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As Filed with the Securities and Exchange Commission on May 3, 2001
Registration No. 333- 52570
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Pre-effective Amendment No. 1
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
PEOPLES BENEFIT VARIABLE LIFE ACCOUNT A
(Exact name of trust)
PEOPLES BENEFIT LIFE INSURANCE COMPANY
(Name of depositor)
4333 Edgewood Road NE
Cedar Rapids, Iowa 52499
(Complete address of depositor's principal executive offices)
(Name and complete address
of agent for service) Copy to:
John D. Cleavenger, Esq. Stephen E. Roth, Esq.
Peoples Benefit Life Insurance Company Sutherland Asbill & Brennan LLP
4333 Edgewood Road NE 1275 Pennsylvania Avenue, N.W.
Cedar Rapids, Iowa 52499 Washington, DC 20004-2415
Approximate date of proposed public offering:
As soon as practicable after the effective date of this Registration Statement
Securities Being Offered: Flexible Premium Variable Life Insurance Policy
The Registrant hereby amends this Registration Statement on such dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment that specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until Registration Statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may
determine.
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PART I
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
Issued by
PEOPLES BENEFIT VARIABLE LIFE ACCOUNT A
PEOPLES BENEFIT LIFE INSURANCE COMPANY
4333 EDGEWOOD ROAD NE
CEDAR RAPIDS, IOWA 52499
(319) 398-8511
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PROSPECTUS
May 31, 2001
Peoples Benefit Life Insurance Company (the "Company") is offering the flexible
premium variable life insurance policy ("Policy") described in this prospectus.
Certain Policy provisions may vary based on the state where the Company issues
the Policy. The Policy is designed as a long-term investment that attempts to
provide significant life insurance benefits for the Insured. This prospectus
provides information that a prospective owner should know before investing in
the Policy. You should consider the Policy in conjunction with other insurance
you own.
You can allocate your Policy's values to:
- Peoples Benefit Variable Life Account A (the "Separate Account"), which
invests in the portfolios listed on this page; or
- a Fixed Account, which credits a specified rate of interest.
A prospectus for each of the portfolios available through the Separate Account
must accompany this prospectus. Please read these documents before investing and
save them for future reference.
PLEASE NOTE THAT THE POLICIES AND THE PORTFOLIOS:
- ARE NOT GUARANTEED TO ACHIEVE THEIR GOALS;
- ARE NOT FEDERALLY INSURED;
- ARE NOT ENDORSED BY ANY BANK OR GOVERNMENT AGENCY; AND
- ARE SUBJECT TO RISKS, INCLUDING LOSS OF THE AMOUNT INVESTED.
The following portfolios are available:
JANUS ASPEN SERIES
Janus Aspen Growth Portfolio (Service Shares)
Janus Aspen Worldwide Growth Portfolio (Service Shares)
Janus Aspen Balanced Portfolio (Service Shares)
Janus Aspen Capital Appreciation Portfolio (Service Shares)
Janus Aspen Aggressive Growth Portfolio (Service Shares)
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Bond Fund/VA
Oppenheimer Strategic Bond Fund/VA
Oppenheimer High Income Fund/VA
FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
Fidelity VIP II Index 500 Portfolio (Service Class 2)
Fidelity VIP Money Market Portfolio (Service Class 2)
Fidelity VIP Growth Portfolio (Service Class 2)
Fidelity VIP II Contrafund(R) Portfolio (Service Class 2)
Fidelity VIP III Growth & Income Portfolio (Service Class 2)
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THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THIS
POLICY OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
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GLOSSARY..................................................................................1
POLICY SUMMARY............................................................................3
RISK SUMMARY..............................................................................8
THE COMPANY AND THE FIXED ACCOUNT........................................................10
PEOPLES BENEFIT LIFE INSURANCE COMPANY...............................................10
THE FIXED ACCOUNT....................................................................10
THE SEPARATE ACCOUNT AND THE PORTFOLIOS..................................................10
THE SEPARATE ACCOUNT.................................................................10
THE PORTFOLIOS.......................................................................12
VOTING PORTFOLIO SHARES..............................................................14
THE POLICY...............................................................................15
PURCHASING A POLICY..................................................................15
WHEN INSURANCE COVERAGE TAKES EFFECT.................................................15
CANCELING A POLICY (FREE-LOOK RIGHT).................................................16
OWNERSHIP RIGHTS.....................................................................17
SELECTING AND CHANGING THE BENEFICIARY...........................................17
CHANGING THE OWNER...............................................................17
ASSIGNING THE POLICY.............................................................17
PREMIUMS.................................................................................18
PREMIUM FLEXIBILITY..................................................................18
ALLOCATING PREMIUMS..................................................................19
POLICY VALUES............................................................................20
POLICY VALUE.........................................................................20
CASH SURRENDER VALUE.................................................................20
SUBACCOUNT VALUE.....................................................................20
UNIT VALUE...........................................................................21
FIXED ACCOUNT VALUE..................................................................21
CHARGES AND DEDUCTIONS...................................................................21
EXPENSE CHARGE.......................................................................22
MONTHLY DEDUCTION....................................................................22
COST OF INSURANCE................................................................22
MONTHLY ADMINISTRATIVE CHARGE....................................................23
CHARGES FOR RIDERS...............................................................23
CHARGES FOR A SUBSTANDARD PREMIUM CLASS RATING...................................23
MORTALITY AND EXPENSE RISK CHARGE....................................................23
SURRENDER AND WITHDRAWAL CHARGES.....................................................24
TRANSFER CHARGE......................................................................25
PORTFOLIO EXPENSES...................................................................25
DEATH BENEFIT............................................................................25
DEATH BENEFIT PROCEEDS...............................................................25
DEATH BENEFIT OPTIONS................................................................26
CHANGING DEATH BENEFIT OPTIONS.......................................................27
EFFECTS OF WITHDRAWALS ON THE DEATH BENEFIT..........................................27
CHANGING THE SPECIFIED AMOUNT........................................................28
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PAYMENT OPTIONS......................................................................29
SURRENDERS AND PARTIAL WITHDRAWALS.......................................................29
SURRENDERS...........................................................................29
WITHDRAWALS..........................................................................30
TRANSFERS................................................................................30
EXCHANGE PRIVILEGE...................................................................32
DOLLAR COST AVERAGING................................................................32
ASSET REBALANCING PROGRAM............................................................32
LOANS....................................................................................33
LOAN CONDITIONS......................................................................33
EFFECT OF POLICY LOANS...............................................................34
POLICY LAPSE AND REINSTATEMENT...........................................................35
LAPSE................................................................................35
REINSTATEMENT........................................................................35
FEDERAL TAX CONSIDERATIONS...............................................................36
OTHER POLICY INFORMATION.................................................................39
OUR RIGHT TO CONTEST THE POLICY......................................................39
SUICIDE EXCLUSION....................................................................39
MISSTATEMENT OF AGE OR SEX...........................................................39
MODIFYING THE POLICY.................................................................39
PAYMENTS WE MAKE.....................................................................40
REPORTS TO OWNERS....................................................................40
RECORDS..............................................................................41
POLICY TERMINATION...................................................................41
SUPPLEMENTAL BENEFITS AND RIDERS.....................................................41
PERFORMANCE DATA.........................................................................42
ADDITIONAL INFORMATION...................................................................50
SALE OF THE POLICIES.................................................................50
LEGAL MATTERS........................................................................50
LEGAL PROCEEDINGS....................................................................50
FINANCIAL STATEMENTS.................................................................50
ADDITIONAL INFORMATION ABOUT THE COMPANY.............................................51
PEOPLES BENEFIT'S EXECUTIVE OFFICERS AND DIRECTORS...................................51
ILLUSTRATIONS............................................................................53
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GLOSSARY
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AGE
The Insured's age on the Insured's last birthday.
BENEFICIARY
The person(s) you select to receive the death benefit proceeds under this
Policy.
CASH SURRENDER VALUE
The amount we pay when you surrender your Policy. It is equal to: (1) the Policy
Value as of the date of surrender; MINUS (2) any surrender charge; MINUS (3) any
Indebtedness.
COMPANY (WE, US, OUR, PEOPLES BENEFIT, HOME OFFICE)
Peoples Benefit Life Insurance Company, 4333 Edgewood Road NE, Cedar Rapids,
Iowa 52499, telephone: 319-398-8511.
CUMULATIVE MINIMUM MONTHLY PREMIUM
The sum of all Minimum Monthly Premiums beginning on the Policy Date.
DEATH BENEFIT PROCEEDS
The amount we pay to the beneficiary when we receive due proof of the Insured's
death. We deduct any Indebtedness or unpaid Monthly Deductions before making any
payment.
FIXED ACCOUNT
Part of our general account. Amounts allocated to the Fixed Account earn at
least 3% annual interest (4% for Policies issued in Florida).
FREE LOOK PERIOD
The period shown on your Policy's cover page during which you may examine and
return the Policy and receive a refund. The length of the free look period
varies by state.
GRACE PERIOD
A 61-day period after which a Policy will lapse if you do not make a sufficient
payment.
INDEBTEDNESS
The total amount of all outstanding Policy loans, including both principal and
interest due.
INSURED
The person whose life is Insured by this Policy.
INVESTMENT START DATE
The Investment Start Date is when we allocate amounts in the Premium Suspense
Account to the Subaccounts and the Fixed Account in accordance with your
allocation instructions.The Investment Start Date is the latest of: (a) the date
of the application; (b) the date all required medical examinations or diagnostic
tests are completed; (c) the date of issue requested in the application unless
underwriting is not yet completed; (d) the date of underwriting approval; (e)
the date we receive the first premium at our Home Office; and (f) the date all
other requirements are met.
LAPSE
A Policy that terminates without value after a grace period. You may reinstate a
lapsed Policy.
MATURITY DATE
The first Policy anniversary after the Insured's 100th birthday. You may elect
to continue the Policy beyond Insured's age 100 under the extended Maturity Date
option.
MINIMUM MONTHLY PREMIUM
This is the amount necessary to guarantee coverage for a No-Lapse Period. It is
shown on your Policy's specification page.
MONTHLY DATE
This is the same day as the Policy Date in each successive month. If there is no
day in a calendar month that coincides with the Policy Date, or if that day
falls on a day that is not a Valuation Date, then the Monthly Date is the next
Valuation Date. On each Monthly Date, we determine Policy charges and deduct
them from the Policy Value.
MONTHLY DEDUCTION
This is the monthly amount we deduct from the Policy Value. The Monthly
Deduction includes the cost of insurance charge, the administrative
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charge, a charge for any riders, and any charges for a substandard premium class
rating.
NO-LAPSE PERIOD
A period you choose on the Policy application (5 Policy Years, 20 Policy Years,
30 Policy Years, or to Insured's age 100) during which the Policy will not enter
a grace period if on a Monthly Date the sum of premiums paid, less any
withdrawals and Indebtedness, equals or exceeds the Cumulative Minimum Monthly
Premium.
OWNER (YOU, YOUR)
The person entitled to exercise all rights as Owner under the Policy.
POLICY DATE
The Policy Date is shown on the Policy's specifications page, and we use it to
measure Policy months, years and anniversaries. We begin to deduct the Monthly
Deductions on the Policy Date. Coverage is effective as of the Policy Date once
all requirements have been met.
POLICY VALUE
The sum of your Policy's value in the Subaccounts and the Fixed Account
(including amounts held in the Fixed Account to secure any loans).
PREMIUMS
All payments you make under the Policy other than repayments of Indebtedness.
PREMIUM SUSPENSE ACCOUNT
A temporary holding account where we place all premiums we receive prior to the
Investment Start Date. The Premium Suspense Account does not credit any interest
or investment return.
SEPARATE ACCOUNT
Peoples Benefit Variable Life Account A. It is a separate investment account
that is divided into Subaccounts, each of which invests in a corresponding
portfolio.
SEPARATE ACCOUNT VALUE
The total value of your Policy allocated to the Subaccounts of the Separate
Account.
SPECIFIED AMOUNT
The dollar amount of insurance selected by the Owner. The Specified Amount may
be increased or decreased after issue. The Specified Amount is a factor in
determining the Policy's death benefit and surrender charge.
SUBACCOUNT
A subdivision of Peoples Benefit Variable Life Account A. We invest each
Subaccount's assets exclusively in shares of one investment portfolio.
SURRENDER
To cancel the Policy by signed request from the Owner.
VALUATION DATE
Each day that both the New York Stock Exchange and the Company are open for
business, except for any days when a Subaccount's corresponding investment
portfolio does not value its shares. As of the date of this prospectus: the
Company is open whenever the New York Stock Exchange is open; and there is no
day when both the New York Stock Exchange and the Company are open for business
but an investment portfolio does not value its shares.
VALUATION PERIOD
The period beginning at the close of business of the New York Stock Exchange on
one Valuation Date and continuing to the close of business on the next Valuation
Date.
WRITTEN NOTICE
The Written Notice you must sign and send us to request or exercise your rights
as Owner under the Policy. To be complete, each Written Notice must: (1) be in a
form we accept, (2) contain the information and documentation that we determine
in our sole discretion is necessary for us to take the action you request or for
you to exercise the right specified, and (3) be received at our Home Office.
YOU (YOUR, OWNER)
The person entitled to exercise all rights as Owner under the Policy.
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POLICY SUMMARY
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This summary describes the Policy's important features and corresponds to
prospectus sections that discuss the topics in more detail. The Glossary defines
certain words and phrases used in this prospectus.
PREMIUMS
- - You can select a premium payment plan (monthly, quarterly, semi-annually,
or annually) but you are not required to pay premiums according to the
plan. The initial premium is due on or before the Policy Date. Thereafter,
you may make subsequent premium payments, in any frequency or amount, at
any time before the Maturity Date. We will not accept any premiums after
the Maturity Date.
- - In your application, you must select one of the No-Lapse Periods we offer:
5 Policy Years; 20 Policy Years; 30 Policy Years; or to Insured's age 100.
We will establish a Minimum Monthly Premium amount for your Policy based on
the Insured's age, sex, premium class, Specified Amount, riders, death
benefit option and the selected No-Lapse Period. The Minimum Monthly
Premium under your Policy is the amount necessary to guarantee insurance
coverage for the No-Lapse Period you select. Longer No-Lapse Periods
require higher Minimum Monthly Premiums.
- - We will notify you if your Policy enters a 61-day grace period. Your Policy
will lapse if you do not make a sufficient payment before the end of the
grace period.
If your Policy is in the No-Lapse Period you have selected, then the Policy
will enter a 61-day grace period only if on a Monthly Date the Cash
Surrender Value is not enough to pay the next Monthly Deduction due, AND
the sum of premiums paid minus withdrawals and Indebtedness is less than
the Cumulative Minimum Monthly Premium.
If your Policy is not in the No-Lapse Period you have selected, then your
Policy will enter a 61-day grace period only if the Cash Surrender Value on
any Monthly Date is not enough to pay the next Monthly Deduction due.
- - When you receive your Policy, the 10-day FREE LOOK PERIOD begins (the free
look period may be longer in some states). You may return the Policy during
the free look period and receive a refund of all payments you made (less
any withdrawals and Indebtedness).
- - We multiply each premium you pay by the expense charge, deduct that charge,
and credit the resulting amount (the net premium) to the Policy Value.
INVESTMENT OPTIONS
FIXED ACCOUNT:
- - You may place money in the Fixed Account where it earns at least 3% annual
interest (4% for Policies issued in Florida). We may declare higher rates
of interest, but are not obligated to do so.
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SEPARATE ACCOUNT:
- - You may direct the money in your Policy to any of the Subaccounts of the
Separate Account. WE DO NOT GUARANTEE ANY MONEY YOU PLACE IN THE
SUBACCOUNTS. THE VALUE OF EACH SUBACCOUNT WILL INCREASE OR DECREASE,
DEPENDING ON THE INVESTMENT PERFORMANCE OF THE CORRESPONDING PORTFOLIO. YOU
COULD LOSE SOME OR ALL OF YOUR MONEY.
- - Each Subaccount invests exclusively in one of the following investment
portfolios:
- JANUS ASPEN SERIES
Janus Aspen Growth Portfolio (Service Shares)
Janus Aspen Worldwide Growth Portfolio (Service Shares)
Janus Aspen Balanced Portfolio (Service Shares)
Janus Aspen Capital Appreciation Portfolio (Service Shares)
Janus Aspen Aggressive Growth Portfolio (Service Shares)
- AIM VARIABLE INSURANCE FUNDS
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
AIM V.I. Growth Fund
AIM V.I. International Equity Fund
AIM V.I. Value Fund
- OPPENHEIMER VARIABLE ACCOUNT FUNDS
Oppenheimer Main Street Growth & Income Fund/VA
Oppenheimer Multiple Strategies Fund/VA
Oppenheimer Bond Fund/VA
Oppenheimer Strategic Bond Fund/VA
Oppenheimer High Income Fund/VA
- FIDELITY VARIABLE INSURANCE PRODUCTS FUNDS
Fidelity VIP II Index 500 Portfolio (Service Class 2)
Fidelity VIP Money Market Portfolio (Service Class 2)
Fidelity VIP Growth Portfolio (Service Class 2)
Fidelity VIP II Contrafund(R) Portfolio (Service Class 2)
Fidelity VIP III Growth & Income Portfolio (Service Class 2)
See "The Company and the Fixed Account," and "The Separate Account and the
Portfolios."
POLICY VALUE
- - Policy Value is the sum of your amounts in the Subaccounts and the Fixed
Account. Policy Value is the starting point for calculating important values
under the Policy, such as the Cash Surrender Value and the death benefit.
- - Policy Value varies from day to day, depending on the investment experience
of the Subaccounts you choose, interest we credit to the Fixed Account,
charges we deduct, and any other transactions (e.g., transfers, withdrawals,
and loans). WE DO NOT GUARANTEE A MINIMUM POLICY VALUE.
- - Prior to the Investment Start Date, we allocate the net premiums to the
Premium Suspense Account. On the first Valuation Date on or following the
Investment Start Date, we will transfer the amounts in the Premium Suspense
Account to the Subaccounts and the Fixed Account according to your
allocation percentages.
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CHARGES AND DEDUCTIONS
- - EXPENSE CHARGE: We multiply each premium by an expense charge, deduct that
charge, and credit the remaining amount (the net premium) to your Policy
Value according to your allocation instructions. The expense charge varies
by Policy Year as follows:
Premiums paid DURING the first 10 Policy Years: expense charge = 5%
Premiums paid AFTER the first 10 Policy Years: expense charge = currently
2.5% (maximum 5%).
- - MONTHLY DEDUCTION. On the Policy Date and on each Monthly Date thereafter,
we deduct:
- a cost of insurance charge for the Policy
- a $10 monthly administrative charge
- charges for any riders
- any charges for a substandard premium class rating
SURRENDER AND WITHDRAWAL CHARGES:
- Surrender: During the first 19 Policy Years, we deduct a surrender charge
that varies based on your age, sex, premium class, and initial Specified
Amount. The highest surrender charge on any Policy occurs in the first
Policy Year or the first year following an increase in the Specified
Amount. The maximum surrender charge for any Insured is $58 per 1,000 of
Specified Amount. A separate surrender charge applies for 19 years after
any Specified Amount increase. See "Charges and Deductions -- Surrender
and Withdrawal Charges" for a table showing surrender charges for sample
Insureds and premium classes.
- Withdrawals: For each withdrawal, we deduct (from the remaining Policy
Value) a fee equal to the lesser of $25 or 2% of the amount withdrawn.
- - MORTALITY AND EXPENSE RISK CHARGE: We deduct a daily charge equal to 0.75%
(at an annual rate) of the average net assets of the Separate Account.
- - TRANSFER CHARGE: We assess a $25 fee for the 13th and each additional
transfer among the Subaccounts or the Fixed Account in a Policy Year.
- - PORTFOLIO EXPENSES: The portfolios deduct investment advisory fees and other
expenses from the amounts the Subaccounts invest in the portfolios. These
fees and expenses (shown in the following table) vary by portfolio and
currently range from 0.73% to 1.02% per year of the average portfolio
assets.
- - See "Additional Information - Sale of the Policies" for information
concerning compensation paid for the sale of Policies.
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The following table shows the fees and expenses charged by the portfolios. The
purpose of the table is to assist you in understanding the various costs and
expenses that you will bear directly and indirectly. The table reflects charges
and expenses of the portfolios for the fiscal year ended December 31, 2000.
Expenses of the portfolios may be higher or lower in the future. Please refer to
the portfolios' prospectuses for more information on the management fees.
ANNUAL PORTFOLIO OPERATING EXPENSES (As a percentage of average portfolio assets
before fee waivers and expense reimbursements)
RULE 12b-1
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MANAGEMENT DISTRIBUTION OTHER TOTAL
PORTFOLIO/FUND NAME FEES FEES EXPENSES EXPENSES
- ------------------- ---- ---- -------- --------
Janus Aspen Growth Portfolio (Service Shares) (1) 0.65% 0.25% 0.02% 0.92%
Janus Aspen Worldwide Growth Portfolio (Service Shares)
(1) 0.65% 0.25% 0.05% 0.95%
Janus Aspen Balanced Portfolio (Service Shares) (1) 0.65% 0.25% 0.02% 0.92%
Janus Aspen Capital Appreciation Portfolio (Service
Shares) (1) 0.65% 0.25% 0.02% 0.92%
Janus Aspen Aggressive Growth Portfolio (Service Shares)
(1) 0.65% 0.25% 0.02% 0.92%
AIM V.I. Capital Appreciation Fund 0.61% 0.00% 0.21% 0.82%
AIM V.I. Government Securities Fund 0.50% 0.00% 0.47% 0.97%
AIM V.I. Growth Fund 0.61% 0.00% 0.22% 0.83%
AIM V.I. International Equity Fund 0.73% 0.00% 0.29% 1.02%
AIM V.I. Value Fund 0.61% 0.00% 0.23% 0.84%
Oppenheimer Main Street Growth & Income Fund/VA 0.70% 0.00% 0.03% 0.73%
Oppenheimer Multiple Strategies Fund/VA 0.72% 0.00% 0.04% 0.76%
Oppenheimer Bond Fund/VA 0.72% 0.00% 0.04% 0.76%
Oppenheimer Strategic Bond Fund/VA 0.74% 0.00% 0.05% 0.79%
Oppenheimer High Income Fund/VA 0.74% 0.00% 0.05% 0.79%
Fidelity VIP II Index 500 Portfolio (Service Class 2) (2) 0.24% 0.25% 0.27% 0.76%
Fidelity VIP Money Market Portfolio (Service Class 2) (3) 0.27% 0.25% 0.46% 0.98%
Fidelity VIP Growth Portfolio (Service Class 2) (4) 0.57% 0.25% 0.09% 0.91%
Fidelity VIP II Contrafund(R) Portfolio (Service Class
2) (4) 0.57% 0.25% 0.10% 0.92%
Fidelity VIP III Growth & Income Portfolio (Service
Class 2) (4) 0.48% 0.25% 0.12% 0.85%
AVERAGE 0.87%
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RANGE 0.73% TO 1.02%
----- --
(1) Expenses are based upon expenses for the fiscal year ended December 31,
2000, restated to reflect a reduction in the management fee for Growth,
Worldwide Growth, Balanced, Capital Appreciation and Aggressive Growth
Portfolios. All expenses are shown without the effect of any expense offset
arrangement.
(2) The Investment Adviser has voluntarily agreed to reimburse the portfolio if
the expenses exceed a certain level, including this reimbursement, the total
expenses were 0.53%. This arrangement may be discontinued at any time.
(3) The annual class operating expenses provided are based on historical
expenses, adjusted to reflect the current management fee structure. The
Investment Adviser has voluntarily agreed to reimburse the portfolio if the
expenses exceed a certain level. Including this reimbursement, the total
expenses were 0.60%. This arrangement may be discontinued at any time.
(4) The actual annual portfolio expenses were lower because a portion of the
brokerage commissions that the portfolio paid was used to reduce the expenses,
and/or because through arrangements with the portfolio's custodian, credits
realized as a result of uninvested cash balances were used to reduce a portion
of the custodian expenses.
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SURRENDERS AND WITHDRAWALS
- - SURRENDER: At any time while the Policy is in force, you may make a written
request to surrender your Policy and receive the Cash Surrender Value (i.e.,
the Policy Value on the date of surrender minus any surrender charge, and
minus any Indebtedness).
- - WITHDRAWALS: After the 1st Policy Year, you may make a written request to
withdraw part of the Policy Value, subject to the following rules.
Withdrawals may have tax consequences.
- You may make one withdrawal in a Policy Year.
- You must request at least $500;
- If you request a withdrawal that will leave a Cash Surrender Value of less
than $500, we will treat it as a surrender request; and
- For each withdrawal, we deduct a fee equal to the lesser of $25 or 2% of
the amount withdrawn.
DEATH BENEFITS
- - You must choose between two death benefit options under the Policy. After
the first Policy Year, you may change death benefit options once each
12-month period. We calculate the amount under each death option as of the
Insured's date of death. See "Death Benefit Options."
- LEVEL DEATH BENEFIT is equal to the greater of:
the Specified Amount (which is the amount of insurance the owner
selects); OR
the Policy Value multiplied by the applicable Death Benefit
Ratio.
- INCREASING DEATH BENEFIT is equal to the greater of :
the Specified Amount PLUS the Policy Value; OR
the Policy Value multiplied by the applicable Death Benefit
Ratio.
TRANSFERS
- - You may make an unlimited number of transfers among the Subaccounts and the
Fixed Account.
- - The minimum amount you may transfer from a Subaccount or the Fixed Account
is the lesser of $100, or the total value in the Subaccount or Fixed
Account.
- - We charge $25 per transfer for the 13th and each additional transfer during
a Policy Year.
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LOANS
- - You may take a loan (minimum $250) from your Policy at any time. The maximum
loan amount you may take is 90% (100% in certain states) of the Cash
Surrender Value, minus 6 months of Monthly Deductions. Loans may have tax
consequences.
- - As collateral for the loan, we transfer an amount equal to the loan plus
interest in advance until the next Policy Anniversary from the Separate
Account and Fixed Account to the loan reserve (part of our Fixed Account).
We credit interest on amounts in the loan reserve and we guarantee that the
annual rate will not be lower than 3% (4% in Florida).
- - We charge you a maximum annual interest rate of 5.66% in advance on your
loan. Interest is due and payable at the beginning of each Policy Year.
Unpaid interest becomes part of the outstanding loan and accrues interest if
it is not paid before the beginning of the next Policy Year.
- - After the 10th Policy Year, we consider certain portions of the loan amount
to be preferred loans. The maximum preferred loan available in each Policy
Year is 25% of the Policy Value (subject to the maximum loan amount). We
charge an annual interest rate of 3.85% in advance on preferred loan
amounts.
- - You may repay all or part of your Indebtedness at any time. Loan repayments
must be at least $25, unless the loan amount is less than $25, in which case
full payment is required. The payment must be clearly marked as "loan
repayments" or we will credit them as premiums.
- - We deduct any unpaid Indebtedness from the proceeds payable on the Insured's
death.
RISK SUMMARY
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The following are some of the risks associated with the Policy.
INVESTMENT If you invest your Policy Value in one or more Subaccounts,
RISK then you will be subject to the risk that investment
performance will be unfavorable and that the Policy Value
will decrease. You COULD lose everything you invest. If you
allocate net premiums to the Fixed Account, then we credit
your Policy Value (in the Fixed Account) with a declared
rate of interest, but you assume the risk that the rate may
decrease, although it will never be lower than a guaranteed
minimum annual effective rate of 3%.
- --------------------------------------------------------------------------------
RISK OF If your Policy fails to meet certain conditions, we will
LAPSE notify you that the Policy has entered a 61-day grace period
and will lapse unless you make a sufficient payment during
the grace period. You may reinstate a lapsed Policy.
If your Policy is in the selected No-Lapse Period, then the
Policy will enter a grace period only if on a Monthly Date
the Cash Surrender Value is not enough to pay the next
Monthly Deduction due, AND the sum of premiums paid minus
withdrawals and Indebtedness is less than the Cumulative
Minimum Monthly Premium.
- --------------------------------------------------------------------------------
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If your Policy is not in the selected No-Lapse Period, then
your Policy will enter a grace period only if the Cash
Surrender Value on a Monthly Date is not enough to pay the
next Monthly Deduction due.
Your Policy also may lapse (whether or not you are in the
selected No-lapse Period) if your Indebtedness reduces the
Cash Surrender Value to zero.
- --------------------------------------------------------------------------------
TAX RISKS We anticipate that the Policy will generally be deemed a
life insurance contract under Federal tax law, so that the
death benefit paid to the beneficiary will not be subject to
Federal income tax. However, there is more uncertainty with
respect to Policies issued on a substandard premium class
basis and Policies with a Level One-Year Term Insurance
Rider attached. Depending on the total amount of premiums
you pay, the Policy may be treated as a modified endowment
contract ("MEC") under Federal tax laws. If a Policy is
treated as a MEC, then surrenders, partial withdrawals, and
loans under a Policy will be taxable as ordinary income to
the extent there are earnings in the Policy. In addition, a
10% penalty tax may be imposed on surrenders, partial
withdrawals, and loans taken before you reach age 59 1/2.
You should consult a qualified tax advisor for assistance in
all Policy-related tax matters.
- --------------------------------------------------------------------------------
SURRENDER The surrender charge under this Policy applies for 19 Policy
RISKS Years after the Policy Date. An additional surrender charge
will be applicable for 19 years from the date of any
increase in the Specified Amount. It is possible that you
will receive no Cash Surrender Value if you surrender your
Policy in the first few Policy Years. You should purchase
this Policy only if you have the financial ability to keep
it in force for a substantial period of time.
Even if you do not ask to surrender your Policy, surrender
charges may play a role in determining whether your Policy
will lapse, because surrender charges affect the Cash
Surrender Value which is a measure we use to determine
whether your Policy will enter a grace period (and possibly
lapse). See "Risk of Lapse," above.
- --------------------------------------------------------------------------------
LOAN RISKS A Policy loan, whether or not repaid, will affect Policy
Value over time because we subtract the amount of the loan
from the Subaccounts and Fixed Account as collateral, and
the loan collateral does not participate in the investment
results of the Subaccounts or receive any higher current
interest rate credited to the Fixed Account.
We reduce the amount we pay on the Insured's death by the
amount of any Indebtedness. Your Policy may lapse if your
Indebtedness reduces the Cash Surrender Value to zero.
- --------------------------------------------------------------------------------
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THE COMPANY AND THE FIXED ACCOUNT
================================================================================
PEOPLES BENEFIT LIFE INSURANCE COMPANY
Peoples Benefit Life Insurance Company is the insurance company issuing the
Policy. Peoples Benefit was incorporated in 1920 and redomiciled under Iowa law
on December 31, 1999, and is a wholly owned indirect subsidiary of AEGON USA,
Inc. Peoples Benefit established the Separate Account to support the investment
options under this Policy and under other variable life insurance policies we
may issue. Our general account supports the Fixed Account options under the
Policy.
IMSA. Peoples Benefit is a member of the Insurance Marketplace Standards
Association ("IMSA"). IMSA members subscribe to a set of ethical standards
involving the sales and service of individually sold life insurance and
annuities. As a member of IMSA, Peoples Benefit may use the IMSA logo and
language in advertisements.
THE FIXED ACCOUNT
The Fixed Account is part of our general account. We own the assets in the
general account and we use these assets to support our insurance and annuity
obligations other than those funded by our separate investment accounts. Subject
to applicable law, the Company has sole discretion over investment of the Fixed
Account's assets. The Company bears the full investment risk for all amounts
allocated or transferred to the Fixed Account. We guarantee that the amounts
allocated to the Fixed Account will be credited interest daily at a net
effective annual interest rate of at least 3% (4% for Policies issued in
Florida). We will determine any interest rate credited in excess of the
guaranteed rate at our sole discretion.
WE HAVE NOT REGISTERED THE FIXED ACCOUNT WITH THE SECURITIES AND EXCHANGE
COMMISSION AND THE STAFF OF THE SECURITIES AND EXCHANGE COMMISSION HAS NOT
REVIEWED THE DISCLOSURE IN THIS PROSPECTUS RELATING TO THE FIXED ACCOUNT.
THE SEPARATE ACCOUNT AND THE PORTFOLIOS
================================================================================
THE SEPARATE ACCOUNT
We established Peoples Benefit Variable Life Account A as a separate investment
account under Iowa law on October 6, 2000. We own the assets in the Separate
Account and we are obligated to pay all benefits under the Policies. We may use
the Separate Account to support other variable life insurance policies we issue.
The Separate Account is registered with the Securities and Exchange Commission
as an unit investment trust under the Investment Company Act of 1940 and
qualifies as a "separate account" within the meaning of the Federal securities
laws.
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We have divided the Separate Account into Subaccounts, each of which invests in
shares of one portfolio among the following mutual funds:
- Janus Aspen Series (managed by Janus Capital Corporation)
- AIM Variable Insurance Funds (managed by A I M Advisors, Inc.)
- Oppenheimer Variable Account Funds (managed by OppenheimerFunds, Inc.)
- Fidelity Variable Insurance Products Funds (managed by Fidelity
Management & Research Company)
The Subaccounts buy and sell portfolio shares at net asset value. Any dividends
and distributions from a portfolio are reinvested at net asset value in shares
of that portfolio.
Income, gains, and losses credited to, or charged against, a Subaccount of the
Separate Account reflect the Subaccount's own investment experience and not the
investment experience of our other assets. We may not use the Separate Account's
assets to pay any of our liabilities other than those arising from the Policies.
If the Separate Account's assets exceed the required reserves and other
liabilities, we may transfer the excess to our general account.
The Separate Account may include other Subaccounts that are not available under
the Policies and are not discussed in this prospectus. Where permitted by
applicable law, we reserve the right to:
1. Create new separate accounts;
2. Combine the Separate Account with other separate accounts;
3. Remove, combine or add Subaccounts and make the new Subaccounts
available to you at our discretion;
4. Make new portfolios available under the Separate Account or remove
existing portfolios;
5. Substitute new portfolios for any existing portfolios if shares of a
portfolio are no longer available for investment or if we determine
that investment in a portfolio is no longer appropriate in light of
the Separate Account's purposes;
6. Deregister the Separate Account under the Investment Company Act of
1940 if such registration is no longer required;
7. Operate the Separate Account as a management investment company
under the Investment Company Act of 1940, or as any other form
permitted by law;
8. Manage the Separate Account under the direction of a committee at
any time;
9. Fund additional classes of variable life insurance contracts through
the Separate Account; and
10. Make any changes required by the Investment Company Act of 1940 or
any other law.
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We will not make any such changes without receiving any necessary approval of
the Securities and Exchange Commission and applicable state insurance
departments. We will notify you of any changes.
THE PORTFOLIOS
The Separate Account invests in shares of certain portfolios. Each portfolio is
part of a mutual fund that is registered with the Securities and Exchange
Commission as an open-end management investment Company. Such registration does
not involve supervision of the management or investment practices or policies of
the portfolios by the Securities and Exchange Commission.
Each portfolio's assets are held separate from the assets of the other
portfolios, and each portfolio has investment objectives and policies that are
different from those of the other portfolios. Thus, each portfolio operates as a
separate investment fund, and the income or losses of one portfolio generally
have no effect on the investment performance of any other portfolio. Pending any
prior approval by a state insurance regulatory authority, certain Subaccounts
and corresponding portfolios may not be available to residents of some states.
The following table summarizes each portfolio's investment objective(s) and
policies. THERE IS NO ASSURANCE THAT ANY OF THE PORTFOLIOS WILL ACHIEVE ITS
STATED OBJECTIVE(s). You can find more detailed information about the
portfolios, including a description of risks, in the prospectuses for the
portfolios. You should read these prospectuses carefully.
PORTFOLIO INVESTMENT OBJECTIVE
--------- --------------------
JANUS ASPEN GROWTH - Seeks long-term growth of capital in a manner consistent with
(Service Shares) the preservation of capital. Invests primarily in common
stocks of issuers of any size.
JANUS ASPEN - Seeks long-term growth of capital in a manner consistent with
WORLDWIDE GROWTH the preservation of capital. Invests primarily in common
(Service Shares) stocks of foreign and domestic issuers of any size.
JANUS ASPEN BALANCED - Seeks long-term capital growth, consistent with preservation o
(Service Shares) capital and balanced by current income.
JANUS ASPEN CAPITAL - Seeks long-term growth of capital. Invests in common tocks of
APPRECIATION issuers of any size.
(Service Shares)
JANUS ASPEN - Seeks long-term growth of capital. Normally invests at least
AGGRESSIVE GROWTH 50% of its equity assets in securities issued by medium-sized
(Service Shares) companies.
AIM V.I. CAPITAL - Seeks to provide growth of capital.
APPRECIATION FUND
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PORTFOLIO INVESTMENT OBJECTIVE
--------- --------------------
AIM V.I. GOVERNMENT - Seeks to achieve a high level of current income consistent
SECURITIES FUND with reasonable concern for safety of principal.
AIM V.I. GROWTH FUND - Seeks to provide growth of capital.
AIM V.I. INTERNATIONAL - Seeks to provide long-term growth of capital.
EQUITY FUND
AIM V.I. VALUE FUND - Seeks to achieve long-term growth of capital.
OPPENHEIMER MAIN - Seeks a high total return (which includes growth in the value
STREET GROWTH & of its shares as well as current income) from equity and debt
INCOME/VA securities.
OPPENHEIMER MULTIPLE - Seeks a high total investment return which includes current
STRATEGIES/VA income and capital appreciation in the value of its shares.
OPPENHEIMER - Seeks a high level of current income as its primary objective.
BOND/VA As a secondary objective, seeks capital appreciation when
consistent with its primary objective.
OPPENHEIMER - Seeks a high level of current income principally derived from
STRATEGIC BOND/VA interest on debt securities.
OPPENHEIMER HIGH - Seeks a high level of current income from investment in
INCOME/VA high-yield, fixed-income securities. Investments include
unrated securities or high-risk securities in the lower rating
categories, commonly known as "junk bonds," which are subject
to a greater risk of loss of principal and nonpayment of
interest than higher-rated securities.
FIDELITY INDEX 500 - Seeks to provide investment results that correspond to the
(SERVICE CLASS 2) total return of a broad range of common stocks publicly traded
in the United States, as represented by the Standard &
Poor's(R) Composite Index of 500 Stocks.
FIDELITY MONEY - Seeks to earn a high level of current income while maintaining
MARKET (SERVICE CLASS 2) a stable $1.00 share price by investing in high-quality,
short-term securities.
FIDELITY GROWTH - Seeks capital appreciation by investing primarily in common
(SERVICE CLASS 2) stocks.
FIDELITY CONTRAFUND(R) - Seeks capital appreciation by investing in securities of
(SERVICE CLASS 2) companies whose value the adviser believes is not fully
recognized by the public.
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PORTFOLIO INVESTMENT OBJECTIVE
--------- --------------------
FIDELITY GROWTH & - Seeks high total return through a combination of current income
INCOME (SERVICE CLASS 2) and capital appreciation.
In addition to the Separate Account, the portfolios may sell shares to other
separate investment accounts established by other insurance companies to support
variable annuity contracts and variable life insurance policies or qualified
retirement plans. It is possible that, in the future, it may become
disadvantageous for variable life insurance separate accounts and variable
annuity separate accounts to invest in the portfolios simultaneously. Although
neither the Company nor the portfolios currently foresee any such disadvantages,
either to variable life insurance policy owners or to variable annuity contract
owners, each portfolio's Board of Directors (Trustees) will monitor events in
order to identify any material conflicts between the interests of such variable
life insurance policy owners and variable annuity contract owners, and will
determine what action, if any, it should take. Such action could include the
sale of portfolio shares by one or more of the separate accounts, which could
have adverse consequences. Material conflicts could result from, for example,
(1) changes in state insurance laws, (2) changes in Federal income tax laws, or
(3) differences in voting instructions between those given by variable life
insurance policy owners and those given by variable annuity contract owners.
If a portfolio's Board of Directors (Trustees) were to conclude that separate
portfolios should be established for variable life insurance and variable
annuity separate accounts, we will bear the attendant expenses, but variable
life insurance policy owners and variable annuity contract owners would no
longer have the economies of scale resulting from a larger combined portfolio.
THESE PORTFOLIOS ARE NOT AVAILABLE FOR PURCHASE DIRECTLY BY THE GENERAL PUBLIC,
AND ARE NOT THE SAME AS OTHER MUTUAL FUND PORTFOLIOS WITH VERY SIMILAR OR NEARLY
IDENTICAL NAMES THAT ARE SOLD DIRECTLY TO THE PUBLIC. However, the investment
objectives and policies of certain portfolios available under the Policy are
very similar to the investment objectives and policies of other portfolios that
are or may be managed by the same investment adviser or manager. Nevertheless,
the investment performance and results of the portfolios available under the
Policy may be lower or higher than the investment results of such other
(publicly available) portfolios. THERE CAN BE NO ASSURANCE, AND WE MAKE NO
REPRESENTATION, THAT THE INVESTMENT RESULTS OF ANY OF THE PORTFOLIOS AVAILABLE
UNDER THE POLICY WILL BE COMPARABLE TO THE INVESTMENT RESULTS OF ANY OTHER
PORTFOLIO, EVEN IF THE OTHER PORTFOLIO HAS THE SAME INVESTMENT ADVISER OR
MANAGER, THE SAME INVESTMENT OBJECTIVES AND POLICIES, AND A VERY SIMILAR NAME.
PLEASE READ THE PORTFOLIO PROSPECTUSES TO OBTAIN MORE COMPLETE INFORMATION
REGARDING THE PORTFOLIOS. KEEP THESE PROSPECTUSES FOR FUTURE REFERENCE.
VOTING PORTFOLIO SHARES
Even though we are the legal owner of the portfolio shares held in the
Subaccounts, and have the right to vote on all matters submitted to shareholders
of the portfolios, we will vote our shares only as Owners instruct, so long as
such action is required by law.
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Before a vote of a portfolio's shareholders occurs, you will receive voting
materials. We will ask you to instruct us on how to vote and to return your
proxy to us in a timely manner. You will have the right to instruct us on the
number of portfolio shares that corresponds to the amount of Policy Value you
have in that portfolio (as of a date set by the portfolio).
If we do not receive voting instructions on time from some Owners, we will vote
those shares in the same proportion as the timely voting instructions we
receive. Should Federal securities laws, regulations and interpretations change,
we may elect to vote portfolio shares in our own right. If required by state
insurance officials, or if permitted under Federal regulation, we may disregard
certain Owner voting instructions. If we ever disregard voting instructions, we
will send you a summary in the next annual report to Owners advising you of the
action and the reasons we took such action.
THE POLICY
===============================================================================
PURCHASING A POLICY
To purchase a Policy, you must submit a completed application and an initial
premium to us at our Home Office. You may also send the application and initial
premium to us through any licensed life insurance agent who is also a registered
representative of a broker-dealer having a selling agreement with AFSG
Securities Corporation, the principal underwriter for the Policy.
The minimum Specified Amount is $50,000.
Generally, the Policy is available for Insureds between issue ages 0-85 for
non-tobacco risk classes, and between issue ages 18-85 for tobacco risk classes.
Starting at Specified Amounts over $250,000, we add a better risk class
(preferred) for non-tobacco users only. Preferred rates are available for issue
ages 18-75. We can provide you with details as to these underwriting standards
when you apply for a Policy. We reserve the right to modify our underwriting
requirements at any time. We must receive evidence of insurability that
satisfies our underwriting standards before we will issue a Policy. We reserve
the right to reject an application for any reason permitted by law.
WHEN INSURANCE COVERAGE TAKES EFFECT
Full insurance coverage under the Policy will take effect only if the proposed
Insured is alive and in the same condition of health as described in the
application when we deliver the Policy to you, and if the initial premium is
paid.
CONDITIONAL INSURANCE COVERAGE. Before full insurance coverage takes effect, you
may receive conditional insurance converge subject to certain requirements. This
coverage shall not exceed (1) the amount of insurance applied for; or (2)
$500,000, whichever is smaller, less all other sums we pay upon the death of a
proposed Insured under any other pending application or policy. If a proposed
Insured is less than 15 days old or more than 60 years old, no insurance shall
take effect until the Policy is delivered. If we do not approve your
application, we will make a full refund of the initial premium paid with the
application.
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If all of the following conditions of coverage have been met, then conditional
insurance coverage will go into effect on the Policy Date subject to the
liability limits shown above and subject to the conditions of the Policy as
applied for. The conditions of such coverage are that:
1. the full first premium on the premium mode selected for the Policy
benefits applied for, including any additional premium required for
restrictions or benefits, is paid when the application is signed; and
2. each proposed Insured has completed any required medical examinations,
diagnostic tests, and interviews, or has supplied us with any additional
information we require; and
3. each proposed Insured is, on the Policy Date, insurable and acceptable to
us under our rules, limits and underwriting standards for the plan and for
the amount applied for without modification and at the rate of premium
paid.
If insurance does not take effect under these conditions, then no insurance
shall take effect unless a Policy is delivered to and accepted by the applicant,
the full first premium is paid, and the health and insurability of each person
proposed for insurance has not changed since the date of application.
Conditional life insurance coverage is void if the application contains any
material misrepresentation. Benefits will also be denied if any proposed Insured
commits suicide.
Conditional life insurance coverage terminates automatically, and without
notice, on the earliest of:
- the date we notify you that the application is declined and we
return the initial premium; or
- the date we determine the Insured has satisfied our underwriting
requirements; or
- 10 days following any counteroffer we make to offer insurance to
any proposed Insured under a different policy, or at an
increased premium, or under a different underwriting class; or
- 60 days from the beginning of conditional insurance coverage.
FULL INSURANCE COVERAGE. Once we determine that the Insured meets our
underwriting requirements, full insurance coverage begins, we issue the Policy,
and we begin to deduct monthly charges from your Policy Value. Prior to the
Investment Start Date, we will place your premium (less charges) in the Premium
Suspense Account. On the first Valuation Date on or following the Investment
Start Date, we will transfer the amount in the Premium Suspense Account to the
Subaccounts and/or the Fixed Account as you directed on your application. See
"Allocating Premiums."
CANCELING A POLICY (FREE-LOOK RIGHT)
You may cancel a Policy during the free-look period by returning it to the
Company, or to the agent who sold it. The free-look period generally expires 10
days after you receive the Policy, but this period will be longer if required by
state law. If you decide to cancel the Policy during the free-look period, we
will treat the Policy as if we never issued it. Within seven calendar days after
we receive the returned Policy, we will refund all payments you made under the
Policy (less any withdrawals and Indebtedness).
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OWNERSHIP RIGHTS
The Policy belongs to the Owner named in the application. The Owner may exercise
all of the rights and options described in the Policy. The Owner is the Insured
unless the application specifies a different person as the Insured. If the Owner
dies before the Insured and no contingent Owner is named, then Ownership of the
Policy will pass to the Owner's estate. The Owner may exercise certain rights
described below.
SELECTING AND - You designate the beneficiary (the person to receive the
CHANGING THE death benefit when the Insured dies) in the application.
BENEFICIARY - If you designate more than one beneficiary, then each
beneficiary shares equally in any death benefit unless
the beneficiary designation states otherwise.
- If the beneficiary dies before the Insured, then any
contingent beneficiary becomes the beneficiary.
- If both the beneficiary and contingent beneficiary die
before the Insured, then we will pay the death benefit
to the Owner or the Owner's estate once the Insured
dies.
- You can change the beneficiary by providing us with a
written request while the Insured is living.
- The change in beneficiary is effective as of the date
you sign the written request.
- We are not liable for any actions we take before we
received the written request.
CHANGING THE - You may change the Owner by providing a written request
OWNER to us at any time while the Insured is alive.
- The change takes effect on the date you sign the written
request.
- We are not liable for any actions we take before we
received the written request.
- Changing the Owner does not automatically change the
beneficiary and does not change the Insured.
- Changing the Owner may have tax consequences. You should
consult a tax advisor before changing the Owner.
ASSIGNING THE - You may assign Policy rights while the Insured is alive
POLICY by submitting a written request to our Home Office.
- The Owner retains any Ownership rights that are not
assigned.
- Assignee may not change the Owner or the beneficiary,
and may not elect or change an optional method of
payment. We will pay any amount payable to the assignee
in a lump sum.
- Claims under any assignment are subject to proof of
interest and the extent of the assignment.
- We are not:
-- bound by any assignment unless we receive a Written
Notice of the assignment;
-- responsible for the validity of any assignment; or
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-- Liable for any payment we make before we received
Written Notice of the assignment.
- Assigning the Policy may have tax consequences. See "Tax
Treatment of Policy Benefits."
PREMIUMS
================================================================================
PREMIUM FLEXIBILITY
When you apply for a Policy, you may indicate your intention to pay premiums on
a monthly, quarterly, semi-annual, or annual basis (planned premiums). However,
you do not have to pay premiums according to any schedule. You have flexibility
to determine the frequency and the amount of the premiums you pay. You must send
all premium payments to our Home Office or such other office as we may designate
from time to time. You may not pay any premiums after the Policy's Maturity
Date. You may not pay premiums less than $25.
We have the right to limit or refund any premium if (1) the premium would
disqualify the Policy as a life insurance contract under the Internal Revenue
Code; or (2) the amount you pay is less than $25; or (3) payment of a greater
amount would increase the death benefit by application of the death benefit
ratio (unless you provide us with satisfactory evidence of insurability).
You can stop paying premiums at any time and your Policy will continue in force
until the earlier of the Maturity Date, or the date when either (1) the Insured
dies, or (2) the grace period ends without a sufficient payment (see "Lapse,"
below), or (3) we receive your Written Notice requesting a surrender of the
Policy.
MINIMUM MONTHLY PREMIUM. On your application, you must select one of the
No-Lapse Periods we offer under the Policy: 5 Policy Years; 20 Policy Years; 30
Policy Years; or to Insured's age 100. The 5 Policy Year No-Lapse Period is only
for Insureds age 50 and over. Certain states may require No-Lapse Periods that
differ from those we offer. Your Policy's specification page will show a Minimum
Monthly Premium amount for your Policy, which is based on the Insured's age,
sex, premium class, Specified Amount, riders, death benefit option and the
selected No-Lapse Period. The Minimum Monthly Premium is the amount necessary to
guarantee insurance coverage for the No-lapse Period. (For two Policies covering
Insureds with the same age, sex, premium class, Specified Amount, riders, and
death benefit option, the Minimum Monthly Premium is higher for the Policy with
the longer No-Lapse Period.) Beginning on the Policy Date until the end of the
No-Lapse Period, your Policy will not enter a grace period if on each Monthly
Date during the No-Lapse Period, your Cash Surrender Value is enough to pay the
next Monthly Deduction due, AND the sum of premiums paid less any withdrawals
and Indebtedness, equals or exceeds the Cumulative Minimum Monthly Premium. See
"Policy Lapse and Reinstatement." During the No-Lapse Period, we allow you to
make premium payments necessary to cover any deficiency in the Cumulative
Minimum Monthly Premium.
The Minimum Monthly Premium will increase if you increase the Specified Amount
or add supplemental benefits to your Policy. The Minimum Monthly Premium will
decrease for any supplemental benefit you decrease or discontinue. The Minimum
Monthly Premium will not decrease if you decrease the Specified Amount. See
"Changing the Specified Amount."
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LAPSE. Under certain conditions, your Policy will enter into a 61-day grace
period and possibly lapse:
- If your Policy is in the No-Lapse Period, then the Policy will enter a
grace period if on any Monthly Date the Cash Surrender Value is not enough
to pay the next Monthly Deduction due, AND the sum of premiums paid minus
withdrawals and Indebtedness is less than the Cumulative Minimum Monthly
Premium.
- If your Policy is not in the No-Lapse Period, then your Policy will enter
a 61-day grace period if the Cash Surrender Value on any Monthly Date is
not enough to pay the next Monthly Deduction due.
We will notify you when your Policy is in a grace period. If you do not make a
sufficient payment before the end of the grace period, then your Policy will
lapse. You may reinstate a lapsed Policy if you meet certain requirements. See
"Policy Lapse and Reinstatement."
TAX-FREE EXCHANGES (1035 EXCHANGES). We may accept as part of your initial
premium, money from another life insurance contract that qualified for a
tax-free exchange under Section 1035 of the Internal Revenue Code, contingent
upon receipt of the cash from that contract. If you contemplate such an
exchange, you should consult a tax advisor to discuss the potential tax effects
of such a transaction.
ALLOCATING PREMIUMS
When you apply for a Policy, you must instruct us to allocate your net premium
to one or more Subaccounts of the Separate Account and to the Fixed Account
according to the following rules:
- You must allocate at least 5% of each net premium to any
Subaccount or the Fixed Account you select.
- Allocation percentages must be in whole numbers and the sum of
the percentages must equal 100%.
- No more than 10 accounts (Subaccounts and Fixed Account) may be
concurrently active (have net premiums allocated to it).
- Up to 4 times each Policy Year, you can change the allocation
instructions for additional net premiums without charge by
providing us with written notification (or any other
notification we deem satisfactory). Any change in allocation
instructions will be effective on the date we record the change.
Investment returns from amounts allocated to the Subaccounts will vary with the
investment experience of these Subaccounts and will be reduced by Policy
charges. YOU BEAR THE ENTIRE INVESTMENT RISK FOR AMOUNTS YOU ALLOCATE TO THE
SUBACCOUNTS.
Prior to the Investment Start Date, we will place your premium (less charges) in
the Premium Suspense Account. We do not credit any interest or investment
returns to amounts in the Premium Suspense Account. On the first Valuation Date
on or following the Investment Start Date, we will transfer the amount in the
Premium Suspense Account to the Subaccounts and/or the Fixed Account in
accordance with the allocation percentages provided in your application. This
transfer is not included in calculating any transfer charge. Amounts allocated
from the Premium Suspense Account will be invested at the unit
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value next determined on the first Valuation Date on or following the Investment
Start Date. We invest all net premiums paid thereafter at the unit value next
determined after we receive the premium at our Home Office or such other office
as we may designate from time to time.
POLICY VALUES
================================================================================
POLICY VALUE - serves as the starting point for calculating values
under a Policy;
- equals the sum of all values in the Fixed Account and
in each Subaccount;
- is determined on the Policy Date and on each Valuation
Date; and
- has no guaranteed minimum amount and may be more or
less than premiums paid.
CASH SURRENDER VALUE
The Cash Surrender Value is the amount we pay to you when you surrender your
Policy. We determine the Cash Surrender Value at the end of the Valuation Period
when we receive your written surrender request.
CASH SURRENDER VALUE - the Policy Value as of such date; MINUS
ON ANY VALUATION DATE - any surrender charge as of such date; MINUS
EQUALS: - any outstanding Indebtedness.
SUBACCOUNT VALUE
Each Subaccount's value is the Policy Value in that Subaccount. At the end of
any Valuation Period, the Subaccount's value is equal to the number of units
that the Policy has in the Subaccount, multiplied by the unit value of that
Subaccount.
THE NUMBER OF - the initial units purchased at the unit value
UNITS IN ANY on the Investment Start Date; PLUS
SUBACCOUNT ON - units purchased with additional net premiums;
ANY VALUATION PLUS
DATE EQUALS: - units purchased via transfers from another
Subaccount, the Fixed Account, or the loan
reserve; MINUS
- units redeemed to pay for Monthly Deductions;
MINUS
- units redeemed to pay for partial
withdrawals; MINUS
- units redeemed as part of a transfer to
another Subaccount, the Fixed Account, or the
loan reserve.
Every time you allocate or transfer money to or from a Subaccount, we convert
that dollar amount into units. We determine the number of units we credit to,
or subtract from, your Policy by dividing the dollar amount of the transaction
by the unit value for that Subaccount at the end of the Valuation Period.
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UNIT VALUE
We determine a unit value for each Subaccount to reflect how investment results
affect the Policy values. Unit values will vary among Subaccounts. The unit
value of each Subaccount was originally established at $10 per unit. The unit
value may increase or decrease from one Valuation Period to the next.
THE UNIT VALUE OF - the total value of the assets held in the
ANY SUBACCOUNT Subaccount, determined by multiplying the
AT THE END OF A number of shares of the designated portfolio
VALUATION PERIOD the Subaccount owns by the portfolio's net
IS CALCULATED AS: asset value per share; MINUS
- a deduction for the mortality and expense
risk charge; MINUS
- the accrued amount of reserve for any taxes
or other economic burden resulting from
applying tax laws that we determine to be
properly attributable to the Subaccount;
AND THE RESULT DIVIDED BY
- the number of outstanding units in the
Subaccount.
FIXED ACCOUNT VALUE
On the Investment Start Date, the Fixed Account value is equal to the net
premiums allocated to the Fixed Account, less the portion of the first Monthly
Deduction taken from the Fixed Account.
THE FIXED ACCOUNT - the net premium(s) allocated to the Fixed
VALUE AT THE END OF Account; PLUS
ANY VALUATION PERIOD - any amounts transferred to the Fixed Account
IS EQUAL TO: (including amounts transferred from the loan
reserve); PLUS
- interest credited to the Fixed Account; MINUS
- amounts charged to pay for Monthly
Deductions; MINUS
- amounts withdrawn from the Fixed Account;
MINUS
- amounts transferred from the Fixed Account to
a Subaccount or to the loan reserve.
CHARGES AND DEDUCTIONS
===============================================================================
We make certain charges and deductions under the Policy. These charges and
deductions compensate us for: (1) services and benefits we provide; (2) costs
and expenses we incur; and (3) risks we assume.
SERVICES AND - the death benefit, cash and loan benefits
BENEFITS WE under the Policy
PROVIDE: - investment options, including premium
allocations
- administration of elective options
- the distribution of reports to Owners
COSTS AND - costs associated with processing and
EXPENSES WE underwriting applications, issuing and
INCUR: administering the Policy (including any
riders)
- overhead and other expenses for providing
services and benefits
- sales and marketing expenses
- other costs of doing business, such as
collecting premiums, maintaining
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records, processing claims, effecting
transactions, and paying Federal, state and
local premium and other taxes and fees
RISKS WE ASSUME: - that the cost of insurance charges we may
deduct are insufficient to meet our actual
claims because Insureds die sooner than we
estimate
- that the costs of providing the services and
benefits under the Policies exceed the
charges we deduct
EXPENSE CHARGE
We deduct an expense charge from each premium payment to compensate us for
distribution expenses and state and local premium taxes. We credit the remaining
amount (the net premium) to your Policy Value according to your allocation
instructions. The expense charge currently varies by Policy Year and is
guaranteed not to exceed 5% of each premium in any Policy Year:
Premiums paid during first 10 Policy Years: expense charge = 5%
Premiums paid after first 10 Policy Years: expense charge = 2.5%
While we may change the expense charge, we guarantee that the expense charge
will not exceed 5% of premiums paid in any Policy Year.
MONTHLY DEDUCTION
We deduct a Monthly Deduction from the Policy Value on the Policy Date and on
each Monthly Date. We will make deductions from each Subaccount and the Fixed
Account on a pro rata basis (i.e., in the same proportion that the value in each
Subaccount and the Fixed Account bears to the total Policy Value on the Monthly
Date). Because portions of the Monthly Deduction (such as the cost of insurance)
can vary from month-to-month, the Monthly Deduction will also vary.
The Monthly Deduction has four components:
- a cost of insurance charge for the Policy;
- a $10 monthly administrative charge;
- charges for any riders; and
- any charges for a substandard premium class rating.
COST OF INSURANCE. We assess a monthly cost of insurance charge to compensate us
for underwriting the death benefit. The charge depends on a number of variables
(age, sex, premium class, and Specified Amount) that would cause it to vary from
Policy to Policy and from Monthly Date to Monthly Date.
We calculate the cost of insurance charge separately for the initial Specified
Amount and for any increase in Specified Amount. If we approve an increase in
your Policy's Specified Amount, then a different premium class (and a different
cost of insurance charge) may apply to the increase, based on the Insured's
circumstances at the time of the increase.
COST OF The cost of insurance charge is equal to:
INSURANCE
CHARGE
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- the monthly cost of insurance rate;
MULTIPLIED BY
- the net amount at risk for your Policy on the
Monthly Date.
The net amount at risk is equal to:
- the death benefit at the beginning of the
month; DIVIDED BY
- 1.0024663 (1.0032737 for Policies issued in
Florida) which is a "risk rate divisor" (a
factor that reduces the net amount at risk,
for purposes of computing the cost of
insurance, by taking into account assumed
monthly earnings at an annual rate of 3.0%
(4.0% for Policies issued in Florida)); MINUS
- the Policy Value at the beginning of the
month.
We base the cost of insurance rates on the Insured's age, sex, premium class and
Specified Amount. The actual monthly cost of insurance rates are based on our
expectations as to future mortality experience. The rates will never be greater
than the guaranteed amount stated in your Policy. These guaranteed rates are
based on the 1980 Commissioner's Standard Ordinary (C.S.O.) Mortality Tables and
the Insured's age and premium class. For standard premium classes, these
guaranteed rates will never be greater than the rates in the 1980 C.S.O. tables.
MONTHLY ADMINISTRATIVE CHARGE. Each month we deduct a $10 monthly administrative
charge to compensate us for expenses such as record keeping, processing death
benefit claims and Policy changes, and overhead costs. This charge will not
exceed $10 per month.
CHARGES FOR RIDERS. The Monthly Deduction includes charges for any supplemental
insurance benefits you add to your Policy by rider. See "Supplemental Benefits
and Riders."
CHARGES FOR A SUBSTANDARD PREMIUM CLASS RATING. The Monthly Deduction includes a
charge we apply if our underwriting places the Insured in a substandard premium
class rating.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a daily charge from each Subaccount (not the Fixed Account) to
compensate us for certain mortality and expense risks we assume. The mortality
risk is that an Insured will live for a shorter time than we project. The
expense risk is that the expenses that we incur will exceed the administrative
charge limits we set in the Policy. This charge is equal to:
- the assets in each Subaccount, MULTIPLIED BY
- 0.00002047, which is the daily portion of the annual mortality
and expense risk charge rate of 0.75% during all Policy Years.
If this charge does not cover our actual costs, we absorb the loss. Conversely,
if the charge more than covers actual costs, the excess is added to our surplus.
We expect to profit from this charge and may use such profits for any lawful
purpose including covering distribution expenses.
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SURRENDER AND WITHDRAWAL CHARGES
SURRENDER CHARGE. If you fully surrender your Policy during the first 19 Policy
Years, we deduct a surrender charge from your Policy Value and pay the remaining
amount (less any outstanding Indebtedness) to you. The payment you receive is
called the Cash Surrender Value. The surrender charge varies based on your age,
sex, premium class, and initial Specified Amount. The highest surrender charge
on any Policy occurs in the first Policy Year or the first year following an
increase in the Specified Amount. An increase in the Specified Amount will
increase the surrender charge, but a decrease in the Specified Amount will not
result in a decrease in the surrender charge. The maximum surrender charge for
any Insured is $58 per $1,000 of Specified Amount.
The table below provides the maximum applicable surrender charges for the
initial Specified Amount for selected sample Insureds. Your Policy's
specifications page indicates the surrender charges applicable to your Policy. A
separate surrender charge that lasts for 19 years applies to each Specified
Amount increase. No surrender charges are assessed upon withdrawals or Specified
Amount decreases.
SURRENDER CHARGE PER $1,000 OF SPECIFIED AMOUNT; INSURED AGE 35
MALE FEMALE
NON-TOBACCO AND MALE NON-TOBACCO AND FEMALE
POLICY YEAR PREFERRED TOBACCO PREFERRED TOBACCO
---------------- ----------------- ------------ ----------------- -------------
1 $24.00 $28.00 $22.00 $24.00
2 $22.80 $26.60 $20.90 $22.80
3 $21.60 $25.20 $19.80 $21.60
4 $20.40 $23.80 $18.70 $20.40
5 $19.20 $22.40 $17.60 $19.20
6 $18.00 $21.00 $16.50 $18.00
7 $16.80 $19.60 $15.40 $16.80
8 $15.60 $18.20 $14.30 $15.60
9 $14.40 $16.80 $13.20 $14.40
10 $13.20 $15.40 $12.10 $13.20
11 $12.00 $14.00 $11.00 $12.00
12 $10.80 $12.60 $9.90 $10.80
13 $9.60 $11.20 $8.80 $9.60
14 $8.40 $9.80 $7.70 $8.40
15 $7.20 $8.40 $6.60 $7.20
16 $6.00 $7.00 $5.50 $6.00
17 $4.80 $5.60 $4.40 $4.80
18 $3.60 $4.20 $3.30 $3.60
19 $2.40 $2.80 $2.20 $2.40
20 $0.00 $0.00 $0.00 $0.00
THE SURRENDER CHARGE MAY BE SIGNIFICANT. YOU SHOULD CAREFULLY CALCULATE THIS
CHARGE BEFORE YOU REQUEST A SURRENDER. Under some circumstances the level of
surrender charges might result in no Cash Surrender Value available.
WITHDRAWAL CHARGE. After the first Policy Year, you may request a partial
withdrawal from your Policy Value. For each withdrawal, we will deduct from your
Policy Value a fee equal to the lesser of $25 or 2% of the amount withdrawn.
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TRANSFER CHARGE
- We currently allow you to make 12 transfers each Policy Year
free of charge.
- We charge $25 for the 13th and each additional transfer among
the Subaccounts and Fixed Account during a Policy Year. We will
not increase this charge.
- For purposes of assessing the transfer charge, each written or
telephone request is considered to be one transfer, regardless
of the number of Subaccounts (or Fixed Account) affected by the
transfer.
- We deduct the transfer charge from the amount being transferred.
- Transfers we effect to reallocate amounts on the Investment
Start Date, and transfers due to dollar cost averaging, asset
rebalancing, or loans, do NOT count as transfers for the purpose
of assessing this charge.
PORTFOLIO EXPENSES
The value of the net assets of each Subaccount reflects the investment advisory
(management) fees and other expenses incurred by the corresponding portfolio in
which the Subaccount invests. For further information on the management fees,
see the portfolios' prospectuses and Annual Portfolio Operating Expenses table
included in the summary of this prospectus.
DEATH BENEFIT
===============================================================================
DEATH BENEFIT PROCEEDS
As long as the Policy is in force, we will pay the death benefit proceeds to the
primary beneficiary or a contingent beneficiary once we receive satisfactory
proof of the Insured's death. We may require you to return the Policy. If the
beneficiary dies before the Insured and there is no contingent beneficiary, we
will pay the death benefit proceeds to the Owner or the Owner's estate. We will
pay the death benefit proceeds in a lump sum or under a payment option. See
"Payment Options."
DEATH BENEFIT - the death benefit (described below); PLUS
PROCEEDS EQUAL: - any additional insurance provided by rider; MINUS
- any past due Monthly Deductions; MINUS
- any outstanding Indebtedness on the date of death.
If all or part of the death benefit proceeds are paid in one sum, we will pay
interest on this sum as required by applicable state law from the date we
receive due proof of the Insured's death to the date we make payment.
An increase in the Specified Amount will increase the death benefit and a
decrease in the Specified Amount will decrease the death benefit.
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We may further adjust the amount of the death benefit proceeds under certain
circumstances. See "Our Right to Contest the Policy," and "Misstatement of Age
or Sex."
DEATH BENEFIT OPTIONS
The Policy provides two death benefit options: Increasing Option (varying death
benefit), and Level Option (level death benefit). We calculate the amount
available under each death benefit option as of the date of the Insured's death.
The death benefit under - the Specified Amount PLUS the Policy Value on
the INCREASING OPTION the Insured's date of death; OR
is the greater of: - the Policy Value on the Insured's date of
death multiplied by the applicable death
benefit ratio.
Under the Increasing Option, the death benefit always varies as the Policy Value
varies.
The death benefit under - the Specified Amount on the Insured's date of
OR the LEVEL OPTION is the death;
greater of: - the Policy Value on the Insured's date of
death multiplied by the applicable death
benefit ratio.
Under the Level Option, your death benefit does not change unless the death
benefit ratio multiplied by the Policy Value is greater than the Specified
Amount. Then the death benefit will vary as the Policy Value varies. The death
benefit will also vary if you change the Specified Amount or Death Benefit
Option.
You must choose between two death benefit options under the Policy. If you do
not select a death benefit option, the Level Option will apply. After the first
Policy Year, you may change death benefit options once each 12-month period.
The DEATH BENEFIT RATIO is a ratio set forth in the Federal tax code based on
the Insured's age at the beginning of each Policy Year. The following table
indicates the applicable death benefit ratio for different ages:
AGE DEATH BENEFIT RATIO
---------------------- ------------------------------------------
40 and under 2.50
41 to 45 2.50 minus 0.07 for each age over age 40
46 to 50 2.15 minus 0.06 for each age over age 45
51 to 55 1.85 minus 0.07 for each age over age 50
56 to 60 1.50 minus 0.04 for each age over age 55
61 to 65 1.30 minus 0.02 for each age over age 60
66 to 70 1.20 minus 0.01 for each age over age 65
71 to 74 1.15 minus 0.02 for each age over age 70
75 to 90 1.05
91 to 94 1.05 minus 0.01 for each age over age 90
95 and above 1.00
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If the Federal tax code requires us to determine the death benefit by reference
to these death benefit ratios, the Policy is described as "in the corridor." An
increase in the Policy Value will increase our risk, and we will increase the
cost of insurance we deduct from the Policy Value.
CHANGING DEATH BENEFIT OPTIONS
After the first Policy Year, you may change death benefit options once each
12-month period. Changing the death benefit option may have tax consequences.
You should consult a tax advisor before changing death benefit options. Please
note the following when changing death benefit options:
- You must make your request in writing.
- The effective date of the change will be the Monthly Date on or
following the date when we approve your request for a change.
- We will send you a Policy endorsement with the change to attach
to your Policy.
If you change FROM INCREASING OPTION TO LEVEL OPTION:
- We may require that you provide satisfactory evidence of
insurability.
- The Specified Amount will change. The new Level Option
Specified Amount will equal the Increasing Option
Specified Amount plus the Policy Value on the effective
date of the change.
- Your Minimum Monthly Premium may change.
If you change FROM LEVEL OPTION TO INCREASING OPTION:
- We may require that you provide satisfactory evidence of
insurability.
- The Specified Amount will change. The new Increasing
Option Specified Amount will equal the Level Option
Specified Amount less the Policy Value immediately
before the change, but the new Specified Amount may not
be less than the minimum Specified Amount shown on your
Policy's specifications page.
- Your Minimum Monthly Premium may change.
EFFECTS OF WITHDRAWALS ON THE DEATH BENEFIT
If the Level Option is in effect, a withdrawal will reduce the Specified Amount
by the amount of the withdrawal (not including the withdrawal fee), and will
reduce the Policy Value by the amount of the withdrawal (including the
withdrawal fee). The reduction in Specified Amount will be subject to the terms
of the Changing the Specified Amount section below.
If the Increasing Option is in effect, a withdrawal will not affect the
Specified Amount.
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CHANGING THE SPECIFIED AMOUNT
You select the Specified Amount when you apply for the Policy. After the first
Policy Year, you may change the Specified Amount once each 12-month period
subject to the conditions described below. We will not permit any change that
would result in your Policy being disqualified as a life insurance contract
under Section 7702 of the Internal Revenue Code. However, changing the Specified
Amount may have tax consequences and you should consult a tax advisor before
doing so.
INCREASING THE SPECIFIED AMOUNT
- You may increase the Specified Amount by submitting a
written request and providing evidence of insurability
satisfactory to us. The increase will be effective on the
next Monthly Date after we approve the increase request.
- The minimum increase is $10,000.
- Increasing the Specified Amount will increase your Minimum
Monthly Premium and cause the No-Lapse Period to begin
again.
- Increasing the Specified Amount will result in an
additional surrender charge that lasts for 19 years.
- A different cost of insurance charge may apply to the
increase in Specified Amount, based on the Insured's
circumstances at the time of the increase.
DECREASING THE SPECIFIED AMOUNT
- You must submit a written request to decrease the
Specified Amount, but you may not decrease the Specified
Amount below the minimum amount shown on your Policy
specifications page.
- Any decrease will be effective on the next Monthly Date
after we process your written request.
- For purposes of determining the cost of insurance charge,
any decrease will first be used to reduce the most recent
increase, then the next most recent increases in
succession, and then the initial Specified Amount.
- A decrease in Specified Amount may require that a portion
of Policy Value be distributed as a withdrawal in order to
maintain Federal tax compliance.
- Decreasing the Specified Amount will not affect the
Minimum Monthly Premium or the surrender charges.
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PAYMENT OPTIONS
There are several ways of receiving proceeds under the death benefit and
surrender provisions of the Policy, other than in a lump sum. None of these
options (described below) vary with the investment performance of a separate
account. We will also use any other method of settlement that is agreeable to
you and us. More detailed information concerning the following settlement
options is available upon request to our Home Office.
Interest Payments The Company will pay interest on the proceeds at such
times and for a period that is agreeable to you and the
Company. At the end of the period the Company will pay
out the remainder of the proceeds.
Payments for a The Company will make equal monthly payments for a
Specified Period specified number of years.
Life Income The Company will make equal monthly payments for the
remainder of the life of the recipient. Payments may be
guaranteed for a period of 10 or 20 years.
Payment of a The Company will make monthly payments of a specified
Designated Amount amount until all of the proceeds and any interest are
fully paid out.
Joint and Survivor The Company will make equal monthly payments during the
Life Income joint lifetime of two persons and continue the payments
during the lifetime of the survivor.
SURRENDERS AND PARTIAL WITHDRAWALS
===============================================================================
SURRENDERS
- You may make a written request to surrender your Policy for its
Cash Surrender Value as calculated at the end of the Valuation
Date when we receive your request. A surrender may have tax
consequences. See "Tax Treatment of Policy Benefits."
- The Insured must be alive and the Policy must be in force when
you make your written request. A surrender is effective as of the
date when we receive your written request. We may require that
you return the Policy.
- If you surrender your Policy during the first 19 Policy Years (or
during the first 19 years after an increase in the Specified
Amount), you will incur a surrender charge that varies based on
the Insured's age, sex, premium class and Specified Amount. See
"Charges and Deductions -- Surrender and Withdrawal Charges."
- Once you surrender your Policy, all coverage and other benefits
under it cease and cannot be reinstated.
- We will pay you the Cash Surrender Value in a lump sum within
seven days unless you request other arrangements.
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WITHDRAWALS
After the 1st Policy Year, you may request to withdraw a portion of your Policy
Value subject to certain conditions.
- You may make only one withdrawal per Policy Year.
- You must: (1) make your request in writing, and (2) request at
least $500.
- If you request a withdrawal that would leave a Cash Surrender
Value of less than $500, then we will treat it as a request to
surrender your Policy.
- For each withdrawal, we deduct (from the remaining Policy Value)
a fee equal to the lesser of $25 or 2% of the amount withdrawn.
See "Charges and Deductions -- Surrender and Withdrawal
Charges."
- You can specify the Subaccount(s) and Fixed Account from which
to make the withdrawal; otherwise we will deduct the amount
(including any fee) from the Subaccounts and the Fixed Account
on a pro-rata basis (that is, according to the percentage of
Policy Value contained in each Subaccount and the Fixed
Account).
- We will process the withdrawal at the unit values next
determined after we receive your request.
- We generally will pay a withdrawal request from the Subaccounts
within seven days after the Valuation Date when we receive the
request. We reserve the right to defer any withdrawals from the
Fixed Account for up to six months (or any shorter period
required by law). We will not defer a withdrawal if you are
applying the withdrawal amount to a premium payment to us.
- Withdrawals may have tax consequences. See "Tax Treatment of
Policy Benefits."
TRANSFERS
===============================================================================
You may make transfers from the Subaccounts or from the Fixed Account. We
determine the amount you have available for transfers at the end of the
Valuation Period when we receive your transfer request. The following features
apply to transfers under the Policy:
- You may make an unlimited number of transfers in a Policy Year.
- You may request transfers in writing (in a form we accept), or
by telephone.
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- You must transfer at least $100, or, if less, the total value in
the Subaccount or Fixed Account.
- We deduct a $25 charge from the amount transferred for the 13th
and each additional transfer in a Policy Year. Transfers we
effect from the Premium Suspense Account, and transfers
resulting from loans, dollar cost averaging, asset rebalancing,
and the exchange privilege are NOT treated as transfers for
purposes of the transfer charge.
- We consider each written or telephone request to be a single
transfer, regardless of the number of Subaccounts (or Fixed
Account) involved. We will treat all transfer requests received
on the same day as a single request.
- We process transfers based on unit values determined at the end
of the Valuation Date when we receive your transfer request.
Your Policy, as applied for and issued, will automatically receive telephone
transfer privileges unless you provide other instructions. The telephone
transfer privileges allow you to give authority to the registered representative
or agent of record for your Policy to make telephone transfers and to change the
allocation of future payments among the Subaccounts and the Fixed Account on
your behalf according to your instructions. To make a telephone transfer, you
may call 1-800-625-4213.
Please note the following regarding telephone transfers:
- We are not liable for any loss, damage, cost or expense from
complying with telephone instructions we reasonably believe to
be authentic. You bear the risk of any such loss.
- We will employ reasonable procedures to confirm that telephone
instructions are genuine.
- Such procedures may include requiring forms of personal
identification prior to acting upon telephone instructions,
providing written confirmation of transactions to you, and/or
tape recording telephone instructions received from you.
- If we do not employ reasonable confirmation procedures, we may
be liable for losses due to unauthorized or fraudulent
instructions.
The corresponding portfolio of any Subaccount determines its net asset value per
share once daily, as of the close of the regular business session of the New
York Stock Exchange ("NYSE") (usually 4:00 p.m. Eastern time), which coincides
with the end of each Valuation Period. Therefore, we will process any transfer
request we receive after the close of the regular business session of the NYSE,
using the net asset value for each share of the applicable portfolio determined
as of the close of the next regular business session of the NYSE.
We may, at any time, revoke or modify the transfer privilege.
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EXCHANGE PRIVILEGE
At any one time, you may exercise the Exchange Privilege under your Policy which
results in the transfer of the entire amount in the Separate Account to the
Fixed Account, and the allocation of all future net premiums to the Fixed
Account. This serves as an exchange of the Policy for the equivalent of a
flexible premium fixed benefit life insurance policy. We will not assess any
transfer or other charges in connection with the Exchange Privilege.
DOLLAR COST AVERAGING
You may elect to participate in a dollar cost averaging program by sending us a
written request. Dollar cost averaging is an investment strategy designed to
reduce the investment risks associated with market fluctuations. The strategy
spreads the allocation of your premium into the Subaccounts or Fixed Account
over a period of time. This allows you to potentially reduce the risk of
investing most of your premium into the Subaccounts at a time when prices are
high. We do not assure the success of this strategy and the success depends on
market trends. You should carefully consider your financial ability to continue
the program over a long enough period of time to purchase units when their value
is low as well as when it is high.
To participate in dollar cost averaging, you must place at least $5,000 in a
"source account" (either the Fixed Account, AIM V.I. Government Securities Fund
Subaccount, Oppenheimer Bond Fund/VA Subaccount, or the Fidelity VIP Money
Market Portfolio Subaccount). There can be only one source account. Each month,
we will automatically transfer equal amounts (minimum $100) from the source
account to your designated "target accounts." You may have multiple target
accounts.
There is no charge for dollar cost averaging. A transfer under this program is
NOT considered a transfer for purposes of assessing the transfer fee.
DOLLAR COST AVERAGING - we receive your written request to cancel
WILL END IF: your participation;
- the value in the source account is exhausted;
- you elect to participate in the asset
rebalancing program.
We may modify, suspend, or discontinue the dollar cost averaging program at any
time.
ASSET REBALANCING PROGRAM
We also offer an asset rebalancing program under which we will automatically
transfer amounts semi-annually to maintain a particular percentage allocation
among the Subaccounts. Policy Value allocated to each Subaccount will grow or
decline in value at different rates. The asset rebalancing program automatically
reallocates the Policy Value in the Subaccounts at the end of each semi-annual
period to match your Policy's currently effective premium allocation schedule.
The asset rebalancing program will transfer Policy Value from those Subaccounts
that have increased in value to those Subaccounts that have declined in value
(or not increased as much). Over time, this method of investing may help you buy
low and sell high. The asset rebalancing program does not guarantee gains, nor
does it assure that any Subaccount will not have losses. Policy Value in the
Fixed Account is not available for this program.
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TO PARTICIPATE IN THE - you must complete an asset rebalancing
ASSET REBALANCING request form and submit it to us before the
PROGRAM: Maturity Date
- you must have a minimum Policy Value of
$5,000.
If you elect asset rebalancing, it will occur on each semi-annual anniversary of
the Policy Date. You may modify your allocations up to 4 times in a Policy Year.
Once we receive the asset rebalancing request form, we will effect the initial
rebalancing semi-annually, in accordance with the Policy's current premium
allocation schedule. We will credit the amounts transferred at the unit value
next determined on the dates the transfers are made. If a day on which
rebalancing would ordinarily occur falls on a day on which the NYSE is closed,
rebalancing will occur on the next day the NYSE is open. There is no charge for
the asset rebalancing program. Any reallocation which occurs under the asset
rebalancing program will NOT be counted towards the 12 free transfers allowed
during each Policy Year. You can begin or end this program only once each Policy
Year.
ASSET REBALANCING - you elect to participate in the dollar cost
WILL END IF: averaging program;
- we receive your request to discontinue
participation; OR
- you make a transfer to or from any Subaccount
other than under a scheduled rebalancing (not
including transfers in connection with
loans).
We may modify, suspend, or discontinue the asset rebalancing program at any
time.
LOANS
===============================================================================
While the Policy is in force, you may borrow money from us using the Policy as
the only collateral for the loan. A loan that is taken from, or secured by, a
Policy may have tax consequences.
LOAN CONDITIONS:
- You may request a loan in writing (in a form that is acceptable
to us).
- The MINIMUM LOAN you may take is $250.
- The MAXIMUM LOAN you may take is 90% (100% in certain states) of
the Cash Surrender Value, minus 6 months of Monthly Deductions.
- To secure the loan, we transfer an amount equal to the loan
(plus loan interest in advance) from the Separate Account and
Fixed Account to the loan reserve, which is a part of the Fixed
Account. Unless you specify otherwise, we will transfer the loan
from the Subaccounts and the Fixed Account on a pro-rata basis.
- Amounts in the loan reserve earn interest at an annual rate
guaranteed not to be lower than 3.0% (4.0% for Policies issued
in Florida). We may credit the loan reserve with an interest
rate different than the rate credited to net premiums allocated
to the Fixed Account.
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- We normally pay the amount of the loan within seven days after
we receive a proper loan request. We may postpone payment of
loans under certain conditions. See "Payments We Make."
- We charge you a maximum interest rate of 5.66% per year on your
loan. Interest is due and payable at the beginning of each
Policy Year. Unpaid interest becomes part of the outstanding
loan and accrues interest if it is not paid before the beginning
of the next Policy Year.
- After the 10th Policy Year, we consider certain portions of the
loan amount to be preferred loans. The maximum preferred loan
available in each Policy Year is 25% of the Policy Value
(subject to the maximum loan amount). We charge a maximum annual
interest rate of 3.85% in advance on preferred loan amounts.
- We cannot change the interest rate on a loan once you take the
loan.
- You may repay all or part of your Indebtedness at any time. Loan
repayments must be at least $25, unless the loan amount is less
than $25 in which case full payment is required. The payment
must be clearly marked as "loan repayments" or they will be
credited as premiums if they meet minimum premium requirements.
- Upon each loan repayment, we will transfer an amount equal to
the loan repayment from the loan reserve to the Fixed and/or
Separate Account according to your current premium allocation
schedule.
- We deduct any Indebtedness from the Policy Value upon surrender,
and from the death benefit proceeds payable on the Insured's
death.
- If your Indebtedness equals or exceeds the Policy Value less any
applicable surrender charge (thereby reducing the Cash Surrender
Value to zero), then your Policy will enter a grace period. See
"Policy Lapse and Reinstatement."
EFFECT OF POLICY LOANS
A loan affects the Policy, because the death benefit proceeds and Cash Surrender
Value include reductions for the amount of any Indebtedness. Repaying a loan
causes the death benefit and Cash Surrender Value to increase by the amount of
the repayment. As long as a loan is outstanding, we hold an amount equal to the
loan in the loan reserve. This amount is not affected by the Subaccounts'
investment performance and may not be credited with the interest rates accruing
on the Fixed Account. Amounts transferred from the Separate Account to the loan
reserve will affect the Policy Value, even if the loan is repaid, because we
credit such amounts with an interest rate we declare rather than a rate of
return reflecting the investment results of the Separate Account.
There are risks involved in taking a loan, including the potential for a Policy
to lapse if projected earnings, taking into account outstanding loans, are not
achieved. If the Policy is a "modified endowment contract" (see "Federal Tax
Considerations"), then a loan will be treated as a withdrawal for Federal income
tax purposes. A loan may also have possible adverse tax consequences that could
occur if a Policy lapses with loans outstanding.
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We will notify you (and any assignee of record) if the sum of your Indebtedness
is more than the Policy Value less any applicable surrender charge. If you do
not submit a sufficient payment within 61 days from the date of the notice, your
Policy may lapse. See "Policy Lapse and Reinstatement."
POLICY LAPSE AND REINSTATEMENT
LAPSE
Under certain conditions, your Policy may enter a 61-day grace period, and
possibly lapse (terminate without value):
- If your Policy is in the No-Lapse Period you have selected, then the
Policy will enter a grace period only if on a Monthly Date the Cash
Surrender Value is not enough to pay the next Monthly Deduction due, AND
the sum of premiums paid minus withdrawals and Indebtedness is less than
the Cumulative Minimum Monthly Premium.
- If your Policy is not in the No-Lapse Period you have selected, then your
Policy will enter a grace period if the Cash Surrender Value on any
Monthly Date is not enough to pay the next Monthly Deduction due.
If you have taken a loan, then your Policy also will enter a grace period (and
possibly lapse) whenever your Indebtedness reduces the Cash Surrender Value to
zero.
If your Policy enters into a grace period, we will mail a notice to your last
known address and to any assignee of record. The 61-day grace period begins on
the date of the notice. The notice will specify the minimum payment required and
the final date by which we must receive the payment to keep the Policy from
lapsing. If we do not receive the specified minimum payment by the end of the
grace period, all coverage under the Policy will terminate and you will receive
no benefits.
REINSTATEMENT
Unless you have surrendered your Policy for its Cash Surrender Value, you may
reinstate a lapsed Policy at any time within 5 years after the end of the grace
period (and prior to the Maturity Date) by submitting all of the following items
to us at our Home Office:
1. a Written Notice requesting reinstatement;
2. the Insured's written consent to reinstatement;
3. evidence of insurability we deem satisfactory;
4. payment or reinstatement of any Indebtedness; and
5. payment of enough premium to keep the Policy in force
for at least 3 months.
The effective date of reinstatement will be the first Monthly Date on or next
following the date we approve your application for reinstatement. We reserve the
right to decline a reinstatement request.
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FEDERAL TAX CONSIDERATIONS
The following summarizes some of the basic Federal income tax considerations
associated with a Policy and does not purport to be complete or to cover all
situations. THIS DISCUSSION IS NOT INTENDED AS TAX ADVICE. Please consult
counsel or other qualified tax advisors for more complete information. We base
this discussion on our understanding of the present Federal income tax laws as
they are currently interpreted by the Internal Revenue Service (the "IRS").
Federal income tax laws and the current interpretations by the IRS may change.
TAX STATUS OF THE POLICY. A Policy must satisfy certain requirements set forth
in the Internal Revenue Code ("Code") in order to qualify as a life insurance
contract for Federal income tax purposes and to receive the tax treatment
normally accorded life insurance contracts. The manner in which these
requirements are to be applied to certain innovative features of the Policy are
not directly addressed by the Code, and/or there is limited guidance as to how
these requirements are to be applied. Nevertheless, we believe that a Policy
should generally satisfy the applicable Code requirements. Because of the
absence of pertinent interpretations of the Code requirements, there is,
however, some uncertainty about the application of such requirements to the
Policy. There is more uncertainty with respect to Policies issued on a
substandard premium class basis and Policies with a Level One-Year Term
Insurance Rider attached. If it is subsequently determined that a Policy does
not satisfy the applicable requirements, we may take appropriate steps to bring
the Policy into compliance with such requirements and we reserve the right to
restrict Policy transactions in order to do so.
In certain circumstances, Owners of variable life insurance contracts have been
considered for Federal income tax purposes to be the Owners of the assets of the
Separate Account supporting their contracts due to their ability to exercise
investment control over those assets. Where this is the case, the contract
Owners have been currently taxed on income and gains attributable to the
Separate Account assets. There is little guidance in this area, and some
features of the Policies, such as the flexibility to allocate premiums and
Policy Values, have not been explicitly addressed in published rulings. While we
believe that the Policy does not give you investment control over Separate
Account assets, we reserve the right to modify the Policy as necessary to
prevent you from being treated as the Owner of the Separate Account assets
supporting the Policy.
In addition, the Code requires that the investments of the Separate Account be
"adequately diversified" in order to treat the Policy as a life insurance
contract for Federal income tax purposes. We intend that the Separate Account,
through the Portfolios, will satisfy these diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for Federal income tax purposes.
TAX TREATMENT OF POLICY BENEFITS
IN GENERAL. We believe that the death benefit under a Policy should be
excludible from the beneficiary's gross income. Federal, state and local
transfer, and other tax consequences of Ownership or receipt of Policy proceeds
depend on your circumstances and the beneficiary's circumstances. You should
consult a tax advisor on these consequences.
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Generally, you will not be deemed to be in constructive receipt of the Policy
Value until there is a distribution. In addition, if you elect the Terminal
Illness Accelerated Death Benefit, the tax consequences associated with
continuing the Policy after a distribution is made are unclear. Please consult a
tax advisor on these consequences. When distributions from a Policy occur, or
when loans are taken out from or secured by a Policy (e.g., by assignment), then
the tax consequences depend on whether the Policy is classified as a "Modified
Endowment Contract." Moreover, if a loan from a Policy that is not a MEC is
outstanding when the Policy is canceled or lapses, the amount of the outstanding
indebtedness will be added to the amount distributed and will be taxed
accordingly.
MODIFIED ENDOWMENT CONTRACTS. Under the Code, certain life insurance contracts
are classified as "Modified Endowment Contracts" ("MECs") and receive less
favorable tax treatment than other life insurance contracts. The rules are too
complex to be summarized here, but generally depend on the amount of premiums
paid during the first seven contract years. Certain changes in a contract after
it is issued could also cause it to be classified as a MEC. Due to the Policy's
flexibility, each Policy's circumstances will determine whether the Policy is
classified as a MEC. If you do not want your Policy to be classified as a MEC,
you should consult a tax advisor to determine the circumstances, if any, under
which your Policy would or would not be classified as a MEC.
Upon issue of your Policy, you will be notified as to whether or not your Policy
is classified as a MEC based on the initial premium we receive. You may request
an illustration which will indicate the maximum amount of additional premiums
you can pay without causing your Policy to be classified as a MEC. If a payment
would cause your Policy to become a MEC, we will immediately notify you and your
agent. At that time, you will need to notify us if you want to continue your
Policy as a MEC.
DISTRIBUTIONS FROM MODIFIED ENDOWMENT CONTRACTS. Policies classified as MECs are
subject to the following tax rules:
- All distributions other than death benefits from a MEC, including
distributions upon surrender and withdrawals, will be treated as
ordinary income subject to tax up to an amount equal to the
excess (if any) of the unloaned Policy Value immediately before
the distribution plus prior distributions over the Owner's total
investment in the Policy at that time. They will be treated as
tax-free recovery of the Owner's investment in the Policy only
after all such excess has been distributed. "Total investment in
the Policy" means the aggregate amount of any premiums or other
considerations paid for a Policy, plus any previously taxed
distributions.
- Loans taken from such a Policy (or secured by such a Policy,
e.g., by assignment) are treated as distributions and taxed
accordingly.
- A 10% additional income tax penalty is imposed on the amount
included in income except where the distribution or loan is made
when you have attained age 59 1/2 or are disabled, or where the
distribution is part of a series of substantially equal periodic
payments for your life (or life expectancy) or the joint lives
(or joint life expectancies) of you the beneficiary.
- If a contract becomes a MEC, distributions that occur during the
contract year will be taxed as distributions from a MEC. In
addition, distributions from a contract within two years before
it becomes a MEC will be taxed in this manner. This means that a
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distribution from a contract that is not a MEC at the time when
the distribution is made could later become taxable as a
distribution from a MEC.
DISTRIBUTIONS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS.
Distributions from a Policy that is not a MEC are generally treated first as a
recovery of your investment in the Policy, and as taxable income after the
recovery of all investment in the Policy. However, certain distributions which
must be made in order to enable the Policy to continue to qualify as a life
insurance contract for Federal income tax purposes if Policy benefits are
reduced during the first 15 Policy Years may be treated in whole or in part as
ordinary income subject to tax.
Loans from or secured by a Policy that is not a MEC are generally not treated as
distributions. However, there is some uncertainty as to the tax treatment of a
Preferred Loan under a Policy that is not a MEC and you should consult a tax
advisor on this point.
Finally, neither distributions from nor loans from (or secured by) a Policy that
is not a MEC are subject to the 10% additional tax.
DEDUCTIBILITY OF POLICY LOAN INTEREST. In general, interest you pay on a loan
from a Policy will not be deductible. Before taking out a Policy loan, you
should consult a tax advisor as to the tax consequences.
MULTIPLE POLICIES. All MECs that we issue (or that our affiliates issue) to the
same Owner during any calendar year are treated as one MEC for purposes of
determining the amount includible in the Owner's income when a taxable
distribution occurs.
BUSINESS USES OF THE POLICY. The Policy may be used in various arrangements,
including nonqualified deferred compensation or salary continuance plans, split
dollar insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans and business uses of the Policy may
vary depending on the particular facts and circumstances of each individual
arrangement and business uses of the Policy. In recent years, moreover, Congress
has adopted new rules relating to life insurance owned by businesses, and the
Internal Revenue Service has recently issued guidance related to split-dollar
insurance. Therefore, if you are contemplating using the Policy in any
arrangement the value of which depends in part on its tax consequences, you
should be sure to consult a tax advisor as to tax attributes of the arrangement.
ALTERNATIVE MINIMUM TAX. There may also be an indirect tax upon the income in
the Policy or the proceeds of a Policy under the Federal corporate alternative
minimum tax, if the Owner is subject to that tax.
POSSIBLE TAX LAW CHANGES. While the likelihood of legislative or other changes
is uncertain, there is always a possibility that the tax treatment of the Policy
could change by legislation or otherwise. It is even possible that any
legislative change could be retroactive (effective prior to the date of the
change). Consult a tax advisor with respect to legislative developments and
their effect on the Policy.
POSSIBLE CHARGES FOR OUR TAXES. At the present time, we make no charge for any
Federal, state or local taxes (other than the charge for state premium taxes)
that may be attributable to the subaccounts or to the Policy. We reserve the
right to impose charges for any future taxes or economic burden we may incur.
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OTHER POLICY INFORMATION
OUR RIGHT TO CONTEST THE POLICY
In issuing this Policy, we rely on all statements made by or for you and/or the
Insured in the application or in a supplemental application. Therefore, if you
make any material misrepresentation of a fact in the application (or any
supplemental application), then we may contest the Policy's validity or may
resist a claim under the Policy.
In the absence of fraud or non-payment of a Monthly Deduction, we cannot bring
any legal action to contest the validity of the Policy after the Policy has been
in force during the Insured's lifetime for two years after:
(a) the Policy Date;
(b) the effective date of any increase in the Specified Amount
(and then only for the increased amount); or
(c) the effective date of any reinstatement.
SUICIDE EXCLUSION
If the Insured commits suicide, while sane or insane, within two years of the
Policy Date, the Policy will terminate and our liability is limited to an amount
equal to the premiums paid, less any Indebtedness, and less any withdrawals
previously paid.
If the Insured commits suicide, while sane or insane, within two years from the
effective date of any increase in the Specified Amount, the Policy will
terminate and our liability for the amount of increase will be limited to the
cost of insurance for the increase.
Certain states may require suicide exclusion provisions that differ from those
stated here.
MISSTATEMENT OF AGE OR SEX
If the Insured's age or sex was stated incorrectly in the application, we will
adjust the death benefit proceeds to the amount that would have been payable at
the correct age and sex based on the most recent deduction for cost of
insurance.
MODIFYING THE POLICY
Any modification or waiver of our rights or requirements under the Policy must
be in writing and signed by our president, a vice president, our secretary, or
one of our officers. No agent may bind us by making any promise not contained in
the Policy.
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Upon notice to you, we may modify the Policy:
- to conform the Policy, our operations, or the Separate Account's
operations to the requirements of any law (or regulation issued
by a government agency) to which the Policy, our Company or the
Separate Account is subject; or
- to assure continued qualification of the Policy as a life
insurance contract under the Federal tax laws; or
- to reflect a change in the Separate Account's operation.
If we modify the Policy, we will make appropriate endorsements to the Policy. If
any provision of the Policy conflicts with the laws of a jurisdiction that
govern the Policy, we reserve the right to amend the provision to conform with
such laws.
PAYMENTS WE MAKE
We usually pay the amounts of any surrender, withdrawal, death benefit, or
settlement options within seven business days after we receive all applicable
Written Notices and/or due proofs of death. However, we can postpone such
payments if:
- the NYSE is closed, other than customary weekend and holiday
closing, or trading on the NYSE is restricted as determined by
the Securities and Exchange Commission (SEC); OR
- the SEC permits, by an order or less formal interpretation (e.g.
, no-action letter), the postponement of any payment for the
protection of Owners; OR
- the SEC determines that an emergency exists that would make the
disposal of securities held in the Separate Account or the
determination of their value not reasonably practicable.
We have the right to defer payment of amounts from the Fixed Account for up to 6
months.
If you have submitted a recent check or draft, we have the right to defer
payment of surrenders, withdrawals, death benefit proceeds, or payments under a
payment option until such check or draft has been honored.
REPORTS TO OWNERS
At least once each year, or more often as required by law, we will mail to
Owners at their last known address a report showing the following information as
of the end of the report period:
- the current Policy Value
- the current Cash Surrender Value
- the current death benefit
- any activity since the last report (e.g., premiums paid,
withdrawals, deductions, loans or loan repayments, and other
transactions)
- any other information required by law
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You may request additional copies of reports, but we may charge a fee for such
additional copies. In addition, we will send written confirmations of any
premium payments and other financial transactions you request including charges
in Specified Amount, transfers, partial withdrawals, increases in Indebtedness,
loan repayments, lapses and reinstatements. We also will send copies of the
annual and semi-annual report to shareholders for each portfolio in which you
are indirectly invested.
RECORDS
We will maintain all records relating to the Separate Account and the Fixed
Account at our Home Office.
POLICY TERMINATION
Your Policy will terminate on the earliest of:
- the Maturity Date;
- the end of the grace period without a sufficient payment;
- the date the Insured dies; or
- the date you surrender the Policy.
SUPPLEMENTAL BENEFITS AND RIDERS
The following supplemental benefits and riders are available under the Policy.
We deduct any monthly charges for these benefits and riders from Policy Value as
part of the Monthly Deduction. The benefits and riders available (which are
summarized below) provide fixed benefits that do not vary with the investment
experience of the Separate Account. For each Policy, we automatically provide
the supplemental benefits listed below. You may elect to add one or more of the
riders listed below at any time, subject to certain limitations. We may require
underwriting for certain riders. Your agent can help you determine whether
certain of the riders are suitable for you. Please contact us for further
details on these supplemental benefits and riders.
SUPPLEMENTAL BENEFITS
EXTENDED MATURITY DATE: Extends the Maturity Date past the original
Maturity Date. You must make a written request for this benefit (and we
must receive it) within 30 days prior to the original Maturity Date. The
tax consequences of keeping the Policy in force beyond the Insured's
100th birthday are uncertain and you should consult a tax advisor before
doing so.
TERMINAL ILLNESS ACCELERATED BENEFIT: You may elect to receive a portion
of the death benefit proceeds in a "single sum benefit" if the Insured
has incurred a terminal condition while the Policy is in force and has a
life expectancy of one year or less. A doctor must certify the Insured's
life expectancy. The maximum amount of this benefit is the lesser of 75%
of Specified Amount or $500,000. Payment of any amounts under this
benefit will result in reductions in your Policy Value, Specified
Amount, and certain Policy benefits. The tax consequences of electing to
receive a terminal illness accelerated benefit are uncertain and you
should consult a tax advisor before making this election.
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RIDERS
- WAIVER OF PREMIUM BENEFIT: Waives the initial planned premium if
the Insured becomes totally and permanently disabled for at least
six consecutive months prior to the Policy anniversary following
the Insured's 60th birthday.
- WAIVER OF MONTHLY DEDUCTION: Waives the Monthly Deduction if the
Insured becomes totally and permanently disabled for at least six
consecutive months prior to the Policy anniversary following the
Insured's 60th birthday.
- LEVEL ONE-YEAR TERM INSURANCE: Provides one-year renewable term
insurance on the Insured in addition to the proceeds payable
under this Policy. You should consult your representative to
determine if you would benefit from this rider
- ADDITIONAL INSURED'S LEVEL ONE-YEAR TERM INSURANCE: Provides
one-year renewable term insurance on an additional Insured.
- ACCIDENTAL DEATH BENEFIT: Provides for payment of an additional
benefit if the Insured dies due to and within 90 days of an
accidental injury that occurred on or before the Policy
anniversary when the Insured is age 65.
- GUARANTEED INSURABILITY BENEFIT: Provides options to purchase
additional insurance without evidence of insurability.
- CHILDREN'S BENEFIT: Provides level term insurance on each of the
Insured's dependent children, until their 25th birthday.
PERFORMANCE DATA
In order to demonstrate how the actual investment experience of the portfolios
could have affected the death benefit, Policy Value and Cash Surrender Value of
the Policy, we may provide hypothetical illustrations using the actual
investment experience of each portfolio since its inception. THESE HYPOTHETICAL
ILLUSTRATIONS ARE DESIGNED TO SHOW THE PERFORMANCE THAT COULD HAVE RESULTED IF
THE POLICY HAD BEEN IN EXISTENCE DURING THE PERIOD ILLUSTRATED AND ARE NOT
INDICATIVE OF FUTURE PERFORMANCE.
The illustrations are based on the payment of a $1,080 annual premium, paid at
the beginning of each year for a hypothetical Policy with a $100,000 Specified
Amount, Level Death Benefit option, issued to a tobacco risk male, age 35.
The values we illustrate for death benefit, Policy Value and Cash Surrender
Value take into account all applicable charges and deductions from the Policy
(current and guaranteed), the Separate Account and the portfolios. We have not
deducted premium taxes or charges for any riders. These taxes charges would
lower the performance figures significantly if reflected.
The inception date of the Service Class 2 shares of underlying Fidelity
Portfolios (VIP Index 500, VIP Money Market, VIP Growth, VIP Contrafund and VIP
III Growth & Income) was January 12, 2000. Therefore, it is not possible to
illustrate examples of the corresponding Subaccounts since no performance data
exists for these portfolios.
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The following example shows how the hypothetical net return of the Janus Aspen
Growth Portfolio would have affected benefits for a Policy dated January 1,
2000. This example assumes that the Net Premiums and related Policy Values were
in the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
JANUS ASPEN GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
2001 $514 $512 $0 $0
The following example shows how the hypothetical net return of the Janus Aspen
Worldwide Growth Portfolio would have affected benefits for a Policy dated
January 1, 2000. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
2001 $504 $502 $0 $0
The following example shows how the hypothetical net return of the Janus Aspen
Balanced Portfolio would have affected benefits for a Policy dated January 1,
2000. This example assumes that the Net Premiums and related Policy Values were
in the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
JANUS ASPEN BALANCED PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
2001 $622 $620 $0 $0
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The following example shows how the hypothetical net return of the Janus Aspen
Capital Appreciation Portfolio would have affected benefits for a Policy dated
January 1, 2000. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
JANUS ASPEN CAPITAL APPRECIATION PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
2001 $485 $483 $0 $0
The following example shows how the hypothetical net return of the Janus Aspen
Aggressive Growth Portfolio would have affected benefits for a Policy dated
January 1, 2000. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
2001 $379 $377 $0 $0
The following example shows how the hypothetical net return of the AIM V.I.
Value Fund would have affected benefits for a Policy dated January 1, 1994. This
example assumes that the Net Premiums and related Policy Values were in the
Sub-account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
AIM V.I. VALUE FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1995 $666 $664 $0 $0
1996* $1,810 $1,805 $0 $0
1997* $2,780 $2,772 $260 $252
1998* $4,169 $4,159 $1,789 $1,779
1999* $6,277 $6,262 $4,037 $4,022
2000* $9,006 $8,821 $6,906 $6,721
2001* $8,152 $7,854 $6,192 $5,894
- ----- ------ ------ ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
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The following example shows how the hypothetical net return of the AIM V.I.
Capital Appreciation Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
AIM V.I. CAPITAL APPRECIATION FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1995 $653 $651 $0 $0
1996* $1,785 $1,780 $0 $0
1997* $2,817 $2,809 $297 $289
1998* $3,849 $3,840 $1,469 $1,460
1999* $5,251 $5,238 $3,011 $2,998
2000* $8,572 $8,375 $6,472 $6,275
2001* $8,133 $7,815 $6,173 $5,855
- ----- ------ ------ ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the AIM V.I.
Growth Fund would have affected benefits for a Policy dated January 1, 1994.
This example assumes that the Net Premiums and related Policy Values were in the
Sub-account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
AIM V.I. GROWTH FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1995 $613 $611 $0 $0
1996* $1,717 $1,712 $0 $0
1997* $2,751 $2,743 $231 $223
1998* $4,245 $4,235 $1,865 $1,855
1999* $6,463 $6,447 $4,223 $4,207
2000* $9,634 $9,444 $7,534 $7,344
2001* $8,080 $7,795 $6,120 $5,835
- ----- ------ ------ ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
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The following example shows how the hypothetical net return of the AIM V.I.
International Equity Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
AIM V.I. INTERNATIONAL EQUITY FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1995 $620 $618 $0 $0
1996* $1,476 $1,471 $0 $0
1997* $2,511 $2,504 $0 $0
1998* $3,287 $3,279 $907 $899
1999* $4,430 $4,418 $2,190 $2,178
2000* $7,937 $7,733 $5,837 $5,633
2001* $6,223 $5,942 $4,263 $3,982
- ----- ------ ------ ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the AIM V.I.
Government Securities Fund would have affected benefits for a Policy dated
January 1, 1994. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
AIM V.I. GOVERNMENT SECURITIES FUND
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1995 $603 $601 $0 $0
1996* $1,432 $1,427 $0 $0
1997* $2,065 $2,058 $0 $0
1998* $2,846 $2,839 $466 $459
1999* $3,643 $3,633 $1,403 $1,393
2000* $4,212 $4,054 $2,112 $1,954
2001* $5,317 $4,977 $3,357 $3,017
- ----- ------ ------ ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
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52
The following example shows how the hypothetical net return of the Oppenheimer
Main Street Growth & Income Fund/VA would have affected benefits for a Policy
dated January 1, 1996. This example assumes that the Net Premiums and related
Policy Values were in the Sub-account for the entire period and that the values
were determined on the first Valuation Date following January 1st of each year.
OPPENHEIMER MAIN STREET GROWTH & INCOME FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1996 $899 $897 $0 $0
1998* $2,062 $2,057 $0 $0
1999* $2,776 $2,768 $256 $248
2000* $4,093 $4,083 $1,713 $1,703
2001* $4,183 $4,173 $1,943 $1,933
- ----- ------ ------ ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Oppenheimer
Multiple Strategies Fund/VA would have affected benefits for a Policy dated
January 1, 1990. This example assumes that the Net Premiums and related Policy
Values were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
OPPENHEIMER MULTIPLE STRATEGIES FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1991 $617 $615 $0 $0
1992* $1,476 $1,472 $0 $0
1993* $2,261 $2,254 $0 $0
1994* $3,294 $3,286 $914 $906
1995* $3,733 $3,723 $1,493 $1,483
1996* $5,329 $5,153 $3,229 $3,053
1997* $6,869 $6,497 $4,909 $4,537
1998* $8,739 $8,125 $6,919 $6,305
1999* $9,881 $9,053 $8,201 $7,373
2000* $11,605 $10,490 $10,065 $8,950
2001* $12,948 $11,446 $11,548 $10,046
- ----- ------- ------- ------- -------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
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53
The following example shows how the hypothetical net return of the Oppenheimer
Bond Fund/VA would have affected benefits for a Policy dated January 1, 1990.
This example assumes that the Net Premiums and related Policy Values were in the
Sub-account for the entire period and that the values were determined on the
first Valuation Date following January 1st of each year.
OPPENHEIMER BOND FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1991 $697 $695 $0 $0
1992* $1,572 $1,567 $0 $0
1993* $2,307 $2,300 $0 $0
1994* $3,257 $3,249 $877 $869
1995* $3,696 $3,687 $1,456 $1,447
1996* $5,089 $4,916 $2,989 $2,816
1997* $5,965 $5,623 $4,005 $3,663
1998* $7,147 $6,600 $5,327 $4,780
1999* $8,201 $7,441 $6,521 $5,761
2000* $8,545 $7,615 $7,005 $6,075
2001* $9,672 $8,361 $8,272 $6,961
- ----- ------ ------ ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The following example shows how the hypothetical net return of the Oppenheimer
Strategic Bond Fund/VA would have affected benefits for a Policy dated January
1, 1994. This example assumes that the Net Premiums and related Policy Values
were in the Sub-account for the entire period and that the values were
determined on the first Valuation Date following January 1st of each year.
OPPENHEIMER STRATEGIC BOND FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1995 $602 $600 $0 $0
1996* $1,428 $1,424 $0 $0
1997* $2,278 $2,271 $0 $0
1998* $3,092 $3,085 $712 $705
1999* $3,721 $3,712 $1,481 $1,472
2000* $4,476 $4,315 $2,376 $2,215
2001* $5,212 $4,887 $3,252 $2,927
- ----- ------ ------ ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
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54
The following example shows how the hypothetical net return of the Oppenheimer
High Income Fund/VA would have affected benefits for a Policy dated January 1,
1990. This example assumes that the Net Premiums and related Policy Values were
in the Sub-account for the entire period and that the values were determined on
the first Valuation Date following January 1st of each year.
OPPENHEIMER HIGH INCOME FUND/VA
Male, Issue Age 35, $1,080 Annual Premium
($100,000 Specified Amount, Tobacco Risk)
Level Death Benefit
Both Current and Guaranteed Costs and Expenses
Policy Value Cash Surrender Value
------------ --------------------
Policy Anniversary on January 1 of Current Guaranteed Current Guaranteed
- ---------------------------------- ------- ---------- ------- ----------
1991 $671 $669 $0 $0
1992* $1,782 $1,777 $0 $0
1993* $2,823 $2,815 $303 $295
1994* $4,316 $4,306 $1,936 $1,926
1995* $4,669 $4,657 $2,429 $2,417
1996* $6,405 $6,229 $4,305 $4,129
1997* $8,089 $7,719 $6,129 $5,759
1998* $9,720 $9,134 $7,900 $7,314
1999* $10,260 $9,506 $8,580 $7,826
2000* $11,203 $10,234 $9,663 $8,694
2001* $11,304 $10,071 $9,904 $8,671
- ----- ------- ------- ------ ------
*For each year shown, benefits and values reflect only premiums paid during
Previous Policy years.
The inception date of the underlying Fidelity Portfolios (VIP II Index 500, VIP
Money Market, VIP Growth, VIP II Contrafund and VIP III Growth & Income) was
January 12, 2000. Therefore it is not possible to illustrate examples of the
Subaccount since no performance data exists for these portfolios.
49
55
ADDITIONAL INFORMATION
SALE OF THE POLICIES
The Policy will be sold by individuals who are licensed as our life insurance
agents and who are also registered representatives of broker-dealers having
written sales agreements for the Policy with AFSG Securities Corporation
("AFSG"), the principal underwriter of the Policy. AFSG was incorporated under
Pennsylvania law March 12, 1986 and entered into an underwriting agreement with
Peoples Benefit on February 5, 2001. AFSG is located at 4425 North River Blvd.,
NE, Cedar Rapids, IA 52402, is registered with the SEC under the Securities
Exchange Act of 1934 as a broker-dealer, and is a member of the National
Association of Securities Dealers, Inc. The maximum sales commission payable to
our agents or other registered representatives may vary with the sales
agreement, but it is not expected to be greater than: 90% of all premiums paid
during the first Policy Year, and 2.50% of all premiums paid during Policy Years
2 through 10. We will pay an additional sales commission of up to 0.25% of the
unloaned Policy Value on the sixth Policy anniversary and each anniversary
thereafter where the Policy Value (minus amounts attributable to loans) equals
at least $5,000. In addition, certain production, persistency and managerial
bonuses, trips, prizes, and awards may be paid. To the extent permitted by NASD
rules, promotional incentives or payments may also be provided to broker-dealers
based on sales volumes, the assumption of wholesaling functions or other
sales-related criteria. Other payments may be made for other services that do
not directly involve the sale of the Policies. These services may include
recruitment and training of personnel, production of promotional literatures,
and similar services.
We intend to recoup commissions and other sales expenses through the expense
charge, the surrender charge, the cost of insurance charge, the mortality and
expense risk charge, and earnings on amounts allocated under the Policies to the
Fixed Account and the loan reserve. Commissions paid on sales of the Policies,
including other sales incentives, are not directly charged to owners.
LEGAL MATTERS
Sutherland Asbill & Brennan LLP of Washington, D.C. has provided advice on
certain legal matters relating to the Policy under the Federal securities laws.
John D. Cleavenger, Esq., Vice President and General Counsel (Individual
Division) of the Company, has passed upon all matters of Iowa law pertaining to
the Policy.
LEGAL PROCEEDINGS
Like other life insurance companies, we are involved in lawsuits. In some class
action and other lawsuits involving other insurers, substantial damages have
been sought and/or material settlement payments have been made. We believe that
there are no pending or threatened lawsuits that will adversely impact us or the
Separate Account.
FINANCIAL STATEMENTS
The Company's financial statements and schedules appear at the end of this
prospectus. The statutory-basis balance sheets of Peoples Benefit Life
Insurance Company as of December 31, 2000 and 1999 , and the related
statutory-basis statements of operations, changes in capital and surplus, and
cash flows for each of the three years in the period ended December 31, 2000,
and the financial statement schedules as of December 31, 2000 and for
50
56
each of the three years in the period then ended, have been audited by Ernst &
Young LLP, independent auditors, whose reports thereon are set forth elsewhere
herein. Such financial statements and schedules are included in this prospectus
in reliance upon such reports given upon the authority of Ernst & Young LLP as
experts in accounting and auditing. No Financial Statements are present for the
Separate Account since the Separate Account did not begin operating prior to the
date of this prospectus. You should distinguish the Company's financial
statements from the Separate Account's financial statements and you should
consider our financial statements only as bearing upon our ability to meet our
obligations under the Policies.
ADDITIONAL INFORMATION ABOUT THE COMPANY
Peoples Benefit is a stock life insurance Company that is a wholly owned
indirect subsidiary of AEGON USA, Inc. AEGON USA, Inc. is a wholly owned
indirect subsidiary of AEGON NV, a Netherlands corporation that is a publicly
traded international insurance group. Peoples Benefit's Home Office or such
other office as we may designate from time to time, is located at 4333 Edgewood
Road NE, Cedar Rapids, Iowa 52499.
Peoples Benefit was redomiciled under Iowa law on December 31, 1999 and is
subject to regulation by the Iowa Commissioner of Insurance. Peoples Benefit is
engaged in the business of issuing life insurance policies and annuity
contracts, and is licensed to do business in the District of Columbia and all
states except New York. Peoples Benefit submits annual statements on its
operations and finances to insurance officials in all states and jurisdictions
in which it does business. Peoples Benefit has filed the Policy described in
this prospectus with insurance officials in those jurisdictions in which the
Policy is sold.
Peoples Benefit intends to reinsure a portion of the risks assumed under the
Policies.
PEOPLES BENEFIT EXECUTIVE OFFICERS AND DIRECTORS
Peoples Benefit is governed by a board of directors. The following tables set
forth the name, address and principal occupation during the past five years of
each of Peoples Benefit's executive officers and directors.
BOARD OF DIRECTORS AND SENIOR OFFICERS
- -------------------------------------------------------------------------------------------------
POSITION WITH PEOPLES
NAME BENEFIT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------
**Bart Herbert, Jr. Director, Chairman of Director, Chairman of the Board, and President
the Board, and (1997- present)
President
- -------------------------------------------------------------------------------------------------
**Martha A Treasurer Treasurer (1997-present) of Peoples Benefit
McConnell Life Co; Senior Vice President of Finance,
AEGON Special Markets Group (1997-present);
Vice President and Controller (1993-1997)
Monument General Insurance Group
- -------------------------------------------------------------------------------------------------
*Steven C. Vice President and Vice President and Corporate Actuary
Chamberlin Corporate Actuary (1999-present)
- -------------------------------------------------------------------------------------------------
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57
- -------------------------------------------------------------------------------------------------
POSITION WITH PEOPLES
NAME BENEFIT PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- -------------------------------------------------------------------------------------------------
*Craig D. Vermie Director, Vice Secretary (1997-present), General Counsel
President, Secretary (1996-present), Vice President (1995-present),
and General Counsel Assistant General Counsel, Associate General
Counsel, Corporate Counsel (respectively)
(1986-1995) - AEGON USA, Inc.
- -------------------------------------------------------------------------------------------------
*Kathleen M. Vice President and Director (2000-present) and Vice President of
Modzelewski Director Peoples Benefit Life Insurance Company; Vice
President and Director of Corporate Taxes
(1999-present) AEGON USA, Inc.
- -------------------------------------------------------------------------------------------------
*Brenda K. Clancy Director, Vice Vice President and Controller (1992-1997);
President, Treasurer Treasurer and Senior Vice President
and Chief Financial (1997-present) of AEGON USA, Inc.
Officer
- -------------------------------------------------------------------------------------------------
*Larry N. Norman Director, Executive Executive Vice President and Director
Vice President (1998-present)
- -------------------------------------------------------------------------------------------------
**David G. Rekoski Director, Senior Vice Director (1999-present) and Senior Vice
President President
- -------------------------------------------------------------------------------------------------
***G. Douglas Director and Senior Director (1998-present) and Senior Vice
Mangum, Jr. Vice President President
- -------------------------------------------------------------------------------------------------
**Brian A. Smith Director and Vice Director (1998-present) and Vice President
President
- -------------------------------------------------------------------------------------------------
***Douglas A.Sarcia Director and Vice Director (1997-present) and Vice President
President
- -------------------------------------------------------------------------------------------------
Individuals designated with "*" are located at Peoples Benefit Insurance
Company, 4333 Edgewood Road, NE, Cedar Rapids, IA 52499.
Individuals designated with "**" are located at Peoples Benefit Life Insurance
Company, 1111 North Charles, Baltimore, Maryland 21201
Individuals designated with "***" are located at Peoples Benefit Life Insurance
Company, 20 Moores Road, Frazer, PA 19355
Peoples Benefit holds the Separate Account's assets physically segregated and
apart from the general account. Peoples Benefit maintains records of all
purchases and sale of portfolio shares by each of the Subaccounts. A blanket
bond in the amount of $10 million (subject to a $1 million deductible), covering
directors, officers and all employees of AEGON USA, Inc. and its affiliates has
been issued to Peoples Benefit and its affiliates.
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58
ILLUSTRATIONS
The following illustrations show how certain values under a sample Policy would
change with different rates of fictional investment performance over an extended
period of time. In particular, the illustrations show how the death benefit,
Policy Value, and Cash Surrender Value under a Policy covering a male or female
Insured of age 35 on the Policy Date in a tobacco or non-tobacco class, would
change over time if the planned premiums were paid and the return on the assets
in the Subaccounts were a uniform gross annual rate (before any expenses) of 0%,
6% or 12%. The tables also show how the Policy would operate if premiums
accumulated at 5% interest. The tables illustrate Policy values that would
result based on assumptions that you pay the premiums indicated, you do not
increase your Specified Amount, and you do not make any withdrawals or Policy
loans. The values under the Policy will be different from those shown even if
the returns averaged 0%, 6% or 12%, but fluctuated over and under those averages
throughout the years shown.
THE HYPOTHETICAL INVESTMENT RETURNS ARE PROVIDED ONLY TO ILLUSTRATE THE
MECHANICS OF A HYPOTHETICAL POLICY AND DO NOT REPRESENT PAST OR FUTURE
INVESTMENT RATES OF RETURN. Actual rates of return for a particular Policy may
be more or less than the hypothetical investment rates of return. The actual
return on your Policy Value will depend on factors such as the amounts you
allocate to particular portfolios, the amounts deducted for the Policy's monthly
charges, the portfolios' expense ratios, and your Policy loan and withdrawal
history.
The illustrations assume that the assets in the portfolios are subject to an
annual expense ratio of 0.87% of the average daily net assets. This annual
expense ratio is based on the average of the expense ratios of each of the
portfolios for the last fiscal year and, for the new class of shares, the
expense ratio is based on the estimated expenses for their initial fiscal years.
This annual expense ratio does not take into account current expense
reimbursement arrangements. For information on the portfolios' management fees
see the Annual Portfolio Operating Expenses table in the "Policy Summary --
Charges and Deductions" section of this prospectus, and see the portfolios'
prospectuses.
Separate illustrations on each of the following pages reflect our current
expense charge and cost of insurance charge and the higher guaranteed maximum
expense charge and cost of insurance charge that we have the contractual right
to charge. The illustrations assume no charges for Federal or state taxes or
charges for supplemental benefits.
After deducting portfolio expenses and mortality and expense risk charges, the
illustrated gross annual investment rates of return of 0%, 6% and 12% would
correspond to approximate net annual rates for the Separate Account of -1.61%,
4.35% and 10.30%, respectively.
The illustrations are based on our sex distinct rates for tobacco and
non-tobacco users. Upon request, we will furnish a comparable illustration based
upon the proposed Insured's individual circumstances. Such illustrations may
assume different hypothetical rates of return than those shown in the following
illustrations
53
59
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $100,000 Non-tobacco Class
Annual Premium $1,000 Level Death Benefit
Using Current Cost Assumptions
DEATH BENEFIT*
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $1,050 $100,000 $100,000 $100,000
2 $2,153 $100,000 $100,000 $100,000
3 $3,310 $100,000 $100,000 $100,000
4 $4,526 $100,000 $100,000 $100,000
5 $5,802 $100,000 $100,000 $100,000
6 $7,142 $100,000 $100,000 $100,000
7 $8,549 $100,000 $100,000 $100,000
8 $10,027 $100,000 $100,000 $100,000
9 $11,578 $100,000 $100,000 $100,000
10 $13,207 $100,000 $100,000 $100,000
15 $22,657 $100,000 $100,000 $100,000
20 $34,719 $100,000 $100,000 $100,000
30 (AGE 65) $69,761 $100,000 $100,000 $157,931
40 (AGE 75) $126,840 $100,000 $100,000 $377,966
50 (AGE 85) $219,815 $0 $100,000 $987,678
60 (AGE 95) $371,263 $0 $145,469 $2,483,112
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net) -1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $646 $693 $741 $0 $0 $0
2 $1,274 $1,409 $1,550 $0 $0 $0
3 $1,882 $2,146 $2,432 $0 $0 $272
4 $2,468 $2,903 $3,393 $428 $863 $1,353
5 $3,033 $3,680 $4,442 $1,113 $1,760 $2,522
6 $3,693 $4,600 $5,709 $1,893 $2,800 $3,909
7 $4,332 $5,549 $7,097 $2,652 $3,869 $5,417
8 $4,948 $6,526 $8,615 $3,388 $4,966 $7,055
9 $5,538 $7,531 $10,275 $4,098 $6,091 $8,835
10 $6,104 $8,565 $12,094 $4,784 $7,245 $10,774
15 $8,679 $14,359 $24,381 $7,959 $13,639 $23,661
20 $10,584 $21,084 $44,178 $10,584 $21,084 $44,178
30 (AGE 65) $11,386 $37,511 $129,452 $11,386 $37,511 $129,452
40 (AGE 75) $4,193 $58,839 $353,240 $4,193 $58,839 $353,240
50 (AGE 85) $0 $89,506 $940,646 $0 $89,506 $940,646
60 (AGE 95) $0 $144,029 $2,458,527 $0 $144,029 $2,458,527
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less, withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums. These
hypothetical illustrations assume the Insured has elected a 20 year No Lapse
Period.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
numbers of factors, including investment allocations made by an Owner and the
actual investment experience of the Portoflios. The Policy Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averages 0.00%, 6.00% and 12.00% over a period of years,
but also fluctuated above or below those averages for Individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
54
60
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $100,000 Non-tobacco Class
Annual Premium $1,000 Level Death Benefit
Using Guaranteed Cost Assumptions
DEATH BENEFIT*
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $1,050 $100,000 $100,000 $100,000
2 $2,153 $100,000 $100,000 $100,000
3 $3,310 $100,000 $100,000 $100,000
4 $4,526 $100,000 $100,000 $100,000
5 $5,802 $100,000 $100,000 $100,000
6 $7,142 $100,000 $100,000 $100,000
7 $8,549 $100,000 $100,000 $100,000
8 $10,027 $100,000 $100,000 $100,000
9 $11,578 $100,000 $100,000 $100,000
10 $13,207 $100,000 $100,000 $100,000
15 $22,657 $100,000 $100,000 $100,000
20 $34,719 $100,000 $100,000 $100,000
30 (AGE 65) $69,761 $100,000 $100,000 $134,787
40 (AGE 75) $126,840 $0 $100,000 $315,952
50 (AGE 85) $219,815 $0 $0 $804,326
60 (AGE 95) $371,263 $0 $0 $1,922,157
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net) -1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $646 $693 $741 $0 $0 $0
2 $1,274 $1,409 $1,550 $0 $0 $0
3 $1,881 $2,145 $2,432 $0 $0 $272
4 $2,468 $2,902 $3,393 $428 $862 $1,353
5 $3,032 $3,680 $4,441 $1,112 $1,760 $2,521
6 $3,573 $4,477 $5,583 $1,773 $2,677 $3,783
7 $4,089 $5,293 $6,828 $2,409 $3,613 $5,148
8 $4,580 $6,128 $8,186 $3,020 $4,568 $6,626
9 $5,045 $6,982 $9,669 $3,605 $5,542 $8,229
10 $5,482 $7,854 $11,287 $4,162 $6,534 $9,967
15 $7,193 $12,451 $21,931 $6,473 $11,731 $21,211
20 $7,841 $17,239 $38,704 $7,841 $17,239 $38,704
30 (AGE 65) $2,681 $24,590 $110,482 $2,681 $24,590 $110,482
40 (AGE 75) $0 $14,303 $295,282 $0 $14,303 $295,282
50 (AGE 85) $0 $0 $766,025 $0 $0 $766,025
60 (AGE 95) $0 $0 $1,903,126 $0 $0 $1,903,126
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less, withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums. These
hypothetical illustrations assume the Insured has elected a 20 year No Lapse
Period.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
numbers of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averages 0.00%, 6.00% and 12.00% over a period of years,
but also fluctuated above or below those averages for Individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
55
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FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $100,000 Tobacco Class
Annual Premium $1,000 Level Death Benefit
Using Current Cost Assumptions
DEATH BENEFIT*
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $1,050 $100,000 $100,000 $100,000
2 $2,153 $100,000 $100,000 $100,000
3 $3,310 $100,000 $100,000 $100,000
4 $4,526 $100,000 $100,000 $100,000
5 $5,802 $100,000 $100,000 $100,000
6 $7,142 $100,000 $100,000 $100,000
7 $8,549 $100,000 $100,000 $100,000
8 $10,027 $100,000 $100,000 $100,000
9 $11,578 $100,000 $100,000 $100,000
10 $13,207 $100,000 $100,000 $100,000
15 $22,657 $100,000 $100,000 $100,000
20 $34,719 $100,000 $100,000 $100,000
30 (AGE 65) $69,761 $100,000 $100,000 $122,023
40 (AGE 75) $126,840 $0 $100,000 $291,037
50 (AGE 85) $219,815 $0 $0 $754,788
60 (AGE 95) $371,263 $0 $0 $1,856,737
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net) -1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $551 $595 $639 $0 $0 $0
2 $1,075 $1,198 $1,326 $0 $0 $0
3 $1,567 $1,803 $2,060 $0 $0 $0
4 $2,025 $2,407 $2,841 $0 $27 $461
5 $2,447 $3,010 $3,675 $207 $770 $1,435
6 $2,977 $3,756 $4,716 $877 $1,656 $2,616
7 $3,473 $4,510 $5,840 $1,513 $2,550 $3,880
8 $3,931 $5,267 $7,050 $2,111 $3,447 $5,230
9 $4,345 $6,021 $8,351 $2,665 $4,341 $6,671
10 $4,719 $6,775 $9,755 $3,179 $5,235 $8,215
15 $6,480 $11,114 $19,436 $5,640 $10,274 $18,596
20 $7,171 $15,551 $34,542 $7,171 $15,551 $34,542
30 (AGE 65) $3,968 $23,754 $100,019 $3,968 $23,754 $100,019
40 (AGE 75) $0 $22,239 $271,997 $0 $22,239 $271,997
50 (AGE 85) $0 $0 $718,846 $0 $0 $718,846
60 (AGE 95) $0 $0 $1,838,353 $0 $0 $1,838,353
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less, withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums. These
hypothetical illustrations assume the Insured has elected a 20 year No Lapse
Period.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
numbers of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averages 0.00%, 6.00% and 12.00% over a period of years,
but also fluctuated above or below those averages for Individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
56
62
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
MALE ISSUE AGE 35
Specified Amount $100,000 Tobacco Class
Annual Premium $1,000 Level Death Benefit
Using Guaranteed Cost Assumptions
DEATH BENEFIT*
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $1,050 $100,000 $100,000 $100,000
2 $2,153 $100,000 $100,000 $100,000
3 $3,310 $100,000 $100,000 $100,000
4 $4,526 $100,000 $100,000 $100,000
5 $5,802 $100,000 $100,000 $100,000
6 $7,142 $100,000 $100,000 $100,000
7 $8,549 $100,000 $100,000 $100,000
8 $10,027 $100,000 $100,000 $100,000
9 $11,578 $100,000 $100,000 $100,000
10 $13,207 $100,000 $100,000 $100,000
15 $22,657 $100,000 $100,000 $100,000
20 $34,719 $100,000 $100,000 $100,000
30 (AGE 65) $69,761 $0 $0 $100,000
40 (AGE 75) $126,840 $0 $0 $160,701
50 (AGE 85) $219,815 $0 $0 $411,317
60 (AGE 95) $371,263 $0 $0 $984,340
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net) -1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $549 $593 $637 $0 $0 $0
2 $1,071 $1,193 $1,321 $0 $0 $0
3 $1,562 $1,797 $2,052 $0 $0 $0
4 $2,019 $2,400 $2,833 $0 $20 $453
5 $2,439 $3,001 $3,664 $199 $761 $1,424
6 $2,819 $3,593 $4,547 $719 $1,493 $2,447
7 $3,157 $4,175 $5,485 $1,197 $2,215 $3,525
8 $3,448 $4,742 $6,481 $1,628 $2,922 $4,661
9 $3,690 $5,290 $7,538 $2,010 $3,610 $5,858
10 $3,880 $5,814 $8,660 $2,340 $4,274 $7,120
15 $3,948 $7,936 $15,441 $3,108 $7,096 $14,601
20 $1,986 $8,464 $24,743 $1,986 $8,464 $24,743
30 (AGE 65) $0 $0 $57,541 $0 $0 $57,541
40 (AGE 75) $0 $0 $150,187 $0 $0 $150,187
50 (AGE 85) $0 $0 $391,730 $0 $0 $391,730
60 (AGE 95) $0 $0 $974,594 $0 $0 $974,594
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums. These
hypothetical illustrations assume the Insured has elected a 20 year No Lapse
Period.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on a
numbers of factors, including investment allocations made by an Owner and the
actual investment experience of the Portfolios. The Policy Value, Cash Surrender
Value and Death Benefit for a Policy would be different from those shown if the
actual rates of return averages 0.00%, 6.00% and 12.00% over a period of years,
but also fluctuated above or below those averages for Individual Policy Years.
No representations can be made that these hypothetical rates of return can be
achieved for any one year or sustained over any period of time.
57
63
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
Specified Amount $100,000 Non-tobacco Class
Annual Premium $1,000 Level Death Benefit
Using Current Cost Assumptions
DEATH BENEFIT*
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $1,050 $100,000 $100,000 $100,000
2 $2,153 $100,000 $100,000 $100,000
3 $3,310 $100,000 $100,000 $100,000
4 $4,526 $100,000 $100,000 $100,000
5 $5,802 $100,000 $100,000 $100,000
6 $7,142 $100,000 $100,000 $100,000
7 $8,549 $100,000 $100,000 $100,000
8 $10,027 $100,000 $100,000 $100,000
9 $11,578 $100,000 $100,000 $100,000
10 $13,207 $100,000 $100,000 $100,000
15 $22,657 $100,000 $100,000 $100,000
20 $34,719 $100,000 $100,000 $100,000
30 (AGE 65) $69,761 $100,000 $100,000 $167,047
40 (AGE 75) $126,840 $100,000 $100,000 $401,936
50 (AGE 85) $219,815 $0 $119,189 $1,055,615
60 (AGE 95) $371,263 $0 $182,887 $2,667,409
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net) -1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $680 $729 $777 $0 $0 $0
2 $1,341 $1,480 $1,626 $0 $0 $0
3 $1,982 $2,256 $2,552 $2 $276 $572
4 $2,605 $3,056 $3,566 $735 $1,186 $1,696
5 $3,209 $3,883 $4,676 $1,449 $2,123 $2,916
6 $3,892 $4,838 $5,994 $2,242 $3,188 $4,344
7 $4,553 $5,823 $7,437 $3,013 $4,283 $5,897
8 $5,192 $6,840 $9,019 $3,762 $5,410 $7,589
9 $5,812 $7,892 $10,755 $4,492 $6,572 $9,435
10 $6,412 $8,981 $12,661 $5,202 $7,771 $11,451
15 $9,223 $15,158 $25,611 $8,563 $14,498 $24,951
20 $11,490 $22,502 $46,596 $11,490 $22,502 $46,596
30 (AGE 65) $13,702 $41,354 $136,924 $13,702 $41,354 $136,924
40 (AGE 75) $12,028 $69,170 $375,642 $12,028 $69,170 $375,642
50 (AGE 85) $0 $113,513 $1,005,348 $0 $113,513 $1,005,348
60 (AGE 95) $0 $181,076 $2,640,999 $0 $181,076 $2,640,999
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
These hypothetical illustrations assume the Insured has elected a 20 year No
Lapse Period.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a numbers of factors, including investment allocations made by an Owner and
the actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value and Death Benefit for a Policy would be different from those
shown if the actual rates of return averages 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
Individual Policy Years. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained
over any period of time.
58
64
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
Specified Amount $100,000 Non-tobacco Class
Annual Premium $1,000 Level Death Benefit
Using Guaranteed Cost Assumptions
DEATH BENEFIT*
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $1,050 $100,000 $100,000 $100,000
2 $2,153 $100,000 $100,000 $100,000
3 $3,310 $100,000 $100,000 $100,000
4 $4,526 $100,000 $100,000 $100,000
5 $5,802 $100,000 $100,000 $100,000
6 $7,142 $100,000 $100,000 $100,000
7 $8,549 $100,000 $100,000 $100,000
8 $10,027 $100,000 $100,000 $100,000
9 $11,578 $100,000 $100,000 $100,000
10 $13,207 $100,000 $100,000 $100,000
15 $22,657 $100,000 $100,000 $100,000
20 $34,719 $100,000 $100,000 $100,000
30 (AGE 65) $69,761 $100,000 $100,000 $144,139
40 (AGE 75) $126,840 $0 $100,000 $342,784
50 (AGE 85) $219,815 $0 $100,000 $883,008
60 (AGE 95) $371,263 $0 $0 $2,132,402
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net) -1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $668 $716 $764 $0 $0 $0
2 $1,316 $1,454 $1,597 $0 $0 $0
3 $1,943 $2,213 $2,505 $0 $233 $525
4 $2,549 $2,994 $3,496 $679 $1,124 $1,626
5 $3,132 $3,796 $4,576 $1,372 $2,036 $2,816
6 $3,691 $4,619 $5,753 $2,041 $2,969 $4,103
7 $4,226 $5,461 $7,037 $2,686 $3,921 $5,497
8 $4,736 $6,326 $8,438 $3,306 $4,896 $7,008
9 $5,222 $7,213 $9,971 $3,902 $5,893 $8,651
10 $5,685 $8,124 $11,650 $4,475 $6,914 $10,440
15 $7,614 $13,043 $22,802 $6,954 $12,383 $22,142
20 $8,744 $18,521 $40,661 $8,744 $18,521 $40,661
30 (AGE 65) $7,431 $30,835 $118,147 $7,431 $30,835 $118,147
40 (AGE 75) $0 $40,729 $320,359 $0 $40,729 $320,359
50 (AGE 85) $0 $19,875 $840,960 $0 $19,875 $840,960
60 (AGE 95) $0 $0 $2,111,289 $0 $0 $2,111,289
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
These hypothetical illustrations assume the Insured has elected a 20 year No
Lapse Period.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a numbers of factors, including investment allocations made by an Owner and
the actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value and Death Benefit for a Policy would be different from those
shown if the actual rates of return averages 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
Individual Policy Years. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained
over any period of time.
59
65
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
Specified Amount $100,000 Tobacco Class
Annual Premium $1,000 Level Death Benefit
Using Current Cost Assumptions
DEATH BENEFIT*
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $1,050 $100,000 $100,000 $100,000
2 $2,153 $100,000 $100,000 $100,000
3 $3,310 $100,000 $100,000 $100,000
4 $4,526 $100,000 $100,000 $100,000
5 $5,802 $100,000 $100,000 $100,000
6 $7,142 $100,000 $100,000 $100,000
7 $8,549 $100,000 $100,000 $100,000
8 $10,027 $100,000 $100,000 $100,000
9 $11,578 $100,000 $100,000 $100,000
10 $13,207 $100,000 $100,000 $100,000
15 $22,657 $100,000 $100,000 $100,000
20 $34,719 $100,000 $100,000 $100,000
30 (AGE 65) $69,761 $100,000 $100,000 $145,857
40 (AGE 75) $126,840 $100,000 $100,000 $349,731
50 (AGE 85) $219,815 $0 $100,000 $913,303
60 (AGE 95) $371,263 $0 $100,000 $2,275,580
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net) -1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $620 $666 $713 $0 $0 $0
2 $1,213 $1,344 $1,482 $0 $0 $0
3 $1,779 $2,034 $2,311 $0 $0 $151
4 $2,315 $2,733 $3,206 $275 $693 $1,166
5 $2,820 $3,439 $4,169 $900 $1,519 $2,249
6 $3,432 $4,295 $5,354 $1,632 $2,495 $3,554
7 $4,012 $5,166 $6,639 $2,332 $3,486 $4,959
8 $4,561 $6,054 $8,036 $3,001 $4,494 $6,476
9 $5,083 $6,962 $9,560 $3,643 $5,522 $8,120
10 $5,576 $7,890 $11,223 $4,256 $6,570 $9,903
15 $7,857 $13,146 $22,544 $7,137 $12,426 $21,824
20 $9,605 $19,334 $40,910 $9,605 $19,334 $40,910
30 (AGE 65) $8,876 $32,944 $119,555 $8,876 $32,944 $119,555
40 (AGE 75) $970 $49,743 $326,852 $970 $49,743 $326,852
50 (AGE 85) $0 $67,911 $869,812 $0 $67,911 $869,812
60 (AGE 95) $0 $87,926 $2,253,049 $0 $87,926 $2,253,049
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
These hypothetical illustrataions assume the Insured has elected a 20 year No
Lapse Period.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a numbers of factors, including investment allocations made by an Owner and
the actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value and Death Benefit for a Policy would be different from those
shown if the actual rates of return averages 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
Individual Policy Years. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained
over any period of time.
60
66
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE
HYPOTHETICAL ILLUSTRATIONS
FEMALE ISSUE AGE 35
Specified Amount $100,000 Tobacco Class
Annual Premium $1,000 Level Death Benefit
Using Guaranteed Cost Assumptions
DEATH BENEFIT*
END OF PREMIUMS ASSUMING HYPOTHETICAL GROSS AND
POLICY ACCUMULATED NET ANNUAL INVESTMENT RETURN OF
YEAR AT 5% 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $1,050 $100,000 $100,000 $100,000
2 $2,153 $100,000 $100,000 $100,000
3 $3,310 $100,000 $100,000 $100,000
4 $4,526 $100,000 $100,000 $100,000
5 $5,802 $100,000 $100,000 $100,000
6 $7,142 $100,000 $100,000 $100,000
7 $8,549 $100,000 $100,000 $100,000
8 $10,027 $100,000 $100,000 $100,000
9 $11,578 $100,000 $100,000 $100,000
10 $13,207 $100,000 $100,000 $100,000
15 $22,657 $100,000 $100,000 $100,000
20 $34,719 $100,000 $100,000 $100,000
30 (AGE 65) $69,761 $100,000 $100,000 $116,143
40 (AGE 75) $126,840 $0 $100,000 $276,636
50 (AGE 85) $219,815 $0 $0 $711,923
60 (AGE 95) $371,263 $0 $0 $1,717,233
END OF POLICY VALUE CASH SURRENDER VALUE
POLICY ASSUMING HYPOTHETICAL GROSS AND ASSUMING HYPOTHETICAL GROSS AND
YEAR NET ANNUAL INVESTMENT RETURN OF NET ANNUAL INVESTMENT RETURN OF
0.00% (Gross) 6.00% (Gross) 12.00% (Gross) 0.00% (Gross) 6.00% (Gross) 12.00% (Gross)
-1.61% (Net) 4.35% (Net) 10.30% (Net) -1.61% (Net) 4.35% (Net) 10.30% (Net)
1 $619 $665 $712 $0 $0 $0
2 $1,212 $1,343 $1,480 $0 $0 $0
3 $1,777 $2,032 $2,310 $0 $0 $150
4 $2,313 $2,731 $3,203 $273 $691 $1,163
5 $2,817 $3,436 $4,166 $897 $1,516 $2,246
6 $3,287 $4,146 $5,201 $1,487 $2,346 $3,401
7 $3,719 $4,857 $6,314 $2,039 $3,177 $4,634
8 $4,116 $5,571 $7,515 $2,556 $4,011 $5,955
9 $4,478 $6,288 $8,815 $3,038 $4,848 $7,375
10 $4,805 $7,010 $10,223 $3,485 $5,690 $8,903
15 $5,891 $10,642 $19,352 $5,171 $9,922 $18,632
20 $5,849 $14,113 $33,552 $5,849 $14,113 $33,552
30 (AGE 65) $883 $19,032 $95,199 $883 $19,032 $95,199
40 (AGE 75) $0 $9,939 $258,538 $0 $9,939 $258,538
50 (AGE 85) $0 $0 $678,022 $0 $0 $678,022
60 (AGE 95) $0 $0 $1,700,231 $0 $0 $1,700,231
* Even though the Cash Surrender Value is 0, the Policy would not Lapse if it
was in a No Lapse Period and the premiums paid, less withdrawals and
indebtedness, equaled or exceeded the cumulative minimum monthly premiums.
These hypothetical illustration assume the Insured has elected a 20 year No
Lapse Period.
The hypothetical rates of return shown above are illustrative only and should
not be deemed a representation of past or future investment rates of return.
Actual rates of return may be more or less than those shown and will depend on
a numbers of factors, including investment allocations made by an Owner and
the actual investment experience of the Portfolios. The Policy Value, Cash
Surrender Value and Death Benefit for a Policy would be different from those
shown if the actual rates of return averages 0.00%, 6.00% and 12.00% over a
period of years, but also fluctuated above or below those averages for
Individual Policy Years. No representations can be made that these
hypothetical rates of return can be achieved for any one year or sustained
over any period of time.
61
67
FINANCIAL STATEMENTS - STATUTORY BASIS
PEOPLES BENEFIT LIFE INSURANCE COMPANY
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
WITH REPORT OF INDEPENDENT AUDITORS
68
Peoples Benefit Life Insurance Company
Financial Statements - Statutory Basis
Years ended December 31, 2000, 1999 and 1998
CONTENTS
Report of Independent Auditors........................................1
Audited Financial Statements
Balance Sheets - Statutory Basis......................................3
Statements of Operations - Statutory Basis............................5
Statements of Changes in Capital and Surplus - Statutory Basis........6
Statements of Cash Flow - Statutory Basis.............................7
Notes to Financial Statements - Statutory Basis.......................8
Statutory-Basis Financial Statement Schedules
Summary of Investments - Other Than Investments in
Related Parties....................................................31
Supplementary Insurance Information..................................32
Reinsurance..........................................................34
69
Report of Independent Auditors
The Board of Directors
Peoples Benefit Life Insurance Company
We have audited the accompanying statutory-basis balance sheets of Peoples
Benefit Life Insurance Company, an indirect wholly-owned subsidiary of AEGON
N.V., as of December 31, 2000 and 1999, and the related statutory-basis
statements of operations, changes in capital and surplus, and cash flow for each
of the three years in the period ended December 31, 2000. Our audits also
included the statutory-basis financial statement schedules required by
Regulation S-X, Article 7. These financial statements and schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As described in Note 1 to the financial statements, the Company presents its
financial statements in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa, which practices differ from accounting principles generally accepted in
the United States. The variances between such practices and accounting
principles generally accepted in the United States also are described in Note 1.
The effects on the financial statements of these variances are not reasonably
determinable but are presumed to be material.
In our opinion, because of the effects of the matter described in the preceding
paragraph, the financial statements referred to above do not present fairly, in
conformity with accounting principles generally accepted in the United States,
the financial position of Peoples Benefit Life Insurance Company at December 31,
2000 and 1999, or the results of its operations or its cash flow for each of the
three years in the period ended December 31, 2000.
1
70
However, in our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Peoples Benefit Life
Insurance Company at December 31, 2000 and 1999, and the results of its
operations and its cash flow for each of the three years in the period ended
December 31, 2000, in conformity with accounting practices prescribed or
permitted by the Insurance Division, Department of Commerce, of the State of
Iowa. Also, in our opinion, the related financial statement schedules, when
considered in relation to the basic statutory-basis financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
Des Moines, Iowa
February 15, 2001
2
71
Peoples Benefit Life Insurance Company
Balance Sheets - Statutory Basis
(Dollars in thousands, except per share amounts)
DECEMBER 31
2000 1999
------------------------
ADMITTED ASSETS
Cash and invested assets:
Cash and short-term investments $ 151,922 $ 174,117
Bonds 3,353,083 3,219,493
Stocks:
Preferred 99,754 160,990
Common (cost: 2000 - $206,802; 1999 - $180,645) 208,711 201,185
Common stocks sold, but not yet purchased
[cost: 2000 - $(169,780); 1999 - $(137,497)] (116,725) (147,374)
Affiliated entity (cost: 2000 - $202,706;
1999 - $202,606) 564,103 515,075
Mortgage loans on real estate 1,696,380 1,933,540
Real estate 7,029 7,605
Policy loans 165,450 159,161
Other invested assets 258,898 316,696
------------------------
Total cash and invested assets 6,388,605 6,540,488
Premiums deferred and uncollected 40,631 45,553
Accrued investment income 62,042 64,418
Receivable from affiliates 73,368 42,290
Federal income taxes recoverable - 2,709
Transfers to separate accounts due or accrued 7,167 3,781
Other assets 36,627 20,577
Separate account assets 6,875,688 6,505,330
------------------------
Total admitted assets $13,484,128 $13,225,146
========================
3
72
DECEMBER 31
2000 1999
------------------------
LIABILITIES AND CAPITAL AND SURPLUS
Liabilities:
Aggregate reserves for policies and contracts:
Life $ 1,138,729 $ 1,099,807
Annuity 2,491,651 2,840,176
Accident and health 79,926 79,058
Policy and contract claim reserves:
Life 25,210 27,588
Accident and health 29,271 33,522
Policyholder contract deposits 1,455,290 1,224,174
Other policyholders' funds 568,954 514,060
Remittances and items not allocated 4,192 6,814
Asset valuation reserve 198,086 163,728
Interest maintenance reserve 1,808 10,502
Net short-term notes payable to affiliates 19,700 104,500
Payable for securities 1,755 -
Federal income taxes payable 6,808 -
Other liabilities 72,837 84,459
Separate account liabilities 6,875,688 6,505,330
------------------------
Total liabilities 12,969,905 12,693,718
Commitments and contingencies (Note 9)
Capital and surplus:
Common stock, $11 par value, 1,145,000 shares
authorized, issued and outstanding 12,595 12,595
Preferred stock, $11 par value, $240
liquidation value, 2,290,000 shares
authorized, issued and outstanding 25,190 25,190
Paid-in surplus 2,583 2,583
Unassigned surplus 473,855 491,060
------------------------
Total capital and surplus 514,223 531,428
------------------------
Total liabilities and capital and surplus $13,484,128 $13,225,146
========================
See accompanying notes.
4
73
Peoples Benefit Life Insurance Company
Statements of Operations - Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
2000 1999 1998
--------------------------------------
Revenues:
Premiums and other considerations, net of reinsurance:
Life $ 169,219 $ 171,343 $ 165,442
Annuity 1,703,944 1,358,289 1,584,173
Accident and health 134,058 132,842 133,490
Net investment income 406,413 451,064 512,102
Amortization of interest maintenance
reserve 7,095 8,274 7,046
Commissions and expense allowances on
reinsurance ceded 6,025 5,474 4,542
Separate account fee income 26,736 23,824 19,494
Other 1,893 3,659 (9,666)
--------------------------------------
2,455,383 2,154,769 2,416,623
Benefits and expenses:
Benefits paid or provided for:
Life benefits 106,613 189,648 207,521
Surrender benefits 1,249,431 1,453,339 1,338,387
Accident and health benefits 72,339 75,768 75,372
Other benefits 227,348 95,045 89,301
Increase (decrease) in aggregate
reserves for policies and contracts:
Life 25,687 (14,358) (27,717)
Annuity (348,513) (285,876) (210,997)
Accident and health 686 (2,734) (2,347)
Other 253,298 (524,156) 32,453
--------------------------------------
1,586,889 986,676 1,501,973
Insurance expenses:
Commissions 39,456 34,986 46,200
General insurance expenses 71,439 97,381 75,102
Taxes, licenses and fees 11,847 8,705 8,037
Net transfers to separate accounts 611,475 889,687 652,622
Other expenses 30,868 15,249 199
--------------------------------------
765,085 1,046,008 782,160
--------------------------------------
2,351,974 2,032,684 2,284,133
--------------------------------------
Gain from operations before federal
income tax expense and net realized
capital gains (losses) on investments 103,409 122,085 132,490
Federal income tax expense 11,864 37,277 32,960
--------------------------------------
Gain from operations before net realized
capital gains (losses) on investments 91,545 84,808 99,530
Net realized capital gains (losses) on investments (net of
related federal income taxes and amounts transferred to
(from) interest maintenance reserve) (5,728) 4,230 27,621
--------------------------------------
Net income $ 85,817 $ 89,038 $ 127,151
======================================
See accompanying notes.
5
74
Peoples Benefit Life Insurance Company
Statements of Changes in Capital and Surplus - Statutory Basis
(Dollars in thousands)
TOTAL
COMMON PREFERRED PAID-IN UNASSIGNED CAPITAL AND
STOCK STOCK SURPLUS SURPLUS SURPLUS
-------------------------------------------------------
Balance at January 1, 1998 $12,595 $25,190 $2,583 $589,903 $630,271
Net income - - - 127,151 127,151
Change in net unrealized
capital gains/losses - - - (15,584) (15,584)
Change in non-admitted
assets - - - 9,324 9,324
Change in liability for
reinsurance in
unauthorized companies - - - (27) (27)
Change in asset valuation
reserve - - - (25,363) (25,363)
Change in surplus in
separate accounts - - - 3,581 3,581
Dividends to stockholders - - - (160,000) (160,000)
Tax benefits on stock
options exercised - - - 4,119 4,119
-------------------------------------------------------
Balance at December 31, 1998 12,595 25,190 2,583 533,104 573,472
Net income - - - 89,038 89,038
Change in net unrealized
capital gains/losses - - - 44,119 44,119
Change in non-admitted
assets - - - 8,328 8,328
Change in liability for
reinsurance in
unauthorized companies - - - 19 19
Change in asset valuation
reserve - - - (28,900) (28,900)
Change in surplus in
separate accounts - - - (3,854) (3,854)
Dividends to stockholders - - - (160,000) (160,000)
Tax benefits on stock
options exercised - - - 5,629 5,629
Other - - - 3,577 3,577
-------------------------------------------------------
Balance at December 31, 1999 12,595 25,190 2,583 491,060 531,428
Net income - - - 85,817 85,817
Change in net unrealized
capital gains/losses - - - 53,236 53,236
Change in non-admitted
assets - - - (2,932) (2,932)
Change in liability for
reinsurance in
unauthorized companies - - - 8 8
Change in asset valuation
reserve - - - (34,358) (34,358)
Dividends to stockholders - - - (120,000) (120,000)
Tax benefits on stock
options exercised - - - 1,368 1,368
Other - - - (344) (344)
-------------------------------------------------------
Balance at December 31, 2000 $12,595 $25,190 $2,583 $473,855 $514,223
=======================================================
See accompanying notes.
6
75
Peoples Benefit Life Insurance Company
Statements of Cash Flow - Statutory Basis
(Dollars in thousands)
YEAR ENDED DECEMBER 31
2000 1999 1998
------------------------------------
OPERATING ACTIVITIES
Premiums and other considerations, net of reinsurance $2,016,610 $1,700,093 $1,884,760
Net investment income 408,946 469,515 529,718
Life claims (108,984) (192,568) (198,317)
Surrender benefits and other fund withdrawals (1,249,431) (1,453,339) (1,338,387)
Disability benefits under accident and health policies (76,590) (71,800) (73,604)
Other benefits to policyholders (195,096) (94,512) (89,304)
Commissions, other expenses and other taxes (150,732) (139,867) (136,417)
Net transfers to separate accounts (584,745) (865,863) (633,128)
Federal income taxes, excluding tax on capital gains (979) (22,200) (40,998)
Other, net (51,896) (145,568) 78,339
------------------------------------
Net cash provided by (used in) operating activities 7,103 (816,109) (17,338)
INVESTING ACTIVITIES
Proceeds from investments sold,matured or repaid:
Bonds and preferred stocks 1,788,570 2,402,706 2,370,321
Common stocks 92,695 369,991 275,513
Mortgage loans on real estate 311,269 368,121 732,217
Real estate 1,373 3,645 7,733
Policy loans, net - - 727
Other 86,702 19,222 51,375
------------------------------------
2,280,609 3,163,685 3,437,886
Cost of investments acquired:
Bonds and preferred stocks (1,899,094) (1,411,300) (2,316,926)
Common stocks (81,840) (490,887) (293,534)
Mortgage loans on real estate (80,776) (265,166) (485,488)
Real estate (995) (7,572) -
Policy loans, net (6,289) (4,458) -
Other (36,113) (29,650) (118,648)
------------------------------------
(2,105,107) (2,209,033) (3,214,596)
------------------------------------
Net cash provided by investing activities 175,502 954,652 223,290
FINANCING ACTIVITIES
Issuance (repayment) of short-term
intercompany notes payable, net (84,800) 2,207 102,293
Dividends paid to stockholders (120,000) (160,000) (160,000)
Other - - -
------------------------------------
Net cash used in financing activities (204,800) (157,793) (57,707)
------------------------------------
Increase (decrease) in cash and short-term investments (22,195) (19,250) 148,245
Cash and short-term investments at beginning of year 174,117 193,367 45,122
------------------------------------
Cash and short-term investments at end of year $ 151,922 $ 174,117 $ 193,367
====================================
See accompanying notes.
7
76
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis
(Dollars in thousands)
December 31, 2000
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Peoples Benefit Life Insurance Company (the "Company") is a stock life and
health insurance company. The Company is directly owned by Monumental Life
Insurance Company 76%, Capital Liberty Limited Partnership ("CLLP") 20%, and
Commonwealth General Corporation 4%. CLLP also owns 100% of the preferred stock
of the Company. Each of these companies are indirect wholly-owned subsidiaries
of AEGON N.V., a holding company organized under the laws of The Netherlands.
The Company wholly owns an insurance subsidiary, Veterans Life Insurance
Company.
NATURE OF OPERATIONS
The Company sells and services life and accident and health insurance products,
primarily utilizing direct response methods, such as television, telephone, mail
and third-party programs to reach low to middle-income households nationwide.
The Company also sells and services group and individual accumulation products,
primarily utilizing brokers, fund managers, financial planners, stock brokerage
firms and a mutual fund.
BASIS OF PRESENTATION
The preparation of financial statements of insurance companies requires
management to make estimates and assumptions that affect amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Significant estimates and assumptions are utilized in the calculation of
aggregate policy reserves, policy and contract claim reserves, guaranty fund
assessment accruals and valuation allowances on investments. It is reasonably
possible that actual experience could differ from the estimates and assumptions
utilized which could have a material impact on the financial statements.
The accompanying financial statements have been prepared on the basis of
accounting practices prescribed or permitted by the Insurance Division,
Department of Commerce, of the State of Iowa ("Insurance Department"), which
practices differ in some respects from accounting principles generally accepted
in the United States. The more significant of these differences are as follows:
(a) bonds are generally reported at amortized cost rather than segregating the
portfolio into held-to-maturity (reported at amortized cost), available-for-sale
(reported at fair value), and trading (reported at fair value) classifications;
(b) common stocks sold but not yet purchased are reported as liabilities for
GAAP purposes; (c) acquisition costs of acquiring new business are charged to
current operations as incurred rather than deferred and amortized over the life
of the
8
77
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
policies or over the estimated gross profit stream; (d) policy reserves on
traditional life products are based on statutory mortality rates and interest
which may differ from reserves based on reasonable assumptions of expected
mortality, interest, and withdrawals which include a provision for possible
unfavorable deviation from such assumptions; (e) certain separate accounts
provide policyholders with a guaranteed return; these separate accounts are
included in the general account assets and liabilities for GAAP purposes due to
the nature of the guaranteed return; (f) policy reserves on certain investment
products use discounting methodologies based on statutory interest rates rather
than full account values; (g) reinsurance amounts are netted against the
corresponding asset or liability rather than shown as gross amounts on the
balance sheet; (h) deferred income taxes are not provided for the difference
between the financial statement and income tax bases of assets and liabilities;
(i) net realized gains or losses attributed to changes in the level of interest
rates in the market are deferred and amortized over the remaining life of the
bond or mortgage loan, rather than recognized as gains or losses in the
statement of operations when the sale is completed; (j) potential declines in
the estimated realizable value of investments are provided for through the
establishment of a formula-determined statutory investment reserve (reported as
a liability), changes to which are charged directly to surplus, rather than
through recognition in the statement of operations for declines in value, when
such declines are judged to be other than temporary; (k) certain assets
designated as "non-admitted assets" have been charged to surplus rather than
being reported as assets; (l) revenues for universal life and investment
products consist of premiums received rather than policy charges for the cost of
insurance, policy administration charges, amortization of policy initiation fees
and surrender charges assessed; (m) pension expense is recorded as amounts are
paid; (n) adjustments to federal income taxes of prior years are charged or
credited directly to unassigned surplus, rather than reported as a component of
expense in the statement of operations; (o) a liability is established for
"unauthorized reinsurers" and changes in this liability are charged or credited
directly to unassigned surplus; and (p) the financial statements of wholly-owned
affiliates are not consolidated with those of the Company. The effects of these
variances have not been determined by the Company but are presumed to be
material.
The National Association of Insurance Commissioners ("NAIC") has revised the
Accounting Practices and Procedures Manual in a process referred to as
Codification. The revised manual will be effective January 1, 2001. The State of
Iowa has adopted the provisions of the revised manual. The revised manual has
changed, to some extent, prescribed statutory accounting practices and will
result in changes to the accounting practices that the Company uses to prepare
its statutory-basis financial statements. The cumulative effect of changes in
accounting principles adopted to conform to the revised Accounting Practices and
Procedures Manual will be reported as an adjustment to surplus as of January 1,
2001. Management believes the effect of these changes will not result in a
significant reduction in the Company's statutory-basis capital and surplus as of
adoption.
9
78
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND SHORT-TERM INVESTMENTS
For purposes of the statements of cash flow, the Company considers all highly
liquid investments with remaining maturities of one year or less when purchased
to be short-term investments.
INVESTMENTS
Investments in bonds (except those to which the Securities Valuation Office of
the NAIC has ascribed a value), mortgage loans on real estate and short-term
investments are reported at cost adjusted for amortization of premiums and
accretion of discounts. Amortization is computed using methods which result in a
level yield over the expected life of the security. The Company reviews its
prepayment assumptions on mortgage and other asset-backed securities at regular
intervals and adjusts amortization rates retrospectively when such assumptions
are changed due to experience and/or expected future patterns. Investments in
preferred stocks in good standing are reported at cost. Investments in preferred
stocks not in good standing are reported at the lower of cost or market. Common
stocks of unaffiliated companies, which include shares of mutual funds, are
carried at market. Common stocks sold but not yet purchased are carried at
market as a contra asset. Common stock of the Company's wholly-owned insurance
subsidiary is recorded at the equity in statutory-basis net assets. Real estate
is reported at cost less allowances for depreciation. Depreciation of real
estate is computed principally by the straight-line method. Policy loans are
reported at unpaid principal. Other invested assets consist principally of
investments in various limited partnerships, which are recorded at equity in
underlying net assets, and derivative financial instruments. These instruments
consist primarily of interest rate swap agreements, including basis swaps, and
futures, are valued consistently with the hedged item. Hedges of fixed income
assets and/or liabilities are valued at amortized cost. Hedges of items carried
at fair value are valued at fair value. Derivatives which cease to be effective
hedges are valued at fair value. Other "admitted assets" are valued, principally
at cost, as required or permitted by Iowa Insurance Laws.
Common stocks sold but not yet purchased represents obligations of the Company
to deliver specified securities at contracted prices, thereby creating a
liability to purchase the securities at prevailing market prices. Accordingly,
these transactions result in off-balance sheet risk as the Company's ultimate
obligation to satisfy the sale of securities sold but not yet purchased may
exceed the current amount recognized in the financial statements. The Insurance
Division, Department of Commerce, of the State of Iowa has approved the
Company's accounting for common stocks sold but not yet purchased as a permitted
practice.
10
79
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Realized capital gains and losses are determined on the basis of specific
identification and are recorded net of related federal income taxes. The Asset
Valuation Reserve ("AVR") is established by the Company to provide for potential
losses in the event of default by issuers of certain invested assets. These
amounts are determined using a formula prescribed by the NAIC and are reported
as a liability. The formula for the AVR provides for a corresponding adjustment
for realized gains and losses. Under a formula prescribed by the NAIC, the
Company defers, in the Interest Maintenance Reserve ("IMR"), the portion of
realized gains and losses on sales of fixed income investments, principally
bonds and mortgage loans, attributable to changes in the general level of
interest rates and amortizes those deferrals over the remaining period to
maturity of the security.
Interest income is recognized on an accrual basis. The Company does not accrue
income on bonds in default, mortgage loans on real estate in default and/or
foreclosure or which are delinquent more than twelve months, or on real estate
where rent is in arrears for more than three months. Further, income is not
accrued when collection is uncertain. During 2000, 1999 and 1998, the Company
excluded investment income due and accrued of $4,641, $1,992 and $1,503,
respectively, with respect to such practices.
The Company uses interest rate swaps as part of its overall interest rate risk
management strategy for certain life insurance and annuity products. The Company
entered into several interest rate swap contracts to modify the interest rate
characteristics of the underlying liabilities. The net interest effect of such
swap transactions is reported as an adjustment of interest income from the
hedged items as incurred.
AGGREGATE POLICY RESERVES
Life, annuity and accident and health benefit reserves are developed by
actuarial methods and are determined based on published tables based using
statutorily specified interest rates and valuation methods that will provide, in
the aggregate, reserves that are greater than or equal to the minimum required
by law.
The aggregate policy reserves for life insurance policies are based principally
upon the 1941, 1958 and 1980 Commissioners' Standard Ordinary Mortality and
American Experience Mortality Tables. The reserves are calculated using interest
rates ranging from 2.00 to 6.00 percent and are computed principally on the Net
Level Premium Valuation and the Commissioners' Reserve Valuation Methods.
Reserves for universal life policies are based on account balances adjusted for
the Commissioners' Reserve Valuation Method.
11
80
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred annuity reserves are calculated according to the Commissioners' Annuity
Reserve Valuation Method including excess interest reserves to cover situations
where the future interest guarantees plus the decrease in surrender charges are
in excess of the maximum valuation rates of interest. Reserves for immediate
annuities and supplementary contracts with and without life contingencies are
equal to the present value of future payments assuming interest rates ranging
from 2.50 to 11.25 percent and mortality rates, where appropriate, from a
variety of tables.
Accident and health policy reserves are equal to the greater of the gross
unearned premiums or any required midterminal reserves plus net unearned
premiums and the present value of amounts not yet due on both reported and
unreported claims.
POLICY AND CONTRACT CLAIM RESERVES
Claim reserves represent the estimated accrued liability for claims reported to
the Company and claims incurred but not yet reported through the statement date.
These reserves are estimated using either individual case-basis valuations or
statistical analysis techniques. These estimates are subject to the effects of
trends in claim severity and frequency. The estimates are continually reviewed
and adjusted as necessary as experience develops or new information becomes
available.
POLICYHOLDER CONTRACT DEPOSITS
Policyholder contract deposits are comprised primarily of guaranteed investment
contracts (GICs). The GICs consist of three types. One type is guaranteed as to
principal along with interest guarantees based upon predetermined indices. The
second type guarantees principal and interest but also includes a penalty if the
contract is surrendered early. The third type guarantees principal and interest
and is non-surrenderable before the fixed maturity date. Policy reserves on the
GICs are determined following the retrospective deposit method and consist of
contract values that accrue to the benefit of the policyholder.
SEPARATE ACCOUNTS
Assets held in trust for purchases of variable annuity contracts and the
Company's corresponding obligation to the contract owners are shown separately
in the balance sheets. The assets in the separate accounts are valued at market.
Income and gains and losses with respect to the assets in the separate accounts
accrue to the benefit of the contract owners and, accordingly, the operations of
the separate accounts are not included in the accompanying financial statements.
The Company received variable contract premiums of $1,117,396, $1,266,608 and
$858,751 in 2000, 1999 and 1998, respectively. All variable account contracts
are subject to discretionary withdrawal by the policyholder at the market value
of the underlying assets less the current surrender charge.
12
81
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Certain separate account assets and liabilities reported in the accompanying
financial statements contain contractual guarantees. Guaranteed separate
accounts represent funds invested by the Company for the benefit of individual
contract holders who are guaranteed certain returns as specified in the
contracts. Separate account asset performance different than guaranteed
requirements is either transferred to or received from the general account and
reported in the statements of operations.
STOCK OPTION PLAN
AEGON N.V. sponsors a stock option plan that includes eligible employees of the
Company. Pursuant to the plan, the option price at the date of grant is equal to
the market value of the stock. Under statutory accounting principles, the
Company does not record any expense related to this plan. However, the Company
is allowed to record a deduction in the consolidated tax return filed by the
Company and certain affiliates. The tax benefit of this deduction has been
credited directly to surplus.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1999 and 1998 financial
statements to conform to the 2000 presentation.
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of fair value
information about financial instruments, whether or not recognized in the
statutory-basis balance sheet, for which it is practicable to estimate that
value. SFAS No. 119, Disclosures about Derivative Financial Instruments and Fair
Value of Financial Instruments, requires additional disclosure about
derivatives. In cases where quoted market prices are not available, fair values
are based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparisons to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 and No. 119 exclude certain financial instruments and
all nonfinancial instruments from their disclosure requirements and allow
companies to forego the disclosures when those estimates can only be made at
excessive cost. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of the Company.
13
82
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following methods and assumptions were used by the Company in estimating its
fair value disclosures for financial instruments:
Cash and short-term investments: The carrying amounts reported in the balance
sheet for these instruments approximate their fair values.
Investment securities: Fair values for fixed maturity securities (including
redeemable preferred stocks) are based on quoted market prices, where
available. For fixed maturity securities not actively traded, fair values are
estimated using values obtained from independent pricing services or, in the
case of private placements, are estimated by discounting expected future cash
flows using a current market rate applicable to the yield, credit quality, and
maturity of the investments. The fair values for common stock securities are
based on quoted market prices.
Mortgage loans and policy loans: The fair values for mortgage loans are
estimated utilizing discounted cash flow analyses, using interest rates
reflective of current market conditions and the risk characteristics of the
loans. The fair value of policy loans is assumed to equal their carrying
amount.
Investment contracts: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
Interest rate swaps and forward-rate agreements: Estimated fair value of
interest rate swaps and forward-rate agreements are based on pricing models or
formulas using current assumptions.
Net short-term notes payable to affiliates: The fair values for short-term
notes payable to affiliates are assumed to equal their carrying amount.
Fair values for the Company's insurance contracts other than investment
contracts are not required to be disclosed. However, the fair values of
liabilities under all insurance contracts are taken into consideration in the
Company's overall management of interest rate risk, which minimizes exposure to
changing interest rates through the matching of investment maturities with
amounts due under insurance contracts.
14
83
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The following sets forth a comparison of the fair values and carrying amounts
of the Company's financial instruments subject to the provisions of SFAS No.
107 and No. 119:
DECEMBER 31
2000 1999
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------------------- ------------------------
ADMITTED ASSETS
Cash and short-term
investments $ 151,922 $ 151,922 $ 174,117 $ 174,117
Bonds 3,353,083 3,237,804 3,219,493 3,087,002
Preferred stocks 99,754 85,855 160,990 158,736
Common stocks 91,986 91,986 53,811 53,811
Mortgage loans on real estate 1,696,380 1,744,171 1,933,540 1,895,672
Policy loans 165,450 165,450 159,161 159,161
Separate account assets 6,875,688 6,875,688 6,505,330 6,505,330
LIABILITIES
Investment contract liabilities 3,324,377 3,298,726 3,283,269 3,245,239
Separate account liabilities 6,823,691 6,676,551 6,414,824 6,264,434
Short-term notes payable
to affiliates 19,700 19,700 104,500 104,500
Interest rate swaps 28 (3,650) (212) (2,789)
Forwards 1,818 1,818 (71) (71)
3. INVESTMENTS
Statutory-basis financial information of the Company's wholly-owned insurance
subsidiary, Veterans Life Insurance Company, is summarized as follows:
DECEMBER 31
2000 1999
------------------------
SUMMARY STATUTORY-BASIS BALANCE SHEETS
Cash and invested assets $762,748 $715,766
Other assets 39,201 38,247
------------------------
Total admitted assets $801,949 $754,013
========================
Insurance reserves $197,542 $192,021
Other liabilities 40,304 46,917
Capital and surplus 564,103 515,075
------------------------
Total liabilities and capital and surplus $801,949 $754,013
========================
15
84
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
YEAR ENDED DECEMBER 31
2000 1999 1998
-------------------------------------
SUMMARY STATUTORY-BASIS
STATEMENTS OF INCOME
Revenues $ 148,023 $ 145,549 $ 152,851
Expenses and taxes 106,393 102,850 113,042
-------------------------------------
Net income $ 41,630 $ 42,699 $ 39,809
=====================================
In addition, the Company owns 100% of Coverna Direct Insurance Services, Inc.
at December 31, 2000. The related cost of this subsidiary was $100.
The carrying amounts and estimated fair values of investments in debt securities
were as follows:
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED FAIR
AMOUNT GAINS LOSSES VALUE
-------------------------------------------------
DECEMBER 31, 2000
Bonds:
United States Government and agencies $ 108,176 $ 2,219 $ 2,534 $ 107,861
State, municipal and other
government 42,425 1,847 4,378 39,894
Public utilities 200,827 3,092 7,378 196,541
Industrial and miscellaneous 1,889,938 42,160 144,622 1,787,476
Mortgage and other
asset-backed securities 1,111,717 4,892 10,577 1,106,032
-------------------------------------------------
3,353,083 54,210 169,489 3,237,804
Preferred stocks 99,754 8,468 22,367 85,855
-------------------------------------------------
$3,452,837 $62,678 $191,856 $3,323,659
=================================================
DECEMBER 31, 1999
Bonds:
United States Government and
agencies $ 166,209 $ 481 $ 10,690 $ 156,000
State, municipal and other
government 53,453 624 985 53,092
Public utilities 202,180 820 12,594 190,406
Industrial and miscellaneous 1,950,758 23,903 114,196 1,860,465
Mortgage and other
asset-backed securities 846,893 10,679 30,533 827,039
-------------------------------------------------
3,219,493 36,507 168,998 3,087,002
Preferred stocks 160,990 19,387 21,641 158,736
-------------------------------------------------
$3,380,483 $55,894 $190,639 $3,245,738
=================================================
16
85
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
The carrying amounts and estimated fair values of bonds at December 31, 2000, by
contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-----------------------------------
Due in one year or less $ 18,607 $ 18,597
Due after one year through five years 450,441 426,294
Due after five years through ten years 302,911 284,594
Due after ten years through fifteen years 309,590 312,502
Due after fifteen years through twenty years 233,784 218,797
Due after twenty years 926,033 870,988
-----------------------------------
2,246,366 2,131,772
Mortgage and other asset-backed securities 1,111,717 1,106,032
-----------------------------------
$3,353,083 $3,237,804
===================================
A detail of net investment income is presented below:
YEAR ENDED DECEMBER 31
2000 1999 1998
-----------------------------------------------
Interest on bonds and preferred stocks $254,807 $291,841 $337,793
Dividends on equity investments 1,063 (120) 3,824
Interest on mortgage loans 144,529 151,329 161,897
Rental income on real estate 1,114 128 327
Interest on policy loans 7,587 7,508 4,645
Other investment income 17,651 24,274 28,830
-----------------------------------------------
Gross investment income 426,751 474,960 537,316
Less investment expenses 20,338 23,896 25,214
-----------------------------------------------
Net investment income $406,413 $451,064 $512,102
===============================================
17
86
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Proceeds from sales and maturities of debt securities and related gross realized
gains and losses were as follows:
YEAR ENDED DECEMBER 31
2000 1999 1998
----------------------------------------------------
Proceeds $ 1,788,570 $ 2,402,706 $ 2,370,321
====================================================
Gross realized gains $ 62,925 $ 87,770 $ 67,577
Gross realized losses (64,750) (60,911) (22,015)
----------------------------------------------------
Net realized gains (losses) $ (1,825) $ 26,859 $ 45,562
====================================================
At December 31, 2000, investments with an aggregate carrying amount of $3,916
were on deposit with regulatory authorities or were restrictively held in bank
custodial accounts for the benefit of such regulatory authorities as required by
statute.
Realized investment gains (losses) and changes in unrealized gains (losses) for
investments are summarized below:
REALIZED
-------------------------------------------
YEAR ENDED DECEMBER 31
2000 1999 1998
-------------------------------------------
Debt securities $ (1,825) $26,859 $45,562
Short-term investments - (58) 127
Equity securities 4,371 (35,221) 6,098
Mortgage loans on real estate (1,693) 2,352 6,921
Real estate (20) (301) (243)
Other invested assets 2,796 26,414 16,592
-------------------------------------------
3,629 20,045 75,057
Federal income tax effect (10,956) (13,170) (17,257)
Transfer from (to) interest maintenance reserve 1,599 (2,645) (30,179)
-------------------------------------------
Net realized gains (losses) $ (5,728) $ 4,230 $27,621
===========================================
18
87
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
CHANGE IN UNREALIZED
----------------------------------------------
YEAR ENDED DECEMBER 31
2000 1999 1998
----------------------------------------------
Bonds $ (8,769) $(15,291) $ (78)
Preferred stocks (27,883) (5,657) (10,690)
Common stocks 93,229 71,870 760
Mortgage loans (4,575) (6,724) (5,553)
Other invested assets 1,234 (79) (23)
----------------------------------------------
Change in unrealized $ 53,236 $ 44,119 $(15,584)
==============================================
Gross unrealized gains and gross unrealized losses on common stocks were as
follows:
DECEMBER 31
2000 1999
-------------------------------
Unrealized gains $451,546 $356,813
Unrealized losses (35,185) (33,681)
-------------------------------
Net unrealized gains $416,361 $323,132
===============================
During 2000, the Company issued mortgage loans with interest rates ranging from
8.94% to 9.42%. The maximum percentage of any one mortgage loan to the value of
the underlying real estate at origination was 58%. Mortgage loans with a
carrying value of $821 were non-income producing for the previous twelve months.
Accrued interest of $115 related to these mortgage loans was excluded from
investment income. The Company requires all mortgaged properties to carry fire
insurance equal to the value of the underlying property.
19
88
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
During 2000 and 1999, mortgage loans of $1,260 and $7,567, respectively, were
foreclosed and transferred to real estate. At December 31, 2000 and 1999, the
Company held a mortgage loan loss reserve in the asset valuation reserve of
$27,051 and $26,509, respectively. The mortgage loan portfolio is diversified by
geographic region and specific collateral property type as follows:
GEOGRAPHIC DISTRIBUTION PROPERTY TYPE DISTRIBUTION
--------------------------------------------------- --------------------------------------------------
DECEMBER 31 DECEMBER 31
2000 1999 2000 1999
------------------- -------------------
Pacific 26% 26% Office 25% 26%
South Atlantic 17 18 Residential 20 24
Middle Atlantic 20 18 Apartment 17 16
E. North Central 18 17 Retail 17 16
W. South Central 5 6 Agricultural 10 9
Mountain 3 3 Industrial 7 7
W. North Central 4 4 Hotel/Motel 2 2
E. South Central 4 5 Other 2 -
New England 3 3
At December 31, 2000, the Company had two investments (excluding U. S.
Government guaranteed or insured issues) which individually represented more
than ten percent of capital and surplus and the asset valuation reserve.
SECURITY NAME CARRYING VALUE
- -----------------------------------------------------------------------------------------------------------
Amortizing Residential Collateral Trust $187,387
Salomon Bros. Mortgage Securities 81,587
The Company utilizes a variety of off-balance sheet financial instruments as
part of its efforts to hedge and manage fluctuations in the market value of its
investment portfolio attributable to changes in general interest rate levels and
to manage duration mismatch of assets and liabilities. Those instruments include
interest rate exchange agreements (swaps), options, forward contracts and
futures contracts, and all involve elements of credit and market risks in excess
of the amounts recognized in the accompanying financial statements at a given
point in time. The contract or notional amounts of those instruments reflect the
extent of involvement in the various types of financial instruments.
20
89
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
The Company's exposure to credit risk is the risk of loss from a counterparty
failing to perform according to the terms of the contract. That exposure
includes settlement risk (i.e., the risk that the counterparty defaults after
the Company has delivered funds or securities under terms of the contract) that
would result in an accounting loss and replacement cost risk (i.e., the cost to
replace the contract at current market rates should the counterparty default
prior to settlement date). Credit loss exposure resulting from nonperformance by
a counterparty for commitments to extend credit is represented by the
contractual amounts of the instruments.
At December 31, 2000 and 1999, the Company's outstanding financial instruments
with on and off-balance sheet risks, shown in notional amounts, are summarized
as follows:
NOTIONAL AMOUNT
2000 1999
------------------------------------
Derivative securities:
Interest rate swaps:
Receive fixed - pay floating $ 462,719 $405,100
Receive floating - pay floating 779,000 574,282
Receive floating - pay fixed 203,159 174,345
Forward contracts 2,900,000 334,200
The Company utilizes futures contracts to hedge against changes in market
conditions. Initial margin deposits are made by cash deposits or segregation of
specific securities as may be required by the exchange on which the transaction
was conducted. Pursuant to the contracts, the Company agrees to receive from or
pay to the broker, an amount of cash equal to the daily fluctuation in the value
of the contract. Such receipts or payments are known as "variation margin" and
are recorded by the account as a variation margin receivable or payable on
futures contracts. During the period the futures contracts are open, daily
changes in the values of the contracts are recognized as realized gains or
losses. When the contracts are closed, the account recognizes a realized gain or
loss equal to the difference between the proceeds from, or cost of, the closing
transaction and the Company's cost basis in the contract. The Company recognized
net realized gains (losses) from futures contracts in the amount of $(9,917),
$9,713 and $10,385 for the years ended December 31, 2000, 1999 and 1998,
respectively.
21
90
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
3. INVESTMENTS (CONTINUED)
Open futures contracts at December 31, 2000 and 1999 were as follows:
OPENING YEAR-END
NUMBER OF CONTRACT MARKET MARKET
CONTRACTS TYPE VALUE VALUE
------------------- --------------------------- ------------- -------------------
December 31, 2000:
S&P 500
139 March 2001 Futures $47,465 $46,391
December 31, 1999:
S&P 500
196 March 2000 Futures $69,832 $72,726
The Company's use of futures contracts may expose the Company to certain risks.
Risks include the possibility of an illiquid market and the change in the value
of the contracts may not correlate with changes in the value of the securities
being hedged. Unexpected adverse price movements could cause the Company's
hedging strategy to be unsuccessful and result in losses.
4. REINSURANCE
The Company reinsures portions of risk on certain insurance policies which
exceed its established limits, thereby providing a greater diversification of
risk and minimizing exposure on larger risks. The Company remains contingently
liable with respect to any insurance ceded, and this would become an actual
liability in the event that the assuming insurance company became unable to meet
its obligation under the reinsurance treaty.
Premiums earned reflect the following reinsurance assumed and ceded amounts:
YEAR ENDED DECEMBER 31
2000 1999 1998
------------------------------------------------------
Direct premiums $1,664,780 $1,559,509 $1,618,574
Reinsurance assumed 362,664 119,418 274,237
Reinsurance ceded (20,223) (16,453) (9,706)
------------------------------------------------------
Net premiums earned $2,007,221 $1,662,474 $1,883,105
======================================================
22
91
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
4. REINSURANCE (CONTINUED)
The reinsurance assumed reflected in the table above includes premiums assumed
from related parties of $284,702, $40,414 and $197,997 for the years ended
December 31, 2000, 1999 and 1998, respectively. The related aggregate reserves
for policies and contracts are $2,206,975 and $2,164,498 at December 31, 2000
and 1999, respectively.
The Company received reinsurance recoveries in the amount of $11,960, $14,100
and $3,102 during 2000, 1999 and 1998, respectively. At December 31, 2000 and
1999, estimated amounts recoverable from reinsurers that have been deducted from
policy and contract claim reserves totaled $7,262 and $1,007, respectively. The
aggregate reserves for policies and contracts were reduced for reserve credits
for reinsurance ceded at December 31, 2000 and 1999 of $11,106 and $22,003,
respectively.
5. INCOME TAXES
For federal income tax purposes, the Company joins in a consolidated income tax
return filing with certain affiliated companies. Under the terms of a
tax-sharing agreement between the Company and its affiliates, the Company
computes federal income tax expense as if it were filing a separate income tax
return, except that tax credits and net operating loss carryforwards are
determined on the basis of the consolidated group. Additionally, the alternative
minimum tax is computed for the consolidated group and the resulting tax, if
any, is allocated back to the separate companies on the basis of the separate
companies' alternative minimum taxable income.
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to gain from operations before federal income
tax expense and net realized capital gains (losses) on investments for the
following reasons:
YEAR ENDED DECEMBER 31
2000 1999 1998
------------------------------------------------------
Computed tax (benefit) at federal statutory rate
(35%) $36,193 $42,730 $46,371
Deferred acquisition cost (795) 1,065 3,916
Tax reserve valuation (282) (2,449) (1,755)
Excess tax depreciation (124) (196) 888
Amortization of IMR (2,483) (2,896) (2,466)
Dividend received deduction (1,054) (786) (547)
Prior year under (over) accrual (3,235) 5,019 (10,723)
Low-income housing credits (10,899) (10,233) (7,467)
Other, net (5,457) 5,023 4,743
------------------------------------------------------
Federal income tax expense $11,864 $37,277 $32,960
======================================================
23
92
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
5. INCOME TAXES (CONTINUED)
Federal income tax expense differs from the amount computed by applying the
statutory federal income tax rate to net realized capital gains on investments
due to differences in book and tax asset bases at the time certain investments
are sold.
Prior to 1984, as provided for under the Life Insurance Company Tax Act of 1959,
a portion of statutory income was not subject to current taxation but was
accumulated for income tax purposes in a memorandum account referred to as the
policyholders' surplus account. No federal income taxes have been provided for
in the financial statements on income deferred in the policyholders' surplus
account ($17,425 at December 31, 2000). To the extent dividends are paid from
the amount accumulated in the policyholders' surplus account, net earnings would
be reduced by the amount of tax required to be paid. Should the entire amount in
the policyholders' surplus account become taxable, the tax thereon computed at
current rates would amount to approximately $6,099.
The Company's federal income tax returns have been examined and closing
agreements have been executed with the Internal Revenue Service through 1992. An
examination is underway for years 1993 through 1997.
6. POLICY AND CONTRACT ATTRIBUTES
Participating life insurance policies are issued by the Company which entitle
policyholders to a share in the earnings of the participating policies, provided
that a dividend distribution, which is determined annually based on mortality
and persistency experience of the participating policies, is authorized by the
Company. Participating insurance constituted approximately 11% of ordinary life
insurance in force at December 31, 2000 and 1999.
24
93
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
A portion of the Company's policy reserves and other policyholders' funds
(including separate account liabilities) relates to liabilities established on a
variety of the Company's annuity and deposit fund products. There may be certain
restrictions placed upon the amount of funds that can be withdrawn without
penalty. The amount of reserves on these products, by withdrawal
characteristics, is summarized as follows:
DECEMBER 31
2000 1999
--------------------------- ----------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
--------------------------- ----------------------------
Subject to discretionary withdrawal with
market value adjustment $ 1,423,426 12% $ 1,177,190 10%
Subject to discretionary withdrawal at
book value less surrender charge 72,292 1 74,069 1
Subject to discretionary withdrawal at
market value 6,259,441 55 6,287,475 57
Subject to discretionary withdrawal at
book value (minimal or no charges or
adjustments) 1,142,395 10 1,391,793 13
Not subject to discretionary withdrawal
provision 2,495,064 22 2,127,949 19
--------------------------- ----------------------------
11,392,618 100% 11,058,476 100%
Less reinsurance ceded - 9,791
--------------- ---------------
Total policy reserves on annuities and
deposit fund liabilities $11,392,618 $11,048,685
=============== ===============
Reserves on the Company's traditional life products are computed using mean
reserving methodologies. These methodologies result in the establishment of
assets for the amount of the net valuation premiums that are anticipated to be
received between the policy's paid-through date to the policy's next anniversary
date. At December 31, 2000 and 1999, these assets (which are reported as
premiums deferred and uncollected) and the amounts of the related gross premiums
and loadings, are as follows:
25
94
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
GROSS LOADING NET
-----------------------------------------------
DECEMBER 31, 2000
Life and annuity:
Ordinary direct first year business $ 2,648 $ 1,614 $ 1,034
Ordinary direct renewal business 18,871 5,752 13,119
Group life direct business 35,103 9,998 25,105
Reinsurance ceded (216) - (216)
-----------------------------------------------
Total life and annuity 56,406 17,364 39,042
Accident and health:
Direct 858 - 858
Reinsurance assumed 830 - 830
Reinsurance ceded (99) - (99)
-----------------------------------------------
Total accident and health 1,589 - 1,589
-----------------------------------------------
$57,995 $17,364 $40,631
===============================================
DECEMBER 31, 1999
Life and annuity:
Ordinary direct first year business $ 2,245 $ 1,525 $ 720
Ordinary direct renewal business 19,812 5,939 13,873
Group life direct business 36,054 9,824 26,230
Reinsurance ceded (301) - (301)
-----------------------------------------------
Total life and annuity 57,810 17,288 40,522
Accident and health:
Direct 2,727 - 2,727
Reinsurance assumed 2,418 - 2,418
Reinsurance ceded (114) - (114)
-----------------------------------------------
Total accident and health 5,031 - 5,031
-----------------------------------------------
$62,841 $17,288 $45,553
===============================================
At December 31, 2000 and 1999, the Company had insurance in force aggregating
$42,245 and $60,234, respectively, in which the gross premiums are less than the
net premiums required by the standard valuation standards established by the
Insurance Department. The Company established policy reserves of $596 and $415
to cover these deficiencies at December 31, 2000 and 1999, respectively.
Separate accounts held by the Company represent funds held for individual
policyholders. The assets in the separate accounts, carried at estimated fair
value, consist of common stocks (including mutual funds), mortgage loans,
long-term bonds and cash.
26
95
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
Information regarding the separate accounts of the Company is as follows:
NONINDEXED
GUARANTEED GUARANTEED
INDEXED LESS THAN 4% NONGUARANTEED TOTAL
-----------------------------------------------------------------
Premiums, deposits and other
considerations for the year ended
December 31, 2000 $425,000 $ 180 $ 692,216 $1,117,396
=================================================================
Reserves for separate accounts as of
December 31, 2000 $448,397 $115,855 $6,279,543 $6,843,795
=================================================================
Reserves by withdrawal characteristics
as of December 31, 2000:
With market value adjustment $166,695 $115,855 $ - $ 282,550
At market value - - 6,279,543 6,279,543
Not subject to discretionary withdrawal 281,702 - - 281,702
-----------------------------------------------------------------
Total $448,397 $115,855 $6,279,543 $6,843,795
=================================================================
Premiums, deposits and other
considerations for the year ended
December 31, 1999 $ 51,684 $ 193 $1,214,731 $1,266,608
=================================================================
Reserves for separate accounts as of
December 31, 1999 $ 59,254 $127,349 $6,311,851 $6,498,454
=================================================================
Reserves by withdrawal characteristics
as of December 31, 1999:
With market value adjustment $ 59,254 $127,349 $ 382,840 $ 569,443
At market value - - 5,929,011 5,929,011
-----------------------------------------------------------------
Total $ 59,254 $127,349 $6,311,851 $6,498,454
=================================================================
Premiums, deposits and other
considerations for the year ended
December 31, 1998 $ - $ 189 $ 858,562 $ 858,751
=================================================================
27
96
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
6. POLICY AND CONTRACT ATTRIBUTES (CONTINUED)
A reconciliation of the amounts transferred to and from the Company's separate
accounts is presented below:
YEAR ENDED DECEMBER 31
2000 1999 1998
-----------------------------------------------
Transfers as reported in the Summary of
Operations of the Company's separate
accounts annual statement:
Transfers to separate accounts $1,117,396 $1,266,608 $858,751
Transfers from separate accounts (513,348) (384,653) (218,416)
-----------------------------------------------
Net transfers to separate accounts 604,048 881,955 640,335
Reconciling adjustments:
Other transfers to modified separate account 7,427 7,732 12,287
-----------------------------------------------
7,427 7,732 12,287
-----------------------------------------------
Transfers as reported in the Summary of
Operations of the Company's Life,
Accident & Health Annual Statement $ 611,475 $ 889,687 $652,622
===============================================
7. DIVIDEND RESTRICTIONS
The Company is subject to limitations, imposed by the State of Iowa, on the
payment of dividends to its stockholders. Generally, dividends during any year
may not be paid, without prior regulatory approval, in excess of the greater of
(1) 10 percent of the Company's statutory capital and surplus as of the
preceding December 31, or (2) the Company's statutory net income before net
realized capital gains on investments for the preceding year. Subject to
availability of unassigned surplus at the time of such dividend, the maximum
payment which may be made in 2001, without prior regulatory approval, is
$91,545.
The Company paid dividends to its stockholders of $120,000, $160,000 and
$160,000 in 2000, 1999 and 1998, respectively.
8. RELATED PARTY TRANSACTIONS
The Company shares certain offices, employees and general expenses with
affiliated companies.
The Company receives data processing, investment advisory and management,
marketing and administration services from certain affiliates. During 2000, 1999
and 1998, the Company paid $34,205, $38,750 and $1,390, respectively, for these
services, which approximates their costs to the affiliates.
28
97
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
8. RELATED PARTY TRANSACTIONS (CONTINUED)
Payable to affiliates and intercompany borrowings bear interest at the
thirty-day commercial paper rate of 6.37% at December 31, 2000. During 2000 and
1999, the Company received net interest of $2,016 and $3,123, respectively, from
affiliates.
At December 31, 2000 and 1999, the Company had short-term notes receivable from
affiliates of $184,500 and short-term notes payable to affiliates of $204,200.
At December 31, 1999, this consists entirely of short-term notes payable to
affiliates. Interest on these notes accrues at rates ranging from 6.48% to 6.52%
at December 31, 2000 and 5.30% to 5.90% at December 31, 1999.
The Company participates in various benefit plans sponsored by AEGON and the
related costs allocated to the Company are not significant.
The Company has 2,290,000 shares of redeemable preferred stock outstanding, all
of which are owned by CLLP. The preferred stock has a par value of $11 per share
and a liquidation value of $240 per share. CLLP is entitled to receive a
cumulative dividend equal to 8-1/2 percent per annum of the liquidation value of
the preferred stock. The Company may redeem all or any portion of the preferred
stock at the liquidation value commencing December 18, 2000.
9. COMMITMENTS AND CONTINGENCIES
The Company may lend portfolio securities to approved brokers and other parties
to earn additional income. The Company receives collateral against the loaned
securities and maintains collateral in an amount not less than 100% of the
market value of the loaned securities during the period of the loan. The market
value of loaned securities is determined at the close of business and any
additional required collateral is delivered to the Company on the next business
day. Although risk is mitigated by collateral, the Company could experience a
delay in recovering its securities and possible loss of income or value if the
borrower fails to return them. At December 31, 2000, the value of securities
loaned amounted to $83,376.
During 2000, the Company incurred a loss of $30,469 related to the unsuccessful
development of an agency and marketing organization. In 1999, the Company
incurred a loss of $15,083 due to its inability to recover claims paid on a
failed reinsurance contract. Both of these items are included in other expenses
in the statement of operations. The Company does not expect any future funding
commitments for either of these events.
29
98
Peoples Benefit Life Insurance Company
Notes to Financial Statements - Statutory Basis (continued)
(Dollars in thousands)
9. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is a party to legal proceedings incidental to its business. Although
such litigation sometimes includes substantial demands for compensatory and
punitive damages, in addition to contract liability, it is management's opinion,
after consultation with counsel and a review of available facts, that damages
arising from such demands will not be material to the Company's financial
position.
The Company is subject to insurance guaranty laws in the states in which it
writes business. These laws provide for assessments against insurance companies
for the benefit of policyholders and claimants in the event of insolvency of
other insurance companies. Assessments are charged to operations when received
by the Company except where right of offset against other taxes paid is allowed
by law; amounts available for future offsets are recorded as an asset on the
Company's balance sheet. Potential future obligations for unknown insolvencies
are not determinable by the Company. The future obligation has been based on the
most recent information available from the National Organization of Life and
Health Insurance Guaranty Associations. The Company has established a reserve of
$14,237 and $13,770 and an offsetting premium tax benefit of $3,516 and $4,884
at December 31, 2000 and 1999, respectively, for its estimated share of future
guaranty fund assessments related to several major insurer insolvencies.
30
99
Peoples Benefit Life Insurance Company
Summary of Investments - Other Than
Investments in Related Parties
(Dollars in thousands)
December 31, 2000
SCHEDULE I
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (1) VALUE BALANCE SHEET
- -------------------------------------------------------------------------------------------------------------------
FIXED MATURITIES
Bonds:
United States Government and government
agencies and authorities $ 108,176 $ 107,861 $ 108,176
States, municipalities and political
subdivisions 75,008 72,686 75,008
Foreign governments 33,509 33,670 33,509
Public utilities 200,827 196,541 200,827
All other corporate bonds 2,935,563 2,827,046 2,935,563
Preferred stock 99,754 85,855 99,754
---------------------------------------------------------------
Total fixed maturities 3,452,837 3,323,659 3,452,837
EQUITY SECURITIES
Common stocks:
Public utilities 4,583 5,188 5,188
Banks, trust and insurance 14,456 17,596 17,596
Industrial, miscellaneous and all other 17,983 69,202 69,202
---------------------------------------------------------------
Total equity securities 37,022 91,986 91,986
Mortgage loans on real estate 1,696,380 1,696,380
Real estate acquired in satisfaction of debt 7,029 7,029
Policy loans 165,450 165,450
Other long-term investments 258,898 258,898
Cash and short-term investments 151,922 151,922
------------------- -------------------------
Total investments $5,769,538 $6,388,605
=================== =========================
(1) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and adjusted for amortization of premiums or
accrual of discounts.
31
100
Peoples Benefit Life Insurance Company
Supplementary Insurance Information
(Dollars in thousands)
SCHEDULE III
FUTURE POLICY POLICY AND
BENEFITS AND UNEARNED CONTRACT
EXPENSES PREMIUMS LIABILITIES
----------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000
Individual life $ 419,535 $ - $ 9,117
Individual health 13,834 4,566 8,689
Group life and health 765,876 14,844 36,675
Annuity 2,491,651 - -
----------------------------------------------------------
$3,690,896 $19,410 $54,481
==========================================================
YEAR ENDED DECEMBER 31, 1999
Individual life $ 361,443 $ - $10,596
Individual health 14,433 4,748 9,306
Group life and health 784,352 13,889 41,208
Annuity 2,840,176 - -
----------------------------------------------------------
$4,000,404 $18,637 $61,110
==========================================================
YEAR ENDED DECEMBER 31, 1998
Individual life $ 358,943 $ - $ 972
Individual health 16,292 4,963 7
Group life and health 807,174 14,472 59,022
Annuity 3,126,053 - -
----------------------------------------------------------
$4,308,462 $19,435 $60,001
==========================================================
32
101
NET BENEFITS, CLAIMS OTHER
PREMIUM INVESTMENT LOSSES AND OPERATING PREMIUMS
REVENUE INCOME* SETTLEMENT EXPENSES EXPENSES* WRITTEN
- -----------------------------------------------------------------------------------------------------------
$ 78,226 $ 26,088 $ 80,169 $ 10,732
27,129 1,947 14,606 10,845 $ 26,966
197,922 58,068 136,277 57,341 110,341
1,703,944 320,310 1,355,637 686,167
- --------------------------------------------------------------------------------------
$2,007,221 $406,413 $1,586,889 $ 765,085
======================================================================================
$ 78,742 $ 26,604 $ 125,404 $ 26,824
27,394 1,609 14,863 16,517 $ 26,830
198,049 60,431 154,795 54,801 102,430
1,858,289 362,220 691,614 947,866
- --------------------------------------------------------------------------------------
$1,662,474 $451,064 $ 986,676 $1,046,008
======================================================================================
$ 61,912 $ 27,540 $ 111,477 $ 7,512
27,795 1,686 15,940 10,096 $ 27,394
209,225 63,847 177,214 53,010 105,970
1,584,173 419,029 1,197,342 711,542
- --------------------------------------------------------------------------------------
$1,883,105 $512,102 $1,501,973 $ 782,160
======================================================================================
* Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates, and the results would change if
different methods were applied.
33
102
Peoples Benefit Life Insurance Company
Reinsurance
(Dollars in thousands)
SCHEDULE IV
ASSUMED PERCENTAGE
CEDED TO FROM OF AMOUNT
GROSS OTHER OTHER NET ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
----------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 2000
Life insurance in force $3,472,882 $181,294 $5,868,273 $ 9,159,862 64.1%
==================================================================================
Premiums:
Individual life $ 65,083 $ 485 $ 13,628 $ 78,226 17.4%
Individual health 23,394 623 4,358 27,129 16.1
Group life and health 113,389 19,115 103,648 197,922 52.4
Annuity 1,462,914 - 241,030 1,703,944 14.1
----------------------------------------------------------------------------------
$1,664,780 $ 20,223 $ 362,664 $ 2,007,221 18.1%
==================================================================================
YEAR ENDED DECEMBER 31, 1999
Life insurance in force $3,692,116 $175,355 $5,977,197 $ 9,493,958 63.0%
==================================================================================
Premiums:
Individual life $ 63,879 $ 1,172 $ 16,035 $ 78,742 20.4%
Individual health 24,308 656 3,742 27,394 13.7
Group life and health 114,108 14,501 98,442 198,049 49.7
Annuity 1,357,214 124 1,199 1,358,289 0.1
----------------------------------------------------------------------------------
$1,559,509 $ 16,453 $ 119,418 $ 1,662,474 7.2%
==================================================================================
YEAR ENDED DECEMBER 31, 1998
Life insurance in force $3,998,620 $149,510 $6,470,764 $10,319,874 62.7%
==================================================================================
Premiums:
Individual life $ 47,581 $ 390 $ 14,721 $ 61,912 23.8%
Individual health 25,792 604 2,607 27,795 9.4
Group life and health 119,134 8,701 98,792 209,225 47.2
Annuity 1,426,067 11 158,117 1,584,173 10.0
----------------------------------------------------------------------------------
$1,618,574 $ 9,706 $ 274,237 $ 1,883,105 14.6%
==================================================================================
34
103
PART II.
OTHER INFORMATION
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents, and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that Section.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
Peoples Benefit Life Insurance Company ("Peoples Benefit") hereby
represents that the fees and charges deducted under the Policies, in the
aggregate, are reasonable in relation to the services rendered, the expenses
expected to be incurred, and the risks assumed by Peoples Benefit.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities
Act of 1933 (the "Act") may be permitted to 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.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet
The Prospectus, consisting of 97 pages
The undertaking to file reports
Representation pursuant to Section 26(e)(2)(A)
The Rule 484 undertaking
The signatures
Written consent of the following persons:
(a) Roger Hallquist, Actuary
(b) John D. Cleavenger, Esq.
(c) Sutherland Asbill & Brennan LLP
(d) Ernst & Young LLP
104
The following exhibits:
1. The following exhibits correspond to those required by paragraph A to
the instructions as to exhibits in Form N-8B-2:
A. (1) Resolution of the Board of Directors of
Peoples Benefit establishing Peoples Benefit
Variable Life Account A. (the Separate
Account") @
(2) Not Applicable (Custody Agreement)
(3) Distribution of Policies
(a) Form of Principal Underwriting Agreement
(1)
(b) Form of Broker-Dealer Supervision and
Sales Agreement (1)
(4) Not Applicable (Agreements between Peoples
Benefit, the principal underwriter, or
custodian other than those set forth above
in A. (1), (2), and (3))
(5) Specimen Flexible Premium Variable Life
Insurance Policy @
(a) Waiver of Premium Benefit @
(b) Waiver of Monthly Deduction @
(c) Level One-Year Term Insurance @
(d) Additional Insured's Level One-Year
Term Insurance @
(e) Accidental Death Benefit @
(f) Guaranteed Insurability Benefit @
(g) Children's Benefit @
(6) (a) Certificate of Incorporation of
Peoples Benefit@
(b) By-Laws of Peoples Benefit @
(7) Not Applicable (Any insurance policy under a
contract between the Separate Account and
Peoples Benefit)
(8) (a) Form of Participation Agreement
regarding Janus Aspen Series (1)
(b) Form of Participation Agreement
regarding AIM Variable Insurance
Funds, Inc. (1)
(c) Form of Participation Agreement
regarding Oppenheimer Variable
Account Funds (1)
(d) Form of Participation Agreement
regarding Fidelity Variable
Insurance Products Funds (1)
(9) Not Applicable (All other material contracts
concerning the Separate Account)
(10) Application for Flexible Premium Variable
Life Insurance Policy@
(11) Memorandum describing issuance, transfer and
redemption procedures (1)
105
2. Opinion of Counsel as to the legality of the securities being
registered (1)
3. Not Applicable (Financial statements omitted from the prospectus
pursuant to Instruction 1(b) or (c) of Part I
4. Not Applicable
5. Consent of Sutherland Asbill & Brennan LLP (1)
6. Opinion and consent of Roger Hallquist as to actuarial matters
pertaining to the securities being registered (1)
7. Consent of Ernst & Young LLP(1)
8. Powers of Attorney @
- --------------------------------------------------------------------------------
@ Incorporated herein by reference to pre-effective filing to the
registration statement on form S-6 (file #333- 52570) filed December
22, 2000.
(1) Filed herewith.
106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Peoples Benefit Variable Life Account A, has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereunto duly
authorized, and its seal to be hereunto affixed and attested, on this April 16,
2001.
(Seal) PEOPLES BENEFIT VARIABLE LIFE ACCOUNT A
(Registrant)
PEOPLES BENEFIT LIFE INSURANCE COMPANY
(Depositor)
/s/John D. Cleavenger /s/John D. Cleavenger
- --------------------------- --------------------------------------------
Craig D. Vermie Bart Herbert, Jr.
Vice President, Secretary President, Chairman of the Board and Director
General Counsel and Director
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
107
Signatures (continued)
As required by the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities and on the dates indicated.
Signature and Title Date
/s/John D. Cleavenger 4/16/01
- ---------------------
Bart Herbert, Jr.
President, Chairman of the Board and Director
/s/John D. Cleavenger 4/16/01
- ---------------------
Craig D. Vermie
Vice President, Secretary, General Counsel and Director
/s/John D. Cleavenger 4/16/01
- ---------------------
Treasurer
/s/John D. Cleavenger 4/16/01
- ---------------------
Steven C. Chamberlin
Vice President and Corporate Actuary
/s/John D. Cleavenger 4/16/01
- ---------------------
Brenda K. Clancy
Vice President and Director
/s/John D. Cleavenger 4/16/01
- ---------------------
Kathleen M. Modzelewski
Vice President and Director
/s/John D. Cleavenger 4/16/01
- ---------------------
Larry N. Norman
Executive Vice President and Director
/s/John D. Cleavenger 4/16/01
- ---------------------
David G. Rekoski
Senior Vice President and Director
/s/John D. Cleavenger 4/16/01
- ---------------------
G. Douglas Mangum, Jr.
Senior Vice President and Director
/s/John D. Cleavenger 4/16/01
- ---------------------
Brian A. Smith
Vice President and Director
/s/John D. Cleavenger 4/16/01
- ---------------------
Douglas A. Sarcia
Vice President and Director
108
EXHIBIT INDEX
1. A. (3) Distribution of Policies
(a) Form of Principal Underwriting Agreement
(b) Form of Broker-Dealer Supervision and Sales
Agreement
(8) (a) Form of Participation Agreement regarding Janus
Aspen Series
(b) Form of Participation Agreement regarding AIM
Variable Insurance Funds, Inc.
(c) Form of Participation Agreement regarding
Oppenheimer Variable Account Funds
(d) Form of Participation Agreement regarding
Fidelity Variable Insurance Products Funds
(11) Memorandum describing issuance, transfer and
redemption procedures
2. Opinion of counsel as to the legality of the securities being
registered
5. Consent of Sutherland Asbill & Brennan LLP
6. Opinion and consent of Roger Hallquist as to actuarial matters
pertaining to the securities being registered
7. Consent of Ernst & Young LLP