AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 2000
File No. 333-50737
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
POST-EFFECTIVE AMENDMENT NO. 2
AND
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940
POST-EFFECTIVE AMENDMENT NO. 24
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
(Exact Name of Registrant)
LINCOLN BENEFIT LIFE COMPANY
(Name of Depositor)
2940 South 84th Street
Lincoln, Nebraska 68506
(Complete Address of Depositor's Principal Office)
CAROL S. WATSON
Lincoln Benefit Life Company
2940 South 84th Street
Lincoln, Nebraska 68506
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 the
effective date of this registration statement.
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b) of Rule 485
on May 1 pursuant to paragraph (b) of Rule 485
X 60 days after filing pursuant to paragraph (a) of rule 485
on __________, 1999 pursuant to paragraph (a) of rule 485
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933, pursuant to Section 24 of the Investment Company Act of
1940.
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<PAGE>
CROSS REFERENCE SHEET
Showing Location in Part A (Prospectus) and Part B of Registration Statement of
Additional Information Required by Form N-4
<TABLE>
<CAPTION>
ITEM OF FORM N-4
PART A: INFORMATION REQUIRED IN A PROSPECTUS
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<S> <C> <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............................................ Lincoln Benefit Life Variable
Annuity 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.................................... Not applicable
(c) Special Purchase Plans................................ Not applicable
(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
9. Death Benefit............................................. Death Benefit
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
ITEM OF FORM N-4
PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION
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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. AnnuityPayments........................................... SAI: The Contract
23. Financial Statements
(a) Financial Statements of Registrant.................... SAI: Financial Statements
(b) Financial Statements of Depositor..................... Prospectus: Financial Statements
</TABLE>
PART C: OTHER INFORMATION
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The information required to be provided in Part C is separately identified by
Item number.
<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: 2940 SOUTH 84TH STREET, LINCOLN, NE 68506
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 forty investment options, each of which is a subaccount of the Lincoln
Benefit Life Variable Annuity Account ("Separate Account"). Each Subaccount
invests exclusively in shares of one of the following Portfolios:
JANUS ASPEN SERIES: Flexible Income Portfolio, Balanced Portfolio, Growth
Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio
FEDERATED INSURANCE MANAGEMENT SERIES: Utility Fund II, Fund for U.S. Government
Securities II, High Income Bond Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: Money Market Portfolio, Equity-Income
Portfolio, Growth Portfolio, Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: Asset Manager Portfolio,
Contrafund Portfolio, Index 500 Portfolio
THE ALGER AMERICAN FUND: Income and Growth Portfolio, Small Capitalization
Portfolio, Growth Portfolio, MidCap Growth Portfolio, Leveraged AllCap Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND: Bond Portfolio, Balanced Portfolio,
Growth and Income Portfolio, Global Discovery Portfolio, International Portfolio
STRONG VARIABLE INSURANCE FUNDS, INC.: Discovery Fund II, Growth Fund II
STRONG OPPORTUNITY FUND II, INC.: Opportunity Fund II
T. ROWE PRICE INTERNATIONAL SERIES, INC.: T. Rowe Price International Stock
Portfolio
T. ROWE PRICE EQUITY SERIES, INC.: T. Rowe Price New America Growth Portfolio,
T. Rowe Price Mid-Cap Growth Portfolio, T Rowe Price Equity Income Portfolio
MFS VARIABLE INSURANCE TRUST: Growth with Income Series, Research Series,
Emerging Growth Series, Total Return Series, New Discovery Series
STI CLASSIC VARIABLE TRUST: Capital Appreciation, International Equity, Value
Income Stock
Some of the portfolios described in this Prospectus may not be available in your
Contract. We may make available other investment options in the future.
You may not purchase a Contract if either you or the Annuitant are 90 years old
or older before we receive your application.
Your Contract Value will vary daily as a function of the investment performance
of the Subaccounts to which you have allocated Purchase Payments and any
interest credited to the Fixed Account. We do not guarantee any minimum Contract
Value for amounts allocated to the Subaccounts. Benefits provided by this
Contract, when based on the Fixed Account, are subject to a Market Value
Adjustment, which may result in an upwards or downwards adjustment in withdrawal
benefits, death benefits, settlement values, transfers to the Subaccounts.
In certain states the contract may be offered as a group contract with
individual ownership represented by Certificates. The discussion of Contracts in
this prospectus applies equally to Certificates under group contracts, unless
the context specifies otherwise.
This prospectus sets forth the information you ought to know about the Contract.
You should read it before investing and keep it for future reference.
We have filed a Statement of Additional Information with the Securities and
Exchange Commission ("SEC"). The current Statement of Additional Information is
dated May 1, 2000. The information in the Statement of Additional Information is
incorporated by reference in this prospectus. You can obtain a free copy by
writing us or calling us at the telephone number given above. The Table of
Contents of the Statement of Additional Information appears on page [ ] of this
prospectus.
(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 MAY 1, 2000.
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 are set forth in the
Statement of Additional Information. 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...............................................
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 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........................................................
Beneficiary..........................................................
Contract Loans for 401(a), 401(k), and 403(b)
Contracts..........................................................
Withdrawals (Redemptions)............................................
Systematic Withdrawal Program........................................
ERISA Plans..........................................................
Minimum Contract Value...............................................
CONTRACT CHARGES.....................................................
Mortality and Expense Risk Charge....................................
Administrative Charges...............................................
Contract Maintenance Charge........................................
Administrative Expense Charge......................................
Transfer Fee.......................................................
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.........................................
Separate Account.....................................................
State Regulation of Lincoln Benefit..................................
ADMINISTRATION........................................................
MARKET TIMING AND ASSET ALLOCATION SERVICES...........................
DISTRIBUTION OF CONTRACTS.............................................
LEGAL PROCEEDINGS.....................................................
LEGAL MATTERS.........................................................
EXPERTS...............................................................
REGISTRATION STATEMENT................................................
ANNUAL REPORT AND OTHER DOCUMENTS.....................................
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION..............
CONSOLIDATED FINANCIAL STATEMENTS..................................... F-1
APPENDIX A - ACCUMULATION UNIT VALUES................................. A-1
APPENDIX B - PORTFOLIOS AND PERFORMANCE DATA.......................... B-1
APPENDIX C - ILLUSTRATION OF A MARKET VALUE ADJUSTMENT................ C-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.
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 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.
<PAGE>
FEE TABLES
CONTRACT OWNER TRANSACTION EXPENSES Sales Charge -- None.
ANNUAL CONTRACT MAINTENANCE CHARGE.................................... $ 35.00
TRANSFER FEE (Applies solely to the second and subsequent
transfers within a calendar month. We are currently
waiving the transfer fee)............................... $ 10.00
SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF
DAILY NET ASSET VALUE DEDUCTED FROM EACH OF THE
SUBACCOUNTS OF THE SEPARATE ACCOUNT)
Mortality and Expense Risk Charge............................. 1.30%
Administrative Expense Charge......................................... 0.10%
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Total Separate Account Annual Expenses................................ 1.40%
<TABLE>
<CAPTION>
PORTFOLIO COMPANY ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
MANAGEMENT FEE OTHER EXPENSES TOTAL
JANUS ASPEN SERIES -------------------------------------------------------------------------
<S> <C> <C> <C>
Flexible Income 0.65% 0.08% 0.73%
Balanced 0.72% 0.02% 0.74%
Growth (1) (after fee waivers or 0.65% 0.03% 0.68%
reductions)
Aggressive Growth 0.72% 0.03% 0.75%
Worldwide Growth (1) (after fee waivers 0.65% 0.07% 0.72%
or reductions)
FEDERATED INSURANCE MANAGEMENT SERIES
Utility II (2) (after fee waiver or expense 0.68% 0.25% 0.93%
reimbursement)
U.S. Government Securities II (2) (after 0.52% 0.33% 0.85%
fee waiver or expense reimbursement)
High Income Bond II 0.60% 0.18% 0.78%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Money Market 0.20% 0.10% 0.30%
Equity-Income (3) 0.49% 0.09% 0.58%
Growth (3) 0.59% 0.09% 0.68%
Overseas (3) 0.74% 0.17% 0.91%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (3) 0.54% 0.10% 0.64%
Contrafund (3) 0.59% 0.11% 0.70%
Index 500 0.24% 0.11% 0.35%
THE ALGER AMERICAN FUND
Income and Growth 0.625% 0.075% 0.70%
Small Capitalization 0.85% 0.04% 0.89%
Growth 0.75% 0.04% 0.79%
Midcap Growth 0.80% 0.04% 0.84%
Leveraged Allcap (4) 0.85% 0.11% 0.96%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond 0.47% 0.09% 0.56%
Balanced 0.47% 0.08% 0.55%
Growth and Income 0.47% 0.09% 0.56%
Global Discovery 0.97% 0.81% 1.78%
International 0.87% 0.18% 1.05%
STRONG VARIABLE INSURANCE FUNDS, INC.
Discovery II 1.00% 0.18% 1.18%
Growth II 1.00% 0.20% 1.20%
STRONG OPPORTUNITY FUND II, INC.
Opportunity II 1.00% 0.16% 1.16%
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. Rowe Price International Stock 1.05% 0.00% 1.05%
T. ROWE PRICE EQUITY SERIES, INC.
T. Rowe Price New America Growth 0.85% 0.00% 0.85%
T. Rowe Price Mid-Cap Growth 0.85% 0.00% 0.85%
T. Rowe Price Equity Income 0.85% 0.00% 0.85%
MFS VARIABLE INSURANCE TRUST (5)
Growth with Income 0.75% 0.13% 0.88%
Research 0.75% 0.11% 0.86%
Emerging Growth 0.75% 0.10% 0.85%
Total Return (6) 0.75% 0.16% 0.91%
New Discovery (6) 0.90% 0.27% 1.17%
STI CLASSIC VARIABLE TRUST (7)
STI Capital Appreciation 0.00% 1.15% 1.15%
STI Value Income 0.52% 0.43% 0.95%
STI International Equity 0.00% 1.60% 1.60%
</TABLE>
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(1) Other expenses are based on the gross expenses of the Portfolios before
expense offset arrangements for the fiscal year ended December 31, 1997. The
information for Growth, and Worldwide Growth is net of fee reductions from Janus
Capital. Without such reductions, the Management Fee, Other Expenses and Total
Operating Expenses for the Portfolios would have been 0.72%, 0.03%, and 0.75%
for Growth Portfolio; and 0.67%, 0.07%, and 0.74% for Worldwide Growth
Portfolio, respectively. Janus Capital may modify or terminate the fee
reductions at any time upon at least 90 days' notice to the Portfolios'
Trustees.
(2) The expense figures shown reflect the voluntary waiver of all or a portion
of the Management Fee. The maximum Management Fees for the indicated Portfolios
and the Total Portfolio Expenses absent the voluntary waiver are as follows:
0.75% and 1.00%, respectively, for the Utility Fund II; and 0.60% and 0.93%,
respectively, for the U.S. Government Securities II.
(3) A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. Including this reduction, total operating expenses would have been
for Equity Income -- 0.57%, for Growth -- 0.66%, for Overseas -- 0.89%, for
Asset Manager -- 0.63%, and for Contrafund -- 0.66%.
(4) Included in the Other Expenses of this Portfolio is 0.03% of interest
expense.
(5) Each Portfolio has an expense offset arrangement which reduces the
Portfolio's custodian fee based upon the amount of cash maintained by the
Portfolio with its custodian and dividend disbursing agent, and may enter into
other such arrangements and directed brokerage arrangements (which would also
have the effect of reducing the Portfolio's expenses). Any such fee reductions
are not reflected under "Other Expenses."
(6) The Adviser has agreed to bear expenses for these Portfolio. Subject to
reimbursement by these Portfolios, such that each such Portfolio's "Other
Expenses" shall not exceed 0.25% of the average daily net assets (except for
Emerging Growth, Research, and Growth with Income) of the Portfolio during the
current fiscal year. Otherwise, "Other Expenses" and "Total Expenses" for each
New Discovery would be Other Expenses 4.32 and Total Expenses 5.22%.
(7) Absent voluntary fee waivers, the management fee, other expenses and total
expenses expressed as a percentage of net assets of 0.45%, 1.15%, and 1.60% for
STI Capital Growth, 0.80%, 0.43% and 1.23% for STI Value Income, and 1.25% for
STI Value Income, and 1.25% for STI International Equity.
<TABLE>
<CAPTION>
EXAMPLES
AT THE END OF THE APPLICABLE TIME PERIOD, YOU WOULD PAY THE FOLLOWING EXPENSES
ON A $1,000 INVESTMENT, ASSUMING 5% ANNUAL RETURN ON ASSETS.
Sub-Account 1 Year 3 Years 5 Years 10 Years
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<S> <C> <C> <C> <C>
Janus Flexible Income $22 $67 $114 $246
Janus Balanced $22 $67 $115 $248
Janus Growth $21 $65 $112 $241
Janus Aggressive Growth $22 $67 $115 $248
Janus Worldwide Growth $22 $66 $114 $245
Federated Utility II $24 $73 $125 $267
Federated U.S. Government $23 $70 $120 $258
Securities II
Federated High Income Bond II $22 $68 $117 $251
Fidelity Money Market $17 $54 $92 $201
Fidelity Equity-Income $20 $62 $107 $231
Fidelity Growth $21 $65 $112 $241
Fidelity Overseas $23 $72 $124 $265
Fidelity Contrafund $21 $66 $113 $243
Fidelity Asset Manager $21 $64 $110 $237
Fidelity Index 500 $18 $55 $95 $206
Alger American Income and Growth $21 $66 $113 $243
Alger American Small Capitalization $23 $72 $123 $263
Alger American Growth $22 $69 $117 $252
Alger American Midcap Growth $23 $70 $120 $257
Alger American Leveraged AllCap $24 $74 $126 $270
Scudder Bond $20 $62 $106 $229
Scudder Balanced $20 $61 $105 $227
Scudder Growth and Income $20 $62 $106 $229
Scudder Global Discovery $32 $98 $166 $349
Scudder International $25 $76 $131 $279
Strong Discovery II $26 $80 $137 $291
Strong Growth II $26 $81 $138 $293
Strong Opportunity II $26 $80 $136 $290
T. Rowe Price International Stock $25 $76 $131 $279
T. Rowe Price New American Growth $23 $70 $120 $258
T. Rowe Price Mid-Cap Growth $23 $70 $120 $258
T. Rowe Price Equity Income $23 $70 $120 $258
MFS Growth with Income $23 $71 $122 $262
MFS Research $23 $71 $121 $260
MFS Emerging Growth $23 $70 $120 $258
MFS Total Return $23 $72 $124 $265
MFS New Discovery $26 $80 $137 $290
STI Capital Appreciation $26 $79 $136 $289
STI Value Income $24 $73 $126 $269
STI International Equity $30 $93 $158 $332
</TABLE>
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%)
either from premium received or 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. Your expenses will be the same regardless of whether you surrender,
annuitize, or continue to hold your Contract at the end of the applicable time
period, because we do not charge a withdrawal charge on surrenders or
annuitizations of this Contract.
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. You may allocate
your Contract Value to up to twenty-one options under the Contract, counting
each Subaccount and the Fixed Account as one option. We will treat all of your
Contract Value allocated to the Fixed Account as one option for purposes of this
limit, even if you have chosen more than one Guarantee Period. The value of your
Contract will depend on the investment performance of the Subaccounts and the
amount of interest we credit to the Fixed Account.
Each Subaccount will invest in a single investment portfolio (a "Portfolio") of
a mutual fund. The Portfolios offer a range of investment objectives, from
conservative to aggressive. You bear the entire investment risk on amounts
allocated to the Subaccounts. The investment policies and risks of each
Portfolio are described in the accompanying prospectuses for the Portfolios.
In some states, you may also allocate all or part of your Contract Value to the
"Fixed Account", as described in the answer to Question 5.
2. WHAT ANNUITY OPTIONS DOES THE CONTRACT OFFER?
You may receive annuity payments on a fixed or a variable basis or a
combination of the two. We offer a variety of annuity options including:
- a life annuity with payments guaranteed for five to twenty years;
- a joint and full survivorship annuity, with payments guaranteed for five
to twenty years; and
- fixed payments for a specified period of five to thirty years.
Call us to inquire about other options.
You may change your annuity option at any time before annuitization. You may
select the date to annuitize the Contract. The date you select, however, may be
no later than the later of the tenth Contract Anniversary or the Annuitant's
90th birthday. If your Contract was issued in connection with a qualified plan,
different deadlines may apply.
If you select annuity payments on a variable basis, the amount of our payments
to you will be affected by the investment performance of the Subaccounts you
have selected. The fixed portion of your annuity payments, on the other hand,
generally will be equal in amount to the initial payment we determine. As
explained in more detail below, however, during the Annuity Period you will have
a limited ability to change the relative weighting of the Subaccounts on which
your variable annuity payments are based or to increase the portion of your
annuity payments consisting of Fixed Annuity payments.
3. HOW DO I BUY A CONTRACT?
You can obtain a Contract application from your Lincoln Benefit agent. You must
pay at least $25,000 in a lump sum as an initial Purchase Payment. Subsequent
Purchase Payments must be at least $500. We may lower these minimums at our sole
discretion. We will not issue a Contract to you if either you or the Annuitant
is age 90 or older before we receive your application.
4. WHAT ARE MY INVESTMENT CHOICES UNDER THE CONTRACT?
You can allocate and reallocate your investment among the Subaccounts, each of
which in turn invests in a single Portfolio. Under the Contract, the Separate
Account currently invests in the following Portfolios:
Fund Portfolio(s)
- ------------------------------ -------------------------------------
- ------------------------------------------------------------------------------
Janus Aspen Series Flexible Income Portfolio
Balanced Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
- ------------------------------------------------------------------------------
Federated Insurance Management Utility Fund II
Series Fund for U.S. Government
Securities II
High Income Bond Fund II
- ------------------------------------------------------------------------------
Fidelity Variable Insurance Money Market Portfolio
Products Fund Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
- ------------------------------------------------------------------------------
Fidelity Variable Insurance Asset Manager Portfolio
Products Fund II Contrafund Portfolio
Index 500 Portfolio
- -------------------------------------------------------------------------------
The Alger American Fund Income and Growth Portfolio
Small Capitalization Portfolio
Growth Portfolio
MidCap Growth Portfolio
Leveraged AllCap Portfolio
- ------------------------------------------------------------------------------
Scudder Variable Life Bond Portfolio
Investment Fund Balanced Portfolio
Growth and Income Portfolio
Global Discovery Portfolio
International Portfolio
- -------------------------------------------------------------------------------
Strong Variable Insurance Discovery Fund II
Funds, Inc. Growth Fund II
- -------------------------------------------------------------------------------
Strong Opportunity Fund II. Opportunity Fund II
Inc.
- -------------------------------------------------------------------------------
T. Rowe Price International T. Rowe Price International
Series, Inc. Stock Portfolio
- -------------------------------------------------------------------------------
T. Rowe Price Equity Series, T. Rowe Price New America Growth
Inc. Portfolio
T. Rowe Price Mid-Cap Growth
Portfolio
T. Rowe Price Equity Income
Portfolio
- ------------------------------------------------------------------------------
MFS Variable Insurance Trust Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
- ------------------------------------------------------------------------------
STI Classic Variable Trust Capital Appreciation Fund
International Equity Fund
Value Income Stock Fund
- ------------------------------------------------------------------------------
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 monthly to your chosen Subaccounts or Guarantee Periods. We will
complete the transfers within one year of the allocation. In our discretion we
may change the rate that we set for new allocations to the Fixed Account for the
dollar cost averaging program. We will never, however, set a rate less than an
effective annual rate of 3%.
A Market Value Adjustment may increase or decrease the amount of certain
transactions involving the Fixed Account, to reflect changes in interest rates.
As a general rule, we will apply a Market Value Adjustment to the following
transactions:
(1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option;
(2) when you transfer funds from the Guaranteed Maturity Fixed Account Option
to the Subaccounts;
(3) when you allocate part of your interest in the Guaranteed Maturity Fixed
Account Option to a new Guarantee Period before the end of the existing
Guarantee Period;
(4) when you annuitize your Contract; and
(5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction to the extent that:
(1) it occurs within 30 days after the end of a Guarantee Period applicable to
the funds involved in the transaction;
(2) it is 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. 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.
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 $5,000.
Although you have access to your money during the Accumulation Period, certain
charges, such as the contract maintenance 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 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 highest Contract Value on any Contract Anniversary, increased by the
total Purchase Payments since the most recent Contract Anniversary and
reduced proportionately by any partial withdrawals since the most recent
Contract Anniversary.
We will determine the value of the death benefit on the day that we receive all
of the information that we need to process the claim.
10. WHAT ELSE SHOULD I KNOW?
ALLOCATION OF PURCHASE PAYMENTS. You allocate your initial Purchase Payment
among the Subaccounts and the Fixed Account in your Contract application. You
may make your allocations in specific dollar amounts or percentages, which must
be whole numbers that add up to 100%. When you make subsequent Purchase
Payments, you may again specify how you want your payments allocated. If you do
not, we will automatically allocate the payment based on your most recent
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
TRANSFERS. During the Accumulation Period, you may transfer Contract Value among
the Subaccounts and from the Subaccounts to the Fixed Account. You may not make
a transfer, however, that would result in your allocating your Contract Value to
more than twenty-one options under the Contract. While you may also transfer
amounts from the Fixed Account, a Market Value Adjustment may apply. You may
instruct us to transfer Contract Value by writing or calling us.
You may also use our automatic dollar cost averaging or portfolio rebalancing
programs. You may not use both programs at the same time.
Under the dollar cost averaging program, amounts are automatically transferred
at regular intervals from the Fixed Account or a Subaccount of your choosing,
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 convert
any portion of your right to receive Fixed Annuity payments into Variable
Annuity payments.
FREE-LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or after whatever longer period may be permitted by
state law. You may return it by delivering it or mailing it to us. If you return
the Contract, the Contract terminates and, in most states, we will pay you an
amount equal to the Contract Value on the date we receive the Contract from you.
The Contract Value may be more or less than your Purchase Payments. In some
states, we are required to send you the amount of your Purchase Payments. Since
state laws differ as to the consequences of returning a Contract, you should
refer to your Contract for specific information about your circumstances.
11. WHO CAN I CONTACT FOR MORE INFORMATION?
You can write to us at Lincoln Benefit Life Company, P.O. Box 82532, Lincoln,
Nebraska 68501-2532, or call us at (800)525-9287.
CONDENSED FINANCIAL INFORMATION
Attached as Appendix A is a table showing selected information concerning
Accumulation Unit Values for each Subaccount for 1998. Accumulation Unit Value
is the unit of measure that we use to calculate the value of your interest in a
Subaccount. Accumulation Unit Value does not reflect the deduction of certain
charges that are subtracted from your Contract Value, such as the Annual
Contract Maintenance Charge. The information in the table is included in the
Separate Account's financial statements. To obtain a fuller picture of each
subaccounts finances and performance, you should review the Separate Acccount's
financial statements, which are in the Separate Account's Annual Report dated as
of December 31, 1999, contained in the Statement of Additional Information.* The
Statement of Additional Information also includes a brief explanation of how
performance of the Subaccounts is calculated. The Statement of Additional
Information also includes a brief explanation of how performance of the
Subaccounts is calculated.
* To be filed by post-effective amendment.
DESCRIPTION OF THE CONTRACTS
SUMMARY. The Contract is a deferred annuity contract designed to aid you in
long-term financial planning. You may add to the Contract Value by making
additional Purchase Payments. In addition, the Contract Value will change to
reflect the performance of the Subaccounts to which you allocate your Purchase
Payments and your Contract Value, as well as to reflect interest credited to
amounts allocated to the Fixed Account. You may withdraw your Contract Value by
making a partial withdrawal or by surrendering your Contract. Upon
Annuitization, we will pay you benefits under the Contract in the form of an
annuity, either for the life of the Annuitant or for a fixed number of years.
All of these features are described in more detail below.
CONTRACT OWNER. As the Contract Owner, you are the person usually entitled to
exercise all rights of ownership under the Contract. You usually are also the
person entitled to receive benefits under the Contract or to choose someone else
to receive benefits. If your Contract was issued under a Qualified Plan,
however, the Plan may limit or modify your rights and privileges under the
Contract and may limit your right to choose someone else to receive benefits. We
will not issue a Contract to a purchaser who has attained age 91, or where the
Annuitant has attained age 91.
ANNUITANT. The Annuitant is the living person whose life span is used to
determine annuity payments. You initially designate an Annuitant in your
application. You may change the Annuitant at any time before annuity payments
begin. If your Contract was issued under a plan qualified under Section 403(b),
408 or 408A of the Tax Code, you must be the Annuitant. You may also designate a
Co-Annuitant, who is a second person on whose life annuity payments depend.
Additional restrictions may apply in the case of Qualified Plans. If you are not
the Annuitant and the Annuitant dies before annuity payments begin, then either
you become the new Annuitant or you must name another person as the new
Annuitant. You must attest that the Annuitant is alive in order to annuitize
your Contract.
MODIFICATION OF THE CONTRACT. Only a Lincoln Benefit officer may approve a
change in or waive any provision of the Contract. Any change or waiver must be
in writing. None of our agents has the authority to change or waive the
provisions of the Contract.
We are permitted to change the terms of the Contract if it is necessary to
comply with changes in the law. If a provision of the Contract is inconsistent
with state law, we will follow state law.
ASSIGNMENT. Before the Annuity Date, if the Annuitant is still alive, you may
assign a Contract issued under a Non-Qualified Plan that is not subject to Title
1 of the Employee Retirement Income Security Act of 1974 ("ERISA"). If a
Contract is issued pursuant to a Qualified Plan or a Non-Qualified Plan that is
subject to Title 1 of ERISA, the law prohibits some types of assignments,
pledges and transfers and imposes special conditions on others. An assignment
may also result in taxes or tax penalties.
We will not be bound by any assignment until we receive written notice of it.
Accordingly, until we receive written notice of an assignment, we will continue
to act as though the assignment had not occurred. We are not responsible for the
validity of any assignment.
BECAUSE OF THE POTENTIAL TAX CONSEQUENCES AND ERISA ISSUES ARISING FROM AN
ASSIGNMENT, YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR
CONTRACT.
FREE LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or within whatever longer period may be permitted by
state law. You may return it by delivering it to your agent or mailing it to us.
If you return the Contract, the Contract terminates and, in most states, we will
pay you an amount equal to the Contract Value on the date we receive the
Contract from you. The Contract Value at that time may be more or less than your
Purchase Payments.
In some states, if you exercise your "free look" rights, we are required to
return the amount of your Purchase Payments. Currently, if you live in one of
those states, on the Issue Date we will allocate your Purchase Payment to the
Subaccounts and the Fixed Account Options as you specified in your application.
However, we reserve the right in the future to delay allocating your Purchase
Payments to the Subaccounts you have selected or to the Fixed Account until 20
days after the Issue Date or, if your state's free look period is longer than
ten days, for ten days plus the period required by state law. During that time,
we will allocate your Purchase Payment to the Fidelity Money Market Subaccount.
Your Contract will contain specific information about your free-look rights in
your state.
PURCHASES AND CONTRACT VALUE
MINIMUM PURCHASE PAYMENT. The minimum initial Purchase Payment for a Contract is
$25,000. You must pay it in a lump sum. 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. 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.
ALLOCATION OF PURCHASE PAYMENTS. Your Purchase Payments are allocated to the
Subaccount(s) and the Fixed Account in the proportions that you have selected.
You must specify your allocation in your Contract application, either as
percentages or specific dollar amounts. If you make your allocation in
percentages, the total must equal 100%. We will allocate your subsequent
Purchase Payments in those percentages, until you give us new allocation
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
You initially may allocate your Purchase Payments to up to twenty-one options,
counting each Subaccount and the Fixed Account as one option. For this purpose,
we will treat all of your allocations to the Fixed Account as one option, even
if you choose more than one Guarantee Period. You may add or delete Subaccounts
and/or the Fixed Account from your allocation instructions, but we will not
execute instructions that would cause you to have Contract Value in more than
twenty-one options. In the future, we may waive this limit.
If your application is complete, we will issue your Contract within two business
days of its receipt at our P.O. Box shown on the first page of this prospectus.
If your application for a Contract is incomplete, we will notify you and seek to
complete the application within five business days. For example, if you do not
fill in allocation percentages, we will contact you to obtain the missing
percentages. If we cannot complete your application within five business days
after we receive it, we will return your application and your Purchase Payment,
unless you expressly permit us to take a longer time.
Usually, we will allocate your initial Purchase Payment to the Subaccounts and
the Fixed Account, as you have instructed us, on the Issue Date. We will
allocate your subsequent Purchase Payments on the date that we receive them at
the next computed Accumulation Unit Value.
In some states, however, we are required to return at least your Purchase
Payment if you cancel your Contract during the "free-look" period. In those
states, we currently will allocate your Purchase Payments on the Issue Date as
you have instructed us, as described above. In the future, however, we reserve
the right, if you live in one of those states, to allocate all Purchase Payments
received during the "free-look period" to the Fidelity Money Market Subaccount.
If we exercise that right and your state's free-look period is ten days, we will
transfer your Purchase Payments to your specified Subaccounts or 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
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. 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-one options under the Contract at one time.
As a general rule, we only make transfers on days when we and the NYSE are open
for business. If we receive your request on one of those days, we will make the
transfer that day. We close our offices for business on certain days immediately
preceding or following certain national holidays when the NYSE is open for
business. For calendar year 2000, our offices will be closed on November 24th.
For transfers requested on this day, 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
Subaccounts of your choosing, 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
twenty five days 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 Balanced Portfolio, 40% in the Growth Portfolio-Janus Aspen Series and
30% in Federated High Income Bond Fund II. Over time, the variations in each
Subaccount's investment results will shift the balance of your Contract Value
allocations. Under the Portfolio Rebalancing feature, each period, if the
allocations change from your desired percentages, we will automatically transfer
your Contract Value, including new Purchase Payments (unless you specify
otherwise), back to the percentages you specify. Portfolio Rebalancing is
consistent with maintaining your allocation of investments among market
segments, although it is accomplished by reducing your Contract Value allocated
to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually until your Annuity Date. Portfolio Rebalancing is not available after
you annuitize. We will not charge a transfer fee for Portfolio Rebalancing. We
will automatically terminate this program if you request any transfer outside of
the Portfolio Rebalancing program. If you wish to resume Portfolio Rebalancing
after it has been cancelled, then you must complete a new Rebalancing form and
send it to our home office. 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 twenty five
days 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.
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.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Subaccounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Subaccounts invest. You bear the investment risk that
those Portfolios possibly will not meet their investment objectives. You should
carefully review their prospectuses before allocating amounts to the Subaccounts
of the Separate Account.
JANUS ASPEN SERIES (investment adviser: Janus Capital Corporation)
FLEXIBLE INCOME PORTFOLIO seeks to maximize total return from a combination of
current income and capital appreciation, with an emphasis on current income.
This Portfolio invests in all types of income-producing securities. This
Portfolio may have substantial holdings of debt securities rated below
investment grade. Investments in such securities present special risks; you are
urged to carefully read the risk disclosure in the accompanying Prospectus for
the Portfolio before allocating amounts to the Janus Flexible Income Subaccount.
BALANCED PORTFOLIO seeks long-term growth of capital balanced by current income.
This Portfolio normally invests 40-60% of its assets in securities selected
primarily for their growth potential and 40-60% of its assets in securities
selected primarily for their income potential.
GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily in a
diversified portfolio of common stocks of a large number of issuers of any size.
Generally, this Portfolio emphasizes issuers with larger market capitalizations.
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. It is a
non-diversified fund. It normally invests at least 50% of its equity assets in
securities issued by medium-sized companies, which are companies whose market
capitalizations at the time of purchase by the Portfolio fall within the same
range as companies in the S&P MidCap 400 Index. This range is expected to change
on a regular basis. This Portfolio may invest its remaining assets in smaller or
larger issuers.
WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of any
size. This Portfolio normally invests in issuers from at least five different
countries including the United States.
FEDERATED INSURANCE MANAGEMENT SERIES (investment adviser: Federated Advisers)
FEDERATED UTILITY FUND II'S investment objective is to achieve high current
income and moderate capital appreciation. The Portfolio invests primarily in
equity and debt securities of utility companies that produce, transmit, or
distribute gas and electric energy, as well as those companies that provide
communications facilities, such as telephone and telegraph companies.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II'S investment objective is to
provide current income. The Portfolio invests in direct obligations of the U.S.
Government or its agencies or instrumentalities, and securities guaranteed by
the U.S. Government, its agencies, or instrumentalities. This Portfolio may also
invest in certain collateralized mortgage obligations and repurchase agreements.
FEDERATED HIGH INCOME BOND FUND II'S investment objective is to seek high
current income. This Portfolio invests at least 65% of its assets in lower rated
corporate debt obligations, such as preferred stocks, bonds, debentures, notes,
equipment lease certificates and equipment trust certificates. Some of these
fixed income securities may involve equity features. Under normal circumstances,
this Portfolio will not invest more than 10% of the value of its total assets in
equity securities.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (investment adviser: Fidelity
Management & Research Company)
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. This Portfolio will
invest in high quality U.S. dollar-denominated money market securities of
domestic and foreign insurers, including U.S. government securities and
repurchase agreements.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. The goal is to achieve a higher yield than
the composite yield of the S&P 500 Composite Stock Price Index. At least 65% of
this Portfolio's assets will be invested in income-producing common or preferred
stock. The Portfolio, however, has the flexibility to invest the balance in all
types of domestic and foreign securities, including bonds.
GROWTH PORTFOLIO seeks to achieve capital appreciation. This Portfolio usually
purchases common stocks, although its investments are not restricted to any one
type of security.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. At least 65% of this Portfolio's assets will
be invested in securities of issuers outside of the United States. The Portfolio
normally diversifies its investments across countries and regions.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (investment adviser: Fidelity
Management & Research Company)
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced risk over
the long term by allocating its assets among domestic and foreign stocks, bonds,
and short-term money market securities. Usually, this Portfolio's assets will be
allocated within the following guidelines: 50-100% in stocks (equities); 0-50%
in bonds (intermediate to long-term); and 0-50% in short-term instruments.
CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in equity
securities of companies whose value the Portfolio's adviser believes is not
fully recognized by the public. This Portfolio usually invests primarily in
common stock of domestic and foreign issuers, but it may invest in other types
of securities.
INDEX 500 PORTFOLIO seeks long-term capital growth through the purchase of a
portfolio of securities that broadly represents the U.S. stock market, as
measured by the S&P 500. By investing to match the return of the S&P 500, the
Portfolio seeks to keep expenses low.
THE ALGER AMERICAN FUND (investment adviser: Fred Alger Management, Inc.)
INCOME AND GROWTH PORTFOLIO seeks primarily to provide a high level of dividend
income. Capital appreciation is a secondary objective of the Portfolio. Except
during temporary defensive periods, the Portfolio attempts to invest 100%, and
it is a fundamental policy of the Portfolio to invest at least 65%, of its total
assets in dividend paying equity securities.
SMALL CAPITALIZATION PORTFOLIO seeks long-term capital appreciation. Except
during temporary defensive periods, the Portfolio invests at least 65% of its
total assets in equity securities of companies that at the time of purchase have
total market capitalization within the range of companies included in the
Russell 2000 Growth Index or the S&P SmallCap 600 Index. The Portfolio may
invest its remaining assets in equity securities of companies that at the time
of purchase have total market capitalization outside of this combined range.
GROWTH PORTFOLIO seeks long-term capital appreciation. Under normal
circumstances, the Portfolio invests at least 65% of its total assets in equity
securities of companies that have total market capitalization of $1 billion or
greater. The Portfolio may invest up to 35% of its total assets in equity
securities of companies that have total market capitalization of less than $1
billion.
MIDCAP GROWTH PORTFOLIO seeks long-term capital appreciation. Under normal
circumstances, the Portfolio invests at least 65% of its total assets in equity
securities of companies that have total market capitalization within the range
of companies included in the S&P MidCap 400 Index.
LEVERAGED ALLCAP PORTFOLIO seeks long-term capital appreciation. Except during
temporary defensive periods, the Portfolio invests at least 85% of its net
assets in equity securities of companies of any size. The Portfolio may purchase
put and call options and sell (write) covered call and put options on securities
and securities indexes to increase gain and to hedge against the risk of
unfavorable price movements, and may enter into futures contracts on securities
indexes and purchase and sell call and put options on these futures contracts.
The Portfolio may also borrow money for the purchase of additional securities.
SCUDDER VARIABLE LIFE INVESTMENT FUND (investment adviser: Scudder, Kemper
Investments, Inc.) The Scudder Variable Life Investment Fund has two classes of
shares. The Subaccounts invest in Class A shares, which do not impose
distribution fees.
BOND PORTFOLIO seeks high income from a high quality portfolio of debt
securities. Under normal circumstances, this Portfolio invests at least 65% of
its assets in bonds including those of the U.S. Government and its agencies and
those of corporations and other notes and bonds paying high current income. This
Portfolio can invest in a broad range of short, intermediate and long-term
securities.
BALANCED PORTFOLIO seeks a balance of growth and income from a diversified
portfolio of equity and fixed income securities. The Portfolio also seeks
long-term preservation of capital through a quality-oriented investment approach
that is designed to reduce risk. The Portfolio will invest its assets in equity
securities, debt securities with maturities generally exceeding one year, and
money market instruments and other debt securities with maturities generally not
exceeding thirteen months. Not more than 75% of this Portfolio's net assets may
be invested in stocks or other equity investments. Generally, 25%-50% of the
Portfolio's net assets are invested in bonds.
GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital, current income
and growth of income. In pursuing these three objectives, the Portfolio invests
primarily in common stocks, preferred stocks, and securities convertible into
common stocks of companies which offer the prospect for growth of earnings while
paying higher than average current dividends. The Portfolio allocates its
investments among different industries and companies, and changes its portfolio
securities for investments considerations and not for trading purposes.
GLOBAL DISCOVERY PORTFOLIO seeks above-average capital appreciation over the
long term by investing primarily in the equity securities of small companies
located throughout the world. The Portfolio is designed for investors looking
for above-average appreciation potential (when compared with the overall
domestic stock market as reflected by the S&P 500 Stock Composite Price Index)
and the benefits of investing globally, but who are willing to accept
above-average stock market risk, the impact of currency fluctuation, and little
or no current income. The Portfolio generally invests in small, rapidly growing
companies that offer the potential for above-average returns relative to larger
companies, yet are frequently overlooked and thus undervalued by the market.
INTERNATIONAL PORTFOLIO seeks long-term growth of capital primarily through
diversified holdings of marketable foreign equity investments. The Portfolio
invests in companies, wherever organized, which do business primarily outside
the United States. The Portfolio intends to diversify investments among several
countries and to have represented in its holdings business activities in not
less than three different countries, excluding the United States. The Portfolio
invests primarily in equity securities of established companies, listed on
foreign exchanges, which the adviser believes have favorable characteristics. It
may also invest in fixed income securities of foreign governments and companies.
STRONG VARIABLE INSURANCE FUNDS, INC. (investment adviser: Strong Capital
Management, Inc.)
DISCOVERY FUND II seeks capital growth. The Portfolio usually emphasizes equity
investments, although it has the flexibility to invest in any security the
adviser believes has the potential for capital appreciation. The Portfolio's
strategy is to invest generally in small cap companies that are in good
businesses, are headed by capable and driven management, and trade at attractive
valuations. To a limited extent, and by prospectus, the Portfolio may invest in
mid or large cap stocks as well.
GROWTH FUND II seeks capital growth. The Portfolio invests primarily in equity
securities that the adviser believes have above-average growth prospects and are
selling at reasonable valuations. The Portfolio generally has over half of its
assets in small- and mid-cap issues as these companies tend to have the highest
growth rates.
STRONG OPPORTUNITY FUND II, INC. (investment adviser: Strong Capital Management,
Inc.)
OPPORTUNITY FUND II seeks capital growth. The Portfolio currently emphasizes
medium-sized companies that the adviser believes are under-researched and
attractively valued. To achieve its investment goals, the Portfolio seeks to
find well-managed companies that have sustainable growth prospects but that are
selling at prices below their private market values.
T. ROWE PRICE INTERNATIONAL SERIES, INC. (investment adviser: Rowe Price-Fleming
International, Inc., a joint venture between T. Rowe Price Associates, Inc. and
Robert Fleming Holdings, Ltd.)
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies. The Portfolio invests substantially all of its assets outside the
United States and broadly diversifies its investments among developed, and
emerging countries throughout the world.
T. ROWE PRICE EQUITY SERIES, INC. (investment adviser: T. Rowe Price Associates,
Inc.)
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO seeks long-term growth of capital
through investment primarily in the common stocks of U.S. growth companies
operating in service industries. The Portfolio will invest most of its assets in
service companies, regardless of size, that the adviser believes to be
above-average performers in their fields. The Portfolio may invest up to 25% of
its assets in growth companies outside the service sector.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital by
investing primarily in mid-cap stocks with the potential for above-average
earnings growth. The adviser will invest at least 65% of the Portfolios's assets
in a diversified portfolio of common stocks of mid-cap companies whose earnings
the adviser expects to grow at a faster rate than the average company. The
adviser defines mid-cap companies as those with market capitalizations within
the range of companies in the S&P 400 Mid-Cap Index. However, the Portfolio will
not automatically sell or cease to purchase stock of a company it already owns
just because the company's market cap grows or falls outside this range. The
Portfolio also may invest in other types of securities, such as foreign
securities, convertible stocks and bonds, and warrants, when consistent with the
Portfolio's investment objective.
T. ROWE PRICE EQUITY INCOME PORTFOLIO seeks to provide substantial dividend
income as well as long-term growth of capital by investing primarily in common
stocks of established companies. Under normal circumstances, the Portfolio
usually will invest at least 65% of its assets in common stocks of established
companies paying above-average dividends which are expected to have favorable
prospects for dividend growth and capital appreciation. The Portfolio may also
invest in other securities such as fixed income and convertible securities.
MFS VARIABLE INSURANCE TRUST (investment adviser: Massachusetts Financial
Services)
GROWTH WITH INCOME SERIES seeks reasonable current income, as well as long-term
growth of capital and income. The Portfolio invests in stocks of companies that
the adviser considers to be of high or improving investment quality. The
Portfolio has the flexibility to invest in derivative securities when its
managers believe such securities can provide better value relative to direct
investments in stocks and bonds.
RESEARCH SERIES seeks to provide long-term growth of capital and future income.
The Portfolio invests in the common stocks of companies the adviser believes
possess better-than-average prospects for long-term growth. The Portfolio may
invest up to 20% of its net assets in foreign and emerging market securities.
Investing in foreign and emerging market securities involves special risks and
may increase share price volatility. The Portfolio has the flexibility to invest
in derivative securities when its adviser believes such securities can provide
better value relative to direct investments in stocks and bonds.
EMERGING GROWTH SERIES seeks to provide long-term growth of capital. The
Portfolio invests primarily in common stocks of companies that are early in
their life cycles but which have the potential to become major enterprises. The
Portfolio may also invest in more established companies whose earnings growth
the adviser expects to accelerate because of special factors. Investing in
emerging growth companies involves greater risk than is customarily associated
with more established companies. The Portfolio also may invest up to 25% of its
net assets in foreign and emerging market securities. The Portfolio has the
flexibility to invest in derivative securities when its adviser believes such
securities can provide better value relative to direct investments in stocks or
bonds.
TOTAL RETURN SERIES seeks to provide above-average current income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. The Portfolio secondarily seeks to provide reasonable
opportunity for growth of capital and income. The Portfolio invests in both
equities and fixed income securities. The equity segment is actively managed
with a value-oriented style of investing. The fixed income segment is actively
managed through shifts in maturity, duration, and sector components. The
Portfolio may invest up to 20% of its assets in foreign and emerging market
securities. The Portfolio has the flexibility to invest in derivative securities
when its adviser believes such securities can provide better value relative to
direct investments in stocks or bonds.
NEW DISCOVERY SERIES seeks capital appreciation. This Portfolio seeks to achieve
its objective by investing under normal market conditions at least 65% of its
total assets in companies that its adviser believes offer superior prospects for
growth. Those securities may either be listed on securities exchanges or traded
in the over-the-counter markets and may be U.S. or foreign companies.
STI CLASSIC VARIABLE TRUST (investment adviser: STI Capital Management)
STI CAPITAL APPRECIATION FUND seeks to provide capital appreciation by investing
primarily in a portfolio of common stocks, warrants and securities convertible
into common stock which in the advisor's opinion are undervalued in the
marketplace at the time of purchase.
STI INTERNATIONAL EQUITY FUND seeks to provide long term capital appreciation by
investing primarily in a diversified portfolio of equity securities of foreign
issuers.
STI VALUE INCOME STOCK FUND seeks to provide current income with the secondary
goal of achieving capital appreciation by investing primarily in equity
securities.
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.
Certain of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Lincoln Benefit will bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Subaccounts to which you have allocated
your Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed. We will also provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of shares for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, before the Annuity Date, you are the person entitled to give
voting instructions. After the Annuity Date, the payee is that person.
Retirement plans, however, may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Contract Owners.
We may, when required by state insurance regulatory authorities, disregard
Contract Owner voting instructions if the instructions require that the shares
be voted so as to cause a change in the sub-classification or investment
objective of one or more of the Portfolios or to approve or disapprove an
investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Contract Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios are no longer available for investment by the Separate Account or
if, in the judgment of our Board of Directors, further investment in the shares
of a Portfolio is no longer appropriate in view of the purposes of the Contract,
we may add or substitute shares of another Portfolio or mutual fund for
Portfolio shares already purchased or to be purchased in the future by Purchase
Payments under the Contract. Any substitution 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 amount currently charged the Separate Account and the
Portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal
requirements.
THE FIXED ACCOUNT
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:
<TABLE>
<CAPTION>
EXAMPLE
Purchase Payment $50,000
Guarantee Period 5 years
Effective Annual Rate 4.50%
END OF CONTRACT YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$50,000.00
X 1.045
Beginning Contract Value -----------
X (1 + Effective Annual Rate) $52,250.00
$52,250.00
X 1.045
Contract Value at end of Contract Year ----------
X (1 + Effective Annual Rate) $54,601.25
$54,601.25
X 1.045
Contract Value at end of Contract Year ----------
X (1 + Effective Annual Rate) $57,058.31
$57,058.31
X 1.045
Contract Value at end of Contract Year ----------
X (1 + Effective Annual Rate) $59,625.93
$59,625.93
X 1.045
Contract Value at end of Contract Year ----------
X (1 + Effective Annual Rate) $62,309.10
Total Interest Credited During Guarantee Period = $12,309.10 ($62,309.10 - $50,000)
</TABLE>
NOTE: This example assumes no withdrawals during the entire five year Guarantee
Period. If you were to make a partial withdrawal, 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. 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 Fixed Account to include a Market
Value Adjustment. The formula for determining Market Value Adjustments reflects
changes in interest rates since the beginning of the relevant Guarantee Period.
As a result, you will bear some of the investment risk on amounts allocated to
the Guaranteed Maturity Fixed Account Option.
As a general rule, we will apply a Market Value Adjustment to the following
transactions involving your Fixed Account balance:
(1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option;
(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 B
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment. This formula primarily compares: (1) the
Treasury Rate at the time of the relevant transaction for a maturity equal in
length to the relevant Guarantee Period; and (2) the Treasury Rate at the
beginning of the Guarantee Period for a maturity equal in length to the
Guarantee Period. Generally, if the Treasury Rate at the beginning of the
Guarantee Period is higher than the corresponding current Treasury Rate, then
the Market Value Adjustment will increase the amount payable to you or
transferred. Similarly, if the Treasury Rate at the beginning of the Guarantee
Period is lower than the corresponding current Treasury Rate, then the Market
Value Adjustment will reduce the amount payable to you or transferred.
For example, assume that you purchased a Contract and selected an initial
Guarantee Period of five years and the five-year Treasury Rate for that duration
is 4.50%. Assume that at the end of three years, you make a partial withdrawal.
If, at that later time, the current five-year Treasury Rate is 4.20%, then the
Market Value Adjustment will be positive, which will result in an increase in
the amount payable to you. Similarly, if the current five-year Treasury Rate is
4.80%, then the Market Value Adjustment will be negative, which will result in a
decrease in the amount payable to you.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may also allocate Purchase
Payments to the Dollar Cost Averaging Fixed Account Option. We will credit
interest to Purchase Payments allocated to this option for up to one year at the
current rate that we declare when you make the allocation. The effective annual
rate will never be less than 3%. You may not transfer funds to this option from
the Subaccounts or the Guaranteed Maturity Fixed Account Option. We will follow
your instructions in transferring amounts from this option to the Subaccounts or
the Guaranteed Maturity Fixed Account Option on a monthly basis only, as
described in "Automatic Dollar Cost Averaging Program" on page [ ] 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. If you elected Variable Annuity payments, the lump sum
payment will depend on:
o the investment results of the Subaccounts you have selected,
o the Contract Value at the time you elected annuitization,
o 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 on
page [ ] above, however, we will 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 [
] 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 YOU FOR LIFE OR ANY COMBINATION OF PAYMENTS FOR LIFE AND MINIMUM
GUARANTEED 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. 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 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; or
(4) the highest Contract Value on any Contract Anniversary, increased by the
total Purchase Payments since the most recent Contract Anniversary and reduced
by a withdrawal adjustment for any partial withdrawals since the most recent
Contract Anniversary.
The Death Benefit will be recalculated for purchase payments, withdrawals, and
on contract anniversaries until the oldest owner, or the annuitant if the owner
is not a living individual, attains age 85.
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 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, 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 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) During the continuation period, currently we will pay a distribution on
death equal to the Death Benefit, 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.
(3) If before your death you were the Annuitant, your surviving spouse becomes
the Annuitant.
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.
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 may 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. 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 $5,000, 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 in 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 Accounts. 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 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 in page [ ] 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. A Market Value
Adjustment may apply.
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 $5,000 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 $5,000 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 two ways:
(1) as deductions from Contract Value for contract maintenance charges and, if
applicable, for premium taxes; and
(2) as charges against the assets of the Separate Account for administrative
expenses or for the assumption of mortality and expense risks.
In addition, certain deductions are made from the assets of the Portfolios for
investment management fees and expenses. Those fees and expenses are summarized
in the Fee Tables on page [ ], 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); and
(2) 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.
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.
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 or annuitization. Premium taxes
generally range from 0% to 3.5%.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES. We are not currently maintaining a
provision for taxes. In the future, however, we may establish a provision for
taxes if we determine, in our sole discretion, that we will incur a tax as a
result of the operation of the Separate Account. We will deduct for any taxes we
incur as a result of the operation of the Separate Account, whether or not we
previously made a provision for taxes and whether or not it was sufficient. Our
status under the Tax Code is briefly described on page [ ] below.
OTHER EXPENSES. You indirectly bear the charges and expenses of the Portfolios
whose shares are held by the Subaccounts to which you allocate your Contract
Value. For a summary of current estimates of those charges and expenses, see
pages [ ] 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. 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:
o Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the
Code;
o Roth IRAs under Section 408A of the Code;
o Simplified Employee Pension Plans under Section 408(k) of the Code;
o Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section
408(p) of the Code;
o Tax Sheltered Annuities under Section 403(b) of the Code;
o Corporate and Self Employed Pension and Profit Sharing Plans; and
o 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:
o attains age 59 1/2,
o separates from service,
o dies,
o becomes disabled, or
o 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 ss.403(b) plan.
INCOME TAX WITHHOLDING
Lincoln Benefit is required to withhold federal income tax at a rate of 20% on
all "eligible rollover distributions" unless you elect to make a "direct
rollover" of such amounts to another qualified plan or IRA. Eligible rollover
distributions generally include all distributions from qualified Contracts,
excluding IRAs, with the exception of:
(1) required minimum distributions, or
(2) a series of substantially equal periodic payments made over a
period of at least 10 years, or,
(3) over the life (joint lives) of the participant (and beneficiary).
Lincoln Benefit may be required to withhold federal and state income taxes on
any distributions from either non-qualified or qualified Contracts that are not
eligible rollover distributions unless you notify us of your election to not
have taxes withheld.
DESCRIPTION OF LINCOLN BENEFIT LIFE
COMPANY AND THE SEPARATE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY. Lincoln Benefit is a stock life insurance company
organized under the laws of the state of Nebraska in 1938. Our legal domicile
and principal business address is 206 South 13th Street, Lincoln, Nebraska.
Lincoln Benefit is a wholly owned subsidiary of Allstate Life Insurance Company
("Allstate Life" 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 ("Corporation").
We are authorized to conduct life insurance and annuity business in the District
of Columbia, Guam, U.S. Virgin Islands and all states except New York. We 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
agreement with Allstate Life, and reflect financial soundness and strong
operating performance. The ratings are not intended to reflect the financial
strength or investment experience of the Separate Account. We may from time to
time advertise these ratings in our sales literature.
SEPARATE ACCOUNT. Lincoln Benefit Life Variable Annuity Account was originally
established in 1992, as a segregated asset account of Lincoln Benefit. The
Separate Account meets the definition of a "separate account" under the federal
securities laws and is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940. The SEC does not supervise the management of
the Separate Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Contract
Value of the Contracts offered by this prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains, or losses. Our obligations arising under the
Contracts are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Subaccounts. The assets of each Subaccount
are invested in the shares of one of the Portfolios. We do not guarantee the
investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account and the amount of Variable
Annuity payments will rise and fall with the values of shares of the Portfolios
and are also reduced by Contract charges. We may also use the Separate Account
to fund our other annuity contracts. We will account separately for each type of
annuity contract funded by the Separate Account.
We have included additional information about the Separate Account in the
Statement of Additional Information. You may obtain a copy of the Statement of
Additional Information by writing to us or calling us at 1-800-525-9287. We have
reproduced the Table of Contents of the Statement of Additional Information on
page [ ] below.
STATE REGULATION OF LINCOLN BENEFIT. We are subject to the laws of Nebraska and
regulated by the Nebraska Department of Insurance. Every year we file an annual
statement with the Department of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Department of Insurance to verify our contract
liabilities and reserves. We also are examined periodically by the 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.
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 one percent of initial Purchase Payments and one
percent of account value annually beginning in the second Contract year. From
time to time, we may offer additional sales incentives of up to 1% of Purchase
Payments to broker-dealers who maintain certain sales volume levels. We may use
any of our corporate assets, including potential profit which may arise from the
mortality and expense risk charge or from any other charge or fee under the
Contracts, to cover sales commissions and other promotional or distribution
expenses relating to the sale of the Contracts. We do not pay commission on
Contract sales to our employees, our affiliate's employees or their spouses or
minor children.
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.
Sale of the Contracts commenced in August of 1998. During 1998, Lincoln Benefit
paid to a former distributor of the Contracts, Lincoln Benefit Financial
Services ("LBFS"), gross commissions for the Sale of the Contracts of
approximately $250,865.87. LBFS, as principal underwriter, retained $5,323.28.
The amounts that were not retained were paid to other independent broker/dealers
and registered representatives of LBFS for distribution of the Contracts.
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 lawsuits 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 of Lincoln Benefit Life Company and
subsidiary as of December 31, 1999 and 1998, and for each of the three years in
the period ended December 31, 1999, included in Lincoln Benefit's Annual Report
on Form 10K, which is incorporated herein by reference have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report appearing
herein, and are included and incorporated by reference in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
ANNUAL REPORTS AND OTHER DOCUMENTS
Lincoln Benefit's annual report on Form 10-K for the year ended December 31,
1999 is incorporated herein by reference, which means that it is legally a part
of this prospectus.
After the date of this prospectus and before we terminate the offering of
securities under this prospectus, all documents or reports we file with the SEC
under the Exchange Act of 1934 are also incorporated herein by reference, which
means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC
and that legally become a part of this prospectus, may change or supersede
statements in other documents that are legally part of this prospectus.
We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K and Form 10-Q electronically on the SEC;s "EDGAR"
system using the identifying number CIK No. . The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov. You also can view these materials at the SEC's
Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. For more
information on the operations of SEC's Public Reference Room, call
1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of
any document incorporated herein by reference (other than exhibits not
specifically incorporated by reference into the text of such documents), please
write or call us at Lincoln Benefit Life Company, 2940 South 84th Street,
Lincoln, Nebraska 68506 or 1-800-525-9287.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, under the Securities Act of
1933 as amended, with respect to the Contracts offered by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits filed as part of the registration statement. You
should refer to the registration statement and the exhibits for further
information concerning the Separate Account, Lincoln Benefit, and the Contracts.
The descriptions in this prospectus of the Contracts and other legal instruments
are summaries. You should refer to those instruments as filed for the precise
terms of those instruments. You may inspect and obtain copies of the
registration statements as described on the cover page of this prospectus.
TABLE OF CONTENTS OF
STATEMENT OF ADDITIONAL
INFORMATION
The Contract..................................
Annuity Payments............................
Annuity Unit Value..........................
Illustrative Example of Variable Annuity
Payments..................................
Additional Federal Income Tax Information.....
Diversification -- Separate Account
Investments...............................
Owner Control...............................
Multiple Contracts..........................
Qualified Plans.............................
Separate Account Performance..................
Experts.......................................
Financial Statements..........................
<PAGE>
<TABLE>
<CAPTION>
APPENDIX A
Accumulation Unit Values
Basic Policy
Accumulation Accumulation Number of Units
Fund2 Unit Value1 Unit Value Outstanding at
Beginning Ending End of Year Year
<S> <C> <C> <C> <C>
Janus Flexible Income 10 10.25 20,382 1998
Janus Balanced 10 11.68 20,840 1998
Janus Growth 10 11.85 14,330 1998
Janus Aggressive Growth 10 12.26 1,708 1998
Janus Worldwide Growth 10 10.68 37,205 1998
Federated Utility II 10 11.13 18,262 1998
Federated U.S. Gov't. Securities II 10 10.26 13,480 1998
Federated High Income Bond II 10 9.84 6,794 1998
Fidelity Money Market 10 10.14 50,763 1998
Fidelity Equity-Income 10 10.83 36,057 1998
Fidelity Growth 10 11.62 8,616 1998
Fidelity Overseas 10 10.49 1,800 1998
Fidelity Contrafund 10 11.45 9,371 1998
Fidelity Asset Manager 10 10.80 2,962 1998
Fidelity Index 500 10 11.36 33,281 1998
Alger American Income and Growth 10 11.49 21,210 1998
Alger American Small Capitalization 10 11.31 5,492 1998
Alger American Growth 10 11.92 14,614 1998
Alger American MidCap Growth 10 11.59 3,707 1998
Alger American Leveraged AllCap 10 12.80 7,257 1998
Scudder Bond 10 10.18 1,861 1998
Scudder Balanced 10 11.03 3,482 1998
Scudder Growth and Income 10 10.52 7,306 1998
Scudder Global Discovery 10 10.76 313 1998
Scudder International 10 10.38 1,422 1998
Strong Discovery II 10 11.03 0 1998
Strong Growth II 10 11.41 0 1998
Strong Opportunity II 10 10.93 551 1998
T. Rowe Price International Stock 10 10.77 2,055 1998
T. Rowe Price New America Growth 10 11.24 1,518 1998
T. Rowe Price Mid-Cap Growth 10 11.50 5,872 1998
T. Rowe Price Equity Income 10 10.78 6,696 1998
A-1
<PAGE>
MFS Growth with Income 10 11.19 6,884 1998
MFS Research 10 11.07 0 1998
MFS Emerging Growth 10 11.74 2,345 1998
MFS Total Return 10 10.60 1,529 1998
MFS New Discovery 10 11.35 3,242 1998
</TABLE>
1. Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount for any Valuation Period. An
Accumulation Unit Value does not reflect deduction of certain charges under the
Contract that are deducted from your Contract Value, such as the Contract
Administration Charge, and Administrative Expense Charge. The beginning value
reflects the Accumulation Unit Value as of August 17, 1998, the effective date
of the Registration statement for this contract.
2. STI Classic Variable Trust Subaccounts were not available in 1998.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
A-2
<PAGE>
APPENDIX B
PORTFOLIOS AND PERFORMANCE DATA
PERFORMANCE DATA
From time to time the Separate Account may advertise the Fidelity Money Market
Subaccount's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Fidelity Money Market Subaccount refers to the net income earned
by the Subaccount over the seven-day period stated in the advertisement. This
income is then "annualized." That is, the amount of income earned during that
week is assumed to be generated each week over a 52-week period and is shown as
a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by the investment is assumed to be
reinvested at the end of each seven-day period. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital gains or losses that might have occurred
during the seven day period, nor do they reflect the impact of any premium tax
charge. The impact of other, recurring charges on both yield figures is,
however, reflected in them to the same extent it would affect the yield (or
effective yield) for a Contract of average size.
In addition, the Separate Account may advertise an annualized 30-day (or one
month) yield figure for Subaccounts other than the Fidelity Money Market
Subaccount. These yield figures are based upon the actual performance of the
Subaccount over a 30-day (or one month) period ending on a date specified in the
advertisement. Like the money market yield data described above, the 30-day (or
one month) yield data will reflect the effect of all recurring Contract charges,
but will not reflect any 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. 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. We assumed, however, an initial hypothetical investment of
$75,000, because $75,000 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. In addition, non-standardized
total return does not reflect the effect of the contract maintenance charge,
because we waive that charge on Contracts on which the Purchase Payments exceed
$50,000. As a result, the return on a Contract that is subject to the contract
maintenance charge will be less than the non-standardized total return
calculated as described above.
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 those of 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 on page S-15 of the Statement of Additional Information.
<PAGE>
APPENDIX C
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Purchase Payment: $40,000.00
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
5-year Treasury Rate at
Time of Purchase Payment: 6.0%
The following examples illustrate how the Market Value Adjustment may affect the
values of a Contract upon a withdrawal. The 5% assumed Guaranteed Interest Rate
is the rate required to be used in the "Summary of Expenses." In these examples,
the withdrawal occurs one year after the Issue Date. The Market Value Adjustment
operates in a similar manner for transfers.
Assuming that the entire $40,000.00 Purchase Payment is allocated to the
Guaranteed Maturity Fixed Account for the Guarantee Period specified above, at
the end of the five-year Guarantee Period the Contract Value would be
$51,051.26. After one year, when the withdrawals occur in these examples, the
Contract Value would be $42,000.00. We have assumed that no prior partial
withdrawals or transfers have occurred.
The 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 then current Treasury Rate for a
maturity corresponding in length to the relevant Guarantee Period.
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 $756.00 from the amount withdrawn:
$756.00 = -.0180 X $42,000.00
As a result, the net amount payable to you would be:
$41,244.00 = $42,000.00 - $756.00
EXAMPLE OF AN UPWARD MARKET VALUE ADJUSTMENT
An upward Market Value Adjustment results from a withdrawal that occurs when
interest rates have decreased. Assume interest rates have decreased one year
after the Purchase Payment, such that the five-year Treasury Rate is now 5.5%.
Upon a withdrawal, the market value adjustment factor would be:
.9 X (.06 - .055) X 4 = .0180(1)
The Market Value Adjustment would increase the amount withdrawn by $756.00, as
follows:
$756.00 = .0180 X $42,000.00
As a result, the net amount payable to you would be:
$42,756.00 = $42,000.00 + $756.00
- ------------------------
(1)Actual calculation utilizes ten decimal places.
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. 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 above you wished to receive $20,000 as a
partial withdrawal, we would perform the following calculations:
Let A = the amount to be withdrawn from your Contract Value; and
B = the amount of the applicable Market Value Adjustment
Then A + B = $20,000,
-.0180 X A = B, and
A = $20,000 / (1 -.0180) = $20,366.60
Accordingly, we would pay you $20,000 and subtract $20,366.60 from your Contract
Value. The Market Value Adjustment would be a subtraction of $366.60.
If, however, in the same example, you wished to withdraw $20,000 from your
Contract Value and receive the adjusted amount, we would perform the following
calculations:
Let A = the amount to be paid to you; and
B = the amount of the applicable Market Value Adjustment
Then $20,000 + B = A, -.0180 X $20,000 = -$360.00 = B, and A = $20,000 -
$360.00 = $19,640.00
Accordingly, we would pay you $19,640.00 and subtract $20,000.00 from your
Contract Value. The Market Value Adjustment would be a subtraction of $360.00
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
DEPOSITOR: LINCOLN BENEFIT LIFE COMPANY
This Statement of Additional Information is not a prospectus. You should also
read the prospectus relating to the annuity contracts described above. You may
obtain a copy of the prospectus without charge by calling us at 1-800-525-9287
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: May 1, 2000.
TABLE OF CONTENTS
PAGE
--------
THE CONTRACT.........................................................
ANNUITY PAYMENTS.................................................
ANNUITY UNIT VALUE...............................................
ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY
PAYMENTS.............................................................
ADDITIONAL FEDERAL INCOME TAX INFORMATION............................
DIVERSIFICATION -- SEPARATE ACCOUNT
INVESTMENTS..........................................................
OWNER CONTROL....................................................
MULTIPLE CONTRACTS...............................................
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 Option tables in the Contract (which reflect the assumed investment
rate of 3.5% which is used in calculating subsequent Variable Annuity payments,
as described below). The tables show the amount of the periodic payment a payee
could receive based on $1,000 of Contract Value. To determine the initial
payment amount, we divide your Contract Value, adjusted as described above, by
$1,000 and multiply the result by the relevant annuity factor for the
Annuitant's age and sex (if we are permitted to consider that factor) and the
frequency of the payments you have selected.
In some states and under certain Qualified Plans and other employer-sponsored
employee benefit plans, we are not permitted to take the Annuitant's sex into
consideration in determining the amount of periodic annuity payments. In those
states, we use the same annuity table for men and women.
SUBSEQUENT MONTHLY PAYMENTS
For a Fixed Annuity, the amount of the second and each subsequent monthly
annuity payment is usually the same as the first monthly payment. However, after
the Annuity Date you will have a limited ability to increase your Fixed Annuity
payments by making transfers from the Subaccounts, as described in "Transferred
after the Annuity Date" on page S-3 below. After each such transfer, however,
your subsequent annuity payments will remain at the new level until and unless
you make an additional transfer to your Fixed Annuity payments.
For a Variable Annuity, the amount of the second and each subsequent monthly
payment will vary depending on the investment performance of the Subaccounts to
which you allocated your Contract Value. We calculate separately the portion of
the monthly annuity payment attributable to each Subaccount you have selected as
follows. When we calculate your initial annuity payment, we also will determine
the number of Annuity Units in each Subaccount to allocate to your Contract for
the remainder of the Annuity Period. For each Subaccount, we divide the portion
of the initial annuity payment attributable to that Subaccount by the Annuity
Unit Value for that Subaccount on the Valuation Date next preceding the Annuity
Date. The number of Annuity Units so determined for your Contract is fixed for
the duration of the Annuity Period. We will determine the amount of each
subsequent monthly payment attributable to each Subaccount by multiplying the
number of Annuity Units allocated to your Contract by the Annuity Unit Value for
that Subaccount as of the Valuation Period next preceding the date on which the
annuity payment is due. Since the number of Annuity Units is fixed, the amount
of each subsequent Variable Annuity payment will reflect the investment
performance of the Subaccounts elected by you.
TRANSFERS AFTER THE ANNUITY DATE
The Contract provides that during the Annuity Period, you may make transfers
among the Subaccounts or increase the proportion of your annuity payments
consisting of Fixed Annuity payments. We will effect a transfer among the
Subaccounts at their Annuity Unit Value next determined after we receive your
instructions. After the transfer, your subsequent Variable Annuity payments will
be based on your new Annuity Unit balances. If you wish to transfer value from
the Subaccounts to increase your Fixed Annuity payments, we will determine the
amount of your additional Fixed Annuity payments as follows. First, we will
determine the Annuitized Value represented by the Annuity Units that you wish to
apply to a Fixed Annuity payment. Then, we will apply that amount to the
appropriate factor for the Payment Option you have selected, using either the
Payment Option Tables in the Contract or our annuity tables for single premium
immediate annuities at the time of the calculation, whichever table is more
favorable to the payee.
ANNUITY UNIT VALUE
We determine the value of an Annuity Unit independently for each Subaccount.
Initially, the Annuity Unit Value for each Subaccount was set at $100.00.
The Annuity Unit Value for each Subaccount will vary depending on how much the
actual net investment return of the Subaccount differs from the assumed
investment rate that was used to prepare the annuity tables in the Contract.
Those annuity tables are based on a 3.5% per year assumed investment rate. If
the actual net investment rate of a Subaccount exceeds 3.5%, the Annuity Unit
Value will increase and Variable Annuity payments derived from allocations to
that Subaccount will increase over time. Conversely, if the actual rate is less
than 3.5%, the Annuity Unit Value will decrease and the Variable Annuity
payments will decrease over time. If the net investment rate equals 3.5%, the
Annuity Unit Value will stay the same, as will the Variable Annuity payments. If
we had used a higher assumed investment rate, the initial monthly payment would
be higher, but the actual net investment rate would also have to be higher in
order for annuity payments to increase (or not to decrease).
For each Subaccount, we determine the Annuity Unit Value for any Valuation
Period by multiplying the Annuity Unit Value for the immediately preceding
Valuation Period by the Net Investment Factor for the current Valuation Period.
The result is then divided by a second factor which offsets the effect of the
assumed net investment rate of 3.5% per year.
The Net Investment Factor measures the net investment performance of a
Subaccount from one Valuation Date to the next. The Net Investment Factor may be
greater or less than or equal to one; therefore, the value of an Annuity Unit
may increase, decrease or remain the same.
To determine the Net Investment Factor for a Subaccount for a Valuation Period,
we divide (a) by (b), and then subtract (c) from the result, where:
(a) is the total of:
(1) the net asset value of a Portfolio share held in the
Subaccount determined as of the Valuation Date at the end of the
Valuation Period; plus
(2) the per share amount of any dividend or other distribution
declared by the Portfolio for which the "ex-dividend" date occurs
during the Valuation Period; plus or minus
(3) a per share credit or charge for any taxes which we paid or
for which we reserved during the Valuation Period and which we
determine to be attributable to the operation of the Subaccount. As
described in the prospectus, currently we do not pay or reserve for
federal income taxes;
(b) is the net asset value of the Portfolio share determined as of the
Valuation Date at the end of the preceding Valuation Period; and
(c) is the mortality and expense risk charge and the administrative expense
risk charge.
ILLUSTRATIVE EXAMPLE OF ANNUITY UNIT VALUE CALCULATION
Assume that one share of a given Subaccount's underlying Portfolio had a net
asset value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on
a Tuesday; that its net asset value had been $11.44 at the close of the NYSE on
Monday, the day before; and that no dividends or other distributions on that
share had been made during the intervening Valuation Period. The Net Investment
Factor for the Valuation Period ending on Tuesday's close of the NYSE is
calculated as follows:
Net Investment Factor = ($11.46/$11.44) - 0.0000384 = 1.0017099
The amount subtracted from the ratio of the two net asset values (0.0000384) is
the daily equivalent of the annual asset-based expense charges against the
Subaccount of 1.40%.
In the example given above, if the Annuity Unit value for the Subaccount was
$101.03523 on Monday, the Annuity Unit Value on Tuesday would have been:
$101.03523 X
1.0017099
- -------------------- = $101.19832
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:
o the date the employee attains age 59 1/2,
o separates from service,
o dies,
o becomes disabled, or
o on the account of hardship (earnings on salary reduction contributions
may not be distributed for hardship).
These limitations do not apply to withdrawals where Lincoln Benefit is directed
to transfer some or all of the Contract Value to another 403(b) plan.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS. Sections 401(a)
and 403(a) of the Tax Code permit corporate employers to establish various types
of tax favored retirement plans for employees. The Tax Code permits
self-employed individuals to establish tax favored retirement plans for
themselves and their employees. Such retirement plans may permit the purchase of
Contracts to provide benefits under the plans.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS. Section 457 of the Code permits employees of state and local governments
and tax-exempt organizations to defer a portion of their compensation without
paying current income taxes. The employees must be participants in an eligible
deferred compensation plan. Employees with Contracts under the plan are
considered general creditors of the employer. The employer, as owner of the
Contract, has the sole right to the proceeds of the Contract. Generally, under
the non-natural owner rules, Contracts are not treated as annuity contracts for
federal income tax purposes. Under these plans, contributions made for the
benefit of the employees will not be included in the employees' gross income
until distributed from the plan. However, all compensation deferred under a 457
plan must remain the sole property of the employer. As property of the employer,
the assets of the plan are subject only to the claims of the employer's general
creditors, until such time as the assets become available to the employee or a
beneficiary.
SEPARATE ACCOUNT PERFORMANCE
Performance data for the various Subaccounts are computed in the manner
described below.
FIDELITY MONEY MARKET SUBACCOUNT
The current yield is the annual yield on the Fidelity Money Market Subaccount
assuming no reinvestment of dividends and excluding all realized or unrealized
capital gains. We compute current yield by first determining the Base Period
Return on a hypothetical Contract having a balance of one Accumulation Unit at
the beginning of a 7 day period using the formula:
Base Period Return = (EV-SV)/(SV)
where:
SV = value of one Accumulation Unit at the start of a 7 day period
EV = value of one Accumulation Unit at the end of the 7 day period
We determine the value of the Accumulation Unit at the end of the period (EV)
by:
(1) adding, to the value of the Unit at the beginning of the period (SV),
the investment income from the underlying Variable Insurance Products Fund Money
Market Portfolio attributed to the Unit over the period; and
(2) subtracting, from the result, the sum of:
(a) the portion of the annual Mortality and Expense Risk and
Administrative Expense Charges allocable to the 7 day period (obtained by
multiplying the annually-based charges by the fraction 7/365); and
(b) a prorated portion of the annual contract maintenance charge of $35
per Contract. The contract maintenance charge is allocated among the Subaccounts
in proportion to the total Contract Values similarly allocated. The charge is
further reduced, for purposes of the yield computation, by multiplying it by the
ratio that the value of the hypothetical Contract bears to the value of an
account of average size for Contracts funded by the Fidelity Money Market
Subaccount. The Charge is then multiplied by the fraction 7/365 to arrive at the
portion attributable to the 7 day period.
The current yield is then obtained by annualizing the Base Period Return:
Current Yield = (Base Period Return) X (365/7)
The Fidelity Money Market Subaccount also quotes an "effective yield". Effective
yield differs from current yield in that effective yield takes into account the
effect of dividend reinvestment. The effective yield, like the current yield, is
derived from the Base Period Return over a 7 day period. However, the effective
yield accounts for the reinvestment of dividends in the Variable Insurance
Products Fund Money Market Portfolio by compounding the current yield according
to the formula:
Effective Yield = [(Base Period Return + 1)TO THE POWER OF 365/7-1].
Net investment income for yield quotation purposes will not include either
realized capital gains and losses or unrealized appreciation and depreciation,
whether reinvested or not. The yield quotations also do not reflect any impact
of premium tax charges or transfer fees.
The yields quoted do not represent the yield of the Fidelity Money Market
Subaccount in the future, because the yield is not fixed. Actual yields will
differ depending on the type, quality and maturities of the investments held by
the Variable Insurance Products Fund Money Market Portfolio and changes in
interest rates on those investments. In addition, your yield also will be
affected by factors specific to your Contract. For example, if your account is
smaller than average, your yield will be lower, because the fixed dollar expense
charges will affect the yield on small accounts more than they will affect the
yield on larger accounts.
Yield information may be useful in reviewing the performance of the Fidelity
Money Market Subaccount and for providing a basis for comparison with other
investment alternatives. However, the Fidelity Money Market Subaccount's yield
may vary on a daily basis, unlike bank deposits or other investments that
typically pay a fixed yield for a stated period of time.
The Fidelity 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
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:
2 X ( ((a-b) + 1)TO THE POWER OF SIX - 1)
Yield = -----------------------
cd
where:
a = net investment income earned during the period by the
underlying Portfolio attributable to
its shares held in the Subaccount;
b = expenses accrued for the period (net of reimbursements);
c = average daily number of Accumulation Units outstanding
during the period; and
d = the net asset value of an Accumulation Unit on the last
day of the period.
These yield figures reflect all recurring Contract charges, as described in the
explanation of the yield computation for the Fidelity Money Market Subaccount.
Like the Fidelity Money Market Subaccount's yield figures, the yield figures for
the other Subaccounts are based on past performance and should not be taken as
predictive of future results.
STANDARDIZED TOTAL RETURN
Standardized total return for a Subaccount represents a single computed annual
rate of return that, when compounded annually over a specified time period (one,
five, and ten years, or since inception) and applied to a hypothetical initial
investment in a Contract funded by that Subaccount made at the beginning of the
period, will produce the same Contract Value at the end of the period that the
hypothetical investment would have produced over the same period. The
standardized total rate of return (T) is computed so that it satisfies the
following formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the one, five, or ten year period as of the end of
the period (or fractional portion thereof).
The standardized total return figures reflect the effect of both non-recurring
and recurring charges, as discussed herein. Recurring charges are taken into
account in a manner similar to that used for the yield computations for the
Fidelity Money Market Subaccount, described above. The 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
Fidelity Money Market and other Subaccount yield figures, standardized total
return figures are based on historical data and are not intended to be a
projection of future performance.
NON-STANDARDIZED TOTAL RETURN
Non-standardized total return for a Subaccount represents a single computed
annual rate of return that, when compounded annually over a specified time
period (one, five, and ten years, or since inception) and applied to a
hypothetical initial investment in a Contract funded by that Subaccount made at
the beginning of the period, will produce the same Contract Value at the end of
the period that the hypothetical investment would have produced over the same
period. The total rate of return (T) is computed so that it satisfies the
formula:
n
P(1+T) = ERV
where:
P = a hypothetical initial payment of $75,000
T = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical $75,000
payment made at the beginning of the one, five, or ten year period as of the
end of the period (or fractional portion thereof).
Our non-standardized total return differs standardized total return in that in
calculating non-standardized total return, we assumed an initial hypothetical
investment of $75,000. We chose $75,000, because it is closer to the average
Purchase Payment for 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. The non-standardized total return
figures, however, do not reflect the contract maintenance charge, which is
waived on Contracts on which the Purchase Payments exceed $50,000. Accordingly,
if your Contract is subject to the contract maintenance charge, your total
return on an investment in the Subaccount over the same time periods usually
will be less than those produced by the computation. The amount of the
difference will depend on factors such as the difference between the actual
allocation and the assumed allocation, as well as varying account sizes. As with
the standardized total return figures, non-standardized total return figures are
based on historical data and are not intended to be a projection of future
performance.
TIME PERIODS BEFORE THE DATE THE SEPARATE ACCOUNT COMMENCED OPERATIONS
The Separate Account may also disclose yield and non-standardized total return
for time periods before the Separate Account commenced operations. This
performance data is based on the actual performance of the Portfolios since
their inception, adjusted to reflect the effect of the recurring Contract
charges at the rates currently charged against the Subaccounts.
TABLES OF TOTAL RETURN QUOTATIONS
The following tables include standardized average annual total return and
non-standardized total return for various periods as of December 31, 1999.
STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1998
ASSUMING CONTRACT SURRENDERED
AVERAGE ANNUAL TOTAL RETURN (3)
-------------------------------
<TABLE>
<CAPTION>
INCEPTION SINCE
DATE (2) 1 YEAR(%) 5 YEAR (%) 10 YEAR (%) INCEPTION (%)
---------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
JANUS
Flexible Income......................... 1/2/94 4.93% N/A N/A 8.24%
Balanced (4)............................ 1/2/94 30.89% N/A N/A 17.14%
Growth (4).............................. 1/2/94 33.65% N/A N/A 19.71%
Aggressive Growth (4)................... 1/2/94 32.33% N/A N/A 18.02%
Worldwide Growth (4).................... 1/2/94 26.89% N/A N/A 19.49%
FEDERATED
Utility II (4).......................... 2/11/94 12.31% N/A N/A 12.80%
U.S. Gov't II (4)....................... 3/28/94 6.11% N/A N/A 5.13%
High Income Bond (4).................... 3/1/94 1.22% N/A N/A 7.92%
FIDELITY VIP
Money Market (1)........................ 1/2/94 N/A N/A N/A N/A
Equity Income (4)....................... 1/2/94 10.03% N/A N/A 17.18%
Growth (4).............................. 1/2/94 37.49% N/A N/A 20.23%
Overseas (4)............................ 1/2/94 11.13% N/A N/A 8.05%
FIDELITY VIP II
Asset Manager (4)....................... 1/2/94 13.40% N/A N/A 10.26%
Contrafund (4).......................... 1/3/95 28.11% N/A N/A 23.26%
Index 500............................... 2/17/98 N/A N/A N/A 23.66%
ALGER AMERICAN
Income and Growth....................... 2/17/98 N/A N/A N/A 31.93%
Small Capitalization.................... 2/17/98 N/A N/A N/A 13.17%
Growth.................................. 2/17/98 N/A N/A N/A 44.06%
MidCap.................................. 2/17/98 N/A N/A N/A 26.12%
Leveraged AllCap (4).................... 2/17/98 N/A N/A N/A 56.41%
SCUDDER
Bond.................................... 1/2/94 5.04% N/A N/A 4.65%
Balanced................................ 1/2/94 31.50% N/A N/A 16.59%
Growth and Income....................... 8/17/98 N/A N/A N/A 23.54%
Global Discovery........................ 8/17/98 N/A N/A N/A 32.89%
International........................... 8/17/98 N/A N/A N/A 11.38%
STRONG
Discovery II............................ 8/17/98 N/A N/A N/A 43.95%
Opportunity II.......................... 8/17/98 N/A N/A N/A 43.52%
Growth II............................... 8/17/98 N/A N/A N/A 72.25%
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock..................... 8/17/98 N/A N/A N/A 22.04%
T. ROWE PRICE EQUITY SERIES, INC.
New America Growth...................... 8/17/98 N/A N/A N/A 59.96%
Mid-Cap Growth.......................... 8/17/98 N/A N/A N/A 70.09%
Equity Income........................... 8/17/98 N/A N/A N/A 32.69%
MFS
Growth with Income (4).................. 8/17/98 N/A N/A N/A 48.65%
Research................................ 8/17/98 N/A N/A N/A 53.29%
Emerging Growth......................... 8/17/98 N/A N/A N/A 86.78%
Total Return (4)........................ 8/17/98 N/A N/A N/A 23.06%
New Discovery (4)....................... 8/17/98 N/A N/A N/A 78.72%
</TABLE>
- ------------------------
(1) An investment in Fidelity Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that Fidelity Money Market
will maintain a stable $1.00 share price. The Fidelity Money Market Fund does
not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until August 17, 1998,
although it has offered other annuity contracts that are not offered by the
prospectus to which this Statement of Additional Information relates.
Accordingly, this table reflects hypothetical performance for the periods
covered, applying the contract charges under the Contract to the investment
performance of the underlying Portfolios. Standardized performance data for
periods after the inception of Contract sales will reflect the actual
performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends, and
capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $1,000, as required by the SEC; and (3) reflect the
deduction of 1.40% annual asset-based charges and a $35 annual contract
maintenance charge. The effect 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 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.
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1998
AVERAGE ANNUAL TOTAL RETURN
(3)
------------------------------
PORTFOLIO MONTHLY TOTAL SINCE
INCEPTION RETURN RETURN 1 YR. 5 YR. 10 YR. INCEPTION
DATE (2) (%) YTD(%) (%) (%) (%) (%)
--------- ------- ------ ----- ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUS
Flexible Income...................... 9/13/93 -1.83% 4.98% 4.98% 8.25% N/A 7.81%
Balanced (4)......................... 9/13/93 9.57% 30.95% 30.95% 17.19% N/A 17.18%
Growth (4)........................... 9/13/93 14.75% 33.71% 33.71% 19.72% N/A 19.00%
Aggressive Growth (4)................ 9/13/93 16.42% 32.39% 32.39% 17.69% N/A 19.49%
Worldwide Growth (4)................. 9/13/93 7.89% 26.95% 26.95% 19.60% N/A 21.97%
FEDERATED
Utility II (4)....................... 2/11/94 3.47% 12.36% 12.36% N/A N/A 12.98%
U.S. Gov't II (4).................... 3/28/94 .24% 6.16% 6.16% N/A N/A 5.16%
High Income Bond (4)................. 3/1/94 -.39% 1.27% 1.27% N/A N/A 8.00%
FIDELITY VIP
Money Market (1)..................... 4/1/82 N/A N/A N/A N/A N/A N/A
Equity Income (4).................... 10/9/86 3.00% 10.08% 10.08% 17.12% 14.02% 12.80%
Growth (4)........................... 10/9/86 8.41% 37.55% 37.55% 20.03% 17.75% 15.73%
Overseas (4)......................... 1/28/87 2.07% 11.18% 11.18% 8.18% 8.55% 7.09%
FIDELITY VIP II
Asset Manager (4).................... 9/6/89 4.00% 13.45% 13.45% 10.27% N/A 11.43%
Contrafund (4)....................... 1/3/95 12.03% 28.17% 28.17% N/A N/A 26.89%
Index 500............................ 8/27/92 5.75% 26.53% 26.53% 22.00% N/A 19.50%
ALGER AMERICAN
Income and Growth.................... 11/15/88 9.75% 30.55% 30.55% 20.07% 14.01% 13.91%
Small Capitalization................. 9/21/88 12.61% 13.92% 13.92% 11.52% 18.18% 17.06%
Growth............................... 1/9/89 12.00% 46.01% 46.01% 22.18% N/A 19.75%
MidCap............................... 5/3/93 12.42% 28.49% 28.49% 17.33% N/A 20.88%
Leveraged AllCap (4)................. 1/25/95 16.31% 55.64% 55.64% N/A N/A 38.40%
SCUDDER
Bond................................. 7/16/85 -.12% 5.09% 5.09% 4.62% 7.13% 6.86%
Balanced............................. 7/16/85 6.16% 31.56% 31.56% 16.47% 13.07% 12.37%
Growth and Income.................... 5/2/94 .42% 5.36% 5.36% N/A N/A 17.48%
Global Discovery..................... 5/1/96 8.52% 14.78% 14.78% N/A N/A 10.31%
International........................ 5/1/87 3.73% 16.67% 16.67% 8.76% 10.28% 9.64%
STRONG
Discovery II......................... 5/8/92 8.31% 5.77% 5.77% 7.52% N/A 9.02%
Opportunity II....................... 5/8/92 4.51% 11.96% 11.96% 15.39% N/A 17.13%
Growth II............................ 12/31/96 12.92% 26.98% 26.98% N/A N/A 27.43%
T.ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock.................. 3/31/94 3.17% 14.25% 14.25% N/A N/A 8.14%
T. ROWE PRICE EQUITY SERIES, INC.
New America.Growth................... 3/31/94 11.97% 16.86% 16.86% N/A N/A 20.86%
Mid-Cap Growth....................... 12/31/96 11.43% 20.38% 20.38% N/A N/A 18.77%
Equity Income........................ 3/31/94 .56% 7.55% 7.55% N/A N/A 18.81%
MFS
Growth with Income (4)............... 10/9/95 4.72% 20.62% 20.62% N/A N/A 26.15%
Research............................. 7/26/95 7.02% 21.68% 21.68% N/A N/A 20.87%
Emerging Growth...................... 7/24/95 12.98% 32.31% 32.31% N/A N/A 24.77%
Total Return (4)..................... 1/3/95 2.02% 10.78% 10.78% N/A N/A 17.86%
New Discovery (4).................... 5/1/98 12.05% 6.25% N/A N/A N/A N/A
- ------------------------
</TABLE>
(1) An investment in Fidelity Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that Fidelity Money Market
will maintain a stable $1.00 share price. The Fidelity Money Market Fund does
not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until August 17, 1998,
although it has offered other annuity contracts that are not offered by the
prospectus to which this Statement of Additional Information relates.
Accordingly, this table reflects hypothetical performance for the periods
covered, applying the contract charges under the Contract to the investment
performance of the underlying Portfolios since their inception. Nonstandardized
performance data for periods after the inception of Contract sales will reflect
the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends,
and capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $75,000, since this is closer to the average Purchase
Payment of a contract expected to be written, rather than the $1,000 required by
the SEC for the standardized returns shown in the table on pages S-10 and S-11;
and (3) reflect the deduction of 1.40% annual asset-based charges.
Non-standardized return does not reflect the $35 annual contract maintenance
charge, because it is waived on Contracts on which the Purchase Payments exceed
$50,000. The total return on a Contract subject to the contract maintenance
charge over the same time periods usually will be less than those shown in the
tables, and 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.
<TABLE>
<CAPTION>
NON-STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1998
CUMULATIVE
TOTAL
PORTFOLIO RETURN SINCE CALENDAR YEAR RETURN (3)
INCEPTION INCEPTION (%) -----------------------------------
DATE (2) (3) 1996 (%) 1997 (%) 1998 (%)
--------- -------------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
JANUS
Flexible Income.......................... 9/13/93 48.95% 22.13% 7.67% 10.21%
Balanced (4)............................. 9/13/93 131.60% 23.05% 14.57% 20.40%
Growth (4)............................... 9/13/93 151.28% 28.36% 16.81% 21.04%
Aggressive Growth (4).................... 9/13/93 156.80% 25.70% 6.45% 11.10%
Worldwide Growth (4)..................... 9/13/93 186.40% 25.60% 27.45% 20.45%
FEDERATED
Utility II (4)........................... 2/11/94 81.46% 22.42% 10.01% 24.87%
U.S. Gov't II (4)........................ 3/28/94 27.06% 7.25% 2.75% 7.07%
High Income Bond (4)..................... 3/1/94 45.09% 18.68% 12.72% 12.25%
FIDELITY VIP
Money Market (1)......................... 4/1/82 N/A N/A N/A N/A
Equity Income (4)........................ 10/9/86 336.32% 33.08% 12.69% 26.33%
Growth (4)............................... 10/9/86 496.93% 33.48% 13.11% 21.76%
Overseas (4)............................. 1/28/87 126.24% 8.16% 11.64% 10.00%
FIDELITY VIP II
Asset Manager (4)........................ 9/6/89 174.02% 15.31% 13.01% 18.97%
Contrafund (4)........................... 1/3/95 158.76% N/A 19.62% 22.42%
Index 500................................ 8/27/92 209.51% 35.28% 21.01% 30.98%
ALGER AMERICAN
Income and Growth........................ 11/15/88 273.94% 33.25% 18.02% 34.39%
Small Capitalization..................... 9/21/88 404.47% 42.30% 2.73% 9.84%
Growth................................... 1/9/89 503.66% 34.47% 11.77% 24.00%
MidCap................................... 5/3/93 192.66% 42.44% 10.34% 13.41%
Leveraged AllCap (4)..................... 1/25/95 258.86% N/A 10.48% 18.02%
SCUDDER
Bond..................................... 7/16/85 144.36% 16.53% 1.39% 7.58%
Balanced................................. 7/16/85 380.72% 24.91% 10.33% 22.48%
Growth and Income........................ 5/2/94 112.07% 29.91% 20.47% 28.66%
Global Discovery......................... 5/1/96 29.92% N/A N/A 10.82%
International............................ 5/1/87 192.68% 9.57% 13.19% 7.55%
STRONG
Discovery II............................. 5/8/92 77.53% 33.38% -.59% 9.84%
Opportunity II........................... 5/8/92 186.02% 24.07% 16.51% 23.71%
Growth II................................ 12/31/96 62.34% N/A N/A N/A
T. ROWE PRICE INTERNATIONAL
SERIES, INC.
International Stock...................... 3/31/94 45.07% 9.63% 13.11% 1.66%
T. ROWE PRICE EQUITY SERIES, INC.
New America.............................. 3/31/94 146.09% 48.98% 18.42% 19.43%
Mid-Cap Growth........................... 12/31/96 41.03% N/A N/A N/A
Equity Income............................ 3/31/94 126.84% 32.89% 17.81% 27.06%
MFS
Growth with Income (4)................... 10/9/95 111.66% N/A 22.73% 27.98%
Research................................. 7/26/95 91.70% N/A 20.63% 18.59%
Emerging Growth.......................... 7/24/95 114.03% N/A 15.37% 20.21%
Total Return (4)......................... 1/3/95 92.69% N/A 12.78% 19.61%
New Discovery (4)........................ 5/1/98 1.40% N/A N/A N/A
</TABLE>
- ------------------------
(1) An investment in Fidelity Money Market is neither insured nor guaranteed by
the U.S. Government and there can be no assurance that Fidelity Money Market
will maintain a stable $1.00 share price. The Fidelity Money Market Fund does
not advertise total return.
(2) The Separate Account was established on approximately January 2, 1994.
Lincoln Benefit did not start offering the Contracts until August 17, 1998,
although it has offered other annuity contracts that are not offered by the
prospectus to which this Statement of Additional Information relates.
Accordingly, this table reflects hypothetical performance for the periods
covered, applying the contract charges under the Contract to the investment
performance of the underlying Portfolios since their inception. Nonstandardized
performance data for periods after the inception of Contract sales will reflect
the actual performance of the Contracts.
(3) Total return includes changes in share price, reinvestment of dividends,
and capital gains. The performance figures: (1) represent past performance and
neither guarantee nor predict future investment results; (2) assume an initial
hypothetical investment of $75,000, since this is closer to the average Purchase
Payment of a contract expected to be written, rather than the $1,000 required by
the SEC for the standardized returns shown in the table on pages S-10 and S-11;
and (3) reflect the deduction of 1.40% annual asset-based charges.
Non-standardized return does not reflect the $35 annual contract maintenance
charge, because it is waived on Contracts on which the Purchase Payments exceed
$50,000. The total return on a Contract subject to the contract maintenance
charge over the same time periods usually will be less than those shown in the
tables, and 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, 1999, and for each of the two years ended December 31, 1999,
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. In addition,
the financial statements for the Separate Account reflect Subaccounts that are
not available under the Contract.
* To be filed by post-effective amendment.
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The following financial statements are included in Part A of the
Registration Statement:
None
The following financial statements are included in Part B of the Registration
Statement:
The consolidated financial statements (prepared on the GAAP basis of accounting)
for Lincoln Benefit Life Company and subsidiary as of December 31, 1999 and 1998
and for each of the three years in the period ended December 31, 1999.
(Incorporated by reference from Lincoln Benefit's Annual Report on Form 10K)
The financial statements (prepared on the GAAP basis of accounting) of the
Separate Account as of December 31, 1999 and for the years ended December 31,
1999 and 1998. (To be filed by post effective amendment)
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) Fund Participation Agreement between Janus Aspen Series and
Lincoln Benefit Life Company*
(b) Participation Agreement among Lincoln Benefit Life Company,
Variable Insurance Products Fund and Fidelity Distributors
Corporation*
(c) Participation Agreement among Lincoln Benefit Life Company,
Variable Insurance Products Fund II and Fidelity Distributors
Corporation*
(d) (1) Participation Agreement among The Alger American Fund, Lincoln
Benefit Life Company and Fred Alger and Company, Incorporated*
(2) Service Agreement between Fred Alger Management, Inc. and
Lincoln Benefit Life Company*
(e) (1) Participation Agreement between Scudder Variable Life
Investment Fund and Lincoln Benefit Life Company*
(2) Reimbursement Agreement by and between Scudder, Stevens &
Clark, Inc. and Lincoln Benefit Life Company*
(3) Participating Contract and Policy Agreement between Scudder
Investor Services, Inc. and Lincoln Benefit Financial Services*
(f) Form of Participation Agreement among Lincoln Benefit Life
Company, Strong Variable Insurance Funds, Inc., Strong Opportunity
Fund II, Inc., Strong Capital Management, Inc., and Strong Funds
Distributors, Inc.*
(g) Form of Participation Agreement among T. Rowe Price Equity Series,
Inc., T. Rowe Price International Series, Inc., T. Rowe Price
Investment Services, Inc., and Lincoln Benefit Life Company*
(h) Form of Participation Agreement among MFS Variable Insurance
Trust, Lincoln Benefit Life Company, and Massachusetts Financial
Services Company*
(i) Fund Participation Agreement between Lincoln Benefit Life Company,
Insurance Management Series and Federated Securities Corp.*
(j) Form of Participation Agreement between Lincoln Benefit Life
Company, STI Classic Variable Trust, and STI Capital Management******
(9) Opinion and Consent of Counsel****
(10) (a) Consent of Attorneys (to be filed by post-effective amendment)
(b) Consent of Independent Auditors (to be filed by post-effective
amendment)
(11) Financial Statements Omitted from Item 23 (not applicable)
(12) Initial Capitalization Agreement (not applicable)
(13) Performance Computations****
(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 Nos. 811-7924, 333-50545, filed April 21, 1998.
***Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity
Account, File No. 333-50737, 811-7924, filed April 22, 1998.
****Pre-effective Amendment No. 1 to Registration Statement on Form N-4 for
Lincoln Benefit Life Variable Annuity Account, File No. 333-50737, 811-7924,
filed July 24, 1998.
*****Post Effective Amendment #1 to Registration Statement on Form N-4 for
Lincoln Benefit Life Variable Annuity Account, File No. 333-50545, 811-7924,
filed January 22, 1999.
******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.
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
Marvin P. Ehly Director, Senior Vice President, Chief Financial
Officer, Controller and Treasurer
Lawrence W. Dahl Director, Executive Vice President
Douglas F. Gaer Director, Executive Vice President
Robert E. Rich Director, Executive Vice President
Thomas R. Ashley Director, Senior Vice President
Thomas J. Berney Director, Senior Vice President
John H. Coleman III Director, Senior Vice President
Rodger A. Hergenrader Director, Senior Vice President
Kevin R. Slawin Director
J. Scott Taylor Director, Senior Vice President
Michael J. Velotta Director and Assistant Secretary
Carol S. Watson Director, Senior Vice President, General Counsel,
and Secretary
Dean M. Way Director, Senior Vice President
Patricia W. Wilson Director
Thomas J. Wilson, II Director, Chairman of the Board and Chief
Executive Officer
Janet P. Anderbery 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
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 ______.
ITEM 27. NUMBER OF CONTRACT OWNERS
As of March 1, 1999, the Registrant has qualified contract owners and
non-qualified contract owners.
ITEM 28. INDEMNIFICATION
The Articles of Incorporation of Lincoln Benefit Life Company (Depositor)
provide for the indemnification of its directors and officers against expenses,
judgments, fines and amounts paid in settlement as incurred by such person, so
long as such person shall not have been adjudged to be liable for negligence or
misconduct in the performance of a duty to the Company. This right of indemnity
is not exclusive of other rights to which a director or officer may otherwise be
entitled.
The By-Laws of Lincoln Benefit Financial Services, Inc. (Distributor)
provide that the corporation will indemnify a director, officer, employee or
agent of the corporation to the full extent of Delaware law. In general,
Delaware law provides that a corporation may indemnify a director, officer,
employee or agent against expenses, judgments, fines and amounts paid in
settlement if that individual acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. No indemnification
shall be made for expenses, including attorney's fees, if the person shall have
been judged to be liable to the corporation unless a court determines such
person is entitled to such indemnity. Expenses incurred by such individual in
defending any action or proceeding may be advanced by the corporation so long as
the individual agrees to repay the corporation if it is later determined that he
or she is not entitled to such indemnification.
Under the terms of the form of Underwriting Agreement, the Depositor agrees
to indemnify the Distributor for any liability that the latter may incur to a
Contract owner or party-in-interest under a Contract, (a) arising out of any act
or omission in the course of or in connection with rendering services under such
Agreement, or (b) arising out of the purchase, retention or surrender of a
Contract; provided, that the Depositor will not indemnify the Distributor for
any such liability that results from the latter's willful misfeasance, bad faith
or gross negligence, or from the reckless disregard by the latter of its duties
and obligations under the Underwriting Agreement.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the forgoing provisions, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 29. PRINCIPAL UNDERWRITER
(a) 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, Illinois 60062.
NAME POSITION WITH DISTRIBUTOR
- ------------------------- -------------------------------------------
Kevin R. Slawin Director
Michael J. Velotta Director and Secretary
John R. Hunter President and Chief Executive Officer
Thomas J. Wilson, II Director
Janet M. Albers Vice President and Controller
Brent H. Hamann Vice President
Andrea J. Schur Vice President
James P. Zils Treasurer
Terry R. Young General Counsel and Assistant Secretary
Lisa A. Burnell Assistant Vice President and Compliance Officer
Joanne M. Derrig Assistant Secretary and Assistant General Counsel
Emma M. Kalaidjian Assistant Secretary
Barry S. Paul 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>
ALFS 0 0 0 0
</TABLE>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The Depositor, Lincoln Benefit Life Company, is located at 2940 South 84th
Street, Lincoln, Nebraska 68506.
The Principal Underwriter, ALFS 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;
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, and has duly caused this Post-Effective Amendment to be signed on its
behalf, in the City of Lincoln, and the State of Nebraska, on March 1, 2000.
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 Post Effective Amendment has
been signed by the following persons in the capacities and on the dates
indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------------- -------------------------- -------------------
<S> <C> <C>
/s/ B. EUGENE WRAITH
- -------------------------------------- President, Chief Operating
B. Eugene Wraith Officer and Director March 1, 2000
(PRINCIPAL EXECUTIVE OFFICER)
/s/ MARVIN P. EHLY
- -------------------------------------- Senior Vice President,
MARVIN P. EHLY Treasurer, Controller,
Chief Financial Officer and Director March 1, 2000
(PRINCIPAL FINANCIAL OFFICER)
(PRINCIPAL ACCOUNTING OFFICER)
/s/ LAWRENCE W. DAHL
- -------------------------------------- Executive Vice President March 1, 2000
Lawrence W. Dahl and Director
/s/ DOUGLAS F. GAER
- -------------------------------------- Executive Vice President March 1, 2000
Douglas F. Gaer and Director
/s/ ROBERT E. RICH
- -------------------------------------- Executive Vice President March 1, 2000
Robert E. Rich and Director
/s/ THOMAS R. ASHLEY
- -------------------------------------- Director March 1, 2000
Thomas R. Ashley
/s/ THOMAS J. BERNEY
- -------------------------------------- Director March 1, 2000
Thomas J. Berney
/s/ JOHN H. COLEMAN III
- -------------------------------------- Director March 1, 2000
John H. Coleman III
/s/ RODGER A. HERGENRADER
- -------------------------------------- Director March 1, 2000
Rodger A. Hergenrader
- -------------------------------------- Director March 1, 2000
Kevin Slawin
/s/ J. SCOTT TAYLOR
- -------------------------------------- Director March 1, 2000
J. Scott Taylor
- -------------------------------------- Director March 1, 2000
Michael J. Velotta
/s/ CAROL S. WATSON
- -------------------------------------- Director March 1, 2000
Carol S. Watson
/s/ DEAN M. WAY
- -------------------------------------- Director March 1, 2000
Dean M. Way
- -------------------------------------- Director March 1, 2000
Patricia W. Wilson
- --------------------------------------
Thomas J. Wilson, II Chairman of the Board, March 1, 2000
Chief Executive Officer,
and Director
</TABLE>
<PAGE>
INDEX TO EXHIBITS
FOR
REGISTRATION STATEMENT ON FORM N-4
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
EXHIBIT NO.
- ------------------
- --------
A-1
<PAGE>
March 1, 2000
Joyce Pickholz, Esq.
Office of Insurance Products
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Re: Lincoln Benefit Life Variable Annuity Account (File No. 811-7924)
Post-Effective Amendments to Registration Statement on Form N-4
(File Nos. 333-50545, 333-50737, 333-82427)
Post-Effective Amendment on Form S-3 to Registration Statement on
Form S-1 (File Nos. 333-59765, 333-59769, 333-88045)
Dear Ms. Pickholz:
This letter is to request approval pursuant to Rule 485(b)(1)(vii) under the
Securities Act of 1933, as amended, of the filing schedule described below for
certain flexible premium variable annuity contracts issued by Lincoln Benefit
(the "Contracts") that contain market value adjustment features.
The variable portion of each Contract currently is registered on Form N-4 and
the market value adjusted interests are registered on Form S-1. Accordingly, the
prospectuses for these Contracts are intended to comply with the requirements of
both Forms. In the upcoming filing season, we intend to amend the registrations
statements described below to comply with the requirements of both Form N-4 and
Form S-3:
Filing Pursuant to Rule 485 (a) (to be made on or about March 1, 2000):
o Lincoln Benefit Life Variable Annuity Account: File No. 333-50737; 811-7924
(N-4)
Material revisions:
o A provision is being added regarding the calculation of the Death Benefit,
such that the death benefit will be recalculated for purchase payments,
withdrawals, and on contract anniversaries until the oldest owner, or the
annuitant if the owner is not a living individual, attains age 85. The
prospectus previously did not contain an age limit in relation to the
recalculation of the Death Benefit.
o Changes required by S-3: removal of certain disclosure not required by Form
S-3; the incorporation by reference of Lincoln Benefit's periodic reports,
and language reflecting the availability of those reports on request; and
the placement of Lincoln Benefit's financial statements in the SAI of the
related N-4 filings rather than in the prospectus.
We request that you review the disclosure in light of the requirements of both
Form N-4 and Form S-3.
Filings Pursuant to Rule 485 (b) with Requests to Accelerate the
Effectiveness of these Filings to May 1, 2000 (to be made on or about April
1, 2000):
o Lincoln Benefit Life Variable Annuity Account: File No. 333-50737 (N-4);
File No. 333-59769 (S-3).
o Lincoln Benefit Life Variable Annuity Account: File No. 333-50545 (N-4);
File No. 333-59765 (S-3).
o Lincoln Benefit Life Variable Annuity Account: File No. 333-82427 (N-4);
File No. 333-88045 (S-3).
Revisions:
o The revisions converting the filings from Form S-1 to Form S-3 as described
above will be made in these (b) filings.
o Any Staff comments on the (a) filing will be incorporated into the
corresponding (b) filing.
o Updated financial and performance information.
Except for these specified changes, the (b) filings will not contain any
material changes from the previous respective post-effective amendments.
The process described would be a matter of routine under the provision of Rule
485 under the Securities Act of 1933, if all of the referenced post-effective
amendments were on N-4 under the Investment Company Act of 1940. However, since
the market value adjusted interests under each of these Contracts currently is
registered on Form S-1 (which will be changed to Form S-3 with these annual
post-effective amendment filings), Lincoln Benefit Life Company respectfully
requests your assent and the cooperation of the Commission in the review of
these post-effective amendments.
The transmittal letters for the post-effective amendments will clearly indicate
the nature of the filing and will represent that there are no material changes
as appropriate. The Company will also provide courtesy copies of each filing,
clearly indicating all changes.
Please contact me at (402) 328-5700 and advise me if the described procedure is
acceptable to you or if you have any questions.
Thank you for your consideration of this matter.
Very truly yours,
/s/ CAROL S. WATSON
-------------------
Carol S. Watson
CSW:anr
