PROSPECTUS: FLEXIBLE PREMIUM VARIABLE ANNUITY
Issued Through Banner Life Variable Annuity Account B by
Banner Life Insurance Company - 1701 Research Boulevard
Rockville, Maryland 20850
This Prospectus describes a Flexible Premium Variable Annuity (the
"Policy") offered by Banner Life Insurance Company. The Policy is
designed to aid in long-term financial planning and provides for
the investment of capital by individuals on a tax-deferred basis
for retirement or other long-term purposes.
The Owner may allocate Premium Payments to one or more Sub-Accounts
of the Banner Life Variable Annuity Account B (the "Variable
Account"), to the General Account which guarantees a minimum fixed
return, or to a combination of these Accounts. The Variable
Account currently has seven different Sub-Accounts. Assets of each
Sub-Account are invested in a corresponding Portfolio of a mutual
fund, the Scudder Variable Life Investment Fund (the "Fund"). The
following seven Portfolios of Class A shares currently are
available under the Policy: a Money Market Portfolio; a Bond
Portfolio; a Capital Growth Portfolio; a Balanced Portfolio; a
Growth and Income Portfolio; an International Portfolio; and a
Global Discovery Portfolio. The Fund is described in a separate
prospectus that accompanies this Prospectus.
The Account Value will vary in accordance with the investment
performance of the Account and/or Sub-Accounts selected by the
Owner. Therefore, the Owner bears the entire investment risk under
this Policy for all amounts allocated to the Variable Account.
Amounts allocated to the General Account are guaranteed by Banner
Life Insurance Company ("Banner Life") and will earn a specified
rate of interest declared periodically.
The Policy provides for monthly annuity payments to be made by
Banner Life for the lifetime of the Annuitant or for some other
period, beginning on the Maturity Date selected by the Owner. Both
prior to and after the Maturity Date, the Owner can transfer
amounts between the Accounts or Sub-Accounts (some restrictions may
apply, especially on transfers out of the General Account). The
Owner can also elect to surrender all or a portion of the Cash
Surrender Value in exchange for a cash withdrawal payment from
Banner Life; however, withdrawals may be taxable and subject to a
Contingent Deferred Sales Charge. Additionally, a tax penalty may
be applied if a surrender is made before age 59 1/2. Surrenders
from the General Account may also be subject to restrictions
regarding time and amount.
This Prospectus sets forth the information that a prospective
investor should consider before purchasing a Policy. A Statement
of Additional Information about the Policy and the Variable
Account, which has the same date as this Prospectus, has been filed
with the Securities and Exchange Commission and is incorporated
herein by reference. The Statement of Additional Information is
available at no cost to any person requesting a copy by writing
Banner Life at the address provided above or by calling (800)
638-3350. The table of contents of the Statement of Additional
Information is included at the end of this Prospectus.
This Prospectus and the Statement of Additional Information
describes only the Policy and the Variable Account, except when the
General Account is specifically mentioned.
The Policy involves risk, including loss of principal. The Policy
is not a deposit in or obligation of, or backed or guaranteed by,
any bank, and the Policy is not insured or guaranteed by the
Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other government agency.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS FOR THE SCUDDER VARIABLE LIFE INVESTMENT FUND. THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. PLEASE READ THIS PROSPECTUS
CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
The Date of This Prospectus is May 1, 1996.
TABLE OF CONTENTS
DEFINITIONS............................................................. 1
SUMMARY................................................................. 2
FEE TABLES.............................................................. 6
CONDENSED FINANCIAL INFORMATION......................................... 7
FINANCIAL STATEMENTS.................................................... 7
HISTORICAL PERFORMANCE DATA............................................. 7
Standardized Performance Data...................................... 7
Non-Standardized Performance Data.................................. 8
BANNER LIFE INSURANCE COMPANY........................................... 8
THE BANNER LIFE VARIABLE ANNUITY ACCOUNT B.............................. 9
SCUDDER VARIABLE LIFE INVESTMENT FUND................................... 9
Portfolios of the Fund............................................. 9
Investment Advisory Fees.......................................... 10
Addition, Deletion or Substitution of Investments................. 11
Resolving Material Conflicts...................................... 11
THE GENERAL ACCOUNT.....................................................12
THE POLICY..............................................................13
Policy Application and Issuance of Policy..........................13
Premium Payments...................................................13
Account Value......................................................14
Transfers..........................................................14
Non-Participating Policy...........................................15
Policy Loans.......................................................15
Dollar Cost Averaging..............................................15
Powers of Attorney.................................................16
Right to Return the Policy.........................................16
DISTRIBUTIONS UNDER THE POLICY......................................... 16
Tax Consequences................................................. 16
Transfers..........................................................16
Annuity Payments...................................................17
Annuity Payment Plans..............................................18
Death Benefit......................................................20
Restrictions Under Section 403(b) Plans............................21
Systematic Withdrawals.............................................21
Delay of Payments..................................................21
OTHER CONTRACTUAL PROVISIONS............................................22
Periodic Reports...................................................22
Splitting Units....................................................22
Modification.......................................................22
Custodian..........................................................22
CHARGES AND DEDUCTIONS..................................................22
Contingent Deferred Sales Charge...................................22
Mortality and Expense Risk Charge..................................23
Administrative Charges.............................................24
Premium Taxes..................................................... 24
Federal, State and Local Taxes.....................................24
Transfer Charge....................................................24
Reduction of Charges for Group Sales...............................24
Other Expenses Including Investment Advisory Fees..................24
CERTAIN FEDERAL INCOME TAX CONSEQUENCES.................................25
Taxation of Annuities..............................................26
Qualified Plans....................................................28
Diversification....................................................30
General............................................................30
Tax-Sheltered Annuities-Withdrawal Limitations.....................30
DISTRIBUTOR OF THE POLICY...............................................31
VOTING RIGHTS...........................................................31
LEGAL PROCEEDINGS...................................................... 31
STATEMENT OF ADDITIONAL INFORMATION.....................................32
<PAGE>
DEFINITIONS
Account Value - The sum of the Variable Account Value and the
General Account Value.
Accumulation Unit - An accounting unit of measure used in
calculating the Variable Account Value.
Administrative Office - The Administrative Office of Banner Life
Insurance Company is located at 1701 Research Boulevard, Rockville,
Maryland 20850.
Annuitant - The person upon whose life the Policy is issued.
Annuity Payment Plan - A method of receiving a stream of Annuity
Payments.
Annuity Unit - An accounting unit of measure used in the
calculation of the amount of the second and each subsequent
Variable Annuity Payment.
Annuity Value - The Policy value after the Maturity Date.
Banner Life - Banner Life Insurance Company or the Company.
Banner Life Variable Annuity Account B - A separate account
established by Banner Life and registered as a unit investment
trust under the Investment Company Act of 1940 to which Premium
Payments under the Policy may be allocated and which invests in the
Scudder Variable Life Investment Fund. The separate account meets
the definition of a separate account under federal securities laws.
Beneficiary - The person, designated in the application, who has
the right to the death benefit set forth in the Policy, if there is
no surviving owner.
Cash Surrender Value - The Net Account Value less the Contingent
Deferred Sales Charge, if any, and the annual Maintenance Charge.
Code - The Internal Revenue Code of 1986, as amended.
Due Proof of Death - A certified copy of a death certificate, a
certified copy of a decree of a court of competent jurisdiction as
to the finding of death, a written statement by the attending
physician, or any other proof satisfactory to Banner Life will
constitute Due Proof of Death.
Fixed Annuity Payments - Payments made pursuant to an Annuity
Payment Plan which do not fluctuate in amount.
Fund - The Scudder Variable Life Investment Fund, a diversified,
open-end management company in which the Variable Account invests.
General Account - All of the assets of Banner Life that are not in
separate accounts.
Joint Owner - The person who shares ownership rights with the
Owner.
Maturity Date - The date upon which the Net Account Value is
applied to provide an Annuity Payment Plan. The Maturity Date is
elected by the Owner. Annuity years and anniversaries are measured
from this date.
Net Account Value - The Account Value minus any outstanding policy
loan balance.
Nonqualified Policy - A Policy other than a Qualified Policy.
Owner - The person who may exercise all rights and privileges under
the Policy.
Policy - The flexible premium variable annuity policy offered by
this Prospectus.
Policy Date - The date the Policy becomes a binding legal contract,
as shown on the Policy Schedule Page. Policy years and
anniversaries are measured from the Policy Date.
Policy Year - A period of twelve months commencing with the Policy
Date or any anniversary thereof.
Premium Payment - An amount paid to Banner Life by the Policy owner
or on the Policy owner's behalf as consideration for the benefits
provided by the Policy.
Qualified Policy - A policy that is issued in connection with plans
that qualify for special federal income tax treatment under section
401, 403, 408 or 457 of the Internal Revenue Code of 1986, as
amended. See "Certain Federal Income Tax Consequences."
Sub-Account - A division within the Variable Account which invests
in a specified Portfolio of the Fund.
Valuation Day - Any day that the New York Stock Exchange is open
for trading.
Valuation Period - The period of time from the end of one valuation
day to the end of the next valuation day.
Variable Annuity Payments - Payments made pursuant to an Annuity
Payment Plan which fluctuate as to dollar amount in relation to the
investment performance of the specified Sub-Accounts within the
Variable Account.
Written Notice or Request - Written notice in a form satisfactory
to Banner Life, signed by the Policy owner, and received and
recorded at the Administrative Office.
SUMMARY
The Policy
The Policy is a flexible premium variable annuity which can be
purchased on a non-tax qualified basis ("Nonqualified Policy") or
with the proceeds from certain plans qualifying for favorable
federal income tax treatment ("Qualified Policy"). The Owner
allocates the Premium Payments among the Variable and the General
Accounts of Banner Life Insurance Company ("Banner Life").
The Accounts
The Variable Account. The Banner Life Variable Annuity Account B
is a separate account of Banner Life, which invests exclusively in
shares of the Scudder Variable Life Investment Fund (the "Fund"),
a mutual fund managed by Scudder, Stevens & Clark, Inc., which also
provides investment advisory services for the Fund. The following
seven portfolios of Class A shares of the Fund are available under
the policy: the Money Market Portfolio, the Bond Portfolio, the
Capital Growth Portfolio, the Balanced Portfolio, the Growth and
Income Portfolio, the International Portfolio and the Global
Discovery Portfolio. Each of the Sub-Accounts of the Variable
Account invests solely in a corresponding Portfolio of the Fund.
Because Account Values may depend on the investment experience of
the selected Sub-Accounts, the Owner bears the entire investment
risk with respect to Premium Payments allocated to, and amounts
transferred to, the Variable Account. (See The Variable Account.)
The General Account. The General Account guarantees each year, the
safety of principal and a minimum annual 3% Guaranteed Interest
Rate on Premium Payments allocated to, and amounts transferred to,
the General Account. Banner Life may, in its sole discretion,
declare a higher Current Interest Rate which is not guaranteed for
any length of time. (See The General Account.)
Premium Payments
A Policy may be purchased with a minimum initial Premium of $2,000.
The maximum purchase is $500,000. Premium payments may be paid at
any interval provided that the amount of each payment is at least
$50.
On the Policy Date, the initial Premium Payment is allocated among
the Accounts and Sub-Accounts according to the Owner's instructions
in the application. The premium allocation percentages for
additional payments may be changed by sending Written Notice to
Banner Life's Administrative Office. Any allocation must be in
whole numbers and at least 10%, and the sum of the percentages
allocated to all of the accounts must equal 100%.
Transfers
On or before the Maturity Date, the owner can transfer some or all
of the Account Value among the Sub-Accounts of the Variable Account
or between one or more Sub-Accounts and the General Account, with
certain limitations. Similarly, after the maturity date, the Owner
can transfer some or all of the Annuity Value among the
Sub-Accounts of the Variable Account or between one or more
Sub-Accounts and the General Account, within certain limitations.
The amount transferred from the General Account or any Sub-Account
of the Variable Account must be at least $100 or the value in that
Account, if less. The maximum amount that may be transferred out
of the General Account in any consecutive 12 month period is
limited to the greater of 25% of the General Account Value or the
greatest amount of any previous transfer out of the General
Account. This limitation will not apply to policies which apply
for Dollar Cost Averaging, a program enabling an Owner to
systematically transfer amounts out of the General Account which
are approved by Banner Life (see the Policy - Dollar Cost
Averaging).
Banner Life reserves the right to restrict the number of transfers
out of Sub-Accounts of the Variable Account in a Policy Year (both
before and after the Maturity Date). Transfers may be subject to
a service charge, which will be deducted from the amount
transferred. This contract is not designed for professional market
timing firms utilizing frequent or programmed transfers. (See
Transfers.)
Surrenders
The Owner may elect to surrender all or a portion of the Cash
Surrender Value in the Variable Account at any time prior to the
Maturity Date. The Cash Surrender Value equals the Net Account
Value less any applicable Contingent Deferred Sales Charge and the
annual Maintenance Charge (described below). Surrenders may be
taxable and subject to a tax penalty. (See Contingent Deferred
Sales Charge.)
Policy Loans
The Owner may borrow funds from the Account Value up to a maximum
of 50% of the Cash Surrender Value. The Policy is assigned to
Banner Life as the only security for the loan. A loan taken from or
secured by a Nonqualified Policy is treated as a surrender, and may
be subject to federal and state (if applicable) income tax and a
10% penalty tax. Additional considerations may apply to a Qualified
Policy. (For a discussion of loan interest and repayment of Policy
Loans, see Policy Loans.)
Charges and Deductions
Contingent Deferred Sales Charge. A Contingent Deferred Sales
Charge of up to 7% may be deducted from the Account Value in the
event of surrender. The Contingent Deferred Sales Charge applies
to the surrender of premiums paid within seven years prior to
surrender. Once each Policy Year, the Owner may surrender up to
15% of total premiums paid less any previous surrenders, without
incurring a Contingent Deferred Sales Charge. (See Contingent
Deferred Sales Charge.)
Premiums that were deposited more than seven years prior to a
surrender are free from the Contingent Deferred Sales Charge.
Mortality and Expense Risk Charges. Banner Life deducts a daily
charge equal to a percentage of the net assets in the Variable
Account for the mortality and expense risks assumed by Banner Life.
The effective annual rate of this charge is 1.20%. (See Mortality
and Expense Risk Charge.)
Maintenance Charges. There is also an Annual Maintenance Charge
each year for Policy maintenance and related administrative
expenses which will be charged on the last day of each
Policy Year. This charge currently is $25 per year but will be
waived if the Net Account Value at the end of the Policy Year is
$50,000 or more. (See Maintenance Charge.)
Administrative Charges. There is also a daily Administrative
Charge at an effective annual rate of .10% of the Variable Account
Value.
Charges for Taxes. Charges for premium taxes payable to any
governmental entity will be deducted from the Net Account Value
upon annuitization or surrender as certain state laws specify.
(See Premium Taxes.)
No charges are currently made against any of the Accounts for
federal, state, or local income taxes. Should Banner Life
determine that any such taxes may be imposed with respect to any of
the Accounts, Banner Life may deduct such taxes from amounts held
in the relevant Account. (See Federal, State and Local Taxes.)
Transfer Fees. Banner Life reserves the right to charge a fee for
more than twelve transfers in a calendar year.
Charges Against the Fund. The value of the net assets of the
Sub-Accounts of the Variable Account will reflect the investment
advisory fee and other expenses incurred by the Fund. (See Other
Expenses Including Investment Advisory Fees.)
Death Benefit
Upon receipt of Due Proof of Death of the Annuitant or Owner or the
first death if there is more than one Owner while the Policy is in
force prior to the Maturity Date, a Death Benefit will be paid to
the surviving Owner. If there is no surviving Owner, then the
Death Benefit will be paid to the beneficiary. (See Death Benefit)
Right to Return the Policy
The Owner may cancel the Policy within ten (10) days after
receiving it by returning it to the agent through whom it was
purchased or delivering or mailing the Policy and a Written Notice
of Cancellation to Banner Life at its Administrative Office or such
other methods as described in the contract. In the event of
cancellation, Banner Life will refund any premiums paid plus or
minus any investment gains or losses unless otherwise required by
state law, and the Policy will be deemed void from the beginning .
Federal Income Tax Consequences of Investment in the Policy
With respect to Owners who are natural persons, there should be no
federal income tax on increases in the Account Value until a
distribution under the Policy occurs (e.g., a surrender, or Annuity
Payment) or is deemed to occur (e.g., a pledge, Policy Loan, or
assignment of a Policy). Generally, a portion of any distribution
(e.g., a surrender, or Annuity Payment) or deemed distribution
(e.g., a pledge, Policy Loan, or assignment of a Policy) will be
taxable as ordinary income for federal and state (if applicable)
income tax purposes. In addition, a 10% penalty tax may apply to
certain distributions or deemed distributions under the Policy. The
taxable portion of certain distributions will be subject to
withholding unless the recipient elects otherwise (withholding is
mandatory for certain Qualified Policies). (See Certain Federal
Income Tax Consequences.)
Inquiries and Written Notices and Requests
Any questions about procedures or the Policy, or any Written Notice
or Written Request required to be sent to Banner Life, should be
sent to Banner Life's Administrative Office, 1701 Research
Boulevard, Rockville, Maryland 20850. Telephone requests and
inquires may be made by calling (800) 638-3350. All inquiries,
Notices and Requests should include the Policy number, the Owner's
name and the Annuitant's name.
<PAGE>
Expense Data. The charges and deductions are summarized in the
following tables. This tabular information regarding expenses
assumes that the entire Account Value is in the Variable Account1.
Owner Transaction Expenses
Sales Load On Purchase Payments 0
Maximum Contingent Deferred 7%
Sales Charge (as a % of
Premium Payment Surrendered)
Annual Maintenance Charge $25 Per Policy
Transfer Fee2 Currently no fee.
Variable Account Annual Expenses
(as a percentage of Account Value)
Mortality and Expense Risk Fees 1.20%
Administrative Charges .10%
Total Variable Account Annual Expenses 1.30%
Scudder Variable Life Investment Fund Annual Expenses
(as a percentage of average net assets)
Investment Other Total
Advisory Fees Expenses3 Expenses
Money Market .370% .130% .500%
Bond .475% .085% .560%
Capital Growth .475% .095% .570%
Balanced .475% .175% .650%
Growth & Income .475% .275% .750%
International .875% .205% 1.080%
Global Discovery .975% .525% 1.500%
__________________________
1 The Owner Transaction Expenses apply to each Policy,
regardless of how the Account Value is allocated among the Variable
Account and the General Account. The Variable Account Annual
Expenses do not apply to the General Account. (See Other Expenses
Including Investment Advisory Fees.)
2 Banner Life reserves the right to charge a fee on more than
12 transfers in a calendar year.
3 The expenses listed for the Scudder Variable Life Investment
Fund are actual, historical expenses for the year ended December
31, 1995, after reimbursement. Future expenses may be lower or
higher. The Fund did not impose all of its management or
administrative fees on the Growth and Income Portfolio for the year
ended December 31, 1995. Had these fees been imposed, the ratio of
operating expenses to average net assets would have been .756%.
For the Global Discovery Portfolio, expenses which exceed 1.50% of
average net assets will be waived by the Fund.
FEE TABLES
Examples
An Owner would pay the following expenses on a $1,000 investment,
assuming a 5% annual return on assets:
1. If the Policy is surrendered or annuitized over less than a
five year period at the end of the applicable time period:
1 Year 3 Years 5 Years 10 Years
Money Market Portfolio* 79 99 122 209
Bond Portfolio* 79 101 125 215
Capital Growth Portfolio* 79 101 126 216
Balanced Portfolio* 80 104 130 225
Growth and Income Portfolio* 81 111 143 254
International Portfolio* 84 121 157 288
Global Discovery Portfolio* 89 133 181 329
2. If the Policy is not surrendered or is annuitized over at
least a five year period at the end of the applicable time
period:
1 Year 3 Years 5 Years 10 Years
Money Market Portfolio* 19 57 97 209
Bond Portfolio* 20 58 100 215
Capital Growth Portfolio* 20 59 100 216
Balanced Portfolio* 21 61 104 225
Growth and Income Portfolio* 22 68 118 254
International Portfolio* 25 78 135 288
Global Discovery Portfolio* 29 91 155 329
* Class A shares
The above tables are intended to assist the Owner in understanding
the costs and expenses that will be borne, directly or indirectly,
including the expenses of the Scudder Variable Life Investment
Fund. Note that the tables are based on the current charges and
the $25 annual Maintenance Charge is expressed as .1% based on an
anticipated average account value of $25,000, and is also as a
percentage of the anticipated average Account Value. See Charges
and Deductions, and the Scudder Variable Life Investment Fund
prospectus. In addition to the expenses listed above, premium
taxes may be applicable upon annuitization or surrender.
The Examples should not be considered a representation of past or
future expenses, and actual expenses may be greater or less than
those shown.
<PAGE>
CONDENSED FINANCIAL INFORMATION
Banner Life Variable Annuity Account B
The following information relating to accumulated unit values and
number of accumulation units for 1995 is derived from the Variable
Account's financial statements. The information relating to
accumulation unit values and number of accumulation units should be
read in conjunction with the Variable Account's financial
statements and notes in the Statement of Additional Information.
<TABLE>
<CAPTION>
1995 Money Capital Growth &
Market Bond Growth Balanced Income International
Portfolio* Portfolio* Portfolio* Portfolio* Portfolio* Portfolio*
<S> <C> <C> <C> <C> <C> <C>
Accumulation
Unit Value
- -Beginning of Period $1.0000 $1.0000 $1.0000 $1.0000 $1.0000 $1.0000
- -End of Period $1.0257 $1.1690 $1.2844 $1.2498 $1.2850 $1.1184
Number of
Accumulation Units
- -End of Period 351,833 371,294 777,352 713,541 780,339 523,470
<FN>
* Class A shares
</FN>
</TABLE>
Note: since the Global Discovery Portfolio was made available
during 1996, there are no accumulation unit values or number of
accumulation units to report for 1995.
FINANCIAL STATEMENTS
The consolidated financial statements for Banner Life Insurance
Company as of December 31, 1995, 1994 and 1993 and for each of the
three years in the period ended December 31, 1995, the financial
statements of the Banner Life Variable Annuity Account B as of
December 31, 1995, and the related reports of the independent
accountants are contained in the Statement of Additional
Information.
HISTORICAL PERFORMANCE DATA
Standardized Performance Data
From time to time, Banner Life may advertise historical yields and
total returns for the Sub-Accounts of the Variable Account. In
addition, Banner Life may advertise the effective yield of the
Money Market Sub-Account. These figures will be calculated
according to standardized methods prescribed by the Securities and
Exchange Commission ("SEC"). They will be based on historical
earnings and are not intended to indicate future performance.
The yield of the Money Market Sub-Account refers to the annualized
income generated by an investment under a Policy in that Sub-Account
over a specified seven-day period. The yield is calculated
by assuming that the income generated for that seven-day period is
generated each seven-day period 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 an
investment under a Policy in the Money Market Sub-Account is
assumed to be reinvested. The effective yield will be slightly
higher than the yield because of the compounding effect of this
assumed reinvestment.
The yield of a Sub-Account of the Variable Account (other than the
Money Market Sub-Account) refers to the annualized income generated
by an investment under a Policy in the Sub-Account over a specified
thirty-day period. The yield is calculated by assuming that the
income generated by the investment during that thirty-day period is
generated each thirty-day period over a 12-month period and is
shown as a percentage of the investment.
The total return of a Sub-Account of the Variable Account refers to
return quotations assuming an investment under a Policy has been
held in the Sub-Account for various periods of time including, but
not limited to, a period measured from the date the Sub-Account
commenced operations. When a Sub-Account has been in operation for
one, five, and ten years, respectively, the total return for these
periods will be provided. The total return quotations for a
Sub-Account will represent the average annual compounded rates of
return that equate an initial investment of $1,000 in the
Sub-Account to the redemption value of that investment as of the
first day of each of the periods for which total return quotations
are provided.
The yield and total return calculations for a Sub-Account do not
reflect the effect of any premium taxes that may be applicable to
a particular Policy. The yield calculations also do not reflect
the effect of the Administrative Charge, the annual Maintenance
Charge or the Mortality and Expense Risk Charge or any Contingent
Deferred Sales Charge that may be applicable to a particular
Policy. To the extent that a premium tax and/or Contingent
Deferred Sales Charge is applicable to a particular Policy, the
yield and/or total return of that Policy will be reduced. For
additional information regarding yields and total returns
calculated using the standard formats briefly summarized above,
please refer to the Statement of Additional Information, a copy of
which may be obtained from Banner Life.
Non-Standardized Performance Data
Banner Life may from time to time also advertise or disclose
average annual total return or other performance data in
non-standard formats for a Sub-Account of the Variable Account.
The non-standard performance data may assume that no Contingent
Deferred Sales Charge is applicable, and may also make other
assumptions. The exclusion of the charges will result in a higher
return than would be obtained after such a charge.
All non-standard performance data will be advertised only if the
standard performance data is also disclosed. For additional
information regarding the calculation of other performance data,
please refer to the Statement of Additional Information, a copy of
which may be obtained from Banner Life.
BANNER LIFE INSURANCE COMPANY
Banner Life Insurance Company ("Banner Life" or the "Company") is
a stock life insurance company that is a wholly owned subsidiary of
Legal & General Life Insurance Company of America, Inc., which in
turn is a wholly owned subsidiary of Legal & General America, Inc.,
which in turn is wholly owned by Legal & General Netherlands
Holding BV, which is a wholly-owned subsidiary of Legal & General,
International Limited, a United Kingdom based holding company. The
ultimate controlling entity is Legal & General Group Plc, a United
Kingdom company. Banner Life is principally engaged in offering
life insurance and annuities and is licensed in the District of
Columbia and all states except Maine and New York.
Banner Life is the successor to Government Employees Life Insurance
Company ("GELICO"), which was a subsidiary of GEICO Corporation.
GELICO was organized as a District of Columbia corporation on April
28, 1949. GELICO changed its name to Banner Life Insurance
Company, and became a wholly owned indirect subsidiary of Legal &
General Group Plc on December 1, 1983.
THE BANNER LIFE VARIABLE ANNUITY ACCOUNT B
Premiums paid under a Policy may be allocated to the Variable
Account or to the General Account, or to a combination of these
Accounts.
The Banner Life Variable Annuity Account B
The Banner Life Variable Annuity Account B (the "Variable Account")
is currently divided into seven Sub-Accounts. Each Sub-Account
invests exclusively in shares of a single portfolio of Class A
shares of the Scudder Variable Life Investment Fund. Income and
both realized and unrealized gains or losses from the assets of
each Sub-Account are credited to or charged against that
Sub-Account without regard to income, gains or losses from any
other Sub-Account of the Variable Annuity Account or arising out of
any other business Banner Life may conduct.
Although the assets in the Variable Account are the property of
Banner Life, the assets in the Variable Account attributable to the
Policy are not chargeable with liabilities arising out of any other
business which Banner Life may conduct. The Variable Account was
established by Banner Life as a segregated asset account on March
2, 1994. The Variable Account will receive and invest the premiums
allocated to it under the Policy. The obligations under the Policy
are obligations of Banner Life Insurance Company.
The Variable Account meets the definition of a separate account
under federal securities laws and has been registered as a unit
investment trust under the Investment Company Act of 1940.
Registration with the Securities and Exchange Commission does not
involve supervision of the management or investment practices or
policies of the Variable Account or Banner Life by the Commission.
SCUDDER VARIABLE LIFE INVESTMENT FUND
The Variable Account invests in shares of the Scudder Variable Life
Investment Fund (the "Fund"), a mutual fund of the series type.
The Fund consists of the following portfolios of Class A shares: a
Money Market Portfolio, a Bond Portfolio, a Capital Growth
Portfolio, a Balanced Portfolio, a Growth and Income Portfolio, and
an International Portfolio, and a Global Discovery Portfolio
(collectively, the "Portfolios"). The assets of each Portfolio of
the Fund are held separate from the assets of the other Portfolios.
Thus, each Portfolio operates as a separate investment portfolio,
and the income or losses of one Portfolio have no effect on the
investment performance of any other Portfolio.
The investment objectives and policies of each Portfolio are
summarized below. There is no assurance that any of the Portfolios
will achieve their stated objectives. More detailed information,
including a description of risks, is in the Fund's prospectus,
which accompanies this Prospectus, and should be read carefully in
conjunction with this Prospectus before investing and kept for
future reference.
The Fund is designed to provide investment vehicles for variable
annuity or variable life insurance contracts of various insurance
companies. For more information about the risks associated with
the use of the same funding vehicle for both variable annuity and
variable life insurance contracts of various insurance companies,
see the Fund's prospectus.
Portfolios of the Fund. The following seven Portfolios of the Fund
are available under the Policy:
Money Market Portfolio (Class A shares). This Portfolio seeks to
maintain stability of capital and, consistent therewith, to
maintain liquidity of capital and to provide current income. The
Portfolio purchases money market securities such as U.S. Treasury
obligations, commercial paper, and certificates of deposit and
banker's acceptances of domestic and foreign banks, including
foreign branches of domestic banks, and enters into repurchase
agreements.
An investment in this Portfolio is neither insured nor guaranteed
by the U.S. government, and there is no assurance that the
portfolio will be able to maintain a stable net asset value.
Bond Portfolio (Class A shares). This Portfolio pursues a policy
of investing for a high level of income consistent with a high
quality portfolio of securities. Under normal circumstances, the
Portfolio invests at least 65% of its assets in bonds, including
U.S. Government, corporate, and other notes and bonds paying high
current income. The Portfolio may also invest in preferred stocks
consistent with the Portfolio's objectives.
Capital Growth Portfolio (Class A shares). This Portfolio seeks
long-term capital appreciation and, consistent therewith, current
income through a broad and flexible investment program. The
Portfolio seeks to achieve these objectives by investing primarily
in income producing, publicly-traded equity securities, such as
common stocks and securities convertible into common stock, with an
emphasis on securities of established companies. However, in order
to reduce risk, as market or economic conditions may periodically
warrant, the Portfolio may also invest up to 25% of its assets in
short-term indebtedness.
Balanced Portfolio (Class A shares). The investment objective of
this Portfolio is to realize a high level of long-term total rate
of return consistent with prudent investment risk. The assets of
the Portfolio will be invested in the following three market
sectors: (1) common stock, preferred stock, and other equity
securities; (2) bonds and other debt securities with maturities
generally exceeding one year; and (3) money market instruments and
other debt securities with maturities generally not exceeding one
year.
Growth and Income Portfolio (Class A shares). This Portfolio seeks
long-term growth of capital, current income and growth of income.
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 current
dividends. The Portfolio allocates its investments among
different industries and companies, and changes its portfolio
securities for investment considerations and not for trading
purposes. The Portfolio attempts to achieve its investment
objective by investing primarily in dividend-paying common stocks,
preferred stocks and securities convertible into common stocks.
The Portfolio may also invest in foreign securities and in
repurchase agreements.
International Portfolio (Class A shares). This 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 not to concentrate investments in any
particular industry. The Portfolio primarily invests in equity
securities, and it may also invest in fixed income securities of
foreign governments and companies.
Global Discovery Portfolio (Class A shares). This Portfolio seeks
above-average capital appreciation over the long term by investing
primarily in the equity securities of small companies located
throughout the world. The Portfolio is designed for investors
looking for above-average appreciation potential (when compared
with the overall domestic stock market as reflected by Standard &
Poor's 500 Composite Price Index) and the benefits of investing
globally, but who are willing to accept above-average stock market
risk, the impact of currency fluctuation and little or no current
income. The Portfolio generally invests in small, rapidly growing
companies that offer the potential for above-average returns
relative to larger companies, yet are frequently overlooked and
thus under-valued by the market. The Portfolio has the flexibility
to invest in any region of the world. It can invest in companies
based in emerging markets as well as firms operating in developed
economies
Investment Advisory Fees
Scudder, Stevens & Clark, Inc. (the "Adviser") provides management
and investment advisory services to the Fund. The Adviser provides
investment research and portfolio management services to a number
of mutual funds and other clients. Each Portfolio pays the Adviser
a fee for its investment advisory services at the following annual
rates:
Percentage of the Portfolio's
Portfolio Average Daily Net Asset Value
Money Market Portfolio* .370%
Bond Portfolio* .475%
Capital Growth Portfolio* .475%
Balanced Portfolio* .475%
Growth and Income Portfolio* .475%
International Portfolio* .875%
Global Discovery Portfolio* .975%
* Class A shares
Addition, Deletion, or Substitution of Investments
Banner Life does not control the Fund and cannot guarantee that the
Fund or any Portfolio thereof will be available for investment in
the future or that the Fund or any Portfolio thereof will accept
premiums or transfers. In the event that the Fund or any Portfolio
is not available, Banner Life may take reasonable action to secure
a comparable or otherwise appropriate funding vehicle, although it
is not required to and may not do so. In the unlikely event that
the Fund is not available in the future and a substitute funding
vehicle is not obtained, then all Account Values could be
maintained in the General Account. If the Fund or other funding
vehicle restricts or refuses to accept transfers or other
transactions, then the transfer privilege may be modified or
revoked or other changes made.
Banner Life reserves the right, subject to compliance with
applicable law, to make additions to, deletions from, or
substitutions for the shares of the Fund that are held by the
Variable Account (or any Sub-Account) or that the Variable Account
(or any Sub-Account) may purchase. Banner Life reserves the right
to eliminate the shares of any of the Portfolios of the Fund and to
substitute shares of another Portfolio of the Fund or any other
investment vehicle or of another open-end, registered investment
company if laws or regulations are changed, if the shares of the
Fund or a Portfolio are no longer available for investment, or if
in our judgment further investment in any Portfolio should become
inappropriate in view of the purposes of the Sub-Account. Banner
Life will not substitute any shares attributable to a Policy
owner's interest in a Sub-Account of the Variable Account without
notice and prior approval of the Securities and Exchange Commission
and the insurance regulator of the state where the Policy was
delivered, if and where required. Nothing contained herein shall
prevent the Variable Account from purchasing other securities for
other series or classes of policies, or from permitting a
conversion between series or classes of policies on the basis of
requests made by Owners.
Banner Life also reserves the right to establish additional
Sub-Accounts of the Variable Account, each of which would invest in
a new Portfolio of the Fund, or in shares of another investment
company or suitable investment, with a specified investment
objective. New Sub-Accounts may be established when, in the sole
discretion of Banner Life, marketing needs or investment conditions
warrant, and any new Sub-Account will be made available to existing
Policy owners on a basis to be determined by Banner Life. Banner
Life may also eliminate one or more Sub-Accounts if, in its sole
discretion, marketing, tax, or investment conditions warrant.
In the event of any such substitution or change, Banner Life may,
by appropriate endorsement, make such changes in this and other
policies as may be necessary or appropriate to reflect such
substitution or change. If deemed by Banner Life to be in the best
interests of persons having voting rights under the Policy, the
Variable Account may be operated as a management company under the
Investment Company Act of 1940, it may be deregistered under that
Act in the event such registration is no longer required, or it may
be combined with other Banner Life separate accounts.
Resolving Material Conflicts
The Fund is used as investment vehicles for both variable life
insurance and variable annuity policies issued by the Banner Life.
In addition, the Fund is also available to registered separate
accounts of insurance companies other than Banner Life offering
variable life insurance and annuity policies. As a result, there
is a possibility that an irreconcilable material conflict may arise
between the interests of Owners whose cash values are allocated to
the Banner Life Variable Annuity Account and of Owners of policies
whose cash values are allocated to different participating separate
accounts investing in the Fund. In the event of a material
conflict, the Banner Life will take any necessary actions,
including the withdrawal of the assets allocable from the Fund, to
resolve the matter.
THE GENERAL ACCOUNT
This Prospectus is generally intended to serve as a disclosure
document only for the Policy and the Variable Account. For
complete details regarding the General Account, see the Policy
itself.
Premiums allocated and amounts transferred to the General Account
become part of the general account of Banner Life, which supports
insurance and annuity obligations. Interests in the General
Account have not been registered under the Securities Act of 1933
(the "1933 Act"), nor is the General Account registered as an
investment company under the Investment Company Act of 1940 (the
"1940 Act"). Accordingly, neither the General Account nor any
interests therein are generally subject to the provisions of the
1933 or 1940 Acts and Banner Life has been advised that the staff
of the Securities and Exchange Commission has not reviewed the
disclosures in this Prospectus which relate to the fixed portion.
The General Account is made up of all the general assets of Banner
Life, other than those in the Variable Account, or in any other
segregated asset account. The Owner may allocate Premium Payments
to the General Account at the time of Premium Payment or by
subsequent transfers from the Variable Account. Instead of the
Owner bearing the investment risk as is the case for values in the
Variable Account, Banner Life bears the full investment risk for
all values in the General Account. Banner Life has sole discretion
to invest the assets of its general account subject to applicable
law.
The allocation or transfer of funds to the General Account does not
entitle the Owner to share in the investment experience of the
General Account. Instead, Banner Life guarantees that the General
Account Value will accrue interest at an effective annual rate of
at least 3%, without regard to the actual investment experience of
the General Account. Consequently, if the Owner allocates all
premiums only to the General Account and makes no transfers, the
minimum amount of the Account Value will be determinable and
guaranteed.
General Account Value. The General Account Value is (1) plus (2)
plus (3) minus (4) minus (5) where:
(1) is the General Account Value on the prior Policy Anniversary,
plus interest from that day, less the proportion of the annual
maintenance charge attributable to the General Account;
(2) are premiums credited to the General Account since the prior
Policy Anniversary, plus interest from the day premiums are
credited;
(3) are transfers from the Variable Account to the General Account
since the prior Policy Anniversary, plus interest from the
date of the transfer;
(4) are transfers to the Variable Account from the General Account
since the prior Policy Anniversary, plus interest from the
date of transfer; and
(5) are partial surrenders from the General Account together with
any partial surrender charges, plus interest from the date of
partial surrender.
Banner Life guarantees that it will credit interest at a rate of at
least 3% per year, compounded annually, to money allocated to the
General Account. Interest in excess of 3% may be credited at such
rate and in such manner as determined by the Company in its sole
discretion.
Transfers From the General Account. The minimum amount that may be
transferred from the General Account is the lesser of: (1) $100;
or (2) the entire General Account Value. The maximum amount that
may be transferred from the General Account in any consecutive 12
month period is the greater of: (1) 25% of General Account Value;
or (2) the greatest amount of any previous transfer more than one
year from the date of the current transfer.
Banner Life may postpone the calculation and payment of surrender
values or transfers from the General Account for up to 6 months.
Transfers may be subject to a service charge.
THE POLICY
The rights and benefits under the Flexible Premium Variable Annuity
Policy are summarized below. However, the description of the
Policy contained in this Prospectus is qualified in its entirety by
the Policy itself, a copy of which is available upon request from
Banner Life.
Policy Application and Issuance of Policy
Before it will issue a Policy, Banner Life must receive a completed
Policy application and a minimum initial Premium of at least
$2,000. A Policy ordinarily will be issued only in respect of
Annuitants Age 0 through 90. Acceptance or declination of an
application or premium payment shall be based on Banner Life's
underwriting standards and Banner Life reserves the right to reject
any application or premium payment based on those standards.
If the application can be accepted in the form received, the
initial Premium Payment will be credited to the Account Value not
later than two business days after the later of the date of receipt
of the application or receipt of the initial Premium Payment. If
the initial Premium Payment cannot be credited within two days
because the application or other issuing requirements are
incomplete, and the incomplete application is not made complete
within five business days after receipt, then the applicant will be
contacted and given an explanation for the delay and the initial
Premium Payment will be returned immediately unless the applicant
consents to Banner Life's retaining the initial Premium Payment and
crediting it as soon as the necessary requirements are fulfilled.
The date on which the initial Premium Payment is credited to the
Account Value is the Policy Date. The Policy Date is the date used
to determine Policy Years and Policy Anniversaries.
Premium Payments
All Premium Payment checks or drafts should be made payable to
Banner Life Insurance Company. Except for the initial Premium
Payment, all Premium Payments should be sent to the Administrative
Office.
Initial Premium Payment. The minimum initial Premium Payment that
Banner Life currently will accept under a Policy is $2,000. Banner
Life reserves the right to increase or decrease this amount for a
class of Policy issued after some future date. The initial Premium
Payment is the only Premium Payment required to be paid under a
Policy.
Additional Premium Payments. While the Annuitant is living and
prior to the Maturity Date, the Owner may make additional Premium
Payments at any time, and in any frequency. The amount of each
additional premium payment must be at least $50. Additional
Premium Payments of more than $500,000 require Banner Life's
approval. Additional Premium Payments will be credited to the
Policy and added to the Account Value as of the Valuation Day when
they are received. Banner Life reserves the right to reject any
Premium Payment. If no Premium Payments are made for any three
year consecutive period and if the Net Account Value of the Policy
falls below $500 during that period, Banner Life reserves the right
to terminate the Policy and pay the Cash Surrender Value to the
Owner. Before a policy will be terminated, however, Banner Life
will give Owners a 30 day notice to increase the funds in their
account to the required minimum.
Allocation of Premium Payments. On the date of issue, Banner Life
will allocate Premium Payments to the Sub-Accounts of the Variable
Account and the General Account in accordance with the initial Net
Premium Allocation Percentages. The initial net premium allocation
percentages are set forth in the application. The Owner may change
this allocation by giving acceptable notice to Banner Life. The
Owner may allocate any whole percentages of at least 10%, and the
total allocation must equal 100%. Any allocation will be used for
additional Premium Payments until and unless the Owner requests a
change of allocation. The Owner may change the allocation
instructions for future additional Premium Payments by sending
Written Notice, signed by the Owner, to Banner Life's
Administrative Office. The allocation change will apply to
payments received on or after the date notice is received.
Account Value
On the Policy Date, the Account Value equals the premium received
by Banner Life. Thereafter, the Account Value equals the sum of
the Variable Account value and General Account value. The Account
Value will increase by (1) any additional Premium Payments received
by Banner Life; and (2) any increases in the Account Value due to
investment results of the selected Account(s). The Account Value
will decrease by (1) any surrenders; (2) any decreases in the
Account Value due to investment results of the selected Accounts or
Sub-Accounts; and (3) the charges imposed by Banner Life.
The Account Value is expected to change from Valuation Period to
Valuation Period, reflecting the investment experience of the
selected Account(s) and/or Sub-Account(s), as well as the
deductions for charges. A Valuation Period is the period between
successive Valuation Days. It begins at the close of business on
each Valuation Day and ends at the close of business on the next
succeeding Valuation Day. A Valuation Day is each day that the New
York Stock Exchange is open for business. Holidays are generally
not Valuation Days.
The Variable Account Value. When a Premium is allocated or an
amount is transferred to a Sub-Account of the Variable Account, it
is credited to the Policy in the form of Accumulation Units. Each
Sub-Account of the Variable Account has a distinct Accumulation
Unit Value (the "Unit Value"). The number of units credited is
determined by dividing the Premium Payment or amount transferred by
the Unit Value of the Sub-Account as of the end of the Valuation
Period during which the premium is received. When amounts are
transferred out of, or surrendered or withdrawn from an Account or
Sub-Account, units are canceled or redeemed in a similar manner.
For each Sub-Account, the Unit Value for a given Valuation Day is
based on the net asset value of a share of the corresponding
Portfolio of the Fund. Therefore, the Unit Values will fluctuate
from day to day based on the investment experience of the
corresponding Portfolio. The determination of Sub-Account Unit
Values is described in detail in the Statement of Additional
Information.
Net Account Value. The Net Account Value is the Account Value
minus any policy loan balance.
Cash Surrender Value. The Cash Surrender Value is the Net Account
Value minus the Contingent Deferred Sales Charge, if any, and minus
the annual Maintenance Charge.
Transfers
An Owner can transfer Account Value from one Account or Sub-Account
to another Account or Sub-Account prior to or after the Maturity
date, within certain limits.
Subject to the limitations and restrictions described below,
transfers from an Account or Sub-Account may be made by sending
notice acceptable to Banner Life, signed by the Owner, to the
Administrative Office. The minimum amount which may be transferred
is the lesser of $100 or the entire value of the account or
sub-account. In other words, a minimum of $100 must be
transferred, unless the value in an account or sub-account before
the transfer is less than $100.
Transfers out of a Sub-Account of the Variable Account currently
may be made as often as the Owner wishes, subject to the minimum
amount specified above (Banner Life reserves the right to charge a
fee for more than 12 transfers in a Policy Year and otherwise limit
or restrict transfers in the future). Currently, Banner charges no
transfer fee. Transfers are subject to the Postponement of
Payments provision (see page 1 of the Statement of Additional
Information, which is available from Banner Life upon request).
Transfers from the General Account are subject to the restrictions
described above under "Transfers From the General Account."
Banner Life also reserves the right to revoke or modify the
transfer privilege in any way, such as limiting the number or
frequency of transfers.
Non-participating Policy
The Policy does not participate or share in the profits or surplus
earnings of Banner Life. No dividends are payable on the Policy.
Policy Loans
The Owner may, beginning in the second policy year, borrow up to a
maximum of 50% of the cash surrender value.
There are tax consequences which must be considered when an Owner
borrows against the Cash Surrender Value. A Policy Loan initiated
on a nonqualified Policy is treated by the IRS as a taxable
surrender. As such, Owners may be subject to federal and state (if
applicable) income tax and a 10% penalty tax on the loan amount if
the loan is initiated before the Owner is 59.5 years of age. Loans
are not available for Policies issued as IRAs. Additional
considerations may apply to loans under Qualified Policies (see
Federal Tax Consequences).
Interest on Policy Loans. Interest on Policy Loans will be fixed
at 7.4% and payable in advance from the date of the loan to the
next Policy Anniversary. Subsequently, interest is payable in
advance at the beginning of each Policy Year. If the interest is
not paid when due, it will be added to the loan and bear interest
at the same rate.
General Account Value Requirement. While the loan is outstanding
or if interest is not paid when due, funds from the Owner's Account
Value, equal to the loan plus interest, will be transferred to the
General Account from the Separate Account. The Owner may specify
how to allocate the transfer from among the Sub-Accounts.
Otherwise, Banner Life will allocate the transfer assuming the loan
amount is deducted from the General Account Value first and then in
proportion to the Account Values in each Sub-Account. The amount
remaining in any Sub-Account must be at least $100. There will be
no transfer fee applied for this type of transfer.
Repayment of Policy Loans. A Policy Loan may be repaid in full or
in part at a minimum rate of $50 at any time while the Policy is in
force. When a loan repayment is made, the Owner may request that
the General Account Value related to the payment be transferred to
one or more Sub-Accounts of the Separate Account.
Dollar Cost Averaging
Dollar Cost Averaging is a program which, if elected, enables an
Owner to systematically transfer specified dollar amounts into the
six portfolios at regular intervals. By allocating on a regularly
scheduled basis as opposed to allocating the total amount at one
particular time, an Owner may be less susceptible to the impact of
market fluctuations. The minimum amount per period to allocate is
$100. Election into this program may
occur at any time by properly completing the Dollar Cost Averaging
election form and returning it to the Company and insuring that
there is sufficient money in the designated portfolio(s).
Dollar Cost Averaging will terminate when any of the following
occurs: (1) the number of designated transfers has been completed;
(2) the Account Value of the designated portfolio(s) is
insufficient to complete the next transfer; (3) the Owner requests
termination in writing and such notice is received in time to
cancel the transfer; or (4) the Contract is terminated. There is
no current charge for Dollar Cost Averaging but Banner Life
reserves the right to charge for this program. In the event there
are additional transfers, a transfer fee may be charged. Banner
Life does not intend to profit from any such charge.
Dollar Cost Averaging may not be successful and may not result in
a higher policy value than a lump sum payment.
Employee and Agent Purchases
For Non-Qualified policies sold to (a) registered representatives
or employees of Banner Life (or its affiliates), and (b) immediate
family members of such employees or registered representatives, no
field compensation will be paid. Instead, Banner Life will add the
dollar amount that otherwise would be paid as field compensation to
the Account Value on the Policy Date. This amount will be reported
for tax purposes as compensation to such employee or registered
representative, and treated as a premium for purposes of the
Contingent Deferred Sales Charge and any possible premium tax
charge.
Powers of Attorney
As a general rule and as a convenience to Owners, Banner Life
allows the use of powers of attorney whereby Owners give third
parties the right to effect Account Value transfers on behalf of
the Owners. However, when the same third party possesses powers of
attorney executed by many Owners, the result can be simultaneous
transfers involving large amounts of Account Value. Such transfers
can disrupt the orderly management of the mutual funds underlying
the variable policy, can result in higher costs to Owners, and are
generally not compatible with the long-range goals of purchasers of
variable policies. Banner Life believes that such simultaneous
transfers effected by such third parties are not in the best
interests of all shareholders of the funds underlying the policies,
and this position is shared by the managements of the Fund.
Therefore, to the extent necessary to reduce the adverse effects of
simultaneous transfers made by third parties holding multiple
powers of attorney, Banner Life will not honor such powers of
attorney and has instituted or will institute procedures to assure
that the transfer requests that it receives have, in fact, been
made by the Owners in whose names they are submitted. However,
these procedures will not prevent owners from making their own
Account Value transfer requests.
Right to Return the Policy
The Owner may cancel the Policy within ten (10) days after
receiving it by returning it to the agent through whom it was
purchased or delivering or mailing the Policy and a Written Notice
of Cancellation to Banner Life at its Administrative Office or such
other methods as described in the contract. In the event of
cancellation, Banner Life will refund any premiums paid plus or
minus any investment gains or losses unless otherwise required by
state law, and the Policy will be deemed void from the beginning.
DISTRIBUTIONS UNDER THE POLICY
Tax Consequences
Distributions (such as surrenders) and deemed distributions
(including Policy Loans) may have tax consequences; that is,
surrenders and Policy loans may be subject to federal and state (if
applicable) income tax and a 10% penalty tax. See the discussion
below under Certain Federal Income Tax Consequences.
Surrenders
The Owner may surrender the Policy for the Cash Surrender Value in
exchange for a cash withdrawal payment from Banner Life at any time
at or before the Maturity Date. The Cash Surrender Value is the
Net Account Value (the Account Value minus any outstanding policy
loan balance) on the surrender date less any applicable Contingent
Deferred Sales Charge and less the annual Maintenance Charge.
However, if the Net Account Value at the time of surrender is equal
to or greater than $50,000, then the annual Maintenance Charge
will be waived. The Owner may, if an individual, elect to receive
the Cash Surrender Value in the form of one of the Annuity Payment
Plans described below. After the Maturity Date, the Policy cannot
be surrendered unless Annuity Option 5 (Annuity Certain) has been
selected.
Since the Owner assumes the investment risk with respect to Premium
Payments allocated to the Variable Account, and because withdrawals
are subject to a Contingent Deferred Sales Charge, the total amount
paid upon total surrender of the Policy (taking any prior
surrenders into account) may be more or less than the total Premium
Payments made. Following a surrender of the Policy, or if the
Policy terminates for any other reason, all rights of the Owner and
Annuitant will terminate.
Full and partial surrenders will result in the oldest premium
payments being liquidated first in descending order to the most
recent payment.
Partial Surrender. The Owner may withdraw a portion of the Cash
Surrender Value from the Variable Account at any time prior to the
Maturity Date by sending a Written Request to Banner Life's
Administrative Office. The minimum amount that can be withdrawn
from any Sub-Account or the General Account is $100, and the amount
withdrawn cannot exceed the Net Account Value on the date of
partial surrender less $1,000. The Owner may specify the Accounts
or Sub-Accounts from which partial surrender amounts should be
taken. If an allocation for a partial surrender is not made, the
amount withdrawn will be allocated in proportion to the Account
Values in the Sub-Accounts and the General Account. After the
Maturity Date, partial surrenders are not permitted. (See Annuity
Payments.)
The maximum partial surrender amount that may be obtained from the
General Account during any consecutive 12 month period is limited
to the greater of (1) and (2) where: (1) is 25% of the General
Account Value; and (2) is the greatest amount previously
surrendered from the General Account.
Contingent Deferred Sales Charge. The only charges for surrenders
are the Contingent Deferred Sales Charge (up to 7%), if it applies,
and the annual Maintenance Charge. Accordingly, the amount
available for surrender is the Cash Surrender Value, which is the
Net Account Value less any applicable Contingent Deferred Sales
Charge and less the annual Maintenance Charge. However, once per
Policy Year, there is a maximum free withdrawal amount which is
equal to 15% of any premium payments paid within the previous seven
years. Additionally 100% of any premium payments which were paid
at least seven years ago and have not already been surrendered do
not incur the Contingent Deferred Sales Charge. Amounts withdrawn
in excess of this free withdrawal amount or withdrawn in the same
Policy Year as a previous withdrawal are subject to the Contingent
Deferred Sales Charge, but only during the first seven years after
the most recent premium payment. All premiums that were deposited
more than seven years prior to withdrawal are free of surrender
charges. In addition, a Contingent Deferred Sales Charge will not
be assessed if the Surrender Value is applied to an Annuity
Payment Plan with payments over at least a five year period. (For
a discussion of the Contingent Deferred Sales Charge, see Charges
and Deductions - Contingent Deferred Sales Charge.)
Annuity Payments
Maturity Date. Annuity Payments under a Policy will begin on the
Maturity Date, which is selected by the Owner. The Owner may
change the Maturity Date to any Policy anniversary on or before the
maximum maturity age by sending Written Notice to Banner Life. Any
change must be sent before the maturity date. The maximum maturity
date is the Policy anniversary following the annuitant's 99th
birthday.
Election of Annuity Payment Plan. The Owner will choose an Annuity
Payment Plan on or before the Maturity Date. Also, during the
lifetime of the Annuitant and at any time prior to the Maturity
Date, the Owner may change the election. If no election is made
prior to the Maturity Date, Annuity Payments will be made under
Option 2 (described below).
If the Annuitant or any Owner dies prior to the Maturity Date, a
Death Benefit will be paid to the surviving Owner. If there is no
surviving Owner, then a Death Benefit will be paid to the
Beneficiary. However, if the beneficiary is an individual
receiving payment in his or her own right, then the Beneficiary can
elect to receive the Death Benefit under one of the Annuity Payment
Plans, to the extent allowed by law and subject to the terms of any
settlement agreement. (See Death Benefit.) Annuity Payments will
be made on either a fixed basis or a variable basis as selected by
the Owner (or the Beneficiary, after the Annuitant's or Owner's
death).
Annuity Payment Plans
The Policy provides six Annuity Payment Plans which are described
below. The Owner may elect a Fixed Payment Option, a Variable
Payment Option, or a combination of both. If the Owner elects a
combination, he must specify what part of the Net Account Value is
to be applied to the Fixed and Variable Options. If the Owner does
not specify fixed or variable payments, then the separate account
value will be applied to provide a variable annuity, and the
general account value minus any withdrawals will be applied to
provide a fixed annuity.
The effect of choosing a Fixed Annuity Option is that the minimum
amount of each payment will be set on the Maturity Date and will
not change. If a Fixed Annuity Option is selected, the Account
Value will be transferred to the general account of Banner Life,
and the Annuity Payments will be fixed in minimum amount by the Net
Account Value, the Annuity Payment Plan selected, and the age and
sex (to the extent permissible under applicable law) of the
Annuitant. For further information, contact Banner Life at its
Administrative Office.
The following options are currently available:
Option 1 - Life Income. Monthly payments will be made during the
lifetime of the Annuitant. Payments will end with the last monthly
payment before his or her death.
Option 2 - Life With Period Certain. Monthly payments will be made
during the lifetime of the Annuitant. If death of the Annuitant
occurs before the end of the period certain, payments will continue
during the remainder of that period. Payments are guaranteed for
that period.
Option 3 - Cash Refund. This is an annuity payable during the
lifetime of the annuitant. Upon the death of the annuitant, a
final payment will be made to the beneficiary equal to the excess,
if any, of (1) - (2) where: (1) is the initial value of the
proceeds applied under this option; and (2) is the dollar amount of
payments already paid.
Option 4 - Installment Refund. Monthly payments will be made to
the annuitant during his or her life. Upon the death of the
annuitant, payments will continue on a monthly basis until the sum
of the payments made equals the Net Account Value applied at the
Maturity Date.
Option 5 -Annuity Certain. Monthly payments will be made to the
Annuitant for a specified period certain. Payments are guaranteed
for that specified period. Under this option, the Policy can be
surrendered for its Annuity Value after Annuity Payments begin.
(See Annuity Value.) The Annuity Value may be reduced by a
Contingent Deferred Sales Charge, depending upon the Policy Year of
Surrender. Although this Option does not involve a life
contingency, if variable payments are selected the amount of the
payments will reflect the deduction for mortality and expense
risks, since that charge is included in the calculation of Annuity
Unit values.
Option 6 - Joint Life Income. Monthly payments are made for the
lifetime of the first of two people named. If the second person
survives the first, payments will continue for his or her life.
Other Options may be arranged by agreement with Banner Life.
If the Owner does not select an Annuity Payment Plan before the
Maturity Date, Option 2, Life with a period certain of ten years
will be applied automatically on the maturity date.
Note Carefully: Under Payment Options 1 and 6, it would be
possible for only one Annuity Payment to be made if the
Annuitant(s) were to die before the due date of the second annuity
payment, only two Annuity Payments if the Annuitant(s) were to die
before the due date of the third annuity payment, and so forth.
Variable Payment Options. The dollar amount of the first Variable
Annuity Payment will be determined in accordance with the annuity
payment rates based on the assumed interest rate of 3%. The dollar
amount of every subsequent Variable Annuity Payment will vary based
on the investment performance of the Sub-Account(s) of the Variable
Account selected by the Annuitant or Beneficiary.
The amount of the variable payments will be based on the table in
the Policy for the variable option selected. If the actual
investment performance exactly matched the assumed interest rate of
3% at all times, the amount of each Variable Annuity Payment would
remain equal. If actual investment performance exceeds the assumed
interest rate, the amount of the payments would increase.
Conversely, if actual investment performance is worse than the
assumed interest rate, the amount of the payments would decrease.
Determination of the First Variable Payment. The amount of the
first variable payment depends upon the Net Account Value on the
Maturity Date and on the Annuity Payment Plan.
Determination of Subsequent Variable Payments. All Variable
Annuity Payments other than the first are calculated using "Annuity
Units" which are allocated to the Policy. The number of Annuity
Units to be allocated in respect of a particular Sub-Account is
determined by dividing that portion of the first Variable Annuity
Payment attributable to that Sub-Account by the Annuity Unit value
of that Sub-Account for the Valuation Day on which the initial
payment is determined. The number of Annuity Units of each
particular Sub-Account allocated to the Policy then remains fixed.
The dollar value of variable annuity units in the chosen
Sub-Account will increase or decrease reflecting the investment
experience of the chosen Sub-Account. The dollar amount of each
Variable Annuity Payment after the first may increase, decrease or
remain constant, and is equal to the sum of the amounts determined
by multiplying the number of Annuity Units of each particular
Sub-Account credited to the Policy by the Annuity Unit Value for
the particular Sub-Account on the date the payment is made. The
calculation of Annuity Unit Values is described in the Statement of
Additional Information.
A portion or the entire amount of the Annuity Payments may be
taxable as ordinary income. If, at the time the Annuity Payments
begin, the Owner has not provided Banner Life with a written
election not to have federal income taxes withheld,
Banner Life must by law withhold such taxes from the taxable
portion of such annuity payments and remit that amount to the
federal government. Withholding is mandatory for certain Qualified
Contracts. (See Certain Federal Income Tax Consequences.)
Adjustment of Annuity Payments. If the initial monthly Annuity
Payment is less than $50, Banner Life will reduce the frequency of
payments until the initial payment is not less than $50. If the
initial annual Annuity Payment is less than $50, Banner Life will
pay the Cash Surrender Value at maturity. If Banner Life pays the
Cash Surrender Value, Banner Life will have no further obligation
under this policy.
Annuity Value. The Annuity Value is the sum of the annuity values
in the General Account and the Variable Account. In the General
Account, the Annuity Value on the Maturity Date is the Net Account
Value allocated to the General Account on the Maturity Date.
Thereafter, the Annuity Value is decreased when annuity payments
are made from the General Account, and increased or decreased when
transfers are made to or from the General Account. Remaining
General Account Annuity Values are credited with 3% interest,
compounded annually. Banner Life may credit additional interest to
the General Account Annuity Value.
In any Sub-Account of the Variable Account, the Annuity Value
equals the product of the Accumulation Unit Value and the annuity
unit balance. The annuity unit balance on the Maturity Date equals
the Account Value allocated to the Sub-Account divided by the
Accumulation Unit Value. Thereafter, the annuity unit balance is
decreased when annuity payments are made, and increased or
decreased when transfers to or from the sub-account are made.
Accumulation unit values are described in the Statement of
Additional Information.
Death Benefit
Death of Annuitant or Owner Prior to Maturity Date. If the
Annuitant, Owner, or the first death if there is more than one
Owner, dies prior to the Maturity Date, a Death Benefit will be
paid to the surviving Owner. If there is no surviving Owner, then
a Death Benefit will be paid to the Beneficiary. With regard to
Joint Owners, at the first death of a Joint Owner prior to the
Annuity Commencement Date, the surviving Owner will be the
Beneficiary notwithstanding that the beneficiary designation may
be different. If death occurs before age 80, the Death Benefit is
equal to the greatest of (1) the Owner's Net Account Value at the
time the death benefit is paid; (2) the Net Account Value as of
the last seven year anniversary plus premium payments paid, minus
any Policy Loans taken and policy interest accrued, minus any
partial surrenders since that anniversary or; (3) premiums paid,
minus any partial surrenders, compounded at 5% interest up to a
maximum of twice the sum of premiums paid adjusted for any
outstanding loans. If the attained age of the deceased is 81 or
older at the time of death, then the greater of (1) or (2) only
will be paid. Also, if the surviving Owner or beneficiary is the
spouse of the deceased Owner, the surviving spouse becomes the sole
Owner and may elect to continue the Policy.
The Death Benefit is payable upon receipt of the later of (1) Due
Proof of Death of the Annuitant or Owner as well as proof that the
Annuitant or Owner died prior to the commencement of Annuity
Payments and (2) the election of a death benefit payment plan. If
no death benefit payment plan is chosen, then the death benefit
will be paid in a lump sum in one year from the date of receipt of
due proof of death. The Beneficiary may receive the amount payable
in a lump sum cash benefit. However, if the Beneficiary is an
individual receiving payment in his or her right, subject to any
limitation under any state or federal law, rule, or regulation, he
or she may select any one of the annuity payments plans offered in
this policy.
If the beneficiary is not an individual, then only a single sum
payment will be made.
Federal tax law requires that if the Owner (or any Joint Owner)
dies before the Maturity Date, the entire value of the Policy must
generally be distributed within five years of the date of death of
the Owner (or the Joint Owner). Special rules may apply to the
spouse of the deceased Owner. See the Statement of Additional
Information for a detailed description of these requirements.
Death of Annuitant On or After Maturity Date. The death benefit,
if any, payable if the Annuitant dies on or after the Maturity Date
depends on the Annuity Payment Plan selected. Upon the Annuitant's
death, the remaining portion of the Annuitant's interest in the
Policy, if any, will be distributed at least as rapidly as under
the method of distribution being used as of the date of the
Annuitant's death.
Beneficiary. The Beneficiary designation in the application will
remain in effect until changed. The Owner may change the
designated Beneficiary by sending Written Notice to Banner Life.
The Beneficiary's consent to such change is not required unless the
Beneficiary was irrevocably designated or consent is required by
law. (If an irrevocable Beneficiary dies, the Owner may then
designate a new Beneficiary.) The change will take effect as of
the date the Owner signs the Written Notice, whether or not the
Owner is living when the Written Notice is received by Banner Life.
Banner Life will not be liable for any payment made before the
Written Notice is received. If more than one Beneficiary is
designated, and the Owner fails to specify their interests, they
will share equally.
Restrictions Under Section 403(b) Plans
Section 403(b) of the Internal Revenue Code provides for
tax-deferred retirement savings plans for employees of certain
non-profit and educational organizations. In accordance with the
requirements of Section 403(b), any Policy used for a 403(b) plan
will prohibit distributions of elective contributions and earnings
on elective contributions except upon death of the employee,
attainment of age 59.5, separation from service, disability, or
financial hardship. In addition, income attributable to elective
contributions may not be distributed in the case of hardship.
Systematic Withdrawals
Banner Life permits a systematic withdrawal plan which enables an
Owner to preauthorize a periodic exercise of the contractual
withdrawal rights. Systematic withdrawal is not available for
Non-Qualified contracts where the Owner is under age 59.5. Certain
tax penalties and restrictions may apply to systematic withdrawals
from the Policy. Owners entering into such a plan instruct Banner
Life to withdraw a level dollar amount from the Policy on a monthly
or quarterly basis. The amount deducted will result in the
cancellation of Accumulation Units from each applicable Sub-Account
in the ratio that the value of each Sub-Account bears to the total
Account Value. The Owner must specify in writing in advance which
units are to be cancelled if other than the above mentioned method
of cancellation is desired. Banner Life reserves the right to
modify the eligibility rules at any time, without notice. The
exercise of the systematic withdrawal plan in any Policy Year
replaces the annual maximum free withdrawal amount of up to 15% of
premiums payments paid within the previous seven years (i.e. no
Contingent Deferred Sales Charge is charged). Any other withdrawal
in a year when the systematic withdrawal plan has been utilized
will be subject to the Contingent Deferred Sales Charge. All
premiums that were deposited more than seven years prior to the
withdrawal are free of surrender charges.
Delay of Payments
Banner Life reserves the right to suspend or postpone payments for
any period when: (1) the New York Stock Exchange is closed on
other than customary weekend and holiday closures, or trading on
the New York Stock Exchange is restricted as determined by the
Securities and Exchange Commission ("SEC"); (2) the SEC by order
permits postponement for the protection of Owners or; (3) an
emergency exists as determined by the SEC, as a result of which
disposal of securities is not reasonable, or practicable, or it is
not reasonable or practicable to determine the value of the net
assets of the Variable Account.
The applicable rules and regulations of the Securities and Exchange
Commission will govern as to whether the conditions described in
(2) and (3) exist.
OTHER CONTRACTUAL PROVISIONS
Periodic Reports
Prior to the Maturity Date, Banner Life will send the Owner, or
such other person having voting rights, at least once per year, a
statement showing the number, type and value of Accumulation Units
credited to the Owner's Account and the fixed accumulation value of
such account, which statement shall be accurate as of a date not
more than two months previous to the date of mailing. In addition,
every person having voting rights will receive such reports or
prospectuses concerning the Variable Account and the Fund as may be
required by the Investment Company Act of 1940 and the Securities
Act of 1933. Banner Life will also send such statements reflecting
transactions in the Owner's Account as may be required by
applicable laws, rules and regulations.
Upon request, Banner Life will provide the Owner with information
regarding fixed and variable accumulation values.
Splitting Units
Banner Life reserves the right to split or combine the value of
Variable Accumulation Units, Annuity Units or any of them. In
effecting such change of unit values, strict equity will be
preserved and no change will have a material effect on the benefits
or other provisions of the Policy.
Modification
Upon notice to the Owner (or the Annuitant during the annuity
period), the Policy may be modified by Banner Life if such
modification: (1) is necessary to make the Policy or the Variable
Account comply with any law or regulation issued by a governmental
agency to which the Banner Life or the Variable Account is subject;
or (2) is necessary to assure continued qualification of the Policy
under the Internal Revenue Code or other federal or state laws
relating to retirement annuities or annuity contracts; or (3) is
necessary to reflect a change in the operation of the Variable
Account or the sub-account(s); or (4) provides additional Variable
Account and/or fixed accumulation options. In the event of any
such modification, the Banner Life may make appropriate endorsement
in the Policy to reflect such modification.
Custodian
Banner Life is the Custodian of the assets of the Variable Account.
Banner Life will purchase Fund shares at net asset value in
connection with amounts allocated to the Sub-Accounts in accordance
with the instructions of the Owner and redeem Fund shares at net
asset value for the purpose of meeting the contractual obligations
of the Variable Account, paying charges relative to the Variable
Account or making adjustments for annuity reserves held in the
Variable Account.
CHARGES AND DEDUCTIONS
Banner Life will make certain charges and deductions in connection
with the Policy in order to compensate it for incurring expenses in
distributing the Policy, bearing mortality and expense risks under
the Policy, and administering the Accounts and the Policy. Charges
may also be made for premium taxes, federal, state or local taxes,
or for certain transfers or other transactions.
Contingent Deferred Sales Charge
Banner Life will incur expenses relating to the sale of the Policy,
including commissions to registered representatives and other
promotional expenses. Banner Life may deduct a Contingent Deferred
Sales Charge from any Net Account Value surrendered (i.e.,
withdrawn) in connection with a full or partial Policy surrender in
order to cover distribution expenses. However, once per Policy
Year, there is a maximum free withdrawal amount which is equal to
15% of any premium payments paid within the previous seven years.
Additionally 100% of any premium payments which were paid at least
seven years ago and have not already been surrendered do not incur
the Contingent Deferred Sales Charge. Amounts withdrawn in excess
of this free withdrawal amount or withdrawn in the same Policy Year
as a previous withdrawal are subject to the Contingent Deferred
Sales Charge, but only during the first seven years after the most
recent premium payment. All premiums that were deposited more than
seven years prior to withdrawal are free of surrender charges. For
this purpose, premiums are withdrawn on a first in - first out
basis. In addition, a Contingent Deferred Sales Charge will not be
assessed if the Surrender Value is applied to an Annuity Payment
Plan with payments over at least a five year period.
The amount of the Contingent Deferred Sales Charge is determined by
multiplying the applicable Contingent Deferred Sales Charge
percentage by the lesser of the Account Value or total premiums
paid less prior partial surrenders, for full surrenders; or by the
lesser of (a) the amount withdrawn, or (b) total premiums paid less
prior partial surrenders, for partial surrenders. Premium Payments
are deemed to be withdrawn before earnings, and after all Premium
Payments have been withdrawn, the remaining Net Account Value may
be withdrawn without any Contingent Deferred Sales Charge. In no
event will the aggregate Contingent Deferred Sales Charge exceed
8.5% of aggregate premiums paid. The following is the table of
Contingent Deferred Sales Charge Percentages:
Completed Years Applicable Contingent
From Date of Deferred Sales
Premium Payment Charge Percentage
0 7.0%
1 6.0%
2 5.0%
3 4.0%
4 3.0%
5 2.0%
6 1.0%
7 or more 0.0%
The Contingent Deferred Sales Charge applies to both total and
partial surrenders and to Annuity Payment Plans that cover less
than five years. For partial surrenders, the charge will be
deducted from the Account Value remaining after Banner Life pays
the Owner the requested amount. However, if surrender value is
used to purchase an Annuity Payment Plan with the payments thereof
to be made over at least a five year period, surrender charges will
be waived.
Mortality and Expense Risk Charge
Banner Life imposes a daily charge as compensation for bearing
certain mortality and expense risks in connection with the Policy.
This charge currently is equal to an effective annual rate of 1.20%
of the value of net assets in the Variable Account. Of that amount,
approximately one-third, or .40%, is attributable to mortality
risks, and approximately two-thirds, or .80% is attributable to
expense risks. The Mortality and Expense Risk Charge is reflected
in the Accumulation or Annuity Unit Values for the Policy for each
Sub-Account; accordingly, this charge is imposed both before and
after the Maturity Date.
Account Values and Annuity Payments are not affected by changes in
actual mortality experience nor by actual expenses incurred by
Banner Life. The mortality risks assumed by Banner Life arise from
its contractual obligations to make Annuity Payments (determined in
accordance with the Annuity tables and other provisions contained
in the Policy) and to pay Death Benefits prior to the Maturity
Date. Thus, Owners are assured that neither an Annuitant's own
longevity nor an unanticipated improvement in general life
expectancy will adversely affect the monthly Annuity payments that
the Annuitant will receive under the Policy.
Banner Life also bears substantial risk in connection with the
payment of the Death Benefit since Banner Life may pay a Death
Benefit that exceeds the Account Value, without deducting any
applicable Contingent Deferred Sales Charge. The expense risk
assumed by Banner Life is the risk that Banner Life's actual
expenses in administering the Policy and the Accounts will exceed
the amount recovered through the Administrative Charges.
If the Mortality and Expense Risk Charge is insufficient to cover
Banner Life's actual costs, Banner Life will bear the loss;
conversely, if the charge is more than sufficient to cover costs,
the excess will be profit to Banner Life. Banner Life expects a
profit from this charge. To the extent that the Contingent Deferred
Sales Charge is insufficient to cover the actual cost of Policy
distribution, the deficiency will be met from Banner Life's general
corporate assets, which may include amounts, if any, derived from
the Mortality and Expense Risk Charge.
Administrative Charges
In order to cover the costs of administering the Policy and the
Accounts, Banner Life deducts an annual Maintenance Charge from the
Account Value of each Policy prior to the Maturity Date. A
pro-rata portion of the annual Maintenance Charge is deducted from
the General Account Value at the end of each Policy Year. The
remainder of the Maintenance Charge will be deducted from the
Sub-Accounts of the Variable Account in the same proportion that
the Owner's interest in each bears to the total Account Value. If
the Policy is surrendered during a Policy Year, this charge will be
deducted. After the Maturity Date, the charge is not deducted.
This annual Maintenance Charge is $25. However, the Maintenance
charge will be waived if the Account Value of the Policy at the end
of the Policy Year is $50,000 or more. Banner Life does not
anticipate realizing any profit from this charge.
Additionally, there is a daily Administrative Charge at the annual
rate of 0.10% of the value of the net assets of the Variable
Account. Banner Life does not expect to profit from the
Administrative Charge.
Premium Taxes
For those contracts subject to premium tax, a charge for the tax
will be deducted from the Account Value upon annuitization or
surrender as determined in accordance with applicable law. Banner
Life believes that as of the date of this prospectus, premium taxes
range from 0% to 3.5%.
Federal, State and Local Taxes
No charges are currently made for federal, state, or local taxes
other than premium taxes. However, Banner Life reserves the right
to deduct such taxes from the Accounts or Sub-Accounts in the
future.
Transfer Charge
Banner Life reserves the right to charge a fee for transfers in
excess of 12 per year. Currently, Banner Life charges no transfer
fee and will provide advance notice to Owners of any changes in
this policy. In that event the transfer charge will be deducted
from the amount transferred. For the purpose of determining
whether a transfer charge is payable, initial Premium Payment
allocations are not considered transfers. All transfer requests
made simultaneously will be treated as a single request. No
transfer charge will be imposed for any transfer which is not at
the Owner's request. Banner Life reserves the right to revoke or
modify the transfer privilege. For example, the number or
frequency of transfers could be restricted, or charges could be
imposed for all transfers. The amount of the charge may be
increased in the future.
Reduction of Charges for Group Sales
The Contingent Deferred Sales Charge may be reduced for sales of
the Policies to a trustee, employer or similar entity representing
a group or to members of the group where such sales result in
savings of expenses incurred by Banner Life in connection with the
sale of the Policies. The availability of a reduction in such
charges will be determined by Banner Life and based upon the
following factors:
(1) The size of the group. Generally, the sales expenses for each
individual Owner for a larger group are less than for a
smaller group because more Policies can be implemented with
fewer sales contacts and less administrative cost;
(2) The total amount of Premium Payments to be received from a
group. Per-Policy sales and other expenses are generally
proportionally less on larger purchase payments than on
smaller ones;
(3) The purpose for which the Policies are purchased. Certain
types of plans are more likely to be stable than others. Such
stability reduces the number of sales contacts and
administrative and other services required, reduces sales
administration and results in fewer Policy terminations. As
a result, sales and other expenses can be reduced;
(4) The nature of the group for which the Policies are being
purchased. Certain types of employee and professional groups
are more likely to continue Policy participation for longer
periods than are other groups with a more mobile membership;
(5) There may be other circumstances of which Banner Life is not
presently aware which could result in reduced sales expenses.
If, after consideration of the foregoing factors, Banner Life
determines that a group purchase would result in reduced sales
expenses, such a group may be entitled to a reduction in the
contingent deferred sales charge. Reductions in these charges will
not be unfairly discriminatory against any person including the
affected owners and all other Owners of Policies.
Other Expenses Including Investment Advisory Fees
Each Portfolio of the Fund is responsible for all of its expenses.
In addition, charges will be made against each Portfolio of the
Fund for investment advisory services provided to the Account or
Portfolio. The net assets of each Portfolio of the Fund will
reflect deductions in connection with the investment advisory fee
and other expenses.
For more information concerning the investment advisory fee and
other charges against the Portfolios, see the prospectus for the
Fund, a current copy of which accompanies this Prospectus.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a general description of federal tax
considerations relating to the Policy and is not intended as tax
advice. This discussion is not intended to address the tax
consequences resulting from all of the situations in which a person
may be entitled to or may receive a distribution under the Policy.
Any person concerned about these tax implications should consult a
competent tax adviser before initiating any transaction. This
discussion is based upon Banner Life's understanding of the present
Federal income tax laws as they are currently interpreted by the
Internal Revenue Service. No representation is made as to the
likelihood of the continuation of the present Federal income tax
laws or of the current interpretation by the Internal Revenue
Service. Moreover, no attempt has been made to consider any
applicable state or other tax laws.
The Policy may be purchased on a non-qualified tax basis
("Nonqualified Policy") or purchased and used in connection with
plans qualifying for favorable tax treatment ("Qualified Policy").
Qualified Policies are designed for use by individuals whose
premium payments are comprised solely of proceeds from and/or
contributions under retirement plans which are intended to qualify
as plans entitled to special income tax treatment under Sections
401(a), 403(b), 408, or 457 of the Internal Revenue Code of 1986,
as amended (the "Code"). The ultimate effect of Federal income
taxes on the amounts held under a Policy, on Annuity Payments, and
on the economic benefit to the Owner, the Annuitant, or the
Beneficiary depends on the type of retirement plan, on the tax and
employment status of the individual concerned and on the Employer's
tax status. In addition, certain requirements must be satisfied in
purchasing a Qualified Policy with proceeds from a tax qualified
plan and receiving distributions from a Qualified Policy in order
to continue receiving favorable tax treatment. Some retirement
plans are subject to distribution and other requirements that are
not incorporated into Banner Life's Policy administration
procedures. Owners, participants and beneficiaries are responsible
for determining that contributions, distributions and other
transactions with respect to the Policy comply with applicable law.
Therefore, purchasers of Qualified Policy should seek competent
legal and tax advice regarding the suitability of the Policy for
their situation, the applicable requirements, and the tax treatment
of the rights and benefits of the Policy. The following discussion
assumes that a Qualified Policy is purchased with proceeds from
and/or contributions under retirement plans that qualify for the
intended special Federal income tax treatment.
The following discussion is based on the assumption that the Policy
qualifies as an annuity contract for federal income tax purposes.
The Statement of Additional Information discusses the requirements
for qualifying as an annuity.
Taxation of Annuities
1. In General
Section 72 of the Code governs taxation of annuities in general.
Banner Life believes that an Owner who is a natural person
generally is not taxed on increases in the value of a Policy until
distribution occurs by withdrawing all or part of the Account Value
(e.g., partial withdrawals and surrenders) or as Annuity Payments
under the Annuity Payment Plan elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of
the Account Value (and in the case of a Qualified Policy, any
portion of an interest in the qualified plan) generally will be
treated as a distribution. The taxable portion of a distribution
(in the form of a single sum payment or an annuity) is taxable as
ordinary income.
The Owner of any annuity contract who is not a natural person
generally must include in income any increase in the excess of the
Policy's Account Value over the "investment in the contract"
(discussed below) during the taxable year. There are some
exceptions to this rule and a prospective Owner that is not a
natural person may wish to discuss these with a competent tax
adviser.
The following discussion generally applies to a Policy owned by a
natural person.
2. Surrenders
In the case of a surrender including systematic withdrawals, under
a Qualified Policy (other than a section 457 plan), under section
72(e) of the Code a ratable portion of the amount received is
taxable, generally based on the ratio of the "investment in the
contract" to the individual's total accrued benefit or balance
under the retirement plan. The "investment in the contract" is
generally the amount of any premium payments paid by or on behalf
of any individual. For a Policy issued in connection with qualified
plans, the "investment in the contract" is zero. Special tax rules
may be available for certain distributions from a Qualified Policy.
In the case of a surrender (including systematic withdrawals) under
a Nonqualified Policy before the Maturity Date, under Code section
72(e) amounts received are generally first treated as taxable
income to the extent that the Cash Surrender Value immediately
before the surrender exceeds the "investment in the contract" at
that time. Any additional amount withdrawn is not taxable.
3. Policy Loans
Loans taken from or secured by a Nonqualified Policy will be
treated as a surrender, and may be subject to income tax and a tax
penalty.
4. Annuity Payments
Although the tax consequences may vary depending on the Annuity
Payment Plan elected under the Policy, in general, only the portion
of the Annuity Payment that represents the amount by which the Net
Account Value exceeds the "investment in the contract" will be
taxed; after the "investment in the contract" is recovered, the
full amount of any additional Annuity Payments is taxable. For
Variable Annuity Payments, the taxable portion is generally
determined by an equation that establishes a specific dollar amount
of each payment that is not taxed. The dollar amount is determined
by dividing the "investment in the contract" by the total number of
expected periodic payments. However, the entire distribution will
be taxable once the recipient has recovered the dollar amount of
his or her "investment in the contract". For Fixed Annuity
Payments, in general there is no tax on the portion of each payment
which represents the same ratio that the "investment in the
contract" bears to the total expected value of the Annuity Payments
for the term of the payments; however, the remainder of each
Annuity Payment is taxable. Once the "investment in the contract"
has been fully recovered, the full amount of any additional Annuity
Payments is taxable. If Annuity Payments cease as a result of an
Annuitant's death before full recovery of the "investment in the
contract," consult a competent tax advisor regarding the
deductibility of the unrecovered amount.
5. Taxation of Death Benefit Proceeds
Amounts may be distributed from a policy because of the death of an
owner or the annuitant. Generally, such amounts are includible in
the income of the recipients as follows:
(1) if a lump sum, the amounts received are taxed in the same
manner as in a surrender of the policy;
(2) if distributed under an annuity payment option, the
amounts received are taxed in the same manner as annuity
payments.
6. Penalty Tax
In the case of a distribution pursuant to a Nonqualified Policy,
there may be imposed a Federal penalty tax equal to 10% of the
amount treated as taxable income. In general, however, there is no
penalty tax on distributions: (1) made on or after the date on
which the Owner attains age 59 1/2; (2) made as a result of death
or disability of the Owner; (3) received in substantially equal
periodic payments as a life annuity or a joint and survivor annuity
for the lives or life expectancies of the Owner and a "designated
beneficiary"; (4) from a qualified plan; (5) allocable to
investment in the contract before August 14, 1982; (6) under a
qualified funding asset (as defined in Code section 130(d)); (7)
under an immediate annuity (as defined in Code section 72(u)(4)),
or (8) which are purchased by an employer on termination of certain
types of qualified plans and which are held by the employer until
the employee separates from service. Other tax penalties may apply
to certain distributions under a Qualified Policy.
7. Transfers, Assignments, or Exchanges of the Policy
A transfer of ownership of a Policy, the designation of an
Annuitant or other Beneficiary who is not also the Owner, the
selection of certain maturity dates, or the exchange of a Policy
may result in certain tax consequences to the Owner that are not
discussed herein. An Owner contemplating any such transfer,
assignment, or exchange of a Policy should contact a competent tax
adviser with respect to the potential tax effects of such a
transaction.
8. Multiple Policies
All non-qualified deferred annuity contracts that are issued by
Banner Life (or its affiliates) to the same Owner during any
calendar year are treated as one annuity contract for purposes of
determining the amount includible in gross income under section
72(e) of the Code. In addition, the Treasury Department has
specific authority to issue regulations that prevent the avoidance
of section 72(e) through the serial purchase of annuity contracts
or otherwise. Congress has also indicated that the Treasury
Department may have authority to treat the combination purchase of
an immediate annuity contract and a separate deferred
annuity contract as a single annuity contract under its general
authority to prescribe rules as may be necessary to enforce the
income tax laws.
9. Withholding
Pension and annuity distributions generally are subject to
withholding for the recipient's federal income tax liability at
rates that vary according to the type of distribution and the
recipient's tax status. Recipients, however, generally are
provided the opportunity to elect not to have tax withheld from
distributions (except for certain Qualified Policies).
10. Other Tax Consequences
As noted above, the foregoing discussion of the Federal income tax
consequences under the Policy is not exhaustive and special rules
are provided with respect to other tax situations not discussed in
this prospectus. Further, the Federal income tax consequences
discussed herein reflect Banner Life's understanding of current law
and the law may change. Federal estate and state and local estate,
inheritance, and other tax consequences of ownership or receipt of
distributions under the Policy depend on the individual
circumstances of each Owner or recipient of the distribution. A
competent tax adviser should be consulted for further information.
11. Possible Changes in Taxation
In past years, legislation has been proposed that would have
adversely modified the federal taxation of certain annuities. For
example, one such proposal would have changed the tax treatment on
non-qualified annuities that did not have "substantial life
contingencies" by taxing income as it is credited to the annuity.
Although as of the date of this prospectus Congress is not
considering any legislation regarding taxation of annuities, there
is always the possibility that the tax treatment of annuities could
change by legislation or other means (such as IRS regulations,
revenue rulings, judicial decisions, etc.). Moreover, it is also
possible that any change could be retroactive (that is, effective
prior to the date of the change).
Qualified Plans
The Policy is designed for use with several types of qualified
plans. The tax rules applicable to Owners in qualified plans,
including restrictions on contributions and benefits, taxation of
distributions, and any tax penalties, vary according to the type of
plan and the terms and conditions of the plan itself. Various tax
penalties may apply to contributions in excess of specified limits,
aggregate distributions in excess of $150,000 annually,
distributions that do not satisfy specified requirements, and
certain other transactions with respect to qualified plans.
Therefore, no attempt is made to provide more than general
information about the use of the Policy with the various types of
qualified plans. Owners, Annuitants and Beneficiaries are
cautioned that the rights of any person to any benefits under
qualified plans may be subject to the terms and conditions of the
plans themselves, regardless of the terms and conditions of the
Policy. Following are brief descriptions of the various types of
qualified plans in connection with which Banner Life will issue the
Policy. Some retirement plans are subject to distribution and
other requirements that are not incorporated into Banner Life's
Policy administration procedures. Owners, participants and
beneficiaries are responsible for determining that contributions,
distributions and other transactions with respect to the Policies
comply with applicable law. Policies for all types of qualified
plans may not be available in all states. When issued in
connection with a qualified plan, the Policy will be amended as
necessary to conform to the requirements of the Code.
Pension and Profit Sharing Plans. Sections 401(a) of the Code
permits corporate employers to establish various types of
retirement plans for employees. Corporate employers intending to
use the Policy in connection with such plans should seek competent
advice.
The Self-Employed Individuals' Tax Retirement Act of 1962, as
amended, commonly referred to as "H.R. 10," permits self-employed
individuals to establish qualified plans for themselves and their
employees. In order to establish such a plan, a plan document,
often in prototype form preapproved by the Internal Revenue
Service, is adopted and implemented by or for the self-employed
person. Purchasers of a Policy for use with H.R. 10 Plans should
seek competent advice regarding the suitability of the proposed
plan documents and of the Policy to their specific needs.
These retirement plans may permit the purchase of the Policies to
accumulate retirement savings under the plans. Adverse tax or
other legal consequences to the plan, to the participant or to both
may result if this Policy is assigned or transferred to any
individual as a means to provide benefit payments, unless the plan
complies with all legal requirements applicable to such benefits
prior to transfer of the Policy
Individual Retirement Annuities and Individual Retirement Accounts.
Section 408 of the Code permits eligible individuals to contribute
to an individual retirement program known as an Individual
Retirement Annuity or Individual Retirement Account (each
hereinafter referred to as "IRA"). Also, distributions from
certain other types of qualified plans may be "rolled over" on a
tax-deferred basis into an IRA. The Policy Loan provision is not
available under an IRA. The sale of a Policy for use with an IRA
may be subject to special disclosure requirements of the Internal
Revenue Service. Purchasers of the Policy for use with IRAs will
be provided with supplemental information required by the Internal
Revenue Service or other appropriate agency. Such purchasers will
have the right to revoke their purchase within 7 days of the
earlier of the establishment of the IRA or their purchase. The
Internal Revenue Service has not reviewed the Policy for
qualification as an IRA, and has not addressed in a ruling of
general applicability whether a death benefit provision such as the
provision in the Policy comports with IRA qualification
requirements. Purchasers should seek competent advice as to the
suitability of the Policy for use with IRAs.
Tax-Sheltered Annuities. Section 403(b) of the Code permits public
school employees and employees of certain types of religious,
charitable, educational, and scientific organizations specified in
Section 501(c)(3) of the Code to purchase annuity contracts and,
subject to certain limitations, exclude the amount of premiums from
gross income for tax purposes. These annuity contracts are
commonly referred to as "Tax-Sheltered Annuities." Premiums
excluded from gross income will be subject to FICA taxes. Subject
to certain exceptions, withdrawals under Tax-Sheltered Annuities
which are attributable to contributions made pursuant to salary
reduction agreements are prohibited unless made after the Owner
attains age 59.5, upon the Owner's separation of service, upon the
Owner's death or disability, or for an amount not greater than the
total of such contributions in the case of hardship.
Policy loans under Tax-Sheltered Annuities that satisfy certain
requirements with respect to loan amount and repayment are not
treated as taxable distributions. If these requirements are not
met, or if the Policy terminates while a loan is outstanding, the
loan balance will be treated as a taxable distribution and may be
subject to penalty tax, and the treatment of the Policy under
section 403(b) may be adversely affected. Adverse consequences may
also result if the Tax-Sheltered Annuity is purchased pursuant to
a plan subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"). The Owner of a Tax-Sheltered Annuity
should seek competent advice before requesting a Policy loan.
Section 457 Deferred Compensation ("Section 457") Plans. Under
Section 457 of the Code, employees of (and independent contractors
who perform services for) certain state and local governmental
units or certain tax-exempt employers may participate in a Section
457 plan of their employer allowing them to defer part of their
salary or other compensation. The amount deferred and any income
on such amount will not be taxable until paid or otherwise made
available to the employee. In general, all amounts received under
a section 457 plan are taxable and are subject to federal income
tax withholding as wages.
The maximum amount that can be deferred under a Section 457 plan in
any tax year is ordinarily one-third of the employee's includible
compensation, up to $7,500. Includible
compensation means earnings for services rendered to the employer
which is includible in the employee's gross income, but excluding
any contributions under the Section 457 plan or a Tax-Sheltered
Annuity. During the last three years before an individual attains
normal retirement age additional "catch-up" deferrals are
permitted.
The deferred amounts will be used by the employer to purchase the
Policy. The Policy will be issued to the employer, and all Account
Values will be subject to the claims of the employer's creditors.
The employee has no rights or vested interest in the Policy and is
only entitled to payment in accordance with the Section 457 plan
provisions. Depending on the terms of the particular plan, the
employer may be entitled to draw on deferred amounts for purposes
unrelated to its section 457 plan obligations. Present federal
income tax law does not allow tax-free transfers or rollovers for
amounts accumulated in a Section 457 plan except for transfers to
other Section 457 plans in certain limited cases.
Diversification
Section 817 of the Code provides that a variable annuity policy
(other than a pension plan contract) will not be treated as an
annuity for any period during which the investments made by the
separate account or underlying fund are not adequately diversified
in accordance with regulations to be prescribed by the Treasury.
If a contract is not treated as an annuity, the policy owner will
be subject to income tax on the annual increases in cash value. The
Treasury has issued diversification regulations which, among other
things, require no more than 55% of the assets of a mutual fund
(such as the six portfolios in the Scudder Variable Life Investment
Fund) underlying a variable annuity contract, be invested in any
one investment. In determining whether the diversification
standards are met, each United States Government Agency or
instrumentality shall be treated as a separate issuer. If the
diversification standards are not met, Owners of Nonqualified
Policies will be subject to current tax on the increase in cash
value in the contract.
General
At the time the initial Premium Payment is paid, a prospective
purchaser must specify whether he or she is purchasing a
Nonqualified Policy or a Qualified Policy. If the initial Premium
Payment is derived from an exchange or surrender of another annuity
Policy, Banner Life may require that the prospective purchaser
provide information with regard to the federal income tax status of
the previous annuity Policy. Banner Life will require that persons
purchase separate Policy if they desire to invest monies qualifying
for different annuity tax treatment under the Code. Each such
separate Policy would require the minimum initial Premium Payment
stated above. Additional Premium Payments under a Policy must
qualify for the same federal income tax treatment as the initial
Premium Payment under the Policy; Banner Life will not accept an
additional Premium Payment under a Policy if the federal income tax
treatment of such Premium Payment would be different from that of
the initial Premium Payment.
Tax-Sheltered Annuities - Withdrawal Limitations
Effective January 1, 1989, the Code limits the withdrawal of
amounts attributable to contributions made pursuant to a salary
reduction agreement (as defined in Section 403(b)(11) of the Code)
to circumstances only: (1) when the Owner attains age 59.5; (2)
separates from service; (3) dies; (4) becomes disabled (within the
meaning of Section 72(m)(7) of the Code); or (5) in the case of
hardship. However, withdrawals for hardship are restricted to the
portion of the Owner's Account Value which represents contributions
by the Owner and does not include any investment results. The
limitations on withdrawals apply only to salary reduction
contributions made after December 31, 1988 and to income
attributable to such contributions and to income attributable to
amounts held as of December 31, 1988. The limitations on
withdrawals do not affect rollovers between certain Qualified
Plans. Owners should consult their own tax counsel or other tax
advisor regarding any distributions.
DISTRIBUTOR OF THE POLICY
Banner Financial Services Group, Inc., ("Banner Financial") an
affiliate of Banner Life, is the principal underwriter and the
distributor of the Policy. Banner Financial may enter into
contracts with various broker-dealers to aid in the distribution of
the Policy. The commissions paid to dealers are no greater than
6.25% of Premium Payments. (Additional compensation may be paid in
special circumstances.)
VOTING RIGHTS
To the extent required by law, Banner Life will vote the Fund
shares held by the Variable Account at regular and special
shareholder meetings of the Fund in accordance with instructions
received from persons having voting interests in the portfolios.
If, however, the 1940 Act or any regulation thereunder should be
amended or if the present interpretation thereof should change, and
as a result Banner Life determines that it is permitted to vote the
Fund's shares in its own right, it may elect to do so.
Before the Maturity Date, the Owner holds the voting interest in
the selected Portfolios. The number of votes that an Owner has the
right to instruct will be calculated separately for each
Sub-Account. The number of votes that an Owner has the right to
instruct for a particular Sub-Account will be determined by
dividing his or her Account Value in the Sub-Account by the net
asset value per share of the corresponding Portfolio in which the
Sub-Account invests. Fractional shares will be counted.
After the Maturity Date, the person receiving Annuity Payments (the
Annuitant) has the voting interest, and the number of votes
decreases as Annuity Payments are made and as the reserves for the
Policy decrease. The person's number of votes will be determined
by dividing the reserve for the Policy allocated to the applicable
Sub-Account by the net asset value per share of the corresponding
Portfolio of the Fund. Fractional shares will be counted.
The number of votes that the Owner or annuitant has the right to
instruct will be determined as of the date established by the Fund
for determining shareholders eligible to vote at the meeting of the
Fund. Banner Life will solicit voting instructions by sending
Owners or other persons entitled to vote written requests for
instructions prior to that meeting in accordance with procedures
established by the Fund. Portfolio shares as to which no timely
instructions are received and shares held by Banner Life in which
Owners or other persons entitled to vote have no beneficial
interest will be voted in proportion to the voting instructions
that are received with respect to all Policy participating in the
same Sub-Account.
Each person having a voting interest in a Sub-Account will receive
proxy material, reports, and other materials relating to the
appropriate Portfolio.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a
party or to which the assets of the Account are subject. Banner
Life is not involved in any litigation that is of material
importance in relation to its total assets or that relates to the
Variable Account.
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
A Statement of Additional Information is available (at no cost) which contains
more details concerning the subjects discussed in this Prospectus. The
following is the Table of Contents for that Statement:
TABLE OF CONTENTS
Page
THE POLICY-GENERAL PROVISIONS. . . . . . . . . . . . . . . . . .1
Owner. . . . . . . . . . . . . . . . . . . . . . . . . .1
Policy . . . . . . . . . . . . . . . . . . . . . . . . .1
Right to Contest . . . . . . . . . . . . . . . . . . .1
Non-Participating Policy . . . . . . . . . . . . . . . .1
Postponement of Payments . . . . . . . . . . . . . . . .1
Misstatement of Age or Sex . . . . . . . . . . . . . . .2
Assignment . . . . . . . . . . . . . . . . . . . . . . .2
Evidence of Survival . . . . . . . . . . . . . . . . . .2
FEDERAL TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . .2
Tax Status of the Policy . . . . . . . . . . . . . . . .2
Taxation of Banner Life. . . . . . . . . . . . . . . . .3
INVESTMENT EXPERIENCE. . . . . . . . . . . . . . . . . . . . . .4
Accumulation Units . . . . . . . . . . . . . . . . . . .4
Annuity Payment Provisions . . . . . . . . . . . . . . .4
STATE REGULATION OF BANNER LIFE. . . . . . . . . . . . . . . . .5
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . .5
RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . .5
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . .6
CUSTODY OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . .6
HISTORICAL PERFORMANCE DATA. . . . . . . . . . . . . . . . . . .6
Money Market Yields. . . . . . . . . . . . . . . . . . .6
Other Sub-Account Yields . . . . . . . . . . . . . . . .7
Total Returns. . . . . . . . . . . . . . . . . . . . . .7
Other Performance Data . . . . . . . . . . . . . . . . .8
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . .8
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . .8
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
SENIOR OFFICERS AND DIRECTORS OF BANNER LIFE INSURANCE COMPANY .9
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 10
STATEMENT OF ADDITIONAL INFORMATION
FLEXIBLE PREMIUM VARIABLE ANNUITY
Issued through
BANNER VARIABLE
ANNUITY ACCOUNT B
Offered by
BANNER LIFE INSURANCE COMPANY
1701 Research Boulevard
Rockville, Maryland 20850
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Flexible Premium Variable Annuity Policy
(the "Policy") offered by Banner Life Insurance Company. You may obtain a
copy of the Prospectus dated May 1, 1996 by calling (301) 294-6940, or by
writing to Banner Life Insurance Company, 1701 Research Boulevard, Rockville,
Maryland 20850. Terms used in the current Prospectus for the Policy are
incorporated in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE POLICY AND THE VARIABLE ACCOUNT.
Dated: May 1, 1996
TABLE OF CONTENTS
Page
THE POLICY-GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . .3
Owner. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Right to Contest . . . . . . . . . . . . . . . . . . . . . . . . .3
Non-Participating Policy . . . . . . . . . . . . . . . . . . . . .3
Postponement of Payments . . . . . . . . . . . . . . . . . . . . .3
Misstatement of Age or Sex . . . . . . . . . . . . . . . . . . . .4
Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Evidence of Survival . . . . . . . . . . . . . . . . . . . . . . .4
FEDERAL TAX MATTERS. . . . . . . . . . . . . . . . . . . . . . . . .4
Tax Status of the Policy . . . . . . . . . . . . . . . . . . . . .5
Taxation of Banner Life. . . . . . . . . . . . . . . . . . . . . .6
INVESTMENT EXPERIENCE. . . . . . . . . . . . . . . . . . . . . . . .6
Accumulation Units . . . . . . . . . . . . . . . . . . . . . . . .7
Annuity Payment Provisions . . . . . . . . . . . . . . . . . . . .8
STATE REGULATION OF BANNER LIFE. . . . . . . . . . . . . . . . . . .8
ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . .8
RECORDS AND REPORTS. . . . . . . . . . . . . . . . . . . . . . . . .9
DISTRIBUTION OF THE POLICIES . . . . . . . . . . . . . . . . . . . .9
CUSTODY OF ASSETS. . . . . . . . . . . . . . . . . . . . . . . . . .9
HISTORICAL PERFORMANCE DATA. . . . . . . . . . . . . . . . . . . . .9
Money Market Yields. . . . . . . . . . . . . . . . . . . . . . . 10
Other Sub-Account Yields . . . . . . . . . . . . . . . . . . . . 10
Total Returns. . . . . . . . . . . . . . . . . . . . . . . . . . 11
Other Performance Data . . . . . . . . . . . . . . . . . . . . . 12
LEGAL MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
LEGAL PROCEEDINGS. . . . . . . . . . . . . . . . . . . . . . . . . 13
EXPERTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SENIOR OFFICERS AND DIRECTORS OF BANNER LIFE INSURANCE COMPANY.. . 13
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . 15
In order to supplement the description in the Prospectus, the following
provides additional information about Banner Life and the Policy which may be
of interest to an Owner.
THE POLICY - GENERAL PROVISIONS
Owner
The Owner is entitled to the benefits, rights and privileges of ownership and
can exercise the rights described in the Policy. The Owner can transfer
ownership by Written Notice to Banner Life at its Administrative Office. The
transfer will not affect the interest of a beneficiary. While the Annuitant
is living, the Owner may assign the Policy (see Assignment, below).
The Policy
The Policy, attached riders, amendments, benefits, and the application, and
any supplemental applications for additional amounts, form the entire
contract. Only the President, a Vice President, or the Secretary of Banner
Life may change or waive any provision in the Policy. Any changes or waivers
must be in writing.
Banner Life may change or amend the Policy if such change or amendment is
necessary for the Policy to comply with or take advantage of any state or
federal law, rule or regulation.
Right to Contest
Unless the Owner fails to pay the initial premium, Banner Life does not have
the right to contest this policy.
Non-participating Policy
The Policy does not participate or share in the profits or surplus earnings
of Banner Life. No dividends are payable on the Policy.
Postponement of Payments
Banner Life may postpone the calculation and payment of surrender values,
loans, transfers or Death Benefits from the Variable Account if:
(1) The New York Stock Exchange is closed on other than customary week-end
and holiday closures, or trading on the New York Stock Exchange is
restricted as determined by the Securities and Exchange Commission
("SEC"); or
(2) The SEC by order permits postponement for the protection of Owners; or
(3) An emergency exists, as determined by the SEC, as a result of which
disposal of securities is not reasonable, or practicable, or it is not
reasonable or practicable to determine the value of the net assets of
the Variable Account.
In addition, while it is Banner Life's current intent to process all
transfers from Sub-Accounts immediately upon receipt of a transfer request,
Banner Life reserves the right to delay effecting a transfer from a Sub-Account
for up to seven days. Banner Life may delay effecting such a
transfer to avoid severe disruptions to the Portfolios of the Fund if one of
the Portfolios must sell portfolio securities in order to make funds
available for large amounts of redemptions or transfers being made at the
same time by or on behalf of Owners. If this happens, Banner Life will
calculate the dollar value or number of units involved on or as of the date
Banner Lifereceives a written transfer request, but will not process the
transfer to the transferee Sub-Account or the General Account until a later
date during the 7-day delay period when the Portfolio underlying the
transferring Sub-Account obtains liquidity to fund the transfer request
through sales of portfolio securities, new Premium payments, transfers by
Owners or otherwise. During this delay period, the amount transferred will
not be invested in a Sub-Account or the General Account.
Banner Life may postpone the payment of proceeds or surrender values or
transfers from the General Account for up to six months from the date Written
Request for such is received at the Administrative Office. However, a
partial surrender used to pay a premium on any Policy issued by Banner Life
will not be postponed. Payments from the Policy of any amounts derived from
premiums paid by check may be delayed until such time as the check has
cleared.
Misstatement of Age or Sex
If the annuitant's age or sex has been misstated, any payments under the
Policy will be those the premiums paid would have purchased at the correct
age or sex.
Assignment
During the lifetime of the Annuitant the Owner may assign any rights under
the Policy as security for a loan or other reasons. This does not change the
ownership of the Policy, but the rights of the Owner and any Beneficiary are
subject to the terms of the assignments. An assignment will not be binding
on Banner Life until a copy has been filed at its Administrative Office.
Banner Life is not responsible for the validity of the assignment. An
assignment may have tax consequences.
Evidence of Survival
Banner Life reserves the right to require satisfactory evidence that a person
is alive if a payment is based on that person being alive. No payment will
be made until Banner Life receives such evidence.
<PAGE>
FEDERAL TAX MATTERS
Tax Status of the Policy
Diversification Requirements. Section 817(h) of the Code provides that in
order for a variable contract which is based on a segregated asset account to
qualify as an annuity contract under the Code, the investments made by such
account must be "adequately diversified" in accordance with Treasury
regulations. The Treasury regulations issued under Section 817(h) (Treas.
Reg. 1.817-5) apply a diversification requirement to each of the Sub-Accounts of
the Variable Account. The Variable Account, through the Fund and
its Portfolios, intends to comply with the diversification requirements of
the Treasury. Banner Life and the Fund have entered into an agreement
regarding participation in the Fund that requires the Fund and its Portfolios
to be operated in compliance with the Treasury regulations.
Owner Control. In certain circumstances, owners of variable annuity
contracts may be considered the owners, for federal income tax purposes, of
the assets of the separate accounts used to support their contracts. In
those circumstances, income and gains from the separate account assets would
be includible in the variable contract owner's gross income. The IRS has
stated in published rulings that a variable contract owner will be considered
the owner of separate account assets if the contract owner possesses
incidents of ownership in those assets, such as the ability to exercise
investment control over the assets. The Treasury Department has also
announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning
the circumstances in which investor control for the investments of a
segregated asset account may cause the investor (i.e., the Owner), rather
than the insurance company, to be treated as the owner of the assets in the
account." This announcement also stated that guidance would be issued by way
of regulations or rulings on the "extent to which policyholders may direct
their investments to particular Sub-Accounts without being treated as owners
of the underlying assets."
The ownership rights under the Policy are similar to, but different in
certain respects from those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets.
For example, an Owner has additional flexibility in allocating premium
payments and account values. These differences could result in an Owner
being treated as the owner of a pro-rata portion of the assets of the
Variable Account. In addition, Banner Life does not know what standards
will be set forth, if any, in the regulations or rulings which the Treasury
Department has stated it expects to issue. Banner Life therefore reserves
the right to modify the Policy as necessary to attempt to prevent an Owner
from being considered the owner of a pro-rata share of the assets of the
Variable Account.
Distribution Requirements. In order to be treated as an annuity contract for
Federal income tax purposes, section 72(s) of the Code requires any
Non-qualified Policy to provide that (a) if any Owner dies on or after the
Maturity Date but prior to the time the entire interest in the Policy has
been distributed, the remaining portion of such interest will be distributed
at least as rapidly as under the method of distribution being used as of the
date of that Owner's death; and (b) if any Owner dies prior to the Maturity
Date, the entire interest in the Policy will be distributed within five years
after the date of the Owner's death. These requirements will be considered
satisfied as to any portion of the Owner's interest which is payable to or
for the benefit of a "designated beneficiary" and which is distributed over
the life of such "designated beneficiary" or over a period not extending
beyond the life expectancy of that beneficiary, provided that such
distributions begin within one year of that Owner's death. The Owner's
"designated beneficiary" is the person designated by such owner as a
Beneficiary and to whom ownership of the Policy passes by reason of death and
must be a natural person. However, if the Owner's "designated beneficiary"
is the surviving spouse of the Owner, the Policy may be continued with the
surviving spouse as the new Owner.
The Policy contains provisions which are intended to comply with the
requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. Banner Life intends to
review such provisions and modify them if necessary to assure that they
comply with the requirements of Code section 72(s) when clarified by
regulation or otherwise.
Similar rules may apply to a Qualified Policy.
Taxation of Banner Life
Banner Life at present is taxed as a life insurance company under part I of
Subchapter L of the Code. The Variable Account is treated as part of Banner
Life and, accordingly, will not be taxed separately as a "regulated invest-
ment company" under Subchapter M of the Code. Banner Life does not expect to
incur any federal income tax liability with respect to investment income and
net capital gains arising from the activities of the Variable Account
retained as part of the reserves under the Policy. Based on this
expectation, it is anticipated that no charges will be made against the
Variable Account for federal income taxes. If, in future years, any federal
income taxes are incurred by Banner Life with respect to the Variable
Account, Banner Life may make a charge to the Variable Account.
Under current laws, Banner Life may incur state and local taxes in certain
states. At present, these taxes are not significant. If there is a material
change in applicable state or local tax laws, charges may be made for such
taxes or reserves for such taxes, if any, attributable to the Variable
Account.
INVESTMENT EXPERIENCE
On any Valuation Day, the separate account value is equal to the totals of
the values allocated to the Policy in each Sub-Account. The Account Value
held in any Sub-Account is equal to the number of Sub-Account units allocated
to this Policy multiplied by the Sub-Account accumulation unit value as
described below.
The number of Sub-Account units will increase when:
(1) Net premiums are credited to that Sub-Account; or
(2) Transfers from other Sub-Accounts, or from the General Account, are
credited to that Sub-Account.
The number of Sub-Account units will decrease when:
(1) A partial surrender, including the applicable surrender charge, is
taken from that Sub-Account;
(2) A proportion of the annual maintenance charge is taken from that
Sub-Account; or
(3) A transfer is made from that Sub-Account to other Sub-Accounts or to
the General Account.
Accumulation Units
Accumulation unit values are determined for each Sub-Account at the end of
each Valuation Day before the transfer or allocation of any amounts to or
from the Sub-Accounts. Each Sub-Account accumulation unit value may increase
or decrease on each Valuation Day and is equal to the accumulation unit value
for the Sub-Account at the end of the immediately preceding valuation period
multiplied by the "Net Investment Factor" for the current valuation period.
The Net Investment Factor is used to determine the value of Accumulation
Units and Annuity Units.
The Net Investment Factor for any Sub-Account for any valuation period is
determined by dividing (1) by (23) and then subtracting (3), where:
(1) Is the net asset value per share of the investment company portfolio in
which the Sub-Account invests, determined at the end of the valuation
period plus the per share amount of any unpaid dividends or capital
gains paid by the Fund;
(2) Is the net asset value per share of the investment company portfolio in
which the Sub-Account invests, determined at the beginning of the
valuation period; and
(3) Is the charge for mortality and expense risks and the administrative
charge. The effective annual rate of these charges is currently 1.30%.
<PAGE>
Annuity Payment Provisions
On the Valuation Day that the initial annuity payment is determined, the
number of annuity units in each Sub-Account is determined by dividing the
portion of the initial annuity payment allocated to the Sub-Account by the
annuity unit value for that Sub-Account. Transfers between Sub-Accounts in
the Separate Account may increase or decrease the number of annuity units in
the Sub-Account. After the initial annuity payment, each subsequent annuity
payment will be determined by the product of the number of annuity units and
the annuity unit value of each Sub-Account. The annuity unit value of the
Sub-Account is the product of (1), (2), and (3), where:
(1) Is the annuity unit value as of the preceding Valuation Day;
(2) Is the net investment factor for the valuation period of the Sub-Account
in the Variable Account; and
(3) Is .999919 per day of the valuation period. This is an adjustment
corresponding to the assumed rate of 3% on a yearly basis, which is used
in the calculation of the initial annuity payment.
The valuation period is the period from the close of the immediately
preceding Valuation Day to the close of the current Valuation Day.
STATE REGULATION OF BANNER LIFE
Banner Life is subject to regulation by the Maryland Insurance Administration
(Banner Life's state of domicile). An annual statement is filed with the
Maryland Insurance Administration each year covering the operations and
reporting on the financial condition of Banner Life as of December 31 of the
preceding year. Periodically, the Maryland Insurance Administration or other
authorities examine the reserves of Banner Life and certifies their adequacy.
A full examination of Banner Life's operations is conducted periodically by
the Maryland Insurance Administration.
In addition, Banner Life is subject to the insurance laws and regulations of
other states within which it is licensed or may become licensed to operate.
Generally, the Insurance Department of any other state applies the laws of
the state of domicile in determining permissible investments.
A Policy is governed by the law of the state in which it is delivered. The
values and benefits of each policy are at least equal to those required by
such state.
ADMINISTRATION
Banner Life will perform administrative services itself. Such services
include issuance of the Policies, maintenance of records concerning the
Policies, and certain valuation services.
Banner Life may, at some time in the future, enter into an administration
services agreement to secure administrative services from other sources.
Services would be purchased on a basis which, in Banner Life's sole discre-
tion, affords the best service at the lowest cost. Banner Life, however,
reserves the right to select a provider of services which Banner Life, in its
sole discretion, considers best able to perform such services in a satis-
factory manner even though the costs for the service may be higher than would
prevail elsewhere.
RECORDS AND REPORTS
All records and accounts relating to the Variable Account will be maintained
by Banner Life. As presently required by the Investment Company Act of 1940
and regulations promulgated thereunder, Banner Life will mail to all Owners
at their last known address of record, at least annually, reports containing
such information as may be required under that Act or by any other applicable
law or regulation. Owners will also receive confirmations of each financial
transaction and any other reports required by federal or state law or
regulation.
DISTRIBUTION OF THE POLICIES
The Policies are offered to the public through brokers licensed under the
federal securities laws and state insurance laws.
The Policies will be sold by individuals who are registered representatives
of Banner Financial Services Group, Inc. ("Banner Financial"), the principal
underwriter of the Policies, or of broker-dealers who have entered into
written sales agreements with Banner Financial. Banner Financial is
registered with the SEC under the Securities Exchange Act of 1934 as a
broker-dealer and is a member of the National Association of Securities
Dealers. Banner Financial is an affiliate of Banner Life. The amount of
commisions payable to Banner Financial in 1995, 1994 and 1993 were $209,060,
$168,014 and $37,460, respectively.
CUSTODY OF ASSETS
The assets of the Sub-Accounts of the Variable Account are held by Banner
Life. The assets of the Sub-Accounts of the Variable Account are held
separate and apart from the assets of any other segregated asset accounts and
from Banner Life's general account assets. Banner Life maintains records of
all purchases and redemptions of shares of the Fund held by each of the
Sub-Accounts. Additional protection for the assets of the and Variable Account
is afforded by Banner Life's fidelity bond, presently in the amount of
$5,000,000, covering the acts of officers and employees of Banner Life.
HISTORICAL PERFORMANCE DATA
The Scudder Variable Life Investment Fund commenced operations in 1985, and
therefore figures based on the Fund's past performance, adjusted for the
charges under the Policies, may be advertised or otherwise made available.
Money Market Yields
Banner Life may from time to time disclose the current annualized yield of
the Money Market Sub-Account, which invests in the Money Market Portfolio,
for a 7-day period in a manner which does not take into consideration any
realized or unrealized gains or losses on shares of the Money Market Port-
folio or on its portfolio securities. This current annualized yield is
computed by determining the net change (exclusive of realized gains and
losses on the sale of securities and unrealized appreciation and
depreciation) at the end of the 7-day period in the value of a hypothetical
account having a balance of 1 unit of the Money Market Sub-Account at the
beginning of the 7-day period, dividing such net change in account value by
the value of the account at the beginning of the period to determine the base
period return, and annualizing this quotient on a 365-day basis. The net
change in account value reflects (i) net income from the Portfolio
attributable to the hypothetical account; and (ii) charges and deductions
imposed under a Policy that are attributable to the hypothetical account.
Banner Life may also disclose the effective yield of the Money Market
Sub-Account for the same 7-day period, determined on a compounded basis. The
effective yield is calculated by compounding the unannualized base period
return by adding one to the base period return, raising the sum to a power
equal to 365 divided by 7, and subtracting one from the result.
The effective yield is calculated by compounding the unannualized base period
return according to the following formula:
EFFECTIVE YIELD = [(BASE PERIOD RETURN + 1) 365/7] - 1
The yield on amounts held in the Money Market Sub-Account normally will
fluctuate on a daily basis. Therefore, the disclosed yield for any given
past period is not an indication or representation of future yields or rates
of return. The Money Market Sub-Account's actual yield is affected by
changes in interest rates on money market securities, average portfolio
maturity of the Money Market Portfolio, the types and quality of portfolio
securities held by the Money Market Portfolio and its operating expenses.
Other Sub-Account Yields
Banner Life may from time to time advertise or disclose the current
annualized yield of one or more of the Sub-Accounts of the Variable Account
(except the Money Market Sub-Account) for 30-day periods. The annualized
yield of a Sub-Account refers to income generated by the Sub-Account over a
specific 30-day period. Because the yield is annualized, the yield generated
by a Sub-Account during the 30-day period is assumed to be generated each 30-day
period over a 12-month period. The yield is computed by: (i) dividing
the net investment income per accumulation unit earned during the period by
the price per unit on the last day of the period, according to the following
formula:
Yield = 2 [(a - b)/cd + 1)^6 - 1]
Where:
a = Net investment income earned during the period attributable to
shares of the Sub-Account.
b = Expenses accrued for the period.
c = The average number of accumulation units outstanding during the
period.
d = The maximum offering price per accumulation unit on the last day
of the period.
Because of the charges and deductions imposed by the Variable Account, the
yield for a Sub-Account of the Variable Account will be lower than the yield
for its corresponding Portfolio. The yield calculations do not reflect the
effect of any premium taxes or Contingent Deferred Sales Charges that may be
applicable to a particular Policy. Contingent Deferred Sales Charges range
from 7.0% to 0% of the amount surrendered or the total premiums paid less
prior partial surrenders, based on the Policy Year of surrender.
The yield on amounts held in the Sub-Accounts of the Variable Account
normally will fluctuate over time. Therefore, the disclosed yield for any
given past period is not an indication or representation of future yields or
rates of return. A Sub-Account's actual yield is affected by the types and
quality of the Portfolio's investments and its operating expenses.
Total Returns
Banner Life may from time to time also advertise or disclose total returns
for one or more of the Sub-Accounts of the Variable Account for various
periods of time. When a Sub-Account has been in operation for 1, 5 and 10
years, respectively, the total return for these periods will be provided.
Total returns for other periods of time may from time to time also be
disclosed. Total returns represent the average annual compounded rates of
return that would equate the initial amount invested to the redemption value
of that investment as of the last day of each of the periods.
Total returns will be calculated using Sub-Account Unit Values which Banner
Lifecalculates on each Valuation Day based on the performance of the
Sub-Account's underlying Portfolio, and the deductions for the Mortality and
Expense Risk Charge and the Administrative Charges. Total return calcula-
tions will reflect the effect of Contingent Deferred Sales Charges that may
be applicable to a particular period. The total return will then be
calculated according to the following formula:
P(1 + T)^n = ERV
Where:
P = A hypothetical initial payment of $1,000.
T = Average annual total return.
n = Number of years in the period.
ERV = Ending redeemable value of a hypothetical $1,000 payment made at
the beginning of the one, five or ten-year period, at the end of
the one, five or ten-year period (or fractional portion thereof).
Other Performance Data
Banner Life may from time to time also disclose average annual total returns
in a non-standard format in conjunction with the standard format described
above. The non-standard format will be identical to the standard format
except that the Contingent Deferred Sales Charge percentage will be assumed
to be 0%.
Banner Life may from time to time also disclose cumulative total returns in
conjunction with the standard format described above. The cumulative returns
will be calculated using the following formula assuming that the Contingent
Deferred Sales Charge percentage will be 0%.
CTR = (ERV / P) - 1
Where:
CTR = The cumulative total return net of Sub-Account recurring charges
for the period.
ERV = The ending redeemable value of the hypothetical investment made at
the beginning of the one, five or ten-year period, at the end of
the one, five or ten-year period (or fractional portion thereof).
P = A hypothetical initial payment of $1,000.
All non-standard performance data will only be advertised if the standard
performance data for the same period, as well as for the required period, is
also disclosed.
<PAGE>
LEGAL MATTERS
Legal advice regarding certain matters relating to the federal securities
laws applicable to the issuance of the Policy described in this Prospectus
has been provided by Sutherland, Asbill & Brennan, Washington, D.C. All
matters of Maryland law pertaining to the Policy, including the validity of
the Policy and Banner Life's right to issue the Policy under Maryland
Insurance Law and any other applicable state insurance or securities laws,
have been passed upon by Mark A. Canter, Vice President, Secretary & General
Counsel of Banner Life.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Variable Account is a party or to
which the assets of the Variable Account are subject. Banner Life is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Variable Account.
EXPERTS
The consolidated financial statements of Banner Life Insurance Company as of
December 31, 1995, 1994 and 1993 and for each of the three years in the
period ended December 31, 1995, and the financial statements of the Banner
Life Variable Annuity Account B as of December 31, 1995 included in this
Prospectus have been so included in reliance on the report of Price
Waterhouse, independent accountants, given on the authority of said firm as
experts in auditing and accounting.
SENIOR OFFICERS AND DIRECTORS OF BANNER LIFE INSURANCE COMPANY
Name and Position Principal Occupation
with Banner Life Last Five Years
Mark A. Canter Vice President, Secretary &
Vice President, Secretary General Counsel
and General Counsel Banner Life
Barbara A. Esau Vice President - Human Resources
Vice President and Banner Life
Director
Robert E. Freeman President and Chief Operating Officer
Director (now retired)
William Penn Life Insurance Company
of New York,
Garden City, New York
Gene R. Gilbertson Senior Vice President,
Senior Vice President, Chief Banner Life
Financial Officer, Treasurer and
Director
Dewey D. Goodrich, Jr. Senior Vice President - Information
Senior Vice President and Systems and Services
Director Legal & General America, Inc. (1995)
Vice President - Information Services
Interstate Assurance Company
Des Moines, Iowa
Robert L. Hill Vice President & Controller (1993)
Vice President Assistant Controller
Banner Life
Bentti O. Hoiska Chief Investment Officer and
Executive Vice President Executive Vice President
and Director Legal & General America, Inc.
(1995)
Principal
State Street Global Advisors
Boston, Massachusetts
David S. Lenaburg President and Chief Executive
Chairman, President and Officer
Chief Executive Officer and Banner Life
Director
Charles A. Lingaas2 Senior Vice President,Customer Service
Senior Vice President and William Penn Life Insurance Company
Director of New York
Garden City, NY
Otto P. Maracello2 Senior Vice President - Underwriting
Senior Vice President and William Penn Life Insurance Company
Director of New York
Vincent R. McLean Retired
Director
Wayne L. Miller Vice President,
Vice President, Sales Banner Life
Michael D. Mullaney Vice President - Corporate Taxation
Vice President Legal & General America, Inc.
David J. Orr Senior Vice President, Sales
Senior Vice President Banner Life
and Chief Actuary
FINANCIAL STATEMENTS
The consolidated financial statements of Banner Life which are included in
this Statement of Additional Information should be considered only as bearing
on the ability of Banner Life to meet the obligations under the Policies.
They should not be considered as bearing on the investment performance of the
assets held in the Variable Account.
BANNER LIFE
VARIABLE ANNUITY ACCOUNT B
REPORT AND FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 16, 1995
(COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
April 10, 1996
To Banner Life Insurance Company
and Contract Owners of
The Banner Life Variable Annuity Account B
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets present fairly,
in all material respects, the financial position of The Banner Life Variable
Annuity Account B and the Money Market, Balanced, Bond, Capital Growth, Growth
& Income and International subaccounts thereof at December 31, 1995, and the
results of their operations and the changes in their net assets for the period
January 16, 1995 (commencement of operations) through December 31, 1995 in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of Banner Life Insurance Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit, which included
confirmation of shares held at December 31, 1995 by correspondence with the
transfer agent, provides a reasonable basis for the opinion expressed above.
/s/ Price Waterhouse LLP
<TABLE>
<CAPTION>
BANNER LIFE VARIABLE ANNUITY ACCOUNT B
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1995
Money Capital Growth&
Market Balanced Bond Growth Income International Total
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Money Market Fund,
361,284 shares at
net asset value
of $1.00 per share
cost $361,284) $361,284 $361,284
Balanced Fund,
81,746 shares at
net asset value of
$10.95 per share
(cost $852,132) $895,118 895,118
Bond Fund, 60,840
shares at net asset
value of $7.17 per
share (cost $423,861) $436,222 436,222
Capital Growth Fund,
66,750 shares at
net asset value of
$15.08 per share
(cost $960,273) $1,006,592 1,006,592
Growth & Income Fund,
126,151 shares at
net asset value of
$7.98 per share
(cost $940,407) $1,006,686 1,006,686
International Fund,
49,768 shares at
net asset value of
$11.82 per share (cost
$568,925) $588,253 588,253
Total assets 361,284 895,118 436,222 1,006,592 1,006,686 588,253 4,294,155
LIABILITIES
Administrative expense
fee payable 18 82 40 89 86 66 381
Mortality and expense
risk fee payable 146 4,208 2,063 4,603 4,446 3,407 18,873
Total liabilities 164 4,290 2,103 4,692 4,532 3,473 19,254
Net assets $361,120 $890,828 $434,119 $1,001,900 $1,002,154 $584,780 $4,274,901
Number of units
outstanding 351,833 713,541 371,294 777,352 780,339 523,470
Net asset value
per unit $1.03 $1.25 $1.17 $1.29 $1.28 $1.12
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<TABLE>
<CAPTION>
BANNER LIFE VARIABLE ANNUITY ACCOUNT B
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JANUARY 16, 1995 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1995
Money Capital Growth &
Market Balanced Bond Growth Income International
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Total
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income (loss) $354 $2,015 $6,474 ($2,014) $1,300 ($3,375) $4,754
Net realized gain on investments - 5,110 1,846 10,878 7,965 8,571 34,370
Net change in unrealized appreciation
of investments - 42,986 12,361 46,319 66,279 19,328 187,273
Net change in net assets resulting
from operations 354 50,111 20,681 55,183 75,544 24,524 226,397
UNIT TRANSACTIONS
Proceeds from units issued 362,899 776,804 404,815 857,190 779,861 544,558 3,726,127
Net asset value of units redeemed (133) (760) (1,377) (1,123) (251) (1,002) (4,646)
Transfer (to) from other subaccounts (2,000) 64,673 10,000 90,650 147,000 16,700 327,023
Net increase in net assets from unit
transactions 360,766 840,717 413,438 946,717 926,610 560,256 4,048,504
Net change in net assets 361,120 890,828 434,119 1,001,900 1,002,154 584,780 4,274,901
NET ASSETS
Beginning of period - - - - - - -
End of period $361,120 $890,828 $434,119 $1,001,900 $1,002,154 $584,780 $4,274,901
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<TABLE>
<CAPTION>
BANNER LIFE VARIABLE ANNUITY ACCOUNT B
STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 16, 1995 (COMMENCEMENT OF OPERATIONS)
THROUGH DECEMBER 31, 1995
Money Capital Growth &
Market Balanced Bond Growth Income International
Subaccount Subaccount Subaccount Subaccount Subaccount Subaccount Total
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $518 $6,305 $8,577 $2,678 $5,832 $98 $24,008
Net investment income 518 6,305 8,577 2,678 5,832 98 24,008
EXPENSES
Administrative expense fee 18 82 40 89 86 66 381
Mortality and expense risk fee 146 4,208 2,063 4,603 4,446 3,407 18,873
Total expense 164 4,290 2,103 4,692 4,532 3,473 19,254
Net investment gain (loss) 354 2,015 6,474 (2,014) 1,300 (3,375) 4,754
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments - 5,110 1,846 10,878 7,965 8,571 34,370
Net change in unrealized
appreciation of investments - 42,986 12,361 46,319 66,279 19,328 187,273
Net gain on investments - 48,096 14,207 57,197 74,244 27,899 221,643
Net change in net assets
resulting from operations $354 $50,111 $20,681 $55,183 $75,544 $24,524 $226,397
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<PAGE>
BANNER LIFE VARIABLE ANNUITY ACCOUNT B
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD JANUARY 16, 1995
(COMMENCEMNT OF OPERATIONS) THROUGH
DECEMBER 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The Banner Life Variable Annuity Account B (the Account) is registered under
the Investment Company Act of 1940, as amended, as a unit investment trust.
The Account invests in shares of the Scudder Variable Life Investment Fund
(the Fund), a mutual fund of the series type. The Account contains six
subaccounts - Money Market, Balanced, Bond, Capital Growth, Growth & Income
and International. The assets of each subaccount are held separate from the
assets of the other subaccounts. The operations of the Account are part of
Banner Life Insurance Company (the Insurance Company). The Account commenced
operations on January 16, 1995.
The following is a summary of significant accounting policies consistently
followed by the Account in conformity with generally accounting principles.
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 reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
Security valuation
Investments are valued at the net asset value of fund shares held which
approximates fair value.
Security transactions and related investment income
Security transactions are accounted for on the trade date (the date the order
to buy or sell is executed). Dividend distributions received from the Fund are
reinvested in additional shares of the Fund, and dividend income is recorded on
the ex-dividend date. Gains and losses from sales of investments are computed
on the basis of average cost.
Federal income taxes
The operations of the Account are taxed as part of the total operations of the
Insurance Company. The Insurance Company is taxed as a life insurance company
under the Internal Revenue Code. Under existing Federal income tax law, no
taxes are payable on the investment income or on the capital gains of the
Account.
Annuity reserves
The Account has no contracts receiving annuity payments at December 31, 1995.
NOTE 2 - PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of purchases and proceeds from sales of investments for the
period January 16, 1995 (commencement of operations) through December 31, 1995
were as follows:
<TABLE>
<CAPTION>
Subaccounts
Money Capital Growth &
Market Balanced Bond Growth Income
International
<S> <C> <C> <C> <C> <C>
<C>
Purchases $305,327 $889,066 $438,898 $1,019,670 $916,211
$646,396
Sales - 53,334 68,031 80,505 83,551
89,668
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS
Although variable annuity payments differ according to the investment
performance of the Account, they are not affected by mortality or expense
experience because the Insurance Company assumes the mortality risk and the
expense risk under the contracts. The Insurance Company charges the Account
assets for assuming those risks. For the year ended December 31, 1995, the
Account was charged an annual rate of 1.20% of net asset value for mortality
and expense risk charges.
The expense risk assumed by the Insurance Company is the risk that the
deductions for sales and administrative expenses and for investment advisory
services provided for in the variable annuity contract may prove insufficient
to cover the cost of those items.
The mortality risk is the risk that the cost of insurance charges specified
in the policy may prove insufficient to meet actual claims.
Funds received by the Account for the sale of Account units represent gross
contract premiums received by the Insurance Company less any applicable premium
taxes. The Account has been advised that there were no premium tax deductions
in 1995. No charge for sales distribution expense is deducted from premiums
paid.
The Insurance Company may apply a contingent deferred sales charge to any
Account value surrendered in connection with a full or partial policy surrender
in order to cover distribution expenses. The applicable contingent deferred
sales charge percentage will depend upon the policy year. The charge will be
7% in the first year, decreasing by 1% per year. There is no charge after the
policy has been in effect for seven full years. Once per policy year, there is
a maximum free withdrawal amount which is equal to 15% of any premium payments
paid within the previous seven years. Premium payments are deemed to be
withdrawn before earnings. After all premium payments have been withdrawn,
the remaining account value may be withdrawn without any contingent deferred
sales charge. The Account has been advised that surrender charges were $57
in 1995.
In order to cover the costs of administering the policies and the accounts,
the Insurance Company deducts an annual administrative charge of $25 from the
account value of each policy prior to the maturity date. If the policy is
surrendered during a policy year, this charge will be deducted on a pro rata
basis based on the number of months elapsed in the policy year. After the
maturity date, the charge is not deducted. Additionally, there is a daily
administration charge at an effective annual rate of 0.10% of the value of
the net assets of the Account. There were $381 of administrative charges
in 1995.
A transfer charge may be imposed for each transfer request in excess of
twelve per year. The charge will be deducted from the amount transferred
to compensate the Insurance Company for the costs in effectuating the
transfer. There were no charges for transfers in 1995.
<PAGE>
NOTE 4- UNIT ACTIVITY
Transactions in units of each subaccount were as follows:
<TABLE>
<CAPTION>
Subaccounts
Money Capital Growth &
Market Balanced Bond Growth Income International
<S> <C> <C> <C> <C> <C> <C>
Units outstanding at
January 16, 1995 - - - - - -
Units issued 353,913 714,666 372,514 78,251 780,543 524,386
Units redeemed 2,080 1,125 1,220 899 204 916
Units outstanding at
December 31, 1995 351,833 713,541 371,294 777,352 780,339 23,470
</TABLE>
<PAGE>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary
of Legal & General Group Plc)
FINANCIAL STATEMENTS FOR THE YEARS ENDED
DECEMBER 31, 1995, 1994 AND 1993
REPORT OF INDEPENDENT ACCOUNTANTS
February 19, 1996
To the Board of Directors and
Shareholder of Banner Life Insurance Company
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of shareholder's equity and of cash flows
present fairly, in all material respects, the financial position of Banner
Life Insurance Company (an ultimate wholly-owned subsidiary of Legal &
General Group Plc) and its subsidiaries (the Company) at December 31, 1995
and 1994, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsiblity is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
the opinion expressed above.
As discussed in Note 2, the Company, effective January 1, 1994, adopted
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities."
/S/ Price Waterhouse LLP
<PAGE>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary of Legal & General Group Plc)
CONSOLIDATED BALANCE SHEETS
(in 000's)
<TABLE>
<CAPTION>
December 31,
<S> 1995 1994
ASSETS <C> <C>
Investments:
Fixed maturities:
Available-for-sale, at market (amortized cost $1,334,453
and $1,191,964) $1,401,147 $1,120,369
Held-to-maturity, at amortized cost (market $170,526
and $297,188) 164,195 310,827
Equity securities, available-for-sale, at market
(amortized cost $1,543 and $1,358) 2,878 2,323
Mortgage loans 1,574 1,968
Policy loans 129,070 130,365
Other invested assets 398 300
Total investments 1,699,262 1,566,152
Cash and cash equivalents 153,315 47,899
Accrued investment income 25,582 26,949
Reinsurance recoverable 25,420 21,434
Property and equipment 6,762 6,973
Deferred policy acquisition costs 148,803 190,875
Value of business in force 101,457 146,796
Goodwill and other intangibles 39,787 41,729
Separate account assets 23,933 14,594
Other assets 8,632 9,212
Total assets $2,232,953 $2,072,613
LIABILITIES
Life policy reserves $ 286,510 $ 299,980
Policy account balances 1,369,483 1,279,964
Accident and health reserves 1,353 1,415
Unearned revenue reserve 3,682 4,001
Claim reserves 42,678 37,679
Deferred Federal income taxes 49,580 34,007
Accounts payable and accrued expenses 8,333 5,530
Reinsurance ceded 7,811 6,857
Separate account liabilities 23,933 14,594
Other liabilities 28,859 21,295
Total liabilities 1,822,222 1,705,322
SHAREHOLDER'S EQUITY
Common stock, $1 par value - 2,500,000 shares authorized, issued and
outstanding 2,500 2,500
Additional paid-in capital 233,659 233,165
Net unrealized appreciation (depreciation) on investments 15,800 (10,500)
Retained Earnings 158,772 142,126
Total shareholder's equity 410,731 367,291
Total liabilities and shareholder's equity $2,232,953 $2,072,613
</TABLE>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary of Legal & General Group Plc)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in 000's)
<TABLE>
<CAPTION> Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $16,646 $17,793 $16,845
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 10,729 5,965 12,884
Realized investment gains (18,264) (974) (24,730)
Provision for deferred Federal income taxes 1,382 8,715 5,369
Decrease (increase) in accrued investment income 1,367 (2,178) (1,207)
Increase in deferred policy acquisition costs (17,725) (31,179) (20,822)
(Increase) decrease in other assets (4,684) 2,846 4,337
Increase in reserves 80,667 110,594 130,120
Increase (decrease) in accounts payable and other
liabilities 12,645 (1,109) (1,328)
Total adjustments 66,117 92,680 104,623
Net cash provided by operating activities 82,763 110,473 121,468
Cash flows from investing activities:
Purchases of securities (2,612,530) (189,628) (523,548)
Purchases of property and equipment, net (823) (525) (1,146)
Proceeds from sale of securities 2,625,802 84,501 380,582
Maturities of securities 8,415 36,400 13,250
Decrease (increase) in policy loans 1,295 (2,669) 326
Net cash provided by (used in) investing activities 22,159 (71,921) (130,536)
Cash flows from financing activities:
Dividend paid to parent - (6,300) (6,200)
Capital Contribution - Shawfield merger 494 - -
Net cash provided by (used in) financing activities 494 (6,300) (6,200)
Net increase (decrease) in cash and cash equivalents 105,416 32,252 (15,268)
Cash and cash equivalents at beginning of year 47,899 15,647 30,915
Cash and cash equivalents at end of year $ 153,315 $ 47,899 $ 15,647
</TABLE>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary of Legal & General Group Plc)
CONSOLIDATED STATEMENTS OF INCOME
(in 000's)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Insurance revenues:
Life insurance premiums $ 38,678 $41,855 $51,036
Universal life and investment product policy charges 51,619 46,663 48,520
Accident and health premiums 382 425 457
Net investment income 122,610 117,300 113,194
Reinsurance allowance 11,347 12,170 11,267
Realized investment gains 18,264 974 24,730
Other income 726 1,229 851
Total revenue 243,626 220,616 250,055
BENEFITS AND EXPENSES
Benefits to policyholders and beneficiaries
Life insurance benefits 57,247 53,745 57,036
Universal life and investment product benefits 98,072 84,850 85,902
Accident and health benefits 415 439 714
Change in policy and other reserves:
Life (13,527) (5,851) 3,610
Accident and health (62) (42) (222)
Commissions 40,087 46,588 43,197
Expenses and taxes 46,601 42,270 42,362
Increase in deferred policy acquisition costs (17,725) (31,179) (20,821)
Amortization of value of business in force 5,532 1,010 10,104
Amortization of goodwill and other intangibles 1,941 1,941 1,941
Total benefits and expenses 218,581 193,771 223,823
Operating income before Federal income taxes 25,045 26,845 26,232
Provision for Federal income taxes:
Current 7,017 337 4,018
Deferred 1,382 8,715 5,369
Total provision for Federal income taxes 8,399 9,052 9,387
Net income $16,646 $17,793 $16,845
</TABLE>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary
of Legal & General Group Plc)
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(in 000's)
<TABLE>
<CAPTION> Net
Unrealized
Appreciation
Additional (Depreciation) Total
Common Paid in on Retained Shareholder's
Stock Capital Investments Earnings Equity
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $2,000 $233,165 $846 $120,488 $356,499
Net income 16,845 16,845
Dividend payment to parent (6,200) (6,200)
Change in net unrealized
appreciation on investments 261 261
Stock dividend 500 (500) -
Balance at December 31, 1993 2,500 233,165 1,107 130,633 367,405
Net income 17,793 17,793
Effect of adoption of SFAS 115
on January 1, 1994 7,056 7,056
Dividend payment to parent (6,300) (6,300)
Change in net unrealized
(depreciation) on investments (18,663) (18,663)
Balance at December 31, 1994 2,500 233,165 (10,500) 142,126 367,291
Net income 16,646 16,646
Shawfield merger 494 494
Change in net unrealized
appreciation on investments 26,300 26,300
Balance at December 31, 1995 $2,500 $233,659 $15,800 $158,772 $410,731
<FN>
See Notes to Consolidated Financial Statements
</FN>
</TABLE>
BANNER LIFE INSURANCE COMPANY
(an ultimate wholly-owned subsidiary
of Legal & General Group Plc)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 - ORGANIZATION AND DESCRIPTION OF OPERATIONS
Banner Life Insurance Company (the Company) is a wholly-owned subsidiary of
Legal & General America, Inc. (Legal & General America), which, in turn, is an
ultimate wholly-owned subsidiary of Legal & General Group Plc.
On December 31, 1995, the Company's parent, Legal & General Life Insurance
Company of America, Inc. (L&G Life), merged with its parent Legal & General
America, Inc., a Delaware corporation. Legal & General America now owns all
outstanding shares of Banner. Full control of Legal & General America
ultimately resides with Legal & General Group, Plc (Legal & General). Legal &
General was founded in 1836 and is a United Kingdom company with primary
insurance activities being pension, accident, life and general insurance.
The Company operates predominantly in the individual traditional life,
universal life and annuity markets of the life insurance industry and has
several wholly-owned subsidiaries: William Penn Life Insurance Company of New
York (William Penn New York), European Life Insurance Company, First British
American Life Insurance Company and Group Concepts, Inc., which in turn
wholly-owns Banner Financial Services Group, Inc. The Company and its life
insurance subsidiaries on a combined basis are licensed to transact business
in every state except Maine.
At December 31, 1995, Shawfield, Inc. (an ultimate wholly-owned subsidiary of
Legal & General) was merged into Group Concepts. The merger is expected to
provide additional operating and investment opportunities to the Company.
Shawfield's income and net assets in 1995, 1994 and 1993 were immaterial.
NOTE 2 - SIGNIFICANT ACCOUNTING PRACTICES
The significant accounting policies followed by the Company and its
consolidated subsidiaries are described below.
Basis of Financial Reporting
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumption
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statement and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles. These accounting principles differ
in many respects from the statutory accounting practices applicable to the
Company and its life subsidiaries which are prescribed or permitted by
regulatory authorities and are primarily designed to demonstrate solvency.
Under statutory reporting practices, statutory capital and surplus of the
Company, including equity investments in subsidiaries, at December 31, 1995
and 1994 was $95,277,000 and $88,584,000, respectively. Statutory net income
of the Company was $11,981,000, $2,081,000 and $4,491,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The maximum amount of dividends that may be paid by State of Maryland
insurance companies to shareholders without prior approval of the Insurance
Commissioner is subject to restrictions relating to statutory capital and
surplus and statutory gains from operations. The maximum dividend payout
which may be made in 1996 without prior approval is $23,819,000.
Regulatory risk-based capital rules require a specified level of capital
depending on the types and quality of investments held, the types of business
written and the types of liabilities maintained. Depending on the ratio of an
insurer's surplus to its risk-based capital, the insurer could be subject to
various regulatory actions ranging from increased scrutiny to conservatorship.
The Company's risk-based capital ratios for 1995 and 1994 are significantly
above the regulatory action levels.
Basis of Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions have
been eliminated.
Investments
At January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," which expanded the use of fair value accounting for those
securities that a company does not have positive intent and ability to hold to
maturity. Accordingly, fixed maturities (comprised of bonds and redeemable
preferred stocks) which the Company has both the ability and intent to hold to
maturity are stated at amortized cost. Fixed maturities and equity securities
which have been identified as available for sale are reported at fair value.
Unrealized holding gains or losses for the securities classified as available
for sale are reported in shareholder's equity, net of the effect of the gains
or losses on deferred acquisition costs and value of business in force, as
well as net of deferred Federal income tax. Fixed maturities reported at
amortized cost are reduced to estimated net realizable value when necessary
for impairments in value considered to be other than temporary.
Implementation of this statement increased shareholder's equity by $7,056,000,
net of deferred policy acquisition costs, value of business in force and
deferred Federal income tax.
Mortgage loans on real estate are stated at unpaid balances adjusted for
amortization of discount. Policy loans are carried at the aggregate of unpaid
balances with interest. Prepayment assumptions for loan-backed bonds and
structured securities were obtained from broker-dealer survey values or
internal estimates. These are consistent with the current interest rate and
economic environment.
Interest on bonds and policy loans is recorded as income when it is earned.
Purchase premium or discount is amortized over the life of the investment
utilizing the effective interest method. Realized gains and losses are
reported as a component of revenue based upon specific identification of the
investments sold. When impairment of the value of an investment is considered
other than temporary, the decrease in value is reported as a realized
investment loss and a new cost basis is established.
Cash Equivalents
The Company considers short-term investments with original maturities of three
months or less to be cash equivalents.
Reinsurance
During 1993, the Company implemented Statement of Financial Accounting
Standards No. 113 (SFAS 113), "Accounting and Reporting for Reinsurance of
Short-Duration and Long-Duration Contracts," which requires reinsurance
recoverables previously netted against insurance reserves to be reclassified
and reported as assets, and earned premiums ceded and recoveries recognized
under reinsurance contracts to be disclosed. The statement also requires
gains on certain reinsurance contracts to be deferred and recognized over the
contract settlement period. The effect on net income from implementation of
the income recognition provisions of SFAS 113 was not material.
In the normal course of business, the Company seeks to limit its exposure to
loss on any single insured and to recover a portion of benefits paid by ceding
reinsurance to other insurance enterprises or reinsurers under excess coverage
and coinsurance contracts.
Amounts paid or deemed to have been paid for reinsurance contracts are
recorded as reinsurance receivables. The cost of reinsurance related to
long-duration contracts is accounted for over the life of the underlying
reinsured policies using assumptions consistent with those used to account
for the underlying policies.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation.
Depreciation is charged to operations using the straight-line method over
their estimated useful lives of twenty-five years for the Company's building
and five to ten years for furniture, equipment and automobiles. Gains and
losses upon disposition are included in other operating income.
Separate Accounts
The separate account assets and liabilities reflected in the financial
statements represent funds for which the holder of the policy or contract,
rather than the Company, bears the investment risk. These include separately
administered group retirement annuity contracts, variable universal life and
variable annuity products. Such amounts are stated at market value.
Deferred Policy Acquisition Costs
The costs of acquiring new business, which vary with and are primarily related
to the production of new business, principally commissions, and certain policy
underwriting and issue costs, have been deferred.
Deferred policy acquisition costs for traditional life policies are amortized
through the use of factors in a manner which charges each year's operations
with costs in proportion to the receipt of policy premiums. The factors were
developed consistent with the same assumptions as to interest, mortality and
withdrawals used in computing the liability for future policy benefits.
Deferred policy acquisition costs for universal life-type and investment-type
policies are amortized in relation to the present value of estimated gross
profits from the related contracts. The Company performs analyses of actual
experience on each block of business with respect to interest rates,
mortality, terminations and expenses, and adjusts the amortization and the
assets accordingly.
The Company incurred and deferred total policy acquisition costs of
$40,214,000, $42,628,000 and $36,326,000 for the years ended December 31,
1995, 1994 and 1993, respectively. The related amortization expense was
$22,489,000, $11,449,000 and $15,505,000 in 1995, 1994 and 1993, respectively.
Value of Business in Force
The value of business in force represents the remaining unamortized portion of
actuarially determined fair market values of blocks of business, including the
Company's original block of business, valued at acquisition date.
Amortization of the value of business in force for traditional life blocks of
business is based on factors developed using the defined valuation premium
method to estimate the value of business in force at durations subsequent to
the purchase date. The value of business in force for the interest sensitive
blocks of business is amortized in relation to the present value of estimated
gross profits from the related purchased blocks of business. The Company
performs analyses of actual experience on each block of business with respect
to interest rates, mortality, terminations and expenses, and adjusts the
amortization and the value of business in force accordingly.
Goodwill and Other Intangibles
Goodwill represents the excess of acquisition cost over the net fair value of
assets acquired and liabilities assumed in the acquisition of the Company's
subsidiaries. Amortization of goodwill and other intangible assets acquired
is provided on the straight-line method over the periods of benefit, which
range from five to forty years. Accumulated amortization of goodwill and
other intangible assets acquired was $24,842,000 and $22,901,000 at December
31, 1995 and 1994, respectively.
Reserve for Life Policies
The reserve for individual traditional life policies is primarily computed
utilizing the net level premium method based upon assumptions regarding
interest rates, mortality and withdrawals, including provisions for
unfavorable deviations from such assumptions. Level interest rates of 9.0%
for certain products and 6.25% for other products are assumed for all years of
issue. For all other products, a graded scale is assumed which begins at
rates ranging from 8.5% to 10.0% and grades to rates ranging from 7.0% to 8.0%
over periods of five to twenty years. Mortality assumptions are based on
multiples of the 1965 - 1970 and 1975 - 1980 select and ultimate tables. The
multiples vary with the characteristics of the risks assumed and are adjusted
for non-smoker mortality where applicable.
The reserves for universal life-type policies consist primarily of the
accumulated policy account balances computed utilizing the retrospective
deposit method based upon policy account values as defined in the contracts
before surrender charges.
Recognition of Premium Revenue and Costs
For individual traditional life policies, premiums are recognized as income
when due. Benefits and expenses associated with such premiums are allocated
over the life of the policies. This allocation is accomplished by means of
the reserving method and the amortization of deferred policy acquisition
costs.
For universal life-type policies, revenues are generally recognized as
mortality, expense and surrender charges are assessed against universal
life-type policyholder account balances, while excess policy loads are earned
over the life of the policy. For annuity contracts, revenues are recognized as
policy loads and expense charges are assessed against annuity contractholder
account balances. Benefits expense consists of interest credited to the
policy account balances and benefit claims incurred in excess of policy
account balances. Such expenses are recognized as incurred.
Claim reserves include amounts for claims in course of settlement and claims
incurred but not reported.
Unearned Revenue Reserve
Amounts assessed against policyholder account balances as front-load charges
are accounted for as unearned revenues and are credited to income in the same
manner as deferred policy acquisition costs are amortized.
Income Taxes
The Company accounts for income taxes under the liability method which
requires the recording of deferred taxes based on the differences between the
basis of assets and liabilities for financial statement purposes versus tax
purposes at current tax rates.
New Accounting Pronouncements
In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to Be Disposed Of,"
which requires an assessment of impairment of long-lived assets, including
goodwill, whenever events and changes in circumstances indicate the carrying
amount of such assets may not be recoverable. The Statement is effective as
of January 1, 1996. Management believes there will be no significant impact
on the financial statements on adoption.
<PAGE>
NOTE 3 - REINSURANCE
During 1993, the Company adopted SFAS 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts." The accounting
policies for reporting the effects of reinsurance are described in Note 2.
The Company generally retains up to a limit of $200,000 for each life insured,
except for William Penn New York which has a maximum retention limit of
$250,000. Business purchased from Monarch is currently subject to retention
limits up to $400,000, although a spread loss reinsurance treaty (coinsurance
basis) is in effect, which reduces the net liability to the Company's $200,000
retention limit.
The principal reinsurance treaties of William Penn New York function to
distribute the risk among William Penn New York and the reinsurance pool
members, of the first dollar of insurance issued up to a retention limit of
$250,000. These risks are ceded principally under treaties with pools each
consisting of four or five reinsurance companies. The universal life products
are reinsured on a yearly renewable term basis while the term insurance
products are reinsured on a coinsurance basis. Each five member and four
member pool functions to share proportionately in the reinsurance at 16.67%
and 20% of the policy face amount up to William Penn New York's retention
limit and at 20% and 25% of the policy face amount in excess of William Penn
New York's retention limit, respectively.
Reinsurance contracts do not relieve the Company from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result
in losses to the Company; consequently, allowances are established for amounts
deemed uncollectible. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from similar
geographic regions, activities or economic characteristics of the reinsurers
to minimize its exposure to significant losses from reinsurers' insolvencies.
Reinsurance recoverables with a carrying value of $25.4 million and $21.4
million were associated with five reinsurers who compose 68% of all
reinsurance activities of the Company at both December 31, 1995 and 1994. The
Company holds collateral under related reinsurance agreements in the form of
letters of credits and trust agreements totaling $114.1 million that can be
drawn on for amounts that remain unpaid for more than 120 days.
Approximately 64%, 64% and 65% of the amount of life insurance in force at
December 31, 1995, 1994 and 1993, respectively, was reinsured.
<PAGE>
<TABLE>
<CAPTION>
The effect of reinsurance on premiums earned and benefits incurred for the years ended December 31, 1995
and 1994 are as follows (in 000's):
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Direct premiums and amounts assessed against
policyholders $169,497 $164,123 $171,344
Reinsurance assumed 907 1,001 762
Reinsurance ceded (79,725) (76,181) (72,093)
Net premiums $ 90,679 $88,943 $100,013
Direct benefits paid and assessed against
policyholders $216,934 $190,581 $188,284
Reinsurance assumed 80 170 787
Reinsurance ceded (61,280) (51,717) (45,419)
Net benefits $155,734 $139,034 $143,652
/TABLE
<PAGE>
NOTE 4 - INVESTMENTS
<TABLE>
<CAPTION>
The following information summarizes the components of investment income and realized investment gains
(losses) and changes in unrealized investment appreciation (in 000's):
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Investment income:
Fixed maturities $111,052 $108,218 $104,411
Equity securities 997 302 381
Mortgage loans 154 21 441
Policy loans 8,202 8,540 8,597
Short-term investments 4,183 1,581 1,059
Other 80 29 34
Gross investment income 124,668 118,881 114,923
Less investment expense (2,058) (1,581) (1,729)
Net investment income $122,610 $117,300 $113,194
Realized investment gains (losses)
Fixed maturities $18,127 $708 $24,592
Equity securities 182 278 131
Other (45) (12) 7
Gross realized investment gains $18,264 $974 $24,730
Change in unrealized investment appreciation
(depreciation):
Fixed maturities $139,725 $(71,595) -
Equity securities 370 (713) 396
140,095 (72,308) 396
Amounts attributable to other balance sheet
accounts:
Deferred policy acquisition costs (59,797) 31,692 -
Value of business in force (39,807) 22,764 -
Deferred Federal income taxes (14,191) 6,245 (135)
Change in unrealized appreciation
(depreciation) on
investments $26,300 $(11,607) $261
</TABLE>
At December 31, 1995, investments in debt securities held-to-maturity include
bonds of $164,020,000 and redeemable preferred stock of $175,000 and investments
in debt securities available-for-sale include bonds totaling $1,401,147,000.
The amortized cost and market value of investments in debt securities at
December 31, 1995 are as follows (in 000's):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Held-to-Maturity: Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies $26,988 $1,538 $ - $28,526
Debt securities issued by
foreign governments 3,338 339 - 3,677
Corporate securities 38,068 1,895 - 39,963
Mortgage-backed securities 95,801 2,587 (28) 98,360
Total $164,195 $6,359 $(28) $170,526
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Available-for-Sale: Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies $82,599 $2,500 $(23) $85,076
Debt securities issued by
foreign governments 43,578 3,309 (40) 46,847
Corporate securities 1,120,807 59,734 (188) 1,180,352
Mortgage-backed securities 87,469 1,535 (132) 88,872
Total $1,334,453 $67,078 $(383) $1,401,147
</TABLE>
The amortized cost and market value of debt securities held as assets at
December 31, 1995 by contracted maturity are shown below (in 000's). Actual
maturities may differ from contractual maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Held-to-Maturity Available-for-sale
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $- $- $22,235 $22,354
Due after one year through
five years - - 357,556 369,635
Due after five years through
ten years 49,247 51,430 602,452 634,735
Due after ten years 115,948 119,096 352,210 374,423
Total $164,195 $170,526 $1,334,453 $1,401,147
</TABLE>
At December 31, 1994, investments in debt securities held-to-maturity include
bonds of $310,653,000 and redeemable preferred stock of $174,000 and
investments in debt securities available-for-sale include bonds totaling
$1,120,369,000. The amortized cost and market value of investments in debt
securities at December 31, 1994 are as follows (in 000's):
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Held-to-Maturity: Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies $63,914 $20 $(3,572) $60,362
Debt securities issued by
foreign governments 11,530 7 (126) 11,411
Corporate securities 179,919 2,844 (10,593) 172,170
Mortgage backed securities 55,464 - (2,219) 53,245
Total $310,827 $2,871 $(16,510) $297,188
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Market
Available-for-Sale: Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S.
government agencies $164,548 $0 $(8,118) $156,430
Obligations of states and
political subdivisions 7,824 208 (65) 7,967
Debt securities issued by
foreign governments 53,460 23 (4,741) 48,742
Corporate securities 784,127 3,913 (51,774) 736,266
Mortgage backed securities 182,005 127 (11,168) 170,964
Total $1,191,964 $4,271 $(75,866) $1,120,369
</TABLE>
The proceeds from sales of investments held-to-maturity of $19,113,000 in 1995
were generated by $1,358,000 of involuntary call activity, $8,415,000 of matured
securities and $1,702,000 of mortgage-backed security paydowns. Gross gains of
$492,000 were realized on these sales in 1995. The securities had an amortized
cost of $18,621,000 in 1995. On November 30, 1995, the Company transferred
$247,182,000 of securities classified as held-to-maturity to the
available-for-sale portfolio. As a result, unrealized gains on fixed maturities
increased by $16,853,000.
Proceeds from sales of investments in debt securities classified as
available-for-sale were $2,142,146,000 in 1995. Gross gains of $26,237,000
and gross losses of $9,594,000 were realized on these sales in 1995.
Proceeds from the sales of debt securities classified as trading were
$238,457,000 in 1995. Gross gains of $1,226,000 and gross losses of $234,000
were realized on these sales in 1995. There were no securities held in the
trading portfolio at December 31, 1995.
Proceeds from sales of all other securities were $1,415,600,000 in 1995,
comprised primarily of $1,174,698,000 in short term investments. Gross gains
of $182,000 were realized on these sales in 1995.
NOTE 5 - FINANCIAL INSTRUMENTS
Fair Values of Financial Instruments
Cash and cash equivalents: The carrying amount approximates fair value because
of the short maturity of those instruments.
Fixed-income securities: The fair values of fixed income securities are
estimated based on quoted market prices for those or similar instruments. When
there is no quoted market price, estimates of fair value are based on quotes
from industry recognized rating services. Estimated fair values of these
instruments are contained in Note 4 to the financial statements.
Equity securities: The fair values are estimated based principally on quoted
market prices. These securities are carried at fair value.
Mortgage loans The carrying amount approximates fair value, because the average
interest rates on outstanding balances are similar to current market rates.
Policy loans: Policy loans are issued with varying interest rates, depending on
the terms of the insurance policies. Future cash flows are uncertain and
difficult to predict. Accordingly, it was not practicable to estimate fair
value of policy loans.
Investment contracts: The carrying amount of $515,237,000 approximates fair
values. The fair value of annuities in the payout phase is assumed to be the
present value of the anticipated cash flows discounted at current interest
rates. The Fair Value of annuities in the accumulation phase is assumed to be
the contract holders' account value less surrender charge.
Financial Instruments with Off-Balance Sheet Risk
In 1995, the Company entered into forward purchase contracts for mortgage-backed
securities which provide for future receipt of securities at specified prices.
The contracts are then closed prior to settlement without taking delivery of the
securities. These instruments are treated as off-balance sheet items. No cash
is required at inception, and the cash required at settlement is the notional
value. The contract does not require collateral. Risk arises from the
potential inability of counterparties to perform under the terms of the
contracts and from changes in securities value and interest rates. Changes in
unrealized gains and losses on these contracts are included in earnings, with
corresponding offsetting amounts reflected as assets or liabilities.
At December 31, 1995, the Company had open forward purchase contracts for
mortgage-backed securities which had a notional (contract) value of $70 million
at an average price of $101.03 (for Banner Life securities) and $100.60 (for
William Penn New York securities). The open contracts were closed in January
1996 at a gain of $825,000. Net trading gains for 1995 related to forward
purchase contracts was $1,503,000 including $889,000, which was unrealized at
December 31, 1995.
NOTE 6 - FEDERAL INCOME TAXES
The Company and its subsidiaries join in the filing of a life-nonlife
consolidated Federal income tax return with Legal & General America. Each
member in the consolidated return provides for income taxes under the provisions
of an intercompany tax sharing agreement. The tax sharing agreement provides
that loss companies are given credit to the extent that such losses reduce the
consolidated tax liability. The utilization of operating losses of the nonlife
companies are generally limited to thirty-five percent of the lesser of nonlife
subgroup losses or current period life subgroup taxable income. William Penn
New York will become eligible to join the life-nonlife consolidated Federal
income tax return in 1995.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of December 31, 1995 and
1994 are as follows (in 000's):
1995 1994
Deferred tax assets:
Reserves $43,209 $43,592
Pension and compensation accruals 685 253
Net operating loss carryovers 17,000 -
Other, net 2,439 1,788
Gross deferred tax assets 63,333 45,633
Deferred tax liabilities:
Insurance in force 40,822 40,279
Policy acquisition costs deferred 45,378 42,556
Other, net 1,198 2,481
Valuation allowance 17,000 -
Gross deferred tax liabilities 104,398 85,316
Net deferred tax liability before deferred 41,065 39,683
tax on unrealized appreciation
(depreciation) on investments
Deferred tax on unrealized appreciation 8,515 (5,676)
(depreciation) on investments
Net deferred tax liability 49,580 34,007
As discussed in Note 1, at December 31, 1995, Shawfield Inc. was merged into
Group Concepts. Shawfield had net operating loss carryovers of approximately $50
million that are eligible to offset the future taxable income of Group Concepts
and a deferred tax asset has been established for these loss carryovers. It is
expected that the loss carryovers will be utilized in future periods. A
valuation allowance has been established for these loss carryovers and will be
reduced in future periods as such loss carryovers are utilized.
The difference between the provision for income taxes and the amount of income
tax determined by applying the applicable U.S. statutory Federal income tax rate
to pre-tax income is due to the dividends received deduction, the nondeductible
expenses, and the expenses related to acquisition activities, none of which are
material in amount.
Income taxes paid by the Company during 1995, 1994 and 1993 were $2,700,000,
$1,400,000 and $2,200,000 respectively.
<PAGE>
NOTE 7 - EMPLOYEE BENEFIT PLANS
Legal & General America maintains a non-contributory defined benefit pension
plan (the Plan) covering substantially all full-time employees of the Company.
Benefits under the Plan are based on years of service and compensation levels.
The funding policies of the Plan are to contribute amounts that meet minimum
funding requirements, but which do not exceed the maximum funding limits as
currently determined under applicable tax regulations. The Plan has reached its
funding limitation and, accordingly, the Company made no contribution to the
Plan in 1995, 1994 and 1993.
The following table sets forth the consolidated funded status of the Plan at
January 1, 1995 and 1994 and the amount of prepaid pension cost included in the
accompanying balance sheets at December 31, 1995 and 1994 (in 000's):
1995 1994
Actuarial present value of periodic benefit obligations:
Vested $6,441 $5,113
Nonvested 340 311
Accumulated benefit obligation $6,781 $5,424
Projected benefit obligation $7,351 $5,833
Plan assets at fair value 8,105 8,108
Excess of Plan assets over projected benefit
obligation 754 2,275
Unrecognized prior service cost (171) (193)
Unrecognized net gain (50) (1,311)
Unrecognized portion of net transition assets (518) (638)
Prepaid pension cost included in other assets $15 $133
The consolidated net periodic pension cost for the Plan in 1995, 1994 and 1993
included the following components (in 000's):
Year Ended December 31,
1995 1994 1993
Service cost $ 347 $ 379 $ 314
Interest cost 493 438 411
Actual return on plan assets (580) (546) (506)
Net amortization (142) (142) (136)
Pension cost<PAGE>
$118 $129 $ 83
<PAGE>
The assumptions used in the accounting for the Plan were as follows:
1995 1994 1993
Discount rate 7.25% 7.50% 7.50%
Rate of increase in compensation 6.00% 6.00% 6.00%
Expected long-term return on Plan assets 8.00% 8.00% 8.00%
The Company administers the pension plan funds for the group of companies. The
Plan's assets are generally invested in U.S. Government securities, listed
common stocks and investment-grade corporate bonds. The assets and liabilities
of the Plan are included in the accompanying balance sheets as a component of
separate account assets and liabilities.
Legal & General America also maintains a voluntary defined contribution thrift
plan available to substantially all eligible employees of the Company with one
year of employment and 1,000 hours of service. Employees' contributions, up to
the maximum of 6% of their defined compensation, were matched 100% by the
Company in 1995, 1994 and 1993. The Company's contributions to the plan are
charged to expense and amounted to $505,000, $454,000 and $392,000 in 1995, 1994
and 1993, respectively.
NOTE 8 - COMMITMENTS
William Penn New York entered into an operating lease effective March 1992. The
lease contains escalation provisions for operating expenses and taxes of four
percent per year after 1993 and two renewable option terms of five years each.
The base lease terminates in 2002. Annual rent expense incurred was $1,065,000
and $1,047,000 in 1995 and 1994, respectively. Future minimum lease payments
under the noncancellable operating lease are as follows (in 000's):
1996 $1,123
1997 1,163
1998 1,205
1999 1,248
2000 1,293
Thereafter 1,514
Total $7,546
NOTE 9 - RELATED PARTY TRANSACTIONS AND PARENT COMPANY ACTIVITIES
Notes receivable from affiliates, included in Other assets in the accompanying
financial statements, include the following:
December 31,
1995 1994
Banner Life:
Note receivable from Legal & General America,
due December 1999 with interest at 7.8%,
collateralized by the Legal & General Data Center $1,600,000 $1,600,000
Accrued interest 508,590 356,020
Total $2,108,590 $1,956,020
The Company had a net intercompany receivable of $4,837,000 from affiliates at
December 31, 1995 and a net intercompany payable to affiliates of $468,000 at
December 31, 1994.
The Company paid cash dividends to its parent company, Legal & General Life,
totaling $6,300,000 and $6,200,000 on December 30, 1994 and December 27, 1993,
respectively. The Company also paid a stock dividend of $500,000 to its parent
company on September 29, 1993.
The Company allocated $561,000, $541,000 and $545,000 of general and
administrative expenses to Legal & General America in 1995, 1994 and 1993,
respectively. Legal & General America allocated $12,003,000, $10,807,000 and
$6,077,000 of general and administrative expenses to the Company in 1995, 1994
and 1993, respectively.
NOTE 10 - CONTINGENCIES
Banner Life Insurance Company (Banner) is party to a purported class action suit
alleging that Banner, through one general agency, misrepresented its universal
life insurance policies as investment products to elderly consumers. Banner has
tentatively settled this case. Refund offer letters will be mailed to certain
qualifying policyowners who may convert their policies to Banner annuity
contracts or receive a full refund of premiums paid plus interest and certain
incidental expenses. The Company has accrued $3.0 million for the pre-tax
effect of the potential refunds and associated legal costs.
<PAGE>
PART C - - OTHER INFORMATION
Item 24.Financial Statements and Exhibits
(A) Financial Statements
(B) Exhibits:
(1) Resolution of the Board of Directors of Banner Life Insurance Company
authorizing establishment of the Variable Account.
(2) Not Applicable.
(3) (a) Principal Underwriting Agreement by and between Banner Life
Insurance Company, on its own behalf and on the behalf
of the Variable Account, and Banner Financial Services
Group, Inc.
(b) Form of Broker-Dealer Agreement.
(4) Form of Policy for the Flexible Premium Variable Annuity.
(5) Form of Application for the Flexible Premium Variable Annuity.
(6) (a) Articles of Incorporation of Banner Life Insurance
Company.
(b) ByLaws of Banner Life Insurance Company.(1)
(7) Not Applicable.
(8) (a) Participation Agreement by and between Banner Life
Insurance Company and Scudder Variable Life Investment
Fund.(2)
(b) Participation Contract & Policy Agreement with
Scudder Fund Dist., Inc.(2)
(c) Reimbursement Agreement with Scudder, Stevens &
Clark, Inc.
(9) (a) Opinion and Consent of Counsel. (3)
(b) Consent of Counsel.
(10) Consent of Independent Accountants. (3)
(11) Not Applicable.
(12) Not Applicable.
(13) Schedules for Computation of Performance Data.
(14) Power of Attorney (2)
(1) Previously filed with the Securities and Exchange Commission on March 3,
1994 on Form N-4.
(2) Previously filed with the Securities and Exchange Commission with Post-
Effective Amendment No. 1 on April 26, 1995.
(3) Filed herewith.
<PAGE>
Item 25.Directors and Officers of the Depositor
Name and Principal Positions and Offices with
Business Address1 Depositor
Mark A. Canter Vice President, Secretary and
General Counsel
Barbara A. Esau Vice President and Director
Robert E. Freeman(2) Director
Gene R. Gilbertson Senior Vice President, Chief
Financial Officer,
Treasurer and Director
Dewey D. Goodrich, Jr. Senior Vice President and Director
Robert L. Hill Vice President and Controller
Bentti O. Hoiska Executive Vice President and Director
David S. Lenaburg Chairman, President & Chief Executive
Officer
Charles A. Lingaas(3) Senior Vice President and Director
Otto P. Marracello(3) Senior Vice President and Director
Vicent R. McLean(2) Director
Wayne L. Miller Vice President, Sales
Michael D. Mullaney Vice President, Corporate Taxation
David J. Orr Senior Vice President and Director
________________________
(1) The principal business address of each person listed, unless other wise
indicated, is Banner Life Insurance Company, 1701 Research Boulevard,
Rockville, MD 20850.
(2) Messers. Freeman and McLean are both retired and thus have no principal
business address.
(3) 100 Quentin Roosevelt Boulevard, Garden City, NY 11530
Item 26. Persons Controlled by or Under Common Control with the
Depositor or Registrant
Companies under common control with the depositor are listed below which were
prepared on April 29, 1996.
Legal & General Group Plc
Country of Share
Incorporation Held
Legal & General Finance Inc. United States 100
Legal & General Finance PLC England 100
Legal & General Financial Services Limited England 100
Fairmount Group PLC England 100
Fairmount Stockbrokers Limited England 100
Fairmount Group Nominees Limited England 100
Fairmount Capital Management Limited England 100
Bell-Wild (Investment Managers) Limited England 100
British Organizers Limited England 100
Fairmount Financial Services Limited England 100
Fairmount Nominees Limited England 100
Fairmount-Wild Limited England 100
Investment & Estate Planning Services
Limited England 100
Individual Pension Funds Limited England 100
IPF Nominees Limited England 100
Fairmount Trust plc England 100
Ginn Reijs Nominees Limited England 100
Fairmount Trustee Services Limited England 100
Legal & General Estate Agencies Limited England 100
(50% owned by LGASL)
City & Urban Developments Limited England 100
Adam Kennedy Estate Agents Limited England 100
Land & Company Limited England 100
C J Hole Limited England 100
C.J. Hole (Bristol) Limited England 100
Ellis & Co (Estate Agents) Limited England 100
Ellis & Co. (Financial Services)
Limited England 100
Ellis & Co (Interiors) Limited England 100
Ronald Preston & Partners Limited England 100
Whitegates Estate Agency Limited England 100
William Parker and Son (Reading) Limited England 100
Legal & General Franchising Limited England 100
Whitegates (Holdings) Limited England 100
Keys & Company Limited England 100
The Key Group Limtied England 100
Whitegates Financial Services Limited England 100
Whitegates (Tyne & Wear) Limited England 100
Legal & General Financial Services Nominees
Limited England 100
(App to strike off)
Legal & General Holdings Limited England 100
Country of Share
Incorporation Held
Legal & General Insurance Holdings Limited England 100
Legal and General Assurance Society Limited England 100
Cogent (Holdings) Limited (50% owned by LGHL) England 100
Cogen Environmental Limited England 96
(Application made to Strike Off)
Cogent Investments Limited Scotland 85.80
Cogent Instrumentation Limited England 98.50
Cogent Limited England 100
Enterprise Capital Limited England 100
(Application made to Strike Off)
Cogent Management Limited England 100
(Application made to Strike Off)
Enterprise Capital Management Limited England 100
(Application made to Strike Off)
London Biotechnology Limited England 80
European Life (Channel Islands) Limited Guernsey 100
Legal & General Estate Agencies (FS) Limited England 100
Legal & General Healthcare Limited England 100
Legal & General Investment Acquisitions Limited England 100
Legal & General Investment Management (Holdings) Ltd England 100
Daytonian Limited England 100
Legal & General Assurance (Pensions Management)
Limited England 100
Legal & General Investment Management Limited England 100
Legal & General (Portfolio Management Services)
Limited England 100
Legal & General Portfolio Mangers Limited England 100
Legal and General Property Fund Managers Limited England 50
Legal & General Property Limited England 100
Legal & General (Unit Trust Managers) Limited England 100
Legal & General Ventures Limited England 100
LGV Candover Gellschaft fur Management Buy- Federal Republic
Outs und Beteiligungen mbH of Germany 51
Legal & General Ventures Partners Limited England 100
Legal & General Ventures Underwriters Limited England 100
Neonsystem PLC England 100
Legal & General Insurance Limited England 100
Gresham Insurance Company Limited England 90
Legal & General Direct Limited England 100
Legal & General GI Computer Services Limited England 100
Southgate Associates Limited England 100
Glanfield Securities Limited England 100
Bridge End Computers Limited England 100
Legal & General Investment Trust Limited England 100
Country of Share
Incorporation Held
Legal & General Insurance Holdings Limited
Legal and General Assurance Society Limited
Legal & General Mortgages Limited England 100
Legal & General Mortgage Services Limited England 100
Residential Mortgages No1 Limited England 100
Legal & General Professional Trust Services Limited England 100
Legal & General Share Scheme Trustees Limited England 100
Legal and General (United Assurance) Limited England 100
Legal and General (Unit Pensions) Limited England 100
Lion Holdings Limited England 83.33
Shelfco (No. 873) Limited England 100
The Cavendish Land Company Limited England 100
Lawgra (No. 240) Limited England 100
Paramount Realty Holdings Limited England 100
General Housing Company Limited England 100
(Application made to Strike Off)
Tringham Housing Limited England 100
Key Consultants Mortgages Nationwide Limited England 100
Key Mortgage & Property Limited England 100
Key Surveyors Nationwide Limited England 100
Legal & General International (Holdings) Limited England 100
Legal & General International Limited England 100
Banner Insurance Holdings Limited England 100
Legal & General Holdings (Overseas) Limited England 100
Banner Life Insurance Company Limited England 100
Legal & General Netherlands Holdings B.V. Holland 100
Banner International Holdings BV Holland 100
Legal & General Australia Limited Australia 100
Legal & General Financial Services Limited Australia 100
Banner Consultancy Services Limited Australia 100
Legal & General Corporate Support Limited Australia 100
Subscriber 1 Pty Limited Australia 100
Subscriber 2 Pty Limited Australia 100
Subscriber 3 Pty Limited Australia 100
Subscriber 4 Pty Limited Australia 100
Subscriber 5 Pty Limited Australia 100
Legal & General Custodial Services Limited Australia 100
<PAGE>
Country of Share
Incorporation Held
Legal & General International (Holdings) Limited
Legal & General International Limited
Legal & General Netherlands Holdings B.V.
Legal & General Austrialia Limited
Legal & General Financial Services Limited
Legener (Australia) Pty Limited Australia 100
Legal & General Property Investment
Limited Australia 100
Legal & General Superannuation Services
Limited Australia 100
Legal & General Life of Australia Limited Australia 100
Legal & General Properties No. 1 Pty
Limited Australia 100
Legal & General Properties No. 2 Pty Australia 100
Limited (In Liquidiation)
Legal & General Properties No. 3 Pty
Limited Australia 100
MicrOpay Pty Limited Australia 100
Legal & General America, Inc. United States 100
Legal & General Life Insurance Co of
America, Inc United States 100
Banner Life Insurance Company (USA) United States 100
European Life Insurance Company (USA) United States 100
First British American Life Ins.
Co (USA) United States 100
Group Concepts Incorporated United States 100
Banner Financial Services Group,
Inc United States 100
William Penn Life Ins. Co.
of New York United States 100
Banner Life Insurance Company of New York United States 100
Legal & General Finance Europe B.V. Holland 100
Legal & General Holdings (France) SA France 100
Legal & General Bank (France) S.A. France 100
Legal & General Bank Gestion S.A. France 100
Legal & General (France) SA France 100
Legal & General Risques Divers (France)
S.A. France 100
Legal & General Nederland Levensverzekering Holland 100
Maatschappij N.V.
Legal & General Nederland Exploitatie Holland 100
Maatschappij B.V.
Legal & General Nederland Vastgoed Holland 100
Maatschappij B.V.
Legal & General Overseas Holdings B.V. Holland 0
<PAGE>
Item 27. Number of Owners
As of March 31, 1996, there were 185 Owners of the Policies.
Item 28. Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "1933 Act") may be permitted to directors, officers and
controlling persons of the Registrant, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the 1933 Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Depositor of expenses incurred or
paid by a director,officer or controlling person in connection with the
securities being registered), the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court ofappropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
The By-Laws of Banner Life provide substantially as follows:
All Directors and Officers, former Directors and Officers of Banner Life and
any person who may have served at the request of Banner Life as a Director or
Officer of any other corporation in which Banner Life owns stock or of which
Banner Life is a creditor (and his heirs, executors or administrators) shall
be indemnified by Banner Life against all costs and legal or other expenses,
including costs or amount of settlement, reasonably incurred by or imposed
upon them, or any of them, in connection with or resulting from any claim,
action or proceeding, civil or criminal, in which they, or any of them, are
made parties by reasons of being or having been Directors or Officers or a
Director or Officer of Banner Life, or of such other corporation.
The right of indemnification shall apply whether or not such Director or
Officer or former Director or Officer or person indemnified is such at the
time such costs or expenses are incurred or imposed. The right of
indemnification shall not apply, however, in relation to matters as to which
any such Director or Officer or former Director or Officer or person shall be
finally adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of his duty as such Director or
Officer; provided, however, that an entry of judgment by consent as part of a
settlement shall not be deemed a final adjudication of liability for
negligence or misconduct in the performance of duty. If any such claim,
action or proceeding is settled (by consent or otherwise), the determination
in good faith by the Board of Directors that such claim, action or proceeding
did not arise out of negligence or misconduct in the performance of his duty
by the Director or Officer or former Director or Officer or person
indemnified, and that such Director or Officer or former Director or Officer
or person would not be held liable for such claim, action or proceeding,
shall be necessary and sufficient to justify indemnification. The right
of indemnification shall not be exclusive of any other rights to which those
indemnified may be entitled under any statute, other by-law, agreement, vote
of shareholders or otherwise.
Item 29 . Principal Underwriter
Banner Financial Services Group, Inc.
1701 Research Boulevard
Rockville, Maryland 20850
Directors and Officers of Principal Underwriter
Name and Principal Positions and Offices with
Business Address Underwriter
Edward J. Bove Assistant General Counsel and Assistant Secretary
Mark A. Canter Vice President, Secretary
and General Counsel
Gene R. Gilbertson Executive Vice President and Director
Robert L. Hill Treasurer
David S. Lenaburg Director
Wayne L. Miller Vice President
David J. Orr President and Director
Banner paid $209,060 in commissions to the underwriter in 1995.
<PAGE>
Item 30. Location of Accounts and Records.
The records required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and Rules 31a-1 to 31a-3 promulgated thereunder, are
maintained by Banner Life Insurance Company at 1701 Research Boulevard,
Rockville, Maryland 20850.
Item 31. Management Services.
All management policies are discussed in Part A or Part B.
Item 32. Undertakings
(a) Registrant undertakes that it will file a post-effective amendment to
this registration statement as frequently as necessary to ensure that the
audited financial statements in the registration statement are never more
than 16 months old for so long as Premiums under the Policy may be accepted.
(b) Registrant undertakes that it will include either (i) a postcard or
similar written communication affixed to or included in the Prospectus that
the applicant can remove to send for a Statement of Additional Information or
(ii) a space in the Policy application that an applicant can check to request
a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional Information
and any financial statements required to be made available under this
Form promptly upon written or oral request to Banner Life at the address
or phone number listed in the Prospectus.
Section 403(b) Representation.
Registrant represents that it is relying on a no-action letter dated
November 28, 1988, to the American Council of Life Insurance (Ref. No.
IP-6-88), regarding Sections 22(e), 27(c)(1) and 27(d) of the Investment
Company Act of 1940, in connection with redeemability restrictions on
Section 403(b) Policies, and that paragraphs numbered (1) through (4)
of that letter will be complied with.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the registrant, Banner Life Variable Annuity Account B,
certifies that this amendment meets the requirements for effectiveness of
this Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this Post Effective Amendment No. 2 to the
Registration Statement on Form N-4 to be signed on its behalf by the
undersigned thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the City of Rockville, State of Maryland on the 29th
day of April, 1996.
Banner Life Variable Annuity Account B
(Registrant)
By: Banner Life Insurance Company
(Depositor)
Attest:/s/ Edward J. Bove By: /s/ Mark A. Canter
David S. Lenaburg*
Chairman, President &
Chief Executive Officer
Banner Life Insurance Company
__________________________
* Signed by Mark A. Canter pursuant to a Power of Attorney signed by David
S. Lenaburg on April 26, 1994 and filed as an exhibit in Pre-Effective
Amendment No. 1 to form N-4 on June 24, 1994.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Banner Life Insurance Company certifies that this
amendment meets the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Post Effective Amendment No.2 to the Registration Statement
to be signed on its behalf by the undersigned thereunto duly authorized, and
its seal to be hereunto affixed and attested, all in the City of
Rockville, State of Maryland on the 29th day of April, 1996.
Banner Life Insurance Company
Attest: /s/ Edward J. Bove' By: /s/ Mark A. Canter
David S. Lenaburg*
Chairman, President &
Chief Executive Officer
Banner Life Insurance Company
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following
Directors and Officers of Banner Life Insurance Company in the capacities and
on the dates indicated.
Signature Title Date
/s/ Mark A. Canter
David S. Lenaburg* Chairman, President & April 29,1996
Chief Executive Officer
/s/ Gene R. Gilbertson
Gene R. Gilbertson Senior Vice President, April 29, 1996
CFO, Treasurer and Director
/s/ Dewey D. Goodrich, Jr.
Dewey D. Goodrich, Jr. Director April 29, 1996
/s/ Bentti O. Hoiska
Bentti O. Hoiska Director April 29, 1996
/s/ David J. Orr
David J. Orr Senior Vice President, April 29, 1996
Chief Actuary and Director
/s/ Barbara A. Esau
Barbara A. Esau Vice President April 29, 1996
and Director
__________________________
* Signed by Mark A. Canter pursuant to a Power of Attorney signed by David
S. Lenaburg on April 26, 1994 and filed as an exhibit in Pre-Effective
Amendment No. 1 to form N-4 on June 24, 1994.
<PAGE>
Exhibit Index
Exhibit Description of Page
No. Exhibit No.
(9)(b) Consent of Counsel.
(10) Consent of Independent Accountants.
April 29, 1996
Banner Life Insurance Company
1701 Research Boulevard
Rockville, MD 20850
Ladies and Gentlemen:
With reference to the Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4 filed by Banner Life Insurance Company and its Variable
Annuity Account B with the Securities and Exchange Commission covering
individual variable annuity contracts, I have examined such documents and such
law as I considered necessary and appropriate, and on the basis of such
examination, it is my opinion that:
1. Banner Life Insurance Company is duly organized and validly
existing under the laws of the state of Maryland and has been duly
authorized to issue variable life insurance contracts by the Maryland
Insurance Administration.
2. The individual variable annuity contracts, when issued as
contemplated by said Post-Effective Amendment No. 2 to the Registration
Statement on Form N-4, will constitute legal, validly issued and binding
obligations of Banner Life Insurance Company.
I hereby consent to the reference to my name under the caption "Legal Matters"
in the Prospectus filed as part of the Form N-4 Registration Statement for the
Banner Life Variable Annuity Account B.
Sincerely,
/s/ Mark A. Canter
Mark A. Canter
Vice President, Secretary
& General Counsel
<PAGE>
April 30, 1996
Banner Life Insurance Company
1701 Research Boulevard
Rockville, Md 20850
Re: Banner Life Variable Annuity Account
File No. 33-76174
Gentlemen:
We hereby consent to the reference to our name under the caption "Legal
Matters" in the Statement of Additional Information filed as part of
Post-Effective Amendment No. 2 to the form N-4 Registration Statement for the
Banner Life Variable Annuity Account B. In giving this consent, we do not
admit that we are in the category of persons whose consent is required under
section 7 of the Securities Act of 1933.
Very truly yours,
SUTHERLAND, ASBILL & BRENNAN
/S/ Frederick R. Bellamy
Frederick R. Bellamy
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form N-4 of our report dated February 19, 1996,
relating the consolidated financial statements of Banner Life Insurance
Company, which appears in such Prospectus. We also consent to the reference
to us under the heading "Experts" in such Prospectus.
/s/ Price Waterhouse LLP
Washington, D.C.
April 30, 1996
<PAGE>
