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PROSPECTUS
FLEXIBLE PREMIUM
VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY
LINCOLN BENEFIT LIFE COMPANY
IN CONNECTION WITH
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STREET ADDRESS: 206 SOUTH 13TH ST., LINCOLN, NE 68508-1993
MAILING ADDRESS: P. O. BOX 82532, LINCOLN, NE 68501-2532
TELEPHONE NUMBER: 1-800-865-5237
This prospectus describes a Flexible Premium Variable Universal Life Insurance
Policy (the "Policy") offered by Lincoln Benefit Life Company ("us" or "Lincoln
Benefit"). Lincoln Benefit is owned by Allstate Life Insurance Company.
The Policy is designed to provide both life insurance protection and flexibility
in connection with premium payments and death benefits. The Policy is designed
for prospective insured persons age 0-80. Subject to certain restrictions, you
may 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 your changing insurance needs within the
confines of a single insurance contract.
When the Insured dies, we will pay a Death Benefit to a Beneficiary specified by
you. We will reduce the amount of the Death Benefit payment by any unpaid Policy
loans and any unpaid Policy charges. You may choose one of two Death Benefit
options: (1) a level amount, which generally equals the Face Amount of the
Policy; or (2) a variable amount, which generally equals the Face Amount plus
the Policy Value. While the Policy remains in force, the Death Benefit will not
be less than the maximum of the current Face Amount of the Policy or the Policy
Value multiplied by the applicable corridor percentage specified in the Policy.
The minimum Face Amount of the Policy is $100,000.
We allocate your Premium to the investment options under the Policy and our
Fixed Account in the proportions that you choose. The Policy currently offers
thirty-seven investment options, each of which is a Subaccount of the Lincoln
Benefit Life Variable Life Account (the "Separate Account"). Each Subaccount
invests exclusively in shares of one of the following Portfolios:
JANUS ASPEN SERIES: Flexible Income Portfolio, Balanced Portfolio, Growth
Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio
FEDERATED INSURANCE MANAGEMENT SERIES: Utility Fund II, Fund for U.S. Government
Securities II, High Income Bond Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: Money Market Portfolio, Equity-Income
Portfolio, Growth Portfolio, Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: Asset Manager Portfolio,
Contrafund Portfolio, Index 500 Portfolio
THE ALGER AMERICAN FUND: Income and Growth Portfolio, Small Capitalization
Portfolio, Growth Portfolio, MidCap Growth Portfolio, Leveraged AllCap Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND: Bond Portfolio, Balanced Portfolio,
Growth and Income Portfolio, Global Discovery Portfolio, International Portfolio
STRONG VARIABLE INSURANCE FUNDS, INC.: Discovery Fund II, Growth Fund II
STRONG OPPORTUNITY FUND II, INC.
T. ROWE PRICE INTERNATIONAL SERIES, INC.: International Stock Portfolio
T. ROWE PRICE EQUITY SERIES, INC.: New America Growth Portfolio, Mid-Cap Growth
Portfolio, Equity Income Portfolio
MFS VARIABLE INSURANCE TRUST: Growth with Income Series, Research Series,
Emerging Growth Series, Total Return Series, New Discovery Series
We may make other investment options available in the future.
The Policy does not have a guaranteed minimum Policy Value. Your Policy Value
will rise and fall, depending on the investment performance of the Portfolios
underlying the Subaccounts to which you allocate your Premiums. You bear the
entire investment risk on amounts allocated to the Subaccounts. The investment
policies and risks of each Portfolio are described in the accompanying
prospectus for the Portfolios. The Policy Value will also reflect Premiums,
amounts withdrawn, and any insurance or other charges.
(continued on next page)
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JULY 23, 1998.
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The Policy will remain in force as long as the Net Surrender Value is sufficient
to pay the monthly charges under the Policy. In addition, during the first ten
Policy Years, or until the Policy Anniversary after the Insured's 80th birthday,
if earlier, we guarantee that the Policy will remain in effect regardless of
changes in the Policy Value, as long as your total Premiums (less partial
withdrawals and Policy Debt) at least equal the applicable Safety Net Premiums,
as described on page 9.
We will not accept any Premium which would cause the Policy not to qualify as a
life insurance contract under the Internal Revenue Code of 1986 (the "Tax
Code").
You may cancel the Policy by returning it to us within 10 days after you receive
it, or after whatever longer period may be permitted by state law. We will
refund the Policy Value as of the date we receive your Policy, plus any charges
previously deducted, unless your state requires a refund of Premium.
IT MAY NOT BE ADVANTAGEOUS FOR YOU TO REPLACE EXISTING INSURANCE COVERAGE OR BUY
ADDITIONAL INSURANCE IF YOU ALREADY OWN A VARIABLE LIFE INSURANCE POLICY.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED BY THE CURRENT PROSPECTUSES FOR THE
PORTFOLIOS LISTED ABOVE. IF ANY OF THE PROSPECTUSES ARE MISSING OR OUTDATED,
PLEASE CONTACT US AND WE WILL SEND YOU THE PROSPECTUS YOU NEED.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
This Policy may not be available in all states.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
DEFINITIONS................................................. 4
QUESTIONS AND ANSWERS ABOUT YOUR POLICY..................... 5
PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS............... 8
Application for a Policy.................................... 8
Premiums.................................................... 8
Premium Limits.............................................. 9
Modified Endowment Contracts................................ 9
Safety Net Premium.......................................... 9
Allocation of Premiums...................................... 9
Policy Value................................................ 10
Accumulation Unit Value..................................... 10
Transfer of Policy Value.................................... 10
Transfers Authorized by Telephone........................... 11
Dollar Cost Averaging....................................... 11
Portfolio Rebalancing....................................... 11
Specialized Uses of the Policy.............................. 12
THE INVESTMENT AND FIXED ACCOUNT OPTIONS.................... 12
Separate Account Investments................................ 12
Portfolios.................................................. 12
Voting Rights............................................... 16
Additions, Deletions, and Substitutions of Securities....... 16
The Fixed Account........................................... 17
POLICY BENEFITS AND RIGHTS.................................. 17
Death Benefit............................................... 17
Death Benefit Options....................................... 17
Change in Face Amount....................................... 18
Optional Insurance Benefits................................. 18
Policy Loans................................................ 19
Amount Payable on Surrender of the Policy................... 20
Partial Withdrawals......................................... 20
Settlement Options.......................................... 20
Maturity.................................................... 21
Lapse and Reinstatement..................................... 21
Cancellation and Exchange Rights............................ 21
Postponement of Payments.................................... 21
DEDUCTIONS AND CHARGES...................................... 21
Premium Tax Charge and Premium Expense Charge............... 21
Monthly Deduction........................................... 22
Policy Fee.................................................. 22
Mortality and Expense Risk Charge........................... 22
Cost of Insurance Charge.................................... 22
Deduction for Separate Account Income Taxes................. 22
Portfolio Expenses.......................................... 23
Surrender Charge............................................ 24
Transfer Fee................................................ 25
GENERAL POLICY PROVISIONS................................... 25
Statements to Policy Owners................................. 25
Limit on Right to Contest................................... 25
Suicide..................................................... 26
Misstatement as to Age and Sex.............................. 26
Beneficiary................................................. 26
Assignment.................................................. 26
Dividends................................................... 26
FEDERAL TAX CONSIDERATIONS.................................. 26
Taxation of Lincoln Benefit and the Separate Account........ 26
Taxation of Policy Benefits................................. 27
Modified Endowment Contracts................................ 27
Diversification Requirements................................ 27
Owner Control............................................... 28
Policy Loan Interest........................................ 28
Qualified Plans............................................. 28
Tax Advice.................................................. 28
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE
ACCOUNT..................................................... 28
Lincoln Benefit Life Company................................ 28
Executive Officers and Directors of Lincoln Benefit......... 29
Separate Account............................................ 30
Safekeeping of the Separate Account's Assets................ 31
State Regulation of Lincoln Benefit......................... 31
Year 2000................................................... 31
DISTRIBUTION OF POLICIES.................................... 31
LEGAL PROCEEDINGS........................................... 31
LEGAL MATTERS............................................... 31
REGISTRATION STATEMENT...................................... 31
EXPERTS..................................................... 31
FINANCIAL STATEMENTS........................................ 32
APPENDIX.................................................... A-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. LINCOLN BENEFIT DOES NOT AUTHORIZE ANY
INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
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DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION UNIT - An accounting unit of measurement which we use to calculate
the value of a Subaccount.
AGE - The Insured's age at his or her last birthday.
BENEFICIARY(IES) - The person(s) named by you to receive the Death Benefit under
the Policy.
DEATH BENEFIT - The amount payable to the Beneficiary under the Policy upon the
death of the Insured, before payment of any unpaid Policy Debt or Policy
Charges.
FACE AMOUNT - The initial amount of insurance under your Policy, adjusted for
any changes in accordance with the terms of your Policy.
FIXED ACCOUNT - The portion of the Policy Value allocated to our general
account.
GRACE PERIOD - A 61-day period during which the Policy will remain in force so
as to permit you to pay sufficient additional Premium to keep the Policy from
lapsing.
INSURED - The person whose life is insured under the Policy.
ISSUE DATE - The date on which the Policy is issued. It is used to determine
Policy Anniversaries, Policy Years and Policy Months.
LOAN ACCOUNT - An account established for amounts transferred from the
Subaccounts or the Fixed Account as security for outstanding Policy loans.
MONTHLY AUTOMATIC PAYMENT - A method of paying a Premium each month
automatically, for example by bank draft or salary deduction.
MONTHLY DEDUCTION - The amount deducted from Policy Value on each Monthly
Deduction Day for the policy fee, mortality and expense risk charge, cost of
insurance charge, and the cost of any benefit riders.
MONTHLY DEDUCTION DAY - The same day in each month as the Issue Date. The day of
the month on which Monthly Deductions are taken from your Policy Value.
NET DEATH BENEFIT - The Death Benefit, less any Policy Debt.
NET INVESTMENT FACTOR - The factor we use to determine the change in value of an
Accumulation Unit in any Valuation Period. We determine the Net Investment
Factor separately for each Subaccount.
NET POLICY VALUE - The Policy Value, less any Policy Debt.
NET PREMIUM - The Premium less the premium tax and the premium expense charges.
NET SURRENDER VALUE - The Policy Value less any applicable surrender charges and
less any unpaid Policy Debt. The Net Surrender Value must be positive for the
Policy to remain in effect, unless the Safety Net Premium feature is in effect.
POLICY ANNIVERSARY - The same day and month as the Issue Date for each
subsequent year the Policy remains in force.
POLICY DEBT - The sum of all unpaid Policy loans and accrued loan interest.
POLICY OWNER ("YOU") - The person(s) having the privileges of ownership defined
in the Policy. The Policy Owner may or may not be the same person as the
Insured. If your Policy is issued pursuant to a retirement plan, your ownership
privileges may be modified by the plan.
POLICY VALUE - The sum of the values of your interests in the Subaccounts of the
Separate Account, the Fixed Account and the Loan Account. The amount from which
the Monthly Deductions are made and the Death Benefit is determined.
POLICY YEAR - Each twelve-month period beginning on the Issue Date and each
Policy Anniversary.
PORTFOLIO(S) - The underlying mutual funds in which the Subaccounts invest. Each
Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PREMIUM - Amounts paid to us as premium for the Policy by you or on your behalf.
QUALIFIED PLAN - A pension or profit-sharing plan established by a corporation,
partnership, sole proprietor, or other eligible organization that is qualified
for favorable tax treatment under Section 401(a) or 403(b) of the Tax Code.
SEPARATE ACCOUNT - The Lincoln Benefit Life Variable Life Account, which is a
segregated investment account of Lincoln Benefit.
SUBACCOUNT - A subdivision of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SURRENDER VALUE - The Policy Value less any applicable surrender charges.
TAX CODE - The Internal Revenue Code of 1986, as amended.
VALUATION DATE - Each day the New York Stock Exchange is open for business.
VALUATION PERIOD - The period of time over which we determine the change in the
value of the Subaccounts in order to price Accumulation Units. Each Valuation
Period begins at the close of normal trading on the New York Stock Exchange
("NYSE"), currently 4:00 p.m. Eastern time, on each Valuation Date and ends at
the close of the NYSE on the next Valuation Date.
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QUESTIONS AND ANSWERS
ABOUT YOUR POLICY
These are answers to questions that you may have about some of the most
important features of your Policy. The Policy is more fully described in the
remainder of the Prospectus. Please read the Prospectus carefully.
1. WHAT IS A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY?
The Policy has a Death Benefit, Policy Value, and other features of life
insurance providing fixed benefits. It is a "flexible premium" policy because
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 investment performance of the Portfolios to which
you have allocated your Premiums. The Policy Value is not guaranteed. Payment of
the Death Benefit may be guaranteed under the Safety Net Premium provision. This
Policy provides you with the opportunity to take advantage of any increase in
your Policy Value, but you also bear the risk of any decrease.
2. WHAT ARE THE DEATH BENEFIT OPTIONS?
While the Policy is in force, we will pay a Death Benefit to the Beneficiary
upon the death of the Insured. The Policy provides for two Death Benefit
options. Under Option 1, the Death Benefit is equal to the greater of your
Policy's Face Amount and the Policy Value multiplied by a specified percentage.
Under Option 2, the Death Benefit is equal to the greater of your Policy's Face
Amount plus the Policy Value on the Insured's date of death or the Policy Value
multiplied by a specified percentage. Decreases in the Policy Value will never
cause the Death Benefit to be less than the Face Amount. Before we pay the Death
Benefit to the Beneficiary, however, we will subtract an amount sufficient to
repay any outstanding Policy Debt and to pay any due and unpaid charges.
3. WHAT IS THE SAFETY NET PREMIUM FEATURE?
Unless otherwise required by your state, we agree to keep the Policy in force
for a specified period, regardless of the investment performance of the
Portfolios, as long as your total Premiums paid (as reduced to reflect
withdrawals and Policy Debt) at least equals the cumulative Safety Net Premium
amount shown in your Policy. If the Insured is age 70 or less at the Issue Date,
the specified period will be the first ten Policy Years. Otherwise, it will run
from the Issue Date until the next Policy Anniversary after the Insured's 80th
birthday.
To keep the Safety Net Premium feature in effect, on each Monthly Deduction Day
your total Premiums (less withdrawals and Policy Debt) must at least equal the
total amount you would have paid if you had paid the Safety Net Premium each
month. If you have not paid sufficient Premiums, we will notify you and give you
61 days to remedy the shortfall. If you do not pay enough additional Premium
within this 61-day period, the Safety Net Premium feature will terminate and may
not be reinstated, even if you make up the shortfall after the end of the 61-day
period.
When the Safety Net Premium feature is not in effect, your Policy will remain in
force as long as the Net Surrender Value is large enough to pay the Monthly
Deductions on your Policy as they come due. If on any Monthly Deduction Day the
Net Surrender Value is less than the Monthly Deduction due, your Policy will
enter the Grace Period. If you do not pay sufficient additional Premium, at the
end of the Grace Period your Policy will end.
4. HOW WILL MY POLICY VALUE BE DETERMINED?
Your Premiums are invested in one or more of the Subaccounts of the Separate
Account or allocated to the Fixed Account, as you instruct us. Your 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 Account. Your Policy
Value will depend on the investment performance of the Subaccounts and the
amount of interest we credit to the Fixed Account, as well as the Net Premiums
paid, partial withdrawals, and charges assessed. We do not guarantee a minimum
Policy Value.
5. WHAT ARE THE PREMIUMS FOR THIS POLICY?
You have considerable flexibility as to the timing and amount of your Premiums.
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 Safety
Net Premium feature, you must pay the cumulative Safety Net Premiums due.
Otherwise, you may pay any level of Premium, as long as the Premium would not
cause your Policy to lose its status as a life insurance contract under the Tax
Code. Your Policy also has a planned periodic Premium. You establish a planned
periodic Premium when you purchase a Policy. You are not required to pay the
planned periodic Premium, and we will not terminate your Policy merely because
you did not pay a planned periodic Premium.
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 first
Policy Year by sending us a written request. Your requested increase must be at
least $10,000. If you request an increase in Face Amount, you must provide us
with evidence of insurability that meets our underwriting standards. An increase
in the Face Amount of your Policy will increase the charges deducted from your
Policy Value. We will not decrease the Face Amount of your Policy below $50,000.
For more detail, see "Change in Face Amount", on page 17.
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7. HOW ARE MY PREMIUMS ALLOCATED?
Before your Premiums are allocated to the Policy Value, we deduct a premium tax
charge of 2.5% of each Premium and a premium expense charge. The premium expense
charge will be 3.5% of each Premium for the first ten Policy Years and 1.5%
thereafter. For more detail, see "Premium Tax Charge and Premium Expense Charge"
on page 21. The remaining amount is called the Net Premium.
When you apply for the Policy, you specify in your application how to allocate
your Net Premiums among the Subaccounts and the Fixed Account. You must use
whole number percentages and the total allocations must equal 100%. You may
change your allocation percentages at any time by notifying us in writing.
Generally, we will allocate your Premiums to the Subaccounts and the Fixed
Account as of the date your Premiums are received in our home office. If a
Premium requires an underwriting, the Premium will not be allocated nor will it
earn interest prior to the Issue Date. Once underwriting approval and Premium is
received, we will allocate that Premium in accordance with your most recent
instructions. In addition, if you live in certain states, we may allocate your
Premiums to the Money Market Account until the end of the cancellation period
described in the answer to Question 13 below.
You may transfer Policy Value among the Subaccounts and the Fixed Account while
the Policy is in force, by writing to us or calling us at 1-800-865-5237. While
we currently are not charging a transfer fee, the Policy gives us the right to
impose a transfer fee of up to $10 upon the second and each subsequent transfer
in a single calendar month. While you may also transfer amounts from the Fixed
Account, certain restrictions may apply. For more detail, see "Transfer of
Policy Value" and "Transfers Authorized by Telephone", on page 10.
You may also use our automatic Dollar Cost Averaging program or our Portfolio
Rebalancing program. You may not use both programs at the same time.
Under the Dollar Cost Averaging program, amounts are automatically transferred
at regular intervals from the Fixed Account or a Subaccount of your choosing to
up to eight options, including other Subaccounts or the Fixed Account. Transfers
may be made monthly, quarterly, or annually. For more detail, see "Dollar Cost
Averaging", on pages 20-21.
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 the balance of your Policy Value allocations. If you elect
rebalancing, we will automatically transfer your Policy Value back to the
specified percentages at the frequency (monthly, quarterly, semiannually,
annually) that you specify. For more detail, see "Portfolio Rebalancing", on
page 11.
8. WHAT ARE MY INVESTMENT CHOICES UNDER THE POLICY?
You can allocate and reallocate your Policy Value among the Subaccounts, each of
which in turn invests in a single Portfolio. Under the Policy, the Separate
Account currently invests in the following Portfolios:
<TABLE>
<CAPTION>
Fund Portfolio(s)
- ----------------------------- -----------------------------
<S> <C>
- ------------------------------------------------------------
Janus Aspen Series Flexible Income Portfolio
Balanced Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
- ------------------------------------------------------------
Federated Insurance Utility Fund II
Management Series Fund for U.S. Government
Securities II
High Income Bond Fund II
- ------------------------------------------------------------
Fidelity Variable Insurance Money Market Portfolio
Products Fund Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
- ------------------------------------------------------------
Fidelity Variable Insurance Asset Manager Portfolio
Products Fund II Contrafund Portfolio
Index 500 Portfolio
- ------------------------------------------------------------
The Alger American Fund Income and Growth Portfolio
Small Capitalization
Portfolio
Growth Portfolio
MidCap Growth Portfolio
Leveraged AllCap Portfolio
- ------------------------------------------------------------
Scudder Variable Life Bond Portfolio
Investment Fund Balanced Portfolio
Growth and Income Portfolio
Global Discovery Portfolio
International Portfolio
- ------------------------------------------------------------
Strong Variable Insurance Discovery Fund II
Funds, Inc. Growth Fund II
- ------------------------------------------------------------
Strong Opportunity Fund II, Opportunity Fund II
Inc.
- ------------------------------------------------------------
T. Rowe Price International International Stock Portfolio
Series, Inc.
- ------------------------------------------------------------
T. Rowe Price Equity Series, New America Growth Portfolio
Inc. Mid-Cap Growth Portfolio
Equity Income Portfolio
- ------------------------------------------------------------
MFS Variable Insurance Trust Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
- ------------------------------------------------------------
</TABLE>
Each Portfolio holds its assets separately from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies,
which are described in the accompanying Prospectuses for the Portfolios.
In addition, the Fixed Account is available in most states.
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9. MAY I TAKE OUT 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
restrictions may apply if your Policy is issued in connection with a Qualified
Plan. For more detail, see "Policy Loans", on page 18.
10. WHAT ARE THE CHARGES DEDUCTED FROM MY POLICY VALUE?
As noted above, when we receive a Premium from you, we will deduct a premium tax
charge and a premium expense charge, before we allocate your Net Premium to the
Policy Value. The combined premium tax and premium expense charges will be 6% of
your Premium for the first ten Policy Years and 4% of your Premium thereafter.
We also will take a Monthly Deduction from your Policy Value. The Monthly
Deduction consists of the following charges:
(a) A monthly policy fee of $7.50;
(b) A monthly mortality and expense risk charge;
(c) A cost of insurance charge; and
(d) The cost of any additional benefits provided to you by rider.
The mortality and expense risk charge for the first fourteen Policy Years will
be 0.72% (on an annual basis) of the Policy Value allocated to the Subaccounts.
Thereafter, we intend to charge an annual rate of 0.36%, and we guarantee that
we never charge more than 0.48%.
The cost of insurance charge covers our anticipated mortality costs. We
determine it separately for the initial Face Amount of your Policy and each
subsequent increase in Face Amount.
The monthly mortality and expense risk charge is deducted pro rata from your
interest in the Subaccounts. The other parts of the Monthly Deduction are
deducted pro rata from your interest in the Subaccounts and the Fixed Account.
We impose a surrender charge to cover a portion of the sales expenses we incur
in distributing the Policies. These expenses include agents' commissions,
advertising, and the printing of Prospectuses. The surrender charge is described
in the answer to Question 11 below and in "Surrender Charge", on page 23.
The charges assessed under the Policy are described in more detail in
"Deductions and Charges", beginning on page 39.
In addition to our charges under the Policy, each Portfolio deducts amounts from
its assets to pay its investment advisory fee and other expenses. Your should
refer to the Prospectuses for the Portfolios for more information concerning
their respective charges and expenses.
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 will notify you. For 60 days after we mail that notice to you,
you may surrender your Policy without paying any surrender charge.
11. DO I HAVE ACCESS TO THE VALUE OF MY POLICY?
While the Policy is in force, you may surrender your Policy for the Net
Surrender Value. Upon surrender, life insurance coverage under the Policy will
end. You may also withdraw part of your Policy Value through a partial
withdrawal. A partial withdrawal must equal at least $500. For more detail, see
"Amount Payable on Surrender of the Policy" and "Partial Withdrawals", on page
19.
We may subtract a surrender charge from the surrender proceeds. The surrender
charge equals the amount shown in the surrender charge table in your Policy,
plus any additional surrender charge due to increases in the Face Amount of your
Policy. The amount of the surrender charge decreases over time.
Generally, the initial amount of the surrender charge is equal to the Initial
Face Amount of your Policy multiplied by the applicable rate per thousand
dollars of Face Amount. The applicable rate depends on the Insured's age at
issue, sex, and status as a smoker or non-smoker. For example, if the Insured is
age 45 when your Policy is issued, the applicable rates per thousand are as
follows:
Male Non-Smoker $27.51
Male Smoker $32.85
Female Non-Smoker $22.80
Female Smoker $25.55
Unisex Non-Smoker $26.56
Unisex Smoker $31.40
The rates for each category are greater or lesser according to the age of the
Insured when your Policy is issued. The maximum rates are as follows:
Male Non-Smoker $53.98
Male Smoker $54.11
Female Non-Smoker $53.74
Female Smoker $54.01
Unisex Non-Smoker $53.72
Unisex Smoker $54.01
If you surrender your Policy after fourteen Policy Years have elapsed, we will
not charge a surrender charge (unless you have increased the Face Amount of your
Policy, as explained below). Before that time, we determine the applicable
surrender charge by multiplying the initial surrender charge on your Policy by
the appropriate surrender charge percentage for the Policy Year in which the
surrender occurs. The applicable surrender charge percentage depends on the
Insured's sex, age when your Policy was issued, and the number of years elapsed
since your Policy was issued. In most instances, the applicable surrender charge
percentage begins to decrease after the fifth Contract Year.
If you increase the Initial Face Amount of your Policy, we will determine an
additional surrender charge amount
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applicable to the amount of the increase. We calculate the additional surrender
charge using the same procedures described above, except that we use the
Insured's age and smoking status at the time of the increase, rather than at the
time your Policy was issued.
We will include in your Policy a table showing the surrender charge rates and
the surrender charge percentages applicable under the Policies. For more detail,
see "Surrender Charges", on page 24.
In addition, each time you take a partial withdrawal, we may deduct a partial
withdrawal service fee of $10 from the amount withdrawn.
12. WHAT ARE THE TAX CONSEQUENCES OF BUYING THIS POLICY?
Your Policy is structured to meet the definition of a life insurance contract
under the Tax Code. We may need to limit the amount of Premiums you pay under
the Policy to ensure that your Policy continues to meet that definition.
Current federal tax law generally excludes all death benefits from the gross
income of the beneficiary of a life insurance policy. In addition, you generally
are not subject to taxation on any increase in the Policy Value until it is
withdrawn. Generally, you will be taxed on surrender proceeds and the proceeds
of any partial withdrawals only if those amounts, when added to all previous
distributions, 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 the tax treatment of life insurance policies which meet the
federal definition of a modified endowment contracts. Depending on the amount
and timing of your Premiums, your Policy may meet that definition. Under current
tax law, death benefit payments under modified endowment contract, like death
benefit payments under life insurance contracts, generally are excluded from the
gross income of the beneficiary. Withdrawals and policy loans, however, are
treated differently. Amounts withdrawn and policy loans are treated first as
income, to the extent of any gain, and then as a return of premium. The income
portion of the distribution is includable in your taxable income. Also, an
additional 10% penalty tax is generally imposed on the taxable portion of
amounts received before age 59 1/2. For more information on the tax treatment of
the Policy, see "Federal Tax Considerations", beginning on page 24.
13. CAN I RETURN THIS POLICY AFTER IT HAS BEEN DELIVERED?
You may cancel your Policy by returning it to us within ten days after you
receive it, or after whatever longer period may be permitted by state law. If
you return your Policy, the Policy terminates and, in most states, we will pay
you an amount equal to your Policy Value on the date we receive the Policy from
you, plus any charges previously deducted. In some states, we are required to
send you the amount of your Premiums. In those states, we may hold all of your
Premiums in the Money Market Fund until the end of the cancellation period.
Since state laws differ as to the consequences of returning a Policy, you should
refer to your Policy for specific information about your circumstances.
In addition, during the first two Policy Years or the first two years after an
increase in the Face Amount, if the Policy is in force you may convert it into a
non-variable universal life insurance policy. We will accomplish this by
transferring all of your Policy Value to the Fixed Account and ending your right
under the Policy to allocate Policy Value to the Subaccounts. We will not charge
you to perform this amendment.
PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS
APPLICATION FOR A POLICY. You may apply to purchase a Policy by submitting a
written application to us at our home office. We generally will not issue
Policies to insure people who are older than age 80. The minimum Face Amount for
a Policy is $100,000. Before we issue a Policy, we will require you to submit
evidence of insurability satisfactory to us. Acceptance of your application is
subject to our underwriting rules. We reserve the right to reject your
application for any lawful reason. If we do not issue a Policy to you, we will
return your Premium to you. We reserve the right to change the terms or
conditions of your Policy to comply with changes in the applicable law.
We will issue your Policy when we have determined that your application meets
our underwriting requirements. We will apply our customary underwriting
standards to the proposed Insured. The Issue Date will be the date we received
the final requirement for issue.
We will commence coverage of the Insured under the Policy, as of the Issue Date
or the date that we receive your first Premium, whichever is later. If you pay a
Premium with your application and your requested Face Amount is less than
$500,000, we will provide the Insured with temporary conditional insurance only
if you meet all of the terms of a conditional receipt. The Issue Date determines
Monthly Deduction Days, Policy months, and Policy Years.
PREMIUMS. During the first Policy Year, you must pay an amount at least equal to
the required Premium shown in your Policy. We will send you a reminder notice if
you pay annually, semi-annually, or quarterly. You may also make a Monthly
Automatic Payment.
After the first Policy Year, you may pay additional Premium at any time, and in
any amount, as long as your Premium would not cause your Policy to lose its
status as a life insurance contract under the Tax Code, as explained below.
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While your Policy also will show a planned periodic Premium amount, you are not
required to pay planned periodic Premiums. The planned periodic Premium is set
by you when you purchase your Policy. Your Policy will not lapse, however,
merely because you did not pay a planned periodic Premium.
Even if you pay all of the planned periodic Premiums, however, your Policy
nevertheless may enter the Grace Period and thereafter lapse if you have not
paid the required Safety Net Premium amount and the Net Surrender Value is no
longer enough to pay the Monthly Deductions. However, paying planned periodic
Premiums will generally provide greater benefits than if a lower amount of
Premium is paid. Paying planned periodic Premiums can also help to keep your
Policy in force if your payments are greater than the Safety Net Premium amount.
Premiums must be sent to us at our home office. Unless you request otherwise in
writing, we will treat all payments received while a Policy loan exists as new
Premium.
PREMIUM LIMITS. Before we will accept any Premium that would require an increase
in the net amount at risk under the Policy, you first must provide us with
evidence of insurability. The Tax Code imposes limits on the amount of Premium
that can be contributed under a life insurance contract. If you exceed this
limit, your Policy would lose its favorable federal income tax treatment under
the Tax Code. Accordingly, we will not accept any Premium which would cause your
Policy to exceed this limit, unless you increase the Face Amount of your Policy
appropriately. To obtain this increase, you must submit a written request to us
and provide evidence of insurability meeting our then current underwriting
standards. Otherwise, we will only accept the portion of your Premium that would
cause your total Premiums to equal the maximum permitted amount and we will
return the excess to you. In addition, we will not accept any additional Premium
from you until we can do so without exceeding the limit set by the Tax Code.
MODIFIED ENDOWMENT CONTRACTS. Under certain circumstances, a Policy could be
classified as a "modified endowment contract", a category of life insurance
contract defined in the Tax Code. If your Policy were to become a modified
endowment contract, distributions and loans from the Policy could result in
current taxable income for you, as well as other adverse tax consequences. These
tax consequences are described in more detail in "Federal Tax Considerations--
Modified Endowment Contracts", on pages 25-26.
Your Policy could be deemed to be a modified endowment contract if, among other
things, you pay too much Premium or the Death Benefit is reduced. We will
monitor the status of your Policy and advise you if you need to take action to
prevent the Policy from being deemed to be a modified endowment contract. If you
pay a Premium that would result in your Policy being deemed a modified endowment
contract, we will notify you and allow you to request a refund of the excess
Premium, or other action, to avoid having your Policy being deemed a modified
endowment contract. If, however, you choose to have your Policy deemed a
modified endowment contract, we will not refund the Premium.
If you replace a modified endowment contract issued by another insurer with a
Policy, your Policy will also be deemed to be a modified endowment contract. Our
ability to determine whether a replaced policy issued by another insurer is a
modified endowment contract is based solely on the sufficiency of the policy
data we receive from the other insurer. We do not consider ourselves to be
liable to you if that data is insufficient to accurately determine whether the
replaced policy is a modified endowment contract. You should discuss this issue
with your tax adviser if it pertains to your situation. Based on the information
provided to us, we will notify you as to whether you can contribute more Premium
to your Policy without causing it to become a modified endowment contract.
SAFETY NET PREMIUM. The Safety Net Premium feature is intended to enable you to
ensure that your Policy will remain in force during a specified period
regardless of changes in the Policy Value. If the Insured is age 70 or under at
the Issue Date, the specified period is the first ten Policy Years. Otherwise,
the specified period runs until the Policy Anniversary after the Insured's 80th
birthday.
As a general rule, your Policy will enter the Grace Period, and may lapse, if
the Net Surrender Value is not sufficient to pay a Monthly Deduction when it is
due. Under the Safety Net Premium feature, however, we guarantee that regardless
of declines in your Policy Value, your Policy will not enter the Grace Period as
long as your total Premiums paid since the Issue Date, less partial withdrawals
and outstanding Policy loans, are greater than the monthly Safety Net Premium
amount times the number of months since the Issue Date.
During the first Policy Year, the Safety Net Premium amount will equal the
required Premium. As a result, if you pay your required Premium on a timely
basis, the Safety Net Premium feature will remain in effect.
If at any time your total Premiums, less partial withdrawals and Policy Debt,
are less than the product of the monthly Safety Net Premium times the number of
Policy Months since the Issue Date, we will let you know and you will have 61
days to satisfy the shortfall. If you do not, the Safety Net Premium guarantee
will end and it cannot be reinstated. After the Safety Net Premium guarantee is
no longer in effect, the Policy will stay in force only as long as the Net
Surrender Value is sufficient to pay the Monthly Deductions. For more detail
about the circumstances in which the Policy will lapse, see "Lapse and
Reinstatement", on page 20.
ALLOCATION OF PREMIUMS. Your Net Premiums are allocated to the Subaccount(s) and
the Fixed Account in the proportions that you have selected. You must specify
your allocation percentages in your Policy application. Percentages must be in
whole numbers and the total allocation must equal 100%.
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We will allocate your subsequent Net Premiums in those percentages, until you
give us new allocation instructions.
You initially may allocate your Policy Value to up to twenty-one options,
counting each Subaccount and the Fixed Account as one option. You may add or
delete Subaccounts and/or the Fixed Account from your allocation instructions,
but we will not execute instructions that would cause you to have Policy Value
in more than twenty-one options. In the future we may waive this limit.
Usually, we will allocate your initial Net Premium to the Subaccounts and the
Fixed Account, as you have instructed us, on the Issue Date. If you do not pay
first Premium until after the Issue Date, we will allocate your initial Net
Premium to the Subaccounts on the date we receive it. In addition, in some
states we are required to return at least your Premium if you cancel your Policy
during the "free-look" period. In those states, we will allocate all Net
Premiums received during the "free-look" period to the Money Market Subaccount
for twenty days following the Issue Date, or longer if required by state law. At
the end of that period, we will allocate your Net Premium (plus earnings and
less monthly deductions) to the Subaccounts or Fixed Account as you have chosen.
No earnings or interest will be credited before the Issue Date.
We will make all valuations in connection with the Policy on the date a Premium
is received or your request for other action is received, if that date is a
Valuation Date and a date that we are open for business. Otherwise we will make
that determination on the next succeeding day which is a Valuation Date and a
date on which we are open for business.
POLICY VALUE. Your Policy Value is the sum of the value of your Accumulation
Units in the Subaccounts you have chosen, plus the value of your interest in the
Fixed Account, plus your Loan Account. Your Policy Value will change daily to
reflect the performance of the Subaccounts you have chosen, the addition of
interest credited to the Fixed Account, the addition of net Premiums, and the
subtraction of partial withdrawals and charges assessed. There is no minimum
guaranteed Policy Value.
On the Issue Date or, if later, the date your first Premium is received, your
Policy Value will equal the Net Premium less the Monthly Deduction for the first
Policy Month.
On each Valuation Date, the portion of your Policy Value in a particular
Subaccount will equal: (1) The total value of your Accumulation Units in the
Subaccount; plus (2) Any Net Premium received from you 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 amounts withdrawn by you (plus the applicable withdrawal
charge) from the Subaccount during the current Valuation Period; minus (6) The
portion of any Monthly Deduction allocated to the Subaccount during the current
Valuation Period for the Policy Month following the Monthly Deduction Day.
On each Valuation Date, the portion of your Policy Value in the Fixed Account
will equal: (1) Any Net Premium allocated to it, plus (2) Any Policy Value
transferred to it from the Subaccounts; plus (3) Interest credited to it; minus
(4) Any Policy Value transferred out of it; minus (5) Any amounts withdrawn by
you (plus the applicable withdrawal charge); minus (6) The portion of any
Monthly Deduction allocated to the Fixed Account.
All Policy Values equal or exceed those required by law. Detailed explanations
of methods of calculation are on file with the appropriate regulatory
authorities.
ACCUMULATION UNIT VALUE. The Accumulation Unit Value for each Subaccount will
vary to reflect the investment experience of the corresponding Portfolio. We
will determine the Accumulation Unit Value for each Subaccount on each Valuation
Day. A Subaccount's Accumulation Unit Value for a particular Valuation Day will
equal the Subaccount's Accumulation Unit Value on the preceding Valuation Day
multiplied by the Net Investment Factor for that Subaccount for the Valuation
Period then ended. The Net Investment Factor for each Subaccount is (1) divided
by (2), where: (1) is the sum of (a) the asset value per share of the
corresponding Portfolio at the end of the current Valuation Period and (b) the
per share amount of any dividend or capital gains distribution by that Portfolio
if the ex-dividend date occurs in that Valuation Period; and (2) is the net
asset value per share of the corresponding Portfolio at the end of the
immediately preceding Valuation Period.
You should refer to the Prospectuses for the Portfolios which accompany this
Prospectus for a description of how the assets of each Portfolio are valued,
since that determination has a direct bearing on the Net Investment Factor of
the corresponding Subaccount and, therefore, your Policy Value. For more detail,
see "Policy Value", on pages 9-10.
TRANSFER OF POLICY VALUE. While the Policy is in force, you may transfer Policy
Value among the Fixed Account and Subaccounts in writing or by telephone.
Currently, there is no minimum transfer amount, except in states where a minimum
transfer amount is required by law. We may set a minimum transfer amount in the
future.
You currently may not have Policy Value in more than twenty-one options,
counting each Subaccount and the Fixed Account as one option. Accordingly, we
will not perform a transfer that would cause your Policy to exceed that limit.
We may waive this limit in the future.
As a general rule, we only make transfers on days when we and the NYSE are open
for business. If we receive your request on one of those days, we will make the
transfer that day. Otherwise, we will make the transfer on the first subsequent
day on which we and the NYSE are open.
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We have established special requirements for transfers from the Fixed Account.
You may make a lump sum transfer from the Fixed Account to the Subaccounts only
during the 60 day period beginning on the Issue Date and each Policy
Anniversary. We will not process transfer requests received at any other time.
Transfers pursuant to a Dollar Cost Averaging or Portfolio Rebalancing program
may occur at any time at the intervals you have selected.
The maximum amount which may be transferred as a lump sum or as portfolio
rebalancing transfers from the Fixed Account during a Policy Year usually is:
- - 30% of the Fixed Account balance on the most recent Policy Anniversary; or
- - the largest total amount transferred from the Fixed Account in any prior
Policy Year.
This limit also applies to transfers under a Dollar Cost Averaging program,
unless you choose to transfer your entire Fixed Account balance to Subaccounts.
In that case, your maximum monthly transfer amount may not be more than 1/36th
of your Fixed Account balance on the day of the first transfer. We may waive or
modify these restrictions on transfers from the Fixed Account. You may not
transfer Policy Value or allocate new Premiums into the Fixed Account, if
transfers are being made out under the Dollar Cost Averaging program.
In addition, you may transfer 100% of the Fixed Account balance in a lump sum to
the Subaccount(s), if on any Policy Anniversary the interest rate on the Fixed
Account is lower than it was on the Policy Anniversary one year previously or if
on the first Policy Anniversary that interest rate is lower than it was on the
Issue Date. We will notify you by mail if this occurs. You may request a
transfer for 60 days following the date we mail notification to you.
The Policy permits us to defer transfers from the Fixed Account for up to six
months from the date you ask us. Also, we may restrict transfers from the
Subaccounts to the Fixed Account in each Policy Year to no more than 30% of the
total Subaccount balances as of the most recent Policy Anniversary. We currently
are not imposing this restriction on transfers from the Subaccounts.
TRANSFERS AUTHORIZED BY TELEPHONE. You may make transfers by telephone, if you
first send us a completed authorization form. The cut off time for telephone
transfer requests is 4:00 p.m. Eastern time. Calls completed before 4:00 p.m.
will be effected on that day at that day's price. Calls completed after 4:00
p.m. will be effected on the next day on which we and the NYSE are open for
business, at that day's price.
In the future, we may charge you the transfer fee described on page 44, although
currently we are waiving it. In addition, we may suspend, modify or terminate
the telephone transfer privilege at any time without notice.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
DOLLAR COST AVERAGING. Under our automatic Dollar Cost Averaging program, while
the Policy is in force you may authorize us to transfer a fixed dollar amount at
fixed intervals from the Fixed Account or a Subaccount of your choosing to up to
eight options, including other Subaccounts or the Fixed Account. The interval
between transfers may be monthly, quarterly, or annually, at your option. The
transfers will be made at the Accumulation Unit Value on the date of the
transfer. The transfers will continue until you instruct us otherwise, or until
your chosen source of transfer payments is exhausted. Currently, the minimum
transfer amount is $100 per transfer. We may change this minimum or grant
exceptions. If you elect this program, the first transfer will occur one
interval after your Issue Date.
Your request to participate in this program will be effective when we receive
your completed application at the P.O. Box given on the first page of this
Prospectus. Call or write us for a copy of the application. You may elect to
increase, decrease or change the frequency or amount of Purchase Payments under
a Dollar Cost Averaging program. Special restrictions apply to transfers from
the Fixed Account. They are explained on page 10.
The theory of dollar cost averaging is that you will purchase more units when
the unit prices are relatively low rather than when the prices are higher. As a
result, when purchases are made at fluctuating prices, the average cost per unit
is less than the average of the unit prices on the purchase dates. However,
participation in this program does not assure you of a greater profit from your
purchases under the program; nor will it prevent or necessarily reduce losses in
a declining market. You may not use dollar cost averaging and portfolio
rebalancing at the same time.
PORTFOLIO REBALANCING. Portfolio rebalancing allows you to maintain the
percentage of your Policy Value allocated to each Subaccount and/or the Fixed
Account at a pre-set level. For example, you could specify that 30% of your
Policy Value should be in the Balanced Portfolio, 40% in the Growth
Portfolio-Janus Aspen Series and 30% in the Fidelity VIP II Contrafund
Portfolio. Over time, the variations in each Subaccount's investment results
will shift the balance of your Policy Value allocations. Under the portfolio
rebalancing feature, we will automatically transfer your Policy Value, including
new Premiums (unless you specify otherwise), back to the percentages you
specify. Portfolio rebalancing is consistent with maintaining your allocation of
investments among market segments, although it is accomplished by
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reducing your Policy Value allocated to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually. We will not charge a transfer fee for portfolio rebalancing. No more
than eight Subaccounts, or seven Subaccounts and the Fixed Account, can be
included in a Portfolio Rebalancing program at one time.
Transfers from the Fixed Account under a Portfolio Rebalancing program are
subject to the overall limit on transfers from the Fixed Account. Accordingly,
if the total amount transferred from the Fixed Account in any Policy Year
reaches that limit before the end of the year, we will not transfer additional
amounts from the Fixed Account for portfolio rebalancing purposes until the next
Policy Year.
You may request Portfolio Rebalancing at any time by submitting a completed
written request to us at the address given on the first page of this Prospectus.
Please call or write us for a copy of the request form. If you stop Portfolio
Rebalancing, you must wait 30 days to begin again. The date of your rebalancing
must coincide with the same day of the month as your Issue Date. If you request
rebalancing on your Policy application but do not specify a date for your first
rebalancing, it will occur one period after the Issue Date. Otherwise, your
first rebalancing will occur one period after we receive your completed request
form. All subsequent rebalancing will occur at the intervals you have specified
on the day of the month that coincides with the same day of the month as your
Issue Date.
Generally, you may change the allocation percentages, frequency, or choice of
Subaccounts at any time. If you include the Fixed Account in a Portfolio
Rebalancing program, however, in any consecutive twelve months you may not
change the allocation percentages more than twice and the total change to the
Fixed Amount allocation may not exceed 20%. We may waive this restriction.
If your total Policy Value subject to rebalancing falls below any minimum value
that we may establish, we may prohibit or limit your use of portfolio
rebalancing. You may not use Dollar Cost Averaging and Portfolio Rebalancing at
the same time. We may change, terminate, limit, or suspend Portfolio Rebalancing
at any time.
SPECIALIZED USES OF THE POLICY. Because the Policy provides for an accumulation
of Policy Value as well as a Death Benefit, you may wish to use it for various
individual and business financial planning purposes. Purchasing the Policy in
part for such purposes involves certain risks. For example, if the investment
performance of the Subaccounts is poorer than expected or if sufficient Premiums
are not paid, the Policy may lapse or may not accumulate sufficient Policy Value
to fund the purpose for which you purchased the Policy. Withdrawals and Policy
loans may significantly affect current and future Policy Value, Surrender Value,
or Death Benefit proceeds. Depending upon the investment performance of the
Portfolios in which the Subaccounts invest and the amount of a Policy loan, a
Policy loan may cause your Policy to lapse. Because the Policy is designed to
provide benefits on a long-term basis, before purchasing a Policy for a
specialized purpose, you should consider whether the long-term nature of the
Policy is consistent with the purpose for which it is being considered. In
addition, using a Policy for a specialized purpose may have tax consequences.
(See "Federal Tax Considerations," beginning on page 24.)
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
SEPARATE ACCOUNT INVESTMENTS
PORTFOLIOS. Each of the Subaccounts of the Separate Account invests in the
shares of one of the Portfolios. Each Portfolio is either an open-end management
investment company registered under the Investment Company Act of 1940 or a
separate investment series of an open-end management investment company. We have
briefly described the Portfolios below. You should read the current Prospectuses
for the Portfolios for more detailed and complete information concerning the
Portfolios, their investment objectives and strategies, and the investment risks
associated with the Portfolios. If you do not have a Prospectus for a Portfolio,
contact us and we will send you a copy.
Each Portfolio holds its assets separate from the assets of the other
Portfolios, and each Portfolio has its own distinct investment objective and
policies. Each Portfolio operates as a separate investment fund, and the income,
gains, and losses of one Portfolio generally have no effect on the investment
performance of any other Portfolio.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Subaccounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Subaccounts invest. You bear the investment risk that
those Portfolios possibly will not meet their investment objectives. YOU SHOULD
CAREFULLY REVIEW THE PORTFOLIOS' PROSPECTUSES BEFORE ALLOCATING AMOUNTS TO THE
SUBACCOUNTS OF THE SEPARATE ACCOUNT.
JANUS ASPEN SERIES (investment adviser: Janus Capital Corporation)
FLEXIBLE INCOME PORTFOLIO seeks to maximize total return from a combination of
current income and capital appreciation, with an emphasis on current income.
This Portfolio invests in all types of income-producing securities. This
Portfolio may have substantial holdings of debt securities rated below
investment grade. Investments in such securities present special risks; you are
urged to carefully read the risk disclosure in the accompanying Prospectus for
the Portfolio before allocating amounts to the Janus Flexible Income Subaccount.
BALANCED PORTFOLIO seeks both growth of capital and current income. This
Portfolio usually invests 40-60% of its assets in securities selected primarily
for their growth potential and 40-60% of its assets in securities selected
primarily for their income potential.
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GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily in a
diversified portfolio of common stocks of a large number of issuers of any size.
Generally, this Portfolio emphasizes issuers with larger market capitalizations.
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. It is a
non-diversified fund. It usually invests at least 50% of its equity assets in
securities issued by medium-sized companies, which are companies whose market
capitalizations at the time of purchase by the Portfolio fall within the same
range as companies in the S&P MidCap 400 Index. This range is expected to change
on a regular basis. This Portfolio may invest its remaining assets in smaller or
larger issuers.
WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of any
size. This Portfolio usually invests in issuers from at least five different
countries including the United States.
FEDERATED INSURANCE MANAGEMENT SERIES (investment adviser: Federated Advisers)
FEDERATED UTILITY FUND II'S investment objective is to achieve high current
income and moderate capital appreciation. The Portfolio invests primarily in
equity and debt securities of utility companies that produce, transmit, or
distribute gas and electric energy, as well as those companies that provide
communications facilities, such as telephone and telegraph companies.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II'S investment objective is to
provide current income. The Portfolio invests in direct obligations of the U.S.
Government or its agencies or instrumentalities, and securities guaranteed by
the U.S. Government, its agencies, or instrumentalities. This Portfolio may also
invest in certain collateralized mortgage obligations and repurchase agreements.
FEDERATED HIGH INCOME BOND FUND II'S investment objective is to seek high
current income. This Portfolio invests at least 65% of its assets in lower rated
corporate debt obligations, such as preferred stocks, bonds, debentures, notes,
equipment lease certificates and equipment trust certificates. Some of these
fixed income securities may involve equity features. Under normal circumstances,
this Portfolio will not invest more than 10% of the value of its total assets in
equity securities.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (investment adviser: Fidelity
Management & Research Company)
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. This Portfolio will
limit its investments to securities with remaining maturities of 397 days or
less.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in
income-producing equity securities. The goal is to achieve a higher yield than
the composite yield of the S&P 500 Composite Stock Price Index. At least 65% of
this Portfolio's assets will be invested in income producing common or preferred
stock. The remainder will usually be invested in convertible and non-convertible
debt obligations.
GROWTH PORTFOLIO seeks to achieve capital appreciation. This Portfolio usually
purchases common stocks, although its investments are not restricted to any one
type of security.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. At least 65% of this Portfolio's assets will
be invested in securities of issuers outside of North America. Most issuers will
be located in developed countries in the Americas, the Far East and Pacific
Basin, Scandinavia and Western Europe.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (investment adviser: Fidelity
Management & Research Company)
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced risk over
the long term by allocating its assets among domestic and foreign stocks, bonds,
and short-term fixed-income securities. Usually, this Portfolio's assets will be
allocated within the following guidelines: 30-70% in stocks (equities); 20-60%
in bonds (intermediate to long-term); and 0-50% in short-term instruments.
CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in equity
securities of companies that the Portfolio's adviser believes to be undervalued
due to an overly pessimistic appraisal by the public. This Portfolio usually
invests primarily in common stock and securities convertible into common stock,
but it may invest in any type of security that may produce capital appreciation.
INDEX 500 PORTFOLIO seeks long-term capital growth through the purchase of a
portfolio of securities that broadly represents the U.S. stock market, as
measured by the S&P 500. By investing to match the return of the S&P 500, the
Portfolio seeks to keep expenses low. The Portfolio does not expect to achieve
potentially greater results than could be obtained by a fund that aggressively
seeks growth.
THE ALGER AMERICAN FUND (investment adviser: Fred Alger Management)
INCOME AND GROWTH PORTFOLIO seeks primarily to provide a high level of dividend
income. Capital appreciation is a secondary objective of the Portfolio. It is a
fundamental policy of the Portfolio to invest at least 65% of its total assets
in dividend paying equity securities, under normal circumstances. The Portfolio
usually attempts to invest 100% of its assets in dividend paying equity
securities.
SMALL CAPITALIZATION PORTFOLIO seeks long-term capital appreciation. Under
normal circumstances, the Portfolio invests at least 65% of its total assets in
equity securities of companies that at the time of purchase have total market
capitalization within the range of companies included in the Russell 2000 Growth
Index or the S&P SmallCap 600 Index. The Portfolio may invest its remaining
assets in larger or smaller issuers.
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GROWTH PORTFOLIO seeks long-term capital appreciation. Under normal
circumstances, the Portfolio invests at least 65% of its total assets in equity
securities of companies that have total market capitalization of $1 billion or
greater. The Portfolio may invest up to 35% of its total assets in equity
securities of companies that have total market capitalization of less than $1
billion.
MIDCAP GROWTH PORTFOLIO seeks long-term capital appreciation. Under normal
circumstances, the Portfolio invests at least 65% of its total assets in equity
securities of companies that have total market capitalization within the range
of companies included in the S&P MidCap 400 Index.
LEVERAGED ALLCAP PORTFOLIO seeks long-term capital appreciation. Except during
temporary defensive periods, the Portfolio invests at least 85% of its net
assets in equity securities of companies of any size. The Portfolio may purchase
put and call options and sell (write) covered call and put options on securities
and securities indexes to increase gain and to hedge against the risk of
unfavorable price movements, and may enter into futures contracts on securities
indexes and purchase and sell call and put options on these futures contracts.
The Portfolio may also borrow money for the purchase of additional securities.
SCUDDER VARIABLE LIFE INVESTMENT FUND (investment adviser: Scudder, Stevens &
Clark, Inc.) The Scudder Variable Life Investment Fund has two classes of
shares. The Subaccounts invest in Class A shares, which do not impose
distribution fees.
BOND PORTFOLIO seeks high income from a high quality portfolio of debt
securities. Under normal circumstances, this Portfolio invests at least 65% of
its assets in bonds including those of the U.S. Government and its agencies and
those of corporations and other notes and bonds paying high current income. This
Portfolio can invest in a broad range of short, intermediate and long-term
securities.
BALANCED PORTFOLIO seeks a balance of growth and income from a diversified
portfolio of equity and fixed income securities. The Portfolio also seeks
long-term preservation of capital through a quality-oriented investment approach
that is designed to reduce risk. The Portfolio will invest its assets in equity
securities, debt securities with maturities generally exceeding one year, and
money market instruments and other debt securities with maturities generally not
exceeding thirteen months. Not more than 75% of this Portfolio's net assets may
be invested in stocks or other equity investments. Generally, 25%-50% of the
Portfolio's net assets are invested in bonds.
GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital, current income
and growth of income. In pursuing these three objectives, the Portfolio invests
primarily in common stocks, preferred stocks, and securities convertible into
common stocks of companies which offer the prospect for growth of earnings while
paying higher than average current dividends. The Portfolio allocates its
investments among different industries and companies, and changes its portfolio
securities for investment considerations and not for trading purposes.
GLOBAL DISCOVERY PORTFOLIO seeks above-average capital appreciation over the
long term by investing primarily in the equity securities of small companies
located throughout the world. The Portfolio is designed for investors looking
for above-average appreciation potential (when compared with the overall
domestic stock market as reflected by the S&P 500 Stock Composite Price Index)
and the benefits of investing globally, but who are willing to accept
above-average stock market risk, the impact of currency fluctuation, and little
or no current income. The Portfolio generally invests in small, rapidly growing
companies that offer the potential for above-average returns relative to larger
companies, yet are frequently overlooked and thus undervalued by the market.
INTERNATIONAL PORTFOLIO seeks long-term growth of capital primarily through
diversified holdings of marketable foreign equity investments. The Portfolio
invests in companies, wherever organized, which do business primarily outside
the United States. The Portfolio intends to diversify investments among several
countries and to have represented in its holdings business activities in not
less than three different countries, excluding the United States. The Portfolio
invests primarily in equity securities of established companies, listed on
foreign exchanges, which its adviser believes have favorable characteristics. It
may also invest in fixed income securities of foreign governments and companies.
STRONG VARIABLE INSURANCE FUNDS, INC. (investment adviser: Strong Capital
Management, Inc.)
DISCOVERY FUND II seeks capital growth. The Portfolio usually emphasizes equity
investments, although it has the flexibility to invest in any security the
adviser believes has the potential for capital appreciation. The Portfolio's
strategy is to invest in a blend of small, mid- and large-cap companies that are
in good businesses, are headed by capable and motivated management, and trade at
attractive valuations.
GROWTH FUND II seeks capital growth. The Portfolio invests primarily in equity
securities that the adviser believes have above-average growth prospects and are
selling at reasonable valuations. The Portfolio generally has over half of its
assets in small- and mid-cap issues as these companies tend to have the highest
growth rates.
STRONG OPPORTUNITY FUND II, INC. (investment adviser: Strong Capital Management,
Inc.)
OPPORTUNITY FUND II seeks capital growth. The Portfolio currently emphasizes
medium-sized companies that the adviser believes are under-researched and
attractively valued. To achieve its investment goals, the Portfolio seeks to
find well-managed companies that have sustainable growth prospects
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but that are selling at prices below their private market values.
T. ROWE PRICE INTERNATIONAL SERIES, INC. (investment adviser: Rowe Price-Fleming
International, Inc., a joint venture between T. Rowe Price & Associates, Inc.
and Robert Fleming Holdings, Ltd.)
INTERNATIONAL STOCK PORTFOLIO seeks long-term growth of capital through
investments primarily in common stocks of established, non-U.S. companies. The
Portfolio invests substantially all of its assets outside the United States and
broadly diversifies its investments among countries throughout the
world--developed, newly industrialized and emerging.
T. ROWE PRICE EQUITY SERIES, INC. (investment adviser: T. Rowe Price Associates,
Inc.)
NEW AMERICA GROWTH PORTFOLIO seeks long-term growth of capital through
investment primarily in the common stocks of U.S. growth companies which operate
in service industries. The Portfolio will invest most of its assets in service
companies, regardless of size, that the adviser believes to be above average
performers in their fields. The Portfolio may invest up to 25% of its assets
outside the service sector.
MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital by investing
primarily in the common stocks of companies with medium-sized market
capitalizations and the potential for above-average earnings growth. Most of the
assets will be invested in U.S. common stocks, but the Portfolio also may invest
in other types of securities, such as foreign securities, when consistent with
the Portfolio's investment objective.
EQUITY INCOME PORTFOLIO seeks to provide high current dividend income as well as
long term capital appreciation by investing primarily in common stocks of
established companies. Under normal circumstances, the Portfolio usually will
invest at least 65% of its assets in common stocks of established companies
paying above-average dividends which are expected to have favorable prospects
for dividend growth and capital appreciation. The Portfolio may also invest in
other securities such as fixed income and convertible securities.
MFS VARIABLE INSURANCE TRUST (investment adviser: Massachusetts Financial
Services)
GROWTH WITH INCOME SERIES seeks reasonable current income, as well as long-term
growth of capital and income. The Portfolio invests in stocks of companies that
the adviser considers to be of high or improving investment quality. The
Portfolio has the flexibility to invest in derivative securities when its
managers believe such securities can provide better value relative to direct
investments in stocks and bonds.
RESEARCH SERIES seeks to provide long-term growth of capital and future income.
The Portfolio invests in the common stocks of companies the adviser believes
possess better-than-average prospects for long-term growth. The Portfolio may
invest up to 20% of its net assets in foreign and emerging market securities.
Investing in foreign and emerging market securities involves special risks and
may increase share price volatility. The Portfolio has the flexibility to invest
in derivative securities when its adviser believes such securities can provide
better value relative to direct investments in stocks and bonds.
EMERGING GROWTH SERIES seeks to provide long-term growth of capital. The
Portfolio invests primarily in common stocks of companies that are early in
their life cycles but which have the potential to become major enterprises. The
Portfolio may also invest in more established companies whose earnings growth
the adviser expects to accelerate because of special factors. Investing in
emerging growth companies involves greater risk than is customarily associated
with more established companies. The Portfolio also may invest up to 25% of its
net assets in foreign and emerging market securities. The Portfolio has the
flexibility to invest in derivative securities when its adviser believes such
securities can provide better value relative to direct investments in stocks or
bonds.
TOTAL RETURN SERIES seeks to provide above-average current income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. The Portfolio also seeks to provide reasonable
opportunity for growth of capital and income. The Portfolio invests in both
equities and fixed income securities. The equity segment is actively managed
with a value-oriented style of investing. The fixed income segment is actively
managed through shifts in maturity, duration, and sector components. The
Portfolio may invest up to 20% of its assets in foreign and emerging market
securities. The Portfolio has the flexibility to invest in derivative securities
when its adviser believes such securities can provide better value relative to
direct investments in stocks or bonds.
NEW DISCOVERY SERIES seeks capital appreciation. This Portfolio seeks to achieve
its objective by investing under normal market conditions at least 65% of its
total assets in companies that its adviser believes offer superior prospects for
growth. Those securities may either be listed on securities exchanges or traded
in the over-the-counter markets and may be U.S. or foreign companies.
Each Portfolio is subject to certain investment restrictions and policies which
may not be changed without the approval of a majority of the shareholders of the
Portfolio. See the accompanying Prospectuses of the Portfolios for further
information.
We automatically reinvest all dividends and capital gains distributions from the
Portfolios in shares of the distributing Portfolio at their net asset value. The
income and realized and unrealized gains or losses on the assets of each
Subaccount are separate and are credited to or charged against the particular
Subaccount without regard to income, gains or losses from any other Subaccount
or from any other part of our business. We will use the net Premiums you
allocate to a
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<PAGE>
Subaccount to purchase shares in the corresponding Portfolio and will redeem
shares in the Portfolios to meet Policy obligations or make adjustments in
reserves. The Portfolios are required to redeem their shares at net asset value
and to make payment within seven days.
Certain of the Portfolios sell their shares to Separate Accounts underlying both
variable life insurance and variable annuity contacts. It is conceivable that in
the future it may be unfavorable for variable life insurance separate accounts
and variable annuity separate accounts to invest in the same Portfolio. Although
neither we nor any of the Portfolios currently foresees any such disadvantages
either to variable life insurance or variable annuity contract owners, each
Portfolio's Board of Directors intends to monitor events in order to identify
any material conflicts between variable life and variable annuity contract
owners and to determine what action, if any, should be taken in response
thereto. If a Board of Directors were to conclude that separate investment funds
should be established for variable life and variable annuity separate accounts,
Lincoln Benefit will bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Subaccounts to which you have allocated
your Policy Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed and will provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of votes for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, you are the person entitled to give voting instructions.
However, if you assign your Policy, the assignee may be entitled to give voting
instructions. Retirement plans may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Policy. If you do not send us
written instructions, we will vote the shares attributable to your Policy in the
same proportions as we vote the shares for which we have received instructions
from other Policy owners. We will vote shares that we hold in the same
proportions as we vote the shares for which we have received instructions from
other Policy owners.
We may, when required by state insurance regulatory authorities, disregard
Policy Owner voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment objective
of one or more of the Portfolios or to approve or disapprove an investment
advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Policy owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Policy Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios are no longer available for investment by the Separate Account or
if, in the judgment of our Board of Directors, further investment in the shares
of a Portfolio is no longer appropriate in view of the purposes of the Policy,
we may add or substitute shares of another Portfolio or mutual fund for
Portfolio shares already purchased or to be purchased in the future by Premiums
under the Policy. We may not make a substitution of securities without the prior
approval of the Securities and Exchange Commission. The Commission may impose
conditions on its approval.
We also reserve the right to make the following changes in the operation of the
Separate Account and the Subaccounts:
(a) to operate the Separate Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
(c) to transfer assets from one Subaccount to another, or from any Subaccount to
our general account;
(d) to add, combine, or remove Subaccounts in the Separate Account; and
(e) to assess a charge for taxes attributable to the operations of the Separate
Account or for other taxes, as described in "Deductions and Charges -- Deduction
for Separate Account Income Taxes" on page 22 below.
(f) to change the way in which we assess other charges, as long as the total
other charges do not exceed the amount currently charged the Separate Account
and the Portfolios in connection with the Policies.
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If we take any of these actions, we will comply with the then applicable legal
requirements.
THE FIXED ACCOUNT. THE PORTION OF THE POLICY RELATING TO THE FIXED ACCOUNT IS
NOT REGISTERED UNDER THE SECURITIES ACT OF 1933 AND THE FIXED ACCOUNT IS NOT
REGISTERED AS AN INVESTMENT COMPANY UNDER THE INVESTMENT COMPANY ACT OF 1940.
ACCORDINGLY, NEITHER THE FIXED ACCOUNT NOR ANY INTERESTS IN THE FIXED ACCOUNT
ARE SUBJECT TO THE PROVISIONS OR RESTRICTIONS OF THE 1933 ACT OR THE 1940 ACT,
AND THE DISCLOSURE REGARDING THE FIXED ACCOUNT HAS NOT BEEN REVIEWED BY THE
STAFF OF THE SEC. THE STATEMENTS ABOUT THE FIXED ACCOUNT IN THIS PROSPECTUS MAY
BE SUBJECT TO GENERALLY APPLICABLE PROVISIONS OF THE FEDERAL SECURITIES LAWS
REGARDING ACCURACY AND COMPLETENESS.
You may allocate part or all of your Premiums to the Fixed Account in states
where it is available. The Fixed Account is not available in some states.
Amounts allocated to the Fixed Account become part of the general assets of
Lincoln Benefit. Allstate Life invests the assets of the general account in
accordance with applicable laws governing the investments of insurance company
general accounts.
We will credit interest to amounts allocated to the Fixed Account. We guarantee
that the interest rate credited to the Fixed Account will be at least 4%. We may
credit interest at a higher rate, but we are not obligated to do so. You assume
the risk that interest credited to the Fixed Account may be no higher than the
minimum guaranteed rate.
Transfers from the Fixed Account are subject to the limitations described on
page 10 above. Also, as described on page 21 above, we may delay payment of
partial withdrawals or Surrender Value from the Fixed Account for up to 6
months.
POLICY BENEFITS AND RIGHTS
DEATH BENEFIT. While your Policy is in force, we will pay the Death Benefit
proceeds upon the death of the Insured. We will pay the Death Benefit proceeds
to the named Beneficiary(ies) or contingent Beneficiary(ies). As described below
in "Settlement Options", on page 20, we will pay the Death Benefit proceeds in a
lump sum or under an optional payment plan.
The Death Benefit proceeds payable to the Beneficiary equal the applicable Death
Benefit, less any Policy Debt and less any due and unpaid charges. The proceeds
may be increased, if you have added a rider that provides an additional benefit.
We will determine the amount of the Death Benefit proceeds as of the end of the
Valuation Period during which the Insured dies. We will usually pay the Death
Benefit proceeds within seven days after we have received due proof of death and
all other requirements we deem necessary have been satisfied.
The amount of the Death Benefit will be based on the Death Benefit Option you
have selected, any increases or decreases in the Face Amount, and in some
instances your Policy Value.
DEATH BENEFIT OPTIONS. You may choose one of two Death Benefit options:
(1) If you select Option 1, the Death Benefit will be the greater of: (a) the
Face Amount of the Policy or (b) the Policy Value multiplied by the applicable
corridor percentage as described below.
(2) 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 below.
While your Policy remains in force, we guarantee that the Death Benefit will not
be less than the greater of the current Face Amount of the Policy or the Policy
Value multiplied by the applicable corridor percentage. We have set forth the
applicable corridor percentages in the Policy. They vary according to the age of
the Insured. We set the corridor percentages so as to seek to ensure that the
Policies will qualify for favorable federal income tax treatment. An increase in
Policy Value due to favorable investment experience may therefore increase the
Death Benefit above the Face Amount, and a decrease in Policy Value due to
unfavorable investment experience may decrease the Death Benefit (but not below
the Face Amount).
EXAMPLES:
<TABLE>
<S> <C> <C>
Face Amount $100,000 $100,000
Death Benefit Option 1 1
Insured's Age 45 45
Policy Value on Date of Death $ 48,000 $ 34,000
Applicable Corridor Percentage 215% 215%
Death Benefit $103,200 $100,000
</TABLE>
In Example A, the Death Benefit equals $103,200, I.E., the greater of $100,000
(the Face Amount) and $103,200 (the Policy Value at the Date of Death of
$48,000, multiplied by the corridor percentage of 215%). This amount, less any
Policy Debt and unpaid charges, constitutes the Death Benefit proceeds that we
would pay to the Beneficiary.
In Example B, the Death Benefit is $100,000, i.e., the greater of $100,000 (the
Face Amount) or $73,100 (the Policy Value of $34,000 multiplied by the corridor
percentage of 215%).
Option 1 is designed to provide a specific amount of Death Benefit that does not
vary with changes in the Policy Value. Therefore, under Option 1, as your Policy
Value increases, the net amount at risk under your Policy will decrease. Under
Option 2, on the other hand, the amount of the Death Benefit generally increases
to reflect increases in the Policy Value. Therefore, if you select Option 2,
your Policy generally will involve a constant net amount at risk. Since the cost
of insurance charge on your Policy is based upon the net amount at risk, the
cost of insurance charge will generally be less under a Policy with an Option 1
Death Benefit than
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<PAGE>
under a similar Policy with an Option 2 Death Benefit. As a result, if the
Subaccounts you select experience favorable investment results, your Policy
Value will tend to increase faster under Option 1 than under Option 2, but the
total Death Benefit under Option 2 will increase or decrease directly with
changes in Policy Value. Thus, you may prefer Option 1 if you are more
interested in the possibility of increasing your Policy Value based upon
favorable investment experience, while you may prefer Option 2 if you are
seeking to increase total Death Benefits.
You may change the Death Benefit option by writing to us at the address given on
the first page of this Prospectus. If you ask to change from Option 2 to Option
1, we will increase the Face Amount of your Policy by the amount of the Policy
Value. If you ask to change from Option 1 to Option 2, we will decrease the Face
Amount of your Policy 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 your written request.
We do not currently require you to prove insurability for a change in Death
Benefit options. We will not permit you to change the Death Benefit option under
your Policy if afterward the Face Amount remaining in force would be less than
$50,000.
CHANGE IN FACE AMOUNT. You may change the Face Amount after the first Policy
Year. You may request the change by writing to us at the address shown on the
first page of this Prospectus. You should be aware that a change in the Face
Amount will change the net amount at risk and, therefore, the cost of insurance
charges on your Policy. The change will take effect on the Monthly Deduction Day
after we approve the request.
If you request a decrease in Face Amount, we will first apply it to coverage
provided by the most recent increase in Face Amount, then to the next most
recent increase successively and finally to the coverage under the original
application. We will not permit a decrease in the Face Amount of your Policy if
afterward the Face Amount remaining in force would be less than $50,000.
To apply for an increase in the Face Amount, you must submit to us a
supplemental application, accompanied by satisfactory evidence that the Insured
is insurable. We will not permit any increase in Face Amount after the Insured's
80th birthday. The minimum amount of a Face Amount increase is $10,000. You may
not increase the Face Amount of your Policy more often than once every twelve
months.
You should be aware that an increase in the Face Amount of your Policy will
affect the cost of insurance charges applicable to your Policy. As noted above,
we will deduct a larger amount of cost of insurance charges, because an increase
in the Face Amount also will increase the net amount at risk under your Policy.
We will not approve a request for a Face Amount increase if the Net Surrender
Value is too small to pay the Monthly Deduction for the Policy Month following
the increase. As described in "Surrender Charge" on page 23 of this Prospectus,
if you increase the Face Amount of your Policy, your maximum surrender charge
also will increase. Finally, increases in the Face Amount of your Policy will
also increase the Safety Net Premium amount.
OPTIONAL INSURANCE BENEFITS. You may ask to add one or more riders to your
Policy to provide additional optional insurance benefits. We will require
evidence of insurability before we issue a rider to you. We will deduct the cost
of any riders as part of the Monthly Deduction. The riders we currently offer
are described below. In our discretion we may offer additional riders or stop
offering a rider.
CHILDREN'S LEVEL TERM RIDER: This rider provides for level term insurance on the
Insured's children, as defined in the rider. We will provide coverage until the
earlier of the child's 25th birthday or the Insured's age 65. We will pay the
death benefit to the person designated by you. If the Insured dies while the
rider is in effect, we will convert the coverage on each child to paid-up term
insurance that will remain in force until the child reaches age 25. The rider
may be exchanged for a new Policy on the earlier of each child's 25th birthday,
or the Insured's age 65. We will not require evidence of insurability to
exchange the rider.
ACCIDENTAL DEATH BENEFIT: Under this rider, we will provide additional insurance
if the Insured dies from accidental bodily injury as defined in the rider. This
rider ends when one of the following occurs: (1) the Policy terminates; (2) the
next Policy Anniversary after the Insured's 70th birthday; or (3) you ask to end
the rider.
CONTINUATION OF PREMIUM: Under this rider, we will contribute a monthly amount
to the Policy Value if the Insured becomes totally disabled as defined in the
rider. This rider ends when one of the following occurs: (1) the Policy
terminates; (2) the Insured reaches age 60; or (3) you ask to end the rider.
ADDITIONAL INSURED RIDER: This rider provides life insurance coverage on an
additional Insured. We will pay the Face Amount of the rider to the named
Beneficiary when we receive due proof that the additional Insured died while the
rider was in force. You may renew the coverage until the additional Insured
reaches age 99. Until the additional Insured's 75th birthday, you may exchange
the rider for a new Policy on the additional Insured's life, subject to certain
conditions as defined in the rider. We will not require evidence of insurability
to exchange the rider.
PRIMARY INSURED RIDER: This rider provides additional term life insurance
coverage on the primary Insured. You may renew this coverage until you reach age
99. Until you reach age 75, you may exchange the rider for a new Policy. In
addition, after the fifth Policy Year and until you reach age 75, you may
convert the rider to the base Policy. We will not require evidence of
insurability to exchange or convert the Policy.
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If your Policy was issued in connection with a Qualified Plan, we may not be
able to offer you some of the benefits provided by these riders.
POLICY LOANS. While the Policy is in force, you may borrow money from us using
the Policy as the only security for your loan. Loans have priority over the
claims of any assignee or any other person. The maximum amount available for a
loan is 90% of the Surrender Value of your Policy at the end of the Valuation
Period in which we receive your loan request. Other restrictions may apply if
your Policy was issued in connection with a Qualified Plan. In addition, if you
have named an irrevocable Beneficiary, you must also obtain his or her written
consent before we make a Policy loan to you.
We will ordinarily disburse your loan to you within seven days after we receive
your loan request at our home office. We may, however, postpone payment in the
circumstances described in "Postponement of Payments" on page 39. While the
Policy remains in force, you may repay the loan in whole or in part without any
penalty at any time while the Insured is living.
When we make a Policy loan to you, we will transfer to the Loan Account a
portion of the Policy Value equal to the loan amount. We will also transfer in
this manner Policy Value equal to any due and unpaid loan interest. We will
usually take the transfers from the Subaccounts and the Fixed Account in the
percentages that you specified for the allocation of Premiums. However, we will
not withdraw amounts from the Fixed Account equaling more than the total loan
multiplied by the ratio of the Fixed Account to the Policy Value immediately
preceding the loan. The amounts allocated to the Loan Account will be credited
with interest at the Loan Credited Rate stated in your Policy.
You may borrow an amount equal to your Policy Value, less all Premiums paid, as
a Preferred Loan. The interest rate charged for Preferred Loans is 4.0% per
year. We will treat any other loan as a Standard Loan. The interest rate on
Standard Loans is 6.0% per year.
Interest on Policy loans accrues daily and is due at the end of each Policy
Year. If you do not pay the interest on a Policy loan when due, the unpaid
interest will become part of the Policy loan and will accrue interest at the
same rate. In addition, we will transfer the difference between the value of the
Loan Account and the Policy Debt on a pro-rata basis from the Subaccounts and
the Fixed Account to the Loan Account.
If you have a loan with another insurance company, and you are terminating that
policy to buy one from us, usually you would repay the old loan 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 Policy through a
Tax Code Section 1035 tax-free exchange, up to certain limits. The use of a
Section 1035 tax-free exchange may avoid any income tax liability that would be
due if the old loan was extinguished.
If you transfer a Policy loan from another insurer as part of Section 1035
tax-free exchange, we will treat a loan of up to 20% of your Policy Value as a
Preferred Loan. If the amount due is more than 20% of your Policy Value, we will
treat the excess as a Standard Loan. The treatment of transferred Policy loans
is illustrated in the following example:
<TABLE>
<S> <C>
Transferred Policy Value $ 190,000
Transferred Policy Loan 40,000
--------
Surrender Value $ 150,000
20% of Policy Value $ 38,000
Preferred Loan $ 38,000
Standard Loan $ 2,000
</TABLE>
If the total outstanding loan(s) and loan interest exceeds the surrender value
of your Policy, we will notify you and any assignee in writing. To keep the
Policy in force, we will require you to pay a Premium sufficient to keep the
Policy in force for at least three more months. If you do not pay us sufficient
Premium within the 61-day Grace Period, your Policy will lapse and terminate
without value. As explained in the section entitled "Lapse and Reinstatement" on
page 38, however, you may subsequently reinstate the Policy. Before we will
permit you to reinstate the Policy, we will require either repayment or
reimbursement of any Policy Debt that was outstanding at the end of the Grace
Period. If your Policy lapses while a Policy loan is outstanding, you may owe
taxes or suffer other adverse tax consequences. Please consult a tax adviser for
details.
All or any part of any Policy loan may be repaid while the Policy is still in
effect. If you have a Policy loan outstanding, we will assume that any payment
we receive from you is to be applied as Premium to your Policy Value, unless you
tell us to treat your payment as a loan repayment. If you designate a payment as
a loan repayment or interest payments, your payment will be allocated among the
Subaccounts and the Fixed Account using the same percentages used to allocate
Net Premiums, and an amount equal to the payment will be deducted from the Loan
Account.
A Policy loan, whether or not repaid, will have a permanent effect on the Policy
Value because the investment results of each Subaccount and the Fixed Account
will apply only to the amount remaining in that account. The longer a loan is
outstanding, the greater the effect is likely to be. The effect could be
favorable or unfavorable. If the Subaccounts and/or Fixed Account earn more than
the annual interest rate for amounts held in the Loan Account, your Policy Value
will not increase as rapidly as it would if you had not taken a Policy loan. If
the Subaccounts and/or Fixed Account earn less than that rate, then your Policy
Value will be greater than it would have been if you had not taken a Policy
loan. Also, if your do not repay a Policy loan, total outstanding Policy Debt
will be subtracted from the Death Benefit and Surrender Value otherwise payable.
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<PAGE>
AMOUNT PAYABLE ON SURRENDER OF THE POLICY. While your Policy is in force, you
may fully surrender your Policy. Upon surrender, we will pay you the Net
Surrender Value determined as of the day we receive your written request. Your
Policy will terminate on the day we receive your written request, or the date
requested by you, whichever is later. We may require that you give us your
Policy document before we pay you the surrender proceeds.
The Net Surrender Value equals the Policy Value, minus any applicable surrender
charge, minus any Policy Debt. We will determine the Net Surrender Value as of
the end of the Valuation Period during which we received your request for
surrender. We will pay you the Net Surrender Value of the Policy within seven
days of our receiving your complete written request or on the effective
surrender date you have requested, whichever is later.
You may receive the surrender proceeds in a lump sum or under any of the
settlement options described in "Settlement Options" on page 20.
The tax consequences of surrendering the Policy are discussed in "Federal Tax
Considerations," beginning on page 24.
PARTIAL WITHDRAWALS. While the Policy is in force after the first Policy Year,
you may receive a portion of the Net Surrender Value by making a partial
withdrawal from your Policy. You must request the partial withdrawal in writing.
Your request will be effective on the date received. Before we pay any partial
withdrawal, you must provide us with a completed withholding form.
The minimum partial withdrawal amount is $500. We will subtract the partial
withdrawal service fee of $10 from your withdrawal proceeds. You may not make a
partial withdrawal that would reduce the Net Surrender Value to less than $500.
You may specify how much of your partial withdrawal you wish taken from each
Subaccount or from the Fixed Account. You may not, however, withdraw from the
Fixed Account more than the total withdrawal amount times the ratio of the Fixed
Account to your total Policy Value immediately prior to the withdrawal.
If you have selected Death Benefit Option 1, a partial withdrawal will reduce
the Face Amount of your Policy as well as the Policy Value. We will reduce the
Face Amount by the amount of the partial withdrawal. The Face Amount after a
partial withdrawal may not be less than $50,000. If you have previously
increased the Face Amount of your Policy, your partial withdrawals will first
reduce the Face Amount of the most recent increase, then the most recent
increases successively, then the coverage under the original Policy.
Under Option 2, a reduction in Policy Value as a result of a partial withdrawal
will typically result in a dollar for dollar reduction in the life insurance
proceeds payable under the Policy.
The tax consequences of partial withdrawals are discussed in "Federal Tax
Considerations" beginning page 24.
SETTLEMENT OPTIONS. We will pay the surrender proceeds or Death Benefit proceeds
under the Policy in a lump sum or under one of the settlement options that we
then offer. You may request a settlement option by notifying us in writing at
the address given on the first page of this Prospectus. We will transfer to our
Fixed Account any amount placed under a settlement option and it will not be
affected by the investment performance of the Separate Account.
You may request that the proceeds of the Policy be paid under a settlement
option by submitting a request to us in writing before the death of the Insured.
If at the time of the Insured's death no settlement option is in effect, the
Beneficiary may choose a settlement option not more than 12 months after the
Death Benefit is payable and before it is paid. If you change the Beneficiary,
the existing choice of settlement option will become invalid and you may either
notify us that you wish to continue the pre-existing choice of settlement option
or select a new one.
The amount applied to a settlement option must include at least $5,000 of Policy
Value and result in installment payments of not less than $50. We will not
permit surrenders or partial withdrawals after payments under a settlement
option commence.
We currently offer the five settlement options described below:
OPTION a - INTEREST. We will hold the proceeds, credit interest to them, and pay
out the funds when the person entitled to them requests.
OPTION b - FIXED PAYMENTS. We will pay a selected monthly income until the
proceeds, and any interest credits, 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. You may also select a guarantee
period of between five and twenty years. If a guarantee period is selected, we
will make monthly payments at least until the payee dies. If the payee dies
before the end of the guarantee period, we will continue payments to a successor
payee until the end of the guarantee period. If no guarantee period is selected
or if the payee dies after the end of the guarantee period, we will stop
payments when the payee dies. It is possible for the payee to receive only one
payment under this option, if the payee dies before the second payment is due
and you did not choose a guarantee period.
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.
20
<PAGE>
OPTION e - PERIOD CERTAIN. We will pay the proceeds in monthly installments for
a specified number of years, from five to twenty-five years. If the payee dies
before the end of the specified period, we will pay the remaining guaranteed
payments to a successor payee.
In addition, we may agree to other settlement option plans. Write or call us to
obtain information about them.
When the proceeds are payable, we will inform you concerning the rate of
interest we will credit to funds left with us. We guarantee that the rate of
interest will be at least 3.5%. We may pay interest in excess of the guaranteed
rate.
MATURITY. The Policies have no maturity date. Your Policy will continue as long
as Net Surrender Value is sufficient to cover Monthly Deductions.
LAPSE AND REINSTATEMENT. If the Net Surrender Value is less than the Monthly
Deduction due on a Monthly Deduction Day and the Safety Net Premium feature is
not in effect, your Policy may lapse. You will be given a 61-day Grace Period in
which to pay enough additional Premium to keep the Policy in force after the end
of the Grace Period.
At least 30 days before the end of the Grace Period, we will send you a notice
telling you that you must pay the amount shown in the notice by the end of the
Grace Period to prevent your Policy from terminating. The amount shown in the
notice will be sufficient to cover the Monthly Deduction(s) due and unpaid. You
may pay additional Premium if you wish.
The Policy will continue in effect through the Grace Period. If the Insured dies
during the Grace Period, we will pay a Death Benefit in accordance with your
instructions. However, we will reduce the proceeds by an amount equal to Monthly
Deduction(s) due and unpaid. See "Death Benefit," on page 16. If you do not pay
us the amount shown in the notice before the end of the Grace Period, your
Policy will end at the end of the Grace Period.
If the Policy lapses, you may apply for reinstatement of the Policy by paying us
the reinstatement Premium and any applicable charges required under the Policy.
You must request reinstatement within five years of the date the Policy entered
a Grace Period. The reinstatement Premium is equal to an amount sufficient to
(1) cover all unpaid Monthly Deductions for the Grace Period, and (2) keep your
Policy in force for three months. If a Policy loan was outstanding at the time
of lapse, you must either repay or reinstate the loan before we will reinstate
your Policy. In addition, we may require you to provide evidence of insurability
satisfactory to us. The Face Amount upon reinstatement cannot exceed the Face
Amount of your Policy at its lapse. The Policy Value on the reinstatement date
will reflect the Policy Value at the time of termination of the Policy plus the
Premium paid at the time of reinstatement. All Policy charges will continue to
be based on your original Issue Date.
CANCELLATION AND EXCHANGE RIGHTS. You may cancel your Policy by returning it to
us within ten days after you receive it, or after whatever longer period may be
permitted by state law. If you return your Policy, the Policy terminates and, in
most states, we will pay you an amount equal to your Policy Value on the date we
receive the Policy from you, plus any charges previously deducted. Your Policy
Value usually will reflect the investment experience of the Subaccounts and the
Fixed Account as you have allocated your Net Premium. In some states, we are
required to send you the amount of your Premiums. In those states, we may hold
all Premiums received from you in the Money Market Subaccount until the end of
the cancellation period. Since state laws differ as to the consequences of
returning a Policy, you should refer to your Policy for specific information
about your circumstances.
In addition, during the first two Policy Years or the first two years after an
increase in the Face Amount, if the Policy is in force you may amend the Policy
to convert it into a non-variable universal life insurance policy. We will
accomplish this by transferring all of your Policy Value to the Fixed Account
and ending your right under the Policy to allocate Policy Value to the
Subaccounts. We will not require evidence of insurability. We will not charge
you to perform this amendment.
The net amount at risk (I.E., the difference between the Death Benefit and the
Policy Value) under the amended policy will be equal to or less than the net
amount at risk under the previous coverage. Premiums and charges under the
amended policy will be based on the same risk classification as the previous
coverage.
POSTPONEMENT OF PAYMENTS. We may defer for up to fifteen days the payment of any
amount attributable to a Premium paid by check to allow the check a reasonable
time to clear. We may postpone paying any amount for a total surrender or a
partial withdrawal, the disbursement of a Policy loan, or the payment of the
Death Benefit Proceeds, in the following circumstances:
(1) whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
(2) when trading on the NYSE is restricted or an emergency exists, as determined
by the SEC, so that disposal of the Separate Account's investments or
determination of the value of its net assets is not reasonable practicable; or
(3) at any other time permitted by the SEC for your protection.
In addition, we may delay payment of the Surrender Value in the Fixed Account
for up to six months or a shorter period if required by law. If we defer payment
for more than 30 days we will add interest at our current rate from the time you
asked for the Surrender Value.
DEDUCTIONS AND CHARGES
PREMIUM TAX CHARGE AND PREMIUM EXPENSE CHARGE. Before we allocate a Premium to
the Policy Value, we will subtract the premium tax charge and the premium
expense charge.
21
<PAGE>
The premium tax charge will equal 2.5% of your Premiums. This charge is intended
to help us pay state premium taxes and other related state and local taxes.
State premium tax rates currently range up to 4.0%. Accordingly, the 2.5%
deducted from your Premium may be more or less than the taxes assessed in your
state. We will subtract this charge from amounts transferred from other policies
issued by other insurers or by us, if state law imposes a premium tax on
transferred amounts.
The premium expense charge and the surrender charge are imposed to cover our
actual sales expenses, which include agents' sales commissions and other sales
and distribution expenses. We expect to recover total sales expenses of the
Policies over the life of the Policies. However, the premium expense charge and
surrender charge paid with respect to a particular Policy may be higher or lower
than the distribution expenses we incurred in connection with that Policy. To
the extent distribution costs are not recovered by these charges, we may make up
any shortfall from the assets of our general account, which includes funds
derived from the mortality and expense charge on the Separate Account assets.
MONTHLY DEDUCTION. On each Monthly Deduction Day, we will deduct from your
Policy Value a Monthly Deduction to cover certain charges and expenses in
connection with the Policy. The Monthly Deduction is intended to compensate us
for expenses incurred in connection with the issuance of a Policy, the cost of
life insurance, the cost of any optional insurance benefits and certain
administrative expenses. The administrative expenses include salaries, postage,
telephone, office equipment and periodic reports.
The Monthly Deduction is the sum of the following four items: (1) the policy
fee; (2) the mortality and expense risk charge; (3) the cost of insurance charge
for your Policy; and (4) the cost of any benefit rider.
We will allocate the mortality and expense risk charge pro rata among the
Subaccounts in proportion to the amount of your Policy Value in each Subaccount.
We will allocate the remainder of the Monthly Deduction pro rata among the
Subaccounts and the Fixed Account.
POLICY FEE: The monthly policy fee will be $7.50 per month. This charge
compensates us for administrative expenses such as salaries, postage, telephone,
office equipment and periodic reports.
MORTALITY AND EXPENSE RISK CHARGE: For the first fourteen Policy Years, the
monthly mortality and expense risk charge will be calculated at an annual rate
equivalent to 0.72% of the net Policy Value allocated to the Subaccounts.
Thereafter, we intend to charge an annual rate of 0.36%, and we guarantee that
we will not charge more than 0.48%. The mortality and expense risk charge is not
assessed against your Policy Value in the Fixed Account. This charge compensates
us for the mortality and expense risks that we assume in relation to the
Policies. The mortality risk assumed includes the risk that the cost of
insurance charges specified in the Policy will be insufficient to meet claims.
We also assume a risk that, on the Monthly Deduction Day preceding the death of
an Insured, the Death Benefit will exceed the amount on which the cost of
insurance charges were based. The expense risk assumed is that expenses incurred
in issuing and administering the Policies will exceed the administrative charges
set in the Policy.
COST OF INSURANCE CHARGE: The cost of insurance is determined monthly. The cost
of insurance charge is determined by multiplying the applicable current cost of
insurance rate per $1,000 by the net amount risk for each Policy Month. The net
amount at risk is (a) - (b), where: (a) is the Death Benefit as of the prior
Monthly Deduction Day divided by 1.0032737; and (b) is the Policy Value as of
the prior Monthly Deduction Day.
EXAMPLE:
<TABLE>
<S> <C>
Face Amount $ 100,000
Death Benefit Option 1
Policy Value on the Prior Monthly Deduction Day $ 30,000
Insured's Attained Age 45
Corridor Percentage 215%
Death Benefit $ 100,000
</TABLE>
On the Monthly Deduction Day in this example, the Death Benefit as then computed
would be $100,000, because the Face Amount ($100,000) is greater than the Policy
Value multiplied by the applicable corridor percentage ($30,000 x 215% =
$64,500). Since the Policy Value on that date is $30,000, the cost of insurance
charges per $1000 are applied to the difference in the net amount at risk of
$69,674 (($100,000/1.00327374) - $30,000).
Assume that the Policy Value in the above example was $50,000. The Death Benefit
would then be $107,500 (215% x $50,000), since this is greater than the Face
Amount ($100,000). The cost of insurance rates in this case would be applied to
the net amount at risk of $57,149 (($107,500/1.00327374) - $50,000).
Because the Policy Value and, as a result, the amount for which we are at risk
under your Policy may vary monthly, your cost of insurance charge probably will
be different each month.
We determine the cost of insurance charge separately for the initial Face Amount
and each subsequent increase. The cost of insurance charge covers our
anticipated mortality costs for standard and substandard risks. We determine the
current cost of insurance rates, but we guarantee that we will never charge you
a cost of insurance rate higher than the guaranteed cost of insurance rates
shown in the Policy. We base the cost of insurance rate on the sex, issue age,
Policy Year, and premium rating class of the Insured. However, we issue unisex
policies in Montana and in connection with Qualified Plans. Although we will
base the current cost of insurance rate on our expectations as to future
mortality experience, that rate will never exceed a maximum cost of insurance
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. Our
cost of insurance
22
<PAGE>
rates for unisex Policies will never exceed a maximum based on the 1980 CSO
Table B assuming a blend of 80% male and 20% female lives.
If we ever charge you a cost of insurance rate during the first five Policy
Years that is greater than the rate provided by the rate scale in effect on the
Issue Date we will notify you. For 60 days after we mail that notice, you may
surrender your Policy without paying any surrender charge.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES. We are not currently maintaining a
provision for taxes. In the future, however, we may establish a provision for
taxes if we determine, in our sole discretion, that we will incur a tax as a
result of the operation of the Separate Account. We will deduct for any taxes we
incur as a result of the operation of the Separate Account, whether or not we
previously made a provision for taxes and whether or not it was sufficient. Our
status under the Tax Code is briefly described on page 25 below.
PORTFOLIO EXPENSES. You indirectly bear the charges and expenses of the
Portfolios whose shares are held by the Subaccounts to which you allocate your
Policy Value. The table below contains a summary of current estimates of those
charges and expenses. For more detailed information about those charges and
expenses, please refer to the Prospectuses for the appropriate Portfolios. We
may receive compensation from the investment advisers or administrators of the
Portfolios in connection with administrative service and cost savings
experienced by the investment advisers or administrators.
PORTFOLIO EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE ASSETS)
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
<S> <C> <C> <C>
Janus Flexible Income Portfolio 0.65% 0.10% 0.75%
Janus Balanced Portfolio(1) (after fee waivers or
reductions) 0.76% 0.07% 0.83%
Janus Aggressive Growth Portfolio(1) (after fee waivers
or reductions) 0.73% 0.03% 0.76%
Janus Worldwide Growth Portfolio(1) (after fee waivers
or reductions) 0.66% 0.08% 0.74%
Janus Growth Portfolio(1) (after fee waivers or
reductions) 0.65% 0.05% 0.70%
Federated Utility Fund II(2) (after fee waiver) 0.48% 0.37% 0.85%
Federated Fund for U.S. Government Securities II(2)
(after fee waiver and expense reimbursement) 0.15% 0.65% 0.80%
Federated High Income Bond Fund II(2) (after fee
waiver) 0.51% 0.29% 0.80%
Fidelity VIP Money Market Portfolio 0.21% 0.10% 0.31%
Fidelity VIP Equity-Income Portfolio(3) 0.50% 0.08% 0.58%
Fidelity VIP Growth Portfolio(3) 0.60% 0.09% 0.69%
Fidelity VIP Overseas Portfolio(3) 0.75% 0.17% 0.92%
Fidelity VIP II Asset Manager Portfolio(3) 0.55% 0.10% 0.65%
Fidelity VIP II Contrafund Portfolio(3) 0.60% 0.11% 0.71%
Fidelity VIP II Index 500 Portfolio 0.24% 0.04% 0.28%
The Alger Income and Growth Portfolio 0.625% 0.115% 0.740%
The Alger Small Capitalization Portfolio 0.85% 0.04% 0.89%
The Alger Growth Portfolio 0.75% 0.04% 0.79%
The Alger MidCap Growth Portfolio 0.80% 0.04% 0.84%
The Alger Leveraged AllCap Portfolio(4) 0.85% 0.15% 1.00%
Scudder Bond Portfolio 0.48% 0.14% 0.62%
Scudder Balanced Portfolio 0.48% 0.09% 0.57%
Scudder Growth and Income Portfolio 0.48% 0.10% 0.58%
Scudder Global Discovery Portfolio 0.67% 0.83% 1.50%
Scudder International Portfolio 0.83% 0.17% 1.00%
Strong Discovery Fund II 1.00% 0.18% 1.18%
Strong Opportunity Fund II 1.00% 0.15% 1.15%
Strong Growth Fund II 1.00% 0.20% 1.20%
T. Rowe Price International Stock Portfolio 1.05% 0.00% 1.05%
T. Rowe Price New America Growth Portfolio 0.85% 0.00% 0.85%
T. Rowe Price Mid-Cap Growth Portfolio 0.85% 0.00% 0.85%
T. Rowe Price Equity Income Portfolio 0.85% 0.00% 0.85%
MFS Growth with Income Series(5), (6) (after expense
reimbursement) 0.75% 0.25% 1.00%
MFS Research Series(5) 0.75% 0.13% 0.88%
MFS Emerging Growth Series 0.75% 0.12% 0.87%
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
TOTAL FUND
MANAGEMENT OTHER ANNUAL
PORTFOLIO FEES EXPENSES EXPENSES
<S> <C> <C> <C>
MFS Total Return Series(5), (6) (after expense
reimbursement) 0.75% 0.25% 1.00%
MFS New Discovery Series(5), (6) (after expense
reimbursement) 0.90% 0.25% 1.15%
</TABLE>
- ------------------------
(1) Other expenses are based on the gross expenses of the Portfolios before
expense offset arrangements for the fiscal year ended December 31, 1997. The
information for Growth, Aggressive Growth, Worldwide Growth, and Balanced
Portfolios is net of fee reductions from Janus Capital. Without such
reductions, the Management Fee, Other Expenses and Total Operating Expenses
for the Portfolios would have been 0.74%, 0.04% and 0.78% for Growth
Portfolio; 0.74%, 0.04%, and 0.78% for Aggressive Growth Portfolio; 0.72%,
0.09%, and 0.81% for Worldwide Growth Portfolio, and 0.77%, 0.06%, and 0.83%
for Balanced Portfolio, respectively. Janus Capital may modify or terminate
the fee reductions at any time upon at least 90 days' notice to the
Trustees.
(2) The expense figures shown reflect the voluntary waiver of all or a portion
of the Management Fee. The maximum Management Fees for the indicated
Portfolios and the Total Portfolio Expenses absent the voluntary waiver are
as follows: 0.75% and 1.12%, respectively, for the Utility Fund II; 0.06%
and 1.25%, respectively, for the U.S. Government Securities II; and 0.60%
and 0.89%, respectively, for the High Income Bond Fund II. The expense
figures for U.S. Government Securities II are also net of expense
reimbursements from the investment adviser.
(3) A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. Including this reduction, total operating expenses would have
been for Equity Income -- 0.57%, for Growth -- 0.67%, for Overseas -- 0.90%,
for Asset Manager -- 0.64%, and for Contrafund -- 0.68%.
(4) Included in the Other Expenses of this Portfolio is 0.04% of interest
expense.
(5) Each Portfolio has an expense offset arrangement which reduces the
Portfolio's custodian fee based upon the amount of cash maintained by the
Portfolio with its custodian and dividend disbursing agent, and may enter
into other such arrangements and directed brokerage arrangements (which
would also have the effect of reducing the Portfolio's expenses). Any such
fee reductions are not reflected under "Other Expenses."
(6) The Adviser has agreed to bear expenses for these Portfolio. Subject to
reimbursement by these Portfolios, such that each such Portfolio's "Other
Expenses" shall not exceed 0.25% of the average daily net assets of the
Portfolio during the current fiscal year. Otherwise, "Other Expenses" and
"Total Operating Expenses" for each such Portfolio would be:
<TABLE>
<CAPTION>
"OTHER EXPENSES" "TOTAL OPERATING EXPENSES"
WITHOUT EXPENSE WITHOUT EXPENSE
PORTFOLIO LIMITATION LIMITATION
- ----------------------------------------------------------------------- ------------------- ---------------------------
<S> <C> <C>
Growth With Income..................................................... 0.35% 1.10%
Total Return........................................................... 0.27% 1.02%
New Discovery (estimate)............................................... 0.47% 1.37%
</TABLE>
SURRENDER CHARGE. If you surrender your Policy, we may subtract a surrender
charge from the surrender proceeds. The surrender charge equals the amount shown
in the surrender charge table in your Policy, plus any additional surrender
charge due to increases in the Face Amount of your Policy. The amount of the
surrender charge decreases over time.
INITIAL SURRENDER CHARGE. When we issue your Policy, we determine the initial
surrender charge. To determine the initial surrender charge, we multiply the
Initial Face Amount of your Policy by a rate per thousand dollars of Face
Amount. The applicable rate depends on the Insured's age at issue, sex, and
status as a smoker or non-smoker. For example, if the Insured is age 45 when
your Policy is issued, the applicable rates per thousand are as follows:
Male Non-Smoker $27.51
Male Smoker $32.85
Female Non-Smoker $22.80
Female Smoker $25.55
Unisex Non-Smoker $26.56
Unisex Smoker $31.40
Accordingly, if the Insured were a male non-smoker age 45 and the Policy's Face
Amount was $100,000, the surrender charge initially would be $2,751.
The rates for each category are greater or lesser according to the age of the
Insured when your Policy is issued. The maximum rates are as follows:
Male Non-Smoker $53.98
Male Smoker $54.11
Female Non-Smoker $53.74
Female Smoker $54.01
Unisex Non-Smoker $53.72
Unisex Smoker $54.01
If you surrender your Policy after fourteen Policy Years have elapsed, we will
not charge a surrender charge (unless you have increased the Face Amount of your
Policy, as explained
24
<PAGE>
below). Before that time, we determine the applicable surrender charge by
multiplying the initial surrender charge on your Policy by the appropriate
surrender charge percentage for the Policy Year in which the surrender occurs.
The applicable surrender charge percentage depends on the Insured's sex, age
when your Policy was issued, and the number of years elapsed since your Policy
was issued. For example, the following surrender charge percentage rates would
apply if the Insured were 45 years old when your Policy was issued:
<TABLE>
<CAPTION>
MALE - FEMALE - UNISEX -
POLICY YEAR AGE 45 AGE 45 AGE 45
<S> <C> <C> <C>
1 100% 100% 100%
2 100% 100% 100%
3 100% 100% 100%
4 100% 100% 100%
5 100% 100% 100%
6 91% 91% 91%
7 82% 82% 82%
8 73% 73% 73%
9 64% 64% 64%
10 55% 55% 55%
11 46% 46% 46%
12 37% 37% 37%
13 28% 28% 28%
14 18% 18% 18%
15 0% 0% 0%
</TABLE>
Thus, in the example given above, if the Policy were surrendered during the 10th
Policy Year, the surrender charge would equal $1,513.05 ($2,751 X 55%). A
different surrender charge percentage rate might apply if the Insured is older
than 45 when the Policy is issued.
SURRENDER CHARGE ON INCREASES IN INITIAL FACE AMOUNT. If you increase the
Initial Face Amount of your Policy, we will determine an additional surrender
charge amount applicable to the amount of the increase. We determine the initial
amount of the additional surrender charge using the same formula and rates used
in determining the initial surrender charge, except that we use the Insured's
age and smoking status at the time of the increase, rather than at the time your
Policy was issued.
The surrender charge on the increase also decreases over a fourteen Policy Year
period, starting from the effective date of the increase. The schedule of
surrender charge percentages applicable to the additional surrender charge is
based on the Insured's age at the time of the increase. If you surrender your
Policy or make a partial withdrawal, we separately calculate the surrender
charge applicable to the Initial Face amount and each increase and add those
amounts to determine the total surrender charge.
If you decrease the Face Amount, the applicable surrender charge remains the
same.
We will include in your Policy a table showing the surrender charge rates and
the surrender charge percentages applicable under the Policies. For additional
information concerning the rates applicable to you, please consult your agent.
In addition, a table of the applicable rates is on file with the SEC as an
exhibit to the registration statement for this product.
We will not subtract any portion of the then applicable surrender charge from a
partial withdrawal. We will, however, subtract a partial withdrawal service fee
of $10 from the amount withdrawn, to cover our expenses relating to the partial
withdrawal.
We will not assess a surrender charge on surrenders under Policies issued to
employees of Lincoln Benefit or its affiliates or issued to spouses or minor
children of those employees.
TRANSFER FEE. We currently are not charging a transfer fee. The Policy, however,
permits us to charge a transfer fee of $10 on the second and each subsequent
transaction in each calendar month in which transfer(s) are effected between
Subaccount(s) and/or the Fixed Account. We will notify you if we begin to charge
this fee.
The transfer fee will be deducted from the Policy Value that remains in the
Subaccount(s) or Fixed Account from which the transfer was made. If that amount
is insufficient to pay the transfer fee, we will deduct the fee from the
transferred amount.
GENERAL POLICY PROVISIONS
STATEMENTS TO POLICY OWNERS. We will maintain all records relating to the
Separate Account and the Subaccounts. Each year we will send you a report
showing information concerning your Policy transactions in the past year and the
current status of your Policy. The report will include information such as the
Policy Value as of the end of the current and the prior year, 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 regulation. If you ask us, we will send you
an additional report at any time. We may charge you up to $25 for this extra
report. We will tell you the current charge before we send you the report.
In addition, we will send you the reports required by the 1940 Act. We will mail
you confirmation notices or other appropriate notices of Policy transactions
quarterly or more frequently if required by law. You should therefore give us
prompt written notice of any address change. You should read your statements and
confirmations carefully and verify their accuracy. You should contact us
promptly with any questions.
LIMIT ON RIGHT TO CONTEST. We may not contest the insurance coverage under the
Policy after the Policy has been in force for two years while the Insured is
alive. If the Policy has lapsed and been reinstated, we may not contest the
reinstatement after two years from the date of the reinstatement while the
Insured is alive. We may not contest any increase in the Face Amount of the
Policy after the increase has been in effect for two years while the Insured is
alive.
25
<PAGE>
SUICIDE. If the Insured commits suicide while sane or kills him- or herself
while insane within two years of the Issue Date or within two years of any
increase in the Face Amount, we are not required to pay the full Death Benefit
that would otherwise be payable. Instead, if within two years of the Issue Date
the Insured commits suicide while sane or kills him- or herself while insane, we
will not pay the Death Benefit and instead will pay you an amount equal to the
Policy Value less any Policy Debt and the Policy will stop. If within two years
of the effective date of any increase in the Face Amount the Insured commits
suicide while sane or kills him- or herself while insane, we will pay the
Beneficiary a Death Benefit based on the Face Amount prior to the increase and
we will pay you an amount equal to the total cost of insurance charges for the
increase.
MISSTATEMENT AS TO AGE AND SEX. If the age or sex of the Insured is incorrectly
stated in the application, we will adjust the Death Benefit appropriately as
specified in the Policy.
BENEFICIARY. You name the original Beneficiary(ies) and Contingent
Beneficiary(ies) in the application for the Policy. You may change the
Beneficiary or Contingent Beneficiary at any time, except irrevocable
Beneficiaries and Contingent Beneficiaries may not be changed without their
consent.
You must request a change of Beneficiary in writing. We will provide a form to
be signed and filed with us. Your request for a change in Beneficiary or
Contingent Beneficiary will take effect when we receive it, effective as of the
date you signed the form. Until we receive your change instructions, we are
entitled to rely on your most recent instructions in our files. Accordingly, we
are not liable for making a payment to the person shown in our files as the
Beneficiary or treating that person in any other respect as the Beneficiary,
even if instructions that we subsequently receive from you seek to change your
Beneficiaries effective as of a date before we made the payment or took the
action in question.
If you name more than one Beneficiary, we will divide the Death Benefit among
your Beneficiaries according to your most recent written instructions. If you
have not given us written instructions, we will pay the Death Benefit in equal
shares to the Beneficiaries. If one of the Beneficiaries dies before you, we
will divide the Death Benefit among the surviving Beneficiaries.
Different rules may apply if your Policy was issued in connection with a
Qualified Plan.
The premium expense charge will be 3.5% of each Premium for the first ten Policy
Years and 1.5% of each Premium thereafter. 2.0% of the 3.5% charge during the
first ten Policy Years is intended to help compensate us for our actual sales
expenses, which include agents' sales commissions and other sales and
distribution expenses. The remainder of this charge is intended to help
compensate us for certain Federal taxes and other expenses related to the
receipt of Premiums.
ASSIGNMENT. You may assign your Policy as collateral security, unless it was
issued in connection with a Qualified Plan. You must notify us in writing if you
assign the Policy. Until we receive notice from you, we are not liable for any
action we may take or payments we may make that may be contrary to the terms of
your assignment. We are not responsible for the validity of an assignment. Your
rights and the rights of the Beneficiary may be affected by an assignment.
DIVIDENDS. We will not pay any dividend under the Policies.
FEDERAL TAX CONSIDERATIONS
NOTE: We based the following discussion upon our understanding of current
federal income tax law applicable to life insurance policies in general. We
cannot predict the probability that any changes in those laws will be made.
Also, we do not guarantee the tax status of the Policies. You bear the complete
risk that the Policies may not be treated as "life insurance policies" under
federal income tax laws. You should seek tax advice concerning the effect on
your personal tax liability of the transactions permitted under the Policies, as
well as any other questions you may have concerning the tax status of the Policy
or the possibility of changes in the tax law.
TAXATION OF LINCOLN BENEFIT AND THE SEPARATE ACCOUNT. We are taxed as a life
insurance company under Part I of Subchapter L of the Tax Code. The operations
of the Separate Account are taxed as part of the operations of Lincoln Benefit.
Investment income and realized capital gains are automatically applied to
increase reserves under the Policies. Under existing federal income tax law, we
believe that the Separate Account investment income and realized net capital
gains will not be taxed to the extent that they are applied to increase the
reserves under the Policies.
Accordingly, we do not anticipate that Lincoln Benefit will incur any federal
income tax liability attributable to the Separate Account. Therefore, we are not
making any charge or provision for federal income taxes. However, if the tax
treatment of the Separate Account is changed, we may charge the Separate Account
for its share of the resulting federal income tax.
In several states we may incur state and local taxes on the operations of the
Separate Account. We currently are not making any charge or provision for them
against the Separate Account. We do, however, use part of the premium tax charge
to offset these taxes. If these taxes should be increased, we may make a charge
or provision for them against the Subaccounts. If we do so, the performance of
the Subaccounts will be reduced.
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TAXATION OF POLICY BENEFITS. The Policy is structured to satisfy the definition
of a life insurance contract under the Tax Code. As a result, the Death Benefit
ordinarily will be fully excluded from the gross income of the Beneficiary. The
Death Benefit will be included in your gross estate for Federal estate tax
purposes if the proceeds are payable to your estate. The Death Benefit will also
be included in your estate, if the Beneficiary is not your estate but you
retained incidents of ownership in the Policy. Examples of incidents of
ownership include the right to change Beneficiaries, to assign the Policy or
revoke an assignment, 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 more than three years before your death, the Death
Benefit will not be included in your gross estate. State and local estate and
inheritance tax consequences may also apply.
Under the Tax Code, if you borrow a Policy loan, the loan usually is not treated
as income to you. Similarly, if you take a partial withdrawal of Policy Value,
the withdrawal usually is treated as income to you only to the extent the amount
withdrawn exceeds the Premiums paid. However, as discussed immediately below, if
your Policy is deemed to be a "modified endowment contract", you may receive
less favorable tax treatment of pre-death distributions and Policy loans.
Finally, in the absence of final regulations or other pertinent interpretations
of the Tax Code, some uncertainty exists as to whether a substandard risk Policy
will meet the statutory definition of a life insurance contract. If a Policy
were deemed not to be a life insurance contract for tax purposes, it would not
provide most of the tax advantages usually provided by a life insurance
contract. We reserve the right to amend the Policies to comply with any future
changes in the Tax Code any regulations or rulings under the Tax Code and any
other requirements imposed by the Internal Revenue Service.
In addition, you may use the Policy in various arrangements, including
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
adviser regarding the tax treatment of the proposed arrangement.
MODIFIED ENDOWMENT CONTRACTS. A tax law amendment in 1988 changed the federal
income tax treatment of pre-death withdrawals from a class of life insurance
contracts referred to as modified endowment contracts. Unlike other life
insurance contracts, amounts received before death from a modified endowment
contract, including partial withdrawals and Policy loans, are treated first as
income (to the extent of gain) and then as return of Premium. If your Policy
were deemed to be a modified endowment contract, all modified endowment
contracts issued by Lincoln or its affiliates to you during any calendar year
would be treated as one contract in determining the amount to be treated as
income. Finally, an additional 10% income tax is generally imposed on the
taxable portion of amounts received before age 59 1/2.
In general, a modified endowment contract 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 seven Policy Years exceeds the
sum of the net level premiums which would have been paid if the contract
provided for paid-up future benefits after the payment of seven level annual
payments, the contract is a modified endowment contract. 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 the 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
contract was entered into, premiums paid and the periodic Premiums to be paid,
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 modified endowment contract will also be
treated as a modified endowment contract. If action is required to be taken in
order to prevent your Policy from being deemed to be a modified endowment
contract, we will advise you.
You should consult with counsel and other tax advisers to determine how these
rules apply to your individual situation and before paying unscheduled Premiums,
increasing or decreasing the specified Face Amount, adding or removing a rider,
or making any other significant change to your Policy. Our annual statement to
you will indicate whether your Policy may be deemed a modified endowment
contract.
DIVERSIFICATION REQUIREMENTS. Section 817(h) of the Tax Code requires that the
underlying assets of variable life insurance contracts be diversified. The Tax
Code provides that a variable life insurance contract will not be treated as a
life insurance contract for federal income tax purposes for any period and any
subsequent period for which the investments are not adequately diversified. If
the Policy were disqualified for this reason, you would lose the tax deferral
advantages of the Policy and would be subject to current federal income taxes on
all earnings allocable to the Policy.
The Tax Code provides that variable life insurance contracts such as the Policy
meet the diversification requirements if, as of the close of each quarter, the
underlying assets meet the
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diversification standards for a regulated investment company, and no more than
55% of the total assets consist of cash, cash items, U.S. Government securities
and securities of other regulated investment companies. For purposes of
determining whether or not the diversification standards of Section 817(h) of
the Tax Code have been met, each United States government agency or
instrumentality is treated as a separate issuer.
The United States Treasury Department (the "Treasury Department") also has
issued regulations that establish diversification requirements for the
investment accounts underlying variable contracts such as the Policies. These
regulations amplify the diversification requirements set forth in the Tax Code
and provide an alternative to the provision described above. Under these
regulations, an investment account will be deemed adequately diversified if: (1)
no more than 55% of the value of the total assets of the account is represented
by any one investment; (2) no more than 70% of the value of the total assets of
the account is represented by any two investments; (3) no more than 80% of the
value of the total assets of the account is represented by any three
investments; and (4) no more than 90% of the value of the total assets of the
account is represented by any four investments.
These diversification standards are applied to each Subaccount of the Separate
Account by applying them to the investments of the Portfolio underlying the
Subaccount. One of our criteria in selecting the Portfolios is that their
investment managers intend to manage them in compliance with these
diversification requirements.
OWNER CONTROL. In certain circumstances, variable life insurance contract owners
will be considered the owners, for tax purposes, of separate account assets
underlying their contracts. In those circumstances, the contract owners could be
subject to taxation on the income and gains from the separate account assets.
In published rulings, the Internal Revenue Service has stated that a variable
insurance contract owner will be considered the owner of separate account
assets, if the owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. When the
diversification regulations were issued, the Treasury Department announced that
in the future it would provide guidance on the extent to which variable contract
owners could direct their investments among Subaccounts without being treated as
owners of the underlying assets of the Separate Account. As of the date of this
Prospectus, no such guidance has been issued.
The ownership rights under the Policy are similar in many respects to those
described in IRS rulings in which the contract owners were not deemed to own the
separate account assets. In some respects, however, they differ. For example,
under the Policy you have many more investment options to choose from than were
available under the contracts involved in the published rulings, and you may be
able to transfer Policy Value among the investment options more frequently than
in the published rulings. Because of these differences, it is possible that you
could be treated as the owner, for tax purposes, of the Portfolio shares
underlying your Policy and therefore subject to taxation on the income and gains
on those shares. Moreover, it is possible that the Treasury's position, when
announced, may adversely affect the tax treatment of existing Policies. We
therefore reserve the right to modify the Policy as necessary to attempt to
prevent you from being considered the owner for tax purposes of the underlying
assets.
POLICY LOAN INTEREST. Interest paid on loans against a Policy is generally not
deductible.
QUALIFIED PLANS. The Policy may be suitable for purchase by Qualified Plans,
which are pension and profit-sharing plans established by corporations,
partnerships, sole proprietors and other eligible organizations which are
qualified for favorable tax treatment under Section 401(a) and 403(b) of the Tax
Code. 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 insurance 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. Special limitations may apply if you purchase a Policy as
"qualified" life insurance. These limitations may restrict, among other things,
your ability to transfer your Policy and assign your Policy or Policy benefits.
In addition, these tax rules govern certain incidental life insurance provisions
such as premium limitations, joint and survivor annuity provisions, spousal
rights, required minimum distributions, eligibility for plan distributions, and
supplemental benefit restrictions.
TAX ADVICE. This summary is not a complete discussion of the tax treatment of
the Policy. You should seek tax advice from an attorney who specializes in tax
issues.
DESCRIPTION OF LINCOLN
BENEFIT LIFE COMPANY AND THE
SEPARATE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY. Lincoln Benefit Life Company is a stock life
insurance company organized under the laws of the state of Nebraska in 1938. Our
legal domicile and principal business address is 206 South 13th Street, Lincoln,
Nebraska. Lincoln Benefit is a wholly-owned subsidiary of Allstate Life
Insurance Company ("Allstate Life"), a stock life insurance company incorporated
under the laws of the State of Illinois. Allstate Life is a wholly-owned
subsidiary of
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Allstate Insurance Company ("Allstate"), a stock property-liability insurance
company incorporated under the laws of Illinois. All outstanding capital stock
of Allstate is owned by the Allstate Corporation.
We are authorized to conduct life insurance and annuity business in the District
of Columbia, Guam and all states except New York. We intend to market the Policy
everywhere we conduct variable life insurance business. The Policies offered by
this Prospectus are issued by us and will be funded in the Separate Account
and/or the Fixed Account.
Through our reinsurance agreement with Allstate Life, all of the assets backing
our reinsured liabilities are owned by Allstate Life. These assets represent our
general account and are invested and managed by Allstate Life. While the
reinsurance agreement provides us with financial backing from Allstate Life, it
does not create a direct contractual relationship between Allstate Life and you.
Lincoln Benefit is highly rated by independent agencies, including A.M. Best,
Moody's, and Standard & Poor's. These ratings are based on our reinsurance
agreement with Allstate Life, and reflect financial soundness and strong
operating performance. The ratings are not intended to reflect the financial
strength or investment experience of the Separate Account. We may from time to
time advertise these ratings in our sales literature.
The Company also acts as the sponsor for one other of its Separate Accounts that
is a registered investment company: Lincoln Benefit Life Variable Annuity
Account. The officers and employees of the Company are covered by a fidelity
bond in the amount of $5,000,000. No person beneficially owns more than 5% of
the outstanding voting stock of The Allstate Corporation, of which the Company
is an indirect wholly-owned subsidiary.
EXECUTIVE OFFICERS AND DIRECTORS OF LINCOLN BENEFIT. Our directors and executive
officers are listed below, together with information as to their dates of
election and principal business occupations during the last five years (if other
than their present occupation). The principal business address of each of the
officers and directors listed below is 206 South 13th St., Lincoln, Ne. 68508
JANET P. ANDERBERY, VICE PRESIDENT AND CONTROLLER, 1994; Associate Vice
President and Controller, 5/84-4/94, Lincoln Benefit Life Company; Vice
President and Controller, 1/94-present, Surety Life Insurance Company; Vice
President and Controller, 5/93-present, Lincoln Benefit Financial Services, Inc.
THOMAS R. ASHLEY, SENIOR VICE PRESIDENT/MEDICAL DIRECTOR, 1998; Vice
President/Medical Director, 10/96-5/98, Lincoln Benefit Life Company; Senior
Vice President/Medical Director, 5/98-present, Medical Director, 1/97-5/98,
Surety Life Insurance Company; 1989-1997, Partner, Antelope Creek Physicians.
DAVID A. BEHRENS, SENIOR VICE PRESIDENT, DIRECTOR, 1998; Vice President
3/95-5/98, Director of Sales, 9/93-3/95, Lincoln Benefit Life Company; Marketing
Director, 9/90-9/93, Ameritas; Regional Director, 7/81-9/90, John Hancock.
JOHN H. COLEMAN, III, SENIOR VICE PRESIDENT, DIRECTOR, 1998; Vice President,
5/96-5/98, Manager, 4/94-5/96, Lincoln Benefit Life Company; Senior Vice
President, Director, 5/98-present; Vice President, 9/96-5/98, Surety Life
Insurance Company; President, Acordia, 2/93-4/94.
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, 1981-present, Lincoln Benefit Life Company;
Senior Vice President and Treasurer, 1/94-present, Director, 6/95-present,
Surety Life Insurance Company; Director, 5/93-present, Lincoln Benefit Financial
Services, Inc.
PETER H. HECKMAN; VICE CHAIRMAN OF THE BOARD, 1996; DIRECTOR, 1990; Vice
President, Director, 4/92-present, Glenbrook Life & Annuity Company; Vice
President, 11/90-12/97, Director, 9/90-12/97, 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 Insurance 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;
DIRECTOR, 1989; Chairman of the Board and President, 4/92-6/95, Chairman of the
Board and Chief Executive Officer, 6/95-present, Glenbrook Life and Annuity
Company; Chairman of the Board and President, 1/91-12/95, Chairman of the Board
and Chief Executive Officer, 12/95-12/97, Director, 9/90-12/97, Glenbrook Life
Insurance Company; President, 1/90-present, Executive Vice President, 1/89-1/90,
Senior Vice President and Treasurer, 10/86-12/88, Director, Allstate Life
Insurance Company; Chairman of the Board and Chief Executive Officer,
6/95-present, Chairman of the Board and President, 4/90-6/95, Chairman of the
Board, 4/90-7/90, Executive Vice President, 1/89-4/90, Senior Vice President and
Treasurer, 10/86-4/89, Director, Northbrook Life Insurance Company; Chairman of
the Board and President, 6/90-present, Vice President and Treasurer 12/86-6/90,
Director, Allstate Life Insurance Company of New York; Chairman of the Board and
Chief Executive Officer, Director, 5/90-present, Lincoln Benefit Life Company;
Chairman of the Board and Chief Executive Officer, 3/90-present, Director,
5/89-present, Surety Life Insurance Company; Group Vice President, 1976-1989,
Director, Allstate Insurance Company; Director, 4/90-present, Allstate
Settlement Company; Director, 5/91-present, Allstate Life Financial Services.
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JOHN J. MORRIS, SENIOR VICE PRESIDENT/SECRETARY, 1994; DIRECTOR, 1987; Senior
Vice President and Secretary, 4/94-present, Vice President and Secretary,
8/85-4/94, Director, 1987-present, Lincoln Benefit Life Company; Senior Vice
President, 9/96-present, Director, 6/95-present, Surety Life Insurance Company;
Vice President and Secretary, Director, 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,
Assistant Secretary, 4/94-3/95, Vice President/Assistant Secretary, 1/84-4/94,
Director, 1987-present, Lincoln Benefit Life Company; Executive Vice President,
7/96-present, Senior Vice President and Chief Actuary, 1/94-6/96, Director,
9/93-present, Surety Life Insurance Company; Director, 5/93-present, Lincoln
Benefit Financial Services, Inc.
KEVIN R. SLAWIN; DIRECTOR, 1996; Director and Vice President-Finance and
Planning, 1996-present, Allstate Life Insurance Company; Director, 1996-present,
Allstate Life Insurance Company of New York; Director, 1996-present, Laughlin
Group Holdings, Inc.; Director, 1996-present, Northbrook Life Insurance Company;
Director, 1996-12/97, Surety Life Insurance Company; Director, 1996-present,
Glenbrook Life Insurance Company; Assistant Vice President, Assistant Treasurer,
Allstate Insurance Company, 1995-1996.
MICHAEL J. VELOTTA; DIRECTOR, 1992; Vice President, Secretary and General
Counsel, 1/93-present, Director, 12/92-present, Allstate Life Insurance Company;
Vice President, Secretary and General Counsel, 1/93-12/97, Director,
12/92-12/97, Glenbrook Life Insurance Company; Vice President, Secretary and
General Counsel, 1/93-present, Director, 12/92-present, Glenbrook Life and
Annuity Company; Vice President, Secretary and General Counsel, 1/93-present,
Director, 12/92-present, Allstate Life Insurance Company of New York; Vice
President, Secretary and General Counsel, 1/93-present, Director, 12/92-present,
Northbrook Life Insurance Company; Vice President, Secretary and General
Counsel, 1/93-present, Director, 12/92-present, Surety Life Insurance Company;
Assistant Vice President and 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, 9/96-present, Director, 9/96-present; Surety Life Insurance Company;
Senior Actuary and Director, 8/87-9/96, Allstate Life Insurance Company.
DEAN M. WAY; SENIOR VICE PRESIDENT/ACTUARY, DIRECTOR, 1998; Vice
President/Actuary, 5/92-5/98, Associate Vice President/ Actuary, 8/91-5/92,
Actuary/Manager, 12/87-7/91, Lincoln Benefit Life Company; Senior Vice
President/Actuary, Director 5/98-present, Vice President/Actuary 9/96-5/98,
Surety Life Insurance Company.
CAROL S. WATSON; SENIOR VICE PRESIDENT/GENERAL COUNSEL, 1994; DIRECTOR, 1992;
Senior Vice President and General Counsel, 4/94-present, Vice President and
General Counsel, 7/91-4/94, Director, 5/92-present, Lincoln Benefit Life
Company; Senior Vice President, Corporate Secretary and General Counsel,
1/98-present, Senior Vice President, Assistant Secretary and General Counsel,
Director, 6/95-present, Surety Life Insurance Company; President, 12/96-present,
Vice President and General Counsel, 5/93-11/96, Director, 5/93-present, Lincoln
Benefit Financial Services, Inc.
PATRICIA W. WILSON, 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 and Annuity Company; Assistant
Vice President/Assistant Secretary/Assistant Treasurer, 7/97-present, Northbrook
Life Insurance Company; Director, 7/97-present, Surety Life Insurance Company.
B. EUGENE WRAITH; PRESIDENT, CHIEF OPERATING OFFICER, 1996; DIRECTOR, 1984;
President and Chief Operating Officer, 3/96-present, Senior Vice President,
4/94-3/96, Vice President, 12/81-4/94, Director, 1984-present, Lincoln Benefit
Life Company; President and Chief Operating Officer, 3/96-present, Executive
Vice President, 1/94-3/96, Director, 9/93-present, Surety Life Insurance
Company; Chairman of the Board, 1/97-present, Director, 5/93-present, President,
5/93-11/96, Lincoln Benefit Financial Services, Inc.
SEPARATE ACCOUNT. Lincoln Benefit Life Variable Life Account was originally
established in 1990, as a segregated asset account of Lincoln Benefit. The
Separate Account meets the definition of a "separate account" under the federal
securities laws and is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940. The SEC does not supervise the management of
the Separate Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Policy
Value of the Policies offered by this Prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains, or losses. Our obligations arising under the
Policies are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Subaccounts. The assets of each Subaccount
are invested in the shares of one of the Portfolios. We do not guarantee the
investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account will rise and fall with the
values of shares of the Portfolios and are also reduced by Policy charges. We
use the Separate Account to fund our other variable universal life insurance
policies.
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We will account separately for each type of variable life insurance policy
funded by the Separate Account.
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS. We hold the assets of the Separate
Account. We keep those assets physically segregated and held separate and apart
from our general account assets. We maintain records of all purchases and
redemptions of shares of the Portfolios.
STATE REGULATION OF LINCOLN BENEFIT. We are subject to the laws of Nebraska and
regulated by the Nebraska Department of Insurance. Every year we file an annual
statement with the Department of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Department of Insurance to verify our contract
liabilities and reserves. We also are examined periodically by the National
Association of Insurance Commissioners. Our books and records are subject to
review by the Department of Insurance at all times. We are also subject to
regulation under the insurance laws of every jurisdiction in which we operate.
YEAR 2000. The Company is heavily dependent upon complex computer systems for
all phases of its operations, including customer service, and policy and
contract administration. Since many of the Company's older computer software
programs recognize only the last two digits of the year in any date, some
software may fail to operate properly in or after the year 1999, if the software
is not reprogrammed or replaced ("Year 2000 Issue"). The Company believes that
many of its suppliers and counterparties also have Year 2000 Issues which could
affect the Company. In 1995, Allstate commenced a plan intended to mitigate
and/or prevent the adverse effects of Year 2000 Issues. These strategies include
normal development and enhancement of new and existing systems, upgrades to
operating systems already covered by maintenance agreements and modifications to
existing systems to make them Year 2000 compliant. The plan also includes the
Company actively working with its major external counterparties and suppliers to
assess their compliance efforts and the Company's exposure to them. The Company
presently believes that it will resolve the Year 2000 Issue in a timely manner,
and the financial impact will not materially affect its results of operations,
liquidity, or financial position. Year 2000 costs are and will be expensed as
incurred.
DISTRIBUTION OF POLICIES
The Policies described in this Prospectus are sold by registered representatives
of broker-dealers who are our licensed insurance agents, either individually or
through an incorporated insurance agency.
Lincoln Benefit Financial Services, Inc. ("LBFS") serves as distributor of the
Policies. LBFS is located at 206 South 13th Street, Lincoln, Nebraska
68508-1993. LBFS is a wholly-owned subsidiary of Lincoln Benefit. It is
registered as a broker-dealer under the Securities Exchange Act of 1934, 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 Premiums up to the commissionable
first year premium plus 2.50% of any additional Premiums in the first year. In
addition, certain bonuses and managerial compensation may be paid. We pay all
such commissions and incentives.
LEGAL PROCEEDINGS
There are no pending legal proceedings affecting the Separate Account. Lincoln
Benefit and its subsidiaries are engaged in routine law suits which, in our
management's judgment, are not of material importance to their respective total
assets or material with respect to the Separate Account.
LEGAL MATTERS
All matters of Nebraska law pertaining to the Policy, including the validity of
the Policy and our right to issue the Policy under Nebraska law, have been
passed upon Carol S. Watson, Senior Vice President and General Counsel of
Lincoln Benefit. Legal matters relating to the federal securities laws in
connection with the Policies described in this prospectus 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.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, Washington, D.C., under the
Securities Act of 1933 as amended, with respect to the Policies offered by this
Prospectus. This Prospectus does not contain all the information set forth in
the registration statement and the exhibits filed as part of the registration
statement. You should refer to the registration statement and the exhibits for
further information concerning the Separate Account, Lincoln Benefit, and the
Policies. The descriptions in this Prospectus of the Policies and other legal
instruments are summaries. You should refer to those instruments as filed for
their precise terms.
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
consolidated financial statements of Lincoln Benefit Life Company and subsidiary
as of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997, included in this Prospectus have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports
appearing herein, and are included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
Actuarial matters included in this Prospectus, including the hypothetical Policy
illustrations, have been examined by
31
<PAGE>
Dean M. Way, Vice President and Actuary of the Company, and are included in
reliance upon his opinion as to their reasonableness.
FINANCIAL STATEMENTS
The attached financial statements of the Separate Account do not reflect any
assets attributable to the Policy, because we did not sell the Policy during the
period covered by those financial statements. In addition, those financial
statements do not cover certain Subaccounts of the Separate Account, because
those Subaccounts were not created until after the end of the periods covered.
Those Subaccounts have not yet commenced operations and have received no income
or incurred any expense. The financial statements of Lincoln Benefit that are
included should be considered only as bearing on Lincoln Benefit's ability to
meet its contractual obligations under the Policy. Lincoln Benefit's financial
statements do not bear on the investment experience of the assets held in the
Separate Account.
The financial statements for Lincoln Benefit for the financial quarter ending
March 31, 1998 are unaudited. Financial statements for the Separate Account
covering that period have not been included, because the most current financial
statements of the Separate Account are those as of the end of the most recent
fiscal year. We do not prepare formal financial statements of the Separate
Account more often than annually and believe that any incremental benefit to
prospective policy owners that may result from preparing and delivering more
current financial statements, though unaudited, does not justify the additional
cost that would be incurred. In addition, Lincoln Benefit represents that there
have been no adverse changes in the financial condition or operations of the
Separate Account between the end of the most recent fiscal year and the date of
this prospectus.
32
<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, Balanced, Growth,
Aggressive Growth, and Worldwide Growth portfolios of Janus Aspen Series; the
Regional, Reserve, and Balanced portfolios of IAI Retirement Funds, Inc.; the
Asset Manager and Contrafund portfolios of Fidelity's Variable Insurance
Products Fund II; the Money Market, Equity Income, Growth, and Overseas
portfolios of Fidelity's Variable Insurance Products Fund; the High Income Bond
Fund II (formerly the Corporate Bond Fund), Utility Fund II (formerly 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 Series; 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
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1997. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement Variable Life
Account presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Account as of December 31, 1997, and the
results of its operations and changes in its net assets for each of the three
years in the period then ended, of each of the portfolios comprising the
Account, in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
March 20, 1998
33
<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.
34
<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>
See notes to financial statements.
35
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
FIDELITY'S
VARIABLE INSURANCE
IAI RETIREMENT FUNDS, INC. PRODUCTS FUND II
PORTFOLIOS PORTFOLIOS
------------------------------------- ------------------------
ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 94 $ 6 $ 10 $ 305 $ 51
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (16) (1) (2) (21) (27)
Administrative expense (5) - (1) (6) (6)
----- --- ----- ----------- -----------
Net investment income (loss) 73 5 7 278 18
----- --- ----- ----------- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales 953 53 171 3,642 6,207
Cost of investments sold (888) (54) (160) (3,388) (5,900)
----- --- ----- ----------- -----------
Net realized gains (losses) 65 (1) 11 254 307
----- --- ----- ----------- -----------
Change in unrealized gains (losses) 113 - 24 (1) 373
----- --- ----- ----------- -----------
Net gains (losses) on investments 178 (1) 35 253 680
----- --- ----- ----------- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 251 $ 4 $ 42 $ 531 $ 698
----- --- ----- ----------- -----------
----- --- ----- ----------- -----------
</TABLE>
See notes to financial statements.
36
<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>
See notes to financial statements.
37
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
($ in thousands)
<TABLE>
<CAPTION>
SCUDDER
VARIABLE
FEDERATED INSURANCE SERIES PORTFOLIO LIFE
------------------------------------------- INVESTMENT
U.S. FUND
HIGH GOVERNMENT PORTFOLIO
INCOME BOND UTILITY SECURITIES -------------------
FUND II FUND II FUND II BOND TOTAL
------------- ----------- --------------- ------------------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 61 $ 44 $ 9 $ 30 $ 2,846
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (8) (8) (2) (3) (500)
Administrative expense (2) (3) - (1) (107)
------------- ----- ----- ----- ---------
Net investment income (loss) 51 33 7 26 2,239
------------- ----- ----- ----- ---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sale of
investments:
Proceeds from sales 2,364 734 261 576 199,648
Cost of investments sold (2,313) (665) (257) (577) (195,215)
------------- ----- ----- ----- ---------
Net realized gains (losses) 51 69 4 (1) 4,433
------------- ----- ----- ----- ---------
Change in unrealized gains (losses) 48 166 7 13 5,251
------------- ----- ----- ----- ---------
Net gains (losses) on investments 99 235 11 12 9,684
------------- ----- ----- ----- ---------
CHANGE IN NET ASSETS RESULTING FROM
OPERATIONS $ 150 $ 268 $ 18 $ 38 $ 11,923
------------- ----- ----- ----- ---------
------------- ----- ----- ----- ---------
</TABLE>
See notes to financial statements.
38
<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>
See notes to financial statements.
39
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
($ in thousands)
<TABLE>
<CAPTION>
FIDELITY'S
VARIABLE INSURANCE
IAI RETIREMENT FUNDS, INC. PRODUCTS FUND II
PORTFOLIOS PORTFOLIOS
--------------------------------------- ------------------------
ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
----------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 57 $ 6 $ 3 $ 94 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (8) (1) (1) (13) (4)
Administrative expense (2) - - (3) -
----------- ----- --- ----- -----------
Net investment income (loss) 47 5 2 78 (4)
----------- ----- --- ----- -----------
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales 1,894 219 56 724 2,224
Cost of investments sold (1,832) (219) (54) (697) (2,183)
----------- ----- --- ----- -----------
Net realized gains (losses) 62 - 2 27 41
----------- ----- --- ----- -----------
Change in unrealized gains (losses) 6 - 13 143 109
----------- ----- --- ----- -----------
Net gains (losses) on investments 68 - 15 170 150
----------- ----- --- ----- -----------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 115 $ 5 $ 17 $ 248 $ 146
----------- ----- --- ----- -----------
----------- ----- --- ----- -----------
</TABLE>
See notes to financial statements.
40
<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>
See notes to financial statements.
41
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
($ in thousands)
<TABLE>
<CAPTION>
SCUDDER
FEDERATED INSURANCE SERIES PORTFOLIOS VARIABLE LIFE
------------------------------------------- INVESTMENT
U.S. FUND
HIGH GOVERNMENT PORTFOLIO
INCOME BOND UTILITY SECURITIES -------------
FUND II FUND II FUND II BOND TOTAL
------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 50 $ 30 $ 9 $ 30 $ 1,180
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (4) (5) (1) (3) (235)
Administrative expense (1) (1) - (1) (48)
------------- ----------- ----- ----- ---------
Net investment income (loss) 45 24 8 26 897
------------- ----------- ----- ----- ---------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Realized gains (losses) from sales of
investments:
Proceeds from sales 3,205 1,512 174 926 103,704
Cost of investments sold (3,200) (1,457) (175) (948) (102,623)
------------- ----------- ----- ----- ---------
Net realized gains (losses) 5 55 (1) (22) 1,081
------------- ----------- ----- ----- ---------
Change in unrealized gains (losses) 22 21 1 7 1,893
------------- ----------- ----- ----- ---------
Net gains (losses) on investments 27 76 - (15) 2,974
------------- ----------- ----- ----- ---------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $ 72 $ 100 $ 8 $ 11 $ 3,871
------------- ----------- ----- ----- ---------
------------- ----------- ----- ----- ---------
</TABLE>
See notes to financial statements.
42
<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>
See notes to financial statements.
43
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
($ in thousands)
<TABLE>
<CAPTION>
FIDELITY'S
VARIABLE
INSURANCE
IAI RETIREMENT FUNDS, INC. PRODUCTS FUND II
PORTFOLIOS PORTFOLIO
--------------------------------------- -----------------
ASSET
REGIONAL RESERVE BALANCED MANAGER
----------- ----------- ------------- -----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ 3 $ - $ 11
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (3) - - (7)
Administrative expense - - - (2)
----- ----- --- -----
Net investment income (loss) (3) 3 - 2
----- ----- --- -----
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 78 118 22 646
Cost of investments sold (74) (118) (21) (637)
----- ----- --- -----
Net realized gains (losses) 4 - 1 9
----- ----- --- -----
Change in unrealized gains (losses) 101 - 4 138
----- ----- --- -----
Net gains (losses) on investments 105 - 5 147
----- ----- --- -----
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 102 $ 3 $ 5 $ 149
----- ----- --- -----
----- ----- --- -----
</TABLE>
See notes to financial statements.
44
<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>
See notes to financial statements.
45
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
($ in thousands)
<TABLE>
<CAPTION>
SCUDDER
FEDERATED INSURANCE SERIES PORTFOLIOS VARIABLE LIFE
INVESTMENT
--------------------------------------------- FUND
CORPORATE GOVERNMENT PORTFOLIO
BOND UTILITY BOND -------------
FUND FUND FUND BOND TOTAL
------------- ----------- ----------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 31 $ 7 $ 2 $ 7 $ 295
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (2) (1) - (1) (75)
Administrative expense (1) - - - (16)
----- --- --- ----- ---------
Net investment income (loss) 28 6 2 6 204
----- --- --- ----- ---------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sale of investments:
Proceeds from sales 451 85 86 171 29,307
Cost of investments sold (444) (85) (86) (170) (29,120)
----- --- --- ----- ---------
Net realized gains (losses) 7 - - 1 187
----- --- --- ----- ---------
Change in unrealized gains (losses) 23 33 1 10 1,631
----- --- --- ----- ---------
Net gains (losses) on investments 30 33 1 11 1,818
----- --- --- ----- ---------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 58 $ 39 $ 3 $ 17 $ 2,022
----- --- --- ----- ---------
----- --- --- ----- ---------
</TABLE>
See notes to financial statements.
46
<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>
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, 1997
($ and units in thousands, except value per unit)
<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> <C>
FROM OPERATIONS
Net investment income (loss) $ 73 $ 5 $ 7 $ 278 $ 18
Net realized gains (losses) 65 (1) 11 254 307
Change in unrealized gains (losses) 113 - 24 (1) 373
----------- ----------- ----------- ----------- ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 251 4 42 531 698
----------- ----------- ----------- ----------- ------
FROM CAPITAL TRANSACTIONS
Deposits 537 22 94 617 1,266
Payments on termination (47) - (39) (73) (178)
Contract maintenance charges (154) (5) (21) (211) (329)
Loans - net (21) (7) - (52) (131)
Transfers among the portfolios and with the
Fixed Account - net 494 74 70 669 4,154
----------- ----------- ----------- ----------- ------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 809 84 104 950 4,782
----------- ----------- ----------- ----------- ------
INCREASE (DECREASE) IN NET ASSETS 1,060 88 146 1,481 5,480
NET ASSETS AT BEGINNING OF YEAR 1,643 111 237 2,404 1,424
----------- ----------- ----------- ----------- ------
NET ASSETS AT END OF YEAR $ 2,703 $ 199 $ 383 $ 3,885 $ 6,904
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 17.51 $ 11.48 $ 14.80 $ 14.49 $ 13.80
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
UNITS OUTSTANDING AT END OF YEAR 154 17 26 268 500
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
</TABLE>
See notes to financial statements.
48
<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>
See notes to financial statements.
49
<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>
SCUDDER
FEDERATED INSURANCE SERIES PORTFOLIOS VARIABLE LIFE
--------------------------------------------- INVESTMENT
U.S. FUND
HIGH GOVERNMENT PORTFOLIO
INCOME BOND UTILITY SECURITIES -------------
FUND II FUND II FUND II BOND TOTAL
--------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 51 $ 33 $ 7 $ 26 $ 2,239
Net realized gains (losses) 51 69 4 (1) 4,433
Change in unrealized gains (losses) 48 166 7 13 5,251
------ ----------- ------ ------ ---------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 150 268 18 38 11,923
------ ----------- ------ ------ ---------
FROM CAPITAL TRANSACTIONS
Deposits 231 248 33 120 45,161
Payments on termination (70) (58) (21) (44) (2,505)
Contract maintenance charges (79) (71) (20) (43) (5,705)
Loans - net (33) (41) (12) (9) (1,687)
Transfers among the portfolios and with the
Fixed Account - net 1,314 129 118 35 (249)
------ ----------- ------ ------ ---------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 1,363 207 98 59 35,015
------ ----------- ------ ------ ---------
INCREASE (DECREASE) IN NET ASSETS 1,513 475 116 97 46,938
NET ASSETS AT BEGINNING OF YEAR 572 891 169 450 49,526
------ ----------- ------ ------ ---------
NET ASSETS AT END OF YEAR $ 2,085 $ 1,366 $ 285 $ 547 $ 96,464
------ ----------- ------ ------ ---------
------ ----------- ------ ------ ---------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 14.67 $ 16.43 $ 12.23 $ 12.23
------ ----------- ------ ------
------ ----------- ------ ------
UNITS OUTSTANDING AT END OF YEAR 142 83 23 45
------ ----------- ------ ------
------ ----------- ------ ------
</TABLE>
See notes to financial statements.
50
<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>
See notes to financial statements.
51
<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 II
IAI RETIREMENT FUNDS, INC. PORTFOLIOS
PORTFOLIOS --------------------------
------------------------------------- ASSET
REGIONAL RESERVE BALANCED MANAGER CONTRAFUND
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 47 $ 5 $ 2 $ 78 $ (4)
Net realized gains (losses) 62 - 2 27 41
Change in unrealized gains (losses) 6 - 13 143 109
----------- ----------- ----------- ----------- ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 115 5 17 248 146
----------- ----------- ----------- ----------- ------
FROM CAPITAL TRANSACTIONS
Deposits 343 13 51 662 102
Payments on termination (7) (1) (1) (25) -
Contract maintenance charges (105) (4) (15) (162) (29)
Loans - net (19) (1) - (33) (19)
Transfers among the portfolios and with the
Fixed Account - net 677 (31) 115 387 1,224
----------- ----------- ----------- ----------- ------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 889 (24) 150 829 1,278
----------- ----------- ----------- ----------- ------
INCREASE (DECREASE) IN NET ASSETS 1,004 (19) 167 1,077 1,424
NET ASSETS AT BEGINNING OF YEAR 639 130 70 1,327 -
----------- ----------- ----------- ----------- ------
NET ASSETS AT END OF YEAR $ 1,643 $ 111 $ 237 $ 2,404 $ 1,424
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 15.55 $ 11.05 $ 12.78 $ 12.09 $ 11.20
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
UNITS OUTSTANDING AT END OF YEAR 106 10 19 199 127
----------- ----------- ----------- ----------- ------
----------- ----------- ----------- ----------- ------
</TABLE>
See notes to financial statements.
52
<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>
See notes to financial statements.
53
<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>
SCUDDER
FEDERATED INSURANCE SERIES PORTFOLIOS VARIABLE LIFE
--------------------------------------------- INVESTMENT
U.S. FUND
HIGH GOVERNMENT PORTFOLIO
INCOME BOND UTILITY SECURITIES -------------
FUND II FUND II FUND II BOND TOTAL
--------------- ----------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 45 $ 24 $ 8 $ 26 $ 897
Net realized gains (losses) 5 55 (1) (22) 1,081
Change in unrealized gains (losses) 22 21 1 7 1,893
------ ----------- ------ ------ ---------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 72 100 8 11 3,871
------ ----------- ------ ------ ---------
FROM CAPITAL TRANSACTIONS
Deposits 96 127 24 84 32,046
Payments on termination (1) (8) (3) - (332)
Contract maintenance charges (32) (50) (11) (28) (3,017)
Loans - net (39) (21) (4) (19) (1,349)
Transfers among the portfolios and with the
Fixed Account - net 7 406 100 234 (227)
------ ----------- ------ ------ ---------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 31 454 106 271 27,121
------ ----------- ------ ------ ---------
INCREASE (DECREASE) IN NET ASSETS 103 554 114 282 30,992
NET ASSETS AT BEGINNING OF YEAR 469 337 55 168 18,534
------ ----------- ------ ------ ---------
NET ASSETS AT END OF YEAR $ 572 $ 891 $ 169 $ 450 $ 49,526
------ ----------- ------ ------ ---------
------ ----------- ------ ------ ---------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 12.98 $ 13.07 $ 11.37 $ 11.29
------ ----------- ------ ------
------ ----------- ------ ------
UNITS OUTSTANDING AT END OF YEAR 44 68 15 40
------ ----------- ------ ------
------ ----------- ------ ------
</TABLE>
See notes to financial statements.
54
<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>
See notes to financial statements.
55
<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
IAI RETIREMENT FUNDS, INC. PRODUCTS FUND II
PORTFOLIOS PORTFOLIO
------------------------------------- -----------------
REGIONAL RESERVE BALANCED ASSET MANAGER
----------- ----------- ----------- -----------------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (3) $ 3 $ - $ 2
Net realized gains (losses) 4 - 1 9
Change in unrealized gains (losses) 101 - 4 138
----------- ----------- ----------- ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 102 3 5 149
----------- ----------- ----------- ------
FROM CAPITAL TRANSACTIONS
Deposits 131 4 27 400
Payments on termination (3) - - (9)
Contract maintenance charges (35) (2) (7) (87)
Loans - net (8) (23) - 5
Transfers among the portfolios and with the
Fixed Account - net 335 129 23 420
----------- ----------- ----------- ------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 420 108 43 729
----------- ----------- ----------- ------
INCREASE (DECREASE) IN NET ASSETS 522 111 48 878
NET ASSETS AT BEGINNING OF YEAR 117 19 22 449
----------- ----------- ----------- ------
NET ASSETS AT END OF YEAR $ 639 $ 130 $ 70 $ 1,327
----------- ----------- ----------- ------
----------- ----------- ----------- ------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 13.99 $ 10.60 $ 11.72 $ 10.63
----------- ----------- ----------- ------
----------- ----------- ----------- ------
UNITS OUTSTANDING AT END OF YEAR 46 12 6 125
----------- ----------- ----------- ------
----------- ----------- ----------- ------
</TABLE>
See notes to financial statements.
56
<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>
See notes to financial statements.
57
<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>
SCUDDER
FEDERATED INSURANCE VARIABLE LIFE
SERIES PORTFOLIOS INVESTMENT
------------------------------------- FUND
CORPORATE GOVERNMENT PORTFOLIO
BOND UTILITY BOND -------------
FUND FUND FUND BOND TOTAL
----------- --------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 28 $ 6 $ 2 $ 6 $ 204
Net realized gains (losses) 7 - - 1 187
Change in unrealized gains (losses) 23 33 1 10 1,631
----------- --------- ------ ------ ---------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 58 39 3 17 2,022
----------- --------- ------ ------ ---------
FROM CAPITAL TRANSACTIONS
Deposits 28 78 18 38 13,532
Payments on termination (1) (1) - - (49)
Contract maintenance charges (12) (17) (4) (12) (1,216)
Loans - net - (1) - 7 (400)
Transfers among the portfolios and with the
Fixed Account - net 185 184 (33) 79 (9)
----------- --------- ------ ------ ---------
CHANGE IN NET ASSETS RESULTING FROM CAPITAL
TRANSACTIONS 200 243 (19) 112 11,858
----------- --------- ------ ------ ---------
INCREASE (DECREASE) IN NET ASSETS 258 282 (16) 129 13,880
NET ASSETS AT BEGINNING OF YEAR 211 55 71 39 4,654
----------- --------- ------ ------ ---------
NET ASSETS AT END OF YEAR $ 469 $ 337 $ 55 $ 168 $ 18,534
----------- --------- ------ ------ ---------
----------- --------- ------ ------ ---------
NET ASSET VALUE PER UNIT AT END OF YEAR $ 11.44 $ 11.80 $ 10.99 $ 11.06
----------- --------- ------ ------
----------- --------- ------ ------
UNITS OUTSTANDING AT END OF YEAR 41 29 5 15
----------- --------- ------ ------
----------- --------- ------ ------
</TABLE>
See notes to financial statements.
58
<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
Investment Company Act of 1940, is a Separate Account of Lincoln Benefit Life
Company ("Lincoln Benefit"). The assets of the Account are legally segregated
from those of Lincoln Benefit. Lincoln Benefit is wholly owned by Allstate Life
Insurance Company, a wholly owned subsidiary of Allstate Insurance Company,
which is wholly owned by The Allstate Corporation.
Lincoln Benefit writes certain life policies, the proceeds of which are invested
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 Income, Growth,
and Overseas portfolios of Fidelity's Variable Insurance Products Fund; the High
Income Bond Fund II, Utility Fund II, and U.S. Government Securities Fund II
portfolios of Federated Insurance Series; and the Bond 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 declared by the Funds and is recognized
on the date of record.
REALIZED GAINS AND LOSSES
Realized gains and losses represent the difference between the proceeds from
sales of shares by the Account and the cost of such shares, which is determined
on a weighted average basis.
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 operations of the Account are
included with and taxed as a part of Lincoln Benefit. Lincoln Benefit is taxed
as a life insurance company under the Code. Under current law, no federal income
taxes are payable by the Account.
ACCOUNT VALUE
Certain calculations that could be made in the financial statements may differ
from published amounts due to the truncation of actual Account values.
3. POLICY CHARGES AND DEDUCTIONS
Upon receipt of each premium payment and before allocation to the policy value,
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.
59
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
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
operations 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%.
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
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
surrenders, 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 market
prices.
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
--- --- ------ --- ---------
--- --- ------ --- ---------
</TABLE>
60
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE
INSURANCE PRODUCTS
IAI RETIREMENT FUNDS, INC. FUND II PORTFOLIOS
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>
<TABLE>
<CAPTION>
FIDELITY'S VARIABLE INSURANCE
PRODUCTS FUND PORTFOLIOS
----------------------------------
MONEY EQUITY
MARKET INCOME GROWTH OVERSEAS
------ ------ ------ --------
<S> <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
------ ------ ------ --------
------ ------ ------ --------
</TABLE>
61
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
SCUDDER
FEDERATED INSURANCE SERIES VARIABLE
PORTFOLIOS LIFE
-------------------------------- INVESTMENT
HIGH U.S. FUND
INCOME GOVERNMENT PORTFOLIO
BOND UTILITY SECURITIES -----------
FUND II FUND II FUND II BOND
------- -------- ----------- -----------
<S> <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>
62
<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
consolidated 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
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Lincoln Benefit Life Company and
subsidiary as of December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
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
supplemental 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 subjected to the auditing procedures applied in our audits of the basic
consolidated financial statements and, in our opinion, is fairly stated in all
material respects when considered in relation to the basic consolidated
financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Lincoln, Nebraska
March 20, 1998
63
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
($ in thousands) 1997 1996
------------- -------------
<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.
64
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
($ in thousands) 1997 1996 1995
--------- --------- ---------
<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.
65
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
($ in thousands) 1997 1996 1995
--------- --------- ---------
<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.
66
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
($ in thousands) 1997 1996 1995
--------- --------- ---------
<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.
67
<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% ownership in the
Corporation to Sears common shareholders through a tax-free dividend (the
"Distribution"). These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. All significant
intercompany accounts and transactions have been eliminated.
To conform with the 1997 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets a broad line of life insurance and annuity products
countrywide. 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 annuities, and
immediate annuities. The Company distributes its products primarily through
independent agents and brokers specializing in life insurance and annuities.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary withdrawal or surrender by the customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses. 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
potential to impact its business. There continues to be new and proposed federal
and state regulation and legislation which would allow banks greater
participation in the securities and insurance businesses, which will present an
increased level of competition for sales of the Company's life and annuity
products. Furthermore, the market for deferred annuities and interest-sensitive
life insurance is enhanced by the tax incentives available under current law.
Any legislative changes which lessen these incentives are likely to negatively
impact the demand for these products.
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
competition 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 except
New York, as well as in the District of Columbia, Guam and the U.S. Virgin
Islands. The top geographic locations for statutory premiums 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 amortized
cost and fair value, net
68
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
of deferred income taxes, is reflected as a component of shareholder's equity.
Provisions are recognized for declines in the value of fixed income securities
that are other than temporary. Such writedowns are included in realized capital
gains and losses.
Short-term investments are carried at cost 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. Accrual
of income is suspended for fixed income securities that are in default or when
the receipt of interest payments is in doubt. Realized capital gains and losses
are determined on a specific identification basis.
REINSURANCE
The Company has reinsurance agreements whereby 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
consolidated investment of those assets of the Company that are not transferred
to ALIC under reinsurance agreements. Reinsurance recoverable and the related
reserve for life-contingent contract benefits and contractholder funds are
reported separately in the statements of financial position. The Company
continues to have primary liability as the direct insurer for risks reinsured.
RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES
Premiums for traditional life insurance are recognized as revenue when due.
Accident and disability premiums are earned on a pro rata basis over the policy
period. Revenues on interest-sensitive life insurance policies are comprised of
contract charges and fees, and are recognized when assessed against the
policyholder account balance. Revenues on most annuities, which are considered
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 period.
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 statements of
financial position as assets and liabilities of the Separate Accounts. (Lincoln
Benefit Life Variable Annuity Account and Lincoln Benefit Life Variable Life
Account, unit investment trusts registered with the Securities 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 operations. 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 traditional
life, annuities with life contingencies, and disability insurance and accident
insurance, is computed on the basis of assumptions as to future investment
yields, mortality, morbidity, terminations and expenses. These assumptions,
which for traditional life are applied using the net level premium method,
include provisions for adverse deviation and generally vary by such
characteristics as type of coverage, year of issue and policy duration. Reserve
interest rates ranged from 4.0% to 8.75% during 1997.
69
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
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-bearing
liabilities. Contractholder funds are equal to deposits received and interest
credited to the benefit of the contractholder less withdrawals, mortality
charges and administrative expenses. During 1997, credited interest rates on
contractholder funds 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
reinsurance treaty with ALIC was amended to also include a paid up block of life
business which was previously retained by the Company. The reinsurance premium
related to the transfer was $8,255 on a statutory accounting basis and $5,712
based upon generally accepted accounting principles, creating a dividend-in-kind
of $2,543. The premium is equal to the sum of the aggregate policy reserves and
policyholder dividend 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 interest,
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 consolidated
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
operated 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 primarily
related to the level of services provided. Operating expenses, including
compensation and retirement and other benefit programs, allocated to the Company
were $34,947, $25,094 and $16,083 in 1997, 1996 and 1995, respectively. All of
these costs are ceded to ALIC under reinsurance agreements.
70
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ---------------------- FAIR
AT DECEMBER 31, 1997 COST GAINS (LOSSES) VALUE
- ----------------------------------------------------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
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
----------- --------- ----------- ---------
----------- --------- ----------- ---------
<CAPTION>
AT DECEMBER 31, 1996
- -----------------------------------------------------
<S> <C> <C> <C> <C>
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>
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>
71
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
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
shareholder's equity at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
COST/ UNREALIZED
AMORTIZED FAIR NET
COST VALUE 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>
YEAR 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>
SECURITIES ON DEPOSIT
At December 31, 1997, fixed income securities with a carrying value of $8,581
were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented below are not necessarily indicative of the
amounts the Company might pay or receive in actual market transactions.
Potential taxes and other transaction costs have not been considered in
estimating fair value. The disclosures that follow do not reflect the fair value
of the Company as a whole since a number of the Company's significant assets
(including reinsurance recoverable) and liabilities (including deferred income
taxes and reserve for life-contingent contract benefits) are not considered
financial instruments and are not carried at fair value. Other assets and
liabilities considered financial instruments, such as accrued investment income
and cash, are generally of a short-term nature. It is assumed that their
carrying value approximates fair value.
72
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
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 liquid
investments with maturities of less than one year whose carrying value
approximates fair value. Separate Accounts assets are carried in the
consolidated statements of financial position at fair value.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------- -------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE 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
immediate annuities and annuities without life contingencies with fixed terms is
estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
6. INCOME TAXES
The Company joins the Corporation and its other eligible domestic subsidiaries
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 adjustments, 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 business
units (the "Sears Group") in the filing of a consolidated federal income tax
return (the "Sears Tax Group") and were parties to a federal income tax
allocation agreement (the "Sears Tax Sharing Agreement"). 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 inclusion of the Company in the
consolidated federal income tax return. Effectively, this resulted in the
Company's annual income tax provision being computed 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 governs
their respective rights and obligations with respect to federal income taxes for
all periods prior to the Distribution ("Consolidated Tax Years"). The agreement
73
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
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 $119 if distributed by the
Company to ALIC. No provision for taxes has been made as the Company has no plan
to distribute amounts from this account. No further additions to the account
have been permitted since the Tax Reform Act of 1984.
74
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
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
prescribed or permitted by insurance regulatory authorities.
<TABLE>
<CAPTION>
NET INCOME
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Balance per generally accepted 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>
<TABLE>
<CAPTION>
SHAREHOLDER'S EQUITY
--------------------
1997 1996
--------- ---------
<S> <C> <C>
Balance per generally accepted 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
accounting principles and practices prescribed or permitted by the Nebraska
Department of Insurance. Prescribed statutory accounting practices include a
variety of publications of the National Association of Insurance Commissioners,
("NAIC"), as well as state laws, regulations and general administrative rules.
Permitted statutory accounting practices encompass all accounting practices not
so prescribed. The Company does not follow any permitted statutory accounting
practices that have a 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 conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by insurance companies without the prior approval of
the state insurance regulator is limited to formula amounts based on net income
and capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 1998 without prior approval of the Nebraska Department of Insurance is
$6,665.
75
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
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. Minimum
rental commitments under non-cancelable operating leases with a remaining term
of more than one year as of December 31, are as follows:
<TABLE>
<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 $982 for commitments beyond 1998 which relate to
a certain lease for office space. The Company has the option to cancel the
agreement for office space subject to a cancellation charge of an amount equal
to one year's rent.
76
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
SUPPLEMENTAL SCHEDULE - REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED NET 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
YEAR ENDED DECEMBER 31, 1996 AMOUNT CEDED NET 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
YEAR ENDED DECEMBER 31, 1995 AMOUNT CEDED NET 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>
77
<PAGE>
FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD
ENDED MARCH 31, 1998
(UNAUDITED)
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
($ in thousands) MARCH 31, DECEMBER 31,
1998 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized
cost $142,906 and $141,553) $ 149,287 $ 147,911
Investment in home office real estate 2,488 2,574
Short-term 4,493 1,020
------------- -------------
Total investments 156,268 151,505
Reinsurance recoverable from Allstate Life
Insurance Company 6,746,392 6,732,755
Reinsurance recoverable from third parties 147,204 127,182
Receivable from Allstate Life Insurance
Company and affiliates, net 15,228 14,481
Cash 1,492 4,220
Other assets 35,685 29,402
Separate Accounts 543,452 447,658
------------- -------------
Total assets $ 7,645,721 $ 7,507,203
------------- -------------
------------- -------------
LIABILITIES
Reserve for life-contingent contract benefits $ 276,030 $ 252,195
Contractholder funds 6,617,167 6,607,130
Income taxes payable 2,188 1,128
Deferred income taxes 4,010 4,149
Other liabilities and accrued expenses 49,858 43,609
Separate Accounts 543,452 447,658
------------- -------------
Total liabilities 7,492,705 7,355,869
------------- -------------
Commitments and Contingent Liabilities (Note
4)
SHAREHOLDER'S EQUITY
Common stock, $100 par value, 30,000 shares
authorized, 25,000 issued and outstanding 2,500 2,500
Additional capital paid-in 116,750 116,750
Retained income 29,619 27,952
Accumulated other comprehensive income:
Unrealized net capital gains 4,147 4,132
------------- -------------
Total accumulated other comprehensive
income 4,147 4,132
------------- -------------
Total shareholder's equity 153,016 151,334
------------- -------------
Total liabilities and shareholder's equity $ 7,645,721 $ 7,507,203
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements.
78
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------------------------------
($ in thousands) 1998 1997
------------------------- -------------------------
(UNAUDITED)
<S> <C> <C>
REVENUES
Net investment income $ 2,566 $ 2,462
Miscellaneous income 13 -
Realized capital gains and losses - 1
------ ------
2,579 2,463
------ ------
COSTS AND EXPENSES
Operating costs and expenses - 84
------ ------
- 84
INCOME BEFORE INCOME TAX EXPENSE 2,579 2,379
INCOME TAX EXPENSE 912 831
------ ------
NET INCOME $ 1,667 $ 1,548
------ ------
------ ------
</TABLE>
See notes to consolidated financial statements.
79
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------------------
($ in thousands) 1998 1997
----------------------- -----------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,667 $ 1,548
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Amortization and other non-cash items 11 17
Realized capital gains and losses - (1)
Increase (decrease) in life-contingent contract
benefits and contractholder funds 213 (160)
Change in deferred income taxes (147) (109)
Changes in other operating assets and liabilities 279 (7,804)
------- -------
Net cash provided by (used in) operating
activities 2,023 (6,509)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment collections
Fixed income securities 1,792 1,648
Investment purchases
Fixed income securities (3,070) (2,524)
Real estate - (3)
Change in short-term investments, net (3,473) 10
------- -------
Net cash used in investing activities (4,751) (869)
------- -------
NET (DECREASE) IN CASH (2,728) (7,378)
CASH AT BEGINNING OF YEAR 4,220 7,852
------- -------
CASH AT END OF YEAR $ 1,492 $ 474
------- -------
------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activity:
Dividend-in-kind to Allstate Life Insurance Company $ - $ (10)
------- -------
------- -------
</TABLE>
See notes to consolidated financial statements.
80
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Lincoln Benefit Life Company (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, a wholly owned
subsidiary of The Allstate Corporation.
The consolidated financials statements and notes as of March 31, 1998 and for
the three-month periods ended March 31, 1998 and 1997 are unaudited. The interim
consolidated financial statements reflect all adjustments (consisting only of
normal recurring accruals) which are, in the opinion of management, necessary
for the fair presentation of the financial position, results of operations and
cash flows for the interim periods. These consolidated financial statements and
notes should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the year ended December 31, 1997. The
results of operations for the interim period should not be considered indicative
of results to be expected for the full year.
In March 1998, the Accounting Standards Executive Committee of the AICPA issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." The SOP provides guidance on
accounting for the costs of computer software developed or obtained for internal
use. Specifically, certain external, payroll and payroll related costs should be
capitalized during the application development state of a project and
depreciated over the computer software's useful life. The Company has adopted
the SOP effective January 1, 1998.
2. REINSURANCE
Premiums, contract charges, credited interest, policy benefits and certain
expenses are primarily ceded to ALIC. The consolidated statements of operations
is presented net of reinsurance transactions. Therefore, the amounts shown in
the Company's consolidated statements of operations relate to the investment of
those assets of the Company that are not transferred to ALIC under the
reinsurance agreement. Reinsurance recoverable and contractholder funds are
reported separately in the consolidated statements of financial position. The
Company continues to have primary liability as the direct insurer for risks
reinsured.
Investment income earned on the assets which support contractholder funds is not
included in the Company's consolidated financial statements as those assets are
owned and managed by ALIC under the terms of reinsurance agreements. The
following amounts were ceded to ALIC under the reinsurance agreements.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------------
1998 1997
------------- -------------
<S> <C> <C>
Contract charges $ 24,569 $ 21,587
Credited interest, policy benefits and expenses 123,098 132,348
</TABLE>
3. COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." Comprehensive Income is a
measurement of all changes in shareholders' equity that result from transactions
and other economic events other than transactions with shareholders. For the
Company, these changes consist of changes in unrealized gains and losses of the
investment portfolio. These amounts, presented as other comprehensive income,
net of related taxes, are added to net income which results in comprehensive
income. The cumulative amount of these changes is reported in the consolidated
statements of financial position as accumulated other comprehensive income.
81
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The following summarizes the components of other comprehensive income on a
pretax and after-tax basis for the three-month periods ended March 31,
<TABLE>
<CAPTION>
1998 1997
------------------------------ -----------------------------
INCOME INCOME
TAX AFTER- TAX AFTER-
($ in thousands) PRETAX EFFECT TAX PRETAX EFFECT TAX
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Unrealized capital gains and losses:
Unrealized holding gains (losses) arising
during the period 23 (8) 15 (3,450) 1,208 (2,242)
Less: reclassification adjustment for
realized net capital gains included in net
income - - - 1 - 1
-------- -------- -------- -------- -------- --------
Other comprehensive income $ 23 $ (8) $ 15 $ (3,451) $ 1,208 $ (2,243)
-------- -------- -------- -------- -------- --------
Net income 1,667 1,548
-------- --------
Comprehensive income $ 1,682 $ (695)
-------- --------
-------- --------
</TABLE>
4. REGULATION AND LEGAL PROCEEDINGS
The Company's insurance businesses are subject to the effects of a changing
social, economic and regulatory environment. Public and regulatory initiatives
have varied and have included efforts to adversely influence and restrict
premium rates, restrict the Company's ability to cancel policies, impose
underwriting standards and expand overall regulation. The ultimate changes and
eventual effects, if any, of these initiatives are uncertain.
Various other legal and regulatory actions are currently pending that involve
the Company and specific aspects of its conduct of business. In the opinion of
managment, the ultimate liability, if any, in one or more of these actions in
excess of amounts currently reserved is not expected to have a material effect
on the results of operations, liquidity or financial position of the Company.
82
<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
how 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 annual
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 and A-3 illustrate a Policy issued to a male,
age 45, $200,000 Face Amount, under a preferred nonsmoker risk classification
and Death Benefit Option 1.
The illustrations assume annual payment of $2,750, which is the Safety Net
Premium (see Safety Net Premium, page 9). Payment of this Premium each year
would guarantee Death Benefit coverage for ten years, regardless of investment
performance, assuming no loans or withdrawals are taken.
The illustration on page A-2 assumes current charges and cost of insurance
rates, while the illustration on page A-3 assumes 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
reflect 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 .69% 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 .15% of the average
daily net assets of the Funds. Also reflected is our monthly charge to the
Policy Value for assuming mortality and expense risks. The current charge for
the first fourteen Policy Years is an annual rate of 0.72% of the average net
assets of the Subaccounts, with a maximum charge of 0.48% of average daily net
assets thereafter. The illustrations also reflect the deduction from Premiums
for premium tax of 2.5% of Premium, the premium expense charge of 3.5% of
Premium for the first ten years and 1.5% thereafter, and the monthly Policy fee
of $7.50. After deduction of these amounts, the illustrated gross annual
investment rates of return of 0%, 6%, and 12%, "Assuming Current Costs"
correspond to approximate net annual rates of -.84, 5.16, and 11.16%,
respectively. 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 -.84, 5.16, and 11.16%, 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
Considerations," page 24).
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
Separate 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 Policy
and that no partial surrenders or transfers have been made.
Upon request, we will provide a comparable illustration based upon the proposed
Insured's actual age, sex and underwriting classification, the Face Amount,
Death Benefit option, the proposed amount and frequency of Premiums paid 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 $200,000.00
Annual Premium $2,750.00
Preferred Non-Smoker Class
Death Benefit 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 -.84% Net 5.16% Net 11.16% Net
<S> <C> <C> <C>
1 200,000 200,000 200,000
2 200,000 200,000 200,000
3 200,000 200,000 200,000
4 200,000 200,000 200,000
5 200,000 200,000 200,000
6 200,000 200,000 200,000
7 200,000 200,000 200,000
8 200,000 200,000 200,000
9 200,000 200,000 200,000
10 200,000 200,000 200,000
15 200,000 200,000 200,000
20 (age 65) 200,000 200,000 200,000
30 (age 75) 200,000 200,000 436,230
40 (age 85) * 207,421 1,216,213
55 (age 100) * 441,591 5,288,799
</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 -.84% Net 5.16% Net 11.16% Net -.84% Net 5.16% Net 11.16% Net
<S> <C> <C> <C> <C> <C> <C>
1 2,100 2,240 2,380 0 0 0
2 4,039 4,446 4,871 0 0 0
3 5,844 6,644 7,512 342 1,142 2,010
4 7,566 8,883 10,371 2,064 3,381 4,869
5 9,238 11,199 13,508 3,736 5,697 8,006
6 10,880 13,616 16,972 5,874 8,610 11,966
7 12,504 16,149 20,810 7,992 11,638 16,298
8 14,107 18,804 25,060 10,091 14,787 21,043
9 15,692 21,585 29,767 12,170 18,063 26,246
10 17,257 24,499 34,981 14,231 21,473 31,955
15 24,992 41,596 71,257 24,992 41,596 71,257
20 (age 65) 31,019 62,488 132,594 31,019 62,488 132,594
30 (age 75) 30,769 115,605 407,691 30,769 115,605 407,691
40 (age 85) * 197,544 1,158,298 * 197,544 1,158,298
55 (age 100) * 437,218 5,236,435 * 437,218 5,236,435
</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
different amounts.
Assumes that no Policy loans or withdrawals have been made. An * indicates lapse
in the absence of additional Premium.
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 Policy owner and different
investment 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 any Portfolio that this
assumed investment rate of return can be achieved for any one year or sustained
over a period of time.
A-2
