FLEXIBLE PREMIUM
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
LINCOLN BENEFIT LIFE COMPANY
IN CONNECTION WITH
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STREET ADDRESS: 2940 South 84th Street, LINCOLN, NE 68506
MAILING ADDRESS: P. O. BOX 82532, LINCOLN, NE 68501-2532
TELEPHONE NUMBER: 1-800-525-9287
The Contract is a deferred annuity contract designed to aid you in long-term
financial planning. You may purchase it on either a tax qualified or non-tax
qualified basis.
Because this is a flexible premium annuity contract, you may pay multiple
premiums. We allocate your premium to the investment options under the Contract
and our Fixed Account in the proportions that you choose. The Contract currently
offers forty investment options, each of which is a Subaccount of the Lincoln
Benefit Life Variable Annuity Account ("Separate Account"). Each Subaccount
invests exclusively in shares of one of the following Portfolios:
JANUS ASPEN SERIES: Flexible Income Portfolio, Balanced Portfolio, Growth
Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio
FEDERATED INSURANCE MANAGEMENT SERIES: Utility Fund II, Fund for U.S. Government
Securities II, High Income Bond Fund II
FIDELITY VARIABLE INSURANCE PRODUCTS FUND: Money Market Portfolio, Equity-Income
Portfolio, Growth Portfolio, Overseas Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: Asset Manager Portfolio,
Contrafund Portfolio, Index 500 Portfolio
THE ALGER AMERICAN FUND: Income and Growth Portfolio, Small Capitalization
Portfolio, Growth Portfolio, MidCap Growth Portfolio, Leveraged AllCap Portfolio
SCUDDER VARIABLE LIFE INVESTMENT FUND: Bond Portfolio, Balanced Portfolio,
Growth and Income Portfolio, Global Discovery Portfolio, International Portfolio
STRONG VARIABLE INSURANCE FUNDS, INC.: Discovery Fund II, Growth Fund II
STRONG OPPORTUNITY FUND II, INC.: Opportunity Fund II
T. ROWE PRICE INTERNATIONAL SERIES, INC.: T. Rowe Price International Stock
Portfolio
T. ROWE PRICE EQUITY SERIES, INC.: T. Rowe Price New America Growth Portfolio,
T. Rowe Price Mid-Cap Growth Portfolio, T. Rowe Price Equity Income Portfolio
MFS VARIABLE INSURANCE TRUST: Growth with Income Series, Research Series,
Emerging Growth Series, Total Return Series, New Discovery Series
STI CLASSIC VARIABLE TRUST: Capital Appreciation Fund, International Equity
Fund, Value Income Stock Fund
Some of the portfolios described in this Prospectus may not be available in your
Contract. We may make available other investment options in the future.
You may not purchase a Contract if either you or the Annuitant are 90 years old
or older before we receive your application.
Your Contract Value will vary daily as a function of the investment performance
of the Subaccounts to which you have allocated Purchase Payments and any
interest credited to the Fixed Account. We do not guarantee any minimum Contract
Value for amounts allocated to the Subaccounts. Benefits provided by this
Contract, when based on the Fixed Account, are subject to a Market Value
Adjustment, which may result in an upwards or downwards adjustment in withdrawal
benefits, death benefits, settlement values, transfers to the Subaccounts.
In certain states the Contract may be offered as a group contract with
individual ownership represented by Certificates. The discussion of Contracts in
this prospectus applies equally to Certificates under group contracts, unless
the content specifies otherwise.
This prospectus sets forth the information you ought to know about the Contract.
You should read it before investing and keep it for future reference.
We have filed a Statement of Additional Information with the Securities and
Exchange Commission ("SEC"). The current Statement of Additional Information is
dated May 1, 2000. The information in the Statement of Additional Information is
incorporated by reference in this
(continued on next page)
- ------------------------------------------------------------------------------
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS MAY 1, 2000.
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Prospectus. You can obtain a free copy by writing us or calling us at the
telephone number given above. The Table of Contents of the Statement of
Additional Information appears on page 40 of this prospectus.
At least once each year we will send you an annual statement. The annual
statement details values and specific information for your Contract. It does not
contain our financial statements. Our financial statements are set forth in the
Statement of Additional Information. Lincoln Benefit will file annual and
quarterly reports and other information with the SEC. You may read and copy any
reports, statements or other information we file at the SEC's public reference
room in Washington, D.C. You can obtain copies of these documents by writing to
the SEC and paying a duplicating fee. Please call the SEC at 1-800-SEC-0330 for
further information as to the operation of the public reference room. Our SEC
filings are also available to the public on the SEC Internet site
(http://www.sec.gov).
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES
FOR THE PORTFOLIOS LISTED ABOVE. IF ANY OF THESE PROSPECTUSES IS MISSING OR
OUTDATED, PLEASE CONTACT US AND WE WILL SEND YOU THE PROSPECTUS YOU NEED.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
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TABLE OF CONTENTS
DEFINITIONS......................................................5
FEE TABLES.......................................................6
EXAMPLES.........................................................8
EXPLANATION OF FEE TABLES AND EXAMPLES...........................10
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT........................11
CONDENSED FINANCIAL INFORMATION..................................15
DESCRIPTION OF THE CONTRACTS.....................................15
Summary..........................................................15
Contract Owner...................................................15
Annuitant........................................................15
Modification of the Contract.....................................15
Assignment.......................................................15
Free Look Period.................................................15
PURCHASES AND CONTRACT VALUE.....................................16
Minimum Purchase Payment.........................................16
Automatic Payment Plan...........................................16
Allocation of Purchase Payments..................................16
Contract Value...................................................16
Separate Account Accumulation Unit Value.........................16
Transfer During Accumulation Period..............................16
Transfers Authorized by Telephone................................17
Automatic Dollar Cost Averaging Program..........................17
Portfolio Rebalancing............................................17
THE INVESTMENT AND FIXED ACCOUNT OPTIONS.........................18
Separate Account Investments.....................................18
The Portfolios...................................................18
Voting Rights....................................................22
Additions, Deletions, and Substitutions of Securities............22
The Fixed Account................................................23
General..........................................................23
Guaranteed Maturity Fixed Account Option.........................23
Market Value Adjustment..........................................24
Dollar Cost Averaging Fixed Account Option.......................24
ANNUITY BENEFITS.................................................25
Annuity Date.....................................................25
Annuity Options..................................................25
Other Options....................................................25
Annuity Payments: General........................................25
Variable Annuity Payments........................................26
Fixed Annuity Payments...........................................26
Transfers During Annuity Period..................................26
Death Benefit During Annuity Period..............................27
Certain Employee Benefit Plans...................................27
OTHER CONTRACT BENEFITS..........................................27
Death Benefit....................................................27
Enhanced Death Benefit Rider.....................................28
Enhanced Death and Income Benefit Rider..........................29
Beneficiary......................................................29
Contract Loans for 401(a), 401(k), and 403(b) Contracts..........29
Withdrawals (Redemptions)........................................30
Substantially Equal Periodic Payments............................31
Systematic Withdrawal Program....................................31
ERISA Plans......................................................32
Minimum Contract Value...........................................32
CONTRACT CHARGES.................................................32
Mortality and Expense Risk Charge................................32
Administrative Charges...........................................32
Contract Maintenance Charge......................................32
Administrative Expense Charge....................................33
Transfer Fee.....................................................33
Sales Charges....................................................33
Withdrawal Charge................................................33
Free Withdrawal..................................................34
Waiver Benefits..................................................34
General..........................................................34
Confinement Waiver Benefit.......................................34
Terminal Illness Waiver Benefit..................................34
Unemployment Waiver Benefit......................................34
Waiver of Withdrawal Charge for Certain Qualified Plan
Withdrawals.....................................................34
Premium Taxes....................................................34
Deduction for Separate Account Income Taxes......................34
Other Expenses...................................................34
FEDERAL TAX MATTERS..............................................35
Taxation of Annuities in General.................................35
Tax Qualified Contracts..........................................36
Income Tax Withholding...........................................37
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE
ACCOUNT..........................................................37
Lincoln Benefit Life Company.....................................37
Separate Account.................................................37
State Regulation of Lincoln Benefit..............................38
Financial Statements.............................................38
ADMINISTRATION...................................................38
MARKET TIMING AND ASSET ALLOCATION SERVICES......................38
DISTRIBUTION OF CONTRACTS........................................38
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LEGAL PROCEEDINGS................................................39
LEGAL MATTERS....................................................39
ANNUAL REPORTS AND OTHER DOCUMENTS...............................39
REGISTRATION STATEMENT...........................................39
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION.........40
CONSOLIDATED FINANCIAL STATEMENTS................................
APPENDIX A--ACCUMULATION UNIT VALUES.............................A-1
APPENDIX B--PORTFOLIOS AND PERFORMANCE DATA......................B-1
APPENDIX C--ILLUSTRATION OF A MARKET VALUE ADJUSTMENT............C-1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
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DEFINITIONS
Please refer to this list for the meaning of the following terms:
ACCUMULATION PERIOD - The period, beginning on the Issue Date, during which
Contract Value builds up under your Contract.
ACCUMULATION UNIT - A unit of measurement which we use to calculate Contract
Value.
ANNUITANT - The natural person on whose life the annuity benefits under a
Contract are based.
ANNUITIZATION - The process to begin annuity payments under the Contract.
ANNUITIZED VALUE - The Contract Value adjusted by any applicable Market Value
Adjustment and less any applicable taxes.
ANNUITY DATE - The date on which annuity payments are scheduled to begin.
ANNUITY PERIOD - The period during which annuity payments are paid. The Annuity
Period begins on the Annuity Date.
ANNUITY UNIT - A unit of measurement which we use to calculate the amount of
Variable Annuity payments.
BENEFICIARY(IES) - The person(s) designated to receive any death benefits under
the Contract.
COMPANY ("WE," "US," "OUR," "LINCOLN BENEFIT") - Lincoln Benefit Life Company.
CONTRACT ANNIVERSARY - Each anniversary of the Issue Date.
CONTRACT OWNER ("YOU") - The person(s) having the privileges of ownership
defined in the Contract. If your Contract is issued as part of a retirement
plan, your ownership privileges may be modified by the plan.
CONTRACT VALUE - The sum of the values of your interests in the Subaccounts of
the Separate Account and the Fixed Account.
CONTRACT YEAR - Each twelve-month period beginning on the Issue Date and each
Contract Anniversary.
CONTRIBUTION YEAR - Each twelve-month period beginning on the date a Purchase
Payment is allocated to a Subaccount, or each anniversary of that date.
FIXED ACCOUNT - The portion of the Contract Value allocated to our general
account.
FIXED ANNUITY - A series of annuity payments that are fixed in amount.
GUARANTEE PERIODS - A period of years for which we have guaranteed a specific
effective annual interest rate on an amount allocated to the Fixed Account.
ISSUE DATE - The date when the Contract becomes effective.
LATEST ANNUITY DATE - The latest date by which you must begin annuity payments
under the Contract.
LOAN ACCOUNT - An account established for amounts transferred from the
Subaccounts or the Fixed Account as security for outstanding Contract loans.
MARKET VALUE ADJUSTMENT - An amount added to or subtracted from certain
transactions involving your interest in the Fixed Account, to reflect the impact
of changing interest rates.
NET INVESTMENT FACTOR - The factor used to determine the value of an
Accumulation Unit and Annuity Unit in any Valuation Period. We determine the Net
Investment Factor separately for each Subaccount.
NON-QUALIFIED PLAN - A retirement plan which does not receive special tax
treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code.
PORTFOLIO(S) - The underlying mutual funds in which the Subaccounts invest. Each
Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PURCHASE PAYMENTS - Amounts paid to us as premium for the Contract by you or on
your behalf.
QUALIFIED PLAN - A retirement plan which receives special tax treatment under
Sections 401, 403(b), 408 or 408A of the Tax Code or a deferred compensation
plan for a state and local government or another tax exempt organization under
Section 457 of the Tax Code.
SEPARATE ACCOUNT - The Lincoln Benefit Life Variable Annuity Account, which is a
segregated investment account of the Company.
SUBACCOUNT - A subdivision of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SURRENDER VALUE - The amount paid upon complete surrender of the Contract, equal
to the Contract Value, less any applicable premium taxes, Withdrawal Charge, and
the contract maintenance charge and increased or decreased by any Market Value
Adjustment.
TAX CODE - The Internal Revenue Code of 1986, as amended.
TREASURY RATE - The U.S. Treasury Note Constant Maturity Yield for the preceding
week as reported in Federal Reserve Bulletin Release H.15.
VALUATION DATE - Each day the New York Stock Exchange is open for business.
VALUATION PERIOD - The period of time over which we determine the change in the
value of the Subaccounts in order to price Accumulation Units and Annuity Units.
Each Valuation Period begins at the close of normal trading on the New York
Stock Exchange ("NYSE") currently 4:00 p.m. Eastern time on each Valuation Date
and ends at the close of the NYSE on the next Valuation Date.
VARIABLE ANNUITY - A series of annuity payments that vary in amount based on
changes in the value of the Subaccounts to which your Contract Value has been
allocated.
WITHDRAWAL CHARGE - The contingent deferred sales charge that may be required
upon some withdrawals.
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FEE TABLES
CONTRACT OWNER TRANSACTION EXPENSES
Contingent Deferred Sales Charge -- Withdrawal Charge
(as a percentage of Purchase Payments)
CONTRIBUTION APPLICABLE CONTRIBUTION APPLICABLE
YEAR CHARGE YEAR CHARGE
- ------------ ---------- ------------ ----------
1-2 7% 6 4%
3-4 6% 7 3%
5 5% 8+ 0
ANNUAL CONTRACT MAINTENANCE CHARGE............................. $ 35.00
TRANSFER FEE (Applies solely to the second and
subsequent transfers within a calendar month.
We are currently waiving the transfer fee).................... $ 10.00
SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF
DAILY NET ASSET VALUE DEDUCTED FROM EACH OF THE
SUBACCOUNTS OF THE SEPARATE ACCOUNT)
Mortality and Expense Risk Charge* 1.15%
Administrative Expense Charge 0.10%
Total Separate Account Annual Expenses 1.25%
- ------------------------
* If you select the Enhanced Death Benefit Rider, the Mortality and Expense
Risk Charge will be equal to 1.35% of your Contract's average daily net
assets in the Separate Account. If you select the enhanced Death and Income
Benefit Rider, the Mortality and Expense Risk Charge will be equal to 1.55%
of your Contract's average daily net assets in the Separate Account.
<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 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 0.60% 0.19% 0.79%
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
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 FUNDS 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% 0.095% 0.57%
Balanced 0.475% 0.075% 0.55%
Growth and Income 0.475% 0.075% 0.55%
Global Discovery 0.975% 0.655% 1.63%
International 0.853% 0.177% 1.03%
STRONG VARIABLE INSURANCE FUNDS, INC.
Discovery II 1.00% 0.14% 1.14%
Growth II 1.00% 0.17% 1.17%
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MANAGEMENT FEE OTHER EXPENSES TOTAL
-------------- -------------- -----
STRONG OPPORTUNITY FUND II, INC.
Opportunity II 1.00% 0.14% 1.14%
T. ROWE PRICE INTERNATIONAL SERIES, INC. (8)
T. Rowe Price 1.05% 0.00% 1.05%
International Stock
T. ROWE PRICE EQUITY SERIES, INC. (8)
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%
STI CLASSIC VARIABLE TRUST (7)
STI Capital Appreciation (after fee waiver) 0.94% 0.24% 1.15%
STI Value Income (after fee waiver) 0.79% 0.16% 0.95%
STI International Equity (after fee waiver) 0.86% 0.74% 1.60%
- --------------------------
(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: 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) Absent voluntary fee waivers, the management fee, other expenses and total
expenses expressed as a percentage of net assets of the portfolios would
be 1.15%, 0.21%, and 1.36% for STI Capital Growth Appreciation, 0.80%,
0.16%, and 0.96% for STI Value Income, and 1.25%, 0.74% and 1.99% for STI
International Equity.
(8) Management fees include operating expenses.
</TABLE>
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<TABLE>
<CAPTION>
EXAMPLES
IF YOU SURRENDER YOUR CONTRACT AT THE END OF THE APPLICABLE TIME PERIOD, YOU
WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING 5% ANNUAL
RETURN ON ASSETS.
<S> <C> <C> <C> <C>
Sub-Account 1 Year 3 Years 5 Years 10 Years
- ----------------------------------------- ------- ------ ------- --------
Janus Flexible Income $83 $122 $162 $241
Janus Balanced $82 $121 $160 $236
Janus Growth $82 $121 $160 $236
Janus Aggressive Growth $82 $121 $160 $236
Janus Worldwide Growth $83 $121 $161 $239
Federated Utility II $85 $128 $173 $264
Federated U.S. Government Securities II $83 $124 $165 $248
Federated High Income Bond II $83 $124 $166 $249
Fidelity Money Market $79 $109 $139 $193
Fidelity Equity-Income $81 $117 $154 $224
Fidelity Growth $82 $120 $158 $234
Fidelity Overseas $84 $126 $170 $257
Fidelity Contrafund $82 $120 $158 $234
Fidelity Asset Manager $82 $119 $157 $231
Fidelity Index 500 $79 $109 $139 $194
Alger American Income and Growth $83 $121 $161 $239
Alger American Small Capitalization $84 $127 $171 $260
Alger American Growth $83 $124 $166 $249
Alger American MidCap Growth $84 $126 $169 $255
Alger American Leveraged AllCap $85 $128 $173 $263
Scudder Bond $81 $118 $154 $225
Scudder Balanced $81 $117 $153 $223
Scudder Growth and Income $81 $117 $134 $223
Scudder Global Discovery $91 $148 $206 $332
Scudder International $86 $131 $178 $273
Strong Discovery II $87 $134 $183 $284
Strong Growth II $87 $135 $184 $287
Strong Opportunity II $87 $134 $183 $284
T. Rowe Price International Stock $86 $131 $179 $275
T. Rowe Price New American Growth $84 $126 $169 $255
T. Rowe Price Mid-Cap Growth $84 $126 $169 $255
T. Rowe Price Equity Income $84 $126 $169 $255
MFS Growth with Income $84 $127 $170 $258
MFS Research $84 $126 $169 $256
MFS Emerging Growth $84 $125 $168 $254
MFS Total Return $84 $127 $171 $260
MFS New Discovery $86 $132 $179 $277
STI Capital Appreciation $87 $134 $183 $285
STI Value Income $85 $129 $174 $265
STI International Equity $91 $147 $204 $329
</TABLE>
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If you annuitize or if you do not surrender your contact at the end of the
applicable time period, you would pay the following expenses on a $1,000
investment, assuming 5% annual return on assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Sub-Account 1 Year 3 Years 5 Years 10 Years
- --------------------------------------- ------- ------ ------- --------
Janus Flexible Income $21 $65 $112 $241
Janus Balanced $21 $64 $110 $236
Janus Growth $21 $64 $110 $236
Janus Aggressive Growth $21 $64 $110 $236
Janus Worldwide Growth $21 $65 $111 $239
Federated Utility II $23 $72 $123 $264
Federated U.S. Government Securities II $22 $67 $115 $248
Federated High Income Bond II $22 $67 $116 $249
Fidelity Money Market $17 $52 $89 $193
Fidelity Equity-Income $20 $60 $104 $224
Fidelity Growth $20 $63 $108 $234
Fidelity Overseas $23 $70 $120 $257
Fidelity Contrafund $20 $63 $108 $234
Fidelity Asset Manager $20 $62 $107 $231
Fidelity Index 500 $17 $52 $89 $194
Alger American Income and Growth $21 $65 $111 $239
Alger American Small Capitalization $23 $71 $121 $260
Alger American Growth $22 $67 $116 $249
Alger American MidCap Growth $22 $69 $119 $255
Alger American Leveraged AllCap $23 $72 $123 $263
Scudder Bond $20 $61 $104 $225
Scudder Balanced $19 $60 $103 $223
Scudder Growth and Income $19 $60 $103 $223
Scudder Global Discovery $30 $93 $158 $332
Scudder International $24 $75 $128 $273
Strong Discovery II $25 $78 $133 $284
Strong Growth II $26 $79 $135 $287
Strong Opportunity II $25 $78 $133 $284
T. Rowe Price International Stock $24 $75 $129 $275
T. Rowe Price New American Growth $22 $69 $119 $255
T. Rowe Price Mid-Cap Growth $22 $69 $119 $255
T. Rowe Price Equity Income $22 $69 $119 $255
MFS Growth with Income $23 $70 $120 $258
MFS Research $23 $70 $119 $256
MFS Emerging Growth $22 $69 $118 $254
MFS Total Return $23 $71 $121 $260
MFS New Discovery $25 $76 $130 $277
STI Capital Appreciation $25 $78 $134 $285
STI Value Income $23 $72 $124 $265
STI International Equity $30 $92 $156 $329
</TABLE>
* We will not charge a Withdrawal Charge on Annuitization if you select a
Payment Option that provides payments over at least five years or over the
Annuitant's lifetime.
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EXPLANATION OF FEE TABLES AND EXAMPLES
1. We have included the table and examples shown above to assist you in
understanding the costs and expenses that you will bear directly or indirectly
by investing in the Separate Account. The table reflects expenses of the
Separate Account as well as the Portfolios. For additional information, you
should read "Contract Charges," which begins on page 32 below; you should also
read the sections relating to expenses of the Portfolios in their prospectuses.
The examples do not include any taxes or tax penalties you may be required to
pay if you surrender your Contract. The examples assume that the fee waivers and
expense reimbursements discussed above will continue for the periods shown.
2. The examples assume that you did not make any transfers. We are currently
waiving the transfer fee, but in the future, we may decide to charge $10 for the
second and each subsequent transfer within a calendar month. Premium taxes are
not reflected. Currently, we deduct premium taxes (which range from 0% to 3.5%)
from Contract Value upon full surrender, death or annuitization.
3. To reflect the contract maintenance charge in the examples, we estimated an
equivalent percentage charge, which we calculated by dividing the total amount
of contract maintenance charges expected to be collected during a year by the
total estimated average net assets of the Subaccounts and the Fixed Account
attributable to the Contracts.
4. The examples reflect any Free Withdrawal Amounts.
NEITHER THE FEE TABLES NOR THE EXAMPLES SHOULD BE CONSIDERED REPRESENTATIONS OF
PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
SHOWN. SIMILARLY, THE ANNUAL RATE OF RETURN OF 5% ASSUMED IN THE EXAMPLE IS NOT
AN ESTIMATE OR GUARANTEE OF FUTURE INVESTMENT PERFORMANCE.
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QUESTIONS AND ANSWERS
ABOUT YOUR CONTRACT
The following are answers to some of the questions you may have about some of
the more important features of the Contract. The Contract is more fully
described in the rest of the Prospectus. Please read the Prospectus carefully.
1. WHAT IS THE CONTRACT?
The Contract is a flexible premium deferred variable annuity contract. It is
designed for tax-deferred retirement investing. The Contract is available for
non-qualified or qualified retirement plans. The Contract, like all deferred
annuity contracts, has two phases: the Accumulation Period and the Annuity
Period. During the Accumulation Period, earnings accumulate on a tax-deferred
basis and are taxed as income when you make a withdrawal. The Annuity Period
begins when you begin receiving payments under one of the annuity payment
options described in the answer to Question 2. The amount of money accumulated
under your Contract during the Accumulation Period will be used to determine the
amount of your annuity payments during the Annuity Period.
Your premiums are invested in one or more of the Subaccounts of the Separate
Account or allocated to the Fixed Account, as you instruct us. You may allocate
your Contract Value to up to twenty-one options under the Contract, counting
each Subaccount and the Fixed Account as one option. We will treat all of your
Contract Value allocated to the Fixed Account as one option for purposes of this
limit, even if you have chosen more than one Guarantee Period. The value of your
Contract will depend on the investment performance of the Subaccounts and the
amount of interest we credit to the Fixed Account.
Each Subaccount will invest in a single investment portfolio (a "Portfolio") of
a mutual fund. The Portfolios offer a range of investment objectives, from
conservative to aggressive. You bear the entire investment risk on amounts
allocated to the Subaccounts. The investment policies and risks of each
Portfolio are described in the accompanying prospectuses for the Portfolios.
In some states, you may also allocate all or part of your Contract Value to the
"Fixed Account", as described in the answer to Question 5.
2. WHAT ANNUITY OPTIONS DOES THE CONTRACT OFFER?
You may receive annuity payments on a fixed or a variable basis or a combination
of the two. We offer a variety of annuity options including:
- - a life annuity with payments guaranteed for five to twenty years;
- - a joint and full survivorship annuity, with payments guaranteed for five to
twenty years; and
- - fixed payments for a specified period of five to thirty years.
Call us to inquire about other options.
You may change your annuity option at any time before annuitization. You may
select the date to annuitize the Contract. The date you select, however, may be
no later than the later of the tenth Contract Anniversary or the Annuitant's
90th birthday. If your Contract was issued in connection with a qualified plan,
different deadlines may apply.
If you select annuity payments on a variable basis, the amount of our payments
to you will be affected by the investment performance of the Subaccounts you
have selected. The fixed portion of your annuity payments, on the other hand,
generally will be equal in amount to the initial payment we determine. As
explained in more detail below, however, during the Annuity Period you will have
a limited ability to change the relative weighting of the Subaccounts on which
your variable annuity payments are based or to increase the portion of your
annuity payments consisting of Fixed Annuity payments.
3. HOW DO I BUY A CONTRACT?
You can obtain a Contract application from your Lincoln Benefit agent. You must
pay at least $1,200 in Purchase Payments during the first Contract Year.
Purchase Payments must be at least $100, unless you enroll in an automatic
payment plan. Your periodic payments in an automatic payment plan must be at
least $25 per month. We may lower these minimums at our sole discretion. We will
not issue a Contract to you if either you or the Annuitant is age 90 or older
before we receive your application.
4. WHAT ARE MY INVESTMENT CHOICES UNDER THE CONTRACT?
You can allocate and reallocate your investment among the Subaccounts, each of
which in turn invests in a single Portfolio. Under the Contract, the Separate
Account currently invests in the following Portfolios:
Fund Portfolio(s)
- ----------------------------- -----------------------------
- ------------------------------------------------------------
Janus Aspen Series Flexible Income Portfolio
Balanced Portfolio
Growth Portfolio
Aggressive Growth Portfolio
Worldwide Growth Portfolio
- ------------------------------------------------------------
Federated Insurance Utility Fund II
Management Series Fund for U.S. Government
Securities II
High Income Bond Fund II
- ------------------------------------------------------------
Fidelity Variable Insurance Money Market Portfolio
Products Fund Equity-Income Portfolio
Growth Portfolio
Overseas Portfolio
- ------------------------------------------------------------
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Fund Portfolio(s)
- ----------------------------- -----------------------------
Fidelity Variable Insurance Asset Manager Portfolio
Products Fund II Contrafund Portfolio
Index 500 Portfolio
- ------------------------------------------------------------
The Alger American Fund Income and Growth Portfolio
Small Capitalization Portfolio
Growth Portfolio
MidCap Growth Portfolio
Leveraged AllCap Portfolio
- ------------------------------------------------------------
Scudder Variable Life Bond Portfolio
Investment Fund Balanced Portfolio
Growth and Income Portfolio
Global Discovery Portfolio
International Portfolio
- ------------------------------------------------------------
Strong Variable Insurance Discovery Fund II
Funds, Inc. Growth Fund II
- ------------------------------------------------------------
Strong Opportunity Fund II, Opportunity Fund II
Inc.
- ------------------------------------------------------------
T. Rowe Price International T. Rowe Price International Stock Portfolio
Series, Inc.
- ------------------------------------------------------------
T. Rowe Price Equity Series, T. Rowe Price New America Growth Portfolio
Inc. T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Equity Income Portfolio
- ------------------------------------------------------------
MFS Variable Insurance Trust Growth with Income Series
Research Series
Emerging Growth Series
Total Return Series
New Discovery Series
- ------------------------------------------------------------
STI Classic Variable Trust Capital Appreciation Fund
International Equity Fund
Value Income Stock Fund
- ------------------------------------------------------------
Some of the Portfolios described in this Prospectus may not be available in your
Contract.
Each Portfolio holds its assets separately from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies which
are described in the accompanying prospectuses for the Portfolios.
5. WHAT IS THE FIXED ACCOUNT OPTION?
We offer two Fixed Account interest crediting options: the Guaranteed Maturity
Fixed Account Option and the Dollar Cost Averaging Fixed Account Option.
We will credit interest to amounts allocated to the Guaranteed Maturity Fixed
Account Option at a specified rate for a specified Guarantee Period. You select
the Guarantee Period for each amount that you allocate to the Guaranteed
Maturity Fixed Account Option. We will tell you what interest rates and
Guarantee Periods we are offering at a particular time. At the end of each
Guarantee Period, you may select a new Guarantee Period from among the choices
we are then making available or transfer or withdraw the relevant amount from
the Fixed Account without any Market Value Adjustment.
We may offer Guarantee Periods ranging from one to ten years in length. We are
currently offering Guarantee Periods of one, three, five, seven, and ten years
in length. In the future we may offer Guarantee Periods of different lengths or
stop offering some Guarantee Periods.
We will not change the interest rate credited to a particular allocation until
the end of the relevant Guarantee Period. From time to time, however, we may
change the interest rate that we offer to credit to new allocations to the
Guaranteed Maturity Fixed Account Option and to amounts rolled over in the Fixed
Account for new Guarantee Periods.
In addition, if you participate in our dollar cost averaging program, you may
designate amounts to be held in the Dollar Cost Averaging Fixed Account Option
until they are transferred monthly to the Subaccounts or Guarantee Periods of
your choosing. When you make an allocation to the Fixed Account for this
purpose, we will set an interest rate applicable to that amount. We will then
credit interest at that rate to that amount until it has been entirely
transferred to your chosen Subaccounts or Guarantee Periods. We will complete
the transfers within one year of the allocation. In our discretion we may change
the rate that we set for new allocations to the Fixed Account for the dollar
cost averaging program. We will never, however, set a rate less than an
effective annual rate of 3%.
A Market Value Adjustment may increase or decrease the amount of certain
transactions involving the Fixed Account, to reflect changes in interest rates.
As a general rule, we will apply a Market Value Adjustment to the following
transactions: (1) when you withdraw funds from the Guaranteed Maturity Fixed
Account Option in an amount greater than the Free Withdrawal Amount (which is
described in the answer to Question 6); (2) when you transfer funds from the
Guaranteed Maturity Fixed Account Option to the Subaccounts; (3) when you
allocate part of your interest in the Guaranteed Maturity Fixed Account Option
to a new Guarantee Period before the end of the existing Guarantee Period; (4)
when you annuitize your Contract; and (5) when we pay a death benefit. We will
not apply a Market Value Adjustment to a transaction to the extent that: (1) it
occurs within 30 days after the end of a Guarantee Period applicable to the
funds involved in the transaction; or (2) it is necessary to meet IRS minimum
withdrawal requirements. We determine the amount of a Market Value Adjustment
using a formula that takes into consideration: (1) whether current interest
rates differ from interest rates at the beginning of the applicable Guarantee
Period; and (2) how many years are left until the end of the Guarantee Period.
As a general rule, if interest rates have dropped, the Market Value Adjustment
will be an addition; if interest rates have risen, the Market Value Adjustment
will be a deduction. It is therefore possible that if you withdraw an amount
from the Fixed Account during a Guarantee
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Period, a Market Value Adjustment may cause you to receive less than you
initially allocated to the Fixed Account.
6. WHAT ARE MY EXPENSES UNDER THE CONTRACT?
CONTRACT MAINTENANCE CHARGE. During the Accumulation Period, each year we
subtract an annual contract maintenance charge of $35 from your Contract Value
allocated to the Subaccounts. We will waive this charge if you pay $50,000 or
more in Purchase Payments or if you allocate all of your Contract Value to the
Fixed Account.
During the Annuity Period, we will subtract the annual contract maintenance
charge in equal parts from your annuity payments. We waive this charge if on the
Annuity Date your Contract Value is $50,000 or more or if all payments are Fixed
Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE AND MORTALITY AND EXPENSE RISK CHARGE. We impose a
mortality and expense risk charge at an annual rate of 1.15% of average daily
net assets and an administrative expense charge at an annual rate of .10% of
average daily net assets. If you select one of our optional enhanced benefit
riders, however, we may charge you a higher mortality and expense risk charge.
These charges are assessed each day during the Accumulation Period and the
Annuity Period. We guarantee that we will not raise these charges.
TRANSFER FEE. Although we currently are not charging a transfer fee, the
Contract permits us to charge you up to $10 per transfer for each transfer after
the first transfer in each month.
WITHDRAWAL CHARGE (CONTINGENT DEFERRED SALES CHARGE). During the Accumulation
Period, you may withdraw all or part of the value of your Contract before your
death or, if the Contract is owned by a company or other legal entity, before
the Annuitant's death. Certain withdrawals may be made without payment of any
Withdrawal Charge, which is a contingent deferred sales charge. Other
withdrawals are subject to the Withdrawal Charge.
The Withdrawal Charge will vary depending on how many complete years have passed
since you paid the Purchase Payment being withdrawn. The Withdrawal Charge
applies to each Purchase Payment for seven complete years from the date of the
Payment (each a "Contribution Year") as follows:
CONTRIBUTION APPLICABLE
YEAR CHARGE
- ------------ ----------
1-2 7%
3-4 6%
5 5%
6 4%
7 3%
8+ 0%
In determining Withdrawal Charges, we will deem your Purchase Payments to be
withdrawn on a first-in first-out basis.
Each year, free of Withdrawal Charge or any otherwise applicable Market Value
Adjustment, you may withdraw the Free Withdrawal Amount, which equals:
(a) the greater of:
- earnings not previously withdrawn; or
- 15% of your total Purchase Payments made in the most recent seven
years; plus
(b) an amount equal to your total Purchase Payments made more than seven
years ago, to the extent not previously withdrawn.
In most states, we also may waive the Withdrawal Charge if you: (1) require
long-term medical or custodial care outside the home; (2) become unemployed; or
(3) are diagnosed with a terminal illness. These provisions will apply to the
Annuitant, if the Contract is owned by a company or other legal entity.
Additional restrictions and costs may apply to Contracts issued in connection
with qualified plans. In addition, withdrawals may trigger tax liabilities and
penalties. You should consult with your tax counselor to determine what effect a
withdrawal might have on your tax liability. As described in the answer to
Question 3, we may increase or decrease certain withdrawals by a Market Value
Adjustment.
PREMIUM TAXES. Certain states impose a premium tax on annuity purchase payments
received by insurance companies. Any premium taxes relating to the Contract may
be deducted from Purchase Payments or the Contract Value when the tax is
incurred or at a later time. State premium taxes generally range from 0% to
3.5%.
OTHER EXPENSES. In addition to our charges under the Contract, each Portfolio
deducts amounts from its assets to pay its investment advisory fees and other
expenses.
7. HOW WILL MY INVESTMENT IN THE CONTRACT BE TAXED?
You should consult a qualified tax adviser for personalized answers. Generally,
earnings under variable annuities are not taxed until amounts are withdrawn or
distributions are made. This deferral of taxes is designed to encourage
long-term personal savings and supplemental retirement plans. The taxable
portion of a withdrawal or distribution is taxed as ordinary income.
Special rules apply if the Contract is owned by a company or other legal entity.
Generally, such an owner must include in income any increase in the excess of
the Contract Value over the "investment in the contract" during the taxable
year.
8. DO I HAVE ACCESS TO MY MONEY?
At any time during the Accumulation Period, we will pay you all or part of the
value of your Contract, minus any applicable charge, if you surrender your
Contract or request a partial withdrawal. Under some plans, you may also take a
loan against the value of your Contract. Generally, a partial
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withdrawal must equal at least $50, and after the withdrawal your remaining
Contract Value must at least equal $500.
Although you have access to your money during the Accumulation Period, certain
charges, such as the contract maintenance charge, the Withdrawal Charge, and
premium tax charges, may be deducted on a surrender or withdrawal. You may also
incur federal income tax liability or tax penalties. In addition, if you have
allocated some of the value of your Contract to the Fixed Account, the amount of
your surrender proceeds or withdrawal may be increased or decreased by a Market
Value Adjustment.
After annuitization, under certain settlement options you may be entitled to
withdraw the commuted value of the remaining payments.
9. WHAT IS THE DEATH BENEFIT?
We will pay a death benefit while the Contract is in force and before the
Annuity Date, if the Contract Owner dies, or if the Annuitant dies and the
Contract Owner is not a natural person. To obtain payment of the Death Benefit,
the Beneficiary must submit to us written proof of death as specified in the
Contract.
The standard death benefit is the greatest of the following:
(1) your total Purchase Payments reduced proportionately for any prior partial
withdrawals;
(2) your Contract Value;
(3) the amount you would have received by surrendering your Contract; or
(4) your Contract Value on each Contract Anniversary evenly divisible by seven
increased by the total Purchase Payments since that anniversary and reduced
proportionately by any partial withdrawals since that anniversary.
We also offer two optional enhanced death benefit riders, which are described
later in this prospectus.
We will determine the value of the death benefit on the day that we receive all
of the information that we need to process the claim.
10. WHAT ELSE SHOULD I KNOW?
ALLOCATION OF PURCHASE PAYMENTS. You allocate your initial Purchase Payment
among the Subaccounts and the Fixed Account in your Contract application. You
may make your allocations in specific dollar amounts or percentages, which must
be whole numbers that add up to 100%. When you make subsequent Purchase
Payments, you may again specify how you want your payments allocated. If you do
not, we will automatically allocate the payment based on your most recent
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
TRANSFERS. During the Accumulation Period, you may transfer Contract Value among
the Subaccounts and from the Subaccounts to the Fixed Account. You may not make
a transfer, however, that would result in your allocating your Contract Value to
more than twenty-one options under the Contract. While you may also transfer
amounts from the Fixed Account, a Market Value Adjustment may apply. You may
instruct us to transfer Contract Value by writing or calling us.
You may also use our automatic dollar cost averaging or portfolio rebalancing
programs. You may not use both programs at the same time.
Under the dollar cost averaging program, amounts are automatically transferred
at regular intervals from the Fixed Account or a Subaccount of your choosing,
including other Subaccounts or the Fixed Account. Transfers from the Dollar Cost
Averaging Fixed Account may be made monthly only. Transfers from Subaccounts may
be made monthly, quarterly, or annually.
Under the portfolio rebalancing program, you can maintain the percentage of your
Contract Value allocated to each Subaccount at a pre-set level. Investment
results will shift the balance of your Contract Value allocations. If you elect
rebalancing, we will automatically transfer your Contract Value back to the
specified percentages at the frequency (monthly, quarterly, semiannually,
annually) that you specify. We will automatically terminate this program if you
request a transfer outside of the program. You may not include the Fixed Account
in a portfolio rebalancing program. You also may not elect rebalancing after
annuitization.
During the Annuity Period, you may not make any transfers for the first six
months after the Annuity Date. Thereafter, you may make transfers among the
Subaccounts or from the Subaccounts to increase your Fixed Annuity payments.
Your transfers, however, must be at least six months apart. You may not,
however, convert any portion of your right to receive Fixed Annuity payments
into Variable Annuity payments.
FREE-LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or after whatever longer period may be permitted by
state law. You may return it by delivering it or mailing it to us. If you return
the Contract, the Contract terminates and, in most states, we will pay you an
amount equal to the Contract Value on the date we receive the Contract from you.
The Contract Value may be more or less than your Purchase Payments. In some
states, we are required to send you the amount of your Purchase Payments. Since
state laws differ as to the consequences of returning a Contract, you should
refer to your Contract for specific information about your circumstances.
11. WHO CAN I CONTACT FOR MORE INFORMATION?
You can write to us at Lincoln Benefit Life Company, P.O. Box 82532, Lincoln,
Nebraska 68501-2532, or call us at (800) 525-9287.
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CONDENSED FINANCIAL INFORMATION
Attached as Appendix A is a table showing selected information concerning
Accumulation Unit Values for each Subaccount for 1999. Accumulation Unit Value
is the unit of measure that we use to calculate the value of your interest in a
Subaccount. Accumulation Unit Value does not reflect the deduction of certain
charges that are subtracted from your Contract Value, such as the Contract
Administration Charge. The information in the table is included in the Separate
Account's financial statements. To obtain a fuller picture of each Subaccount's
finances and performance, you should also review the Separate Account's
financial statements, which are in the Separate Account's Annual Report dated as
of December 31, 1999, contained in the Statement of Additional Information. The
Statement of Additional Information also includes a brief explanation of how
performance of the Subaccounts is calculated. We have included Lincoln Benefit's
financial statements in its Annual Report on Form 10-K for the year ended
December 31, 1999, incorporated herein by reference.
DESCRIPTION OF THE CONTRACTS
SUMMARY. The Contract is a deferred annuity contract designed to aid you in
long-term financial planning. You may add to the Contract Value by making
additional Purchase Payments. In addition, the Contract Value will change to
reflect the performance of the Subaccounts to which you allocate your Purchase
Payments and your Contract Value, as well as to reflect interest credited to
amounts allocated to the Fixed Account. You may withdraw your Contract Value by
making a partial withdrawal or by surrendering your Contract. Upon
Annuitization, we will pay you benefits under the Contract in the form of an
annuity, either for the life of the Annuitant or for a fixed number of years.
All of these features are described in more detail below.
CONTRACT OWNER. As the Contract Owner, you are the person usually entitled to
exercise all rights of ownership under the Contract. You usually are also the
person entitled to receive benefits under the Contract or to choose someone else
to receive benefits. If your Contract was issued under a Qualified Plan,
however, the Plan may limit or modify your rights and privileges under the
Contract and may limit your right to choose someone else to receive benefits. We
will not issue a Contract to a purchaser who has attained age 91, or where the
Annuitant has attained age 91.
ANNUITANT. The Annuitant is the living person whose life span is used to
determine annuity payments. You initially designate an Annuitant in your
application. You may change the Annuitant at any time before annuity payments
begin. If your Contract was issued under a plan qualified under Section 403(b),
408 or 408A of the Tax Code, you must be the Annuitant. You may also designate a
Joint Annuitant, who is a second person on whose life annuity payments depend.
Additional restrictions may apply in the case of Qualified Plans. If you are not
the Annuitant and the Annuitant dies before annuity payments begin, then either
you become the new Annuitant or you must name another person as the new
Annuitant. You must attest that the Annuitant is alive in order to annuitize
your Contract.
MODIFICATION OF THE CONTRACT. Only a Lincoln Benefit officer may approve a
change in or waive any provision of the Contract. Any change or waiver must be
in writing. None of our agents has the authority to change or waive the
provisions of the Contract.
We are permitted to change the terms of the Contract if it is necessary to
comply with changes in the law. If a provision of the Contract is inconsistent
with state law, we will follow state law.
ASSIGNMENT. Before the Annuity Date, if the Annuitant is still alive, you may
assign a Contract issued under a Non-Qualified Plan that is not subject to Title
1 of the Employee Retirement Income Security Act of 1974 ("ERISA"). If a
Contract is issued pursuant to a Qualified Plan or a Non-Qualified Plan that is
subject to Title 1 of ERISA, the law prohibits some types of assignments,
pledges and transfers and imposes special conditions on others. An assignment
may also result in taxes or tax penalties.
We will not be bound by any assignment until we receive written notice of it.
Accordingly, until we receive written notice of an assignment, we will continue
to act as though the assignment had not occurred. We are not responsible for the
validity of any assignment.
BECAUSE OF THE POTENTIAL TAX CONSEQUENCES AND ERISA ISSUES ARISING FROM AN
ASSIGNMENT, YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR
CONTRACT.
FREE LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or within whatever longer period may be permitted by
state law. You may return it by delivering it to your agent or mailing it to us.
If you return the Contract, the Contract terminates and, in most states, we will
pay you an amount equal to the Contract Value on the date we receive the
Contract from you. The Contract Value at that time may be more or less than your
Purchase Payments.
In some states, if you exercise your "free look" rights, we are required to
return the amount of your Purchase Payments. Currently, if you live in one of
those states, on the Issue Date we will allocate your Purchase Payment to the
Subaccounts and the Fixed Account Options as you specified in your application.
However, we reserve the right in the future to delay allocating your Purchase
Payments to the Subaccounts you have selected or to the Fixed Account until 20
days after the Issue Date or, if your state's free look period is longer than
ten days, for ten days plus the period required by state law. During that time,
we will allocate your Purchase Payment to the Fidelity Money Market Subaccount.
Your Contract will contain specific information about your free-look rights in
your state.
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PURCHASES AND CONTRACT VALUE
MINIMUM PURCHASE PAYMENT. The minimum initial Purchase Payment for a Contract is
$1,200. You may pay it in a lump sum or in installments of your choice over the
first Contract Year. You may not pay more than $1 million in Purchase Payments
without our prior approval. As a general rule, subsequent Purchase Payments may
be made in amounts of $100 or more. Subsequent Purchase Payments made as part of
an Automatic Payment Plan, however, may be as small as $25 per month. We may
lower these minimums if we choose. We may refuse any Purchase Payment at any
time.
AUTOMATIC PAYMENT PLAN. You may make scheduled Purchase Payments of $25 or more
per month by automatic payment through your bank account. Call or write us for
an enrollment form.
ALLOCATION OF PURCHASE PAYMENTS. Your Purchase Payments are allocated to the
Subaccount(s) and the Fixed Account in the proportions that you have selected.
You must specify your allocation in your Contract application, either as
percentages or specific dollar amounts. If you make your allocation in
percentages, the total must equal 100%. We will allocate your subsequent
Purchase Payments in those percentages, until you give us new allocation
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
You initially may allocate your Purchase Payments to up to twenty-one options,
counting each Subaccount and the Fixed Account as one option. For this purpose,
we will treat all of your allocations to the Fixed Account as one option, even
if you choose more than one Guarantee Period. You may add or delete Subaccounts
and/or the Fixed Account from your allocation instructions, but we will not
execute instructions that would cause you to have Contract Value in more than
twenty-one options. In the future, we may waive this limit.
If your application is complete, we will issue your Contract within two business
days of its receipt at our P.O. Box shown on the first page of this prospectus.
If your application for a Contract is incomplete, we will notify you and seek to
complete the application within five business days. For example, if you do not
fill in allocation percentages, we will contact you to obtain the missing
percentages. If we cannot complete your application within five business days
after we receive it, we will return your application and your Purchase Payment,
unless you expressly permit us to take a longer time.
Usually, we will allocate your initial Purchase Payment to the Subaccounts and
the Fixed Account, as you have instructed us, on the Issue Date. We will
allocate your subsequent Purchase Payments on the date that we receive them at
the next computed Accumulation Unit Value.
In some states, however, we are required to return at least your Purchase
Payment if you cancel your Contract during the "free-look" period. In those
states, we currently will allocate your Purchase Payments on the Issue Date as
you have instructed us, as described above. In the future, however, we reserve
the right, if you live in one of those states, to allocate all Purchase Payments
received during the "free-look period" to the Fidelity Money Market Subaccount.
If we exercise that right and your state's free look period is ten days, we will
transfer your Purchase Payments to your specified Subaccounts or the Fixed
Account 20 days after the Issue Date; if your state's free look period is
longer, we will transfer your Purchase Payment after ten days plus the period
required by state law have passed.
We determine the number of Accumulation Units in each Subaccount to allocate to
your Contract by dividing that portion of your Purchase Payment allocated to a
Subaccount by that Subaccount's Accumulation Unit Value on the Valuation Date
when the allocation occurs.
CONTRACT VALUE. We will establish an account for you and will maintain your
account during the Accumulation Period. The total value of your Contract at any
time is equal to the sum of the value of your Accumulation Units in the
Subaccounts you have selected, plus the value of your interest in the Fixed
Account.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE. As a general matter, the Accumulation
Unit Value for each Subaccount will rise or fall to reflect changes in the share
price of the Portfolio in which the Subaccount invests. In addition, we subtract
from Accumulation Unit Value amounts reflecting the mortality and expense risk
charge, administrative expense charge, and any provision for taxes that have
accrued since we last calculated the Accumulation Unit Value. We determine
Withdrawal Charges, transfer fees and contract maintenance charges separately
for each Contract. They do not affect Accumulation Unit Value. Instead, we
obtain payment of those charges and fees by redeeming Accumulation Units.
We determine a separate Accumulation Unit Value for each Subaccount. We also
determine a separate set of Accumulation Unit Values reflecting the cost of the
enhanced benefit riders described on page A-1 below. If we elect or are required
to assess a charge for taxes, we may calculate a separate Accumulation Unit
Value for Contracts issued in connection with Non-Qualified and Qualified Plans,
respectively, within each Subaccount. We determine the Accumulation Unit Value
for each Subaccount Monday through Friday on each day that the New York Stock
Exchange is open for business.
You should refer to the prospectuses for the Portfolios which accompany this
prospectus for a description of how the assets of each Portfolio are valued,
since that determination has a direct bearing on the Accumulation Unit Value of
the corresponding Subaccount and, therefore, your Contract Value.
TRANSFER DURING ACCUMULATION PERIOD. During the Accumulation Period, you may
transfer Contract Value among the
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Fixed Account and the Subaccounts in writing or by telephone. Currently, there
is no minimum transfer amount. The Contract permits us to set a minimum transfer
amount in the future. You may not make a transfer that would result in your
allocating your Contract Value to more than twenty-one options under the
Contract at one time.
As a general rule, we only make transfers on days when we and the NYSE are open
for business. If we receive your request on one of those days, we will make the
transfer that day. We close our offices for business on certain days immediately
preceding or following certain national holidays when the NYSE is open for
business. For calendar year 2000, our office will be closed on November 24th.
For transfers requested on this day, we will make the transfer on the first
subsequent day on which we and the NYSE are open.
If you transfer an amount from the Fixed Account to a Subaccount before the end
of the applicable Guarantee Period or you allocate an amount in the Fixed
Account to a new Guarantee Period before the end of the existing Guarantee
Period, we usually will increase or decrease the amount by a Market Value
Adjustment. The calculation of the Market Value Adjustment is described in
"Market Value Adjustment" on page 24 below.
Transfers within 30 days after the end of the applicable Guarantee Period are
not subject to a Market Value Adjustment.
The Contract permits us to defer transfers from the Fixed Account for up to six
months from the date you ask us.
You may not transfer Contract Value into the Dollar Cost Averaging Fixed Account
Option. You may not transfer Contract Value out of the Dollar Cost Averaging
Fixed Account Option except as part of a Dollar Cost Averaging program.
TRANSFERS AUTHORIZED BY TELEPHONE. You may make transfers by telephone, if you
first send us a completed authorization form. The cut off time for telephone
transfer requests is 4:00 p.m. Eastern time. Calls completed before 4:00 p.m.
will be effected on that day at that day's price. Calls completed after 4:00
p.m. will be effected on the next day on which we and the NYSE are open for
business, at that day's price.
We may charge you the transfer fee described on page 33 below, although we
currently are waiving it. In addition, we may suspend, modify or terminate the
telephone transfer privilege at any time without notice.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM. Under our Automatic Dollar Cost
Averaging program, you may authorize us to transfer a fixed dollar amount at
fixed intervals from the Dollar Cost Averaging Fixed Account Option or a
Subaccount of your choosing, including other Subaccounts or the Guaranteed
Maturity Fixed Account Option. The interval between transfers from the Dollar
Cost Averaging Fixed Account may be monthly only. The interval between transfers
from Subaccounts may be monthly, quarterly, or annually, at your option. The
transfers will be made at the Accumulation Unit Value on the date of the
transfer. The transfers will continue until you instruct us otherwise, or until
your chosen source of transfer payments is exhausted. Currently, the minimum
transfer amount is $100 per transfer. However, if you wish to Dollar Cost
Average to a Guaranteed Maturity Fixed Account Option, the minimum amount that
must be transferred into any one Option is $500. We may change this minimum or
grant exceptions. If you elect this program, the first transfer will occur
twenty-five days after your Issue Date. You may not use the Dollar Cost
Averaging program to transfer amounts from the Guaranteed Maturity Fixed Account
Option.
Your request to participate in this program will be effective when we receive
your completed application at the P.O. Box given on the first page of this
prospectus. Call or write us for a copy of the application. You may elect to
increase, decrease or change the frequency or amount of transfers under a Dollar
Cost Averaging program. We will not charge a transfer fee for Dollar Cost
Averaging.
The theory of dollar cost averaging is that 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 Contract Value allocated to each Subaccount at a pre-set
level. For example, you could specify that 30% of your Contract Value should be
in the Balanced Portfolio, 40% in the Growth Portfolio-Janus Aspen Series and
30% in Federated High Income Bond Fund II. Over time, the variations in each
Subaccount's investment results will shift the balance of your Contract Value
allocations. Under the Portfolio Rebalancing feature,
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each period, if the allocations change from your desired percentages, we will
automatically transfer your Contract Value, including new Purchase Payments
(unless you specify otherwise), back to the percentages you specify. Portfolio
Rebalancing is consistent with maintaining your allocation of investments among
market segments, although it is accomplished by reducing your Contract Value
allocated to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually until your Annuity Date. Portfolio Rebalancing is not available after
you annuitize. We will not charge a transfer fee for Portfolio Rebalancing. We
will automatically terminate this program if you request any transfers outside
the Portfolio Rebalancing program. If you wish to resume Portfolio Rebalancing
after it has been canceled, then you must complete a new Portfolio Rebalancing
form and send it to our home office. You may not include the Fixed Account in a
Portfolio Rebalancing program.
You may request Portfolio Rebalancing at any time before your Annuity Date by
submitting a completed written request to us at the P.O. Box given on the first
page of this prospectus. Please call or write us for a copy of the request form.
If you stop Portfolio Rebalancing, you must wait 30 days to begin again. In your
request, you may specify a date for your first rebalancing. If you specify a
date fewer than 30 days after your Issue Date, your first rebalance will be
delayed one month. If you request Portfolio Rebalancing in your Contract
application and do not specify a date for your first rebalancing, your first
rebalance will occur one period after the Issue Date. For example, if you
specify quarterly rebalancing, your first rebalance will occur three months
after your Issue Date. Otherwise, your first rebalancing will occur twenty-five
days after we receive your completed request form. All subsequent rebalancing
will occur at the intervals you have specified on the day of the month that
coincides with the same day of the month as your Contract Anniversary Date.
Generally, you may change the allocation percentages, frequency, or choice of
Subaccounts at any time. If your total Contract Value subject to rebalancing
falls below any minimum value that we may establish, we may prohibit or limit
your use of Portfolio Rebalancing. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time. We may change, terminate, limit, or
suspend Portfolio Rebalancing at any time.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
SEPARATE ACCOUNT INVESTMENTS
THE PORTFOLIOS. Each of the Subaccounts of the Separate Account invests in the
shares of one of the Portfolios. Each Portfolio is either an open-end management
investment company registered under the Investment Company Act of 1940 or a
separate investment series of an open-end management investment company. We have
briefly described the Portfolios below. You should consult the current
prospectuses for the Portfolios for more detailed and complete information
concerning the Portfolios. If you do not have a prospectus for a Portfolio,
contact us and we will send you a copy. Appendix B contains a description of how
advertised performance data for the Subaccounts are computed.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Subaccounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Subaccounts invest. You bear the investment risk that
those Portfolios possibly will not meet their investment objectives. You should
carefully review their prospectuses before allocating amounts to the Subaccounts
of the Separate Account.
JANUS ASPEN SERIES (investment adviser: Janus Capital Corporation)
FLEXIBLE INCOME PORTFOLIO seeks to maximize total return from a combination of
current income and capital appreciation, with an emphasis on current income.
This Portfolio invests in all types of income-producing securities. This
Portfolio may have substantial holdings of debt securities rated below
investment grade. Investments in such securities present special risks; you are
urged to carefully read the risk disclosure in the accompanying Prospectus for
the Portfolio before allocating amounts to the Janus Flexible Income Subaccount.
BALANCED PORTFOLIO seeks long term growth of capital balanced by current income.
This Portfolio normally invests 40-60% of its assets in securities selected
primarily for their growth potential and 40-60% of its assets in securities
selected primarily for their income potential.
GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily in a
diversified portfolio of common stocks of a large number of issuers of any size.
Generally, this Portfolio emphasizes issuers with larger market capitalizations.
AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. It is a
non-diversified fund. It normally invests at least 50% of its equity assets in
securities issued by medium-sized companies, which are companies whose market
capitalizations at the time of purchase by the Portfolio fall within the same
range as companies in the S&P MidCap 400 Index. This range is expected to change
on a regular basis. This Portfolio may invest its remaining assets in smaller or
larger issuers.
WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital by investing in a
diversified portfolio of common stocks of foreign and domestic issuers of any
size. This Portfolio normally invests in issuers from at least five different
countries including the United States.
FEDERATED INSURANCE MANAGEMENT SERIES (investment adviser: Federated Advisers)
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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 FUNDS (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 FUNDS 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, Inc.)
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
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the value of the securities purchased exceeds the cost of borrowing, including
interest paid on the money borrowed.
SCUDDER VARIABLE LIFE INVESTMENT FUND (investment adviser: Scudder, Kemper
Investments, Inc.) The Scudder Variable Life Investment Fund has two classes of
shares. The Subaccounts invest in Class A shares, which do not impose
distribution fees.
BOND PORTFOLIO seeks high 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 growth of capital by
investing primarily in mid-cap stocks with the potential for above-average
earnings growth. The
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adviser will invest at least 65% of the Portfolio's assets in a diversified
portfolio of common stocks of mid-cap companies whose earnings the adviser
expects to grow at a faster rate than the average company. The adviser defines
mid-cap companies as those with market capitalizations within the range of
companies in the S&P 400 Mid-Cap Index. However, the Portfolio will not
automatically sell or cease to purchase stock of a company it already owns just
because the company's market cap grows or falls outside this range. The
Portfolio also may invest in other types of securities, such as foreign
securities, convertible stocks and bonds, and warrants, when consistent with the
Portfolio's investment objective.
T. ROWE PRICE EQUITY INCOME PORTFOLIO seeks to provide substantial dividend
income as well as long-term growth of capital by investing primarily in common
stocks of established companies. Under normal circumstances, the Portfolio
usually will invest at least 65% of its 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, convertible
stocks and bonds, and warrants, when consistent with the Portfolio's investment
objective.
MFS VARIABLE INSURANCE TRUST (investment adviser: Massachusetts Financial
Services)
GROWTH WITH INCOME SERIES seeks reasonable current income, as well as long-term
growth of capital and income. The Portfolio invests in stocks of companies that
the adviser considers to be of high or improving investment quality. The
Portfolio has the flexibility to invest in derivative securities when its
managers believe such securities can provide better value relative to direct
investments in stocks and bonds. 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.
STI CLASSIC VARIABLE TRUST (investment adviser: SunTrust Bank)
STI CAPITAL APPRECIATION FUND seeks to provide capital appreciation by investing
primarily in a portfolio of U.S. common stocks, and other equity securities
which, in the advisor's opinion, are undervalued by the stock market.
STI INTERNATIONAL EQUITY FUND seeks to provide long term capital appreciation by
investing primarily in common stocks and other equity securities of foreign
companies.
STI VALUE INCOME STOCK FUND seeks to provide current income with the secondary
goal of achieving capital appreciation by investing primarily in common stocks
and other equity securities of U.S. 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 Purchase Payments
you
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allocate to a Subaccount to purchase shares in the corresponding Portfolio and
will redeem shares in the Portfolios to meet Contract obligations or make
adjustments in reserves. The Portfolios are required to redeem their shares at
net asset value and to make payment within seven days.
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 contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Lincoln Benefit will bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Subaccounts to which you have allocated
your Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed. We will also provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of shares for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, before the Annuity Date, you are the person entitled to give
voting instructions. After the Annuity Date, the payee is that person.
Retirement plans, however, may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Contract Owners.
We may, when required by state insurance regulatory authorities, disregard
Contract Owner voting instructions if the instructions require that the shares
be voted so as to cause a change in the sub-classification or investment
objective of one or more of the Portfolios or to approve or disapprove an
investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment adviser of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Contract Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios are no longer available for investment by the Separate Account or
if, in the judgment of our Board of Directors, further investment in the shares
of a Portfolio is no longer appropriate in view of the purposes of the Contract,
we may add or substitute shares of another Portfolio or mutual fund for
Portfolio shares already purchased or to be purchased in the future by Purchase
Payments under the Contract. Any substitution 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 change the way in which we assess charges, as long as the total charges
do not exceed the maximum amount that may be charged the Separate Account
and the Portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal
requirements.
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THE FIXED ACCOUNT
GENERAL. You may allocate part or all of your Purchase Payments to the Fixed
Account in states where it is available. Amounts allocated to the Fixed Account
become part of the general assets of Lincoln Benefit. Allstate Life invests the
assets of the general account in accordance with applicable laws governing the
investments of insurance company general accounts. The Fixed Account may not be
available in all states. Please contact us at 1-800-525-9287 for current
information.
GUARANTEED MATURITY FIXED ACCOUNT OPTION. We will credit interest to each amount
allocated to the Guaranteed Maturity Fixed Account Option at a specified rate
for a specified Guarantee Period. You select the Guarantee Period for each
amount that you allocate to this option. We will declare the interest rate that
we will guarantee to credit to that amount for that Guarantee Period. Each
amount allocated to a Guarantee Period under this option must be at least $500.
We reserve the right to limit the number of additional Purchase Payments that
may be allocated to this option.
We will tell you what interest rates and Guarantee Periods we are offering at a
particular time. We may offer Guarantee Periods ranging from one to ten years in
length. We will decide in our discretion which Guarantee Periods to offer.
Currently, we offer Guarantee Periods of one, three, five, seven and ten years.
In the future we may offer Guarantee Periods of different lengths or stop
offering some Guarantee Periods.
We will credit interest daily to each amount allocated to a Guarantee Period
under this option at a rate which compounds to the effective annual interest
rate that we declared at the beginning of the applicable Guarantee Period. We
will not change the interest rate credited to a particular allocation until the
end of the relevant Guarantee Period. We may declare different interest rates
for Guarantee Periods of the same length that begin at different times.
The following example illustrates how a Purchase Payment allocated to this
option would grow, given an assumed Guarantee Period and effective annual
interest rate:
EXAMPLE
Purchase Payment $10,000
Guarantee Period 5 years
Effective Annual Rate 4.50%
<TABLE>
<CAPTION>
END OF CONTRACT YEAR
<S> <C> <C> <C> <C> <C>
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ---------- ---------- ---------- ----------
Beginning Contract Value $10,000.00
X (1 + Effective Annual Rate) X 1.045
---------
$10,450.00
Contract Value at end of Contract Year $10,450.00
X (1 + Effective Annual Rate) X 1.045
---------
$10,920.25
Contract Value at end of Contract Year $10,920.25
X (1 + Effective Annual Rate) X 1.045
---------
$11,411.66
Contract Value at end of Contract Year $11,411.66
X (1 + Effective Annual Rate) X 1.045
---------
$11,925.19
Contract Value at end of Contract Year $11,925.19
X (1 + Effective Annual Rate) X 1.045
---------
$12,461.82
</TABLE>
Total Interest Credited During Guarantee Period = $2,461.82 ($12,461.82-$10,000)
NOTE: This example assumes no withdrawals during the entire five year Guarantee
Period. If you were to make a partial withdrawal, you might be required to pay a
Withdrawal Charge and the amount withdrawn might be increased or decreased by a
Market Value Adjustment. The hypothetical interest rate is for illustrative
purposes only and is not intended to predict future interest rates to be
declared under the Contract.
We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
relevant factors such as then current interest rates, regulatory and tax
requirements, our sales commission and administrative expenses, general economic
trends, and competitive factors. For current interest rate information, please
contact us at 1-800-525-9287.
WE WILL DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE
CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE.
At the end of each Guarantee Period, we will mail you a notice asking you what
to do with the relevant amount,
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including the accrued interest. During the 30-day period after the end of the
Guarantee Period, you may:
(1) take no action. If so, we will automatically keep the relevant amount in the
Guaranteed Maturity Fixed Account Option. The new Guarantee Period will be the
same length as the expiring Guarantee Period and will begin on the day the
previous Guarantee Period ends. The new interest rate will be our then current
declared rate for Guarantee Periods of that length; or
(2) allocate the relevant Contract Value to one or more new Guarantee Periods of
your choice in the Guaranteed Maturity Fixed Account Option. The new Guarantee
Period(s) will begin on the day the previous Guarantee Period ends. The new
interest rate will be our then current declared rate for those Guarantee
Periods; or
(3) instruct us to transfer all or a portion of the relevant amount to one or
more Subaccounts. We will effect the transfer on the day we receive your
instructions. We will not adjust the amount transferred to include a Market
Value Adjustment; or
(4) withdraw all or a portion of the relevant amount through a partial
withdrawal. You may be required to pay a Withdrawal Charge, but we will not
adjust the amount withdrawn to include a Market Value Adjustment. The amount
withdrawn will be deemed to have been withdrawn on the day the Guarantee Period
ends.
Under our Automatic Laddering Program, you may choose, in advance, to use
Guarantee Periods of the same length for all renewals in the Guaranteed Maturity
Fixed Account Option. You can select this program at any time during the
Accumulation Period, including on the Issue Date. We will apply renewals to
Guarantee Periods of the selected length until you direct us in writing to stop.
We may stop offering this program at any time.
MARKET VALUE ADJUSTMENT. We may increase or decrease the amount of some
transactions involving your interest in the Guaranteed Maturity Fixed Account
Option to include a Market Value Adjustment. The formula for determining Market
Value Adjustments reflects changes in interest rates since the beginning of the
relevant Guarantee Period. As a result, you will bear some of the investment
risk on amounts allocated to the Guaranteed Maturity Fixed Account Option.
As a general rule, we will apply a Market Value Adjustment to the following
transactions involving your Fixed Account balance:
(1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option in
an amount greater than the Free Withdrawal Amount, as described on page 34
below;
(2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to
the Subaccounts;
(3) when you allocate part of your balance in the Guaranteed Maturity Fixed
Account Option to a new Guarantee Period before the end of the existing
Guarantee Period;
(4) when you annuitize your Contract; and
(5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction, to the extent
that:
(1) it occurs within 30 days after the end of a Guarantee Period
applicable to the funds involved in the transaction; or
(2) you make a withdrawal to satisfy the IRS' required minimum distribution
rules for this Contract.
The formula for calculating Market Value Adjustments is set forth in Appendix C
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment. This formula primarily compares: (1) the
Treasury Rate at the time of the relevant transaction for a maturity equal in
length to the relevant Guarantee Period; and (2) the Treasury Rate at the
beginning of the Guarantee Period for a maturity equal in length to the
Guarantee Period. Generally, if the Treasury Rate at the beginning of the
Guarantee Period is higher than the corresponding current Treasury Rate, then
the Market Value Adjustment will increase the amount payable to you or
transferred. Similarly, if the Treasury Rate at the beginning of the Guarantee
Period is lower than the corresponding current Treasury Rate, then the Market
Value Adjustment will reduce the amount payable to you or transferred.
For example, assume that you purchased a Contract and selected an initial
Guarantee Period of five years and the five-year Treasury Rate for that duration
is 4.50%. Assume that at the end of three years, you make a partial withdrawal.
If, at that later time, the current five-year Treasury Rate is 4.20%, then the
Market Value Adjustment will be positive, which will result in an increase in
the amount payable to you. Similarly, if the current five-year Treasury Rate is
4.80%, then the Market Value Adjustment will be negative, which will result in a
decrease in the amount payable to you.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may also allocate Purchase
Payments to the Dollar Cost Averaging Fixed Account Option. We will credit
interest to Purchase Payments allocated to this option for up to one year at the
current rate that we declare when you make the allocation. The effective annual
rate will never be less than 3%. You may not transfer funds to this option from
the Subaccounts or the Guaranteed Maturity Fixed Account Option. We will follow
your instructions in transferring amounts from this option to the Subaccounts or
the Guaranteed Maturity Fixed Account Option on a monthly basis only, as
described in "Automatic Dollar Cost Averaging Program" on page 17 of this
prospectus.
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ANNUITY BENEFITS
ANNUITY DATE. You may select the Annuity Date, which is the date on which
annuity payments are to begin, in your application. The Annuity Date must always
be the business day immediately following the tenth day of a calendar month.
The Annuity Date may be no later than the Latest Annuity Date. As a general
rule, the Latest Annuity Date is the later of the 10th Contract Anniversary or
the Annuitant's 90th birthday. If your Contract was issued pursuant to a
Qualified Plan, however, the Tax Code generally requires you to begin to take at
least a minimum distribution by the later of:
- - the year of your separation from service; or
- - April 1 of the calendar year following the calendar year in which you attain
age 70 1/2.
If your Contract is issued pursuant to Section 408 of the Tax Code (traditional
IRAs), you must begin taking minimum distributions by April 1 of the calendar
year following the calendar year in which you reach age 70 1/2. No minimum
distributions are required by the Tax Code for Contracts issued pursuant to
Section 408A (Roth IRAs).
If you are in a Qualified Plan, we may require you to annuitize by the date
required by the Tax Code, unless you show us that you are meeting the minimum
distribution requirements in some other way.
If you do not select an Annuity Date, the Latest Annuity Date will automatically
become the Annuity Date. You may change the Annuity Date by writing to us at the
address given on the first page of the prospectus.
ANNUITY OPTIONS. You may elect an Annuity Option at any time before the Annuity
Date. As part of your election, you may choose the length of the applicable
guaranteed payment period within the limits available for your chosen Option. If
you do not select an Annuity Option, we will pay monthly annuity payments in
accordance with the applicable default Option. The default Options are:
- - Option A with 10 years (120 months) guaranteed, if you have designated only
one Annuitant; and
- - Option B with 10 years (120 months) guaranteed, if you have designated joint
Annuitants.
You may freely change your choice of Annuity Option, as long as you request the
change at least thirty days before the Annuity Date.
Three Annuity Options are generally available under the Contract. Each is
available in the form of:
- - a Fixed Annuity;
- - a Variable Annuity; or
- - a combination of both Fixed and Variable Annuity.
The three Annuity Options are:
OPTION A, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS. We make
periodic payments at least as long as the Annuitant lives. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION B, JOINT AND SURVIVOR ANNUITY, WITH PAYMENTS GUARANTEED FOR 5 TO 20
YEARS. We make periodic payments at least as long as either the Annuitant or the
joint Annuitant is alive. If both the Annuitant and the Joint Annuitant die
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION C, PAYMENTS FOR A SPECIFIED PERIOD CERTAIN OF 5 YEARS TO 30 YEARS. We
make periodic payments for the period you have chosen. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary. If you elect this option, and request
Variable Annuity payments, you may at any time before the period expires request
a lump sum payment, subject to a Withdrawal Charge. We will charge a Withdrawal
Charge on any portion of your lump sum payment attributable to Purchase Payments
made within the prior seven years. The amount of the Withdrawal Charge will be
determined as described in "Withdrawal Charges" on pages 33 below. If you
elected Variable Annuity payments, the lump sum payment after Withdrawal Charge
will depend on:
o the investment results of the Subaccounts you have selected,
o the Contract Value at the time you elected annuitization,
o the length of the remaining period for which the payee would be
entitled to payments.
No lump sum payment is available if you request Fixed Annuity payments. If you
purchased your Contract under a retirement plan, you may have a more limited
selection of Annuity Options to choose from. You should consult your Plan
documents to see what is available.
You may not "annuitize" your Contract for a lump sum payment. Instead, before
the Annuity Date you may surrender your Contract for a lump sum. As described in
page 24 above, however, we will subtract any applicable Withdrawal Charge and
increase or decrease your surrender proceeds by any applicable Market Value
Adjustment.
OTHER OPTIONS. We may have other Annuity Options available. You may obtain
information about them by writing or calling us.
If your Contract is issued under Sections 401, 403(b), 408 or 408A of the Tax
Code, we will only make payments to you and/or your spouse.
ANNUITY PAYMENTS: GENERAL. On the Annuity Date, we will apply the Annuitized
Value of your Contract to the Annuity Option you have chosen. Your annuity
payments may consist
25
<PAGE>
of Variable Annuity payments or Fixed Annuity payments or a combination of the
two. We will determine the amount of your annuity payments as described in
"Variable Annuity Payments" and "Fixed Annuity Payments" on page 26 below.
You must notify us in writing at least 30 days before the Annuity Date how you
wish to allocate your Annuitized Value between Variable Annuity and Fixed
Annuity payments. You must apply at least the Contract Value in the Fixed
Account on the Annuity Date to Fixed Annuity payments. If you wish to apply any
portion of your Fixed Account balance to your Variable Annuity payments, you
should plan ahead and transfer that amount to the Subaccounts prior to the
Annuity Date. If you do not tell us how to allocate your Contract Value among
Fixed and Variable Annuity payments, we will apply your Contract Value in the
Separate Account to Variable Annuity payments and your Contract Value in the
Fixed Account to Fixed Annuity payments.
Annuity payments begin on the Annuity Date. We make subsequent annuity payments
on the tenth of the month or, if the NYSE is closed on that day, the next day on
which the NYSE is open for business.
Annuity payments will be made in monthly, quarterly, semi-annual or annual
installments as you select. If the amount available to apply under an Annuity
Option is less than $5,000, however, and state law permits, we may pay you a
lump sum instead of the periodic payments you have chosen. In addition, if the
first annuity payment would be less than $50, and state law permits us, we may
reduce the frequency of payments so that the initial payment will be at least
$50.
We may defer for up to 15 days the payment of any amount attributable to a
Purchase Payment made by check to allow the check reasonable time to clear.
YOU MAY NOT WITHDRAW CONTRACT VALUE DURING THE ANNUITY PERIOD, IF WE ARE MAKING
PAYMENTS TO YOU UNDER ANY ANNUITY OPTION, SUCH AS OPTION A OR B ABOVE, INVOLVING
PAYMENT TO THE PAYEE FOR LIFE OR ANY COMBINATION OF PAYMENTS FOR LIFE AND
MINIMUM GUARANTEE PERIOD FOR A PREDETERMINED NUMBER OF YEARS.
VARIABLE ANNUITY PAYMENTS. One basic objective of the Contract is to provide
Variable Annuity Payments which will to some degree respond to changes in the
economic environment. The amount of your Variable Annuity Payments will depend
upon the investment results of the Subaccounts you have selected, any premium
taxes, the age and sex of the Annuitant, and the Annuity Option chosen. We
guarantee that the Payments will not be affected by (1) actual mortality
experience and (2) the amount of our administration expenses.
We cannot predict the total amount of your Variable Annuity payments. The
Variable Annuity payments may be more or less than your total Purchase Payments
because (a) Variable Annuity payments vary with the investment results of the
underlying Portfolios; and (b) Annuitants may die before their actuarial life
expectancy is achieved.
The length of any guaranteed payment period under your selected Annuity Option
will affect the dollar amounts of each Variable Annuity payment. As a general
rule, longer guarantee periods result in lower periodic payments, all other
things being equal. For example, if a life Annuity Option with no minimum
guaranteed payment period is chosen, the Variable Annuity payments will be
greater than Variable Annuity payments under an Annuity Option for a minimum
specified period and guaranteed thereafter for life.
The investment results of the Subaccounts to which you have allocated your
Contract Value will also affect the amount of your periodic payment. In
calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3 1/2%. If the actual net
investment return is less than the assumed investment rate, then the dollar
amount of the Variable Annuity payments will decrease. The dollar amount of the
Variable Annuity payments will stay level if the net investment return equals
the assumed investment rate and the dollar amount of the Variable Annuity
payments will increase if the net investment return exceeds the assumed
investment rate. You should consult the Statement of Additional Information for
more detailed information as to how we determine Variable Annuity Payments.
FIXED ANNUITY PAYMENTS. You may choose to apply a portion of your Annuitized
Value to provide Fixed Annuity payments. We determine the Fixed Annuity payment
amount by applying the applicable Annuitized Value to the Annuity Option you
have selected.
As a general rule, subsequent Fixed Annuity payments will be equal in amount to
the initial payment. However, as described in "Transfers During the Annuity
Period" below, after the Annuity Date, you will have a limited ability to
increase the amount of your Fixed Annuity payments by making transfers from the
Subaccounts.
We may defer making Fixed Annuity payments for a period of up to six months or
whatever shorter time state law may require. During the deferral period, we
credit interest at a rate at least as high as state law requires.
TRANSFERS DURING THE ANNUITY PERIOD. During the Annuity Period, you will have a
limited ability to make transfers among the Subaccounts so as to change the
relative weighting of the Subaccounts on which your Variable Annuity payments
will be based. In addition, you will have a limited ability to make transfers
from the Subaccounts to increase the proportion of your annuity payments
consisting of Fixed Annuity payments. You may not, however, convert any portion
of your right to receive Fixed Annuity payments into Variable Annuity payments.
You may not make any transfers for the first six months after the Annuity Date.
Thereafter, you may make transfers
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<PAGE>
among the Subaccounts or make transfers from the Subaccounts to increase your
Fixed Annuity payments. Your transfers must be at least six months apart.
DEATH BENEFIT DURING ANNUITY PERIOD. After annuity payments begin, upon the
death of the Annuitant and any Joint Annuitant, we will make any remaining
annuity payments to the Beneficiary. The amount and number of these annuity
payments will depend on the Annuity Option in effect at the time of the
Annuitant's death. After the Annuitant's death, any remaining interest will be
distributed at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
CERTAIN EMPLOYEE BENEFIT PLANS. In some states, the Contracts offered by this
prospectus contain life annuity tables that provide for different benefit
payments to men and women of the same age. In certain employment-related
situations, however, the U.S. Supreme Court's decision in ARIZONA GOVERNING
COMMITTEE V. NORRIS requires employers to use the same annuity tables for men
and women. Accordingly, if the Contract is to be used in connection with an
employment-related retirement or benefit plan and we do not offer unisex annuity
tables in your state, you should consult with legal counsel as to whether the
purchase of a Contract is appropriate under NORRIS.
OTHER CONTRACT BENEFITS
DEATH BENEFIT. We will pay a distribution on death, if:
(1) the Contract is in force;
(2) annuity payments have not begun; and
(3) either:
(a) you die; or
(b) if the Contract is owned by a company or other legal entity, the
Annuitant dies.
Currently, we will pay a distribution on death equal in amount to the Death
Benefit or Enhanced Death Benefit, as appropriate. Under the Contract, however,
we have the right to pay a distribution equal in amount to the Surrender Value
unless:
(1) the Beneficiary chooses to receive the Death Benefit in a lump sum within
180 days of the date of death; and
(2) the Beneficiary requests that the Death Benefit be paid as of the date we
receive the completed claim for a distribution on death.
We currently are waiving this 180 day limitation, but we may enforce it in the
future. If we do, we will calculate the distribution as of the earlier of the
requested distribution date or the fifth anniversary of the date of death.
We determine the Death Benefit as of the date we receive all of the information
we need to process the Death Benefit claim. The standard Death Benefit under the
Contract is the greatest of the following:
(1) the total Purchase Payments, less a withdrawal adjustment for any prior
partial withdrawals;
(2) the Contract Value on the date as of which we calculate the Death Benefit.
(3) the Surrender Value;
(4) the Contract Value on the seventh Contract Anniversary and each subsequent
Contract Anniversary evenly divisible by seven, increased by the total
Purchase Payments since that anniversary and reduced by a withdrawal
adjustment for any partial withdrawals since that anniversary.
The withdrawal adjustment for the Death Benefit will equal (a) divided by (b),
with the result multiplied by (c), where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the value of the applicable Death Benefit immediately before the
withdrawal.
A claim for a distribution on death must be submitted before the Annuity Date.
As part of the claim, the Beneficiary must provide "Due Proof of Death". We will
accept the following documentation as Due Proof of Death:
- - a certified original copy of the Death Certificate;
- - a certified copy of a court decree as to the finding of death; or
- - a written statement of a medical doctor who attended the deceased at the time
of death.
In addition, in our discretion we may accept other types of proof.
We will pay the Death Benefit in a lump sum within seven days of receiving a
completed claim for a distribution on death, unless the Beneficiary selects one
of the other alternatives described below.
If the Beneficiary is a natural person, the Beneficiary may choose from the
following alternative ways of receiving the distribution:
- - the Beneficiary may receive the distribution as a lump sum payment;
- - the Beneficiary may apply the distribution to receive a series of equal
periodic payments over the life of the Beneficiary, over a fixed period no
longer than the Beneficiary's life expectancy, or over the life of the
Beneficiary with payments guaranteed for a period not to exceed the life
expectancy of the Beneficiary (the payments must begin within one year of
the date of death); or
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- - if there is only one Beneficiary, he or she may defer payment for up to
five years from the date of death. Any remaining funds must be distributed
at the end of the five-year period. An Annuitant is necessary for this
option. If prior to your death you were the Annuitant, the Beneficiary will
become the new Annuitant.
If your spouse is the Beneficiary, he or she may choose to continue the Contract
as the new Contract Owner. If your spouse chooses to continue the Contract, the
following conditions apply:
(1) On the day the Contract is continued, we will set the Contract Value equal
to the Death Benefit or Enhanced Death Benefit, as appropriate, calculated
as of the date on which we receive all of the information we need to
process your spouse's request to continue the Contract after your death.
Because the Death Benefit and Enhanced Death Benefit can never be less
than the then current Contract Value, our resetting the Contract will not
cause the Contract Value to decrease. During the continuation period,
however, the Contract Value will continue to increase or decrease to
reflect the investment performance of the Subaccounts, interest credited
to the Fixed Account, and charges and expenses under the Contract, as
described in this prospectus.
(2) Within one year of the date of death, your spouse may withdraw one lump
sum without paying any Withdrawal Charge or incurring any Market Value
Adjustment;
(3) During the continuation period, currently we will pay a distribution on
death equal to the Death Benefit or the Enhanced Death Benefit, as
appropriate, determined as of the date on which we receive due proof of
your spouse's death. As described above, we also reserve the right to pay
a distribution equal in amount to the Surrender Value as of the date on
which we receive due proof of death. The standard Death Benefit payable
upon your spouse's death will be calculated using the formula described
above. Thus, the amount of the distribution on death may increase or
decrease during the continuation period, depending on changes in the
Contract Value and other Contract transactions during the continuation
period.
(4) If before your death you were the Annuitant, your surviving spouse becomes
the Annuitant.
(5) If you selected the Enhanced Death Benefit Rider or the Enhanced Death and
Income Benefit Rider, that rider will continue during the continuation
period. Your spouse will be treated as the Contract Owner under the
applicable Rider.
Your surviving spouse may also select one of the options listed above.
If the Beneficiary is a company or other legal entity, then the Beneficiary must
receive the Death Benefit in a lump sum, and the options listed above are not
available.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
The benefits in the riders discussed below may not be available in all states.
Further they may be offered in certain states as a benefit of the base contract
rather than as a separate rider. In those states, the expense charge will remain
the same for the benefit.
ENHANCED DEATH BENEFIT RIDER: When you purchase your Contract, you may select
the Enhanced Death Benefit Rider. If you are not an individual, the Enhanced
Death Benefit applies only to the Annuitant's death. If you select this rider,
the Death benefit will be the greater of the value provided in your Contract or
the Enhanced Death Benefit. The Enhanced Death Benefit will be the greater of
the Enhanced Death Benefit A and Enhanced Death Benefit B. As described below,
we will charge a higher mortality and expense risk charge if you select this
Rider.
ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the
initial Purchase Payment. After issue, Enhanced Death Benefit A is adjusted
whenever you pay a Purchase Payment or make a withdrawal and on each Contract
Anniversary as follows:
- - When you pay a Purchase Payment, we will increase Enhanced Death Benefit A
by the amount of the Purchase Payment;
- - When you make a withdrawal, we will decrease Enhanced Death Benefit A by a
withdrawal adjustment, as described below; and
- - On each Contract Anniversary, we will set Enhanced Death Benefit A equal to
the greater of the Contract Value on that Contract Anniversary or the most
recently calculated Death Benefit A.
If you do not pay any additional purchase payments or make any withdrawals,
Enhanced Death Benefit A will equal the highest of the Contract Value on the
Issue Date and all Contract Anniversaries prior to the date we calculate the
Death Benefit.
We will continuously adjust Enhanced Death Benefit A as described above until
the oldest Contract Owner's 85th birthday or, if the Contract Owner is not a
living individual, the Annuitant's 85th birthday. Thereafter, we will adjust
Enhanced Death Benefit A only for Purchase Payments and withdrawals.
ENHANCED DEATH BENEFIT B. Enhanced Death Benefit B is equal to (a) your total
Purchase Payments, (b) reduced by any withdrawal adjustments and (c) accumulated
daily at an effective annual rate of 5% per year, until: (1) the first day of
the month following the oldest Contract owner's 85th birthday or (2) if the
Contract Owner is a company or other legal entity, the Annuitant's 85th
birthday. Thereafter, we will only adjust Enhanced Death Benefit B to reflect
additional Purchase Payments and withdrawals. Enhanced Death Benefit B
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will never be greater than the maximum death benefit allowed by any
nonforfeiture laws which govern the Contract.
The withdrawal adjustment for both Enhanced Death Benefit A and Enhanced Death
Benefit B will equal (a) divided by (b), with the result multiplied by (c),
where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the most recently calculated Enhanced Death Benefit A or B, as
appropriate.
ENHANCED DEATH AND INCOME BENEFIT RIDER. You may choose the Enhanced Death and
Income Benefit Rider. This rider provides the same Enhanced Death Benefit as the
Enhanced Death Benefit Rider. In addition, this Rider may enable you to receive
higher annuity payments in certain circumstances. As described below, we will
charge a higher mortality and expense risk charge if you select this Rider.
The Enhanced Income Benefit is equal to the value of the Enhanced Death Benefit
on the Annuity date. We will not increase or decrease the Enhanced Income
Benefit amount by any Market Value Adjustment. To be eligible for the Enhanced
Income Benefit, you must select an Annuity Date that is on or after the tenth
Contract Anniversary, but before the Annuitant's age 90. If the Enhanced Income
Benefit is greater than the Annuitized Value on the Annuity Date, you may apply
the Enhanced Income Benefit to an Annuity Option that provides for payments
guaranteed for either a single or joint lives with a period certain of (a) at
least 10 years, if the youngest Annuitant's age is 80 or less on the Annuity
Date; or (b) at least 5 years, if the youngest Annuitant's age is greater than
80 on the Annuity Date. If you wish to select a different Annuity Option, you
must apply the Annuitized Value and not the Enhanced Income Benefit.
BENEFICIARY. You name the Beneficiary. You may name a Beneficiary in the
application. You may change the Beneficiary or add additional Beneficiaries at
any time before the Annuity Date. We will provide a form to be signed and filed
with us.
Your changes in Beneficiary take effect when we receive them, effective as of
the date you signed the form. Until we receive your change instructions, we are
entitled to rely on your most recent instructions in our files. We are not
liable for making a payment to a Beneficiary shown in our files or treating that
person in any other respect as the Beneficiary. Accordingly, if you wish to
change your beneficiary, you should deliver your instructions to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer
living, the Beneficiary will be:
- - your spouse if he or she is still alive; or, if he or she is no longer alive,
- - your surviving children equally; or if you have no surviving children,
- - your estate.
If you name more than one Beneficiary, we will divide the Death Benefit among
your Beneficiaries according to your most recent written instructions. If you
have not given us written instructions, we will pay the Death Benefit in equal
shares to the Beneficiaries. If one of the Beneficiaries dies before you, we
will divide the Death Benefit among the surviving Beneficiaries.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
CONTRACT LOANS FOR 401(a), 401(k), AND 403(b) CONTRACTS. Subject to the
restrictions described below, we will make loans to the Owner of a Contract used
in connection with a Tax Sheltered Annuity Plan ("TSA Plan") under Section
403(b) of the Tax Code, or an Owner of a Contract purchased by a pension,
profit-sharing, or other similar plan qualified under Section 401(a) of the Tax
Code (a "401 Plan"), including a Section 401(k) plan, where a plan trustee is
the Owner. Loans are not available under Non-Qualified Contracts. We will only
make loans after the free look period and before annuitization. All loans are
subject to the terms of the Contract, the relevant Plan, and the Tax Code, which
impose restrictions on loans.
We will not make a loan to you if the total of the requested loan and your
unpaid outstanding loans will be greater than the Surrender Value of your
Contract on the date of the loan. In addition, we will not make a loan to you if
the total of the requested loan and all of the plan participant's Contract loans
under TSA plans and 401 plans is more than the lesser of (a) or (b) where:
(a) equals $50,000 minus the excess of the highest outstanding loan balance
during the prior 12 months over the current outstanding loan balance; and
(b) equals the greater of $10,000 or 1/2 of the Surrender Value.
The minimum loan amount is $1,000.
To request a Contract loan, write to us at the address given on the first page
of the prospectus. You alone are responsible for ensuring that your loan and
repayments comply with tax requirements. Loans made before the Annuity Date are
generally treated as distributions under the Contract, and may be subject to
withholding and tax penalties for early distributions. Some of these
requirements are stated in Section 72 of the Tax Code and Title 1 of ERISA.
Please seek advice from your plan administrator or tax advisor.
When we make a loan, we will transfer an amount equal to the loan amount from
the Separate Account and/or the Fixed Account to the Loan Account as collateral
for the loan. We will transfer to the Loan Account amounts from the
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Separate Account in proportion to the assets in each Subaccount. If your loan
amount is greater than your Contract Value in the Subaccounts, we will transfer
the remaining required collateral from the Guaranteed Maturity Fixed Account
Options. If your loan amount is greater than your contract value in the
subaccounts and the Guaranteed Maturity Fixed Account Options, we will transfer
the remaining required collateral from the Dollar Cost Averaging Fixed Account
Option.
We will not charge a Withdrawal Charge on the loan or on the transfer from the
Subaccounts or the Fixed Account. We may, however, apply a Market Value
Adjustment to a transfer from the Fixed Account to the Loan Account. If we do,
we will increase or decrease the amount remaining in the Fixed Account by the
amount of the Market Value Adjustment, so that the net amount transferred to the
Loan Account will equal the desired loan amount.
We will credit interest to the amounts in the Loan Account. The annual interest
rate credited to the Loan Account will be the greater of: (a) 3%; or (b) the
loan interest rate minus 2.25%. The value of the amounts in the Loan Account are
not affected by the changes in the value of the Subaccounts.
When you take out a loan, we will set the loan interest rate. That rate will
apply to your loan until it is repaid. From time to time, we may change the loan
interest rate applicable to new loans. We also reserve the right to change the
terms of new loans.
We will subtract the outstanding Contract loan balance, including accrued but
unpaid interest, from:
(1) the Death Benefit;
(2) surrender proceeds;
(3) the amount available for partial withdrawal; and
(4) the amount applied on the Annuity Date to provide annuity payments.
Usually you must repay a Contract loan within five years of the date the loan is
made. Scheduled payments must be level, amortized over the repayment period, and
made at least quarterly. We may permit a repayment period of 15 or 30 years if
the loan proceeds are used to acquire your principal residence. We may also
permit other repayment periods.
You must mark your loan repayments as such. We will assume that any payment
received from you is a Purchase Payment, unless you tell us otherwise.
If you do not make a loan payment when due, we will continue to charge interest
on your loan. We also will declare the entire loan in default. We will subtract
the defaulted loan balance plus accrued interest from any future distribution
under the Contract and keep it in payment of your loan. Any defaulted amount
plus interest will be treated as a distribution for tax purposes (as permitted
by law). As a result, you may be required to pay taxes on the defaulted amount,
incur the early withdrawal tax penalty, and be subject to mandatory 20% federal
withholding.
If the total loan balance exceeds the Surrender Value, we will mail written
notice to your last known address. The notice will state the amount needed to
maintain the Contract in force. If we do not receive payment of this amount
within 31 days after we mail this notice, we will terminate your Contract.
We may defer making any loan for 6 months after you ask us for a loan, unless
the loan is to pay a premium to us.
WITHDRAWALS (REDEMPTIONS). Except as explained below, you may redeem a Contract
for all or a portion of its Contract Value before the Annuity Date. We may
impose a Withdrawal Charge, which would reduce the amount paid to you upon
redemption. The Withdrawal Charges are described on page 33 below. Withdrawals
from the Fixed Account may be increased or decreased by a Market Value
Adjustment, as described in "Market Value Adjustment" on page 24 above.
In general, you must withdraw at least $50 at a time. You may also withdraw a
lesser amount if you are withdrawing your entire interest in a Subaccount. If
your request for a partial withdrawal would reduce the Contract Value to less
than $500, we may treat it as a request for a withdrawal of your entire Contract
Value, as described in "Minimum Contract Value" on page 45. Your Contract will
terminate if you withdraw all of your Contract Value.
We may be required to withhold 20% of withdrawals and distributions from
Contracts issued in connection with certain Qualified Plans, as described on
page 53 below. Withdrawals also may be subject to a 10% penalty tax, as
described on page 37 below.
To make a withdrawal, you must send us a written withdrawal request or
systematic withdrawal program enrollment form. You may obtain the required forms
from us at the address and phone number given on the first page of this
prospectus. We will not honor your request unless the required form includes
your Tax I.D. Number (e.g., Social Security Number) and provides instructions
regarding withholding of income taxes.
For partial withdrawals, you may allocate the amount among the Subaccounts and
the Fixed Accounts. If we do not receive allocation instructions from you, we
usually will allocate the partial withdrawal proportionately among the
Subaccounts and the Guaranteed Maturity Fixed Account Options based upon the
balance of the Subaccounts and the Guaranteed Maturity Fixed Account Options,
with any remainder being distributed from the Dollar Cost Averaging Fixed
Account Option. You may not make a partial withdrawal from the Fixed Account in
an amount greater than the total amount of the partial withdrawal multiplied by
the ratio of the value of the Fixed Account to the Contract Value immediately
before the partial withdrawal.
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If you request a total withdrawal, you must send us your Contract. The Surrender
Value will equal the Contract Value minus any applicable Withdrawal Charge and
adjusted by any applicable Market Value Adjustment. We also will deduct a
contract maintenance charge of $35, unless we have waived the contract
maintenance charge on your Contract as described on page 32 below. We determine
the Surrender Value based on the Contract Value next computed after we receive a
properly completed surrender request. We will usually pay the Surrender Value
within seven days after the day we receive a completed request form. However, we
may suspend the right of withdrawal from the Separate Account or delay payment
for withdrawals for more than seven days in the following circumstances:
(1) whenever the New York Stock Exchange ("NYSE") is closed (other than
customary weekend and holiday closings);
(2) when trading on the NYSE is restricted or an emergency exists, as determined
by the SEC, so that disposal of the Separate Account's investments or
determination of Accumulation Unit Values is not reasonably practicable; or
(3) at any other time permitted by the SEC for your protection.
In addition, we may delay payment of the Surrender Value in the Fixed Account
for up to 6 months or a shorter period if required by law. If we delay payment
from the Fixed Account for more than 30 days, we will pay interest as required
by applicable law.
You may withdraw amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Section 403(b)(11) of the Tax Code) only
in the following circumstances:
(1) when you attain age 59 1/2;
(2) when you terminate your employment with the plan sponsor;
(3) upon your death;
(4) upon your disability as defined in Section 72(m)(7) of the Tax Code; or
(5) in the case of hardship.
If you seek a hardship withdrawal, you may only withdraw amounts attributable to
your Purchase Payments; you may not withdraw any earnings. These limitations on
withdrawals apply to:
(1) salary reduction contributions made after December 31, 1988;
(2) income attributable to such contributions; and
(3) income attributable to amounts held as of December 31, 1988.
The limitations on withdrawals do not affect transfers between certain Qualified
Plans. Additional restrictions and limitations may apply to distributions from
any Qualified Plan. Tax penalties may also apply. You should seek tax advice
regarding any withdrawals or distributions from Qualified Plans.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. In general, earnings on annuities are
taxable as ordinary income upon withdrawal. As described on page 35 below, a 10%
tax penalty is imposed on certain "premature" payments under annuity contracts.
The tax penalty applies to any payment received before age 59 1/2, to the extent
it is includable in income and is not subject to an exception. The Tax Reform
Act of 1986 clarified an exception to this tax penalty. This exception is known
as "substantially equal periodic payments."
Generally, under this exception you may take "substantially equal periodic
payments" before age 59 1/2 without incurring the tax penalty. These "payments"
are withdrawals, as opposed to an annuitization of the Contract. Accordingly,
you may need to pay a Withdrawal Charge, and withdrawals from the Fixed Account
may be subject to a Market Value Adjustment.
To qualify for this exception, the payments must meet the following
requirements:
1) The payments must continue to the later of age 59 1/2 or for five years.
2) Payments must be established under one of the approved methods detailed by
the IRS in IRS Notice 89-25.
3) You must have separated from service, if you purchased your Contract under a
qualified retirement plan or tax sheltered annuity.
If you modify the payment stream in any way, except for reason of death or
disability, you will lose the exception. Modification includes changing the
amount or timing of the payments, or making additional Purchase Payments. Any
subsequent periodic payment will be subject to the penalty tax, unless it
qualifies for a different exception. In addition, in the year of the
modification, you will be required to pay the penalty tax (plus interest) that
you would have been required to pay on the earlier payments if this exception
had not applied.
SYSTEMATIC WITHDRAWAL PROGRAM. If your Contract was issued in connection with a
Non-Qualified Plan or IRA, you may participate in our Systematic Withdrawal
Program. You must complete an enrollment form and send it to us. You must
complete the withholding election section of the enrollment form before the
systematic withdrawals will begin. You may choose withdrawal payments of a flat
dollar amount, earnings, or a percentage of Purchase Payments. You may choose to
receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or
annual basis. Systematic withdrawals will be deducted from your Subaccount and
Fixed
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Account balances, excluding the Dollar Cost Averaging Fixed Account, on a pro
rata basis.
Depending on fluctuations in the net asset value of the Subaccounts and the
value of the Fixed Account, systematic withdrawals may reduce or even exhaust
the Contract Value. The minimum amount of each systematic withdrawal is $50.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
ERISA PLANS. A married participant may need spousal consent to receive a
distribution from a Contract issued in connection with a Qualified Plan or a
Non-Qualified Plan covered by to Title 1 of ERISA. You should consult an
adviser.
MINIMUM CONTRACT VALUE. If as a result of withdrawals your Contract Value would
be less than $500 and you have not made any Purchase Payments during the
previous three full calendar years, we may terminate your Contract and
distribute its Surrender Value to you. Before we do this, we will give you 60
days notice. We will not terminate your Contract on this ground if the Contract
Value has fallen below $500 due to either a decline in Accumulation Unit Value
or the imposition of fees and charges. In addition, in some states we are not
permitted to terminate Contracts on this ground. Different rules may apply to
Contracts issued in connection with Qualified Plans.
CONTRACT CHARGES
We assess charges under the Contract in three ways:
(1) as deductions from Contract Value for contract maintenance charges and, if
applicable, for premium taxes;
(2) as charges against the assets of the Separate Account for administrative
expenses or for the assumption of mortality and expense risks; and
(3) as Withdrawal Charges (contingent deferred sales charges) subtracted from
withdrawal and surrender payments.
In addition, certain deductions are made from the assets of the Portfolios for
investment management fees and expenses. Those fees and expenses are summarized
in the Fee Tables on pages 6-7, and described more fully in the Prospectuses and
Statements of Additional Information for the Portfolios.
MORTALITY AND EXPENSE RISK CHARGE. We deduct a mortality and expense risk charge
from each Subaccount during each Valuation Period. The mortality and expense
risk charge is equal, on an annual basis, to 1.15% of the average net asset
value of each Subaccount. The mortality risks arise from our contractual
obligations:
(1) to make annuity payments after the Annuity Date for the life of the
Annuitant(s);
(2) to waive the Withdrawal Charge upon your death; and
(3) to provide the Death Benefit prior to the Annuity Date. A detailed
explanation of the Death Benefit may be found beginning on page 27 above.
The expense risk is that it may cost us more to administer the Contracts and the
Separate Account than we receive from the contract maintenance charge and the
administrative expense charge. We guarantee the mortality and expense risk
charge and we cannot increase it. We assess the mortality and expense risk
charge during both the Accumulation Period and the Annuity Period.
If you select the Enhanced Death Benefit Rider, your mortality and expense risk
charge will be 1.35% of average net asset value of each Subaccount. If you
select the Enhanced Death and Income Benefit Rider, your mortality and expense
risk charge will be 1.55% of average daily net asset value of each Subaccount.
We charge a higher mortality and expense risk charge for the Riders to
compensate us for the additional risk that we accept by providing the Riders. We
will calculate a separate Accumulation Unit Value for the base Contract, and for
Contracts with each type of Rider, in order to reflect the difference in the
mortality and expense risk charges.
ADMINISTRATIVE CHARGES.
CONTRACT MAINTENANCE CHARGE. We charge an annual contract maintenance charge of
$35 on your Contract. The amount of this charge is guaranteed not to increase.
This charge reimburses us for our expenses incurred in maintaining your
Contract.
Before the Annuity Date, we assess the contract maintenance charge on each
Contract Anniversary. To obtain payment of this charge, on a pro rata basis we
will allocate this charge among the Subaccounts and the Fixed Account to which
you have allocated your Contract Value, and redeem Accumulation Units and reduce
your interest in the Fixed Account accordingly. We will waive this charge if you
pay more than $50,000 in Purchase Payments or if you allocate all of your
Contract Value to the Fixed Account. If you surrender your Contract, we will
deduct the full $35 charge as of the date of surrender, unless your Contract
qualifies for a waiver.
After the Annuity Date, we will subtract this charge in equal parts from each of
your annuity payments. We will waive this charge if on the Annuity Date your
Contract Value is $50,000 or more or if all of your annuity payments are Fixed
Annuity payments.
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ADMINISTRATIVE EXPENSE CHARGE. We deduct an administrative expense charge from
each Subaccount during each Valuation Period. This charge is equal, on an annual
basis, to 0.10% of the average net asset value of the Subaccounts. This charge
is designed to compensate us for the cost of administering the Contracts and the
Separate Account. The administrative expense charge is assessed during both the
Accumulation Period and the Annuity Period.
TRANSFER FEE. We currently are waiving the transfer fee. The Contract, however,
permits us to charge a transfer fee of $10 on the second and each subsequent
transaction in each calendar month in which transfer(s) are effected between
Subaccount(s) and/or the Fixed Account. We will notify you if we begin to charge
this fee. We will not charge a transfer fee on transfers that are part of a
Dollar Cost Averaging or Portfolio Rebalancing program.
The transfer fee will be deducted from Contract Value that remains in the
Subaccount(s) or Fixed Account from which the transfer was made. If that amount
is insufficient to pay the transfer fee, we will deduct the fee from the
transferred amount.
SALES CHARGES.
WITHDRAWAL CHARGE. We may charge a Withdrawal Charge, which is a contingent
deferred sales charge, upon certain withdrawals.
As a general rule, the Withdrawal Charge equals a percentage of Purchase
Payments withdrawn that are: (a) less than seven years old; and (b) not eligible
for a free withdrawal. The applicable percentage depends on how many years ago
you made the Purchase Payment being withdrawn, as shown in this chart:
CONTRIBUTION WITHDRAWAL CHARGE
YEAR PERCENTAGE
- --------------------------------------- ------------------
First and Second....................... 7%
Third and Fourth....................... 6%
Fifth.................................. 5%
Sixth.................................. 4%
Seventh................................ 3%
Eighth and later....................... 0%
When we calculate the Withdrawal Charge, we do not take any applicable Market
Value Adjustment into consideration.
We subtract the Withdrawal Charge from the Contract Value remaining after your
withdrawal. As a result, the decrease in your Contract Value will be greater
than the withdrawal amount requested and paid.
For purposes of determining the Withdrawal Charge, the Contract Value is deemed
to be withdrawn in the following order:
FIRST. Earnings -- the current Contract Value minus all Purchase Payments that
have not previously been withdrawn;
SECOND. "Old Purchase Payments" -- Purchase Payments received by us more than
seven years before the date of withdrawal that have not been previously
withdrawn;
THIRD. Any additional amounts available as a "Free Withdrawal," as described
below;
FOURTH. "New Purchase Payments" -- Purchase Payments received by us less than
seven years before the date of withdrawal. These Payments are deemed to be
withdrawn on a first-in, first-out basis.
No Withdrawal Charge is applied in the following situations:
- - on annuitization;
- - the payment of a death benefit;
- - a free withdrawal amount, as described on page 34 below;
- - certain withdrawals for Contracts issued under 403(b) plans or 401 plan
under our prototype as described on page 34 below;
- - withdrawals taken to satisfy IRS minimum distribution rules;
- - withdrawals that qualify for one of the waiver benefits described at page 34
below; and
- - withdrawal under Contracts 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 those individuals
reside in the State of Nebraska.
We will never waive or eliminate a Withdrawal Charge where such waiver or
elimination would be unfairly discriminatory to any person or where it is
prohibited by state law.
We use the amounts obtained from the Withdrawal Charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts. To the extent that the Withdrawal Charge does not cover all sales
commissions and other promotional or distribution expenses, we may use any of
our corporate assets, including potential profit which may arise from the
mortality and expense risk charge or any other charges or fee described above,
to make up any difference.
Withdrawals may also be subject to tax penalties or income tax. The amount of
your withdrawal may be affected by a Market Value Adjustment. Additional
restrictions may apply to Contracts held in Qualified Plans. We outline the tax
requirements applicable to withdrawals on pages 35-36 below. You should consult
your own tax counsel or other tax advisers regarding any withdrawals.
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FREE WITHDRAWAL. Withdrawals of the following amounts are never subject to the
Withdrawal Charge:
- - In any Contract Year, the greater of: (a) earnings that have not previously
been withdrawn; or (b) 15 percent of New Purchase Payments; and
- - Any Old Purchase Payments that have not been previously withdrawn.
However, even if you do not owe a Withdrawal Charge on a particular withdrawal,
you may still owe taxes or penalty taxes, or be subject to a market Value
Adjustment. The tax treatment of withdrawals is summarized on pages 35-36 below.
WAIVER BENEFITS
GENERAL. If approved in your state, we will offer the three waiver benefits
described below. In general, if you qualify for one of these benefits, we will
permit you to make one or more partial or full withdrawals without paying any
otherwise applicable Withdrawal Charge or Market Value Adjustment. While we have
summarized those benefits here, you should consult your Contract for the precise
terms of the waiver benefits.
Some Qualified Plans may not permit you to utilize these benefits. Also, even if
you do not need to pay our Withdrawal Charge because of these benefits, you
still may be required to pay taxes or tax penalties on the amount withdrawn. You
should consult your tax adviser to determine the effect of a withdrawal on your
taxes.
CONFINEMENT WAIVER BENEFIT. Under this benefit, we will waive the Withdrawal
Charge and Market Value Adjustment on all withdrawals under your Contract if the
following conditions are satisfied:
(1) Any Contract owner or the Annuitant, if the Contract is owned by a company
or other legal entity, is confined to a long term care facility or a hospital
for at least 90 consecutive days. The insured must enter the long term care
facility or hospital at least 30 days after the Issue Date;
(2) You request the withdrawal no later than 90 days following the end of the
Insured's stay at the long term care facility or hospital. You must provide
written proof of the stay with your withdrawal request; and
(3) A physician must have prescribed the stay and the stay must be medically
necessary.
You may not claim this benefit if the physician prescribing the insured's stay
in a long term care facility is the insured or a member of the insured's
immediate family.
TERMINAL ILLNESS WAIVER BENEFIT. Under this benefit, we will waive any
Withdrawal Charge and Market Value Adjustment on all withdrawals under your
Contract if, at least 30 days after the Issue Date, you or the Annuitant are
diagnosed with a terminal illness. We may require confirmation of the diagnosis
as provided in the Contract.
UNEMPLOYMENT WAIVER BENEFIT. Under this benefit, we will waive any Withdrawal
Charge and Market Value Adjustment on one partial or full withdrawal from your
Contract, if you meet the following requirements:
(1) you become unemployed at least 10 days after the Issue Date;
(2) you receive unemployment compensation for at least 30 days as a result of
that unemployment; and
(3) you claim this benefit within 180 days of your initial receipt of
unemployment compensation.
You may exercise this benefit once before the Annuity Date.
WAIVER OF WITHDRAWAL CHARGE FOR CERTAIN QUALIFIED PLAN WITHDRAWALS. For
Contracts issued under a Section 403(b) plan or a Section 401 plan under our
prototype, we will waive the Withdrawal Charge when:
(1) the Annuitant becomes disabled (as defined in Section 72(m)(7)) of the Tax
Code;
(2) the Annuitant reaches age 59 1/2 and at least 5 Contract Years have passed
since the Contract was issued;
(3) at least 15 Contract Years have passed since the Contract was issued.
Our prototype is a Section 401 Defined Contribution Qualified Retirement plan.
This plan may be established as a Money Purchase plan, a Profit Sharing plan, or
a paired plan (Money Purchase and Profit Sharing). For more information about
our prototype plan, call us at 1-800-525-9287.
PREMIUM TAXES. We will charge premium taxes or other state or local taxes
against the Contract Value, including Contract Value that results from amounts
transferred from existing policies (Section 1035 exchange) issued by us or other
insurance companies. Some states assess premium taxes when Purchase Payments are
made; others assess premium taxes when annuity payments begin. We will deduct
any applicable premium taxes upon full surrender, death, or annuitization.
Premium taxes generally range from 0% to 3.5%.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES. We are not currently maintaining a
provision for taxes. In the future, however, we may establish a provision for
taxes if we determine, in our sole discretion, that we will incur a tax as a
result of the operation of the Separate Account. We will deduct for any taxes we
incur as a result of the operation of the Separate Account, whether or not we
previously made a provision for taxes and whether or not it was sufficient. Our
status under the Tax Code is briefly described in the Statement of Additional
Information.
OTHER EXPENSES. You indirectly bear the charges and expenses of the Portfolios
whose shares are held by the Subaccounts to which you allocate your Contract
Value. For a summary of
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current estimates of those charges and expenses, see pages 6-8 above. For more
detailed information about those charges and expenses, please refer to the
prospectuses for the appropriate Portfolios. We may receive compensation from
the investment advisers or administrators of the Portfolios in connection with
administrative service and cost savings experienced by the investment advisers
or administrators.
FEDERAL TAX MATTERS
INTRODUCTION
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. ONLY
FEDERAL INCOME TAX ISSUES ARE ADDRESSED. LINCOLN BENEFIT MAKES NO GUARANTEE
REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on your individual circumstances.
If you are concerned about any tax consequences of your individual
circumstances, you should consult a competent tax adviser.
TAXATION OF ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:
(1) the owner is a natural person,
(2) the investments of the Separate Account are "adequately diversified"
according to Treasury Department regulations, and
(3) Lincoln Benefit is considered the owner of the Separate Account assets for
federal income tax purposes.
NON-NATURAL OWNERS. As a general rule, annuity contracts owned by non-natural
persons such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. Any increase in the value of
such contracts is taxed as ordinary income received or accrued by the owner
during the taxable year. Please see the Statement of Additional Information for
a discussion of several exceptions to the general rule for contracts owned by
non-natural persons.
DIVERSIFICATION REQUIREMENTS. For a contract to be treated as an annuity for
federal income tax purposes, the investments in the Separate Account must be
"adequately diversified" consistent with standards under Treasury Department
regulations. If the investments in the Separate Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the owner during the taxable year.
Although Lincoln Benefit does not have control over the Portfolios or their
investments, we expect the Portfolios to meet the diversification requirements.
OWNERSHIP TREATMENT. The IRS has stated that you will be considered the owner of
Separate Account assets if you possess incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. At the time
the diversification regulations were issued, the Treasury Department announced
that the regulations do not provide guidance concerning circumstances in which
investor control of the Separate Account investments may cause an investor to be
treated as the owner of the Separate Account. The Treasury Department also
stated that future guidance would be issued regarding the extent that owners
could direct sub-account investments without being treated as owners of the
underlying assets of the Separate Account.
Your rights under this contract are different than those described by the IRS in
rulings in which it found that contract owners were not owners of Separate
Account assets. For example, you have the choice to allocate premiums and
contract values among more investment options. Also, you may be able to transfer
among investment options more frequently than in such rulings. These differences
could result in you being treated as the owner of the Separate Account. If this
occurs, income and gain from the Separate Account assets would be includable in
your gross income. Lincoln Benefit does not know what standards will be set
forth in any regulations or rulings which the Treasury Department may issue. It
is possible that future standards announced by the Treasury Department could
adversely affect the tax treatment of your contract. We reserve the right to
modify the Contract as necessary to attempt to prevent you from being considered
the federal tax owner of the assets of the Separate Account. However, we make no
guarantee that such modification to the Contract will be successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under
a non-qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. The investment in the Contract is the gross premium paid for the
Contract minus any amounts previously received from the Contract if such amounts
were properly excluded from your gross income. If you make a partial withdrawal
under a qualified Contract, the portion of the payment that bears the same ratio
to the total payment that the investment in the contract (i.e., nondeductible
IRA contributions, after tax contributions to qualified plans) bears to the
contract value, is excluded from your income. You should contact a competent tax
advisor with respect to the potential tax consequences of a Market Value
Adjustment, as no definitive guidance exists on the proper tax treatment of
Market Value Adjustments. If you make a full withdrawal under a non-qualified
Contract or a qualified Contract, the amount received will be taxable only to
the extent it exceeds the investment in the contract.
"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross
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income only to the extent that distributions exceed contributions. "Qualified
distributions" from Roth IRAs are not included in gross income. "Qualified
distributions" are any distributions made more than five taxable years after the
taxable year of the first contribution to any Roth IRA and which are:
- - made on or after the date the individual attains age 59 1/2, - made to a
beneficiary after the owner's death, - attributable to the owner being disabled,
or
- - for a first time home purchase (first time home purchases are subject to a
lifetime limit of $10,000).
If you transfer a nonqualified Contract without full and adequate consideration
to a person other than your spouse (or to a former spouse incident to a
divorce), you will be taxed on the difference between the Contract value and the
investment in the Contract at the time of transfer. Except for certain qualified
contracts, any amount you receive as a loan under a Contract, and any assignment
or pledge (or agreement to assign or pledge) of the Contract Value is treated as
a withdrawal of such amount or portion.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity
payments received from a nonqualified Contract provides for the return of your
investment in the Contract in equal tax-free amounts over the payment period.
The balance of each payment received is taxable. For fixed annuity payments, the
amount excluded from income is determined by multiplying the payment by the
ratio of the investment in the Contract (adjusted for any refund feature or
period certain) to the total expected value of annuity payments for the term of
the Contract. If you elect variable annuity payments, the amount excluded from
taxable income is determined by dividing the investment in the Contract by the
total number of expected payments. The annuity payments will be fully taxable
after the total amount of the investment in the Contract is excluded using these
ratios. If you die, and annuity payments cease before the total amount of the
investment in the contract is recovered, the unrecovered amount will be allowed
as a deduction for your last taxable year.
TAXATION OF ANNUITY DEATH BENEFITS. Death of an owner, or death of the annuitant
if the Contract is owned by a non-natural person, will cause a distribution of
Death Benefits from a Contract. Generally, such amounts are included in income
as follows:
(1) if distributed in a lump sum, the amounts are taxed in the same manner as a
full withdrawal, or (2) if distributed under an annuity option, the amounts are
taxed in the same manner as an annuity payment.
Unlike some other assets, a holder's basis for an annuity is not increased or
decreased to the fair market value of the Contract on the date of death. Please
see the Statement of Additional Information for more detail on distribution at
death requirements.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable
amount of any premature distribution from a nonqualified Contract. The penalty
tax generally applies to any distribution made prior to the date you attain age
59 1/2. However, no penalty tax is incurred on distributions:
(1) made on or after the date the owner attains age 59 1/2;
(2) made as a result of the owner's death or disability;
(3) made in substantially equal periodic payments over the owner's life or life
expectancy,
(4) made under an immediate annuity; or
(5) attributable to investment in the contract before August 14, 1982.
You should consult a competent tax advisor to determine if any other exceptions
to the penalty apply to your situation. Similar exceptions may apply to
distributions from qualified Contracts.
Aggregation of Annuity Contracts. All non-qualified deferred annuity contracts
issued by Lincoln Benefit (or its affiliates) to the same owner during any
calendar year will be aggregated and treated as one annuity contract for
purposes of determining the taxable amount of a distribution.
TAX QUALIFIED CONTRACTS
Contracts may be used as investments with certain Qualified Plans such as:
o Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the
Code;
o Roth IRAs under Section 408A of the Code;
o Simplified Employee Pension Plans under Section 408(k) of the Code;
o Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section
408(p) of the Code;
o Tax Sheltered Annuities under Section 403(b) of the Code;
o Corporate and Self Employed Pension and Profit Sharing Plans; and
o State and Local Government and Tax-Exempt Organization Deferred Compensation
Plans.
In the case of certain Qualified Plans, the terms of the plans may govern the
right to benefits, regardless of the terms of the Contract.
RESTRICTIONS UNDER SECTION 403(B) PLANS. Section 403(b) of the Tax Code provides
tax-deferred retirement savings plans for employees of certain non-profit and
educational organizations. Under Section 403(b), any Contract used for a
36
<PAGE>
403(b) plan must provide that distributions attributable to salary reduction
contributions made after 12/31/88, and all earnings on salary reduction
contributions, may be made only on or after the date the employee:
o attains age 59 1/2,
o separates from service,
o dies,
o becomes disabled, or
o on account of hardship (earnings on salary reduction contributions may not
be distributed on the account of hardship).
These limitations do not apply to withdrawals where Lincoln Benefit is directed
to transfer some or all of the Contract Value to another ss.403(b) plan.
INCOME TAX WITHHOLDING
Lincoln Benefit is required to withhold federal income tax at a rate of 20% on
all "eligible rollover distributions" unless you elect to make a "direct
rollover" of such amounts to another qualified plan or IRA. Eligible rollover
distributions generally include all distributions from qualified Contracts,
excluding IRAs, with the exception of:
(1) required minimum distributions, or
(2) a series of substantially equal periodic payments made over a period of at
least 10 years, or,
(3) over the life (joint lives) of the participant (and beneficiary).
Lincoln Benefit may be required to withhold federal and state income taxes on
any distributions from either non-qualified or qualified Contracts that are not
eligible rollover distributions unless you notify us of your election to not
have taxes withheld.
DESCRIPTION OF LINCOLN BENEFIT LIFE
COMPANY AND THE SEPARATE ACCOUNT
LINCOLN BENEFIT LIFE COMPANY. Lincoln Benefit 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" or "ALIC"), a stock life
insurance company incorporated under the laws of the State of Illinois. Allstate
Life is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a stock
property-liability insurance company incorporated under the laws of Illinois.
All outstanding capital stock of Allstate is owned by The Allstate Corporation
("Allstate").
We are authorized to conduct life insurance and annuity business in the District
of Columbia, Guam, U.S. Virgin Islands and all states except New York. We intend
to market the Contract everywhere we conduct variable annuity business. The
Contracts offered by this prospectus are issued by us and will be funded in the
Separate Account and/or the Fixed Account.
Under our reinsurance agreements with Allstate Life, substantially all contract
related transactions are transferred to Allstate Life. Through our reinsurance
agreements with Allstate Life, substantially all of the assets backing our
reinsured liabilities are owned by Allstate Life. These assets represent our
general account and are invested and managed by Allstate Life. Accordingly, the
results of operations with respect to applications received and contracts issued
by Lincoln Benefit are not reflected in our consolidated financial statements.
The amounts reflected in our consolidated financial statements relate only to
the investment of those assets of Lincoln Benefit that are not transferred to
Allstate Life under the reinsurance agreements. While the reinsurance agreements
provide us with financial backing from Allstate Life, it does not create a
direct contractual relationship between Allstate Life and you.
Under the Company's reinsurance agreements with ALIC, the Company reinsures all
reserve liabilities with ALIC except for variable contracts. The Company's
variable contract assets and liabilities are held in legally-segregated,
unitized Separate Accounts and are retained by the Company. However, the
transactions related to such variable contracts such as premiums, expenses and
benefits are transferred to ALIC.
Lincoln Benefit is highly rated by independent agencies, including A.M. Best,
Moody's, and Standard & Poor's. These ratings are based on our reinsurance
agreement with Allstate Life, and reflect financial soundness and strong
operating performance. The ratings are not intended to reflect the financial
strength or investment experience of the Separate Account. We may from time to
time advertise these ratings in our sales literature.
SEPARATE ACCOUNT. Lincoln Benefit Life Variable Annuity Account was originally
established in 1992, as a segregated asset account of Lincoln Benefit. The
Separate Account meets the definition of a "separate account" under the federal
securities laws and is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940. The SEC does not supervise the management of
the Separate Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Contract
Value of the Contracts offered by this prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains, or losses. Our obligations arising
37
<PAGE>
under the Contracts are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Subaccounts. The assets of each Subaccount
are invested in the shares of one of the Portfolios. We do not guarantee the
investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account and the amount of Variable
Annuity payments will rise and fall with the values of shares of the Portfolios
and are also reduced by Contract charges. We may also use the Separate Account
to fund our other annuity contracts. We will account separately for each type of
annuity contract funded by the Separate Account.
We have included additional information about the Separate Account in the
Statement of Additional Information. You may obtain a copy of the Statement of
Additional Information by writing to us or calling us at 1-800-525-9287. We have
reproduced the Table of Contents of the Statement of Additional Information on
page 40 below.
STATE REGULATION OF LINCOLN BENEFIT. We are subject to the laws of Nebraska and
regulated by the Nebraska Department of Insurance. Every year we file an annual
statement with the Department of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Department of Insurance to verify our contract
liabilities and reserves. We also are examined periodically by the NAIC. Our
books and records are subject to review by the Department of Insurance at all
times. We are also subject to regulation under the insurance laws of every
jurisdiction in which we operate.
FINANCIAL STATEMENTS. The financial statements of Lincoln Benefit and the
Separate Account are set forth in the Statement of Additional Information.
ADMINISTRATION
We have primary responsibility for all administration of the Contracts and the
Separate Account. Our mailing address is P.O. Box 82532, Lincoln, Nebraska
68501-2532.
We provide the following administrative services, among others: issuance of the
Contracts; maintenance of Contract Owner records; Contract Owner services;
calculation of unit values; maintenance of the Separate Account; and preparation
of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least
quarterly. You should notify us promptly in writing of any address change. You
should read your statements and confirmations carefully and verify their
accuracy. You should contact us promptly if you have a question about a periodic
statement. We will investigate all complaints and make any necessary adjustments
retroactively, but you must notify us of a potential error within a reasonable
time after the date of the questioned statement. If you wait too long, we will
make the adjustment as of the date that we receive notice of the potential
error.
We will also provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
MARKET TIMING AND ASSET
ALLOCATION SERVICES
Certain third parties offer market timing and asset allocation services in
connection with the Contracts. In certain situations, we will honor transfer
instructions from third party market timing and asset allocation services if
they comply with our administrative systems, rules and procedures, which we may
modify at any time. PLEASE NOTE that fees and charges assessed for third party
market timing and asset allocation services are separate and distinct from the
Contract fees and charges set forth herein. We neither recommend nor discourage
the use of market timing and asset allocation services.
DISTRIBUTION OF CONTRACTS
The Contracts described in this prospectus are sold by registered
representatives of broker-dealers who are our licensed insurance agents, either
individually or through an incorporated insurance agency. Commissions paid to
broker-dealers may vary, but we estimate that the total commissions paid on all
Contract sales will not exceed 6% of all Purchase Payments (on a present value
basis). From time to time, we may offer additional sales incentives of up to 1%
of Purchase Payments to broker-dealers who maintain certain sales volume levels.
We do not pay commission on Contract sales to our employees, our affiliate's
employees or their spouses or minor children.
ALFS, Inc. ("ALFS") located at 3100 Sanders Road, Northbrook, IL 60062-7154
serves as distributor of the Contracts. ALFS, an affiliate of Lincoln Benefit,
is a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is a
registered broker dealer under the Securities and Exchange Act of 1934, as
amended, and is a member of the National Association of Securities Dealers, Inc.
Sale of the Contracts commenced in August of 1998. During 1998, Lincoln Benefit
paid to a former distributor of the Contracts, Lincoln Benefit Financial
Services ("LBFS"), gross commissions for the Sale of the Contracts of
approximately $1,378,214.65. LBFS, as principal underwriter, retained
$29,245.21. The amounts that were not retained were paid to other independent
broker/dealers and registered representatives of LBFS for distribution of the
Contracts.
Lincoln Benefit does not pay ALFS a commission for distribution of the
Contracts. The underwriting agreement with ALFS provides that we will reimburse
ALFS for expenses incurred in distributing the Contracts, including liability
arising out of services we provide on the Contracts.
38
<PAGE>
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 Contract, including the validity
of the Contract and our right to issue the Contract under Nebraska law, have
been passed upon by Carol S. Watson, Senior Vice President, General Counsel, and
Secretary of Lincoln Benefit. Legal matters relating to the federal securities
laws in connection with the Contracts described in this prospectus are being
passed upon by the law firm of Jorden Burt Boros Cicchetti Berenson & Johnson,
1025 Thomas Jefferson St., East Lobby-Suite 400, Washington, D.C. 20007-0805.
ANNUAL REPORTS AND OTHER DOCUMENTS
Lincoln Benefit's annual report on Form 10-K for the year ended December 31,
1999 is incorporated herein by reference, which means that it is legally a part
of this prospectus.
After the date of this prospectus and before we terminate the offering of the
securities under this prospectus, all documents or reports we file with the SEC
under the Exchange Act of 1934 are also incorporated herein by reference, which
means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC
and that legally become a part of this prospectus ,may change or supersede
statements in other documents that are legally part of this prospectus.
We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K electronically on the SEC's "EDGAR" system using
the identifying number CIK No. 0000910739. The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC. The address of the
site is http://www.sec.gov. You also can view these materials at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. For
more information on the operations of SEC's Public Reference Room, call
1-200-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of
any document incorporated herein by reference (other than exhibits not
specifically incorporated by reference into the text of such documents), please
write or call us at Lincoln Benefit Life Company, 2940 South 84th Street,
Lincoln, Nebraska, 68516 or 800-525-9287.
REGISTRATION STATEMENT
We have filed a registration statement with the SEC, under the Securities Act of
1933 as amended, with respect to the Contracts offered by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits filed as part of the registration statement. You
should refer to the registration statement and the exhibits for further
information concerning the Separate Account, Lincoln Benefit, and the Contracts.
The descriptions in this prospectus of the Contracts and other legal instruments
are summaries. You should refer to those instruments as filed for the precise
terms of those instruments. You may inspect and obtain copies of the
registration statement as described on the cover page of this prospectus.
39
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION
The Contract....................................................S-2
Annuity Payments............................................S-2
Initial Monthly Annuity Payment.............................S-2
Subsequent Monthly Payments.................................S-2
Transfers After Annuity Date................................S-2
Annuity Unit Value..........................................S-3
Illustrative Example of Variable Annuity Payments...........S-3
Additional Federal Income Tax Information.......................S-4
Introduction....................................................S-4
Taxation of Lincoln Benefit Life Company....................S-4
Exceptions to the Non-natural Owner Rule....................S-5
IRS Required Distribution at Death Rules....................S-5
Types of Qualified Plans....................................S-5
Separate Account Performance....................................S-6
Experts.........................................................S-13
Financial Statements............................................S-13
40
<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>
<TABLE>
<CAPTION>
APPENDIX A
Accumulation Unit Values
Basic Policy
<S> <C> <C> <C> <C>
Accumulation Accumulation Number of Units
Unit Value 1 Unit Value Outstanding at
Fund 2 Beginning Ending End of Year Year
Janus Flexible Income 10.25 10.29 197,019 1999
Janus Flexible Income 10.00 10.25 52,969 1998
Janus Balanced 11.69 14.63 722,058 1999
Janus Balanced 10.00 11.69 39,593 1998
Janus Growth 11.86 16.86 927,469 1999
Janus Growth 10.00 11.86 35,519 1998
Janus Aggressive Growth 12.27 27.32 440,699 1999
Janus Aggressive Growth 10.00 12.27 4,895 1998
Janus Worldwide Growth 10.68 17.35 931,544 1999
Janus Worldwide Growth 10.00 10.68 64,108 1998
Federated Utility II 11.13 11.18 198,037 1999
Federated Utility II 10.00 11.13 35,130 1998
Federated U.S. Gov't. Securities II 10.27 10.08 175,793 1999
Federated U.S. Gov't. Securities II 10.00 10.27 36,743 1998
Federated High Income Bond II 9.85 9.95 196,572 1999
Federated High Income Bond II 10.00 9.85 47,674 1998
Fidelity Money Market 10.15 10.54 1,451,852 1999
Fidelity Money Market 10.00 10.15 69,742 1998
Fidelity Equity-Income 10.83 11.37 616,769 1999
Fidelity Equity-Income 10.00 10.83 39,303 1998
Fidelity Growth 11.62 15.78 541,326 1999
Fidelity Growth 10.00 11.62 13,317 1998
Fidelity Overseas 10.50 14.79 26,260 1999
Fidelity Overseas 10.00 10.50 77,591 1998
Fidelity Contrafund 11.46 14.06 548,967 1999
Fidelity Contrafund 10.00 11.46 28,065 1998
Fidelity Asset Manager 10.80 11.85 154,441 1999
Fidelity Asset Manager 10.00 10.80 12,172 1998
Fidelity Index 500 11.36 13.52 983,492 1999
Fidelity Index 500 10.00 11.36 67,638 1998
Alger American Income and Growth 11.50 16.17 402,339 1999
Alger American Income and Growth 10.00 11.50 24,310 1998
Alger American Small Capitalization 11.31 16.02 77,078 1999
Alger American Small Capitalization 10.00 11.31 5,133 1998
Alger American Growth 11.93 15.75 624,209 1999
Alger American Growth 10.00 11.93 51,133 1998
Alger American MidCap Growth 11.60 15.10 133,411 1999
Alger American MidCap Growth 10.00 11.60 1,813 1998
Alger American Leveraged AllCap 12.81 22.52 276,291 1999
Alger American Leveraged AllCap 10.00 12.81 16,931 1998
Scudder Bond 10.19 9.97 123,093 1999
Scudder Bond 10.00 10.19 24,670 1998
Scudder Balanced 11.04 12.57 220,270 1999
Scudder Balanced 10.00 11.04 9,569 1998
Scudder Growth and Income 10.52 11.02 138,946 1999
Scudder Growth and Income 10.00 10.52 8,690 1998
Scudder Global Discovery 10.77 17.65 46,091 1999
Scudder Global Discovery 10.00 10.77 1,630 1998
Scudder International 10.38 15.84 56,287 1999
Scudder International 10.00 10.38 181 1998
A-1
<PAGE>
Accumulation Accumulation Number of Units
Unit Value 1 Unit Value Outstanding at
Fund 2 Beginning Ending End of Year Year
Strong Discovery II 11.04 11.46 5,111 1999
Strong Discovery II 10.00 11.04 226 1998
Strong Growth II 11.41 21.40 164,207 1999
Strong Growth II 10.00 11.41 8,510 1998
Strong Opportunity II 10.94 14.57 46,155 1999
Strong Opportunity II 10.00 10.94 603 1998
T. Rowe Price International Stock 10.78 14.19 22,869 1999
T. Rowe Price International Stock 10.00 10.78 2,401 1998
T. Rowe Price New America Growth 11.25 12.52 57,131 1999
T. Rowe Price New America Growth 10.00 11.25 4,126 1998
T. Rowe Price Mid-Cap Growth 11.50 14.06 85,857 1999
T. Rowe Price Mid-Cap Growth 10.00 11.50 7,608 1998
T. Rowe Price Equity Income 10.78 11.05 128,022 1999
T. Rowe Price Equity Income 10.00 10.78 14,739 1998
MFS Growth with Income 11.20 11.80 133,121 1999
MFS Growth with Income 10.00 11.20 10,591 1998
MFS Research 11.08 13.57 75,847 1999
MFS Research 10.00 11.08 8,940 1998
MFS Emerging Growth 11.75 20.50 114,684 1999
MFS Emerging Growth 10.00 11.75 5,861 1998
MFS Total Return 10.61 10.80 118,240 1999
MFS Total Return 10.00 10.61 11,410 1998
MFS New Discovery 11.35 19.44 55,274 1999
MFS New Discovery 10.00 11.35 842 1998
STI Capital Appreciation 10.00 10.08 20,427 1999
STI International Equity 10.00 10.51 21 1999
STI Value Income Stock 10.00 8.64 8,610 1999
</TABLE>
1. Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount for any Valuation Period. An
Accumulation Unit Value does not reflect deduction of certain charges under the
Contract that are deducted from your Contract Value, such as the Contract
Administration Charge, and Administrative Expense Charge. The beginning value
reflects the Accumulation Unit Value as of August 17, 1998, the effective date
of the Registration statement for this contract.
2. STI Classic Variable Trust Subaccounts were not available during 1998.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
A-2
<PAGE>
<TABLE>
<CAPTION>
Accumulation Unit Values
Basic Policy plus Death Benefit Rider
<S> <C> <C> <C> <C>
Accumulation Accumulation Number of Units
Unit Value 1 Unit Value Outstanding at
Fund 2 Beginning Ending End of Year Year
Janus Flexible Income 10.24 10.26 50,882 1999
Janus Flexible Income 10.00 10.24 7,491 1998
Janus Balanced 11.68 14.59 421,211 1999
Janus Balanced 10.00 11.68 18,636 1998
Janus Growth 11.85 16.81 338,171 1999
Janus Growth 10.00 11.85 14,182 1998
Janus Aggressive Growth 12.26 27.24 105,275 1999
Janus Aggressive Growth 10.00 12.26 4,799 1998
Janus Worldwide Growth 10.68 17.30 411,137 1999
Janus Worldwide Growth 10.00 10.68 60,930 1998
Federated Utility II 11.13 11.15 149,567 1999
Federated Utility II 10.00 11.13 23,112 1998
Federated U.S. Gov't. Securities II 10.26 10.05 90,255 1999
Federated U.S. Gov't. Securities II 10.00 10.26 10,599 1998
Federated High Income Bond II 9.84 9.92 64,354 1999
Federated High Income Bond II 10.00 9.84 7,379 1998
Fidelity Money Market 10.14 10.51 435,122 1999
Fidelity Money Market 10.00 10.14 53,103 1998
Fidelity Equity-Income 10.82 11.34 375,346 1999
Fidelity Equity-Income 10.00 10.82 19,830 1998
Fidelity Growth 11.62 15.73 208,899 1999
Fidelity Growth 10.00 11.62 11,279 1998
Fidelity Overseas 10.49 14.75 17,998 1999
Fidelity Overseas 10.00 10.49 2,466 1998
Fidelity Contrafund 11.45 14.02 262,116 1999
Fidelity Contrafund 10.00 11.45 22,847 1998
Fidelity Asset Manager 10.80 11.82 66,166 1999
Fidelity Asset Manager 10.00 10.80 7,062 1998
Fidelity Index 500 11.35 13.49 686,148 1999
Fidelity Index 500 10.00 11.35 136,539 1998
Alger American Income and Growth 11.49 16.13 248,187 1999
Alger American Income and Growth 10.00 11.49 20,131 1998
Alger American Small Capitalization 11.30 15.98 33,114 1999
Alger American Small Capitalization 10.00 11.30 2,569 1998
Alger American Growth 11.92 15.71 231,260 1999
Alger American Growth 10.00 11.92 15,244 1998
Alger American MidCap Growth 11.59 15.06 39,695 1999
Alger American MidCap Growth 10.00 11.59 8,615 1998
Alger American Leveraged AllCap 12.80 22.46 97,191 1999
Alger American Leveraged AllCap 10.00 12.80 4,249 1998
Scudder Bond 10.18 9.94 27,938 1999
Scudder Bond 10.00 10.18 2,343 1998
Scudder Balanced 11.03 12.54 111,209 1999
Scudder Balanced 10.00 11.03 4,128 1998
Scudder Growth and Income 10.51 10.99 37,864 1999
Scudder Growth and Income 10.00 10.51 1,708 1998
Scudder Global Discovery 10.76 17.60 10,302 1999
Scudder Global Discovery 10.00 10.76 0 1998
Scudder International 10.37 15.80 21,515 1999
Scudder International 10.00 10.37 5,932 1998
A-3
<PAGE>
Accumulation Accumulation Number of Units
Unit Value 1 Unit Value Outstanding at
Fund 2 Beginning Ending End of Year Year
Strong Discovery II 11.03 11.42 9,132 1999
Strong Discovery II 10.00 11.03 1,200 1998
Strong Growth II 11.41 21.35 36,267 1999
Strong Growth II 10.00 11.41 3,091 1998
Strong Opportunity II 10.93 14.53 24,845 1999
Strong Opportunity II 10.00 10.93 1,370 1998
T. Rowe Price International Stock 10.77 14.15 27,663 1999
T. Rowe Price International Stock 10.00 10.77 5,160 1998
T. Rowe Price New America Growth 11.24 12.49 21,505 1999
T. Rowe Price New America Growth 10.00 11.24 4,213 1998
T. Rowe Price Mid-Cap Growth 11.49 14.02 96,322 1999
T. Rowe Price Mid-Cap Growth 10.00 11.49 43,441 1998
T. Rowe Price Equity Income 10.78 11.02 76,738 1999
T. Rowe Price Equity Income 10.00 10.78 13,978 1998
MFS Growth with Income 11.19 11.76 111,594 1999
MFS Growth with Income 10.00 11.19 8,633 1998
MFS Research 11.07 13.53 39,021 1999
MFS Research 10.00 11.07 2,305 1998
MFS Emerging Growth 11.74 20.45 30,880 1999
MFS Emerging Growth 10.00 11.74 91 1998
MFS Total Return 10.60 10.77 43,038 1999
MFS Total Return 10.00 10.60 8,539 1998
MFS New Discovery 11.34 19.39 21,614 1999
MFS New Discovery 10.00 11.34 2,858 1998
STI Capital Appreciation 10.00 10.06 4,666 1999
STI International Equity 10.00 10.50 - 1999
STI Value Income Stock 10.00 8.63 665 1999
</TABLE>
1. Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount for any Valuation Period. An
Accumulation Unit Value does not reflect deduction of certain charges under the
Contract that are deducted from your Contract Value, such as the Contract
Administration Charge, and Administrative Expense Charge. The beginning value
reflects the Accumulation Unit Value as of August 17, 1998, the effective date
of the Registration statement for this contract.
2. STI Classic Variable Trust Subaccounts were not available during 1998.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
A-4
<PAGE>
<TABLE>
<CAPTION>
Accumulation Unit Values
Basic Policy plus Death Benefit and Income Benefit Rider
<S> <C> <C> <C> <C>
Accumulation Accumulation Number of Units
Unit Value 1 Unit Value Outstanding at
Fund 2 Beginning Ending End of Year Year
Janus Flexible Income 10.24 10.23 27,217 1999
Janus Flexible Income 10.00 10.24 9,165 1998
Janus Balanced 11.67 14.55 128,056 1999
Janus Balanced 10.00 11.67 11,145 1998
Janus Growth 11.84 16.77 258,055 1999
Janus Growth 10.00 11.84 7,219 1998
Janus Aggressive Growth 12.25 27.17 98,325 1999
Janus Aggressive Growth 10.00 12.25 788 1998
Janus Worldwide Growth 10.67 17.26 193,058 1999
Janus Worldwide Growth 10.00 10.67 10,553 1998
Federated Utility II 11.12 11.12 24,931 1999
Federated Utility II 10.00 11.12 7,862 1998
Federated U.S. Gov't. Securities II 10.25 10.02 64,811 1999
Federated U.S. Gov't. Securities II 10.00 10.25 9,297 1998
Federated High Income Bond II 9.83 9.89 33,644 1999
Federated High Income Bond II 10.00 9.83 10,770 1998
Fidelity Money Market 10.13 10.48 276,322 1999
Fidelity Money Market 10.00 10.13 27,065 1998
Fidelity Equity-Income 10.82 11.31 105,296 1999
Fidelity Equity-Income 10.00 10.82 4,535 1998
Fidelity Growth 11.61 15.69 137,301 1999
Fidelity Growth 10.00 11.61 2,503 1998
Fidelity Overseas 10.48 14.71 9,578 1999
Fidelity Overseas 10.00 10.48 0 1998
Fidelity Contrafund 11.44 13.98 107,737 1999
Fidelity Contrafund 10.00 11.44 5,053 1998
Fidelity Asset Manager 10.79 11.79 17,720 1999
Fidelity Asset Manager 10.00 10.79 292 1998
Fidelity Index 500 11.35 13.45 623,829 1999
Fidelity Index 500 10.00 11.35 18,374 1998
Alger American Income and Growth 11.48 16.08 60,143 1999
Alger American Income and Growth 10.00 11.48 287 1998
Alger American Small Capitalization 11.30 15.93 28,480 1999
Alger American Small Capitalization 10.00 11.30 2,840 1998
Alger American Growth 11.91 15.67 163,349 1999
Alger American Growth 10.00 11.91 4,543 1998
Alger American MidCap Growth 11.58 15.02 29,209 1999
Alger American MidCap Growth 10.00 11.58 266 1998
Alger American Leveraged AllCap 12.79 22.40 119,956 1999
Alger American Leveraged AllCap 10.00 12.79 273 1998
Scudder Bond 10.17 9.91 10,792 1999
Scudder Bond 10.00 10.17 2,883 1998
Scudder Balanced 11.02 12.50 27,978 1999
Scudder Balanced 10.00 11.02 4,684 1998
Scudder Growth and Income 10.51 10.96 15,890 1999
Scudder Growth and Income 10.00 10.51 702 1998
Scudder Global Discovery 10.75 17.55 13,686 1999
Scudder Global Discovery 10.00 10.75 203 1998
Scudder International 10.37 15.75 9,617 1999
Scudder International 10.00 10.37 2,877 1998
A-5
<PAGE>
Accumulation Accumulation Number of Units
Unit Value 1 Unit Value Outstanding at
Fund 2 Beginning Ending End of Year Year
Strong Discovery II 11.02 11.39 598 1999
Strong Discovery II 10.00 11.02 0 1998
Strong Growth II 11.40 21.29 12,658 1999
Strong Growth II 10.00 11.40 0 1998
Strong Opportunity II 10.92 14.49 7,846 1999
Strong Opportunity II 10.00 10.92 191 1998
T. Rowe Price International Stock 10.76 14.11 5,012 1999
T. Rowe Price International Stock 10.00 10.76 0 1998
T. Rowe Price New America Growth 11.23 12.46 6,584 1999
T. Rowe Price New America Growth 10.00 11.23 0 1998
T. Rowe Price Mid-Cap Growth 11.49 13.98 12,775 1999
T. Rowe Price Mid-Cap Growth 10.00 11.49 0 1998
T. Rowe Price Equity Income 10.77 10.99 31,694 1999
T. Rowe Price Equity Income 10.00 10.77 687 1998
MFS Growth with Income 11.18 11.73 52,396 1999
MFS Growth with Income 10.00 11.18 3,420 1998
MFS Research 11.06 13.49 29,595 1999
MFS Research 10.00 11.06 1,499 1998
MFS Emerging Growth 11.73 20.39 62,647 1999
MFS Emerging Growth 10.00 11.73 733 1998
MFS Total Return 10.59 10.74 27,465 1999
MFS Total Return 10.00 10.59 3,925 1998
MFS New Discovery 11.34 19.34 4,834 1999
MFS New Discovery 10.00 11.34 0 1998
STI Capital Appreciation 10.00 10.05 353 1999
STI International Equity 10.00 10.48 0 1999
STI Value Income Stock 10.00 8.61 0 1999
</TABLE>
1. Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount for any Valuation Period. An
Accumulation Unit Value does not reflect deduction of certain charges under the
Contract that are deducted from your Contract Value, such as the Contract
Administration Charge, and Administrative Expense Charge. The beginning value
reflects the Accumulation Unit Value as of August 17, 1998, the effective date
of the Registration statement for this contract.
2. STI Classic Variable Trust Subaccounts were not available during 1998.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
A-6
<PAGE>
APPENDIX B
PORTFOLIOS AND PERFORMANCE DATA
PERFORMANCE DATA
From time to time the Separate Account may advertise the Fidelity Money Market
Subaccount's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the Fidelity Money Market Subaccount refers to the net income earned
by the Subaccount over the seven-day period stated in the advertisement. This
income is then "annualized." That is, the amount of income earned during that
week is assumed to be generated each week over a 52-week period and is shown as
a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by the investment is assumed to be
reinvested at the end of each seven-day period. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital gains or losses that might have occurred
during the seven day period, nor do they reflect the impact of any premium tax
charge or Withdrawal Charges. The impact of other, recurring charges on both
yield figures is, however, reflected in them to the same extent it would affect
the yield (or effective yield) for a Contract of average size.
In addition, the Separate Account may advertise an annualized 30-day (or one
month) yield figure for Subaccounts other than the Fidelity Money Market
Subaccount. These yield figures are based upon the actual performance of the
Subaccount over a 30-day (or one month) period ending on a date specified in the
advertisement. Like the money market yield data described above, the 30-day (or
one month) yield data will reflect the effect of all recurring Contract charges,
but will not reflect any Withdrawal Charges or premium tax charge. The yield
figure is derived from net investment gain (or loss) over the period expressed
as a fraction of the investment's value at the end of the period.
The Separate Account may also advertise standardized and non-standardized "total
return" data for its Subaccounts. Like the yield figures described above, total
return figures are based on historical data and are not intended to indicate
future performance. The standardized "total return" compares the value of a
hypothetical investment made at the beginning of the period to the value of the
same hypothetical investment at the end of the period. Standardized total return
figures reflect the deduction of any Withdrawal Charge that would be imposed
upon a complete redemption of the Contract at the end of the period. Recurring
Contract charges are reflected in the standardized total return figures in the
same manner as they are reflected in the yield data for Contracts funded through
the Money Market Subaccount.
In addition to the standardized "total return," the Separate Account may
advertise non-standardized "total return." Non-standardized total return is
calculated in a similar manner and for the same time periods as the standardized
total return except that the Withdrawal Charge is not deducted. Further, we
assumed an initial hypothetical investment of $30,000, because $30,000 is closer
to the average Purchase Payment of a Contract which we expect to write.
Standardized total return, on the other hand, assumes an initial hypothetical
investment of $1,000.
The Separate Account may also disclose yield and non-standardized total return
for time periods before the date the Separate Account commenced operations. In
this case, performance data for the Subaccounts is calculated based on the
performance of the Portfolios and assumes that the Subaccounts existed during
the same time period as the Portfolios, with recurring Contract charges equal to
those currently assessed against the Subaccounts.
Our advertisements may also compare the performance of our Subaccounts with: (a)
certain unmanaged market indices, including but the Dow Jones Industrial
Average, the Standard & Poor's 500, and the Shearson Lehman Bond Index; and/or
(b) other management investment companies with investment objectives similar to
the underlying funds being compared. Our advertisements also may include the
performance ranking assigned by various publications, including the Wall Street
Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today, and
statistical services, including Lipper Analytical Services Mutual Fund Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey,
and SEI.
The Contract charges are described in more detail on page 32. We have described
the computation of advertised performance data for the Separate Account in more
detail beginning on page S-6 of the Statement of Additional Information.
B-1
<PAGE>
APPENDIX C
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Purchase Payment: $40,000.00
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
5-year Treasury Rate at
Time of Purchase Payment: 6%
The following examples illustrate how the Market Value Adjustment and the
Withdrawal Charge may affect the values of a Contract upon a withdrawal. The 5%
assumed Guaranteed Interest Rate is the rate required to be used in the "Summary
of Expenses." In these examples, the withdrawal occurs one year after the Issue
Date. The Market Value Adjustment operates in a similar manner for transfers,
except that there is no free amount for transfers. No Withdrawal Charge applies
to transfers.
Assuming that the entire $40,000.00 Purchase Payment is allocated to the
Guaranteed Maturity Fixed Account for the Guarantee Period specified above, at
the end of the five-year Guarantee Period the Contract Value would be
$51,051.26. After one year, when the withdrawals occur in these examples, the
Contract Value would be $42,000.00. We have assumed that no prior partial
withdrawals or transfers have occurred.
The Market Value Adjustment and the Withdrawal Charge only apply to the portion
of a withdrawal that is greater than the Free Withdrawal Amount. Accordingly,
the first step is to calculate the Free Withdrawal Amount.
The Free Withdrawal Amount is equal to:
(a) the greater of:
- earnings not previously withdrawn; or
- 15% of your total Purchase Payments in the most recent seven years;
plus
(b) an amount equal to your total Purchase Payments made more than seven
years ago, to the extent not previously withdrawn.
Here, (a) equals $6,000.00, because 15% of the total Purchase Payments in the
most recent seven years ($6,000.00 = 15% X $40,000.00) is greater than the
earnings not previously withdrawn ($2,000.00). (B) equals $0, because all of the
Purchase Payments were made less than seven years age. Accordingly, the Free
Withdrawal Amount is $6,000.00.
The formula that we use to determine the amount of the Market Value Adjustment
is:
.9 X (I-J) X N,
where: I = the Treasury Rate for a maturity equal to the relevant Guarantee
Period for the week preceding the beginning of the Guarantee Period;
J = the Treasury Rate for a maturity equal to the relevant Guarantee
Period for the week preceding our receipt of your withdrawal request,
death benefit request, transfer request, or annuity option request;
and
N = the number of whole and partial years from the date we receive
your request until the end of the relevant Guarantee Period.
We will base the Market Value Adjustment on the current Treasury Rate for a
maturity corresponding in length to the relevant Guarantee Period. These
examples also show the Withdrawal Charge (if any), which would be calculated
separately from the Market Value Adjustment.
EXAMPLE OF A DOWNWARD MARKET VALUE ADJUSTMENT
A downward Market Value Adjustment results from a full or partial withdrawal
that occurs when interest rates have increased. Assume interest rates have
increased one year after the Purchase Payment, such that the five-year Treasury
Rate is now 6.5%. Upon a withdrawal, the market value adjustment factor would
be:
.9 X (.06 - .065) X 4 = -.0180
The Market Value Adjustment is a reduction of $648.00 from the amount withdrawn:
$648.00 = -.0180 X ($42,000.00 - $6,000.00)
A Withdrawal Charge of 7% would be assessed against the Purchase Payments
withdrawn that are less than seven years old and are not eligible for free
withdrawal. Under the Contract, earnings are deemed to be withdrawn before
Purchase Payments. Accordingly, in this example, the amount of the Purchase
Payment eligible for free withdrawal would equal the Free Withdrawal Amount less
the interest credited or $4,000.00 ($6,000.00 - $2,000.00).
Therefore, the Withdrawal Charge would be:
$2,520.00 = 7% X (40,000.00 - $4,000.00)
As a result, the net amount payable to you would be:
$38,832.00 = $42,000.00 - $648.00 - $2,520.00
C-1
<PAGE>
EXAMPLE OF AN UPWARD MARKET VALUE ADJUSTMENT
An upward Market Value Adjustment results from a withdrawal that occurs when
interest rates have decreased. Assume interest rates have decreased one year
after the Purchase Payment, such that the five-year Treasury Rate is now 5.5%.
Upon a withdrawal, the market value adjustment factor would be:
.9 X (.06 - .055) X 4 = .0180
The Market Value Adjustment would increase the amount withdrawn by $648.00, as
follows:
$648.00 = .0180 X ($42,000.00 - $6,000.00)
As above, in this example, the amount of the Purchase Payment eligible for free
withdrawal would equal the Free Withdrawal Amount less the interest credited or
$4,000.00 ($6,000.00 - $2,000.00). Therefore, the Withdrawal Charge would be:
$2,520.00 = 7% X ($40,000.00 - $4,000.00)
As a result, the net amount payable to you would be:
$40,128.00 = $42,000.00 + $648.00 - $2,520.00
EXAMPLE OF A PARTIAL WITHDRAWAL
If you request a partial withdrawal from a Guarantee Period, we can either (1)
withdraw the specified amount of Contract Value and pay you that amount as
adjusted by any applicable Market Value Adjustment or (2) pay you the amount
requested, and subtract an amount from your Contract Value that equals the
requested amount after application of the Market Value Adjustment and Withdrawal
Charge. Unless you instruct us otherwise, when you request a partial withdrawal
we will assume that you wish to receive the amount requested. We will make the
necessary calculations and on your request provide you with a statement showing
our calculations.
For example, if in the first example you wished to receive $20,000.00 as a
partial withdrawal, the Market Value Adjustment and Withdrawal Charge would be
calculated as follows:
let: AW = the total amount to be withdrawn from your Contract Value
MVA = Market Value Adjustment
WC = Withdrawal Charge
AW' = amount subject to Market Value Adjustment and Withdrawal
Charge
Then AW - $20,000.00 = MVA + WC
Since neither the Market Value Adjustment nor the Withdrawal Charge apply to the
free withdrawal amount, we can solve directly for the amount subject to the
Market Value Adjustment and the Withdrawal Charge (i.e., AW'), which equals AW
- -$6,000.00. Then, AW = AW' + $6,000, and AW' + $6,000.00 - $20,000.00 = MVA +
WC.
MVA = .018 X AW'
WC = .07 X AW'
(since the Market Value Adjustment is a reduction from amount withdrawn, it
operates in the same direction as the Withdrawal Charge)
MVA + WC = .088AW'
AW' - $14,000.00 = .088AW'
AW' = $14,000.00 / (1 - .088) = $15,350.88
MVA = .018 X $15,350.88 = $276.32
WC = .07 X $15,350.88 = $1,074.56
AW = Total amount withdrawn = $15,350.88 + $6,000.00 = $21,350.88
You receive $20,000.00; the total amount subtracted from your contract is
$21,350.88; the Market Value Adjustment is $276.32; and the Withdrawal Charge is
$1,074.56. Your remaining Contract Value is $20,649.12.
If, however, in the same example, you wished to withdraw $20,000.00 from your
Contract Value and receive the adjusted amount, the calculations would be as
follows:
By definition, AW = total amount withdrawn from your Contract Value = $20,000.00
AW' = amount that MVA & WC are applied to
= amount withdrawn in excess of Free Amount
= $20,000.00 - $6,000.00 = $14,000.00
MVA = .018 X $14,000.00 = $252.00
WC = .07 X $14,000.00 = $980.00
You would receive $20,000.00 - $252.00 - $980.00 = $18,768.00; the total amount
subtracted from your Contract Value is $20,000.00. Your remaining Contract Value
would be $22,000.00.
EXAMPLE OF FREE WITHDRAWAL AMOUNT
Assume that in the foregoing example, after four years $8,620.25 in interest had
been credited and that the Contract Value in the Fixed Account equaled
$48,620.25. In this example, if no prior withdrawals have been made, you could
withdraw up to $8,620.25 without incurring a Market Value Adjustment or a
Withdrawal Charge. The Free Withdrawal Amount would be $8,620.25, because the
interest credited ($8,620.25) is greater than 15% of the Total Purchase Payments
in the most recent seven years ($40,000.00 X .15 = $6,000.00).
C-2
