<PAGE>
As filed with the Securities and Exchange Commission on
April 28, 1998
'33 Act File No. 33-67386
____________________________________________________________________
____________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
Post-Effective Amendment No. 9
to
Form S-6
________
For Registration Under the Securities Act of 1933
of Securities of Unit Investment Trusts
Registered on Form N-8B2
________
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY
Depositor
206 South 13th Street
Lincoln, Nebraska 68508
________
JOHN MORRIS
Lincoln Benefit Life Company
206 South 13th Street
Lincoln, Nebraska 68508
It is proposed that this filing will become effective:
___ immediately upon filing pursuant to paragraph (b) of Rule 485
x on May 1, 1998 pursuant to paragraph (b) of Rule 485
___
___ 60 days after filing pursuant to paragraph (a) of Rule 485
___ on (date) pursuant to paragraph (a) of Rule 485
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has registered an indefinite amount of securities under the Securities Act of
1933. A 24f-2 notice for the fiscal year ending December 31, 1996 was filed on
March 25, 1998.
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
CROSS REFERENCE SHEET TO PROSPECTUS
Cross reference sheet pursuant to Rule 404(c) showing location in prospectus of
information required by Items of Form N-8B-2
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
- -------------------------- ---------------------
ORGANIZATION AND GENERAL INFORMATION
------------------------------------
<S> <C> <C>
1. (a) Name of trust...................................... Cover, Definitions
(b) Title of each class of............................. Cover, Payment & Allocation of Premiums
securities issued
2. Name & address of each depositor....................... Cover, Lincoln Benefit Life Company
3. Name & address of custodian............................ Separate Account
4. Name & address of principal............................ Payment & Allocation of Premiums,
underwriter Distribution of the Policy
5. State in which organized............................... Separate Account
6. Date of organization................................... Separate Account
9. Material litigation.................................... Legal Proceedings
</TABLE>
GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
------------------------------------------------------------
General Information Concerning Securities and Rights of Holders
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
10. (a),(b) Type of Securities............................ Cover, Payment & Allocation of Premiums
(c) Rights of securityholders..................... Cover, Surrender & Withdrawal Privileges
re: withdrawal or redemption Policy Loans, "Free Look" Period, Right
to Exchange
(d) Rights of securityholders..................... Cover, Right to Exchange, Surrender &
re: conversion, transfer or Withdrawal Privileges, Payment &
partial withdrawal Allocation of Premiums, Transfers,
"Free Look" Period
(e) Rights of securityholders..................... Policy Lapse, Reinstatement
re: lapses, default,
& reinstatement
(f) Provisions re: voting......................... Voting Rights
rights
(g) Notice to securityholders..................... Reports & Records
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
- -------------------------- ---------------------
<S> <C>
(h) Consent of Security............................. Additions, Deletions or Substitutions of
Holders Investments, Payment & Allocation of
Premiums
(i) Other principal features........................ Charges & Deductions, Policy Benefits
& Rights, Policy Value, Other Matters
Information Concerning Securities Underlying Trust's Securities
- ---------------------------------------------------------------
11. Unit of specified securities in which.................... Cover, The Portfolios
securityholders have an interest
12. (a)-(d) Name of company, & name.......................... Cover, The Portfolios
& address of its custodian
Information Concerning Loads, Fees, Charges & Expenses
- ------------------------------------------------------
13. (a) With respect to each load,....................... Charges & Deductions
fee, charge & expense
(b) Deductions for sales charges..................... Surrender Charge
(c) Sales load as percentage......................... Surrender Charge
of amount invested
(d)-(g) Other loads, fees &.............................. Monthly Deductions, Premium Charges,
expenses Risk Charge, Transfer Fee, Administrative
Expense Charge, Other Charges
Information Concerning Operation of Trust
- -----------------------------------------
14. Procedure for applications for &......................... Payment & Allocation of Premiums,
issuance of trust's securities Distribution of the Policy
15. Procedure for receipt of payments........................ Payment & Allocation of Premiums,
from purchases of trust's securities Payment of Premiums, Monthly Guarantee
Premiums, Allocation of Premiums,
Transfers
16. Acquisition & disposition of............................. Cover, The Portfolios
underlying securities
17. (a) Procedure for withdrawal......................... Cover, Surrender & Withdrawal Privileges
"Free Look" Period, Right to Exchange
(b) Redemption or repurchase......................... "Free Look" Period, Right to Exchange
(c) Cancellation or resale........................... "Free Look" Period, Right to Exchange
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
- -------------------------- ---------------------
<S> <C> <C>
18. Purchase of underlying securities................... The Portfolios, Allocation of Premiums,
Transfers
19. Procedure for keeping records &..................... The Portfolios, Reports & Records
furnishing information to
securityholders
21. (a) & (b) Loans to securityholders.................. Policy Loans
23. Bonding arrangements for depositor.................. Safekeeping of the Separate Account's
Assets
24. Other material provisions........................... General Provisions
ORGANIZATION, PERSONNEL & AFFILIATED PERSONS OF DEPOSITOR
---------------------------------------------------------
Organization & Operations of Depositor
- --------------------------------------
25. Form, state & date of organization................. Lincoln Benefit Life Company
of depositor
27. General character of business of................... Lincoln Benefit Life Company
depositor
28. (a) 5% ownership................................... Lincoln Benefit Life Company
(b) Business experience of......................... Executive Officers & Directors of
officers & directors of Lincoln Benefit Life Company
the depositor
Companies Owning Securities of Depositor
- ----------------------------------------
29. Each company owning 5% of voting................... Lincoln Benefit Life Company
securities of depositor
Controlling Persons
- -------------------
30. Control of depositor............................... Lincoln Benefit Life Company
DISTRIBUTION & REDEMPTION OF SECURITIES
---------------------------------------
Distribution of Securities
- --------------------------
35. Distribution....................................... Lincoln Benefit Life Company,
Distribution of the Policy
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
- -------------------------- ---------------------
<C> <C> <S> <C>
38. (a) General description of.......................... Distribution of the Policy
method of distribution of
securities
(b) Selling agreement between....................... Distribution of the Policy
trust or depositor &
underwriter
(c) Substance of current............................ Distribution of the Policy
agreements
Principal Underwriter
- -------------------------
39. (a) & (b) Principal Underwriter........................ Distribution of the Policy
41. Character of Underwriter's business.................... Distribution of the Policy
Offering Price or Acquisition Value of Securities of Trust
- ----------------------------------------------------------
44. Information concerning offering........................ The Portfolios, Policy Value, Net
price or acquisition valuation of Investment Factor
securities of trust. (All underlying
securities are shares in registered
investment companies.)
Redemption Valuation of Securities of Trust
- -------------------------------------------
46. Information concerning redemption ..................... The Portfolios, Policy Value, Net
valuation of securities of trust. (All Investment Factor
underlying shares are shares in a
registered investment company.)
Purchase & Sale of Interests in Underlying Securities
- -----------------------------------------------------
47. Maintenance of Position................................ Cover, Separate Account, The
Portfolios, Payment & Allocation of
Premiums
INFORMATION CONCERNING TRUSTEE OR CUSTODIAN
-------------------------------------------
48. Custodian of trust..................................... Separate Account
50. Lien on trust assets................................... Separate Account
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
ITEM NUMBER IN FORM N-8B-2 CAPTION IN PROSPECTUS
- -------------------------- ---------------------
INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
---------------------------------------------------------
<C> <C> <S> <C>
51. (a) Name & address of insurer....................... Cover, Lincoln Benefit Life Company
(b) Types of policies............................... Cover, Payment & Allocation of Premiums,
Federal Tax Matters
(c) Risks insured & excluded........................ Death Benefit, Optional Insurance Benefits
Misstatements, Suicide
(d) Coverage........................................ Cover, Payment & Allocation of Premiums
(e) Beneficiaries................................... Death Benefit, Beneficiaries
(f) Terms of cancellations.......................... Policy Lapse, Reinstatement
& reinstatement
(g) Method of determining........................... Payment of Premiums, Monthly Guarantee
amount of premium paid Premiums, Premium Limitations, Allocation
by holder of Premiums
POLICY OF REGISTRANT
--------------------
52. (a) & (c) Selection of Portfolio....................... Additions, Deletions or Substitutions of
securities Investments
Regulated Investment Company
- ----------------------------
53. (a) Taxable status of trust...................... Taxation of the Separate Account
FINANCIAL AND STATISTICAL INFORMATION
-------------------------------------
59. Financial Statements................................... Financial Statements
</TABLE>
________________________
* Items not listed are not applicable to this Registration Statement
v
<PAGE>
PROSPECTUS
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
ISSUED BY
LINCOLN BENEFIT LIFE COMPANY
OPERATIONS CENTER ADDRESS: MAILING ADDRESS:
206 SOUTH 13TH STREET P.O. BOX 82532
LINCOLN, NEBRASKA 68508 LINCOLN, NEBRASKA 68501-2532
The Flexible Premium Variable Life Insurance Policy ("Policy") described in
this Prospectus is offered by Lincoln Benefit Life Company ("Lincoln Benefit
Life"), a wholly owned subsidiary of Allstate Life Insurance Company. The pol-
icy is designed to provide both life insurance protection and maximum flexi-
bility in connection with premium payments and death benefits. You may, sub-
ject to certain restrictions, vary the frequency and amount of the premium
payments and increase or decrease the level of life insurance benefits payable
under the Policy. This flexibility allows you to provide for changing insur-
ance needs within the confines of a single insurance policy.
The Policy provides for a Death Benefit payable at the Insured's death. You
may choose one of two Death Benefit options: a level amount which generally
equals the face amount of the Policy, or a variable amount which generally
equals the face amount plus the Policy Value. As long as the Policy remains in
force, the Death Benefit will not be less than the current face amount of the
Policy, reduced by any outstanding Policy debt and any due and unpaid charges.
The minimum face amount of a Policy is $50,000 ($25,000 for Insureds age 65 or
over at the Policy date). The Policy can be guaranteed to stay in force and
provide a Guaranteed Minimum Death Benefit for a specified period through the
payment of a Monthly Guaranteed Premium (see page 9).
The Policy does not contain a minimum guaranteed policy value. The Policy
Value will vary up or down to reflect the investment experience of the amounts
allocated to the selected funds. You bear the entire investment risk for all
amounts so allocated. The Policy Value will also reflect the amount of premium
payments, any partial surrenders, and charges imposed.
You may choose to invest in one or more Subaccounts of the Separate Account or
the Fixed Account, discussed further on pages 6 to 8. The Policy provides a
free look period. You may cancel the Policy by returning it to us within the
latest of 10 days after you receive the Policy, 10 days after we mail or de-
liver a written notice of withdrawal right to you, or 45 days after you sign
the application. We will refund the policy value as of the date we receive the
Policy plus any charges previously deducted, unless your state requires a re-
fund of premium.
The Funds underlying the Separate Account currently are:
JANUS ASPEN SERIES: Flexible Income Portfolio, Balanced Portfolio, Growth
Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND: Money Market Portfolio; Equity-
Income Portfolio; Growth Portfolio; Overseas Portfolio
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II: Asset Manager Portfolio;
Contrafund Portfolio
IAI RETIREMENT FUNDS, INC.: IAI Regional Portfolio; IAI Balanced Portfolio;
IAI Reserve Portfolio
FEDERATED INSURANCE MANAGEMENT SERIES: Federated Utility Fund II; Federated
Fund for U.S. Government Securities II; Federated High Income Bond Fund II
SCUDDER VARIABLE LIFE INVESTMENT FUND: Bond Portfolio
It may not be financially advantageous to replace existing insurance coverage
or buy additional insurance if you already own another flexible premium vari-
able life insurance policy.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY A CURRENT PROSPEC-
TUS FOR THE JANUS ASPEN SERIES; THE FIDELITY'S VARIABLE INSURANCE PRODUCTS
FUND AND THE VARIABLE INSURANCE PRODUCTS FUND II; THE IAI RETIREMENT FUNDS,
INC.; THE FEDERATED INSURANCE MANAGEMENT SERIES; AND THE SCUDDER VARIABLE LIFE
INVESTMENT FUND.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OF-
FENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 1998
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS................................................................. 3
QUESTIONS AND ANSWERS ABOUT YOUR POLICY..................................... 4
LINCOLN BENEFIT LIFE AND THE INVESTMENT OPTIONS............................. 6
Lincoln Benefit Life Company................................................ 6
Separate Account............................................................ 6
The Portfolios.............................................................. 6
Additions, Deletions or Substitutions of Investments........................ 8
The Fixed Account........................................................... 8
PAYMENT AND ALLOCATION OF PREMIUMS.......................................... 8
General..................................................................... 8
Payment of Premiums......................................................... 8
Monthly Guarantee Premiums.................................................. 9
Premium Limitations......................................................... 9
Modified Endowment Contracts................................................ 9
Allocation of Premiums...................................................... 9
Dollar Cost Averaging Program............................................... 10
Portfolio Rebalancing....................................................... 10
Transfers................................................................... 10
Policy Lapse................................................................ 11
Reinstatement............................................................... 11
POLICY BENEFITS AND RIGHTS.................................................. 11
Death Benefit............................................................... 11
Death Benefit Options....................................................... 11
Optional Methods of Payment................................................. 12
Policy Value................................................................ 13
Net Investment Factor....................................................... 13
Policy Loans................................................................ 13
Surrender and Withdrawal Privileges......................................... 14
Free Look Period............................................................ 14
Right to Exchange........................................................... 15
CHARGES AND DEDUCTIONS...................................................... 15
Premium Charges............................................................. 15
Monthly Deductions.......................................................... 15
Administrative Expense Charge............................................... 15
Risk Charge................................................................. 15
Surrender Charge............................................................ 15
Transfer Fee................................................................ 16
Portfolio Company Annual Expenses........................................... 16
Other Charges............................................................... 17
</TABLE>
<TABLE>
<S> <C>
GENERAL PROVISIONS.......................................................... 17
The Policy.................................................................. 17
Beneficiaries............................................................... 17
Assignment.................................................................. 17
Incontestability............................................................ 17
Misstatements............................................................... 17
Suicide..................................................................... 17
Postponement of Payments.................................................... 17
Reports and Records......................................................... 17
Optional Insurance Benefits................................................. 18
DISTRIBUTION OF THE POLICY.................................................. 18
MARKET TIMING AND ASSET ALLOCATION SERVICES................................. 18
FEDERAL TAX MATTERS......................................................... 18
Taxation of the Separate Account............................................ 18
Taxation of Policyowners.................................................... 19
Modified Endowment Contracts................................................ 19
Diversification Requirements................................................ 19
Qualified Plans............................................................. 20
Tax Advice.................................................................. 20
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS................................ 20
VOTING RIGHTS............................................................... 20
STATE REGULATION OF LINCOLN BENEFIT LIFE.................................... 20
EXECUTIVE OFFICERS AND DIRECTORS OF LINCOLN BENEFIT LIFE.................... 21
LEGAL MATTERS............................................................... 22
LEGAL PROCEEDINGS........................................................... 22
EXPERTS..................................................................... 22
REGISTRATION STATEMENT...................................................... 22
FINANCIAL STATEMENTS........................................................ 22
ILLUSTRATIONS............................................................... A-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. THE COMPANY DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
2
<PAGE>
DEFINITIONS
In addition to the terms which are defined elsewhere in this Prospectus, the
following words and phrases shall have the indicated meanings:
AGE--The Insured's age at last birthday.
ATTAINED AGE--The age of the Insured at the last Policy Anniversary.
BENEFICIARY(IES)--The person(s) designated to receive any Death Benefit under
the Policy.
CODE--The Internal Revenue Code.
COMPANY ("WE", "US", "OUR", "LINCOLN BENEFIT LIFE")--Lincoln Benefit Life Com-
pany.
DEATH BENEFIT--The amount payable to the Beneficiary under the Policy upon the
death of the Insured.
DUE PROOF OF DEATH--(1) a certified original copy of the death certificate; or
(2) a certified copy of a decree of a court of competent jurisdiction as to
the finding of death; or (3) a written statement by a medical doctor who at-
tended the deceased at the time of death; or (d) any other proof satisfactory
to the Company.
FIXED ACCOUNT--The portion of Policy Value invested in our general account.
INSURED--The person whose life is covered by the Policy.
ISSUE AGE--The Insured's age as of the Issue Date.
ISSUE DATE--The date the Policy is issued. It is used to determine policy
years and policy months in the Policy.
LAPSE DETERMINATION VALUE--The value that must be available to pay a monthly
deduction in order for the Policy to remain in force. We use the Policy Value
to determine this value if no loans are on the Policy; and the Net Surrender
Value if the Policy has outstanding loans.
LOAN ACCOUNT--An account established for amounts transferred from the
Subaccounts and the Fixed Account as security for outstanding policy loans.
MONTHLY AUTOMATIC PAYMENT--A method of making payments each month automatical-
ly; for example, by bank draft or salary deduction.
MONTHLY DEDUCTION DAY--The same day in each month as the Issue Date. The day
of the month on which deductions are made.
NET DEATH BENEFIT--The Death Benefit less any Policy Debt.
NET POLICY VALUE--The Policy Value less any Policy Debt.
NET PREMIUM--The gross premium less the premium tax charge of 2 1/2%.
NET SURRENDER VALUE--The Surrender Value less any Policy Debt.
OWNER "YOU"--The person(s) having the privileges of ownership defined in the
Policy. Such privileges may be restricted by a retirement plan pursuant to
which the Contract is issued.
POLICY DEBT--The sum of all unpaid policy loans and accrued interest thereon.
POLICY VALUE--The sum of the values of your interests in the Subaccounts of
the Separate Account, plus the value of the Fixed Account and the Loan Ac-
count. The amount from which monthly deductions are made and the death benefit
is determined.
PORTFOLIO(S)--The underlying mutual fund(s) (or investment series thereof) in
which the Subaccounts invest.
PREMIUM--The amount paid to us under the Policy. Premiums may be paid at any
time.
RECORD DATE--The date we record the Policy on our books as an inforce policy.
SEPARATE ACCOUNT--A segregated investment account of the Company entitled Lin-
coln Benefit Life Variable Life Account.
SUBACCOUNT--A subdivision of the Separate Account invested wholly in shares of
one of the Portfolios.
SURRENDER VALUE--The Policy Value less any applicable surrender charges.
VALUATION DATE--Each day the New York Stock Exchange ("NYSE") is open for
business.
VALUATION PERIOD--The period commencing at the close of normal trading on the
NYSE (currently 4:00 p.m. Eastern time) on each Valuation Date and ending at
the close of the NYSE on the next succeeding Valuation Date.
3
<PAGE>
QUESTIONS AND ANSWERS
ABOUT YOUR POLICY
The following is a compilation of answers to selected questions that you might
have about some of the most important features of your Policy. The remainder
of the prospectus, which follows immediately afterward, contains a more com-
plete discussion of these and other matters.
1. WHAT IS A FLEXIBLE PREMIUM VARIABLE LIFE POLICY?
This policy has a Death Benefit, Policy Value, and other features of life in-
surance providing fixed benefits. It is a "flexible premium' policy since,
once you decide upon a Death Benefit, you have a great amount of flexibility
in determining when and how much premium you want to pay. It is a "variable'
policy because the Death Benefit and Policy Value vary according to the in-
vestment experience of the funds to which you have allocated your premium. The
Policy Value is not guaranteed. The Death Benefit may be guaranteed under the
Guaranteed Minimum Death Benefit provision. This policy provides you with the
opportunity to take advantage of appreciation in your Policy Value, but you
also bear the risk of any depreciation.
2. WHAT ARE THE DEATH BENEFIT OPTIONS?
We will pay a Death Benefit to the Beneficiary upon the Insured's death while
this policy is in force. The Policy provides for two Death Benefit options.
Under either option, the Death Benefit will not be less than the current face
amount of the Policy minus any outstanding Policy Debt and any due and unpaid
charges.
Under "Option 1,' the Death Benefit is a generally level amount equal to the
policy's face amount. The Death Benefit at any time under Option 1 is the
greater of the face amount or the Policy Value times a specified percentage.
"Option 2' provides a Death Benefit which is the greater of the face amount
plus the Policy Value on the Insured's date of death or the Policy Value times
a specified percentage. The Death Benefit under Option 2 is a variable amount.
(See page 11).
3. WHAT IS THE GUARANTEED MINIMUM DEATH BENEFIT FEATURE?
Unless otherwise required by your state, we agree to keep the Policy in force
regardless of investment performance of the underlying funds and provide a
Guaranteed Minimum Death Benefit ("GMDB") for either a) the Insured's life-
time, or b) for issue ages 0-55: to the Insured's attained age 65; for issue
ages 56-70: 10 policy years; or for issue ages 71-79: to the Insured's at-
tained age 80, so long as you pay the appropriate monthly guarantee premium
(see page 9).
4. HOW WILL MY POLICY VALUE BE DETERMINED?
The Policy Value is the sum of the values of your interests in the Subaccounts
of the Separate Account, plus the values in the Fixed Account and the Loan Ac-
count. Your Policy Value will reflect any Net Premiums paid, partial withdraw-
als, charges assessed and the performance of the underlying Funds. We do not
guarantee a minimum Policy Value.
5. HOW DO I PAY PREMIUMS FOR THIS POLICY?
You have considerable flexibility as to the timing and amount of your premium
payments. You have a required premium in your policy which is based on your
policy's face amount and the Insured's age, sex, and risk class. You do not
have to pay the required premium after the first Policy Year.
To take advantage of the Guaranteed Minimum Death Benefit feature, you must
pay the cumulative monthly guarantee premiums due. If you allow the GMDB fea-
ture to terminate, you must pay enough premium so that your Lapse Determina-
tion Value can pay monthly deductions. Otherwise, any level of premium payment
is acceptable. The failure to pay a planned periodic premium will not automat-
ically cause the policy to lapse. See "Payment of Premiums" on page 8 and
"Policy Lapse" on page 11.
6. CAN I INCREASE OR DECREASE MY POLICY'S FACE AMOUNT?
Yes, you have considerable flexibility to increase or decrease your Policy's
face amount. You may request an increase and/or a decrease after the fifth
Policy Year. You may do so by sending us a written request. To apply for an
increase in face amount, you must provide us with satisfactory evidence of in-
surability. You must increase the face amount by at least $10,000. Any in-
crease will result in additional charges. No decrease in face amount will be
allowed if the resulting face amount would be less than $25,000. (See page
11).
7. HOW ARE NET PREMIUMS ALLOCATED?
Before the premiums are allocated to the Policy Value, we deduct 2 1/2% for
premium taxes. (See "Premium Charges," page 15.) The remaining amount is
called the Net Premium. You allocate your Net Premiums among the mutual fund
Portfolios and the Fixed Account when you apply for the Policy. Percentages
must be in whole numbers and the total allocation must equal 100%. When you
pay additional premiums, you should again specify how you want your Net Premi-
ums allocated. If you don't, we will automatically allocate the payment based
on the then current Net Premium allocation (see page 9).
You may transfer Policy Values among the Subaccounts and the Fixed Account
while the Policy is in force, by writing us or calling us at 1-800-865-5237
(see page 9). There are additional transfer restrictions for the Fixed Account
(see page 10).
You may also want to take advantage of our automatic dollar cost averaging or
portfolio rebalancing programs. Under the dollar cost averaging program, your
values are automatically transferred from the Fixed Account or a Subaccount of
your choosing to up to eight other Subaccounts at regular intervals. Transfers
may be made monthly, quarterly or annually. (See "Dollar Cost Averaging Pro-
gram", page 10).
Under the portfolio rebalancing program, you can maintain the percentage of
your Policy Value allocated to each Subaccount at a pre-set level. Investment
results will shift this balance of your Policy Value allocations. If you se-
lect
4
<PAGE>
rebalancing, we will automatically transfer your Policy Value back to the per-
centages at the frequency (monthly, quarterly, semiannually, or annually) that
you specify. (See "Portfolio Rebalancing," page 10.)
8. IN WHICH MUTUAL FUNDS DOES THE SEPARATE ACCOUNT INVEST?
The Separate Account currently invests exclusively in shares of these mutual
funds:
<TABLE>
<CAPTION>
FUND PORTFOLIO(S)
- ---- ------------
<S> <C>
Janus Aspen Series Flexible Income Portfolio
Balanced Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
- -------------------------------------------------------------------------
Fidelity's Money Market Portfolio
Variable Insurance Equity-Income Portfolio
Products Fund Growth Portfolio
Overseas Portfolio
- -------------------------------------------------------------------------
Fidelity's Asset Manager Portfolio
Variable Insurance Contrafund Portfolio
Products Fund II
- -------------------------------------------------------------------------
IAI Retirement IAI Regional Portfolio
Funds Inc. IAI Balanced Portfolio
IAI Reserve Portfolio
- -------------------------------------------------------------------------
Federated Utility Fund II
Federated Insurance Federated Fund for
Management Series U.S. Government Securities II
Federated High Income Bond Fund II
- -------------------------------------------------------------------------
Scudder Variable Life Investment Fund Bond Portfolio
- -------------------------------------------------------------------------
</TABLE>
The assets of each Portfolio are held separately from the other Portfolios and
each has distinct investment objectives which are described in the accompany-
ing prospectuses for the Funds.
9. MAY I MAKE A POLICY LOAN?
Yes, you may borrow money from us using your Policy as security for the loan.
The maximum loan amount is equal to 90% of the Surrender Value. Other restric-
tions may apply if this Policy is issued in connection with a qualified plan.
See "Qualified Plans" on page 20.
10. WHAT ARE THE CHARGES DEDUCTED FROM MY POLICY VALUE?
We will make a monthly deduction from your Policy Value. Unless otherwise re-
quested, it will be taken pro-rata from each of your Subaccounts and the Fixed
Account. The monthly deduction is:
a) Your Policy's cost of insurance and cost of additional benefits provided by
rider; and
b) A $5.00 Policy fee.
We also impose an annual administrative charge of 0.20% of your Policy Value
during the first twelve Policy Years.
A Mortality and Expense Risk Charge of .70% (on an annual basis) of the value
of the Subaccount is assessed daily against each Subaccount.
See "Charges and Deductions," page 15, for more details.
11. MAY I SURRENDER THE POLICY?
Yes, as long as the Policy is in force, you may surrender your Policy in whole
or make partial withdrawals (see page 14). A surrender charge may be imposed
upon surrender. The surrender charge is comprised of a contingent deferred
sales charge and a contingent deferred administrative charge. The surrender
charge is based on the face amount of the Policy, and also depends on the is-
sue age, premium class and sex of the Insured. During the lifetime of the Pol-
icy, the minimum partial withdrawal that may be taken at any time is $250.
We will waive the surrender charge for a 60 day period if we raise your cost
of insurance rate scale during the first five Policy Years. See "Surrender
Charge," page 15.
12. WHAT ARE THE TAX CONSEQUENCES OF BUYING THIS POLICY?
Your Policy is structured to satisfy the definition of a life insurance con-
tract under the Code. As such, we may be required to limit the premiums you
pay to ensure that your Policy continues to meet this definition.
The Policy Value under your Policy is subject to the same federal income tax
treatment as the policy value under a fixed benefit life insurance policy. Un-
der existing tax law, if your Policy is not a modified endowment contract as
discussed in the following paragraphs, you generally will be taxed on Policy
Value withdrawn from the Policy and Surrender Value received upon surrender of
the Policy only to the extent these amounts, when added to previous distribu-
tions, exceed the total premiums paid. Amounts received upon surrender or
withdrawal in excess of premiums paid will be treated as ordinary income.
Special rules govern withdrawals from life insurance contracts referred to as
modified endowment contracts. In short, if your Policy fails the "7-pay test"
described on page 19, your Policy would be classified as a modified endowment
contract.
Withdrawals (including policy loans) from modified endowment contracts are
treated differently than withdrawals from other life insurance contracts as
follows. First, amounts withdrawn would be treated as income first and taxed
accordingly. Second, an additional 10% penalty tax would generally be imposed
on the taxable portion of amounts received before age 59 1/2. For more infor-
mation, see "Federal Tax Matters," page 18.
13. CAN I RETURN THIS POLICY AFTER IT HAS BEEN DELIVERED?
You may return the Policy to us within forty-five days after signing the ap-
plication, ten days after you receive your Pol-
icy or ten days after we have delivered a notice of your right
5
<PAGE>
of withdrawal, whichever is later (unless your state requires a longer "free
look period"). You will receive a refund of your Policy Value plus any charges
previously deducted, unless your state requires a refund of premium.
LINCOLN BENEFIT LIFE
AND THE INVESTMENT OPTIONS
LINCOLN BENEFIT LIFE COMPANY. Lincoln Benefit Life Company is a stock life in-
surance company organized under the laws of the state of Nebraska in 1938. Our
legal domicile and principal business address is 206 South 13th Street, Lin-
coln, Nebraska 68508. Lincoln Benefit Life is a wholly owned subsidiary of
Allstate Life Insurance Company ("Allstate Life"), a stock life insurance com-
pany incorporated under the laws of the State of Illinois. Allstate Life In-
surance Company is a wholly owned subsidiary of Allstate Insurance Company
("Allstate"), a stock property-liability insurance company incorporated under
the laws of Illinois. All outstanding Capital stock of Allstate is owned by
The Allstate Corporation ("Corporation").
We are admitted to conduct life insurance and annuity business in the District
of Columbia, Guam and in all states except New York. The Policy will be mar-
keted in all of the jurisdictions in which we are admitted to conduct variable
life business. The Policies offered by this prospectus are issued by us and
will be funded in the Separate Account and the Fixed Account.
Lincoln Benefit Life Company is highly rated by independent agencies, includ-
ing A.M. Best, Moody's, and Standard & Poor's. These ratings are based on the
Company's reinsurance agreement with Allstate Life Insurance Company, as ex-
plained below, and reflect financial soundness and strong operating perfor-
mance. The ratings are not intended to reflect the financial strength or in-
vestment experience of the Separate Account. We may from time to time
advertise these ratings in our sales literature.
We receive our ratings through Allstate Life, which reinsures all net new
business from the Lincoln Benefit Life fixed account. Through the reinsurance
agreement, all of the assets backing Lincoln Benefit Life's reinsured liabili-
ties are owned by Allstate Life Insurance Company. These assets represent our
fixed account and are invested and managed by Allstate Life Insurance Company.
While the reinsurance agreement provides Lincoln Benefit Life with financial
backing from Allstate Life, it does not create any direct contractual rela-
tionship with individual Lincoln Benefit Life policyholders.
SEPARATE ACCOUNT. Lincoln Benefit Life Variable Life Account was originally
established by Lincoln Benefit on May 17, 1990, pursuant to the provisions of
Nebraska law, as a segregated asset account of the Company. The Separate Ac-
count meets the definition of a "separate account" under the federal securi-
ties laws and is registered with the Securities and Exchange Commission as a
unit investment trust under the Investment Company Act of 1940. This registra-
tion does not involve supervision of the management of the Separate Account or
the Company by the Securities and Exchange Commission.
The assets of the Separate Account are our property. However, the assets of
the Separate Account, equal to its reserves and other contract liabilities,
are not chargeable with liabilities arising out of any other business we may
conduct. Our obligations arising under the Contracts are general corporate ob-
ligations of Lincoln Benefit Life.
Income, gains, and losses, whether or not realized, from assets allocated to
the Separate Account are credited to or charged against the Separate Account
without regard to our other income, gains, or losses.
The Separate Account is divided into Subaccounts, with the assets of each
Subaccount invested in the shares of one of the Portfolios. We do not guaran-
tee the investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account will vary with the values
of shares of the Portfolios, and are also reduced by Policy charges. The Sepa-
rate Account may also fund other contracts issued by Lincoln Benefit Life,
which will be accounted for separately.
THE PORTFOLIOS. Each of the Subaccounts of the Separate Account invests in the
shares of one of the Portfolios, which are open-end management investment com-
panies ("Funds") registered under the Investment Company Act of 1940 (commonly
known as "mutual funds"), or separate investment series of such Funds. Follow-
ing is a summary description of the Portfolios in which the Subaccounts in-
vest. More detailed information concerning the Portfolios appears in the re-
spective accompanying prospectuses for the Funds.
JANUS ASPEN SERIES (investment adviser: Janus Capital Corporation)
FLEXIBLE INCOME PORTFOLIO seeks to maximize total return from a combination of
current income and capital appreciation, with an emphasis on the income compo-
nent of total return. Flexible Income Portfolio invests in all types of in-
come-producing securities. This Portfolio may have substantial holdings of
debt securities rated below investment grade (commonly known as "junk bonds").
Investments in such securities present special risks; you are urged to care-
fully read the risk disclosure in the accompanying prospectus relating to the
Portfolio before allocating amounts to the Janus Flexible Income Subaccount.
BALANCED PORTFOLIO seeks long-term growth of capital balanced by current in-
come. Balanced Portfolio normally invests 40-60% of its assets in securities
selected primarily for their growth potential and 40-60% of its assets in in-
come 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 capital-
izations.
6
<PAGE>
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. The Portfolio
is a non-diversified fund that pursues its objective by normally investing at
least 50% of its equity assets in securities issued by medium-sized companies,
those whose market capitalizations fall within the range of companies in the
S&P MidCap 400 Index (the "MidCap Index"). Companies whose capitalization
falls outside this range after the Portfolio's initial purchase continue to be
considered medium-sized companies for the purpose of this policy. The range of
the MidCap Index is expected to change on a regular basis. Subject to the
above policy, the Portfolio may also invest in smaller or larger issuers.
WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of any
size. Worldwide Growth Portfolio normally invests in issuers from at least
five different countries including the United States.
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND (investment adviser: Fidelity Man-
agement & Research Company)
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. The Portfolio will
invest in high quality U.S. Dollar-denominated money market securities of do-
mestic and foreign issuers, including U.S. Government Securities and repur-
chase agreements.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in in-
come-producing equity securities. The goal is to achieve a yield in excess of
the composite yield of the S&P 500 Composite Stock Price Index. At least 65%
of the Portfolio's assets will be invested in income producing common or pre-
ferred stock. The Portfolio has the flexibility, however, to invest the bal-
ance in all types of domestic and foreign securities, including bonds.
GROWTH PORTFOLIO seeks to achieve capital appreciation. The Portfolio normally
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 invest-
ments in foreign securities. At least 65% of the Portfolio's assets will be
invested in securities of issuers outside of the United States. The fund nor-
mally diversifies its investment across different countries and regions.
FIDELITY'S 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 fixed-income securities. Normally, the Portfolio's as-
sets will be allocated within the following investment parameters: 0-50% in
short-term instruments; 20-60% in bonds (intermediate to long-term debt); and
30-70% in stocks (equities).
CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in equity
securities of companies whose value the Portfolio's adviser believes is not
fully recognized by the public. The fund usually invests primarily in common
stock and securities convertible into common stock, but it has the flexibility
to invest in other types of securities.
IAI RETIREMENT FUNDS, INC. (investment adviser: Investment Advisers, Inc.)
IAI REGIONAL PORTFOLIO pursues its objective of capital appreciation by in-
vesting at least 80% of its equity investments in companies which have their
headquarters in Minnesota, Wisconsin, Iowa, Illinois, Nebraska, Montana, North
Dakota or South Dakota.
IAI BALANCED PORTFOLIO'S investment objective is to maximize total return to
investors. Balanced Portfolio pursues its objective by investing in a broadly
diversified portfolio of stocks, bonds and short-term instruments. The Portfo-
lio's assets will be allocated among these three classes of assets. Under nor-
mal market conditions, the Portfolio will hold between 25% and 75% of its as-
sets in stocks and other equity securities, between 25% and 75% of its assets
in bonds and other fixed income securities, and up to 50% of its assets in
short term instruments.
IAI RESERVE PORTFOLIO'S investment objectives are to provide its shareholders
with high levels of capital stability and liquidity and, to the extent consis-
tent with these primary objectives, a high level of current income. Reserve
Portfolio pursues its investment objectives by investing primarily in a diver-
sified portfolio of investment grade bonds and other debt securities of simi-
lar quality. Reserve Portfolio's dollar weighted average maturity will not ex-
ceed twenty-five (25) months.
FEDERATED INSURANCE MANAGEMENT SERIES (investment adviser: Federated Advisers)
FEDERATED UTILITY FUND II'S investment objective is to achieve high current
income and moderate capital appreciation. The Fund endeavors to achieve its
objective by investing at least 65% of its assets in equity and debt securi-
ties of utility companies that produce, transmit, or distribute gas and elec-
tric energy, as well as those companies that provide communications facili-
ties, such as telephone and telegraph companies.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II'S investment objective is to
provide current income. The Fund invests in securities which are primarily or
direct obligations of the U.S. government or its agencies or instrumentali-
ties, or which are guaranteed by the U.S. government, its agencies, or instru-
mentalities. The Fund may also invest in certain collateralized mortgage obli-
gations ("CMOs") and repurchase agreements.
FEDERATED HIGH INCOME BOND FUND II'S investment objective is to seek high cur-
rent income. The Fund endeavors to achieve its objective by investing at least
65% of its assets in lower rated corporate debt obligations (commonly known as
"junk bonds"), such as preferred stocks, bonds, debentures, notes, equipment
lease certificates and equipment trust certificates. Investments in such secu-
rities present special risks; you are urged to carefully read the risk disclo-
sure in the accompanying prospectus relating to the Corporate Bond Fund before
allocating amounts to the corre-
7
<PAGE>
sponding Subaccount. Some of these fixed income securities may involve equity
features. Under normal circumstances, the Fund will not invest more than 10%
of the value of its total assets in equity securities.
SCUDDER VARIABLE LIFE INVESTMENT FUND (investment adviser: Scudder, Stevens &
Clark, Inc.) The Scudder Variable Life Investment Fund portfolios have two
classes of shares. The Subaccounts invest in those Class A that do not impose
distribution fees.
BOND PORTFOLIO seeks high income from a high quality portfolio of debt securi-
ties. Under normal circumstances, Bond Portfolio invests at least 65% of its
assets in bonds including those of the U.S. Government and its agencies and
those of corporations and other notes and bonds paying high current income.
The portfolio is actively managed and can invest in a broad range of short,
intermediate and long term securities.
There is no assurance that the investment objective of any of the Portfolios
will be met. Detailed information about the Portfolios is contained in the ac-
companying current prospectuses of the Funds. You should carefully review
those prospectuses before allocating amounts to be invested in the Subaccounts
of the Separate Account.
ADDITIONS, DELETIONS OR SUBSTITUTIONS OF INVESTMENTS. If the shares of any of
the Portfolios should no longer be 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 Policy, we may add, delete or substitute shares of another mutual fund
(or series thereof) for Portfolio shares already purchased and/or to be pur-
chased in the future by Purchase Payments under the Policy. No such substitu-
tion of securities may take place without prior approval of the Securities and
Exchange Commission and under such conditions as the Commission may impose.
THE FIXED ACCOUNT. The portion of the Policy relating to the Fixed Account is
not registered under the Securities Act of 1933 ("1933 Act") and the Fixed Ac-
count is not registered as an Investment Company under the Investment Company
Act of 1940 ("1940 Act"). Accordingly, neither the Fixed Account nor any in-
terests therein are subject to the provisions or restrictions of the 1933 Act
or the 1940 Act, and the disclosure regarding the Fixed Account has not been
reviewed by the staff of the Securities and Exchange Commission. The following
disclosure about the Fixed Account may be subject to certain generally appli-
cable provisions of the federal securities law regarding the accuracy and com-
pleteness of disclosure.
You may allocate part or all of your net premiums to the Fixed Account, and
any such amounts become part of the general assets of Lincoln Benefit. Pursu-
ant to the reinsurance agreement discussed on page 6, Allstate Life invests
the assets of the general account in accordance with applicable laws governing
the investments of insurance company general accounts.
We guarantee that the interest rate credited to the Fixed Account will be at
least an annual effective rate of 4%. We may credit interest above the minimum
rate at 4%, but we are not obligated to do so. Any interest credited to the
Fixed Account in excess of the minimum guaranteed rate will be determined by
us at our sole discretion. You assume the risk that interest credited to the
Fixed Account may not exceed the minimum guaranteed rate of 4%.
Transfers from the Fixed Account are subject to certain limitations (see
Transfers, page 9). Also, we reserve the right to limit payment of partial
withdrawals or Surrender Value from the Fixed Account for up to 6 months (see
Postponement of Payments, page 17.
The Fixed Account is not available in all states.
PAYMENT AND ALLOCATION OF PREMIUMS
GENERAL. The Policy is designed to provide you with life insurance protection
and flexibility in connection with the amount and frequency of premium pay-
ments and the level of life insurance proceeds payable under the Policy. You
are not required to pay scheduled premiums after the first policy year, and
may, subject to certain limitations, vary the frequency and amount of premium
payments. Death Benefits are payable under two options as described in "Death
Benefit Options," page 11.
To purchase a Policy, a completed application must be sent to us at our home
office. We generally will not issue Policies to insure persons older than age
80. The minimum face amount for a Policy to be issued by us is $50,000
($25,000 if the Insured is age 65 or greater). Acceptance is subject to our
underwriting rules and we may, at our sole discretion, reject any application
or premium for any reason.
PAYMENT OF PREMIUMS. Premiums for the Policy are referred to as payments. Pay-
ments are flexible. This means that you may change the amount of payments and
the time between payments, unlike a traditional policy.
You may determine, within specified limits, your own payment schedule. These
limits are set forth by us and include a required payment for the first policy
year. In order to help you obtain the insurance benefits desired, a planned
payment will be shown in the Policy. The required payment and the time between
payments will also be shown. We will send you a reminder notice if you pay an-
nually, semi-annually, or quarterly. You may also make a Monthly Automatic
Payment. You are not required to pay planned payments, except during the first
year. Failure to make a payment will not necessarily result in lapse of the
Policy provided that the Lapse Determination Value is sufficient to pay
monthly deductions. Conversely, making planned payments will not necessarily
assure that the Policy will remain in force (see "Policy Lapse," page 11).
However, making planned payments will generally provide greater benefits than
if a lower amount of premium is paid. They also can help ensure that your cov-
erage remains in force if they are greater than or equal to a Monthly Guaran-
tee Premium, as described in the next section. Payments must be sent to us at
our home office.
8
<PAGE>
MONTHLY GUARANTEE PREMIUMS. In order to provide assurance that coverage will
remain in force for specified periods, the Policy offers a Guaranteed Minimum
Death Benefit ("GMDB") feature with two levels of monthly guarantee premiums--
the Lifetime Guarantee Premium and the Safety Net Premium.
LIFETIME GUARANTEE PREMIUM. In states where available, if total payments, less
partial withdrawals and Policy Debt, are greater than or equal to the sum of
the monthly Lifetime Guarantee Premium times the number of months elapsed
since the issue date, then the Policy is guaranteed to stay in force for the
insured's lifetime, even if the Lapse Determination Value becomes insufficient
to cover monthly deductions.
SAFETY NET PREMIUM. If total payments, less partial withdrawals and Policy
Debt, are greater than or equal to the sum of the monthly Safety Net Premium
times the number of months elapsed since the issue date, then the Policy is
guaranteed to stay in force for a pre-determined time period, even if the
Lapse Determination Value becomes insufficient to cover monthly deductions. In
most states, the pre-determined time period varies by Issue Age as follows:
<TABLE>
<S> <C>
Issue Ages 0-55: to the Insured's attained age 65;
Issue Ages 56-
70: 10 Policy Years; or
Issue Ages 71-
79: to the Insured's attained age 80.
</TABLE>
Some states may require us to offer different pre-determined time periods.
The Safety Net Premium is equal to the required payment for the first policy
year.
The specific Monthly Guarantee Premium option must be selected at issue. If no
option is elected, the Safety Net Premium will apply. If, at any time the to-
tal payments, less partial withdrawals and policy debt, is less than the sum
of the appropriate Monthly Guarantee Premium times the number of months
elapsed, we will let you know and you will be given 61 days to satisfy any
shortfall. If such payments are not made during this period, the GMDB will ex-
pire; once it has expired, it cannot be reinstated. After the GMDB has ex-
pired, the Policy will continue in force only so long as its Lapse Determina-
tion Value is sufficient to pay the monthly deductions (see "Policy Lapse,"
page 11).
Increases, decreases, partial withdrawals, Death Benefit option changes and
addition or deletion of riders may affect the Monthly Guarantee Premiums.
PREMIUM LIMITATIONS. Premium payments which result in any increase in the net
amount at risk under the Policy will require evidence of insurability. The
Code provides certain limits on the amount of premium that can be contributed
with respect to a life insurance contract. This premium limitation under the
Policy is imposed in order to insure favorable federal income tax treatment of
the Policy and its Death Benefit. We will not accept any premiums which would
cause the total premiums to exceed the maximum premium limitation. No further
premiums will be accepted until allowed by the current maximum premium limita-
tion required by the Code or unless the insured increases the face amount of
the Policy.
MODIFIED ENDOWMENT CONTRACTS. Under certain circumstances, including the pay-
ment of premiums in excess of specified amounts and a reduction in Death Bene-
fit levels, a Policy could be classified as a "modified endowment contract"
("MEC"), a category of life insurance contracts defined in the Code. If the
Policy were to become a MEC, distributions and loans from the Policy could
have adverse tax consequences. See "Federal Tax Matters--Modified Endowment
Contracts," page 19.
We will monitor the status of the Policies and, if action is required to be
taken in order to prevent a Policy from being deemed to be a modified endow-
ment contract, we will advise you of such status.
If you are replacing a policy issued by another insurer with our Policy, our
ability to determine if the replaced policy is a MEC is based solely on the
sufficiency of the policy data we receive from the insurer of the policy being
replaced. We do not consider ourselves to be liable to you if such data is in-
sufficient to accurately determine if the replaced policy is a MEC. You should
discuss this issue with your tax advisor if it pertains to your situation.
Based on the information provided to us, we will notify you as to whether you
have the opportunity to contribute more premium to your Policy without violat-
ing the MEC rules.
ALLOCATION OF PREMIUMS. Net Premium payments will be allocated among the
Subaccounts and Fixed Account as you have selected. When you make your initial
premium payment, you must specify your allocation on the application. Percent-
ages must be in whole numbers and the total allocation must equal 100%. In
most states, we will allocate such net premiums, less monthly deductions, to
the Fixed Account and Subaccounts you have selected on the Record Date. In
states that require us to refund at least your premiums, we will keep the net
premiums in the Money Market Subaccount for 10 days following the end of the
"free look period", before we allocate them (plus earnings and less monthly
deductions) to the Subaccounts and Fixed Account as directed by you. No inter-
est or earnings will be credited prior to the Record Date. You may change your
allocation of future premium payments among the Subaccounts of the Separate
Account and Fixed Account by written notice (or by telephone notice, if autho-
rized) to us without payment of any fee or penalties.
The allocation of each Net Premium payment to a Subaccount and/or the Fixed
Account will be determined by multiplying the Net Premium payment by the ap-
propriate percentage that the Policyowner has selected.
All valuations in connection with the Policy, e.g., with respect to determin-
ing Policy Value in connection with Policy loans, transfers, partial withdraw-
als, or payment of Death Benefits, and with respect to determining the value
to be credited to a Subaccount or the Fixed Account with each Net Premium Pay-
ment, will be made on the date the premium is received or the request for pay-
ment is received if such date is a Valuation Date and a date that the Company
9
<PAGE>
is open for business; otherwise, such determination will be made on the next
succeeding day which is a Valuation Date and a date the Company is open for
business.
DOLLAR COST AVERAGING PROGRAM. Owners who wish to make allocations to one or
more of the Subaccounts or the Fixed Account over a period of time may be able
to do so through the Automatic Dollar Cost Averaging ("DCA") Program. Under
this program, you may authorize the automatic transfer of a fixed dollar
amount from the Fixed Account or a Subaccount of your choosing (the "Source
Subaccount") to up to eight options, including the other Subaccounts and the
Fixed Account ("Target Subaccount(s)"). Each Target Subaccount will then pur-
chase shares of its corresponding Portfolio at the share prices determined on
the dates of the transfers. The interval between transfers may be monthly,
quarterly, or annually, at your option. The transfers will continue until you
instruct otherwise, or until there is not enough money in the Source
Subaccount to make the transfer, whichever is earlier. Currently, the minimum
transfer amount from the Source Subaccount is $100, subject to the Company's
discretion. If you elect DCA, the first DCA will occur one period after the
Issue Date. Your request for DCA will be effective when received in good form.
Special DCA considerations apply with respect to transfers from the Fixed Ac-
count. (See Transfers, page 10).
The theory of dollar cost averaging is that greater numbers of shares are pur-
chased at times when the share prices are relatively low than are purchased
when the prices are higher. This has the effect, when purchases are made at
fluctuating prices, of reducing the aggregate average cost per share to less
than the average of the share prices on the same purchase dates. However, par-
ticipation in the DCA Program does not assure you of a greater profit from
your purchases under the Program; nor will it prevent or necessarily alleviate
losses in a declining market. You may not use DCA and portfolio rebalancing at
the same time.
You may elect to increase, decrease or change the frequency or amount of pay-
ments under a Dollar Cost Averaging Program. The application and any payments
should be sent to Lincoln Benefit Life Company, P.O. Box 82532, Lincoln, Ne-
braska 68501-2532.
PORTFOLIO REBALANCING. Portfolio rebalancing allows you to maintain the per-
centage of your Policy Value allocated to each Subaccount at a pre-set level.
For example, you could specify that 30% of your Policy Values should be in the
Balanced Portfolio, 40% in the Growth Portfolio--Janus Aspen Series, and 30%
in Federated High Income Bond Fund II. Over time, the variations in each
Subaccount's investment results will shift this balance of your Policy Value
allocations. If you elect the portfolio rebalancing feature, we will automati-
cally transfer your Policy Value including new premium (unless you specify
otherwise) back to the percentages you specify, but only if investment results
shift greater than minimum requirements that we establish.
You may choose to have rebalances made monthly, quarterly, semiannually, or
annually. No Transfer Fees will be charged for portfolio rebalancing. No more
than eight Subaccounts can be included for portfolio rebalancing at any time.
If you include the Fixed Account for Portfolio Rebalancing, subject to the
Company's discretion, you may not make more than two changes in any given
twelve month period to the allocation percentages with the net cumulative
change to the Fixed Account being adjusted during the period no more than 20%.
Procedures for selecting portfolio rebalancing are generally the same as those
discussed in detail above for selecting dollar cost averaging. When you estab-
lished Portfolio Rebalancing, the restrictions described under Fixed Account
will apply. You may make your request and it will be effective when we receive
it in good form. If you stop portfolio rebalancing, you must wait 30 days to
begin again. The date of your rebalancing must coincide with the same day of
the month as your Policy Issue Date. If you request rebalancing on your appli-
cation but do not specify a date for the first rebalance, it will occur one
period after your Issue Date. If those Subaccounts, collectively, selected for
rebalancing fall below any minimum value that we may establish, we have the
right, at our option, to prohibit or limit the use of portfolio rebalancing.
You may not use dollar cost averaging and portfolio rebalancing at the same
time. We may change, terminate, limit, or suspend portfolio rebalancing at any
time.
TRANSFERS. You may transfer Contract Values among the Fixed Account and
Subaccounts by written request or telephone authorization. Currently, a mini-
mum transfer amount is not required, unless your state requires one. We re-
serve the right to impose a minimum amount that may be transferred among the
investment options under the Contract. Additional restrictions apply to trans-
fers from/to the Fixed Account as discussed below.
Telephone calls authorizing transfers must be completed by 4:00 p.m. Eastern
time on a Valuation Date in order to be effected at the price determined on
such date. Transfer authorizations whether written or by telephone, which are
received after 4:00 p.m. Eastern time will be processed as of the next Valua-
tion Date. A transfer fee may be assessed in connection with transfers (see
"Charges and Deductions--Transfer Fee," page 16). Also, the telephone transfer
privilege may be suspended, modified or terminated at any time without notice.
We utilize procedures that we believe provide reasonable assurance that tele-
phone authorized transfers are genuine. Such procedures include taping of tel-
ephone conversations with persons purporting to authorize such transfers and
requesting identifying information from such persons. Accordingly, we disclaim
any liability for losses resulting from such transfers by reason of their al-
legedly not having been properly authorized. However, if we do not take rea-
sonable steps to help ensure that such authorizations are valid, we may be li-
able for such losses.
Transfers from the Fixed Account to the Subaccounts may only be made during
the 60 day period beginning on the issue date or the Contract Anniversary un-
less the transfer is made by Dollar Cost Averaging. The maximum amount
10
<PAGE>
which may be transferred from the Fixed Account during a Contract Year is the
greater of 30% of the Fixed Account balance as of the last Contract Anniver-
sary or the greatest amount of any prior transfer from the Fixed Account. If
desired, you may elect to have the above amount transferred quarterly or
monthly via Dollar Cost Averaging. Alternatively, you may elect to transfer
the entire Fixed Account balance to the Subaccount(s) via Dollar Cost Averag-
ing. Subject to the Company's discretion to modify or waive this requirement,
the maximum monthly amount allowed would be 1/36 of the Fixed Account Balance
at the time of the first transfer. No additional transfers or payments may be
made into the Fixed Account if transfers are being made out via Dollar Cost
Averaging.
Notwithstanding the above, we will allow 100% of the Fixed Account balance to
be transferred to the Subaccount(s) if either (a) or (b) occurs:
(a) If, on the last Contract Anniversary, the interest rate credited to the
Fixed Account is less than it was on the immediately preceding anniversary (or
on the issue date for the first Contract Anniversary).
(b) The credited interest rate on the last Contract Anniversary is less than
4%.
This offer will apply for 60 days following the date we mail notification to
you.
We reserve the right to defer transfers from the Fixed Account for up to six
months from the date you ask us. Also, we reserve the right to restrict trans-
fers from the Subaccounts to the Fixed Account each Contract Year to no more
than 30% of the Separate Account balances as of the last Contract Anniversary.
We currently are not imposing this restriction.
POLICY LAPSE. Failure to make a premium payment will not necessarily cause the
Policy to lapse. The Policy will remain in force so long as the Lapse Determi-
nation Value is sufficient to pay the monthly deduction. In the event the
Lapse Determination Value is insufficient to pay the monthly deduction, you
will be given a sixty-one day period ("grace period") within which to make a
premium payment to avoid lapse. The premium required to avoid lapse must be
sufficient to keep the Policy in force for three months. The required premium
will be set forth in a written notice which we will send to you on the date
that the Lapse Determination Value is insufficient to meet the monthly deduc-
tion. The Policy will continue in force through the grace period, but if no
payment is forthcoming the Policy will terminate at the end of the grace peri-
od.
Notwithstanding the above, the Policy will not terminate if the Guaranteed
Minimum Death Benefit provision is in effect (see "Monthly Guarantee Premi-
ums," page 9).
If the Insured dies during the grace period, the Death Benefit payable will be
reduced by the amount of the monthly deduction due and unpaid and the amount
of any outstanding Policy Debt. In addition, whenever the Policy Debt exceeds
the Surrender Value, the grace period provision will apply.
REINSTATEMENT. If the Policy lapses, you may reinstate the Policy. An applica-
tion for reinstatement must be made within five years of lapse, and satisfac-
tory proof of insurability and payment of a reinstatement premium is required.
The reinstatement premium, after deduction of premium charges, must be an
amount equal to the monthly deductions for the time, up to six months, since
the Policy Value became zero, plus sufficient premium to keep the Policy in
force for three months. If a loan was outstanding at the time of lapse, we
will require repayment or reinstatement of the loan before permitting rein-
statement of the Policy. When a Policy is reinstated, it will be treated as if
the Policy had been in force since the original issue date.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT. So long as it remains in force, the Policy provides for the
payment of life insurance proceeds upon the death of the Insured. Proceeds
will be paid to a named Beneficiary or contingent Beneficiary. One or more
Beneficiaries or contingent Beneficiaries may be named. Life insurance pro-
ceeds may be paid in a lump sum or under an optional payment plan (see "Op-
tional Methods of Payment," page 12.) The amount of Death Benefit proceeds
payable will be determined at the end of the Valuation Period during which the
Insured dies.
Proceeds of the Policy will be reduced by any outstanding Policy debt and any
due and unpaid charges and increased by any benefits added by rider. Proceeds
will ordinarily be paid within seven days after we receive due Proof of Death
and all other requirements we deem necessary have been satisfied.
The death benefit will be based on: 1. The death benefit option in effect on
the date of death; 2. Any increases or decreases to the face amount.
DEATH BENEFIT OPTIONS. While the Insured is alive you may choose between two
death benefit options:
If you select Option 1, the Death Benefit will be the greater of: a. The face
amount; or b. The Policy Value multiplied by the applicable corridor percent-
age as described below.
If you select Option 2, the Death Benefit will be the greater of: a. The face
amount plus the Policy Value; or b. The Policy Value multiplied by the appli-
cable corridor percentage as described below.
Option 1 is designed to provide a specific amount of Death Benefit which does
not vary with the changes in Policy Value. Therefore, under Option 1, as Pol-
icy Value increases, the net amount at risk will decrease. Option 2, on the
other hand, generally involves a constant amount at risk and, therefore, a set
amount against which to apply the cost of insurance rate. Since the cost of
insurance deduction is based upon the net amount at risk, the cost of insur-
ance deduction from Policy Value will be less under a Policy with an Option 1
Death Benefit than under a similar Policy with an Option 2 Death Benefit. Be-
cause of this, based on favorable investment results, the Policy Value under
Option 1 will have a tendency to increase faster than under Option
11
<PAGE>
2, but the total Death Benefit under Option 2 will increase or decrease di-
rectly with changes in Policy Value. Thus, Option 1 may be more suitable if
you are more interested in increasing your Policy Value based upon positive
investment experience while Option 2 is designed to increase total Death Bene-
fits.
The corridor percentage depends upon the Attained Age of the Insured. The cor-
ridor percentage for each age is set forth in the table below:
<TABLE>
<CAPTION>
ATTAINED CORRIDOR
AGE PERCENTAGE
-------- ----------
(%)
<S> <C>
40 & below 250
41 243
42 236
43 229
44 222
45 215
46 209
47 203
48 197
49 191
50 185
51 178
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
60 130
61 128
62 126
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109
74 107
75-90 105
91 104
92 103
93 102
94 101
95 & higher 100
</TABLE>
You may change the Death Benefit option by writing to us. If you ask to change
from Option 2 to Option 1, the face amount will be increased by the amount of
the Policy Value. If you ask to change from Option 1 to Option 2, the face
amount will be decreased by the amount of the Policy Value. The change will
take effect on the Monthly Deduction Day on or immediately following the date
we receive the written request.
We do not presently require you to prove insurability for a change in Death
Benefit options. No change in the Death Benefit option will be allowed if it
causes the face amount remaining in force to be less than $25,000.
You may increase and/or decrease the face amount after the fifth Policy Year.
To make a change, you must send a written request to us at our home office. A
change in the face amount will change the net amount at risk, which will, in
turn, affect your cost of insurance charge. Any change in the face amount will
become effective on the Monthly Deduction Day after we approve the request.
Any decrease in face amount will first apply to coverage provided by the most
recent face amount increase, then to the next most recent increase succes-
sively and finally to the coverage under the original application. No decrease
in the face amount will be allowed if the face amount remaining in force would
be less than $25,000.
To apply for an increase in the face amount, a supplemental application must
be completed and submitted to us with satisfactory evidence that the Insured
is insurable. No increase will be permitted on or after the Insured's Attained
Age 80. The minimum amount by which the face amount may be increased is
$10,000. An increase in face amount will generate a new layer of surrender
charges equal to the contingent deferred administrative charge only, based
upon the effective date of the increase (see "Surrender Charge," page 15). The
increase will not become effective if the Lapse Determination Value is insuf-
ficient to cover the deduction for the cost of the increased insurance for the
policy month following the increase. Increases in face amount will also in-
crease any Guaranteed Minimum Death Benefit Amount and will increase the
Monthly Guarantee Premium.
OPTIONAL METHODS OF PAYMENT. In addition to a lump sum payment of benefits un-
der the Policy, any proceeds to be paid under the Policy may be paid in any of
five methods. A settlement option may be designated by notifying us in writing
at our home office. Any amount left with us for payment under an optional pay-
ment plan will be transferred to the General Account. Any amounts transferred
to the General Account will not be affected by the investment performance as-
sociated with the Separate Account.
You may elect to have the proceeds of this Policy paid under any of the pay-
ment options described below by making written request during the Insured's
lifetime. If no election is in effect at the Insured's death, the Beneficiary
may elect a payment option not later than 12 months after the Death Benefit is
payable and before it is paid. If a Beneficiary is changed, the payment plan
selection will no longer be in effect unless you request that it continue. The
proceeds may be paid in any other manner agreed to by us.
OPTION A--INTEREST. We will hold the proceeds at interest, and pay out the
funds when the person entitled to them requests.
12
<PAGE>
OPTION B--FIXED PAYMENTS. We will pay a selected monthly income until the pro-
ceeds, with interest, are exhausted.
OPTION C--LIFE INCOME--GUARANTEED PERIOD CERTAIN. We will pay the proceeds in
a monthly income for as long as the payee lives. Guarantee periods may be se-
lected between 5 and 20 years. If a guarantee period is selected, payments
will continue until the later of the death of the payee or the end of the
guarantee period. If the payee dies before the end of the guarantee period, we
will continue payments to a successor payee. If no guarantee period is select-
ed, then payments will cease after the death of the payee. It is possible for
the payee to receive only one payment under this option, if the payee dies be-
fore the second payment is due.
OPTION D--JOINT AND SURVIVOR. We will pay the proceeds in a monthly income to
two payees for as long as either payee is alive. Payments will stop when both
payees have died. It is possible for the payees to receive only one payment,
if both payees die before the second payment is due.
OPTION E--PERIOD CERTAIN. We will pay the proceeds in monthly installments for
a specified number of years, from 5 to 25. If the payee dies before the end of
the specified period, the remaining guaranteed payments will be paid to a suc-
cessor payee.
We will consent to an election of an option only if: (1) the option would pro-
vide guaranteed payments of more than $50 a month, or (2) proceeds are not
payable to a corporation, association, partnership, trust, estate, or assign-
ee.
We may have other options available. Information about them may be obtained by
writing or calling us.
POLICY VALUE. The Policy Value is the sum of the values in the Subaccounts of
the Separate Account, plus the values in the Fixed Account and the Loan Ac-
count. The Policy Value will vary daily with the performance of the
Subaccounts in which you have a Policy Value, interest credited to the Fixed
Account, any net premiums paid, partial withdrawals, and charges assessed.
There is no guaranteed minimum Policy Value.
On the Issue Date or, if later, the date the first premium is received, the
Policy Value is the Net premium less the monthly deduction for the first pol-
icy month.
On each Valuation Date, the Policy Value in a Subaccount is: (1) The Policy
Value of the Subaccount on the preceding Valuation Date, multiplied by the net
investment factor for the Subaccount for the current Valuation Period, plus
(2) any Net Premium received and allocated to the Subaccount during the cur-
rent Valuation Period, plus (3) any Policy Value transferred to the Subaccount
during the current Valuation Period, minus (4) any Policy Value transferred
from the Subaccount during the current Valuation Period, minus (5) any partial
withdrawals (plus applicable withdrawal charges) from the Subaccount during
the current Valuation Period, minus (6) the portion of any monthly deduction
or administrative expense charge allocated to the Subaccount during the cur-
rent Valuation Period for the policy month following the Monthly Deduction
Day.
All Policy Values equal or exceed those required by law. Detailed explanations
of methods or calculation are on file with appropriate regulatory authorities.
NET INVESTMENT FACTOR. The net investment factor measures investment perfor-
mance of a Subaccount during a Valuation Period. The net investment factor is
(1) divided by (2), minus (3) where: (1)is the net result of: (a) the net as-
set value per share of the Portfolio held in the Subaccount at the end of the
current Valuation Period, plus (b) the per share amount of any dividend or
capital gain distribution made by the Portfolio during the current Valuation
Period, plus or minus (c) a per share credit or charge with respect to any
taxes which we paid or for which we reserved during the Valuation Period which
are determined by us to be attributable to the operation of the Subaccount (no
federal income taxes are applicable under present law). (2) is the net asset
value per share of the Portfolio held in the Subaccount at the end of the last
prior Valuation Period. (3) is a charge of 0.70% on an annualized basis which
is assessed each day in the Valuation Period for mortality and expense risks.
POLICY LOANS. So long as the Policy remains in force, you may borrow money
from us using the Policy as the only security for the loan. Loans have prior-
ity over the claims of any assignee or any other person. The maximum loan
amount is an amount equal to 90% of the Surrender Value at the end of the Val-
uation period during which the loan request is received. Other restrictions
may apply if this Policy is issued in connection with a qualified plan. See
"Qualified Plans" on page 20.
We will ordinarily disburse proceeds of policy loans within seven days from
the date of receipt of a request for a loan at our home office, although pay-
ments may be postponed under certain circumstances (see "Postponement of Pay-
ments," page 17.) As long as the Policy remains in force, the loan may be re-
paid in whole or in part without penalty at any time while the Insured is
living.
When a policy loan is made, a portion of the Policy Value sufficient to secure
the loan will be transferred to the Loan Account reducing the Policy Value in
the Separate Account, and/or the Fixed Account. Any loan interest that is due
and unpaid will also be so transferred. Amounts transferred to the Loan Ac-
count will accrue interest at an annual rate of 4.0 percent. You must allocate
a policy loan among the Subaccounts of the Separate Account, and the Fixed Ac-
count. Amounts transferred to the Loan Account will no longer be affected by
the investment experience of the Separate Account. Thus, the remaining Policy
Value may be greater than or less than that which it would have been had the
policy loan not been made depending on the investment experience of the Sepa-
rate Account and the interest credited to the Fixed Account. In addition, the
proceeds payable on the death of the Insured will be reduced by the amount of
Policy debt outstanding.
An amount equal to your Policy Value less all premiums paid may be taken as a
Preferred Loan. The interest rate
13
<PAGE>
charged for Preferred Loans is 4.0% per year. A Standard Loan is the amount
that may be borrowed from the sum of premiums paid. The Standard Loan interest
rate is 6.0% per year.
Interest on policy loans accrues daily and is due at the end of each Policy
Year. Any interest not paid when due becomes part of the policy loan and will
bear interest at the same rate.
If you have a loan on a policy with another company, and you are terminating
that policy to buy one from us, the old loan would normally be paid off during
the process of surrendering the old policy. Income taxes on the interest
earned may be due. We permit you to carry this old loan over to your new Lin-
coln Benefit Life Policy through a Code Section 1035 tax-free exchange, up to
certain limits. The use of a Code Section 1035 tax-free exchange may eliminate
any income tax liability which would be due if the old loan was extinguished.
The maximum portion that can be carried over as "preferred" is 20% of the to-
tal Policy Value, as shown below.
<TABLE>
<S> <C>
Policy Value of old Policy: $ 190,000.00
Policy Loan: 40,000.00
------------
Surrender Value: $ 150,000.00
20% of Policy Value: $ 38,000.00
"Preferred" portion transferable $ 38,000.00
Remaining ("Standard") portion: $ 2,000.00
</TABLE>
Policy Debt equals the total of all outstanding policy loans and accrued in-
terest on policy loans. We will not allow Policy Debt to exceed the Surrender
Value. If Policy Debt would otherwise exceed the Surrender Value, we will no-
tify you and any assignee of record. We will require a payment sufficient to
keep the policy in force for at least three more months. If such payment is
not received within the grace period, the Policy will lapse and terminate
without value (see "Policy Lapse," page 11). The Policy may, however, later be
reinstated (see "Reinstatement," page 11). If the policy lapses with an out-
standing policy loan, significant adverse tax consequences may result. Please
consult a qualified tax advisor for details.
So long as the Policy remains in force, Policy Debt may be repaid in whole or
in part at any time during the Insured's life. If you do not designate the
payment as a loan repayment, we will apply payments received as premium pay-
ments. Upon repayment, the Policy Value securing the repaid portion of the
debt in the Loan Account will be transferred to the Subaccounts of the Sepa-
rate Account and the Fixed Account using the same percentage used to allocate
Net premiums. Any outstanding Policy Debt is subtracted from life insurance
proceeds payable at the Insured's death and from Surrender Value upon complete
surrender.
SURRENDER AND WITHDRAWAL PRIVILEGES. As long as the Policy is in force, you
may surrender the Policy or make a partial withdrawal at any time by sending a
written request to us at our home office. Surrender payments may be subject to
the charges described in "Surrender Charge," page 15. Other restrictions may
apply if this Policy is issued in connection with a qualified plan. See "Qual-
ified Plans" on page 20.
The Net Surrender Value of the Policy is the Policy Value less any applicable
surrender charges and Policy debt. The Net Surrender Value will be determined
at the end of the Valuation period during which the request for a surrender is
received.
The amount payable upon complete surrender of the Policy is the Net Surrender
Value which may be paid in a lump sum or under one of the optional payment
plans specified in the Policy (see "Optional Methods of Payment," page 12.)
Proceeds will generally be paid within seven days of receipt of a request for
surrender in good form.
You can obtain a portion of the Net Surrender Value by making a partial with-
drawal from the Policy. A partial withdrawal may not reduce the net Surrender
Value below $500. A charge will be assessed on partial withdrawals during the
first 12 Policy Years (see "Surrender Charge" on page 15 for details). The
minimum withdrawal at any time is $250.
You should be aware that if you make a partial withdrawal you may incur a tax
liability. See "Taxation of Policyowners," on page 18. A partial withdrawal
will affect your Policy Value and Death Benefit.
OPTION 1. Partial withdrawals generally will affect both the Policy Value and
the life insurance proceeds payable under the Policy. The Policy Value will be
reduced to reflect the amount of the withdrawal. Moreover, life insurance pro-
ceeds payable under the Policy will generally be reduced to reflect the amount
of the partial withdrawal. The face amount remaining after a partial with-
drawal may not be less than $25,000. If increases in face amount previously
have occurred, a partial withdrawal will first reduce the face amount of the
most recent increase, then the most recent increases successively, then the
coverage under the original Policy.
OPTION 2. Under Option 2, which provides for life insurance proceeds equal to
the face amount plus Policy Value, a reduction in Policy Value as a result of
a partial surrender will typically result in a dollar per dollar reduction in
the life insurance proceeds payable under the Policy.
You may allocate a partial withdrawal among the Subaccounts of the Separate
Account and the Fixed Account. Before any withdrawals can be made, a proper
withholding form must be on file. The amount of the partial withdrawal will be
allocated proportionately from the Subaccounts and the Fixed Account, unless
you specify otherwise.
FREE LOOK PERIOD. You may cancel the Policy within the latest of: 10 days af-
ter you receive the policy, 10 days after we mail or deliver a written notice
of withdrawal right to you, or 45 days after you sign the application (unless
your state requires a longer free look period). To cancel the Policy, you must
return it by mail or personal delivery to us. You will receive a refund equal
to the sum of:
14
<PAGE>
(a) the premium charge deducted from premiums for state premium taxes;
(b) the total amount of Monthly Deduction and any other charges deducted from
Policy Value; and
(c) the Policy Value on the date we receive the returned Policy, less any Pol-
icy Debt.
If state law prohibits the above calculation, you will receive a refund of all
premiums paid for the Policy.
RIGHT TO EXCHANGE. Once during the first 24 policy months following issuance
of the Policy, you may convert the Policy into a fixed benefit policy. You may
elect either the Net Death Benefit of the Policy on the date of exchange, or
the net amount at risk under the Policy on the date of exchange, less any Pol-
icy debt. The net amount at risk under the Policy is determined by the Death
Benefit option you selected (see "Death Benefits," page 11). Premiums will be
based on the same Issue Age, Sex and Premium Class of the Insured as the ex-
isting Policy. The conversion will be subject to an equitable adjustment in
payments and Policy Values to reflect variances, if any, in the payments and
Policy Values under the existing Policy and the new policy. Policy Values will
be determined as of the date we receive the exchange request. Evidence of in-
surability will not be required. Upon conversion, the Net Policy Value is
transferred to our General Account and is no longer affected by the investment
experience of the Separate Account.
CHARGES AND DEDUCTIONS
PREMIUM CHARGES. Upon receipt of each premium payment and before allocation of
the payment to the Policy Value, we will deduct 2.5% of the premium to pay
state premium taxes. Premium payments from which we will deduct 2.5% will in-
clude funds transferred from existing policies (Section 1035 exchange) of this
Company or any other company. This deduction represents an amount we consider
necessary to pay all premium taxes imposed by the states and their subdivi-
sions. Premium taxes currently range up to 4.0% of premium payments; there-
fore, the 2.5% deduction from your premium payments under the Policies may be
more or less than the amount assessed as premium taxes in your state.
MONTHLY DEDUCTIONS. On each Monthly Deduction Day, we will deduct from the
Policy Value of a Policy an amount to cover certain charges and expenses in-
curred in connection with the Policy. The Monthly Deduction will be taken pro
rata from each of the Subaccounts of the Separate Account and the Fixed Ac-
count. The monthly deduction is intended to compensate the Company for ex-
penses incurred in connection with the issuance of a Policy, the cost of in-
surance for the Policy, any optional insurance benefits added by rider, and
certain administrative expenses. The administrative expenses include salaries,
postage, telephone, office equipment and periodic reports.
The amount of the monthly deduction is equal to (i) the cost of insurance for
the Policy, as described below, and the cost of additional benefits provided
by rider, plus (ii) a monthly administration charge of $5.00 which is payable
so long as the Policy remains in effect.
The cost of insurance is determined on a monthly basis, and is determined sep-
arately for the initial face amount and each subsequent increase in face
amount. The cost of insurance is determined by multiplying the applicable cur-
rent cost of insurance rate per $1,000 by the net amount at risk for each pol-
icy month. The net amount at risk is (a)-(b), where (a) is the Death Benefit
as of the prior Monthly Deduction Date divided by 1.003273739, and (b) is the
Policy Value as of the prior Monthly Deduction Day less the $5.00 monthly ad-
ministration charge and less the cost of any benefit riders attached to the
Policy. The cost of insurance rate is based on the sex, Issue Age, Policy
Year, and premium rating class of the Insured under the Policy. However, we
issue unisex policies in Montana and in connection with tax-qualified plans.
Although we will determine the cost of insurance rate based upon expectations
as to future mortality experience, it can never exceed a maximum cost of in-
surance rate based on the 1980 Commissioners Standard Ordinary (1980 CSO)
Smoker and Non-Smoker Mortality Table based on the Insured's sex and age last
birthday. Cost of insurance rates for unisex policies can never exceed a maxi-
mum based on the 1980 CSO Table B assuming a blend of 80% male and 20% female
lives.
In addition, if we ever charge you a cost of insurance rate during the first
five Policy Years which is greater than the rate provided by the rate scale in
effect on the Issue Date, we must notify you. If you ask us to surrender the
Policy within 60 days of the date we mail you such notice, we will waive any
applicable surrender charge.
ADMINISTRATIVE EXPENSE CHARGE. An annual administrative expense charge of .20%
of the Policy Value is assessed on each Policy Anniversary during the first
twelve Policy Years. This charge is intended to help reimburse the Company for
certain administrative expenses related to maintenance of the Policy and the
Separate Account, as well as issue expenses and start up costs associated with
the administrative systems for the Policy not covered by the contingent de-
ferred administrative charge.
RISK CHARGE. We will also assess a charge on a daily basis against each
Subaccount of the Separate Account which is currently .70% per year (guaran-
teed not to exceed .90%) of the value of the Subaccount to compensate us for
our assumption of certain mortality and expense risks in connection with the
Policy. Specifically, we bear the risk that the total amount of Death Benefits
payable under the Policy will be greater than anticipated, and we also assume
the risk that the actual cost we incur to administer the Policy will not be
covered by administrative charges assessed under the Policy.
SURRENDER CHARGE. If you totally surrender your Policy, a surrender charge may
apply, as described below.
The surrender charge has two parts: a contingent deferred sales charge and a
contingent deferred administrative
15
<PAGE>
charge. The surrender charge during any Policy Year is equal to the sum of
these two items multiplied by the applicable surrender percentage as shown in
the Policy. The surrender charge is based on the face amount, and also depends
on the Issue Age, premium class and sex of the Insured. Once determined, the
surrender charge for the initial face amount is multiplied by the surrender
percentage as shown below to obtain the surrender charge for a given Policy
Year:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Policy Year/Year
from Effective
Date of
Increase 1-5 6 7 8 9 10 11 12 13 on
- -------------------------------------------------------
Surrender
Percentage 100 95 90 80 70 50 40 20 0
</TABLE>
The contingent deferred sales charge is equal to 30% of the first SEC guide-
line annual premium paid. (The guideline annual premium is the level annual
amount payable for future benefits under the contract, based on 1980 Commis-
sioners Standard Ordinary Mortality Tables, net investment earnings of 5%, an
Option 1 Death Benefit, and any fees and charges as set forth in the Policy.)
The contingent deferred sales charge is imposed to cover our actual sales ex-
penses, which include agents' sales commissions and other sales and distribu-
tion expenses. We expect to recover total sales expenses of the Policy over
the life of the Policy. To the extent distribution costs are not recovered by
the contingent deferred sales charge, the shortfall may be made up from the
assets of our General Account which includes funds derived from mortality and
expense risk charges deducted from Separate Account assets.
The contingent deferred administrative charge varies by age as follows:
Contingent Deferred Administrative Charge (CDAC)
<TABLE>
<CAPTION>
ISSUE AGE
OR
ATTAINED CDAC ISSUE AGE OR CDAC
AGE PER ATTAINED AGE PER
AT INCREASE $1,000 AT INCREASE $1,000
----------- ------ ------------ ------
<S> <C> <C> <C>
0-25 $1.45 36 $3.27
26 1.60 37 3.46
27 1.75 38 3.65
28 1.90 39 3.85
29 2.05 40 4.04
30 2.20 41 4.23
31 2.35 42 4.42
32 2.50 43 4.62
33 2.69 44 4.81
34 2.88 45+ 5.00
35 3.08
</TABLE>
The contingent deferred administrative charge is imposed to cover the expenses
we incur in issuing and administering the Policy, as well as start-up and
maintenance costs associated with the administrative systems for the Policy
and the Separate Account.
If you increase your face amount, an additional surrender charge will be ap-
plied for 12 years from the effective date of the increase. The initial charge
will be determined by multiplying the increase in face amount, in thousands,
by the applicable contingent deferred administrative charge for the Insured's
Attained Age at the time of the increase. The resulting product is then multi-
plied by the same schedule of applicable surrender percentages as shown above
to obtain the additional surrender charge for any 12 month period following
the effective date of the increase. Lincoln Benefit Life does not anticipate
making a profit on this charge.
If you decrease the face amount, any applicable surrender charge will remain
the same.
For partial withdrawals made during the first 12 Policy Years we will assess a
proportionate percentage of the surrender charge. The proportionate percentage
is the amount of the partial withdrawal requested divided by the surrender
value.
When a partial withdrawal charge is assessed, we will reduce any remaining
surrender charges in a proportionate manner. No surrender or partial with-
drawal charges will be applied under Policies issued to employees of Lincoln
Benefit Life Company or its affiliates or issued to spouse or minor children
of such employees.
TRANSFER FEE. In general, a transfer fee of $25 may be assessed 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 currently are
waiving this fee.
The transfer fee will be deducted from Policy Values which remain in the
Subaccount(s) or Fixed Account from which the transfer was made. If such re-
maining Policy Value is insufficient to pay the transfer fee, then the fee
will be deducted from transferred Policy Values.
PORTFOLIO COMPANY ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED* GROWTH* GROWTH* GROWTH*
--------- ------------ ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Janus Aspen Series:
Management: 0.65% 0.76% 0.73% 0.65% 0.66%
Other: 0.10% 0.07% 0.03% 0.05% 0.08%
----- ----- ----- ----- -----
Total: 0.75% 0.83% 0.76% 0.70% 0.74%
<CAPTION>
MONEY EQUITY
MARKET INCOME** GROWTH** OVERSEAS**
--------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Fidelity's Variable
Insurance Products Fund
Management: 0.21% 0.50% 0.60% 0.75%
Other: 0.10% 0.08% 0.09% 0.17%
----- ----- ----- -----
Total: 0.31% 0.58% 0.69% 0.92%
<CAPTION>
ASSET
MANAGER** CONTRAFUND**
--------- ------------
<S> <C> <C> <C> <C> <C>
Fidelity's Variable
Insurance Products
Fund II
Management: 0.55% 0.60%
Other: 0.10% 0.11%
----- -----
Total: 0.65% 0.71%
<CAPTION>
IAI IAI IAI
REGIONAL BALANCED*** RESERVE***
--------- ------------ ----------
<S> <C> <C> <C> <C> <C>
IAI Retirement Funds,
Inc.:
Management: 0.65% 0.65% 0.45%
Other: 0.25% 0.60% 0.40%
----- ----- -----
Total: 0.90% 1.25% 0.85%
<CAPTION>
U.S. GOV'T HIGH
UTILITY II INCOME
II+ SECURITIES+ BOND
--------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Federated Insurance
Management Series:
Management: 0.48% 0.15% 0.51%
Other: 0.37% 0.65% 0.29%
----- ----- -----
Total: 0.85% 0.80% 0.80%
<CAPTION>
BOND
---------
<S> <C> <C> <C> <C> <C>
Scudder Variable Life
Investment Fund
Management: 0.48%
Other: 0.14%
-----
Total: 0.62%
</TABLE>
16
<PAGE>
*The expense figures shown are net of certain expense waivers or fee reduc-
tions from Janus Capital Corporation. Without such waivers or reductions, Man-
agement Fees, Other Expenses, and Total Portfolio Annual Expenses for the
Portfolios for the fiscal year ended December 31, 1997, would have been:
0.77%, 0.06%, and 0.83%, respectively, for Balanced Portfolio; 0.74%, 0.04%,
and 0.78%, respectively, for Aggressive Growth Portfolio; 0.74%, 0.04%, and
0.78%, respectively, for Growth Portfolio; 0.72%, 0.09%, and 0.81%, respec-
tively, for Worldwide Growth Portfolio.
**A portion of the brokerage commissions the fund paid was used to reduce its
expenses. Without this reduction total operating expenses would have been for
VIP Equity Income--0.57%, for VIP Growth--0.67%, for VIP Overseas--0.90%, for
VIP II Asset Manager--0.64%, and for VIP II Contrafund--0.68%.
***The expense figures shown are net of expense reimbursements from Investment
Advisers, Inc. Without such reimbursements, Management Fees and Total Portfo-
lio Expenses for the Portfolios are estimated as follows: 0.65% and 1.34% for
Balanced Portfolio, and 0.45% and 2.25% for Reserve Portfolio.
+The expense figures shown reflect the voluntary waiver of all or a portion of
the Management Fee. The maximum Management Fees for the indicated Portfolios
and the Total Portfolio Expenses absent the voluntary waiver are as follows:
0.75% and 1.12%, respectively, for the Utility Fund II; 0.60% and 1.25%, re-
spectively, for the U.S. Government Securities II; and 0.60% and 0.89%, re-
spectively, for the High Income Bond Fund. The expense figures for U.S. Gov-
ernment Securities II are also net of expense reimbursements from the
investment advisor.
OTHER CHARGES. We also reserve the right to charge the assets of each
Subaccount to provide for any income taxes that we may be required to pay on
the assets attributable to that Subaccount. The net assets of each Subaccount
will reflect the investment advisory fee and other expenses of its underlying
Portfolio (see "The Portfolios," page 6). For more information concerning
these charges, see the individual Fund prospectuses. Lincoln Benefit Life may
receive compensation from the investment advisors or administrators in connec-
tion with administrative service and cost savings experienced by the invest-
ment advisors or administrators.
GENERAL PROVISIONS
THE POLICY. The Policy and attached copy of the application and any supplemen-
tal applications are the entire Contract. Only a Lincoln Benefit Life Officer
may approve a change in or waive any provisions of the Policy. We reserve the
right to change the terms of the Policy to comply with changes in applicable
law.
BENEFICIARIES. The original Beneficiaries and contingent Beneficiaries are
designated by you on the application. If changed, the primary Beneficiary or
contingent Beneficiary is as shown in the latest change filed with us. One or
more primary or contingent Beneficiaries may be named in the application. In
such case, the proceeds of the Policy will be paid in equal shares to the sur-
vivors in the appropriate Beneficiary class unless you requested otherwise.
However, other restrictions may apply if this Policy is issued in connection
with a qualified plan. See "Qualified Plans" on page 20.
ASSIGNMENT. The Policy can be assigned as collateral security, unless issued
in connection with a qualified plan (see page 20). We must be notified in
writing if the Policy has been assigned. Each assignment will be subject to
any payments we may make or action we may take before we receive notice of
such assignment. We are not responsible for the validity of an assignment.
Your rights and the rights of the Beneficiary may be affected by an assign-
ment.
INCONTESTABILITY. We will not contest the insurance coverage provided under
the Policy, except for Policy reinstatements and subsequent increases in face
amount, after the Policy has been in force during the lifetime of the Insured
for a period of two years from the Issue Date. A reinstated Policy will not be
contested after the reinstated Policy has been in force during the lifetime of
the Insured for a period of two years following the effective date of the re-
instatement. Any increase in the face amount will not be contested after such
increase has been in force during the lifetime of the Insured for two years
following the effective date of the increase. Any increase will be contestable
within the two year period only with regard to statements concerning the in-
crease.
MISSTATEMENTS. If the Insured's Age or sex has been stated incorrectly:
(1) the Death Benefit will be: (a) the Policy Value on the date of death; plus
(b) the amount that the cost of insurance, which was deducted from the Policy
Value for the Policy month during which death occurred, would have purchased
had the cost of the insurance been calculated using the cost of insurance
rates for the correct Age and sex;
(2) the Surrender Value will be adjusted to the amount which premiums paid
would have provided at the correct Age and sex.
SUICIDE. The Policy does not cover the risk of suicide within two years from
the Policy date or two years from the date of any increase in face amount with
respect to such increase, whether the Insured is sane or insane. In the event
of suicide within two years of the Policy date, our only liability will be a
refund of premiums paid, without interest, less any Policy debt and less any
partial surrender. In the event of suicide within two years of an increase in
face amount, our maximum liability with respect to the increase will be a re-
fund of the cost of insurance for such increase.
POSTPONEMENT OF PAYMENTS. We may defer for up to 15 days the payment of any
amount attributable to a premium payment made by check to allow the check rea-
sonable time to clear. Payment of any amount upon total surrender or partial
withdrawal, policy loan, or Death Benefits may be postponed whenever: (i) the
New York Stock Exchange is closed other than customary week-end and holiday
closings, or trading on the New York Stock Exchange is restricted as deter-
mined by the Commission; (ii) the Commission by order permits postponement for
the protection of Policyowners; or (iii) an emergency exists, as determined by
the Commission, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to determine the value of the
Separate Account's net assets. In addition, we may delay payment of the Sur-
render Value in the Fixed Account for up to 6 months (or a shorter period if
required by applicable law).
REPORTS AND RECORDS. Each year a report will be sent to you which shows the
current Death Benefit, Surrender Value, Policy Debt, partial withdrawals,
earnings, premiums paid and deductions made since the last annual report. We
will also include any information required by state law or
17
<PAGE>
regulation. In addition, we will send you the reports required by the 1940
Act. Confirmation notices (or other appropriate notification) of Policy trans-
actions will be mailed at least quarterly or at such more frequent times as
may be required by law. You should therefore give us prompt written notice of
any address change. You should read your statements and confirmations care-
fully and verify their accuracy. Questions about periodic statements should be
communicated to us promptly.
OPTIONAL INSURANCE BENEFITS. Subject to evidence of insurability, one or more
optional benefits may be included with a Policy by rider. The cost of any rid-
ers will be deducted as part of the monthly deductions (See "Monthly Deduc-
tions," page 15.) We reserve the right to not make available a rider or to of-
fer additional riders. The riders currently available are as follows:
CHILDREN'S LEVEL TERM RIDER: Provides for level term insurance on the
Insured's children, as defined in the rider. Coverage is provided to the ear-
lier of the child's 25th birthday or the Insured's age 65. The death benefit
will be paid to the Policyowner unless another beneficiary is provided. If the
Insured dies prior to the termination of the rider, coverage on each child be-
comes paid-up term insurance to age 25. The rider may be exchanged for a new
Policy on each child's 25th birthday or the Insured's age 65, if sooner, with-
out evidence of insurability.
ACCIDENTAL DEATH BENEFIT: Provides additional insurance if the Insured's death
results from accidental bodily injury as defined in the rider. The rider ter-
minates on the earlier of the policy anniversary following the Insured's 70th
birthday, the date the policy terminates, or the next monthly deduction day
after the Policyowner requests.
CONTINUATION OF PREMIUM: This rider will contribute a monthly amount to the
Policy Value in the event that the Insured becomes totally disabled as defined
in the rider. This rider terminates at age 60, or upon policy termination or
the next monthly deduction day after the Policyowner requests, if earlier.
ADDITIONAL INSURED RIDER: Provides for coverage on an additional Insured. The
face amount of the rider will be paid to the named beneficiary upon due proof
that the additional Insured died while the rider was in force. Coverage is re-
newable until the additional Insured's age 99. The rider may be exchanged for
a new Policy on the additional insured's life prior to the additional
Insured's 75th birthday, without evidence of insurability, subject to certain
conditions as defined in the rider.
PRIMARY INSURED RIDER: Provides for additional term coverage on the primary
Insured. Coverage is renewable until the Insured's age 99. The rider may be
exchanged for a new policy without evidence of insurability prior to age 75,
or converted to the base Policy after the 5th Policy Year and prior to age 75,
subject to certain conditions as defined in the rider.
If the Policy is issued in connection with a Qualified Plan, not all of the
benefits provided by these riders will be available.
DISTRIBUTION OF THE POLICY
Contracts are sold by registered representatives of broker-dealers who are our
licensed insurance agents, either individually or through an incorporated in-
surance agency. We pay all such commissions and incentives.
Lincoln Benefit Financial Services, Inc. ("LBFS") located at 206 South 13th
Street, Lincoln, Nebraska 68508 serves as principal underwriter of the Poli-
cies. LBFS is a wholly-owned subsidiary of Lincoln Benefit Life Company. It is
registered as a broker-dealer under the Securities Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers,
Inc.
Registered representatives of LBFS who sell the Policy will be paid a maximum
sales commission of approximately 70% of all premium payments up to the
commissionable first year premium paid plus 2.85% of all premiums in excess
thereof. Certain commissions may be reduced for ages 50 and older. In addi-
tion, certain bonuses and managerial compensation may be paid.
MARKET TIMING AND ASSET ALLOCATION SERVICES
Certain third parties offer market timing and asset allocation services in
connection with the Contracts. In certain situations, the Company will honor
transfer instructions from such third parties provided such market timing and
asset allocation services comply with the Company's administrative systems,
rules and procedures, which may be modified by the Company at any time. PLEASE
NOTE that fees and charges assessed for such market timing and asset alloca-
tion services are separate and distinct from the Contract fees and charges set
forth herein. The Company neither recommends nor discourages such market tim-
ing and asset allocation services.
FEDERAL TAX MATTERS
The following description of Federal income tax considerations is based on the
law in effect on the date of this Prospectus.
TAXATION OF THE SEPARATE ACCOUNT
We are taxed as a life insurance company under Part I of Subchapter L of the
Code. The operations of the Separate Account are taxed as part of the total
operations of the Company. However, the investment income and capital gains of
the Separate Account to the extent allocated to the Policies are not subject
to Federal income taxes.
No charge or provision for federal income taxes is currently being made
against the Separate Account for our federal income taxes. Should the tax
treatment of the Separate Account be changed, we may charge each Subaccount in
the Separate Account for its allocable share of Federal income tax.
18
<PAGE>
In several states, we may incur state and local taxes on the operations of the
Separate Account. To the extent that these taxes are not significant, no
charge or provision is currently being made for them against the Separate Ac-
count. If these taxes should be increased, we may make a charge or provision
for them against the Subaccounts of the Separate Account. Any charges or pro-
visions for taxes against the Subaccounts will adversely affect their invest-
ment performance.
TAXATION OF POLICYOWNERS
The Policy is structured to satisfy the definition of a life insurance con-
tract under the Code with the result that the Death Benefit will be fully ex-
cluded from the gross income of the Beneficiary. The Death Benefit will be in-
cluded in your gross estate for Federal estate tax purposes if the proceeds
are payable to the estate. If the Beneficiary is other than your estate but
you retained incidents of ownership in the Policy, the Death Benefit will also
be included. Examples of incidents of ownership include, but are not limited
to, the right to change beneficiaries, to assign the Policy or revoke an as-
signment, and to pledge the Policy or obtain a policy loan. If you own and are
the Insured under a Policy and if you transfer all incidents of ownership in
the Policy, the Death Benefit will be included in your gross estate if you die
within three years from the date of the ownership transfer. State and local
estate and inheritance tax consequences may apply.
Under the Code, loans received under the Policy are treated the same as loans
under a fixed benefit life insurance policy. Consequently, no portion of any
loan under the Policy is normally expected to constitute income to the owner.
Similarly, withdrawals of Policy Value should constitute income to the Policy
owner only to the extent the amounts withdrawn exceed the premiums paid. How-
ever, under certain circumstances, a Policy might be deemed to constitute a
"modified endowment contract", as discussed immediately below; under such cir-
cumstances, pre-death distributions and Policy loans may have adverse tax con-
sequences.
MODIFIED ENDOWMENT CONTRACTS
The Technical and Miscellaneous Revenue Act of 1988 amended the federal income
tax treatment of pre-death withdrawals from a class of life insurance con-
tracts referred to as modified endowment contracts ("MECs"). Unlike other life
insurance contracts, amounts received before death from a MEC, including pol-
icy loans, are treated first as income (to the extent of gain) and then as re-
covered investment. For purposes of determining the amount includible in in-
come, all MECs issued by the same company (or affiliate) to the same
policyholder during any calendar year will be treated as one MEC. Finally, an
additional 10% income tax is generally imposed on the taxable portion of
amounts received before age 59 1/2.
In general, a MEC is a life insurance contract entered into or materially
changed after June 20, 1988 that fails to meet a "7-pay test". Under the 7-pay
test, if the amount of premiums paid under the life insurance contract at any
time during the first 7 policy years exceeds the sum of the net level premiums
which would have been paid if the contract provided for paid-up future bene-
fits after the payment of 7 level annual payments, the contract is a MEC. A
policy may have to be reviewed under the 7-pay test even after the first seven
policy years in the case of certain events such as a material modification of
the policy as discussed below. If there is a reduction in benefits under the
contract during any 7-pay testing period, the 7-pay test is applied using the
reduced benefits level.
Any distribution made within two years before a policy fails the 7-pay test is
treated as made in anticipation of such failure. Whether or not a particular
policy meets these definitional requirements is dependent on the date the con-
tract was entered into, premium payments made and the periodic premium pay-
ments to be made, the level of death benefits, any changes in the level of
death benefits, the extent of any prior cash withdrawals, and other factors. A
life insurance policy which is issued in exchange for a MEC will also be con-
sidered a MEC. If action is required to be taken in order to prevent a Policy
from being deemed to be a modified endowment contract, we will advise you of
such status.
A Policy should be reviewed upon issuance, upon making a cash withdrawal, upon
making a change in future benefits and upon making a material modification to
the Policy to determine to what extent, if any, these tax rules apply. A mate-
rial modification to a Policy includes, but is not limited to, an increase in
the future benefits provided under the Policy. The annual statement sent to
you will include information regarding the modified endowment contract status
of your Policy.
Counsel and other competent advisors should be consulted to determine how
these rules apply to an individual situation and before making unscheduled
premium payments, increasing or decreasing the specified face amount, or add-
ing or removing a rider.
Congress may, in the future, consider other legislation that, if enacted,
could adversely affect the tax treatment of life insurance policies. In addi-
tion, the Treasury Department may by regulation or interpretation modify the
above described tax effects. Any legislative or administrative action could be
applied retroactively.
DIVERSIFICATION REQUIREMENTS
Flexible premium variable life insurance policies will be treated as life in-
surance contracts under the Code so long as the investments of the separate
accounts funding them are "adequately diversified" under Treasury regulations.
If the investments of a separate account are determined to be not adequately
diversified, policyowners in the separate account will be treated as the own-
ers of the underlying assets and thus currently taxable on earnings and gains.
It is intended that the investments of the Separate Account are now and will
remain adequately diversified under the Treasury regulations.
In connection with the issuance of the regulations on diversification require-
ments, the Treasury announced that such regulations do not provide guidance
concerning the extent to
19
<PAGE>
which owners may direct their investments among Subaccounts of a Variable Ac-
count. The Internal Revenue Service has previously stated in published rulings
that a variable contract owner will be considered the owner of separate ac-
count assets if the owner possesses incidents of ownership in those assets
such as the ability to exercise investment control over the assets. At the
time of the issuance of the diversification regulations, the Treasury an-
nounced that guidance would be issued in the future on the extent to which
owners could direct their investments among Subaccounts without being treated
as owners of the underlying assets of the Variable Account. As of the date of
this prospectus, no such guidance has been issued. It is possible that the
Treasury's position, when announced, may adversely affect the tax treatment of
existing contracts. The Company, therefore, reserves the right to modify the
contract as necessary to attempt to prevent the Owner from being considered
the owner of the assets of the Variable Account or otherwise to attempt to
qualify the contract for favorable tax treatment.
QUALIFIED PLANS
The Policy may be suitable for purchase by pension and profit-sharing plans
established by corporations, partnerships, sole proprietors and other eligible
organizations which are qualified for favorable tax treatment under Sections
401(a) and 403(b) of the Code ("qualified plans"). The primary purpose of a
qualified plan is to provide retirement benefits for the participants and any
pre-retirement benefit, such as life insurance protection, must be incidental
to this primary purpose or the plan risks disqualification. Unisex cost of in-
surance rates apply to policies issued in connection with qualified plans. The
tax treatment of "qualified" life insurance policies differs from traditional
life insurance; tax advice on these matters should be sought from competent
tax counsel.
The rules regarding the use of life insurance in connection with qualified
plans are complex. There may be special limitations that apply if the Policy
is purchased as qualified life insurance. These limitations include, but are
not limited to, nontransferability, alienation of benefits, incidental life
insurance provisions relating to premium limitations, joint and survivor annu-
ity provisions, spousal rights, required minimum distributions, eligibility
for plan distributions (including loans), and supplemental benefit restric-
tions.
TAX ADVICE
The foregoing summary does not purport to be a complete discussion of the tax
treatment of the Policy. Tax advice on these matters should be sought from
competent tax counsel.
SAFEKEEPING OF THE
SEPARATE ACCOUNT'S ASSETS
We hold the assets of the Separate Account. The assets are kept physically
segregated and held separate and apart from the general account assets. Addi-
tional protection is provided in the form of an insurance company blanket bond
which covers directors and employees of the Company. The bond, which was is-
sued by Lloyds of London, covers up to $1,000,000 per loss.
VOTING RIGHTS
To the extent required by law, we will vote the Fund shares held in the vari-
ous Subaccounts of the Separate Account at regular and special shareholder
meetings of the Fund in accordance with the instructions received from persons
having voting interests in the Separate Account. The number of votes you have
the right to instruct will be determined by dividing the Policy's Policy Value
in a Subaccount of the Separate Account by $100.00. Fractional votes will be
counted. The number of votes on which you have the right to instruct will be
determined as of a record date not more than 90 days before any meeting at
which such vote is held. Voting instructions will be solicited by written com-
munications prior to such meeting in accordance with procedures established by
the Separate Account.
We will vote Fund shares as to which no instructions are received, and shares
which are not attributable to Policyowners, in proportion to the voting in-
structions which are received with respect to all Policies participating in
the Fund. Each person having a voting interest will receive proxy material,
reports and other materials relating to the Fund.
We may, when required by state insurance regulatory authorities, disregard
voting instructions if the instructions require that shares be voted so as to
cause a change in subclassification or investment objective of the Fund or
disapprove an investment advisory contract of the Fund. In addition, we may
disregard voting instructions in favor of changes initiated by a Policyowner
in the investment policy or the investment adviser of the Fund if we reasona-
bly disapprove of such changes. A change would be disapproved only if the pro-
posed change is contrary to state law or prohibited by state regulatory au-
thorities or we determine that the change would be inconsistent with the
investment objectives of the Fund or would result in the purchase of securi-
ties for the Fund which vary from the general quality and nature of invest-
ments and investment techniques utilized by the Fund. In the event that we
disregard voting instructions, a summary of that action and the reason for
such actions will be included in the next semi-annual financial report to you.
STATE REGULATION OF
LINCOLN BENEFIT LIFE
We are organized under the laws of the State of Nebraska and are subject to
regulation by the Commissioner of Insurance of that state. An annual statement
is filed with the Director of Insurance of the State of Nebraska each year
covering the operations and reporting on the financial condition of the Com-
pany as of December 31 of the preceding year. A full examination of the
Company's operations is periodically conducted by the National Association of
Insurance Commissioners.
20
<PAGE>
In addition, we are subject to the insurance laws and regulations of other
states within which we are licensed to operate. Generally, the insurance de-
partment of any other state applies the laws of the state of domicile in de-
termining permissible investments.
EXECUTIVE OFFICERS AND DIRECTORS
OF LINCOLN BENEFIT LIFE
(NAME; POSITION WITH LBL AND YEAR OF ELECTION;
Principal Occupation Last 5 Years)
JANET P. ANDERBERY; VICE PRESIDENT AND CONTROLLER, 1994; Associate Vice Presi-
dent and Controller, 5/84-4/94, Lincoln Benefit Life Company; Vice President
and Controller, 1/94-present, Surety Life Insurance Company; Vice President
and Controller, 5/93-present, Lincoln Benefit Financial Services, Inc.
DOUGLAS F. GAER; EXECUTIVE VICE PRESIDENT, 1997; DIRECTOR, 1981; Senior Vice
President, 4/95-2/97; Senior Vice President and Treasurer, 4/94-3/95, Vice
President 3/81-4/94, Director, Lincoln Benefit Life Company; Senior Vice Pres-
ident and Treasurer, Surety Life Insurance Company 1/94-present; Director Lin-
coln Benefit Financial Services, Inc., 5/93-present.
PETER H. HECKMAN; VICE CHAIRMAN OF THE BOARD 1996; DIRECTOR, 1990; Vice Presi-
dent, Director 4/92-present, Glenbrook Life & Annuity Company; Vice President
11/90-present, Director 9/90-present, Glenbrook Life Insurance Company; Vice
President 6/89-present, Director 7/90-present, Allstate Life Insurance Company
of New York; Vice President 4/89-present, Director 12/88-present, Allstate
Life Insurance Company; Vice President 12/88-present, Director 12/88-present,
Northbrook Life Insurance Company; Director 5/90-present, Surety Life Insur-
ance Company; Director 5/90-present, Lincoln Benefit Life Company; Director
5/91-9/93, Allstate Life Financial Services.
LOUIS G. LOWER, II; CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, 1989; DI-
RECTOR, 1989; Chairman of the Board & President, 4/92-6/95, Chairman of the
Board and Chief Executive Officer 6/95-present, Glenbrook Life & Annuity Com-
pany; Chairman of the Board & President 1/91-12/95, Chairman of the Board and
Chief Executive Officer 12/95-present, Director 9/90-present, Glenbrook Life
Insurance Company; President 1/90-present, Executive Vice President 1/89-1/90,
Senior Vice President & Treasurer 10/86-12/88, Director, Allstate Life Insur-
ance Company; Chairman of the Board and Chief Executive Officer 6/95-present,
Chairman of the Board and President 4/90-6/95, Chairman of the Board 4/90-
7/90, Executive Vice President 1/89-4/90, Senior Vice President and Treasurer
10/86-4/89, Director, Northbrook Life Insurance Company; Chairman of the Board
& President 6/90-present, Vice President & Treasurer 12/86-6/90, Director,
Allstate Life Insurance Company of New York; Chairman of the Board & Chief Ex-
ecutive Officer, Director 5/90-present, Lincoln Benefit Life Company; Chairman
of the Board & Chief Executive Officer 3/90-present, Director 5/89-present,
Surety Life Insurance Company; Group Vice President 76-89, Director, Allstate
Insurance Company; Director 4/90-present, Allstate Settlement Company; Direc-
tor 5/91-present, Allstate Life Financial Services.
JOHN J. MORRIS; SENIOR VICE PRESIDENT/SECRETARY, 1994; DIRECTOR, 1987; Senior
Vice President & Secretary, 4/94-present, Vice President & Secretary 8/85-
4/94, Director, Lincoln Benefit Life Company; Vice President & Secretary, Di-
rector 5/93-present, Lincoln Benefit Financial Services Inc.
ROBERT E. RICH; EXECUTIVE VICE PRESIDENT 1996; DIRECTOR, 1987; Senior Vice
President/Chief Actuary and Treasurer, 4/95-5/96; Senior Vice President, As-
sistant Secretary, 4/94-3/95, Vice President/Assistant Secretary, 1/84-4/94,
Director, Lincoln Benefit Life Company; Senior Vice President and Chief Actu-
ary, 1/94-present, Director, Surety Life Insurance Company, 9/93-present; Di-
rector 5/93-present, Lincoln Benefit Financial Services, Inc.
KEVIN R. SLAWIN; DIRECTOR, 1996; Director and Vice President-Finance and Plan-
ning, Allstate Life Insurance Company, 1996; Director, Allstate Life Insurance
Company of New York, 1996; Director, Laughlin Group Holdings, Inc., 1996; Di-
rector, Northbrook Life Insurance Company, 1996; Director, Surety Life Insur-
ance Company, 1996; Director, Glenbrook Life Insurance Company, 1996; Assis-
tant Vice President, Assistant Treasurer, Allstate Insurance Company, 1995-
1996.
MICHAEL J. VELOTTA; DIRECTOR, 1992; Vice President, Secretary & General Coun-
sel 1/93-present, Director 12/92-present, Allstate Life Insurance Company;
Vice President, Secretary & General Counsel 1/93-present, Director 12/92-pres-
ent, Glenbrook Life Insurance Company; Vice President, Secretary & General
Counsel 1/93-present, Director 12/92-present, Glenbrook Life & Annuity Compa-
ny; Vice President, Secretary & General Counsel 1/93-present, Director 12/92-
present, Allstate Life Insurance Company of New York; Vice President, Secre-
tary & General Counsel 1/93-present, Director 12/92-present, Northbrook Life
Insurance Company; Vice President, Secretary & General Counsel 1/93-present,
Director 12/92-present, Surety Life Insurance Company; Assistant Vice Presi-
dent & Assistant General Counsel 1989, Allstate Insurance Company; Director
12/92-present, Lincoln Benefit Life Company.
RANDY J. VON FUMETTI; SENIOR VICE PRESIDENT, 1996; DIRECTOR, 1996; Senior Vice
President, 1996; Director, 9/96, Surety Life Insurance Company; Senior Actuary
and Director 8/87-9/96 Allstate Life Insurance Company.
CAROL S. WATSON; SENIOR VICE PRESIDENT/GENERAL COUNSEL, 1994; DIRECTOR, 1992;
Senior Vice President & General Counsel 4/94-present, Vice President & General
Counsel, 7/91-4/94, Director 5/92-present, Lincoln Benefit Life Company, Se-
nior Vice President, Assistant Secretary and General Counsel, Surety Life In-
surance Company 1/94-present; President, 1996, Director 1993 Vice President
and General Counsel, Director 5/93-present, Lincoln Benefit Financial Servic-
es, Inc.
21
<PAGE>
PATRICIA W. WILSON, 45, DIRECTOR, 1997; Assistant Vice President/Assistant
Secretary/Assistant Treasurer,7/97-present, Assistant Vice President, 1/93-
7/97, Allstate Life Insurance Company; Assistant Vice President, 6/91-present,
Director, 6/97-present, Allstate Life Insurance Company of New York; Assistant
Treasurer, 7/97-12/97, Glenbrook Life Insurance Company; Assistant Treasurer,
7/97-present, Glenbrook Life Annuity Company; Assistant Vice
President/Assistant Secretary/Assistant Treasurer, 7/97-present, Northbrook
Life Insurance Company; Director, 7/97-present, Surety Life Insurance Company.
B. EUGENE WRAITH; PRESIDENT, CHIEF OPERATING OFFICER, 1996; DIRECTOR, 1984;
President and Chief Operating Officer, 3/96-present, Director, Senior Vice
President, 4/94-3/96, Vice President, 12/81-4/94, Lincoln Benefit Life Compa-
ny; President and Chief Operating Officer, Director, 3/96-present, Surety Life
Insurance Company; Executive Vice President 1/94-3/96, Director 9/93-present,
Surety Life Insurance Company; President, Chairman of the Board, 1993; Direc-
tor, 1993; President, 5/93-11/96, Lincoln Benefit Financial Services, Inc.
Lincoln Benefit Financial Services, Inc.
LEGAL MATTERS
All matters of Nebraska law pertaining to the Policy, including the validity
of the Policy and the Company's right to issue the Policy under Nebraska in-
surance law have been passed upon by Carol S. Watson, Senior Vice President
and General Counsel of the Company. Legal matters relating to the federal se-
curities laws in connection with the Contracts described herein are being
passed upon by the law firm of Jordan Burt Boros Cicchetti Berenson & Johnson,
1025 Thomas Jefferson St., East Lobby, Washington, D.C. 20007-5201.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of any of the Subaccounts thereof are subject. We are not in-
volved in any litigation that is of material importance in relation to its to-
tal assets or that relates to the Separate Account.
EXPERTS
The financial statements of Lincoln Benefit Life Variable Life Account as of
December 31, 1997, and for each of the three years ended December 31, 1997 and
the consolidated financial statements of Lincoln Benefit Life Company and sub-
sidiary as of December 31, 1997 and 1996, and for each of the three years in
the period ended December 31, 1997, included in this prospectus have been au-
dited by Deloitte & Touche LLP, independent auditors, as stated in their re-
ports appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
Actuarial matters included in this Prospectus have been examined by Dean M.
Way, Vice President and Actuary of the Company.
REGISTRATION STATEMENT
A registration statement has been filed with the Securities and Exchange Com-
mission under the Securities Act of 1933, as amended, with respect to the Pol-
icy offered hereby. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement to all of which reference is made for further informa-
tion concerning the Separate Account, the Company and the Policy offered here-
by. Statements contained in this Prospectus as to the contents of the Policy
and other legal instruments are summaries. For a complete statement of the
terms thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of the Company which are included in this Prospectus
should be considered only as bearing on the ability of the Company to meet its
obligations under the Policy. They should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Lincoln Benefit Life Company:
We have audited the accompanying statement of net assets of Lincoln Benefit
Life Variable Life Account (the "Account") as of December 31, 1997, and the
related statements of operations and statements of changes in net assets for
each of the two years ended December 31, 1997 of the Flexible Income, Bal-
anced, Growth, Aggressive Growth, and Worldwide Growth portfolios of Janus As-
pen Series; the Regional, Reserve, and Balanced portfolios of IAI Retirement
Funds, Inc.; the Asset Manager and Contrafund portfolios of Fidelity's Vari-
able Insurance Products Fund II; the Money Market, Equity Income, Growth, and
Overseas portfolios of Fidelity's Variable Insurance Products Fund; the High
Income Bond Fund II (formerly the Corporate Bond Fund), Utility Fund II (for-
merly the Utility Fund), and U.S. Government Securities Fund II (formerly the
Government Bond Fund) portfolios of Federated Insurance Series; and the Bond
portfolio of Scudder Variable Life Investment Fund that comprise the Account
and for the year ended December 31, 1995 of the Flexible Income, Balanced,
Growth, Aggressive Growth, and Worldwide Growth portfolios of Janus Aspen Se-
ries; the Regional, Reserve, and Balanced portfolios of IAI Retirement Funds,
Inc.; the Asset Manager portfolio of Fidelity's Variable Insurance Products
Fund II; the Money Market, Equity Income, Growth, and Overseas portfolios of
Fidelity's Variable Insurance Products Fund; the Corporate Bond Fund, Utility
Fund, and Government Bond Fund portfolios of Federated Insurance Series; and
the Bond portfolio of Scudder Variable Life Investment Fund that comprise the
Account. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. Our proce-
dures included confirmation of securities owned at December 31, 1997. An audit
also includes assessing the accounting principles used and significant esti-
mates made by management, as well as evaluating the overall financial state-
ment presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements present fairly, in all material re-
spects, the financial position of the Account as of December 31, 1997, and the
results of its operations and changes in its net assets for each of the three
years in the period then ended, of each of the portfolios comprising the Ac-
count, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
March 20, 1998
23
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF NET ASSETS
DECEMBER 31, 1997
($ AND SHARES IN THOUSANDS)
<TABLE>
<S> <C>
NET ASSETS
Investments in Janus Aspen Series Portfolios:
Flexible Income, 76 shares (cost $870).............................. $ 897
Balanced, 200 shares (cost $3,128).................................. 3,489
Growth, 492 shares (cost $8,080).................................... 9,090
Aggressive Growth, 438 shares (cost $8,264)......................... 8,992
Worldwide Growth, 713 shares (cost $15,390)......................... 16,686
Investments in IAI Retirement Funds, Inc. Portfolios:
Regional, 166 shares (cost $2,481).................................. 2,703
Reserve, 20 shares (cost $200)...................................... 199
Balanced, 27 shares (cost $343)..................................... 383
Investments in Fidelity's Variable Insurance Products Fund II
Portfolios:
Asset Manager, 216 shares (cost $3,614)............................. 3,885
Contrafund, 346 shares (cost $6,422)................................ 6,904
Investments in Fidelity's Variable Insurance Products Fund Portfolios:
Money Market, 5,169 shares (cost $5,169)............................ 5,169
Equity Income, 666 shares (cost $13,964)............................ 16,160
Growth, 333 shares (cost $10,545)................................... 12,370
Overseas, 274 shares (cost $5,257).................................. 5,254
Investments in Federated Insurance Series Portfolios:
High Income Bond Fund II, 190 shares (cost $1,998).................. 2,085
Utility Fund II, 96 shares (cost $1,146)............................ 1,366
U.S. Government Securities Fund II, 27 shares (cost $275)........... 285
Investments in Scudder Variable Life Investment Fund Portfolio:
Bond, 80 shares (cost $518)......................................... 547
-------
Net assets........................................................ $96,464
=======
</TABLE>
See notes to financial statements.
24
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
25
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
-------------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
-------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................... $ 49 $ 86 $ 189 $ -- $ 181
Charges from Lincoln Benefit
Life Company:
Mortality and expense
risk..................... (5) (18) (46) (46) (81)
Administrative expense.... (1) (5) (12) (14) (9)
------- ------- ------- -------- --------
Net investment income
(loss)................. 43 63 131 (60) 91
------- ------- ------- -------- --------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales....... 1,087 2,365 7,818 11,046 17,134
Cost of investments sold.. (1,066) (2,221) (7,446) (10,625) (15,964)
------- ------- ------- -------- --------
Net realized gains
(losses)............... 21 144 372 421 1,170
------- ------- ------- -------- --------
Change in unrealized gains
(losses)................... 9 260 640 632 600
------- ------- ------- -------- --------
Net gains (losses) on
investments............ 30 404 1,012 1,053 1,770
------- ------- ------- -------- --------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS.. $ 73 $ 467 $ 1,143 $ 993 $ 1,861
======= ======= ======= ======== ========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
FIDELITY'S
VARIABLE INSURANCE
IAI RETIREMENT PRODUCTS FUND II
FUNDS, INC. PORTFOLIOS PORTFOLIOS
- --------------------------------- -------------------
ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
- ---------------- ------- -------- ------- ----------
<S> <C> <C> <C> <C>
$ 94 $ 6 $ 10 $ 305 $ 51
(16) (1) (2) (21) (27)
(5) -- (1) (6) (6)
------------- ---- ----- ------- -------
73 5 7 278 18
------------- ---- ----- ------- -------
953 53 171 3,642 6,207
(888) (54) (160) (3,388) (5,900)
------------- ---- ----- ------- -------
65 (1) 11 254 307
------------- ---- ----- ------- -------
113 -- 24 (1) 373
------------- ---- ----- ------- -------
178 (1) 35 253 680
------------- ---- ----- ------- -------
$ 251 $ 4 $ 42 $ 531 $ 698
============= ==== ===== ======= =======
</TABLE>
See notes to financial statements.
27
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS
FUND PORTFOLIOS
-------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
--------- ------- ------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.............................. $ 315 $ 846 $ 318 $ 252
Charges from Lincoln Benefit Life
Company:
Mortality and expense risk........... (41) (78) (72) (25)
Administrative expense............... (8) (5) (22) (7)
--------- ------- ------- --------
Net investment income (loss)....... 266 763 224 220
--------- ------- ------- --------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales.................. 105,015 8,773 9,943 21,506
Cost of investments sold............. (105,015) (8,484) (9,231) (20,961)
--------- ------- ------- --------
Net realized gains (losses)........ -- 289 712 545
--------- ------- ------- --------
Change in unrealized gains (losses).... -- 1,539 1,095 (267)
--------- ------- ------- --------
Net gains (losses) on investments.. -- 1,828 1,807 278
--------- ------- ------- --------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS............................ $ 266 $ 2,591 $ 2,031 $ 498
========= ======= ======= ========
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
SCUDDER
VARIABLE LIFE
INVESTMENT FUND
FEDERATED INSURANCE SERIES PORTFOLIOS PORTFOLIO
- ------------------------------------------- ---------------
U.S.
HIGH GOVERNMENT
INCOME BOND UTILITY SECURITIES
FUND II FUND II FUND II BOND TOTAL
- ----------- ------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
$ 61 $ 44 $ 9 $ 30 $ 2,846
(8) (8) (2) (3) (500)
(2) (3) -- (1) (107)
- ------- ----- ----- ----- ---------
51 33 7 26 2,239
- ------- ----- ----- ----- ---------
2,364 734 261 576 199,648
(2,313) (665) (257) (577) (195,215)
- ------- ----- ----- ----- ---------
51 69 4 (1) 4,433
- ------- ----- ----- ----- ---------
48 166 7 13 5,251
- ------- ----- ----- ----- ---------
99 235 11 12 9,684
- ------- ----- ----- ----- ---------
$ 150 $ 268 $ 18 $ 38 $ 11,923
======= ===== ===== ===== =========
</TABLE>
See notes to financial statements.
29
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
------------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
-------- -------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends.................... $ 29 $ 24 $ 67 $ 33 $ 70
Charges from Lincoln Benefit
Life Company:
Mortality and expense risk.. (3) (5) (18) (23) (27)
Administrative expense...... -- (1) (4) (5) (6)
------- ----- ------- ------- -------
Net investment income
(loss)................... 26 18 45 5 37
------- ----- ------- ------- -------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales......... 3,253 541 4,620 3,894 4,048
Cost of investments sold.... (3,262) (513) (4,460) (3,743) (3,724)
------- ----- ------- ------- -------
Net realized gains
(losses)................. (9) 28 160 151 324
------- ----- ------- ------- -------
Change in unrealized gains
(losses).................... 13 64 197 (107) 450
------- ----- ------- ------- -------
Net gains (losses) on
investments.............. 4 92 357 44 774
------- ----- ------- ------- -------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS... $ 30 $ 110 $ 402 $ 49 $ 811
======= ===== ======= ======= =======
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
FIDELITY'S
VARIABLE INSURANCE
PRODUCTS FUND II
IAI RETIREMENT FUNDS, INC. PORTFOLIOS PORTFOLIOS
------------------------------------------------- ---------------------------------
ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
---------- -------- --------- ------- ----------
<S> <C> <C> <C> <C>
$ 57 $ 6 $ 3 $ 94 $ --
(8) (1) (1) (13) (4)
(2) -- -- (3) --
---------- -------- ------- ----- -------
47 5 2 78 (4)
---------- -------- ------- ----- -------
1,894 219 56 724 2,224
(1,832) (219) (54) (697) (2,183)
---------- -------- ------- ----- -------
62 -- 2 27 41
---------- -------- ------- ----- -------
6 -- 13 143 109
---------- -------- ------- ----- -------
68 -- 15 170 150
---------- -------- ------- ----- -------
$ 115 $ 5 $ 17 $ 248 $ 146
========== ======== ======= ===== =======
</TABLE>
See notes to financial statements.
31
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS
FUND PORTFOLIOS
-------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
-------- ------- -------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends............................... $ 185 $ 152 $ 297 $ 44
Charges from Lincoln Benefit Life
Company:
Mortality and expense risk............ (25) (35) (44) (15)
Administrative expense................ (5) (7) (9) (3)
-------- ------- -------- -------
Net investment income (loss)........ 155 110 244 26
-------- ------- -------- -------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales................... 54,684 4,355 13,992 3,383
Cost of investments sold.............. (54,684) (4,196) (13,912) (3,364)
-------- ------- -------- -------
Net realized gains (losses)......... -- 159 80 19
-------- ------- -------- -------
Change in unrealized gains (losses)..... -- 381 367 206
-------- ------- -------- -------
Net gains (losses) on investments... -- 540 447 225
-------- ------- -------- -------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS............................. $ 155 $ 650 $ 691 $ 251
======== ======= ======== =======
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
SCUDDER
VARIABLE LIFE
INVESTMENT
FEDERATED INSURANCE SERIES PORTFOLIOS FUND PORTFOLIO
- -------------------------------------------- --------------
U.S.
HIGH UTILITY GOVERNMENT
INCOME BOND FUND SECURITIES
FUND II II FUND II BOND TOTAL
- ----------- ------- ---------- -------------- ---------
<S> <C> <C> <C> <C>
$ 50 $ 30 $ 9 $ 30 $ 1,180
(4) (5) (1) (3) (235)
(1) (1) -- (1) (48)
------- ------- ----- ----- ---------
45 24 8 26 897
------- ------- ----- ----- ---------
3,205 1,512 174 926 103,704
(3,200) (1,457) (175) (948) (102,623)
------- ------- ----- ----- ---------
5 55 (1) (22) 1,081
------- ------- ----- ----- ---------
22 21 1 7 1,893
------- ------- ----- ----- ---------
27 76 -- (15) 2,974
------- ------- ----- ----- ---------
$ 72 $ 100 $ 8 $ 11 $ 3,871
======= ======= ===== ===== =========
</TABLE>
See notes to financial statements.
33
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
----------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
-------- -------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends...................... $ 15 $ 5 $ 26 $ 16 $ 6
Charges from Lincoln Benefit
Life Company:
Mortality and expense risk.... (1) (2) (5) (5) (7)
Administrative expense........ -- -- (1) (1) (1)
----- ----- ----- ----- -----
Net investment income
(loss)..................... 14 3 20 10 (2)
----- ----- ----- ----- -----
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from
sales of investments:
Proceeds from sales........... 233 113 636 519 446
Cost of investments sold...... (223) (107) (662) (498) (433)
----- ----- ----- ----- -----
Net realized gains (losses). 10 6 (26) 21 13
----- ----- ----- ----- -----
Change in unrealized gains
(losses)...................... 7 38 171 197 244
----- ----- ----- ----- -----
Net gains (losses) on
investments................ 17 44 145 218 257
----- ----- ----- ----- -----
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS............... $ 31 $ 47 $ 165 $ 228 $ 255
===== ===== ===== ===== =====
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
FIDELITY'S
VARIABLE
INSURANCE
IAI RETIREMENT FUNDS, INC. PRODUCTS
PORTFOLIOS FUND II PORTFOLIO
- ---------------------------- -----------------
REGIONAL RESERVE BALANCED ASSET MANAGER
- ---------- ------- -------- -----------------
<S> <C> <C> <C>
$-- $ 3 $-- $ 11
(3) -- -- (7)
-- -- -- (2)
------ ----- ---- -----
(3) 3 -- 2
------ ----- ---- -----
78 118 22 646
(74) (118) (21) (637)
------ ----- ---- -----
4 -- 1 9
------ ----- ---- -----
101 -- 4 138
------ ----- ---- -----
105 -- 5 147
------ ----- ---- -----
$102 $ 3 $ 5 $ 149
====== ===== ==== =====
</TABLE>
See notes to financial statements.
35
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
($ IN THOUSANDS)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS
FUND PORTFOLIOS
------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends................................ $ 98 $ 60 $ 7 $ 1
Charges from Lincoln Benefit Life
Company:
Mortality and expense risk............. (12) (10) (14) (5)
Administrative expense................. (5) (2) (2) (1)
-------- ------- ------- -------
Net investment income (loss)......... 81 48 (9) (5)
-------- ------- ------- -------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales.................... 18,399 1,887 2,970 2,447
Cost of investments sold............... (18,399) (1,827) (2,917) (2,419)
-------- ------- ------- -------
Net realized gains (losses).......... -- 60 53 28
-------- ------- ------- -------
Change in unrealized gains (losses)...... -- 275 332 57
-------- ------- ------- -------
Net gains (losses) on investments.... -- 335 385 85
-------- ------- ------- -------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS.............................. $ 81 $ 383 $ 376 $ 80
======== ======= ======= =======
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
SCUDDER
VARIABLE LIFE
FEDERATED INSURANCE SERIES INVESTMENT
PORTFOLIOS FUND PORTFOLIO
- ----------------------------------- --------------
GOVERNMENT
CORPORATE BOND UTILITY BOND
FUND FUND FUND BOND TOTAL
- ---------------- ------- ---------- -------------- --------
<S> <C> <C> <C> <C>
$ 31 $ 7 $ 2 $ 7 $ 295
(2) (1) -- (1) (75)
(1) -- -- -- (16)
------------ ---- ---- ----- --------
28 6 2 6 204
------------ ---- ---- ----- --------
451 85 86 171 29,307
(444) (85) (86) (170) (29,120)
------------ ---- ---- ----- --------
7 -- -- 1 187
------------ ---- ---- ----- --------
23 33 1 10 1,631
------------ ---- ---- ----- --------
30 33 1 11 1,818
------------ ---- ---- ----- --------
$ 58 $ 39 $ 3 $ 17 $ 2,022
============ ==== ==== ===== ========
</TABLE>
See notes to financial statements.
37
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
($ AND UNITS IN THOUSANDS, EXCEPT VALUE PER UNIT)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
----------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
-------- -------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).... $ 43 $ 63 $ 131 $ (60) $ 91
Net realized gains (losses)..... 21 144 372 421 1,170
Change in unrealized gains
(losses)....................... 9 260 640 632 600
------ ------ ------ ------ -------
Change in net assets resulting
from operations................ 73 467 1,143 993 1,861
------ ------ ------ ------ -------
FROM CAPITAL TRANSACTIONS
Deposits........................ 314 476 2,069 2,348 2,574
Payments on termination......... (34) (51) (236) (356) (263)
Contract maintenance charges.... (45) (161) (514) (706) (765)
Loans-net....................... 3 (55) (278) (179) (310)
Transfers among the portfolios
and with the Fixed Account--
net............................ 158 1,251 3,112 1,978 7,235
------ ------ ------ ------ -------
Change in net assets resulting
from capital transactions...... 396 1,460 4,153 3,085 8,471
------ ------ ------ ------ -------
INCREASE (DECREASE) IN NET
ASSETS......................... 469 1,927 5,296 4,078 10,332
NET ASSETS AT BEGINNING OF YEAR. 428 1,562 3,794 4,914 6,354
------ ------ ------ ------ -------
NET ASSETS AT END OF YEAR....... $ 897 $3,489 $9,090 $8,992 $16,686
====== ====== ====== ====== =======
Net asset value per unit at end
of year........................ $14.37 $16.90 $18.39 $17.63 $ 19.02
====== ====== ====== ====== =======
Units outstanding at end of
year........................... 62 206 494 510 877
====== ====== ====== ====== =======
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS
IAI RETIREMENT FUNDS, INC. PORTFOLIOS FUND II PORTFOLIOS
- -------------------------------------------------- -----------------------
ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
- --------------------- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C>
$ 73 $ 5 $ 7 $ 278 $ 18
65 (1) 11 254 307
113 -- 24 (1) 373
- -------------------- ------------ ------------ --------- ---------
251 4 42 531 698
- -------------------- ------------ ------------ --------- ---------
537 22 94 617 1,266
(47) -- (39) (73) (178)
(154) (5) (21) (211) (329)
(21) (7) -- (52) (131)
494 74 70 669 4,154
- -------------------- ------------ ------------ --------- ---------
809 84 104 950 4,782
- -------------------- ------------ ------------ --------- ---------
1,060 88 146 1,481 5,480
1,643 111 237 2,404 1,424
- -------------------- ------------ ------------ --------- ---------
$ 2,703 $ 199 $ 383 $ 3,885 $ 6,904
==================== ============ ============ ========= =========
$ 17.51 $ 11.48 $ 14.80 $ 14.49 $ 13.80
==================== ============ ============ ========= =========
154 17 26 268 500
==================== ============ ============ ========= =========
</TABLE>
See notes to financial statements.
39
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
($ AND UNITS IN THOUSANDS, EXCEPT VALUE PER UNIT)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS
FUND PORTFOLIOS
------------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
-------- ------- ------- --------
<S> <C> <C> <C> <C>
FROM OPERATIONS
NET INVESTMENT INCOME (LOSS).............. $ 266 $ 763 $ 224 $ 220
Net realized gains (losses)............... -- 289 712 545
Change in unrealized gains (losses)....... -- 1,539 1,095 (267)
-------- ------- ------- ------
Change in net assets resulting from
operations............................... 266 2,591 2,031 498
-------- ------- ------- ------
FROM CAPITAL TRANSACTIONS
Deposits.................................. 27,467 2,858 3,070 817
Payments on termination................... (108) (397) (410) (120)
Contract maintenance charges.............. (673) (781) (884) (243)
Loans-net................................. (13) (326) (200) (23)
Transfers among the portfolios and with
the Fixed Account--net................... (26,494) 4,335 (413) 1,532
-------- ------- ------- ------
Change in net assets resulting from
capital transactions..................... 179 5,689 1,163 1,963
-------- ------- ------- ------
INCREASE (DECREASE) IN NET ASSETS......... 445 8,280 3,194 2,461
NET ASSETS AT BEGINNING OF YEAR........... 4,724 7,880 9,176 2,793
-------- ------- ------- ------
NET ASSETS AT END OF YEAR................. $ 5,169 $16,160 $12,370 $5,254
======== ======= ======= ======
Net asset value per unit at end of year... $ 11.90 $ 20.08 $ 18.41 $12.84
======== ======= ======= ======
Units outstanding at end of year.......... 434 805 672 409
======== ======= ======= ======
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
SCUDDER
VARIABLE LIFE
FEDERATED INSURANCE SERIES INVESTMENT
PORTFOLIOS FUND PORTFOLIO
- ------------------------------------ --------------
U.S.
HIGH GOVERNMENT
INCOME BOND UTILITY SECURITIES
FUND II FUND II FUND II BOND TOTAL
- ---------------- ------- ---------- -------------- -------
<S> <C> <C> <C> <C>
$ 51 $ 33 $ 7 $ 26 $ 2,239
51 69 4 (1) 4,433
48 166 7 13 5,251
----------- ------ ------ ------ -------
150 268 18 38 11,923
----------- ------ ------ ------ -------
231 248 33 120 45,161
(70) (58) (21) (44) (2,505)
(79) (71) (20) (43) (5,705)
(33) (41) (12) (9) (1,687)
1,314 129 118 35 (249)
----------- ------ ------ ------ -------
1,363 207 98 59 35,015
----------- ------ ------ ------ -------
1,513 475 116 97 46,938
572 891 169 450 49,526
----------- ------ ------ ------ -------
$ 2,085 $1,366 $ 285 $ 547 $96,464
=========== ====== ====== ====== =======
$ 14.67 $16.43 $12.23 $12.23
=========== ====== ====== ======
142 83 23 45
=========== ====== ====== ======
</TABLE>
See notes to financial statements.
41
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
($ AND UNITS IN THOUSANDS, EXCEPT VALUE PER UNIT)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
----------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
-------- -------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).... $ 26 $ 18 $ 45 $ 5 $ 37
Net realized gains (losses)..... (9) 28 160 151 324
Change in unrealized gains
(losses)....................... 13 64 197 (107) 450
------ ------ ------ ------ ------
Change in net assets resulting
from operations................ 30 110 402 49 811
------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits........................ 86 205 719 1,343 1,125
Payments on termination......... -- (6) (17) (18) (26)
Contract maintenance charges.... (23) (65) (215) (348) (316)
Loans--net...................... (28) (69) (38) (56) (81)
Transfers among the portfolios
and with the Fixed Account--
net............................ (98) 1,115 1,690 2,549 3,163
------ ------ ------ ------ ------
Change in net assets resulting
from capital transactions...... (63) 1,180 2,139 3,470 3,865
------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET
ASSETS......................... (33) 1,290 2,541 3,519 4,676
NET ASSETS AT BEGINNING OF YEAR. 461 272 1,253 1,395 1,678
------ ------ ------ ------ ------
NET ASSETS AT END OF YEAR....... $ 428 $1,562 $3,794 $4,914 $6,354
====== ====== ====== ====== ======
Net asset value per unit at end
of year........................ $12.95 $13.94 $15.09 $15.76 $15.68
====== ====== ====== ====== ======
Units outstanding at end of
year........................... 33 112 251 312 405
====== ====== ====== ====== ======
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS
IAI RETIREMENT FUNDS, INC. PORTFOLIOS FUND II PORTFOLIOS
- --------------------------------------------------- -----------------------
ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
- --------------------- ------------ ------------- --------- -----------
<S> <C> <C> <C> <C>
$ 47 $ 5 $ 2 $ 78 $ (4)
62 -- 2 27 41
6 -- 13 143 109
- --------------------- ------------ ------------ --------- ---------
115 5 17 248 146
- --------------------- ------------ ------------ --------- ---------
343 13 51 662 102
(7) (1) (1) (25) --
(105) (4) (15) (162) (29)
(19) (1) -- (33) (19)
677 (31) 115 387 1,224
- --------------------- ------------ ------------ --------- ---------
889 (24) 150 829 1,278
- --------------------- ------------ ------------ --------- ---------
1,004 (19) 167 1,077 1,424
639 130 70 1,327 --
- --------------------- ------------ ------------ --------- ---------
$ 1,643 $ 111 $ 237 $ 2,404 $ 1,424
===================== ============ ============ ========= =========
$ 15.55 $ 11.05 $ 12.78 $ 12.09 $ 11.20
===================== ============ ============ ========= =========
106 10 19 199 127
===================== ============ ============ ========= =========
</TABLE>
See notes to financial statements.
43
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1996
($ AND UNITS IN THOUSANDS, EXCEPT VALUE PER UNIT)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS
FUND PORTFOLIOS
----------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
-------- ------ ------ --------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss)................ $ 155 $ 110 $ 244 $ 26
Net realized gains (losses)................. -- 159 80 19
Change in unrealized gains (losses)......... -- 381 367 206
-------- ------ ------ ------
Change in net assets resulting from
operations................................. 155 650 691 251
-------- ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits.................................... 24,379 1,399 875 413
Payments on termination..................... (36) (75) (68) (40)
Contract maintenance charges................ (522) (385) (545) (162)
Loans--net.................................. (591) (83) (214) (34)
Transfers among the portfolios and with the
Fixed Account--net......................... (21,432) 3,844 4,847 976
-------- ------ ------ ------
Change in net assets resulting from capital
transactions............................... 1,798 4,700 4,895 1,153
-------- ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS........... 1,953 5,350 5,586 1,404
NET ASSETS AT BEGINNING OF YEAR............. 2,771 2,530 3,590 1,389
-------- ------ ------ ------
NET ASSETS AT END OF YEAR................... $ 4,724 $7,880 $9,176 $2,793
======== ====== ====== ======
Net asset value per unit at end of year..... $ 11.36 $15.79 $15.02 $11.59
======== ====== ====== ======
Units outstanding at end of year............ 416 499 611 241
======== ====== ====== ======
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
SCUDDER
VARIABLE LIFE
FEDERATED INSURANCE SERIES INVESTMENT
PORTFOLIOS FUND PORTFOLIO
- ------------------------------------- --------------
U.S.
GOVERNMENT
HIGH INCOME BOND UTILITY SECURITIES
FUND II FUND II FUND II BOND TOTAL
- ---------------- ------- ---------- -------------- -------
<S> <C> <C> <C> <C>
$ 45 $ 24 $ 8 $ 26 $ 897
5 55 (1) (22) 1,081
22 21 1 7 1,893
- ----------- ------ ------ ------ -------
72 100 8 11 3,871
- ----------- ------ ------ ------ -------
96 127 24 84 32,046
(1) (8) (3) -- (332)
(32) (50) (11) (28) (3,017)
(39) (21) (4) (19) (1,349)
7 406 100 234 (227)
- ----------- ------ ------ ------ -------
31 454 106 271 27,121
- ----------- ------ ------ ------ -------
103 554 114 282 30,992
469 337 55 168 18,534
- ----------- ------ ------ ------ -------
$ 572 $ 891 $ 169 $ 450 $49,526
=========== ====== ====== ====== =======
$ 12.98 $13.07 $11.37 $11.29
=========== ====== ====== ======
44 68 15 40
=========== ====== ====== ======
</TABLE>
See notes to financial statements.
45
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
($ AND UNITS IN THOUSANDS, EXCEPT VALUE PER UNIT)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
----------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
-------- -------- ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).... $ 14 $ 3 $ 20 $ 10 $ (2)
Net realized gains (losses)..... 10 6 (26) 21 13
Change in unrealized gains
(losses)....................... 7 38 171 197 244
------ ------ ------ ------ ------
Change in net assets resulting
from operations................ 31 47 165 228 255
------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits........................ 11 56 284 406 388
Payments on termination......... -- (1) (2) (5) (5)
Contract maintenance charges.... (11) (15) (68) (105) (94)
Loans--net...................... -- (2) (7) (32) (47)
Transfers among the portfolios
and with the Fixed Account--
net............................ 389 82 265 775 813
------ ------ ------ ------ ------
Change in net assets resulting
from capital transactions...... 389 120 472 1,039 1,055
------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET
ASSETS......................... 420 167 637 1,267 1,310
NET ASSETS AT BEGINNING OF YEAR. 41 105 616 128 368
------ ------ ------ ------ ------
NET ASSETS AT END OF YEAR....... $ 461 $ 272 $1,253 $1,395 $1,678
====== ====== ====== ====== ======
Net asset value per unit at end
of year........................ $11.95 $12.08 $12.83 $14.70 $12.24
====== ====== ====== ====== ======
Units outstanding at end of
year........................... 39 22 98 95 137
====== ====== ====== ====== ======
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
FIDELITY'S
VARIABLE
INSURANCE
IAI RETIREMENT FUNDS, INC. PRODUCTS
PORTFOLIOS FUND II PORTFOLIO
- ---------------------------------- -----------------
ASSET
REGIONAL RESERVE BALANCED MANAGER
- ---------------- ------- -------- -----------------
<S> <C> <C> <C> <C>
$ (3) $ 3 $ -- $ 2
4 -- 1 9
101 -- 4 138
-------------- ------ ------ ------
102 3 5 149
-------------- ------ ------ ------
131 4 27 400
(3) -- -- (9)
(35) (2) (7) (87)
(8) (23) -- 5
335 129 23 420
-------------- ------ ------ ------
420 108 43 729
-------------- ------ ------ ------
522 111 48 878
117 19 22 449
-------------- ------ ------ ------
$ 639 $ 130 $ 70 $1,327
============== ====== ====== ======
$ 13.99 $10.60 $11.72 $10.63
============== ====== ====== ======
46 12 6 125
============== ====== ====== ======
</TABLE>
See notes to financial statements.
47
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1995
($ AND UNITS IN THOUSANDS, EXCEPT VALUE PER UNIT)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS
FUND PORTFOLIOS
--------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
------ ------ ------ --------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss).................. $ 81 $ 48 $ (9) $ (5)
Net realized gains (losses)................... -- 60 53 28
Change in unrealized gains (losses)........... -- 275 332 57
------ ------ ------ ------
Change in net assets resulting from
operations................................... 81 383 376 80
------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits...................................... 10,496 473 484 210
Payments on termination....................... (6) (3) (12) (1)
Contract maintenance charges.................. (397) (115) (160) (75)
Loans--net.................................... (203) (23) (78) 12
Transfers among the portfolios and with the
Fixed Account--net........................... (8,380) 1,461 2,163 1,101
------ ------ ------ ------
Change in net assets resulting from capital
transactions................................. 1,510 1,793 2,397 1,247
------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS............. 1,591 2,176 2,773 1,327
NET ASSETS AT BEGINNING OF YEAR............... 1,180 354 817 62
------ ------ ------ ------
NET ASSETS AT END OF YEAR..................... $2,771 $2,530 $3,590 $1,389
====== ====== ====== ======
Net asset value per unit at end of year....... $10.85 $13.91 $13.18 $10.31
====== ====== ====== ======
Units outstanding at end of year.............. 255 182 272 135
====== ====== ====== ======
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
SCUDDER
VARIABLE LIFE
FEDERATED INSURANCE SERIES INVESTMENT
PORTFOLIOS FUND PORTFOLIO
- ------------------------------------ --------------
CORPORATE BOND UTILITY GOVERNMENT
FUND FUND BOND FUND BOND TOTAL
- ---------------- ------- ---------- -------------- -------
<S> <C> <C> <C> <C>
$ 28 $ 6 $ 2 $ 6 $ 204
7 -- -- 1 187
23 33 1 10 1,631
- ------------- ------ ------ ------ -------
58 39 3 17 2,022
- ------------- ------ ------ ------ -------
28 78 18 38 13,532
(1) (1) -- -- (49)
(12) (17) (4) (12) (1,216)
-- (1) -- 7 (400)
185 184 (33) 79 (9)
- ------------- ------ ------ ------ -------
200 243 (19) 112 11,858
- ------------- ------ ------ ------ -------
258 282 (16) 129 13,880
211 55 71 39 4,654
- ------------- ------ ------ ------ -------
$ 469 $ 337 $ 55 $ 168 $18,534
============= ====== ====== ====== =======
$ 11.44 $11.80 $10.99 $11.06
============= ====== ====== ======
41 29 5 15
============= ====== ====== ======
</TABLE>
See notes to financial statements.
49
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
1. ORGANIZATION
Lincoln Benefit Life Variable Life Account (the "Account"), a unit investment
trust registered with the Securities and Exchange Commission under the Invest-
ment Company Act of 1940, is a Separate Account of Lincoln Benefit Life Com-
pany ("Lincoln Benefit"). The assets of the Account are legally segregated
from those of Lincoln Benefit. Lincoln Benefit is wholly owned by Allstate
Life Insurance Company, a wholly owned subsidiary of Allstate Insurance Compa-
ny, which is wholly owned by The Allstate Corporation.
Lincoln Benefit writes certain life policies, the proceeds of which are in-
vested at the direction of the policyholder. Policyholders primarily invest in
units of the portfolios comprising the Account, for which they bear all of the
investment risk, but may also invest in the general account of Lincoln Benefit
(the "Fixed Account"). The Fixed Account option is not available in all
states. The Account is divided into 18 subaccounts. Each subaccount invests
solely in the shares of one of the following portfolios: the Flexible Income,
Balanced, Growth, Aggressive Growth, and Worldwide Growth portfolios of Janus
Aspen Series; the Regional, Reserve, and Balanced portfolios of IAI Retirement
Funds, Inc.; the Asset Manager and Contrafund (added May 1,1996) portfolios of
Fidelity's Variable Insurance Products Fund II; the Money Market, Equity In-
come, Growth, and Overseas portfolios of Fidelity's Variable Insurance Prod-
ucts Fund; the High Income Bond Fund II, Utility Fund II, and U.S. Government
Securities Fund II portfolios of Federated Insurance Series; and the Bond
portfolio of Scudder Variable Life Investment Fund (collectively the "Funds").
Effective January 1, 1996, the name of the funds in the Federated Insurance
Series Portfolios were changed from Corporate Bond Fund, Utility Fund, and
Government Bond Fund to High Income Bond Fund II, Utility Fund II and U.S.
Government Securities Fund II, respectively. While certain of the investment
policies of the portfolios have changed, the overall investment strategy of
these funds has remained the same.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Valuation of Investments--Investments consist of shares of the Funds and are
stated at fair value based on quoted market prices.
Recognition of Investment Income--Investment income consists of dividends de-
clared by the Funds and is recognized on the date of record.
Realized Gains and Losses--Realized gains and losses represent the difference
between the proceeds from sales of shares by the Account and the cost of such
shares, which is determined on a weighted average basis.
Policyholder Account Activity--Account activity is reflected in individual
policyholder accounts on a daily basis.
Federal Income Taxes--The Account is intended to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the opera-
tions of the Account are included with and taxed as a part of Lincoln Benefit.
Lincoln Benefit is taxed as a life insurance company under the Code. Under
current law, no federal income taxes are payable by the Account.
Account Value--Certain calculations that could be made in the financial state-
ments may differ from published amounts due to the truncation of actual Ac-
count values.
3. POLICY CHARGES AND DEDUCTIONS
Upon receipt of each premium payment and before allocation to the policy val-
ue, Lincoln Benefit deducts 2.5% of the premium to pay state premium taxes.
This deduction represents an amount Lincoln Benefit considers necessary to pay
all premium taxes imposed by states and their subdivisions.
Lincoln Benefit deducts a contract maintenance charge which is equal to (i)
the cost of insurance for the policy, including riders, plus (ii) a monthly
administration charge of $5. The monthly deduction is intended to compensate
Lincoln Benefit for expenses incurred in connection with the issuance of a
policy, the cost of insurance for the policy, any optional benefits added by
rider and certain administrative expenses.
Lincoln Benefit assumes certain mortality and expense risks related to the op-
erations of the Account and deducts charges daily at a rate equal to .70% per
annum of the daily net assets of the Account. Lincoln Benefit guarantees that
the rate of this charge will not exceed .90%.
50
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
An annual administrative expense charge of .20% of the policy value is as-
sessed on each policy anniversary during the first twelve policy years. This
charge is designed to cover expenses related to the maintenance of the policy
and the Account and other administrative expenses.
Lincoln Benefit may assess other charges to the policyholder related to sur-
renders, partial withdrawals and transfers between the portfolios and/or the
fixed account.
4. FINANCIAL INSTRUMENTS
The investments of the Account are carried at fair value, based on quoted mar-
ket prices.
51
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. UNITS ISSUED AND REDEEMED
Units issued and redeemed by the Account were as follows:
(Units in thousands)
<TABLE>
<CAPTION>
JANUS ASPEN SERIES PORTFOLIOS
------------------------------------------------
FLEXIBLE AGGRESSIVE WORLDWIDE
INCOME BALANCED GROWTH GROWTH GROWTH
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Units Outstanding at January
1, 1995...................... 4 11 62 11 38
Unit Activity during 1995:
Issued...................... 55 22 97 124 141
Redeemed.................... (20) (11) (61) (40) (42)
---- ---- ---- ---- -----
Units Outstanding at December
31, 1995 39 22 98 95 137
Unit Activity during 1996:
Issued...................... 266 131 481 463 546
Redeemed.................... (272) (41) (328) (246) (278)
---- ---- ---- ---- -----
Units Outstanding at December
31, 1996..................... 33 112 251 312 405
Unit Activity during 1997:
Issued...................... 109 245 701 877 1,410
Redeemed.................... (80) (151) (458) (679) (938)
---- ---- ---- ---- -----
Units Outstanding at December
31, 1997..................... 62 206 494 510 877
==== ==== ==== ==== =====
<CAPTION>
FIDELITY'S VARIABLE
IAI RETIREMENT FUNDS, INC. INSURANCE PRODUCTS
PORTFOLIOS FUND II PORTFOLIOS
-------------------------- ---------------------
ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
-------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Units Outstanding at January
1, 1995...................... 11 2 2 49 --
Unit Activity during 1995:
Issued...................... 41 22 6 142 --
Redeemed.................... (6) (12) (2) (66) --
---- ---- ---- ---- -----
Units Outstanding at December
31, 1995 46 12 6 125 --
Unit Activity during 1996:
Issued...................... 188 18 18 139 339
Redeemed.................... (128) (20) (5) (65) (212)
---- ---- ---- ---- -----
Units Outstanding at December
31, 1996..................... 106 10 19 199 127
Unit Activity during 1997:
Issued...................... 105 12 20 329 853
Redeemed.................... (57) (5) (13) (260) (480)
---- ---- ---- ---- -----
Units Outstanding at December
31, 1997..................... 154 17 26 268 500
==== ==== ==== ==== =====
</TABLE>
52
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. UNITS ISSUED AND REDEEMED (CONTINUED)
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND PORTFOLIOS
----------------------------------------------------------------
EQUITY
MONEY MARKET INCOME GROWTH OVERSEAS
-------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Units Outstanding at
January 1, 1995........ 114 34 83 7
Unit Activity during
1995:
Issued................ 1,899 300 440 377
Redeemed.............. (1,758) (152) (251) (249)
------------- ----------- ------------ ------
Units Outstanding at
December 31, 1995...... 255 182 272 135
Unit Activity during
1996:
Issued................ 5,081 611 1,264 421
Redeemed.............. (4,920) (294) (925) (315)
------------- ----------- ------------ ------
Units Outstanding at
December 31, 1996...... 416 499 611 241
Unit Activity during
1997:
Issued................ 8,900 798 647 1,721
Redeemed.............. (8,882) (492) (586) (1,553)
------------- ----------- ------------ ------
Units Outstanding at
December 31, 1997...... 434 805 672 409
============= =========== ============ ======
<CAPTION>
SCUDDER
VARIABLE LIFE
INVESTMENT
FEDERATED INSURANCE SERIES PORTFOLIOS FUND PORTFOLIO
---------------------------------------------- --------------
U.S.
HIGH GOVERNMENT
INCOME BOND UTILITY SECURITIES
FUND II FUND II FUND II BOND
-------------- ----------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Units Outstanding at
January 1, 1995........ 22 6 7 4
Unit Activity during
1995:
Issued................ 61 31 6 28
Redeemed.............. (42) (8) (8) (17)
------------- ----------- ------------ ------ ---
Units Outstanding at
December 31, 1995...... 41 29 5 15
Unit Activity during
1996:
Issued................ 271 161 26 110
Redeemed.............. (268) (122) (16) (85)
------------- ----------- ------------ ------
Units Outstanding at
December 31, 1996...... 44 68 15 40
Unit Activity during
1997:
Issued................ 265 65 30 55
Redeemed.............. (167) (50) (22) (50)
------------- ----------- ------------ ------
Units Outstanding at
December 31, 1997...... 142 83 23 45
============= =========== ============ ======
</TABLE>
53
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Lincoln Benefit Life Company:
We have audited the accompanying consolidated statements of financial position
of Lincoln Benefit Life Company and subsidiary (wholly owned by Allstate Life
Insurance Company) as of December 31, 1997 and 1996, and the related consoli-
dated statements of operations, shareholder's equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our responsi-
bility is to express an opinion on these financial statements based on our au-
dits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lincoln Benefit Life Company and
subsidiary as of December 31, 1997 and 1996, and the results of their opera-
tions and their cash flows for each of the three years in the period ended De-
cember 31, 1997 in conformity with generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying supple-
mental schedule is presented for the purpose of additional analysis and is not
a required part of the basic consolidated financial statements. This schedule
is the responsibility of the Company's management. Such schedule has been sub-
jected to the auditing procedures applied in our audits of the basic consoli-
dated financial statements and, in our opinion, is fairly stated in all mate-
rial respects when considered in relation to the basic consolidated financial
statements taken as a whole.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
March 20, 1998
54
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1996
---------- ----------
($ IN THOUSANDS)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value (amortized cost
$141,553 and $134,866)................................ $ 147,911 $ 137,638
Investment in home office real estate.................. 2,574 2,797
Short-term............................................. 1,020 1,861
---------- ----------
Total investments.................................... 151,505 142,296
Reinsurance recoverable from Allstate Life Insurance
Company................................................. 6,732,755 6,544,750
Reinsurance recoverable from third parties............... 127,182 115,965
Receivable from Allstate Life Insurance Company and
affiliates, net......................................... 14,481 19,923
Cash..................................................... 4,220 7,412
Other assets............................................. 29,402 22,275
Separate Accounts........................................ 447,658 255,881
---------- ----------
Total assets......................................... $7,507,203 $7,108,502
========== ==========
LIABILITIES
Reserve for life-contingent contract benefits............ $ 252,195 $ 239,449
Contractholder funds..................................... 6,607,130 6,422,126
Income taxes payable..................................... 1,128 923
Deferred income taxes.................................... 4,149 3,480
Other liabilities and accrued expenses................... 43,609 44,482
Separate Accounts........................................ 447,658 255,881
---------- ----------
Total liabilities.................................... 7,355,869 6,966,341
---------- ----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 8)
SHAREHOLDER'S EQUITY
Common stock, $100 par value, 30,000 shares authorized,
25,000 issued and outstanding........................... 2,500 2,500
Additional capital paid-in............................... 116,750 116,750
Unrealized net capital gains............................. 4,132 1,801
Retained income.......................................... 27,952 21,110
---------- ----------
Total shareholder's equity........................... 151,334 142,161
---------- ----------
Total liabilities and shareholder's equity........... $7,507,203 $7,108,502
========== ==========
</TABLE>
See notes to consolidated financial statements.
55
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
---------------------
1997 1996 1995
------- ------ ------
($ IN THOUSANDS)
<S> <C> <C> <C>
REVENUES
Net investment income.................................... $10,789 $9,951 $8,796
Realized capital gains and losses........................ 17 6 258
------- ------ ------
10,806 9,957 9,054
COSTS AND EXPENSES
Provision for policy benefits (net of reinsurance
recoveries of $464,154, $419,936 and $375,662).......... -- 465 462
Operating costs and expenses............................. 219 889 754
------- ------ ------
219 1,354 1,216
------- ------ ------
INCOME BEFORE INCOME TAX EXPENSE......................... 10,587 8,603 7,838
INCOME TAX EXPENSE....................................... 3,735 3,020 2,745
------- ------ ------
NET INCOME............................................... $ 6,852 $5,583 $5,093
======= ====== ======
</TABLE>
See notes to consolidated financial statements.
56
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1997 1996 1995
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
COMMON STOCK $ 2,500 $ 2,500 $ 2,500
ADDITIONAL CAPITAL PAID-IN
Balance, beginning of year........................ 116,750 116,750 96,750
Capital contribution.............................. -- -- 20,000
-------- -------- --------
Balance, end of year.............................. 116,750 116,750 116,750
-------- -------- --------
UNREALIZED NET CAPITAL GAINS
Balance, beginning of year........................ 1,801 4,998 (2,630)
Net change........................................ 2,331 (3,197) 7,628
-------- -------- --------
Balance, end of year.............................. 4,132 1,801 4,998
-------- -------- --------
RETAINED INCOME
Balance, beginning of year........................ 21,110 18,060 12,967
Dividend-in-kind.................................. (10) (2,533) --
Net income........................................ 6,852 5,583 5,093
-------- -------- --------
Balance, end of year.............................. 27,952 21,110 18,060
-------- -------- --------
Total shareholder's equity...................... $151,334 $142,161 $142,308
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
57
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
-------- -------- ---------
($ IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................... $ 6,852 $ 5,583 $ 5,093
Adjustments to reconcile net income to net cash
provided by (used in) operating activities.....
Depreciation, amortization and other non-cash
items........................................ 20 50 96
Realized capital gains and losses............. (17) (6) (258)
Increase (decrease) in life-contingent
contract benefits and contractholder funds... 427 (4,918) (130)
Change in deferred income taxes............... (586) (62) (156)
Changes in other operating assets and
liabilities.................................. (4,261) 11,083 (5,940)
-------- -------- ---------
Net cash provided by (used in) operating
activities................................. 2,435 11,730 (1,295)
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sales
Fixed income securities....................... -- -- 5,633
Equity securities............................. -- -- 108,255
Investment collections
Fixed income securities....................... 11,980 8,759 13,769
Investment purchases
Fixed income securities....................... (18,307) (17,570) (34,372)
Equity securities............................. -- -- (108,255)
Real estate................................... (140) (405) (644)
Change in short-term investments, net........... 840 4,489 (2,920)
Change in policy loans, net..................... -- -- 24
-------- -------- ---------
Net cash used in investing activities....... (5,627) (4,727) (18,510)
-------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contribution............................ -- -- 20,000
-------- -------- ---------
Net cash provided by financing activities... -- -- 20,000
-------- -------- ---------
NET (DECREASE) INCREASE IN CASH................. (3,192) 7,003 195
CASH AT BEGINNING OF YEAR....................... 7,412 409 214
-------- -------- ---------
CASH AT END OF YEAR............................. $ 4,220 $ 7,412 $ 409
======== ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activity:
Dividend-in-kind to Allstate Life Insurance
Company...................................... $ (10) $ (2,533) $ --
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
58
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
Basis of presentation
The accompanying consolidated financial statements include the accounts of
Lincoln Benefit Life Company (the "Company") and its wholly owned subsidiary,
Lincoln Benefit Financial Services, Inc. ("LBFS") a registered broker-dealer.
The Company is a wholly owned subsidiary of Allstate Life Insurance Company
("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"), a
wholly owned subsidiary of The Allstate Corporation (the "Corporation"). On
June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed its 80.3% owner-
ship in the Corporation to Sears common shareholders through a tax-free divi-
dend (the "Distribution"). These consolidated financial statements have been
prepared in conformity with generally accepted accounting principles. All sig-
nificant intercompany accounts and transactions have been eliminated.
To conform with the 1997 presentation, certain amounts in the prior years' fi-
nancial statements and notes have been reclassified.
Nature of operations
The Company markets a broad line of life insurance and annuity products coun-
trywide. Life insurance policies include traditional products such as whole
life and term life insurance, as well as variable life, universal life and
other interest-sensitive life products. Annuities include deferred annuities,
such as variable annuities and fixed rate single and flexible premium annui-
ties, and immediate annuities. The Company distributes its products primarily
through independent agents and brokers specializing in life insurance and an-
nuities.
Annuity contracts and life insurance policies issued by the Company are sub-
ject to discretionary withdrawal or surrender by the customers, subject to ap-
plicable surrender charges. These policies and contracts are reinsured primar-
ily with ALIC (see Note 3), which invests premiums and deposits to provide
cash flows that will be used to fund future benefits and expenses. In order to
support competitive crediting rates and limit interest rate risk, ALIC as the
Company's primary reinsurer adheres to a basic philosophy of matching assets
with related liabilities, while maintaining adequate liquidity and a prudent
and diversified level of credit risk.
The Company monitors economic and regulatory developments which have the po-
tential to impact its business. There continues to be new and proposed federal
and state regulation and legislation which would allow banks greater partici-
pation in the securities and insurance businesses, which will present an in-
creased level of competition for sales of the Company's life and annuity prod-
ucts. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
Enacted and pending state legislation to permit mutual insurance companies to
covert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry compe-
tition through consolidation caused by mergers and acquisitions related to the
new corporate form of business; (2) increasing competition in capital markets;
and (3) reopening stock/mutual company disagreements related to such issues as
taxation disparity between mutual and stock insurance companies.
The Company is authorized to sell life and annuity products in all states ex-
cept New York, as well as in the District of Columbia, Guam and the U.S. Vir-
gin Islands. The top geographic locations for statutory premiums earned by the
Company are California, Florida, Illinois, Virginia and Wisconsin for the year
ended December 31, 1997. No other jurisdiction accounted for more than 5% of
statutory premiums and deposits. Substantially all premiums and contract
charges are ceded to ALIC under reinsurance agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments
Fixed income securities include bonds and mortgage-backed securities. All
fixed income securities are carried at fair value and may be sold prior to
their contractual maturity ("available for sale"). The difference between am-
ortized cost and fair value, net of deferred income taxes, is reflected as a
component of shareholder's equity. Provisions are recognized for declines in
the value of fixed income securities that are other than temporary. Such
writedowns are included in realized capital gains and losses.
59
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Short-term investments are carried at cost which approximates fair value. Real
estate represents property owned and occupied by the Company, and is carried
at depreciated cost.
Investment income consists primarily of interest, which is recognized on an
accrual basis. Interest income on mortgaged-backed securities is determined on
the effective yield method, based on the estimated principal repayments. Ac-
crual of income is suspended for fixed income securities that are in default
or when the receipt of interest payments is in doubt. Realized capital gains
and losses are determined on a specific identification basis.
Reinsurance
The Company has reinsurance agreements whereby all premiums, contract charges,
credited interest, policy benefits and certain expenses are primarily ceded to
ALIC and reflected net of such cessions in the statements of operations. The
amounts shown in the Company's statements of operations relate to the consoli-
dated investment of those assets of the Company that are not transferred to
ALIC under reinsurance agreements. Reinsurance recoverable and the related re-
serve for life-contingent contract benefits and contractholder funds are re-
ported separately in the statements of financial position. The Company contin-
ues to have primary liability as the direct insurer for risks reinsured.
Recognition of premium revenues and contract charges
Premiums for traditional life insurance are recognized as revenue when due.
Accident and disability premiums are earned on a pro rata basis over the pol-
icy period. Revenues on interest-sensitive life insurance policies are com-
prised of contract charges and fees, and are recognized when assessed against
the policyholder account balance. Revenues on most annuities, which are con-
sidered investment contracts, include contract charges and fees for contract
administration and surrenders. These revenues are recognized when levied
against the contract balances. Gross premium in excess of the net premium of
limited payment contracts are deferred and recognized over the contract peri-
od.
Income taxes
The income tax provision is calculated under the liability method. Deferred
tax assets and liabilities are recorded based on the difference between the
financial statement and tax bases of assets and liabilities at the enacted tax
rates. Deferred income taxes also arise from unrealized capital gains or
losses on fixed income securities carried at fair value.
Separate Accounts
The Company issues flexible premium deferred variable annuity contracts and
flexible premium variable life policies, the assets and liabilities of which
are legally segregated and reflected in the accompanying consolidated state-
ments of financial position as assets and liabilities of the Separate Ac-
counts. (Lincoln Benefit Life Variable Annuity Account and Lincoln Benefit
Life Variable Life Account, unit investment trusts registered with the Securi-
ties and Exchange Commission.) Assets of the Separate Accounts are carried at
fair value. Investment income and realized capital gains and losses of the
Separate Accounts accrue directly to the policy and contractholders and,
therefore, are not included in the Company's consolidated statements of opera-
tions. Revenues to the Company from the Separate Accounts consist of contract
maintenance fees, administration fees and mortality and expense risk charges,
all of which are ceded to ALIC.
Reserve for life-contingent contract benefits
The reserve for life-contingent contract benefits, which relates to tradi-
tional life, annuities with life contingencies, and disability insurance and
accident insurance, is computed on the basis of assumptions as to future in-
vestment yields, mortality, morbidity, terminations and expenses. These as-
sumptions, which for traditional life are applied using the net level premium
method, include provisions for adverse deviation and generally vary by such
characteristics as type of coverage, year of issue and policy duration. Re-
serve interest rates ranged from 4.0% to 8.75% during 1997.
Contractholder funds
Contractholder funds arise from the issuance of individual or group policies
and contracts that include an investment component, including most annuities
and universal life policies. Payments received are recorded as interest-bear-
ing liabilities. Contractholder funds are equal to deposits received and in-
terest credited to the benefit of the contractholder less withdrawals, mortal-
ity charges and administrative expenses. During 1997, credited interest rates
on contractholder funds
60
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
ranged from 5.0% to 8.75% for those contracts with fixed interest rates and
from 4.0% to 14.0% for those contracts with flexible rates.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
3. RELATED PARTY TRANSACTIONS
Reinsurance
The Company previously reinsured all of its annuities and approximately one
third of its life insurance with ALIC. Effective December 31, 1996, the rein-
surance treaty with ALIC was amended to also include a paid up block of life
business which was previously retained by the Company. The reinsurance premium
related to the transfer was $8,255 on a statutory accounting basis and $5,712
based upon generally accepted accounting principles, creating a dividend-in-
kind of $2,543. The premium is equal to the sum of the aggregate policy re-
serves and policyholder dividend accumulations on this block of business as of
December 31, 1996. The policy loans and accrued interest relating to this
block of business totaled $554 and were also ceded to ALIC as of December 31,
1996, creating a non-cash financing transaction.
Premiums and contract charges ceded to ALIC were $34,834 and $87,061 in 1997,
$48,111 and $73,659 in 1996, and $56,008 and $44,655 in 1995. Credited inter-
est, policy benefits and expenses ceded to ALIC amounted to $533,369, $496,735
and $466,508 in 1997, 1996, and 1995. Investment income earned on the assets
which support contractholder funds is not included in the Company's consoli-
dated financial statements as those assets are owned and managed by ALIC under
the terms of the reinsurance agreements.
Business operations
The Company utilizes services and business facilities owned or leased, and op-
erated by AIC in conducting its business activities. The Company reimburses
AIC for the operating expenses incurred by AIC on behalf of the Company. The
cost to the Company is determined by various allocation methods and is primar-
ily related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Com-
pany were $34,947, $25,094 and $16,083 in 1997, 1996 and 1995, respectively.
All of these costs are ceded to ALIC under reinsurance agreements.
4. INVESTMENTS
Fair values
The amortized cost, gross unrealized gains and losses, and fair value for
fixed income securities are as follows:
<TABLE>
<CAPTION>
GROSS
UNREALIZED
AMORTIZED --------------- FAIR
COST GAINS (LOSSES) VALUE
--------- ------ -------- --------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997
--------------------
U.S. government and agencies............ $ 14,598 $1,760 $ -- $ 16,358
Corporate............................... 71,602 1,839 (297) 73,144
Foreign government...................... 3,040 229 -- 3,269
Mortgage-backed securities.............. 52,313 2,845 (18) 55,140
-------- ------ ------- --------
Total fixed income securities......... $141,553 $6,673 $ (315) $147,911
======== ====== ======= ========
AT DECEMBER 31, 1996
--------------------
U.S. government and agencies............ $ 16,960 $ 780 $ (25) $ 17,715
Corporate............................... 55,778 1,178 (1,274) 55,682
Foreign government...................... 3,048 225 -- 3,273
Mortgage-backed securities.............. 59,080 2,493 (605) 60,968
-------- ------ ------- --------
Total fixed income securities......... $134,866 $4,676 $(1,904) $137,638
======== ====== ======= ========
</TABLE>
61
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Scheduled maturities
The scheduled maturities for fixed income securities at December 31, 1997 are
as follows:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Due in one year or less............................... $ 375 $ 375
Due after one year through five years................. 17,195 17,599
Due after five years through ten years................ 58,369 59,867
Due after ten years................................... 13,301 14,930
-------- --------
89,240 92,771
Mortgage-backed securities............................ 52,313 55,140
-------- --------
Total............................................... $141,553 $147,911
======== ========
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
Net investment income
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
----------------------- ------- ------ ------
<S> <C> <C> <C>
Fixed income securities............................ $10,723 $9,825 $8,710
Short-term investments............................. 160 215 177
Other investments.................................. 66 31 31
------- ------ ------
Investment income, before expense................ 10,949 10,071 8,918
Investment expense............................... 160 120 122
------- ------ ------
Net investment income............................ $10,789 $9,951 $8,796
======= ====== ======
</TABLE>
Realized capital gains
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 1996 1995
----------------------- ---- ---- ----
<S> <C> <C> <C>
Fixed income securities................................... $17 $ 6 $258
Income tax expense...................................... 6 2 90
--- --- ----
Realized capital gains and losses, after tax.............. $11 $ 4 $168
=== === ====
</TABLE>
Gains of $251 were realized on sales of fixed income securities during 1995,
excluding calls and prepayments.
Unrealized net capital gains
Unrealized net capital gains on fixed income securities included in sharehold-
er's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
COST/AMORTIZED FAIR UNREALIZED
COST VALUE NET GAINS
-------------- -------- ----------
<S> <C> <C> <C>
Fixed income securities................ $141,553 $147,911 $6,357
======== ========
Deferred income taxes.................. 2,225
------
Unrealized net capital gains........... $4,132
======
</TABLE>
Change in unrealized net capital gains and losses
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1997 1996 1995
------------------------ ------ ------- -------
<S> <C> <C> <C>
Fixed income securities......................... $3,585 $(4,918) $11,735
Deferred income taxes........................... 1,254 1,721 (4,107)
------ ------- -------
Change in unrealized net capital gains and
losses......................................... $2,331 $(3,197) $ 7,628
====== ======= =======
</TABLE>
62
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Securities on deposit
At December 31, 1997, fixed income securities with a carrying value of $8,581
were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial as-
sets and incurs various financial liabilities. The fair value estimates of fi-
nancial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions. Poten-
tial taxes and other transaction costs have not been considered in estimating
fair value. The disclosures that follow do not reflect the fair value of the
Company as a whole since a number of the Company's significant assets (includ-
ing reinsurance recoverable) and liabilities (including deferred income taxes
and reserve for life-contingent contract benefits) are not considered finan-
cial instruments and are not carried at fair value. Other assets and liabili-
ties considered financial instruments, such as accrued investment income and
cash, are generally of a short-term nature. It is assumed that their carrying
value approximates fair value.
Financial assets
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1997 1996
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Fixed income securities................. $147,911 $147,911 $137,638 $137,638
Short-term investments.................. 1,020 1,020 1,861 1,861
Separate Accounts....................... 447,658 447,658 255,881 255,881
</TABLE>
Fair values for fixed income securities are based on quoted market prices.
Non-quoted securities are valued based on discounted cash flows using current
interest rates for similar securities. Short-term investments are highly liq-
uid investments with maturities of less than one year whose carrying value ap-
proximates fair value. Separate Accounts assets are carried in the consoli-
dated statements of financial position at fair value.
Financial liabilities
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------- ---------------------
CARRYING CARRYING
VALUE FAIR VALUE VALUE FAIR VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts.......... $5,188,474 $4,941,732 $5,180,396 $4,921,842
Separate Accounts.............. 447,658 447,658 255,881 255,881
</TABLE>
The fair value of contractholder funds on investment contracts is based on the
terms of the underlying contracts. Reserves on investment contracts with no
stated maturities (single premium and flexible premium deferred annuities) are
valued at the account balance less surrender charges. The fair value of imme-
diate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates cur-
rently offered for contracts with similar terms and durations. Separate Ac-
counts liabilities are carried at the fair value of the underlying assets.
6. INCOME TAXES
The Company joins the Corporation and its other eligible domestic subsidiaries
in the filing of a consolidated federal income tax return (the "Allstate
Group") and is party to a federal income tax allocation agreement (the "Tax
Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or
received from the Corporation the amount, if any, by which the Allstate
Group's federal income tax liability was affected by virtue of inclusion of
the Company in the consolidated federal income tax return. Effectively, this
results in the Company's annual income tax provision being computed, with ad-
justments, as if the Company filed a separate return.
Prior to the Distribution, the Corporation and all of its eligible domestic
subsidiaries, including the Company, joined with Sears and its domestic busi-
ness units (the "Sears Group") in the filing of a consolidated federal income
tax return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement").
63
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
($ IN THOUSANDS)
Under the Sears Tax Sharing Agreement, the Company, through the Corporation,
paid to or received from the Sears Group the amount, if any, by which the
Sears Tax Group's federal income tax liability was affected by virtue of in-
clusion of the Company in the consolidated federal income tax return. Effec-
tively, this resulted in the Company's annual income tax provision being com-
puted as if the Allstate Group filed a separate consolidated return, except
that items such as net operating losses, capital losses or similar items,
which might not be recognized in a separate return, were allocated according
to the Sears Tax Sharing Agreement.
The Allstate Group and Sears Group have entered into an agreement which gov-
erns their respective rights and obligations with respect to federal income
taxes for all periods prior to the Distribution ("Consolidated Tax Years").
The agreement provides that all Consolidated Tax Years will continue to be
governed by the Tax Sharing Agreement with respect to the Allstate Group's
federal income tax liability.
The components of the deferred income tax assets and liabilities at December
31, are as follow:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Deferred assets
Separate accounts.................................... $ 393 $ --
Deferred liabilities
Difference in tax bases of investments............... (2,265) (2,510)
Unrealized net capital gains......................... (2,225) (970)
Other................................................ (52) --
------- -------
Total deferred tax liabilities......................... (4,542) (3,480)
------- -------
Net deferred tax liability........................... $(4,149) $(3,480)
======= =======
</TABLE>
The components of the income tax expense for the year ended at December 31,
are as follow:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current........................................... $4,321 $3,082 $2,901
Deferred.......................................... (586) (62) (156)
------ ------ ------
Total income tax expense........................ $3,735 $3,020 $2,745
====== ====== ======
</TABLE>
The Company paid income taxes of $4,116, $2,864 and $3,125 in 1997, 1996 and
1995, respectively, to ALIC.
Prior to January 1, 1984, the Company was entitled to exclude certain amounts
from taxable income and accumulate such amounts in a "policyholder surplus"
account. The balance in this account at December 31, 1997, approximately $340
will result in federal income taxes payable of $119 if distributed by the Com-
pany to ALIC. No provision for taxes has been made as the Company has no plan
to distribute amounts from this account. No further additions to the account
have been permitted since the Tax Reform Act of 1984.
7. STATUTORY FINANCIAL INFORMATION
The following tables reconcile net income for the year ended December 31, and
shareholder's equity at December 31, as reported herein in conformity with
generally accepted accounting principles with statutory net income and capital
and surplus, determined in accordance with statutory accounting practices pre-
scribed or permitted by insurance regulatory authorities.
<TABLE>
<CAPTION>
NET INCOME
----------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Balance per generally accounting principles....... $6,852 $5,583 $5,093
Deferred income taxes........................... (586) (62) (156)
Statutory investment reserves................... 36 38 446
Other........................................... 363 2 638
------ ------ ------
Balance per statutory accounting practices........ $6,665 $5,561 $6,021
====== ====== ======
</TABLE>
64
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
($ IN THOUSANDS)
<TABLE>
<CAPTION>
SHAREHOLDER'S
EQUITY
------------------
1997 1996
-------- --------
<S> <C> <C>
Balance per generally accounting principles.......... $151,334 $142,161
Deferred income taxes.............................. 4,149 3,480
Unrealized gain/loss on fixed income securities.... (4,132) (1,801)
Non-admitted assets and statutory investment
reserves.......................................... (15,994) (14,838)
Other.............................................. 3,304 4,034
-------- --------
Balance per statutory accounting practices........... $138,661 $133,036
======== ========
</TABLE>
Permitted statutory accounting practices
The Company prepares its statutory financial statements in accordance with ac-
counting principles and practices prescribed or permitted by the Nebraska De-
partment of Insurance. Prescribed statutory accounting practices include a va-
riety of publications of the National Association of Insurance Commissioners,
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices
not so prescribed. The Company does not follow any permitted statutory ac-
counting practices that have a material effect on statutory surplus or risk-
based capital.
The NAIC has approved revised statutory accounting principles, as a result of
the codification project to be effective January 1, 1999. Dates for adoption
and implementation, however, will be determined on an individual state basis.
The requirements are not expected to have a material impact on the statutory
surplus of the Company.
Dividends
The ability of the Company to pay dividends is dependent on business condi-
tions, income, cash requirements of the Company and other relevant factors.
The payment of shareholder dividends by insurance companies without the prior
approval of the state insurance regulator is limited to formula amounts based
on net income and capital and surplus, determined in accordance with statutory
accounting practices, as well as the timing and amount of dividends paid in
the preceding twelve months. The maximum amount of dividends that the Company
can distribute during 1998 without prior approval of the Nebraska Department
of Insurance is $6,665.
8. LEASE COMMITMENTS
The Company leases certain office facilities. Total rent expense for all
leases was $1,274, $1,039 and $741 in 1997, 1996, and 1995, respectively. Min-
imum rental commitments under non-cancelable operating leases with a remaining
term of more than one year as of December 31, are as follows:
<TABLE>
<CAPTION>
1997
------
<S> <C>
1998....................................... $1,370
1999....................................... 1,170
2000....................................... 1,095
2001....................................... 1,080
2002....................................... 542
Thereafter................................. --
------
$5,257
======
</TABLE>
Included in the table above is $982 for commitments beyond 1998 which relate
to a certain lease for office space. The Company has the option to cancel the
agreement for office space subject to a cancellation charge of an amount equal
to one year's rent.
65
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
SUPPLEMENTAL SCHEDULE--REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED AMOUNT
- ---------------------------- ----------- ----------- -------
<S> <C> <C> <C>
Life insurance in force........................ $72,754,000 $72,754,000 $ --
=========== =========== =======
Premiums and contract charges:
Life and annuities........................... $ 299,838 $ 299,838 $ --
=========== =========== =======
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1996 AMOUNT CEDED AMOUNT
- ---------------------------- ----------- ----------- -------
<S> <C> <C> <C>
Life insurance in force........................ $51,514,000 $51,514,000 $ --
=========== =========== =======
Premiums and contract charges:
Life and annuities........................... $ 200,853 $ 200,853 $ --
=========== =========== =======
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1995 AMOUNT CEDED AMOUNT
- ---------------------------- ----------- ----------- -------
<S> <C> <C> <C>
Life insurance in force........................ $28,215,000 $28,200,000 $15,000
=========== =========== =======
Premiums and contract charges:
Life and annuities........................... $ 128,975 $ 128,975 $ --
=========== =========== =======
</TABLE>
66
<PAGE>
APPENDIX
ILLUSTRATIONS OF SURRENDER VALUES AND DEATH BENEFITS
The following tables illustrate how the Surrender Values and Death Benefits of
a Policy change with the investment experience of the Portfolios. The tables
show the Surrender Values and Death Benefits of a Policy issued to an Insured
of a given age and underwriting risk classification who pays the specified an-
nual premium would vary over time if the investments return on the assets held
in the underlying Portfolio(s) was a uniform, gross after-tax annual rate of
0%, 6%, or 12%. The tables on pages A-2 through A-5 illustrate a Policy issued
to a male, age 45, $150,000 face amount, under a preferred nonsmoker risk
classification and Death Benefit Option 1.
The illustrations on pages A-2 and A-3 assume annual payment of $1,883, which
is the Safety Net Premium (see Monthly Guarantee Premiums, page 9). Payment of
this premium each year would guarantee death benefit coverage to age 65, re-
gardless of investment performance, assuming no loans or withdrawals are tak-
en.
The illustrations on page A-2 assume current charges and cost of insurance
rates, while the illustrations on page A-3 assume maximum guaranteed charges
and cost of insurance rates (based on the 1980 Commissioners Standard Ordinary
Mortality Table).
The illustrations on page A-4 and A-5 assume annual payment of $2,935, which
is the Lifetime Guarantee Premium (see "Monthly Guarantee Premiums," page 9).
Payment of this premium each year would guarantee death benefit coverage for
the Insured's lifetime, regardless of investment performance, assuming no
loans or withdrawals are taken. The illustrations on page A-4 assume current
charges and cost of insurance rates, while the illustrations on page A-5 as-
sume maximum guaranteed charges and cost of insurance rates (based on the 1980
Commissioners Standard Ordinary Mortality Table).
The amounts shown for the Death Benefit, Policy Value and Surrender Value re-
flect the fact that the net investment return of the Subaccounts is lower than
the gross, after-tax return on the assets held in the Portfolios as a result
of expenses paid by the Portfolios and charges levied against the Subaccounts.
The values shown take into account the average daily investment advisory fees
paid by the Portfolios, which is equivalent to an average annual rate of .35%
of the average daily net assets of the Funds, and the average of other daily
Portfolio expenses, which is equivalent to an average annual rate of .40% of
the average daily net assets of the Funds. Also reflected is our daily charge
to each Subaccount for assuming mortality and expense risks. The current
charge is an annual rate of .70% of the average net assets of the Subaccounts.
The mortality and expense risk charge is guaranteed never to exceed .90% of
the average net assets. The illustrations also reflect the deduction from pre-
mium payments for premium taxes, the monthly administrative fee of $5, and,
for the first twelve policy years, the annual administrative charge of 0.2% of
Policy value. After deduction of these amounts, the illustrated gross annual
investment rates of return of 0%, 6%, and 12%, "Assuming Current Costs" corre-
spond to approximate net annual rates of -1.46%, 4.54%, and 10.54%, respec-
tively. The illustrated gross annual investment rates of return of 0%, 6%, and
12%, "Assuming Guaranteed Costs" correspond to approximate net annual rates of
return of -1.66%, 4.34% and 10.34%, respectively.
The hypothetical values shown in the tables do not reflect any charges for
Federal income taxes against the Separate Account, since we are not currently
making this charge. However, this charge may be made in the future and, in
that event, the gross annual investment rate of return would have to exceed
0%, 6%, and 12% by an amount sufficient to cover the tax charge in order to
produce the Death Benefits, Policy Values and Surrender Values illustrated
(see "Federal Tax Matters," page 18).
The tables illustrate the Policy Values, Surrender Values and Death Benefits
that would result based upon the hypothetical investment rates of return if
premiums are paid as indicated, if all net premiums are allocated to the Sepa-
rate Account, and if no Policy loans are taken. The tables also assume that
you have not requested an increase or decrease in the face amount of the Pol-
icy and that no partial surrenders or transfers have been made.
Upon request, we will provide a comparable illustration based upon the pro-
posed Insured's actual age, sex and underwriting classification, the face
amount, death benefit option, the proposed amount and frequency of premium
payments and any available riders requested.
A-1
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
Male issue age 45
Face Amount Preferred Non-
$150,000 Smoker Class
Annual Premium Death Benefit
$1,883 Option 1
Current Cost of Insurance Rates
<TABLE>
<CAPTION>
DEATH BENEFIT
Assuming Hypothetical Gross and
Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross
Year -1.46% Net 4.54% Net 10.54% Net
<S> <C> <C> <C>
1 150,000 150,000 150,000
2 150,000 150,000 150,000
3 150,000 150,000 150,000
4 150,000 150,000 150,000
5 150,000 150,000 150,000
6 150,000 150,000 150,000
7 150,000 150,000 150,000
8 150,000 150,000 150,000
9 150,000 150,000 150,000
10 150,000 150,000 150,000
15 150,000 150,000 150,000
20 (age 65) 150,000 150,000 187,424
30 (age 75) 150,000 150,000 255,483
40 (age 85) * 150,000 699,401
54 (age 99) * * 2,655,579
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE SURRENDER VALUE
Assuming Hypothetical Gross
and Net Annual Investment Assuming Hypothetical Gross and
Return of Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year -1.46% Net 4.54% Net 10.54% Net -1.46% Net 4.54% Net 10.54% Net
<S> <C> <C> <C> <C> <C> <C>
1 1,288 1,381 1,474 0 66 159
2 2,525 2,792 3,070 986 1,253 1,532
3 3,716 4,239 4,807 2,177 2,700 3,268
4 4,862 5,723 6,697 3,323 4,184 5,158
5 5,961 7,244 8,756 4,422 5,705 7,217
6 7,020 8,811 11,011 5,558 7,349 9,549
7 8,021 10,407 13,462 6,636 9,022 12,077
8 8,970 12,039 16,137 7,739 10,808 14,906
9 9,851 13,693 19,046 8,774 12,616 17,969
10 10,663 15,369 22,214 9,894 14,599 21,445
15 14,216 24,716 43,819 14,216 24,716 43,819
20 (age 65) 16,037 35,225 79,452 16,037 35,225 79,452
30 (age 75) 4,899 53,130 238,769 4,899 53,130 238,769
40 (age 85) * 48,608 666,097 * 48,608 666,097
54 (age 99) * * 2,655,579 * * 2,655,579
</TABLE>
Assumes the premium shown is paid at the beginning of each policy year. Values
would be different if premiums are paid with a different frequency or in dif-
ferent amounts.
Assumes that no policy loans or withdrawals have been made. An * indicates
lapse in the absence of additional premium payment.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual investment rates of return
may be more or less than those shown and will depend on a number of different
factors, including the investment allocations by the owner and different in-
vestment rates of return for the portfolios. The death benefit, policy value,
and surrender value for a policy would be different from those shown if the
actual investment rates of return averaged the rates shown above over a period
of years, but fluctuated above or below those averages for individual policy
years. No representation can be made by the company or the fund that this as-
sumed investment rate of return can be achieved for any one year or sustained
over a period of time.
A-2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
Male issue age 45
Face Amount $150,000 Preferred Non-Smoker Class
Annual Premium $1,883 Death Benefit Option 1
Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
DEATH BENEFIT
Assuming Hypothetical Gross and
Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross
Year -1.66% Net 4.34% Net 10.34% Net
<S> <C> <C> <C>
1 150,000 150,000 150,000
2 150,000 150,000 150,000
3 150,000 150,000 150,000
4 150,000 150,000 150,000
5 150,000 150,000 150,000
6 150,000 150,000 150,000
7 150,000 150,000 150,000
8 150,000 150,000 150,000
9 150,000 150,000 150,000
10 150,000 150,000 150,000
15 150,000 150,000 150,000
20 (age 65) 150,000 150,000 150,000
30 (age 75) * * 183,785
40 (age 85) * * 492,050
54 (age 99) * * 1,765,928
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE SURRENDER VALUE
Assuming Hypothetical Gross and Assuming Hypothetical Gross and
Net Annual Investment Return of Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year -1.66% Net 4.34% Net 10.34% Net -1.66% Net 4.34% Net 10.34% Net
<S> <C> <C> <C> <C> <C> <C>
1 1,238 1,329 1,421 0 14 106
2 2,416 2,676 2,949 877 1,138 1,410
3 3,533 4,040 4,591 1,994 2,501 3,052
4 4,587 5,417 6,357 3,048 3,878 4,818
5 5,575 6,804 8,257 4,036 5,265 6,718
6 6,491 8,197 10,298 5,029 6,735 8,836
7 7,328 9,587 12,489 5,943 8,202 11,104
8 8,079 10,966 14,839 6,848 9,735 13,608
9 8,735 12,325 17,356 7,658 11,247 16,279
10 9,287 13,653 20,051 8,518 12,883 19,282
15 10,262 19,601 37,002 10,262 19,601 37,002
20 (age 65) 6,823 22,789 62,115 6,823 22,789 62,115
30 (age 75) * * 171,762 * * 171,762
40 (age 85) * * 468,619 * * 468,619
54 (age 99) * * 1,765,928 * * 1,765,928
</TABLE>
Assumes the premium shown is paid at the beginning of each policy year. Values
would be different if premiums are paid with a different frequency or in dif-
ferent amounts.
Assumes that no policy loans or withdrawals have been made. An * indicates
lapse in the absence of additional premium payment.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual investment rates of return
may be more or less than those shown and will depend on a number of different
factors, including the investment allocations by the owner and different in-
vestment rates of return for the portfolios. The death benefit, policy value,
and surrender value for a policy would be different from those shown if the
actual investment rates of return averaged the rates shown above over a period
of years, but fluctuated above or below those averages for individual policy
years. No representation can be made by the company or the fund that this as-
sumed investment rate of return can be achieved for any one year or sustained
over a period of time.
A-3
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
Male issue age 45
Face Amount Preferred Non-
$150,000 Smoker Class
Annual Premium Death Benefit
$2,935 Option 1
Current Cost of Insurance Rates
<TABLE>
<CAPTION>
DEATH BENEFIT
Assuming Hypothetical Gross and
Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross
Year -1.46% Net 4.54% Net 10.54% Net
<S> <C> <C> <C>
1 150,000 150,000 150,000
2 150,000 150,000 150,000
3 150,000 150,000 150,000
4 150,000 150,000 150,000
5 150,000 150,000 150,000
6 150,000 150,000 150,000
7 150,000 150,000 150,000
8 150,000 150,000 150,000
9 150,000 150,000 150,000
10 150,000 150,000 150,000
15 150,000 150,000 150,000
20 (age 65) 150,000 150,000 187,424
30 (age 75) 150,000 150,000 489,523
40 (age 85) 150,000 256,047 1,328,829
54 (age 99) 150,000 490,347 5,027,345
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE SURRENDER VALUE
Assuming Hypothetical Gross and Assuming Hypothetical Gross and
Net Annual Investment Return of Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year -1.46% Net 4.54% Net 10.54% Net -1.46% Net 4.54% Net 10.54% Net
<S> <C> <C> <C> <C> <C> <C>
1 2,299 2,454 2,609 760 915 1,070
2 4,534 4,988 5,461 2,995 3,449 3,922
3 6,711 7,612 8,589 5,173 6,073 7,050
4 8,831 10,329 12,020 7,292 8,790 10,482
5 10,892 13,143 15,788 9,353 11,604 14,249
6 12,902 16,065 19,936 11,440 14,603 18,474
7 14,845 19,084 24,489 13,460 17,700 23,104
8 16,726 22,211 29,498 15,495 20,980 28,266
9 18,532 25,436 34,999 17,455 24,359 33,922
10 20,262 28,765 41,050 19,493 27,995 40,280
15 28,378 47,887 82,903 28,378 47,887 82,903
20 (age 65) 34,832 71,499 153,626 34,832 71,499 153,626
30 (age 75) 35,357 137,033 457,498 35,357 137,033 457,498
40 (age 85) * 243,855 1,265,551 * 243,855 1,265,551
54 (age 99) * 490,347 5,027,345 * 490,347 5,027,345
</TABLE>
Assumes the premium shown is paid at the beginning of each policy year. Values
would be different if premiums are paid with a different frequency or in dif-
ferent amounts.
Assumes that no policy loans or withdrawals have been made. An * indicates
lapse in the absence of additional premium payment.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual investment rates of return
may be more or less than those shown and will depend on a number of different
factors, including the investment allocations by the owner and different in-
vestment rates of return for the portfolios. The death benefit, policy value,
and surrender value for a policy would be different from those shown if the
actual investment rates of return averaged the rates shown above over a period
of years, but fluctuated above or below those averages for individual policy
years. No representation can be made by the company or the fund that this as-
sumed investment rate of return can be achieved for any one year or sustained
over a period of time.
A-4
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
Face Amount Male issue age 45
$150,000 Preferred Non-
Annual Premium Smoker Class
$2,935 Death Benefit
Option 1
Guaranteed Cost of Insurance Rates
<TABLE>
<CAPTION>
DEATH BENEFIT
Assuming Hypothetical Gross and
Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross
Year -1.66% Net 4.34% Net 10.34% Net
<S> <C> <C> <C>
1 150,000 150,000 150,000
2 150,000 150,000 150,000
3 150,000 150,000 150,000
4 150,000 150,000 150,000
5 150,000 150,000 150,000
6 150,000 150,000 150,000
7 150,000 150,000 150,000
8 150,000 150,000 150,000
9 150,000 150,000 150,000
10 150,000 150,000 150,000
15 150,000 150,000 150,000
20 (age 65) 150,000 150,000 169,602
30 (age 75) 150,000 150,000 431,175
40 (age 85) 150,000 164,900 1,129,548
54 (age 99) 150,000 315,169 4,015,005
</TABLE>
<TABLE>
<CAPTION>
POLICY VALUE SURRENDER VALUE
Assuming Hypothetical Gross
and Net Annual Investment Assuming Hypothetical Gross and
Return of Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross 0% Gross 6% Gross 12% Gross
Year -1.66% Net 4.34% Net 10.34% Net -1.66% Net 4.34% Net 10.34% Net
<S> <C> <C> <C> <C> <C> <C>
1 2,247 2,401 2,554 709 862 1,015
2 4,421 4,868 5,334 2,882 3,329 3,795
3 6,519 7,403 8,362 4,980 5,864 6,823
4 8,541 10,006 11,662 7,002 8,467 10,123
5 10,484 12,679 15,260 8,945 11,140 13,721
6 12,345 15,418 19,185 10,883 13,957 17,723
7 14,118 18,223 23,466 12,733 16,838 22,081
8 15,797 21,089 28,137 14,566 19,858 26,906
9 17,373 24,011 33,235 16,296 22,934 32,158
10 18,842 26,989 38,806 18,073 26,220 38,036
15 24,494 42,894 76,309 24,494 42,894 76,309
20 (age 65) 26,174 60,225 139,018 26,174 60,225 139,018
30 (age 75) 3,130 98,104 402,967 3,130 98,104 402,967
40 (age 85) * 157,048 1,075,760 * 157,048 1,075,760
54 (age 99) * 315,169 4,015,005 * 315,169 4,015,005
</TABLE>
Assumes the premium shown is paid at the beginning of each policy year. Values
would be different if premiums are paid with a different frequency or in dif-
ferent amounts.
Assumes that no policy loans or withdrawals have been made. An * indicates
lapse in the absence of additional premium payment.
The hypothetical investment rates of return shown above and elsewhere in this
prospectus are illustrative only and should not be deemed a representation of
past or future investment rates of return. Actual investment rates of return
may be more or less than those shown and will depend on a number of different
factors, including the investment allocations by the owner and different in-
vestment rates of return for the portfolios. The death benefit, policy value,
and surrender value for a policy would be different from those shown if the
actual investment rates of return averaged the rates shown above over a period
of years, but fluctuated above or below those averages for individual policy
years. No representation can be made by the company or the fund that this as-
sumed investment rate of return can be achieved for any one year or sustained
over a period of time.
A-5
<PAGE>
PART II
CONTENTS OF THIS REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
Facing Page
Cross Reference Sheet required by Rule 404(c)
A Prospectus consisting of 66 pages relating to the Flexible Premium
Variable Life Insurance Policies
Undertaking to File Reports
Indemnification Undertaking
Representation Relating to Rule 6e-3(T)
Section 26(e) Representation
Signature Page
Exhibits
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
INDEMNIFICATION UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officer and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
REPRESENTATION RELATING TO RULE 6e-3(T)
This filing is made pursuant to 6e-3(T) under the Investment Company Act
of 1940.
SECTION 26(e) REPRESENTATION
Lincoln Benefit Life hereby represents that, as to the variable universal
life insurance policies which are the subject of this Registration Statement,
File No. 33-67386, the fees and charges deducted under the policy, in the
aggregate are reasonable in relation to the services rendered, the expenses
expected to be incurred and the risk assumed by Lincoln Benefit Life.
A
<PAGE>
EXHIBITS
--------
<TABLE>
<CAPTION>
<C> <S> <C>
(1) Resolution of the Board of Directors of
Lincoln Benefit Life Company authorizing
establishment of Registrant.............................................. *
(2) Custodian Agreement...................................................... Not Applicable
(3) (a) Form of Underwriting Agreement....................................... *
(b) Form of Dealer Agreement............................................. *
(c) Schedule of Sales Commissions........................................ Herewith
(4) Other Agreements......................................................... Not Applicable
(5) Flexible Premium Policy.................................................. Herewith
(6) (a) Articles of Incorporation of
Lincoln Benefit Life Company......................................... *
(b) By-Laws of Lincoln Benefit Life Company.............................. *
(7) Insurance Company Blanket Bond........................................... *
(8) Fund Participation Agreements:
(a) Janus Aspen Series................................................... *
(b) Fidelity Variable Insurance Products Fund I.......................... *
(c) Fidelity Variable Insurance Products Fund II......................... *
(d) Scudder Variable Life Investment Fund................................ *
(e) Federated Insurance Management Series................................ *
(f) Investment Advisers Inc.............................................. Herewith
(9) Other Material Contracts................................................. Not Applicable
(10) Application Form......................................................... * and **
(11) Consent of Independent Auditors.......................................... Herewith
(12) Opinion and Consent of Counsel........................................... Herewith
(13) Actuarial Opinion and Consent............................................ Herewith
(14) Actuarial basis of payment and cash
value adjustment pursuant to
Rule 6e-3(T)(b)(13)(v)(B)................................................ Herewith
(15) Procedures Memorandum pursuant to
Rule 6e-3(T)(b)(12)(ii).................................................. Herewith
(16) Powers of Attorney....................................................... Not Applicable
(27) Financial Data Schedules................................................. Not Applicable
</TABLE>
* Registration Statement on Form S-6 for Lincoln Benefit Life Variable Life
Account, File No. 333-47717, filed March 11, 1998
** Post-Effective Amendment #8 to Registration Statement on Form S-6 for
Lincoln Benefit Life Account, File No. 333-47717, filed April 30, 1997.
B
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets the requirements of Securities Act
Rule 485(b) for effectiveness of this Post-Effective Amendment to the
Registration Statement and has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf, in the City of Lincoln, and
the State of Nebraska, on this 24th day of April, 1998.
LINCOLN BENEFIT LIFE VARIABLE
LIFE ACCOUNT
(Registrant)
By: LINCOLN BENEFIT LIFE COMPANY
(Depositor)
By: /s/B. Eugene Wraith
---------------------------
B. Eugene Wraith, President
and Chief Operating Officer
As required by the Securities Act of 1933, this Post-Effective Amendment to
the Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
--------- ----- ----
/s/B. Eugene Wraith President, Chief Operating April 24, 1998
- ---------------------- Officer and Director --------------
B. Eugene Wraith (Principal Executive Officer)
/s/Robert E. Rich Executive Vice President April 24, 1998
- ---------------------- and Director --------------
Robert E. Rich
/s/Randy J. Von Fumetti Senior Vice President, April 24, 1998
- ----------------------- Treasurer and Director --------------
Randy J. Von Fumetti (Principal Financial Officer)
/s/Janet P. Anderbery Vice President and April 24, 1998
- ---------------------- Controller (Principal --------------
Janet P. Anderbery Accounting Officer)
Vice Chairman of the Board
- ---------------------- --------------
Peter H. Heckman
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
- --------------------- Director ------------------
Louis G. Lower, II
/s/John J. Morris Director April 24, 1998
- --------------------- ------------------
John J. Morris
/s/Douglas F. Gaer Director April 24, 1998
- --------------------- ------------------
Douglas F. Gaer
- --------------------- Director ------------------
Kevin Slawin
- --------------------- Director ------------------
Michael J. Velotta
/s/Carol S. Watson Director April 24, 1998
- --------------------- ------------------
Carol S. Watson
- --------------------- Director ------------------
Patricia W. Wilson
</TABLE>
<PAGE>
INDEX TO EXHIBITS
FOR
REGISTRATION STATEMENT ON FORM S-6
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
EXHIBIT NO. SEQUENTIAL PAGE NO.
- ----------- -------------------
(3)(c) Schedule of Commissions
(5) Flexible Premium Policy
(8)(f) IAI Participation Agreement
(11) Consent of Independent Auditors
(12) Opinion and Consent of Counsel
(13) Actuarial Opinion and Consent
(14) Actuarial basis of payment and cash
value adjustment pursuant to Rule
6e-3(T)(b)(13)(V)(B)
(15) Procedures Memorandum pursuant to
6e-3(T)(b)(12)(ii)
<PAGE>
EXHIBIT NO. 3(c)
Schedule of Commissions
Subject to terms and conditions of the BD's Agreement, the BD shall be
compensated according to the following schedule of the policy forms shown. The
payment of commissions is subject to the rules and practices of LBL and LBFS.
COMMISSIONS
(a) All premium paid into the policy will be credited to the first year target
premium until the full first year target premium has been paid. Any excess
first year premium and all renewal premium will be commissioned as stated
in the table.
(b) Increase in face amount after issue will not result in an increase in
target premium for commission purposes.
(c) If a term plan is exchanged for a variable universal life policy, full
first year commissions will be paid on the premium actually paid by the
policy owner. No commission will be payable on premiums which are paid by
applying a premium exchange allowance.
(d) No first year commission will paid on any additional target premium
resulting from a temporary substandard extra premium.
(e) During the first ten policy years the amounts generated by the above rules
will be considered commissions. Thereafter all such amounts are to be
considered service fees.
(f) If the withdrawal charges are waived by the COMPANY when an existing policy
value is rolled over to a new policy, commissions on the new policy will be
reduced by the amount of waived withdrawal charge. The COMPANY'S procedures
determine if and when withdrawal charges are waived.
(g) Renewal commissions will not be paid on premiums paid under a continuation
of premium rider.
(h) Additional policies and supplements which may be developed by the COMPANY
from time to time may be added to the Schedule of Life Commissions by
addendum and shall be subject to the same conditions as are set forth in
this agreement.
<PAGE>
EXHIBIT NO. 5
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
INSURED: [JOHN DOE]
PAYMENT CLASS: [STANDARD NON-SMOKER]
POLICY NUMBER: [SPECIMEN] ISSUE AGE: [35]
FACT AMOUNT: [$100,000] ISSUE DATE: [08/01/1993]
THIS IS A LEGAL CONTRACT -- READ IT CAREFULLY
LINCOLN BENEFIT LIFE COMPANY promises to pay the death benefit to the
beneficiary on death of the insured upon receipt of the due proof of death of
the insured.
PLEASE EXAMINE THE APPLICATION. We issued this contract based upon the answers
in the application (copy included). If all answers are not complete and true,
the contract may be affected.
RIGHT TO CANCEL YOUR POLICY. You may cancel this contract by returning it to
Lincoln Benefit Life Company, PO Box 82532, Lincoln, NE 68501-2532, before
midnight of the 10th day after the date you receive the policy. Return of the
contract by mail is effective on being postmarked, properly addressed and
postage prepaid. We will refund the net policy value as of the date of
surrender, plus any charges and monthly deductions previously made. READ YOUR
CONTRACT CAREFULLY.
Executed for the Company at its home office in Lincoln, Nebraska on its issue
date.
/s/ John J. Morris /s/ Fred H. Jonske
Vice President and Secretary President
LINCOLN BENEFIT LIFE COMPANY
Lincoln Benefit Life Centre
Lincoln, NE 68501
A Legal Reserve Stock Life Insurance Company
FLEXIBLE PREMIUM VARIABLE LIFE POLICY
Minimum Premium Required in the First Year
Death Benefit Payable on the Insured's Death
Flexible Premiums Payable for Life
Amount of Death Benefit or Surrender Value may vary,
reflecting investment experience of the Separate Account
Nonparticipating
Page 1
<PAGE>
SUMMARY OF POLICY
This policy insures the life of the insured. If the insured dies while this
policy is in force, the death benefit will be paid to the beneficiary.
Payments for this policy are flexible. They may be made during the lifetime of
the insured.
During the lifetime of the insured, you may:
...change the planned payments and time between payments;
...obtain policy loans;
...change the beneficiary;
...change the death benefit option;
...surrender the policy for its net surrender value;
...exercise the other rights provided.
This is only a summary of the policy terms. The detailed provisions of this
policy will control. The provisions of your policy are set forth in the
following sections.
Policy Data.................Page 3 Policy Value......................Page 10
Definitions.................Page 6 Surrender Value...................Page 11
Death Benefit...............Page 7 Loans.............................Page 12
Beneficiary.................Page 8 Other Terms of Your Policy........Page 13
Ownership...................Page 9 Application.......................Insert
Premium Payment.............Page 9 Benefit Riders (if any)...........Insert
READ YOUR POLICY CAREFULLY
VUL 9390 Page 2
<PAGE>
[POLICY DATA]
INSURED: [JOHN DOE]
PAYMENT CLASS: [STANDARD NON-SMOKER]
POLICY NUMBER: [SPECIMEN] ISSUE AGE: [35]
FACE AMOUNT: [$100,000] ISSUE DATE: [08/01/1993]
MONTHLY DEDUCTION DAY 01
B E N E F I T D E S C R I P T I O N
YEAR OF EXPIRY
OR MATURITY
FLEXIBLE PREMIUM VARIABLE LIFE LIFE
INSURANCE - [DEATH BENEFIT OPTION 1]
PAYMENT INFORMATION
REQUIRED PAYMENT [786]
PLANNED ANNUAL PAYMENT [786]
INITIAL PAYMENT [786]
THE PAYMENT OF A [MONTHLY SAFETY NET/LIFETIME GUARANTEE]
PREMIUM OF [$65.50] IS GUARANTEED TO KEEP THIS POLICY IN FORCE
FOR [30] YEARS, ASSUMING NO LOANS OR WITHDRAWALS ARE TAKEN.
SEE [SAFETY NET/LIFETIME GUARANTEE] PREMIUM PROVISION ON PAGE 10 FOR
DETAILS.
SEPARATE ACCOUNT: LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
SUBACCOUNT ALLOCATION %
---------- ------------
[JANUS WORLDWIDE SUBACCOUNT] [20]
[FIDELITY VIPFII ASSET MANAGER SUBACCOUNT] [80]
VUL 9390 Page 3
<PAGE>
SURRENDER CHARGE SCHEDULE
SURRENDER CHARGES FOR INITIAL FACE AMOUNT
THE FOLLOWING REPRESENTS THE MAXIMUM SURRENDER CHARGES WHICH MAY BE
ASSESSED AGAINST YOUR POLICY, ASSUMING NO ELECTIVE INCREASES IN FACE
AMOUNT.
POLICY AMOUNT OF POLICY AMOUNT OF
YEAR CHARGE YEAR CHARGE
------ --------- ------ ---------
1 $[632] 9 $[442]
2 [632] 10 [316]
3 [632] 11 [253]
4 [632] 12 [126]
5 [632] 13 on [-0-]
6 [600]
7 [569]
8 [506]
TABLE TO CALCULATE SURRENDER CHARGES
FOR ELECTIVE INCREASES IN FACE AMOUNT
<TABLE>
<CAPTION>
Increase Per $1000 Increase Per $1000
Age of Increase Age of Increase
------ ----------- -------- -----------
<S> <C> <C> <C>
0-25 1.45 35 3.08
26 1.60 36 3.27
27 1.75 37 3.46
28 1.90 38 3.65
29 2.05 39 3.85
30 2.20 40 4.04
31 2.35 41 4.23
32 2.50 42 4.42
33 2.69 43 4.62
34 2.88 44 4.81
45 and above 5.00
</TABLE>
SURRENDER PERCENTAGES
INCREASE YEAR
1 2 3 4 5 6 7 8 9 10 11 12 13 on
- - - - - - - - - -- -- -- -----
% 100 100 100 100 100 95 90 80 70 50 40 20 -0-
VUL 9390 Page 4
<PAGE>
GUARANTEED MONTHLY COST OF INSURANCE
<TABLE>
<CAPTION>
POLICY RATE POLICY RATE
YEAR PER $1,000 YEAR PER $1,000
------ ---------- ------ ----------
<S> <C> <C> <C>
1 0.14 34 2.49
2 0.15 35 2.74
3 0.16 36 3.03
4 0.17 37 3.36
5 0.18 38 3.74
6 0.19 39 4.17
7 0.21 40 4.64
8 0.22 41 5.15
9 0.24 42 5.68
10 0.26 43 6.24
11 0.28 44 6.82
12 0.31 45 7.46
13 0.33 46 8.15
14 0.36 47 8.93
15 0.39 48 9.81
16 0.42 49 10.79
17 0.46 50 11.84
18 0.51 51 12.95
19 0.56 52 14.09
20 0.62 53 15.26
21 0.68 54 16.44
22 0.75 55 17.65
23 0.82 56 18.92
24 0.91 57 20.26
25 1.00 58 21.73
26 1.10 59 23.47
27 1.22 60 25.81
28 1.35 61 29.32
29 1.50 62 35.08
30 1.67 63 45.08
31 1.85 64 62.09
32 2.05
33 2.26
</TABLE>
VUL 9390 Page 5
<PAGE>
Definitions
When these words are used in this contract, they have the meaning stated:
"app"
The application which you completed requesting this policy.
"beneficiary(ies)"
The person(s) designated to receive any death benefit under the policy.
"benefit rider"
An addition benefit we are providing
"Company ("we", "us", "our", "Lincoln Benefit Life")"
Our company, Lincoln benefit Life Company.
"death benefit"
the amount payable to the beneficiary under the policy upon the death of the
insured.
"face amount"
The initial death benefit, shown on page 3, adjusted for any increases or
decreases made after the issue date.
"fund"
A series mutual fund.
"increase age"
The age of the insured as of the effective date of an increase in base amount,
determined by the insured's last birthday.
"increase year"
A twelve month period beginning on an anniversary of the effective date of an
increase in base amount.
"insured"
The person upon whose life is covered by this policy.
"issue age"
The age of the insured at the time this policy issued (issue date) determined by
the insured's last birthday.
"issue date"
The date the policy is issued, as shown on Page 3. It is used to determine
policy years and policy months in the policy.
"lapse determination value"
The value that must be available to pay a monthly deduction in order for the
policy to remain in force. This is the policy value if no loans are on the
policy; and the net surrender value if the policy has outstanding loans.
"monthly-automatic payment"
A method of making payments each month automatically; for example, by bank draft
or salary deduction.
"monthly deduction day"
The same day in each month as the issue date. The day of the month on which
deductions are made. This day is shown on page 3.
"net death benefit"
The death benefit less any policy debt.
"net investment factor"
An index applied to measure the net investment performance of a subaccount from
one valuation date to the next. It is used to determine the policy value of a
subaccount in any valuation period.
"net policy value"
the policy value less any policy debt.
"net premium"
The gross premium less the premium charge.
"net surrender value"
The amount you would receive upon surrender of this contract, equal to the
surrender value less any policy debt.
VUL 9390 Page 6
<PAGE>
"policy data"
The pages of this policy which identify specific information about the insured
and the benefits.
"policy debt"
The sum of all unpaid policy loans and accrued interest thereon.
"policy month"
A one month period beginning on the same day of the month as the issue date of
the policy.
"policy value"
the sum of the values of your interests in the subaccounts of the separate
account plus the value held in our general account as security for outstanding
policy loans. The amount from which monthly deductions are made and the death
benefit is determined.
"policy year"
A twelve month period beginning on an anniversary of the issue date.
"portfolio(s)"
the underlying mutual fund(s) (or investment securities thereof) in which the
subaccounts invest.
"premium class"
The class into which the insured is placed, determined by our rules for
providing insurance coverage.
"proof of death"
(1) a certified original copy of the death certificate; or (2) a certified copy
of a decree of a court of competent jurisdiction as to the finding of death; or
(3) a written statement by a medical doctor who attended the deceased at the
time of death; or (4) any other proof satisfactory to the company.
"record date"
The date we record the policy on our books as an inforce policy.
"required payment"
The minimum premium which must be paid to keep the policy in force for the first
year.
"separate account"
A segregated investment account of the Company entitled Lincoln Benefit Life
Variable Life Account.
"subaccount"
A subdivision of the separate account invested wholly in shares of one of the
portfolios.
"surrender value"
the policy value less any applicable surrender charges.
"valuation date"
Each day the New York Stock Exchange ("NYSE") is open for business.
"valuation period"
The period commencing at the close of normal trading on the NYSE (currently 4:00
p.m. Eastern time) on each valuation date and ending at the close of the NYSE on
the next succeeding value date.
"you"
The person(s) having the privileges of ownership defined in the policy. Such
privileges may be restricted by a retirement plan pursuant to which the policy
is issued.
DEATH BENEFIT
If the insured dies while this policy is in force, we will pay the death benefit
when we have received due proof of death. The death benefit will be based on:
1. The death benefit option in effect on the date of death;
2. Any increases or decreases to the face amount.
The death benefit will be reduced by any outstanding policy loans and accrued
loan interest. We will pay interest on the net death benefit from the date of
death until the date we pay it. The rate will be determined by us, but not less
than the rate required by the state in which the policy was issued.
VUL 9390 Page 7
<PAGE>
death benefit option
While the insured is alive you may choose between two death benefit options:
If you select Option 1, the death benefit will be the greater of:
a. The face amount on the date of death; or
b. The percentage of the policy value shown in the Compliance with Federal Laws
Provision.
If you select Option 2, the death benefit will be the greater of:
a. The base amount plus the policy value on the date of death; or
b. The percentage of the policy value shown in the Compliance with Federal Laws
Provision.
The initial death benefit option selected by you is stated in the app.
change of death benefit option
You may ask us to change the death benefit option by writing to us. If you ask
to change from Option 2 to Option 1, the face amount will be increased by the
amount of the policy value. If you ask to change from Option 1 to Option 2, the
face amount will be decreased by the amount of the policy value.
The change will take effect on the monthly deduction day on or following the
date we receive the written request.
change of face amount
At any time after the fifth policy year, you may request either of the following
changes by writing us:
1. Increasing the face amount. You must submit a new app for an increase in
face amount. We will require due proof that the insured is still insurable.
An increase will be effective on the monthly deduction day after we approve
the increase. We reserve the right to limit the amount of any increases made
under this policy. The face amount may not be increased more than once in
any 12 month period.
2. Decreasing the face amount. A decrease will take effect on the monthly
deduction day on or following the date we received the request. A decrease
in face amount will first be applied against the most recent increase, then
to the next most recent increase successively, and finally to the initial
face amount. The face amount in effect after any decrease may not be less
than $25,000.
BENEFICIARY
The beneficiary will receive the death benefit when the insured dies and we have
received due proof of death. The beneficiary is as stated in the app unless
changed.
The beneficiary will receive the death benefits in the following order:
...Primary beneficiary, who will receive the death benefit if living when the
insured dies.
...Contingent beneficiary, who will receive the death benefit if the primary
beneficiary dies before the insured.
If a beneficiary dies at the same time as the insured or within fifteen days
thereafter, we will pay the death benefit as if that beneficiary were not living
when the insured died. If none of the named beneficiaries are living when the
insured dies, the death benefit will be paid to you.
We will pay the death benefit to the beneficiaries according to the most recent
written instruction we have received from you. If we do not have any written
instructions, we will pay the death benefit in equal shares to the beneficiaries
who are to share the funds. If there is more than one beneficiary in a class
and one of the beneficiaries predeceases you, the death benefit will be paid to
the surviving beneficiaries in that class.
You may name new beneficiaries. We will provide a form to be signed. You must
file it with us. Upon receipt, it is effective as of the date you signed the
form, subject to any action we have taken before we received it.
If you name one or more irrevocable beneficiaries, no change in the
beneficiaries and no changes which affect policy values may be made without
their consent. No beneficiary has any rights in this policy until the insured
dies.
VUL 9390 Page 8
<PAGE>
OWNERSHIP
The insured is the owner if no other person is named in the app as owner. The
owner controls the policy during the lifetime of the insured. Unless you provide
otherwise, as owner, you may exercise all rights granted by the policy without
the consent of anyone else. If the named owner dies before the insured, then the
contingent owner named in the app is the new owner. If no owner named in this
policy is living, then the owner will be the estate of the last named owner.
You may name a new owner. We will provide a form to be signed. You must file it
with us. Upon receipt, it is effective as of the date you signed the form,
subject to any action we have taken before we received it.
You may assign this policy or an interest in it to another. You must do so in
writing and file the assignment with us. No assignment is binding on us until we
receive it. When we receive it your rights and those of the beneficiary will be
subject to the assignment.
We are not responsible for the validity of any assignment you make.
PREMIUM PAYMENT
payments
Premiums for this policy are referred to as payments. The planned payment,
required payment and the time between payments are shown on Page 3.
Payments are flexible. This means you may change the amount of planned payments
and the time between payments. During the first year, you must pay an amount at
least as great as the required payment.
We must have received the first payment on the issue date. There is no insurance
until the first payment is made.
We will send you a reminder notice if you pay annually, semi-annually or
quarterly. You may also make a monthly-automatic payment. We may establish
limits on both the amount of payment and the time between payments.
Payments must be sent to our home office. The amount you pay will affect the
policy value. If you pay too little, the policy will stop subject to the grace
period.
allocation of premium payments
We will invest the net premium payments in the subaccounts you select. You must
specify your allocations on the app, in whole percents from 0% to 100%. The
total allocation must equal 100%. All net premium payments received before the
record date will be credited to the Money Market portfolio as of the date we
receive them. We will allocate such net premiums, plus earnings and less monthly
deductions, on the record date to the subaccounts you have selected. You may
change the allocation percentages at any time by writing us. Any change will be
effective when we receive it.
grace period
Except as provided in the monthly guarantee premium provison below, if on any
monthly deduction day the lapse determination value is determined to be less
than the monthly deduction for the current policy month, you will be given a
grace period of 61 days. This policy will be in force during the grace period.
If you do not make sufficient payment by the end of the grace period, the policy
will stop. If the insured dies during the grace period, we will deduct any
monthly deductions from the amounts we pay.
We will send a written notice to the most recent address we have for you at
least 30 days prior to the day coverage stops.
monthly guarantee premiums
In order to provide assurance that coverage will remain in force for specified
periods, the Policy offers a Guaranteed Minimum Death Benefit ("GMDB") feature
with two levels of monthly guarantee premiums--the lifetime guarantee premium
and the safety net premium.
lifetime guarantee premium
If total payments, less partial withdrawals and policy debt, are greater than or
equal to the sum of the monthly lifetime guarantee premium times the number of
months elapsed since the issue date, then the policy is guaranteed to stay in
force for the
VUL 9390 Page 9
<PAGE>
insured's lifetime, even if the lapse determination value becomes insufficient
to cover monthly deductions.
safety net premium
If total payments, less partial withdrawals and policy debt, are greater than or
equal to the sum of the monthly safety net premium times the number of months
elapsed since the issue date, then the policy is guaranteed to stay in force for
a predetermined time period as shown on Page 3, even if the lapse determination
value becomes insufficient to cover monthly deductions. The safety net premium
is equal to the required payment for the first policy year.
The specific monthly guarantee premium option must be selected at issue. If, at
any time the total payments, less partial withdrawals and policy debt, is less
than the sum of the appropriate monthly guarantee premium times the number of
months elapsed, we will let you know and you will be given 61 days to satisfy
any shortfall. If such payments are not made during this period, the GMDB will
expire; once it has expired, it cannot be reinstated. After the GMDB has
expired, the policy will continue in force only so long as its lapse
determination value is sufficient to pay the monthly deductions.
Increases, decreases, partial withdrawals, death benefit option changes, and
additions or deletions of benefit riders, may affect the monthly guarantee
premiums.
reinstatement
If this policy stops, you may ask us to reinstate it--that is, put the policy
back in full force--up to 5 years after the date that it stopped.
We will reinstate the policy if you:
1. Give us the proof we require that the insured is still insurable in the
same payment class that the policy was issued;
2. Pay an amount large enough to cover the monthly deductions for the time, up
to 6 months, since the policy value became zero;
3. Make a payment sufficient to keep the policy in force for 3 policy months;
and
4. Pay or ask us to reinstate any loan with interest as described in the loan
interest provision.
POLICY VALUE
On the issue date or, if later, the date the first premium is received, the
policy value is the net premium less the monthly deduction for the first policy
month.
On any other day, the policy value is the sum of the values in each subaccount,
plus the value of the loan account.
On each valuation date, the policy value in a subaccount is:
1. The policy value of the subaccount on the preceding valuation date,
multiplied by the net investment factor for the subaccount for the current
valuation period, plus
2. Any net premium received and allocated to the subaccount during the current
valuation period, plus
3. Any policy value transferred to the subaccount during the current valuation
period, minus
4. Any policy value transferred from the subaccount during the current
valuation period, minus
5. Any partial withdrawals from the subaccount during the current valuation
period, minus
6. The portion of any monthly deduction or administrative expense charge
allocated to the subaccount during the current valuation period for the
policy month following the monthly deduction day.
All policy values equal or exceed those required by law. Detailed explanations
of methods of calculation are on file with appropriate regulatory authorities.
VUL 9390 Page 10
<PAGE>
net investment factor
The net investment factor measures investment performance of a subaccount
during a valuation period. The net investment factor is (1) divided by (2),
minus (3) where:
1. is the result of:
a. the net asset value per share of the portfolio held in the subaccount at
the end of the current valuation period, plus
b. the per share amount of any dividend or capital gain distribution made
by the portfolio during the current valuation period, plus or minus
c. a per share credit or charge with respect to any taxes which we paid or
for which we reserved during the valuation period which are determined
by us to be attributable to the operation of the subaccount (no federal
income taxes are applicable under present law).
2. is the net asset value per share of the portfolio held in the subaccount at
the end of the last prior valuation period.
3. the risk charge assessed for mortality and expense risks, as described on
page 11.
premium charge
Upon receipt of each payment and before allocation of the payment to the
subaccounts, we will deduct a premium charge of 2.5% of the premium.
monthly deductions
The monthly deduction is the sum of:
1. A $5.00 policy fee;
2. The cost of insurance for the policy; and
3. The cost of any benefit riders attached to the policy.
administrative expense charge
An annual administrative expense charge of .20% of policy value will be assessed
on each policy anniversary during the first twelve policy years.
risk charge
We will assess, on a daily basis, an annualized charge which is currently .70%
(guaranteed not to exceed .90%) of the value in each subaccount for our
assumption of certain mortality and expense risks.
Specifically, we bear the risk that the total amount of death benefits payable
will be greater than anticipated, and we also assume the risk that the actual
cost we incur to administer the policy will not be covered by administrative
charges assessed.
cost of insurance
The cost of insurance is determined as follows:
1. Divide the death benefit as of the prior monthly deduction day by
1.003273739.
2. Subtract the policy value as of that prior monthly deduction day less the
policy fee and less the cost of insurance of any benefit riders attached to
this policy;
3. Multiply the results by the current cost of insurance rate divided by
1,000. The cost of insurance rate is based on the insured's sex, issue age,
policy year, and payment class. The rates will be determined by us, but
they will never be more than the guaranteed rates shown on Page 5.
transfers and transfer fee
You may transfer amounts between subaccounts. We reserve the right to impose a
$25 transfer fee on the second and subsequent transfers within a calendar month,
and to impose a minimum size on transfer amounts.
SURRENDER VALUE
The surrender value of this policy is not less than the minimum value required
by the state in which the policy is delivered, calculated in accordance with the
basis of values provision. The surrender value at all times reflects the
payments which you have made and the time elapsed in the policy year.
The surrender value of this policy is the policy value less the surrender
charge. If the surrender charge is greater than the policy value, the surrender
value is zero. The net surrender value is the amount we will pay you if you ask
us to stop this policy.
VUL 9390 Page 11
<PAGE>
surrender charge
The maximum surrender charges we will assess, based on the face amount at issue,
are shown in the Surrender Charge Schedule on Page 4. An additional layer of
surrender charge will apply to an elective increase in face amount. The new
layer of surrender charge will be positive for twelve years from the effective
date of the increase. The initial surrender charge on an increase is an amount
per thousand of increase which varies by increase age, as shown in the Table on
Page 4. The charge for any increase year can be calculation from the Table on
Page 4 as follows: [Amount per $1000 of increase] times [increase amount divided
by 1000] times Surrender Percentage.
continuation of coverage
If you stop making payments, this policy and any riders will remain in effect as
long as the lapse determination value covers the monthly deductions or the
policy is still in force as defined in the monthly guarantee premiums provision.
This provision does not continue any riders beyond their normal termination
dates.
partial withdrawal
You may request a partial withdrawal of your net surrender value. We will reduce
both the policy value and the death benefit by the amount of any partial
withdrawal. During the first twelve policy years, a proportionate percentage of
the surrender charge will be deducted from the amount of the partial withdrawal.
The proportionate percentage will be determined by dividing the amount of the
partial withdrawal requested by the cash surrender value. When a partial
withdrawal charge is assessed we will reduce any remaining surrender charges in
a proportionate manner. A partial withdrawal must be for at least $250 and may
not reduce the surrender value below $500.
basis of values
Minimum surrender values are based on the 1980 CSO Mortality Table, age last
birthday, male or female, smoker or nonsmoker, as appropriate. The minimums are
not less than those required by the state in which this policy is delivered.
LOANS
You may have a loan if you assign this contract to us as sole security. The
total amount of your loan and loan interest may not exceed 90% of the surrender
value.
We will ordinarily disburse proceeds of policy loans within seven days from the
date of receipt of a request for a loan at our home office, although payments
may be postponed under certain circumstances as detailed in the "deferment of
payments" section on page 15. As long as the policy remains in force, the loan
may be repaid in whole or in part without penalty at any time while the Insured
is living.
loan interest
An amount equal to your policy value less all premiums paid may be taken as a
preferred loan. The interest are charged for preferred loans is 4% per year. A
standard loan is the amount that may be borrowed from the sum of premiums paid.
The standard loan interest rate is 6% per year.
Interest on policy loans accrues daily and is due at the end of each policy
year. Any interest not paid when due becomes part of the policy loan and
will bear interest at the same rate.
When a policy loan is made a portion of the policy value sufficient to secure
the loan will be transferred to the general account reducing the policy value in
the separate account. Any loan interest that is due and unpaid will also be so
transferred. Amounts transferred to the general account will accrue interest at
an annual rate of 4%. You may allocate a policy loan among the subaccounts of
the separate account. If no such allocation is made, the loan will be allocated
among the subaccounts of the separate account in the same proportion that the
policy value in each subaccount bears to the total policy value on the date of
the loan. Amounts transferred to our general account will no longer be affected
by the investment experience of the separate account.
loan repayment
You may pay back your loan and loan interest at any time. If you do not, we will
deduct the loan and loan interest from the amounts we pay.
If your loan and loan interest exceed the surrender value, this contract will
stop except as provided in the grace period section. We must mail a notice to
you and all assignees at least 30 days before the contract stops.
VUL 9390 Page 12
<PAGE>
OTHER TERMS OF YOUR POLICY
our contract with you
These pages and the signed app are your entire contract with us. We issued it
based upon your app and the payment made by you. A copy of the app is included.
We will not use any statements, except those made in the app, to challenge any
claim or to avoid any liability under this policy. The statements made in the
app will be treated as representations and not as warranties.
Only our officers have authority to change this contract. Any change must be
written. No agent may do this.
when protection starts
The issue date is the date when this policy becomes effective if the insured is
then living and the first payment has been made.
incorrect age or sex
If the insured's age or sex shown on the app is wrong, we will change the
amounts we pay to the amounts which the deductions made would have bought at the
correct age and sex.
incontestability
Except as provided in the next provision or in any attached rider with an
incontestability provision, we may not contest this contract once it has been in
force while the insured is alive for 2 years from its issue date except for
failure to make payments that cause the lapse determination value to be too
small to cover the monthly deductions required to keep this contract and its
riders in force.
We may not contest any increase in face amount once it has been in force while
the insured is alive for 2 years from the effective date of the increase.
suicide or self-destruction
If the insured dies by suicide while sane or self destruction while insane
within 2 years from the issue date of the contract:
1. We will only pay a refund of the payments made less any loan, loan interest
and partial surrenders; and
2. The policy will stop.
annual report
Each year we will send you an annual report following the policy anniversary.
Each report will provide information on various transactions that took place
during the policy year just completed, as well as information on the current
status of the policy. This information will include items such as:
1. The policy value as of the end of the current and prior year.
2. Payments made during the year.
3. The deductions for cost of insurance, riders and expense charges made during
the year.
4. Earnings during the year.
5. The current death benefit.
6. The current surrender charges and surrender value.
7. The amount of outstanding policy loans.
8. Such additional information as required by applicable law or regulation.
nonparticipating
This policy is nonparticipating. It does not share in our profits or surplus
earnings. We will pay no dividends on this policy.
Compliance with federal laws
The two requirements below are intended to maintain the status of this policy
as life insurance under the current Internal Revenue Code:
First, the amount of payments that you may pay is limited by law. We will
conduct a test no less frequently than annually, and return any excess payments.
Second, the death benefit payable may not be less than the applicable percentage
of your policy value. This percentage is based on the attained age as shown in
the table below:
- ---------------------------------------------
Attained Applicable
Age Percentage
- ---------------------------------------------
0 to 40 250
41 243
42 236
43 229
44 222
45 215
46 209
VUL 9390 Page 13
<PAGE>
- ---------------------------------------------
Attained Applicable
Age Percentage
- ---------------------------------------------
47 203
48 197
49 191
50 185
51 178
52 171
53 164
54 157
55 150
56 146
57 142
58 138
59 134
60 130
61 128
63 124
64 122
65 120
66 119
67 118
68 117
69 116
70 115
71 113
72 111
73 109
74 107
75 to 90 105
91 104
92 103
93 102
94 101
95 and above 100
We will conduct a test monthly and increase the death benefit subject to our
then current underwriting limits to be equal to the applicable percentage of
your policy value, if necessary. The death benefit will remain at that level
unless it has to be increased again. If we cannot increase the death benefit
due to underwriting limits, we will return the amount of policy value necessary
so that the death benefit will be equal to the applicable percentage of your
policy value after returning the amount.
We will perform any necessary action within 60 days of the end of the policy
year in which the requirement has not been met.
We reserve the right to amend the policy to comply with:
1. Future changes in the Internal Revenue Code;
2. Any regulations or rulings issued under the code; and
3. Any other requirements imposed by the Internal Revenue Service.
We will give you a copy of any such amendment.
settlement
The net death benefit, or the net surrender value in the event you withdraw it,
will be paid in one sum or applied to any settlement option we then provide.
Settlement options will include:
Option 1
Interest
We will hold the proceeds at interest, and pay out the funds when the person
entitled to them requests.
Option 2
Fixed Payments
We will pay a selected monthly income until the proceeds, with interest, are
exhausted.
Option 3
Life Income - Guaranteed Period Certain
We will pay the proceeds in a monthly income for as long as the payee lives.
Guarantee periods may be selected between 5 and 20 years. If a guarantee period
is selected, payments will continue until the later of the death of the payee or
the end of the guarantee period. If the payee dies before the end of the
guarantee period, we will continue payments to a successor payee. If no
guarantee period is selected, then payments will cease after the death of the
payee. It is possible for the payee to receive only one payment under this
option, if the payee dies before the second payment is due.
Option 4
Joint and Survivor
We will pay the proceeds in a monthly income to two payees for as long as either
payee is alive. Payments will stop when both payees have died. It is possible
for the payees to receive only one payment, if both payees die before the second
payment is due.
VUL 9390 Page 14
<PAGE>
Option 5
Period Certain
We will pay the proceeds in monthly installments for a specified number of
years, from 5 to 25. If the payee dies before the end of the specified period,
the remaining guaranteed payments will be paid to a successor payee.
Other Options
We may have other options available. Information about them may be obtained by
writing or calling us.
At the time the proceeds are payable, we will inform you concerning the rate of
interest to be paid on funds left with us. We guarantee that the rate of
interest will not be less than 3-1/2%. We may pay interest in excess of the
guaranteed rate. We will issue a supplementary contract setting forth the
benefits to be paid and the rights of the beneficiary. Each election must
include at least $5,000.00 of policy proceeds must result in installment
payments of not less than $50.00.
EXCHANGE OF PLAN
Any time during the first two policy years, you may exchange this policy without
evidence of insurability for a life insurance policy on the life of the insured
on such plan as is offered by us for exchanges from this policy. The new policy
will not have death benefits that vary with the investment experience of a
separate account. It will have the same issue date, issue age and risk
classification as this policy.
You may elect that the new policy either have the same death benefit initially
or the same net amount at risk initially as this policy has on the last day it
is in force.
To effect this exchange, you must return this policy to us at our home office
along with a completed application for exchange. It must be signed by you. We
must also receive;
a. The release of any lien against or assignment of this policy. You may
instead submit written approval by the lienholder or assignee of this
policy.
b. The surrender and release of this policy.
c. Payment of any exchange adjustments due us as described below.
The date of exchange will be the first day to occur, on or after receipt at our
home office of all items required for the exchange, that is the same day of the
month as this policy's anniversary.
If the surrender value of the new policy on the date of exchange is greater than
the surrender value of this policy on that date, then the exchange will be
subject to your payment to us of an exchange adjustment equal to the difference.
Otherwise, we will pay you an exchange adjustment equal to the excess on the
date of exchange of the surrender value of this policy over the surrender value
of the new policy.
The new policy will take effect on the date of exchange. When the new policy
takes effect, this policy terminates and is no longer in force.
To the extent the loan value of the new policy is sufficient security, the new
policy will be subject to any loans against this policy. The loan rate under the
new policy will be the rate used by us in the jurisdiction in which the new
policy is issued on the date of exchange.
Unless otherwise provided in the exchange application, the owner and the
beneficiary under the new policy will be the same as under this policy. Any
subsequent changes will be governed by the printed provisions of the new policy.
The application and evidences of insurability submitted for issuance of this
policy shall be included as part of the exchange application for the new policy.
Any rider benefits included in this policy will be included in the new policy
according to our rules applicable to the new policy on its policy date. The new
policy will conform to all of the requirements of the jurisdiction in which it
is issued regardless of any terms of this provision providing to the contrary.
deferment of payments
We will pay any amounts due under this contract within seven days, unless:
. The New York Stock Exchange is closed for other than usual weekends or
holidays, or trading on such exchange is restricted;
. An emergency exists as defined by the Securities and Exchange Commission; or
VUL 9390 Page 15
<PAGE>
. The Securities and Exchange Commission permits delay for the protection of
contract holders.
assets of separate account
The assets of the separate account will be available to cover the liabilities of
our general account only to the extent that the assets exceed the liabilities of
the separate account arising under the variable life policies supported by the
separate account.
separate account modifications
We reserve the right, subject to applicable law, to make additions to, deletions
from, or substitutions for the mutual fund shares underlying the subaccounts of
the separate account. We will not substitute any share attributable to your
interest in a subaccount without notice to you and prior approval of the
Securities and Exchange Commission, to the extent required by the Investment
Company Act of 1940, and the Nebraska Insurance Commissioner. The approval
process in on file with the insurance commissioner of the state where this
policy is delivered.
We reserve the right to establish additional subaccounts each of which would
invest in shares of another mutual fund. You may then instruct us to allocate
purchase payments to such subaccounts, subject to any terms set by us or the
mutual fund.
In the event of any such substitution or change, we may by endorsement make such
changes as may be necessary or appropriate to reflect such substitution or
change.
If we deem it to be in the best interests of persons having voting rights under
the contracts, the separate account may be operated as a management company
under the Investment Company Act of 1940 or it may be deregistered under such
Act in the event such registration is no longer required.
VUL 9390 Page 16
<PAGE>
FLEXIBLE PREMIUM VARIABLE LIFE POLICY
Minimum Premium Required in the First Year
Death Benefit Payable on the Insured's Death
Flexible Premiums Payable for Life
Amount of Death Benefit or Surrender Value may vary,
reflecting investment experience of the Separate Account
Nonparticipating
Lincoln Life (logo)
<PAGE>
Exhibit 8(f)
FUND PARTICIPATION AGREEMENT
----------------------------
AGREEMENT, made on this the day of , 1993, between IAI Retirement
Funds, Inc. (the "Fund"), a corporation organized under the laws of the state of
Minnesota, and Insurance Company (the "Company"), a life insurance
company organized under the laws of the State of , on behalf of itself
and on behalf of ("Separate Account"), a separate account of the
Company existing pursuant to the Insurance Code.
WITNESSETH:
WHEREAS, the Fund is a diversified, open-end management investment company
which is divided into various investment series ("Portfolios"), each Portfolio
being subject to separate investment objectives and restrictions which may not
be changed without a majority vote of the shareowners of such Portfolio; and
WHEREAS, the Fund's shares may be offered to variable annuity and variable
life insurance separate accounts of insurance companies, which may or may not be
affiliated persons of each other ("Participating Insurers"), pursuant to fund
participation agreements substantially identical to this Agreement; and
WHEREAS, the Company, by resolution, has established the Separate Account
on its books of account for the purpose of funding certain variable contracts
("Contracts"); and
WHEREAS, the Separate Account, registered with the Securities and Exchange
Commission as a unit investment trust under the Investment Company Act of 1940
("1940 Act"), is divided into various "Divisions" under which the income, gains
and losses, whether or not realized, from assets allocated to each such
Division are, in accordance with the Contracts,
<PAGE>
credited to or charged against such Division without regard to any other income,
gains or losses of other Divisions or separate accounts or of the Company; and
WHEREAS, the Separate Account desires to purchase shares of the Fund; and
WHEREAS, the Fund agrees to make its shares available to serve as
underlying investment media for the various Divisions of the Separate Account
with each Portfolio of the Fund serving as the underlying investment medium for
the corresponding Division of the Separate Account; and
WHEREAS, the Fund has undertaken that its Board of Directors ("Board") will
monitor the Fund for the existence of any material irreconcilable conflicts that
may arise between the contract owners of separate accounts of insurance
companies that invest in the Fund for the purpose of identifying and remedying
any such conflict;
NOW, THEREFORE, in consideration of the foregoing and of mutual convenants
and conditions set forth herein and for other good and valuable consideration,
the Fund and the Company (on behalf of itself and the Separate Account) hereby
agree as follows:
ARTICLE I
Sale of Fund Shares
-------------------
1.1 The Contracts funded by the Separate Account will provide for the
allocation of net amounts among the various Divisions of the Separate Account
for investment in the shares of the particular Portfolio of the Fund underlying
each Division. The selection of the particular Division is to be made (and such
selection may be changed) in accordance with the terms of the Contract.
<PAGE>
1.2 Fund shares to be made available to the respective Divisions of the
Separate Account shall be sold by each of the respective Portfolios of the Fund
and purchased by the Company for that Division at the net asset value next
computed after receipt of each order, as established in accordance with the
provisions of the then current prospectus of the Fund. Shares of a particular
Portfolio of the Fund shall be ordered in such quantities and at such times as
determined by the Company to be necessary to meet the requirements of those
Contracts having amounts allocated to the Division for which the Fund Portfolio
shares serve as the underlying investment medium. Orders and payments for
shares purchased will be sent promptly to the Fund and will be made payable in
the manner established from time to time by the Fund for the receipt of such
payments. Notwithstanding the foregoing, the Board of the Fund may refuse to
sell shares of any Portfolio to any person or suspend or terminate the offering
of shares of any Portfolio if such action is required by law or by regulatory
authority having jurisdiction over the Fund or is, in the sole discretion of the
Board acting in good faith and in light of its fiduciary duties under federal
and any applicable state laws, necessary in the best interests of the
shareholders of such Portfolio.
1.3 The Fund will redeem the shares of the various Portfolios when
requested by the Company on behalf of the corresponding Division of the Separate
Account at the net asset value next computed after receipt of each request for
redemption, as established in accordance with the provisions of the then current
prospectus of the Fund. The Fund will make payment in the manner established
from time to time by the Fund for the receipt of such redemption requests, but
in no event shall payment be delayed for a greater period than is permitted by
the 1940 Act.
1.35 For purposes of paragraphs 1.2 and 1.3 hereinabove, the Company shall
be the agent of the Fund for the receipt of (1) orders to purchase, and (2)
requests to redeem, shares of the Portfolios of the Fund on behalf of the
Separate Account, and receipt of such orders and requests by such agent shall
constitute receipt thereof by the Fund, provided that the Fund
<PAGE>
receives actual notice of such order or request by 12:00 noon (at the Fund's
offices) on the next following Business Day. "Business Day" shall mean any day
on which the New York Stock Exchange is open for trading and on which the Fund
calculates its net asset value pursuant to the rules of the Securities and
Exchange Commission.
1.4 Transfer of the Fund's shares will be by book entry only. No stock
certificates will be issued to the Separate Account. Shares ordered from a
particular Portfolio of the Fund will be recorded in an appropriate title for
the corresponding Division of the Separate Account.
1.5 The Fund shall furnish same day notice to the Company of any dividend
or distribution payable on its shares. All of such dividends and distributions
as are payable on each of the Portfolio shares in the title for the
corresponding Division of the Separate Account shall be automatically reinvested
in additional shares of that Portfolio of the Fund. The Fund shall notify the
Company of the number of shares so issued.
1.6 The Fund shall make the net asset value per share of each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 6:00 p.m. Eastern Time.
ARTICLE II
Sales Material and Information
------------------------------
2.1 The Company shall furnish to the Fund each piece of sales literature
or other promotional material in which the Fund or its investment adviser is
named at least fifteen business days prior to its use. No such material shall
be used if the fund objects to such use within ten business days after receipt
of such material.
<PAGE>
2.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such documents may be amended or supplemented from time to time, or in reports
or proxy statements for the Fund, or in sales literature or other promotional
material approved by the Fund, except with the permission of the Fund.
2.3 The Fund shall furnish to the Company each piece of sales literature
or other promotional material in which the Company or its Separate Account is
named at least fifteen business days prior to its use. No such material shall
be used if the Company objects to such use within ten business days after
receipt of such material.
2.4 The Fund shall not give any information or make any representations on
behalf of the Company or concerning the Company, the Separate Account, or the
Contracts other than the information or representations contained in the
registration statement or prospectus for the Contracts, as such registration
statement and prospectus may be amended or supplemented from time to time, or in
published reports for the Separate Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company, except with
the permission of the Company.
2.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above that relate to the Fund or it shares, contemporaneously with
the filing of such document with the U.S. Securities and Exchange Commission or
other regulatory authorities.
<PAGE>
2.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
the Separate Account, contemporaneously with the filing of such document with
the U.S. Securities and Exchange Commission or other regulatory authorities.
2.7 For purposes of this Article II, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE III
Expenses
--------
3.1 The Fund shall pay no fee or other compensation to the Company under
this Agreement. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall bear the expenses for: the
cost of registration of the Fund's shares; preparation and filing of the Fund's
prospectus and registration statement; preparation and filing of proxy materials
and reports; setting the prospectus in type; setting in type the proxy materials
and reports to shareholders; the preparation of all statements and notices
required of
<PAGE>
the Fund's by any federal or state law; and all taxes on the issuance or
transfer of the Fund'' shares.
3.2 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Fund, and the Fund, at its
expense, shall print and provide such Statement free of charge to the Company
and to any Contract owner or prospective Contract owner who requests such
Statement.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to stockholders and other communications to stockholders
in such quantity as the Company shall reasonably require for distributing to
Contract owners
3.4 The Company shall bear the expense of distributing to Contract owners
the Fund's prospectus, proxy materials and reports.
ARTICLE IV
Voting
------
4.1 The Company shall provide pass-through voting privileges to all
Contract owners so long as the U.S. Securities and Exchange Commission continues
to interpret the 1940 Act to require pass-through voting privileges for variable
contract owners. The Company shall be responsible for assuring that the
Separate Account calculates voting privileges in a manner consistent with
standards provided by the Fund, which standards will also be provided to other
Participating Insurers. To the extent required by law, the Company will vote
shares for which it has not received voting instructions as well as shares
attributable to the Company in the same proportion as it votes shares for which
it has received instructions.
4.2 The Fund will comply with all provisions of the 1940 Act requiring
voting by
<PAGE>
shareholders and, in particular, the Fund will either provide for
annual meetings or comply with Section 16 (c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16 (c) of that Act) as well as
with Sections 16 (a) and, if and when applicable, 16 (b). Further, the Fund
will act in accordance with the U.S. Securities and Exchange Commission's
interpretation of the requirements of Section 16 (a) with respect to periodic
elections of directors and with whatever rules the Commission may promulgate
with respect thereto.
ARTICLE V
Potential Conflicts
-------------------
5.1 The Board of the Fund will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. The Company will report to the
Board any potential or existing conflicts of which it is or becomes aware
between any of its Contract owners, or between any of its Contract owners and
contract owners of other Participating Insurers. The Company will be
responsible for assisting the Board in carrying out its responsibilities to
identify and resolve material conflicts by providing the Board with all
information available to it that is reasonably necessary for the Board to
consider any issues raised, including information as to a decision by the
Company to disregard voting instructions of its Contract owners.
5.2 The Board's determination of the existence of an irreconcilable
material conflict and its implications shall be made known promptly by it to
the Company and other Participating Insurers. An irreconcilable material
conflict and its implications shall be made known promptly by it to the Company
and other Participating Insurers. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance
tax, or securities laws or regulations, or a public ruling, private letter
ruling, or any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any relevant
<PAGE>
proceeding; (d) the manner in which the investments of any Portfolio are being
managed; (e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by contract
owners of different Participating Insurers; or (f) a decision by a Participating
Insurer to disregard the voting instructions of its variable contract owners.
5.3 If it is determined by a majority of the Board or a majority of its
disinterested Directors that a material irreconcilable conflict exists that
affects the interests of the Contract owners, the Company shall, to the extent
reasonably practicable (as determined by a majority of the Fund's disinterested
Directors), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, which steps could include: (a) withdrawing
the assets allocable to the Separate Account from the Fund or any Portfolio and
reinvesting such assets in a different investment medium, including another
Portfolio of the Fund, or participating in the submission of the question of
whether such segregation should be implemented to a vote of all affected
contract owners and, as appropriate, segregating the assets of any particular
group (e.g. annuity contract owners or life insurance contract owners) that
votes in favor of such segregation, or offering to the affected contract owners
the option of making such a change; and (b) establishing a new registered
management investment company or managed separate account. The Company shall
take such steps at its expense if the conflict affects solely the interests of
the owners of the Company's Contracts, but shall bear only its equitable portion
of any such expense if the conflict also affects the interests of the contract
owners of one or more Participating Insurers other than the Company, provided:
that this sentence shall not be construed to require the Fund to bear any
portion of such expense. If a material irreconcilable conflict arises because
of the Company's decision to disregard Contract owner voting instructions and
that decision represents a minority position or would preclude a majority vote,
the Company may be required, at Fund's election, to withdraw the investment of
the Separate Account in the Fund, and no charge or penalty will be imposed as a
result of such a withdrawal.
<PAGE>
The Company agrees to take such remedial action as may be required under this
paragraph 5.3 with a view only to the interests of its Contract owners. For
purposes of this paragraph 5.3, a majority of the disinterested members of the
Fund's Board shall determine whether or not any proposed action adequately
remedies any irreconcilable conflict, but in no event will Fund be required to
establish a new funding medium for any variable contract. The Company shall not
be required by this paragraph 5.3 to establish a new funding medium if an offer
to do so has been declined by vote of a majority of contract owners materially
and adversely affected by the irreconcilable material conflict.
Notwithstanding the foregoing, if the Company is required under this
paragraph 5.3 to withdraw the investment of the Separate Account in the Fund,
such withdrawal may take place within six (6) months after the Fund gives
written notice that this paragraph 5.3 is being implemented, provided: That the
Fund may require that such withdrawal must take place within a shorter period of
time after such notice if a majority of the disinterested members of the Fund's
Board determines that such shorter period is necessary to avoid irreparable harm
to its shareholders; and further provided: That until the end of such six month
(or shorter) period the Fund shall continue to accept and implement orders by
the Company for the purchase and redemption of Fund Shares.
5.4 In discharging its responsibilities under this Article V, the Company
will cooperate and coordinate, to the extent necessary, with the Board and with
other Participating Insurers.
5.5 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or a
subsequent Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding on terms and conditions materially different from those contained in the
Fund's mixed and shared funding order (Investment Company Act Release No. )
then the Fund or the Participating Insurers, as
<PAGE>
appropriate, shall take such steps as may be necessary to comply with Rules 6e-2
and 6e-3(T), and related Rules as amended, to the extent such rules are
applicable.
ARTICLE VI
Representations and Warranties
------------------------------
6.1 The Company represents and warrants that the Contracts are or will be
registered under the Securities Act of 1933 ("1933 Act"), that the Contracts
will be issued and sold in compliance in all material respects with all
applicable federal and state laws, and that the sale of the Contracts shall
comply in all material respects with state insurance suitability requirements.
The Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable laws and that it has legally and
validly established the Separate Account prior to any issuance or sale thereof
as a segregated asset account under the Insurance Code and has registered
or, prior to any issuance or sale of the Contracts, will register the Separate
Account as a unit investment trust in accordance with the provisions of the 1940
Act to serve as a segregated investment account for the Contracts.
6.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, shall be duly authorized
for issuance and sold in compliance with the laws of the State of Minnesota and
all applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
represents that it is lawfully organized and validly existing under the laws of
the State of Minnesota and that it does and will comply in all material respects
with the 1940 Act.
6.3 The Fund represents and warrants that it intends to qualify as a
Regulated
<PAGE>
Investment Company under Subchapter M of the Internal Revenue Code, as amended,
(the "Code") and that it will make every effort to maintain such qualification
(under Subchapter M or any successor or similar provision) and that it will
notify the Company immediately upon having a reasonable basis for believing that
it may not so qualify in the future.
6.4 The Fund represents and warrants that it will at all times invest
money from the Contracts in such a manner as to ensure that the Contracts will
be treated as variable contracts under the Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund will at all
times comply with Section 817 (h) of the Code and Regulation 1.817-5, relating
to the diversification requirements for annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulation.
6.5 The Company represents that the Contracts are currently treated as
annuity, endowment, or life insurance contracts, under applicable provisions of
the Code, and that it will make every effort to maintain such treatment and that
it will notify the Fund immediately upon having a reasonable basis for believing
that the Contracts have ceased to be so treated or that they might not be so
treated in the future.
6.6 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of and the Fund represents that its operations are and shall at all
times remain in material compliance with the laws of the State of to the
extent required to perform this Agreement.
6.7 The Fund represents and warrants that all of its directors, officers,
employees,
<PAGE>
investment advisers, and other persons dealing with the money or securities of
the Fund are and shall continue to be at all times covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund in an amount not less than
the minimal coverage as required currently by Section 17 (g) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
6.8 The Company represents and warrants that all of its directors,
officers, employees, and other persons who are directly dealing with the money
or securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage.
6.9 The Fund represents and warrants that shares of the Fund will be sold
only to participating Insurers and their separate accounts. No shares of any
Portfolio will be sold to the general public. The Fund further represents and
warrants that it will not sell Fund shares to any insurance company or separate
account except pursuant to an agreement containing provisions substantially the
same as those contained in Articles IV and V of this Agreement governing voting
rights and conflicts of interest, respectively.
6.10 The Company represents and warrants that it will make reasonable
efforts to market those Contracts it determines from time to time to offer for
sale and, although it is not required to offer for sale new Contracts in all
cases, will accept payments and otherwise service existing Contracts funded in
the Separate Account. No representation is made as to the number or amount of
such Contracts to be sold.
ARTICLE VII
Indemnification
---------------
7.1 The Company agrees to indemnify and hold harmless the Fund and each of
its
<PAGE>
Directors and officers and each person, if any, who controls the Fund within
the meaning of Section 15 of the 1933 Act against any and all losses, claims,
damages, liabilities or litigation (including legal and other expenses), arising
out of the acquisition of any shares of the Fund by any person, to which the
Fund or such Directors, officers or controlling person may become subject under
the 1933 Act, under any other statute, at common law or otherwise, which (i) may
be based upon any wrongful act by the Company, any of its employees or
representatives, any affiliate of or any person acting on behalf of the Company
or a principal underwriter of its insurance products, or (ii) may be based upon
any untrue statement or alleged untrue statement of a material fact contained in
a registration statement or prospectus covering shares of the Fund or any
amendment thereof or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated herein or necessary to make
the statements therein not misleading if such a statement or omission was made
in reliance upon information furnished to the Fund by the Company, or (iii) may
be based on any untrue statement or alleged untrue statement of a material fact
contained in a registration statement or prospectus covering the Contracts, or
any amendments or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, unless such statement or
omission was made in reliance upon information furnished to the Company or such
affiliate by or on behalf of the Fund; provided, however, that in no case (i) is
the Company's indemnity in favor of a Director or officer or any other person
deemed to protect such Director or officer or other person against any liability
to which any such person would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of his or her
duties or by reason of his or her reckless disregard of obligations and duties
under this Agreement or (ii) is the Company to be liable under its indemnity
agreement contained in this Paragraph 7.1 with respect to any claim made against
the Fund or any person indemnified unless the Fund or such person, as the case
may be, shall have notified the Company in writing pursuant to Paragraph 10 of
this Agreement within a reasonable time after the summons or other first legal
process giving information of the
<PAGE>
nature of the claims shall have been served upon the Fund or upon such person
(or after the Fund or such person shall have received notice of such service on
any designated agent), but failure to notify the Company of any such claim shall
not relieve the Company from any liability which it has to the Fund or any
person against whom such action is brought otherwise than on account of its
indemnity agreement contained in this Paragraph 7.1. The Company shall be
entitled to participate, at its own expense, in the defense, or, if it so
elects, to assume the defense of any suit which could result in liability to it
under this Paragraph 7.1, but, if it elects to assume the defense, such defense
shall be conducted by counsel chosen by it and satisfactory to the Fund and to
such of its officers, Directors and controlling person or persons as may be
defendants in the suit. In the event that the Company elects to assume the
defense of any such suit and retain such counsel, the Fund, such officers,
Directors and controlling person or persons shall bear the fees and expenses of
any additional counsel retained by them, but, in case the Company does not elect
to assume the defense of any such suit, the Company will reimburse the Fund,
such officers, Directors and controlling person or persons for the reasonable
fees and expenses of any counsel retained by them. The Company agrees promptly
to notify the Fund pursuant to Paragraph 10 of this Agreement of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any shares of the Fund.
7.2 The Fund agrees to indemnify and hold harmless the Company and its
affiliated principal underwriter of the Contracts and each of its Directors and
officers and each person, if any, who controls the Company within the meaning of
Section 15 of the 1933 Act against any and all losses, claims, damages,
liabilities or litigation (including legal and other expenses) to which it or
such directors, officers or controlling person may become subject under the 1933
Act, under any other statute, at common law or otherwise, arising out of the
acquisition of any shares of the Fund by any person which (i) may be based upon
any wrongful act by the Fund or any of its employees or representatives, or (ii)
may be based upon any untrue statement or alleged untrue statement of a material
fact contained in a registration statement or prospectus covering shares of the
Fund or any amendment thereof or supplement thereto or the omission or alleged
<PAGE>
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading unless such statement or
omission was made in reliance upon information furnished to the Fund by the
Company, or (iii) may be based on any untrue statement or alleged untrue
statement of a material fact contained in a registration statement or prospectus
covering the Contracts, or any amendment or supplement thereto, or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements or statements therein not
misleading, if such statement or omission was made in reliance upon information
furnished to the Company by or on behalf of the Fund; provided, however, that in
no case (i) is the Fund's indemnity in favor of a Director or officer or any
other person deemed to protect such Director or officer or other person against
any liability to which any such person would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of his or
her duties or by reason of his or her reckless disregard of obligations and
duties under this Agreement or (ii) is the Fund to be liable under its indemnity
agreement contained in this Paragraph 7.2 with respect to any claims made
against the Company or any such Director, officer or controlling person unless
it, Director, officer or controlling person, as the case may be, shall have
notified the Fund in writing pursuant to Paragraph 10 of this Agreement within a
reasonable time after the summons or the first legal process giving information
of the nature of the claim shall have been served upon it or upon such Director,
officer or controlling person (or after the Company or such Director, officer or
controlling person shall have received notice of such service on any designated
agent), but failure to notify the Fund of any claim shall not relieve it from
any liability which it may have to the person against whom such action is
brought otherwise than on account of its indemnity agreement contained in this
Paragraph 7.2. The Fund will be entitled to participate, at its own expense, in
the defense, or, if it so elects, to assume the defense of any suit which could
result in liability to it under this Paragraph 7.2, but, if the Fund elects to
assume the defense, such defense shall be conducted by counsel chosen by it and
satisfactory to the Company and to such of its Directors, officers and
controlling person or persons as may be defendants in the suit.
<PAGE>
In the event that the Fund elects to assume the defense of any such suit and
retain such counsel, the Company, such Directors, officers and controlling
person or persons shall bear the fees and expenses of any additional counsel
retained by them, but, in case the Fund does not elect to assume the defense of
any such suit, it will reimburse the Company, such Directors, officers and
controlling person or persons for the reasonable fees and expenses of any
counsel retained by them. The Fund agrees promptly to notify the Company
pursuant to Paragraph 10 of this Agreement of the commencement of any litigation
or proceedings against it or any of its officers or Directors in connection with
the issue and sale of any of its shares.
ARTICLE VIII
Confidentiality
---------------
8. Subject to the requirements of legal process and regulatory authority,
each party shall treat as confidential all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize confidential
information without the express written consent of the affected party until such
time as it may come into the public domain.
ARTICLE IX
Termination
-----------
9.1 This Agreement shall terminate:
(a) at the option of the Company or the Fund upon 60 days' advance written
notice to all parties to this Agreement, provided, however, such
notice shall not be given earlier than twenty two months following the
date of this Agreement; or
(b) at the option of the Company if any of the Fund's shares are not
reasonably available to meet the requirements of the Contracts funded
in the Separate Account as determined by the Company; or
(c) at the option of either party to this Agreement upon institution of
formal proceedings against the other party to this Agreement by the
Securities and Exchange Commission or any other regulatory body; or
(d) upon the vote of Contract owners having an interest in a particular
Division of the Separate Account to substitute the shares of another
investment company for the corresponding Fund Portfolio shares in
accordance with the terms of the Contracts for which those Fund shares
had been selected to serve as the underlying investment medium. The
Company will give 30 days' prior written notice to the Fund of the
date of any proposed action to replace the Fund's shares; or
(e) at the option of the Company if the Fund's shares are not registered,
issued or sold in accordance with applicable state and/or federal law
or such law precludes the use of such shares as the underlying
investment medium of the Contracts funded in the Separate Account; or
(f) at the option of the Company if the Fund ceases to qualify as a
Regulated Investment Company under Subchapter M of the Code or under
any successor or similar provision, or if the Company
<PAGE>
reasonably believes that the Fund may fail to so qualify; or
(g) at the option of the Company if the Fund fails to meet the
diversification requirements specified in paragraph 6.4 hereof.
9.2 Prompt notice of election to terminate under subparagraphs (b), (c),
(e), (f) and (g) of paragraph 9.1 shall be furnished by the electing party.
9.3 Notwithstanding any termination of this Agreement, the Fund shall, at
the option of the Company, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement for all Contracts in
effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to reallocate investments in
the Fund, redeem investments in the Fund or invest in the Fund upon the making
of additional purchase payments under the Existing Contracts. The parties agree
that this paragraph 9.3 shall not apply to any terminations under Article V and
the effect of such Article V terminations shall be governed by Article V of this
Agreement.
ARTICLE X
Notices
-------
10. Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
IAI Retirement Funds, Inc.
3700 First Bank Place
P.O. Box 357
Minneapolis, Minnesota 55440
If to the Company:
<PAGE>
ARTICLE XI
Applicable Law
--------------
11. This Agreement shall be construed in accordance with the laws of the
State of Minnesota.
ARTICLE XII
Miscellaneous
-------------
12.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.2 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.3 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
IAI Retirement Funds, Inc.
By:
Attest:
Insurance Company
By:
Attest:
Separate Account
By:
Insurance Company
By:
Attest:
<PAGE>
Exhibit (11)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Post-Effective Amendment No. 9 to Registration
Statement No. 33-67386 of Lincoln Benefit Life Variable Life Account of our
reports dated March 20, 1998 on the financial statements of Lincoln Benefit Life
Variable Life Account and the consolidated financial statements of Lincoln
Benefit Life Company and subsidiary, appearing in the Prospectus, which is a
part of such Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Lincoln, Nebraska
April 27, 1998
<PAGE>
Exhibit 12
October 26, 1993
Lincoln Benefit Life Company
134 South 13th Street
Lincoln, NE 68508
With reference to the Registration Statement on Form S-6 as amended, filed by
Lincoln Benefit Life Company and Lincoln Benefit Life Variable Life Account with
the Securities and Exchange Commission covering flexible premium variable life
policies, I have examined such documents and such law as I considered necessary
and appropriate, and on the basis of such examination, it is my opinion that:
1. Lincoln Benefit Life Company is duly organized and validly existing
under the laws of the State of Nebraska and has been duly authorized
to issue flexible premium variable life policies by the Insurance
Department of the State of Nebraska.
2. Lincoln Benefit Life Variable Life Account is a duly authorized and
existing separate account established pursuant to the provisions of
Section 44-402.01 of the Statutes of the State of Nebraska.
3. The flexible premium variable life policies, when issued as
contemplated by said Form S-6 Registration Statement, will constitute
legal, validly issued and binding obligations of Lincoln Benefit Life
Company.
I hereby consent to the filing of this opinion as an exhibit to said S-6
Registration Statement and to the use of my name under the caption "Legal
Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Carol S. Watson
Carol S. Watson
Vice President & General Counsel
<PAGE>
Exhibit (13)
October 26, 1993
Lincoln Benefit Life Company
134 South 13th Street
Lincoln, NE 68508
This opinion is furnished in connection with the registration by Lincoln Benefit
Life Company of a flexible premium variable life insurance policy ("Policy")
under the Securities Act of 1933. The prospectus included in Pre-Effective
Amendment No. 1 to Registration Statement No. 33-67226 on Form S-6 describes the
Policy. The Policy Form was prepared under my direction and I am familiar with
the Registration Statement, as amended, and the Exhibits thereto. In my
opinion:
1. The "sales load" does not exceed the maximum allowed under Rule 6e-3 (T)
under the Investment Company Act of 1940.
2. The proportionate amount of sales load deducted from any payment during the
policy period shall not exceed the proportionate amount deducted from any
prior payment during the policy period.
3. The illustrations of cash values and death benefits included in the
prospectus, based on the assumptions stated in the illustrations, are
consistent with the provisions of the Policy.
4. The rate structure of the Policy has not been designed so as to make the
relationship between premiums and benefits, as shown in the illustrations
referred to in (3) above, appear more favorable to a prospective purchase
of a Policy for a male age 45, than to prospective purchasers of Policies
for males at other ages or underwriting classes or for females.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement, as amended and to the use of my name under the heading "Experts."
Sincerely,
/s/ Dean M. Way
Dean M. Way, FSA
Vice President & Actuary
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY
EXHIBIT NO. 14
ACTUARIAL BASIS OF PAYMENT AND CASH VALUE ADJUSTMENT
PURSUANT TO RULE 6e-3 (T) (b) (13) (V) (B)
EXHIBIT NO. 15
PROCEDURES MEMORANDUM
PURSUANT TO RULE 6e-3 (T) (b) (12) (iii)
<PAGE>
Description of Lincoln Benefit's Purchase,
Redemption, and Transfer Procedures for Policies
This document sets forth the administrative procedures that will be
followed by Lincoln Benefit Life Company ("LBL") in connection with the issuance
of its Flexible Premium Variable Life Insurance Policy ("Policy") described in
this Registration Statement, the transfer of assets held thereunder, and the
redemption by Policyowners of their interest in the Policies.
1. "Public Offering Price": Purchase and Related Transactions.
------------------------------------------------------------
Set out below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction. The summary shows that, because of the
insurance nature of the Policies, the procedures involved necessarily differ in
certain significant respects from the purchase procedures for mutual funds and
contractual plans.
(a) Premium Schedules and Underwriting Standards
--------------------------------------------
Premiums for the Policies will not be the same for all Policyowners. LBL
will require the Policyowner to pay a required Premium for the first Policy
Year. Policyowners will also determine a planned periodic Premium payment
schedule that provides a level Premium payable at a fixed interval for a
specified period of time. Payment of Premium in accordance with this schedule
is not, however, mandatory and failure to do so will not of itself cause the
Policy to lapse. Instead, Policyowners may make Premium payments in any amount
at any frequency, subject only to the maximum Premium limitation./1/ If at any
time a Premium is paid which would result in total Premiums exceeding the
current maximum Premium limitation, LBL will accept only that portion of the
Premium which will make total Premiums equal that amount. Any portion of the
Premium in excess of that
1
<PAGE>
amount will be returned to the Policyowner and no further Premiums will be
accepted until allowed by the current maximum Premium limitations or unless the
Policyowner increases the face amount of the Policy.
The Policy will remain in force so long as the Lapse Determination Value is
sufficient to pay certain monthly charges in connection with the Policy, or if
the total payments made, net of any loans or partial withdrawals, equal or
exceed cumulative monthly guarantee premiums as defined in the Policy. The
Lapse Determination Value is the Policy Value if no loans are on the Policy; and
is the Net Surrender Value if the Policy has outstanding loans. Thus, the
amount of a Premium, if any, that must be paid to keep the Policy in force
depends upon the Policy Value, which in turn depends on such factors as the
investment experience, the cost of insurance charge, and administrative charges.
In addition, if outstanding loans are present, any applicable surrender charges,
and, by definition, Policy Debt must be taken into account. The cost of
insurance rate utilized in computing the cost of insurance charge will not be
the same for each Insured. The chief reason is that the principle of pooling
and distribution of mortality risks is based upon the assumption that each
Insured incurs an insurance rate commensurate with his or her mortality risk
which is actuarially determined based upon factors such as issue age, sex,
duration, risk classification and face amount of the Policy. Accordingly, while
not all Policyowners will be subject to the same cost of insurance rate, there
will be a single "rate" for all Policyowners in a given actuarial category.
The Policies will be offered and sold pursuant to established underwriting
standards and in accordance with state insurance laws. State insurance laws
prohibit unfair discrimination among Policyowners but recognize that Premiums
and charges must be based upon factors such as Age, sex, health and occupation.
2
<PAGE>
The exchange shall be subject to the following rules:
1. Premiums for the new Policy will be based on the same issue age and
risk classification of the Insured as the existing Policy.
2. The Policyowner may elect either the same Net Death Benefit or the
same net amount at risk as the existing Policy at the time of the
exchange.
3. The exchange must be made within 24 months after the issuance of the
existing Policy.
4. No evidence of insurability will be required at the time of the
exchange.
5. The conversion will be subject to an equitable adjustment as required
by Rule 6e-3 (T) to reflect variances, if any, in the payments and
Policy Values under the new policy.
(b) Application and Initial Premium Processing
------------------------------------------
Upon receipt of a completed application, LBL will follow certain insurance
underwriting (i.e., evaluation of risks) procedures designed to determine
whether the applicant is insurable. This process may involve such verification
procedures as medical examinations and may be required that further information
be provided by the proposed applicant before a determination can be made. A
Policy will not be issued until this underwriting procedure has been completed.
If the required minimum Premium for the policy is submitted with the
application, insurance coverage will ordinarily begin on the date that the
Underwriting Department approves the Policy as applied for, based on receipt of
any required medical examinations or other items requested in accordance with
LBL's underwriting requirements. If a minimum Premium is not paid with the
application, insurance coverage will ordinarily begin on the date the policy is
delivered to the Policyowner and the required Premium is
3
<PAGE>
collected. Insurance coverage may also begin on any other date mutually
agreeable to LBL and the Policyowner as long as such date complies with all
applicable state and federal laws and regulations.
LBL will allocate Net premiums from the Policy to the Lincoln Benefit Life
Variable Account ("Separate Account") on the date the Premium is received.
The minimum face amount at issue is $50,000 ($25,000 for Insureds age 65 or
over at the Issue Date) under LBL's current rules. LBL reserves the right to
revise its rules from time to time to specify a different minimum face amount at
issue for subsequently issued policies.
(c) Premium Allocation
------------------
In the application for a Policy, the Policyowner must allocate Net Premiums
(total premiums less the Premium charge of 2-1/2%) among the Subaccounts of the
Separate Account. All net premium payments received before the Record Date will
be credited to the Fidelity Money Market Portfolio as of the date we receive
them (The Record Date is the date we record the Policy on our books as an
inforce policy). In most states, LBL will allocate such net premiums, plus
earnings and less monthly deductions, to the Subaccounts the Policyowner has
selected on the Record Date.
In a state requires us to refund premium payments during the free look
period, LBL will keep the net premiums in the Money Market Portfolio for twenty
days following the Record Date before allocating them (plus earnings and less
monthly deductions) to the Subaccount the Policyowner has selected.
The allocation for future net Premium Payments may be changed at any time
by written notice (or by telephone notice, if authorized) to LBL without payment
of any fee or penalties.
4
<PAGE>
(d) Reinstatement
-------------
A lapsed Policy may be reinstated any time within 5 years after the date of
lapse by submitting the following items to LBL:
1. A written request for reinstatement;
2. Evidence of insurability satisfactory to LBL;
3. Payment of a premium sufficient to keep the Policy in force for at
least three months;
4. Payment of the monthly deductions for the time, up to six months,
since the Policy Value became zero; and
5. Payment or reinstatement of any loan.
Upon approval of the application for reinstatement, the effective date of
reinstatement will be the Monthly Deduction Day on or prior to the date of
approval.
(e) Repayment of Indebtedness
-------------------------
Outstanding indebtedness may be repaid at any time. Upon repayment, the
Policy Value securing the repaid portion of the debt in the General Account will
be transferred to the Subaccounts of the Separate Account using the same
percentages used to allocate Net Premiums.
(f) Correction of Misstatement of Age or Sex
----------------------------------------
If LBL discovers that the age or sex of the Insured has been misstated, LBL
will adjust the Death Benefit of the Policy by use of the most recent costs of
insurance for the correct Age or Sex.
2. "Redemption Procedures": Surrender and Related Transactions
------------------------------------------------------------
This section outlines those procedures which might be deemed to constitute
redemptions under the Policy. These procedures differ in certain significant
respects from the redemption procedures for mutual funds and contractual plans.
5
<PAGE>
(a) Surrender Values
----------------
As long as the Policy is in force, the Policyowner may surrender the Policy
or make a partial withdrawal at any time by sending a written request to LBL.
The amount available for surrender ("Net Surrender Value") is the Policy Value
less any applicable surrender charge and Policy Debt at the end of the Valuation
period during which the surrender request is received at LBL's home office. Net
Surrender Value will be determined on a daily basis. This will enable LBL to
pay a Net Surrender Value based on the Next computed value after a request is
received./2/ Surrenders from the Separate Account will generally be paid within
seven days of receipt of the written request./3/ A charge is imposed for
surrenders, as explained in the Surrender Value section of the Policy.
The Policyowner can obtain a portion of the Net Surrender Value by making a
partial withdrawal from the Policy.
A partial withdrawal may not reduce the Net Surrender Value below $500.
The minimum withdrawal at any time is $250. A proportionate amount of the full
surrender charge will be assessed on partial withdrawals during the first 12
Policy years. A partial withdrawal will affect your Policy Value and Death
Benefit.
Option 1. Partial withdrawals generally will affect both the Policy Value
and the life insurance proceeds payable under the Policy. The Policy Value will
be reduced to reflect the amount of the withdrawal. Moreover, life insurance
proceeds payable under the Policy will generally be reduced to reflect the
amount of the partial withdrawal. The face amount remaining after a partial
withdrawal may not be less than $25,000. If increases in face amount previously
have occurred, a partial withdrawal will first reduce the face amount of the
most recent increase, then the most recent increases successively, then the
coverage under the original Policy.
6
<PAGE>
Option 2. Under Option 2, which provides for life insurance proceeds equal
to the face amount plus Policy Value, a reduction in Policy Value as a result of
a partial surrender will typically result in a dollar per dollar reduction in
the life insurance proceeds payable under the Policy.
The Policyowner must allocate a partial withdrawal among the Subaccounts of
the Separate Account. Telephoned instructions for partial withdrawals will be
permitted, provided a proper telephone authorization form is on file. Before
any withdrawals can be made, a proper withholding form must be on file.
The amount payable upon complete surrender of the Policy is the Net
Surrender Value which may be paid in a lump sum or under one of the optional
payment plans specified in the Policy. Proceeds will generally be paid within
seven days of receipt of a request for surrender.
(b) Death Benefits
--------------
So long as it remains in force, the Policy provides for the payment of life
insurance proceeds upon the death of the Insured. Proceeds will be paid to
named Beneficiary or contingent Beneficiary. One or more Beneficiaries or
contingent Beneficiaries may be named. Life insurance proceeds may be paid in a
lump sum or under one of the optional payment plans specified in the Policy.
The amount of Death Benefit proceeds payable will be determined at the end of
the Valuation Period during which the insured dies.
Proceeds of the Policy will be reduced by any outstanding Policy debt and
any due and unpaid charges and increased by any benefits added by the rider.
Proceeds will ordinarily be paid within seven days after LBL receives due Proof
of Death and all other requirements deemed necessary have been satisfied.
The death benefit will be based on:
7
<PAGE>
1. The death benefit option in effect on the date of death;
2. Any increases or decreases to the face amount.
While the Insured is alive, the Policyowner may choose between two death
benefit options:
If Option 1 is selected, the Death Benefit will be the greater of:
a. The face amount; or
b. The Policy Value multiplied by the applicable corridor percentage as
described in the Policy.
If you select Option 2, the Death Benefit will be the greater of:
a. The face amount plus the policy value; or
b. The Policy Value multiplied by the applicable corridor percentage as
described in the Policy.
Under Death Benefit Option 1, the Death Benefit will only vary whenever the
applicable percentage of Policy Value set forth in the Policy exceeds the face
amount of the Policy Value set forth in the Policy exceeds the face amount of
the Policy. Under Death Benefit Option 2, the Death Benefit will always vary
with the Policy Value since the Death Benefit equals the face amount plus the
Policy Value.
Subject to certain limitations, a Policyowner may increase or decrease the
face amount of a Policy. A change in face amount may affect the cost of
insurance rate and the net amount at risk, both of which may affect a
Policyowner's cost of insurance charge.
Any decrease in the face amount will become effective on the Monthly
Deduction Day on or following receipt of a written request. Generally, no
decrease in the face amount will be permitted during the first five policy years
but LBL may waive this restriction. The face amount remaining in force after
any requested decrease may not be less than $25,000. If following the decrease
in face amount, the Policy would not comply
8
<PAGE>
with the maximum Premium limitations required by Federal tax law, the decrease
may be limited (or if the Policyowner so elects, Policy Value may be returned to
the Policyowner) to the extent necessary to meet these requirements. For
purposes of determining the cost of insurance charge, a decrease in the face
amount will reduce the face amount in the following order:
a. The face amount provided by the most recent increase;
b. The next most recent increases successively; and
c. The face amount when the Policy was issued.
For an increase in the face amount, a written application must be
submitted. LBL may also require that additional evidence of insurability be
submitted. The effective date of the increase will be the Monthly Deduction Day
on or following approval of the increase. An increase need not be accompanied
by an additional Premium; LBL may, however, deduct any charges associated with
the increase from existing Policy Value.
Generally, the Death Benefit option in effect may be changed at any time by
sending LBL a written request for change. If the Death Benefit option is
changed from Option 2 to Option 1, the face amount will be increased by an
amount equal to the Policy Value on the effective date of change. The effective
date of such a change will be the Monthly Deduction Day on or following receipt
of the request.
If the Death Benefit option is changed from Option 1 to Option 2, the face
amount will be decreased by an amount equal to the Policy Value on the effective
date of the change. This change may not be made if it would result in a face
amount less than $25,000. The effective date of such a change will be the
Monthly Deduction Day on or following the date the request is received. LBL
does not presently require evidence of insurability for a change in Death
Benefit options.
9
<PAGE>
No charges will be imposed upon a change in Death Benefit option, nor will
such a change in and of itself result in an immediate change in the amount of
the Policy Value.
(c) Policy Loans
------------
So long as the Policy remains in force, the Policyowner may borrow money
from LBL using the Policy as the only security for the loan. Loans have
priority over the claims of any assignee or any other person. The maximum
amount that may be borrowed at any time is 90 percent of the Surrender Value at
the end of the Valuation period during which the loan request is received.
Policy Debt equals the total of all outstanding Policy loans and any accrued
interest on the loans. Policy Debt may be repaid all or in part at any time.
Interest on policy loans accrues daily and is due at the end of each Policy
Year. Any interest not paid when due becomes part of the Policy Loan and will
bear interest at the same rate.
A Policyowner must allocate a policy loan among those Subaccounts of the
Separate Account which have Policy Value. LBL will ordinarily disburse proceeds
of policy loans within seven days after receipt of a written request although
postponement of loans may take place under certain circumstances./4/
When a policy loan is made, a portion of the Policy Value sufficient to
secure the loan will be transferred to LBL's General Account, reducing the
Policy Value in the Separate Account. Any loan interest that is due and unpaid
will also be transferred. Amounts transferred to the General Account will
accrue interest at an annual rate of 4.0 percent.
An amount equal to Policy Value less all premiums paid may be taken as a
Preferred Loan. The interest rate charged for Preferred Loans is 4.0 percent
per year. A Standard Loan is the amount that may be borrowed from the sum of
premiums paid. The Standard Loan interest rate is 6.0 percent per year.
10
<PAGE>
If the Policyowner has a loan on a policy with another company, and he/she
is terminating that policy to buy one from LBL, the old loan would normally be
paid off during the process of surrendering the old policy.
The maximum portion that can be carried over as "preferred" is 20 percent
of the total Policy Value, as shown below.
<TABLE>
<S> <C>
Policy Value of Old Policy: $190,000.00
Policy Loan: 40,000.00
-----------
Surrender Value: $150,000.00
20% of Policy Value: $ 38,000.00
"Preferred" portion transferable: $ 38,000.00
Remaining ("Standard") portion: $ 2,000.00
</TABLE>
Policy Debt may not exceed the Surrender Value. If Policy Debt would
otherwise exceed the Surrender Value, LBL will notify the Policyowner and any
assignee of record. LBL will require a payment sufficient to keep the policy.
Notwithstanding the above, the Policy will not terminate if the Guaranteed
Minimum Death Benefit provision is in effect through payment of monthly
guarantee premiums as defined in the Policy.
If the Insured dies during the grace period, the Death Benefit payable will
be reduced by the amount of the amount of the monthly deduction due and unpaid
and the amount of any outstanding Policy Debt. In addition, whenever the Policy
Debt exceeds the Surrender Value, the grace period provision will apply. A
lapsed Policy may be reinstated any time within 5 years after the date of lapse
(see "Reinstatement," page 5).
3. Transfers
---------
The Policyowner may transfer Policy Values among Subaccounts by written
request or telephone authorization. Currently, there is no minimum transfer
amount
11
<PAGE>
required among the Subaccounts. LBL reserves the right to impose a minimum
amount that may be transferred among the investment options under the Policy.
Telephone calls authorizing transfers must be completed by 4:00 p.m.
Eastern time on Valuation Date in order to be effected at the price determined
on such date. Transfer authorizations whether written or by telephone, which
are received after 4:00 p.m. Eastern time will be processed as of the next
Valuation Date. A proper telephone authorization form for transfers must be on
file. Also, the telephone transfer privilege may be suspended, modified, or
terminated at any time without notice. LBL utilizes procedures that it believes
provide reasonable assurance that telephone authorized transfers are genuine.
Such procedures include taping of telephone conversations with persons
purporting to authorize such transfers and requesting identifying information
from such persons. Accordingly, LBL disclaims any liability for losses
resulting from such transfers by reason of their allegedly not having been
properly authorized. However, if LBL does not take reasonable steps to help
ensure that such authorizations are valid, LBL may be liable for such losses.
A transfer fee of $25 may be assessed on the second and each subsequent
transaction in each calendar month in which transfers are made from
Subaccount(s) to Subaccount(s). LBL is currently waiving this fee.
Transfers resulting from Policy Loans, the exercise of conversion rights,
and reallocations of Policy Value at the expiration of the free-look period will
not be subject to a transfer charge.
- --------------
/1/ The Policy is structured to satisfy the definition of a life insurance
contract under the Internal Revenue Code. Accordingly, the maximum premium
contract under the Internal Revenue Code. Accordingly, the maximum premium
limitation will be imposed to conform the Policy to certain restrictions on
Premiums contained in the Internal Revenue Code which are necessary to satisfy
the definition of life insurance.
12
<PAGE>
- --------------------------------------------------------------------------------
/2/ Redemptions will be based on the net asset value next determined after
receipt of a request.
/3/ Payment may be postponed whenever: (i) the New York Stock Exchange is
closed other than customary weekend and holiday closings, or trading on the New
York Stock Exchange is restricted as determined by Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonable practicable or not reasonably
practicable to determine the value of the Separate Account's net assets. Payment
under the Policy of any amount paid by check may be postponed until such time as
the check has cleared the Policyowner's bank.
/4/ See note 3, supra.
13
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY
EXHIBIT NO. 14
ACTUARIAL BASIS OF PAYMENT AND CASH VALUE ADJUSTMENT
PURSUANT TO RULE 6e-3 (T) (b) (13) (V) (B)
EXHIBIT NO. 15
PROCEDURES MEMORANDUM
PURSUANT TO RULE 6e-3 (T) (b) (12) (iii)
<PAGE>
Description of Lincoln Benefit's Purchase,
Redemption, and Transfer Procedures for Policies
This document sets forth the administrative procedures that will be
followed by Lincoln Benefit Life Company ("LBL") in connection with the issuance
of its Flexible Premium Variable Life Insurance Policy ("Policy") described in
this Registration Statement, the transfer of assets held thereunder, and the
redemption by Policyowners of their interest in the Policies.
1. "Public Offering Price": Purchase and Related Transactions.
------------------------------------------------------------
Set out below is a summary of the principal Policy provisions and
administrative procedures which might be deemed to constitute, either directly
or indirectly, a "purchase" transaction. The summary shows that, because of the
insurance nature of the Policies, the procedures involved necessarily differ in
certain significant respects from the purchase procedures for mutual funds and
contractual plans.
(a) Premium Schedules and Underwriting Standards
--------------------------------------------
Premiums for the Policies will not be the same for all Policyowners. LBL
will require the Policyowner to pay a required Premium for the first Policy
Year. Policyowners will also determine a planned periodic Premium payment
schedule that provides a level Premium payable at a fixed interval for a
specified period of time. Payment of Premium in accordance with this schedule
is not, however, mandatory and failure to do so will not of itself cause the
Policy to lapse. Instead, Policyowners may make Premium payments in any amount
at any frequency, subject only to the maximum Premium limitation./1/ If at any
time a Premium is paid which would result in total Premiums exceeding the
current maximum Premium limitation, LBL will accept only that portion of the
Premium which will make total Premiums equal that amount. Any portion of the
Premium in excess of that
1
<PAGE>
amount will be returned to the Policyowner and no further Premiums will be
accepted until allowed by the current maximum Premium limitations or unless the
Policyowner increases the face amount of the Policy.
The Policy will remain in force so long as the Lapse Determination Value is
sufficient to pay certain monthly charges in connection with the Policy, or if
the total payments made, net of any loans or partial withdrawals, equal or
exceed cumulative monthly guarantee premiums as defined in the Policy. The
Lapse Determination Value is the Policy Value if no loans are on the Policy; and
is the Net Surrender Value if the Policy has outstanding loans. Thus, the
amount of a Premium, if any, that must be paid to keep the Policy in force
depends upon the Policy Value, which in turn depends on such factors as the
investment experience, the cost of insurance charge, and administrative charges.
In addition, if outstanding loans are present, any applicable surrender charges,
and, by definition, Policy Debt must be taken into account. The cost of
insurance rate utilized in computing the cost of insurance charge will not be
the same for each Insured. The chief reason is that the principle of pooling
and distribution of mortality risks is based upon the assumption that each
Insured incurs an insurance rate commensurate with his or her mortality risk
which is actuarially determined based upon factors such as issue age, sex,
duration, risk classification and face amount of the Policy. Accordingly, while
not all Policyowners will be subject to the same cost of insurance rate, there
will be a single "rate" for all Policyowners in a given actuarial category.
The Policies will be offered and sold pursuant to established underwriting
standards and in accordance with state insurance laws. State insurance laws
prohibit unfair discrimination among Policyowners but recognize that Premiums
and charges must be based upon factors such as Age, sex, health and occupation.
2
<PAGE>
The exchange shall be subject to the following rules:
1. Premiums for the new Policy will be based on the same issue age and
risk classification of the Insured as the existing Policy.
2. The Policyowner may elect either the same Net Death Benefit or the
same net amount at risk as the existing Policy at the time of the
exchange.
3. The exchange must be made within 24 months after the issuance of the
existing Policy.
4. No evidence of insurability will be required at the time of the
exchange.
5. The conversion will be subject to an equitable adjustment as required
by Rule 6e-3 (T) to reflect variances, if any, in the payments and
Policy Values under the new policy.
(b) Application and Initial Premium Processing
------------------------------------------
Upon receipt of a completed application, LBL will follow certain insurance
underwriting (i.e., evaluation of risks) procedures designed to determine
whether the applicant is insurable. This process may involve such verification
procedures as medical examinations and may be required that further information
be provided by the proposed applicant before a determination can be made. A
Policy will not be issued until this underwriting procedure has been completed.
If the required minimum Premium for the policy is submitted with the
application, insurance coverage will ordinarily begin on the date that the
Underwriting Department approves the Policy as applied for, based on receipt of
any required medical examinations or other items requested in accordance with
LBL's underwriting requirements. If a minimum Premium is not paid with the
application, insurance coverage will ordinarily begin on the date the policy is
delivered to the Policyowner and the required Premium is
3
<PAGE>
collected. Insurance coverage may also begin on any other date mutually
agreeable to LBL and the Policyowner as long as such date complies with all
applicable state and federal laws and regulations.
LBL will allocate Net premiums from the Policy to the Lincoln Benefit Life
Variable Account ("Separate Account") on the date the Premium is received.
The minimum face amount at issue is $50,000 ($25,000 for Insureds age 65 or
over at the Issue Date) under LBL's current rules. LBL reserves the right to
revise its rules from time to time to specify a different minimum face amount at
issue for subsequently issued policies.
(c) Premium Allocation
------------------
In the application for a Policy, the Policyowner must allocate Net Premiums
(total premiums less the Premium charge of 2-1/2%) among the Subaccounts of the
Separate Account. All net premium payments received before the Record Date will
be credited to the Fidelity Money Market Portfolio as of the date we receive
them (The Record Date is the date we record the Policy on our books as an
inforce policy). In most states, LBL will allocate such net premiums, plus
earnings and less monthly deductions, to the Subaccounts the Policyowner has
selected on the Record Date.
In a state requires us to refund premium payments during the free look
period, LBL will keep the net premiums in the Money Market Portfolio for twenty
days following the Record Date before allocating them (plus earnings and less
monthly deductions) to the Subaccount the Policyowner has selected.
The allocation for future net Premium Payments may be changed at any time
by written notice (or by telephone notice, if authorized) to LBL without payment
of any fee or penalties.
4
<PAGE>
(d) Reinstatement
-------------
A lapsed Policy may be reinstated any time within 5 years after the date of
lapse by submitting the following items to LBL:
1. A written request for reinstatement;
2. Evidence of insurability satisfactory to LBL;
3. Payment of a premium sufficient to keep the Policy in force for at
least three months;
4. Payment of the monthly deductions for the time, up to six months,
since the Policy Value became zero; and
5. Payment or reinstatement of any loan.
Upon approval of the application for reinstatement, the effective date of
reinstatement will be the Monthly Deduction Day on or prior to the date of
approval.
(e) Repayment of Indebtedness
-------------------------
Outstanding indebtedness may be repaid at any time. Upon repayment, the
Policy Value securing the repaid portion of the debt in the General Account will
be transferred to the Subaccounts of the Separate Account using the same
percentages used to allocate Net Premiums.
(f) Correction of Misstatement of Age or Sex
----------------------------------------
If LBL discovers that the age or sex of the Insured has been misstated, LBL
will adjust the Death Benefit of the Policy by use of the most recent costs of
insurance for the correct Age or Sex.
2. "Redemption Procedures": Surrender and Related Transactions
------------------------------------------------------------
This section outlines those procedures which might be deemed to constitute
redemptions under the Policy. These procedures differ in certain significant
respects from the redemption procedures for mutual funds and contractual plans.
5
<PAGE>
(a) Surrender Values
----------------
As long as the Policy is in force, the Policyowner may surrender the Policy
or make a partial withdrawal at any time by sending a written request to LBL.
The amount available for surrender ("Net Surrender Value") is the Policy Value
less any applicable surrender charge and Policy Debt at the end of the Valuation
period during which the surrender request is received at LBL's home office. Net
Surrender Value will be determined on a daily basis. This will enable LBL to
pay a Net Surrender Value based on the Next computed value after a request is
received./2/ Surrenders from the Separate Account will generally be paid within
seven days of receipt of the written request./3/ A charge is imposed for
surrenders, as explained in the Surrender Value section of the Policy.
The Policyowner can obtain a portion of the Net Surrender Value by making a
partial withdrawal from the Policy.
A partial withdrawal may not reduce the Net Surrender Value below $500.
The minimum withdrawal at any time is $250. A proportionate amount of the full
surrender charge will be assessed on partial withdrawals during the first 12
Policy years. A partial withdrawal will affect your Policy Value and Death
Benefit.
Option 1. Partial withdrawals generally will affect both the Policy Value
and the life insurance proceeds payable under the Policy. The Policy Value will
be reduced to reflect the amount of the withdrawal. Moreover, life insurance
proceeds payable under the Policy will generally be reduced to reflect the
amount of the partial withdrawal. The face amount remaining after a partial
withdrawal may not be less than $25,000. If increases in face amount previously
have occurred, a partial withdrawal will first reduce the face amount of the
most recent increase, then the most recent increases successively, then the
coverage under the original Policy.
6
<PAGE>
Option 2. Under Option 2, which provides for life insurance proceeds equal
to the face amount plus Policy Value, a reduction in Policy Value as a result of
a partial surrender will typically result in a dollar per dollar reduction in
the life insurance proceeds payable under the Policy.
The Policyowner must allocate a partial withdrawal among the Subaccounts of
the Separate Account. Telephoned instructions for partial withdrawals will be
permitted, provided a proper telephone authorization form is on file. Before
any withdrawals can be made, a proper withholding form must be on file.
The amount payable upon complete surrender of the Policy is the Net
Surrender Value which may be paid in a lump sum or under one of the optional
payment plans specified in the Policy. Proceeds will generally be paid within
seven days of receipt of a request for surrender.
(b) Death Benefits
--------------
So long as it remains in force, the Policy provides for the payment of life
insurance proceeds upon the death of the Insured. Proceeds will be paid to
named Beneficiary or contingent Beneficiary. One or more Beneficiaries or
contingent Beneficiaries may be named. Life insurance proceeds may be paid in a
lump sum or under one of the optional payment plans specified in the Policy.
The amount of Death Benefit proceeds payable will be determined at the end of
the Valuation Period during which the insured dies.
Proceeds of the Policy will be reduced by any outstanding Policy debt and
any due and unpaid charges and increased by any benefits added by the rider.
Proceeds will ordinarily be paid within seven days after LBL receives due Proof
of Death and all other requirements deemed necessary have been satisfied.
The death benefit will be based on:
7
<PAGE>
1. The death benefit option in effect on the date of death;
2. Any increases or decreases to the face amount.
While the Insured is alive, the Policyowner may choose between two death
benefit options:
If Option 1 is selected, the Death Benefit will be the greater of:
a. The face amount; or
b. The Policy Value multiplied by the applicable corridor percentage as
described in the Policy.
If you select Option 2, the Death Benefit will be the greater of:
a. The face amount plus the policy value; or
b. The Policy Value multiplied by the applicable corridor percentage as
described in the Policy.
Under Death Benefit Option 1, the Death Benefit will only vary whenever the
applicable percentage of Policy Value set forth in the Policy exceeds the face
amount of the Policy Value set forth in the Policy exceeds the face amount of
the Policy. Under Death Benefit Option 2, the Death Benefit will always vary
with the Policy Value since the Death Benefit equals the face amount plus the
Policy Value.
Subject to certain limitations, a Policyowner may increase or decrease the
face amount of a Policy. A change in face amount may affect the cost of
insurance rate and the net amount at risk, both of which may affect a
Policyowner's cost of insurance charge.
Any decrease in the face amount will become effective on the Monthly
Deduction Day on or following receipt of a written request. Generally, no
decrease in the face amount will be permitted during the first five policy years
but LBL may waive this restriction. The face amount remaining in force after
any requested decrease may not be less than $25,000. If following the decrease
in face amount, the Policy would not comply
8
<PAGE>
with the maximum Premium limitations required by Federal tax law, the decrease
may be limited (or if the Policyowner so elects, Policy Value may be returned to
the Policyowner) to the extent necessary to meet these requirements. For
purposes of determining the cost of insurance charge, a decrease in the face
amount will reduce the face amount in the following order:
a. The face amount provided by the most recent increase;
b. The next most recent increases successively; and
c. The face amount when the Policy was issued.
For an increase in the face amount, a written application must be
submitted. LBL may also require that additional evidence of insurability be
submitted. The effective date of the increase will be the Monthly Deduction Day
on or following approval of the increase. An increase need not be accompanied
by an additional Premium; LBL may, however, deduct any charges associated with
the increase from existing Policy Value.
Generally, the Death Benefit option in effect may be changed at any time by
sending LBL a written request for change. If the Death Benefit option is
changed from Option 2 to Option 1, the face amount will be increased by an
amount equal to the Policy Value on the effective date of change. The effective
date of such a change will be the Monthly Deduction Day on or following receipt
of the request.
If the Death Benefit option is changed from Option 1 to Option 2, the face
amount will be decreased by an amount equal to the Policy Value on the effective
date of the change. This change may not be made if it would result in a face
amount less than $25,000. The effective date of such a change will be the
Monthly Deduction Day on or following the date the request is received. LBL
does not presently require evidence of insurability for a change in Death
Benefit options.
9
<PAGE>
No charges will be imposed upon a change in Death Benefit option, nor will
such a change in and of itself result in an immediate change in the amount of
the Policy Value.
(c) Policy Loans
------------
So long as the Policy remains in force, the Policyowner may borrow money
from LBL using the Policy as the only security for the loan. Loans have
priority over the claims of any assignee or any other person. The maximum
amount that may be borrowed at any time is 90 percent of the Surrender Value at
the end of the Valuation period during which the loan request is received.
Policy Debt equals the total of all outstanding Policy loans and any accrued
interest on the loans. Policy Debt may be repaid all or in part at any time.
Interest on policy loans accrues daily and is due at the end of each Policy
Year. Any interest not paid when due becomes part of the Policy Loan and will
bear interest at the same rate.
A Policyowner must allocate a policy loan among those Subaccounts of the
Separate Account which have Policy Value. LBL will ordinarily disburse proceeds
of policy loans within seven days after receipt of a written request although
postponement of loans may take place under certain circumstances./4/
When a policy loan is made, a portion of the Policy Value sufficient to
secure the loan will be transferred to LBL's General Account, reducing the
Policy Value in the Separate Account. Any loan interest that is due and unpaid
will also be transferred. Amounts transferred to the General Account will
accrue interest at an annual rate of 4.0 percent.
An amount equal to Policy Value less all premiums paid may be taken as a
Preferred Loan. The interest rate charged for Preferred Loans is 4.0 percent
per year. A Standard Loan is the amount that may be borrowed from the sum of
premiums paid. The Standard Loan interest rate is 6.0 percent per year.
10
<PAGE>
If the Policyowner has a loan on a policy with another company, and he/she
is terminating that policy to buy one from LBL, the old loan would normally be
paid off during the process of surrendering the old policy.
The maximum portion that can be carried over as "preferred" is 20 percent
of the total Policy Value, as shown below.
<TABLE>
<S> <C>
Policy Value of Old Policy: $190,000.00
Policy Loan: 40,000.00
-----------
Surrender Value: $150,000.00
20% of Policy Value: $ 38,000.00
"Preferred" portion transferable: $ 38,000.00
Remaining ("Standard") portion: $ 2,000.00
</TABLE>
Policy Debt may not exceed the Surrender Value. If Policy Debt would
otherwise exceed the Surrender Value, LBL will notify the Policyowner and any
assignee of record. LBL will require a payment sufficient to keep the policy.
Notwithstanding the above, the Policy will not terminate if the Guaranteed
Minimum Death Benefit provision is in effect through payment of monthly
guarantee premiums as defined in the Policy.
If the Insured dies during the grace period, the Death Benefit payable will
be reduced by the amount of the amount of the monthly deduction due and unpaid
and the amount of any outstanding Policy Debt. In addition, whenever the Policy
Debt exceeds the Surrender Value, the grace period provision will apply. A
lapsed Policy may be reinstated any time within 5 years after the date of lapse
(see "Reinstatement," page 5).
3. Transfers
---------
The Policyowner may transfer Policy Values among Subaccounts by written
request or telephone authorization. Currently, there is no minimum transfer
amount
11
<PAGE>
required among the Subaccounts. LBL reserves the right to impose a minimum
amount that may be transferred among the investment options under the Policy.
Telephone calls authorizing transfers must be completed by 4:00 p.m.
Eastern time on Valuation Date in order to be effected at the price determined
on such date. Transfer authorizations whether written or by telephone, which
are received after 4:00 p.m. Eastern time will be processed as of the next
Valuation Date. A proper telephone authorization form for transfers must be on
file. Also, the telephone transfer privilege may be suspended, modified, or
terminated at any time without notice. LBL utilizes procedures that it believes
provide reasonable assurance that telephone authorized transfers are genuine.
Such procedures include taping of telephone conversations with persons
purporting to authorize such transfers and requesting identifying information
from such persons. Accordingly, LBL disclaims any liability for losses
resulting from such transfers by reason of their allegedly not having been
properly authorized. However, if LBL does not take reasonable steps to help
ensure that such authorizations are valid, LBL may be liable for such losses.
A transfer fee of $25 may be assessed on the second and each subsequent
transaction in each calendar month in which transfers are made from
Subaccount(s) to Subaccount(s). LBL is currently waiving this fee.
Transfers resulting from Policy Loans, the exercise of conversion rights,
and reallocations of Policy Value at the expiration of the free-look period will
not be subject to a transfer charge.
- --------------
/1/ The Policy is structured to satisfy the definition of a life insurance
contract under the Internal Revenue Code. Accordingly, the maximum premium
contract under the Internal Revenue Code. Accordingly, the maximum premium
limitation will be imposed to conform the Policy to certain restrictions on
Premiums contained in the Internal Revenue Code which are necessary to satisfy
the definition of life insurance.
12
<PAGE>
- --------------------------------------------------------------------------------
/2/ Redemptions will be based on the net asset value next determined after
receipt of a request.
/3/ Payment may be postponed whenever: (i) the New York Stock Exchange is
closed other than customary weekend and holiday closings, or trading on the New
York Stock Exchange is restricted as determined by Commission; (ii) the
Commission by order permits postponement for the protection of Policyowners; or
(iii) an emergency exists, as determined by the Commission, as a result of which
disposal of securities is not reasonable practicable or not reasonably
practicable to determine the value of the Separate Account's net assets. Payment
under the Policy of any amount paid by check may be postponed until such time as
the check has cleared the Policyowner's bank.
/4/ See note 3, supra.
13
