13.24
Growth 9/13/93 0.80 20.89 20.89 n/a 15.24
Aggressive Growth 9/13/93 3.55 10.96 10.96 n/a 14.28
Worldwide Growth 9/13/93 1.43 20.30 20.30 n/a 17.65
FEDERATED
High Income Bond Fund II/3/ 3/1/94 1.16 12.11 12.11 n/a 9.69
Utility Fund II/3/ 2/11/94 5.25 24.72 24.72 n/a 12.03
U.S. Gov't. Securities II/3/ 3/28/94 0.73 6.94 6.94 n/a 4.76
INVESTMENT ADVISERS, INC. (IAI)
Regional 1/31/94 -0.92 11.73 11.73 n/a 13.41
Reserve 4/7/94 0.30 3.04 3.04 n/a 2.99
Balanced 2/3/94 0.79 14.83 14.83 n/a 9.25
</TABLE>
<TABLE>
<CAPTION>
Cumulative/5/ SEC 7-Day SEC CALENDAR YEAR RETURN/5/
Total Return Effective 7-Day -----------------------
Inception/4/ Since Inception Yield Yield 1994 1995 1996
INVESTMENT OPTIONS Date % % % % % %
------------ --------------- --------- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY
VIP Money Market/1/ 4/1/82 n/a 3.61 3.68 n/a n/a n/a
VIP Growth 10/9/86 330.12 -1.52 33.32 12.97
VIP Equity-Income 10/9/86 289.98 5.44 33.03 12.55
VIP Overseas 1/28/87 127.97 0.20 8.02 11.50
VIP II Asset Manager 9/6/89 141.87 -7.52 15.18 12.87
VIP II Contrafund 1/3/95 101.13 n/a n/a 19.47
SCUDDER
Bond 7/16/85 120.74 -6.23 16.39 1.26
Balanced 7/16/85 237.20 -3.53 24.75 10.19
JANUS
Flexible Income/2/ 9/13/93 40.59 -2.40 21.99 7.54
Balanced 9/13/93 70.68 -0.70 22.90 14.43
Growth 9/13/93 84.01 1.21 28.18 16.66
Aggressive Growth 9/13/93 77.49 14.56 25.56 6.32
Worldwide Growth 9/13/93 101.12 -0.01 25.44 27.09
FEDERATED
High Income Bond Fund II/3/ 3/1/94 42.57 n/a 18.53 12.58
Utility Fund II/3/ 2/11/94 55.49 n/a 22.28 9.88
U.S. Gov't. Securities II/3/ 3/28/94 19.11 n/a 7.11 2.63
INVESTMENT ADVISERS, INC. (IAI)
Regional 1/31/94 63.64 n/a 31.29 10.19
Reserve 4/7/94 11.62 n/a 3.67 3.35
Balanced 2/3/94 41.30 n/a 14.42 8.14
</TABLE>
The performance figures represent past performance and neither guarantee nor
predict future investment results.
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.
2,3 Total returns reflect the investment adviser waived all or part of its fee
or reimbursed the investment options for a portion of its expenses. Otherwise,
total returns would have been lower.
4 Some of the underlying investment options were active before January 2,
1994, the effective date of the Investor's Select Separate Account. Where
applicable, performance includes hypothetical performance for periods before the
investment option was available in Investor's Select, applying contract charges
assessed at the Separate Account level to approximate the performance the
investment option would have achieved inside the Separate Account.
5 Total returns include change in share price, reinvestment of dividends, and
capital gains. An initial hypothetical investment of $20,000 is assumed since
this is closer to the average purchase payment of a contract expected to be
written than the $1,000 assumed for SEC required returns shown on page 10.
Returns reflect deductions of 1.4% annual asset charges and a $25.00 annual
contract administration charge, but do not include the applicable contingent
deferred sales charge. The impact of the annual contract administration charge
on investment returns will vary depending on the size of the contract.
n/a--Performance data is not available for all or part of the period indicated
(see Inception Date). Investment options with a 9/13/93 inception date or later
will not have meaningful performance to report for the periods indicated.
12
<PAGE>
FINANCIAL STATEMENTS
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, and
the consolidated financial statements of 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, included in this statement of additional
information have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein, and are included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing.
The Company's consolidated financial statements should be considered only as
bearing upon the ability of Lincoln Benefit Life Company to meet its obligations
under the Contracts. The amounts of the Variable Annuity payments under a
Contract are not dependent upon the financial condition of Lincoln Benefit Life
Company and are not guaranteed by Lincoln Benefit Life Company.
13
<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>
<CAPTION>
NET ASSETS
<S> <C>
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 $351,194
========
</TABLE>
See notes to financial statements.
15
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
- --------------------------------------------------------------------------------
($ 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>
<TABLE>
<CAPTION>
Fidelity's
Variable Insurance
IAI Retirement Funds, Inc. Portfolios Products Fund II 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.
16
<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 Federated Insurance Series Portfolios
-------------------------------------------- -------------------------------------
U.S.
High Government
Money Equity Income Bond Utility Securities
Market Income Growth Overseas Fund II Fund II Fund II
--------- ------- -------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,111 $ 3,572 $ 983 $ 985 $ 397 $ 193 $ 90
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (260) (582) (408) (168) (94) (60) (30)
Administrative expense (32) (70) (49) (20) (11) (7) (4)
--------- ------- -------- -------- ------- ------- -------
Net investment income (loss) 819 2,920 526 797 292 126 56
--------- ------- -------- -------- ------- ------- -------
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 7,472 1,135 1,854
Cost of investments sold (123,967) (9,523) (13,243) (10,665) (7,279) (1,025) (1,845)
--------- ------- -------- -------- ------- ------- -------
Net realized gains (losses) -- 961 1,451 673 193 110 9
--------- ------- -------- -------- ------- ------- -------
Change in unrealized gains (losses) -- 6,598 4,133 (321) 384 934 92
--------- ------- -------- -------- ------- ------- -------
Net gains (losses) on investments -- 7,559 5,584 352 577 1,044 101
--------- ------- -------- -------- ------- ------- -------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 819 $10,479 $ 6,110 $ 1,149 $ 869 $ 1,170 $ 157
========= ======= ======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Scudder Variable Life
Investment Fund Portfolios
--------------------------
Bond Balanced Total
----- -------- ---------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 172 $ 542 $ 12,395
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (34) (98) (3,512)
Administrative expense (5) (12) (423)
----- -------- ---------
Net investment income (loss) 133 432 8,460
----- -------- ---------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sale of
investments:
Proceeds from sales 698 1,824 240,339
Cost of investments sold (696) (1,648) (231,626)
----- -------- ---------
Net realized gains (losses) 2 176 8,713
----- -------- ---------
Change in unrealized gains (losses) 75 921 27,579
----- -------- ---------
Net gains (losses) on investments 77 1,097 36,292
----- -------- ---------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 210 $ 1,529 $ 44,752
===== ======== =========
</TABLE>
See notes to financial statements.
17
<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>
<TABLE>
<CAPTION>
Fidelity's
Variable Insurance
IAI Retirement Funds, Inc. Portfolios Products Fund 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
18
<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 Federated Insurance Series Portfolios
------------------------------------------ -------------------------------------
U.S.
High Government
Money Equity Income Bond Utility Securities
Market Income Growth Overseas Fund II Fund II Fund II
-------- ------- ------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 819 $ 2,920 $ 526 $ 797 $ 292 $ 126 $ 56
Net realized gains (losses) -- 961 1,451 673 193 110 9
Change in unrealized gains (losses) -- 6,598 4,133 (321) 384 934 92
-------- ------- ------- ------- ------- ------ ------
Change in net assets resulting
from operations 819 10,479 6,110 1,149 869 1,170 157
-------- ------- ------- ------- ------- ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 62,385 9,140 4,411 2,289 2,861 1,017 461
Benefit payments (139) (207) (122) (80) (4) (98) (7)
Payments on termination (1,566) (2,285) (1,723) (543) (446) (208) (151)
Loans - net (44) (21) (8) (2) (4) -- --
Contract administration charge (5) (25) (23) (7) (2) (2) (1)
Transfers among the portfolios
and with the Fixed Account - net (52,987) 9,941 2,486 363 3,109 1,070 67
-------- ------- ------- ------- ------- ------ ------
Change in net assets resulting
from capital transactions 7,644 16,543 5,021 2,020 5,514 1,779 369
-------- ------- ------- ------- ------- ------ ------
INCREASE IN NET ASSETS 8,463 27,022 11,131 3,169 6,383 2,949 526
NET ASSETS AT BEGINNING OF YEAR 16,636 33,303 26,767 11,054 5,176 4,041 2,322
-------- ------- ------- ------- ------- ------ ------
NET ASSETS AT END OF YEAR $ 25,099 $60,325 $37,898 $14,223 $11,559 $6,990 $2,848
======== ======= ======= ======= ======= ====== ======
Net asset value per unit at end of year $ 11.59 $ 19.50 $ 17.88 $ 12.88 $ 14.27 $15.98 $11.88
======== ======= ======= ======= ======= ====== ======
Units outstanding at end of year 2,166 3,094 2,119 1,104 810 437 239
======== ======= ======= ======= ======= ====== ======
</TABLE>
<TABLE>
<CAPTION>
Scudder Variable Life
Investment Fund Portfolios
--------------------------
Bond Balanced Total
------ -------- --------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 133 $ 432 $ 8,460
Net realized gains (losses) 2 176 8,713
Change in unrealized gains (losses) 75 921 27,579
------ ------- --------
Change in net assets resulting
from operations 210 1,529 44,752
------ ------- --------
FROM CAPITAL TRANSACTIONS
Deposits 922 1,830 117,714
Benefit payments (4) (97) (1,969)
Payments on termination (69) (658) (13,622)
Loans - net 1 (4) (154)
Contract administration charge (1) (4) (137)
Transfers among the portfolios
and with the Fixed Account - net 779 1,396 (1,744)
------ ------- --------
Change in net assets resulting
from capital transactions 1,628 2,463 100,088
------ ------- --------
INCREASE IN NET ASSETS 1,838 3,992 144,840
NET ASSETS AT BEGINNING OF YEAR 2,234 6,021 206,354
------ ------- --------
NET ASSETS AT END OF YEAR $4,072 $10,013 $351,194
====== ======= ========
Net asset value per unit at end of year $11.79 $ 16.01
====== =======
Units outstanding at end of year 345 626
====== =======
</TABLE>
See notes to financial statements.
19
<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
======== ======= ======= ======= =======
Fidelity's Variable
Insurance Products
IAI Retirement Funds, Inc. Portfolios Fund II 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 $11.15
====== ====== ====== ======= ======
Units outstanding at end of year 646 40 104 921 498
====== ====== ====== ======= ======
</TABLE>
See notes to financial statements.
20
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
($ and units in thousands, except value per unit)
<TABLE>
<CAPTION>
Fidelity's Variable Insurance Products
Fund Portfolios Federated Insurance Series Portfolios
-------------------------------------------- -------------------------------------
U.S.
High Government
Money Equity Income Bond Utility Securities
Market Income Growth Overseas Fund II Fund II Fund II
--------- ------- -------- -------- ----------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 590 $ 369 $ 734 $ 45 $ 352 $ 97 $ 76
Net realized gains (losses) - 314 535 100 108 86 4
Change in unrealized gains (losses) - 2,258 933 813 168 177 (28)
-------- ------- ------- ------- ------- ------- ------
Change in net assets resulting
from operations 590 2,941 2,202 958 628 360 52
-------- ------- ------- ------- ------- ------- ------
FROM CAPITAL TRANSACTIONS
Deposits 93,786 2,654 2,382 1,067 393 319 83
Benefit payments (50) (76) (84) (67) (14) (23) -
Payments on termination (295) (635) (519) (194) (106) (83) (120)
Loans - net 19 (74) (48) (10) (11) (2) -
Contract administration charge (3) (11) (11) (5) (1) (1) (1)
Transfers among the portfolios
and with the Fixed Account - net (88,806) 14,460 9,488 3,012 1,913 1,178 1,152
-------- ------- ------- ------- ------- ------- ------
Change in net assets resulting
from capital transactions 4,651 16,318 11,208 3,803 2,174 1,388 1,114
-------- ------- ------- ------- ------- ------- ------
INCREASE (DECREASE) IN NET ASSETS 5,241 19,259 13,410 4,761 2,802 1,748 1,166
NET ASSETS AT BEGINNING OF YEAR 11,395 14,044 13,357 6,293 2,374 2,293 1,156
-------- ------- ------- ------- ------- ------- ------
NET ASSETS AT END OF YEAR $ 16,636 $33,303 $26,767 $11,054 $ 5,176 $ 4,041 $2,322
======== ======= ======= ======= ======= ======= ======
Net asset value per unit at end of year $ 11.14 $ 15.44 $ 14.68 $ 11.71 $ 12.72 $ 12.80 $11.13
======== ======= ======= ======= ======= ======= ======
Units outstanding at end of year 1,493 2,157 1,823 944 407 316 209
======== ======= ======= ======= ======= ======= ======
</TABLE>
<TABLE>
<CAPTION>
Scudder Variable Life
Investment Fund Portfolios
--------------------------
Bond Balanced Total
-------- -------- --------
<S> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 140 $ 127 $ 3,629
Net realized gains (losses) (13) 24 3,330
Change in unrealized gains (losses) (72) 271 9,574
------ ------ --------
Change in net assets resulting from operations 55 422 16,533
------ ------ --------
FROM CAPITAL TRANSACTIONS
Deposits 218 355 108,248
Benefit payments (14) (25) (623)
Payments on termination (41) (153) (3,678)
Loans - net (9) - (208)
Contract administration charge (1) (2) (66)
Transfers among the portfolios
and with the Fixed Account - net 572 2,947 (5,939)
----- ------ --------
Change in net assets resulting
from capital transactions 725 3,122 97,734
------ ------ --------
INCREASE (DECREASE) IN NET ASSETS 780 3,544 114,267
NET ASSETS AT BEGINNING OF YEAR 1,454 2,477 92,087
------ ------ --------
NET ASSETS AT END OF YEAR $2,234 $6,021 $206,354
====== ====== ========
Net asset value per unit at end of year $10.96 $13.07
====== ======
Units outstanding at end of year 204 461
====== ======
</TABLE>
See notes to financial statements.
21
<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.
22
<PAGE>
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.
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.
23
<PAGE>
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
===== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Fidelity's
Variable Insurance
IAI Retirement Funds, Inc. Portfolios Products Fund II 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>
24
<PAGE>
5. UNITS ISSUED AND REDEEMED (continued)
Units issued and redeemed by the Account during 1997 were as follows:
(Units in thousands)
<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>
Scudder Variable
Life Investment
Federated Insurance Series Portfolios Fund Portfolios
------------------------------------- ----------------
U.S.
High Government
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>
25
<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 consoli-
dated 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 responsi-
bility is to express an opinion on these financial statements based on our au-
dits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
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 opera-
tions and their cash flows for each of the three years in the period ended De-
cember 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 supple-
mental 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 sub-
jected to the auditing procedures applied in our audits of the basic consoli-
dated financial statements and, in our opinion, is fairly stated in all mate-
rial respects when considered in relation to the basic consolidated financial
statements taken as a whole.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
March 20, 1998
26
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
($ IN THOUSANDS)
<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 $7,108,502
========== ==========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1997 1996 1995
------- ------ ------
($ IN THOUSANDS)
<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 $5,093
======= ====== ======
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
($ IN THOUSANDS)
<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 $142,308
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- -------- ---------
($ IN THOUSANDS)
<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.
30
<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% owner-
ship in the Corporation to Sears common shareholders through a tax-free divi-
dend (the "Distribution"). These consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. All sig-
nificant intercompany accounts and transactions have been eliminated.
To conform with the 1997 presentation, certain amounts in the prior years' fi-
nancial statements and notes have been reclassified.
Nature of operations
The Company markets a broad line of life insurance and annuity products coun-
trywide. 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 annui-
ties, and immediate annuities. The Company distributes its products primarily
through independent agents and brokers specializing in life insurance and an-
nuities.
Annuity contracts and life insurance policies issued by the Company are sub-
ject to discretionary withdrawal or surrender by the customers, subject to ap-
plicable surrender charges. These policies and contracts are reinsured primar-
ily 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 po-
tential to impact its business. There continues to be new and proposed federal
and state regulation and legislation which would allow banks greater partici-
pation in the securities and insurance businesses, which will present an in-
creased level of competition for sales of the Company's life and annuity prod-
ucts. 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 compe-
tition 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 ex-
cept New York, as well as in the District of Columbia, Guam and the U.S. Vir-
gin 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 am-
ortized cost and fair value, net 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.
31
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ in thousands)
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. Ac-
crual 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 consoli-
dated investment of those assets of the Company that are not transferred to
ALIC under reinsurance agreements. Reinsurance recoverable and the related re-
serve for life-contingent contract benefits and contractholder funds are re-
ported separately in the statements of financial position. The Company contin-
ues 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 pol-
icy period. Revenues on interest-sensitive life insurance policies are com-
prised of contract charges and fees, and are recognized when assessed against
the policyholder account balance. Revenues on most annuities, which are con-
sidered 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 peri-
od.
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 state-
ments of financial position as assets and liabilities of the Separate Ac-
counts. (Lincoln Benefit Life Variable Annuity Account and Lincoln Benefit
Life Variable Life Account, unit investment trusts registered with the Securi-
ties 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 opera-
tions. 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 tradi-
tional life, annuities with life contingencies, and disability insurance and
accident insurance, is computed on the basis of assumptions as to future in-
vestment yields, mortality, morbidity, terminations and expenses. These as-
sumptions, 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. Re-
serve interest rates ranged from 4.0% to 8.75% during 1997.
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-bear-
ing liabilities. Contractholder funds are equal to deposits received and in-
terest credited to the benefit of the contractholder less withdrawals, mortal-
ity charges and administrative expenses. During 1997, credited interest rates
on contractholder funds
32
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ in thousands)
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 rein-
surance 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 re-
serves 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 inter-
est, 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 consoli-
dated 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 op-
erated 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 primar-
ily related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Com-
pany 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.
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
COST GAINS (LOSSES) VALUE
--------- ------ -------- --------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997
--------------------
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
======== ====== ======= ========
AT DECEMBER 31, 1996
--------------------
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) $137,638
======== ====== ======= ========
</TABLE>
33
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ in thousands)
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>
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 sharehold-
er's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
COST/AMORTIZED FAIR UNREALIZED
COST VALUE NET 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>
YEARS 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>
34
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ in thousands)
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 as-
sets and incurs various financial liabilities. The fair value estimates of fi-
nancial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions. Poten-
tial 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 (includ-
ing reinsurance recoverable) and liabilities (including deferred income taxes
and reserve for life-contingent contract benefits) are not considered finan-
cial instruments and are not carried at fair value. Other assets and liabili-
ties 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.
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 liq-
uid investments with maturities of less than one year whose carrying value ap-
proximates fair value. Separate Accounts assets are carried in the consoli-
dated 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 CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts.......... $5,188,474 $4,941,732 $5,180,396 $4,921,842
Separate Accounts.............. 447,658 447,658 255,881 255,881
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of imme-
diate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates cur-
rently offered for contracts with similar terms and durations. Separate Ac-
counts liabilities are carried at the fair value of the underlying assets.
6. INCOME TAXES
The Company joins the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate
Group") and is party to a federal income tax allocation agreement (the "Tax
Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or
received from the Corporation the amount, if any, by which the Allstate
Group's federal income tax liability was affected by virtue of inclusion of
the Company in the consolidated federal income tax return. Effectively, this
results in the Company's annual income tax provision being computed, with ad-
justments, as if the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic busi-
ness units (the "Sears Group") in the filing of a consolidated federal income
tax return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement").
35
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ in thousands)
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 in-
clusion of the Company in the consolidated federal income tax return. Effec-
tively, this resulted in the Company's annual income tax provision being com-
puted 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 gov-
erns their respective rights and obligations with respect to federal income
taxes for all periods prior to the Distribution ("Consolidated Tax Years").
The agreement 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 Com-
pany 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.
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 pre-
scribed or permitted by insurance regulatory authorities.
<TABLE>
<CAPTION>
NET INCOME
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Balance per generally 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 $6,021
====== ====== ======
</TABLE>
36
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
($ in thousands)
<TABLE>
<CAPTION>
SHAREHOLDER'S
EQUITY
------------------
1997 1996
-------- --------
<S> <C> <C>
Balance per generally 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 ac-
counting principles and practices prescribed or permitted by the Nebraska De-
partment of Insurance. Prescribed statutory accounting practices include a va-
riety 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 ac-
counting 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 condi-
tions, 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.
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. Min-
imum rental commitments under non-cancelable operating leases with a remaining
term of more than one year as of December 31, are as follows:
<TABLE>
<CAPTION>
1997
------
<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 $982 for commitments beyond 1998 which relate
to a certain lease for office space. The Company has the option to cancel the
agreement for office space subject to a cancellation charge of an amount equal
to one year's rent.
37
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
SUPPLEMENTAL SCHEDULE--REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED 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 NET
YEAR ENDED DECEMBER 31, 1996 AMOUNT CEDED 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 NET
YEAR ENDED DECEMBER 31, 1995 AMOUNT CEDED 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>
38
<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:
None
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 and 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 C of the
Registration Statement:
None
<TABLE>
<CAPTION>
(b) Exhibits
- --- --------
<S> <C>
(1) Resolution Establishing Separate Account................**
(2) Custody Agreements......................................Not Applicable
(3) (a) Form of Underwriting Agreement......................**
(b) Form of Selling Agreement...........................**
(4) Variable Annuity Contract...............................Herewith
(5) application for Contract................................***
(6) Depositor - Corporate Documents
(a) Articles of Incorporation..........................*
(b) By-Laws............................................*
(7) Reinsurance Contract....................................**
(8) Forms of Fund Participation Agreement:
(a) Janus Aspen Series.................................*
(b) Variable Insurance Products Fund...................*
(c) Variable Insurance Products Fund II................*
(d) IAI Retirement Funds, Inc..........................Herewith
(e) Federated Insurance Fund Management Series.........*
(f) Scudder Variable Life Investment Fund..............*
(g) Alger American Fund................................****
(9) Opinion of Counsel......................................Herewith
(10) Consent of Independent Auditors.........................Herewith
(11) Financial Statements Omitted from Item 23...............Not Applicable
(12) Initial Capitalization Agreement........................Not Applicable
(13) Performance Computations................................***
(27) Financial Data Schedules................................Not Applicable
</TABLE>
* Previously Filed on Form S-6, File No. 333-47717, filed March 11, 1998
** Previously Filed on Form N-4, File No. 333-50545 and 811-7924, filed April
21, 1998
*** Previously Filed on Form N-4, File No. 33-66786 and 811-7924, filed April
30, 1997
****Previously Filed on Form N-4, File No. 33-66786 and 811-7924, filed February
13, 1998
A
<PAGE>
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 and Executive Vice President
Kevin Slawin Director
Michael J. Velotta Director and Assistant Secretary
Randy J. Von Fumetti Director, Senior Vice President & Treasurer
Carol S. Watson Director, Senior Vice President,
General Counsel, and Assistant Secretary
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>
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 April 10, 1998, the Registrant has 6,037 qualified contract
owners and 4,411 non-qualified contract owners.
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.
B
<PAGE>
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
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
C
<PAGE>
ITEM 29. PRINCIPAL UNDERWRITER
- -------------------------------
Lincoln Benefit Financial Services, Inc. serves as distributor for the
Registrant. 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.
NAME POSITION WITH DISTRIBUTOR
---- -------------------------
B. Eugene Wraith Chairman of the Board of Directors
Carol S. Watson Director and President
Janet P. Anderbery Vice President & Controller
David A. Behrens Vice President
Rick W. Small Chief Compliance Officer
John J. Morris Director, Vice President and Secretary
Gregory C. Sernett Vice President and General Counsel
Douglas F. Gaer Director
Robert E. Rich Director
Randy J. Von Fumetti Director
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>
NET
UNDERWRITING
DISCOUNTS COMPENSATION
NAME OF AND ON BROKERAGE
PRINCIPAL UNDERWRITER COMMISSIONS REDEMPTION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
LINCOLN BENEFIT FINANCIAL $7,553,486
SERVICES, INC.
</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.
D
<PAGE>
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.
E
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Post-Effective Amendment to the
Registration Statement and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf, in the City of Lincoln, and
the State of Nebraska, on this 24th day of April, 1998.
LINCOLN BENEFIT LIFE VARIABLE
LIFE ACCOUNT
(Registrant)
By: LINCOLN BENEFIT LIFE COMPANY
(Depositor)
By: /s/B. Eugene Wraith
---------------------------
B. Eugene Wraith, President
and Chief Operating Officer
As required by the Securities Act of 1933, this Post-Effective Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/B. Eugene Wraith President, Chief Operating April 24, 1998
- ---------------------- Officer and Director --------------
B. Eugene Wraith (Principal Executive Officer)
/s/Robert E. Rich Executive Vice President April 24, 1998
- ---------------------- and Director --------------
Robert E. Rich
/s/Randy J. Von Fumetti Senior Vice President, April 24, 1998
- ----------------------- Treasurer and Director --------------
Randy J. Von Fumetti (Principal Financial Officer)
/s/Janet P. Anderbery Vice President and April 24, 1998
- ---------------------- Controller (Principal --------------
Janet P. Anderbery Accounting Officer)
Director
- ---------------------- --------------
Peter H. Heckman
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
- --------------------- Director ------------------
Louis G. Lower, II
/s/John J. Morris Director April 24, 1998
- --------------------- ------------------
John J. Morris
/s/Douglas F. Gaer Director April 24, 1998
- --------------------- ------------------
Douglas F. Gaer
- --------------------- Director ------------------
Kevin Slawin
- --------------------- Director ------------------
Michael J. Velotta
/s/Carol S. Watson Director April 24, 1998
- --------------------- ------------------
Carol S. Watson
- --------------------- Director ------------------
Patricia Wilson
<PAGE>
INDEX TO EXHIBITS
FOR
REGISTRATION STATEMENT ON FORM N-4
Lincoln Benefit Life Variable Annuity Account
Exhibit No. Sequential Page No.
- ----------- -------------------
(4) Variable Annuity Contract
(8)(d) IAI Participation Agreement
(9) Opinion of Counsel
(10) Consent of Independent Auditors
<PAGE>
EXHIBIT NO. 4
LINCOLN BENEFIT LIFE COMPANY
Lincoln Benefit Life Centre
Lincoln, NE 68501
A Legal Reserve Stock Life Insurance Company
Nonparticipating
FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT
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 POLICY. You may cancel this contract by returning it to
Lincoln Benefit Life Company, PO Box 82532, Lincoln, NE 68501-2532, before
midnight of the 10th day after the date you receive the policy. Return of the
contract by mail is effective on being postmarked, properly addressed and
postage prepaid. We will refund the contract value as of the date of surrender.
READ YOUR CONTRACT CAREFULLY.
Executed for the Company at its home office in Lincoln, Nebraska on its issue
date.
Vice President and Secretary President
VA 9330 Page 1
<PAGE>
TYPE OF CONTRACT
This contract 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 may
be made)
.... change the beneficiary;
.... assign an interest in the contract;
.... change the annuity starting 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:
<TABLE>
<S> <C>
Annuity Data........................Page 3 Death Benefit.......................Page 11
Definitions.........................Page 4 Beneficiary.........................Page 12
Annuity Benefit.....................Page 5 Ownership...........................Page 12
Purchase Payments...................Page 8 Other Terms of Your Contract........Page 13
Contract Value......................Page 8 Application.........................Insert
Surrender Value.....................Page 10
</TABLE>
READ YOUR CONTRACT CAREFULLY
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
ALL PAYMENTS AND VALUES PROVIDED BY THIS CONTRACT
ARE VARIABLE AND ARE NOT GUARANTEED AS TO FIXED DOLLAR AMOUNT.
DETAILS ARE DESCRIBED ON PAGE ____
Nonparticipating
VA 9330 Page 2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
ANNUITY DATA
OWNER: [JOHN DOE]
ANNUITANT: [JOHN DOE]
CONTRACT NUMBER: [SPECIMEN] ISSUE AGE: [35]
ANNUITY DATE: [07/01/2023] ISSUE DATE: [07/01/1993]
INITIAL PURCHASE PAYMENT: [$1,000.00]
PROPOSED ANNUAL PURCHASE PAYMENT: [$1,000.00]
SEPARATE ACCOUNT: LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
SUBACCOUNT ALLOCATION %
- ------------------------------------------ ------------
[JANUS WORLDWIDE SUBACCOUNT] [20]
[FIDELITY VIPII ASSET MANAGER SUBACCOUNT] [80]
VA 9330 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 payments
made under this contract.
"annuity date"
The date that the first annuity payment is made. The planned annuity date is
shown on Page 3.
"annuity unit"
A unit of measurement which we use to calculate the amount of variable annuity
payments.
"beneficiary"
The person entitled to the death benefit if you die before the annuity date.
"contract anniversary"
The anniversary of the issue date in subsequent years.
"contract value"
The sum of the values of the subaccounts.
"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 a
subaccount, 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 the Company.
"fixed annuity"
Annuity payments that are fixed in the amount.
VA 9330 Page 4
<PAGE>
"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.
"portfolio(s)"
The underlying mutual fund(s) (or investment series thereof) in which the
subaccounts invest.
"purchase payments"
Amounts paid to the Company in the form of a premium for the contract by or on
behalf of an owner.
"separate account"
A segregated investment account of the Company entitled "Lincoln Benefit Life
Variable Annuity Account".
"subaccount"
A subdivision of 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 less any applicable premium tax charges 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.
"variable annuity"
Annuity payments which vary in accordance with the investment experience of the
subaccounts to which contract values have been allocated.
"we (our, us)"
Our Company, Lincoln Benefit Life Company.
"withdrawal charge"
The contingent deferred sales charge assessed against certain withdrawals.
"you"
The owner of the contract.
VA 9330 Page 5
<PAGE>
Annuity Benefit
The monthly annuity will begin on the annuity date. You may elect an annuity
option at any time prior to the annuity date. A change of annuity option is
permitted if made at least 60 days before the annuity date. If no other annuity
option is elected, monthly payments will be made in accordance with Option B
below, a life annuity with 10 years (120 months) guaranteed.
The initial monthly annuity payment will be the amount purchased by the contract
value on the annuity date. The initial payment purchased by each $1,000 of
contract value depends upon the annuity option selected and the age and sex of
the annuitant on the annuity date. The payments per $1,000 of contract value
are based upon the 1983a Annuity Mortality table and 3-1/2% 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.
Option A, Life Annuity.
Payments are made as of the first valuation date of each monthly period during
the annuitant's life, beginning on the annuity date. No payments will be made
after the annuitant dies. It is possible for you to receive only one payment
under this option, if the annuitant dies before the second payment is due.
Option B, Life Annuity with Payments Guaranteed for 5 to 20 Years.
Payments are made as of the first valuation date of each monthly period
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 C, Joint and Full Survivor Annuity.
Payments are made as of the first valuation date of each monthly period
beginning with the annuity date. Payments will continue as long as either the
annuitant or the joint annuitant is alive. Payments will stop when both the
annuitant and joint annuitant have died. It is possible for you to receive only
one payment, if both the annuitants die before the second payment is due.
Option D, Payments for a Specified Period Certain of 5 to 25 years.
Payments are made as of the first valuation date of each monthly period 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.
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.
VA 9330 Page 6
<PAGE>
The initial monthly payments purchased per $1,000 of contract value applied for
Option B, Life and 120 months period certain 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
- ------------------ ------------------
<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
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>
"fixed annuity"
VA 9330 Page 7
<PAGE>
"fixed annuity"
You may choose to apply a portion of your contract value to purchase a fixed
annuity. You must notify us, within 60 days of the annuity date, of that
portion of your contract value with which you wish to purchase a fixed annuity.
We will reduce your interest in the subaccount on a pro-rata basis on the
annuity date to reflect your choice.
The initial annuity payment for any portion of the contract value is 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 contract 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 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 prior value 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 annual effective rate of
3.5%.
If the amount available to apply under an annuity option is less than $50,000
and state law permits, we reserve the right to pay the annuity in one lump sum.
In addition, if the first payment provided would be less than $50, and state law
permits, we reserve the right to require the frequency of payments be at
quarterly, semi-annual or annual intervals so as to result in an initial payment
of at least $50.
No withdrawals of contract value are permitted after the annuity date.
You may assign the annuity benefits which are payable during your lifetime to
another person. You must send us a written request signed by you.
The beneficiary named by you will receive any monthly annuity payments which are
payable following your death. If you have not named a beneficiary, such
payments will be made to your estate.
If you are not the annuitant, and the annuitant dies prior to the annuity
starting date, then you become the new annuitant unless you name another person
as the new annuitant. If the owner is not a natural person, then a death
benefit will be paid to the beneficiary as described in the Death Benefit
Section.
VA 9330 Page 8
<PAGE>
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 $100.00 at any time prior to the annuity starting 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 subaccounts you select. You should
specify your allocations on the application, in whole percents from 0% to 100%.
The total allocation must equal 100%. You may change the allocation percentages
at any time by writing us. Any change will be effective when we receive it.
Contract Value
The contract value at any time is equal to the sum of the values of the
subaccounts at that time. The contract value results from purchase payments
made, investment experience of the subaccounts, and charges deducted. Any
withdrawals you make and any associated charges will reduce the contract value.
"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 value"
Amounts which are allocated to a subaccount are used to purchase accumulation
units. 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 administration charges are made
separately for each contract. They are effected by redemption of accumulation
units and do not affect accumulation unit value.
The accumulation unit value of a subaccount for any valuation period is
calculated by subtracting (2) from (1) and dividing the result by (3) where:
(1) is the total value at the end of the period of the assets attributable
to the accumulation units of the subaccount minus liabilities;
VA 9330 Page 9
<PAGE>
(2) is the cumulative unpaid charge for the assumption of mortality and
expense risks and for the administrative expense charge; and
(3) is the number of accumulation units outstanding at the end of the
period.
"mortality and expense risk charge"
Both before and after the annuity date, we deduct a mortality and expense risk
charge from each subaccount during each valuation period. The annualized
aggregate mortality and expense risk charge is equal to 1.25% 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 each valuation period. The annualized
administrative expense charge is .15% of the net asset value of the subaccount.
This charge compensates us for the cost of administering the contracts and the
separate account.
"contract administration charge"
An annual contract administration charge of $25 is charged against each
contract. This charge reimburses us for expenses incurred in establishing and
maintaining records relating to a contract. The contract administration charge
will be assessed on each contract anniversary that occurs on or prior to the
annuity date. It is not assessed once annuity payments have started. In the
even that the contract is surrendered, this charge will be deducted in full as
of the date of surrender without proration.
"transfers and transfer fee"
You may transfer amounts between subaccounts prior to the annuity date. We
reserve the right to impose a $25 transfer fee on the second transfer within a
calendar month, and to impose a minimum size on transfer amounts.
"premium taxes"
We will deduct any premium taxes we have to pay, including any retaliatory
taxes. We will deduct the tax upon surrender, death or annuitization as
appropriate.
VA 9330 Page 10
<PAGE>
Cash 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 less any applicable premium
tax and withdrawal charges.
A surrender stops coverage under this contract.
"partial withdrawal"
You may request a partial withdrawal of your surrender value before the annuity
date. You must specify the subaccount(s) from which you wish to make a
withdrawal. We will deduct the withdrawal amount you request, plus any
applicable withdrawal charges, from the contract value.
Each withdrawal must be at least $250, unless it is part of a systematic
withdrawal program, in which case a minimum of $50 applies.
"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:
Contribution Withdrawal Charge
Year Percentage
- ------------ -----------------
(%)
First and Second 7
Third 6
Fourth 5
Fifth 4
Sixth 3
Seventh 2
Eighth and Later 0
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;
Third. Any additional amounts available as a free withdrawal, as
described below; and
VA 9330 Page 11
<PAGE>
Fourth. New Purchase Payments--Purchase Payments received by us less than
seven years prior to the date of withdrawal.
"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 10 percent of new purchase payments; and
b. Any old purchase payments which have not been previously withdrawn.
Any free withdrawal amount greater than earnings taken in a contract year are
considered to be withdrawals of purchase payments for purposes of (b) above.
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.
Death Benefit
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
...you die; or
...the annuitant dies and the owner is not a natural person.
The beneficiary will become the new owner and may elect within 60 days of the
date of death, to receive the death benefit in a lump sum or apply the death
benefit to receive a series of equal payments over their life or a period not to
exceed their life expectancy. Lifetime or life expectancy payments must begin
within one year of your death.
If there is only one beneficiary, he/she may elect to defer payment of the
account value for up to 5 years from the date of death. Any remaining funds
will be distributed at the end of the 5-year period. An annuitant is necessary
to continue the contract between the date of death and the final distribution.
If there is no annuitant at that time, the beneficiary will be the new
annuitant.
If the beneficiary is your spouse, then the contract can continue as if death
had not occurred. 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
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.
The death benefit is calculated as of the day due proof of death is received by
the company.
VA 9330 Page 12
<PAGE>
At a minimum, the death benefit is the greater of:
(1) All purchase payments less prior withdrawals, accumulated at 4% per
year prior to the contract owner's attained age 80, and at 0% per year
thereafter (the "floor value");
(2) The contract value, less any applicable premium tax.
In addition, if the contract value on the seventh contract anniversary is
greater than the floor value at that time, the floor value will be raised to the
level of the contract value. In such event, floor values for years 8 on will be
calculated using the "stepped up" value on the seventh anniversary.
Beneficiary
The beneficiary will receive the death benefit when you die. The beneficiaries
are as stated in the application 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.
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
instruction 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 receive it.
Ownership
The annuitant is the owner if no other person is named in the application as
owner. Unless you provide otherwise, you may exercise all rights granted by
the contract 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, subject to any action we have taken before we receive it.
You may assign this contract or an interest therein 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 the assignment.
VA 9330 Page 13
<PAGE>
Other Terms of Your Contract
"our contract with you"
These pages and the signed application are your entire contract with us. We
issued it based upon your application and payment of purchase payment by you. A
copy of the application is included.
We will not use any statements, except those made in the application, to
challenge any claim or to avoid any liability under this contract. The
statements made in the application 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 it has been in force during the
lifetime of the annuitant for two years from the 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 that time.
"incorrect age or sex"
If the age or sex of the annuitant is incorrectly stated, we will adjust the
payment to the amount which the contract value would have purchased at the
correct age and sex.
Any overpayments we have made will be deducted from future payments, including
interest of 5% per year. Any underpayments including 5% interest will be paid
in one sum to the annuitant if living, otherwise to the beneficiary.
"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 laws, 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.
"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
a death claim.
Any surrender or death benefit under this contract will not be less than the
minimum benefits required by any statute of the state in which the contract is
delivered.
"deferment of payments"
We will pay any amounts due under this contract within seven days, unless:
VA 9330 Page 14
<PAGE>
. The New York Stock Exchange is closed for other than usual weekends or
holidays, 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.
Prior to the annuity date, we will send you an annual report not later than 30
days after each contract anniversary. It will summarize the experience of your
contract for the prior year including:
1. The contract value at the beginning and end of the contract year;
2. The ending cash value;
3. Earnings during the contract year; and
4. Partial withdrawals made during the contract year.
"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 of
the separate account. We will not substitute any shares attributable to your
interest in a subaccount without notice to you and prior approval of the
Securities and Exchange Commission, to the extent required by the Investment
Company Act of 1940.
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 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 such
changes as may be necessary or appropriate to reflect such substitution or
change.
If we deem it to be in the best interests of persons having voting rights under
the contracts, the separate account may be operated as a management company
under the Investment Company Act of 1940 or it may be deregistered under such
Act in the event such registration is no longer required.
VA 9330 Page 15
<PAGE>
Exhibit 8(d)
FUND PARTICIPATION AGREEMENT
----------------------------
AGREEMENT, made on this the day of , 1993, between IAI Retirement
Funds, Inc. (the "Fund"), a corporation organized under the laws of the state of
Minnesota, and Insurance Company (the "Company"), a life insurance
company organized under the laws of the State of , on behalf of itself
and on behalf of ("Separate Account"), a separate account of the
Company existing pursuant to the Insurance Code.
WITNESSETH:
WHEREAS, the Fund is a diversified, open-end management investment company
which is divided into various investment series ("Portfolios"), each Portfolio
being subject to separate investment objectives and restrictions which may not
be changed without a majority vote of the shareowners of such Portfolio; and
WHEREAS, the Fund's shares may be offered to variable annuity and variable
life insurance separate accounts of insurance companies, which may or may not be
affiliated persons of each other ("Participating Insurers"), pursuant to fund
participation agreements substantially identical to this Agreement; and
WHEREAS, the Company, by resolution, has established the Separate Account
on its books of account for the purpose of funding certain variable contracts
("Contracts"); and
WHEREAS, the Separate Account, registered with the Securities and Exchange
Commission as a unit investment trust under the Investment Company Act of 1940
("1940 Act"), is divided into various "Divisions" under which the income, gains
and losses, whether or not realized, from assets allocated to each such
Division are, in accordance with the Contracts,
<PAGE>
credited to or charged against such Division without regard to any other income,
gains or losses of other Divisions or separate accounts or of the Company; and
WHEREAS, the Separate Account desires to purchase shares of the Fund; and
WHEREAS, the Fund agrees to make its shares available to serve as
underlying investment media for the various Divisions of the Separate Account
with each Portfolio of the Fund serving as the underlying investment medium for
the corresponding Division of the Separate Account; and
WHEREAS, the Fund has undertaken that its Board of Directors ("Board") will
monitor the Fund for the existence of any material irreconcilable conflicts that
may arise between the contract owners of separate accounts of insurance
companies that invest in the Fund for the purpose of identifying and remedying
any such conflict;
NOW, THEREFORE, in consideration of the foregoing and of mutual convenants
and conditions set forth herein and for other good and valuable consideration,
the Fund and the Company (on behalf of itself and the Separate Account) hereby
agree as follows:
ARTICLE I
Sale of Fund Shares
-------------------
1.1 The Contracts funded by the Separate Account will provide for the
allocation of net amounts among the various Divisions of the Separate Account
for investment in the shares of the particular Portfolio of the Fund underlying
each Division. The selection of the particular Division is to be made (and such
selection may be changed) in accordance with the terms of the Contract.
<PAGE>
1.2 Fund shares to be made available to the respective Divisions of the
Separate Account shall be sold by each of the respective Portfolios of the Fund
and purchased by the Company for that Division at the net asset value next
computed after receipt of each order, as established in accordance with the
provisions of the then current prospectus of the Fund. Shares of a particular
Portfolio of the Fund shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of those
Contracts having amounts allocated to the Division for which the Fund Portfolio
shares serve as the underlying investment medium. Orders and payments for
shares purchased will be sent promptly to the Fund and will be made payable in
the manner established from time to time by the Fund for the receipt of such
payments. Notwithstanding the foregoing, the Board of the Fund may refuse to
sell shares of any Portfolio to any person or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by regulatory
authority having jurisdiction over the Fund or is, in the sole discretion of the
Board acting in good faith and in light of its fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3 The Fund will redeem the shares of the various Portfolios when
requested by the Company on behalf of the corresponding Division of the Separate
Account at the net asset value next computed after receipt of each request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Fund. The Fund will make payment in the manner established
from time to time by the Fund for the receipt of such redemption requests, but
in no event shall payment be delayed for a greater period than is permitted by
the 1940 Act.
1.35 For purposes of paragraphs 1.2 and 1.3 hereinabove, the Company shall
be the agent of the Fund for the receipt of (1) orders to purchase, and (2)
requests to redeem, shares of the Portfolios of the Fund on behalf of the
Separate Account, and receipt of such orders and requests by such agent shall
constitute receipt thereof by the Fund, provided that the Fund
<PAGE>
receives actual notice of such order or request by 12:00 noon (at the Fund's
offices) on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.4 Transfer of the Fund's shares will be by book entry only. No stock
certificates will be issued to the Separate Account. Shares ordered from a
particular Portfolio of the Fund will be recorded in an appropriate title for
the corresponding Division of the Separate Account.
1.5 The Fund shall furnish same day notice to the Company of any dividend
or distribution payable on its shares. All of such dividends and distributions
as are payable on each of the Portfolio shares in the title for the
corresponding Division of the Separate Account shall be automatically reinvested
in additional shares of that Portfolio of the Fund. The Fund shall notify the
Company of the number of shares so issued.
1.6 The Fund shall make the net asset value per share of each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6:00 p.m. Eastern Time.
ARTICLE II
Sales Material and Information
------------------------------
2.1 The Company shall furnish to the Fund each piece of sales literature
or other promotional material in which the Fund or its investment adviser is
named at least fifteen business days prior to its use. No such material shall
be used if the fund objects to such use within ten business days after receipt
of such material.
<PAGE>
2.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such documents may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund, except with the permission of the Fund.
2.3 The Fund shall furnish to the Company each piece of sales literature
or other promotional material in which the Company or its Separate Account is
named at least fifteen business days prior to its use. No such material shall
be used if the Company objects to such use within ten business days after
receipt of such material.
2.4 The Fund shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Separate Account, or the
Contracts other than the information or representations contained in the
registration statement or prospectus for the Contracts, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
published reports for the Separate Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company, except with
the permission of the Company.
2.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above that relate to the Fund or it shares, contemporaneously with
the filing of such document with the U.S. Securities and Exchange Commission or
other regulatory authorities.
<PAGE>
2.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
the Separate Account, contemporaneously with the filing of such document with
the U.S. Securities and Exchange Commission or other regulatory authorities.
2.7 For purposes of this Article II, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE III
Expenses
--------
3.1 The Fund shall pay no fee or other compensation to the Company under
this Agreement. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall bear the expenses for: the
cost of registration of the Fund's shares; preparation and filing of the Fund's
prospectus and registration statement; preparation and filing of proxy materials
and reports; setting the prospectus in type; setting in type the proxy materials
and reports to shareholders; the preparation of all statements and notices
required of
<PAGE>
the Fund's by any federal or state law; and all taxes on the issuance or
transfer of the Fund'' shares.
3.2 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund, and the Fund, at its
expense, shall print and provide such Statement free of charge to the Company
and to any Contract owner or prospective Contract owner who requests such
Statement.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to stockholders and other communications to stockholders
in such quantity as the Company shall reasonably require for distributing to
Contract owners
3.4 The Company shall bear the expense of distributing to Contract owners
the Fund's prospectus, proxy materials and reports.
ARTICLE IV
Voting
------
4.1 The Company shall provide pass-through voting privileges to all
Contract owners so long as the U.S. Securities and Exchange Commission continues
to interpret the 1940 Act to require pass-through voting privileges for variable
contract owners. The Company shall be responsible for assuring that the
Separate Account calculates voting privileges in a manner consistent with
standards provided by the Fund, which standards will also be provided to other
Participating Insurers. To the extent required by law, the Company will vote
shares for which it has not received voting instructions as well as shares
attributable to the Company in the same proportion as it votes shares for which
it has received instructions.
4.2 The Fund will comply with all provisions of the 1940 Act requiring
voting by
<PAGE>
shareholders and, in particular, the Fund will either provide for
annual meetings or comply with Section 16 (c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16 (c) of that Act) as well as
with Sections 16 (a) and, if and when applicable, 16 (b). Further, the Fund
will act in accordance with the U.S. Securities and Exchange Commission's
interpretation of the requirements of Section 16 (a) with respect to periodic
elections of directors and with whatever rules the Commission may promulgate
with respect thereto.
ARTICLE V
Potential Conflicts
-------------------
5.1 The Board of the Fund will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. The Company will report to the
Board any potential or existing conflicts of which it is or becomes aware
between any of its Contract owners, or between any of its Contract owners and
contract owners of other Participating Insurers. The Company will be
responsible for assisting the Board in carrying out its responsibilities to
identify and resolve material conflicts by providing the Board with all
information available to it that is reasonably necessary for the Board to
consider any issues raised, including information as to a decision by the
Company to disregard voting instructions of its Contract owners.
5.2 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly by it to
the Company and other Participating Insurers. An irreconcilable material
conflict and its implications shall be made known promptly by it to the Company
and other Participating Insurers. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance
tax, or securities laws or regulations, or a public ruling, private letter
ruling, or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
<PAGE>
proceeding; (d) the manner in which the investments of any Portfolio are being
managed; (e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different Participating Insurers; or (f) a decision by a Participating
Insurer to disregard the voting instructions of its variable contract owners.
5.3 If it is determined by a majority of the Board or a majority of its
disinterested Directors that a material irreconcilable conflict exists that
affects the interests of the Contract owners, the Company shall, to the extent
reasonably practicable (as determined by a majority of the Fund's disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing
the assets allocable to the Separate Account from the Fund or any Portfolio and
reinvesting such assets in a different investment medium, including another
Portfolio of the Fund, or participating in the submission of the question of
whether such segregation should be implemented to a vote of all affected
contract owners and, as appropriate, segregating the assets of any particular
group (e.g. annuity contract owners or life insurance contract owners) that
votes in favor of such segregation, or offering to the affected contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account. The Company shall
take such steps at its expense if the conflict affects solely the interests of
the owners of the Company's Contracts, but shall bear only its equitable portion
of any such expense if the conflict also affects the interests of the contract
owners of one or more Participating Insurers other than the Company, provided:
that this sentence shall not be construed to require the Fund to bear any
portion of such expense. If a material irreconcilable conflict arises because
of the Company's decision to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Company may be required, at Fund's election, to withdraw the investment of
the Separate Account in the Fund, and no charge or penalty will be imposed as a
result of such a withdrawal.
<PAGE>
The Company agrees to take such remedial action as may be required under this
paragraph 5.3 with a view only to the interests of its Contract owners. For
purposes of this paragraph 5.3, a majority of the disinterested members of the
Fund's Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict, but in no event will Fund be required to
establish a new funding medium for any variable contract. The Company shall not
be required by this paragraph 5.3 to establish a new funding medium if an offer
to do so has been declined by vote of a majority of contract owners materially
and adversely affected by the irreconcilable material conflict.
Notwithstanding the foregoing, if the Company is required under this
paragraph 5.3 to withdraw the investment of the Separate Account in the Fund,
such withdrawal may take place within six (6) months after the Fund gives
written notice that this paragraph 5.3 is being implemented, provided: That the
Fund may require that such withdrawal must take place within a shorter period of
time after such notice if a majority of the disinterested members of the Fund's
Board determines that such shorter period is necessary to avoid irreparable harm
to its shareholders; and further provided: That until the end of such six month
(or shorter) period the Fund shall continue to accept and implement orders by
the Company for the purchase and redemption of Fund Shares.
5.4 In discharging its responsibilities under this Article V, the Company
will cooperate and coordinate, to the extent necessary, with the Board and with
other Participating Insurers.
5.5 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or a
subsequent Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding on terms and conditions materially different from those contained in the
Fund's mixed and shared funding order (Investment Company Act Release No. )
then the Fund or the Participating Insurers, as
<PAGE>
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), and related Rules as amended, to the extent such rules are
applicable.
ARTICLE VI
Representations and Warranties
------------------------------
6.1 The Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 ("1933 Act"), that the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws, and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable laws and that it has legally and
validly established the Separate Account prior to any issuance or sale thereof
as a segregated asset account under the Insurance Code and has registered
or, prior to any issuance or sale of the Contracts, will register the Separate
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for the Contracts.
6.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, shall be duly authorized
for issuance and sold in compliance with the laws of the State of Minnesota and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
represents that it is lawfully organized and validly existing under the laws of
the State of Minnesota and that it does and will comply in all material respects
with the 1940 Act.
6.3 The Fund represents and warrants that it intends to qualify as a
Regulated
<PAGE>
Investment Company under Subchapter M of the Internal Revenue Code, as amended,
(the "Code") and that it will make every effort to maintain such qualification
(under Subchapter M or any successor or similar provision) and that it will
notify the Company immediately upon having a reasonable basis for believing that
it may not so qualify in the future.
6.4 The Fund represents and warrants that it will at all times invest
money from the Contracts in such a manner as to ensure that the Contracts will
be treated as variable contracts under the Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund will at all
times comply with Section 817 (h) of the Code and Regulation 1.817-5, relating
to the diversification requirements for annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation.
6.5 The Company represents that the Contracts are currently treated as
annuity, endowment, or life insurance contracts, under applicable provisions of
the Code, and that it will make every effort to maintain such treatment and that
it will notify the Fund immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
6.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of and the Fund represents that its operations are and shall at all
times remain in material compliance with the laws of the State of to the
extent required to perform this Agreement.
6.7 The Fund represents and warrants that all of its directors, officers,
employees,
<PAGE>
investment advisers, and other persons dealing with the money or securities of
the Fund are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less than
the minimal coverage as required currently by Section 17 (g) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
6.8 The Company represents and warrants that all of its directors,
officers, employees, and other persons who are directly dealing with the money
or securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage.
6.9 The Fund represents and warrants that shares of the Fund will be sold
only to participating Insurers and their separate accounts. No shares of any
Portfolio will be sold to the general public. The Fund further represents and
warrants that it will not sell Fund shares to any insurance company or separate
account except pursuant to an agreement containing provisions substantially the
same as those contained in Articles IV and V of this Agreement governing voting
rights and conflicts of interest, respectively.
6.10 The Company represents and warrants that it will make reasonable
efforts to market those Contracts it determines from time to time to offer for
sale and, although it is not required to offer for sale new Contracts in all
cases, will accept payments and otherwise service existing Contracts funded in
the Separate Account. No representation is made as to the number or amount of
such Contracts to be sold.
ARTICLE VII
Indemnification
---------------
7.1 The Company agrees to indemnify and hold harmless the Fund and each of
its
<PAGE>
Directors and officers and each person, if any, who controls the Fund within
the meaning of Section 15 of the 1933 Act against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses), arising
out of the acquisition of any shares of the Fund by any person, to which the
Fund or such Directors, officers or controlling person may become subject under
the 1933 Act, under any other statute, at common law or otherwise, which (i) may
be based upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the Company
or a principal underwriter of its insurance products, or (ii) may be based upon
any untrue statement or alleged untrue statement of a material fact contained in
a registration statement or prospectus covering shares of the Fund or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated herein or necessary to make
the statements therein not misleading if such a statement or omission was made
in reliance upon information furnished to the Fund by the Company, or (iii) may
be based on any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering the Contracts, or
any amendments or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or such
affiliate by or on behalf of the Fund; provided, however, that in no case (i) is
the Company's indemnity in favor of a Director or officer or any other person
deemed to protect such Director or officer or other person against any liability
to which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of obligations and duties
under this Agreement or (ii) is the Company to be liable under its indemnity
agreement contained in this Paragraph 7.1 with respect to any claim made against
the Fund or any person indemnified unless the Fund or such person, as the case
may be, shall have notified the Company in writing pursuant to Paragraph 10 of
this Agreement within a reasonable time after the summons or other first legal
process giving information of the
<PAGE>
nature of the claims shall have been served upon the Fund or upon such person
(or after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim shall
not relieve the Company from any liability which it has to the Fund or any
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this Paragraph 7.1. The Company shall be
entitled to participate, at its own expense, in the defense, or, if it so
elects, to assume the defense of any suit which could result in liability to it
under this Paragraph 7.1, but, if it elects to assume the defense, such defense
shall be conducted by counsel chosen by it and satisfactory to the Fund and to
such of its officers, Directors and controlling person or persons as may be
defendants in the suit. In the event that the Company elects to assume the
defense of any such suit and retain such counsel, the Fund, such officers,
Directors and controlling person or persons shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Company does not elect
to assume the defense of any such suit, the Company will reimburse the Fund,
such officers, Directors and controlling person or persons for the reasonable
fees and expenses of any counsel retained by them. The Company agrees promptly
to notify the Fund pursuant to Paragraph 10 of this Agreement of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any shares of the Fund.
7.2 The Fund agrees to indemnify and hold harmless the Company and its
affiliated principal underwriter of the Contracts and each of its Directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses) to which it or
such directors, officers or controlling person may become subject under the 1933
Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any shares of the Fund by any person which (i) may be based upon
any wrongful act by the Fund or any of its employees or representatives, or (ii)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement or prospectus covering shares of the
Fund or any amendment thereof or supplement thereto or the omission or alleged
<PAGE>
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading unless such statement or
omission was made in reliance upon information furnished to the Fund by the
Company, or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering the Contracts, or any amendment or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements or statements therein not
misleading, if such statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; provided, however, that in
no case (i) is the Fund's indemnity in favor of a Director or officer or any
other person deemed to protect such Director or officer or other person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or (ii) is the Fund to be liable under its indemnity
agreement contained in this Paragraph 7.2 with respect to any claims made
against the Company or any such Director, officer or controlling person unless
it, Director, officer or controlling person, as the case may be, shall have
notified the Fund in writing pursuant to Paragraph 10 of this Agreement within a
reasonable time after the summons or the first legal process giving information
of the nature of the claim shall have been served upon it or upon such Director,
officer or controlling person (or after the Company or such Director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify the Fund of any claim shall not relieve it from
any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
Paragraph 7.2. The Fund will be entitled to participate, at its own expense, in
the defense, or, if it so elects, to assume the defense of any suit which could
result in liability to it under this Paragraph 7.2, but, if the Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Company and to such of its Directors, officers and
controlling person or persons as may be defendants in the suit.
<PAGE>
In the event that the Fund elects to assume the defense of any such suit and
retain such counsel, the Company, such Directors, officers and controlling
person or persons shall bear the fees and expenses of any additional counsel
retained by them, but, in case the Fund does not elect to assume the defense of
any such suit, it will reimburse the Company, such Directors, officers and
controlling person or persons for the reasonable fees and expenses of any
counsel retained by them. The Fund agrees promptly to notify the Company
pursuant to Paragraph 10 of this Agreement of the commencement of any litigation
or proceedings against it or any of its officers or Directors in connection with
the issue and sale of any of its shares.
ARTICLE VIII
Confidentiality
---------------
8. Subject to the requirements of legal process and regulatory authority,
each party shall treat as confidential all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize confidential
information without the express written consent of the affected party until such
time as it may come into the public domain.
ARTICLE IX
Termination
-----------
9.1 This Agreement shall terminate:
(a) at the option of the Company or the Fund upon 60 days' advance written
notice to all parties to this Agreement, provided, however, such
notice shall not be given earlier than twenty two months following the
date of this Agreement; or
(b) at the option of the Company if any of the Fund's shares are not
reasonably available to meet the requirements of the Contracts funded
in the Separate Account as determined by the Company; or
(c) at the option of either party to this Agreement upon institution of
formal proceedings against the other party to this Agreement by the
Securities and Exchange Commission or any other regulatory body; or
(d) upon the vote of Contract owners having an interest in a particular
Division of the Separate Account to substitute the shares of another
investment company for the corresponding Fund Portfolio shares in
accordance with the terms of the Contracts for which those Fund shares
had been selected to serve as the underlying investment medium. The
Company will give 30 days' prior written notice to the Fund of the
date of any proposed action to replace the Fund's shares; or
(e) at the option of the Company if the Fund's shares are not registered,
issued or sold in accordance with applicable state and/or federal law
or such law precludes the use of such shares as the underlying
investment medium of the Contracts funded in the Separate Account; or
(f) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
<PAGE>
reasonably believes that the Fund may fail to so qualify; or
(g) at the option of the Company if the Fund fails to meet the
diversification requirements specified in paragraph 6.4 hereof.
9.2 Prompt notice of election to terminate under subparagraphs (b), (c),
(e), (f) and (g) of paragraph 9.1 shall be furnished by the electing party.
9.3 Notwithstanding any termination of this Agreement, the Fund shall, at
the option of the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to reallocate investments in
the Fund, redeem investments in the Fund or invest in the Fund upon the making
of additional purchase payments under the Existing Contracts. The parties agree
that this paragraph 9.3 shall not apply to any terminations under Article V and
the effect of such Article V terminations shall be governed by Article V of this
Agreement.
ARTICLE X
Notices
-------
10. Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
IAI Retirement Funds, Inc.
3700 First Bank Place
P.O. Box 357
Minneapolis, Minnesota 55440
If to the Company:
<PAGE>
ARTICLE XI
Applicable Law
--------------
11. This Agreement shall be construed in accordance with the laws of the
State of Minnesota.
ARTICLE XII
Miscellaneous
-------------
12.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.2 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.3 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
IAI Retirement Funds, Inc.
By:
Attest:
Insurance Company
By:
Attest:
Separate Account
By:
Insurance Company
By:
Attest:
<PAGE>
Exhibit 9
ROUTIER, MACKEY AND JOHNSON, P.C.
Attorneys at Law
1700 K Street N.W.
Suite 1003
Washington, D.C. 20006
December 10, 1993
OPINION AND CONSENT OF COUNSEL
Having examined and being familiar with the articles of incorporation and
by-laws of Lincoln Benefit Life Company ("Lincoln Benefit"), the applicable
resolutions relating to other pertinent records and documents, it is our opinion
that (i) Lincoln Benefit is a duly organized and existing life insurance company
under the laws of the State of Nebraska; (ii) the Account is a duly organized
and existing Separate Account of Lincoln Benefit and is registered as a unit
investment trust under the Investment Company Act of 1940; and (iii) the
variable annuity contracts being registered by this Registration Statement under
the Securities Act of 1933 (File No. 33-66786) will, upon issuance thereof, be
legally issued and represent binding obligations of Lincoln Benefit.
We hereby consent to the use of our Opinion of Counsel in the Registration
Statement on Form N-4 on behalf of the Account and to the reference to this firm
under the caption "Legal Matters" contained in the prospectus.
ROUTER, MACKEY AND JOHNSON, P.C.
1700 K Street, N.W., Suite 1003
Washington, D.C. 20006
By: /s/ Mark J. Mackey
----------------------------
<PAGE>
Exhibit (10)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 10 to Registration
Statement No. 33-66786 of Lincoln Benefit Life Variable Annuity Account of our
reports dated March 20, 1998 on the financial statements of Lincoln Benefit Life
Variable Annuity Account and the consolidated financial statements of Lincoln
Benefit Life Company and subsidiary, appearing in the Statement of Additional
Information, which is a part of such Registration Statement, and to the
reference to us under the heading "Financial Statements" in such Statement of
Additional Information.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
April 27, 1998
