As filed with the Securities and Exchange Commission on
April 15, 1999
'33 Act File No. 33-66786
'40 Act File No. 811-7924
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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. 11 [X]
REGISTRATION STATEMENT UNDER THE INVESTMENT ACT OF 1940 [ ]
Amendment No. 21 [X]
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
LINCOLN BENEFIT LIFE COMPANY
Depositor
206 South 13th Street
Lincoln, Nebraska 68508
--------
JOHN MORRIS
Lincoln Benefit Life Company
206 South 13th Street
Lincoln, Nebraska 68508
1-800-525-9287
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
------
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933, pursuant to Section 24 of the Investment Company Act of
1940.
<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>
<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.
<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: 1-800-525-9287
The Contract is a deferred annuity designed to aid you in long-term financial
planning. You may purchase it on either a tax qualified or non-tax qualified
basis.
Because this is a flexible premium annuity contract, you may pay multiple
premiums. We allocate your premium to the investment options under the Contract
and our Fixed Account in the proportions that you choose. The Contract currently
offers twenty-five investment options, each of which is a subaccount of the
Lincoln Benefit Life Variable Annuity Account ("Separate Account"). Each
Subaccount invests exclusively in shares of one of the following Portfolios:
Janus Aspen Series:
Flexible Income Portfolio
Balanced Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
Fidelity Variable Insurance Products Fund:
Money Market Portfolio
Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
Fidelity Variable Insurance Products Fund II:
Asset Manager Portfolio
Contrafund Portfolio
Index 500 Portfolio
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 Portfolio
MidCap Portfolio
Growth Portfolio
Leveraged AllCap Portfolio
Income and Growth Portfolio
Some of the Portfolios described in this Prospectus may not be available in your
Contract. We may make available other investment options in the future.
You may not purchase a Contract if either you or the Annuitant are 86 years old
or older before we receive your application.
Your Contract Value will vary daily as a function of the investment performance
of the Subaccounts to which you have allocated Purchase payments and any
interest credited to the Fixed Account. We do not guarantee any minimum Contract
Value for amounts allocated to the Subaccounts.
In certain states, the Contract may be offered as a group contract with
individual ownership represented by Certificates. The discussion of Contracts in
this prospectus applies equally to Certificates under group Contracts, unless
the context specifies otherwise.
This prospectus sets forth the information you ought to know about the variable
portion of the Contract. You should read it before investing and keep it for
future reference.
We have filed a Statement of Additional Information with the Securities and
Exchange Commission ("SEC"). The current Statement of Additional Information is
dated May 1, 1999. The information in the Statement of Additional Information is
incorporated by reference in this prospectus. You can obtain a free copy by
writing us or calling us at the telephone number given above. The Table of
Contents of the Statement of Additional Information appears on page [43] of this
prospectus. Our SEC filings are also available to the public on the SEC Internet
site (http://www.sec.gov).
This prospectus is valid only if accompanied or preceded by current prospectuses
for the Portfolios listed above. If any of these prospectuses is missing or
outdated, please contact us and we will send you the prospectus you need.
Please read this prospectus carefully and retain it for your future reference.
The date of this prospectus is May 1, 1999.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED ON THE ACCURACY OR THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<PAGE>
TABLE OF CONTENTS
Definitions....................................................
Fee Tables.....................................................
Examples.......................................................
Explanation of Fee Tables and Examples.........................
Questions and Answers About Your Contract......................
Condensed Financial Information................................
Description of the Contracts...................................
Summary....................................................
Contract Owner.............................................
Annuitant..................................................
Modification of the Contract...............................
Assignment.................................................
Free Look Period...........................................
Purchases and Contract Value...................................
Minimum Purchase Payment...................................
Automatic Payment Plan.....................................
Allocation of Purchase Payments............................
Contract Value.............................................
Separate Account Accumulation Unit Value...................
Transfer During Accumulation Period........................
Transfers Authorized by Telephone..........................
Automatic Dollar Cost Averaging Program....................
Portfolio Rebalancing......................................
The Investment and Fixed Account Options.......................
Separate Account Investments...............................
The Portfolios........................................
Voting Rights.........................................
Substitution of Securities............................
The Fixed Account..........................................
Annuity Benefits...............................................
Annuity Date...............................................
Deferment of Payments......................................
Annuity Options............................................
Substantially Equal Periodic Payments......................
Other Options..............................................
Death Benefit During Annuity Period........................
Variable Annuity Payments..................................
Certain Employee Benefit Plans.............................
Other Contract Benefits........................................
Death Benefit .............................................
Beneficiary .............................................
Contract Loans for 401(a), 401(k), and 403(b) Contracts....
Withdrawals (Redemptions)..................................
Systematic Withdrawal Program..............................
ERISA Plans................................................
Minimum Contract Value.....................................
Contract Charges...............................................
Mortality and Expense Risk Charge..........................
Administrative Charges.....................................
Contract Administration Charge........................
Administrative Expense Charge.........................
Transfer Fee..........................................
Sales Charges..............................................
Withdrawal Charge.....................................
Free Withdrawal.......................................
Confinement Waiver Benefit............................
Waiver of Withdrawal Charge for.......................
Certain Qualified Plan Withdrawals..................
Premium Taxes..............................................
Deduction for Separate Account Income Taxes................
Other Expenses.............................................
Tax Matters....................................................
Taxation of Annuities in General...........................
Tax Qualified Contracts....................................
Income Tax Withholding.....................................
Description of Lincoln Benefit Life Company and
the Separate Account...........................................
Lincoln Benefit Life Company...............................
Separate Account...........................................
State Regulation of Lincoln Benefit........................
Year 2000..................................................
Financial Statements.......................................
Administration.................................................
Distribution of Contracts......................................
Legal Proceedings..............................................
Legal Matters..................................................
Registration Statement.........................................
Table of Contents of Statement of Additional Information.......
Appendix A -- Accumulation Unit Values ...... .................
Appendix B -- Portfolios and Performance Data..................
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
- --------------------------------------------------------------------------------
<PAGE>
DEFINITIONS
Please refer to this list for the meaning of the following terms:
Accumulation Period - The period, beginning on the Issue Date, during which
Contract Value builds up under your Contract.
Accumulation Unit - A unit of measurement which we use to calculate Contract
Value.
Annuitant - The natural person on whose life the annuity benefits under a
Contract are based.
Annuitization - The process to begin annuity payments under the Contract.
Annuity Date - The date on which annuity payments are scheduled to begin.
Annuity Period - The period during which annuity payments are paid. The Annuity
Period begins on the Annuity Date.
Annuity Unit - A unit of measurement which we use to calculate the amount of
Variable Annuity payments.
Beneficiary(ies) - The person(s) designated to receive any death benefits under
the Contract.
Company ("we," "us," "our," "Lincoln Benefit Life") - Lincoln Benefit Life
Company.
Contract Anniversary - Each anniversary of the Issue Date.
Contract Owner ("You") - The person(s) having the privileges of ownership
defined in the Contract. If your Contract is issued as part of a retirement
plan, your ownership privileges may be modified by the plan.
Contract Value - The sum of the values of your interests in the Subaccounts of
the Separate Account and the Fixed Account.
Contract Year - Each twelve-month period beginning on the Issue Date and each
Contract Anniversary.
Contribution Year - Each twelve-month period beginning on the date a Purchase
Payment is allocated to a Subaccount, or each anniversary of that date.
Fixed Account - The portion of the Contract Value allocated to our general
account.
Fixed Annuity - A series of annuity payments that are fixed in amount.
Issue Date - The date when the Contract becomes effective.
Latest Annuity Date - The latest date by which you must begin annuity payments
under the Contract.
Loan Account - An account established for amounts transferred from the
Subaccounts or the Fixed Account as security for outstanding Contract loans.
Net Investment Factor - The factor used to determine the value of an
Accumulation Unit and Annuity Unit in any Valuation Period. We determine the Net
Investment Factor separately for each Subaccount.
Non-Qualified Plan - A retirement plan which does not receive special tax
treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code.
Portfolio(s) - The underlying mutual funds in which the Subaccounts invest. Each
Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
Purchase Payments - Amounts paid to us as premium for the Contract by you or on
your behalf.
Qualified Plan - A retirement plan which receives special tax treatment under
Sections 401, 403(b), 408, or 408A of the Tax Code or a deferred compensation
plan for a state and local government or another tax exempt organization under
Section 457 of the Tax Code.
Separate Account - The Lincoln Benefit Life Variable Annuity Account, which is a
segregated investment account of the Company.
Subaccount - A subdivision of the Separate Account, which invests wholly in
shares of one of the Portfolios.
Surrender Value - The amount paid upon complete surrender of the Contract.
Tax Code - The Internal Revenue Code of 1986, as amended.
Valuation Date - Each day the New York Stock Exchange is open for business.
Valuation Period - The period of time over which we determine the change in the
value of the Subaccounts in order to price Accumulation Units and Annuity Units.
Each Valuation Period begins at the close of normal trading on the New York
Stock Exchange ("NYSE") currently 4:00 p.m. Eastern time on each Valuation Date
and ends at the close of the NYSE on the next Valuation Date.
Variable Annuity - A series of annuity payments that vary in amount based on
changes in the value of the Subaccounts to which your Contract Value has been
allocated.
Withdrawal Charge - The contingent deferred sales charge that may be required
upon some withdrawals.
<PAGE>
Fee Tables
Contract Owner Transaction Expenses
Contingent Deferred Sales Charge - Withdrawal Charge
(as a percentage of Purchase Payments)
Contribution Applicable Contribution Applicable
Year Charge Year Charge
1-2 7% 6 3%
3 6% 7 2%
4 5% 8+ 0%
5 4%
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)
Mortality Risk Charge 0.85%
Expense Risk Charge 0.40%
Administrative Expense Charge 0.15%
--------------
Total Separate Account Annual Expenses 1.40%
<TABLE>
<CAPTION>
PORTFOLIO COMPANY ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
MANAGEMENT FEE OTHER EXPENSES TOTAL
JANUS ASPEN SERIES -------------------------- ------------------------- ----------
<S> <C> <C> <C>
Flexible Income 0.65% 0.08% 0.73%
Balanced 0.72% 0.02% 0.74%
Growth (1) (after fee waivers or reductions) 0.65% 0.03% 0.68%
Aggressive Growth 0.72% 0.03% 0.75%
Worldwide Growth (1) (after fee waivers or reductions) 0.65% 0.07% 0.72%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Money Market 0.20% 0.10% 0.30%
Equity-Income (2) 0.49% 0.09% 0.58%
Growth (2) 0.59% 0.09% 0.68%
Overseas (2) 0.74% 0.17% 0.91%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (2) 0.54% 0.10% 0.64%
Contrafund (2) 0.59% 0.11% 0.70%
Index 500 0.24% 0.11% 0.35%
FEDERATED INSURANCE MANAGEMENT SERIES
Utility II (3) (after fee waiver or expense reimbursement) 0.68% 0.25% 0.93%
U.S. Government Securities II (3) (after fee waiver or 0.52% 0.33% 0.85%
expense reimbursement)
High Income Bond II 0.60% 0.18% 0.78%
IAI Retirements Funds, Inc.
IAI Regional 0.65% 0.29% 0.94%
IAI Balanced (4) (net of expense reimbursements) 0.65% 0.37% 1.02%
IAI Reserve (4) (net of expense reimbursements) 0.45% 0.23% 0.68%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond 0.47% 0.09% 0.56%
Balanced 0.47% 0.08% 0.55%
THE ALGER AMERICAN FUND
Income and Growth 0.625% 0.075% 0.70%
Small Capitalization 0.85% 0.04% 0.89%
Growth 0.75% 0.04% 0.84%
Midcap Growth 0.80% 0.04% 0.84%
Leveraged Allcap (5) 0.85% 0.11% 0.96%
</TABLE>
- --------------------------
(1) Other expenses are based on the gross expenses of the Portfolios before
expense offset arrangements for the fiscal year ended December 31, 1998.
The information for Growth, and Worldwide Growth is net of fee reductions
from Janus Capital. Without such reductions, the Management Fee, Other
Expenses and Total Operating Expenses for the Portfolios would have been
0.72%, 0.03% and 0.75% for Growth Portfolio; and 0.67%, 0.07%, and 0.74%
for Worldwide Growth Portfolio respectively. Janus Capital has agreed to
continue these fee reductions until at least the next annual renewal of the
advisory agreements.
(2) A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. Including this reduction, total operating expenses would have
been for Equity Income -- 0.57%, for Growth -- 0.66%, for Overseas -- 0.89%,
for Asset Manager -- 0.63%, and for Contrafund -- 0.66%.
(3) 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 1.00%, respectively, for the Utility Fund II; and
0.60% and 0.93%, respectively, for the U.S. Government Securities II.
(4) The expense figures shown are net of expenses reimbursements from Investment
Advisers, Inc. Without such reimbursements, Management Fees and Total
Portfolio Expenses for the Portfolios are estimated as follows: 0.65% and
1.37% for Balanced Portfolio, and 0.45% and 1.69% for Reserve Portfolio.
(5) Included in the Other Expenses of this Portfolio is 0.034% of interest
expense.
Examples
IF YOU SURRENDER YOUR CONTRACT AT THE END OF THE APPLICABLE TIME PERIOD, YOU
WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING 5% ANNUAL
RETURN ON ASSETS.
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Janus Flexible Income $88 $129 $159 $256
Janus Balanced $88 $129 $160 $257
Janus Growth $87 $128 $157 $251
Janus Aggressive Growth $88 $130 $160 $258
Janus Worldwide Growth $88 $129 $159 $255
Fidelity VIP Money Market $84 $117 $137 $211
Fidelity VIP Equity-Income $86 $125 $152 $241
Fidelity VIP Growth $87 $128 $157 $251
Fidelity VIP Overseas $89 $134 $169 $275
Fidelity VIP II Contrafund $87 $128 $158 $253
Fidelity VIP II Asset Manager $87 $126 $155 $247
Fidelity VIP II Index 500 $84 $118 $140 $216
IAI Regional $90 $135 $170 $278
IAI Balanced $90 $137 $174 $286
IAI Reserve $87 $128 $157 $251
Federated Utility II $89 $135 $170 $277
Federated U.S. Government Securities II $89 $132 $165 $268
Federated High Income Bond II $88 $130 $162 $261
Scudder Bond $86 $124 $151 $239
Scudder Balanced $86 $124 $150 $237
Alger American Income and Growth $87 $128 $158 $253
Alger American Small Capitalization $89 $134 $168 $273
Alger American Growth $88 $131 $162 $262
Alger American Midcap Growth $89 $132 $165 $267
Alger American Leveraged AllCap $90 $136 $171 $280
</TABLE>
If you annuitize or if you do not surrender your contact at the end of the
applicable time period, you would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Years 5 Years 10 Years
- --------------------------------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
Janus Flexible Income $23 $70 $119 $256
Janus Balanced $23 $70 $120 $257
Janus Growth $22 $68 $117 $251
Janus Aggressive Growth $23 $70 $120 $258
Janus Worldwide Growth $23 $69 $119 $255
Fidelity VIP Money Market $18 $57 $97 $211
Fidelity VIP Equity-Income $21 $65 $112 $241
Fidelity VIP Growth $22 $68 $117 $251
Fidelity VIP Overseas $24 $75 $129 $275
Fidelity VIP II Contrafund $22 $69 $118 $253
Fidelity VIP II Asset Manager $22 $67 $115 $247
Fidelity VIP II Index 500 $19 $58 $100 $216
IAI Regional $25 $76 $130 $278
IAI Balanced $26 $78 $134 $286
IAI Reserve $22 $68 $117 $251
Federated Utility II $25 $76 $130 $278
Federated U.S. Government Securities II $24 $73 $125 $268
Federated High Income Bond II $23 $71 $122 $261
Scudder Bond $21 $65 $111 $239
Scudder Balanced $21 $64 $110 $237
Alger American Income and Growth $22 $69 $118 $253
Alger American Small Capitalization $24 $75 $128 $273
Alger American Growth $23 $72 $122 $262
Alger American Midcap Growth $24 $73 $125 $267
Alger American Leveraged AllCap $25 $77 $131 $280
</TABLE>
*We will waive the Withdrawal Charge if you select a settlement option that
provides for payments over at least 5 years or over the annuitant's lifetime.
EXPLANATION OF FEE TABLES AND EXAMPLES
1. We have included the table and examples shown above to assist you in
understanding the costs and expenses that you will bear directly or
indirectly by investing in the Separate Account. The table reflects
expenses of the Separate Account as well as the Portfolios. For additional
information, you should read "Contract Charges," which begins on page [31]
below; you should also read the sections relating to management of the
Portfolios in their prospectuses. The examples do not include any taxes or
tax penalties you may be required to pay if you surrender your Contract.
2. The examples assume that you did not make any transfers. We are currently
waiving the Transfer Fee, but in the future, we may decide to charge $25
for the second and each subsequent transfer within a calendar month.
Premium taxes are not reflected. Currently, we deduct premium taxes (which
range from 0% to 3.5%) from Contract Value upon full surrender, death or
annuitization.
3. To reflect the Contract Administration Charge in the Examples, we applied
an equivalent percentage charge, which we calculated by dividing the total
amount of Contract Administration Charges expected to be collected during a
year by the total estimated average net assets of the Subaccounts and the
Fixed Account attributable to the Contracts.
4. The Examples reflect any Free Withdrawal Amounts.
================================================================================
Neither the fee tables nor the Examples should be considered representations of
past or future expenses. Your actual expenses may be greater or less than those
shown. Similarly, the annual rate of return of 5% assumed in the example is not
an estimate or guarantee of future investment performance.
================================================================================
<PAGE>
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT
The following are answers to some of the questions you may have about some of
the more important features of the Contract. The Contract is more fully
described in the rest of the Prospectus. Please ready the Prospectus carefully.
1. What is the Contract?
The Contract is a flexible premium deferred variable annuity contract. It is
designed for tax-deferred retirement investing. The Contract is available for
non-qualified or qualified retirement plans. The Contract, like all deferred
annuity contracts, has two phases: the Accumulation Period and the Annuity
Period. During the Accumulation Period, earnings accumulate on a tax-deferred
basis and are taxed as income when you make a withdrawal. The Annuity Period
begins when you begin receiving payments under one of the annuity payment
options described in Answers to Questions. The Contract Value accumulated under
your Contract during the Accumulation Period will be used to determine the
amount of your annuity payments during the Annuity Period.
Your premiums are invested in one or more of the Subaccounts of the Separate
Account or allocated to the Fixed Account, as you instruct us. The value of your
Contract will depend on the investment performance of the Subaccounts and the
amount of interest we credit to the Fixed Account.
Each Subaccount will invest in a single investment portfolio (a "Portfolio") of
a mutual fund. The Portfolios offer a range of investment objectives, from
conservative to aggressive. You bear the entire investment risk on amounts
allocated to the Subaccounts.
In some states, you may allocate all or part of the value of your Contract to
what we call the "Fixed Account". We guarantee that we will credit interest on
amounts allocated the Fixed Account at an effective annual rate of at least 3%.
We may credit a higher rate of interest. The Fixed Account offers you an
opportunity to protect your principal and earn at least a guaranteed rate of
interest.
2. What annuity options does the Contract offer?
You may receive annuity payments on a fixed or a variable basis or a combination
of the two. We offer a variety of annuity options including:
(a) a life annuity;
(b) a life annuity with payments guaranteed for five to twenty years;
(c) a joint and full Survivorship annuity; and
(d) fixed payments for a specified period of five to twenty-five years.
Call us to inquire about other options.
You may change your annuity option at any time prior to annuitization. You may
select the date to annuitize the Contract. The date you select, however, may be
no later than the later of the tenth Contract Anniversary or the tenth day of
the month following the Annuitant's 90th birthday. If your Contract was issued
in connection with a qualified plan, different deadlines may apply. In addition,
we can refuse to permit you to select a date within two years of our issuing
your Contract, unless the law requires us to permit it.
If you select annuity payments on a variable basis, the amount of our payments
to you will be affected by the investment performance of the Subaccounts you
have selected. The fixed portion of your annuity payments, on the other hand,
generally will equal in amount to the initial payment we determine. Contract
Value that is allocated to the Fixed Account at the end of the Accumulation
Period cannot be applied to a variable annuity payment option. Accordingly, if
you wish to apply any portion of your Fixed Account balance to a variable
annuity payment option, you should plan ahead and transfer that amount from the
Fixed Account to the Separate Account before you annuitize the Contract.
3. How do I buy a Contract?
You can obtain a Contract application from your Lincoln Benefit agent. You must
pay at least $1,200 in premiums during the first Contract Year. Premium payments
must be at least $100, unless you enroll in an automatic payment plan. Your
periodic payments in an automatic payment plan must be at least $25 per month.
We may lower these minimums at our sole discretion. We will not issue a Contract
to you if either you or the Annuitant are age 86 or older before we receive your
application.
4. What are my investment choices under the Contract?
You can allocate and reallocate your investment among the Subaccounts, each of
which in turn invests in a single Portfolio. Under the Contract, the Separate
Account currently invests in the following Portfolios:
Fund Portfolio
- --------------------------------------------------------------------------------
Janus Aspen Series Flexible Income Portfolio
Balanced Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
- --------------------------------------------------------------------------------
Fidelity Variable Money Market Portfolio
Insurance Equity-Income Portfolio
Products Fund Growth Portfolio
Overseas Portfolio
- --------------------------------------------------------------------------------
Fidelity Variable Asset Manager Portfolio
Insurance Contrafund Portfolio
Products Fund II Index 500
- --------------------------------------------------------------------------------
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 Bond Portfolio Class A
Life Investment Balanced Portfolio Class A
Fund
- --------------------------------------------------------------------------------
Alger American Small Capitalization Portfolio
Fund MidCap Growth Portfolio
Growth Portfolio
Leveraged AllCap Portfolio
Income and Growth Portfolio
- --------------------------------------------------------------------------------
Some of the Portfolios described in this Prospectus may not be available in your
Contract. Each Portfolio holds its assets separately from the assets of the
other Portfolios. Each Portfolio has distinct investment objectives and policies
which are described in the accompanying prospectuses for the Portfolios.
In addition, the Fixed Account is available in some states.
5. What are my expenses under the Contract?
CONTRACT ADMINISTRATION CHARGE. During the Accumulation Period only, each year
we subtract $25 from your Contract Value as an annual contract administration
charge. We cannot increase the amount of this charge.
ADMINISTRATIVE EXPENSE CHARGE AND MORTALITY AND EXPENSE RISK ChARGE. We impose a
mortality and expense risk charge at an annual rate of 1.25% of average daily
net assets and an administrative expense charge at an annual rate of .15% of
average daily net assets. These charges are assessed each day during the
Accumulation Period and the Annuity Period. We guarantee that we will not raise
these charges.
TRANSFER FEE. We currently do not charge a transfer fee. The Contract permits us
to charge you up to $25 per transfer for each transfer after the first transfer
in each month.
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE). During the Accumulation
Period, you may withdraw all or part of the value of your Contract before your
death or, if the Contract is owned by a company or other legal entity, before
the Annuitant's death. The Withdrawal Charge, which is a contingent deferred
sales charge, will vary depending on how many complete years have passed since
you paid the Purchase Payment being withdrawn. The Withdrawal Charge applies to
each Purchase Payment for seven complete years from the date of the Payment
(each a "Contribution Year")
Contribution Applicable
Year Charge
1-2 7%
3 6%
4 5%
5 4%
6 3%
7 2%
8+ 0%
In determining Withdrawal Charges, we will deem your Purchase Payments to be
withdrawn on a first-in first-out basis.
Certain withdrawals may be made without payment of any Withdrawal Charge. We may
impose a Withdrawal Charge upon annuitization only if you select an annuity
option under which we will make payments for a fixed period of less than five
years. In some states, we also may waive the Withdrawal Charge under our
confinement waiver benefit. Additional restrictions and costs may apply to
Contracts issued in connection with qualified plans. In addition, withdrawals
may trigger tax liabilities and penalties. You should consult with your tax
counselor to determine what effect a withdrawal might have on your tax
liability.
In most states, each year, free of Withdrawal Charge, you may withdraw:
(a) the greater of:
- 15% of your total Purchase Payments made in the most recent seven
years, if permitted under state law; or
- earnings not previously withdrawn; plus
(b) an amount equal to your total Purchase Payments made more than seven years
ago, to the extent not previously withdrawn.
Because of differences in state law, in some states we substitute 10% in this
formula.
PREMIUM TAXES. Certain states impose a premium tax on annuity purchase payments
received by insurance companies. Any applicable premium taxes are deducted from
the value of your Contract upon surrender, death, or annuitization. State
premium taxes generally range from 0% to 3.5%.
OTHER EXPENSES. In addition to our charges under the Contract, each Portfolio
deducts amounts from its assets to pay its investment advisory fees and other
expenses.
6. How will my investment in the Contract be taxed?
You should consult a qualified tax adviser for personalized answers. Generally,
earnings under variable annuities are not taxed until amounts are withdrawn or
distributions are made. This deferral of taxes is designed to encourage
long-term personal savings and supplemental retirement plans. The taxable
portion of a withdrawal or distribution is taxed as ordinary income.
Special rules apply if the Contract is owned by a company or other legal entity.
Generally, such an owner must include in income any increase in the excess of
the Contract Value over the "investment in the contract" during the taxable
year.
7. Do I have access to my money?
At any time during the Accumulation Period, we will pay you all or part of the
value of your Contract, minus any applicable charge, if you surrender your
Contract or request a partial withdrawal. Under some plans, you may also take a
loan against the value of your Contract. Generally, a partial withdrawal must
equal at least $250. Under our Systematic Withdrawal Program, however, the
minimum amount of each withdrawal payment is $50.
While you have access to your money during the Accumulation Period, certain
charges, such as the contract administration charge, the Withdrawal Charge, and
premium tax charges may be deducted on a surrender or withdrawal. In addition,
you may incur federal income tax liability or tax penalties.
After annuitization, under certain settlement options you may be entitled to
withdraw the commuted value of the remaining payments.
8. What is the death benefit?
We will pay a death benefit while the Contract is in force and before the
Annuity Date, if the Contract Owner dies, or if the Annuitant dies and the
Contract Owner is not a natural person. To obtain payment of the Death Benefit,
the Beneficiary must submit to us written proof of death as specified in the
Contract.
The death benefit is the greater of 1) the "floor value" or 2) the Contract
Value less any premium tax. During the first seven years of the Contract, the
floor value is equal to your total Purchase Payments less prior withdrawals, all
accumulated at 4% per year until the Contract Anniversary next following your
75th birthday and at 0% per year thereafter. 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 and, in subsequent years, the floor value
will be calculated using the "stepped up" value in place of the actual Purchase
Payments and withdrawals during the first seven Contract years.
We will determine the value of the death benefit on the day that we receive all
of the information that we need to process the claim.
9. What else should I know?
ALLOCATION OF PURCHASE PAYMENTS. You allocate your initial Purchase Payment
among the Subaccounts and the Fixed Account in your Contract application.
Percentages must be in whole numbers and the total allocation must equal 100%.
When you make subsequent Purchase Payments, you may again specify how you want
your payments allocated. If you do not, we will automatically allocate the
payment based on your most recent instructions. You may not allocate Purchase
Payments to the Fixed Account if it is not available in your state.
TRANSFERS. During the Accumulation Period, you may freely transfer Contract
Value among the Subaccounts and from the Subaccounts to the Fixed Account. You
may instruct us to transfer Contract Value by writing or calling us. While you
may also transfer amounts from the Fixed Account, certain restrictions may
apply. No transfers are permitted after the Annuity Date.
You may also use our automatic dollar cost averaging or portfolio rebalancing
programs. You may not use both programs at the same time.
Under the dollar cost averaging program, amounts are automatically transferred
at regular intervals from the Fixed Account or a Subaccount of your choosing to
up to eight options, including other Subaccounts or the Fixed Account. Transfers
may be made monthly, quarterly, or annually.
Under the portfolio rebalancing program, you can maintain the percentage of your
Contract Value allocated to each Subaccount at a pre-set level. Investment
results will shift the balance of your Contract Value allocations. If you elect
rebalancing, we will automatically transfer your Contract Value back to the
specified percentages at the frequency (monthly, quarterly, semiannually,
annually) that you specify. You may not elect rebalancing after annuitization.
FREE-LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or after whatever longer period may be permitted by
state law. You may return it by delivering it or mailing it to us. If you return
the Contract, the Contract terminates and, in most states, we will pay you an
amount equal to the Contract Value on the date we receive the Contract from you.
The Contract Value may be more or less than your Purchase Payments. In some
states, we are required to send you the amount of your Purchase Payments. Since
state laws differ as to the consequences of returning a Contract, you should
refer to your Contract for specific information about your circumstances.
10. Who can I contact for more information? You can write to us at Lincoln
Benefit Life Company, P.O. Box 82532, Lincoln, Nebraska 68501-2532, or call us
at (800) 525-9287.
<PAGE>
CONDENSED FINANCIAL INFORMATION
Attached as Appendix A is a table showing selected information concerning
Accumulation Unit Values for each Subaccount for 1994, 1995, 1996, 1997 and
1998. Accumulation Unit Value is the unit of measure that we use to calculate
the value of your interest in a Subaccount. Accumulation Unit Value does not
reflect the deduction of certain charges that are subtracted from your Contract
Value, such as the Contract Administration Charge. To obtain a fuller picture of
each Subaccount's finances and performance, you should also review the Separate
Account's financial statements, which are in the Separate Account's Annual
Report dated as of December 31, 1998, contained in the Statement of Additional
Information. The Statement of Additional Information also includes a brief
explanation of how performance of the Subaccounts is calculated.
DESCRIPTION OF THE CONTRACTS
Summary. The Contract is a deferred annuity contract designed to aid you in
long-term financial planning. You may add to the Contract Value by making
additional Purchase Payments. In addition, the Contract Value will change to
reflect the performance of the Subaccounts to which you allocate your Purchase
Payments and your Contract Value, as well as to reflect interest credited to
amounts allocated to the Fixed Account. You may withdraw your Contract Value by
making a partial withdrawal or by surrendering your Contract. Upon
Annuitization, we will pay you benefits under the Contract in the form of an
annuity, either for the life of the Annuitant or for a fixed number of years.
All of these features are described in more detail below.
Contract Owner. As the Contract Owner you are the person usually entitled to
exercise all rights of ownership under the Contract. You usually are also the
person entitled to receive benefits under the Contract or choose someone else to
receive benefits. If your Contract was issued under a Qualified Plan, however,
the Plan may limit or modify your rights and privileges under the Contract and
may limit your right to choose someone else to receive benefits. We will not
issue a Contract to a purchaser who has attained age 86, or where the Annuitant
has attained age 86.
Annuitant. The Annuitant is the living person whose life span is used to
determine annuity payments. You initially designate an Annuitant in your
application. You may change the Annuitant at any time before annuity payments
begin. If your Contract was issued under a plan qualified under Section 403(b),
408, or 408A of the Tax Code, you must be the Annuitant. You may also designate
a Joint-Annuitant, who is a second person on whose life annuity payments depend.
Additional restrictions may apply in the case of Qualified Plans. If you are not
the Annuitant and the Annuitant dies before annuity payments begin, then either
you become the new Annuitant or you must name another person as the new
Annuitant. You must attest that the Annuitant is alive in order to annuitize
your Contract.
Modification of the Contract. Only a Lincoln Benefit Life officer may approve a
change in or waive any provision of the Contract. Any change or waiver must be
in writing. None of our agents has the authority to change or waive the
provisions of the Contract.
We are permitted to change the terms of the Contract if it is necessary to
comply with changes in the law. If a provision of the Contract is inconsistent
with state law, we will follow state law.
Assignment. Before the Annuity Date, if the Annuitant is still alive, you may
assign a Contract issued under a Non-Qualified Plan that is not subject to Title
1 of the Employee Retirement Income Security Act of 1974 ("ERISA"). If a
Contract is issued pursuant to a Qualified Plan or a Non-Qualified Plan that is
subject to Title 1 of ERISA, the law prohibits some types of assignments,
pledges and transfers and imposes special conditions on others. An assignment
may also result in taxes or tax penalties.
We will not be bound by any assignment until we receive written notice of it.
Accordingly, until we receive written notice of an assignment, we will continue
to act as though the assignment had not occurred. We are not responsible for the
validity of any assignment.
Because of the potential tax consequences and ERISA issues arising from an
assignment, you should consult with an attorney before trying to assign your
Contract.
Free Look Period. You may cancel the Contract by returning it to us within 10
days after you receive it, or within whatever longer period may be permitted by
state law. You may return it by delivering it to your agent or mailing it to us.
If you return the Contract, the Contract terminates and, in most states, we will
pay you an amount equal to the Contract Value on the date we receive the
Contract from you. The Contract Value at that time may be more or less than your
Purchase Payments. In some states, if you exercise your "free look" rights, we
are required to return the amount of your Purchase Payments. Your Contract will
contain specific information about your free-look rights in your state.
PURCHASES AND CONTRACT VALUE
Minimum Purchase Payment. The minimum initial Purchase Payment for a Contract is
$1,200. You may pay it in a lump sum or in installments of your choice over the
first Contract Year. You may not pay more than $1 million in Purchase Payments
without our prior approval. As a general rule, subsequent Purchase Payments may
be made in amounts of $100 or more. Subsequent Purchase Payments made as part of
an Automatic Payment Plan, however, may be as small as $25 per month. We may
lower these minimums if we choose. We may refuse any Purchase Payment at any
time.
Automatic Payment Plan. You may make scheduled Purchase Payments of $25 or more
per month by automatic payment through your bank account. Call or write us for
an enrollment form.
Allocation of Purchase Payments. Your Purchase Payments are allocated to the
Subaccount(s) and the Fixed Account in the proportions that you have selected.
You must specify your allocation percentages in your Contract application.
Percentages must be in whole numbers and the total allocation must equal 100%.
We will allocate your subsequent Purchase Payments in those percentages, until
you give us new allocation instructions. You may not allocate Purchase Payments
to the Fixed Account if it is not available in your state.
If your application is complete, we will issue your Contract within two business
days of its receipt at our P.O. Box shown on the first page of this prospectus.
If your application for a Contract is incomplete, we will notify you and seek to
complete the application within five business days. For example, if you do not
fill in allocation percentages, we will contact you to obtain the missing
percentages. If we cannot complete your application within five business days
after we receive it, we will return your application and your Purchase Payment,
unless you expressly permit us to take a longer time.
Usually, we will allocate your initial Purchase Payment to the Subaccounts and
the Fixed Account, as you have instructed us, on the Issue Date. We will
allocate your subsequent Purchase Payments on the date that we receive them at
the next computed Accumulation Unit Value.
In some states, however, we are required to return at least your Purchase
Payment if you cancel your Contract during the "free-look" period. In those
states, we currently will allocate your Purchase Payments on the Issue Date as
you have instructed us, as described above. In the future, however, we reserve
the right, if you live in one of those states, to allocate all Purchase Payments
received during the "free-look period" to the Fidelity Money Market Subaccount.
If we exercise that right and your state's free look period is ten days, we will
transfer your Purchase Payments to your specified Subaccounts or the Fixed
Account 20 days after the Issue Date; if your state's free look period is
longer, we will transfer your Purchase Payment after ten days plus the period
required by state law have passed.
We determine the number of Accumulation Units in each Subaccount to allocate to
your Contract by dividing that portion of your Purchase Payment allocated to a
Subaccount by that Subaccount's Accumulation Unit Value on the Valuation Date
when the allocation occurs.
Contract Value. We will establish an account for you and will maintain your
account during the Accumulation Period. The total value of your Contract at any
time is equal to the sum of the value of your Accumulation Units in the
Subaccounts you have selected, plus the value of your interest in the Fixed
Account.
Separate Account Accumulation Unit Value. As a general matter, the Accumulation
Unit Value for each Subaccount will rise or fall to reflect changes in the share
price of the Portfolio in which the Subaccount invests. In addition, we subtract
from Accumulation Unit Value amounts equal to the Mortality and Expense Risk
Charge, Administrative Expense Charge, and any provision for taxes that have
accrued since we last calculated the Accumulation Unit Value. We determine
Withdrawal Charges, Transfer Fees and Contract Administration Charges separately
for each Contract. They do not affect Accumulation Unit Value. Instead, we
obtain payment of those charges and fees by redeeming Accumulation Units.
We determine a separate Accumulation Unit Value for each Subaccount. 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-Qualified and
Qualified Plans, respectively, within each Subaccount. We will determine the
Accumulation Unit Value Monday through Friday on each day that the New York
Stock Exchange is open for business.
You should refer to the prospectuses for the Portfolios which accompany this
prospectus for a description of how the assets of each Portfolio are valued,
since the determination has a direct bearing on the Accumulation Unit Value of
the corresponding Subaccount and, therefore, your Contract Value.
Transfer During Accumulation Period. During the Accumulation Period, you may
transfer Contract Value among the Fixed Account and Subaccounts in writing or by
telephone. YOU MAY NOT MAKE A TRANSFER AFTER THE ANNUITY DATE. Currently, there
is no minimum transfer amount. The Contract permits us to set a minimum transfer
amount in the future.
As a general rule, we only make transfers on days when we and the NYSE are open
for business. If we receive your request on one of those days, we will make the
transfer that day. We close our offices for business on certain days immediately
preceding or following certain national holidays when the NYSE is open for
business. For calendar year 1999, our offices will be closed on July 5th,
November 26th, December 24th and December 31st. For transfers requested on these
days, we will make the transfer on the first subsequent day on which we and the
NYSE are open.
We have established special requirements for transfers from the Fixed Account.
You may make a lump sum transfer from the Fixed Account to the Subaccounts only
during the 60 day period beginning on the Issue Date and each Contract
Anniversary. Transfers pursuant to a Dollar Cost Averaging or Portfolio
Rebalancing Program may occur at any time at the intervals you have selected.
The maximum amount which may be transferred as a lump sum from the Fixed Account
during a Contract Year usually is the greater of:
- 30% of the Fixed Account balance on the most recent Contract
Anniversary; or
- the largest amount transferred from the Fixed Account in any prior
Contract Year.
This limit also applies to transfers under a Dollar Cost Averaging program,
unless you choose to transfer your entire Fixed Account balance to Subaccounts.
In that case, the maximum monthly transfer amount may not be more than 1/36th of
your Fixed Account balance on the day of the first transfer. We may waive or
modify these restrictions on transfers from the Fixed Account. You may not
transfer Account Value or allocate new Purchase Payments into the Fixed Account,
if transfers are being made out under the Dollar Cost Averaging program.
In addition, you may transfer 100% of the Fixed Account balance in a lump sum to
the Subaccount(s), if on any Contract Anniversary either (a) or (b) is true:
(a) The interest rate on the Fixed Account is lower than it was on the Contract
Anniversary one year previously or if on the First Contract Anniversary
that interest rate is lower than it was on the Issue Date; or
(b) The credited interest rate is less than 4%.
We will notify you by mail if (a) or (b) occurs. You may request a transfer for
60 days following the date we mail notification to you.
The Contract permits us to defer transfers from the Fixed Account for up to six
months from the date you ask us. Also, we may restrict transfers from the
Subaccounts to the Fixed Account in each Contract Year to no more than 30% of
the total Subaccount balances as of the most recent Contract Anniversary. We
currently are not imposing this restriction on transfers from the Subaccounts.
Transfers Authorized by Telephone. You may make transfers by telephone, if you
first send us a completed authorization form. The cut off time for telephone
transfer requests is 4:00 p.m. Eastern time. Calls completed before 4:00 p.m.
will be effected on that day at that day's price. Calls completed after 4:00
p.m. will be effected on the next day on which we and the NYSE are open for
business, at that day's price.
We may charge you the Transfer Fee described on page [32] below, although we
currently are waiving it. In addition, we may suspend, modify or terminate the
telephone transfer privilege at any time without notice.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
Automatic Dollar Cost Averaging Program. Under our Automatic Dollar Cost
Averaging program, you may authorize us to transfer a fixed dollar amount at
fixed intervals from the Fixed Account or a Subaccount (the "Source Subaccount")
of your choosing to up to eight options, including other Subaccounts or the
Fixed Account. The interval between transfers may be monthly, quarterly, or
annually, at your option. The transfers will be made at the Accumulation Unit
Value on the date of the transfer. The transfers will continue until you
instruct us otherwise, or until your chosen source of transfer payments is
exhausted. Currently, the minimum transfer amount from the Source Subaccount is
$100. We may change this minimum or grant exceptions. If you elect this program,
the first transfer will occur one interval after your Issue Date.
Your request to participate in this program will be effective when we receive
your completed application or service request form at the P.O. Box given on the
first page of this prospectus. Call or write us for a copy of the application.
You may increase, decrease or change the frequency or amount of Purchase
Payments under a Dollar Cost Averaging Program. Special restrictions apply to
transfers from the Fixed Account. They are explained on pages 15-16 above.
The theory of dollar cost averaging is that you will purchase greater numbers of
units when the unit prices are relatively low rather than when the prices are
higher. As a result, when purchases are made at fluctuating prices, the average
cost per unit is less than the average of the unit prices on the purchase dates.
However, participation in this program does not assure you of a greater profit
from your purchases under the program; nor will it prevent or necessarily reduce
losses in a declining market. You may not use dollar cost averaging and
portfolio rebalancing at the same time.
Portfolio Rebalancing
Portfolio rebalancing allows you to maintain the percentage of your Contract
Value allocated to each Subaccount and/or the Fixed Account at a pre-set level.
For example, you could specify that 30% of your Contract Value should be in the
Balanced Portfolio, 40% in the Growth Portfolio-Janus Aspen Series and 30% in
Federated High Income Bond Fund II. Over time, the variations in each
Subaccount's investment results will shift the balance of your Contract Value
allocations. Under the portfolio rebalancing feature, if the changes from your
desired percentages pass a threshold we establish, we will automatically
transfer your Contract Value, including new premium (unless you specify
otherwise), back to the percentages you specify. Portfolio rebalancing is
consistent with maintaining your allocation of investments among market
segments, although it is accomplished by reducing your Contract Value allocated
to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually until your Annuity Date; portfolio rebalancing is not available after
you annuitize. No Transfer Fees will be charged for portfolio rebalancing. No
more than eight Subaccounts, or seven Subaccounts and the Fixed Account, can be
included in a portfolio rebalancing program at one time.
In any Contract Year, transfers from the Fixed Account under a portfolio
rebalancing program are subject to the overall limit on transfers from the Fixed
Account. Accordingly, if the total amount transferred from the Fixed Account
reaches that limit before the end of a Contract Year, we will not transfer
additional amounts from the Fixed Account for portfolio rebalancing purposes
until the next Contract Year.
You may request portfolio rebalancing at any time before your Annuity Date by
submitting a completed written request to us at the P.O. Box given on the first
page of this prospectus. Please call or write us for a copy of the request form.
If you stop portfolio rebalancing, you must wait 30 days to begin again. In your
request, you may specify a date for your first rebalancing. If you specify a
date fewer than 30 days after your Issue Date, your first rebalance will be
delayed one month. If you do not specify a date for your first rebalancing, your
first rebalance will occur one period after the Issue Date, if you request
portfolio rebalancing in your Contract application. Otherwise, your first
rebalancing will occur one period after we receive your completed request form.
All subsequent rebalancing will occur at the intervals you have specified on the
day of the month that coincides with the same day of the month as your Contract
Anniversary Date.
Generally, you may change the allocation percentages, frequency, or choice of
Subaccounts at any time. If you include the Fixed Account in a portfolio
rebalancing program, however, in any given twelve-month period you may not
change the allocation percentages more than twice and the total change to the
Fixed Amount allocation may not exceed 20%. We may waive this restriction.
If the total Contract Value subject to rebalancing falls below any minimum value
that we may establish, we may prohibit or limit your use of portfolio
rebalancing. You may not use dollar cost averaging and portfolio rebalancing at
the same time. We may change, terminate, limit, or suspend portfolio rebalancing
at any time.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
Separate Account Investments
The Portfolios. Each of the Subaccounts of the Separate Account invests in the
shares of one of the Portfolios. Each Portfolio is either an open-end management
investment company registered under the Investment Company Act of 1940 or a
separate investment series of an open-end management investment company. We have
briefly described the Portfolios below. You should consult the current
prospectuses for the Portfolios for more detailed and complete information
concerning the Portfolios. If you do not have a prospectus for a Portfolio,
contact us and we will send you a copy. Appendix B contains a description of how
advertised performance data for the Subaccounts are computed.
Some of the Portfolios have been established by investment advisers which manage
publicly traded mutual funds having similar names and investment objectives.
While some of the Portfolios may be similar to, and may in fact be modeled after
publicly traded mutual funds, you should understand that the Portfolios are not
otherwise directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any similarly named
Portfolio may differ substantially.
Amounts you have allocated to Subaccounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Subaccounts invest. You bear the investment risk that
those Portfolios possibly will not meet their investment objectives. You should
carefully review their prospectuses before allocating amounts to the Subaccounts
of the Separate Account.
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
appreciation. Except during temporary defensive periods, the Portfolio invests
at least 65% of its total assets in equity securities of companies that, at the
time of purchase, have a total market capitalization within the range of
companies included in the Russell 2000 Growth Index or the S&P SmallCap 600
Index. The portfolio may invest its remaining assets in equity securities of
companies that, at the time of purchase, have total market capitalization
outside of this combined range.
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
capitalization of $1 billion or greater. The Portfolio may invest up to 35% of
its total assets in equity securities of companies that have total market
capitalization of less than $1 billion.
ALGER AMERICAN MIDCAP GROWTH 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 capitalization
within the range of companies included in the S&P MidCap 400 Index.
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO seeks long-term capital appreciation.
Except during temporary defensive periods, the Portfolio invests at least 85% of
its net assets in equity securities of companies of any size. The Portfolio may
purchase put and call options and sell (write) covered call and put options on
securities and 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 current income.
This Portfolio invests in all types of income-producing securities. This
Portfolio may have substantial holdings of debt securities rated below
investment grade. Investments in such securities present special risks; you are
urged to carefully read the risk disclosure in the accompanying prospectus for
the Portfolio before allocating amounts to the Janus Flexible Income Subaccount.
BALANCED PORTFOLIO seeks long-term growth of capital balanced by current income.
This Portfolio usually invests 40-60% of its assets in securities selected
primarily for their growth potential and 40-60% of its assets in securities
selected primarily for their income potential.
GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily in a
diversified portfolio of common stocks of a large number of issuers of any size.
Generally, this Portfolio emphasizes issuers with larger market capitalizations.
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. It is a
non-diversified fund. It usually invests at least 50% of its equity assets in
securities issued by medium-sized companies, which are companies whose market
capitalizations at the time of purchase by the Portfolio fall within the same
range as companies in the S&P MidCap 400 Index. This range is expected to change
on a regular basis. This Portfolio may invest its remaining assets in smaller or
larger issuers.
WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of any
size. This Portfolio usually invests in issuers from at least five different
countries including the United States.
Fidelity Variable Insurance Products Fund (investment adviser: Fidelity
Management & Research Company)
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. This Portfolio will
invest in high-quality U.S. dollar-denominated money market securities of
domestic and foreign issues, including U.S. Government securities and repurchase
agreements.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. The goal is to achieve a higher yield than
the composite yield of the S&P 500 Composite Stock Price Index. At least 65% of
this Portfolio's assets will be invested in income producing common or preferred
stock. The fund has the flexibility, however, to invest the balance in all types
of domestic securities, including bonds.
GROWTH PORTFOLIO seeks to achieve capital appreciation. This Portfolio usually
purchases common stocks, although its investments are not restricted to any one
type of security.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. At least 65% of this Portfolio's assets will
be invested in securities of issuers outside of the United States. The fund
normally diversifies its investments across different countries and regions.
Fidelity Variable Insurance Products Fund II (investment adviser: Fidelity
Management & Research Company)
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced risk over
the long term by allocating its assets among domestic and foreign stocks, bonds,
and short-term money market securities. Usually, this Portfolio's assets will be
allocated within the following guidelines: 50-100% in stocks (equities); 0-50%
in bonds (intermediate to long-term); and 0-50% in short-term instruments.
CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in equity
securities of companies whose value the Portfolio's adviser believes is not
fully recognized by the public. This Portfolio usually invests primarily in
common stock of domestic and foreign issuers, 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 potentially 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 seeks capital appreciation by investing at least 80% of
its equity investments in companies that have their headquarters in Minnesota,
Wisconsin, Iowa, Illinois, Nebraska, Montana, North Dakota or South Dakota.
IAI BALANCED PORTFOLIO'S investment objective is to maximize total return to
investors. This Portfolio pursues its objective by investing in a broadly
diversified portfolio of stocks, bonds and short-term instruments. Under normal
market conditions, the Portfolio will hold between 25% and 75% of its assets 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
consistent with these primary objectives, a high level of current income. This
Portfolio pursues its investment objectives by investing primarily in a
diversified portfolio of investment grade bonds and other debt securities of
similar quality. This Portfolio's dollar weighted average maturity will not
exceed 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 guaranteed by
the U.S. Government, its agencies, or instrumentalities. This Portfolio may also
invest in certain collateralized mortgage obligations ("CMOs") and repurchase
agreements.
FEDERATED HIGH INCOME BOND FUND II'S investment objective is to seek high
current income. This Portfolio invests at least 65% of its assets in lower rated
corporate debt obligations, such as preferred stocks, bonds, debentures, notes,
equipment lease certificates and equipment trust certificates. Some of these
fixed income securities may involve equity features. Under normal circumstances,
this Portfolio will not invest more than 10% of the value of its total assets in
equity securities.
Scudder Variable Life Investment Fund (investment adviser: Scudder, Kemper
Investments Inc., Stevens & Clark, Inc.) The Scudder Variable Life Investment
Fund has two classes of shares. The Subaccounts invest in Class A shares, which
do not impose distribution fees.
BOND PORTFOLIO seeks high income from a high quality portfolio of debt
securities. Under normal circumstances, this Portfolio invests at least 65% of
its assets in bonds including those of the U.S. Government and its agencies and
those of corporations and other notes and bonds paying high current income. This
Portfolio can invest in a broad range of short, intermediate and long term
securities.
BALANCED PORTFOLIO seeks a balance of growth and income from a diversified
portfolio of equity and fixed income securities. The Portfolio also seeks
long-term preservation of capital through a quality-oriented investment approach
that is designed to reduce risk. The Portfolio will invest its assets in the
following three market sectors: 1) equity securities; 2) debt securities with
maturities generally exceeding one year; and 3) 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.
We automatically reinvest all dividends and capital gains distributions from the
Portfolios in shares of the distributing Portfolio at their net asset value. The
income and realized and unrealized gains or losses on the assets of each
Subaccount are separate and are credited to or charged against the particular
Subaccount without regard to income, gains or losses from any other Subaccount
or from any other part of our business. We will use the net Purchase Payments
you allocate to a Subaccount to purchase shares in the corresponding Portfolio
and will redeem shares in the Portfolios to meet Contract obligations or make
adjustments in reserves. The Portfolios are required to redeem their shares at
net asset value and to make payment within seven days.
Certain of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Lincoln Benefit will bear the attendant expenses.
Voting Rights. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Subaccounts to which you have allocated
your Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed. We will also provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of shares for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, before the Annuity Date, you are the person entitled to give
voting instructions. After the Annuity Date, the payee is that person.
Retirement plans, however, may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Contract Owners.
We may, when required by state insurance regulatory authorities, disregard
Contract Owner voting instructions if the instructions require that the shares
be voted so as to cause a change in the sub-classification or investment
objective of one or more of the Portfolios or to approve or disapprove an
investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Contract Owners, and we may choose to do so.
Substitution of Securities. If the shares of any of the Portfolios are no longer
available for investment by the Separate Account or if, in the judgment of our
Board of Directors, further investment in the shares of a Portfolio is no longer
appropriate in view of the purposes of the Contract, we may add or substitute
shares of another Portfolio or mutual fund for Portfolio shares already
purchased or to be purchased in the future by Purchase Payments under the
Contract. Any substitution of securities will comply with the requirements of
the 1940 Act.
We also reserve the right to make the following changes in the operation of the
Separate Account and the Subaccounts:
(a) to operate the Separate Accounts in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
(c) to transfer asserts from one Subaccount to another, or from any subaccount
to our general account;
(d) to add, combine, or remove Subaccounts in the Separate Account; and
(e) to change the way in which we assess charges, as long as the total charges
do not exceed the amount currently charged the Separate Account and the
Portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal
requirements.
THE FIXED ACCOUNT. THE PORTION OF THE CONTRACT RELATING TO THE FIXED ACCOUNT IS
NOT REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940.
ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS IN THE FIXED ACCOUNT
ARE SUBJEcT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE
STAFF OF THE SEC. THE STATEMENTS ABOUT THE FIXED ACCOUNT IN THIS PROSPECTUS MAY
BE SUBJECT TO GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS
REGARDING ACCURACY AND COMPLETENESS.
You may allocate part or all of your Purchase Payments to the Fixed Account in
states where it is available. Amounts allocated to the Fixed Account become part
of the general assets of Lincoln Benefit. Allstate Life invests the assets of
the general account in accordance with applicable laws governing the investments
of insurance company general accounts.
We will credit interest to amounts allocated to the Fixed Account. 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 at a higher rate, but we are not
obligated to do so. You assume the risk that interest credited to the Fixed
Account may be no higher than 3%.
Transfers from the Fixed Account are subject to the limitations described on
pages [15-16] above. Also, as described on page [16] above, we may delay payment
of partial withdrawals or Surrender Value from the Fixed Account for up to 6
months.
ANNUITY BENEFITS
Annuity Date. On your application you may select the Annuity Date, which is the
date on which annuity payments are to begin. The Annuity Date must always be the
business day on or immediately following the tenth day of a calendar month. We
may require you to pick an Annuity Date at least two years after the Issue Date,
unless the law requires us to permit you to pick an earlier date.
The Annuity Date may be no later than the Latest Annuity Date. As a general
rule, the Latest Annuity Date is the later of the 10th Contract Anniversary or
the 10th day of the month following the Annuitant's 90th birthday. If your
Contract was issued pursuant to a Qualified Plan, however, the Tax Code
generally requires you to begin to take at least a minimum distribution by the
later of:
- - the year of your separation from service; or
- - April 1 of the calendar year following the calendar year in which you
attain age 70 1/2.
If your Contract is issued pursuant to Section 408 of the Tax Code (traditional
IRAs), you must begin taking minimum distributions by April 1 of the calendar
year following the calendar year in which you reach age 70 1/2. No minimum
distributions are required by the Tax Code for Contracts issued pursuant to
Section 408A (Roth IRAs).
If you are in a Qualified Plan, we may require you to annuitize by the date
required by the Tax Code, unless you show us that you are meeting the minimum
distribution requirements in some other way.
If you do not select an Annuity Date, the Latest Annuity Date will automatically
become the Annuity Date. You may change the Annuity Date by writing to us at the
address given on the first page of the prospectus.
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 whatever shorter time state law may require. During the deferral
period, we credit interest at a rate at least as high as state law requires.
Annuity Options. You may elect an Annuity Option at any time before the Annuity
Date. If you do not select an Annuity Option, we will pay monthly annuity
payments in accordance with the applicable default option. The default Options
are:
- - Option B with 10 years (120 months) guaranteed, if you have designated only
one Annuitant; and
- - Option C, if you have designated joint Annuitants.
You may freely change your choice of Annuity Option, as long as you request the
change at least seven days before the Annuity Date. Annuity payments will be
made in monthly, quarterly, semi-annual or annual installments as you select. If
the amount available to apply under an Annuity Option is less than $5,000,
however, and state law permits, we may pay you a lump sum instead of the
periodic payments you have chosen. In addition, if the first annuity payment
would be less than $50, and state law permits us, we may reduce the frequency of
payments so that the initial payment will be at least $50.
You may not withdraw Contract Value during the annuity period, if we are making
payments to you under any Annuity Option involving payment to the Payee for life
or any combination of payments for life and minimum guaranteed payment period
for a predetermined number of years.
The following four Annuity Options are generally available under the Contract.
Each is available in the form of:
- - a Fixed Annuity;
- - a Variable Annuity; or
- - a combination of both Fixed and Variable Annuity.
OPTION A, LIFE ANNUITY. Periodic 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
option, if the Annuitant dies before the second payment is due.
OPTION B, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEaRS. Periodic
payments are made starting on the Annuity Date. Payments will continue at least
as long as the Annuitant lives. Under this option, before the Annuity Date you
select a guaranteed payment period or, if you do not select a guarantee period,
payments are guaranteed for 120 months. If the Annuitant dies before all of the
guaranteed payments have been made, we will pay the remaining guaranteed
payments to the Beneficiary.
OPTION C, JOINT AND FULL SURVIVOR ANNUITY. Periodic 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 under 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. Periodic
payments are made starting on the Annuity Date, and continue for the period you
have chosen. If the Annuitant dies before all of the guaranteed payments have
been made, we will pay the remaining guaranteed payments to the Beneficiary. If
you elect this option and request Variable Annuity payments, at any time before
the period expires you may request a lump sum payment, subject to a Withdrawal
Charge. We will charge a Withdrawal Charge on any portion of your lump sum
payment attributable to Purchase Payments made within the prior seven years. The
amount of the Withdrawal Charge will be determined as described in "Withdrawal
Charges on pages [ ] below. If you elected Variable Annuity Payments, the lump
sum payment after Withdrawal Charge will depend on:
- - the investment results of the Subaccounts you have selected,
- - the Contract Value at the time you elected annuitization,
- - and the cumulative value of the annuity payments you have received.
No lump sum payment is available if you request Fixed Annuity payments.
Fixed Account Contract Value will be applied to provide a Fixed Annuity. You may
want to plan ahead and transfer amounts to the Subaccounts, if you do not wish
to apply that Contract Value to a Fixed Annuity. If you purchased your Contract
under a retirement plan, you may have a more limited selection of Annuity
Options to choose from. You should consult your Plan documents to see what is
available.
Annuity payments begin on the Annuity Date. We make subsequent annuity payments
on the tenth of the month or, if the NYSE is closed on that day, the next day on
which the NYSE is open for business.
You may not "annuitize" your Contract for a lump sum payment. Instead, before
the Annuity Date you may surrender your Contract for a lump sum. As described in
pages [32-34] below, however, we will subtract any applicable Withdrawal Charge
from your surrender proceeds.
Other Options. We may have other Annuity Options available. You may obtain
information about them by writing or calling us.
If your Contract is issued under Sections 401, 403(b), 408, or 408A of the Tax
Code, we will only make payments to you and/or your spouse.
Death Benefit During Annuity Period. After annuity payments begin, upon the
death of the Annuitant and any Joint Annuitant, we will make any remaining
annuity payments to the Beneficiary. The amount and number of these annuity
payments will depend on the Annuity Option in effect at the time of the
Annuitant's death. For example, Options B and D require us to make payments for
a guaranteed period, even if the Annuitant dies before the end of that period.
On the other hand, under Options A and C, we are not obligated to make any
additional annuity payments once all of the Annuitants have died. After the
Annuitant's death, any remaining interest will be distributed at least as
rapidly as under the method of distribution in effect at the Annuitant's death.
In our discretion, we may permit the Beneficiary to accelerate the remaining
payments at a discounted rate reflecting the time value of money.
Variable Annuity Payments. One basic objective of the Contract is to provide
Variable Annuity payments which will to some degree respond to changes in the
economic environment. The amount of your Variable Annuity payments will depend
upon the investment results of the Subaccounts you have selected, any premium
taxes, the age and sex of the Annuitant, and the Annuity Option chosen. We
guarantee that the Payments will not be affected by (1) actual mortality
experience and (2) the amount of our administration expenses.
We cannot predict the total amount of your Variable Payments. The Variable
Payments may be more or less than your total Purchase Payments because (a)
Variable 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 their actuarial life
expectancy is achieved.
The length of any guaranteed payment period under your selected Annuity Option
will affect the dollar amounts of each Variable Payment. As a general rule,
longer guarantee periods result in lower periodic payments, all other things
being equal. For example, if a life Annuity Option with no minimum guaranteed
payment period is chosen, the Variable Payments will be greater than Variable
Payments under an Annuity Option for a minimum specified period and guaranteed
thereafter for life.
The investment results of the Subaccounts to which you have allocated your
Contract Value will also affect the amount of your periodic payment. In
calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3 1/2%. If the actual net
investment return is less than the assumed investment rate, then the dollar
amount of the Variable Payments will decrease. The dollar amount of the Variable
Payments will stay level if the net investment return equals the assumed
investment rate and the dollar amount of the Variable Payments will increase if
the net investment return exceeds the assumed investment rate.
Fixed Annuity Payments. You may choose to apply a portion of your Annuitized
Value to provide Fixed Annuity payments. We determine the Fixed Annuity payment
amount by applying the applicable Annuitized Value to the Annuity Option you
have selected. As a general rule, subsequent Fixed Annuity payments will be
equal in amount to the initial payment. We may defer making Fixed Annuity
payments for a period of up to six months or whatever shorter time state law may
require. During the deferral period, we credit interest at a rate at least as
high as state law requires.
Certain Employee Benefit Plans. In some states, the Contracts offered by this
prospectus contain life annuity tables that provide for different benefit
payments to men and women of the same age. In certain employment-related
situations, however, the U.S. Supreme Court's decision in ARIZONA GOVERNING
COMMITTEE V. NORRIS requires employers to use annuity tables that do not vary on
the basis of sex. Accordingly, if the Contract is to be used in connection with
an employment-related retirement or benefit plan we offer unisex annuity tables
in your state. You should consult with legal counsel as to whether the purchase
of a Contract is appropriate under NORRIS.
OTHER CONTRACT BENEFITS
Death Benefit. We will pay the Death Benefit, if:
(1) the Contract is in force;
(2) annuity payments have not begun; and
(3) either:
(a) you die; or
(b) if the Contract is owned by a company or other legal entity, the
Annuitant dies.
A claim for a Death Benefit must be submitted before the Annuity Date. To claim
the Death Benefit, the Beneficiary must provide us with "Due Proof of Death." We
will accept the following documentation as Due Proof of Death:
- - a certified original copy of the Death Certificate;
- - a certified copy of a court decree as to the finding of death; or
- - a written statement of a medical doctor who attended the deceased at the
time of death.
In addition, in our discretion we may accept other types of proof.
If the Beneficiary is a natural person, the Beneficiary may choose from the
following alternative ways of receiving the Death Benefit:
- - the Beneficiary may receive the Death Benefit as a lump sum payment;
- - the Beneficiary may apply the Death Benefit to receive a series of equal
periodic payments over the life of the Beneficiary or a fixed period no
longer than the Beneficiary's life expectancy. The payments must begin
within one year of your death.
- - If there is only one Beneficiary, he or she may 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 for this option. If prior to your death you were the
Annuitant, the Beneficiary will become the new Annuitant.
In addition, if your spouse is the Beneficiary, he or she may choose to continue
the Contract as the new Contract Owner. If prior to your death you were the
Annuitant, your surviving spouse becomes the new Annuitant. The surviving spouse
may also select one of the options listed above.
If the Beneficiary is a company, trust, or other legal entity, then the
Beneficiary must receive the Death Benefit in a lump sum, and the options listed
above are not available.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
We determine the Death Benefit as of the date of settlement. The date of
settlement is the date on which we receive all necessary forms and proof of
claim. The Death Benefit is the greater of 1) the "floor value" or 2) the
Contract Value less any premium tax. During the first seven years of the
Contract, the floor value is equal to your total Purchase Payments less prior
withdrawals, all accumulated at 4% per year before the Contract Anniversary next
following your 75th birthday and at 0% per year thereafter. 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 and, in subsequent
years, the floor value will be calculated using the "stepped up" value in place
of the actual Purchase Payments and withdrawals during the first seven Contract
years.
Beneficiary. You name the Beneficiary. You may name a Beneficiary in the
application. You may change the Beneficiary or add additional Beneficiaries at
any time before the Annuity Date. We will provide a form to be signed and filed
with us.
Your changes in Beneficiary take effect when we receive them, effective as of
the date you signed the form. Until we receive your change instructions, we are
entitled to rely on your most recent instructions in our files. Accordingly, we
are not liable for making a payment to a Beneficiary shown in our files or
treating that person in any other respect as the Beneficiary, even if
instructions that we subsequently receive from you seek to change your
Beneficiaries effective as of a date before we made the payment or took the
action in question.
If you did not name a Beneficiary or if the named Beneficiary is no longer
living, the Beneficiary will be:
- - your spouse if he or she is still alive; or, if he or she is no longer
alive,
- - your surviving children equally; or if you have no surviving children,
- - your estate.
If you name more than one Beneficiary, we will divide the Death Benefit among
your Beneficiaries according to your most recent written instructions. If you
have not given us written instructions, we will pay the Death Benefit in equal
shares to the Beneficiaries. If one of the Beneficiaries dies before you, we
will divide the Death Benefit among the surviving Beneficiaries. Different rules
may apply to Contracts issued in connection with Qualified Plans.
Contract Loans For 401(a), 401(k), and 403(b) Contracts. Subject to the
restrictions described below, we will make loans to the Owner of a Contract used
in connection with a Tax Sheltered Annuity Plan ("TSA Plan") under Section
403(b) of the Tax Code, or an Owner of a Contract purchased by a pension,
profit-sharing, or other similar plan qualified under Section 401(a) of the Tax
Code (a "401 Plan"), including a Section 401(k) plan, where a plan trustee is
the Owner. Loans are not available under Non-qualified Contracts. We will only
make loans after the free look period and before annuitization. All loans are
subject to the terms of the Contract, the relevant Plan, and the Tax Code, which
impose restrictions on loans.
We will not make a loan to you if the total of the requested loan and your
unpaid outstanding loans will be greater than the Surrender Value of your
Contract on the date of the loan. In addition, we will not make a loan to you if
the total of the requested loan and all of the plan participant's Contract loans
under TSA plans and 401 plans is more than the lesser of (a) or (b) where:
(a) equals $50,000 minus the excess of the highest outstanding loan balance
during the prior 12 months over the current outstanding loan balance; and
(b) equals the greater of $10,000 or 1/2 of the Surrender Value.
The minimum loan amount is $1,000.
You may request a Contract loan in writing. You alone are responsible for
ensuring that your loan and repayments comply with tax requirements. Loans made
before the Annuity Date are generally treated as distributions under the
Contract, and may be subject to withholding and tax penalities for early
distributions. Some of these requirements are stated in Section 72 of the Tax
Code and Title 1 of ERISA. Please seek advice from your plan administrator or
tax advisor.
When we make a loan, we will transfer an amount equal to the loan amount from
the Separate Account and/or the Fixed Account to the Loan Account as collateral
for the loan. You may select from which account(s) to transfer the loan value.
If you do not give us instructions, we will first transfer to the Loan Account
amounts from the Separate Account in proportion to the assets in each
Subaccount. If your loan amount is greater than your interest in the
Subaccounts, we will transfer the remaining required collateral from the Fixed
Account. We will not charge a Withdrawal Charge on the loan or on the transfer
from Separate Account or the Fixed Account.
We will credit interest to the amounts in the Loan Account. The annual interest
rate credited to the Loan Account will be the greater of: (a) 3%; or (b) the
loan interest rate minus 2.25%. The value of the amounts in the Loan Account are
not affected by the changes in the value of the Subaccounts.
When you take out a loan, we will set the loan interest rate. That rate will
apply to your loan until it is repaid. From time to time, we may change the loan
interest rate applicable to new loans. We also reserve the right to change the
terms of new loans.
We will subtract the outstanding Contract loan balance, including accrued but
unpaid interest, from:
(1) the Death Benefit;
(2) surrender proceeds;
(3) the amount available for partial withdrawal; and
(4) the amount applied on the Annuity Date to provide annuity payments.
You usually must repay a Contract loan within five years of the date the loan is
made. Scheduled payments must be level, amortized over the repayment period, and
made at least quarterly. We may permit a repayment period of 15 or 30 years if
the loan proceeds are used to acquire your principal residence. We may also
permit other repayment periods.
You must mark your loan repayments as such. We will assume that any payment
received from you is a Purchase Payment, unless you tell us otherwise.
If you do not make a loan payment when due, we will continue to charge interest
on your loan. We also will declare the entire loan in default. We will subtract
the defaulted loan balance plus accrued interest from any future distribution
under the Contract and keep it in payment of your loan. Any defaulted amount
plus interest will be treated as a distribution for tax purposes (as permitted
by law). As a result, you may be required to pay taxes on the defaulted amount,
incur the early withdrawal tax penalty, and be subject to mandatory 20% federal
withholding.
If the total loan balance exceeds the Surrender Value, we will mail written
notice to your last known address. The notice will state the amount needed to
maintain the Contract in force. If we do not receive payment of this amount
within 31 days after we mail this notice, we will terminate your Contract.
We may defer making any loan for 6 months after you ask us for a loan, unless
the loan is to pay a premium to us.
Withdrawals (Redemptions). Except as explained below, you may redeem a Contract
for all or a portion of its Contract Value before the Annuity Date. We may
impose a Withdrawal Charge, which would reduce the amount paid to you upon
redemption. The Withdrawal Charges are described on pages [32-34] below. In
general, you must withdraw at least $250 at a time, unless you make withdrawals
through our systematic withdrawal program. You may also withdraw a lesser amount
if you are withdrawing your entire interest in a Subaccount.
We may be required to withhold 20% of withdrawals and distributions from
Contracts issued in connection with certain Qualified Plans, as described on
pages [38-39] below. Withdrawals also may be subject to a 10% penalty tax, as
described in pages [39-40] below.
To make a withdrawal, you must send us a written withdrawal request or
systematic withdrawal program enrollment form. You may obtain the required forms
from us at the address and phone number given on the first page of this
prospectus. For partial withdrawals, you may allocate the amount among the
Subaccounts and the Fixed Account. Otherwise, we will allocate the amount of the
partial withdrawal proportionately among the Subaccounts and the Fixed Account.
We will not honor your request unless the required form includes your Tax I.D.
Number (e.g., Social Security Number) and provides instructions regarding
withholding of income taxes.
If you request a total withdrawal, you must send us your Contract. We determine
the Surrender Value based on the Contract Value next computed after we receive a
properly completed surrender request. We will usually pay the Surrender Value
within seven days after the day we receive a completed request Form. However, we
may suspend the right of withdrawal from the Separate Account or delay payment
for withdrawals for more than seven days in the following circumstances:
(1) whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
(2) when trading on the NYSE is restricted or an emergency exists, as
determined by the SEC, so that disposal of the Separate Account's
investments or determination of Accumulation Unit Values is not reasonably
practicable; or
(3) at any other time permitted by the SEC for your protection. In addition, we
may delay payment of the Surrender Value in the Fixed Account for up to 6
months or a shorter period if required by law.
In addition, we may delay payment of the Surrender Value in the Fixed Account
for up to six months or a shorter period if required by law. If we delay payment
from the Fixed Account for more than 30 days, we will pay interest as required
by applicable law.
You may withdraw amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Section 403(b)(11) of the Tax Code) only
in the following circumstances:
(1) when you attain age 59 1/2;
(2) when you terminate your employment with the plan sponsor;
(3) upon your death;
(4) upon your disability as defined in Section 72(m)(7) of the Tax Code; or
(5) in the case of hardship.
If you seek a hardship withdrawal, you may only withdraw amounts attributable to
your Purchase Payments; you may not withdraw any earnings. These limitations on
withdrawals apply to:
(1) salary reduction contributions made after December 31, 1988;
(2) income attributable to such contributions; and
(3) income attributable to amounts held as of December 31, 1988.
The limitations on withdrawals do not affect transfers between certain Qualified
Plans. Additional restrictions and limitations may apply to distributions from
any Qualified Plan. Tax penalties may also apply. You should seek tax advice
regarding any withdrawals or distributions from Qualified Plans.
Substantially Equal Periodic Payments. In general, earnings on annuities are
taxable as ordinary income upon withdrawal. As described in pages [35-40] below,
a 10% tax penalty is imposed on certain "premature" payments under annuity
contracts. The tax penalty applies to any payment received before age 59 1/2, to
the extent it is includable in income and is not subject to an exception. The
Tax Reform Act of 1986 clarified an exception to this tax penalty. This
exception is known as "substantially equal periodic payments."
Generally, under this exception you may take "substantially equal periodic
payments" before age 59 1/2 without incurring the tax penalty. These "payments"
are withdrawals, as opposed to an annuitization of the Contract. Accordingly,
you may need to pay a Withdrawal Charge on the amounts withdrawn. The
circumstances in which Withdrawal Charges are due are described in pages [32-34]
below.
To qualify for this exception, the payments must meet the following
requirements:
1) The payments must continue to the later of age 59 1/2 or for five (5)
years.
2) Payments must be established under one of the approved methods detailed by
the IRS in IRS Notice 89-25.
3) You must have separated from service, if you purchased your Contract under
a qualified retirement plan or tax sheltered annuity.
If you modify the payment stream in any way, except for reason of death or
disability, you will lose the exception. Modification includes changing the
amount or timing of the payments, or making additional Purchase Payments. Any
subsequent periodic payment will be subject to the penalty tax, unless it
qualifies for a different exception. In addition, in the year of the
modification, you may incur additional tax penalties (plus interest) that you
would have been required to pay on the earlier payments if this exception had
not applied.
Systematic Withdrawal Program. If your Contract was issued in connection with a
Non-Qualified Plan or IRA, you may participate in our Systematic Withdrawal
Program. You must complete an enrollment form and send it to us. You must
complete the withholding election section of the enrollment form before the
systematic withdrawals will begin. You may choose withdrawal payments of a flat
dollar amount, earnings, or a percentage of Purchase Payments. Systematic
withdrawals are treated the same as partial withdrawals for purposes of
determining if a Withdrawal Charge applies. You may choose to receive systematic
withdrawal payments on a monthly, quarterly, semi-annual, or annual basis.
Depending on fluctuations in the net asset value of the Subaccounts and the
value of the Fixed Account, systematic withdrawals may reduce or even exhaust
the Contract Value. The minimum amount of each systematic withdrawal is $50.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
ERISA Plans. A married Participant may need spousal consent to receive a
distribution from a Contract issued in connection with a Qualified Plan or a
Non-Qualified Plan covered by to Title 1 of ERISA. You should consult an
adviser.
Minimum Contract Value. If as a result of withdrawals your Contract Value is
less than $250 and you have not made any Purchase Payments during the previous
three full calendar years, we may terminate your Contract and distribute its
Surrender Value to you. Before we do this, we will give you 60 days notice. We
will not terminate your Contract on this ground if the Contract Value has fallen
below $250 due to either a decline in Accumulation Unit Value or the imposition
of fees and charges. In addition, in some states we are not permitted to
terminate Contracts on this ground. Different rules may apply to Contracts
issued in connection with Qualified Plans.
CONTRACT CHARGES
We assess charges under the Contract in three ways:
(1) as deductions from Contract Value for contract administrative charges and,
if applicable, for premium taxes;
(2) as charges against the assets of the Separate Account for administrative
expenses or for the assumption of mortality and expense risks; and
(3) as Withdrawal Charges (contingent deferred sales charges) subtracted from
withdrawal and surrender payments.
In addition, certain deductions are made from the assets of the Portfolios for
investment management fees and expenses. Those fees and expenses are summarized
in the Fee Tables on page 6, and described more fully in the Prospectuses and
Statements of Additional Information for the Portfolios.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from each Subaccount during each
Valuation Period. The Mortality and Expense Risk Charge is equal, on an annual
basis, to 1.25% of the average net asset value of each Subaccount. Approximately
0.85% is for mortality risks and approximately 0.40% is for expense risks. The
mortality risks arise from our contractual obligations:
(1) to make annuity payments after the Annuity Date for the life of the
Annuitant(s);
(2) to waive the Withdrawal Charge upon your death; and
(3) to provide the Death Benefit prior to the Annuity Date. A detailed
explanation of the Death Benefit may be found on page [ ].
The expense risk is that it may cost us more to administer the Contracts and the
Separate Account than we receive from the Contract Administration Charge and the
Administrative Expense Charge. We guarantee the Expense Risk Charge and we
cannot increase it. We assess the Mortality and Expense Risk Charge during both
the Accumulation Period and the Annuity Period.
Administrative Charges
Contract Administration Charge
We charge an annual Contract Administration Charge of $25 on your Contract. The
amount of this charge is guaranteed not to increase. This charge reimburses us
for our expenses incurred in maintaining your Contract. We assess the Contract
Administration Charge on each Contract Anniversary on or before the Annuity
Date. If you surrender your Contract, we will deduct the full $25 charge as of
the date of surrender. We will stop charging this charge after annuitization.
To obtain payment of this charge, on a pro rata basis we will allocate this
charge among the Subaccounts and the Fixed Account to which you have allocated
your Contract Value, and redeem Accumulation Units and reduce your interest in
the Fixed Account accordingly.
We will waive the Contract Administration Charge if on any Contract Anniversary
your Contract Value is at least $75,000.
Administrative Expense Charge
We deduct an Administrative Expense Charge from each Subaccount during each
Valuation Period. This charge is equal, on an annual basis, to 0.15% of the
average 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
We currently are not charging the Transfer Fee. The Contract, however, permits
us to charge a Transfer Fee of $25 on the second and each subsequent transaction
in each calendar month in which transfer(s) are effected between Subaccount(s)
and/or the Fixed Account. We will notify you if we begin to charge this fee.
The Transfer Fee will be deducted from Contract Value that remain in the
Subaccount(s) or Fixed Account from which the transfer was made. If that amount
is insufficient to pay the Transfer Fee, we will deduct the fee from the
transferred amount.
<PAGE>
Sales Charges
Withdrawal Charge
We may charge a Withdrawal Charge, which is a contingent deferred sales charge,
upon certain withdrawals.
As a general rule, the Withdrawal Charge equals a percentage of Purchase
Payments withdrawn that are: (a) less than seven years old; and (b) not eligible
for a free withdrawal. The applicable percentage depends on how many years ago
you made the Purchase Payment being withdrawn, as shown in this chart:
WITHDRAWAL CHARGE TABLE
Contribution Withdrawal Charge
Year Percentage
----- ----------
First and Second 7%
Third 6%
Fourth 5%
Fifth 4%
Sixth 3%
Seventh 2%
Eighth and later 0%
<PAGE>
We subtract the Withdrawal Charge from the Contract Value remaining after your
withdrawal. As a result, the decrease in your Contract Value will be greater
than the withdrawal amount requested and paid.
For purposes of determining the Withdrawal Charge, the Contract Value is deemed
to be withdrawn in the following order:
FIRST. Earnings-- the current Contract Value minus all Purchase Payments that
have not previously been withdrawn;
SECOND. "Old Purchase Payments" - Purchase Payments received by us more than
seven years before the date of withdrawal that have not been previously
withdrawn;
THIRD. Any additional amounts available as a "Free Withdrawal," as described
below;
FOURTH. "New Purchase Payments" - Purchase Payments received by us less than
seven years before the date of withdrawal. These Payments are deemed to be
withdrawn on a first-in, first-out basis.
No Withdrawal Charge is applied in the following situations:
(1) on annuitization, unless you choose payment over a fixed period of less
than 5 years;
(2) the payment of a death benefit;
(3) a free withdrawal amount, as described on page [34] below;
(4) certain withdrawals for Contracts issued under 403(b) plans or 401 plans
under our prototype as described on pages [35-36] below; and
(5) withdrawals taken to satisfy IRS minimum distribution rules that apply to
this Contract, exclusive of any other Contracts held by you
(6) withdrawal under Contracts issued to employees of Lincoln Benefit Life
Company or its affiliates to their spouses or minor children.
We will never waive or eliminate a Withdrawal Charge where such waiver or
elimination would be unfairly discriminatory to any person or where it is
prohibited by state law.
We use the amounts obtained from the Withdrawal Charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts. To the extent that the Withdrawal Charge does not cover all sales
commissions and other promotional or distribution expenses, we may use any of
our corporate assets, including potential profit which may arise from the
Mortality and Expense Risk Charge or any other charges of fee described above,
to make up any difference.
Withdrawals may also be subject to tax penalties or income tax. Additional
restrictions may apply to Contracts held in Qualified Plans. We outline the tax
requirements applicable to withdrawals in pages [36-40] below. You should
consult your own tax counsel or other tax advisers regarding any withdrawals.
Free Withdrawal
Withdrawals of the following amounts are never subject to the Withdrawal Charge:
(1) In any Contract Year, the greater of: (a) earnings that have not previously
been withdrawn; or (b) 15 percent of New Purchase Payments; and
(2) Any Old Purchase Payments that have not been previously withdrawn.
However, even if you do not owe a Withdrawal Charge on a particular withdrawal,
you may still owe taxes or penalty taxes. Free withdrawals may be subject to tax
and tax penalties.
In some states, free withdrawals of 15% of the New Purchase Payments are not
permitted by law. In those states, the free withdrawal percentage will be 10% of
New Purchase Payments.
Confinement Waiver Benefit
In some states we offer a Confinement Waiver Benefit. Under this benefit, we
will waive the Withdrawal Charge on all withdrawals under your Contract if the
following conditions are satisfied:
(1) The Annuitant is confined to a Long Term Care Facility or a Hospital for at
least 60 consecutive days. The Annuitant must enter the Long Term Care
Facility or Hospital after the Issue Date;
(2) You request the withdrawal no later than 90 days following the end of the
Annuitant's stay at the Long Term Care Facility or Hospital. You must
provide written proof of the stay with your withdrawal request; and
(3) If the waiver request is based on a stay in a Long Term Care Facility, a
physician must have prescribed the stay and the stay must be medically
necessary.
You may not claim the Confinement Waiver Benefit if:
(1) The Long Term Care Facility where the Annuitant stayed is owned or operated
by you or a member of your immediate family; or
(2) The Physician prescribing the Annuitant's stay in a Long Term Care Facility
is you or a member of your immediate family.
LONG TERM CARE FACILITY means a facility located in the United States of America
which is licensed by the jurisdiction where it is located and operated as a
Custodial Care Facility or other facility which provides an equivalent level of
care and services.
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 their expense.
HOSPITAL means a facility which:
(1) Is licensed and operated as a hospital;
(2) Is supervised by a staff of licensed physicians;
(3) Provides continuous nursing service 24 hours a day by or under the
supervision 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
Annuitant's condition.
PHYSICIAN means a licensed medical doctor (M.D.) or a licensed doctor of
osteopathy (D.O.) operating within the scope of his or her license.
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.
Some Qualified Plans may not permit you to utilize this benefit. Also, even if
you do not need to pay our Withdrawal Charge because of this benefit, you still
may be required to pay taxes or tax penalties on the amount withdrawn. You
should consult your tax adviser to determine the effect of a withdrawal on your
taxes.
Waiver of Withdrawal Charge for Certain Qualified Plan Withdrawals
For Contracts issued under a Section 403(b) plan or a Section 40l plan under our
prototype, we will waive the Withdrawal Charge when:
(1) the Annuitant becomes disabled (as defined in Section 72(m)(7)) of the Tax
Code;
(2) the Annuitant reaches age 59 1/2 and at least 5 Contract Years have passed
since the Contract was issued;
(3) at least 15 Contract Years have passed since the Contract was issued.
Our prototype is a Section 401 Defined Contribution Qualified Retirement plan.
This plan may be established as a Money Purchase plan, a Profit Sharing plan, or
a paired plan (Money Purchase and Profit Sharing).
Premium Taxes
We will charge premium taxes or other state or local taxes against the Contract
Value, including Contract Value that consists of amounts transferred from
existing policies (Section 1035 exchange) issued by us or other insurance
companies. Some states assess premium taxes when Purchase Payments are made;
others assess premium taxes when annuity payments begin. We will deduct any
applicable premium taxes upon full surrender, death, or annuitization. Premium
taxes generally range from 0% to 3.5%.
Deduction for Separate Account Income Taxes
We are not currently maintaining a provision for taxes. In the future, however,
we may establish a provision for taxes if we determine, in our sole discretion,
that we will incur a tax as a result of the operation of the Separate Account.
We will deduct for any taxes we incur as a result of the operation of the
Separate Account, whether or not we previously made a provision for taxes and
whether or not it was sufficient. Our status under the Tax Code is briefly
described on page [38] below.
Other Expenses
You indirectly bear the charges and expenses of the Portfolios whose shares are
held by the Subaccounts to which you allocate your Contract Value. For a summary
of current estimates of those charges and expenses, see page [9] above. For more
detailed information about those charges and expenses, please refer to the
prospectuses for the appropriate Portfolios. We may receive compensation from
the investment advisers or administrators of the Portfolios in connection with
administrative service and cost savings experienced by the investment advisers
or administrators.
TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ONLY
FEDERAL INCOME TAX ISSUES ARE ADDRESSED. LINCOLN BENEFIT MAKES NO GUARANTEE
REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on your individual circumstances.
If you are concerned about any tax consequences of your individual
circumstances, you should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:
(1) the owner is a natural person,
(2) the investments of the Separate Account are "adequately diversified"
according to Treasury Department regulations, and
(3) Lincoln Benefit is considered the owner of the Separate Account assets for
federal income tax purposes.
Non-natural Owners. As a general rule, annuity contracts owned by non-natural
persons such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. Any increase in the value of
such contracts is taxed as ordinary income received or accrued by the owner
during the taxable year. Please see the Statement of Additional Information for
a discussion of several exceptions to the general rule for contracts owned by
non-natural persons.
Diversification Requirements. For a contract to be treated as an annuity for
federal income tax purposes, the investments in the Separate Account must be
"adequately diversified" consistent with standards under Treasury Department
regulations. If the investments in the Separate Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the owner during the taxable year.
Although Lincoln Benefit does not have control over the Portfolios or their
investments, we expect the Portfolios to meet the diversification requirements.
Ownership Treatment. The IRS has stated that you will be considered the owner of
Separate Account assets if you possess incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. At the time
the diversification regulations were issued, the Treasury Department announced
that the regulations do not provide guidance concerning circumstances in which
investor control of the Separate Account investments may cause an investor to be
treated as the owner of the Separate Account. The Treasury Department also
stated that future guidance would be issued regarding the extent that owners
could direct sub-account investments without being treated as owners of the
underlying assets of the Separate Account.
Your rights under this contract are different than those described by the IRS in
rulings in which it found that contract owners were not owners of Separate
Account assets. For example, you have the choice to allocate premiums and
contract values among more investment options. Also, you may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in you being treated as the owner of the Separate Account. If this
occurs, income and gain from the Separate Account assets would be includible in
your gross income. Lincoln Benefit does not know what standards will be set
forth in any regulations or rulings which the Treasury Department may issue. It
is possible that future standards announced by the Treasury Department could
adversely affect the tax treatment of your contract. We reserve the right to
modify the Contract as necessary to attempt to prevent you from being considered
the federal tax owner of the assets of the Separate Account. However, we make no
guarantee that such modification to the Contract will be successful.
Taxation of Partial and Full Withdrawals. If you make a partial withdrawal under
a non-qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. The investment in the Contract is the gross premium paid for the
Contract minus any amounts previously received from the Contract if such amounts
were properly excluded from your gross income. If you make a partial withdrawal
under a qualified Contract, the portion of the payment that bears the same ratio
to the total payment that the investment in the contract (i.e., nondeductible
IRA contributions, after tax contributions to qualified plans) bears to the
contract value, is excluded from your income. If you make a full withdrawal
under a non-qualified Contract or a qualified Contract, the amount received will
be taxable only to the extent it exceeds the investment in the contract.
"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. "Qualified distributions" from Roth IRAs are
not included in gross income. "Qualified distributions" are any distributions
made more than five taxable years after the taxable year of the first
contribution to any Roth IRA 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).
If you transfer a nonqualified Contract without full and adequate consideration
to a person other than your spouse (or to a former spouse incident to a
divorce), you will be taxed on the difference between the Contract Value and the
investment in the Contract at the time of transfer. Except for certain qualified
Contracts, any amount you receive as a loan under a Contract, and any assignment
or pledge (or agreement to assign or pledge) of the Contract Value is treated as
a withdrawal of such amount or portion.
Taxation of Annuity Payments. Generally, the rule for income taxation of annuity
payments received from a nonqualified Contract provides for the return of your
investment in the Contract in equal tax-free amounts over the payment period.
The balance of each payment received is taxable. For fixed annuity payments, the
amount excluded from income is determined by multiplying the payment by the
ratio of the investment in the Contract (adjusted for any refund feature or
period certain) to the total expected value of annuity payments for the term of
the Contract. If you elect variable annuity payments, the amount excluded from
taxable income is determined by dividing the investment in the Contract by the
total number of expected payments. The annuity payments will be fully taxable
after the total amount of the investment in the Contract is excluded using these
ratios. If you die, and annuity payments cease before the total amount of the
investment in the contract is recovered, the unrecovered amount will be allowed
as a deduction for your last taxable year.
Taxation of Annuity Death Benefits. Death of an owner, or death of the annuitant
if the Contract is owned by a non-natural person, will cause a distribution of
Death Benefits from a Contract. Generally, such amounts are included in income
as follows:
(1) if distributed in a lump sum, the amounts are taxed in the same manner as a
full withdrawal, or
(2) if distributed under an annuity option, the amounts are taxed in the same
manner as an annuity payment.
Unlike some other assets, a holder's basis for an annuity is not increased or
decreased to the fair market value of the Contract on the date of death. Please
see the Statement of Additional Information for more detail on distribution at
death requirements.
Penalty Tax on Premature Distributions. A 10% penalty tax applies to the taxable
amount of any premature distribution from a nonqualified Contract. The penalty
tax generally applies to any distribution made prior to the date you attain age
59 1/2. However, no penalty tax is incurred on distributions:
(1) made on or after the date the owner attains age 59 1/2;
(2) made as a result of the owner's death or disability;
(3) made in substantially equal periodic payments over the owner's life or life
expectancy,
(4) made under an immediate annuity; or
(5) attributable to investment in the contract before August 14, 1982.
You should consult a competent tax advisor to determine if any other exceptions
to the penalty apply to your situation. Similar exceptions may apply to
distributions from qualified Contracts.
Aggregation of Annuity Contracts. All non-qualified deferred annuity contracts
issued by Lincoln Benefit (or its affiliates) to the same owner during any
calendar year will be aggregated and treated as one annuity contract for
purposes of determining the taxable amount of a distribution.
Tax Qualified Contracts
Contracts may be used as investments with certain Qualified Plans such as:
- - Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the
Code;
- - Roth IRAs under Section 408A of the Code;
- - Simplified Employee Pension Plans under Section 408(k) of the Code;
- - Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section
408(p) of the Code;
- - Tax Sheltered Annuities under Section 403(b) of the Code;
- - Corporate and Self Employed Pension and Profit Sharing Plans; and
- - State and Local Government and Tax-Exempt Organization Deferred
Compensation Plans.
In the case of certain Qualified Plans, the terms of the plans may govern the
right to benefits, regardless of the terms of the Contract.
Restrictions Under Section 403(b) Plans. Section 403(b) of the Tax Code provides
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. Under Section 403(b), any Contract used for a 403(b)
plan must provide that distributions attributable to salary reduction
contributions made after 12/31/88, and all earnings on salary reduction
contributions, may be made only on or after the date the employee:
- - attains age 59 1/2,
- - separates from service,
- - dies,
- - becomes disabled, or
- - on account of hardship (earnings on salary reduction contributions may not
be distributed on the account of hardship).
These limitations do not apply to withdrawals where Lincoln Benefit is directed
to transfer some or all of the Contract Value to another 403(b) plan.
Income Tax Withholding
Lincoln Benefit is required to withhold federal income tax at a rate of 20% on
all "eligible rollover distributions" unless you elect to make a "direct
rollover" of such amounts to another qualified plan or IRA. Eligible rollover
distributions generally include all distributions from qualified Contracts,
excluding IRAs, with the exception of:
(1) required minimum distributions, or
(2) a series of substantially equal periodic payments made over a period of at
least 10 years, or,
(3) over the life (joint lives) of the participant (and beneficiary).
Lincoln Benefit may be required to withhold federal and state income taxes on
any distributions from either non-qualified or qualified Contracts that are not
eligible rollover distributions unless you notify us of your election to not
have taxes withheld.
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT
Lincoln Benefit Life Company
Lincoln Benefit is a stock life insurance company organized under the laws of
the state of Nebraska in 1938. Our legal domicile and principal business address
is 206 South 13th Street, Lincoln, Nebraska. Lincoln Benefit is a wholly-owned
subsidiary of Allstate Life Insurance Company ("Allstate Life"), a stock life
insurance company incorporated under the laws of the State of Illinois. Allstate
Life is a wholly-owned subsidiary of Allstate Insurance Company ("Allstate"), a
stock property-liability insurance company incorporated under the laws of
Illinois. All outstanding capital stock of Allstate is owned by The Allstate
Corporation.
We are authorized to conduct life insurance and annuity business in the District
of Columbia, Guam, U.S. Virgin Islands and all states except New York. We will
market the Contract everywhere we conduct variable annuity business. The
Contracts offered by this prospectus are issued by us and will be funded in the
Separate Account and/or the Fixed Account.
Under our reinsurance agreement with Allstate Life, substantially all contract
related transactions are transferred to Allstate Life. Through our reinsurance
agreement with Allstate Life, substantially all of the assets backing our
reinsured liabilities are owned by Allstate Life. Accordingly, the results of
operations with respect to applications received and contracts issued by Lincoln
Benefit are not reflected in our consolidated financial statements. The amounts
reflected in our consolidated financial statements relate only to the investment
of those assets of Lincoln Benefit that are not transferred to Allstate Life
under the reinsurance agreement. These assets represent our general account and
are invested and managed by Allstate Life. While the reinsurance agreement
provides us with financial backing from Allstate Life, it does not create a
direct contractual relationship between Allstate Life and you.
Under the Company's reinsurance agreements with Allstate Life, the Company
reinsures all reserve liabilities with Allstate Life except for variable
contracts. The Company's variable Contract assets and liabilities are held in
legally-segregated, unitized Separate Accounts and are retained by the Company.
However, the transactions related to such variable contracts such as premiums,
expenses and benefits are transferred to Allstate Life.
Lincoln Benefit is highly rated by independent agencies, including A.M. Best,
Moody's, and Standard & Poor's. These ratings are based on our reinsurance
agreement with Allstate Life, and reflect financial soundness and strong
operating performance. The ratings are not intended to reflect the financial
strength or investment experience of the Separate Account. We may from time to
time advertise these ratings in our sales literature.
Separate Account
Lincoln Benefit Life Variable Annuity Account was originally established in
1992, as a segregated asset account of Lincoln Benefit. The Separate Account
meets the definition of a "separate account" under the federal securities laws
and is registered with the SEC as a unit investment trust under the Investment
Company Act of 1940. The SEC does not supervise the management of the Separate
Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Contract
Value of the Contracts offered by this prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains, or losses. Our obligations arising under the
Contracts are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Subaccounts. The assets of each Subaccount
are invested in the shares of one of the Portfolios. We do not guarantee the
investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account and the amount of Variable
Annuity payments will rise and fall with the values of shares of the Portfolios
and are also reduced by Contract charges. We may also use the Separate Account
to fund our other annuity contracts. We will account separately for each type of
annuity contract funded by the Separate Account.
We have included additional information about the Separate Account in the
Statement of Additional Information. You may obtain a copy of the Statement of
Additional Information by writing to us or calling us at 1-800-865-5237. We have
reproduced the Table of Contents of the Statement of Additional Information on
page [43] below.
State Regulation of Lincoln Benefit
We are subject to the laws of Nebraska and regulated by the Nebraska Department
of Insurance. Every year we file an annual statement with the Department of
Insurance covering our operations for the previous year and our financial
condition as of the end of the year. We are inspected periodically by the
Department of Insurance to verify our contract liabilities and reserves. We also
are examined periodically by the National Association of Insurance
Commissioners. Our books and records are subject to review by the Department of
Insurance at all times. We are also subject to regulation under the insurance
laws of every jurisdiction in which we operate.
Year 2000
We are heavily dependent upon complex computer systems for all phases of its
operations, including customer service, and policy and contract administration.
Since many of our older computer software programs recognize only the last two
digits of the year in any date, some software may fail to operate properly in or
after the year 1999, if the software is not reprogrammed or replaced ("Year 2000
Issue"). We believe that many of our suppliers and counterparties also have Year
2000 Issues which could affect us. In 1995, Allstate commenced a plan intended
to mitigate and/or prevent the adverse effects of Year 2000 Issues. These
strategies include normal development and enhancement of new and existing
systems, upgrades to operating systems already covered by maintenance agreements
and modifications to existing systems to make them Year 2000 compliant. The plan
also includes actively working with our major external counterparties and
suppliers to assess their compliance efforts and our exposure to them. We
presently believe that we will resolve the Year 2000 Issue in a timely manner,
and the financial impact will not materially our results of operations,
liquidity, or financial position. Year 2000 costs are and will be expensed as
incurred.
Financial Statements
The financial statements for Lincoln Benefit and the Separate Account are set
forth in the Statement of Additional Information.
ADMINISTRATION
We have primary responsibility for all administration of the Contracts and the
Separate Account. Our mailing address is P.O. Box 82532, Lincoln, Nebraska
68501-2532.
We provide the following administrative services, among others: issuance of the
Contracts; maintenance of Contract Owner records; Contract Owner services;
calculation of unit values; maintenance of the Separate Account; and preparation
of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least
quarterly. You should notify us promptly in writing of any address change. You
should read your statements and confirmations carefully and verify their
accuracy. You should contact us promptly if you have a question about a periodic
statement. We will investigate all complaints and make any necessary adjustments
retroactively, but you must notify us of a potential error within a reasonable
time after the date of the questioned statement. If you wait too long, we will
make the adjustment as of the date that we receive notice of the potential
error.
We will also provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
DISTRIBUTION OF CONTRACTS
The Contracts described in this prospectus are sold by registered
representatives of broker-dealers who are our licensed insurance agents, either
individually or through an incorporated insurance agency. Commissions paid to
broker-dealers may vary, but we estimate that the total commissions paid on all
Contract sales will not exceed 6% of all Purchase Payments (on a present value
basis). From time to time, we may offer additional sales incentives of up to 1%
of Purchase Payments to broker-dealers who maintain certain sales volume levels.
We do not pay commission on Contract sales to our employees, our affiliate's
employees or their spouses or minor children.
Allstate Life Financial Services ("ALFS") located at 3100 Sanders Road,
Northbrook, IL 60062-7154 serves as distributor of the Contracts. ALFS, an
affiliate of Lincoln Benefit, is a wholly owned subsidiary of Allstate Life
Insurance Company. It is registered as a broker-dealer under the Securities and
Exchange Act of 1934, as amended, and is a member of the National Association of
Securities Dealers, Inc.
During 1998, 1997, and 1996. Lincoln Benefit paid to its former distributor of
the Contracts, Lincoln Benefit Financial Services ("LBFS"), gross commissions
for the sale of Contracts of approximately $11,428,184.95, $7,553,487, and
$6,729,301, respectively. Of the gross commissions received, LBFS (as principal
underwriter) retained $242,501.90, $243,193, and $263,183, 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, we will honor transfer
instructions from such third parties provided such market timing and asset
allocation services comply with our administrative systems, rules and
procedures, which we may modify at any time. PLEASE NOTE that fees and charges
assessed for such market timing and asset allocation services are separate and
distinct from the Contract fees and charges set forth herein. Lincoln Benefit
neither recommends nor discourages such market timing and asset allocation
services.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. The
Company and its subsidiaries are engaged in routine law suits which, in our
management's judgment, are not of material importance to their respective total
assets or material with respect to the Separate Account.
LEGAL MATTERS
All matters of Nebraska law pertaining to the Contract including the validity of
the Contract and our right to issue the Contract under Nebraska law, have been
passed upon by Carol S. Watson, Senior Vice President and General Counsel of
Lincoln Benefit.
Legal matters relating to the federal securities laws in connection with the
Contracts described in this prospectus are being passed upon by the law firm of
Jorden Burt Boros Cicchetti Berenson & Johnson, 1025 Thomas Jefferson Street,
East Lobby - Suite 400, Washington, D.C. 20007-0805.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, 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. You should refer to the registration statement and the exhibits for
further information concerning the Separate Account, the Company, and the
Contracts. The descriptions in this prospectus of the Contracts and other legal
instruments are summaries. You should refer to those instruments as filed for
the precise terms of those instruments. You may read the registration statement
and other reports that we file at the SEC's public reference room in Washington,
D.C. You can request copies of these documents upon payment of a duplicating
fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of its public reference room. Our SEC filings are
also available to the public on the SEC Internet site (http:\\www.sec.gov).
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
The Contract......................................................
Annuity Payments.........................................
Annuity Unit Value.......................................
Illustrative Example of Variable Annuity Payments.......
Additional Federal Income Tax Information.........................
Introduction ............................................
Taxation of Lincoln Benefit Life Company ................
Exceptions to the Non-Natural Owner-Rule ................
IRS Required Distribution at Death Rules ................
Qualified Plans .........................................
Types of Qualified Plans ................................
Separate Account Performance......................................
Experts ..........................................................
Financial Statements..............................................
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
Accumulation Unit Values1
Accumulation Accumulation Number of Units
Unit Value Unit Value Outstanding at
Fund Beginning Ending End of Year Year
<S> <C> <C> <C> <C>
Fidelity VIP Money Market 11.59 12.05 2,320,956 1998
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 17.88 24.59 2,486,678 1998
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 19.50 21.46 3,906,757 1998
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 12.88 14.32 1,489,209 1998
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
A-1
<PAGE>
VIP II Fidelity Asset Manager 14.10 16.00 1,315,223 1998
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* 13.64 17.49 2,198,114 1998
11.15 13.64 1,395,072 1997
10.00 11.15 497,571 1996
Fidelity VIP II Index 500** 10.00 12.02 1,052,148 1998
Scudder Bond 11.79 12.39 461,863 1998
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
Scudder Balanced 16.01 19.44 895,255 1998
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 13.97 15.03 708,089 1998
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 16.43 21.69 1,570,637 1998
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 17.87 23.91 2,335,027 1998
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 17.25 22.83 1,444,800 1998
15.52 17.25 1,279,192 1997
14.58 15.52 1,010,157 1996
11.60 14.58 545,594 1995
10.000 11.60 78,193 1994
Janus Worldwide Growth 18.62 23.67 3,269,577 1998
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 II 14.27 14.45 1,245,268 1998
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
A-2
<PAGE>
Federated Utility Fund II 15.98 17.96 687,133 1998
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 11.88 12.61 582,790 1998
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
IAI Regional 17.03 17.06 760,302 1998
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
IAI Reserve 11.17 11.61 42,468 1998
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
IAI Balanced 14.39 15.91 177,759 1998
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
Alger Small Capitalization** 10.00 11.01 217,169 1998
Alger MidCap Growth** 10.00 12.17 196,031 1998
Alger Growth** 10.00 13.66 392,390 1998
Alger Leveraged AllCap** 10.00 14.56 106,760 1998
Alger Income and Growth** 10.00 12.55 333,125 1998
</TABLE>
* First offered 5/1/96
** First offered 3/1/98
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
Accumulation Unit Value does not reflect deduction of certsain charges
under the Contract that are deducted from your Contract Value, such as the
Contract Administration 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.
A-3
<PAGE>
APPENDIX B
Portfolios and Performance Data
PERFORMANCE DATA
From time to time the Separate Account may advertise the Fidelity Money Market
Subaccount's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Fidelity Money Market Subaccount refers to the net income earned
by the Subaccount over the seven-day period stated in the advertisement. This
income is then "annualized." That is, the amount of income earned during that
week is assumed to be generated each week over a 52-week period and is shown as
a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by the investment is assumed to be
reinvested at the end of each seven-day period. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital gains or losses that might have occurred
during the seven day period, nor do they reflect the impact of premium taxes or
any Withdrawal Charges. The impact of other, recurring charges on both yield
figures is, however, reflected in them to the same extent it would affect the
yield (or effective yield) for a Contract of average size.
In addition, the Separate Account may advertise an annualized 30-day (or one
month) yield figure for Subaccounts other than the Fidelity Money Market
Subaccount. These yield figures are based upon the actual performance of the
Subaccount over a 30-day (or one month) period ending on a date specified in the
advertisement. Like the money market yield data described above, the 30-day (or
one month) yield data will reflect the effect of all recurring Contract charges,
but will not reflect any Withdrawal Charges or premium taxes. The yield figure
is derived from net investment gain (or loss) over the period expressed as a
fraction of the investment's value at the end of the period.
The Separate Account may also advertise standardized and non-standardized "total
return" data for its Subaccounts. Like the yield figures described above, total
return figures are based on historical data and are not intended to indicate
future performance. The standardized "total return" compares the value of a
hypothetical investment made at the beginning of the period to the value of the
same hypothetical investment at the end of the period. Standardized total return
figures reflect the deduction of any Withdrawal Charge that would be imposed
upon a complete redemption of the Contract at the end of the period. Recurring
Contract charges are reflected in the standardized total return figures in the
same manner as they are reflected in the yield data for Contracts funded through
the Money Market Subaccount.
In addition to the standardized "total return," the Separate Account may
advertise non-standardized "total return." Non-standardized total return is
calculated in a similar manner and for the same time periods as the standardized
total return except that the Withdrawal Charge is
B-1
<PAGE>
not deducted. Further, we assumed an initial hypothetical investment of $20,000,
because $20,000 is closer to the average Purchase Payment of a Contract which we
expect to write. Standardized total return, on the other hand, assumes an
initial hypothetical investment of $1,000.
The Separate Account may also disclose yield, 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.
Our advertisements may also compare the performance of our Subaccounts with: (a)
certain unmanaged market indices, including but the Dow Jones Industrial
Average, the Standard & Poor's 500, and the Shearson Lehman Bond Index; and/or
(b) other management investment companies with investment objectives similar to
the underlying funds being compared. Our advertisements also may include the
performance ranking assigned by various publications, including the Wall Street
Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today, and
statistical services, including Lipper Analytical Services Mutual Fund Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey,
and SEI.
The Contract charges are described in more detail on page [ ]. We have
described the computation of advertised performance data for the Separate
Account in more detail on page [x] of the Statement of Additional Information.
B-2
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Flexible Premium Individual Deferred Variable Annuity Contracts
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
Depositor: LINCOLN BENEFIT LIFE COMPANY
This Statement of Additional Information is not a prospectus. You should also
read the prospectus relating to the annuity contracts described above. You may
obtain a copy of the prospectus without charge by contacting us in writing at
the following address:
Lincoln Benefit Life Company
P.O. Box 82532
Lincoln, Nebraska 68501-2532
The date of this Statement of Additional
Information and of the related Prospectus is:
May 1, 1999.
TABLE OF CONTENTS
Page
THE CONTRACT..........................................................
ANNUITY PAYMENTS.................................................
ANNUITY UNIT VALUE...........................................
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENTS............
ADDITIONAL FEDERAL INCOME TAX INFORMATION.............................
INTRODUCTION ................................................
TAXATION OF LINCOLN BENEFIT LIFE COMPANY ....................
EXCEPTIONS TO THE NON-NATURAL OWNER RULE ....................
IRS REQUIRED DISTRIBUTION AT DEATH RULES ....................
QUALIFIED PLANS .............................................
TYPES OF QUALIFIED PLANS ....................................
SEPARATE ACCOUNT PERFORMANCE..........................................
EXPERTS ..............................................................
FINANCIAL STATEMENTS..................................................
<PAGE>
THE CONTRACT
Annuity Payments
The amount of your annuity payments will depend on the following factors:
(a) the amount of your Contract Value on the Valuation Date next preceding the
Annuity Date, minus any state premium taxes or applicable Withdrawal
Charges;
(b) the Payment Option you have selected;
(c) the payment frequency you have selected;
(d) the age and, in some cases, the sex of the Annuitant and any Joint
Annuitant; and
(e) for Variable Annuity Payments only, the investment performance after the
Annuity Date of the Subaccounts you have selected.
INITIAL MONTHLY ANNUITY PAYMENT
For both Fixed and Variable Annuity payments, we determine the amount of your
initial annuity payment as follows. First, we subtract any state premium tax and
applicable Withdrawal Charges from your Contract Value on the Valuation Date
next preceding the Annuity Date. Next, we apply that amount to the Payment
Option you have selected. We will use either the Payment Option Tables in the
Contract or our annuity tables in effect for single premium immediate annuities
at the time of the calculation, whichever table is more favorable to the payee.
The tables show the amount of the periodic payment a payee could receive based
on $1,000 of Contract Value. To determine the initial payment amount, we divide
your adjusted Contract Value by $1,000 and multiply the result by the relevant
annuity factor for the Annuitant's age and sex (if we are permitted to consider
that factor) and the frequency of the payments you have selected.
In some states and under certain Qualified Plans and other employer-sponsored
employee benefit plans, we are not permitted to take the Annuitant's sex into
consideration in determining the amount of periodic annuity payments.
In those states, we use the same annuity table for men and women.
SUBSEQUENT MONTHLY PAYMENTS
For a Fixed Annuity, the amount of the second and each subsequent monthly
annuity payment is the same as the first monthly payment.
For a Variable Annuity, the amount of the second and each subsequent monthly
payment will vary depending on the investment performance of the Subaccounts to
which you allocated your Contract Value. We calculate separately the portion of
the monthly annuity payment attributable to each Subaccount you have selected as
follows. When we calculate your initial annuity payment, we also will determine
the number of Annuity Units in each Subaccount to allocate to your Contract for
the remainder of the Annuity Period. For each Subaccount, we divide the portion
of the initial annuity payment attributable to that Subaccount by the Annuity
Unit Value for that Subaccount on the Valuation Date next preceding the Annuity
Date. The number of Annuity Units so determined for your Contract is fixed for
the duration of the Annuity Period. We will determine the amount of each
subsequent monthly payment attributable to each Subaccount by multiplying the
number of Annuity Units allocated to your Contract by the Annuity Unit Value for
that Subaccount as of the Valuation Period next preceding the date on which the
annuity payment is due. Since the number of Annuity Units is fixed, the amount
of each subsequent Variable Annuity payment will reflect the investment
performance of the Subaccounts elected by you.
Annuity Unit Value
We determine the value of an Annuity Unit independently for each Subaccount.
Initially, the Annuity Unit Value for each Subaccount was set at $100.00.
The Annuity Unit Value for each Subaccount will vary depending on how much the
actual net investment return of the Subaccount differs from the assumed
investment rate that was used to prepare the annuity tables in the Contract.
Those annuity tables are based on a 3.5% per year assumed investment rate. If
the actual net investment rate of a Subaccount exceeds 3.5%, the Annuity Unit
Value will increase and Variable Annuity payments derived from allocations to
that Subaccount will increase over time. Conversely, if the actual rate is less
than 3.5%, the Annuity Unit Value will decrease and the Variable Annuity
payments will decrease over time. If the net investment rate equals 3.5%, the
Annuity Unit Value will stay the same, as will the Variable Annuity payments. If
we had used a higher assumed investment rate, the initial monthly payment would
be higher, but the actual net investment rate would also have to be higher in
order for annuity payments to increase (or not to decrease).
For each Subaccount, we determine the Annuity Unit Value for any Valuation
Period by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the Net Investment Factor for the current Valuation Period.
The result is then divided by a second factor which offsets the effect of the
assumed net investment rate of 3.5% per year.
The Net Investment Factor measures the net investment performance of a
Subaccount from one Valuation Date to the next. The Net Investment Factor may be
greater or less than or equal to one; therefore, the value of an Annuity Unit
may increase, decrease or remain the same.
To determine the Net Investment Factor for a Subaccount for a Valuation Period,
we divide (a) by (b), and then subtract (c) from the result, where:
(a) is the total of:
(1) the net asset value of a Portfolio share held in the Subaccount
determined as of the Valuation Date at the end of the Valuation
Period; plus
(2) the per share amount of any dividend or other distribution declared by
the Portfolio for which the "ex-dividend" date occurs during the
Valuation Period; plus or minus
(3) a per share credit or charge for any taxes which we paid or for which
we reserved during the Valuation Period and which we determine to be
attributable to the operation of the Subaccount. As described in the
prospectus, currently we do not pay or reserve for federal income
taxes;
(b) is the net asset value of the Portfolio share determined as of the
Valuation Date at the end of the preceding Valuation Period; and
(c) is the mortality and expense risk charge and the administrative expense
risk charge.
ILLUSTRATIVE EXAMPLE OF ANNuITY UNIT VALUE CALCULATION
Assume that one share of a given Subaccount's underlying Portfolio had a net
asset value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on
a Tuesday; that its net asset value had been $11.44 at the close of the NYSE on
Monday, the day before; and that no dividends or other distributions on that
share had been made during the intervening Valuation Period. The Net Investment
Factor for the Valuation Period ending on Tuesday's close of the NYSE is
calculated as follows:
Net Investment Factor = ($11.46/$11.44) - 0.0000384 = 1.0017099
The amount subtracted from the ratio of the two net asset values (0.0000384) is
the daily equivalent of the annual asset-based expense charges 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
Illustrative Example of Variable Annuity Payments
Assume that a male Contract owner, P, owns a Contract in connection with which P
has allocated all of his Contract Value to a single Subaccount. P is also the
sole Annuitant. At age 60, P chooses to annuitize his Contract under Option B,
Life and 10 Years Certain. As of the last Valuation Date preceding the Annuity
Date, P's Account was credited with 7543.2456 Accumulation Units each having a
value of $15.432655. Accordingly, P's Account Value at that Date is equal to
7543.2456 x $15.432655 = $116,412.31. There are no premium 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. The tables supply monthly
annuity payments for each $1,000 of applied Contract Value. Accordingly, P's
first Variable Annuity payment is determined by multiplying the monthly
installment of $5.44 by the result of dividing P's Account Value by $1,000:
First Payment = $5.44 x ($116,412.31/$1,000) = $633.28
The number of P's Annuity Units is also determined at this time. It is equal to
the amount of the first Variable Annuity payment divided by the value of an
Annuity Unit at the Valuation Date immediately prior to annuitization:
Annuity Units = $633.28 / $132.56932 = 4.77697
P's second Variable Annuity payment is determined by multiplying the number of
Annuity Units by the Annuity Unit value as of the Valuation Date immediately
prior to the second payment due date:
Second Payment = 4.77697 x $133.27695 = $636.66
P's third and subsequent Variable Annuity payments are computed in the same
manner.
The amount of the first Variable Annuity payment depends on the Contract Value
in the relevant Subaccount on the Annuity Date. Thus, it reflects the investment
performance of the Subaccount net of fees and charges during the Accumulation
Period. The amount of the first Variable Annuity payment determines the number
of Annuity Units allocated to P's Contract for the Annuity Period. That number
will remain constant throughout the Annuity Period. The amount of the second and
subsequent Variable Annuity payments depends on changes in the Annuity Unit
Value, which will continuously reflect changes in the net investment performance
of the Subaccount during the Annuity Period.
ADDITIONAL FEDERAL INCOME TAX INFORMATION
Introduction
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. LINCOLN
BENEFIT MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax
consequences of ownership or receipt of distributions under an annuity contract
depend on the individual circumstances of each person. If you are concerned
about any tax consequences with regard to your individual circumstances, you
should consult a competent tax adviser.
Taxation of Lincoln Benefit Life Company
Lincoln Benefit is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. The Separate Account is not an entity separate
from Lincoln Benefit, and its operations form a part of the Company. As a
consequence, the Separate Account will not be taxed separately as a "Regulated
Investment Company" under Subchapter M of the Code. Investment income and
realized capital gains of the Separate Account are automatically applied to
increase reserves under the contract. Under current federal tax law, Lincoln
Benefit believes that the Separate Account investment income and capital gains
will not be taxed to the extent that such income and gains are applied to
increase the reserves under the Contract. Generally, reserves are amounts that
Lincoln Benefit is legally required to accumulate and maintain in order to meet
future obligations under the Contracts. Lincoln Benefit does not anticipate that
it will incur any federal income tax liability attributable to the Separate
Account. Therefore, we do not intend to make provisions for any such taxes. If
we are taxed on investment income or capital gains of the Separate Account, then
we may impose a charge against the Separate Account in order to make provision
for such taxes.
Exceptions to the Non-Natural Owner Rule
Generally, Contracts held by a non-natural owner are not treated as annuity
contracts for federal income tax purposes, unless one of several exceptions
applies. Contracts will generally be treated as held by a natural person if the
nominal owner is a trust or other entity that holds the Contract for the benefit
of a natural person. However, this special exception will not apply in the case
of an employer who is the nominal owner of a Contract under a non-qualified
deferred compensation arrangement for employees. Other exceptions to the
non-natural owner rule are:
(1) Contracts acquired by an estate of a decedent by reason of the death of the
decedent;
(2) certain qualified Contracts;
(3) Contracts purchased by employers upon the termination of certain qualified
plans;
(4) certain Contracts used in connection with structured settlement agreements,
and
(5) Contracts purchased with a single premium when the annuity starting date is
no later than a year from date of purchase of the annuity and substantially
equal periodic payments are made, not less frequently than annually, during
the annuity period.
IRS Required Distribution at Death Rules
To qualify as an annuity contract for federal income tax purposes, a
nonqualified Contract must provide:
(1) if any owner dies on or after the annuity start date, but before the entire
interest in the Contract has been distributed, the remaining portion of
such interest must be distributed at least as rapidly as under the method
of distribution being used as of the date of the owner's death;
(2) if any owner dies prior to the annuity start date, the entire interest in
the Contract must be distributed within five years after the date of the
owner's death.
The five year requirement is satisfied if:
(1) any portion of the owner's interest which is payable to a designated
beneficiary is distributed over the life of such beneficiary (or over a
period not extending beyond the life expectancy of the beneficiary), and
(2) the distributions begin within one year of the owner's death.
If the owner's designated beneficiary is a surviving spouse, the Contract may be
continued with the surviving spouse as the new owner. If the owner of the
Contract is a non-natural person, the annuitant is treated as the owner for
purposes of applying the distribution at death rules. In addition, a change in
the annuitant on a Contract owned by a non-natural person is treated as the
death of the owner.
Qualified Plans
This Contract may be used with several types of Qualified Plans. The tax rules
applicable to participants in Qualified Plans vary according to the type of Plan
and the terms and conditions of the Plan. Qualified Plan participants, and
owners, annuitants and beneficiaries under the Contract may be subject to the
terms and conditions of the Qualified Plan regardless of the terms of the
Contract.
Types of Qualified Plans
IRAs. Section 408 of the Code permits eligible individuals to contribute to an
individual retirement plan known as an IRA. IRAs are subject to limitations on
the amount that can be contributed and on the time when distributions may
commence. Certain distributions from other types of qualified plans may be
"rolled over" on a tax-deferred basis into an IRA. An IRA generally may not
provide life insurance, but it may provide a Death Benefit that equals the
greater of the premiums paid or the Contract value. The Contract provides a
Death Benefit that in certain situations, may exceed the greater of the payments
or the contract value. If the IRS treats the Death Benefit as violating the
prohibition on investment in life insurance contracts, the Contract would not
qualify as an IRA.
Roth IRAs.
Section 408A of the Code permits eligible individuals to make nondeductible
contributions to an individual retirement plan known as a Roth IRA. Roth IRAs
are subject to limitations on the amount that can be contributed. In certain
instances, distributions from Roth IRAs are excluded from gross income. Subject
to certain limits, a traditional Individual Retirement Account or Annuity may be
converted or "rolled over" to a Roth IRA. The taxable portion of a conversion or
rollover distribution is included in gross income, but is exempt from the 10%
penalty tax on premature distributions.
Simplified Employee Pension Plans
Section 408(k) of the Code allows employers to establish simplified employee
pension plans for their employees using the employees' IRAs if certain criteria
are met. Under these plans the employer may, within 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 competent advice.
Savings Incentive Match Plans for Employees (Simple Plans)
Sections 408(p) and 401(k) of the Tax Code allow employers with 100 or fewer
employees to establish SIMPLE retirement plans for their employees. SIMPLE plans
may be structured as a SIMPLE retirement account using an employee's IRA to hold
the assets, or as a Section 401(k) qualified cash or deferred arrangement. In
general, a SIMPLE plan consists of a salary deferral program for eligible
employees and matching or nonelective contributions made by employers. Employers
intending to use the Contract in conjunction with SIMPLE plans should seek
competent tax and legal advice.
Tax Sheltered Annuities
Section 403(b) of the Tax Code permits public school employees and employees of
certain types of tax-exempt organizations (specified in Section 501(c)(3) of the
Code) to have their employers purchase Contracts for them. Subject to certain
limitations, a Section 403(b) plan allows an employer to exclude the purchase
payments from the employees' gross income. A Contract used for a Section 403(b)
plan must provide that distributions attributable to salary reduction
contributions made after 12/31/88, and all earnings on salary reduction
contributions, may be made only on or after:
- - the date the employee attains age 59 1/2,
- - separates from service,
- - dies,
- - becomes disabled, or
- - on the account of hardship (earnings on salary reduction contributions may
not be distributed for hardship).
These limitations do not apply to withdrawals where Lincoln Benefit is directed
to transfer some or all of the Contract Value to another 403(b) plan.
Corporate and Self-Employed Pension and Profit Sharing Plans
Sections 401(a) and 403(a) of the Tax Code permit corporate employers to
establish various types of tax favored retirement plans for employees. The Tax
Code permits self-employed individuals to establish tax favored retirement plans
for themselves and their employees. Such retirement plans may permit the
purchase of Contracts to provide benefits under the plans.
State and Local Government and Tax-Exempt Organization Deferred Compensation
Plans
Section 457 of the Code permits employees of state and local governments and
tax-exempt organizations to defer a portion of their compensation without paying
current income taxes. The employees must be participants in an eligible deferred
compensation plan. Employees with Contracts under the plan are considered
general creditors of the employer. The employer, as owner of the Contract, has
the sole right to the proceeds of the Contract. Generally, under the non-natural
owner rules, Contracts are not treated as annuity contracts for federal income
tax purposes. Under these plans, contributions made for the benefit of the
employees will not be included in the employees' gross income until distributed
from the plan. However, all compensation deferred under a 457 plan must remain
the sole property of the employer. As property of the employer, the assets of
the plan are subject only to the claims of the employer's general creditors,
until such time as the assets become available to the employee or a beneficiary.
SEPARATE ACCOUNT PERFORMANCE
Performance data for the various Subaccounts are computed in the manner
described below.
Fidelity Money Market Subaccount
The current yield is the annual yield on the Fidelity Money Market Subaccount
assuming no reinvestment of dividends and excluding all realized or unrealized
capital gains. We compute current yield by first determining the Base Period
Return on a hypothetical Contract having a balance of one Accumulation Unit at
the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV)/(SV)
where:
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
We determine the value of the Accumulation Unit at the end of the period (EV)
by:
(1) adding, to the value of the Unit at the beginning of the period (SV), the
investment income from the underlying Variable Insurance Products Fund
Money Market Portfolio attributed to the Unit over the period; and
(2) subtracting, from the result, the sum of:
(a) the portion of the annual Mortality and Expense Risk and
Administrative Expense Charges allocable to the 7 day period (obtained
by multiplying the annually-based charges by the fraction 7/365); and
(b) a prorated portion of the annual Contract Administration Charge of $25
per contract. The Contract Administration Charge is allocated among
the Subaccounts in proportion to the total Contract Values similarly
allocated. The Charge is further reduced, for purposes of the yield
computation, by multiplying it by the ratio that the value of the
hypothetical Contract bears to the value of an account of average size
for Contracts funded by the Fidelity Money Market Subaccount. The
Charge is then multiplied by the fraction 7/365 to arrive at the
portion attributable to the 7 day period.
The current yield is then obtained by annualizing the Base Period Return:
Current Yield = (Base Period Return) x (365/7)
The Fidelity Money Market Subaccount also quotes an "effective yield". Effective
yield differs from current yield in that effective yield takes into account the
effect of dividend reinvestment. The effective yield, like the current yield, is
derived from the Base Period Return over a 7 day period. However, the effective
yield accounts for the reinvestment of dividends in the in the Variable
Insurance Products Fund Money Market Portfolio 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 do not represent the yield of the Fidelity Money Market
Subaccount in the future, because the yield is not fixed. Actual yields will
differ depending on the type, quality and maturities of the investments held by
the Variable Insurance Products Fund Money Market Portfolio and changes in
interest rates on those investments. In addition, your yield also will be
affected by factors specific to your Contract. For example, if your account is
smaller than average, your yield will be lower, because the fixed dollar expense
charges will affect the yield on small accounts more than they will affect the
yield on larger accounts.
Yield information may be useful in reviewing the performance of the Fidelity
Money Market Subaccount and for providing a basis for comparison with other
investment alternatives. However, the Fidelity Money Market Subaccount's yield
may vary on a daily basis, unlike bank deposits or other investments that
typically pay a fixed yield for a stated period of time.
Other Subaccounts
We compute the performance of the other Subaccounts in terms of an annualized
"yield" and/or as "total return".
YIELD
Yield will be expressed as an annualized percentage based on the Subaccount's
performance over a stated 30-day (or one month) period. The annualized yield
figures will reflect all recurring Contract charges and will not reflect
Withdrawal Charges, transfer fees or premium 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 x ( ((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.
These yield figures reflect all recurring Contract charges, as described in the
explanation of the yield computation for the Fidelity Money Market Subaccount.
Like the Fidelity Money Market Subaccount's yield figures, the yield figures for
the other Subaccounts are based on past performance and should not be taken as
predictive of future results.
STANDARDIZED TOTAL RETURN
Standardized total return for a Subaccount represents a single computed annual
rate of return that, when compounded annually over a specified time period (one,
five, and ten years, or since inception) and applied to a hypothetical initial
investment in a Contract funded by that Subaccount made at the beginning of the
period, will produce the same Contract Value at the end of the period that the
hypothetical investment would have produced over the same period. The
standardized total rate of return (T) is computed so that it satisfies the
following formula:
P(1+T)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. The effect of the Contract Administration
Charges on your account usually will differ from that assumed in the
computation, due to differences between most actual allocations and the assumed
one, as well as differences due to varying account sizes. Accordingly, your
total return on an investment in the Subaccount over the same time periods
usually would have differed from those produced by the computation. As with the
Fidelity Money Market and other Subaccount yield figures, standardized total
return figures are based on historical data and are not intended to be a
projection of future performance.
NON-STANDARDIZED TOTAL RETURN
Non-standardized total return for a Subaccount represents a single computed
annual rate of return that, when compounded annually over a specified time
period (one, five, and ten years, or since inception) and applied to a
hypothetical initial investment in a Contract funded by that Subaccount made at
the beginning of the period, will produce the same Contract Value at the end of
the period that the hypothetical investment would have produced over the same
period. The total rate of return (T) is computed so that it satisfies the
formula:
P(1+T)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).
Our non-standardized total return differs standardized total return in that in
calculating non-standardized total return, we assumed an initial hypothetical
investment of $20,000. We choose $20,000, because it is closer to the average
Purchase Payment of a Contract that we expect to write. For standardized total
return, we used an initial hypothetical investment of $1,000, as required by SEC
regulations. The non-standardized total return figures reflect the effect of
recurring charges, as discussed herein. Because the impact of Contract
Administration Charges on your account will usually differ from that assumed in
the computation, due to differences between most actual allocations and the
assumed one, as well as differences due to varying account sizes, your total
return on an investment in the Subaccount over the same time periods usually
would have differed from those produced by the computation. As with the
standardized total return figures, non-standardized total return figures are
based on historical data and are not intended to be a projection of future
performance.
TIME PERIODS BEFORE THE DATE THE SEPARATE ACCOUNT COMMENCED OPERATIONS
The Separate Account may also disclose yield, standardized total return and
non-standardized total return for time periods before the Separate Account
commenced operations. This performance data is based on the actual performance
of the Portfolios since their inception, adjusted to reflect the effect of the
recurring Contract charges at the rates currently charged against the
Subaccounts.
TABLES OF TOTAL RETURN CALCULATIONS
The following tables include average annual total return and non-standardized
total return for various periods as of December 31, 1998.
<TABLE>
<CAPTION>
TOTAL RETURN -- AS OF DECEMBER 31, 1998
ASSUMING CONTRACT SURRENDERED
AVERAGE ANNUAL TOTAL RETURN (4)
-------------------------------
SINCE
INCEPTION 5 YEAR 10 YEAR INCEPTION
DATE (3) 1 YEAR (%) (%) (%) (%)
---------- --------- ------- -------- ----------
JANUS
<S> <C> <C> <C> <C> <C>
Flexible Income......................... 9/13/93 -.03% N/A N/A 7.54%
Balanced ............................... 9/13/93 27.44% N/A N/A 16.74%
Growth (2).............................. 9/13/93 30.81% N/A N/A 19.34%
Aggressive Growth ...................... 9/13/93 29.48% N/A N/A 17.40%
Worldwide Growth (2).................... 9/13/93 23.63% N/A N/A 19.10%
FEDERATED
Utility II (2).......................... 2/11/94 8.18% N/A N/A 11.64%
U.S. Gov't II (2)....................... 3/28/94 .17% N/A N/A 4.32%
High Income Bond ....................... 3/1/94 -3.53% N/A N/A 7.30%
FIDELITY VIP
Money Market (1)........................ 4/1/82 N/A N/A N/A N/A
Equity Income (2)....................... 10/9/86 7.21% N/A N/A 16.67%
Growth (2).............................. 10/9/86 34.74% N/A N/A 19.27%
Overseas (2)............................ 1/28/87 6.46% N/A N/A 7.52%
FIDELITY VIP II
Asset Manager (2)....................... 9/6/89 8.87% N/A N/A 9.63%
Contrafund (2).......................... 1/3/95 23.78% N/A N/A 21.85%
Index 500............................... 8/27/92 N/A N/A N/A 16.32%
ALGER AMERICAN
Income and Growth....................... 11/15/88 N/A N/A N/A 24.81%
Small Capitalization.................... 9/21/88 N/A N/A N/A 6.17%
Growth.................................. 1/9/89 N/A N/A N/A 37.02%
MidCap.................................. 5/3/93 N/A N/A N/A 19.14%
Leveraged AllCap (2).................... 1/25/95 N/A N/A N/A 49.61%
SCUDDER
Bond.................................... 7/16/85 -.85% N/A N/A 3.83%
Balanced................................ 7/16/85 17.50% N/A N/A 14.11%
INVESTMENT ADVISERS, INC. (IAI)
Regional................................ 1/31/94 -3.38 N/A N/A 10.38
Reserve (2)............................. 4/7/94 -2.40 N/A N/A 2.44
Balanced (2)............................ 2/3/94 5.56 N/A N/A 8.10
</TABLE>
- ------------------------
(1) An investment in Fidelity Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that Fidelity Money
Market will maintain a stable $1.00 share price. The Fidelity Money Market
Fund does not advertise total return.
(2) 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.
(3) 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
(4) Total return includes changes in share price, reinvestment of dividends,
and capital gains. The performance figures: (1) represent past performance
and neither guarantee nor predict future investment results; (2) assume an
initial hypothetical investment of $1,000, as required by the Securities
and Exchange Commission (SEC); and (3) reflect the deduction of 1.4% annual
asset charges, a $25 annual contract maintenance charge, and a maximum 7%
contingent deferred sales charge (declining after two years). The
investment return and value of a Contract will fluctuate so that a
Contract, when surrendered, may be worth more or less than the amount of
the purchase payments.
N/A - Performance data is not been 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.
<TABLE>
<CAPTION>
TOTAL RETURN -- AS OF DECEMBER 31, 1998
ASSUMING CONTRACT NOT SURRENDERED
AVERAGE ANNUAL TOTAL RETURN (4)
--------------------------------
SINCE
INCEPTION MONTHLY TOTAL RETURN 5 YEAR INCEPTION
DATE (3) RETURN (4)% YDT (4)% 1 YEAR (%) (%) (%)
---------- ----------- ------------ --------- ------ ---------
JANUS
<S> <C> <C> <C> <C> <C> <C>
Flexible Income........................... 9/13/93 -1.84 4.84 4.84 8.12 7.60
Balanced ................................. 9/13/93 9.56 30.79 30.79 17.04 16.37
Growth (2)................................ 9/13/93 14.74 33.55 33.55 19.56 18.50
Aggressive Growth ........................ 9/13/93 16.41 32.23 32.23 17.54 17.47
Worldwide Growth (2)...................... 9/13/93 7.88 26.80 26.80 19.45 19.33
FEDERATED
Utility II (2)............................ 2/11/94 3.46 12.22 12.22 N/A 12.07
U.S. Gov't II (2)......................... 3/28/94 .23 6.03 6.03 N/A 5.03
High Income Bond ......................... 3/1/94 -.40 1.14 1.14 N/A 7.87
FIDELITY VIP
Money Market (1).......................... 4/1/82 N/A N/A N/A N/A N/A
Equity Income (2)......................... 10/9/86 2.99 9.94 9.94 16.97 12.65
Growth (2)................................ 10/9/86 8.40 37.38 37.38 19.90 15.64
Overseas (2).............................. 1/28/87 2.06 11.04 11.04 8.04 8.11
FIDELITY VIP II
Asset Manager (2)......................... 9/6/89 3.99 13.31 13.31 10.11 11.43
Contrafund (2)............................ 1/3/95 12.02 28.01 28.01 N/A 26.74
Index 500................................. 8/27/92 5.74 26.37 26.37 21.85 19.35
ALGER AMERICAN
Income and Growth......................... 11/15/88 9.74 30.39 30.39 19.92 13.77
Small Capitalization...................... 9/21/88 12.60 13.78 13.78 11.38 16.91
Growth.................................... 1/9/89 11.99 45.83 45.83 22.02 19.60
MidCap.................................... 5/3/93 12.41 28.33 28.33 17.18 20.74
Leveraged AllCap (2)...................... 1/25/95 16.30 55.44 55.44 N/A 38.23
SCUDDER
Bond...................................... 7/16/85 -.13 4.96 4.96 4.50 6.44
Balanced.................................. 7/16/85 6.15 21.32 21.32 14.50 11.03
INVESTMENT ADVISERS, INC. (IAI)
Regional.................................. 1/31/94 4.33 .02 .02 N/A 10.74
Reserve (2)............................... 4/7/94 .32 3.87 3.87 N/A 3.20
Balanced (2).............................. 2/3/94 2.77 10.41 10.41 N/A 8.63
- ------------------------
</TABLE>
<TABLE>
<CAPTION>
CALENDAR YEAR RETURN (4)
------------------------
CUMULATIVE (4) SEC 7-DAY SEC
INCEPTION TOTAL RETURN EFFECTIVE 7-DAY 1995 1996 1997
DATE (3) SINCE INCEPTION % YIELD % YIELD % (%) (%) (%)
---------- ------------------- --------- ---------- ----- ------ ------
JANUS
<S> <C> <C> <C> <C> <C> <C> <C>
Flexible Income........................ 9/13/93 47.41 21.99 7.54 10.07
Balanced .............................. 9/13/93 123.24 22.90 14.43 20.25
Growth (2)............................. 9/13/93 145.76 28.18 16.66 20.89
Aggressive Growth ..................... 9/13/93 134.70 25.56 6.32 10.96
Worldwide Growth (2)................... 9/13/93 155.02 25.44 27.09 20.30
FEDERATED
Utility II (2)......................... 2/11/94 74.51 22.28 9.88 24.72
U.S. Gov't II (2)...................... 3/28/94 26.29 7.11 2.63 6.94
High Income Bond ...................... 3/1/94 44.22 18.53 12.58 12.11
FIDELITY VIP
Money Market (1)....................... 4/1/82 N/A 3.38 3.33 N/A N/A N/A
Equity Income (2)...................... 10/9/86 328.94 33.03 12.55 26.17
Growth (2)............................. 10/9/86 491.17 33.32 12.97 21.61
Overseas (2)........................... 1/28/87 153.53 8.02 11.50 9.87
FIDELITY VIP II
Asset Manager (2)...................... 9/6/89 174.09 15.18 12.87 18.82
Contrafund (2)......................... 1/3/95 157.50 N/A 19.47 22.26
Index 500.............................. 8/27/92 207.11 35.11 20.86 30.82
ALGER AMERICAN
Income and Growth...................... 11/15/8 269.30 33.09 17.87 34.22
Small Capitalization.................... 9/21/88 398.11 42.12 2.61 9.71
Growth.................................. 1/9/89 496.29 34.30 11.63 23.84
MidCap.................................. 5/3/93 190.67 42.26 10.20 13.27
Leveraged AllCap (2).................... 1/25/95 257.15 N/A 10.34 17.87
SCUDDER
Bond..................................... 7/16/85 131.69 16.39 1.26 7.45
Balanced................................. 7/16/85 309.12 24.75 10.19 22.33
INVESTMENT ADVISERS, INC. (IAI)
Regional................................. 1/31/94 65.10 31.29 10.19 11.73
Reserve (2).............................. 4/7/94 16.07 3.67 3.35 3.04
Balanced (2)............................. 2/3/94 50.11 14.42 8.14 14.83
</TABLE>
- ------------------------
(1) An investment in Fidelity Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that Fidelity Money
Market will maintain a stable $1.00 share price. The Fidelity Money Market
Fund does not advertise total return.
(2) 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.
(3) 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
(4) 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 [ ]. 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 vestment returns will vary depending on
the size of the contract.
N/A Certain Portfolios do not have meaningful performance for the periods
indicated. In the future, as such data becomes available, total return will be
calculated as described above.
<PAGE>
EXPERTS
The financial statements of Lincoln Benefit Life Variable Annuity Account as of
December 31, 1998, and for each of the periods ended December 31, 1998, and
December 31, 1997, and consolidated financial statements of Lincoln Benefit Life
Company and subsidiary as of December 31, 1998, and 1997 and for each of the
three years in the period ended December 31, 1998, included in this Statement of
Additonal 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.
FINANCIAL STATEMENTS
The Company's consolidated financial statements and notes thereto are included
in this Statement of Additional Information beginning on page [ ]. You should
consider the Company's financial statements only as bearing on Lincoln Benefit's
ability to meet its obligations under the Contract. They do not relate to the
investment performance of the assets held in the Separate Account.
The financial statements for the Separate Account included in this Statement of
Additional Information reflect assets attributable to other variable annuity
contracts offered by Lincoln Benefit through the Separate Account. In addition,
the financial statements for the Separate Account reflect Subaccounts that are
not available under the Contract.
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE
ANNUITY ACCOUNT
Statement of Net Assets as of December 31, 1998, Statement of Operations
for the Year Then Ended, Statements of Changes in Net Assets for Each of
the Two Years Ended December 31, 1998 and Independent Auditors' Report
<PAGE>
LINCOLN BENEFIT LIFE
VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Independent Auditors' Report 1
Statements of Net Assets as of December 31, 1998 for the following:
Investments in Alger American Fund Portfolios: 2
Growth
Income and Growth
Leveraged AllCap
MidCap Growth
Small Capitalization
Investments in Janus Aspen Series Portfolios:
Flexible Income
Balanced
Growth
Aggressive Growth
Worldwide Growth
Investments in IAI Retirement Funds, Inc. Portfolios:
Regional
Reserve
Balanced
Investments in Fidelity Variable Insurance Products Fund II Portfolios:
Asset Manager
Contrafund
Index 500
Investments in Fidelity Variable Insurance Products Fund Portfolios:
Money Market
Equity-Income
Growth
Overseas
Investments in Federated Insurance Management Series Portfolios:
High Income Bond Fund II
Utility Fund II
U.S. Government Securities Fund II
Investments in Scudder Variable Life Investment Fund Portfolios:
Bond
Balanced
Growth and Income
Global Discovery
International
Investments in Strong Variable Insurance Funds, Inc. Portfolios:
Discovery Fund II
Growth Fund II
Investment in Strong Opportunity Fund II, Inc. Portfolio:
Opportunity Fund II
<PAGE>
LINCOLN BENEFIT LIFE
VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Investment in T. Rowe Price International Series, Inc. Portfolio:
International Stock
Investments in T. Rowe Price Equity Series, Inc. Portfolios:
New America Growth
Mid-Cap Growth
Equity Income
Investments in MFS Variable Insurance Trust Portfolios:
Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
Statements of Operations for the following:
For the Period February 17, 1998 to December 31, 1998
Investments in Alger American Fund Portfolios: 3
Growth
Income and Growth
Leveraged AllCap
MidCap Growth
Small Capitalization
For the Year Ended December 31, 1998
Investments in Janus Aspen Series Portfolios: 4
Flexible Income
Balanced
Growth
Aggressive Growth
Worldwide Growth
Investments in IAI Retirement Funds, Inc. Portfolios: 4
Regional
Reserve
Balanced
Investments in Fidelity Variable Insurance Products Fund II Portfolios: 5
Asset Manager
Contrafund
For the Period February 17, 1998 to December 31, 1998
Investments in Fidelity Variable Insurance Products Fund II Portfolios: 5
Index 500
<PAGE>
LINCOLN BENEFIT LIFE
VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
For the Year Ended December 31, 1998
Investments in Fidelity Variable Insurance Products Fund Portfolios: 5
Money Market
Equity-Income
Growth
Overseas
Investments in Federated Insurance Management Series Portfolios: 6
High Income Bond Fund II
Utility Fund II
U.S. Government Securities Fund II
Investments in Scudder Variable Life Investment Fund Portfolios: 6
Bond
Balanced
For the Period August 17, 1998 to December 31, 1998
Investments in Scudder Variable Life Investment Fund Portfolios: 6
Growth and Income
Global Discovery
International
Investments in Strong Variable Insurance Funds, Inc. Portfolios: 7
Discovery Fund II
Growth Fund II
Investment in Strong Opportunity Fund II, Inc. Portfolio: 7
Opportunity Fund II
Investment in T. Rowe Price International Series, Inc. Portfolio: 7
International Stock
Investments in T. Rowe Price Equity Series, Inc. Portfolios: 7
New America Growth
Mid-Cap Growth
Equity Income
Investments in MFS Variable Insurance Trust Portfolios: 8
Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
<PAGE>
LINCOLN BENEFIT LIFE
VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
Statements of Changes in Net Assets for the following:
For the Period February 17, 1998 to December 31, 1998
Investments in Alger American Fund Portfolios: 9
Growth
Income and Growth
Leveraged AllCap
MidCap Growth
Small Capitalization
For the Years Ended December 31, 1998 and 1997
Investments in Janus Aspen Series Portfolios: 10, 15
Flexible Income
Balanced
Growth
Aggressive Growth
Worldwide Growth
Investments in IAI Retirement Funds, Inc. Portfolios: 10, 15
Regional
Reserve
Balanced
Investments in Fidelity Variable Insurance Products
Fund II Portfolios: 11, 15
Asset Manager
Contrafund
For the Period February 17, 1998 to December 31, 1998
Investment in Fidelity Variable Insurance Products Fund II Portfolios: 11
Index 500
For the Years Ended December 31, 1998 and 1997
Investments in Fidelity Variable Insurance Products Fund Portfolios: 11, 16
Money Market
Equity-Income
Growth
Overseas
Investments in Federated Insurance Management Series Portfolios: 12, 16
High Income Bond Fund II
Utility Fund II
U.S. Government Securities Fund II
Investments in Scudder Variable Life Investment Fund Portfolios: 12, 16
Bond
Balanced
<PAGE>
LINCOLN BENEFIT LIFE
VARIABLE ANNUITY ACCOUNT
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
Page
For the Period August 17, 1998 to December 31, 1998
Investments in Scudder Variable Life Investment Fund Portfolios: 12
Growth and Income
Global Discovery
International
Investments in Strong Variable Insurance Funds, Inc. Portfolios: 13
Discovery Fund II
Growth Fund II
Investment in Strong Opportunity Fund II, Inc. Portfolio: 13
Opportunity Fund II
Investment in T. Rowe Price International Series, Inc. Portfolio: 13
International Stock
Investments in T. Rowe Price Equity Series, Inc. Portfolios: 13
New America Growth
Mid-Cap Growth
Equity-Income
Investments in MFS Variable Insurance Trust Portfolios: 14
Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
Notes to Financial Statements 17-23
<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 each of the
sub-accounts ("portfolios" for purposes of this report), listed in the table of
contents, that comprise Lincoln Benefit Life Variable Annuity Account (the
"Account"), a Separate Account of Lincoln Benefit Life Company, an affiliate of
The Allstate Corporation, as of December 31, 1998, and the related statements of
operations and changes in net assets for the applicable periods indicated in the
table of contents. 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, 1998. 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 portfolios, listed in the table of
contents, that comprise the Account as of December 31, 1998, and the results of
their operations and the changes in their net assets for each of the periods
indicated in the table of contents, in conformity with generally accepted
accounting principles.
/s/Deloitte & Touche, LLP
Chicago, Illinois
March 18, 1999
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF NET ASSETS
DECEMBER 31, 1998
($ and shares in thousands)
NET ASSETS
Investments in Alger American Fund Portfolios:
Growth, 120 shares (cost $5,469) $ 6,381
Income & Growth, 376 shares (cost $4,339) 4,940
Leveraged AllCap, 55 shares (cost $1,616) 1,922
MidCap Growth, 88 shares (cost $2,286) 2,553
Small Capitalization, 59 shares (cost $2,383) 2,573
Investments in Janus Aspen Series Portfolios:
Flexible Income, 959 shares (cost $11,299) 11,563
Balanced, 1,561 shares (cost $27,099) 35,123
Growth, 2,407 shares (cost $42,978) 56,670
Aggressive Growth, 1,201 shares (cost $23,297) 33,140
Worldwide Growth, 2,724 shares (cost $61,611) 79,243
Investments in IAI Retirement Funds, Inc. Portfolios:
Regional, 827 shares (cost $12,129) 12,970
Reserve, 49 shares (cost $487) 493
Balanced, 181 shares (cost $2,398) 2,828
Investments in Fidelity's Variable Insurance Products Fund II
Portfolios:
Asset Manager, 1,172 shares (cost $18,744) 21,282
Contrafund, 1,603 shares (cost $31,844) 39,188
Index 500, 110 shares (cost $13,863) 15,547
Investments in Fidelity's Variable Insurance Products Fund
Portfolios:
Money Market, 30,004 shares (cost $30,004) 30,004
Equity Income, 3,341 shares (cost $73,093) 84,938
Growth, 1,372 shares (cost $46,191) 61,574
Overseas, 1,106 shares (cost $21,155) 22,184
Investments in Federated Insurance Management Series Portfolios:
High Income Bond Fund II, 1,714 shares (cost $18,479) 18,715
Utility Fund II, 870 shares (cost $11,409) 13,281
U.S. Government Securities Fund II, 723 shares (cost $7,828) 8,070
Investments in Scudder Variable Life Investment Fund Portfolios:
Bond, 879 shares (cost $5,999) 6,044
Balanced, 1,160 shares (cost $14,413) 17,648
Growth & Income, 17 shares (cost $185) 194
Global Discovery, 3 shares (cost $21) 23
International, 7 shares (cost $103) 108
Investments in Strong Variable Insurance Funds, Inc. Portfolios:
Discovery Fund II, 1 share (cost $15) 16
Growth Fund II, 8 shares (cost $112) 132
Investment in Strong Opportunity Fund II, Inc. Portfolio:
Opportunity Fund II, 1 share (cost $28) 30
Investment in T. Rowe Price International Series, Inc. Portfolio:
International Stock, 7 shares (cost $99) 104
Investment in T. Rowe Price Equity Series, Inc. Portfolios:
New America Growth, 5 shares (cost $99) 111
Mid-Cap Growth, 46 shares (cost $569) 654
Equity Income, 20 shares (cost $383) 389
Investments in MFS Variable Insurance Trust Portfolios:
Growth with Income Series, 16 shares (cost $307) 331
Research Series, 7 shares (cost $125) 141
Emerging Growth Series, 5 shares (cost $96) 106
Total Return Series, 15 shares (cost $260) 269
New Discovery Series, 8 shares (cost $65) 79
----------
Net assets $ 591,561
==========
See notes to financial statements.
2
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
($ in thousands)
Alger American Fund Portfolios
-------------------------------------------------------------
For the Period February 17, 1998 to December 31, 1998
-------------------------------------------------------------
Income & Leveraged MidCap Small
Growth Growth AllCap Growth Capitalization
---------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 98 $ 78 $ 3 $ 97 $ 63
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (22) (21) (4) (16) (12)
Administrative expense (3) (2) (1) (2) (1)
---------- ---------- ---------- ---------- ----------
Net investment income (loss) 73 55 (2) 79 50
---------- ---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales 3,513 1,356 1,286 1,917 1,752
Cost of investments sold (3,480) (1,370) (1,321) (2,042) (1,825)
---------- ---------- ---------- ---------- ----------
Net realized gains (losses) 33 (14) (35) (125) (73)
---------- ---------- ---------- ---------- ----------
Change in unrealized gains (losses) 912 601 306 267 190
---------- ---------- ---------- ---------- ----------
Net gains (losses) on investments 945 587 271 142 117
---------- ---------- ---------- ---------- ----------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,018 $ 642 $ 269 $ 221 $ 167
========== ========== ========== ========== ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
($ in thousands)
Janus Aspen Series Portfolios IAI Retirement Funds, Inc. Portfolios
---------------------------------------------------- -------------------------------------
For the Year Ended December 31, 1998
-------------------------------------------------------------------------------------
Flexible Aggressive Worldwide
Income Balanced Growth Growth Growth Regional Reserve Balanced
-------- -------- -------- -------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 578 $ 1,120 $ 2,854 $ -- $ 2,532 $ 800 $ 27 $ 69
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (103) (380) (541) (322) (825) (175) (7) (31)
Administrative expense (12) (45) (65) (39) (99) (21) (1) (4)
-------- -------- -------- -------- -------- -------- -------- --------
Net investment income (loss) 463 695 2,248 (361) 1,608 604 19 34
-------- -------- -------- -------- -------- -------- -------- --------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales 4,290 7,185 22,103 14,542 21,487 4,221 439 547
Cost of investments sold (4,179) (6,358) (20,208) (12,929) (18,440) (4,089) (440) (491)
-------- -------- -------- -------- -------- -------- -------- --------
Net realized gains (losses) 111 827 1,895 1,613 3,047 132 (1) 56
-------- -------- -------- -------- -------- -------- -------- --------
Change in unrealized gains (losses) (4) 5,778 8,921 6,673 9,929 (872) 5 151
-------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on investments 107 6,605 10,816 8,286 12,976 (740) 4 207
-------- -------- -------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 570 $ 7,300 $ 13,064 $ 7,925 $ 14,584 $ (136) $ 23 $ 241
======== ======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
($ in thousands) Fidelity Variable Insurance Products Fidelity Variable Insurance Products
Fund II Portfolios Fund Portfolios
------------------------------------------ ---------------------------------------------
For the Period
For the Year Ended February 17, 1998
December 31, 1998 to December 31, 1998 For the Year Ended December 31, 1998
-------------------- -------------------- ----------------------------------------------
Asset Contra- Money Equity-
Manager fund Index 500 Market Income Growth Overseas
-------- -------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 2,019 $ 1,256 $ -- $ 1,568 $ 4,003 $ 5,328 $ 1,241
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (232) (349) (66) (370) (929) (600) (224)
Administrative expense (28) (42) (8) (44) (112) (72) (27)
-------- -------- ------------- --------- --------- --------- ---------
Net investment income (loss) 1,759 865 (74) 1,154 2,962 4,656 990
-------- -------- ------------- --------- --------- --------- ---------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales 3,648 20,984 2,281 175,335 24,425 18,038 26,879
Cost of investments sold (3,465) (20,045) (2,314) (175,335) (22,240) (16,033) (25,982)
-------- -------- ------------- --------- --------- --------- ---------
Net realized gains (losses) 183 939 (33) -- 2,185 2,005 897
-------- -------- ------------- --------- --------- --------- ---------
Change in unrealized gains (losses) 399 5,713 1,684 -- 1,609 9,064 288
-------- -------- ------------- --------- --------- --------- ---------
Net gains (losses) on investments 582 6,652 1,651 -- 3,794 11,069 1,185
-------- -------- ------------- --------- --------- --------- ---------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,341 $ 7,517 $ 1,577 $ 1,154 $ 6,756 $ 15,725 $ 2,175
======== ======== ============= ========= ========= ========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
5
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
($ in thousands)
<TABLE>
Federated Insurance Management Scudder Variable Life Investment
Series Portfolio Fund Portfolios
------------------------------ ---------------------------------------------------
For the Year Ended For the Period August 17, 1998
December 31, 1998 to December 31, 1998
--------------------------------------------------- --------------------------------
U.S.
Government
High Income Utility Securities Growth and Global Inter-
Bond Fund II Fund II Fund II Bond Balanced Income Discovery national
------------ -------- ---------- -------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 451 $ 502 $ 68 $ 306 $ 889 $ -- $ -- $ --
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (201) (120) (72) (63) (174) -- -- --
Administrative expense (24) (14) (9) (8) (21) -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net investment income (loss) 226 368 (13) 235 694 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales 18,775 4,120 7,407 3,518 2,126 -- 16 --
Cost of investments sold (18,443) (3,782) (7,264) (3,488) (1,913) -- (15) --
-------- -------- -------- -------- -------- -------- -------- --------
Net realized gains (losses) 332 338 143 30 213 -- 1 --
-------- -------- -------- -------- -------- -------- -------- --------
Change in unrealized gains (losses) (361) 547 154 (19) 1,843 9 2 5
-------- -------- -------- -------- -------- -------- -------- --------
Net gains (losses) on investments (29) 885 297 11 2,056 9 3 5
-------- -------- -------- -------- -------- -------- -------- --------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 197 $ 1,253 $ 284 $ 246 $ 2,750 $ 9 $ 3 $ 5
======== ======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
($ in thousands)
Strong Variable Strong T. Rowe Price
Insurance Opportunity International
Funds, Inc. Fund, II Series, T. Rowe Price Equity Series, Inc.
Portfolios Inc. Portfolio Inc.Portfolio Portfolios
--------------------- -------------- ------------- -----------------------------------
For the Period August 17, 1998 to December 31, 1998
------------------------------------------------------------------------------------------
Discovery Growth Opportuntiy International New America Mid-Cap Equity
Fund II Fund II Fund II Stock Growth Growth Income
--------- --------- ----------- ------------ ----------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ -- $ -- $ -- $ 1 $ 2 $ 9 $ 12
Charges from Lincoln Benefit Life Company:
Mortality and expense risk -- -- -- -- -- (1) (1)
Administrative expense -- -- -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net investment income (loss) -- -- -- 1 2 8 11
--------- --------- --------- --------- --------- --------- ---------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales -- 1 -- -- 17 87 5
Cost of investments sold -- (1) -- -- (15) (80) (5)
--------- --------- --------- --------- --------- --------- ---------
Net realized gains (losses) -- -- -- -- 2 7 --
--------- --------- --------- --------- --------- --------- ---------
Change in unrealized gains (losses) 1 20 2 5 12 85 6
--------- --------- --------- --------- --------- --------- ---------
Net gains (losses) on investments 1 20 2 5 14 92 6
--------- --------- --------- --------- --------- --------- ---------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1 $ 20 $ 2 $ 6 $ 16 $ 100 $ 17
========= ========= ========= ========= ========= ========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
7
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF OPERATIONS
($ in thousands)
MFS Variable Insurance Trust Portfolios
-------------------------------------------------------------------
For the Period August 17, 1998 to December 31, 1998
-------------------------------------------------------------------
Growth with Research Emerging Total Return New Discovery
Income Series Series Growth Series Series Series
------------- --------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ -- $ -- $ -- $ -- $ --
Charges from Lincoln Benefit Life Company:
Mortality and expense risk -- -- -- -- --
Administrative expense -- -- -- -- --
--------- --------- --------- --------- ---------
Net investment income (loss) -- -- -- -- --
--------- --------- --------- --------- ---------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales 30 13 -- 41 --
Cost of investments sold (28) (13) -- (41) --
--------- --------- --------- --------- ---------
Net realized gains (losses) 2 -- -- -- --
--------- --------- --------- --------- ---------
Change in unrealized gains (losses) 24 16 10 9 14
--------- --------- --------- --------- ---------
Net gains (losses) on investments 26 16 10 9 14
--------- --------- --------- --------- ---------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 26 $ 16 $ 10 $ 9 $ 14
========= ========= ========= ========= =========
<FN>
See notes to financial statements.
</FN>
</TABLE>
8
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
($ in thousands)
Alger American Fund Portfolios
--------------------------------------------
For the Period February 17, 1998
to December 31, 1998
--------------------------------------------
Small
Income Leveraged MidCap Capital-
Growth & Growth AllCap Growth ization
------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 73 $ 55 $ (2) $ 79 $ 50
Net realized gains (losses) 33 (14) (35) (125) (73)
Change in unrealized gains (losses) 912 601 306 267 190
------- ------- ------- ------- -------
Change in net assets resulting
from operations 1,018 642 269 221 167
------- ------- ------- ------- -------
FROM CAPITAL TRANSACTIONS
Deposits 1,844 2,018 436 1,117 1,121
Benefit payments -- -- -- -- --
Payments on termination (169) (49) (8) (32) (38)
Loans - net -- -- -- -- --
Contract administration charge -- -- -- -- --
Transfers among the portfolios
and with the Fixed Account - net 3,688 2,329 1,225 1,247 1,323
------- ------- ------- ------- -------
Change in net assets resulting
from capital transactions 5,363 4,298 1,653 2,332 2,406
------- ------- ------- ------- -------
INCREASE IN NET ASSETS 6,381 4,940 1,922 2,553 2,573
NET ASSETS AT BEGINNING OF PERIOD -- -- -- -- --
------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD $ 6,381 $ 4,940 $ 1,922 $ 2,553 $ 2,573
======= ======= ======= ======= =======
<FN>
See notes to financial statements.
</FN>
</TABLE>
9
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
($ in thousands)
IAI Retirement Funds, Inc.
Janus Aspen Series Portfolios Portfolios
--------------------------------------------- --------------------------
For the Year Ended December 31, 1998
--------------------------------------------------------------------------
Flexible Aggressive Worldwide
Income Balanced Growth Growth Growth Regional Reserve Balanced
-------- -------- ------- ---------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 463 $ 695 $ 2,248 $ (361) $ 1,608 $ 604 $ 19 $ 34
Net realized gains (losses) 111 827 1,895 1,613 3,047 132 (1) 56
Change in unrealized gains (losses) (4) 5,778 8,921 6,673 9,929 (872) 5 151
------- ------- ------- ------- ------- ------- ------ ------
Change in net assets resulting
from operations 570 7,300 13,064 7,925 14,584 (136) 23 241
------- ------- ------- ------ ------- ------- ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 4,308 7,827 8,319 2,926 12,550 1,052 53 432
Benefit payments (170) (279) (512) (59) (418) (327) (1) (82)
Payments on termination (303) (1,246) (2,089) (1,130) (2,981) (602) (39) (104)
Loans - net (6) 1 11 (13) (5) (13) -- --
Contract administration charge (2) (8) (18) (16) (31) (6) -- (1)
Transfers among the portfolios
and with the Fixed Account - net 1,491 5,368 5,435 1,496 5,636 (1,361) (364) 271
------- ------- ------- ------ ------- ------- ------ ------
Change in net assets resulting
from capital transactions 5,318 11,663 11,146 3,204 14,751 (1,257) (351) 516
------- ------- ------- ------ ------- ------- ------ ------
INCREASE/DECREASE IN NET ASSETS 5,888 18,963 24,210 11,129 29,335 (1,393) (328) 757
NET ASSETS AT BEGINNING OF PERIOD 5,675 16,160 32,460 22,011 49,908 14,363 821 2,071
------- ------- ------- ------ ------- ------- ------ ------
NET ASSETS AT END OF PERIOD $11,563 $35,123 $56,670 $33,140 $79,243 $12,970 $ 493 $2,828
======= ======= ======= ======= ======= ======= ====== ======
<FN>
See notes to financial statements.
</FN>
</TABLE>
10
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
($ in thousands)
Fidelity Variable Insurance Fidelity Variable Insurance Products
Products Fund II Portfolios Fund Portfolios
--------------------------------- --------------------------------------------
For the Year For the Period
Ended February 17
December 31, to December, For the Year Ended
1998 31, 1998 December 31, 1998
-------------------- --------- --------------------------------------------
Asset Contra- Money Equity-
Manager fund Index 500 Market Income Growth Overseas
-------- --------- --------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 1,759 $ 865 $ (74) $ 1,154 $ 2,962 $ 4,656 $ 990
Net realized gains (losses) 183 939 (33) -- 2,185 2,005 897
Change in unrealized gains (losses) 399 5,713 1,684 -- 1,609 9,064 288
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting
from operations 2,341 7,517 1,577 1,154 6,756 15,725 2,175
-------- -------- -------- -------- -------- -------- --------
FROM CAPITAL TRANSACTIONS
Deposits 3,092 8,056 6,877 71,632 14,703 6,775 1,993
Benefit payments (123) (157) (40) (129) (524) (326) (131)
Payments on termination (769) (1,176) (129) (2,044) (4,163) (2,356) (980)
Loans - net (14) (3) 8 (1) 15 (10) (9)
Contract administration charge (8) (11) -- (6) (33) (27) (8)
Transfers among the portfolios
and with the Fixed Account - net 1,099 5,928 7,254 (65,701) 7,859 3,895 4,921
-------- -------- -------- -------- -------- -------- --------
Change in net assets resulting
from capital transactions 3,277 12,637 13,970 3,751 17,857 7,951 5,786
-------- -------- -------- -------- -------- -------- --------
INCREASE IN NET ASSETS 5,618 20,154 15,547 4,905 24,613 23,676 7,961
NET ASSETS AT BEGINNING OF PERIOD 15,664 19,034 -- 25,099 60,325 37,898 14,223
-------- -------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 21,282 $ 39,188 $ 15,547 $ 30,004 $ 84,938 $ 61,574 $ 22,184
======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
11
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
($ in thousands)
Federated Insurance Management
Series Portfolios Scudder Variable Life Investment Fund Portfolios
-------------------------------------- -------------------------------------------------------
For the year Ended For the Period August 17, 1998
December 31, 1998 to December 31, 1998
----------------------------------------------------------- ----------------------------------
U.S.
Government
High Income Utility Securities Growth and Global Inter-
Bond Fund II Fund II Fund II Bond Balanced Income Discovery national
------------ ----------- --------- ---------- --------- ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 226 $ 368 $ (13) $ 235 $ 694 $ -- $ -- $ --
Net realized gains (losses) 332 338 143 30 213 -- 1 --
Change in unrealized gains (losses) (361) 547 154 (19) 1,843 9 2 5
-------- -------- -------- -------- -------- -------- -------- --------
Change in net assets resulting
from operations 197 1,253 284 246 2,750 9 3 5
-------- -------- -------- -------- -------- -------- -------- --------
FROM CAPITAL TRANSACTIONS
Deposits 6,720 4,727 3,121 1,568 3,966 182 21 73
Benefit payments (128) (163) (16) (83) (77) -- -- --
Payments on termination (965) (296) (262) (230) (703) -- -- --
Loans - net 23 -- (1) 6 (7) -- -- --
Contract administration charge (4) (3) (1) (2) (5) -- -- --
Transfers among the portfolios
and with the Fixed Account - net 1,313 773 2,097 467 1,711 3 (1) 30
-------- -------- -------- -------- -------- -------- -------- --------
Change in net assets resulting
from capital transactions 6,959 5,038 4,938 1,726 4,885 185 20 103
-------- -------- -------- -------- -------- -------- -------- --------
INCREASE IN NET ASSETS 7,156 6,291 5,222 1,972 7,635 194 23 108
NET ASSETS AT BEGINNING OF PERIOD 11,559 6,990 2,848 4,072 10,013 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSETS AT END OF PERIOD $ 18,715 $ 13,281 $ 8,070 $ 6,044 $ 17,648 $ 194 $ 23 $ 108
======== ======== ======== ======== ======== ======== ======== ========
<FN>
See notes to financial statements.
</FN>
</TABLE>
12
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
($ in thousands) Strong T. Rowe
Strong Variable Opportunity Price
Insurance Fund II International
Funds, Inc. Inc. Series, Inc. T. Rowe Price Equity Series, Inc.
Portfolios Portfolio Portfolio Portfolios
-------------------- ----------- ------------- --------------------------------------
For the Period August 17, 1998 to December 31, 1998
--------------------------------------------------------------------------------------
Inter- New
Discovery Growth Opportuntiy national America Mid-Cap Equity-
Fund II Fund II Fund II Stock Growth Growth Income
--------- --------- ----------- ------------ ----------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ -- $ -- $ -- $ 1 $ 2 $ 8 $ 11
Net realized gains (losses) -- -- -- -- 2 7 --
Change in unrealized gains (losses) 1 20 2 5 12 85 6
---------- ---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting
from operations 1 20 2 6 16 100 17
---------- ---------- ---------- ---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Deposits 12 106 26 92 92 551 346
Benefit payments -- -- -- -- -- -- --
Payments on termination -- (1) -- -- (1) -- --
Loans - net -- -- -- -- -- -- --
Contract administration charge -- -- -- -- -- -- --
Transfers among the portfolios
and with the Fixed Account - net 3 7 2 6 4 3 26
---------- ---------- ---------- ---------- ---------- ---------- ----------
Change in net assets resulting
from capital transactions 15 112 28 98 95 554 372
---------- ---------- ---------- ---------- ---------- ---------- ----------
INCREASE IN NET ASSETS 16 132 30 104 111 654 389
NET ASSETS AT BEGINNING OF PERIOD -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 16 $ 132 $ 30 $ 104 $ 111 $ 654 $ 389
========== ========== ========== ========== ========== ========== ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
($ in thousands)
MFS Variable Insurance Trust Portfolios
--------------------------------------------------------------------
For the Period August 17, 1998 to December 31, 1998
--------------------------------------------------------------------
Total New
Growth with Research Emerging Return Discovery
Income Series Series Growth Series Series Series
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ -- $ -- $ -- $ -- $ --
Net realized gains (losses) 2 -- -- -- --
Change in unrealized gains (losses) 24 16 10 9 14
---------- ---------- ---------- ---------- ----------
Change in net assets resulting
from operations 26 16 10 9 14
---------- ---------- ---------- ---------- ----------
FROM CAPITAL TRANSACTIONS
Deposits 283 125 100 252 65
Benefit payments -- -- -- -- --
Payments on termination (1) -- -- -- --
Loans - net -- -- -- -- --
Contract administration charge -- -- -- -- --
Transfers among the portfolios
and with the Fixed Account - net 23 -- (4) 8 --
---------- ---------- ---------- ---------- ----------
Change in net assets resulting
from capital transactions 305 125 96 260 65
---------- ---------- ---------- ---------- ----------
INCREASE IN NET ASSETS 331 141 106 269 79
NET ASSETS AT BEGINNING OF PERIOD -- -- -- -- --
---------- ---------- ---------- ---------- ----------
NET ASSETS AT END OF PERIOD $ 331 $ 141 $ 106 $ 269 $ 79
========== ========== ========== ========== ==========
<FN>
See notes to financial statements.
</FN>
</TABLE>
14
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
($ and units in thousands, except value per unit)
Fidelity Variable
IAI Retirement Funds, Insurance Products
Janus Aspen Series Portfolios Inc. Portfolios Fund II Portfolios
---------------------------------------------- -------------------------- -------------------
Flexible Aggressive Worldwide Asset
Income Balanced Growth Growth Growth Regional Reserve Balanced Manager Contrafund
-------- -------- ------- --------- -------- -------- ------- -------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 246 $ 245 $ 417 $ (262) $ 90 $ 366 $ 16 $ 34 $ 1,167 $ 40
Net realized gains (losses) 83 340 1,258 721 1,465 247 (1) 19 117 889
Change in unrealized gains (losses) 132 1,586 2,930 1,881 4,835 746 (1) 166 969 1,519
--- ----- ----- ----- ----- --- -- --- --- -----
Change in net assets resulting
from operations 461 2,171 4,605 2,340 6,390 1,359 14 219 2,253 2,448
--- ----- ----- ----- ----- ----- -- --- ----- -----
FROM CAPITAL TRANSACTIONS
Deposits 1,262 2,990 5,536 2,989 10,053 1,831 400 308 1,946 5,083
Benefit payments (80) (213) (155) (93) (252) (154) (24) -- (215) (25)
Payments on termination (100) (586) (1,203) (919) (1,619) (575) (44) (60) (433) (434)
Loans - net -- -- (39) (3) (19) -- -- -- -- (11)
Contract administration charge (1) (4) (13) (13) (19) (6) -- (1) (6) (4)
Transfers among the portfolios
and with the Fixed Account - net 579 3,496 6,008 2,028 9,874 2,066 42 307 1,201 6,431
--- ----- ----- ----- ----- ----- -- --- ----- -----
Change in net assets resulting
from capital transactions 1,660 5,683 10,134 3,989 18,018 3,162 374 554 2,493 11,040
----- ----- ------ ----- ------ ----- --- --- ----- ------
INCREASE IN NET ASSETS 2,121 7,854 14,739 6,329 24,408 4,521 388 773 4,746 13,488
NET ASSETS AT BEGINNING OF YEAR 3,554 8,306 17,721 15,682 25,500 9,842 433 1,298 10,918 5,546
----- ----- ------ ------ ------ ----- --- ----- ------ -----
NET ASSETS AT END OF YEAR $ 5,675 $ 16,160 $ 32,460 $ 22,011 $ 49,908 $ 14,363 $ 821 $ 2,071 $ 15,664 $ 19,034
======= ======== ======== ======== ======== ======== ===== ======= ======== ========
Net asset value per unit at end
of year $ 13.97 $ 16.43 $ 17.87 $ 17.25 $ 18.62 $ 17.03 $11.17 $ 14.39 $ 14.10 $ 13.64
======= ======== ======== ======== ======== ======== ====== ======= ======== ========
Units outstanding at end of year 406 983 1,816 1,276 2,680 843 74 144 1,111 1,395
=== === ===== ===== ===== === == === ===== =====
<FN>
See notes to financial statements.
</FN>
</TABLE>
15
<PAGE>
<TABLE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1997
($ and units in thousands, except value per unit)
Scudder Variable
Fidelity Variable Insurance Federated Insurance Manage- Life Investment
Products Fund Portfolios ment Series Portfolios Fund Portfolios
------------------------------------- --------------------------- ----------------
High U.S.
Income Government
Money Equity- Bond Utility Securities
Market Income Growth Overseas Fund II Fund II Fund II Bond Balanced
------ ------ ------ -------- ------- ------- ------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 819 $ 2,920 $ 526 $ 797 $ 292 $ 126 $ 56 $ 133 $ 432
Net realized gains (losses) -- 961 1,451 673 193 110 9 2 176
Change in unrealized gains (losses) -- 6,598 4,133 (321) 384 934 92 75 921
------ ----- ----- ---- --- --- -- -- ---
Change in net assets resulting
from operations 819 10,479 6,110 1,149 869 1,170 157 210 1,529
--- ------ ----- ----- --- ----- --- --- -----
FROM CAPITAL TRANSACTIONS
Deposits 62,385 9,140 4,411 2,289 2,861 1,017 461 922 1,830
Benefit payments (139) (207) (122) (80) (4) (98) (7) (4) (97)
Payments on termination (1,566) (2,285) (1,723) (543) (446) (208) (151) (69) (658)
Loans - net (44) (21) (8) (2) (4) -- -- 1 (4)
Contract administration charge (5) (25) (23) (7) (2) (2) (1) (1) (4)
Transfers among the portfolios
and with the Fixed Account - net (52,987) 9,941 2,486 363 3,109 1,070 67 779 1,396
------- ----- ----- --- ----- ----- -- --- -----
Change in net assets resulting
from capital transactions 7,644 16,543 5,021 2,020 5,514 1,779 369 1,628 2,463
------- ------ ------ ----- ----- ----- --- ----- -----
INCREASE IN NET ASSETS 8,463 27,022 11,131 3,169 6,383 2,949 526 1,838 3,992
NET ASSETS AT BEGINNING OF PERIOD 16,636 33,303 26,767 11,054 5,176 4,041 2,322 2,234 6,021
------- ------ ------ ------ ----- ----- ----- ----- -----
NET ASSETS AT END OF PERIOD $ 25,099 $ 60,325 $ 37,898 $ 14,223 $ 11,559 $ 6,990 $ 2,848 $ 4,072 $ 10,013
======== ======== ======== ======== ======== ======= ======= ======= ========
Net asset value per unit at end
of year $ 11.59 $ 19.50 $ 17.88 $ 12.88 $ 14.27 $ 15.98 $ 11.88 $ 11.79 $ 16.01
======== ======== ======== ======== ======= ======= ======= ======== ========
Units outstanding at end of year 2,166 3,094 2,119 1,104 810 437 239 345 626
===== ===== ===== ===== === === === === ===
<FN>
See notes to financial statements.
</FN>
</TABLE>
16
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
NOTES TO FINANCIAL STATEMENTS
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 sells three variable annuity contracts, Investor's Select,
Consultant I and Consultant II, the deposits of which are invested at the
direction of the contractholder in the sub-accounts ("portfolios" for
purposes of this report) that comprise the Account. Contractholders bear
all of the investment risk. The portfolios invest in: Alger American Fund,
Janus Aspen Series, IAI Retirement Funds, Inc., Fidelity Variable Insurance
Products Fund II, Fidelity Variable Insurance Products Fund, Federated
Insurance Management Series, Scudder Variable Life Investment Fund, Strong
Variable Insurance Funds, Inc., Strong Opportunity Fund II, Inc., T. Rowe
Price International Series, Inc., T. Rowe Price Equity Series, Inc., and
the MFS Variable Insurance Trust (collectively the "Funds").
Lincoln Benefit provides insurance and administrative services to the
contractholders for a fee.
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 at December 31,
1998.
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 portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
Federal Income Taxes - The Account intends to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included in the tax return of Lincoln
Benefit. Lincoln Benefit is taxed as a life insurance company under the
Code. No federal income taxes are payable by the Account in 1998 as the
Account did not generate taxable income.
17
<PAGE>
3. CONTRACT CHARGES
Lincoln Benefit charges each contractholder daily at a per annum rate as
follows:
Mortality and Administrative
expense risk expense
------------ -------
Investor's Select 1.25% .15%
Consultant I 1.15% (a) .10%
Consultant II 1.30% .10%
(a) An enhanced death benefit rider is available at an additional
charge of .20%, bringing the total mortality and expense charge
to 1.35%. An enhanced death benefit and income rider is available
at an additional charge of .40%, bringing the total mortality and
expense charge to 1.55%.
Lincoln benefit may charge an annual contract maintenance fee of $25 on
Investor's Select and $35 on Consultant I and Consultant II contracts.
4. FINANCIAL INSTRUMENTS
The only financial instruments of the Account are the investments in each
of the portfolios, which are carried at fair value, based on quoted market
prices.
18
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
Investor's Select Contracts
Unit activity during 1998:
-----------------------------------------
Units Units
Outstanding Outstanding Accumulation
December Units Units December Unit Value
31, 1997 Issued Redeemed 31, 1998 December 31, 1998
----------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Investments in Alger American Fund Portfolios:
Growth -- 603,976 (211,586) 392,390 $ 13.66
Income and Growth -- 452,689 (119,564) 333,125 12.55
Leveraged AllCap -- 206,780 (100,020) 106,760 14.56
MidCap Growth -- 354,214 (158,183) 196,031 12.17
Small Capitalization -- 388,895 (171,726) 217,169 11.01
Investments in Janus Aspen Series Portfolios:
Flexible Income 406,324 594,734 (292,969) 708,089 15.03
Balanced 983,350 973,742 (386,455) 1,570,637 21.69
Growth 1,816,216 1,664,418 (1,145,607) 2,335,027 23.91
Aggressive Growth 1,276,192 967,381 (798,773) 1,444,800 22.83
Worldwide Growth 2,680,262 1,604,359 (1,015,044) 3,269,577 23.67
Investments in IAI Retirement Funds, Inc. Portfolios:
Regional 843,183 176,500 (259,381) 760,302 17.06
Reserve 73,556 7,749 (38,837) 42,468 11.61
Balanced 143,880 70,748 (36,869) 177,759 15.91
Investments in Fidelity Variable Insurance Products
Fund II Portfolios:
Asset Manager 1,110,906 449,196 (244,879) 1,315,223 16.00
Contrafund 1,395,072 2,249,540 (1,446,498) 2,198,114 17.49
Index 500 -- 1,256,743 (204,595) 1,052,148 12.02
Investments in Fidelity Variable Insurance Products
Fund Portfolios:
Money Market 2,166,046 14,626,292 (14,471,382) 2,320,956 12.05
Equity-Income 3,093,518 2,017,982 (1,204,743) 3,906,757 21.46
Growth 2,119,475 1,236,496 (869,293) 2,486,678 24.59
Overseas 1,104,305 2,199,486 (1,814,582) 1,489,209 14.32
Investments in Federated Insurance Management Series
Portfolios:
High Income Bond Fund II 809,791 1,727,915 (1,292,438) 1,245,268 14.45
Utility Fund II 437,287 498,842 (248,996) 687,133 17.96
U.S. Government Securities Fund II 239,114 929,412 (585,736) 582,790 12.61
Investments in Scudder Variable Life Investment Fund
Portfolios:
Bond 345,499 405,934 (289,570) 461,863 12.39
Balanced 625,526 389,367 (119,638) 895,255 19.44
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts) Consultant I Contracts
Unit activity during 1998:
--------------------------------------
Units Units
Outstanding Outstanding Accumulation
December Units Units December Unit Value
31, 1997 Issued Redeemed 31, 1998 December 31, 1998
----------- ---------- ---------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
Investments in Alger American Fund Portfolios:
Growth -- 131,732 (80,599) 51,133 $ 11.93
Income and Growth -- 27,157 (2,847) 24,310 11.50
Leveraged AllCap -- 16,971 (40) 16,931 12.81
MidCap Growth -- 1,813 -- 1,813 11.60
Small Capitalization -- 10,608 (5,475) 5,133 11.31
Investments in Janus Aspen Series Portfolios:
Flexible Income -- 54,008 (1,039) 52,969 10.25
Balanced -- 41,736 (2,143) 39,593 11.69
Growth -- 35,594 (75) 35,519 11.86
Aggressive Growth -- 16,827 (11,932) 4,895 12.27
Worldwide Growth -- 72,292 (8,184) 64,108 10.68
Investments in Fidelity Variable Insurance Products
Fund II Portfolios:
Asset Manager -- 12,173 (1) 12,172 10.80
Contrafund -- 32,589 (4,524) 28,065 11.46
Index 500 -- 68,862 (1,224) 67,638 11.36
Investments in Fidelity Variable Insurance Products
Fund Portfolios:
Money Market -- 417,671 (347,929) 69,742 10.15
Equity-Income -- 39,382 (79) 39,303 10.83
Growth -- 16,667 (3,350) 13,317 11.62
Overseas -- 194,916 (117,325) 77,591 10.50
Investments in Federated Insurance Management Series
Portfolios:
High Income Bond Fund II -- 61,359 (13,685) 47,674 9.85
Utility Fund II -- 35,135 (5) 35,130 11.13
U.S. Government Securities Fund II -- 40,197 (3,454) 36,743 10.27
Investments in Scudder Variable Life Investment Fund
Portfolios:
Bond -- 25,221 (551) 24,670 10.19
Balanced -- 11,682 (2,113) 9,569 11.04
Growth and Income -- 8,690 -- 8,690 10.52
Global Discovery -- 1,630 -- 1,630 10.77
International -- 181 -- 181 10.38
Investments in Strong Variable Insurance Funds, Inc.
Portfolios:
Discovery Fund II -- 226 -- 226 11.04
Growth Fund II -- 8,571 (61) 8,510 11.41
Investment in Strong Opportunity Fund II, Inc. Portfolio:
Opportunity Fund II -- 603 -- 603 10.94
Investment in T. Rowe Price International Series, Inc.
Portfolio:
International Stock -- 2,401 -- 2,401 10.78
Investments in T. Rowe Price Equity Series, Inc.
Portfolios:
New America Growth -- 4,126 -- 4,126 11.25
Mid-Cap Growth -- 7,608 -- 7,608 11.50
Equity Income -- 14,739 -- 14,739 10.78
Investments in MFS Variable Insurance Trust Portfolios:
Growth with Income Series -- 10,908 (317) 10,591 11.20
Research Series -- 8,940 -- 8,940 11.08
Emerging Growth Series -- 5,861 -- 5,861 11.75
Total Return Series -- 13,556 (2,146) 11,410 10.61
New Discovery Series -- 842 -- 842 11.35
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts) Consultant I Contracts with Enhanced Death Benefit Rider
Unit activity during 1998:
-----------------------------------------
Units Units
Outstanding Outstanding Accumulation
December Units Units December Unit Value
31, 1997 Issued Redeemed 31, 1998 December 31, 1998
----------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Investments in Alger American Fund Portfolios:
Growth -- 15,244 -- 15,244 $ 11.92
Income and Growth -- 20,201 (70) 20,131 11.49
Leveraged AllCap -- 4,249 -- 4,249 12.80
MidCap Growth -- 8,640 (25) 8,615 11.59
Small Capitalization -- 2,569 -- 2,569 11.30
Investments in Janus Aspen Series Portfolios:
Flexible Income -- 7,498 (7) 7,491 10.24
Balanced -- 18,700 (64) 18,636 11.68
Growth -- 14,182 -- 14,182 11.85
Aggressive Growth -- 4,799 -- 4,799 12.26
Worldwide Growth -- 61,017 (87) 60,930 10.68
Investments in Fidelity Variable Insurance Products
Fund II Portfolios:
Asset Manager -- 7,062 -- 7,062 10.80
Contrafund -- 22,918 (71) 22,847 11.45
Index 500 -- 136,853 (314) 136,539 11.35
Investments in Fidelity Variable Insurance Products
Fund Portfolios:
Money Market -- 60,798 (7,695) 53,103 10.14
Equity-Income -- 19,884 (54) 19,830 10.82
Growth -- 11,279 -- 11,279 11.62
Overseas -- 2,466 -- 2,466 10.49
Investments in Federated Insurance Management Series
Portfolios:
High Income Bond Fund II -- 7,386 (7) 7,379 9.84
Utility Fund II -- 23,168 (56) 23,112 11.13
U.S. Government Securities Fund II -- 10,599 -- 10,599 10.26
Investments in Scudder Variable Life Investment Fund
Portfolios:
Bond -- 2,350 (7) 2,343 10.18
Balanced -- 4,131 (3) 4,128 11.03
Growth and Income -- 1,708 -- 1,708 10.51
Global Discovery -- -- -- -- 10.76
International -- 5,932 -- 5,932 10.37
Investments in Strong Variable Insurance Funds, Inc.
Portfolios:
Discovery Fund II -- 1,200 -- 1,200 11.03
Growth Fund II -- 3,117 (26) 3,091 11.41
Investment in Strong Opportunity Fund II, Inc. Portfolio:
Opportunity Fund II -- 1,370 -- 1,370 10.93
Investment in T. Rowe Price International Series, Inc.
Portfolio:
International Stock -- 5,185 (25) 5,160 10.77
Investments in T. Rowe Price Equity Series, Inc.
Portfolios:
New America Growth -- 4,239 (26) 4,213 11.24
Mid-Cap Growth -- 43,441 -- 43,441 11.49
Equity Income -- 13,978 -- 13,978 10.78
Investments in MFS Variable Insurance Trust Portfolios:
Growth with Income Series -- 8,633 -- 8,633 11.19
Research Series -- 2,305 -- 2,305 11.07
Emerging Growth Series -- 91 -- 91 11.74
Total Return Series -- 8,542 (3) 8,539 10.60
New Discovery Series -- 2,884 (26) 2,858 11.34
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts) Consultant I Contracts with Enhanced Death and Income Benefit Rider
Unit activity during 1998:
-----------------------------------------
Units Units
Outstanding Outstanding Accumulation
December Units Units December Unit Value
31, 1997 Issued Redeemed 31, 1998 December 31, 1998
----------- ----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Investments in Alger American Fund Portfolios:
Growth -- 6,138 (1,595) 4,543 $ 11.91
Income and Growth -- 287 -- 287 11.48
Leveraged AllCap -- 273 -- 273 12.79
MidCap Growth -- 266 -- 266 11.58
Small Capitalization -- 2,840 -- 2,840 11.30
Investments in Janus Aspen Series Portfolios:
Flexible Income -- 9,165 -- 9,165 10.24
Balanced -- 11,168 (23) 11,145 11.67
Growth -- 8,811 (1,592) 7,219 11.84
Aggressive Growth -- 2,152 (1,364) 788 12.25
Worldwide Growth -- 12,139 (1,586) 10,553 10.67
Investments in Fidelity Variable Insurance Products
Fund II Portfolios:
Asset Manager -- 292 -- 292 10.79
Contrafund -- 5,053 -- 5,053 11.44
Index 500 -- 18,385 (11) 18,374 11.35
Investments in Fidelity Variable Insurance Products
Fund Portfolios:
Money Market -- 27,065 -- 27,065 10.13
Equity-Income -- 8,372 (3,837) 4,535 10.82
Growth -- 15,101 (12,599) 2,503 11.61
Overseas -- -- -- -- 10.48
Investments in Federated Insurance Management Series
Portfolios:
High Income Bond Fund II -- 10,770 -- 10,770 9.83
Utility Fund II -- 7,862 -- 7,862 11.12
U.S. Government Securities Fund II -- 9,297 -- 9,297 10.25
Investments in Scudder Variable Life Investment Fund
Portfolios:
Bond -- 2,883 -- 2,883 10.17
Balanced -- 4,708 (24) 4,684 11.02
Growth and Income -- 702 -- 702 10.51
Global Discovery -- 203 -- 203 10.75
International -- 2,877 -- 2,877 10.37
Investments in Strong Variable Insurance Funds, Inc.
Portfolios:
Discovery Fund II -- -- -- -- 11.02
Growth Fund II -- -- -- -- 11.40
Investment in Strong Opportunity Fund II, Inc. Portfolio:
Opportunity Fund II -- 191 -- 191 10.92
Investment in T. Rowe Price International Series, Inc.
Portfolio:
International Stock -- -- -- -- 10.76
Investments in T. Rowe Price Equity Series, Inc.
Portfolios:
New America Growth -- -- -- -- 11.23
Mid-Cap Growth -- -- -- -- 11.49
Equity-Income -- 687 -- 687 10.77
Investments in MFS Variable Insurance Trust Portfolios:
Growth with Income Series -- 5,411 (1,991) 3,420 11.18
Research Series -- 1,499 -- 1,499 11.06
Emerging Growth Series -- 733 -- 733 11.73
Total Return Series -- 3,925 -- 3,925 10.59
New Discovery Series -- -- -- -- 11.34
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
5. UNITS ISSUED AND REDEEMED
(Units in whole amounts) Consultant II Contracts
Unit activity during 1998:
----------------------------------------
Units Units
Outstanding Outstanding Accumulation
December Units Units December Unit Value
31, 1997 Issued Redeemed 31, 1998 December 31, 1998
-------------- ------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Investments in Alger American Fund Portfolios:
Growth -- 28,797 (14,183) 14,614 $ 11.92
Income and Growth -- 21,212 (2) 21,210 11.49
Leveraged AllCap -- 17,815 (10,558) 7,257 12.80
MidCap Growth -- 4,990 (1,283) 3,707 11.59
Small Capitalization -- 9,840 (4,348) 5,492 11.31
Investments in Janus Aspen Series Portfolios:
Flexible Income -- 21,672 (1,290) 20,382 10.25
Balanced -- 20,843 (3) 20,840 11.68
Growth -- 15,874 (1,544) 14,330 11.85
Aggressive Growth -- 1,708 -- 1,708 12.26
Worldwide Growth -- 38,206 (1,001) 37,205 10.68
Investments in Fidelity Variable Insurance Products
Fund II Portfolios:
Asset Manager -- 2,962 -- 2,962 10.80
Contrafund -- 10,315 (944) 9,371 11.45
Index 500 -- 34,212 (931) 33,281 11.36
Investments in Fidelity Variable Insurance Products
Fund Portfolios:
Money Market -- 95,033 (44,270) 50,763 10.14
Equity-Income -- 37,057 (1,000) 36,057 10.83
Growth -- 12,840 (4,224) 8,616 11.62
Overseas -- 3,130 (1,330) 1,800 10.49
Investments in Federated Insurance Management Series
Portfolios:
High Income Bond Fund II -- 9,189 (2,395) 6,794 9.84
Utility Fund II -- 19,603 (1,341) 18,262 11.13
U.S. Government Securities Fund II -- 19,029 (5,549) 13,480 10.26
Investments in Scudder Variable Life Investment Fund
Portfolios:
Bond -- 1,902 (41) 1,861 10.18
Balanced -- 3,482 -- 3,482 11.03
Growth and Income -- 7,306 -- 7,306 10.52
Global Discovery -- 1,992 (1,679) 313 10.76
International -- 1,427 (4) 1,422 10.38
Investments in Strong Variable Insurance Funds, Inc.
Portfolios:
Discovery Fund II -- -- -- -- 11.03
Growth Fund II -- -- -- -- 11.41
Investment in Strong Opportunity Fund II, Inc. Portfolio:
Opportunity Fund II -- 551 -- 551 10.93
Investment in T. Rowe Price International Series, Inc.
Portfolio:
International Stock -- 2,061 (6) 2,055 10.77
Investments in T. Rowe Price Equity Series, Inc. Portfolios:
New America Growth -- 3,011 (1,493) 1,518 11.24
Mid-Cap Growth -- 6,423 (551) 5,872 11.50
Equity Income -- 6,696 -- 6,696 10.78
Investments in MFS Variable Insurance Trust Portfolios:
Growth with Income Series -- 6,884 -- 6,884 11.19
Research Series -- 1,341 (1,341) -- 11.07
Emerging Growth Series -- 2,345 -- 2,345 11.74
Total Return Series -- 1,529 -- 1,529 10.60
New Discovery Series -- 3,242 -- 3,242 11.35
</TABLE>
23
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
LINCOLN BENEFIT LIFE COMPANY:
We have audited the accompanying consolidated statements of Financial Position
of Lincoln Benefit Life Company and subsidiary (the "Company", an affiliate of
The Allstate Corporation) as of December 31, 1998 and 1997, and the related
consolidated Statements of Operations and Comprehensive Income, Shareholder's
Equity and Cash Flows for each of the three years in the period ended December
31, 1998. Our audits also included Schedule IV - Reinsurance. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 19, 1999
F-1
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
December 31,
------------
($ in thousands) 1998 1997
---- ----
Assets
Investments
Fixed income securities, at fair value
(amortized cost $149,898 and $141,553) $ 158,984 $ 147,911
Short-term 3,675 1,020
---------- ----------
Total investments 162,659 148,931
Cash 1,735 4,220
Reinsurance recoverable from Allstate Life
Insurance Company 6,933,084 6,732,755
Reinsurance recoverable from non-affiliates 191,092 127,182
Receivable from affiliates, net 37,103 14,481
Other assets 30,919 31,976
Separate Accounts 763,416 447,658
---------- ----------
Total assets $8,120,008 $7,507,203
========== ==========
Liabilities
Reserve for life-contingent contract benefits $ 338,069 $ 252,195
Contractholder funds 6,785,070 6,607,130
Current income taxes payable 3,659 1,128
Deferred income taxes 5,546 4,149
Other liabilities and accrued expenses 64,470 43,609
Separate Accounts 763,416 447,658
---------- ----------
Total liabilities 7,960,230 7,355,869
---------- ----------
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
Retained income 34,622 27,952
Accumulated other comprehensive income:
Unrealized net capital gains 5,906 4,132
---------- ----------
Total accumulated other comprehensive income 5,906 4,132
---------- ----------
Total shareholder's equity 159,778 151,334
---------- ----------
Total liabilities and shareholder's equity $8,120,008 $7,507,203
========== ==========
See notes to consolidated financial statements.
F-2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
Revenues
Net investment income $10,240 $10,570 $ 9,519
Realized capital gains and losses 134 17 6
------- ------- -------
10,374 10,587 9,525
Costs and expenses
Provision for policy benefits (net of reinsurance
recoveries of $496,140, $464,154 and $419,936) -- -- 465
Operating costs and expenses -- -- 457
------- ------- -------
-- -- 922
------- ------- -------
Income from operations before income tax expense 10,374 10,587 8,603
Income tax expense 3,704 3,735 3,020
------- ------- -------
Net income 6,670 6,852 5,583
------- ------- -------
Other comprehensive income, after tax
Change in unrealized net capital gains and losses 1,774 2,331 (3,197)
------- ------- -------
Comprehensive income $ 8,444 $ 9,183 $ 2,386
======= ======= =======
See notes to consolidated financial statements.
F-3
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
December 31,
------------
($ in thousands) 1998 1997 1996
---- ---- ----
Common Stock $ 2,500 $ 2,500 $ 2,500
--------- --------- ---------
Additional capital paid-in 116,750 116,750 116,750
--------- --------- ---------
Retained income
Balance, beginning of year 27,952 21,110 18,060
Net income 6,670 6,852 5,583
Dividend-in-kind -- (10) (2,533)
--------- --------- ---------
Balance, end of year 34,622 27,952 21,110
--------- --------- ---------
Accumulated other comprehensive income
Balance, beginning of year 4,132 1,801 4,998
Change in unrealized net capital gains and loss 1,774 2,331 (3,197)
--------- --------- ---------
Balance, end of year 5,906 4,132 1,801
--------- --------- ---------
Total shareholder's equity $ 159,778 $ 151,334 $ 142,161
========= ========= =========
See notes to consolidated financial statements.
F-4
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
---- ---- ----
Cash flows from operating activities
Net income $ 6,670 $ 6,852 $ 5,583
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation, amortization and other non-cash items 10 20 50
Realized capital gains and losses (134) (17) (6)
Changes in:
Life-contingent contract benefits and
contractholder funds (425) 427 (4,918)
Income taxes payable 2,973 (381) 143
Other operating assets and liabilities (1,047) (4,606) 10,473
-------- -------- --------
Net cash provided by operating activties 8,047 2,295 11,325
-------- -------- --------
Cash flows from investing activities
Fixed income securities
Investment collections 10,710 11,980 8,759
Investment purchases (18,587) (18,307) (17,570)
Change in short-term investments, net (2,655) 840 4,489
-------- -------- --------
Net cash used in investing activities (10,532) (5,487) (4,322)
-------- -------- --------
Net (decrease) increase in cash (2,485) (3,192) 7,003
Cash at beginning of year 4,220 7,412 409
-------- -------- --------
Cash at end of year $ 1,735 $ 4,220 $ 7,412
======== ======== ========
Supplemental disclosure of cash flow information
Noncash financing activity:
Dividend-in-kind to Allstate Life Insurance $ - $ (10) $ (2,533)
======== ======== ========
See notes to consolidated financial statements.
F-5
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
1. General
Basis of presentation
The accompanying consolidated financial statements include the accounts of
Lincoln Benefit Life Company ("LBL") and its wholly owned subsidiary, Allstate
Financial Distributors, Inc., formerly Lincoln Benefit Financial Services, a
registered broker-dealer (collectively, the "Company"). LBL 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"). These consolidated financial statements have
been prepared in conformity with generally accepted accounting principles. All
significant intercompany accounts and transactions have been eliminated.
To conform with the 1998 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
Nature of operations
The Company markets a broad line of life insurance and savings products
primarily through independent insurance agents and brokers. Life insurance
includes traditional products such as whole life and term life insurance, as
well as variable life, universal life and other interest-sensitive life
products. Savings products include deferred annuities, such as variable
annuities and fixed rate single and flexible premium annuities, and immediate
annuities. In 1998, annuity premiums and deposits represented approximately 70%
of the Company's total statutory premiums and deposits.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrender or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. There continues to be proposed federal and
state regulation and legislation that, if passed, would allow banks greater
participation in the securities and insurance businesses. Such events would
present an increased level of competition for sales of the Company's products.
Furthermore, the market for deferred annuities and interest-sensitive life
insurance is enhanced by the tax incentives available under current law. Any
legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia, Guam and the U.S. Virgin
Islands. The top geographic locations for statutory premiums and deposits for
the Company were California, Wisconsin, Florida, Pennsylvania and Illinois for
the year ended December 31, 1998. No other jurisdiction accounted for more than
5% of statutory premiums and deposits. All premiums and deposits are ceded under
reinsurance agreements.
F-6
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
2. Summary of Significant Accounting Policies
Investments
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost or amortized cost which approximates fair value.
Investment income consists primarily of interest and dividends on short-term
investments. Interest is recognized on an accrual basis and dividends are
recorded at the ex-dividend date. Interest income on mortgaged-backed securities
is determined on the effective yield method, based on the estimated principal
repayments. Accrual of income is suspended for fixed income securities that are
in default or when the receipt of interest payments is in doubt. Realized
capital gains and losses are determined on a specific identification basis.
Reinsurance
The Company has reinsurance agreements whereby premiums, contract charges,
credited interest, policy benefits and certain expenses are ceded, primarily to
ALIC. Such amounts are reflected net of such reinsurance in the consolidated
statements of operations and comprehensive income. The amounts shown in the
Company's consolidated statements of operations and comprehensive income relate
to the investment of those assets of the Company that are not transferred under
reinsurance agreements. Reinsurance recoverable and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the consolidated statements of financial position. The Company
continues to have primary liability as the direct insurer for risks reinsured.
Recognition of premium revenues and contract charges
Premiums for traditional life insurance and certain life-contingent annuities
are recognized as revenue when due. Accident and disability premiums are earned
on a pro rata basis over the policy period. Revenues on universal life-type
contracts are comprised of contract charges and fees, and are recognized when
assessed against the policyholder account balance. Revenues on 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 on limited payment
contracts are deferred and recognized over the contract period. All premium
revenues and contract charges are reinsured.
Income taxes
The income tax provision is calculated under the liability method and presented
net of reinsurance. 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 arise primarily from
unrealized capital gains or losses on fixed income securities carried at fair
value and differences in the tax bases of investments.
Separate Accounts
The Company issues flexible premium deferred variable annuities and variable
life policies, the assets and liabilities of which are legally segregated and
reflected in the accompanying consolidated statements of financial position as
assets and liabilities of the Separate Accounts. The Company's Separate Accounts
consist of: Lincoln Benefit Life Variable Annuity Account and Lincoln Benefit
Life Variable Life Account. Each of the Separate Accounts are unit investment
trusts registered with the Securities and Exchange Commission.
F-7
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
The 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 contractholders and, therefore, are not included in the Company's
consolidated statements of operations and comprehensive income. Revenues to the
Company from the Separate Accounts consist of contract maintenance fees,
administration fees, mortality and expense risk charges and cost of insurance
charges, all of which are reinsured with ALIC.
Reserve for life-contingent contract benefits
The reserve for life-contingent contract benefits, which relates to traditional
life insurance, fixed annuities with life contingencies, disability insurance
and accident insurance, is computed on the basis of assumptions as to future
investment yields, mortality, morbidity, terminations and expenses. These
assumptions, which for traditional life insurance are applied using the net
level premium method, include provisions for adverse deviation and generally
vary by such characteristics as type of coverage, year of issue and policy
duration. Reserve interest rates ranged from 4.0% to 10.0% during 1998.
Contractholder funds
Contractholder funds arise from the issuance of individual or group policies and
contracts that include an investment component, including most fixed annuities
and universal life policies. Payments received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. During 1998, credited interest rates on
contractholder funds ranged from 4.40% to 9.25% for those contracts with fixed
interest rates and from 1.08% to 15.15% for those 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.
New accounting standards
In 1998, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 130, "Reporting Comprehensive Income." Comprehensive income is a
measurement of certain changes in shareholder's equity that result from
transactions and other economic events other than transactions with the
shareholder. For the Company, these consist of changes in unrealized gains and
losses on the investment portfolio (See Note 9).
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." SFAS No. 131 redefines how segments are
determined and requires additional segment disclosures for both annual and
interim financial reporting. The Company has identified itself as a single
operating segment.
Pending accounting standards
In December 1997, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AICPA") issued Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-related Assessments." The SOP is required to be adopted in 1999. The
SOP provides guidance concerning when to recognize a liability for
insurance-related assessments and how those liabilities should be measured.
Specifically, insurance-related assessments should be recognized as liabilities
when all of the following criteria have been met: 1) an assessment has been
imposed or it is probable that an assessment will be imposed, 2) the event
obligating an entity to pay an assessment has occurred and 3) the amount of the
assessment can be reasonably estimated. The Company is currently evaluating the
effects of this SOP on its accounting for insurance-related assessments. Certain
information required for compliance is not currently available and therefore the
Company is studying alternatives for estimating the accrual. In addition,
industry groups are working to
F-8
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
improve the information available. Adoption of this standard is not expected to
be material to the results of operations or financial position of the Company.
3. Related Party Transactions
Reinsurance
The Company has reinsurance agreements whereby premiums, contract charges,
credited interest, policy benefits and certain expenses are ceded, and reflected
net of such cessions in the consolidated statements of operations and
comprehensive income. The amounts shown in the Company's consolidated statements
of operations and comprehensive income relate to the investment of those
assets of the Company that are not transferred under reinsurance agreements.
Reinsurance recoverable and the related reserve of life-contingent contract
benefits and contractholder funds are reported separately in the consolidated
statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
Investment income earned on the assets which support contractholder funds and
the reserve for life-contingent contract benefits are not included in the
Company's consolidated financial statements as those assets are owned and
managed under terms of the reinsurance agreements. The following amounts were
ceded to ALIC under reinsurance agreements.
Year ended December 31,
-----------------------
($ in thousands) 1998 1997 1996
-------- -------- --------
Premiums $ 30,811 $ 34,834 $ 48,111
Contract charges 106,158 87,061 73,659
Credited interest, policy benefits, and other
expenses 609,325 533,369 496,735
Effective December 31, 1996, the reinsurance treaty with ALIC was amended to
also include a paid up block of life business which was previously retained by
the Company. The reinsurance premium related to the transfer was $8,255 on a
statutory accounting basis and $5,712 based upon generally accepted accounting
principles, creating a dividend-in-kind of $2,543. The premium is equal to the
sum of the aggregate policy reserves and policyholder dividend accumulation 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.
Business operations
The Company utilizes services provided by AIC and ALIC and business facilities
owned or leased, and operated by AIC in conducting its business activities. The
Company reimburses AIC and ALIC for the operating expenses incurred on behalf of
the Company. The cost to the Company is determined by various allocation methods
and is primarily related to the level of services provided. Operating expenses,
including compensation and retirement and other benefit programs, allocated to
the Company were $45,940, $34,947, and $25,094 in 1998, 1997 and 1996,
respectively. Of these costs, the Company retains investment related expenses.
All other costs are ceded to ALIC under reinsurance agreements.
F-9
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
4. Investments
Fair values
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
Gross Unrealized
Amortized ---------------- Fair
cost Gains Losses value
----------- ------- -------- ----------
At December 31, 1998
U.S. government and agencies $ 14,105 $ 2,498 $ - $ 16,603
Corporate 84,547 3,548 (151) 87,944
Foreign government 3,031 239 - 3,270
Mortgage-backed securities 48,215 2,972 (20) 51,167
-------- -------- -------- --------
Total fixed income securities $149,898 $ 9,257 $ (171) $158,984
======== ======== ======== ========
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
======== ======== ======== ========
Scheduled maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1998:
Amortized Fair
cost value
---------- --------
Due in one year or less $ 4,525 $ 4,554
Due after one year through five years 25,829 26,625
Due after five years through ten years 58,047 60,861
Due after ten years 13,282 15,777
-------- --------
101,683 107,817
Mortgage-backed securities 48,215 51,167
------- -------
Total $149,898 $158,984
======== ========
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
Net investment income
Year ended December 31, 1998 1997 1996
---- ---- ----
Fixed income securities $10,375 $10,723 $ 9,825
Short-term investments 231 160 215
------- ------- -------
Investment income,before expense 10,606 10,883 10,040
Investment expense 366 313 521
------- ------- -------
Net investment income $10,240 $10,570 $ 9,519
======= ======= =======
F-10
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
Realized capital gains and losses
Year ended December 31, 1998 1997 1996
------ ------ ------
Fixed income securities $ 134 $ 17 $ 6
Income taxes 47 6 2
------ ------ ------
Realized capital gains and losses, after tax $ 87 $ 11 $ 4
====== ====== ======
Excluding calls and prepayments, there were no gains or losses realized on sales
of fixed income securities during 1998, 1997 and 1996.
Unrealized net capital gains
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross unrealized
Cost/ ---------------- Unrealized
amortized cost Fair value Gains Losses net gains
------------- ---------- ------ ------ ----------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 149,898 $ 158,984 $ 9,257 $ (171) $ 9,086
========= ========= ======== ========
Deferred income taxes (3,180)
----------
Unrealized net capital gains $ 5,906
==========
</TABLE>
Change in unrealized net capital gains and losses
Year ended December 31, 1998 1997 1996
---- ---- ----
Fixed income securities $ 2,729 $ 3,585 $(4,918)
Deferred income taxes (955) (1,254) 1,721
------- ------- --------
Increase (decrease) in unrealized net
capital gains $ 1,774 $ 2,331 $(3,197)
======= ======= ========
Securities on deposit
At December 31, 1998, fixed income securities with a carrying value of $8,945
were on deposit with regulatory authorities as required by law.
5. Financial Instruments
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented on the following page are not necessarily
indicative of the amounts the Company might pay or receive in actual market
transactions. Potential taxes and other transaction costs have not been
considered in estimating fair value. The disclosures that follow do not reflect
the fair value of the Company as a whole since a number of the Company's
significant assets (including reinsurance recoverable) and liabilities
(including traditional life and universal life-type insurance reserves, and
deferred income taxes) are not considered financial instruments and are not
carried at fair value. Other assets and liabilities considered financial
instruments, such as accrued investment income and cash, are generally of a
short-term nature. Their carrying values are assumed to approximate fair value.
F-11
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
Financial assets
The carrying value and fair value of financial assets at December 31, are as
follows:
1998 1997
---- ----
Carrying Fair Carrying Fair
value value value value
------- ------ -------- -------
Fixed income securities $158,984 $158,984 $147,911 $147,911
Short-term investments 3,675 3,675 1,020 1,020
Separate Accounts 763,416 763,416 447,658 447,658
Fair values for fixed income securities are based on quoted market prices where
available. Non-quoted securities are valued based on discounted cash flows using
current interest rates for similar securities. Short-term investments are highly
liquid investments with maturities of less than one year whose carrying value
approximates fair value. Separate Accounts assets are carried in the
consolidated statements of financial position at fair value based on quoted
market prices.
Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
1998 1997
---- ----
Carrying Fair Carrying Fair
value value value value
------- ------- --------- ------
Contractholder funds on
nvestment contracts $5,220,485 $5,006,124 $5,188,474 $4,941,732
Separate Accounts 763,416 763,416 447,658 447,658
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
6. Income Taxes
The Company joins the Corporation and its other eligible domestic subsidiaries
(the "Allstate Group") in the filing of a consolidated federal income tax return
and is party to a federal income tax allocation agreement (the "Allstate Tax
Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the Company pays
to or receives from the Corporation the amount, if any, by which the Allstate
Group's federal income tax liability is affected by virtue of inclusion of the
Company in the consolidated federal income tax return. Effectively, this results
in the Company's annual income tax provision being computed, with adjustments,
as if the Company filed a separate return.
Prior to Sears, Roebuck and Co.'s ("Sears") distribution ("Sears distribution")
on June 30, 1995 of its 80.3% ownership in the Corporation to Sears
shareholders, the Allstate Group, including the Company, joined with Sears and
its domestic business units (the "Sears Group") in the filing of a consolidated
federal income tax return (the "Sears Tax Group") and were parties to a federal
income tax allocation agreement (the "Tax Sharing Agreement"). Under the Tax
Sharing Agreement, the Company, through the Corporation, paid to or received
from the Sears Group the amount, if any, by which the Sears Tax Group's federal
income tax liability was affected by virtue of inclusion of the Company in the
consolidated federal income tax return.
F-12
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
As a result of the Sears distribution, the Allstate Group was no longer included
in the Sears Tax Group, and the Tax Sharing Agreement was terminated.
Accordingly, the Allstate Group and Sears Group entered into a new tax sharing
agreement, which adopts many of the principles of the Tax Sharing Agreement and
governs their respective rights and obligations with respect to federal income
taxes for all periods prior to the Sears distribution, including the treatment
of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's income tax returns through the 1993 tax year. Any adjustments that may
result from IRS examinations of tax returns are not expected to have a material
impact on the financial position, liquidity or result of operations of the
Company.
The components of the deferred income tax assets and liabilities at December 31,
are as follow:
1998 1997
---- ----
Deferred assets
Separate Accounts $ - $ 393
------ -------
Deferred liabilities
Unrealized net capital gains (3,180) (2,225)
Difference in tax bases of investments (2,244) (2,265)
Other liabilities (122) (52)
------- -------
Total deferred liabilities (5,546) (4,542)
------- -------
Net deferred liability $(5,546) $(4,149)
======= =======
The components of the income tax expense for the year ended at December 31, are
as follow:
1998 1997 1996
---- ---- ----
Current $ 3,262 $ 4,321 $ 3,082
Deferred 442 (586) (62)
------- ------- -------
Total income tax expense $ 3,704 $ 3,735 $ 3,020
======= ======= =======
The Company paid income taxes of $731, $4,116 and $2,864 in 1998, 1997 and 1996,
respectively. The Company had a current income tax liability of $3,659 and
$1,128 at December 31, 1998 and 1997, respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
1998 1997 1996
---- ---- ----
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other .7 .3 .1
----- ----- -----
Effective income tax rate 35.7% 35.3% 35.1%
===== ===== =====
F-13
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
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, 1998, approximately $340,
will result in federal income taxes payable of $119 if distributed by the
Company to ALIC. No provision for taxes has been made as the Company has no plan
to distribute amounts from this account. No further additions to the account
have been permitted since the Tax Reform Act of 1984.
7. Statutory Financial Information
Permitted statutory accounting practices
The Company prepares its statutory financial statements in accordance with
accounting principles and practices prescribed or permitted by the Nebraska
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of revised
statutory accounting principles. While the NAIC has approved a January 1, 2001
implementation date for the newly developed guidance, companies must adhere to
the implementation date adopted by their state of domicile. The Company's state
of domicile, Nebraska, is continuing its comparison of codification and current
statutory accounting requirements to determine the necessary revisions to
existing state laws and regulations. The requirements are not expected to have a
material impact on the statutory surplus of the Company.
Dividends
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1999 without prior approval of the Nebraska Department of Insurance is
$14,434.
F-14
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
8. Commitments and Contingent Liabilities
Leases
The Company leases certain office facilities. Total rent expense for all leases
was $1,358, $1,274 and $1,039 in 1998, 1997 and 1996, respectively. Minimum
rental commitments under noncancelable operating leases with initial or
remaining term of more than one year as of December 31, are as follows:
1998
----
1999 $1,395
2000 1,174
2001 12
2002 12
2003 12
Thereafter 276
-------
$2,881
======
In 1998, the Company accrued lease cancellation charges of $1,100 in
anticipation of terminating a particular lease, included in the table above, for
office space which is expected to be vacated by the end of 1999.
Regulation and legal proceedings
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulation, controls on medical care costs,
removal of barriers preventing banks from engaging in securities and insurance
business, tax law changes affecting the taxation of insurance companies, and
tax treatment of insurance products and its impact on the relative
desirability of various personal investment vehicles, and proposed
legislation to prohibit the use of gender in determining insurance rates and
benefits. The ultimate changes and eventual effects, if any, of these
initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
F-15
<PAGE>
<TABLE>
<CAPTION>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
9. Other Comprehensive Income
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
1998 1997 1996
----------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
After- After- After-
Pretax Tax tax Pretax Tax tax Pretax Tax tax
------ ------ -------- ------- ---- ------ ------- ---- ------
Unrealized capital gains
and losses:
- -------------------------
Unrealized holding
gains (losses) arising
during the period $ 2,863 $(1,002) $ 1,861 $ 3,602 $ (1,260) $ 2,342 $ (4,912) $ 1,719 $ (3,193)
Less: reclassification
adjustment for
realized capital gains
included in net income 134 (47) 87 17 (6) 11 6 (2) 4
------- ------- ------- ------- -------- ------- ------- ------- -------
Unrealized net capital
gains (losses) 2,729 (955) 1,774 3,585 (1,254) 2,331 (4,918) 1,721 (3,197)
------- ------- ------ ------ ------- ------- -------- ------- --------
Other comprehensive
income $ 2,729 $ (955) $ 1,774 $ 3,585 $(1,254) $ 2,331 $(4,918) $ 1,721 $(3,197)
======= ======= ======= ======= ======= ======= ======== ======= ========
</TABLE>
F-16
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
SCHEDULE IV- REINSURANCE
($ in thousands)
Gross Net
Year Ended December 31, 1998 amount Ceded amount
- ---------------------------- ------ ----- ------
Life insurance in force $97,690,299 $ 97,690,299 $ -
=========== =============== ==============
Premiums and contract charges:
Life and annuities $ 287,839 $ 287,839 $ -
Accident and health 3,450 3,450 -
----------- --------------- -------------
$ 291,289 $ 291,289 $ -
=========== =============== ==============
Gross Net
Year Ended December 31, 1997 amount Ceded amount
- ---------------------------- ------- ------ ------
Life insurance in force $72,754,000 $72,754,000 $ -
=========== =========== =============
Premiums and contract charges:
Life and annuities $ 277,825 $ 277,825 $ -
Accident and health 35,217 35,217 -
----------- ----------- -------------
$ 313,042 $ 313,042 $ -
=========== =========== =============
Gross Net
Year Ended December 31, 1996 amount Ceded amount
- ---------------------------- ------ ----- ------
Life insurance in force $51,514,000 $51,514,000 $ -
============ =========== =============
Premiums and contract charges:
Life and annuities $ 191,475 $ 191,475 $ -
Accident and health 9,566 9,566 -
------------- ----------- --------------
$ 201,041 $ 201,041 $ -
============ =========== ==============
F-17
<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,
1998 and for the years ended December 31, 1998 and 1997 and the
consolidated financial statements (prepared on a GAAP basis of
accounting) for Lincoln Benefit Life Company and subsidiary as of
December 31, 1998 and 1997 and for each of the three years in the
period ended December 31, 1998.
The following financial statements are included in Part C of the
Registration Statement:
None
(b) Exhibits
(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.............................. *****
(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........................ *****
(e) Federated Insurance Fund Management Series....... *
(f) Scudder Variable Life Investment Fund............ *
(g) Alger American Fund.............................. ****
(9) Opinion of Counsel..................................... *****
(10) (a) Consent of Independent Auditors.................. Herewith
(b) Consent of Attorneys............................. 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
* 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
*****Previously filed on Form N-4, File No. 33-66786 and 811-7924 filed April
28, 1998.
******Previously filed on Form N-4, File No. 333-50545, and 811-7924, filed
January 28, 1999.
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.
NAME POSITION/OFFICE WITH DEPOSITOR
- ----------------------- -----------------------------------------------------
Peter H. Heckman Chairman of the Board of Directors, Chief Executive
Officer
B. Eugene Wraith Director, President and Chief Operating Officer
Douglas F. Gaer Director, Executive Vice President
Janet P. Anderbery Vice President and Controller
John H. Coleman III Director, Senior Vice President
Marvin P. Ehly Director, Senior Vice President and Treasurer
Louis G. Lower Director
John J. Morris Director, Senior Vice President and Secretary
Robert E. Rich Director, Executive Vice President
Kevin R. Slawin Director
Michael J. Velotta Director and Assistant Secretary
Carol S. Watson Director, Senior Vice President, General Counsel,
and Assistant Secretary
Dean M. Way Director, Senior Vice President
Patricia W. Wilson Director
Tom Wilson Director
Thomas R. Ashley Senior Vice President and Medical Director
Thomas J. Berney Senior Vice President
Rodger A. Hergenrader Senior Vice President
J. Scott Taylor Senior Vice President
Bob W. Birman Vice President
Kenny L. Gettman Vice President
Thomas S. Holt Vice President
Sharyn L. Jensen Vice President
Maxine Payton Vice President
Gregory C. Sernett Vice President
Stanley G. Shelley Vice President
Randy E. Tillis Vice President
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 26, 1999.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of April 10, 1998, the Registrant has 21,211 qualified contract owners
and 13,584 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.
The by-laws of Allstate Life 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.
ITEM 29. PRINCIPAL UNDERWRITER
Allstate Life Financial Services, Inc. (ALFS) serves as distributor for the
Registrant. ALFS also services as distributor for the Lincoln Benefit Life
Variable Life Account, which is another separate account of Lincoln Benefit. The
following are the directors and officers of Allsate Life Financial Services,
Inc.c. Their principal business address is 3100 Sanders Road, Northbrook, IL
60062.
NAME POSITION WITH DISTRIBUTOR
- -------------------- -------------------------
Louis G. Lower, II Director
Kevin R. Slawin Director
Michael J. Velotta Director and Secretary
John Hunter President and Chief Executive Officer
Diane Bellas Vice President and Controller
Brent H. Hamann Vice President
Karen Gardner Vice President
Andrea J. Schur Vice President
James P. Zils Treasurer
Terry R. Young General Counsel and Assistant Secretary
Lisa A. Burnell Assistant Vice President and Compliance Officer
Robert N. Roeters Assistant Vice President
Emma M. Kalaidjian Assistant Secretary
Brenda D. Sneed Assistant Secretary
Nancy M. Bufalino Assistant Treasurer
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:
NET
UNDERWRITING
DISCOUNTS COMPENSATION
NAME OF AND ON BROKERAGE
PRINCIPAL UNDERWRITER COMMISSIONS REDEMPTION COMMISSIONS COMPENSATION
LINCOLN BENEFIT FINANCIAL 0 $13,057,265.48 0 0
SERVICES, INC.
Allstate Life Financial
Services, Inc. 0 0 0 0
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, Allstate Life Financial Services, Inc., is located at 3100
Sanders Road, Northbrook, IL 60062
Each company maintains those accounts and records required to be maintained
pursuant to Section 31(a) of the Investment Company Act and the rules
promulgated thereunder.
ITEM 31. MANAGEMENT SERVICES
None.
ITEM 32. UNDERTAKINGS
Registrant undertakes (1) to file post-effective amendments to this Registration
Statement as frequently as is necessary to ensure that the audited financial
statements in the Registration Statement are never more than 16 months old for
so long as payments under the variable annuity contracts may be accepted; (2) to
include either (A) as part of any application to purchase a Contract offered by
the prospectus forming part of this Registration Statement, a space that an
applicant can check to request a Statement of Additional Information, or (B) a
post card or similar written communication affixed to or included in the
prospectus that the applicant can remove to send for a Statement of Additional
Information, and (3) to deliver any Statement of Additional Information and any
financial statements required to be made available under this Form N-4 promptly
upon written or oral request.
REPRESENTATIONS
The Company hereby represents that it is relying upon a No Action Letter issued
to the American Council of Life Insurance dated November 28, 1988 (Commission
ref. IP-6-88) and that the following provisions have been complied with:
1. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in each registration statement, including the
prospectus, used in connection with the offer of the contract;
2. Include appropriate disclosure regarding the redemption restrictions
imposed by Section 403(b)(11) in any sales literature used in connection with
the offer of the contract;
3. Instruct sales representatives who solicit participants to purchase the
contract specifically to bring the redemption restrictions imposed by Section
403(b)(11) to the attention of the potential participants;
4. Obtain from each plan participant who purchases a Section 403(b) annuity
contract, prior to or at the time of such purchase, a signed statement
acknowledging the participant's understanding of (a) the restrictions on
redemption imposed by Section 403(b)(11), and (2) other investment alternatives
available under the employer's Section 403(b) arrangement to which the
participant may elect to transfer his contract value.
SECTION 26(e) REPRESENTATIONS
The Company further represents that fees and charges deducted under the
contract, in the aggregate, are reasonable in relation to the services rendered,
the expenses expected to be incurred, and the risks assumed by the Company.
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 15th day of April, 1999.
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
B. Eugene Wraith Officer and Director April 15, 1999
(PRINCIPAL EXECUTIVE OFFICER)
/s/ ROBERT E. RICH
- --------------------------------- Executive Vice President April 15, 1999
Robert E. Rich and Director
/s/ MARVIN P. EHLY
- -------------------------------- Senior Vice President
Marvin P. Ehly Treasurer and Director April 15, 1999
(PRINCIPAL FINANCIAL OFFICER)
/s/ JANET P. ANDERBERY
- -------------------------------- Vice President and
Janet P. Anderbery Controller April 15, 1999
(PRINCIPAL ACCOUNTING OFFICER)
- ------------------------------ Chairman of the Board and April 15, 1999
Peter H. Heckman Chief Executive Officer
- ------------------------------ Director April 15, 1999
Louis G. Lower, II
/s/ JOHN H. COLEMAN III
- ------------------------------ Director April 15, 1999
John H. Coleman III
/s/ JOHN J. MORRIS
- ------------------------------ Director April 15, 1999
John J. Morris
/s/ DOUGLAS F. GAER
- ------------------------------ Director April 15, 1999
Douglas F. Gaer
- ------------------------------ Director April 15, 1999
Kevin Slawin
- ------------------------------ Director April 15, 1999
Michael J. Velotta
/s/ CAROL S. WATSON
- ------------------------------ Director April 15, 1999
Carol S. Watson
/s/ DEAN M. WAY
- ------------------------------ Director April 15, 1999
Dean M. Way
- ------------------------------ Director April 15, 1999
Patricia W. Wilson
- ------------------------------
Thomas J. Wilson, II Director April 15, 1999
INDEX TO EXHIBITS
FOR
REGISTRATION STATEMENT ON FORM N-4
Lincoln Benefit Life Variable Annuity Account
Exhibit No.
10(a) Consent of Independent Auditors
10(b) Consent of Attorneys
Exhibit 10(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 11 to Registration
Statement No. 033-66786 of Lincoln Benefit Life Variable Annuity Account of
Lincoln Benefit Life Company on Form N-4 of our report dated February 19, 1999
relating to the consolidated financial statements and financial statement of
Lincoln Benefit Life Company and our report dated March 19, 1999 relating to the
financial statements of Lincoln Benefit Life Variable Annuity Account, contained
in the Statement of Additional Information (which is incorporated by reference
in the Prospectus of Lincoln Benefit Life Variable Annuity Account of Lincoln
Benefit Life Company), which is part of such Registration Statement, and to the
reference to us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche, LLP
Chicago, Illinois
April 12, 1999
Exhibit 10(b)
Christopher S. Petito 202-965-8152
April 15, 1999
Lincoln Benefit Life Company
Lincoln Benefit Life Variable Annuity Account
Lincoln Benefit Life Centre
Lincoln, Nebraska 68501-0469
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in this Post-Effective Amendment No. 11 to Registration Statement No.
33-66786 (811-7924) of Lincoln Benefit Life Variable Annuity Account on Form
N-4. In giving this consent, we do not admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
By:/s/ Christopher S. Petito
-------------------------
Christopher S. Petito
