As Filed with the Securities and Exchange Commission on April [ ], 2003
File No.333-88045
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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 4 TO FORM S-1
ON FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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LINCOLN BENEFIT LIFE COMPANY
(Exact name of Registrant as Specified in its Charter)
Nebraska 6300 470221457
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification No.)
incorporation or
organization)
2940 South 84th St., Lincoln, Nebraska 68506
1-800-525-9287
(Address of registrant's principal executive offices)
WILLIAM F. EMMONS, ESQ.
LINCOLN BENEFIT LIFE COMPANY
2940 South 84th St.
LINCOLN, NE 68506
1-800-525-9287
(Name of agent for service)
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Copy to:
JOAN E. BOROS, ESQ.
CHRISTOPHER S. PETITO, ESQ.
Jorden Burt LLP
1025 Thomas Jefferson Street N.W.
Suite 400 East
Washington, D. C. 20007-0805
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If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box: / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / X /
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.
/ /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
Calculation of Registration Fee
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Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Registration
Securities to be Registered Registered Unit Price Fee
Market Value Adjusted
Interest under Individual
Flexible Premium
Deferred Variable Annuity
Contracts. . . . . . . . . . . . . * * * *
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* These Contracts are not issued in predetermined amounts or units. A maximum
aggregate offering price of $25,000,000 was previously registered. No
additional amount of securities is being registered by this post- effective
amendment to the registration statement.
CROSS REFERENCE SHEET
(Pursuant to Regulation S-K, Item 501(b))
Form S-1 Item No. and Caption Caption in Prospectus
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1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus. . . . . . . . . . . . . Facing Page and Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus. . . . . . . . . Table of Contents
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges. . . . . . . . . . . . . .Questions and Answers about Your
Contract; Not Applicable as to
Ratio of Earnings to Fixed
Charges
4. Use of Proceeds . . . . . . . . . . . . Allocation of Purchase Payments;
The Investment and Fixed Account
Options; Lincoln Benefit Life
Company; Investments by Lincoln
Benefit
5. Determination ofOffering Price . . . . . . .Not Applicable
6. Dilution. . . . . . . . . . . . . . . . . . Not Applicable
7. Selling Security Holders . . . . . . . . . Not Applicable
8. Plan of Distribution . . . . . . . . . . . Distribution of Contracts
9. Description ofSecurities to be
Registered. . . . .. . . . . . . . . . . . .Questions and Answers about Your
Contract; Description of the
Contracts; Annuity Benefits;
Other Contract Benefits; Contract
Charges
10. Interests of Named Experts and Counsel. . .Experts; Legal Matters
11. Information with respect to
Registrant. . . . .. . . . . . . . . . . . Taxes; Description of Lincoln
Benefit Life Company and the
Separate Account; Legal
Proceedings; Financial Statements
12. Disclosure of Commission Position
on Indemnification for Securities
Act Liability. . . . . . . . . . . . . . . Part II, Item 17.
PREMIER PLANNER VARIABLE ANNUITY PROSPECTUS
FLEXIBLE PREMIUM
INDIVIDUAL DEFERRED VARIABLE ANNUITY CONTRACTS
ISSUED BY
LINCOLN BENEFIT LIFE COMPANY
IN CONNECTION WITH
LINCOLN BENEFIT LIFE VARIABLE ANNUITY ACCOUNT
STREET ADDRESS: 2940 SOUTH 84TH ST., LINCOLN, NE 68506
MAILING ADDRESS: P. O. BOX 82532, LINCOLN, NE 68501-2532
TELEPHONE NUMBER: 1-800-865-5237
The Contract is a deferred annuity contract designed to aid you in long-term
financial planning. You may purchase it on either a tax qualified or non-tax
qualified basis.
Because this is a flexible premium annuity contract, you may pay multiple
premiums. We allocate your premium to the investment options under the Contract
and our Fixed Account in the proportions that you choose. The Contract currently
offers thirty-nine investment options, each of which is a subaccount of the
Lincoln Benefit Life Variable Annuity Account ("Separate Account"). Each
Subaccount invests exclusively in shares of one of the following Portfolios:
THE ALGER AMERICAN FUND:
Growth Portfolio - Class S
FIDELITY(R) VARIABLE INSURANCE PRODUCTS:
Growth Portfolio - Service Class 2
Investment Grade Bond Portfolio - Service Class 2
Overseas Portfolio - Service Class 2
GOLDMAN SACHS VARIABLE INSURANCE TRUST:
CORE/SM/ Small Cap Equity
International Equity Fund
J.P. MORGAN SERIES TRUST II:
Small Company Portfolio
JANUS ASPEN SERIES:
International Value Portfolio: Service Shares
Worldwide Growth Portfolio: Service Shares
LAZARD RETIREMENT SERIES, INC.:
Emerging Markets Portfolio
International Equity Portfolio
LSA VARIABLE SERIES TRUST:
Aggressive Growth Fund Balanced Fund Basic Value Fund Blue Chip Fund Capital
Appreciation Fund Diversified Mid-Cap Fund Emerging Growth Equity Fund Equity
Growth Fund* Capital Growth Fund Mid-Cap Value Fund Value Equity Fund
MFS VARIABLE INSURANCE TRUST:
New Discovery Series - Service Class
Utilities Series - Service Class
OPPENHEIMER VARIABLE ACCOUNT FUNDS:
Main Street Small Cap Fund/VA - Service Class
PIMCO ADVISERS VIT:
OpCap Equity Portfolio
PEA Science and Technology Portfolio
OpCap Small Cap Portfolio
PIMCO VARIABLE INSURANCE TRUST:
Foreign Bond Portfolio - Administrative Shares
Money Market Portfolio - Administrative Shares
StocksPLUS Growth and Income Portfolio - Administrative Shares
Total Return Portfolio - Administrative Shares
PUTNAM VARIABLE TRUST:
High Yield Fund - Class 1B
RYDEX VARIABLE TRUST:
OTC Fund
SALOMON BROTHERS VARIABLE SERIES FUNDS INC:
All Cap Fund
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.:
High Yield Portfolio, Class I
Mid Cap Growth Portfolio, Class I
U.S. Mid Cap Core Portfolio, Class I
VAN KAMPEN LIFE INVESTMENT TRUST:
Growth and Income Portfolio, Class II
*Effective April 30, 2003, the Disciplined Equity Fund merged into the Focused
Equity Fund. Effective May 1, 2003, the Focused Equity Fund changed its name to
the Equity Growth Fund.
1 PROSPECTUS
Some of the portfolios described in this Prospectus may not be available in your
Contract. We may make available other investment options in the future.
Your Contract Value will vary daily as a function of the investment performance
of the Subaccounts to which you have allocated Purchase Payments and any
interest credited to the Fixed Account. We do not guarantee any minimum Contract
Value for amounts allocated to the Subaccounts. Benefits provided by this
Contract, when based on the Fixed Account, are subject to a Market Value
Adjustment, which may result in an upward or downward adjustment in withdrawal
benefits, death benefits, settlement values, and transfers to the Subaccounts.
The maximum age of the oldest Contract Owner and Annuitant is age 85 as of the
date we receive the completed application. The maximum age of the oldest
Contract Owner and Annuitant for purchasing the Contract with the Enhanced Death
Benefit Rider is age 80.
Each time you pay a Premium, we will credit your Contract Value with a Credit
Enhancement. In addition to this Contract, we also offer other annuity contracts
that do not provide for Credit Enhancements. The expenses for this Contract may
be higher than the expenses for an annuity contract that does not provide for
Credit Enhancements. Over time, the amount of the Credit Enhancements may be
more than offset by the higher expenses. You and your agent should decide if
this Contract is right for you.
In certain states the Contract may be offered as a group contract with
individual ownership represented by Certificates. The discussion of Contracts in
this prospectus applies equally to Certificates under group contracts, unless
the content specifies otherwise.
This prospectus sets forth the information you ought to know about the Contract.
You should read it before investing and keep it for future reference.
We have filed a Statement of Additional Information with the Securities and
Exchange Commission ("SEC"). The current Statement of Additional Information is
dated May 1, 2003. The information in the Statement of Additional Information is
incorporated by reference in this prospectus. You can obtain a free copy by
writing us or calling us at the telephone number given above. The Table of
Contents of the Statement of Additional Information appears on page 44 of this
prospectus.
At least once each year we will send you an annual statement. The annual
statement details values and specific information for your Contract. It does not
contain our financial statements. Our financial statements are set forth in the
Statement of Additional Information. Lincoln Benefit Life Company ("Lincoln
Benefit") will file annual and quarterly reports and other information with the
SEC. You may read and copy any reports, statements or other information we file
at the SEC's public reference room in Washington, D.C. You can obtain copies of
these documents by writing to the SEC and paying a duplicating fee. Please call
the SEC at 1-800-SEC-0330 for further information as to the operation of the
public reference room. Our SEC filings are also available to the public on the
SEC Internet site (http:// www.sec.gov).
The Date of this Prospectus is May 1, 2003.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES NOR HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROSPECTUS IS VALID ONLY IF ACCOMPANIED OR PRECEDED BY CURRENT PROSPECTUSES
FOR THE PORTFOLIOS LISTED ABOVE. IF ANY OF THESE PROSPECTUSES IS MISSING OR
OUTDATED, PLEASE CONTACT US AND WE WILL SEND YOU THE PROSPECTUS YOU NEED.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR YOUR FUTURE REFERENCE.
2 PROSPECTUS
TABLE OF CONTENTS
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PAGE
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DEFINITIONS 5
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FEE TABLES 6
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EXAMPLES 7
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EXPLANATION OF FEE TABLES AND EXAMPLES 7
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QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT 7
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FINANCIAL INFORMATION 12
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DESCRIPTION OF THE CONTRACTS 12
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Summary 12
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Contract Owner 12
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Annuitant 13
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Modification of the Contract 13
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Assignment 13
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Free Look Period 13
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PURCHASES AND CONTRACT VALUE 13
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Minimum Purchase Payment 13
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Automatic Payment Plan 13
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Credit Enhancement 13
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Allocation of Purchase Payments 14
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Contract Value 14
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Separate Account Accumulation Unit Value 14
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Transfer During Accumulation Period 15
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Transfers Authorized by Telephone 15
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Excessive Trading Limits 15
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Automatic Dollar Cost Averaging Program 15
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Portfolio Rebalancing 16
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THE INVESTMENT AND FIXED ACCOUNT OPTIONS 16
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Separate Account Investments 16
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The Portfolios 16
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Voting Rights 20
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Additions, Deletions, and Substitutions of Securities 20
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The Fixed Account 21
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General 21
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Guaranteed Maturity Fixed Account Option 21
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Market Value Adjustment 22
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Dollar Cost Averaging Fixed Account Option 23
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ANNUITY BENEFITS 23
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Annuity Date 23
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Annuity Options 23
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Other Options 24
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Annuity Payments: General 24
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Variable Annuity Payments 25
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Fixed Annuity Payments 25
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Transfers During Annuity Period 25
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Death Benefit During Annuity Period 25
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PAGE
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Certain Employee Benefit Plans 25
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OTHER CONTRACT BENEFITS 26
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Death Benefit 26
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Enhanced Death Benefit Rider 27
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Beneficiary 28
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Contract Loans for 401(a), 401(k), and 403(b) Contracts 29
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Withdrawals (Redemptions) 30
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Systematic Withdrawal Program 31
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ERISA Plans 31
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Minimum Contract Value 31
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CONTRACT CHARGES 31
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Mortality and Expense Risk Charge 31
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Administrative Charges 31
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Contract Maintenance Charge 31
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Administrative Expense Charge 32
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Transfer Fee 32
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Sales Charges 32
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Withdrawal Charge 32
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Free Withdrawal 33
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Waiver Benefits 33
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General 33
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Confinement Waiver Benefit 33
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Terminal Illness Waiver Benefit 33
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Waiver of Withdrawal Charge for Certain Qualified Plan Withdrawals 33
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Premium Taxes 33
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Deduction for Separate Account Income Taxes 34
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Other Expenses 34
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TAXES 35
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Taxation of Lincoln Benefit Life Company 35
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Taxation of Annuities in General 35
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Tax Qualified Contracts 37
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DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT 41
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Lincoln Benefit Life Company 41
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Separate Account 41
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State Regulation of Lincoln Benefit 41
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ADMINISTRATION 42
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MARKET TIMING AND ASSET ALLOCATION SERVICES 42
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DISTRIBUTION OF CONTRACTS 42
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LEGAL PROCEEDINGS 42
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LEGAL MATTERS 42
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ANNUAL REPORTS AND OTHER DOCUMENTS 43
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REGISTRATION STATEMENT 43
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3 PROSPECTUS
PAGE
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION 44
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APPENDIX A ACCUMULATION UNIT VALUES 45
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APPENDIX B PORTFOLIOS AND PERFORMANCE DATA 51
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APPENDIX C ILLUSTRATION OF A MARKET VALUE ADJUSTMENT 52
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THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE
ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS.
4 PROSPECTUS
DEFINITIONS
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Please refer to this list for the meaning of the following terms:
ACCUMULATION PERIOD - The period, beginning on the Issue Date, during which
Contract Value builds up under your Contract.
ACCUMULATION UNIT - A unit of measurement which we use to calculate Contract
Value.
ANNUITANT - The natural person on whose life the annuity benefits under a
Contract are based.
ANNUITIZATION - The process to begin annuity payments under the Contract.
ANNUITIZED VALUE - The Contract Value adjusted by any applicable Market Value
Adjustment and less any applicable taxes.
ANNUITY DATE - The date on which annuity payments are scheduled to begin.
ANNUITY PERIOD - The period during which annuity payments are paid. The Annuity
Period begins on the Annuity Date.
ANNUITY UNIT - A unit of measurement which we use to calculate the amount of
Variable Annuity payments.
BENEFICIARY(IES) - The person designated to receive the death benefit.
COMPANY ("WE," "US," "OUR," "LINCOLN BENEFIT") - Lincoln Benefit Life Company.
CONTRACT ANNIVERSARY - Each anniversary of the Issue Date.
CONTRACT OWNER ("YOU," "YOUR") - The person(s) having the privileges of
ownership defined in the Contract. If your Contract is issued as part of a
retirement plan, your ownership privileges may be modified by the plan.
CONTRACT VALUE - The sum of the values of your investment in the Subaccounts of
the Separate Account and the Fixed Account.
CONTRACT YEAR - Each twelve-month period beginning on the Issue Date and each
Contract Anniversary.
CONTRIBUTION YEAR - Each twelve-month period beginning on the date a Purchase
Payment is allocated to a Subaccount, or each anniversary of that date.
CREDIT ENHANCEMENT - An amount we add to your Contract Value when a Purchase
Payment is received. Each Credit Enhancement will be counted as earnings under
your Contract.
FIXED ACCOUNT - The portion of the Contract Value allocated to our general
account.
FIXED ANNUITY - A series of annuity payments that are fixed in amount.
GUARANTEE PERIODS - A period of years for which we have guaranteed a specific
effective annual interest rate on an amount allocated to the Fixed Account.
ISSUE DATE - The date when the Contract becomes effective.
LATEST ANNUITY DATE - The latest date by which you must begin annuity payments
under the Contract.
LOAN ACCOUNT - An account established for amounts transferred from the
Subaccounts or the Fixed Account as security for outstanding Contract loans.
MARKET VALUE ADJUSTMENT - An amount added to or subtracted from certain
transactions involving your interest in the Fixed Account, to reflect the impact
of changing interest rates.
NET INVESTMENT FACTOR - The factor used to determine the value of an
Accumulation Unit and Annuity Unit in any Valuation Period. We determine the Net
Investment Factor separately for each Subaccount.
NON-QUALIFIED PLAN - A retirement plan which does not receive special tax
treatment under Sections 401, 403(b), 408, 408A or 457 of the Tax Code.
PORTFOLIO(S) - The underlying mutual funds in which the Subaccounts invest. Each
Portfolio is an investment company registered with the SEC or a separate
investment series of a registered investment company.
PURCHASE PAYMENTS - Amounts paid to us as premium for the Contract by you or on
your behalf.
QUALIFIED PLAN - A retirement plan which receives special tax treatment under
Sections 401, 403(b), 408 or 408A of the Tax Code or a deferred compensation
plan for a state and local government or another tax exempt organization under
Section 457 of the Tax Code.
SEPARATE ACCOUNT - The Lincoln Benefit Life Variable Annuity Account, which is a
segregated investment account of the Company.
SUBACCOUNT - A subdivision of the Separate Account, which invests wholly in
shares of one of the Portfolios.
SURRENDER VALUE - The amount paid upon complete surrender of the Contract, equal
to the Contract Value, less any applicable premium taxes, Withdrawal Charge, and
the contract maintenance charge and increased or decreased by any Market Value
Adjustment.
TAX CODE - The Internal Revenue Code of 1986, as amended.
TREASURY RATE - The U.S. Treasury Note Constant Maturity Yield for the preceding
week as reported in Federal Reserve Bulletin Release H.15.
5 PROSPECTUS
VALUATION DATE - Each day the New York Stock Exchange is open for business.
VALUATION PERIOD - The period of time over which we determine the change in the
value of the Subaccounts in order to price Accumulation Units and Annuity Units.
Each Valuation Period begins at the close of normal trading on the New York
Stock Exchange ("NYSE") currently 4:00 p.m. Eastern time on each Valuation Date
and ends at the close of the NYSE on the next Valuation Date.
VARIABLE ANNUITY - A series of annuity payments that vary in amount based on
changes in the value of the Subaccounts to which your Contract Value has been
allocated.
WITHDRAWAL CHARGE - The contingent deferred sales charge that may be required
upon some withdrawals.
FEE TABLES
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The following tables describe the fees and expenses that you will pay when
buying, owning and surrendering the Contract. The first table decribes the fees
and expenses that you will pay at the time that you buy the Contract, surrender
the Contract, or transfer cash value between investment options. State premium
taxes may also be deducted.
Contingent Deferred Sales Charge Withdrawal Charge (as a percentage of Purchase
Payments)
CONTRIBUTION YEAR APPLICABLE CHARGE
1 8%
2-3 7%
4-5 6%
6 5%
7 4%
8 3%
9 + 0%
Transfer Fee (Applies solely to the second and subsequent transfers within a
calendar month. We are currently waiving the Transfer Fee) - $10.00
The next table describes the fees and expenses that you will pay periodically
during the time you own the Contract, not including Portfolio fees and expenses.
Annual Contract Maintenance Charge (waived if total Purchase Payments are
greater than $50,000) $35.00
SEPARATE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF DAILY NET ASSET VALUE
DEDUCTED FROM EACH OF THE SUBACCOUNTS OF THE SEPARATE ACCOUNT)
BASE CONTRACT (WITHOUT OPTIONAL RIDERS)
Mortality and Expense Risk Charge 1.30%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.40%
BASE CONTRACT (WITH ENHANCED DEATH BENEFIT RIDER)
Mortality and Expense Risk Charge 1.50%
Administrative Expense Charge 0.10%
------
Total Separate Account Annual Expenses 1.60%
The next table shows the minimum and maximum total operating expenses charged by
the Portfolios that you may pay periodically during the time that you own the
Contract. Advisers and/or other service providers of certain Portfolios may have
agreed to waive their fees and/or reimburse Portfolio expenses in order to keep
the Portfolios' expenses below specified limits. The range of expenses shown in
this table does not show the effect of any such fee waiver or expense
reimbursement. More detail concerning each Portfolio's fees and expenses appears
in the prospectus for each Portfolio.
Minimum Maximum
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Total Portfolio Annual Operating
Expenses/(1)/ (expenses that are
deducted from Portfolio assets,
which may include management fees,
distribution and/or service 0.50% 7.61%
(12b-1) fees and other expenses)
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6 PROSPECTUS
(1)Expenses are shown as a percentage of Portfolio average daily net assets
before any waiver or reimbursement as of December 31, 2002.
EXAMPLE 1
This Example is intended to help you compare the cost of investing in the
Contracts with the cost of investing in other variable annuity contracts. These
costs include Contract owner transaction expenses, Contract fees, Separate
Account annual expenses, and Portfolio fees and expenses and assumes no
transfers or exchanges were made. The example shows the dollar amount of expense
that you would bear directly or indirectly if you:
.. invested $10,000 in the Contract for the time periods indicated,
.. earned a 5% annual return on your investment,
.. surrendered your Contract, or began receiving income payments for a specified
period of less than 120 months, at the end of each time period, and
.. elected the Enhanced Death Benefit Rider (with total Separate Account expenses
of 1.60%)
The first line of the example assumes that the maximum fees and expenses of any
of the Portfolios are charged. The second line of the example assumes that the
minimum fees and expenses of any of the Portfolios are charged. Your actual
expenses may be higher or lower than those shown below.
THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO
PAY IF YOU SURRENDER YOUR CONTRACT.
1 Year 3 Years 5 Years 10 Years
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Costs Based on Maximum Annual $1,611 $ 3,421 $5,059 $8,288
Portfolio Expenses
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Costs Based on Minimum Annual $ 854 $ 1,303 $1,763 $2,861
Portfolio Expenses
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EXAMPLE 2
This Example uses the same assumptions as Example 1 above, except that it
assumes you decided not to surrender your Contract, or you began receiving
income payments for a specified period of at least 120 months, at the end of
each time period.
1 Year 3 Years 5 Years 10 Years
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Costs Based on Maximum $1,016 $ 2,911 $4,634 $8,288
Annual Portfolio Expenses
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Costs Based on Minimum $ 259 $ 793 $1,352 $2,861
Annual Portfolio Expenses
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EXPLANATION OF EXPENSE EXAMPLES
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF
PAST OR FUTURE EXPENSES. YOUR RATE OF RETURN MAY BE HIGHER OR LOWER THAN 5%,
WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY PORTFOLIO EXPENSE
WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED.
EXAMPLES 1 AND 2 ASSUME THE ELECTION OF THE ENHANCED DEATH BENEFIT RIDER (TOTAL
SEPARATE ACCOUNT EXPENSES OF 1.60%). IF THIS RIDER WAS NOT ELECTED, THE EXPENSE
FIGURES SHOWN WOULD BE SLIGHTLY LOWER.
THE EXAMPLES REFLECT THE FREE WITHDRAWAL AMOUNTS, IF APPLICABLE AND AN ANNUAL
CONTRACT ADMINISTRATIVE CHARGE OF $35.
QUESTIONS AND ANSWERS ABOUT YOUR CONTRACT
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The following are answers to some of the questions you may have about some of
the more important features of the Contract. The Contract is more fully
described in the rest of the Prospectus. Please read the Prospectus carefully.
1. WHAT IS THE CONTRACT?
The Contract is a flexible premium deferred variable annuity contract. It is
designed for tax-deferred retirement investing. The Contract is available for
non-qualified or qualified retirement plans. The Contract, like all deferred
annuity contracts, has two phases: the Accumulation Period and the Annuity
Period. During the Accumulation Period, earnings accumulate on a tax--
7 PROSPECTUS
deferred basis and are taxed as income when you make a withdrawal. The Annuity
Period begins when you begin receiving payments under one of the annuity payment
options described in the answer to Question 2. The amount of money accumulated
under your Contract during the Accumulation Period will be used to determine the
amount of your annuity payments during the Annuity Period.
Your premiums are invested in one or more of the Subaccounts of the Separate
Account or allocated to the Fixed Account, as you instruct us. If we offer
additional Subaccounts in the future, we may limit your right to allocate your
Contract Value to up to twenty-three options under the Contract, counting each
Subaccount and the Fixed Account as one option. We will treat all of your
Contract Value allocated to the Fixed Account as one option for purposes of this
limit, even if you have chosen more than one Guarantee Period. The value of your
Contract will depend on the investment performance of the Subaccounts and the
amount of interest we credit to the Fixed Account.
Each Subaccount will invest in a single investment portfolio (a "Portfolio") of
a mutual fund. The Portfolios offer a range of investment objectives, from
conservative to aggressive. You bear the entire investment risk on amounts
allocated to the Subaccounts. The investment policies and risks of each
Portfolio are described in the accompanying prospectuses for the Portfolios.
In some states, you may also allocate all or part of your Contract Value to the
"Fixed Account", as described in the answer to Question 5.
2. WHAT ANNUITY OPTIONS DOES THE CONTRACT OFFER?
You may receive annuity payments on a fixed or a variable basis or a combination
of the two. We offer a variety of annuity options including:
.. a life annuity with payments guaranteed for five to twenty years;
.. a joint and full survivorship annuity, with payments guaranteed for five to
twenty years; and
.. fixed payments for a specified period of five to thirty years.
Call us to inquire about other options.
You may change your annuity option at any time before annuitization. You may
select the date to annuitize the Contract. The date you select, however, may be
no later than the later of the tenth Contract Anniversary or the Annuitant's
90/TH/ birthday. If your Contract was issued in connection with a qualified
plan, different deadlines may apply.
If you select annuity payments on a variable basis, the amount of our payments
to you will be affected by the investment performance of the Subaccounts you
have selected. The fixed portion of your annuity payments, on the other hand,
generally will be equal in amount to the initial payment we determine. As
explained in more detail below, however, during the Annuity Period you will have
a limited ability to change the relative weighting of the Subaccounts on which
your variable annuity payments are based or to increase the portion of your
annuity payments consisting of Fixed Annuity payments.
3. HOW DO I BUY A CONTRACT?
You can obtain a Contract application from your Lincoln Benefit agent. You must
pay at least $10,000 in Purchase Payments during the first Contract Year.
Purchase Payments must be at least $500, unless you enroll in an automatic
payment plan. Your periodic payments in an automatic payment plan must be at
least $100 per month. We may lower these minimums at our sole discretion. The
maximum age of the oldest Contract Owner and Annuitant is age 85 as of the date
we receive the completed application.
4. WHAT ARE MY INVESTMENT CHOICES UNDER THE CONTRACT?
You can allocate and reallocate your investment among the Subaccounts, each of
which in turn invests in a single Portfolio. Under the Contract, the Separate
Account currently invests in the following Portfolios:
FUND PORTFOLIO(S)
- ----------------------------------------------------------------------------------------
The Alger American Fund Growth Portfolio - Class S
- ----------------------------------------------------------------------------------------
Fidelity Variable Insurance Products Fund Growth Portfolio - Service Class 2
- ----------------------------------------------------------------------------------------
Investment Grade Bond Portfolio -
Service Class 2
- ----------------------------------------------------------------------------------------
Overseas Portfolio - Service Class
2
- ----------------------------------------------------------------------------------------
Goldman Sachs Variable Insurance Trust CORE Small Cap Equity
- ----------------------------------------------------------------------------------------
International Equity Fund
- ----------------------------------------------------------------------------------------
J.P. Morgan Series Trust II Small Company Portfolio
- ----------------------------------------------------------------------------------------
Janus Aspen Series International Value Portfolio:
Service Shares
- ----------------------------------------------------------------------------------------
Worldwide Growth Portfolio:
Service Shares
- ----------------------------------------------------------------------------------------
Lazard Retirement Series, Inc. Emerging Markets Portfolio
- ----------------------------------------------------------------------------------------
International Equity Portfolio
- ----------------------------------------------------------------------------------------
LSA Variable Series Trust Aggressive Growth Fund
- ----------------------------------------------------------------------------------------
Balanced Fund
- ----------------------------------------------------------------------------------------
Basic Value Fund
- ----------------------------------------------------------------------------------------
Blue Chip Fund
- ----------------------------------------------------------------------------------------
Capital Appreciation Fund
- ----------------------------------------------------------------------------------------
Diversified Mid-Cap Fund
- ----------------------------------------------------------------------------------------
Emerging Growth Equity Fund
- ----------------------------------------------------------------------------------------
Equity Growth Fund*
- ----------------------------------------------------------------------------------------
Capital Growth Fund
- ----------------------------------------------------------------------------------------
Mid-Cap Value Fund
- ----------------------------------------------------------------------------------------
Value Equity Fund
- ----------------------------------------------------------------------------------------
MFS New Discovery Series - Service
Class
- ----------------------------------------------------------------------------------------
Utilities Series - Service Class
- ----------------------------------------------------------------------------------------
OCC Accumulation Trust Equity Portfolio
- ----------------------------------------------------------------------------------------
Science and Technology Portfolio
- ----------------------------------------------------------------------------------------
Small Cap Portfolio
- ----------------------------------------------------------------------------------------
Oppenheimer Variable Account Funds Main Street Small Cap Fund/ VA -
Service Class
- ----------------------------------------------------------------------------------------
PIMCO Variable Insurance Trust Foreign Bond Portfolio
- ----------------------------------------------------------------------------------------
Money Market Portfolio
- ----------------------------------------------------------------------------------------
StocksPLUS Growth and Income
Portfolio
- ----------------------------------------------------------------------------------------
Total Return Portfolio
- ----------------------------------------------------------------------------------------
Putnam Variable Trust High Yield Fund - Class 1B
- ----------------------------------------------------------------------------------------
RYDEX Variable Trust OTC Fund
- ----------------------------------------------------------------------------------------
Salomon Brothers Variable Series Funds Inc All Cap Fund
- ----------------------------------------------------------------------------------------
The Universal Institutional Funds, Inc. High Yield Portfolio - Class I
- ----------------------------------------------------------------------------------------
Mid Cap Growth Portfolio - Class I
- ----------------------------------------------------------------------------------------
U.S. MidCap Core Portfolio
- Class I
- ----------------------------------------------------------------------------------------
Van Kampen Life Investment Trust Growth and Income Portfolio -Class
II
- ----------------------------------------------------------------------------------------
8 PROSPECTUS
*Effective April 30, 2003, the Disciplined Equity Fund merged into the Focused
Equity Fund. Effective May 1, 2003, the Focused Equity Fund changed its name to
the Equity Growth Fund.
Some of the Portfolios described in this Prospectus may not be available in your
Contract.
Each Portfolio holds its assets separately from the assets of the other
Portfolios. Each Portfolio has distinct investment objectives and policies which
are described in the accompanying prospectuses for the Portfolios.
5. WHAT IS THE FIXED ACCOUNT OPTION?
We offer two Fixed Account interest crediting options: the Guaranteed Maturity
Fixed Account Option and the Dollar Cost Averaging Fixed Account Option.
You may allocate Purchase Payments to the Subaccount(s) and the Fixed
Account(s). Loan payments may not be allocated to the Fixed Account(s). You may
not transfer amounts into the DCA Fixed Account. The minimum amount that may be
transferred into any one of the Guaranteed Maturity Fixed Account Options is
$500.
We will credit interest to amounts allocated to the Guaranteed Maturity Fixed
Account Option at a specified rate for a specified Guarantee Period. You select
the Guarantee Period for each amount that you allocate to the Guaranteed
Maturity Fixed Account Option. We will tell you what interest rates and
Guarantee Periods we are offering at a particular time. At the end of each
Guarantee Period, you may select a new Guarantee Period from among the choices
we are then making available or transfer or withdraw the relevant amount from
the Fixed Account without any Market Value Adjustment.
We may offer Guarantee Periods ranging from one to ten years in length. We are
currently offering Guarantee Periods of one, three, five, seven, and ten years
in length. In the future we may offer Guarantee Periods of different lengths or
stop offering some Guarantee Periods.
We will not change the interest rate credited to a particular allocation until
the end of the relevant Guarantee Period. From time to time, however, we may
change the interest rate that we offer to credit to new allocations to the
Guaranteed Maturity Fixed Account Option and to amounts rolled over in the Fixed
Account for new Guarantee Periods.
In addition, if you participate in our dollar cost averaging program, you may
designate amounts to be held in the Dollar Cost Averaging Fixed Account Option
until they are transferred monthly to the Subaccounts or Guarantee Periods of
your choosing. When you make an allocation to the Fixed Account for this
purpose, we will set an interest rate applicable to that amount. We will then
credit interest at that rate to that amount until it has been entirely
transferred to your chosen Subaccounts or Guarantee Periods. We will complete
the transfers within one year of the allocation. In our discretion we may change
the rate that we set for new allocations to the Fixed Account for the dollar
cost averaging program. We will never, however, set a rate less than an
effective annual rate of 3%.
A Market Value Adjustment may increase or decrease the amount of certain
transactions involving the Guaranteed Maturity Fixed Account, to reflect changes
in interest
9 PROSPECTUS
rates. As a general rule, we will apply a Market Value Adjustment to the
following transactions:
1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option in
an amount greater than the Free Withdrawal Amount (which is described in the
answer to Question 6);
2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to
the Subaccounts;
3) when you allocate part of your balance in the Guaranteed Maturity Fixed
Account Option to a new Guarantee Period before the end of the existing
Guarantee Period;
4) when you annuitize your Contract; and
5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction to the extent that:
1) it occurs within 30 days after the end of a Guarantee Period applicable to
the funds involved in the transaction; or
2) it is necessary to meet IRS minimum withdrawal requirements.
We determine the amount of a Market Value Adjustment using a formula that takes
into consideration:
1) whether current interest rates differ from interest rates at the beginning of
the applicable Guarantee Period; and
2) how many years are left until the end of the Guarantee Period.
As a general rule, if interest rates have dropped, the Market Value Adjustment
will be an addition; if interest rates have risen, the Market Value Adjustment
will be a deduction. It is therefore possible that if you withdraw an amount
from the Fixed Account during a Guarantee Period, a Market Value Adjustment may
cause you to receive less than you initially allocated to the Fixed Account.
6. WHAT ARE MY EXPENSES UNDER THE CONTRACT?
Contract Maintenance Charge. During the Accumulation Period, each year we
subtract an annual contract maintenance charge of $35 from your Contract Value
allocated to the Subaccounts. We will waive this charge if you pay $50,000 or
more in Purchase Payments or if you allocate all of your Contract Value to the
Fixed Account.
During the Annuity Period, if allowed in your state, we will subtract the annual
contract maintenance charge in equal parts from your annuity payments. We waive
this charge if on the Annuity Date your Contract Value is $50,000 or more or if
all payments are Fixed Annuity payments.
Administrative Expense Charge and Mortality and Expense Risk Charge. We impose a
mortality and expense risk charge at an annual rate of 1.30% of average daily
net assets and an administrative expense charge at an annual rate of.10% of
average daily net assets. If you select our optional enhanced death benefit
rider, however, we may charge you a higher mortality and expense risk charge.
These charges are assessed each day during the Accumulation Period and the
Annuity Period. We guarantee that we will not raise these charges.
Transfer Fee. Although we currently are not charging a transfer fee, depending
on your state, the Contract permits us to charge you up to $10 per transfer for
each transfer after the first transfer in each month, or for each transfer in
excess of twelve within a calendar year. The Contract also permits us to impose
a minimum size on transfer amounts although the minimum size may be limited to
$25 in some states.
Withdrawal Charge (Contingent Deferred Sales Charge). During the Accumulation
Period, you may withdraw all or part of the value of your Contract before your
death or, if the Contract is owned by a company or other legal entity, before
the Annuitant's death. Certain withdrawals may be made without payment of any
Withdrawal Charge, which is a contingent deferred sales charge. Other
withdrawals are subject to the Withdrawal Charge.
The Withdrawal Charge will vary depending on how many complete years have passed
since you paid the Purchase Payment being withdrawn. The Withdrawal Charge
applies to each Purchase Payment for eight complete years from the date of the
Payment (each a "Contribution Year") as follows:
Contribution Applicable
Year Charge
------------ ----------
1 8%
2-3 7%
4-5 6%
6 5%
7 4%
8 3%
9+ 0%
In determining Withdrawal Charges, we will deem your Purchase Payments to be
withdrawn on a first-in first-out basis.
Each year, free of Withdrawal Charge or any otherwise applicable Market Value
Adjustment, you may withdraw the Free Withdrawal Amount, which equals:
(a) the greater of:
. earnings not previously withdrawn; or
. 15% of your total Purchase Payments made in the most recent eight years;
plus
(b) an amount equal to your total Purchase Payments made more than eight years
ago, to the extent not previously withdrawn.
In most states, we also may waive the Withdrawal Charge if you: (1) require
long-term medical or custodial care outside the home; or (2) are diagnosed with
a terminal
10 PROSPECTUS
illness. These provisions will apply to the Annuitant, if the Contract is owned
by a company or other legal entity. Additional restrictions and costs may apply
to Contracts issued in connection with qualified plans. Withdrawals of earnings
are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject
to an additional 10% federal tax penalty. You should consult with your tax
counselor to determine what effect a withdrawal might have on your tax
liability. As described in the answer to Question 3, we may increase or decrease
certain withdrawals by a Market Value Adjustment.
Premium Taxes. Certain states impose a premium tax on annuity purchase payments
received by insurance companies. Any premium taxes relating to the Contract may
be deducted from Purchase Payments or the Contract Value when the tax is
incurred or at a later time. State premium taxes generally range from 0% to
3.5%.
Other Expenses. In addition to our charges under the Contract, each Portfolio
deducts amounts from its assets to pay its investment advisory fees and other
expenses.
7. HOW WILL MY INVESTMENT IN THE CONTRACT BE TAXED?
You should consult a qualified tax advisor for personalized answers. Generally,
earnings under variable annuities are not taxed until amounts are withdrawn or
distributions are made. This deferral of taxes is designed to encourage
long-term personal savings and supplemental retirement plans. Withdrawals of
earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be
subject to an additional 10% federal tax penalty. Generally, for tax purposes,
earnings are deemed withdrawn first from Annuity Contracts.
Special rules apply if the Contract is owned by a company or other legal entity.
Generally, such an owner must include in income any increase in the excess of
the Contract Value over the "investment in the contract" during the taxable
year.
8. DO I HAVE ACCESS TO MY MONEY?
At any time during the Accumulation Period, we will pay you all or part of the
value of your Contract, minus any applicable charge, if you surrender your
Contract or request a partial withdrawal. Under some qualified plans, you may
also take a loan against the value of your Contract. Generally, a partial
withdrawal must equal at least $50, and after the withdrawal your remaining
Contract Value must at least equal $500.
Although you have access to your money during the Accumulation Period, certain
charges, such as the contract maintenance charge, the Withdrawal Charge, and
premium tax charges, may be deducted on a surrender or withdrawal. You may also
incur federal income tax liability or tax penalties. In addition, if you have
allocated some of the value of your Contract to the Fixed Account, the amount of
your surrender proceeds or withdrawal may be increased or decreased by a Market
Value Adjustment.
After annuitization, under certain settlement options you may be entitled to
withdraw the commuted value of the remaining payments.
9. WHAT IS THE DEATH BENEFIT?
We will pay a death benefit while the Contract is in force and before the
Annuity Date, if the Contract Owner dies, or if the Annuitant dies and the
Contract Owner is not a natural person. To obtain payment of the Death Benefit,
the Beneficiary must submit to us a complete request for payment of the Death
Benefit, which includes due proof of death as specified in the Contract.
The standard death benefit is the greatest of the following:
1) your total Purchase Payments reduced proportionately for any prior partial
withdrawals;
2) your Contract Value;
3) the amount you would have received by surrendering your Contract; or
4) your Contract Value on each Contract Anniversary evenly divisible by eight,
increased by the total Purchase Payments since that anniversary and reduced
proportionately by any partial withdrawals since that anniversary.
We also offer an optional enhanced death benefit rider, which is described later
in this prospectus.
We will determine the value of the death benefit on the day that we receive all
of the information that we need to process the claim.
10. WHAT ELSE SHOULD I KNOW?
Allocation of Purchase Payments. You allocate your initial Purchase Payment
among the Subaccounts and the Fixed Account in your Contract application. You
may make your allocations in specific dollar amounts or percentages, which must
be whole numbers that add up to 100%. When you make subsequent Purchase
Payments, you may again specify how you want your payments allocated. If you do
not, we will automatically allocate the payment based on your most recent
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
Credit Enhancements. We will credit your Contract Value with a Credit
Enhancement of 4% of each Purchase Payment before we allocate that Purchase
Payment among the Subaccounts or to the Fixed Account. The Credit Enhancements
will be allocated in the same proportions as the corresponding Purchase Payment.
As described in "Free Look Period" on page 13, if you cancel your Contract
during the free look period we may deduct any Credit Enhancement from the amount
paid you.
Transfers. During the Accumulation Period, you may transfer Contract Value among
the Subaccounts and from the Subaccounts to the Fixed Account. If we offer
additional Subaccounts in the future, we may limit your
11 PROSPECTUS
right to allocate your Contract Value to no more than twenty-one options under
the Contract. While you may also transfer amounts from the Fixed Account, a
Market Value Adjustment may apply. You may instruct us to transfer Contract
Value by writing or calling us.
You may also use our Automatic Dollar Cost Averaging or Portfolio Rebalancing
programs. You may not use both programs at the same time.
Under the Dollar Cost Averaging program, amounts are automatically transferred
at regular intervals from the Fixed Account or a Subaccount of your choosing,
including other Subaccounts or the Fixed Account. Transfers from the Dollar Cost
Averaging Fixed Account may be made monthly only. Transfers from Subaccounts may
be made monthly, quarterly, or annually.
Under the Portfolio Rebalancing program, you can maintain the percentage of your
Contract Value allocated to each Subaccount at a pre-set level. Investment
results will shift the balance of your Contract Value allocations. If you elect
rebalancing, we will automatically transfer your Contract Value back to the
specified percentages at the frequency (monthly, quarterly, semiannually,
annually) that you specify. We will automatically terminate this program if you
request a transfer outside of the program. You may not include the Fixed Account
in a Portfolio Rebalancing program. You also may not elect rebalancing after
annuitization.
During the Annuity Period, you may not make any transfers for the first six
months after the Annuity Date. Thereafter, you may make transfers among the
Subaccounts or from the Subaccounts to increase your Fixed Annuity payments.
Your transfers, however, must be at least six months apart. You may not,
however, convert any portion of your right to receive Fixed Annuity payments
into Variable Annuity payments.
Free-Look Period. You may cancel the Contract by returning it to us within 10
days after you receive it, or after whatever longer period may be permitted by
state law. You may return it by delivering it or mailing it to us. If you return
the Contract, the Contract terminates. In most states, we will pay you an amount
equal to the Contract Value minus the Credit Enhancement. The Owner will also
bear any expenses charged with respect to the Credit Enhancement amount incurred
prior to the return of the Contract such as any mortality and expense charge.
The Contract Value may be more or less than your Purchase Payments. In some
states, we are required to send you the amount of your Purchase Payments. Since
state laws differ as to the consequences of returning a Contract, you should
refer to your Contract for specific information about your circumstances. If
your Contract is qualified under Section 408 of the Tax Code, we
will refund the greater of any purchase payments or the Contract Value.
11. WHO CAN I CONTACT FOR MORE INFORMATION?
You can write to us at Lincoln Benefit Life Company, P.O. Box 82532, Lincoln,
Nebraska 68501-2532, or call us at (800) 865-5237.
FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Attached as Appendix A is a table showing selected information concerning
Accumulation Unit Values for each Subaccount for each year since we started
offering the Contracts. Accumulation Unit Value is the unit of measure that we
use to calculate the value of your interest in a Subaccount. Accumulation Unit
Value does not reflect the deduction of certain charges that are subtracted from
your Contract Value, such as the Annual Contract Maintenance Charge. The
information in the table is included in the Separate Account's financial
statements. To obtain a fuller picture of each subaccounts finances and
performance, you should review the Separate Account's financial statements,
which are in the Separate Account's Annual Report dated as of December 31, 2002,
contained in the Statement of Additional Information. The Statement of
Additional Information also includes a brief explanation of how performance of
the Subaccounts is calculated.
DESCRIPTION OF THE CONTRACTS
SUMMARY. The Contract is a deferred annuity contract designed to aid you in
long-term financial planning. You may add to the Contract Value by making
additional Purchase Payments. In addition, the Contract Value will change to
reflect the performance of the Subaccounts to which you allocate your Purchase
Payments and your Contract Value, as well as to reflect Credit Enhancements and
interest credited to amounts allocated to the Fixed Account. You may withdraw
your Contract Value by making a partial withdrawal or by surrendering your
Contract. Upon annuitization, we will pay you benefits under the Contract in the
form of an annuity, either for the life of the Annuitant or for a fixed number
of years. All of these features are described in more detail below.
CONTRACT OWNER. As the Contract Owner, you are the person usually entitled to
exercise all rights of ownership under the Contract. You usually are also the
person entitled to receive benefits under the Contract or to choose someone else
to receive benefits. If your Contract was issued under a Qualified Plan,
however, the Plan may limit or modify your rights and privileges under the
Contract and may limit your right to choose someone else to receive benefits.
The maximum age of the oldest Contract Owner and Annuitant is age 85 as of the
date we receive the completed application. The Contract cannot be jointly owned
by both a non-natural person and a natural person. Changing ownership of this
Contract may cause adverse tax consequences and may not be allowed under
qualified plans. Please consult with a competent tax
12 PROSPECTUS
advisor prior to making a request for a change of Contract Owner. If the
Contract Owner is a grantor trust, the Owner will be considered a non-living
person for purposes of this section and the Death Benefit section.
ANNUITANT. The Annuitant is the living person whose life span is used to
determine annuity payments. You initially designate an Annuitant in your
application. You may change the Annuitant at any time before annuity payments
begin. If your Contract was issued under a plan qualified under Section 403(b),
408 or 408A of the Tax Code, you must be the Annuitant. If the Contract is a
non-Qualified contract, you may also designate a Joint Annuitant, who is a
second person on whose life annuity payments depend. Additional restrictions may
apply in the case of Qualified Plans. If you are not the Annuitant and the
Annuitant dies before annuity payments begin, then either you become the new
Annuitant or you must name another person as the new Annuitant. You must attest
that the Annuitant is alive in order to annuitize your Contract.
MODIFICATION OF THE CONTRACT. Only a Lincoln Benefit officer may approve a
change in or waive any provision of the Contract. Any change or waiver must be
in writing. None of our agents has the authority to change or waive the
provisions of the Contract.
We are permitted to change the terms of the Contract if it is necessary to
comply with changes in the law. If a provision of the Contract is inconsistent
with state law, we will follow state law.
ASSIGNMENT. Before the Annuity Date, if the Annuitant is still alive, you may
assign an interest in the Contract if it is a non-Qualified Contract. If a
Contract is issued pursuant to a Qualified Plan, the law prohibits some types of
assignments, pledges and transfers and imposes special conditions on others. An
assignment may also result in taxes or tax penalties.
We will not be bound by any assignment until we receive written notice of it.
Accordingly, until we receive written notice of an assignment, we will continue
to act as though the assignment had not occurred. We are not responsible for the
validity of any assignment.
BECAUSE OF THE POTENTIAL TAX CONSEQUENCES AND ERISA ISSUES ARISING FROM AN
ASSIGNMENT, YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN YOUR
CONTRACT.
FREE LOOK PERIOD. You may cancel the Contract by returning it to us within 10
days after you receive it, or within whatever longer period may be permitted by
state law. You may return it by delivering it to your agent or mailing it to us.
If you return the Contract, the Contract terminates. In most states, we will pay
you an amount equal to the Contract Value minus the Credit Enhancement. The
Contract Value at that time may be more or less than your Purchase Payments. The
Owner will also bear any expense charged with respect to the Credit Enhancement
amount incurred prior to the return of the Contract, such as any Mortality and
Expense Charge.
In some states, if you exercise your "free look" rights, we are required to
return the amount of your Purchase Payments. Currently, if you live in one of
those states, on the Issue Date we will allocate your Purchase Payment to the
Subaccounts and the Fixed Account Options as you specified in your application.
However, we reserve the right in the future to delay allocating your Purchase
Payments to the Subaccounts you have selected or to the Fixed Account until 20
days after the Issue Date or, if your state's free look period is longer than
ten days, for ten days plus the period required by state law. During that time,
we will allocate your Purchase Payment to the PIMCO Money Market Subaccount.
Your Contract will contain specific information about your free-look rights in
your state.
PURCHASES AND CONTRACT VALUE
- --------------------------------------------------------------------------------
MINIMUM PURCHASE PAYMENT. The minimum initial Purchase Payment for a Contract is
$10,000. You may pay it in a lump sum or in installments of your choice over the
first Contract Year. You may not pay more than $1 million in Purchase Payments
without our prior approval. As a general rule, subsequent Purchase Payments may
be made in amounts of $500 or more. Subsequent Purchase Payments made as part of
an Automatic Payment Plan, however, may be as small as $100 per month. However,
each Purchase Payment made to the Dollar Cost Averaging Fixed Account must be at
least $1200. If we receive Purchase Payments designated for the Dollar Cost
Averaging Fixed Account that are lower than the required minimum of $1200, such
amounts will be allocated to the PIMCO Money Market Portfolio. We may lower
these minimums if we choose. We may refuse any Purchase Payment at any time.
AUTOMATIC PAYMENT PLAN. You may make scheduled Purchase Payments of $100 or more
per month by automatic payment through your bank account. Call or write us for
an enrollment form.
CREDIT ENHANCEMENT. We will add a Credit Enhancement to your Contract Value when
each Purchase Payment is received. The Credit Enhancement is payable from our
general account. The amount of a Credit Enhancement is 4% of each Purchase
Payment. The Credit Enhancement will be allocated among the Subaccounts and
Fixed Account in the same proportion that the applicable Purchase Payment is
allocated. The amount returned if the Contract Owner exercises his or
13 PROSPECTUS
her right to return the Contract during your Free Look period will be reduced by
any Credit Enhancements applied.
The expense charges for this Contract may be higher than the expense charges for
annuity contracts that do not offer Credit Enhancements. We expect to recoup the
cost of paying Credit Enhancements through collections of the Withdrawal Charges
on the Contract (which are contingent), as well as our legitimate profits on
this and other contracts we offer. In some circumstances - for example, if you
surrender your Contract while the Withdrawal Charge still applies to a
substantial proportion of your Premiums - your net proceeds may be lower than if
you had purchased one of our other annuity contracts that does not offer Credit
Enhancements. Likewise, over time the amount of the Credit Enhancements may be
offset by higher expenses.
Credit Enhancements are treated as "earnings" for purposes of determining
Withdrawal Charges and free withdrawal amounts on surrenders and partial
withdrawals. Similarly, Credit Enhancements are not treated as an "investment in
the contract" for tax purposes.
ALLOCATION OF PURCHASE PAYMENTS. Your Purchase Payments are allocated to the
Subaccount(s) and the Fixed Account in the proportions that you have selected.
You must specify your allocation in your Contract application, either as
percentages or specific dollar amounts. If you make your allocation in
percentages, the total must equal 100%. We will allocate your subsequent
Purchase Payments in those percentages, until you give us new allocation
instructions. You may not allocate Purchase Payments to the Fixed Account if it
is not available in your state.
If we offer additional Subaccounts in the future, we may limit your right to
allocate your Purchase Payments to up to twenty-three options, counting each
Subaccount and the Fixed Account as one option. For this purpose, we will treat
all of your allocations to the Fixed Account as one option, even if you choose
more than one Guarantee Period.
If your application is complete, we will issue your Contract within two business
days of its receipt at our P.O. Box shown on the first page of this prospectus.
If your application for a Contract is incomplete, we will notify you and seek to
complete the application within five business days. For example, if you do not
fill in allocation percentages, we will contact you to obtain the missing
percentages. If we cannot complete your application within five business days
after we receive it, we will return your application and your Purchase Payment,
unless you expressly permit us to take a longer time.
Usually, we will allocate your initial Purchase Payment to the Subaccounts and
the Fixed Account, as you have instructed us, on the Issue Date. We will
allocate your subsequent Purchase Payments on the date that we receive them at
the next computed Accumulation Unit Value.
In some states, however, we are required to return at least your Purchase
Payment if you cancel your Contract during the "free-look" period. In those
states, we currently will allocate your Purchase Payments on the Issue Date as
you have instructed us, as described above. In the future, however, we reserve
the right, if you live in one of those states, to allocate all Purchase Payments
received during the "free-look period" to the PIMCO Money Market Subaccount. If
we exercise that right and your state's free look period is ten days, we will
transfer your Purchase Payments to your specified Subaccounts or the Fixed
Account 20 days after the Issue Date; if your state's free look period is
longer, we will transfer your Purchase Payment after ten days plus the period
required by state law have passed.
We determine the number of Accumulation Units in each Subaccount to allocate to
your Contract by dividing that portion of your Purchase Payment allocated to a
Subaccount by that Subaccount's Accumulation Unit Value on the Valuation Date
when the allocation occurs.
CONTRACT VALUE. We will establish an account for you and will maintain your
account during the Accumulation Period. The total value of your Contract at any
time is equal to the sum of the value of your Accumulation Units in the
Subaccounts you have selected, plus the value of your investment in the Fixed
Account.
SEPARATE ACCOUNT ACCUMULATION UNIT VALUE. As a general matter, the Accumulation
Unit Value for each Subaccount will rise or fall to reflect changes in the share
price of the Portfolio in which the Subaccount invests. In addition, we subtract
from Accumulation Unit Value amounts reflecting the mortality and expense risk
charge, administrative expense charge, and any provision for taxes that have
accrued since we last calculated the Accumulation Unit Value. We determine
Withdrawal Charges, transfer fees and contract maintenance charges separately
for each Contract. They do not affect Accumulation Unit Value. Instead, we
obtain payment of those charges and fees by redeeming Accumulation Units.
We determine a separate Accumulation Unit Value for each Subaccount. We also
determine a separate set of Accumulation Unit Values reflecting the cost of the
enhanced death benefit rider. If we elect or are required to assess a charge for
taxes, we may calculate a separate Accumulation Unit Value for Contracts issued
in connection with Non-Qualified and Qualified Plans, respectively, within each
Subaccount. We determine the Accumulation Unit Value for each Subaccount Monday
through Friday on each day that the New York Stock Exchange is open for
business.
You should refer to the prospectuses for the Portfolios which accompany this
prospectus for a description of how the assets of each Portfolio are valued,
since that
14 PROSPECTUS
determination has a direct bearing on the Accumulation Unit Value of the
corresponding Subaccount and, therefore, your Contract Value.
TRANSFER DURING ACCUMULATION PERIOD. During the Accumulation Period, you may
transfer Contract Value among the Fixed Account and the Subaccounts in writing
or by telephone. Currently, there is no minimum transfer amount. The Contract
permits us to set a minimum transfer amount in the future. You may not make a
transfer that would result in your allocating your Contract Value to more than
twenty-three options under the Contract at one time.
As a general rule, we only make transfers on days when we and the NYSE are open
for business. If we receive your request on one of those days, we will make the
transfer that day. If you transfer an amount from the Fixed Account to a
Subaccount before the end of the applicable Guarantee Period or you allocate an
amount in the Fixed Account to a new Guarantee Period before the end of the
existing Guarantee Period, we usually will increase or decrease the amount by a
Market Value Adjustment. The calculation of the Market Value Adjustment is
described in "Market Value Adjustment" on page 22.
Transfers within 30 days after the end of the applicable Guarantee Period are
not subject to a Market Value Adjustment.
The Contract permits us to defer transfers from the Fixed Account for up to six
months from the date you ask us.
You may not transfer Contract Value into the Dollar Cost Averaging Fixed Account
Option. You may not transfer Contract Value out of the Dollar Cost Averaging
Fixed Account Option except as part of a Dollar Cost Averaging program.
TRANSFERS AUTHORIZED BY TELEPHONE. You may make transfers by telephone, if you
first send us a completed authorization form. The cut off time for telephone
transfer requests is 4:00 p.m. Eastern time. Calls completed before 4:00 p.m.
will be effected on that day at that day's price. Calls completed after 4:00
p.m. will be effected on the next day on which we and the NYSE are open for
business, at that day's price.
We may charge you the transfer fee or impose a minimum transfer amount as
described on page 32, although we currently are waiving it. At any time, without
notice, we may suspend, modify or terminate your privilege to make transfers via
the telephone, or via other electronic or automated means previously approved by
the Company, including, but not limited to, automated telephone services,
facsimile machine, e-mail and electronic services via online access. Among other
things, we reserve the right to limit the number of such transfers among the
Separate Subaccounts in any Contract year, or to refuse any Separate Subaccount
transfer request. We also reserve the right to restrict such transfers in any
manner reasonably designed to prevent transfers that we consider disadvantageous
to other Contract owners.
We use procedures that we believe provide reasonable assurance that telephone
authorized transfers are genuine. For example, we tape telephone conversations
with persons purporting to authorize transfers and request identifying
information. Accordingly, we disclaim any liability for losses resulting from
allegedly unauthorized telephone transfers. However, if we do not take
reasonable steps to help ensure that a telephone authorization is valid, we may
be liable for such losses.
EXCESSIVE TRADING LIMITS. If allowed in your state, we reserve the right to
limit transfers in any Contract Year, or to refuse any transfer request for a
Contract owner or certain Contract owners, if:
.. we believe, in our sole discretion, that certain trading practices, such as
excessive trading or market timing, by, or on behalf of, one or more Contract
Owners, or a specific transfer request or group of transfer requests, may have
a detrimental effect on the Accumulation Unit Values of any subaccount or the
share prices of the corresponding Portfolios or would be to the disadvantage
of other Contract owners; or
.. we are informed by one or more of the corresponding Portfolios that they
intend to restrict the purchase or redemption of Portfolio shares because of
excessive trading or because they believe that a specific transfer or groups
of transfers would have a detrimental effect on the prices of Portfolio
shares.
We may apply the restrictions in any manner reasonably designed to prevent
transfers that we consider disadvantageous to other Contract owners.
AUTOMATIC DOLLAR COST AVERAGING PROGRAM. Under our Automatic Dollar Cost
Averaging program, you may authorize us to transfer a fixed dollar amount at
fixed intervals from the Dollar Cost Averaging Fixed Account Option or a
Variable Subaccount of your choosing. You may not use the Dollar Cost Averaging
program to transfer amounts from the Guaranteed Maturity Fixed Account Option.
The interval between transfers from the Dollar Cost Averaging Fixed Account may
be monthly only. The interval between transfers from Subaccounts may be monthly,
quarterly, or annually, at your option. The transfers will be made at the
Accumulation Unit Value on the date of the transfer. The transfers will continue
until you instruct us otherwise, or until your chosen source of transfer
payments is exhausted. Currently, the minimum transfer amount is $100 per
transfer. However, if you wish to Dollar Cost Average to a Guaranteed Maturity
Fixed Account Option, the minimum amount that must be transferred into any one
Option is $500. For each purchase payment allocated to this Option, your first
monthly transfer will occur 25 days after such purchase payment. If we do not
receive an allocation from you within 25 days of the purchase payment, we will
transfer the payment plus associated
15 PROSPECTUS
interest to the Money Market Subaccount in equal monthly installments.Your
request to participate in this program will be effective when we receive your
completed application at the P.O. Box given on the first page of this
prospectus. Call or write us for a copy of the application. You may elect to
increase, decrease or change the frequency or amount of transfers under a Dollar
Cost Averaging program. We will not charge a transfer fee for Dollar Cost
Averaging.
The theory of dollar cost averaging is that by spreading your investment over
time, you may be able to reduce the effect of transitory market conditions on
your investment. In addition, because a given dollar amount purchases more units
when the unit prices are relatively low rather than when the prices are higher,
in a fluctuating market, the average cost per unit may be less than the average
of the unit prices on the purchase dates. However, participation in this program
does not assure you of a greater profit from your purchases under the program,
nor will it prevent or necessarily reduce losses in a declining market.
Moreover, while we refer to this program of periodic transfers generally as
Dollar Cost Averaging, periodic transfers from a subaccount with more volatile
performance experience is unlikely to produce the desired effects of Dollar Cost
Averaging as would transfers from a less volatile subaccount.
PORTFOLIO REBALANCING. Portfolio Rebalancing allows you to maintain the
percentage of your Contract Value allocated to each Subaccount at a pre-set
level. For example, you could specify that 30% of your Contract Value should be
in the LSA Focused Equity, 40% in the LSA Balanced and 30% in LSA Disciplined
Equity. Over time, the variations in each Subaccount's investment results will
shift the balance of your Contract Value allocations. Under the Portfolio
Rebalancing feature, each period, if the allocations change from your desired
percentages, we will automatically transfer your Contract Value, including new
Purchase Payments (unless you specify otherwise), back to the percentages you
specify. Portfolio Rebalancing is consistent with maintaining your allocation of
investments among market segments, although it is accomplished by reducing your
Contract Value allocated to the better performing segments.
You may choose to have rebalances made monthly, quarterly, semi-annually, or
annually until your Annuity Date. Portfolio Rebalancing is not available after
you annuitize. We will not charge a transfer fee for Portfolio Rebalancing. We
will automatically terminate this option if you request any transfers outside
the Portfolio Rebalancing program. If you wish to resume the Portfolio
Rebalancing after it has been canceled, then you must complete a new Portfolio
Rebalancing form and send it to our home office. You may not include the Fixed
Account in a Portfolio Rebalancing program.
You may request Portfolio Rebalancing at any time before your Annuity Date by
submitting a completed written request to us at the P.O. Box given on the first
page of this prospectus. Please call or write us for a copy of the request form.
If you stop Portfolio Rebalancing, you must wait 30 days to begin again. In your
request, you may specify a date for your first rebalancing. If you specify a
date fewer than 30 days after your Issue Date, your first rebalance will be
delayed one month. If you request Portfolio Rebalancing in your Contract
application and do not specify a date for your first rebalancing, your first
rebalance will occur one period after the Issue Date. For example, if you
specify quarterly rebalancing, your first rebalance will occur three months
after your Issue Date. Otherwise, your first rebalancing will occur one period
after we receive your completed request form. All subsequent rebalancing will
occur at the intervals you have specified on the day of the month that coincides
with the same day of the month as your Contract Anniversary Date.
Generally, you may change the allocation percentages, frequency, or choice of
Subaccounts at any time. If your total Contract Value subject to rebalancing
falls below any minimum value that we may establish, we may prohibit or limit
your use of Portfolio Rebalancing. You may not use Dollar Cost Averaging and
Portfolio Rebalancing at the same time. We may change, terminate, limit, or
suspend Portfolio Rebalancing at any time.
THE INVESTMENT AND FIXED ACCOUNT OPTIONS
- --------------------------------------------------------------------------------
SEPARATE ACCOUNT INVESTMENTS
THE PORTFOLIOS. Each of the Subaccounts of the Separate Account invests in the
shares of one of the Portfolios. Each Portfolio is either an open-end management
investment company registered under the Investment Company Act of 1940 or a
separate investment series of an open-end management investment company. We have
briefly described the Portfolios below. You should consult the current
prospectuses for the Portfolios for more detailed and complete information
concerning the Portfolios. If you do not have a prospectus for a Portfolio,
contact us and we will send you a copy. Appendix B contains a description of how
advertised performance data for the Subaccounts are computed.
We do not promise that the Portfolios will meet their investment objectives.
Amounts you have allocated to Subaccounts may grow in value, decline in value,
or grow less than you expect, depending on the investment performance of the
Portfolios in which those Subaccounts invest. You bear the investment risk that
those Portfolios possibly will not meet their investment objectives. You should
carefully review their prospectuses
16 PROSPECTUS
before allocating amounts to the Subaccounts of the Separate Account.
PORTFOLIO PORTFOLIO OBJECTIVE INVESTMENT ADVISER
- -------------------------------------------------------------------------------
THE ALGER AMERICAN FUND
- -------------------------------------------------------------------------------
Growth Portfolio - ALGER
Class S
- -------------------------------------------------------------------------------
FIDELITY(R) VARIABLE INSURANCE PRODUCTS
- -------------------------------------------------------------------------------
Growth Portfolio -
Service Class 2
- -------------------------------------------------------FIDELITY MANAGEMENT &
Investment Grade Bond As high a level of current RESEARCH COMPANY
Portfolio - Service income as is consistent with
Class 2 the preservation of capital.
- -------------------------------------------------------
Overseas Portfolio - Long-term growth of capital
Service Class 2
- -------------------------------------------------------------------------------
GOLDMAN SACHS VARIABLE INSURANCE TRUST
- -------------------------------------------------------------------------------
CORE/SM/ Small Cap Long-term growth of capital GOLDMAN SACHS ASSET
Equity Fund MANAGEMENT, L.P.
- -------------------------------------------------------------------------------
International Equity Long-term capital GOLDMAN SACHS ASSET
Fund appreciation MANAGEMENT INTERNATIONAL
- -------------------------------------------------------------------------------
JANUS ASPEN SERIES
- -------------------------------------------------------------------------------
International Value Long-term growth of capital
Portfolio: Service
Shares (formerly JANUS CAPITAL MANAGEMENT
Global Value LLC
Portfolio)
- -------------------------------------------------------
Worldwide Growth Long-term growth of capital
Portfolio: Service in a manner consistent with
Shares the preservation of capital.
- -------------------------------------------------------------------------------
J.P. MORGAN SERIES TRUST II
- -------------------------------------------------------------------------------
Small Company High total return from a J.P. MORGAN INVESTMENT
Portfolio portfolio of small company MANAGEMENT, INC.
stocks.
- -------------------------------------------------------------------------------
LAZARD RETIREMENT SERIES INC.
- -------------------------------------------------------------------------------
Emerging Markets Long-term capital LAZARD ASSET MANAGEMENT
Portfolio appreciation LLC
- -------------------------------------------------------------------------------
International Equity Long-term capital
Portfolio appreciation
- -------------------------------------------------------------------------------
LSA VARIABLE SERIES TRUST
- -------------------------------------------------------------------------------
Aggressive Growth Fund Long-term growth of capital
(1) by investing primarily in
equity securities of small
and mid-sized growth
companies.
- -------------------------------------------------------
Balanced Fund (2) Seeks growth of capital,
with investment
income as a secondary objective,
by investing in a mix
of equity and debt securities.
- -------------------------------------------------------
Basic Value Fund (3) Seeks long-term growth of
capital by investing
primarily in common stocks
which the Adviser believes
to be undervalued in
relation to long-term
earnings power or other
factors.
- -------------------------------------------------------
Blue Chip Fund (3) Seeks long-term growth of
capital, with current income
as a secondary objective, by
investing primarily in equity
securities of blue chip companies.
- -------------------------------------------------------
Capital Appreciation Seeks long-term growth of
Fund (4) capital by investing LSA ASSET MANAGEMENT LLC
primarily in equity
securities listed on
national exchanges or on
NASDAQ(R).
- -------------------------------------------------------
Diversified Mid-Cap Seeks long-term growth of
Fund (5) capital by investing in
securities of companies with
medium market
capitalizations.
- -------------------------------------------------------
Emerging Growth Equity Seeks capital appreciation by
Fund (6) investing primarily in
rapidly growing emerging
companies.
- -------------------------------------------------------
Equity Growth Fund* Seeks long-term capital
(7) (formerly Focused appreciation by investing
Equity) primarily in growth oriented
equity securities of large
capitalization companies.
- -------------------------------------------------------
Capital Growth Fund Seeks long-term growth of
(formerly Growth capital by investing in a
Equity Fund) (8) diversified portfolio of
equity securities.
- -------------------------------------------------------
Mid Cap Value Fund (1) Seeks long-term growth of capital by
investing primarily in equity
securities of companies with
medium market
capitalizations.
- -------------------------------------------------------
Value Equity Fund (9) Seeks long-term growth of
capital, with current income
as a secondary objective, by
investing primarily in common
stocks of established U.S.
companies.
- -------------------------------------------------------------------------------
MFS
- -------------------------------------------------------------------------------
New Discovery Series - Capital appreciation MFS INVESTMENT
Service Class MANAGEMENT(R)
- -------------------------------------------------------
Utilities Series - Capital growth and current
Service Class income
- -------------------------------------------------------------------------------
OPPENHEIMER VARIABLE ACCOUNT FUNDS
- -------------------------------------------------------------------------------
Main Street Small Cap Capital appreciation OPPENHEIMER FUNDS, INC.
Fund/VA - Service
Class
- -------------------------------------------------------------------------------
PIMCO ADVISERS VIT
- -------------------------------------------------------------------------------
OpCap Equity Portfolio Long-term capital
appreciation
- -------------------------------------------------------OPCAP ADVISORS LLC
PEA Science and Capital appreciation
Technology Portfolio
(10)
- -------------------------------------------------------
OpCap Small Cap Capital appreciation
Portfolio
- -------------------------------------------------------------------------------
PIMCO VARIABLE INSURANCE TRUST
- -------------------------------------------------------------------------------
Foreign Bond Portfolio To maximize total return,
consistent with
preservation of capital and
prudent investment
management.
- -------------------------------------------------------
Money Market Portfolio To obtain maximum current
income consistent with PACIFIC INVESTMENT
preservation of capital and MANAGEMENT COMPANY
daily liquidity.
- -------------------------------------------------------
StocksPLUS Growth and A total return which exceeds
Income Portfolio the total return performance
of the S&P 500.
- -------------------------------------------------------
Total Return Portfolio To maximize total return,
consistent with preservation
of capital and prudent
investment management.
- -------------------------------------------------------------------------------
PUTNAM VARIABLE TRUST
- -------------------------------------------------------------------------------
High Yield Fund - High current income. Capital
Class IB growth is a secondary goal
when consistent with
achieving high current
income. The fund seeks its PUTNAM INVESTMENT
goal by investing at least MANAGEMENT, INC.
80% in U.S. corporate bonds
rated below investment grade
(junkbonds) and that have
intermediate to long-term
maturities (three years or
longer.)
- -------------------------------------------------------------------------------
RYDEX VARIABLE TRUST
- -------------------------------------------------------------------------------
OTC Fund Investment results that
correspond to a benchmark for
over-the-counter securities. RYDEX GLOBAL ADVISERS
The Portfolio's current
benchmark is the NASDAQ 100
Index.
- -------------------------------------------------------------------------------
SALOMON BROTHERS VARIABLE SERIES FUNDS INC
- -------------------------------------------------------------------------------
All Cap Fund (formerly Capital appreciation through
Capital Fund) investment in securities SALOMON BROTHERS ASSET
that the investment manager MANAGEMENT INC
believes have above-average
capital appreciation
potential.
- -------------------------------------------------------------------------------
THE UNIVERSAL INSTITUTIONAL FUNDS, INC.
- -------------------------------------------------------------------------------
High Yield Portfolio Above-average
total return over a market
cycle of three to five years
by investing primarily in
high yield securities.
- -------------------------------------------------------
Mid Cap Growth Long-term capital growth by VAN KAMPEN**
Portfolio investing primarily in common
stocks and other equity
securities.
- -------------------------------------------------------
U.S. Mid Cap Core Above-average total return
Portfolio (formerly over a market
Mid Cap Value cycle of three to five years by
Portfolio) investing in common stocks
and other equity
securities.
- -------------------------------------------------------------------------------
VAN KAMPEN LIFE INVESTMENT TRUST
- -------------------------------------------------------------------------------
Growth and Income Long-term growth of capital VAN KAMPEN ASSET
Portfolio, Class II and income MANAGEMENT INC.
- -------------------------------------------------------------------------------
17 PROSPECTUS
*Effective April 30, 2003, the Disciplined Equity Fund merged into the Focused
Equity Fund. Effective May 1, 2003, the Focused Equity Fund changed its name
to the Equity Growth Fund.
**Morgan Stanley Investment Management Inc., the investment adviser to the Van
Kampen UIF Portfolios, does business in certain instances as Van Kampen.
1. Sub-advised by Van Kampen Asset Management Inc.
2. Sub-advised by OpCap Advisors.
3. Sub-advised by A I M Capital Management, Inc.
4. Sub-advised by Janus Capital Corporation.
5. Sub-advised by Fidelity Management & Research Company.
6. Sub-advised by RS Investment Management, L.P.
7. Sub-advised by Van Kampen.
8. Sub-advised by Goldman Sachs Asset Management.
9. Sub-advised by Salomon Brothers Asset Management Inc
10. Sub-advised by PIMCO Equity Advisers LLC
19 PROSPECTUS
Each Portfolio is subject to certain investment restrictions and policies which
may not be changed without the approval of a majority of the shareholders of the
Portfolio. See the accompanying prospectuses of the Portfolios for further
information.
We automatically reinvest all dividends and capital gains distributions from the
Portfolios in shares of the distributing Portfolio at their net asset value. The
income and realized and unrealized gains or losses on the assets of each
Subaccount are separate and are credited to or charged against the particular
Subaccount without regard to income, gains or losses from any other Subaccount
or from any other part of our business. We will use the net Purchase Payments
you allocate to a Subaccount to purchase shares in the corresponding Portfolio
and will redeem shares in the Portfolios to meet Contract obligations or make
adjustments in reserves. The Portfolios are required to redeem their shares at
net asset value and to make payment within seven days.
Some of the Portfolios have been established by investment advisors which manage
publicly traded mutual funds having similar names and investment objectives.
While some of the Portfolios may be similar to, and may in fact be modeled after
publicly traded mutual funds, you should understand that the Portfolios are not
otherwise directly related to any publicly traded mutual fund. Consequently, the
investment performance of publicly traded mutual funds and any similarly named
Portfolio may differ substantially.
Some of the Portfolios sell their shares to separate accounts underlying both
variable life insurance and variable annuity contracts. It is conceivable that
in the future it may be unfavorable for variable life insurance separate
accounts and variable annuity separate accounts to invest in the same Portfolio.
Although neither we nor any of the Portfolios currently foresees any such
disadvantages either to variable life insurance or variable annuity contract
owners, each Portfolio's Board of Directors intends to monitor events in order
to identify any material conflicts between variable life and variable annuity
contract owners and to determine what action, if any, should be taken in
response thereto. If a Board of Directors were to conclude that separate
investment funds should be established for variable life and variable annuity
separate accounts, Lincoln Benefit will bear the attendant expenses.
VOTING RIGHTS. As a general matter, you do not have a direct right to vote the
shares of the Portfolios held by the Subaccounts to which you have allocated
your Contract Value. Under current law, however, you are entitled to give us
instructions on how to vote those shares on certain matters. We will notify you
when your instructions are needed. We will also provide proxy materials or other
information to assist you in understanding the matter at issue. We will
determine the number of shares for which you may give voting instructions as of
the record date set by the relevant Portfolio for the shareholder meeting at
which the vote will occur.
As a general rule, before the Annuity Date, you are the person entitled to give
voting instructions. After the Annuity Date, the payee is that person.
Retirement plans, however, may have different rules for voting by plan
participants.
If you send us written voting instructions, we will follow your instructions in
voting the Portfolio shares attributable to your Contract. If you do not send us
written instructions, we will vote the shares attributable to your Contract in
the same proportions as we vote the shares for which we have received
instructions from other Contract Owners. We will vote shares that we hold in the
same proportions as we vote the shares for which we have received instructions
from other Contract Owners.
We may, when required by state insurance regulatory authorities, disregard
Contract Owner voting instructions if the instructions require that the shares
be voted so as to cause a change in the sub-classification or investment
objective of one or more of the Portfolios or to approve or disapprove an
investment advisory contract for one or more of the Portfolios.
In addition, we may disregard voting instructions in favor of changes initiated
by Contract Owners in the investment objectives or the investment advisor of the
Portfolios if we reasonably disapprove of the proposed change. We would
disapprove a proposed change only if the proposed change is contrary to state
law or prohibited by state regulatory authorities or we reasonably conclude that
the proposed change would not be consistent with the investment objectives of
the Portfolio or would result in the purchase of securities for the Portfolio
which vary from the general quality and nature of investments and investment
techniques utilized by the Portfolio. If we disregard voting instructions, we
will include a summary of that action and our reasons for that action in the
next semi-annual financial report to you.
This description reflects our view of currently applicable law. If the law
changes or our interpretation of the law changes, we may decide that we are
permitted to vote the Portfolio shares without obtaining instructions from our
Contract Owners, and we may choose to do so.
ADDITIONS, DELETIONS, AND SUBSTITUTIONS OF SECURITIES. If the shares of any of
the Portfolios are no longer available for investment by the Separate Account or
if, in the judgment of our Board of Directors, further investment in the shares
of a Portfolio is no longer appropriate in view of the purposes of the Contract,
we may add or substitute shares of another Portfolio or mutual fund for
Portfolio shares already purchased or to be purchased in the future by Purchase
Payments under the Contract. Any substitution of securities will comply with the
requirements of the 1940 Act.
20 PROSPECTUS
We also reserve the right to make the following changes in the operation of the
Separate Account and the Subaccounts:
(a) to operate the Separate Account in any form permitted by law;
(b) to take any action necessary to comply with applicable law or obtain and
continue any exemption from applicable laws;
(c) to transfer assets from one Subaccount to another, or from any subaccount
to our general account;
(d) to add, combine, or remove Subaccounts in the Separate Account; and
(e) to change the way in which we assess charges, as long as the total charges
do not exceed the maximum amount that may be charged the Separate Account and
the Portfolios in connection with the Contracts.
If we take any of these actions, we will comply with the then applicable legal
requirements.
THE FIXED ACCOUNT
GENERAL. You may allocate part or all of your Purchase Payments to the Fixed
Account in states where it is available. Amounts allocated to the Fixed Account
become part of the general assets of Lincoln Benefit. Loan Payments may not be
allocated to the Fixed Account(s). Allstate Life invests the assets of the
general account in accordance with applicable laws governing the investments of
insurance company general accounts. The Fixed Account may not be available in
all states. Please contact us at 1-800-865-5237 for current information.
GUARANTEED MATURITY FIXED ACCOUNT OPTION. We will credit interest to each amount
allocated to the Guaranteed Maturity Fixed Account Option at a specified rate
for a specified Guarantee Period. You select the Guarantee Period for each
amount that you allocate to this option. We will declare the interest rate that
we will guarantee to credit to that amount for that Guarantee Period. Each
amount allocated to a Guarantee Period under this option must be at least $500.
We reserve the right to limit the number of additional Purchase Payments that
may be allocated to this option.
We will tell you what interest rates and Guarantee Periods we are offering at a
particular time. We may offer Guarantee Periods ranging from one to ten years in
length. We will decide in our discretion which Guarantee Periods to offer.
Currently, we offer Guarantee Periods of one, three, five, seven and ten years.
In the future we may offer Guarantee Periods of different lengths or stop
offering some Guarantee Periods.
We will credit interest daily to each amount allocated to a Guarantee Period
under this option at a rate which compounds to the effective annual interest
rate that we declared at the beginning of the applicable Guarantee Period. We
will not change the interest rate credited to a particular allocation until the
end of the relevant Guarantee Period. We may declare different interest rates
for Guarantee Periods of the same length that begin at different times.
The following example illustrates how a Purchase Payment allocated to this
option would grow, given an assumed Guarantee Period and effective annual
interest rate:
EXAMPLE
Purchase Payment $10,000
Guarantee Period 5years
Effective Annual Rate 4.50%
Credit Enhancement $ 400
21 PROSPECTUS
END OF CONTACT YEAR
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
---------- ----------- ---------- ---------- ------------
Beginning Contract
Value $10,400.00
x (1 + Effective
Annual Rate) x 1.045
----------
$10,868.00
Contract Value at end
of Contract Year $$10,868.00
x (1 + Effective
Annual Rate) x 1.045
-----------
$ 11,357.06
Contract Value at end
of Contract Year $11,357.06
x (1 + Effective
Annual Rate) x 1.045
----------
$11,868.13
Contract Value at end
of Contract Year $11,868.13
x (1 + Effective
Annual Rate) x 1.045
----------
$12,402.19
Contract Value at end
of Contract Year $12,402.19
x (1 + Effective
Annual Rate) x 1.045
----------
$12,960.29
TOTAL INTEREST CREDITED DURING GUARANTEE PERIOD = $2,560.29 ($12,960.29 -
$10,400)
NOTE: This example assumes no withdrawals during the entire five-year Guarantee
Period. If you were to make a partial withdrawal, you might be required to pay a
Withdrawal Charge and the amount withdrawn might be increased or decreased by a
Market Value Adjustment. The hypothetical interest rate is for illustrative
- -----------------------
purposes only and is not intended to predict future interest rates to be
declared under the Contract.
We have no specific formula for determining the rate of interest that we will
declare initially or in the future. We will set those interest rates based on
relevant factors such as then current interest rates, regulatory and tax
requirements, our sales commission and administrative expenses, general economic
trends, and competitive factors. For current interest rate information, please
contact us at 1-800-865-5237.
WE WILL DETERMINE THE INTEREST RATES TO BE DECLARED IN OUR SOLE DISCRETION. WE
CAN NEITHER PREDICT NOR GUARANTEE WHAT THOSE RATES WILL BE IN THE FUTURE.
At the end of each Guarantee Period, we will mail you a notice asking you what
to do with the relevant amount, including the accrued interest. During the
30-day period after the end of the Guarantee Period, you may:
1) take no action. If so, we will automatically keep the relevant amount in the
Guaranteed Maturity Fixed Account Option. The new Guarantee Period will be the
same length as the expiring Guarantee Period and will begin on the day the
previous Guarantee Period ends. The new interest rate will be our then current
declared rate for Guarantee Periods of that length; or
2) allocate the relevant Contract Value to one or more new Guarantee Periods of
your choice in the Guaranteed Maturity Fixed Account Option. The new Guarantee
Period(s) will begin on the day the previous Guarantee Period ends. The new
interest rate will be our then current declared rate for those Guarantee
Periods; or
3) instruct us to transfer all or a portion of the relevant amount to one or
more Subaccounts. We will effect the transfer on the day we receive your
instructions. We will not adjust the amount transferred to include a Market
Value Adjustment; or
4) withdraw all or a portion of the relevant amount through a partial
withdrawal. You may be required to pay a Withdrawal Charge, but we will not
adjust the amount withdrawn to include a Market Value Adjustment. The amount
withdrawn will be deemed to have been withdrawn on the day the Guarantee
Period ends.
Under our Automatic Laddering Program, you may choose, in advance, to use
Guarantee Periods of the same length for all renewals in the Guaranteed Maturity
Fixed Account Option. You can select this program at any time during the
Accumulation Period, including on the Issue Date. We will apply renewals to
Guarantee Periods of the selected length until you direct us in writing to stop.
We may stop offering this program at any time.
MARKET VALUE ADJUSTMENT. If permitted by your state, we may increase or decrease
the amount of some transactions involving your investment in the Guaranteed
Maturity Fixed Account Option to include a Market Value Adjustment. The formula
for determining Market Value Adjustments reflects changes in interest rates
since the beginning of the relevant Guarantee Period. As a result, you will bear
some of the investment risk on amounts allocated to the Guaranteed Maturity
Fixed Account Option.
22 PROSPECTUS
As a general rule, we will apply a Market Value Adjustment to the following
transactions involving your Fixed Account balance:
1) when you withdraw funds from the Guaranteed Maturity Fixed Account Option in
an amount greater than the Free Withdrawal Amount, as described on page 33;
2) when you transfer funds from the Guaranteed Maturity Fixed Account Option to
the Subaccounts;
3) when you allocate part of your balance in the Guaranteed Maturity Fixed
Account Option to a new Guarantee Period before the end of the existing
Guarantee Period;
4) when you annuitize your Contract; and
5) when we pay a death benefit.
We will not apply a Market Value Adjustment to a transaction, to the extent
that:
1) it occurs within 30 days after the end of a Guarantee Period applicable to
the funds involved in the transaction; or
2) you make a withdrawal to satisfy the IRS' required minimum distribution rules
for this Contract.
The formula for calculating Market Value Adjustments is set forth in Appendix C
to this prospectus, which also contains additional examples of the application
of the Market Value Adjustment. This formula primarily compares:
1) the Treasury Rate at the time of the relevant transaction for a maturity
equal in length to the relevant Guarantee Period; and
2) the Treasury Rate at the beginning of the Guarantee Period for a maturity
equal in length to the Guarantee Period.
Generally, if the Treasury Rate at the beginning of the Guarantee Period is
higher than the corresponding current Treasury Rate, then the Market Value
Adjustment will increase the amount payable to you or transferred. Similarly, if
the Treasury Rate at the beginning of the Guarantee Period is lower than the
corresponding current Treasury Rate, then the Market Value Adjustment will
reduce the amount payable to you or transferred.
For example, assume that you purchased a Contract and selected an initial
Guarantee Period of five years and the five-year Treasury Rate for that duration
is 4.50%. Assume that at the end of three years, you make a partial withdrawal.
If, at that later time, the current five-year Treasury Rate is 4.20%, then the
Market Value Adjustment will be positive, which will result in an increase in
the amount payable to you. Similarly, if the current five-year Treasury Rate is
4.80%, then the Market Value Adjustment will be negative, which will result in a
decrease in the amount payable to you.
DOLLAR COST AVERAGING FIXED ACCOUNT OPTION. If permitted by your state, you may
also allocate Purchase Payments to the Dollar Cost Averaging Fixed Account
Option. We will credit interest to Purchase Payments allocated to this option
for up to one year at the current rate that we declare when you make the
allocation. The effective annual rate will never be less than 3%. You may not
transfer funds to this option from the Subaccounts or the Guaranteed Maturity
Fixed Account Option. We will follow your instructions in transferring amounts
from this option to the Subaccounts or the Guaranteed Maturity Fixed Account
Option on a monthly basis only, as described in "Automatic Dollar Cost Averaging
Program" on page 15 of this prospectus.
ANNUITY BENEFITS
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ANNUITY DATE. You may select the Annuity Date, which is the date on which
annuity payments are to begin, in your application. The Annuity Date must always
be the business day immediately following the tenth day of a calendar month.
The Annuity Date may be no later than the Latest Annuity Date. As a general
rule, the Latest Annuity Date is the later of the 10th Contract Anniversary or
the Annuitant's 90/TH/ birthday. If your Contract was issued pursuant to a
Qualified Plan, however, the Tax Code generally requires you to begin to take at
least a minimum distribution by the later of:
.. the year of your separation from service; or
.. April 1 of the calendar year following the calendar year in which you attain
age 70 1/2 .
If your Contract is issued pursuant to Section 408 of the Tax Code (traditional
IRAs), you must begin taking minimum distributions by April 1 of the calendar
year following the calendar year in which you reach age 70 1/2. No minimum
distributions are required by the Tax Code for Contracts issued pursuant to
Section 408A (Roth IRAs).
If your Contract was purchased by a Qualified Plan, we may require you to
annuitize by the date required by the Tax Code, unless you show us that you are
meeting the minimum distribution requirements in some other way.
If you do not select an Annuity Date, the Latest Annuity Date will automatically
become the Annuity Date. You may change the Annuity Date by writing to us at the
address given on the first page of the prospectus.
ANNUITY OPTIONS. You may elect an Annuity Option at any time before the Annuity
Date. As part of your election, you may choose the length of the applicable
guaranteed payment period within the limits available for
23 PROSPECTUS
your chosen Option. If you do not select an Annuity Option, we will pay monthly
annuity payments in accordance with the applicable default Option. The default
Options are:
.. Option A with 10 years (120 months) guaranteed, if you have designated only
one Annuitant; and
.. Option B with 10 years (120 months) guaranteed, if you have designated joint
Annuitants.
You may freely change your choice of Annuity Option, as long as you request the
change at least thirty days before the Annuity Date. Three Annuity Options are
generally available under the Contract. Each is available in the form of:
.. a Fixed Annuity;
.. a Variable Annuity; or
.. a combination of both Fixed and Variable Annuity.
The three Annuity Options are:
OPTION A, LIFE ANNUITY WITH PAYMENTS GUARANTEED FOR 5 TO 20 YEARS. We make
periodic payments at least as long as the Annuitant lives. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION B, JOINT AND SURVIVOR ANNUITY, WITH PAYMENTS GUARANTEED FOR 5 TO 20
YEARS. We make periodic payments at least as long as either the Annuitant or the
Joint Annuitant is alive. If both the Annuitant and the Joint Annuitant die
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary.
OPTION C, PAYMENTS FOR A SPECIFIED PERIOD CERTAIN OF 5 YEARS TO 30 YEARS. We
make periodic payments for the period you have chosen. If the Annuitant dies
before all of the guaranteed payments have been made, we will pay the remaining
guaranteed payments to the Beneficiary. If you elect this option, and request
Variable Annuity payments, you may at any time before the period expires request
a lump sum payment, subject to a Withdrawal Charge. We will charge a Withdrawal
Charge on any portion of your lump sum payment attributable to Purchase Payments
made within the prior eight years. The amount of the Withdrawal Charge will be
determined as described in "Withdrawal Charge" on page 32 below. If you elected
Variable Annuity payments, the lump sum payment after Withdrawal Charge will
depend on:
.. the investment results of the Subaccounts you have selected,
.. the Contract Value at the time you elected annuitization, and
.. the length of the remaining period for which the payee would be entitled to
payments.
No lump sum payment is available if you request Fixed Annuity payments. If you
purchased your Contract under a retirement plan, you may have a more limited
selection of Annuity Options to choose from. You should consult your Plan
documents to see what is available.
You may not "annuitize" your Contract for a lump sum payment. Instead, before
the Annuity Date you may surrender your Contract for a lump sum. As described on
page 32 above, however, we will subtract any applicable Withdrawal Charge and
increase or decrease your surrender proceeds by any applicable Market Value
Adjustment.
OTHER OPTIONS. We may have other Annuity Options available. You may obtain
information about them by writing or calling us.
If your Contract is issued under Sections 401, 403(b), 408 or 408A of the Tax
Code, we will only make payments to you and/or your spouse.
ANNUITY PAYMENTS: GENERAL. On the Annuity Date, we will apply the Annuitized
Value of your Contract to the Annuity Option you have chosen. Your annuity
payments may consist of Variable Annuity payments or Fixed Annuity payments or a
combination of the two. We will determine the amount of your annuity payments as
described in "Variable Annuity Payments" and "Fixed Annuity Payments" on page
25.
You must notify us in writing at least 30 days before the Annuity Date how you
wish to allocate your Annuitized Value between Variable Annuity and Fixed
Annuity payments. You must apply at least the Contract Value in the Fixed
Account on the Annuity Date to Fixed Annuity payments. If you wish to apply any
portion of your Fixed Account balance to your Variable Annuity payments, you
should plan ahead and transfer that amount to the Subaccounts prior to the
Annuity Date. If you do not tell us how to allocate your Contract Value among
Fixed and Variable Annuity payments, we will apply your Contract Value in the
Separate Account to Variable Annuity payments and your Contract Value in the
Fixed Account to Fixed Annuity payments.
Annuity payments begin on the Annuity Date. We make subsequent annuity payments
on the tenth of the month or, if the NYSE is closed on that day, the next day on
which the NYSE is open for business.
Annuity payments will be made in monthly, quarterly, semi-annual or annual
installments as you select. If the amount available to apply under an Annuity
Option is less than $5,000, however, and state law permits, we may pay you a
lump sum instead of the periodic payments you have chosen. In addition, if the
first annuity payment would be less than $50, and state law permits us, we may
reduce the frequency of payments so that the initial payment will be at least
$50.
24 PROSPECTUS
We may defer for up to 15 days the payment of any amount attributable to a
Purchase Payment made by check to allow the check reasonable time to clear.
YOU MAY NOT WITHDRAW CONTRACT VALUE DURING THE ANNUITY PERIOD, IF WE ARE MAKING
PAYMENTS TO YOU UNDER ANY ANNUITY OPTION, SUCH AS OPTION A OR B ABOVE, INVOLVING
PAYMENT TO THE PAYEE FOR LIFE OR ANY COMBINATION OF PAYMENTS FOR LIFE AND
MINIMUM GUARANTEE PERIOD FOR A PREDETERMINED NUMBER OF YEARS.
VARIABLE ANNUITY PAYMENTS. One basic objective of the Contract is to provide
Variable Annuity Payments which will to some degree respond to changes in the
economic environment. The amount of your Variable Annuity Payments will depend
upon the investment results of the Subaccounts you have selected, any premium
taxes, the age and sex of the Annuitant, and the Annuity Option chosen. We
guarantee that the Payments will not be affected by: (1) actual mortality
experience; and (2) the amount of our administration expenses.
We cannot predict the total amount of your Variable Annuity payments. The
Variable Annuity payments may be more or less than your total Purchase Payments
because: (a) Variable Annuity payments vary with the investment results of the
underlying Portfolios; and (b) Annuitants may die before their actuarial life
expectancy is achieved.
The length of any guaranteed payment period under your selected Annuity Option
will affect the dollar amounts of each Variable Annuity payment. As a general
rule, longer guarantee periods result in lower periodic payments, all other
things being equal. For example, if a life Annuity Option with no minimum
guaranteed payment period is chosen, the Variable Annuity payments will be
greater than Variable Annuity payments under an Annuity Option for a minimum
specified period and guaranteed thereafter for life.
The investment results of the Subaccounts to which you have allocated your
Contract Value will also affect the amount of your periodic payment. In
calculating the amount of the periodic payments in the annuity tables in the
Contract, we assumed an annual investment rate of 3 1/2%. If the actual net
investment return is less than the assumed investment rate, then the dollar
amount of the Variable Annuity payments will decrease. The dollar amount of the
Variable Annuity payments will stay level if the net investment return equals
the assumed investment rate and the dollar amount of the Variable Annuity
payments will increase if the net investment return exceeds the assumed
investment rate. You should consult the Statement of Additional Information for
more detailed information as to how we determine Variable Annuity Payments.
FIXED ANNUITY PAYMENTS. You may choose to apply a portion of your Annuitized
Value to provide Fixed Annuity payments. We determine the Fixed Annuity payment
amount by applying the applicable Annuitized Value to the Annuity Option you
have selected.
As a general rule, subsequent Fixed Annuity payments will be equal in amount to
the initial payment. However, as described in "Transfers During the Annuity
Period" below, after the Annuity Date, you will have a limited ability to
increase the amount of your Fixed Annuity payments by making transfers from the
Subaccounts.
We may defer making Fixed Annuity payments for a period of up to six months or
whatever shorter time state law may require. During the deferral period, we
credit interest at a rate at least as high as state law requires.
TRANSFERS DURING THE ANNUITY PERIOD. During the Annuity Period, you will have a
limited ability to make transfers among the Subaccounts so as to change the
relative weighting of the Subaccounts on which your Variable Annuity payments
will be based. In addition, you will have a limited ability to make transfers
from the Subaccounts to increase the proportion of your annuity payments
consisting of Fixed Annuity payments. You may not, however, convert any portion
of your right to receive Fixed Annuity payments into Variable Annuity payments.
You may not make any transfers for the first six months after the Annuity Date.
Thereafter, you may make transfers among the Subaccounts or make transfers from
the Subaccounts to increase your Fixed Annuity payments. Your transfers must be
at least six months apart.
DEATH BENEFIT DURING ANNUITY PERIOD. If any Contract Owner dies after the
Annuity Date, the Successor Contract Owner will receive any guaranteed annuity
payments scheduled to continue. If the successor Owner dies before all of the
guaranteed payments have been made, we will continue the guaranteed payments to
the Beneficiary(ies). After annuity payments begin, upon the death of the
Annuitant and any Joint Annuitant, we will make any remaining guaranteed
payments to the Beneficiary. The amount and number of these guaranteed payments
will depend on the Annuity Option in effect at the time of the Annuitant's
death. After the Annuitant's death, any remaining guaranteed payments will be
distributed at least as rapidly as under the method of distribution in effect at
the Annuitant's death.
CERTAIN EMPLOYEE BENEFIT PLANS. The Contracts offered by this prospectus contain
income payment tables that provide for different payments to men and women of
the same age, except in states that require unisex tables. We reserve the right
to use income payment tables that do not distinguish on the basis of sex to the
extent permitted by applicable law. In certain employment-related situations,
employers are required by law to use the same income payment tables for men and
women. Accordingly, if the Contract is to be used in connection
25 PROSPECTUS
with an employment-related retirement or benefit plan and we do not offer unisex
annuity tables in your state, you should consult with legal counsel as to
whether the purchase of a Contract is appropriate.
OTHER CONTRACT BENEFITS
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DEATH BENEFIT: GENERAL. We will pay a distribution on death, if:
1) the Contract is in force;
2) annuity payments have not begun; and
3) either:
(a) any Owner dies; or
(b) the Annuitant dies and the Owner is a non-living person.
DUE PROOF OF DEATH. A complete request for settlement of the Death Proceeds must
be submitted before the Annuity Date. Where there are multiple beneficiaries, we
will value the Death Benefit at the time the first beneficiary submits a
complete request for settlement of the Death Proceeds. A complete request must
include "Due Proof of Death". We will accept the following documentation as Due
Proof of Death:
.. a certified original copy of the Death Certificate;
.. a certified copy of a court decree as to the finding of death; or
.. a written statement of a medical doctor who attended the deceased at the time
of death.
In addition, in our discretion we may accept other types of proof.
DEATH PROCEEDS. If we receive a complete request for settlement of the Death
Proceeds within 180 days of the date of your death, the Death Proceeds are equal
to the Death Benefit as described below. Otherwise, the Death Proceeds are equal
to the greater of the Contract Value or the Surrender Value. We reserve the
right to waive or extend, on a nondiscriminatory basis, the 180-day period in
which the Death Proceeds will equal the Death Benefit as described below. This
right applies only to the amount payable as Death Proceeds and in no way
restricts when the claim may be filed.
DEATH BENEFIT AMOUNT. The standard Death Benefit under the Contract is the
greatest of the following:
1) the total Purchase Payments, less a withdrawal adjustment for any prior
partial withdrawals;
2) the Contract Value on the date as of which we calculate the Death Benefit;
3) the Surrender Value;
4) the Contract Value on the eighth Contract Anniversary and each subsequent
Contract Anniversary evenly divisible by eight, increased by the total
Purchase Payments since that anniversary and reduced by a withdrawal
adjustment for any partial withdrawals since that anniversary.
The withdrawal adjustment for the Death Benefit will equal (a) divided by (b),
with the result multiplied by (c), where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the value of the applicable Death Benefit immediately before the
withdrawal.
As described in Enhanced Death Benefit Rider on page 27, you may add an optional
rider that in some circumstances may increase the Death Benefit under your
Contract.
DEATH BENEFIT PAYMENTS.
1. If your spouse is the sole beneficiary:
a. Your spouse may elect to receive the Death Proceeds in a lump sum; or
b. Your spouse may elect to receive the Death Proceeds paid out under one of the
annuity options, subject to the following conditions:
The Annuity Date must be within one year of your date of death. Annuity payments
must be payable:
i. over the life of your spouse; or
ii. for a guaranteed number of payments from 5 to 30 years but not to exceed the
life expectancy of your spouse; or
iii. over the life of your spouse with a guaranteed number of payments from 5 to
30 years but not to exceed the life expectancy of your spouse.
c. If your spouse chooses to continue the Contract or does not elect one of
these options, then the Contract will continue in the Accumulation Period as if
the death had not occurred. If the Contract is continued in the Accumulation
Period, the following conditions apply:
Unless otherwise instructed by the continuing spouse, the excess, if any, of the
Death Proceeds over the Contract Value will be allocated to the Subaccounts.
This excess will be allocated in proportion to your Contract Value in those
Subaccounts as of the end of the Valuation Period during which we receive the
complete request for settlement of the Death Proceeds, except that any portion
of this excess attributable to the fixed account options will be allocated to
the Money Market Subaccount. Within 30 days of the date the Contract is
continued, your surviving spouse may choose one of the following transfer
alternatives without incurring a transfer fee:
26 PROSPECTUS
i. transfer all or a portion of the excess among the Subaccounts;
ii. transfer all or a portion of the excess into the Guaranteed Maturity Fixed
Account and begin a new Guarantee Period; or
iii. transfer all or a portion of the excess into a combination of subaccounts
and the Guaranteed Maturity Fixed Account.
Any such transfer does not count as the free transfer allowed each calendar
month and is subject to any minimum allocation amount specified in your
contract.
The surviving spouse may make a single withdrawal of any amount within one year
of the date of your death without incurring a Withdrawal Charge or Market Value
Adjustment.
Prior to the Annuity Date, the death benefit of the continued Contract will be
as defined in the Death Benefit provision.
Only one spousal continuation is allowed under this Contract.
If there is no Annuitant at that time, the new Annuitant will be the surviving
spouse.
2. If the Beneficiary is not your spouse but is a living person:
a. The Beneficiary may elect to receive the Death Proceeds in a lump sum; or
b. The Beneficiary may elect to receive the Death Proceeds paid out under one of
the annuity options, subject to the following conditions:
The Annuity Date must be within one year of your date of death. Annuity payments
must be payable:
i. over the life of the Beneficiary; or
ii. for a guaranteed number of payments from 5 to 30 years but not to exceed the
life expectancy of the Beneficiary; or
iii. over the life of the Beneficiary with a guaranteed number of payments from
5 to 30 years but not to exceed the life expectancy of the Beneficiary.
c. If the Beneficiary does not elect one of the options above, then the
Beneficiary must receive the Contract Value payable within 5 years of your date
of death. We will determine the Death Proceeds as of the date we receive the
complete request for settlement of the Death Proceeds. Unless otherwise
instructed by the Beneficiary, the excess, if any, of the Death Proceeds over
the Contract Value will be allocated to the Money Market Subaccount and the
Contract Value will be adjusted accordingly. The beneficiary may exercise all
rights as set forth in Transfer During the Accumulation Period on page 15 and
Transfer Fee on page 32 during this 5 year period.
The Beneficiary may not pay additional purchase payments into the contract under
this election. Withdrawal charges will be waived for any withdrawals made during
this 5 year period.
We reserve the right to offer additional options upon Death of Owner.
If the Beneficiary dies before the complete liquidation of the Contract Value,
then the Beneficiary's named Beneficiary(ies) will receive the greater of the
Surrender Value or the remaining Contract Value. This amount must be liquidated
as a lump sum within 5 years of the date of the original Contract Owner's death.
3. If the Beneficiary is a corporation or other type of non-living person:
a. The Beneficiary may elect to receive the Death Proceeds in a lump sum; or
b. If the Beneficiary does not elect to receive the option above, then the
Beneficiary must receive the Contract Value payable within 5 years of your date
of death. We will determine the Death Proceeds as of the date we receive the
complete request for settlement of the Death Proceeds. Unless otherwise
instructed by the Beneficiary, the excess, if any, of the Death Proceeds over
the Contract Value will be allocated to the Money Market Subaccount and the
Contract Value will be adjusted accordingly. The Beneficiary may exercise all
rights as set forth in Transfers During the Accumulation Period on page 15 and
Transfer Fee on page 32 during this 5-year period.
The Beneficiary may not pay additional purchase payments into the contract under
this election. Withdrawal Charges will be waived during this 5 year period.
We reserve the right to offer additional options upon Death of Owner.
If any Beneficiary is a non-living person, all Beneficiaries will be considered
to be non-living persons for the above purposes.
Under any of these options, all contract rights, subject to any restrictions
previously placed upon the Beneficiary, are available to the Beneficiary from
the date of your death to the date on which the Death Proceeds are paid.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
ENHANCED DEATH BENEFIT RIDER: When you purchase your Contract, you may select
the Enhanced Death Benefit Rider. In certain states, this benefit may be offered
as a benefit of the base contract, rather than as a separate rider. In those
states, the expense charge will remain the same for the benefit. If you are not
an individual, the Enhanced Death Benefit applies only to the Annuitant's death.
If you select this rider, the Death Benefit will be the greater of the value
provided in your Contract or the Enhanced Death Benefit. The Enhanced
27 PROSPECTUS
Death Benefit will be the greater of the Enhanced Death Benefit A or Enhanced
Death Benefit B. As described below, we will charge a higher mortality and
expense risk charge if you select this Rider. We may discontinue offering the
Rider at any time.
ENHANCED DEATH BENEFIT A. At issue, Enhanced Death Benefit A is equal to the
initial Purchase Payment. After issue, Enhanced Death Benefit A is adjusted
whenever you pay a Purchase Payment or make a withdrawal and on each Contract
Anniversary as follows:
.. When you pay a Purchase Payment, we will increase Enhanced Death Benefit A by
the amount of the Purchase Payment;
.. When you make a withdrawal, we will decrease Enhanced Death Benefit A by a
withdrawal adjustment, as described below; and
.. On each Contract Anniversary, we will set Enhanced Death Benefit A equal to
the greater of the Contract Value on that Contract Anniversary or the most
recently calculated Enhanced Death Benefit A.
If you do not pay any additional purchase payments or make any withdrawals,
Enhanced Death Benefit A will equal the highest Contract Value on all Contract
Anniversaries prior to the date we calculate the Death Benefit.
We will continuously adjust Enhanced Death Benefit A as described above until
the oldest Contract Owner's 85/TH/ birthday or, if the Contract Owner is not a
living individual, the Annuitant's 85/TH/ birthday. Thereafter, we will adjust
Enhanced Death Benefit A only for Purchase Payments and withdrawals.
ENHANCED DEATH BENEFIT B. Enhanced Death Benefit B is equal to:
(a) your total Purchase Payments,
(b) reduced by any withdrawal adjustments and
(c) accumulated daily at an effective annual rate of 5% per year, until the
earlier of:
1) the date we determine the death benefit;
2) the first day of the month following the oldest Contract owner's 85/TH
/birthday; or
3) if the Contract Owner is a company or other legal entity, the first day of
the month following the Annuitant's 85/TH/ birthday. Thereafter, we will only
adjust Enhanced Death Benefit B to reflect additional Purchase Payments and
withdrawals. Enhanced Death Benefit B will never be greater than the maximum
death benefit allowed by any nonforfeiture laws which govern the Contract.
The withdrawal adjustment for both Enhanced Death Benefit A and Enhanced Death
Benefit B will equal (a) divided by (b), with the result multiplied by (c),
where:
(a) = the withdrawal amount;
(b) = the Contract Value immediately before the withdrawal; and
(c) = the most recently calculated Enhanced Death Benefit A or B, as
appropriate.
BENEFICIARY. You name the Beneficiary. You may name a Beneficiary in the
application. You may also name one or more contingent Beneficiaries who are
entitled to receive benefits under the contract if all primary Beneficiary(ies)
are deceased at the time a Contract Owner or Annuitant if the Contract Owner is
not a living person, dies. You may change the Beneficiary or add additional
Beneficiaries at any time before the Annuity Date. We will provide a form to be
signed and filed with us.
Your changes in Beneficiary take effect when we accept them, effective as of the
date you signed the form. Until we accept your change instructions, we are
entitled to rely on your most recent instructions in our files. We are not
liable for making a payment to a Beneficiary shown in our files or treating that
person in any other respect as the Beneficiary, prior to accepting a change.
Accordingly, if you wish to change your beneficiary, you should deliver your
instructions to us promptly.
If you did not name a Beneficiary or if the named Beneficiary is no longer
living, the Beneficiary will be:
.. your spouse if he or she is still alive; or, if he or she is no longer alive,
.. your surviving children equally; or if you have no surviving children,
.. your estate.
Unless you have provided directions to the contrary, the Beneficiaries will take
equal shares. If there is more than one Beneficiary in a class and one of the
Beneficiaries predeceases the Contract Owner or Annuitant, as defined above, the
remaining Beneficiaries in that class will divide the deceased Beneficiary's
share in proportion to the original share of the remaining Beneficiaries.
If more than one Beneficiary shares in the Death Proceeds, each Beneficiary will
be treated as a separate and independent owner of his or her respective share.
Each Beneficiary will exercise all rights related to his or her share, including
the sole right to select a payout option, subject to any restrictions previously
placed upon the Beneficiary. Each Beneficiary may designate a Beneficiary(ies)
for his or her respective share, but that designated Beneficiary(ies) will be
restricted to the payout option chosen by the original Beneficiary.
If there is more than one Beneficiary and one of the Beneficiaries is a
corporation or other type of non-living person, all Beneficiaries will be
considered to be non-living persons for the above purposes.
You may specify that the Death Benefit be paid under a specific Income Plan by
submitting a written request to our Service Center. If you so request, your
Beneficiary may not change to a different Income Plan or lump sum.
28 PROSPECTUS
Once we accept the written request, the change or restriction will take effect
as of the date you signed the request.
Different rules may apply to Contracts issued in connection with Qualified
Plans.
CONTRACT LOANS FOR 401(A), AND 403(B) CONTRACTS. Subject to the restrictions
described below, we will make loans to the Owner of a Contract used in
connection with a Tax Sheltered Annuity Plan ("TSA Plan") under Section 403(b)
of the Tax Code, or an Owner of a Contract purchased by a defined contribution
plan qualified under Section 401(a) of the Tax Code (a "401 Plan") and issued
under our prototype document. If the Contract is owned by a 401 Plan that is not
issued under our prototype, you should contact the plan trustee to determine the
availability of loans under the 401 Plan. Loans are not available under
Non-Qualified Contracts. We will only make loans after the free look period and
before annuitization. All loans are subject to the terms of the Contract, the
relevant Plan, and the Tax Code, which impose restrictions on loans.
We will not make a loan to you if the total of the requested loan and your
unpaid outstanding loans will be greater than the Surrender Value of your
Contract on the date of the loan. In addition, we will not make a loan to you if
the total of the requested loan and all of the plan participant's Contract loans
under TSA plans and 401 plans is more than the lesser of (a) or (b) where:
(a) equals $50,000 minus the excess of the highest outstanding loan balance
during the prior 12 months over the current outstanding loan balance; and
(b) equals the greater of $10,000 or 1/2 of the Surrender Value.
The minimum loan amount is $1,000.
To request a Contract loan write to us at the address given on the first page of
the prospectus. You alone are responsible for ensuring that your loan and
repayments comply with tax requirements. Loans made before the Annuity Date are
generally treated as distributions under the Contract, and may be subject to
withholding and tax penalties for early distributions. Some of these
requirements are stated in Section 72 of the Tax Code. Please seek advice from
your plan administrator or tax advisor.
When we make a loan, we will transfer an amount equal to the loan amount from
the Separate Account and/or the Fixed Account to the Loan Account as collateral
for the loan. We will transfer to the Loan Account amounts from the Separate
Account in proportion to the assets in each Subaccount. If your loan amount is
greater than your Contract Value in the Subaccounts, we will transfer the
remaining required collateral from the Guaranteed Maturity Fixed Account
Options. If your loan amount is greater than your contract value in the
subaccounts and the Guaranteed Maturity Fixed Account Options, we will transfer
the remaining required collateral from the Dollar Cost Averaging Fixed Account
Option.
We will not charge a Withdrawal Charge on the loan or on the transfer from the
Subaccounts or the Fixed Account. We may, however, apply a Market Value
Adjustment to a transfer from the Fixed Account to the Loan Account. If we do,
we will increase or decrease the amount remaining in the Fixed Account by the
amount of the Market Value Adjustment, so that the net amount transferred to the
Loan Account will equal the desired loan amount. We will charge a Withdrawal
Charge and apply a Market Value Adjustment, if applicable, on a distribution to
repay the loan in full, in the event of loan default.
We will credit interest to the amounts in the Loan Account. The annual interest
rate credited to the Loan Account will be the greater of: (a) 3%; or (b) the
loan interest rate minus 2.25%. The value of the amounts in the Loan Account are
not affected by the changes in the value of the Subaccounts.
When you take out a loan, we will set the loan interest rate. That rate will
apply to your loan until it is repaid. From time to time, we may change the loan
interest rate applicable to new loans. We also reserve the right to change the
terms of new loans.
We will subtract the outstanding Contract loan balance, including accrued but
unpaid interest, from:
1) the Death Benefit;
2) surrender proceeds;
3) the amount available for partial withdrawal; and
4) the amount applied on the Annuity Date to provide annuity payments.
Usually you must repay a Contract loan within five years of the date the loan is
made. Scheduled payments must be level, amortized over the repayment period, and
made at least quarterly. We may permit a repayment period of 15 or 30 years if
the loan proceeds are used to acquire your principal residence. We may also
permit other repayment periods.
You must mark your loan repayments as such. We will assume that any payment
received from you is a Purchase Payment, unless you tell us otherwise.
Generally, loan payments are allocated to the Subaccount(s) in the proportion
that you have selected for Purchase Payments. Allocations of loan payments are
not permitted to the Fixed Accounts (Guaranteed Maturity Fixed Account and
Dollar Cost Averaging Fixed Account Option). If your Purchase Payment allocation
includes any of the Fixed Accounts, the percentages allocated to the Fixed
Accounts will be allocated instead to the PIMCO Money Market Subaccount.
If you do not make a loan payment when due, we will continue to charge interest
on your loan. We also will declare the entire loan in default. We will subtract
the
29 PROSPECTUS
defaulted loan balance plus accrued interest from any future distribution under
the Contract and keep it in payment of your loan. Any defaulted amount plus
interest will be treated as a distribution for tax purposes (as permitted by
law). As a result, you may be required to pay taxes on the defaulted amount,
incur the early withdrawal tax penalty, and be subject to mandatory 20% federal
withholding. We will capitalize interest on a loan in default.
If the total loan balance exceeds the Surrender Value, we will mail written
notice to your last known address. The notice will state the amount needed to
maintain the Contract in force. If we do not receive payment of this amount
within 31 days after we mail this notice, we will terminate your Contract.
We may defer making any loan for 6 months after you ask us for a loan, unless
the loan is to pay a premium to us.
WITHDRAWALS (REDEMPTIONS). Except as explained below, you may redeem a Contract
for all or a portion of its Contract Value before the Annuity Date. We may
impose a Withdrawal Charge, which would reduce the amount paid to you upon
redemption. The Withdrawal Charges are described on page 32. Withdrawals from
the Fixed Account may be increased or decreased by a Market Value Adjustment, as
described in "Market Value Adjustment" on page 22.
In general, you must withdraw at least $50 at a time. You may also withdraw a
lesser amount if you are withdrawing your entire interest in a Subaccount. If
your request for a partial withdrawal would reduce the Contract Value to less
than $500, we may treat it as a request for a withdrawal of your entire Contract
Value, as described in "Minimum Contract Value" on page 31. Your Contract will
terminate if you withdraw all of your Contract Value.
We may be required to withhold 20% of withdrawals and distributions from
Contracts issued in connection with certain Qualified Plans, as described on
Page 39. Withdrawals also may be subject to a 10% penalty tax, as described on
page 33.
To make a withdrawal, you must send us a written withdrawal request or
systematic withdrawal program enrollment form. You may obtain the required forms
from us at the address and phone number given on the first page of this
prospectus.
For partial withdrawals, you may allocate the amount among the Subaccounts and
the Fixed Accounts. If we do not receive allocation instructions from you, we
usually will allocate the partial withdrawal proportionately among the
Subaccounts and the Guaranteed Maturity Fixed Account Options based upon the
balance of the Subaccounts and the Guaranteed Maturity Fixed Account Options,
with any remainder being distributed from the Dollar Cost Averaging Fixed
Account Option. You may not make a partial withdrawal from the Fixed Account in
an amount greater than the total amount of the partial withdrawal multiplied by
the ratio of the value of the Fixed Account to the Contract Value immediately
before the partial withdrawal.
If you request a total withdrawal, you must send us your Contract. The Surrender
value will equal the Contract Value minus any applicable Withdrawal Charge and
adjusted by any applicable Market Value Adjustment. We also will deduct a
contract maintenance charge of $35, unless we have waived the contract
maintenance charge on your Contract as described on page 31. We determine the
Surrender Value based on the Contract Value next computed after we receive a
properly completed surrender request. We will usually pay the Surrender Value
within seven days after the day we receive a completed request form. However, we
may suspend the right of withdrawal from the Separate Account or delay payment
for withdrawals for more than seven days in the following circumstances:
1) whenever the New York Stock Exchange ("NYSE") is closed (other than customary
weekend and holiday closings);
2) when trading on the NYSE is restricted or an emergency exists, as determined
by the SEC, so that disposal of the Separate Account's investments or
determination of Accumulation Unit Values is not reasonably practicable; or
3) at any other time permitted by the SEC for your protection.
In addition, we may delay payment of the Surrender Value in the Fixed Account
for up to 6 months or a shorter period if required by law. If we delay payment
from the Fixed Account for more than 30 days, we will pay interest as required
by applicable law.
You may withdraw amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Section 403(b)(11) of the Tax Code) only
in the following circumstances:
1) when you attain age 59 1/2;
2) when you terminate your employment with the plan sponsor;
3) upon your death;
4) upon your disability as defined in Section 72(m)(7) of the Tax Code; or
5) in the case of hardship.
If you seek a hardship withdrawal, you may only withdraw amounts attributable to
your Purchase Payments; you may not withdraw any earnings. These limitations on
withdrawals apply to:
1) salary reduction contributions made after December 31, 1988;
2) income attributable to such contributions; and
3) income attributable to amounts held as of December 31, 1988.
30 PROSPECTUS
The limitations on withdrawals do not affect transfers between certain Qualified
Plans. Additional restrictions and limitations may apply to distributions from
any Qualified Plan. Tax penalties may also apply. You should seek tax advice
regarding any withdrawals or distributions from Qualified Plans.
SYSTEMATIC WITHDRAWAL PROGRAM. If your Contract is a non-Qualified Contract or
IRA, you may participate in our Systematic Withdrawal Program. You must complete
an enrollment form and send it to us. You must complete the withholding election
section of the enrollment form before the systematic withdrawals will begin. You
may choose withdrawal payments of a flat dollar amount, earnings, or a
percentage of Purchase Payments. You may choose to receive systematic withdrawal
payments on a monthly, quarterly, semi-annual, or annual basis. Systematic
withdrawals will be deducted from your Subaccount and Fixed Account balances,
excluding the Dollar Cost Averaging Fixed Account, on a pro rata basis.
Depending on fluctuations in the net asset value of the Subaccounts and the
value of the Fixed Account, systematic withdrawals may reduce or even exhaust
the Contract Value. The minimum amount of each systematic withdrawal is $50.
We will make systematic withdrawal payments to you or your designated payee. We
may modify or suspend the Systematic Withdrawal Program and charge a processing
fee for the service. If we modify or suspend the Systematic Withdrawal Program,
existing systematic withdrawal payments will not be affected.
ERISA PLANS. A married participant may need spousal consent to receive a
distribution from a Contract issued in connection with a Qualified Plan or a
Non-Qualified Plan covered by to Title 1 of ERISA. You should consult an
advisor.
MINIMUM CONTRACT VALUE. If as a result of withdrawals your Contract Value would
be less than $500 and you have not made any Purchase Payments during the
previous three full calendar years, we may terminate your Contract and
distribute its Surrender Value to you. Before we do this, we will give you 60
days notice. We will not terminate your Contract on this ground if the Contract
Value has fallen below $500 due to either a decline in Accumulation Unit Value
or the imposition of fees and charges. In addition, in some states we are not
permitted to terminate Contracts on this ground. Different rules may apply to
Contracts issued in connection with Qualified Plans.
CONTRACT CHARGES
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We assess charges under the Contract in three ways:
1) as deductions from Contract Value for contract maintenance charges and for
premium taxes, if applicable;
2) as charges against the assets of the Separate Account for administrative
expenses and for the assumption of mortality and expense risks; and
3) as Withdrawal Charges (contingent deferred sales charges) subtracted from
withdrawal and surrender payments.
In addition, certain deductions are made from the assets of the Portfolios for
investment management fees and expenses. Those fees and expenses are summarized
in the Fee Tables on page 6 and described more fully in the Prospectuses and
Statements of Additional Information for the Portfolios.
MORTALITY AND EXPENSE RISK CHARGE. We deduct a mortality and expense risk charge
from each Subaccount during each Valuation Period. The mortality and expense
risk charge is equal, on an annual basis, to 1.30% of the average net asset
value of each Subaccount. The mortality risks arise from our contractual
obligations:
1) to make annuity payments after the Annuity Date for the life of the
Annuitant(s);
2) to waive the Withdrawal Charge upon your death; and
3) to provide the Death Benefit prior to the Annuity Date. A detailed
explanation of the Death Benefit may be found beginning on page 26.
The expense risk is that it may cost us more to administer the Contracts and the
Separate Account than we receive from the contract maintenance charge and the
administrative expense charge. We guarantee the mortality and expense risk
charge and we cannot increase it. We assess the mortality and expense risk
charge during both the Accumulation Period and the Annuity Period.
If you select the Enhanced Death Benefit Rider, your mortality and expense risk
charge will be 1.50% of average net asset value of each Subaccount. We charge a
higher mortality and expense risk charge for the Rider to compensate us for the
additional risk that we accept by providing the Rider. We will calculate a
separate Accumulation Unit Value for the base Contract, and for Contracts with
the Rider, in order to reflect the difference in the mortality and expense risk
charges.
ADMINISTRATIVE CHARGES
CONTRACT MAINTENANCE CHARGE. We charge an annual contract maintenance charge of
$35 on your Contract. The amount of this charge is guaranteed not to increase.
This charge reimburses us for our expenses incurred in maintaining your
Contract.
Before the Annuity Date, we assess the contract maintenance charge on each
Contract Anniversary. To obtain payment of this charge, on a pro rata basis we
will
31 PROSPECTUS
allocate this charge among the Subaccounts to which you have allocated your
Contract Value, and redeem Accumulation Units accordingly. We will waive this
charge if you pay more than $50,000 in Purchase Payments or if you allocate all
of your Contract Value to the Fixed Account. If you surrender your Contract, we
will deduct the full $35 charge as of the date of surrender, unless your
Contract qualifies for a waiver.
After the Annuity Date, if allowed in your state, we will subtract this charge
in equal parts from each of your annuity payments. We will waive this charge if
on the Annuity Date your Contract Value is $50,000 or more or if all of your
annuity payments are Fixed Annuity payments.
ADMINISTRATIVE EXPENSE CHARGE. We deduct an administrative expense charge from
each Subaccount during each Valuation Period. This charge is equal, on an annual
basis, to 0.10% of the average net asset value of the Subaccounts. This charge
is designed to compensate us for the cost of administering the Contracts and the
Separate Account. The administrative expense charge is assessed during both the
Accumulation Period and the Annuity Period.
TRANSFER FEE. We currently are waiving the transfer fee. The Contract, however,
depending on your state, either permits us to charge you up to $10 per transfer
for each transfer effected between Subaccount(s) and/or the Fixed Account after
the first transfer in each month, or for each transfer in excess of twelve
within a calendar year. The Contract also permits us to impose a minimum size on
transfer amounts although the minimum size may be limited to $25 in some states.
We will notify you if we begin to charge this fee or impose a minimum size on
transfer amounts. We will not charge a transfer fee on transfers that are part
of a Dollar Cost Averaging or Portfolio Rebalancing program.
The transfer fee will be deducted from Contract Value that remains in the
Subaccount(s) or Fixed Account from which the transfer was made. If that amount
is insufficient to pay the transfer fee, we will deduct the fee from the
transferred amount.
SALES CHARGES
WITHDRAWAL CHARGE. We may charge a Withdrawal Charge, which is a contingent
deferred sales charge, upon certain withdrawals. As a general rule, the
Withdrawal Charge equals a percentage of Purchase Payments withdrawn that are:
(a) less than eight years old; and (b) not eligible for a free withdrawal. The
applicable percentage depends on how many years ago you made the Purchase
Payment being withdrawn, as shown in this chart:
WITHDRAWAL
CHARGE
CONTRIBUTION YEAR PERCENTAGE
First 8%
Second and Third 7%
Fourth and Fifth 6%
Sixth 5%
Seventh 4%
Eighth 3%
Ninth and later 0%
When we calculate the Withdrawal Charge, we do not take any applicable Market
Value Adjustment into consideration. Beginning on January 1, 2004, if you make a
withdrawal before the Annuity Date, we will apply the withdrawal charge
percentage in effect on the date of the withdrawal, or the withdrawal charge
percentage in effect on the following day, whichever is lower.
We subtract the Withdrawal Charge from the Contract Value remaining after your
withdrawal. As a result, the decrease in your Contract Value will be greater
than the withdrawal amount requested and paid.
For purposes of determining the Withdrawal Charge, the Contract Value is deemed
to be withdrawn in the following order:
First. Earnings - the current Contract Value minus all Purchase Payments that
have not previously been withdrawn; Credit Enhancements are treated as
"earnings" for this purpose;
Second. "Old Purchase Payments" - Purchase Payments received by us more than
eight years before the date of withdrawal that have not been previously
withdrawn;
Third. Any additional amounts available as a "Free Withdrawal," as described
below;
Fourth. "New Purchase Payments - Purchase Payments received by us less than
eight years before the date of withdrawal. These Payments are deemed to be
withdrawn on a first-in, first-out basis.
No Withdrawal Charge is applied in the following situations:
.. on annuitization;
.. the payment of a death benefit;
.. a free withdrawal amount, as described on page 33;
.. certain withdrawals for Contracts issued under 403(b) plans or 401 plans under
our prototype as described on page 33;
.. withdrawals taken to satisfy IRS minimum distribution rules;
.. withdrawals that qualify for one of the waiver benefits described on page 33
below; and
32 PROSPECTUS
.. withdrawals under Contracts issued to employees of Lincoln Benefit Life
Company, Surety Life Insurance Company, and Allstate Financial Services,
L.L.C. or to their spouses or minor children, if these individuals reside in
the State of Nebraska.
We will never waive or eliminate a Withdrawal Charge where such waiver or
elimination would be unfairly discriminatory to any person or where it is
prohibited by state law.
We use the amounts obtained from the Withdrawal Charge to pay sales commissions
and other promotional or distribution expenses associated with marketing the
Contracts. To the extent that the Withdrawal Charge does not cover all sales
commissions and other promotional or distribution expenses, we may use any of
our corporate assets, including potential profit which may arise from the
mortality and expense risk charge or any other charges or fee described above,
to make up any difference.
Withdrawals of earnings are taxed as ordinary income and, if taken prior to age
59 1/2, may be subject to an additional 10% federal tax penalty. The amount of
your withdrawal may be affected by a Market Value Adjustment. Additional
restrictions may apply to Contracts held in Qualified Plans. We outline the tax
requirements applicable to withdrawals on page 36. You should consult your own
tax counsel or other tax advisors regarding any withdrawals.
FREE WITHDRAWAL. Withdrawals of the following amounts are never subject to the
Withdrawal Charge:
.. In any Contract Year, the greater of: (a) earnings that have not previously
been withdrawn; or (b) 15 percent of New Purchase Payments; and
.. Any Old Purchase Payments that have not been previously withdrawn.
Credit Enhancements are treated as earnings for purposes of determining the free
withdrawal amount. However, even if you do not owe a Withdrawal Charge on a
particular withdrawal, you may still owe taxes or penalty taxes, or be subject
to a Market Value Adjustment. The tax treatment of withdrawals is summarized on
page 36.
WAIVER BENEFITS
GENERAL. If approved in your state, we will offer the two waiver benefits
described below. In general, if you qualify for one of these benefits, we will
permit you to make one or more partial or full withdrawals without paying any
otherwise applicable Withdrawal Charge or Market Value Adjustment. While we have
summarized those benefits here, you should consult your Contract for the precise
terms of the waiver benefits.
Some Qualified Plans may not permit you to utilize these benefits. Also, even if
you do not need to pay our Withdrawal Charge because of these benefits, you
still may be required to pay taxes or tax penalties on the amount withdrawn. You
should consult your tax advisor to determine the effect of a withdrawal on your
taxes.
CONFINEMENT WAIVER BENEFIT. Under this benefit, we will waive the Withdrawal
Charge and Market Value Adjustment on all withdrawals under your Contract if the
following conditions are satisfied:
1) Any Contract owner or the Annuitant, if the Contract is owned by a company or
other legal entity, is confined to a long term care facility or a hospital for
at least 90 consecutive days. The Owner or Annuitant must enter the long term
care facility or hospital at least 30 days after the Issue Date;
2) You request the withdrawal no later than 90 days following the end of the
Owner or Annuitant's stay at the long term care facility or hospital. You must
provide written proof of the stay with your withdrawal request; and
3) A physician must have prescribed the stay and the stay must be medically
necessary.
You may not claim this benefit if the physician prescribing the Owner or
Annuitant's stay in a long term care facility is the Owner or Annuitant or a
member of the Owner or Annuitant's immediate family.
TERMINAL ILLNESS WAIVER BENEFIT. Under this benefit, we will waive any
Withdrawal Charge and Market Value Adjustment on all withdrawals under your
Contract if, at least 30 days after the Issue Date, you or the Annuitant are
diagnosed with a terminal illness. We may require confirmation of the diagnosis
as provided in the Contract.
WAIVER OF WITHDRAWAL CHARGE FOR CERTAIN QUALIFIED PLAN WITHDRAWALS. For
Contracts issued under a Section 403(b) plan or a Section 401 plan under our
prototype, we will waive the Withdrawal Charge when:
1) the Annuitant becomes disabled (as defined in Section 72(m)(7) of the Tax
Code);
2) the Annuitant reaches age 59 1/2 and at least 5 Contract Years have passed
since the Contract was issued;
3) at least 15 Contract Years have passed since the Contract was issued.
Our prototype is a Section 401 Defined Contribution Qualified Retirement plan.
This plan may be established as a Money Purchase plan, a Profit Sharing plan, or
a paired plan (Money Purchase and Profit Sharing). For more information about
our prototype plan, call us at 1-800-865-5237.
PREMIUM TAXES. We will charge premium taxes or other state or local taxes
against the Contract Value, including Contract Value that results from amounts
transferred from existing policies (Section 1035 exchange) issued by us or other
insurance companies. Some states assess premium taxes when Purchase Payments are
made; others assess premium taxes when annuity payments begin. We will deduct
any applicable premium taxes upon
33 PROSPECTUS
full surrender, death, or annuitization. Premium taxes generally range from 0%
to 3.5%.
DEDUCTION FOR SEPARATE ACCOUNT INCOME TAXES. We are not currently maintaining a
provision for taxes. In the future, however, we may establish a provision for
taxes if we determine, in our sole discretion, that we will incur a tax as a
result of the operation of the Separate Account. We will deduct for any taxes we
incur as a result of the operation of the Separate Account, whether or not we
previously made a provision for taxes and whether or not it was sufficient. Our
status under the Tax Code is briefly described in the Statement of Additional
Information.
OTHER EXPENSES. You indirectly bear the charges and expenses of the Portfolios
whose shares are held by the Subaccounts to which you allocate your Contract
Value. For a summary of current estimates of those charges and expenses, see
page 31. For more detailed information about those charges and expenses, please
refer to the prospectuses for the appropriate Portfolios. We may receive
compensation from the investment advisors or administrators of the Portfolios in
connection with administrative service and cost savings experienced by the
investment advisors or administrators.
34 PROSPECTUS
TAXES
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THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. LINCOLN
BENEFIT MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR
TRANSACTION INVOLVING A CONTRACT.
Federal, state, local and other tax consequences of ownership or receipt of
distributions under an annuity contract depend on your individual circumstances.
If you are concerned about any tax consequences with regard to your individual
circumstances, you should consult a competent tax adviser.
TAXATION OF LINCOLN BENEFIT LIFE
COMPANY
Lincoln Benefit is taxed as a life insurance company under Part I of Subchapter
L of the Tax Code (the "Code"). Since the Separate Account is not
an entity separate from Lincoln Benefit, and its operations form a part of
Lincoln Benefit, it will not be taxed separately. Investment income and realized
capital gains of the Separate Account are automatically applied to increase
reserves under the Contract. Under existing federal income tax law, Lincoln
Benefit believes that the Separate Account investment income and capital gains
will not be taxed to the extent that such income and gains are applied to
increase the reserves under the Contract. Accordingly, Lincoln Benefit does not
anticipate that it will incur any federal income tax liability attributable to
the Separate Account, and therefore Lincoln Benefit does not intend to make
provisions for any such taxes. If Lincoln Benefit is taxed on investment income
or capital gains of the Separate Account, then Lincoln Benefit may impose a
charge against the Separate Account in order to make provision for such taxes.
TAXATION OF VARIABLE ANNUITIES IN GENERAL
TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value
until a distribution occurs. This rule applies only where:
.. the Contract Owner is a natural person,
.. the investments of the Separate Account are "adequately diversified" according
to Treasury Department regulations, and
.. Lincoln Benefit is considered the owner of the Separate Account assets for
federal income tax purposes.
NON-NATURAL OWNERS. As a general rule, annuity contracts owned by non-natural
persons such as corporations, trusts, or other entities are not treated as
annuity contracts for federal income tax purposes. The income on such contracts
does not enjoy tax deferral and is taxed as ordinary income received or accrued
by the owner during the taxable year.
EXCEPTIONS TO THE NON-NATURAL OWNER RULE. There are several exceptions to the
general rule that annuity contracts held by a non-natural owner are not treated
as annuity contracts for federal income tax purposes. Contracts will generally
be treated as held by a natural person if the nominal owner is a trust or other
entity which holds the contract as agent for a natural person. However, this
special exception will not apply in the case of an employer who is the nominal
owner of an annuity contract under a non-Qualified deferred compensation
arrangement for its employees. Other exceptions to the non-natural owner rule
are: (1) contracts acquired by an estate of a decedent by reason of the death of
the decedent; (2) certain qualified contracts; (3) contracts purchased by
employers upon the termination of certain qualified plans; (4) certain contracts
used in connection with structured settlement agreements; and (5) immediate
annuity contracts, purchased with a single premium, when the annuity starting
date is no later than a year from purchase of the annuity and substantially
equal periodic payments are made, not less frequently than annually, during the
annuity period.
GRANTOR TRUST OWNED ANNUITY. Contracts owned by a grantor trust are considered
owned by a non-natural owner. Grantor trust owned contracts receive tax deferral
as described in the Exceptions To The Non-Natural Owner Rule section.
In accordance with the Tax Code, upon the death of the annuitant,
the death benefit must be paid. According to your Contract, the Death Benefit is
paid to the beneficiary. A trust named beneficiary, including a grantor trust,
has two options for receiving any death benefits: 1) a lump sum payment, or 2)
payment deferred up to five years from date of death.
DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for
federal income tax purposes, the investments in the Separate Account must be
"adequately diversified" consistent with standards under Treasury Department
regulations. If the investments in the Separate Account are not adequately
diversified, the Contract will not be treated as an annuity contract for federal
income tax purposes. As a result, the income on the Contract will be taxed as
ordinary income received or accrued by the Contract owner during the taxable
year. Although Lincoln Benefit does not have control over the Portfolios or
their investments, we expect the Portfolios to meet the diversification
requirements.
OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered
the owner of separate account assets if he possesses incidents of ownership in
those assets, such as the ability to exercise investment control over the
assets. At the time the diversification regulations were issued, the Treasury
Department announced that the regulations do not provide guidance concerning
circumstances in which investor control of
35 PROSPECTUS
the separate account investments may cause a Contract owner to be treated as the
owner of the separate account. The Treasury Department also stated that future
guidance would be issued regarding the extent that owners could direct
sub-account investments without being treated as owners of the underlying assets
of the separate account.
Your rights under the Contract are different than those described by the IRS in
rulings in which it found that Contract owners were not owners of separate
account assets. For example, you have the choice to allocate premiums and
Contract Values among a broader selection of investment alternatives. Also, you
may be able to transfer among investment alternatives more frequently than in
such rulings. These differences could result in you being treated as the owner
of the Separate Account. If this occurs, income and gain from the Variable
Account assets would be includible in your gross income. Lincoln
Benefit does not know what standards will be set forth in any regulations or
rulings which the Treasury Department may issue. It is possible that future
standards announced by the Treasury Department could adversely affect the tax
treatment of your Contract. We reserve the right to modify the Contract as
necessary to attempt to prevent you from being considered the federal tax owner
of the assets of the Separate Account. However, we make no guarantee that such
modification to the Contract will be successful.
TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under
a Non-Qualified Contract, amounts received are taxable to the extent the
Contract Value, without regard to surrender charges, exceeds the investment in
the Contract. The investment in the Contract is the gross premium paid for the
contract minus any amounts previously received from the Contract if such amounts
were properly excluded from your gross income. If you make a full withdrawal
under a Non-Qualified Contract, the amount received will be taxable only to the
extent it exceeds the investment in the Contract.
TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity
payments received from a Non-Qualified Contract provides for the return of your
investment in the Contract in equal tax-free amounts over the payment period.
The balance of each payment received is taxable. For fixed annuity payments, the
amount excluded from income is determined by multiplying the payment by the
ratio of the investment in the Contract (adjusted for any refund feature or
period certain) to the total expected value of annuity payments for the term of
the Contract. If you elect variable annuity payments, the amount excluded from
taxable income is determined by dividing the investment in the Contract by the
total number of expected payments. The annuity payments will be fully taxable
after the total amount of the investment in the Contract is excluded using these
ratios. The Federal tax treatment of annuity payments is unclear in some
respects. As a result, if the IRS should provide further guidance, it is
possible that the amount we calculate and report to the IRS as taxable could be
different. If you die, and annuity payments cease before the total amount of the
investment in the Contract is recovered, the unrecovered amount will be allowed
as a deduction for your last taxable year.
TAXATION OF LEVEL MONTHLY VARIABLE ANNUITY PAYMENTS. You may have an option to
elect a variable income payment stream consisting of level monthly payments that
are recalculated annually. Although we will report your levelized payments to
the IRS in the year distributed, it is possible the IRS could determine that
receipt of the first monthly payout of each annual amount is constructive
receipt of the entire annual amount. If the IRS were to take this position, the
taxable amount of your levelized payments would be accelerated to the time of
the first monthly payout and reported in the tax year in which the first monthly
payout is received.
WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding
the taxation of any additional withdrawal received after the Payout Start Date.
It is possible that a greater or lesser portion of such a payment could be
taxable than the amount we determine.
DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for
federal income tax purposes, the Contract must provide:
.. if any Contract Owner dies on or after the Payout Start Date but before the
entire interest in the Contract has been distributed, the remaining portion of
such interest must be distributed at least as rapidly as under the method of
distribution being used as of the date of the Contract Owner's death;
.. if any Contract Owner dies prior to the Payout Start Date, the entire interest
in the Contract will be distributed within 5 years after the date of the
Contract Owner's death. These requirements are satisfied if any portion of the
Contract Owner's interest that is payable to (or for the benefit of) a
designated Beneficiary is distributed over the life of such Beneficiary (or
over a period not extending beyond the life expectancy of the Beneficiary) and
the distributions begin within 1 year of the Contract Owner's death. If the
Contract Owner's designated Beneficiary is the surviving spouse of the
Contract Owner, the Contract may be continued with the surviving spouse as the
new Contract Owner.
.. if the Contract Owner is a non-natural person, then the Annuitant will be
treated as the Contract Owner for purposes of applying the distribution at
death rules. In addition, a change in the Annuitant on a Contract Owned by a
non-natural person will be treated as the death of the Contract Owner.
TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income
as follows:
.. if distributed in a lump sum, the amounts are taxed in the same manner as a
full withdrawal, or
36 PROSPECTUS
.. if distributed under an Income Plan, the amounts are taxed in the same manner
as annuity payments.
PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable
amount of any premature distribution from a non-Qualified Contract. The penalty
tax generally applies to any distribution made prior to the date you attain age
59 1/2. However, no penalty tax is incurred on distributions:
.. made on or after the date the Contract Owner attains age 59 1/2,
.. made as a result of the Contract Owner's death or becoming totally disabled,
.. made in substantially equal periodic payments over the Contract Owner's life
or life expectancy, or over the joint lives or joint life expectancies of the
Contract Owner and the Beneficiary,
.. made under an immediate annuity, or
.. attributable to investment in the Contract before August 14, 1982.
You should consult a competent tax advisor to determine how these exceptions may
apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts
using substantially equal periodic payments or immediate annuity payments as an
exception to the penalty tax on premature distributions, any additional
withdrawal or other modification of the payment stream would violate the
requirement that payments must be substantially equal. Failure to meet this
requirement would mean that the income portion of each payment received prior to
the later of 5 years or the Contract Owner's attaining age 59 1/2 would be
subject to a 10% penalty tax unless another exception to the penalty tax
applied. The tax for the year of the modification is increased by the penalty
tax that would have been imposed without the exception, plus interest for the
years in which the exception was used. You should consult a competent tax
advisor prior to taking a withdrawal.
TAX FREE EXCHANGES UNDER TAX CODE SECTION 1035. A 1035 exchange is
a tax-free exchange of a non-qualified life insurance contract, endowment
contract or annuity contract for a new non-Qualified annuity contract. The
contract owner(s) must be the same on the old and new contract. Basis from the
old contract carries over to the new contract so long as we receive that
information from the relinquishing company. If basis information is never
received, we will assume that all exchanged funds represent earnings and will
allocate no cost basis to them.
TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract without
full and adequate consideration to a person other than your spouse (or to a
former spouse incident to a divorce), you will be taxed on the difference
between the Contract Value and the investment in the Contract at the time of
transfer. Except for certain Qualified Contracts, any amount you receive as a
loan under a Contract, and any assignment or pledge (or agreement to assign or
pledge) of the Contract Value is taxed as a withdrawal of such amount or portion
and may also incur the 10% penalty tax. Currently we do not allow assignments.
AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-Qualified
deferred annuity contracts issued by Lincoln Benefit (or its affiliates) to the
same Contract Owner during any calendar year be aggregated and treated as one
annuity contract for purposes of determining the taxable amount of a
distribution.
INCOME TAX WITHHOLDING
Generally, Lincoln Benefit is required to withhold federal income tax at a rate
of 10% from all non-annuitized distributions. The customer may elect out of
withholding by completing and signing a withholding election form. If no
election is made, we will automatically withhold the required 10% of the taxable
amount. In certain states, if there is federal withholding, then state
withholding is also mandatory.
Lincoln Benefit is required to withhold federal income tax using the wage
withholding rates for all annuitized distributions. The customer may elect out
of withholding by completing and signing a withholding election form. If no
election is made, we will automatically withhold using married with three
exemptions as the default. In certain states, if there is federal withholding,
then state withholding is also mandatory.
Election out of withholding is valid only if the customer provides a U.S.
residence address and taxpayer identification number.
Generally, Section 1441 of the Code provides that a withholding agent must
withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident
alien is someone other than a U.S. citizen or resident alien. Withholding may be
reduced or eliminated by an income tax treaty between the U.S. and the
non-resident alien's country of residence if the payee provides a U.S. taxpayer
identification number on Form W-8BEN. A U.S. taxpayer identification number is a
social security number or an individual taxpayer identification number ("ITIN").
ITINs are issued by the IRS to non-resident alien individuals who are not
eligible to obtain a social security number.
TAX QUALIFIED CONTRACTS
The income on qualified plan and IRA investments is tax deferred, and the income
on variable annuities held by such plans does not receive any additional tax
deferral. You should review the annuity features, including all benefits and
expenses, prior to purchasing a variable annuity in a qualified plan or IRA.
Contracts may be used as investments with certain qualified plans such as:
.. Individual Retirement Annuities or Accounts (IRAs) under Section 408 of the
Code;
37 PROSPECTUS
.. Roth IRAs under Section 408A of the Code;
.. Simplified Employee Pension Plans under Section 408(k) of the Code;
.. Savings Incentive Match Plans for Employees (SIMPLE) Plans under Section
408(p) of the Code;
.. Tax Sheltered Annuities under Section 403(b) of the Code;
.. Corporate and Self Employed Pension and Profit Sharing Plans under Sections
401 and 403; and
.. State and Local Government and Tax-Exempt Organization Deferred Compensation
Plans under Section 457.
Lincoln Benefit reserves the right to limit the availability of the Contract for
use with any of the Qualified Plans listed above or to modify the Contract to
conform with tax requirements.
The tax rules applicable to participants in such qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. Adverse tax
consequences may result from certain transactions such as excess contributions,
premature distributions, and, distributions that do not conform to specified
commencement and minimum distribution rules. Lincoln Benefit can issue an
individual retirement annuity on a rollover or transfer of proceeds from a
decedent's IRA or Qualified Plan under which the decedent's surviving spouse is
the beneficiary. Lincoln Benefit does not offer an individual retirement annuity
that can accept a transfer of funds for any other, non-spousal, beneficiary of a
decedent's IRA or Qualified Plan.
In the case of certain qualified plans, the terms of the plans may govern the
right to benefits, regardless of the terms of the Contract.
TAXATION OF WITHDRAWALS FROM AN INDIVIDUALLY OWNED QUALIFIED CONTRACT. If you
make a partial withdrawal under a Qualified Contract other than a Roth IRA, the
portion of the payment that bears the same ratio to the total payment that the
investment in the Contract (i.e., nondeductible IRA contributions, after tax
contributions to qualified plans) bears to the Contract Value, is excluded from
your income. We do not keep track of nondeductible contributions, and all tax
reporting of distributions from Qualified Contracts other than Roth IRAs will
indicate that the distribution is fully taxable.
"Qualified distributions" from Roth IRAs are not included in gross income.
"Qualified distributions" are any distributions made more than five taxable
years after the taxable year of the first contribution to any Roth IRA and which
are:
.. made on or after the date the Contract Owner attains age 59 1/2,
.. made to a beneficiary after the Contract Owner's death,
.. attributable to the Contract Owner being disabled, or
.. made for a first time home purchase (first time home purchases are subject to
a lifetime limit of $10,000).
"Nonqualified distributions" from Roth IRAs are treated as made from
contributions first and are included in gross income only to the extent that
distributions exceed contributions. All tax reporting of distributions from Roth
IRAs will indicate that the taxable amount is not determined.
REQUIRED MINIMUM DISTRIBUTIONS. Generally, qualified plans require minimum
distributions upon reaching age 70 1/2. Failure to withdraw the required minimum
distribution will result in a 50% tax penalty on the shortfall not withdrawn
from the Contract. Not all income plans offered under the Contract satisfy the
requirements for minimum distributions. Because these distributions are required
under the Code and the method of calculation is complex, please see a competent
tax advisor.
THE DEATH BENEFIT AND QUALIFIED CONTRACTS. Pursuant to the Code and IRS
regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA)
may not invest in life insurance contracts. However, an IRA may provide a death
benefit that equals the greater of the purchase payments or the Contract Value.
The Contract offers a death benefit that in certain circumstances may exceed the
greater of the purchase payments or the Contract Value. We believe that the
Death Benefits offered by your Contract do not constitute life insurance under
these regulations.
It is also possible that the certain death benefits that offer enhanced earnings
could be characterized as an incidental death benefit. If the death benefit were
so characterized, this could result in current taxable income to a Contract
owner. In addition, there are limitations on the amount of incidental death
benefits that may be provided under qualified plans, such as in connection with
a 403(b) plan.
Lincoln Benefit reserves the right to limit the availability of the Contract for
use with any of the qualified plans listed above.
PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM QUALIFIED CONTRACTS. A 10% penalty
tax applies to the taxable amount of any premature distribution from a Qualified
Contract. The penalty tax generally applies to any distribution made prior to
the date you attain age 59 1/2. However, no penalty tax is incurred on
distributions:
.. made on or after the date the Contract Owner attains age 59 1/2,
.. made as a result of the Contract Owner's death or total disability,
.. made in substantially equal periodic payments over the Contract Owner's life
or life expectancy, or over the joint lives or joint life expectancies of the
Contract Owner and the Beneficiary,
38 PROSPECTUS
.. made pursuant to an IRS levy,
.. made for certain medical expenses,
.. made to pay for health insurance premiums while unemployed (only applies for
IRAs),
.. made for qualified higher education expenses (only applies for IRAs), and
.. made for a first time home purchase (up to a $10,000 lifetime limit and only
applies for IRAs).
During the first 2 years of the individual's participation in a SIMPLE IRA,
distributions that are otherwise subject to the premature distribution penalty,
will be subject to a 25% penalty tax.
You should consult a competent tax advisor to determine how these exceptions may
apply to your situation.
SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON QUALIFIED CONTRACTS. With respect to
Qualified Contracts using substantially equal periodic payments as an exception
to the penalty tax on premature distributions, any additional withdrawal or
other modification of the payment stream would violate the requirement that
payments must be substantially equal. Failure to meet this requirement would
mean that the income portion of each payment received prior to the later of 5
years or the taxpayer's attaining age 59 1/2 would be subject to a 10% penalty
tax unless another exception to the penalty tax applied. The tax for the year of
the modification is increased by the penalty tax that would have been imposed
without the exception, plus interest for the years in which the exception was
used. You should consult a competent tax advisor prior to taking a withdrawal.
INCOME TAX WITHHOLDING ON QUALIFIED CONTRACTS. Generally, Lincoln Benefit is
required to withhold federal income tax at a rate of 10% from all non-annuitized
distributions that are not considered "eligible rollover distributions." The
customer may elect out of withholding by completing and signing a withholding
election form. If no election is made, we will automatically withhold the
required 10% from the taxable amount. In certain states, if there is federal
withholding, then state withholding is also mandatory. Lincoln Benefit is
required to withhold federal income tax at a rate of 20% on all "eligible
rollover distributions" unless you elect to make a "direct rollover" of such
amounts to an IRA or eligible retirement plan. Eligible rollover distributions
generally include all distributions from Qualified Contracts, excluding IRAs,
with the exception of:
.. required minimum distributions, or,
.. a series of substantially equal periodic payments made over a period of at
least 10 years, or,
.. a series of substantially equal periodic payments made over the life (joint
lives) of the participant (and beneficiary), or,
.. hardship distributions.
For all annuitized distributions that are not subject to the 20% withholding
requirement, Lincoln Benefit is required to withhold federal income tax using
the wage withholding rates. The customer may elect out of withholding by
completing and signing a withholding election form. If no election is made, we
will automatically withhold using married with three exemptions as the default.
In certain states, if there is federal withholding, then state withholding is
also mandatory.
Election out of withholding is valid only if the customer provides a U.S.
residence address and taxpayer identification number.
Generally, Section 1441 of the Code provides that a withholding agent must
withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident
alien is someone other than a U.S. citizen or resident alien. Withholding may be
reduced or eliminated by an income tax treaty between the U.S. and the
non-resident alien's country of residence if the payee provides a U.S. taxpayer
identification number on Form W-8BEN. A U.S. taxpayer identification number is a
social security number or an individual taxpayer identification number ("ITIN").
ITINs are issued by the IRS to non-resident alien individuals who are not
eligible to obtain a social security number.
INDIVIDUAL RETIREMENT ANNUITIES. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject
to limitations on the amount that can be contributed and on the time when
distributions may commence. Certain distributions from other types of qualified
plans may be "rolled over" on a tax-deferred basis into an Individual Retirement
Annuity.
ROTH INDIVIDUAL RETIREMENT ANNUITIES. Section 408A of the Code permits eligible
individuals to make nondeductible contributions to an individual retirement
program known as a Roth Individual Retirement Annuity. Roth Individual
Retirement Annuities are subject to limitations on the amount that can be
contributed and on the time when distributions may commence.
Subject to certain limitations, a traditional Individual Retirement Account or
Annuity may be converted or "rolled over" to a Roth Individual Retirement
Annuity. The income portion of a conversion or rollover distribution is taxable
currently, but is exempted from the 10% penalty tax on premature distributions.
ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL
IRAS)
Tax Code Section 408 permits a custodian or trustee of an
Individual Retirement Account to purchase an annuity as an investment of the
Individual Retirement Account. If an annuity is purchased inside of an
Individual Retirement Account, then the Annuitant
39 PROSPECTUS
must be the same as the beneficial owner of the Individual Retirement Account.
Generally, the death benefit of an annuity held in an Individual Retirement
Account must be paid upon the death of the Annuitant. However, in most states,
the Contract permits the custodian or trustee of the Individual Retirement
Account to continue the Contract in the accumulation phase, with the Annuitant's
surviving spouse as the new Annuitant, if the following conditions are met:
1) The custodian or trustee of the Individual Retirement Account is the owner of
the annuity and has the right to the death proceeds otherwise payable under
the annuity contract;
2) The deceased Annuitant was the beneficial owner of the Individual Retirement
Account;
3) We receive a complete request for settlement for the death of the Annuitant;
and
4) The custodian or trustee of the Individual Retirement Account provides us
with a signed certification of the following:
(a) The Annuitant's surviving spouse is the sole beneficiary of the Individual
Retirement Account;
(b) The Annuitant's surviving spouse has elected to continue the Individual
Retirement Account as his or her own Individual Retirement Account; and
(c) The custodian or trustee of the Individual Retirement Account has
continued the Individual Retirement Account pursuant to the surviving spouse's
election.
SIMPLIFIED EMPLOYEE PENSION PLANS. Section 408(k) of the Code allows eligible
employers to establish simplified employee pension plans for their employees
using individual retirement annuities. Under these plans the employer may,
within specified limits, make deductible contributions on behalf of the
employees to the individual retirement annuities. Employers intending to use the
Contract in connection with such plans should seek competent tax advice.
SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE PLANS). Sections 408(p) and
401(k) of the Code allow eligible employers with 100 or fewer employees to
establish SIMPLE retirement plans for their employees. SIMPLE plans may be
structured as a SIMPLE retirement account using an IRA or as a Section 401(k)
qualified cash or deferred arrangement. In general, a SIMPLE plan consists of a
salary deferral program for eligible employees and matching or nonelective
contributions made by employers. Employers intending to use the Contract in
conjunction with SIMPLE plans should seek competent tax and legal advice.
TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS
(TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND
YOUR COMPETENT TAX ADVISOR.
TAX SHELTERED ANNUITIES. Section 403(b) of the Code provides tax-deferred
retirement savings plans for employees of certain non-profit and educational
organizations. Under Section 403(b), any contract used for a 403(b) plan must
provide that distributions attributable to salary reduction contributions made
after 12/31/88, and all earnings on salary reduction contributions, may be made
only on or after the date the employee:
.. attains age 59 1/2,
.. separates from service,
.. dies,
.. becomes disabled, or
.. incurs a hardship (earnings on salary reduction contributions may not be
distributed on account of hardship).
These limitations do not apply to withdrawals where Lincoln Benefit is directed
to transfer some or all of the Contract Value to another 403(b) plan.
Generally, we do not accept Employee Retirement Income Security Act of 1974
(ERISA) funds in 403(b) contracts.
CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS. Sections 401(a)
and 403(a) of the Code permit corporate employers to establish various types of
tax favored retirement plans for employees. Self-employed individuals may
establish tax favored retirement plans for themselves and their employees. Such
retirement plans (commonly referred to as "H.R.10" or "Keogh") may permit the
purchase of annuity contracts.
STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION
PLANS. Section 457 of the Code permits employees of state and local governments
and tax-exempt organizations to defer a portion of their compensation without
paying current taxes. The employees must be participants in an eligible deferred
compensation plan. In eligible governmental plans, all assets and income must be
held in a trust/ custodial account/annuity contract for the exclusive benefit of
the participants and their beneficiaries. To the extent the Contracts are used
in connection with a non-governmental eligible plan, employees are considered
general creditors of the employer and the employer as owner of the Contract has
the sole right to the proceeds of the Contract. Under eligible 457 plans,
contributions made for the benefit of the employees will not be includible in
the employees' gross income until distributed from the plan.
40 PROSPECTUS
DESCRIPTION OF LINCOLN BENEFIT LIFE COMPANY AND THE SEPARATE ACCOUNT
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LINCOLN BENEFIT LIFE COMPANY. Lincoln Benefit Life Company is a stock life
insurance company organized under the laws of the state of Nebraska in 1938. Our
legal domicile and principal business address is 2940 South 84th Street,
Lincoln, Nebraska, 68506-4142. Lincoln Benefit is a wholly owned subsidiary of
Allstate Life Insurance Company ("Allstate Life" or "ALIC"), a stock life
insurance company incorporated under the laws of the State of Illinois. Allstate
Life is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a stock
property-liability insurance company incorporated under the laws of Illinois.
All outstanding capital stock of Allstate is owned by The Allstate Corporation
("Allstate").
We are authorized to conduct life insurance and annuity business in the District
of Columbia, Guam, U.S. Virgin Islands and all states except New York. We intend
to market the Contract everywhere we conduct variable annuity business. The
Contracts offered by this prospectus are issued by us and will be funded in the
Separate Account and/or the Fixed Account.
Under our reinsurance agreements with Allstate Life, substantially all contract
related transactions are transferred to Allstate Life. Through our reinsurance
agreements with Allstate Life, substantially all of the assets backing our
reinsured liabilities are owned by Allstate Life. These assets represent our
general account and are invested and managed by Allstate Life. Accordingly, the
results of operations with respect to applications received and contracts issued
by Lincoln Benefit are not reflected in our consolidated financial statements.
The amounts reflected in our consolidated financial statements relate only to
the investment of those assets of Lincoln Benefit that are not transferred to
Allstate Life under the reinsurance agreements. While the reinsurance agreements
provide us with financial backing from Allstate Life, it does not create a
direct contractual relationship between Allstate Life and you.
Under the Company's reinsurance agreements with ALIC, the Company reinsures all
reserve liabilities with ALIC except for variable contracts. The Company's
variable contract assets and liabilities are held in legally-segregated,
unitized Separate Accounts and are retained by the Company. However, the
transactions related to such variable contracts such as premiums, expenses and
benefits are transferred to ALIC.
Lincoln Benefit is highly rated by independent agencies, including A.M. Best,
Moody's, and Standard & Poor's. These ratings are based on our reinsurance
agreement with Allstate Life, and reflect financial soundness and strong
operating performance. The ratings are not intended to reflect the financial
strength or investment experience of the Separate Account. We may from time to
time advertise these ratings in our sales literature.
SEPARATE ACCOUNT. Lincoln Benefit Life Variable Annuity Account was originally
established in 1992, as a segregated asset account of Lincoln Benefit. The
Separate Account meets the definition of a "separate account" under the federal
securities laws and is registered with the SEC as a unit investment trust under
the Investment Company Act of 1940. The SEC does not supervise the management of
the Separate Account or Lincoln Benefit.
We own the assets of the Separate Account, but we hold them separate from our
other assets. To the extent that these assets are attributable to the Contract
Value of the Contracts offered by this prospectus, these assets are not
chargeable with liabilities arising out of any other business we may conduct.
Income, gains, and losses, whether or not realized, from assets allocated to the
Separate Account are credited to or charged against the Separate Account without
regard to our other income, gains, or losses. Our obligations arising under the
Contracts are general corporate obligations of Lincoln Benefit.
The Separate Account is divided into Subaccounts. The assets of each Subaccount
are invested in the shares of one of the Portfolios. We do not guarantee the
investment performance of the Separate Account, its Subaccounts or the
Portfolios. Values allocated to the Separate Account and the amount of Variable
Annuity payments will rise and fall with the values of shares of the Portfolios
and are also reduced by Contract charges. We may also use the Separate Account
to fund our other annuity contracts. We will account separately for each type of
annuity contract funded by the Separate Account.
We have included additional information about the Separate Account in the
Statement of Additional Information. You may obtain a copy of the Statement of
Additional Information by writing to us or calling us at 1-800-865-5237. We have
reproduced the Table of Contents of the Statement of Additional Information on
44.
STATE REGULATION OF LINCOLN BENEFIT. We are subject to the laws of Nebraska and
regulated by the Nebraska Department of Insurance. Every year we file an annual
statement with the Department of Insurance covering our operations for the
previous year and our financial condition as of the end of the year. We are
inspected periodically by the Department of Insurance to verify our contract
liabilities and reserves. We also are examined periodically by the NAIC. Our
books and records are subject to review by the Department of Insurance at all
times. We are also subject to regulation under the insurance laws of every
jurisdiction in which we operate.
41 PROSPECTUS
ADMINISTRATION
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We have primary responsibility for all administration of the Contracts and the
Separate Account. Our mailing address is P.O. Box 82532, Lincoln, Nebraska
68501-2532.
We provide the following administrative services, among others: issuance of the
Contracts; maintenance of Contract Owner records; Contract Owner services;
calculation of unit values; maintenance of the Separate Account; and preparation
of Contract Owner reports.
We will send you Contract statements and transaction confirmations at least
quarterly. You should notify us promptly in writing of any address change. You
should read your statements and confirmations carefully and verify their
accuracy. You should contact us promptly if you have a question about a periodic
statement. We will investigate all complaints and make any necessary adjustments
retroactively, but you must notify us of a potential error within a reasonable
time after the date of the questioned statement. If you wait too long, we will
make the adjustment as of the date that we receive notice of the potential
error.
We will also provide you with additional periodic and other reports, information
and prospectuses as may be required by federal securities laws.
MARKET TIMING AND ASSET ALLOCATION SERVICES
- --------------------------------------------------------------------------------
The Contract is intended for long-term investment. Frequent trading in response
to short term fluctuations in the market can disrupt management of a Portfolio
and raise its expenses, which can impair Portfolio performance. At our
discretion, we may restrict, limit or refuse transfers which are considered by
us to be to the disadvantage of Contract owners or may have a detrimental effect
on a Portfolio. See Excessive Trading Limits on page 15 and Transfers Authorized
by Telephone on page 15. Please note that fees and charges asessed for asset
allocation services are separate and distinct from the Contract fees and charges
set forth herein.
DISTRIBUTION OF CONTRACTS
- --------------------------------------------------------------------------------
The Contracts described in this prospectus are sold by registered
representatives of broker-dealers who are our licensed insurance agents, either
individually or through an incorporated insurance agency. Commissions paid to
broker-dealers may vary, but we estimate that the total commissions paid on all
Contract sales will not exceed 5.5% of all Purchase Payments (on a present value
basis). From time to time, we may offer additional sales incentives of up to 1%
of Purchase Payments and other cash bonuses to broker-dealers who maintain
certain sales volume levels. ALFS, Inc. ("ALFS") located at 3100 Sanders Road,
Northbrook, IL 60062-7154 serves as distributor of the Contracts. ALFS, an
affiliate of Lincoln Benefit, is a wholly owned subsidiary of Allstate Life
Insurance Company. ALFS is a registered broker dealer under the Securities and
Exchange Act of 1934, as amended, and is a member of the National Association of
Securities Dealers, Inc. Lincoln Benefit does not pay ALFS a commission for
distribution of the Contracts. The underwriting agreement with ALFS provides
that we will reimburse ALFS for expenses incurred in distributing the Contracts,
including liability arising out of services we provide on the Contracts.
LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
There are no pending legal proceedings affecting the Separate Account. Lincoln
Benefit and its subsidiaries are engaged in routine lawsuits which, in our
management's judgment, are not of material importance to their respective total
assets or material with respect to the Separate Account.
LEGAL MATTERS
- --------------------------------------------------------------------------------
All matters of Nebraska law pertaining to the Contract, including the validity
of the Contract and our right to issue the Contract under Nebraska law, have
been passed upon by William F. Emmons, Vice President, Assistant General
Counsel, and Assistant Secretary of Lincoln Benefit. Legal matters relating to
the federal securities laws in connection with the Contracts described in this
prospectus are being passed upon by the law firm of Jorden Burt LLP, 1025 Thomas
Jefferson St., East Lobby-Suite 400, Washington, D.C. 20007-0805.
42 PROSPECTUS
ANNUAL REPORTS AND OTHER DOCUMENTS
- --------------------------------------------------------------------------------
Lincoln Benefit's annual report on Form 10-K for the year ended December 31,
2002 is incorporated herein by reference, which means that it is legally a part
of this prospectus.
After the date of this prospectus and before we terminate the offering of the
securities under this prospectus, all documents or reports we file with the SEC
under the Exchange Act of 1934 are also incorporated herein by reference, which
means that they also legally become a part of this prospectus.
Statements in this prospectus, or in documents that we file later with the SEC
and that legally become a part of this prospectus, may change or supersede
statement in other documents that are legally part of this prospectus.
We file our Exchange Act documents and reports, including our annual and
quarterly reports on Form 10-K and Form 10-Q electronically on the SEC's "EDGAR"
system using the identifying number CIK No. 0000910739. The SEC maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC. The
address of the site is http:// www.sec.gov. You also can view these materials at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. For more information on the operations of SEC's Public Reference Room,
call 1-800-SEC-0330.
If you have received a copy of this prospectus, and would like a free copy of
any document incorporated herein by reference (other than exhibits not
specifically incorporated by reference into the text of such documents), please
write or call us at Lincoln Benefit Life Company, 2940 South 84th Street,
Lincoln, Nebraska 68516 or 1-800-865-5237.
REGISTRATION STATEMENT
- --------------------------------------------------------------------------------
We have filed a registration statement with the SEC, under the Securities Act of
1933 as amended, with respect to the Contracts offered by this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits filed as part of the registration statement. You
should refer to the registration statement and the exhibits for further
information concerning the Separate Account, Lincoln Benefit, and the Contracts.
The descriptions in this prospectus of the Contracts and other legal instruments
are summaries. You should refer to those instruments as filed for the precise
terms of those instruments. You may inspect and obtain copies of the
registration statement as described on the cover page of this prospectus.
43 PROSPECTUS
STATEMENT OF ADDITIONAL INFORMATION
TABLE OF CONTENTS
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PAGE
- --------------------------------------------------------------------------------
THE CONTRACT
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Annuity Payments
- --------------------------------------------------------------------------------
Initial Monthly Annuity Payment
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Subsequent Monthly Payments
- --------------------------------------------------------------------------------
Transfers After Annuity Date
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Annuity Unit Value
- --------------------------------------------------------------------------------
PAGE
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Illustrative Example of Unit Value Calculation
- --------------------------------------------------------------------------------
Ilklustrative Example of Variable Annuity Payments
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SEPARATE ACCOUNT PERFORMANCE
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EXPERTS
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FINANCIAL STATEMENTS
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44 PROSPECTUS
APPENDIX A
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ACCUMULATION UNIT VALUES /(1)/
BASIC POLICY
Year ending December 31,
FUND 1999 2000 2001 2002
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Fidelity Investment Grade Bond ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 10.721
Number of Units Outstanding at End -- -- -- 178,620
of Year
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Fidelity Overseas ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.724
Number of Units Outstanding at End -- -- -- 3,650
of Year
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Goldman Sachs CORE International
Equity *
Accumulation Unit Value Beginning $ 10.00 $ 12.29 $ 10.52 $ 8.07
Accumulation Unit Value Ending $ 12.29 $ 10.52 $ 8.07 $ 6.495
Number of Units Outstanding at End 22,152 159,917 114,948 254,616
of Year
- -------------------------------------------------------------------------------
Goldman Sachs CORE Small Cap Equity
*
Accumulation Unit Value Beginning $ 10.00 $ 12.19 $ 12.23 $ 12.61
Accumulation Unit Value Ending $ 12.19 $ 12.23 $ 12.61 $ 10.573
Number of Units Outstanding at End 32,499 94,926 230,893 127,061
of Year
- -------------------------------------------------------------------------------
Janus International Value ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.755
Number of Units Outstanding at End -- -- -- 10,251
of Year
- -------------------------------------------------------------------------------
Janus Worldwide Growth ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.806
Number of Units Outstanding at End -- -- -- 13,094
of Year
- -------------------------------------------------------------------------------
J.P. Morgan Small Company *
Accumulation Unit Value Beginning $ 10.00 $ 14.01 $ 12.25 $ 11.11
Accumulation Unit Value Ending $ 14.01 $ 12.25 $ 11.11 $ 8.582
Number of Units Outstanding at End 42,567 135,018 148,118 229,162
of Year
- -------------------------------------------------------------------------------
Lazard Emerging Markets *
Accumulation Unit Value Beginning $ 10.00 $ 13.27 $ 9.41 $ 8.81
Accumulation Unit Value Ending $ 13.27 $ 9.41 $ 8.81 $ 8.555
Number of Units Outstanding at End 11,803 34,832 51,868 78,720
of Year
- -------------------------------------------------------------------------------
Lazard International Equity *
Accumulation Unit Value Beginning $ 10.00 $ 11.25 $ 10.02 $ 7.50
Accumulation Unit Value Ending $ 11.25 $ 10.02 $ 7.50 $ 6.607
Number of Units Outstanding at End 27,207 79,805 118,331 162,113
of Year
- -------------------------------------------------------------------------------
LSA Aggressive Growth ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.299
Number of Units Outstanding at End -- -- -- 10,154
of Year
- -------------------------------------------------------------------------------
LSA Balanced *
Accumulation Unit Value Beginning $ 10.00 $ 10.40 $ 11.17 $ 11.26
Accumulation Unit Value Ending $ 10.40 $ 11.17 $ 11.26 $ 9.073
Number of Units Outstanding at End 386 124,389 266,745 514,929
of Year
- -------------------------------------------------------------------------------
LSA Basic Growth ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.638
Number of Units Outstanding at End -- -- -- 63,427
of Year
- -------------------------------------------------------------------------------
LSA Blue Chip ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.975
Number of Units Outstanding at End -- -- -- 24,337
of Year
- -------------------------------------------------------------------------------
LSA Capital Appreciation ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 8.163
Number of Units Outstanding at End -- -- -- 14,015
of Year
- -------------------------------------------------------------------------------
LSA Diversified Mid Cap ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.783
Number of Units Outstanding at End -- -- -- 26,268
of Year
- -------------------------------------------------------------------------------
LSA Emerging Growth Equity *
Accumulation Unit Value Beginning $ 10.00 $ 17.48 $ 12.04 $ 9.75
Accumulation Unit Value Ending $ 17.48 $ 12.04 $ 9.75 $ 5.589
Number of Units Outstanding at End 16,191 131,445 150,128 161,610
of Year
- -------------------------------------------------------------------------------
LSA Equity Growth *
Accumulation Unit Value Beginning $ 10.00 $ 12.49 $ 10.86 $ 9.05
Accumulation Unit Value Ending $ 12.49 $ 10.86 $ 9.05 $ 6.224
Number of Units Outstanding at End 34,228 160,257 240,525 85,390
of Year
- -------------------------------------------------------------------------------
LSA Capital Growth*
Accumulation Unit Value Beginning $ 10.00 $ 12.22 $ 11.03 $ 9.33
Accumulation Unit Value Ending $ 12.22 $ 11.03 $ 9.33 $ 6.910
Number of Units Outstanding at End 3,394 142,502 226,920 226,041
of Year
- -------------------------------------------------------------------------------
LSA Value Equity *
Accumulation Unit Value Beginning $ 10.00 $ 11.03 $ 12.55 $ 11.77
Accumulation Unit Value Ending $ 11.03 $ 12.55 $ 11.77 $ 9.035
Number of Units Outstanding at End 32 122,654 235,535 428,181
of Year
- -------------------------------------------------------------------------------
MFS New Discovery ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.473
Number of Units Outstanding at End -- -- -- 20,998
of Year
- -------------------------------------------------------------------------------
MFS Utility ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 8.370
Number of Units Outstanding at End -- -- -- 13,969
of Year
- -------------------------------------------------------------------------------
PIMCO Advisers VIT OpCap Equity *
Accumulation Unit Value Beginning $ 10.00 $ 10.62 $ 11.51 $ 10.56
Accumulation Unit Value Ending $ 10.62 $ 11.51 $ 10.56 $ 8.180
Number of Units Outstanding at End 0 58,987 110,288 195,029
of Year
- -------------------------------------------------------------------------------
PIMCO Advisers VIT PEA Science and
Technology **
Accumulation Unit Value Beginning -- -- $ 10.00 $ 3.36
Accumulation Unit Value Ending -- -- $ 3.36 $ 1.803
Number of Units Outstanding at End -- -- 59,395 160,966
of Year
- -------------------------------------------------------------------------------
PIMCO Advisers VIT OpCap Small Cap *
Accumulation Unit Value Beginning $ 10.00 $ 10.65 $ 15.15 $ 16.18
Accumulation Unit Value Ending $ 10.65 $ 15.15 $ 16.18 $ 12.502
Number of Units Outstanding at End 0 49,685 75,521 140,778
of Year
- -------------------------------------------------------------------------------
Oppenheimer Main Street Small Cap
***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.839
Number of Units Outstanding at End -- -- -- 28,379
of Year
- -------------------------------------------------------------------------------
PIMCO Foreign Bond *
Accumulation Unit Value Beginning $ 10.00 $ 10.29 $ 10.99 $ 11.66
Accumulation Unit Value Ending $ 10.29 $ 10.99 $ 11.66 $ 12.443
Number of Units Outstanding at End 17,747 30,068 49,293 93,732
of Year
- -------------------------------------------------------------------------------
PIMCO Money Market *
Accumulation Unit Value Beginning $ 10.00 $ 10.07 $ 10.54 $ 10.79
Accumulation Unit Value Ending $ 10.07 $ 10.54 $ 10.79 $ 10.786
Number of Units Outstanding at End 45,777 307,495 918,122 1,311,411
of Year
- -------------------------------------------------------------------------------
PIMCO StocksPLUS Growth and Income *
Accumulation Unit Value Beginning $ 10.00 $ 11.64 $ 10.39 $ 9.07
Accumulation Unit Value Ending $ 11.64 $ 10.39 $ 9.07 $ 7.139
Number of Units Outstanding at End 21 97,992 171,296 335,810
of Year
- -------------------------------------------------------------------------------
PIMCO Total Return Bond *
Accumulation Unit Value Beginning $ 10.00 $ 10.13 $ 11.01 $ 11.77
Accumulation Unit Value Ending $ 10.13 $ 11.01 $ 11.77 $ 12.656
Number of Units Outstanding at End 54,509 181,857 356,786 916,788
of Year
- -------------------------------------------------------------------------------
Putnam High Yield ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 9.568
Number of Units Outstanding at End -- -- -- 14,843
of Year
- -------------------------------------------------------------------------------
RYDEX OTC **
Accumulation Unit Value Beginning -- -- $ 10.00 $ 5.75
Accumulation Unit Value Ending -- -- $ 5.75 $ 3.470
Number of Units Outstanding at End -- -- 7,617 73,139
of Year
- -------------------------------------------------------------------------------
Salomon Brothers All Cap *
Accumulation Unit Value Beginning $ 10.00 $ 11.54 $ 13.45 $ 13.51
Accumulation Unit Value Ending $ 11.54 $ 13.45 $ 13.51 $ 9.987
Number of Units Outstanding at End 49,256 141,167 260,699 321,536
of Year
- -------------------------------------------------------------------------------
Van Kampen UIF High Yield - Class I*
Accumulation Unit Value Beginning $ 10.00 $ 10.37 $ 9.14 $ 8.61
Accumulation Unit Value Ending $ 10.37 $ 9.14 $ 8.61 $ 7.872
Number of Units Outstanding at End 17,868 68,958 94,964 148,434
of Year
- -------------------------------------------------------------------------------
Van Kampen UIF. Mid Cap Growth -
Class I*
Accumulation Unit Value Beginning $ 10.00 $ 13.80 $ 12.61 $ 8.79
Accumulation Unit Value Ending $ 13.80 $ 12.61 $ 8.79 $ 5.967
Number of Units Outstanding at End 409 170,775 213,956 302,409
of Year
- -------------------------------------------------------------------------------
Van Kampen U.S. MidCap Core - Class
I*
Accumulation Unit Value Beginning $ 10.00 $ 12.06 $ 13.17 $ 12.57
Accumulation Unit Value Ending $ 12.06 $ 13.17 $ 12.57 $ 8.924
Number of Units Outstanding at End 0 85,226 189,874 301,924
of Year
- -------------------------------------------------------------------------------
Van Kampen Growth and Income ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 8.155
Number of Units Outstanding at End -- -- -- 58,636
of Year
- -------------------------------------------------------------------------------
45 PROSPECTUS
(1) Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount for any Valuation Period. An
Accumulation Unit Value does not reflect deduction of certain charges under
the Contract that are deducted from your Contract Value, such as the
Administrative Expense Charge. The beginning value reflects the Accumulation
Unit Value as of October 18, 1999, the date Lincoln Benefit started to offer
the Contract.
* First offered 10/18/1999.
** First offered 1/17/2001.
*** First offered 5/1/2002.
Information is not shown for Alger Growth Portfolio or Fidelity Growth
Portfolio, which was first offered 5/1/03.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
47 PROSPECTUS
ACCUMULATION UNIT VALUES
BASIC POLICY PLUS ENHANCED DEATH BENEFIT RIDER
Year ending December 31,
FUND 1999 2000 2001 2002
- -------------------------------------------------------------------------------------
Fidelity Investment Grade Bond ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 10.706
Number of Units Outstanding at End of Year -- -- -- 84,421
- -------------------------------------------------------------------------------------
Fidelity Overseas ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.714
Number of Units Outstanding at End of Year -- -- -- 8,812
- -------------------------------------------------------------------------------------
Goldman Sachs CORE International Equity *
Accumulation Unit Value Beginning $ 10.00 $ 12.29 $ 10.50 $ 8.03
Accumulation Unit Value Ending $ 12.29 $ 10.50 $ 8.03 $ 6.453
Number of Units Outstanding at End of Year 5,621 78,931 112,245 114,893
- -------------------------------------------------------------------------------------
Goldman Sachs CORE Small Cap Equity *
Accumulation Unit Value Beginning $ 10.00 $ 12.19 $ 12.20 $ 12.55
Accumulation Unit Value Ending $ 12.19 $ 12.20 $ 12.55 $ 10.505
Number of Units Outstanding at End of Year 3,604 24,178 35,125 59,592
- -------------------------------------------------------------------------------------
Janus International Value ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.744
Number of Units Outstanding at End of Year -- -- -- 6,035
- -------------------------------------------------------------------------------------
Janus Worldwide Growth ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.795
Number of Units Outstanding at End of Year -- -- -- 13,160
- -------------------------------------------------------------------------------------
J.P. Morgan Small Company *
Accumulation Unit Value Beginning $ 10.00 $ 14.00 $ 12.22 $ 11.06
Accumulation Unit Value Ending $ 14.00 $ 12.22 $ 11.06 $ 8.527
Number of Units Outstanding at End of Year 0 53,597 58,437 83,459
- -------------------------------------------------------------------------------------
Lazard Emerging Markets *
Accumulation Unit Value Beginning $ 10.00 $ 13.26 $ 9.39 $ 8.77
Accumulation Unit Value Ending $ 13.26 $ 9.39 $ 8.77 $ 8.501
Number of Units Outstanding at End of Year 2,809 25,988 32,552 51,013
- -------------------------------------------------------------------------------------
Lazard International Equity *
Accumulation Unit Value Beginning $ 10.00 $ 11.24 $ 10.00 $ 7.47
Accumulation Unit Value Ending $ 11.24 $ 10.00 $ 7.47 $ 6.565
Number of Units Outstanding at End of Year 4,064 50,850 71,754 73,992
- -------------------------------------------------------------------------------------
LSA Aggressive Growth ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.289
Number of Units Outstanding at End of Year -- -- -- 5,753
- -------------------------------------------------------------------------------------
LSA Balanced *
Accumulation Unit Value Beginning $ 10.00 $ 10.40 $ 11.14 $ 11.21
Accumulation Unit Value Ending $ 10.40 $ 11.14 $ 11.21 $ 9.015
Number of Units Outstanding at End of Year 7,126 69,393 144,623 221,913
- -------------------------------------------------------------------------------------
LSA Basic Growth ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.627
Number of Units Outstanding at End of Year -- -- -- 30,010
- -------------------------------------------------------------------------------------
LSA Blue Chip ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.964
Number of Units Outstanding at End of Year -- -- -- 9,727
- -------------------------------------------------------------------------------------
LSA Capital Appreciation ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 8.152
Number of Units Outstanding at End of Year -- -- -- 4,462
- -------------------------------------------------------------------------------------
LSA Diversified Mid Cap ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.772
Number of Units Outstanding at End of Year -- -- -- 7,362
- -------------------------------------------------------------------------------------
LSA Emerging Growth Equity *
Accumulation Unit Value Beginning $ 10.00 $ 17.47 $ 12.01 $ 9.71
Accumulation Unit Value Ending $ 17.47 $ 12.01 $ 9.71 $ 5.553
Number of Units Outstanding at End of Year 5,259 86,819 94,558 98,810
- -------------------------------------------------------------------------------------
LSA Equity Growth *
Accumulation Unit Value Beginning $ 10.00 $ 12.48 $ 10.83 $ 9.01
Accumulation Unit Value Ending $ 12.48 $ 10.83 $ 9.01 $ 6.224
Number of Units Outstanding at End of Year 8,359 54,291 90,631 85,390
- -------------------------------------------------------------------------------------
LSA Capital Growth*
Accumulation Unit Value Beginning $ 10.00 $ 12.21 $ 11.00 $ 9.28
Accumulation Unit Value Ending $ 12.21 $ 11.00 $ 9.28 $ 6.910
Number of Units Outstanding at End of Year 24,902 123,406 172,729 226,041
- -------------------------------------------------------------------------------------
LSA Value Equity *
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 8.426
Number of Units Outstanding at End of Year -- -- -- 25,180
- -------------------------------------------------------------------------------------
MFS New Discovery ***
Accumulation Unit Value Beginning $ 10.00 $ 11.03 $ 12.52 $ 11.72
Accumulation Unit Value Ending $ 11.03 $ 12.52 $ 11.72 $ 8.978
Number of Units Outstanding at End of Year 17,183 62,043 130,669 179,820
- -------------------------------------------------------------------------------------
MFS Utility ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.463
Number of Units Outstanding at End of Year -- -- -- 10,193
- -------------------------------------------------------------------------------------
PIMCO Advisers VIT OpCap Equity *
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 8.359
Number of Units Outstanding at End of Year -- -- -- 6,880
- -------------------------------------------------------------------------------------
PIMCO Advisers VIT PEA Science and
Technology **
Accumulation Unit Value Beginning $ 10.00 $ 10.62 $ 11.49 $ 10.51
Accumulation Unit Value Ending $ 10.62 $ 11.49 $ 10.51 $ 8.128
Number of Units Outstanding at End of Year 5,784 61,655 97,863 115,950
- -------------------------------------------------------------------------------------
PIMCO Advisers VIT OpCap Small Cap *
Accumulation Unit Value Beginning -- -- $ 10.00 $ 3.62
Accumulation Unit Value Ending -- -- $ 3.62 $ 1.796
Number of Units Outstanding at End of Year -- -- 14,533 63,153
- -------------------------------------------------------------------------------------
Oppenheimer Main Street Small Cap ***
Accumulation Unit Value Beginning $ 10.00 $ 10.65 $ 15.11 $ 16.11
Accumulation Unit Value Ending $ 10.65 $ 15.11 $ 16.11 $ 12.422
Number of Units Outstanding at End of Year 0 16,703 43,783 74,972
- -------------------------------------------------------------------------------------
PIMCO Foreign Bond *
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 7.829
Number of Units Outstanding at End of Year -- -- -- 27,890
- -------------------------------------------------------------------------------------
PIMCO Money Market *
Accumulation Unit Value Beginning $ 10.00 $ 10.28 $ 10.97 $ 11.61
Accumulation Unit Value Ending $ 10.28 $ 10.97 $ 11.61 $ 12.364
Number of Units Outstanding at End of Year 0 1,231 3,605 27,152
- -------------------------------------------------------------------------------------
PIMCO StocksPLUS Growth and Income *
Accumulation Unit Value Beginning $ 10.00 $ 10.07 $ 10.51 $ 10.74
Accumulation Unit Value Ending $ 10.07 $ 10.51 $ 10.74 $ 10.717
Number of Units Outstanding at End of Year 10,350 104,093 239,107 467,548
- -------------------------------------------------------------------------------------
PIMCO Total Return Bond *
Accumulation Unit Value Beginning $ 10.00 $ 11.64 $ 10.37 $ 9.03
Accumulation Unit Value Ending $ 11.64 $ 10.37 $ 9.03 $ 7.094
Number of Units Outstanding at End of Year 12,776 82,128 112,333 161,698
- -------------------------------------------------------------------------------------
Putnam High Yield ***
Accumulation Unit Value Beginning $ 10.00 $ 10.13 $ 10.98 $ 11.71
Accumulation Unit Value Ending $ 10.13 $ 10.98 $ 11.71 $ 12.575
Number of Units Outstanding at End of Year 224 57,774 148,500 491,013
- -------------------------------------------------------------------------------------
RYDEX OTC **
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 9.555
Number of Units Outstanding at End of Year -- -- -- 6,438
- -------------------------------------------------------------------------------------
Salomon Brothers All Cap *
Accumulation Unit Value Beginning -- -- $ 10.00 $ 5.74
Accumulation Unit Value Ending -- -- $ 5.74 3.457
Number of Units Outstanding at End of Year -- -- 14,044 83,805
- -------------------------------------------------------------------------------------
Van Kampen UIF High Yield - Class I*
Accumulation Unit Value Beginning $ 10.00 $ 11.53 $ 13.42 $ 13.46
Accumulation Unit Value Ending $ 11.53 $ 13.42 $ 13.46 $ 7.822
Number of Units Outstanding at End of Year 0 64,958 121,931 60,785
- -------------------------------------------------------------------------------------
Van Kampen UIF Mid Cap Growth - Class I*
Accumulation Unit Value Beginning $ 10.00 $ 13.80 $ 12.58 $ 8.75
Accumulation Unit Value Ending $ 13.80 $ 12.58 $ 8.75 $ 5.929
Number of Units Outstanding at End of Year 6,216 87,781 123,258 135,098
- -------------------------------------------------------------------------------------
Van Kampen UIF U.S. MidCap Core - Class I*
Accumulation Unit Value Beginning $ 10.00 $ 12.05 $ 13.14 $ 12.52
Accumulation Unit Value Ending $ 12.05 $ 13.14 $ 12.52 $ 8.867
Number of Units Outstanding at End of Year 6,021 44,148 95,312 151,383
- -------------------------------------------------------------------------------------
Van Kampen Growth and Income ***
Accumulation Unit Value Beginning -- -- -- $ 10.00
Accumulation Unit Value Ending -- -- -- $ 8.144
Number of Units Outstanding at End of Year -- -- -- 26,840
- -------------------------------------------------------------------------------------
48 PROSPECTUS
(1) Accumulation Unit Value: unit of measure used to calculate the value of a
Contract Owner's interest in a Subaccount for any Valuation Period. An
Accumulation Unit Value does not reflect deduction of certain charges under
the Contract that are deducted from your Contract Value, such as the
Administrative Expense Charge.
* First offered 10/18/1999.
** First offered 1/17/2001.
*** First offered 5/1/2002.
Information is not shown for Alger Growth Portfolio or Fidelity Growth
Portfolio, which was first offered 5/1/03.
A brief explanation of how performance of the Subaccounts is calculated may be
found in the Statement of Additional Information.
50 PROSPECTUS
APPENDIX B
PORTFOLIOS AND PERFORMANCE DATA
- --------------------------------------------------------------------------------
PERFORMANCE DATA
From time to time the Separate Account may advertise the PIMCO Money Market
Subaccount's "yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
"yield" of the PIMCO Money Market Subaccount refers to the net income earned by
the Subaccount over the seven-day period stated in the advertisement. This
income is then "annualized." That is, the amount of income earned during that
week is assumed to be generated each week over a 52-week period and is shown as
a percentage of the investment. The "effective yield" is calculated similarly
but, when annualized, the income earned by the investment is assumed to be
reinvested at the end of each seven-day period. The "effective yield" will be
slightly higher than the "yield" because of the compounding effect of this
assumed reinvestment. Neither the yield nor the effective yield takes into
consideration the effect of any capital gains or losses that might have occurred
during the seven day period, nor do they reflect the impact of any premium tax
charge or Withdrawal Charges. The impact of other, recurring charges on both
yield figures is, however, reflected in them to the same extent it would affect
the yield (or effective yield) for a Contract of average size.
In addition, the Separate Account may advertise an annualized 30-day (or one
month) yield figure for Subaccounts other than the PIMCO Money Market
Subaccount. These yield figures are based upon the actual performance of the
Subaccount over a 30-day (or one month) period ending on a date specified in the
advertisement. Like the money market yield data described above, the 30-day (or
one month) yield data will reflect the effect of all recurring Contract charges,
but will not reflect any Withdrawal Charges or premium tax charge. The yield
figure is derived from net investment gain (or loss) over the period expressed
as a fraction of the investment's value at the end of the period.
The Separate Account may also advertise standardized and non-standardized "total
return" data for its Subaccounts. Like the yield figures described above, total
return figures are based on historical data and are not intended to indicate
future performance. The standardized "total return" compares the value of a
hypothetical investment made at the beginning of the period to the value of the
same hypothetical investment at the end of the period. Standardized total return
figures reflect the deduction of any Withdrawal Charge that would be imposed
upon a complete redemption of the Contract at the end of the period. Recurring
Contract charges are reflected in the standardized total return figures in the
same manner as they are reflected in the yield data for Contracts funded through
the Money Market Subaccount.
In addition to the standardized "total return," the Separate Account may
advertise non-standardized "total return." Non-standardized total return is
calculated in a similar manner and for the same time periods as the standardized
total return except that the Withdrawal Charge is not deducted. Further, we
assumed an initial hypothetical investment of $50,000, because $50,000 is closer
to the average Purchase Payment of a Contract which we expect to write.
Standardized total return, on the other hand, assumes an initial hypothetical
investment of $1,000.
The Separate Account may also disclose yield and non-standardized total return
for time periods before the date the Separate Account commenced operations. In
this case, performance data for the Subaccounts is calculated based on the
performance of the Portfolios and assumes that the Subaccounts existed during
the same time period as the Portfolios, with recurring Contract charges equal to
those currently assessed against the Subaccounts.
Our advertisements may also compare the performance of our Subaccounts with: (a)
certain unmanaged market indices, including but the Dow Jones Industrial
Average, the Standard & Poor's 500, and the Shearson Lehman Bond Index; and/or
(b) other management investment companies with investment objectives similar to
the underlying funds being compared. Our advertisements also may include the
performance ranking assigned by various publications, including the Wall Street
Journal, Forbes, Fortune, Money, Barron's, Business Week, USA Today, and
statistical services, including Lipper Analytical Services Mutual Fund Survey,
Lipper Annuity and Closed End Survey, the Variable Annuity Research Data Survey,
and SEI.
The Contract charges are described in more detail on page 31. We have described
the computation of advertised performance data for the Separate Account in more
detail beginning on page S-6 of the Statement of Additional Information.
51 PROSPECTUS
APPENDIX C
- --------------------------------------------------------------------------------
ILLUSTRATION OF A MARKET VALUE ADJUSTMENT
Purchase Payment: $ 40,000.00
Credit Enhancement: 1,600.00
Guarantee Period: 5 Years
Guaranteed Interest Rate: 5% Annual Effective Rate
5-year Treasury Rate at Time
of Purchase Payment: 6%
The following examples illustrate how the Market Value Adjustment and the
Withdrawal Charge may affect the values of a Contract upon a withdrawal. The 5%
assumed Guaranteed Interest Rate is the rate required to be used in the "Summary
of Expenses." In these examples, the withdrawal occurs one year after (in the
second Contract Year) the Issue Date. The Market Value Adjustment operates in a
similar manner for transfers, except that there is no free amount for transfers.
No Withdrawal Charge applies to transfers.
Assuming that the entire $40,000.00 Purchase Payment and $1,600.00 Credit
Enhancement are allocated to the Guaranteed Maturity Fixed Account for the
Guarantee Period specified above, at the end of the five-year Guarantee Period
the Contract Value would be $53,093.31. After one year, when the withdrawals
occur in these examples, the Contract Value would be $43,680.00. We have assumed
that no prior partial withdrawals or transfers have occurred.
The Market Value Adjustment and the Withdrawal Charge only apply to the portion
of a withdrawal that is greater than the Free Withdrawal Amount. Accordingly,
the first step is to calculate the Free Withdrawal Amount.
The Free Withdrawal Amount is equal to:
(a) the greater of:
. earnings not previously withdrawn; or
. 15% of your total Purchase Payments in the most recent eight years;
plus
(b) an amount equal to your total Purchase Payments made more than eight years
ago, to the extent not previously withdrawn.
Here, (a) equals $6,000.00, because 15% of the total Purchase Payments in the
most recent eight years ($6,000.00 = 15% x $40,000.00) is greater than the
earnings not previously withdrawn ($3,680.00). (B) equals $0, because all of the
Purchase Payments were made less than eight years age. Accordingly, the Free
Withdrawal Amount is $6,000.00.
The formula that we use to determine the amount of the Market Value Adjustment
is:
.9 x (I - J) x N,
where: I = the Treasury Rate for a maturity equal to the relevant Guarantee
Period for the week preceding the beginning of the Guarantee Period;
J = the Treasury Rate for a maturity equal to the relevant Guarantee
Period for the week preceding our receipt of your withdrawal request,
death benefit request, transfer request, or annuity option request;
and
N = the number of whole and partial years from the date we receive
your request until the end of the relevant Guarantee Period.
We will base the Market Value Adjustment on the current Treasury Rate for a
maturity corresponding in length to the relevant Guarantee Period. These
examples also show the Withdrawal Charge (if any), which would be calculated
separately from the Market Value Adjustment.
EXAMPLE OF A DOWNWARD MARKET VALUE ADJUSTMENT
A downward Market Value Adjustment results from a full or partial withdrawal
that occurs when interest rates have increased. Assume interest rates have
increased one year after the Purchase Payment, such that the five-year Treasury
Rate is now 6.5%. Upon a withdrawal, the market value adjustment factor would
be:
.9 x (.06 - .065) x 4 = -.0180
The Market Value Adjustment is a reduction of $678.24 from the amount withdrawn:
$-678.24 = -.0180 x ($43,680 - $6,000.00)
A Withdrawal Charge of 7% (assuming the Withdrawal occurs at the start of the
second Contract year) would be assessed against the Purchase Payments withdrawn
that are less than eight years old and are not eligible for free withdrawal.
Under the Contract, earnings are deemed to be withdrawn before Purchase
Payments. Accordingly, in this example, the amount of the Purchase Payment
eligible for free withdrawal would equal the Free Withdrawal Amount less the
interest credited or $2,320.00 ($6,000.00 - $3,680.00).
Therefore, the Withdrawal Charge would be:
$2,637.60 = 7% x (40,000.00 - $2,320.00)
As a result, the net amount payable to you would be:
$40,364.16 = $43,680.00 - $678.24 - $2,637.60
EXAMPLE OF AN UPWARD MARKET VALUE ADJUSTMENT
An upward Market Value Adjustment results from a withdrawal that occurs when
interest rates have decreased. Assume interest rates have decreased one year
52 PROSPECTUS
after the Purchase Payment, such that the five-year Treasury Rate is now 5.5%.
Upon a withdrawal, the market value adjustment factor would be:
.9 x (.06 - .055) x 4 = .0180
The Market Value Adjustment would increase the amount withdrawn by $648.00, as
follows:
$678.24 = .0180 x ($43,680 - $6,000.00)
As above, in this example, the amount of the Purchase Payment eligible for free
withdrawal would equal the Free Withdrawal Amount less the interest credited or
$2,320.00 ($6,000.00 - $3,680.00). Therefore, the Withdrawal Charge would be:
$2,637.60 = 7% x ($40,000.00 - $2,320.00)
As a result, the net amount payable to you would be:
$41,720.64 = $43,680.00 + $678.24 - $2,637.60
EXAMPLE OF A PARTIAL WITHDRAWAL
If you request a partial withdrawal from a Guarantee Period, we can either (1)
withdraw the specified amount of Contract Value and pay you that amount as
adjusted by any applicable Market Value Adjustment or (2) pay you the amount
requested, and subtract an amount from your Contract Value that equals the
requested amount after application of the Market Value Adjustment and Withdrawal
Charge. Unless you instruct us otherwise, when you request a partial withdrawal
we will assume that you wish to receive the amount requested. We will make the
necessary calculations and on your request provide you with a statement showing
our calculations.
For example, if in the first example you wished to receive $20,000.00 as a
partial withdrawal, the Market Value Adjustment and Withdrawal Charge would be
calculated as follows:
let: AW = the total amount to be withdrawn from your Contract Value
MVA = Market Value Adjustment
WC = Withdrawal Charge
AW' = amount subject to Market Value Adjustment and Withdrawal Charge
Then AW - $20,000.00 = WC - MVA
Since neither the Market Value Adjustment nor the Withdrawal Charge apply to the
free withdrawal amount, we can solve directly for the amount subject to the
Market Value Adjustment and the Withdrawal Charge (i.e., AW'), which equals AW ?
$6,000.00. Then, AW = AW' + $6,000, and AW' + $6,000.00 - $20,000.00 = WC - MVA.
MVA = -.018 x AW'
WC = .07 x AW'
WC - MVA = .088AW'
AW' - $14,000.00 = .088AW'
AW' = $14,000.00 / (1 - .088) = $15,350.88
MVA = -.018 x $15,350.88 = - $276.32
WC = .07 x $15,350.88 = $1,074.56
AW = Total amount withdrawn = $15,350.88 + $6,000.00 = $21,350.88
You receive $20,000.00; the total amount subtracted from your contract is
$21,350.88; the Market Value Adjustment is $276.32; and the Withdrawal Charge is
$1,074.56. Your remaining Contract Value is $20,649.12.
If, however, in the same example, you wished to withdraw $20,000.00 from your
Contract Value and receive the adjusted amount, the calculations would be as
follows:
By definition, AW = total amount withdrawn from your Contract Value = $20,000.00
AW' = amount that MVA & WC are applied to = amount withdrawn in excess
of Free Amount = $20,000.00 - $6,000.00 = $14,000.00
MVA = -.018 x $14,000.00 = $-252.00
WC = .07 x $14,000.00 = $980.00
You would receive $20,000.00 - $252.00 - $980.00 = $18,768.00; the total amount
subtracted from your Contract Value is $20,000.00. Your remaining Contract Value
would be $22,000.00.
EXAMPLE OF FREE WITHDRAWAL AMOUNT
Assume that in the foregoing example, after four years $10,565.06 in earnings;
including the Credit Enhancement had been credited and that the Contract Value
in the Fixed Account equaled $50,565.06. In this example, if no prior
withdrawals have been made, you could withdraw up to $10,565.06 without
incurring a Market Value Adjustment or a Withdrawal Charge. The Free Withdrawal
Amount would be $10,565.06, because the interest credited ($10,565.06) is
greater than 15% of the Total Purchase Payments in the most recent eight years
($40,000.00 x .15 = $6,000.00).
53 PROSPECTUS
(THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY.)
54 PROSPECTUS
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Pursuant to Item 511 of Regulation S-K, the Registrant hereby
represents that the following expenses totaling approximately
$31,000.00 will be incurred or are anticipated to be incurred in
connection with the issuance and distribution of the securities to be
registered: registration fees - $0.00; cost of printing and engraving -
$25,000.00 (approximate); legal fees - $5,000.00 (approximate) and
accounting fees - $1,000.00 (approximate). All amounts are estimated,
for the period ending May 1, 2003 for the continuous offering of
shares, but are not deducted from proceeds.
Item 15. Indemnification of Directors and Officers
The Articles of Incorporation of Lincoln Benefit Life Company
(Depositor) provide for the indemnification of its directors and
officers against expenses, judgments, fines and amounts paid in
settlement as incurred by such person, so long as such person shall not
have been adjudged to be liable for negligence or misconduct in the
performance of a duty to the Company. This right of indemnity is not
exclusive of other rights to which a director or officer may otherwise
be entitled.
The By-Laws of ALFS, Inc. (Distributor) provide that the corporation
will indemnify a director, officer, employee or agent of the
corporation to the full extent of Delaware law. In general, Delaware
law provides that a corporation may indemnify a director, officer,
employee or agent against expenses, judgments, fines and amounts paid
in settlement if that individual acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct
was unlawful. No indemnification shall be made for expenses, including
attorney's fees, if the person shall have been judged to be liable to
the corporation unless a court determines such person is entitled to
such indemnity. Expenses incurred by such individual in defending any
action or proceeding may be advanced by the corporation so long as the
individual agrees to repay the corporation if it is later determined
that he or she is not entitled to such indemnification.
Under the terms of the form of Underwriting Agreement, the Depositor
agrees to indemnify the Distributor for any liability that the latter
may incur to a Contract owner or party-in-interest under a Contract,
(a) arising out of any act or omission in the course of or in
connection with rendering services under such Agreement, or (b) arising
out of the purchase, retention or surrender of a Contract; provided
that the Depositor will not indemnify the Distributor for any such
liability that results from the latter's willful misfeasance, bad faith
or grow negligence, or from the reckless disregard by the latter of its
duties and obligations under the Underwriting Agreement.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the forgoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid
by a director, officer or controlling person of the registrant in the
successful defense of any action, suite or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion
of its counsel the matter has settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
Item 16. Exhibits
Exh. No. Description
1 Form of Principal Underwriting Agreement*
3(a) Articles of Incorporation**
3(b) Bylaws**
4(a) Form of Variable Annuity Contract***
4(b) Form of Application***
5 Opinion and Consent of Counsel regarding legality*****
21 Subsidiaries of Registrant - N/A
23(a) Consent of Deloitte & Touche LLP, Independent Auditors
(filed herewith)
23(b) Consent of Attorneys (filed herewith)
27 Financial Data Schedule****
99 Powers of Attorney for Lawrence W. Dahl, Margaret G.
Dyer, Marla G. Friedman, Douglas F. Gaer, John C.
Lounds, J. Kevin McCarthy, Samuel H. Pilch, Steven E.
Shebik, Casey J. Sylla, Michael J. Velotta, B. Eugene
Wraith, James P. Zils
-------------------------------------------------
* Incorporated herein by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form N-4 for Lincoln Benefit Life Variable
Annuity Account (File No. 333-50545, 811-07924) filed January 28, 1999
** Incorporated herein by reference to the Registration Statement on Form S-6
for the Lincoln Benefit Life Variable Life Account (File No. 333-47717)
filed March 11, 1998
*** Incorporated herein by reference to the Registration Statement on Form N-4
for Lincoln Benefit Life Variable Annuity Account (File No. 333-82427,
811-07924) filed July 8, 1999
**** Incorporated herein by reference to the Registrant's Form 10-K filed March
29, 2001.
*****Incorporated herein by reference to Post-Effective Amendment No. 1 to Form
S-3 on Form S-1 for Lincoln Benefit Life Variable Annuity Account (File No.
333-88045) filed April 6, 2000.
Item 17. Undertakings.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the determining of any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liabilities under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted in directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Item. Experts
The financial statements and the related financial statement schedule
incorporated in these prospectus by reference from Lincoln Benefit Life
Company's Annual Report on Form 10-K for the year ended December 31, 2002 and
from the Statement of Additional Information (which is part of Registration
Statements No. 333-82427) have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report, which is incorporated herein by
reference, (which report expresses an unqualified opinion and includes an
explanatory paragraph relating to the restatement described in Note 12), and
have been so incorporated in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
The financial statements of Lincoln Benefit Life Variable Annuity Account as of
December 31, 2002 and for each of the periods in the two year period then ended
incorporated herein by reference from the Statement of Additional Information
(which is part of Registration Statements No. 333-82427), have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report
incorporated herin by reference, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
SIGNATURES
As required by the Securities Act of 1933, the Registrant has reasonable
grounds to believe that it meets all of the requirements for filing on Form S-3
and has duly caused this amended Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lincoln and
State of Nebraska on April [ ], 2003
LINCOLN BENEFIT LIFE COMPANY (Registrant)
By: /s/ B. Eugene Wraith
---------------------------------------------------------
B. Eugene Wraith
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this amended
Registration Statement has been signed below by the following directors and
principal officers of Lincoln Benefit Life Company in the capacities indicated
on April [ ], 2003.
Name Title Date
- ------------------------------ -------------------------- --------
/s/ B. Eugene Wraith Director, President and Chief Operating Officer April [ ], 2003
- -------------------------------
(Principal Executive Officer)
/s/ Samuel H. Pilch Group Vice President and Controller April [ ], 2003
- ------------------------------
(Principal Accounting Officer)
/s/ James P. Zils Treasurer April [ ], 2003
- -----------------------------
(Principal Financial Officer)
/s/ Lawrence W. Dahl Director and Executive Vice President April [ ], 2003
- ----------------------------
/s/ Margaret G. Dyer Director April [ ], 2003
- ----------------------------
/s/ Marla G. Friedman Director April [ ], 2003
- ----------------------------
/s/ Douglas F. Gaer Director, Executive Vice President April [ ], 2003
- ----------------------------
/s/ John C. Lounds Director April [ ], 2003
- ----------------------------
/s/ J. Kevin McCarthy Director April [ ], 2003
- ----------------------------
/s/ Steven E. Shebik Director, Senior Vice President and April [ ], 2003
Chief Financial Officer
- ----------------------------
/s/ Michael J. Velotta Director, Senior Vice President, April [ ], 2003
- ---------------------------- General Counsel and Secretary
/s/ Casey J. Sylla Director, Chairman of the Board and April [ ], 2003
- ---------------------------- Chief Executive Officer
EXHIBITS
Exhibit No. Description
23(a) Independent Auditors' Consent
23(b) Consent of Attorneys
99 Powers of Attorney for Lawrence W. Dahl, Margaret G. Dyer,
Marla G. Friedman, Douglas F. Gaer, John C. Lounds, J. Kevin
McCarthy, Samuel H. Pilch, Steven E. Shebik, Casey J. Sylla,
Michael J. Velotta, B. Eugene Wraith, James P. Zils