-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I3nQp9oUDZnpjfb88uwkEhfTyoTPLDXyJvQbUbDM/iO73oqy8lFMRUTYKXzMXghR ZxppJgiMfHxqHn6APTuBug== 0001047469-98-016095.txt : 19980424 0001047469-98-016095.hdr.sgml : 19980424 ACCESSION NUMBER: 0001047469-98-016095 CONFORMED SUBMISSION TYPE: N-4 PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 19980422 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT CENTRAL INDEX KEY: 0000910069 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 470221457 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-4 SEC ACT: SEC FILE NUMBER: 333-50737 FILM NUMBER: 98598966 BUSINESS ADDRESS: STREET 1: 206 SOUTH 13TH STREET STREET 2: SUITE 300 CITY: LINCOLN STATE: NE ZIP: 68501-0469 BUSINESS PHONE: 4024754061 MAIL ADDRESS: STREET 1: P O BOX 80469 CITY: LINCOLN STATE: NE ZIP: 68501-0469 N-4 1 N-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 22, 1998 File No. 33-xxxx File No. 811-7924 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 AND REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1940 POST-EFFECTIVE AMENDMENT NO. 13 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT (Exact Name of Registrant) LINCOLN BENEFIT LIFE COMPANY (Name of Depositor) 206 South 13th Street Lincoln, Nebraska 68508 (Complete Address of Depositor's Principal Office) JOHN MORRIS Lincoln Benefit Life Company 206 South 13th Street Lincoln, Nebraska 68508 1-800-865-5237 (Name and Complete Address of Agent for Service) Copy to: JOAN E. BOROS, ESQ. Jorden Burt Boros Cicchetti Berenson & Johnson LLP 1025 Thomas Jefferson Street N.W. Suite 400 East Washington, D.C. 20007-0805 ------------------------ SECURITIES BEING OFFERED: FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS APPROXIMATE DATE OF PROPOSED PUBLIC OFFERING: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT. AN INDEFINITE NUMBER OF SHARES ARE DEEMED TO BE REGISTERED AND NO FILING FEE IS DUE BECAUSE OF RELIANCE ON SECTION 24(F) OF THE INVESTMENT COMPANY ACT OF 1940. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CROSS REFERENCE SHEET Showing Location in Part A (Prospectus) and Part B of Registration Statement of Additional Information Required by Form N-4
ITEM OF FORM N-4 PART A: INFORMATION REQUIRED IN A PROSPECTUS - ----------------------------------------------------------------------------------------------------------- 1. Cover Page..................................... Cover Page 2. Definitions.................................... Definitions 3. Synopsis....................................... Questions and Answers About your Contract; Fee Tables; Examples; Explanation of Fee Tables and Examples 4. Condensed Financial Information (a) Accumulation Unit Values................... Not Applicable (b) Explanation of Calculation of Performance.................................. Appendix A: Portfolios and Performance Data (c) Location of Other Financial Statements..... Condensed Financial Data 5. General Description of Registrant, Depositor, and Portfolio Companies (a) Depositor.................................. Lincoln Benefit Life Company (b) Registrant................................. Lincoln Benefit Life Variable Annuity Account (c) Portfolio Companies........................ The Portfolios (d) Portfolio Company Prospectuses............. The Portfolios (e) Voting Rights.............................. Voting Rights (f) Administrators............................. Administration 6. Deductions (a) General.................................... Contract Charges (b) Sales Load Percent......................... Not applicable (c) Special Purchase Plans..................... Not applicable (d) Commissions................................ Distribution of the Contracts (e) Portfolio Expenses......................... Other Expenses (f) Operating Expenses......................... Fee Tables; Contract Charges 7. General Description of Contracts (a) Persons with Rights........................ Description of the Contracts; Annuity Benefits; Other Contract Benefits; Voting Rights; Beneficiary (b) (i) Allocation of Purchase Payments....... Allocation of Purchase Payments (ii) Transfers............................. Purchases and Contract Value; Transfers During Annuity Period (iii) Exchanges............................ Not Applicable (c) Changes.................................... Modification of the Contract (d) Inquiries.................................. Questions and Answers about Your Contract: Who Should I Contact for More Information 8. Annuity Period................................. Annuity Benefits 9. Death Benefit.................................. Death Benefit 10. Purchases and Contract Value................... Purchases and Contract Value; Distribution of the Contracts 11. Redemptions (a) By Owners.................................. Withdrawals (Redemptions); Substantially Equal Periodic Payments; Systematic Withdrawal Program (b) By Annuitant............................... Annuity Options (c) Texas ORP.................................. Not Applicable (d) Lapse...................................... Minimum Contract Value (e) Free Look.................................. Free Look Period 12. Taxes.......................................... Taxes 13. Legal Proceedings.............................. Legal Proceedings 14. Table of Contents of SAI....................... Table of Contents of SAI
ITEM OF FORM N-4 PART B: INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION - ----------------------------------------------------------------------------------------------------------- 15. Cover Page..................................... Cover Page 16. Table of Contents.............................. Table of Contents 17. General Information and History (a) Depositor's Name........................... Not Applicable (b) Assets of Subaccount....................... Not Applicable (c) Control of Depositor....................... Prospectus: Lincoln Benefit Life Company 18. Services (a) Fees and Expenses of Registrant............ Not Applicable (b) Management Contracts....................... Not Applicable (c) Custodian.................................. Prospectus: Separate Account Independent Public Accountant.............. Prospectus: Experts (d) Assets of Registrant....................... Prospectus: Separate Account (e) Affiliated Persons......................... Not Applicable (f) Principal Underwriter...................... Prospectus: Distribution of the Contracts 19. Purchase of Securities Being Offered........... Prospectus: Distribution of the Contracts 20. Underwriters................................... Prospectus: Distribution of the Contracts 21. Calculation of Performance Data................ Prospectus: Appendix A: Portfolios and Performance Data; Separate Account Performance 22. Annuity Payments............................... SAI: The Contract 23. Financial Statements (a) Financial Statements of Registrant......... SAI: Financial Statements (b) Financial Statements of Depositor.......... Prospectus: Financial Statements PART C: OTHER INFORMATION - ----------------------------------------------------------------------------------------------------------- The information required to be provided in Part C is separately identified by Item number.
FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS ISSUED BY LINCOLN BENEFIT LIFE COMPANY IN CONNECTION WITH LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STREET ADDRESS: 206 SOUTH 13TH ST., LINCOLN, NE 68508-1993 MAILING ADDRESS: P. O. BOX 82532, LINCOLN, NE 68501-2532 TELEPHONE NUMBER: 1-800-865-5237 This prospectus describes a Flexible Premium Individual Deferred Variable Annuity Contract ("Contract") offered by Lincoln Benefit Life Company ("we" or "Lincoln Benefit"). Lincoln Benefit is owned by Allstate Life Insurance Company. The Contract is a deferred annuity contract designed to aid you in long-term financial planning. You may purchase it on either a tax qualified or non-tax qualified basis. Because this is a flexible premium annuity contract, you may pay multiple premiums. We allocate your premium to the investment options under the Contract and our Fixed Account in the proportions that you choose. The Contract currently offers thirty-seven investment options, each of which is a subaccount of the Lincoln Benefit Life Variable Annuity Account ("Separate Account"). Each Subaccount invests exclusively in shares of one of the following Portfolios: JANUS ASPEN SERIES: Flexible Income Portfolio, Balanced Portfolio, Growth Portfolio, Aggressive Growth Portfolio, Worldwide Growth Portfolio FEDERATED INSURANCE MANAGEMENT SERIES: Utility Fund II, Fund for U.S. Government Securities II, High Income Bond Fund II FIDELITY VARIABLE INSURANCE PRODUCTS FUND: Money Market Portfolio, Equity-Income Portfolio, Growth Portfolio, Overseas Portfolio FIDELITY VARIABLE INSURANCE PRODUCTS FUND II: Asset Manager Portfolio, Contrafund Portfolio, Index 500 Portfolio THE ALGER AMERICAN FUND: Income and Growth Portfolio, Small Capitalization Portfolio, Growth Portfolio, MidCap Growth Portfolio, Leveraged AllCap Portfolio SCUDDER VARIABLE LIFE INVESTMENT FUND: Bond Portfolio, Balanced Portfolio, Growth and Income Portfolio, Global Discovery Portfolio, International Portfolio STRONG VARIABLE INSURANCE FUNDS, INC.: Discovery Fund II, Opportunity Fund II, Growth Fund II T. ROWE PRICE INTERNATIONAL SERIES, INC.: International Stock Portfolio T. ROWE PRICE EQUITY SERIES, INC.: New America Growth Portfolio, Mid-Cap Growth Portfolio, Equity Income Portfolio MFS VARIABLE INSURANCE TRUST: Growth with Income Series, Research Series, Emerging Growth Series, Total Return Series, New Discovery Series We may make available other investment options in the future. You may not purchase a Contract if either you or the Annuitant are 90 years old or older before we receive your application. Your Contract Value will vary daily as a function of the investment performance of the Subaccounts to which you have allocated Purchase Payments and any interest credited to the Fixed Account. We do not guarantee any minimum Contract Value for amounts allocated to the Subaccounts. Benefits provided by this Contract, when based on the Fixed Account, are subject to a Market Value Adjustment, which may result in an upwards or downwards adjustment in withdrawal benefits, death benefits, settlement values, transfers to the Subaccounts, or periodic income payments. In certain states the contract may be offered as a group contract with individual ownership represented by Certificates. The discussion of Contracts in this prospectus applies equally to Certificates under group contracts, unless the context specifies otherwise. This prospectus sets forth the information you ought to know about the Contract. You should read it before investing and keep it for future reference. We have filed a Statement of Additional Information with the Securities and Exchange Commission ("SEC"). The current Statement of Additional Information is dated April 20, 1998. The information in the Statement of Additional Information is incorporated by reference in this prospectus. You can obtain a free copy by writing us or calling us at the telephone number given above. The Table of Contents of the Statement of Additional Information appears on page 40 of this prospectus. (continued on next page) - -------------------------------------------------------------------------------- THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE SECURITIES NOR HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THE DATE OF THIS PROSPECTUS IS APRIL 20, 1998. 1 At least once each year we will send you an annual statement. The annual statement details values and specific information for your Contract. It does not contain our financial statements. Our financial statements begin on page F-1 of this prospectus. Lincoln Benefit will file annual and quarterly reports and other information with the SEC. You may read and copy any reports, statements or other information we file at the SEC's public reference room in Washington, D.C. You can obtain copies of these documents by writing to the SEC and paying a duplicating fee. Please call the SEC at 1-800-SEC-0330 for further information as to the operation of the public reference room. Our SEC filings are also available to the public on the SEC Internet site (http://www.sec.gov.) THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES FOR THE PORTFOLIOS LISTED ABOVE. IF ANY OF THESE PROSPECTUSES IS MISSING OR OUTDATED, PLEASE CONTACT US AND WE WILL SEND YOU THE PROSPECTUS YOU NEED. PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE. 2 TABLE OF CONTENTS DEFINITIONS................................... 5 QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT..... 6 FEE TABLES.................................... 10 EXAMPLES...................................... 11 EXPLANATION OF FEE TABLES AND EXAMPLES........ 12 CONDENSED FINANCIAL INFORMATION............... 12 DESCRIPTION OF THE CONTRACTS.................. 12 Summary....................................... 12 Contract Owner................................ 12 Annuitant..................................... 12 Modification of the Contract.................. 12 Assignment.................................... 12 Free Look Period.............................. 13 PURCHASES AND CONTRACT VALUE.................. 13 Minimum Purchase Payment...................... 13 Automatic Payment Plan........................ 13 Allocation of Purchase Payments............... 13 Contract Value................................ 14 Separate Account Accumulation Unit Value...... 14 Transfer During Accumulation Period........... 14 Transfers Authorized by Telephone............. 14 Automatic Dollar Cost Averaging Program....... 14 Portfolio Rebalancing......................... 15 THE INVESTMENT AND FIXED ACCOUNT OPTIONS...... 15 Separate Account Investments.................. 15 The Portfolios................................ 15 Voting Rights................................. 19 Additions, Deletions, and Substitutions of Securities................................... 19 The Fixed Account............................. 19 General....................................... 19 Guaranteed Maturity Fixed Account Option...... 20 Market Value Adjustment....................... 21 Dollar Cost Averaging Fixed Account Option.... 21 ANNUITY BENEFITS.............................. 21 Annuity Date.................................. 21 Annuity Options............................... 22 Other Options................................. 22 Annuity Payments: General..................... 22 Variable Annuity Payments..................... 23 Fixed Annuity Payments........................ 23 Transfers During Annuity Period............... 23 Death Benefit During Annuity Period........... 23 Certain Employee Benefit Plans................ 23 OTHER CONTRACT BENEFITS....................... 23 Death Benefit................................. 23 Beneficiary................................... 24 Contract Loans for 401(a), 401(k), and 403(b) Contracts.................................... 25 Withdrawals (Redemptions)..................... 26 Substantially Equal Periodic Payments......... 27 Systematic Withdrawal Program................. 27 ERISA Plans................................... 27 Minimum Contract Value........................ 27 CONTRACT CHARGES.............................. 27 Mortality and Expense Risk Charge............. 28 Administrative Charges........................ 28 Contract Maintenance Charge................. 28 Administrative Expense Charge............... 28 Transfer Fee................................ 28 Premium Taxes................................. 28 Deduction for Separate Account Income Taxes... 28 Other Expenses................................ 28 TAXES......................................... 28 General....................................... 28 Withholding Tax on Distributions.............. 29 Tax Treatment of Assignments.................. 30 Tax Treatment of Withdrawals.................. 30 Qualified Plans............................. 30 Non-Qualified Plans......................... 31 DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT...................... 31 Lincoln Benefit Life Company.................. 31 Financial Statements of Lincoln Benefit....... 31 Selected Financial Data....................... 31 Investments by Lincoln Benefit................ 32 Management's Discussion and Analysis of Financial Condition and Results of Operation.................................... 32 Competition................................... 36 Employees..................................... 36 Properties.................................... 36 Executive Officers and Directors of Lincoln Benefit...................................... 36 Executive Compensation........................ 37 State Regulation of Lincoln Benefit........... 38 Separate Account.............................. 38 ADMINISTRATION................................ 39 MARKET TIMING AND ASSET ALLOCATION SERVICES... 39 DISTRIBUTION OF CONTRACTS..................... 39 LEGAL PROCEEDINGS............................. 39
3 LEGAL MATTERS................................. 39 EXPERTS....................................... 39 REGISTRATION STATEMENT........................ 40 TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION................................... 40 FINANCIAL STATEMENTS.......................... F-1 APPENDIX A - PORTFOLIOS AND PERFORMANCE DATA.......................................... A-1 APPENDIX B - EXAMPLES OF MARKET VALUE ADJUSTMENTS................................... B-1
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS. 4 DEFINITIONS Please refer to this list for the meaning of the following terms: ACCUMULATION PERIOD - The period, beginning on the Issue Date, during which Contract Value builds up under your Contract. ACCUMULATION UNIT - A unit of measurement which we use to calculate Contract Value. ANNUITANT - The natural person on whose life the annuity benefits under a Contract are based. ANNUITIZATION - The process to begin annuity payments under the Contract. ANNUITIZED VALUE - The Contract Value adjusted by any applicable Market Value Adjustment and less any applicable taxes. ANNUITY DATE - The date on which annuity payments are scheduled to begin. ANNUITY PERIOD - The period during which annuity payments are paid. The Annuity Period begins on the Annuity Date. ANNUITY UNIT - A unit of measurement which we use to calculate the amount of Variable Annuity payments. BENEFICIARY(IES) - The person(s) designated to receive any death benefits under the Contract. COMPANY ("WE," "US," "OUR," "LINCOLN BENEFIT") - Lincoln Benefit Life Company. CONTRACT ANNIVERSARY - Each anniversary of the Issue Date. CONTRACT OWNER ("YOU") - The person(s) having the privileges of ownership defined in the Contract. If your Contract is issued as part of a retirement plan, your ownership privileges may be modified by the plan. CONTRACT VALUE - The sum of the values of your interests in the Subaccounts of the Separate Account and the Fixed Account. CONTRACT YEAR - Each twelve-month period beginning on the Issue Date and each Contract Anniversary. CONTRIBUTION YEAR - Each twelve-month period beginning on the date a Purchase Payment is allocated to a Subaccount, or each anniversary of that date. FIXED ACCOUNT - The portion of the Contract Value allocated to our general account. FIXED ANNUITY - A series of annuity payments that are fixed in amount. GUARANTEE PERIODS - A period of years for which we have guaranteed a specific effective annual interest rate on an amount allocated to the Fixed Account. ISSUE DATE - The date when the Contract becomes effective. LATEST ANNUITY DATE - The latest date by which you must begin annuity payments under the Contract. LOAN ACCOUNT - An account established for amounts transferred from the Subaccounts or the Fixed Account as security for outstanding Contract loans. MARKET VALUE ADJUSTMENT - An amount added to or subtracted from certain transactions involving your interest in the Fixed Account, to reflect the impact of changing interest rates. NET INVESTMENT FACTOR - The factor used to determine the value of an Accumulation Unit and Annuity Unit in any Valuation Period. We determine the Net Investment Factor separately for each Subaccount. NON-QUALIFIED PLAN - A retirement plan which does not receive special tax treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code. PORTFOLIO(S) - The underlying mutual funds in which the Subaccounts invest. Each Portfolio is an investment company registered with the SEC or a separate investment series of a registered investment company. PURCHASE PAYMENTS - Amounts paid to us as premium for the Contract by you or on your behalf. QUALIFIED PLAN - A retirement plan which receives special tax treatment under Sections 401, 403(b), 408 or 408A of the Tax Code or a deferred compensation plan for a state and local government or another tax exempt organization under Section 457 of the Tax Code. SEPARATE ACCOUNT - The Lincoln Benefit Life Variable Annuity Account, which is a segregated investment account of the Company. SUBACCOUNT - A subdivision of the Separate Account, which invests wholly in shares of one of the Portfolios. SURRENDER VALUE - The amount paid upon complete surrender of the Contract, equal to the Contract Value, less any applicable premium taxes and the contract maintenance charge and increased or decreased by any Market Value Adjustment. TAX CODE - The Internal Revenue Code of 1986, as amended. TREASURY RATE - The U.S. Treasury Note Constant Maturity Yield for the preceding week as reported in Federal Reserve Bulletin Release H.15. VALUATION DATE - Each day the New York Stock Exchange is open for business. VALUATION PERIOD - The period of time over which we determine the change in the value of the Subaccounts in order to price Accumulation Units and Annuity Units. Each Valuation Period begins at the close of normal trading on the New York Stock Exchange ("NYSE") currently 4:00 p.m. Eastern time on each Valuation Date and ends at the close of the NYSE on the next Valuation Date. VARIABLE ANNUITY - A series of annuity payments that vary in amount based on changes in the value of the Subaccounts to which your Contract Value has been allocated. 5 QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT THE FOLLOWING ARE ANSWERS TO SOME OF THE QUESTIONS YOU MAY HAVE ABOUT SOME OF THE MORE IMPORTANT FEATURES OF THE CONTRACT. THE CONTRACT IS MORE FULLY DESCRIBED IN THE REST OF THE PROSPECTUS. PLEASE READ THE PROSPECTUS CAREFULLY. 1. WHAT IS THE CONTRACT? The Contract is a flexible premium deferred variable annuity contract. It is designed for tax-deferred retirement investing. The Contract is available for non-qualified or qualified retirement plans. The Contract, like all deferred annuity contracts, has two phases: the Accumulation Period and the Annuity Period. During the Accumulation Period, earnings accumulate on a tax-deferred basis and are taxed as income when you make a withdrawal. The Annuity Period begins when you begin receiving payments under one of the annuity payment options described in the answer to Question 2. The amount of money accumulated under your Contract during the Accumulation Period will be used to determine the amount of your annuity payments during the Annuity Period. Your premiums are invested in one or more of the Subaccounts of the Separate Account or allocated to the Fixed Account, as you instruct us. You may allocate your Contract Value to up to twenty-one options under the Contract, counting each Subaccount and the Fixed Account as one option. We will treat all of your Contract Value allocated to the Fixed Account as one option for purposes of this limit, even if you have chosen more than one Guarantee Period. The value of your Contract will depend on the investment performance of the Subaccounts and the amount of interest we credit to the Fixed Account. Each Subaccount will invest in a single investment portfolio (a "Portfolio") of a mutual fund. The Portfolios offer a range of investment objectives, from conservative to aggressive. You bear the entire investment risk on amounts allocated to the Subaccounts. The investment policies and risks of each Portfolio are described in the accompanying prospectuses for the Portfolios. In some states, you may also allocate all or part your Contract Value to the "Fixed Account", as described in the answer to Question 5. 2. WHAT ANNUITY OPTIONS DOES THE CONTRACT OFFER? You may receive annuity payments on a fixed or a variable basis or a combination of the two. We offer a variety of annuity options including: - - a life annuity with payments guaranteed for five to twenty years; - - a joint and full survivorship annuity, with payments guaranteed for five to twenty years; and - - fixed payments for a specified period of five to thirty years. Call us to inquire about other options. You may change your annuity option at any time before annuitization. You may select the date to annuitize the Contract. The date you select, however, may be no later than the later of the tenth Contract Anniversary or the Annuitant's 90th birthday. If your Contract was issued in connection with a qualified plan, different deadlines may apply. If you select annuity payments on a variable basis, the amount of our payments to you will be affected by the investment performance of the Subaccounts you have selected. The fixed portion of your annuity payments, on the other hand, generally will be equal in amount to the initial payment we determine. As explained in more detail below, however, during the Annuity Period you will have a limited ability to change the relative weighting of the Subaccounts on which your variable annuity payments are based or to increase the portion of your annuity payments consisting of Fixed Annuity payments. 3. HOW DO I BUY A CONTRACT? You can obtain a Contract application from your Lincoln Benefit agent. You must pay at least $25,000 in a lump sum as an initial Purchase Payment. Subsequent Purchase Payments must be at least $500. We may lower these minimums at our sole discretion. We will not issue a Contract to you if either you or the Annuitant is age 90 or older before we receive your application. 4. WHAT ARE MY INVESTMENT CHOICES UNDER THE CONTRACT? You can allocate and reallocate your investment among the Subaccounts, each of which in turn invests in a single Portfolio. Under the Contract, the Separate Account currently invests in the following Portfolios:
Fund Portfolio(s) - ------------------------------ ------------------------------ - -------------------------------------------------------------- Janus Aspen Series Flexible Income Portfolio Balanced Portfolio Growth Portfolio Aggressive Growth Portfolio Worldwide Growth Portfolio - -------------------------------------------------------------- Federated Insurance Management Utility Fund II Series Fund for U.S. Government Securities II High Income Bond Fund II - -------------------------------------------------------------- Fidelity Variable Insurance Money Market Portfolio Products Fund Equity-Income Portfolio Growth Portfolio Overseas Portfolio - -------------------------------------------------------------- Fidelity Variable Insurance Asset Manager Portfolio Products Fund II Contrafund Portfolio Index 500 Portfolio - -------------------------------------------------------------- The Alger American Fund Income and Growth Portfolio Small Capitalization Portfolio Growth Portfolio MidCap Growth Portfolio Leveraged AllCap Portfolio
6
Fund Portfolio(s) - ------------------------------ ------------------------------ - -------------------------------------------------------------- Scudder Variable Life Bond Portfolio Investment Fund Balanced Portfolio Growth and Income Portfolio Global Discovery Portfolio International Portfolio - -------------------------------------------------------------- Strong Variable Insurance Discovery Fund II Funds, Inc. Opportunity Fund II Growth Fund II - -------------------------------------------------------------- T. Rowe Price International International Stock Portfolio Series, Inc. - -------------------------------------------------------------- T. Rowe Price Equity Series, New America Growth Portfolio Inc. Mid-Cap Growth Portfolio Equity Income Portfolio - -------------------------------------------------------------- MFS Variable Insurance Trust Growth with Income Series Research Series Emerging Growth Series Total Return Series New Discovery Series - --------------------------------------------------------------
Each Portfolio holds its assets separately from the assets of the other Portfolios. Each Portfolio has distinct investment objectives and policies which are described in the accompanying prospectuses for the Portfolios. 5. WHAT IS THE FIXED ACCOUNT OPTION? We offer two Fixed Account interest crediting options: the Guaranteed Maturity Fixed Account Option and the Dollar Cost Averaging Fixed Account Option. We will credit interest to amounts allocated to the Guaranteed Maturity Fixed Account Option at a specified rate for a specified Guarantee Period. You select the Guarantee Period for each amount that you allocate to the Guaranteed Maturity Fixed Account Option. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. At the end of each Guarantee Period, you may select a new Guarantee Period from among the choices we are then making available or transfer or withdraw the relevant amount from the Fixed Account without any Market Value Adjustment. We may offer Guarantee Periods ranging from one to ten years in length. We are currently offering Guarantee Periods of one, three, five, seven, and ten years in length. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. We will not change the interest rate credited to a particular allocation until the end of the relevant Guarantee Period. From time to time, however, we may change the interest rate that we offer to credit to new allocations to the Guaranteed Maturity Fixed Account Option and to amounts rolled over in the Fixed Account for new Guarantee Periods. In addition, if you participate in our dollar cost averaging program, you may designate amounts to be held in the Dollar Cost Averaging Fixed Account Option until they are transferred to the Subaccounts or Guarantee Periods of your choosing. When you make an allocation to the Fixed Account for this purpose, we will set an interest rate applicable to that amount. We will then credit interest at that rate to that amount until it has been entirely transferred to your chosen Subaccounts or Guarantee Periods. We will complete the transfers within one year of the allocation. In our discretion we may change the rate that we set for new allocations to the Fixed Account for the dollar cost averaging program. We will never, however, set a rate less than an effective annual rate of 3%. A Market Value Adjustment may increase or decrease the amount of certain transactions involving the Fixed Account, to reflect changes in interest rates. As a general rule, we will apply a Market Value Adjustment to the following transactions: (1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option; (2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to the Subaccounts; (3) when you allocate part of your interest in the Guaranteed Maturity Fixed Account Option to a new Guarantee Period before the end of the existing Guarantee Period; (4) when you annuitize your Contract; and (5) when we pay a death benefit. We will not apply a Market Value Adjustment to a transaction to the extent that: (1) it occurs within 30 days after the end of a Guarantee Period applicable to the funds involved in the transaction; (2) it is part of a dollar cost averaging program; or (3) it is necessary to meet IRS minimum withdrawal requirements. We determine the amount of a Market Value Adjustment using a formula that takes into consideration: (1) whether current interest rates differ from interest rates at the beginning of the applicable Guarantee Period; and (2) how many years are left until the end of the Guarantee Period. As a general rule, if interest rates have dropped, the Market Value Adjustment will be an addition; if interest rates have risen, the Market Value Adjustment will be a deduction. It is therefore possible that if you withdraw an amount from the Fixed Account during a Guarantee Period, a Market Value Adjustment may cause you to receive less than you initially allocated to the Fixed Account. 6. WHAT ARE MY EXPENSES UNDER THE CONTRACT? CONTRACT MAINTENANCE CHARGE. During the Accumulation Period, each year we subtract an annual contract maintenance charge of $35 from your Contract Value 7 allocated to the Subaccounts. We will waive this charge if you pay $50,000 or more in Purchase Payments or if you allocate all of your Contract Value to the Fixed Account. During the Annuity Period, we will subtract the annual contract maintenance charge in equal parts from your annuity payments. We waive this charge if on the Annuity Date your Contract Value is $50,000 or more or if all payments are Fixed Annuity payments. ADMINISTRATIVE EXPENSE CHARGE AND MORTALITY AND EXPENSE RISK CHARGE. We impose a mortality and expense risk charge at an annual rate of 1.30% of average daily net assets and an administrative expense charge at an annual rate of .10% of average daily net assets. These charges are assessed each day during the Accumulation Period and the Annuity Period. We guarantee that we will not raise these charges. TRANSFER FEE. We currently do not charge a transfer fee. The Contract permits us to charge you up to $10 per transfer for each transfer after the first transfer in each month. PREMIUM TAXES. Certain states impose a premium tax on annuity purchase payments received by insurance companies. Any premium taxes relating to the Contract may be deducted from purchase payments or the contract value when the tax is incurred or at a later time. State premium taxes generally range from 0% to 3.5%. OTHER EXPENSES. In addition to our charges under the Contract, each Portfolio deducts amounts from its assets to pay its investment advisory fees and other expenses. 7. HOW WILL MY INVESTMENT IN THE CONTRACT BE TAXED? You should consult a qualified tax adviser for personalized answers. Generally, earnings under variable annuities are not taxed until amounts are withdrawn or distributions are made. This deferral of taxes is designed to encourage long-term personal savings and supplemental retirement plans. The taxable portion of a withdrawal or distribution is taxed as ordinary income. Special rules apply if the Contract is owned by a company or other legal entity. Generally, such an owner must include in income any increase in the excess of the Contract Value over the "investment in the contract" during the taxable year. 8. DO I HAVE ACCESS TO MY MONEY? At any time during the Accumulation Period, we will pay you all or part of the value of your Contract, minus any applicable charge, if you surrender your Contract or request a partial withdrawal. Under some plans, you may also take a loan against the value of your Contract. Generally, a partial withdrawal must equal at least $50, and after the withdrawal your remaining Contract Value must at least equal $5,000. Although you have access to your money during the Accumulation Period, certain charges, such as the contract maintenance charge and premium tax charges, may be deducted on a surrender or withdrawal. You may also incur federal income tax liability or tax penalties. In addition, if you have allocated some of the value of your Contract to the Fixed Account, the amount of your surrender proceeds or withdrawal may be increased or decreased by a Market Value Adjustment. After annuitization, under certain settlement options you may be entitled to withdraw the commuted value of the remaining payments. 9. WHAT IS THE DEATH BENEFIT? We will pay a death benefit while the Contract is in force and before the Annuity Date, if the Contract Owner dies, or if the Annuitant dies and the Contract Owner is not a natural person. To obtain payment of the Death Benefit, the Beneficiary must submit to us written proof of death as specified in the Contract. The death benefit is the greatest of the following: (1) your total Purchase Payments reduced proportionately for any prior partial withdrawals; (2) your Contract Value; (3) the amount you would have received by surrendering your Contract; or (4) your highest Contract Value on any Contract Anniversary, increased by the total Purchase Payments since the most recent Contract Anniversary and reduced proportionately by any partial withdrawals since the most recent Contract Anniversary. We will determine the value of the death benefit on the day that we receive all of the information that we need to process the claim. 10. WHAT ELSE SHOULD I KNOW? ALLOCATION OF PURCHASE PAYMENTS. You allocate your initial Purchase Payment among the Subaccounts and the Fixed Account in your Contract application. You may make your allocations in specific dollar amounts or percentages, which must be whole numbers that add up to 100%. When you make subsequent Purchase Payments, you may again specify how you want your payments allocated. If you do not, we will automatically allocate the payment based on your most recent instructions. You may not allocate Purchase Payments to the Fixed Account if it is not available in your state. TRANSFERS. During the Accumulation Period, you may freely transfer Contract Value among the Subaccounts and from the Subaccounts to the Fixed Account. You may not make a transfer, however, that would result in your allocating your Contract Value to more than twenty-one options under the Contract. While you may also transfer amounts from the Fixed Account, a Market Value Adjustment may apply. You may instruct us to transfer Contract Value by writing or calling us. 8 You may also use our automatic dollar cost averaging or portfolio rebalancing programs. You may not use both programs at the same time. Under the dollar cost averaging program, amounts are automatically transferred at regular intervals from the Fixed Account or a Subaccount of your choosing to up to eight options, including other Subaccounts or the Fixed Account. Transfers may be made monthly, quarterly, or annually. You do not pay a Market Value Adjustment on transfers that are part of a dollar cost averaging program. Under the portfolio rebalancing program, you can maintain the percentage of your Contract Value allocated to each Subaccount at a pre-set level. Investment results will shift the balance of your Contract Value allocations. If you elect rebalancing, we will automatically transfer your Contract Value back to the specified percentages at the frequency (monthly, quarterly, semiannually, annually) that you specify. You may not include the Fixed Account in a portfolio rebalancing program. You also may not elect rebalancing after annuitization. During the Annuity Period, you may not make any transfers for the first six months after the Annuity Date. Thereafter, you may make transfers among the Subaccounts or from the Subaccounts to increase your Fixed Annuity payments. Your transfers, however, must be at least six months apart. You may not convert any portion of your right to receive Fixed Annuity payments into Variable Annuity payments. FREE-LOOK PERIOD. You may cancel the Contract by returning it to us within 10 days after you receive it, or after whatever longer period may be permitted by state law. You may return it by delivering it or mailing it to us. If you return the Contract, the Contract terminates and, in most states, we will pay you an amount equal to the Contract Value on the date we receive the Contract from you. The Contract Value may be more or less than your Purchase Payments. In some states, we are required to send you the amount of your Purchase Payments. Since state laws differ as to the consequences of returning a Contract, you should refer to your Contract for specific information about your circumstances. 11. WHO CAN I CONTACT FOR MORE INFORMATION? You can write to us at Lincoln Benefit Life Company, P.O. Box 82532, Lincoln, Nebraska 68501-2532, or call us at (800) 865-5237. 9 FEE TABLES CONTRACT OWNER TRANSACTION EXPENSES Sales Charge -- None. ANNUAL CONTRACT MAINTENANCE CHARGE...................................................... $ 35.00 TRANSFER FEE (Applies solely to the second and subsequent transfers within a calendar month. We are currently waiving the transfer fee).............................................. $ 10.00 SEPARATE ACCOUNT EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE DEDUCTED FROM EACH OF THE SUBACCOUNTS OF THE SEPARATE ACCOUNT) Mortality and Expense Risk Charge............................................... 1.30% Administrative Expense Charge................................................... 0.10% --------- Total Separate Account Annual Expenses.......................................... 1.40%
PORTFOLIO COMPANY ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)
AGGRESSIVE WORLDWIDE JANUS ASPEN SERIES FLEXIBLE INCOME BALANCED(1) GROWTH(1) GROWTH(1) GROWTH(1) --------------- --------------- --------------- --------------- --------------- Management: 0.65% 0.76% 0.73% 0.66% 0.65% Other: 0.10% 0.07% 0.03% 0.08% 0.05% Total: 0.75% 0.83% 0.76% 0.74% 0.70% U.S. GOVERNMENT SECURITIES HIGH INCOME FEDERATED INSURANCE MANAGEMENT SERIES UTILITY II(2) II(2) BOND II(2) --------------- --------------- --------------- Management: 0.48% 0.15% 0.51% Other: 0.37% 0.65% 0.29% Total: 0.85% 0.80% 0.80% FIDELITY VARIABLE INSURANCE PRODUCTS FUND MONEY MARKET EQUITY-INCOME GROWTH(3) OVERSEAS(3) --------------- --------------- --------------- --------------- Management: 0.21% 0.50% 0.60% 0.75% Other: 0.10% 0.08% 0.09% 0.17% Total 0.31% 0.58% 0.69% 0.92% FIDELITY VARIABLE INSURANCE PRODUCTS FUND II ASSET MANAGER CONTRAFUND(3) INDEX 500 --------------- --------------- --------------- Management: 0.55% 0.60% 0.24% Other: 0.10% 0.11% 0.04% Total 0.65% 0.71% 0.28% INCOME AND SMALL LEVERAGED THE ALGER AMERICAN FUND GROWTH CAPITALIZATION GROWTH MIDCAP GROWTH ALLCAP(4) --------------- --------------- --------------- --------------- --------------- Management: 0.625% 0.85% 0.75% 0.80% 0.85% Other: 0.115% 0.04% 0.04% 0.04% 0.15% Total 0.740% 0.89% 0.79% 0.84% 1.00% GROWTH AND GLOBAL SCUDDER VARIABLE LIFE INVESTMENT FUND BOND BALANCED INCOME DISCOVERY INTERNATIONAL --------------- --------------- --------------- --------------- --------------- Management: 0.48% 0.48% 0.48% 0.67% 0.83% Other: 0.14% 0.09% 0.10% 0.83% 0.17% Total 0.62% 0.57% 0.58% 1.50% 1.00% STRONG VARIABLE INSURANCE FUNDS, INC. DISCOVERY II OPPORTUNITY II GROWTH II --------------- --------------- --------------- Management: 1.00% 1.00% 1.00% Other: 0.18% 0.15% 0.20% Total: 1.18% 1.15% 1.20% INTERNATIONAL T. ROWE PRICE INTERNATIONAL SERIES, INC. STOCK --------------- Management: 1.05% Other: 0.00% Total: 1.05%
10
NEW AMERICA T. ROWE PRICE EQUITY SERIES, INC. GROWTH MID-CAP GROWTH EQUITY INCOME --------------- --------------- --------------- Management: 0.85% 0.85% 0.85% Other: 0.00% 0.00% 0.00% Total: 0.85% 0.85% 0.85% GROWTH WITH NEW MFS VARIABLE INSURANCE TRUST INCOME RESEARCH EMERGING GROWTH TOTAL RETURN(5) DISCOVERY(5) --------------- --------------- --------------- --------------- --------------- Management: 0.75% 0.75% 0.75% 0.75% 0.90% Other: 0.25% 0.17% 0.15% 0.25% 0.25% Total: 1.00% 0.92% 0.90% 1.00% 1.15%
- -------------------------- (1) The expense figures shown are net of certain waivers or fee reductions from Janus Capital Corporation. Without such waivers or reductions, Management Fees, Other Expenses, and Total Portfolio Annual Expenses for the Portfolios for the fiscal year ended December 31, 1997, would have been 0.77%, 0.06%, and 0.83%, respectively, for Balanced Portfolio, 0.74%, 0.04%, and 0.78%, respectively, for Aggressive Growth Portfolio; 0.74%, 0.04%, and 0.78% respectively, for Growth Portfolio; and 0.72%, 0.09%, and 0.81%, respectively, for Worldwide Growth Portfolio. (2) The expense figures shown reflect the voluntary waiver of all or a portion of the Management Fee. The maximum Management Fees for the indicated Portfolios and the Total Portfolio Expenses absent the voluntary waiver are as follows: 0.75% and 1.12%, respectively, for the Utility Fund II; 0.06% and 1.25%, respectively, for the U.S. Government Securities II; and 0.60% and 0.89%, respectively, for the High Income Bond Fund II. The expense figures for U.S. Government Securities II are also net of expense reimbursements from the investment adviser. (3) A portion of the brokerage commissions the Portfolio paid was used to reduce its expenses. Without this reduction, total operating expenses would have been for Equity Income -- 0.57%, for Growth -- 0.67%, for Overseas -- 0.90%, for Asset Manager -- 0.64%, and for Contrafund -- 0.68%. (4) Included in the Other Expenses of this Portfolio is 0.04% of interest expense. (5) Each Portfolio has an expense offset arrangement with its custodian and dividend agent. Without this arrangement, Other Expenses would have been for Growth with Income -- 0.35%, for Total Return -- 0.27%, and for New Discovery -- 0.47% (estimate). EXAMPLES AT THE END OF THE APPLICABLE TIME PERIOD, YOU WOULD PAY THE FOLLOWING EXPENSES ON A $1,000 INVESTMENT, ASSUMING 5% ANNUAL RETURN ON ASSETS.
FEDERATED U.S. FEDERATED JANUS JANUS JANUS GOV'T. HIGH FIDELITY FLEXIBLE JANUS JANUS AGGRESSIVE WORLDWIDE FEDERATED SECURITIES INCOME MONEY INCOME BALANCED GROWTH GROWTH GROWTH UTILITY II II BOND II MARKET ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1 year 22 23 21 22 22 23 22 22 17 3 years 67 70 66 68 67 70 69 69 54 FIDELITY ALGER ALGER FIDELITY FIDELITY FIDELITY FIDELITY ASSET FIDELITY INCOME AND SMALL ALGER EQUITY-INCOME GROWTH OVERSEAS CONTRAFUND MANAGER INDEX 500 GROWTH CAPITALIZATION GROWTH ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1 year 20 21 24 21 21 17 22 23 22 3 years 62 65 72 66 64 53 67 72 69 ALGER ALGER SCUDDER SCUDDER STRONG STRONG MIDCAP LEVERAGED SCUDDER SCUDDER GROWTH AND GLOBAL SCUDDER DISCOVERY OPPORTUNITY GROWTH ALLCAP BOND BALANCED INCOME DISCOVERY INTERNATIONAL II II ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1 year 23 24 21 20 20 29 24 26 26 3 years 70 75 63 62 62 90 75 80 79 T. ROWE T. ROWE T. ROWE T. ROWE PRICE PRICE NEW PRICE PRICE MFS GROWTH MFS STRONG INTERNATIONAL AMERICAN MID-CAP EQUITY WITH MFS EMERGING MFS TOTAL GROWTH II STOCK GROWTH GROWTH INCOME INCOME RESEARCH GROWTH RETURN ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1 year 26 25 23 23 23 24 24 23 24 3 years 81 76 70 70 70 75 72 72 75 MFS NEW DISCOVERY ---------- 1 year 26 3 year 79
11 EXPLANATION OF FEE TABLES AND EXAMPLES 1. We have included the table and examples shown above to assist you in understanding the costs and expenses that you will bear directly or indirectly by investing in the Separate Account. The table reflects expenses of the Separate Account as well as the Portfolios. For additional information, you should read "Contract Charges," which begins on page 27 below; you should also read the sections relating to expenses of the Portfolios in their prospectuses. The examples do not include any taxes or tax penalties you may be required to pay if you surrender your Contract. 2. The examples assume that you did not make any transfers. We are currently waiving the transfer fee, but in the future, we may decide to charge $10 for the second and each subsequent transfer within a calendar month. Premium taxes are not reflected. Currently, we deduct premium taxes (which range from 0% to 3.5%) either from premium received or from Contract Value upon full surrender, death or annuitization. 3. To reflect the contract maintenance charge in the examples, we estimated an equivalent percentage charge, which we calculated by dividing the total amount of contract maintenance charges expected to be collected during a year by the total estimated average net assets of the Subaccounts and the Fixed Account attributable to the Contracts. 4. Your expenses will be the same regardless of whether you surrender, annuitize, or continue to hold your Contract at the end of the applicable time period, because we do not charge a withdrawal charge on surrenders or annuitizations of this Contract. NEITHER THE FEE TABLES NOR THE EXAMPLES SHOULD BE CONSIDERED REPRESENTATIONS OF PAST OR FUTURE EXPENSES. YOUR ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. SIMILARLY, THE ANNUAL RATE OF RETURN OF 5% ASSUMED IN THE EXAMPLE IS NOT AN ESTIMATE OR GUARANTEE OF FUTURE INVESTMENT PERFORMANCE. CONDENSED FINANCIAL INFORMATION We have included the financial statements of the Separate Account in the Statement of Additional Information. These financial statements do not reflect any assets attributable to the Contracts, because we did not sell the Contracts during the period covered by these financial statements. The Statement of Additional Information also includes a brief explanation of how performance of the Subaccounts is calculated. DESCRIPTION OF THE CONTRACTS SUMMARY. The Contract is a deferred annuity contract designed to aid you in long-term financial planning. You may add to the Contract Value by making additional Purchase Payments. In addition, the Contract Value will change to reflect the performance of the Subaccounts to which you allocate your Purchase Payments and your Contract Value, as well as to reflect interest credited to amounts allocated to the Fixed Account. You may withdraw your Contract Value by making a partial withdrawal or by surrendering your Contract. Upon Annuitization, we will pay you benefits under the Contract in the form of an annuity, either for the life of the Annuitant or for a fixed number of years. All of these features are described in more detail below. CONTRACT OWNER. As the Contract Owner, you are the person usually entitled to exercise all rights of ownership under the Contract. You usually are also the person entitled to receive benefits under the Contract or to choose someone else to receive benefits. If your Contract was issued under a Qualified Plan, however, the Plan may limit or modify your rights and privileges under the Contract and may limit your right to choose someone else to receive benefits. We will not issue a Contract to a purchaser who has attained age 90, or where the Annuitant has attained age 90. ANNUITANT. The Annuitant is the living person whose life span is used to determine annuity payments. You initially designate an Annuitant in your application. You may change the Annuitant at any time before annuity payments begin. If your Contract was issued under a plan qualified under Section 403(b), 408 or 408A of the Tax Code, you must be the Annuitant. You may also designate a Co-Annuitant, who is a second person on whose life annuity payments depend. Additional restrictions may apply in the case of Qualified Plans. If you are not the Annuitant and the Annuitant dies before annuity payments begin, then either you become the new Annuitant or you must name another person as the new Annuitant. You must attest that the Annuitant is alive in order to annuitize your Contract. MODIFICATION OF THE CONTRACT. Only a Lincoln Benefit officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We are permitted to change the terms of the Contract if it is necessary to comply with changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law. ASSIGNMENT. Before the Annuity Date, if the Annuitant is still alive, you may assign a Contract issued under a Non-Qualified Plan that is not subject to Title 1 of the Employee Retirement Income Security Act of 1974 ("ERISA"). If a Contract is issued pursuant to a Qualified Plan or a Non-Qualified Plan that is subject to Title 1 of ERISA, the law 12 prohibits some types of assignments, pledges and transfers and imposes special conditions on others. An assignment may also result in taxes or tax penalties. We will not be bound by any assignment until we receive written notice of it. Accordingly, until we receive written notice of an assignment, we will continue to act as though the assignment had not occurred. We are not responsible for the validity of any assignment. BECAUSE OF THE POTENTIAL TAX CONSEQUENCES AND ERISA ISSUES ARISING FROM AN ASSIGNMENT, YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR CONTRACT. FREE LOOK PERIOD. You may cancel the Contract by returning it to us within 10 days after you receive it, or within whatever longer period may be permitted by state law. You may return it by delivering it to your agent or mailing it to us. If you return the Contract, the Contract terminates and, in most states, we will pay you an amount equal to the Contract Value on the date we receive the Contract from you. The Contract Value at that time may be more or less than your Purchase Payments. In some states, if you exercise your "free look" rights, we are required to return the amount of your Purchase Payments. Currently, if you live in one of those states, on the Issue Date we will allocate your Purchase Payment to the Subaccounts and the Fixed Account Options as you specified in your application. However, we reserve the right in the future to delay allocating your Purchase Payments to the Subaccounts you have selected or to the Fixed Account until 20 days after the Issue Date or, if your state's free look period is longer than ten days, for ten days plus the period required by state law. During that time, we will allocate your Purchase Payment to the Fidelity Money Market Subaccount. Your Contract will contain specific information about your free-look rights in your state. PURCHASES AND CONTRACT VALUE MINIMUM PURCHASE PAYMENT. The minimum initial Purchase Payment for a Contract is $25,000. You must pay it in a lump sum. You may not pay more than $1 million in Purchase Payments without our prior approval. As a general rule, subsequent Purchase Payments may be made in amounts of $500 or more. We may lower these minimums if we choose. We may refuse any Purchase Payment at any time. AUTOMATIC PAYMENT PLAN. You may make scheduled Purchase Payments of $100 or more per month by automatic payment through your bank account. Call or write us for an enrollment form. ALLOCATION OF PURCHASE PAYMENTS. Your Purchase Payments are allocated to the Subaccount(s) and the Fixed Account in the proportions that you have selected. You must specify your allocation in your Contract application, either as percentages or specific dollar amounts. If you make your allocation in percentages, the total must equal 100%. We will allocate your subsequent Purchase Payments in those percentages, until you give us new allocation instructions. You may not allocate Purchase Payments to the Fixed Account if it is not available in your state. You initially may allocate your Purchase Payments to up to twenty-one options, counting each Subaccount and the Fixed Account as one option. For this purpose, we will treat all of your allocations to the Fixed Account as one option, even if you choose more than one Guarantee Period. You may add or delete Subaccounts and/or the Fixed Account from your allocation instructions, but we will not execute instructions that would cause you to have Contract Value in more than twenty-one options. In the future, we may waive this limit. If your application is complete, we will issue your Contract within two business days of its receipt at our P.O. Box shown on the first page of this prospectus. If your application for a Contract is incomplete, we will notify you and seek to complete the application within five business days. For example, if you do not fill in allocation percentages, we will contact you to obtain the missing percentages. If we cannot complete your application within five business days after we receive it, we will return your application and your Purchase Payment, unless you expressly permit us to take a longer time. Usually, we will allocate your initial Purchase Payment to the Subaccounts and the Fixed Account, as you have instructed us, on the Issue Date. We will allocate your subsequent Purchase Payments on the date that we receive them at the next computed Accumulation Unit Value. In some states, however, we are required to return at least your Purchase Payment if you cancel your Contract during the "free-look" period. In those states, we currently will allocate your Purchase Payments on the Issue Date as you have instructed us, as described above. In the future, however, we reserve the right, if you live in one of those states, to allocate all Purchase Payments received during the "free-look period" to the Fidelity Money Market Subaccount. If we exercise that right and your state's free-look period is ten days, we will transfer your Purchase Payments to your specified Subaccounts or Fixed Account 20 days after the Issue Date; if your state's free look period is longer, we will transfer your Purchase Payment after ten days plus the period required by state law have passed. We determine the number of Accumulation Units in each Subaccount to allocate to your Contract by dividing that portion of your Purchase Payment allocated to a Subaccount by that Subaccount's Accumulation Unit Value on the Valuation Date when the allocation occurs. 13 CONTRACT VALUE. We will establish an account for you and will maintain your account during the Accumulation Period. The total value of your Contract at any time is equal to the sum of the value of your Accumulation Units in the Subaccounts you have selected, plus the value of your interest in the Fixed Account. SEPARATE ACCOUNT ACCUMULATION UNIT VALUE. As a general matter, the Accumulation Unit Value for each Subaccount will rise or fall to reflect changes in the share price of the Portfolio in which the Subaccount invests. In addition, we subtract from Accumulation Unit Value amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value. We determine transfer fees and contract maintenance charges separately for each Contract. They do not affect Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. We determine a separate Accumulation Unit Value for each Subaccount. If we elect or are required to assess a charge for taxes, we may calculate a separate Accumulation Unit Value for Contracts issued in connection with Non-Qualified and Qualified Plans, respectively, within each Subaccount. We will determine the Accumulation Unit Value for each Subaccount Monday through Friday on each day that the New York Stock Exchange is open for business. You should refer to the prospectuses for the Portfolios which accompany this prospectus for a description of how the assets of each Portfolio are valued, since that determination has a direct bearing on the Accumulation Unit Value of the corresponding Subaccount and, therefore, your Contract Value. TRANSFER DURING ACCUMULATION PERIOD. During the Accumulation Period, you may transfer Contract Value among the Fixed Account and the Subaccounts in writing or by telephone. Currently, there is no minimum transfer amount. The Contract permits us to set a minimum transfer amount in the future. You may not make a transfer that would result in your allocating your Contract Value to more than twenty-one options under the Contract at one time. As a general rule, we only make transfers on days when we and the NYSE are open for business. If we receive your request on one of those days, we will make the transfer that day. Otherwise, we will make the transfer on the first subsequent day on which we and the NYSE are open. If you transfer an amount from the Fixed Account to a Subaccount before the end of the applicable Guarantee Period or you allocate an amount in the Fixed Account to a new Guarantee Period before the end of the existing Guarantee Period, we usually will increase or decrease the amount by a Market Value Adjustment. The calculation of the Market Value Adjustment is described in "Market Value Adjustment" on page 21 below. The following types of transfers are not subject to a Market Value Adjustment: - - transfers within 30 days after the end of the applicable Guarantee Period; and - - transfers that are part of a dollar cost averaging program. The Contract permits us to defer transfers from the Fixed Account for up to six months from the date you ask us. You may not transfer Contract Value into the Dollar Cost Averaging Fixed Account Option. You may not transfer Contract Value out of the Dollar Cost Averaging Fixed Account Option except as part of a Dollar Cost Averaging program. TRANSFERS AUTHORIZED BY TELEPHONE. You may make transfers by telephone, if you first send us a completed authorization form. The cut off time for telephone transfer requests is 4:00 p.m. Eastern time. Calls completed before 4:00 p.m. will be effected on that day at that day's price. Calls completed after 4:00 p.m. will be effected on the next day on which we and the NYSE are open for business, at that day's price. We may charge you the transfer fee described on page 28 below, although we currently are waiving it. In addition, we may suspend, modify or terminate the telephone transfer privilege at any time without notice. We use procedures that we believe provide reasonable assurance that telephone authorized transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to help ensure that a telephone authorization is valid, we may be liable for such losses. AUTOMATIC DOLLAR COST AVERAGING PROGRAM. Under our Automatic Dollar Cost Averaging program, you may authorize us to transfer a fixed dollar amount at fixed intervals from the Dollar Cost Averaging Fixed Account Option or a Subaccount of your choosing to up to eight options, including other Subaccounts or the Guaranteed Maturity Fixed Account Option. The interval between transfers may be monthly, quarterly, or annually, at your option. The transfers will be made at the Accumulation Unit Value on the date of the transfer. The transfers will continue until you instruct us otherwise, or until your chosen source of transfer payments is exhausted. Currently, the minimum transfer amount is $100 per transfer. However, if you wish to Dollar Cost Average to a Guaranteed Maturity Fixed Account Option, the minimum amount that must be transferred into any one Option is $500. We may change this minimum or grant exceptions. If you elect this program, the first transfer will occur one interval after your Issue Date. You may not use the Dollar Cost Averaging program to transfer amounts from the Guaranteed Maturity Fixed Account Option. 14 Your request to participate in this program will be effective when we receive your completed application at the P.O. Box given on the first page of this prospectus. Call or write us for a copy of the application. You may elect to increase, decrease or change the frequency or amount of transfers under a Dollar Cost Averaging program. We do not apply a Market Value Adjustment to transfers made as part of a Dollar Cost Averaging program. The theory of dollar cost averaging is that you will purchase greater numbers of units when the unit prices are relatively low rather than when the prices are higher. As a result, when purchases are made at fluctuating prices, the average cost per unit is less than the average of the unit prices on the purchase dates. However, participation in this program does not assure you of a greater profit from your purchases under the program; nor will it prevent or necessarily reduce losses in a declining market. You may not use Dollar Cost Averaging and Portfolio Rebalancing at the same time. PORTFOLIO REBALANCING. Portfolio Rebalancing allows you to maintain the percentage of your Contract Value allocated to each Subaccount at a pre-set level. For example, you could specify that 30% of your Contract Value should be in the Balanced Portfolio, 40% in the Growth Portfolio-Janus Aspen Series and 30% in Federated High Income Bond Fund II. Over time, the variations in each Subaccount's investment results will shift the balance of your Contract Value allocations. Under the Portfolio Rebalancing feature, each period, if the allocations change from your desired percentages, we will automatically transfer your Contract Value, including new Purchase Payments (unless you specify otherwise), back to the percentages you specify. Portfolio Rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the better performing segments. You may choose to have rebalances made monthly, quarterly, semi-annually, or annually until your Annuity Date. Portfolio Rebalancing is not available after you annuitize. We will not charge a transfer fee for Portfolio Rebalancing. No more than eight Subaccounts can be included in a Portfolio Rebalancing program at one time. You may not include the Fixed Account in a Portfolio Rebalancing program. You may request Portfolio Rebalancing at any time before your Annuity Date by submitting a completed written request to us at the P.O. Box given on the first page of this prospectus. Please call or write us for a copy of the request form. If you stop Portfolio Rebalancing, you must wait 30 days to begin again. In your request, you may specify a date for your first rebalancing. If you specify a date fewer than 30 days after your Issue Date, your first rebalance will be delayed one month. If you request Portfolio Rebalancing in your Contract application and do not specify a date for your first rebalancing, your first rebalance will occur one period after the Issue Date. For example, if you specify quarterly rebalancing, your first rebalance will occur three months after your Issue Date. Otherwise, your first rebalancing will occur one period after we receive your completed request form. All subsequent rebalancing will occur at the intervals you have specified on the day of the month that coincides with the same day of the month as your Contract Anniversary Date. Generally, you may change the allocation percentages, frequency, or choice of Subaccounts at any time. If your total Contract Value subject to rebalancing falls below any minimum value that we may establish, we may prohibit or limit your use of Portfolio Rebalancing. You may not use Dollar Cost Averaging and Portfolio Rebalancing at the same time. We may change, terminate, limit, or suspend Portfolio Rebalancing at any time. THE INVESTMENT AND FIXED ACCOUNT OPTIONS SEPARATE ACCOUNT INVESTMENTS THE PORTFOLIOS. Each of the Subaccounts of the Separate Account invests in the shares of one of the Portfolios. Each Portfolio is either an open-end management investment company registered under the Investment Company Act of 1940 or a separate investment series of an open-end management investment company. We have briefly described the Portfolios below. You should consult the current prospectuses for the Portfolios for more detailed and complete information concerning the Portfolios. If you do not have a prospectus for a Portfolio, contact us and we will send you a copy. Appendix A contains a description of how advertised performance data for the Subaccounts are computed. We do not promise that the Portfolios will meet their investment objectives. Amounts you have allocated to Subaccounts may grow in value, decline in value, or grow less than you expect, depending on the investment performance of the Portfolios in which those Subaccounts invest. You bear the investment risk that those Portfolios possibly will not meet their investment objectives. You should carefully review their prospectuses before allocating amounts to the Subaccounts of the Separate Account. JANUS ASPEN SERIES (investment adviser: Janus Capital Corporation) FLEXIBLE INCOME PORTFOLIO seeks to maximize total return from a combination of current income and capital appreciation, with an emphasis on current income. This Portfolio invests in all types of income-producing securities. This Portfolio may have substantial holdings of debt securities rated below investment grade. Investments in such securities present special risks; you are urged to carefully read the risk disclosure in the accompanying Prospectus for the Portfolio before allocating amounts to the Janus Flexible Income Subaccount. BALANCED PORTFOLIO seeks long-term growth of capital balanced by current income. This Portfolio normally invests 40-60% of its assets in securities selected primarily for their 15 growth potential and 40-60% of its assets in securities selected primarily for their income potential. GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily in a diversified portfolio of common stocks of a large number of issuers of any size. Generally, this Portfolio emphasizes issuers with larger market capitalizations. AGGRESSIVE GROWTH PORTFOLIO seeks long-term growth of capital. It is a non-diversified fund. It normally invests at least 50% of its equity assets in securities issued by medium-sized companies, which are companies whose market capitalizations at the time of purchase by the Portfolio fall within the same range as companies in the S&P MidCap 400 Index. This range is expected to change on a regular basis. This Portfolio may invest its remaining assets in smaller or larger issuers. WORLDWIDE GROWTH PORTFOLIO seeks long-term growth of capital by investing in a diversified portfolio of common stocks of foreign and domestic issuers of any size. This Portfolio normally invests in issuers from at least five different countries including the United States. FEDERATED INSURANCE MANAGEMENT SERIES (investment adviser: Federated Advisers) FEDERATED UTILITY FUND II'S investment objective is to achieve high current income and moderate capital appreciation. The Portfolio invests primarily in equity and debt securities of utility companies that produce, transmit, or distribute gas and electric energy, as well as those companies that provide communications facilities, such as telephone and telegraph companies. FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II'S investment objective is to provide current income. The Portfolio invests in direct obligations of the U.S. Government or its agencies or instrumentalities, and securities guaranteed by the U.S. Government, its agencies, or instrumentalities. This Portfolio may also invest in certain collateralized mortgage obligations and repurchase agreements. FEDERATED HIGH INCOME BOND FUND II'S investment objective is to seek high current income. This Portfolio invests at least 65% of its assets in lower rated corporate debt obligations, such as preferred stocks, bonds, debentures, notes, equipment lease certificates and equipment trust certificates. Some of these fixed income securities may involve equity features. Under normal circumstances, this Portfolio will not invest more than 10% of the value of its total assets in equity securities. FIDELITY VARIABLE INSURANCE PRODUCTS FUND (investment adviser: Fidelity Management & Research Company) MONEY MARKET PORTFOLIO seeks to obtain as high a level of current income as is consistent with preserving capital and providing liquidity. This Portfolio will invest in high quality U.S. dollar-denominated money market securities of domestic and foreign insurers, including U.S. government securities and repurchase agreements. EQUITY-INCOME PORTFOLIO seeks reasonable income by investing primarily in income-producing equity securities. The goal is to achieve a higher yield than the composite yield of the S&P 500 Composite Stock Price Index. At least 65% of this Portfolio's assets will be invested in income-producing common or preferred stock. The Portfolio, however, has the flexibility to invest the balance in all types of domestic and foreign securities, including bonds. GROWTH PORTFOLIO seeks to achieve capital appreciation. This Portfolio usually purchases common stocks, although its investments are not restricted to any one type of security. OVERSEAS PORTFOLIO seeks long-term growth of capital primarily through investments in foreign securities. At least 65% of this Portfolio's assets will be invested in securities of issuers outside of the United States. The Portfolio normally diversifies its investments across countries and regions. FIDELITY VARIABLE INSURANCE PRODUCTS FUND II (investment adviser: Fidelity Management & Research Company) ASSET MANAGER PORTFOLIO seeks to obtain high total return with reduced risk over the long term by allocating its assets among domestic and foreign stocks, bonds, and short-term money market securities. Usually, this Portfolio's assets will be allocated within the following guidelines: 30-70% in stocks (equities); 20-60% in bonds (intermediate to long-term); and 0-50% in short-term instruments. CONTRAFUND PORTFOLIO seeks capital appreciation by investing mainly in equity securities of companies whose value the Portfolio's adviser believes is not fully recognized by the public. This Portfolio usually invests primarily in common stock and securities convertible into common stock, but it may invest in other types of securities. INDEX 500 PORTFOLIO seeks long-term capital growth through the purchase of a portfolio of securities that broadly represents the U.S. stock market, as measured by the S&P 500. By investing to match the return of the S&P 500, the Portfolio seeks to keep expenses low. THE ALGER AMERICAN FUND (investment adviser: Fred Alger Management, Inc.) INCOME AND GROWTH PORTFOLIO seeks primarily to provide a high level of dividend income. Capital appreciation is a secondary objective of the Portfolio. Except during temporary defensive periods, the Portfolio attempts to invest 100%, and it is a fundamental policy of the Portfolio to invest at least 65%, of its total assets in dividend paying equity securities. SMALL CAPITALIZATION PORTFOLIO seeks long-term capital appreciation. Except during temporary defensive periods, the Portfolio invests at least 65% of its total assets in equity securities of companies that at the time of purchase have total market 16 capitalization within the range of companies included in the Russell 2000 Growth Index or the S&P SmallCap 600 Index. The Portfolio may invest its remaining assets in larger or smaller issuers. GROWTH PORTFOLIO seeks long-term capital appreciation. Under normal circumstances, the Portfolio invests at least 65% of its total assets in equity securities of companies that have total market capitalization of $1 billion or greater. The Portfolio may invest up to 35% of its total assets in equity securities of companies that have total market capitalization of less than $1 billion. MIDCAP GROWTH PORTFOLIO seeks long-term capital appreciation. Under normal circumstances, the Portfolio invests at least 65% of its total assets in equity securities of companies that have total market capitalization within the range of companies included in the S&P MidCap 400 Index. LEVERAGED ALLCAP PORTFOLIO seeks long-term capital appreciation. Except during temporary defensive periods, the Portfolio invests at least 85% of its net assets in equity securities of companies of any size. The Portfolio may purchase put and call options and sell (write) covered call and put options on securities and securities indexes to increase gain and to hedge against the risk of unfavorable price movements, and may enter into futures contracts on securities indexes and purchase and sell call and put options on these futures contracts. The Portfolio may also borrow money for the purchase of additional securities. SCUDDER VARIABLE LIFE INVESTMENT FUND (investment adviser: Scudder, Kemper Investments, Inc.) The Scudder Variable Life Investment Fund has two classes of shares. The Subaccounts invest in Class A shares, which do not impose distribution fees. BOND PORTFOLIO seeks high income from a high quality portfolio of debt securities. Under normal circumstances, this Portfolio invests at least 65% of its assets in bonds including those of the U.S. Government and its agencies and those of corporations and other notes and bonds paying high current income. This Portfolio can invest in a broad range of short, intermediate and long-term securities. BALANCED PORTFOLIO seeks a balance of growth and income from a diversified portfolio of equity and fixed income securities. The Portfolio also seeks long-term preservation of capital through a quality-oriented investment approach that is designed to reduce risk. The Portfolio will invest its assets in equity securities, debt securities with maturities generally exceeding one year, and money market instruments and other debt securities with maturities generally not exceeding thirteen months. Not more than 75% of this Portfolio's net assets may be invested in stocks or other equity investments. Generally, 25%-50% of the Portfolio's net assets are invested in bonds. GROWTH AND INCOME PORTFOLIO seeks long-term growth of capital, current income and growth of income. In pursuing these three objectives, the Portfolio invests primarily in common stocks, preferred stocks, and securities convertible into common stocks of companies which offer the prospect for growth of earnings while paying higher than average current dividends. The Portfolio allocates its investments among different industries and companies, and changes its portfolio securities for investments considerations and not for trading purposes. GLOBAL DISCOVERY PORTFOLIO seeks above-average capital appreciation over the long term by investing primarily in the equity securities of small companies located throughout the world. The Portfolio is designed for investors looking for above-average appreciation potential (when compared with the overall domestic stock market as reflected by the S&P 500 Stock Composite Price Index) and the benefits of investing globally, but who are willing to accept above-average stock market risk, the impact of currency fluctuation, and little or no current income. The Portfolio generally invests in small, rapidly growing companies that offer the potential for above-average returns relative to larger companies, yet are frequently overlooked and thus undervalued by the market. INTERNATIONAL PORTFOLIO seeks long-term growth of capital primarily through diversified holdings of marketable foreign equity investments. The Portfolio invests in companies, wherever organized, which do business primarily outside the United States. The Portfolio intends to diversify investments among several countries and to have represented in its holdings business activities in not less than three different countries, excluding the United States. The Portfolio invests primarily in equity securities of established companies, listed on foreign exchanges, which the adviser believes have favorable characteristics. It may also invest in fixed income securities of foreign governments and companies. STRONG VARIABLE INSURANCE FUNDS, INC. (investment adviser: Strong Capital Management, Inc.) DISCOVERY FUND II seeks capital growth. The Portfolio usually emphasizes equity investments, although it has the flexibility to invest in any security the adviser believes has the potential for capital appreciation. The Portfolio's strategy is to invest in a blend of small, mid- and large-cap companies that are in good businesses, are headed by capable and driven management, and trade at attractive valuations. OPPORTUNITY FUND II seeks capital growth. The Portfolio currently emphasizes medium-sized companies that the adviser believes are under-researched and attractively valued. To achieve its investment goals, the Portfolio seeks to find well-managed companies that have sustainable growth prospects but that are selling at prices below their private market values. GROWTH FUND II seeks capital growth. The Portfolio invests primarily in equity securities that the adviser believes have above-average growth prospects and are selling at reasonable valuations. The Portfolio generally has over half of its assets in small- and mid-cap issues as these companies tend to have the highest growth rates. 17 T. ROWE PRICE INTERNATIONAL SERIES, INC. (investment adviser: Rowe Price-Fleming International, Inc., a joint venture between T. Rowe Price & Associates, Inc. and Robert Fleming Holdings, Ltd.) INTERNATIONAL STOCK PORTFOLIO seeks long-term growth of capital through investments primarily in common stocks of established, non-U.S. companies. The Portfolio invests substantially all of its assets outside the United States and broadly diversifies its investments among countries throughout the world -- developed, newly industrialized and emerging. T. ROWE PRICE EQUITY SERIES, INC. (investment adviser: T. Rowe Price Associates, Inc.) NEW AMERICA GROWTH PORTFOLIO seeks long-term growth of capital through investment primarily in the common stocks of U.S. growth companies which operate in service industries. The Portfolio will invest most of its assets in service companies, regardless of size, that the adviser believes to be above average performers in their fields. The Portfolio may invest up to 25% of its assets outside the service sector. MID-CAP GROWTH PORTFOLIO seeks long-term growth of capital by investing primarily in the common stocks of companies with medium-sized market capitalizations and the potential for above-average earnings growth. Most of the assets will be invested in U.S. common stocks, but the Portfolio also may invest in other types of securities, such as foreign securities, when consistent with the Portfolio's investment objective. EQUITY INCOME PORTFOLIO seeks to provide high current dividend income as well as long-term capital appreciation by investing primarily in common stocks of established companies. Under normal circumstances, the Portfolio usually will invest at least 65% of its assets in common stocks of established companies paying above-average dividends which are expected to have favorable prospects for dividend growth and capital appreciation. The Portfolio may also invest in other securities such as fixed income and convertible securities. MFS VARIABLE INSURANCE TRUST (investment adviser: Massachusetts Financial Services) GROWTH WITH INCOME SERIES seeks reasonable current income, as well as long-term growth of capital and income. The Portfolio invests in stocks of companies that the adviser considers to be of high or improving investment quality. The Portfolio has the flexibility to invest in derivative securities when its managers believe such securities can provide better value relative to direct investments in stocks and bonds. RESEARCH SERIES seeks to provide long-term growth of capital and future income. The Portfolio invests in the common stocks of companies the adviser believes possess better-than-average prospects for long-term growth. The Portfolio may invest up to 20% of its net assets in foreign and emerging market securities. Investing in foreign and emerging market securities involves special risks and may increase share price volatility. The Portfolio has the flexibility to invest in derivative securities when its adviser believes such securities can provide better value relative to direct investments in stocks and bonds. EMERGING GROWTH SERIES seeks to provide long-term growth of capital. The Portfolio invests primarily in common stocks of companies that are early in their life cycles but which have the potential to become major enterprises. The Portfolio may also invest in more established companies whose earnings growth the adviser expects to accelerate because of special factors. Investing in emerging growth companies involves greater risk than is customarily associated with more established companies. The Portfolio also may invest up to 25% of its net assets in foreign and emerging market securities. The Portfolio has the flexibility to invest in derivative securities when its adviser believes such securities can provide better value relative to direct investments in stocks or bonds. TOTAL RETURN SERIES seeks to provide above-average current income (compared to a portfolio invested entirely in equity securities) consistent with the prudent employment of capital. The Portfolio also seeks to provide reasonable opportunity for growth of capital and income. The Portfolio invests in both equities and fixed income securities. The equity segment is actively managed with a value-oriented style of investing. The fixed income segment is actively managed through shifts in maturity, duration, and sector components. The Portfolio may invest up to 20% of its assets in foreign and emerging market securities. The Portfolio has the flexibility to invest in derivative securities when its adviser believes such securities can provide better value relative to direct investments in stocks or bonds. NEW DISCOVERY SERIES seeks capital appreciation. This Portfolio seeks to achieve its objective by investing under normal market conditions at least 65% of its total assets in companies that its adviser believes offer superior prospects for growth. Those securities may either be listed on securities exchanges or traded in the over-the-counter markets and may be U.S. or foreign companies. Each Portfolio is subject to certain investment restrictions and policies which may not be changed without the approval of a majority of the shareholders of the Portfolio. See the accompanying Prospectuses of the Portfolios for further information. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolio at their net asset value. The income and realized and unrealized gains or losses on the assets of each Subaccount are separate and are credited to or charged against the particular Subaccount without regard to income, gains or losses from any other Subaccount or from any other part of our business. We will use the net Purchase Payments you allocate to a Subaccount to purchase shares in the corresponding Portfolio and will redeem shares in the Portfolios to meet Contract obligations or make adjustments in 18 reserves. The Portfolios are required to redeem their shares at net asset value and to make payment within seven days. Certain of the Portfolios sell their shares to separate accounts underlying both variable life insurance and variable annuity contracts. It is conceivable that in the future it may be unfavorable for variable life insurance separate accounts and variable annuity separate accounts to invest in the same Portfolio. Although neither we nor any of the Portfolios currently foresees any such disadvantages either to variable life insurance or variable annuity contract owners, each Portfolio's Board of Directors intends to monitor events in order to identify any material conflicts between variable life and variable annuity contract owners and to determine what action, if any, should be taken in response thereto. If a Board of Directors were to conclude that separate investment funds should be established for variable life and variable annuity separate accounts, Lincoln Benefit will bear the attendant expenses. VOTING RIGHTS. As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Subaccounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. We will notify you when your instructions are needed. We will also provide proxy materials or other information to assist you in understanding the matter at issue. We will determine the number of shares for which you may give voting instructions as of the record date set by the relevant Portfolio for the shareholder meeting at which the vote will occur. As a general rule, before the Annuity Date, you are the person entitled to give voting instructions. After the Annuity Date, the payee is that person. Retirement plans, however, may have different rules for voting by plan participants. If you send us written voting instructions, we will follow your instructions in voting the Portfolio shares attributable to your Contract. If you do not send us written instructions, we will vote the shares attributable to your Contract in the same proportions as we vote the shares for which we have received instructions from other Contract Owners. We will vote shares that we hold in the same proportions as we vote the shares for which we have received instructions from other Contract Owners. We may, when required by state insurance regulatory authorities, disregard Contract Owner voting instructions if the instructions require that the shares be voted so as to cause a change in the sub-classification or investment objective of one or more of the Portfolios or to approve or disapprove an investment advisory contract for one or more of the Portfolios. In addition, we may disregard voting instructions in favor of changes initiated by Contract Owners in the investment objectives or the investment adviser of the Portfolios if we reasonably disapprove of the proposed change. We would disapprove a proposed change only if the proposed change is contrary to state law or prohibited by state regulatory authorities or we reasonably conclude that the proposed change would not be consistent with the investment objectives of the Portfolio or would result in the purchase of securities for the Portfolio which vary from the general quality and nature of investments and investment techniques utilized by the Portfolio. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report to you. This description reflects our view of currently applicable law. If the law changes or our interpretation of the law changes, we may decide that we are permitted to vote the Portfolio shares without obtaining instructions from our Contract Owners, and we may choose to do so. ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of the Portfolios are no longer available for investment by the Separate Account or if, in the judgment of our Board of Directors, further investment in the shares of a Portfolio is no longer appropriate in view of the purposes of the Contract, we may add or substitute shares of another Portfolio or mutual fund for Portfolio shares already purchased or to be purchased in the future by Purchase Payments under the Contract. Any substitution will comply with the requirements of the 1940 Act. We also reserve the right to make the following changes in the operation of the Separate Account and the Subaccounts: (a) to operate the Separate Account in any form permitted by law; (b) to take any action necessary to comply with applicable law or obtain and continue any exemption from applicable laws; (c) to transfer assets from one Subaccount to another, or from any subaccount to our general account; (d) to add, combine, or remove Subaccounts in the Separate Account; and (e) to change the way in which we assess charges, as long as the total charges do not exceed the amount currently charged the Separate Account and the Portfolios in connection with the Contracts. If we take any of these actions, we will comply with the then applicable legal requirements. THE FIXED ACCOUNT GENERAL. You may allocate part or all of your Purchase Payments to the Fixed Account in states where it is available. Amounts allocated to the Fixed Account become part of the general assets of Lincoln Benefit. Allstate Life invests the assets of the general account in accordance with applicable laws governing the investments of insurance company general accounts. The Fixed Account may not be available in all states. Please contact us at 1-800-865-5237 for current information. 19 GUARANTEED MATURITY FIXED ACCOUNT OPTION. We will credit interest to each amount allocated to the Guaranteed Maturity Fixed Account Option at a specified rate for a specified Guarantee Period. You select the Guarantee Period for each amount that you allocate to this option. We will declare the interest rate that we will guarantee to credit to that amount for that Guarantee Period. Each amount allocated to a Guarantee Period under this option must be at least $500. We reserve the right to limit the number of additional Purchase Payments that may be allocated to this option. We will tell you what interest rates and Guarantee Periods we are offering at a particular time. We may offer Guarantee Periods ranging from one to ten years in length. We will decide in our discretion which Guarantee Periods to offer. Currently, we offer Guarantee Periods of one, three, five, seven and ten years. In the future we may offer Guarantee Periods of different lengths or stop offering some Guarantee Periods. We will credit interest daily to each amount allocated to a Guarantee Period under this option at a rate which compounds to the effective annual interest rate that we declared at the beginning of the applicable Guarantee Period. We will not change the interest rate credited to a particular allocation until the end of the relevant Guarantee Period. We may declare different interest rates for Guarantee Periods of the same length that begin at different times. The following example illustrates how a Purchase Payment allocated to this option would grow, given an assumed Guarantee Period and effective annual interest rate: EXAMPLE Purchase Payment $50,000 Guarantee Period 5 years Effective Annual Rate 4.50% END OF CONTRACT YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 ---------- ---------- ---------- ---------- ---------- $50,000.00 X 1.045 Beginning Contract Value --------- X (1 + Effective Annual Rate) $52,250.00 $52,250.00 X 1.045 Contract Value at end of Contract Year --------- X (1 + Effective Annual Rate) $54,601.25 $54,601.25 X 1.045 Contract Value at end of Contract Year --------- X (1 + Effective Annual Rate) $57,058.31 $57,058.31 X 1.045 Contract Value at end of Contract Year --------- X (1 + Effective Annual Rate) $59,625.93 $59,625.93 X 1.045 Contract Value at end of Contract Year --------- X (1 + Effective Annual Rate) $62,309.10
Total Interest Credited During Guarantee Period = $12,309.10 ($62,309.10 - $50,000) NOTE: This example assumes no withdrawals during the entire five year Guarantee Period. If you were to make a partial withdrawal, the amount withdrawn might be increased or decreased by a Market Value Adjustment. The hypothetical interest rate is for illustrative purposes only and is not intended to predict future interest rates to be declared under the Contract. We have no specific formula for determining the rate of interest that we will declare initially or in the future. We will set those interest rates based on relevant factors such as then current interest rates, regulatory and tax requirements, our sales commission and administrative expenses, general economic trends, and competitive factors. For current interest rate information, please contact us at 1-800-865-5237. WE WILL DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE. At the end of each Guarantee Period, we will mail you a notice asking you what to do with the relevant amount, including the accrued interest. During the 30-day period after the end of the Guarantee Period, you may: (1) take no action. If so, we will automatically keep the relevant amount in the Guaranteed Maturity Fixed Account Option. The new Guarantee Period will be the same length as the expiring Guarantee Period and will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for Guarantee Periods of that length; or 20 (2) allocate the relevant Contract Value to one or more new Guarantee Periods of your choice in the Guaranteed Maturity Fixed Account Option. The new Guarantee Period(s) will begin on the day the previous Guarantee Period ends. The new interest rate will be our then current declared rate for those Guarantee Periods; or (3) instruct us to transfer all or a portion of the relevant amount to one or more Subaccounts. We will effect the transfer on the day we receive your instructions. We will not adjust the amount transferred to include a Market Value Adjustment; or (4) withdraw all or a portion of the relevant amount through a partial withdrawal. We will not adjust the amount withdrawn to include a Market Value Adjustment. The amount withdrawn will be deemed to have been withdrawn on the day the Guarantee Period ends. Under our Automatic Laddering Program, you may choose, in advance, to use Guarantee Periods of the same length for all renewals in the Guaranteed Maturity Fixed Account Option. You can select this program at any time during the Accumulation Period, including on the Issue Date. We will apply renewals to Guarantee Periods of the selected length until you direct us in writing to stop. We may stop offering this program at any time. For additional information, please call us at 1-800-865-5237. MARKET VALUE ADJUSTMENT. We may increase or decrease the amount of some transactions involving your interest in the Fixed Account to include a Market Value Adjustment. The formula for determining Market Value Adjustments reflects changes in interest rates since the beginning of the relevant Guarantee Period. As a result, you will bear some of the investment risk on amounts allocated to the Guaranteed Maturity Fixed Account Option. As a general rule, we will apply a Market Value Adjustment to the following transactions involving your Fixed Account balance: (1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option; (2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to the Subaccounts; (3) when you allocate part of your balance in the Guaranteed Maturity Fixed Account Option to a new Guarantee Period before the end of the existing Guarantee Period; (4) when you annuitize your Contract; and (5) when we pay a death benefit. We will not apply a Market Value Adjustment to a transaction, to the extent that: (1) it occurs within 30 days after the end of a Guarantee Period applicable to the funds involved in the transaction; (2) it is part of a Dollar Cost Averaging program; or (3) you make a withdrawal to satisfy the IRS' required minimum distribution rules for this Contract. The formula for calculating Market Value Adjustments is set forth in Appendix B to this prospectus, which also contains additional examples of the application of the Market Value Adjustment. This formula primarily compares: (1) the Treasury Rate at the time of the relevant transaction for a maturity equal in length to the relevant Guarantee Period; and (2) the Treasury Rate at the beginning of the Guarantee Period for a maturity equal in length to the Guarantee Period. Generally, if the Treasury Rate at the beginning of the Guarantee Period is higher than the corresponding current Treasury Rate, then the Market Value Adjustment will increase the amount payable to you or transferred. Similarly, if the Treasury Rate at the beginning of the Guarantee Period is lower than the corresponding current Treasury Rate, then the Market Value Adjustment will reduce the amount payable to you or transferred. For example, assume that you purchased a Contract and selected an initial Guarantee Period of five years and the five-year Treasury Rate for that duration is 4.50%. Assume that at the end of three years, you make a partial withdrawal. If, at that later time, the current five-year Treasury Rate is 4.20%, then the Market Value Adjustment will be positive, which will result in an increase in the amount payable to you. Similarly, if the current five-year Treasury Rate is 4.80%, then the Market Value Adjustment will be negative, which will result in a decrease in the amount payable to you. DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. You may also allocate Purchase Payments to the Dollar Cost Averaging Fixed Account Option. We will credit interest to Purchase Payments allocated to this option for up to one year at the current rate that we declare when you make the allocation. The effective annual rate will never be less than 3%. You may not transfer funds to this option from the Subaccounts or the Guaranteed Maturity Fixed Account Option. We will follow your instructions in transferring amounts from this option to the Subaccounts or the Guaranteed Maturity Fixed Account Option, as described in "Automatic Dollar Cost Averaging Program" on pages 14-15 of this prospectus. We will not adjust the amounts transferred by a Market Value Adjustment. ANNUITY BENEFITS ANNUITY DATE. You may select the Annuity Date, which is the date on which annuity payments are to begin, in your application. The Annuity Date must always be the business day immediately following the tenth day of a calendar month. The Annuity Date may be no later than the Latest Annuity Date. As a general rule, the Latest Annuity Date is the later of the 10th Contract Anniversary or the Annuitant's 90th birthday. If your Contract was issued pursuant to a Qualified Plan, however, the Tax Code generally requires you to begin to take at least a minimum distribution by the later of: - - the year of your separation from service; or 21 - - April 1 of the calendar year following the calendar year in which you attain age 70 1/2. If your Contract is issued pursuant to Section 408 of the Tax Code (traditional IRAs), you must begin taking minimum distributions by April 1 of the calendar year following the calendar year in which you reach age 70 1/2. No minimum distributions are required by the Tax Code for Contracts issued pursuant to Section 408A (Roth IRAs). If you are in a Qualified Plan, we may require you to annuitize by the date required by the Tax Code, unless you show us that you are meeting the minimum distribution requirements in some other way. If you do not select an Annuity Date, the Latest Annuity Date will automatically become the Annuity Date. You may change the Annuity Date by writing to us at the address given on the first page of the prospectus. ANNUITY OPTIONS. You may elect an Annuity Option at any time before the Annuity Date. As part of your election, you may choose the length of the applicable guaranteed payment period within the limits available for your chosen Option. If you do not select an Annuity Option, we will pay monthly annuity payments in accordance with the applicable default Option. The default Options are: - - Option A with 10 years (120 months) guaranteed, if you have designated only one Annuitant; and - - Option B with 10 years (120 months) guaranteed, if you have designated joint Annuitants. You may freely change your choice of Annuity Option, as long as you request the change at least thirty days before the Annuity Date. Three Annuity Options are generally available under the Contract. Each is available in the form of: - - a Fixed Annuity; - - a Variable Annuity; or - - a combination of both Fixed and Variable Annuity. The three Annuity Options are: OPTION A, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS. We make periodic payments at least as long as the Annuitant lives. If the Annuitant dies before all of the guaranteed payments have been made, we will pay the remaining guaranteed payments to the Beneficiary. OPTION B, JOINT AND SURVIVOR ANNUITY, WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS. We make periodic payments at least as long as either the Annuitant or the joint Annuitant is alive. If both the Annuitant and the Joint Annuitant die before all of the guaranteed payments have been made, we will pay the remaining guaranteed payments to the Beneficiary. OPTION C, PAYMENTS FOR A SPECIFIED PERIOD CERTAIN OF 5 YEARS TO 30 YEARS. We make periodic payments for the period you have chosen. If the Annuitant dies before all of the guaranteed payments have been made, we will pay the remaining guaranteed payments to the Beneficiary. If you purchased your Contract under a retirement plan, you may have a more limited selection of Annuity Options to choose from. You should consult your Plan documents to see what is available. You may not "annuitize" your Contract for a lump sum payment. Instead, before the Annuity Date you may surrender your Contract for a lump sum. As described on page 21 above, however, we will increase or decrease your surrender proceeds by any applicable Market Value Adjustment. OTHER OPTIONS. We may have other Annuity Options available. You may obtain information about them by writing or calling us. If your Contract is issued under Sections 401, 403(b), 408 or 408A of the Tax Code, we will only make payments to you and/or your spouse. ANNUITY PAYMENTS: GENERAL. On the Annuity Date, we will apply the Annuitized Value of your Contract to the Annuity Option you have chosen. Your annuity payments may consist of Variable Annuity payments or Fixed Annuity payments or a combination of the two. We will determine the amount of your annuity payments as described in "Variable Annuity Payments" and "Fixed Annuity Payments" on page 23 below. You must notify us in writing at least 30 days before the Annuity Date how you wish to allocate your Annuitized Value between Variable Annuity and Fixed Annuity payments. You must apply at least the Contract Value in the Fixed Account on the Annuity Date to Fixed Annuity payments. If you wish to apply any portion of your Fixed Account balance to your Variable Annuity payments, you should plan ahead and transfer that amount to the Subaccounts prior to the Annuity Date. Annuity payments begin on the Annuity Date. We make subsequent annuity payments on the tenth of the month or, if the NYSE is closed on that day, the next day on which the NYSE is open for business. Annuity payments will be made in monthly, quarterly, semi-annual or annual installments as you select. If the amount available to apply under an Annuity Option is less than $5,000, however, and state law permits, we may pay you a lump sum instead of the periodic payments you have chosen. In addition, if the first annuity payment would be less than $50, and state law permits us, we may reduce the frequency of payments so that the initial payment will be at least $50. We may defer for up to 15 days the payment of any amount attributable to a Purchase Payment made by check to allow the check reasonable time to clear. YOU MAY NOT WITHDRAW CONTRACT VALUE DURING THE ANNUITY PERIOD, IF WE ARE MAKING PAYMENTS TO YOU UNDER ANY ANNUITY OPTION INVOLVING LIFE CONTINGENCIES. 22 VARIABLE ANNUITY PAYMENTS. One basic objective of the Contract is to provide Variable Annuity Payments which will to some degree respond to changes in the economic environment. The amount of your Variable Annuity Payments will depend upon the investment results of the Subaccounts you have selected, any premium taxes, the age and sex of the Annuitant, and the Annuity Option chosen. We guarantee that the Payments will not be affected by (1) actual mortality experience and (2) the amount of our administration expenses. We cannot predict the total amount of your Variable Annuity payments. The Variable Annuity payments may be more or less than your total Purchase Payments because (a) Variable Annuity payments vary with the investment results of the underlying Portfolios; and (b) Annuitants may die before their actuarial life expectancy is achieved. The length of any guaranteed payment period under your selected Annuity Option will affect the dollar amounts of each Variable Annuity payment. As a general rule, longer guarantee periods result in lower periodic payments, all other things being equal. For example, if a life Annuity Option with no minimum guaranteed payment period is chosen, the Variable Annuity payments will be greater than Variable Annuity payments under an Annuity Option for a minimum specified period and guaranteed thereafter for life. The investment results of the Subaccounts to which you have allocated your Contract Value will also affect the amount of your periodic payment. In calculating the amount of the periodic payments in the annuity tables in the Contract, we assumed an annual investment rate of 3 1/2%. If the actual net investment return is less than the assumed investment rate, then the dollar amount of the Variable Annuity payments will decrease. The dollar amount of the Variable Annuity payments will stay level if the net investment return equals the assumed investment rate and the dollar amount of the Variable Annuity payments will increase if the net investment return exceeds the assumed investment rate. You should consult the Statement of Additional Information for more detailed information as to how we determine Variable Annuity Payments. FIXED ANNUITY PAYMENTS. You may choose to apply a portion of your Annuitized Value to provide Fixed Annuity payments. We determine the Fixed Annuity payment amount by applying the applicable Annuitized Value to the Annuity Option you have selected. As a general rule, subsequent Fixed Annuity payments will be equal in amount to the initial payment. However, as described in "Transfers During the Annuity Period" below, after the Annuity Date, you will have a limited ability to increase the amount of your Fixed Annuity payments by making transfers from the Subaccounts. We may defer making Fixed Annuity payments for a period of up to six months or whatever shorter time state law may require. During the deferral period, we credit interest at a rate at least as high as state law requires. TRANSFERS DURING THE ANNUITY PERIOD. During the Annuity Period, you will have a limited ability to make transfers among the Subaccounts so as to change the relative weighting of the Subaccounts on which your Variable Annuity payments will be based. In addition, you will have a limited ability to make transfers from the Subaccounts to increase the proportion of your annuity payments consisting of Fixed Annuity payments. You may not, however, convert any portion of your right to receive Fixed Annuity payments into Variable Annuity payments. You may not make any transfers for the first six months after the Annuity Date. Thereafter, you may make transfers among the Subaccounts or make transfers from the Subaccounts to increase your Fixed Annuity payments. Your transfers must be at least six months apart. DEATH BENEFIT DURING ANNUITY PERIOD. After annuity payments begin, upon the death of the Annuitant and any Joint Annuitant, we will make any remaining annuity payments to the Beneficiary. The amount and number of these annuity payments will depend on the Annuity Option in effect at the time of the Annuitant's death. After the Annuitant's death, any remaining interest will be distributed at least as rapidly as under the method of distribution in effect at the Annuitant's death. CERTAIN EMPLOYEE BENEFIT PLANS. In some states, the Contracts offered by this prospectus contain life annuity tables that provide for different benefit payments to men and women of the same age. In certain employment-related situations, however, the U.S. Supreme Court's decision in ARIZONA GOVERNING COMMITTEE V. NORRIS requires employers to use the same annuity tables for men and women. Accordingly, if the Contract is to be used in connection with an employment-related retirement or benefit plan and we do not offer unisex annuity tables in your state, you should consult with legal counsel as to whether the purchase of a Contract is appropriate under Norris. OTHER CONTRACT BENEFITS DEATH BENEFIT. We will pay a distribution on death, if: (1) the Contract is in force; (2) annuity payments have not begun; and (3) either: (a) you die; or (b) if the Contract is owned by a company or other legal entity, the Annuitant dies. Currently, we will pay a distribution on death equal in amount to the Death Benefit. Under the Contract, however, 23 we have the right to pay a distribution equal in amount to the Surrender Value unless: (1) the Beneficiary chooses to receive the Death Benefit in a lump sum within 180 days of the date of death; and (2) the Beneficiary requests that the Death Benefit be paid as of the date we receive the completed claim for a distribution on death. We currently are waiving this 180 day limitation, but we may enforce it in the future. If we do, we will calculate the distribution as of the earlier of the requested distribution date or the fifth anniversary of the date of death. We determine the Death Benefit as of the date we receive all of the information we need to process the Death Benefit claim. The Death Benefit under the Contract is the greatest of the following: (1) your total Purchase Payments, less a withdrawal adjustment for any prior partial withdrawals; (2) your Contract Value; (3) the amount you would have received by surrendering your Contract; or (4) your highest Contract Value on any Contract Anniversary, increased by the total Purchase Payments since the most recent Contract Anniversary and reduced by a withdrawal adjustment for any partial withdrawals since the most recent Contract Anniversary. The withdrawal adjustment for the Death Benefit will equal (a) divided by (b), with the result multiplied by (c), where: (a) = the withdrawal amount; (b) = the Contract Value immediately before the withdrawal; and (c) = the value of the applicable Death Benefit immediately before the withdrawal. A claim for a distribution on death must be submitted before the Annuity Date. As part of the claim, the Beneficiary must provide "Due Proof of Death". We will accept the following documentation as Due Proof of Death: - - a certified original copy of the Death Certificate; - - a certified copy of a court decree as to the finding of death; or - - a written statement of a medical doctor who attended the deceased at the time of death. In addition, in our discretion we may accept other types of proof. If the Beneficiary is a natural person, the Beneficiary may choose from the following alternative ways of receiving the distribution: - - the Beneficiary may receive the distribution as a lump sum payment; - - the Beneficiary may apply the distribution to receive a series of equal periodic payments over the life of the Beneficiary, over a fixed period no longer than the Beneficiary's life expectancy, or over the life of the Beneficiary with payments guaranteed for a period not to exceed the life expectancy of the Beneficiary (the payments must begin within one year of the date of death); or - - if there is only one Beneficiary, he or she may defer payment for up to five years from the date of death. Any remaining funds must be distributed at the end of the five-year period. An Annuitant is necessary for this option. If prior to your death you were the Annuitant, the Beneficiary will become the new Annuitant. If your spouse is the Beneficiary, he or she may choose to continue the Contract as the new Contract Owner. If your spouse chooses to continue the Contract, the following conditions apply: (1) On the day the Contract is continued, the Contract Value will be set to equal the Death Benefit, calculated as of the date on which we receive all of the information we need to process the claim for a distribution at death; (2) During the continuation period, we will pay a distribution on death equal to the Death Benefit. As described above, however, under the Contract we reserve the right to pay a distribution equal in amount to the Surrender Value. (3) If before your death you were the Annuitant, your surviving spouse becomes the Annuitant. Your surviving spouse may also select one of the options listed above. If the Beneficiary is a company or other legal entity, then the Beneficiary must receive the Death Benefit in a lump sum, and the options listed above are not available. Different rules may apply to Contracts issued in connection with Qualified Plans. BENEFICIARY. You name the Beneficiary. You may name a Beneficiary in the application. You may change the Beneficiary or add additional Beneficiaries at any time before the Annuity Date. We will provide a form to be signed and filed with us. Your changes in Beneficiary take effect when we receive them, effective as of the date you signed the form. Until we receive your change instructions, we are entitled to rely on your most recent instructions in our files. We are not liable for making a payment to a Beneficiary shown in our files or treating that person in any other respect as the Beneficiary. 24 Accordingly, if you wish to change your beneficiary, you should deliver your instructions to us promptly. If you did not name a Beneficiary or if the named Beneficiary is no longer living, the Beneficiary will be: - - your spouse if he or she is still alive; or, if he or she is no longer alive, - - your surviving children equally; or if you have no surviving children, - - your estate. If you name more than one Beneficiary, we will divide the Death Benefit among your Beneficiaries according to your most recent written instructions. If you have not given us written instructions, we will pay the Death Benefit in equal shares to the Beneficiaries. If one of the Beneficiaries dies before you, we will divide the Death Benefit among the surviving Beneficiaries. Different rules may apply to Contracts issued in connection with Qualified Plans. CONTRACT LOANS FOR 401(A), 401(K), AND 403(B) CONTRACTS. Subject to the restrictions described below, we will make loans to the Owner of a Contract used in connection with a Tax Sheltered Annuity Plan ("TSA Plan") under Section 403(b) of the Tax Code, or an Owner of a Contract purchased by a pension, profit-sharing, or other similar plan qualified under Section 401(a) of the Tax Code (a "401 Plan"), including a Section 401(k) plan, where a plan trustee is the Owner. Loans are not available under Non-Qualified Contracts. We will only make loans after the free look period and before annuitization. All loans are subject to the terms of the Contract, the relevant Plan, and the Tax Code, which impose restrictions on loans. We will not make a loan to you if the total of the requested loan and your unpaid outstanding loans will be greater than the Surrender Value of your Contract on the date of the loan. In addition, we will not make a loan to you if the total of the requested loan and all of the plan participant's Contract loans under TSA plans and 401 plans is more than the lesser of (a) or (b) where: (a) equals $50,000 minus the excess of the highest outstanding loan balance during the prior 12 months over the current outstanding loan balance; and (b) equals the greater of $10,000 or 1/2 of the Surrender Value. The minimum loan amount is $1,000. To request a Contract loan, write to us at the address given on the first page of the prospectus. You alone are responsible for ensuring that your loan and repayments comply with tax requirements. Loans made before the Annuity Date are generally treated as distributions under the Contract, and may be subject to withholding and tax penalties for early distributions. Some of these requirements are stated in Section 72 of the Tax Code and Title 1 of ERISA. Please seek advice from your plan administrator or tax advisor. When we make a loan, we will transfer an amount equal to the loan amount from the Separate Account and/or the Fixed Account to the Loan Account as collateral for the loan. You may select from which account(s) to transfer the loan value. However, we will not transfer amounts from the Fixed Account in an amount greater than the total amount of the loan multiplied by the ratio of the value of the Fixed Account to the Contract Value immediately before the loan. If you do not give us instructions, we will first transfer to the Loan Account amounts from the Separate Account in proportion to the assets in each Subaccount. If your loan amount is greater than your Contract Value in the Subaccounts, we will transfer the remaining required collateral from the Fixed Account. We may apply a Market Value Adjustment to a transfer from the Fixed Account to the Loan Account. If we do, we will increase or decrease the amount remaining in the Fixed Account by the amount of the Market Value Adjustment, so that the net amount transferred to the Loan Account will equal the desired loan amount. We will credit interest to the amounts in the Loan Account. The annual interest rate credited to the Loan Account will be the greater of: (a) 3%; or (b) the loan interest rate minus 2.25%. The value of the amounts in the Loan Account are not affected by the changes in the value of the Subaccounts. When you take out a loan, we will set the loan interest rate. That rate will apply to your loan until it is repaid. From time to time, we may change the loan interest rate applicable to new loans. We also reserve the right to change the terms of new loans We will subtract the outstanding Contract loan balance, including accrued but unpaid interest, from: (1) the Death Benefit; (2) surrender proceeds; (3) the amount available for partial withdrawal; and (4) the amount applied on the Annuity Date to provide annuity payments. Usually you must repay a Contract loan within five years of the date the loan is made. Scheduled payments must be level, amortized over the repayment period, and made at least quarterly. We may permit a repayment period of 15 or 30 years if the loan proceeds are used to acquire your principal residence. We may also permit other repayment periods. You must mark your loan repayments as such. We will assume that any payment received from you is a Purchase Payment, unless you tell us otherwise. If you do not make a loan payment when due, we will continue to charge interest on your loan. We also will declare 25 the entire loan in default. We will subtract the defaulted loan balance plus accrued interest from any future distribution under the Contract and keep it in payment of your loan. Any defaulted amount plus interest will be treated as a distribution for tax purposes (as permitted by law). As a result, you may be required to pay taxes on the defaulted amount, incur the early withdrawal tax penalty, and be subject to mandatory 20% federal withholding. If the total loan balance exceeds the Surrender Value, we will mail written notice to your last known address. The notice will state the amount needed to maintain the Contract in force. If we do not receive payment of this amount within 31 days after we mail this notice, we will terminate your Contract. We may defer making any loan for 6 months after you ask us for a loan, unless the loan is to pay a premium to us. WITHDRAWALS (REDEMPTIONS). Except as explained below, you may redeem a Contract for all or a portion of its Contract Value before the Annuity Date. Withdrawals from the Fixed Account may be increased or decreased by a Market Value Adjustment, as described in "Market Value Adjustment" on page 21 above. In general, you must withdraw at least $50 at a time. You may also withdraw a lesser amount if you are withdrawing your entire interest in a Subaccount. If your request for a partial withdrawal would reduce the Contract Value to less than $5,000, we may treat it as a request for a withdrawal of your entire Contract Value, as described in "Minimum Contract Value" on page 27. Your Contract will terminate if you withdraw all of your Contract Value. We may be required to withhold 20% of withdrawals and distributions from Contracts issued in connection with certain Qualified Plans, as described on page 29 below. Withdrawals also may be subject to a 10% penalty tax, as described in page 30 below. To make a withdrawal, you must send us a written withdrawal request or systematic withdrawal program enrollment form. You may obtain the required forms from us at the address and phone number given on the first page of this prospectus. We will not honor your request unless the required form includes your Tax I.D. Number (e.g., Social Security Number) and provides instructions regarding withholding of income taxes. For partial withdrawals, you may allocate the amount among the Subaccounts and the Fixed Account. If we do not receive allocation instructions from you, we usually will allocate the partial withdrawal proportionately among the Subaccounts and the Fixed Account in the same proportions as you have instructed us to allocate your Purchase Payments. If you have Contract Value in the Guaranteed Maturity Fixed Account Option that is allocated entirely to Guarantee Periods of the same length, we will subtract the partial withdrawal first from the most recently created Guarantee Period. If your Contract Value in the Guaranteed Maturity Fixed Account Option is allocated to Guarantee Periods of different lengths, you must provide us with allocation instructions, and we will not process your withdrawal request until we receive your instructions. You may not make a partial withdrawal from the Fixed Account in an amount greater than the total amount of the partial withdrawal multiplied by the ratio of the value of the Fixed Account to the Contract Value immediately before the partial withdrawal. If you request a total withdrawal, you must send us your Contract. The Surrender Value will equal the Contract Value adjusted by any applicable Market Value Adjustment. We also will deduct a contract maintenance charge of $35, unless we have waived the contract maintenance charge on your Contract as described on page 28 below. We determine the Surrender Value based on the Contract Value next computed after we receive a properly completed surrender request. We will usually pay the Surrender Value within seven days after the day we receive a completed request form. However, we may suspend the right of withdrawal from the Separate Account or delay payment for withdrawals for more than seven days in the following circumstances: (1) whenever the New York Stock Exchange ("NYSE") is closed (other than customary weekend and holiday closings); (2) when trading on the NYSE is restricted or an emergency exists, as determined by the SEC, so that disposal of the Separate Account's investments or determination of Accumulation Unit Values is not reasonably practicable; or (3) at any other time permitted by the SEC for your protection. In addition, we may delay payment of the Surrender Value in the Fixed Account for up to 6 months or a shorter period if required by law. If we delay payment from the Fixed Account for more than 30 days, we will pay interest as required by applicable law. You may withdraw amounts attributable to contributions made pursuant to a salary reduction agreement (in accordance with Section 403(b)(11) of the Tax Code) only in the following circumstances: (1) when you attain age 59 1/2; (2) when you terminate your employment with the plan sponsor; (3) upon your death; (4) upon your disability as defined in Section 72(m)(7) of the Tax Code; or (5) in the case of hardship. 26 If you seek a hardship withdrawal, you may only withdraw amounts attributable to your Purchase Payments; you may not withdraw any earnings. These limitations on withdrawals apply to: (1) salary reduction contributions made after December 31, 1988; (2) income attributable to such contributions; and (3) income attributable to amounts held as of December 31, 1988. The limitations on withdrawals do not affect transfers between certain Qualified Plans. Additional restrictions and limitations may apply to distributions from any Qualified Plan. Tax penalties may also apply. You should seek tax advice regarding any withdrawals or distributions from Qualified Plans. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. In general, earnings on annuities are taxable as ordinary income upon withdrawal. As described in pages [49-51] below, a 10% tax penalty is imposed on certain "premature" payments under annuity contracts. The tax penalty applies to any payment received before age 59 1/2, to the extent it is includable in income and is not subject to an exception. The Tax Reform Act of 1986 clarified an exception to this tax penalty. This exception is known as "substantially equal periodic payments." Generally, under this exception you may take "substantially equal periodic payments" before age 59 1/2 without incurring the tax penalty. These "payments" are withdrawals, as opposed to an annuitization of the Contract. A Market Value Adjustment may apply. To qualify for this exception, the payments must meet the following requirements: (1) The payments must continue to the later of age 59 1/2 or for five years. (2) Payments must be established under one of the approved methods detailed by the IRS in IRS Notice 89-25. (3) You must have separated from service, if you purchased your Contract under a qualified retirement plan or tax sheltered annuity. If you modify the payment stream in any way, except for reason of death or disability, you will loose the exception. Modification includes changing the amount or timing of the payments, or making additional Purchase Payments. Any subsequent periodic payment will be subject to the penalty tax, unless it qualifies for a different exception. In addition, in the year of the modification, you will be required to pay the penalty tax (plus interest) that you would have been required to pay on the earlier payments if this exception had not applied. SYSTEMATIC WITHDRAWAL PROGRAM. If your Contract was issued in connection with a Non-Qualified Plan or IRA, you may participate in our Systematic Withdrawal Program. You must complete an enrollment form and send it to us. You must complete the withholding election section of the enrollment form before the systematic withdrawals will begin. You may choose withdrawal payments of a flat dollar amount, earnings, or a percentage of Purchase Payments. Systematic withdrawals are treated the same as partial withdrawals for purposes of determining if a Market Value Adjustment applies. You may choose to receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual basis. Depending on fluctuations in the net asset value of the Subaccounts and the value of the Fixed Account, systematic withdrawals may reduce or even exhaust the Contract Value. The minimum amount of each systematic withdrawal is $50. We will make systematic withdrawal payments to you or your designated payee. We may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected. ERISA PLANS. A married participant may need spousal consent to receive a distribution from a Contract issued in connection with a Qualified Plan or a Non-Qualified Plan covered by to Title 1 of ERISA. You should consult an adviser. MINIMUM CONTRACT VALUE. If as a result of withdrawals your Contract Value would be less than $5,000 and you have not made any Purchase Payments during the previous three full calendar years, we may terminate your Contract and distribute its Surrender Value to you. Before we do this, we will give you 60 days notice. We will not terminate your Contract on this ground if the Contract Value has fallen below $5,000 due to either a decline in Accumulation Unit Value or the imposition of fees and charges. In addition, in some states we are not permitted to terminate Contracts on this ground. Different rules may apply to Contracts issued in connection with Qualified Plans. CONTRACT CHARGES We assess charges under the Contract in two ways: (1) as deductions from Contract Value for contract maintenance charges and, if applicable, for premium taxes; and (2) as charges against the assets of the Separate Account for administrative expenses or for the assumption of mortality and expense risks. In addition, certain deductions are made from the assets of the Portfolios for investment management fees and expenses. Those fees and expenses are summarized in the Fee Tables on page 10-13, and described more fully in the Prospectuses and Statements of Additional Information for the Portfolios. 27 MORTALITY AND EXPENSE RISK CHARGE. We deduct a mortality and expense risk charge from each Subaccount during each Valuation Period. The mortality and expense risk charge is equal, on an annual basis, to 1.30% of the average net asset value of each Subaccount. The mortality risks arise from our contractual obligations: (1) to make annuity payments after the Annuity Date for the life of the Annuitant(s); and (2) to provide the Death Benefit prior to the Annuity Date. A detailed explanation of the Death Benefit may be found beginning on page 23 above. The expense risk is that it may cost us more to administer the Contracts and the Separate Account than we receive from the contract maintenance charge and the administrative expense charge. We guarantee the mortality and expense risk charge and we cannot increase it. We assess the mortality and expense risk charge during both the Accumulation Period and the Annuity Period. ADMINISTRATIVE CHARGES. CONTRACT MAINTENANCE CHARGE. We charge an annual contract maintenance charge of $35 on your Contract. The amount of this charge is guaranteed not to increase. This charge reimburses us for our expenses incurred in maintaining your Contract. Before the Annuity Date, we assess the contract maintenance charge on each Contract Anniversary. To obtain payment of this charge, on a pro rata basis we will allocate this charge among the Subaccounts and the Fixed Account to which you have allocated your Contract Value, and redeem Accumulation Units and reduce your interest in the Fixed Account accordingly. We will waive this charge if you pay more than $50,000 in Purchase Payments or if you allocate all of your Contract Value to the Fixed Account. If you surrender your Contract, we will deduct the full $35 charge as of the date of surrender, unless your Contract qualifies for a waiver. After the Annuity Date, we will subtract this charge in equal parts from each of your annuity payments. We will waive this charge if on the Annuity Date your Contract Value is $50,000 or more or if all of your annuity payments are Fixed Annuity payments. ADMINISTRATIVE EXPENSE CHARGE. We deduct an administrative expense charge from each Subaccount during each Valuation Period. This charge is equal, on an annual basis, to 0.10% of the average net asset value of the Subaccounts. This charge is designed to compensate us for the cost of administering the Contracts and the Separate Account. The administrative expense charge is assessed during both the Accumulation Period and the Annuity Period. TRANSFER FEE. We currently are not charging a transfer fee. The Contract, however, permits us to charge a transfer fee of $10 on the second and each subsequent transaction in each calendar month in which transfer(s) are effected between Subaccount(s) and/or the Fixed Account. We will notify you if we begin to charge this fee. The transfer fee will be deducted from Contract Value that remains in the Subaccount(s) or Fixed Account from which the transfer was made. If that amount is insufficient to pay the transfer fee, we will deduct the fee from the transferred amount. PREMIUM TAXES. We will charge premium taxes or other state or local taxes against the Contract Value, including Contract Value that results from amounts transferred from existing policies (Section 1035 exchange) issued by us or other insurance companies. Some states assess premium taxes when Purchase Payments are made; others assess premium taxes when annuity payments begin. We will deduct any applicable premium taxes upon full surrender, death, or annuitization. Premium taxes generally range from 0% to 3.5%. DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES. We are not currently maintaining a provision for taxes. In the future, however, we may establish a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Separate Account. We will deduct for any taxes we incur as a result of the operation of the Separate Account, whether or not we previously made a provision for taxes and whether or not it was sufficient. Our status under the Tax Code is briefly described on page 29 below. OTHER EXPENSES. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Subaccounts to which you allocate your Contract Value. For a summary of current estimates of those charges and expenses, see pages 10-13 above. For more detailed information about those charges and expenses, please refer to the prospectuses for the appropriate Portfolios. We may receive compensation from the investment advisers or administrators of the Portfolios in connection with administrative service and cost savings experienced by the investment advisers or administrators. TAXES NOTE: We based the following description upon our understanding of current federal income tax law applicable to annuities in general. We cannot predict the probability that any changes in those laws will be made. Also, we do not guarantee the tax status of the Contracts. You bear the complete risk that the Contracts may not be treated as "annuity contracts" under federal income tax laws. You should seek tax advice concerning the effect on your personal tax liability of the transactions permitted under the Contract, as well as any other questions you may have concerning the tax status of the Contract or the possibility of changes in the tax law. GENERAL. Section 72 of the Tax Code governs taxation of annuities in general. As a general rule, if you are a natural 28 person, you will not be taxed on increases in the value of a Contract until a distribution occurs, either in the form of a non-annuity distribution or as annuity payments under an Annuity Option. For a lump sum payment received as a total surrender of the Contract (total redemption), you will be taxed on the portion of the payment that exceeds the cost basis of the Contract. For a partial withdrawal (partial redemption), your federal tax liability will be determined on a last-in, first-out basis, meaning that taxable earnings are treated as being withdrawn before the cost basis of the Contract is withdrawn. For Contracts issued in connection with Non-Qualified Plans, the cost basis generally equals the Purchase Payments. A Contract issued in connection with a Qualified Plan, however, may have no cost basis, because the Purchase Payments were excluded from income in the year they were made. The taxable portion of the lump sum payment is taxed at ordinary income tax rates. Tax penalties may also apply to surrenders and withdrawals before the payee reaches age 59 1/2, except in certain circumstances described below. For annuity payments, the taxable portion is determined by a formula which establishes the ratio that the cost basis of the Contract bears to the total value of annuity payments for the term of the annuity payments. The taxable portion is taxed at ordinary income tax rates. Before making a distribution, Contract Owners, Annuitants and Beneficiaries under the Contracts should consult a tax adviser about the tax consequences. All Non-Qualified annuity contracts that are issued by us (or our affiliates) to the same Contract Owner during any calendar year will be aggregated and treated as one annuity contract for purposes of determining the taxable amount. Accordingly, you should consult a tax adviser before purchasing more than one Non-Qualified annuity contract. If you or the Annuitant dies, the Beneficiary will be taxed on the portion of any lump sum payment that exceeds your cost basis in the Contract. If the Beneficiary chooses to receive annuity payments, however, the Death Benefit will be taxed like other annuity payments. In order to be treated as an annuity contract, the terms of the Contract must provide the following two distribution rules: (1) if any Contract Owner dies on or after the date annuity payments commence, and before the entire interest in the Contract has been distributed, the remainder of his interest will not be distributed under a slower distribution schedule than that provided for in the method in effect on the Contract Owner's death; and (2) if any Contract Owner dies before the date annuity payments commence, his entire interest must generally be distributed within five years after the date of death provided that if such interest is payable to a designated Beneficiary, then such interest may be made over the life of that designated Beneficiary or over a period not extending beyond the life expectancy of that Beneficiary, so long as payments commence within one year after the Contract Owner's death. If the sole designated Beneficiary is the spouse of the Contract Owner, the Contract may be continued in the name of the spouse as Contract Owner. The designated Beneficiary is the natural person designated by the terms of the Contract or by the Contract Owner as the individual to whom ownership of the Contract passes by reason of the Contract Owner's death. If the Contract Owner is not an individual, then for purposes of the distribution at death rules, the Annuitant is considered the Contract Owner. In addition, when the Contract Owner is not an individual, a change in the Annuitant is treated as the death of the Contract Owner. Distributions made to a Beneficiary upon the Contract Owner's death from a Qualified Plan must be made pursuant to the rules in Section 401(a)(9) of the Tax Code. The tax treatment of Death Benefits described above is less favorable than the income tax-free treatment applicable to a person who inherits and sells appreciated mutual fund shares outside of a Qualified Plan. Accordingly, if you are considering purchasing a Contract in a Non-Qualified Plan, you should also take these factors into consideration in weighing the tax advantages and disadvantages of the Contract. If you transfer ownership of a Contract, designate an Annuitant or Beneficiary other than yourself or a joint owner, assign a Contract or exchange a Contract, you may incur tax liabilities or tax penalties. We do not discuss these consequences here. If you are contemplating a transfer, assignment, or exchange of a Contract, you should consult a tax adviser concerning the potential tax effects of the transaction. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Separate Account must be "adequately diversified" in accordance with the standards provided in Treasury Department regulations. If the investments in the Separate Account are not adequately diversified, then the Contract will not be treated as an annuity contract for federal income tax purposes and you may be taxed on the earnings on the Contract in the year in which they are earned. Although we do not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements. If the Annuitant will have reached an advanced age, E.G., age 85, at the Contract's scheduled maturity date, it is possible that the Contract would not be treated as an annuity for tax purposes. In that event, you might be taxed on the income and gains under the Contract. Lincoln Benefit is taxed as a life insurance company under the Tax Code. For federal income tax purposes, the Separate Account is not treated as a separate entity and its operations form a part of Lincoln Benefit. WITHHOLDING TAX ON DISTRIBUTIONS. The Tax Code generally requires us or, in some cases, plan administrators to withhold tax on the taxable portion of any distribution or withdrawal from a Contract. 29 For "eligible rollover distributions" from Contracts issued under certain types of Qualified Plans, we must withhold 20% of the distribution, unless you elect to have the distribution "rolled over" to another eligible plan. An "eligible rollover distribution" is the estimated taxable portion of any amount received by a covered employee from a plan qualified under Section 401(a) or 403(a) of the Tax Code, or from a tax-sheltered annuity qualified under Section 403(b) of the Tax Code, other than: (1) annuity payments for the life (or life expectancy) of the employee, or joint lives (or joint life expectancies) of the employee and his or her designated beneficiary, or for a specified period of ten years or more; and (2) distributions required to be made under the Tax Code. An "Eligible Rollover Distribution" may be rolled over into any plan qualified under Sections 401(a) or 403(a) of the Tax Code, an individual retirement account described in Section 408(a) of the Tax Code, or an individual retirement annuity under Section 408(b) of the Tax Code, other than an endowment contract. In most instances, you may avoid withholding by making the transfer directly from "trustee to trustee". If you ask us to pay the eligible rollover distribution directly to you, we are required to withhold 20% of the distribution. You could be subject to taxes and tax penalties on the amount paid to you unless you pay an amount equal to the entire eligible rollover distribution to another eligible plan within 60 days. To avoid taxation, and tax penalties, the amount paid into the new plan must equal the ENTIRE eligible rollover distribution. The amount withheld by us is not treated as being "rolled over" into the new plan, although you may apply it against your other tax liabilities. We will impose withholding on the estimated taxable portion of withdrawals or distributions other than eligible rollover distributions, unless you waive the withholding requirement. We use the following rates to determine the amounts withheld: (1) for periodic payments, we use the rates applicable to wages; and (2) for other distributions, we withhold 10% of the distribution. We will ask you for a withholding exemption certificate (W-4 form). If you do not provide us with a W-4 form, we will use the withholding rate applicable to married individuals claiming 3 withholding exemptions. In addition, some states may require that state income tax be withheld. TAX TREATMENT OF ASSIGNMENTS. An assignment of a Contract may result in tax liability. In addition, some assignments are prohibited by ERISA. You should therefore consult your legal advisers before assigning your Contract. TAX TREATMENT OF WITHDRAWALS QUALIFIED PLANS. The Tax Code provides that withdrawals from Qualified Plans are taxable as ordinary income. In addition, Section 72(t) of the Tax Code imposes a 10% penalty tax on the taxable portion of any early distribution from qualified retirement plans, including Contracts issued and qualified under Sections 401 (H.R. 10 and Corporate Pension and Profit Sharing Plans), 403(b) (Tax-Sheltered Annuities), 408(b) (traditional IRAs) and 408A (Roth IRAs) of the Tax Code. The penalty tax will not apply to the following distributions from plans qualified under Sections 401 and 403(b) of the Tax Code: (1) distributions made on or after the date on which you reach age 59 1/2; (2) distributions following the death or disability of you or the Annuitant (as applicable). For this purpose, "disability" is defined in Section 72(m)(7) of the Tax Code; (3) distributions that are part of substantially equal periodic payments made not less frequently than annually for the life (or life expectancy) of you or the Annuitant (as applicable) or the joint lives (or joint life expectancies) of you or the Annuitant (as applicable) and his or her designated beneficiary; (4) distributions to you or the Annuitant (as applicable) who has separated from service after he or she has attained age 55; (5) distributions made to you or the Annuitant (as applicable) to pay for medical expenses that are deductible under Tax Code Section 213; and (6) distributions made to an alternate payee pursuant to a qualified domestic relations order. The tax penalty does not apply to distributions from plans qualified under Section 408(b) (traditional IRAs) that meet any of the first three exceptions stated above, or are: (1) distributions made for higher educational expenses; or (2) distributions for a qualified first-time home purchase. The tax penalty does not apply to distributions from plans qualified under Section 408A (Roth IRAs), if a five year holding period is satisfied and the distribution is: (1) made on or after the date on which you reach age 59 1/2; (2) made to a Beneficiary (or your estate) on or after your death; (3) upon your total disability, as "disability" is defined in Section 72(m)(7) of the Tax Code; or (4) made to pay for a qualified first-time home purchase. The Tax Code's limitations on withdrawals from tax-sheltered annuities are described on page 30 above. 30 Under some circumstances, you may "roll over" the taxable portion of a withdrawal or distribution from Contracts issued under certain types of plans into another eligible plan so as to continue to defer income tax. Such treatment is available for any "eligible rollover distribution" as described on page 30 above. Amounts received from IRAs may also be rolled over into other IRAs, individual retirement accounts, Roth IRAs, or certain other plans, subject to limitations set forth in the Tax Code. NON-QUALIFIED PLANS. Section 72 of the Tax Code provides that if the Contract Value exceeds the total Purchase Payments made, any amount withdrawn from a Non-Qualified Contract will be treated as coming first from the earnings and then, only after the earnings portion is exhausted, as coming from the principal. Withdrawn earnings are includable in a taxpayer's gross income as ordinary income. Section 72 further provides that a 10% tax penalty will apply to the income portion of all distributions from a Non-Qualified Contract, except for amounts received: (1) after the taxpayer reaches age 59 1/2; (2) upon the death of the Contract Owner or Annuitant (as applicable); (3) upon total disability of the taxpayer. For this purpose, "disability" is defined in Section 72(m)(7) of the Tax Code; (4) in a series of substantially equal periodic payments made for the life of the taxpayer or for the joint lives of the taxpayer and his Beneficiary; (5) under an immediate annuity; or (6) which are allocable to Purchase Payments made prior to August 14, 1982. DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT LINCOLN BENEFIT LIFE COMPANY. Lincoln Benefit Life Company is a stock life insurance company organized under the laws of the state of Nebraska in 1938. Our legal domicile and principal business address is 206 South 13th Street, Lincoln, Nebraska. Lincoln Benefit is a wholly owned subsidiary of Allstate Life Insurance Company ("Allstate Life or ALIC"), a stock life insurance company incorporated under the laws of the State of Illinois. Allstate Life is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a stock property-liability insurance company incorporated under the laws of Illinois. All outstanding capital stock of Allstate is owned by The Allstate Corporation ("Allstate"). We are authorized to conduct life insurance and annuity business in the District of Columbia, Guam and all states except New York. We intend to market the Contract everywhere we conduct variable annuity business. The Contracts offered by this prospectus are issued by us and will be funded in the Separate Account and/or the Fixed Account. Under our reinsurance agreement with Allstate Life, all contract related transactions are transferred to Allstate Life. Through our reinsurance agreement with Allstate Life, all of the assets backing our reinsured liabilities are owned by Allstate Life. These assets represent our general account and are invested and managed by Allstate Life. Accordingly, the results of operations with respect to applications received and contracts issued by Lincoln Benefit are not reflected in our financial statements. The amounts reflected in our financial statements relate only to the investment of those assets of Lincoln Benefit that are not transferred to Allstate Life under the reinsurance agreement. While the reinsurance agreement provides us with financial backing from Allstate Life, it does not create a direct contractual relationship between Allstate Life and you. Lincoln Benefit is highly rated by independent agencies, including A.M. Best, Moody's, and Standard & Poor's. These ratings are based on our reinsurance agreement with Allstate Life, and reflect financial soundness and strong operating performance. The ratings are not intended to reflect the financial strength or investment experience of the Separate Account. We may from time to time advertise these ratings in our sales literature. FINANCIAL STATEMENTS OF LINCOLN BENEFIT. The Company's consolidated financial statements and notes thereto are included in this Prospectus beginning on page F-1. You should consider those financial statements only as bearing on Lincoln Benefit's ability to meet its obligations under the Policy. They do not relate to the investment performance of the assets held in the Separate Account. The financial statements for the Separate Account are set forth in the Statement of Additional Information. SELECTED FINANCIAL DATA. The following selected financial data for the Company should be read in conjunction with the consolidated financial statements and notes thereto included in the prospectus beginning on page F-1. 31 LINCOLN BENEFIT LIFE COMPANY SELECTED FINANCIAL DATA (IN THOUSANDS)
YEAR-END FINANCIAL DATA 1997 1996 1995 1994 - ---------------------------------------------------------- ------------ ------------ ------------ ------------ FOR THE YEARS ENDED DECEMBER 31: Income Before Income Tax Expense $10,587 $8,603 $7,838 $4,641 Net Income 6,852 5,583 5,093 3,036 As of December 31: Total Assets $ 7,507,203 $ 7,108,502 $ 6,347,097 $ 5,319,707
Financial information prepared in accordance with generally accepted accounting principles ("GAAP") is not available for previous fiscal years, because the Company followed statutory accounting methods at that time, and statutory accounting methods are not comparable with the GAAP methods used in subsequent years. INVESTMENTS BY LINCOLN BENEFIT. Our general account assets, like the general account assets of other insurance companies, including Allstate Life, must be invested in accordance with applicable state laws. These laws govern the nature and quality of investments that may be made by life insurance companies and the percentage of their assets that may be committed to any particular type of investment. In general, these laws permit us, within specified limits and subject to certain qualifications, to invest in federal, state, and municipal obligations, corporate bonds, preferred stocks, real estate mortgages, real estate and certain other investments. All of our general account assets are available to meet our obligations. We will primarily invest our general account assets in investment-grade fixed income securities including the following: Securities issued by the United States Government or its agencies or instrumentalities, which may or may not be guaranteed by the United States Government; Debt instruments, including issues of or guaranteed by banks or bank holding companies, and of corporations, which our management deems to have qualities appropriate for inclusion in our general account; Commercial mortgages, mortgage-backed securities collateralized by real estate mortgage loans, or securities collateralized by other assets, that are insured or guaranteed by the Federal Home Loan Mortgage Association, the Federal National Mortgage Association or the Government National Mortgage Association, or that have an investment grade at time of purchase within the four highest grades assigned by Moody's Investors Services, Inc. (Aaa, Aa, A or Baa), Standard & Poor's Corporation (AAA, AA, A or BBB) or any other nationally recognized rating service; Commercial paper, cash or cash equivalents, and other short-term investments having a maturity of less than one year that our management considers to have investment quality comparable to securities having the ratings stated above. In addition, interest rate swaps, futures, options, rate caps, and other hedging instruments may be used solely for non-speculative hedging purposes. Anticipated use of these financial instruments shall be limited to protecting the value of portfolio sales or purchases, or to enhance yield through the creation of a synthetic security. In addition, Lincoln Benefit maintains certain unitized separate accounts which invest in shares of open-end investment companies registered under the Investment Company Act of 1940, as amended. The Subaccounts under this Contract are subdivisions of one of those Separate Accounts. These separate account assets do not support our obligations under the Fixed Account provisions of the Contracts. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion highlights significant factors influencing consolidated results of operations and changes in financial position of Lincoln Benefit Life Company (the "Company") and its wholly owned subsidiary. Lincoln Benefit Financial Services, Inc. It should be read in conjunction with the consolidated financial statements and related notes. The Company, a wholly owned subsidiary of Allstate Life ("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation, markets life insurance and annuity products through independent agents. The Company issues flexible premium deferred variable annuity contracts and variable life policies, the assets and liabilities of which are legally segregated and reflected as Separate Account assets and liabilities. Separate Account assets and liabilities are carried at fair value in the statements of financial position. Investment income and realized gains and losses of the Separate Accounts accrue directly to the contractholders (net of fees) and, therefore, are not included in Lincoln Benefit's statements of operations. 32 RESULTS OF OPERATIONS ($ IN THOUSANDS).
1997 1996 1995 ---------- ---------- ---------- Net investment income $ 10,789 $ 9,951 $ 8,796 ---------- ---------- ---------- ---------- ---------- ---------- Realized capital gains and losses, after-tax $ 17 $ 6 $ 258 ---------- ---------- ---------- ---------- ---------- ---------- Operating costs and expenses $ 219 $ 889 $ 754 ---------- ---------- ---------- ---------- ---------- ---------- Net Income $ 6,852 $ 5,583 $ 5,093 ---------- ---------- ---------- ---------- ---------- ---------- Investments $ 151,505 $ 142,296 $ 143,116 ---------- ---------- ---------- ---------- ---------- ----------
The Company and ALIC have reinsurance agreements under which all contract and policy related transactions are transferred to ALIC. The Company's consolidated results of operations include only investment income and realized capital gains and losses earned on the assets of the Company that are not transferred to ALIC under the reinsurance agreements, and underwriting expense allowance for services provided by the Company's broker dealer, Lincoln Benefit Financial Services, Inc. Prior to December 31, 1996, the Company retained a small block of paid up life insurance, which was ceded to ALIC on that date. Net income for 1997 and 1996 increased $1,259,000 and $490,000, respectively. In 1997, the increase was attributable to the underwriting expense allowance and increased net investment income. In 1996, increased investment income was partially offset by lower realized capital gains. Pretax net investment income increased by $838,000, or 8.4% in 1997 and $1,155,000, or 13.1% in 1996. The additional investment income was earned on a higher base of investments arising from positive cash flows from operating activities, partially offset by increased investment expenses. In 1997, operating costs and expenses decreased as a result of the cession of the small block of paid up life insurance and the expenses on that block of business that we incurred in 1996. Realized capital gains were $17,000 and $6,000 after tax in 1997 and 1996, respectively, and arose principally from prepayments on fixed income securities. No securities were sold in 1997 or 1996. Realized capital gains in 1995 of $258,000 after tax were primarily the result of a sale of a fixed income security, the remainder was due to prepayments on fixed income securities. FINANCIAL POSITION ($ IN THOUSANDS).
1997 1996 ------------ ------------ Fixed income securities(1) $ 147,911 $ 137,638 Real Estate 2,574 2,797 Short-term investments 1,020 1,861 ------------ ------------ Total investments $ 151,505 $ 142,296 ------------ ------------ ------------ ------------ Reinsurance recoverable from Allstate Life $ 6,732,755 $ 6,544,750 ------------ ------------ ------------ ------------ Separate Account assets and liabilities $ 447,658 $ 255,881 ------------ ------------ ------------ ------------ Contractholder funds $ 6,607,130 $ 6,422,126 ------------ ------------ ------------ ------------
(1) Fixed income securities are carried at fair value. Amortized cost for these securities was $141,553 and $134,866 at December 31, 1997 and 1996, respectively. The Company's fixed income securities portfolio consists of mortgage-backed securities, publicly traded corporate bonds, and U.S. government bonds. The Company generally holds its fixed income securities until maturity, but has classified all of these securities as available for sale to allow maximum flexibility in portfolio management. Investments grew $9.2 million, or 6.5%, during 1997 primarily due to the investment of positive operating cash flows and an increase in the unrealized capital gain position on fixed income securities. At December 31, 1997, net unrealized capital gains on fixed income securities were $4.1 million compared to $1.8 million as of December 31, 1996. The increase in the unrealized net capital gain position is primarily attributable to lower interest rates. At the end of 1997, all of the Company's fixed income securities portfolio is rated investment grade. 99.7% of the portfolio has a National Association of Insurance Commissioners ("NAIC") rating of 1 or a Moody's rating of Aaa, Aa or A. The remaining .3% has an NAIC rating of 2. At December 31, 1997 and 1996, $55.1 million and $61.0 million, respectively, of the fixed income portfolio were invested in mortgage-backed securities ("MBS"). At December 31, 1997, all of the MBS had underlying collateral that is guaranteed by U.S. government entities, thus credit risk was minimal. MBS, however, are subject to interest rate risk as the duration and ultimate realized yield are affected by the rate of 33 repayment of the underlying mortgages. The Company attempts to limit interest rate risk by purchasing MBS whose cost does not significantly exceed par value, and with repayment protection to provide a more certain cash flow to the Company. At December 31, 1997, the amortized cost of the MBS portfolio was below par value by $2.8 million and 15% of the MBS portfolio was invested in planned amortization class bonds. This type of MBS is purchased to provide additional protection against rising interest rates. The Company closely monitors its fixed income portfolio for declines in value that are other than temporary. Securities are placed on non-accrual status when they are in default or when the receipt of interest payments is in doubt. The Company's short-term investment portfolio was $1.0 million and $1.9 million at December 31, 1997 and 1996, respectively. The Company invests available cash balances, primarily in taxable short-term securities having a final maturity date or redemption date of one year or less. During 1997, contractholder funds increased by $185 million and reinsurance recoverable from ALIC under reinsurance agreements increased by $188 million. Interest credited to contractholders and sales of fixed annuity contracts exceeded the fixed annuity surrenders, withdrawals, policyholder transfers from fixed annuity contracts to flexible premium deferred variable annuity contracts, and benefits paid. Reinsurance recoverable from Allstate Life relates to contract benefit obligations ceded to Allstate Life. Separate Account assets and liabilities increased by $191.8 million, primarily attributable to sales of flexible premium deferred variable annuity contracts, the favorable investment performance of the Separate Account investment portfolios and transfers from fixed annuity contracts, partially offset by variable annuity surrenders and withdrawals. MARKET RISK. Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices. The Company's primary market risk exposure is to changes in interest rates. Interest rate risk is the risk that the Company will incur economic losses due to adverse changes in interest rates, as the Company invests substantial funds in interest-sensitive assets. One way to quantify this exposure is duration. Duration measures the sensitivity of the fair value of assets to changes in interest rates. For example, if interest rates increase 1%, the fair value of an asset with a duration of 5 years is expected to decrease in value by approximately 5%. At December 31, 1997, the Company's asset duration was approximately 4.6 years. To calculate duration, the Company projects asset cash flows and discounts them to a net present value basis using a risk-free market rate adjusted for credit quality, sector attributes, liquidity and other specific risks. The projections include assumptions (based upon historical market and Company specific experience) reflecting the impact of changing interest rates on the prepayment and/or option features of instruments, where applicable. Such assumptions relate primarily to mortgage-backed securities, collateralized mortgage obligations, and municipal and corporate obligations. Based upon the information and assumptions the Company uses in its duration calculation and in effect at December 31, 1997, management estimates that a 100 basis point immediate, parallel increase in interest rates ("rate shock") would decrease the net fair value of its assets identified above by approximately $6.9 million. The selection of a 100 basis point immediate rate shock should not be construed as a prediction by the Company's management of future market events; but rather, to illustrate the potential impact of such an event. To the extent that actual results differ from the assumptions utilized, the Company's duration and rate shock measures could be significantly impacted. Additionally, Lincoln Benefit's calculation assumes that the current relationship between short-term and long-term interest rates (the term structure of interest rates) will remain constant over time. As a result, these calculations may not fully capture the impact of non-parallel changes in the term structure of interest rates and/or large changes in interest rates. In formulating and implementing policies for investing new and existing funds, AIC, as parent company of ALIC, administers and oversees investment risk management processes primarily through three oversight bodies: the Boards of Directors and Investment Committees of its operating subsidiaries, and the Credit and Risk Management Committee ("CRMC"). The Boards of Directors and Investment Committees provide executive oversight of investment activities. The CRMC is a senior management committee consisting of the Chief Investment Officer, the Investment Risk Manager, and other investment officers who are responsible for the day-to-day management of market risk. The CRMC meets at least monthly to provide detailed oversight of investment risk, including market risk. AIC has investment guidelines that define the overall framework for managing market and other investment risks, including the accountabilities and controls over these activities. In addition, AIC has specific investment policies for each of its affiliates, including the Company, that delineate the investment limits and strategies that are appropriate for the Company's liquidity, surplus and regulatory requirements. 34 LIQUIDITY AND CAPITAL RESOURCES. Under the terms of reinsurance agreements, premiums and deposits, excluding those relating to Separate Accounts, are transferred to ALIC, which maintains the investment portfolios supporting Lincoln Benefit's products. Payments of policyholder claims, benefits, contract maturities, contract surrenders and withdrawals and operating costs are reimbursed by ALIC, also under the terms of the reinsurance agreements. The primary sources for the remainder of the Company's funds are collection of principal and interest from the investment portfolio and capital contributions from ALIC. The primary uses for the remainder of the Company's funds are to purchase investments and pay costs associated with the maintenance of the Company's investment portfolio. The Company continues to have primary liability as a direct insurer for risks reinsured. The NAIC has a standard for assessing the solvency of insurance companies, which is referred to as risk-based capital ("RBC"). The requirement consists of a formula for determining each insurer's RBC and a model law specifying regulatory actions if an insurer's RBC falls below specified levels. The RBC formula for life insurance companies establishes capital requirements relating to insurance, business, asset, and interest rate risks. At December 31, 1997, RBC for the Company was significantly above levels that would require regulatory action. YEAR 2000. The Company is heavily dependent upon complex computer systems for all phases of its operations, including customer service, and policy and contract administration. Since many of the Company's older computer software programs recognize only the last two digits of the year in any date, some software may fail to operate properly in or after the year 1999, if the software is not reprogrammed or replaced ("Year 2000 Issue"). The Company believes that many of its suppliers and counterparties also have Year 2000 Issues which could affect the Company. In 1995, AIC commenced a plan intended to mitigate and/or prevent the adverse affects of Year 2000 Issues. These strategies include normal development and enhancement of new and existing systems, upgrades to operating systems already covered by maintenance agreements and modifications to existing systems to make them Year 2000 compliant. The plan also includes the Company actively working with its external counterparties and suppliers to assess their compliance efforts and the Company's exposure to them. The Company presently believes that it will resolve the Year 2000 Issue in a timely manner, and the financial impact will not materially affect its results of operations, liquidity, or financial position. Year 2000 costs are and will be expenses as incurred. PENDING ACCOUNTING STANDARDS. In December 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 127, "Deferral of the Effective Date of Certain Provisions of FASB Statement No. 125." SFAS No. 127 delayed the implementation of certain provisions of SFAS No. 125. "Accounting for Transfers of Financial Assets and Extinguishments of Liabilities" until January 1, 1998. The deferred provisions of SFAS No. 125 will be adopted effective January 1, 1998 and are not expected to have a material impact on the financial position of the Company. In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures About Segments of an Enterprise and Related Information". SFAS No. 130 requires the presentation of comprehensive income in the financial statements. Comprehensive income is a measurement of all changes in equity that result from transactions and other economic events other than transactions with shareholders. The requirements of this statement will be adopted effective January 1, 1998. SFAS No. 131 redefines how segments are determined and requires additional segment disclosures for both annual and quarterly reporting. Under this statement, segments are determined using the "management approach" for financial statement reporting. The management approach is based on the way an enterprise makes operating decisions and assesses performance of its businesses. The Company is currently reviewing the requirements of this SFAS and has yet to determine its impact on its current reporting requirements. The requirements of this statement will be adopted effective December 31, 1998. In December 1997, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 87-3, "Accounting by Insurance and Other Enterprises for Insurance-related Assessments". The SOP provides guidance concerning when to recognize a liability for insurance-related assessments and how those liabilities should be measured. Specifically, insurance-related assessments should be recognized as liabilities when all of the following criteria have been met: a) an assessment has been imposed or it is probable that an assessment will be imposed, b) the event obligating an entity to pay an assessment has occurred and c) the amount of the assessment can be reasonably estimated. The requirements of this standard will be adopted in 1999 and are not expected to have a material impact on the results of operations, cash flows or financial position of the Company. In March 1998, the Accounting Standards Executive Committee of the AICPA issued SOP 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use." The SOP provides guidance on accounting for the costs of computer software developed or obtained for internal use. Specifically, certain external, payroll and payroll related costs should be capitalized during the application development state of a project and depreciated over the computer software's useful life. The Company currently expenses these costs as incurred and is evaluating the effects 35 of this SOP on its accounting for internally developed software. The SOP is expected to be adopted in 1998. FORWARD-LOOKING STATEMENTS. The statements contained in this Management's Discussion and Analysis that are not historical information are forward-looking statements that are based on management's estimates, assumptions and projections. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. COMPETITION. Lincoln Benefit is engaged in a business that is highly competitive. Many other life insurance companies and other entities sell insurance and annuities. There are approximately 1,700 insurers in business in the United States. As of April 1, 1998, A.M. Best Company assigns a rating of A+ (Superior) to Allstate Life, which automatically reinsures all net general account business of Lincoln Benefit. A.M. Best Company also assigns Lincoln Benefit a rating of A+(r), because Lincoln Benefit automatically reinsures all general account business with Allstate Life. Standard & Poor's Insurance Rating Services assigns an AA+ (Excellent) rating to Lincoln Benefit's claims paying ability. Moody's assigns an Aa2 (Excellent) financial stability rating to Lincoln Benefit. Lincoln Benefit shares the same ratings as its parent, Allstate Life. EMPLOYEES. As of December 31, 1997, Lincoln Benefit had approximately 585 employees at its home office in Lincoln, Nebraska. PROPERTIES. Lincoln Benefit owns and leases office space in Lincoln, Nebraska. The combined owned and leased spaces are used for home office administrative operations. EXECUTIVE OFFICERS AND DIRECTORS OF LINCOLN BENEFIT. Our directors and executive officers are listed below, together with information as to their ages, dates of election and principal business occupations during the last five years (if other than their present occupation). JANET P. ANDERBERY, 39, VICE PRESIDENT AND CONTROLLER, 1994; Associate Vice President and Controller, 5/84-4/94, Lincoln Benefit Life Company; Vice President and Controller, 1/94-present, Surety Life Insurance Company; Vice President and Controller, 5/93-present, Lincoln Benefit Financial Services, Inc. DOUGLAS F. GAER, 51, EXECUTIVE VICE PRESIDENT, 1997, DIRECTOR, 1981; Senior Vice President, 4/95-2/97, Senior Vice President and Treasurer, 4/94-3/95, Vice President, 3/81-4/94, Director, 1981-present, Lincoln Benefit Life Company; Senior Vice President and Treasurer, 1/94-present, Director, 6/95-present, Surety Life Insurance Company; Director, 5/93-present, Lincoln Benefit Financial Services, Inc. PETER H. HECKMAN, 52, VICE CHAIRMAN OF THE BOARD, 1996, DIRECTOR, 1990; Vice President, Director, 4/92-present, Glenbrook Life & Annuity Company; Vice President, 11/90-12/97, Director, 9/90-12/97, Glenbrook Life Insurance Company; Vice President, 6/89-present, Director, 7/90-present, Allstate Life Insurance Company of New York; Vice President, 4/89-present, Director, 12/88-present, Allstate Life Insurance Company; Vice President, 12/88-present, Director, 12/88-present, Northbrook Life Insurance Company; Director, 5/90-present, Surety Life Insurance Company; Director, 5/90-present, Lincoln Benefit Life Company; Director 5/91-9/93, Allstate Life Financial Services. LOUIS G. LOWER, II, 52, CHAIRMAN OF THE BOARD, CHIEF EXECUTIVE OFFICER, 1989, DIRECTOR, 1989; Chairman of the Board and President, 4/92-6/95, Chairman of the Board and Chief Executive Officer, 6/95-present, Glenbrook Life and Annuity Company; Chairman of the Board and President, 1/91-12/95, Chairman of the Board and Chief Executive Officer, 12/95-12/97, Director, 9/90-12/97, Glenbrook Life Insurance Company; President, 1/90-present, Executive Vice President, 1/89-1/90, Senior Vice President and Treasurer, 10/86-12/88, Director, Allstate Life Insurance Company; Chairman of the Board and Chief Executive Officer, 6/95-present, Chairman of the Board and President, 4/90-6/95, Chairman of the Board, 4/90-7/90, Executive Vice President, 1/89-4/90, Senior Vice President and Treasurer, 10/86-4/89, Director, Northbrook Life Insurance Company; Chairman of the Board and President, 6/90-present, Vice President and Treasurer 12/86-6/90, Director, Allstate Life Insurance Company of New York; Chairman of the Board and Chief Executive Officer, Director, 5/90-present, Lincoln Benefit Life Company; Chairman of the Board and Chief Executive Officer, 3/90-present, Director, 5/89-present, Surety Life Insurance Company; Group Vice President, 1976-1989, Director, Allstate Insurance Company; Director, 4/90-present, Allstate Settlement Company; Director, 5/91-present, Allstate Life Financial Services. JOHN J. MORRIS, 61, SENIOR VICE PRESIDENT/SECRETARY, 1994, DIRECTOR, 1987; Senior Vice President and Secretary, 4/94-present, Vice President and Secretary, 8/85-4/94, Director, 1987-present, Lincoln Benefit Life Company; Senior Vice President, 9/96-present, Director, 6/95-present, Surety Life Insurance Company; Vice President and Secretary, Director, 5/93-present, Lincoln Benefit Financial Services Inc. ROBERT E. RICH, 43, EXECUTIVE VICE PRESIDENT, 1996, DIRECTOR, 1987; Senior Vice President/Chief Actuary and Treasurer, 4/95-5/96, Senior Vice President, Assistant Secretary, 4/94-3/95, Vice President/Assistant Secretary, 1/84-4/94, Director, 1987-present, Lincoln Benefit Life Company; Executive Vice President, 7/96-present, Senior Vice President and Chief Actuary, 1/94-6/96, Director, 9/93-present, Surety Life Insurance Company; Director, 5/93-present, Lincoln Benefit Financial Services, Inc. KEVIN R. SLAWIN, 40, DIRECTOR, 1996; Director and Vice President-Finance and Planning, 1996-present, Allstate Life Insurance Company; Director, 1996-present, Allstate Life Insurance Company of New York; Director, 1996-present, Laughlin Group Holdings, Inc.; Director, 1996-present, 36 Northbrook Life Insurance Company; Director, 1996-12/97, Surety Life Insurance Company; Director, 1996-present, Glenbrook Life Insurance Company; Assistant Vice President, Assistant Treasurer, 1995-1996, Allstate Insurance Company. MICHAEL J. VELOTTA, 51, DIRECTOR, 1992; Vice President, Secretary and General Counsel, 1/93-present, Director, 12/92-present, Allstate Life Insurance Company; Vice President, Secretary and General Counsel, 1/93-12/97, Director, 12/92-12/97, Glenbrook Life Insurance Company; Vice President, Secretary and General Counsel, 1/93-present, Director, 12/92-present, Glenbrook Life and Annuity Company; Vice President, Secretary and General Counsel, 1/93-present, Director, 12/92-present, Allstate Life Insurance Company of New York; Vice President, Secretary and General Counsel, 1/93-present, Director, 12/92-present, Northbrook Life Insurance Company; Vice President, Secretary and General Counsel, 1/93-present, Director, 12/92-present, Surety Life Insurance Company; Assistant Vice President and Assistant General Counsel, 1989, Allstate Insurance Company; Director, 12/92-present, Lincoln Benefit Life Company. RANDY J. VON FUMETTI, 41, SENIOR VICE PRESIDENT, 1996, DIRECTOR, 1996; Senior Vice President, 9/96-present, Director, 9/96-present, Surety Life Insurance Company; Senior Actuary and Director, 8/87-9/96, Allstate Life Insurance Company. CAROL S. WATSON, 45, SENIOR VICE PRESIDENT/GENERAL COUNSEL, 1994, DIRECTOR, 1992; Senior Vice President and General Counsel, 4/94-present, Vice President and General Counsel, 7/91-4/94, Director, 5/92-present, Lincoln Benefit Life Company; Senior Vice President, Corporate Secretary and General Counsel, 1/98-present, Senior Vice President, Assistant Secretary and General Counsel, Director, 6/95-present, Surety Life Insurance Company; President, 12/96-present, Vice President and General Counsel, 5/93-11/96, Director, 5/93-present, Lincoln Benefit Financial Services, Inc. PATRICIA W. WILSON, 45, DIRECTOR, 1997; Assistant Vice President/Assistant Secretary/Assistant Treasurer, 7/97-present, Assistant Vice President, 1/93-7/97, Allstate Life Insurance Company; Assistant Vice President, 6/91-present, Director, 6/97-present, Allstate Life Insurance Company of New York; Assistant Treasurer, 7/97-12/97, Glenbrook Life Insurance Company; Assistant Treasurer, 7/97-present, Glenbrook Life Annuity Company; Assistant Vice President/Assistant Secretary/Assistant Treasurer, 7/97-present, Northbrook Life Insurance Company; Director, 7/97-present, Surety Life Insurance Company. B. EUGENE WRAITH, 52, PRESIDENT, CHIEF OPERATING OFFICER, 1996, DIRECTOR, 1984; President and Chief Operating Officer, 3/96-present, Senior Vice President, 4/94-3/96, Vice President, 12/81-4/94, Director, 1984-present, Lincoln Benefit Life Company; President and Chief Operating Officer, 3/96-present, Executive Vice President, 1/94-3/96, Director, 9/93-present, Surety Life Insurance Company; Chairman of the Board, 1/97-present, Director, 5/93-present, President, 5/93-11/96, Lincoln Benefit Financial Services, Inc. EXECUTIVE COMPENSATION Certain executive officers of Lincoln Benefit also serve as officers of Allstate Life and receive no compensation directly from Lincoln Benefit. Some officers also serve as executive officers of other companies affiliated with Lincoln Benefit. Allocations have been made as to each individual's time devoted to his or her duties as an executive officer of Lincoln Benefit. Those allocations are reflected in the Summary Compensation Table set forth below, except that the figures for Mr. Lower reflect his total compensation from Lincoln Benefit, its affiliates, and parent company Allstate Life Insurance Company. Lincoln Benefit's directors receive no compensation for serving as directors, in addition to their compensation as employees at Lincoln Benefit, Allstate Life, or their affiliates. 37 SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION ------------------------ PAYOUTS ---------- AWARDS ANNUAL COMPENSATION ------------ (F) ----------------------------- ---------- (G) (H) (E) SECURITIES ---------- ---------- (A) (B) (C) (D) ------------ RESTRICTED UNDERLYING LTIP - ---------------------------------------- ----- ---------- ---------- OTHER ANNUAL STOCK OPTIONS/ PAYOUTS NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION AWARDS SARS (#) ($) - ---------------------------------------- ----- ---------- ---------- ------------ ---------- ---------- ---------- Louis G. Lower II 1997 $ 453,225 $ 500,000 $ 27,768 $ 280,589 25,914 $ 570,068 Chief Executive Officer 1996 $ 436,800 $ 246,781 $ 10,246 0 18,258 0 Chairman of the Board 1995 $ 416,000 $ 286,650 $ 17,044 0 89,359 $ 411,122 ----- ---------- ---------- ------------ ---------- ---------- ---------- Bernard Eugene Wraith 1997 99,500 24,733 4,887 0 1,002 0 President 1996 90,760 26,500 10,435 0 14,275 0 1995 75,468 10,000 9,861 0 769 0 ----- ---------- ---------- ------------ ---------- ---------- ---------- Robert Edwin Rich 1997 77,772 20,206 18,461 0 456 0 Executive Vice President and Chief 1996 71,824 23,500 19,611 0 132 0 Actuary 1995 67,824 9,000 9,846 0 679 0 ----- ---------- ---------- ------------ ---------- ---------- ---------- Douglas Ford Gaer 1997 73,750 17,888 15,978 0 434 0 Executive Vice President 1996 57,875 18,550 12,996 0 100 0 1995 51,902 6,850 15,231 0 523 0 ----- ---------- ---------- ------------ ---------- ---------- ---------- John H. Coleman, III 1997 109,776 28,620 12,709 0 0 0 Vice President 1996 101,088 25,500 3,047 0 0 0 1995 94,000 25,010 3,835 0 0 0 (I) (A) ---------- - ---------------------------------------- ALL OTHER NAME AND PRINCIPAL POSITION COMPENSATION - ---------------------------------------- ---------- Louis G. Lower II $ 8,000 (1) Chief Executive Officer $ 5,250 (1) Chairman of the Board $ 5,250 (1) ---------- Bernard Eugene Wraith 0 President 0 0 ---------- Robert Edwin Rich 0 Executive Vice President and Chief 0 Actuary 0 ---------- Douglas Ford Gaer 0 Executive Vice President 0 0 ---------- John H. Coleman, III 0 Vice President 0 0
(1) Amount received by Mr. Lower which represents the value allocated to his account from employer contributions under The Savings and Profit Sharing Fund of Allstate Employees and prior to 1996 to The Profit Sharing Fund and to its predecessor, The Savings and Profit Sharing Fund of Sears employees. Shares of the Company and Allstate Life are not directly owned by any of our directors or executive officers. The percentage of shares of The Allstate Corporation beneficially owned by any director, and by all of our directors and executive officers as a group does not exceed one percent of the class outstanding. STATE REGULATION OF LINCOLN BENEFIT. We are subject to the laws of Nebraska and regulated by the Nebraska Department of Insurance. Every year we file an annual statement with the Department of Insurance covering our operations for the previous year and our financial condition as of the end of the year. We are inspected periodically by the Department of Insurance to verify our contract liabilities and reserves. We also are examined periodically by the NAIC. Our books and records are subject to review by the Department of Insurance at all times. We are also subject to regulation under the insurance laws of every jurisdiction in which we operate. SEPARATE ACCOUNT. Lincoln Benefit Life Variable Annuity Account was originally established in 1992, as a segregated asset account of Lincoln Benefit. The Separate Account meets the definition of a "separate account" under the federal securities laws and is registered with the SEC as a unit investment trust under the Investment Company Act of 1940. The SEC does not supervise the management of the Separate Account or Lincoln Benefit. We own the assets of the Separate Account, but we hold them separate from our other assets. To the extent that these assets are attributable to the Contract Value of the Contracts offered by this prospectus, these assets are not chargeable with liabilities arising out of any other business we may conduct. Income, gains, and losses, whether or not realized, from assets allocated to the Separate Account are credited to or charged against the Separate Account without regard to our other income, gains, or losses. Our obligations arising under the Contracts are general corporate obligations of Lincoln Benefit. The Separate Account is divided into Subaccounts. The assets of each Subaccount are invested in the shares of one of the Portfolios. We do not guarantee the investment performance of the Separate Account, its Subaccounts or the Portfolios. Values allocated to the Separate Account and the amount of Variable Annuity payments will rise and fall with the values of shares of the Portfolios and are also reduced by Contract charges. We may also use the Separate Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Separate Account. We have included additional information about the Separate Account in the Statement of Additional Information. You may obtain a copy of the Statement of Additional Information by writing to us or calling us at 1-800-865-5237. We have 38 reproduced the Table of Contents of the Statement of Additional Information on page 40 below. ADMINISTRATION We have primary responsibility for all administration of the Contracts and the Separate Account. Our mailing address is P.O. Box 82532, Lincoln, Nebraska 68501-2532. We provide the following administrative services, among others: issuance of the Contracts; maintenance of Contract Owner records; Contract Owner services; calculation of unit values; maintenance of the Separate Account; and preparation of Contract Owner reports. We will send you Contract statements and transaction confirmations at least quarterly. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error. We will also provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws. MARKET TIMING AND ASSET ALLOCATION SERVICES Certain third parties offer market timing and asset allocation services in connection with the Contracts. In certain situations, we will honor transfer instructions from third party market timing and asset allocation services if they comply with our administrative systems, rules and procedures, which we may modify at any time. PLEASE NOTE that fees and charges assessed for third party market timing and asset allocation services are separate and distinct from the Contract fees and charges set forth herein. We neither recommend nor discourage the use of market timing and asset allocation services. DISTRIBUTION OF CONTRACTS The Contracts described in this prospectus are sold by registered representatives of broker-dealers who are our licensed insurance agents, either individually or through an incorporated insurance agency. Commissions paid to broker-dealers may vary, but we estimate that the total commissions paid on all Contract sales will not exceed one percent of initial Purchase Payments and one percent of account value annually beginning in the second Contract year. From time to time, we may offer additional sales incentives of up to 1% of Purchase Payments to broker-dealers who maintain certain sales volume levels. We may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or from any other charge or fee under the Contracts, to cover sales commissions and other promotional or distribution expenses relating to the sale of the Contracts. We do not pay commission on Contract sales to our employees, our affiliate's employees or their spouses or minor children. Lincoln Benefit Financial Services, Inc. ("LBFS") serves as distributor of the Contracts. LBFS is located at 206 South 13th Street, Lincoln, Nebraska 68508-1993. LBFS is our wholly owned subsidiary. It is registered as a broker-dealer under the Securities Exchange Act of 1934, and is a member of the National Association of Securities Dealers, Inc. LEGAL PROCEEDINGS There are no pending legal proceedings affecting the Separate Account. Lincoln Benefit and its subsidiaries are engaged in routine law suits which, in our management's judgment, are not of material importance to their respective total assets or material with respect to the Separate Account. LEGAL MATTERS Legal matters relating to the federal securities laws in connection with the Contracts described in this prospectus are being passed upon by the law firm of Jorden Burt Boros Cicchetti Berenson & Johnson, 1025 Thomas Jefferson St., East Lobby-Suite 400, Washington, D.C. 20007-0805. EXPERTS The consolidated financial statements of Lincoln Benefit Life Company and subsidiary as of December 31, 1997 and 1996, and for each of the three years in the period ended December 31, 1997, included in this prospectus have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 39 REGISTRATION STATEMENT We have filed a registration statement with the SEC, under the Securities Act of 1933 as amended, with respect to the Contracts offered by this prospectus. This prospectus does not contain all the information set forth in the registration statement and the exhibits filed as part of the registration statement. You should refer to the registration statement and the exhibits for further information concerning the Separate Account, Lincoln Benefit, and the Contracts. The descriptions in this prospectus of the Contracts and other legal instruments are summaries. You should refer to those instruments as filed for the precise terms of those instruments. You may inspect and obtain copies of the registration statements as described on the cover page of this prospectus. TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION The Contract.................................. S-2 Annuity Payments............................ S-2 Annuity Unit Value.......................... S-3 Illustrative Example of Variable Annuity Payments.................................. S-4 Additional Federal Income Tax Information..... S-4 Diversification--Separate Account Investments............................... S-4 Owner Control............................... S-5 Multiple Contracts.......................... S-5 Qualified Plans............................. S-5 Separate Account Performance.................. S-7 Experts....................................... S-15 Financial Statements.......................... S-15
40 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF LINCOLN BENEFIT LIFE COMPANY: We have audited the accompanying consolidated statements of financial position of Lincoln Benefit Life Company and subsidiary (wholly owned by Allstate Life Insurance Company) as of December 31, 1997 and 1996, and the related consolidated statements of operations, shareholder's equity and cash flows for each of the three years in the period ended December 31, 1997. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Lincoln Benefit Life Company and subsidiary as of December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The accompanying supplemental schedule is presented for the purpose of additional analysis and is not a required part of the basic consolidated financial statements. This schedule is the responsibility of the Company's management. Such schedule has been subjected to the auditing procedures applied in our audits of the basic consolidated financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic consolidated financial statements taken as a whole. /s/ Deloitte & Touche LLP Lincoln, Nebraska March 20, 1998 LINCOLN BENEFIT LIFE COMPANY CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, ------------------------------- ($ in thousands) 1997 1996 ------------- ------------- ASSETS Investments Fixed income securities, at fair value (amortized cost $141,553 and $134,866) $ 147,911 $ 137,638 Investment in home office real estate 2,574 2,797 Short-term 1,020 1,861 ------------- ------------- Total investments 151,505 142,296 Reinsurance recoverable from Allstate Life Insurance Company 6,732,755 6,544,750 Reinsurance recoverable from third parties 127,182 115,965 Receivable from Allstate Life Insurance Company and affiliates, net 14,481 19,923 Cash 4,220 7,412 Other assets 29,402 22,275 Separate Accounts 447,658 255,881 ------------- ------------- Total assets $ 7,507,203 $ 7,108,502 ------------- ------------- ------------- ------------- LIABILITIES Reserve for life-contingent contract benefits $ 252,195 $ 239,449 Contractholder funds 6,607,130 6,422,126 Income taxes payable 1,128 923 Deferred income taxes 4,149 3,480 Other liabilities and accrued expenses 43,609 44,482 Separate Accounts 447,658 255,881 ------------- ------------- Total liabilities 7,355,869 6,966,341 ------------- ------------- COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 8) SHAREHOLDER'S EQUITY Common stock, $100 par value, 30,000 shares authorized, 25,000 issued and outstanding 2,500 2,500 Additional capital paid-in 116,750 116,750 Unrealized net capital gains 4,132 1,801 Retained income 27,952 21,110 ------------- ------------- Total shareholder's equity 151,334 142,161 ------------- ------------- Total liabilities and shareholder's equity $ 7,507,203 $ 7,108,502 ------------- ------------- ------------- -------------
See notes to consolidated financial statements. 2 LINCOLN BENEFIT LIFE COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31, ------------------------------- ($ in thousands) 1997 1996 1995 --------- --------- --------- REVENUES Net investment income $ 10,789 $ 9,951 $ 8,796 Realized capital gains and losses 17 6 258 --------- --------- --------- 10,806 9,957 9,054 COSTS AND EXPENSES Provision for policy benefits (net of reinsurance recoveries of $464,154, $419,936 and $375,662) - 465 462 Operating costs and expenses 219 889 754 --------- --------- --------- 219 1,354 1,216 --------- --------- --------- INCOME BEFORE INCOME TAX EXPENSE 10,587 8,603 7,838 INCOME TAX EXPENSE 3,735 3,020 2,745 --------- --------- --------- NET INCOME $ 6,852 $ 5,583 $ 5,093 --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements. 3 LINCOLN BENEFIT LIFE COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, ------------------------------- ($ in thousands) 1997 1996 1995 --------- --------- --------- COMMON STOCK $ 2,500 $ 2,500 $ 2,500 ADDITIONAL CAPITAL PAID-IN Balance, beginning of year 116,750 116,750 96,750 Capital contribution - - 20,000 --------- --------- --------- Balance, end of year 116,750 116,750 116,750 --------- --------- --------- UNREALIZED NET CAPITAL GAINS Balance, beginning of year 1,801 4,998 (2,630) Net change 2,331 (3,197) 7,628 --------- --------- --------- Balance, end of year 4,132 1,801 4,998 --------- --------- --------- RETAINED INCOME Balance, beginning of year 21,110 18,060 12,967 Dividend-in-kind (10) (2,533) - Net income 6,852 5,583 5,093 --------- --------- --------- Balance, end of year 27,952 21,110 18,060 --------- --------- --------- Total shareholder's equity $ 151,334 $ 142,161 $ 142,308 --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements. 4 LINCOLN BENEFIT LIFE COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ------------------------------- ($ in thousands) 1997 1996 1995 --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 6,852 $ 5,583 $ 5,093 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation, amortization and other non-cash items 20 50 96 Realized capital gains and losses (17) (6) (258) Increase (decrease) in life-contingent contract benefits and contractholder funds 427 (4,918) (130) Change in deferred income taxes (586) (62) (156) Changes in other operating assets and liabilities (4,261) 11,083 (5,940) --------- --------- --------- Net cash provided by (used in) operating activities 2,435 11,730 (1,295) --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales Fixed income securities - - 5,633 Equity securities - - 108,255 Investment collections Fixed income securities 11,980 8,759 13,769 Investment purchases Fixed income securities (18,307) (17,570) (34,372) Equity securities - - (108,255) Real estate (140) (405) (644) Change in short-term investments, net 840 4,489 (2,920) Change in policy loans, net - - 24 --------- --------- --------- Net cash used in investing activities (5,627) (4,727) (18,510) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES Capital contribution - - 20,000 --------- --------- --------- Net cash provided by financing activities - - 20,000 --------- --------- --------- NET (DECREASE) INCREASE IN CASH (3,192) 7,003 195 CASH AT BEGINNING OF YEAR 7,412 409 214 --------- --------- --------- CASH AT END OF YEAR $ 4,220 $ 7,412 $ 409 --------- --------- --------- --------- --------- --------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Noncash financing activity: Dividend-in-kind to Allstate Life Insurance Company $ (10) $ (2,533) $ - --------- --------- --------- --------- --------- ---------
See notes to consolidated financial statements. 5 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) 1. GENERAL BASIS OF PRESENTATION The accompanying consolidated financial statements include the accounts of Lincoln Benefit Life Company (the "Company") and its wholly owned subsidiary, Lincoln Benefit Financial Services, Inc. ("LBFS"), a registered broker-dealer. The Company is a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"), a wholly owned subsidiary of The Allstate Corporation (the "Corporation"). On June 30, 1995, Sears, Roebuck and Co. ("Sears") distributed its 80.3% ownership in the Corporation to Sears common shareholders through a tax-free dividend (the "Distribution"). These consolidated financial statements have been prepared in conformity with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated. To conform with the 1997 presentation, certain amounts in the prior years' financial statements and notes have been reclassified. NATURE OF OPERATIONS The Company markets a broad line of life insurance and annuity products countrywide. Life insurance policies include traditional products such as whole life and term life insurance, as well as variable life universal life and other interest-sensitive life products. Annuities include deferred annuities, such as variable annuities and fixed rate single and flexible premium annuities, and immediate annuities. The Company distributes its products primarily through independent agents and brokers specializing in life insurance and annuities. Annuity contracts and life insurance policies issued by the Company are subject to discretionary withdrawal or surrender by the customers, subject to applicable surrender charges. These policies and contracts are reinsured primarily with ALIC (see Note 3), which invests premiums and deposits to provide cash flows that will be used to fund future benefits and expenses. In order to support competitive crediting rates and limit interest rate risk, ALIC as the Company's primary reinsurer adheres to a basic philosophy of matching assets with related liabilities, while maintaining adequate liquidity and a prudent and diversified level of credit risk. The Company monitors economic and regulatory developments which have the potential to impact its business. There continues to be new and proposed federal and state regulation and legislation which would allow banks greater participation in the securities and insurance businesses, which will present an increased level of competition for sales of the Company's life and annuity products. Furthermore, the market for deferred annuities and interest-sensitive life insurance is enhanced by the tax incentives available under current law. Any legislative changes which lessen these incentives are likely to negatively impact the demand for these products. Enacted and pending state legislation to permit mutual insurance companies to covert to a hybrid structure known as a mutual holding company could have a number of significant effects on the Company by (1) increasing industry competition through consolidation caused by mergers and acquisitions related to the new corporate form of business; (2) increasing competition in capital markets; and (3) reopening stock/mutual company disagreements related to such issues as taxation disparity between mutual and stock insurance companies. The Company is authorized to sell life and annuity products in all states except New York, as well as in the District of Columbia, Guam and the U.S. Virgin Islands. The top geographic locations for statutory premiums earned by the Company are California, Florida, Illinois, Virginia and Wisconsin for the year ended December 31, 1997. No other jurisdiction accounted for more than 5% of statutory premiums and deposits. Substantially all premiums and contract charges are ceded to ALIC under reinsurance agreements. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS Fixed income securities include bonds and mortgage-backed securities. All fixed income securities are carried at fair value and may be sold prior to their contractual maturity ("available for sale"). The difference between amortized cost and fair value, net 6 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) of deferred income taxes, is reflected as a component of shareholder's equity. Provisions are recognized for declines in the value of fixed income securities that are other than temporary. Such writedowns are included in realized capital gains and losses. Short-term investments are carried at cost which approximates fair value. Real estate represents property owned and occupied by the Company, and is carried at depreciated cost. Investment income consists primarily of interest, which is recognized on an accrual basis. Interest income on mortgaged-backed securities is determined on the effective yield method, based on the estimated principal repayments. Accrual of income is suspended for fixed income securities that are in default or when the receipt of interest payments is in doubt. Realized capital gains and losses are determined on a specific identification basis. REINSURANCE The Company has reinsurance agreements whereby all premiums, contract charges, credited interest, policy benefits and certain expenses are primarily ceded to ALIC and reflected net of such cessions in the statements of operations. The amounts shown in the Company's statements of operations relate to the consolidated investment of those assets of the Company that are not transferred to ALIC under reinsurance agreements. Reinsurance recoverable and the related reserve for life-contingent contract benefits and contractholder funds are reported separately in the statements of financial position. The Company continues to have primary liability as the direct insurer for risks reinsured. RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES Premiums for traditional life insurance are recognized as revenue when due. Accident and disability premiums are earned on a pro rata basis over the policy period. Revenues on interest-sensitive life insurance policies are comprised of contract charges and fees, and are recognized when assessed against the policyholder account balance. Revenues on most annuities, which are considered investment contracts, include contract charges and fees for contract administration and surrenders. These revenues are recognized when levied against the contract balances. Gross premium in excess of the net premium of limited payment contracts are deferred and recognized over the contract period. INCOME TAXES The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. Deferred income taxes also arise from unrealized capital gains or losses on fixed income securities carried at fair value. SEPARATE ACCOUNTS The Company issues flexible premium deferred variable annuity contracts and flexible premium variable life policies, the assets and liabilities of which are legally segregated and reflected in the accompanying consolidated statements of financial position as assets and liabilities of the Separate Accounts. (Lincoln Benefit Life Variable Annuity Account and Lincoln Benefit Life Variable Life Account, unit investment trusts registered with the Securities and Exchange Commission.) Assets of the Separate Accounts are carried at fair value. Investment income and realized capital gains and losses of the Separate Accounts accrue directly to the policy and contractholders and, therefore, are not included in the Company's consolidated statements of operations. Revenues to the Company from the Separate Accounts consist of contract maintenance fees, administration fees and mortality and expense risk charges, all of which are ceded to ALIC. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS The reserve for life-contingent contract benefits, which relates to traditional life, annuities with life contingencies, and disability insurance and accident insurance, is computed on the basis of assumptions as to future investment yields, mortality, morbidity, terminations and expenses. These assumptions, which for traditional life are applied using the net level premium method, include provisions for adverse deviation and generally vary by such characteristics as type of coverage, year of issue and policy duration. Reserve interest rates ranged from 4.0% to 8.75% during 1997. 7 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) CONTRACTHOLDER FUNDS Contractholder funds arise from the issuance of individual or group policies and contracts that include an investment component, including most annuities and universal life policies. Payments received are recorded as interest-bearing liabilities. Contractholder funds are equal to deposits received and interest credited to the benefit of the contractholder less withdrawals, mortality charges and administrative expenses. During 1997, credited interest rates on contractholder funds ranged from 5.0% to 8.75% for those contracts with fixed interest rates and from 4.0% to 14.0% for those contracts with flexible rates. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 3. RELATED PARTY TRANSACTIONS REINSURANCE The Company previously reinsured all of its annuities and approximately one third of its life insurance with ALIC. Effective December 31, 1996, the reinsurance treaty with ALIC was amended to also include a paid up block of life business which was previously retained by the Company. The reinsurance premium related to the transfer was $8,255 on a statutory accounting basis and $5,712 based upon generally accepted accounting principles, creating a dividend-in-kind of $2,543. The premium is equal to the sum of the aggregate policy reserves and policyholder dividend accumulations on this block of business as of December 31, 1996. The policy loans and accrued interest relating to this block of business totaled $554 and were also ceded to ALIC as of December 31, 1996, creating a non-cash financing transaction. Premiums and contract charges ceded to ALIC were $34,834 and $87,061 in 1997, $48,111 and $73,659 in 1996, and $56,008 and $44,655 in 1995. Credited interest, policy benefits and expenses ceded to ALIC amounted to $533,369, $496,735 and $466,508 in 1997, 1996, and 1995. Investment income earned on the assets which support contractholder funds is not included in the Company's consolidated financial statements as those assets are owned and managed by ALIC under the terms of the reinsurance agreements. BUSINESS OPERATIONS The Company utilizes services and business facilities owned or leased, and operated by AIC in conducting its business activities. The Company reimburses AIC for the operating expenses incurred by AIC on behalf of the Company. The cost to the Company is determined by various allocation methods and is primarily related to the level of services provided. Operating expenses, including compensation and retirement and other benefit programs, allocated to the Company were $34,947, $25,094 and $16,083 in 1997, 1996 and 1995, respectively. All of these costs are ceded to ALIC under reinsurance agreements. 8 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) 4. INVESTMENTS FAIR VALUES The amortized cost, gross unrealized gains and losses, and fair value for fixed income securities are as follows:
GROSS UNREALIZED AMORTIZED ---------------------- FAIR AT DECEMBER 31, 1997 COST GAINS (LOSSES) VALUE - ----------------------------------------------------- ----------- --------- ----------- --------- U.S. government and agencies $ 14,598 $ 1,760 $ - $ 16,358 Corporate 71,602 1,839 (297) 73,144 Foreign government 3,040 229 - 3,269 Mortgage-backed securities 52,313 2,845 (18) 55,140 ----------- --------- ----------- --------- Total fixed income securities $ 141,553 $ 6,673 $ (315) $ 147,911 ----------- --------- ----------- --------- ----------- --------- ----------- --------- AT DECEMBER 31, 1996 - ----------------------------------------------------- U.S. government and agencies $ 16,960 $ 780 $ (25) $ 17,715 Corporate 55,778 1,178 (1,274) 55,682 Foreign government 3,048 225 - 3,273 Mortgage-backed securities 59,080 2,493 (605) 60,968 ----------- --------- ----------- --------- Total fixed income securities $ 134,866 $ 4,676 $ (1,904) $ 137,638 ----------- --------- ----------- --------- ----------- --------- ----------- ---------
SCHEDULED MATURITIES The scheduled maturities for fixed income securities at December 31, 1997 are as follows:
AMORTIZED FAIR COST VALUE ----------- --------- Due in one year or less $ 375 $ 375 Due after one year through five years 17,195 17,599 Due after five years through ten years 58,369 59,867 Due after ten years 13,301 14,930 ----------- --------- 89,240 92,771 Mortgage-backed securities 52,313 55,140 ----------- --------- Total $ 141,553 $ 147,911 ----------- --------- ----------- ---------
Actual maturities may differ from those scheduled as a result of prepayments by the issuers. NET INVESTMENT INCOME
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ----------------------------------------------------- --------- --------- --------- Fixed income securities $ 10,723 $ 9,825 $ 8,710 Short-term investments 160 215 177 Other investments 66 31 31 --------- --------- --------- Investment income, before expense 10,949 10,071 8,918 Investment expense 160 120 122 --------- --------- --------- Net investment income $ 10,789 $ 9,951 $ 8,796 --------- --------- --------- --------- --------- ---------
9 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) REALIZED CAPITAL GAINS
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ----------------------------------------------------- --------- --------- --------- Fixed income securities $ 17 $ 6 $ 258 Income tax expense 6 2 90 --------- --------- --------- Realized capital gains and losses, after tax $ 11 $ 4 $ 168 --------- --------- --------- --------- --------- ---------
Gains of $251 were realized on sales of fixed income securities during 1995, excluding calls and prepayments. UNREALIZED NET CAPITAL GAINS Unrealized net capital gains on fixed income securities included in shareholder's equity at December 31, 1997 are as follows:
COST/ UNREALIZED AMORTIZED FAIR NET COST VALUE GAINS ----------- --------- ----------- Fixed income securities $ 141,553 $ 147,911 $ 6,357 ----------- --------- ----------- --------- Deferred income taxes 2,225 ----------- Unrealized net capital gains $ 4,132 ----------- -----------
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES
YEAR ENDED DECEMBER 31, 1997 1996 1995 - ----------------------------------------------------- --------- --------- --------- Fixed income securities $ 3,585 $ (4,918) $ 11,735 Deferred income taxes 1,254 1,721 (4,107) --------- --------- --------- Change in unrealized net capital gains and losses $ 2,331 $ (3,197) $ 7,628 --------- --------- --------- --------- --------- ---------
SECURITIES ON DEPOSIT At December 31, 1997, fixed income securities with a carrying value of $8,581 were on deposit with regulatory authorities as required by law. 5. FINANCIAL INSTRUMENTS In the normal course of business, the Company invests in various financial assets and incurs various financial liabilities. The fair value estimates of financial instruments presented below are not necessarily indicative of the amounts the Company might pay or receive in actual market transactions. Potential taxes and other transaction costs have not been considered in estimating fair value. The disclosures that follow do not reflect the fair value of the Company as a whole since a number of the Company's significant assets (including reinsurance recoverable) and liabilities (including deferred income taxes and reserve for life-contingent contract benefits) are not considered financial instruments and are not carried at fair value. Other assets and liabilities considered financial instruments, such as accrued investment income and cash, are generally of a short-term nature. It is assumed that their carrying value approximates fair value. 10 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) FINANCIAL ASSETS The carrying value and fair value of financial assets at December 31, are as follows:
1997 1996 ---------------------- ---------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----------- --------- ----------- --------- Fixed income securities $ 147,911 $ 147,911 $ 137,638 $ 137,638 Short-term investments 1,020 1,020 1,861 1,861 Separate Accounts 447,658 447,658 255,881 255,881
Fair values for fixed income securities are based on quoted market prices. Non-quoted securities are valued based on discounted cash flows using current interest rates for similar securities. Short-term investments are highly liquid investments with maturities of less than one year whose carrying value approximates fair value. Separate Accounts assets are carried in the consolidated statements of financial position at fair value. FINANCIAL LIABILITIES The carrying value and fair value of financial liabilities at December 31, are as follows:
1997 1996 ------------------------- ------------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE ----------- ----------- ----------- ----------- Contractholder funds on investment contracts $ 5,188,474 $ 4,941,732 $ 5,180,396 $ 4,921,842 Separate Accounts 447,658 447,658 255,881 255,881
The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts. Reserves on investment contracts with no stated maturities (single premium and flexible premium deferred annuities) are valued at the account balance less surrender charges. The fair value of immediate annuities and annuities without life contingencies with fixed terms is estimated using discounted cash flow calculations based on interest rates currently offered for contracts with similar terms and durations. Separate Accounts liabilities are carried at the fair value of the underlying assets. 6. INCOME TAXES The Company joins the Corporation and its other eligible domestic subsidiaries in the filing of a consolidated federal income tax return (the "Allstate Group") and is party to a federal income tax allocation agreement (the "Tax Sharing Agreement"). Under the Tax Sharing Agreement, the Company paid to or received from the Corporation the amount, if any, by which the Allstate Group's federal income tax liability was affected by virtue of inclusion of the Company in the consolidated federal income tax return. Effectively, this results in the Company's annual income tax provision being computed, with adjustments, as if the Company filed a separate return. Prior to the Distribution, the Corporation and all of its eligible domestic subsidiaries, including the Company, joined with Sears and its domestic business units (the "Sears Group") in the filing of a consolidated federal income tax return (the "Sears Tax Group") and were parties to a federal income tax allocation agreement (the "Sears Tax Sharing Agreement"). Under the Sears Tax Sharing Agreement, the Company, through the Corporation, paid to or received from the Sears Group the amount, if any, by which the Sears Tax Group's federal income tax liability was affected by virtue of inclusion of the Company in the consolidated federal income tax return. Effectively, this resulted in the Company's annual income tax provision being computed as if the Allstate Group filed a separate consolidated return, except that items such as net operating losses, capital losses or similar items, which might not be recognized in a separate return, were allocated according to the Sears Tax Sharing Agreement. The Allstate Group and Sears Group have entered into an agreement which governs their respective rights and obligations with respect to federal income taxes for all periods prior to the Distribution ("Consolidated Tax Years"). The agreement 11 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) provides that all Consolidated Tax Years will continue to be governed by the Tax Sharing Agreement with respect to the Allstate Group's federal income tax liability. The components of the deferred income tax assets and liabilities at December 31, are as follow:
1997 1996 --------- --------- DEFERRED ASSETS Separate accounts $ 393 $ - DEFERRED LIABILITIES Difference in tax bases of investments (2,265) (2,510) Unrealized net capital gains (2,225) (970) Other (52) - --------- --------- Total deferred tax liabilities (4,542) (3,480) --------- --------- Net deferred tax liability $ (4,149) $ (3,480) --------- --------- --------- ---------
The components of the income tax expense for the year ended at December 31, are as follow:
1997 1996 1995 --------- --------- --------- Current $ 4,321 $ 3,082 $ 2,901 Deferred (586) (62) (156) --------- --------- --------- Total income tax expense $ 3,735 $ 3,020 $ 2,745 --------- --------- --------- --------- --------- ---------
The Company paid income taxes of $4,116, $2,864 and $3,125 in 1997, 1996 and 1995, respectively, to ALIC. Prior to January 1, 1984, the Company was entitled to exclude certain amounts from taxable income and accumulate such amounts in a "policyholder surplus" account. The balance in this account at December 31, 1997, approximately $340 will result in federal income taxes payable of $119 if distributed by the Company to ALIC. No provision for taxes has been made as the Company has no plan to distribute amounts from this account. No further additions to the account have been permitted since the Tax Reform Act of 1984. 12 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) 7. STATUTORY FINANCIAL INFORMATION The following tables reconcile net income for the year ended December 31, and shareholder's equity at December 31, as reported herein in conformity with generally accepted accounting principles with statutory net income and capital and surplus, determined in accordance with statutory accounting practices prescribed or permitted by insurance regulatory authorities.
NET INCOME ------------------------------- 1997 1996 1995 --------- --------- --------- Balance per generally accepted accounting principles $ 6,852 $ 5,583 $ 5,093 Deferred income taxes (586) (62) (156) Statutory investment reserves 36 38 446 Other 363 2 638 --------- --------- --------- Balance per statutory accounting practices $ 6,665 $ 5,561 $ 6,021 --------- --------- --------- --------- --------- ---------
SHAREHOLDER'S EQUITY -------------------- 1997 1996 --------- --------- Balance per generally accepted accounting principles $ 151,334 $ 142,161 Deferred income taxes 4,149 3,480 Unrealized gain/loss on fixed income securities (4,132) (1,801) Non-admitted assets and statutory investment reserves (15,994) (14,838) Other 3,304 4,034 --------- --------- Balance per statutory accounting practices $ 138,661 $ 133,036 --------- --------- --------- ---------
PERMITTED STATUTORY ACCOUNTING PRACTICES The Company prepares its statutory financial statements in accordance with accounting principles and practices prescribed or permitted by the Nebraska Department of Insurance. Prescribed statutory accounting practices include a variety of publications of the National Association of Insurance Commissioners, ("NAIC"), as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. The Company does not follow any permitted statutory accounting practices that have a material effect on statutory surplus or risk-based capital. The NAIC has approved revised statutory accounting principles, as a result of the codification project to be effective January 1, 1999. Dates for adoption and implementation, however, will be determined on an individual state basis. The requirements are not expected to have a material impact on the statutory surplus of the Company. DIVIDENDS The ability of the Company to pay dividends is dependent on business conditions, income, cash requirements of the Company and other relevant factors. The payment of shareholder dividends by insurance companies without the prior approval of the state insurance regulator is limited to formula amounts based on net income and capital and surplus, determined in accordance with statutory accounting practices, as well as the timing and amount of dividends paid in the preceding twelve months. The maximum amount of dividends that the Company can distribute during 1998 without prior approval of the Nebraska Department of Insurance is $6,665. 13 LINCOLN BENEFIT LIFE COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ($ IN THOUSANDS) 8. LEASE COMMITMENTS The Company leases certain office facilities. Total rent expense for all leases was $1,274, $1,039 and $741 in 1997, 1996, and 1995, respectively. Minimum rental commitments under non-cancelable operating leases with a remaining term of more than one year as of December 31, are as follows: 1998 $ 1,370 1999 1,170 2000 1,095 2001 1,080 2002 542 Thereafter - --------- $ 5,257 --------- ---------
Included in the table above is $982 for commitments beyond 1998 which relate to a certain lease for office space. The Company has the option to cancel the agreement for office space subject to a cancellation charge of an amount equal to one year's rent. 14 LINCOLN BENEFIT LIFE COMPANY SUPPLEMENTAL SCHEDULE - REINSURANCE ($ IN THOUSANDS)
GROSS YEAR ENDED DECEMBER 31, 1997 AMOUNT CEDED NET AMOUNT - ----------------------------------------------------- ---------- ---------- ------------- Life insurance in force $72,754,000 $72,754,000 $ - ---------- ---------- ------------- ---------- ---------- ------------- Premiums and contract charges: Life and annuities $ 299,838 $ 299,838 $ - ---------- ---------- ------------- ---------- ---------- ------------- GROSS YEAR ENDED DECEMBER 31, 1996 AMOUNT CEDED NET AMOUNT - ----------------------------------------------------- ---------- ---------- ------------- Life insurance in force $51,514,000 $51,514,000 $ - ---------- ---------- ------------- ---------- ---------- ------------- Premiums and contract charges: Life and annuities $ 200,853 $ 200,853 $ - ---------- ---------- ------------- ---------- ---------- ------------- GROSS YEAR ENDED DECEMBER 31, 1995 AMOUNT CEDED NET AMOUNT - ----------------------------------------------------- ---------- ---------- ------------- Life insurance in force $28,215,000 $28,200,000 $ 15,000 ---------- ---------- ------------- ---------- ---------- ------------- Premiums and contract charges: Life and annuities $ 128,975 $ 128,975 $ - ---------- ---------- ------------- ---------- ---------- -------------
15 APPENDIX A PORTFOLIOS AND PERFORMANCE DATA PERFORMANCE DATA From time to time the Separate Account may advertise the Fidelity Money Market Subaccount's "yield" and "effective yield." Both yield figures are based on historical earnings and are not intended to indicate future performance. The "yield" of the Fidelity Money Market Subaccount refers to the net income earned by the Subaccount over the seven-day period stated in the advertisement. This income is then "annualized." That is, the amount of income earned during that week is assumed to be generated each week over a 52-week period and is shown as a percentage of the investment. The "effective yield" is calculated similarly but, when annualized, the income earned by the investment is assumed to be reinvested at the end of each seven-day period. The "effective yield" will be slightly higher than the "yield" because of the compounding effect of this assumed reinvestment. Neither the yield nor the effective yield takes into consideration the effect of any capital gains or losses that might have occurred during the seven day period, nor do they reflect the impact of any premium tax charge. The impact of other, recurring charges on both yield figures is, however, reflected in them to the same extent it would affect the yield (or effective yield) for a Contract of average size. In addition, the Separate Account may advertise an annualized 30-day (or one month) yield figure for Subaccounts other than the Fidelity Money Market Subaccount. These yield figures are based upon the actual performance of the Subaccount over a 30-day (or one month) period ending on a date specified in the advertisement. Like the money market yield data described above, the 30-day (or one month) yield data will reflect the effect of all recurring Contract charges, but will not reflect any premium tax charge. The yield figure is derived from net investment gain (or loss) over the period expressed as a fraction of the investment's value at the end of the period. The Separate Account may also advertise standardized and non-standardized "total return" data for its Subaccounts. Like the yield figures described above, total return figures are based on historical data and are not intended to indicate future performance. The standardized "total return" compares the value of a hypothetical investment made at the beginning of the period to the value of the same hypothetical investment at the end of the period. Recurring Contract charges are reflected in the standardized total return figures in the same manner as they are reflected in the yield data for Contracts funded through the Money Market Subaccount. In addition to the standardized "total return," the Separate Account may advertise non-standardized "total return." Non-standardized total return is calculated in a similar manner and for the same time periods as the standardized total return. We assumed, however, an initial hypothetical investment of $75,000, because $75,000 is closer to the average Purchase Payment of a Contract which we expect to write. Standardized total return, on the other hand, assumes an initial hypothetical investment of $1,000. In addition, non-standardized total return does not reflect the effect of the contract maintenance charge, because we waive that charge on Contracts on which the Purchase Payments exceed $50,000. As a result, the return on a Contract that is subject to the contract maintenance charge will be less than the non-standardized total return calculated as described above. The Separate Account may also disclose yield and non-standardized total return for time periods before the date the Separate Account commenced operations. In this case, performance data for the Subaccounts is calculated based on the performance of the Portfolios and assumes that the Subaccounts existed during the same time period as those of the Portfolios, with recurring Contract charges equal to those currently assessed against the Subaccounts. Our advertisements may also compare the performance of our Subaccounts with: (a) certain unmanaged market indices, including but the Dow Jones Industrial Average, the Standard & Poor's 500, and the Shearson Lehman Bond Index; and/or (b) other management investment companies with investment objectives similar to the underlying funds being compared. Our advertisements also may include the performance ranking assigned by various publications, including the Wall Street Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today, and statistical services, including Lipper Analytical Services Mutual Fund Survey, Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey, and SEI. The Contract charges are described in more detail on pages 27-31. We have described the computation of advertised performance data for the Separate Account in more detail on page [x] of the Statement of Additional Information. A-1 APPENDIX B ILLUSTRATION OF A MARKET VALUE ADJUSTMENT Purchase Payment: $40,000.00 Guarantee Period: 5 Years Guaranteed Interest Rate: 5% Annual Effective Rate 5-year Treasury Rate at Time of Purchase Payment: 6.0%
The following examples illustrate how the Market Value Adjustment may affect the values of a Contract upon a withdrawal. The 5% assumed Guaranteed Interest Rate is the rate required to be used in the "Summary of Expenses." In these examples, the withdrawal occurs one year after the Issue Date. The Market Value Adjustment operates in a similar manner for transfers. Assuming that the entire $40,000.00 Purchase Payment is allocated to the Guaranteed Maturity Fixed Account for the Guarantee Period specified above, at the end of the five-year Guarantee Period the Contract Value would be $51,051.26. After one year, when the withdrawals occur in these examples, the Contract Value would be $42,000.00. We have assumed that no prior partial withdrawals or transfers have occurred. The formula that we use to determine the amount of the Market Value Adjustment is: .9 X (I-J) X N, where: I = the Treasury Rate for a maturity equal to the relevant Guarantee Period for the week preceding the beginning of the Guarantee Period; J = the Treasury Rate for a maturity equal to the relevant Guarantee Period for the week preceding our receipt of your withdrawal request, death benefit request, transfer request, or annuity option request; and N = the number of whole and partial years from the date we receive your request until the end of the relevant Guarantee Period.
We will base the Market Value Adjustment on the then current Treasury Rate for a maturity corresponding in length to the relevant Guarantee Period. EXAMPLE OF A DOWNWARD MARKET VALUE ADJUSTMENT A downward Market Value Adjustment results from a full or partial withdrawal that occurs when interest rates have increased. Assume interest rates have increased one year after the Purchase Payment, such that the five-year Treasury Rate is now 6.5%. Upon a withdrawal, the market value adjustment factor would be: .9 X (.06 - .065) X 4 = -.0180 The Market Value Adjustment is a reduction of $756.00 from the amount withdrawn: $756.00 = -.0180 X $42,000.00 As a result, the net amount payable to you would be: $41,244.00 = $42,000.00 - $756.00 EXAMPLE OF AN UPWARD MARKET VALUE ADJUSTMENT An upward Market Value Adjustment results from a withdrawal that occurs when interest rates have decreased. Assume interest rates have decreased one year after the Purchase Payment, such that the five-year Treasury Rate is now 5.5%. Upon a withdrawal, the market value adjustment factor would be: .9 X (.06 - .055) X 4 = .0180(1) The Market Value Adjustment would increase the amount withdrawn by $756.00, as follows: $756.00 = .0180 X $42,000.00 As a result, the net amount payable to you would be: $42,756.00 = $42,000.00 + $756.00 - ------------------------ (1)Actual calculation utilizes [ten] decimal places. B-1 EXAMPLE OF A PARTIAL WITHDRAWAL If you request a partial withdrawal from a Guarantee Period, we can either (1) withdraw the specified amount of Contract Value and pay you that amount as adjusted by any applicable Market Value Adjustment or (2) pay you the amount requested, and subtract an amount from your Contract Value that equals the requested amount after application of the Market Value Adjustment. Unless you instruct us otherwise, when you request a partial withdrawal we will assume that you wish to receive the amount requested. We will make the necessary calculations and on your request provide you with a statement showing our calculations. For example, if in the first example above you wished to receive $20,000 as a partial withdrawal, we would perform the following calculations: Let A = the amount to be withdrawn from your Contract Value; and B = the amount of the applicable Market Value Adjustment Then A + B = $20,000, -.0180 X A = B, and A = $20,000 / (1 -.0180) = $20,366.60
Accordingly, we would pay you $20,000 and subtract $20,366.60 from your Contract Value. The Market Value Adjustment would be a subtraction of $366.60. If, however, in the same example, you wished to withdraw $20,000 from your Contract Value and receive the adjusted amount, we would perform the following calculations: Let A = the amount to be paid to you; and B = the amount of the applicable Market Value Adjustment Then $20,000 + B = A, -.0180 X $20,000 = -$360.00 = B, and A = $20,000 - $360.00 = $19,640.00
Accordingly, we would pay you $19,640.00 and subtract $20,000.00 from your Contract Value. The Market Value Adjustment would be a subtraction of $360.00 B-2 STATEMENT OF ADDITIONAL INFORMATION FLEXIBLE PREMIUM INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT DEPOSITOR: LINCOLN BENEFIT LIFE COMPANY This Statement of Additional Information is not a prospectus. You should also read the prospectus relating to the annuity contracts described above. You may obtain a copy of the prospectus without charge by calling us at 1-800-865-5237 or writing to us at the following address: Lincoln Benefit Life Company P.O. Box 82532 Lincoln, Nebraska 68501-2532 The date of this Statement of Additional Information and of the related Prospectus is: April [ ], 1998. TABLE OF CONTENTS
PAGE ----- THE CONTRACT...................................... S-2 ANNUITY PAYMENTS.............................. S-2 ANNUITY UNIT VALUE............................ S-3 ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENTS..................................... S-4 ADDITIONAL FEDERAL INCOME TAX INFORMATION......... S-4 DIVERSIFICATION -- SEPARATE ACCOUNT INVESTMENTS.................................. S-4 OWNER CONTROL................................. S-5 MULTIPLE CONTRACTS............................ S-5 QUALIFIED PLANS............................... S-5 SEPARATE ACCOUNT PERFORMANCE...................... S-7 EXPERTS........................................... S-15 FINANCIAL STATEMENTS.............................. S-15
S-1 THE CONTRACT ANNUITY PAYMENTS The amount of your annuity payments will depend on the following factors: (a) the amount of your Contract Value on the Valuation Date next preceding the Annuity Date, minus any applicable premium tax charge and adjusted by any applicable Market Value Adjustment; (b) the Payment Option you have selected; (c) the payment frequency you have selected; (d) the age and, in some cases, the sex of the Annuitant and any Joint Annuitant; and (e) for Variable Annuity Payments only, the investment performance after the Annuity Date of the Subaccounts you have selected. INITIAL MONTHLY ANNUITY PAYMENT For both Fixed and Variable Annuity payments, we determine the amount of your initial annuity payment as follows. First, we subtract any applicable premium tax charge from your Contract Value on the Valuation Date next preceding the Annuity Date. We will also increase or decrease your Fixed Account balance by any applicable Market Value Adjustment. Next, we apply that amount to the Payment Option you have selected. For Fixed Annuity payments, we will use either the Payment Option Tables in the Contract or our annuity tables in effect for single premium immediate annuities at the time of the calculation, whichever table is more favorable to the payee. For Variable Annuity payments, we will use the Payment Option tables in the Contract (which reflect the assumed investment rate of 3.5% which is used in calculating subsequent Variable Annuity payments, as described below). The tables show the amount of the periodic payment a payee could receive based on $1,000 of Contract Value. To determine the initial payment amount, we divide your Contract Value, adjusted as described above, by $1,000 and multiply the result by the relevant annuity factor for the Annuitant's age and sex (if we are permitted to consider that factor) and the frequency of the payments you have selected. In some states and under certain Qualified Plans and other employer-sponsored employee benefit plans, we are not permitted to take the Annuitant's sex into consideration in determining the amount of periodic annuity payments. In those states, we use the same annuity table for men and women. SUBSEQUENT MONTHLY PAYMENTS For a Fixed Annuity, the amount of the second and each subsequent monthly annuity payment is usually the same as the first monthly payment. However, after the Annuity Date you will have a limited ability to increase your Fixed Annuity payments by making transfers from the Subaccounts, as described in "Transferred after the Annuity Date" on page S-3 below. After each such transfer, however, your subsequent annuity payments will remain at the new level until and unless you make an additional transfer to your Fixed Annuity payments. For a Variable Annuity, the amount of the second and each subsequent monthly payment will vary depending on the investment performance of the Subaccounts to which you allocated your Contract Value. We calculate separately the portion of the monthly annuity payment attributable to each Subaccount you have selected as follows. When we calculate your initial annuity payment, we also will determine the number of Annuity Units in each Subaccount to allocate to your Contract for the remainder of the Annuity Period. For each Subaccount, we divide the portion of the initial annuity payment attributable to that Subaccount by the Annuity Unit Value for that Subaccount on the Valuation Date next preceding the Annuity Date. The number of Annuity Units so determined for your Contract is fixed for the duration of the Annuity Period. We will determine the amount of each subsequent monthly payment attributable to each Subaccount by multiplying the number of Annuity Units allocated to your Contract by the Annuity Unit Value for that Subaccount as of the Valuation Period next preceding the date on which the annuity payment is due. Since the number of Annuity Units is fixed, the amount of each subsequent Variable Annuity payment will reflect the investment performance of the Subaccounts elected by you. TRANSFERS AFTER THE ANNUITY DATE The Contract provides that during the Annuity Period, you may make transfers among the Subaccounts or increase the proportion of your annuity payments consisting of Fixed Annuity payments. We will effect a transfer among the Subaccounts at their Annuity Unit Value next determined after we receive your instructions. After the transfer, your subsequent Variable Annuity payments will be based on your new Annuity Unit balances. If you wish to transfer value from the Subaccounts to increase your Fixed Annuity payments, we will determine the amount of your additional Fixed Annuity payments as follows. S-2 First, we will determine the Annuitized Value represented by the Annuity Units that you wish to apply to a Fixed Annuity payment. Then, we will apply that amount to the appropriate factor for the Payment Option you have selected, using either the Payment Option Tables in the Contract or our annuity tables for single premium immediate annuities at the time of the calculation, whichever table is more favorable to the payee. ANNUITY UNIT VALUE We determine the value of an Annuity Unit independently for each Subaccount. Initially, the Annuity Unit Value for each Subaccount was set at $100.00. The Annuity Unit Value for each Subaccount will vary depending on how much the actual net investment return of the Subaccount differs from the assumed investment rate that was used to prepare the annuity tables in the Contract. Those annuity tables are based on a 3.5% per year assumed investment rate. If the actual net investment rate of a Subaccount exceeds 3.5%, the Annuity Unit Value will increase and Variable Annuity payments derived from allocations to that Subaccount will increase over time. Conversely, if the actual rate is less than 3.5%, the Annuity Unit Value will decrease and the Variable Annuity payments will decrease over time. If the net investment rate equals 3.5%, the Annuity Unit Value will stay the same, as will the Variable Annuity payments. If we had used a higher assumed investment rate, the initial monthly payment would be higher, but the actual net investment rate would also have to be higher in order for annuity payments to increase (or not to decrease). For each Subaccount, we determine the Annuity Unit Value for any Valuation Period by multiplying the Annuity Unit Value for the immediately preceding Valuation Period by the Net Investment Factor for the current Valuation Period. The result is then divided by a second factor which offsets the effect of the assumed net investment rate of 3.5% per year. The Net Investment Factor measures the net investment performance of a Subaccount from one Valuation Date to the next. The Net Investment Factor may be greater or less than or equal to one; therefore, the value of an Annuity Unit may increase, decrease or remain the same. To determine the Net Investment Factor for a Subaccount for a Valuation Period, we divide (a) by (b), and then subtract (c) from the result, where: (a) is the total of: (1) the net asset value of a Portfolio share held in the Subaccount determined as of the Valuation Date at the end of the Valuation Period; plus (2) the per share amount of any dividend or other distribution declared by the Portfolio for which the "ex-dividend" date occurs during the Valuation Period; plus or minus (3) a per share credit or charge for any taxes which we paid or for which we reserved during the Valuation Period and which we determine to be attributable to the operation of the Subaccount. As described in the prospectus, currently we do not pay or reserve for federal income taxes; (b) is the net asset value of the Portfolio share determined as of the Valuation Date at the end of the preceding Valuation Period; and (c) is the mortality and expense risk charge and the administrative expense risk charge. ILLUSTRATIVE EXAMPLE OF ANNUITY UNIT VALUE CALCULATION Assume that one share of a given Subaccount's underlying Portfolio had a net asset value of $11.46 as of the close of the New York Stock Exchange ("NYSE") on a Tuesday; that its net asset value had been $11.44 at the close of the NYSE on Monday, the day before; and that no dividends or other distributions on that share had been made during the intervening Valuation Period. The Net Investment Factor for the Valuation Period ending on Tuesday's close of the NYSE is calculated as follows: Net Investment Factor = ($11.46/$11.44) - 0.0000384 = 1.0017099 The amount subtracted from the ratio of the two net asset values (0.0000384) is the daily equivalent of the annual asset-based expense charges against the Subaccount of 1.40%. In the example given above, if the Annuity Unit value for the Subaccount was $101.03523 on Monday, the Annuity Unit Value on Tuesday would have been: $101.03523 X 1.0017099 - -------------------- = $101.19832 1.0000943
S-3 ILLUSTRATIVE EXAMPLE OF VARIABLE ANNUITY PAYMENTS Assume that a male Contract owner, P, owns a Contract in connection with which P has allocated all of his Contract Value to a single Subaccount. P is also the sole Annuitant. At age 60, P chooses to annuitize his Contract under Option B, Life and 10 Years Certain. As of the last Valuation Date preceding the Annuity Date, P's Account was credited with 7543.2456 Accumulation Units each having a value of $15.432655. Accordingly, P's Account Value at that Date is equal to 7543.2456 x $15.432655 = $116,412.31. There are no premium tax charges payable upon annuitization. Assume also that the Annuity Unit Value for the Subaccount at that same Date is $132.56932, and that the Annuity Unit Value on the Valuation Date immediately prior to the second annuity payment date is $133.27695. P's first Variable Annuity payment is determined from the annuity rate tables in P's Contract, using the information assumed above. The tables supply monthly annuity payments for each $1,000 of applied Contract Value. Accordingly, P's first Variable Annuity payment is determined by multiplying the monthly installment of $5.44 by the result of dividing P's Account Value by $1,000: First Payment = $5.44 X ($116,412.31/$1,000) = $633.28 The number of P's Annuity Units is also determined at this time. It is equal to the amount of the first Variable Annuity payment divided by the value of an Annuity Unit at the Valuation Date immediately prior to annuitization: Annuity Units = $633.28 DIVIDED BY $132.56932 = 4.77697 P's second Variable Annuity payment is determined by multiplying the number of Annuity Units by the Annuity Unit value as of the Valuation Date immediately prior to the second payment due date: Second Payment = 4.77697 X $133.27695 = $636.66 P's third and subsequent Variable Annuity payments are computed in the same manner. The amount of the first Variable Annuity payment depends on the Contract Value in the relevant Subaccount on the Annuity Date. Thus, it reflects the investment performance of the Subaccount net of fees and charges during the Accumulation Period. The amount of the first Variable Annuity payment determines the number of Annuity Units allocated to P's Contract for the Annuity Period. That number will remain constant throughout the Annuity Period, unless the Contract owner makes a transfer. The amount of the second and subsequent Variable Annuity payments depends on changes in the Annuity Unit Value, which will continuously reflect changes in the net investment performance of the Subaccount during the Annuity Period. ADDITIONAL FEDERAL INCOME TAX INFORMATION DIVERSIFICATION--SEPARATE ACCOUNT INVESTMENTS Section 817(h) of the Tax Code requires that the underlying assets of variable annuity contracts be diversified. The Tax Code provides that a variable annuity contract will not be treated as an annuity contract for federal income tax purposes for any period and any subsequent period for which the investments are not adequately diversified. If the Contract were disqualified for this reason, you would lose the tax deferral advantages of the Contract and would be subject to current federal income taxes on all earnings allocable to the Contract. The Tax Code provides that annuity contracts such as the Contracts meet the diversification requirements if, as of the close of each quarter, the underlying assets meet the diversification standards for a regulated investment company, and no more than 55% of the total assets consist of cash, cash items, U.S. Government securities and securities of other regulated investment companies. For purposes of determining whether or not the diversification standards of Section 817(h) of the Tax Code have been met, each United States government agency or instrumentality is treated as a separate issuer. The United States Treasury Department (the "Treasury Department") also has issued regulations that establish diversification requirements for the investment accounts underlying variable contracts such as the Contracts. These regulations amplify the diversification requirements set forth in the Tax Code and provide an alternative to the provision described above. Under these regulations, an investment account will be deemed adequately diversified if: (1) no more than 55% of the value of the total assets of the account is represented by any one investment; (2) no more than 70% of the value of the total assets of the account is represented by any two investments; (3) no more than 80% of the value of the total assets of the account is represented by any three investments; and (4) no more than 90% of the value of the total assets of the account is represented by any four investments. S-4 These diversification standards are applied to each Subaccount of the Separate Account by applying them to the investments of the Portfolio underlying the Subaccount. One of our criteria in selecting the Portfolios is that their investment managers intend to manage them in compliance with these diversification requirements. OWNER CONTROL In certain circumstances, variable annuity contract owners will be considered the owners, for tax purposes, of Separate Account assets underlying their contracts. In those circumstances, the contract owners could be subject to taxation on the income and gains from the Separate Account assets. In published rulings, the Internal Revenue Service has stated that a variable annuity contract owner will be considered the owner of separate account assets, if the owner possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. When the diversification regulations were issued, the Treasury Department announced that in the future it would provide guidance on the extent to which variable contract owners could direct their investments among subaccounts without being treated as owners of the underlying assets of the Separate Account. As of the date of this prospectus, no such guidance has been issued. The ownership rights under the Contract are similar in many respects to those described in IRS rulings in which the contract owners were not deemed to own the separate account assets. In some respects, however, they differ. For example, under the Contract you have many more investment options to choose from than were available under the contracts involved in the published rulings, and you may be able to transfer Contract Value among the investment options more frequently than in the published rulings. Because of these differences, it is possible that you could be treated as the owner, for tax purposes, of the Portfolio shares underlying your Contract and therefore subject to taxation on the income and gains on those shares. Moreover, it is possible that the Treasury's position, when announced, may adversely affect the tax treatment of existing contracts. We therefore reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the owner for tax purposes of the underlying assets. MULTIPLE CONTRACTS Under Federal tax law, if you purchase more than one annuity contract within a calendar year from us or our affiliates, those contracts are treated as one annuity contract for purposes of determining the tax consequences of any distribution. As a result, you might pay more in taxes than you would if you had purchased each contract in a different calendar year. You should consult your tax adviser before purchasing more than one annuity contract in any calendar year. QUALIFIED PLANS We intend the Contracts offered by the prospectus to be suitable for use under various types of Qualified Plans. If you acquired your Contract under a Qualified Plan, your taxation will depend upon the specific type of plan and the specific terms and conditions of the plan. In addition, benefits under a Qualified Plan will depend on the specific terms and conditions of the Plan. If the terms and conditions of your Contract differ from the terms and conditions of the Plan under which your Contract was issued, the provisions of the Plan are controlling. When we issue Contracts pursuant to Qualified Plans, we include special Contract provisions that may differ from some of the Contract provisions that may otherwise be available and are described in this prospectus. For example, Contracts issued pursuant to Qualified Plans generally are not transferable except upon surrender or annuitization. You may also be required to pay penalty tax or excise tax on contributions or distributions that violate applicable limitations. Furthermore, certain withdrawal penalties and restrictions may apply to surrenders from Contracts issued under Qualified Plans. Following are general descriptions of the types of Qualified Plans with which the Contracts may be used. These descriptions may not include all of the information you would like to know about a particular type of Qualified Plan. Moreover, we do not intend to provide you with advice about the advantages or disadvantages of particular types of Plans or whether you should purchase a Contract offered under a particular type of Qualified Plan. For more detailed information or advice, you should consult the plan documents and/or a qualified adviser. The tax rules regarding Qualified Plans are very complex and will have differing applications depending on your individual circumstances. Anyone considering establishing a Qualified Plan or purchasing a Contract issued under a Qualified Plan should obtain advice as to the tax treatment and suitability of the Plan or an investment under the Plan. (a) H.R. 10 PLANS Section 401 of the Tax Code permits self-employed individuals to establish Qualified Plans for themselves and their employees. This type of plan is commonly referred to as an "H.R. 10" or "Keogh" Plan. Contributions made to the Plan for the benefit of the employees will not be included in the employees' gross income until distributed from the Plan. The S-5 tax consequences to employers will depend upon the particular Plan design. However, the Tax Code contains requirements and limits for items such as: amounts of allowable contributions; form, manner and timing of distributions; vesting and nonforfeitability of interests; nondiscrimination in eligibility and participation; and the tax treatment of distributions, withdrawals and surrenders. (b) TAX-SHELTERED ANNUITIES Section 403(b) of the Tax Code permits the purchase of "Tax-Sheltered Annuities" by public schools and certain charitable, educational and scientific organizations described in Section 501(c)(3) of the Tax Code. These qualifying employers may make contributions to the Contracts for the benefit of their employees. Contributions made to the Plan for the benefit of the employees will not be included in the employees' gross income until distributed from the Plan. The amount of employer contributions may not exceed certain limits imposed by the Tax Code. Furthermore, the Tax Code sets forth additional restrictions governing such items as transferability, distributions, nondiscrimination and withdrawals. (c) INDIVIDUAL RETIREMENT ANNUITIES Section 408(b) of the Tax Code permits eligible individuals to contribute to an individual retirement program known as an "Individual Retirement Annuity" ("IRA"). Contributions to an IRA are deductible from the individual's gross income. The annual contribution may not exceed a specified amount. IRAs are subject to limitations and requirements as to eligibility, contributions, transferability and distributions. In addition, the Tax Code requires that certain informational disclosure be given to persons who wish to establish an IRA. (d) SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS) Sections 408(p) and 401(k) of the Tax Code allow employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees. SIMPLE plans may be structured as a SIMPLE retirement account using an employee's IRA to hold the assets or as a Section 401(k) qualified cash or deferred arrangement. In general, a SIMPLE plan consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. (e) SIMPLIFIED EMPLOYEE PENSION PLANS Section 408(k) of the Tax Code allows employers to establish simplified employee pension plans for their employees using the employees' IRAs. Under these plans the employer may, within specified limits, make deductible contributions on behalf of the employees to their IRAs. Employers should consider that an IRA generally may not provide life insurance, but it may provide a death benefit that equals the greater of the premiums paid and the contract's cash value. The Contract provides a death benefit that in certain circumstances may exceed the greater of the premium payments and the Contract Value. It is possible that the Death Benefit could be viewed as violating the prohibition on investment in life insurance contracts with the result that the Contract would not be viewed as satisfying the requirements of an IRA. (f) CORPORATE PENSION AND PROFIT-SHARING PLANS Sections 401(a) and 401(k) of the Tax Code permit corporate employers to establish various types of retirement plans for employees. These retirement plans may permit the purchase of the Contracts to provide benefits under the plan. Contributions to the plan for the benefit of employees are not included in the gross income of the employee until distributed from the plan. The tax consequences to employers will depend upon the particular plan design. However, the Tax Code places limitations on all plans on items such as amount of allowable contributions; form, manner and timing of distributions; vesting and nonforfeitability of interests; nondiscrimination in eligibility and participation; and the tax treatment of distributions, withdrawals and surrenders. (g) DEFERRED COMPENSATION PLANS--SECTION 457 Section 457 of the Tax Code provides that governmental and certain other tax exempt employers may establish deferred compensation plans for the benefit of their employees and that these plans may invest in annuity contracts. While Section 457 plans generally are not considered "Qualified Plans", as that term usually is used, the tax benefits are similar. Under these plans, contributions made for the benefit of the employees are not included in the employees' gross income until distributed from the plan. However, all the deferred compensation remains solely the property of the employer, subject only to the claims of the employer's general creditors, until it is distributed to an employee or a beneficiary, until December 31, 1998, or such earlier date as may be established by plan amendment. However, amounts deferred under a Section 457 plan created on or after August 20, 1996 and amounts deferred under any Section 457 plan after S-6 December 31, 1998 must be held in trust, custodial account or annuity contract for the exclusive benefit of plan participants and their beneficiaries. The Tax Code establishes limitations and restrictions on eligibility, contributions, and distributions. (h) ROTH INDIVIDUAL RETIREMENT ANNUITIES--SECTION 408A Section 408A of the Tax Code permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Section 408A includes limits on how much you may contribute to a Roth Individual Retirement Annuity and when distributions may commence. Qualified distributions from Roth Individual Retirement Annuities are excluded from taxable gross income. "Qualified distributions" are distributions which (a) are made more than five years after the taxable year of the first contribution to the Roth Individual Retirement Annuity, and (b) meet any of the following conditions: (1) the annuity owner has reached age 59 1/2; (2) the distribution is paid to a beneficiary after the owner's death; (3) the annuity owner is disabled; or (4) the distribution will be used for a first time home purchase. (Qualified distributions for first time home purchases may not exceed $10,000.) Nonqualified distributions are includible in taxable gross income only to the extent that they exceed the contributions made to the Roth Individual Retirement Annuity. The taxable portion of a nonqualified distribution may be subject to the 10% penalty tax. Subject to certain limitations, you may convert a traditional Individual Retirement Account or Annuity to a Roth Individual Retirement Annuity. You will be required to include the taxable portion of the conversion in your taxable gross income, but you will not be required to pay the 10% penalty tax. SEPARATE ACCOUNT PERFORMANCE Performance data for the various Subaccounts are computed in the manner described below. FIDELITY MONEY MARKET SUBACCOUNT The current yield is the annual yield on the Fidelity Money Market Subaccount assuming no reinvestment of dividends and excluding all realized or unrealized capital gains. We compute current yield by first determining the Base Period Return on a hypothetical Contract having a balance of one Accumulation Unit at the beginning of a 7 day period using the formula: Base Period Return = (EV-SV)/(SV) where: SV = value of one Accumulation Unit at the start of a 7 day period EV = value of one Accumulation Unit at the end of the 7 day period We determine the value of the Accumulation Unit at the end of the period (EV) by: (1) adding, to the value of the Unit at the beginning of the period (SV), the investment income from the underlying Variable Insurance Products Fund Money Market Portfolio attributed to the Unit over the period; and (2) subtracting, from the result, the sum of: (a) the portion of the annual Mortality and Expense Risk and Administrative Expense Charges allocable to the 7 day period (obtained by multiplying the annually-based charges by the fraction 7/365); and (b) a prorated portion of the annual contract maintenance charge of $35 per Contract. The contract maintenance charge is allocated among the Subaccounts in proportion to the total Contract Values similarly allocated. The charge is further reduced, for purposes of the yield computation, by multiplying it by the ratio that the value of the hypothetical Contract bears to the value of an account of average size for Contracts funded by the Fidelity Money Market Subaccount. The Charge is then multiplied by the fraction 7/365 to arrive at the portion attributable to the 7 day period. The current yield is then obtained by annualizing the Base Period Return: Current Yield = (Base Period Return) X (365/7) The Fidelity Money Market Subaccount also quotes an "effective yield". Effective yield differs from current yield in that effective yield takes into account the effect of dividend reinvestment. The effective yield, like the current yield, is derived from S-7 the Base Period Return over a 7 day period. However, the effective yield accounts for the reinvestment of dividends in the Variable Insurance Products Fund Money Market Portfolio by compounding the current yield according to the formula: (365/7) Effective Yield = [(Base Period Return + 1) -1]. Net investment income for yield quotation purposes will not include either realized capital gains and losses or unrealized appreciation and depreciation, whether reinvested or not. The yield quotations also do not reflect any impact of premium tax charges or transfer fees. The yields quoted do not represent the yield of the Fidelity Money Market Subaccount in the future, because the yield is not fixed. Actual yields will differ depending on the type, quality and maturities of the investments held by the Variable Insurance Products Fund Money Market Portfolio and changes in interest rates on those investments. In addition, your yield also will be affected by factors specific to your Contract. For example, if your account is smaller than average, your yield will be lower, because the fixed dollar expense charges will affect the yield on small accounts more than they will affect the yield on larger accounts. Yield information may be useful in reviewing the performance of the Fidelity Money Market Subaccount and for providing a basis for comparison with other investment alternatives. However, the Fidelity Money Market Subaccount's yield may vary on a daily basis, unlike bank deposits or other investments that typically pay a fixed yield for a stated period of time. The Fidelity Money Market Portfolio's yield for the seven-day period ended December 31, 1997 was 4.01% and the effective yield for the same seven-day period was 4.09%. OTHER SUBACCOUNTS We compute the performance of the other Subaccounts in terms of an annualized "yield" and/or as "total return". YIELD Yield will be expressed as an annualized percentage based on the Subaccount's performance over a stated 30-day (or one month) period. The annualized yield figures will reflect all recurring Contract charges and will not reflect transfer fees or premium tax charges. To arrive at the yield percentage over the 30-day (or one month) period, the net income per Accumulation Unit of the Subaccount during the period is divided by the value of an Accumulation Unit as of the end of the period. The yield figure is then annualized by assuming monthly compounding of the 30-day (or one month) figure over a six-month period and then doubling the result. The formula used in computing the yield figure is: (6) 2 X ( ((a-b) + 1) - 1) Yield = ----------------------- cd
where: a = net investment income earned during the period by the underlying Portfolio attributable to its shares held in the Subaccount; b = expenses accrued for the period (net of reimbursements); c = average daily number of Accumulation Units outstanding during the period; and d = the net asset value of an Accumulation Unit on the last day of the period.
These yield figures reflect all recurring Contract charges, as described in the explanation of the yield computation for the Fidelity Money Market Subaccount. Like the Fidelity Money Market Subaccount's yield figures, the yield figures for the other Subaccounts are based on past performance and should not be taken as predictive of future results. STANDARDIZED TOTAL RETURN Standardized total return for a Subaccount represents a single computed annual rate of return that, when compounded annually over a specified time period (one, five, and ten years, or since inception) and applied to a hypothetical initial investment in a Contract funded by that Subaccount made at the beginning of the period, will produce the same Contract S-8 Value at the end of the period that the hypothetical investment would have produced over the same period. The standardized total rate of return (T) is computed so that it satisfies the following formula: (n) P(1+T) = ERV where: P = a hypothetical initial payment of $1,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $1,000 payment made at the beginning of the one, five, or ten year period as of the end of the period (or fractional portion thereof).
The standardized total return figures reflect the effect of both non-recurring and recurring charges, as discussed herein. Recurring charges are taken into account in a manner similar to that used for the yield computations for the Fidelity Money Market Subaccount, described above. The effect of the contract maintenance charge on your account usually will differ from that assumed in the computation, due to differences between most actual allocations and the assumed one, as well as differences due to varying account sizes. Accordingly, your total return on an investment in the Subaccount over the same time periods usually would have differed from those produced by the computation. As with the Fidelity Money Market and other Subaccount yield figures, standardized total return figures are based on historical data and are not intended to be a projection of future performance. NON-STANDARDIZED TOTAL RETURN Non-standardized total return for a Subaccount represents a single computed annual rate of return that, when compounded annually over a specified time period (one, five, and ten years, or since inception) and applied to a hypothetical initial investment in a Contract funded by that Subaccount made at the beginning of the period, will produce the same Contract Value at the end of the period that the hypothetical investment would have produced over the same period. The total rate of return (T) is computed so that it satisfies the formula: (n) P(1+T) = ERV where: P = a hypothetical initial payment of $75,000 T = average annual total return n = number of years ERV = ending redeemable value of a hypothetical $75,000 payment made at the beginning of the one, five, or ten year period as of the end of the period (or fractional portion thereof).
Our non-standardized total return differs standardized total return in that in calculating non-standardized total return, we assumed an initial hypothetical investment of $75,000. We chose $75,000, because it is closer to the average Purchase Payment for a Contract that we expect to write. For standardized total return, we used an initial hypothetical investment of $1,000, as required by SEC regulations. The non-standardized total return figures reflect the effect of recurring charges, as discussed herein. The non-standardized total return figures, however, do not reflect the contract maintenance charge, which is waived on Contracts on which the Purchase Payments exceed $50,000. Accordingly, if your Contract is subject to the contract maintenance charge, your total return on an investment in the Subaccount over the same time periods usually will be less than those produced by the computation. The amount of the difference will depend on factors such as the difference between the actual allocation and the assumed allocation, as well as varying account sizes. As with the standardized total return figures, non-standardized total return figures are based on historical data and are not intended to be a projection of future performance. TIME PERIODS BEFORE THE DATE THE SEPARATE ACCOUNT COMMENCED OPERATIONS The Separate Account may also disclose yield and non-standardized total return for time periods before the Separate Account commenced operations. This performance data is based on the actual performance of the Portfolios since their inception, adjusted to reflect the effect of the recurring Contract charges at the rates currently charged against the Subaccounts. TABLES OF TOTAL RETURN QUOTATIONS The following tables include standardized average annual total return and non-standardized total return for various periods as of December 31, 1997. S-9 STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1997 ASSUMING CONTRACT SURRENDERED
AVERAGE ANNUAL TOTAL RETURN (3) ---------------------------------------------------------- INCEPTION SINCE DATE (2) 1 YEAR (%) 5 YEAR (%) 10 YEAR (%) INCEPTION (%) ---------- -------------- ----------- ----------- ------------- JANUS Flexible Income................................. [ ] 10.16% N/A N/A [ ] Balanced (4).................................... [ ] 20.35% N/A N/A [ ] Growth (4)...................................... [ ] 20.98% N/A N/A [ ] Aggressive Growth (4)........................... [ ] 11.05% N/A N/A [ ] Worldwide Growth (4)............................ [ ] 20.40% N/A N/A [ ] FEDERATED Utility II (4).................................. [ ] 24.81% N/A N/A [ ] U.S. Gov't II (4)............................... [ ] 7.02% N/A N/A [ ] High Income Bond (4)............................ [ ] 12.20% N/A N/A [ ] FIDELITY VIP Money Market (1)................................ [ ] N/A N/A N/A N/A Equity Income (4)............................... [ ] 26.27% N/A N/A [ ] Growth (4)...................................... [ ] 21.71% N/A N/A [ ] Overseas (4).................................... [ ] 9.95% N/A N/A [ ] FIDELITY VIP II Asset Manager (4)............................... [ ] 18.92% N/A N/A [ ] Contrafund (4).................................. [ ] 22.36% N/A N/A [ ] Index 500....................................... [ ] N/A N/A N/A [ ] ALGER Income and Growth............................... [ ] N/A N/A N/A [ ] Small Capitalization............................ [ ] N/A N/A N/A [ ] Growth.......................................... [ ] N/A N/A N/A [ ] MidCap.......................................... [ ] N/A N/A N/A [ ] Leveraged AllCap (4)............................ [ ] N/A N/A N/A [ ] SCUDDER Bond............................................ [ ] 7.53% N/A N/A [ ] Balanced........................................ [ ] 22.42% N/A N/A N/A Growth and Income............................... [ ] N/A N/A N/A N/A Global Discovery................................ [ ] N/A N/A N/A N/A International................................... [ ] N/A N/A N/A N/A STRONG Discovery II.................................... [ ] N/A N/A N/A N/A Opportunity II.................................. [ ] N/A N/A N/A N/A Growth II....................................... [ ] N/A N/A N/A N/A T. ROWE PRICE INTERNATIONAL International Stock............................. [ ] N/A N/A N/A N/A T. ROWE PRICE New America..................................... [ ] N/A N/A N/A N/A Mid-Cap Growth.................................. [ ] N/A N/A N/A N/A Equity Income................................... [ ] N/A N/A N/A N/A
S-10
AVERAGE ANNUAL TOTAL RETURN (3) ---------------------------------------------------------- INCEPTION SINCE DATE (2) 1 YEAR (%) 5 YEAR (%) 10 YEAR (%) INCEPTION (%) ---------- -------------- ----------- ----------- ------------- MFS Growth with Income (4).......................... [ ] N/A N/A N/A N/A Research........................................ [ ] N/A N/A N/A N/A Emerging Growth................................. [ ] N/A N/A N/A N/A Total Return (4)................................ [ ] N/A N/A N/A N/A New Discovery (4)............................... [ ] N/A N/A N/A N/A
- ------------------------ (1) An investment in Fidelity Money Market is neither insured nor guaranteed by the U.S. Government and there can be no assurance that Fidelity Money Market will maintain a stable $1.00 share price. The Fidelity Money Market Fund does not advertise total return. (2) The Separate Account was established on approximately January 2, 1994. Lincoln Benefit did not start offering the Contracts until on or about July 1, 1998, although it has offered other annuity contracts that are not offered by the prospectus to which this Statement of Additional Information relates. Accordingly, this table reflects hypothetical performance for the periods covered, applying the contract charges under the Contract to the investment performance of the underlying Portfolios. Standardized performance data for periods after the inception of Contract sales will reflect the actual performance of the Contracts. (3) Total return includes changes in share price, reinvestment of dividends, and capital gains. The performance figures: (1) represent past performance and neither guarantee nor predict future investment results; (2) assume an initial hypothetical investment of $1,000, as required by the SEC; and (3) reflect the deduction of 1.40% annual asset-based charges and a $35 annual contract maintenance charge. The effect of the contract maintenance charge on investment returns will vary depending on the size of the Contract. The investment return and value of a Contract will fluctuate so that a Contract, when surrendered, may be worth more or less than the amount of the Purchase Payments. (4) Total returns reflect that the investment adviser waived all or part of its fee or reimbursed the Portfolio for a portion of its expenses. Otherwise, total returns would have been lower. N/A Certain recently established subaccounts do not yet have meaningful standardized return data. In the future, as such data becomes available, standardized total return will be calculated as described above. S-11 NON-STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1997
AVERAGE ANNUAL TOTAL RETURN (3) ------------------------------ PORTFOLIO MONTHLY TOTAL INCEPTION RETURN RETURN 1 YEAR 5 YEAR 10 YEAR DATE (2) (%) YTD (%) (%) (%) (%) --------- ------- -------------- ------ ------ -------------- JANUS Flexible Income................................. 9/13/93 1.23% 10.21% 10.21% N/A N/A Balanced (4).................................... 9/13/93 1.44% 20.40% 20.40% N/A N/A Growth (4)...................................... 9/13/93 0.81% 21.04% 21.04% N/A N/A Aggressive Growth (4)........................... 9/13/93 3.56% 11.10% 11.10% N/A N/A Worldwide Growth (4)............................ 9/13/93 1.44% 20.45% 20.45% N/A N/A FEDERATED Utility II (4).................................. 2/11/94 5.26% 24.87% 24.87% N/A N/A U.S. Gov't II (4)............................... 3/28/94 0.74% 7.07% 7.07% N/A N/A High Income Bond (4)............................ 3/1/94 1.17% 12.25% 12.25% N/A N/A FIDELITY VIP Money Market (1)................................ 4/1/82 N/A N/A N/A N/A N/A Equity Income (4)............................... 10/9/86 2.02% 26.33% 26.33% 18.48% 15.10% Growth (4)...................................... 10/9/86 0.10% 21.76% 21.76% 16.37% 15.56% Overseas (4).................................... 1/28/87 0.72% 10.00% 10.00% 12.53% 7.18% FIDELITY VIP II Asset Manager (4)............................... 9/6/89 1.40% 18.97% 18.97% 11.41% N/A Contrafund (4).................................. 1/3/95 1.72% 22.42% 22.42% N/A N/A Index 500....................................... 8/27/92 1.57% 30.98% 30.98% 18.25% N/A ALGER Income and Growth............................... 11/15/88 2.11% 34.39% 34.39% 15.77% N/A Small Capitalization............................ 9/21/88 0.59% 9.84% 9.84% 11.08% N/A Growth.......................................... 1/9/89 (0.49)% 24.00% 24.00% 17.62% N/A MidCap.......................................... 5/3/93 (2.66)% 13.41% 13.41% N/A N/A Leveraged AllCap (4)............................ 1/25/95 (1.86)% 18.02% 18.02% N/A N/A SCUDDER Bond............................................ 7/16/85 0.76% 7.58% 7.58% 5.75% 7.04% Balanced........................................ 7/16/85 1.48% 22.48% 22.48% 11.55% 11.34% Growth and Income............................... 5/2/94 1.11% 28.66% 28.66% N/A N/A Global Discovery................................ 5/1/96 2.64% 10.82% 10.82% N/A N/A International................................... 5/1/87 0.81% 7.55% 7.55% 12.13% 10.24% STRONG Discovery II.................................... 5/8/92 (3.41)% 9.84% 9.84% 10.33% N/A Opportunity II.................................. 5/8/92 1.39% 23.71% 23.71% 17.66% N/A Growth II....................................... 12/31/96 2.20% 27.94% 27.94% N/A N/A T.ROWE PRICE INTERNATIONAL International Stock............................. 3/31/94 0.43% 1.66% 1.66% N/A N/A T. ROWE PRICE New America..................................... 3/31/94 2.67% 19.43% 19.43% N/A N/A Mid-Cap Growth.................................. 12/31/96 4.27% 17.15% 17.15% N/A N/A Equity Income................................... 3/31/94 2.86% 27.06% 27.06% N/A N/A SINCE INCEPTION (%) -------------- JANUS Flexible Income................................. 8.38% Balanced (4).................................... 13.39% Growth (4)...................................... 15.39% Aggressive Growth (4)........................... 14.42% Worldwide Growth (4)............................ 17.80% FEDERATED Utility II (4).................................. 12.17% U.S. Gov't II (4)............................... 4.89% High Income Bond (4)............................ 9.82% FIDELITY VIP Money Market (1)................................ N/A Equity Income (4)............................... 13.03% Growth (4)...................................... 14.02% Overseas (4).................................... 7.97% FIDELITY VIP II Asset Manager (4)............................... 11.34% Contrafund (4).................................. 26.46% Index 500....................................... 18.22% ALGER Income and Growth............................... 12.22% Small Capitalization............................ 17.40% Growth.......................................... 17.13% MidCap.......................................... 19.31% Leveraged AllCap (4)............................ 32.96% SCUDDER Bond............................................ 6.69% Balanced........................................ 10.38% Growth and Income............................... 21.49% Global Discovery................................ 7.71% International................................... 9.00% STRONG Discovery II.................................... 9.60% Opportunity II.................................. 18.06% Growth II....................................... 27.96% T.ROWE PRICE INTERNATIONAL International Stock............................. 6.57% T. ROWE PRICE New America..................................... 21.95% Mid-Cap Growth.................................. 17.16% Equity Income................................... 21.99%
S-12
AVERAGE ANNUAL TOTAL RETURN (3) ------------------------------ PORTFOLIO MONTHLY TOTAL INCEPTION RETURN RETURN 1 YEAR 5 YEAR 10 YEAR DATE (2) (%) YTD (%) (%) (%) (%) --------- ------- -------------- ------ ------ -------------- MFS Growth with Income (4).......................... 10/9/95 1.61% 27.98% 27.98% N/A N/A Research........................................ 7/26/95 0.07% 18.59% 18.59% N/A N/A Emerging Growth................................. 7/24/95 (1.10)% 20.21% 20.21% N/A N/A Total Return (4)................................ 1/3/95 1.53% 19.61% 19.61% N/A N/A New Discovery (4)............................... 5/1/98 N/A N/A N/A N/A N/A SINCE INCEPTION (%) -------------- MFS Growth with Income (4).......................... 28.70% Research........................................ 20.53% Emerging Growth................................. 21.80% Total Return (4)................................ 20.32% New Discovery (4)............................... N/A
- ------------------------ (1) An investment in Fidelity Money Market is neither insured nor guaranteed by the U.S. Government and there can be no assurance that Fidelity Money Market will maintain a stable $1.00 share price. The Fidelity Money Market Fund does not advertise total return. (2) The Separate Account was established on approximately January 2, 1994. Lincoln Benefit did not start offering the Contracts until on or about July 1, 1998, although it has offered other annuity contracts that are not offered by the prospectus to which this Statement of Additional Information relates. Accordingly, this table reflects hypothetical performance for the periods covered, applying the contract charges under the Contract to the investment performance of the underlying Portfolios since their inception. Nonstandardized performance data for periods after the inception of Contract sales will reflect the actual performance of the Contracts. (3) Total return includes changes in share price, reinvestment of dividends, and capital gains. The performance figures: (1) represent past performance and neither guarantee nor predict future investment results; (2) assume an initial hypothetical investment of $75,000, since this is closer to the average Purchase Payment of a contract expected to be written, rather than the $1,000 required by the SEC for the standardized returns shown in the table on pages S-10 and S-11; and (3) reflect the deduction of 1.40% annual asset-based charges. Non-standardized return does not reflect the $35 annual contract maintenance charge, because it is waived on Contracts on which the Purchase Payments exceed $50,000. The total return on a Contract subject to the contract maintenance charge over the same time periods usually will be less than those shown in the tables, and will vary depending on the size of the Contract. The investment return and value of a Contract will fluctuate so that a Contract, when surrendered, may be worth more or less than the amount of the Purchase Payments. (4) Total returns reflect that the investment adviser waived all or part of its fee or reimbursed the Portfolio for a portion of its expenses. Otherwise, total returns would have been lower. N/A Certain Portfolios do not have meaningful performance for the periods indicated. In the future, as such data becomes available, total return will be calculated as described above. S-13 NON-STANDARDIZED TOTAL RETURN AS OF DECEMBER 31, 1997
CUMULATIVE TOTAL PORTFOLIO RETURN SINCE CALENDAR YEAR RETURN (3) INCEPTION INCEPTION (%) ------------------------------------------------ DATE (2) (3) 1995 (%) 1996 (%) 1997 (%) --------- --------------- -------------- -------------- -------------- JANUS Flexible Income................................. 9/13/93 41.53% 22.14% 7.67% 10.21% Balanced (4).................................... 9/13/93 71.60% 23.06% 14.57% 20.40% Growth (4)...................................... 9/13/93 85.01% 28.34% 16.81% 21.04% Aggressive Growth (4)........................... 9/13/93 78.44% 25.71% 6.45% 11.10% Worldwide Growth (4)............................ 9/13/93 102.20% 25.60% 27.24% 20.45% FEDERATED Utility II (4).................................. 2/11/94 56.24% 22.43% 10.01% 24.87% U.S. Gov't II (4)............................... 3/28/94 19.67% 7.24% 2.75% 7.07% High Income Bond (4)............................ 3/1/94 43.25% 18.68% 12.72% 12.25% FIDELITY VIP Money Market (1)................................ 4/1/82 N/A N/A N/A N/A Equity Income (4)............................... 10/9/86 295.50% 33.19% 12.69% 26.33% Growth (4)...................................... 10/9/86 336.20% 33.48% 13.11% 21.76% Overseas (4).................................... 1/28/87 131.11% 8.15% 11.64% 10.00% FIDELITY VIP II Asset Manager (4)............................... 9/6/89 144.40% 15.33% 13.01% 18.97% Contrafund (4).................................. 1/3/95 101.98% N/A 19.62% 22.42% Index 500....................................... 8/27/92 144.62% 35.28% 21.01% 30.98% ALGER Income and Growth............................... 11/15/88 186.43% 33.25% 18.02% 34.39% Small Capitalization............................ 9/21/88 342.81% 42.30% 2.73% 9.84% Growth.......................................... 1/9/89 313.43% 34.47% 11.77% 24.00% MidCap.......................................... 5/3/93 127.77% 42.44% 10.34% 13.41% Leveraged AllCap (4)............................ 1/25/95 130.57% N/A 10.48% 18.02% SCUDDER Bond............................................ 7/16/85 124.20% 16.53% 1.39% 7.58% Balanced........................................ 7/16/85 242.50% 24.90% 10.33% 22.48% Growth and Income............................... 5/2/94 104.16% 29.91% 20.47% 28.66% Global Discovery................................ 5/1/96 13.16% N/A N/A 10.82% International................................... 5/1/87 150.86% 9.57% 13.19% 7.55% STRONG Discovery II.................................... 5/8/92 67.85% 33.38% (0.59)% 9.84% Opportunity II.................................. 5/8/92 155.46% 24.07% 16.51% 23.71% Growth II....................................... 12/31/96 27.94% N/A N/A 27.94% T. ROWE PRICE INTERNATIONAL International Stock............................. 3/31/94 26.98% 9.63% 13.11% 1.66% T. ROWE PRICE New America..................................... 3/31/94 110.59% 48.98% 18.42% 19.43% Mid-Cap Growth.................................. 12/31/96 17.15% N/A N/A 17.15% Equity Income................................... 3/31/94 110.91% 32.89% 17.81% 27.06%
S-14
CUMULATIVE TOTAL PORTFOLIO RETURN SINCE CALENDAR YEAR RETURN (3) INCEPTION INCEPTION (%) ------------------------------------------------ DATE (2) (3) 1995 (%) 1996 (%) 1997 (%) --------- --------------- -------------- -------------- -------------- MFS Growth with Income (4).......................... 10/9/95 75.47% N/A 22.73% 27.98% Research........................................ 7/26/95 57.55% N/A 20.63% 18.59% Emerging Growth................................. 7/24/95 61.77% N/A 15.37% 20.21% Total Return (4)................................ 1/3/95 73.94% N/A 12.78% 19.61% New Discovery (4)............................... 5/1/98 N/A N/A N/A N/A
- ------------------------ (1) An investment in Fidelity Money Market is neither insured nor guaranteed by the U.S. Government and there can be no assurance that Fidelity Money Market will maintain a stable $1.00 share price. The Fidelity Money Market Fund does not advertise total return. (2) The Separate Account was established on approximately January 2, 1994. Lincoln Benefit did not start offering the Contracts until on or about July 1, 1998, although it has offered other annuity contracts that are not offered by the prospectus to which this Statement of Additional Information relates. Accordingly, this table reflects hypothetical performance for the periods covered, applying the contract charges under the Contract to the investment performance of the underlying Portfolios since their inception. Nonstandardized performance data for periods after the inception of Contract sales will reflect the actual performance of the Contracts. (3) Total return includes changes in share price, reinvestment of dividends, and capital gains. The performance figures: (1) represent past performance and neither guarantee nor predict future investment results; (2) assume an initial hypothetical investment of $75,000, since this is closer to the average Purchase Payment of a contract expected to be written, rather than the $1,000 required by the SEC for the standardized returns shown in the table on pages S-10 and S-11; and (3) reflect the deduction of 1.40% annual asset-based charges. Non-standardized return does not reflect the $35 annual contract maintenance charge, because it is waived on Contracts on which the Purchase Payments exceed $50,000. The total return on a Contract subject to the contract maintenance charge over the same time periods usually will be less than those shown in the tables, and will vary depending on the size of the Contract. The investment return and value of a Contract will fluctuate so that a Contract, when surrendered, may be worth more or less than the amount of the Purchase Payments. (4) Total returns reflect that the investment adviser waived all or part of its fee or reimbursed the Portfolio for a portion of its expenses. Otherwise, total returns would have been lower. N/A Certain Portfolios do not have meaningful performance for the periods indicated. In the future, as such data becomes available, total return will be calculated as described above. EXPERTS The financial statements of Lincoln Benefit Life Variable Annuity Account as of December 31, 1997, and for each of the two years ended December 31, 1997, included in this statement of additional information have been audited by Deloitte & Touched LLP, independent auditors, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. FINANCIAL STATEMENTS This Statement of Additional Information contains financial statements for the Separate Account which reflect assets attributable to other variable annuity contracts offered by Lincoln Benefit through the Separate Account. As of the date of this Statement of Additional Information, no assets attributable to the Contracts are reflected, because the Contracts were not offered before that date. In addition, the financial statements for the Separate Account reflect Subaccounts that are not available under the Contract. S-15 INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDER OF LINCOLN BENEFIT LIFE COMPANY: We have audited the accompanying statement of net assets of Lincoln Benefit Life Variable Annuity Account (the "Account") as of December 31, 1997, and the related statement of operations for the year then ended and the statements of changes in net assets for each of the two years ended December 31, 1997 of the Flexible Income, Balanced, Growth, Aggressive Growth, and Worldwide Growth portfolios of Janus Aspen Series; the Regional, Reserve, and Balanced portfolios of IAI Retirement Funds, Inc.; the Asset Manager and Contrafund portfolios of Fidelity's Variable Insurance Products Fund II; the Money Market, Equity Income, Growth, and Overseas portfolios of Fidelity's Variable Insurance Products Fund; the High Income Bond Fund II, Utility Fund II, and U.S. Government Securities Fund II portfolios of Federated Insurance Series; and the Bond and Balanced portfolios of Scudder Variable Life Investment Fund that comprise the Account. These financial statements are the responsibility of the Account's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned at December 31, 1997. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Account as of December 31, 1997, and the results of its operations for the year then ended and the changes in its net assets for each of the two years in the period then ended, of each of the portfolios comprising the Account, in conformity with generally accepted accounting principles. /s/ Deloitte & Touche LLP Lincoln, Nebraska March 20, 1998 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF NET ASSETS DECEMBER 31, 1997 ($ and shares in thousands) NET ASSETS Investments in Janus Aspen Series Portfolios: Flexible Income, 482 shares (cost $5,407) $ 5,675 Balanced, 925 shares (cost $13,914) 16,160 Growth, 1,756 shares (cost $27,689) 32,460 Aggressive Growth, 1,071 shares (cost $18,841) 22,011 Worldwide Growth, 2,134 shares (cost $42,205) 49,908 Investments in IAI Retirement Funds, Inc. Portfolios: Regional, 881 shares (cost $12,650) 14,363 Reserve, 82 shares (cost $820) 821 Balanced, 145 shares (cost $1,792) 2,071 Investments in Fidelity's Variable Insurance Products Fund II Portfolios: Asset Manager, 870 shares (cost $13,525) 15,664 Contrafund, 955 shares (cost $17,403) 19,034 Investments in Fidelity's Variable Insurance Products Fund Portfolios: Money Market, 25,099 shares (cost $25,099) 25,099 Equity Income, 2,485 shares (cost $50,089) 60,325 Growth, 1,022 shares (cost $31,579) 37,898 Overseas, 741 shares (cost $13,482) 14,223 Investments in Federated Insurance Series Portfolios: High Income Bond Fund II, 1,056 shares (cost $10,962) 11,559 Utility Fund II, 489 shares (cost $5,665) 6,990 U.S. Government Securities Fund II, 270 shares (cost $2,760) 2,848 Investments in Scudder Variable Life Investment Fund Portfolios: Bond, 593 shares (cost $4,008) 4,072 Balanced, 753 shares (cost $8,621) 10,013 --------- Net assets $ 351,194 --------- ---------
See notes to financial statements. 2 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 ($ in thousands)
JANUS ASPEN SERIES PORTFOLIOS ------------------------------------------------------------- FLEXIBLE AGGRESSIVE WORLDWIDE INCOME BALANCED GROWTH GROWTH GROWTH ----------- ----------- --------- ----------- ----------- INVESTMENT INCOME Dividends $ 311 $ 415 $ 781 $ - $ 652 Charges from Lincoln Benefit Life Company: Mortality and expense risk (58) (152) (324) (234) (502) Administrative expense (7) (18) (40) (28) (60) ----------- ----------- --------- ----------- ----------- Net investment income (loss) 246 245 417 (262) 90 ----------- ----------- --------- ----------- ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 3,580 3,326 10,054 9,503 13,256 Cost of investments sold (3,497) (2,986) (8,796) (8,782) (11,791) ----------- ----------- --------- ----------- ----------- Net realized gains (losses) 83 340 1,258 721 1,465 ----------- ----------- --------- ----------- ----------- CHANGE IN UNREALIZED GAINS (LOSSES) 132 1,586 2,930 1,881 4,835 ----------- ----------- --------- ----------- ----------- Net gains (losses) on investments 215 1,926 4,188 2,602 6,300 ----------- ----------- --------- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 461 $ 2,171 $ 4,605 $ 2,340 $ 6,390 ----------- ----------- --------- ----------- ----------- ----------- ----------- --------- ----------- -----------
See notes to financial statements. 3 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 ($ in thousands)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II IAI RETIREMENT FUNDS, INC. PORTFOLIOS PORTFOLIOS ------------------------------------- ------------------------ ASSET REGIONAL RESERVE BALANCED MANAGER CONTRAFUND ----------- ----------- ----------- ----------- ----------- INVESTMENT INCOME Dividends $ 541 $ 23 $ 57 $ 1,352 $ 218 Charges from Lincoln Benefit Life Company: Mortality and expense risk (157) (6) (21) (165) (159) Administrative expense (18) (1) (2) (20) (19) ----------- ----- ----- ----------- ----------- Net investment income (loss) 366 16 34 1,167 40 ----------- ----- ----- ----------- ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sales of investments: Proceeds from sales 2,675 339 178 1,711 22,251 Cost of investments sold (2,428) (340) (159) (1,594) (21,362) ----------- ----- ----- ----------- ----------- Net realized gains (losses) 247 (1) 19 117 889 ----------- ----- ----- ----------- ----------- CHANGE IN UNREALIZED GAINS (LOSSES) 746 (1) 166 969 1,519 ----------- ----- ----- ----------- ----------- Net gains (losses) on investments 993 (2) 185 1,086 2,408 ----------- ----- ----- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,359 $ 14 $ 219 $ 2,253 $ 2,448 ----------- ----- ----- ----------- ----------- ----------- ----- ----- ----------- -----------
See notes to financial statements. 4 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 ($ in thousands)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND PORTFOLIOS -------------------------------------------- MONEY EQUITY MARKET INCOME GROWTH OVERSEAS --------- --------- --------- ----------- INVESTMENT INCOME Dividends $ 1,111 $ 3,572 $ 983 $ 985 Charges from Lincoln Benefit Life Company: Mortality and expense risk (260) (582) (408) (168) Administrative expense (32) (70) (49) (20) --------- --------- --------- ----------- Net investment income (loss) 819 2,920 526 797 --------- --------- --------- ----------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sale of investments: Proceeds from sales 123,967 10,484 14,694 11,338 Cost of investments sold (123,967) (9,523) (13,243) (10,665) --------- --------- --------- ----------- Net realized gains (losses) - 961 1,451 673 --------- --------- --------- ----------- CHANGE IN UNREALIZED GAINS (LOSSES) - 6,598 4,133 (321) --------- --------- --------- ----------- Net gains (losses) on investments - 7,559 5,584 352 --------- --------- --------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 819 $ 10,479 $ 6,110 $ 1,149 --------- --------- --------- ----------- --------- --------- --------- -----------
See notes to financial statements. 5 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 ($ in thousands)
FEDERATED INSURANCE SERIES PORTFOLIOS ------------------------------------------- SCUDDER VARIABLE LIFE U.S. INVESTMENT FUND HIGH GOVERNMENT PORTFOLIOS INCOME BOND UTILITY SECURITIES ---------------------- FUND II FUND II FUND II BOND BALANCED TOTAL ------------- ----------- --------------- --------- ----------- --------- INVESTMENT INCOME Dividends $ 397 $ 193 $ 90 $ 172 $ 542 $ 12,395 Charges from Lincoln Benefit Life Company: Mortality and expense risk (94) (60) (30) (34) (98) (3,512) Administrative expense (11) (7) (4) (5) (12) (423) ------------- ----------- ------- --------- ----------- --------- Net investment income (loss) 292 126 56 133 432 8,460 ------------- ----------- ------- --------- ----------- --------- REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS Realized gains (losses) from sale of investments: Proceeds from sales 7,472 1,135 1,854 698 1,824 240,339 Cost of investments sold (7,279) (1,025) (1,845) (696) (1,648) (231,626) ------------- ----------- ------- --------- ----------- --------- Net realized gains (losses) 193 110 9 2 176 8,713 ------------- ----------- ------- --------- ----------- --------- CHANGE IN UNREALIZED GAINS (LOSSES) 384 934 92 75 921 27,579 ------------- ----------- ------- --------- ----------- --------- Net gains (losses) on investments 577 1,044 101 77 1,097 36,292 ------------- ----------- ------- --------- ----------- --------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS $ 869 $ 1,170 $ 157 $ 210 $ 1,529 $ 44,752 ------------- ----------- ------- --------- ----------- --------- ------------- ----------- ------- --------- ----------- ---------
See notes to financial statements. 6 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1997 ($ and units in thousands, except value per unit)
JANUS ASPEN SERIES PORTFOLIOS ------------------------------------------------------------- FLEXIBLE AGGRESSIVE WORLDWIDE INCOME BALANCED GROWTH GROWTH GROWTH ----------- ----------- --------- ----------- ----------- FROM OPERATIONS Net investment income (loss) $ 246 $ 245 $ 417 $ (262) $ 90 Net realized gains (losses) 83 340 1,258 721 1,465 Change in unrealized gains (losses) 132 1,586 2,930 1,881 4,835 ----------- ----------- --------- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 461 2,171 4,605 2,340 6,390 ----------- ----------- --------- ----------- ----------- FROM CAPITAL TRANSACTIONS Deposits 1,262 2,990 5,536 2,989 10,053 Benefit payments (80) (213) (155) (93) (252) Payments on termination (100) (586) (1,203) (919) (1,619) Loans - net - - (39) (3) (19) Contract administration charge (1) (4) (13) (13) (19) Transfers among the portfolios and with the Fixed Account - net 579 3,496 6,008 2,028 9,874 ----------- ----------- --------- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 1,660 5,683 10,134 3,989 18,018 ----------- ----------- --------- ----------- ----------- INCREASE IN NET ASSETS 2,121 7,854 14,739 6,329 24,408 NET ASSETS AT BEGINNING OF YEAR 3,554 8,306 17,721 15,682 25,500 ----------- ----------- --------- ----------- ----------- NET ASSETS AT END OF YEAR $ 5,675 $ 16,160 $ 32,460 $ 22,011 $ 49,908 ----------- ----------- --------- ----------- ----------- ----------- ----------- --------- ----------- ----------- NET ASSET VALUE PER UNIT AT END OF YEAR $ 13.97 $ 16.43 $ 17.87 $ 17.25 $ 18.62 ----------- ----------- --------- ----------- ----------- ----------- ----------- --------- ----------- ----------- UNITS OUTSTANDING AT END OF YEAR 406 983 1,816 1,276 2,680 ----------- ----------- --------- ----------- ----------- ----------- ----------- --------- ----------- -----------
See notes to financial statements. 7 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1997 ($ and units in thousands, except value per unit)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND IAI RETIREMENT FUNDS, INC. PORTFOLIOS II PORTFOLIOS ------------------------ ------------------------------------- ASSET REGIONAL RESERVE BALANCED MANAGER CONTRAFUND ----------- ----------- ----------- ----------- ----------- FROM OPERATIONS Net investment income (loss) $ 366 $ 16 $ 34 $ 1,167 $ 40 Net realized gains (losses) 247 (1) 19 117 889 Change in unrealized gains (losses) 746 (1) 166 969 1,519 ----------- ----------- ----------- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 1,359 14 219 2,253 2,448 ----------- ----------- ----------- ----------- ----------- FROM CAPITAL TRANSACTIONS Deposits 1,831 400 308 1,946 5,083 Benefit payments (154) (24) - (215) (25) Payments on termination (575) (44) (60) (433) (434) Loans - net - - - - (11) Contract administration charge (6) - (1) (6) (4) Transfers among the portfolios and with the Fixed Account - net 2,066 42 307 1,201 6,431 ----------- ----------- ----------- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 3,162 374 554 2,493 11,040 ----------- ----------- ----------- ----------- ----------- INCREASE IN NET ASSETS 4,521 388 773 4,746 13,488 NET ASSETS AT BEGINNING OF YEAR 9,842 433 1,298 10,918 5,546 ----------- ----------- ----------- ----------- ----------- NET ASSETS AT END OF YEAR $ 14,363 $ 821 $ 2,071 $ 15,664 $ 19,034 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- NET ASSET VALUE PER UNIT AT END OF YEAR $ 17.03 $ 11.17 $ 14.39 $ 14.10 $ 13.64 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- UNITS OUTSTANDING AT END OF YEAR 843 74 144 1,111 1,395 ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
See notes to financial statements. 8 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1997 ($ and units in thousands, except value per unit)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND PORTFOLIOS -------------------------------------------- MONEY EQUITY MARKET INCOME GROWTH OVERSEAS --------- --------- --------- ----------- FROM OPERATIONS Net investment income (loss) $ 819 $ 2,920 $ 526 $ 797 Net realized gains (losses) - 961 1,451 673 Change in unrealized gains (losses) - 6,598 4,133 (321) --------- --------- --------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 819 10,479 6,110 1,149 --------- --------- --------- ----------- FROM CAPITAL TRANSACTIONS Deposits 62,385 9,140 4,411 2,289 Benefit payments (139) (207) (122) (80) Payments on termination (1,566) (2,285) (1,723) (543) Loans - net (44) (21) (8) (2) Contract administration charge (5) (25) (23) (7) Transfers among the portfolios and with the Fixed Account - net (52,987) 9,941 2,486 363 --------- --------- --------- ----------- CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 7,644 16,543 5,021 2,020 --------- --------- --------- ----------- INCREASE IN NET ASSETS 8,463 27,022 11,131 3,169 NET ASSETS AT BEGINNING OF YEAR 16,636 33,303 26,767 11,054 --------- --------- --------- ----------- NET ASSETS AT END OF YEAR $ 25,099 $ 60,325 $ 37,898 $ 14,223 --------- --------- --------- ----------- --------- --------- --------- ----------- NET ASSET VALUE PER UNIT AT END OF YEAR $ 11.59 $ 19.50 $ 17.88 $ 12.88 --------- --------- --------- ----------- --------- --------- --------- ----------- UNITS OUTSTANDING AT END OF YEAR 2,166 3,094 2,119 1,104 --------- --------- --------- ----------- --------- --------- --------- -----------
See notes to financial statements. 9 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1997 ($ and units in thousands, except value per unit)
FEDERATED INSURANCE SERIES PORTFOLIOS ----------------------------------------- SCUDDER VARIABLE LIFE U.S. INVESTMENT FUND HIGH GOVERNMENT PORTFOLIOS INCOME BOND UTILITY SECURITIES ---------------------- FUND II FUND II FUND II BOND BALANCED TOTAL ------------- ----------- ------------- --------- ----------- --------- FROM OPERATIONS Net investment income (loss) $ 292 $ 126 $ 56 $ 133 $ 432 $ 8,460 Net realized gains (losses) 193 110 9 2 176 8,713 Change in unrealized gains (losses) 384 934 92 75 921 27,579 ------------- ----------- ------ --------- ----------- --------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 869 1,170 157 210 1,529 44,752 ------------- ----------- ------ --------- ----------- --------- FROM CAPITAL TRANSACTIONS Deposits 2,861 1,017 461 922 1,830 117,714 Benefit payments (4) (98) (7) (4) (97) (1,969) Payments on termination (446) (208) (151) (69) (658) (13,622) Loans - net (4) - - 1 (4) (154) Contract administration charge (2) (2) (1) (1) (4) (137) Transfers among the portfolios and with the Fixed Account - net 3,109 1,070 67 779 1,396 (1,744) ------------- ----------- ------ --------- ----------- --------- CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 5,514 1,779 369 1,628 2,463 100,088 ------------- ----------- ------ --------- ----------- --------- INCREASE IN NET ASSETS 6,383 2,949 526 1,838 3,992 144,840 NET ASSETS AT BEGINNING OF YEAR 5,176 4,041 2,322 2,234 6,021 206,354 ------------- ----------- ------ --------- ----------- --------- NET ASSETS AT END OF YEAR $ 11,559 $ 6,990 $ 2,848 $ 4,072 $ 10,013 $ 351,194 ------------- ----------- ------ --------- ----------- --------- ------------- ----------- ------ --------- ----------- --------- NET ASSET VALUE PER UNIT AT END OF YEAR $ 14.27 $ 15.98 $ 11.88 $ 11.79 $ 16.01 ------------- ----------- ------ --------- ----------- ------------- ----------- ------ --------- ----------- UNITS OUTSTANDING AT END OF YEAR 810 437 239 345 626 ------------- ----------- ------ --------- ----------- ------------- ----------- ------ --------- -----------
See notes to financial statements. 10 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1996 ($ and units in thousands, except value per unit)
JANUS ASPEN SERIES PORTFOLIOS ------------------------------------------------------------- FLEXIBLE AGGRESSIVE WORLDWIDE INCOME BALANCED GROWTH GROWTH GROWTH ----------- ----------- --------- ----------- ----------- FROM OPERATIONS Net investment income (loss) $ 187 $ 81 $ 185 $ (38) $ 86 Net realized gains (losses) 65 142 257 285 1,101 Change in unrealized gains (losses) 40 419 1,214 210 2,102 ----------- ----------- --------- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 292 642 1,656 457 3,289 ----------- ----------- --------- ----------- ----------- FROM CAPITAL TRANSACTIONS Deposits 502 378 1,152 1,325 2,050 Benefit payments - (9) (67) (53) (75) Payments on termination - (129) (310) (305) (346) Loans - net - (10) (15) (8) (26) Contract administration charge (1) (2) (5) (7) (6) Transfers among the portfolios and with the Fixed Account - net 1,052 4,999 8,622 6,316 14,288 ----------- ----------- --------- ----------- ----------- CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 1,553 5,227 9,377 7,268 15,885 ----------- ----------- --------- ----------- ----------- INCREASE (DECREASE) IN NET ASSETS 1,845 5,869 11,033 7,725 19,174 NET ASSETS AT BEGINNING OF YEAR 1,709 2,437 6,688 7,957 6,326 ----------- ----------- --------- ----------- ----------- NET ASSETS AT END OF YEAR $ 3,554 $ 8,306 $ 17,721 $ 15,682 $ 25,500 ----------- ----------- --------- ----------- ----------- ----------- ----------- --------- ----------- ----------- NET ASSET VALUE PER UNIT AT END OF YEAR $ 12.67 $ 13.65 $ 14.77 $ 15.52 $ 15.46 ----------- ----------- --------- ----------- ----------- ----------- ----------- --------- ----------- ----------- UNITS OUTSTANDING AT END OF YEAR 280 609 1,200 1,010 1,650 ----------- ----------- --------- ----------- ----------- ----------- ----------- --------- ----------- -----------
See notes to financial statements. 11 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1996 ($ and units in thousands, except value per unit)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II IAI RETIREMENT FUNDS, INC. PORTFOLIOS PORTFOLIOS -------------------------- ------------------------------------- ASSET REGIONAL RESERVE BALANCED MANAGER CONTRAFUND ----------- ----------- ----------- ----------- ------------- FROM OPERATIONS Net investment income (loss) $ 276 $ 27 $ 4 $ 305 $ (14) Net realized gains (losses) 109 (3) 6 89 121 Change in unrealized gains (losses) 262 3 75 617 112 ----------- ----------- ----------- ----------- ------ CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 647 27 85 1,011 219 ----------- ----------- ----------- ----------- ------ FROM CAPITAL TRANSACTIONS Deposits 678 63 53 482 308 Benefit payments (41) - - (25) - Payments on termination (131) (27) (18) (232) (34) Loans - net (9) - - (5) - Contract administration charge (3) - (1) (5) - Transfers among the portfolios and with the Fixed Account - net 4,209 (340) 483 3,463 5,053 ----------- ----------- ----------- ----------- ------ CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 4,703 (304) 517 3,678 5,327 ----------- ----------- ----------- ----------- ------ INCREASE (DECREASE) IN NET ASSETS 5,350 (277) 602 4,689 5,546 NET ASSETS AT BEGINNING OF YEAR 4,492 710 696 6,229 - ----------- ----------- ----------- ----------- ------ NET ASSETS AT END OF YEAR $ 9,842 $ 433 $ 1,298 $ 10,918 $ 5,546 ----------- ----------- ----------- ----------- ------ ----------- ----------- ----------- ----------- ------ NET ASSET VALUE PER UNIT AT END OF YEAR $ 15.23 $ 10.82 $ 12.52 $ 11.85 $ 11.15 ----------- ----------- ----------- ----------- ------ ----------- ----------- ----------- ----------- ------ UNITS OUTSTANDING AT END OF YEAR 646 40 104 921 498 ----------- ----------- ----------- ----------- ------ ----------- ----------- ----------- ----------- ------
See notes to financial statements. 12 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1996 ($ and units in thousands, except value per unit)
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND PORTFOLIOS -------------------------------------------- MONEY EQUITY MARKET INCOME GROWTH OVERSEAS --------- --------- --------- ----------- FROM OPERATIONS Net investment income (loss) $ 590 $ 369 $ 734 $ 45 Net realized gains (losses) - 314 535 100 Change in unrealized gains (losses) - 2,258 933 813 --------- --------- --------- ----------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 590 2,941 2,202 958 --------- --------- --------- ----------- FROM CAPITAL TRANSACTIONS Deposits 93,786 2,654 2,382 1,067 Benefit payments (50) (76) (84) (67) Payments on termination (295) (635) (519) (194) Loans - net 19 (74) (48) (10) Contract administration charge (3) (11) (11) (5) Transfers among the portfolios and with the Fixed Account - net (88,806) 14,460 9,488 3,012 --------- --------- --------- ----------- CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 4,651 16,318 11,208 3,803 --------- --------- --------- ----------- INCREASE (DECREASE) IN NET ASSETS 5,241 19,259 13,410 4,761 NET ASSETS AT BEGINNING OF YEAR 11,395 14,044 13,357 6,293 --------- --------- --------- ----------- NET ASSETS AT END OF YEAR $ 16,636 $ 33,303 $ 26,767 $ 11,054 --------- --------- --------- ----------- --------- --------- --------- ----------- NET ASSET VALUE PER UNIT AT END OF YEAR $ 11.14 $ 15.44 $ 14.68 $ 11.71 --------- --------- --------- ----------- --------- --------- --------- ----------- UNITS OUTSTANDING AT END OF YEAR 1,493 2,157 1,823 944 --------- --------- --------- ----------- --------- --------- --------- -----------
See notes to financial statements. 13 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED DECEMBER 31, 1996 ($ and units in thousands, except value per unit)
FEDERATED INSURANCE SERIES PORTFOLIOS SCUDDER VARIABLE LIFE --------------------------------- HIGH U.S. INVESTMENT FUND INCOME GOVERNMENT PORTFOLIOS BOND UTILITY SECURITIES --------------------- FUND II FUND II FUND II BOND BALANCED TOTAL --------- --------- --------- --------- --------- --------- FROM OPERATIONS Net investment income (loss) $ 352 $ 97 $ 76 $ 140 $ 127 $ 3,629 Net realized gains (losses) 108 86 4 (13) 24 3,330 Change in unrealized gains (losses) 168 177 (28) (72) 271 9,574 --------- --------- --------- --------- --------- --------- CHANGE IN NET ASSETS RESULTING FROM OPERATIONS 628 360 52 55 422 16,533 --------- --------- --------- --------- --------- --------- FROM CAPITAL TRANSACTIONS Deposits 393 319 83 218 355 108,248 Benefit payments (14) (23) - (14) (25) (623) Payments on termination (106) (83) (120) (41) (153) (3,678) Loans - net (11) (2) - (9) - (208) Contract administration charge (1) (1) (1) (1) (2) (66) Transfers among the portfolios and with the Fixed Account - net 1,913 1,178 1,152 572 2,947 (5,939) --------- --------- --------- --------- --------- --------- CHANGE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS 2,174 1,388 1,114 725 3,122 97,734 --------- --------- --------- --------- --------- --------- INCREASE (DECREASE) IN NET ASSETS 2,802 1,748 1,166 780 3,544 114,267 NET ASSETS AT BEGINNING OF YEAR 2,374 2,293 1,156 1,454 2,477 92,087 --------- --------- --------- --------- --------- --------- NET ASSETS AT END OF YEAR $ 5,176 $ 4,041 $ 2,322 $ 2,234 $ 6,021 $ 206,354 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- NET ASSET VALUE PER UNIT AT END OF YEAR $ 12.72 $ 12.80 $ 11.13 $ 10.96 $ 13.07 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- UNITS OUTSTANDING AT END OF YEAR 407 316 209 204 461 --------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
See notes to financial statements. 14 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT NOTES TO FINANCIAL STATEMENTS TWO YEARS ENDED DECEMBER 31, 1997 - -------------------------------------------------------------------------------- 1. ORGANIZATION Lincoln Benefit Life Variable Annuity Account (the "Account"), a unit investment trust registered with the Securities and Exchange Commission under the Investment Company Act of 1940, is a Separate Account of Lincoln Benefit Life Company ("Lincoln Benefit"). The assets of the Account are legally segregated from those of Lincoln Benefit. Lincoln Benefit is wholly owned by Allstate Life Insurance Company, a wholly owned subsidiary of Allstate Insurance Company, which is wholly owned by The Allstate Corporation. Lincoln Benefit writes certain annuity contracts, the proceeds of which are invested at the direction of the contractholder. Contractholders primarily invest in units of the portfolios comprising the Account, for which they bear all of the investment risk, but may also invest in the general account of Lincoln Benefit (the "Fixed Account"). The Fixed Account option is not available in all states. The Account is divided into 19 subaccounts. Each subaccount invests solely in the shares of one of the following portfolios: the Flexible Income, Balanced, Growth, Aggressive Growth, and Worldwide Growth portfolios of Janus Aspen Series; the Regional, Reserve, and Balanced portfolios of IAI Retirement Funds, Inc.; the Asset Manager and Contrafund (added May 1, 1996) portfolios of Fidelity's Variable Insurance Products Fund II; the Money Market, Equity Income, Growth, and Overseas portfolios of Fidelity's Variable Insurance Products Fund; the High Income Bond Fund II, Utility Fund II, and U.S. Government Securities Fund II portfolios of Federated Insurance Series; and the Bond and Balanced portfolios of Scudder Variable Life Investment Fund (collectively the "Funds"). To conform with the 1997 presentation, certain amounts in the prior year's financial statements and notes have been reclassified. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES VALUATION OF INVESTMENTS - Investments consist of shares of the Funds and are stated at fair value based on quoted market prices. RECOGNITION OF INVESTMENT INCOME - Investment income consists of dividends declared by the Funds and is recognized on the date of record. REALIZED GAINS AND LOSSES - Realized gains and losses represent the difference between the proceeds from sales of shares by the Account and the cost of such shares, which is determined on a weighted average basis. CONTRACTHOLDER ACCOUNT ACTIVITY - Account activity is reflected in individual contractholder accounts on a daily basis. FEDERAL INCOME TAXES - The Account is intended to qualify as a segregated asset account as defined in the Internal Revenue Code ("Code"). As such, the operations of the Account are included with and taxed as a part of Lincoln Benefit. Lincoln Benefit is taxed as a life insurance company under the Code. Under current law, no federal income taxes are payable by the Account. ACCOUNT VALUE - Certain calculations that could be made in the financial statements may differ from published amounts due to the truncation of actual Account values. 3. CONTRACT CHARGES For each year or portion of a year a contract is in effect, Lincoln Benefit deducts a fixed annual contract administration charge of $25 as a reimbursement for expenses related to the maintenance of each contract and the Account. The amount of this charge is guaranteed not to increase over the life of the contract. This charge is not assessed during the annuity period and is waived if the contract value is $75,000 or greater on a contract anniversary date. Lincoln Benefit assumes mortality and expense risks related to the operations of the Account and deducts charges daily at a rate equal to 1.25% per annum of the daily net assets of the Account. Lincoln Benefit guarantees that the rate of this charge will not increase over the life of the contract. The mortality and expense risk charge is assessed during the accumulation period and the annuity period. Lincoln Benefit deducts administrative expense charges daily at a rate equal to .15% per annum of the daily net assets of the Account. This charge is designed to cover administrative expenses. 15 Lincoln Benefit may assess other charges to the contractholder related to premium taxes, surrenders, partial withdrawals and certain transfers between the portfolios and/or the fixed account. 4. FINANCIAL INSTRUMENTS The investments of the Account are carried at fair value, based on quoted market prices. 5. UNITS ISSUED AND REDEEMED Units issued and redeemed by the Account during 1997 were as follows: (Units in thousands)
JANUS ASPEN SERIES PORTFOLIOS ----------------------------------------------------------------- FLEXIBLE AGGRESSIVE WORLDWIDE INCOME BALANCED GROWTH GROWTH GROWTH ----------- ----------- ----------- ----------- ------------- Units outstanding at beginning of year 280 609 1,200 1,010 1,650 Unit activity during 1997: Issued 397 591 1,203 863 1,786 Redeemed (271) (217) (587) (597) (756) ----- ----- ----------- ----------- ------ Units outstanding at end of year 406 983 1,816 1,276 2,680 FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND II PORTFOLIOS IAI RETIREMENT FUNDS, INC. PORTFOLIOS -------------------------- ------------------------------------- ASSET REGIONAL RESERVE BALANCED MANAGER CONTRAFUND ----------- ----------- ----------- ----------- ------------- Units outstanding at beginning of year 646 40 104 921 498 Unit activity during 1997: Issued 361 65 53 322 2,651 Redeemed (164) (31) (13) (132) (1,754) ----- ----- ----------- ----------- ------ Units outstanding at end of year 843 74 144 1,111 1,395 ----- ----- ----------- ----------- ------ ----- ----- ----------- ----------- ------
FIDELITY'S VARIABLE INSURANCE PRODUCTS FUND PORTFOLIOS ------------------------------------------------ MONEY EQUITY MARKET INCOME GROWTH OVERSEAS --------- ----------- ----------- ----------- Units outstanding at beginning of year 1,493 2,157 1,823 944 Unit activity during 1997: Issued 11,294 1,524 1,193 1,032 Redeemed (10,621) (587) (897) (872) --------- ----------- ----------- ----------- Units outstanding at end of year 2,166 3,094 2,119 1,104 --------- ----------- ----------- ----------- --------- ----------- ----------- -----------
FEDERATED INSURANCE SERIES PORTFOLIOS ------------------------------------------- SCUDDER VARIABLE LIFE U.S. INVESTMENT FUND HIGH GOVERNMENT PORTFOLIOS INCOME BOND UTILITY SECURITIES ------------------------ FUND II FUND II FUND II BOND BALANCED --------------- ----------- ------------- ----- ----------- Units outstanding at beginning of year 407 316 209 204 461 Unit activity during 1997: Issued 950 202 193 202 287 Redeemed (547) (81) (163) (61) (122) ----- ----- ----- ----- ----- Units outstanding at end of year 810 437 239 345 626 ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
16 PART C OTHER INFORMATION ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements The following financial statements are included in Part A of the Registration Statement: The consolidated financial statements (prepared on a GAAP basis of accounting) for Lincoln Benefit Life Company and subsidiary as of December 31, 1997 and 1996 and for each of the three years in the period ended December 31, 1997. The following financial statements are included in Part B of the Registration Statement: The financial statements of the Separate Account as of December 31, 1997 and for the years ended December 31, 1997 and 1996. The following financial statements are included in Part C of the Registration Statement: None (b) Exhibits (1) Resolution of the Board of Directors of Lincoln Benefit Life Company authorizing the establishment of the Lincoln Benefit Life Variable Annuity Account** (2) Custody Agreements (not applicable) (3) (a) Form of Principal Underwriting Agreement** (b) Form of Selling Agreement* (4) Variable Annuity Contract (filed herewith) (5) Application for Contract (filed herewith) (6) Depositor -- Corporate Documents (a) Articles of Incorporation of Lincoln Benefit Life Company, as amended* (b) By-Laws of Lincoln Benefit Life Company* (7) Reinsurance Contract** (8) Participation Agreements: (a) Fund Participation Agreement between Janus Aspen Series and Lincoln Benefit Life Company* (b) Participation Agreement among Lincoln Benefit Life Company, Variable Insurance Products Fund and Fidelity Distributors Corporation* (c) Participation Agreement among Lincoln Benefit Life Company, Variable Insurance Products Fund II and Fidelity Distributors Corporation* (d) (1) Participation Agreement among The Alger American Fund, Lincoln Benefit Life Company and Fred Alger and Company, Incorporated* (2) Service Agreement between Fred Alger Management, Inc. and Lincoln Benefit Life Company* (e) (1) Participation Agreement between Scudder Variable Life Investment Fund and Lincoln Benefit Life Company* (2) Reimbursement Agreement by and between Scudder, Stevens & Clark, Inc. and Lincoln Benefit Life Company* (3) Participating Contract and Policy Agreement between Scudder Investor Services, Inc. and Lincoln Benefit Financial Services* (f) Form of Participation Agreement among Lincoln Benefit Life Company, Strong Variable Insurance Funds, Inc., Strong Opportunity Fund II, Inc., Strong Capital Management, Inc., and Strong Funds Distributors, Inc.* (g) Form of Participation Agreement among T. Rowe Price Equity Series, Inc., T. Rowe Price International Series, Inc., T. Rowe Price Investment Services, Inc., and Lincoln Benefit Life Company* C-1 (h) Form of Participation Agreement among MFS Variable Insurance Trust, Lincoln Benefit Life Company, and Massachusetts Financial Services Company* (i) Fund Participation Agreement between Lincoln Benefit Life Company, Insurance Management Series and Federated Securities Corp.* (9) Opinion and Consent of Counsel (to be filed by pre-effective amendment) (10) Consent of Independent Accountants (filed herewith) (11) Financial Statements Omitted from Item 23 (not applicable) (12) Initial Capitalization Agreement (not applicable) (13) Performance Computations (to be filed by pre-effective amendment) (27) Financial Data Schedules (not applicable) - ------------------------ * Registration Statement on Form S-6 for Lincoln Benefit Life Variable Life Account, File No. 333-47717, filed March 11, 1998 ** Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account, File Nos. 811-7924, 333-[XXXXX], filed April [XX], 1998. ITEM 25. DIRECTORS AND OFFICERS OF THE DEPOSITOR The directors and principal officers of Lincoln Benefit Life Company are listed below. Their principal business address is 206 South 13th Street, Lincoln, Nebraska 68508.
NAME POSITION/OFFICE WITH DEPOSITOR - --------------------------- ------------------------------------------------------------------------------------------------ Louis G. Lower, III Chairman of the Board of Directors and Chief Executive Officer Peter H. Heckman Vice Chairman of the Board of Directors B. Eugene Wraith Director, President and Chief Operating Officer Douglas F. Gaer Director, Executive Vice President Janet P. Anderbery Vice President and Controller John J. Morris Director, Senior Vice President and Secretary Robert E. Rich Director, Executive Vice President and Assistant Secretary Kevin R. Slawin Director Michael J. Velotta Director and Assistant Secretary Randy J. Von Fumetti Director, Senior Vice President and Treasurer Carol S. Watson Director, Senior Vice President, General Counsel, and Assistant Secretary Patricia W. Wilson Director Thomas R. Ashley Vice President David A. Behrens Vice President Thomas J. Berney Vice President John H. Coleman III Vice President Marvin P. Ehly Vice President Kenny L. Gettman Vice President Rodger A. Hergenrader Vice President Thomas S. Holt Vice President Sharyn L. Jensen Vice President Theodore J. Kooser Vice President Gregory C. Sernett Vice President Stanley G. Shelley Vice President Randy E. Tillis Vice President Dean M. Way Vice President
ITEM 26. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH DEPOSITOR OR REGISTRANT See Annual Report on Form 10-K of The Allstate Corporation, File No. 1-11840, filed March 27, 1998. C-2 ITEM 27. NUMBER OF CONTRACT OWNERS As of the filing date of this Registration Statement, the Registrant has no contract owners as it has not commenced sales of the variable annuity contracts covered by the Registration Statement. ITEM 28. INDEMNIFICATION The Articles of Incorporation of Lincoln Benefit Life Company (Depositor) provide for the indemnification of its directors and officers against expenses, judgments, fines and amounts paid in settlement as incurred by such person, so long as such person shall not have been adjudged to be liable for negligence or misconduct in the performance of a duty to the Company. This right of indemnity is not exclusive of other rights to which a director or officer may otherwise be entitled. The By-Laws of Lincoln Benefit Financial Services, Inc. (Distributor) provide that the corporation will indemnify a director, officer, employee or agent of the corporation to the full extent of Delaware law. In general, Delaware law provides that a corporation may indemnify a director, officer, employee or agent against expenses, judgments, fines and amounts paid in settlement if that individual acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. No indemnification shall be made for expenses, including attorney's fees, if the person shall have been judged to be liable to the corporation unless a court determines such person is entitled to such indemnity. Expenses incurred by such individual in defending any action or proceeding may be advanced by the corporation so long as the individual agrees to repay the corporation if it is later determined that he or she is not entitled to such indemnification. Under the terms of the form of Underwriting Agreement, the Depositor agrees to indemnify the Distributor for any liability that the latter may incur to a Contract owner or party-in-interest under a Contract, (a) arising out of any act or omission in the course of or in connection with rendering services under such Agreement, or (b) arising out of the purchase, retention or surrender of a Contract; provided, that the Depositor will not indemnify the Distributor for any such liability that results from the latter's willful misfeasance, bad faith or gross negligence, or from the reckless disregard by the latter of its duties and obligations under the Underwriting Agreement. 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 forgoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 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 the final adjudication of such issue. ITEM 29. PRINCIPAL UNDERWRITER (a) Lincoln Benefit Financial Services, Inc. ("LBFS") serves as distributor for the Registrant. LBFS also serves as distributor for the Lincoln Benefit Life Variable Life Account, which is another separate account of Lincoln Benefit. The following are the directors and officers of Lincoln Benefit Financial Services, Inc. Their principal business address is 206 South 13th Street, Lincoln, Nebraska 68508.
NAME POSITION WITH DISTRIBUTOR - ------------------------- ------------------------------------------- B. Eugene Wraith Chairman of the Board of Directors Carol S. Watson Director and President Janet P. Anderbery Vice President and Controller David A. Behrens Vice President Rick W. Small Chief Compliance Officer John J. Morris Director, Vice President and Secretary Douglas F. Gaer Director Robert E. Rich Director Gregory C. Sernett Vice President and General Counsel Randy J. Von Fumetti Director
C-3 (b) The following commissions and other compensation were received by each principal underwriter, directly or indirectly, from the Registrant during the Registrant's last fiscal year:
(2) (1) NET UNDERWRITING (3) (4) NAME OF PRINCIPAL DISCOUNTS AND COMPENSATION BROKERAGE (5) UNDERWRITER COMMISSIONS ON REDEMPTION COMMISSIONS COMPENSATION Lincoln Benefit Financial Services, Inc. $ 7,553,486
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS The Depositor, Lincoln Benefit Life Company, is located at 206 South 13th Street, Lincoln, Nebraska 68508. The Distributor, Lincoln Benefit Financial Services, Inc., is located at 134 South 13th Street, Lincoln, Nebraska 68508. Each company maintains those accounts and records required to be maintained pursuant to Section 31(a) of the Investment Company Act and the rules promulgated thereunder. ITEM 31. MANAGEMENT SERVICES None. ITEM 32. UNDERTAKINGS Registrant undertakes (1) to file post-effective amendments to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted; (2) to include either (A) as part of any application to purchase a Contract offered by the prospectus forming part of this Registration Statement, a space that an applicant can check to request a Statement of Additional Information, or (B) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information, and (3) to deliver any Statement of Additional Information and any financial statements required to be made available under this Form N-4 promptly upon written or oral request. REPRESENTATIONS The Company hereby represents that it is relying upon a No Action Letter issued to the American Council of Life Insurance dated November 28, 1988 (Commission ref. IP-6-88) and that the following provisions have been complied with: 1. Include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in each registration statement, including the prospectus, used in connection with the offer of the contract; 2. Include appropriate disclosure regarding the redemption restrictions imposed by Section 403(b)(11) in any sales literature used in connection with the offer of the contract; 3. Instruct sales representatives who solicit participants to purchase the contract specifically to bring the redemption restrictions imposed by Section 403(b)(11) to the attention of the potential participants; 4. Obtain from each plan participant who purchases a Section 403(b) annuity Contract, prior to or at the time of such purchase, a signed statement acknowledging the participant's understanding of (a) the restrictions on redemption imposed by Section 403(b)(11), and (2) other investment alternatives available under the employer's Section 403(b) arrangement to which the participant may elect to transfer his contract value. SECTION 26(e) REPRESENTATIONS The Company further represents that fees and charges deducted under the contract, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed by the Company. C-4 SIGNATURES As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement and Post-Effective Amendment to be signed on its behalf, in the City of Lincoln, and the State of Nebraska, on this 21st day of April, 1998. LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT (REGISTRANT) By: LINCOLN BENEFIT LIFE COMPANY (DEPOSITOR) By: /s/ B. EUGENE WRAITH ---------------------------------------- B. Eugene Wraith PRESIDENT AND CHIEF OPERATING OFFICER As required by the Securities Act of 1933, this Registration Statement and Post-Effective Amendment has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE - ---------------------------------------- -------------------------- ------------------- /s/ B. EUGENE WRAITH - ---------------------------------------- President, Chief Operating April 21, 1998 B. Eugene Wraith Officer and Director (PRINCIPAL EXECUTIVE OFFICER) /s/ ROBERT E. RICH Executive Vice President - ---------------------------------------- and Director April 21, 1998 Robert E. Rich /s/ RANDY J. VON FUMETTI - ---------------------------------------- Senior Vice President April 21, 1998 Randy J. Von Fumetti Treasurer and Director (PRINCIPAL FINANCIAL OFFICER) /s/ JANET P. ANDERBERY - ---------------------------------------- Vice President and April 21, 1998 Janet P. Anderbery Controller (PRINCIPAL ACCOUNTING OFFICER) Vice Chairman of the Board - ---------------------------------------- of Directors April , 1998 Peter H. Heckman Chairman of the Board of - ---------------------------------------- Directors and Chief April , 1998 Louis G. Lower, II Executive Officer /s/ JOHN J. MORRIS - ---------------------------------------- Director April 21, 1998 John J. Morris
C-5
SIGNATURE TITLE DATE - ---------------------------------------- -------------------------- ------------------- /s/ DOUGLAS F. GAER - ---------------------------------------- Director April 21, 1998 Douglas F. Gaer - ---------------------------------------- Director April , 1998 Kevin Slawin - ---------------------------------------- Director April , 1998 Michael J. Velotta /s/ CAROL S. WATSON - ---------------------------------------- Director April 21, 1998 Carol S. Watson - ---------------------------------------- Director April , 1998 Patricia W. Wilson
C-6 INDEX TO EXHIBITS FOR REGISTRATION STATEMENT ON FORM N-4 LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
EXHIBIT NO. SEQUENTIAL PAGE NO. - ------------- -------------------- (4) Variable Annuity Contract (5) Application for Contract (10) Consent of Independent Accountants
C-7 EX-4 2 EXHIBIT 4 FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT OWNER: [JOHN DOE] ANNUITANT: [JOHN DOE] CONTRACT NUMBER: [SPECIMEN] ISSUE AGE: [35] ANNUITY DATE: [03/01/2033] ISSUE DATE: [03/01/1998] THIS IS A LEGAL CONTRACT - READ IT CAREFULLY LINCOLN BENEFIT LIFE COMPANY promises to pay to you a monthly annuity starting on the annuity date stated on Page 3. If you die prior to the annuity date, we will pay a death benefit to the beneficiary, upon receipt of due proof of death. PLEASE EXAMINE THE APPLICATION. We issued this contract based upon the answers in the application (copy included). If all answers are not complete and true, the contract may be affected. RIGHT TO CANCEL YOUR CONTRACT. IF YOU ARE NOT SATISFIED WITH THIS CONTRACT FOR ANY REASON, YOU MAY RETURN IT TO LINCOLN BENEFIT LIFE COMPANY, PO BOX 82532, LINCOLN, NE 68501-2532, OR OUR AGENT WITHIN 10 DAYS AFTER YOU RECEIVE IT. WE WILL REFUND ANY PURCHASE PAYMENTS ALLOCATED TO THE SEPARATE ACCOUNT, ADJUSTED TO REFLECT INVESTMENT GAIN OR LOSS FROM THE DATE OF ALLOCATION TO THE DATE OF CANCELLATION, PLUS ANY PURCHASE PAYMENTS ALLOCATED TO THE FIXED ACCOUNT. IF THIS CONTRACT IS QUALIFIED UNDER SECTION 408 OF THE INTERNAL REVENUE CODE, WE WILL REFUND THE GREATER OF ANY PURCHASE PAYMENTS OR THE CONTRACT VALUE. READ YOUR CONTRACT CAREFULLY. Executed for the company at its home office in Lincoln, Nebraska on its issue date. Vice President and Secretary President LINCOLN BENEFIT LIFE COMPANY Lincoln Benefit Life Centre Lincoln, NE 68501 800-525-9287 A Legal Reserve Stock Life Insurance Company Nonparticipating FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT Flexible Premium Payments Benefit Paid in the Event of Death Prior to the Annuity Date Withdrawal and Surrender Rights THE DOLLAR AMOUNT OF ANNUITY PAYMENTS OR OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, WILL VARY TO REFLECT THE PERFORMANCE OF THE SEPARATE ACCOUNT. FOR AMOUNTS IN THE GUARANTEED MATURITY FIXED ACCOUNT, THE WITHDRAWAL BENEFIT, THE DEATH BENEFIT, TRANSFERS TO OTHER INVESTMENT ALTERNATIVES AND ANY PERIODIC ANNUITY PAYMENTS MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT WHICH MAY RESULT IN AN UPWARD OR DOWNWARD ADJUSTMENT OF THE AMOUNT DISTRIBUTED. VAP 9840 Page 1 SUMMARY OF CONTRACT This flexible premium deferred variable annuity provides a monthly annuity which will be paid to you starting on the annuity date. If you die before the annuity date, a death benefit will be paid to the beneficiary. The premium for this contract is flexible and may be established by you subject to the terms of this contract. During the lifetime of the annuitant, and prior to the annuity date, you may: ... withdraw any portion of the surrender value (a market value adjustment may apply); ... change the beneficiary; ... assign an interest in the contract; ... change the annuity date; ... exercise the other rights provided, subject to the rights of any irrevocable beneficiary or assignee. This is only a summary of the contract terms. The detailed provisions of this contract will control. The provisions are set forth in the following sections: Annuity Data Page 3 Definitions Page 4 Annuity Benefit Page 5 Purchase Payments Page 8 Contract Value Page 9 Surrender Value Page 11 Death Benefit Page 12 Beneficiary Page 14 Ownership Page 14 Other Terms of your Contract Page 14 VAP 9840 Page 2 ANNUITY DATA OWNER: [JOHN DOE] ANNUITANT: [JOHN DOE] CONTRACT NUMBER: [SPECIMEN] ISSUE AGE: [35] ANNUITY DATE: [03/01/2033] ISSUE DATE: [03/01/1998] Initial Purchase Payment: $10,000.00 Tax Qualification: IRA INITIAL ALLOCATION OF PURCHASE PAYMENT:
Allocated Variable Sub-Accounts Amount (%) --------------------- ---------- Sub-account A 10% Sub-account B 10% Sub-account C 10% Sub-account D 10%
Rate Allocated Guaranteed Guaranteed Amount (%) Interest Rate Through ---------- ------------- ---------- Guaranteed Maturity Fixed Account 1 Year Guarantee Period 10% 5.00% 03/01/1999 3 Year Guarantee Period 10% 6.40% 03/01/2001 5 Year Guarantee Period 10% 7.00% 03/01/2003 7 Year Guarantee Period 10% 7.20% 03/01/2005 10 year Guarantee Period 10% 7.35% 03/01/2008 Dollar Cost Averaging Fixed Account 1 Year Guarantee Period 10% 5.00% 03/01/1999 Minimum Guaranteed Rate Dollar Cost Averaging Fixed Account 3.00%
Relationship Beneficiary To Owner Percentage - ----------- --------- ---------- Jane Doe Wife 100%
VAP 9840 Page 3 DEFINITIONS When these words are used in this contract, they have the meaning stated: "ACCUMULATION UNIT" A unit of measurement which we use to calculate the value of a subaccount before annuity payments begin. "ANNUITANT" The natural person named on Page 3 whose life determines the annuity payment made under this contract. "ANNUITIZED VALUE" The amount applied to purchase annuity payments under the contract, equal to the contract value adjusted by any market value adjustment and less any applicable taxes. "ANNUITY DATE" The date on which annuity payments are scheduled to begin. "ANNUITY UNIT" A unit of measurement which we use to calculate the amount of variable annuity payments. "APP" The application which you completed requesting this policy "BENEFICIARY(IES)" The person(s) designated to receive any death benefit under the contract. "CONTRACT ANNIVERSARY" The anniversary of the issue date in subsequent years. "CONTRACT VALUE" The sum of the values of your interests in the subaccounts of the Separate Account and the Fixed Account. "CONTRACT YEAR" A period of twelve months beginning on the issue date or any contract anniversary. "CONTRIBUTION YEAR" A twelve month period beginning on the date a purchase payment is applied to the contract value, or an anniversary of that date. "DUE PROOF OF DEATH" (1) A certified copy of a death certificate; or (2) a certified copy of a decree of a court of competent jurisdiction as to the finding of death; or (3) a written statement by a medical doctor who attended the deceased at the time of death; or (4) any other proof satisfactory to us. "FIXED ACCOUNT" The portion of contract value allocated to our general account. "FIXED ANNUITY" Annuity payments that are fixed in amount. "INVESTMENT ALTERNATIVE" A subaccount of the separate account, a guarantee period of the Guaranteed Maturity Fixed Account, and the Dollar Cost Averaging Fixed Account. "ISSUE AGE" The age of the annuitant at the time this contract was issued (issue date) determined by the annuitant's last birthday. "ISSUE DATE" The date when this contract becomes effective if the annuitant is then living and the initial premium has been paid. The issue date is shown on Page 3. "NATURAL PERSON" A living individual or trust entity that is treated as an individual for Federal Income Tax purposes under the Internal Revenue Code. "NET INVESTMENT FACTOR" An index applied to measure the net investment performance of a subaccount from one valuation date to the next. It is VAP 9840 Page 4 used to determine the value of an accumulation unit and annuity unit in any valuation period. "PORTFOLIO(S)" The underlying mutual fund(s) (or investment series thereof) in which the subaccounts invest. "PURCHASE PAYMENTS" Amounts paid to us in the form of a premium for the contract by or on behalf of an owner. "SEPARATE ACCOUNT" A segregated investment account of the Company entitled Lincoln Benefit Life Separate Variable Annuity Account. "SUBACCOUNT" A subdivision the Separate account invested wholly in shares of one of the portfolios. "SURRENDER VALUE" The amount you would receive upon surrender of this contract, equal to the contract value adjusted by any market value adjustment, less any applicable taxes. "VALUATION DATE" Each day the New York Stock Exchange ("NYSE") is open for business. "VALUATION PERIOD" The period commencing at the close of normal trading on the NYSE (currently 4:00 p.m. Eastern time) on each valuation date and ending at the close of the NYSE on the next succeeding valuation date. "VARIABLE ANNUITY" Annuity payments which vary in accordance with the investment experience of the subaccounts to which contract values have been allocated. ""WE", "US", "OUR"" Our Company, Lincoln Benefit Life Company. "YOU" The owner of the contract. ANNUITY BENEFIT ANNUITANT The annuitant is the person named on Page 3. The annuitant must be a living individual. If the annuitant dies prior to the annuity date, the new annuitant will be: - - the youngest owner; otherwise, - - the youngest beneficiary. ANNUITY DATE The monthly annuity will begin on the annuity date. The annuity date must always be the business day on or immediately following the tenth calendar day of a month. The annuity date is the date the annuitized value is applied to an annuity option. The anticipated annuity date is shown on Page 3. You may change the annuity date by writing us at least 30 days prior to this date. The annuity date must be on or before the later of: - - the annuitant's 90th birthday; or - - the 10th anniversary of the contract issue date. The initial payment purchased by each $1000 of annuitized value depends upon the annuity option selected and the age and sex of the annuitant on the annuity date. The payments are based upon the 1983a Annuity Mortality table and 3.5% interest. ANNUITY OPTIONS The following annuity options are available under the contract. Each is available in the form of either a fixed annuity or a variable annuity (or a combination of both fixed and variable annuity). Fixed account contract values will be applied to provide a fixed annuity VAP 9840 Page 5 OPTION A, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS Monthly payments are made beginning on the annuity date. Payment will continue as long as the annuitant lives. If the annuitant dies before all of the guaranteed payments have been made, we will continue installments of the guaranteed payments to the beneficiary. OPTION B, JOINT AND SURVIVOR ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS Monthly payments are made beginning with the annuity date. Payments will continue as long as either the annuitant or the joint annuitant is alive. If both the annuitant and the joint annuitant die before all of the guaranteed payments have been made, we will continue installments of the guaranteed payments to the beneficiary. OPTION C, PAYMENTS FOR A SPECIFIED PERIOD CERTAIN OF 5 TO 30 YEARS Monthly payments are made starting on the annuity date and continuing for the specified period of time as elected. If the annuitant dies before all of the guaranteed payments have been made, we will continue installments of the guaranteed payments to the beneficiary. We reserve the right to make available other annuity options. No lump sum settlement option is available under the contract. The initial monthly payments purchased per $1000 applied for Option A, with 120 months guaranteed are shown below. The factors for other options will be calculated using the same basis as those shown and are available by writing to us.
Monthly Annuity Payment for 120 Annuitant's Age on Months & Lifetime Annuity Date For Each $1,000.00 Male Female 50 4.53 4.19 51 4.60 4.25 52 4.67 4.31 53 4.75 4.38 54 4.84 4.45 55 4.93 4.52 56 5.02 4.60 57 5.12 4.68 58 5.22 4.77 59 5.33 4.86 60 5.44 4.95 61 5.56 5.05 62 5.69 5.16 63 5.82 5.27 64 5.96 5.39 65 6.11 5.52 66 6.26 5.65 67 6.41 5.79 68 6.57 5.94 69 6.74 6.10 70 6.91 6.26 71 7.08 6.43 72 7.25 6.61 73 7.43 6.79 74 7.61 6.98 75 7.78 7.18 76 7.96 7.38 77 8.13 7.58 78 8.29 7.79 79 8.45 7.98 80 8.61 8.17 81 8.75 8.36 82 8.89 8.54 83 9.01 8.71 84 9.13 8.86 85 or over 9.23 9.01
VAP 9840 Page 6 ANNUITY PAYMENTS The contract provides for two types of annuity payments. "Variable annuity payments" vary in amount based on changes in the subaccounts that you have selected. "Fixed annuity payments" do not vary in amount and are paid in an amount determined when you annuitize. Your annuity payments may consist of a mixture of the two types of payments or may be entirely one or the other. The method of calculating the initial payment is different for the two accounts. The contract maintenance charge will be deducted in equal payments from each annuity payment. The contract maintenance charge will be waived if the contract value on the annuity date is $50,000 or more or if all payments are fixed amount annuity payments. PAYMENT TERMS AND CONDITIONS The annuity payments are subject to the following terms and conditions: If the contract value is less than $5,000, or not enough to provide an initial payment of at least $50, and state law permits, we reserve the right to: - - change the payment frequency to make the payment at least $50 or - - terminate the contract and pay you the contract value adjusted by any market value adjustment and less any applicable taxes in a lump sum. If we do not receive a written choice of an annuity option from you at least 30 days before the annuity date, the income plan will be Life Income with Guaranteed Payments for 120 months. If you choose an annuity option which depends on any person's life, we may require: - - proof of age and sex before income payments begin; and - - proof that the annuitant or joint annuitant is still alive before we make each payment. After the annuity date, the annuity option cannot be changed and withdrawals cannot be made unless annuity payments are being made from the separate account under annuity Option C. You may terminate annuity payments being made from the separate account under annuity Option C at any time and withdraw their value. If any owner dies before all annuity payments have been made, the remaining annuity payments will be paid to the successor owner as scheduled. FIXED ANNUITY You may choose to apply a portion of your annuitized value to purchase a fixed annuity. You must notify us, within 30 days of the annuity date, of that portion of your annuitized value with which you wish to purchase a fixed annuity. Any annuitized value in the fixed account will be automatically applied to provide a fixed annuity. We will reduce your interest in the subaccounts on the annuity date to reflect your choice. The initial annuity payment for any portion of the annuitized value applied to purchase a fixed annuity is determined by applying it to the per $1000 payment factors for the annuity option selected. Subsequent payments will be fixed in amount, equal to the initial payment, and paid according to the annuity option selected. VARIABLE ANNUITY AND ANNUITY UNITS The initial annuity payment attributable to a subaccount is determined by applying the annuitized value attributable to that subaccount on the annuity date to the annuity option selected. The initial annuity payment for a subaccount is divided by the subaccount's annuity unit value on the annuity date to determine the number of annuity units purchased. Subsequent annuity payments attributable to a VAP 9840 Page 7 subaccount will be equal to the number of annuity units for the subaccount multiplied by the annuity unit value for the subaccount on the payment date. The total variable annuity payment will be the sum of the payments attributable to each subaccount in which you have an interest. ANNUITY UNIT VALUE The annuity unit value of a subaccount for any valuation period is calculated by multiplying the annuity unit value at the end of the immediately preceding valuation period by the subaccount's net investment factor for the valuation period and dividing this product by 1.000 plus the assumed investment rate for the period. The assumed investment rate is an effective annual rate of 3.5%. The net investment factor is described in detail on pages 10 and 11. PURCHASE PAYMENTS Purchase payments for this contract are flexible. The initial purchase payment shown on Page 3 must be paid on the issue date. Thereafter, you may make payments of at least $500 at any time prior to the annuity date. We may limit the maximum amount of premium payments we will accept. Purchase payments are payable to us at our home office. We will supply a receipt if you ask us. ALLOCATION OF PURCHASE PAYMENTS We will invest the purchase payments in the investment alternatives as you have selected. You may allocate any portion of your purchase payment, in whole percents from 0% to 100%, or in exact dollar amounts to any of the subaccounts or the fixed account options. The total allocation must equal 100%. The allocation of the initial purchase payment is shown on page 3. Allocation of each subsequent purchase payment will be the same as the allocation for the most recent purchase payment unless you change the allocation. You may change the allocation percentages at any time by writing us. Any change will be effective when we receive it. FIXED ACCOUNT OPTIONS The fixed account options are the Dollar Cost Averaging Fixed Account Option and the Guaranteed Maturity Fixed Account. DOLLAR COST AVERAGING FIXED ACCOUNT Money allocated to the Dollar Cost Averaging Fixed Account option will earn interest for one year at the current rate in effect at the time of allocation. Each purchase payment and associated interest in the Dollar Cost Averaging Fixed Account option must be transferred to other investment alternatives in equal monthly installments. The number of monthly installments must be no more than 12. At the end of 12 months from the date of a purchase payment allocation to the Dollar Cost Averaging Fixed Account, any remaining portion of the purchase payment and interest in the Dollar Cost Averaging Fixed Account will be allocated to other investment alternatives as defined by the current Dollar Cost Averaging Fixed Account allocation. You may only allocate money to the Dollar Cost Averaging Fixed Account option by allocating a portion of a purchase payment. No amount may be transferred into the Dollar Cost Averaging Fixed Account. GUARANTEED MATURITY FIXED ACCOUNT OPTION We will pay a specified interest rate for a specified Guarantee Period on each amount allocated to the Guaranteed Maturity Fixed Account Option. You choose the applicable Guarantee Period from among the choices that we make available at our discretion. Each Guarantee Period we offer may have a different interest rate. We may change the rate we offer for new Guarantee Periods at any time at our discretion. VAP 9840 Page 8 New Guarantee Periods begin when: - - you make a purchase payment; or - - you select a new Guarantee Period after the prior Guarantee Period expires; or - - you transfer an amount from an existing subaccount of the separate account, from the Dollar Cost Averaging Fixed Account option, or you allocate funds in the fixed account to a new Guarantee Period before the end of the existing Guarantee Period. You must select the Guarantee Period for all purchase payments and transfers allocated to the Guaranteed Maturity Fixed Account option. If you do not select a Guarantee Period for a purchase payment or transfer, we will assign the same period(s) as used for the most recent purchase payment. We will mail you a notice prior to the expiration of a Guarantee Period outlining the options available at the end of the Guarantee Period. During the 30 day period after a Guarantee Period expires you may: - - take no action and we will automatically apply the relevant amount to a new Guarantee Period of the same duration as the expiring Guarantee Period beginning on the day the previous guarantee period expired. The interest rate will be the rate we are then offering for Guarantee Periods of that duration, or - - notify us to allocate the relevant amount to one or more new Guarantee Periods beginning on the day the previous guarantee period expired; or - - notify us to allocate the relevant amount to one or more subaccounts on the day we receive the notification; or - - withdraw all or a portion of the relevant amount through a partial withdrawal. We will not adjust the amount withdrawn to include a Market Value Adjustment. In this case, the amount withdrawn will be deemed to have been withdrawn on the day the guarantee period expired. CREDITING INTEREST We credit interest daily to money allocated to the fixed account options at a rate which compounds over one year to the interest rate we guaranteed when the money was allocated. We will credit interest on the initial purchase payment from the issue date. We will credit interest to subsequent purchase payments from the date we receive them. We will credit interest to transfers from the date the transfer is made. The interest rate for the Dollar Cost Averaging Fixed Account will never be less than the minimum guaranteed rate shown on Page 3. CONTRACT VALUE On the issue date of the contract, the contract value is equal to the initial purchase payment. After the issue date, the contract value is equal to the sum of: - - the number of accumulation units you hold in each subaccount of the separate account multiplied by the accumulation unit value for that subaccount on the most recent valuation date; plus - - the total value you have in the Dollar Cost Averaging Fixed Account Option; plus - - the total values you have in the Guaranteed Maturity Fixed Account Option. If you withdraw the entire contract value, you may receive an amount greater or less than the contract value because a market value adjustment, income tax withholding, and a premium tax charge may apply. SUBACCOUNT VALUES The value of a subaccount is equal to the number of accumulation units you hold for that subaccount multiplied by the accumulation unit value for that subaccount on the most recent valuation date. VAP 9840 Page 9 ACCUMULATION UNITS AND ACCUMULATION UNIT VALUES Amounts which are allocated to a subaccount are used to purchase accumulation units in that subaccount. The number of accumulation units purchased is determined by dividing the amount allocated by the subaccount's accumulation unit value as of the end of the valuation period when the allocation occurs. Accumulation unit value is determined Monday through Friday on each day that the New York Stock Exchange is open for business. A separate accumulation unit value is determined for each subaccount. The accumulation unit value for each subaccount will vary with the price of a share in the portfolio the subaccount invests in, and in accordance with the mortality and expense risk charge, administrative expense charge, and any provision for taxes. Assessments of transfers and contract maintenance charges are done separately for each contract. They are made by redemption of accumulation units and do not affect accumulation unit value. The accumulation unit value of a subaccount for any valuation period equals the accumulation unit value as of the immediately preceding valuation period, multiplied by the net investment factor for that subaccount for the current valuation period. NET INVESTMENT FACTOR The net investment factor for any subaccount of the separate account for any valuation period is (1) divided by (2) minus (3) where: 1. is the net result of: - the net asset value of a portfolio share held in the the mutual fund underlying the subaccount determined at the end of the valuation period, plus - the per share amount of any dividend or capital gain distributions declared by the portfolio underlying the subaccount during the current valuation period, plus or minus - a per share credit or charge with respect to any taxes which we paid or for which we reserved during the valuation period which are determined by us to be attributable to the operation of the subaccount (no federal income taxes are applicable under present law). 2. is the net asset value per share of a portfolio share held in the subaccount as of the end of the immediately preceding valuation period; and 3. is the sum of the annualized mortality and expense risk charge and the annualized administrative expense charge divided by the number of days in the current calendar year and then multiplied by the number of calendar days in the current valuation period. The net investment factor may be greater or less than or equal to one; therefore, the value of an accumulation unit may increase, decrease, or remain the same. MORTALITY AND EXPENSE RISK CHARGE Both before and after the annuity date, we deduct a mortality and expense risk charge from each subaccount during the valuation period. The annualized aggregate mortality and expense risk charge is equal to 1.30% of the net asset value of each subaccount. Our expense and mortality experience will not adversely affect the dollar amount of variable benefits or other contractual payments or values under this contract. ADMINISTRATIVE EXPENSE CHARGE Both before and after the annuity date, we deduct an administrative expense charge from each subaccount during the valuation period. The annualized administrative VAP 9840 Page 10 expense charge is .10% of the net asset value of the subaccount. This charge compensates us for the cost of administering the contracts and the separate account. CONTRACT MAINTENANCE CHARGE Prior to the annuity date, a contract maintenance charge will be deducted from your contract value on each contract anniversary. The charge is only deducted from the subaccounts. The charge will be deducted on a pro-rata basis from each subaccount of the separate account in the proportion that your value in each bears to your total value in all subaccounts. A full contract maintenance charge will be deducted if the contract is terminated on any date other than a contract anniversary. The annualized charge will never be greater than $35 per contract year. The contract maintenance charge will be waived if total purchase payments are $50,000 or more or if all money is allocated to the fixed account options on the contract anniversary. After the annuity date the contract maintenance charge will be deducted in equal parts from each annuity payment. The contract maintenance charge will be waived if the contract value on the annuity date is $50,000 or more or if all payments are fixed amount annuity payments. TRANSFERS AND TRANSFER FEE You may transfer amounts between investment alternatives prior to the annuity date. We reserve the right to impose a $10 transfer fee on the second transfer within a calendar month, and to impose a minimum size on transfer amounts. Transfers are subject to the following restrictions: - - Any transfer from a Fixed Account will be subject to a Market Value adjustment unless: - the transfer occurs during the 30 day period after the applicable guarantee period expires; or - the transfer is made as part of a dollar cost averaging program. - - At the end of 12 months from the date of a purchase payment allocation to the dollar cost averaging fixed account, any remaining portion of the purchase payment and interest in the dollar cost averaging fixed account will be allocated to other investment alternatives as defined by the current dollar cost averaging fixed account allocation. - - No amount may be transferred into the dollar cost averaging fixed account. We reserve the right to waive the transfer fees and restrictions contained in this contract. ANNUITY TRANSFERS After the annuity date, no transfers may be made from the fixed amount annuity payment. Transfers between subaccounts, or from the variable amount annuity payment to the fixed amount annuity payment may not be made for six months after the annuity date. Transfers may be made once every six months thereafter. TAXES Any premium taxes or income tax withholding relating to the contract may be deducted from purchase payments or the contract value when the tax is incurred or at a later time. SURRENDER VALUE SURRENDER You may surrender this contract before the annuity date. We will pay you the surrender value upon surrender. The surrender value is equal to the contract value, adjusted by any market value adjustment, less any applicable taxes. A surrender stops coverage under this contract. VAP 9840 Page 11 WITHDRAWAL You have the right to withdraw part or all of your surrender value before the annuity date. You must specify the investment alternative(s) from which you wish to make a withdrawal. When you make a withdrawal, your contract value will be reduced by the amount paid to you and any market value adjustment, and taxes. A contract maintenance charge will also be deducted if the contract is terminated. Each withdrawal must be at least $50. If any withdrawal reduces the contract value to less than $500, we will treat the request as a withdrawal of the entire contract value. If you withdraw the entire contract value, the contract will terminate. MARKET VALUE ADJUSTMENT Activities in the Fixed Account that may be subject to a market value adjustment are transfers, death benefits, and amounts applied to an annuity option. Any activity will be subject to a market value adjustment unless: - - it occurs during the 30 day period after the applicable guarantee period expires; or - - it is a transfer that is part of a dollar cost averaging program. A market value adjustment is an increase or decrease in the amount reflecting changes in the level of interest rates since the beginning of the applicable Guarantee Period. As used in this provision, 'treasury rate' means the U.S. Treasury Note Constant Maturity yield as reported in Federal Reserve Bulletin Release H.15. The market value adjustment is based on the following: I = the Treasury Rate for a maturity equal to the guarantee period for the week preceding the beginning of the Guarantee Period; J = the Treasury Rate for a maturity equal to the guarantee period for the week preceding the receipt of the withdrawal request, death benefit request, transfer request, or annuity option request. N = the number of whole and partial years from the date we receive the withdrawal, transfer, or death benefit request, or from the annuity date, to the end of the guarantee period. An adjustment factor is determined from the following formula: .9 x (I - J) x N The amount subject to a market value adjustment that is deducted from the guaranteed maturity fixed account is multiplied by the adjustment factor to determine the amount of the market value adjustment. Any market value adjustment will be waived on withdrawals taken to satisfy IRS minimum distribution rules. This waiver is permitted only for withdrawals which satisfy distributions resulting from this contract. DEATH BENEFIT DEATH OF OWNER OR ANNUITANT We will pay the death benefit when we receive due proof of death while this contract is in force and before the annuity date, if - -- any owner dies; or - -- the annuitant dies and the owner is not a natural person. If the owner eligible to receive a benefit is not a natural person, the owner may elect to receive the benefit in one or more distributions. Otherwise, if the owner is a living individual, the owner may elect to receive a benefit either in one or more distributions or by annuity payments through an annuity option. A death benefit will be paid if: - - the owner elects to receive the death benefit within 180 days of the date of death, and VAP 9840 Page 12 - - payment is made as of the date we determine the value of the death benefit, as defined at the end of the death benefit provision. Otherwise, the settlement value will be paid. In any event, the entire value of the contract must be distributed within five (5) years after the date of death unless an annuity option is elected or a surviving spouse continues the contract in accordance with the following provisions. We reserve the right to extend the 180 day period when we will pay the death benefit. If an annuity option is elected, payments from the annuity option must begin within one year of the date of death and must be payable throughout: - - the life of the owner; or - - a period not to exceed the life expectancy of the owner, or - - the life of the owner with payments guaranteed for a period not to exceed the life expectancy of the owner. If the beneficiary is your spouse, and death occurs prior to the annuity date, then the contract can continue as if death had not occurred. If the contract is continued, the surviving spouse may make a single withdrawal of any amount within one year of the date of death without incurring a market value adjustment. If there is no annuitant at that time, the new annuitant will be the surviving spouse. The surviving spouse may also select one of the annuity options listed above. If the beneficiary is not a natural person, then the beneficiary must receive the death benefit in a lump sum, and the options listed above are not available. DEATH BENEFIT Prior to the annuity date, the death benefit is equal to the greatest of the following death benefit alternatives: - - the sum of all purchase payments reduced by a withdrawal adjustment, as defined below; or - - the contract value on the date we determine the death benefit; or - - the amount that would have been payable in the event of a full withdrawal of the contract value on the date we determine the death benefit; or - - the contract value on each contract anniversary prior to the date we determine the death benefit, increased by any purchase payments made since that contract anniversary and reduced by a withdrawal adjustment, as defined below. The death benefit will be recalculated for purchase payments, withdrawals and on contract anniversaries until the oldest owner or the annuitant, if the owner is not a living individual, attains age 85. After age 85, the death benefit will be recalculated only for purchase payments and withdrawals. VAP 9840 Page 13 WITHDRAWAL ADJUSTMENT The withdrawal adjustment is equal to (a) divided by (b), with the result multiplied by (c) where: (a) equals the withdrawal amount. (b) equals the contract value immediately prior to the withdrawal. (c) equals the value of the applicable death benefit alternative immediately prior to the withdrawal. We will determine the value of the death benefit as of the end of the valuation period during which we receive a complete request for payment of the death benefit. A complete request includes due proof of death. SETTLEMENT VALUE The settlement value is the same amount that would be paid in the event of a full withdrawal of the contract value. We will calculate the settlement value at the end of the valuation period coinciding with the requested distribution date for payment or on the mandatory distribution date of 5 years after the date of death, whichever is earlier. BENEFICIARY The beneficiary is the person(s) named on Page 3, and will receive the death benefit when any owner dies. If you do not name a beneficiary or if the beneficiary named is no longer living, the beneficiary will be: ... your spouse if living, otherwise; ... your children equally if living, otherwise; ... your estate. We will pay the death benefit to the beneficiaries according to the most recent written instruction we have received from you. If we do not have any written instructions, we will pay the death benefit in equal shares to the beneficiaries who are to share the funds. If there is more than one beneficiary in a class and one of the beneficiaries predeceases you, the death benefit will be paid to the surviving beneficiaries in that class. You may name new beneficiaries. We will provide a form to be signed. You must file it with us. Upon receipt, it is effective as of the date you signed the form, subject to any action we have taken before we received it. OWNERSHIP The annuitant is the owner if no other person is named in the app as owner. Unless you provide otherwise, as owner, you may exercise all rights granted by the contract, subject to the rights of any irrevocable beneficiary, without the consent of anyone else. You may name a new annuitant before the annuity date. You may also name a new owner. We will provide a form to be signed to request these changes. You must file it with us. Upon receipt, it is effective as of the date you signed the form. We are not liable for any payment we make or other action we take before receiving any written request for a change from you. You may assign this contract or an interest in it to another. You must do so in writing and file the assignment with us. No assignment is binding on us until we receive it. When we receive it your rights and those of the beneficiary will be subject to the assignment. We are not responsible for the validity of any assignment you make. OTHER TERMS OF YOUR CONTRACT OUR CONTRACT WITH YOU These pages, including any endorsements and any riders are your entire contract with us. We issued it based upon your app and the payment of the purchase payment by you. We will not use any statements, except those made in the app to challenge any claim or to avoid any liability under this contract. The VAP 9840 Page 14 statements made in the app will be treated as representations and not as warranties. Only our officers have authority to change this contract. No agent may do this. Any change must be written. INCONTESTABILITY This contract will be incontestable after its issue date. This means that we cannot use any misstatement by you in the application to challenge any claim or to avoid liability under this contract after this time. MISSTATEMENT OF AGE OR SEX If any age or has been misstated, we will pay the amounts which would have been paid at the correct age and sex. CONFORMITY WITH STATE LAW This contract is subject to the laws of the state in which it is delivered. If any part of the contract does not comply with the law, it will be treated by us as if it did. NONPARTICIPATING This policy does not participate in our earnings. EVIDENCE OF SURVIVAL We may require evidence of the survival of the annuitant. SETTLEMENTS We may require that this contract be returned to us prior to any settlement. We must receive due proof of death of the owner or annuitant prior to settlement of death claim. Any surrender or death benefit under this contract will not be less than the minimum benefits required by the statute of the state in which the contract is delivered. DEFERMENT OF PAYMENTS We will pay any amounts due under the separate account under this contract within seven days, unless: - - The New York Stock Exchange is closed for other than usual weekends or holiday, or trading on such exchange is restricted; - - An emergency exists as defined by the Securities and Exchange Commission; or - - The Securities and Exchange Commission permits delay for the protection of contract holders. In addition, we may defer payment or transfers from the fixed account options for up to 6 months after you ask for it. If we defer payment from the fixed account for more than 30 days we will pay interest as required by applicable law. Any interest would be payable from the date the withdrawal request is received by us to the date the payment is made. ANNUAL REPORT At least once a year, prior to the annuity date, we will send you a statement containing contract information. We will provide you with contract value information at any time upon request. The information presented will comply with any applicable law. SEPARATE ACCOUNT MODIFICATIONS We reserve the right, subject to applicable law, to make additions to, deletions from, or substitutions for the mutual fund shares underlying the subaccounts. We will not substitute any share attributable to your interest in a subaccount without notice to you and prior approval of the Securities and Exchange Commission, to the extend required by the Investment Company Act of 1940, as amended. We reserve the right to establish additional subaccounts each of which would invest in shares of another mutual fund. You may then instruct us to allocate purchase payments or transfers to such subaccounts, subject to any terms set by us or the mutual fund. VAP 9840 Page 15 In the event of any such substitution or change, we may by endorsement make sure changes as may be necessary or appropriate to reflect such substitution or change. If we deem it to be in the best interests of the persons having voting rights under the contracts, the separate account may be operated as a management company under the Investment Company Act of 1940, as amended or it may be deregistered under such Act in the event such registration is no longer required. VAP 9840 Page 16 FLEXIBLE PREMIUM DEFERRED VARIABLE ANNUITY CONTRACT Flexible Premium Payments Benefit Paid in the Event of Death Prior to the Annuity Date Withdrawal and Surrender Rights THE DOLLAR AMOUNT OF ANNUITY PAYMENTS OR OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE INVESTMENT EXPERIENCE OF THE SEPARATE ACCOUNT, WILL VARY TO REFLECT THE PERFORMANCE OF THE SEPARATE ACCOUNT. FOR AMOUNTS IN THE GUARANTEED MATURITY FIXED ACCOUNT, THE WITHDRAWAL BENEFIT, THE DEATH BENEFIT, TRANSFERS TO OTHER INVESTMENT ALTERNATIVES AND ANY PERIODIC ANNUITY PAYMENTS MAY BE SUBJECT TO A MARKET VALUE ADJUSTMENT WHICH MAY RESULT IN AN UPWARD OR DOWNWARD ADJUSTMENT OF THE AMOUNT DISTRIBUTED. VAP 9840 Page 17 EX-5 3 EXHIBIT 5
- ---------------------------------------------------------------------------------------------------------------------------------- APPLICATION FOR CONSULTANT I AND II VARIABLE ANNUITY LINCOLN BENEFIT LIFE COMPANY, P.O. BOX 82532, LINCOLN, NE 68501-2532 - ---------------------------------------------------------------------------------------------------------------------------------- IMPORTANT NOTICE: Any person who, with intent to defraud or knowing that he is facilitating a fraud against an insurer, submits an application or files a claim containing a false or deceptive statement is guilty of insurance fraud. - ---------------------------------------------------------------------------------------------------------------------------------- ANNUITANT: Name______________________________________________ Birth Date _____-_____-_____ Age _____________________ Soc. Sec. No. ______-_____-______ Telephone Number (_______) _______-____________________ Sex _______Male _______Female Street Address______________________________________________ City _______________ State__________ ZIP ________ - _____ - ---------------------------------------------------------------------------------------------------------------------------------- OWNER (IF OTHER): Name__________________________________________________________________ Soc. Sec. No. _______-______-______ Street Address______________________________________________ City _______________ State__________ ZIP ________-_______ Birth Date ______-______-______ Relationship to Annuitant______________________________________________________________________ - ---------------------------------------------------------------------------------------------------------------------------------- PRIMARY BENEFICIARY: Name ____________________________________________________________ Soc. Sec. No. ______-_______-______ Street Address______________________________________________ City ______________ State _________ ZIP ________-_______ Relationship to Owner ____________________________________________________________________ Soc. Sec. No. ______-______-_______ - ---------------------------------------------------------------------------------------------------------------------------------- CONTINGENT BENEFICIARY: Name ____________________________________________________________ Soc. Sec. No. _______-______-______ Street Address______________________________________________ City ______________ State _________ ZIP ________-_______ Relationship to Owner ____________________________________________________________________ Soc. Sec. No. _______-______-______ - ---------------------------------------------------------------------------------------------------------------------------------- PURCHASE PAYMENT INFORMATION: First Purchase Payment of $ ______________________ submitted herewith (Check or Money Order should be payable to Lincoln Benefit Life Company). A copy of this application duly signed by the agent will constitute receipt for such amount. If this application is declined, there will be no liability on the part of the Company, and any sums submitted with this application will be refunded. The Contract Owner intends to make subsequent purchase payments of $_________________ on a / / monthly(PAM) / / quarterly / / semi-annually / / annual basis / / single payment. - ---------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------- PURCHASE PAYMENT ALLOCATION: (WHOLE PERCENTAGES ONLY AND MUST EQUAL 100%) - -------------------------------------------------------------------------- MFS VARIABLE INSURANCE TRUST FIDELITY VIPF FIDELITY VIPF II ________% Growth with Income ________% Money Market ________% Asset Manager ________% Research ________% Equity Income ________% Contrafund ________% Emerging Growth ________% Overseas ________% Index 500 ________% Total Return ________% Growth SCUDDER VARIABLE LIFE INVESTMENT FUND ________% New Discovery ALGER AMERICAN FUND ________% Bond JANUS ASPEN SERIES ________% Income & Growth ________% Balanced ________% Flexible Income ________% Small Capitalization ________% Growth and Income ________% Balanced ________% Growth ________% Global Discovery ________% Growth ________% MidCap Growth ________% International ________% Aggressive Growth ________% Leveraged AllCap FEDERATED INSURANCE MANAGEMENT SERIES ________% Worldwide Growth T. ROWE PRICE EQUITY SERIES ________% Utility Fund II STRONG VARIABLE INSURANCE FUNDS, INC. ________% New America Growth ________% Fund for U.S. Gov't Securities ________% Discovery Fund II ________% MidCap Growth ________% High Income Bond Fund II ________% Opportunity Fund II ________% Equity Income GUARANTEED MATURITY FIXED ACCOUNT ________% Growth Fund II FIXED ACCOUNT ________% 1 year in Guarantee Period T. ROWE PRICE INTERNATIONAL SERIES, INC. ________% ________% 3 year in Guarantee Period ________% International Stock ________% 5 year in Guarantee Period ________% 7 year in Guarantee Period ________% 10 year in Guarantee Period - ----------------------------------------------------------------------------------------------------------------------------------
VAA 9830 Page 1
- ---------------------------------------------------------------------------------------------------------------------------------- Plan Name/ Form Number:______________________________________ (If not designated, app will be processed for Consultant I.) - ---------------------------------------------------------------------------------------------------------------------------------- PAM (PRE-AUTHORIZED METHOD) I authorize the Company to collect $_____________________, on the due date specified, by initiating electronic debit entries to my account. A balance must exist before the program can commence. ATTACH VOIDED CHECK. (Credit unions and savings accounts are not eligible.) Signature of Authorized Account Owner ____________________________________________________ Date ______________________________ - ---------------------------------------------------------------------------------------------------------------------------------- Will this annuity replace or change any existing policy? __Yes ___ No If Yes, give name of company, policy issue date, policy number and cost basis._____________________________________________________________________________________________________ - ---------------------------------------------------------------------------------------------------------------------------------- - -------------- TAX QUALIFIED? - -------------- / / IRA / / SEP-IRA / / Other__________________________ / / 401 (a) / / {LBL Prototype / / Funding Vehicle} / / 401 (k) / / {LBL Prototype / / Funding Vehicle} / / 403 (b) / / Simple IRA / / Roth IRA Tax year for which contribution is to be applied______________________________________ - ---------------------------------------------------------------------------------------------------------------------------------- I declare: To the best of my knowledge and belief, all statements and answers are true, complete and correctly reported. Lincoln Benefit Life may correct or endorse this application. No change shall be made in the annuity amount or plan or issue age by such endorsement or correction. Under penalties of perjury, I certify that the Social Security Number stated herein is my correct taxpayer ID number, and I am not subject to backup withholding. I UNDERSTAND THAT ANNUITY PAYMENTS AND SURRENDER VALUES PROVIDED UNDER THE SEPARATE ACCOUNT ARE VARIABLE AND ARE NOT GUARANTEED AS TO A FIXED DOLLAR AMOUNT. RECEIPT OF A CURRENT VARIABLE ANNUITY PROSPECTUS IS HEREBY ACKNOWLEDGED. / / Please send me a copy of the Statement of Additional Information to the Prospectus. Signed at ________________________________________________________________ On (date) _____________-____________-_____________ City/State Month Day Year Owner's Signature ________________________________________________________________________________________________________________ - ---------------------------------------------------------------------------------------------------------------------------------- TO THE AGENT: To the best of your knowledge will this annuity replace or change any existing life insurance or annuity in this or any other company? / / Yes / / No Agent Name ___________________________________________________ Agent's Signature _______________________________________________ Agent Number _________________________________________________ Agent's Phone No. _______________________________________________ - ---------------------------------------------------------------------------------------------------------------------------------- TO THE REGISTERED REPRESENTATIVE/BROKER-DEALER: CHOOSE OPTION: / / OPTION A / / OPTION B / / OPTION C Broker/Dealer _____________________________________________ Telephone _______________________________________________________ - ----------------------------------------------------------------------------------------------------------------------------------
VAA 9830 Page 2
- ---------------------------------------------------------------------------------------------------------------------------------- - ----------------------- TRANSFER AUTHORIZATION: - ----------------------- / / I authorize Lincoln Benefit Life Company ("LBL") to act upon the written or telephone instructions from the person named below to 1) change the allocation of payments and deductions between and among the subaccounts; and 2) transfer amounts among the subaccounts. Neither LBL nor any person authorized by us will be responsible for any claim, loss, liability, or expense in connection with such transfer authorization if LBL, or its employees, acts upon transfer instructions in good faith. LBL may establish procedures to determine the proper identification of the person requesting the transfer. Name and Relationship of Authorized Person: Name________________________________________________ Relationship_____________________________ SS#___________________________ Signature of Owner_______________________________________________________________ Date_________________________________________ - ---------------------------------------------------------------------------------------------------------------------------------- - -------------------------------------------- DOLLAR COST AVERAGING/PORTFOLIO REBALANCING: - -------------------------------------------- MFS VARIABLE INSURANCE TRUST FIDELITY VIPF FIDELITY VIPF II DCA PR DCA PR DCA PR $____ ____% Growth with Income $____ ____% Money Market $____ ____% Asset Manager $____ ____% Research $____ ____% Equity Income $____ ____% ContraFund $____ ____% Emerging Growth $____ ____% Overseas $____ ____% Index 500 $____ ____% Total Return $____ ____% Growth $____ ____% New Discovery JANUS ASPEN SERIES ALGER AMERICAN FUND SCUDDER VARIABLE LIFE INVESTMENT FUND DCA PR DCA PR DCA PR $____ ____% Flexible Income $____ ____% Income & Growth $____ ____% Bond $____ ____% Balanced $____ ____% Small Capitalization $____ ____% Balanced $____ ____% Growth $____ ____% Growth $____ ____% Growth and Income $____ ____% Aggressive Growth $____ ____% MidCap Growth $____ ____% Global Discovery $____ ____% Worldwide Growth $____ ____% Leveraged AllCap $____ ____% International STRONG VARIABLE INSURANCE FUNDS, INC. T. ROWE PRICE EQUITY SERIES FEDERATED INSURANCE MANAGEMENT SERIES DCA PR DCA PR DCA PR $____ ____% Discovery Fund II $____ ____% New America Growth $____ ____% Utility Fund II $____ ____% Opportunity Fund II $____ ____% MidCap Growth $____ ____% Fund for U.S. Gov't Securities II $____ ____% Growth Fund II $____ ____% Equity Income $____ ____% High Income Bond Fund II T. ROWE PRICE INTERNATIONAL SERIES, INC. FIXED ACCOUNT GUARANTEED MATURITY FIXED ACCOUNT DCA PR DCA PR DCA PR $____ ____% International Stock $____ ____% (Restrictions apply $____ ____% 1 Year Guarantee Period for DCA--see prospectus for details) $____ ____% 3 Year Guarantee Period $____ ____% 5 Year Guarantee Period $____ ____% 7 Year Guarantee Period $____ ____% 10 Year Guarantee Period - ----------------------------------------------------------------------------------------------------------------------------------
VAA 9830 Page 3
- ---------------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------- SYSTEMATIC WITHDRAWALS: ($50.00 Minimum Withdrawal) - ---------------------------------------------------- I authorize systematic withdrawals of : / / $___________________ / / Interest Earnings / / % Percentage of Purchase Payments from my contract value to commence during the month of ________________________. Withdrawals may be subject to penalties and/or a Deferred Sales Charge. Additional restrictions may apply to contracts held as a Qualified Plan. Frequency: ____ Monthly _____Quarterly _____Semi-Annual _____Annual Please indicate the amount or percentage of the withdrawal from the chosen Subaccount(s) / / Dollar Amount Specified / / Percentage Specified / / Or mark this box if the withdrawal is to be taken from the account value on a Pro Rata basis. MFS VARIABLE INSURANCE TRUST FIDELITY VIPF FIDELITY VIPF II _________ Growth with Income _________ Money Market _________ Asset Manager _________ Research _________ Equity Income _________ ContraFund _________ Emerging Growth _________ Overseas _________ Index 500 _________ Total Return _________ Growth _________ New Discovery JANUS ASPEN SERIES ALGER AMERICAN FUND SCUDDER VARIABLE LIFE INVESTMENT FUND _________ Flexible Income _________ Income & Growth _________ Bond _________ Balanced _________ Small Capitalization _________ Balanced _________ Growth _________ Growth _________ Growth and Income _________ Aggressive Growth _________ MidCap Growth _________ Global Discovery _________ Worldwide Growth _________ Leveraged AllCap _________ International STRONG VARIABLE INSURANCE FUNDS, INC. T. ROWE PRICE EQUITY SERIES FEDERATED INSURANCE MANAGEMENT SERIES _________ Discovery Fund II _________ New America Growth _________ Utility Fund II _________ Opportunity Fund II _________ MidCap Growth _________ Fund for U.S. Gov't Securities II _________ Growth Fund II _________ Equity Income _________ High Income Bond Fund II T. ROWE PRICE INTERNATIONAL SERIES, INC. FIXED ACCOUNT GUARANTEED MATURITY FIXED ACCOUNT _________ International Stock _________ ________ 1 Year Guarantee Period ________ 3 Year Guarantee Period ________ 5 Year Guarantee Period ________ 7 Year Guarantee Period ________ 10 Year Guarantee Period - ----------------------------------------------------------------------------------------------------------------------------------
VAA 9830 Page 4 EX-10 4 EXHIBIT 10 Exhibit(10) INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Lincoln Benefit Life Variable Annuity Account on Form N-4 of our report dated March 20, 1998 on the consolidated financial statements of Lincoln Benefit Life Company and subsidiary, appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Prospectus. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Lincoln, Nebraska April 17, 1998 Exhibit(10) INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Lincoln Benefit Life Variable Annuity Account on Form N-4 of our report dated March 20, 1998 on the financial statements of Lincoln Benefit Life Variable Annuity Account, appearing in the Statement of Additional Information, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Statement of Additional Information. /s/ Deloitte & Touche LLP DELOITTE & TOUCHE LLP Lincoln, Nebraska April 17, 1998 -----END PRIVACY-ENHANCED MESSAGE-----