PROSPECTUS: FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Issued by Banner Life Insurance Company (a Maryland Stock Company)
1701 Research Boulevard Rockville, Maryland 20850
This Prospectus describes a Flexible Premium Variable Life
Insurance Policy ("Policy") issued by Banner Life Insurance
Company ("Banner Life"). The Policy provides lifetime insurance
protection to age 95, and provides flexibility to vary the amount
and frequency of premiums and to adjust the level of Death
Benefit payable under the Policy. A Policyowner also has the
opportunity, beginning 30 days after the Issue Date, to allocate
net premiums among several Sub-Accounts of the Banner Life
Variable Account (the "Variable Account") and Banner Life's
General Account. Thus, the Policyowner can adjust premiums,
Death Benefit, and the underlying investments to provide for
changing insurance and financial planning needs under a single
insurance policy.
The Policy provides for a Death Benefit payable at the Insured's
death and for a Cash Surrender Value that can be obtained by
completely surrendering the Policy or by making partial
surrenders. The Policy also provides for loans using the Policy
as the sole collateral. (Surrenders and loans may have adverse
tax consequences). As long as the Policy remains in force, the
Death Benefit will not be less than the current Specified Amount
of the Policy. The Policy will remain in force so long as the
Cash Surrender Value is sufficient to pay certain monthly charges
imposed in connection with the Policy (if the Guaranteed Death
Benefit Rider is in effect with respect to the Policy, or during
the first three policy years, the Policy will remain in force so
long as the Policyowner has met the Guarantee Premium
Requirement, even if the Cash Surrender Value is insufficient to
pay monthly charges).
The Account Value and the duration of the Policy will vary to
reflect the investment performance of the Sub-Accounts of the
Variable Account. Depending on the Benefit option elected, the
amount of the Death Benefit above the Specified Amount may also
vary with that investment performance. The Policyowner selects
the Sub-Accounts that the net premiums are invested in and
determines the allocation of the net premium among those
Sub-Accounts and the General Account. Each Sub-Account of the
Variable Account will invest solely in a corresponding series of
the Scudder Variable Life Investment Fund ("Fund"), a mutual fund
that has seven investment portfolios of Class A shares that are
available under the Policies: 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 ("Portfolios"). The accompanying
prospectus for the Fund describes the investment objectives and
policies and the risks of these Portfolios. The Policyowner
bears the entire investment risk under the Policy for all amounts
allocated to the Variable Account; with respect to all such
amounts, there is no guaranteed minimum Account Value, and in any
event there is no guarantee that the Policy will remain in force
regardless of the amount of premiums paid (unless the Guaranteed
Death Benefit Rider is in effect or the Policy duration is three
years or less and the Policyowner has met the Guarantee Premium
Requirement).
This Prospectus generally describes only the variable portion of
the Policy.
It may not be advantageous to purchase a Policy as a replacement
for another type of life insurance or as a means to obtain
additional insurance protection if the purchaser already owns a
flexible premium variable life insurance policy.
THIS PROSPECTUS MUST BE ACCOMPANIED OR PRECEDED BY A CURRENT
PROSPECTUS FOR 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.
The Date of This Prospectus is May 1, 1996.
TABLE OF CONTENTS
DEFINITIONS................................................ 1
SUMMARY.................................................... 2
BANNER LIFE INSURANCE COMPANY AND BANNER LIFE VARIABLE
ACCOUNT.................................................... 7
Banner Life Insurance Company ...................... 7
Banner Life Variable Account ........................ 7
Scudder Variable Life Investment Fund................. 7
Portfolios of the Fund................................ 8
POLICY RIGHTS AND BENEFITS................................. 9
Account Value..................................... 9
Surrenders........................................... 10
Partial Surrenders................................. 10
Policy Loans........................................... 11
Transfers............................................. 12
Death Benefit.......................................... 12
Right to Examine Policy............................. 15
Right to Exchange for Fixed Life Insurance............. 15
Voting Rights......................................... 16
Additional Benefits Provided by Rider................. 16
PREMIUMS AND
ALLOCATION................................................. 19
Issuance of a Policy.................................... 19
Premiums............................................. 19
Allocation of Premiums.................................. 20
Lapse, Grace Period, Guaranteed Death Benefit Rider
and Reinstatement................................... 20
CHARGES AND DEDUCTIONS....................................... 22
Surrender Charges.................................... 22
Premium Expense Charge............................ 22
Monthly Deduction..................................... 23
Variable Account Charges........................... 24
Other Charges..................................... 25
PAYMENT OPTIONS.............................................. 25
Election of Payment Option........................... 25
Available Options..................................... 25
Payment of Proceeds................................ 26
Automatic Payment Option.............................. 26
Additional Options................................... 26
Excess Interest......................................... 26
GENERAL PROVISIONS........................................ 27
Postponement of Payments................................ 27
The Contract.......................................... 27
Not Contestable After Two Years..................... 27
Misstatement of Age and Sex......................... 28
Effective Date of Coverage.............................. 28
Termination.......................................... 28
Annual Report......................................... 28
Projection of Values................................... 28
Suicide............................................. 28
Ownership............................................ 28
Assignment of Policy.................................. 29
Beneficiary.......................................... 29
Change of Beneficiary ................................. 29
Death of Beneficiary................................... 29
THE GENERAL ACCOUNT..................................... 29
General Description .................................. 29
General Account Value................................. 29
Transfers............................................... 30
DISTRIBUTION OF THE POLICIES............................. 31
FEDERAL TAX MATTERS.......................................... 31
Tax Status of the Policy.............................. 31
Tax Treatment of Policy Benefits........................ 32
Taxation of Banner Life............................. 34
Employment-Related Benefit Plans....................... 34
ADDITIONAL INFORMATION.................................... 35
Safekeeping of the Account's Assets................... 35
Addition, Deletion, or Substitution of Investments... 35
State Regulation....................................... 35
Senior Officers and Directors of Banner Life Insurance
Company............................................... 36
Legal Matters....................................... 37
Legal Proceedings.................................... 37
Experts................................................. 37
FINANCIAL STATEMENTS...................................... 37
APPENDIX A A-1
Illustrations of Death Benefits and Values A-1
APPENDIX B B-1
Type A Option Example B-1
Type B Option Example B-1
Corridor Percentages B-2
The Policy is not available in all States.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO
DEALER, SALESMAN, OR OTHER PERSONS 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 PRIMARY PURPOSE OF THIS POLICY IS TO PROVIDE INSURANCE
PROTECTION. NO CLAIM IS MADE THAT THE POLICY IS IN ANY WAY
SIMILAR OR COMPARABLE TO AN INVESTMENT IN A MUTUAL FUND.
DEFINITIONS
Account Value - The sum of the Variable Account Value and the
General Account Value.
Attained Age - The age of the Insured on his/her birthday prior
to the last Policy Anniversary.
Beneficiary - The person or persons to whom Banner Life pays the
Death Benefit when the Insured dies.
Cash Surrender Value - The Policy Proceeds if the Policy is
surrendered in full prior to the Maturity Date. It is the
Account Value on the date of surrender less any Indebtedness and
any applicable surrender charge.
Death Benefit - The amount payable when the Insured dies. This
amount may or may not include the Account Value, as selected by
the Policyowner.
Fund - The Scudder Variable Life Investment Fund, a mutual fund
of the series type which includes seven separate investment
portfolios of Class A shares in which the Variable Account
invests.
General Account Value - The Policy's value in the General Account
of Banner Life.
Indebtedness - The sum of all unpaid Policy loans and accrued
interest on loans.
Insured - The person whose life is insured by the Policy.
Issue Date - The date on which processing of an approved
application is completed and a Policy is issued to the
Policyowner.
Maturity Date - The date on which the Policy's Cash Surrender
Value becomes payable to the Policyowner, if living. This date
may be designated by the Policyowner. If no designation is made,
the Maturity Date will be the Policy Anniversary after the
Insured's 95th birthday. The Policy terminates on the Maturity
Date.
Monthly Guarantee Premium - A scheduled premium based on the
Specified Amount of the Policy. The Policyowner is not required
to follow this schedule but following the schedule does ensure
that the Policy will remain in force during the Guarantee Period.
Monthly Anniversary - The same date in each succeeding month as
the Policy Date except that whenever the Monthly Anniversary
falls on a date other than a Valuation Day, the Monthly
Anniversary will be deemed to be the next Valuation Day. If any
Monthly Anniversary is the 29th, 30th, or 31st day of a month
that does not have that number of days, then the Monthly
Anniversary will be the last day of that month.
Planned Annual Premium - A schedule of premium payments designed
solely as an aid to financial planning and to facilitate premium
reminder notices. There is no obligation to adhere to this
schedule, and doing so does not assure that the Policy will not
lapse.
Policyowner - The person named as the owner in the application,
unless he or she has assigned ownership to someone else.
Policy Anniversary - The same day and month as the Policy Date
each year that the Policy remains in force.
Policy Date- The date the Policy becomes effective, and the date
from which Monthly Anniversaries, Policy Months, Policy
Anniversaries and Policy Years are determined.
Policy Month - A month that begins on the same day of each month
as the Policy Date.
Portfolio - A separate investment division of the Scudder
Variable Life Investment Fund. The Scudder Variable Life
Investment Fund has seven Portfolios of Class A shares available
for investment by the Variable Account: 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.
Policy Year - A year that starts on the Policy Date or on a
Policy Anniversary.
Proceeds - The amount payable under a Policy (a) upon the death
of the Insured, (b) on the Maturity Date, or (c) upon the
surrender of the Policy.
Specified Amount - The minimum Death Benefit payable under the
Policy so long as the Policy remains in force.
Sub-Account- One of the subdivisions of the Variable Account.
Valuation Day - Any day that Banner Life is open for business and
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 Account Value - The sum of the Policy's value in each
Sub-Account.
SUMMARY
The following summary of Prospectus information should be read in
conjunction with the detailed information appearing elsewhere in
this Prospectus and is qualified in its entirety by that detailed
information. Any variations from information in this Prospectus,
which may be required in certain states, are contained in
supplements to this Prospectus or in the individual Policy
delivered in a particular state, as appropriate. Unless
otherwise indicated the description of the Policy contained in
this Prospectus assumes that the Policy is in force and there is
no Indebtedness.
The Policy
The Flexible Premium Variable Life Insurance Policy described in
this Prospectus is a life insurance contract that provides for
life insurance coverage on the named Insured up to age 95, cash
values, surrender rights, loan privileges, and other features
associated with conventional life insurance. The Policy is a
"variable" policy because the cash value (called the "Account
Value") will increase or decrease depending upon the investment
experience of the Sub-Accounts of the Variable Account to which
the Policyowner allocates the premium. The Death Benefit may
also vary with that investment experience (depending on the
Benefit option selected by the Policyowner) but, so long as the
Policy is in force, will always be at least equal to the
Specified Amount of the Policy. However, if and to the extent
the Policyowner allocates premiums to Banner Life's General
Account, then the Account Value is guaranteed. (The Account
Value and Death Benefits under a conventional, fixed-benefit life
insurance policy are guaranteed and do not vary with investment
experience.) The minimum Specified Amount for which a Policy
will be issued is $25,000.
The Policy is a "flexible premium" policy because the Policyowner
does not have to pay premiums according to a fixed schedule. The
Policyowner will establish a schedule of planned premiums, but
the failure to pay the Planned Annual Premiums will not
necessarily cause the Policy to lapse nor will paying the Planned
Annual Premiums necessarily keep the Policy in force to the
Maturity Date. Additional premiums may be paid at the
Policyowner's option at any time before the Maturity Date (within
certain limits), and additional premiums may be required in order
to keep the Policy in force. However, the Policy will not lapse
if the Guaranteed Death Benefit Rider is in effect and the
Policyowner has met the Guarantee Premium Requirement. In
addition, the Policy will not lapse during the Guarantee Period
of three years from the Policy Date if the guarantee premium
requirement has been met. (See Lapse, Grace Period, Guaranteed
Death Benefit Rider and Reinstatement.) An unscheduled or
additional premium payment may have Federal income tax
consequences. (See Federal Tax Matters.) Generally no Policy
will be issued covering an Insured over age 80 at the outset.
Subject to the terms of any Beneficiary designation or
assignment, during the Insured's lifetime the Policyowner may:
(1) assign or surrender the Policy;
(2) obtain a Policy loan;
(3) obtain a partial surrender;
(4) transfer Account Value among the Sub-Accounts and the
General Account;
(5) make a change in the Policy with Banner Life's consent;
(6) transfer the ownership of the Policy; and
(7) exercise other rights and receive other benefits as defined
in the Policy.
The Variable Account
The Policyowner determines the allocation of the premiums and
Account Value among the Sub-Accounts of the Variable Account and
the General Account. (See Premiums and Allocation of Premiums.)
The Variable Account currently has seven Sub-Accounts. The
Sub-Accounts invest solely in shares of a corresponding portfolio
of the Scudder Variable Investment Fund (the "Fund"), which
currently has the following seven separate investment portfolios
of Class A shares: 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 (collectively the "Portfolios").
Each of the Portfolios has a different investment objective.
(See Scudder Variable Life Investment Fund.)
Transfers
The Policyowner may transfer all or part of the Account Value
among the Sub-Accounts or between one or more Sub-Accounts and
the General Account. Currently, there is no limit on the
frequency of transfers from a Sub-Account (however, Banner Life
reserves the right to impose such a limit in the future). There
currently is no charge for the first four transfers in a Policy
Year. There currently is a charge of $15 for the fifth and each
subsequent transfer in each Policy Year (Banner Life reserves the
right to impose a charge of up to $25 for all transfers). The
minimum amount that may be transferred is $500 or, if less, the
entire value of the Sub-Account or General Account from which the
transfer is being made (excluding amounts in the General Account
securing Policy loans). (See Transfers.) Transfers from the
General Account are limited in frequency, time, and amount, and
are subject to postponement. (See The General Account.)
Death Benefit
The Policy provides for the payment of a Death Benefit upon the
death of the Insured. The Policy contains two Benefit options,
Type A Option and Type B Option. Under Type A Option (the
"variable" Death Benefit option), the Death Benefit will be at
least the Specified Amount plus the Account Value on the date of
the Insured's death. Under Type B Option, the Death Benefit will
be at least the Specified Amount.
Under either Benefit option, so long as the Policy remains in
force, the Death Benefit will not be less than the Specified
Amount. The Death Benefit may, however, exceed the Specified
Amount. The amount by which the Death Benefit exceeds the
Specified Amount depends upon the Benefit option chosen and the
Account Value of the Policy. Under either option, the Death
Benefit will be no less than the Account Value on the date of the
Insured's death multiplied by the applicable corridor percentage.
(See Death Benefit.) The Death Benefit Proceeds will be reduced
by any Indebtedness and any due and unpaid charges. The Death
Benefit may be paid in a lump sum or under a Payment Option.
(See Payment Options.)
At any time after the first Policy Year, the Policyowner may
adjust the Death Benefit by increasing or decreasing the
Specified Amount. (Such an increase or decrease may have Federal
income tax consequences. See Federal Tax Matters.) In addition,
the Policyowner may change the Benefit option. Changing the
Specified Amount and Death Benefit option are both subject to
certain restrictions. (See Death Benefit - Change in Benefit
Option; Death Benefit - Change in Specified Amount; or Death
Benefit - Decrease in Specified Amount.)
Account Value
On the Issue Date the Account Value equals the amount of the
first net premium less the monthly deduction for the month
following the Policy Date. Thereafter, the Account Value will
increase or decrease from day to day depending on the investment
experience of the selected Sub-Accounts. There is no guaranteed
minimum Account Value. The Policyowner may surrender the Policy
at any time for its Cash Surrender Value, which is equal to the
Account Value reduced by any Indebtedness and any applicable
surrender charge. The Policyowner may also make a partial
surrender and obtain a portion of the Account Value at any time.
Surrenders may have adverse tax consequences. (See Federal Tax
Matters.) Partial surrenders may be subject to a surrender
charge and will reduce both the Account Value and Death Benefit.
Therefore, partial surrenders that would reduce the Death Benefit
below $25,000 are not permitted.
The Account Value is equal to the sum of the Variable Account
Value and the General Account Value. The Account Value will
reflect the premiums paid, the investment experience of the
selected Sub-Accounts, any Policy loan activity, any partial
surrenders, the charges imposed in connection with the Policy,
and indirectly the expenses of the Fund. (See Account Value.)
Accordingly, although the Policy offers the possibility that the
Account Value will increase, there is no assurance that it will
increase and it may decrease.
The Variable Account Value is equal to the sum of the values of
each Sub-Account. (See Account Value - Variable Account Value.)
The minimum General Account Value is guaranteed by Banner Life.
(See The General Account - General Account Value.)
Charges and Deductions
A surrender charge composed of a flat amount for underwriting
administrative costs and a percentage of premiums paid in the
first two Policy Years up to one guideline annual premium for
sales expenses may be imposed in the event of a full surrender
during the first ten Policy Years. The flat amount is $200 and
the percentage is 27.5% of premiums for the first five Policy
Years, and these amounts will grade down to zero over the next
five Policy Years. (See Surrender Charges.)
In any event, the surrender charge will not exceed $200 plus
27.5% of one guideline annual premium. For this purpose, the
guideline annual premium will be deemed never to exceed $141 per
$1,000 of Specified Amount.
A partial surrender charge is imposed upon a partial surrender.
The charge is the full surrender charge multiplied by the ratio
of the partial surrender amount to the Cash Surrender Value, plus
up to $25 for administrative costs. (See Surrender Charges.)
Additional surrender charges are imposed on surrendered amounts
attributable to an increase in the Specified Amount. The charge
is composed of a flat amount for underwriting administrative
costs and a percentage of premiums attributable to the increase
paid in the two years following the increase up to the guideline
annual premium attributable to the increase for sales expenses.
The flat amount is $200 and the percentage is 27.5% for five
years after the date of the increase, and these amounts will
grade down to zero over the next five years. (See Surrender
Charges.)
Banner Life imposes a 5% premium expense charge against each
premium prior to its allocation to the selected Sub-Accounts
and/or the General Account. The premium expense charge consists
of a 2.5% sales charge and a 2.5% charge for premium taxes. (See
Premium Expense Charge.) The surrender charge, imposed on
certain surrenders, also includes a sales charge (see above).
A "monthly deduction" will be deducted from the Account Value on
each Monthly Anniversary. The monthly deduction consists of the
cost of insurance charge, described below, an administrative
expense charge (which is currently $5 per month, and is
guaranteed not to exceed $7.50 per month) and the cost of any
additional benefits provided by rider. (See Monthly Deduction.)
The monthly cost of insurance charge is based on the Policy's net
amount at risk (which is equal to the difference between the
Death Benefit divided by 1.0032737 and the Account Value on the
monthly anniversary) and on the Attained Age, sex and risk class
of the Insured. Annual cost of insurance rates will be
determined by Banner Life based upon its expectations as to
future mortality experience. The cost of insurance rates are
guaranteed not to exceed the maximum cost of insurance rates
specified in the Policy. (See Monthly Deduction - Cost of
Insurance.)
A daily charge, currently at an effective annual rate of .75% of
the average daily net assets of each Sub-Account (and guaranteed
not to exceed .90%), will be deducted from the Sub-Accounts for
Banner Life's assumption of certain mortality and expense risks
incurred in connection with the Policy. (See Variable Account
Charges - Mortality and Expense Risk Charge.)
The value of the net assets of the Sub-Accounts will also reflect
the investment management fee and other expenses incurred by the
Fund because the Variable Account purchases shares of the Fund.
Banner Life may also impose a transfer charge of up to $25 on
each transfer request. Currently the first four transfer
requests each Policy Year are free, and additional transfer
requests cost $15 each. (See Other Changes - Transfer Charge.)
There is also a charge of $25 for each projection of values after
the first projection in each Policy Year. (See Other Charges.)
Illustrations
Sample projections of hypothetical Death Benefits, Cash Surrender
Values, and Account Values are included in Appendix A to this
Prospectus. These projections of hypothetical values may be
helpful in understanding the long-term effects of different
levels of investment performance, the charges and deductions, and
generally in comparing this Policy to other life insurance
policies. These projections also show the value of the planned
premiums accumulated with interest, and show that if the Policy
is surrendered in the early Policy Years, the Cash Surrender
Value payable may be low compared to the premiums accumulated at
interest. This reflects the cost of insurance protection and
other charges prior to surrender, and demonstrates that the
Policy should not be purchased as a short-term investment.
Tax Treatment
Banner Life believes that a Policy issued on a standard premium
class basis generally should meet the Section 7702 definition of
a life insurance contract. With respect to a Policy issued on a
substandard basis or a Policy issued with a Primary Insured Term
Rider, there is insufficient guidance to determine if such a
Policy would satisfy the Section 7702 definition of a life
insurance contract, particularly if the Owner pays the full
amount of premiums permitted under such a Policy.
Assuming that a Policy qualifies as a life insurance contract for
Federal income tax purposes, a Policyowner should not be deemed
to be in constructive receipt of Policy Account Value under a
Policy until there is a distribution from the Policy. Moreover,
death benefits payable under a Policy should be completely
excludable from the gross income of the Beneficiary. As a result,
the Beneficiary generally should not be taxed on these proceeds.
(See "Tax Status of the Policy," page 31.)
Under certain circumstances, a Policy may be treated as a
"Modified Endowment Contract." If the Policy is a Modified
Endowment Contract, then all pre-death distributions, including
Policy loans, will be treated first as a distribution of taxable
income and then as a return of basis or investment in the
contract. In addition, prior to age 59.5 any such distributions
generally will be subject to a 10% penalty tax. (For further
discussion on the circumstances under which a Policy will be
treated as a Modified Endowment Contract, see "Tax Treatment of
Policy Benefits," page 32.)
If the Policy is not a Modified Endowment Contract, distributions
generally will be treated first as a return of basis or
investment in the contract and then as disbursing taxable income.
Moreover, loans will not be treated as distributions. Finally,
neither distributions nor loans from a Policy that is not a
Modified Endowment Contract are subject to the 10% penalty tax.
(See "Distributions from Policies Not Classified as Modified
Endowment Contracts," page 33.)
Correspondence
All correspondence regarding the Policy should be addressed or
directed to the sales agent who sold the Policy or to Banner Life
at the following address:
Banner Life Insurance Company
1701 Research Boulevard
Rockville, Maryland 20850
Phone: (301) 294-6940
All inquiries should include the Policy number and the Insured's
name and Owner's name, if different.
This Prospectus describes only the variable or Variable Account
aspects of the Policy, except where fixed or General Account
aspects are specifically mentioned. For a brief summary see The
General Account.
BANNER LIFE INSURANCE COMPANY AND BANNER LIFE SEPARATE ACCOUNT
Banner Life Insurance Company
Banner Life Insurance Company ("Banner Life") is a stock life
insurance company that is a wholly owned subsidiary of Legal and
General Life Insurance Company of America, Inc., which is a
wholly owned subsidiary of Legal and General America, Inc., which
in turn is wholly owned by Legal and General Netherlands -
Holdings BV, which is a wholly-owned subsidiary of Legal &
General International Limited, a United Kingdom based holding
company. The ultimate controlling entity is Legal and General
Group Plc, a United Kingdom company. Banner Life is principally
engaged in offering universal life and term insurance 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 and General Group Plc on December 1, 1983.
Banner Life Variable Account
Banner Life Variable Account (the "Variable Account") is
currently divided into seven Sub-Accounts. Each Sub-Account
invests exclusively in shares of a single portfolio of the 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 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 Policies 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 September 3, 1987. The Variable Account will receive
and invest the premiums allocated to it under the Policies.
The Variable Account has been registered as a unit investment
trust under the Investment Company Act of 1940 and meets the
definition of a separate account under the federal securities
laws. 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, 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 its stated objectives. More detailed
information, including a description of risks, is in the Fund's
prospectus, which accompanies this Prospectus and which should be
read carefully in conjunction with this Prospectus 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 Policies:
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
this 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 heavily in dividend-paying
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.
Fund Management and 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
POLICY RIGHTS AND BENEFITS
Account Value
Each Policy has an Account Value. The Account Value forms the
basis for the Cash Surrender Value, which the Policyowner can
obtain by completely or partially surrendering the Policy or by
taking out a Policy loan although such transactions may be
taxable. (See Federal Tax Matters.) The Account Value can also
affect the amount of the Death Benefit above any minimum.
The Account Value on the Issue Date will be equal to any net
premiums received on or before the Issue Date less any monthly
deductions due on or before the Issue Date. (See Charges and
Deductions.)
On any subsequent Valuation Day the Account Value is equal to the
Variable Account Value plus the General Account Value. The
following discussion relates only to the Variable Account. The
General Account is discussed elsewhere in this Prospectus. (See
The General Account.)
Variable Account Value. The Variable Account Value is equal to
the sum of the values of each Sub-Account. The value of each
Sub-Account is calculated first on the Issue Date and thereafter
on each Valuation Day. The value held in any Sub-Account is
equal to the number of Sub-Account units allocated to the Policy
multiplied by that Sub-Account's unit value.
For each Sub-Account, the unit value was initially set at $1.00.
The unit value for each subsequent Valuation Period is the Net
Investment Factor for that Valuation Period multiplied by the
unit value for the immediately preceding Valuation Period. Each
Valuation Period has a single unit value which applies for each
day in the period.
The Net Investment Factor measures the investment performance of
a Sub-Account during a Valuation Period. Each Sub-Account has
its own distinct Net Investment Factor. The Net Investment
Factor of a Sub-Account for a Valuation Period is equal to the
result of dividing (1) minus (2) by (3) and then subtracting (4),
where:
(1) is the value of the net assets of the shares of the Fund
Portfolio held by the Sub-Account, determined at the end of
the Valuation Period;
(2) is any amount charged against the Sub-Account for taxes
which we may consider necessary or any amount set aside
during the Valuation Period by Banner Life as a provision
for taxes attributable to the operation or maintenance of
the Sub-Account;
(3) is the value of the net assets of the shares of the Fund
Portfolio held by the Sub-Account, determined at the end of
the preceding Valuation Period; and
(4) is the charge imposed each day in the Valuation Period to
compensate Banner Life for certain mortality and expense risks
assumed, which will never be more than an annual rate of .90% of
the net assets of the Sub-Account and is currently set at 0.75%.
The Net Investment Factor may be greater or less than one;
therefore, the valuation of a unit may increase or decrease. It
should be noted that changes in the Net Investment Factor may not
be directly proportional to changes in the net asset value of
underlying Fund shares because of Policy charges, any charge or
credit for tax reserves, and the effect of the various purchase
and sale transactions on any particular day.
The number of Sub-Account units allocated to a Policy will
increase when:
(1) net premiums are allocated to that Sub-Account; and
(2) transfers from other Sub-Accounts or the General Account are
allocated to that Sub-Account.
The number of Sub-Account units allocated to a Policy will
decrease when:
(1) transfers to other Sub-Accounts or to the General Account
are made from that Sub-Account;
(2) a portion of the monthly deduction is allocated to that
Sub-Account;
(3) any loan or loan interest is transferred from that
Sub-Account; and
(4) any partial surrender and its partial surrender charge is
allocated to that Sub-Account.
The number of Sub-Account units added or subtracted by each
transaction is determined by dividing the dollar amount of the
transaction by the unit value on the date of the transaction.
Surrenders
The Policyowner may surrender the Policy for its Cash Surrender
Value at any time before the Maturity Date while the Insured is
alive by sending a written request to Banner Life. The surrender
will be effective on the date the written request is received at
Banner Life's Administrative Office or any subsequent date the
Policyowner may specify.
If a Policy is surrendered, Banner Life will pay the Cash
Surrender Value, which is the Account Value less any Indebtedness
and less the surrender charge, if any. (See Surrender Charges.)
The Proceeds may be received in a lump sum or under a Payment
Option. (See Payment Options.) Coverage under the Policy will
terminate as of the date the surrender is effective. Surrenders
may have Federal income tax consequences. (See Federal Tax
Matters.)
Partial Surrenders
A partial surrender may be made after the first Policy Year, and
prior to the Maturity Date, by written request. (Partial
surrenders may also have Federal income tax consequences. See
Federal Tax Matters.) The minimum amount which will be paid as a
partial surrender is $500. In addition, the Cash Surrender Value
after a partial surrender must be at least $1,000. Partial
surrenders may be subject to a surrender charge and a transaction
fee of up to $25, and may be taxable transactions. (See
Surrender Charges.) Banner Life reserves the right to limit the
number of partial surrenders in a Policy Year.
When a partial surrender is made, the amount of the partial
surrender (including any partial surrender charge) will be
deducted from the Account Value, and if the Benefit Type B Option
is in effect (See Death Benefit), the Specified Amount will be
decreased by any amount necessary to ensure that the net amount
at risk is not increased after the partial surrender. The
decrease will reduce first the Specified Amount provided under
the original application and then increases in the Specified
Amount in the order of those increases. (Banner Life reserves
the right to restrict partial surrenders that would decrease the
Specified Amount in the first five Policy Years.) Those partial
surrenders may affect the way in which the cost of insurance is
calculated. (See Monthly Deduction - Cost of Insurance; Death
Benefit - Methods of Affecting Insurance Protection.) If the
Benefit Type A Option is in effect, the Specified Amount will not
change.
A partial surrender cannot be made if it would result in
reduction of the Specified Amount to less than the greater of (a)
$25,000; or (b) under Type A Option Policies, the Account Value
multiplied by the applicable corridor percentage, less the
Account Value; or (c) under Type B Option Policies, the Account
Value multiplied by the applicable corridor percentage.
The Policyowner may specify how a partial surrender should be
allocated among the General Account and the Sub-Accounts of the
Variable Account, provided that the minimum amount remaining in
the General Account or any Sub-Account is at least $100. If the
Policyowner does not so specify, the partial surrender will be
allocated among the General Account and the Sub-Accounts in
proportion to the values in each.
Policy Loans
While the Policy is in force the Policyowner may obtain all or
part of the available loan value by written notice. The Policy,
assigned to Banner Life, is the only security needed. Loan
payments may be deferred (See General Provisions - Postponement
of Payments), however, a Policy loan used to pay a premium on any
Policy issued by Banner Life will not be postponed. A loan taken
from, or secured by, a Policy may have Federal income tax
consequences. (See Federal Tax Matters.)
The loan value will be 90% of the Account Value of the Policy,
minus the surrender charge, if any. The available loan value
will be the loan value less the sum of:
(1) any existing Policy loan;
(2) loan interest in advance to the next Policy Anniversary; and
(3) any due and unpaid monthly deductions.
Interest on Policy loans will be payable in advance from the date
of the loan to the next Policy Anniversary at the annual interest
rate of 7.4% (which is equivalent to an annual rate of 8.0% if
paid in arrears). Interest is payable in advance at the
beginning of each Policy Year (if a loan is repaid during the
year, Banner Life will return any unearned interest to the
Account Value). If interest is not paid when due, it will be
added to the loan and bear interest at the same rate. This
capitalization of interest may have Federal income tax
consequences. In addition, there are limits on the deductibility
of interest on Policy loans for Federal income tax purposes.
(See Federal Tax Matters.)
When a Policy loan is made or if interest is not paid when due, a
transfer sufficient to secure the loan will be made from the
Variable Account to the General Account. This amount will earn
interest at an annual rate of at least 4%. The Policyowner may
allocate the transfer among the Sub-Accounts, providing that the
amount remaining in any Sub-Account is at least $100. If the
Policyowner does not make such an allocation, Banner Life will
allocate the transfer in proportion to the account value in each
Sub-Account of the Variable Account.
At all times when a Policy loan is outstanding, there must be
sufficient value in the General Account to secure the
Indebtedness.
A Policy loan may be repaid in full or in part, in minimum
amounts of $50 (or any remaining loan outstanding, if less), at
any time while the Policy is in force. Failure to pay back a
loan will not terminate the Policy unless the Indebtedness equals
or exceeds the Cash Surrender Value. (See Lapse, Grace Period,
Guaranteed Death Benefit Rider and Reinstatement - Lapse.)
When a loan repayment is made, the Policyowner may request that
value in the General Account, related to that repayment, be
transferred to one or more Sub-Accounts of the Variable Account.
Otherwise, such amount will remain in the General Account.
A Policy loan will permanently affect the Account Value of a
Policy, and may permanently affect the amount of the Death
Benefit, even if the loan is repaid. The effect could be
favorable or unfavorable depending on whether the investment
performance of the Sub-Accounts selected by the Policyowner is
less than or greater than the interest rate credited to the value
in the General Account securing the loan. In comparison to a
Policy under which no loan was made, Account Values will be lower
if the General Account interest rate is less than the investment
performance of the Sub-Accounts, and greater if the General
Account interest rate is higher than the investment performance
of the Sub-Accounts. If Policy loan interest is not paid but is
taken out of the Account Value, this would also affect the
Account Value and Death Benefit.
Transfers
The Policyowner may transfer all or part of the Account Value
among the Sub-Accounts or between one or more Sub-Accounts and
the General Account.
Transfers may be made by a written request. Currently, there is
no limit on the frequency of transfers from a Sub-Account
(however, Banner Life reserves the right to impose such a limit
in the future). Transfers from the General Account are limited
in frequency, time, and amount, and are subject to postponement.
(See The General Account.)
The minimum amount that may be transferred from a Sub-Account of
the Variable Account is $500 or, if less, the entire value of the
Sub-Account from which the transfer is being made. Transfers
from a Sub-Account will generally occur at the end of the day on
which the written request is received. (See General Provisions -
Postponement of Payments.)
Currently, there is no charge for the first four transfer
requests each Policy Year. A $15 charge is currently imposed on
the fifth and each subsequent transfer request. Banner Life
reserves the right to impose a charge of up to $25 on all
transfer requests. Transferring Account Value from two
Sub-Accounts into another Sub-Account or the General Account
counts as one transfer request. Similarly, transferring Account
Value from one Sub-Account into two Sub-Accounts counts as one
transfer request.
Death Benefit
The Policy provides two Benefit options and the Policyowner
selects one of the options in the application. The Death Benefit
under either option will never be less than the current Specified
Amount of the Policy as long as the Policy remains in force.
(See Lapse, Grace Period, Guaranteed Death Benefit Rider and
Reinstatement.) The minimum Specified Amount is $25,000.
Type A Option. Under Type A Option, the Death Benefit will be
the greater of (i) the Specified Amount plus the Account Value on
the date of death, or (ii) the Account Value on the date of death
multiplied by the applicable corridor percentage. The applicable
corridor percentage is 250% for an Insured attained age 40 or
below. For Insureds with an Attained Age over 40, the percentage
declines as shown in the Corridor Percentage Table in Appendix B.
Accordingly, under Type A Option the Death Benefit will always
vary as the Account Value varies. Policyowners who prefer to
have favorable investment performance and any additional premiums
above the Guarantee Premiums reflected in increased Death
Benefits should select Type A Option. Examples illustrating the
Type A Option are in Appendix B.
Type B Option. Under Type B Option, the Death Benefit will be
the greater of (i) the Specified Amount, or (ii) the Account
Value on the date of death multiplied by the applicable corridor
percentage. The applicable corridor percentage is the same as
under Type A Option: 250% for an Insured attained age 40 or below
and for Insureds with an Attained Age over 40, the percentage
declines as shown in the Corridor Percentage Table in Appendix B.
Accordingly, under Type B Option the Death Benefit will remain
level unless the Account Value multiplied by the applicable
corridor percentage exceeds the Specified Amount, in which case
the Death Benefit will vary as the Account Value varies.
Policyowners who are satisfied with the amount of their insurance
coverage under the Policy and who prefer to have favorable
investment performance and any additional premiums above the
Guarantee Premiums reflected in higher Account Value, rather than
increased insurance coverage, generally should select Type B
Option. Examples illustrating the Type B Option are in Appendix
B.
Change in Benefit Option. The Policyowner may change the Benefit
option by sending a written request to Banner Life. The
effective date of change will be the Monthly Anniversary on or
next following the date the request is received by Banner Life or
the date the change is approved by Banner Life if evidence of
insurability is requested. A change in the Benefit Option may
have Federal income tax consequences. (See Federal Tax Matters.)
If the Benefit option is changed from Type A Option to Type B
Option, the Specified Amount after the change will equal the
Specified Amount before the change plus the Account Value on the
effective date of the change (i.e., the Specified Amount will be
increased to equal the Death Benefit on the effective date of the
change).
If the Benefit option is changed from Type B Option to Type A
Option, the Specified Amount after the change will equal the
Specified Amount before the change less the Account Value on the
effective date of the change (i.e., the Specified Amount will be
decreased to equal the Death Benefit less the Account Value on
the effective date of the change). Banner Life will not allow
such a change if it would result in a Specified Amount which is
less than the minimum Specified Amount. This change is subject
to the premium limitation provision. (See Premiums - Premium
Limitation.)
No increased sales charges will be imposed upon a change in
Benefit option, nor will such a change in and of itself result in
an immediate change in the Account Value. Surrender charges are
not affected by a change in Benefit option. If, however, prior
to or accompanying a change in the Benefit option there has been
an increase in the Specified Amount, the cost of insurance charge
may be different for the increased amount. (See Monthly
Deduction - Cost of Insurance.)
Increase in Specified Amount. The Policyowner may request an
increase in the Specified Amount at any time after the first
Policy Year by submitting a written application. Banner Life
will also require additional satisfactory evidence of
insurability. The increase may not be less than $10,000. The
effective date of the increase will be the Monthly Anniversary on
or next following the date the increase is approved. Although an
increase need not necessarily be accompanied by an additional
premium, on the effective date of the increase the Cash Surrender
Value must be sufficient to cover the monthly deduction on the
effective date of the increase to prevent the Policy from
lapsing. (See Monthly Deduction and Lapse, Grace Period,
Guaranteed Death Benefit Rider and Reinstatement - Lapse.)
Requesting an increase in the Specified Amount will result in
certain additional or higher charges, including an increased
surrender charge. (See Charges and Deductions.) An increase in
the Specified Amount may have Federal income tax consequences.
(See Federal Tax Matters.)
The increase in surrender charges will be payable for ten years
from the date of increase, and will be based on a flat amount
plus a percentage of any increase in premiums paid during the two
years following the increase in Specified Amount up to the
guideline annual premium attributable to the increase. (See
Surrender Charges.) Banner Life will provide the Policyowner
with a revised table of full surrender charges for the Policy.
The Policyowner may cancel any increase in Specified Amount, for
a limited period following the increase, by giving written notice
to Banner Life's Administrative Office or to the agent through
whom the increase was arranged. (See Right to Examine Policy.)
Decrease in Specified Amount. The Policyowner may request a
decrease in the Specified Amount any time after the first Policy
Year. Any decrease in the Specified Amount will become effective
on the Monthly Anniversary on or following receipt of a written
request by Banner Life. Banner Life reserves the right to limit
the amount of any decreases in the Specified Amount during the
first five Policy Years and the Specified Amount may not be
decreased below $25,000. Under Type A Option the Specified
Amount may not be decreased below the Account Value times the
applicable corridor percentage, less the Account Value, and under
Type B Option it may not be decreased below the Account Value
times the applicable corridor percentage. If, following the
decrease in Specified Amount, the Policy would not comply with
the premium limitation (See Premiums - Premium Limitation), the
decrease may be limited or Account Value may be returned to the
Policyowner (at the Policyowner's election), to the extent
necessary to meet these requirements. Any decrease in the
Specified Amount will reduce insurance (and therefore the net
amount at risk) in the following order:
(a) insurance provided by the most recent increase;
(b) insurance provided by the next most recent increases,
successively; and
(c) insurance provided under the original application.
Decreases in the Specified Amount will affect the cost of
insurance charge. (See Monthly Deduction - Cost of Insurance.)
The surrender charge will not be affected by a decrease in the
Specified Amount. A decrease in the Specified Amount may have
Federal income tax consequences. (See Federal Tax Matters.)
Methods of Affecting Insurance Protection. The pure insurance
protection provided by a Policy is the difference between the
Death Benefit and the Account Value, and the Policyowner can
change this in several ways as his/her insurance or other needs
change. These ways include increasing or decreasing the
Specified Amount of insurance, changing the level of premiums,
and, to a lesser extent, partially surrendering the Policy.
Although the consequences of each of these methods will depend
upon the individual circumstances, they may be summarized as
follows:
(a) A decrease in the Specified Amount will, subject to the
applicable corridor percentage limitations (See Death
Benefit), decrease the pure insurance protection and the
cost of insurance charges under the Policy without generally
reducing the Account Value.
(b) An increase in the Specified Amount may increase the amount
of pure insurance protection, depending on the amount of
Account Value and the resultant applicable corridor
percentage. If the insurance protection is increased, the
cost of insurance charge generally will increase as well.
(c) An increased level of premiums will increase the Account
Value and reduce the pure insurance protection, until the
applicable corridor percentage of Account Value exceeds
either the Account Value plus the Specified Amount (if Type
A Option is in effect) or the Specified Amount (if Type B
Option is in effect). Increased premiums should also
increase the amount of funds available to keep the Policy in
force. An increased level of premiums may have Federal
income tax consequences. (See Federal Tax Matters.)
(d) A reduced level of premiums generally will increase the
amount of pure insurance protection, depending on the
applicable corridor percentage limitations. It also will
result in a reduced amount of Account Value and will
increase the possibility that the Policy will lapse.
(e) A partial surrender will reduce the Death Benefit. (See
Partial Surrenders.) However, it only affects the amount of
pure insurance protection if the Death Benefit is based on
the applicable corridor percentage of Account Value, because
otherwise the decrease in the Death Benefit is offset by the
amount of Account Value withdrawn. The primary use of a
partial surrender is to withdraw cash and reduce the Account
Value.
In comparison, an increase in the Death Benefit Proceeds payable
due to the operation of the applicable corridor percentage occurs
automatically and is intended to help assure that the Policy
remains qualified as life insurance under federal tax law. The
calculation of the Death Benefit based upon the applicable
corridor percentage occurs only when the Account Value of a
Policy reaches a certain proportion of the Specified Amount
(which may or may not occur). Additional premiums, favorable
investment performance and large initial premiums tend to
increase the likelihood of the applicable corridor percentage
becoming operational after the first few Policy Years. Such
increases will be temporary, however, if the investment
performance becomes unfavorable and/or premiums are stopped or
decreased.
Payment of Death Benefit Proceeds. Banner Life generally will
pay the Death Benefit Proceeds within 7 days after receipt of due
proof of the Insured's death. (See General Provisions -
Postponement of Payments.) Banner Life will add interest to the
Death Benefit from the date of death to the date of payment if
required by applicable law. The Death Benefit may be paid in a
lump sum or under one of the Payment Options set forth in the
Policy. (See Payment Options - Payment of Proceeds.)
Banner Life will accept as due proof of death of the Insured a
completed Claimant's Certificate, which will be furnished by
Banner Life, together with a certified copy of the Certificate of
Death. In some circumstances, Banner Life may require additional
information to verify due proof of death even though a
Certificate of Death is furnished.
Right to Examine Policy
The Policyowner may cancel the Policy within the later of 10 days
from the date of receipt of the Policy, 10 days from the mailing
or personal delivery to the Policyowner of the notice of the
right of withdrawal, or 45 days from the date the Policyowner
signs Part 1 of the application. If the Policyowner cancels the
Policy within this time period, Banner Life will refund any
premium paid.
To cancel the Policy, the Policyowner should return it to the
agent through whom it was purchased or to Banner Life's
Administrative Office or such other method as described in the
contract. A refund of premiums paid by check may be delayed
until the check has cleared the Policyowner's bank. (See General
Provisions - Postponement of Payments.)
Similarly, the Policyowner may cancel any increase in Specified
Amount by giving written notice to Banner Life's Administrative
Office or to the agent through whom the increase was arranged
before the latest of:
(1) 10 days from the date of receipt of the Policy amendment
showing the increase;
(2) 10 days from the mailing or personal delivery to the
Policyowner of the notice of the right of withdrawal; or
(3) 45 days from the date the Policyowner signs the application
for the increase.
Canceling an increase does not require Banner Life to return any
premiums that may have been paid, although Banner Life reserves
the right to return any premiums associated with or allocable to
a canceled increase in Specified Amount.
Right to Exchange for Fixed Life Insurance
For two years after the Issue Date, the Policyowner may exchange
the Policy for a flexible premium life insurance policy. The
Account Value of the new policy will not increase or decrease
with the investment performance of the Variable Account. To
accomplish this, Banner Life will transfer, without charge, the
entire Variable Account Value to the General Account. (See The
General Account.) All future premiums will be allocated only to
the General Account. The issue age, premium class and net amount
at risk will be the same as those of the Policy being exchanged.
If the Policyowner increases the Specified Amount of the Policy
(and such increase is not the result of a change in Benefit
option), then during the two years following the increase the
Policyowner may convert the Policy to a flexible premium life
insurance policy issued by Banner Life subject to the same
conditions and principles applicable to a conversion of a newly
issued Policy. Alternatively, the Policyowner can convert only
the increased amount simply by a transfer to the General Account,
and if this is done then there will be no transfer fee for the
conversion.
Voting Rights
To the extent required by law, Banner Life will vote the Fund's
shares held in the Variable Account at regular and special
shareholder meetings of the Fund in accordance with instructions
received from persons having voting interests in the
corresponding Sub-Accounts of the Variable Account. If, however,
the 1940 Act or any regulation thereunder should be amended or if
the present interpretation or general practice in respect thereof
should change, and as a result Banner Life determines that it is
allowed to vote the Fund's shares in its own right, Banner Life
may elect to do so.
The number of votes which a Policyowner has the right to instruct
will be calculated separately for each Sub-Account. The number
of votes which each Policyowner has the right to instruct will be
determined by applying the Policyowner's percentage interest in
the Sub-Account (based on the Variable Account Value) to the
total number of votes attributable to the Sub-Account.
Fractional votes will be counted. The number of votes of a
Portfolio which the Policyowner has the right to instruct will be
determined as of a date established by Banner Life, but not more
than 90 days before the meeting of the Fund. Voting instructions
will be solicited by written communication prior to such meeting.
Each person having a voting interest in a Sub-Account will
receive proxy material, reports and other materials relating to
the appropriate Portfolio.
Banner Life will vote Fund shares attributable to the Policies as
to which no timely instructions are received and any Fund shares
held by Banner Life as to which Policyowners have no beneficial
interest, in proportion to the voting instructions which are
received with respect to all Policies participating in that
Portfolio. Voting instructions to abstain on any item to be
voted upon will be applied on a pro rata basis to reduce the
votes eligible to be cast.
Disregard of Voting Instructions. Banner Life may, when required
by state insurance regulatory authorities, disregard voting
instructions if the instructions require that the shares be voted
so as to cause a change in the sub-classification or investment
objective or policies of the Fund or one or more of its
Portfolios or to approve or disapprove an investment advisory
contract for a Portfolio. In addition, Banner Life itself may
disregard voting instructions in favor of changes initiated by a
Policyowner(s) in the investment policy or the investment advisor
of a Portfolio of the Fund if Banner Life reasonably disapproves
of such changes. A change would be disapproved only if the
proposed change is contrary to state law or prohibited by state
regulatory authorities or Banner Life determined that the change
would have an adverse effect on its general account in that the
proposed investment policy for a Portfolio may result in overly
speculative or unsound investments. In the event Banner Life
does disregard voting instructions, a summary of that action and
the reasons for such action will be included in the next annual
report to Policyowners.
Additional Benefits Provided by Rider
In addition to the basic rights and benefits summarized above,
the Policy may provide additional benefits if the Policyowner has
elected to have one or more riders added to the Policy. The
riders currently available are briefly summarized below, but the
following descriptions are qualified in their entirety by the
actual riders, which should be consulted for a complete
description of the benefits provided and the restrictions,
exceptions, and limitations that may be applicable. Of course,
the benefits provided by rider do not apply unless the rider is
in force at the applicable time. All Riders may not be available
in all states.
There is a separate charge for each rider. The charge will vary
depending on factors such as age, sex, and risk classification.
The charge is included in the monthly deduction. (See Monthly
Deduction.)
Certain combinations of riders are not permitted. Neither the
Waiver of Monthly Deduction Benefit Rider nor the Mortgage
Disability Income Rider can be combined with the Disability
Benefit Rider.
Waiver of Monthly Deduction Benefit Rider. This rider provides
that Banner Life will waive the monthly deduction if the insured
becomes totally disabled (as defined in the rider) prior to age
65 while the Policy and the rider are in force. The waiver
applies to the monthly cost of insurance charges for the Policy
and the monthly administrative charge. The waiver does not begin
until the insured has been disabled for six months. If the
disability occurs before age 60, the waiver continues until
maturity, surrender, or termination as long as the insured
continues to be totally disabled. If the disability occurs after
age 60 and before age 65, the waiver continues until age 65 or
during the first year of the disability, whichever is longer.
(The rider terminates at age 65).
It is important to note that this rider does not necessarily
prevent the Policy from lapsing even if the monthly deduction is
being waived, because nevertheless the Account Value can be
reduced to zero due to negative investment performance.
Accidental Death Benefit Rider. This rider provides that Banner
Life will pay the accidental death benefit amount, in addition to
the death benefit provided under the basic coverage, if the
insured dies from an "accidental death," as defined in the rider.
Generally, an accidental death is one that occurs within 90 days
of an accidental bodily injury or an accidental drowning and that
results directly from that accidental occurrence. The accidental
death can result from a disease or infection, provided that such
disease or infection results directly from an accidental bodily
injury and begins within 30 days after the date of the injury.
In addition, there are a number of specific exclusions listed in
the rider. This rider terminates no later than age 70. The
maximum amount available under this rider is the lower of (a) the
sum of any Specified Amount plus the Primary Insured Term Rider
(as described below) under the basic coverage or (b) $200,000.
Primary Insured Term Rider. Term life insurance to age 95 is
available through this rider on the life of the person insured
under the basic coverage. This provides an additional death
benefit, but no additional Account Value. The maximum amount
available under the rider is five (5) times the Specified Amount
under the basic coverage. This rider terminates upon maturity,
surrender, or termination of the basic coverage, or upon the
Policyowner's request.
Other Insured Term Rider. This rider provides term life
insurance to age 95 on a specified individual (the "other
insured") other than the insured under the basic coverage (the
"primary insured"). An insurable interest must exist between the
"other insured" and the primary insured. This rider does not
provide any additional Account Value. The maximum amount
available is the initial Specified amount under the basic
coverage plus the amount, if any, under a Primary Insured Term
Rider. This rider may be converted, without evidence of
insurability, to a permanent plan if the exchange is made before
the "other insured" attains age 70. If the "other insured"
survives the primary insured, he or she may convert this rider
within sixty (60) days of the primary insured's death.
Child Term Rider. This rider provides term life insurance on
children of the primary insured. The minimum amount available is
$5,000 (but the death benefit will be only $1,000 if the child's
death occurs before 30 days of age), and the maximum amount
available is $25,000. Each insured child should be named
separately in the Policy. This rider terminates when the child
reaches age 25. At certain times, this rider can be converted to
a permanent life plan covering the insured child without evidence
of insurability, but the conversion must be made before the
insured child reaches age 25. If the primary insured dies while
this rider is in force, the insurance on the child(ren) will
continue to age 25 with no further premiums due.
Spouse Term Rider. Term insurance to age 75 for the insured's
spouse is provided by this rider. The maximum amount is the
initial Specified Amount for the basic coverage plus the amount,
if any, under a Primary Insured Term Rider. If the primary
insured dies while the rider is in force, the insurance on the
spouse will continue to age 75 with no further premiums due.
This rider may be converted, without evidence of insurability, to
a permanent plan of insurance if the conversion is made before
the spouse attains age 70.
Cost of Living Adjustment Rider. The Specified Amount of the
Policy would be periodically increased to reflect increases in
the Consumer Price Index while this rider is in force. The
increases would take place every two years. However, there would
be no further increases after the insured attains age 56 (or the
fifth policy year, if later). Individual increases would never
exceed $30,000 every two years (regardless of the actual change
in the CPI) and the total of all increases in the Specified
Amount as a result of the rider could never exceed $200,000. The
monthly cost of insurance charge would be increased to reflect
the increased Specified Amount since that would cause an increase
in the net amount at risk. (See Monthly Deduction - Cost of
Insurance.) Policyowners will be notified before an increase is
to take effect, and they can elect not to accept the increase.
If they elect not to accept the increase, no further increases
will be offered, and the rider will terminate.
Disability Benefit Rider. Upon continued total disability of the
insured, this rider provides for monthly payments into the
Account Value. The rider will only be issued with respect to
insureds age 15 to 55. The benefit is only payable for total
disabilities that (a) result from bodily injury or disease; (b)
prevent the insured from working at an occupation for
compensation or profit; (c) start while the rider is in force;
(d) and continue for at least four months. However, certain
permanent and total losses (listed in the rider) need not prevent
working at an occupation in order for the disability benefits to
be payable. Certain exclusions are listed in the rider (for
example, disabilities resulting from self-inflicted injuries,
from any act or incident of war whether declared or not, and from
certain aircraft related activities are not covered). The
benefit amount will be established at issue in units of $10.00.
The rider terminates when the insured reaches age 60 (unless the
insured is already disabled upon reaching age 60, in which case
the rider does not terminate until recovery) or when the basic
coverage terminates, whichever is earlier.
It is important to note that even if disability benefit payments
are being made into the Account Value under this rider, the
Policy could still lapse. This might occur due to adverse
investment experience or lack of sufficient benefit amounts to
cover the monthly deduction, which would continue to be made. If
the Policy does lapse, the rider will terminate and benefit
payments will cease.
Mortgage Disability Income Rider. This rider provides for
monthly benefit payments to the insured upon his or her total
disability. This differs from the Disability Benefit Rider in
that cash payments are to be made directly to the insured instead
of into the Policy's Account Value. The rider will only be
issued with respect to insureds age 20 to 55 who have a mortgage.
This rider pays benefits for the same total disabilities as the
Disability Benefit Rider and is subject to the same limitations
and exclusions. Also like that rider, the benefit amount will be
established at issue in units of $10.00 with a minimum benefit of
$250. The benefits under this rider do not increase the Account
Value, and the Policy could lapse while this rider is in effect
and benefit payments are being paid. If the basic coverage
lapses, the rider will terminate and benefit payments will cease.
Guaranteed Death Benefit Rider. See Lapse, Grace Period,
Guaranteed Death Benefit Rider and Reinstatement - Guaranteed
Death Benefit Rider.
PREMIUMS AND ALLOCATION
Issuance of a Policy
Individuals wishing to purchase a Policy must complete an
application and send it to Banner Life's Administrative Office.
Banner Life will review the application, and any medical
information or other data which it requires, to determine if the
individual is insurable under its underwriting rules. No Policy
will be issued covering Insureds over the age of 80. Coverage
will only become effective on the Policy Date after Banner Life
approves the amount applied for, assuming that the premium has
already been tendered. Should an individual die before the
Policy Date, Banner Life's sole liability will be to return the
premium paid plus any interest earned on it.
Premiums
Premiums after the first must be paid to Banner Life at its
Administrative Office. The first premium is due on the Policy
Date. Additional premiums may be paid at any time while the
Insured is alive prior to the Maturity Date. Each premium will
be subject to the premium expense charge. A net premium is a
premium less the premium expense charge. (See Premium Expense
Charge.)
The Policy Schedule will indicate the amount of the Planned
Annual Premium. The Planned Annual Premium may be increased or
decreased subject to the premium limitation and Banner Life's
approval. Paying the Planned Annual Premiums is not mandatory
and does not mean the Policy will remain in force. The Planned
Annual Premium is designed solely as an aid to financial planning
and to facilitate premium reminder notices. An unplanned premium
payment may have Federal income tax consequences. (See Federal
Tax Matters.)
The Policy Schedule will also indicate the Monthly Guarantee
Premium on the Policy Date. The Monthly Guarantee Premium
determines whether the Policy remains in effect during the
Guarantee Period, even if the Cash Surrender Value is
insufficient to pay the monthly deduction. (See Lapse, Grace
Period, Guaranteed Death Benefit Rider and Reinstatement.) The
Monthly Guarantee Premium will change if (1) the Specified Amount
of the Policy is increased or decreased; (2) there is an increase
in the amount of insurance of any riders or benefits attached to
the Policy; (3) riders or benefits are added to or deleted from
the Policy; or (4) the rating classification is changed. Banner
Life will notify the Policyowner of the new Monthly Guarantee
Premium. The new Monthly Guarantee Premium will be based on the
Attained Age of the Insured at the date of the increase and the
total amount of coverage provided by the Policy, including any
riders and benefits attached to the Policy, following the change.
(See Lapse, Grace Period, Guaranteed Death Benefit Rider and
Reinstatement.)
Neither the Planned Annual Premium nor the Monthly Guarantee
Premium are mandatory. If these premiums are not paid, insurance
coverage under the Policy will nevertheless be continued until
the Cash Surrender Value is insufficient to pay the monthly
deduction. (See Lapse, Grace Period, Guaranteed Death Benefit
Rider and Reinstatement.) Conversely, except during the
Guarantee Period, paying the Planned Annual Premium or the
Monthly Guarantee Premium does not assure that the Policy will
remain in force.
Premium Limitation. The sum of the premiums paid under the
Policy may not at any time exceed the premium limitation as of
such time. The premium limitation is the greater of the
guideline single premium or the guideline level premium
multiplied by the number of years the Policy has been in force.
The guideline single premium and the guideline level premium are
shown in the Policy and are defined generally in the Internal
Revenue Code. These guideline premiums will be adjusted if the
Specified Amount is changed. The premium limitation will not
apply if a premium is required to prevent termination of the
Policy. (See Lapse, Grace Period, Guaranteed Death Benefit Rider
and Reinstatement.)
Allocation of Premiums
The Policyowner determines in the application how the net
premiums will be allocated among the Sub-Accounts of the Variable
Account and the General Account. The Policyowner may allocate
any whole percentage of at least 10%, to any one or more
Sub-Accounts or to the General Account. The total allocation
must equal 100%. The Policyowner may change the net premium
allocation instructions at any time by written notice to Banner
Life's Administrative Office. Premiums received after the Issue
Date will be allocated at the end of the Valuation Period during
which they are received.
Prior to the Issue Date and for 30 days thereafter, all net
premiums allocated to the Variable Account will be allocated to
the Money Market Sub-Account. At the end of that 30 day period
the value in the Money Market Sub-Account will be transferred to
the selected Sub-Accounts in accordance with the allocation
percentages specified by the Policyowner in the application.
This transfer will be made automatically without charge. Net
premiums received in respect of an increase in Specified Amount
and allocated to the Variable Account will be held in the Money
Market Sub-Account for 30 days after the date of increase.
The Account Value will vary with the investment performance of
the selected Sub-Accounts and the Policyowner bears the entire
investment risk for the amounts allocated to the Variable
Account. This will affect not only the Account Value, but it may
also affect the Death Benefit and whether the Policy may lapse.
The Policyowner should periodically review the allocations of
Account Value in light of all relevant factors, including market
conditions and his/her overall financial planning requirements.
Lapse, Grace Period, Guaranteed Death Benefit Rider and
Reinstatement
Lapse. The failure to pay a Planned Annual Premium or a Monthly
Guarantee Premium will not itself cause the Policy to lapse, nor
will paying those premiums necessarily prevent lapse except
during a Guarantee Period. Lapse will only occur when the Cash
Surrender Value is less than the monthly deduction and the grace
period expires without a sufficient payment (unless a Guaranteed
Death Benefit Rider is in effect - see discussion below).
Insurance coverage will continue during the grace period but the
Policy will be deemed to have no Account Value for purposes of
Policy loans and surrenders.
Grace Entry Except During A Guarantee Period. The Policy will go
into a grace period of 61 days if, on a Monthly Anniversary, the
Cash Surrender Value is less than the monthly deduction. Unless
the Policy is within the Guarantee Period, the Policy will not
lapse if a premium equal to at least three monthly deductions is
received during the grace period; however, if the Policy is
within the Guarantee Period (described below), the Policy will
not lapse if a premium equal to at least three times the current
Monthly Guarantee Premium is received during the grace period.
The grace period of 61 days begins when Banner Life sends a
notice that the grace period has begun.
At the time of going into the grace period any values in the
Sub-Accounts will be transferred to the General Account and will
remain there until the required premium has been paid.
Banner Life will send a notice of the premium due to the
Policyowner's last known address and to any assignee of record at
least 30 days prior to the date the Policy is to terminate. If
the premium due on such Monthly Anniversary is not paid within
the grace period, all coverage under the Policy will terminate
without value at the end of the grace period. If a death claim
occurs during the grace period, overdue monthly deductions will
be deducted from the Proceeds.
Guarantee Period. The Guarantee Period is a period during which
a special grace provision applies. During the Guarantee Period,
the Policy will remain in force if the sum of all premiums paid
since the beginning of the Guarantee Period (minus any Policy
loans and partial surrenders), is at least as great as the sum of
all Monthly Guarantee Premiums for each of the Policy Months from
the Policy Date to the end of the current Policy Month. If this
requirement is not met, the Policy will enter a grace period if
the Cash Surrender Value is less than the monthly deduction. The
Policy will lapse at the end of the grace period unless a premium
equal to three times the current Monthly Guarantee Premium is
paid during the grace period. The grace period of 61 days begins
when Banner Life sends a notice that the grace period has begun.
The Monthly Guarantee Premium is shown in the Policy Schedule,
and described below.
The Guarantee Period starts on the Policy Date and lasts for
three years.
If a Policy enters a grace period and the required premium is not
paid before the grace period ends, the Policy will lapse.
Guaranteed Death Benefit Rider. A Guaranteed Death Benefit Rider
is available under this Policy. If a Policyowner purchases a
Guaranteed Death Benefit Rider, and if the Guarantee Premium
Requirement is met, the Policy will not enter a grace period (and
thus will not lapse) even if the Cash Surrender Value is less
than the monthly deduction on a Monthly Anniversary.
The Guarantee Premium Requirement on each Monthly Anniversary is
met if the sum of all premiums paid (less any partial surrenders
and policy loans) is greater than the sum of all Monthly
Guarantee Premiums to date (including the Guarantee Premium for
the current Monthly Anniversary). If on any Monthly Anniversary
the Guarantee Premium Requirement is not met, Banner Life will
send a notice of the premium required to the Policy Owner. If
the premium required is not received by Banner Life at its
Administrative Office prior to the next Monthly Anniversary, the
Guaranteed Death Benefit Rider will terminate. Thereafter, the
Policy will remain in force unless the Cash Surrender Value is
less than the monthly deduction, and the grace period expires
without a sufficient premium being paid, as described below.
The Monthly Guarantee Premium is shown in the Policy Schedule and
described below.
The Guaranteed Death Benefit Rider will terminate:
(1) on any Monthly Anniversary following Banner Life's notice to
the Policyowner that the Guarantee Premium Requirement was
not met, if Banner Life has not received the premium
required;
(2) on the Monthly Anniversary coinciding with or next following
written request from the Policyowner for termination of the
Guaranteed Death Benefit Rider;
(3) upon termination of the Policy; or
(4) on the Policy Anniversary following the Insured's seventieth
birthday.
There is a charge for the Guaranteed Death Benefit Rider. (See
Monthly Deduction - Rider Charge.)
Monthly Guarantee Premium. The Monthly Guarantee Premium is a
feature of the Policy which is used for two purposes: (1) to
measure the amount of premiums needed to be paid in order to
ensure that the Policy does not terminate during the Guarantee
Period; and (2) while a Guaranteed Death Benefit Rider is in
effect, to measure the amount of premiums needed to be paid in
order to ensure that the Policy does not terminate at any time
prior to age 70. The Monthly Guarantee Premium is the same for
both of these purposes.
The Monthly Guarantee Premium is specified in the Policy
Schedule. There will be a change in the Monthly Guarantee
Premium if:
(1) the Specified Amount of the Policy is increased or
decreased;
(2) the Insured's rating classification is changed;
(3) there is an increase or decrease in the amount of insurance
of any riders or benefits attached to the Policy; or
(4) riders or benefits are added to, or deleted from, the
Policy.
Reinstatement. A Policy which terminates in accordance with the
grace period provision may be reinstated within five years after
the expiration of the grace period if:
(1) the Policyowner submits a written application;
(2) evidence of the Insured's insurability is received and
approved by Banner Life; and
(3) the required premium as described below is paid.
Except as provided below, the required premium is the sum of (a)
plus (b) where:
(a) is the greater of zero, and the result of (i) the surrender
charge at the date of entering the grace period plus (ii)
any Indebtedness at that date, minus (iii) the Account Value
at that date, all divided by the result of 1.00 minus the
premium expense charge; and
(b) is a premium sufficient, in Banner Life's view, to keep the
Policy in force for three months.
On the date of reinstatement the Account Value of the Policy will
equal the surrender charge at that time together with the Account
Value provided by the premium in (b) above.
If the policy is reinstated within a Guarantee Period then, in
lieu of the required premium above, a premium equal to (c) plus
(d) may be paid where:
(c) is the Monthly Guarantee Premium times the number of months
between the date of entering the grace period and the date
of reinstatement; and
(d) is a premium sufficient, in Banner Life's view, to keep the
Policy in force for three months.
In this case, the Account Value of the Policy on the date of
reinstatement will equal the Account Value at the date of
entering the grace period together with the Account Value
provided by the premium in (c) and (d) above.
If the Policy is reinstated, then the surrender charges will be
the same as if the Policy had been continuously in force from its
original Policy Date.
The effective date of reinstatement will be the Monthly
Anniversary following the date the application for reinstatement
is approved by Banner Life.
CHARGES AND DEDUCTIONS
Surrender Charges
If a Policy is surrendered during the first ten Policy Years,
Banner Life will assess a full surrender charge. The full
surrender charge consists of a flat amount for initial
administrative expenses and a percentage of premiums paid in the
first two Policy Years (up to the guideline annual premium) for
sales expenses. During the first five Policy Years, the flat
amount is $200 and the percentage is 27.5% of those premiums.
The full surrender charge then grades down to zero over the next
five Policy Years in regular monthly intervals. The "guideline
annual premium" for a particular Policy is specified in the
Policy Schedule, which also contains a table of surrender charges
based on the assumption that Planned Annual Premiums are paid for
the first two Policy Years. This serves to limit the sales load
component of the surrender charge. The flat amount for initial
administrative expenses is not expected to exceed actual costs.
In any event, the surrender charge will not exceed $200 plus
27.5% of $141 per $1,000 of Specified Amount.
On a partial surrender from the Policy, a partial surrender
charge will be imposed and deducted from the amount of the
partial surrender. The partial surrender charge equals (a) the
full surrender charge multiplied by the ratio of the partial
surrender amount to the Cash Surrender Value of the Policy, plus
(b) the lesser of 2% of the amount of the partial surrender or
$25 for administrative costs (Banner Life does not expect any
profit from this administrative charge). Future surrender
charges will be reduced by the same ratio used in (a).
Additional surrender charges apply to surrenders after an
increase in Specified Amount. Banner Life will provide a new
table of surrender charges when an increase occurs. The increase
in surrender charges will be imposed on any surrender within ten
years from the date of increase, and will be based on a flat
amount for underwriting administrative costs plus a percentage of
any premium (up to one guideline annual premium) attributable to
the increase in Specified Amount paid in the two years following
the increase for sales expenses. The flat amount is $200 and the
percentage is 27.5% for the first five years from the date of
increase. The additional surrender charge then grades down to
zero over the next five years.
The amount of premiums attributable to an increase in Specified
Amount will be based on a proportionate allocation of premiums
between the Specified Amount before the increase and the amount
of the increase in Specified Amount (on the basis of their
relative guideline annual premiums).
Banner Life does not anticipate that the revenues derived from
the sales charges will be sufficient to cover all expected
distribution expenses. Accordingly, Banner Life will pay such
expenses out of its general corporate funds, which include
amounts derived from the mortality and expense risk charge as
well as amounts derived from other types of insurance products,
amounts derived from Banner Life's investments, and all other
sources of funds available to Banner Life.
Premium Expense Charge
Prior to the allocation of net premiums to the Sub-Accounts of
the Variable Account and to the General Account, Banner Life will
deduct a 5.0% premium expense charge consisting of a 2.5% sales
charge and a 2.5% charge for premium taxes. The premium less the
premium expense charge equals the net premium.
Sales Charge. A sales charge of 2.5% of each premium will be
deducted to compensate Banner Life for certain sales and
distribution expenses. Sales and distribution expenses include
agent sales commissions, the cost of printing prospectuses and
sales literature, and any advertising costs. Sales and
distribution expenses may also be covered by the surrender
charge, described above.
Premium Taxes. Various states and subdivisions impose a tax on
premiums received by insurance companies. Therefore, the premium
expense charge currently includes a deduction of 2.5% of every
premium for these taxes. Premium taxes vary from state to state.
The deduction represents an amount Banner Life considers
necessary to pay all premium taxes imposed by states and any
subdivisions thereof. Banner Life reserves the right to change
the amount of this premium tax charge.
Monthly Deduction
A monthly deduction is made from the Account Value of each Policy
to compensate Banner Life for the cost of insurance coverage and
any optional benefits added by rider, and for certain
administrative costs. The monthly deduction will be deducted on
the Policy Date and on each Monthly Anniversary. Because
portions of the monthly deduction, such as the cost of insurance,
can vary from month to month, the monthly deduction itself will
vary in amount from month to month.
The monthly deduction will be calculated on each Monthly
Anniversary and will equal:
(1) the cost of insurance for the Policy; plus
(2) the cost of any riders; plus
(3) the monthly policy fee.
The monthly deduction will be made from the Sub-Accounts and the
General Account in proportion to the values held in those
accounts.
Cost of Insurance. A mortality charge will be deducted on each
Monthly Anniversary to compensate Banner Life for the cost of
insurance for the succeeding Policy Month. This charge is
designed to compensate Banner Life for the anticipated cost of
paying Death Benefits to the Beneficiaries of Insureds who die
while the Policy is in force. The cost of insurance is
determined on a monthly basis, and is determined separately for
the Specified Amount in the original application and for any
subsequent increases.
The mortality charge is based on the Policy's net amount at risk
(which is the difference between the Death Benefit divided by
1.0032737 and the Account Value as of the beginning of the Policy
Month) and on the Attained Age, sex and rating classification of
the Insured. Monthly cost of insurance rates will be determined
by Banner Life based upon its expectation as to future mortality
experience. Tobacco users can qualify for standard risk
classification, while non-tobacco users can qualify for a
preferred risk classification. The rates are guaranteed not to
exceed the maximum cost of insurance rates specified in the
Policy, which are based on the 1980 Commissioners' Standard
Ordinary Mortality Table, age last birthday, male or female, and
the rating classification. For standard and preferred risk
classifications, the cost of insurance rates are guaranteed not
to exceed 100% of the rates in that Table. Banner Life may use
lower monthly cost of insurance rates at its option and currently
intends to charge between 75% and 100% of the rates specified in
that table for standard risks. The rates may be higher than 100%
of the rates in the applicable Table for Insureds in special or
sub-standard rating classifications. Policyowners should not
assume that the maximum rates will not be charged.
The cost of insurance is (1) multiplied by the result of (2)
minus (3) where:
(1) is the monthly cost of insurance rate;
(2) is the Death Benefit on the Monthly Anniversary divided by
1.0032737; and
(3) is the Account Value on the Monthly Anniversary.
If the Death Benefit is Type B Option and there has been an
increase in the Specified Amount, then the Account Value will
first be considered a part of the Specified Amount when the
Policy was issued. If the Account Value is greater than the
Specified Amount, it will then be considered a part of each
increase in order, starting with the first increase.
Rider Charge. Banner Life deducts a monthly charge from the
Account Value for additional coverage provided by riders to the
Policy.
Expense Charge. Banner Life currently deducts a charge on each
Monthly Anniversary to compensate it for expenses incurred in
administering the Policy. These expenses include costs of
maintaining records, processing Death Benefit claims, surrenders,
transfers, and Policy loans, providing reports to Policyowners,
and appropriate overhead costs. There is not necessarily a
relationship between the amount of the charge imposed on a
particular Policy and the amount of administrative expenses that
may be attributable to that Policy. This charge is "cost-based"
and Banner Life does not expect a profit from this charge. The
monthly charge is currently $5.00, and Banner Life guarantees
that this charge will never exceed $7.50 per month.
Variable Account Charges
Mortality and Expense Risk Charge. Banner Life deducts a daily
charge from the Sub-Accounts as compensation for assuming certain
mortality and expense risks under the Policy. Banner Life may
realize a profit from this charge. This charge is guaranteed not
to exceed an effective annual rate of .90% of the average daily
net assets of each Sub-Account, and the current rate is .75%.
The mortality risk is the risk that the cost of insurance charges
specified in the Policy will be insufficient to meet actual
claims. Banner Life also assumes the risk that other expense
charges may be insufficient to cover the actual expenses incurred
in connection with the Policy.
Federal Taxes. Currently no charge is made to the Variable
Account for federal income taxes that may be attributable to the
Variable Account. Banner Life may, however, make such a charge
in the future. Charges for other taxes, if any, attributable to
the Variable Account may also be made. (See Federal Tax
Matters.)
Fund Expenses. The value of the assets of the Variable Account
will reflect the investment management fee (See Scudder Variable
Life Investment Fund - Fund Management and Fees) and other
expenses incurred by the Fund.
Other Charges
Transfer Charge. A transfer charge may be imposed for each
transfer request. The charge will be deducted from the amount
transferred to compensate Banner Life for the costs in
effectuating the transfer. The transfer charge is guaranteed not
to exceed $25. Currently, there is no charge for the first four
transfers in each Policy Year, and a $15 charge is imposed on
each additional transfer request.
Projection of Values Charge. One projection of illustrative
future Death Benefits and Account Values will be provided each
Policy Year without a service fee. Extra projections will be
provided upon request and payment of a $25 service fee.
PAYMENT OPTIONS
Election of Payment Option
During the Policyowner's lifetime, the Policyowner may elect any
Payment Option and may change such election if he or she has
reserved the right to do so. Otherwise, any amount payable under
the Policy will be paid in one lump sum.
If the Policyowner elects a Payment Option for the Beneficiary,
the Beneficiary may not:
(1) change or cancel the election;
(2) assign or transfer the amount held by Banner Life; or
(3) withdraw any future installments or unpaid interest
installments unless these rights are granted in the
election.
If the Policyowner does not elect a Payment Option, the
Beneficiary may do so after the Policyowner's death.
Any election or change must be made by written notice to Banner
Life. No election or change will be effective until Banner Life
records it.
Available Options
The Payment Options are all fixed options, so the amount of the
payments will be fixed and guaranteed at the time the payments
begin.
Option A - Income for a Specified Period. Based on each $1,000
of Proceeds, payments will be made in equal annual or monthly
installments for a specified period. Payments will be made in
accordance with the Option A table in the Policy. The first
installment will be paid on the date Proceeds are settled under
this option. The Option A table is based on a guaranteed
interest rate of 3% a year, compounded yearly.
Option B - Life Income. Based on each $1,000 of Proceeds,
payments will be made in equal monthly installments during the
payee's lifetime. Payments will be made in accordance with the
Option B table in the Policy:
(1) with 240 installments guaranteed (20 year period certain);
or
(2) with 120 installments guaranteed (10 year period certain);
or
(3) with refund (specified installments will be paid until the
proceeds are exhausted); or
(4) without refund (payments will be made only during the
payee's lifetime).
Under the Life Income without refund option, only one payment
would be made if the payee died before the second payment was
due, only two payments would be made if the payee died before the
third payment was due, and so on.
The first installment will be paid on the date Proceeds are
settled under this option. The Option B table is based on a
guaranteed interest rate of 2-1/2% a year, compounded yearly.
Banner Life has the right to require satisfactory proof of any
payee's age. The right to change options is not available after
payments commence under this option.
Under this option, the payee may choose an alternate monthly life
income. Proceeds may be used to buy a monthly life income at
rates then in use for single premium immediate annuities.
Banner Life shall deem that an election made under this Option B
will have been made for the longest period certain which could
have been elected by the payee for the payee's age and amount
available, unless otherwise specified.
Option C - Income of a Specified Amount. The proceeds will be
paid in equal annual or monthly installments of a specified
amount until the Proceeds, with interest, are exhausted. The
first installment will be paid on the date the Proceeds are
settled under this option. The guaranteed interest rate is 3% a
year, compounded yearly.
Option D - At Interest. The proceeds may be left with Banner
Life to draw interest. Interest may be paid annually,
semiannually, quarterly, or monthly. The first payment will be
made at the end of the interest frequency period chosen. The
guaranteed interest rate is 3% a year, compounded yearly.
Payment of Proceeds
Any amount payable under the Policy will be paid in one sum
unless otherwise provided. All or part of this sum may be
applied to any Payment Option. However, Payment Options will not
be available if:
(1) the Proceeds are less than $2,500;
(2) the amount of each payment is less than $50; or
(3) in the case of Payment Option B, the payee is not a natural
person receiving payment in his/her own right.
Proceeds left with Banner Life may be withdrawn by written notice
where such right is given.
Automatic Payment Option
If settlement of the Proceeds of the Policy is delayed over 30
days, Option D will be applied automatically. Interest will be
paid yearly and the person(s) entitled to the Proceeds has the
right to withdraw the Proceeds or elect any Payment Option
permitted by the Policy.
Additional Options
Any Proceeds payable under the Policy may be paid under any other
method of payment agreed to by Banner Life at the time of
settlement.
Excess Interest
Interest credits during any guaranteed period will be increased
by any additional interest Banner Life may authorize in its sole
discretion. Banner Life is not required to authorize any
additional interest, and it may choose not to do so.
GENERAL PROVISIONS
Postponement of Payments
Banner Life may postpone the calculation and payment of Cash
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
SEC; or
(2) the SEC by order permits postponement for the protection of
Policyholders; 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 Policyowners. If this
happens, Banner Life will calculate the dollar value or number of
units involved on or as of the date Banner Life receives 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 Policyowners 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 calculation and payment of Cash
Surrender Values, loans or transfers from the General Account for
up to 6 months.
Payments under the Policy of any amounts derived from premiums
paid by check may be delayed until such time as the check has
cleared the Policyowner's bank.
The Contract
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 not change or amend the Policy, except as
expressly provided in the Policy, without the Policyowner's
consent. However, 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.
Not Contestable After Two Years
Statements in the application are considered representations, not
warranties. Statements may be used to contest the validity of
the Policy or in defense of a claim only if they are contained in
the application, supplemental application, or in an endorsement
or amendment, and a copy of that application, endorsement or
amendment is attached to the Policy at issue or is made a part of
the Policy when a change becomes effective.
Banner Life cannot contest the Policy after it has been in force
two years during the Policyowner's lifetime from the date of
issue or the date of any reinstatement. If the Policy has been
reinstated, only statements in the reinstatement application may
be contested. Any increase in Specified Amount effective after
the date of issue will be incontestable only after such increase
has been in force during the Policyowner's lifetime for two years
following the effective date of such increase.
Misstatement of Age and Sex
If the Insured's age or sex has been misstated, the Proceeds
payable will be those purchased by the most recent monthly
deduction at the correct age and sex. If any payments have been
made under a Payment Option that depends on age or sex,
adjustments in future payments or other adjustments will be made
if the age or sex has been misstated.
Effective Date of Coverage
The effective date of coverage under the Policy will be as
follows:
(1) for all coverage provided in the original application, the
effective date will be the Policy Date;
(2) for any increase or addition to coverage, the effective date
will be the Monthly Anniversary on or next following the
date the supplemental application is approved by Banner
Life; and
(3) for any insurance that has been reinstated, the effective
date will be the Monthly Anniversary on or next following
the date the application for reinstatement is approved by
Banner Life.
Termination
All coverage under the Policy will terminate when any one of the
following events occurs:
(1) the Policyowner surrenders the Policy;
(2) the Insured dies;
(3) the Policy matures; or
(4) the grace period ends.
Annual Report
Banner Life will send the Policyowner at least once each year a
report which shows the current Account Value, Cash Surrender
Value, premiums paid, charges made since the last report, and
outstanding Policy loans. The annual report will also include
other information as required by state law, regulation or
authority.
The report will be mailed within 45 days of the Policy
Anniversary and within 13 months of the last report.
Projection of Values
Banner Life will provide a projection of illustrative future
Death Benefits and Account Values upon written request. The
first projection in any Policy Year will be provided without a
service fee. Extra projections will be provided upon request and
payment of a $25 service fee.
The illustration will be based on assumptions as to Specified
Amount(s), type of coverage option(s), and future premium
payments, as may be specified by Banner Life and/or the
Policyowner, and other assumptions.
Suicide
For the first two full years from the date of issue, Banner Life
will not pay the Death Benefit if the Insured commits suicide,
while sane or insane. Banner Life will terminate the Policy and
give back the premiums paid less any Indebtedness and any partial
surrender amount.
A like limitation applies to any increase in benefits and the
effective date of such increase. Banner Life will give back the
monthly deductions for the increase in Specified Amount as a
death benefit as of the effective date of such increase in
Specified Amount.
Ownership
Unless otherwise noted, the Insured is the owner of the Policy.
During the Insured's lifetime, only the Policyowner may exercise
all the rights and agree with Banner Life as to any changes in
the Policy. If the Insured is not the Policyowner and the
Policyowner dies, then the Insured will become the Policyowner.
However, if the Insured is a minor when the Policyowner dies,
then ownership will pass to the Policyowner's estate.
Assignment of Policy
The Policy may be assigned. Banner Life will not be responsible
for the validity of an assignment. Banner Life will not be
liable for any payments made or actions taken before written
notice to Banner Life of any assignment. Payments to any
assignee will only be made in a lump sum. An assignment may have
Federal income tax consequences. (See Federal Tax Matters.)
Beneficiary
Unless otherwise provided by notice to Banner Life, the
beneficiaries are named in the application.
Change of Beneficiary
During the Policyowner's lifetime, the Policyowner may change the
beneficiary designation unless he or she has waived the right to
do so. No beneficiary change will take effect until a written
notice is received at Banner Life's Administrative Office. Such
changes will become effective on the date notice is received by
Banner Life. All changes will be subject to any payment made by
Banner Life before notice was received.
Death of Beneficiary
Unless otherwise provided in the beneficiary designation:
(1) the interest of any beneficiary who dies before the
Policyowner will pass to any surviving beneficiaries
according to their respective interests; or
(2) if no beneficiary survives, the proceeds will be paid in one
sum to the Policyowner, if living; otherwise, to the
Policyowner's estate.
THE GENERAL ACCOUNT
By virtue of exclusionary provisions, interests in the General
Account have not been registered under the Securities Act of 1933
and the General Account has not been registered as an investment
company under the Investment Company Act of 1940. Accordingly,
neither the General Account nor any interests therein are subject
to the provisions of these Acts.
General Description
The General Account consists of all assets owned by Banner Life
other than those in the Variable Account and any other separate
accounts Banner Life may establish. Subject to applicable law,
Banner Life has sole discretion over the investment of the assets
of the General Account.
The Policyowner may elect to allocate net premiums to the General
Account or to transfer Account Value to the General Account from
the Sub-Accounts of the Variable Account. The allocation or
transfer of funds to the General Account does not entitle the
Policyowner 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 4%, without regard to the actual investment experience
of the General Account. Consequently, if the Policyowner
allocates all net premiums only to the General Account and makes
no transfers or Policy loans, the minimum amount and duration of
the Death Benefit will be determinable and guaranteed depending
on the amount and frequency of premium payments.
General Account Value
The General Account Value is the sum of (1) plus (2) plus (3)
minus the sum of (4) plus (5) where:
(1) is the General Account Value on the prior Monthly
Anniversary, less any proportion of the monthly deduction
made from the General Account on that day, plus interest
from that day;
(2) are net premiums credited to the General Account since the
prior Monthly Anniversary, plus interest from the day
premiums are credited;
(3) are transfers from the Variable Account to the General
Account since the prior Monthly Anniversary, plus interest
from the date of transfer;
(4) are transfers to the Variable Account from the General
Account since the prior Monthly Anniversary, plus interest
from the date of transfer; and
(5) are partial surrenders from the General Account together
with associated charges since the prior Monthly Anniversary,
plus interest from the date of partial surrender.
On any day other than a Monthly Anniversary, the General Account
Value will be calculated on a consistent basis as prescribed
above.
The guaranteed interest rate used in the calculation of the
General Account Value is .32737% a month, compounded monthly.
This is equivalent to 4% per year, compounded yearly. Interest
in excess of the guaranteed rate, if any, may be used in the
calculation of the General Account Value at such increased rate
and in such manner as determined by Banner Life in its sole
discretion.
Transfers
Transfers from the General Account may be made once per Policy
Year, only on the Policy Anniversary, and Banner Life must
receive the transfer request at least 30 days prior to the Policy
Anniversary. The minimum amount that may be transferred from the
General Account is the lesser of: (1) $500; or (2) the entire
General Account Value, excluding amounts securing Policy loans.
The maximum amount that may be transferred from the General
Account is the greater of: (1) $500; or (2) 25% of General
Account Value, excluding any amounts securing Policy loans.
Banner Life may postpone the calculation and payment of Cash
Surrender Values, loans or transfers from the General Account for
up to 6 months.
DISTRIBUTION OF THE POLICIES
The Policies will be sold by individuals who, in addition to
being licensed as life insurance agents for Banner Life, are also
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 Securities and Exchange Commission under the
Securities Exchange of 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.
A commission of up to 50% of premium plus bonus compensation may
be paid to broker-dealers or agents in connection with sales of
the Policies.
Federal Tax Matters
The following summary provides a general description of the
Federal income tax considerations associated with the Policy but
does not purport to be complete or to cover all situations. This
discussion is not intended as tax advice. Counsel or other
competent tax advisers should be consulted for more complete
information before a Policy is purchased or other transactions
made. 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 continuation of the present
Federal income tax laws or of the current interpretations by the
Internal Revenue Service. Moreover, generally no attempt has
been made to consider any applicable state or other tax laws.
Tax Status of the Policy
Section 7702 of the Internal Revenue Code of 1986, as amended
(the "Code") includes a definition of a life insurance contract
for Federal tax purposes. The Secretary of the Treasury (the
"Treasury") has issued proposed regulations that would specify
what will be considered reasonable mortality charges. However,
guidance as to how section 7702 requirements are to be applied is
limited. If a Policy were determined not to be a life insurance
contract for purposes of section 7702, such Policy would not
provide most of the tax advantages normally provided by a life
insurance policy.
With respect to a Policy issued on a standard risk basis, while
there is some uncertainty due to the limited guidance on the
section 7702 requirements, Banner Life nonetheless believes that
such a Policy should meet the section 7702 definition of a life
insurance contract. With respect to a Policy issued on a special
or sub-standard rating classification basis (i.e., a premium
class involving higher than standard mortality risk), or a Policy
with a Primary Insured Term Rider, however, it is not clear
whether or not such a Policy would satisfy section 7702,
particularly if the Policyowner pays the full amount of premiums
permitted under the Policy. If it is subsequently determined
that a Policy does not satisfy section 7702, Banner Life will
take whatever steps are appropriate and necessary to attempt to
cause such a Policy to comply with section 7702, including
possibly refunding any premiums paid that exceed the limitations
allowable under section 7702 (together with interest or other
earnings on any such premiums refunded as required by law). For
these reasons, Banner Life reserves the right to modify the
Policy as necessary to attempt to qualify it as a life insurance
contract under section 7702.
Section 817(h) of the Code authorizes the Treasury to set
standards by regulation or otherwise for the investments of each
Sub-Account of the Variable Account to be "adequately
diversified" in order for the Policy to be treated as a life
insurance contract for Federal tax purposes. The Variable
Account, through the Fund, intends to comply with the
diversification requirements prescribed in Treasury Regulation
section 1.817-5, which affect how the assets in each Portfolio of
the Fund may be invested. Banner Life does not have control over
the Fund, its investments or its investment adviser.
Nonetheless, Banner Life believes that each Portfolio of the Fund
in which the Variable Account owns shares will be operated in
compliance with the requirements prescribed by the Treasury.
In certain circumstances, owners of variable life insurance
contracts may be considered the owners, for federal income tax
purposes, of the assets of the separate account 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 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 of the investments of a segregated asset account
may cause the investor (i.e., the Policyowner), 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-account 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 Policyowners were not
owners of separate account assets. For example, a Policyowner
has additional flexibility in allocating premium payments and
policy values. These differences could result in a Policyowner
being treated as the owner of a pro rata portion of the assets of
the Variable Account. In addition, we do 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 a Policyowner from being
considered the owner of a pro rata share of the assets of the
Variable Account.
Tax Treatment of Policy Benefits
The following discussion assumes that the Policy will qualify as
a life insurance contract for Federal income tax purposes.
In General. Banner Life believes that the proceeds and Account
Value increases of a Policy (if any) should be treated in a
manner consistent with a fixed-benefit life insurance policy for
Federal income tax purposes. Thus, the death benefit under the
Policy should be excludible from the gross income of the
Beneficiary under section 101(a)(1) of the Code.
A change in a Policy's Specified Amount, the payment of an
unplanned premium, a Policy loan, a partial withdrawal, a
surrender, a lapse with outstanding indebtedness, a change in
death benefit options, the exchange of a Policy for a
fixed-benefit policy (see Policy Rights and Benefits - Right to
Exchange for Fixed Life Insurance), the assignment of a Policy
(see GENERAL PROVISIONS- Assignment of Policy) may have tax
consequences depending upon the circumstances. In addition,
Federal estate and state and local estate, inheritance, and other
tax consequences of ownership or receipt of Policy proceeds
depend upon the circumstances of each Policyowner or Beneficiary.
A competent tax adviser should be consulted for further
information.
Generally, the Policyowner will not be deemed to be in
constructive receipt of the Account Value, including increments
thereof (if any), under the Policy until there is a distribution.
The tax consequences of distributions from, and loans taken from
or secured by, a Policy depend on whether the Policy is
classified as a "modified endowment contract".
Modified Endowment Contracts. A Policy may be treated as a
modified endowment contract depending upon the amount of premiums
paid in relation to the death benefit provided under such Policy.
The premium limitation rules for determining whether a Policy is
a modified endowment contract are extremely complex. In general,
however, a Policy will be a modified endowment contract if the
accumulated premiums paid at any time during the first seven
policy years exceeds the sum of the net level premiums which
would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven
level annual premiums. In addition, if a Policy is "materially
changed," it may cause such Policy to be treated as a modified
endowment contract. The material change rules for determining
whether a Policy is a modified endowment contract are also
extremely complex. In general, however, the determination
whether a Policy will be a modified endowment contract after a
material change generally depends upon the relationship among the
Death Benefit and the Account Value at the time of such change
and the additional premiums paid in the seven policy years
starting with the date on which the material change occurs to the
death benefit. A policy may also be treated as a modified
endowment contract if it is received in exchange for a life
insurance contract which is a modified endowment contract.
Due to the Policy's flexibility, classification of a Policy as a
modified endowment contract will depend upon the circumstances of
each Policy. Accordingly, a prospective Policyowner should
contact a competent tax adviser before purchasing a Policy to
determine the circumstances under which the Policy would be a
modified endowment contract. In addition, a Policyowner should
contact a competent tax adviser before paying any unplanned
premiums or making any other change to, including an exchange of,
a Policy to determine whether such premium or change would cause
the Policy (or the new Policy in the case of an exchange) to be
treated as a modified endowment contract.
Distributions from Policies Classified As Modified Endowment
Contracts. Policies classified as modified endowment contracts
are subject to the following tax rules: First, all
distributions, including distributions upon surrender and
benefits paid at maturity, from such a Policy are treated as
ordinary income subject to tax up to the amount equal to the
excess (if any) of the cash value (as calculated for Federal
income tax purposes) immediately before the distribution over the
investment in the Policy (described below) at such time. Second,
loans taken from, or secured by, such a Policy are treated as
distributions from such a Policy and taxed accordingly. In this
regard, the Internal Revenue Service may treat capitalized
interest on Policy loans as a distribution. Third, a 10 percent
additional income tax is imposed on the portion of any
distribution from, or loan taken from or secured by, such a
Policy that is included in income except where the distribution
or loan is made on or after the Owner attains age 59.5, is
attributable to the Policyowner's becoming disabled, or is part
of a series of substantially equal periodic payments for the life
(or life expectancy) of the Policyowner or the joint lives (or
joint life expectancies) of the Policyowner and the Policyowner's
Beneficiary.
Distributions from Policies Not Classified As Modified Endowment
Contracts. Distributions from a Policy that is not classified as
a modified endowment contract are generally treated as first
recovering the investment in the Policy (described below) and
then, only after the return of all such investment in the Policy,
as distributing taxable income. An exception to this general
rule occurs in the case of a partial withdrawal, a decrease in
the face amount, or any other change that reduces benefits under
the Policy in the first 15 years after the Policy is issued and
that results in a cash distribution to the Policyowner in order
for the Policy to continue complying with the section 7702
definitional limits. In that case, such distribution will be
taxed in whole or in part as ordinary income (to the extent of
any gain in the Policy) under rules prescribed in section 7702.
Loans from, or secured by, a Policy that is not a modified
endowment contract are not treated as distributions. Instead,
such loans are treated as indebtedness of the Policyowner.
Upon a complete surrender or lapse of a Policy that is not a
modified endowment contract, or when benefits are paid at such a
Policy's maturity date, if the amount received plus the amount of
indebtedness exceeds the total investment in the Policy, the
excess will generally be treated as ordinary income subject to
tax.
Finally, neither distributions (including distributions upon
surrender or lapse) nor loans from, or secured by, a Policy that
is not a modified endowment contract are subject to the 10
percent additional income tax.
Policy Loan Interest. Generally, personal interest paid on loan
under an individually-owned Policy will not be deductible. In
addition, interest on any loan under a Policy owned by a business
taxpayer and covering the life of any individual who is an
officer of or is financially interested in the business carried
on by that taxpayer will not be tax deductible to the extent the
aggregate amount of such loans with respect to contracts covering
such individual exceeds $50,000. The deductibility of Policy
loan interest may be further limited by section 264 of the Code.
Therefore, a competent tax adviser should determine whether
Policy loan interest will be deductible.
Investment in the Policy. Investment in the Policy means (i) the
aggregate amount of any premiums or other consideration paid for
a Policy, minus (ii) the aggregate amount received under the
Policy which is excluded from the gross income of the Policyowner
(except that the amount of any loan from, or secured by, a Policy
that is a modified endowment contract, to the extent such amount
is excluded from gross income, will be disregarded), plus (iii)
the amount of any loan from, or secured by, a Policy that is a
modified endowment contract to the extent that such amount is
included in the gross income of the Policyowner.
Multiple Policies. All modified endowment contracts issued by
Banner Life (or its affiliates) to the same Policyowner during
any calendar year will be treated as one contract for purposes of
determining the amount includible in gross income at the time of
a distribution from any such contract.
Other Considerations. The Policy may be used in various
arrangements, including nonqualified deferred compensation or
salary continuance plans, split dollar insurance plans, executive
bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement.
Therefore, if you are contemplating the use of a Policy in any
arrangement the value of which depends in part on its tax
consequences, you should be sure to consult a qualified tax
advisor regarding the tax attributes of the particular
arrangement.
Taxation of Banner Life
Banner Life is presently taxed as a "life insurance company"
under the Code. Banner Life does not expect to incur any Federal
income tax liability attributable to investment income or capital
gains retained as part of the reserves under the Policy. Based
on this, no charge is being made currently to the Variable
Account for Federal income taxes which may be attributable to the
Variable Account.
Banner Life will review the question of a charge to the Variable
Account for its Federal income tax from time to time. Such a
charge may be made in future years for any Federal income taxes
incurred by Banner Life. This might become necessary if the tax
treatment of Banner Life is ultimately determined to be other
than what Banner Life currently believes it to be, if there are
changes made in the Federal income tax treatment of variable life
insurance at the company level, or if there is a change in Banner
Life's tax status. Any such charge would be designed to cover
the Federal income taxes attributable to the investment results
of 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.
Employment-Related Benefit Plans
On July 6, 1983, the Supreme Court held in Arizona Governing
Committee v. Norris that optional annuity benefits provided under
an employer's deferred compensation plan could not, under Title
VII of the Civil Rights Act of 1964, vary on the basis of gender.
The Policies described in this Prospectus contain guaranteed cost
of insurance rates and purchase rates for certain payment options
that generally distinguish between men and women. Accordingly,
employers and employee organizations should consider, in
consultation with their legal counsel, the impact of Norris, and
Title VII, on any employment-related insurance or benefit program
for which a Policy may be purchased.
<PAGE>
ADDITIONAL INFORMATION
Safekeeping of the Account's Assets
Banner Life holds the assets of the Variable Account. These
assets, the Fund shares, are held in book-entry form separate and
apart from the General Account. Banner Life maintains records of
all purchases and redemptions of Fund shares by each of the
Sub-Accounts.
Addition, Deletion, or Substitution of Investments
Banner Life does not control the Fund and cannot guarantee that
it or any Portfolio will be available for investment in the
future or that it or any Portfolio thereof will accept premiums
or transfers. In the event that the Fund or any Portfolio is not
available, Banner Life intends to take reasonable action to
ensure that appropriate variable funding vehicles are available.
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 Division. Banner Life will not substitute any
shares attributable to a Policyowner'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
Policyowners.
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 Policyowners 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
Policies, 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.
State Regulation
Banner Life is subject to regulation by the Maryland Insurance
Administration. An annual statement is filed with the Maryland
Insurance Administration on or before March 1st of each year
covering the operations and reporting on the financial condition
of Banner Life as of December 31 of the preceding year.
Annually, 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.
Senior Officers and Directors of Banner Life Insurance Company
Name and Position Principal Occupation
with Banner Life1 Last Five Years
Mark A. Canter Vice President,
Vice President, Secretary Secretary and
and General Counsel General Counsel,
Banner Life
Barbara A. Esau Vice President,
Vice President and Human Resources,
Director Banner Life
Robert E. Freeman2 President and Chief
Director Operating Officer
(now retired)
William Penn Life Insurance Company
of New York
Garden City, NY
Gene R. Gilbertson Senior Vice President,
Senior Vice President, CFO & Treasurer
CFO, Treasurer and Banner Life
Director
Dewey D. Goodrich, Jr. Senior Vice President -
Senior Vice President and Information Systems and Services
Director Legal & General America, Inc. (1995)
Vice President - Information Services
Interstate Assurance Company
Des Moines, Iowa
Robert L. Hill Vice President and
Vice President and Controller (1993)
Controller 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
Chairman, President Executive Officer,
and Chief Executive Banner Life
Officer
Charles A. Lingaas3 Senior Vice President,
Senior Vice President Customer Service
and Director William Penn Life
Insurance Company
of New York
Otto P. Marracello3 Senior Vice President,
Senior Vice President Underwriting
and Director William Penn Life
Insurance Company
of New York
Vincent R. McLean2 Retired
Director
Wayne L. Miller Vice President, Sales
Vice President, Sales Banner Life
Michael D. Mullaney Vice President,
Vice President, Corporate Taxation,
Corporate Taxation Legal & General America, Inc.
David J. Orr Senior Vice President, Sales
Senior Vice President, Banner Life
and Chief Actuary
and Director
1 The principal business address of each person listed, unless
otherwise indicated, is Banner Life Insurance Company, 1701 Research
Boulevard, Rockville, Maryland 20850.
2 Messrs. Freeman and McLean and retired and thus have no
business address.
3 100 Quentin Roosevelt Boulevard, Garden City, NY 11530
Legal Matters
Legal advice regarding certain matters relating to the federal
securities laws applicable to the issuance of the flexible
premium variable life insurance 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 Account as of
December 31, 1995 and for each of the three years in the period
ended December 31, 1995 included in this Prospectus have been so
included in reliance on the reports of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as
experts in auditing and accounting.
Actuarial matters included in this Prospectus have been examined
by David J. Orr, F.I.A. and M.A.A.A., Senior Vice President and
Chief Actuary of Banner Life, as stated in the opinion filed as
an exhibit to the Registration Statement.
The consolidated financial statements of Banner Life which are
included in this Prospectus should be considered only as bearing
on the ability of Banner Life to meet its 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 ACCOUNT
REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
April 10, 1996
To Banner Life Insurance Company
and Contract Owners of
The Banner Life Variable Account
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
Account 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 each of the three
years in the period then ended 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 audits. We conducted our audits 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 audits, which included confirmation of shares held at December 31, 1995 by
correspondence with the transfer agent, provide a reasonable basis for the
opinion expressed above.
/S/ Price Waterhouse LLP
<TABLE>
BANNER LIFE VARIABLE ACCOUNT
STATEMENT OF ASSETS AND LIABILITIES
AS OF DECEMBER 31, 1995
<CAPTION>
Subaccounts
Money Capital Growth
Market Balanced Bond Growth & Income International Total
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C>
Money Market Fund, 63,185
shares at net asset value
of $1.00 per share (cost
$63,185) $63,185 63,185
Balanced Fund, 52,987
shares at net asset value of
$10.95 per share (cost
$506,828) $580,211 580,211
Bond Fund, 27,048 shares
at net asset value of $7.17
per share (cost $181,365) $193,934 193,934
Capital Growth Fund, 160,534
shares at net asset value of
$15.08 per share (cost $2,117,143) $2,420,846 2,420,846
Growth & Income Fund, 20,136
shares at net asset value of
$7.98 per share (cost $148,745) $160,685 160,685
International Fund, 122,311
shares at net asset value of
$11.82 per share (cost $1,356,745) $1,445,714 1,445,714
Total assets 63,185 580,211 193,934 2,420,846 160,685 1,445,714 4,864,575
LIABILITIES
Mortality and expense risk
fee payable 1,402 5,819 1,961 21,557 456 11,107 42,302
Net assets $61,783 $574,392 $191,973 $2,399,289 $160,229 1,434,607 $4,822,273
Number of units outstanding 53,017 402,230 152,790 1,443,782 127,592 1,116,496
Net asset value per unit $1.17 $1.43 $1.26 $1.66 $1.26 $1.28
<FN>
See Notes to the Financial Statements
</TABLE>
<TABLE>
BANNER LIFE VARIABLE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Money Market Balanced Bond
Subaccount Subaccount Subaccount
1995 1994 1993 1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS
Net investment income (loss) $3,202 $2,098 $250 $9,784 $5,333 $1,033 $9,015 $3,981 $311
Net realized gain (loss) on
investments - - - 413 (3,247) 869 (835) (1,115) 144
Net realized gain distribution - - - 2,347 11,781 564 - 531 97
Net change in unrealized
appreciation (depreciation)
of investments - - - 87,541 (17,293) 1,483 17,238 (4,836) 9
Net change in net assets resulting
from operations 3,202 2,098 250 100,085 (3,426) 3,949 25,418 (1,439) 561
UNIT TRANSACTIONS
Proceeds from units issued 632,021 851,824 198,417 160,860 135,680 61,938 39,954 53,223 4,210
Net asset value of units
redeemed (60,964) (64,561) (13,209) (91,381) (33,196) (7,362) (18,217) (9,685) (1,635)
Transfer (to) from other
subaccounts (549,707) (787,229) (151,843) 61,789 113,676 49,136 12,371 76,634 6,882
Net increase in net assets
from unit transactions 21,350 34 33,365 131,268 216,160 103,712 34,108 120,172 9,457
Net change in net assets 24,552 2,132 33,615 231,353 212,734 107,661 59,526 118,733 10,018
NET ASSETS
Beginning of period 37,231 35,099 1,484 343,039 130,305 22,644 132,447 13,714 3,696
End of period $61,783 $37,231 $35,099 $574,392 $343,039 $130,305 $191,973 $132,447 $13,714
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<TABLE>
<CAPTION>
Capital Growth Growth & Income International
Subaccount Subaccount Subaccount Total
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
384 $(2,771) $(914) $674 $(2) - $(4,263) $(1,743) $1,071 $18,796 $6,896 $1,751
1,196 1,119 5,789 1,367 - - 7,833 15,256 1,137 9,974 12,013 7,939
44,162 38,690 2,565 34 - - - - - 46,543 51,002 3,226
357,516 (92,751) 32,857 11,926 14 - 102,650 (31,841) 19,101 576,871 (146,707) 53,450
403,258 (55,713) 40,297 14,001 12 - 106,220 (18,328) 21,309 652,184 (76,796) 66,366
1,022,998 719,583 228,219 78,256 811 - 885,257 445,648 31,163 2,819,346 2,206,769 523,947
(427,161) (228,723) (70,033) (18,301) (43) - (364,849) (104,371) (17,149) (980,873) (440,579)(109,388)
205,353 366,403 88,806 85,236 257 - 169,358 224,911 7,019 (15,600) (5,348) -
801,190 857,263 246,992 145,191 1,025 - 689,766 566,188 21,033 1,822,873 1,760,842 414,559
1,204,448 801,550 287,289 159,192 1,037 - 795,986 547,860 42,342 2,475,057 1,684,046 480,925
1,194,841 393,291 106,002 1,037 - - 638,621 90,761 48,419 2,347,216 663,170 182,245
$2,399,289 $1,194,841 $393,291 $160,229 $1,037 - $1,434,607 $638,621 $90,761 $4,822,273 $2,347,216 $663,170
</TABLE>
<TABLE>
BANNER LIFE VARIABLE ACCOUNT
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<CAPTION>
Money Market Balanced Bond
Subaccount Subaccount Subaccount
1995 1994 1993 1995 1994 1993 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends $3,717 $2,779 $387 $13,171 $6,993 $1,608 $10,227 $4,517 $377
Mortality and expense fee (515) (681) (137) (3,387) (1,660) (575) (1,212) (536) (66)
Net investment income
(loss) 3,202 2,098 250 9,784 5,333 1,033 9,015 3,981 311
REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on
investments - - - 413 (3,247) 869 (835) (1,115) 144
Net realized gain distribution - - - 2,347 11,781 564 - 531 97
Net change in unrealized
appreciation (depreciation)
of investments - - - 87,541 (17,293) 1,483 17,238 (4,836) 9
Net gain (loss) on investments - - - 90,301 (8,759) 2,916 16,403 (5,420) 250
Net change in net assets
resulting from operations $3,202 $2,098 $250 $100,085 $(3,426) $3,949 $25,418 $(1,439) $561
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
<TABLE>
<CAPTION>
Capital Growth Growth & Income International
Subaccount Subaccount Subaccount Total
1995 1994 1993 1995 1994 1993 1995 1994 1993 1995 1994 1993
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$13,509 $2,717 $966 $1,128 - - $3,370 $799 $1,596 $45,122 $17,805 $4,934
(13,125) (5,488) (1,880) (454) $(2) - (7,633) (2,542) (525) (26,326) (10,909) (3,183)
384 (2,771) (914) 674 (2) - (4,263) (1,743) 1,071 18,796 6,896 1,751
1,196 1,119 5,789 1,367 - - 7,833 15,256 1,137 9,974 12,013 7,939
44,162 38,690 2,565 34 - - - - - 46,543 51,002 3,226
357,516 (92,751) 32,857 11,926 14 - 102,650 (31,841) 19,101 576,871 (146,707) 53,450
402,874 (52,942) 41,211 13,327 14 - 110,483 (16,585) 20,238 633,388 (83,692) 64,615
$403,258 $(55,713) $40,297 $14,001 $12 - $106,220 $(18,328) $21,309 $652,184 $(76,796) $66,366
</TABLE>
BANNER LIFE VARIABLE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1995
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
The Banner Life Variable Account (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 (previously named Diversified), 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 June 1, 1991.
The following is a summary of significant accounting policies consistently
followed by the Account in conformity with generally accepted 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.
Reclassification
Certain prior year amounts were reclassified to conform to current year
presentation.
NOTE 2 - PURCHASES AND SALES OF INVESTMENTS
The aggregate cost of purchases and proceeds from sales of investments for the
years ended December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Subaccounts
Money Capital Growth
Market Balanced Bond Growth & Income International
<S> <C> <C> <C> <C> <C> <C>
1995:
Purchases $490,629 $194,761 $54,361 $994,892 $154,733 $816,701
Sales 463,722 49,367 10,131 138,515 10,550 123,319
1994:
Purchases $706,454 $273,359 $139,053 $982,052 $1,125 $620,838
Sales 704,382 38,451 13,970 86,187 13 59,133
1993:
Purchases $32,877 $112,803 $11,739 $290,229 - $32,676
Sales 1,377 7,553 1,849 43,605 - 10,923
</TABLE>
NOTE 3 - RELATED PARTY TRANSACTIONS
Although variable life benefits 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 .75% 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 life 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 deductions for sales
distribution expenses of 2.5% and premium taxes of 2.5% of the gross contract
premium. Total deductions from gross contract premiums for the years ended
December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION> 1995
Subaccounts
Money Capital Growth 1994 1993
Market Balanced Bond Growth International & Income Total Total Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Original costs
to investors $665,285 $169,326 $42,056 $1,076,840 $931,849 $82,374 $2,967,730 $2,322,913 $551,525
Less:
Premium taxes 16,632 4,233 1,051 26,921 23,296 2,059 74,192 58,072 13,789
Sales distribution
expenses 16,632 4,233 1,051 26,921 23,296 2,059 74,192 58,072 13,789
Net amount
applicable to
investors $632,021 $160,860 $39,954 $1,022,998 $885,257 $78,256 $2,819,346 $2,206,769 $523,947
</TABLE>
If a policy is surrendered during the first ten policy years, the Insurance
Company will assess a full surrender charge. The full surrender charge
consists of a flat amount for initial administrative expenses and a percentage
of premiums paid in the first two policy years (up to the guideline annual
premium) for sales expenses. During the first five policy years, the flat
amount is $200 and the percentage is 27.5% of those premiums. The full
surrender charge then grades down to zero over the next five policy years
in regular monthly intervals. The Account has been advised that surrender
charges of $71,775, $4,097 and $2,286 were charged to policyholders in 1995,
1994 and 1993, respectively.
A monthly deduction is made from the account value of each policy to compensate
the Insurance Company for the cost of insurance coverage and any optional
benefits added by riders, and for certain administrative costs. The
monthly charges were $747,850, $395,795 and $93,954 in 1995, 1994 and 1993,
respectively. The monthly deductions are made from the subaccounts in
proportion to the values held in those accounts.
A transfer charge may be imposed for each transfer request. The charge will
be deducted from the amount transferred to compensate the Insurance Company
for the costs in effectuating the transfer. There is no charge for the first
four transfers in each policy year, and a $15 charge is imposed on each
additional transfer request. There were no transfer charges in 1995, 1994
or 1993.
Included in assets of the Account at December 31, 1995 is $3,437 related to
policies held by an officer of the Insurance Company.
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
December 31, 1992 1,324 19,700 3,367 84,811 - 53,424
Units issued 176,464 98,840 10,111 238,171 - 38,760
Units redeemed (146,717) (6,499) (1,483) (52,911) - (16,454)
Units outstanding at
December 31, 1993 31,071 112,041 11,995 270,071 - 75,730
Units issued 737,488 219,311 120,920 817,449 1,120 555,757
Units redeemed (736,921) (29,330) (9,014) (172,321) (44) (86,782)
Units outstanding at
December 31, 1994 31,638 302,022 123,901 915,199 1,076 544,705
Units issued 537,441 171,793 46,376 851,579 142,687 900,378
Units redeemed (516,062) (71,585) (17,487) (322,996) (16,171) (328,587)
Units outstanding at
December 31, 1995 53,017 402,230 152,790 1,443,782 127,592 1,116,496
</TABLE>
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
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>
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.
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
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
<PAGE>
NOTE 4 - INVESTMENTS
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
Investment income:
Fixed maturities $111,052 $108,218 $104,411
Equity securities 997 302 381
Mortgage loans 154 211 441
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
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 114,948 119,096 352,210 374,423
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):
<PAGE>
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
<PAGE>
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 $118 $129 $83
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%
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
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
</TABLE>
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.
APPENDIX A - Illustrations of Death Benefits and Values
The following tables contain examples illustrating how the Account Values,
Cash Surrender Values, and Death Benefits of a Policy may change with the
investment experience of the Fund. The tables show how the Account Values,
Cash Surrender Values, and Death Benefits of a Policy issued to male
and female Insureds, age 45, in the preferred risk classification who pay
the given premium annually would vary over time, also assuming a $100,000
Specified Amount, for either Benefit Option, if the investment return on
the assets held in each Portfolio of the Fund were a uniform, gross, after-tax
annual rate of 0%, 8%, or 12%. The Values and Death Benefits would be
different from those shown if the gross annual investment rates of return
averaged 0%, 8%, and 12% over a period of years, but fluctuated above and
below those averages for individual Policy Years.
The second column of the tables shows the value of the premiums paid
accumulated at 5% interest. The following columns show the Account Values,
Cash Surrender Values, and Death Benefits for uniform hypothetical rates of
return shown in these tables. The tables illustrate both the current cost
of insurance, mortality and expense risk, and administrative charges, and the
maximum cost of insurance, mortality and expense risk, and administrative
charges. The tables also reflect the 2.5% premium tax charge.
The amounts shown reflect the fact that the net investment return of the
Investment Divisions is lower than the gross, after-tax return of the assets
held in the Fund as a result of expenses paid by the Fund and charges levied
against the Sub-Accounts. The values shown assume that a Policyowner maintains
Account Values in equal proportion among the seven portfolios of the Fund, and
they take into account an average of the daily investment management fee
currently paid by each Portfolio of the Fund (which is assumed to be equivalent
to an annual rate of .59% of the aggregate average daily net assets of the
Fund), the average of the actual, historical operating expenses incurred by
the Fund (which were at an annual rate of .21% for the year ended December 31,
1995 ), the daily charge by Banner Life to each Sub-Account for assuming
mortality and expense risks (which is equivalent to an annual rate of 0.75%),
the monthly deduction for cost of insurance and the monthly deduction for
administration expenses.
Taking into account the current mortality and expense risk charge of .75% and
the charge for investment management fees from the fund, the illustrated gross
annual investment rates of return of 0%, 8%, and 12%, correspond to
approximate net annual rates of -1.55%, 6.45% and 10.45%, respectively;
using the maximum or guaranteed mortality and expense risk charge of .90%,
the figures are -1.70%, 6.30% and 10.30%.
The hypothetical values shown in the tables do not reflect charges for any
federal income tax burden attributable to the Variable Account, since Banner
Life is not currently making such charges. However, such charges may be made
in the future and, in that event, the gross annual investment rate
of return would have to exceed 0%, 8%, or 12% by an amount sufficient to
cover the tax charges in order to produce the values illustrated.
(See Federal Tax Matters.)
The tables illustrate the values that would result based upon the hypothetical
investment rates of return if only the indicated premium is paid annually, and
if no Policy loans have been made. Illustrated values would be different if
the proposed Insured were another age, sex, or risk classification.
Upon request, Banner Life will provide a comparable illustration based upon the
proposed Insured's age and the initial Death Benefit requested. After
purchasing a Policy, Policyowners will be assessed a fee of $25 for any
illustration requested in excess of the one allowed free each year.
<TABLE>
BANNER LIFE INSURANCE COMPANY
ROCKVILLE, MARYLAND 20850
MALE ISSUE AGE 45
SPECIFIED AMOUNT: $100,000 - BENEFIT OPTION A
PREFERRED UNDERWRITING CLASS
CURRENT COST OF INSURANCE AND EXPENSE CHARGES
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
<CAPTION>
Premiums 0% (1) (2) 8% (1) (2) 12% (1) (2)
End of Accumulated Cash Cash Cash
Policy at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year(1) Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,139.90 1,543 848 101,543 1,682 987 101,682 1,751 1,057 101,751
2 4,386.80 3,040 2,345 103,040 3,450 2,755 103,450 3,663 2,969 103,663
3 6,746.03 4,492 3,798 104,492 5,309 4,614 105,309 5,752 5,057 105,752
4 9,223.24 5,898 5,203 105,898 7,263 6,568 107,263 8,032 7,338 108,032
5 11,824.30 7,256 6,561 107,256 9,316 8,621 109,316 10,524 9,829 110,524
6 14,555.41 8,563 8,007 108,563 11,470 10,914 111,470 13,244 12,688 113,244
7 17,423.08 9,816 9,399 109,816 13,728 13,311 113,728 16,213 15,796 116,213
8 20,434.14 11,012 10,734 111,012 16,092 15,814 116,092 19,451 19,173 119,451
9 23,595.74 12,144 12,006 112,144 18,562 18,423 118,562 22,981 22,842 122,981
10 26,915.43 13,212 13,212 113,212 21,142 21,142 121,142 26,828 26,828 126,828
15 46,175.97 17,446 17,446 117,446 35,768 35,768 135,768 51,940 51,940 151,940
20 70,757.84 19,099 19,099 119,099 53,054 53,054 153,054 90,261 90,261 190,261
25 102,131.22 16,598 16,598 116,598 71,831 71,831 171,831 147,942 147,942 247,942
30 142,172.49 7,464 7,464 107,464 89,333 89,333 189,333 233,869 233,869 333,869
35 193,276.43 0 0 0 99,420 99,420 199,420 360,068 360,068 460,068
40 258,499.44 0 0 0 92,065 92,065 192,065 544,772 544,772 544,772
45 341,742.36 0 0 0 48,361 48,361 148,361 812,564 812,564 912,564
50 447,983.78 0 0 0 0 0 0 1,204,265 1,204,265 1,304,265
<FN>
(1) Assumes annual premium payments of $2,038 paid in full at beginning of
each policy year. The values would vary from those shown if the
amount or frequency of payments varies.
(2) Assumes that no policy loan or partial withdrawal has been made and no
optional insurance riders have been selected.
THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND UPON A NUMBER OF FACTORS INCLUDING THE PREMIUM AND ACCOUNT
VALUE ALLOCATIONS MADE BY THE OWNER AND THE DIFFERENT RATES OF RETURN OF THE
PORTFOLIOS. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT THAN THOSE SHOWN IF ACTUAL INVESTMENT RATES OF
RETURN AVERAGE 0%, 8% OR 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE
ALLOCATED OR ACCOUNT VALUE TRANSFERRED TO THE GENERAL ACCOUNT. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
</FN>
</TABLE>
<TABLE>
BANNER LIFE INSURANCE COMPANY
ROCKVILLE, MARYLAND 20850
MALE ISSUE AGE 45
SPECIFIED AMOUNT: $100,000 - BENEFIT OPTION A
PREFERRED UNDERWRITING CLASS
GUARANTEED COST OF INSURANCE AND EXPENSE CHARGES
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
<CAPTION>
Premiums 0% (1) (2) 8% (1) (2) 12% (1) (2)
End of Accumulated Cash Cash Cash
Policy at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year(1) Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,139.90 1,473 778 101,473 1,609 914 101,609 1,677 982 101,677
2 4,386.80 2,893 2,198 102,893 3,290 2,595 103,290 3,498 2,803 103,498
3 6,746.03 4,259 3,564 104,259 5,046 4,352 105,046 5,474 4,779 105,474
4 9,223.24 5,569 4,874 105,569 6,879 6,184 106,879 7,619 6,924 107,619
5 11,824.30 6,821 6,126 106,821 8,790 8,095 108,790 9,947 9,252 109,947
6 14,555.41 8,011 7,455 108,011 10,779 10,223 110,779 12,471 11,915 112,471
7 17,423.08 9,134 8,718 109,134 12,845 12,428 112,845 15,206 14,789 115,206
8 20,434.14 10,185 9,907 110,185 14,984 14,706 114,984 18,165 17,887 118,165
9 23,595.74 11,156 11,017 111,156 17,195 17,056 117,195 21,364 21,225 121,364
10 26,915.43 12,042 12,042 112,042 19,473 19,473 119,473 24,819 24,819 124,819
15 46,175.97 14,986 14,986 114,986 31,745 31,745 131,745 46,657 46,657 146,657
20 70,757.84 14,565 14,565 114,565 44,653 44,653 144,653 78,209 78,209 178,209
25 102,131.22 8,824 8,824 108,824 55,723 55,723 155,723 122,662 122,662 222,662
30 142,172.49 0 0 0 59,888 59,888 159,888 183,403 183,403 283,403
35 193,276.43 0 0 0 47,118 47,118 147,118 262,503 262,503 362,503
40 258,499.44 0 0 0 1,584 1,584 101,584 361,194 361,194 461,194
45 341,742.36 0 0 0 0 0 0 474,029 474,029 574,029
50 447,983.78 0 0 0 0 0 0 591,925 591,925 691,925
<FN>
(1) Assumes annual premium payments of $2,038 paid in full at beginning of
each policy year. The values would vary from those shown if the
amount or frequency of payments varies.
(2) Assumes that no policy loan or partial withdrawal has been made and no
optional insurance riders have been selected.
THE HYPOTHETICAL GROSS ANNUAL RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE
ONLY AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT
RATES OF RETURN. ACTUAL RATES OF RETURN MAY BE MORE OR LESS THAN THOSE SHOWN
AND WILL DEPEND UPON A NUMBER OF FACTORS INCLUDING THE PREMIUM AND ACCOUNT
VALUE ALLOCATIONS MADE BY THE OWNER AND THE DIFFERENT RATES OF RETURN OF THE
PORTFOLIOS. THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A
POLICY WOULD BE DIFFERENT THAN THOSE SHOWN IF ACTUAL INVESTMENT RATES OF
RETURN AVERAGE 0%, 8% OR 12% OVER A PERIOD OF YEARS, BUT FLUCTUATED ABOVE
OR BELOW THOSE AVERAGES FOR INDIVIDUAL POLICY YEARS OR IF ANY PREMIUMS WERE
ALLOCATED OR ACCOUNT VALUE TRANSFERRED TO THE GENERAL ACCOUNT. NO
REPRESENTATIONS CAN BE MADE THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED FOR ANY PERIOD OF TIME.
</FN>
</TABLE>
<TABLE>
BANNER LIFE INSURANCE COMPANY
ROCKVILLE, MARYLAND 20850
MALE ISSUE AGE 45
SPECIFIED AMOUNT: $100,000 - BENEFIT OPTION B
PREFERRED UNDERWRITING CLASS
CURRENT COST OF INSURANCE AND EXPENSE CHARGES
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS ANNUAL INVESTMENT RATES OF RETURN OF
<CAPTION>
Premiums 0% (1) (2) 8% (1) (2) 12% (1) (2)
End of Accumulated Cash Cash Cash
Policy at 5% Interest Account Surrender Death Account Surrender Death Account Surrender Death
Year Per Year(1) Value Value Benefit Value Value Benefit Value Value Benefit
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 2,139.90 1,548 853 100,000 1,687 993 100,000 1,757 1,063 100,000
2 4,386.80 3,056 2,361 100,000 3,468 2,773 100,000 3,683 2,988 100,000
3 6,746.03 4,525 3,830 100,000 5,348 4,653 100,000 5,794 5,099 100,000
4 9,223.24 5,953 5,258 100,000 7,333 6,638 100,000 8,110 7,416 100,000
5 11,824.30 7,340 6,645 100,000 9,428 8,734 100,000 10,654 9,959 100,000
6 14,555.41 8,684 8,129 100,000 11,641 11,085 100,000 13,446 12,891 100,000
7 17,423.08 9,983 9,566 100,000 13,977 13,560 100,000 16,514 16,097 100,000
8 20,434.14 11,234 10,956 100,000 16,440 16,162 100,000 19,885 19,607 100,000
9 23,595.74 12,433 12,294 100,000 19,039 18,900 100,000 23,591 23,452 100,000
10 26,915.43 13,579 13,579 100,000 21,781 21,781 100,000 27,669 27,669 100,000
15 46,175.97 18,431 18,431 100,000 38,019 38,019 100,000 55,349 55,349 100,000
20 70,757.84 21,281 21,281 100,000 59,706 59,706 100,000 101,593 101,593 123,944
25 102,131.22 20,865 20,865 100,000 89,970 89,970 104,365 176,615 176,615 204,874
30 142,172.49 14,650 14,650 100,000 132,048 132,048 141,291 297,806 297,806 318,653
35 193,276.43 0 0 0 189,298 189,298 198,763 495,501 495,501 520,276
40 258,499.44 0 0 0 264,251 264,251 277,464 809,122 809,122
</TABLE>
PART II UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file
with the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore, or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
as been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer, or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be governed by
final adjudication of such issue.
REPRESENTATIONS PURSUANT TO RULE 6e-3(T)
This filing is made pursuant to Rule 6c-3 and 6e-3(T) under the Investment
Company Act of 1940.
Registrant elects to be governed by Rule 6e-3(T)(b)(13)(i)(A) under the
Investment Company Act of 1940 with respect to the Policies described in the
Prospectus.
Registrant makes the following representations:
(1) Section 6e-3(T)(b)(13)(iii)(F) has been relied upon.
(2) The level of mortality and expense risk charge is within the range of
industry practice for comparable flexible premium variable life
insurance policies.
(3) Registrant has concluded that there is a reasonable likelihood that the
distribution financing arrangement of the Variable Account will benefit
the Variable Account and Policyowners and will keep and make available
to the Commission on request a memorandum setting forth the basis for
this representation.
(4) The Variable Account will invest only in management investment companies
which have undertaken to have a board of directors, a majority of whom
are not interested persons of the company, formulate and approve any
plan under Rule 12b-1 to finance distribution expenses.
The methodology used to support the representation made in paragraph (2) above
is based on an analysis of other flexible or scheduled premium policies
registered under the Securities Act of 1933, including the level of other
expense charges, uncertainties in terms of expense and mortality factors, and
policy guarantees. Registrant undertakes to keep and make available to the
Commission on request the documents used to support the representation in
paragraph (2) above.
CONTENTS OF REGISTRATION STATEMENT
This amendment to the Registration Statement comprises the following Papers
and Documents:
The facing sheet
The prospectus consisting of Pages
The undertaking to file reports
The undertaking pursuant to Rule 484.
Representations pursuant to Rule 6e-3(T)
The signatures
Written consents of the following persons:
(a) Mark A. Canter (included in Exhibit 3)
(b) Messrs. Sutherland, Asbill and Brennan
(c) David J. Orr (included in Exhibit 6)
(d) Price Waterhouse
The following exhibits:
1. The following exhibits correspond to those required by paragraph A of
the instructions as to exhibits in Form N-8B-2:
(1) Resolution of the Board of Directors of Banner Life Insurance
Company establishing the Variable Account(1).
(2) Not Applicable.
(3) (a) Proposed form of the Principal Underwriting Agreement (2)
(b) Form of General Agent Agreement (1)
(Cc) Commission schedule (included in Exhibit (3)(b)).
(4) Not Applicable.
(5) (a) Policy form (3)
(b) Policy riders (4)
(c) Policy amendment (2)
(6) (a) Certificate of Incorporation of Banner Life (1).
(b) By-Laws of Banner Life (1).
(7) Not Applicable.
(8) (a) Participation Agreement with Scudder Variable Life
Investment Fund (5).
(c) Reimbursement Agreement with Scudder, Stevens & Clark, Inc
(5).
(9) Not Applicable.
(10) Application form (3)
(11) Memorandum describing Banner Life's issuance, transfer and
redemption procedures for the Policy (3).
2. See Exhibit 1(5).
3. Opinion and Consent of Mark A. Canter, General Counsel of Banner Life
(4)
4. No financial statements are omitted from the Prospectus pursuant to
Instruction 1(b) or (c) of Part I.
5. Not applicable.
6. Opinion and consent of David J. Orr, FIA, Senior Vice President and
Chief Actuary of Banner Life (4)
7. Consent of Messrs. Sutherland, Asbill & Brennan (4)
8. Consent of Price Waterhouse (4)
9. Power of Attorney (4).
Notes:
(1) Filed with the initial filing of this Form S-6 Registration Statement
(File No. 33-19236) on December 23, 1987
(2) Filed with pre-effective amendment no. 3 to this Form S-6 Registration
Statement (File No. 33-19236) on January 24, 1990.
(3) Filed with pre-effective amendment no. 2 to this Form S-6 Registration
Statement (File No. 33-19236) on August 22, 1989.
(4) Filed herewith.
(5) Filed with post-effective amendment no. 6 to Form S-6 on April 26, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Banner Life Variable Account, certifies that this amendment meets the
requirements for effectiveness of this Registration Statement pursuant to Rule
486(b) under the Securities Act of 1933 and has duly caused this Post-Effective
Amendment No. 7 to the Registration Statement to 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 Account
(Registrant)
By: Banner Life Insurance Company
(Depositor)
Attest: /s/ Edward J. Bove' By: /s/ Mark A. Canter
David S. Lenaburg *
Chairman, President and 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 Post-Effective Amendment
No. 6 to Form S-6 on April 26, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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. 7 to the Registration Statement to 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 and 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 Post-Effective Amendment
No 6 to Form S-6 on April 26, 1995.
Pursuant to the requirements of the Securities Act of 1933, this 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 and April 29, 1996
Chief Executive Officer
Gene R. Gilbertson Senior Vice President,CFO April 29, 1996
Treasurer and Director
/s/ Dewey D. Goodrich, Jr
Dewey D. Goodrich, Jr. Director April 29, 1996
/s/ Bentti O. Hoiska
/s/ Bentti O. Hoiska Director April 29, 1996
/s/ David J. Orr
David J. Orr Senior Vice President April 29, 1996
and Director
/s/ Barbara A. Esau
Barbara A. Esau Vice President and April 29, 1996
Director
________________________________
* Signed by Mark A. Canter pursuant to a Power of Attorney signed by David S.
Lenaburg on April 26, 1994 which is attached hereto as an exhibit.
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Exhibit Index
Exhibit Description of
No. Exhibit
3. Opinion and Consent of Mark A. Canter, General Counsel of Banner Life
6. Opinion and consent of David J. Orr, FIA, Senior Vice President and Chief
Actuary of Banner Life
7. Consent of Messrs. Sutherland, Asbill & Brennan
8. Consent of Price Waterhouse
April 29, 1996
Banner Life Insurance Company
1701 Research Boulevard
Rockville, MD 20850
Ladies and Gentlemen:
With reference to the Post-Effective Amendment No. 7 to the Registration
Statement on Form S-6 filed by Banner Life Insurance Company and its Variable
Life Account with the Securities and Exchange Commission covering individual
variable life insurance 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 life insurance contracts, when issued as
contemplated by said Form S-6 Registration Statement Amendment, 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 S-6 Registration Statement
Amendment for the "Banner Life Variable Account."
Sincerely,
/s/ Mark A. Canter
Mark A. Canter
Vice President, Secretary
& General Counsel
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April 19, 1996
Re: ACTUARIAL OPINION AND CONSENT
Gentlemen:
This opinion is furnished in connection with the registration of a flexible
premium variable life insurance policy ("Policy") offered by Banner Life
Insurance Company under the Securities Act of 1933, as amended. The
Prospectus included in Post-Effective Amendment No. 6 to the Registration
Statement on Form S-6 (Registration No. 33-19236) describes the Policy.
In my capacity as Senior Vice President and Chief Actuary of Banner Life
Insurance Company, I have provided actuarial advice concerning the preparation
of the policy form described in the Registration Statement, and I am familiar
with the Registration Statement and Exhibits thereto.
It is my professional opinion that:
1. The "sales load", as defined in paragraph (c)(4) of Rule 6e-3(T)
under the Investment Company Act of 1940, as amended, shall not
exceed 9 per centum of the sum of the guideline annual premiums
that would be paid during the period equal to the lesser of 20
years or the anticipated life expectancy of the named insured
based on the 1980 Commissioners Standard Ordinary Non-smoker or
Smoker Mortality Table. The sales load on payments made in excess
of such sum will not exceed 2.5 per centum. The sales load will
never exceed 30 per centum of the premiums paid in the first two
years up to the guideline annual premium.
2. The proportionate amount of the sales load deducted from any
payment during the policy period will not exceed the proportionate
amount deducted from any prior payment during the policy period.
3. The illustrations of death benefits, cash values included in
Appendix A of the Prospectus, based on the assumptions stated in
the illustrations, are consistent with the provisions of the
Policy. The rate structure of the Policy has not been designed so
as to make the relationship between premiums and benefits, as
shown in the illustrations, appear more favorable to prospective
Policy purchasers at other ages.
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4. The information contained in the examples set forth in Appendix B
of the Prospectus, based on the assumptions stated in the
examples, is consistent with the provisions of the Policy.
I hereby consent to the use of this opinion as an exhibit to Post-Effective
Amendment No. 6 to the Registration Statement and to the reference to my name
under the heading "Experts" in the Prospectus.
Sincerely,
/s/ David J. Orr
David J. Orr, F.I.A., M.A.A.A.
Senior Vice President and
Chief Actuary
Banner Life Insurance Company
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April 30, 1996
Banner Life Insurance Company
1701 Research Boulevard
Rockville, Md 20850
Re: Banner Life Variable Account
File No. 33-19236
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. 7 to the form S-6 Registration Statement for the
Banner Life Variable Account. 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
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CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-6 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
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