AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1999
File No. 333-82427
File No. 811-7924
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PRE-EFFECTIVE AMENDMENT NO. 1
AND
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940
POST-EFFECTIVE AMENDMENT NO. 23
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
LINCOLN BENEFIT LIFE COMPANY
(Name of Depositor)
206 South 13th Street
Lincoln, Nebraska 68508
(Complete Address of Depositor's Principal Office)
JOHN MORRIS
Lincoln Benefit Life Company
206 South 13th Street
Lincoln, Nebraska 68508
1-800-525-9287
(Name and Complete Address of Agent for Service)
Copy to:
JOAN E. BOROS, ESQ.
Jorden Burt Boros Cicchetti
Berenson & Johnson LLP
1025 Thomas Jefferson Street N.W.
Suite 400 East
Washington, D.C. 20007-0805
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SECURITIES BEING OFFERED: FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY
CONTRACTS
Approximate Date of Proposed Public Offering: As soon as practicable after
effective date.
An indefinite number of shares are deemed to be registered and no filing fee is
due because of reliance on Section 24(f) of the Investment Company Act of 1940.
The registrant hereby amends this registration statement on such dates as may be
necessary to delay its effective date until the registrant shall file a further
amendment which specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the registration statement shall become effective on such
date as the Commission, acting pursuant to Section 8(a), may determine.
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CROSS REFERENCE SHEET
Showing Location in Part A (Prospectus) and Part B of Registration Statement of
Additional Information Required by Form N-4
<TABLE>
<CAPTION>
ITEM OF FORM N-4
PART A: INFORMATION REQUIRED IN A PROSPECTUS
<S> <C>
1. Cover Page..................................... Cover Page
2. Definitions.................................... Definitions
3. Synopsis....................................... Questions and Answers About your Contract; Fee
Tables; Examples; Explanation of Fee Tables
and Examples
4. Condensed Financial Information
(a) Accumulation Unit Values................... Not Applicable
(b) Explanation of Calculation of
Performance.............................. Appendix A: Portfolios and Performance Data
(c) Location of Other Financial Statements..... Condensed Financial Data
5. General Description of Registrant, Depositor,
and Portfolio Companies
(a) Depositor.................................. Lincoln Benefit Life Company
(b) Registrant................................. Separate Account
(c) Portfolio Companies........................ The Portfolios
(d) Portfolio Company Prospectuses............. The Portfolios
(e) Voting Rights.............................. Voting Rights
(f) Administrators............................. Administration
6. Deductions
(a) General.................................... Contract Charges
(b) Sales Load Percent......................... Sales Charges
(c) Special Purchase Plans..................... Sales Charges
(d) Commissions................................ Distribution of the Contracts
(e) Portfolio Expenses......................... Other Expenses
(f) Operating Expenses......................... Fee Tables; Contract Charges
7. General Description of Contracts
(a) Persons with Rights........................ Description of the Contracts; Annuity Benefits; Other
Contract Benefits; Voting Rights; Beneficiary
(b) (i) Allocation of Purchase Payments....... Allocation of Purchase Payments
(ii) Transfers.............................. Purchases and Contract Value; Transfers During
Annuity Period
(iii) Exchanges............................. Not Applicable
(c) Changes.................................... Modification of the Contract
(d) Inquiries.................................. Questions and Answers about Your Contract: Who
Should I Contact for More Information
8. Annuity Period................................. Annuity Benefits; Enhanced Death Benefit and Income
Benefit Rider
9. Death Benefit.................................. Death Benefit; Enhanced Death Benefit Rider;
Enhanced Death Benefit and Income Benefit Rider
10. Purchases and Contract Value................... Purchases and Contract Value; Distribution of
the Contracts
11. Redemptions
(a) By Owners.................................. Withdrawals (Redemptions); Substantially Equal
Periodic Payments; Systematic Withdrawal
Program
(b) By Annuitant............................... Annuity Options
(c) Texas ORP.................................. Not Applicable
(d) Lapse...................................... Minimum Contract Value
(e) Free Look.................................. Free Look Period
12. Taxes.......................................... Taxes
13. Legal Proceedings.............................. Legal Proceedings
14. Table of Contents of SAI....................... Table of Contents of SAI
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
15. Cover Page..................................... Cover Page
16. Table of Contents.............................. Table of Contents
17. General Information and History
(a) Depositor's Name........................... Not Applicable
(b) Assets of Subaccount....................... Not Applicable
(c) Control of Depositor....................... Prospectus: Lincoln Benefit Life Company
18. Services
(a) Fees and Expenses of Registrant............ Not Applicable
(b) Management Contracts....................... Not Applicable
(c) Custodian.................................. Prospectus: Separate Account
Independent Public Accountant.................. Prospectus: Experts
(d) Assets of Registrant....................... Prospectus: Separate Account
(e) Affiliated Persons......................... Not Applicable
(f) Principal Underwriter...................... Prospectus: Distribution of the Contracts
19. Purchase of Securities Being Offered........... Prospectus: Distribution of the Contracts
20. Underwriters................................... Prospectus: Distribution of the Contracts
21. Calculation of Performance Data................ Prospectus: Appendix A: Portfolios and
Performance Data; Separate Account Performance
22. Annuity Payments............................... SAI: The Contract
23. Financial Statements
(a) Financial Statements of Registrant......... SAI: Financial Statements
(b) Financial Statements of Depositor.......... Prospectus: Financial Statements
</TABLE>
<PAGE>
FLEXIBLE PREMIUM
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
LINCOLN BENEFIT LIFE COMPANY
IN CONNECTION WITH
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STREET ADDRESS: 206 SOUTH 13TH ST., LINCOLN, NE 68508-1993
MAILING ADDRESS: P. O. BOX 82532, LINCOLN, NE 68501-2532
TELEPHONE NUMBER: 1-800-525-9287
The Contract is a deferred annuity contract designed to aid you in long-term
financial planning. You may purchase it on either a tax qualified or non-tax
qualified basis.
Because this is a flexible premium annuity contract, you may pay multiple
premiums. We allocate your premium to the investment options under the Contract
and our Fixed Account in the proportions that you choose. The Contract currently
offers twenty-one 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:
GOLDMAN SACHS VARIABLE INSURANCE TRUST: CORE Small Cap Equity, International
Equity
J.P. MORGAN SERIES TRUST II: Small Company
LAZARD RETIREMENT SERIES, INC.: Emerging Markets, International Equity
LSA VARIABLE SERIES TRUST: Focused Equity, Balanced, Growth Equity, Disciplined
Equity, Value Equity, Emerging Growth Equity
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.: Mid Cap Growth, Mid Cap Value,
High Yield
OCC ACCUMULATION TRUST: Equity, Small Cap
PIMCO VARIABLE INSURANCE TRUST: StocksPLUS Growth and Income, Foreign Bond,
Total Return Bond, Money Market
SALOMON BROTHERS VARIABLE SERIES FUNDS: Capital
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.
Your Contract Value will vary daily as a function of the investment performance
of the Subaccounts to which you have allocated Purchase Payments and any
interest credited to the Fixed Account. We do not guarantee any minimum Contract
Value for amounts allocated to the Subaccounts. Benefits provided by this
Contract, when based on the Fixed Account, are subject to a Market Value
Adjustment, which may result in an upwards or downwards adjustment in withdrawal
benefits, death benefits, settlement values, and transfers to the Subaccounts.
You may not purchase a Contract if either you or the Annuitant are 86 years old
or older before we receive your application.
In certain states the Contract may be offered as a group contract with
individual ownership represented by Certificates. The discussion of Contracts in
this prospectus applies equally to Certificates under group contracts, unless
the content specifies otherwise.
This prospectus sets forth the information you ought to know about the Contract.
You should read it before investing and keep it for future reference.
We have filed a Statement of Additional Information with the Securities and
Exchange Commission ("SEC"). The current Statement of Additional Information is
dated September 28, 1999. The information in the Statement of Additional
Information is incorporated by reference in this
(continued on next page)
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS SEPTEMBER 28, 1999.
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 [ ] of this prospectus.
At least once each year we will send you an annual statement. The annual
statement details values and specific information for your Contract. It does not
contain our financial statements. Our financial statements begin on page F-1 of
this prospectus. Lincoln Benefit will file annual and quarterly reports and
other information with the SEC. You may read and copy any reports, statements or
other information we file at the SEC's public reference room in Washington, D.C.
You can obtain copies of these documents by writing to the SEC and paying a
duplicating fee. Please call the SEC at 1-800-SEC-0330 for further information
as to the operation of the public reference room. Our SEC filings are also
available to the public on the SEC Internet site (http://www.sec.gov).
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES
FOR THE PORTFOLIOS LISTED ABOVE. IF ANY OF THESE PROSPECTUSES IS MISSING OR
OUTDATED, PLEASE CONTACT US AND WE WILL SEND YOU THE PROSPECTUS YOU NEED.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
<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...........................................
Credit Enhancement...............................................
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....................................................
Additions, Deletions, and Substitutions of Securities............
The Fixed Account................................................
General..........................................................
Guaranteed Maturity Fixed Account Option.........................
Market Value Adjustment..........................................
Dollar Cost Averaging Fixed Account Option.......................
ANNUITY BENEFITS.................................................
Annuity Date.....................................................
Annuity Options..................................................
Other Options....................................................
Annuity Payments: General........................................
Variable Annuity Payments........................................
Fixed Annuity Payments...........................................
Transfers During Annuity Period..................................
Death Benefit During Annuity Period..............................
Certain Employee Benefit Plans...................................
OTHER CONTRACT BENEFITS..........................................
Death Benefit....................................................
Enhanced Death Benefit Rider.....................................
Beneficiary......................................................
Contract Loans for 401(a), 401(k), and 403(b) Contracts..........
Withdrawals (Redemptions)........................................
Substantially Equal Periodic Payments............................
Systematic Withdrawal Program....................................
ERISA Plans......................................................
Minimum Contract Value...........................................
CONTRACT CHARGES.................................................
Mortality and Expense Risk Charge................................
Administrative Charges...........................................
Contract Maintenance Charge......................................
Administrative Expense Charge....................................
Transfer Fee.....................................................
Sales Charges....................................................
Withdrawal Charge................................................
Free Withdrawal..................................................
Waiver Benefits..................................................
General..........................................................
Confinement Waiver Benefit.......................................
Terminal Illness Waiver Benefit..................................
Waiver of Withdrawal Charge for Certain Qualified Plan
Withdrawals.....................................................
Premium Taxes....................................................
Deduction for Separate Account Income Taxes......................
Other Expenses...................................................
FEDERAL 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.....................................
Consolidated Financial Statements of Lincoln Benefit.............
Selected Financial Data..........................................
Investments by Lincoln Benefit...................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations - For the Six Months Ended
June 30, 1999........................... .......................
Competition......................................................
Employees........................................................
Properties.......................................................
Executive Officers and Directors of Lincoln Benefit..............
Executive Compensation...........................................
State Regulation of Lincoln Benefit..............................
Separate Account.................................................
ADMINISTRATION...................................................
MARKET TIMING AND ASSET ALLOCATION SERVICES......................
DISTRIBUTION OF CONTRACTS........................................
LEGAL PROCEEDINGS................................................
LEGAL MATTERS....................................................
EXPERTS..........................................................
REGISTRATION STATEMENT...........................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.........
CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
APPENDIX A--PORTFOLIOS AND PERFORMANCE DATA...................... A-1
APPENDIX B--ILLUSTRATION OF A MARKET VALUE ADJUSTMENT............ B-1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
<PAGE>
DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION PERIOD - The period, beginning on the Issue Date, during which
Contract Value builds up under your Contract.
ACCUMULATION UNIT - A unit of measurement which we use to calculate Contract
Value.
ANNUITANT - The natural person on whose life the annuity benefits under a
Contract are based.
ANNUITIZATION - The process to begin annuity payments under the Contract.
ANNUITIZED VALUE - The Contract Value adjusted by any applicable Market Value
Adjustment and less any applicable taxes.
ANNUITY DATE - The date on which annuity payments are scheduled to begin.
ANNUITY PERIOD - The period during which annuity payments are paid. The Annuity
Period begins on the Annuity Date.
ANNUITY UNIT - A unit of measurement which we use to calculate the amount of
Variable Annuity payments.
BENEFICIARY(IES) - The person(s) designated to receive any death benefits under
the Contract.
COMPANY ("WE," "US," "OUR," "LINCOLN BENEFIT") - Lincoln Benefit Life Company.
CONTRACT ANNIVERSARY - Each anniversary of the Issue Date.
CONTRACT OWNER ("YOU") - The person(s) having the privileges of ownership
defined in the Contract. If your Contract is issued as part of a retirement
plan, your ownership privileges may be modified by the plan.
CONTRACT VALUE - The sum of the values of your interests in the Subaccounts of
the Separate Account and the Fixed Account.
CONTRACT YEAR - Each twelve-month period beginning on the Issue Date and each
Contract Anniversary.
CONTRIBUTION YEAR - Each twelve-month period beginning on the date a Purchase
Payment is allocated to a Subaccount, or each anniversary of that date.
CREDIT ENHANCEMENT - An amount we add to your Contract Value when a Purchase
Payment is received. Each Credit Enhancement will be counted as earnings under
your Contract.
FIXED ACCOUNT - The portion of the Contract Value allocated to our general
account.
FIXED ANNUITY - A series of annuity payments that are fixed in amount.
GUARANTEE PERIODS - A period of years for which we have guaranteed a specific
effective annual interest rate on an amount allocated to the Fixed Account.
ISSUE DATE - The date when the Contract becomes effective.
LATEST ANNUITY DATE - The latest date by which you must begin annuity payments
under the Contract.
LOAN ACCOUNT - An account established for amounts transferred from the
Subaccounts or the Fixed Account as security for outstanding Contract loans.
MARKET VALUE ADJUSTMENT - An amount added to or subtracted from certain
transactions involving your interest in the Fixed Account, to reflect the impact
of changing interest rates.
NET INVESTMENT FACTOR - The factor used to determine the value of an
Accumulation Unit and Annuity Unit in any Valuation Period. We determine the Net
Investment Factor separately for each Subaccount.
NON-QUALIFIED PLAN - A retirement plan which does not receive special tax
treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code.
PORTFOLIO(S) - The underlying mutual funds in which the Subaccounts invest. Each
Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PURCHASE PAYMENTS - Amounts paid to us as premium for the Contract by you or on
your behalf.
QUALIFIED PLAN - A retirement plan which receives special tax treatment under
Sections 401, 403(b), 408 or 408A of the Tax Code or a deferred compensation
plan for a state and local government or another tax exempt organization under
Section 457 of the Tax Code.
SEPARATE ACCOUNT - The Lincoln Benefit Life Variable Annuity Account, which is a
segregated investment account of the Company.
SUBACCOUNT - A subdivision of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SURRENDER VALUE - The amount paid upon complete surrender of the Contract, equal
to the Contract Value, less any applicable premium taxes, Withdrawal Charge, and
the contract maintenance charge and increased or decreased by any Market Value
Adjustment.
TAX CODE - The Internal Revenue Code of 1986, as amended.
TREASURY RATE - The U.S. Treasury Note Constant Maturity Yield for the preceding
week as reported in Federal Reserve Bulletin Release H.15.
VALUATION DATE - Each day the New York Stock Exchange is open for business.
VALUATION PERIOD - The period of time over which we determine the change in the
value of the Subaccounts in order to price Accumulation Units and Annuity Units.
Each Valuation Period begins at the close of normal trading on the New York
Stock Exchange ("NYSE") currently 4:00 p.m. Eastern time on each Valuation Date
and ends at the close of the NYSE on the next Valuation Date.
VARIABLE ANNUITY - A series of annuity payments that vary in amount based on
changes in the value of the Subaccounts to which your Contract Value has been
allocated.
WITHDRAWAL CHARGE - The contingent deferred sales charge that may be required
upon some withdrawals.
<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 8%
2-3 7% 7 4%
4-5 6% 8 3%
6 5% 9+ 0
ANNUAL CONTRACT MAINTENANCE CHARGE (waived if total
Purchase Payments are greater than $50,000).................... $ 35.00
TRANSFER FEE (Applies solely to the second and
subsequent transfers within a calendar month.
We are currently waiving the transfer fee).................... $ 10.00
SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF
DAILY NET ASSET VALUE DEDUCTED FROM EACH OF THE
SUBACCOUNTS OF THE SEPARATE ACCOUNT)
Mortality and Expense Risk Charge*..................... 1.30%
Administrative Expense Charge.......................... 0.10%
---------
Total Separate Account Annual Expenses................. 1.40%
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* If you select the Enhanced Death Benefit Rider, the Mortality and Expense
Risk Charge will be equal to 1.50% of your Contract's average daily net
assets in the Separate Account.
<TABLE>
<CAPTION>
PORTFOLIO COMPANY ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
MANAGEMENT FEE RULE 12b-1 FEES OTHER EXPENSES TOTAL
--------- --------- -------- -------
<S> <C> <C> <C> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
CORE Small Cap Equity (after 0.75% 0 0.15% 0.90%
expenses reductions)(1)
International Equity (after 1.00% 0 0.25% 1.25%
expenses reductions) (1)
J.P. MORGAN SERIES TRUST II
Small Company (after expense 0.60% 0 0.55% 1.15%
reimbursement)(2)
LAZARD RETIREMENT SERIES, INC.
Emerging Markets (after fee waivers and expense 1.00% 0.25% 0.25% 1.50%
reimbursements)(3)
International Equity (after fee 0.75% 0.25% 0.25% 1.25%
waivers and expense reimbursements) (3)
LSA VARIABLE TRUST
Focused Equity (after 0.95% 0 .30% 1.25%
expense reductions or
reimbursements)(4)
Balanced (after expense reductions or 0.80% 0 .30% 1.10%
reimbursements)(4)
Growth Equity (after expense 0.85% 0 .30% 1.15%
reductions or reimbursements)(4)
Disciplined Equity (after 0.75% 0 .30% 1.05%
expense reductions or
reimbursements)(4)
Value Equity (after expense reductions 0.80% 0 .30% 1.10%
or reimbursements)(4)
Emerging Growth Equity (after 1.05% 0 .30% 1.35%
expense reductions or reimbursements
(4)
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
Mid Cap Growth (after fee waiver or 0.75% 0 .30% 1.05%
expense reimbursement)(7)
Mid Cap Value (after fee waiver or 0.75% 0 .30% 1.05%
expense reimbursement) (7)
High Yield (after fee waiver or 0.50% 0 .30% 0.80%
expense reimbursement) (8)
OCC ACCUMULATION TRUST
Equity 0.80% 0 0 0.80%
Small Cap 0.80% 0 0 0.80%
PIMCO VARIABLE INSURANCE TRUST
StocksPLUS Growth and Income (after 0.40% 0 0.25% 0.65%
expenses reductions)(5)
Foreign Bond (after expenses 0.60% 0 0.30% 0.90%
reductions) (5)
Total Return Bond (after expenses 0.40% 0 0.25% 0.65%
reductions) (5)
Money Market (after expenses 0.30% 0 0.20% 0.50%
reductions) (5)
SALOMON BROTHERS VARIABLE SERIES FUNDS
Capital (after expenses reductions) 0 0 1.00% 1.00%
(6)
</TABLE>
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(1) The investment advisers have voluntarily agreed to reduce Other Expenses
(excluding management fees, taxes, interest, brokerage fees, litigation,
indemnification and other extraordinary expenses) to the extent such
expenses exceed the amount reflected above (as calculated per annum).
Without such reductions, Other Expenses and Total expenses for the period
ended December 31, 1998 would have been 3.17 and 3.92% for CORE Small Cap
Equity, and 1.97 and 2.97% for International Equity, respectively. Such
expense reductions may be discontinued or modified by the Investment
Advisers in their discretion at any time.
(2) Without reimbursement, Other Expenses and Total Operating Expenses would
have been 2.83% and 3.43% for Small Company. There is no guarantee that
such reimbursement will continue beyond December 31, 1999.
(3) The investment manager agrees to waive its fees and/or reimburse the
Portfolios through December 31, 1999 to the extent total Portfolio annual
expenses exceed 1.50% for Emerging Markets and 1.25% for International
Equity of the Portfolios' average daily net assets. Absent fee waivers
and/or reimbursement, Other Expenses and Total Expenses for the fiscal year
ended December 31, 1998 would have been 13.12% and 14.37% for Emerging
Markets, and 47.67% and 48.67% for International Equity. Expenses are
annualized for International Equity. Expenses are annualized for
International Equity for the period September 1 - December 31, 1998
(commencement of operations through fiscal year end).
(4) The Manager has agreed to reduce Other Expenses or reimburse the Funds so
that no Fund will incur expenses that exceed 0.30% of its assets. The
Portfolios commenced operations with the offering of the Contracts
described in this Prospectus. Without these fee reductions or expense
reimbursements, the Manager estimates that Other Expenses and Total
Expenses for a full year will be 1.04% and 1.99% for Focused Equity, 1.04%
and 1.84% for Balanced, 1.04% and 1.89% for Growth Equity, 1.04% and 1.79%
for Disciplined Equity, 1.04% and 1.84% for Value Equity, and 1.04% and
2.09% for Emerging Growth Equity, respectively. There is no guarantee that
such reimbursement will continue beyond September 30, 2000.
(5) The investment adviser has agreed to reduce its administrative fees
included in Total Expenses such that without the expense reduction Total
Expenses would have been 0.72%, 0.92%, 0.67%, and .052% for StocksPLUS,
Foreign Bond, Total Return Bond, and Money Market respectively.
(6) The fund manager is currently waiving all management fees and reimburses
the fund for certain expenses such that Total Operating Expenses for the
Fund will not exceed 1.00%. Without such waivers and reductions, Management
Fees, Other Expenses and Total Expenses would have been .85%, 2.41% and
3.26% respectively for the Capital Fund. The fund manager may discontinue
this waiver at any time.
(7) The management fee for each of the portfolios is 0.75% for the first $500
million in assets, 0.70% for $500 million to $1 billion in assets, and
0.65% for assets in excess of $1 billion. The advisor has agreed to reduce
its management fee and/or reimburse the Portfolio so that Total Annual
Operating expenses of the Portfolios will not exceed 1.05%, excluding
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. Without such fee reductions and
reimbursements, Total Expenses for the period ended December 31, 1998 would
have been 1.57% for Mid Cap Value. For fiscal year ended December 31, 1998,
the adviser received a fee of (net of fee waivers) 0.23% for Mid Cap Value.
Fee waivers and expense reimbursements may be terminated at any time.
(8) The management fee for the portfolio is 0.50% for the first $500 million in
assets, 0.45% for $500 million to $1 billion in assets, and 0.40% for
assets in excess of $1 billion. The advisor has agreed to reduce its
management fee and/or reimburse the Portfolio so that Total Annual
Operating expenses of the Portfolios will not exceed 0.80%, excluding
certain investment related expenses such as foreign country tax expense and
interest expense on amounts borrowed. Without such fee reductions and
reimbursements, Total Expenses for the period ended December 31, 1998 would
have been 1.15% for High Yield. For fiscal year ended December 31, 1998,
the adviser received a fee of (net of fee waivers) 0.15% for High Yield.
Fee waivers and expense reimbursements may be waived at any time.
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 A 4% CREDIT
ENHANCEMENT AND A 5% ANNUAL RETURN ON ASSETS.
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Years
- ----------------------------------------- ------- --------
<S> <C> <C>
Goldman Sachs CORE Small Cap Equity $93 $137
Goldman Sachs International Equity $97 $148
J.P. Morgan Small Company $96 $145
LAZARD Retirement Emerging Markets $100 $156
LAZARD Retirement International Equity $97 $148
LSA Focused Equity $97 $148
LSA Balanced $95 $143
LSA Growth Equity $96 $145
LSA Disciplined Equity $95 $142
LSA Value Equity $95 $145
LSA Emerging Growth Equity $98 $151
Morgan Stanley Dean Witter Universal Funds Mid Cap Growth $95 $142
Morgan Stanley Dean Witter Universal Funds Mid Cap Value $95 $142
Morgan Stanley Dean Witter Universal Funds High Yield $94 $140
OCC Equity $89 $124
OCC Small Cap $92 $134
PIMCO StocksPLUS Growth and Income $92 $134
PIMCO Foreign Bond $91 $129
PIMCO Total Return Bond $92 $134
PIMCO Money Market $91 $129
Salomon Brothers Capital $93 $137
</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 A 4% CREDIT ENHANCEMENT AND A 5% annual return on assets.
<TABLE>
<CAPTION>
Sub-Account 1 Year 3 Years
- ----------------------------------------- ------- --------
<S> <C> <C>
Goldman Sachs CORE Small Cap Equity $25 $77
Goldman Sachs International Equity $29 $89
J.P. Morgan Small Company $28 $85
Lazard Retirement Emerging Markets $32 $97
Lazard Retirement International Equity $29 $89
LSA Focused Equity $29 $89
LSA Balanced $27 $84
LSA Growth Equity $28 $85
LSA Disciplined Equity $27 $82
LSA Value Equity $27 $84
LSA Emerging Growth Equity $30 $92
Morgan Stanley Dean Witter Universal Funds Mid Cap Growth $27 $82
Morgan Stanley Dean Witter Universal Funds Mid Cap Value $27 $82
Morgan Stanley Dean Witter Universal Funds High Yield $26 $81
OCC Equity $21 $65
OCC Small Cap $24 $74
PIMCO StocksPLUS Growth and Income $24 $74
PIMCO Foreign Bond $23 $69
PIMCO Total Return Bond $24 $74
PIMCO Money Market $23 $69
Salomon Brothers Capital $25 $77
</TABLE>
* We will not charge a Withdrawal Charge on Annuitization if you select a
Payment Option that provides payments over at least five years or over the
Annuitant's lifetime.
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 [ ]
below; you should also read the sections relating to expenses of the
Portfolios in their prospectuses. The examples do not include any taxes or
tax penalties you may be required to pay if you surrender your Contract.
2. The examples assume that you did not make any transfers. We are currently
waiving the transfer fee, but in the future, we may decide to charge $10
for the second and each subsequent transfer within a calendar month.
Premium taxes are not reflected. Currently, we deduct premium taxes (which
range from 0% to 3.5%) from Contract Value upon full surrender, death or
annuitization.
3. To reflect the contract maintenance charge in the examples, we estimated an
equivalent percentage charge, which we calculated by dividing the total
amount of contract maintenance charges expected to be collected during a
year by the total estimated average net assets of the Subaccounts and the
Fixed Account attributable to the Contracts.
4. The examples reflect any Free Withdrawal Amounts.
NEITHER THE FEE TABLES NOR THE EXAMPLES SHOULD BE CONSIDERED REPRESENTATIONS OF
PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. SIMILARLY, THE ANNUAL RATE OF RETURN OF 5% ASSUMED IN THE EXAMPLE IS NOT
AN ESTIMATE OR GUARANTEE OF FUTURE INVESTMENT PERFORMANCE.
<PAGE>
QUESTIONS AND ANSWERS
ABOUT YOUR CONTRACT
The following are answers to some of the questions you may have about some of
the more important features of the Contract. The Contract is more fully
described in the rest of the Prospectus. Please read the Prospectus carefully.
1. WHAT IS THE CONTRACT?
The Contract is a flexible premium deferred variable annuity contract. It is
designed for tax-deferred retirement investing. The Contract is available for
non-qualified or qualified retirement plans. The Contract, like all deferred
annuity contracts, has two phases: the Accumulation Period and the Annuity
Period. During the Accumulation Period, earnings accumulate on a tax-deferred
basis and are taxed as income when you make a withdrawal. The Annuity Period
begins when you begin receiving payments under one of the annuity payment
options described in the answer to Question 2. The amount of money accumulated
under your Contract during the Accumulation Period will be used to determine the
amount of your annuity payments during the Annuity Period.
Your premiums are invested in one or more of the Subaccounts of the Separate
Account or allocated to the Fixed Account, as you instruct us. If we offer
additional Subaccounts in the future, we may limit your right to allocate your
Contract Value to up to twenty-two options under the Contract, counting each
Subaccount and the Fixed Account as one option. We will treat all of your
Contract Value allocated to the Fixed Account as one option for purposes of this
limit, even if you have chosen more than one Guarantee Period. The value of your
Contract will depend on the investment performance of the Subaccounts and the
amount of interest we credit to the Fixed Account.
Each Subaccount will invest in a single investment portfolio (a "Portfolio") of
a mutual fund. The Portfolios offer a range of investment objectives, from
conservative to aggressive. You bear the entire investment risk on amounts
allocated to the Subaccounts. The investment policies and risks of each
Portfolio are described in the accompanying prospectuses for the Portfolios.
In some states, you may also allocate all or part of your Contract Value to the
"Fixed Account", as described in the answer to Question 5.
2. WHAT ANNUITY OPTIONS DOES THE CONTRACT OFFER?
You may receive annuity payments on a fixed or a variable basis or a combination
of the two. We offer a variety of annuity options including:
- - a life annuity with payments guaranteed for five to twenty years;
- - a joint and full survivorship annuity, with payments guaranteed for five to
twenty years; and
- - fixed payments for a specified period of five to thirty years.
Call us to inquire about other options.
You may change your annuity option at any time before annuitization. You may
select the date to annuitize the Contract. The date you select, however, may be
no later than the later of the tenth Contract Anniversary or the Annuitant's
90th birthday. If your Contract was issued in connection with a qualified plan,
different deadlines may apply.
If you select annuity payments on a variable basis, the amount of our payments
to you will be affected by the investment performance of the Subaccounts you
have selected. The fixed portion of your annuity payments, on the other hand,
generally will be equal in amount to the initial payment we determine. As
explained in more detail below, however, during the Annuity Period you will have
a limited ability to change the relative weighting of the Subaccounts on which
your variable annuity payments are based or to increase the portion of your
annuity payments consisting of Fixed Annuity payments.
3. HOW DO I BUY A CONTRACT?
You can obtain a Contract application from your Lincoln Benefit agent. You must
pay at least $10,000 in Purchase Payments during the first Contract Year.
Purchase Payments must be at least $500, unless you enroll in an automatic
payment plan. Your periodic payments in an automatic payment plan must be at
least $100 per month. We may lower these minimums at our sole discretion. We
will not issue a Contract to you if either you or the Annuitant is age 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(s)
- ----------------------------- -------------------------------------
- --------------------------------------------------------------------
Goldman Sachs Variable CORE Small Cap Equity
Insurance Trust International Equity
- --------------------------------------------------------------------
J.P. Morgan Series Small Company
Trust II
- --------------------------------------------------------------------
Lazard Retirement Series, Inc. Emerging Markets
International Equity
- --------------------------------------------------------------------
LSA Variable Series Trust Focused Equity
Balanced
Growth Equity
Disciplined Equity
Value Equity
Emerging Growth Equity
- --------------------------------------------------------------------
Morgan Stanley Dean Witter Mid Cap Growth
Universal Funds Mid Cap Value
High Yield
- --------------------------------------------------------------------
OCC Accumulation Trust Equity
Small Cap
- --------------------------------------------------------------------
PIMCO Variable Insurance Trust StocksPLUS
Foreign Bond
Total Return Bond
Money Market
- --------------------------------------------------------------------
Salomon Brothers Variable Capital
Series Funds
- --------------------------------------------------------------------
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.
5. WHAT IS THE FIXED ACCOUNT OPTION?
We offer two Fixed Account interest crediting options: the Guaranteed Maturity
Fixed Account Option and the Dollar Cost Averaging Fixed Account Option.
We will credit interest to amounts allocated to the Guaranteed Maturity Fixed
Account Option at a specified rate for a specified Guarantee Period. You select
the Guarantee Period for each amount that you allocate to the Guaranteed
Maturity Fixed Account Option. We will tell you what interest rates and
Guarantee Periods we are offering at a particular time. At the end of each
Guarantee Period, you may select a new Guarantee Period from among the choices
we are then making available or transfer or withdraw the relevant amount from
the Fixed Account without any Market Value Adjustment.
We may offer Guarantee Periods ranging from one to ten years in length. We are
currently offering Guarantee Periods of one, three, five, seven, and ten years
in length. In the future we may offer Guarantee Periods of different lengths or
stop offering some Guarantee Periods.
We will not change the interest rate credited to a particular allocation until
the end of the relevant Guarantee Period. From time to time, however, we may
change the interest rate that we offer to credit to new allocations to the
Guaranteed Maturity Fixed Account Option and to amounts rolled over in the Fixed
Account for new Guarantee Periods.
In addition, if you participate in our dollar cost averaging program, you may
designate amounts to be held in the Dollar Cost Averaging Fixed Account Option
until they are transferred monthly to the Subaccounts or Guarantee Periods of
your choosing. When you make an allocation to the Fixed Account for this
purpose, we will set an interest rate applicable to that amount. We will then
credit interest at that rate to that amount until it has been entirely
transferred to your chosen Subaccounts or Guarantee Periods. We will complete
the transfers within one year of the allocation. In our discretion we may change
the rate that we set for new allocations to the Fixed Account for the dollar
cost averaging program. We will never, however, set a rate less than an
effective annual rate of 3%.
A Market Value Adjustment may increase or decrease the amount of certain
transactions involving the Guaranteed Maturity Fixed Account, to reflect changes
in interest rates. As a general rule, we will apply a Market Value Adjustment to
the following transactions: (1) when you withdraw funds from the Guaranteed
Maturity Fixed Account Option in an amount greater than the Free Withdrawal
Amount (which is described in the answer to Question 6); (2) when you transfer
funds from the Guaranteed Maturity Fixed Account Option to the Subaccounts; (3)
when you allocate part of your interest in the Guaranteed Maturity Fixed Account
Option to a new Guarantee Period before the end of the existing Guarantee
Period; (4) when you annuitize your Contract; and (5) when we pay a death
benefit. We will not apply a Market Value Adjustment to a transaction to the
extent that: (1) it occurs within 30 days after the end of a Guarantee Period
applicable to the funds involved in the transaction; or (2) it is necessary to
meet IRS minimum withdrawal requirements. We determine the amount of a Market
Value Adjustment using a formula that takes into consideration: (1) whether
current interest rates differ from interest rates at the beginning of the
applicable Guarantee Period; and (2) how many years are left until the end of
the Guarantee Period. As a general rule, if interest rates have dropped, the
Market Value Adjustment will be an addition; if interest rates have risen, the
Market Value Adjustment will be a deduction. It is therefore possible that if
you withdraw an amount from the Fixed Account during a Guarantee Period, a
Market Value Adjustment may cause you to receive less than you initially
allocated to the Fixed Account.
6. WHAT ARE MY EXPENSES UNDER THE CONTRACT?
CONTRACT MAINTENANCE CHARGE. During the Accumulation Period, each year we
subtract an annual contract maintenance charge of $35 from your Contract Value
allocated to the Subaccounts. We will waive this charge if you pay $50,000 or
more in Purchase Payments or if you allocate all of your Contract Value to the
Fixed Account.
During the Annuity Period, we will subtract the annual contract maintenance
charge in equal parts from your annuity payments. We waive this charge if on the
Annuity Date your Contract Value is $50,000 or more or if all payments are Fixed
Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE AND MORTALITY AND EXPENSE RISK CHARGE. We impose a
mortality and expense risk charge at an annual rate of 1.30% of average daily
net assets and an administrative expense charge at an annual rate of .10% of
average daily net assets. If you select our optional enhanced death benefit
rider, however, we may charge you a higher mortality and expense risk charge.
These charges are assessed each day during the Accumulation Period and the
Annuity Period. We guarantee that we will not raise these charges.
TRANSFER FEE. Although we currently are not charging a transfer fee, the
Contract permits us to charge you up to $10 per transfer for each transfer after
the first transfer in each month.
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE). During the Accumulation
Period, you may withdraw all or part of the value of your Contract before your
death or, if the Contract is owned by a company or other legal entity, before
the Annuitant's death. Certain withdrawals may be made without payment of any
Withdrawal Charge, which is a contingent deferred sales charge. Other
withdrawals are subject to the Withdrawal Charge.
The Withdrawal 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 eight complete years from the date of the
Payment (each a "Contribution Year") as follows:
CONTRIBUTION APPLICABLE
YEAR CHARGE
- ------------ ----------
1 8%
2-3 7%
4-5 6%
6 5%
7 4%
8 3%
9+ 0%
In determining Withdrawal Charges, we will deem your Purchase Payments to be
withdrawn on a first-in first-out basis.
Each year, free of Withdrawal Charge or any otherwise applicable Market Value
Adjustment, you may withdraw the Free Withdrawal Amount, which equals:
(a) the greater of:
- earnings not previously withdrawn; or
- 15% of your total Purchase Payments made in the most recent eight
years; plus
(b) an amount equal to your total Purchase Payments made more than eight
years ago, to the extent not previously withdrawn.
In most states, we also may waive the Withdrawal Charge if you: (1) require
long-term medical or custodial care outside the home; or (2) are diagnosed with
a terminal illness. These provisions will apply to the Annuitant, if the
Contract is owned by a company or other legal entity. Additional restrictions
and costs may apply to Contracts issued in connection with qualified plans. In
addition, withdrawals may trigger tax liabilities and penalties. You should
consult with your tax counselor to determine what effect a withdrawal might have
on your tax liability. As described in the answer to Question 3, we may increase
or decrease certain withdrawals by a Market Value Adjustment.
PREMIUM TAXES. Certain states impose a premium tax on annuity purchase payments
received by insurance companies. Any premium taxes relating to the Contract may
be deducted from Purchase Payments or the Contract Value when the tax is
incurred or at a later time. State premium taxes generally range from 0% to
3.5%.
OTHER EXPENSES. In addition to our charges under the Contract, each Portfolio
deducts amounts from its assets to pay its investment advisory fees and other
expenses.
7. HOW WILL MY INVESTMENT IN THE CONTRACT BE TAXED?
You should consult a qualified tax adviser for personalized answers. Generally,
earnings under variable annuities are not taxed until amounts are withdrawn or
distributions are made. This deferral of taxes is designed to encourage
long-term personal savings and supplemental retirement plans. The taxable
portion of a withdrawal or distribution is taxed as ordinary income.
Special rules apply if the Contract is owned by a company or other legal entity.
Generally, such an owner must include in income any increase in the excess of
the Contract Value over the "investment in the contract" during the taxable
year.
8. DO I HAVE ACCESS TO MY MONEY?
At any time during the Accumulation Period, we will pay you all or part of the
value of your Contract, minus any applicable charge, if you surrender your
Contract or request a partial withdrawal. Under some plans, you may also take a
loan against the value of your Contract. Generally, a partial withdrawal must
equal at least $50, and after the withdrawal your remaining Contract Value must
at least equal $500.
Although you have access to your money during the Accumulation Period, certain
charges, such as the contract maintenance charge, the Withdrawal Charge, and
premium tax charges, may be deducted on a surrender or withdrawal. You may also
incur federal income tax liability or tax penalties. In addition, if you have
allocated some of the value of your Contract to the Fixed Account, the amount of
your surrender proceeds or withdrawal may be increased or decreased by a Market
Value Adjustment.
After annuitization, under certain settlement options you may be entitled to
withdraw the commuted value of the remaining payments.
9. WHAT IS THE DEATH BENEFIT?
We will pay a death benefit while the Contract is in force and before the
Annuity Date, if the Contract Owner dies, or if the Annuitant dies and the
Contract Owner is not a natural person. To obtain payment of the Death Benefit,
the Beneficiary must submit to us written proof of death as specified in the
Contract.
The standard death benefit is the greatest of the following:
(1) your total Purchase Payments reduced proportionately for any prior partial
withdrawals;
(2) your Contract Value;
(3) the amount you would have received by surrendering your Contract; or
(4) your Contract Value on each Contract Anniversary evenly divisible by eight,
increased by the total Purchase Payments since that anniversary and reduced
proportionately by any partial withdrawals since that anniversary.
We also offer an optional enhanced death benefit rider, which is described later
in this prospectus.
We will determine the value of the death benefit on the day that we receive all
of the information that we need to process the claim.
10. WHAT ELSE SHOULD I KNOW?
ALLOCATION OF PURCHASE PAYMENTS. You allocate your initial Purchase Payment
among the Subaccounts and the Fixed Account in your Contract application. You
may make your allocations in specific dollar amounts or percentages, which must
be whole numbers that add up to 100%. When you make subsequent Purchase
Payments, you may again specify how you want your payments allocated. If you do
not, we will automatically allocate the payment based on your most recent
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
CREDIT ENHANCEMENTS. We will credit your Contract Value with a Credit
Enhancement of 4% of each Purchase Payment before we allocate that Purchase
Payment among the Subaccounts or to the Fixed Account. We will deduct certain
Credit Enhancements from the amount paid you, if you cancel your Contract during
the free look period. The Credit Enhancements will be allocated in the same
proportions as the corresponding Purchase Payment.
TRANSFERS. During the Accumulation Period, you may transfer Contract Value among
the Subaccounts and from the Subaccounts to the Fixed Account. If we offer
additional Subaccounts in the future, we may limit your right to allocate your
Contract Value to no more than twenty-two options under the Contract. While you
may also transfer amounts from the Fixed Account, a Market Value Adjustment may
apply. You may instruct us to transfer Contract Value by writing or calling us.
You may also use our automatic dollar cost averaging or portfolio rebalancing
programs. You may not use both programs at the same time.
Under the dollar cost averaging program, amounts are automatically transferred
at regular intervals from the Fixed Account or a Subaccount of your choosing to
up to eight options, including other Subaccounts or the Fixed Account. Transfers
from the Dollar Cost Averaging Fixed Account may be made monthly only. Transfers
from Subaccounts 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 include the Fixed Account in a portfolio
rebalancing program. You also may not elect rebalancing after annuitization.
During the Annuity Period, you may not make any transfers for the first six
months after the Annuity Date. Thereafter, you may make transfers among the
Subaccounts or from the Subaccounts to increase your Fixed Annuity payments.
Your transfers, however, must be at least six months apart. You may not,
however, convert any portion of your right to receive Fixed Annuity payments
into Variable Annuity payments.
FREE-LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or after whatever longer period may be permitted by
state law. You may return it by delivering it or mailing it to us. If you return
the Contract, the Contract terminates and, in most states, we will pay you an
amount equal to the Contract Value on the date we receive the Contract from you,
less any amount that we applied as a Credit Enhancement to your Contract. 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. The amount
returned to you will always at least equal your Contract Value (minus any unpaid
loans) less the Withdrawal Charge. Since state laws differ as to the
consequences of returning a Contract, you should refer to your Contract for
specific information about your circumstances.
11. WHO CAN I CONTACT FOR MORE INFORMATION?
You can write to us at Lincoln Benefit Life Company, P.O. Box 82532, Lincoln,
Nebraska 68501-2532, or call us at (800) 525-9287.
CONDENSED FINANCIAL INFORMATION
We have included the Separate Account's statements of assets and liabilities and
contract owners' equity as of December 31, 1998 and the related statements of
operations for the year then ended, and the statements of changes in contract
owners' equity for the years ended December 31, 1998, and 1997, which have been
audited by Deloitte & Touche LLP, independent auditors, in the Statement of
Additional Information. These financial statements do not reflect any assets
attributable to the Contracts, because we did not sell the Contracts covered by
these financial statements during this period. 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 Credit Enhancements and
interest credited to amounts allocated to the Fixed Account. You may withdraw
your Contract Value by making a partial withdrawal or by surrendering your
Contract. Upon Annuitization, we will pay you benefits under the Contract in the
form of an annuity, either for the life of the Annuitant or for a fixed number
of years. All of these features are described in more detail below.
CONTRACT OWNER. As the Contract Owner, you are the person usually entitled to
exercise all rights of ownership under the Contract. You usually are also the
person entitled to receive benefits under the Contract or to choose someone else
to receive benefits. If your Contract was issued under a Qualified Plan,
however, the Plan may limit or modify your rights and privileges under the
Contract and may limit your right to choose someone else to receive benefits. We
will not issue a Contract to a purchaser who has attained age 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 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, less any amount that we applied as a Credit Enhancement to
your Contract. The Contract Value at that time may be more or less than your
Purchase Payments. However, the amount returned to you will always be more than
your Contract Value (minus any unpaid loans) less the Withdrawal Charge.
In some states, if you exercise your "free look" rights, we are required to
return the amount of your Purchase Payments. Currently, if you live in one of
those states,on the Issue Date we will allocate your Purchase Payment to the
Subaccounts and the Fixed Account Options as you specified in your application.
However, we reserve the right in the future to delay allocating your Purchase
Payments to the Subaccounts you have selected or to the Fixed Account until 20
days after the Issue Date or, if your state's free look period is longer than
ten days, for ten days plus the period required by state law. During that time,
we will allocate your Purchase Payment to the PIMCO Money Market Subaccount.
Your Contract will contain specific information about your free-look rights in
your state.
PURCHASES AND CONTRACT VALUE
MINIMUM PURCHASE PAYMENT. The minimum initial Purchase Payment for a Contract is
$10,000. 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 $500 or more. Subsequent Purchase Payments made as part of
an Automatic Payment Plan, however, may be as small as $100 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 $100 or more
per month by automatic payment through your bank account. Call or write us for
an enrollment form.
CREDIT ENHANCEMENT. We will add a Credit Enhancement to your Contract Value when
each Purchase Payment is received. The Credit Enhancement is payable from our
general account. The amount of a Credit Enhancement is 4% of each Purchase
Payment. The Credit Enhancement will be allocated among the Subaccounts and
Fixed Account in the same proportion that the applicable Purchase Payment is
allocated. The amount returned if the Contract Owner exercises his or her right
to return the Contract during your Free Look period will be reduced by any
Credit Enhancements applied.
Credit Enhancements are treated as "earnings" for purposes of determining
Withdrawal Charges and free withdrawal amounts on surrenders and partial
withdrawals. Similarly, Credit Enhancements are not treated as an "investment in
the contract" for tax purposes.
ALLOCATION OF PURCHASE PAYMENTS. Your Purchase Payments are allocated to the
Subaccount(s) and the Fixed Account in the proportions that you have selected.
You must specify your allocation in your Contract application, either as
percentages or specific dollar amounts. If you make your allocation in
percentages, the total must equal 100%. We will allocate your subsequent
Purchase Payments in those percentages, until you give us new allocation
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
If we offer additional Subaccounts in the future, we may limit your right to
allocate your Purchase Payments to up to twenty-two options, counting each
Subaccount and the Fixed Account as one option. For this purpose, we will treat
all of your allocations to the Fixed Account as one option, even if you choose
more than one Guarantee Period.
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 PIMCO 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 reflecting the mortality and expense risk
charge, administrative expense charge, and any provision for taxes that have
accrued since we last calculated the Accumulation Unit Value. We determine
Withdrawal Charges, transfer fees and contract maintenance charges separately
for each Contract. They do not affect Accumulation Unit Value. Instead, we
obtain payment of those charges and fees by redeeming Accumulation Units.
We determine a separate Accumulation Unit Value for each Subaccount. We also
determine a separate set of Accumulation Unit Values reflecting the cost of the
enhanced death benefit rider described on page A-1 below. If we elect or are
required to assess a charge for taxes, we may calculate a separate Accumulation
Unit Value for Contracts issued in connection with Non-Qualified and Qualified
Plans, respectively, within each Subaccount. We determine the Accumulation Unit
Value for each Subaccount Monday through Friday on each day that the New York
Stock Exchange is open for business.
You should refer to the prospectuses for the Portfolios which accompany this
prospectus for a description of how the assets of each Portfolio are valued,
since that determination has a direct bearing on the Accumulation Unit Value of
the corresponding Subaccount and, therefore, your Contract Value.
TRANSFER DURING ACCUMULATION PERIOD. During the Accumulation Period, you may
transfer Contract Value among the Fixed Account and the Subaccounts in writing
or by telephone. Currently, there is no minimum transfer amount. The Contract
permits us to set a minimum transfer amount in the future. You may not make a
transfer that would result in your allocating your Contract Value to more than
twenty-two options under the Contract at one time.
As a general rule, we only make transfers on days when we and the NYSE are open
for business. If we receive your request on one of those days, we will make the
transfer that day. We close our office for business on certain days immediately
preceding or following certain national holidays when the NYSE is open for
business. For calendar year 1999, our office 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.
If you transfer an amount from the Fixed Account to a Subaccount before the end
of the applicable Guarantee Period or you allocate an amount in the Fixed
Account to a new Guarantee Period before the end of the existing Guarantee
Period, we usually will increase or decrease the amount by a Market Value
Adjustment. The calculation of the Market Value Adjustment is described in
"Market Value Adjustment" on page [ ] below.
Transfers within 30 days after the end of the applicable Guarantee Period are
not subject to a Market Value Adjustment.
The Contract permits us to defer transfers from the Fixed Account for up to six
months from the date you ask us.
You may not transfer Contract Value into the Dollar Cost Averaging Fixed Account
Option. You may not transfer Contract Value out of the Dollar Cost Averaging
Fixed Account Option except as part of a Dollar Cost Averaging program.
TRANSFERS AUTHORIZED BY TELEPHONE. You may make transfers by telephone, if you
first send us a completed authorization form. The cut off time for telephone
transfer requests is 4:00 p.m. Eastern time. Calls completed before 4:00 p.m.
will be effected on that day at that day's price. Calls completed after 4:00
p.m. will be effected on the next day on which we and the NYSE are open for
business, at that day's price.
We may charge you the transfer fee described on page [ ] below, although we
currently are waiving it. In addition, we may suspend, modify or terminate the
telephone transfer privilege at any time without notice.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM. Under our Automatic Dollar Cost
Averaging program, you may authorize us to transfer a fixed dollar amount at
fixed intervals from the Dollar Cost Averaging Fixed Account Option or a
Subaccount of your choosing to up to eight options, including other Subaccounts
or the Guaranteed Maturity Fixed Account Option. The interval between transfers
from the Dollar Cost Averaging Fixed Account may be monthly only. The interval
between transfers from Subaccounts may be monthly, quarterly, or annually, at
your option. The transfers will be made at the Accumulation Unit Value on the
date of the transfer. The transfers will continue until you instruct us
otherwise, or until your chosen source of transfer payments is exhausted.
Currently, the minimum transfer amount is $100 per transfer. However, if you
wish to Dollar Cost Average to a Guaranteed Maturity Fixed Account Option, the
minimum amount that must be transferred into any one Option is $500. We may
change this minimum or grant exceptions. If you elect this program, the first
transfer will occur one interval after your Issue Date. You may not use the
Dollar Cost Averaging program to transfer amounts from the Guaranteed Maturity
Fixed Account Option.
Your request to participate in this program will be effective when we receive
your completed application at the P.O. Box given on the first page of this
prospectus. Call or write us for a copy of the application. You may elect to
increase, decrease or change the frequency or amount of transfers under a Dollar
Cost Averaging program. We will not charge a transfer fee for Dollar Cost
Averaging.
The theory of dollar cost averaging is that you will purchase greater numbers of
units when the unit prices are relatively low rather than when the prices are
higher. As a result, when purchases are made at fluctuating prices, the average
cost per unit is less than the average of the unit prices on the purchase dates.
However, participation in this program does not assure you of a greater profit
from your purchases under the program; nor will it prevent or necessarily reduce
losses in a declining market. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time.
PORTFOLIO REBALANCING. Portfolio Rebalancing allows you to maintain the
percentage of your Contract Value allocated to each Subaccount at a pre-set
level. For example, you could specify that 30% of your Contract Value should be
in the LSA Focused Equity, 40% in the LSA Balanced and 30% in LSA Disciplined
Equity. Over time, the variations in each Subaccount's investment results will
shift the balance of your Contract Value allocations. Under the Portfolio
Rebalancing feature, each period, if the allocations change from your desired
percentages, we will automatically transfer your Contract Value, including new
Purchase Payments (unless you specify otherwise), back to the percentages you
specify. Portfolio Rebalancing is consistent with maintaining your allocation of
investments among market segments, although it is accomplished by reducing your
Contract Value allocated to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually until your Annuity Date. Portfolio Rebalancing is not available after
you annuitize. We will not charge a transfer fee for Portfolio Rebalancing. No
more than eight Subaccounts can be included in a Portfolio Rebalancing program
at one time. You may not include the Fixed Account in a Portfolio Rebalancing
program.
You may request Portfolio Rebalancing at any time before your Annuity Date by
submitting a completed written request to us at the P.O. Box given on the first
page of this prospectus. Please call or write us for a copy of the request form.
If you stop Portfolio Rebalancing, you must wait 30 days to begin again. In your
request, you may specify a date for your first rebalancing. If you specify a
date fewer than 30 days after your Issue Date, your first rebalance will be
delayed one month. If you request Portfolio Rebalancing in your Contract
application and do not specify a date for your first rebalancing, your first
rebalance will occur one period after the Issue Date. For example, if you
specify quarterly rebalancing, your first rebalance will occur three months
after your Issue Date. Otherwise, your first rebalancing will occur one period
after we receive your completed request form. All subsequent rebalancing will
occur at the intervals you have specified on the day of the month that coincides
with the same day of the month as your Contract Anniversary Date.
Generally, you may change the allocation percentages, frequency, or choice of
Subaccounts at any time. If your total Contract Value subject to rebalancing
falls below any minimum value that we may establish, we may prohibit or limit
your use of Portfolio Rebalancing. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time. We may change, terminate, limit, or
suspend Portfolio Rebalancing at any time.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
SEPARATE ACCOUNT INVESTMENTS
THE PORTFOLIOS. Each of the Subaccounts of the Separate Account invests in the
shares of one of the Portfolios. Each Portfolio is either an open-end management
investment company registered under the Investment Company Act of 1940 or a
separate investment series of an open-end management investment company. We have
briefly described the Portfolios below. You should consult the current
prospectuses for the Portfolios for more detailed and complete information
concerning the Portfolios. If you do not have a prospectus for a Portfolio,
contact us and we will send you a copy. Appendix B contains a description of how
advertised performance data for the Subaccounts are computed.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Subaccounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Subaccounts invest. You bear the investment risk that
those Portfolios possibly will not meet their investment objectives. You should
carefully review their prospectuses before allocating amounts to the Subaccounts
of the Separate Account.
GOLDMAN SACHS VARIABLE INSURANCE TRUST
CORE SMALL CAP EQUITY FUND (investment adviser: Goldman Sachs Asset Management)
seeks long-term growth of capital through a broadly diversified portfolio of
equity securities of U.S. issuers which are included in the Russell 2000 Index
at the time of investment.
INTERNATIONAL EQUITY FUND (investment adviser: Goldman Sachs Asset Management
International) seeks long-term capital appreciation through investments in
equity securities of companies that are organized outside the U.S. or whose
securities are principally traded outside the U.S.
J.P. MORGAN SERIES TRUST II (investment adviser: J.P. Morgan Investment
Management Inc.)
SMALL COMPANY PORTFOLIO seeks to provide a high total return from a portfolio of
small company stocks. The portfolio invests primarily in small and medium U.S.
companies whose market capitalizations are greater than $110 million and less
than $1.5 billion, typically represented by the Russell 2000 Index. The
portfolio can moderately underweight or overweight industries against the
Russell 2000 Index's industry weightings when it believes it will benefit
performance.
LAZARD RETIREMENT SERIES, Inc. (investment adviser: Lazard Asset Management)
EMERGING MARKETS PORTFOLIO seeks long-term capital appreciation. This Portfolio
invests primarily in equity securities of non-United States companies whose
principal activities are in emerging market countries that the Investment
Manager believes are undervalued based on their earnings, cash flow or asset
values.
INTERNATIONAL EQUITY PORTFOLIO seeks long-term capital appreciation. This
Portfolio invests primarily in equity securities of non-United States companies
whose total market value is more than $1 billion that the Investment Manager
believes are undervalued based on their earnings, cash flow or asset values.
LSA VARIABLE SERIES TRUST (manager: LSA Asset Management LLC)
FOCUSED EQUITY FUND (investment adviser: Morgan Stanley Asset Management) seeks
to provide capital appreciation by investment primarily in equity securities of
U.S. and foreign companies.
GROWTH EQUITY FUND (investment adviser: Goldman Sachs Asset Management) seeks to
provide long-term growth of capital.
DISCIPLINED EQUITY FUND (investment adviser: J.P. Morgan Investment Management
Inc.) seeks to provide a consistently high total return from a broadly
diversified portfolio of equity securities with risk characteristics similar to
the Standard & Poor's 500 Stock Index.
VALUE EQUITY FUND (investment adviser: Salomon Brothers Asset Management Inc.)
seeks to provide long-term growth of capital with current income as a secondary
objective.
BALANCED FUND (investment adviser: OpCap Advisor) seeks to provide a combination
of growth of capital and investment income (growth of capital is the primary
objective) by investing in a mix of equity and debt.
EMERGING GROWTH EQUITY (investment adviser: RS Investment Management) seeks
long-term capital appreciation through investments in smaller, rapidly growing
emerging Companies. The Fund generally invests in industry segments that are
experiencing rapid growth and in companies with proprietary advantages.
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC. (investment adviser: Morgan
Stanley Dean Witter Investment Management, Inc. and Miller Anderson & Sherrerd,
LLP)
MID CAP GROWTH PORTFOLIO seeks long term capital growth by investing primarily
in common stocks and other equity securities. The Advisor particularly focuses
on the expectations of stock analysts and invests the Portfolio in stocks of
companies that it believes will report earnings growth exceeding analysts'
expectations. The equity capitalization of these companies will generally match
those in the S&P MidCap 400 index (currently $500 million to $6 billion).
MID CAP VALUE PORTFOLIO seeks above average total return over a market cycle of
three to five years by investing in common stocks and other equity securities.
The Portfolio focuses on stocks that the Advisor believes are undervalued based
on its proprietary measures of value. The equity capitalization of the companies
the Portfolio invests in will generally match those in the S&P MidCap 400 Index
(currently $500 million to $6 billion). The Portfolio may invest to a limited
extent in foreign equity securities.
HIGH YIELD PORTFOLIO seeks above-average total return over a market cycle of
three to five years by investing primarily in a portfolio of high yield
securities. The Portfolio invests primarily in high yield securities (commonly
referred to as "junk bonds"). The Portfolio also may invest in other fixed
income securities, including U.S. Government securities, mortgage securities,
and investment grade corporate bonds.
OCC ACCUMULATION TRUST (investment adviser: OpCap Advisors Balanced)
EQUITY PORTFOLIO seeks long term capital appreciation. The Portfolio invests
primarily in equity securities listed on the New York Stock Exchange.
SMALL CAP PORTFOLIO seeks capital appreciation. The Portfolio invests primarily
in equity securities of companies with market capitalizations under $1 billion.
PIMCO VARIABLE INSURANCE TRUST (investment adviser: Pacific Investment
Management Company and PIMCO Advisers L.P.)
STOCKSPLUS GROWTH AND INCOME PORTFOLIO seeks to achieve a total return which
exceeds the total return performance of the S&P 500. The Portfolio invests in
common stocks, options, futures, options on futures and swaps. Under normal
market conditions, the Portfolio invests substantially all of its assets in S&P
500 derivatives, backed by a portfolio of Fixed Income Instruments. The
Portfolio uses S&P 500 derivatives in addition to or in place of S&P 500 stocks
to attempt to equal or exceed the performance of the S&P 500.
FOREIGN BOND PORTFOLIO seeks to maximize total return, consistent with
preservation of capital and prudent investment management. The Portfolio invests
under normal circumstances at least 85% of its assets in Fixed Income
instruments of issuers located outside the United States, representing at least
three foreign countries, which may be represented by futures contracts
(including related options) with respect to such securities, and options on such
securities, when the Adviser deems it appropriate to do so. The Portfolio will
hedge at least 75% of its exposure to foreign currency.
TOTAL RETURN BOND PORTFOLIO seeks to maximize total return, consistent with
preservation of capital and prudent investment management. The Portfolio invests
under normal circumstances at least 65% of its assets in a diversified portfolio
of Fixed Income Instruments of varying maturities. The average portfolio
duration of this Portfolio will normally vary within a three- to six-year time
frame based on the Adviser's forecast for interest rates.
MONEY MARKET PORTFOLIO seeks to obtain maximum current income consistent with
preservation of capital and daily liquidity. The Portfolio also attempts to
maintain a stable net asset value of $1.00 per share, although there is no
assurance that it will be successful in doing so.
SALOMON BROTHERS VARIABLE SERIES FUNDS (investment adviser: Salomon Asset
Management)
CAPITAL FUND seeks capital appreciation through investment and securities which
the manager believes have above-average capital appreciation potential. The Fund
invests primarily in equity securities of U.S. Companies. These companies may
range in size from established large capitalization (over 5 billion in market
capitalization) companies to small capitalization (less than 1 billion in market
capitalization) companies at the beginning of their life cycles.
Each Portfolio is subject to certain investment restrictions and policies which
may not be changed without the approval of a majority of the shareholders of the
Portfolio. See the accompanying Prospectuses of the Portfolios for further
information.
We automatically reinvest all dividends and capital gains distributions from the
Portfolios in shares of the distributing Portfolio at their net asset value. The
income and realized and unrealized gains or losses on the assets of each
Subaccount are separate and are credited to or charged against the particular
Subaccount without regard to income, gains or losses from any other Subaccount
or from any other part of our business. We will use the net Purchase Payments
you allocate to a Subaccount to purchase shares in the corresponding Portfolio
and will redeem shares in the Portfolios to meet Contract obligations or make
adjustments in reserves. The Portfolios are required to redeem their shares at
net asset value and to make payment within seven days.
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.
Some of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Lincoln Benefit will bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Subaccounts to which you have allocated
your Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed. We will also provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of shares for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, before the Annuity Date, you are the person entitled to give
voting instructions. After the Annuity Date, the payee is that person.
Retirement plans, however, may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Contract Owners.
We may, when required by state insurance regulatory authorities, disregard
Contract Owner voting instructions if the instructions require that the shares
be voted so as to cause a change in the sub-classification or investment
objective of one or more of the Portfolios or to approve or disapprove an
investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Contract Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios are no longer available for investment by the Separate Account or
if, in the judgment of our Board of Directors, further investment in the shares
of a Portfolio is no longer appropriate in view of the purposes of the Contract,
we may add or substitute shares of another Portfolio or mutual fund for
Portfolio shares already purchased or to be purchased in the future by Purchase
Payments under the Contract. Any substitution of securities will comply with the
requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the
Separate Account and the Subaccounts:
(a) to operate the Separate Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
(c) to transfer assets from one Subaccount to another, or from any subaccount
to our general account;
(d) to add, combine, or remove Subaccounts in the Separate Account; and
(e) to change the way in which we assess charges, as long as the total charges
do not exceed the maximum amount that may be charged the Separate Account
and the Portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal
requirements.
THE FIXED ACCOUNT
GENERAL. You may allocate part or all of your Purchase Payments to the Fixed
Account in states where it is available. Amounts allocated to the Fixed Account
become part of the general assets of Lincoln Benefit. Allstate Life invests the
assets of the general account in accordance with applicable laws governing the
investments of insurance company general accounts. The Fixed Account may not be
available in all states. Please contact us at 1-800-525-9287 for current
information.
GUARANTEED MATURITY FIXED ACCOUNT OPTION. We will credit interest to each amount
allocated to the Guaranteed Maturity Fixed Account Option at a specified rate
for a specified Guarantee Period. You select the Guarantee Period for each
amount that you allocate to this option. We will declare the interest rate that
we will guarantee to credit to that amount for that Guarantee Period. Each
amount allocated to a Guarantee Period under this option must be at least $500.
We reserve the right to limit the number of additional Purchase Payments that
may be allocated to this option.
We will tell you what interest rates and Guarantee Periods we are offering at a
particular time. We may offer Guarantee Periods ranging from one to ten years in
length. We will decide in our discretion which Guarantee Periods to offer.
Currently, we offer Guarantee Periods of one, three, five, seven and ten years.
In the future we may offer Guarantee Periods of different lengths or stop
offering some Guarantee Periods.
We will credit interest daily to each amount allocated to a Guarantee Period
under this option at a rate which compounds to the effective annual interest
rate that we declared at the beginning of the applicable Guarantee Period. We
will not change the interest rate credited to a particular allocation until the
end of the relevant Guarantee Period. We may declare different interest rates
for Guarantee Periods of the same length that begin at different times.
The following example illustrates how a Purchase Payment allocated to this
option would grow, given an assumed Guarantee Period and effective annual
interest rate:
EXAMPLE
Purchase Payment $10,000
Guarantee Period 5 years
Effective Annual Rate 4.50%
Credit Enhancement $400
<TABLE>
<CAPTION>
END OF CONTRACT YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Beginning Contract Value $10,400.00
X (1 + Effective Annual Rate) X 1.045
---------
$10,868.00
Contract Value at end of Contract Year $10,868.00
X (1 + Effective Annual Rate) X 1.045
---------
$11,357.06
Contract Value at end of Contract Year $11,357.06
X (1 + Effective Annual Rate) X 1.045
---------
$11,868.13
Contract Value at end of Contract Year $11,868.13
X (1 + Effective Annual Rate) X 1.045
---------
$12,402.19
Contract Value at end of Contract Year $12,402.19
X (1 + Effective Annual Rate) X 1.045
---------
$12,960.29
</TABLE>
Total Interest Credited During Guarantee Period = $2,560.29 ($12,960.29
- -$10,400)
NOTE: This example assumes no withdrawals during the entire five year Guarantee
Period. If you were to make a partial withdrawal, you might be required to pay a
Withdrawal Charge and the amount withdrawn might be increased or decreased by a
Market Value Adjustment. The hypothetical interest rate is for illustrative
purposes only and is not intended to predict future interest rates to be
declared under the Contract.
We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
relevant factors such as then current interest rates, regulatory and tax
requirements, our sales commission and administrative expenses, general economic
trends, and competitive factors. For current interest rate information, please
contact us at 1-800-525-9287.
WE WILL DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE
CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE.
At the end of each Guarantee Period, we will mail you a notice asking you what
to do with the relevant amount, including the accrued interest. During the
30-day period after the end of the Guarantee Period, you may:
(1) take no action. If so, we will automatically keep the relevant amount in the
Guaranteed Maturity Fixed Account Option. The new Guarantee Period will be the
same length as the expiring Guarantee Period and will begin on the day the
previous Guarantee Period ends. The new interest rate will be our then current
declared rate for Guarantee Periods of that length; or
(2) allocate the relevant Contract Value to one or more new Guarantee Periods of
your choice in the Guaranteed Maturity Fixed Account Option. The new Guarantee
Period(s) will begin on the day the previous Guarantee Period ends. The new
interest rate will be our then current declared rate for those Guarantee
Periods; or
(3) instruct us to transfer all or a portion of the relevant amount to one or
more Subaccounts. We will effect the transfer on the day we receive your
instructions. We will not adjust the amount transferred to include a Market
Value Adjustment; or
(4) withdraw all or a portion of the relevant amount through a partial
withdrawal. You may be required to pay a Withdrawal Charge, but we will not
adjust the amount withdrawn to include a Market Value Adjustment. The amount
withdrawn will be deemed to have been withdrawn on the day the Guarantee Period
ends.
Under our Automatic Laddering Program, you may choose, in advance, to use
Guarantee Periods of the same length for all renewals in the Guaranteed Maturity
Fixed Account Option. You can select this program at any time during the
Accumulation Period, including on the Issue Date. We will apply renewals to
Guarantee Periods of the selected length until you direct us in writing to stop.
We may stop offering this program at any time.
MARKET VALUE ADJUSTMENT. We may increase or decrease the amount of some
transactions involving your interest in the Guaranteed Maturity Fixed Account
Option to include a Market Value Adjustment. The formula for determining Market
Value Adjustments reflects changes in interest rates since the beginning of the
relevant Guarantee Period. As a result, you will bear some of the investment
risk on amounts allocated to the Guaranteed Maturity Fixed Account Option.
As a general rule, we will apply a Market Value Adjustment to the following
transactions involving your Fixed Account balance:
(1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option
in an amount greater than the Free Withdrawal Amount, as described on page
32 below;
(2) when you transfer funds from the Guaranteed Maturity Fixed Account Option
to the Subaccounts;
(3) when you allocate part of your balance in the Guaranteed Maturity Fixed
Account Option to a new Guarantee Period before the end of the existing
Guarantee Period;
(4) when you annuitize your Contract; and
(5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction, to the extent
that: (1) it occurs within 30 days after the end of a Guarantee Period
applicable to the funds involved in the transaction; or (2) you make a
withdrawal to satisfy the IRS' required minimum distribution rules for this
Contract.
The formula for calculating Market Value Adjustments is set forth in Appendix C
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment. This formula primarily compares: (1) the
Treasury Rate at the time of the relevant transaction for a maturity equal in
length to the relevant Guarantee Period; and (2) the Treasury Rate at the
beginning of the Guarantee Period for a maturity equal in length to the
Guarantee Period. Generally, if the Treasury Rate at the beginning of the
Guarantee Period is higher than the corresponding current Treasury Rate, then
the Market Value Adjustment will increase the amount payable to you or
transferred. Similarly, if the Treasury Rate at the beginning of the Guarantee
Period is lower than the corresponding current Treasury Rate, then the Market
Value Adjustment will reduce the amount payable to you or transferred.
For example, assume that you purchased a Contract and selected an initial
Guarantee Period of five years and the five-year Treasury Rate for that duration
is 4.50%. Assume that at the end of three years, you make a partial withdrawal.
If, at that later time, the current five-year Treasury Rate is 4.20%, then the
Market Value Adjustment will be positive, which will result in an increase in
the amount payable to you. Similarly, if the current five-year Treasury Rate is
4.80%, then the Market Value Adjustment will be negative, which will result in a
decrease in the amount payable to you.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may also allocate Purchase
Payments to the Dollar Cost Averaging Fixed Account Option. We will credit
interest to Purchase Payments allocated to this option for up to one year at the
current rate that we declare when you make the allocation. The effective annual
rate will never be less than 3%. You may not transfer funds to this option from
the Subaccounts or the Guaranteed Maturity Fixed Account Option. We will follow
your instructions in transferring amounts from this option to the Subaccounts or
the Guaranteed Maturity Fixed Account Option on a monthly basis only, as
described in "Automatic Dollar Cost Averaging Program" on page 23 of this
prospectus.
ANNUITY BENEFITS
ANNUITY DATE. You may select the Annuity Date, which is the date on which
annuity payments are to begin, in your application. The Annuity Date must always
be the business day immediately following the tenth day of a calendar month.
The Annuity Date may be no later than the Latest Annuity Date. As a general
rule, the Latest Annuity Date is the later of the 10th Contract Anniversary or
the Annuitant's 90th birthday. If your Contract was issued pursuant to a
Qualified Plan, however, the Tax Code generally requires you to begin to take at
least a minimum distribution by the later of:
- - the year of your separation from service; or
- - April 1 of the calendar year following the calendar year in which you
attain age 70 1/2.
If your Contract is issued pursuant to Section 408 of the Tax Code (traditional
IRAs), you must begin taking minimum distributions by April 1 of the calendar
year following the calendar year in which you reach age 70 1/2. No minimum
distributions are required by the Tax Code for Contracts issued pursuant to
Section 408A (Roth IRAs).
If you are in a Qualified Plan, we may require you to annuitize by the date
required by the Tax Code, unless you show us that you are meeting the minimum
distribution requirements in some other way.
If you do not select an Annuity Date, the Latest Annuity Date will automatically
become the Annuity Date. You may change the Annuity Date by writing to us at the
address given on the first page of the prospectus.
ANNUITY OPTIONS. You may elect an Annuity Option at any time before the Annuity
Date. As part of your election, you may choose the length of the applicable
guaranteed payment period within the limits available for your chosen Option. If
you do not select an Annuity Option, we will pay monthly annuity payments in
accordance with the applicable default Option. The default Options are:
- - Option A with 10 years (120 months) guaranteed, if you have designated only
one Annuitant; and
- - Option B with 10 years (120 months) guaranteed, if you have designated
joint Annuitants.
You may freely change your choice of Annuity Option, as long as you request the
change at least thirty days before the Annuity Date.
Three Annuity Options are generally available under the Contract. Each is
available in the form of:
- - a Fixed Annuity;
- - a Variable Annuity; or
- - a combination of both Fixed and Variable Annuity.
The three Annuity Options are:
OPTION A, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS. We make
periodic payments at least as long as the Annuitant lives. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION B, JOINT AND SURVIVOR ANNUITY, WITH PAYMENTS GUARANTEED FOR 5 TO 20
YEARS. We make periodic payments at least as long as either the Annuitant or the
joint Annuitant is alive. If both the Annuitant and the Joint Annuitant die
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION C, PAYMENTS FOR A SPECIFIED PERIOD CERTAIN OF 5 YEARS TO 30 YEARS. We
make periodic payments for the period you have chosen. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary. If you elect this option, and request
Variable Annuity payments, you may at any time before the period expires 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 eight 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,
- - the length of the remaining period for which the payee would be entitled to
payments.
No lump sum payment is available if you request Fixed Annuity payments. If you
purchased your Contract under a retirement plan, you may have a more limited
selection of Annuity Options to choose from. You should consult your Plan
documents to see what is available.
You may not "annuitize" your Contract for a lump sum payment. Instead, before
the Annuity Date you may surrender your Contract for a lump sum. As described in
page [ ] above, however, we will subtract any applicable Withdrawal Charge and
increase or decrease your surrender proceeds by any applicable Market Value
Adjustment.
OTHER OPTIONS. We may have other Annuity Options available. You may obtain
information about them by writing or calling us.
If your Contract is issued under Sections 401, 403(b), 408 or 408A of the Tax
Code, we will only make payments to you and/or your spouse.
ANNUITY PAYMENTS: GENERAL. On the Annuity Date, we will apply the Annuitized
Value of your Contract to the Annuity Option you have chosen. Your annuity
payments may consist of Variable Annuity payments or Fixed Annuity payments or a
combination of the two. We will determine the amount of your annuity payments as
described in "Variable Annuity Payments" and "Fixed Annuity Payments" on pages
37 below.
You must notify us in writing at least 30 days before the Annuity Date how you
wish to allocate your Annuitized Value between Variable Annuity and Fixed
Annuity payments. You must apply at least the Contract Value in the Fixed
Account on the Annuity Date to Fixed Annuity payments. If you wish to apply any
portion of your Fixed Account balance to your Variable Annuity payments, you
should plan ahead and transfer that amount to the Subaccounts prior to the
Annuity Date. If you do not tell us how to allocate your Contract Value among
Fixed and Variable Annuity payments, we will apply your Contract Value in the
Separate Account to Variable Annuity payments and your Contract Value in the
Fixed Account to Fixed Annuity payments.
Annuity payments begin on the Annuity Date. We make subsequent annuity payments
on the tenth of the month or, if the NYSE is closed on that day, the next day on
which the NYSE is open for business.
Annuity payments will be made in monthly, quarterly, semi-annual or annual
installments as you select. If the amount available to apply under an Annuity
Option is less than $5,000, however, and state law permits, we may pay you a
lump sum instead of the periodic payments you have chosen. In addition, if the
first annuity payment would be less than $50, and state law permits us, we may
reduce the frequency of payments so that the initial payment will be at least
$50.
We may defer for up to 15 days the payment of any amount attributable to a
Purchase Payment made by check to allow the check reasonable time to clear.
YOU MAY NOT WITHDRAW CONTRACT VALUE DURING THE ANNUITY PERIOD, IF WE ARE MAKING
PAYMENTS TO YOU UNDER ANY ANNUITY OPTION, SUCH AS OPTION A OR B ABOVE, INVOLVING
PAYMENT TO THE PAYEE FOR LIFE OR ANY COMBINATION OF PAYMENTS FOR LIFE AND
MINIMUM GUARANTEE PERIOD FOR A PREDETERMINED NUMBER OF YEARS.
VARIABLE ANNUITY PAYMENTS. One basic objective of the Contract is to provide
Variable Annuity Payments which will to some degree respond to changes in the
economic environment. The amount of your Variable Annuity Payments will depend
upon the investment results of the Subaccounts you have selected, any premium
taxes, the age and sex of the Annuitant, and the Annuity Option chosen. We
guarantee that the Payments will not be affected by (1) actual mortality
experience and (2) the amount of our administration expenses.
We cannot predict the total amount of your Variable Annuity payments. The
Variable Annuity payments may be more or less than your total Purchase Payments
because (a) Variable Annuity payments vary with the investment results of the
underlying Portfolios; and (b) Annuitants may die before their actuarial life
expectancy is achieved.
The length of any guaranteed payment period under your selected Annuity Option
will affect the dollar amounts of each Variable Annuity payment. As a general
rule, longer guarantee periods result in lower periodic payments, all other
things being equal. For example, if a life Annuity Option with no minimum
guaranteed payment period is chosen, the Variable Annuity payments will be
greater than Variable Annuity payments under an Annuity Option for a minimum
specified period and guaranteed thereafter for life.
The investment results of the Subaccounts to which you have allocated your
Contract Value will also affect the amount of your periodic payment. In
calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3 1/2%. If the actual net
investment return is less than the assumed investment rate, then the dollar
amount of the Variable Annuity payments will decrease. The dollar amount of the
Variable Annuity payments will stay level if the net investment return equals
the assumed investment rate and the dollar amount of the Variable Annuity
payments will increase if the net investment return exceeds the assumed
investment rate. You should consult the Statement of Additional Information for
more detailed information as to how we determine Variable Annuity Payments.
FIXED ANNUITY PAYMENTS. You may choose to apply a portion of your Annuitized
Value to provide Fixed Annuity payments. We determine the Fixed Annuity payment
amount by applying the applicable Annuitized Value to the Annuity Option you
have selected.
As a general rule, subsequent Fixed Annuity payments will be equal in amount to
the initial payment. However, as described in "Transfers During the Annuity
Period" below, after the Annuity Date, you will have a limited ability to
increase the amount of your Fixed Annuity payments by making transfers from the
Subaccounts.
We may defer making Fixed Annuity payments for a period of up to six months or
whatever shorter time state law may require. During the deferral period, we
credit interest at a rate at least as high as state law requires.
TRANSFERS DURING THE ANNUITY PERIOD. During the Annuity Period, you will have a
limited ability to make transfers among the Subaccounts so as to change the
relative weighting of the Subaccounts on which your Variable Annuity payments
will be based. In addition, you will have a limited ability to make transfers
from the Subaccounts to increase the proportion of your annuity payments
consisting of Fixed Annuity payments. You may not, however, convert any portion
of your right to receive Fixed Annuity payments into Variable Annuity payments.
You may not make any transfers for the first six months after the Annuity Date.
Thereafter, you may make transfers among the Subaccounts or make transfers from
the Subaccounts to increase your Fixed Annuity payments.
Your transfers must be at least six months apart.
DEATH BENEFIT DURING ANNUITY PERIOD. After annuity payments begin, upon the
death of the Annuitant and any Joint Annuitant, we will make any remaining
annuity payments to the Beneficiary. The amount and number of these annuity
payments will depend on the Annuity Option in effect at the time of the
Annuitant's death. After the Annuitant's death, any remaining interest will be
distributed at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
CERTAIN EMPLOYEE BENEFIT PLANS. In some states, the Contracts offered by this
prospectus contain life annuity tables that provide for different benefit
payments to men and women of the same age. In certain employment-related
situations, however, the U.S. Supreme Court's decision in ARIZONA GOVERNING
COMMITTEE V. NORRIS requires employers to use the same annuity tables for men
and women. Accordingly, if the Contract is to be used in connection with an
employment-related retirement or benefit plan and we do not offer unisex annuity
tables in your state, you should consult with legal counsel as to whether the
purchase of a Contract is appropriate under NORRIS.
OTHER CONTRACT BENEFITS
DEATH BENEFIT. We will pay a distribution on death, if:
(1) the Contract is in force;
(2) annuity payments have not begun; and
(3) either:
(a) you die; or
(b) if the Contract is owned by a company or other legal entity, the
Annuitant dies.
Currently, we will pay a distribution on death equal in amount to the Death
Benefit or Enhanced Death Benefit, as appropriate. Under the Contract, however,
we have the right to pay a distribution equal in amount to the Surrender Value
unless:
(1) the Beneficiary chooses to receive the Death Benefit in a lump sum within
180 days of the date of death; and
(2) the Beneficiary requests that the Death Benefit be paid as of the date we
receive the completed claim for a distribution on death.
We currently are waiving this 180 day limitation, but we may enforce it in the
future. If we do, we will calculate the distribution as of the earlier of the
requested distribution date or the fifth anniversary of the date of death.
We determine the Death Benefit as of the date we receive all of the information
we need to process the Death Benefit claim. The standard Death Benefit under the
Contract is the greatest of the following:
(1) the total Purchase Payments, less a withdrawal adjustment for any prior
partial withdrawals;
(2) the Contract Value on the date as of which we calculate the Death Benefit.
(3) the Surrender Value;
(4) the Contract Value on the eighth Contract Anniversary and each subsequent
Contract Anniversary evenly divisible by eight, increased by the total
Purchase Payments since that anniversary and reduced by a withdrawal
adjustment for any partial withdrawals since that anniversary.
The withdrawal adjustment for the Death Benefit will equal (a) divided by (b),
with the result multiplied by (c), where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the value of the applicable Death Benefit immediately before the
withdrawal.
A claim for a distribution on death must be submitted before the Annuity Date.
As part of the claim, the Beneficiary must provide "Due Proof of Death". We will
accept the following documentation as Due Proof of Death:
- - a certified original copy of the Death Certificate;
- - a certified copy of a court decree as to the finding of death; or
- - a written statement of a medical doctor who attended the deceased at the
time of death.
In addition, in our discretion we may accept other types of proof.
We will pay the Death Benefit in a lump sum within seven days of receiving a
completed claim for a distribution on death, unless the Beneficiary selects one
of the other alternatives described below.
If the Beneficiary is a natural person, the Beneficiary may choose from the
following alternative ways of receiving the distribution:
- - the Beneficiary may receive the distribution as a lump sum payment;
- - the Beneficiary may apply the distribution to receive a series of equal
periodic payments over the life of the Beneficiary, over a fixed period no
longer than the Beneficiary's life expectancy, or over the life of the
Beneficiary with payments guaranteed for a period not to exceed the life
expectancy of the Beneficiary (the payments must begin within one year of
the date of death); or
- - if there is only one Beneficiary, he or she may defer payment for up to
five years from the date of death. Any remaining funds must be distributed
at the end of the five-year period. An Annuitant is necessary for this
option. If prior to your death you were the Annuitant, the Beneficiary will
become the new Annuitant.
If your spouse is the Beneficiary, he or she may choose to continue the Contract
as the new Contract Owner. If your spouse chooses to continue the Contract, the
following conditions apply:
(1) On the day the Contract is continued, we will set the Contract Value equal
to the Death Benefit or Enhanced Death Benefit, as appropriate, calculated
as of the date on which we receive all of the information we need to
process your spouse's request to continue the Contract after your death.
Because the Death Benefit and Enhanced Death Benefit can never be less
than the then current Contract Value, our resetting the Contract will not
cause the Contract Value to decrease. During the continuation period,
however, the Contract Value will continue to increase or decrease to
reflect the investment performance of the Subaccounts, interest credited
to the Fixed Account, and charges and expenses under the Contract, as
described in this prospectus.
(2) Within one year of the date of death, your spouse may withdraw one lump
sum without paying any Withdrawal Charge or incurring any Market Value
Adjustment;
(3) During the continuation period, currently we will pay a distribution on
death equal to the Death Benefit or the Enhanced Death Benefit, as
appropriate, determined as of the date on which we receive due proof of
your spouse's death. As described above, we also reserve the right to pay
a distribution equal in amount to the Surrender Value as of the date on
which we receive due proof of death. The standard Death Benefit payable
upon your spouse's death will be calculated using the formula described
above. Thus, the amount of the distribution on death may increase or
decrease during the continuation period, depending on changes in the
Contract Value and other Contract transactions during the continuation
period.
(4) If before your death you were the Annuitant, your surviving spouse becomes
the Annuitant.
(5) If you selected the Enhanced Death Benefit Rider or the Enhanced Death and
Income Benefit Rider, that rider will continue during the continuation
period. Your spouse will be treated as the Contract Owner under the
applicable Rider.
Your surviving spouse may also select one of the options listed above.
If the Beneficiary is a company or other legal entity, then the Beneficiary must
receive the Death Benefit in a lump sum, and the options listed above are not
available.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
ENHANCED DEATH BENEFIT RIDER: When you purchase your Contract, you may select
the Enhanced Death Benefit Rider. If you are not an individual, the Enhanced
Death Benefit applies only to the Annuitant's death. If you select this rider,
the Death Benefit will be the greater of the value provided in your Contract or
the Enhanced Death Benefit. The Enhanced Death Benefit will be the greater of
the Enhanced Death Benefit A and Enhanced Death Benefit B. As described below,
we will charge a higher mortality and expense risk charge if you select this
Rider.
ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the
initial Purchase Payment. After issue, Enhanced Death Benefit A is adjusted
whenever you pay a Purchase Payment or make a withdrawal and on each Contract
Anniversary as follows:
- - When you pay a Purchase Payment, we will increase Enhanced Death Benefit A
by the amount of the Purchase Payment;
- - When you make a withdrawal, we will decrease Enhanced Death Benefit A by a
withdrawal adjustment, as described below; and
- - On each Contract Anniversary, we will set Enhanced Death Benefit A equal to
the greater of the Contract Value on that Contract Anniversary or the most
recently calculated Death Benefit A.
If you do not pay any additional purchase payments or make any withdrawals,
Enhanced Death Benefit A will equal the highest of the Contract Value on the
Issue Date and all Contract Anniversaries prior to the date we calculate the
Death Benefit.
We will continuously adjust Enhanced Death Benefit A as described above until
the oldest Contract Owner's 85th birthday or, if the Contract Owner is not a
living individual, the Annuitant's 85th birthday. Thereafter, we will adjust
Enhanced Death Benefit A only for Purchase Payments and withdrawals.
ENHANCED DEATH BENEFIT B. Enhanced Death Benefit B is equal to (a) your total
Purchase Payments, (b) reduced by any withdrawal adjustments and (c) accumulated
daily at an effective annual rate of 5% per year, until: (1) the first day of
the month following the oldest Contract owner's 85th birthday or (2) if the
Contract Owner is a company or other legal entity, the Annuitant's 85th
birthday. Thereafter, we will only adjust Enhanced Death Benefit B to reflect
additional Purchase Payments and withdrawals. Enhanced Death Benefit B will
never be greater than the maximum death benefit allowed by any nonforfeiture
laws which govern the Contract.
The withdrawal adjustment for both Enhanced Death Benefit A and Enhanced Death
Benefit B will equal (a) divided by (b), with the result multiplied by (c),
where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the most recently calculated Enhanced Death Benefit A or B, as
appropriate.
BENEFICIARY. You name the Beneficiary. You may name a Beneficiary in the
application. You may change the Beneficiary or add additional Beneficiaries at
any time before the Annuity Date. We will provide a form to be signed and filed
with us.
Your changes in Beneficiary take effect when we receive them, effective as of
the date you signed the form. Until we receive your change instructions, we are
entitled to rely on your most recent instructions in our files. We are not
liable for making a payment to a Beneficiary shown in our files or treating that
person in any other respect as the Beneficiary. Accordingly, if you wish to
change your beneficiary, you should deliver your instructions to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer
living, the Beneficiary will be:
- - your spouse if he or she is still alive; or, if he or she is no longer alive,
- - your surviving children equally; or if you have no surviving children,
- - your estate.
If you name more than one Beneficiary, we will divide the Death Benefit among
your Beneficiaries according to your most recent written instructions. If you
have not given us written instructions, we will pay the Death Benefit in equal
shares to the Beneficiaries. If one of the Beneficiaries dies before you, we
will divide the Death Benefit among the surviving Beneficiaries.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
CONTRACT LOANS FOR 401(a), 401(k), AND 403(b) CONTRACTS. Subject to the
restrictions described below, we will make loans to the Owner of a Contract used
in connection with a Tax Sheltered Annuity Plan ("TSA Plan") under Section
403(b) of the Tax Code, or an Owner of a Contract purchased by a pension,
profit-sharing, or other similar plan qualified under Section 401(a) of the Tax
Code (a "401 Plan"), including a Section 401(k) plan, where a plan trustee is
the Owner. Loans are not available under Non-Qualified Contracts. We will only
make loans after the free look period and before annuitization. All loans are
subject to the terms of the Contract, the relevant Plan, and the Tax Code, which
impose restrictions on loans.
We will not make a loan to you if the total of the requested loan and your
unpaid outstanding loans will be greater than the Surrender Value of your
Contract on the date of the loan. In addition, we will not make a loan to you if
the total of the requested loan and all of the plan participant's Contract loans
under TSA plans and 401 plans is more than the lesser of (a) or (b) where:
(a) equals $50,000 minus the excess of the highest outstanding loan balance
during the prior 12 months over the current outstanding loan balance; and
(b) equals the greater of $10,000 or 1/2 of the Surrender Value.
The minimum loan amount is $1,000.
To request a Contract loan, write to us at the address given on the first page
of the prospectus. You alone are responsible for ensuring that your loan and
repayments comply with tax requirements. Loans made before the Annuity Date are
generally treated as distributions under the Contract, and may be subject to
withholding and tax penalties for early distributions. Some of these
requirements are stated in Section 72 of the Tax Code and Title 1 of ERISA.
Please seek advice from your plan administrator or tax advisor.
When we make a loan, we will transfer an amount equal to the loan amount from
the Separate Account and/or the Fixed Account to the Loan Account as collateral
for the loan. You may select from which account(s) to transfer the loan value.
However, we will not transfer amounts from the Fixed Account in an amount
greater than the total amount of the loan multiplied by the ratio of the value
of the Fixed Account to the Contract Value immediately before the loan. If you
do not give us instructions, we will first transfer to the Loan Account amounts
from the Separate Account in proportion to the assets in each Subaccount. If
your loan amount is greater than your Contract Value in the Subaccounts, we will
transfer the remaining required collateral from the Fixed Account.
We will not charge a Withdrawal Charge on the loan or on the transfer from the
Subaccounts or the Fixed Account. We may, however, apply a Market Value
Adjustment to a transfer from the Fixed Account to the Loan Account. If we do,
we will increase or decrease the amount remaining in the Fixed Account by the
amount of the Market Value Adjustment, so that the net amount transferred to the
Loan Account will equal the desired loan amount.
We will credit interest to the amounts in the Loan Account. The annual interest
rate credited to the Loan Account will be the greater of: (a) 3%; or (b) the
loan interest rate minus 2.25%. The value of the amounts in the Loan Account are
not affected by the changes in the value of the Subaccounts.
When you take out a loan, we will set the loan interest rate. That rate will
apply to your loan until it is repaid. From time to time, we may change the loan
interest rate applicable to new loans. We also reserve the right to change the
terms of new loans.
We will subtract the outstanding Contract loan balance, including accrued but
unpaid interest, from:
(1) the Death Benefit;
(2) surrender proceeds;
(3) the amount available for partial withdrawal; and
(4) the amount applied on the Annuity Date to provide annuity payments.
Usually you must repay a Contract loan within five years of the date the loan is
made. Scheduled payments must be level, amortized over the repayment period, and
made at least quarterly. We may permit a repayment period of 15 or 30 years if
the loan proceeds are used to acquire your principal residence. We may also
permit other repayment periods.
You must mark your loan repayments as such. We will assume that any payment
received from you is a Purchase Payment, unless you tell us otherwise.
If you do not make a loan payment when due, we will continue to charge interest
on your loan. We also will declare the entire loan in default. We will subtract
the defaulted loan balance plus accrued interest from any future distribution
under the Contract and keep it in payment of your loan. Any defaulted amount
plus interest will be treated as a distribution for tax purposes (as permitted
by law). As a result, you may be required to pay taxes on the defaulted amount,
incur the early withdrawal tax penalty, and be subject to mandatory 20% federal
withholding.
If the total loan balance exceeds the Surrender Value, we will mail written
notice to your last known address. The notice will state the amount needed to
maintain the Contract in force. If we do not receive payment of this amount
within 31 days after we mail this notice, we will terminate your Contract.
We may defer making any loan for 6 months after you ask us for a loan, unless
the loan is to pay a premium to us.
WITHDRAWALS (REDEMPTIONS). Except as explained below, you may redeem a Contract
for all or a portion of its Contract Value before the Annuity Date. We may
impose a Withdrawal Charge, which would reduce the amount paid to you upon
redemption. The Withdrawal Charges are described on page [ ] below. Withdrawals
from the Fixed Account may be increased or decreased by a Market Value
Adjustment, as described in "Market Value Adjustment" on page [ ] above.
In general, you must withdraw at least $50 at a time. You may also withdraw a
lesser amount if you are withdrawing your entire interest in a Subaccount. If
your request for a partial withdrawal would reduce the Contract Value to less
than $500, we may treat it as a request for a withdrawal of your entire Contract
Value, as described in "Minimum Contract Value" on page [ ]. Your Contract will
terminate if you withdraw all of your Contract Value.
We may be required to withhold 20% of withdrawals and distributions from
Contracts issued in connection with certain Qualified Plans, as described on
page [ ] below. Withdrawals also may be subject to a 10% penalty tax, as
described on page [ ] below.
To make a withdrawal, you must send us a written withdrawal request or
systematic withdrawal program enrollment form. You may obtain the required forms
from us at the address and phone number given on the first page of this
prospectus. We will not honor your request unless the required form includes
your Tax I.D. Number (E.G., Social Security Number) and provides instructions
regarding withholding of income taxes.
For partial withdrawals, you may allocate the amount among the Subaccounts and
the Fixed Account. If we do not receive allocation instructions from you, we
usually will allocate the partial withdrawal proportionately among the
Subaccounts and the Fixed Account based upon the balance of the Subaccounts and
the Fixed Account. You may not make a partial withdrawal from the Fixed Account
in an amount greater than the total amount of the partial withdrawal multiplied
by the ratio of the value of the Fixed Account to the Contract Value immediately
before the partial withdrawal.
If you request a total withdrawal, you must send us your Contract. The Surrender
Value will equal the Contract Value minus any applicable Withdrawal Charge and
adjusted by any applicable Market Value Adjustment. We also will deduct a
contract maintenance charge of $35, unless we have waived the contract
maintenance charge on your Contract as described on page [ ] below. We determine
the Surrender Value based on the Contract Value next computed after we receive a
properly completed surrender request. We will usually pay the Surrender Value
within seven days after the day we receive a completed request form. However, we
may suspend the right of withdrawal from the Separate Account or delay payment
for withdrawals for more than seven days in the following circumstances:
(1) whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
(2) when trading on the NYSE is restricted or an emergency exists, as
determined by the SEC, so that disposal of the Separate Account's
investments or determination of Accumulation Unit Values is not reasonably
practicable; or
(3) at any other time permitted by the SEC for your protection.
In addition, we may delay payment of the Surrender Value in the Fixed Account
for up to 6 months or a shorter period if required by law. If we delay payment
from the Fixed Account for more than 30 days, we will pay interest as required
by applicable law.
You may withdraw amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Section 403(b)(11) of the Tax Code) only
in the following circumstances:
(1) when you attain age 59 1/2;
(2) when you terminate your employment with the plan sponsor;
(3) upon your death;
(4) upon your disability as defined in Section 72(m)(7) of the Tax Code; or
(5) in the case of hardship.
If you seek a hardship withdrawal, you may only withdraw amounts attributable to
your Purchase Payments; you may not withdraw any earnings. These limitations on
withdrawals apply to:
(1) salary reduction contributions made after December 31, 1988;
(2) income attributable to such contributions; and
(3) income attributable to amounts held as of December 31, 1988.
The limitations on withdrawals do not affect transfers between certain Qualified
Plans. Additional restrictions and limitations may apply to distributions from
any Qualified Plan. Tax penalties may also apply. You should seek tax advice
regarding any withdrawals or distributions from Qualified Plans.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. In general, earnings on annuities are
taxable as ordinary income upon withdrawal. As described on page 35 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, and withdrawals from the Fixed Account
may be subject to a Market Value Adjustment.
To qualify for this exception, the payments must meet the following
requirements:
1) The payments must continue to the later of age 59 1/2 or for five years.
2) Payments must be established under one of the approved methods detailed by
the IRS in IRS Notice 89-25.
3) You must have separated from service, if you purchased your Contract under
a qualified retirement plan or tax sheltered annuity.
If you modify the payment stream in any way, except for reason of death or
disability, you will loose the exception. Modification includes changing the
amount or timing of the payments, or making additional Purchase Payments. Any
subsequent periodic payment will be subject to the penalty tax, unless it
qualifies for a different exception. In addition, in the year of the
modification, you will be required to pay the penalty tax (plus interest) that
you would have been required to pay on the earlier payments if this exception
had not applied.
SYSTEMATIC WITHDRAWAL PROGRAM. If your Contract was issued in connection with a
Non-Qualified Plan or IRA, you may participate in our Systematic Withdrawal
Program. You must complete an enrollment form and send it to us. You must
complete the withholding election section of the enrollment form before the
systematic withdrawals will begin. You may choose withdrawal payments of a flat
dollar amount, earnings, or a percentage of Purchase Payments. You may choose to
receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or
annual basis. Systematic withdrawals will be deducted from your Subaccount and
Fixed Account balances, excluding the Dollar Cost Averaging Fixed Account, on a
pro rata basis.
Depending on fluctuations in the net asset value of the Subaccounts and the
value of the Fixed Account, systematic withdrawals may reduce or even exhaust
the Contract Value. The minimum amount of each systematic withdrawal is $50.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
ERISA PLANS. A married participant may need spousal consent to receive a
distribution from a Contract issued in connection with a Qualified Plan or a
Non-Qualified Plan covered by to Title 1 of ERISA. You should consult an
adviser.
MINIMUM CONTRACT VALUE. If as a result of withdrawals your Contract Value would
be less than $500 and you have not made any Purchase Payments during the
previous three full calendar years, we may terminate your Contract and
distribute its Surrender Value to you. Before we do this, we will give you 60
days notice. We will not terminate your Contract on this ground if the Contract
Value has fallen below $500 due to either a decline in Accumulation Unit Value
or the imposition of fees and charges. In addition, in some states we are not
permitted to terminate Contracts on this ground. Different rules may apply to
Contracts issued in connection with Qualified Plans.
CONTRACT CHARGES
We assess charges under the Contract in three ways:
(1) as deductions from Contract Value for contract maintenance charges and for
premium taxes, if applicable;
(2) as charges against the assets of the Separate Account for administrative
expenses or for the assumption of mortality and expense risks; and
(3) as Withdrawal Charges (contingent deferred sales charges) subtracted from
withdrawal and surrender payments.
In addition, certain deductions are made from the assets of the Portfolios for
investment management fees and expenses. Those fees and expenses are summarized
in the Fee Tables on pages [ ], 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 1.30% of the average net asset
value of each Subaccount. The mortality risks arise from our contractual
obligations:
(1) to make annuity payments after the Annuity Date for the life of the
Annuitant(s);
(2) to waive the Withdrawal Charge upon your death; and
(3) to provide the Death Benefit prior to the Annuity Date. A detailed
explanation of the Death Benefit may be found beginning on page [ ] above.
The expense risk is that it may cost us more to administer the Contracts and the
Separate Account than we receive from the contract maintenance charge and the
administrative expense charge. We guarantee the mortality and expense risk
charge and we cannot increase it. We assess the mortality and expense risk
charge during both the Accumulation Period and the Annuity Period.
If you select the Enhanced Death Benefit Rider, your mortality and expense risk
charge will be 1.50% of average net asset value of each Subaccount. We charge a
higher mortality and expense risk charge for the Rider to compensate us for the
additional risk that we accept by providing the Rider. We will calculate a
separate Accumulation Unit Value for the base Contract, and for Contracts with
the Rider, in order to reflect the difference in the mortality and expense risk
charges.
ADMINISTRATIVE CHARGES.
CONTRACT MAINTENANCE CHARGE. We charge an annual contract maintenance charge of
$35 on your Contract. The amount of this charge is guaranteed not to increase.
This charge reimburses us for our expenses incurred in maintaining your
Contract.
Before the Annuity Date, we assess the contract maintenance charge on each
Contract Anniversary. To obtain payment of this charge, on a pro rata basis we
will allocate this charge among the Subaccounts and the Fixed Account to which
you have allocated your Contract Value, and redeem Accumulation Units and reduce
your interest in the Fixed Account accordingly. We will waive this charge if you
pay more than $50,000 in Purchase Payments or if you allocate all of your
Contract Value to the Fixed Account. If you surrender your Contract, we will
deduct the full $35 charge as of the date of surrender, unless your Contract
qualifies for a waiver.
After the Annuity Date, we will subtract this charge in equal parts from each of
your annuity payments. We will waive this charge if on the Annuity Date your
Contract Value is $50,000 or more or if all of your annuity payments are Fixed
Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE. We deduct an administrative expense charge from
each Subaccount during each Valuation Period. This charge is equal, on an annual
basis, to 0.10% of the average net asset value of the Subaccounts. This charge
is designed to compensate us for the cost of administering the Contracts and the
Separate Account. The administrative expense charge is assessed during both the
Accumulation Period and the Annuity Period.
TRANSFER FEE. We currently are waiving the transfer fee. The Contract, however,
permits us to charge a transfer fee of $10 on the second and each subsequent
transaction in each calendar month in which transfer(s) are effected between
Subaccount(s) and/or the Fixed Account. We will notify you if we begin to charge
this fee. We will not charge a transfer fee on transfers that are part of a
Dollar Cost Averaging or Portfolio Rebalancing program.
The transfer fee will be deducted from Contract Value that remains in the
Subaccount(s) or Fixed Account from which the transfer was made. If that amount
is insufficient to pay the transfer fee, we will deduct the fee from the
transferred amount.
SALES CHARGES.
WITHDRAWAL CHARGE. We may charge a Withdrawal Charge, which is a contingent
deferred sales charge, upon certain withdrawals.
As a general rule, the Withdrawal Charge equals a percentage of Purchase
Payments withdrawn that are: (a) less than eight 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:
CONTRIBUTION WITHDRAWAL CHARGE
YEAR PERCENTAGE
- --------------------------------------- ------------------
First.................................. 8%
Second and Third....................... 7%
Fourth and Fifth....................... 6%
Sixth.................................. 5%
Seventh................................ 4%
Eighth................................. 3%
Ninth and later........................ 0%
When we calculate the Withdrawal Charge, we do not take any applicable Market
Value Adjustment into consideration.
We subtract the Withdrawal Charge from the Contract Value remaining after your
withdrawal. As a result, the decrease in your Contract Value will be greater
than the withdrawal amount requested and paid.
For purposes of determining the Withdrawal Charge, the Contract Value is deemed
to be withdrawn in the following order:
FIRST. Earnings -- the current Contract Value minus all Purchase Payments that
have not previously been withdrawn; Credit Enhancements are treated as
"earnings" for this purpose;
SECOND. "Old Purchase Payments" -- Purchase Payments received by us more than
eight 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
eight 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:
- - on annuitization;
- - the payment of a death benefit;
- - a free withdrawal amount, as described on page 48 below;
- - certain withdrawals for Contracts issued under 403(b) plans or 401 plans
under our prototype as described on page 49 below;
- - withdrawals taken to satisfy IRS minimum distribution rules;
- - withdrawals that qualify for one of the waiver benefits described at page
[ ] below; and
- - withdrawals under Contracts issued to employees of Lincoln Benefit Life
Company or its affiliate, Surety Life Insurance Company, or to their
spouses or minor children if these individuals reside in the State of
Nebraska.
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 or fee described above,
to make up any difference.
Withdrawals may also be subject to tax penalties or income tax. The amount of
your withdrawal may be affected by a Market Value Adjustment. Additional
restrictions may apply to Contracts held in Qualified Plans. We outline the tax
requirements applicable to withdrawals on pages 51-52 below. You should consult
your own tax counsel or other tax advisers regarding any withdrawals.
FREE WITHDRAWAL. Withdrawals of the following amounts are never subject to the
Withdrawal Charge:
- - In any Contract Year, the greater of: (a) earnings that have not previously
been withdrawn; or (b) 15 percent of New Purchase Payments; and
- - Any Old Purchase Payments that have not been previously withdrawn.
Credit Enhancements are treated as earnings for purposes of determining the free
withdrawal amount. However, even if you do not owe a Withdrawal Charge on a
particular withdrawal, you may still owe taxes or penalty taxes, or be subject
to a Market Value Adjustment. The tax treatment of withdrawals is summarized on
pages [ ] below.
WAIVER BENEFITS
GENERAL. If approved in your state, we will offer the two waiver benefits
described below. In general, if you qualify for one of these benefits, we will
permit you to make one or more partial or full withdrawals without paying any
otherwise applicable Withdrawal Charge or Market Value Adjustment. While we have
summarized those benefits here, you should consult your Contract for the precise
terms of the waiver benefits.
Some Qualified Plans may not permit you to utilize these benefits. Also, even if
you do not need to pay our Withdrawal Charge because of these benefits, you
still may be required to pay taxes or tax penalties on the amount withdrawn. You
should consult your tax adviser to determine the effect of a withdrawal on your
taxes.
CONFINEMENT WAIVER BENEFIT. Under this benefit, we will waive the Withdrawal
Charge and Market Value Adjustment on all withdrawals under your Contract if the
following conditions are satisfied:
(1) Any Contract owner or the Annuitant, if the Contract is owned by a company
or other legal entity, is confined to a long term care facility or a
hospital for at least 90 consecutive days. The insured must enter the long
term care facility or hospital at least 30 days after the Issue Date;
(2) You request the withdrawal no later than 90 days following the end of the
Insured's stay at the long term care facility or hospital. You must provide
written proof of the stay with your withdrawal request; and
(3) A physician must have prescribed the stay and the stay must be medically
necessary.
You may not claim this benefit if the physician prescribing the insured's stay
in a long term care facility is the insured or a member of the insured's
immediate family.
TERMINAL ILLNESS WAIVER BENEFIT. Under this benefit, we will waive any
Withdrawal Charge and Market Value Adjustment on all withdrawals under your
Contract if, at least 30 days after the Issue Date, you or the Annuitant are
diagnosed with a terminal illness. We may require confirmation of the diagnosis
as provided in the Contract.
WAIVER OF WITHDRAWAL CHARGE FOR CERTAIN QUALIFIED PLAN WITHDRAWALS. For
Contracts issued under a Section 403(b) plan or a Section 401 plan under our
prototype, we will waive the Withdrawal Charge when:
(1) the Annuitant becomes disabled (as defined in Section 72(m)(7)) of the Tax
Code;
(2) the Annuitant reaches age 59 1/2 and at least 5 Contract Years have passed
since the Contract was issued;
(3) at least 15 Contract Years have passed since the Contract was issued.
Our prototype is a Section 401 Defined Contribution Qualified Retirement plan.
This plan may be established as a Money Purchase plan, a Profit Sharing plan, or
a paired plan (Money Purchase and Profit Sharing). For more information about
our prototype plan, call us at 1-800-525-9287.
PREMIUM TAXES. We will charge premium taxes or other state or local taxes
against the Contract Value, including Contract Value that results from amounts
transferred from existing policies (Section 1035 exchange) issued by us or other
insurance companies. Some states assess premium taxes when Purchase Payments are
made; others assess premium taxes when annuity payments begin. We will deduct
any applicable premium taxes upon full surrender, death, or annuitization.
Premium taxes generally range from 0% to 3.5%.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES. We are not currently maintaining a
provision for taxes. In the future, however, we may establish a provision for
taxes if we determine, in our sole discretion, that we will incur a tax as a
result of the operation of the Separate Account. We will deduct for any taxes we
incur as a result of the operation of the Separate Account, whether or not we
previously made a provision for taxes and whether or not it was sufficient. Our
status under the Tax Code is briefly described in the Statement of Additional
Information.
OTHER EXPENSES. You indirectly bear the charges and expenses of the Portfolios
whose shares are held by the Subaccounts to which you allocate your Contract
Value. For a summary of current estimates of those charges and expenses, see
pages [ ] 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.
FEDERAL 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. Credit Enhancements provided
under a Contract are not treated as Purchase Payments and therefore do not
increase your investment in the Contract. 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. You should contact a competent tax advisor
with respect to the potential tax consequences of a Market Value Adjustment, as
no definitive guidance exists on the proper tax treatment of Market Value
Adjustments. 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 Life Company is a stock life
insurance company organized under the laws of the state of Nebraska in 1938. Our
legal domicile and principal business address is 206 South 13th Street, Lincoln,
Nebraska. Lincoln Benefit is a wholly owned subsidiary of Allstate Life
Insurance Company ("Allstate Life" or "ALIC"), a stock life insurance company
incorporated under the laws of the State of Illinois. Allstate Life is a wholly
owned subsidiary of Allstate Insurance Company ("AIC"), a stock
property-liability insurance company incorporated under the laws of Illinois.
All outstanding capital stock of Allstate is owned by The Allstate Corporation
("Allstate").
We are authorized to conduct life insurance and annuity business in the District
of Columbia, Guam, U.S. Virgin Islands and all states except New York. We intend
to market the Contract everywhere we conduct variable annuity business. The
Contracts offered by this prospectus are issued by us and will be funded in the
Separate Account and/or the Fixed Account.
Under our reinsurance agreements with Allstate Life, substantially all contract
related transactions are transferred to Allstate Life. Through our reinsurance
agreements with Allstate Life, substantially all of the assets backing our
reinsured liabilities are owned by Allstate Life. These assets represent our
general account and are invested and managed by Allstate Life. Accordingly, the
results of operations with respect to applications received and contracts issued
by Lincoln Benefit are not reflected in our 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 agreements. While the reinsurance agreements
provide 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 ALIC, the Company reinsures all
reserve liabilities with ALIC 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 ALIC.
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
agreements 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.
CONSOLIDATED FINANCIAL STATEMENTS OF LINCOLN BENEFIT. The Company's consolidated
financial statements and notes thereto are included in this Prospectus beginning
on page F-1. You should consider those consolidated financial statements only as
bearing on Lincoln Benefit's ability to meet its obligations under the Policy.
They do not relate to the investment performance of the assets held in the
Separate Account. The financial statements for the Separate Account are set
forth in the Statement of Additional Information.
SELECTED FINANCIAL DATA. The following selected financial data for the Company
should be read in conjunction with the consolidated financial statements and
notes thereto included in the prospectus beginning on page F-1.
LINCOLN BENEFIT LIFE COMPANY
SELECTED FINANCIAL DATA
(IN THOUSANDS)
YEAR-END FINANCIAL DATA 1998 1997 1996 1995 1994
- ----------------------- --------- -------- --------- -------- -------
For the Years Ended
December 31:
Income Before
Income Tax Expense... $ 10,374 $ 10,587 $ 8,603 $ 7,838 $ 4,641
Net Income............. 6,670 6,852 5,583 5,093 3,036
As of December 31:
Total Assets........... $8,120,008 $7,507,203 $7,108,502 $6,347,097 $5,319,707
INVESTMENTS BY LINCOLN BENEFIT. Our general account assets, like the general
account assets of other insurance companies, including Allstate Life, must be
invested in accordance with applicable state laws. These laws govern the nature
and quality of investments that may be made by life insurance companies and the
percentage of their assets that may be committed to any particular type of
investment. In general, these laws permit us, within specified limits and
subject to certain qualifications, to invest in federal, state, and municipal
obligations, corporate bonds, preferred stocks, real estate mortgages, real
estate and certain other investments. All of our general account assets are
available to meet our obligations.
We will primarily invest our general account assets in investment-grade fixed
income securities including the following:
Securities issued by the United States Government or its agencies or
instrumentalities, which may or may not be guaranteed by the United States
Government;
Debt instruments, including issues of or guaranteed by banks or bank holding
companies, and of corporations, which our management deems to have qualities
appropriate for inclusion in our general account;
Commercial mortgages, mortgage-backed securities collateralized by real estate
mortgage loans, or securities collateralized by other assets, that are insured
or guaranteed by the Federal Home Loan Mortgage Association, the Federal
National Mortgage Association or the Government National Mortgage Association,
or that have an investment grade at time of purchase within the four highest
grades assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or Baa),
Standard & Poor's Corporation (AAA, AA, A or BBB) or any other nationally
recognized rating service;
Commercial paper, cash or cash equivalents, and other short-term investments
having a maturity of less than one year that our management considers to have
investment quality comparable to securities having the ratings stated above.
In addition, interest rate swaps, futures, options, rate caps, and other hedging
instruments may be used solely for non-speculative hedging purposes. Anticipated
use of these financial instruments shall be limited to protecting the value of
portfolio sales or purchases, or to enhance yield through the creation of a
synthetic security.
In addition, Lincoln Benefit maintains certain unitized separate accounts which
invest in shares of open-end investment companies registered under the
Investment company Act of 1940, as amended. The Subaccounts under this Contract
are subdivisions of one of those Separate Accounts. These separate account
assets do not support our obligations under the Fixed Account provisions of the
Contracts.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
The following discussion highlights significant factors influencing the
results of operations and changes in financial position of Lincoln Benefit Life
Company ("LBL") and its wholly owned subsidiary, Allstate Financial
Distributors, Inc. (collectively the "Company"). It should be read in
conjunction with the consolidated financial statements and related notes. To
conform with the 1998 presentation, certain prior year amounts have been
reclassified.
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 ("Corporation"). The Company
markets a broad line of life insurance and savings products 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. The Company has identified itself as a
single segment entity.
The assets and liabilities related to flexible premium deferred variable
annuity contracts and variable life policies are legally segregated and
reflected as Separate Account assets and liabilities and carried at fair value
in the consolidated statements of financial position. Investment income and
realized gains and losses of the Separate Accounts accrue directly to the
contractholders (net of fees) and, therefore, are not included in the Company's
consolidated statements of operations and comprehensive income.
<TABLE>
<CAPTION>
CONSOLIDATED RESULTS OF OPERATIONS
($ in thousands)
1998 1997 1996
-------------- ------------ ---------
<S> <C> <C> <C>
Net investment income $ 10,240 $ 10,570 $ 9,519
============= ============= =============
Realized capital gains and losses, after-tax $ 87 $ 11 $ 4
============= ============= =============
Operating costs and expenses $ - $ - $ 457
============= ============= =============
Net income $ 6,670 $ 6,852 $ 5,583
============= ============= =============
Total investments $ 162,659 $ 148,931 $ 139,499
============= ============= =============
</TABLE>
The Company has reinsurance agreements under which contract and policy
related transactions are transferred primarily to ALIC. The Company's
consolidated results of operations include only net investment income and
realized capital gains and losses earned on the assets of the Company that are
not transferred under the reinsurance agreements, and income provided by the
Company's broker-dealer subsidiary, Allstate Financial Distributors, Inc. Prior
to December 31, 1996, the Company retained a block of paid up life insurance,
which was ceded to ALIC on that date.
Net income was $6.7 million in 1998 compared to $6.9 million in 1997, as
lower net investment income was partially offset by higher realized capital
gains and losses. In 1997, net income was higher than in 1996 primarily due to
increased net investment income.
Pretax net investment income decreased 3.1% to $10.2 million in 1998
primarily due to lower income from the broker-dealer. In 1997, pretax net
investment income increased by $1.1 million, or 11.0%. The increased investment
income was due to higher investment balances, arising from positive cash flows
from operating activities and increased broker-dealer income.
In 1997, operating costs and expenses decreased as a result of the cession
of the block of paid up life insurance and the expenses on that block of
business that were incurred in 1996.
Realized capital gains, after-tax, were $87 thousand and $11 thousand in
1998 and 1997, respectively, and arose principally from pre-payments of fixed
income securities.
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL POSITION
($ in thousands)
1998 1997
----------------- -------------
<S> <C> <C>
Fixed income securities (1) $ 158,984 $ 147,911
Short-term investments 3,675 1,020
-------------- ---------------
Total investments $ 162,659 $ 148,931
============== ===============
Reinsurance recoverable from ALIC $ 6,933,084 $ 6,732,755
============== ===============
Separate Account assets and liabilities $ 763,416 $ 447,658
============== ===============
Contractholder funds $ 6,785,070 $ 6,607,130
============== ===============
</TABLE>
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $149,898 and $141,553 at December 31, 1998 and 1997,
respectively.
Total investments increased to $162.7 million at December 31, 1998 from
$148.9 million at December 31, 1997. The increase was primarily due to amounts
invested from positive cash flows generated from operations and increases in
market values of fixed income securities.
FIXED INCOME SECURITIES The Company's fixed income securities portfolio consists
of publicly traded corporate bonds, mortgage-backed securities, and U.S.
government bonds. The Company generally holds its fixed income securities for
the long term, but has classified all these securities as available for sale to
allow maximum flexibility in portfolio management. At December 31, 1998,
unrealized net capital gains on the fixed income securities portfolio totaled
$9.1 million compared to $6.4 million as of December 31, 1997. The increase in
the unrealized gain position is primarily attributable to lower interest rates.
At December 31, 1998, all of the Company's fixed income securities
portfolio was rated investment grade, which is defined by the Company as a
security having a National Association of Insurance Commissioners ("NAIC")
rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a comparable Company
internal rating. The quality mix of the Company's fixed income securities
portfolio at December 31, 1998 is presented below.
($ in thousands)
<TABLE>
<CAPTION>
NAIC
ratings Moody's equivalent description Fair value Percent to total
<S> <C> <C> <C>
1 Aaa/Aa/A $ 146,533 92.2%
2 Baa 12,451 7.8%
------------- --------------
$ 158,984 100.0%
=========== ============
</TABLE>
At December 31, 1998 and 1997, $51.2 million and $55.1 million,
respectively, of the fixed income portfolio were invested in mortgage-backed
securities ("MBS"). At December 31, 1998, all of the MBS were investment grade
and approximately 97% have underlying collateral guaranteed by the U.S.
government entities; thus credit risk is minimal.
MBS, however, are subject to interest rate risk as the duration and
ultimate realized yield are affected by the rate of repayment of the underlying
mortgages. The Company attempts to limit interest rate risk by purchasing MBS
where cost does not significantly exceed par value, and with repayment
protection to provide a more certain cash flow to the Company. At December 31,
1998, the amortized cost of the MBS portfolio was below par value by $2.4
million and over 23% of the MBS portfolio was invested in planned amortization
class bonds. This type of MBS is purchased to provide additional protection
against declining interest rates.
The Company closely monitors its fixed income portfolio for declines in
value that are other than temporary. Securities are placed on non-accrual status
when they are in default or when the receipt of interest payments is in doubt.
SHORT-TERM INVESTMENTS The Company's short-term investment portfolio was
$3.7 million and $1.0 million at December 31, 1998 and 1997, respectively. The
Company invests available cash balances primarily in taxable short-term
securities having a final maturity date or redemption date of one year or less.
CONTRACTHOLDER FUNDS AND REINSURANCE RECOVERABLE FROM ALIC Contractholder
funds increased $177.9 million and $185.0 million at December 31, 1998 and 1997,
respectively. Reinsurance recoverable from ALIC increased $200.3 million and
$188.0 million at December 31, 1998 and 1997, respectively. In 1998, the
increase in contractholder funds was due primarily to universal life-type
policies, as higher sales and interest credited to contractholders were
partially offset by surrenders and benefits paid on universal life-type
policies. Reinsurance recoverable from ALIC relates to contract benefit
obligations ceded to ALIC.
SEPARATE ACCOUNTS Separate Account assets and liabilities increased by
$315.8 million, primarily attributable to sales of flexible premium deferred
variable annuity and variable life contracts and favorable investment
performance of the Separate Accounts investment portfolios, partially offset by
variable annuity surrenders and withdrawals.
MARKET RISK
Market risk is the risk that the Company will incur losses due to adverse
changes in equity prices or interest rates. The Company's primary market risk
exposure is to changes in interest rates, although the Company also has certain
exposures to changes in equity prices.
INTEREST RATE RISK Interest rate risk is the risk that the Company will
incur economic losses due to adverse changes in interest rates, as the Company
invests substantial funds in interest-sensitive assets.
One way to quantify this exposure is duration. Duration measures the
sensitivity of the fair value of assets to changes in interest rates. For
example, if interest rates increase 1%, the fair value of an asset with a
duration of 5 years is expected to decrease in value by approximately 5%. At
December 31, 1998, the Company's asset duration was approximately 4.3 years, a
slight decrease from the 4.6 years reported for December 31, 1997.
To calculate duration, the Company projects asset cash flows and discounts
them to a net present value basis using a risk-free market rate adjusted for
credit quality, sector attributes, liquidity and other specific risks. Duration
is calculated by revaluing these cash flows at an alternative level of interest
rates, and determining the percentage change in fair value from the base case.
The projections include assumptions (based upon historical market and Company
specific experience) reflecting the impact of changing interest rates on the
prepayment and/or option features of instruments, where applicable. Such
assumptions relate primarily to mortgage-backed securities, collateralized
mortgage obligations, and municipal and corporate obligations.
Based upon the information and assumptions the Company uses in its
duration calculation and interest rates in effect at December 31, 1998,
management estimates that a 100 basis point immediate, parallel increase in
interest rates ("rate shock") would decrease the net fair value of its assets
identified above by approximately $6.8 million, an amount essentially unchanged
from the amount reported for December 31, 1997. The selection of a 100 basis
point immediate rate shock should not be construed as a prediction by the
Company's management of future market events; but rather, to illustrate the
potential impact of such an event.
To the extent that actual results differ from the assumptions utilized,
the Company's duration and rate shock measures could be significantly impacted.
Additionally, the Company's calculation assumes that the current relationship
between short-term and long-term interest rates (the term structure of interest
rates) will remain constant over time. As a result, these calculations may not
fully capture the impact of non-parallel changes in the term structure of
interest rates and/or large changes in interest rates.
EQUITY PRICE RISK Equity price risk is the risk that the Company will incur
economic losses due to adverse changes in equity prices. At December 31, 1998
the Company had variable annuity and variable life funds with balances totaling
$763.4 million. The Company earns mortality and expense fees as a percentage of
fund balance. In the event of an immediate decline of 10% in the fund balances
due to equity market declines, the Company would earn approximately $1.0 million
less in annualized fee income which would be ceded to ALIC.
CORPORATE OVERSIGHT In formulating and implementing policies for investing
new and existing funds, AIC, as indirect parent of the Company, administers and
oversees investment risk management processes primarily through three oversight
bodies: the Boards of Directors and Investment Committees of its operating
subsidiaries, and the Credit and Risk Management Committee ("CRMC"). The Boards
of Directors and Investment Committees provide executive oversight of investment
activities. The CRMC is a senior management committee consisting of the Chief
Investment Officer, the Investment Risk Manager, and other investment officers
who are responsible for the day-to-day management of market risk. The CRMC meets
at least monthly to provide detailed oversight of investment risk, including
market risk.
AIC has investment guidelines that define the overall framework for
managing market and other investment risks, including the accountabilities and
controls over these activities. In addition, AIC has specific investment
policies for each of its affiliates, including the Company, that delineate the
investment limits and strategies that are appropriate for the Company's
liquidity, surplus, product and regulatory requirements.
LIQUIDITY AND CAPITAL RESOURCES
Under the terms of reinsurance agreements, all premiums and deposits,
excluding those relating to Separate Accounts, are transferred primarily to
ALIC, which maintains the investment portfolios supporting the Company's
products. Payments of policyholder claims, benefits, contract maturities,
contract surrenders and withdrawals and certain operating costs are also
reimbursed primarily by ALIC, under the terms of the reinsurance agreements. The
Company continues to have primary liability as a direct reinsurer for risks
reinsured. The Company's ability to meet liquidity demands is dependent on
ALIC's ability to meet those demands. ALIC's claims-paying ability was rated
Aa2, AA+, and A+ by Moody's, Standard & Poor's and A.M. Best, respectively at
December 31, 1998.
The primary sources for the remainder of the Company's funds are
collection of principal and interest from the investment portfolio and capital
contributions from ALIC. The primary uses for the remainder of the Company's
funds are to purchase investments and pay costs associated with the maintenance
of the Company's investment portfolio.
At December 31, 1998, the Moody's and Standard and Poor's financial
strength ratings for the Company were Aa2 and AA+, respectively.
The NAIC has a standard for assessing the solvency of insurance companies,
which is referred to as risk-based capital ("RBC"). The requirement consists of
a formula for determining each insurer's RBC and a model law specifying
regulatory actions if an insurer's RBC falls below specified levels. The RBC
formula for life insurance companies establishes capital requirements relating
to insurance, business, asset and interest rate risks. At December 31, 1998, RBC
for the Company was significantly above levels that would require regulatory
actions.
YEAR 2000
The Company is dependent upon certain services provided for it by the
Corporation including computer-related systems, and systems and equipment that
are not typically thought of as computer-related (referred to as "non-IT"). For
this reason, the Company is reliant upon the Corporation for the establishment
and maintenance of its computer-related systems and non-IT.
The Corporation is heavily dependent upon complex computer systems for all
phases of its operations, including customer service, insurance processing,
underwriting, loss reserving, investments and other enterprise systems. Since
many of the Corporation's older computer software programs recognize only the
last two digits of the year in any date, some software may fail to operate
properly in or after the year 1999, if the software is not reprogrammed,
remediated, or replaced ("Year 2000"). Also, non-IT often contain embedded
hardware or software that may have a Year 2000 sensitive component. The
Corporation believes that many of its counterparties and suppliers also have
Year 2000 issues and non-IT issues which could affect the Corporation.
In 1995, the Corporation commenced a plan consisting of four phases which
are intended to mitigate and/or prevent the adverse effects of Year 2000 issues
on its systems: 1) inventory and assessment of affected systems and equipment,
2) remediation and compliance of systems and equipment through strategies that
include the replacement or enhancement of existing systems, upgrades to
operating systems already covered by maintenance agreements and modifications to
existing systems to make them Year 2000 compliant, 3) testing of systems using
clock-forward testing for both current and future dates and for dates which
trigger specific processing, and 4) contingency planning which will address
possible adverse scenarios and the potential financial impact to the
Corporation's results of operations, liquidity or financial position.
The Corporation believes that the first three steps of this plan,
assessment, remediation and testing, including clock-forward testing which is
being performed on the Corporation's systems and non-IT, are mostly complete for
the Corporation's critical systems. In April 1998, the Corporation announced its
main premium application system, ALERT, which manages more than 20 million auto
and homeowners policies is Year 2000 compliant. The Corporation is relying on
other remediation techniques for its midrange and personal computer
environments, and certain mainframe applications.
Certain investment processing systems, midrange computers and personal
computer environments are planned to be remediated by the middle of 1999, and
some systems and non-IT related to discontinued or non-critical functions of the
Corporation are planned to be abandoned by the end of 1999.
The Corporation is currently in the process of identifying key processes
and developing contingency plans in the event that the systems supporting these
key processes are not Year 2000 compliant at the end of 1999. Management
believes these contingency plans should be completed by mid-1999. Until these
plans are complete, management is unable to determine an estimate of the most
reasonably possible worst case scenario due to issues relating to the Year 2000.
In addition, the Corporation is actively working with its major external
counterparties and suppliers to assess their compliance efforts and the
Corporation's exposure to both their Year 2000 issues and non-IT issues. This
assessment has included the solicitation of external counterparties and
suppliers, evaluating responses received and testing third party interfaces and
interactions to determine compliance. Currently, the Corporation has solicited
approximately 1,500 and has received responses from approximately 75% of its
counterparties and suppliers. The Corporation will continue its efforts to
solicit responses on Year 2000 compliance from these parties. The majority of
these responses have stated that the counterparties and suppliers believe that
they will be Year 2000 compliant and that no transactions will be affected.
However, some key vendors have not provided affirmative responses to date. The
Corporation has also decided to test certain interfaces and interactions to gain
additional assurance on third party compliance. If key vendors are unable to
meet the Year 2000 requirement, the Corporation is preparing contingency plans
that will allow the Corporation to continue to sell its products and to service
its customers. Management believes these contingency plans should be completed
by mid-1999. The Corporation currently does not have sufficient information to
determine whether or not all of its external counterparties and suppliers will
be Year 2000 ready.
The Corporation is currently assessing the level of Year 2000 risk that is
associated with certain personal lines policies that have been issued. To date,
no changes have been made in the coverages provided by the Corporation's
personal auto and homeowners lines policies to specifically exclude coverage for
Year 2000 related claims. This does not mean that all losses, or any particular
type of loss, that might be related to Year 2000 will be covered. Rather, all
claims will continue to be evaluated on a case-by-case basis to determine
whether coverage is available for a particular loss in accordance with
applicable policy terms and conditions of the policy in force.
The Corporation also has investments which have been publicly or privately
placed. The Corporation may be exposed to the risk that the issuers of these
investments will be adversely impacted by Year 2000 issues. The Company assesses
the impact which Year 2000 issues have on the Corporation's investments as part
of due diligence for proposed new investments, and in its ongoing review of all
current portfolio holdings. Any recommended actions with respect to individual
investments are determined by taking into account the potential impact of Year
2000 on the issuer. Contingency plans are being created for any securities held
whose issuer is determined to not be Year 2000 compliant.
The Corporation presently believes that it will resolve the Year 2000
issue in a timely manner. Year 2000 costs are expensed as incurred, therefore
the majority of expenses related to this project have been incurred as of
December 31, 1998. The Corporation estimates that approximately $125 million in
costs will be incurred between the years of 1995 and 2000. These amounts include
costs directly related to fixing Year 2000 issues, such as modifying software
and hiring Year 2000 solution providers. These amounts also include costs to
replace certain non-compliant systems which would not have been otherwise
replaced. A portion of these costs will be incurred by the Company on a pro rata
basis of usage of the computer-related systems and non-IT, as compared to the
usage of all entities which share these services with the Corporation. These
amounts are not expected to be material to the results of operations of the
Company.
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 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.
FORWARD-LOOKING STATEMENTS
The statements contained in this Management's Discussion and Analysis that are
not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and The Securities Exchange Act of 1934 for forward-looking statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 1999
The following discussion highlights significant factors influencing results of
operations and changes in financial position of Lincoln Benefit Life Company
("LBL") and its wholly owned subsidiary, AFD, Inc. ("AFDI", formerly Allstate
Financial Distributors, Inc.) (collectively the "Company"). It should be read in
conjunction with the Company's consolidated financial statements and related
notes for the year ended December 31, 1998.
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"). The Company markets
life insurance and savings products through independent insurance agents and
brokers. Life insurance includes traditional life, such as term and whole life
insurance, as well as variable life and universal life products. Savings
products consist of fixed annuity products, including indexed and market value
adjusted annuities, as well as variable annuities. The Company has identified
itself as a single segment entity.
The assets and liabilities related to flexible premium deferred variable annuity
contracts and variable life policies are legally segregated and reflected as
Separate Account assets and liabilities and carried at fair value in the
consolidated statements of financial position. Investment income and realized
gains and losses of the Separate Accounts accrue directly to the contractholders
(net of fees) and, therefore, are not included in the Company's consolidated
statements of operations.
<TABLE>
<CAPTION>
Consolidated Results of Operations
($ in thousands) Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- ----------------------------------
1999 1998 1999 1998
--------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net investment
Income $ 2,727 $ 2,619 $ 5,386 $ 5,179
========== ========== ========== ==========
Realized capital gains
and losses, after-tax $ (267) $ $ (266) $ -
========== ========== ========== ==========
-
Net income $ 1,416 $ 1,725 $ 3,109 $ 3,392
========== ========== ========== ==========
Total investments $ 160,351 $ 156,904 $ 160,351 $ 156,904
========== ========== ========== ==========
</TABLE>
The Company has reinsurance agreements under which contract and policy related
transactions are transferred primarily to ALIC. The Company's consolidated
results of operations include only net investment income and realized capital
gains and losses earned on the assets of the Company that are not transferred
under the reinsurance agreements. The results of AFDI and certain non-investment
related expenses which are not transferred under the reinsurance agreements are
presented in other revenues and expenses.
Net income for the second quarter of 1999 and first half of 1999 was $1.4
million and $3.1 million, respectively compared to $1.7 million and $3.4 million
for the comparable periods in 1998. The decrease in net income for both periods
was primarily due to realized capital losses arising from the sales of
publicly-traded corporate bonds in the second quarter of 1999.
Pretax net investment income for the second quarter of 1999 increased 4.1% to
$2.7 million compared to $2.6 million for the same period last year. For the
first six months of 1999, pretax net investment income increased $207 thousand
to $5.4 million compared to $5.2 million for the same period in 1998. For both
periods higher investment balances from positive cash flows generated from
operations were offset by lower investment yields and higher investment
expenses. Investments at June 30, 1999, excluding Separate Accounts and
unrealized gains on fixed income securities, grew 6.0% from the same period last
year. Lower investment yields are due, in part, to the investment of proceeds
from calls and maturities and the investment of positive cash flows from
operations in the securities yielding less than the average portfolio rate. In
relatively low interest rate environments, funds from called or maturing
investments may be reinvested at interest rates lower than those which prevailed
when the funds were previously invested, resulting in lower investment yields.
<TABLE>
<CAPTION>
Financial Position
($ in thousands) June 30, December 31,
1999 1998
---------------- -------------------
<S> <C> <C> <C>
Fixed income securities (1) $ 144,746 $ 158,984
Short-term investments 15,605 3,675
----------- --------------
Total investments $ 160,351 $ 162,659
=========== ==============
Reinsurance recoverable from ALIC $ 7,162,569 $ 6,938,717
=========== ==============
Separate Account assets and liabilities $ 1,004,983 $ 763,416
=========== ==============
Contracholder funds $ 6,989,125 $ 6,785,070
=========== ==============
</TABLE>
(1) Fixed income securities are carried at fair value. Amortized cost for these
securities was $143,046 and $149,898 at June 30, 1999 and December 31,
1998, respectively.
Total investments were $160.4 million at June 30, 1999 compared to $162.7
million at December 31, 1998. Positive cash flows generated from operations were
more than offset by a decrease in unrealized capital gains on fixed income
securities. At June 30, 1999, unrealized net capital gains on fixed income
securities were $1.7 million compared to $9.1 million at December 31, 1998.
At June 30, 1999, all of the Company's fixed income securities portfolio is
rated investment grade, with a National Association of Insurance Commissioners
("NAIC") rating of 1 or 2, a Moody's rating of Aaa, Aa, A or Baa, or a
comparable Company internal rating.
Contractholder funds grew $204.1 million to $6.99 billion at June 30, 1999,
primarily due to increased sales of indexed and market value adjusted annuity
contracts and higher levels of interest credited to contractholder balances,
partially offset by fixed annuity surrenders and withdrawals. Reinsurance
recoverable from ALIC at June 30, 1999 was $7.16 billion versus $6.94 billion at
December 31, 1998. Reinsurance recoverable from ALIC relates to contract benefit
obligations ceded to ALIC.
Separate Account assets and liabilities increased $241.6 million to $1.0 billion
at June 30, 1999. The increase was primarily attributable to sales of flexible
premium deferred variable annuity contracts and the favorable investment
performance of the Separate Account investment portfolios.
Liquidity and Capital Resources
Under the terms of reinsurance agreements, all premiums and deposits, excluding
those relating to Separate Accounts, are transferred primarily to ALIC, which
maintains the investment portfolios supporting the Company's products. Payments
of policyholder claims, benefits, contract maturities, contract surrenders and
withdrawals and certain operating costs are also reimbursed primarily by ALIC,
under the terms of the reinsurance agreements. The Company continues to have
primary liability as a direct insurer for risks reinsured. The Company's ability
to meet liquidity demands is dependent on ALIC's ability to meet those demands.
ALIC's claim-paying ability was rated Aa2, AA+ and A+ by Moody's, Standard &
Poor's and A.M. Best, respectively, at June 30, 1999.
The primary sources for the remainder of the Company's funds are collections of
principal and interest from the investment portfolio and capital contributions
from ALIC. The primary uses for the remainder of the Company's funds are to
purchase investments and pay costs associated with the maintenance of the
Company's investment portfolio.
Year 2000
The Company is dependent upon certain services provided for it by the
Corporation including computer-related systems, and systems and equipment not
typically thought of as computer-related (referred to as "non-IT"). For this
reason, the Company is reliant upon the Corporation for the establishment and
maintenance of its computer-related systems and equipment and non-IT.
The Corporation is heavily dependent upon complex computer systems and equipment
for all phases of its operations, including product distribution, customer
service, insurance processing, underwriting, loss reserving, investments and
other enterprise systems. Since many 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,
remediated, or replaced ("Year 2000"). Also, non-IT contain embedded hardware or
software that may have a Year 2000 sensitive component. The Corporation believes
that many of its counterparties and suppliers also have Year 2000 issues and
non-IT issues which could affect the Corporation.
In 1995, the Corporation commenced a plan consisting of four phases which are
intended to mitigate and/or prevent the adverse effects of Year 2000 issues on
its systems and equipment: 1) inventory and assessment of affected systems and
equipment, 2) remediation and compliance of systems and equipment through
strategies that include the replacement or enhancement of existing systems,
upgrades to operating systems already covered by maintenance agreements and
modifications to existing systems to make them Year 2000 compliant, 3) testing
of systems and equipment using clock-forward testing for both current and future
dates and for dates which trigger specific processing, and 4) contingency
planning to address possible adverse scenarios and the potential financial
impact to the Corporation's results of operations, liquidity or financial
position.
The Corporation believes that the first three phases of this plan, assessment,
remediation and testing, including clock-forward testing which was performed on
the Corporation's systems and equipment and non-IT, are complete. It is expected
that the implementation and rollout of the remediated personal computer
environment will continue into fourth quarter of 1999. In addition, some systems
and equipment and non-IT related to discontinued or non-critical functions of
the Corporation are planned to be abandoned by the end of 1999.
The fourth phase of this plan, contingency planning, is currently in process.
Detailed plans have been created in the event that the systems and equipment or
major external counterparties and suppliers supporting critical processes are
not Year 2000 compliant in or after the year 1999. These plans, created by each
corporate function and business unit of the Corporation, identify and document
the risks associated with Year 2000 and their business processes. Appropriate
plans have been developed to mitigate those risks. A common inclusion in many of
the plans is a description of manual processes and personnel needed in the event
of a temporary Year 2000 failure. Contingency plans will be tested appropriately
by the corporate function or business unit for their effective operation and for
achieving their desired results. In addition, during the third quarter of 1999,
the Corporation's management is reviewing all corporate function and business
units' plans for accuracy and comprehensiveness. Monitoring of these plans will
continue throughout the end of 1999 and beyond, as needed.
The Corporation has considered numerous risk scenarios during the contingency
planning phase. Through this planning, management believes that the scenario
which could be considered the worst case, includes a widespread, prolonged
failure of public utility systems which would not only cause power outages for
the Corporation, but also cause telecommunication, banking or external
counterparty and supplier service outages. While the Corporation has assessed
and will continue to assess data on the utility, telecommunication and banking
industries, it acknowledges the possibility that a prolonged widespread outage
in any or all of these industries could lead to a worst case scenario. However,
the Corporation does not consider such prolonged widespread outages to be
reasonably likely. Therefore, the Corporation has focused its most reasonably
likely worst case scenario contingency planning on limited scale outages in
order to ensure the ability to deal with risks of likely scenarios. Because the
Corporation is prepared for outages on a localized basis as part of normal
business operations, the Corporation considers the impacts of this most
reasonably likely scenario to be immaterial to the Corporation's results of
operations, liquidity or financial position.
The Company markets products primarily through independent agencies, which are
independent of the Corporation, and have not been directly included in the
Corporation-wide four phase plan, and potentially may not be Year 2000 compliant
during or after the year 1999. Because the risk associated with this scenario is
diffused across thousands of appointed independent agencies, located throughout
the United States, using many different technologies, the impact on the
Company's results of operations, liquidity or financial condition is not
determinable.
In addition, the Corporation is actively working with its major external
counterparties and suppliers, including public utility companies and banks and
brokers involved in its distribution channel, to assess their compliance efforts
and the Corporation's exposure to both their Year 2000 issues and non-IT issues.
This assessment has included soliciting external counterparties and suppliers,
evaluating responses received and testing third party interfaces and
interactions to determine compliance. Currently the Corporation has solicited,
and has received responses from, the majority of its counterparties and
suppliers. These responses generally state that they believe they will be Year
2000 compliant and that no transactions will be affected. However, certain
vendors are also in ongoing assessment and testing of their products whereby
they are currently unable to identify all potential problems in certain products
which are used by the Corporation. The Corporation believes that these vendors
will make no statements regarding their Year 2000 readiness other than to
publish declarations addressing specific compliance issues identified with their
products. The Corporation is working with these key vendors and has procedures
in place to stay aware of any compliance issues encountered by these vendors.
The Corporation has also decided to test certain interfaces and interactions to
gain additional assurance on third party compliance. Currently, the Corporation
does not have sufficient information to determine whether all of its external
counterparties and suppliers will be Year 2000 compliant. If they are not Year
2000 compliant, the Corporation is unable to determine the impact of any
consequent losses on its results of operations, liquidity or financial position.
The Corporation may be exposed to the risk that the issuers of investments in
its portfolio will be adversely impacted by Year 2000 issues. The Corporation
assesses the impact which Year 2000 issues have on the Corporation's investments
as part of due diligence for proposed new investments and in its ongoing review
of all current portfolio holdings. Any recommended actions with respect to
individual investments are determined by taking into account the potential
impact of Year 2000 on the issuer. Based on its current review, the Corporation
believes that although Year 2000 issues may temporarily affect the market or
individual issuers, the potential impact of Year 2000 on its investment
portfolio will not be material.
The Corporation presently believes that it will resolve the Year 2000 issue in a
timely manner. Year 2000 costs are expensed as incurred. The majority of the
expenses related to this project have been incurred as of June 30, 1999. The
Corporation estimates that approximately $125 million in costs will be incurred
between the years of 1995 and 2000. These amounts include costs directly related
to fixing Year 2000 issues, such as modifying software and hiring Year 2000
solution providers, as well as costs incurred to replace certain non-compliant
systems which would not have been otherwise replaced. A portion of these costs
will be incurred by the Company on a pro rata basis of usage of the
computer-related systems and equipment and non-IT, as compared to the usage of
all entities which share these services with the Corporation. These amounts are
not expected to be material to the results of operations of the Company.
Forward-Looking Statements
The statements contained in this Management's Discussion and Analysis that are
not historical information are forward-looking statements that are based on
management's estimates, assumptions and projections. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor under The Securities Act of
1933 and the Securities Exchange Act of 1934 for forward-looking statements. In
order to comply with the terms of the safe harbor, the Company notes several
important factors that could cause the Company's actual results and experience
with respect to forward-looking statements to differ materially from the
anticipated results or other expectations expressed in the Company's
forward-looking statements:
1. The Corporation presently believes that it will resolve the Year 2000
issues affecting its computer operations in a timely manner, and that the
costs incurred between the years of 1995 and 2000 in resolving those issues
will be approximately $125 million. However, the extent to which the the
computer operations of the Corporation's external counterparties and
suppliers are adversely affected could, in turn, affect the Corporation's
ability to communicate with such counterparties and suppliers, could
increase the cost of resolving the Year 2000 issues, and could materially
affect the Corporation's results of operations, liquidity and financial
condition in any period or periods.
COMPETITION. Lincoln Benefit is engaged in a business that is highly
competitive. Many other life insurance companies and other entities sell
insurance and annuities. There are approximately 1,700 insurers in business in
the United States. As of April 1, 1998, A.M. Best Company assigns a rating of A+
(Superior) to Allstate Life, which automatically reinsures all net general
account business of Lincoln Benefit. A.M. Best Company also assigns Lincoln
Benefit a rating of A+(r), because Lincoln Benefit automatically reinsures all
general account business with Allstate Life. Standard & Poor's Insurance Rating
Services assigns an AA+ (Very Strong) to Lincoln Benefit's financial strength
rating. Moody's assigns an Aa2 (Excellent) financial stability rating to Lincoln
Benefit. Lincoln Benefit shares the same ratings as its parent, Allstate Life.
EMPLOYEES. As of December 31, 1998, Lincoln Benefit had approximately 571
employees at its home office in Lincoln, Nebraska.
PROPERTIES. Lincoln Benefit owns and leases office space in Lincoln, Nebraska.
The combined owned and leased spaces are used for home office administrative
operations.
EXECUTIVE OFFICERS AND DIRECTORS OF LINCOLN BENEFIT. Our directors and executive
officers are listed below, together with information as to their ages, dates of
election and principal business occupations during the last five years (if other
than their present occupation).
JANET P. ANDERBERY, VICE PRESIDENT AND CONTROLLER, 1994, Associate Vice
President and Controller 5/84-4/94, Lincoln Benefit Life Company; Vice President
and Controller 1/94-present, Surety Life Insurance Company; Vice President &
Controller 1/99-present, Allstate Financial Distributors; Vice President and
Controller 5/93-1/99, Lincoln Benefit Financial Services, Inc.
THOMAS R. ASHLEY, SENIOR VICE PRESIDENT & MEDICAL DIRECTOR, 1998, Vice President
and Medical Director 10/96-5/98 Lincoln Benefit Life Company; Senior Vice
President & Medical Director 5/98-present, Vice President and Medical Director
1/97-5/98, Surety Life Insurance Company.
THOMAS J. BERNEY, SENIOR VICE PRESIDENT 1998, Vice President 1982-1998 Lincoln
Benefit Life Company.
JOHN H. COLEMAN, III, SENIOR VICE PRESIDENT, DIRECTOR, 1998-present, Vice
President 4/94-5/98, Lincoln Benefit Life Company; Senior Vice President,
Director 5/98-present, Vice President 9/96-5/98, Surety Life Insurance Company.
LAWRENCE W. DAHL, EXECUTIVE VICE PRESIDENT, DIRECTOR 1999, Lincoln Benefit Life
Company; Executive Vice President, Director 1999, Surety Life Insurance Company;
Tax Director, 2/87-6/99, Allstate Life Insurance Company.
MARVIN P. EHLY, SENIOR VICE PRESIDENT AND TREASURER, DIRECTOR, 1999; Vice
President 6/93-12/98, Lincoln Benefit Life Company; Senior Vice President and
Treasurer, Director 1/99-present, Surety Life Insurance Company.
DOUGLAS F. GAER, EXECUTIVE VICE PRESIDENT 1997, DIRECTOR, 1981, Senior Vice
President, 4/95-2/97, Senior Vice President and Treasurer 4/94-3/95, Vice
President 3/81-4/94, Lincoln Benefit Life Company; Executive Vice President
1/97-present, Senior Vice President and Treasurer, 1/94-12/96, Director
1/94-present, Surety Life Insurance Company; Director 5/93-1/99, Lincoln Benefit
Financial Services, Inc.
LOUIS G. LOWER, II, DIRECTOR, 1989, Chairman of the Board 5/89-12/98, Lincoln
Benefit Life Company; Chairman of the Board and Chief Executive Officer
6/95-present, Chairman of the Board & President, 4/92-6/95, Glenbrook Life &
Annuity Company; Chairman of the Board and Chief Executive Officer
12/95-present, Chairman of the Board & President 1/91-12/95, Director
9/90-present, Glenbrook Life Insurance Company; President 1/90-present, Director
10/86-present, Allstate Life Insurance Company; Chairman of the Board and Chief
Executive Officer 6/95-present, Chairman of the Board and President 4/90-6/95,
Chairman of the Board 4/90-7/90, Executive Vice President 1/89-4/90, Senior Vice
President and Treasurer 10/86-4/89, Director 4/86-present, Northbrook Life
Insurance Company; Chairman of the Board & President 6/90-present, Director
12/83-present, Allstate Life Insurance Company of New York; Chairman of the
Board & Chief Executive Officer 3/90-present, Director 5/89-present, Surety Life
Insurance Company; Director 10/86-present Allstate Insurance Company; Director
4/90-present, Allstate Settlement Company; Director 5/91-present, Allstate Life
Financial Services.
JOHN J. MORRIS, SENIOR VICE PRESIDENT/SECRETARY 1994, DIRECTOR, 1987, Vice
President & Secretary 8/85-4/94, Lincoln Benefit Life Company; Senior Vice
President 9/96-present, Director 6/95-present, Surety Life Insurance Company;
Vice President & Secretary, Director 5/93-1/99, Lincoln Benefit Financial
Services Inc.
ROBERT E. RICH, EXECUTIVE VICE PRESIDENT 1996, DIRECTOR, 1987, Senior Vice
President/Chief Actuary and Treasurer, 4/95-5/96; Senior Vice President,
Assistant Secretary 4/94-3/95, Vice President/Assistant Secretary 1/84-5/96,
Lincoln Benefit Life Company; Executive Vice President 5/96-present, Senior Vice
President and Chief Actuary 1/94-5/96, Director 9/93-present, Surety Life
Insurance Company; Director 5/93-1/99, Lincoln Benefit Financial Services, Inc.
KEVIN R. SLAWIN, DIRECTOR, 1996, Lincoln Benefit Life Company; Director and Vice
President-Finance and Planning 1996-present, Allstate Life Insurance Company;
Director 8/96-present, Allstate Life Insurance Company of New York; Director
8/96-present, Laughlin Group Holdings, Inc.; Director 8/96-present, Northbrook
Life Insurance Company; Director 8/96-present, Surety Life Insurance Company;
Director 8/96-present, Glenbrook Life Insurance Company; Assistant Vice
President, Assistant Treasurer 1/95-8/96, Allstate Insurance Company; Assistant
Treasurer and Director 2/94-1/95, Sears Roebuck & Co.
J. SCOTT TAYLOR, SENIOR VICE PRESIDENT, 1999, Vice President 9/98-3/99, Director
of Sales Management 1/97-9/98, Lincoln Benefit Life Company; Director of
Marketing Development 1984-1997 Ameritas Life Insurance Corp.
MICHAEL J. VELOTTA, DIRECTOR 1992, Lincoln Benefit Life Company; Vice President,
Secretary & General Counsel 1/93-present, Director 12/92-present, Allstate Life
Insurance Company; Vice President, Secretary & General Counsel 1/93-present,
Director 12/92-present, Glenbrook Life Insurance Company; Vice President,
Secretary & General Counsel 1/93-present, Director 12/92-present, Glenbrook Life
& Annuity Company; Vice President, Secretary & General Counsel 1/93-present,
Director 12/92-present, Allstate Life Insurance Company of New York; Vice
President, Secretary & General Counsel 1/93-present, Director 12/92-present,
Northbrook Life Insurance Company; Assistant Secretary, Director 6/95-present,
Surety Life Insurance Company.
CAROL S. WATSON, SENIOR VICE PRESIDENT, GENERAL COUNSEL AND ASSISTANT SECRETARY
1994, DIRECTOR, 1992, Vice President & General Counsel 7/91-4/94, Lincoln
Benefit Life Company; Senior Vice President, General Counsel & Corporate
Secretary 1/98-present, Senior Vice President, General Counsel and Assistant
Secretary, 1/94-12/97, Director 6/95-present, Surety Life Insurance Company;
President, 1996-1/99, Director 5/93-1/99, Vice President and General Counsel
1993-1995, Lincoln Benefit Financial Services, Inc.
DEAN M. WAY, SENIOR VICE PRESIDENT AND ACTUARY, DIRECTOR, 1998, Vice President
and Actuary 5/92-5/98, Lincoln Benefit Life Company; Senior Vice President and
Actuary, Director, 5/98-present, Vice President and Actuary 9/96-5/98, Surety
Life Insurance Company.
THOMAS J. WILSON, II, DIRECTOR, 1999, Lincoln Benefit Life Company; Director
1/99-present, Surety Life Insurance Company; Senior Vice President, Director
6/95-present, Vice President 1/95-6/95, Allstate Insurance Company; Senior Vice
President, Director 7/96-present, Allstate Holdings, Inc.; President
1/99-present, Director 9/95-present, Allstate Life Insurance Company; President
12/98-present, Director 1/99-present, Allstate Life Insurance Company of New
York; Senior Vice President 6/95-present, Director 7/95-present, Allstate
Property and Casualty Insurance Company; Vice President 1/95-1/99, The Allstate
Corporation; Vice President 1993-1995, Sears, Roebuck & Company.
PATRICIA W. WILSON, DIRECTOR, 1997, Lincoln Benefit Life Company; Assistant Vice
President/Assistant Secretary/Assistant Treasurer, 7/97-present, Assistant Vice
President 1/93-7/97, Allstate Life Insurance Company; Assistant Vice President
6/91-present, Director 6/97-present, Allstate Life Insurance Company of New
York; Assistant Treasurer 7/97-present, Glenbrook Life Insurance Company;
Assistant Treasurer 7/97-present, Glenbrook Life Annuity Company; Assistant Vice
President/Assistant Secretary/Assistant Treasurer 7/97-present, Northbrook Life
Insurance Company; Director 7/97-present, Surety Life Insurance Company.
B. EUGENE WRAITH, PRESIDENT, CHIEF OPERATING OFFICER 1996, DIRECTOR, 1984,
President and Chief Operating Officer 3/96-present, Senior Vice President
4/94-3/96, Lincoln Benefit Life Company; President and Chief Operating Officer
3/96-present, Executive Vice President 1/94-3/96, Director 9/93-present, Surety
Life Insurance Company; Chairman of the Board, Director 1993-1/99, President
5/93-11/96, Lincoln Benefit Financial Services, Inc.; Vice President
3/96-present, Allstate Life Insurance Company.
EXECUTIVE COMPENSATION
Certain executive officers of Lincoln Benefit also serve as officers of Allstate
Life and receive no compensation directly from Lincoln Benefit. Some officers
also serve as executive officers of other companies affiliated with Lincoln
Benefit. Allocations have been made as to each individual's time devoted to his
or her duties as an executive officer of Lincoln Benefit. Those allocations are
reflected in the Summary Compensation Table set forth below, except that the
figures for Mr. Lower reflect his total compensation from Lincoln Benefit, its
affiliates, and parent company Allstate Life Insurance Company. Lincoln
Benefit's directors receive no compensation for serving as directors, in
addition to their compensation as employees at Lincoln Benefit, Allstate Life,
or their affiliates.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
LONG TERM COMPENSATION
----------------------------------
PAYOUTS
AWARDS ------------
ANNUAL COMPENSATION --------------
----------------------------- (f) (g)
(a) (e) ------------ --------- (h) (i)
- -------------------------- (b) (c) (d) -------------- SECURITIES UNDERLYING --------- -------------
NAME AND PRINCIPAL ----- --------- --------- OTHER ANNUAL RESTRICTED OPTIONS/ LTIP ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARS(#) PAYOUTS($) COMPENSATION(1)
- -------------------------- ----- --------- --------- -------------- ------------ --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Louis G. Lower II 1998 $ 458,700 $ 503,309 $ 25,064 55,417 $ 8,000
Chief Executive Officer 1997 $ 453,225 $ 500,000 $ 27,768 $280,589 25,914 $570,068 $ 8,000
Chairman of the Board 1996 $ 436,800 $ 246,781 $ 10,246 0 18,258 0 $ 5,250
----- --------- --------- ------- ------------ --------- --------- ------
Bernard Eugene Wraith 1998 104,500 32,744 10,156 4,083 $ 8,000
President 1997 99,500 24,733 4,887 0 1,002 0 $ 8,000
1996 90,750 26,500 10,435 0 14,275 0 $ 5,250
----- --------- --------- ------- ------------ --------- --------- ------
Robert Edwin Rich 1998 83,114 16,681 19,800 2,175 $ 8,000
Executive Vice President 1997 77,772 20,206 18,461 0 456 0 $ 8,000
and Chief Actuary 1996 71,824 23,500 19,611 0 132 0 $ 5,250
----- --------- --------- ------- ------------ --------- --------- ------
Thomas Robert Ashley 1998 151,742 15,574 5,959 1,212 $ 8,000
Senior Vice President 1997 141,733 25,000 6,550 0 0 $ 8,000
1996 23,502 0 0 0 0
----- --------- --------- ------- ------------ --------- --------- ------
John H. Coleman, III 1998 119,146 23,505 10,391 966 $ 7,133
Senior Vice President 1997 109,776 28,620 12,709 0 960 0 $ 6,633
1996 101,088 25,500 3,047 0 378 0 $ 4,238
</TABLE>
- ------------------------
(1) Amounts received represent the value allocated to each employee's account
from employer contributions under The Savings and Profit Sharing Fund of
Allstate Employees.
Shares of the Company and Allstate Life are not directly owned by any of our
directors or executive officers. The percentage of shares of The Allstate
Corporation beneficially owned by any director, and by all of our directors and
executive officers as a group does not exceed one percent of the class
outstanding.
STATE REGULATION OF LINCOLN BENEFIT. We are subject to the laws of Nebraska and
regulated by the Nebraska Department of Insurance. Every year we file an annual
statement with the Department of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Department of Insurance to verify our contract
liabilities and reserves. We also are examined periodically by the NAIC. Our
books and records are subject to review by the Department of Insurance at all
times. We are also subject to regulation under the insurance laws of every
jurisdiction in which we operate.
SEPARATE ACCOUNT. Lincoln Benefit Life Variable Annuity Account was originally
established in 1992, as a segregated asset account of Lincoln Benefit. The
Separate Account meets the definition of a "separate account" under the federal
securities laws and is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940. The SEC does not supervise the management of
the Separate Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Contract
Value of the Contracts offered by this prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains, or losses. Our obligations arising under the
Contracts are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Subaccounts. The assets of each Subaccount
are invested in the shares of one of the Portfolios. We do not guarantee the
investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account and the amount of Variable
Annuity payments will rise and fall with the values of shares of the Portfolios
and are also reduced by Contract charges. We may also use the Separate Account
to fund our other annuity contracts. We will account separately for each type of
annuity contract funded by the Separate Account.
We have included additional information about the Separate Account in the
Statement of Additional Information. You may obtain a copy of the Statement of
Additional Information by writing to us or calling us at 1-800-525-9287. We have
reproduced the Table of Contents of the Statement of Additional Information on
page [ ] below.
ADMINISTRATION
We have primary responsibility for all administration of the Contracts and the
Separate Account. Our mailing address is P.O. Box 82532, Lincoln, Nebraska
68501-2532.
We provide the following administrative services, among others: issuance of the
Contracts; maintenance of Contract Owner records; Contract Owner services;
calculation of unit values; maintenance of the Separate Account; and preparation
of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least
quarterly. You should notify us promptly in writing of any address change. You
should read your statements and confirmations carefully and verify their
accuracy. You should contact us promptly if you have a question about a periodic
statement. We will investigate all complaints and make any necessary adjustments
retroactively, but you must notify us of a potential error within a reasonable
time after the date of the questioned statement. If you wait too long, we will
make the adjustment as of the date that we receive notice of the potential
error.
We will also provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
MARKET TIMING AND ASSET
ALLOCATION SERVICES
Certain third parties offer market timing and asset allocation services in
connection with the Contracts. In certain situations, we will honor transfer
instructions from third party market timing and asset allocation services if
they comply with our administrative systems, rules and procedures, which we may
modify at any time. PLEASE NOTE that fees and charges assessed for third party
market timing and asset allocation services are separate and distinct from the
Contract fees and charges set forth herein. We neither recommend nor discourage
the use of market timing and asset allocation services.
DISTRIBUTION OF CONTRACTS
The Contracts described in this prospectus are sold by registered
representatives of broker-dealers who are our licensed insurance agents, either
individually or through an incorporated insurance agency. Commissions paid to
broker-dealers may vary, but we estimate that the total commissions paid on all
Contract sales will not exceed 5.5% 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 and other cash bonuses to broker-dealers who maintain
certain sales volume levels. We do not pay commission on Contract sales to our
employees, our affiliate Surety Life Insurance Company employees, or their
spouses or minor children if these individuals reside in the State of Nebraska.
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. ALFS is a registered broker dealer under the Securities and
Exchange Act of 1934, as amended, and is a member of the National Association of
Securities Dealers, Inc.
Lincoln Benefit does not pay ALFS a commission for distribution of the
Contracts. The underwriting agreement with ALFS provides that we will reimburse
ALFS for expenses incurred in distributing the Contracts, including liability
arising out of services we provide on the Contracts.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Lincoln
Benefit and its subsidiaries are engaged in routine law suits which, in our
management's judgment, are not of material importance to their respective total
assets or material with respect to the Separate Account.
LEGAL MATTERS
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 St., East Lobby-Suite 400, Washington, D.C. 20007-0805.
EXPERTS
The consolidated financial statements and related financial statement schedule
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 prospectus have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and are included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, under the Securities Act of
1933 as amended, with respect to the Contracts offered by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits filed as part of the registration statement. You
should refer to the registration statement and the exhibits for further
information concerning the Separate Account, Lincoln Benefit, and the Contracts.
The descriptions in this prospectus of the Contracts and other legal instruments
are summaries. You should refer to those instruments as filed for the precise
terms of those instruments. You may inspect and obtain copies of the
registration statement as described on the cover page of this prospectus.
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION
The Contract....................................................
Annuity Payments............................................
Initial Monthly Annuity Payment.............................
Subsequent Monthly Payments.................................
Transfers After Annuity Date................................
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>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of Lincoln Benefit Life Company:
We have audited the accompanying consolidated statements of Financial Position
of Lincoln Benefit Life Company and subsidiary (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
<TABLE>
<CAPTION>
December 31,
($ in thousands) 1998 1997
---- ----
<S> <C> <C>
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.
</TABLE>
F-2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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.
</TABLE>
F-3
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
December 31,
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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 losses 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.
</TABLE>
F-4
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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 activities 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 Company $ - $ (10) $ (2,533)
========== ======== ========
</TABLE>
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.
<TABLE>
<CAPTION>
Year ended December 31,
($ in thousands) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
Amortized Gross Unrealized Fair
cost Gains Losses value
<S> <C> <C> <C> <C>
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
========== ======= ======== ===========
</TABLE>
Scheduled maturities
The scheduled maturities for fixed income securities are as follows at December
31, 1998:
<TABLE>
<CAPTION>
Amortized Fair
cost value
<S> <C> <C>
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
=========== ==========
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
Net investment income
Year ended December 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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
=========== =========== ===========
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in thousands)
Realized capital gains and losses
<S> <C> <C> <C>
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
============= ============= =============
</TABLE>
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>
Cost/ Gross unrealized 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>
<TABLE>
<CAPTION>
Change in unrealized net capital gains and losses
Year ended December 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
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)
======= ======= =======
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
---- ----
Carrying Fair Carrying Fair
value value value value
<S> <C> <C> <C> <C>
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
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
---- ----
Carrying Fair Carrying Fair
value value value value
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 5,220,485 $ 5,006,124 $ 5,188,474 $ 4,941,732
Separate Accounts 763,416 763,416 447,658 447,658
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
6. Income Taxes
The Company joins the Corporation and its other eligible domestic subsidiaries
(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:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
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)
======== ========
</TABLE>
The components of the income tax expense for the year ended at December 31, are
as follow:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<C> <S> <S> <S>
Current $ 3,262 $ 4,321 $ 3,082
Deferred 442 (586) (62)
----------- ----------- ----------
Total income tax expense $ 3,704 $ 3,735 $ 3,020
======= ======= ========
</TABLE>
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
$1,128 at December 31, 1998 and 1997, respectively.
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other .7 .3 .1
------- ------ ------
Effective income tax rate 35.7% 35.3% 35.1%
======== ======== ========
</TABLE>
F-13
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ 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 $1,100 in
anticipation of terminating a particular lease, included in the table above, for
office space which is expected to be vacated by the end of 1999.
Regulation and legal proceedings
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulation, controls on medical care costs,
removal of barriers preventing banks from engaging in securities and insurance
business, tax law changes affecting the taxation of insurance companies, and tax
treatment of insurance products and its impact on the relative desirability of
various personal investment vehicles, and proposed legislation to prohibit the
use of gender in determining insurance rates and benefits. The ultimate changes
and eventual effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
F-15
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ 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:
<TABLE>
<CAPTION>
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)
<TABLE>
<CAPTION>
Gross Net
Year Ended December 31, 1998 amount Ceded amount
- ---------------------------- ------ ----- ------
<S> <C> <C> <C>
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 $ -
=========== =========== =============
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
UNAUDITED
June 30, December 31,
1999 1998
---------------------------- ----------------------------
<S> <C> <C>
($ in thousands) (Unaudited)
Assets
Investments
Fixed income securities at fair value
(amortized cost $143,046 and $149,898) $ 144,746 $ 158,984
Short-term 15,605 3,675
------- -----
Total investments 160,351 162,659
Cash 1,115 1,735
Reinsurance recoverable from
Allstate Life Insurance Company 7,162,569 6,938,717
Reinsurance recoverable from non-affiliates 231,846 191,092
Receivable from affiliates, net 51,962 37,073
Other assets 26,989 25,286
Separate Accounts 1,004,983 763,416
---------- -------
Total assets $ 8,639,815 $ 8,119,978
============ ============
Liabilities
Reserve for life-contingent contract benefits $ 395,602 $ 338,069
Contractholder funds 6,989,125 6,785,070
Current income taxes payable 5,308 3,659
Deferred income taxes 2,982 5,546
Other liabilities and accrued expenses 83,729 64,440
Separate Accounts 1,004,983 763,416
---------- -------
Total liabilities 8,481,729 7,960,200
---------- ---------
Commitments and Contingent Liabilities (Note 4)
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 37,731 34,622
Accumulated other comprehensive income:
Unrealized net capital gains 1,105 5,906
------ -----
Total accumulated other comprehensive 1,105 5,906
------ -----
income
Total shareholder's equity 158,086 159,778
-------- -------
Total liabilities and shareholder's $ 8,639,815 $ 8,119,978
equity ============ ===========
See notes to consolidated financial statements.
</TABLE>
F-18
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------- -------------------------------------
($ in thousands) 1999 1998 1999 1998
---------------- ---------------- ----------------- ------------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues
Net investment income $ 2,727 $ 2,619 $ 5,386 $ 5,179
Realized capital gains and losses (410) - (409) -
Other income (expense) (153) 35 (191) 54
----- ----- ----- ------
Income from operations before
income tax 2,164 2,654 4,786 5,233
Income tax expense 748 929 1,677 1,841
---- ---- ------ -----
Net income $ 1,416 $ 1,725 $ 3,109 $ 3,392
========= ======== ========= =======
See notes to consolidated financial statements.
F-19
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
Six Months Ended
June 30,
-------------------------------------------
($ in thousands) 1999 1998
------------------- --------------
(Unaudited)
Cash flows from operating activities
Net income $ 3,109 $ 3,392
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, amortization and other non-cash items 7 -
Realized capital gains and losses 409 -
Changes in:
Reserve for life-contingent contract benefits and
contractholder funds (3,018) (6,728)
Income taxes payable 1,670 7,500
Other operating assets and liabilities 1,337 55,546
----- ------
Net cash provided by operating activities 3,514 59,710
----- ------
Cash flows from investing activities
Fixed income securities
Proceeds from sales 9,193 -
Investment collections 8,397 4,163
Investments purchases (9,805) (6,200)
Change in short-term investments, net (11,919) (4,846)
Net cash used in investing activities (4,134) (6,883)
Net (decrease) increase in cash (620) 52,827
Cash at the beginning of year 1,735 4,220
------ ------
Cash at end of year $ 1,115 $ 57,047
============ ==============
</TABLE>
See notes to consolidated financial statements.
F-20
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
1. Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Lincoln Benefit Life Company ("LBL") and its wholly owned subsidiary, AFD
Inc., (formerly Allstate Financial Distributors, Inc.) 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.
The consolidated financial statements and notes as of June 30, 1999 and
for the three month and six month periods ended June 30, 1999 and 1998 are
unaudited. The consolidated financial statements reflect all adjustments
(consisting only of normal recurring accruals) which are, in the opinion
of management, necessary for the fair presentation of the financial
position, results of operations and cash flows for the interim periods.
The consolidated financial statements and notes should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Lincoln Benefit Life Company Annual Report on Form 10K for
1998. The results of operations for the interim periods should not be
considered indicative of results to be expected for the full year.
Effective January 1, 1999, the Company adopted Statement of Position
("SOP") 97-3, "Accounting by Insurance and Other Enterprises for
Insurance-Related Assessments." The SOP provides guidance concerning when
to recognize a liability for insurance-related assessments and how those
liabilities should be measured. Specifically, insurance-related
assessments should be recognized as liabilities when all of the following
criteria have been met: 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 adoption of this statement was
immaterial to the Company's results of operations and financial position.
To conform with the 1999 presentation, certain amounts in the prior years'
consolidated financial statements and notes have been reclassified.
2. Reinsurance
The Company has reinsurance agreements whereby premiums, contract charges,
credited interest, policy benefits and certain expenses are ceded,
primarily to ALIC and reflected net of such reinsurance in the
consolidated statements of operations. The amounts shown in the Company's
consolidated statements of operations 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
F-21
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
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 is not included in
the Company's financial statements as those assets are owned and managed
under the terms of reinsurance agreements. The following amounts were
ceded to ALIC under reinsurance agreements.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- -------------------------------
($ in thousands) 1999 1998 1999 1998
--------------- ------------- ------------ ---------------
<S> <C> <C> <C> <C>
Premiums $ 16,541 $ 8,815 $ 29,924 $ 17,963
Contract charges 29,041 25,307 60,938 49,876
Credited interest, policy
benefits, and expenses 182,651 165,134 349,939 288,232
</TABLE>
F-22
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
3. Comprehensive Income
The components of other comprehensive income on a pretax and after-tax
basis are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
------------------------------------------------------------------------------
($ in thousands) 1999 1998
-------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
After- After-
Pretax Tax tax Pretax Tax tax
Unrealized capital
gains and losses:
--------------------------------
Unrealized holding
(losses) gains arising
during the period $ (4,630) $ 1,620 $(3,010) $ 895 $ (313) $ 582
Less: reclassification
adjustment for realized
net (losses) included in
net income (410) 143 (267) - - -
-------- -------- --------- ------- -------- ------
Unrealized net capital
(losses) gains (4,220) 1,477 (2,743) 895 (313) 582
------- -------- --------- ------- -------- ------
Other comprehensive
(loss) income $(4,220) $ 1,477 (2,743) $ 895 $ (313) 582
======= ======= ======= =======
Net income 1,416 1,725
----- -----
Comprehensive
(loss) income $(1,327) $2,307
======= ======
</TABLE>
F-23
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
<TABLE>
<CAPTION>
3. Comprehensive Income (continued)
Six Months Ended June 30,
---------------------------------------------------------------------------------
($ in thousands) 1999 1998
-------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
After- After-
Pretax Tax tax Pretax Tax tax
Unrealized capital
gains and losses:
--------------------------------
Unrealized holding
(losses) gains arising
during the period $ (7,795) $ 2,728 $(5,067) $ 918 $ (321) $ 597
Less: reclassification
adjustment for realized
net capital gains
(losses) included in
net income (409) 143 (266) - - -
------- ------ -------- --------- --------- --------
Unrealized net capital
(losses) gains (7,386) 2,585 (4,801) 918 (321) 597
------ ------ -------- --------- --------- --------
Other comprehensive
(loss) income $ (7,386) $ 2,585 (4,801) $ 918 $ (321) 597
======= ======= ======= =======
Net income 3,109 3,392
----- --------
Comprehensive
(loss) income $(1,692) $ 3,989
======= =======
</TABLE>
4. Regulation and Legal Proceedings
The Company is subject to the effects of a changing social, economic and
regulatory environment. Public and regulatory initiatives have varied and
have included efforts to adversely influence and restrict premium rates,
restrict the Company's ability to cancel policies, impose underwriting
standards and expand overall regulation. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
Various other legal and regulatory actions are currently pending that
involve the Company and specific aspects of its conduct of business. In the
opinion of management, the ultimate liability, if any, in one or more of
these actions in excess of amounts currently reserved is not expected to
have a material effect on the results of operations, liquidity or financial
position of the Company.
F-24
<PAGE>
APPENDIX A
PORTFOLIOS AND PERFORMANCE DATA
PERFORMANCE DATA
From time to time the Separate Account may advertise the PIMCO 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 PIMCO Money Market Subaccount refers to the net income earned by
the Subaccount over the seven-day period stated in the advertisement. This
income is then "annualized." That is, the amount of income earned during that
week is assumed to be generated each week over a 52-week period and is shown as
a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by the investment is assumed to be
reinvested at the end of each seven-day period. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital gains or losses that might have occurred
during the seven day period, nor do they reflect the impact of any premium tax
charge or Withdrawal Charges. The impact of other, recurring charges on both
yield figures is, however, reflected in them to the same extent it would affect
the yield (or effective yield) for a Contract of average size.
In addition, the Separate Account may advertise an annualized 30-day (or one
month) yield figure for Subaccounts other than the PIMCO Money Market
Subaccount. These yield figures are based upon the actual performance of the
Subaccount over a 30-day (or one month) period ending on a date specified in the
advertisement. Like the money market yield data described above, the 30-day (or
one month) yield data will reflect the effect of all recurring Contract charges,
but will not reflect any Withdrawal Charges or premium tax charge. The yield
figure is derived from net investment gain (or loss) over the period expressed
as a fraction of the investment's value at the end of the period.
The Separate Account may also advertise standardized and non-standardized "total
return" data for its Subaccounts. Like the yield figures described above, total
return figures are based on historical data and are not intended to indicate
future performance. The standardized "total return" compares the value of a
hypothetical investment made at the beginning of the period to the value of the
same hypothetical investment at the end of the period. Standardized total return
figures reflect the deduction of any Withdrawal Charge that would be imposed
upon a complete redemption of the Contract at the end of the period. Recurring
Contract charges are reflected in the standardized total return figures in the
same manner as they are reflected in the yield data for Contracts funded through
the Money Market Subaccount.
In addition to the standardized "total return," the Separate Account may
advertise non-standardized "total return." Non-standardized total return is
calculated in a similar manner and for the same time periods as the standardized
total return except that the Withdrawal Charge is not deducted. Further, we
assumed an initial hypothetical investment of $50,000, because $50,000 is closer
to the average Purchase Payment of a Contract which we expect to write.
Standardized total return, on the other hand, assumes an initial hypothetical
investment of $1,000.
The Separate Account may also disclose yield and non-standardized total return
for time periods before the date the Separate Account commenced operations. In
this case, performance data for the Subaccounts is calculated based on the
performance of the Portfolios and assumes that the Subaccounts existed during
the same time period as the Portfolios, with recurring Contract charges equal to
those currently assessed against the Subaccounts.
Our advertisements may also compare the performance of our Subaccounts with: (a)
certain unmanaged market indices, including but the Dow Jones Industrial
Average, the Standard & Poor's 500, and the Shearson Lehman Bond Index; and/or
(b) other management investment companies with investment objectives similar to
the underlying funds being compared. Our advertisements also may include the
performance ranking assigned by various publications, including the Wall Street
Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today, and
statistical services, including Lipper Analytical Services Mutual Fund Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey,
and SEI.
The Contract charges are described in more detail on pages [ ]. We have
described the computation of advertised performance data for the Separate
Account in more detail beginning on page [ ] of the Statement of Additional
Information.
<PAGE>
APPENDIX B
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Purchase Payment: $40,000.00
Credit Enhancement: 1,600.00
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
5-year Treasury Rate at
Time of Purchase Payment: 6%
The following examples illustrate how the Market Value Adjustment and the
Withdrawal Charge may affect the values of a Contract upon a withdrawal. The 5%
assumed Guaranteed Interest Rate is the rate required to be used in the "Summary
of Expenses." In these examples, the withdrawal occurs one year after (in the
second Contract Year) the Issue Date. The Market Value Adjustment operates in a
similar manner for transfers, except that there is no free amount for transfers.
No Withdrawal Charge applies to transfers.
Assuming that the entire $40,000.00 Purchase Payment and $1,600.00 Credit
Enhancement are allocated to the Guaranteed Maturity Fixed Account for the
Guarantee Period specified above, at the end of the five-year Guarantee Period
the Contract Value would be $53,093.31. After one year, when the withdrawals
occur in these examples, the Contract Value would be $43,680.00. We have assumed
that no prior partial withdrawals or transfers have occurred.
The Market Value Adjustment and the Withdrawal Charge only apply to the portion
of a withdrawal that is greater than the Free Withdrawal Amount. Accordingly,
the first step is to calculate the Free Withdrawal Amount.
The Free Withdrawal Amount is equal to:
(a) the greater of:
- earnings not previously withdrawn; or
- 15% of your total Purchase Payments in the most recent eight years;
plus
(b) an amount equal to your total Purchase Payments made more than eight
years ago, to the extent not previously withdrawn.
Here, (a) equals $6,000.00, because 15% of the total Purchase Payments in the
most recent eight years ($6,000.00 = 15% X $40,000.00) is greater than the
earnings not previously withdrawn ($3,680.00). (B) equals $0, because all of the
Purchase Payments were made less than eight years age. Accordingly, the Free
Withdrawal Amount is $6,000.00.
The formula that we use to determine the amount of the Market Value Adjustment
is:
.9 X (I-J) X N,
where:
I = the Treasury Rate for a maturity equal to the relevant Guarantee
Period for the week preceding the beginning of the Guarantee Period;
J = the Treasury Rate for a maturity equal to the relevant Guarantee
Period for the week preceding our receipt of your withdrawal request,
death benefit request, transfer request, or annuity option request;
and
N = the number of whole and partial years from the date we receive your
request until the end of the relevant Guarantee Period.
We will base the Market Value Adjustment on the current Treasury Rate for a
maturity corresponding in length to the relevant Guarantee Period. These
examples also show the Withdrawal Charge (if any), which would be calculated
separately from the Market Value Adjustment.
EXAMPLE OF A DOWNWARD MARKET VALUE ADJUSTMENT
A downward Market Value Adjustment results from a full or partial withdrawal
that occurs when interest rates have increased. Assume interest rates have
increased one year after the Purchase Payment, such that the five-year Treasury
Rate is now 6.5%. Upon a withdrawal, the market value adjustment factor would
be:
.9 X (.06 - .065) X 4 = -.0180
The Market Value Adjustment is a reduction of $678.24 from the amount withdrawn:
$-678.24 = -.0180 X ($43,680 - $6,000.00)
A Withdrawal Charge of 7% (assuming the Withdrawal occurs at the start of the
second Contract year) would be assessed against the Purchase Payments withdrawn
that are less than eight years old and are not eligible for free withdrawal.
Under the Contract, earnings are deemed to be withdrawn before Purchase
Payments. Accordingly, in this example, the amount of the Purchase Payment
eligible for free withdrawal would equal the Free Withdrawal Amount less the
interest credited or $2,320.00 ($6,000.00 - $3,680.00).
Therefore, the Withdrawal Charge would be:
$2,637.60 = 7% X (40,000.00 - $2,320.00)
As a result, the net amount payable to you would be:
$40,364.16 = $43,680.00 - $678.24 - $2,637.60
EXAMPLE OF AN UPWARD MARKET VALUE ADJUSTMENT
An upward Market Value Adjustment results from a withdrawal that occurs when
interest rates have decreased. Assume interest rates have decreased one year
after the Purchase Payment, such that the five-year Treasury Rate is now 5.5%.
Upon a withdrawal, the market value adjustment factor would be:
.9 X (.06 - .055) X 4 = .0180
The Market Value Adjustment would increase the amount withdrawn by $648.00, as
follows:
$678.24 = .0180 X ($43,680 - $6,000.00)
As above, in this example, the amount of the Purchase Payment eligible for free
withdrawal would equal the Free Withdrawal Amount less the interest credited or
$2,320.00 ($6,000.00 - $3,680.00). Therefore, the Withdrawal Charge would be:
$2,637.60 = 7% X ($40,000.00 - $2,320.00)
As a result, the net amount payable to you would be:
$41,720.64 = $43,680.00 + $678.24 - $2,637.60
EXAMPLE OF A PARTIAL WITHDRAWAL
If you request a partial withdrawal from a Guarantee Period, we can either (1)
withdraw the specified amount of Contract Value and pay you that amount as
adjusted by any applicable Market Value Adjustment or (2) pay you the amount
requested, and subtract an amount from your Contract Value that equals the
requested amount after application of the Market Value Adjustment and Withdrawal
Charge. Unless you instruct us otherwise, when you request a partial withdrawal
we will assume that you wish to receive the amount requested. We will make the
necessary calculations and on your request provide you with a statement showing
our calculations.
For example, if in the first example you wished to receive $20,000.00 as a
partial withdrawal, the Market Value Adjustment and Withdrawal Charge would be
calculated as follows:
let: AW = the total amount to be withdrawn from your contract value
MVA = Market Value Adjustment
WC = Withdrawal Charge
AW' = amount subject to Market Value Adjustment and Withdrawal Charge
Then AW - $20,000.00 = WC-MVA
Since neither the Market Value Adjustment nor the Withdrawal Charge apply to the
free withdrawal amount, we can solve directly for the amount subject to the
Market Value Adjustment and the Withdrawal Charge (i.e., AW'), which equals AW
- -$6,000.00. Then, AW = AW' + $6,000, and AW' + $6,000.00 - $20,000.00 = MVA +
WC.
MVA = -.018 X AW'
WC = .07 X AW'
(since the Market Value Adjustment is a reduction from amount withdrawn, it
operates in the same direction as the Withdrawal Charge)
WC - MVA = .088AW'
AW' - $14,000.00 = .088AW'
AW' = $14,000.00 / (1 - .088) = $15,350.88
MVA = -.018 X $15,350.88 = $276.32
WC = .07 X $15,350.88 = $1,074.56
AW = Total amount withdrawn = $15,350.88 + $6,000.00 = $21,350.88
You receive $20,000.00; the total amount subtracted from your contract is
$21,350.88; the Market Value Adjustment is $276.32; and the Withdrawal Charge is
$1,074.56. Your remaining Contract Value is $20,649.12.
If, however, in the same example, you wished to withdraw $20,000.00 from your
Contract Value and receive the adjusted amount, the calculations would be as
follows:
By definition, AW = total amount withdrawn from your Contract Value = $20,000.00
AW' = amount that MVA & WC are applied to
= amount withdrawn in excess of Free Amount = $20,.000.00 -
$6,000.00 = $14,000.00
MVA = -.018 X $14,000.00 = $-252.00
WC = .07 X $14,000.00 = $980.00
You would receive $20,000.00 - $252.00 - $980.00 = $18,768.00; the total amount
subtracted from your Contract Value is $20,000.00. Your remaining Contract Value
would be $22,000.00.
EXAMPLE OF FREE WITHDRAWAL AMOUNT
Assume that in the foregoing example, after four years $10,565.06 in earnings;
including the Credit Enhancement had been credited and that the Contract Value
in the Fixed Account equaled $50,565.06. In this example, if no prior
withdrawals have been made, you could withdraw up to $10,565.06 without
incurring a Market Value Adjustment or a Withdrawal Charge. The Free Withdrawal
Amount would be $10,565.06, because the interest credited ($10,565.06) is
greater than 15% of the Total Purchase Payments in the most recent eight years
($40,000.00 X .15 = $6,000.00).
<PAGE>
PART C: OTHER INFORMATION
The information required to be provided in Part C is separately identified by
Item number.
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
DEPOSITOR: LINCOLN BENEFIT LIFE COMPANY
This Statement of Additional Information is not a prospectus. You should also
read the prospectus relating to the annuity contracts described above. You may
obtain a copy of the prospectus without charge by calling us at 1-800-525-9287
or writing to us at the following address:
Lincoln Benefit Life Company
P.O. Box 82532
Lincoln, Nebraska 68501-2532
The date of this Statement of Additional
Information and of the related Prospectus is:
September 28, 1999.
TABLE OF CONTENTS
PAGE
-----
THE CONTRACT......................................
ANNUITY PAYMENTS................................
INITIAL MONTHLY ANNUITY PAYMENT.................
SUBSEQUENT MONTHLY PAYMENTS.....................
TRANSFERS AFTER ANNUITY DATE....................
ANNUITY UNIT VALUE..............................
ILLUSTRATIVE SAMPLE OF ANNUITY UNIT VALUE
CALCULATION...................................
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 applicable premium tax charge and adjusted
by any applicable Market Value Adjustment;
(b) the Payment Option you have selected;
(c) the payment frequency you have selected;
(d) the age and, in some cases, the sex of the Annuitant and any Joint
Annuitant; and
(e) for Variable Annuity Payments only, the investment performance after
the Annuity Date of the Subaccounts you have selected.
INITIAL MONTHLY ANNUITY PAYMENT
For both Fixed and Variable Annuity payments, we determine the amount of your
initial annuity payment as follows. First, we subtract any applicable premium
tax charge from your Contract Value on the Valuation Date next preceding the
Annuity Date. We will also increase or decrease your Fixed Account balance by
any applicable Market Value Adjustment. Next, we apply that amount to the
Payment Option you have selected. For Fixed Annuity payments, we will use either
the Payment Option Tables in the Contract or our annuity tables in effect for
single premium immediate annuities at the time of the calculation, whichever
table is more favorable to the payee. For Variable Annuity payments, we will use
the Payment Options tables in the Contract (which reflect the assumed investment
rate of 3.5% which is used in calculating subsequent Variable Annuity payments,
as described below). The tables show the amount of the periodic payment a payee
could receive based on $1,000 of Contract Value. To determine the initial
payment amount, we divide your Contract Value, adjusted as described above, by
$1,000 and multiply the result by the relevant annuity factor for the
Annuitant's age and sex (if we are permitted to consider that factor) and the
frequency of the payments you have selected.
In some states and under certain Qualified Plans and other employer-sponsored
employee benefit plans, we are not permitted to take the Annuitant's sex into
consideration in determining the amount of periodic annuity payments.
In those states, we use the same annuity table for men and women.
SUBSEQUENT MONTHLY PAYMENTS
For a Fixed Annuity, the amount of the second and each subsequent monthly
annuity payment is usually the same as the first monthly payment. However, after
the Annuity Date you will have a limited ability to increase your Fixed Annuity
payments by making transfers from the Subaccounts, as described in "Transferred
after the Annuity Date" on page [ ] below. After each such transfer, however,
your subsequent annuity payments will remain at the new level until and unless
you make an additional transfer to your Fixed Annuity payments.
For a Variable Annuity, the amount of the second and each subsequent monthly
payment will vary depending on the investment performance of the Subaccounts to
which you allocated your Contract Value. We calculate separately the portion of
the monthly annuity payment attributable to each Subaccount you have selected as
follows. When we calculate your initial annuity payment, we also will determine
the number of Annuity Units in each Subaccount to allocate to your Contract for
the remainder of the Annuity Period. For each Subaccount, we divide the portion
of the initial annuity payment attributable to that Subaccount by the Annuity
Unit Value for that Subaccount on the Valuation Date next preceding the Annuity
Date. The number of Annuity Units so determined for your Contract is fixed for
the duration of the Annuity Period. We will determine the amount of each
subsequent monthly payment attributable to each Subaccount by multiplying the
number of Annuity Units allocated to your Contract by the Annuity Unit Value for
that Subaccount as of the Valuation Period next preceding the date on which the
annuity payment is due. Since the number of Annuity Units is fixed, the amount
of each subsequent Variable Annuity payment will reflect the investment
performance of the Subaccounts elected by you.
TRANSFERS AFTER THE ANNUITY DATE
The Contract provides that during the Annuity Period, you may make transfers
among the Subaccounts or increase the proportion of your annuity payments
consisting of Fixed Annuity payments. We will effect a transfer among the
Subaccounts at their Annuity Unit Value next determined after we receive your
instructions. After the transfer, your subsequent Variable Annuity payments will
be based on your new Annuity Unit balances. If you wish to transfer value from
the Subaccounts to increase your Fixed Annuity payments, we will determine the
amount of your additional Fixed Annuity payments as follows. First, we will
determine the Annuitized Value represented by the Annuity Units that you wish to
apply to a Fixed Annuity payment. Then, we will apply that amount to the
appropriate factor for the Payment Option you have selected, using either the
Payment Option Tables in the Contract or our annuity tables for single premium
immediate annuities at the time of the calculation, whichever table is more
favorable to the payee.
ANNUITY UNIT VALUE
We determine the value of an Annuity Unit independently for each Subaccount.
Initially, the Annuity Unit Value for each Subaccount was set at $100.00.
The Annuity Unit Value for each Subaccount will vary depending on how much the
actual net investment return of the Subaccount differs from the assumed
investment rate that was used to prepare the annuity tables in the Contract.
Those annuity tables are based on a 3.5% per year assumed investment rate. If
the actual net investment rate of a Subaccount exceeds 3.5%, the Annuity Unit
Value will increase and Variable Annuity payments derived from allocations to
that Subaccount will increase over time. Conversely, if the actual rate is less
than 3.5%, the Annuity Unit Value will decrease and the Variable Annuity
payments will decrease over time. If the net investment rate equals 3.5%, the
Annuity Unit Value will stay the same, as will the Variable Annuity payments. If
we had used a higher assumed investment rate, the initial monthly payment would
be higher, but the actual net investment rate would also have to be higher in
order for annuity payments to increase (or not to decrease).
For each Subaccount, we determine the Annuity Unit Value for any Valuation
Period by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the Net Investment Factor for the current Valuation Period.
The result is then divided by a second factor which offsets the effect of the
assumed net investment rate of 3.5% per year.
The Net Investment Factor measures the net investment performance of a
Subaccount from one Valuation Date to the next. The Net Investment Factor may be
greater or less than or equal to one; therefore, the value of an Annuity Unit
may increase, decrease or remain the same.
To determine the Net Investment Factor for a Subaccount for a Valuation Period,
we divide (a) by (b), and then subtract (c) from the result, where:
(a) is the total of:
(1) the net asset value of a Portfolio share held in the Subaccount
determined as of the Valuation Date at the end of the Valuation
Period; plus
(2) the per share amount of any dividend or other distribution
declared by the Portfolio for which the "ex-dividend" date occurs
during the Valuation Period; plus or minus
(3) a per share credit or charge for any taxes which we paid or for
which we reserved during the Valuation Period and which we
determine to be attributable to the operation of the Subaccount.
As described in the prospectus, currently we do not pay or
reserve for federal income taxes;
(b) is the net asset value of the Portfolio share determined as of the
Valuation Date at the end of the preceding Valuation Period; and
(c) is the mortality and expense risk charge and the administrative
expense risk charge.
ILLUSTRATIVE EXAMPLE OF ANNUITY UNIT VALUE CALCULATION
Assume that one share of a given Subaccount's underlying Portfolio had a net
asset value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on
a Tuesday; that its net asset value had been $11.44 at the close of the NYSE on
Monday, the day before; and that no dividends or other distributions on that
share had been made during the intervening Valuation Period. The Net Investment
Factor for the Valuation Period ending on Tuesday's close of the NYSE is
calculated as follows:
Net Investment Factor = ($11.46/$11.44) - 0.0000381 = 1.0017102
The amount subtracted from the ratio of the two net asset values (0.0000381) 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 1.0017102 = $101.19847
- ---------------------
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 tax charges payable
upon annuitization. Assume also that the Annuity Unit Value for the Subaccount
at that same Date is $132.56932, and that the Annuity Unit Value on the
Valuation Date immediately prior to the second annuity payment date is
$133.27695.
P's first Variable Annuity payment is determined from the annuity rate tables in
P's Contract, using the information assumed above. The tables supply monthly
annuity payments for each $1,000 of applied Contract Value. Accordingly, P's
first Variable Annuity payment is determined by multiplying the monthly
installment of $5.44 by the result of dividing P's Account Value by $1,000:
First Payment = $5.44 X ($116,412.31/$1,000) = $633.28
The number of P's Annuity Units is also determined at this time. It is equal to
the amount of the first Variable Annuity payment divided by the value of an
Annuity Unit at the Valuation Date immediately prior to annuitization:
Annuity Units = $633.28 DIVIDED BY $132.56932 = 4.77697
P's second Variable Annuity payment is determined by multiplying the number of
Annuity Units by the Annuity Unit value as of the Valuation Date immediately
prior to the second payment due date:
Second Payment = 4.77697 X $133.27695 = $636.66
P's third and subsequent Variable Annuity payments are computed in the same
manner.
The amount of the first Variable Annuity payment depends on the Contract Value
in the relevant Subaccount on the Annuity Date. Thus, it reflects the investment
performance of the Subaccount net of fees and charges during the Accumulation
Period. The amount of the first Variable Annuity payment determines the number
of Annuity Units allocated to P's Contract for the Annuity Period. That number
will remain constant throughout the Annuity Period, unless the Contract owner
makes a transfer. The amount of the second and subsequent Variable Annuity
payments depends on changes in the Annuity Unit Value, which will continuously
reflect changes in the net investment performance of the Subaccount during the
Annuity Period.
ADDITIONAL FEDERAL INCOME TAX INFORMATION
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.
PIMCO MONEY MARKET SUBACCOUNT
The current yield is the annual yield on the PIMCO 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 maintenance charge of $35
per Contract. The contract maintenance charge is allocated among the
Subaccounts in proportion to the total Contract Values similarly
allocated. The charge is further reduced, for purposes of the yield
computation, by multiplying it by the ratio that the value of the
hypothetical Contract bears to the value of an account of average size
for Contracts funded by the Fidelity Money Market Subaccount. The
Charge is then multiplied by the fraction 7/365 to arrive at the
portion attributable to the 7 day period.
The current yield is then obtained by annualizing the Base Period Return:
Current Yield = (Base Period Return) X (365/7)
The PIMCO 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 PIMCO Variable Insurance
Trust IIby compounding the current yield according to the formula:
Effective Yield = [(Base Period Return + 1)to the power of 365/7 - 1].
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not. The yield quotations also do not reflect any impact
of premium tax charges, transfer fees, or Withdrawal Charges.
The yields quoted do not represent the yield of the PIMCO 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 PIMCO 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 PIMCO Money
Market Subaccount and for providing a basis for comparison with other investment
alternatives. However, the PIMCO Money Market Subaccount's yield may vary on a
daily basis, unlike bank deposits or other investments that typically pay a
fixed yield for a stated period of time.
The PIMCO Money Market Portfolio's yield for the seven-day period ended December
31, 1999 was [ ]% and the effective yield for the same seven day period was
[ ]%.
OTHER SUBACCOUNTS
We compute the performance of the other Subaccounts in terms of an annualized
"yield" and/or as "total return".
YIELD
Yield will be expressed as an annualized percentage based on the Subaccount's
performance over a stated 30-day (or one month) period. The annualized yield
figures will reflect all recurring Contract charges and will not reflect
Withdrawal Charges, transfer fees or premium tax charges. To arrive at the yield
percentage over the 30-day (or one month) period, the net income per
Accumulation Unit of the Subaccount during the period is divided by the value of
an Accumulation Unit as of the end of the period. The yield figure is then
annualized by assuming monthly compounding of the 30-day (or one month) figure
over a six-month period and then doubling the result.
The formula used in computing the yield figure is:
Yield = 2 X ( ((a-b) + 1)to the power of 6 - 1)
---
cd
where:
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 PIMCO Money Market Subaccount. Like
the PIMCO Money Market Subaccount's yield figures, the yield figures for the
other Subaccounts are based on past performance and should not be taken as
predictive of future results.
STANDARDIZED TOTAL RETURN
Standardized total return for a Subaccount represents a single computed annual
rate of return that, when compounded annually over a specified time period (one,
five, and ten years, or since inception) and applied to a hypothetical initial
investment in a Contract funded by that Subaccount made at the beginning of the
period, will produce the same Contract Value at the end of the period that the
hypothetical investment would have produced over the same period. The
standardized total rate of return (T) is computed so that it satisfies the
following formula:
P(1+T)to the power of n = ERV
where:
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
PIMCO Money Market Subaccount, described above. The applicable Withdrawal Charge
(if any) is deducted as of the end of the period, to reflect the effect of the
assumed complete redemption. The effect of the contract maintenance charge on
your account usually will differ from that assumed in the computation, due to
differences between most actual allocations and the assumed one, as well as
differences due to varying account sizes. Accordingly, your total return on an
investment in the Subaccount over the same time periods usually would have
differed from those produced by the computation. As with the PIMCO Money Market
and other Subaccount yield figures, standardized total return figures are based
on historical data and are not intended to be a projection of future
performance.
NON-STANDARDIZED TOTAL RETURN
Non-standardized total return for a Subaccount represents a single computed
annual rate of return that, when compounded annually over a specified time
period (one, five, and ten years, or since inception) and applied to a
hypothetical initial investment in a Contract funded by that Subaccount made at
the beginning of the period, will produce the same Contract Value at the end of
the period that the hypothetical investment would have produced over the same
period. The total rate of return (T) is computed so that it satisfies the
formula:
P(1+T)to the power of n = ERV
where:
P = a hypothetical initial payment of $50,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $50,000 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 from standardized total return in that
in calculating non-standardized total return, we assumed an initial hypothetical
investment of $50,000. We chose $50,000, because it is closer to the average
Purchase Payment of a Contract that we expect to write. For standardized total
return, we used an initial hypothetical investment of $1,000, as required by SEC
regulations. The non-standardized total return figures reflect the effect of
recurring charges, as discussed herein. Because the impact of the contract
maintenance charge on your account will usually differ from that assumed in the
computation, due to differences between most actual allocations and the assumed
one, as well as differences due to varying account sizes, your total return on
an investment in the Subaccount over the same time periods usually would have
differed from those produced by the computation. As with the standardized total
return figures, non-standardized total return figures are based on historical
data and are not intended to be a projection of future performance.
Non-standardized total return may reflect the addition of a Credit Enhancement
of 4%. The impact of the Credit Enhancement on total return is particularly
pronounced for the shorter durations for which total return is measured, such as
one and three years. You should take this into consideration in any comparison
of total return between the Sub-accounts and investment options offered pursuant
to other annuities.
TIME PERIODS BEFORE THE DATE THE SEPARATE ACCOUNT COMMENCED OPERATIONS
The Separate Account may also disclose yield and non-standardized total return
for time periods before the Separate Account commenced operations. This
performance data is based on the actual performance of the Portfolios since
their inception, adjusted to reflect the effect of the recurring Contract
charges at the rates currently charged against the Subaccounts.
TABLES OF TOTAL RETURN QUOTATIONS
The following tables include average annual total return and non-standardized
total return for various periods as of December 31, 1998.
<TABLE>
<CAPTION>
STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1998
ASSUMING CONTRACT SURRENDERED
AVERAGE ANNUAL TOTAL RETURN (3)
---------------------------------------------
SINCE
INCEPTION 5 YEAR 10 YEAR INCEPTION
DATE (2) 1 YEAR (%) (%) (%) (%)
----------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
CORE Small Cap Equity (4) 10/01/99 N/A N/A N/A N/A
International Equity (4) 10/01/99 N/A N/A N/A N/A
J.P. MORGAN SERIES TRUST II
Small Company (4) 10/01/99 N/A N/A N/A N/A
LAZARD RETIREMENT SERIES, INC.
Emerging Markets 10/01/99 N/A N/A N/A N/A
International Equity 10/01/99 N/A N/A N/A N/A
LSA VARIABLE SERIES TRUST
Focused Equity (4) 10/01/99 N/A N/A N/A N/A
Balanced (4) 10/01/99 N/A N/A N/A N/A
Growth Equity (4) 10/01/99 N/A N/A N/A N/A
Disciplined Equity (4) 10/01/99 N/A N/A N/A N/A
Value Equity (4) 10/01/99 N/A N/A N/A N/A
Emerging Growth Equity 10/01/99 N/A N/A N/A N/A
MORGAN STANLEY DEAN WITTER UNIVERSAL FUNDS, INC.
Mid Cap Growth 10/01/99 N/A N/A N/A N/A
Mid Cap Value 10/01/99 N/A N/A N/A N/A
High Yield 10/01/99 N/A N/A N/A N/A
OCC ACCUMULATION TRUST
Equity 10/01/99 N/A N/A N/A N/A
Small Cap 10/01/99 N/A N/A N/A N/A
PIMCO VARIABLE INSURANCE TRUST
StocksPLUS Growth and Income (4) 10/01/99 N/A N/A N/A N/A
Foreign Bond (4) 10/01/99 N/A N/A N/A N/A
Total Return Bond (4) 10/01/99 N/A N/A N/A N/A
Money Market (1)(4) 10/01/99 N/A N/A N/A N/A
SALOMON BROTHERS VARIABLE SERIES FUNDS
Capital 10/01/99 N/A N/A N/A N/A
</TABLE>
- ------------------------
(1) An investment in PIMCO Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that PIMCO Money Market
will maintain a stable $1.00 share price. The PIMCO Money Market Fund does
not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until October 1, 1999,
although it has offered other annuity contracts that are not offered by the
prospectus to which this Statement of Additional Information relates.
Lincoln Benefit has not previously offered contracts utilizing the
Subaccounts underlying the Contracts and, accordingly, there currently is
no standardized performance for these Subaccounts. We will update this
information in the foregoing chart when standardized performance is
available.
(3) Total return includes changes in share price, reinvestment of dividends,
and capital gains. The performance figures: (1) represent past performance
and neither guarantee nor predict future investment results; (2) assume an
initial hypothetical investment of $1,000, as required by the SEC; and (3)
reflect the deduction of 1.40% annual asset charges, a $35 annual contract
maintenance charge, and a maximum 8% contingent deferred sales charge
(declining after the first year). The investment return and value of a
Contract will fluctuate so that a Contract, when surrendered, may be worth
more or less than the amount of the Purchase Payments.
(4) Total returns reflect that the investment adviser waived all or part of its
fee or reimbursed the Portfolio for a portion of its expenses. Otherwise,
total returns would have been lower.
N/A Certain recently established subaccounts do not yet have meaningful
standardized return data. In the future, as such data becomes available,
standardized total return will be calculated as described above.
NON-STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1998
ASSUMING CONTRACT NOT SURRENDERED
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (3)
--------------------------------------------
PORTFOLIO MONTHLY TOTAL SINCE
INCEPTION RETURN RETURN 1 YEAR 5 YEAR 10 YEAR INCEPTION
DATE (2) (%) YTD (%) (%) (%) (%) (%)
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
CORE Small Cap Equity (4) 02/13/98 6.58% N/A N/A N/A N/A -11.86%
International Equity (4) 01/12/98 7.56% N/A N/A N/A N/A 19.15%
J.P. MORGAN SERIES TRUST II
Small Company (4) 12/31/94 6.42% -6.83% -6.83% N/A N/A 15.36%
LAZARD RETIREMENT SERIES, INC.
Emerging Markets 07/15/94 -3.47% -26.48% -26.48% N/A N/A -7.70%
International Equity 10/31/91 2.26% 11.37% 11.37% 7.63% N/A 9.68%
LSA VARIABLE SERIES TRUST
Focused Equity (4) 10/01/99 N/A N/A N/A N/A N/A N/A
Balanced (4) 10/01/99 N/A N/A N/A N/A N/A N/A
Growth Equity (4) 10/01/99 N/A N/A N/A N/A N/A N/A
Disciplined Equity (4) 10/01/99 N/A N/A N/A N/A N/A N/A
Value Equity (4) 10/01/99 N/A N/A N/A N/A N/A N/A
Emerging Growth Equity 10/01/99 N/A N/A N/A N/A N/A N/A
MORGAN STANLEY DEAN WITTER UNIVERSAL
FUNDS, INC.
Mid Cap Growth 12/31/98 N/A N/A N/A N/A N/A N/A
Mid Cap Value 01/02/97 6.88% 13.82% 13.82% N/A N/A 24.87%
High Yield 01/02/97 0.06% 3.54% 3.54% N/A N/A 7.82%
OCC ACCUMULATION TRUST
Equity 08/01/88 1.72% 11.27% 11.27% 18.98% 15.83% 15.49%
Small Cap 08/01/88 1.10% -9.83% -9.83% 7.18% 11.52% 11.27%
PIMCO VARIABLE INSURANCE TRUST
StocksPLUS Growth and 12/31/97 -0.38% 17.35% 17.35% N/A N/A 17.36%
Income (4)
Foreign Bond (4) 02/16/99 N/A N/A N/A N/A N/A N/A
Total Return Bond (4) 12/31/97 -2.26% 2.39% 2.39% N/A N/A 2.39%
Money Market (1)(4) 10/01/99 N/A N/A N/A N/A N/A N/A
SALOMON BROTHERS VARIABLE SERIES FUNDS
Capital 01/02/98 -5.67% 6.43% 6.43% N/A N/A 6.43%
</TABLE>
- ------------------------
(1) An investment in PIMCO Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that PIMCO Money Market
will maintain a stable $1.00 share price. The PIMCO Money Market Fund does
not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until October 1, 1999,
although it has offered other annuity contracts that are not offered by the
prospectus to which this Statement of Additional Information relates.
Accordingly, this table reflects hypothetical performance for the periods
covered, applying the contract charges under the Contract to the investment
performance of the underlying Portfolios since their inception.
Nonstandardized performance data for periods after the inception of
Contract sales will reflect the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends,
and capital gains. The performance figures: (1) represent past performance
and neither guarantee nor predict future investment results; (2) assume an
initial hypothetical investment of $50,000, since this is closer to the
average Purchase Payment of a contract expected to be written, rather than
the $1,000 required by the SEC for the standardized returns shown in the
table on pages [ ]; and (3) reflect the deduction of 1.40% annual asset
charges, but do not reflect the applicable contingent deferred sales
charge. The investment return and value of a Contract will fluctuate so
that a Contract, when surrendered, may be worth more or less than the
amount of the Purchase Payments.
(4) Total returns reflect that the investment adviser waived all or part of its
fee or reimbursed the Portfolio for a portion of its expenses. Otherwise,
total returns would have been lower.
N/A Certain Portfolios do not have meaningful performance for the periods
indicated. In the future, as such data becomes available, total return will be
calculated as described above.
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1998
ASSUMING CONTRACT NOT SURRENDERED
CUMULATIVE
TOTAL
RETURN
PORTFOLIO SINCE CALENDAR YEAR RETURN (3)
INCEPTION INCEPTION ------------------------------------
DATE (2) (%) (3) 1996 (%) 1997 (%) 1998 (%)
--------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
GOLDMAN SACHS VARIABLE INSURANCE TRUST
CORE Small Cap Equity (4) 02/13/98 -10.50% N/A N/A N/A
International Equity (4) 01/12/98 18.46% N/A N/A N/A
J.P. MORGAN SERIES TRUST II
Small Company (4) 12/31/94 77.12% 34.88% 20.80% -6.83%
LAZARD RETIREMENT SERIES, INC.
Emerging Markets 07/15/94 -30.05% 25.96% -11.89% -26.48%
International Equity 10/31/91 93.98% 10.98% 15.89% 11.37%
LSA VARIABLE SERIES TRUST
Focused Equity (4) 10/01/99 N/A N/A N/A N/A
Balanced (4) 10/01/99 N/A N/A N/A N/A
Growth Equity (4) 10/01/99 N/A N/A N/A N/A
Disciplined Equity (4) 10/01/99 N/A N/A N/A N/A
Value Equity (4) 10/01/99 N/A N/A N/A N/A
Emerging Growth Equity 10/01/99 N/A N/A N/A N/A
MORGAN STANLEY DEAN WITTER UNIVERSAL
FUNDS, INC.
Mid Cap Growth 12/31/98 N/A N/A N/A N/A
Mid Cap Value 01/02/97 55.92% N/A 36.98% 13.82%
High Yield 01/02/97 16.25% N/A 12.27% 3.54%
OCC ACCUMULATION TRUST
Equity 08/01/88 347.96% 20.60% 24.69% 11.27%
Small Cap 08/01/88 203.97% 16.67% 19.89% -9.83%
PIMCO VARIABLE INSURANCE TRUST
StocksPLUS Growth and Income 12/31/97 17.35% N/A N/A 17.35%
(4)
Foreign Bond (4) 02/16/99 N/A N/A N/A N/A
Total Return Bond (4) 12/31/99 2.39% N/A N/A 2.39%
Money Market (1)(4) 10/01/99 N/A N/A N/A N/A%
SALOMON BROTHERS VARIABLE SERIES FUNDS
Capital 01/02/98 6.43% N/A N/A 6.43%
</TABLE>
- ------------------------
(1) An investment in PIMCO Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that PIMCO Money Market
will maintain a stable $1.00 share price. The PIMCO Money Market Fund does
not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until October 1, 1999
although it has offered other annuity contracts that are not offered by the
prospectus to which this Statement of Additional Information relates.
Accordingly, this table reflects hypothetical performance for the periods
covered, applying the contract charges under the Contract to the investment
performance of the underlying Portfolios since their inception.
Nonstandardized performance data for periods after the inception of
Contract sales will reflect the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends,
and capital gains. The performance figures: (1) represent past performance
and neither guarantee nor predict future investment results; (2) assume an
initial hypothetical investment of $50,000, since this is closer to the
average Purchase Payment of a contract expected to be written, rather than
the $1,000 required by the SEC for the standardized returns shown in the
table on pages [ ]; and (3) reflect the deduction of 1.40% annual asset
charges, but do not reflect the applicable contingent deferred sales
charge. The impact of the contract maintenance charge on investment returns
will vary depending on the size of the Contract. The investment return and
value of a Contract will fluctuate so that a Contract, when surrendered,
may be worth more or less than the amount of the Purchase Payments.
(4) Total returns reflect that the investment adviser waived all or part of its
fee or reimbursed the Portfolio for a portion of its expenses. Otherwise,
total returns would have been lower.
N/A Certain Portfolios do not have meaningful performance for the periods
indicated. In the future, as such data becomes available, total return will be
calculated as described above.
EXPERTS
The financial statements of Lincoln Benefit Life Variable Annuity Account as of
December 31, 1998, and for each of the two years ended December 31, 1998,
included in this statement of additional information have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
FINANCIAL STATEMENTS
This Statement of Additional Information contains financial statements for the
Separate Account which reflect assets attributable to other variable annuity
contracts offered by Lincoln Benefit through the Separate Account. These
financial statements do not reflect assets attributable to the Contracts,
because as of the date of the financial statements we had not yet begun to sell
the Contracts. 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
its operations and the changes in its 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/(DECREASE) 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/(DECREASE) 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/(DECREASE) 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/(DECREASE) 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/(DECREASE) 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>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in Part A of the Registration
Statement:
The consolidated unaudited financial statements (prepared on the GAAP basis of
accounting), for Lincoln Benefit Life Company and subsidiary for the six months
ended June 30, 1999.
The Consolidated financial statements (prepared on the 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 B of the Registration
Statement:
The financial statements (prepared on the GAAP basis of accounting) of the
Separate Account as of December 31, 1998 and for the years ended December 31,
1998 and 1997. The following financial statements are included in Part C of the
Registration Statement:
None
(b) Exhibits
(1) Resolution of the Board of Directors of Lincoln Benefit Life Company
authorizing the establishment of the Lincoln Benefit Life Variable Annuity
Account**
(2) Custody Agreements (not applicable)
(3) (a) Form of Principal Underwriting Agreement****
(b) Form of Selling Agreement *****
(4) Variable Annuity Contract ******
(5) Application for Contract ******
(6) Depositor--Corporate Documents
(a) Articles of Incorporation of Lincoln Benefit Life Company, as amended*
(b) By-Laws of Lincoln Benefit Life Company*
(7) Reinsurance Contract**
(8) Participation Agreements:
(a) Form of Participation Agreement among Lincoln Benefit Life Company and
J.P. Morgan Series Trust II ******
(b) Form of Participation Agreement among Lincoln Benefit Life Company,
Morgan Stanley Dean Witter Universal Funds Inc., and Miller Anderson &
Sherrerd, LLP ******
C-1
(c) Form of Participation Agreement among PIMCO Variable Insurance Trust,
Lincoln Benefit Life Company and PIMCO Funds Distributor LLC ******
(d) Form of Participation Agreement between Salomon Brothers Variable
Series Fund Inc., and Salomon Brothers Asset Management Inc. ******
(e) Form of Participation Agreement among Lincoln Benefit Life Company,
Lazard Asset Management, and Lazard Retirement Series, Inc. ******
(f) Form of Participation Agreement between Goldman Sachs Variable
Insurance Trust and Lincoln Benefit Life Company ******
(g) Form of Participation Agreement between Lincoln Benefit Life Company
and LSA Variable Series Trust (filed herewith)
(h) Form of Participation Agreement between Lincoln Benefit Life Company
and OCC Accumulation Trust ******
(9) Opinion and Consent of Counsel (filed herewith) (10) (a) Consent of
Independent Auditors (filed herewith)
(b) Consent of Attorneys (filed herewith)
(11) Financial Statements Omitted from Item 23 (not applicable)
(12) Initial Capitalization Agreement (not applicable)
(13) Performance Computations (filed herewith) (27) Financial Data Schedules
(not applicable)
- ------------------------
* Registration Statement on Form S-6 for Lincoln Benefit Life Variable Life
Account, File No. 333-47717, filed March 11, 1998
** Registration Statement on Form N-4 for Lincoln Benefit Life Variable
Annuity Account, File No. 333-50545, 811-7924, filed April 21, 1998.
*** Pre-Effective Amendment No. 1 to Registration Statement on Form N-4 for
Lincoln Benefit Life Variable Annuity Account, File No. 333-50545 filed
July 24, 1998.
****Post-Effective Amendment No. 1 to Registration Statement on Form N-4 for
Lincoln Benefit Life Variable Annuity Account, File No. 333-50545, 811-7924
filed January 28, 1998.
*****Post-Effective Amendment No. 3 to Registration statement on Form N-4 for
Lincoln Benefit Life Variable Annuity Account, File No. 333-50545, 811-7924
filed April 1, 1999.
******Registration Statement on Form N-4 for Lincoln Benefit Life Variable
Annuity Account, File No. 333-82427, filed July 8, 1999.
C-2
ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR
The directors and principal officers of Lincoln Benefit Life Company are
listed below. Their principal business address is 206 South 13th Street,
Lincoln, Nebraska 68508.
<TABLE>
<CAPTION>
NAME POSITION/OFFICE WITH DEPOSITOR
- -------------------------- ------------------------------------------------------
<S> <C>
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
Lawrence W. Dahl Director, Executive 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
</TABLE>
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR
REGISTRANT
See Annual Report on Form 10-K of The Allstate Corporation, File No. 1-11840,
filed March 26, 1999.
ITEM 27. NUMBER OF CONTRACT OWNERS
Not applicable.
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.
C-3
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 settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) Allstate Life Financial Services ("ALFS") serves as distributor for the
Registrant. ALFS also serves as distributor for the Lincoln Benefit Life
Variable Life Account, which is another separate account of Lincoln Benefit. The
following are the directors and officers of Allstate Life Financial Services,
Inc. Their principal business address is 3100 Sanders Road, Northbrook, IL
60062.
NAME AND PRINCIPAL BUSINESS
ADDRESS OF EACH SUCH PERSON ALLSTATE LIFE FINANCIAL SERVICES
- --------------------------- -------------------------------------------
Thomas J. Wilson, II Director
Louis G. Lower, II Director
Kevin R. Slawin Director
Michael J. Velotta Director and Secretary
John Hunter Director, President and Chief Executive Officer
Janet Albers Vice President and Controller
Brent H. Hamann Vice President
C-4
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
Gregory C. Sernett Assistant Secretary
Brenda D. Sneed Assistant Secretary
Nancy M. Bufalino Assistant Treasurer
(b) The following commissions and other compensation were received by each
principal underwriter, directly or indirectly, from the Registrant during the
Registrant's last fiscal year:
<TABLE>
<CAPTION>
(2)
(1) NET UNDERWRITING (3) (4)
NAME OF PRINCIPAL DISCOUNTS AND COMPENSATION BROKERAGE (5)
UNDERWRITER COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION
<S> <C> <C> <C> <C>
Lincoln Benefit Financial Services, Inc. 0 0 13,057,265.48 0
Allstate Life Financial Services, Inc. 0 0 0 0
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The Depositor, Lincoln Benefit Life Company, is located at 206 South 13th
Street, Lincoln, Nebraska 68508.
The Principal Underwriter, Allstate Life Financial Services, Inc., is located at
3100 Sanders Road, Northbrook, Illinois 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;
C-5
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 has duly caused this Pre-Effective Amendment and
Post-Effective Amendment to be signed on its behalf, in the City of Lincoln, and
the State of Nebraska, on this 28th day of September, 1999.
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
(Registrant)
By: LINCOLN BENEFIT LIFE COMPANY
------------------------------------------
(DEPOSITOR)
By: /s/ B. EUGENE WRAITH
------------------------------------------
B. Eugene Wraith
PRESIDENT AND CHIEF OPERATING OFFICER
As required by the Securities Act of 1933, this Pre-Effective and Post-Effective
Amendment has been signed by the following persons in the capacities and on the
28th day of September, 1999.
SIGNATURE TITLE
- ------------------------------ --------------------------
/s/ B. EUGENE WRAITH
- ------------------------------ President, Chief Operating
B. Eugene Wraith Officer and Director
(PRINCIPAL EXECUTIVE OFFICER)
/s/ Lawrence W. Dahl
- ------------------------------ Executive Vice President
Lawrence W. Dahl and Director
/s/ ROBERT E. RICH
- ------------------------------ Executive Vice President
Robert E. Rich and Director
/s/ MARVIN P. EHLY
- ------------------------------ Senior Vice President
MARVIN P. EHLY Treasurer and Director
(PRINCIPAL FINANCIAL OFFICER)
C-6
/s/ JANET P. ANDERBERY
- ------------------------------ Vice President and
Janet P. Anderbery Controller
(PRINCIPAL ACCOUNTING OFFICER)
- ------------------------------ Director
Louis G. Lower, II
/s/ JOHN H. COLEMAN III
- ------------------------------ Director
John H. Coleman III
/s/ JOHN J. MORRIS
- ------------------------------ Director
John J. Morris
/s/ DOUGLAS F. GAER
- ------------------------------ Director
Douglas F. Gaer
- ------------------------------ Director
Kevin Slawin
- ------------------------------ Director
Michael J. Velotta
/s/ CAROL S. WATSON
- ------------------------------ Director
Carol S. Watson
/s/ DEAN M. WAY
- ------------------------------ Director
Dean M. Way
- ------------------------------ Director
Patricia W. Wilson
- ------------------------------
Thomas J. Wilson, II Director
<PAGE>
INDEX TO EXHIBITS
FOR
REGISTRATION STATEMENT ON FORM N-4
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
EXHIBIT NO. SEQUENTIAL PAGE NO.
- ----------- -----------------------------------------
8(g) LSA Variable Series Trust Participation Agreement
9 Opinion and Consent of Counsel
10(a) Consent of Independent Auditors
10(b) Consent of Attorneys
13 Performance Computations
Exhibit 8(g)
PARTICIPATION AGREEMENT
Among
LSA VARIABLE SERIES TRUST,
LSA ASSET MANAGEMENT LLC,
and
LINCOLN BENEFIT LIFE COMPANY
THIS AGREEMENT (the "Agreement"), made and entered into as of the first day
of October, 1999 by and among Lincoln Benefit Life Company (hereinafter the
"Company"), on its own behalf and on behalf of each separate account of the
Company named in Schedule 1 to this Agreement (collectively, the "Accounts"),
LSA Variable Series Trust (the "Fund") and LSA Asset Management LLC (the
"Manager").
WHEREAS, the Fund is an open-end management investment company and is
available to act as the investment vehicle for separate accounts now in
existence or to be established in the future for variable life insurance
policies, variable annuity contracts and other tax-deferred products offered by
insurance companies (the "Participating Insurance Companies");
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio", (collectively, the "Portfolios") and
each representing the interests in a particular managed pool of securities and
other assets;
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (the "SEC"), dated ____________, 1999 (File No. 812-6324)
(hereinafter, the "Order") granting relief to the Fund, the Manager and any
subsequently registered open-end investment companies that in the future are
advised by the Manager, or by any entity controlling, controlled by, or under
common control with the Manager. Specifically, the Order provides exemptions
from Section 15(a) of the 1940 Act and Rule 18f-2 thereunder, subject to the
conditions set forth in the application, to permit investment advisers other
than the Manager, to serve and act as an investment subadviser to one or more
portfolios of the Fund (the "Adviser(s)") pursuant to written agreements between
the Manager and each Adviser that have been approved by the board of trustees of
the Fund (the "Trustees") but which have not been approved by a vote of a
majority of the outstanding voting securities of each portfolio. The Order also
provides exemptions from: certain registration statement disclosure requirements
of Items 3, 6(a)(1)(ii) and 15(a)(3) of Form N1-A and Item 3 of Form N-14;
certain proxy statement disclosure requirements of Items 22(a)(3)(iv),
(c)(1)(ii), (c)(1)(iii), (c)(8) and (c)(9) of Schedule 14A under the Securities
Exchange Act of 1934, as amended; certain semi-annual reporting disclosure
requirements of Item 48 of Form N-SAR; and, certain financial statement
disclosure requirements of Sections 6-07(2)(a), (b), and (c) of Regulation S-X
which may be deemed to require various disclosures regarding advisory fees paid
to the Advisers;
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended (the
"1933 Act");
WHEREAS, the Manager is duly registered as an investment adviser under the
Investment Advisers Act of 1940;
WHEREAS, the Company has registered or will register certain variable
annuity and/or life insurance contracts under the 1933 Act (the "Contracts")
(unless an exemption from registration is available);
WHEREAS, the Accounts are or will be duly organized, validly existing
segregated asset accounts, established by resolution of the Board of Directors
of the Company, to set aside and invest assets attributable to the Contracts and
the Accounts;
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless an exemption from registration is
available);
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios (as named
in Schedule 2 to this Agreement and as may be amended from time to time by
mutual consent of the parties) on behalf of the Accounts to fund the Contracts
(as named in Schedule 3 to this Agreement and as may be amended from time to
time by mutual consent of the parties) and the Fund is authorized to sell such
shares to the Accounts at net asset value; and
NOW, THEREFORE, in consideration of their mutual promises, the Fund, the
Manager and the Company agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Fund agrees to sell to the Company those shares of the Fund which
the Company orders on behalf of the Account, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Fund. For purposes of this Section
1.1, the Company shall be the designee of the Fund for receipt of such orders
from each Account and receipt by such designee shall constitute receipt by the
Fund; provided that the Fund receives written (or facsimile) notice of such
order by 9:30 a.m. Eastern Standard Time on the next following Business Day.
"Business Day" shall mean any day on which the New York Stock Exchange is open
for trading and on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.2. The Company shall pay for Fund shares on the next Business Day after
it places an order to purchase Fund shares in accordance with Section 1.1
hereof. Payment shall be in federal funds transmitted by wire or by a credit for
any shares redeemed.
1.3. The Fund agrees to make Fund shares available for purchase at the
applicable net asset value per share by the Company for its Accounts (as named
in Schedule 1 to this Agreement and as may be amended from time to time by
mutual consent of the parties) on those days on which the Fund calculates its
net asset value pursuant to rules of the SEC; provided, however, that the
Trustees may refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio if such action is required by
law or by regulatory authorities having jurisdiction or is, in the sole
discretion of the Trustees, acting in good faith and in light of their fiduciary
duties under federal and any applicable state laws, in the best interests of the
shareholders of any Portfolio.
1.4. The Fund agrees to redeem, upon the Company's request, any full or
fractional shares of the Fund held by the Company, executing such requests on a
daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.4,
the Company shall be the designee of the Fund for receipt of requests for
redemption and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives written (or facsimile) notice of such request
for redemption by 9:30 a.m. Eastern Standard Time on the next following Business
Day. Payment shall be made within the time period specified in the Fund's
prospectus or statement of additional information, in federal funds transmitted
by wire to the Company's account as designated by the Company in writing from
time to time.
1.5. The Company shall pay for the Fund shares on the next Business Day
after an order to purchase shares is made in accordance with the provisions of
Section 1.4 hereof. Payment shall be in federal funds transmitted by wire
pursuant to the instructions of the Fund's treasurer or by a credit for any
shares redeemed.
1.6. The Company agree to purchase and redeem the shares of the Portfolios
named in Schedule 2 offered by the Fund's then current prospectus and statement
of additional information in accordance with the provisions of such prospectus
and statement of additional information. The Company shall not permit any person
other than a Contract owner to give instructions to the Company which would
require the Company to redeem or exchange shares of the Fund.
1.7. Net Asset Value. The Fund shall use its best efforts to inform the
Company of the net asset value per share for each Portfolio available to the
Company by 6:30 p.m. New York Time or as soon as reasonably practicable after
the net asset value per share for such Portfolio is calculated. The Fund shall
calculate such net asset value in accordance with the prospectus for such
Portfolio. In the event that net asset values are not made available to the
Company by such time, the Company agrees to use its best efforts to include the
net asset value when received in its next business cycle for purposes of
calculating purchase orders and requests for redemption. However, if net asset
values are not available for an inclusion in the next business cycle and
purchase orders/redemptions are not able to be calculated and available to the
Company to execute within the time-frame identified in Section 2.3 (a), the
Company Trust shall reimburse and make the Company whole for any losses incurred
as a result of such delays.
1.8. Pricing Errors. Any material errors in the calculation of net asset
value, dividends or capital gain information shall be reported immediately upon
discovery to the Company. An error shall be deemed "material" based on our
interpretation of the SEC's position and policy with regard to materiality, as
it may be modified from time to time. Neither the Fund, the Manager, nor any of
their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect information
supplied by or on behalf of the Company or any other Participating Company to
the Trust or the Distributor. The Fund shall make the Company whole for any
payments or adjustments to the number of shares in the Account that are
reasonably demonstrated to be required as a result of pricing errors.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under laws of the State of Nebraska and has registered or, prior to any issuance
or sale of the Contracts, will register each Account as a unit investment trust
in accordance with the provisions of the 1940 Act to serve as a segregated
investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Illinois and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify.
2.4. The Company represents that the Contracts are currently treated as
life insurance policies or annuity contracts, under applicable provisions of the
Code and that it will make every effort to maintain such treatment and that it
will notify the Fund immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
2.5. The Fund represents that to the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, the Fund
undertakes to have a board of directors, a majority of whom are not interested
persons of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Illinois and the Fund represents that their respective operations are
and shall at all times remain in material compliance with the laws of the State
of Illinois to the extent required to perform this Agreement.
2.7. The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Illinois and that it does and will comply in all
material respects with the 1940 Act.
2.8. The Manager represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it will perform its obligations for the Fund in
compliance in all material respects with the laws of its state of domicile and
any applicable state and federal securities laws. The Manager further represents
that it will make reasonable efforts to verify that all subadvisers are
similarly registered.
2.9. The Fund represents and warrants that its directors, officers,
employees, and other individuals/entities dealing with the money and/or
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-(1)
of the 1940 Act or related provisions as may be promulgated from time to time.
The aforesaid blanket fidelity bond shall include coverage for larceny and
embezzlement and shall be issued by a reputable bonding company.
2.10. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage, in an amount not less $5 million. The aforesaid
includes coverage for larceny and embezzlement is issued by a reputable bonding
company. The Company agrees to make all reasonable efforts to see that this bond
or another bond containing these provisions is always in effect, and agrees to
notify the Fund and the Underwriter in the event that such coverage no longer
applies.
ARTICLE III. Sales Material, Prospectuses and Other Reports
3.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or the Manager is named, at least five Business Days prior to its
use. No such material shall be used if the Fund or its designee reasonably
objects to such use within five Business Days after receipt of such material.
"Business Day" shall mean any day in which the New York Stock Exchange is open
for trading and in which the Fund calculates its net asset value pursuant to the
rules of the SEC.
3.2. Except with the express permission of the Fund, the Company shall not
give any information or make any representations or statements on behalf of the
Fund or concerning the Fund in connection with the sale of the Contracts other
than the information or representations contained in the registration statement
or prospectus for the Fund shares, as such registration statement and prospectus
may be amended or supplemented from time to time, or in reports or proxy
statements for the Fund, or in sales literature or other promotional material
approved by the Fund or its designee.
3.3. For purposes of this Article II, the phrase "sales literature or other
promotional material" shall mean advertisements (such as material published, or
designed for use in, a newspaper, magazine, or other periodical, radio,
television, telephone or tape recording, videotape display, signs or billboard
or electronic media), and sales literature (such as brochures, circulars, market
letters and form letters), distributed or made generally available to customers
or the public.
3.4. The Fund shall provide a copy of its current prospectus within a
reasonable period of its effective filing date, and provide other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus for the Fund is supplemented or amended) to have
the prospectus for the Contracts and the prospectus for the Fund printed
together in one document (such printing to be at the Company's expense). The
Manager shall be permitted to review and approve the typeset form of the Fund's
prospectus prior to such printing.
3.5. The Fund or the Manager shall provide the Company with either: (i) a
copy of the Fund's proxy material, reports to shareholders, other information
relating to the Fund necessary to prepare financial reports, and other
communications to shareholders for printing and distribution to Contract owners
at the Company's expense, or (ii) camera ready and/or printed copies, if
appropriate, of such material for distribution to Contract owners at the
Company' expense, within a reasonable period of the filing date for definitive
copies of such material. The Manager shall be permitted to review and approve
the typeset form of such proxy material, shareholder reports and communications
prior to such printing.
ARTICLE IV. Fees and Expenses
4.1. The Fund and Manager shall pay no fee or other compensation to the
Company under this Agreement, and the Company shall pay no fee or other
compensation to the Fund or Manager, except as provided herein.
4.2. All expenses incident to performance by each party of its respective
duties under this Agreement shall be paid by that party. The Fund shall ensure
that all its shares are registered and authorized for issuance in accordance
with applicable federal law and, if and to the extent advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, and the preparation of all statements
and notices required by any federal or state law.
4.3. The Fund, at its expense, shall provide the Company with copies of its
proxy statements, reports to shareholders, and other communications (except for
prospectuses and statements of additional information, which are covered in
section 3.1) to shareholders in such quantity as the Company shall reasonably
require for distributing to Contract owners. The Fund shall bear the expense of
mailing such proxy materials in the event the proxy vote is a result of actions
initiated by the Fund.
4.4. In the event the Fund adds one or more additional Portfolios and the
parties desire to make such Portfolios available to the respective Contract
owners as an underlying investment medium, a new Schedule 3 which shall be an
amendment to this Agreement shall be executed by the parties authorizing the
issuance of shares of the new Portfolios to the particular Account. The
amendment may also provide for the sharing of expenses for the establishment of
new Portfolios among Participating Insurance Companies desiring to invest in
such Portfolios and the provision of funds as the initial investment in the new
Portfolios.
4.5 Except as provided in this Section 4.2., all expenses of preparing,
setting in type and printing and distributing Fund prospectuses and statements
of additional information shall be the expense of the Company. For prospectuses
and statements of additional information provided by the Company to its existing
owners of Contracts who currently own shares of one or more of the Fund's
Portfolios, in order to update disclosure as required by the 1933 Act and/or the
1940 Act, the cost of printing shall be borne by the Fund. If the Company
chooses to receive camera-ready film or computer diskettes in lieu of receiving
printed copies of the Fund's prospectus, the Fund shall bear the cost of
typesetting to provide the Fund's prospectus to the Company in the format in
which the Fund is accustomed to formatting prospectuses, and the Company shall
bear the expense of adjusting or changing the format to conform with any of its
prospectuses. In such event, the Fund will reimburse the Company in an amount
equal to the product of x and y where x is the number of such prospectuses
distributed to owners of the Contracts who currently own shares of one or more
of the Fund's Portfolios, and y is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's statement of additional information. The Company agrees to
provide the Fund or its designee with such information as may be reasonably
requested by the Fund to assure that the Fund's expenses do not include the cost
of printing, typesetting, and distributing any prospectuses or statements of
additional information other than those actually distributed to existing owners
of the Contracts who currently own shares of one or more of the Fund's
Portfolios.
ARTICLE V. Conditions of the Order; Applicable Law
5.1. The Company has reviewed a copy of the Order, and in particular, has
reviewed the conditions to the requested relief set forth therein. The Company
agrees to be bound by the responsibilities of a Participating Insurance Company
as set forth in the Order.
5.2. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Illinois.
5.3. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Order) and the terms hereof shall be
interpreted and construed in accordance therewith.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance within the grace period afforded by Regulation
817-5. The Fund shall provide the Company information reasonably requested in
relation to Section 817(h) diversification requirements, including quarterly
reports [and annual certifications].
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by Variable Insurance Product owners; or (f) a decision by a Participating
Insurance Company to disregard the voting instructions of contract owners. The
Board shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1(a) The Company agrees to indemnify and hold harmless the Fund and each
member of the Board and officers, and each Adviser and each director and officer
of each Adviser, and each person, if any, who controls the Fund or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" and individually, "Indemnified Party," for purposes of this Section
8.1) against any and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of the Company) or litigation
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or supplement to any
of the foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of the Fund for use in the
registration statement or prospectus for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature of the Fund not supplied by the
Company, or persons under its control and other than statements or
representations authorized by the Fund or an Adviser) or unlawful conduct
of the Company or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature of the Fund or any amendment thereof or
supplement thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was made
in reliance upon and in conformity with information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company, as limited by and in accordance with the provisions of
Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Manager
8.2(a). Each Manager agrees, with respect to each Portfolio that it
manages, to indemnify and hold harmless the Company and each of its directors
and officers and each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act (collectively, the "Indemnified Parties"
and individually, "Indemnified Party," for purposes of this Section 8.2) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of shares of the Portfolio
that it manages or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the registration
statement or prospectus or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity with
information furnished to the Fund by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Portfolio shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the registration
statement, prospectus or sales literature for the Contracts not supplied by
the Fund or persons under its control and other than statements or
representations authorized by the Company) or unlawful conduct of the Fund,
Manager(s) or Underwriter or persons under their control, with respect to
the sale or distribution of the Contracts or Portfolio shares; or
(iii) arise out of or as a result of any untrue statement or alleged
untrue statement of a material fact contained in a registration statement,
prospectus, or sales literature covering the Contracts, or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Manager in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Manager; as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Manager shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement.
8.2(c). The Manager shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate, at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and the Adviser will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Manager of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification by the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (hereinafter
collectively, the "Indemnified Parties" and individually, "Indemnified Party,"
for purposes of this Section 8.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Fund) or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result from the gross
negligence (except for failure to comply with Section 6.1 of this Agreement for
which the standard is negligence), bad faith or willful misconduct of the Board
or any member thereof, are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement
(including any failure to comply with Section 6.1 of this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund;
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company agrees promptly to notify the Fund of the commencement
of any litigation or proceedings against it or any of its respective officers or
directors in connection with this Agreement, the issuance or sale of the
Contracts, with respect to the operation of either Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Termination
9.1 This Agreement shall terminate with respect to some or all Portfolios:
(a) at the option of any party upon six month's advance written notice
to the other parties at the addresses specified in Section VI of this
Agreement; or
(b) at the option of the Company to the extent that shares of
Portfolios are not reasonably available to meet the requirements of its
Contracts or are not appropriate funding vehicles for the Contracts, as
determined by the Company reasonably and in good faith. Prompt written
notice of the election to terminate for such cause and an explanation of
such cause shall be furnished by the Company. 9.2. It is understood and
agreed that the right of any party hereto to terminate this Agreement
pursuant to Section 5.1(a) may be exercised for cause or for no cause.
ARTICLE X. Notices Any notice shall be sufficiently given when sent by
registered or certified mail to the other party at the address of such
party set forth below or at such other address as such party may from time
to time specify in writing to the other parties to this Agreement. If to
the Fund: LSA Variable Series Trust 3100 Sanders Road Northbrook, Illinois
60062 Attn: Legal Department
If to the Manager:
LSA Asset Management LLC
3100 Sanders Road
Northbrook, Illinois 60062
Attn: General Counsel
If to the Company:
Lincoln Benefit Life Company
Lincoln, Nebraska
Attn: Legal Department
ARTICLE XI. Miscellaneous
11.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as it may come into the public domain.
11.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.4. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
11.5. Each party hereto shall cooperate with all appropriate governmental
authorities (including without limitation the SEC, the National Association of
Securities Dealers, Inc. and state insurance regulators) and shall permit such
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Each party hereto shall promptly notify the other parties
to this Agreement, by written notice to the addresses specified in Section V, of
any such investigation or inquiry.
11.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
11.7. It is understood by the parties that this Agreement is not an
exclusive arrangement.
11.8. The Company and the Manager each understand and agree that the
obligations of the Fund under this Agreement are not binding upon any
shareholder of the Fund personally, but bind only the Fund and the Fund's
property; the Company and the Manager separately represent that each has notice
of the provisions of the Declaration of Trust of the Fund disclaiming
shareholder liability for acts or obligations of the Fund.
11.9. This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties.
11.10. This Agreement sets forth the entire agreement between the parties
and supercedes all prior communications, agreements and understandings, oral or
written, between the parties regarding the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed as of the date specified below.
Lincoln Benefit Life Company
By: __________________________________
Title: _______________________________
Date: ________________________________
LSA VARIABLE SERIES TRUST
By: __________________________________
Title: _______________________________
Date: ________________________________
LSA ASSET MANAGEMENT LLC
By: __________________________________
Title: _______________________________
Date: ________________________________
SCHEDULE 1
[SEPARATE ACCOUNT(S)]
<PAGE>
SCHEDULE 2
[PORTFOLIOS]
<PAGE>
SCHEDULE 3
[CONTRACTS]
Exhibit 9
September 1, 1999
Lincoln Benefit Life Company
Lincoln Benefit Life Centre
Lincoln, Nebraska 68501-0469
RE: Lincoln Benefit Life Company
Lincoln Benefit Life Variable Annuity Account
Registration Statement on Form N-4 (File No. 333-82427)
Dear Sirs:
This opinion is furnished in connection with the filing of a Registration
Statement on Form N-4 ("Registration Statement") by Lincoln Benefit Life
Variable Annuity Account ("Separate Account"). The Registration Statement covers
an indefinite amount of interests under the variable portion of Flexible Premium
Individual Deferred Variable Annuity Contracts ("Contracts") offered by Lincoln
Benefit Life Company ("Lincoln Benefit"). Purchase Payments paid under variable
annuity contracts offered by Lincoln Benefit may be allocated by Lincoln Benefit
to the Separate Account in accordance with the owners' direction with reserves
established by Lincoln Life to support such policies.
The Contracts are designed to provide annuity benefits are to be offered in a
manner described in the Prospectus which is included in the Registration
Statement.
The Contracts will be sold only in jurisdictions authorizing such sales.
I have examined all such corporate records of Lincoln Benefit and such other
documents and laws as I consider appropriate as a basis for this opinion. On the
basis of such examination, it is my opinion that:
1. Lincoln Benefit is a corporation duly organized and validly existing under
the laws of the State of Nebraska.
2. The Separate Account is an account established and maintained by Lincoln
Benefit pursuant to the laws of the State of Nebraska, under which income,
gains and losses, whether or not realized, from assets allocated to the
Separate Account, are, in accordance with the Contracts, credited to or
charged against the Separate Account without regard to other income, gains
or losses or Lincoln Benefit.
3. Assets allocated to the Separate Account will be owned by Lincoln Benefit.
The Policies provide that the portion of the assets of the Separate Account
equal to the reserves and other Contract liabilities with respect to the
Separate Account will not be chargeable with liabilities arising out of any
other business Lincoln Life may conduct.
4. When issued and sold as described above, the Contracts will be duly
authorized and will constitute validly issued and binding obligations of
Lincoln Benefit in accordance with their terms.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement.
Yours truly,
/s/ Carol S. Watson
Carol S. Watson
Senior Vice President and
General Counsel
Exhibit 10(a)
INDEPENDENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 23 to Registration
Statement No. 333-82427 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
schedule of Lincoln Benefit Life Company and to the reference to us under the
heading "Experts" in the Prospectus, which is part of such Registration
Statement.
We also consent to the use of our report dated March 18, 1999, related to the
financial statements of Lincoln Benefit Life Variable Annuity Account which
appears in the Statement of Additional Information, which is part of such
Registration Statement.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
September 23, 1999
Exhibit 10(b)
JordenBurt
1025 Thomas Jefferson Street, N.W.
Suite 400 EAST
Washington, D.C. 20007-0805
(202) 965-8100
TELECOPIER: (202) 965-8104
HTTP://WWW.JORDENBURT.COM
Christopher S. Petito 202-965-8152
September 20, 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 ALegal
Matters@ in this Pre-Effective Amendment No. 1 to Registration Statement No.
333-82427 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:___________________________________
<TABLE>
<CAPTION>
ONE YEAR STANDARDIZED RETURN
OCC ACCUMULATION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
12/31/97 NO. YEARS 1.000
TO
12/31/98 TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 1000.00
31-Dec-97 1000.00 8.987038 111.27137
FEE 31-Dec-98 0.666 10.000000 0.06660
RESULTING VALUE 31-Dec-98 10.000000 111.20477 1112.0477
1.000
FORMULA: 1000*(1+T)= 1112.05
= 1044.05
T = 4.40%
R = 4.40%
</TABLE>
The values are hypothetical for purposes of demonstrating a calculation
according to the formula. Lincoln Benefit has not previously offered contracts
utilizing the Subaccounts underlying this Contract and, accordingly, there
currently is no standardized performance for these Subaccounts. We will update
the information in the exhibit when standardized performance is available. For
purposes of this schedule, the portion of the annual administration charge
allocable to this subaccount is expressed as an equivalent daily rate.
<TABLE>
<CAPTION>
FIVE YEAR STANDARDIZED RETURN
OCC ACCUMULATION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
30-Dec-93
TO NO. YEARS 5.000
31-Dec-98
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 1000.00
31-Dec-93 1000.00 4.194025 238.43445
FEE 31-Dec-94 0.666 4.331759 0.15375
FEE 31-Dec-95 0.666 5.976554 0.11144
FEE 31-Dec-96 0.666 7.207708 0.09240
FEE 31-Dec-97 0.666 8.987038 0.07411
FEE 31-Dec-98 0.666 10.000000 0.06660
RESULTING VALUE 31-Dec-98 10.000000 237.93616 2379.3616
5.000
FORMULA: 1000*(1+T)= 2379.36
= 2402.12
T = 19.16%
R = 140.21%
</TABLE>
The values are hypothetical for purposes of demonstrating a calculation
according to the formula. Lincoln Benefit has not previously offered contracts
utilizing the Subaccounts underlying this Contract and, accordingly, there
currently is no standardized performance for these Subaccounts. We will update
the information in the exhibit when standardized performance is available. For
purposes of this schedule, the portion of the annual administration charge
allocable to this subaccount is expressed as an equivalent daily rate.
<TABLE>
<CAPTION>
TEN YEAR STANDARDIZED RETURN
OCC ACCUMULATION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
30-Dec-88
TO NO. YEARS 10.000
31-Dec-98
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 1000.00
30-Dec-88 1000.00 2.279157 438.75874
FEE 30-Dec-89 0.666 2.772819 0.24019
FEE 30-Dec-90 0.666 2.617938 0.25440
FEE 30-Dec-91 0.666 3.386310 0.19667
FEE 30-Dec-92 0.666 3.949528 0.16863
FEE 30-Dec-93 0.666 4.198888 0.15861
FEE 30-Dec-94 0.666 4.331759 0.15375
FEE 30-Dec-95 0.666 5.976554 0.11144
FEE 30-Dec-96 0.666 7.126616 0.09345
FEE 30-Dec-97 0.666 8.953622 0.07438
FEE 30-Dec-98 0.666 9.908187 0.06722
RESULTING VALUE 30-Dec-98 9.908187 437.24000 4332.2557
10.000
FORMULA: 1000*(1+T)= 4332.26
= 4332.26
T = 15.79%
R = 333.23%
</TABLE>
The values are hypothetical for purposes of demonstrating a calculation
according to the formula. Lincoln Benefit has not previously offered contracts
utilizing the Subaccounts underlying this Contract and, accordingly, there
currently is no standardized performance for these Subaccounts. We will update
the information in the exhibit when standardized performance is available. For
purposes of this schedule, the portion of the annual administration charge
allocable to this subaccount is expressed as an equivalent daily rate.
<TABLE>
<CAPTION>
SINCE INCEPTION - STANDARDIZED RETURN
OCC ACCUMULATION TRUST Equity
<S> <C> <C> <C> <C> <C>
01-Aug-88
TO NO. YEARS 10.415 10
31-Dec-98
TRANSACTION DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
INIT DEPOSIT 1000.00
0 01-Aug-88 1000.00 2.232347 447.95897
1 FEE 01-Aug-89 0.666 2.599811 0.25617
2 FEE 01-Aug-90 0.666 2.697789 0.24687
3 FEE 01-Aug-91 0.666 3.117510 0.21363
4 01-Aug-92 0.666 3.659979 0.18197
5 01-Aug-93 0.666 4.081710 0.16317
6 01-Aug-94 0.666 4.347835 0.15318
7 01-Aug-95 0.666 5.470153 0.12175
8 01-Aug-96 0.666 6.459970 0.10310
9 01-Aug-97 0.666 8.535046 0.07803
10 01-Aug-98 0.666 9.479831 0.07025
11 31-Dec-98 0.666 10.000000 0.06660
12 N/A 0 N/A 0.00000
13 N/A 0 N/A 0.00000
14 FEE N/A 0 N/A 0.00000
15 FEE N/A 0 N/A 0.00000
RESULTING VALUE 31-Dec-98 10.000000 446.30424 4463.0424
10.415
FORMULA: 1000*(1+T)= 4463.04
= 4463.04
T = 15.45%
R = 346.30%
</TABLE>
The values are hypothetical for purposes of demonstrating a calculation
according to the formula. Lincoln Benefit has not previously offered contracts
utilizing the Subaccounts underlying this Contract and, accordingly, there
currently is no standardized performance for these Subaccounts. We will update
the information in the exhibit when standardized performance is available. For
purposes of this schedule, the portion of the annual administration charge
allocable to this subaccount is expressed as an equivalent daily rate.
<TABLE>
<CAPTION>
TOTAL RETURN YEAR TO DATE - NONSTANDARDIZED
OCC ACCUMULTION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
12/31/97 NO. YEARS 1.000
TO
12/31/98 DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
INIT DEPOSIT 31-Dec-97 50000.00 8.987038 5563.56840
RESULTING VALUE 12/31/98 10.000000 5563.56840 55635.6840
1.000
FORMULA: 50000*(1+T)= 55635.68
T = 11.27%
R = 11.27%
</TABLE>
<TABLE>
<CAPTION>
ONE YEAR AVERAGE ANNUAL NONSTANDARDIZED RETURN
OCC ACCUMULTION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
12/31/97 NO. YEARS 1.000
TO
12/31/98 DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
INIT DEPOSIT 31-Dec-97 50000.00 8.987038 5563.56840
RESULTING VALUE 12/31/98 10.000000 5563.56840 55635.6840
1.000
FORMULA: 50000*(1+T)= 55635.68
T = 11.27%
R = 11.27%
</TABLE>
<TABLE>
<CAPTION>
FIVE YEAR AVERAGE ANNUAL NONSTANDARIZED RETURN
<S> <C> <C> <C> <C> <C> <C>
30-Dec-93
TO NO. YEARS 5.000
31-Dec-98
DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
INIT DEPOSIT 31-Dec-93 50000.00 4.194025 11921.72250
FEE 31-Dec-94 0 4.331759 0.00000
FEE 31-Dec-95 0 5.976554 0.00000
FEE 31-Dec-96 0 7.207708 0.00000
FEE 31-Dec-97 0 8.987038 0.00000
FEE 31-Dec-98 0 10.000000 0.00000
RESULTING VALUE 31-Dec-98 10.000000 11921.72250 119217.2250
5.000
FORMULA: 50000*(1+T)= 119217.23
T = 18.98%
R = 138.43%
</TABLE>
<TABLE>
<CAPTION>
TEN YEAR AVERAGE ANNUAL NONSTANDARIZED RETURN
OCC ACCUMULTION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
30-Dec-88
TO NO. YEARS 10.000
31-Dec-98
DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
INIT DEPOSIT 30-Dec-88 50000.00 2.279157 21937.93686
FEE 30-Dec-89 0 2.772819 0.00000
FEE 30-Dec-90 0 2.617938 0.00000
FEE 30-Dec-91 0 3.386310 0.00000
FEE 30-Dec-92 0 3.949528 0.00000
FEE 30-Dec-93 0 4.198888 0.00000
FEE 30-Dec-94 0 4.331759 0.00000
FEE 30-Dec-95 0 5.976554 0.00000
FEE 30-Dec-96 0 7.126616 0.00000
FEE 30-Dec-97 0 8.953622 0.00000
FEE 30-Dec-98 0 9.908187 0.00000
RESULTING VALUE 30-Dec-98 9.908187 21937.93686 217365.1816
10.000
FORMULA: 50000*(1+T)= 217365.1816
T = 15.83%
R = 335%
</TABLE>
<TABLE>
<CAPTION>
SINCE INCEPETION - AVERAGE ANNUAL NONSTANDARDIZED RETURN
OCC ACCUMULTION TRUST Equity
<S> <C> <C> <C> <C> <C>
01-Aug-88
TO NO. YEARS 10.415 10
31-Dec-98
DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
0 INIT DEPOSIT 01-Aug-88 50000.00 2.232347 22397.94833
1 FEE 01-Aug-89 0 2.599811 0.00000
2 FEE 01-Aug-90 0 2.697789 0.00000
3 FEE 01-Aug-91 0 3.117510 0.00000
4 01-Aug-92 0 3.659979 0.00000
5 01-Aug-93 0 4.081710 0.00000
6 01-Aug-94 0 4.347835 0.00000
7 01-Aug-95 0 5.470153 0.00000
8 01-Aug-96 0 6.459970 0.00000
9 01-Aug-97 0 8.535046 0.00000
10 01-Aug-98 0 9.479831 0.00000
11 31-Dec-98 0 10.000000 0.00000
12 N/A 0 N/A 0.00000
13 N/A 0 N/A 0.00000
14 FEE N/A 0 N/A 0.00000
15 FEE N/A 0 N/A 0.00000
RESULTING VALUE 31-Dec-98 10.000000 22397.94833 223979.4833
10.415
FORMULA: 50000*(1+T)= 223979.4833
T = 15.49%
R = 347.96%
</TABLE>
<TABLE>
<CAPTION>
MONTHLY RETURN - NONSTANDARDIZED
OCC ACCUMULTION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
11/30/98 NO. YEARS 1 month
TO
12/31/98 DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
INIT DEPOSIT 30-Nov-98 50000.00 9.830999 5085.95335
RESULTING VALUE 12/31/98 10.000000 5085.95335 50859.5335
1.000
FORMULA: 50000*(1+T)=
50,859.53
T = 1.72%
R = 1.72%
</TABLE>
<TABLE>
1996 - NONSTANDARDIZED RETURN
OCC ACCUMULATION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
12/29/95 NO. YEARS 1.000
TO
12/31/96 DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
INIT DEPOSIT 29-Dec-95 50000.00 5.976554 8366.02478
RESULTING VALUE 12/31/96 7.207708 8366.02478 60299.8601
1.000
FORMULA: 50000*(1+T)= 60299.86
T = 20.60%
R = 20.60%
</TABLE>
<TABLE>
<CAPTION>
1997 - NONSTANDARDIZED RETURN
OCC ACCUMULATION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
12/31/96 NO. YEARS 1.000
TO
12/31/97 DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
INIT DEPOSIT 12/31/96 50000.00 7.207708 6937.01840
RESULTING VALUE 12/31/97 8.987038 6937.01840 62343.2473
1.000
FORMULA: 50000*(1+T)= 62343.25
T = 24.69%
R = 24.69%
</TABLE>
<TABLE>
<CAPTION>
1998 - NONSTANDARDIZED RETURN
OCC ACCUMULATION TRUST Equity
<S> <C> <C> <C> <C> <C> <C>
12/31/97 NO. YEARS 1.000
TO
12/31/98 DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
INIT DEPOSIT 31-Dec-97 50000.00 8.987038 5563.56840
RESULTING VALUE 12/31/98 10.000000 5563.56840 55635.6840
1.000
FORMULA: 50000*(1+T)= 55635.68
T = 11.27%
R = 11.27%
</TABLE>
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN SINCE INCEPTION - NONSTANDARDIZED
OCC ACCUMULATION TRUST Equity
<S> <C> <C> <C> <C> <C>
01-Aug-88
TO NO. YEARS 10.415 10
31-Dec-98
DATE $ VALUE UNIT VALUE NO. UNITS END VALUE
TRANSACTION
0 INIT DEPOSIT 01-Aug-88 50000.00 2.232347 22397.94833
1 FEE 01-Aug-89 0 2.599811 0.00000
2 FEE 01-Aug-90 0 2.697789 0.00000
3 FEE 01-Aug-91 0 3.117510 0.00000
4 01-Aug-92 0 3.659979 0.00000
5 01-Aug-93 0 4.081710 0.00000
6 01-Aug-94 0 4.347835 0.00000
7 01-Aug-95 0 5.470153 0.00000
8 01-Aug-96 0 6.459970 0.00000
9 01-Aug-97 0 8.535046 0.00000
10 01-Aug-98 0 9.479831 0.00000
11 31-Dec-98 0 10.000000 0.00000
12 N/A 0 N/A 0.00000
13 N/A 0 N/A 0.00000
14 FEE N/A 0 N/A 0.00000
15 FEE N/A 0 N/A 0.00000
RESULTING VALUE 31-Dec-98 10.000000 22397.94833 223979.4833
10.415
FORMULA: 50000*(1+T)= 223979.4833
T = 15.49%
R = 347.96%
</TABLE>
