AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 2003.

REGISTRATION NO. 33-36073

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No.

                                                                               Post-Effective Amendment No. 17                                                                    [X]                             

and

                       REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940          [X]

Amendment No. 18

PEOPLES BENEFIT LIFE INSURANCE COMPANY

Separate Account IV

(Exact Name of Registrant)

Peoples Benefit Life Insurance Company

(Name of Depositor)

4333 Edgewood Road NE Cedar Rapids, Iowa 52499

(Address of Depositor’s Principal Executive Office)

Depositor’s Telephone Number: (319) 297-8121

Peoples Benefit Life Insurance Company

Brenda D Sneed, Esquire

4333 Edgewood Rd. NE  

Cedar Rapids, Iowa 52499

(Name and Address of Agent for Service)

Copy to:

Michael Berenson, Esquire

Morgan, Lewis & Bockius LLP

1800 M Street, N.W.

Washington, DC 20036-5869

It is proposed that this filing will become effective (check appropriate box):

[X] Immediately upon filing pursuant to paragraph (b) of Rule 485.

[_] On              pursuant to paragraph (b)(1)(v) of Rule 485.

[_] 60 days after filing pursuant to paragraph (a)(1) of Rule 485.

[_] On              pursuant to paragraph (a)(1) of Rule 485.

[_] 75 days after filing pursuant to paragraph (a)(2) of Rule 485.

[_] On              pursuant to paragraph (a)(2) of Rule 485.

Vanguard^® Variable Annuity

Issued by

Peoples Benefit Life Insurance Company

Supplement to the Prospectus dated 5/1/2003

For Oregon residents (Form No. NA100A-OR), the death benefit will equal the greater of: (a) the Accumulated Value on the date the Company receives due Proof of Death and proof that the Annuitant died prior to the Income Date; or (b) the sum of all Premium Payments, less the sum of all partial withdrawals and premium taxes, if any.

The Mortality and Expense Risk Charge will be assessed daily at a rate of 0.20% annually. For the death benefit described above, there will be an additional charge of 0.125% to be assessed quarterly based on the Contract Anniversary Date. The additional equivalent annual charge of 0.05% will be assessed for a period of 10 years from the Contract Date. Therefore, the total Mortality and Expense Risk Charge for that specific 10 year period will be 0.25% annually.

Vanguard Variable Annuity

Prospectus

May 1, 2003

Issued Through Peoples Benefit Life Insurance Company Separate Account IV

By Peoples Benefit Life Insurance Company

The Vanguard Variable Annuity (the “Contract”) provides a means of investing on a tax-deferred basis in Portfolios of Vanguard Variable Insurance Fund

Money Market Portfolio

Short-Term Corporate Portfolio

Total Bond Market Index Portfolio

High Yield Bond Portfolio

Balanced Portfolio

Equity Income Portfolio

Diversified Value Portfolio

Total Stock Market Index Portfolio

Equity Index Portfolio

Mid-Cap Index Portfolio

Growth Portfolio

Capital Growth Portfolio

Small Company Growth Portfolio

International Portfolio

REIT Index Portfolio

The Contract is intended for retirement savings or other long-term investment purposes. You bear all investment risk (including the possible loss of principal), and investment results are not guaranteed. The Contract provides a Free Look Period of at least 10 days (20 days or more in some instances) during which the Contract may be cancelled.

Why Reading This Prospectus Is Important

This prospectus explains the Vanguard Variable Annuity. Reading the Contract prospectus will help you decide whether the Contract is the right investment for you. The Contract prospectus must be accompanied by a current prospectus for Vanguard Variable Insurance Fund, which discusses in greater depth the objective, risks, and strategies of each Portfolio of Vanguard Variable Insurance Fund. Please read them both carefully before you invest and keep them for future reference. A Statement of Additional Information for the Contract prospectus has been filed with the Securities and Exchange Commission, is incorporated by reference, and is available free by writing to Vanguard Annuity and Insurance Services, P.O. Box 1105, Valley Forge, PA 19482-1105 or by calling 1-800-522-5555 on business days between 8 a.m. and 8 p.m., Eastern time. The Table of Contents for the Statement of Additional Information is included at the end of the Contract prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or passed upon the accuracy or adequacy of this prospectus. Any representation to the contrary is a criminal offense.

The Contract is available in all states except New York.

This prospectus does not constitute an offering in any jurisdiction where it would be unlawful to make an offering like this. No one has been authorized to give any information or make any representations about this offering other than those contained in this prospectus. You should not rely on any other information or representations.

Contents

1	Cross Reference to Definitions
2	Summary
5	Fee Table
7	Example
7	The Annuity Contract
8	Annuity Payments
10	Purchase
14	Investment Options
17	Expenses
18	Taxes
20	Access to Your Money
22	Performance
22	Death Benefit
24	Other Information
27	Table of Contents of Statement of Additional Information
28	Appendix (Condensed Financial Information)

CROSS REFERENCE TO DEFINITIONS

We have generally defined the technical terms associated with the Contract where they are used in the prospectus. The following list shows where certain of the more technical and more frequently used terms are defined in the prospectus. In the text you can easily locate the defined word because it will appear in bold type or its definition will be covered in a space on the page set aside specifically for discussion of the term.

Accumulated Value	13
Accumulation Phase	8
Accumulation Unit	13
Accumulation Unit Value	13
Adjusted Partial Withdrawal	23
Annuitant	23
Annuity Payment Options	8
Beneficiary(ies)	23
Business Day	10
Contract	7
Contract Date	11
Contract Owner	25
Free Look Period	25
Income Date	8
Income Phase	8
Initial Premium Payment	10
Joint Annuitant	23
Net Premium Payment	11
Non-Qualified Contract	7
Qualified Contract	11
Portfolios	14
Premium Tax	12
Premium Payment	11
Tax Deferral	18

1

Summary

The sections in this Summary provide you with a concise discussion of the major topics covered in this prospectus. Each section of the Summary is discussed in greater detail in the main body of the prospectus at corresponding section headings. Please read the full prospectus carefully.

THE ANNUITY CONTRACT

The Vanguard Variable Annuity is a flexible-premium variable annuity offered by Peoples Benefit Life Insurance Company (the “Company”). The Contract provides a means of investing on a tax-deferred basis in various Subaccounts that invest in the portfolios of Vanguard Variable Insurance Fund (the “Portfolios”).

Who Should Invest

The Contract is intended for long-term investors who want tax-deferred accumulations of funds, generally for retirement but also for other long-term purposes.

The Contract provides benefits in two distinct phases: accumulation and income.

The Accumulation Phase

During the Accumulation Phase, you choose to allocate your investment in the Contract among the various Subaccounts that invest in the Vanguard Portfolios available under the Contract. You can contribute additional dollars to the Contract and you can take withdrawals from the Contract during the Accumulation Phase. The value of your investment depends on the investment performance of the Subaccounts you choose. Your earnings are generally not taxed during this phase unless you withdraw them.

The Income Phase

During the Income Phase, you can receive regular annuity payments on a fixed or variable basis and for various periods of time depending on your need for income and the choices available under the Contract. See Annuity Payments, page 8, for more information about Annuity Payment Options.

Vanguard Variable Insurance Fund

The Subaccounts available for investment under the Contract invest in Portfolios of Vanguard Variable Insurance Fund (the “Fund”), an open-end investment company. The Fund is a member of The Vanguard Group, a family of 35 investment companies with more than 100 distinct investment portfolios holding assets in excess of $550 billion.

ANNUITY PAYMENTS

During the Income Phase, you receive regular annuity payments under a wide range of Annuity Payment Options. The Contract allows you to receive an income guaranteed for as long as you live or until the second of two people dies. You may also choose to receive a guaranteed number of payments over a number of years. Most Annuity Payment Options are available on either a variable basis (where the amount of the payment rises or falls depending on the investment performance of the Subaccount you have chosen) or a fixed basis (where the payment amount is guaranteed).

PURCHASE

You can buy the Contract with a minimum investment of $5,000 under most circumstances. You can add $250 or more at any time during the Accumulation Phase. The total of all your Premium Payments in the Contract may not exceed $5,000,000 without prior approval from the Company.

INVESTMENT OPTIONS

When you purchase the Contract, your Premium Payments are deposited into the Peoples Benefit Life Insurance Company Separate Account IV (the “Separate Account”). The Separate Account contains a number of subaccounts that invest exclusively in shares of the Portfolios of the Vanguard Variable Insurance Fund (the “Subaccounts”). The investment performance of each Subaccount is linked directly to the investment performance of one of the Portfolios. Assets in the Separate Account belong to the Company, but are accounted for separately from the Company’s other assets and can be used only to satisfy its obligations to the Contract Owners.

You can allocate your Premium Payments to one or more Subaccounts that invest exclusively in shares of the following Portfolios described in the Fund prospectus:

2

Managed by Vanguard’s Fixed Income Group

Money Market Portfolio

Total Bond Market Index Portfolio

Short-Term Corporate Portfolio

Managed by Vanguard’s Quantitative Equity Group

Equity Index Portfolio

Mid-Cap Index Portfolio

REIT Index Portfolio

Total Stock Market Index Portfolio

Managed by Wellington Management Company, LLP

High Yield Bond Portfolio

Balanced Portfolio

Managed by Newell Associates

Equity Income Portfolio

Managed by Barrow, Hanley, Mewhinney & Strauss, Inc.

Diversified Value Portfolio

Managed by Alliance Capital Management L.P.

Growth Portfolio

Managed by PRIMECAP Management Company

Capital Growth Portfolio

Managed by Granahan Investment Management, Inc. and Grantham, Mayo, Van Otterloo & Co. LLC

Small Company Growth Portfolio

Managed by Schroder Investment Management North America Inc. and Baillie Gifford Overseas Ltd

International Portfolio

Each Portfolio’s board of trustees may, without prior approval from Contract Owners, change the terms of an advisory agreement or hire a new investment adviser—either as a replacement for an existing adviser or as an additional adviser. Any significant change in a Portfolio’s advisory arrangements will be communicated to Contract Owners in writing. In addition, as each Portfolio’s sponsor and overall manager, The Vanguard Group may provide investment advisory services to a Portfolio, on an at-cost basis, at any time.

You can make or lose money in any of the Subaccounts that invest in these Portfolios depending on their investment performance.

EXPENSES

There are no sales charges or sales loads associated with the Contract.

The Company will deduct a daily charge corresponding to an annual charge of 0.10% of the net asset value of the Separate Account as an Administrative Expense Charge and a daily charge corresponding to an annual charge of 0.20% for the mortality and expense risks assumed by the Company. Depending on the death benefit you select there may be an additional quarterly mortality and expense risk charge corresponding to an additional annual charge of 0.05%, or 0.12%. For Contracts valued at less than $25,000, there is also a $25 Annual Contract Maintenance Fee.

You will also pay Fund Operating Expenses, which currently range from 0.18% to 0.57% annually of the average daily value of the Portfolios.

TAXES

In general, you are not taxed on earnings on your investment in the Contract until you withdraw them or receive Annuity Payments. Earnings are taxed as ordinary income. During the Accumulation Phase, for tax purposes withdrawals are taken from earnings first, then from your investment in the Contract. If you receive money from the Contract before age 59½, you may have to pay a 10% federal penalty tax on the earnings portion received. During the Income Phase, payments come partially from earnings, partially from your investment. You are taxed only on the earnings portion of each Annuity Payment.

3

ACCESS TO YOUR MONEY

You can take money out of your Contract at any time during the Accumulation Phase after the Free Look Period without incurring a withdrawal charge. Each withdrawal you make must be at least $250. You may have to pay income tax and a tax penalty on any money you take out.

PERFORMANCE

The investment performance of the Subaccounts you choose directly affects the value of your Contract. You bear all investment risk (including the possible loss of principal), and investment results are not guaranteed.

From time to time, the Company may advertise the investment performance of the Subaccounts. In doing so, it will use standardized methods prescribed by the Securities and Exchange Commission, as well as certain non-standardized methods.

Past performance does not indicate or predict future performance.

DEATH BENEFIT

If the Annuitant dies during the Accumulation Phase, the Beneficiary will receive the Death Benefit. The Death Benefit is the then-current Accumulated Value of the Contract. However, for an additional charge, there are two optional Death Benefit Riders available that you can select at the time of purchase (see Death Benefit, page 22). The Death Benefit will be calculated on the date the Company receives Due Proof of Death and all Company forms, fully completed. The Contract is a variable annuity and if applicable, the Death Benefit is subject to market risk until all Beneficiaries have made claim. The Beneficiary may elect to receive these amounts as a lump sum or as Annuity Payments.

Federal tax law requires that if a Contract Owner is a natural person and dies before the Income Date, then the entire value of the Contract must be distributed within five years of the date of death of the Contract Owner. Special rules may apply to a surviving spouse. If the Contract Owner is not a natural person, the death of the primary Annuitant triggers the same distribution requirement.

OTHER INFORMATION

Free Look Period

The Contract provides for a Free Look Period of at least 10 days after the Contract Owner receives the Contract (20 or more days in some instances as specified in your Contract) plus 5 days for mailing.

PEOPLES BENEFIT LIFE INSURANCE COMPANY

Peoples Benefit Life Insurance Company is a life insurance company incorporated under Iowa law. It is principally engaged in offering life insurance and annuity contracts.

Peoples Benefit Life Insurance Company Separate Account IV

The Separate Account IV (the “Separate Account”) is a unit investment trust registered with the Securities and Exchange Commission and operating under Iowa law. The Separate Account has various Subaccounts, each of which invests solely in a corresponding Portfolio of the Fund.

Other topics

Additional information on the topics summarized above and on other topics not summarized here can be found at Other Information, page 24.

INQUIRIES AND CONTRACT AND POLICYHOLDER INFORMATION

For more information about the Vanguard Variable Annuity, call 1-800-522-5555 or write:

Regular Mail:	Overnight or Certified Mail:
Vanguard Annuity and Insurance Services	Vanguard Annuity and Insurance Services
P.O. Box 1105	455 Devon Park Drive
Valley Forge, PA 19482-1105	Wayne, PA 19087

If you have questions about your Contract, please telephone Vanguard Annuity and Insurance Services at 1-800-462-2391. Please have ready the Contract number and the Contract Owner’s name, address, and Social Security number when you call. As Contract Owner, you will receive periodic statements confirming any transactions that take place as well as quarterly statements and an annual report.

4

Fee Table

The following Fee Table illustrates all expenses that you would incur as a Contract Owner. The purpose of this Fee Table is to assist you in understanding the various costs and expenses that you would pay directly or indirectly as a purchaser of the Contract. The first table describes the fees and expenses that you will pay at the time you purchase the Contract, surrender the Contract, or transfer cash value between investment options. State premium taxes may also be deducted. For a complete discussion of Contract cost and expenses, see Expenses, page 17.

Owner Transaction Expenses	Separate Account
Sales Load Imposed on Purchases	None
Surrender Fees	None
Exchange Fees	None
Annual Contract Maintenance Fee*	$25

* Applies to Contracts valued at less than $25,000 at the time of initial purchase and each year thereafter if the Accumulated Value remains below $25,000.

The next table describes the fees and expenses that you will pay periodically during the time that you own the Contract, not including the investment portfolios’ fees and expenses.

	Separate Account
ANNUAL SEPARATE ACCOUNT EXPENSES** (as a percentage of average account value)
Accumulated Value Death Benefit Option
Mortality and Expense Risk Charge:	0.20	%
Administrative Expense Charge:	0.10
Total Annual Separate Account Expenses	0.30	%
Return of Premium Death Benefit Option
Mortality and Expense Risk Charge:	0.25	%
Administrative Expense Charge:	0.10
Total Annual Separate Account Expenses	0.35	%
Annual Step-Up Death Benefit Option
Mortality and Expense Risk Charge:	0.32	%
Administrative Expense Charge:	0.10
Total Annual Separate Account Expenses	0.42	%

** See Expenses, page 17 for more information.

The next item shows the minimum and maximum total operating expenses charged by the investment Portfolios that you may pay periodically during the time that you own the Contract. More detail concerning each investment Portfolio’s fees and expenses is contained in the prospectus for the Fund.

TOTAL FUND OPERATING EXPENSES

	Minimum		Maximum
Expenses that are deducted from Portfolio assets, including management fees, distribution and/or service (12b-1) fees, and other expenses	0.18	%	0.57	%

5

ANNUAL FUND OPERATING EXPENSES during the fiscal year ended December 31, 2002

	Money Market Portfolio		Short-Term Corporate Portfolio		Total Bond Market Index Portfolio		High Yield Bond Portfolio		Balanced Portfolio		Equity Income Portfolio		Diversified Value Portfolio		Total Stock Market Index Portfolio**
Management & Administrative Expenses	0.17	%	0.19	%	0.20	%	0.24	%	0.20	%	0.24	%	0.31	%	0.00	%
Investment Advisory Fees	0.01		0.01		0.01		0.06		0.11		0.10		0.15		0.00
12b-1 Distribution Fees	None		None		None		None		None		None		None		None
Other Expenses
Distribution Costs	0.02		0.01		0.01		0.01		0.01		0.01		0.02		0.00
Miscellaneous Expenses	0.01		0.02		0.02		0.02		0.01		0.02		0.02		0.00
Total Other Expenses	0.03		0.03		0.03		0.03		0.02		0.03		0.04		0.00
Total Fund Operating Expenses	0.21	%	0.23	%	0.24	%	0.33	%	0.33	%	0.37	%	0.50	%	0.00	%*

ANNUAL FUND OPERATING EXPENSES during the fiscal year ended December 31, 2002

	Equity Index Portfolio		Mid-Cap Index Portfolio		Growth Portfolio		Capital Growth Portfolio		Small Company Growth Portfolio		International Portfolio		REIT Index Portfolio
Management & Administrative Expenses	0.14	%	0.23	%	0.26	%	0.31	%	0.32	%	0.24	%	0.32	%
Investment Advisory Fees	0.02		0.01		0.11		0.15		0.22		0.18		0.02
12b-1 Distribution Fees	None		None		None		None		None		None		None
Other Expenses
Distribution Costs	0.01		0.02		0.02		0.02		0.01		0.01		0.01
Miscellaneous Expenses	0.01		0.04		0.02		0.00		0.02		0.10		0.04
Total Other Expenses	0.02		0.06		0.04		0.02		0.03		0.11		0.05
Total Fund Operating Expenses	0.18	%	0.30	%	0.41	%	0.48	%*	0.57	%	0.53	%	0.38	%

  * The expenses shown for the Total Stock Market Index and the Capital Growth Portfolios are based on estimated amounts for the fiscal year.

** Although the Portfolio is not expected to incur any net expenses directly, the Portfolio’s shareholders indirectly bear the expenses of the underlying Vanguard Funds in which the Portfolio invests. The Portfolio’s indirect expense ratio based on its underlying funds is estimated at 0.20% for the current fiscal year.

6

Example

The following example illustrates the maximum expenses that you would incur on a $10,000 premium payment over various periods, assuming (1) a 5% annual rate of return and (2) full surrender at the end of each period. The Contract imposes no surrender fees of any kind. Your expenses are identical whether you continue the Contract or withdraw the entire value of your Contract at the end of the applicable period as a lump sum or under one of the Contract’s Annuity Payment Options. The expenses reflect different mortality and expense risk fees depending on which death benefit you select.

	1 Year		3 Years		5 Years		10 Years
Accumulated Value Death Benefit Option (0.30%)	$	89	$	278	$	483	$	1,074
Return of Premium Death Benefit Option (0.35%)		94		294		510		1,132
Annual Step-Up Death Benefit Option (0.42%)		101		316		548		1,214

You should not consider this example to be a representation of past or future expenses or performance. Actual expenses may be higher or lower than those shown, subject to the guarantees or limitations in the Contract.

CONDENSED FINANCIAL INFORMATION

Please note that the Appendix contains a history of accumulation unit values in a table labeled “Condensed Financial Information.”

Automated Quotes

The Vanguard Tele-Account Service provides access to Accumulation Unit Values (to six decimal places) and total returns for all Portfolios, and yield information for the Money Market, Total Bond Market Index, High Yield Bond, and Short-Term Corporate Portfolios of the Fund. Contract Owners may use this service for 24-hour access to Portfolio information. To access the service you may call Tele-Account at 1-800-662-6273 (ON-BOARD) and follow the step-by-step instructions, or speak with a Vanguard Annuity and Insurance Services associate at 1-800-522-5555 to request a brochure that explains how to use the service.

Vanguard’s website also has Accumulation Unit Values (to six decimal places) for all Subaccounts. This service can be accessed from www.vanguard.com.

Accessing Your Contract on the Web

You may access information and manage your annuity on www.vanguard.com. This convenient service, available 24-hours a day, allows you to check your annuity balances, your Portfolio holdings, and make exchanges between Portfolios at any time. (Note: exchange requests received prior to the close of regular trading on the New York Stock Exchange—generally 4 p.m., Eastern time—will be processed after the close on that same day. Requests received after the close of regular trading will be processed the next Business Day).

In order to access your annuity on the web, you must be a registered user of Vanguard.com. You can simply log on to Vanguard.com to register, or speak with a Vanguard Annuity and Insurance Services associate at 1-800-522-5555 for assistance.

The Annuity Contract

The Vanguard Variable Annuity is a flexible-premium variable annuity offered by Peoples Benefit Life Insurance Company (the “Company”). The Contract provides a means of investing on a tax-deferred basis in Subacounts that invest in various portfolios (the “Portfolios”) offered by Vanguard Variable Insurance Fund. You may purchase a Contract using after-tax dollars (a Non-Qualified Contract), or you may purchase a Qualified Contract by “rolling over” funds from another individual retirement annuity or from a qualified plan.

Who Should Invest

The Contract is intended for long-term investors who want tax-deferred accumulation of funds, generally for retirement but also for other long-term investment purposes. The tax-deferred feature of the Contract is most attractive to investors in high federal and state marginal tax brackets who have exhausted other avenues of tax deferral, such as pre-tax contributions to employer-sponsored retirement or savings plans. The tax-deferred feature of the Contract is unnecessary when the Contract is purchased to fund a qualified plan.

About the Contract

The Vanguard Variable Annuity is a contract between you, the Contract Owner, and the Company, the issuer of the Contract.

The Contract provides benefits in two distinct phases: accumulation and income.

7

Accumulation Phase

The Accumulation Phase starts when you purchase your Contract and ends immediately before the Income Date, when the Income Phase starts. During the Accumulation Phase, you choose to allocate your investment in the Contract among the various available Subaccounts. The Contract is a variable annuity because the value of your investment in the Subaccounts can go up or down depending on the investment performance of the Subaccounts you choose. The Contract is a flexible-premium annuity because you can make additional investments of at least $250 until the Income Phase begins. During this phase, you are generally not taxed on earnings from amounts invested unless you withdraw them.

Other benefits available during the Accumulation Phase include the ability to:

n Make transfers among your Subaccount choices (“exchanges”) at no charge and without current tax consequences. (See Exchanges Among the Subaccounts, page 15.)

n Withdraw all or part of your money with no surrender penalty charged by the Company, although you may incur income taxes and a 10% penalty tax prior to age 59 ¹/2. (See Full and Partial Withdrawals, page 21.)

Income Phase

During the Income Phase, you receive regular annuity payments. The amount of these payments is based in part on the amount of money accumulated under your Contract (its Accumulated Value) and the Annuity Payment Option you select. The Annuity Payment Options are explained at Annuity Payments, below.

At your election, payments can be either variable or fixed. If variable, the payments rise or fall depending on the investment performance of the Subaccounts you choose. If fixed, the payment amounts are guaranteed.

Annuity payments are available in a wide variety of options, including payments over a specified period or for life (for either a single life or joint lives), with or without a guaranteed number of payments.

The Separate Account

When you purchase a Contract, your money is deposited into the Company’s Separate Account IV (the “Separate Account”). The Separate Account contains a number of Subaccounts that invest exclusively in shares of the corresponding Portfolios. The investment performance of each Subaccount is linked directly to the investment performance of one of the Portfolios. Assets in the Separate Account belong to the Company but are accounted for separately from the Company’s other assets and can be used only to satisfy its obligations to Contract Owners.

Vanguard Variable Insurance Fund

The Subaccounts available for investment under the Contract invest in the Portfolios of Vanguard Variable Insurance Fund, an open-end investment company intended exclusively as an investment vehicle for variable annuity and variable life insurance contracts offered by insurance companies. The Fund is a member of The Vanguard Group, a family of 35 investment companies with more than 100 distinct investment portfolios holding assets in excess of $550 billion. Through their jointly owned subsidiary, The Vanguard Group, Inc., Vanguard Variable Insurance Fund and the other funds in the group obtain at cost virtually all of their corporate management, administrative, shareholder accounting, and distribution services.

Annuity Payments

During the Income Phase, you receive regular annuity payments under a wide range of Annuity Payment Options.

Starting the Income Phase

As Contract Owner, you exercise control over when the Income Phase begins. The Income Date is the date on which annuity payments begin and is always the first day of the month you specify. You may also change the Income Date at any time in writing, as long as the Annuitant or Joint Annuitant is living and the Company receives the request at least 30 days before the then-scheduled Income Date. Any Income Date you request must be at least 30 days from the day the Company receives written notice. The latest possible Income Date the Company will accept without prior approval is the first day of the month after the Annuitant’s 95th birthday.

The Income Date for Qualified Contracts may also be controlled by endorsements, the plan, or applicable law.

Annuity Payment Options

The income you take from the Contract during the Income Phase can take several different forms, depending on your particular needs. Except for the Period Certain Annuity Option listed below, the Annuity Payment Options listed below are available on either a variable basis or a fixed basis. Other Annuity Payment Options may be available.

If available on a variable basis, the Annuity Payment Options provide payments that, after the initial payment, will go up or down depending on the investment performance of the Subaccounts you choose.

If available on a fixed basis, the Annuity Payment Options provide payments in an amount that does not change. If you choose a fixed Annuity Payment Option, the Company will move your investment out of the Subaccounts and into the general account of the Company.

n Life Annuity—Monthly Annuity Payments are paid for the life of an Annuitant, ending with the last payment before the Annuitant dies.

n Joint and Last Survivor Annuity—Monthly Annuity Payments are paid for as long as at least one of two named Annuitants is living, ending with the last payment before the surviving Annuitant dies. This option is also available as a 50% or 75% Last Survivor Annuity.

n Life Annuity With Period Certain—Monthly Annuity Payments are paid for as long as the Annuitant lives, with payments guaranteed to be made for a period of between 5 and 30 years, as elected. If the Annuitant dies before the period certain ends, the Company will make any remaining payments to the Beneficiary.

n Period Certain Annuity—Available only on a fixed basis. Monthly Annuity Payments are paid for a specified period, which may be from 5 to 30 years. If the Annuitant dies before the Period Certain ends, the Company will make any remaining payments to the Beneficiary.

Calculating Annuity Payments

Fixed Annuity Payments. Each fixed Annuity Payment is guaranteed to be at least the amount shown in the Contract’s Annuity Tables corresponding to the Annuity Payment Option selected.

Variable Annuity Payments. To calculate variable Annuity Payments, the Company determines the amount of the first variable Annuity Payment. The first variable Annuity Payment will equal the amount shown in the applicable Annuity Table in the Contract. This amount depends on the Accumulated Value of your Contract on the Income Date, the sex and age of the Annuitant (and Joint Annuitant where there is one), the Annuity Payment Option selected, and any applicable Premium Taxes. Subsequent variable Annuity Payments depend on the investment experience of the Subaccounts chosen. If the actual net investment experience of the Subaccounts chosen exactly equals the Assumed Interest Rate (AIR) of 4%, then the variable Annuity Payments will not change in amount. If the actual net investment experience of the Subaccounts chosen is greater than the AIR of 4%, then the variable Annuity Payments will increase. On the other hand, they will decrease if the actual experience is lower. The Statement of Additional Information contains a more detailed description of the method of calculating variable Annuity Payments.

Impact of Annuitant’s Age on Annuity Payments. For either fixed or variable Annuity Payments involving life income, the actual ages of the Annuitant and Joint Annuitant will affect the amount of each payment. Since payments based on the lives of older Annuitants and Joint Annuitants are expected to be fewer in number, the amount of each Annuity Payment will be greater.

Impact of Annuitant’s Sex on Annuity Payments. For either fixed or variable Annuity Payments involving life income, the sex of the Annuitant and Joint Annuitant will affect the amount of each payment. Since payments based on the lives of male Annuitants and Joint Annuitants are expected to be fewer in number, in most states the amount of each Annuity Payment will be greater than for female Annuitants and Joint Annuitants.

Impact of Length of Payment Periods on Annuity Payments. The value of all payments, both fixed and variable, will be greater for shorter guaranteed periods than for longer guaranteed periods, and greater for single-life annuities than for joint and survivor annuities, because they are expected to be made for a shorter period.

A FEW THINGS TO KEEP IN MIND REGARDING

Annuity Payments

n If an Annuity Payment Option is not selected, the Company will assume that you chose the Life Annuity With Period Certain option (with 10 years of payments guaranteed) on a variable basis.

n The minimum payment is $100 ($20 for Contracts issued to South Carolina, Texas, and Massachusetts residents). If on the Income Date your Accumulated Value is below $5,000 (or $2,000 for Contracts issued to South Carolina, Texas, and Massachusetts residents), the Company reserves the right to pay that amount to you in a lump sum.

n From time to time, the Company may require proof that the Annuitant, Joint Annuitant, or Contract Owner is living.

n If someone has assigned ownership of a Contract to you, or if a non-natural person (e.g., a corporation) owns a Contract, you may not start the Income Phase of the Contract without the Company’s consent.

n At the time the Company calculates your fixed Annuity Payments, the Company may offer more favorable rates than those guaranteed in the Annuity Tables found in the Contract.

n Once Annuity Payments begin, you may not select a different Annuity Payment Option. Nor may you cancel an Annuity Payment Option after Annuity Payments have begun.

n If you have selected a variable Annuity Payment Option, you may change the Subaccounts funding the variable Annuity Payments by written request or by calling Vanguard Annuity and Insurance Services at 1-800-462-2391. However, because excessive exchanges can potentially disrupt the management of the Portfolios and increase transaction costs, exchange activity is limited to two substantive “round trip” through the Portfolios (except the Money Market Portfolio) during any 12-month period. A “round trip” is a redemption from a Portfolio followed by a purchase back into the same Portfolio within 30 days. Also, “round trip” covers transactions accomplished by any combination of methods, including transactions conducted by check, wire, or exchange to or from another Vanguard fund. “Substantive” means a dollar amount that The Vanguard Group, Inc. determines, in its sole discretion, could adversely affect the management of the Fund.

n You may select an Annuity Payment Option and allocate a portion of the value of your Contract to a fixed version of that Annuity Payment Option and a portion to a variable version of that Annuity Payment Option (assuming the Annuity Payment Option is available on both a fixed and variable basis). You may not select more than one Annuity Payment Option.

n If you choose an Annuity Payment Option and the postal or other delivery service is unable to deliver checks to the Payee’s address of record, no interest will accrue on amounts represented by uncashed Annuity Payment checks. It is the Payee’s responsibility to keep the Company informed of the Payee’s most current address of record.

Purchase

Client Information Form and Issuance of Contracts

Contract Issuance. To invest in the Vanguard Variable Annuity, you should send a completed Client Information Form and your Initial Premium Payment to Vanguard Annuity and Insurance Services. Depending on the Death Benefit option selected, there may be limitations on the age of the Annuitant (See Death Benefit, page 22).

If the Client Information Form is received in good order, the Company will issue the Contract and will credit the Initial Premium Payment within two Business Days after receipt. A Business Day is any day that the New York Stock Exchange is open for trading.

If the Company cannot credit the Initial Premium Payment because the Client Information Form is incomplete, the Company will contact the applicant in writing, explain the reason for the delay, and refund the Initial Premium Payment within five Business Days unless the client consents to the Company’s retaining the Initial Premium Payment and crediting it as soon as the necessary requirements are fulfilled.

In order to prevent lengthy processing delays caused by the clearing of foreign checks, the Company will accept only those foreign checks that are drawn in U.S. dollars and are issued by a foreign bank with a U.S. correspondent bank.

You may purchase a Qualified Contract only in connection with a “rollover” of funds from another qualified plan or individual retirement annuity. Qualified Contracts contain certain other restrictive provisions limiting the timing of payments to and distributions from the Qualified Contract. No additional Premium Payments to your Qualified Contract will be accepted,

unless the additional premium payment is funded by another qualified plan. (See QUALIFIED INDIVIDUAL RETIREMENT ANNUITIES, page 20.)

DEFINITION

Qualified Contract

When the term “Qualified Contract” is used in this prospectus we mean a Contract that qualifies as an individual retirement annuity under Section 408(b) of the Internal Revenue Code. There are other types of qualified annuity contracts defined under different Internal Revenue Code sections, but we are not referring to those in this prospectus.

Premium Payments

A Premium Payment is any amount you use to buy or add to the Contract. A Premium Payment may be reduced by any applicable Premium Tax or an initial Annual Contract Maintenance Fee. In that case, the resulting amount is called a Net Premium Payment.

A FEW THINGS TO KEEP IN MIND REGARDING

Premium Payments

n The minimum Initial Premium Payment for a Contract is $5,000.

n The Company will not accept third-party checks, Travelers checks, or money orders for Premium Payments.

n You may make additional Premium Payments at any time during the Accumulation Phase and while the Annuitant or Joint Annuitant, if applicable, is living. Additional Premium Payments must be at least $250.

n Additional Premium Payments received before the close of the New York Stock Exchange (usually 4 p.m., Eastern time) are credited to the Contract’s Accumulated Value as of the close of business that same day.

n The minimum amount that you can allocate to any one Subaccount is $1,000.

n The total of all Premium Payments may not exceed $5,000,000 without prior approval from the Company.

n The Company reserves the right to reject any application or Premium Payment.

The date on which the Initial Premium Payment is credited and the Contract is issued is called the Contract Date.

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DEFINITION

Premium Tax

A Premium Tax is a regulatory tax some states assess on the Premium Payments made into a Contract. If the Company should have to pay any Premium Tax, it will be deducted from each Premium Payment or from the Accumulated Value as the Company incurs the tax.

As of the date of this Prospectus, the following state assesses a Premium Tax on all Initial and subsequent Premium Payments:

	Qualified		Non-Qualified
South Dakota	0.00	%	1.25	%

As of the date of this Prospectus, the following states assess a Premium Tax against the Accumulated Value if the Contract Owner chooses an Annuity Payment Option instead of receiving a lump sum distribution:

	Qualified		Non-Qualified
California	0.50	%	2.35	%
Maine	0.00		2.00
Nevada	0.00		3.50
West Virginia	1.00		1.00
Wyoming	0.00		1.00

Purchasing by Wire

Money should be wired to: WACHOVIA ABA 031201467 DEPOSIT ACCOUNT NUMBER 2014126521732 PEOPLES BENEFIT LIFE INSURANCE COMPANY and THE VANGUARD GROUP, INC. [YOUR CONTRACT NUMBER] [YOUR NAME]

Please call 1-800-462-2391 before wiring.

Please be sure your bank includes your Contract number to assure proper credit to your Contract.

If you would like to wire your Initial Premium Payment, you should complete the Vanguard Variable Annuity Client Information Form and mail it to Vanguard Annuity and Insurance Services, P.O. Box 1105, Valley Forge, PA 19482-1105, prior to completing wire arrangements.

The Company will accept Federal Funds wire purchase orders only when the New York Stock Exchange and banks are open for business.

Annuity Express^TM

The Annuity Express service allows you to make additional Premium Payments by transferring funds automatically from your checking or statement savings account (not passbook savings account) to one or more Subaccounts on a monthly, quarterly, semi-annual, or annual basis. You may add to existing Subaccounts provided you have a minimum balance of $1,000. The minimum automatic purchase is $50; the maximum is $100,000.

Section 1035 Exchanges

Under Section 1035 of the Internal Revenue Code, you may exchange the assets of an existing annuity contract or life insurance or endowment policy to the Vanguard Variable Annuity without any current tax consequences. To make a “1035 Exchange,” complete a 1035 Exchange form and mail it along with your signed and completed Client Information Form and your current contract, to Vanguard Annuity and Insurance Services.

To accommodate owners of Vanguard Variable Annuities, under certain conditions the Company will allow for the consolidation of two or more Vanguard Variable Annuities into one new Contract. In order to provide Contract Owners with consolidated account reporting, the Company will accept these exchanges on a case-by-case basis. If applicable, you will be responsible for only one Annual Contract Maintenance Fee. Under no circumstances will the Company allow the exchange of an existing Vanguard Variable Annuity for an identical new Vanguard Variable Annuity.

Because special rules and procedures apply to 1035 Exchanges, particularly if the Contract being exchanged was issued prior to August 14, 1982, you should consult a tax adviser before making a 1035 Exchange.

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Please note that any outstanding loans you may have on a contract you wish to exchange may create a current tax consequence. For this reason we encourage you to settle any outstanding loans with your current insurance company before initiating a 1035 Exchange into a Vanguard Variable Annuity.

Allocation of Premium Payments

You specify on the Client Information Form what portion of your Premium Payments you want to be allocated among which Subaccounts. You may allocate your Premium Payments to one or more Subaccounts. All allocations you make must be in whole-number percentages and a minimum of $1,000. Your Initial Net Premium Payment will be immediately allocated among the Subaccounts in the percentages you specified on your Client Information Form without waiting for the Free Look Period to pass.

Should your investment goals change, you may change the allocation percentages for additional Net Premium Payments by sending written notice to Vanguard Annuity and Insurance Services. The change will take effect on the date the Company receives your written notice. You may establish the telephone exchange privilege by completing the appropriate section of the Client Information Form, or by sending a letter authorizing the Company to take allocation instructions by telephone. See Telephone and Online Exchanges, page 16.

WHAT’S MY CONTRACT WORTH TODAY?

Accumulated Value

The Accumulated Value of your Contract is the value of all amounts accumulated under the Contract during the Accumulation Phase (similar to the current market value of a mutual fund account). When the Contract is opened, the Accumulated Value is equal to your initial Net Premium Payment. On any Business Day thereafter, the Accumulated Value equals the Accumulated Value from the previous Business Day;

plus:

n Any additional Net Premium Payments credited

n Any increase in the Accumulated Value due to investment results of the Subaccount(s) you selected

minus:

n Any decrease in the Accumulated Value due to investment results of the Subaccount(s) you selected

n The daily Mortality and Expense Risk Charge

n The daily Administrative Expense Charge

n The Annual Contract Maintenance Fee, if applicable

n Any optional death benefit charge, if applicable

n Any withdrawals

n Any Premium Taxes that occur during the Valuation Period.

The Valuation Period is any period between two successive Business Days beginning at the close of business of the first Business Day and ending at the close of business of the next Business Day. You should expect the Accumulated Value of your Contract to change from Valuation Period to Valuation Period, reflecting the investment experience of the Subaccounts you have selected as well as the daily deduction of charges.

An Accumulation Unit is a measure of your ownership interest in the Contract during the Accumulation Phase. When you allocate your Net Premium Payments to a selected Subaccount, the Company will credit a certain number of Accumulation Units to your Contract. The Company determines the number of Accumulation Units it credits by dividing the dollar amount you have allocated to a Subaccount by the Accumulation Unit Value for that Subaccount as of the end of the Valuation Period in which the payment is received. Each Subaccount has its own Accumulation Unit Value (similar to the share price (net asset value) of a mutual fund). The Accumulation Unit Value varies each Valuation Period with the net rate of return of the Subaccount. The net rate of return reflects the performance of the Subaccount for the Valuation Period and is net of asset charges to the Subaccount. Per Subaccount, the Accumulated Value equals the number of Accumulation Units multiplied by the Accumulation Unit Value for that Subaccount.

All dividends and capital gains earned will be reinvested and reflected in the Accumulation Unit Value, keeping the earnings tax-deferred.

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Investment Options

Vanguard Variable Insurance Fund

The Vanguard Variable Annuity offers you a means of investing in various Subaccounts that invest in the Portfolios of Vanguard Variable Insurance Fund. A brief description of each Portfolio is given below. For more detailed information regarding the Portfolios, you should read the prospectus for Vanguard Variable Insurance Fund that accompanies the Contract prospectus.

The general public may invest in the Portfolios of Vanguard Variable Insurance Fund only through certain insurance contracts. The investment objectives and policies of the Portfolios may be similar to those of publicly available Vanguard funds or portfolios. You should not expect that the investment results of any publicly available Vanguard funds or portfolios will be comparable to those of the Portfolios.

n The Money Market Portfolio seeks to provide current income consistent with the preservation of capital and liquidity. The Portfolio also seeks to maintain a stable net asset value of $1 per share. The Portfolio invests more than 25% of its assets in high-quality money market instruments issued by companies in the financial services industry. The Portfolio also invests in Eurodollar obligations (dollar-denominated obligations issued outside the U.S. by foreign banks or foreign branches of domestic banks) and Yankee obligations (dollar-denominated obligations issued in the U.S. by foreign banks). The Portfolio also invests in high-quality money market instruments issued by other corporations, the U.S. government, state and municipal governments and their agencies or instrumentalities, as well as repurchase agreements collateralized by such securities. An investment in the Portfolio is not insured or guaranteed by the FDIC or any other government agency. Although the Portfolio seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Portfolio. Vanguard’s Fixed Income Group serves as this Portfolio’s investment adviser.

n The Short-Term Corporate Portfolio seeks to provide a high level of income and to preserve Contract Owner’s principal by investing primarily in a variety of high-quality and, to a lesser extent, medium-quality fixed income securities, at least 80% of which will be short- and intermediate-term corporate bonds and other corporate fixed income obligations. Vanguard’s Fixed Income Group serves as this Portfolio’s investment adviser.

n The Total Bond Market Index Portfolio seeks to track the performance of a broad market-weighted bond index that measures the investment return of the Lehman Brothers Aggregate Bond Index. This Index measures a wide spectrum of public investment-grade, taxable, fixed income securities in the United States—including government, corporate, mortgage-backed, asset-backed, and international dollar-denominated bonds, all with maturities of more than 1 year. The Portfolio invests by sampling the Index, meaning that it holds a range of securities that, in the aggregate, approximate the full Index in terms of key risk factors and other characteristics. All of the Portfolio’s investments will be selected through the sampling process, and at least 80% of the Portfolio’s assets will be invested in bonds held in the Index. The Portfolio may use up to 10% of its assets to overweight nongovernment bonds (and correspondingly underweight government bonds) relative to the Index, but the overall credit quality of the Portfolio’s nongovernment holdings will meet or exceed the overall credit quality of the Index’s nongovernment holdings. The Portfolio maintains a dollar-weighted average maturity consistent with that of the Index, which currently ranges between 5 and 10 years. Vanguard’s Fixed Income Group serves as this Portfolio’s investment adviser.

n The High Yield Bond Portfolio seeks to provide a high level of current income by investing mainly in a diversified group of high-yielding, higher-risk corporate bonds, commonly known as “junk bonds”, with medium- and lower-range credit-quality ratings. The portfolio invests at least 80% of its assets in corporate bonds that are rated below Baa by Moody’s Investors Service, Inc. or below BBB by Standard & Poor’s. The Portfolio may not invest more than 20% of its assets in any of the following taken as a whole: bonds with credit ratings lower than B or that are unrated, convertible securities, and preferred stocks. Wellington Management Company, LLP serves as this Portfolio’s investment adviser.

n The Balanced Portfolio seeks the conservation of capital, while providing moderate income, and moderate long-term growth of capital and income. The Portfolio invests in a diversified portfolio of common stocks and bonds, with common stocks expected to represent 60% to 70% of the Portfolio’s assets and bonds to represent 30% to 40%. Wellington Management Company, LLP serves as this Portfolio’s investment adviser.

n The Equity Income Portfolio seeks to provide a relatively high level of current income and the potential for long-term growth of capital and income by investing at least 80% of its assets in dividend-paying equity securities. Newell Associates serves as this Portfolio’s investment adviser.

n The Diversified Value Portfolio seeks to provide long-term growth of capital and a moderate level of dividend income by investing primarily in common stocks of large and medium-size companies whose stocks the adviser considers to be undervalued and out of favor with investors. Such “value” stocks typically have above-average dividend yields and/or below-average prices in relation to such financial measures as earnings and book value. Barrow, Hanley, Mewhinney & Strauss, Inc. serves as this Portfolio’s investment adviser.

n The Total Stock Market Index Portfolio seeks to track the performance of a benchmark index that measures the investment return of the Wilshire 5000 Total Market Index which consists of all the U.S. common stocks traded on the New York and American Stock Exchanges and the NASDAQ over-the-counter market. The Portfolio is a fund of funds and

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invests primarily in three underlying Vanguard funds—Vanguard Total Stock Market Index Fund, Vanguard Variable Insurance Fund—Equity Index Portfolio, and Vanguard Extended Market Index Fund. Vanguard’s Quantitative Equity Group serves as this Portfolio’s investment adviser.

n The Equity Index Portfolio seeks to provide long-term growth of capital and income by attempting to track the performance of the Standard & Poor’s 500 Index, which contains the stocks of 500 of the largest domestic companies. All or substantially all of the Portfolio’s assets will be invested in stocks that make up the target index. Vanguard’s Quantitative Equity Group serves as this Portfolio’s investment adviser.

n The Mid-Cap Index Portfolio seeks to provide long-term growth of capital by attempting to track the performance of the Standard & Poor’s MidCap 400 Index, which is made up of stocks of medium-size U.S. companies. All or substantially all of the Portfolio’s assets will be invested in stocks that make up the target index. Vanguard’s Quantitative Equity Group serves as this Portfolio’s investment adviser.

n The Growth Portfolio seeks to provide long-term capital appreciation. The Portfolio invests primarily in large-capitalization equity securities of seasoned U.S. companies with above-average prospects for growth and reasonable stock prices. Alliance Capital Management L.P. serves as this Portfolio’s investment adviser.

n The Capital Growth Portfolio seeks to provide long-term growth of capital by investing in stocks with above-average earnings growth potential that is not reflected in their current market prices. The Portfolio consists predominantly of large- and mid-capitalization stocks. PRIMECAP Management Company serves as this Portfolio’s investment adviser.

n The Small Company Growth Portfolio seeks to provide long-term growth of capital by investing primarily in equity securities of small companies deemed to have above-average prospects for growth but potentially little or no dividend income. Granahan Investment Management, Inc. and Grantham, Mayo, Van Otterloo & Co. LLC serve as this Portfolio’s investment advisers.

n The International Portfolio seeks to provide long-term capital appreciation. The Portfolio invests primarily in equity securities of companies based outside the United States. Schroder Investment Management North America Inc. and Baillie Gifford Overseas Ltd serve as this Portfolio’s investment adviser.

n The REIT Index Portfolio seeks to provide a high level of income and moderate long-term growth of capital by investing at least 98% of its assets in the stocks of real estate investment trusts (“REITs”), which own office buildings, hotels, shopping centers, and other properties; the remaining assets are invested in cash investments. The Portfolio seeks to track the performance of the Morgan Stanley REIT Index, a benchmark of U.S. REITs. Vanguard’s Quantitative Equity Group serves as this Portfolio’s investment adviser.

There is no assurance that a Portfolio will achieve its stated objective.

Additional information regarding the investment objectives and policies of the Portfolios and the investment advisory services can be found in the current Fund prospectus accompanying this prospectus.

Exchanges Among the Subaccounts

Should your investment goals change, you may exchange assets among the Subaccounts at no cost, subject to the following conditions:

n You may request exchanges in writing or by telephone or online at www.vanguard.com. The Company will process requests it receives prior to the close of regular trading on the New York Stock Exchange (generally 4 p.m., Eastern time) at the close of business that same day. Requests received after the close of the New York Stock Exchange are processed the next Business Day.

n The minimum amount you may exchange from a Subaccount is $250 (unless the Accumulated Value in a Subaccount is less than $250).

n The $1,000 minimum balance requirement per Subaccount must be satisfied at all times.

n The Company does not charge a fee for exchanges among the Subaccounts.

15

LIMITATIONS ON

Exchanges

Because excessive exchanges can disrupt management of the Fund and increase the Fund’s costs for all Contract Owners, the Fund limits exchanges as follows:

n You may make no more than two substantive “round trips” through a Portfolio (not including the Money Market Portfolio) during any 12-month period.

n The Fund and the Company may refuse an exchange at any time, for any reason.

n The Company may revoke a Contract Owner’s telephone exchange privilege at any time, for any reason.

A “round trip” is a redemption from a Portfolio followed by a purchase back into the Portfolio within 30 days. Also, “round trip” covers transactions accomplished by any combination of methods, including transactions conducted by check, wire, or exchange to or from another Vanguard fund. “Substantive” means a dollar amount that The Vanguard Group, Inc. determines, in its sole discretion, could adversely affect the management of the Fund.

Automatic Asset Rebalancing

During the Accumulation Phase, you can automatically rebalance the amounts invested in the Subaccounts in order to maintain a desired allocation. This rebalancing occurs automatically on a date you select and can take place on a monthly, quarterly, semi-annual or annual basis (provided the $1,000 minimum balance requirement has been met in the Subaccount to which you are moving money). The minimum amount you may exchange is $250. Rebalancing can be started, stopped, or changed at any time. Automatic Asset Rebalancing cannot be used in conjunction with the Automatic Exchange Service. Any additional exchange requests will cause Automatic Asset Rebalancing to cease. To take advantage of the Automatic Asset Rebalancing service, complete a Vanguard Variable Annuity Automatic Asset Rebalance service form or send a letter of instruction to Vanguard Annuity and Insurance Services.

Automatic Exchange Service

During the Accumulation Phase, you can move money automatically among the Subaccounts. You can exchange fixed dollar amounts or percentages of your Subaccount balance into the other Subaccounts offered under the Contract on either a monthly, quarterly, semi-annual, or annual basis (provided the $1,000 minimum balance requirement has been met in the Subaccounts to which you are moving money).

The minimum amount you may exchange is $250.

Automatic Exchange Service

Using the Automatic Exchange Service, you can exchange at regular intervals in a plan of investing often referred to as “dollar-cost averaging,” moving money, for example, from the Money Market Portfolio into a stock or bond Portfolio. The main objective of dollar-cost averaging is to shield your investment from short-term price fluctuations. Since the same dollar amount is transferred to other Subaccounts each month, more Accumulation Units are credited to a Subaccount if the value per Accumulation Unit is low, while fewer Accumulation Units are credited if the value per Accumulation Unit is high. Therefore, it is possible to achieve a lower average cost per Accumulation Unit over the long term if the Accumulation Unit Value declines over that period. This plan of investing allows investors to take advantage of market fluctuations but does not assure a profit or protect against a loss in declining markets.

To take advantage of the Automatic Exchange Service, complete a Vanguard Variable Annuity Automatic Exchange Service Form or send a letter of instruction to Vanguard Annuity and Insurance Services.

You may change the amount to be exchanged or cancel this service at any time in writing or by telephone if you have telephone authorization on your Contract. This service cannot be used to establish a new Subaccount, and will not go into effect until the Free Look Period has expired.

Telephone and Online Exchanges

You may establish the telephone and online exchange privilege on your Contract by completing the appropriate section of the Client Information Form or by sending a letter authorizing the Company to take exchange instructions over the telephone. The Company, the Fund, and The Vanguard Group, Inc. shall not be responsible for the authenticity of exchange instructions received by telephone. We will take reasonable steps to confirm that instructions communicated by telephone are genuine. Before we act on any telephoned instruction, we will ask the caller for the Contract number and owner’s Social Security number and address. This information will be verified against the Contract Owner’s records and all transactions performed will be verified with the Contract Owner through a written confirmation statement. We will record all calls. The Company, the Fund, and The Vanguard Group, Inc. shall not be liable for any loss, cost, or expense for action on telephone

16

instructions believed to be genuine in accordance with these procedures. We will make every effort to maintain the exchange privilege. However, the Company and the Fund reserve the right to revise or terminate its provisions, limit the amount of any exchange, or reject any exchange, as deemed necessary, at any time.

Expenses

A CLOSER LOOK AT

The Costs of Investing in a Variable Annuity

Costs are an important consideration in choosing a variable annuity. That’s because you, as a contract owner, pay the costs of operating the underlying mutual funds, plus any transaction costs incurred when the fund buys and sells securities, as well as the costs associated with the annuity contract itself. These combined costs can have a significant effect on the investment performance of the annuity contract. Even seemingly small differences in mutual fund and annuity contract expenses can, over time, have a dramatic effect on performance.

The projected expenses for the Vanguard Variable Annuity are substantially below the costs of other variable annuity contracts. For example, on a $25,000 Contract the average expense ratio of other variable annuity contracts was 2.23% as of December 31, 2002, compared to 0.65% for the Vanguard Variable Annuity. (Source for competitors’ data: Morningstar Principia Pro for VA/L Subaccounts, December 2002.)

SUMMARY OF COSTS OF INVESTING

in the Vanguard Variable Annuity

n No sales load or sales charge

n No charge to make full or partial withdrawals

n No fee to exchange money among the Subaccounts

n $25 Annual Contract Maintenance Fee on Contracts valued at less than $25,000

n Annual Mortality and Expense Risk Charge: 0.20%, 0.25%, or 0.32% depending on death benefit election

n Annual Administrative Expense Charge: 0.10%

n Fees and expenses paid by the Portfolios which ranged from 0.18% to 0.57% in the fiscal year ended December 31, 2002

Mortality and Expense Risk Charge

The Company charges a fee as compensation for bearing certain mortality and expense risks under the Contract. An annual charge of 0.20%, 0.25% or 0.32% (depending on the death benefit you select) is assessed.

The mortality and expense risk charge described above cannot be increased. If the charge is more than sufficient to cover actual costs or assumed risks, any excess will be added to the Company’s surplus. If the charges collected under the Contract are not enough to cover actual costs or assumed risks, then the Company will bear the loss.

A CLOSER LOOK AT

The Mortality and Expense Risk Charge

The Company assumes mortality risk in two ways. First, where Contract Owners elect an Annuity Payment Option under which the Company guarantees a number of payments over a life or joint lives, the Company assumes the risk of making monthly annuity payments regardless of how long Annuitants may live. Second, the Company assumes mortality risk in providing a Death Benefit in the event the Annuitant dies during the Accumulation Phase.

The expense risk the Company assumes is that the charges for administrative expenses, which are guaranteed not to increase beyond the rates shown for the life of the Contract, may not be great enough to cover the actual costs of issuing and administering the Contract.

Administrative Expense Charge

The Company assesses each Contract an annual Administrative Expense Charge to cover the cost of issuing and administering each Contract and of maintaining the Separate Account. The Administrative Expense Charge is assessed daily at a rate equal to 0.10% annually of the net asset value of the Separate Account.

17

Annual Contract Maintenance Fee

In certain situations, the Company charges an Annual Contract Maintenance Fee of $25. The fee is to reimburse the Company for the costs it expects over the life of the Contract for maintaining each Contract and the Separate Account.

The Company charges the fee if:

n Your Initial Premium Payment is less than $25,000; and

n in each subsequent year the Accumulated Value remains below $25,000.

Fund Operating Expenses

The value of the assets in the Separate Account will reflect the fees and expenses paid by Vanguard Variable Insurance Fund. A complete description of these expenses is found in the “Fee Table” section of this prospectus, the Fees and Expenses section of the Fund’s prospectus, and in the “Management of the Fund” section of the Fund’s Statement of Additional Information.

Taxes

INTRODUCTION

The following discussion of annuity taxation is general in nature and is based on the Company’s understanding of the treatment of annuity contracts under current federal income tax law, particularly Section 72 of the Internal Revenue Code and various Treasury Regulations and Internal Revenue Service interpretations dealing with Section 72. The discussion does not touch upon state or local taxes. It is not tax advice. You may want to consult with a qualified tax adviser about your particular situation to ensure that your purchase of a Contract results in the tax treatment you desire. Additional discussion of tax matters is included in the Statement of Additional Information.

TAXATION OF ANNUITIES IN GENERAL

Tax Deferral

Special rules in the Internal Revenue Code for annuity taxation exist today. In general, those rules provide that you are not currently taxed on increases in value under a Contract until you take some form of withdrawal or distribution from it. However, it is important to note that, under certain circumstances, you might not get the advantage of tax deferral, meaning that the increase in value would be subject to current federal income tax. (See ANNUITY CONTRACTS OWNED BY NONNATURAL PERSONS, page 19, and DIVERSIFICATION STANDARDS, page 20.)

A CLOSER LOOK AT

Tax Deferral

Tax deferral means no current tax on earnings in your Contract. The amount you would have paid in income taxes can be left in the Contract and earn money for you.

One tradeoff of tax deferral is that there are certain restrictions on your ability to access your money, including penalty taxes for early withdrawals. This is one reason why a variable annuity is intended as a long-term investment.

Another tradeoff is that, when funds are withdrawn, they are taxed at ordinary income rates instead of capital gains rates, which apply to certain other sorts of investments.

Taxation of Full and Partial Withdrawals

If you make a full or partial withdrawal (including a Systematic Withdrawal) from a Non-Qualified Contract during the Accumulation Phase, you as the Contract Owner will be taxed at ordinary income rates on earnings you withdraw at that time. For purposes of this rule, withdrawals are taken first from earnings on the Contract and then from the money you invested in the Contract. This “investment in the contract” can generally be described as the cost of the Contract, and it generally includes all Premium Payments minus any amounts you have already received under the Contract that represented the return of invested money. Also for purposes of this rule, a pledge or assignment of a Contract is treated as a partial withdrawal from a Contract. (If you are contemplating using your Contract as collateral for a loan, you may be asked to pledge or assign it.)

Taxation of Annuity Payments

When you take Annuity Payments in the Income Phase of a Non-Qualified Contract, for tax purposes each payment is deemed to return to you a portion of your investment in the Contract. Since with a Non-Qualified Contract you have already paid taxes on those amounts (the Contract was funded with after-tax dollars), you will not be taxed again on your investment—only on your earnings.

For fixed Annuity Payments from a Non-Qualified Contract, in general, the Company calculates the taxable portion of each payment using a formula known as the “exclusion ratio.” This formula establishes the ratio that the investment in the Contract bears to the total expected amount of Annuity Payments for the term of the Contract. The Company then applies

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that ratio to each payment to determine the non-taxable portion of the payment. The remaining portion of each payment is taxable at ordinary income tax rates.

For variable Annuity Payments from a Non-Qualified Contract, in general, the Company calculates the taxable portion of each payment using a formula that establishes a specific dollar amount of each payment that is not taxed. To find the dollar amount, the Company divides the investment in the Contract by the total number of expected periodic payments. The remaining portion of each payment is taxable at ordinary income tax rates.

Once your investment in the Contract has been returned, the balance of the Annuity Payments represent earnings only and therefore are fully taxable.

Taxation of Withdrawals and Distributions From Qualified Contracts

Generally, the entire amount distributed from a Qualified Contract is taxable to the Contract Owner. In the case of Qualified Contracts with after-tax contributions, you may exclude the portion of each withdrawal or Annuity Payment constituting a return of after-tax contributions. Once all of your after-tax contributions have been returned to you on a non-taxable basis, subsequent withdrawals or annuity payments are fully taxable as ordinary income. Since the Company has no knowledge of the amount of after-tax contributions you have made, you will need to make this computation in the preparation of your federal income tax return.

Tax Withholding

Federal tax law requires that the Company withhold federal income taxes on all distributions unless the recipient elects not to have any amounts withheld and properly notifies the Company of that election. In certain situations, the Company will withhold taxes on distributions to non-resident aliens at a flat 30% rate unless an exemption from withholding applies under an applicable tax treaty and the Company has received the appropriate Form W-8 certifying the U.S. taxpayer identification number.

Penalty Taxes on Certain Early Withdrawals

The Internal Revenue Code provides for a penalty tax in connection with certain withdrawals or distributions that are includible in income. The penalty amount is 10% of the amount includible in income that is received under an annuity. However, there are exceptions to the penalty tax. For instance, it does not apply to withdrawals: (i) made after the taxpayer reaches age 59½; (ii) made on or after the death of the Contract Owner or, where the Contract Owner is not an individual, on or after the death of the primary Annuitant (who is defined as the individual the events in whose life are of primary importance in affecting the timing and payment under the Contracts); (iii) attributable to the disability of the taxpayer which occurred after the purchase of the Contract (as defined in the Internal Revenue Code); (iv) that are part of a series of substantially equal periodic payments made at least annually for the life (or life expectancy) of the taxpayer, or joint lives (or joint life expectancies) of the taxpayer and his or her beneficiary; (v) from a Qualified Contract (note, however, that other penalties may apply); (vi) under an immediate annuity contract (as defined in the Internal Revenue Code); (vii) that can be traced to an investment in the Contract prior to August 14, 1982; or (viii) under a Contract that an employer purchases on termination of certain types of qualified plans and that the employer holds until the employee’s severance from employment.

If the penalty tax does not apply to a withdrawal as a result of the application of item (iv) above, and the series of payments is subsequently modified (for some reason other than death or disability), the tax for the year in which the modification occurs will be increased by an amount (as determined under Treasury Regulations) equal to the penalty tax that would have been imposed but for item (iv) above, plus interest for the deferral period. The foregoing rule applies if the modification takes place (a) before the close of the period that is five years from the date of the first payment and after the taxpayer attains age 59½, or (b) before the taxpayer reaches age 59½. Because the Company cannot predict whether the series of payments will be substantially equal, the Company will report such withdrawals to the Internal Revenue Service as early withdrawals with no known exception.

For Qualified Contracts, other tax penalties may apply to certain distributions as well as to certain contributions and other transactions.

The penalty tax may not apply to distributions from Qualified Contracts issued under Section 408(b) of the Internal Revenue Code that you use to pay qualified higher education expenses, the acquisition costs (up to $10,000) involved in the purchase of a principal residence by a first-time homebuyer, or a distribution made on account of an Internal Revenue Service levy. Because the Company cannot verify that such an early withdrawal is for qualified higher education expenses or a first home purchase, the Company will report such withdrawals to the Internal Revenue Service as early withdrawals with no known exception.

ANNUITY CONTRACTS OWNED BY NON-NATURAL PERSONS

Where a non-natural person (for example, a corporation) holds a Contract, that Contract is generally not treated as an annuity contract for federal income tax purposes, and the income on that Contract (generally the increase in the net Accumulated Value less the payments) is considered taxable income each year. This rule does not apply where the non-natural person is only a nominal owner such as a trust or other entity acting as an agent for a natural person. The rule also does not apply

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where the estate of a decedent acquires a Contract, where an employer purchases a Contract on behalf of an employee upon termination of a qualified plan, or to an immediate annuity (as defined in the Internal Revenue Code).

MULTIPLE-CONTRACTS RULE

All non-qualified annuity contracts issued by the same company (or affiliate) to the same Contract Owner during any calendar year are to be aggregated and treated as one contract for purposes of determining the amount includible in the taxpayer’s gross income. Thus, any amount received under any Contract prior to the Contract’s Income Date, such as a partial withdrawal, will be taxable (and possibly subject to the 10% federal penalty tax) to the extent of the combined income in all such contracts. The Treasury Department has specific authority to issue regulations that prevent the avoidance of the multiple-contracts rules through the serial purchase of annuity contracts or otherwise. In addition, there may be other situations in which the Treasury Department may conclude that it would be appropriate to aggregate two or more Contracts purchased by the same Contract Owner. Accordingly, a Contract Owner should consult a tax adviser before purchasing more than one Contract or other annuity contracts. (The aggregation rules do not apply to immediate annuities (as defined in the Internal Revenue Code).)

OWNERSHIP TRANSFERS OF ANNUITY CONTRACTS

Any transfer of a Non-Qualified Contract during the Accumulation Phase for less than full and adequate consideration will generally trigger income tax (and possibly the 10% federal penalty tax) on the gain in the Contract to the Contract Owner at the time of such transfer. The transferee’s investment in the Contract will be increased by any amount included in the Contract Owner’s income. This provision, however, does not apply to transfers between spouses or former spouses incident to a divorce that are governed by Internal Revenue Code Section 1041(a).

ASSIGNMENTS OF ANNUITY CONTRACTS

A transfer of ownership in a Contract, a collateral assignment, or the designation of an Annuitant or other beneficiary who is not also the Contract Owner may result in tax consequences to the Contract Owner, Annuitant, or beneficiary that this prospectus does not discuss. A Contract Owner considering such a transfer or assignment of a Contract should contact a tax adviser about the potential tax effects of such a transaction.

DIVERSIFICATION STANDARDS

To comply with certain regulations under Internal Revenue Code Section 817(h), after a start-up period, each Subaccount of the Separate Account will be required to diversify its investments in accordance with certain diversification standards. A “look-through” rule applies that suggests that each Subaccount of the Separate Account will be tested for compliance with the diversification standards by looking through to the assets of the Portfolios in which each Subaccount invests.

In connection with the issuance of temporary diversification regulations in 1986, the Treasury Department announced that such regulations did not provide guidance on the extent to which Contract Owners may direct their investments to particular subaccounts of a separate account. It is possible that regulations or revenue rulings may be issued in this area at some time in the future. It is not clear, at this time, what these regulations or rulings would provide. It is possible that when the regulations or rulings are issued, the Contract may need to be modified in order to remain in compliance. For these reasons, the Company reserves the right to modify the Contract, as necessary, to maintain the tax-deferred status of the Contract.

We intend to comply with the diversification regulations to assure that the Contract continues to be treated as an annuity contract for federal income tax purposes.

QUALIFIED INDIVIDUAL RETIREMENT ANNUITIES

Generally, you may purchase Qualified Contracts only in connection with a “rollover” of funds from another individual retirement annuity (IRA) or qualified plan. Qualified Contracts must contain special provisions and are subject to limitations on contributions and the timing of when distributions can and must be made. Tax penalties may apply to contributions greater than specified limits, loans, reassignments, distributions that do not meet specified requirements, or in other circumstances. No additional Premium Payments to your Qualified Contract will be accepted. Anyone desiring to purchase a Qualified Contract should consult a personal tax adviser.

Access To Your Money

The value of your Contract can be accessed during the Accumulation Phase:

n By making a full or partial withdrawal.

n By electing an Annuity Payment Option.

n By your Beneficiary in the form of a Death Benefit.

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Full and Partial Withdrawals

You may withdraw all or part of your money at any time during the Accumulation Phase of your Contract without a Company charge, provided the Annuitant or Joint Annuitant is still living. All partial withdrawals must be for at least $250.

On the date the Company receives your request for a full withdrawal, the amount payable is the Accumulated Value.

On the date the Company receives your request for a partial withdrawal, the Accumulated Value will be reduced by the amount of the partial withdrawal.

Because you assume the investment risk under the Contract, the total amount paid upon a full withdrawal of the Contract may be more or less than the total Premium Payments made (taking prior withdrawals into account).

To make a withdrawal, send your written request to Vanguard Annuity and Insurance Services. Your written request should include your Contract number, Social Security number, the amount you wish to withdraw, how you want that amount allocated among the various Subaccounts, the signature of all Contract Owners, and your federal (and state, if applicable) tax withholding election.

Systematic Withdrawals

You may elect to have a specified dollar amount or a percentage of the balance withdrawn from your Contract’s Accumulated Value on a monthly, quarterly, semi-annual, or annual basis. The Company requires a Contract balance of at least $10,000 and a Subaccount balance of at least $1,000 in order to establish the systematic withdrawal program for your Contract. The minimum amount for each Systematic Withdrawal is $250.

You may elect this option by completing the Vanguard Variable Annuity Systematic Withdrawal Program Application Form. The Form must be signed by all Contract Owners and must be signature-guaranteed if you are directing the withdrawal payments to an address other than the Contract address.

The Company must receive your Form at least 30 days before the date you want systematic withdrawals to begin. The Company will process each Systematic Withdrawal on the date and at the frequency you specified in your Systematic Withdrawal Program Form.

You may change the amount to be withdrawn and the percentage or the frequency of distributions by telephone. Any other changes you make, including a change in the destination of the check or your election to cancel this option, must be made in writing, and should include signatures of all Contract Owners.

Minimum Balance Requirements

The minimum required balance in any Subaccount is $1,000. If an exchange or withdrawal would reduce the balance in a Subaccount to less than $1,000, the Company will transfer the remaining balance to the other Subaccounts under the Contract on a pro rata basis. If the entire value of the Contract falls below $1,000, the Company may notify you that the Accumulated Value of your Contract is below the minimum balance requirement. In that case, you will be given 60 days to make an additional Premium Payment before your Contract is liquidated. The Company would then promptly pay proceeds to the Contract Owner. The proceeds would be taxed as a withdrawal from the Contract. Full withdrawal will result in an automatic termination of the Contract.

Payment of Full or Partial Withdrawal Proceeds

The Company will pay cash withdrawals within seven days after receipt of your written request for withdrawal except in one of the following situations, in which the Company may delay the payment beyond seven days:

n The New York Stock Exchange is closed on a day that is not a weekend or a holiday, or trading on the New York Stock Exchange is otherwise restricted.

n An emergency exists as defined by the Securities and Exchange Commission (the “SEC”), or the SEC requires that trading be restricted.

n The SEC permits a delay for your protection as a Contract Owner.

n The payment is derived from premiums paid by check, in which case the Company may delay payment until the check has cleared your bank, which may take up to ten calendar days.

TAXATION OF

Withdrawals

For important information on the tax consequences of withdrawals, see Taxation of Full and Partial Withdrawals, page 18, and Penalty Taxes on Certain Early Withdrawals, page 19.

Tax Withholding on Withdrawals

If you do not provide the Company with a written request not to have federal income taxes withheld when you request a full or partial withdrawal, federal tax law requires the Company to withhold federal income taxes from the taxable portion of any withdrawal and send that amount to the federal government. In that case, we will withhold at a rate of 10%.

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Performance

Standardized Performance

From time to time, the Company may advertise the yield and total return investment performance of a Subaccount for various periods, including quarter-to-date, year-to-date, one-year, five-year, and since inception. The Company will calculate advertised yields and total returns according to standardized methods prescribed by the SEC, so that all charges and expenses attributable to the Contract will be included. Including these fees has the effect of decreasing the advertised performance of a Subaccount, so that a Subaccount’s investment performance will not be directly comparable to that of an ordinary mutual fund.

Non-Standardized Performance

The Company may also advertise total return or other performance data in non-standardized formats that do not reflect the Annual Contract Maintenance Fee.

Not Indications of Future Performance

The performance measures discussed above are not intended to indicate or predict future performance.

Statement of Additional Information

Please refer to the Statement of Additional Information for a description of the method used to calculate a Subaccount’s yield and total return and a list of the indices and other benchmarks used in evaluating a Subaccount’s performance.

Death Benefit

In General

If the Annuitant dies during the Accumulation Phase, the Beneficiary will receive the Death Benefit. The Death Benefit is the then-current Accumulated Value of the Contract on the date the Company receives Due Proof of Death and all Company forms, fully completed. However, for an additional charge, there are two optional Death Benefit Riders that can be selected by the Owner at the time of purchase.

1) Return of Premium Death Benefit Rider—This option is only available to Annuitants age 75 or younger at the time of Contract purchase. There is an additional annual charge of 0.05% (to be assessed 0.0125% per quarter). The additional annual charge will only be assessed for a period of 10 years from the Contract Date. With this option, the Death Benefit will be the greater of:

n The Accumulated Value of the Contract as of the date the Company receives Due Proof of Death and all Company forms, fully completed; or

n the sum of all Premium Payments; less any Adjusted Partial Withdrawals and Premium Taxes, if any.

2) Annual Step-Up Death Benefit Rider—This option is only available to Annuitants age 69 or younger at the time of Contract purchase. There is an additional annual charge of 0.12% (to be assessed 0.03% per quarter). The additional annual charge will only be assessed until the Annuitant’s 80^th birthday. With this option, the Death Benefit will be the greatest of:

n The Accumulated Value of the Contract as of the date the Company receives Due Proof of Death and all Company forms, fully completed.

n the sum of all Premium Payments, less any Adjusted Partial Withdrawals and Premium Taxes, if any; or

n the highest Accumulated Value on any Contract Anniversary Date on or after the date the Rider is added to the Contract and until the Annuitant reaches age 80, plus any subsequent Premium Payment received by the Company after such Contract Anniversary Date less any Adjusted Partial Withdrawals and Premium Taxes, if any.

Federal tax law requires that if a Contract Owner is a natural person and dies before the Income Date, then the entire value of the Contract must be distributed within five years of the date of death of the Contract Owner. If the Contract Owner is not a natural person, the death of the primary Annuitant triggers the same distribution requirement. Special rules may apply to a surviving spouse.

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A WORD ABOUT

Adjusted Partial Withdrawal

If you have elected one of the available Death Benefit Riders, your Contract could be affected by what is referred to as the Adjusted Partial Withdrawal. When a Partial Withdrawal is taken from the Contract, your Death Benefit will be reduced by an amount called the Adjusted Partial Withdrawal. It is equal to the Partial Withdrawal amount multiplied by an adjustment factor. The adjustment factor is equal to the amount of the Death Benefit prior to the Partial Withdrawal divided by the Accumulated Value prior to the Partial Withdrawal. Under certain circumstances, the Adjusted Partial Withdrawal amount deducted from the Death Benefit may be more than the dollar amount of the Partial Withdrawal. This will generally be the case if the Death Benefit amount exceeds the Accumulated Value at the time of the Partial Withdrawal. The Statement of Additional Information contains a more detailed description of the formula used to calculate an Adjusted Partial Withdrawal.

Death of the Annuitant During the Accumulation Phase

If the Annuitant dies during the Accumulation Phase, the Beneficiary will be entitled to the Death Benefit. The Death Benefit will be calculated on the date the Company receives Due Proof of Death and all Company forms, fully completed. The Beneficiary can choose to receive the amount payable in a lump-sum cash benefit or under one of the Annuity Payment Options. The Contract Owner can choose an Annuity Payment Option for the Beneficiary before the Annuitant’s death. However, if the Contract Owner does not make such a choice and the Company has not already paid a cash benefit, the Beneficiary may choose a payment option after the Annuitant’s death.

Death of the Annuitant During the Income Phase

The Death Benefit, if any, payable if the Annuitant dies during the Income Phase depends on the Annuity Payment Option selected. Upon the Annuitant’s death, the Company will pay the Death Benefit, if any, to the Beneficiary under the Annuity Payment Option in effect. For instance, if the Life Annuity With Period Certain option has been elected, and if the Annuitant dies during the Income Phase, then any unpaid payments certain will be paid to the Beneficiary.

DEFINITION

Due Proof of Death

When the term “Due Proof of Death” is used in this prospectus we mean any of the following:

n A certified death certificate

n A certified decree of a court of competent jurisdiction as to the finding of death

n A written statement by a medical doctor who attended the deceased

n Any other proof satisfactory to the Company

A WORD ABOUT

Joint Annuitants

The Contract permits you as Contract Owner to name a Joint Annuitant. This can have different effects depending on whether the Contract is in the Accumulation Phase or the Income Phase.

During the Accumulation Phase, the Death Benefit is payable only after the death of both the Annuitant and the Joint Annuitant.

During the Income Phase, it will not matter that you have named a Joint Annuitant unless you have chosen an Annuity Payment Option, such as the Joint and Last Survivor Annuity option, that pays over the life of more than one person. Therefore, if you have chosen an Annuity Payment Option that provides income over the life of someone other than the person named as Joint Annuitant, the Joint Annuitant’s death during the Income Phase will have no effect on the benefits due under the Contract.

Designation of a Beneficiary

The Contract Owner may select one or more Beneficiaries for the Annuitant and name them on the Client Information Form. Thereafter, while the Annuitant or Joint Annuitant is living, the Contract Owner may change the Beneficiary by written notice. The change will take effect as of the date the Contract Owner signs the notice, but it will not affect any payment made or any other action taken before the Company acknowledges the notice. The Contract Owner may also make the designation of Beneficiary irrevocable by sending written notice to the Company and obtaining approval from the Company. Changes in the Beneficiary may then be made only with the consent of the designated irrevocable Beneficiary. In the event the Contract Owner and the Annuitant are different, the Contract Owner may also name an Owner’s Designated Beneficiary. The Owner’s Designated Beneficiary may assume ownership of the Contract upon the Contract Owner’s death subject to

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any restrictions required under federal tax law. See Death of Contract Owner During the Accumulation Phase, below. The Owner’s Designated Beneficiary may be added or changed only with a written letter of instruction to the Company.

If the Annuitant dies during the Accumulation Period, the following will apply unless the Contract Owner has made other provisions:

n If there is more than one Beneficiary, each will share in the Death Benefit equally.

n If one or two or more Beneficiaries have already died, the Company will pay that share of the Death Benefit equally to the survivor(s).

n If no Beneficiary is living, the Company will pay the proceeds to the Contract Owner.

n If no Beneficiary is named, the Company will pay the proceeds to the estate.

n If a Beneficiary dies at the same time as the Annuitant, the Company will pay the proceeds as though the Beneficiary had died first. If a Beneficiary dies within 15 days after the Annuitant’s death and before the Company receives due proof of the Annuitant’s death, the Company will pay proceeds as though the Beneficiary had died first.

If a Beneficiary who is receiving Annuity Payments dies, the Company will pay any remaining Payments Certain to that Beneficiary’s named Beneficiary(ies) when due. If no Beneficiary survives the Annuitant, the right to any amount payable will pass to the Contract Owner. If the Contract Owner is not living at this time, this right will pass to his or her estate.

Death of the Contract Owner

Death of the Contract Owner During the Accumulation Phase. With two exceptions, federal tax law requires that when either the Contract Owner or the Joint Owner (if any) dies during the Accumulation Phase, the Company must pay out the entire value of the Contract within five years of the date of death. First exception: If the entire value is to be distributed to the Owner’s Designated Beneficiary, he or she may elect to have it paid under an Annuity Payment Option over his or her life or over a period certain no longer than his or her life expectancy as long as the payments begin within one year of the Contract Owner’s death. Second exception: If the Owner’s Designated Beneficiary is the spouse of the Contract Owner (or Joint Owner), the spouse may elect to continue the Contract in his or her name as Contract Owner indefinitely and to continue deferring tax on the accrued and future income under the Contract. (“Owner’s Designated Beneficiary” means the natural person whom the Contract Owner names as a beneficiary and who becomes the Contract Owner upon the Contract Owner’s death.) If the Contract Owner and the Annuitant are the same person, then upon that person’s death the Beneficiary is entitled to the Death Benefit. In this regard, see Death of the Annuitant During the Accumulation Phase, page 23.

Death of the Contract Owner During the Income Phase. Federal tax law requires that when either the Contract Owner or the Joint Owner (if any) dies during the Income Phase, the Company must pay the remaining portions of the value of the Contract at least as rapidly as under the method of distribution being used on the date of death.

Non-Natural Person as Contract Owner. Where the Contract Owner is not a natural person (for example, is a corporation), the death of the “primary Annuitant” is treated as the death of the Contract Owner for purposes of federal tax law. (The Internal Revenue Code defines a “primary Annuitant” as the individual who is of primary importance in affecting the timing or the amount of payout under the Contract.) In addition, where the Contract Owner is not a natural person, a change in the identity of the “primary Annuitant” is also treated as the death of the Contract Owner for purposes of federal tax law.

Payment of Lump-Sum Death Benefits

The Company will pay lump-sum Death Benefits within seven days after the election to take a lump sum becomes effective except in one of the following situations, in which the Company may delay the payment beyond seven days:

n The New York Stock Exchange is closed on a day that is not a weekend or a holiday, or trading on the New York Stock Exchange is otherwise restricted.

n An emergency exists as defined by the SEC, or the SEC requires that trading be restricted.

n The SEC permits a delay for your protection as a Contract Owner.

n The payment is derived from premiums paid by check, in which case the Company may delay payment until the check has cleared your bank, which may take up to ten calendar days.

Other Information

Peoples Benefit Life Insurance Company (the “Company,” “We,” “Us,” “Our”)

Peoples Benefit Life Insurance Company is an Iowa stock life insurance company incorporated on August 6, 1920, with offices at 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499. It is principally engaged in offering life insurance and annuity contracts, and is licensed in 49 states, the District of Columbia, and Puerto Rico.

As of December 31, 2002, the Company had statutory-basis assets of approximately $13 billion. It is a wholly owned indirect subsidiary of AEGON USA, Inc., which conducts substantially all of its operations through subsidiary companies engaged in the insurance business or in providing non-insurance financial services. AEGON N.V. of The Netherlands indirectly owns all of the stock of AEGON USA, Inc. AEGON N.V., a holding company, conducts its business through subsidiary companies engaged primarily in the insurance business.

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Peoples Benefit Life Insurance Company Separate Account IV

Established by the Company on July 16, 1990, the Separate Account operates under Iowa law.

The Separate Account is a unit investment trust registered with the SEC under the Investment Company Act of 1940 (the “1940 Act”). Such registration does not signify that the SEC supervises the management or the investment practices or policies of the Separate Account.

The Company owns the assets of the Separate Account, and the obligations under the Contract are obligations of the Company. These assets are held separately from the other assets of the Company and are not chargeable with liabilities incurred in any other business operation of the Company (except to the extent that assets in the Separate Account exceed the reserves and other liabilities of the Separate Account). The Company will always keep assets in the Separate Account with a value at least equal to the total Accumulated Value under the Contracts. Income, gains, and losses incurred on the assets in the Separate Account, whether or not realized, are credited to or charged against the Separate Account without regard to other income, gains, or losses of the Company. Therefore, the investment performance of the Separate Account is entirely independent of the investment performance of the Company’s general account assets or any other separate account the Company maintains.

The Separate Account has various Subaccounts, each of which invests solely in a corresponding Portfolio of the Fund. Additional Subaccounts may be established at the Company’s discretion. The Separate Account meets the definition of a “separate account” under Rule 0-1(e)(1) of the 1940 Act.

Contract Owner (“You,” “Your”)

The Contract Owner is the person or persons designated as the Contract Owner in the Client Information Form to participate in the Contract. The term shall also include any person named as Joint Owner. A Joint Owner shares ownership in all respects with the Owner. The Owner has the right to assign ownership to a person or party other than himself.

Payee

The Payee is the Contract Owner, Annuitant, Beneficiary, or any other person, estate, or legal entity to whom benefits are to be paid.

Free Look Period

The Contract provides for a Free Look Period of at least 10 days after the Contract Owner receives the Contract (20 or more days in some instances as specified in your Contract) plus 5 days for mailing. The Contract Owner may cancel the Contract during the Free Look Period by returning it to Vanguard Annuity and Insurance Services, P.O. Box 1105, Valley Forge, PA 19482-1105. Upon cancellation, the Contract is treated as void from the Contract Date.

Withdrawals are not permitted during the Free Look Period.

Administrative Services

Administrative services are provided by The Vanguard Group, Inc., Vanguard Annuity and Insurance Services, 100 Vanguard Boulevard, Malvern, PA 19355.

Distributor of the Contracts

The Vanguard Group, Inc., through its wholly owned subsidiary, Vanguard Marketing Corporation, is the principal distributor of the Contract. During the fiscal year ended December 31, 2002, each Portfolio incurred distribution and marketing expenses representing 0.01% (0.02% for the Money Market, Mid-Cap Index, and Growth Portfolios) of each Portfolio’s average net assets. These expenses are guaranteed not to exceed 0.20% of each Portfolio’s average month-end net assets. A complete description of the services provided by Vanguard Marketing Corporation is found in the “Management of the Fund” section in the Fund’s Statement of Additional Information. The principal business address for The Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern, PA 19355.

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Voting Rights

The Fund does not hold regular meetings of shareholders. The trustees of the Fund may call special meetings of shareholders as the 1940 Act or other applicable law may require. To the extent required by law, the Company will vote the Portfolio shares held in the Separate Account at shareholder meetings of the Fund in accordance with instructions received from persons having voting interests in the corresponding Portfolio. The Company will vote Fund shares as to which no timely instructions are received and those shares held by the Company as to which Contract Owners have no beneficial interest in proportion to the voting instructions that are received with respect to all Contracts participating in that Portfolio. Voting instructions to abstain on any item to be voted upon will be applied on a pro rata basis to reduce the votes eligible to be cast.

Prior to the Income Date, the Contract Owner holds a voting interest in each Portfolio to which the Accumulated Value is allocated. The number of votes which are available to a Contract Owner will be determined by dividing the Accumulated Value attributable to a Portfolio by the net asset value per share of the applicable Portfolio. After the Income Date, the person receiving Annuity Payments under any variable Annuity Payment Option has the voting interest. The number of votes after the Income Date will be determined by dividing the reserve for such Contract allocated to the Portfolio by the net asset value per share of the corresponding Portfolio. After the Income Date, the votes attributable to a Contract decrease as the reserves allocated to the Portfolio decrease. In determining the number of votes, fractional shares will be recognized.

The number of votes of the Portfolio that are available will be determined as of the date established by that Portfolio for determining shareholders eligible to vote at the meeting of the Fund. Voting instructions will be solicited by written communication prior to such meeting in accordance with procedures established by the Fund.

Additions, Deletions, or Substitutions of Investments

The Company retains the right, subject to any applicable law, to make certain changes. The Company reserves the right to eliminate the shares of any of the Portfolios and to substitute shares of another Portfolio of the Fund or of another registered open-end management investment company, if the shares of the Portfolios are no longer available for investment or if, in the Company’s judgment, investment in any Portfolio would be inappropriate in view of the purposes of the Separate Account. To the extent the 1940 Act requires, substitutions of shares attributable to a Contract Owner’s interest in a Portfolio will not be made until SEC approval has been obtained and the Contract Owner has been notified of the change.

The Company may establish new Portfolios when marketing, tax, investment, or other conditions so warrant. The Company will make any new Portfolios available to existing Contract Owners on a basis the Company will determine. The Company may also eliminate one or more Portfolios if marketing, tax, investment, or other conditions so warrant.

In the event of any such substitution or change, the Company may, by appropriate endorsement, make whatever changes in the Contracts may be necessary or appropriate to reflect such substitution or change. Furthermore, if deemed to be in the best interests of persons having voting rights under the Contracts, the Company may operate the Separate Account as a management company under the 1940 Act or any other form permitted by law, may deregister the Separate Account under the 1940 Act in the event such registration is no longer required, or may combine the Separate Account with one or more other separate accounts.

Financial Statements

The audited statutory-basis financial statements and schedules of the Company and the audited financial statements of the subaccounts of the Separate Account which are available for investment by Vanguard Variable Annuity Contract Owners (as well as the Independent Auditors’ Reports on them) are contained in the Statement of Additional Information.

Auditors

Ernst & Young LLP serves as independent auditors for the Company and the subaccounts of the Separate Account which are available for investment by Vanguard Variable Annuity Owners and audits their financial statements annually.

Legal Matters

The law firm of Morgan, Lewis & Bockius LLP, of Washington, D.C., has provided legal advice concerning the issue and sale of the Contract under the applicable federal securities laws. On behalf of the Company, Brenda D. Sneed, Esquire, has passed upon all matters of Iowa law pertaining to the validity of the Contract and the Company’s right to issue the Contract.

26

Table of Contents for the Vanguard Variable Annuity

Statement of Additional Information

Contents

B-2	The Contract
B-2	Computation of Variable Annuity Income Payments
B-2	Adjusted Partial Withdrawal
B-3	Exchanges
B-3	Joint Annuitant
B-4	General Matters
B-4	Non-Participating
B-4	Misstatement of Age or Sex
B-4	Assignment
B-4	Annuity Data
B-4	Annual Report
B-4	Incontestability
B-4	Ownership
B-5	Distribution of the Contract
B-5	Performance Information
B-5	Subaccount Inception Dates
B-5	Money Market Subaccount Yields
B-6	30-Day Yield for Non-Money Market Subaccounts
B-6	Standardized Average Annual Total Return
B-9	Additional Performance Measures
B-9	Non-Standardized Cumulative Total Return and Non-Standardized Average Annual Total Return
B-10	Non-Standardized Total Return Year-to-Date
B-11	Non-Standardized One Year Return
B-12	Safekeeping of Account Assets
B-12	Conflicts of Interest with Other Separate Accounts
B-12	The Company
B-13	Taxes
B-13	State Regulation of the Company
B-13	Records and Reports
B-13	Legal Proceedings
B-14	Other Information
B-14	Financial Statements

27

Appendix

CONDENSED FINANCIAL INFORMATION

The Accumulation Unit Values and the number of Accumulation Units outstanding for each Subaccount are as follows:

For the period April 29, 1991 through December 31, 2002

	Money Market	Short-Term Corporate	Total Bond Market Index	High Yield Bond	Balanced	Equity Income	Diversified Value
Accumulation unit value as of:
Start Date*	1.000	10.000	10.000	10.000	10.000	10.000	10.000
12/31/1991	1.032	—	11.027	—	10.802	—	—
12/31/1992	1.064	—	11.656	—	11.514	—	—
12/31/1993	1.091	—	12.695	—	12.961	10.488	—
12/31/1994	1.130	—	12.290	—	12.815	10.304	—
12/31/1995	1.191	—	14.437	—	16.885	14.239	—
12/31/1996	1.250	—	14.882	10.871	19.532	16.820	—
12/31/1997	1.314	—	16.219	12.135	23.946	22.503	—
12/31/1998	1.381	—	17.546	12.576	26.729	26.365	—
12/31/1999	1.447	10.180	17.343	12.892	27.774	25.617	8.662
12/31/2000	1.536	10.974	19.237	12.579	30.541	28.424	10.879
12/31/2001	1.596	11.790	20.754	12.942	31.781	27.324	10.918
12/31/2002	1.618	12.488	22.400	13.098	29.537	23.481	9.333
Number of units outstanding as of:
12/31/1991	32,495	—	2,122	—	3,395	—	—
12/31/1992	75,564	—	4,417	—	8,682	—	—
12/31/1993	109,190	—	6,592	—	16,164	6,411	—
12/31/1994	154,415	—	6,589	—	16,429	6,089	—
12/31/1995	183,867	—	8,684	—	17,021	7,355	—
12/31/1996	246,219	—	9,395	3,042	17,307	9,260	—
12/31/1997	282,813	—	12,403	7,810	19,528	13,361	—
12/31/1998	387,603	—	18,252	10,817	21,507	15,409	—
12/31/1999	456,736	3,165	17,857	10,721	20,007	14,334	3,397
12/31/2000	528,543	6,000	18,332	9,742	16,672	11,262	5,810
12/31/2001	565,875	11,127	23,531	11,874	18,322	11,746	13,973
12/31/2002	546,943	18,963	26,190	12,440	19,265	11,584	14,046
(Units are shown in thousands)

28

For the period April 29, 1991 through December 31, 2002

	Total Stock Mkt. Index	Equity Index	Mid-Cap Index	Growth	Capital Growth	Small Company Growth	International	REIT Index
Accumulation unit value as of:
Start Date*	—	10.000	10.000	10.000	—	10.000	10.000	10.000
12/31/1991	—	11.275	—	—	—	—	—	—
12/31/1992	—	12.039	—	—	—	—	—	—
12/31/1993	—	13.144	—	10.569	—	—	—	—
12/31/1994	—	13.224	—	10.964	—	—	10.128	—
12/31/1995	—	18.073	—	15.089	—	—	11.678	—
12/31/1996	—	22.098	—	19.057	—	9.725	13.319	—
12/31/1997	—	29.301	—	24.034	—	10.970	13.708	—
12/31/1998	—	37.565	—	33.697	—	11.792	16.226	—
12/31/1999	—	45.300	12.454	41.101	—	18.957	20.265	9.738
12/31/2000	—	41.052	14.640	32.753	—	21.872	18.834	12.251
12/31/2001	—	35.987	14.510	22.246	—	23.013	15.272	13.691
12/31/2002	—	27.936	12.339	14.211	—	17.420	12.596	14.124
Number of units outstanding as of:
12/31/1991	—	2,311	—	—	—	—	—	—
12/31/1992	—	9,645	—	—	—	—	—	—
12/31/1993	—	12,971	—	4,879	—	—	—	—
12/31/1994	—	13,676	—	8,004	—	—	6,818	—
12/31/1995	—	16,292	—	11,857	—	—	8,146	—
12/31/1996	—	19,360	—	15,744	—	5,362	12,435	—
12/31/1997	—	28,886	—	18,975	—	11,350	14,597	—
12/31/1998	—	28,884	—	23,656	—	11,841	14,564	—
12/31/1999	—	33,247	5,746	26,900	—	14,077	15,970	2,281
12/31/2000	—	31,161	13,486	27,577	—	19,483	17,227	4,174
12/31/2001	—	29,786	16,068	23,721	—	19,007	14,988	6,433
12/31/2002	—	28,067	17,688	19,903	—	18,622	14,564	10,127
(Units are shown in thousands)

* Date of commencement of operations for the Total Bond Market Index and Equity Index Subaccounts was April 29, 1991, for the Money Market Subaccount was May 2, 1991, for the Balanced Subaccount was May 23, 1991, for the Equity Income and Growth Subaccounts was June 7, 1993, for the International Subaccount was June 3, 1994, for the High Yield Bond and Small Company Growth Subaccounts was June 3, 1996, and for the Short-Term Corporate, Diversified Value, Mid-Cap Index, and REIT Index Subaccounts was February 8, 1999. As of December 31, 2002, the following Subaccounts had not commenced operation: Total Stock Market Index and Capital Growth.

29

PEOPLES BENEFIT LIFE INSURANCE COMPANY

SEPARATE ACCOUNT IV

STATEMENT OF ADDITIONAL INFORMATION

FOR THE

VANGUARD VARIABLE ANNUITY

OFFERED BY

PEOPLES BENEFIT LIFE INSURANCE COMPANY

(AN IOWA STOCK COMPANY)

ADMINISTRATIVE OFFICES

4333 EDGEWOOD ROAD NE

CEDAR RAPIDS, IOWA 52499

This Statement of Additional Information expands upon subjects discussed in the current Prospectus for the Vanguard Variable Annuity (the “Contract”) offered by Peoples Benefit Life Insurance Company (the “Company”). You may obtain a copy of the Prospectus dated May 1, 2003 by calling 800-522-5555, or writing to Vanguard Annuity and Insurance Services, P.O. Box 1105, Valley Forge, PA 19482-1105. Terms used in the current Prospectus for the Contract are incorporated in this Statement.

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.

May 1, 2003

TABLE OF CONTENTS	PAGE
THE CONTRACT	B-2
Computation of Variable Annuity Income Payments	B-2
Adjusted Partial Withdrawal	B-2
Exchanges	B-3
Joint Annuitant	B-3
GENERAL MATTERS	B-4
Non-Participating	B-4
Misstatement of Age or Sex	B-4
Assignment	B-4
Annuity Data	B-4
Annual Report	B-4
Incontestability	B-4
Ownership	B-4
DISTRIBUTION OF THE CONTRACT	B-5
PERFORMANCE INFORMATION	B-5
Subaccount Inception Dates	B-5
Money Market Subaccount Yields	B-5
30-Day Yield for Non-Money Market Subaccounts	B-6
Standardized Average Annual Total Return	B-6
ADDITIONAL PERFORMANCE MEASURES	B-9
Non-Standardized Cumulative Total Return and Non-Standardized Average Annual Total Return	B-9
Non-Standardized Total Return Year-to-Date	B-11
Non-Standardized One Year Return	B-11
SAFEKEEPING OF ACCOUNT ASSETS	B-12
CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS	B-12
THE COMPANY	B-12
TAXES	B-13
STATE REGULATION OF THE COMPANY	B-13
RECORDS AND REPORTS	B-13
LEGAL PROCEEDINGS	B-13
OTHER INFORMATION	B-14
FINANCIAL STATEMENTS	B-14

B-1

THE CONTRACT

In order to supplement the description in the Prospectus, the following provides additional information about the Contract which may be of interest to Contract Owners.

Computation of Variable Annuity Income Payments

Variable Annuity Income Payments are computed as follows. First, the Accumulated Value (or the portion of the Accumulated Value used to provide variable payments) is applied under the Annuity Table contained in the Contract corresponding to the Annuity Option elected by the Contract Owner and based on an assumed interest rate of 4%. This will produce a dollar amount which is the first monthly payment.

The amount of each Annuity Payment after the first is determined by means of Annuity Units. The number of Annuity Units is determined by dividing the first Annuity Payment by the Annuity Unit value for the selected Subaccount ten Business Days prior to the Income Date. The number of Annuity Units for the Subaccount then remains fixed, unless an exchange of Annuity Units (as set forth below) is made. After the first Annuity Payment, the dollar amount of each subsequent Annuity Payment is equal to the number of Annuity Units multiplied by the Annuity Unit value for the Subaccount ten Business Days before the due date of the Annuity Payment.

The Annuity Unit value for each Subaccount was initially established at $10.00 on the day money was first deposited in that Subaccount. The Annuity Unit value for any subsequent Business Day is equal to (a) times (b) times (c), where:

(a) the Annuity Unit value for the immediately preceding Business Day;

(b) the Net Investment Factor for the day;

(c) the investment result adjustment factor (0.99989255 per day), which recognizes an assumed interest rate of 4% per year used in determining the Annuity Payment amounts.

The Net Investment Factor is a factor applied to a Subaccount that reflects daily changes in the value of the Subaccount due to:

(a) any increase or decrease in the value of the Subaccount due to investment results;

(b) a daily charge for the mortality and expense risks assumed by the Company corresponding to an annual rate of 0.20%, 0.25% or 0.32%, depending on the death benefit selected;

(c) a daily charge for the cost of administering the Contract corresponding to an annual charge of 0.10%; and

(d) a charge of $25 for maintenance of Contracts valued at less than $25,000 at time of initial purchase and in each subsequent year if the Accumulated Value remains below $25,000.

The Annuity Tables contained in the NA100A Contract are based on the 1983 Table “A” Mortality Table projected for mortality improvement to the year 2000 using Projection Scale G and an interest rate of 4% a year; except that in Massachusetts and Montana, the Annuity Tables contained in the Contract are based on a 60% female/40% male blending of the above, for all annuitants of either gender.

The Annuity Tables contained in the VVAP U 1001 Contract are based on a 4% effective annual Assumed Investment Return and the “Annuity 2000” (male, female, and unisex if required by law) mortality table projected for improvement using projection scale G (50% of G for females, 100% of G for males) with an assumed commencement date of 2005. Age adjustments apply for annuitizations after 2010. Unisex factors assume a 70% female, 30% male mix.

Adjusted Partial Withdrawal

The Adjusted Partial Withdrawal is the total amount the Death Benefit is adjusted as a result of any Partial Withdrawals taken from the Contract. It adjusts the Death Benefit in proportion to its relationship to the Accumulated Value of the Contract and the amount of the Partial Withdrawal. The Death Benefit is calculated by adding or subtracting the Adjusted Partial Withdrawal amount to the Death Benefit amount prior to the Partial Withdrawal. The formula is as follows:

(a)  divided by (b) = (c); (c) multiplied by (d) = Adjusted Partial Withdrawal amount

B-2

Where:

(a) =  Death Benefit prior to the Partial Withdrawal;

(b) =  Accumulated Value of the Contract prior to the Partial Withdrawal;

(c) =  Adjustment factor;

(d) =  Amount of Partial Withdrawal

Without application of the Adjusted Partial Withdrawal amount, the Company has the risk in a down market that a Contract Owner may withdraw most of his or her Accumulated Value and leave a sizable guaranteed minimum Death Benefit under the Return of Premium Death Benefit Rider. For example, suppose $100,000 is invested in the Contract and the market subsequently drops to $50,000. Without the Adjusted Partial Withdrawal, the Contract Owner could withdraw $49,000 and purchase a different annuity contract, leaving only $1,000 invested in the Contract with a $49,000 Death Benefit. The Company would retain a future Death Benefit liability with almost no money invested in the Contract to permit the Company to recover that future expense. The Adjusted Partial Withdrawal allows the Company to eliminate the risk described. In the foregoing example, the Contract Owner would only have a $2,000 Death Benefit after the withdrawal.

Conversely, in an up market, the Adjusted Partial Withdrawal will lower the guaranteed Death Benefit by an amount less than amount actually withdrawn. The Company would retain a future Death Benefit liability with no additional risk. Using the example above, assume the market subsequently rose to $150,000. Without the Adjusted Partial Withdrawal, the Contract Owner withdraws $50,000 and would have a guaranteed minimum Death Benefit remaining of $50,000. However, using the Adjusted Partial Withdrawal, the remaining guaranteed minimum Death Benefit would be $66,666.67.

Exchanges

After the Income Date, if a Variable Annuity Option has been chosen, the Contract Owner may, by making written request or by calling Vanguard Annuity and Insurance Services, exchange the current value of the existing Subaccount to Annuity Units of any other Subaccount then available. The request for the exchange must be received, however, at least 10 Business Days prior to the first payment date on which the exchange is to take effect. This exchange shall result in the same dollar amount of Annuity Payment on the date of exchange. The Contract Owner is limited to two substantive exchanges (at least 30 days apart) from a Portfolio (except the Money Market Portfolio) in any Contract Year, and the value of the Annuity Units exchanged must provide a monthly Annuity Payment of at least $100 at the time of the exchange. “Substantive” means a dollar amount that The Vanguard Group, Inc. determines, in its sole discretion, could adversely affect management of the Fund.

Exchanges will be made using the Annuity Unit value for the Subaccounts on the date the request for exchange is received by the Company. On the exchange date, the Company will establish a value for the current Subaccount by multiplying the Annuity Unit value by the number of Annuity Units in the existing Subaccount, and compute the number of Annuity Units for the new Subaccount by dividing the Annuity Unit value of the new Subaccount into the value previously calculated for the existing Subaccount.

Joint Annuitant

The Contract Owner may, in the Client Information Form or by written request at least 30 days prior to the Income Date, name a Joint Annuitant. Such Joint Annuitant must meet the Company’s underwriting requirements. If approved by the Company, the Joint Annuitant shall be named on the Contract Schedule or added by endorsement. An Annuitant or Joint Annuitant may not be replaced.

The Income Date shall be determined based on the date of birth of the Annuitant. If the Annuitant or Joint Annuitant dies prior to the Income Date, the survivor shall be the sole Annuitant. Another Joint Annuitant may not be designated. Payment to a Beneficiary shall not be made until the death of the surviving Annuitant.

B-3

GENERAL MATTERS

Non-Participating

The Contracts are non-participating. No dividends are payable and the Contracts will not share in the profits or surplus earnings of the Company.

Misstatement of Age or Sex

Depending on the state of issue of a Contract, the Company may require proof of age and/or sex before making Annuity Payments. If the Annuitant’s stated age, sex or both in the Contract are incorrect, the Company will change the Annuity Benefits payable to those which the Premium Payments would have purchased for the correct age and sex. In the case of correction of the stated age or sex after payments have commenced, the Company will: (1) in the case of underpayment, pay the full amount due with the next payment; or (2) in the case of overpayment, deduct the amount due from one or more future payments.

Assignment

Any Nonqualified Contract may be assigned by the Contract Owner prior to the Income Date and during the Annuitant’s lifetime. The Company is not responsible for the validity of any assignment. No assignment will be recognized until the Company receives written notice thereof. The interest of any Beneficiary which the assignor has the right to change shall be subordinate to the interest of an assignee. Any amount paid to the assignee shall be paid in one sum, notwithstanding any settlement agreement in effect at the time assignment was executed. The Company shall not be liable as to any payment or other settlement made by the Company before receipt of written notice.

Annuity Data

The Company will not be liable for obligations which depend on receiving information from a Payee until such information is received in a form satisfactory to the Company.

Annual Report

Once each Contract Year, the Company will send the Contract Owner an annual report of the current Accumulated Value allocated to each Subaccount; and any Premium Payments, charges, exchanges or withdrawals during the year. This report will also give the Contract Owner any other information required by law or regulation. The Contract Owner may ask for a report like this at any time.

Incontestability

This Contract is incontestable from the Contract Date, subject to the “Misstatement of Age or Sex” or “Misstatement of Age” provision.

Ownership

The Owner of the Contract on the Contract Date is the Annuitant, unless otherwise specified in the Client Information Form. The Owner may specify a new Owner by written notice at any time thereafter. The term Owner also includes any person named as a Joint Owner. A Joint Owner shares ownership in all respects with the Owner. During the Annuitant’s lifetime all rights and privileges under this Contract may be exercised solely by the Owner. Upon the death of the Owner(s), Ownership is retained by the surviving Joint Owner or passes to the Owner’s Designated Beneficiary, if one has been designated by the Owner. If no Owner’s Designated Beneficiary is designated or if no Owner’s Designated Beneficiary is living, the Owner’s Designated Beneficiary is the Owner’s estate. From time to time the Company may require proof that the Owner is still living.

B-4

DISTRIBUTION OF THE CONTRACT

The Vanguard Group, Inc., through its wholly owned subsidiary, Vanguard Marketing Corporation, is the principal distributor of the Contract. During the fiscal year ended December 31, 2002, each Portfolio incurred distribution and marketing expenses representing 0.01% (0.02% for the Money Market Portfolio) of each Portfolio’s average net assets. These expenses are guaranteed not to exceed 0.20% of each Portfolio’s average month-end net assets. A complete description of the services provided by Vanguard Marketing Corporation is found in the “Management of the Fund” section in the Fund’s Statement of Additional Information. The principal business address for The Vanguard Group, Inc. is 100 Vanguard Boulevard, Malvern, PA 19355.

PERFORMANCE INFORMATION

Performance information for the Subaccounts, including the yield and effective yield of the Money Market Subaccount, the yield of the remaining Subaccounts, and the total return of all Subaccounts, may appear in reports or promotional literature to current or prospective Contract Owners.

Subaccount Inception Dates

Where applicable, the following Subaccount inception dates are used in the calculation of performance figures: April 29, 1991 for the Equity Index Subaccount and the Total Bond Market Index Subaccount; May 2, 1991 for the Money Market Subaccount; May 23, 1991 for the Balanced Subaccount; June 7, 1993 for the Equity Income Subaccount and the Growth Subaccount; June 3, 1994 for the International Subaccount; June 3, 1996 for the High Yield Bond Subaccount and the Small Company Growth Subaccount; February 8, 1999 for the Diversified Value Subaccount and the Short-Term Corporate Subaccount; February 9, 1999 for the Mid-Cap Index Subaccount and the REIT Index Subaccount; and May 1, 2003 for the Total Stock Market Index Subaccount and the Capital Growth Subaccount.

The underlying series of Vanguard Variable Insurance Fund in which the Mid-Cap Index Subaccount and the REIT Index Subaccount invest commenced operations on February 8, 1999 (and sold shares to these subaccounts on that day), but they held all of their assets in money market instruments until February 9, 1999, when performance measurement begins.

Money Market Subaccount Yields

Current yield for the Money Market Subaccount will be based on the change in the value of a hypothetical investment (exclusive of capital changes) over a particular 7-day period, less a pro-rata share of Subaccount expenses accrued over that period (the “base-period”), and stated as a percentage of the investment at the start of the base period (the “base period return”). The base period return is then annualized by multiplying by ^365/7, with the resulting yield figure carried to at least the nearest hundredth of one percent.

Calculation of “effective yield” begins with the same “base period return” used in the calculation of yield, which is then annualized to reflect weekly compounding pursuant to the following formula:

Effective Yield = [(Base Period Return +1)^365/7] -1

The yield of the Money Market Subaccount for the 7-day period ended December 31, 2002, was 1.01%.

B-5

30-Day Yield for Non-Money Market Subaccounts

Quotations of yield for the remaining Subaccounts will be based on all investment income per Unit earned during a particular 30-day period, less expenses accrued during the period (“net investment income”), and will be computed by dividing net investment income by the value of a Unit on the last day of the period, according to the following formula:

YIELD = 2[(a - b + 1)⁶ - 1]

c x d

Where:

[a] equals the net investment income earned during the period by the Series attributable to shares owned by a Subaccount

[b] equals the expenses accrued for the period (net of reimbursements)

[c] equals the average daily number of Units outstanding during the period

[d] equals the maximum offering price per Accumulation Unit on the last day of the period

Yield on the Subaccount is earned from the increase in net asset value of shares of the Series in which the Subaccount invests and from dividends declared and paid by the Series, which are automatically reinvested in shares of the Series.

The yield of each Subaccount for the 30-day period ended December 31, 2002, is set forth below. Yields are calculated daily for each Subaccount. Premiums and discounts on asset-backed securities are not amortized.

Short-Term Corporate Subaccount	3.34%
Total Bond Market Index Subaccount	4.20%
High Yield Bond Subaccount	8.24%
Balanced Subaccount	2.79%
Equity Income Subaccount	2.76%
Diversified Value Subaccount	2.95%
Total Stock Market Index Subaccount	—
Mid-Cap Index Subaccount	1.62%
Equity Index Subaccount	0.85%
Growth Subaccount	0.53%
Capital Growth Subaccount	—
Small Company Growth Subaccount	0.26%
International Subaccount	—
REIT Index Subaccount	—

Standardized Average Annual Total Return

When advertising performance of the Subaccounts, the Company will show the “Standardized Average Annual Total Return,” calculated as prescribed by the rules of the SEC, for each Subaccount. The Standardized Average Annual Total Return is the effective annual compounded rate of return that would have produced the cash redemption value over the stated period had the performance remained constant throughout. The calculation assumes a single $1,000 payment made at the beginning of the period and full redemption at the end of the period. It reflects the deduction of all applicable sales loads or sales charges, the Annual Contract Maintenance Fee and all other Portfolio, Separate Account and Contract level charges except Premium Taxes, if any. In calculating performance information, the Annual Contract Maintenance Fee is reflected as a percentage equal to the total amount of fees collected during a year divided by the total average net assets of the Portfolios during the same year. The fee is assumed to remain the same in each year of the applicable period. The fee is prorated to reflect only the remaining portion of the calendar year of purchase. Thereafter, the fee is deducted annually.

B-6

Quotations of average annual total return for any Subaccount will be expressed in terms of the average annual compounded rate of return of a hypothetical investment in a Contract over a period of one, three, five and 10 years (or, if less, up to the life of the Subaccount) and year-to-date, six months to date, month-to-date, and quarter-to-date, calculated pursuant to the formula:

P(1 + T)ⁿ = ERV

Where:

(1) [P] equals a hypothetical Initial Premium Payment of $1,000

(2) [T] equals an average annual total return

(3) [n] equals the number of years

(4) [ERV] equals the ending redeemable value of a hypothetical $1,000 Premium Payment made at the beginning of the period (or fractional portion thereof)

The following tables show the average annual total return for the Subaccounts for the period beginning at the inception of each Subaccount and ending on December 31, 2002.

Standardized Average Annual Total Return

For Period Ending December 31, 2002

Annual Step-Up Death Benefit Option

(Total Annual Separate Account Expenses: 0.42%)

	1 year	3 years	5 years	Year to date	Year Ended 12/31/2002	Since Subaccount Inception*
Money Market Subaccount	1.30%	3.79%	4.25%	1.30%	1.30%	4.24%
Short-Term Corporate Subaccount	5.90%	7.04%	—	5.90%	5.90%	5.81%
Total Bond Market Index Subaccount	7.92%	8.90%	6.66%	7.92%	7.92%	7.19%
High Yield Bond Subaccount	1.20%	0.52%	1.53%	1.20%	1.20%	4.15%
Balanced Subaccount	-7.07%	2.07%	4.28%	-7.07%	-7.07%	9.84%
Equity Income Subaccount	-14.07%	-2.87%	0.85%	-14.07%	-14.07%	9.36%
Diversified Value Subaccount	-14.53%	2.51%	—	-14.53%	-14.53%	-1.84%
Total Stock Market Index Subaccount	—	—	—	—	—	—
Equity Index Subaccount	-22.38%	-14.89%	-0.96%	-22.38%	-22.38%	9.25%
Mid-Cap Index Subaccount	-14.97%	-0.32%	—	-14.97%	-14.97%	5.50%
Growth Subaccount	-36.13%	-29.82%	-9.98%	-36.13%	-36.13%	3.74%
Capital Growth Subaccount	—	—	—	—	—	—
Small Company Growth Subaccount	-24.31%	-2.78%	9.68%	-24.31%	-24.31%	8.79%
International Subaccount	-17.53%	-14.66%	-1.69%	-17.53%	-17.53%	2.72%
REIT Index Subaccount	3.16%	13.19%	—	3.16%	3.16%	9.24%

* Refer to “Subaccount Inception Dates” under the “PERFORMANCE INFORMATION” section of this Statement of Additional Information.

B-7

	Month- to-date	Quarter- to-date	6 Months- to-date
Money Market Subaccount	0.08%	0.26%	0.57%
Short-Term Corporate Subaccount	1.29%	0.93%	3.76%
Total Bond Market Index Subaccount	2.05%	1.36%	5.07%
High Yield Bond Subaccount	1.07%	5.55%	2.02%
Balanced Subaccount	-1.97%	6.25%	-5.56%
Equity Income Subaccount	-2.86%	8.13%	-10.22%
Diversified Value Subaccount	-2.22%	4.55%	-13.20%
Total Stock Market Index Subaccount	—	—	—
Equity Index Subaccount	-5.90%	8.29%	-10.45%
Mid-Cap Index Subaccount	-4.11%	5.68%	-11.96%
Growth Subaccount	-7.38%	5.22%	-12.34%
Capital Growth Subaccount	—	—	—
Small Company Growth Subaccount	-6.14%	5.34%	-14.08%
International Subaccount	-4.67%	8.06%	-14.26%
REIT Index Subaccount	0.75%	-0.03%	-8.63%

All total return figures reflect the deduction of the administrative charge, and the mortality and expense risk charge. The SEC requires that an assumption be made that the Contract Owner surrenders the entire Contract at the end of the 1-, 5- and 10-year periods (or, if less, up to the life of the Subaccount) for which performance is required to be calculated.

Performance information for a Subaccount may be compared, in reports and promotional literature, to: (i) the Standard & Poor’s 500 Stock Index (“S&P 500”), Dow Jones Industrial Average (“DJIA”), Donoghue Money Market Institutional Averages, or other indices that measure performance of a pertinent group of securities so that investors may compare a Subaccount’s results with those of a group of securities widely regarded by investors as representative of the securities markets in general; (ii) other groups of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services, a widely-used independent research firm which ranks mutual funds and other investment companies by overall performance, investment objectives, and assets, or tracked by other services, companies, publications, or persons who rank such investment companies on overall performance or other criteria; and (iii) the Consumer Price Index (measure for inflation) to assess the real rate of return from an investment in the Contract. Unmanaged indices may assume the reinvestment of dividends but generally do not reflect deductions for administrative and management costs and expenses.

Performance information for any Subaccount reflects only the performance of a hypothetical Contract under which Accumulation Value is allocated to a Subaccount during a particular time period on which the calculations are based. Performance information should be considered in light of the investment objectives and policies, characteristics and quality of the portfolio of the Fund in which the Subaccount invests, and the market conditions during the given time period, and should not be considered as a representation of what may be achieved in the future.

Reports and marketing materials may, from time to time, include information concerning the rating of Peoples Benefit Life Insurance Company as determined by A.M. Best, Moody’s, Standard & Poor’s or other recognized rating services. Reports and promotional literature may also contain other information including (i) the ranking of any Subaccount derived from rankings of variable annuity separate accounts or other investment products tracked by Lipper Analytical Services or by other rating services, companies, publications, or other persons who rank separate accounts or other investment products on overall performance or other criteria, and (ii) the effect of tax deferred compounding on a Subaccount’s investment returns, or returns in general, which may be illustrated by graphs, charts, or otherwise, and which may include a comparison, at various points in time, of the return from an investment in a Contract (or returns in general) on a tax-deferred basis (assuming one or more tax rates) with the return on a taxable basis.

B-8

ADDITIONAL PERFORMANCE MEASURES

Non-Standardized Cumulative Total Return and Non-Standardized Average Annual Total Return

The Company may show a Non-Standardized Cumulative Total Return (i.e., the percentage change in the value of an Accumulation Unit) for one or more Subaccounts with respect to one or more periods. The Company may also show Non-Standardized Average Annual Total Return (i.e., the average annual change in Accumulation Unit Value) with respect to one or more periods. For one year and periods less than one year, the Non- Standardized Cumulative Total Return and the Non-Standardized Average Annual Total Return are effective annual rates of return and are equal. For periods greater than one year, the Non-Standardized Average Annual Total Return is the effective annual compounded rate of return for the periods stated. Because the value of an Accumulation Unit reflects the Separate Account and Portfolio expenses (see Fee Table in the Prospectus), the Non-Standardized Cumulative Total Return and Non-Standardized Average Annual Total Return also reflect these expenses. However, these percentages do not reflect the Annual Contract Maintenance Fee or Premium Taxes (if any), which, if included, would reduce the percentages reported by the Company.

Non-Standardized Cumulative Total Return

For Period Ending 12/31/2002

Annual Step-Up Death Benefit Option

(Total Annual Separate Account Expenses: 0.42%)

	Month- to-date		Quarter- to-date		6 Month- to-date		One Year		Since Subaccount Inception*
Money Market Subaccount	0.08	%	0.26	%	0.57	%	1.31	%	62.56	%
Short-Term Corporate Subaccount	1.29	%	0.93	%	3.77	%	5.83	%	24.66	%
Total Bond Market Index Subaccount	2.05	%	1.36	%	5.08	%	7.89	%	125.14	%
High Yield Bond Subaccount	1.07	%	5.56	%	2.03	%	1.12	%	30.74	%
Balanced Subaccount	-1.97	%	6.25	%	-5.55	%	-7.14	%	197.63	%
Equity Income Subaccount	-2.85	%	8.13	%	-10.22	%	-14.18	%	135.69	%
Diversified Value Subaccount	-2.21	%	4.56	%	-13.20	%	-15.07	%	-6.92	%
Total Stock Market Index Subaccount	—		—		—		—		—
Equity Index Subaccount	-5.90	%	8.29	%	-10.44	%	-22.53	%	181.30	%
Mid-Cap Index Subaccount	-4.11	%	5.68	%	-11.95	%	-15.07	%	23.19	%
Growth Subaccount	-7.38	%	5.22	%	-12.33	%	-36.31	%	42.18	%
Capital Growth Subaccount	—		—		—		—		—
Small Company Growth Subaccount	-6.14	%	5.35	%	-14.08	%	-24.45	%	74.13	%
International Subaccount	-4.67	%	8.06	%	-14.26	%	-17.67	%	25.99	%
REIT Index Subaccount	0.75	%	-0.03	%	-8.63	%	3.11	%	41.11	%

* Refer to “Subaccount Inception Dates” under the “PERFORMANCE INFORMATION” section of this Statement of Additional Information.

B-9

Non-Standardized Average Annual Total Returns

For Period Ending 12/31/2002

Annual Step-Up Death Benefit Option

(Total Annual Separate Account Expenses: 0.42%)

	One Year		Three Year		Five Year		Since Subaccount Inception*
Money Market Subaccount	1.38	%	3.80	%	4.26	%	4.25	%
Short-Term Corporate Subaccount	5.91	%	7.05	%	—		5.83	%
Total Bond Market Index Subaccount	7.93	%	8.90	%	6.67	%	7.20	%
High Yield Bond Subaccount	1.20	%	0.53	%	1.54	%	4.16	%
Balanced Subaccount	-7.06	%	2.07	%	4.29	%	9.85	%
Equity Income Subaccount	-14.07	%	-2.86	%	0.85	%	9.38	%
Diversified Value Subaccount	-14.52	%	2.52	%	—		-1.83	%
Total Stock Market Index Subaccount	—		—		—		—
Equity Index Subaccount	-22.37	%	-14.88	%	-0.95	%	9.26	%
Mid-Cap Index Subaccount	-14.65	%	0.04	%	—		5.51	%
Growth Subaccount	-35.89	%	-29.56	%	-9.64	%	2.73	%
Capital Growth Subaccount	—		—		—		—
Small Company Growth Subaccount	-24.03	%	-2.43	%	10.10	%	8.80	%
International Subaccount	-17.25	%	-14.35	%	-1.31	%	2.73	%
REIT Index Subaccount	3.53	%	13.61	%	—		9.26	%

* Refer to “Subaccount Inception Dates” under the “PERFORMANCE INFORMATION” section of this Statement of Additional Information.

Non-Standardized Total Return Year-to-Date

The Company may show Non-Standardized Total Return Year-to-Date as of a particular date, or simply Total Return YTD, for one or more Subaccounts with respect to one or more non-standardized base periods commencing at the beginning of a calendar year. Total Return YTD figures reflect the percentage change in actual Accumulation Unit Values during the relevant period. These percentages reflect a deduction for the Separate Account and Portfolio expenses, but do not include the Annual Contract Maintenance Fee or Premium Taxes (if any), which, if included, would reduce the percentages reported by the Company.

B-10

Non-Standardized Total Return Year-to-Date

For Period Ending 12/31/2002

Annual Step-Up Death Benefit Option

(Total Annual Separate Account Expenses: 0.42%)

	Total Return YTD as of 12/31/2002
Money Market Subaccount	1.38	%
Short-Term Corporate Subaccount	5.91	%
Total Bond Market Index Subaccount	7.93	%
High Yield Bond Subaccount	1.20	%
Balanced Subaccount	-7.06	%
Equity Income Subaccount	-14.07	%
Diversified Value Subaccount	-14.52	%
Total Stock Market Index Subaccount	—
Equity Index Subaccount	-22.37	%
Mid-Cap Index Subaccount	-14.96	%
Growth Subaccount	-36.12	%
Capital Growth Subaccount	—
Small Company Growth Subaccount	-24.30	%
International Subaccount	-17.52	%
REIT Index Subaccount	3.16	%

Non Standardized One Year Return

The Company may show Non-Standardized One Year Return, for one or more Subaccounts with respect to one or more non-standardized base periods commencing at the beginning of a calendar year (or date of inception, if during the relevant year) and ending at the end of such calendar year. One Year Return figures reflect the percentage change in actual Accumulation Unit Values during the relevant period. These percentages reflect a deduction for the Separate Account and Portfolio expenses, but do not include the Annual Contract Maintenance Fee or Premium Taxes (if any), which if included would reduce the percentages reported by the Company.

Non-Standardized One Year Return

Annual Step-Up Death Benefit Option

(Total Annual Separate Account Expenses: 0.42%)

	2002		2001		2000		1999		1998		1997
Money Market Subaccount	1.38	%	3.92	%	6.04	%	4.75	%	5.07	%	5.12	%
Short-Term Corporate Subaccount	5.91	%	7.43	%	7.74	%	—		—		—
Total Bond Market Index Subaccount	7.93	%	7.87	%	10.85	%	-1.23	%	7.87	%	8.97	%
High Yield Bond Subaccount	1.20	%	2.83	%	-2.48	%	2.46	%	3.63	%	11.64	%
Balanced Subaccount	-7.06	%	4.00	%	9.93	%	3.89	%	11.61	%	22.69	%
Equity Income Subaccount	-14.07	%	-3.94	%	10.95	%	-2.94	%	17.19	%	33.95	%
Diversified Value Subaccount	-14.52	%	0.33	%	25.60	%	—		—		—
Total Stock Market Index Subaccount	—		—		—		—		—		—
Equity Index Subaccount	-22.37	%	-12.43	%	-9.47	%	20.62	%	28.25	%	32.73	%
Mid-Cap Index Subaccount	-14.96	%	-0.95	%	17.50	%	—		—		—
Growth Subaccount	-36.12	%	-32.26	%	-20.44	%	22.00	%	40.32	%	26.21	%
Capital Growth Subaccount	—		—		—		—		—		—
Small Company Growth Subaccount	-24.30	%	5.16	%	15.37	%	60.91	%	7.52	%	12.84	%
International Subaccount	-17.52	%	-19.04	%	-7.12	%	24.96	%	18.39	%	2.91	%
REIT Index Subaccount	3.16	%	11.71	%	25.87	%	—		—		—

B-11

	1996		1995		1994		1993		1992
Money Market Subaccount	4.98	%	5.42	%	3.73	%	2.55	%	3.18	%
Short-Term Corporate Subaccount	—		—		—		—		—
Total Bond Market Index Subaccount	3.09	%	17.57	%	-3.15	%	8.91	%	5.89	%
High Yield Bond Subaccount	—		—		—		—		—
Balanced Subaccount	15.79	%	31.97	%	-1.08	%	12.69	%	6.69	%
Equity Income Subaccount	18.25	%	38.44	%	-1.71	%	—		—
Diversified Value Subaccount	—		—		—		—		—
Total Stock Market Index Subaccount	—		—		—		—		—
Equity Index Subaccount	22.41	%	36.91	%	0.67	%	9.39	%	6.88	%
Mid-Cap Index Subaccount	—		—		—		—		—
Growth Subaccount	26.45	%	37.87	%	3.82	%	—		—
Capital Growth Subaccount	—		—		—		—		—
Small Company Growth Subaccount	—		—		—		—		—
International Subaccount	14.15	%	15.43	%	—		—		—
REIT Index Subaccount	—		—		—		—		—

SAFEKEEPING OF ACCOUNT ASSETS

Title to assets of the Separate Account is held by the Company. The assets are kept physically segregated and held separate and apart from the Company’s general account assets. Records are maintained of all purchases and redemptions of eligible Portfolio shares held by each of the Subaccounts.

CONFLICTS OF INTEREST WITH OTHER SEPARATE ACCOUNTS

The Portfolios may be made available to registered separate accounts offering variable annuity and variable life products of the Company or other insurance companies. Although the Company believes it is unlikely, a material conflict could arise between the interests of the Separate Account and one or more of the other participating separate accounts. In the event a material conflict does exist, the affected insurance companies agree to take any necessary steps, including removing their separate accounts from the Fund if required by law, to resolve the matter.

THE COMPANY

The Company is a direct subsidiary of Monumental Life Insurance Company, Capital Liberty, L.P., and Commonwealth General Corporation, which, respectively, have 76.3%, 20%, and 3.7% interests in the Company. Monumental Life Insurance Company is a direct subsidiary of Capital General Development Corporation and First AUSA Life Insurance Company, which, respectively, have 73.23% and 26.77% interests in Monumental Life Insurance Company. Monumental Life Insurance Company and Commonwealth General Corporation have, respectively, 99% and 1% interests in Capital Liberty, L.P. Commonwealth General Corporation is a wholly owned subsidiary of AEGON U.S. Corporation. Capital General Development Corporation is a wholly owned subsidiary of Commonwealth General Corporation. First AUSA Life Insurance Company is a wholly owned subsidiary of Transamerica Holding Company, LLC. Transamerica Holding Company, LLC is a wholly owned subsidiary of AEGON USA, Inc.

The Company is a wholly owned indirect subsidiary of AEGON U.S. Corporation, which in turn is wholly owned by AEGON U.S. Holding Corporation. A Delaware business trust called “The AEGON Trust” exists between AEGON U.S. Holding Corporation and AEGON International N.V. The AEGON Trust owns 100% of the common stock of AEGON U.S. Holding Corporation and Scottish Equitable Finance Limited owns 100% of the preferred stock of AEGON U.S. Holding Corporation. AEGON International N.V. is a wholly owned subsidiary of AEGON N.V. Vereniging AEGON (a Netherlands membership association) has an approximately 32.47% interest in AEGON N.V.

B-12

The Company was formerly known as National Home Life Assurance Company, until July 1, 1995, when it changed its name to Providian Life and Health Insurance Company. On October 1, 1998, it changed its name to Peoples Benefit Life Insurance Company.

TAXES

The Company is taxed as a life insurance company under Part I of Subchapter L of the Internal Revenue Code. Since the Separate Account is not a separate entity from the Company and its operations form a part of the Company, the Separate Account will not be taxed separately as a “regulated investment company” under Subchapter M of the Internal Revenue Code. Investment income and realized capital gains on the assets of the Separate Account are reinvested and taken into account in determining the Accumulated Value. Under existing federal income tax law, the Separate Account’s investment income, including realized net capital gains, is not taxed to the Company. The Company reserves the right to make a deduction for taxes should they be imposed with respect to such items in the future.

Under present laws, the Company will incur state or local taxes in several states. If there is a change in state or local tax laws, the Company may make charges for such taxes. At present time, the Company does not charge the Contract Owner for these other taxes. If there is a change in state or local tax laws, charges for such taxes may be made. The Company does not expect to incur any federal income tax liability attributable to investment income or capital gains retained as part of the reserves under the Contracts. Based upon these expectations, no charge is currently being made to the Separate Account for corporate federal income taxes that may be attributable to the Separate Account.

The Company will periodically review the question of a charge to the Separate Account for corporate federal income taxes related to the Separate Account. Such a charge may be made in future years for any federal income taxes the Company incurs. This might become necessary if the Company ultimately determines that its tax treatment is not what it currently believes it to be, if there are changes in the federal income tax treatment of annuities at the corporate level, or if there is a change in the Company’s tax status. If the Company should incur federal income taxes attributable to investment income or capital gains retained as part of the reserves under the Contracts, the Accumulated Value of the Contract would be correspondingly adjusted by any provision or charge for such taxes.

STATE REGULATION OF THE COMPANY

The Company is a stock life insurance company organized under the laws of Iowa, and is subject to regulation by the Iowa Insurance Division. An annual statement in a prescribed form is filed with Iowa Insurance Division on or before March 1 of each year covering the operations and reporting on the financial condition of the Company as of December 31 of the preceding calendar year. Periodically, the Iowa Insurance Division examines the financial condition of the Company, including the liabilities and reserves of the Separate Account.

RECORDS AND REPORTS

All records and accounts relating to the Separate Account will be maintained by the Company or by its administrator, The Vanguard Group, Inc. As presently required by the Investment Company Act of 1940 and regulations promulgated thereunder, the Company will mail to all Contract Owners at their last known address of record, at least semiannually, reports containing such information as may be required under that Act or by any other applicable law or regulation.

LEGAL PROCEEDINGS

There are no legal proceedings to which the Separate Account is a party or to which the assets of the Separate Account are subject. The Company is not involved in any litigation that is of material importance in relation to its total assets or that relates to the Separate Account.

B-13

OTHER INFORMATION

A Registration Statement has been filed with the Securities and Exchange Commission, under the Securities Act of 1933 as amended, with respect to the Contracts discussed in this Statement of Additional Information. Not all of the information set forth in the Registration Statement, amendments and exhibits thereto has been included in this Statement of Additional Information. Statements contained in this Statement of Additional Information concerning the content of the Contracts and other legal instruments are intended to be summaries. For a complete statement of the terms of these documents, reference should be made to the instruments filed with the Securities and Exchange Commission.

FINANCIAL STATEMENTS

The audited financial statements of the subaccounts of the Separate Account which are available for investment by Vanguard Variable Annuity Contract Owners as of December 31, 2002, including the Report of Independent Auditors thereon, are included in this Statement of Additional Information.

The audited statutory-basis financial statements of the Company as of December 31, 2002 and 2001 and for each of the three years in the period ended December 31, 2002, including the Report of Independent Auditors thereon, which are also included in this Statement of Additional Information, should be distinguished from the financial statements of subaccounts of the Separate Account which are available for investment by Vanguard Variable Annuity Contract Owners and should be considered only as bearing on the ability of the Company to meet its obligations under the Contracts. They should not be considered as bearing on the investment performance of the assets held in the Separate Account.

B-14

FINANCIAL STATEMENTS

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Year Ended December 31, 2002

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Financial Statements

Year Ended December 31, 2002

Contents

Report of Independent Auditors.	1
Financial Statements
Statements of Assets and Liabilities.	2
Statements of Operations	5
Statements of Changes in Net Assets	9
Notes to Financial Statements.	16

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Assets and Liabilities

December 31, 2002

	Money Market Subaccount		Total Bond Market Index Subaccount		Balanced Subaccount		Equity Index Subaccount
Assets
Investment in securities:
Number of shares		888,061,512.790		50,243,781.289		38,879,037.467		36,308,653.381
Cost	$	888,061,514	$	545,589,239	$	602,426,354	$	929,343,904
Investments in mutual funds, at net asset value	$	888,061,513	$	589,861,992	$	572,299,432	$	787,171,605
Receivable for units sold		—		—		—		6
Total assets		888,061,513		589,861,992		572,299,432		787,171,611
Liabilities
Payable for units redeemed		46		7		1		—
	$	888,061,467	$	589,861,985	$	572,299,431	$	787,171,611
Net Assets:
Deferred annuity contracts terminable by owners	$	888,061,467	$	589,861,985	$	572,299,431	$	787,171,611
Total net assets	$	888,061,467	$	589,861,985	$	572,299,431	$	787,171,611
Accumulation units outstanding		548,718,212		26,333,128		19,375,463		28,177,943
Accumulation unit value	$	1.618429	$	22.399997	$	29.537329	$	27.935737

See accompanying notes.

2

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Assets and Liabilities

December 31, 2002

	Growth Subaccount		Equity Income Subaccount		International Subaccount		High Yield Bond Subaccount		Small Company Growth Subaccount
Assets
Investment in securities:
Number of shares		32,578,667.212		16,492,376.137		19,024,948.843		19,923,118.447		27,108,828.795
Cost	$	797,308,169	$	296,319,687	$	276,917,757	$	178,551,854	$	445,283,377
Investments in mutual funds, at net asset value	$	283,434,405	$	272,948,825	$	183,971,255	$	163,568,802	$	325,034,857
Receivable for units sold		5		—		7		2		3
Total assets		283,434,410		272,948,825		183,971,262		163,568,804		325,034,860
Liabilities
Payable for units redeemed		—		3		—		—		—
	$	283,434,410	$	272,948,822	$	183,971,262	$	163,568,804	$	325,034,860
Net Assets:
Deferred annuity contracts terminable by owners	$	283,434,410	$	272,948,822	$	183,971,262	$	163,568,804	$	325,034,860
Total net assets	$	283,434,410	$	272,948,822	$	183,971,262	$	163,568,804	$	325,034,860
Accumulation units outstanding		19,945,003		11,624,483		14,605,025		12,487,825		18,658,500
Accumulation unit value	$	14.210798	$	23.480513	$	12.596436	$	13.098262	$	17.420203

See accompanying notes.

3

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Assets and Liabilities

December 31, 2002

	Mid-Cap Index Subaccount		Short-Term Corporate Subaccount		Diversified Value Subaccount		REIT Index Subaccount
Assets
Investment in securities:
Number of shares		20,646,642.011		22,248,009.746		14,649,098.657		11,174,524.517
Cost	$	269,522,333	$	226,695,070	$	156,507,538	$	139,719,324
Investments in mutual funds, at net asset value	$	218,854,405	$	238,276,184	$	131,548,906	$	143,480,895
Receivable for units sold		9		4		5		—
Total assets		218,854,414		238,276,188		131,548,911		143,480,895
Liabilities
Payable for units redeemed		—		—		—		2
	$	218,854,414	$	238,276,188	$	131,548,911	$	143,480,893
Net Assets:
Deferred annuity contracts terminable by owners	$	218,854,414	$	238,276,188	$	131,548,911	$	143,480,893
Total net assets	$	218,854,414	$	238,276,188	$	131,548,911	$	143,480,893
Accumulation units outstanding		17,736,638		19,080,984		14,095,344		10,158,711
Accumulation unit value	$	12.339115	$	12.487626	$	9.332792	$	14.123927

See accompanying notes.

4

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Operations

Year Ended December 31, 2002

	Money Market Subaccount		Total Bond Market Index Subaccount		Balanced Subaccount			Equity Index Subaccount
Net investment income (loss)
Income:
Dividends	$	14,772,406	$	19,874,615	$	22,283,845		$	15,754,165
Expenses:
Administrative, mortality and expense risk charge		2,942,302		1,817,162		2,014,973			3,134,609
Net investment income (loss)		11,830,104		18,057,453		20,268,872			12,619,556
Net realized and unrealized capital gains (losses) on investments
Net realized capital gains (losses) on investments:
Realized gain distributions		—		—		21,753,277			59,973,243
Proceeds from sales		176,018,633		61,413,923		36,985,207			87,851,560
Cost of investments sold		176,018,633		57,528,737		36,031,392			74,878,108
Net realized capital gains (losses) on investments		—		3,885,186		22,707,092			72,946,695
Net change in unrealized appreciation/depreciation of investments:
Beginning of period		—		25,338,068		59,189,502			181,831,612
End of period		—		44,272,753		(30,126,922	)		(142,172,299	)
Net change in unrealized appreciation/depreciation of investments		—		18,934,685		(89,316,424	)		(324,003,911	)
Net realized and unrealized capital gains (losses) on investments		—		22,819,871		(66,609,332	)		(251,057,216	)
Increase (decrease) in net assets from operations	$	11,830,104	$	40,877,324	$	(46,340,460	)	$	(238,437,660	)

See accompanying notes.

5

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Operations

Year Ended December 31, 2002

	Growth Subaccount			Equity Income Subaccount			International Subaccount			High Yield Bond Subaccount
Net investment income (loss)
Income:
Dividends	$	1,773,423		$	8,857,573		$	5,136,343		$	9,261,126
Expenses:
Administrative, mortality and expense risk charge		1,277,965			1,029,135			707,449			536,708
Net investment income (loss)		495,458			7,828,438			4,428,894			8,724,418
Net realized and unrealized capital gains (losses) on investments
Net realized capital gains (losses) on investments:
Realized gain distributions		24,827,926			1,476,262			7,429,353			—
Proceeds from sales		75,102,636			24,067,569			22,927,111			25,560,188
Cost of investments sold		125,920,481			22,192,960			27,780,590			32,796,037
Net realized capital gains (losses) on investments		(25,989,919	)		3,350,871			2,575,874			(7,235,849	)
Net change in unrealized appreciation/depreciation of investments:
Beginning of period		(362,102,913	)		34,671,008			(45,797,902	)		(15,052,682	)
End of period		(513,873,764	)		(23,370,862	)		(92,946,502	)		(14,983,052	)
Net change in unrealized appreciation/depreciation of investments		(151,770,851	)		(58,041,870	)		(47,148,600	)		69,630
Net realized and unrealized capital gains (losses) on investments		(177,760,770	)		(54,690,999	)		(44,572,726	)		(7,166,219	)
Increase (decrease) in net assets from operations	$	(177,265,312	)	$	(46,862,561	)	$	(40,143,832	)	$	1,558,199

See accompanying notes.

6

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Operations

Year Ended December 31, 2002

	Small Company Growth Subaccount			Mid-Cap Index Subaccount			Short-Term Corporate Subaccount		Diversified Value Subaccount
Net investment income (loss)
Income:
Dividends	$	3,302,873		$	2,045,883		$	4,625,979	$	2,969,652
Expenses:
Administrative, mortality and expense risk charge		1,324,274			825,659			621,554		509,058
Net investment income (loss)		1,978,599			1,220,224			4,004,425		2,460,594
Net realized and unrealized capital gains (losses) on investments
Net realized capital gains (losses) on investments:
Realized gain distributions		14,312,450			13,949,200			—		—
Proceeds from sales		42,131,323			27,735,248			18,740,764		23,499,358
Cost of investments sold		36,207,314			29,224,495			17,726,333		25,444,261
Net realized capital gains (losses) on investments		20,236,459			12,459,953			1,014,431		(1,944,903	)
Net change in unrealized appreciation/depreciation of investments:
Beginning of period		14,961,525			6,650,430			5,667,341		573,702
End of period		(120,248,520	)		(50,667,928	)		11,581,114		(24,958,632	)
Net change in unrealized appreciation/depreciation of investments		(135,210,045	)		(57,318,358	)		5,913,773		(25,532,334	)
Net realized and unrealized capital gains (losses) on investments		(114,973,586	)		(44,858,405	)		6,928,204		(27,477,237	)
Increase (decrease) in net assets from operations	$	(112,994,987	)	$	(43,638,181	)	$	10,932,629	$	(25,016,643	)

See accompanying notes.

7

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Operations

Year Ended December 31, 2002

	REIT Index Subaccount
Net investment income (loss)
Income:
Dividends	$	3,957,536
Expenses:
Administrative, mortality and expense risk charge		436,661
Net investment income (loss)		3,520,875
Net realized and unrealized capital gains (losses) on investments
Net realized capital gains (losses) on investments:
Realized gain distributions		1,345,562
Proceeds from sales		13,495,222
Cost of investments sold		11,511,325
Net realized capital gains (losses) on investments		3,329,459
Net change in unrealized appreciation/depreciation of investments:
Beginning of period		10,585,649
End of period		3,761,571
Net change in unrealized appreciation/depreciation of investments		(6,824,078	)
Net realized and unrealized capital gains (losses) on investments		(3,494,619	)
Increase (decrease) in net assets from operations	$	26,256

See accompanying notes.

8

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Changes in Net Assets

Years Ended December 31, 2002 and 2001

	Money Market Subaccount						Total Bond Market Index Subaccount
	2002			2001			2002			2001
Operations
Net investment income (loss)	$	11,830,104		$	33,238,051		$	18,057,453		$	4,232,161
Net realized capital gains (losses) on investments		—			—			3,885,186			1,023,936
Net change in unrealized appreciation/depreciation of investments		—			—			18,934,685			25,117,879
Increase (decrease) in net assets from operations		11,830,104			33,238,051			40,877,324			30,373,976
Contract transactions
Net contract purchase payments		173,381,644			208,428,741			48,639,268			47,965,933
Transfer payments from (to) other subaccounts or general account		(56,645,717	)		(65,817,582	)		45,435,628			76,108,062
Contract terminations, withdrawals, and other deductions		(143,651,939	)		(84,049,706	)		(33,317,094	)		(18,722,039	)
Contract maintenance charges		(210,601	)		(45,166	)		(140,573	)		(24,158	)
Increase (decrease) in net assets from contract transactions		(27,126,613	)		58,516,287			60,617,229			105,327,798
Net increase (decrease) in net assets		(15,296,509	)		91,754,338			101,494,553			135,701,774
Net assets:
Beginning of the period		903,357,976			811,603,638			488,367,432			352,665,658
End of the period	$	888,061,467		$	903,357,976		$	589,861,985		$	488,367,432

See accompanying notes.

9

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Changes in Net Assets

Years Ended December 31, 2002 and 2001

	Balanced Subaccount						Equity Index Subaccount
	2002			2001			2002			2001
Operations
Net investment income (loss)	$	20,268,872		$	(2,003,164	)	$	12,619,556		$	(4,188,837	)
Net realized capital gains (losses) on investments		22,707,092			1,597,919			72,946,695			31,813,477
Net change in unrealized appreciation/depreciation of investments		(89,316,424	)		21,260,263			(324,003,911	)		(185,099,320	)
Increase (decrease) in net assets from operations		(46,340,460	)		20,855,018			(238,437,660	)		(157,474,680	)
Contract transactions
Net contract purchase payments		49,875,181			41,216,583			45,472,687			63,230,384
Transfer payments from (to) other subaccounts or general account		13,961,412			31,378,747			(50,175,797	)		(68,675,993	)
Contract terminations, withdrawals, and other deductions		(27,334,373	)		(20,291,757	)		(41,344,965	)		(44,264,325	)
Contract maintenance charges		(162,039	)		(50,061	)		(264,894	)		(112,364	)
Increase (decrease) in net assets from contract transactions		36,340,181			52,253,512			(46,312,969	)		(49,822,298	)
Net increase (decrease) in net assets		(10,000,279	)		73,108,530			(284,750,629	)		(207,296,978	)
Net assets:
Beginning of the period		582,299,710			509,191,180			1,071,922,240			1,279,219,218
End of the period	$	572,299,431		$	582,299,710		$	787,171,611		$	1,071,922,240

See accompanying notes.

10

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Changes in Net Assets

Years Ended December 31, 2002 and 2001

	Growth Subaccount						Equity Income Subaccount
	2002			2001			2002			2001
Operations
Net investment income (loss)	$	495,458		$	(2,286,793	)	$	7,828,438		$	(1,170,093	)
Net realized capital gains (losses) on investments		(25,989,919	)		(15,587,877	)		3,350,871			2,621,696
Net change in unrealized appreciation/depreciation of investments		(151,770,851	)		(262,262,269	)		(58,041,870	)		(14,321,524	)
Increase (decrease) in net assets from operations		(177,265,312	)		(280,136,939	)		(46,862,561	)		(12,869,921	)
Contract transactions
Net contract purchase payments		12,720,268			28,428,000			17,640,087			20,017,763
Transfer payments from (to) other subaccounts or general account		(61,682,482	)		(98,661,576	)		(5,081,142	)		6,224,819
Contract terminations, withdrawals, and other deductions		(17,897,529	)		(25,084,407	)		(13,617,230	)		(12,500,090	)
Contract maintenance charges		(140,072	)		(88,601	)		(87,358	)		(29,521	)
Increase (decrease) in net assets from contract transactions		(66,999,815	)		(95,406,584	)		(1,145,643	)		13,712,971
Net increase (decrease) in net assets		(244,265,127	)		(375,543,523	)		(48,008,204	)		843,050
Net assets:
Beginning of the period		527,699,537			903,243,060			320,957,026			320,113,976
End of the period	$	283,434,410		$	527,699,537		$	272,948,822		$	320,957,026

See accompanying notes.

11

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Changes in Net Assets

Years Ended December 31, 2002 and 2001

	International Subaccount						High Yield Bond Subaccount
	2002			2001			2002			2001
Operations
Net investment income (loss)	$	4,428,894		$	(955,356	)	$	8,724,418		$	2,589,226
Net realized capital gains (losses) on investments		2,575,874			1,662,684			(7,235,849	)		(4,852,710	)
Net change in unrealized appreciation/depreciation of investments		(47,148,600	)		(59,859,950	)		69,630			5,426,524
Increase (decrease) in net assets from operations		(40,143,832	)		(59,152,622	)		1,558,199			3,163,040
Contract transactions
Net contract purchase payments		11,271,636			14,666,643			14,522,981			16,100,187
Transfer payments from (to) other subaccounts or general account		(8,238,129	)		(40,526,967	)		1,089,791			17,825,713
Contract terminations, withdrawals, and other deductions		(7,753,269	)		(10,526,980	)		(7,237,237	)		(5,946,449	)
Contract maintenance charges		(59,976	)		(23,805	)		(38,878	)		(8,478	)
Increase (decrease) in net assets from contract transactions		(4,779,738	)		(36,411,109	)		8,336,657			27,970,973
Net increase (decrease) in net assets		(44,923,570	)		(95,563,731	)		9,894,856			31,134,013
Net assets:
Beginning of the period		228,894,832			324,458,563			153,673,948			122,539,935
End of the period	$	183,971,262		$	228,894,832		$	163,568,804		$	153,673,948

See accompanying notes.

12

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Changes in Net Assets

Years Ended December 31, 2002 and 2001

	Small Company Growth Subaccount						Mid-Cap Index Subaccount
	2002			2001			2002			2001
Operations
Net investment income (loss)	$	1,978,599		$	(1,493,120	)	$	1,220,224		$	(806,477	)
Net realized capital gains (losses) on investments		20,236,459			11,370,341			12,459,953			2,183,906
Net change in unrealized appreciation/depreciation of investments		(135,210,045	)		8,799,052			(57,318,358	)		(4,567,796	)
Increase (decrease) in net assets from operations		(112,994,987	)		18,676,273			(43,638,181	)		(3,190,367	)
Contract transactions
Net contract purchase payments		23,984,965			27,039,063			21,465,267			31,134,747
Transfer payments from (to) other subaccounts or general account		(8,713,991	)		(14,198,318	)		18,299,167			19,035,646
Contract terminations, withdrawals, and other deductions		(14,556,274	)		(20,186,992	)		(10,350,282	)		(11,242,959	)
Contract maintenance charges		(107,352	)		(35,571	)		(69,496	)		(22,379	)
Increase (decrease) in net assets from contract transactions		607,348			(7,381,818	)		29,344,656			38,905,055
Net increase (decrease) in net assets		(112,387,639	)		11,294,455			(14,293,525	)		35,714,688
Net assets:
Beginning of the period		437,422,499			426,128,044			233,147,939			197,433,251
End of the period	$	325,034,860		$	437,422,499		$	218,854,414		$	233,147,939

See accompanying notes.

13

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Changes in Net Assets

Years Ended December 31, 2002 and 2001

	Short-Term Corporate Subaccount						Diversified Value Subaccount
	2002			2001			2002			2001
Operations
Net investment income (loss)	$	4,004,425		$	808,073		$	2,460,594		$	(471,766	)
Net realized capital gains (losses) on investments		1,014,431			190,209			(1,944,903	)		(924,556	)
Net change in unrealized appreciation/depreciation of investments		5,913,773			5,236,323			(25,532,334	)		(2,879,526	)
Increase (decrease) in net assets from operations		10,932,629			6,234,605			(25,016,643	)		(4,275,848	)
Contract transactions
Net contract purchase payments		33,147,102			20,743,355			14,929,361			23,629,372
Transfer payments from (to) other subaccounts or general account		77,032,994			43,287,892			(3,954,958	)		75,184,092
Contract terminations, withdrawals, and other deductions		(13,976,932	)		(4,915,887	)		(6,930,805	)		(5,171,977	)
Contract maintenance charges		(49,693	)		(4,549	)		(39,310	)		(12,443	)
Increase (decrease) in net assets from contract transactions		96,153,471			59,110,811			4,004,288			93,629,044
Net increase (decrease) in net assets		107,086,100			65,345,416			(21,012,355	)		89,353,196
Net assets:
Beginning of the period		131,190,088			65,844,672			152,561,266			63,208,070
End of the period	$	238,276,188		$	131,190,088		$	131,548,911		$	152,561,266

See accompanying notes.

14

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Statements of Changes in Net Assets

Years Ended December 31, 2002 and 2001

	REIT Index Subaccount
	2002			2001
Operations
Net investment income (loss)	$	3,520,875		$	1,485,145
Net realized capital gains (losses) on investments		3,329,459			1,405,061
Net change in unrealized appreciation/depreciation of investments		(6,824,078	)		4,320,480
Increase (decrease) in net assets from operations		26,256			7,210,686
Contract transactions
Net contract purchase payments		23,447,809			13,046,122
Transfer payments from (to) other subaccounts or general account		38,776,668			19,177,450
Contract terminations, withdrawals, and other deductions		(6,793,718	)		(2,498,930	)
Contract maintenance charges		(45,584	)		(7,382	)
Increase (decrease) in net assets from contract transactions		55,385,175			29,717,260
Net increase (decrease) in net assets		55,411,431			36,927,946
Net assets:
Beginning of the period		88,069,462			51,141,516
End of the period	$	143,480,893		$	88,069,462

See accompanying notes.

15

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Notes to Financial Statements

December 31, 2002

1. Organization and Summary of Significant Accounting Policies

Organization

Peoples Benefit Life Insurance Company Separate Account IV (the Mutual Fund Account) is a segregated investment account of Peoples Benefit Life Insurance Company (PBL), an indirect wholly owned subsidiary of AEGON N.V., a holding company organized under the laws of The Netherlands.

The Mutual Fund Account is registered with the Securities and Exchange Commission as a Unit Investment Trust pursuant to provisions of the Investment Company Act of 1940. The Mutual Fund Account consists of thirteen investment subaccounts. Activity in these thirteen investment subaccounts is available to contract owners of the Vanguard Variable Annuity Plan.

Subaccount Investment by Fund:

Vanguard Variable Insurance Fund:

Money Market Portfolio

Total Bond Market Index Portfolio

Balanced Portfolio

Equity Index Portfolio

Growth Portfolio

Equity Income Portfolio

International Portfolio

High Yield Bond Portfolio

Small Company Growth Portfolio

Mid-Cap Index Portfolio

Short-Term Corporate Portfolio

Diversified Value Portfolio

REIT Index Portfolio

16

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Notes to Financial Statements

December 31, 2002

1. Organization and Summary of Significant Accounting Policies (continued)

The following Portfolio name changes were made effective during the fiscal year ended December 31, 2002.

Portfolio	Formerly
Total Bond Market Index Portfolio	High-Grade Bond Portfolio

Investments

Net purchase payments received by the Mutual Fund Account for the Vanguard Variable Annuity Plan are invested in the portfolios of the Series Fund, as selected by the contract owner. Investments are stated at the closing net asset values per share on December 31, 2002.

Realized capital gains and losses from sales of shares in the Series Fund are determined on a first-in, first-out basis. Investment transactions are accounted for on the trade date (date the order to buy or sell is executed) and dividend income is recorded on the ex-dividend date. Unrealized gains or losses from the investments in the Series Fund are included in the Statements of Operations.

Dividend Income

Dividends received from the Series Fund investments are reinvested to purchase additional mutual fund shares.

17

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Notes to Financial Statements

December 31, 2002

2. Investments

The aggregate cost of purchases and proceeds from sales of investments for the period ended December 31, 2002 were as follows:

	Purchases		Sales
Vanguard Variable Insurance Fund:
Money Market Portfolio	$	160,722,433	$	176,018,633
Total Bond Market Index Portfolio		140,088,524		61,413,923
Balanced Portfolio		115,347,546		36,985,207
Equity Index Portfolio		114,131,388		87,851,560
Growth Portfolio		33,426,210		75,102,636
Equity Income Portfolio		32,226,624		24,067,569
International Portfolio		30,005,608		22,927,111
High Yield Bond Portfolio		42,621,267		25,560,188
Small Company Growth Portfolio		59,029,711		42,131,323
Mid-Cap Index Portfolio		72,249,318		27,735,248
Short-Term Corporate Portfolio		118,898,572		18,740,764
Diversified Value Portfolio		29,964,231		23,499,358
REIT Index Portfolio		73,746,835		13,495,222

18

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Notes to Financial Statements

December 31, 2002

3. Accumulation Units Outstanding

A summary of changes in accumulation units outstanding follows:

	Money Market Subaccount		Total Bond Market Index Subaccount	Balanced Subaccount		Equity Index Subaccount		Growth Subaccount
Units outstanding at January 1, 2001	528,543,320		18,332,256	16,672,498		31,161,203		27,577,044
Units purchased	132,774,617		2,374,593	1,321,602		1,686,074		1,126,066
Units redeemed and transferred	(95,442,446	)	2,823,880	328,157		(3,060,910	)	(4,982,442	)
Units outstanding at December 31, 2001	565,875,491		23,530,729	18,322,257		29,786,367		23,720,668
Units purchased	107,843,639		2,275,218	1,601,692		1,429,356		727,940
Units redeemed and transferred	(125,000,919	)	527,181	(548,486	)	(3,037,780	)	(4,503,605	)
Units outstanding at December 31, 2002	548,718,212		26,333,128	19,375,463		28,177,943		19,945,003

	Equity Income Subaccount		International Subaccount		High Yield Bond Subaccount		Small Company Growth Subaccount		Mid-Cap Index Subaccount
Units outstanding at January 1, 2001	11,262,266		17,226,976		9,741,778		19,483,060		13,485,676
Units purchased	725,060		888,885		1,240,129		1,282,724		2,224,555
Units redeemed and transferred	(240,892	)	(3,128,189	)	891,727		(1,758,319	)	357,308
Units outstanding at December 31, 2001	11,746,434		14,987,672		11,873,634		19,007,465		16,067,539
Units purchased	681,611		806,392		1,125,200		1,170,816		1,544,436
Units redeemed and transferred	(803,562	)	(1,189,039	)	(511,009	)	(1,519,781	)	124,663
Units outstanding at December 31, 2002	11,624,483		14,605,025		12,487,825		18,658,500		17,736,638

19

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Notes to Financial Statements

December 31, 2002

3. Accumulation Units Outstanding (continued)

	Short-Term Corporate Subaccount	Diversified Value Subaccount		REIT Index Subaccount
Units outstanding at January 1, 2001	6,000,307	5,810,192		4,174,363
Units purchased	1,802,040	2,100,073		1,020,473
Units redeemed and transferred	3,324,421	6,062,658		1,237,895
Units outstanding at December 31, 2001	11,126,768	13,972,923		6,432,731
Units purchased	2,737,278	1,428,487		1,636,951
Units redeemed and transferred	5,216,938	(1,306,066	)	2,089,029
Units outstanding at December 31, 2002	19,080,984	14,095,344		10,158,711

20

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Notes to Financial Statements

December 31, 2002

4. Financial Highlights

The Mutual Fund Account offers various death benefit options, which have differing fees that are charged against the contract owner's account balance. The charges are discussed in more detail in the individual's policy. Differences in the fee structures for these units result in different unit values, expense ratios, and total returns.

Effective with the 2001 annual financial statements, the Mutual Fund Account has presented the following disclosures required by AICPA Audit and Accounting Guide for Investment Companies.

Subaccount	Year Ended	Units	Unit Fair Value		Net Assets		Investment Income Ratio*		Expense Ratio**		Total Return***
Money Market
	12/31/2002	548,718,212	$	1.62	$	888,061,467	1.70	%	0.30	%	1.38	%
	12/31/2001	565,875,491		1.60		903,357,976	4.21		0.37		3.96
Total Bond Market Index
	12/31/2002	26,333,128		22.40		589,861,985	3.71		0.30		7.93
	12/31/2001	23,530,729		20.75		488,367,432	1.36		0.37		7.89
Balanced
	12/31/2002	19,375,463		29.54		572,299,431	3.77		0.30		(7.06	)
	12/31/2001	18,322,257		31.78		582,299,710	0.00		0.37		4.06
Equity Index
	12/31/2002	28,177,943		27.94		787,171,611	1.72		0.30		(22.37	)
	12/31/2001	29,786,367		35.99		1,071,922,240	0.00		0.37		(12.34	)
Growth
	12/31/2002	19,945,003		14.21		283,434,410	0.48		0.30		(36.12	)
	12/31/2001	23,720,668		22.25		527,699,537	0.00		0.37		(32.08	)
Equity Income
	12/31/2002	11,624,483		23.48		272,948,822	2.94		0.30		(14.07	)
	12/31/2001	11,746,434		27.32		320,957,026	0.00		0.37		(3.87	)
International
	12/31/2002	14,605,025		12.60		183,971,262	2.48		0.30		(17.52	)
	12/31/2001	14,987,672		15.27		228,894,832	0.00		0.37		(18.91	)
High Yield Bond
	12/31/2002	12,487,825		13.10		163,568,804	5.88		0.30		1.20
	12/31/2001	11,873,634		12.94		153,673,948	2.15		0.37		2.89
Small Company Growth
	12/31/2002	18,658,500		17.42		325,034,860	0.85		0.30		(24.30	)
	12/31/2001	19,007,465		23.01		437,422,499	0.00		0.37		5.22
Mid-Cap Index
	12/31/2002	17,736,638		12.34		218,854,414	0.85		0.30		(14.96	)
	12/31/2001	16,067,539		14.51		233,147,939	0.00		0.37		(0.89	)

21

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Notes to Financial Statements

December 31, 2002

4. Financial Highlights (continued)

Subaccount	Year Ended	Units	Unit Fair Value		Net Assets		Investment Income Ratio*		Expense Ratio**		Total Return***
Short-Term Corporate
	12/31/2002	19,080,984	$	12.49	$	238,276,188	2.51	%	0.30	%	5.91	%
	12/31/2001	11,126,768		11.79		131,190,088	1.20		0.37		7.44
Diversified Value
	12/31/2002	14,095,344		9.33		131,548,911	2.00		0.30		(14.52	)
	12/31/2001	13,972,923		10.92		152,561,266	0.00		0.37		0.36
REIT Index
	12/31/2002	10,158,711		14.12		143,480,893	3.08		0.30		3.16
	12/31/2001	6,432,731		13.69		88,069,462	2.55		0.37		11.75

* These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying Series Fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying Series Fund in which the subaccounts invest.

** These ratios represent the annualized contract expenses of the Mutual Fund Account, consisting primarily of mortality and expense charges. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying Series Fund are excluded.

*** These amounts represent the total return for the period indicated, including changes in the value of the underlying Series Fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented.

22

Peoples Benefit Life Insurance Company

Separate Account IV—Vanguard Variable Annuity Plan

Notes to Financial Statements

December 31, 2002

5. Administrative, Mortality, and Expense Risk Charge

An annual charge is deducted from the unit values of the subaccounts of the Mutual Fund Account for PBL’s assumption of certain mortality and expense risks incurred in connection with the contract. The charge is assessed daily based on the combined net assets of the Series Fund attributable to the Mutual Fund Account and Separate Account B of AUSA Life Insurance Company, Inc. (AUSA), an affiliate of PBL. An annual charge of .20%, .25% or .32% (depending on the death benefit selected) is assessed.

An administrative charge of .10% annually is deducted from the unit values of the subaccounts of the Mutual Fund Account. This charge is assessed daily by PBL, based on the net assets of the Series Fund attributable to the Mutual Fund Account and Separate Account B of AUSA. Additionally, an annual maintenance fee of $25 per contract is charged for contracts valued at less than $25,000 at the time of initial purchase and on the last business day of each year. The maintenance fee is deducted proportionately from the contract’s accumulated value. These deductions represent reimbursement to Vanguard for the costs expected to be incurred for issuing and maintaining each contract and the Mutual Fund Account.

6. Income Taxes

Operations of the Mutual Fund Account form a part of PBL, which is taxed as a life insurance company under Subchapter L of the Internal Revenue Code of 1986, as amended (the Code). The operations of the Mutual Fund Account are accounted for separately from other operations of PBL for purposes of federal income taxation. The Mutual Fund Account is not separately taxable as a regulated investment company under Subchapter M of the Code and is not otherwise taxable as an entity separate from PBL. Under existing federal income tax laws, the income of the Mutual Fund Account is not taxable to PBL, as long as earnings are credited under the variable annuity contracts.

7. Dividend Distributions

Dividends are not declared by the Mutual Fund Account, since the increase in the value of the underlying investment in the Funds is reflected daily in the accumulation unit price used to calculate the equity value within the Mutual Fund Account. Consequently, a dividend distribution by the underlying Funds does not change either the accumulation unit price or equity values within the Mutual Fund Account.

23

FINANCIAL STATEMENTS AND SCHEDULES – STATUTORY BASIS

Peoples Benefit Life Insurance Company

Years Ended December 31, 2002, 2001, and 2000

Peoples Benefit Life Insurance Company

Financial Statements and Schedules – Statutory Basis

Years Ended December 31, 2002, 2001, and 2000

Contents

Report of Independent Auditors	1
Audited Financial Statements
Balance Sheets – Statutory Basis	3
Statements of Operations – Statutory Basis	5
Statements of Changes in Capital and Surplus – Statutory Basis	6
Statements of Cash Flow – Statutory Basis	7
Notes to Financial Statements – Statutory Basis	8
Statutory-Basis Financial Statement Schedules
Summary of Investments – Other Than Investments in Related Parties	43
Supplementary Insurance Information	44
Reinsurance	45

Report of Independent Auditors

The Board of Directors

Peoples Benefit Life Insurance Company

We have audited the accompanying statutory-basis balance sheets of Peoples Benefit Life Insurance Company (an indirect wholly-owned subsidiary of AEGON N.V.) as of December 31, 2002 and 2001, and the related statutory-basis statements of operations, changes in capital and surplus, and cash flow for each of the three years in the period ended December 31, 2002. Our audits also included the statutory-basis financial statement schedules required by Article 7 of Regulation S-X. These financial statements and schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. 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.

As described in Note 1 to the financial statements, the Company presents its financial statements in conformity with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa, which practices differ from accounting principles generally accepted in the United States. The variances between such practices and accounting principles generally accepted in the United States also are described in Note 1. The effects on the financial statements of these variances are not reasonably determinable but are presumed to be material.

In our opinion, because of the effects of the matter described in the preceding paragraph, the financial statements referred to above do not present fairly, in conformity with accounting principles generally accepted in the United States, the financial position of Peoples Benefit Life Insurance Company at December 31, 2002 and 2001, or the results of its operations or its cash flow for each of the three years in the period ended December 31, 2002.

1

However, in our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Peoples Benefit Life Insurance Company at December 31, 2002 and 2001, and the results of its operations and its cash flow for each of the three years in the period ended December 31, 2002, in conformity with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic statutory-basis financial statements taken as a whole, present fairly in all material respects the information set forth therein.

As described in Note 2 to the financial statements, in 2001 Peoples Benefit Life Insurance Company changed various accounting policies to be in accordance with the revised NAIC Accounting Practices and Procedures Manual, as adopted by the Insurance Division, Department of Commerce, of the State of Iowa.

/s/ Ernst & Young LLP

Des Moines, Iowa

February 14, 2003

2

Peoples Benefit Life Insurance Company

Balance Sheets – Statutory Basis

(Dollars in Thousands, Except per Share Amounts)

	December 31
	2002		2001
Admitted assets
Cash and invested assets:
Cash and short-term investments	$	17,290	$	14,154
Bonds		4,718,638		4,381,921
Stocks:
Preferred		16,131		18,432
Common (cost: 2002 – $73,879; 2001 – $192,176)		79,631		196,569
Affiliated entity (cost: 2002 – $1,011; 2001 – $100)		99		100
Mortgage loans on real estate		1,011,791		1,386,484
Real estate, at cost less accumulated depreciation (2002 – $380; 2001 – $254)		10,727		5,518
Policy loans		159,537		164,235
Net short-term notes receivable from affiliates		108,000		97,000
Other invested assets		346,585		344,576
Total cash and invested assets		6,468,429		6,608,989
Premiums deferred and uncollected		42,710		34,222
Accrued investment income		66,409		67,363
Receivable from affiliates		—		122,233
Net deferred income tax asset		47,356		25,957
Federal income taxes recoverable		40,991		—
Other assets		6,378		11,941
Separate account assets		6,374,198		6,959,518
Total admitted assets	$	13,046,471	$	13,830,223

3

	December 31
	2002			2001
Liabilities and capital and surplus
Liabilities:
Aggregate reserves for policies and contracts:
Life	$	1,130,181		$	1,143,971
Annuity		2,766,068			2,759,350
Accident and health		72,620			68,667
Policy and contract claim reserves:
Life		22,283			21,372
Accident and health		19,076			25,677
Liability for deposit-type contracts		2,113,029			2,199,162
Other policyholders’ funds		3,283			3,165
Remittances and items not allocated		12,807			53,184
Asset valuation reserve		81,774			169,599
Reinsurance in unauthorized companies		3,084			179
Commissions and expense allowances payable on reinsurance assumed		1,125			1,479
Payable to affiliates		211			—
Payable for securities		—			218
Transfer to separate accounts due or accrued		(2,589	)		(21	)
Federal income taxes payable		—			1,526
Other liabilities		71,331			78,968
Separate account liabilities		6,374,045			6,959,334
Total liabilities		12,668,328			13,485,830
Capital and surplus:
Common stock, $11 per share par value, 1,145,000 shares authorized, issued and outstanding		12,595			12,595
Preferred stock, $11 per share par value, $240 per share liquidation value, 2,290,000 shares authorized, issued and outstanding		25,190			25,190
Paid-in surplus		2,583			2,583
Unassigned surplus		337,775			304,025
Total capital and surplus		378,143			344,393
Total liabilities and capital and surplus	$	13,046,471		$	13,830,223

See accompanying notes.

4

Peoples Benefit Life Insurance Company

Statements of Operations – Statutory Basis

(Dollars in Thousands)

	Year Ended December 31
	2002			2001			2000
Revenues:
Premiums and other considerations, net of reinsurance:
Life	$	147,626		$	141,776		$	169,219
Annuity		969,263			1,153,746			1,703,944
Accident and health		139,862			131,966			134,058
Net investment income		360,560			387,360			406,413
Amortization of interest maintenance reserve		(1,939	)		2,455			7,095
Commissions and expense allowances on reinsurance ceded		9,627			3,813			6,025
Separate account fee income		16,935			25,038			26,736
Gains due to reinsurance transactions		—			31,096			—
Other		1,115			4,371			1,893
		1,643,049			1,881,621			2,455,383
Benefits and expenses:
Benefits paid or provided for:
Life and accident and health		181,334			179,941			178,952
Surrender benefits		676,407			722,484			1,249,431
Other benefits		222,459			245,345			227,348
Increase (decrease) in aggregate reserves for policies and contracts:
Life		(13,790	)		(39,673	)		25,687
Annuity		6,718			(92,332	)		(348,513	)
Accident and health		3,953			(11,259	)		686
Increase in reserves for premiums and other deposit-type funds		—			—			253,298
		1,077,081			1,004,506			1,586,889
Insurance expenses:
Commissions		37,122			30,807			39,232
General insurance expenses		73,800			81,682			71,439
Taxes, licenses and fees		2,220			7,474			11,847
Net transfers to separate accounts		362,137			582,953			611,475
Other expenses		(308	)		398			30,843
		474,971			703,314			764,836
		1,552,052			1,707,820			2,351,725
Gain from operations before dividends to policyholders, federal income tax expense and net realized capital gains (losses) on investments		90,997			173,801			103,658
Dividends to policyholders		169			210			249
Gain from operations before federal income tax expense and net realized capital gains (losses) on investments		90,828			173,591			103,409
Federal income tax expense		13,138			40,782			11,864
Gain from operations before net realized capital gains (losses) on investments		77,690			132,809			91,545
Net realized capital gains (losses) on investments (net of related federal income taxes and amounts transferred to/from interest maintenance reserve)		(54,446	)		455,757			(5,728	)
Net income	$	23,244		$	588,566		$	85,817

See accompanying notes.

5

Peoples Benefit Life Insurance Company

Statements of Changes in Capital and Surplus – Statutory Basis

(Dollars in Thousands)

	Common Stock		Preferred Stock		Paid-in Surplus		Unassigned Surplus			Total Capital and Surplus
Balance at January 1, 2000	$	12,595	$	25,190	$	2,583	$	491,060		$	531,428
Net income		—		—		—		85,817			85,817
Change in net unrealized capital gains/losses		—		—		—		53,236			53,236
Change in non-admitted assets		—		—		—		(2,932	)		(2,932	)
Change in liability for reinsurance in unauthorized companies		—		—		—		8			8
Change in asset valuation reserve		—		—		—		(34,358	)		(34,358	)
Dividends to stockholders		—		—		—		(120,000	)		(120,000	)
Tax benefits on stock options exercised		—		—		—		1,368			1,368
Other		—		—		—		(344	)		(344	)
Balance at December 31, 2000		12,595		25,190		2,583		473,855			514,223
Cumulative effect of change in accounting principles		—		—		—		19,716			19,716
Net income		—		—		—		588,566			588,566
Change in net unrealized capital gains/losses		—		—		—		(346,023	)		(346,023	)
Change in net deferred income tax		—		—		—		(4,888	)		(4,888	)
Change in non-admitted assets		—		—		—		(16,080	)		(16,080	)
Change in liability for reinsurance in unauthorized companies		—		—		—		(179	)		(179	)
Change in asset valuation reserve		—		—		—		28,487			28,487
Dividends to stockholders		—		—		—		(440,000	)		(440,000	)
Tax benefits on stock options exercised		—		—		—		563			563
Other		—		—		—		8			8
Balance at December 31, 2001		12,595		25,190		2,583		304,025			344,393
Cumulative effect of change in accounting principles		—		—		—		(34	)		(34	)
Net income		—		—		—		23,244			23,244
Change in net unrealized capital gains/losses		—		—		—		(76,173	)		(76,173	)
Change in non-admitted assets		—		—		—		(40,120	)		(40,120	)
Change in liability for reinsurance in unauthorized companies		—		—		—		(2,905	)		(2,905	)
Change in asset valuation reserve		—		—		—		87,825			87,825
Change in surplus in separate accounts		—		—		—		(40	)		(40	)
Change in net deferred income tax asset		—		—		—		40,978			40,978
Tax benefits on stock options exercised		—		—		—		64			64
Other		—		—		—		911			911
Balance at December 31, 2002	$	12,595	$	25,190	$	2,583	$	337,775		$	378,143

See accompanying notes.

6

Peoples Benefit Life Insurance Company

Statements of Cash Flow – Statutory Basis

(Dollars in Thousands)

	Year Ended December 31
	2002			2001			2000
Operating activities
Premiums and other considerations received, net of reinsurance	$	1,236,942		$	1,422,133		$	1,990,611
Allowances and reserve adjustments received on reinsurance ceded		9,579			3,814			6,137
Investment income received		364,526			383,251			408,946
Other income received		13,787			46,936			19,862
Life and accident and health claims		(187,098	)		(187,451	)		(185,574	)
Surrender benefits and other fund withdrawals		(676,083	)		(722,484	)		(1,249,431	)
Annuity and other benefits to policyholders		(202,203	)		(180,425	)		(182,345	)
Commissions, other expenses and taxes paid		(123,131	)		(130,852	)		(119,723	)
Dividends paid to policyholders		(178	)		(204	)		(186	)
Federal income taxes paid		(55,592	)		(45,501	)		(979	)
Net transfers to separate accounts		(342,932	)		(564,217	)		(584,745	)
Other		(29	)		(17	)		(43,574	)
Net cash provided by operating activities		37,588			24,983			58,999
Investing activities
Proceeds from investments sold, matured or repaid:
Bonds		3,550,240			2,031,598			1,587,635
Stocks		284,952			781,693			293,630
Mortgage loans on real estate		395,240			349,835			311,269
Real estate		223			1,265			1,373
Other invested assets		41,925			44,819			91,946
Miscellaneous proceeds		35,458			19,519			5,712
Total investment proceeds		4,308,038			3,228,729			2,291,565
Income taxes received (paid) on net realized capital gains/losses		20,811			(5,004	)		(10,956	)
Net proceeds from sales, maturities, or repayments of investments		4,328,849			3,223,725			2,280,609
Cost of investments acquired:
Bonds		(3,986,075	)		(3,114,222	)		(1,752,438	)
Stocks		(202,560	)		(321,190	)		(228,496	)
Mortgage loans on real estate		(18,013	)		(30,429	)		(80,776	)
Real estate		(10,161	)		(72	)		(995	)
Other invested assets		(68,773	)		(127,594	)		(22,589	)
Miscellaneous applications		(44,501	)		—			(13,524	)
Total cost of investments acquired		(4,330,083	)		(3,593,507	)		(2,098,818	)
Net decrease (increase) in policy loans		4,698			1,215			(6,289	)
Net cost of investments acquired		(4,325,385	)		(3,592,292	)		(2,105,107	)
Net cash provided by (used in) investing activities		(3,464	)		(368,567	)		175,502

7

Peoples Benefit Life Insurance Company

Statements of Cash Flow – Statutory Basis

(Dollars in Thousands)

	Year Ended December 31
	2002			2001			2000
Financing and miscellaneous activities
Other cash provided:
Borrowed money	$	—		$	(19,700	)	$	(84,800	)
Deposits on deposit-type contract funds and other liabilities without life or disability contingencies		18,594			756,886
Other sources		126,047			135,213			10,875
Total cash provided by (used in) financing and miscellaneous activities		144,641			872,399			(73,925	)
Other cash applied:
Dividends paid to stockholder		—			(440,000	)		(120,000	)
Withdrawals on deposit-type contract funds and other liabilities without life or disability contingencies		(128,656	)		(68,611	)		—
Other applications, net		(53,901	)		(157,972	)		(62,771	)
Total other cash applied		(182,557	)		(666,583	)		(182,771	)
Net cash provided by (used in) financing and miscellaneous activities		(37,916	)		205,816			(256,696	)
Net increase (decrease) in cash and short-term investments		3,136			(137,768	)		(22,195	)
Cash and short-term investments at beginning of year		14,154			151,922			174,117
Cash and short-term investments at end of year	$	17,290		$	14,154		$	151,922

See accompanying notes.

8

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis

(Dollars in Thousands)

December 31, 2002

1. Organization and Summary of Significant Accounting Policies

Organization

Peoples Benefit Life Insurance Company (the Company) is a stock life and health insurance company. The Company is directly owned by Monumental Life Insurance Company (76%), Capital Liberty Limited Partnership (CLLP) (20%), and Commonwealth General Corporation (4%). CLLP also owns 100% of the preferred stock of the Company. Each of these companies are indirect, wholly-owned subsidiaries of AEGON N.V., a holding company organized under the laws of The Netherlands.

During 2001, the Company adopted a plan of partial liquidation. Under this plan, the Company intends to reinsure a portion of its business with one or more affiliated companies and redeem pro rata portions of its common and preferred stock. The Company is currently considering various options connected with the execution and timing of this plan.

Nature of Business

The Company sells and services life and accident and health insurance products, primarily utilizing direct response methods, such as television, telephone, mail and third-party programs to reach low to middle-income households nationwide. The Company also sells and services group and individual accumulation products and guaranteed interest contracts and funding agreements, primarily utilizing brokers, fund managers, financial planners, stock brokerage firms and a mutual fund.

Basis of Presentation

The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

The accompanying financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Insurance Division, Department of Commerce, of the State of Iowa, which practices differ from accounting principles generally accepted in the United States (GAAP). The more significant variances from GAAP are:

9

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

Investments: Investments in bonds and mandatory redeemable preferred stocks are reported at amortized cost or market value based on their rating by the National Association of Insurance Commissioners (NAIC); for GAAP, such fixed maturity investments would be designated at purchase as held-to-maturity, trading, or available-for-sale. Held-to-maturity fixed investments would be reported at amortized cost, and the remaining fixed maturity investments would be reported at fair value with unrealized holding gains and losses reported in operations for those designated as trading and as a separate component of capital and surplus for those designated as available-for-sale.

All single class and multi-class mortgage-backed/asset-backed securities (e.g., CMOs) are adjusted for the effects of changes in prepayment assumptions on the related accretion of discount or amortization of premium of such securities using either the retrospective or prospective methods. If it is determined that a decline in fair value is other than temporary, the cost basis of the security is written down to the undiscounted estimated future cash flows. Prior to April 1, 2001 under GAAP, changes in prepayment assumptions were accounted for in the same manner. Effective April 1, 2001 for GAAP purposes, all securities, purchased or retained, that represent beneficial interests in securitized assets, other than high credit quality securities, are adjusted using the prospective method when there is a change in estimated future cash flows. If it is determined that a decline in fair value is other than temporary, the cost basis of the security is written down to fair value. If high credit quality securities are adjusted, the retrospective method is used.

Derivative instruments that meet the criteria of an effective hedge are valued and reported in a manner that is consistent with the hedged asset or liability. Embedded derivatives are not accounted for separately from the host contract. Under GAAP, the effective and ineffective portions of a single hedge are accounted for separately, an embedded derivative within a contract that is not clearly and closely related to the economic characteristics and risk of the host contract is accounted for separately from the host contract and valued and reported at fair value, and the change in fair value for cash flow hedges is credited or charged directly to unassigned surplus rather than to income as required under GAAP.

Derivative instruments are also used in replication transactions. In these transactions, the derivative is valued in a manner consistent with the cash investment and replicated

10

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

asset. For GAAP, the derivative is reported at fair value with changes in fair value reported in income.

Investments in real estate are reported net of related obligations rather than on a gross basis. Real estate owned and occupied by the Company is included in investments rather than reported as an operating asset as under GAAP, and investment income and operating expenses include rent for the Company’s occupancy of those properties. Changes between depreciated cost and admitted asset investment amounts are credited or charged directly to unassigned surplus rather than to income as would be required under GAAP.

Valuation allowances, if necessary, are established for mortgage loans based on the difference between the net value of the collateral, determined as the fair value of the collateral less estimated costs to obtain and sell, and the recorded investment in the mortgage loan. Under GAAP, such allowances are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, if foreclosure is probable, on the estimated fair value of the collateral.

The initial valuation allowance and subsequent changes in the allowance for mortgage loans as a result of a temporary impairment are charged or credited directly to unassigned surplus, rather than being included as a component of earnings as would be required under GAAP.

Valuation Reserves: Under a formula prescribed by the NAIC, the Company defers the portion of realized capital gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the bond or mortgage loan. That net deferral is reported as the “interest maintenance reserve” (IMR) in the accompanying balance sheets. Realized capital gains and losses are reported in income net of federal income tax and transfers to the IMR. Under GAAP, realized capital gains and losses would be reported in the statement of operations on a pretax basis in the period that the assets giving rise to the gains or losses are sold.

11

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

The “asset valuation reserve” (AVR) provides a valuation allowance for invested assets. The AVR is determined by an NAIC prescribed formula with changes reflected directly in unassigned surplus; AVR is not recognized for GAAP.

Subsidiaries: The accounts and operations of the Company’s subsidiaries are not consolidated with the accounts and operations of the Company as would be required under GAAP.

Policy Acquisition Costs: The costs of acquiring and renewing business are expensed when incurred. Under GAAP, acquisition costs related to traditional life insurance and certain long-duration accident and health insurance, to the extent recoverable from future policy revenues, would be deferred and amortized over the premium-paying period of the related policies using assumptions consistent with those used in computing policy benefit reserves; for universal life insurance and investment products, to the extent recoverable from future gross profits, deferred policy acquisition costs are amortized generally in proportion to the present value of expected gross profits from surrender charges and investment, mortality, and expense margins.

Separate Accounts With Guarantees: Some of the Company’s separate accounts provide policyholders with a guaranteed return. These separate accounts are included in the general account for GAAP due to the nature of the guaranteed return.

Nonadmitted Assets: Certain assets designated as “nonadmitted” are excluded from the accompanying balance sheets and are charged directly to unassigned surplus. Under GAAP, such assets are included in the balance sheet.

Universal Life and Annuity Policies: Subsequent to January 1, 2001, revenues for universal life and annuity policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received and benefits incurred represent the total of surrender and death benefits paid and the change in policy reserves. Premiums received and benefits incurred for annuity policies without mortality or morbidity risk are recorded using deposit accounting, and recorded directly to an appropriate policy reserve account, without recognizing premium income or benefits paid. Interest on these policies is reflected in other benefits. Prior to January 1, 2001, all revenues for universal life and annuity policies consist of the entire premium received and benefits incurred represent the total of surrender and death benefits paid and the change in policy reserves. Under GAAP, for universal life, premiums received in excess of policy charges would not be recognized as premium

12

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

revenue and benefits would represent the excess of benefits paid over the policy account value and interest credited to the account values. Under GAAP, for all annuity policies without significant mortality risk, premiums received and benefits paid would be recorded directly to the reserve liability.

Benefit Reserves: Certain policy reserves are calculated based on statutorily required interest and mortality assumptions rather than on estimated expected experience or actual account balances as would be required under GAAP.

Reinsurance: A liability for reinsurance balances has been provided for unsecured policy reserves ceded to reinsurers not authorized to assume such business. Changes to those amounts are credited or charged directly to unassigned surplus. Under GAAP, an allowance for amounts deemed uncollectible would be established through a charge to earnings.

Policy and contract liabilities ceded to reinsurers have been reported as reductions of the related reserves rather than as assets as would be required under GAAP.

Commissions allowed by reinsurers on business ceded are reported as income when received rather than being deferred and amortized with deferred policy acquisition costs as required under GAAP.

Deferred Income Taxes: Effective January 1, 2001, deferred income tax assets are limited to 1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse by the end of the subsequent calendar year, plus 2) the lesser of the remaining gross deferred income tax assets expected to be realized within one year of the balance sheet date or 10 percent of capital and surplus excluding any net deferred income tax assets, EDP equipment and operating software and any net positive goodwill, plus 3) the amount of remaining gross deferred income tax assets that can be offset against existing gross deferred income tax liabilities. The remaining deferred income tax assets are nonadmitted. Deferred income taxes do not include amounts for state taxes. Under GAAP, state taxes are included in the computation of deferred income taxes, a deferred income tax asset is recorded for the amount of gross deferred income tax assets expected to be realized in future years, and a valuation allowance is established for deferred income tax assets not realizable.

13

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

Statements of Cash Flow: Cash, cash equivalents, and short-term investments in the statements of cash flow represent cash balances and investments with initial maturities of one year of less. Under GAAP, the corresponding caption of cash and cash equivalents include cash balances and investments with initial maturities of three months or less.

The effects of these variances have not been determined by the Company, but are presumed to be material.

Investments

Investments in bonds (except those to which the Securities Valuation Office of the NAIC has ascribed a value), mortgage loans on real estate and short-term investments are reported at cost adjusted for amortization of premiums and accretion of discounts. Amortization is computed using methods which result in a level yield over the expected life of the security. The Company reviews its prepayment assumptions on mortgage and other asset-backed securities at regular intervals and adjusts amortization rates retrospectively when such assumptions are changed due to experience and/or expected future patterns. Investments in preferred stocks in good standing are reported at cost. Investments in preferred stocks not in good standing are reported at the lower of cost or market. Common stocks of unaffiliated companies, which include shares of mutual funds, are carried at market and the related unrealized capital gains or losses are reported in unassigned surplus. Common stock of the Company’s wholly-owned insurance subsidiary is recorded at the equity in statutory-basis net assets. Real estate is reported at cost less allowances for depreciation. Depreciation of real estate is computed principally by the straight-line method. Policy loans are reported at unpaid principal. Other invested assets consist principally of investments in various limited partnerships, which are recorded at equity in underlying net assets, and derivative financial instruments. These derivative instruments consist primarily of interest rate swap agreements, including basis swaps and futures, and are valued consistently with the hedged item. Hedges of fixed income assets and/or liabilities are valued at amortized cost. Hedges of items carried at fair value are valued at fair value. Derivatives which cease to be effective hedges are valued at fair value. Other “admitted assets” are valued principally at cost.

14

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

Realized capital gains and losses are determined on the basis of specific identification and are recorded net of related federal income taxes. The AVR is established by the Company to provide for potential losses in the event of default by issuers of certain invested assets. These amounts are determined using a formula prescribed by the NAIC and are reported as a liability. The formula for the AVR provides for a corresponding adjustment for realized gains and losses. Under a formula prescribed by the NAIC, the Company defers, in the IMR, the portion of realized gains and losses on sales of fixed income investments, principally bonds and mortgage loans, attributable to changes in the general level of interest rates and amortizes those deferrals over the remaining period to maturity of the security.

Interest income is recognized on an accrual basis. The Company does not accrue income on bonds in default, mortgage loans on real estate in default and/or foreclosure or which are delinquent more than twelve months, or on real estate where rent is in arrears for more than three months. Further, income is not accrued when collection is uncertain. At December 31, 2002 and 2001, the Company excluded investment income due and accrued of $14,099 and $7,198, respectively, with respect to such practices.

The carrying values of all investments are reviewed on an ongoing basis for credit deterioration. If this review indicates a decline in market value that is other than temporary, the carrying value of the investment is reduced to its estimated realizable value, or fair value, and a specific writedown is taken. Such reductions in carrying value are recognized as realized losses on investments.

Interest rate swaps are the primary derivative financial instruments used in the overall asset/liability management process to modify the interest rate characteristics of the underlying asset or liability. These interest rate swaps generally provide for the exchange of the difference between fixed and floating rate amounts based on an underlying notional amount. Generally, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. These swaps meet hedge accounting rules and are not marked to their current market value in the financial statements. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in the IMR or AVR if the underlying instrument receives that treatment.

Interest rate basis swaps are used in the overall asset/liability management process to modify the interest rate characteristics of the underlying liability to mitigate the basis risk

15

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

of assets and liabilities resetting on different indices. These interest rate swaps generally provide for the exchange of the difference between a floating rate on one index to a floating rate of another, based upon an underlying notional amount. Generally, no cash is exchanged at the outset of the swap contract and a single net payment is exchanged each due date. These swaps meet hedge accounting rules and are not marked to their current market value in the financial statements. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses are recognized in the financial statements when incurred.

The Company may issue foreign denominated assets or liabilities. Cross currency swaps are utilized to convert the asset or liability to a U.S. denominated security. A cash payment is often exchanged at the outset of the swap contract that represents the present value of cash flows of the instrument. This may result because the derivative is being purchased between coupon periods or the rates in the swap are not at market. A single net payment is exchanged each due date as well as at the end of the contract. Each asset or liability is hedged individually and terms of the swap must meet the terms of the underlying instrument. These swaps meet hedge accounting rules and are carried at book value. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in the IMR or AVR if the underlying instrument receives that treatment.

The Company issues products that provide the customer a return based on the S&P and NASDAQ Indices. The Company uses S&P 500 and NASDAQ 100 futures contracts and/or options to hedge the option risk associated with the products. Futures are marked to market on a daily basis and a cash payment is made/received by the Company. These payments are recognized as realized gains or losses in the financial statements. Options are marked to their market value in the financial statements.

The Company also utilizes credit default swaps in replication transactions. A replication transaction is a derivative transaction entered into in conjunction with a cash instrument to reproduce the investment characteristics of an otherwise permissible investment. The Company replicates investment grade corporate bonds by combining a AAA rated security as a cash component with a credit default swap. A premium is received by the Company on a periodic basis and recognized in investment income. In the event that the representative issuer defaults on its obligation referenced in the credit default swap contract, a payment equal to the notional amount of the contract will be made by the Company and recognized as a capital loss.

16

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

Aggregate Policy Reserves

Life, annuity, and accident and health benefit reserves are developed by actuarial methods and are determined based on published tables using statutorily specified interest rates and valuation methods that will provide, in the aggregate, reserves that are greater than or equal to the minimum required by law.

The Company waives deduction of deferred fractional premiums upon death and refunds portions of premiums beyond the date of death. Additional premiums are charged or additional mortality charges are assessed for policies issued on substandard lives according to underwriting classification.

Tabular interest, tabular less actual reserves released, and tabular cost have been determined by formula. Tabular interest on funds not involving life contingencies has also been determined by formula.

The aggregate policy reserves for life insurance policies are based principally upon the 1941, 1958 and 1980 Commissioners’ Standard Ordinary Mortality and American Experience Mortality Tables. The reserves are calculated using interest rates ranging from 2.25 to 6.50 percent and are computed principally on the Net Level Premium Valuation and the Commissioners’ Reserve Valuation Methods. Reserves for universal life policies are based on account balances adjusted for the Commissioners’ Reserve Valuation Method.

Deferred annuity reserves are calculated according to the Commissioners’ Annuity Reserve Valuation Method including excess interest reserves to cover situations where the future interest guarantees plus the decrease in surrender charges are in excess of the maximum valuation rates of interest. Reserves for immediate annuities and supplementary contracts with and without life contingencies are equal to the present value of future payments assuming interest rates ranging from 3.50 to 10.00 percent and mortality rates, where appropriate, from a variety of tables.

Annuity reserves also include guaranteed investment contracts (GICs) and funding agreements classified as life-type contracts as defined in Statement of Statutory Accounting Principles (SSAP) No. 50, Classifications and Definitions of Insurance or Managed Care Contracts in Force. These liabilities have annuitization options at guaranteed rates and consist of floating interest rate and fixed interest rate contracts. The

17

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

contract reserves are carried at the greater of the account balance or the value as determined for an annuity with cash settlement option, on a change in fund basis, according to the Commissioners’ Annuity Reserve Valuation Method.

Accident and health policy reserves are equal to the greater of the gross unearned premiums or any required midterminal reserves plus net unearned premiums and the present value of amounts not yet due on both reported and unreported claims.

Liability for Deposit-Type Contracts

Deposit-type contracts do not incorporate risk from the death or disability of policyholders. These types of contracts may include GICs, funding agreements, and other annuity contracts. Deposits and withdrawals received on these contracts are recorded as a direct increase or decrease directly to the liability balance, and are not reflected as premiums, benefits, or changes in reserve in the statement of operations.

Policy and Contract Claim Reserves

Claim reserves represent the estimated accrued liability for claims reported to the Company and claims incurred but not yet reported through the statement date. These reserves are estimated using either individual case-basis valuations or statistical analysis techniques. These estimates are subject to the effects of trends in claim severity and frequency. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes available.

Reinsurance

Coinsurance premiums, commissions, expense reimbursements, and reserves related to reinsured business are accounted for on bases consistent with those used in accounting for the original policies and the terms of the reinsurance contracts. Gains associated with reinsurance of inforce blocks of business are included in unassigned surplus and will be amortized into income over the estimated life of the policies. Premiums ceded and recoverable losses have been reported as a reduction of premium income and benefits, respectively.

18

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

Separate Accounts

Assets held in trust for purchases of variable annuity contracts and the Company’s corresponding obligation to the contract owners are shown separately in the balance sheets. Income and gains and losses with respect to the assets in the separate accounts accrue to the benefit of the contract owners and, accordingly, the operations of the separate accounts are not included in the accompanying financial statements. The Company received variable contract premiums of $822,284, $985,642, and $1,117,396, in 2002, 2001, and 2000, respectively.

Certain separate account assets and liabilities reported in the accompanying financial statements contain contractual guarantees. Guaranteed separate accounts represent funds invested by the Company for the benefit of individual contract holders who are guaranteed certain returns as specified in the contracts. Separate account asset performance different than guaranteed requirements is either transferred to or received from the general account and reported in the statements of operations.

Premiums and Annuity Considerations

Subsequent to January 1, 2001, revenues for policies with mortality or morbidity risk (including annuities with purchase rate guarantees) consist of the entire premium received and benefits incurred represent the total of surrender and death benefits paid and the change in policy reserves. These revenues are recognized when due. Premiums received and benefits paid for annuity policies without mortality or morbidity risk are recorded using deposit accounting, and recorded directly to an appropriate policy reserve account, without recognizing premium income or benefits paid. Prior to January 1, 2001, life, annuity, accident, and health premiums are recognized as revenue when due.

Stock Option Plan

AEGON N.V. sponsors a stock option plan that includes eligible employees of the Company. Pursuant to the plan, the option price at the date of grant is equal to the market value of the stock. Under statutory accounting principles, the Company does not record any expense related to this plan. However, the Company is allowed to record a deduction in the consolidated tax return filed by the Company and certain affiliates. The tax benefit of this deduction has been credited directly to unassigned surplus.

19

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

1. Organization and Summary of Significant Accounting Policies (continued)

Reclassifications

Certain reclassifications have been made to the 2001 and 2000 financial statements to conform to the 2002 presentation.

2. Accounting Changes

The Company prepares its statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the State of Iowa. Effective January 1, 2001, the State of Iowa required that insurance companies domiciled in the State of Iowa prepare their statutory-basis financial statements in accordance with the NAIC Accounting Practices and Procedures Manual subject to any deviations prescribed or permitted by the State of Iowa insurance commissioner.

Accounting changes adopted to conform to the provisions of the NAIC Accounting Practices and Procedures Manual are reported as changes in accounting principles. The cumulative effect of changes in accounting principles is reported as an adjustment to unassigned surplus in the period of the change in accounting principle. The cumulative effect is the difference between the amount of capital and surplus at the beginning of the year and the amount of capital and surplus that would have been reported at that date if the new accounting principles had been applied retroactively for all prior periods. As a result of these changes, the Company reported a change of accounting principle, as an adjustment that increased capital and surplus of $19,716 as of January 1, 2001. This amount included the establishment of deferred tax assets of $17,528 and the release of mortgage loan prepayment fees from the IMR of $3,831, offset by the release of mortgage loan origination fees of $1,200 and the establishment of a vacation accrual of $443.

On December 31, 2002, the Company adopted the provisions of Actuarial Guideline 39 (Guideline 39). The purpose of Guideline 39 is to interpret the standards for the valuation of reserves for guaranteed living benefits included in variable deferred and immediate annuity contracts. The Company had previously provided reserves for such guarantees based on the accumulation of the amount charged to policyholders for these benefits. The cumulative effect of adopting Guideline 39 on December 31, 2002, was $34, which was charged directly to unassigned surplus as a change in accounting principle.

20

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

2. Accounting Changes (continued)

Effective January 1, 2003, the Company will adopt the provisions SSAP No. 86, Accounting for Derivative Instruments and Hedging, Income Generation, and Replication (Synthetic Asset) Transactions. SSAP No. 86 supercedes SSAP No. 31, Derivative Instruments, and is effective for derivative transactions entered into or modified on or after January 1, 2003. SSAP No. 31 continues to apply to derivative transactions in place prior to January 1, 2003, however, the Company can elect to apply SSAP No. 86 to these transactions as well. The Company has elected to adopt SSAP No. 86 for all existing and future derivative transactions. SSAP No. 86 adopts the general framework of Statement of Financial Accounting Standards (SFAS) No. 133, Accounting for Derivatives and Hedging Activities, which addresses the accounting for derivatives in accordance with accounting principles generally accepted in the United States. SSAP No. 86 differs from SFAS No. 133 in that it allows the derivative instrument to be carried consistent with the hedged item rather than at fair value. SSAP No. 86 also does not require the separate accounting for embedded derivatives as required by SFAS No. 133. The Company believes that the adoption of this statement will not have a material impact on the Company’s financial condition or results of operations in future periods.

3. Fair Values of Financial Instruments

The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments:

Cash and short-term investments: The carrying amounts reported in the balance sheet for these instruments approximate their fair values.

Investment securities: Fair values for bonds and preferred stocks are based on quoted market prices, where available. For bonds and preferred stocks not actively traded, fair values are estimated using values obtained from independent pricing services or, in the case of private placements, are estimated by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. The fair values for common stock securities of unaffiliated entities are based on quoted market prices.

Mortgage loans on real estate and policy loans: The fair values for mortgage loans on real estate are estimated utilizing discounted cash flow analyses, using interest rates

21

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

3. Fair Values of Financial Instruments (continued)

reflective of current market conditions and the risk characteristics of the loans. The fair value of policy loans is assumed to equal their carrying amount.

Separate account assets: The fair value of separate account assets are based on quoted market prices.

Investment contracts: Fair values for the Company’s liabilities under investment-type insurance contracts are estimated using discounted cash flow calculations, based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued.

Swaps and call options: Estimated fair value of swaps, including interest rate and currency swaps and call options, are based on pricing models or formulas using current assumptions.

Short-term notes receivable from affiliates: The fair values for short-term notes receivable from affiliates approximate their carrying amount.

Separate Account Annuity Liabilities: Separate account annuity liabilities approximate the market value of the separate account assets less a provision for the present value of future profits related to the underlying contracts.

Fair values for the Company’s insurance contracts (including separate account universal life liabilities) other than investment contracts are not required to be disclosed. However, the fair values of liabilities under all insurance contracts are taken into consideration in the Company’s overall management of interest rate risk, which minimizes exposure to changing interest rates through the matching of investment maturities with amounts due under insurance contracts.

22

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

3. Fair Values of Financial Instruments (continued)

The following sets forth a comparison of the fair values and carrying amounts of the Company’s financial instruments:

	December 31
	2002						2001
	Carrying Amount			Fair Value			Carrying Amount			Fair Value
Admitted assets
Cash and short-term investments	$	17,290		$	17,290		$	14,154		$	14,154
Bonds		4,718,638			4,818,852			4,381,921			4,321,145
Preferred stocks, other than affiliates		16,131			14,960			18,432			17,495
Common stocks, other than affiliates		79,631			79,631			196,569			196,569
Mortgage loans on real estate		1,011,791			1,138,456			1,386,484			1,444,627
Policy loans		159,537			159,537			164,235			164,235
Short-term notes receivable from affiliates		108,000			108,000			97,000			97,000
Interest rate swaps		(20,964	)		(43,864	)		(15,082	)		(21,951	)
Call options		679			679			679			679
Separate account assets		6,374,198			6,374,198			6,959,518			6,959,518
Liabilities
Investment contract liabilities		3,620,494			3,676,879			3,697,824			3,816,321
Separate account annuity liabilities		6,340,167			6,267,201			6,906,920			6,835,893

4. Investments

At December 31, 2000, the Company owned Veterans Life Insurance Company (Veterans). In 2001, the Company sold Veterans to Transamerica Holding Company, LLC, an affiliate. The proceeds from this sale were $697,492 and the Company recorded a realized gain of $494,886. As a result of this sale, the Company also recorded a reduction to surplus of $361,497 through the change in unrealized gains.

The Company owns 100% of Coverna Direct Insurance Services, Inc. at December 31, 2002 and 2001. The cost of this subsidiary was $100.

23

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

4. Investments (continued)

The carrying amounts and estimated fair values of investments in bonds and preferred stock were as follows:

	Carrying Amount		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
December 31, 2002
Bonds:
United States Government and agencies	$	236,377	$	2,776	$	1,414	$	237,739
State, municipal and other government		63,625		5,929		3,872		65,682
Public utilities		162,741		10,387		4,426		168,702
Industrial and miscellaneous		2,661,287		190,942		64,178		2,788,051
Mortgage and other asset-backed securities		1,594,608		23,092		59,022		1,558,678
		4,718,638		233,126		132,912		4,818,852
Preferred stocks		16,131		—		1,171		14,960
	$	4,734,769	$	233,125	$	134,083	$	4,833,812
December 31, 2001
Bonds:
United States Government and agencies	$	60,939	$	659	$	1,524	$	60,073
State, municipal and other government		57,981		1,787		4,632		55,137
Public utilities		339,020		4,282		4,335		338,967
Industrial and miscellaneous		2,536,367		56,904		96,730		2,496,541
Mortgage and other asset-backed securities		1,387,614		6,761		23,948		1,370,427
		4,381,921		70,393		131,169		4,321,145
Preferred stocks		18,432		1		938		17,495
	$	4,400,353	$	70,394	$	132,107	$	4,338,640

24

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

4. Investments (continued)

The carrying amounts and estimated fair values of bonds at December 31, 2002, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Carrying Amount		Estimated Fair Value
Due in one year or less	$	21,534	$	21,909
Due after one year through five years		901,253		935,126
Due after five years through ten years		808,699		859,733
Due after ten years through fifteen years		252,284		265,888
Due after fifteen years through twenty years		148,751		143,636
Due after twenty years		991,509		1,033,882
		3,124,030		3,260,174
Mortgage and other asset-backed securities		1,594,608		1,558,678
	$	4,718,638	$	4,818,852

A detail of net investment income is presented below:

	Year Ended December 31
	2002		2001		2000
Interest on bonds and preferred stocks	$	270,242	$	260,951	$	254,807
Dividends on equity investments		2,741		1,862		1,063
Interest on mortgage loans		89,146		120,254		144,529
Rental income on real estate		7,399		1,081		1,114
Interest on policy loans		7,435		7,510		7,587
Other investment income		8,934		15,259		17,651
Gross investment income		385,897		406,917		426,751
Less investment expenses		25,337		19,557		20,338
Net investment income	$	360,560	$	387,360	$	406,413

25

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

4. Investments (continued)

Proceeds from sales and maturities of debt securities and related gross realized gains and losses were as follows:

	Year Ended December 31
	2002			2001			2000
Proceeds	$	3,552,117		$	2,167,545		$	1,788,570
Gross realized gains	$	29,733		$	39,060		$	62,925
Gross realized losses		(83,293	)		(153,357	)		(64,750	)
Net realized gains (losses)	$	(53,560	)	$	(114,297	)	$	(1,825	)

Gross realized losses in 2002 and 2001 include $34,528 and $22,445, respectively, that relate to losses recognized on other than temporary declines in market values of debt securities.

At December 31, 2002, investments with an aggregate carrying amount of $3,018 were on deposit with regulatory authorities or were restrictively held in bank custodial accounts for the benefit of such regulatory authorities as required by statute.

Realized investment gains (losses) and changes in unrealized gains (losses) for investments are summarized below:

	Realized
	Year Ended December 31
	2002			2001			2000
Debt securities	$	(53,560	)	$	(114,297	)	$	(1,825	)
Equity securities		(32,053	)		532,439			4,371
Mortgage loans on real estate		—			(1,807	)		(1,693	)
Real estate		(4,603	)		(243	)		(20	)
Other invested assets		562			19,234			2,796
		(89,654	)		435,326			3,629
Federal income tax effect		20,811			(5,004	)		(10,956	)
Transfer from interest maintenance reserve		14,397			25,435			1,599
Net realized capital gains (losses) on investments	$	(54,446	)	$	455,757		$	(5,728	)

26

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

4. Investments (continued)

	Change in Unrealized
	Year Ended December 31
	2002			2001			2000
Bonds	$	(43,789	)	$	3,433		$	(8,769	)
Preferred stocks		591			43,639			(27,883	)
Common stocks		447			(407,519	)		93,229
Mortgage loans on real estate		2,442			12,621			(4,575	)
Other invested assets		(35,864	)		1,803			1,234
Change in net unrealized capital gains/losses	$	(76,173	)	$	(346,023	)	$	53,236

Gross unrealized gains and gross unrealized losses on common stocks were as follows:

	December 31
	2002			2001
Unrealized gains	$	8,442		$	20,575
Unrealized losses		(3,602	)		(16,182	)
Net unrealized gains	$	4,840		$	4,393

During 2002, the Company issued mortgage loans with interest rates of 7.12%. The maximum percentage of any one mortgage loan to the value of the underlying real estate at origination was 60%. At December 31, 2002, mortgage loans with a carrying value of $4,415 were non-income producing for the previous six months. Accrued interest of $232 related to these mortgage loans was excluded from investment income. The Company requires all mortgaged properties to carry fire insurance equal to the value of the underlying property.

27

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

4. Investments (continued)

During 2002 and 2001, mortgage loans of $10,204 and $72, respectively, were foreclosed and transferred to real estate. At December 31, 2002 and 2001, the Company held a mortgage loan loss reserve in the AVR of $20,635 and $31,609, respectively. The mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:

Geographic Distribution					Property Type Distribution
	December 31					December 31
	2002		2001			2002		2001
Middle Atlantic	25	%	21	%	Office	26	%	28	%
Pacific	24		27		Retail	25		18
South Atlantic	21		16		Apartment	19		15
E. North Central	15		16		Agricultural	14		11
E. South Central	6		5		Industrial	10		8
W. North Central	3		4		Hotel/Motel	3		2
Mountain	2		3		Other	3		2
New England	2		2		Residential	—		16
W. South Central	2		6

The Company utilizes a variety of off-balance sheet financial instruments as part of its efforts to hedge and manage fluctuations in the market value of its investment portfolio attributable to changes in general interest rate levels and to manage duration mismatch of assets and liabilities. Those instruments include interest rate exchange agreements (swaps), options, forward contracts and futures contracts, and all involve elements of credit and market risks in excess of the amounts recognized in the accompanying financial statements at a given point in time. The contract or notional amounts of those instruments reflect the extent of involvement in the various types of financial instruments.

The Company may issue foreign denominated assets or liabilities. Cross currency swaps are utilized to convert the asset or liability to a U.S. dollar denominated security. A cash payment is often exchanged at the outset of the swap contract that represents the present value of cash flows of the instrument. This may result because the derivative is being purchased between coupon periods or the rates in the swap are not at market. A single net payment is exchanged each due date as well as at the end of the contract. Each asset or liability is hedged individually and terms of the swap must substantially meet the terms of

28

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

4. Investments (continued)

the underlying instrument. These swaps meet hedge accounting rules and are carried at book value. If a swap is terminated prior to maturity, proceeds are exchanged equal to the fair value of the contract. These gains and losses may be included in the IMR or AVR if the underlying instrument receives that treatment.

The Company also utilizes credit default swaps in replication transactions. At December 31, 2002, the Company had replicated assets with a fair value of $79,105 and credit default swaps with a fair value of $(895). At December 31, 2001, the Company did not have any outstanding replication transactions. During the years ended December 31, 2002, 2001, and 2000, the Company did not recognize any capital losses related to credit default swaps.

The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial instruments, but it does not expect any counterparties to fail to meet their obligations given their high credit ratings. The Company’s exposure to credit risk is the risk of loss from a counterparty failing to perform according to the terms of the contract. This exposure includes settlement risk (risk that the counterparty defaults after the Company has delivered funds or securities under the terms of the contract) which results in an accounting loss and replacement cost risk (cost to replace the contract at current market rates should the counterparty default prior to the settlement date). There is no off-balance sheet exposure to credit risk that would result in an immediate accounting loss (settlement risk) associated with counterparty nonperformance on interest rate swap agreements. Interest rate swap agreements are subject to replacement cost risk, which equals the cost to replace those contracts in a net gain position should a counterparty default. These instruments are subject to market risk, which is the possibility that future changes in market prices may make the instruments less valuable. At December 31, 2002, the aggregate credit exposure for these instruments was $11,220.

At December 31, 2002 and 2001, the Company’s outstanding financial instruments with on and off-balance sheet risks, shown in notional amounts, are summarized as follows:

	Notional Amount
	2002		2001
Derivative securities:
Interest rate and currency swaps:
Receive fixed – pay floating	$	555,629	$	483,604
Receive floating – pay floating		865,546		878,823
Receive floating – pay fixed		746,186		844,518

29

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

4. Investments (continued)

The Company utilizes futures contracts to hedge against changes in market conditions. Initial margin deposits are made by cash deposits or segregation of specific securities as may be required by the exchange on which the transaction was conducted. Pursuant to the contracts, the Company agrees to receive from or pay to the broker, an amount of cash equal to the daily fluctuation in the value of the contract. Such receipts or payments are known as “variation margin” and are recorded by the Company as a variation margin receivable or payable on futures contracts. During the period the futures contracts are open, daily changes in the values of the contracts are recognized as realized gains or losses. When the contracts are closed, the Company recognizes a realized gain or loss equal to the difference between the proceeds from, or cost of, the closing transaction and the Company’s cost basis in the contract. The Company recognized net realized losses from futures contracts in the amount of $2,396, $6,683, and $9,917 for the years ended December 31, 2002, 2001, and 2000, respectively.

Open futures contracts at December 31, 2002 and 2001, were as follows:

Number of Contracts	Contract Type	Opening Market Value	Year-End Market Value
December 31, 2002
13	S&P 500 March 2003 Futures	$2,932	$2,856
December 31, 2001
60	S&P 500 March 2002 Futures	$17,246	$17,238

The Company’s use of futures contracts may expose the Company to certain risks. Risks include the possibility of an illiquid market and the change in the value of the contracts may not correlate with changes in the value of the securities being hedged. Unexpected adverse price movements could cause the Company’s hedging strategy to be unsuccessful and result in losses.

30

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

5. Reinsurance

The Company reinsures portions of risk on certain insurance policies which exceed its established limits, thereby providing a greater diversification of risk and minimizing exposure on larger risks. The Company remains contingently liable with respect to any insurance ceded, and this would become an actual liability in the event that the assuming insurance company became unable to meet its obligation under the reinsurance treaty.

Premiums earned reflect the following reinsurance assumed and ceded amounts:

	Year Ended December 31
	2002			2001			2000
Direct premiums	$	1,047,258		$	1,244,790		$	1,664,780
Reinsurance assumed		236,488			194,493			362,664
Reinsurance ceded		(26,995	)		(11,795	)		(20,223	)
Net premiums earned	$	1,256,751		$	1,427,488		$	2,007,221

The reinsurance assumed reflected in the table above includes premiums assumed from related parties of $194,095, $154,395, and $284,702 for the years ended December 31, 2002, 2001, and 2000, respectively. The related aggregate reserves for policies and contracts are $2,755,699 and $2,795,218 at December 31, 2002 and 2001, respectively.

The Company received reinsurance recoveries in the amount of $9,753, $7,429, and $11,960 during 2002, 2001, and 2000, respectively. At December 31, 2002 and 2001, estimated amounts recoverable from reinsurers that have been deducted from policy and contract claim reserves totaled $1,801 and $1,210, respectively. The aggregate reserves for policies and contracts were reduced for reserve credits for reinsurance ceded at December 31, 2002 and 2001 of $14,604 and $6,128, respectively.

Until January 1, 2001, the Company was a party to a reinsurance agreement with a nonaffiliated company in which the Company assumed a block of business. At that time, the ceding company exercised a provision in the reinsurance contract to recapture a portion of this block of business. The net cash payment received from the ceding company of $31,096 was recorded in the income statement as gains due to reinsurance transactions. The Company does not expect any ongoing cash payments or receipts from this recapture.

31

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

6. Income Taxes

The main components of deferred income tax amounts are as follows:

	December 31,		December 31,
	2002		2001
Deferred income tax assets:
Deferred intercompany loss	$	14,016	$	—
Guaranty funds		2,459		5,112
Nonadmitted assets		9,476		3,282
Tax basis deferred acquisition costs		36,307		37,701
Reserves		36,756		28,536
Unrealized capital losses		39,091		30,216
Other		2,487		2,008
Total deferred income tax assets	$	140,592	$	106,855
Total deferred income tax assets – nonadmitted	$	77,810	$	58,231
Deferred income tax liabilities:
Partnerships	$	3,103	$	1,455
Unrealized capital gains		7,066		19,501
Other		5,257		1,711
Total deferred income tax liabilities	$	15,426	$	22,667

The change in net deferred income tax assets and deferred income tax assets – nonadmitted are as follows:

	Year Ended December 31
	2002		2001
Change in net deferred income tax asset	$	40,978	$	(4,888	)
Change in deferred income tax assets – nonadmitted	$	19,579	$	(13,317	)

32

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

6. Income Taxes (continued)

Federal income tax expense differs from the amount computed by applying the statutory federal income tax rate to gain from operations before federal income tax expense and net realized capital gains/losses on investments for the following reasons:

	Year Ended December 31
	2002			2001			2000
Income tax computed at the federal statutory rate (35%)	$	31,790		$	60,757		$	36,193
Amortization of IMR		679			(859	)		(2,483	)
Deferred acquisition costs – tax basis		(1,204	)		(1,157	)		(795	)
Depreciation		76			8			(124	)
Dividends received deduction		(470	)		(202	)		(1,054	)
Low income housing credits		(15,711	)		(11,069	)		(10,899	)
Prior year under (over) accrual		2,548			4,093			(3,235	)
Tax reserve valuation		1,146			(5,715	)		(282	)
All other adjustments		(5,716	)		(5,074	)		(5,457	)
Federal income tax expense	$	13,138		$	40,782		$	11,864

Prior to 1984, as provided for under the Life insurance Company Tax Act of 1959, a portion of statutory income was not subject to current taxation but was accumulated for income tax purposes in a memorandum account referred to as the “policyholders’ surplus account” (PSA). No federal income taxes have been provided for in the financial statements of income deferred in the PSA ($17,425 at December 31, 2002). To the extent that dividends are paid from the amount accumulated in the PSA, net earnings would be reduced by the amount of tax required to be paid. Should the entire amount in the PSA account become taxable, the tax thereon computed at the current rates would amount to approximately $6,099.

33

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

6. Income Taxes (continued)

For federal income tax purposes, the Company joins in a consolidated income tax return filing with certain affiliated companies. Under the terms of a tax-sharing agreement between the Company and its affiliates, the Company computes federal income tax expense as if it were filing a separate income tax return, except that tax credits and net operating loss carryforwards are determined on the basis of the consolidated group. Additionally, the alternative minimum tax is computed for the consolidated group and the resulting tax, if any, is allocated back to the separate companies on the basis of the separate companies’ alternative minimum taxable income.

The Company’s federal income tax returns have been examined by the Internal Revenue Service and the statute is closed through 1997. An examination is underway for 1998 through 2000.

7. Policy and Contract Attributes

Participating life insurance policies are issued by the Company which entitle policyholders to a share in the earnings of the participating policies, provided that a dividend distribution, which is determined annually based on mortality and persistency experience of the participating policies, is authorized by the Company. Participating insurance constituted approximately 6% and 11% of ordinary life insurance in force at December 31, 2002 and 2001, respectively.

34

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

7. Policy and Contract Attributes (continued)

A portion of the Company’s policy reserves and other policyholders’ funds (including separate account liabilities) relates to liabilities established on a variety of the Company’s annuity and deposit fund products. There may be certain restrictions placed upon the amount of funds that can be withdrawn without penalty. The amount of reserves on these products, by withdrawal characteristics, is summarized as follows:

	December 31
	2002				2001
	Amount		Percent of Total		Amount		Percent of Total
Subject to discretionary withdrawal with market value adjustment	$	990,219	9	%	$	1,236,610	10	%
Subject to discretionary withdrawal at book value less surrender charge		79,878	1			75,714	1
Subject to discretionary withdrawal at market value		5,855,318	52			6,350,051	53
Subject to discretionary withdrawal at book value (minimal or no charges or adjustments)		995,228	8			1,056,486	9
Not subject to discretionary withdrawal provision		3,390,712	30			3,243,272	27
Total policy reserves on annuities and deposit fund liabilities	$	11,311,355	100	%	$	11,962,133	100	%

Included in the liability for deposit-type contracts at December 31, 2002 and 2001 are approximately $663,000 and $714,000, respectively, of funding agreements issued to special purpose entities in conjunction with non-recourse medium-term note programs. Under these programs, the proceeds from each note series issuance is used to purchase a funding agreement from an affiliated company which secures that particular series of notes. The funding agreement is reinsured to the Company. In general, the payment terms of the note series match the payment terms of the funding agreement that secures that series. Claims for principal and interest for these funding agreements are afforded equal priority as other policyholders. At December 31, 2002, the contractual maturities were 2003 – $291,000; 2004 – $100,000; 2005 – $0; 2006 $263,000; 2007 – $0 and thereafter – $9,000.

35

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

7. Policy and Contract Attributes (continued)

Reserves on the Company’s traditional life insurance products are computed using mean reserving methodologies. These methodologies result in the establishment of assets for the amount of the net valuation premiums that are anticipated to be received between the policy’s paid-through date to the policy’s next anniversary date. At December 31, 2002 and 2001, these assets (which are reported as premiums deferred and uncollected) and the amounts of the related gross premiums and loadings, are as follows:

	Gross			Loading		Net
December 31, 2002
Life and annuity:
Ordinary direct first year business	$	4,121		$	2,444	$	1,677
Ordinary direct renewal business		17,741			5,147		12,594
Group life direct business		29,612			9,934		19,678
Reinsurance ceded		(275	)		—		(275	)
Total life and annuity		51,199			17,525		33,674
Accident and health:
Direct		5,529			—		5,529
Reinsurance assumed		3,685			—		3,685
Reinsurance ceded		(178	)		—		(178	)
Total accident and health		9,036			—		9,036
	$	60,235		$	17,525	$	42,710
December 31, 2001
Life and annuity:
Ordinary direct first year business	$	3,270		$	2,268	$	1,002
Ordinary direct renewal business		18,470			5,681		12,789
Group life direct business		29,844			9,913		19,931
Reinsurance ceded		(619	)		—		(619	)
Total life and annuity		50,965			17,862		33,103
Accident and health:
Direct		839			—		839
Reinsurance assumed		354			—		354
Reinsurance ceded		(74	)		—		(74	)
Total accident and health		1,119			—		1,119
	$	52,084		$	17,862	$	34,222

36

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

7. Policy and Contract Attributes (continued)

At December 31, 2002 and 2001, the Company had insurance in force aggregating $1,440,384 and $390,611, respectively, in which the gross premiums are less than the net premiums required by the standard valuation standards established by the Insurance Division, Department of Commerce, of the State of Iowa. The Company established policy reserves of $6,903 and $956 to cover these deficiencies at December 31, 2002 and 2001, respectively.

Separate accounts held by the Company represent funds held for individual policyholders. The assets in the separate accounts, carried at estimated fair value, consist of common stocks (including mutual funds), mortgage loans, long-term bonds and cash.

Information regarding the separate accounts of the Company is as follows:

	Guaranteed Indexed		Nonindexed Guaranteed Less Than 4%		Nonguaranteed		Total
Premiums, deposits and other considerations for the year ended December 31, 2002	$	—	$	170	$	811,751	$	811,921
Reserves for separate accounts as of December 31, 2002 with assets at:
Fair value	$	424,557	$	49,389	$	5,877,171	$	6,351,117
Amortized cost		—		—		—		—
	$	424,557	$	49,389	$	5,877,171	$	6,351,117
Reserves by withdrawal characteristics as of December 31, 2002:
With market value adjustment	$	114,891	$	49,389	$	—	$	164,280
At market value		—		—		5,866,270		5,866,270
Not subject to discretionary withdrawal		309,666		—		10,901		320,567
Total	$	424,557	$	49,389	$	5,877,171	$	6,351,117

37

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

7. Policy and Contract Attributes (continued)

	Guaranteed Indexed		Nonindexed Guaranteed Less Than 4%		Nonguaranteed		Total
Premiums, deposits and other considerations for the year ended December 31, 2001	$	110,000	$	225,152	$	650,490	$	985,642
Reserves for separate accounts as of December 31, 2001 with assets at:
Fair value	$	503,245	$	604,753	$	5,815,073	$	6,923,071
Amortized cost		—		—		—		—
	$	503,245	$	604,753	$	5,815,073	$	6,923,071
Reserves by withdrawal characteristics as of December 31, 2001:
With market value adjustment	$	147,184	$	53,624	$	—	$	200,808
At market value		—		551,129		5,815,073		6,366,202
Not subject to discretionary withdrawal		356,061		—		—		356,061
Total	$	503,245	$	604,753	$	5,815,073	$	6,923,071

A reconciliation of the amounts transferred to and from the Company’s separate accounts is presented below:

	Year Ended December 31
	2002			2001			2000
Transfers as reported in the summary of operations of the Company’s separate accounts annual statement:
Transfers to separate accounts	$	822,284		$	985,642		$	1,117,396
Transfers from separate accounts		(460,169	)		(405,394	)		(513,348	)
Net transfers to separate accounts		362,115			580,248			604,048
Reconciling adjustments		22			2,705			7,427
Net transfers to separate accounts, as reported herein	$	362,137		$	582,953		$	611,475

38

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

8. Securities Lending

The Company may lend portfolio securities to approved brokers and other parties to earn additional income. The Company receives collateral against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of loaned securities is determined at the close of business and any additional required collateral is delivered to the Company on the next business day. Although risk is mitigated by collateral, the Company could experience a delay in recovering its securities and possible loss of income or value if the borrower fails to return them. At December 31, 2002 and 2001, the value of securities loaned amounted to $253,309 and $137,311, respectively.

9. Dividend Restrictions

The Company is subject to limitations, imposed by the State of Iowa, on the payment of dividends to its stockholders. Generally, dividends during any year may not be paid, without prior regulatory approval, in excess of the greater of (1) 10 percent of the Company’s statutory surplus as of the preceding December 31, or (2) the Company’s statutory gain from operations before net realized capital gains on investments for the preceding year. Subject to availability of unassigned surplus at the time of such dividend, the maximum payment which may be made in 2003, without prior regulatory approval, is $34,036.

The Company paid dividends to its stockholders of $ -0-, $440,000, and $120,000 in 2002, 2001, and 2000, respectively. Prior to payment, the Company received approval from the Insurance Division, Department of Commerce, of the State of Iowa for the extraordinary dividend made in 2001.

Life/health insurance companies are subject to certain risk-based capital (RBC) requirements as specified by the NAIC. Under those requirements, the amount is to be determined based on the various risk factors related to it. At December 31, 2002, the Company meets the RBC requirements.

10. Related Party Transactions

The Company shares certain offices, employees and general expenses with affiliated companies.

The Company receives data processing, investment advisory and management, marketing and administration services from certain affiliates. During 2002, 2001, and 2000, the

39

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

10. Related Party Transactions (continued)

Company paid $32,312, $29,092, and $34,205, respectively, for these services, which approximates their costs to the affiliates.

Payables to affiliates bear interest at the 30-day commercial paper rate. During 2002, 2001, and 2000, the Company paid net interest of $376, $907, and $2,016, respectively, to affiliates.

At December 31, 2002 and 2001, the Company had net short-term notes receivable from affiliates of $108,000 and $97,000, respectively. Interest on these notes accrue at the 30-day commercial paper rate at the time of issuance.

The Company participates in various benefit plans sponsored by AEGON and the related costs allocated to the Company are not significant.

The Company has 2,290,000 shares of redeemable preferred stock outstanding, all of which are owned by CLLP. The preferred stock has a par value of $11 per share and a liquidation value of $240 per share. CLLP is entitled to receive a cumulative dividend equal to 8-1/2 percent per annum of the liquidation value of the preferred stock. The Company may redeem all or any portion of the preferred stock at the liquidation value. At December 31, 2002, cumulative unpaid dividends relating to the preferred shares were $46,716.

During 2001, the Company purchased an option from AEGON USA, Inc. (AEGON), an affiliate, for $679. This option allows the Company to purchase up to 2,500 shares of Class C common stock of AEGON at 99.75 percent of their fair market value determined on the date of exercise. The Class C common stock shares have the right, as a Class, to elect the majority of the Board of Directors of AEGON. There are currently no outstanding Class C shares of AEGON. At December 31, 2002 and 2001, the carrying value and fair value of this options is $679.

11. Commitments and Contingencies

During 2000, the Company incurred a loss of $30,469 related to the unsuccessful development of an agency and marketing organization. This item is included in other expenses in the statement of operations. The Company does not expect any future funding commitments for this event.

40

Peoples Benefit Life Insurance Company

Notes to Financial Statements – Statutory Basis (continued)

(Dollars in Thousands)

11. Commitments and Contingencies (continued)

The Company has contingent commitments for additional funding of $65,059 as of December 31, 2002 for various joint ventures, partnerships, and limited liability companies.

The Company is a party to legal proceedings incidental to its business. Although such litigation sometimes includes substantial demands for compensatory and punitive damages, in addition to contract liability, it is management’s opinion that damages arising from such demands will not be material to the Company’s financial position.

The Company is subject to insurance guaranty laws in the states in which it writes business. These laws provide for assessments against insurance companies for the benefit of policyholders and claimants in the event of insolvency of other insurance companies. Assessments are charged to operations when received by the Company except where right of offset against other taxes paid is allowed by law; amounts available for future offsets are recorded as an asset on the Company’s balance sheet. Potential future obligations for unknown insolvencies are not determinable by the Company and are not required to be accrued for financial reporting purposes. The future obligation has been based on the most recent information available from the National Organization of Life and Health Insurance Guaranty Associations. The Company has established a reserve of $7,025 and $14,606 and an offsetting premium tax benefit of $1,688 and $2,312 at December 31, 2002 and 2001, respectively, for its estimated share of future guaranty fund assessments related to several major insurer insolvencies.

12. Managing General Agents

For the years ended December 31, 2002 and 2001, the Company had $538,020 and $588,033 of direct premiums written by two managing general agents.

41

Statutory-Basis Financial

Statement Schedules

Peoples Benefit Life Insurance Company

Summary of Investments – Other Than

Investments in Related Parties

(Dollars in Thousands)

December 31, 2002

SCHEDULE I

Type of Investment	Cost (1)		Market Value		Amount at Which Shown in the Balance Sheet
Fixed maturities
Bonds:
United States Government and government agencies and authorities	$	236,377	$	237,738	$	236,377
States, municipalities and political subdivisions		109,690		113,869		109,690
Foreign governments		58,463		61,944		58,463
Public utilities		162,741		168,702		162,741
All other corporate bonds		4,151,367		4,236,599		4,151,367
Preferred stock		16,131		14,960		16,131
Total fixed maturities		4,734,769		4,833,812		4,734,769
Equity securities
Common stocks:
Public utilities		1,535		1,788		1,788
Banks, trust and insurance		9,674		10,321		10,321
Industrial, miscellaneous and all other		62,670		67,522		67,522
Total equity securities		73,879		79,631		79,631
Mortgage loans on real estate		1,011,791				1,011,791
Real estate		10,727				10,727
Policy loans		159,537				159,537
Other long-term investments		345,905				346,585
Cash and short-term investments		17,290				17,290
Total investments	$	6,353,898			$	6,360,330

(1) Original cost of equity securities and, as to fixed maturities, original cost reduced by repayments and adjusted for amortization of premiums or accrual of discounts.

43

Peoples Benefit Life Insurance Company

Supplementary Insurance Information

(Dollars in Thousands)

SCHEDULE III

	Future Policy Benefits and Expenses		Unearned Premiums		Policy and Contract Liabilities		Premium Revenue		Net Investment Income*		Benefits, Claims Losses and Settlement Expenses		Other Operating Expenses*		Premiums Written
Year ended December 31, 2002
Individual life	$	461,862	$	—	$	8,492	$	70,289	$	29,007	$	69,526	$	10,703
Individual health		12,993		4,067		5,668		23,670		1,411		9,745		7,742	$	21,332
Group life and health		707,964		15,915		27,199		193,529		44,390		139,397		52,262		132,751
Annuity		2,766,068		—		—		969,263		285,752		858,413		404,264
	$	3,948,887	$	19,982	$	41,359	$	1,256,751	$	360,560	$	1,077,081	$	474,971
Year ended December 31, 2001
Individual life	$	458,079	$	—	$	7,698	$	68,850	$	39,237	$	56,664	$	8,428
Individual health		13,085		4,142		8,344		24,397		1,708		11,733		9,198	$	24,500
Group life and health		724,499		12,833		31,007		180,495		47,794		111,159		51,877		113,182
Annuity		2,759,350		—		—		1,153,746		298,621		824,950		633,811
	$	3,955,013	$	16,975	$	47,049	$	1,427,488	$	387,360	$	1,004,506	$	703,314
Year ended December 31, 2000
Individual life	$	419,535	$	—	$	9,117	$	78,226	$	30,321	$	212,992	$	9,906
Individual health		13,834		4,566		8,689		27,129		1,947		14,806		10,845	$	23,394
Group life and health		765,876		14,844		36,675		197,922		58,068		136,277		57,341		113,389
Annuity		2,887,550		—		—		1,703,944		316,077		1,222,814		686,744
	$	4,086,795	$	19,410	$	54,481	$	2,007,221	$	406,413	$	1,586,889	$	764,836

* Allocations of net investment income and other operating expenses are based on a number of assumptions and estimates, and the results would change if different methods were applied.

44

Peoples Benefit Life Insurance Company

Reinsurance

(Dollars in Thousands)

SCHEDULE IV

	Gross Amount		Ceded to Other Companies		Assumed From Other Companies		Net Amount		Percentage of Amount Assumed to Net
Year ended December 31, 2002
Life insurance in force	$	5,780,232	$	1,917,658	$	3,052,776	$	6,915,350	44	%
Premiums:
Individual life	$	64,218	$	4,639	$	10,710	$	70,289	15	%
Individual health		21,332		534		2,872		23,670	12	%
Group life and health		132,751		21,822		82,600		193,529	43	%
Annuity		828,957		—		140,306		969,263	14	%
	$	1,047,258	$	26,995	$	236,488	$	1,256,751	19	%
Year ended December 31, 2001
Life insurance in force	$	3,776,765	$	422,249	$	4,051,062	$	7,405,578	55	%
Premiums:
Individual life	$	58,423	$	1,188	$	11,615	$	68,850	17	%
Individual health		21,809		510		3,098		24,397	13	%
Group life and health		113,182		10,097		77,410		180,495	43	%
Annuity		1,051,376		—		102,370		1,153,746	9	%
	$	1,244,790	$	11,795	$	194,493	$	1,427,488	14	%
Year ended December 31, 2000
Life insurance in force	$	3,472,882	$	181,294	$	5,868,273	$	9,159,86	64	%
Premiums:
Individual life	$	65,083	$	485	$	13,628	$	78,226	17	%
Individual health		23,394		623		4,358		27,129	16	%
Group life and health		113,389		19,115		103,648		197,922	52	%
Annuity		1,462,914		—		241,030		1,703,944	14	%
	$	1,664,780	$	20,223	$	362,664	$	2,007,221	18.1	%

45

OTHER INFORMATION

ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS

(A) FINANCIAL STATEMENTS

All required financial statements are included in Part B of this Registration Statement. ¹⁰

(B) EXHIBITS

(1)	Resolution of the Board of Directors of National Home Life Assurance Company (“National Home”) authorizing establishment of the Separate Account.4
(2)	Not Applicable.
(3)	Not Applicable.
(4)	(a) Form of variable annuity contract5
	(b) Endorsements9
	(c) Form of variable annuity contract, Form No. VVAP U 11019
	(d) Optional Riders9
(5)	Form of application5
(6)	(a) Articles of Incorporation of National Home1
	(b) Amendment to Articles of Incorporation of National Home2
	(c) Amended and Restated Articles of Incorporation of National Home3
(7)	Not applicable.
(8)	(a) Participation Agreement for the Vanguard Variable Insurance Fund6
	(b) First Amendment to Participation, Market Consulting and Administration Agreement7
	(c) Administration Service Agent8
(9)	(a) Opinion and Consent of Counsel10
	(b) Consent of Counsel10
(10)	Consent of Independent Auditors10
(11)	No financial statements are omitted from item 23.
(12)	Not applicable.
(13)	Performance computation7
(14)	Not applicable.

¹ Incorporated by reference from the initial Registration Statement of the Providian Life & Health Insurance Company Separate Account II, File No. 33-7033.

² Incorporated by reference from Post-Effective Amendment No. 3 to the Registration Statement of Providian Life & Health Insurance Company Separate Account II, File No. 33-7033.

³ Incorporated by reference from Post-Effective Amendment No. 5 to the Registration Statement of the Providian Life & Health Insurance Company Separate Account II, File No. 33-7033.

⁴ Incorporated by reference from the initial Registration Statement of the Providian Life & Health Insurance Company Separate Account IV, File No. 33-36073.

⁵ Incorporated by reference from Pre-Effective Amendment No. 1 to the Registration Statement of the Providian Life & Health Insurance Company Separate Account IV, File No. 33-36073.

⁶ Incorporated by reference from Post-Effective Amendment No. 1 to the Registration Statement of Providian Life & Health Insurance Company Separate Account IV, File No. 33-36073.

⁷ Incorporated by reference from Post-Effective Amendment No. 6 to Registration Statement of Providian Life & Health Insurance Company Separate Account IV, File No. 33-36073.

⁸ Incorporated by reference from Post-Effective Amendment No. 11 to Registration Statement of Providian Life & Health Insurance Company Separate Account IV, File No. 33-36073, filed April 30, 1998.

⁹ Incorporated by reference from Post-Effective Amendment No. 16 to the Registration Statement of Peoples Benefit Life Insurance Company filed June 26, 2002, File No. 33-36073.

¹⁰ Filed herewith.

C-1

Item 25. Directors and Officers of Depositor

Positions and Offices with Depositor	Name and Principal Business
Address*
Treasurer, (Chief Accounting Officer)	Martha A. McConnell
Vice President, Director	Brian A. Smith
Vice President, Director	Brenda K. Clancy
Assistant Vice President, Director	Kathleen M. Modzelewski
Executive Vice President, Director	Larry N. Norman
Secretary, Director	Craig D. Vermie
President, Director	Marilyn Carp
Vice President, Director	Diane Meiners

*The business address of each director and officer of Peoples Benefit Life Insurance Company is 20 Moores Road, Frazer, Pennsylvania 19355; 400 West Market Street, Louisville, Kentucky 40202 or 4333 Edgewood Road NE, Cedar Rapids, Iowa 52499.

C-2

Item 26.     Persons Controlled by or under Common Control With the Depositor or Registrant.

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
AEGON N.V.	Netherlands	32.47% of Vereniging AEGON Netherlands Membership Association	Holding company
AEGON Derivatives B.V.	Netherlands	100% AEGON N.V.	Holding company
AEGON Nederland N.V.	Netherlands	100% AEGON N.V.	Holding company
AEGON Nevak Holding B.V.	Netherlands	100% AEGON N.V.	Holding company
AEGON International N.V.	Netherlands	100% AEGON N.V.	Holding company
The AEGON Trust Voting Trust Trustees: Donald J. Shepard Dennis Hersch Joseph B.M. Streppel	Delaware		Voting Trust
AEGON U.S. Holding Corporation	Delaware	225 shares of Series A Preferred Stock owned by Scottish Equitable Finance Limited	Holding company
Short Hills Management Company	New Jersey	100% AEGON U.S. Holding Corporation	Holding company
COPRA Reinsurance Company	New York	100% AEGON U.S. Holding Corporation	Holding company
AEGON Management Company	Indiana	100% AEGON U.S. Holding Corporation	Holding company
AEGON U.S. Corporation	Iowa	AEGON U.S. Holding Corporation owns 10,000 shares (75.54%); AEGON USA, Inc. owns 3,238 shares (24.46%)	Holding Company
AEGON USA, Inc.	Iowa	10 shares Series A Preferred Stock owned by AEGON U.S Holding Corporation; 150,000 shares of Class B Non-Voting Stock owned by AEGON U.S. Corporation; 100 shares Voting Common Stock owned by AEGON U.S Corporation	Holding company
RCC North America LLC	Delaware	100% AEGON USA, Inc.	Real estate
ALH Properties Eight LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Eleven LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Fifteen LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Five LLC	Delaware	100% RCC North America LLC	Real estate

C-3

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
ALH Properties Four LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Fourteen LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Nine LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Seven LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Seventeen LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Sixteen LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Ten LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Thirteen LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Three LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Twelve LLC	Delaware	100% RCC North America LLC	Real estate
ALH Properties Two LLC	Delaware	100% RCC North America LLC	Real estate
BF Equity LLC	New York	100% RCC North America LLC	Real estate
Eighty-Six Yorkville, Inc.	Delaware	100% RCC North America LLC	Real estate
FGH Eastern Region LLC	Delaware	100% RCC North America LLC	Real estate
FGH Property Services LLC	Delaware	100% RCC North America LLC	Real estate
FGH Realty Credit LLC	Delaware	100% RCC North America LLC	Real estate
FGH USA LLC	Delaware	100% RCC North America LLC	Real estate
FGP 106 Fulton, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP 109th Street LLC	Delaware	100% RCC North America LLC	Real estate
FGP 90 West Street LLC	Delaware	100% RCC North America LLC	Real estate
FGP Bala, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Broadway LLC	Delaware	100% RCC North America LLC	Real estate
FGP Burkewood, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Bush Terminal, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Centereach, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Colonial Plaza, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Coram, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Emerson, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Franklin LLC.	Delaware	100% RCC North America LLC	Real estate

C-4

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
FGP Herald Center, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Heritage Square, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Islandia, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Keene LLC	Delaware	100% RCC North America LLC	Real estate
FGP Lincoln, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Main Street, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Merrick, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Northern Blvd., Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Remsen, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Rockbeach, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Schenectady, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP Stamford, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP West 14th Street, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP West 32nd Street, Inc.	Delaware	100% RCC North America LLC	Real estate
FGP West Street Two LLC	Delaware	100% RCC North America LLC	Real estate
FGP West Street LLC	Delaware	100% RCC North America LLC	Real estate
Fifth FGP LLC	Delaware	100% RCC North America LLC	Real estate
First FGP LLC	Delaware	100% RCC North America LLC	Real estate
Fourth FGP LLC	Delaware	100% RCC North America LLC	Real estate
Second FGP LLC	Delaware	100% RCC North America LLC	Real estate
Seventh FGP LLC	Delaware	100% RCC North America LLC	Real estate
The RCC Group, Inc.	Delaware	100% RCC North America, LLC	Real estate
Third FGP LLC	Delaware	100% RCC North America, LLC	Real estate
Transamerica Holding Company LLC	Delaware	100 shares Common Stock owned by AEGON USA, Inc; 100 shares Series A Preferred Stock owned by AEGON USA, Inc.	Holding company
AEGON Funding Corp.	Delaware	100% Transamerica Holding Corporation LLC	Issue debt securities-net proceeds used to make loans to affiliates
AEGON USA Investment Management, LLC	Iowa	100% Transamerica Holding Corporation LLC.	Investment advisor

C-5

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
AUSA Holding Company	Maryland	100% AEGON USA, Inc.	Holding company
AEGON Asset Management Services, Inc.	Delaware	100% AUSA Holding Co.	Registered investment advisor
World Group Securities, Inc.	Delaware	100% AEGON Asset Management Services, Inc.	Broker-dealer
World Financial Group, Inc.	Delaware	100% AEGON Asset Management Services, Inc.	Marketing
AEGON USA Investment Management, Inc.	Iowa	100% AUSA Holding Company	Investment advisor
AEGON USA Realty Advisors, Inc.	Iowa	100% AUSA Holding Company	Administrative and investment services
RCC Properties Limited Partnership	Iowa	AEGON USA Realty Advisors, Inc. is General Partner and 5% owner.	Limited Partnership
QSC Holding, Inc.	Delaware	100% AEGON USA Realty Advisors, Inc.	Real estate and financial software production and sales
Realty Information Systems, Inc.	Iowa	100% AEGON USA Realty Advisors, Inc.	Information Systems for real estate investment management
Real Estate Alternatives Portfolio 1 LLC	DE	100% AEGON USA Realty Advisors, Inc.	Real estate alternatives investment
AEGON USA Real Estate Services, Inc.	Delaware	100% AEGON USA Realty Advisors, Inc.	Real estate and mortgage holding company
Creditor Resources, Inc.	Michigan	100% AUSA Holding Co.	Credit insurance
Premier Solutions Group, Inc.	Maryland	100% Creditor Resources, Inc.	Credit insurance
CRC Creditor Resources Canadian Dealer Network Inc.	Canada	100% Creditor Resources, Inc.	Insurance agency
Diversified Investment Advisors, Inc.	Delaware	100% AUSA Holding Co.	Registered investment advisor
Diversified Investors Securities Corp.	Delaware	100% Diversified Investment Advisors, Inc.	Broker-Dealer
George Beram & Company, Inc.	Massachusetts	100% Diversified Investment Advisors, Inc.	Employee benefit and actuarial consulting
AEGON/Transamerica Investors Services, Inc.	Florida	100% AUSA Holding Company	Shareholder services
InterSecurities, Inc.	Delaware	100% AUSA Holding Co.	Broker-Dealer

C-6

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Investors Warranty of America, Inc.	Iowa	100% AUSA Holding Co.	Provider of automobile extended maintenance contracts
Massachusetts Fidelity Trust Co.	Iowa	100% AUSA Holding Co.	Trust company
Money Services, Inc.	Delaware	100% AUSA Holding Co.	Provides financial counseling for employees and agents of affiliated companies
ADB Corporation, L.L.C.	Delaware	100% Money Services, Inc.	Special purpose limited Liability company
AEGON USA Travel and Conference Services LLC	Iowa	100% Money Services, Inc.	Travel and conference services
ORBA Insurance Services, Inc.	California	40.15% Money Services, Inc.	Insurance agency
Great Companies, L.L.C.	Iowa	30% Money Services, Inc.	Markets & sells mutual funds & individually managed accounts
Monumental General Insurance Group, Inc.	Maryland	100% AUSA Holding Co.	Holding company
Monumental General Administrators, Inc.	Maryland	100% Monumental General Insurance Group, Inc.	Provides management srvcs. to unaffiliated third party administrator
Monumental General Mass Marketing, Inc.	Maryland	100% Monumental General Insurance Group, Inc.	Marketing arm for sale of mass marketed insurance coverage
Trip Mate Insurance Agency, Inc.	Kansas	100% Monumental General Insurance Group, Inc.	Sale/admin. of travel insurance
National Association Management and Consultant Services, Inc.	Maryland	100% Monumental General Administrators, Inc.	Provides actuarial consulting services
Roundit, Inc.	Maryland	50% AUSA Holding Co.	Financial services
Transamerica Capital, Inc.	California	100% AUSA Holding Co.	Broker/Dealer
Universal Benefits Corporation	Iowa	100% AUSA Holding Co.	Third party administrator
Zahorik Company, Inc.	California	100% AUSA Holding Co.	Broker-Dealer
ZCI, Inc.	Alabama	100% Zahorik Company, Inc.	Insurance agency
Zahorik Texas, Inc.	Texas	100% Zahorik Company, Inc.	Insurance agency
Commonwealth General Corporation (“CGC”)	Delaware	100% AEGON U.S. Corporation	Holding company
Academy Insurance Group, Inc.	Delaware	100% Commonwealth General Corporation	Holding company

C-7

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Academy Life Insurance Co.	Missouri	100% Academy Insurance Group, Inc.	Insurance company
Pension Life Insurance Company of America	New Jersey	100% Academy Life Insurance Company	Insurance company
Ammest Massachusetts Insurance Agency, Inc.	Massachusetts	100% Academy Insurance Group, Inc.	Special-purpose subsidiary
Ammest Realty, Inc.	Pennsylvania	100% Academy Insurance Group, Inc.	Special-purpose subsidiary
Ampac, Inc.	Texas	100% Academy Insurance Group, Inc.	Managing general agent
Ampac Insurance Agency, Inc. (EIN 23-2364438)	Pennsylvania	100% Academy Insurance Group, Inc.	Special-purpose subsidiary
FED Financial, Inc.	Delaware	100% Academy Insurance Group, Inc.	Special-purpose subsidiary
Force Financial Group, Inc.	Delaware	100% Academy Insurance Group, Inc.	Special-purpose subsidiary
Force Financial Services, Inc.	Massachusetts	100% Force Financial Group, Inc.	Special-purpose subsidiary
Military Associates, Inc.	Pennsylvania	100% Academy Insurance Group, Inc.	Special-purpose subsidiary
NCOAA Management Company	Texas	100% Academy Insurance Group, Inc.	Special-purpose subsidiary
Unicom Administrative Services, Inc.	Pennsylvania	100% Academy Insurance Group, Inc.	Provider of admin. services
Unicom Administrative Services, GmbH	Germany	100% Unicom Administrative Services, Inc.	Provider of admin. services
AEGON Institutional Markets, Inc.	Delaware	100% Commonwealth General Corporation	Provider of investment, marketing and admin. services to ins. cos.
AEGON Structured Settlements, Inc.	Kentucky	100% Commonwealth General Corporation	Administers structured settlements of plaintiff’s physical injury claims against property and casualty insurance companies
AFSG Securities Corporation	Pennsylvania	100% Commonwealth General Corporation	Broker-Dealer
Ampac Insurance Agency, Inc. (EIN 23-1720755)	Pennsylvania	100% Commonwealth General Corporation	Provider of management support services
Compass Rose Development Corporation	Pennsylvania	100% Ampac Insurance Agency, Inc.	Special-purpose subsidiary

C-8

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Financial Planning Services, Inc.	Dist. Columbia	100% Ampac Insurance Agency, Inc.	Special-purpose subsidiary
Frazer Association Consultants, Inc.	Illinois	100% Ampac Insurance Agency, Inc.	TPA license-holder
National Home Life Corporation	Pennsylvania	100% Ampac Insurance Agency, Inc.	Special-purpose subsidiary
Valley Forge Associates, Inc.	Pennsylvania	100% Ampac Insurance Agency, Inc.	Furniture & equipment lessor
Veterans Benefit Plans, Inc.	Pennsylvania	100% Ampac Insurance Agency, Inc.	Administrator of group insurance programs
Veterans Insurance Services, Inc.	Delaware	100% Ampac Insurance Agency, Inc.	Special-purpose subsidiary
Benefit Plans, Inc.	Delaware	100% Commonwealth General Corporation	TPA for Peoples Security Life Insurance Company
AEGON Alliances, Inc.	Virginia	100% Benefit Plans, Inc.	General agent
Capital 200 Block Corporation	Delaware	100% Commonwealth General Corporation	Real estate holdings
Capital General Development Corporation	Delaware	100% Commonwealth General Development	Holding company
Monumental Life Insurance Company	Maryland	73.23% Capital General Development Company 26.77% First AUSA Life Insurance Company	Insurance company
AEGON Direct Marketing Services, Inc.	Maryland	100% Monumental Life Insurance Company	Marketing company
Transamerica Affinity Services, Inc.	Maryland	100% AEGON Direct Marketing Services, Inc.	Marketing company
Apple Partners of Iowa LLC	Iowa	58.13% Monumental Life Insurance Company; 41.87% Peoples Benefit Life Insurance Company	Hold title on Trustee’s Deeds on secured property
Ammest Realty Corporation	Texas	100% Monumental Life Insurance Company	Special-purpose subsidiary
Exchange Management Services, Inc.	Missouri	100% Monumental Life Insurance Company	Management company
Peoples Benefit Life Insurance Company	Iowa	3.7% CGC 20% Capital Liberty, L.P. 76.3% Monumental Life Insurance Company	Insurance company
Coverna Direct Insurance Agency, Inc.	Maryland	100% Peoples Benefit Life Insurance Company	Insurance agency

C-9

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
JMH Operating Company, Inc.	Mississippi	100% People’s Benefit Life Insurance Company	Real estate holdings
Capital Liberty, L.P.	Delaware	99.0% Monumental Life Insurance Company (Limited Partner); 1.0% Commonwealth General Corporation (General Partner)	Holding company
Consumer Membership Services, Inc.	Delaware	100% Commonwealth General Corporation	Credit card protection
Global Premier Reinsurance   Company, Ltd.	British Virgin	100% Commonwealth General Corporation	Reinsurance company
Health Benefit Services, Inc.	Delaware	100% Commonwealth General Corporation	Health discount plan
Insurance Consultants	Nebraska	100% Commonwealth General Corporation	Brokerage
Icon Partners, Limited	UK	100% Insurance Consultants, Inc.	Insurance intermediary
Quest Membership Services, Inc.	Delaware	100% Commonwealth General Corporation	Travel discount plan
Stonebridge Group, Inc.	Delaware	100% Commonwealth General Corporation	General purpose corporation
Stonebridge Life Insurance Company	Vermont	100% Commonwealth General Corporation	Insurance company
Stonebridge Casualty Insurance Company	Ohio	100% AEGON U.S. Corporation	Insurance company
AEGON DMS Holding B.V.	Netherlands	100% AEGON International N.V.	Holding company
Canadian Premier Holdings Ltd.	Canada	100% AEGON DMS Holding B.V.	Holding company
Canadian Premier Life Insurance Company	Canada	100% Canadian Premier Holdings Ltd.	Insurance company
Legacy General Insurance Company	Canada	100% Canadian Premier Holdings Ltd.	Insurance company
Cornerstone International Holdings Ltd.	UK	100% AEGON DMS Holding B.V.	Holding company
Cornerstone International Marketing Ltd.	UK	100% Cornerstone International Holdings Ltd.	Marketing company
Stonebridge International Insurance Ltd.	UK	100% Cornerstone International Holdings Ltd.	General insurance company
Transamerica Direct Marketing Korea Ltd.	Korea	99% AEGON DMS Holding B.V.: 1% AEGON International N.V.	Marketing company

C-10

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Transamerica Direct Marketing Japan K.K.	Japan	100% AEGON DMS Holding B.V.	Marketing company
Transamerica Direct Marketing Asia Pacific Pty Ltd.	Australia	100% AEGON DMS Holding B.V.	Holding company
Transamerica Insurance Marketing   Asia Pacific Pty Ltd.	Australia	100% Transamerica Direct Marketing Asia Pacific Pty Ltd.	Insurance intermediary
Transamerica Direct Marketing   Australia Pty Ltd.	Australia	100% Transamerica Direct Marketing Asia Pacific Pty Ltd.	Marketing/operations company
Transamerica Holding B.V.	Netherlands	100% AEGON International N.V.	Holding company
Transamerica Corporation	Delaware	100% Transamerica Holding B.V.	Major interest in insurance and finance
AEGON Funding Corp. II	Delaware	100% Transamerica Corp.	Commercial paper insurance
Transamerica Pacific Insurance Company, Ltd.	Hawaii	100% Transamerica Corp.	Life insurance
ARC Reinsurance Corporation	Hawaii	100% Transamerica Corp,	Property & Casualty Insurance
Inter-America Corporation	California	100% Transamerica Corp.	Insurance Broker
Pyramid Insurance Company, Ltd.	Hawaii	100% Transamerica Corp.	Property & Casualty Insurance
Transamerica Business Technologies Corporation.	Delaware	100% Transamerica Corp.	Telecommunications and data processing
Transamerica CBO I, Inc.	Delaware	100% Transamerica Corp.	Owns and manages a pool of high-yield bonds
Transamerica Corporation (Oregon)	Oregon	100% Transamerica Corp.	Name holding only – Inactive
Transamerica Finance Corporation (“TFC”)	Delaware	100% Transamerica Corp.	Commercial & Consumer Lending & equipment leasing
TA Leasing Holding Co., Inc.	Delaware	100% TFC	Holding company
Trans Ocean Ltd.	Delaware	100% TA Leasing Holding Co. Inc.	Holding company
Trans Ocean Container Corp. (“TOCC”)	Delaware	100% Trans Ocean Ltd.	Intermodal leasing
SpaceWise Inc.	Delaware	100% Transamerica Ocean Container Corp.	Intermodal leasing
Trans Ocean Leasing Deutschland GmbH	Germany	100% Transamerica Ocean Container Corp.	Intermodal leasing

C-11

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Trans Ocean Management Corporation	California	100% Transamerica Ocean Container Corp.	Inactive
Trans Ocean Management S.A.	Switzerland	100% Transamerica Ocean Container Corp.	Intermodal leasing
Trans Ocean Regional Corporate Holdings	California	100% Transamerica Ocean Container Corp.	Holding company
Transamerica Leasing Inc.	Delaware	100% Transamerica Leasing Holding Co.	Leases & Services intermodal equipment
Transamerica Leasing DO Brasil LTDA.	Brazil	100% Transamerica Leasing, Inc.	Container Leasing
Transamerica Leasing Holdings Inc. (“TLHI”)	Delaware	100% Transamerica Leasing Inc.	Holding company
Greybox Logistics Services Inc.	Delaware	100% TLHI	Intermodal leasing
Greybox L.L.C. (“G”)	Delaware	100% TLHI	Intermodal freight container interchange facilitation service
Transamerica Trailer Leasing S.N.C.	France	100% Greybox L.L.C.	Leasing
Greybox Services Limited	U.K.	100% TLHI	Intermodal leasing
Intermodal Equipment, Inc.	Delaware	100% TLHI	Intermodal leasing
Transamerica Leasing N.V.	Belgium	100% Intermodal Equipment Inc.	Leasing
Transamerica Leasing SRL	Italy	100% Intermodal Equipment Inc.	Leasing
Transamerica Distribution Services, Inc.	Delaware	100% TLHI	Dormant
Transamerica Leasing Coordination Center	Belgium	100% TLHI	Leasing
Transamerica Leasing GmbH	Germany	100% TLHI	Leasing
Transamerica Trailer Leasing Sp. Z.O.O.	Poland	100% TLHI	Leasing
Transamerica Leasing Limited	U.K.	100% TLHI	Leasing
ICS Terminals (UK) Limited	U.K.	100% Transamerica Leasing Limited	Leasing
Transamerica Leasing Pty. Ltd.	Australia	100% TLHI	Leasing
Transamerica Leasing (HK) Ltd.	H.K.	100% TLHI	Leasing
Transamerica Leasing (Proprietary) Limited	South Africa	100% TLHI	In Liquidation – Intermodal leasing

C-12

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Transamerica Trailer Holdings I Inc.	Delaware	100% TLHI	Holding company
Transamerica Funding LP	UK	98% Transamerica Trailer Holdings I, Inc.; 1% Transamerica Distribution Services, Inc.; 1% ICS Terminals (UK) Limited	Intermodal leasing
Transamerica Trailer Holdings II Inc.	Delaware	100% TLHI	Holding company
Transamerica Trailer Holdings III Inc.	Delaware	100% TLHI	Holding company
Transamerica Trailer Leasing AB	Sweden	100% TLHI	Leasing
Transamerica Trailer Leasing AG	Switzerland	100% TLHI	Leasing
Transamerica Trailer Leasing A/S	Denmark	100% TLHI	Leasing
Transamerica Trailer Leasing GmbH	Germany	100% TLHI	Leasing
Transamerica Trailer Leasing (Belgium) N.V.	Belgium	100% TLHI	Leasing
Transamerica Trailer Leasing (Netherlands) B.V.	Netherlands	100% TLHI	Leasing
Transamerica Alquiler de Trailer Spain S.L.	Spain	100% TLHI	Leasing
Transamerica Transport Inc.	New Jersey	100% TLHI	Dormant
TREIC Enterprises, Inc.	Delaware	100% TFC	Investments
TFC Properties, Inc.	Delaware	100% TFC	Holding company
Transamerica Retirement Communities S.F., Inc.	Delaware	100% TFC Properties, Inc.	Owned property
Transamerica Retirement Communities S.J., Inc.	Delaware	100% TFC Properties, Inc.	Owned property
Transamerica Commercial Finance Corporation, I	Delaware	100% TFC.	Holding company
Transamerica Commercial Finance Corporation, II (“TCFCII”)	Delaware	100% Transamerica Commercial Finance Corporation, I	Holding company
BWAC Credit Corporation	Delaware	100% TCFCII	Inactive
BWAC International Corporation	Delaware	100% TCFCII	Retail Appliance and furniture stores
BWAC Twelve, Inc.	Delaware	100% TCFCII	Holding company
TIFCO Lending Corporation	Illinois	100% BWAC Twelve, Inc.	General financing

C-13

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Transamerica Insurance Finance Corporation	Maryland	100% BWAC Twelve, Inc.	Insurance premium financing
Transamerica Insurance Finance Corporation, California	California	100% Transamerica Insurance Finance Corporation	Insurance premium
TBCC Funding Trust I	Delaware	100% TCFCII	Delaware Business Trust
TBCC Funding I LLC	Delaware	100% TBCC Funding Trust I	Delaware Business Trust
TBCC Funding Trust II	Delaware	100% TCFCII	Delaware Business Trust
TBCC Funding II LLC	Delaware	100% TBCC Funding Trust II	Delaware Business Trust
Private Label Funding LLC	Delaware	100% TBCC Funding Trust II	Delaware Business Trust
M Credit, Inc.	Delaware	100% TCFCII	Commercial lending
Bay Capital Corporation	Delaware	100% M Credit, Inc.	Special purpose corporation
Coast Funding Corporation	Delaware	100% M Credit, Inc.	Special purpose corporation
Transamerica Small Business Capital, Inc.	Delaware	100% M Credit, Inc.	Holding company
Gulf Capital Corporation	Delaware	100% M Credit, Inc.	Special purpose corporation
Direct Capital Equity Investments, Inc.	Delaware	100% M Credit, Inc.	Small business loans
Direct Capital Partners LLC	Delaware	33.33% M Credit, Inc.	Investment banking
Direct Capital Partners LP	Delaware	25% Direct Capital Partners LLC (General Partner); 75% Direct Capital Equity Investments, Inc. (Limited Partnership)	Investment banking
Inland Water Transportation LLC	Delaware	100% Capital Partners LP	Finance barges
TBC IV, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
TBC Tax I, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
TBC Tax II, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
TBC Tax III, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
TBC Tax IV, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation

C-14

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
TBC Tax V, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
TBC Tax VI, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
TBC Tax VII, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
TBC Tax VIII, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
TBC Tax IX, Inc.	Delaware	100% M Credit, Inc.	Special purpose corporation
T Holdings, Inc.	Delaware	100% TCFCII	Holding company
TBC I, Inc.	Delaware	100% T Holdings, Inc.	Special purpose corporation
Facta LLP	Illinois	50% TBC I, Inc.	Commercial finance
TBC III, Inc.	Delaware	100% TBCC	Special purpose corporation
Transcap Trade Finance	Illinois	50% TBC III, Inc.	Commercial finance
Transamerica Mezzanine   Financing, Inc.	Delaware	100% T Holdings, Inc.	Holding company
Transamerica Commercial Real Estate Finance LLC	Illinois	100% T Holdings, Inc.	Bridge/mezzanine finance
Transamerica Business Capital Corporation	Delaware	100% TCFCII	Commercial lending
Auto Funding Services LLC	Delaware	100% Transamerica Business Capital Corporation	Commercial lending
Transamerica Distribution Finance Corporation (“TDFC”)	Delaware	100% TCFCII	Holding company
Transamerica Accounts Holding Corporation	Delaware	100% Transamerica Distribution Finance Corporation	Holding company
ARS Funding Corporation	Delaware	100% Transamerica Accounts Holding Corporation	Dormant
Transamerica Inventory Finance Corporation (“TIFC”)	Delaware	100% Transamerica Distribution Finance Corporation	Holding company
BWAC Seventeen, Inc.	Delaware	100% TIFC	Holding company
Transamerica Commercial Finance Canada, Limited	Ontario	100% BWAC Seventeen, Inc.	Dormant

C-15

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Transamerica Commercial Finance Corporation, Canada	Canada	100% BWAC Seventeen, Inc.	Commercial finance
Transamerica Acquisition Corporation, Canada	Canada	100% Transamerica Commercial Finance Corporation, Canada	Holding company
Cantrex Group Inc.	Quebec	100% Transamerica Acquisition Corporation Canada	Buying group and retail merchant services
2953-9087 Quebec, Inc.	Quebec	100% Cantrex Group Inc.	Inactive
Corbeil Electrique, Inc.	Quebec	100% Cantrex Group, Inc.	Inactive
Prestex Marketing, Inc.	Canada	100% Cantrex Group, Inc.	Inactive
BWAC Twenty-One, Inc.	Delaware	100% TIFC	Holding company
ODBH Ltd./Harley Davidson Acceptance	U.K.	100% BWAC Twenty-One, Inc.	Holding company
Transamerica Commercial Holdings Limited	U.K.	100% BWAC Twenty-One Inc.	Holding company
Transamerica Trailer Leasing Limited	N.Y.	100% Transamerica Commercial Holding Limited	Leasing
Transamerica Commercial Finance Limited	U.K.	100% Transamerica Commercial Holding Limited	Commercial lending
TDF Credit Insurance Services Limited	U.K.	100% Transamerica Commercial Finance Limited	Credit insurance brokerage
Whirlpool Financial Corporation Polska SpoZOO	Poland	100% Transamerica Commercial Finance Limited	Inactive—commercial finance
Transamerica Commercial Finance France S.A.	France	100% TIFC	Factoring company
Transamerica GmbH, Inc.	Delaware	100% TIFC	Holding company
Transamerica Fincieringsmaatschappij B.V.	Netherlands	100% Transamerica GmbH, Inc.	Commercial lending in Europe
Transamerica GmbH	Germany	90% Transamerica GmbH, Inc.	Commercial lending in Germany
Transamerica Commercial Finance Corporation	Delaware	100% TIFC	Finance company
TCF Asset Management Corporation	Colorado	100% Transamerica Commercial Finance Corporation	A depository for foreclosed real and personal property
Transamerica Catalyst Financial Services LLC	Delaware	100% Transamerica Commercial Finance Corporation	Owns & operates electronic/internet enabled system

C-16

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Transamerica Distribution Finance Insurance Services, Inc.	Illinois	100% Transamerica Commercial Finance Corporation	Finance company
Transamerica Distribution Finance Factorje S.A. de C.V.	Mexico	99% Transamerica Commercial Finance Corporation	Finance company
Inventory Funding Trust	Delaware	100% Transamerica Commercial Finance Corporation	Delaware Business Trust
Inventory Funding Company, LLC	Delaware	100% Inventory Funding Trust	Holding company
Transamerica Joint Ventures, Inc.	Delaware	100% Transamerica Commercial Finance Corporation	Holding company
Transamerica Venture LLC	Delaware	100% Transamerica Joint Ventures, Inc.	Ownership and operation of a commercial finance business for Brunswick Corp. customers
Amana Finance	Illinois	50% Transamerica Joint Ventures, Inc.	Commercial finance
American Standard Financial Services	Illinois	50% Transamerica Joint Ventures, Inc.	Commercial finance
Penske Financial Services LLC	Delaware	50% Transamerica Joint Ventures, Inc.	Commercial finance
Polaris Acceptance	Illinois	50% Transamerica Joint Ventures, Inc.	Commercial finance
Transamerica Distribution Finance Corporation—Overseas, Inc.	Delaware	100% Transamerica Commercial Finance Corporation	Commercial Finance
TDF-Mauritius Limited	Mauritius	100% Transamerica Distribution Finance Corporation—Overseas, Inc.	Mauritius holding company
Transamerica Apple Distribution Finance Public Limited	India	69.94% TDF-Mauritius Limited	Finance company
Transamerica Distribution Finance Corporation de Mexico S. de R.L. de C.V.	Mexico	100% Transamerica Commercial Finance Corporation	Holding company in Mexican subsidiaries
TDF de Mexico S. de R.L. de C.V.	Mexico	99% Transamerica Distribution Finance Corporation de Mexico S. de R.L. de C.V.	Service company for Whirlpool receivables
Transamerica Corporate Services   De Mexico S. de R.L. de CV	Mexico	99% Transamerica Distribution Finance Corporation de Mexico S. de R.L. de C.V.	Holds employees
Distribution Support Services LLC	Delaware	100% Transamerica Commercial Finance Corporation	Holding company

C-17

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Transamerica Equipment Financial Services Corporation (“TEFSC”)	Delaware	100% TCFCII	Investment in Various equipment leases and loans
First AUSA Life Insurance Company	Maryland	385,000 shares Common Stock owned by Transamerica Holding Company LLC; 115,000 Series A Preferred Stock owned by Transamerica Holding Company LLC	Insurance holding company
AUSA Life Insurance   Company, Inc.	New York	82.33% First AUSA Life Insurance Company 17.67% Veterans Life Insurance Company	Insurance
AUSACAN LLP	Canada	General Partner—AUSA Holding Company (1%); Limited Partner—First AUSA Life Insurance Company (99%)	Inter-company lending and general business
Bankers Financial Life Ins. Co.	Arizona	100% Voting Common Stock Class B Common stock is allocated 75% of total cumulative vote. Class A Common stock is allocated 25% of total cumulative vote.	Insurance
Iowa Fidelity Life Insurance Co.	Arizona	Ordinary common stock is allowed 60% of total cumulative vote. Participating common stock is allowed 40% of total cumulative vote	Insurance
Life Investors Insurance   Company of America	Iowa	504,032 shares Common Stock owned by First AUSA Life Insurance Company; 504,033 shares Series A Preferred Stock owned by First AUSA Life Insurance Company.	Insurance
Life Investors Alliance, LLC	Delaware	100% LIICA	Purchase, own, and hold the equity interest of other entities
Monumental General Casualty Co.	Maryland	100% First AUSA Life Ins. Co.	Insurance
Monumental General Life   Insurance Company of   Puerto Rico	Puerto Rico	First AUSA Life Insurance Company owns 51%; Baldrich & Associates of Puerto Rico owns 49%.	Insurance
Southwest Equity Life Ins. Co.	Arizona	100% of Common Voting Stock First AUSA Life Ins. Co.	Insurance
The Whitestone Corporation	Maryland	100% First AUSA Life Ins. Co.	Insurance agency
United Financial Services, Inc.	Maryland	100% First AUSA Life Ins. Co.	General agency

C-18

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Western Reserve Life Assurance Co. of Ohio	Ohio	100% First AUSA Life Ins. Co.	Insurance
AEGON Equity Group, Inc.	Florida	100% Western Reserve Life Assurance Co. of Ohio	Insurance agency
AEGON/Transamerica Fund Advisers, Inc.	Florida	Western Reserve Life Assurance Company of Ohio owns 77%; AUSA Holding Company owns 23%	Fund advisor
Transamerica Income Shares, Inc.	Maryland	100% AEGON/Transamerica Fund Advisers, Inc.	Mutual fund
IDEX Mutual Funds	Massachusetts	100% AEGON/Transamerica Fund Advisers, Inc.	Mutual fund
AEGON/Transamerica Fund Services, Inc.	Florida	100% Western Reserve Life Assurance Co. of Ohio	Mutual fund
AEGON/Transamerica Series Fund, Inc.	Maryland	Various	Investment advisor, transfer agent, administrator, sponsor, principal underwriter/distributor or general partner.
World Financial Group Insurance Agency, Inc.	California	100% Western Reserve Life Assurance Co. of Ohio	Insurance agency
WFG Insurance Agency of Puerto Rico, Inc.	Puerto Rico	100% World Financial Group Insurance Agency, Inc.	Insurance agency
World Financial Group Insurance Agency of Alabama, Inc.	Alabama	100% World Financial Group Insurance Agency, Inc.	Insurance agency
World Financial Group Insurance Agency of Hawaii, Inc.	Hawaii	100% World Financial Group Insurance Agency, Inc.	Insurance agency
World Financial Group Insurance Agency of Massachusetts, Inc.	Massachusetts	100% World Financial Group Insurance Agency, Inc.	Insurance agency
World Financial Group Insurance Agency of New Mexico, Inc.	New Mexico	100% World Financial Group Insurance Agency, Inc.	Insurance agency
World Financial Group Insurance Agency of Ohio, Inc.	Ohio	100% World Financial Group Insurance Agency, Inc.	Insurance agency
World Financial Group Insurance Agency of Wyoming, Inc.	Wyoming	100% World Financial Group Insurance Agency, Inc.	Insurance agency
WFG Property & Casualty Insurance Agency, Inc.	Georgia	100% World Financial Group Insurance Agency, Inc.	Insurance agency
WFG Property & Casualty Insurance Agency of Alabama, Inc.	Alabama	100% WFG Property & Casualty Insurance Agency, Inc.	Insurance agency

C-19

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
WFG Property & Casualty Insurance Agency of California, Inc.	California	100% WFG Property & Casualty Insurance Agency, Inc.	Insurance agency
WFG Property & Casualty Insurance Agency of Mississippi, Inc.	Mississippi	100% WFG Property & Casualty Insurance Agency, Inc.	Insurance agency
WFG Property & Casualty Insurance Agency of Nevada, Inc.	Nevada	100% WFG Property & Casualty Insurance Agency, Inc.	Insurance agency
WFG Property & Casualty Insurance Agency of Wyoming, Inc.	Wyoming	100% WFG Property & Casualty Insurance Agency, Inc.	Insurance agency
WFG Insurance Agency of Texas, Inc.	Texas	Record Shareholder—Jack Linder	Insurance agency
WRL Insurance Agency, Inc.	California	100% Western Reserve Life Assurance Co. of Ohio	Insurance agency
WRL Insurance Agency of Massachusetts, Inc.	Massachusetts	100% WRL Insurance Agency, Inc.	Insurance agency
WRL Insurance Agency of Nevada, Inc.	Nevada	100% WRL Insurance Agency, Inc.	Insurance agency
WRL Insurance Agency of Wyoming, Inc.	Wyoming	100% WRL Insurance Agency, Inc.	Insurance agency
WRL Insurance Agency of Texas, Inc.	Texas	Record Shareholder – Daniel L. DeMarco	Insurance agency
Transamerica Life Insurance Company	Iowa	223,500 shares Common Stock owned by Transamerica Holding Company LLC; 42,500 shares Series A Preferred Stock owned by Transamerica Holding Company LLC.	Insurance
AEGON Financial Services   Group, Inc.	Minnesota	100% Transamerica Life Insurance Co.	Marketing
AEGON Assignment Corporation   of Kentucky	Kentucky	100% AEGON Financial Services Group, Inc.	Administrator of structured settlements
AEGON Assignment Corporation	Illinois	100% AEGON Financial Services Group, Inc.	Administrator of structured settlements
Transamerica Financial Institutions, Inc.	Minnesota	100% AEGON Financial Services Group, Inc.	Life insurance and underwriting services
Professional Life & Annuity Insurance Company	Arizona	100% Transamerica Life Insurance Co.
Veterans Life Insurance Company	Illinois	100% Transamerica Holding Company LLC	Insurance company

C-20

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Peoples Benefit Services, Inc.	Pennsylvania	100% Veterans Life Insurance Company	Special-purpose subsidiary
Veterans Life Insurance Agency, Inc.	Maryland	100% Veterans Life Insurance Company	Insurance
TA Air V, Corp.	Delaware	100% TEFSC	Special purpose corporation
TA Air IX, Corp.	Delaware	100% TEFSC	Special purpose corporation
TA Air X, Corp.	Delaware	100% TEFSC	Special purpose corporation
TA Air XI, Corp.	Delaware	100% TEFSC	Special purpose corporation
TA Air XV, Corp.	Delaware	100% TEFSC	Special purpose corporation
TA Air XVIII, Corp.	Delaware	100% TEFSC	Special purpose corporation
TA Air XIX, Corp.	Delaware	100% TEFSC	Special purpose corporation
TA Heli I, Inc.	Delaware	100% TEFSC	Special purpose corporation
TA Marine I, Inc.	Delaware	100% TEFSC	Special purpose corporation
TA Marine II, Inc.	Delaware	100% TEFSC	Special purpose corporation
TA Marine IV, Inc.	Delaware	100% TEFSC	Special purpose corporation
TA Marine VI, Inc.	Delaware	100% TEFSC	Special purpose corporation
TA Marine V, Inc.	Delaware	100% TEFSC	Special purpose corporation
TA Marine III, Corp.	Delaware	100% TEFSC	Special purpose corporation
TA Public Finance Air I, Corp.	Delaware	100% TEFSC	Special purpose corporation
Transamerica Vendor Financial Service Corporation	Delaware	100% TDFC	Provides commercial leasing
Transamerica Flood Hazard Certification, Inc.	Delaware	100% TFC	Flood Zone certification service
Transamerica Home Loan	California	100% TFC	Consumer mortgages

C-21

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Transamerica Public Finance, LLC	Delaware	70% TFC	Financial Services
Transamerica Advisors, Inc.	California	100% TSC	Retail sale of investment advisory services
Transamerica Annuity Service Corp.	New Mexico	100% TSC	Performs services required for structured settlements
TBK Insurance Agency   of Ohio, Inc.	Ohio	100% Transamerica Financial Advisors, Inc.	Variable insurance contract sales in state of Ohio
Transamerica Financial Resources Agency of Alabama, Inc.	Alabama	100% Transamerica Financial Advisors, Inc.	Insurance agent & broker
Transamerica Financial Resources Ins. Agency of Massachusetts, Inc.	Massachusetts	100% Transamerica Financial Advisors, Inc.	Insurance agent & broker
Transamerica Financial Resources Ins. Agency of Nevada, Inc.	Nevada	100% Transamerica Fin. Financial Advisors, Inc.	Insurance agent & broker
Transamerica International Insurance Services, Inc. (“TIISI”)	Delaware	100% TSC	Holding & administering foreign operations
AEGON Canada Inc. (“ACI”)	Canada	100% TIHI	Holding company
Transamerica Life Canada	Canada	100% ACI	Life insurance company
Home Loans and Finance Ltd.	U.K.	100% TIISI	Inactive
Transamerica Occidental Life Insurance Company (“TOLIC”)	Iowa	100% TSC	Life insurance
NEF Investment Company	California	100% TOLIC	Real estate development
Transamerica China Investments Holdings Limited	Hong Kong	99% TOLIC	Holding company
Transamerica Life Insurance and Annuity Company (“TALIAC”)	N. Carolina	100% TOLIC	Life insurance
Transamerica Assurance Company	Missouri	100% TALIAC	Life and disability insurance
Gemini Investments, Inc.	Delaware	100% TALIAC	Investment subsidiary
Transamerica Life Insurance Company of New York	New York	100% TOLIC	Insurance sales
USA Administration Services, Inc.	Kansas	100% TOLIC	Third party administrator
Transamerica Products, Inc. (“TPI”)	California	100% TSC	Holding company
Transamerica Products I, Inc.	California	100% TPI	Co-general partner
Transamerica Securities Sales Corp.	Maryland	100% TSC	Life insurance sales

C-22

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
Transamerica Service Company (“TSC”)	Delaware	100% TIHI	Passive loss tax service
Transamerica International RE (Bermuda) Ltd.	Bermuda	100% Transamerica Corp.	Reinsurance
Transamerica Intellitech, Inc.	Delaware	100% TFC	Real estate information and technology services
Transamerica Investment Services, Inc. (“TISI”)	Delaware	100% Transamerica Corp.	Investment adviser
Transamerica Real Estate Tax Service, Inc.	Delaware	100% TFC	Real estate tax reporting and processing services
Transamerica Realty Services, LLC (“TRS”)	Delaware	100% Transamerica Corp.	Real estate investments
Bankers Mortgage Company of CA	California	100% TRS	Investment management
The Gilwell Company	California	100% TRS	Ground lessee of 517 Washington Street, San Francisco
Transamerica Affordable Housing, Inc.	California	100% TRS	General partner LHTC Partnership
Transamerica Minerals Company	California	100% TRS	Owner and lessor of oil and gas properties
Transamerica Oakmont Corporation	California	100% TRS	General partner retirement properties
AEGON Capital Management, Inc.	Canada	100% TIHI	Investment counsel and portfolio manager
AEGON Dealer Services Canada, Inc.	Canada	100% National Finance Corporation	Mutual fund dealer
AEGON Fund Management, Inc.	Canada	100% TIHI	Mutual fund issuer
Edgewood IP, LLC	Iowa	100% TOLIC	Limited liability company
Emergent Business Capital Holdings, Inc.	Delaware	100% Transamerica Small Business Capital, Inc.	Small business capital and mezzanine financing company
Financial Resources Insurance Agency of Texas	Texas	100% Transamerica Financial Advisors, Inc.	Retail sale of securities products
Money Concept (Canada) Limited	Canada	100% National Financial Corporation	Financial services, marketing and distribution
National Financial Corporation	Canada	100% AEGON Canada, Inc.	Holding company

C-23

Name	Jurisdiction of Incorporation	Percent of Voting Securities Owned	Business
National Financial Insurance Agency, Inc.	Canada	100%Money Concept (Canada) Limited	Insurance agency
Quantitative Data Solutions, LLC	Delaware	60% owned by TOLIC; 40% owned by Primary Knowledge, Inc.	Special purpose corporation
TA Steel I LLC	Delaware	100% TEFSC	Special purpose corporation
Transamerica Aviation 041 Corp.	Delaware	100% TEFSC	Special purpose corporation
Transamerica Aviation 400 Corp.	Delaware	100% TEFSC	Special purpose corporation
Transamerica Avaiation LLC	Delaware	100% TEFSC	Special purpose corporation
Transamerica Consultora Y Servicios Limitada	Chile	95% TOLIC; 5% Transamerica International Re(Bermuda), Ltd.	Special purpose limited liability corporation
Transamerica Financial Advisors, Inc.	Delaware	100% TSC	Broker/dealer
Transamerica Investors, Inc.	Maryland	Maintains advisor status	Advisor
Transamerica Pyramid Properties LLC	Iowa	100% TOLIC	Realty limited liability company
Transamerica Realty Investment Properties LLC	Delaware	100% TOLIC	Realty limited liability company
Transamerica Technology Services Limited	UK	100% Transamerica Commercial Finance Limited	Service company
Transamerica Technology Finance Corporation	Delaware	100% Transamerica Commercial Finance Corporation, II	Commercial lending and leasing
WFG Securities of Canada, Inc.	Canada	100% Work Financial Group Holding Company of Canada, Inc.	Mutual fund dealer
World Financial Group Holding Company of Canada, Inc.	Canada	100%TIHI	Holding company
World Financial Group Subholding Company of Canada, Inc.	Canada	100% World Financial Group Holding Company of Canada, Inc.	Holding company

C-24

ITEM 27. NUMBER OF CONTRACT OWNERS

As of April 1, 2003 there were 61,943 owners of Contracts.

ITEM 28. INDEMNIFICATION

Item 28 is incorporated by reference from the Post-Effective Amendment No. 6 to the Registration Statement of the National Home Life Assurance Company Separate Account II, File No. 33-7037.

ITEM 29. PRINCIPAL UNDERWRITERS

(a) None.

(b) Not Applicable.

ITEM 30. LOCATION OF ACCOUNTS AND RECORDS

The books, accounts and other documents required by Section 31(a) under the Investment Company Act and the rules promulgated thereunder will be maintained in the physical possession of The Continuum Company, Inc., Kansas City, Missouri and The Vanguard Group, Inc., Valley Forge, Pennsylvania.

ITEM 31. MANAGEMENT SERVICES

All management contracts are discussed in Part A or Part B.

ITEM 32. UNDERTAKINGS

(a) Peoples Benefit Life Insurance Company represents that the fees and charges deducted under the contracts in this registration statement, in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred and the risks assumed by Peoples Benefit Life Insurance Company.

C-25

As required by the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Peoples Benefit Life Insurance Company Separate Account IV, certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of this amended Registration Statement and has caused this amended Registration Statement to be signed on its behalf in the City of Cedar Rapids and State of Iowa on the 25th day of April, 2003.

PEOPLES BENEFIT LIFE INSURANCE COMPANY SEPARATE ACCOUNT IV (REGISTRANT)
By: Peoples Benefit Life Insurance Company
	Larry N. Norman
By:
	Larry N. Norman Executive Vice President

PEOPLES BENEFIT LIFE INSURANCE COMPANY (DEPOSITOR)
	Larry N. Norman
By:
	Larry N. Norman Executive Vice President

	/s/ FRANK A. CAMP
*By:
	FRANK A. CAMP
	Attorney-in-fact

As required by the Securities Act of 1933, this amended Registration Statement has been duly signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
MARTHA A. MCCONNELL* Martha A. McConnell	Treasurer (Chief Accounting Officer)	April 25, 2003
BRIAN A. SMITH* Brian A. Smith	Director and Vice President	April 25, 2003
CRAIG D. VERMIE* Craig D. Vermie	Director and Secretary	April 25, 2003
LARRY N. NORMAN* Larry N. Norman	Director and Executive Vice President	April 25, 2003
Brenda K. Clancy* Brenda K. Clancy	Director and Executive Vice President	April 25, 2003
KATHLEEN M. MODZELEWSKI* Kathleen M. Modzelewski	Director, Vice President	April 25, 2003

	/S/    FRANK A. CAMP
*By:
	Frank A. Camp Attorney-in-fact

INDEX TO EXHIBITS

EXHIBIT 9(a)	Opinion and Consent of Counsel
EXHIBIT 9(b)	Consent of Counsel
EXHIBIT 10	Consent of Independent Auditors