PROSPECTUS
FLEXIBLE PREMIUM "LAST SURVIVOR"
VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
Issued By
Lincoln Benefit Life Company
In Connection With
Lincoln Benefit Life Variable Life Account
STREET ADDRESS: 2940 SOUTH 84TH ST., LINCOLN, NE 68506
MAILING ADDRESS: P. O. BOX 82532, LINCOLN, NE 68501-2532
TELEPHONE NUMBER: 1-800-525-9287
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 30-85. 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.
When both Insured Persons have died, 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 $250,000.
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: Fidelity VIP Money Market Portfolio,
Fidelity VIP Equity-Income Portfolio, Fidelity VIP Growth Portfolio, Fidelity
VIP Overseas Portfolio
Fidelity Variable Insurance Products Fund II: Fidelity VIP Asset Manager
Portfolio, Fidelity VIP Contrafund Portfolio, Fidelity VIP 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, MidCap Growth Fund II
Strong Opportunity Fund II, Inc.: Opportunity Fund II
T. Rowe Price International Series, Inc.: T. Rowe Price International Stock
Portfolio
T. Rowe Price Equity Series, Inc.: T. Rowe Price New America Growth Portfolio,
T. Rowe Price Mid-Cap Growth Portfolio, T. Rowe Price Equity Income Portfolio
MFS Variable Insurance Trust: Growth with Income Series, Research Series,
Emerging Growth Series, Total Return Series, New Discovery Series
All of the Portfolios described in this Prospectus may not be available in your
Policy. We may make other investment options available in the future.
The Policy does not have a guaranteed minimum Policy Value. Your Policy Value
will rise and fall, depending on the investment performance of the Portfolios
underlying the Subaccounts to which you allocate your Premiums. You bear the
entire investment risk on amounts allocated to the Subaccounts. The investment
policies and risks of each Portfolio are described in the accompanying
prospectus for the Portfolios. The Policy Value will also reflect Premiums,
amounts withdrawn, and any insurance or other charges.
(continued on next page)
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Neither the Securities and Exchange Commission nor any State Securities
Commission has Approved or Disapproved of these Securities or Passed upon the
Accuracy or Adequacy of this Prospectus. Any Representation to the Contrary is a
Criminal Offense.
The Date of this Prospectus is May 1, 2000.
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The Policy will remain in force as long as the Net Surrender Value is sufficient
to pay the monthly charges under the Policy. In addition, during the first ten
Policy Years, 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 11. By paying larger amounts of premiums (Age 100 No Lapse
Premiums) you can extend this guarantee until the policy anniversary following
the younger Insured Person's 100th birthday if you elect only Death Benefit
Option 1.
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
Portfolio Listed Above. If any of the Prospectuses are Missing or Outdated,
Please Contact Us and We Will Send You the Prospectus You Need.
Please Read This Prospectus Carefully and Retain It for Your Future Reference.
This Policy may not be available in all states.
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TABLE OF CONTENTS
DEFINITIONS.................................................4
QUESTIONS AND ANSWERS ABOUT YOUR POLICY.....................5
PURCHASE OF POLICY AND ALLOCATION OF PREMIUMS...............10
Application for a Policy....................................10
Premiums....................................................10
Premium Limits..............................................11
Modified Endowment Contracts................................11
Safety Net and No Lapse Premiums............................11
Allocation of Premiums......................................12
Policy Value................................................12
Accumulation Unit Value.....................................13
Transfer of Policy Value....................................13
Transfers Authorized by Telephone...........................14
Dollar Cost Averaging.......................................14
Portfolio Rebalancing.......................................14
Specialized Uses of the Policy..............................15
THE INVESTMENT AND FIXED ACCOUNT OPTIONS....................15
Separate Account Investments................................15
Portfolios..................................................15
Voting Rights...............................................19
Additions, Deletions, and Substitutions of Securities.......19
The Fixed Account...........................................19
POLICY BENEFITS AND RIGHTS..................................20
Death Benefit...............................................20
Death Benefit Options.......................................20
Change in Face Amount.......................................21
Optional Insurance Benefits.................................21
Policy Loans................................................22
Amount Payable on Surrender of the Policy...................23
Partial Withdrawals.........................................23
Settlement Options..........................................23
Maturity....................................................24
Lapse and Reinstatement.....................................24
Cancellation and Exchange Rights............................24
Postponement of Payments....................................24
DEDUCTIONS AND CHARGES......................................25
Premium Tax Charge and Premium Expense Charge...............25
Monthly Deduction...........................................25
Policy Fee..................................................25
Monthly Administrative Charge...............................25
Mortality and Expense Risk Charge...........................25
Cost of Insurance Charge....................................25
Deduction for Separate Account Income Taxes.................26
Portfolio Expenses..........................................26
Surrender Charge............................................26
Transfer Fee................................................27
GENERAL POLICY PROVISIONS...................................27
Statements to Policy Owners.................................27
Limit on Right to Contest...................................28
Suicide.....................................................28
Misstatement as to Age and Sex..............................28
Beneficiary.................................................28
Assignment and Change of Ownership..........................28
Dividends...................................................28
TAX MATTERS.................................................28
Taxation of the Company and the Variable Account............28
Taxation of Contract Benefits...............................29
Modified Endowment Contracts................................29
Diversification Requirements................................30
Ownership Treatment.........................................30
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE
ACCOUNT.....................................................30
Lincoln Benefit Life Company................................30
Executive Officers and Directors of Lincoln Benefit.........31
Separate Account............................................32
Safekeeping of the Separate Account's Assets................32
State Regulation of Lincoln Benefit.........................32
MARKET TIMING AND ASSET ALLOCATION SERVICES.................32
DISTRIBUTION OF POLICIES....................................32
LEGAL PROCEEDINGS...........................................33
LEGAL MATTERS...............................................33
REGISTRATION STATEMENT......................................33
EXPERTS.....................................................33
FINANCIAL STATEMENTS........................................33
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.
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DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION UNIT - An accounting unit of measurement which we use to calculate
the value of a Subaccount.
AGE - An Insured Person'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 Person who dies last, 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 PERSONS - The persons whose lives are 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 or the Age 100
No Lapse Premium feature is in effect.
POLICY ANNIVERSARY - The same day and month as the Issue Date for each
subsequent year the Policy remains in force.
POLICY DEBT - The sum of all unpaid Policy loans and accrued loan interest.
POLICY OWNER ("YOU") - The person(s) named in the Policy application as having
the privileges of ownership defined in the Policy. If the application does not
provide otherwise, the younger Insured Person will be the Owner. If your Policy
is issued pursuant to a retirement plan, your ownership privileges may be
modified by the plan.
POLICY VALUE - The sum of the values of your interests in the Subaccounts of the
Separate Account, the Fixed Account and the Loan Account. The amount from which
the Monthly Deductions are made and the Death Benefit is determined.
POLICY YEAR - Each twelve-month period beginning on the Issue Date and each
Policy Anniversary.
PORTFOLIO(S) - The underlying mutual funds in which the Subaccounts invest. Each
Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PREMIUM - Amounts paid to us as premium for the Policy by you or on your behalf.
QUALIFIED PLAN - A pension or profit-sharing plan established by a corporation,
partnership, sole proprietor, or other eligible organization that is qualified
for favorable tax treatment under Section 401(a) or 403(b) of the Tax Code.
SEPARATE ACCOUNT - The Lincoln Benefit Life Variable Life Account, which is a
segregated investment account of Lincoln Benefit.
SUBACCOUNT - A subdivision of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SURRENDER VALUE - The Policy Value less any applicable surrender charges.
TAX CODE - The Internal Revenue Code of 1986, as amended.
VALUATION DATE - Each day the New York Stock Exchange is open for business.
VALUATION PERIOD - The period of time over which we determine the change in the
value of the Subaccounts in order to price Accumulation Units. Each Valuation
Period begins at the close of normal trading on the New York Stock Exchange
("NYSE"), currently 4:00 p.m. Eastern time, on each Valuation Date and ends at
the close of the NYSE on the next Valuation Date.
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QUESTIONS AND ANSWERS
ABOUT YOUR POLICY
These are answers to questions that you may have about some of the most
important features of your Policy. The Policy is more fully described in the
remainder of the Prospectus. Please read the Prospectus carefully.
1. WHAT IS A FLEXIBLE PREMIUM "LAST SURVIVOR" 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 "last survivor" policy, because we pay the death
benefit only upon the death of the last survivor of the Policy's two original
Insured Persons. 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 or
the No Lapse 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 CHARGES DEDUCTED FROM MY POLICY VALUE?
When we receive a Premium from you, we will deduct a premium tax charge and a
premium expense charge, before we allocate your Net Premium to the Policy Value.
The combined premium tax and premium expense charges will be 6% of your Premium
for the first ten Policy Years and 4% of your Premium thereafter.
We also will take a Monthly Deduction from your Policy Value. The Monthly
Deduction consists of the following charges:
(a) A monthly policy fee of $7.50;
(b) A monthly administrative charge equal to $0.12 per $1,000 of face amount
during each of the Policy's first 84 months;
(c) A monthly mortality and expense risk charge;
(d) A cost of insurance charge; and
(e) 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.
If we ever charge you a cost of insurance rate during the first fourteen 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.
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 3 below and in "Surrender Charge", on page 26.
The charges assessed under the Policy are described in more detail in
"Deductions and Charges", beginning on page 25.
In addition to our charges under the Policy, each Portfolio deducts amounts from
its assets to pay its investment advisory fee and other expenses. The table
below contains a summary of those charges and expenses for 1999. You should
refer to the Prospectuses for the Portfolios for more information concerning
their respective charges and expenses.
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<TABLE>
<CAPTION>
PORTFOLIO COMPANY ANNUAL EXPENSES
(AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
<S> <C> <C> <C>
MANAGEMENT FEE OTHER EXPENSES TOTAL
JANUS ASPEN SERIES -------------- -------------- -----
Flexible Income (1) 0.65% 0.07% 0.72%
Balanced 0.65% 0.02% 0.67%
Growth (1) 0.65% 0.02% 0.67%
Aggressive Growth (1) 0.65% 0.02% 0.67%
Worldwide Growth (1) 0.65% 0.05% 0.70%
FEDERATED INSURANCE MANAGEMENT SERIES
Utility II (2) (after fee waiver or 0.75% 0.19% 0.94%
expense reimbursement)
U.S. Government Securities 0.60% 0.18% 0.78%
II (2) (after fee waiver or expense reimbursement)
High Income Bond II (after fee waiver or 0.60% 0.19% 0.79%
Expense reimbursement)
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Money Market 0.18% 0.09% 0.27%
Equity-Income (3a) (after expense reduction) 0.48% 0.08% 0.56%
Growth (3a) (after expense reduction) 0.58% 0.07% 0.65%
Overseas (3a) (after expense reduction) 0.73% 0.14% 0.87%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager (3a) (after expense reduction) 0.53% 0.09% 0.62%
Contrafund (3a) (after expense reduction) 0.58% 0.07% 0.65%
Index 500 (3b) (after expense reimbursement) 0.24% 0.04% 0.28%
THE ALGER AMERICAN FUND
Income and Growth 0.625% 0.075% 0.70%
Small Capitalization 0.85% 0.05% 0.90%
Growth 0.75% 0.04% 0.79%
Midcap Growth 0.80% 0.05% 0.85%
Leveraged Allcap (4) 0.85% 0.08% 0.93%
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond 0.475% 0.09% 0.57%
Balanced 0.475% 0.08% 0.55%
Growth and Income 0.475% 0.08% 0.55%
Global Discovery 0.975% 0.65% 1.63%
International 0.853% 0.18% 1.03%
STRONG VARIABLE INSURANCE FUNDS, INC.
Discovery II 1.00% 0.14% 1.14%
Mid Cap Growth II 1.00% 0.17% 1.17%
STRONG OPPORTUNITY FUND II, INC.
Opportunity II 1.00% 0.14% 1.14%
T. ROWE PRICE INTERNATIONAL SERIES, INC. (7)
T. Rowe Price 1.05% 0.00% 1.05%
International Stock
T. ROWE PRICE EQUITY SERIES, INC. (7)
T. Rowe Price New America Growth 0.85% 0.00% 0.85%
T. Rowe Price Mid-Cap Growth 0.85% 0.00% 0.85%
T. Rowe Price Equity Income 0.85% 0.00% 0.85%
MFS VARIABLE INSURANCE TRUST (5)
Growth with Income 0.75% 0.13% 0.88%
Research 0.75% 0.11% 0.86%
Emerging Growth 0.75% 0.09% 0.84%
Total Return (6) 0.75% 0.15% 0.90%
New Discovery (6) 0.90% 0.17% 1.07%
- --------------------------
(1) Expenses are based upon expenses for the fiscal year ended December 31,
1999, restated to reflect a reduction in the management fee for Growth,
Aggressive Growth, Worldwide Growth, and Balanced Portfolios. All expenses
are shown without the effect of expense offset arrangements.
(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:
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0.75% and 1.19%, respectively, for the Utility Fund II;
0.60% and 1.03%, respectively, for the U.S. Government Securities II; and
0.60% and 1.04% respectively for the High Income Bond Fund II.
(3) (a) A portion of the brokerage commissions these Portfolios paid was used
to reduce their expenses. Additionally, a portion of certain of these
funds' expenses were reduced as a result of credits earned on
uninvested cash balances through arrangements with or on behalf of
the funds' custodian. Without these reductions, total operating
expenses for the following Portfolios would have been: Equity Income
-- 0.57%; Growth -- 0.66%; Overseas -- 0.91%; Asset Manager -- 0.63%;
and Contrafund -- 0.67%.
(b) The Fund's Investment Adviser agreed to reimburse a portion of the
Index 500 Portfolio's expenses during the period. Without this
reimbursement, the total operating expenses for the Index 500
Portfolio would have been 0.34%
(4) Included in the Other Expenses of this Portfolio is 0.01% of interest
expense.
(5) Each Portfolio has an expense offset arrangement which reduces the
Portfolio's custodian fee based upon the amount of cash maintained by the
Portfolio with its custodian and dividend disbursing agent, and may enter
into other such arrangements and directed brokerage arrangements (which
would also have the effect of reducing the Portfolio's expenses). Any such
fee reductions are not reflected under "Other Expenses".
(6) The Adviser has agreed to bear expenses for this Portfolio, subject to
reimbursement by this Portfolio, such that this Portfolio's "Other
Expenses" shall not exceed 0.15% of the average daily net assets of the
Portfolio during the current fiscal year. Otherwise, "Other Expenses" and
"Total Expenses" for New Discovery would be Other Expenses 1.59% and Total
Expenses 2.49%.
(7) Management fees include operating expenses.
</TABLE>
3. 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
23.
We may subtract a surrender charge from the surrender proceeds. The surrender
charge equals the amount shown in the surrender charge table in your Policy,
plus any additional surrender charge due to increases in the Face Amount of your
Policy. The amount of the surrender charge decreases over time.
Generally, the initial amount of the Surrender Charge depends on the Face Amount
of your Policy and the Insured Persons' age at issue, sex, and underwriting
status as smokers or non-smokers. For example, if the Insured Persons are a male
age 55__ and a female age __55 and the Face Amount of coverage is $1,000,000
when your Policy is issued, the initial Surrender Charge would be as follows:
Both Non-Smokers.........................................$13,867.00
Both Smokers.............................................$23,975.00
The Surrender Charge rates for each category are greater or lesser according to
the ages of the Insured Persons when your Policy is issued. The maximum initial
Surrender Charge will never be greater than $60 per $1000 of the initial Face
Amount coverage and will never be less than $3.00 per $1000 amount of coverage.
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
younger Insured's sex and age and the number of years elapsed since your Policy
was issued. The applicable surrender charge percentage begins to decrease after
the seventh 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 Persons' ages and underwriting classes 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 Charge", on page 26.
In addition, each time you take a partial withdrawal, we may deduct a partial
withdrawal service fee of $10 from the amount withdrawn.
4. 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 last surviving Insured Person. 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
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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 surviving
Insured Person'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.
5. WHAT ARE THE SAFETY NET AND AGE 100 NO LAPSE PREMIUM FEATURES?
Unless your state requires your Policy to provide otherwise, we agree to keep
the Policy in force for a specified period, regardless of the investment
performance of the Portfolios, if you have paid certain amounts of premiums. If,
at the beginning of each Policy month, your total Premiums paid (as reduced to
reflect withdrawals and Policy Debt) is at least equal to the cumulative Age 100
No Lapse Premiums shown in your Policy, and so long as you choose Death Benefit
Option 1, the guarantee will extend until the policy anniversary following the
younger Insured Person's 100th birthday (the Age 100 No Lapse guarantee).
Otherwise, the specified period will be the first ten Policy Years, or until the
next Policy Anniversary after the younger Insured's 90th birthday, whichever
period is shorter. We call this the "Safety Net" guarantee, and it requires that
certain "Safety Net Premium" amounts have been paid, as specified in your
Policy.
If neither the Safety Net guarantee nor the Age 100 No Lapse guarantee is 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.
6. 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.
7. 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 Persons' ages, sex, and risk classes. You do not have to
pay the required Premium after the first Policy Year. To take advantage of the
Safety Net guarantee, you must pay the cumulative Safety Net Premiums due.
Similarly, to take advantage of the Age 100 No Lapse guarantee, you must pay the
cumulative Age 100 No Lapse 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.
8. 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 both Insured Persons' 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 $250,000. For more detail, see "Change in Face Amount", on
page 21.
9. 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 25. 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 Premium
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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 1-800-525-9287. 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 13-14_. 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,
including other Subaccounts or the Fixed Account. Transfers may be made monthly,
quarterly, or annually. For more detail, see "Dollar Cost Averaging", on page
14.
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 14.
10. 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 Fidelity VIP Money Market Portfolio
Products Fund Fidelity VIP Equity-Income Portfolio
Fidelity VIP Growth Portfolio
Fidelity VIP Overseas Portfolio
- ------------------------------------------------------------
Fidelity Variable Insurance Fidelity VIP Asset Manager Portfolio
Products Fund II Fidelity VIP Contrafund Portfolio
Fidelity VIP 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. MidCap Growth Fund II
- ------------------------------------------------------------
Strong Opportunity Fund II, Opportunity Fund II
Inc.
- ------------------------------------------------------------
T. Rowe Price International T. Rowe Price International Stock
Series, Inc. Portfolio
- ------------------------------------------------------------
T. Rowe Price Equity Series, T. Rowe Price New America Growth
Inc. Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Equity Income Portfolio
- ------------------------------------------------------------
MFS Variable Insurance Trust Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
- ------------------------------------------------------------
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.
Some of the Portfolios described in this Prospectus may not be available in your
Policy. In addition, the Fixed Account is available in most states.
11. 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 22.
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12. WHAT ARE THE TAX CONSEQUENCES OF BUYING THIS POLICY?
Your Policy is structured to meet the definition of a life insurance contract
under the Tax Code. We may need to limit the amount of Premiums you pay under
the Policy to ensure that your Policy continues to meet that definition.
Current federal tax law generally excludes all death benefits from the gross
income of the beneficiary of a life insurance policy. In addition, you generally
are not subject to taxation on any increase in the Policy Value until it is
withdrawn. Generally, you will be taxed on surrender proceeds and the proceeds
of any partial withdrawals only if those amounts, when added to all previous
distributions, exceed the total Premiums paid. Amounts received upon surrender
or withdrawal in excess of Premiums paid will be treated as ordinary income.
Special rules govern the tax treatment of life insurance policies which meet the
federal definition of a modified endowment contract. 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 28.
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 VIP
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 85. The minimum Face Amount for
a Policy is $250,000. Before we issue a Policy, we will require you to submit
evidence satisfactory to us that the Insured Persons meet our underwriting
requirements to issue coverage. 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 Persons. 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 Persons under the Policy, if they are
both then still living, on the later of:
1) the Issue Date, and
2) the date that we receive your first Premium,
3) the date that all requirements have been met.
If you pay a Premium with your application and your requested Face Amount is
less than $500,000, we will provide the Insured Persons with temporary
conditional insurance if you meet all of the terms of a conditional receipt. The
temporary conditional insurance provides coverage during the underwriting of
your application if both Insured Persons are ultimately approved for coverage on
the same basis as the risk classification and Face Amount of coverage for which
you applied. If your application qualifies for temporary conditional insurance,
coverage generally starts when you complete your application and pay the first
Premium. If a medical exam or lab test results are required, however, temporary
conditional coverage starts when all medical exams and lab tests have been
completed. 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
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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 Premiums 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 or Age 100 No Lapse Premium amounts 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 or equal to
the Safety Net or Age 100 No Lapse Premium amounts.
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 29.
Your Policy could be deemed to be a modified endowment contract if, among other
things, you pay too much Premium or the Death Benefit is reduced. We will
monitor the status of your Policy and advise you if you need to take action to
prevent the Policy from being deemed to be a modified endowment contract. If you
pay a Premium that would result in your Policy being deemed a modified endowment
contract, we will notify you and allow you to request a refund of the excess
Premium, or other action, to avoid having your Policy being deemed a modified
endowment contract. If, however, you choose to have your Policy deemed a
modified endowment contract, we will not refund the Premium.
If you replace a modified endowment contract issued by another insurer with a
Policy, your Policy will also be deemed to be a modified endowment contract. Our
ability to determine whether a replaced policy issued by another insurer is a
modified endowment contract is based solely on the sufficiency of the policy
data we receive from the other insurer. We do not consider ourselves to be
liable to you if that data is insufficient to accurately determine whether the
replaced policy is a modified endowment contract. You should discuss this issue
with your tax adviser if it pertains to your situation. Based on the information
provided to us, we will notify you as to whether you can contribute more Premium
to your Policy without causing it to become a modified endowment contract.
"SAFETY NET" AND "AGE 100 NO LAPSE" PREMIUMS. The Safety Net and Age 100 No
Lapse Premium features are intended to enable you to ensure that your Policy
will remain in force during a specified period regardless of changes in the
Policy Value. The specified Safety Net period is the first ten Policy Years or,
if sooner, until the Policy Anniversary after the younger Insured Person reaches
age 90.
In some states, the Safety Net Premium period of ten years is not permitted by
law. In those states, the specified period is five years. Please check with your
local representative on the Safety Net period approved in your state.
The specified Age 100 No Lapse period can extend until the first Policy
Anniversary after the younger Insured Person reaches age 100 unless you change
to Death Benefit Option 2 before then.
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 and Age 100 No Lapse Premium features, however, we
guarantee that regardless of declines in your Policy Value, your Policy will not
enter the Grace Period if your Policy is still within either or both of the
Safety Net or Age 100 No Lapse periods, and you have met our premium payment
test for that period. The Safety Net Premium test requires that the cumulative
amount of all premiums you have paid under your policy (less any partial
withdrawals you have made and less any outstanding Policy Debt) at least equals
the cumulative amount of monthly Safety Net premiums for the
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number of Policy Months that have then elapsed. If you have failed to pay Safety
Net Premiums on a timely basis and the Net Surrender Value is not sufficient to
cover all Policy charges and expenses, we will send you a notice of this
deficiency. At that time you will have the option to pay an amount equal to
either:
1. the shortfall between the total value of all Safety Net Premiums for the
number of Policy Months that have elapsed less the amount of Safety Net
premium previously paid; or
2. the amount necessary to bring the Net Surrender Value up to a positive
amount.
The Age 100 No Lapse Premium test requires that, as of each Monthly Deduction
Day, the cumulative amount of all premiums you have paid under your policy (less
any partial withdrawals you have made and less any outstanding Policy Debt) at
least equals the cumulative amount of monthly Age 100 No Lapse Premium for the
number of Policy Months that have then elapsed. The Age 100 No Lapse Premiums
will be higher than the Safety Net Premiums, because the period of the Age 100
No Lapse guarantee is longer, and the Age 100 No Lapse guarantee will become
unavailable if you ever choose or have chosen Death Benefit Option 2.
During the first Policy Year, the Safety Net Premium amount will equal the
required Premium. As a result, if you continue to pay that amount on a timely
basis, take no Policy loans or partial withdrawals, and request no benefit
changes, the Safety Net Premium feature will remain in effect for its full
period. The amounts of your Safety Net and Age 100 No Lapse premiums appear on
page 3 of your Policy. We determine these premium amounts actuarially based on
the Face Amount and optional rider benefits you have chosen, as well as the age,
gender and other insurance risk characteristics of the Insured Persons. If you
increase your Policy's Face Amount or add certain rider benefits, the amount of
your Safety Net and Age 100 No Lapse Premiums due for subsequent months may
increase. A decrease in Face Amount, cancellation of a rider benefit or certain
partial withdrawals can cause these premium amounts to decrease for subsequent
months. A change in Death Benefit Option may similarly change the Safety Net
Premium. We will send you a revised page 3 that shows any new Safety Net or Age
100 No Lapse Premium amounts.
If on any Monthly Deduction Day you fail to meet the premium requirement for
either of the Safety Net or Age 100 No Lapse guarantees, we will let you know
and you will have 61 days to satisfy the shortfall, assuming the period of the
guarantee has not yet expired. If you do not pay at least the shortfall, the Age
100 No Lapse guarantee will end and it cannot be reinstated. If the Age 100 No
Lapse 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, or
the Safety Net feature is in effect. For more detail about the circumstances in
which the Policy will lapse, see "Lapse and Reinstatement", on page 24.
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 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 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 VIP Money Market Sub-Account.
We will make most 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. If the date of receipt
is not a Valuation Date on which we are open for business 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. For a discussion of those days on which we are
not open for business, see Transfer of Policy Value on page 13 below. The only
exception to this procedure for valuation of premium is as explained on this
page above for initial premium.
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
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your Loan Account. Your Policy Value will change daily to reflect the
performance of the Subaccounts you have chosen, the addition of interest
credited to the Fixed Account, the addition of net Premiums, and the subtraction
of partial withdrawals and charges assessed. There is no minimum guaranteed
Policy Value.
On the Issue Date or, if later, the date your first Premium is received, your
Policy Value will equal the Net Premium less the Monthly Deduction for the first
Policy Month.
On each Valuation Date, the portion of your Policy Value in a particular
Subaccount will equal: (1) The total value of your Accumulation Units in the
Subaccount; plus (2) Any Net Premium received from you and allocated to the
Subaccount during the current Valuation Period; plus (3) Any Policy Value
transferred to the Subaccount during the current Valuation Period; minus (4) Any
Policy Value transferred from the Subaccount during the current Valuation
Period; minus (5) Any amounts withdrawn by you (plus the applicable withdrawal
charge) from the Subaccount during the current Valuation Period; minus (6) The
portion of any Monthly Deduction allocated to the Subaccount during the current
Valuation Period for the Policy Month following the Monthly Deduction Day.
On each Valuation Date, the portion of your Policy Value in the Fixed Account
will equal: (1) Any Net Premium allocated to it, plus (2) Any Policy Value
transferred to it from the Subaccounts; plus (3) Interest credited to it; minus
(4) Any Policy Value transferred out of it; minus (5) Any amounts withdrawn by
you (plus the applicable withdrawal charge); minus (6) The portion of any
Monthly Deduction allocated to the Fixed Account.
All Policy Values equal or exceed those required by law. Detailed explanations
of methods of calculation are on file with the appropriate regulatory
authorities.
ACCUMULATION UNIT VALUE. The Accumulation Unit Value for each Subaccount will
vary to reflect the investment experience of the corresponding Portfolio. We
will determine the Accumulation Unit Value for each Subaccount on each Valuation
Day. A Subaccount's Accumulation Unit Value for a particular Valuation Day will
equal the Subaccount's Accumulation Unit Value on the preceding Valuation Day
multiplied by the Net Investment Factor for that Subaccount for the Valuation
Period then ended. The Net Investment Factor for each Subaccount is (1) divided
by (2), where: (1) is the sum of (a) the asset value per share of the
corresponding Portfolio at the end of the current Valuation Period and (b) the
per share amount of any dividend or capital gains distribution by that Portfolio
if the ex-dividend date occurs in that Valuation Period; and (2) is the net
asset value per share of the corresponding Portfolio at the end of the
immediately preceding Valuation Period.
You should refer to the Prospectuses for the Portfolios which accompany this
Prospectus for a description of how the assets of each Portfolio are valued,
since that determination has a direct bearing on the Net Investment Factor of
the corresponding Subaccount and, therefore, your Policy Value. For more detail,
see "Policy Value", on page 12.
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. We close our offices for business on certain days immediately
preceding or following certain national holidays when the NYSE is open for
business. For calendar year 2000, our offices will be closed on November 24th.
For transfers requested on this day, we will make the transfer on the first
subsequent day on which we and the NYSE are open.
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
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if on the first Policy Anniversary that interest rate is lower than it was on
the Issue Date. We will notify you by mail if this occurs. You may request a
transfer for 60 days following the date we mail notification to you.
The Policy permits us to defer transfers from the Fixed Account for up to six
months from the date you ask us.
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 14, 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,
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 above.
The theory of dollar cost averaging is that by spreading your investment over
time, you may be able to reduce the effect of transitory market conditions on
your investment. In addition, because a given dollar amount purchases more units
when the unit prices are relatively low rather than when the prices are higher,
in a fluctuating market, the average cost per unit may be 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.
Moreover, while we refer to this program of periodic transfers generally as
dollar cost averaging, periodic transfers from a subaccount with more volatile
performance experience is unlikely to produce the desired effects of dollar cost
averaging as would transfers from a less volatile subaccount. You may not use
dollar cost averaging and portfolio rebalancing at the same time.
PORTFOLIO REBALANCING. Portfolio rebalancing allows you to maintain the
percentage of your Policy Value allocated to each Subaccount and/or the Fixed
Account at a pre-set level. For example, you could specify that 30% of your
Policy Value should be in the Balanced Portfolio, 40% in the Growth
Portfolio-Janus Aspen Series and 30% in the Fidelity VIP II Contrafund
Portfolio. Over time, the variations in each Subaccount's investment results
will shift the balance of your Policy Value allocations. Under the portfolio
rebalancing feature, we will automatically transfer your Policy Value, including
new Premiums (unless you specify otherwise), back to the percentages you
specify. Portfolio rebalancing is consistent with maintaining your allocation of
investments among market segments, although it is accomplished by 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. We will automatically
terminate this option if you request any transfers outside the Portfolio
Rebalancing program. If you wish to resume the Portfolio Rebalancing after it
has been canceled, then you must complete a new Portfolio Rebalancing form and
send it to our home office.
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 if you 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
14
<PAGE>
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 28.)
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 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.
FEDERATED INSURANCE MANAGEMENT SERIES (investment adviser: Federated Advisers)
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FEDERATED UTILITY FUND II'S investment objective is to achieve high current
income and moderate capital appreciation. The Fund pursues its investment
objective by investing, under normal market conditions, at least 65% of its
assets in equity securities (including convertible securities) of companies that
derive at least 50% of their revenues from the provision of electricity, gas and
telecommunications related services.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II'S investment objective is to
provide current income. The Fund pursues its objective by investing primarily in
U.S. government securities which include agency mortgage (FHLMC, FNMA, GNMA),
U.S. Treasury and agency debenture securities.
FEDERATED HIGH INCOME BOND FUND II'S investment objective is to seek high
current income by investing primarily in a professionally managed, diversified
portfolio of fixed income securities. The Fund provides exposure to the
high-yield, lower-rated corporate bond market. At least 65 percent of the Fund's
assets are invested in corporate bonds rated BBB or lower. The adviser actively
manages the Fund's portfolio seeking to realize the potentially higher returns
of high-yield bonds compared to returns of high-grade securities by seeking to
minimize default risk and other risks through careful security selection and
diversification.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND (investment adviser: Fidelity
Management & Research Company)
MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is
consistent with preserving capital and providing liquidity. This Portfolio will
invest in U.S. dollar-denominated money market securities of domestic and
foreign insurers, including U.S. government securities and repurchase
agreements.
EQUITY-INCOME PORTFOLIO seeks reasonable income by investing normally in
income-producing equity securities. The goal is to achieve a yield which exceeds
the composite yield on the securities comprising the S&P 500 Composite Stock
Price Index. At least 65% of this Portfolio's assets is normally invested in
income-producing common or preferred stock. The Portfolio, however, has the
flexibility to invest the balance in other types of domestic and foreign
securities, including bonds.
GROWTH PORTFOLIO seeks to achieve capital appreciation. This Portfolio normally
invests primarily in common stocks which are believed to have above average
growth potential.
OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through
investments in foreign securities. At least 65% of this Portfolio's assets is
normally invested in securities of issuers outside of the United States. The
Portfolio normally diversifies its investments across countries and regions.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (investment adviser: Fidelity
Management & Research Company)
ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced risk over
the long term by allocating its assets among domestic and foreign stocks, bonds,
and short-term/money market securities. Usually, this Portfolio's assets will be
allocated within the following guidelines: 50% in stocks (can range from
30-70%); 40% in bonds (can range from 20-60%); and 10% in short-term/money
market instruments (can range from 0-50%).
CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in equity
securities of companies whose value the Portfolio's adviser believes is not
fully recognized by the public. This Portfolio usually invests primarily in
common stock of domestic and foreign issuers.
INDEX 500 PORTFOLIO seeks investment results that correspond to the total return
of common stocks publicly traded in the U.S. as represented by the S&P 500 while
keeping transaction costs and other expenses low.
THE ALGER AMERICAN FUND (investment adviser: Fred Alger Management)
INCOME AND GROWTH PORTFOLIO primarily seeks to provide a high level of dividend
income; its secondary goal is to provide capital appreciation. The Portfolio
invests in dividend paying equity securities, such as common or preferred
stocks, preferably those which the Manager believes also offer opportunities for
capital appreciation.
SMALL CAPITALIZATION PORTFOLIO seeks long-term capital appreciation. It focuses
on small, fast-growing companies that offer innovative products, services or
technologies to a rapidly expanding marketplace. Under normal circumstances, the
portfolio invests primarily in the equity securities of small capitalization
companies. A small capitalization company is one that has a market
capitalization within the range of the Russell 2000 Growth Index or the S&P
SmallCap 600 Index.
GROWTH PORTFOLIO seeks long-term capital appreciation. It focuses on growing
companies that generally have broad product lines, markets, financial resources
and depth of management. Under normal circumstances, the portfolio invests
primarily in the equity securities of large companies. The portfolio considers a
large company to have a market capitalization of $1 billion or greater.
MIDCAP GROWTH PORTFOLIO seeks long-term capital appreciation. It focuses on
midsize companies with promising growth potential. Under normal circumstances,
the portfolio invests primarily in the equity securities of companies having a
market capitalization within the range of companies in the S&P MidCap 400 Index.
LEVERAGED ALLCAP PORTFOLIO seeks long-term capital appreciation. Under normal
circumstances, the portfolio invests in the equity securities of companies of
any size which demonstrate promising growth potential. The portfolio can
leverage, that is, borrow money, up to one-third of its total assets to buy
additional securities. By borrowing money, the portfolio has the potential to
increase its returns if the increase in the value of the securities purchased
exceeds the cost of borrowing, including interest paid on the money borrowed.
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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 level of income consistent with a high quality
portfolio of debt securities. Under normal circumstances, this Portfolio invests
at least 65% of its assets in bonds including those of the U.S. Government and
its agencies and those of corporations and other notes and bonds paying high
current income. This Portfolio can invest in a broad range of short,
intermediate and long-term securities.
BALANCED PORTFOLIO seeks a balance of growth and income from a diversified
portfolio of equity and fixed income securities. The Portfolio also seeks
long-term preservation of capital through a quality-oriented investment approach
that is designed to reduce risk. The Portfolio will invest its assets in equity
securities, debt securities with maturities generally exceeding one year, and
money market instruments and other debt securities with maturities generally not
exceeding thirteen months. Generally, 25%-50% of the Portfolio's net assets are
invested in bonds.
GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital, current income
and growth of income. In pursuing these three objectives, the Portfolio invests
primarily in common stocks, preferred stocks, and securities convertible into
common stocks of companies which offer the prospect for growth of earnings while
paying higher than average current dividends. The Portfolio allocates its
investments among different industries and companies, and changes its portfolio
securities for investments considerations and not for trading purposes.
GLOBAL DISCOVERY PORTFOLIO seeks above-average capital appreciation over the
long term by investing primarily in the equity securities of small companies
located throughout the world. The Portfolio generally invests in small, rapidly
growing companies that offer the potential for above-average returns relative to
larger companies, yet are frequently overlooked and thus undervalued by the
market.
INTERNATIONAL PORTFOLIO seeks long-term growth of capital primarily through
diversified holdings of marketable foreign equity investments. The Portfolio
invests in companies, wherever organized, which do business primarily outside
the United States. The Portfolio intends to diversify investments among several
countries and to have represented in its holdings business activities in not
less than three different countries, excluding the United States. The Portfolio
invests primarily in equity securities of established companies, listed on
foreign exchanges, which the adviser believes have favorable characteristics. It
may also invest in fixed income securities of foreign governments and companies.
STRONG VARIABLE INSURANCE FUNDS, INC. (investment adviser: Strong Capital
Management, Inc.)
DISCOVERY FUND II seeks to provide investors with capital growth, a goal they
pursue by investing in a diversified portfolio of small, medium and larger sized
companies. The adviser's investment approach combines numbercrunching analysis
with direct research, including on-site visits. Through frequent discussions
with management, suppliers, customers and competitors, the advisor believes they
can identify vital aspects of companies that are not reflected in their
historical financial statements or their stock prices.
MIDCAP GROWTH FUND II seeks long-term capital growth by investing in
well-managed growth companies. The majority of the Fund's holdings will be in
companies having market capitalizations between $800 million and $8 billion at
the time of purchase.
STRONG OPPORTUNITY FUND II, INC. (investment adviser: Strong Capital Management,
Inc.)
OPPORTUNITY FUND II focuses on stocks of medium-size companies that offer strong
growth potential, but are underpriced. Rather than rely on traditional Wall
Street research, the adviser applies a proprietary private market value approach
to find stocks for the Fund. The adviser first considers companies (and
industries) that are out of favor. Then they determine the price they believe an
investor would be willing to pay for an entire company - its private market
value. A company whose stock price is lower than its private market value may be
added to the portfolio.
T. ROWE PRICE INTERNATIONAL SERIES, INC. (investment adviser: Rowe Price-Fleming
International, Inc., a joint venture between T. Rowe Price Associates, Inc. and
Robert Fleming Holdings, Ltd.)
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO seeks long-term growth of capital
through investments primarily in common stocks of established, non-U.S.
companies. The Portfolio invests substantially all of its assets outside the
United States and broadly diversifies its investments among developed and
emerging countries throughout the world.
T. ROWE PRICE EQUITY SERIES, INC. (investment adviser: T. Rowe Price Associates,
Inc.)
T. ROWE PRICE NEW AMERICA GROWTH PORTFOLIO seeks long-term growth of capital
through investment primarily in the common stocks of U.S. growth companies
operating in service industries. The Portfolio will invest most of its assets in
service companies, regardless of size, that the adviser believes to be
above-average performers in their fields. The Portfolio may invest up to 25% of
its assets in growth companies outside the service sector.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO seeks long-term capital appreciation by
investing mid-cap stocks with the potential for above-average earnings growth.
The Portfolio will invest at least 65% of its assets in a diversified portfolio
of common stocks of mid-cap companies whose earnings the adviser expects to grow
at a faster rate than the average company. The adviser defines mid-cap companies
as those
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<PAGE>
with market capitalizations within the range of companies in the S&P 400 Mid-Cap
Index. However, the Portfolio will not automatically sell or cease to purchase
stock of a company it already owns just because the company's market cap grows
or falls outside this range. The Portfolio also may invest in other types of
securities, such as foreign securities, futures and options, and warrants, when
consistent with the Portfolio's investment objective.
T. ROWE PRICE EQUITY INCOME PORTFOLIO seeks to provide substantial dividend
income as well as long-term growth of capital by investing primarily in common
stocks of established companies. Under normal circumstances, the Portfolio
usually will invest at least 65% of its 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, futures and
options, 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. The series will also seek to provide income
equal to approximately 90% of the dividend yield on the Standard & Poor's 500
Composite Index. The series may invest in foreign equity securities through
which it may have exposure to foreign currencies.
RESEARCH SERIES seeks long-term growth of capital and future income. The series
may invest in foreign equity securities (including emerging market securities)
through which it may have exposure to foreign currencies. The series is
permitted to do "Short Sales Against the Box."
EMERGING GROWTH SERIES seeks to provide long-term growth of capital. The
Portfolio invests primarily in common stocks of companies that are early in
their life cycles but which have the potential to become major enterprises. The
Portfolio may also invest in more established companies whose earnings growth
the adviser expects to accelerate because of special factors. Investing in
emerging growth companies involves greater risk than is customarily associated
with more established companies. The Portfolio also may invest up to 25% of its
net assets in foreign and emerging market securities. The Portfolio has the
flexibility to invest in derivative securities when its adviser believes such
securities can provide better value relative to direct investments in stocks or
bonds.
TOTAL RETURN SERIES seeks to provide above-average current income (compared to a
portfolio invested entirely in equity securities) consistent with the prudent
employment of capital. The Portfolio secondarily seeks to provide reasonable
opportunity for growth of capital and income. The Portfolio invests in both
equities and fixed income securities. The equity segment is actively managed
with a value-oriented style of investing. The fixed income segment is actively
managed through shifts in maturity, duration, and sector components. The
Portfolio may invest up to 20% of its assets in foreign and emerging market
securities. The Portfolio has the flexibility to invest in derivative securities
when its adviser believes such securities can provide better value relative to
direct investments in stocks or bonds. Consistent with the series' principal
investment policies the series may invest in foreign securities, and may have
exposure to foreign currencies through its investment in these securities.
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
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Portfolio. Although neither we nor any of the Portfolios currently foresees any
such disadvantages either to variable life insurance or variable annuity
contract owners, each Portfolio's Board of Directors intends to monitor events
in order to identify any material conflicts between variable life and variable
annuity contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Lincoln Benefit will bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Subaccounts to which you have allocated
your Policy Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed and will provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of votes for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, you are the person entitled to give voting instructions.
However, if you assign your Policy, the assignee may be entitled to give voting
instructions. Retirement plans may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Policy. If you do not send us
written instructions, we will vote the shares attributable to your Policy in the
same proportions as we vote the shares for which we have received instructions
from other Policy owners. We will vote shares that we hold in the same
proportions as we vote the shares for which we have received instructions from
other Policy owners.
We may, when required by state insurance regulatory authorities, disregard
Policy Owner voting instructions if the instructions require that the shares be
voted so as to cause a change in the sub-classification or investment objective
of one or more of the Portfolios or to approve or disapprove an investment
advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Policy owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Policy Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios should no longer be available for investment by the Policy, in
the judgment of our Board of Directors, 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:
(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 26 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
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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 effective annual 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 19 above. Also, as described on page 25 above, we may delay payment of
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 second Insured Person to die (the "surviving
Insured Person"). We will pay the Death Benefit proceeds to the named
Beneficiary(ies) or contingent Beneficiary(ies). As described below in
"Settlement Options", on page 23, we will pay the Death Benefit proceeds in a
lump sum or under an optional payment plan.
The Death Benefit proceeds payable to the Beneficiary equal the applicable Death
Benefit, less any Policy Debt and less any due and unpaid charges. The proceeds
may be increased, if you have added a rider that provides an additional benefit.
We will determine the amount of the Death Benefit proceeds as of the end of the
Valuation Period during which the surviving Insured Person 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
that the younger Insured Person had attained (or would have attained at the date
of the surviving Insured Person's death). 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>
A B
- -
Face Amount................................................... 1,000,000 1,000,000
Death Benefit Option.......................................... 1 1
Younger Insured Person's Age.................................. 45 45
Policy Value on Date of Death................................. 480,000 340,000
Applicable Corridor Percentage................................ 215% 215%
Death Benefit................................................. 1,032,000 1,000,000
</TABLE>
In Example A, the Death Benefit equals $1,032,000, I.E., the greater of
$1,000,000 (the Face Amount) and $1,032,000 (the Policy Value at the surviving
Insured Person's Date of Death of $480,000, 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 $1,000,000, i.e., the greater of $1,000,000
(the Face Amount) or $731,000 (the Policy Value of $340,000 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 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.
After the first Policy Year, you may change the Death Benefit option by writing
to us at the address given on the first
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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. Also, please remember that
changing from Option 1 to Option 2 will make our No Lapse feature unavailable.
We do not currently require you to prove insurability for a change from Death
Benefit Option 2 to Option 1. We do require such evidence satisfactory as to
both Insured Persons in the case of a change from Option 1 to Option 2. 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 $250,000. We also reserve
the right to limit the frequency of your changes in death benefit option.
The change will take effect on the Monthly Deduction Day on or immediately
following the date we receive your written request or, for a change from Option
1 to Option 2, on or immediately following the date we approve it.
If the Policy remains in force until the first Policy Anniversary after the
younger Insured Person reaches age 100, your Policy will no longer have an
Option 2 death benefit, and we will automatically convert your Policy to Option
1 if you have Option 2 in effect at that time.
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 $250,000. 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
Persons are insurable. We will not permit any increase in Face Amount after the
younger Insured Person's 85th 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. We also have the right to place other
limits on the amount of increases.
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 26 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 and the Age 100 No Lapse 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.
INDIVIDUAL INSURED TERM RIDER. This rider provides additional term life
insurance coverage on one of the Insured Persons. A separate rider may be
purchased for each Insured Person. This coverage will not, however, extend
beyond the first Policy Anniversary after the Insured Person covered by the
rider reaches age 99. Until the Insured Person covered by the rider reaches age
75, you may exchange the rider for a new policy. We will not require evidence of
insurability to exchange the rider.
SURVIVOR PROTECTION RIDER. This rider is designed to help defray the Policy's
Monthly Deductions if an Insured Person covered by the rider dies before the
Policy's other Insured Person. If that happens, the rider automatically pays a
specified amount into the Policy on each Monthly Deduction Day. These payments,
however, will not continue beyond the first Policy Anniversary following the
younger Insured Person's 100th birthday.
LAST SURVIVOR FOUR YEAR TERM INSURANCE (not available at the date of this
prospectus): This rider pays a specified death benefit on the death of the
surviving Insured Person if both Insured Persons die within the first four
Policy years. Thereafter, this rider ends.
"SPLIT" COVERAGE OPTION: If the Insured Persons divorce or certain federal
estate tax law changes occur, this rider permits the coverage to be "split" into
two individual life insurance policies on the Insured Persons. Currently, only
fixed benefit (non-variable) life insurance policies are available for such
"splits." Splitting a Policy's coverage could have negative tax consequences,
including, but not limited to, the recognition of taxable income in the amount
of any gain in the policy at the time of the split.
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
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loan. Each loan request must be for at least $250. 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 24. While the
Policy remains in force, you may repay the loan in whole or in part without any
penalty at any time while one or both of the Insured Persons 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 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 24, 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 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
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<PAGE>
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 23.
The tax consequences of surrendering the Policy are discussed in "Tax Matters,"
beginning on page 28.
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 remaining Net Surrender Value. 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 $250,000. If you have previously
increased the Face Amount of your Policy, your partial withdrawals will first
reduce the Face Amount of the most recent increase, then the most recent
increases successively, then the coverage under the original Policy.
Under Option 2, a reduction in Policy Value as a result of a partial withdrawal
will typically result in a dollar for dollar reduction in the life insurance
proceeds payable under the Policy.
The tax consequences of partial withdrawals are discussed in "Tax Matters"
beginning page 28.
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 both
Insured Persons. If at the time of the surviving Insured Person'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.
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In addition, we may agree to other settlement option plans. Write or call us to
obtain information about them.
When the proceeds are payable, we will inform you concerning the rate of
interest we will credit to funds left with us. We guarantee that the rate of
interest will be at least 3.5%. We may pay interest in excess of the guaranteed
rate.
MATURITY. The Policies have no maturity date. Your Policy will continue as long
as Net Surrender Value is sufficient to cover Monthly Deductions.
LAPSE AND REINSTATEMENT. If the Net Surrender Value is less than the Monthly
Deduction due on a Monthly Deduction Day, and if neither the Safety Net Premium
feature nor the Age 100 No Lapse Premium feature is 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 surviving
Insured Person 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 20. 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 as to both Insured Persons. 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 12 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 VIP 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
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 from the Separate Account 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 reasonably practicable; or
(3) at any other time permitted by the SEC for your protection.
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<PAGE>
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.
The Monthly Deduction is the sum of the following five items: (1) the policy
fee; (2) the administrative expense charge during the first seven policy years;
(3) the mortality and expense risk charge; (4) the cost of insurance charge for
your Policy; and (5) 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.
ADMINISTRATIVE EXPENSE CHARGE: This monthly charge is $0.12 for each $1,000 of
your policy's initial face amount and each $1,000 of face amount increase you
request. We stop deducting this charge after the seventh policy year, even if
you have made face amount increases during that period. This charge compensates
us primarily for the costs we incur in evaluating the Insured Persons' risk,
issuing the policy, and sales expenses.
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
the surviving Insured Person, 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.
<TABLE>
<CAPTION>
EXAMPLE:
<S> <C>
Face Amount................................................................ $1,000,000
Death Benefit Option....................................................... 1
Policy Value on the Prior Monthly Deduction Day............................ 300,000
Younger Insured Person's Attained Age...................................... 45
Corridor Percentage........................................................ 215%
Death Benefit.............................................................. $1,000,000
</TABLE>
On the Monthly Deduction Day in this example, the Death Benefit as then computed
would be $1,000,000, because the Face Amount ($1,000,000) is greater than the
Policy Value multiplied by the applicable corridor percentage ($300,000 x 215% =
$645,000). Since the Policy Value on that date is $300,000, the cost of
insurance charges per $1000 are applied to the difference in the net amount at
risk of $696,736.98 (($1,000,000/1.0032737) - $300,000).
Assume that the Policy Value in the above example was $500,000. The Death
Benefit would then be $1,075,000 (215% x $500,000), since this is greater than
the Face Amount ($1,000,000). The cost of insurance rates in this case would be
applied to the net amount at risk of $571,492.26 (($1,075,000/1.0032737) -
$500,000).
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Because the Policy Value and, as a result, the amount for which we are at risk
under your Policy may vary monthly, your cost of insurance charge probably will
be different each month.
We determine the cost of insurance charge separately for the initial Face Amount
and each subsequent increase. The cost of insurance charge covers our
anticipated mortality costs for standard and substandard risks. We determine the
current cost of insurance rates, but we guarantee that we will never charge you
a cost of insurance rate higher than the guaranteed cost of insurance rates
shown in the Policy. We base the cost of insurance rate on the sex, issue age,
Policy Year, and premium rating class of the Insured Persons. 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 each Insured Persons' 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.] If one or both Insured Persons do not qualify as at least
"standard" risks, we add additional amounts to those maximums.
If we ever charge you a cost of insurance rate during the first fourteen 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.
AGE 100. Commencing with the first Policy Anniversary after the younger Insured
Person reaches or would have reached age 100, we will waive all
o cost of insurance charges, and
o the $7.50 per month policy fee.
In addition, if the Death Benefit option you elected is Option 2 we will
automatically change this Option 1 at age 100. The Death Benefit must remain as
Option 1 after age 100.
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 28 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 on page 6 contains a summary of those charges and
expenses for 1999. 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.
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. The initial surrender charge depends on the Face Amount of
your Policy and the Insured Persons' ages at issue, sex, and underwriting status
as smokers or non-smokers. For example, if the Insured Persons are a male age 55
and a female age 55_ and the Face Amount of coverage is $1,000,000 when your
Policy is issued, the initial Surrender Charge would be as follows:
<TABLE>
<CAPTION>
<S> <C> C>
Both Non-Smokers........................................................... $13,867.00
Both Smokers............................................................... $23,975.00
</TABLE>
The Surrender Charge rates for each category are greater or lesser according to
the age of the Insured Persons when your Policy is issued. The maximum initial
Surrender Charge will never be greater than $60 per $1000 of Face Amount
coverage.
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 percentages depend on the
younger Insured Person's sex and age when your Policy was issued, and the number
of years elapsed since your Policy was
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issued. For example, the following surrender charge percentage rates would apply
if the younger Insured Person were 55 years old when your Policy was issued:
SURRENDER DURING
POLICY YEAR PERCENTAGE
1 100
2 100
3 100
4 100
5 100
6 100
7 100
8 80
9 60
10 50
11 40
12 30
13 20
14 10
15 0
Thus, in the example given above for two non-smoker Insured Persons, if the
Policy were surrendered during the 10th Policy Year, the surrender charge would
equal $6,933.50 ($13,867.00 X 50%).
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 used in
determining the initial surrender charge, except that we use the Insured
Persons' ages and underwriting 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 year period,
starting from the effective date of the increase. The schedule of surrender
charge percentages applicable to the additional surrender charge is the same as
set forth above for the initial face amount, except that the annual periods are
measured from the effective date of the increase, rather than from the Issue
Date. 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 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 Life Company or its affiliates Surety Life
Insurance Company and Allstate Financial Services, L.L.C., or to their spouses
or minor children if these individuals reside in the State of Nebraska.
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
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<PAGE>
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
Persons are 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 Persons are 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 Persons are alive.
SUICIDE. If either Insured Person commits suicide while sane or kills
him-or-herself while insane within two years of the Issue Date, 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 after the effective date of any increase
in the Face Amount either Insured Person commits suicide while sane or kills
him-or-herself while insane our liability for the increase will be limited to
the total cost of insurance charges that have been attributable to the increase.
MISSTATEMENT AS TO AGE AND SEX. If the age or sex of either Insured Person 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 on a form that we will provide. 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 the
surviving Insured Person (or within 15 days thereafter), we will divide the
Death Benefit among the Beneficiaries who then remain alive.
Different rules may apply if your Policy was issued in connection with a
Qualified Plan.
ASSIGNMENT AND CHANGE OF OWNERSHIP. 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.
An absolute assignment is a change of ownership of the Policy. A change of
ownership must be made on a form we will provide for that purpose. The change of
ownership will take effect as of the date you sign it, subject to any action we
have already taken before we receive the form.
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 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.
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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 the surviving Insured Person 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 surviving Insured Person 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 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 surviving Insured Person'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);
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<PAGE>
o or 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 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 2940 South 84th Street,
Lincoln, Nebraska 68506-4142. 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, U.S. Virgin Islands 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.
Except as discussed below for variable contracts, under our reinsurance
agreements with Allstate Life, substantially all contract related transactions
are transferred to Allstate Life. Through these reinsurance agreements,
substantially all of the assets backing our reinsured liabilities are owned by
Allstate Life. Allstate Life's commitments under the reinsurance agreements
support our general account and related assets are invested and managed by
Allstate Life. Accordingly, except as discussed below for variable contracts,
the results of operations with respect to applications received and contracts
issued by Lincoln Benefit are not directly reflected in our consolidated
financial statements. The amounts reflected in our consolidated financial
statements directly relate only to the investment of those assets of Lincoln
Benefit that are not transferred to Allstate Life under the reinsurance
agreements. While the reinsurance agreements provide us with financial backing
from Allstate Life, they do not create a direct contractual relationship between
Allstate Life and you.
Under the Company's reinsurance agreements with Allstate Life, the Company
reinsures all reserve liabilities with Allstate Life except for those relating
to variable contracts (including the Policies). The Company's variable contract
assets and liabilities (other than those arising out of fixed interest benefits
such as the Fixed Account) are held in legally-segregated unitized Separate
Accounts and are retained by the Company. However, the transactions related to
such variable contracts such as premiums, expenses and benefits are transferred
to Allstate Life.
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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 2940 South 84th St., Lincoln, Nebraska
68506-4142.
THOMAS R. ASHLEY, SENIOR VICE PRESIDENT & MEDICAL DIRECTOR 1998, DIRECTOR 1999,
Vice President and Medical Director 10/96-5/98 Lincoln Benefit Life Company;
Director 10/99-present, Senior Vice President & Medical Director 5/98-present,
Vice President and Medical Director 1/97-5/98, Surety Life Insurance Company.
THOMAS J. BERNEY, SENIOR VICE PRESIDENT 1998, DIRECTOR 1999, Vice President
1982-1998 Lincoln Benefit Life Company.
JOHN H. COLEMAN, III, SENIOR VICE PRESIDENT, DIRECTOR 1998-present, Vice
President 4/94-5/98, Lincoln Benefit Life Company; Senior Vice President,
Director 5/98-present, Vice President 9/96-5/98, Surety Life Insurance Company;
President 2/93-4/94, Acordia.
LAWRENCE W. DAHL, EXECUTIVE VICE PRESIDENT, DIRECTOR 1999, Lincoln Benefit Life
Company; Tax Director, 2/87-5/99, Allstate Life Insurance Company.
MARVIN P. EHLY, SENIOR VICE PRESIDENT, TREASURER AND CONTROLLER, DIRECTOR 1999;
Vice President 6/93-12/98, Lincoln Benefit Life Company; Senior Vice President,
Treasurer and Controller, Director 1/99-present, Surety Life Insurance Company.
DOUGLAS F. GAER, EXECUTIVE VICE PRESIDENT 1997, DIRECTOR 1981, Senior Vice
President, 4/95-2/97, Senior Vice President and Treasurer 4/94-3/95, Vice
President 3/81-4/94, Lincoln Benefit Life Company; Executive Vice President
1/97-present, Senior Vice President and Treasurer, 1/94-12/96, Director
1/94-present, Surety Life Insurance Company; Director 5/93-1/99, Lincoln Benefit
Financial Services, Inc.
RODGER A. HERGENRADER, SENIOR VICE PRESIDENT, DIRECTOR 1999, Vice President
1995-1998, Underwriter 1988-1995, Lincoln Benefit Life Company; Senior Vice
President 1999-present, director 10/99-present, Surety Life Insurance Company.
ROBERT E. RICH, EXECUTIVE VICE PRESIDENT 1996, DIRECTOR 1987, Senior Vice
President/Chief Actuary and Treasurer, 4/95-5/96; Senior Vice President,
Assistant Secretary 4/94-3/95, Vice President/Assistant Secretary 1/84-5/96,
Lincoln Benefit Life Company; Executive Vice President 5/96-present, Senior Vice
President and Chief Actuary 1/94-5/96, Director 9/93-present, Surety Life
Insurance Company; Director 5/93-1/99, Lincoln Benefit Financial Services, Inc.
KEVIN R. SLAWIN, DIRECTOR 1996, Lincoln Benefit Life Company; Director and Vice
President-Finance and Planning 1996-present, Allstate Life Insurance Company;
Director 8/96-present, Allstate Life Insurance Company of New York; Director
8/96-present, Laughlin Group Holdings, Inc.; Director 8/96-present, Northbrook
Life Insurance Company; Director 8/96-present, Surety Life Insurance Company;
Director 8/96-present, Glenbrook Life Insurance Company; Assistant Vice
President, Assistant Treasurer 1/95-8/96, Allstate Insurance Company; Assistant
Treasurer and Director 2/94-1/95, Sears Roebuck & Co.; First Vice President and
Treasurer 6/86-2/94, Sears Mortgage Corp.
J. SCOTT TAYLOR, SENIOR VICE PRESIDENT, 1999, Director 10/99-present, Vice
President 9/98-3/99, Director of Sales Management 1/97-9/98, Lincoln Benefit
Life Company; Director of Marketing Development 1984-1997 Ameritas Life
Insurance Corp.
MICHAEL J. VELOTTA, DIRECTOR 1992, Lincoln Benefit Life Company; Vice President,
Secretary & General Counsel 1/93-present, Director 12/92-present, Allstate Life
Insurance Company; Vice President, Secretary & General Counsel 1/93-present,
Director 12/92-present, Glenbrook Life Insurance Company; Vice President,
Secretary & General Counsel 1/93-present, Director 12/92-present, Glenbrook Life
& Annuity Company; Vice President, Secretary & General Counsel 1/93-present,
Director 12/92-present, Allstate Life Insurance Company of New York; Vice
President, Secretary & General Counsel 1/93-present, Director 12/92-present,
Northbrook Life Insurance Company; Assistant Secretary, Director 6/95-present,
Surety Life Insurance Company; Assistant Vice President & Assistant General
Counsel 1989, Allstate Insurance Company.
CAROL S. WATSON, SENIOR VICE PRESIDENT, GENERAL COUNSEL, DIRECTOR 1992,
SECRETARY 1999, Assistant Secretary 1994-9/99. Vice President & General Counsel
7/91-4/94, Lincoln Benefit Life Company; Senior Vice President, General Counsel
& Corporate Secretary 1/98-present, Senior Vice President, General Counsel and
Assistant Secretary, 1/94-12/97, Director 6/95-present, Surety Life Insurance
Company; President, 1996-1/99, Director 5/93-1/99, Vice President and General
Counsel 1993-1995, Lincoln Benefit Financial Services, Inc.
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DEAN M. WAY, SENIOR VICE PRESIDENT AND ACTUARY, DIRECTOR 1998, Vice President
and Actuary 5/92-5/98, Lincoln Benefit Life Company; Senior Vice President and
Actuary, Director, 5/98-present, Vice President and Actuary 9/96-5/98, Surety
Life Insurance Company.
THOMAS J. WILSON, II, CHAIRMAN OF THE BOARD 1999, Lincoln Benefit Life Company;
Director 1/99-present, Surety Life Insurance Company; Senior Vice President,
Director 6/95-present, Vice President 1/95-6/95, Allstate Insurance Company;
Senior Vice President, Director 7/96-present, Allstate Holdings, Inc.; President
1/99-present, Director 9/95-present, Allstate Life Insurance Company; President
12/98-present, Director 1/99-present, Allstate Life Insurance Company of New
York; Senior Vice President 6/95-present, Director 7/95-present, Allstate
Property and Casualty Insurance Company; Vice President 1/95-1/99, The Allstate
Corporation; Vice President 1993-1995, Sears, Roebuck & Company.
PATRICIA W. WILSON, DIRECTOR 1997, Lincoln Benefit Life Company; Assistant Vice
President/Assistant Secretary/Assistant Treasurer, 7/97-present, Assistant Vice
President 1/93-7/97, Allstate Life Insurance Company; Assistant Vice President
6/91-present, Director 6/97-present, Allstate Life Insurance Company of New
York; Assistant Treasurer 7/97-present, Glenbrook Life Insurance Company;
Assistant Treasurer 7/97-present, Glenbrook Life Annuity Company; Assistant Vice
President/Assistant Secretary/Assistant Treasurer 7/97-present, Northbrook Life
Insurance Company; Director 7/97-present, Surety Life Insurance Company.
B. EUGENE WRAITH, PRESIDENT, CHIEF OPERATING OFFICER 1996, DIRECTOR 1984,
President and Chief Operating Officer 3/96-present, Senior Vice President
4/94-3/96, Vice President 12/81-4/94, Lincoln Benefit Life Company; President
and Chief Operating Officer 3/96-present, Executive Vice President 1/94-3/96,
Director 9/93-present, Surety Life Insurance Company; Chairman of the Board,
Director 1993-1/99, President 5/93-11/96, Lincoln Benefit Financial Services,
Inc.; Vice President 1/99-present, Allstate Insurance Company; Vice President
3/96-present, Allstate Life Insurance Company.
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.
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.
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.
ALFS, Inc. ("ALFS") located at 3100 Sanders Road, Northbrook, IL 60062-7154
serves as principal underwriter of the
32
<PAGE>
Policies. ALFS is a wholly owned subsidiary of Allstate Life Insurance Company.
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.
Registered representatives who sell the policy will be paid a maximum sales
commission of approximately 115% of all Premiums paid during the first year up
to a certain amount and 4% of any additional premiums in the first ten years.
After the first ten years, we pay compensation at an annual rate of .35% of your
Policy's Account Value. In addition, certain bonuses and managerial compensation
may be paid. We pay all such commissions and incentives.
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. The Washington, D.C. law firm of Jorden, Burt, Boros,
Cicchetti, Berenson and Johnson has advised Lincoln Benefit about certain legal
federal securities law matters in connection with the Policies.
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. You may read the registration statement and other reports
that we file at the SEC's public reference room in Washington, D.C. You can
request copies of these documents upon payment of a duplicating fee, by writing
to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of its public reference room. Our SEC filings are also available to
the public on the SEC Internet site (http:\\www.sec.gov).
EXPERTS
The consolidated financial statements and related financial statement schedule
of Lincoln Benefit as of December 31, 1999 and 1998 and for each of the three
years in the period ended December 31, 1999, included in this prospectus, have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
The financial statements of the Variable Account as of December 31, 1999, and
for each of the periods in the three years then ended included in this
prospectus, have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein, and are included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing.
FINANCIAL STATEMENTS
The financial statements of the Variable Account as of December 31, 1999 and for
the periods in the three years then ended, the consolidated financial statements
and related financial statement schedule of Lincoln Benefit as of December 31,
1999 and 1998 and for each of the three years in the period ended December 31,
1999 and the accompanying Independent Auditors' Reports appear in the pages that
follow. The consolidated financial statements of Lincoln Benefit included herein
should be considered only as bearing upon the ability of Lincoln Benefit to meet
its obligations under the Contacts.
33
<PAGE>
LINCOLN BENEFIT LIFE
VARIABLE LIFE ACCOUNT
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND
FOR THE PERIODS ENDED DECEMBER 31, 1999,
DECEMBER 31, 1998 AND DECEMBER 31, 1997, AND
INDEPENDENT AUDITORS' REPORT
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholder of
Lincoln Benefit Life Company:
We have audited the accompanying statement of net assets of Lincoln Benefit Life
Variable Life Account as of December 31, 1999 (including the assets of each of
the individual sub-accounts which comprise the Account as disclosed in Note 1),
and the related statements of operations and statements of changes in net assets
for each of the periods in the three year period then ended for each of the
individual sub-accounts which comprise the Account. These financial statements
are the responsibility of management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned at December 31, 1999 by correspondence with the
account custodians. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Lincoln Benefit Life Variable Life Account
as of December 31, 1999 (including the assets of each of the individual
sub-accounts which comprise the Account), and the results of operations for each
of the individual sub-accounts and the changes in their net assets for each of
the periods in the three year period then ended in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Chicago, Illinois
March 27, 2000
F-2
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
- ----------------------------------------------------------------------
($ and # of shares in thousands)
<TABLE>
<S> <C>
NET ASSETS
Allocation to Sub-Accounts investing in the Alger American
Fund:
Growth, 23 shares (cost $1,298) $ 1,488
Income and Growth, 43 shares (cost $602) 758
Leveraged AllCap, 29 shares (cost $1,272) 1,673
MidCap Growth, 16 shares (cost $454) 519
Small Capitalization, 9 shares (cost $393) 507
Allocation to Sub-Accounts investing in the Janus Aspen
Series:
Flexible Income, 162 shares (cost $1,910) 1,848
Balanced, 553 shares (cost $12,217) 15,453
Growth, 1,079 shares (cost $24,291) 36,322
Aggressive Growth, 752 shares (cost $24,431) 44,862
Worldwide Growth, 1,127 shares (cost $33,958) 53,834
Allocation to Sub-Accounts investing in the IAI Retirement
Funds, Inc.:
Regional, 152 shares (cost $2,326) 2,763
Reserve, 19 shares (cost $188) 186
Balanced, 57 shares (cost $826) 875
Allocation to Sub-Accounts investing in the Fidelity
Variable Insurance Products Fund II:
Asset Manager, 350 shares (cost $6,021) 6,525
Contrafund, 764 shares (cost $17,291) 22,268
Index 500, 32 shares (cost $4,955) 5,425
Allocation to Sub-Accounts investing in the Fidelity
Variable Insurance Products Fund:
Money Market, 23,969 shares (cost $23,969) 23,969
Equity-Income, 1,047 shares (cost $24,918) 26,923
Growth, 691 shares (cost $27,895) 37,972
Overseas, 278 shares (cost $5,832) 7,625
Allocation to Sub-Accounts investing in the Federated
Insurance Management Series:
High Income Bond Fund II, 380 shares (cost $4,039) 3,890
Utility Fund II, 212 shares (cost $2,907) 3,046
U.S. Government Securities Fund II, 137 shares (cost
$1,477) 1,450
Allocation to Sub-Acounts investing in the Scudder Variable
Life Investment Fund:
Bond, 227 shares (cost $1,414) 1,470
Balanced, 24 shares (cost $354) 382
Growth and Income, 17 shares (cost $180) 182
Global Discovery, 8 shares (cost $80) 106
International, 12 shares (cost $198) 254
</TABLE>
F-3
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF NET ASSETS
DECEMBER 31, 1999
- ----------------------------------------------------------------------
($ and # of shares in thousands)
<TABLE>
<S> <C>
Allocation to Sub-Accounts investing in the Strong Variable
Insurance Funds, Inc.:
Discovery Fund II, 5 shares (cost $46) $ 56
Growth Fund II, 21 shares (cost $448) 623
Allocation to Sub-Account investing in the Strong
Opportunity Fund II, Inc.:
Opportunity Fund II, 9 shares (cost $204) 229
Allocation to Sub-Account investing in the T. Rowe Price
International Series, Inc.:
International Stock, 9 shares (cost $136) 164
Allocation to Sub-Account investing in the T. Rowe Price
Equity Series, Inc.:
New America Growth, 4 shares (cost $91) 95
Mid-Cap Growth, 20 shares (cost $301) 342
Equity Income, 11 shares (cost $213) 200
Allocation to Sub-Accounts investing in the MFS Variable
Insurance Trust:
Growth with Income Series, 21 shares (cost $426) 445
Research Series, 14 shares (cost $292) 338
Emerging Growth Series, 20 shares (cost $517) 763
Total Return Series, 16 shares (cost $294) 292
New Discovery Series, 36 shares (cost $454) 612
--------
Net assets $306,734
========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Alger American Fund Sub-Accounts
---------------------------------------------------------------
Growth Income and Growth Leveraged AllCap
------------------- ------------------- -------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 29 $ - $ 8 $ - $ 7 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk - - - - - -
Administrative expense - - - - - -
------ ------ ------ ------ ------ ------
Net investment income (loss) 29 - 8 - 7 -
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 360 11 187 - 298 -
Cost of investments sold 353 11 175 - 283 -
------ ------ ------ ------ ------ ------
Net realized gains (losses) 7 - 12 - 15 -
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) 188 2 155 1 401 -
------ ------ ------ ------ ------ ------
Net gains (losses) on investments 195 2 167 1 416 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 224 $ 2 $ 175 $ 1 $ 423 $ -
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-5
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Alger American Fund Sub-Accounts
-------------------------------------------
MidCap Growth Small Capitalization
------------------- ---------------------
1999 1998 (a) 1999 1998 (a)
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 8 $ - $ 10 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk - - - -
Administrative expense - - - -
------ ------ ------ ------
Net investment income (loss) 8 - 10 -
------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 381 - 262 11
Cost of investments sold 380 - 266 11
------ ------ ------ ------
Net realized gains (losses) 1 - (4) -
------ ------ ------ ------
Change in unrealized gains (losses) 65 - 112 2
------ ------ ------ ------
Net gains (losses) on investments 66 - 108 2
------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 74 $ - $ 118 $ 2
====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-6
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Janus Aspen Series Sub-Accounts
---------------------------------------------------------------
Flexible Income Balanced
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 120 $ 82 $ 49 $ 292 $ 265 $ 86
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (11) (9) (5) (77) (56) (18)
Administrative expense (3) (2) (1) (20) (9) (5)
------ ------ ------ ------ ------ ------
Net investment income (loss) 106 71 43 195 200 63
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 1,230 866 1,087 12,926 3,583 2,365
Cost of investments sold 1,227 852 1,066 11,793 3,294 2,221
------ ------ ------ ------ ------ ------
Net realized gains (losses) 3 14 21 1,133 289 144
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) (88) (1) 9 1,562 1,313 260
------ ------ ------ ------ ------ ------
Net gains (losses) on investments (85) 13 30 2,695 1,602 404
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 21 $ 84 $ 73 $2,890 $1,802 $ 467
====== ====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-7
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Janus Aspen Series Sub-Accounts
---------------------------------------------------------------
Growth Aggressive Growth
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 198 $ 820 $ 189 $ 917 $ - $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (175) (93) (46) (170) (79) (46)
Administrative expense (48) (23) (12) (45) (23) (14)
------- ------- ------- ------- ------- -------
Net investment income (loss) (25) 704 131 702 (102) (60)
------- ------- ------- ------- ------- -------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 11,605 5,432 7,818 46,018 14,012 11,046
Cost of investments sold 9,578 5,026 7,446 40,029 13,027 10,625
------- ------- ------- ------- ------- -------
Net realized gains (losses) 2,027 406 372 5,989 985 421
------- ------- ------- ------- ------- -------
Change in unrealized gains (losses) 7,860 3,161 640 16,727 2,976 632
------- ------- ------- ------- ------- -------
Net gains (losses) on investments 9,887 3,567 1,012 22,716 3,961 1,053
------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 9,862 $ 4,271 $ 1,143 $23,418 $ 3,859 $ 993
======= ======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-8
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
IAI Retirement Funds, Inc.
Janus Aspen Series Sub-Accounts Sub-Accounts
--------------------------------- ------------------------------
Worldwide Growth Regional
--------------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 68 $ 901 $ 181 $ 46 $ 152 $ 94
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (258) (165) (81) (18) (19) (16)
Administrative expense (72) (43) (9) (6) (6) (5)
------- ------- ------- ------- ------- -------
Net investment income (loss) (262) 693 91 22 127 73
------- ------- ------- ------- ------- -------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 36,596 25,446 17,134 941 935 953
Cost of investments sold 30,704 23,546 15,964 907 918 888
------- ------- ------- ------- ------- -------
Net realized gains (losses) 5,892 1,900 1,170 34 17 65
------- ------- ------- ------- ------- -------
Change in unrealized gains (losses) 15,622 2,958 600 357 (142) 113
------- ------- ------- ------- ------- -------
Net gains (losses) on investments 21,514 4,858 1,770 391 (125) 178
------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $21,252 $ 5,551 $ 1,861 $ 413 $ 2 $ 251
======= ======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-9
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
IAI Retirement Funds, Inc. Sub-Accounts
---------------------------------------------------------------
Reserve Balanced
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 6 $ 8 $ 6 $ 44 $ 13 $ 10
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (2) (1) (1) (5) (4) (2)
Administrative expense - - - (2) (1) (1)
------ ------ ------ ------ ------ ------
Net investment income (loss) 4 7 5 37 8 7
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 119 262 53 210 205 171
Cost of investments sold 119 263 54 196 193 160
------ ------ ------ ------ ------ ------
Net realized gains (losses) - (1) (1) 14 12 11
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) (3) 2 - (26) 35 24
------ ------ ------ ------ ------ ------
Net gains (losses) on investments (3) 1 (1) (12) 47 35
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1 $ 8 $ 4 $ 25 $ 55 $ 42
====== ====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-10
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Fidelity Variable Insurance Products Fund II Sub-Accounts
---------------------------------------------------------------
Asset Manager Contrafund
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 412 $ 507 $ 305 $ 621 $ 414 $ 51
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (40) (33) (21) (120) (67) (27)
Administrative expense (12) (9) (6) (33) (18) (6)
------- ------- ------- ------- ------- -------
Net investment income (loss) 360 465 278 468 329 18
------- ------- ------- ------- ------- -------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 1,391 9,811 3,642 6,670 13,181 6,207
Cost of investments sold 1,345 9,652 3,388 5,808 12,650 5,900
------- ------- ------- ------- ------- -------
Net realized gains (losses) 46 159 254 862 531 307
------- ------- ------- ------- ------- -------
Change in unrealized gains (losses) 178 55 (1) 2,620 1,875 373
------- ------- ------- ------- ------- -------
Net gains (losses) on investments 224 214 253 3,482 2,406 680
------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 584 $ 679 $ 531 $ 3,950 $ 2,735 $ 698
======= ======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-11
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Fidelity Variable
Insurance Products Fidelity Variable Insurance
Fund II Sub-Accounts Products Fund Sub-Accounts
--------------------- ------------------------------
Index 500 Money Market
--------------------- ------------------------------
1999 1998 (a) 1999 1998 1997
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 4 $ - $ 721 $ 480 $ 315
Charges from Lincoln Benefit Life Company:
Mortality and expense risk - - (87) (63) (41)
Administrative expense - - (27) (14) (8)
-------- -------- -------- -------- --------
Net investment income (loss) 4 - 607 403 266
-------- -------- -------- -------- --------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 1,270 13 174,163 149,121 105,015
Cost of investments sold 1,248 13 174,163 149,121 105,015
-------- -------- -------- -------- --------
Net realized gains (losses) 22 - - - -
-------- -------- -------- -------- --------
Change in unrealized gains (losses) 467 3 - - -
-------- -------- -------- -------- --------
Net gains (losses) on investments 489 3 - - -
-------- -------- -------- -------- --------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 493 $ 3 $ 607 $ 403 $ 266
======== ======== ======== ======== ========
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-12
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Fidelity Variable Insurance Products Fund Sub-Accounts
---------------------------------------------------------------
Equity-Income Growth
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1,128 $ 1,066 $ 846 $ 2,758 $ 1,768 $ 318
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (177) (138) (78) (198) (121) (72)
Administrative expense (52) (35) (5) (55) (33) (22)
------- ------- ------- ------- ------- -------
Net investment income (loss) 899 893 763 2,505 1,614 224
------- ------- ------- ------- ------- -------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 10,696 11,949 8,773 20,878 12,013 9,943
Cost of investments sold 9,829 11,196 8,484 18,675 11,255 9,231
------- ------- ------- ------- ------- -------
Net realized gains (losses) 867 753 289 2,203 758 712
------- ------- ------- ------- ------- -------
Change in unrealized gains (losses) (526) 335 1,539 4,806 3,446 1,095
------- ------- ------- ------- ------- -------
Net gains (losses) on investments 341 1,088 1,828 7,009 4,204 1,807
------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 1,240 $ 1,981 $ 2,591 $ 9,514 $ 5,818 $ 2,031
======= ======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-13
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Fidelity Variable Insurance Federated Insurance Management
Products Fund Sub-Accounts Series Sub-Accounts
------------------------------ ------------------------------
Overseas High Income Bond Fund II
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 289 $ 400 $ 252 $ 341 $ 82 $ 61
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (46) (38) (25) (26) (21) (8)
Administrative expense (13) (11) (7) (8) (5) (2)
------ ------ ------ ------ ------ ------
Net investment income (loss) 230 351 220 307 56 51
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 49,566 41,560 21,506 14,445 6,227 2,364
Cost of investments sold 49,039 41,063 20,961 14,545 6,160 2,313
------ ------ ------ ------ ------ ------
Net realized gains (losses) 527 497 545 (100) 67 51
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) 1,671 125 (267) (167) (69) 48
------ ------ ------ ------ ------ ------
Net gains (losses) on investments 2,198 622 278 (267) (2) 99
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM OPERATIONS $2,428 $ 973 $ 498 $ 40 $ 54 $ 150
====== ====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-14
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Federated Insurance Management Series Sub-Accounts
---------------------------------------------------------------------
Utility Fund II U.S. Government Securities Fund II
------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 185 $ 108 $ 44 $ 52 $ 10 $ 9
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (19) (13) (8) (9) (7) (2)
Administrative expense (5) (4) (3) (2) (1) -
------ ------ ------ ------ ------ ------
Net investment income (loss) 161 91 33 41 2 7
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 1,183 730 734 1,171 2,309 261
Cost of investments sold 1,120 675 665 1,168 2,281 257
------ ------ ------ ------ ------ ------
Net realized gains (losses) 63 55 69 3 28 4
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) (201) 120 166 (63) 26 7
------ ------ ------ ------ ------ ------
Net gains (losses) on investments (138) 175 235 (60) 54 11
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 23 $ 266 $ 268 $ (19) $ 56 $ 18
====== ====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-15
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund Sub-Accounts
----------------------------------------------------
Bond Balanced
------------------------------ -------------------
1999 1998 1997 1999 1998 (a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 41 $ 36 $ 30 $ 2 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk (6) (4) (3) - -
Administrative expense (2) (1) (1) - -
------ ------ ------ ------ ------
Net investment income (loss) 33 31 26 2 -
------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 804 654 576 125 -
Cost of investments sold 812 722 577 125 -
------ ------ ------ ------ ------
Net realized gains (losses) (8) (68) (1) - -
------ ------ ------ ------ ------
Change in unrealized gains (losses) (42) 69 13 28 -
------ ------ ------ ------ ------
Net gains (losses) on investments (50) 1 12 28 -
------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ (17) $ 32 $ 38 $ 30 $ -
====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-16
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund Sub-Accounts
---------------------------------------------------------------
Growth and Income Global Discovery International
------------------- ------------------- -------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 1 $ - $ - $ - $ 4 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk - - - - - -
Administrative expense - - - - - -
------ ------ ------ ------ ------ ------
Net investment income (loss) 1 - - - 4 -
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 40 - 98 - 250 -
Cost of investments sold 40 - 108 - 257 -
------ ------ ------ ------ ------ ------
Net realized gains (losses) - - (10) - (7) -
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) 2 - 26 - 56 -
------ ------ ------ ------ ------ ------
Net gains (losses) on investments 2 - 16 - 49 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3 $ - $ 16 $ - $ 53 $ -
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-17
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Strong
Opportunity
Strong Variable Insurance Funds, Inc. Fund II, Inc.
Sub-Accounts Sub-Account
----------------------------------------- ---------------------
Discovery Fund II Growth Fund II Opportunity Fund II
------------------- ------------------- ---------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ - $ - $ - $ 1 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk - - - - - -
Administrative expense - - - - - -
------ ------ ------ ------ ------ ------
Net investment income (loss) - - - - 1 -
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 55 - 1,495 - 84 -
Cost of investments sold 55 - 1,464 - 84 -
------ ------ ------ ------ ------ ------
Net realized gains (losses) - - 31 - - -
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) 10 - 175 - 25 -
------ ------ ------ ------ ------ ------
Net gains (losses) on investments 10 - 206 - 25 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 10 $ - $ 206 $ - $ 26 $ -
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-18
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
T. Rowe Price
International Series,
Inc. Sub-Account T. Rowe Price Equity Series, Inc. Sub-Accounts
--------------------- -------------------------------------------------
International Stock New America Growth Mid-Cap Growth
--------------------- ----------------------- -----------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
--------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 2 $ - $ 5 $ - $ 3 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk - - - - - -
Administrative expense - - - - - -
------ ------ ------ ------ ------ ------
Net investment income (loss) 2 - 5 - 3 -
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 143 - 29 - 29 -
Cost of investments sold 146 - 30 - 30 -
------ ------ ------ ------ ------ ------
Net realized gains (losses) (3) - (1) - (1) -
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) 28 - 4 - 41 -
------ ------ ------ ------ ------ ------
Net gains (losses) on investments 25 - 3 - 40 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 27 $ - $ 8 $ - $ 43 $ -
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-19
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
T. Rowe Price Equity
Series, Inc. Sub-Accounts MFS Variable Insurance Trust Sub-Accounts
--------------------------- ---------------------------------------------
Growth with Income
Equity Income Series Research Series
--------------------------- --------------------- ---------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
------------ ------------ --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 10 $ - $ 1 $ - $ 1 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk - - - - - -
Administrative expense - - - - - -
------ ------ ------ ------ ------ ------
Net investment income (loss) 10 - 1 - 1 -
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 110 - 176 - 144 -
Cost of investments sold 108 - 175 - 142 -
------ ------ ------ ------ ------ ------
Net realized gains (losses) 2 - 1 - 2 -
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) (13) - 19 - 46 -
------ ------ ------ ------ ------ ------
Net gains (losses) on investments (11) - 20 - 48 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ (1) $ - $ 21 $ - $ 49 $ -
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-20
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Sub-Accounts
---------------------------------------------------------------------
Emerging Growth Series Total Return Series New Discovery Series
----------------------- ------------------- ---------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
---------- ---------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $ - $ - $ 3 $ - $ 11 $ -
Charges from Lincoln Benefit Life Company:
Mortality and expense risk - - - - - -
Administrative expense - - - - - -
------ ------ ------ ------ ------ ------
Net investment income (loss) - - 3 - 11 -
------ ------ ------ ------ ------ ------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Realized gains (losses) from sales of investments:
Proceeds from sales 235 - 54 3 781 -
Cost of investments sold 219 - 55 3 815 -
------ ------ ------ ------ ------ ------
Net realized gains (losses) 16 - (1) - (34) -
------ ------ ------ ------ ------ ------
Change in unrealized gains (losses) 246 - (3) 1 158 -
------ ------ ------ ------ ------ ------
Net gains (losses) on investments 262 - (4) 1 124 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS
RESULTING FROM OPERATIONS $ 262 $ - $ (1) $ 1 $ 135 $ -
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-21
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Alger American Fund Sub-Accounts
---------------------------------------------------------------
Growth Income and Growth Leveraged AllCap
------------------- ------------------- -------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 29 $ - $ 8 $ - $ 7 $ -
Net realized gains (losses) 7 - 12 - 15 -
Change in unrealized gains (losses) 188 2 155 1 401 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 224 2 175 1 423 -
------ ------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 1,133 7 408 3 954 -
Payments on termination - - - - - -
Contract administration charges (55) - (27) - (38) -
Loans - net - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net 170 7 186 12 334 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 1,248 14 567 15 1,250 -
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 1,472 16 742 16 1,673 -
NET ASSETS AT BEGINNING OF PERIOD 16 - 16 - - -
------ ------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $1,488 $ 16 $ 758 $ 16 $1,673 $ -
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-22
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Alger American Fund Sub-Accounts
-------------------------------------------
MidCap Growth Small Capitalization
------------------- ---------------------
1999 1998 (a) 1999 1998 (a)
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 8 $ - $ 10 $ -
Net realized gains (losses) 1 - (4) -
Change in unrealized gains (losses) 65 - 112 2
------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 74 - 118 2
------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 419 - 359 4
Payments on termination (1) - - -
Contract administration charges (21) - (18) -
Loans - net - - - -
Transfers among the sub-accounts
and with the Fixed Account - net 45 3 36 6
------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 442 3 377 10
------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 516 3 495 12
NET ASSETS AT BEGINNING OF PERIOD 3 - 12 -
------ ------ ------ ------
NET ASSETS AT END OF PERIOD $ 519 $ 3 $ 507 $ 12
====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-23
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Janus Aspen Series Sub-Accounts
---------------------------------------------------------------
Flexible Income Balanced
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 106 $ 71 $ 43 $ 195 $ 200 $ 63
Net realized gains (losses) 3 14 21 1,133 289 144
Change in unrealized gains (losses) (88) (1) 9 1,562 1,313 260
------ ------ ------ ------- ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 21 84 73 2,890 1,802 467
------ ------ ------ ------- ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 668 107 314 3,966 1,270 476
Payments on termination (67) (7) (34) (299) (63) (51)
Contract administration charges (88) (55) (45) (675) (361) (161)
Loans - net (16) (81) 3 (112) (85) (55)
Transfers among the sub-accounts
and with the Fixed Account - net (339) 724 158 340 3,291 1,251
------ ------ ------ ------- ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 158 688 396 3,220 4,052 1,460
------ ------ ------ ------- ------ ------
INCREASE (DECREASE) IN NET ASSETS 179 772 469 6,110 5,854 1,927
NET ASSETS AT BEGINNING OF PERIOD 1,669 897 428 9,343 3,489 1,562
------ ------ ------ ------- ------ ------
NET ASSETS AT END OF PERIOD $1,848 $1,669 $ 897 $15,453 $9,343 $3,489
====== ====== ====== ======= ====== ======
</TABLE>
See notes to financial statements.
F-24
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Janus Aspen Series Sub-Accounts
---------------------------------------------------------------
Growth Aggressive Growth
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (25) $ 704 $ 131 $ 702 $ (102) $ (60)
Net realized gains (losses) 2,027 406 372 5,989 985 421
Change in unrealized gains (losses) 7,860 3,161 640 16,727 2,976 632
------- ------- ------ ------- ------- ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 9,862 4,271 1,143 23,418 3,859 993
------- ------- ------ ------- ------- ------
FROM CAPITAL TRANSACTIONS
Deposits 7,439 2,626 2,069 5,981 2,380 2,348
Payments on termination (706) (252) (236) (528) (248) (356)
Contract administration charges (1,402) (879) (514) (1,277) (840) (706)
Loans - net (425) (298) (278) (752) (165) (179)
Transfers among the sub-accounts
and with the Fixed Account - net 2,467 4,529 3,112 1,851 2,191 1,978
------- ------- ------ ------- ------- ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 7,373 5,726 4,153 5,275 3,318 3,085
------- ------- ------ ------- ------- ------
INCREASE (DECREASE) IN NET ASSETS 17,235 9,997 5,296 28,693 7,177 4,078
NET ASSETS AT BEGINNING OF PERIOD 19,087 9,090 3,794 16,169 8,992 4,914
------- ------- ------ ------- ------- ------
NET ASSETS AT END OF PERIOD $36,322 $19,087 $9,090 $44,862 $16,169 $8,992
======= ======= ====== ======= ======= ======
</TABLE>
See notes to financial statements.
F-25
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
IAI Retirement Funds, Inc.
Janus Aspen Series Sub-Accounts Sub-Accounts
--------------------------------- ------------------------------
Worldwide Growth Regional
--------------------------------- ------------------------------
1999 1998 1997 1999 1998 1997
--------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ (262) $ 693 $ 91 $ 22 $ 127 $ 73
Net realized gains (losses) 5,892 1,900 1,170 34 17 65
Change in unrealized gains (losses) 15,622 2,958 600 357 (142) 113
------- ------- ------- ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 21,252 5,551 1,861 413 2 251
------- ------- ------- ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 8,715 4,307 2,574 451 525 537
Payments on termination (789) (428) (263) (43) (35) (47)
Contract administration charges (1,965) (1,444) (765) (149) (195) (154)
Loans - net (1,253) (562) (310) (17) (36) (21)
Transfers among the sub-accounts
and with the Fixed Account - net (2,098) 5,862 7,235 (648) (208) 494
------- ------- ------- ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 2,610 7,735 8,471 (406) 51 809
------- ------- ------- ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 23,862 13,286 10,332 7 53 1,060
NET ASSETS AT BEGINNING OF PERIOD 29,972 16,686 6,354 2,756 2,703 1,643
------- ------- ------- ------ ------ ------
NET ASSETS AT END OF PERIOD $53,834 $29,972 $16,686 $2,763 $2,756 $2,703
======= ======= ======= ====== ====== ======
</TABLE>
See notes to financial statements.
F-26
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
IAI Retirement Funds, Inc. Sub-Accounts
---------------------------------------------------------------
Reserve Balanced
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 4 $ 7 $ 5 $ 37 $ 8 $ 7
Net realized gains (losses) - (1) (1) 14 12 11
Change in unrealized gains (losses) (3) 2 - (26) 35 24
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1 8 4 25 55 42
------ ------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 69 7 22 203 90 94
Payments on termination (5) - - (31) (2) (39)
Contract administration charges (7) (6) (5) (41) (33) (21)
Loans - net 1 - (7) (15) (8) -
Transfers among the sub-accounts
and with the Fixed Account - net (14) (67) 74 56 193 70
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 44 (66) 84 172 240 104
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 45 (58) 88 197 295 146
NET ASSETS AT BEGINNING OF PERIOD 141 199 111 678 383 237
------ ------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $ 186 $ 141 $ 199 $ 875 $ 678 $ 383
====== ====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-27
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Fidelity Variable Insurance Products Fund II Sub-Accounts
---------------------------------------------------------------
Asset Manager Contrafund
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 360 $ 465 $ 278 $ 468 $ 329 $ 18
Net realized gains (losses) 46 159 254 862 531 307
Change in unrealized gains (losses) 178 55 (1) 2,620 1,875 373
------ ------ ------ ------- ------- ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 584 679 531 3,950 2,735 698
------ ------ ------ ------- ------- ------
FROM CAPITAL TRANSACTIONS
Deposits 1,282 765 617 6,010 2,307 1,266
Payments on termination (100) (123) (73) (415) (95) (178)
Contract administration charges (294) (263) (211) (1,107) (673) (329)
Loans - net (41) (54) (52) (166) (338) (131)
Transfers among the sub-accounts
and with the Fixed Account - net (306) 511 669 (389) 3,545 4,154
------ ------ ------ ------- ------- ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 541 836 950 3,933 4,746 4,782
------ ------ ------ ------- ------- ------
INCREASE (DECREASE) IN NET ASSETS 1,125 1,515 1,481 7,883 7,481 5,480
NET ASSETS AT BEGINNING OF PERIOD 5,400 3,885 2,404 14,385 6,904 1,424
------ ------ ------ ------- ------- ------
NET ASSETS AT END OF PERIOD $6,525 $5,400 $3,885 $22,268 $14,385 $6,904
====== ====== ====== ======= ======= ======
</TABLE>
See notes to financial statements.
F-28
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Fidelity Variable
Insurance Products Fidelity Variable Insurance
Fund II Sub-Accounts Products Fund Sub-Accounts
--------------------- ------------------------------
Index 500 Money Market
--------------------- ------------------------------
1999 1998 (a) 1999 1998 1997
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 4 $ - $ 607 $ 403 $ 266
Net realized gains (losses) 22 - - - -
Change in unrealized gains (losses) 467 3 - - -
------ ------ ------- -------- --------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 493 3 607 403 266
------ ------ ------- -------- --------
FROM CAPITAL TRANSACTIONS
Deposits 4,434 20 17,060 38,647 27,467
Payments on termination (13) - (1,171) (100) (108)
Contract administration charges (187) - (814) (729) (673)
Loans - net - - (436) (458) (13)
Transfers among the sub-accounts
and with the Fixed Account - net 657 18 (444) (33,765) (26,494)
------ ------ ------- -------- --------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 4,891 38 14,195 3,595 179
------ ------ ------- -------- --------
INCREASE (DECREASE) IN NET ASSETS 5,384 41 14,802 3,998 445
NET ASSETS AT BEGINNING OF PERIOD 41 - 9,167 5,169 4,724
------ ------ ------- -------- --------
NET ASSETS AT END OF PERIOD $5,425 $ 41 $23,969 $ 9,167 $ 5,169
====== ====== ======= ======== ========
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-29
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Fidelity Variable Insurance Products Fund Sub-Accounts
---------------------------------------------------------------
Equity-Income Growth
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 899 $ 893 $ 763 $ 2,505 $ 1,614 $ 224
Net realized gains (losses) 867 753 289 2,203 758 712
Change in unrealized gains (losses) (526) 335 1,539 4,806 3,446 1,095
------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,240 1,981 2,591 9,514 5,818 2,031
------- ------- ------- ------- ------- -------
FROM CAPITAL TRANSACTIONS
Deposits 5,782 3,505 2,858 7,309 3,241 3,070
Payments on termination (857) (395) (397) (1,101) (354) (410)
Contract administration charges (1,426) (1,219) (781) (1,624) (1,181) (884)
Loans - net (273) (551) (326) (464) (400) (200)
Transfers among the sub-accounts
and with the Fixed Account - net (1,106) 4,082 4,335 458 4,386 (413)
------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 2,120 5,422 5,689 4,578 5,692 1,163
------- ------- ------- ------- ------- -------
INCREASE (DECREASE) IN NET ASSETS 3,360 7,403 8,280 14,092 11,510 3,194
NET ASSETS AT BEGINNING OF PERIOD 23,563 16,160 7,880 23,880 12,370 9,176
------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD $26,923 $23,563 $16,160 $37,972 $23,880 $12,370
======= ======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-30
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Fidelity Variable Insurance Federated Insurance Management
Products Fund Sub-Accounts Series Sub-Accounts
------------------------------ ------------------------------
Overseas High Income Bond Fund II
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 230 $ 351 $ 220 $ 307 $ 56 $ 51
Net realized gains (losses) 527 497 545 (100) 67 51
Change in unrealized gains (losses) 1,671 125 (267) (167) (69) 48
------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 2,428 973 498 40 54 150
------- ------- ------- ------- ------- -------
FROM CAPITAL TRANSACTIONS
Deposits 1,047 824 817 960 519 231
Payments on termination (347) (125) (120) (65) (59) (70)
Contract administration charges (332) (326) (243) (213) (173) (79)
Loans - net (68) (72) (23) (54) (41) (33)
Transfers among the sub-accounts
and with the Fixed Account - net (2,405) 774 1,532 (438) 1,275 1,314
------- ------- ------- ------- ------- -------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS (2,105) 1,075 1,963 190 1,521 1,363
------- ------- ------- ------- ------- -------
INCREASE (DECREASE) IN NET ASSETS 323 2,048 2,461 230 1,575 1,513
NET ASSETS AT BEGINNING OF PERIOD 7,302 5,254 2,793 3,660 2,085 572
------- ------- ------- ------- ------- -------
NET ASSETS AT END OF PERIOD $ 7,625 $ 7,302 $ 5,254 $ 3,890 $ 3,660 $ 2,085
======= ======= ======= ======= ======= =======
</TABLE>
See notes to financial statements.
F-31
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Federated Insurance Management Series Sub-Accounts
---------------------------------------------------------------------
Utility Fund II U.S. Government Securities Fund II
------------------------------ ------------------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 161 $ 91 $ 33 $ 41 $ 2 $ 7
Net realized gains (losses) 63 55 69 3 28 4
Change in unrealized gains (losses) (201) 120 166 (63) 26 7
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 23 266 268 (19) 56 18
------ ------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 761 183 248 314 115 33
Payments on termination (95) (48) (58) (53) (30) (21)
Contract administration charges (129) (94) (71) (67) (47) (20)
Loans - net (8) (68) (41) (15) (18) (12)
Transfers among the sub-accounts
and with the Fixed Account - net (77) 966 129 58 871 118
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 452 939 207 237 891 98
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 475 1,205 475 218 947 116
NET ASSETS AT BEGINNING OF PERIOD 2,571 1,366 891 1,232 285 169
------ ------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $3,046 $2,571 $1,366 $1,450 $1,232 $ 285
====== ====== ====== ====== ====== ======
</TABLE>
See notes to financial statements.
F-32
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund Sub-Accounts
----------------------------------------------------
Bond Balanced
------------------------------ -------------------
1999 1998 1997 1999 1998 (a)
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 33 $ 31 $ 26 $ 2 $ -
Net realized gains (losses) (8) (68) (1) - -
Change in unrealized gains (losses) (42) 69 13 28 -
------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS (17) 32 38 30 -
------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 802 125 120 259 -
Payments on termination (13) (35) (44) - -
Contract administration charges (75) (55) (43) (9) -
Loans - net (18) (4) (9) - -
Transfers among the sub-accounts
and with the Fixed Account - net 61 120 35 99 3
------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 757 151 59 349 3
------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 740 183 97 379 3
NET ASSETS AT BEGINNING OF PERIOD 730 547 450 3 -
------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $1,470 $ 730 $ 547 $ 382 $ 3
====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-33
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Scudder Variable Life Investment Fund Sub-Accounts
---------------------------------------------------------------
Growth and Income Global Discovery International
------------------- ------------------- -------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 1 $ - $ - $ - $ 4 $ -
Net realized gains (losses) - - (10) - (7) -
Change in unrealized gains (losses) 2 - 26 - 56 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 3 - 16 - 53 -
------ ------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 173 3 66 - 131 -
Payments on termination - - - - - -
Contract administration charges (6) - (6) - (8) -
Loans - net - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net 9 - 27 3 74 4
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 176 3 87 3 197 4
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 179 3 103 3 250 4
NET ASSETS AT BEGINNING OF PERIOD 3 - 3 - 4 -
------ ------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $ 182 $ 3 $ 106 $ 3 $ 254 $ 4
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-34
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
Strong Opportunity
Strong Variable Insurance Funds, Inc. Fund, Inc.
Sub-Accounts Sub-Account
----------------------------------------- ---------------------
Discovery Fund II Growth Fund II Opportunity Fund II
------------------- ------------------- ---------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ - $ - $ - $ - $ 1 $ -
Net realized gains (losses) - - 31 - - -
Change in unrealized gains (losses) 10 - 175 - 25 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 10 - 206 - 26 -
------ ------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 47 - 406 - 218 -
Payments on termination - - - - - -
Contract administration charges (1) - (11) - (5) -
Loans - net - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net - - 22 - (12) 2
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 46 - 417 - 201 2
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 56 - 623 - 227 2
NET ASSETS AT BEGINNING OF PERIOD - - - - 2 -
------ ------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $ 56 $ - $ 623 $ - $ 229 $ 2
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-35
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
T. Rowe Price
International
Series, Inc.
Sub-Account T. Rowe Price Equity Series, Inc. Sub-Accounts
------------------- -------------------------------------------------
International Stock New America Growth Mid-Cap Growth
------------------- ----------------------- -----------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
-------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 2 $ - $ 5 $ - $ 3 $ -
Net realized gains (losses) (3) - (1) - (1) -
Change in unrealized gains (losses) 28 - 4 - 41 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 27 - 8 - 43 -
------ ------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 133 - 97 1 266 7
Payments on termination - - - - - -
Contract administration charges (4) - (5) - (9) -
Loans - net - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net 8 - (8) 2 35 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 137 - 84 3 292 7
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 164 - 92 3 335 7
NET ASSETS AT BEGINNING OF PERIOD - - 3 - 7 -
------ ------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $ 164 $ - $ 95 $ 3 $ 342 $ 7
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-36
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
T. Rowe Price Equity
Series, Inc.
Sub-Accounts MFS Variable Insurance Trust Sub-Accounts
--------------------- -------------------------------------------------
Equity Income Growth with Income Series Research Series
--------------------- ------------------------- ---------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
--------- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ 10 $ - $ 1 $ - $ 1 $ -
Net realized gains (losses) 2 - 1 - 2 -
Change in unrealized gains (losses) (13) - 19 - 46 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS (1) - 21 - 49 -
------ ------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 174 3 341 3 267 4
Payments on termination - - - - (1) -
Contract administration charges (7) - (22) - (19) -
Loans - net - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net 29 2 102 - 38 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 196 5 421 3 285 4
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 195 5 442 3 334 4
NET ASSETS AT BEGINNING OF PERIOD 5 - 3 - 4 -
------ ------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $ 200 $ 5 $ 445 $ 3 $ 338 $ 4
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-37
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
($ in thousands)
<TABLE>
<CAPTION>
MFS Variable Insurance Trust Sub-Accounts
---------------------------------------------------------------------
Emerging Growth Series Total Return Series New Discovery Series
----------------------- ------------------- ---------------------
1999 1998 (a) 1999 1998 (a) 1999 1998 (a)
---------- ---------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
FROM OPERATIONS
Net investment income (loss) $ - $ - $ 3 $ - $ 11 $ -
Net realized gains (losses) 16 - (1) - (34) -
Change in unrealized gains (losses) 246 - (3) 1 158 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 262 - (1) 1 135 -
------ ------ ------ ------ ------ ------
FROM CAPITAL TRANSACTIONS
Deposits 550 - 242 12 140 -
Payments on termination - - - - - -
Contract administration charges (30) - (9) - (10) -
Loans - net - - - - - -
Transfers among the sub-accounts
and with the Fixed Account - net (22) 3 38 9 347 -
------ ------ ------ ------ ------ ------
CHANGE IN NET ASSETS RESULTING
FROM CAPITAL TRANSACTIONS 498 3 271 21 477 -
------ ------ ------ ------ ------ ------
INCREASE (DECREASE) IN NET ASSETS 760 3 270 22 612 -
NET ASSETS AT BEGINNING OF PERIOD 3 - 22 - - -
------ ------ ------ ------ ------ ------
NET ASSETS AT END OF PERIOD $ 763 $ 3 $ 292 $ 22 $ 612 $ -
====== ====== ====== ====== ====== ======
</TABLE>
(a) For the Period Beginning August 17, 1998 and Ended December 31, 1998
See notes to financial statements.
F-38
<PAGE>
LINCOLN BENEFIT LIFE VARIABLE LIFE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION
Lincoln Benefit Life Variable Life Account (the "Account"), a unit
investment trust registered with the Securities and Exchange Commission
under the Investment Company Act of 1940, is a Separate Account of Lincoln
Benefit Life Company ("Lincoln Benefit"). The assets of the Account are
legally segregated from those of Lincoln Benefit. Lincoln Benefit is wholly
owned by Allstate Life Insurance Company, a wholly owned subsidiary of
Allstate Insurance Company, which is wholly owned by The Allstate
Corporation.
Lincoln Benefit issues three life insurance policies, the Investor's Select,
the Consultant and the Consultant SL, the deposits of which are invested at
the direction of the policyholders in the sub-accounts that comprise the
Account. Absent any policy provisions wherein Lincoln Benefit contractually
guarantees either a minimum return or account value to the beneficiaries of
the policyholders in the form of a death benefit, the policyholders bear the
investment risk that the sub-accounts may not meet their stated objectives.
The sub-accounts invest in the following underlying portfolios (collectively
the "Funds"):
ALGER AMERICAN FUND
Growth
Income and Growth
Leveraged AllCap
MidCap Growth
Small Capitalization
JANUS ASPEN SERIES
Flexible Income
Balanced
Growth
Aggressive Growth
Worldwide Growth
IAI RETIREMENT FUNDS, INC.
Regional
Reserve
Balanced
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
Asset Manager
Contrafund
Index 500
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
Money Market
Equity-Income
Growth
Overseas
FEDERATED INSURANCE MANAGEMENT SERIES
High Income Bond Fund II
Utility Fund II
U.S. Government Securities Fund II
SCUDDER VARIABLE LIFE INVESTMENT FUND
Bond
Balanced
Growth and Income
Global Discovery
International
STRONG VARIABLE INSURANCE FUNDS, INC.
Discovery Fund II
Growth Fund II
STRONG OPPORTUNITY FUND II, INC.
Opportunity Fund, II
T. ROWE PRICE INTERNATIONAL SERIES, INC.
International Stock
T. ROWE PRICE EQUITY SERIES, INC.
New America Growth
Mid-Cap Growth
Equity Income
MFS VARIABLE INSURANCE TRUST
Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
F-39
<PAGE>
1. ORGANIZATION (CONTINUED)
Lincoln Benefit provides administrative and insurance services to the
policyholders for a fee. Lincoln Benefit also maintains a fixed account
("Fixed Account"), to which policyholders may direct their deposits and
receive a fixed rate of return. Lincoln Benefit has sole discretion to
invest the assets of the Fixed Account, subject to applicable law.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
VALUATION OF INVESTMENTS - Investments consist of shares of the Funds and
are stated at fair value based on quoted market prices at December 31, 1999.
INVESTMENT INCOME - Investment income consists of dividends declared by the
Funds and is recognized on the ex-dividend date.
REALIZED GAINS AND LOSSES - Realized gains and losses represent the
difference between the proceeds from sales of portfolio shares by the
Account and the cost of such shares, which is determined on a weighted
average basis.
FEDERAL INCOME TAXES - The Account intends to qualify as a segregated asset
account as defined in the Internal Revenue Code ("Code"). As such, the
operations of the Account are included in the tax return of Lincoln Benefit.
Lincoln Benefit is taxed as a life insurance company under the Code. No
federal income taxes are allocable to the Account as the Account did not
generate taxable income.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. EXPENSES
PREMIUM TAX CHARGE AND PREMIUM EXPENSE CHARGE - Upon receipt of each premium
payment and before allocation to the policy value, Lincoln Benefit deducts
2.5% of the premium to pay state premium taxes. For the Consultant and
Consultant SL policies, Lincoln Benefit also deducts a premium expense
charge which partially compensates for its sales expenses, including agent
commissions as well as certain federal taxes and other expenses related to
the receipt of premiums.
MONTHLY DEDUCTIONS - On a monthly basis, Lincoln Benefit deducts from the
policy value for certain expenses. The policy fee covers administrative
expenses such as salaries, postage and periodic reports. The mortality and
expense risk charge covers insurance benefits available with the contract
and certain expenses of the contract. It also covers the risk that the
current charges will not be sufficient in the future to cover the cost of
administering the contract. The cost of insurance charge covers the cost of
providing insurance benefits and is based upon the issue age, sex, policy
year and premium rating class of the insured.
F-40
<PAGE>
4. UNITS ISSUED AND REDEEMED
(Units in whole amounts)
<TABLE>
<CAPTION>
INVESTOR'S SELECT CONTRACTS
-----------------------------------------------
UNIT ACTIVITY DURING
1999:
------------------------
UNITS OUTSTANDING UNITS UNITS
DECEMBER 31, 1998 ISSUED REDEEMED
-------------------- ---------- -----------
<S> <C> <C> <C>
Investments in Janus Aspen Series
Sub-Accounts:
Flexible Income 106,902 54,965 (68,133)
Balanced 398,482 588,423 (527,787)
Growth 768,637 556,719 (388,778)
Aggressive Growth 687,591 1,535,328 (1,426,864)
Worldwide Growth 1,223,045 1,251,362 (1,215,186)
Investments in IAI Retirement Funds, Inc.
Sub-Accounts:
Regional 156,040 29,263 (52,160)
Reserve 11,699 13,415 (9,800)
Balanced 41,137 23,276 (12,803)
Investments in Fidelity Variable Insurance
Products Fund II Sub-Accounts:
Asset Manager 326,126 96,483 (80,058)
Contrafund 780,817 438,126 (326,654)
Index 500
Investments in Fidelity Variable Insurance
Products Fund Sub-Accounts:
Money Market 699,209 13,230,100 (12,448,305)
Equity-Income 1,057,243 476,437 (431,195)
Growth 934,959 784,068 (700,279)
Overseas 507,996 3,004,367 (3,151,118)
Investments in Federated Insurance Management
Series Sub-Accounts:
High Income Bond Fund II 243,128 910,413 (923,856)
Utility Fund II 138,256 68,182 (57,423)
U.S. Government Securities Fund II 94,210 88,892 (81,852)
Investment in Scudder Variable Life
Investment Fund Sub-Account:
Bond 56,307 38,503 (28,754)
</TABLE>
F-41
<PAGE>
<TABLE>
<CAPTION>
INVESTOR'S SELECT CONTRACTS
-----------------------------------------
ACCUMULATION
UNITS OUTSTANDING UNIT VALUE
DECEMBER 31, 1999 DECEMBER 31, 1999
-------------------- ------------------
<S> <C> <C>
Investments in Janus Aspen Series
Sub-Accounts:
Flexible Income 93,734 $15.71
Balanced 459,118 28.27
Growth 936,578 35.43
Aggressive Growth 796,055 52.60
Worldwide Growth 1,259,221 39.77
Investments in IAI Retirement Funds, Inc.
Sub-Accounts:
Regional 133,143 20.75
Reserve 15,314 12.16
Balanced 51,610 16.95
Investments in Fidelity Variable Insurance
Products Fund II Sub-Accounts:
Asset Manager 342,551 18.26
Contrafund 892,289 21.98
Index 500
Investments in Fidelity Variable Insurance
Products Fund Sub-Accounts:
Money Market 1,481,004 13.01
Equity-Income 1,102,485 23.51
Growth 1,018,748 34.81
Overseas 361,245 20.36
Investments in Federated Insurance Management
Series Sub-Accounts:
High Income Bond Fund II 229,685 15.20
Utility Fund II 149,015 18.78
U.S. Government Securities Fund II 101,250 12.90
Investment in Scudder Variable Life
Investment Fund Sub-Account:
Bond 66,056 12.73
Investments in Alger American Fund
Sub-Accounts:
Growth 1,375 116,066 (24,584)
Income and Growth 1,400 58,432 (13,788)
Leveraged AllCap 36 89,229 (16,239)
MidCap Growth 254 62,049 (28,522)
Small Capitalization 1,035 49,313 (19,265)
Investments in Janus Aspen Series
Sub-Accounts:
Flexible Income 359 51,381 (15,887)
Balanced 33,546 159,739 (27,005)
Growth 3,633 219,075 (39,394)
Aggressive Growth 855 161,136 (54,421)
Worldwide Growth 17,720 262,028 (66,697)
Investments in Fidelity Variable Insurance
Products Fund II Sub-Accounts:
Asset Manager 159 24,831 (2,545)
Contrafund 41,139 171,371 (27,079)
Index 500 3,617 489,759 (98,988)
Investments in Fidelity Variable Insurance
Products Fund Sub-Accounts:
Money Market 44,535 2,029,000 (1,635,639)
Equity-Income 2,280 126,764 (42,026)
Growth 3,080 222,068 (68,598)
Overseas - 73,623 (55,595)
Investments in Federated Insurance Management
Series Sub-Accounts:
High Income Bond Fund II 2,181 64,461 (27,278)
Utility Fund II - 33,065 (11,293)
U.S. Government Securities Fund II 15 24,799 (10,837)
Investments in Scudder Variable Life
Investment Fund Sub-Accounts:
Bond 118 104,770 (42,880)
Balanced 289 40,265 (10,665)
Growth and Income 299 19,621 (3,688)
Global Discovery 259 13,973 (8,314)
International 402 36,325 (20,966)
Investments in Strong Variable Insurance
Funds, Inc. Sub-Accounts:
Discovery Fund II - 10,500 (5,691)
Growth Fund II - 122,046 (93,424)
Investment in Strong Opportunity Fund
II, Inc. Sub-Account:
Opportunity Fund II 171 21,676 (6,414)
Investment in T. Rowe Price International
Series, Inc. Sub-Account:
International Stock 10 23,560 (12,203)
Investments in T. Rowe Price Equity
Series, Inc. Sub-Accounts:
New America Growth 229 9,713 (2,519)
Mid-Cap Growth 566 25,780 (2,428)
Equity Income 489 26,562 (9,264)
Investments in MFS Variable Insurance Trust
Sub-Accounts:
Growth with Income Series 266 52,113 (15,334)
Research Series 337 36,202 (12,049)
Emerging Growth Series 268 51,902 (15,590)
Total Return Series 2,047 29,547 (5,006)
New Discovery Series 23 86,444 (55,518)
<CAPTION>
CONSULTANT CONTRACTS
-----------------------------------------
ACCUMULATION
UNITS OUTSTANDING UNIT VALUE
DECEMBER 31, 1999 DECEMBER 31, 1999
-------------------- ------------------
<S> <C> <C>
Investments in Alger American Fund
Sub-Accounts:
Growth 92,857 $16.02
Income and Growth 46,044 16.46
Leveraged AllCap 73,026 22.91
MidCap Growth 33,781 15.36
Small Capitalization 31,083 16.30
Investments in Janus Aspen Series
Sub-Accounts:
Flexible Income 35,853 10.47
Balanced 166,280 14.88
Growth 183,314 17.15
Aggressive Growth 107,570 27.79
Worldwide Growth 213,051 17.65
Investments in Fidelity Variable Insurance
Products Fund II Sub-Accounts:
Asset Manager 22,445 12.06
Contrafund 185,431 14.30
Index 500 394,388 13.76
Investments in Fidelity Variable Insurance
Products Fund Sub-Accounts:
Money Market 437,896 10.72
Equity-Income 87,018 11.57
Growth 156,550 16.05
Overseas 18,028 15.04
Investments in Federated Insurance Management
Series Sub-Accounts:
High Income Bond Fund II 39,364 10.12
Utility Fund II 21,772 11.38
U.S. Government Securities Fund II 13,977 10.25
Investments in Scudder Variable Life
Investment Fund Sub-Accounts:
Bond 62,008 10.14
Balanced 29,889 12.79
Growth and Income 16,232 11.21
Global Discovery 5,918 17.95
International 15,761 16.11
Investments in Strong Variable Insurance
Funds, Inc. Sub-Accounts:
Discovery Fund II 4,809 11.65
Growth Fund II 28,622 21.77
Investment in Strong Opportunity Fund
II, Inc. Sub-Account:
Opportunity Fund II 15,433 14.82
Investment in T. Rowe Price International
Series, Inc. Sub-Account:
International Stock 11,367 14.44
Investments in T. Rowe Price Equity
Series, Inc. Sub-Accounts:
New America Growth 7,423 12.74
Mid-Cap Growth 23,918 14.30
Equity Income 17,787 11.24
Investments in MFS Variable Insurance Trust
Sub-Accounts:
Growth with Income Series 37,045 12.00
Research Series 24,490 13.80
Emerging Growth Series 36,580 20.86
Total Return Series 26,588 10.99
New Discovery Series 30,949 19.78
</TABLE>
F-42
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDER
OF LINCOLN BENEFIT LIFE COMPANY:
We have audited the accompanying Consolidated Statements of Financial Position
of Lincoln Benefit Life Company and subsidiary (the "Company", an affiliate of
The Allstate Corporation) as of December 31, 1999 and 1998, and the related
Consolidated Statements of Operations and Comprehensive Income, Shareholder's
Equity and Cash Flows for each of the three years in the period ended December
31, 1999. Our audits also included Schedule IV - Reinsurance. These consolidated
financial statements and financial statement schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with generally
accepted accounting principles. Also, in our opinion, Schedule IV - Reinsurance,
when considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
Chicago, Illinois
February 25, 2000
F-1
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998
----------- -----------
($ in thousands, except par value)
<S> <C> <C>
ASSETS
Investments
Fixed income securities, at fair value
(amortized cost $158,747 and $149,898) $ 157,218 $ 158,984
Short-term 1,919 3,675
----------- -----------
Total investments 159,137 162,659
Cash 1,110 1,735
Reinsurance recoverable from
Allstate Life Insurance Company 7,539,995 6,938,717
Reinsurance recoverables from non-affiliates 260,324 199,997
Other assets 4,447 12,286
Separate Accounts 1,411,996 763,416
----------- -----------
TOTAL ASSETS $ 9,377,009 $ 8,078,810
=========== ===========
LIABILITIES
Reserve for life-contingent contract benefits $ 419,117 $ 346,974
Contractholder funds 7,369,664 6,785,070
Current income taxes payable 3,401 3,659
Deferred income taxes 745 5,546
Payable to affiliates, net 12,723 10,536
Other liabilities and accrued expenses 1,528 3,831
Separate Accounts 1,411,996 763,416
----------- -----------
TOTAL LIABILITIES 9,219,174 7,919,032
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 12)
SHAREHOLDER'S EQUITY
Common stock, $100 par value, 30,000 shares
authorized, 25,000 issued and outstanding 2,500 2,500
Additional capital paid-in 116,750 116,750
Retained income 39,579 34,622
Accumulated other comprehensive (loss) income:
Unrealized net capital (losses) gains (994) 5,906
----------- -----------
TOTAL ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME (994) 5,906
----------- -----------
TOTAL SHAREHOLDER'S EQUITY 157,835 159,778
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $ 9,377,009 $ 8,078,810
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
($ in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Net investment income $ 10,740 $ 10,078 $ 10,067
Realized capital gains and losses (913) 134 17
Other (expense) income (2,311) 162 503
-------- -------- --------
INCOME FROM OPERATIONS
BEFORE INCOME TAX EXPENSE 7,516 10,374 10,587
Income tax expense 2,559 3,704 3,735
-------- -------- --------
NET INCOME 4,957 6,670 6,852
-------- -------- --------
OTHER COMPREHENSIVE (LOSS) INCOME, AFTER TAX
Change in unrealized net capital gains and losses (6,900) 1,774 2,331
-------- -------- --------
COMPREHENSIVE (LOSS) INCOME $ (1,943) $ 8,444 $ 9,183
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------
($ in thousands) 1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
COMMON STOCK $ 2,500 $ 2,500 $ 2,500
--------- --------- ---------
ADDITIONAL CAPITAL PAID-IN $ 116,750 $ 116,750 $ 116,750
--------- --------- ---------
RETAINED INCOME
Balance, beginning of year $ 34,622 $ 27,952 $ 21,110
Net income 4,957 6,670 6,852
Dividend-in-kind - - (10)
--------- --------- ---------
Balance, end of year 39,579 34,622 27,952
--------- --------- ---------
ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
Balance, beginning of year $ 5,906 $ 4,132 $ 1,801
Change in unrealized net capital gains
and losses (6,900) 1,774 2,331
--------- --------- ---------
Balance, end of year (994) 5,906 4,132
--------- --------- ---------
TOTAL SHAREHOLDER'S EQUITY $ 157,835 $ 159,778 $ 151,334
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
($ in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,957 $ 6,670 $ 6,852
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation, amortization and other non-cash items (5,313) 2 20
Realized capital gains and losses 913 (134) (17)
Changes in:
Life-contingent contract benefits and
contractholder funds (4,868) 1,394 427
Income taxes payable (1,343) 2,973 (381)
Other operating assets and liabilities 11,344 (2,867) (4,606)
-------- -------- --------
Net cash provided by operating activities 5,690 8,038 2,295
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed income securities
Proceeds from sales 17,760 - -
Investment collections 13,580 10,710 11,980
Investments purchases (39,723) (18,587) (18,307)
Change in short-term investments, net 2,068 (2,646) 840
-------- -------- --------
Net cash used in investing activities (6,315) (10,523) (5,487)
-------- -------- --------
NET DECREASE IN CASH (625) (2,485) (3,192)
CASH AT THE BEGINNING OF YEAR 1,735 4,220 7,412
-------- -------- --------
CASH AT END OF YEAR $ 1,110 $ 1,735 $ 4,220
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Noncash financing activity
Dividend-in-kind to Allstate Life Insurance Company $ - $ - $ (10)
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
1. GENERAL
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Lincoln Benefit Life Company ("LBL") and its wholly owned subsidiary, AFD, Inc.
(formerly Allstate Financial Distributors, Inc), a registered broker-dealer,
(collectively, the "Company"). LBL is a wholly owned subsidiary of Allstate Life
Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company
("AIC"), a wholly owned subsidiary of The Allstate Corporation (the
"Corporation"). These consolidated financial statements have been prepared in
conformity with generally accepted accounting principles. All significant
intercompany accounts and transactions have been eliminated.
To conform with the 1999 presentation, certain amounts in the prior years'
financial statements and notes have been reclassified.
NATURE OF OPERATIONS
The Company markets a broad line of life insurance and savings products
primarily through independent insurance agents and brokers. Life insurance
consists of traditional products, including term and whole life,
interest-sensitive life, immediate annuities with life contingencies, variable
life and indexed life insurance. Savings products include deferred annuities and
immediate annuities without life contingencies. Deferred annuities include fixed
rate, market value adjusted, indexed and variable annuities. In 1999, annuity
premiums and deposits represented 80.9% of the Company's total statutory
premiums and deposits.
Annuity contracts and life insurance policies issued by the Company are subject
to discretionary surrender or withdrawal by customers, subject to applicable
surrender charges. These policies and contracts are reinsured primarily with
ALIC (see Note 3), which invests premiums and deposits to provide cash flows
that will be used to fund future benefits and expenses.
The Company monitors economic and regulatory developments which have the
potential to impact its business. Recently enacted federal legislation will
allow for banks and other financial organizations to have greater participation
in the securities and insurance businesses. This legislation may present an
increased level of competition for sales of the Company's products. Furthermore,
the market for deferred annuities and interest-sensitive life insurance is
enhanced by the tax incentives available under current law. Any legislative
changes which lessen these incentives are likely to negatively impact the demand
for these products.
Additionally, traditional demutualizations of mutual insurance companies and
enacted and pending state legislation to permit mutual insurance companies to
convert to a hybrid structure known as a mutual holding company could have a
number of significant effects on the Company by (1) increasing industry
competition through consolidation caused by mergers and acquisitions related to
the new corporate form of business; and (2) increasing competition in the
capital markets.
The Company is authorized to sell life and savings products in all states except
New York, as well as in the District of Columbia, Guam and the U.S. Virgin
Islands. The top geographic locations for statutory premiums and deposits for
the Company were California, Florida, Wisconsin, Pennsylvania and Illinois for
the year ended December 31, 1999. No other jurisdiction accounted for more than
5% of statutory premiums and deposits. All premiums and deposits are ceded under
reinsurance agreements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENTS
Fixed income securities include bonds and mortgage-backed securities. All fixed
income securities are carried at fair value and may be sold prior to their
contractual maturity ("available for sale"). The difference between amortized
cost and fair value, net of deferred income taxes, is reflected as a component
of shareholder's equity. Provisions are recognized for declines in the value of
fixed income securities that are other than temporary. Such writedowns are
included in realized capital gains and losses. Short-term investments are
carried at cost or amortized cost which approximates fair value.
F-6
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
Investment income consists primarily of interest and short-term investment
dividends. Interest is recognized on an accrual basis and dividends are recorded
at the ex-dividend date. Interest income on mortgaged-backed securities is
determined on the effective yield method, based on the estimated principal
repayments. Accrual of income is suspended for fixed income securities that are
in default or when the receipt of interest payments is in doubt. Realized
capital gains and losses are determined on a specific identification basis.
REINSURANCE RECOVERABLE
The Company has reinsurance agreements whereby all premiums, contract charges,
credited interest, policy benefits and certain expenses are ceded. Such amounts
are reflected net of such reinsurance in the consolidated statements of
operations and comprehensive income. Investment income earned on the assets
which support contractholder funds and the reserve for life-contingent contract
benefits is not included in the Company's consolidated financial statements as
those assets are owned and managed under terms of the reinsurance agreements.
Reinsurance recoverable and the related reserve for life-contingent contract
benefits and contractholder funds are reported separately in the consolidated
statements of financial position. The Company continues to have primary
liability as the direct insurer for risks reinsured.
RECOGNITION OF INSURANCE REVENUE AND RELATED BENEFITS AND INTEREST CREDITED
Traditional life insurance products consist principally of products with fixed
and guaranteed premiums and benefits, primarily term and whole life insurance
products and certain annuities with life contingencies. Premiums from these
products are recognized as revenue when due. Benefits are recognized in relation
to such revenue so as to result in the recognition of profits over the life of
the policy and are reflected in contract benefits.
Interest-sensitive life contracts are insurance contracts whose terms are not
fixed and guaranteed. The terms that may be changed include premiums paid by the
contractholder, interest credited to the contractholder account balance and one
or more amounts assessed against the contractholder. Premiums from these
contracts are reported as deposits to contractholder funds. Contract charge
revenue consists of fees assessed against the contractholder account balance for
cost of insurance (mortality risk), contract administration and surrender
charges. Contract benefits include interest credited to contracts and claims
incurred in excess of related contractholder account balance.
Limited payment contracts, a type of immediate annuity with life contingencies
and single premium life contract, are contracts that provide insurance
protection over a contract period that extends beyond the period in which
premiums are collected. Gross premiums in excess of the net premium on limited
payment contracts are deferred and recognized over the contract period. Contract
benefits are recognized in relation to such revenues so as to result in the
recognition of profits over the life of the policy.
Contracts that do not subject the Company to significant risk arising from
mortality or morbidity are referred to as investment contracts. Fixed rate
annuities, market value adjusted annuities, indexed annuities and immediate
annuities without life contingencies are considered investment contracts.
Deposits received for such contracts are reported as deposits to contractholder
funds. Contract charge revenue for investment contracts consists of charges
assessed against the contractholder account balance for contract administration
and surrenders. Contract benefits include interest credited and claims incurred
in excess of the related contractholder account balance.
Crediting rates for fixed rate annuities and interest-sensitive life contracts
are adjusted periodically by the Company to reflect current market conditions.
Crediting rates for indexed annuities and indexed life products are based on an
interest rate index, such as LIBOR or an equity index, such as the S&P 500.
Investment contracts also include variable annuity and variable life contracts
which are sold as Separate Accounts products. The assets supporting these
products are legally segregated and available only to settle Separate Accounts
contract obligations. Deposits received are reported as Separate Accounts
liabilities. The Company's contract charge revenue for these contracts consists
of charges assessed against the Separate Accounts fund balances for contract
maintenance, administration, mortality, expense and surrenders.
All premiums, contract charges, contract benefits and interest credited are
reinsured.
F-7
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
INCOME TAXES
The income tax provision is calculated under the liability method and presented
net of reinsurance. Deferred tax assets and liabilities are recorded based on
the difference between the financial statement and tax bases of assets and
liabilities at the enacted tax rates. Deferred income taxes arise primarily from
unrealized capital gains or losses on fixed income securities carried at fair
value and differences in the tax bases of investments.
SEPARATE ACCOUNTS
The Company issues deferred variable annuity and variable life contracts, the
assets and liabilities of which are legally segregated and recorded as assets
and liabilities of the Separate Accounts. Absent any contract provisions wherein
the Company contractually guarantees either a minimum return or account value to
the beneficiaries of the contractholders in the form of a death benefit, the
contractholders bear the investment risk that the Separate Accounts' funds may
not meet their stated objectives.
The assets of the Separate Accounts are carried at fair value. Separate Accounts
liabilities represent the contractholders' claim to the related assets and are
carried at the fair value of the assets. In the event that the asset value of
certain contractholder accounts are projected to be below the value guaranteed
by the Company, a liability is established through a charge to earnings.
Investment income and realized capital gains and losses of the Separate Accounts
accrue directly to the contractholders and therefore, are not included in the
Company's consolidated statements of operations and comprehensive income.
Revenues to the Company from Separate Accounts consist of contract maintenance
and administration fees, and mortality, surrender and expense charges.
RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS
The reserve for life-contingent contract benefits, which relates to traditional
life insurance, immediate annuities with life contingencies and certain variable
annuity contract guarantees, is computed on the basis of assumptions as to
mortality, future investment yields, terminations and expenses at the time the
policy is issued. These assumptions, which for traditional life insurance are
applied using the net level premium method, include provisions for adverse
deviation and generally vary by such characteristics as type of coverage, year
of issue and policy duration. Detailed reserve assumptions and reserve interest
rates are outlined in Note 6.
CONTRACTHOLDER FUNDS
Contractholder funds arise from the issuance of interest-sensitive life and
certain investment contracts. Deposits received are recorded as interest-bearing
liabilities. Contractholder funds are equal to deposits received, net of
commissions, and interest credited to the benefit of the contractholder less
withdrawals, mortality charges and administrative expenses. Detailed information
on crediting rates and surrender and withdrawal protection on contractholder
funds are outlined in Note 6.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
NEW ACCOUNTING STANDARDS
In 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments." The SOP
provides guidance concerning when to recognize a liability for insurance-related
assessments and how those liabilities should be measured. Specifically,
insurance-related assessments should be recognized as liabilities when all of
the following criteria have been met: 1) an assessment has been imposed or it is
probable that an assessment will be imposed, 2) the event obligating an entity
to pay an assessment has occurred and 3) the amount of the assessment can be
reasonably estimated. Adoption of this statement was not material to the
Company's results of operations or financial position.
F-8
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
3. RELATED PARTY TRANSACTIONS
REINSURANCE
The Company has reinsurance agreements whereby certain premiums, contract
charges, credited interest, policy benefits and expenses are ceded to ALIC, and
reflected net of such reinsurance in the consolidated statements of operations
and comprehensive income. Reinsurance recoverable and the related reserve for
life-contingent contract benefits and contractholder funds are reported
separately in the consolidated statements of financial position. The Company
continues to have primary liability as the direct insurer for risks reinsured.
Investment income earned on the assets which support contractholder funds and
the reserve for life-contingent contract benefits are not included in the
Company's consolidated financial statements as those assets are owned and
managed under terms of the reinsurance agreements. The following amounts were
ceded to ALIC under reinsurance agreements.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
($ in thousands) 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Premiums $ 60,451 $ 30,811 $ 34,834
Contract charges 127,403 106,158 87,061
Credited interest, policy benefits, and other
expenses 684,704 624,620 533,369
</TABLE>
BUSINESS OPERATIONS The Company utilizes services provided by AIC and ALIC and
business facilities owned or leased, and operated by AIC in conducting its
business activities. The Company reimburses AIC and ALIC for the operating
expenses incurred on behalf of the Company. The Company is charged for the cost
of these operating expenses based on the level of services provided. Operating
expenses, including compensation and retirement and other benefit programs,
allocated to the Company were $26,418, $45,940 and $34,947 in 1999, 1998 and
1997, respectively. Of these costs, the Company retains investment related
expenses. All other costs are ceded to ALIC under reinsurance agreements.
4. INVESTMENTS
FAIR VALUES
The amortized cost, gross unrealized gains and losses, and fair value for fixed
income securities are as follows:
<TABLE>
<CAPTION>
GROSS UNREALIZED
------------------
AMORTIZED FAIR
COST GAINS LOSSES VALUE
--------- ------- -------- --------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1999
U.S. government and agencies $ 11,849 $ 606 $ (30) $ 12,425
Corporate 95,036 439 (3,282) 92,193
Municipal 10,625 78 (108) 10,595
Mortgage-backed securities 41,237 1,372 (604) 42,005
--------- ------- -------- --------
Total fixed income securities $ 158,747 $ 2,495 $ (4,024) $ 157,218
========= ======= ======== ========
AT DECEMBER 31, 1998
U.S. government and agencies $ 14,105 $ 2,498 $ - $ 16,603
Corporate 84,547 3,548 (151) 87,944
Foreign government 3,031 239 - 3,270
Mortgage-backed securities 48,215 2,972 (20) 51,167
--------- ------- -------- --------
Total fixed income securities $ 149,898 $ 9,257 $ (171) $158,984
========= ======= ======== ========
</TABLE>
F-9
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
SCHEDULED MATURITIES
The scheduled maturities for fixed income securities are as follows at December
31, 1999:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Due in one year or less $ 2,000 $ 1,999
Due after one year through five years 38,778 38,374
Due after five years through ten years 56,887 54,579
Due after ten years 19,845 20,261
--------- --------
117,510 115,213
Mortgage-backed securities 41,237 42,005
--------- --------
Total $ 158,747 $157,218
========= ========
</TABLE>
Actual maturities may differ from those scheduled as a result of prepayments by
the issuers.
<TABLE>
<CAPTION>
NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ 10,380 $ 10,375 $ 10,032
Short-term investments 577 286 195
------ ------ ------
Investment income, before expense 10,957 10,661 10,227
Investment expense 217 583 160
------ ------ ------
Net investment income $ 10,740 $ 10,078 $ 10,067
========= ======== ========
REALIZED CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
Fixed income securities $ (913) $ 134 $ 17
Income taxes (320) 47 6
-------- ------- --------
Realized capital gains and losses,
after tax $ (593) $ 87 $ 11
======== ======= ========
</TABLE>
Excluding calls and prepayments, gross gains of $1 and gross losses of $914 were
realized on sales of fixed income securities during 1999. There were no gross
gains or losses realized on sales of fixed income securities during 1998 and
1997.
UNREALIZED NET CAPITAL GAINS AND LOSSES
Unrealized net capital gains on fixed income securities included in
shareholder's equity at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
COST/ GROSS UNREALIZED UNREALIZED
AMORTIZED COST FAIR VALUE GAINS LOSSES NET LOSSES
-------------- ---------- ----- ------ ----------
<S> <C> <C> <C> <C> <C>
Fixed income securities $ 158,747 $ 157,218 $2,495 $ (4,024) $ (1,529)
========== ========= ====== ========
Deferred income taxes 535
---------
Unrealized net capital losses $ (994)
=========
</TABLE>
F-10
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
<TABLE>
<CAPTION>
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Fixed income securities $ (10,615) $ 2,729 $ 3,585
Deferred income taxes 3,715 (955) (1,254)
---------- -------- --------
(Decrease) increase in unrealized net
capital gains $ (6,900) $ 1,774 $ 2,331
========== ======== ========
</TABLE>
SECURITIES ON DEPOSIT
At December 31, 1999, fixed income securities with a carrying value
of $7,628 were on deposit with regulatory authorities as required by law.
5. FINANCIAL INSTRUMENTS
In the normal course of business, the Company invests in various financial
assets and incurs various financial liabilities. The fair value estimates of
financial instruments presented on the following page are not necessarily
indicative of the amounts the Company might pay or receive in actual market
transactions. Potential taxes and other transaction costs have not been
considered in estimating fair value. The disclosures that follow do not reflect
the fair value of the Company as a whole since a number of the Company's
significant assets (including reinsurance recoverables) and liabilities
(including traditional life and interest-sensitive life insurance reserves and
deferred income taxes) are not considered financial instruments and are not
carried at fair value. Other assets and liabilities considered financial
instruments, such as accrued investment income and cash, are generally of a
short-term nature. Their carrying values are assumed to approximate fair value.
FINANCIAL ASSETS
The carrying value and fair value of financial assets at December 31, are as
follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Fixed income securities $ 157,218 $ 157,218 $ 158,984 $ 158,984
Short-term investments 1,919 1,919 3,675 3,675
Separate Accounts 1,411,996 1,411,996 763,416 763,416
</TABLE>
Fair values for fixed income securities are based on quoted market prices
where available. Non-quoted securities are valued based on discounted cash
flows using current interest rates for similar securities. Short-term
investments are highly liquid investments with maturities of less than one
year whose carrying value are deemed to approximate fair value. Separate
Accounts assets are carried in the consolidated statements of financial
position at fair value based on quoted market prices.
FINANCIAL LIABILITIES
The carrying value and fair value of financial liabilities at December 31, are
as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Contractholder funds on
investment contracts $ 5,716,583 $ 5,424,725 $ 5,220,485 $ 5,006,124
Separate Accounts 1,411,996 1,411,996 763,416 763,416
</TABLE>
The fair value of contractholder funds on investment contracts is based on
the terms of the underlying contracts. Reserves on investment contracts with
no stated maturities (single premium and flexible premium deferred annuities)
are valued at the account balance less surrender charges. The fair value of
immediate annuities and annuities without life contingencies with fixed terms
is estimated using discounted cash flow calculations based on interest rates
currently offered for contracts with similar terms and durations. Separate
Accounts liabilities are carried at the fair value of the underlying assets.
F-11
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
6. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS
At December 31, the reserve for life-contingent contract benefits consists of
the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Immediate annuities $ 79,269 $ 56,683
Traditional life 312,130 228,734
Other 27,718 61,557
-------- ---------
Total life-contingent contract benefits $419,117 $ 346,974
======== =========
</TABLE>
The assumptions for mortality generally utilized in calculating reserves
include, the 1983 group annuity mortality table for immediate annuities; and
actual Company experience plus loading for traditional life. Interest rate
assumptions vary from 4.4% to 9.3% for immediate annuities and 4.0% to 8.0% for
traditional life. Other estimation methods used include the present value of
contractually fixed future benefits for immediate annuities and the net level
premium reserve method using the Company's withdrawal experience rates for
traditional life.
At December 31, contractholder funds consists of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest-sensitive life $ 1,656,087 $ 1,572,478
Fixed annuities:
Immediate annuities 123,637 105,692
Deferred annuities 5,589,940 5,106,900
----------- ------------
Total contractholder funds $ 7,369,664 $ 6,785,070
=========== ============
</TABLE>
Contractholder funds are equal to deposits received, net of commissions, and
interest credited to the benefit of the contractholder less withdrawals,
mortality charges and administrative expenses. Interest rates credited range
from 5.2% to 7.4% for interest-sensitive life contracts; 4.4% to 9.3% for
immediate annuities and 1.6% to 26.2% for deferred annuities. Withdrawal and
surrender charge protection includes: i) for interest-sensitive life, either a
percentage of account balance or dollar amount grading off generally over 20
years; and, ii) for deferred annuities not subject to a market value adjustment,
either a declining or a level percentage charge generally over nine years or
less. Approximately 10% of deferred annuities are subject to a market value
adjustment.
7. REINSURANCE
The Company purchases reinsurance to limit aggregate and single losses on large
risks. The Company continues to have primary liability as the direct insurer for
risks reinsured. Estimating amounts of reinsurance recoverable is impacted by
the uncertainties involved in the establishment of loss reserves. Failure of
reinsurers to honor their obligations could result in losses to the Company.
The Company cedes a portion of the mortality risk on certain term life policies
with a pool of reinsurers.
Amounts recoverable from reinsurers are estimated based upon assumptions
consistent with those used in establishing the liabilities related to the
underlying reinsured contracts. Except for ALIC, no single reinsurer had a
material obligation to the Company nor is the Company's business substantially
dependent upon any reinsurance contract.
F-12
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
The following amounts were ceded to third parties under reinsurance
agreements:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Premiums $ 201,889 $ 154,320 $173,855
Policy benefits and other expenses 182,389 202,676 182,799
</TABLE>
8. CORPORATION RESTRUCTURING
On November 10, 1999 the Corporation announced a series of strategic
initiatives to aggressively expand its selling and servicing capabilities.
The Corporation also announced that it is implementing a program to reduce
expenses by approximately $600 million. The reduction will result in the
elimination of approximately 4,000 current non-agent positions, across all
employment grades and categories by the end of 2000, or approximately 10% of
the Corporation's non-agent work force. The impact of the reduction in
employee positions is not expected to materially impact the results of
operations of the Company.
These cost reductions are part of a larger initiative to redeploy the cost
savings to finance new initiatives including investments in direct access and
internet channels for new sales and service capabilities, new competitive
pricing and underwriting techniques, new agent and claim technology and
enhanced marketing and advertising. As a result of the cost reduction
program, the Corporation recorded restructuring and related charges of $81
million pretax during the fourth quarter of 1999. The Corporation anticipates
that additional pretax restructuring related charges of approximately $100
million will be expensed as incurred throughout 2000. The Company's allocable
share of these expenses were immaterial in 1999 and are expected to be
immaterial in 2000.
9. INCOME TAXES
The Company joins the Corporation and its other eligible domestic
subsidiaries (the "Allstate Group") in the filing of a consolidated federal
income tax return and is party to a federal income tax allocation agreement
(the "Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing
Agreement, the Company pays to or receives from the Corporation the amount,
if any, by which the Allstate Group's federal income tax liability is
affected by virtue of inclusion of the Company in the consolidated federal
income tax return. Effectively, this results in the Company's annual income
tax provision being computed, with adjustments, as if the Company filed a
separate return.
Prior to June 30, 1995, the Corporation was a subsidiary of Sears Roebuck &
Co. ("Sears") and, with its eligible domestic subsidiaries, was included in
the Sears consolidated federal income tax return and federal income tax
allocation agreement. Effective June 30, 1995, the Corporation and Sears
entered into a new tax sharing agreement, which governs their respective
rights and obligations with respect to federal income taxes for all periods
during which the Corporation was a subsidiary of Sears, including the
treatment of audits of tax returns for such periods.
The Internal Revenue Service ("IRS") has completed its review of the Allstate
Group's federal income tax returns through the 1993 tax year. Any adjustments
that may result from IRS examinations of tax returns are not expected to have a
material impact on the financial position, liquidity or result of operations of
the Company.
F-13
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
The components of the deferred income tax assets and liabilities at
December 31, are as follow:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
DEFERRED ASSETS
Unrealized net capital losses $ 535 $ -
Other assets 897 -
--------- --------
Total deferred assets 1,432 -
DEFERRED LIABILITIES
Difference in tax bases of investments (2,177) (2,244)
Unrealized net capital gains - (3,180)
Other liabilities - (122)
--------- --------
Total deferred liabilities (2,177) (5,546)
--------- --------
Net deferred liability $ (745) $ (5,546)
========= ========
</TABLE>
The components of the income tax expense for the year
ended at December 31, are as follow:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current $ 3,645 $ 3,262 $ 4,321
Deferred (1,086) 442 (586)
-------- ------- -------
Total income tax expense $ 2,559 $ 3,704 $ 3,735
======== ======= =======
</TABLE>
The Company paid income taxes of $3,902, $731 and $4,116 in 1999, 1998 and
1997, respectively
A reconciliation of the statutory federal income tax rate to the effective
income tax rate on income from operations for the year ended December 31, is
as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
Other (1.0) .7 .3
---- ---- ----
Effective income tax rate 34.0% 35.7% 35.3%
==== ==== ====
</TABLE>
Prior to January 1, 1984, the Company was entitled to exclude certain amounts
from taxable income and accumulate such amounts in a "policyholder surplus"
account. The balance in this account at December 31, 1999, approximately
$340, will result in federal income taxes payable of $119 if distributed by
the Company. No provision for taxes has been made as the Company has no plan
to distribute amounts from this account. No further additions to the account
have been permitted since the Tax Reform Act of 1984.
10. STATUTORY FINANCIAL INFORMATION
The Company's statutory capital and surplus was $153,632 and $146,842 at
December 31, 1999 and 1998, respectively. The Company's statutory net income
was $6,091, $7,201 and $6,665 for the years ended December 31, 1999, 1998 and
1997, respectively.
F-14
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company prepares its statutory financial statements in accordance with
accounting practices prescribed or permitted by the Nebraska Department of
Insurance. Prescribed statutory accounting practices include a variety of
publications of the National Association of Insurance Commissioners ("NAIC"), as
well as state laws, regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices not so
prescribed. The Company does not follow any permitted statutory accounting
practices that have a significant impact on statutory surplus or statutory net
income.
The NAIC's codification initiative has produced a comprehensive guide of
statutory accounting principles, which the Company will implement in January
2001. The Company's state of domicile, Nebraska, has passed legislation revising
various statutory accounting requirements to conform to codification. These
requirements are not expected to have a material impact on the statutory surplus
of the Company.
DIVIDENDS
The ability of the Company to pay dividends is dependent on business conditions,
income, cash requirements of the Company and other relevant factors. The payment
of shareholder dividends by the Company without the prior approval of the state
insurance regulator is limited to formula amounts based on net income and
capital and surplus, determined in accordance with statutory accounting
practices, as well as the timing and amount of dividends paid in the preceding
twelve months. The maximum amount of dividends that the Company can distribute
during 2000 without prior approval of the Nebraska Department of Insurance is
$15,113.
RISK-BASED CAPITAL
The NAIC has a standard for assessing the solvency of insurance companies, which
is referred to as risk-based capital ("RBC"). The requirement consists of a
formula for determining each insurer's RBC and a model law specifying regulatory
actions if an insurer's RBC falls below specified levels. The RBC formula for
life insurance companies establishes capital requirements relating to insurance,
business, asset and interest rate risks. At December 31, 1999, RBC for the
Company was significantly above a level that would require regulatory action.
11. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income on a pretax and after-tax basis for
the year ended December 31, are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------------- -------------------------- ---------------------------------
After- After- After-
Pretax Tax Tax Pretax Tax Tax Pretax Tax Tax
------ --- ------ ------ --- ------ ------ --- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
UNREALIZED CAPITAL GAINS
AND LOSSES:
- -------------------------
Unrealized holding
(losses) gains arising
during the period $ (11,528) $ 4,035 $ (7,493) $ 2,863 $(1,002) $ 1,861 $ 3,602 $ (1,260) $ 2,342
Less: reclassification
adjustments (913) 320 (593) 134 (47) 87 17 (6) 11
--------- ------- -------- ------- ------- ------- ------- -------- -------
Unrealized net capital
(losses) gains (10,615) 3,715 (6,900) 2,729 (955) 1,774 3,585 (1,254) 2,331
--------- ------- -------- ------- -------- ------- ------- -------- -------
Other comprehensive
(loss) income $ (10,615) $ 3,715 $ (6,900) $ 2,729 $ (955) $ 1,774 $ 3,585 $ (1,254) $ 2,331
========= ======= ======== ======= ======= ======= ======= ======== =======
</TABLE>
F-15
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS)
12. COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases certain office facilities and computer equipment.
Total rent expense for all leases was $2,042, $1,743 and $1,596 in 1999, 1998
and 1997, respectively. Minimum rental commitments under noncancelable
operating leases with initial or remaining term of more than one year as of
December 31, are as follows:
<TABLE>
<CAPTION>
1999
----
<S> <C>
2000 $ 1,815
2001 296
2002 12
2003 12
2004 12
Thereafter 264
-------
$ 2,411
=======
</TABLE>
REGULATION AND LEGAL PROCEEDINGS
The Company's business is subject to the effects of a changing social, economic
and regulatory environment. Public and regulatory initiatives have varied and
have included employee benefit regulation, removal of barriers preventing banks
from engaging in the securities and insurance business, tax law changes
affecting the taxation of insurance companies, and tax treatment of insurance
products and its impact on the relative desirability of various personal
investment vehicles, and proposed legislation to prohibit the use of gender in
determining insurance rates and benefits. The ultimate changes and eventual
effects, if any, of these initiatives are uncertain.
From time to time the Company is involved in pending and threatened litigation
in the normal course of its business in which claims for monetary damages are
asserted. In the opinion of management, the ultimate liability, if any, arising
from such pending or threatened litigation is not expected to have a material
effect on the results of operations, liquidity or financial position of the
Company.
GUARANTY FUNDS
Under state insurance guaranty fund laws, insurers doing business in a state can
be assessed, up to prescribed limits, for certain obligations of insolvent
insurance companies to policyholders and claimants. The Company's expenses
related to these funds have been immaterial. These expenses are ceded to ALIC
under reinsurance agreements.
MARKETING AND COMPLIANCE ISSUES
Companies operating in the insurance and financial services markets have come
under the scrutiny of regulators with respect to market conduct and compliance
issues. Under certain circumstances, companies have been held responsible for
providing incomplete or misleading sales materials and for replacing existing
policies with policies that were less advantageous to the policyholder. The
Company monitors its sales materials and enforces compliance procedures to
mitigate any exposure to potential litigation. The Company is a member of the
Insurance Marketplace Standards Association, an organization which advocates
ethical market conduct.
13. SALE OF BUILDING
Included within other income and expenses in the Company's consolidated
statements of operations and comprehensive income for 1999, is a write-down of
$798 associated with the sale of the Company's building in Lincoln, Nebraska
which occurred in the first quarter of 2000. Also included in other income and
expenses is the write-down of $1,200 related to unamortized building
improvements recognized in the third quarter of 1999 when the building was
vacated by the Company.
14. SUBSEQUENT EVENT
On January 13, 2000, the Company declared a dividend of all the common shares of
AFD, Inc stock to ALIC. AFD, Inc income (loss) after taxes, included within
other income and expenses and income tax expense was ($9), $136, and $580 in
1999, 1998 and 1997, respectively. Total assets for AFD, Inc were immaterial to
the Company in total at December 31, 1999 and 1998.
F-16
<PAGE>
LINCOLN BENEFIT LIFE COMPANY
SCHEDULE IV - REINSURANCE
($ IN THOUSANDS)
<TABLE>
<CAPTION>
GROSS NET
YEAR ENDED DECEMBER 31, 1999 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
<S> <C> <C> <C>
Life insurance in force $ 109,520,029 $ 109,520,029 $ -
============= ============= =========
Premiums and contract charges:
Life and annuities $ 369,540 $ 369,540 $ -
Accident and health 20,203 20,203 -
------------- ------------- ---------
$ 389,743 $ 389,743 $ -
============= ============= =========
GROSS NET
YEAR ENDED DECEMBER 31, 1998 AMOUNT CEDED AMOUNT
- ---------------------------- -------- ------- ------
Life insurance in force $ 97,690,299 $ 97,690,299 $ -
============= ============= =========
Premiums and contract charges:
Life and annuities $ 287,839 $ 287,839 $ -
Accident and health 3,450 3,450 -
------------- ------------- ---------
$ 291,289 $ 291,289 $ -
============= ============= =========
GROSS NET
YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED AMOUNT
- ---------------------------- ------ ----- ------
Life insurance in force $ 72,754,000 $ 72,754,000 $ -
============= ============= =========
Premiums and contract charges:
Life and annuities $ 277,825 $ 277,825 $ -
Accident and health 35,217 $ 35,217 -
------------- ------------- ---------
$ 313,042 $ 313,042 $ -
============= ============= =========
</TABLE>
F-17
<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 covering Insured Persons
of a given age and underwriting risk classification and payment of specified
annual Premiums would vary over time if the investment 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 covering a
male, age 55 and a female age 55, a $1,000,000 Face Amount, under a preferred
nonsmoker risk classification and Death Benefit Option 1.
The illustrations assume annual payment of $2,750. 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 .71% 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 .10% of the average
daily net assets of the Funds. The illustrated gross annual investment rates of
return of 0%, 6%, and 12%, "Assuming Current Costs" correspond to approximate
net annual rates of -0.81%, 5.19%, and 11.19%, 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 -0.81%, 5.19%,
and 11.19%, respectively. 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 .72% of the average net assets of the
Subaccounts, with a maximum charge of .48% of average daily net assets
thereafter.
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 28).
The tables illustrate the Policy Values, Surrender Values and Death Benefits
that would result based upon the hypothetical investment rates of return if
Premiums are paid as indicated, if all net Premiums are allocated to the
Separate Account, and if no Policy loans are taken. The tables also assume that
you have not requested an increase or decrease in the face amount of the Policy
and that no partial surrenders or transfers have been made.
Upon request, we will provide a comparable illustration based upon the proposed
Insured Persons' 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.
<TABLE>
<CAPTION>
LINCOLN BENEFIT LIFE COMPANY
FLEXIBLE PREMIUM "LAST SURVIVOR" VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 55 FEMALE ISSUE AGE 55
Face Amount $1,000,000
Annual Premium Paid $2750
Preferred Non-Smoker Class
Death Benefit Option 1
Current Charge Rates
DEATH BENEFIT
Assuming Hypothetical Gross and
Net Annual Investment Return of
<S> <C> <C> <C>
Policy 0% Gross 6% Gross 12% Gross
Year [-0.81%] Net [5.19%] Net [11.19%] Net
1 1,000,000 1,000,000 1,000,000
2 1,000,000 1,000,000 1,000,000
3 1,000,000 1,000,000 1,000,000
4 1,000,000 1,000,000 1,000,000
5 1,000,000 1,000,000 1,000,000
6 1,000,000 1,000,000 1,000,000
7 1,000,000 1,000,000 1,000,000
8 1,000,000 1,000,000 1,000,000
9 1,000,000 1,000,000 1,000,000
10 1,000,000 1,000,000 1,000,000
15 1,000,000 1,000,000 1,000,000
20 1,000,000 1,000,000 1,000,000
25 * 1,000,000 1,000,000
35 * * *
45 * * *
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
POLICY VALUE
Assuming Hypothetical Gross and
Net Annual Investment Return of
<S> <C> <C> <C>
Policy 0% Gross 6% Gross 12% Gross
Year [-0.81%] Net [5.19%] Net [11.19%] Net
1 996 1,100 1,205
2 1,885 2,154 2,438
3 2,637 3,127 3,667
4 3,222 3,983 4,858
5 3,624 4,699 5,990
6 3,823 5,242 7,030
7 3,770 5,553 7,916
8 4,867 7,066 10,118
9 5,697 8,389 12,287
10 6,332 9,583 14,490
15 8,232 15,156 28,146
20 7,166 19,135 47,857
25 * 14,702 71,027
35 * * *
45 * * *
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE
Assuming Hypothetical Gross and
Net Annual Investment Return of
<S> <C> <C> <C>
Policy 0% Gross 6% Gross 12% Gross
Year [-0.81%] Net [5.19%] Net [11.19%] Net
1 0.00 0.00 0.00
2 0.00 0.00 0.00
3 0.00 0.00 0.00
4 0.00 0.00 0.00
5 0.00 0.00 0.00
6 0.00 0.00 0.00
7 0.00 0.00 0.00
8 0.00 0.00 2,002
9 0.00 2,302 6,200
10 1,260 4,510 9,418
15 8,232 15,156 28,146
20 7,166 19,135 47,857
25 * 14,702 71,027
35 * * *
45 * * *
</TABLE>
Assumes the Premium shown is paid at the beginning of each Policy Year. Values
would be different if Premiums are paid with a different frequency or in
different amounts.
Assumes that no Policy loans or withdrawals have been made. An asterisk
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.
<TABLE>
<CAPTION>
LINCOLN BENEFIT LIFE COMPANY
FLEXIBLE PREMIUM "LAST SURVIVOR" VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 55 FEMALE ISSUE AGE 55
Face Amount $1,000,000
Annual Premium Paid $2750
Preferred Non-Smoker Class
Death Benefit Option 1
Guaranteed Charge Rates
DEATH BENEFIT
Assuming Hypothetical Gross and
Net Annual Investment Return of
<S> <C> <C> <C>
Policy 0% Gross 6% Gross 12% Gross
Year [-0.81%] Net [5.19%] Net [11.19%] Net
1 1,000,000 1,000,000 1,000,000
2 1,000,000 1,000,000 1,000,000
3 1,000,000 1,000,000 1,000,000
4 1,000,000 1,000,000 1,000,000
5 1,000,000 1,000,000 1,000,000
6 1,000,000 1,000,000 1,000,000
7 1,000,000 1,000,000 1,000,000
8 1,000,000 1,000,000 1,000,000
9 1,000,000 1,000,000 1,000,000
10 1,000,000 1,000,000 1,000,000
15 * * *
20 * * *
25 * * *
35 * * *
45 * * *
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
POLICY VALUE
Assuming Hypothetical Gross and
Net Annual Investment Return of
<S> <C> <C> <C>
Policy 0% Gross 6% Gross 12% Gross
Year [-0.81%] Net [5.19%] Net [11.19%] Net
1 976 1,079 1,183
2 1,817 2,083 2,362
3 2,499 2,980 3,509
4 2,995 3,735 4,587
5 3,270 4,304 5,552
6 3,281 4,631 6,341
7 2,972 4,643 6,875
8 3,699 5,721 8,563
9 3,914 6,332 9,900
10 3,510 6,337 10,728
15 * * *
20 * * *
25 * * *
35 * * *
45 * * *
</TABLE>
<TABLE>
<CAPTION>
SURRENDER VALUE
Assuming Hypothetical Gross and
Net Annual Investment Return of
<S> <C> <C> <C>
Policy 0% Gross 6% Gross 12% Gross
Year [-0.81%] Net [5.19%] Net [11.19] Net
1 0.00 0.00 0.00
2 0.00 0.00 0.00
3 0.00 0.00 0.00
4 0.00 0.00 0.00
5 0.00 0.00 0.00
6 0.00 0.00 0.00
7 0.00 0.00 0.00
8 0.00 0.00 447
9 0.00 245 3,813
10 0.00 1,265 5,656
15 * * *
20 * * *
25 * * *
35 * * *
45 * * *
</TABLE>
Assumes the Premium shown is paid at the beginning of each Policy Year. Values
would be different if Premiums are paid with a different frequency or in
different amounts.
Assumes that no Policy loans or withdrawals have been made. An asterisk
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-3
