As filed with the Securities and Exchange Commission on January 22, 1999
Registration No. 333-47717
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-6
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
(Exact Name of Trust)
LINCOLN BENEFIT LIFE COMPANY
(Name of Depositor)
206 South 13th Street
Lincoln, Nebraska 68508
(Complete Address of Depositor's Principal Executive Offices)
JOHN MORRIS
LINCOLN BENEFIT LIFE COMPANY
206 South 13th Street
Lincoln, Nebraska 68508
1-800-865-5237
(Name and Complete Address of Agent for Service)
Copy to:
Joan E. Boros, Esquire
Jordan Burt Boros Cicchetti Berenson & Johnson 1025 Thomas Jefferson
Street, N.W.
Washington, D.C. 20007-5201
Securities being offered -- flexible premium variable universal life insurance
policies.
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It is proposed that this filing will become effective:
________ immediately upon filing pursuant to paragraph (b) of Rule 485
________ on pursuant to paragraph (b) of Rule 485 60 days after filing
________ pursuant to paragraph (a) of Rule 485
___X____ on April 10, 1999 pursuant to paragraph (a) of Rule 485
The Registrant has registered an indefinite amount of securities under the
Securities Act of 1933 pursuant to Section 24 of the Investment Company Act of
1940.
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<PAGE>
CROSS REFERENCE SHEET TO PROSPECTUS
Cross reference sheet pursuant to Rule 404(c) showing location in Prospectus of
information required by Items of Form N-8B-2.
Item Number in Form N-8B-2 Caption in Prospectus
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ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of trust . . . . . . . . . . . . . . . Cover, Definitions
(b) Title of each class of securities issued . Cover, Purchase of
Policy and Allocation of
Premiums
2. Name & address of each depositor . . . . . . . . Cover, Lincoln Benefit
Life Company
3. Name & address of custodian . . . . . . . . . . Separate Account
4. Name & address of principal underwriter . . . . Distribution of Policies
5. State in which organized . . . . . . . . . . . . Separate Account
6. Date of organization . . . . . . . . . . . . . . Separate Account
9. Material litigation . . . . . . . . . . . . . . Legal Proceedings
GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
GENERAL INFORMATION CONCERNING SECURITIES AND RIGHTS OF HOLDERS
10. (a), (b)Type of Securities . . . . . . . . . . . Cover, Purchase of
Policy and Allocation of Premiums
(c) Rights of securityholders . . . . . . . . . Cover, Amount Payable
re: withdrawal or redemption on Surrender of the
Policy, Policy Loans,
Cancellation and
Exchange Rights
(d) Rights of securityholders . . . . . . . . . Cover, Cancellation
re: conversion, transfer or partial and Exchange Rights,
withdrawal Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Allocation Of Premiums,
Transfer of Policy Value
(e) Rights of securityholders . . . . . . . . . Lapse and
re: lapses, default, & reinstatement Reinstatement
(f) Provisions re: voting rights . . . . . . . Voting Rights
(g) Notice to securityholders . . . . . . . . . Statements to Policy
Owners
(h) Consent of Securityholders . . . . . . . . Additions, Deletions or
Substitutions of
Securities, Allocation
of Premiums
(i) Other principal features . . . . . . . . . Deductions and Charges,
Policy Benefits and
Rights, Policy Value
INFORMATION CONCERNING SECURITIES UNDERLYING TRUST'S SECURITIES
11. Unit of specified securities in which security
holders have an interest . . . . . . . . . . . . Cover, Portfolios
12. (a)-(d) Name of company, name & address of its
custodian . . . . . . . . . . . . . . . . . . . Cover, Portfolios
INFORMATION CONCERNING LOADS, FEES, CHARGES & EXPENSES
13. (a) With respect to each load, fee, charge &
expense . . . . . . . . . . . . . . . . . . Deductions and Charges
(b) Deductions for sales charges . . . . . . . Premium Tax Charge and
Premium Expense Charge,
Surrender Charge
(c) Sales load as percentage
of amount invested. . . . . . . . . . . . . Premium Tax Charge and
Premium Expense Charge,
Surrender Charge
(d)-(g) Other loads, fees & expenses . . . . . . Monthly Deduction,
Premium Tax Charge and
Premium Expense Charge,
Mortality and Expense
Risk Charge, Transfer
Fee, Policy Fee,
Portfolio Expenses
INFORMATION CONCERNING OPERATION OF TRUST
14. Procedure for applications for & issuance of
trust's securities . . . . . . . . . . . . . . . Application for a
Policy, Allocation of
Premiums, Distribution
of Policies
15. Procedure for receipt of payments from purchases
of trust's securities . . . . . . . . . . . . . Application for a
Policy, Allocation of
Premiums, Premiums,
Safety Net Premium,
Transfer of Policy Value
16. Acquisition and disposition of underlying
securities . . . . . . . . . . . . . . . . . . . Cover, Portfolios
17. (a) Procedure for withdrawal . . . . . . . . . Cover, Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Cancellation and
Exchange Rights
(b) Redemption or repurchase . . . . . . . . . Cover, Amount Payable on
Surrender of the Policy,
Partial Withdrawals,
Cancellation and
Exchange Rights
(c) Cancellation or resale . . . . . . . . . . Not Applicable
18. (a) Income of the Trust . . . . . . . . . . . . Portfolios, Allocation
of Premiums
19. Procedure for keeping records & furnishing
information to securityholders . . . . . . . . . Portfolios, Statements
to Policy Owners
21. (a) & (b) Loans to securityholders . . . . . . . Policy Loans
23. Bonding arrangements for depositor . . . . . . . Safekeeping of the
Separate Account's
Assets
24. Other material provisions . . . . . . . . . . . General Policy
Provisions
ORGANIZATION, PERSONNEL & AFFILIATED PERSONS OF DEPOSITOR
ORGANIZATION & OPERATIONS OF DEPOSITOR
25. Form, state & date of organization
of depositor . . . . . . . . . . . . . . . . . . Lincoln Benefit Life
Company
27. General character of business of depositor . . . Lincoln Benefit Life
Company
28. (a) Officials and affiliates of the depositor . Lincoln Benefit Life
Company, Executive
Officers and Directors
of Lincoln Benefit
(b) Business experience of officers and
directors of the depositor . . . . . . . . Executive Officers and
Directors of Lincoln
Benefit
COMPANIES OWNING SECURITIES OF DEPOSITOR
29. Each company owning 5% of voting securities of
depositor . . . . . . . . . . . . . . . . . . . Lincoln Benefit Life
Company
CONTROLLING PERSONS
30. Control of depositor . . . . . . . . . . . . . . Lincoln Benefit Life
Company
DISTRIBUTION & REDEMPTIONS OF SECURITIES
DISTRIBUTION OF SECURITIES
35. Distribution . . . . . . . . . . . . . . . . . . Lincoln Benefit Life
Company, Distribution of
Policies
38. (a) General description of method of
distribution of securities . . . . . . . . Distribution of Policies
(b) Selling agreement between trust or depositor
& underwriter . . . . . . . . . . . . . . . Distribution of Policies
(c) Substance of current agreements . . . . . . Distribution of Policies
PRINCIPAL UNDERWRITER
39. (a) & (b) Principal Underwriter . . . . . . . . Distribution of Policies
41. Character of Underwriter's business . . . . . . Distribution of Policies
OFFERING PRICE OR ACQUISITION VALUE OF SECURITIES OF TRUST
44. Information concerning offering price or
acquisition valuation of securities of trust.
(All underlying securities are shares in
registered investment companies.) . . . . . . . Portfolios, Policy
Value, Net Investment
Factor
REDEMPTION VALUATION OF SECURITIES OF TRUST
46. Information concerning redemption valuation of Portfolios, Policy
securities of trust. (All underlying securities Value, Net Investment
are shares in a registered investment company.) Factor
PURCHASE & SALE OF INTERESTS IN UNDERLYING SECURITIES
47. Maintenance of Position . . . . . . . . . . . . Cover, Separate Account,
Portfolios, Allocation
of Premiums
INFORMATION CONCERNING TRUSTEE OR CUSTODIAN
48. Custodian of trust . . . . . . . . . . . . . . . Separate Account
50. Lien on trust assets . . . . . . . . . . . . . . Separate Account
INFORMATION CONCERNING INSURANCE OF HOLDERS OF SECURITIES
51. (a) Name & address of insurer . . . . . . . . . Cover, Lincoln Benefit
Life Company
(b) Types of policies . . . . . . . . . . . . . Cover, Purchase of
Policy and Allocation of
Premiums, Tax Matters
(c) Risks insured & excluded . . . . . . . . . Death Benefit, Other
Insurance Benefits,
Misstatements as to Age
and Sex, Suicide
(d) Coverage . . . . . . . . . . . . . . . . . Cover, Purchase of
Policy and Allocation of
Premiums
(e) Beneficiaries . . . . . . . . . . . . . . . Death Benefit,
Beneficiary
(f) Terms of cancellations & reinstatement . . Lapse and Reinstatement
(g) Method of determining amount of premium paid
by holder . . . . . . . . . . . . . . . . . Purchase of Policy and
Allocation of Premiums
POLICY OF REGISTRANT
52. (a) & (c) Selection of Portfolio securities . . Additions, Deletions or
Substitutions of
Securities
REGULATED INVESTMENT COMPANY
53. (a) Taxable status of trust . . . . . . . . . . Taxation of Lincoln
Benefit and the Separate
Account
FINANCIAL AND STATISTICAL INFORMATION
59. Financial Statements . . . . . . . . . . . . . . Financial Statements
*Items not listed are not applicable to this Registration Statement.
<PAGE>
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)
1
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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 MAY 1, 1999.
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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<PAGE>
TABLE OF CONTENTS
DEFINITIONS................................................. 5
QUESTIONS AND ANSWERS ABOUT YOUR POLICY..................... 7
PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS............... 13
Application for a Policy.................................... 13
Premiums.................................................... 14
Premium Limits.............................................. 14
Modified Endowment Contracts................................ 14
Safety Net Premium.......................................... 15
Allocation of Premiums...................................... 15
Policy Value................................................ 16
Accumulation Unit Value..................................... 16
Transfer of Policy Value.................................... 17
Transfers Authorized by Telephone........................... 18
Dollar Cost Averaging....................................... 18
Portfolio Rebalancing....................................... 18
Specialized Uses of the Policy.............................. 19
THE INVESTMENT AND FIXED ACCOUNT OPTIONS.................... 20
Separate Account Investments................................ 20
Portfolios.................................................. 20
Voting Rights............................................... 26
Additions, Deletions, and Substitutions of Securities....... 26
The Fixed Account........................................... 27
POLICY BENEFITS AND RIGHTS.................................. 27
Death Benefit............................................... 27
Death Benefit Options....................................... 28
Change in Face Amount....................................... 29
Optional Insurance Benefits................................. 29
Policy Loans................................................ 30
Amount Payable on Surrender of the Policy................... 32
Partial Withdrawals......................................... 32
Settlement Options.......................................... 33
Maturity.................................................... 34
Lapse and Reinstatement..................................... 34
Cancellation and Exchange Rights............................ 34
Postponement of Payments.................................... 35
DEDUCTIONS AND CHARGES...................................... 35
Premium Tax Charge and Premium Expense Charge............... 35
Monthly Deduction........................................... 35
Policy Fee.................................................. 36
Mortality and Expense Risk Charge........................... 36
Cost of Insurance Charge.................................... 36
Deduction for Separate Account Income Taxes................. 37
Portfolio Expenses.......................................... 37
Surrender Charge............................................ 39
Transfer Fee................................................ 41
GENERAL POLICY PROVISIONS................................... 41
Statements to Policy Owners................................. 41
Limit on Right to Contest................................... 41
Suicide..................................................... 41
3
Misstatement as to Age and Sex.............................. 42
Beneficiary................................................. 42
Assignment.................................................. 42
Dividends................................................... 42
TAX MATTERS................................................. 42
Taxation of the Company and the Variable Account............ 42
Taxation of Contract Benefits............................... 43
Modified Endowment Contracts................................ 44
Diversification Requirements................................ 44
Ownership Treatment......................................... 45
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE
ACCOUNT..................................................... 45
Lincoln Benefit Life Company................................ 45
Executive Officers and Directors of Lincoln Benefit......... 46
Separate Account............................................ 48
Safekeeping of the Separate Account's Assets................ 49
State Regulation of Lincoln Benefit......................... 49
Year 2000................................................... 49
MARKET TIMING AND ASSET ALLOCATION SERVICES................. 49
DISTRIBUTION OF POLICIES.................................... 49
LEGAL PROCEEDINGS........................................... 50
LEGAL MATTERS............................................... 50
REGISTRATION STATEMENT...................................... 50
EXPERTS..................................................... 50
FINANCIAL STATEMENTS........................................ 51
APPENDIX.................................................... A-1
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.
4
<PAGE>
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.
5
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.
6
<PAGE>
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 80
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.
7
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 29.
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 35. 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. If there are outstanding requirements when we issue the Policy
which prevent us from placing your Policy in force, your Premiums will not be
allocated until all requirements are satisfied.
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, currently we
allocate any
8
Premium received before the end of the free-look period as described above. In
the future, however, if you live in one of those states, we reserve the right to
delay allocating your Premiums to the Subaccounts you have selected or to the
Fixed Account until 20 days after the Issue Date or, if your state's free look
period is longer than ten days, for ten days plus the period required by state
law. We will allocate Premiums received during that time to the Fidelity money
Market Sub-Account.
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 pages 17-18. 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 page 18.
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 18.
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:
Fund Portfolio(s)
- ----------------------------- -----------------------------
- ------------------------------------------------------------
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
- ------------------------------------------------------------
9
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
- ------------------------------------------------------------
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.
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 30.
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.
10
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 39.
The charges assessed under the Policy are described in more detail in
"Deductions and Charges", beginning on page 35.
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
32.
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 you
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
11
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 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 39.
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
12
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 "Tax Matters", beginning on page 42.
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 currently are
allocating your initial Premium as described in the answer to question 7 above.
In the future, however, if you live in one of those states, we reserve the right
to delay allocating your Premiums to the Subaccounts you have selected or to the
Fixed Account until 20 days after the Issue Date or, if your state's free look
period is longer than ten days, for ten days plus the period required by state
law. We will allocate Premiums received during that time to the Fidelity Money
Market Sub-Account. Your Policy will contain specific information about your
free-look rights in your state.
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. If on the Issue Date there are outstanding
requirements that prevent us from placing your policy in force, we will allocate
your Premium when all requirements have been met. An example of an outstanding
requirement is an amendment to your application that requires your signature.
We will commence coverage of the Insured under the Policy, on the later of:
1) the Issue Date,
2) the date that we receive your first Premium,
3) the date that all requirements have been met.
13
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.
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 "Tax Matters--Modified
Endowment Contracts", on page 44.
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
14
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 80
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 34.
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%.
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
15
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. If there are outstanding requirements
when we issue the Policy which prevent us from placing your Policy in force,
your Premiums will not be allocated until all requirements are satisfied. No
earnings or interest will be credited before the Issue Date.
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, currently we
allocate any Premium received before the states, we reserve the right to delay
allocating your Premiums to the Subaccounts you have selected or to the Fixed
Account until 20 days after the Issue Date or, if your state's free look period
is longer than ten days, for ten days plus the period required by state law. We
will allocate Premiums received during that time to the Fidelity Money Market
Sub-Account.
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
16
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 page 16.
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.
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.
17
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 27.
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
18
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 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 "Tax Matters," beginning on page 42.)
19
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.
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.
20
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
21
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.
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,
22
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 but that are
selling at prices
23
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 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 in
growth companies outside the service sector.
MID-CAP GROWTH PORTFOLIO seeks long-term capital appreciation by investing
primarily in the common stocks of companies with medium-sized (Mid-Cap) 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 substantial 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 total 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 foreign securities and convertible stocks and
bonds and warrants when consistent with the Portfolio's investment objective.
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
24
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 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.
Some of the Portfolios have been established by investment advisers which manage
publicly traded mutual funds having similar names and investment objectives.
While some of the Portfolios may be similar to, and may in fact be modeled after
publicly traded mutual funds, you should understand that the Portfolios are not
otherwise directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any similarly named
Portfolio may differ substantially.
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
25
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. Any substitution of securities will comply with the
requirements of the 1940 Act.
We also reserve the right to make the following changes in the operation of the
Separate Account and the Subaccounts:
26
(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 37 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.
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 17 above. Also, as described on page 35 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 33, 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
27
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).
<TABLE>
<CAPTION>
EXAMPLES:
<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 under a similar Policy with an Option 2 Death Benefit. As a
result, if the Subaccounts you select experience favorable investment results,
your Policy
28
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. A
decrease in the Face Amount will not affect the Safety Net Premium.
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 39 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
29
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.
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 35. 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 pro rata
based upon the balances of each Subaccount and the Fixed Account. However, we
will not withdraw
30
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:
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
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 34, 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. An
31
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.
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 33.
The tax consequences of surrendering the Policy are discussed in "Tax Matters,"
beginning on page 42.
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
32
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 "Tax Matters"
beginning page 42.
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.
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
33
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 27. 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, however,
we are required to send you the amount of your Premiums. In those states,
currently we allocate any Premium received before the end of the free-look
period as described in "Allocation of Premium" on page 15 above. In the future,
however, if you live in one of those states, we reserve the right to delay
allocating your Premiums to the Subaccounts you have selected or to the Fixed
Account until 20 days after the Issue Date or, if your state's free look period
is longer than ten days, for ten days plus the period required by state law. We
will allocate Premiums received during that time to the Fidelity Money market
Sub-Account. 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
34
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.
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 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.
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.
35
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:
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
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.
36
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 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.
We will waive cost of insurance charges in the following situations:
(1) after age 100, charges are waived if the Death Benefit is 101% of the
Contract Value; and
(2) all substandard ratings will be reduced to standard.
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
Janus Balanced Portfolio(1) (after fee waivers or
reductions)
Janus Aggressive Growth Portfolio(1) (after fee waivers
or reductions)
Janus Worldwide Growth Portfolio(1) (after fee waivers
or reductions)
Janus Growth Portfolio(1) (after fee waivers or
reductions)
Federated Utility Fund II(2) (after fee waiver)
Federated Fund for U.S. Government Securities II(2)
(after fee waiver and expense reimbursement)
37
Federated High Income Bond Fund II(2) (after fee
waiver)
Fidelity VIP Money Market Portfolio
Fidelity VIP Equity-Income Portfolio(3)
Fidelity VIP Growth Portfolio(3)
Fidelity VIP Overseas Portfolio(3)
Fidelity VIP II Asset Manager Portfolio(3)
Fidelity VIP II Contrafund Portfolio(3)
Fidelity VIP II Index 500 Portfolio
The Alger Income and Growth Portfolio
The Alger Small Capitalization Portfolio
The Alger Growth Portfolio
The Alger MidCap Growth Portfolio
The Alger Leveraged AllCap Portfolio(4)
Scudder Bond Portfolio
Scudder Balanced Portfolio
Scudder Growth and Income Portfolio
Scudder Global Discovery Portfolio
Scudder International Portfolio
Strong Discovery Fund II
Strong Opportunity Fund II
Strong Growth Fund II
T. Rowe Price International Stock Portfolio
T. Rowe Price New America Growth Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Equity Income Portfolio
MFS Growth with Income Series(5), (6) (after expense
reimbursement)
MFS Research Series(5)
MFS Emerging Growth Series
MFS Total Return Series(5), (6) (after expense
reimbursement)
MFS New Discovery Series(5), (6) (after expense
reimbursement)
</TABLE>
- ------------------------
(1) Other expenses are based on the gross expenses of the Portfolios before
expense offset arrangements for the fiscal year ended December 31, 1998. The
information for Growth, 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 [ ]. [ ] and [ ] for Growth Portfolio; [ ] for
Aggressive Growth Portfolio; [ ] for Worldwide Growth Portfolio, and [ ], and [
] 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: [ ]
and , respectively, for the Utility Fund II; [ ] and [ ], respectively, for the
U.S. Government Securities II; and [ ] and [ ], 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 - [ ], for Growth - [ ], for Overseas - [ ], for Asset Manager
- - [ ], and for Contrafund - [ ].
(4) Included in the Other Expenses of this Portfolio is [ ] 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
38
(6) 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 Portfolios. Subject to
reimbursement by these Portfolios, such that each such Portfolio's "Other
Expenses" shall not exceed [ ] 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.............................
Total Return...................................
New Discovery (estimate).......................
</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 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
39
example, the following surrender charge percentage rates would apply if the
Insured were 45 years old when your Policy was issued:
MALE - FEMALE - UNISEX -
POLICY YEAR AGE 45 AGE 45 AGE 45
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%
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.
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
40
mortality and expense charge on the Separate Account assets.
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.
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, we will pay 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 a Death
Benefit for the increase equal to the total cost of insurance charges.
41
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.
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.
TAX MATTERS
INTRODUCTION
The following discussion is general and is not intended as tax advice. Lincoln
Benefit makes no guarantee regarding the tax treatment of any Policy or
transaction involving a Policy. Federal, state, local and other tax consequences
of ownership or purchase of a life insurance policy depend upon the your
circumstances. If you are concerned about any tax consequences with regard to
your individual circumstances, you should consult a qualified tax advisor.
Taxation of the Company and the Variable Account
Lincoln Benefit is taxed as a life insurance company under Part I of Subchapter
L of the Internal Revenue Code. The Separate Account is not an entity separate
from Lincoln Benefit and its operations form a part of Lincoln Benefit. As a
consequence, the Separate Account will not be taxed separately as a "Regulated
Investment Company" under Subchapter M of the Code. Investment income and
realized capital gains are automatically applied to increase reserves under the
Policies. Under current federal tax law, Lincoln Benefit believes that the
Separate Account
42
investment income and realized net capital gains will not be taxed to the extent
that such income and gains are applied to increase the reserves under the
Policies. Generally, reserves are amounts that Lincoln Benefit is legally
required to accumulate and maintain in order to meet future obligations under
the Policies. Lincoln Benefit does not anticipate that it will incur any federal
income tax liability attributable to the Separate Account. Therefore, we do not
intend to make provisions for any such taxes. If we are taxed on investment
income or capital gains of the Separate Account, then we may impose a charge
against the Separate Account in order to make provisions for any such taxes.
Taxation of Contract Benefits
In order to qualify as a life insurance policy for federal income tax purposes,
the Policy must meet the definition of a life insurance policy set forth in
Section 7702 of the Code. Section 7702 limits the amount of premiums that may be
invested in a Policy that qualifies as life insurance. The Policy is structured
to meet the Section 7702 definition of a life insurance policy. This means that
the Death Benefit is excluded from the beneficiary's gross income under Section
101(a) of the Tax Code and you are not taxed on increases in the Policy Value
until a distribution occurs.
If a Policy fails to qualify as life insurance under Section 7702, the Policy
will not provide most of the tax advantages normally provided by life insurance.
Lincoln Benefit has 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.
If you surrender the Policy, you are subject to income tax on the portion of the
distribution that exceeds the investment in the contract. The investment in the
contract is the gross premium paid for the Policy minus any amounts previously
received from the Policy if such amounts were properly excluded from your gross
income. Policy loans are generally not treated as taxable distributions.
Interest paid on a Policy loan is generally not deductible. You are generally
taxed on partial withdrawals only to the extent the amount distributed exceeds
the investment in the contract. In certain situations, partial withdrawals or
reduction in benefits during the first fifteen years of the Policy may result in
a taxable distribution before the investment in the contract is recovered.
Withdrawals and loans from modified endowment contracts are subject to less
favorable tax treatment.
If you are Owner and Insured under the Policy, the Death Benefit will be
included in your gross estate for federal estate tax purposes if the proceeds
are payable to your estate. If the beneficiary is not your estate, but you
retain incidents of ownership in the Policy, the Death Benefit will also be
included in your gross estate. Examples of incidents of ownership include:
o the right to change beneficiaries,
o to assign the Policy,
o to revoke an assignment,
o to pledge the Policy, or
o to obtain a Policy loan.
If you are Owner and Insured under the Policy, and you transfer all incidents of
ownership in the Policy, the Death Benefit will be included in your gross estate
if you die within three years from the date of the ownership transfer. State and
local estate and inheritance taxes may also apply. In addition, certain
transfers of the
43
Policy or Death Benefit, either during life or at death, to individuals two or
more generations below the transferor may be subject to the federal generation
skipping transfer tax. This rule also applies if the transfer is to a trust for
the benefit of individuals two or more generations below the transferor.
The Policy may be used in various arrangements, including nonqualified 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. If you are contemplating the use
of a Policy in any of these arrangements, you should consult a qualified tax
advisor regarding the tax attributes of the particular arrangement.
Modified Endowment Contracts
A life insurance policy is treated as a "modified endowment contract" under
Section 7702A of the Tax Code if it meets the definition of life insurance in
Section 7702, but fails the "seven-pay" test of Section 7702A. The seven-pay
test provides that premiums cannot be paid at a rate more rapidly than that
allowed by the payment of seven annual premiums using specified computational
rules provided in Section 7702A. We will not accept any premiums that cause the
Policy to become a modified endowment contract unless we receive from you a
written acknowledgment that the Policy will become a modified endowment
contract. An exchange under Section 1035 of the Tax Code of a life insurance
policy that is not a modified endowment contract will not cause the new policy
to be a modified endowment contract if no additional premiums are paid. An
exchange under Section 1035 of the Code of a life insurance policy that is a
modified endowment contract for a new life insurance policy will always cause
the new policy to be a modified endowment contract.
A Policy that is classified as a modified endowment contract is generally
eligible for the beneficial tax treatment accorded to life insurance. The death
benefit is excluded from income and increases in Policy Value are not subject to
current taxation. If you receive any amount as a Policy loan from a modified
endowment contract, or assign or pledge any part of the value of the Policy,
such amount is treated as a distribution. Unlike other life insurance policies,
withdrawals and distributions made before the insured's death are treated as
taxable income first, then as recovery of investment in the contract. The
taxable portion of any distribution from a modified endowment contract is
subject to a 10% penalty tax, except as follows:
o distributions made on or after the date on which the taxpayer attains age 59
1/2;
o distributions attributable to the taxpayer's becoming disabled (within the
meaning of Section 72(m)(7) of the Code); or
o any distribution that is part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the taxpayer or the joint lives (or joint life expectancies)
of such taxpayer and his or her beneficiary.
All modified endowment contracts that are issued within any calendar year to the
same owner by one company or its affiliates shall be treated as one modified
endowment contract in determining the taxable portion of any distributions.
Diversification Requirements
For a Policy to qualify as a variable life insurance policy for federal tax
purposes, the investments in the Separate Account must be "adequately
diversified" consistent with standards under Treasury Department regulations. If
the investments
44
in the Separate Account are not adequately diversified, the Policy will not be
treated as a variable life insurance policy for federal income tax purposes. As
a result, you will be taxed on the excess of the Policy Value over the
investment in the contract. Although Lincoln Benefit does not have control over
the Portfolios or their investments, we expect the Portfolios to meet the
diversification requirements.
Ownership Treatment
The IRS has stated that you will be considered the owner of Separate Account
assets if you possess incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. At the time the
diversification regulations were issued, the Treasury Department announced that
the regulations do not provide guidance concerning circumstances in which
investor control of the Separate Account investments may cause an investor to be
treated as the owner of the Separate Account. The Treasury Department also
stated that future guidance would be issued regarding the extent that owners
could direct sub-account investments without being treated as owners of the
underlying assets of the Separate Account.
Your rights under this Policy are different than those described by the IRS in
rulings in which it found that contract owners were not owners of Separate
Account assets. For example, you have the choice to allocate premiums and Policy
values among more investment options. Also, you may be able to transfer among
investment options more frequently than in such rulings. These differences could
result in you being treated as the owner of the Separate Account. If this
occurs, income and gain from the Separate Account assets would be includible in
your gross income. Lincoln Benefit does not know what standards will be set
forth in any regulations or rulings which the Treasury Department may issue. It
is possible that future standards announced by the Treasury Department could
adversely affect the tax treatment of your contract. We reserve the right to
modify the Policy as necessary to attempt to prevent you from being considered
the federal tax owner of the assets of the Separate Account. However, we make no
guarantee that such modification to the Policy will be successful.
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
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
45
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, Nebraska
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 J. BERNEY, SENIOR VICE PRESIDENT 1998, Vice President 1982-1998 Lincoln
Benefit Life Company.
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.
MARVIN P. EHLY, SENIOR VICE PRESIDENT AND TREASURER, DIRECTOR 1999; Vice
President 6/93-12/98, Lincoln Benefit life Company; Senior Vice President and
Treasurer, Director 1/99-present, Surety Life Insurance Company.
DOUGLAS F. GAER; EXECUTIVE VICE PRESIDENT, 1997; DIRECTOR, 1981; Senior Vice
President, 4/95-2/97, Senior Vice President and Treasurer, 4/94-3/95, Vice
President, 3/81-4/94, 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.
46
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.
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.
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.
47
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.
THOMAS J. WILSON, II, DIRECTOR 1999, Lincoln Benefit Life Company; Director
1/99-present, Surety Life Insurance Company; Senior Vice President, Director
6/95-present, Vice President 1/95-6/95, Allstate Insurance Company; Senior Vice
President, Director 7/96-present, Allstate Holdings, Inc.; President
1/99-present, Director 9/95-present, Allstate Life Insurance Company; President
12/98-present, Director 1/99-present, Allstate Life Insurance Company of New
York; Senior Vice President 6/95-present, Director 7/95-present, Allstate
Property and Casualty Insurance Company; Vice President 1/95-1/99, The Allstate
Corporation; Vice President 1993-1995, Sears, Roebuck & Company.
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.
48
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.
MARKET TIMING AND ASSET ALLOCATION
Certain third parties offer market timing and asset allocation services in
connection with the Policies. In certain situations, Lincoln Benefit will honor
transfer instructions from such third parties provided such market timing and
asset allocation services comply with our administrative systems, rules and
procedures, which may be modified by us at any time. PLEASE NOTE that fees and
charges assessed for such market timing and asset allocation services are
separate and distinct from the Policy fees and charges set forth herein. We
neither recommend nor discourage such market timing and asset allocation
services.
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.
Allstate Life Financial Services ("ALFS") located at 3100 Sanders Road,
Northbrook, IL 60062-7154 serves as principal underwriter of the Policies. ALFS
is a wholly owned subsidiary of Allstate Life Financial Services. It is
registered as a broker-dealer under the Securities and Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers, Inc.
49
Registered representatives who sell the policy will be paid a maximum sales
commission of approximately 70% of all Premiums up to the first year Safety Net
premium plus 2.85% 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.
During 1998, Lincoln Benefit paid to its former principal underwriter of the
Policies, Lincoln Benefit Financial Services ("LBFS"), gross commissions for the
sale of Policies of approximately [ ]. LBFS, as principal underwriter, retained
[ ]. The amounts not retained by LBFS were paid to other independent
broker/dealers and registered representatives of LBFS for distribution of the
Policies.
Lincoln Benefit does not pay ALFS a commission for distribution of the
Contracts. The underwriting agreement with ALFS provides that we will reimburse
ALFS for expenses incurred in distributing the Policies, including any liability
arising out of the Services we provide on the Policies.
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, 1998, and for each of the three years ended December 31, 1998 and
consolidated financial statements of Lincoln Benefit Life Company and subsidiary
as of December 31, 1998, and 1997 and for each of the three years in the period
ended December 31, 1998, included in this 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.
50
Actuarial matters included in this Prospectus, including the hypothetical Policy
illustrations, have been examined by 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 financial statements of the Separate Account included in this Prospectus
reflect the assets attributable to this Policy, as well as assets invested in
other policies offered by Lincoln Benefit. The financial statements of Lincoln
Benefit which are included in this Prospectus should be considered only as
bearing on our ability to meet its obligations under the Policy. They should not
be considered as bearing on the investment performance of the assets held in the
Separate Account.
*To be filed by Post-Effective Amendment.
51
<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 [ ] of the average net
assets of the Subaccounts, with a maximum charge of [ ] 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 [ ], and [ ], 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 [ ], [ ], and [ ], 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 "Tax
Matters," page 42).
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
A-1
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-2
<PAGE>
A-1
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
DEATH BENEFIT
Assuming Hypothetical Gross and
Net Annual Investment Return of
Policy 0% Gross 6% Gross 12% Gross
Year [ ] Net [ ] Net [ ] Net
1
2
3
4
5
6
7
8
9
10
15
20 (age 65)
30 (age 75)
40 (age 85)
55 (age 100)
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 [ ] Net [ ] Net [ ] Net [ ] Net [ ] Net [ ] Net
1
2
3
4
5
6
7
8
9
10
15
20 (age 65)
30 (age 75)
40 (age 85)
55 (age 100)
Assumes the Premium shown is paid at the beginning of each Policy Year. Values
would
A-3
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-4
<PAGE>
PART II - OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, as amended, the undersigned registrant hereby undertakes
to file with the Securities and Exchange Commission such supplementary and
periodic information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
REPRESENTATION AS TO FEES AND CHARGES
Lincoln Benefit Life Company hereby represents that the fees and charges
deducted under the Flexible Premium Variable Universal Life Insurance Policy
hereby registered by this Registration Statement in the aggregate are reasonable
in relation to the services rendered, the expenses expected to be incurred, and
the risks assumed by Lincoln Benefit Life Company.
REPRESENTATION PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6e-3(T) under the Investment Company
Act of 1940, as amended (the "1940 Act").
UNDERTAKING AS TO INDEMNIFICATION
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to directors,
officers and controlling persons of the Registrant, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
CONTENTS OF THIS REGISTRATION STATEMENT
This Registration Statement consists of the following papers and documents:
Facing Sheet
Cross-Reference Sheet
Prospectus consisting of 56 pages
Undertaking to File Reports
Undertaking As To Indemnification
Representation As To Fees and Charges
Representation Pursuant to Rule 6e-3(T)
Signature Pages
Exhibits
II-1
EXHIBIT LIST
1. Exhibits required by paragraph A of the instructions as to Exhibits of Form
N-8B-2
(1) Resolution of the Board of Directors of Lincoln Benefit Life Company
authorizing establishment of the Lincoln Benefit Life Variable Life
Account (1)
(2) Custodian Agreement (not applicable)
(3) (a) Form of Principal Underwriting Agreement (filed herewith)
(b) Form of Selling Agreement (1)
(c) Schedule of Sales Commissions (1)
(4) Other Agreements between the depositor, principal underwriter, and
custodian with respect to Registrant or its securities (not
applicable)
(5) Specimen Policy (1)
(6) (a) Articles of Incorporation of Lincoln Benefit Life Company, as
amended (1)
(b) By-laws of Lincoln Benefit Life Company (1)
(7) Insurance Company Blanket Bond (1)
(8) Participation Agreements
(a) Fund Participation Agreement between Janus Aspen Series and
Lincoln Benefit Life Company (1)
(b) Participation Agreement among Lincoln Benefit Life Company and
Variable Insurance Products Fund and Fidelity Distributors
Corporation (1)
(c) Participation Agreement among Lincoln Benefit Life Company and
Variable Insurance Products Fund II and Fidelity Distributors
Corporation (1)
(d) (1) Participation Agreement among The Alger American Fund,
Lincoln Benefit Life Company and Fred Alger and Company,
Incorporated (1)
(2) Service Agreement between Fred Alger Management, Inc. and
Lincoln Benefit Life Company (1)
(e) (1) Participation Agreement between Scudder Variable Life
Investment Fund and Lincoln Benefit Life Company(1)
(2) Reimbursement Agreement by and between Scudder, Stevens &
Clark, Inc. and Lincoln Benefit Life Company (1)
(3) Participating Contract and Policy Agreement between Scudder
Investor Services, Inc. and Lincoln Benefit Financial
Services. (1)
II-2
(f) Form of Participation Agreement among Lincoln Benefit Life
Company, Strong Variable Insurance Funds, Inc., Strong
Opportunity Fund II, Inc., Strong Capital Management, Inc., and
Strong Funds Distributors, Inc. (1)
(g) Form of Participation Agreement among T. Rowe Price Equity
Series, Inc., T. Rowe Price International Series, Inc., T. Rowe
Price Investment Services, Inc., and Lincoln Benefit Life Company
(1)
(h) Form of Participation Agreement among MFS Variable Insurance
Trust, Lincoln Benefit Life Company, and Massachusetts Financial
Services Company (1)
(i) Fund Participation Agreement between Lincoln Benefit Life
Company, Insurance Management Series and Federated Securities
Corp. (1)
(9) Other Material Contracts (not applicable)
(10) Form of Application for Policy (1)
2. Opinion and Consent of Counsel (2)
3. All financial statements omitted from the prospectus (not applicable)
4. Not applicable
5. Financial Data Schedule (not applicable)
6. Procedures memorandum pursuant to Rule 6e-3(T)(b)(12)(ii) (2)
7. Actuarial Opinion and Consent (2)
8. (a) Consent of Independent Auditors - to be filed with Post-Effective
Amendment
(b) Consent of Attorneys (filed herewith)
9. Table of Surrender Charge Factors and Percentages (2)
(1) Incorporated by reference from Form S-6 Registration Statement of
Lincoln Benefit Life Variable Life Account, filed March 11, 1998 (File
No. 33-47717).
(2) Incorporated by reference from Post-Effective Amendment No. 1 to Form
S-6 of Lincoln Benefit Life Variable Life Account, filed January 22,
1999 (File No. 33-47717).
II-3
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the registrant has duly caused this Post-Effective Amendment to the
Registration Statement to be signed on its behalf in the City of Lincoln, State
of Nebraska, on the 22nd day of January, 1999.
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
(Registrant)
BY: LINCOLN BENEFIT LIFE COMPANY
(Depositor)
By: /s/ B. Eugene Wraith
--------------------------------------------------------
B. Eugene Wraith
President and Chief Operating Officer
As required by the Securities Act of 1933, this Post-Effective Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated:
/s/ B. Eugene Wraith
- -------------------------
B. Eugene Wraith President, Chief Operating January 22, 1999
(Principal Executive Officer and Director
Officer)
/s/ Robert E. Rich
- -------------------------
Robert E. Rich Executive Vice President January 22, 1999
and Director
/s/ Marvin P. Ehly
- -------------------------
Marvin P. Ehly Senior Vice President, January 22, 1999
(Principal Financial Treasurer and Director
Officer)
/s/ Janet P. Anderbery
- -------------------------
Janet P. Anderbery Vice President January 22, 1999
(Principal Accounting and Controller
Officer)
/s/ John H. Coleman
- -------------------------
John H. Coleman, III Director January 22, 1999
- -------------------------
Peter H. Heckman Director January 22, 1999
- -------------------------
Louis G. Lower, II Director January 22, 1999
/s/ John J. Morris
- -------------------------
John J. Morris Director January 22, 1999
/s/ Douglas F. Gaer
- -------------------------
Douglas F. Gaer Director January 22, 1999
- -------------------------
Kevin Slawin Director January 22, 1999
- -------------------------
Michael J. Velotta Director January 22, 1999
/s/ Dean M. Way
- -------------------------
Dean M. Way Director January 22, 1999
/s/ Carol S. Watson
- -------------------------
Carol S. Watson Director January 22, 1999
- -------------------------
Patricia W. Wilson Director January 22, 1999
- -------------------------
Thomas J. Wilson, II Director January 22, 1999
INDEX TO EXHIBITS
FOR
REGISTRATION STATEMENT ON FORM N-4
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
EXHIBIT NO. SEQUENTIAL PAGE NO.
- ----------- -----------------------------------------
1(3)(a) Underwriting Agreement
8(b) Consent of Attorneys
<PAGE>
Exhibit 1(3)(a)
PRINCIPAL UNDERWRITING AGREEMENT
THIS AGREEMENT, is entered into on this 25th day of November, 1998, by
and among LINCOLN BENEFIT LIFE COMPANY, ("LBL" or "Company") a life insurance
company organized under the laws of the State of Nebraska, on its own and on
behalf of the VARIABLE UNIVERSAL LIFE ACCOUNT (A) ("Separate Account"), a
separate account established pursuant to the insurance laws of the State of
Nebraska, and ALLSTATE LIFE FINANCIAL SERVICES, INC., ("Principal Underwriter"),
a corporation organized under the laws of the state of Delaware.
WITNESSETH:
WHEREAS, Company proposes to issue to the public certain variable
universal life contracts identified in the Attachment A ("Contracts"); and
WHEREAS, Company, by resolution adopted on May 17, 1990, established
the Separate Account for the purpose of issuing the Contracts; and
WHEREAS, the Separate Account is registered with the Securities and
Exchange Commission ("Commission") as a unit investment trust under the
Investment Company Act of 1940, as amended, ("Investment Company Act") (File No.
811-7972); and
WHEREAS, the Contracts to be issued by Company are registered with the
Commission under the Securities Act of 1933, as amended, ("Securities Act")
(File No. 333-67386, 333-47717) for offer and sale to the public and otherwise
are in compliance with all applicable laws; and
WHEREAS, Principal Underwriter, a broker-dealer registered under the
Securities Exchange Act of 1934, as amended, ("Exchange Act") and a member of
the National Association of Securities Dealers, Inc. ("NASD"), proposes to act
as principal underwriter on an agency (best efforts) basis in the marketing and
distribution of said Contracts; and
WHEREAS, Company desires to obtain the services of Principal
Underwriter as an underwriter and distributor of said Contracts issued by
Company through the Separate Account;
NOW THEREFORE, in consideration of the foregoing, and of the mutual
covenants and conditions set forth herein, and for other good and valuable
consideration, the Company, the Separate Account, and the Principal Underwriter
hereby agree as follows:
1. AUTHORITY AND DUTIES
(a) Principal Underwriter will serve as an underwriter and
distributor on an agency basis for the Contracts which will be
issued by the Company through the Separate Account.
(b) Principal Underwriter will use its best efforts to provide
information and marketing assistance to licensed insurance
agents and broker-dealers on a continuing basis. However,
Principal Underwriter shall be responsible for compliance with
the requirements of state broker-dealer regulations and the
Exchange Act as each applies to Principal Underwriter in
connection with its duties as distributor of said Contracts.
Moreover, Principal Underwriter shall conduct its affairs in
accordance and compliance with the NASD Conduct Rules.
(c) Subject to agreement with the Company, Principal Underwriter
may enter into selling agreements with broker-dealers which
are registered under the Exchange Act and/or authorized by
applicable law or exemptions to sell variable annuity
contracts issued by Company through the Separate Account. Any
such contractual arrangement is expressly made subject to this
Agreement, and Principal Underwriter will at all times be
responsible to Company for supervision of compliance with the
federal securities laws regarding distribution of Contracts.
2. WARRANTIES
(a) The Company represents and warrants to Principal Underwriter
that:
(i) Registration Statements on Form S-6 for each of the
Contracts identified in Attachment A have been filed
with the Commission in the form previously delivered
to Principal Underwriter and that copies of any and
all amendments thereto will be forwarded to Principal
Underwriter at the time that they are filed with
Commission;
(ii) The Registration Statement and any further amendments
or supplements thereto will, when they become
effective, conform in all material respects to the
requirements of the Securities Act and the Investment
Company Act, and the rules and regulations of the
Commission under such Acts, and will not contain any
untrue statement of a material fact or omit to state
a material fact required to be stated therein or
necessary to make the statements therein not
misleading; provided, however, that this
representation and warranty shall not apply to any
statement or omission made in reliance upon and in
conformity with information furnished in writing to
Company by Principal Underwriter expressly for use
therein;
(iii) The Company is validly existing as a stock life
insurance company in good standing under the laws of
the State of Nebraska, with power to own its
properties and conduct its business as described in
the Prospectus, and has been duly qualified for the
transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns
or leases properties, or conducts any business;
(iv) The Contracts to be issued by the Company through the
Separate Account and offered for sale by Principal
Underwriter on behalf of the Company hereunder have
been duly and validly authorized and, when issued and
delivered with payment therefore as provided herein,
will be duly and validly issued and will conform to
the description of such Contracts contained in the
Prospectuses relating thereto;
(v) Those persons who offer and sell the Contracts are to
be appropriately licensed and/or appointed to comply
with the state insurance laws;
(vi) The performance of this Agreement and the
consummation of the transactions contemplated by this
Agreement will not result in a violation of any of
the provisions of or default under any statute,
indenture, mortgage, deed of trust, note agreement or
other agreement or instrument to which Company is a
party or by which Company is bound (including
Company's Charter or By-laws as a stock life
insurance company, or any order, rule or regulation
of any court or governmental agency or body having
jurisdiction over Company or any of its properties);
(vii) There is no consent, approval, authorization or order
of any court or governmental agency or body required
for the consummation by Company of the transactions
contemplated by this Agreement, except such as may be
required under the Exchange Act or state insurance or
securities laws in connection with the distribution
of the Contracts; and
(viii) There are no material legal or governmental
proceedings pending to which Company or the Separate
Account is a party or of which any property of
Company or the Separate Account is the subject (other
than as set forth in the Prospectus relating to the
Contracts, or litigation incidental to the kind of
business conducted by the Company) which, if
determined adversely to Company, would individually
or in the aggregate have a material adverse effect on
the financial position, surplus or operations of
Company.
(b) Principal Underwriter represents and warrants to Company that:
(i) It is a broker-dealer duly registered with the
Commission pursuant to the Exchange Act, is a member
in good standing of the NASD, and is in compliance
with the securities laws in those states in which it
conducts business as a broker-dealer;
(ii) As a principal underwriter, it shall permit the offer
and sale of Contracts to the public only by and
through persons who are appropriately licensed under
the securities laws and who are appointed in writing
by the Company to be authorized insurance agents,
unless such persons are exempt from licensing and
appointment requirements;
(iii) The performance of this Agreement and the
consummation of the transactions herein contemplated
will not result in a breach or violation of any of
the terms or provisions of or constitute a default
under any statute, indenture, mortgage, deed of
trust, note agreement or other agreement or
instrument to which Principal Underwriter is a party
or by which Principal Underwriter is bound (including
the Certificate of Incorporation or By-laws of
Principal Underwriter or any order, rule or
regulation of any court or governmental agency or
body having jurisdiction over either Principal
Underwriter or its property); and
(iv) To the extent that any statements made in the
Registration Statement, or any amendments or
supplements thereto, are made in reliance upon and in
conformity with written information furnished to
Company by Principal Underwriter expressly for use
therein, such statements will, when they become
effective or are filed with the Commission, as the
case may be, conform in all material respects to the
requirements of the Securities Act and the rules and
regulations of the Commission thereunder, and will
not contain any untrue statement of a material fact
or omit to state any material fact required to be
stated therein or necessary to make the statements
therein not misleading.
3. BOOKS AND RECORDS
(a) Principal Underwriter shall keep, in a manner and form
approved by Company and in accordance with Rules 17a-3 and
17a-4 under the Exchange Act, correct records and books of
account as required to be maintained by a registered
broker-dealer, acting as principal underwriter, of all
transactions entered into on behalf of Company with respect to
its activities under this Agreement. Principal Underwriter
shall make such records and books of account available for
inspection by the Commission, the NASD, and all other
regulatory bodies having jurisdiction, and Company shall have
the right to inspect, make copies of or take possession of
such records and books of account at any time upon demand.
(b) Subject to applicable Commission or NASD restrictions, Company
will send confirmations of Contract transactions to Contract
Owners. Company will make such confirmations and records of
transactions available to Principal Underwriter upon request.
Company will also maintain Contract Owner records on behalf of
Principal Underwriter to the extent permitted by applicable
securities laws.
4. SALES MATERIALS
(a) After authorization to commence the activities contemplated
herein, Principal Underwriter will utilize the currently
effective prospectus relating to the subject Contracts in
connection with its underwriting, marketing and distribution
efforts. As to other types of sales material, Principal
Underwriter hereby agrees and will require any participating
or selling broker-dealers to agree that they will use only
sales materials which have been authorized for use by Company,
which conform to the requirements of federal and state
securities laws and regulations and state insurance laws and
regulations, and which have been filed where necessary with
the appropriate regulatory authorities, including the NASD.
(b) Principal Underwriter will not distribute any prospectus,
sales literature or any other printed matter or material in
the underwriting and distribution of any Contract if, to the
knowledge of Principal Underwriter, any of the foregoing
misstates the duties, obligation or liabilities of Company or
Principal Underwriter.
5. COMPENSATION
(a) Company agrees to pay Principal Underwriter for direct
expenses incurred on behalf of Company. Such direct expenses
shall include, but not be limited to, the costs of goods and
services purchased from outside vendors, travel expenses and
state and federal regulatory fees incurred on behalf of
Company.
(b) Principal Underwriter shall present to Company a statement
after the end of the quarter showing the apportionment of
services rendered and the direct expenses incurred.
Settlements are due and payable within thirty days.
6. PURCHASE PAYMENTS
Principal Underwriter shall arrange that all purchase payments collected on the
sale of the Contracts are promptly and properly transmitted to Company for
immediate allocation to the Separate Account in accordance with the Investment
Company Act and rules and regulations thereunder, the procedures of Company and
the directions furnished by the purchasers of such Contracts at the time of
purchase.
7. UNDERWRITING TERMS
(a) Principal Underwriter makes no representations or warranties
regarding the number of Contracts to be sold by licensed
broker-dealers and registered representatives of
broker-dealers or the amount to be paid thereunder. Principal
Underwriter does, however, represent that it will actively
engage in its duties under this Agreement on a continuous
basis while there is an effective registration statement with
the Commission.
(b) Principal Underwriter will use its best efforts to ensure that
the Contracts shall be offered for sale by registered
broker-dealers and registered representatives (who also are
duly licensed as insurance agents) on the terms described in
the currently effective prospectus describing such Contracts.
(c) It is understood and agreed that Principal Underwriter may
render similar services to other companies in the distribution
of other variable contracts.
(d) The Company will use its best efforts to assure that the
Contracts are continuously registered under the Securities Act
(and under any applicable state "blue sky" laws) and to file
for approval under state insurance laws when necessary.
(e) The Company reserves the right at any time to suspend or limit
the public offering of the subject Contracts upon one day's
written notice to Principal Underwriter.
8. LEGAL AND REGULATORY ACTIONS
(a) The Company agrees to advise Principal Underwriter immediately
of:
(i) any request by the Commission for amendment of the
Registration Statement or for additional information
relating to the Contracts;
(ii) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration
Statement relating to the Contracts or the initiation
of any proceedings for that purpose; and
(iii) the happening of any known material event which makes
untrue any statement made in the Registration
Statement relating to the Contracts or which requires
the making of a change therein in order to make any
statement made therein not misleading.
(b) Each of the undersigned parties agrees to notify the other in
writing upon being apprised of the institution of any
proceeding, investigation or hearing involving the offer or
sale of the subject Contracts.
(c) During any legal action or inquiry, Company will furnish to
Principal Underwriter such information with respect to the
Separate Account and Contracts in such form and signed by such
of its officers as Principal Underwriter may reasonably
request and will warrant that the statements therein contained
when so signed are true and correct.
9. TERMINATION
(a) This Agreement will terminate automatically upon its
assignment.
(b) This Agreement shall terminate without the payment of any
penalty by either party upon sixty (60) days' advance
written notice.
(c) This Agreement shall terminate at the option of the Company
upon institution of formal proceedings against Principal
Underwriter by the NASD or by the Commission, or if Principal
Underwriter or any representative thereof at any time:
(i) employs any device, scheme, artifice, statement or
omission to defraud any person;
(ii) fails to account and pay over promptly to the Company
money due it according to the Company's records; or
(iii) violates the conditions of this Agreement.
10. INDEMNIFICATION
The Company agrees to indemnify Principal Underwriter for any liability that it
may incur to a Contract owner or party-in-interest under a Contract:
(a) arising out of any act or omission in the course of or in
connection with rendering services under this Agreement; or
(b) arising out of the purchase, retention or surrender of a
contract; provided, however, that the Company will not
indemnify Principal Underwriter for any such liability that
results from the willful misfeasance, bad faith or gross
negligence of Principal Underwriter or from the reckless
disregard by such Principal Underwriter of its duties and
obligations arising under this Agreement.
11. GENERAL PROVISIONS
(a) This Agreement shall be subject to the laws of the State of
Nebraska.
(b) This Agreement, along with any Schedules attached hereto and
incorporated herein by reference, may be amended from time to
time by the mutual agreement and consent of the undersigned
parties.
(c) In case any provision in this Agreement shall be invalid,
illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in way be
affected or impaired thereby.
IN WITNESS WHEREOF, the undersigned parties have caused this Agreement
to be duly executed, to be effective as of November 25, 1998.
LINCOLN BENEFIT LIFE COMPANY
(and LINCOLN BENEFIT LIFE COMPANY VARIABLE UNIVERSAL LIFE ACCOUNT)
BY: ____________________________
President & Chief Operating Officer
ALLSTATE LIFE FINANCIAL SERVICES, INC.
BY: ____________________________
President
<PAGE>
UNDERWRITING AGREEMENT
Attachment A
"Contracts" Form #
Investor's Select VAP 9390
Consultant VAP 9800
Exhibit 8(b)
Jorden Burt
1025 Thomas Jefferson Street, N.W.
Suite 400 East
Washington, D.C. 20007-0805
(202)-965-8100
Telecopier: (202) 965-8104
HTTP://WWW.JORDENUSA.COM
Joan E. Boros 202-965-8150
January 22, 1999
Lincoln Benefit Life Company
Lincoln Benefit Life Variable Life Account
Lincoln Benefit Life Centre
Lincoln, Nebraska 68501-0469
Ladies and Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in this Post-Effective Amendment No. 1 to Registration Statement No.
333-47717 of Lincoln Benefit Life Variable Life Account on Form S-6. In giving
this consent, we do not admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933.
Very truly yours,
Jorden Burt Boros Cicchetti Berenson & Johnson LLP
By:__/s/Joan E. Boros____________
Joan E. Boros
