-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, F++4P57ynTpj8rgu6T0BstRKYOgJfHDNpvj5CUeceAqMM6kZwp5TAH+0LiQ4bfpu +FdwsLF3y/VlpMnC2gXN3g== 0001193125-10-083645.txt : 20100415 0001193125-10-083645.hdr.sgml : 20100415 20100414203514 ACCESSION NUMBER: 0001193125-10-083645 CONFORMED SUBMISSION TYPE: POS AM PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20100415 DATE AS OF CHANGE: 20100414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LINCOLN BENEFIT LIFE CO CENTRAL INDEX KEY: 0000910739 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 470766853 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: POS AM SEC ACT: 1933 Act SEC FILE NUMBER: 333-158172 FILM NUMBER: 10750519 BUSINESS ADDRESS: STREET 1: P O BOX 80469 STREET 2: 2940 SOUTH 84TH ST CITY: LINCOLN STATE: NE ZIP: 68501 BUSINESS PHONE: 4024794061 MAIL ADDRESS: STREET 1: PO BOX 80469 STREET 2: 206 S 13TH STREET CITY: LINCOLN STATE: NE ZIP: 68501 POS AM 1 dposam.txt LBL CONSULTANT SOLUTIONS As Filed with the Securities and Exchange Commission on April 14, 2010 File No. 333-158172 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM S-1 POST-EFFECTIVE AMENDMENT NO. 2 TO REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 LINCOLN BENEFIT LIFE COMPANY (Exact name of Registrant as Specified in its Charter) Nebraska 6300 470221457 (State or other (Primary Standard (I.R.S. Employer jurisdiction of Industrial Identification No.) incorporation or Classification Code organization) Number) 2940 South 84th St., Lincoln, Nebraska 68506 1-800-525-9287 (Address of registrant's principal executive offices) JAN FISCHER-WADE, ESQ. LINCOLN BENEFIT LIFE COMPANY 2940 South 84th St. LINCOLN, NE 68506 1-800-525-9287 (Name of agent for service) Approximate date of commencement of proposed sale to the Public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] (Do not check if a smaller reporting company) Smaller reporting company [ ] Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. LINCOLN BENEFIT LIFE COMPANY Supplement Dated May 1, 2010 To the following Prospectuses, as supplemented CONSULTANT SOLUTIONS (CLASSIC, PLUS, ELITE, SELECT) PROSPECTUS DATED MAY 1, 2010 CONSULTANT I PROSPECTUS DATED MAY 1, 2010 LBL ADVANTAGE PROSPECTUS DATED MAY 1, 2004 CONSULTANT II PROSPECTUS DATED MAY 1, 2004 PREMIER PLANNER PROSPECTUS DATED MAY 1, 2004 The following information supplements the prospectus for your variable annuity contract issued by Lincoln Benefit Life Company. SUPPLEMENTAL INFORMATION ABOUT LINCOLN BENEFIT LIFE COMPANY INDEX
PAGE ---- Item 11(a) Description of Business.................................................... 1 Item 11(b) Description of Property.................................................... 3 Item 11(c) Legal Proceedings.......................................................... 3 Item 11(e) Financial Statements and Notes to Financial Statements..................... 3 Item 11(f) Selected Financial Data.................................................... 36 Item 11(h) Management's Discussion and Analysis of Financial Condition and Results of Operations............................................................... 37 Item 11(i) Changes in and Disagreements with Accountants on Accounting and Financial Disclosure............................................................... 52 Item 11(j) Quantitative and Qualitative Disclosures About Market Risk................. 52 Item 11(k) Directors, Executive Officers, Promoters and Control Persons............... 52 Item 11(l) Executive Compensation..................................................... 54 Item 11(m) Security Ownership of Certain Beneficial Owners and Management............. 83 Item 11(n) Transactions with Related Persons, Promoters and Certain Control Persons... 84 Other Information...................................................................... 87 Filing of Reports.......................................................... 87 Disclosure of Commission Position on Indemnification for Securities Act Liabilities.............................................................. 87 Experts.................................................................... 88
ITEM 11(A). DESCRIPTION OF BUSINESS Lincoln Benefit Life Company ("Lincoln Benefit") was incorporated under the laws of the State of Nebraska in 1938. Lincoln Benefit is a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), a stock life insurance company incorporated under the laws of the State of Illinois. ALIC is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a stock property-liability insurance company organized under the laws of the State of Illinois. All of the outstanding capital stock of Allstate Insurance Company is owned by Allstate Insurance Holdings, LLC, which is wholly owned by The Allstate Corporation (the "Corporation" or "Allstate"), a publicly owned holding company incorporated under the laws of the State of Delaware. The Allstate Corporation is the largest publicly held personal lines insurer in the United States. Widely known through the "You're In Good Hands With Allstate(R)" slogan, Allstate is reinventing protection and retirement to help individuals in approximately 17 million households protect what they have today and better prepare for tomorrow. Customers can access Allstate products and services such as auto insurance and homeowners insurance through more than 14,000 exclusive Allstate agencies and financial representatives in the United States and Canada. Allstate is the 2/nd/ largest personal property and casualty insurer in the United States on the basis of 2008 statutory direct premiums earned. In addition, according to A.M. Best, it is the nation's 16/th/ largest issuer of life insurance business on the basis of 2008 ordinary life insurance in force and 17/th/ largest on the basis of 2008 statutory admitted assets. To achieve its goals in 2010, Allstate is focused on these priorities: improve customer loyalty, reinvent protection and retirement for the consumer, and grow its businesses. In our reports, we occasionally refer to statutory financial information. All domestic United States insurance companies are required to prepare statutory-basis financial statements. As a result, industry data is available that enables comparisons between insurance companies, including competitors that are not subject to the requirement to prepare financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). We frequently use industry publications containing statutory financial information to assess our competitive position. We provide life insurance, retirement and investment products. Our principal products are fixed annuities, including deferred and immediate; and interest-sensitive, traditional and variable life insurance. We sell products through multiple intermediary distribution channels, including Allstate exclusive agencies and exclusive financial specialists, independent agents (including master brokerage agencies), and, through March 31, 2010, broker-dealers. We compete on a wide variety of factors, including the scope of our distribution systems, the type of our product offerings, the recognition of our brands, our financial strength and ratings, our differentiated product features and prices, and the level of customer service that we provide. In addition, with respect to variable life insurance products in particular, we compete on the basis of the variety of fund managers and choices of funds for our separate accounts and the management and performance of those funds within our separate accounts. The market for life insurance, retirement and investment products continues to be highly fragmented and competitive. As of December 31, 2009, there were approximately 480 groups of life insurance companies in the United States, most of which offered one or more similar products. In addition, because many of these products include a savings or investment component, our competition includes domestic and foreign securities firms, investment advisors, mutual funds, banks and other financial institutions. Competitive pressure continues to grow due to several factors, including cross marketing alliances between unaffiliated businesses, as well as consolidation activity in the financial services industry. We cede the mortality risk on certain life policies, depending upon the issue year and product, to a pool of twelve non-affiliated reinsurers. All business not reinsured to non-affiliated reinsurers is ceded to ALIC. Premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are reinsured by ALIC. Assets that support general account product liabilities are owned and managed by ALIC. We continue to have primary liability as the direct insurer for risks reinsured as ALIC's obligations under the reinsurance agreements are to us and not the contractholder. Separate accounts liabilities related to variable annuity and life contracts are ceded to ALIC via a 100% modified coinsurance agreement whereby assets are maintained in our legally segregated separate accounts. Contract charges assessed against the separate accounts assets and contract benefits are ceded to ALIC. Lincoln Benefit is subject to extensive regulation, primarily at the state level. The method, extent and substance of such regulation varies by state but generally has its source in statutes that establish standards and requirements for conducting the business of insurance and that delegate regulatory authority to a state regulatory agency. In general, such regulation is intended for the protection of those who purchase or use insurance products. These rules have a substantial effect on our business and relate to a wide variety of matters including insurance company licensing and examination, agent licensing, price setting, trade practices, policy forms, accounting methods, corporate governance, the nature and amount of investments, claims practices, participation 2 in guaranty funds, reserve adequacy, insurer solvency, transactions with affiliates, the payment of dividends, and underwriting standards. For a discussion of statutory financial information, see Note 11 of the Financial Statements. For a discussion of regulatory contingencies, see Note 9 of the Financial Statements. Notes 9 and 11 are incorporated in this Item 11(a) by reference. In recent years, the state insurance regulatory framework has come under increased federal scrutiny. Legislation that would provide for increased federal regulation of insurance, including the federal chartering of insurance companies, has been proposed. Moreover, as part of an effort to strengthen the regulation of the financial services market, the federal government has proposed a set of regulatory reforms, including the establishment of an Office of National Insurance within the Treasury Department. The reforms could increase the regulation of large insurance conglomerates whose failure could pose a systemic risk to the financial system. In addition, state legislators and insurance regulators continue to examine the appropriate nature and scope of state insurance regulation. We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of the insurance or financial services business or what effect any such measures would have on Lincoln Benefit. ITEM 11(B). DESCRIPTION OF PROPERTY Lincoln Benefit occupies office space in Lincoln, Nebraska and Northbrook, Illinois that is owned by Allstate Insurance Company. Expenses associated with these facilities are allocated to us on a direct basis. ITEM 11(C). LEGAL PROCEEDINGS Information required for Item 11(c) is incorporated by reference to the discussion under the headings "Regulation and Compliance" and under the heading "Legal and regulatory proceedings and inquiries" in Note 9 of the Financial Statements. ITEM 11(E). FINANCIAL STATEMENTS AND NOTES TO FINANCIAL STATEMENTS LINCOLN BENEFIT LIFE COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
YEAR ENDED DECEMBER 31, ------------------------ 2009 2008 2007 ($ IN THOUSANDS) ------- ------- ------- REVENUES Net investment income.................................. $11,783 $13,940 $14,257 Realized capital gains and losses...................... 1,480 5,952 (417) ------- ------- ------- INCOME FROM OPERATIONS BEFORE INCOME TAX EXPENSE....... 13,263 19,892 13,840 Income tax expense..................................... 4,634 6,918 4,835 ------- ------- ------- NET INCOME............................................. 8,629 12,974 9,005 ------- ------- ------- OTHER COMPREHENSIVE INCOME (LOSS), AFTER-TAX Change in unrealized net capital gains and losses...... 5,783 (4,351) 4,307 ------- ------- ------- COMPREHENSIVE INCOME................................... $14,412 $ 8,623 $13,312 ======= ======= =======
See notes to financial statements. 3 LINCOLN BENEFIT LIFE COMPANY STATEMENTS OF FINANCIAL POSITION
DECEMBER 31, ----------------------- 2009 2008 ($ IN THOUSANDS, EXCEPT PAR VALUE DATA) ----------- ----------- ASSETS Investments Fixed income securities, at fair value (amortized cost $299,787 and $229,667).................................................................. $ 308,343 $ 229,328 Short-term, at fair value (amortized cost $8,557 and $80,705)................ 8,557 80,703 ----------- ----------- Total investments........................................................ 316,900 310,031 Cash............................................................................ 10,063 3,145 Reinsurance recoverable from Allstate Life Insurance Company.................... 18,689,074 18,791,710 Reinsurance recoverable from non-affiliates..................................... 1,766,824 1,613,685 Other assets.................................................................... 110,400 113,637 Separate accounts............................................................... 2,039,647 1,823,163 ----------- ----------- TOTAL ASSETS.......................................................... $22,932,908 $22,655,371 =========== =========== LIABILITIES Contractholder funds............................................................ $17,633,027 $17,787,376 Reserve for life-contingent contract benefits................................... 2,805,387 2,581,186 Unearned premiums............................................................... 21,656 24,169 Deferred income taxes........................................................... 3,300 -- Payable to affiliates, net...................................................... 14,749 36,029 Current income taxes payable.................................................... 4,656 7,017 Other liabilities and accrued expenses.......................................... 97,513 97,870 Separate accounts............................................................... 2,039,647 1,823,163 ----------- ----------- TOTAL LIABILITIES..................................................... 22,619,935 22,356,810 ----------- ----------- COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 9) SHAREHOLDER'S EQUITY Common stock, $100 par value, 30 thousand shares authorized, 25 thousand shares issued and outstanding........................................................ 2,500 2,500 Additional capital paid-in...................................................... 180,000 180,000 Retained income................................................................. 124,912 116,283 Accumulated other comprehensive income (loss): Unrealized net capital gains and losses...................................... 5,561 (222) ----------- ----------- Total accumulated other comprehensive income (loss)................... 5,561 (222) ----------- ----------- TOTAL SHAREHOLDER'S EQUITY............................................ 312,973 298,561 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY............................ $22,932,908 $22,655,371 =========== ===========
See notes to financial statements. 4 LINCOLN BENEFIT LIFE COMPANY STATEMENTS OF SHAREHOLDER'S EQUITY
YEAR ENDED DECEMBER 31, ---------------------------- 2009 2008 2007 ($ IN THOUSANDS) -------- -------- -------- COMMON STOCK........................................... $ 2,500 $ 2,500 $ 2,500 -------- -------- -------- ADDITIONAL CAPITAL PAID-IN............................. 180,000 180,000 180,000 -------- -------- -------- RETAINED INCOME Balance, beginning of year............................. 116,283 103,309 94,304 Net income............................................. 8,629 12,974 9,005 -------- -------- -------- Balance, end of year................................... 124,912 116,283 103,309 -------- -------- -------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance, beginning of year............................. (222) 4,129 (178) Change in unrealized net capital gains and losses...... 5,783 (4,351) 4,307 -------- -------- -------- Balance, end of year................................... 5,561 (222) 4,129 -------- -------- -------- TOTAL SHAREHOLDER'S EQUITY............................. $312,973 $298,561 $289,938 ======== ======== ========
See notes to financial statements. 5 LINCOLN BENEFIT LIFE COMPANY STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ----------------------------- 2009 2008 2007 ($ IN THOUSANDS) --------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income............................................................ $ 8,629 $ 12,974 $ 9,005 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Amortization and other non-cash items.............................. 932 143 25 Realized capital gains and losses.................................. (1,480) (5,952) 417 Changes in: Policy benefit and other insurance reserves.................... 19,349 (5,052) (18,124) Income taxes................................................... (2,174) 2,065 428 Receivable/payable to affiliates, net.......................... (21,280) 14,117 46,902 Other operating assets and liabilities......................... 369 (24,195) (24,698) --------- -------- -------- Net cash provided by (used in) operating activities......... 4,345 (5,900) 13,955 --------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sales of fixed income securities........................ 46,330 101,584 5,176 Collections on fixed income securities................................ 35,334 7,693 13,732 Purchases of fixed income securities.................................. (151,234) (64,497) (17,982) Change in short-term investments...................................... 72,143 (54,347) (19,621) --------- -------- -------- Net cash provided by (used in) investing activities......... 2,573 (9,567) (18,695) --------- -------- -------- NET INCREASE (DECREASE) IN CASH....................................... 6,918 (15,467) (4,740) CASH AT BEGINNING OF YEAR............................................. 3,145 18,612 23,352 --------- -------- -------- CASH AT END OF YEAR................................................... $ 10,063 $ 3,145 $ 18,612 ========= ======== ========
See notes to financial statements. 6 NOTES TO FINANCIAL STATEMENTS 1. GENERAL BASIS OF PRESENTATION The accompanying financial statements include the accounts of Lincoln Benefit Life Company (the "Company"), a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), which is wholly owned by Allstate Insurance Company ("AIC"). All of the outstanding common stock of AIC is owned by Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate Corporation (the "Corporation"). These financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). To conform to the current year presentation, certain amounts in the prior years' financial statements and notes have been reclassified. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NATURE OF OPERATIONS The Company sells life insurance, retirement and investment products. The principal products are fixed annuities, and interest-sensitive, traditional and variable life insurance. The Company is authorized to sell life insurance and retirement products in all states except New York, as well as in the District of Columbia, the U.S. Virgin Islands and Guam. For 2009, the top geographic locations for statutory premiums and annuity considerations were California, Florida, Texas and Pennsylvania. No other jurisdiction accounted for more than 5% of statutory premiums and annuity considerations. All statutory premiums and annuity considerations are ceded under reinsurance agreements. The Company distributes its products through multiple distribution channels, including Allstate exclusive agencies, which include exclusive financial specialists, independent agents (including master brokerage agencies), and, through March 31, 2010, broker-dealers. The Company has exposure to market risk as a result of its investment portfolio. Market risk is the risk that the Company will incur realized and unrealized net capital losses due to adverse changes in interest rates and credit spreads. The Company also has certain exposures to changes in equity prices in its equity-indexed annuities and separate accounts liabilities, which are transferred to ALIC in accordance with reinsurance agreements. Interest rate risk is the risk that the Company will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of its interest bearing assets. This risk arises from the Company's investment in interest-sensitive assets. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields. Credit spread risk is the risk that the Company will incur a loss due to adverse changes in credit spreads. This risk arises from many of the Company's primary activities, as the Company invests substantial funds in spread-sensitive fixed income assets. The Company monitors economic and regulatory developments that have the potential to impact its business. The ability of banks to affiliate with insurers may have a material adverse effect on all of the Company's product lines by substantially increasing the number, size and financial strength of potential competitors. The Company currently benefits from agreements with financial services entities that market and distribute its products; change in control of these non-affiliated entities could negatively impact the Company's sales. Furthermore, federal and state laws and regulations affect the taxation of insurance companies and life insurance and annuity products. Congress and various state legislatures have considered proposals that, if enacted, could impose a greater tax burden on the Company or could have an adverse impact on the tax treatment of some insurance products offered by the Company, including favorable policyholder tax treatment currently 7 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) applicable to life insurance and annuities. Legislation that reduced the federal income tax rates applicable to certain dividends and capital gains realized by individuals, or other proposals, if adopted, that reduce the taxation or permit the establishment of certain products or investments that may compete with life insurance or annuities, could have an adverse effect on the Company's and ALIC's financial position or ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES INVESTMENTS Fixed income securities include bonds, asset-backed securities ("ABS"), residential mortgage-backed securities ("RMBS") and commercial mortgage-backed securities ("CMBS"). Fixed income securities, which may be sold prior to their contractual maturity, are designated as available for sale and are carried at fair value. The difference between amortized cost and fair value, net of deferred income taxes, is reflected as a component of accumulated other comprehensive income. Cash received from calls, principal payments and make-whole payments is reflected as a component of proceeds from sales and cash received from maturities and pay-downs is reflected as a component of investment collections within the Statements of Cash Flows. Short-term investments, including money market funds and other short-term investments, are carried at fair value. Investment income consists primarily of interest and is recognized on an accrual basis using the effective yield method. Interest income for certain asset-backed securities, residential mortgage-backed securities and commercial mortgage-backed securities is determined considering estimated principal repayments obtained from third party data sources and internal estimates. Actual prepayment experience is periodically reviewed and effective yields are recalculated on a retrospective basis when differences arise between the prepayments originally anticipated and the actual prepayments received and currently anticipated. For other-than-temporarily impaired fixed income securities, the effective yield method utilizes the difference between the amortized cost basis at impairment and the cash flows expected to be collected. Accrual of income is suspended for other-than-temporarily impaired fixed income securities when the timing and amount of cash flows expected to be received is not reasonably estimable. Realized capital gains and losses include gains and losses on investment sales and write-downs in value due to other-than-temporary declines in fair value. Realized capital gains and losses on investment sales include calls and prepayments and are determined on a specific identification basis. The Company recognizes other-than-temporary impairment losses on fixed income securities when the decline in fair value is deemed other than temporary including when the Company has made the decision to sell or it is more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis. Additionally, if the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss deemed to be related to other factors and recognized in other comprehensive income ("OCI"). Fixed income securities subject to other-than-temporary impairment write-downs continue to earn investment income when future expected payments are reasonably estimable, and any discount or premium is recognized using the effective yield method over the expected life of the security; otherwise income recognition is discontinued. 8 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) RECOGNITION OF PREMIUM REVENUES AND CONTRACT CHARGES, AND RELATED BENEFITS AND INTEREST CREDITED The Company has reinsurance agreements whereby all premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are ceded to ALIC and non-affiliated reinsurers (see Notes 3 and 8). Amounts reflected in the Statements of Operations and Comprehensive Income are presented net of reinsurance. Traditional life insurance products consist principally of products with fixed and guaranteed premiums and benefits, primarily term and whole life insurance products. Premiums from these products are recognized as revenue when due from policyholders. Benefits are reflected in contract benefits and recognized in relation to premiums, so that profits are recognized over the life of the policy. Immediate annuities with life contingencies provide insurance protection over a period that extends beyond the period during which premiums are collected. Premiums from these products are recognized as revenue when received at the inception of the contract. Benefits and expenses are recognized in relation to premiums. Profits from these policies come from investment income, which is recognized over the life of the contract. Interest-sensitive life contracts, such as universal life and single premium life, are insurance contracts whose terms are not fixed and guaranteed. The terms that may be changed include premiums paid by the contractholder, interest credited to the contractholder account balance and contract charges assessed against the contractholder account balance. Premiums from these contracts are reported as contractholder fund deposits. Contract charges consist of fees assessed against the contractholder account balance for the cost of insurance (mortality risk), contract administration and early surrender. These contract charges are recognized as revenue when assessed against the contractholder account balance. Contract benefits include life-contingent benefit payments in excess of the contractholder account balance. Contracts that do not subject the Company to significant risk arising from mortality or morbidity are referred to as investment contracts. Fixed annuities, including market value adjusted annuities, equity-indexed annuities and immediate annuities without life contingencies, are considered investment contracts. Consideration received for such contracts is reported as contractholder fund deposits. Contract charges for investment contracts consist of fees assessed against the contractholder account balance for maintenance, administration and surrender of the contract prior to contractually specified dates, and are recognized when assessed against the contractholder account balance. Interest credited to contractholder funds represents interest accrued or paid on interest-sensitive life contracts and investment contracts. Crediting rates for certain fixed annuities and interest-sensitive life contracts are adjusted periodically by the Company to reflect current market conditions subject to contractually guaranteed minimum rates. Crediting rates for indexed annuities are generally based on an equity index, such as the Standard & Poor's ("S&P") 500 Index. Contract charges for variable life and variable annuity products consist of fees assessed against the contractholder account values for contract maintenance, administration, mortality, expense and early surrender. Contract benefits incurred for variable annuity products include guaranteed minimum death, income, withdrawal and accumulation benefits. REINSURANCE The Company has reinsurance agreements whereby all premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are ceded to ALIC and non-affiliated reinsurers (see Notes 3 and 8). Reinsurance recoverables and the related reserve for life-contingent contract 9 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) benefits and contractholder funds are reported separately in the Statements of Financial Position. The Company regularly evaluates the financial condition of its reinsurers including their activities with respect to claim settlement practices and establishes allowances for uncollectible reinsurance as appropriate. No amounts have been deemed unrecoverable in the three years ended December 31, 2009. The Company continues to have primary liability as the direct insurer for the risks reinsured. Investment income earned on the assets that support contractholder funds and the reserve for life-contingent contract benefits is not included in the Company's financial statements as those assets are owned and managed by ALIC under the terms of the reinsurance agreements. INCOME TAXES The income tax provision is calculated under the liability method. Deferred tax assets and liabilities are recorded based on the difference between the financial statement and tax bases of assets and liabilities at the enacted tax rates. The principal assets and liabilities giving rise to such differences are unrealized capital gains and losses on investments and differences in tax bases of invested assets. A deferred tax asset valuation allowance is established when there is uncertainty that such assets will be realized (see Note 10). RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS The reserve for life-contingent contract benefits payable under insurance policies, including traditional life insurance and life-contingent immediate annuities, is computed on the basis of long-term actuarial assumptions of future investment yields, mortality, morbidity, policy terminations and expenses (see Note 7). These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy duration. CONTRACTHOLDER FUNDS Contractholder funds represent interest-bearing liabilities arising from the sale of products, such as interest-sensitive life and fixed annuities. Contractholder funds are comprised primarily of deposits received and interest credited to the benefit of the contractholder less surrenders and withdrawals, mortality charges and administrative expenses (see Note 7). Contractholder funds also include reserves for secondary guarantees on interest-sensitive life insurance and certain fixed annuity contracts and reserves for certain guarantees on variable annuity contracts. SEPARATE ACCOUNTS Separate accounts assets are carried at fair value. The assets of the separate accounts are legally segregated and available only to settle separate account contract obligations. Separate accounts liabilities represent the contractholders' claims to the related assets and are carried at an amount equal to the separate accounts assets. Investment income and realized capital gains and losses of the separate accounts accrue directly to the contractholders and therefore, are not included in the Company's Statements of Operations and Comprehensive Income. Deposits to and surrenders and withdrawals from the separate accounts are reflected in separate accounts liabilities and are not included in cash flows. Absent any contract provision wherein the Company provides a guarantee, variable annuity and variable life insurance contractholders bear the investment risk that the separate accounts' funds may not meet their stated investment objectives. The risk and associated cost of these contract guarantees are ceded to ALIC in accordance with the reinsurance agreements. 10 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) ADOPTED ACCOUNTING STANDARDS RECOGNITION AND PRESENTATION OF OTHER-THAN-TEMPORARY IMPAIRMENTS In April 2009, the FASB issued new accounting guidance for the recognition of other-than-temporary impairments ("OTTI") of debt securities. If the fair value of a debt security is less than its amortized cost basis at the reporting date, an entity shall assess whether the impairment is an OTTI. When an entity intends to sell an impaired security or more likely than not will be required to sell an impaired security before recovery of its amortized cost basis, an OTTI is recognized in earnings. If the entity does not expect to recover the entire amortized cost basis of an impaired debt security, even if it does not intend to sell the security and it is not more likely than not that it would be required to sell the security before recovery of its amortized cost basis, the entity must consider, based upon an estimate of the present value of cash flows expected to be collected on the debt security as compared to its amortized cost basis, whether a credit loss exists. The portion of the total OTTI related to a credit loss shall be recognized in earnings while the portion of the total OTTI related to factors other than credit shall be recognized in OCI. The statement of operations is required to present the total OTTI with an offset for the amount of the total OTTI that is recognized in OCI, if any. The statement disclosing accumulated other comprehensive income ("AOCI") is required to separately present amounts recognized for debt securities for which a portion of an OTTI has been recognized in earnings, if any. The new guidance expands disclosure requirements for both debt and equity securities and requires a more detailed, risk-oriented breakdown of security types and related information. In addition, new disclosures are required about significant inputs used in determining credit losses as well as a rollforward of credit losses, if any. The disclosures are not required for earlier periods presented for comparative purposes. The new guidance applies to existing and new investments held as of the beginning of the period of adoption. The Company adopted the provisions of the new guidance as of April 1, 2009. The adoption had no effect on the Company's results of operations or financial position. DETERMINING FAIR VALUE WHEN THE VOLUME AND LEVEL OF ACTIVITY FOR THE ASSET OR LIABILITY HAVE SIGNIFICANTLY DECREASED AND IDENTIFYING TRANSACTIONS THAT ARE NOT ORDERLY In April 2009, the FASB issued new accounting guidance relating to fair value measurements to provide additional guidance for estimating fair value when the volume and level of activity for an asset or liability have significantly decreased. Guidance on identifying circumstances that indicate a transaction is not orderly is also provided. If it is concluded that there has been a significant decrease in the volume and level of market activity for an asset or liability in relation to normal market activity, transaction or quoted prices may not be determinative of fair value and further analysis of transaction or quoted prices may be necessary. Determination of whether a transaction is orderly is based on the weight of relevant evidence. The disclosure requirements are expanded to include the inputs and valuation techniques used to measure fair value and a discussion of changes in valuation techniques and related inputs during the reporting period. Disclosures of assets and liabilities measured at fair value are to be presented by major security type. Disclosures are not required for earlier periods presented for comparative purposes. Revisions resulting from a change in valuation technique or its application shall be accounted for as a change in accounting estimate and disclosed, along with the total effect of the change in valuation technique and related inputs, if practicable, by major category. The Company adopted the provisions of the new guidance as of April 1, 2009. The adoption had no effect on the Company's results of operations or financial position. DISCLOSURES ABOUT DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In March 2008, the FASB issued new accounting guidance, which amends and expands the disclosure requirements for derivatives. The new disclosures are designed to enhance the understanding of how and why an 11 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) entity uses derivative instruments and how derivative instruments affect an entity's financial position, results of operations, and cash flows. The standard requires quantitative disclosures about the potential cash outflows associated with the triggering of credit-risk-contingent features, if any; tabular disclosures about the classification and fair value amounts of derivative instruments reported in the statement of financial position; disclosure of the location and amount of gains and losses on derivative instruments reported in the statement of operations; and qualitative information about how and why an entity uses derivative instruments and how derivative instruments and related hedged items affect the entity's financial statements. Disclosures are not required for earlier periods presented for comparative purposes. The new guidance affects disclosures only and therefore the adoption as of March 31, 2009 had no impact on the Company's results of operations or financial position. PENDING ACCOUNTING STANDARD DISCLOSURES ABOUT FAIR VALUE MEASUREMENTS In January 2010, the FASB issued new accounting guidance which expands disclosure requirements relating to fair value measurements. The guidance adds requirements for disclosing amounts of and reasons for significant transfers into and out of Levels 1 and 2 and requires gross rather than net disclosures about purchases, sales, issuances and settlements relating to Level 3 measurements. The guidance also provides clarification that fair value measurement disclosures are required for each class of assets and liabilities. Disclosures about the valuation techniques and inputs used to measure fair value for measurements that fall in either Level 2 or Level 3 are also required. The new disclosures and clarifications of existing disclosures are effective for periods beginning after December 15, 2009, except for disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements, which are required for fiscal years beginning after December 15, 2010. Disclosures are not required for earlier periods presented for comparative purposes. The new guidance affects disclosures only and therefore its adoption will have no impact on the Company's results of operations or financial position. 3. RELATED PARTY TRANSACTIONS BUSINESS OPERATIONS The Company uses services performed by its affiliates, AIC, ALIC and Allstate Investments LLC, and business facilities owned or leased and operated by AIC in conducting its business activities. In addition, the Company shares the services of employees with AIC. The Company reimburses its affiliates for the operating expenses incurred on behalf of the Company. The Company is charged for the cost of these operating expenses based on the level of services provided. Operating expenses, including compensation, retirement and other benefit programs, allocated to the Company were $202.9 million, $227.0 million and $202.2 million in 2009, 2008 and 2007, respectively. Of these costs, the Company retains investment related expenses on the invested assets of the Company. All other costs are ceded to ALIC under the reinsurance agreements. BROKER-DEALER AGREEMENTS The Company has a service agreement with Allstate Distributors, LLC ("ADLLC"), a broker-dealer company owned by ALIC, whereby ADLLC promotes and markets the fixed annuities sold by the Company to unaffiliated financial services firms. In return for these services, the Company recorded commission expense of $4.6 million, $5.1 million and $3.4 million for the years ended December 31, 2009, 2008 and 2007, respectively, that was ceded to ALIC under the terms of the reinsurance agreements. The Company receives distribution services from Allstate Financial Services, LLC ("AFS"), an affiliated broker-dealer company, for certain variable life insurance contracts sold by Allstate exclusive agencies. For these services, the Company incurred $9.1 million, $18.4 million and $25.5 million of commission and other distribution expenses for the years ending December 31, 2009, 2008 and 2007, respectively, that were ceded to ALIC. 12 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) REINSURANCE The following table summarizes amounts that were ceded to ALIC and reported net in the Statements of Operations and Comprehensive Income under the reinsurance agreements:
2009 2008 2007 ($ IN THOUSANDS) ---------- ---------- ---------- Premiums and contract charges.............. $ 734,369 $ 691,267 $ 623,102 Interest credited to contractholder funds, contract benefits and expenses........... 1,621,011 1,468,505 1,421,831
Reinsurance recoverables due from ALIC totaled $18.69 billion and $18.79 billion as of December 31, 2009 and 2008, respectively. INCOME TAXES The Company is a party to a federal income tax allocation agreement with the Corporation (see Note 10). INTERCOMPANY LOAN AGREEMENT The Company has an intercompany loan agreement with the Corporation. The amount of intercompany loans available to the Company is at the discretion of the Corporation. The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion. The Corporation may use commercial paper borrowings, bank lines of credit and repurchase agreements to fund intercompany borrowings. The Company had no amounts outstanding under the intercompany loan agreement at December 31, 2009 and 2008. 4. INVESTMENTS FAIR VALUES The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:
GROSS UNREALIZED AMORTIZED -------------- FAIR COST GAINS LOSSES VALUE ($ IN THOUSANDS) --------- ------ ------- -------- AT DECEMBER 31, 2009 U.S. government and agencies.......... $ 79,982 $1,852 $ (283) $ 81,551 Municipal............................. 2,999 96 -- 3,095 Corporate............................. 131,466 6,192 (85) 137,573 RMBS.................................. 66,326 1,733 (84) 67,975 CMBS.................................. 10,520 57 (873) 9,704 ABS................................... 8,494 -- (49) 8,445 -------- ------ ------- -------- Total fixed income securities...... $299,787 $9,930 $(1,374) $308,343 ======== ====== ======= ======== AT DECEMBER 31, 2008 U.S. government and agencies.......... $ 75,374 $3,700 $ (258) $ 78,816 Municipal............................. 502 -- (3) 499 Corporate............................. 77,192 603 (2,092) 75,703 RMBS.................................. 46,720 1,680 (49) 48,351 CMBS.................................. 22,896 -- (3,936) 18,960 ABS................................... 6,983 20 (4) 6,999 -------- ------ ------- -------- Total fixed income securities...... $229,667 $6,003 $(6,342) $229,328 ======== ====== ======= ========
13 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) SCHEDULED MATURITIES The scheduled maturities for fixed income securities are as follows at December 31, 2009:
AMORTIZED FAIR COST VALUE ($ IN THOUSANDS) --------- -------- Due in one year or less...................... $ 16,527 $ 16,729 Due after one year through five years........ 133,714 138,059 Due after five years through ten years....... 63,046 65,915 Due after ten years.......................... 11,680 11,220 -------- -------- 224,967 231,923 RMBS and ABS................................. 74,820 76,420 -------- -------- Total..................................... $299,787 $308,343 ======== ========
Actual maturities may differ from those scheduled as a result of prepayments by the issuers. Because of the potential for prepayment on RMBS and ABS, they are not categorized by contractual maturity. The CMBS are categorized by contractual maturity because they generally are not subject to prepayment risk. NET INVESTMENT INCOME Net investment income for the years ended December 31 is as follows:
2009 2008 2007 ($ IN THOUSANDS) ------- ------- ------- Fixed income securities............ $12,098 $13,302 $13,533 Short-term and other investments... 107 992 1,117 ------- ------- ------- Investment income, before expense....................... 12,205 14,294 14,650 Investment expense.............. (422) (354) (393) ------- ------- ------- Net investment income....... $11,783 $13,940 $14,257 ======= ======= =======
REALIZED CAPITAL GAINS AND LOSSES The Company recognized net realized capital gains of $1.5 million and $6.0 million in 2009 and 2008, respectively, and net realized capital losses of $417 thousand in 2007. Realized capital gains and losses in 2009 did not include any other-than-temporary impairment losses and therefore, none were included in other comprehensive income. No other-than-temporary impairment losses are included in accumulated other comprehensive income as of December 31, 2009. Gross gains of $1.5 million and $8.2 million were realized on sales of fixed income securities during 2009 and 2008, respectively. There were no gross gains realized on sales of fixed income securities in 2007. Gross losses of $3 thousand and $32 thousand were realized on sales of fixed income securities during 2009 and 2007, respectively. There were no gross losses realized on sales of fixed income securities in 2008. 14 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) UNREALIZED NET CAPITAL GAINS AND LOSSES Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:
GROSS UNREALIZED FAIR -------------- UNREALIZED NET VALUE GAINS LOSSES GAINS (LOSSES) ($ IN THOUSANDS) -------- ------ ------- -------------- AT DECEMBER 31, 2009 Fixed income securities................................. $308,343 $9,930 $(1,374) $ 8,556 Short-term investments.................................. 8,557 -- -- -- ------- Unrealized net capital gains and losses, pre-tax..... 8,556 Deferred income taxes................................ (2,995) ------- Unrealized net capital gains and losses, after-tax... $ 5,561 ======= GROSS UNREALIZED FAIR -------------- UNREALIZED NET VALUE GAINS LOSSES GAINS (LOSSES) -------- ------ ------- -------------- AT DECEMBER 31, 2008 Fixed income securities................................. $229,328 $6,003 $(6,342) $ (339) Short-term investments.................................. 80,703 -- (2) (2) ------- Unrealized net capital gains and losses, pre-tax..... (341) Deferred income taxes................................ 119 ------- Unrealized net capital gains and losses, after-tax... $ (222) =======
CHANGE IN UNREALIZED NET CAPITAL GAINS AND LOSSES The change in unrealized net capital gains and losses for the years ended December 31 is as follows:
2009 2008 2007 ($ IN THOUSANDS) ------- ------- ------- Fixed income securities................................. $ 8,895 $(6,691) $ 6,625 Short-term investments.................................. 2 (2) -- ------- ------- ------- Total................................................ 8,897 (6,693) 6,625 Deferred income taxes................................... (3,114) 2,342 (2,318) ------- ------- ------- Increase (decrease) in unrealized net capital gains and losses................................................ $ 5,783 $(4,351) $ 4,307 ======= ======= =======
PORTFOLIO MONITORING The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be other-than-temporarily impaired. For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made a decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security's decline in fair value is deemed other than temporary and is recorded in earnings. If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the 15 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Company evaluates if it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security by comparing the estimated recovery value calculated by discounting the best estimate of future cash flows at the security's original or current effective rate, as appropriate, with the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss deemed to be related to other factors and recognized in OCI. The Company's portfolio monitoring process includes a quarterly review of all securities through a screening process which identifies instances where the fair value compared to amortized cost is below established thresholds, and also includes the monitoring of other criteria such as ratings, ratings downgrades or payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company's evaluation of other-than-temporary impairment for these fixed income securities are assumptions and estimates about the financial condition of the issue or issuer and its future earnings potential. Some of the factors considered in evaluating whether a decline in fair value is other than temporary are: 1) the length of time and extent to which the fair value has been less than amortized cost; 2) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; and 3) the specific reasons that a security is in a significant unrealized loss position, including overall market conditions which could affect liquidity. The following table summarizes the gross unrealized losses and fair value of fixed income securities by the length of time that individual securities have been in a continuous unrealized loss position.
LESS THAN 12 MONTHS 12 MONTHS OR MORE --------------------------- -------------------------- TOTAL NUMBER FAIR UNREALIZED NUMBER FAIR UNREALIZED UNREALIZED OF ISSUES VALUE LOSSES OF ISSUES VALUE LOSSES LOSSES ($ IN THOUSANDS) --------- ------- ---------- --------- ------ ---------- ---------- AT DECEMBER 31, 2009 U.S. government and agencies.... 2 $41,469 $ (283) -- $ -- $ -- $ (283) Corporate....................... 5 11,269 (71) 1 3,485 (14) (85) RMBS............................ 1 4,543 (84) -- -- -- (84) CMBS............................ 2 3,475 (27) 1 1,158 (846) (873) ABS............................. 1 8,445 (49) -- -- -- (49) -- ------- ------- -- ------ ------- ------- Total........................ 11 $69,201 $ (514) 2 $4,643 $ (860) $(1,374) == ======= ======= == ====== ======= ======= AT DECEMBER 31, 2008 U.S. government and agencies.... 1 $30,731 $ (258) -- $ -- $ -- $ (258) Municipal....................... 1 499 (3) -- -- -- (3) Corporate....................... 24 47,272 (1,691) 4 4,982 (401) (2,092) RMBS............................ 1 1,119 (49) -- -- -- (49) CMBS............................ 9 18,337 (2,555) 1 623 (1,381) (3,936) ABS............................. 1 997 (4) -- -- -- (4) -- ------- ------- -- ------ ------- ------- Total........................ 37 $98,955 $(4,560) 5 $5,605 $(1,782) $(6,342) == ======= ======= == ====== ======= =======
At December 31, 2009, $529 thousand of unrealized losses are related to fixed income securities with an unrealized loss position less than 20% of amortized cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. All of the unrealized losses are related to investment grade fixed income securities. Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody's, a rating of AAA, AA, A or BBB from Standard & Poors, Fitch, Dominion or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not 16 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) available, which is consistent with the National Association of Insurance Commissioners ("NAIC") rating. Unrealized losses on investment grade securities are principally related to rising interest rates or changes in credit spreads since the securities were acquired. As of December 31, 2009, the remaining $845 thousand of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost. These unrealized losses were evaluated based on factors such as discounted cash flows, the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations, such as recent financings or bank loans, cash flows from operations or collateral. As of December 31, 2009, the Company has not made a decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis. OTHER INVESTMENT INFORMATION At December 31, 2009, fixed income securities and short-term investments with a carrying value of $9.8 million were on deposit with regulatory authorities as required by law. 5. FAIR VALUE OF ASSETS AND LIABILITIES Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows: LEVEL 1:Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access. LEVEL 2:Assets and liabilities whose values are based on the following: a) Quoted prices for similar assets or liabilities in active markets; b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. LEVEL 3:Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company's estimates of the assumptions that market participants would use in valuing the assets and liabilities. The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically 17 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. As of December 31, 2009, 10.3% of total assets are measured at fair value and 1.0% of total liabilities are measured at fair value. SUMMARY OF SIGNIFICANT VALUATION TECHNIQUES FOR ASSETS AND LIABILITIES MEASURED AT FAIR VALUE ON A RECURRING BASIS Level 1 measurements . Fixed income securities: Comprise U.S. Treasuries. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access. . Short-term: Comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access. . Separate account assets: Comprise actively traded mutual funds that have daily quoted net asset values for identical assets that the Company can access. Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers. Level 2 measurements . Fixed income securities: U.S. GOVERNMENT AND AGENCIES: Valued based on inputs including quoted prices for identical or similar assets in markets that are not active. MUNICIPAL: Externally rated municipals are valued based on inputs including quoted prices for identical or similar assets in markets that are not active. CORPORATE, INCLUDING PRIVATELY PLACED: Valued based on inputs including quoted prices for identical or similar assets in markets that are not active. Also includes privately placed securities valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer. RMBS; ABS: Valued based on inputs including quoted prices for identical or similar assets in markets that are not active. CMBS: Valuation is principally based on inputs including quoted prices for identical or similar assets in markets that are not active. . Short-term: Valued based on quoted prices for identical or similar assets in markets that are not active or amortized cost. . Contractholder funds: Derivatives embedded in certain annuity contracts are valued based on internal models that rely on inputs such as interest rate yield curves and equity index volatility assumptions that are market observable for substantially the full term of the contract. The valuation techniques are widely accepted in the financial services industry and do not include significant judgment. 18 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) Level 3 measurements . Fixed income securities: CORPORATE: Valued based on models that are widely accepted in the financial services industry with certain inputs to the valuation model that are significant to the valuation, but are not market observable. CMBS: Valued based on inputs including quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements. Due to the reduced availability of actual market prices or relevant observable inputs as a result of the decrease in liquidity that has been experienced in the market for these securities, certain CMBS are categorized as Level 3. Contractholder funds: Derivatives embedded in certain annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models use stochastically determined cash flows based on the contractual elements of embedded derivatives and other applicable market data. These are categorized as Level 3 as a result of the significance of non-market observable inputs. The following table summarizes the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2009:
QUOTED PRICES SIGNIFICANT IN ACTIVE OTHER SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE BALANCE AS OF IDENTICAL ASSETS INPUTS INPUTS DECEMBER 31, (LEVEL 1) (LEVEL 2) (LEVEL 3) 2009 ($ IN THOUSANDS) ---------------- ----------- ------------ ------------- ASSETS: Fixed income securities: U.S. government and agencies.................. $ 29,273 $ 52,278 $ -- $ 81,551 Municipal..................................... -- 3,095 -- 3,095 Corporate..................................... -- 136,484 1,089 137,573 RMBS.......................................... -- 67,975 -- 67,975 CMBS.......................................... -- 8,546 1,158 9,704 ABS........................................... -- 8,445 -- 8,445 ---------- --------- -------- ---------- Total fixed income securities.............. 29,273 276,823 2,247 308,343 Short-term investments............................ 8,507 50 -- 8,557 Separate account assets........................... 2,039,647 -- -- 2,039,647 ---------- --------- -------- ---------- TOTAL RECURRING BASIS ASSETS.................. 2,077,427 276,873 2,247 2,356,547 ---------- --------- -------- ---------- TOTAL ASSETS AT FAIR VALUE........................... $2,077,427 $ 276,873 $ 2,247 $2,356,547 ========== ========= ======== ========== % of total assets at fair value...................... 88.2% 11.7% 0.1% 100.0% LIABILITIES: Contractholder funds: Derivatives embedded in annuity contracts..... $ -- $(199,765) $(15,526) $ (215,291) ---------- --------- -------- ---------- TOTAL LIABILITIES AT FAIR VALUE...................... $ -- $(199,765) $(15,526) $ (215,291) ========== ========= ======== ========== % of total liabilities at fair value................. -- % 92.8% 7.2% 100.0%
19 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes the Company's assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2008:
QUOTED PRICES SIGNIFICANT IN ACTIVE OTHER SIGNIFICANT MARKETS FOR OBSERVABLE UNOBSERVABLE BALANCE AS OF IDENTICAL ASSETS INPUTS INPUTS DECEMBER 31, (LEVEL 1) (LEVEL 2) (LEVEL 3) 2008 ($ IN THOUSANDS) ---------------- ----------- ------------ ------------- ASSETS: Fixed income securities: U.S. government and agencies.................. $ 48,085 $ 30,731 $ -- $ 78,816 Municipal..................................... -- 499 -- 499 Corporate..................................... -- 74,396 1,307 75,703 RMBS.......................................... -- 48,351 -- 48,351 CMBS.......................................... -- 18,960 -- 18,960 ABS........................................... -- 997 6,002 6,999 ---------- -------- -------- ---------- Total fixed income securities.............. 48,085 173,934 7,309 229,328 Short-term investments............................ 30,657 50,046 -- 80,703 Separate account assets........................... 1,823,163 -- -- 1,823,163 ---------- -------- -------- ---------- TOTAL RECURRING BASIS ASSETS.................. 1,901,905 223,980 7,309 2,133,194 ---------- -------- -------- ---------- TOTAL ASSETS AT FAIR VALUE........................... $1,901,905 $223,980 $ 7,309 $2,133,194 ========== ======== ======== ========== % of total assets at fair value...................... 89.2% 10.5% 0.3% 100.0% LIABILITIES: Contractholder funds: Derivatives embedded in annuity contracts..... $ -- $(33,466) $(36,544) $ (70,010) ---------- -------- -------- ---------- TOTAL LIABILITIES AT FAIR VALUE...................... $ -- $(33,466) $(36,544) $ (70,010) ========== ======== ======== ========== % of total liabilities at fair value................. -- % 47.8% 52.2% 100.0%
When the inputs used to measure fair value fall into different levels of the fair value hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). 20 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following table provides a summary of changes in fair value during the year ended December 31, 2009 of Level 3 assets and liabilities held at fair value on a recurring basis. Net transfers in and/or out of Level 3 are reported as having occurred at the beginning of the quarter the transfer occurred; therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the table below.
TOTAL GAINS (LOSSES) TOTAL REALIZED AND UNREALIZED INCLUDED IN GAINS (LOSSES) INCLUDED IN: PURCHASES, NET INCOME ---------------------------- SALES, FOR ASSETS AND BALANCE OCI ON ISSUANCES NET BALANCE LIABILITIES AS OF STATEMENT OF AND TRANSFERS IN AS OF STILL HELD AT DECEMBER 31, NET FINANCIAL SETTLEMENTS, AND/OR (OUT) DECEMBER 31, DECEMBER 31, 2008 INCOME/(1)/ POSITION NET OF LEVEL 3 2009 2009/(2)/ ($ IN THOUSANDS) ------------ ---------- ------------ ------------ ------------ ------------ -------------- ASSETS Fixed income securities: Corporate................. $ 1,307 $ (2) $ 96 $ (216) $(96) $ 1,089 $ (2) CMBS...................... -- -- 535 -- 623 1,158 -- ABS....................... 6,002 288 (19) (6,271) -- -- -- -------- ------- ---- ------- ---- -------- ------- TOTAL RECURRING LEVEL 3 ASSETS................... $ 7,309 $ 286 $612 $(6,487) $527 $ 2,247 $ (2) ======== ======= ==== ======= ==== ======== ======= LIABILITIES Contractholder funds: Derivatives embedded in annuity contracts........ $(36,544) $19,984 $ -- $ 1,034 $ -- $(15,526) $19,984 -------- ------- ---- ------- ---- -------- ------- TOTAL RECURRING LEVEL 3 LIABILITIES.............. $(36,544) $19,984 $ -- $ 1,034 $ -- $(15,526) $19,984 ======== ======= ==== ======= ==== ======== =======
- -------- (1)The amount above attributable to fixed income securities is reported in the Statements of Operations and Comprehensive Income as follows: $288 thousand in realized capital gains and losses, and $(2) thousand in net investment income. The amount above attributable to derivatives embedded in annuity contracts is reported as a component of contract benefits and is ceded in accordance with the Company's reinsurance agreements. (2)The amount above attributable to fixed income securities is reported as a component of net investment income in the Statements of Operations and Comprehensive Income. The amount above attributable to derivatives embedded in annuity contracts is reported as a component of contract benefits and is ceded in accordance with the Company's reinsurance agreements. 21 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following table provides a summary of changes in fair value during the year ended December 31, 2008 of Level 3 assets and liabilities held at fair value on a recurring basis.
TOTAL GAINS (LOSSES) INCLUDED IN TOTAL REALIZED AND UNREALIZED NET INCOME GAINS (LOSSES) INCLUDED IN: PURCHASES, FOR ASSETS ---------------------------- SALES, AND BALANCE OCI ON ISSUANCES BALANCE LIABILITIES AS OF STATEMENT OF AND AS OF STILL HELD AT JANUARY 1, NET FINANCIAL SETTLEMENTS, DECEMBER 31, DECEMBER 31, 2008 INCOME/(1)/ POSITION NET 2008 2008/(2)/ ($ IN THOUSANDS) ---------- ----------- ------------ ------------ ------------ -------------- ASSETS Fixed income securities: Corporate................ $ 1,500 $ (1) $ -- $ (192) $ 1,307 $ (2) ABS...................... 10,484 181 (434) (4,229) 6,002 (1) ------- -------- ----- ------- -------- -------- TOTAL RECURRING LEVEL 3 ASSETS................. $11,984 $ 180 $(434) $(4,421) $ 7,309 $ (3) ======= ======== ===== ======= ======== ======== LIABILITIES Contractholder funds: Derivatives embedded in annuity contracts...... $ (256) $(36,498) $ -- $ 210 $(36,544) $(36,498) ------- -------- ----- ------- -------- -------- TOTAL RECURRING LEVEL 3 LIABILITIES............ $ (256) $(36,498) $ -- $ 210 $(36,544) $(36,498) ======= ======== ===== ======= ======== ========
- -------- (1)The amount above attributable to fixed income securities is reported in the Statements of Operations and Comprehensive Income as follows: $185 thousand in realized capital gains and losses, and $(5) thousand in net investment income. The amount above attributable to derivatives embedded in annuity contracts is reported as a component of contract benefits and is ceded in accordance with the Company's reinsurance agreements. (2)The amount above attributable to fixed income securities is reported as a component of net investment income in the Statements of Operations and Comprehensive Income. The amount above attributable to derivatives embedded in annuity contracts is reported as a component of contract benefits and is ceded in accordance with the Company's reinsurance agreements. As of December 31, 2009 and 2008, financial instruments not carried at fair value included contractholder funds on investment contracts. The carrying value and fair value of contractholder funds on investment contracts were $13.64 billion and $12.64 billion, respectively, as of December 31, 2009 and were $14.08 billion and $12.67 billion, respectively, as of December 31, 2008. The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts utilizing prevailing market rates for similar contracts adjusted for credit risk. Deferred annuities included in contractholder funds are valued using discounted cash flow models which incorporate market value margins, which are based on the cost of holding economic capital, and the Company's own credit risk. Immediate annuities without life contingencies are valued at the present value of future benefits using market implied interest rates which include the Company's own credit risk. 6. DERIVATIVE FINANCIAL INSTRUMENTS The Company has derivatives embedded in non-derivative "host" contracts, which are required to be separated from the host contracts and accounted for at fair value as derivative instruments. The Company does 22 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) not use derivatives for trading purposes. The Company's embedded derivatives are equity options in annuity product contracts, which provide equity returns to contractholders; and guaranteed minimum accumulation and withdrawal benefits related to the Company's variable annuity contracts. The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Statements of Financial Position at December 31, 2009.
VOLUME- FAIR BALANCE SHEET NOTIONAL VALUE, GROSS GROSS LOCATION AMOUNT NET ASSET LIABILITY ($ IN THOUSANDS) --------------------- ---------- --------- ----- --------- DERIVATIVES NOT DESIGNATED AS ACCOUNTING HEDGING INSTRUMENTS EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS Equity index options in life and annuity product contracts........... Contractholder funds $4,018,238 $(199,765) $-- $(199,765) Guaranteed accumulation benefits............................ Contractholder funds 237,005 (13,690) -- (13,690) Guaranteed withdrawal benefits........ Contractholder funds 37,835 (1,836) -- (1,836) ---------- --------- --- --------- TOTAL DERIVATIVES............................ $4,293,078 $(215,291) $-- $(215,291) ========== ========= === =========
The following table summarizes the notional amount, fair value and carrying value of the Company's derivative financial instruments at December 31, 2008.
CARRYING VALUE NOTIONAL FAIR ----------------- AMOUNT VALUE ASSETS (LIABILITIES) ($ IN THOUSANDS) ---------- -------- ------ ------------- EMBEDDED DERIVATIVE FINANCIAL INSTRUMENTS Equity index options in life and annuity product contracts....................................... $3,827,332 $(33,466) $-- $(33,466) Guaranteed accumulation benefits.................. 218,234 (31,020) -- (31,020) Guaranteed withdrawal benefits.................... 36,605 (5,524) -- (5,524) ---------- -------- --- -------- TOTAL DERIVATIVES.................................... $4,082,171 $(70,010) $-- $(70,010)/(1)/ ========== ======== === ========
- -------- (1)Presented in the Statements of Financial Position as contractholder funds. Losses from valuation on embedded derivative financial instruments recorded in contract benefits for the year ended December 31, 2009 were $145.3 million, which in turn were ceded to ALIC. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS There were no off-balance-sheet financial instruments at December 31, 2009 or 2008. 23 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 7. RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS AND CONTRACTHOLDER FUNDS At December 31, the reserve for life-contingent contract benefits consists of the following:
2009 2008 ($ IN THOUSANDS) ---------- ---------- Traditional life............................... $1,280,461 $1,169,049 Immediate fixed annuities...................... 686,057 700,935 Accident and health............................ 831,211 705,785 Other.......................................... 7,658 5,417 ---------- ---------- Total reserve for life-contingent contract benefits.................................. $2,805,387 $2,581,186 ========== ==========
The following table highlights the key assumptions generally used in calculating the reserve for life-contingent contract benefits:
PRODUCT MORTALITY INTEREST RATE ESTIMATION METHOD - ------- -------------------- ------------------- ------------------- Traditional life Actual company Interest rate Net level premium insurance experience plus assumptions range reserve method loading from 4.0% to 8.0% using the Company's withdrawal experience rates Immediate fixed 1983 individual Interest rate Present value of annuities annuity mortality assumptions range expected future table with internal from 2.3% to 8.8% benefits based on modifications; 1983 historical individual annuity experience mortality table; Annuity 2000 mortality table with internal modifications Accident and health Actual company Unearned premium; experience plus additional contract loading reserves for mortality risk Other: Variable annuity Interest rate Projected benefit guaranteed minimum 100% of Annuity assumptions range ratio applied to death benefits 2000 mortality table from 4.5% to 5.5% cumulative assessments
At December 31, contractholder funds consist of the following:
2009 2008 ($ IN THOUSANDS) ----------- ----------- Interest-sensitive life insurance..... $ 3,844,319 $ 3,572,143 Investment contracts: Fixed annuities.................... 13,675,700 14,103,390 Other investment contracts......... 113,008 111,843 ----------- ----------- Total contractholder funds..... $17,633,027 $17,787,376 =========== ===========
24 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The following table highlights the key contract provisions relating to contractholder funds: WITHDRAWAL/SURRENDER PRODUCT INTEREST RATE CHARGES - ------- -------------------- -------------------- Interest-sensitive Interest rates Either a percentage life insurance credited range from of account balance 3.0% to 6.0% or dollar amount grading off generally over 20 years Fixed annuities Interest rates Either a declining credited range from or a level 1.5% to 8.8% for percentage charge immediate annuities generally over nine and 0% to 16.0% for years or less. other fixed Additionally, annuities (which approximately 22.1% include of fixed annuities equity-indexed are subject to annuities whose market value returns are indexed adjustment for to the S&P 500) discretionary withdrawals. Other investment contracts: Interest rates used Withdrawal and Guaranteed in establishing surrender charges minimum income, reserves range from are based on the accumulation and 1.8% to 10.3% terms of the related withdrawal interest-sensitive benefits on life insurance or variable fixed annuity annuities and contract. secondary guarantees on interest-sensitive life insurance and fixed annuities Contractholder funds activity for the years ended December 31 is as follows:
2009 2008 ($ IN THOUSANDS) ----------- ----------- Balance, beginning of year.............. $17,787,376 $17,820,885 Deposits................................ 1,751,516 2,148,361 Interest credited....................... 821,046 528,493 Benefits................................ (523,905) (552,047) Surrenders and partial withdrawals...... (1,826,122) (1,855,296) Contract charges........................ (417,398) (367,880) Net transfers from separate accounts.... 14,400 18,595 Other adjustments....................... 26,114 46,265 ----------- ----------- Balance, end of year.................... $17,633,027 $17,787,376 =========== ===========
25 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The table below presents information regarding the Company's variable annuity contracts with guarantees. The Company's variable annuity contracts may offer more than one type of guarantee in each contract; therefore, the sum of amounts listed exceeds the total account balances of variable annuity contracts' separate accounts with guarantees.
DECEMBER 31, ------------------- 2009 2008 ($ IN MILLIONS) --------- --------- IN THE EVENT OF DEATH Separate account value............................... $ 1,405.4 $ 1,327.3 Net amount at risk/(1)/.............................. $ 213.1 $ 455.0 Average attained age of contractholders.............. 57 years 56 years AT ANNUITIZATION Separate account value............................... $ 263.7 $ 233.4 Net amount at risk/(2)/.............................. $ 75.9 $ 139.8 Weighted average waiting period until annuitization options available.................................. 3 years 4 years FOR CUMULATIVE PERIODIC WITHDRAWALS Separate account value............................... $ 37.8 $ 36.6 Net amount at risk/(3)/.............................. $ 0.6 $ 5.0 ACCUMULATION AT SPECIFIED DATES Separate account value............................... $ 236.8 $ 218.0 Net amount at risk/(4)/.............................. $ 26.9 $ 52.9 Weighted average waiting period until guarantee date............................................... 10 years 10 years
- -------- (1)Defined as the estimated current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. (2)Defined as the estimated present value of the guaranteed minimum annuity payments in excess of the current account balance. (3)Defined as the estimated current guaranteed minimum withdrawal balance (initial deposit) in excess of the current account balance at the balance sheet date. (4)Defined as the estimated present value of the guaranteed minimum accumulation balance in excess of the current account balance. As of December 31, 2009, liabilities for guarantees related to death, income, accumulation and withdrawal benefits were $65.9 million, $38.6 million, $13.7 million and $2.4 million, respectively. As of December 31, 2008, liabilities for guarantees related to death, income, accumulation and withdrawal benefits were $48.4 million, $32.3 million, $31.0 million and $5.5 million, respectively. 8. REINSURANCE The Company has reinsurance agreements under which it reinsures all of its business to ALIC or other non-affiliated reinsurers. Under the agreements, premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are reinsured. The Company purchases reinsurance to limit aggregate and single losses on large risks. The Company cedes a portion of the mortality risk on certain life policies to a pool of twelve non-affiliated reinsurers. The Company continues to have primary liability as the direct insurer for risks reinsured. Amounts recoverable from reinsurers are estimated based upon assumptions consistent with those used in establishing the liabilities related to the underlying reinsured contracts. At December 31, 2009, 91.4% of the total 26 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) reinsurance recoverables were related to ALIC and 8.6% were related to non-affiliated reinsurers. At both December 31, 2009 and 2008, 97% of the Company's non-affiliated reinsurance recoverables are due from companies rated A or better by S&P. The effects of reinsurance on premiums and contract charges for the years ended December 31 are as follows:
2009 2008 2007 ($ IN THOUSANDS) ---------- ---------- ---------- PREMIUMS AND CONTRACT CHARGES Direct................................ $1,194,526 $1,138,747 $1,038,671 Assumed............................... 7,849 8,576 9,132 Ceded: Affiliate.......................... (734,369) (691,267) (623,102) Non-affiliate...................... (468,006) (456,056) (424,701) ---------- ---------- ---------- Premiums and contract charges, net of reinsurance......................... $ -- $ -- $ -- ========== ========== ==========
The effects of reinsurance on interest credited to contractholder funds, contract benefits and expenses for the years ended December 31 are as follows:
2009 2008 2007 ($ IN THOUSANDS) ----------- ----------- ----------- INTEREST CREDITED TO CONTRACTHOLDER FUNDS, CONTRACT BENEFITS AND EXPENSES Direct..................................... $ 2,159,262 $ 2,065,299 $ 1,964,326 Assumed.................................... 11,101 8,922 10,473 Ceded: Affiliate............................... (1,621,011) (1,468,505) (1,421,831) Non-affiliate........................... (549,352) (605,716) (552,968) ----------- ----------- ----------- Interest credited to contractholder funds, contract benefits and expenses, net of reinsurance.............................. $ -- $ -- $ -- =========== =========== ===========
9. COMMITMENTS, GUARANTEES AND CONTINGENT LIABILITIES GUARANTEES In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures. The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits. The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote. The terms of the indemnifications vary in duration and nature. In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur. Consequently, the maximum amount of the obligation under such indemnifications is not determinable. Historically, the Company has not made any material payments pursuant to these obligations. The aggregate liability balance related to all guarantees was not material as of December 31, 2009. 27 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) REGULATION AND COMPLIANCE The Company is subject to changing social, economic and regulatory conditions. From time to time, regulatory authorities or legislative bodies seek to impose additional regulations regarding agent and broker compensation and otherwise expand overall regulation of insurance products and the insurance industry. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred. The ultimate changes and eventual effects of these actions on the Company's business, if any, are uncertain. LEGAL AND REGULATORY PROCEEDINGS AND INQUIRIES BACKGROUND The Company and certain affiliates are involved in a number of lawsuits, regulatory inquiries, and other legal proceedings arising out of various aspects of its business. As background to the "Proceedings" subsection below, please note the following: . These matters raise difficult and complicated factual and legal issues and are subject to many uncertainties and complexities, including the underlying facts of each matter; novel legal issues; variations between jurisdictions in which matters are being litigated, heard or investigated; differences in applicable laws and judicial interpretations; the length of time before many of these matters might be resolved by settlement, through litigation or otherwise; the fact that some of the lawsuits are putative class actions in which a class has not been certified and in which the purported class may not be clearly defined; the fact that some of the lawsuits involve multi-state class actions in which the applicable law(s) for the claims at issue is in dispute and therefore unclear; and the current challenging legal environment faced by large corporations and insurance companies. . The outcome of these matters may be affected by decisions, verdicts, and settlements, and the timing of such decisions, verdicts, and settlements, in other individual and class action lawsuits that involve the Company, other insurers, or other entities and by other legal, governmental, and regulatory actions that involve the Company, other insurers, or other entities. The outcome may also be affected by future state or federal legislation, the timing or substance of which cannot be predicted. . In the lawsuits, plaintiffs seek a variety of remedies including equitable relief in the form of injunctive and other remedies and monetary relief in the form of contractual and extra-contractual damages. In some cases, the monetary damages sought include punitive damages. Often specific information about the relief sought, such as the amount of damages, is not available because plaintiffs have not requested specific relief in their pleadings. In the Company's experience, when specific monetary demands are made in pleadings, they bear little relation to the ultimate loss, if any, to the Company. . In connection with regulatory examinations and proceedings, government authorities may seek various forms of relief, including penalties, restitution and changes in business practices. The Company may not be advised of the nature and extent of relief sought until the final stages of the examination or proceeding. . For the reasons specified above, it is often not possible to make meaningful estimates of the amount or range of loss that could result from the matters described below in the "Proceedings" subsection. The Company reviews these matters on an ongoing basis and follows appropriate accounting guidance when making accrual and disclosure decisions. When assessing reasonably possible and probable outcomes, the Company bases its decisions on its assessment of the ultimate outcome following all appeals. 28 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) . Due to the complexity and scope of the matters disclosed in the "Proceedings" subsection below and the many uncertainties that exist, the ultimate outcome of these matters cannot be reasonably predicted. In the event of an unfavorable outcome in one or more of these matters, the ultimate liability may be in excess of amounts currently reserved, if any, and may be material to the Company's operating results or cash flows for a particular quarterly or annual period. However, based on information currently known to it, management believes that the ultimate outcome of all matters described below, as they are resolved over time, is not likely to have a material adverse effect on the financial position of the Company. PROCEEDINGS Legal proceedings involving Allstate agencies and AIC may impact the Company, even when the Company is not directly involved, because the Company sells its products through a variety of distribution channels including Allstate agencies. Consequently, information about the more significant of these proceedings is provided in the following paragraph. AIC is defending certain matters relating to its agency program reorganization announced in 1999. These matters are in various stages of development. . These matters include a lawsuit filed in 2001 by the U.S. Equal Employment Opportunity Commission ("EEOC") alleging retaliation under federal civil rights laws (the "EEOC I" suit) and a class action filed in 2001 by former employee agents alleging retaliation and age discrimination under the Age Discrimination in Employment Act ("ADEA"), breach of contract and ERISA violations (the "Romero I" suit). In 2004, in the consolidated EEOC I and Romero I litigation, the trial court issued a memorandum and order that, among other things, certified classes of agents, including a mandatory class of agents who had signed a release, for purposes of effecting the court's declaratory judgment that the release is voidable at the option of the release signer. The court also ordered that an agent who voids the release must return to AIC "any and all benefits received by the [agent] in exchange for signing the release." The court also stated that, "on the undisputed facts of record, there is no basis for claims of age discrimination." The EEOC and plaintiffs asked the court to clarify and/or reconsider its memorandum and order and in January 2007, the judge denied their request. In June 2007, the court granted AIC's motions for summary judgment. Following plaintiffs' filing of a notice of appeal, the U.S. Court of Appeals for the Third Circuit ("Third Circuit") issued an order in December 2007 stating that the notice of appeal was not taken from a final order within the meaning of the federal law and thus not appealable at this time. In March 2008, the Third Circuit decided that the appeal should not summarily be dismissed and that the question of whether the matter is appealable at this time will be addressed by the Third Circuit along with the merits of the appeal. In July 2009, the Third Circuit vacated the decision which granted AIC's summary judgment motions, remanded the cases to the trial court for additional discovery, and directed that the cases be reassigned to another trial court judge. . A putative nationwide class action has also been filed by former employee agents alleging various violations of ERISA, including a worker classification issue. These plaintiffs are challenging certain amendments to the Agents Pension Plan and are seeking to have exclusive agent independent contractors treated as employees for benefit purposes. This matter was dismissed with prejudice by the trial court, was the subject of further proceedings on appeal, and was reversed and remanded to the trial court in 2005. In June 2007, the court granted AIC's motion to dismiss the case. Following plaintiffs' filing of a notice of appeal, the Third Circuit issued an order in December 2007 stating that the notice of appeal was not taken from a final order within the meaning of the federal law and thus not appealable at this time. In March 2008, the Third Circuit decided that the appeal should not summarily be dismissed and that the question of whether the matter is appealable at this time will be addressed by the Third Circuit along with the merits of the appeal. In July 2009, the Third Circuit vacated the decision which granted AIC's motion to dismiss the case, remanded the case to the trial court for additional discovery, and directed that the case be reassigned to another trial court judge. 29 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) In all of these various matters, plaintiffs seek compensatory and punitive damages, and equitable relief. AIC has been vigorously defending these lawsuits and other matters related to its agency program reorganization. OTHER MATTERS Various other legal, governmental, and regulatory actions, including state market conduct exams, and other governmental and regulatory inquiries are currently pending that involve the Company and specific aspects of its conduct of business. Like other members of the insurance industry, the Company is the target of a number of lawsuits and other types of proceedings, some of which involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and target a range of the Company's practices. The outcome of these disputes is currently unpredictable. However, based on information currently known to it and the existence of the reinsurance agreements with ALIC, management believes that the ultimate outcome of all matters described in this "Other Matters" subsection, in excess of amounts currently reserved, if any, as they are resolved over time is not likely to have a material effect on the operating results, cash flows or financial position of the Company. 10. INCOME TAXES The Company joins the Corporation and its other domestic subsidiaries (the "Allstate Group") in the filing of a consolidated federal income tax return and is party to a federal income tax allocation agreement (the "Allstate Tax Sharing Agreement"). Under the Allstate Tax Sharing Agreement, the Company pays to or receives from the Corporation the amount, if any, by which the Allstate Group's federal income tax liability is affected by virtue of inclusion of the Company in the consolidated federal income tax return. The Company also has a supplemental tax sharing agreement with respect to reinsurance ceded to ALIC to allocate the tax benefits and costs related to such reinsurance. Effectively, these agreements result in the Company's annual income tax provision being computed, with adjustments, as if the Company filed a separate return, adjusted for the reinsurance ceded to ALIC. The Internal Revenue Service ("IRS") is currently examining the Allstate Group's 2007 and 2008 federal income tax returns. The IRS has completed its examination of the Allstate Group's federal income tax returns filed for 2005-2006 and the case is under consideration at the IRS Appeals Office. The Allstate Group's tax years prior to 2005 have been examined by the IRS and the statute of limitations has expired on those years. Any adjustments that may result from IRS examinations of tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company. The Company had no liability for unrecognized tax benefits at December 31, 2009 or 2008, and believes it is reasonably possible that the liability balance will not significantly increase within the next twelve months. No amounts have been accrued for interest or penalties. The components of the deferred income tax assets and liabilities at December 31 are as follows:
2009 2008 ($ IN THOUSANDS) ------- ----- DEFERRED ASSETS Unrealized net capital losses.............. $ -- $ 119 Other assets............................... -- 20 ------- ----- Total deferred assets................... -- 139 ------- ----- DEFERRED LIABILITIES Unrealized net capital gains............... (2,995) -- Difference in tax bases of investments..... (118) (139) Other liabilities.......................... (187) -- ------- ----- Total deferred liabilities.............. (3,300) (139) ------- ----- Net deferred liabilities............ $(3,300) $ -- ======= =====
30 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) The components of income tax expense for the years ended December 31 are as follows:
2009 2008 2007 ($ IN THOUSANDS) ------ ------ ------ Current......................... $4,447 $7,054 $4,810 Deferred........................ 187 (136) 25 ------ ------ ------ Total income tax expense..... $4,634 $6,918 $4,835 ====== ====== ======
The Company paid income taxes of $6.8 million, $4.9 million and $4.4 million in 2009, 2008 and 2007, respectively. A reconciliation of the statutory federal income tax rate to the effective income tax rate on income from operations for the years ended December 31 is as follows:
2009 2008 2007 ---- ---- ---- Statutory federal income tax rate.......................... 35.0% 35.0% 35.0% Other........................... (0.1) (0.2) (0.1) ---- ---- ---- Effective income tax rate....... 34.9% 34.8% 34.9% ==== ==== ====
11. STATUTORY FINANCIAL INFORMATION The Company prepares its statutory-basis financial statements in conformity with accounting practices prescribed or permitted by the State of Nebraska. The State of Nebraska requires insurance companies domiciled in its state to prepare statutory-basis financial statements in conformity with the NAIC Accounting Practices and Procedures Manual, subject to any deviations prescribed or permitted by the State of Nebraska Insurance Commissioner. Prescribed statutory accounting practices include a variety of publications of the NAIC, as well as state laws, regulations and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed. Statutory accounting practices differ from GAAP primarily since they require charging policy acquisition and certain sales inducement costs to expense as incurred, establishing life insurance reserves based on different actuarial assumptions, and valuing certain investments and establishing deferred taxes on a different basis. Statutory net income for 2009, 2008, and 2007 was $8.5 million, $7.8 million and $9.1 million, respectively. Statutory capital and surplus was $306.0 million and $278.8 million as of December 31, 2009 and 2008, respectively. DIVIDENDS The ability of the Company to pay dividends is dependent on business conditions, income, cash requirements of the Company and other relevant factors. The payment of shareholder dividends by the Company without the prior approval of the state insurance regulator is limited to formula amounts based on net income and capital and surplus, determined in conformity with statutory accounting practices, as well as the timing and amount of dividends paid in the preceding twelve months. Based on the Company's statutory capital and surplus as of December 31, 2009, the maximum amount of dividends that the Company can distribute during 2010 without prior approval of the Nebraska Department of Insurance is $30.6 million. The Company did not pay any dividends in 2009. 31 NOTES TO FINANCIAL STATEMENTS--(CONTINUED) 12. OTHER COMPREHENSIVE INCOME The components of other comprehensive income (loss) on a pre-tax and after-tax basis for the years ended December 31 are as follows:
2009 -------------------------- PRE-TAX TAX AFTER-TAX ($ IN THOUSANDS) ------- ------- --------- Unrealized net holding gains arising during the period.......... $10,135 $(3,547) $ 6,588 Less: reclassification adjustment of realized capital gains and losses........................................................ 1,238 (433) 805 ------- ------- ------- Unrealized net capital gains and losses......................... 8,897 (3,114) 5,783 ------- ------- ------- Other comprehensive income...................................... $ 8,897 $(3,114) $ 5,783 ======= ======= ======= 2008 -------------------------- PRE-TAX TAX AFTER-TAX - - ------- ------- --------- Unrealized net holding losses arising during the period......... $(3,078) $ 1,077 $(2,001) Less: reclassification adjustment of realized capital gains and losses........................................................ 3,615 (1,265) 2,350 ------- ------- ------- Unrealized net capital gains and losses......................... (6,693) 2,342 (4,351) ------- ------- ------- Other comprehensive loss........................................ $(6,693) $ 2,342 $(4,351) ======= ======= ======= 2007 -------------------------- PRE-TAX TAX AFTER-TAX - - ------- ------- --------- Unrealized net holding gains arising during the period.......... $ 6,211 $(2,173) $ 4,038 Less: reclassification adjustment of realized capital gains and losses........................................................ (414) 145 (269) ------- ------- ------- Unrealized net capital gains and losses......................... 6,625 (2,318) 4,307 ------- ------- ------- Other comprehensive income...................................... $ 6,625 $(2,318) $ 4,307 ======= ======= =======
32 LINCOLN BENEFIT LIFE COMPANY SCHEDULE I--SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 2009
AMOUNTS AT WHICH SHOWN ON AMORTIZED FAIR BALANCE COST VALUE SHEET ($ IN THOUSANDS) --------- -------- ---------- Type of investment Fixed maturities: Bonds: United States government, government agencies and authorities..... $ 79,982 $ 81,551 $ 81,551 States, municipalities and political subdivisions................. 2,999 3,095 3,095 Public utilities.................................................. 12,037 12,602 12,602 All other corporate bonds......................................... 119,429 124,971 124,971 Asset-backed securities............................................... 8,494 8,445 8,445 Residential mortgage-backed securities................................ 66,326 67,975 67,975 Commercial mortgage-backed securities................................. 10,520 9,704 9,704 -------- -------- -------- Total fixed maturities............................................ 299,787 308,343 308,343 Short-term investments................................................... 8,557 8,557 8,557 -------- -------- -------- Total investments................................................. $308,344 $316,900 $316,900 ======== ======== ========
33 LINCOLN BENEFIT LIFE COMPANY SCHEDULE IV--REINSURANCE
PERCENTAGE ASSUMED OF AMOUNT CEDED TO OTHER FROM OTHER NET ASSUMED GROSS AMOUNT COMPANIES/(1)/ COMPANIES AMOUNT TO NET ($ IN THOUSANDS) ------------ -------------- ---------- ------ ---------- YEAR ENDED DECEMBER 31, 2009 Life insurance in force........ $349,952,260 $356,581,252 $6,628,992 $-- -- ============ ============ ========== === Premiums and contract charges: Life and annuities.......... $ 1,072,840 $ 1,080,689 $ 7,849 $-- -- Accident and health......... 121,686 121,686 -- -- -- ------------ ------------ ---------- --- $ 1,194,526 $ 1,202,375 $ 7,849 $-- -- ============ ============ ========== === YEAR ENDED DECEMBER 31, 2008 Life insurance in force........ $337,177,898 $344,250,029 $7,072,131 $-- -- ============ ============ ========== === Premiums and contract charges: Life and annuities.......... $ 1,017,339 $ 1,025,915 $ 8,576 $-- -- Accident and health......... 121,408 121,408 -- -- -- ------------ ------------ ---------- --- $ 1,138,747 $ 1,147,323 $ 8,576 $-- -- ============ ============ ========== === YEAR ENDED DECEMBER 31, 2007 Life insurance in force........ $315,111,039 $322,635,416 $7,524,377 $-- -- ============ ============ ========== === Premiums and contract charges: Life and annuities.......... $ 922,355 $ 931,487 $ 9,132 $-- -- Accident and health......... 116,316 116,316 -- -- -- ------------ ------------ ---------- --- $ 1,038,671 $ 1,047,803 $ 9,132 $-- -- ============ ============ ========== ===
- -------- (1)No reinsurance or coinsurance income was netted against premiums ceded in 2009, 2008 and 2007. 34 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholder of Lincoln Benefit Life Company Lincoln, NE We have audited the accompanying Statements of Financial Position of Lincoln Benefit Life Company (the "Company"), an affiliate of The Allstate Corporation, as of December 31, 2009 and 2008, and the related Statements of Operations and Comprehensive Income, Shareholder's Equity, and Cash Flows for each of the three years in the period ended December 31, 2009. Our audits also included Schedule I--Summary of Investments--Other than Investments in Related Parties and Schedule IV--Reinsurance. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of Lincoln Benefit Life Company as of December 31, 2009 and 2008, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2009, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, Schedule I--Summary of Investments--Other than Investments in Related Parties and Schedule IV--Reinsurance, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. As discussed in Note 2 to the financial statements, the Company changed its recognition and presentation for other-than-temporary impairments of debt securities in 2009. /s/ Deloitte & Touche LLP Chicago, Illinois March 12, 2010 35 ITEM 11(F). SELECTED FINANCIAL DATA LINCOLN BENEFIT LIFE COMPANY 5-YEAR SUMMARY OF SELECTED FINANCIAL DATA
2009 2008 2007 2006 2005 ($ IN THOUSANDS) ----------- ----------- ----------- ----------- ----------- OPERATING RESULTS Net investment income......... $ 11,783 $ 13,940 $ 14,257 $ 13,948 $ 13,632 Realized capital gains and losses...................... 1,480 5,952 (417) (1,255) (174) Total revenues................ 13,263 19,892 13,840 12,693 13,458 Net income.................... 8,629 12,974 9,005 8,260 8,787 FINANCIAL POSITION Investments................... $ 316,900 $ 310,031 $ 301,201 $ 276,322 $ 271,369 Total assets.................. 22,932,908 22,655,371 23,700,007 23,862,919 22,475,513 Reserve for life-contingent contract benefits and contractholder funds........ 20,438,414 20,368,562 20,169,001 20,322,077 19,354,298 Shareholder's equity.......... 312,973 298,561 289,938 276,626 269,251
36 ITEM 11(H).MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The following discussion highlights significant factors influencing the financial position and results of operations of Lincoln Benefit Life Company (referred to in this document as "we", "Lincoln Benefit", "our", "us" or the "Company"). It should be read in conjunction with the financial statements and related notes found under Item 11(e) contained herein. We operate as a single segment entity, based on the manner in which we use financial information to evaluate business performance and to determine the allocation of resources. The most important factors we monitor to evaluate the financial condition and performance of our company include: . For operations: premiums and deposits ceded to ALIC, and invested assets; . For investments: credit quality/experience, realized capital gains and losses, investment income, unrealized capital gains and losses, stability of long-term returns, cash flows and asset duration; and . For financial condition: financial strength ratings and capital positions. APPLICATION OF CRITICAL ACCOUNTING ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the financial statements. The most critical estimates include those used in determining: . Fair value of financial assets . Impairment of fixed income securities In making these determinations, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our businesses and operations. It is reasonably likely that changes in these estimates could occur from period to period and result in a material impact on our financial statements. A brief summary of each of these critical accounting estimates follows. For a more detailed discussion of the effect of these estimates on our financial statements, and the judgments and assumptions related to these estimates, see the referenced sections of this document. For a complete summary of our significant accounting policies, see Note 2 of the financial statements. FAIR VALUE OF FINANCIAL ASSETS Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We categorize our financial assets measured at fair value into a three-level hierarchy based on the observability of inputs to the valuation techniques as follows: LEVEL 1:Financial assets are based on unadjusted quoted prices for identical assets in an active market that we can access. LEVEL 2:Financial assets values are based on the following: a) Quoted prices for similar assets in active markets; b) Quoted prices for identical or similar assets in markets that are not active; or c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset. 37 LEVEL 3:Financial assets values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect our estimates of the assumptions that market participants would use in valuing the financial assets. Observable inputs are inputs that reflect the assumptions market participants would use in valuing financial assets that are developed based on market data obtained from independent sources. In the absence of sufficient observable inputs, unobservable inputs reflect our estimates of the assumptions market participants would use in valuing financial assets and are developed based on the best information available in the circumstances. The degree of management judgment involved in determining fair values is inversely related to the availability of market observable information. If valuation inputs used to measure fair value fall into different levels of the fair value hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement in its entirety. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We gain assurance on the overall reasonableness and consistent application of valuation input assumptions, valuation methodologies and compliance with accounting standards for fair value determination through the execution of various processes and controls designed to ensure that our financial assets are appropriately valued. We monitor fair values received from third parties and those derived internally on an ongoing basis. We employ independent third-party valuation service providers, broker quotes and internal pricing methods to determine fair values, which provide a single quote or price for each financial instrument. We obtain or calculate only one quote or price per instrument. Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of proprietary algorithms, produce valuation information in the form of a single fair value for individual securities for which a fair value has been requested under the terms of our agreements. For certain security types, fair values are derived from the valuation service providers' proprietary valuation models. The inputs used by the valuation service providers include, but are not limited to, market prices from recently completed transactions and transactions of comparable securities, interest rate yield curves, credit spreads, liquidity spreads, currency rates, and other information, as applicable. Credit and liquidity spreads are typically implied from completed transactions and transactions of comparable securities. Valuation service providers also use proprietary discounted cash flow models that are widely accepted in the financial services industry and similar to those used by other market participants to value the same financial instruments. The valuation models take into account, among other things, market observable information as of the measurement date, as described above, as well as the specific attributes of the security being valued including its term, interest rate, credit rating, industry sector, and where applicable, collateral quality and other issue or issuer specific information. Executing valuation models effectively requires seasoned professional judgment and experience. In cases where market transactions or other market observable data is limited, the extent to which judgment is applied varies inversely with the availability of market observable information. For certain of our financial assets carried at fair value, where our valuation service providers cannot provide fair value determinations, we obtain a single non-binding price quote from a broker familiar with the security who, similar to our valuation service providers, may consider transactions or activity in similar securities, as applicable, among other information. The brokers providing price quotes are generally from the brokerage divisions of leading financial institutions with market making, underwriting and distribution expertise regarding the security subject to valuation. The fair value of certain financial assets, including privately placed corporate securities, where our valuation service providers or brokers do not provide fair value determinations, is determined using valuation methods and models widely accepted in the financial services industry. Internally developed valuation models, which include inputs that may not be market observable and as such involve some degree of judgment, are considered appropriate for each class of security to which they are applied. 38 Our internal pricing methods are primarily based on models using discounted cash flow methodologies that develop a single best estimate of fair value. Our models generally incorporate inputs that we believe are representative of inputs other market participants would use to determine fair value of the same instruments, including yield curves, quoted market prices of comparable securities, published credit spreads, and other applicable market data. Additional inputs that are used to model fair value include internally-derived assumptions such as liquidity premium and credit ratings, as well as instrument-specific characteristics that include, but are not limited to, coupon rate, expected cash flows, sector of issuer, and call provisions. Internally assigned credit ratings are generally consistent with external ratings published by the National Association of Insurance Commissioners ("NAIC"); however, they are developed at a more finite level. For example, an NAIC rating of 1 includes securities rated triple, double and single A by at least one nationally recognized statistical rating organization ("NRSRO"). We believe our internal ratings provide for a more reliable estimate of fair value since we can more precisely match these ratings to other market observable valuation inputs, such as credit and sector spreads, when performing these valuations. Due to the existence of non-market observable inputs, such as liquidity premiums, judgment is required in developing these fair values. As a result, the fair value of these financial assets may differ from the amount actually received to sell an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the financial assets' fair values. For the majority of our financial assets measured at fair value, all significant inputs are based on market observable data and significant management judgment does not affect the periodic determination of fair value. The determination of fair value using discounted cash flow models involves management judgment when significant model inputs are not based on market observable data. However, where market observable data is available, it takes precedence, and as a result, no range of reasonably likely inputs exists from which the basis of a sensitivity analysis could be constructed. We believe our most significant exposure to changes in fair value is due to market risk. Our exposure to changes in market conditions is discussed fully in the Market Risk section of the MD&A. We employ specific control processes to determine the reasonableness of the fair values of our financial assets. Our processes are designed to ensure that the values received or internally estimated are accurately recorded and that the data inputs and the valuation techniques utilized are appropriate, consistently applied, and that the assumptions are reasonable and consistent with the objective of determining fair value. For example, on a continuing basis, we assess the reasonableness of individual security values received from valuation service providers and those derived from internal models that exceed certain thresholds as compared to previous values received from those valuation service providers or derived from internal models. In addition, we may validate the reasonableness of fair values by comparing information obtained from our valuation service providers to other third party valuation sources for selected securities. For internal pricing models, we have implemented price validation procedures such as back-testing of actual sales, which corroborates the various model inputs to market observable data. When fair value determinations are expected to be more variable, we validate them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. We also perform an analysis to determine whether there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity, and if so, whether transactions may not be orderly. Among the indicators we consider in determining whether a significant decrease in the volume and level of market activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, level of credit spreads over historical levels, bid-ask spread, and price consensuses among market participants and sources. If evidence indicates that prices are based on transactions that are not orderly, we place little, if any, weight on the transaction price and will estimate fair value using an internal pricing model. As of December 31, 2009 and 2008, we did not alter fair values provided by our valuation service providers or brokers or substitute them with an internal pricing model. 39 The following table identifies fixed income and short-term investments as of December 31, 2009 by source of value determination:
FAIR PERCENT VALUE TO TOTAL ($ IN THOUSANDS) -------- -------- Fair value based on internal sources...... $ 1,140 0.4% Fair value based on external sources/(1)/. 315,760 99.6 -------- ----- Total investments......................... $316,900 100.0% ======== =====
- -------- (1)None were valued using broker quotes. For more detailed information on our accounting policy for the fair value of financial assets and the financial assets by level in the fair value hierarchy, see Notes 2 and 5 of the financial statements. IMPAIRMENT OF FIXED INCOME SECURITIES For fixed income securities classified as available for sale, the difference between fair value and amortized cost, net of deferred income taxes, is reported as a component of accumulated other comprehensive income on the Statements of Financial Position and is not reflected in the operating results of any period until reclassified to net income upon the consummation of a transaction with an unrelated third party or when the decline in fair value is deemed other than temporary. We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be other-than-temporarily impaired. For each fixed income security in an unrealized loss position, we assess whether management with the appropriate authority has made a decision to sell or whether it is more likely than not we will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security's decline in fair value is deemed other than temporary and is recorded in earnings. If we have not made the decision to sell the fixed income security and it is not more likely than not we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We use our best estimate of future cash flows expected to be collected from the fixed income security discounted at the security's original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition of the issue or issuer(s), expected defaults, expected recoveries, the value of underlying collateral and current subordination levels, vintage, geographic concentration, available reserves or escrows, third party guarantees and other credit enhancements. Additionally, other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral may be used to estimate recovery value if we determine that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The unrealized loss deemed to be related to factors other than credit remains classified in other comprehensive income. If we determine that the fixed income security does not have sufficient cash flow or other information to determine a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and is recorded in earnings. 40 Once assumptions and estimates are made, any number of changes in facts and circumstances could cause us to subsequently determine that a fixed income security is other than temporarily impaired, including: 1) general economic conditions that are worse than previously forecasted or that have a greater adverse effect on a particular issuer or industry sector than originally estimated; 2) changes in the facts and circumstances related to a particular issue or issuer's ability to meet all of its contractual obligations; and 3) changes in facts and circumstances that result in changes to management's intent to sell or result in our assessment that it is more likely than not we will be required to sell before recovery of the amortized cost. Changes in assumptions, facts and circumstances could result in additional charges to earnings in future periods to the extent that losses are realized. The charge to earnings, while potentially significant to net income, would not have a significant effect on shareholder's equity, since our portfolio is designated as available-for-sale and carried at fair value and as a result, any related unrealized loss, net of deferred income taxes, would already be reflected as a component of accumulated other comprehensive income in shareholder's equity. The determination of the amount of impairment is an inherently subjective process based on periodic evaluation of the factors described above. Such evaluations and assessments are revised as conditions change and new information becomes available. We update our evaluations regularly and reflect changes in other-than-temporary impairments in results of operations as such evaluations are revised. The use of different methodologies and assumptions in the determination of the amount of impairments may have a material effect on the amounts presented within the financial statements. Fixed income securities subject to other-than-temporary impairment write-downs continue to earn investment income when future expected payments are reasonably estimable, and any discount or premium is recognized using the effective yield method over the expected life of the security; otherwise income recognition is discontinued. For additional detail on investment impairments, see Note 4 of the financial statements. OPERATIONS OVERVIEW AND STRATEGY We are a wholly owned subsidiary of Allstate Life Insurance Company ("ALIC"), which is a wholly owned subsidiary of Allstate Insurance Company ("AIC"), a wholly owned subsidiary of Allstate Insurance Holdings, LLC, which is wholly owned by The Allstate Corporation (the "Corporation"). We provide life insurance, retirement and investment products. Our strategic vision is to reinvent protection and retirement for the consumer. We plan to offer a suite of products that are easy for middle market and emerging affluent consumers to understand, meet their protection needs and help them better prepare for retirement. Our products include fixed annuities such as deferred and immediate annuities; and interest-sensitive, traditional and variable life insurance. Our products are sold through multiple distribution channels including Allstate exclusive agencies, which include exclusive financial specialists, independent agents (including master brokerage agencies), and, through March 31, 2010, broker-dealers. NET INCOME
2009 2008 2007 ($ IN THOUSANDS) ------- ------- ------- Net investment income............. $11,783 $13,940 $14,257 Realized capital gains and losses. 1,480 5,952 (417) Income tax expense................ (4,634) (6,918) (4,835) ------- ------- ------- Net income........................ $ 8,629 $12,974 $ 9,005 ======= ======= =======
We have reinsurance agreements whereby all premiums, contract charges, interest credited to contractholder funds, contract benefits and substantially all expenses are ceded to ALIC and other non-affiliated reinsurers, and 41 are reflected net of such reinsurance in the Statements of Operations and Comprehensive Income. Our results of operations include net investment income and realized capital gains and losses recognized in connection with the assets that are not transferred under the reinsurance agreements. NET INCOME decreased 33.5% in 2009 compared to 2008 and increased 44.1% in 2008 compared to 2007. The decrease in 2009 was due to lower net realized capital gains and lower net investment income, partially offset by lower income tax expense. The increase in 2008 was due to net realized capital gains in 2008 compared to net realized capital losses in 2007, partially offset by higher income tax expense and lower net investment income. NET INVESTMENT INCOME decreased 15.5% in 2009 compared to 2008 and 2.2% in 2008 compared to 2007. The decrease in 2009 was primarily due to lower yields on fixed income securities. The decrease in 2008 was primarily due to lower average fixed income security balances and lower yields on short-term investments, partially offset by higher average short-term investment balances. NET REALIZED CAPITAL GAINS of $1.5 million and $6.0 million were recognized in 2009 and 2008, respectively, compared to net realized capital losses of $417 thousand in 2007. The realized capital gains and losses in 2009, 2008 and 2007 were related to sales of investments. For further discussion of realized capital gains and losses see the Net realized capital gains and losses section of the MD&A. INCOME TAX EXPENSE decreased 33.0% in 2009 compared to 2008 and increased 43.1% in 2008 compared to 2007. These changes were due to the proportional change in the income on which the income tax expense was determined. FINANCIAL POSITION
2009 2008 ($ IN THOUSANDS) ----------- ----------- Fixed income securities/(1)/.................. $ 308,343 $ 229,328 Short-term/(2)/............................... 8,557 80,703 ----------- ----------- Total investments.......................... $ 316,900 $ 310,031 =========== =========== Cash.......................................... $ 10,063 $ 3,145 Reinsurance recoverable from ALIC............. 18,689,074 18,791,710 Reinsurance recoverable from non-affiliates... 1,766,824 1,613,685 Contractholder funds.......................... 17,633,027 17,787,376 Reserve for life-contingent contract benefits. 2,805,387 2,581,186 Separate accounts assets and liabilities...... 2,039,647 1,823,163
- -------- (1)Fixed income securities are carried at fair value. Amortized cost basis for these securities was $299.8 million and $229.7 million at December 31, 2009 and 2008, respectively. (2)Short-term investments are carried at fair value. Amortized cost basis for these securities was $8.6 million and $80.7 million at December 31, 2009 and 2008, respectively. Total investments increased to $316.9 million at December 31, 2009 from $310.0 million at December 31, 2008 due primarily to a favorable change in net unrealized capital gains and losses on fixed income securities. 42 FIXED INCOME SECURITIES The following table shows fixed income securities by type.
FAIR VALUE AT PERCENT TO FAIR VALUE AT PERCENT TO DECEMBER 31, TOTAL DECEMBER 31, TOTAL 2009 INVESTMENTS 2008 INVESTMENTS ($ IN THOUSANDS) ------------- ----------- ------------- ----------- U.S. government and agencies........... $ 81,551 25.7% $ 78,816 25.4% Municipal.............................. 3,095 1.0 499 0.2 Corporate.............................. 137,573 43.4 75,703 24.4 Residential mortgage-backed securities ("RMBS")............................. 67,975 21.4 48,351 15.6 Commercial mortgage-backed securities ("CMBS")............................. 9,704 3.1 18,960 6.1 Asset-backed securities ("ABS")........ 8,445 2.7 6,999 2.3 -------- ---- -------- ---- Total fixed income securities.......... $308,343 97.3% $229,328 74.0% ======== ==== ======== ====
At December 31, 2009, all of the fixed income securities portfolio was rated investment grade, which is defined as a security having of rating of Aaa, Aa, A or Baa from Moody's, a rating of AAA, AA, A or BBB from S&P, Fitch, Dominion, or Realpoint, a rating of aaa, aa, a, or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available, which is consistent with the NAIC rating. The Valuation of Securities Taskforce of the NAIC instituted a new process to be used by insurance companies during the fourth quarter of 2009 for statutory accounting, reporting and estimating risk-based capital requirements for non-agency RMBS, and as a result the NAIC ratings used for statutory reporting may differ from those shown below which are based on credit ratings. The following table summarizes the credit rating of the fixed income securities portfolio at December 31, 2009.
($ IN THOUSANDS) PERCENT NAIC RATING CREDIT RATING FAIR VALUE TO TOTAL ----------- ------------- ---------- -------- 1 Aaa/Aa/A $300,862 97.6% 2 Baa 7,481 2.4 -------- ----- $308,343 100.0% ======== =====
The following table summarizes the fair value and unrealized net capital gains and losses for fixed income securities by credit rating as of December 31, 2009.
AAA AA A - - ------------------- ------------------- ------------------- FAIR UNREALIZED FAIR UNREALIZED FAIR UNREALIZED VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) ($ IN THOUSANDS) -------- ----------- ------- ----------- ------- ----------- U.S. government and agencies........... $ 81,551 $1,569 $ -- $ -- $ -- $ -- Municipal Tax exempt.......................... -- -- 524 23 -- -- Taxable............................. -- -- 2,571 73 -- -- Corporate Public.............................. 2,989 (5) 25,076 997 78,472 4,071 Privately placed.................... -- -- 2,096 101 11,910 432 Hybrid.............................. -- -- -- -- -- -- RMBS U.S. government sponsored entities ("U.S. Agency")................... 61,666 1,726 -- -- -- -- Prime residential mortgage-backed securities ("Prime").............. 6,309 (77) -- -- -- -- CMBS................................... 8,546 29 -- -- -- -- ABS.................................... -- -- -- -- -- -- -------- ------ ------- ------ ------- ------ Total fixed income securities.......... $161,061 $3,242 $30,267 $1,194 $90,382 $4,503 ======== ====== ======= ====== ======= ======
43
BAA TOTAL ------------------ ------------------- FAIR UNREALIZED FAIR UNREALIZED VALUE GAIN/(LOSS) VALUE GAIN/(LOSS) ------- ----------- -------- ----------- U.S. government and agencies.. $ -- $ -- $ 81,551 $1,569 Municipal Tax exempt................. -- -- 524 23 Taxable.................... -- -- 2,571 73 Corporate Public..................... 16,009 517 122,546 5,580 Privately placed........... -- -- 14,006 533 Hybrid..................... 1,021 (6) 1,021 (6) RMBS U.S. Agency................ -- -- 61,666 1,726 Prime...................... -- -- 6,309 (77) CMBS.......................... 1,158 (845) 9,704 (816) ABS........................... 8,445 (49) 8,445 (49) ------- ----- -------- ------ Total fixed income securities. $26,633 $(383) $308,343 $8,556 ======= ===== ======== ======
CORPORATE BONDS, including publicly traded, privately placed and hybrid securities totaled $137.6 million as of December 31, 2009 with an unrealized net capital gain of $6.1 million. Privately placed securities primarily consist of corporate issued senior debt securities that are in unregistered form or are directly negotiated with the borrower. Privately placed corporate securities are rated by the NAIC in instances when information is provided to them. RMBS, CMBS AND ABS are structured securities that are primarily collateralized by residential and commercial real estate related loans and other consumer related borrowings. The cash flows are generally applied in a pre-determined order and are designed so that each security issued qualifies for a specific original rating. The security issue is typically referred to as the "class". For example, the "senior" portion or "top" of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving the principal repayments on the collateral. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings and include other "junior" or "subordinate" securities. The collateral can have fixed interest rates, variable interest rates (such as adjustable rate mortgages ("ARM")) or may contain features of both fixed and variable rate mortgages. RMBS, including U.S. Agency and Prime totaled $68.0 million at December 31, 2009. The RMBS portfolio is subject to interest rate risk, but unlike other fixed income securities, is additionally subject to significant prepayment risk from the underlying mortgages. The credit risk associated with our RMBS is mitigated due to the fact that 90.7% of the portfolio consists of securities that were issued by, or have underlying collateral that is guaranteed by, U.S. government agencies. CMBS totaled $9.7 million at December 31, 2009. The CMBS portfolio is subject to credit risk, but unlike other structured securities, is generally not subject to prepayment risk due to protections within the underlying commercial mortgages whereby borrowers are effectively restricted from prepaying their mortgages due to changes in interest rates. All of the CMBS investments are traditional conduit transactions collateralized by pools of commercial mortgages, broadly diversified across property types and geographical area. The unrealized net capital loss of $816 thousand at December 31, 2009 on our CMBS portfolio was a result of wider credit spreads than at initial purchase, which is largely due to the macroeconomic conditions and credit market deterioration, including the impact of real estate valuations, that persisted throughout 2009. 44 ABS totaled $8.4 million at December 31, 2009. Credit risk is managed by monitoring the performance of the collateral. The ABS portfolio is subject to interest rate risk since price volatility and the ultimate realized yields are affected by the rate of prepayment of the underlying assets. SHORT-TERM INVESTMENTS Our short-term investment portfolio was $8.6 million and $80.7 million at December 31, 2009 and 2008, respectively. The decrease in short-term investments was primarily due to funding purchases of fixed income securities. UNREALIZED NET CAPITAL GAINS AND LOSSES See Note 4 of the financial statements for further disclosures regarding unrealized losses on fixed income securities and factors considered in determining whether securities are other-than-temporarily impaired. Unrealized net capital gains totaled $8.6 million as of December 31, 2009, compared to unrealized net capital losses of $341 thousand at December 31, 2008. The improvement since December 31, 2008 for fixed income securities was primarily a result of tightening credit spreads on certain fixed income securities during 2009 that more than offset the rise in risk-free interest rates. The following table presents unrealized net capital gains and losses, pre-tax and after-tax at December 31.
2009 2008 ($ IN THOUSANDS) ------- ------- U.S. government and agencies....................... $ 1,569 $ 3,442 Municipal.......................................... 96 (3) Corporate.......................................... 6,107 (1,489) RMBS............................................... 1,649 1,631 CMBS............................................... (816) (3,936) ABS................................................ (49) 16 ------- ------- Fixed income securities............................ 8,556 (339) Short-term investments............................. -- (2) ------- ------- Unrealized net capital gains and losses, pre-tax... 8,556 (341) Deferred income taxes.............................. (2,995) 119 ------- ------- Unrealized net capital gains and losses, after-tax. $ 5,561 $ (222) ======= =======
The net unrealized gain for the fixed income portfolio totaled $8.6 million, comprised of $9.93 million of gross unrealized gains and $1.37 million of gross unrealized losses at December 31, 2009. This is compared to a net unrealized loss for the fixed income portfolio totaling $339 thousand, comprised of $6.0 million of gross unrealized gains and $6.3 million of gross unrealized losses at December 31, 2008. 45 Gross unrealized gains and losses as of December 31, 2009 on fixed income securities by type and sector are provided in the table below.
AMORTIZED FAIR VALUE GROSS UNREALIZED COST AS A AS A PERCENT PAR AMORTIZED -------------- FAIR PERCENT OF OF VALUE COST GAINS LOSSES VALUE PAR VALUE PAR VALUE ($ IN THOUSANDS) -------- --------- ------ ------- -------- ---------- ------------ Corporate: Energy........................ $ 16,000 $ 16,105 $ 515 $ (30) $ 16,590 100.7% 103.7% Transportation................ 8,087 8,380 242 (30) 8,592 103.6 106.2 Financial services............ 15,500 15,521 690 (14) 16,197 100.1 104.5 Banking....................... 15,000 15,048 816 (6) 15,858 100.3 105.7 Consumer goods (cyclical and non-cyclical)............... 43,000 43,239 2,151 (5) 45,385 100.6 105.5 Utilities..................... 12,000 12,037 565 -- 12,602 100.3 105.0 Capital goods................. 11,000 11,149 784 -- 11,933 101.4 108.5 Basic industry................ 4,000 3,993 231 -- 4,224 99.8 105.6 Technology.................... 6,000 5,994 198 -- 6,192 99.9 103.2 -------- -------- ------ ------- -------- Total corporate fixed income portfolio...................... 130,587 131,466 6,192 (85) 137,573 100.7 105.3 -------- -------- ------ ------- -------- U.S. government and agencies..... 75,320 79,982 1,852 (283) 81,551 106.2 108.3 Municipal........................ 3,000 2,999 96 -- 3,095 100.0 103.2 RMBS............................. 66,369 66,326 1,733 (84) 67,975 99.9 102.4 CMBS............................. 10,500 10,520 57 (873) 9,704 100.2 92.4 ABS.............................. 8,070 8,494 -- (49) 8,445 105.3 104.6 -------- -------- ------ ------- -------- Total fixed income securities.... $293,846 $299,787 $9,930 $(1,374) $308,343 102.0 104.9 ======== ======== ====== ======= ========
The energy, transportation and financial services sectors had the highest concentration of gross unrealized losses in our corporate fixed income securities portfolio at December 31, 2009. While credit spreads have tightened in the last three quarters of 2009 from the historically high levels observed in the fourth quarter of 2008 and the first quarter of 2009, they remain wider than at initial purchase for certain securities in the portfolio. The scheduled maturity dates for fixed income securities in a gross unrealized loss position at December 31, 2009 are shown below. Actual maturities may differ from those scheduled as a result of prepayments by the issuers.
UNREALIZED PERCENT FAIR PERCENT LOSS OF TOTAL VALUE OF TOTAL ($ IN THOUSANDS) ---------- -------- ------- -------- Due in one year or less................ $ (15) 1.1% $ 5,483 7.4% Due after one year through five years.. (208) 15.1 34,610 46.9 Due after five years through ten years. (145) 10.6 16,129 21.8 Due after ten years.................... (873) 63.5 4,634 6.3 RMBS and ABS/(1)/...................... (133) 9.7 12,988 17.6 ------- ----- ------- ----- Total.................................. $(1,374) 100.0% $73,844 100.0% ======= ===== ======= =====
- -------- (1)Because of the potential for prepayment, these securities are not categorized based on their contractual maturities. OTHER-THAN-TEMPORARY IMPAIRMENT EVALUATION We have a comprehensive portfolio monitoring process to identify and evaluate each fixed income security whose carrying value may be other-than-temporarily impaired. The process includes a quarterly review of all securities through a screening process which identifies instances 46 where the fair value compared to amortized cost is below established thresholds, and also includes the monitoring of other criteria such as ratings, ratings downgrades or payment defaults. The securities identified, in addition to other securities for which we may have a concern, are evaluated based on facts and circumstances for inclusion on our watch-list. All investments in an unrealized loss position at December 31, 2009 were included in our portfolio monitoring process for determining whether declines in value were other than temporary. At December 31, 2009, $529 thousand of unrealized losses are related to fixed income securities with an unrealized loss position less than 20% of amortized cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. The remaining $845 thousand of unrealized losses are related to investment grade CMBS securities in unrealized loss positions greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months. Consistent with their rating, our portfolio monitoring indicates that the securities have a relatively low risk of default. We also monitor the quality of our fixed income securities by categorizing certain investments as "problem," "restructured," or "potential problem." Problem fixed income securities are in default with respect to principal or interest and/or are investments issued by companies that have gone into bankruptcy subsequent to our acquisition or loan. Fixed income securities are categorized as restructured when the debtor is in financial difficulty and we grant a concession. Potential problem fixed income securities are current with respect to contractual principal and/or interest, but because of other facts and circumstances, we have concerns regarding the borrower's ability to pay future principal and interest according to the original terms, which causes us to believe these investments may be classified as problem or restructured in the future. As of December 31, 2009 and 2008, we did not have any fixed income securities categorized as problem, restructured or potential problem. NET INVESTMENT INCOME The following table presents net investment income for the years ended December 31.
2009 2008 2007 ($ IN THOUSANDS) ------- ------- ------- Fixed income securities............. $12,098 $13,302 $13,533 Short-term and other investments.... 107 992 1,117 ------- ------- ------- Investment income, before expense... 12,205 14,294 14,650 Investment expense.................. (422) (354) (393) ------- ------- ------- Net investment income............... $11,783 $13,940 $14,257 ======= ======= =======
NET REALIZED CAPITAL GAINS AND LOSSES The following table presents realized capital gains and losses and the related tax effect for the years ended December 31.
2009 2008 2007 ($ IN THOUSANDS) ------ ------- ----- Realized capital gains and losses, pre-tax..... $1,480 $ 5,952 $(417) Income tax (expense) benefit................... (518) (2,083) 146 ------ ------- ----- Realized capital gains and losses, after-tax... $ 962 $ 3,869 $(271) ====== ======= =====
Net realized capital gains of $1.5 million in 2009 comprised gross gains of $1.5 million and gross losses of $8 thousand. Net realized capital gains of $6.0 million in 2008 comprised gross gains of $8.5 million and gross losses of $2.5 million. CASH At December 31, 2009, our cash balance was $10.1 million compared to $3.1 million at December 31, 2008. Fluctuations in our cash flows generally result from differences in the timing of reinsurance payments to and from ALIC. 47 REINSURANCE RECOVERABLE, CONTRACTHOLDER FUNDS AND RESERVE FOR LIFE-CONTINGENT CONTRACT BENEFITS Under GAAP, when reinsurance contracts do not relieve the ceding company of legal liability to contractholders, the ceding company is required to report reinsurance recoverables arising from these contracts separately as assets. The liabilities for the contracts are reported as contractholder funds, reserve for life-contingent contract benefits, or separate accounts liabilities depending on the characteristics of the contracts. We reinsure all reserve liabilities with ALIC or other non-affiliated reinsurers. Reinsurance recoverables and the related reserve for life-contingent contract benefits and contractholder funds are reported separately in the Statements of Financial Position, while the assets which support the separate accounts liabilities are reflected as separate accounts assets. At December 31, 2009, contractholder funds decreased to $17.63 billion from $17.79 billion at December 31, 2008 as a result of new and additional deposits on fixed annuities and interest-sensitive life policies and interest credited to contractholder funds being more than offset by surrenders, withdrawals, benefit payments and related contract charges. The reserve for life-contingent contract benefits increased to $2.81 billion at December 31, 2009 from $2.58 billion as of December 31, 2008 due primarily to the aging of the in force block of certain business and sales of traditional life insurance, partially offset by benefits paid and policy lapses. Reinsurance recoverables from ALIC decreased by $102.6 million and reinsurance recoverables from non-affiliates increased $153.1 million. We purchase reinsurance after evaluating the financial condition of the reinsurer, as well as the terms and price of coverage. We reinsure certain of our risks to non-affiliated reinsurers under yearly renewable term and coinsurance agreements. Yearly renewable term and coinsurance agreements result in a passing of the agreed-upon portion of risk to the reinsurer in exchange for negotiated reinsurance premium payments. At December 31, 2009, 97% of reinsurance recoverables due from non-affiliated companies were reinsured under uncollateralized reinsurance agreements with companies that had a financial strength rating of A or above, as measured by S&P. In certain cases, these ratings refer to the financial strength of the affiliated group or parent company of the reinsurer. We continuously monitor the creditworthiness of reinsurers in order to determine our risk of recoverability on an individual and aggregate basis and a provision for uncollectible reinsurance is recorded if needed. No amounts have been deemed unrecoverable in the three years ended December 31, 2009. MARKET RISK Market risk is the risk that we will incur losses due to adverse changes in interest rates and credit spreads. We also have certain exposures to changes in equity prices in our equity-indexed annuities and separate accounts liabilities, which are transferred to ALIC in accordance with our reinsurance agreements. OVERVIEW In formulating and implementing guidelines for investing funds, we seek to earn returns that contribute to attractive and stable profits and long-term capital growth. We manage our exposure to market risk through the use of asset allocation, duration, and as appropriate, through the use of stress tests. We have asset allocation limits that place restrictions on the total funds that may be invested within an asset class. We have duration limits on our investment portfolio and, as appropriate, on individual components of the portfolio. These duration limits place restrictions on the amount of interest rate risk that may be taken. Comprehensive day-to-day management of market risk within defined tolerance ranges occurs as portfolio managers buy and sell within their respective markets based upon the acceptable boundaries established by investment policies. INTEREST RATE RISK is the risk that we will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of interest bearing assets. This risk arises from our investment in interest-sensitive assets. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key risk-free reference yields. 48 One of the measures used to quantify interest rate exposure is duration. Duration measures the price sensitivity of assets to changes in interest rates. For example, if interest rates increase by 100 basis points, the fair value of an asset with a duration of 5 is expected to decrease in value by approximately 5%. Our asset duration was 3.7 and 3.0 at December 31, 2009 and 2008, respectively. To calculate duration, we project asset cash flows and calculate their net present value using a risk-free market interest rate adjusted for credit quality, sector attributes, liquidity and other specific risks. Duration is calculated by revaluing these cash flows at alternative interest rates and determining the percentage change in aggregate fair value. The projections include assumptions (based upon historical market experience and our experience) that reflect the effect of changing interest rates on the prepayment, lapse, leverage and/or option features of instruments, where applicable. The proceeding assumptions relate primarily to mortgage-backed securities, collateralized mortgage obligations, and municipal and corporate obligations. Based upon the information and assumptions used in the duration calculation, and interest rates in effect at December 31, 2009, we estimate that a 100 basis point immediate, parallel increase in interest rates ("rate shock") would decrease the net fair value of the assets by $11.3 million, compared to $8.5 million at December 31, 2008. The selection of a 100 basis point immediate parallel change in interest rates should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event. To the extent that conditions differ from the assumptions we used in these calculations, duration and rate shock measures could be significantly impacted. Additionally, our calculations assume that the current relationship between short-term and long-term interest rates (the term structure of interest rates) will remain constant over time. As a result, these calculations may not fully capture the effect of non-parallel changes in the term structure of interest rates and/or large changes in interest rates. CREDIT SPREAD RISK is the risk that we will incur a loss due to adverse changes in credit spreads ("spreads"). This risk arises from many of our primary activities, as we invest substantial funds in spread-sensitive fixed income assets. We manage the spread risk in our assets. One of the measures used to quantify this exposure is spread duration. Spread duration measures the price sensitivity of the assets to changes in spreads. For example, if spreads increase 100 basis points, the fair value of an asset exhibiting a spread duration of 5 is expected to decrease in value by approximately 5%. Spread duration is calculated similarly to interest rate duration. At December 31, 2009, the spread duration of assets was 3.6, compared to 3.4 at December 31, 2008. Based upon the information and assumptions we use in this spread duration calculation, and spreads in effect at December 31, 2009, we estimate that a 100 basis point immediate, parallel increase in spreads across all asset classes, industry sectors and credit ratings ("spread shock") would decrease the net fair value of the assets by $8.4 million, compared to $7.2 million at December 31, 2008. The selection of a 100 basis point immediate parallel change in spreads should not be construed as our prediction of future market events, but only as an illustration of the potential effect of such an event. EQUITY PRICE RISK is the risk that we will incur losses due to adverse changes in the general levels of the equity markets. At December 31, 2009 and 2008, we had separate accounts assets related to variable annuities and variable life contracts with account values totaling $2.04 billion and $1.82 billion, respectively. Equity risk exists for contract charges based on separate account balances and guarantees for death and/or income benefits provided by our variable products. All variable life and annuity contract charges and fees, liabilities and benefits, including guarantees for death and/or income are ceded to ALIC in accordance with the reinsurance agreements, thereby limiting our equity risk exposure. In 2006, ALIC disposed of substantially all of its variable annuity business through a reinsurance agreement with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (collectively "Prudential"), and therefore mitigated this aspect of ALIC's risk. The Company was not a direct participant of this agreement and its reinsurance agreements with ALIC remain unchanged. 49 At December 31, 2009 and 2008 we had $4.16 billion and $3.79 billion, respectively, in equity-indexed annuity liabilities that provide customers with interest crediting rates based on the performance of the S&P 500. All contract charges and fees, and liabilities and benefits related to equity-indexed annuity liabilities are ceded to ALIC in accordance with the reinsurance agreements, thereby limiting our equity risk exposure. CAPITAL RESOURCES AND LIQUIDITY CAPITAL RESOURCES consist of shareholder's equity. The following table summarizes our capital resources at December 31.
2009 2008 2007 ($ IN THOUSANDS) -------- -------- -------- Common stock, additional capital paid-in and retained income.............................................. $307,412 $298,783 $285,809 Accumulated other comprehensive income (loss)......... 5,561 (222) 4,129 -------- -------- -------- Total shareholder's equity............................ $312,973 $298,561 $289,938 ======== ======== ========
SHAREHOLDER'S EQUITY increased $14.4 million in 2009 due to net income of $8.6 million and a favorable change in unrealized net capital gains and losses totaling $5.8 million. Shareholder's equity increased $8.6 million in 2008, due to net income of $13.0 million partially offset by an unfavorable change in unrealized net capital gains and losses totaling $4.4 million. FINANCIAL RATINGS AND STRENGTH We share the insurance financial strength ratings of our parent, ALIC, as our business is reinsured to ALIC. The following table summarizes ALIC's financial strength ratings at December 31, 2009.
RATING AGENCY RATING ------------- -------------------- A.M. Best Company, Inc.................. A+ ("Superior") Standard & Poor's Ratings Services...... AA- ("Very Strong") Moody's Investors Service, Inc.......... A1 ("Good")
ALIC's ratings are influenced by many factors including operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks, the current level of operating leverage and AIC's ratings. On November 20, 2009, A.M. Best affirmed ALIC's A+ financial strength rating. ALIC's outlook was revised to negative from stable. On November 23, 2009, S&P affirmed ALIC's AA- financial strength rating. The outlook for the S&P rating remained negative. On January 29, 2009, S&P downgraded ALIC's financial strength rating to AA- from AA. On November 5, 2009, Moody's affirmed ALIC's financial strength rating of A1. The outlook for the Moody's rating remained stable. On January 29, 2009, Moody's downgraded ALIC's financial strength rating to A1 from Aa3. State laws specify regulatory actions if an insurer's risk-based capital ("RBC"), a measure of an insurer's solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC. The formula for calculating RBC for life insurance companies takes into account factors relating to insurance, business, asset and interest rate risks. At December 31, 2009, our RBC was within the range that we target. The NAIC has also developed a set of financial relationships or tests known as the Insurance Regulatory Information System to assist state regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by insurance regulatory authorities. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each with defined "usual ranges". Generally, regulators will begin to monitor an insurance company if its ratios fall outside the usual ranges for four or more of the ratios. If an insurance company has insufficient capital, regulators may act to reduce the amount of insurance it can issue. Our ratios are within these ranges. 50 LIQUIDITY SOURCES AND USES Our potential sources of funds principally include the activities as follows. . Receipt of insurance premiums . Contractholder fund deposits . Reinsurance recoveries . Receipts of principal and interest on investments . Sales of investments . Intercompany loans . Capital contributions from parent Our potential uses of funds principally include the activities as follows. . Payment of contract benefits, surrenders and withdrawals . Reinsurance cessions and payments . Operating costs and expenses . Purchase of investments . Repayment of intercompany loans . Dividends to parent . Tax payments/settlements CASH FLOWS As reflected in our Statements of Cash Flows, net cash provided by (used in) operating activities was $4.3 million, $(5.9) million and $14.0 million in 2009, 2008 and 2007, respectively. Fluctuations in net cash provided by operating activities primarily occur as a result of changes in net investment income and differences in the timing of reinsurance payments to and from ALIC. Under the terms of reinsurance agreements, all premiums and deposits, excluding variable annuity and life contract deposits allocated to separate accounts and those reinsured to non-affiliated reinsurers, are transferred to ALIC, which maintains the investment portfolios supporting our products. Payments of contractholder claims, benefits, contract surrenders and withdrawals and certain operating costs (excluding investment-related expenses), are reimbursed by ALIC, under the terms of the reinsurance agreements. We continue to have primary liability as a direct insurer for risks reinsured. Our ability to meet liquidity demands is dependent on ALIC's and other reinsurers' ability to meet those obligations under the reinsurance programs. Our ability to pay dividends is dependent on business conditions, income, cash requirements and other relevant factors. The payment of shareholder dividends without the prior approval of the state insurance regulator is limited by Nebraska law to formula amounts based on net income and capital and surplus, determined in conformity with statutory accounting practices, as well as the timing and amount of dividends paid in the preceding twelve months. The maximum amount of dividends that we can distribute during 2010 without prior approval of the Nebraska Department of Insurance is $30.6 million. CONTRACTUAL OBLIGATIONS Due to the reinsurance agreements that we have in place, our contractual obligations are ceded to ALIC and other non-affiliated reinsurers. REGULATION AND LEGAL PROCEEDINGS We are subject to extensive regulation and we are involved in various legal and regulatory actions, all of which have an effect on specific aspects of our business. For a detailed discussion of the legal and regulatory actions in which we are involved, see Note 9 of the financial statements. 51 PENDING ACCOUNTING STANDARDS There are several pending accounting standards that we have not implemented either because the standard has not been finalized or the implementation date has not yet occurred. For a discussion of these pending standards, see Note 2 of the financial statements. The effect of implementing certain accounting standards on our financial results and financial condition is often based in part on market conditions at the time of implementation of the standard and other factors we are unable to determine prior to implementation. For this reason, we are sometimes unable to estimate the effect of certain pending accounting standards until the relevant authoritative body finalizes these standards or until we implement them. ITEM 11(I).CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 11(J).QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Information required for Item 11(j) is incorporated by reference to the material under the caption "Market Risk" in Item 11(h) of this report. ITEM 11(K).DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS. IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS: Directors are elected at each annual meeting of shareholders, for a term of one year. The biographies of each of the directors below contains information regarding the person's service as a director, business experience, director positions held currently or at any time during the last five years, and the experiences, qualifications, attributes or skills that caused the company management to determine that a director should serve as such for Lincoln Benefit. Unless otherwise indicated, each director and executive officer has served for at least five years in the business position currently or most recently held. LAWRENCE W. DAHL, 50, has been a director since 1999 and President and Chief Operating Officer since November 2005. In his current role, Mr. Dahl manages the distribution relationships for Lincoln Benefit. Mr. Dahl began his Allstate career in 1987 in the Tax Department before becoming the Executive Vice President of Administration for Lincoln Benefit, where he was responsible for Marketing, Field Technology, Compliance, Planning and Strategy. Mr. Dahl progressed through various other leadership positions, including Executive Vice President of Sales and President of Distribution before becoming the President and Chief Operating Officer. Mr. Dahl has also earned a JURIS DOCTOR degree and a Certified Public Account designation. Currently, Mr. Dahl also serves as a director for ALFS, Inc. and Surety Life Insurance Company, each of which is affiliated with Lincoln Benefit. Over the course of his career with Lincoln Benefit, Mr. Dahl has gained deep knowledge of the life insurance industry as well as extensive experience with distribution and sales. MATTHEW S. EASLEY, 54, has been a director since March 2009 and Senior Vice President since March 2010. Mr. Easley is also a Vice President for Allstate Life Insurance Company. Mr. Easley is responsible for Product Management, Underwriting, and Asset Liability Management within the Allstate Financial group of companies. Prior to joining Allstate, Mr. Easley spent 23 years at Nationwide Financial including 11 years as the head of Annuity and Pension Actuarial, where he started a 401(k) business with a new-to-the-world business model, created a synthetic asset segmentation method, co-invented a patented retirement planning software and led a team to create a new strategic plan as part of the initial public offering of Nationwide Financial Services stock. Currently, Mr. Easley also serves as a director for ALFS, Inc., ALIC Reinsurance Company, Allstate Assignment Company, Allstate Assurance Company, Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Settlement Corporation, American Heritage Life Insurance Company, Charter National Life 52 Insurance Company, Intramerica Life Insurance Company and Surety Life Insurance Company, each of which is affiliated with Lincoln Benefit. Mr. Easley possesses extensive insurance business, product and liability management experience. MARK A GREEN, 42, became Senior Vice President on March 16, 2010. Mr. Green is also the Vice President of National Sales for Allstate Life Insurance Company. Prior to his current role, Mr. Green was the Assistant Field Vice President for Allstate Insurance Company in the Capital Region, where he had geographic responsibility for West Virginia, Delaware and Washington D.C. Before joining Allstate in 2009, Mr. Green was a founding equity partner and chief risk officer for AIX Group in Connecticut, where he was responsible for corporate development and overall risk and investment management. He has worked for Wells Fargo, Chubb Group and Swiss Reinsurance. Currently, Mr. Green also serves as a director for Allstate Life Insurance Company of New York and Intramerica Life Insurance Company, each of which is an affiliate of Lincoln Benefit. Mr. Green has experience in optimizing insurance company operations to drive profitable growth. SUSAN L. LEES, 52, has been director and Senior Vice President, General Counsel and Secretary since August 2008. Ms. Lees is also Senior Vice President, General Counsel and Secretary of Allstate Life Insurance Company. At Allstate for over 20 years, Ms. Lees progressed through various counsel positions throughout Allstate before become an assistant vice president in 1999. As the leader of the Corporate Law division of Allstate Law and Regulation, Ms. Lees gained extensive experience working with a number of the business areas throughout the enterprise, including Allstate Life Insurance Company. Currently, Ms. Lees serves as a director for Life Insurance Council of New York. She also serves as a director for ALIC Reinsurance Company, Allstate Assignment Company, Allstate Assurance Company, Allstate Financial Corporation, Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Settlement Corporation, American Heritage Life Insurance Company, Charter National Life Insurance Company, Intramerica Life Insurance Company, and Surety Life Insurance Company, each of which is affiliated with Lincoln Benefit. Ms. Lees has a deep understanding of insurance business generally, as well as applicable laws and regulations, including corporate and securities laws and corporate governance matters. In addition, Ms. Lees has extensive knowledge regarding Lincoln Benefit's business, including its employees, products, agencies and customers. JOHN C. PINTOZZI, 44, has been director, Senior Vice President and Chief Financial Officer since March 2005. Mr. Pintozzi also is Senior Vice President and Chief Financial Officer for Allstate Life Insurance Company. In these positions, Mr. Pintozzi is responsible for the planning and analysis, capital allocation, valuation and compliance functions as well as Allstate Federal Savings Bank. Prior to Allstate, Mr. Pintozzi was an audit partner with Deloitte & Touche, specializing in the insurance and financial services industries. He is a Certified Public Accountant and holds memberships with the American Institute of Certified Public Accountants and the Illinois CPA Society. In addition, Mr. Pintozzi currently serves as a director for ALIC Reinsurance Company, Allstate Assignment Company, Allstate Assurance Company, Allstate Bank, Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Settlement Corporation, American Heritage Life Insurance Company, Charter National Life Insurance Company, Intramerica Life Insurance Company, and Surety Life Insurance, each of which is affiliated with Lincoln Benefit. Mr. Pintozzi has extensive experience in corporate and insurance company finance and accounting. MATTHEW E. WINTER, 53, has been a director since December 2009, Chief Executive Officer and Chairman of the Board since March 2010. Mr. Winter is also the President and Chief Executive Officer of Allstate Life Insurance Company and Senior Vice President of Allstate Insurance Company, each a parent organization of Lincoln Benefit. Prior to Allstate, Mr. Winter was the Vice Chairman of American International Group, President and Chief Executive Officer of American General Life Companies, and Executive Vice President for MassMutual Financial Group. For a brief period in 2009, Mr. Winter served as a director of EP Global Communications, a magazine publication and distribution company. Currently, Mr. Winter also serves as a director for Allstate Insurance Company, Allstate Life Insurance Company, Allstate Life Insurance Company of New York, American Heritage Life Insurance Company, American Heritage Life Investment Corporation, and Intramerica Life Insurance Company, each of which is affiliated with Lincoln Benefit. Mr. Winter was also a 53 former Chairman of the Houston Food Bank Board of Directors. Mr. Winter has extensive experience leading major life insurance and financial services providers, working with financial and estate planning products and overseeing the operations of insurance companies. INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS. No directors or executive officers have been involved in any legal proceedings that are material to an evaluation of the ability or integrity of any director or executive officer of Lincoln Benefit. ITEM 11(L).EXECUTIVE COMPENSATION COMPENSATION DISCUSSION AND ANALYSIS ("CD&A") OVERVIEW . Executive officers of Lincoln Benefit also serve as officers of other subsidiaries of The Allstate Corporation ("Allstate") and receive no compensation directly from Lincoln Benefit. They are employees of an Allstate subsidiary. Allocations have been made for each named executive based on the amount of the named executive's compensation allocated to Lincoln Benefit under the Amended and Restated Service and Expense Agreement among Allstate Insurance Company, Allstate and certain affiliates, as amended effective January 1, 2009, to which Lincoln Benefit is a party (the "Service and Expense Agreement"). Those allocations are reflected in the Summary Compensation Table set forth below and in this disclosure, except where noted. The named executives may have received additional compensation for services rendered to other Allstate subsidiaries, and those amounts are not reported. Lincoln Benefit's directors receive no compensation for serving as directors in addition to their compensation as employees of an Allstate affiliate. . Allstate provides its executive officers with the following core compensation elements: annual salary, annual cash incentive awards, and equity awards. In 2009, Allstate discontinued future cycles of its long-term cash incentive plan in favor of placing greater emphasis on long-term equity awards, consistent with its compensation philosophy, and to a lesser extent, annual cash incentive awards. . Allstate embraces a pay-for-performance philosophy for its executives in which variable compensation represents a large portion of potential compensation and is tied to appreciation of Allstate stock and Allstate's performance in achieving short-term and long-term business goals. . Allstate uses equity-based compensation to align the interests of its executives with long-term stockholder value and as a tool for retaining executive talent. Once granted, the value of these awards rises and falls with the price of Allstate stock. Equity awards granted in 2010, including stock options and restricted stock units, will vest in three installments of 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversary dates. Restricted stock units granted in 2010 will no longer receive dividend equivalents on a quarterly schedule; instead dividend equivalents will be paid when the underlying restricted stock unit vests. . In 2009 the executive compensation program was simplified by reducing the number of performance measures under the Annual Executive Incentive Compensation Plan. Consistent with current market trends, the maximum corporate multiplier for the 2010 performance year for an executive officer's Annual Executive Incentive Plan award will be 250% of target. In addition, the minimum payout, upon achieving the performance threshold, will be 50% of target. . Allstate offers its executives limited perquisites. 54 NAMED EXECUTIVES This CD&A, on pages 54 to 63, describes the executive compensation program for Allstate and specifically describes total 2009 compensation for the following named executives of Lincoln Benefit: . Frederick F. Cripe--Chairman and Chief Executive Officer until March 12, 2010 . John C. Pintozzi--Senior Vice President and Chief Financial Officer . Lawrence W. Dahl--President and Chief Operating Officer . Matthew S. Easley--Vice President . John C. Lounds--Vice President until July 31, 2009 . J. Eric Smith--Vice President until January 15, 2010 COMPENSATION PHILOSOPHY Allstate's compensation philosophy is based on these central beliefs: . Executive compensation should be aligned with performance and stockholder value. Accordingly, a significant amount of executive compensation should be in the form of equity. . The compensation of executives should vary both with appreciation in the price of Allstate stock and with Allstate's performance in achieving strategic short and long-term business goals designed to drive stock price appreciation. . Allstate's compensation program should inspire executives to strive for performance that is better than the industry average. . A greater percentage of compensation should be at risk for executives who bear higher levels of responsibility for Allstate's performance. . Allstate should provide competitive levels of compensation for competitive levels of performance and superior levels of compensation for superior levels of performance. Allstate's executive compensation program has been designed around these beliefs. They serve Allstate's goal of attracting, motivating, and retaining highly talented executives to compete in the complex and highly regulated insurance and financial services industry. COMPENSATION PRACTICES Allstate reviews the design of its executive compensation program and executive pay levels on an annual basis and performance and goal attainment within this design throughout the year. As part of that review, Allstate considers available data regarding compensation paid to similarly-situated executives at companies against which it competes for executive talent. With respect to the compensation program for 2009 for Allstate executives, including the named executives of Lincoln Benefit, Allstate management considered compensation surveys, as well as compensation data for the peer companies listed on page 61, that provided information on companies of broadly similar size and business mix as Allstate, as well as companies with a broader market context. The compensation surveys considered include the Mercer Property & Casualty Insurance Company Survey, the 2008 Towers Perrin Diversified Insurance Survey, and the Towers Perrin Compensation Data Bank. The weight given to information obtained from these sources varied depending on the position being evaluated. The Diversified Insurance Survey includes 29 insurance organizations with assets ranging from $20 billion to $1 trillion, with a median asset size of $131 billion. The Towers Perrin Compensation Data Bank provides compensation data on 80 of the Fortune 100 companies. The Mercer Property & Casualty Insurance Company Survey includes compensation data for 45 property and casualty insurance companies with at least $1 billion in annual premiums. In addition, in its executive pay and performance discussions, Allstate management considered information regarding other companies in the financial services industries. 55 CORE ELEMENTS OF EXECUTIVE COMPENSATION PROGRAM The following table lists the core elements of Allstate's executive compensation program for 2009.
CORE ELEMENT PURPOSE - ------------ ------- Annual salary......... Provides a base level of competitive cash compensation for executive talent Annual cash incentive Reward performance on key strategic, operational, and financial measures over awards.............. the year Equity awards......... Align the interests of executives with long-term Allstate shareholder value and retain executive talent
These core elements are designed to balance individual, business unit, and overall corporate performance. The goals for incentive awards are aligned with Allstate's strategic vision and 2009 operating priorities of keeping Allstate financially strong, improving customer loyalty, and reinventing protection and retirement for the consumer. Allstate's compensation design balances annual and long-term incentive awards with short and long-term business goals. At the target level of performance, annual and long-term incentive awards are designed to constitute a significant percentage of an executive's total core compensation. The target incentive-based core compensation for Mr. Cripe, who had the greatest level of responsibility for Allstate's performance, was 77% of his total core compensation (19% annual cash incentive award, 38% stock options, and 20% restricted stock units). Messrs. Pintozzi's, Easley's, Lounds', and Smith's incentive-based core compensation on average was targeted at 64% of their total core compensation (21% annual cash incentive award, 28% stock options, and 15% restricted stock units). The target incentive-based core compensation for Mr. Dahl was 50% of his total core compensation (35% annual cash incentive award, 10% stock options, and 5% restricted stock units). SALARY . Mr. Cripe's salary was set by the Allstate Board of Directors based on the recommendations of its Compensation and Succession Committee (the "Committee"). The salaries of other executive officers are set by Allstate management. . In recommending executive base salary levels, Allstate uses the 50/th/ percentile of comparable companies as a guideline to align with Allstate's pay philosophy for competitive positioning in the market for executive talent. . The average enterprise-wide merit and promotional increases are based on a combination of U.S. general and the insurance industry market data and are set at levels intended to be competitive. . Annual merit increases for the named executives are based on evaluations of their performance by Allstate's management, using the average enterprise-wide merit increase as a guideline. . Promotional increases are based on the increased responsibilities of the new position and the skills and experience of the executive being promoted. ANNUAL CASH INCENTIVE COMPENSATION In 2009 Allstate maintained the Annual Executive Incentive Compensation Plan, an Allstate stockholder-approved plan under which executive officers had the opportunity to earn an annual cash incentive award based on the achievement of a combination of Allstate corporate and business unit performance measures for Allstate's main business units including Allstate Financial. Lincoln Benefit is part of the Allstate Financial business unit. The Committee approves performance measures and goals for annual cash incentive awards under the Annual Executive Incentive Compensation Plan during the first quarter of the year. The performance measures 56 and goals are aligned with Allstate's objectives and tied to Allstate's strategic vision and operating priorities. They are designed to reward executives for actual performance, to reflect objectives that will require significant effort and skill to achieve, and to drive stockholder value. After the end of the year, the Committee reviews the extent to which Allstate has achieved the various performance measures and approves the actual amount of the annual cash incentive award. The Committee may adjust the amount of an annual cash incentive award. Allstate pays the annual cash incentive awards in March, after the end of the year. For 2009, the Committee adopted corporate and Allstate Financial business unit annual performance measures and weighted them as applied to each of the named executives in accordance with their responsibilities for Allstate's overall corporate performance and the performance of Allstate Financial. Each measure is assigned a weight expressed as a percentage of the total annual cash incentive award opportunity, with all weights for any particular named executive adding to 100%. The following table lists the performance measures and related target goals for 2009, as well as the weighting factors and actual results, applicable to the named executives. The performance measures were designed to focus executive attention on key strategic, operational, and financial measures including top line growth and profitability. For each performance measure, the Committee approved a threshold, target, and maximum goal. The target goals for the performance measures were based on evaluations of Allstate's historical performance and plans to drive projected performance. A description of each performance measure is provided under the "Performance Measures" caption on page 81. ANNUAL EXECUTIVE INCENTIVE COMPENSATION PLAN PERFORMANCE MEASURES, TARGETS, AND WEIGHTING
ACHIEVEMENT RELATIVE TO THRESHOLD, TARGET, PERFORMANCE MEASURE/(1)/ WEIGHTING TARGET ACTUAL/(2)/ MAXIMUM GOALS - ----------------------- --------- ------------ ------------ ------------------ CORPORATE-LEVEL PERFORMANCE MEASURE....... 20% Adjusted Operating Income Per Diluted Share................................ $5.10 $3.55 Below threshold ALLSTATE FINANCIAL PERFORMANCE MEASURES... 80% Adjusted Operating Income.............. $300 million $279 million Between threshold and target Financial Product Sales (Production Credits)............................. $285 million $255 million Below threshold Allstate Financial Total Return........ 4.50% 14.84% Exceeded maximum
- -------- (1)Information regarding Allstate's performance measures is disclosed in the limited context of the annual cash incentive awards and should not be understood to be statements of management's expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts. (2)Stated as a percentage of target goals with a range from 0% to 300% (with the exception of Mr. Dahl, who had a target goal with a range from 0% to 250%), the actual performance comprises 0% for Adjusted Operating Income Per Diluted Share performance, and 99% for Allstate Financial performance. Target award opportunities approved by the Committee are stated as a percentage of annual base salary. Annual cash incentive awards are calculated using base salary, as adjusted by any merit and promotional increases granted during the year on a prorated basis, except for Mr. Dahl, whose incentive award was calculated using his 2009 year-end salary. One of the central beliefs on which Allstate's compensation philosophy is based is that a greater percentage of compensation should be at risk for executives who bear higher levels of 57 responsibility for Allstate's performance. In setting target incentive levels for named executive officers, the Committee gives the most consideration to market data primarily focusing on pay levels at peer group companies with which it directly competes for executive talent and stockholder investment. In calculating the annual cash incentive awards, Allstate's achievement with respect to each performance measure is expressed as a percentage of the target goal, with interpolation applied between the threshold and target goals and between the target and maximum goals. Unless otherwise adjusted by the Committee for Mr. Cripe or by management for the other named executives, the amount of the annual cash incentive award is the sum of the amounts calculated using the calculation below for all of the performance measures. Actual performance interpolated relative to X Weighting X Target award opportunity as a X Salary* threshold and target on a range of 0% to percentage of salary* 100% and relative to target and maximum on a range of 100% to 300%**
- -------- * Base salary, as adjusted by any merit and promotional increases granted during the year on a prorated basis (except for Mr. Dahl). ** 100% to 250% for Mr. Dahl, whose incentive award was calculated using his 2009 year-end salary. Annual cash incentive awards based on the achievement of the performance measures for 2009 are included in the amounts reported in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table on page 63 and broken out separately from long-term cash incentive awards in a footnote to that table. In addition, the threshold, target, and maximum annual award opportunities for 2009 are included in the Estimated Future Payouts Under Non-Equity Incentive Plan Awards column in the Grants of Plan-Based Awards table on page 65. As President and Chief Operating Officer of Lincoln Benefit, Mr. Dahl participated in a cash-based sales incentive plan (the "Sales Incentive Plan") based on first year premiums for universal life and term policies, as well as deposits for annuities, sold by one of Lincoln Benefit's distribution channels. In 2009, the targeted compensation level for the Sales Incentive Plan was $100,000. Payments related to the Sales Incentive Plan were made to Mr. Dahl on a monthly basis and totaled $62,343 for 2009. Payments were below plan for 2009 because targeted sales levels were not achieved. No other named executives of Lincoln Benefit participated in the Sales Incentive Plan. LONG-TERM INCENTIVE AWARDS--CASH AND EQUITY As part of total core compensation, Allstate historically has provided three forms of long-term incentive awards: stock options, restricted stock units, and long-term cash incentive awards. In 2009, Allstate discontinued future cycles of the long-term cash incentive plan. The relative mix of various forms of these awards is driven by Allstate's objectives in providing the specific form of award, as described below. LONG-TERM INCENTIVE AWARDS--EQUITY As stated in its compensation philosophy, Allstate believes that a significant amount of executive compensation should be in the form of equity and that a greater percentage of compensation should be at risk for executives who bear higher levels of responsibility for Allstate's performance. Consistent with that philosophy, the size of stock option and restricted stock unit awards granted by the Committee is usually larger for executives with the broadest scope of responsibility. However, from time to time, larger equity awards are granted to attract new executives. STOCK OPTIONS Stock options represent the opportunity to buy shares of Allstate stock at a fixed exercise price at a future date. They are utilized to align the interests of executives with long-term value of Allstate stockholders. 58 KEY ELEMENTS: . Under the Allstate stockholder-approved equity incentive plan, the exercise price cannot be less than the fair market value of a share on the date of grant. . Stock option repricing is not permitted. In other words, absent an event such as a stock split, if the Committee cancels an award and substitutes a new award in its place, the exercise price of the new award cannot be less than the exercise price of the cancelled award. . All stock option awards have been made in the form of nonqualified stock options. . Allstate stock options vest over stated vesting periods measured from the date of grant. . The options granted to the named executives in 2009 become exercisable in four installments of 25% on the first four anniversaries of the grant date and expire in ten years, except in certain change-in-control situations or under other special circumstances approved by the Committee. RESTRICTED STOCK UNITS Each restricted stock unit represents Allstate's promise to transfer one fully vested share of Allstate stock in the future if and when the restrictions expire (when the unit "vests"). Because restricted stock units are based on and payable in stock, they serve to reinforce the alignment of interests of executives and Allstate stockholders. In addition, because restricted stock units have a real, current value that is forfeited, except in some circumstances, if an executive terminates employment before the restricted stock units vest, they provide a significant retention incentive. Under the terms of the restricted stock unit awards, the executives have only the rights of general unsecured creditors of Allstate and no rights as stockholders until delivery of the underlying shares. KEY ELEMENTS: . The restricted stock units granted to the named executives in 2009 vest in one installment on the fourth anniversary of the date of grant, except in certain change-in-control situations or under other special circumstances approved by the Committee. . Allstate restricted stock units granted to the named executives in 2009 and prior years include the right to receive dividend equivalents in the same amount and at the same time as dividends paid to all Allstate common stockholders. TIMING OF EQUITY AWARDS AND GRANT PRACTICES The Committee grants existing employee equity incentive awards on an annual basis normally during a meeting in the first fiscal quarter, after the issuance of Allstate's prior fiscal year-end earnings release. Throughout the year, the Committee grants equity incentive awards in connection with new hires and promotions and in recognition of achievements. The Committee approved a one-time recognition award of non-qualified stock options and restricted stock units to Mr. Cripe in November 2009. This award was granted in recognition of his leadership of Allstate Financial. Pursuant to authority delegated by the Allstate Board and the Committee, equity incentive awards also may be granted by a subcommittee consisting of the Committee chair or by an equity award committee which currently consists of Allstate's CEO. The subcommittee may grant restricted stock or restricted stock units to new hires. The equity award committee may grant restricted stock units and stock options in connection with new hires and promotions and in recognition of achievements. STOCK OWNERSHIP GUIDELINES Because Allstate believes strongly in linking the interests of management with those of its stockholders, it instituted stock ownership guidelines in 1996 that require each of the named executives, with the exception of 59 Mr. Dahl, to own, as of March 1 following the fifth year after assuming a senior management position, common stock, including restricted stock units, worth a multiple of base salary. Unexercised stock options do not count towards meeting the stock ownership guidelines. Messrs. Cripe and Pintozzi have met their respective goals. Mr. Easley has until March 1, 2011, to meet his goal. Messrs. Lounds and Smith retired or left Allstate prior to March 1, 2010 and are no longer subject to the guidelines. For Mr. Cripe, the goal is four times salary. For Messrs. Pintozzi and Easley, the goal is two times salary. After a named executive meets the guideline for the position, if the value of his shares does not equal the specified multiple of base salary solely due to the fact that the value of the shares has declined, the executive is still deemed to be in compliance with the guideline. However, any executive in that situation may not sell any shares acquired upon the exercise of an option or conversion of any equity award except to satisfy tax withholding obligations, until the value of his shares again equals the specified multiple of base salary. In accordance with Allstate's policy on insider trading, all officers, directors, and employees are prohibited from engaging in transactions with respect to any securities issued by Allstate or any of its subsidiaries that might be considered speculative or regarded as hedging, such as selling short or buying or selling options. LONG-TERM INCENTIVE AWARDS--CASH After the end of the three-year cycle for long-term cash incentive awards, the Committee reviews the extent to which Allstate has achieved the various performance measures and approves the actual amount of the long-term cash incentive awards. Allstate pays long-term cash incentive awards after the end of the three-year cycle. Long-term cash incentive awards were designed to reward executives for collective results attained over a three-year performance cycle. Each of the named executives except for Mr. Dahl is eligible for these awards. The Committee approved performance measures and threshold, target, and maximum goals for long-term cash incentive awards at the beginning of each three-year cycle and a new cycle started every year. However, the Committee discontinued future long-term incentive plan awards in 2009, making the 2008-2010 cycle the final cycle under the Long-Term Executive Incentive Compensation Plan. The final award under this plan was made in February 2008 and will be paid out in March 2011. For the 2007-2009 cycle, there were three performance measures. The target goals for each performance measure, the actual results, and the relative weight of each measure are shown in the following table. The selection and weighting of these measures was intended to focus executive attention on the collective achievement of Allstate's long-term financial goals across its various product lines. A description of each performance measure is provided under the "Performance Measures" caption on page 81. LONG-TERM CASH INCENTIVE AWARDS, 2007-2009 CYCLE PERFORMANCE MEASURES, WEIGHTING, AND TARGET GOALS/(1)/
PERCENTAGE WEIGHT OF THE ACHIEVEMENT TOTAL RELATIVE TO POTENTIAL THRESHOLD, TARGET, PERFORMANCE MEASURES AWARD/(2)/ TARGET ACTUAL MAXIMUM GOALS/(3)/ - -------------------- ------------- ----------- ----------- ------------------ Average adjusted return on equity.......................... 50% 5/th/ 5/th/ Target position position relative to relative to peers peers Allstate Protection growth in policies in force over the 3-year cycle............................................. 25% 5.0% (3.8)% Below threshold Allstate Financial return on total capital over the 3-year cycle.................................................... 25% 9.5% 7.9% Below threshold
- -------- (1)Information regarding performance measures is disclosed in the limited context of long-term cash incentive awards and should not be understood to be statements of management's expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts. 60 (2)Same weight applied for all eligible named executives. (3)Stated as a percentage of target goals with a range from 0% to 300%, the actual performance comprises 50% for the average adjusted return on equity measure, 0% for the Allstate Protection measure, and 0% for the Allstate Financial measure. The weighted results for all three measures stated as a percentage of the target goals for all the eligible named executives was 50%. The target goal for the average adjusted return on equity was set at a level representing average projected industry performance. The target goals for Allstate Protection growth in policies in force over the three-year cycle and Allstate Financial return on total capital over the three-year cycle were based on evaluations of Allstate's historical performance and plans to drive projected performance. The average adjusted return on equity measure compares Allstate's performance to the following peer insurance companies: The Chubb Corporation MetLife Inc. CNA Financial Corporation The Progressive Corporation The Hartford Financial Services Group, Inc. Prudential Financial, Inc. Lincoln National Corporation The Travelers Companies, Inc.
Allstate's ranked position relative to this peer group determines the percentage of the total target award for this performance measure to be paid, as indicated in the following table. However no payment is made unless the average adjusted return on equity exceeds the average risk free rate of return on three-year Treasury notes over the three-year cycle, plus 200 basis points, regardless of Allstate's standing compared to the peer group. For the 2007-2009 cycle, Allstate achieved the 5/th/ position and met the target level of performance. The average adjusted return on equity exceeded the average risk free rate of return by 375 basis points. AVERAGE ADJUSTED RETURN ON EQUITY RELATIVE TO PEER GROUP, 2007-2009 CYCLE
PEER POSITION % OF TARGET AWARD ------------- ----------------- Threshold. 9 0% 8 40% 7 60% 6 80% Target.... 5 100% 4 150% 3 200% 2 250% Maximum... 1 300%
Target award opportunities approved by the Committee are stated as a percentage of annual base salary. Award opportunities for the eligible named executives are capped at 300% of the target awards. Awards for each cycle are calculated using base salary in effect at the beginning of the cycle, as adjusted by any promotional increases granted during the course of the cycle on a prorated basis. Mr. Cripe had a target award opportunity of 70%. Messrs. Pintozzi, Easley, Smith, and Lounds each had a target award opportunity of 40%. The size of these target awards is based on each executive's level of responsibility for contributing to Allstate's long-term performance and overall market competitiveness. Unless otherwise adjusted by the Committee, in calculating the long-term cash incentive awards, Allstate's achievement with respect to each performance measure for a particular cycle is expressed as a percentage of the target goal with interpolation applied between threshold and target goals and between target and maximum goals. 61 The amount of each eligible named executive's award is the sum of the amounts calculated using the following calculation for all of the long-term cash incentive performance measures. Actual performance interpolated relative to X Weighting X Target award opportunity as a X Salary* threshold and target on a range of 0% to percentage of salary* 100% and relative to target and maximum on a range of 100% to 300%
- -------- * Base salary in effect at the beginning of the cycle, as adjusted by any promotional increases granted during the course of the cycle on a prorated basis. Long-term cash incentive awards based on the achievement of the performance measures for the 2007-2009 cycle were paid in March 2010 and are included in the amounts reported in the Non-Equity Incentive Plan Compensation column of the Summary Compensation Table and broken out separately from annual cash incentive awards in a footnote to that table. OTHER ELEMENTS OF COMPENSATION To remain competitive with other employers and to attract, retain, and motivate highly talented executives and other employees, we provide the benefits listed in the following table.
OTHER NAMED EXECUTIVES, OTHER ALL FULL-TIME OFFICERS, AND AND REGULAR CERTAIN PART-TIME BENEFIT OR PERQUISITE MR. CRIPE MANAGERS EMPLOYEES - --------------------- --------------- ----------------- ------------- 401(k)/(1)/ and defined benefit pension.................. (check mark) (check mark) (check mark) Supplemental retirement benefit.......................... (check mark) (check mark) Health and welfare benefits/(2)/......................... (check mark) (check mark) (check mark) Supplemental long-term disability and executive physical program................................................ (check mark) (check mark)/(3)/ Deferred compensation.................................... (check mark) (check mark) Tax preparation services................................. (check mark) (check mark) Financial planning services.............................. (check mark) Cell phones and ground transportation.................... (check mark)/(4)/
- -------- (1)Allstate contributed $1.00 for every dollar of basic pre-tax deposits made in 2009 on the first 3 percent of eligible pay and $.50 for every dollar of basic pre-tax deposits made in 2009 on the next 2 percent of eligible pay for eligible participants, including the named executive officers. (2)Including medical, dental, vision, life, accidental death and dismemberment, long-term disability, and group legal insurance. (3)An executive physical program is available to all officers. (4)Ground transportation is available to Mr. Cripe. Cell phones are available to members of Allstate's senior management team, other officers and certain managers, and certain employees depending on their job responsibilities. RETIREMENT BENEFITS Each named executive officer participates in two different defined benefit pension plans. The Allstate Retirement Plan (ARP) is a tax qualified defined benefit pension plan available to all of Allstate's regular full-time and regular part-time employees who meet certain age and service requirements. The ARP provides an assured retirement income related to an employee's level of compensation and length of service at no cost to the employee. As the ARP is a tax qualified plan, federal tax law places limits on (1) the amount of an individual's compensation that can be used to calculate plan benefits and (2) the total amount of benefits payable to a 62 participant under the plan on an annual basis. These limits may result in a lower benefit under the ARP than would have been payable if the limits did not exist for certain of Allstate's employees. Therefore, the Allstate Insurance Company Supplemental Retirement Income Plan (SRIP) was created for the purpose of providing ARP-eligible employees whose compensation or benefit amount exceeds the federal limits with an additional defined benefit in an amount equal to what would have been payable under the ARP if the federal limits described above did not exist. CHANGE-IN-CONTROL AND POST-TERMINATION BENEFITS Allstate does not view the change-in-control benefits or post-termination benefits as additional elements of compensation due to the fact that a change-in-control or other triggering event may never occur. However, the use and structure of Allstate's change-in-control and post-termination plans are consistent with Allstate's compensation objectives to attract, motivate, and retain highly talented executives. A change-in-control of Allstate could have a disruptive impact on both Allstate and its executives. Allstate's change-in-control benefits and post-termination benefits are designed to mitigate that impact and to maintain the connection between the interests of executives and Allstate's stockholders. As part of these benefits, executives receive equity awards that might otherwise be eliminated by new directors of Allstate elected in connection with a change-in-control. With the exception of Mr. Dahl, Allstate also provides certain protections for cash incentive awards, previously deferred compensation, and benefits if the named executive's employment is terminated within a two-year period after a change-in-control. The arrangements which are described in the "Potential Payments as a Result of Termination or Change-in-Control" section are not provided exclusively to the named executives. Certain cash severance benefits are provided to all regular full-time and regular part-time Allstate employees. For example, Allstate replaced its vacation policy with a paid time off bank effective January 1, 2001. Eligible employees could elect to receive their vacation days accrued but not yet taken between their annual anniversary date in 2000 and December 31, 2000, as either paid time off or in the form of a lump sum severance payment at termination. SUMMARY COMPENSATION TABLE FOR 2009 AND GRANTS OF PLAN-BASED AWARDS TABLE FOR 2009 SUMMARY COMPENSATION TABLE The following table sets forth information concerning the compensation of the named executives for all services rendered to Lincoln Benefit in 2009, allocated to Lincoln Benefit in a manner consistent with the allocation of compensation expenses under Service and Expense Agreement.
CHANGE IN PENSION VALUE NON-EQUITY AND INCENTIVE NONQUALIFIED STOCK OPTION PLAN DEFERRED ALL OTHER SALARY BONUS AWARDS AWARDS COMPENSATION COMPENSATION COMPENSATION TOTAL NAME/(1)/ YEAR ($) ($)/(2)/ ($)/(3)/ ($)/(4)/ ($)/(5)/ EARNINGS ($)/(6)/ ($)/(7)/ ($) - -------- ---- ------- ------- ------- ------- ------------ ---------------- ------------ ------- Frederick F. Cripe/(1)/... 2009 105,031 0 147,479 270,938 100,391 93,351/(8)/ 7,546 724,736 (CHAIRMAN AND CHIEF EXECUTIVE OFFICER) John C. Pintozzi.......... 2009 120,224 7,436 55,594 106,439 75,456 10,673/(9)/ 9,053 384,875 (VICE PRESIDENT AND CHIEF FINANCIAL OFFICER) Lawrence W. Dahl.......... 2009 253,299 0 25,195 48,246 113,091 235,494/(10)/ 80,690 759,285 (PRESIDENT AND CHIEF OPERATING OFFICER) Matthew S. Easley......... 2009 114,709 0 45,652 87,398 72,160 6,064/(11)/ 8,708 334,691 (VICE PRESIDENT) Eric Smith/(1)/........... 2009 105,359 0 48,919 93,652 49,462 8,702/(12)/ 8,023 314,117 (VICE PRESIDENT) John Lounds/(1)/.......... 2009 77,287 0 60,708 116,223 42,245 135,461/(13)/ 21,264 453,188 (FORMER VICE PRESIDENT)
63 - -------- (1)Mr. Lounds was a Vice President of Lincoln Benefit until July 31, 2009. Mr. Smith was a Vice President of Lincoln Benefit until January 15, 2010. Mr. Cripe was Chairman and CEO of Lincoln Benefit until March 12, 2010. (2)Mr. Pintozzi received a bonus as a result of his outstanding individual performance in 2009. (3)The aggregate grant date fair value of restricted stock unit awards computed in accordance with Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 718 ("ASC 718"). The number of restricted stock units granted in 2009 to each named executive is provided in the Grants of Plan-Based Awards table on page 65. The fair value of restricted stock unit awards is based on the final closing price of Allstate's stock as of the date of grant. The final closing price in part reflects the payment of future dividends expected. (4)The aggregate grant date fair value of option awards computed in accordance with FASB ASC 718. The fair value of each option award is estimated on the date of grant using a binomial lattice model. The fair value of each option award is estimated on the date of grant using the assumptions as set forth in the following table: Weighted average expected term. 8.1 years Expected volatility............ 26.3 - 79.2% Weighted average volatility.... 38.3% Expected dividends............. 2.6% Risk-free rate................. 0.0 - 3.7%
The number of options granted in 2009 to each named executive is provided in the Grants of Plan-Based Awards table on page 65. (5)Amounts earned under the Annual Executive Incentive Compensation Plan are paid in the year following performance. Amounts earned under the Long-Term Executive Incentive Compensation Plan are paid in the year following the performance cycle. The amounts shown in the table above include amounts earned in 2009 and payable under these plans in 2010. The break-down for each component is as follows:
ANNUAL CASH LONG-TERM INCENTIVE CASH INCENTIVE NAME YEAR AWARD AMOUNT CYCLE AWARD AMOUNT ---- ---- ------------ --------- -------------- Mr. Cripe.... 2009 $68,051 2007-2009 $32,340 Mr. Pintozzi. 2009 $54,970 2007-2009 $20,486 Mr. Dahl..... 2009 $50,748* 2007-2009 $ 0 Mr. Easley... 2009 $52,444 2007-2009 $19,716 Mr. Lounds... 2009 $30,824 2007-2009 $18,639 Mr. Smith.... 2009 $22,327 2007-2009 $19,918
------ * Mr. Dahl received an additional $62,343 for 2009 under the terms of the Sales Incentive Plan. (6)Amounts reflect the aggregate increase in actuarial value of the pension benefits as set forth in the Pension Benefits table, accrued during 2009. These are benefits under the Allstate Retirement Plan (ARP) and the Allstate Insurance Company Supplemental Retirement Income Plan (SRIP). Non-qualified deferred compensation earnings are not reflected since Allstate's Deferred Compensation Plan does not provide above-market earnings. For 2009, the pension plan measurement date used for financial statement reporting purposes, December 31, as well as the methodology employed for purposes of Allstate's financial statements, were used in the calculation of the change in present value. (See note 16 to the Allstate audited financial statements for 2009.) One component of the change in pension value from 2008 to 2009 displayed in this column relates to the change in the discount rate used to calculate the value of pension benefits. The discount rate decreased from 7.5% in 2008 to 6.25% at year-end 2009, which resulted in an increase in the present value of accrued benefits at year-end 2009. For participants earning final average pay benefits (i.e. Messrs. Cripe, Dahl, and Lounds), approximately 50% of the change in pension value relates to the change in the discount rate. (7)The "All Other Compensation for 2009--Supplemental Table" provides details regarding the amounts for 2009 for this column. (8)Reflects increases in the actuarial value of the benefits provided to Mr. Cripe pursuant to the ARP and SRIP of $38,049 and $55,302 respectively. (9)Reflects increases in the actuarial value of the benefits provided to Mr. Pintozzi pursuant to the ARP and SRIP of $5,546 and $5,127 respectively. (10)Reflects increases in the actuarial value of the benefits provided to Mr. Dahl pursuant to the ARP and SRIP of $122,316 and $113,178 respectively. (11)Reflects increases in the actuarial value of the benefits provided to Mr. Easley pursuant to the ARP and SRIP of $2,985 and $3,079 respectively. (12)Reflects increases in the actuarial value of the benefits provided to Mr. Smith pursuant to the ARP and SRIP of $4,794 and $3,908 respectively. (13)Reflects increases in the actuarial value of the benefits provided to Mr. Lounds pursuant to the ARP and SRIP of $50,462 and $84,999 respectively. 64 ALL OTHER COMPENSATION FOR 2009--SUPPLEMENTAL TABLE (IN DOLLARS) The following table describes the incremental cost of other benefits provided in 2009 that are included in the "All Other Compensation" column.
TOTAL 401(K) ALL OTHER NAME MATCH/(1)/ OTHER/(2)/ COMPENSATION ---- --------- --------- ------------ Mr. Cripe.... 2,587 4,959 7,546 Mr. Pintozzi. 3,695 5,358 9,053 Mr. Dahl..... 9,800 87,506 97,306 Mr. Easley... 3,695 5,013 8,708 Mr. Lounds... 3,695 11,189 14,884 Mr. Smith.... 3,402 4,621 8,023
- -------- (1)Each of the named executives participated in Allstate's 401(k) plan during 2009. The amount shown is the amount allocated to their accounts as employer matching contributions, allocated to Lincoln Benefit in a manner consistent with the allocation of compensation expenses under the Service and Expense Agreement. (2)"Other" consists of premiums for group life insurance and personal benefits and perquisites consisting of cell phones, tax preparation services, financial planning, executive physicals, ground transportation, and supplemental long-term disability coverage. None of the personal benefits and perquisites individually exceeded the greater of $25,000 or 10% of the total amount of these benefits for the named executives, except Mr. Lounds' vacation accrual severance benefit of $3,861, which represents the value at December 31, 2009, of his vacation days accrued but not yet taken between his annual anniversary date in 2000 and December 31, 2000, allocated to Lincoln Benefit in a manner consistent with the Service and Expense Agreement; and Mr. Dahl's payment, in accordance with Nebraska law, of $76,914 for paid time off accrued but not taken between 2001 and 2009. Allstate provides supplemental long-term disability coverage to regular full-time and regular part-time employees whose annual earnings exceed the level which produces the maximum monthly benefit provided by the Group Long Term Disability Insurance Plan. This coverage is self-insured (funded and paid for by Allstate when obligations are incurred). No obligations for the named executives were incurred in 2009 and so no incremental cost is reflected in the table. GRANTS OF PLAN-BASED AWARDS AT FISCAL YEAR-END 2009/(1)/ The following table provides information about non-equity incentive plan awards and equity awards granted to our named executives during the fiscal year 2009 to the extent the expense for such awards was allocated to Lincoln Benefit under the Service and Expense Agreement.
ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE GRANT DATE PLAN AWARDS/(2)/ FAIR VALUE ($)/(4)/ ------------------------ ------------------- ALL OTHER STOCK ALL OTHER AWARDS: OPTION NUMBER AWARDS: EXERCISE OF NUMBER OF OR BASE SHARES SECURITIES PRICE OF OF STOCK UNDERLYING OPTION THRESHOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS STOCK OPTION NAME GRANT DATE PLAN NAME ($) ($) ($) (#) (#) ($/SHR)/(3)/ AWARDS AWARDS - ---- ------------- ---------------------- --------- ------ ------- -------- ---------- ----------- ------- ------- Mr. Cripe. Annual Cash Incentive 0 86,031 258,094 Feb. 27, 2009 Restricted Stock Units 6,018 101,281 Feb. 27, 2009 Stock Options 34,198 16.83 193,903 Nov. 02, 2009 Restricted Stock Units 1,559 46,199 Nov. 02, 2009 Stock Options 8,855 29.64 77,035
65
ESTIMATED FUTURE PAYOUTS UNDER NON-EQUITY INCENTIVE GRANT DATE PLAN AWARDS/(2)/ FAIR VALUE ($)/(4)/ ------------------------- ------------------- ALL OTHER STOCK ALL OTHER AWARDS: OPTION NUMBER AWARDS: EXERCISE OF NUMBER OF OR BASE SHARES SECURITIES PRICE OF OF STOCK UNDERLYING OPTION THRESHOLD TARGET MAXIMUM OR UNITS OPTIONS AWARDS STOCK OPTION NAME GRANT DATE PLAN NAME ($) ($) ($) (#) (#) ($/SHR)/(3)/ AWARDS AWARDS - ---- ------------- ---------------------- --------- ------- ------- -------- ---------- ----------- ------ ------- Mr. Pintozzi. Annual Cash Incentive 0 69,494 208,483 Feb. 27, 2009 Restricted Stock Units 3,303 55,594 Feb. 27, 2009 Stock Options 18,772 16.83 106,439 Mr. Dahl..... Annual Cash Incentive 0 73,442 186,605 Sales Incentive Plan 0 100,000 Feb. 27, 2009 Restricted Stock Units 1,497 25,195 Feb. 27, 2009 Stock Options 8,509 16.83 48,246 Mr. Easley... Annual Cash Incentive 0 66,301 198,902 Feb. 27, 2009 Restricted Stock Units 2,713 45,652 Feb. 27, 2009 Stock Options 15,414 16.83 87,398 Mr. Lounds... Annual Cash Incentive 0 44,586 133,758 Feb. 27, 2009 Restricted Stock Units 3,607 60,708 Feb. 27, 2009 Stock Options 20,498 16.83 116,223 Mr. Smith.... Annual Cash Incentive 0 60,896 182,689 Feb. 27, 2009 Restricted Stock Units 2,907 48,919 Feb. 27, 2009 Stock Options 16,517 16.83 93,652
- -------- (1)Awards under the Annual Executive Incentive Compensation Plan and the 2001 Equity Incentive Plan. (2)The amounts in these columns consist of the threshold, target, and maximum annual cash incentive awards for the named executives. The threshold amount for each named executive is zero, as the minimum amount payable if no performance measures are achieved. The target amount is based upon achievement of certain performance measures set forth in the "Annual Cash Incentive Compensation" section of the CD&A. (3)The exercise price of each option is equal to the fair market value of Allstate's common stock on the date of grant. Fair market value is equal to the closing sale price on the date of grant or, if there was no such sale on the date of grant, then on the last previous day on which there was a sale. (4)As computed in accordance with FASB ASC 718, the aggregate grant date fair value of restricted stock units and stock option awards was $16.83 and $5.67, respectively, for awards granted on February 27, 2009, and $29.64 and $8.70, respectively, for awards granted on November 2, 2009. The assumptions used in the valuation are discussed in footnotes 3 and 4 to the Summary Compensation Table on page 63. The following discussion of incentive compensation for 2009 elaborates on the more general information provided above in the CD&A. NON-EQUITY INCENTIVE COMPENSATION The Non-Equity Incentive Plan Compensation column of the Summary Compensation Table includes each named executive's annual cash incentive award for 2009 and long-term cash incentive award for the 2007-2009 cycle, allocated to Lincoln Benefit under the Service and Expense Agreement. The amount attributable to annual and long-term, respectively, is provided in a footnote to the Summary Compensation Table. The Estimated Future Payouts Under Non-Equity Incentive Plan Awards column of the Grants of Plan-Based Awards at Fiscal Year-End 2009 table includes the threshold, target, and maximum award opportunities for 2009 annual cash incentive compensation, allocated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement. 66 EQUITY COMPENSATION The Committee granted both restricted stock units and options in 2009. The restricted stock units granted in 2009 vest in one installment four years after the date of grant, except in certain change-in-control situations or under other special circumstances approved by the Committee. Normally, the named executive must be employed in order for the restricted stock units to vest. However, restricted stock units continue to vest following retirement on or after the normal retirement date specified in the award. If the named executive dies, then as of the date of death, all unvested restricted stock units granted in 2009 will vest and become nonforfeitable. The restricted stock units granted in 2009 and prior years include the right to receive dividend equivalents in the same amount and at the same time as dividends paid to all Allstate common stockholders. The stock options granted in 2009 become exercisable in four annual installments of 25% on the first four anniversaries of the grant date and expire in ten years, except in certain change-in-control situations or under other special circumstances approved by the Committee. Normally, the named executive must be employed at the time of vesting in order for the options to vest. If the named executive terminates on or after the normal retirement date under the stock option award agreements, stock options not vested will continue to vest as scheduled. When the options become vested, they may be exercised by the named executive at any time on or before the earlier to occur of (i) the expiration date of the option and (ii) the fifth anniversary of the date of the named executive's termination of employment. If the named executive dies or becomes disabled, unvested stock options will vest and may be exercised by the named executive officer (or personal representative, estate or transferee, as the case may be) at any time on or before the earlier to occur of (i) the expiration date of the option and (ii) the second anniversary of the date of the named executive's termination of employment. If the named executive terminates for any other reason, any portion of the option not vested will be forfeited. Vested options may be exercised at any time on or before the earlier to occur of (i) the expiration date of the option and (ii) three months after the date of the named executive's termination of employment. The options were granted with an exercise price equal to the closing sale price on the date of grant or, if there was no sale on the date of grant, then on the last previous day on which there was a sale. Each option is a nonqualified stock option. Each option includes tax withholding rights that permit the holder to elect to have shares withheld to satisfy minimum federal, state, and local tax withholding requirements. Option holders may exchange shares previously owned to satisfy all or part of the exercise price. The vested portions of all the options may be transferred during the holder's lifetime to, or for the benefit of, family members. Any taxes payable upon a transferee's subsequent exercise of the option remain the obligation of the original option holder. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2009 The following table summarizes the outstanding equity awards of the named executives as of December 31, 2009, allocated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement for 2009. The percentage of each equity award actually allocated to Lincoln Benefit has varied over the years during which these awards were granted depending on the extent of services rendered by such executive to Lincoln Benefit and the arrangements in place at the time of such equity awards between Lincoln Benefit and the executive's Allstate-affiliated employer. Because the aggregate amount of such equity awards attributable to services rendered to Lincoln Benefit by each named executive cannot be calculated without unreasonable effort, the allocated amount of each equity award provided for each named executive in the following table is the amount determined by multiplying each named executive's equity award for services rendered to Allstate and all of its affiliates by the percentage used for allocating such named executive's compensation to Lincoln Benefit in 2009 under the Service and Expense Agreement. 67 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END 2009
OPTION AWARDS/(1)/ STOCK AWARDS ------------------------------------------------------------------------ ------------------------------ NUMBER OF NUMBER OF NUMBER OF SECURITIES SECURITIES SHARES OR UNDERLYING UNDERLYING UNITS OF UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT OPTION GRANT OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION STOCK AWARD HAVE NOT NAME DATE EXERCISABLE/(2)/ UNEXERCISABLE/(3)/ PRICE DATE GRANT DATE VESTED (#)/(4)/ - ---- -------------- --------------- ----------------- -------- -------------- -------------- -------------- Mr. Cripe Feb. 7, 2003 1,518 0 31.78 Feb. 7, 2013 Feb. 6, 2004 5,461 0 45.96 Feb. 6, 2014 Feb. 22, 2005 3,811 0 52.57 Feb. 22, 2015 Feb. 21, 2006 3,028 1,009 53.84 Feb. 21, 2016 Feb. 21, 2006 610 Feb. 21, 2006 1,782 594 53.84 Feb. 21, 2016 Feb. 21, 2006 158* Feb. 20, 2007 3,815 3,815 62.24 Feb. 20, 2017 Feb. 20, 2007 1,056 Feb. 26, 2008 3,168 9,504 48.82 Feb. 26, 2018 Feb. 26, 2008 1,373 Feb. 27, 2009 0 34,198 16.83 Feb. 27, 2019 Feb. 27, 2009 6,018 Nov. 2, 2009 0 8,855 29.64 Nov. 2, 2019 Nov. 2, 2009 1,559 Mr. Pintozzi Sep. 30, 2002 471 0 35.17 Feb. 7, 2003 1320 0 31.78 Feb. 7, 2013 Feb. 6, 2004 1877 0 45.96 Feb. 6, 2014 Feb. 22, 2005 5,164 0 52.57 Feb. 22, 2015 Feb. 21, 2006 2,545 848 53.84 Feb. 21, 2016 Feb. 21, 2006 773 Feb. 21, 2006 3,835 1,279 53.84 Feb. 21, 2016 Feb. 21, 2006 226* Feb. 20, 2007 2,510 2,510 62.24 Feb. 20, 2017 Feb. 20, 2007 692 Feb. 26, 2008 2,240 6,720 48.82 Feb. 26, 2018 Feb. 26, 2008 972 Feb. 27, 2009 0 18,772 16.83 Feb. 27, 2019 Feb. 27, 2009 3,303 Mr. Dahl May 18, 2000 3,851 0 26.69 May 18, 2010 May 15, 2001 4,224 0 42.00 May 15, 2011 May 7, 2002 5,868 0 33.38 May 7, 2012 Feb. 7, 2003 3,200 0 31.78 Feb. 7, 2013 Feb. 6, 2004 3,333 0 45.96 Feb. 6, 2014 Feb. 22, 2005 2,492 0 52.57 Feb. 22, 2015 Feb. 21, 2006 2,563 855 53.84 Feb. 21,2016 Feb. 21, 2006 516 Feb. 20, 2007 1,436 1,437 62.24 Feb. 20, 2017 Feb. 20, 2007 397 Feb. 26, 2009 1,373 4,121 48.82 Feb. 26, 2018 Feb. 26, 2008 596 Feb. 27, 2009 0 8,509 16.83 Feb. 27, 2019 Feb. 27, 2009 1,497 Mr. Easley May 9, 2005 5,655 0 57.04 May 9, 2015 May 9, 2005 943 Feb. 21, 2006 3,637 1,212 53.84 Feb. 21, 2016 Feb. 21, 2006 733 Feb. 21, 2006 2,545 848 53.84 Feb. 21, 2016 Feb. 21, 2006 226* Feb. 20, 2007 2,415 2,415 62.24 Feb. 20, 2017 Feb. 20, 2007 666 Feb. 26, 2008 2,166 6,499 48.82 Feb. 26, 2018 Feb. 26, 2008 940 Feb. 27, 2009 0 15,414 16.83 Feb. 27, 2019 Feb. 27, 2009 2,713
-------------- MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT NAME VESTED/(5)/ - ---- -------------- Mr. Cripe 18,320 4,758 31,722 41,239 180,777 46,822 AGGREGATE MARKET VALUE -------------- 323,638 Mr. Pintozzi 23,217 6,795 20,793 29,207 99,230 AGGREGATE MARKET VALUE -------------- 179,242 Mr. Dahl 15,500 11,926 17,904 44,970 AGGREGATE MARKET VALUE -------------- 90,300 Mr. Easley 28,313 22,004 6,795 20,011 28,245 81,484 AGGREGATE MARKET VALUE -------------- 186,852
68
OPTION AWARDS/(1)/ STOCK AWARDS ------------------------------------------------------------------------ ------------------------------ NUMBER OF NUMBER OF NUMBER OF SECURITIES SECURITIES SHARES OR UNDERLYING UNDERLYING UNITS OF UNEXERCISED UNEXERCISED OPTION OPTION STOCK THAT OPTION GRANT OPTIONS (#) OPTIONS (#) EXERCISE EXPIRATION STOCK AWARD HAVE NOT NAME DATE EXERCISABLE/(2)/ UNEXERCISABLE/(3)/ PRICE DATE GRANT DATE VESTED (#)/(4)/ - ---- -------------- --------------- ----------------- -------- -------------- -------------- -------------- Mr. Smith Feb. 6, 2004 1,222 0 45.96 Feb. 6, 2014 Feb. 22, 2005 3,116 0 52.57 Feb. 22, 2015 Feb. 21, 2006 1,917 959 53.84 Feb. 21, 2016 Feb. 21, 2006 579 Feb. 21, 2006 1,697 848 53.84 Feb. 21, 2016 Feb. 21, 2006 226* Feb. 20, 2007 1,860 1,860 62.24 Feb. 20, 2017 Feb. 20, 2007 513 Feb. 26, 2008 1,647 4,941 48.82 Feb. 26, 2018 Feb. 26, 2008 715 Feb. 27, 2009 0 16,517 16.83 Feb. 27, 2019 Feb. 27, 2009 2,907 Mr. Lounds May 18, 2000 8,027 0 26.69 May 18, 2010 May 15, 2001 6,824 0 42.00 May 15, 2011 Feb. 7, 2002 11,587 0 33.38 Feb. 7, 2012 Feb. 7, 2003 5,844 0 31.78 Feb. 7, 2013 Feb. 6, 2004 7,200 0 45.96 Feb. 6, 2014 Feb. 22, 2005 5,686 0 52.57 July 31, 2014 Feb. 21, 2006 4,231 1,410 53.84 July 31, 2014 Feb. 21, 2006 226* Feb. 21, 2006 2,545 848 53.84 July 31, 2014 Feb. 21, 2006 852 Feb. 20, 2007 2,623 2,623 62.24 July 31, 2014 Feb. 20, 2007 724 Feb. 26, 2008 2,270 6,811 48.82 July 31, 2014 Feb. 26, 2008 985 Feb. 27, 2009 0 20,498 16.83 July 31, 2014 Feb. 27, 2009 3,607
-------------- MARKET VALUE OF SHARES OR UNITS OF STOCK THAT HAVE NOT NAME VESTED/(5)/ - ---- -------------- Mr. Smith 17,395 6,795 15,425 21,472 87,317 AGGREGATE MARKET VALUE -------------- 148,404 Mr. Lounds 6,795 25,606 21,744 29,593 108,358 AGGREGATE MARKET VALUE -------------- 192,096
- -------- (1)Options vest in four installments on the first four anniversaries of the grant date. The exercise price of each option is equal to the fair market value of Allstate's common stock on the date of grant. For options granted prior to 2007, fair market value is equal to the average of high and low sale prices on the date of grant, and for options granted in 2007 and thereafter, fair market value is equal to the closing sale price on the date of grant or in each case, if there was no sale on the date of grant, then on the last previous day on which there was a sale. (2)The allocated aggregate value and aggregate number of exercisable in-the-money options as of December 31, 2009, for Mr. Dahl is $12,901 (3,851 aggregate number exercisable). The allocated aggregate value and aggregate number of exercisable in-the-money options as of December 31, 2009, for Mr. Lounds is $26,890 (8,027 aggregate number exercisable). None of the other named executives had any exercisable in-the-money options as of December 31, 2009. (3)The allocated aggregate value and aggregate number of unexercisable in-the-money options as of December 31, 2009, for each of the named executives is as follows: Mr. Cripe $455,298 (43,053 aggregate number unexercisable), Mr. Pintozzi $247,983 (18,772 aggregate number unexcercisable), Mr. Dahl $112,404 (8,509 aggregate number unexercisable), Mr. Easley $203,619 (15,414 aggregate number unexercisable), Mr. Lounds $270,777 (20,498 aggregate number unexercisable), and Mr. Smith $218,191 (16,517 aggregate number unexercisable). (4)Except as otherwise noted, each restricted stock unit award vests in one installment on the fourth anniversary of the grant date. An asterisk (*) denotes restricted stock units that vest in four equal installments on the first four anniversaries of the grant date. (5)Amount is based on the closing price of Allstate common stock of $30.04 on December 31, 2009. 69 OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2009 The following table summarizes the options exercised by the named executives during 2009 and the restricted stock and restricted stock unit awards that vested during 2009, allocated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement for 2009. OPTION EXERCISES AND STOCK VESTED AT FISCAL YEAR-END 2009
OPTION AWARDS (AS OF 12/31/09) STOCK AWARDS ------------------------------- ------------------------------- NUMBER OF SHARES VALUE REALIZED NUMBER OF SHARES ACQUIRED ON ON EXERCISE ACQUIRED ON VALUE REALIZED NAME EXERCISE (#) ($) VESTING (#) ON VESTING ($) ---- ---------------- -------------- ---------------- -------------- Mr. Cripe.... 0 0 1,004 $18,514 Mr. Pintozzi. 0 0 1,014 $18,701 Mr. Dahl..... 0 0 381 $ 7,026 Mr. Easley... 0 0 226 $ 4,171 Mr. Lounds... 0 0 1,094 $20,174 Mr. Smith.... 0 0 860 $15,864
RETIREMENT BENEFITS Each named executive participates in two different defined benefit pension plans. Pension expense for each named executive under these plans has been accrued annually over the course of the executive's career with Allstate. The aggregate amount of the annual accrual specifically allocated to Lincoln Benefit over that period of time has varied depending on the extent of services rendered by such executive to Lincoln Benefit and the arrangements in place at the time of accrual between Lincoln Benefit and the executive's Allstate-affiliated employer. Because the aggregate amount of such annual accruals earned prior to 2009 attributable to services rendered to Lincoln Benefit by each named executive cannot be calculated without unreasonable effort, the present value of accumulated benefit provided for each named executive in the following table is the amount determined by multiplying the present value of such named executive's accumulated pension benefit for services rendered to Allstate and all of its affiliates over the course of such named executive's career with Allstate by the percentage used for allocating such named executive's compensation to Lincoln Benefit under the Service and Expense Agreement in 2009. PENSION BENEFITS
NUMBER OF PRESENT YEARS VALUE OF PAYMENTS CREDITED ACCUMULATED DURING LAST NAME PLAN NAME SERVICE (#) BENEFIT/(1)/ ($) FISCAL YEAR ($) - ---- ------------------------------------ ----------- -------------- --------------- Mr. Cripe....... Allstate Retirement Plan 28.0 156,992 0 Supplemental Retirement Income Plan 28.0 300,422 0 Mr. Pintozzi.... Allstate Retirement Plan 7.3 14,292 0 Supplemental Retirement Income Plan 7.3 14,909 0 Mr. Dahl........ Allstate Retirement Plan 22.9 439,753 0 Supplemental Retirement Income Plan 22.9 383,527 0 Mr. Easley...... Allstate Retirement Plan 4.7 6,662 0 Supplemental Retirement Income Plan 4.7 11,081 0 Mr. Lounds/(2)/. Allstate Retirement Plan 28.0 386,444 0 Supplemental Retirement Income Plan 28.0 684,428 0 Mr. Smith....... Allstate Retirement Plan 7.0 14,250 0 Supplemental Retirement Income Plan 7.0 15,003 0
- -------- (1)These amounts are estimates and do not necessarily reflect the actual amounts that will be paid to the named executives, which will only be known at the time they become eligible for payment. Except for Mr. Lounds, 70 accrued benefits were calculated as of December 31, 2009, and used to calculate the Present Value of Accumulated Benefits at December 31, 2009, and the applicable percentages were applied based on the Service and Expense Agreement. December 31 is the pension plan measurement date used for financial statement reporting purposes. (2)Accrued benefit calculated as of July 31, 2009, termination date. The benefits and value of benefits shown in the Pension Benefits table are based on the following material factors: ALLSTATE RETIREMENT PLAN ("ARP") The ARP has two different types of benefit formulas (final average pay and cash balance) which apply to participants based on their date of hire or individual choice made prior to the January 1, 2003, introduction of a cash balance design. Of the named executives, Messrs. Pintozzi, Easley, and Smith are eligible to earn cash balance benefits. Benefits under the final average pay formula are earned and stated in the form of a straight life annuity payable at the normal retirement date (age 65). Participants who earn final average pay benefits may do so under one or more benefit formulas based on when they become members of the ARP and their years of service. Messrs. Cripe, Dahl, and Lounds have earned ARP benefits under the post-1988 final average pay formula which is the sum of the Base Benefit and the Additional Benefit, as defined as follows: . Base Benefit =1.55% of the participant's average annual compensation, multiplied by credited service after 1988 (limited to 28 years of credited service) . Additional Benefit =0.65% of the amount, if any, of the participant's average annual compensation that exceeds the participant's covered compensation (the average of the maximum annual salary taxable for Social Security over the 35-year period ending the year the participant would reach Social Security retirement age) multiplied by credited service after 1988 (limited to 28 years of credited service) Since Messrs. Cripe, Dahl, and Lounds earned benefits between January 1, 1978, and December 31, 1988, one component of their ARP benefit will be based on the following benefit formula: 1. Multiply years of credited service from 1978 through 1988 by 2 1/8%. 2. Then, multiply the percentage from step (1) by a. Average annual compensation (five-year average) at December 31, 1988, and by b. Estimated Social Security at December 31, 1988. 3. Then, subtract 2(b) from 2(a). The result is the normal retirement allowance for service from January 1, 1978, through December 31, 1988. 4. The normal retirement allowance is indexed for final average pay. In addition, there is an adjustment of 18% of the normal retirement allowance as of December 31, 1988, to reflect a conversion to a single life annuity. 71 For participants eligible to earn cash balance benefits, pay credits are added to the cash balance account on a quarterly basis as a percent of compensation and based on the participant's years of vesting service as follows: CASH BALANCE PLAN PAY CREDITS
VESTING SERVICE PAY CREDIT % --------------- ------------ Less than 1 year................. 0% 1 year, but less than 5 years.... 2.5% 5 years, but less than 10 years.. 3% 10 years, but less than 15 years. 4% 15 years, but less than 20 years. 5% 20 years, but less than 25 years. 6% 25 years or more................. 7%
The earliest retirement age that a named executive may retire with unreduced retirement benefits under the ARP and Supplemental Retirement Income Plan is age 65. However, a participant earning final average pay benefits is entitled to an early retirement benefit on or after age 55 if he or she terminates employment after the completion of 20 or more years of service. A participant earning cash balance benefits who terminates employment with at least three years of vesting service is entitled to a lump sum benefit equal to his or her cash balance account balance. Currently, only Mr. Lounds is eligible for an early retirement benefit. The benefit reduction for early payment of final average pay benefits earned after 1988 is as follows: The Base Benefit as described above is reduced by 0.4% for each full month the benefit is paid prior to the participant's normal retirement date (or benefit retirement age if member prior to 1989). Mr. Lounds was a member prior to 1989 and his benefit retirement age under the ARP is age 63. The Additional Benefit is reduced by 2/3 of 1% for each of the first 36 full months and by 1/3 of 1% for each of the next 84 full months by which the benefit commencement date precedes the participant's normal retirement date (age 65). The benefit reduction for early payment of final average pay benefits earned prior to 1989 is 0.4% for each full month prior to age 60. SUPPLEMENTAL RETIREMENT INCOME PLAN ("SRIP") SRIP benefits are generally determined using a two-step process: (1) determine the amount that would be payable under the ARP formula specified above if the federal limits described above did not apply, then (2) reduce the amount described in (1) by the amount actually payable under the ARP formula. The normal retirement date under the SRIP is age 65. If eligible for early retirement under the ARP, an eligible employee is also eligible for early retirement under the SRIP. OTHER ASPECTS OF THE PENSION PLANS Eligible employees are vested in the normal retirement benefit under the ARP and the SRIP on the earlier of the completion of five years of service or upon reaching age 65 for participants with final average pay benefits or the completion of three years of service or upon reaching age 65 for participants whose benefits are calculated under the cash balance formula. For the ARP and SRIP, eligible compensation consists of salary, annual cash incentive awards, pre-tax employee deposits made to Allstate's 401(k) plan and Allstate's cafeteria plan, holiday pay, and vacation pay. Eligible compensation also includes overtime pay, payment for temporary military service, and payments for short term disability, but does not include long-term cash incentive awards or income related to the exercise of stock options and the vesting of restricted stock and restricted stock units. Compensation used to determine benefits under the ARP is limited in accordance with the Internal Revenue Code. Average annual compensation is the average compensation of the five highest consecutive calendar years within the last ten consecutive calendar years preceding the actual retirement or termination date. 72 Payment options under the ARP include a lump sum, straight life annuity, and various survivor annuity options. The lump sum under the final average pay benefit is calculated in accordance with the applicable interest rate and mortality as required under the Internal Revenue Code. The lump sum payment under the cash balance benefit is generally equal to a participant's cash balance account balance. The amounts listed in the Present Value of Accumulated Benefit column of the Pension Benefits table and the amounts listed in the footnotes to the Change in Pension Value column of the Summary Compensation Table are based on the following assumptions: . Discount rate of 6.25%, payment form assuming 80% paid as a lump sum and 20% paid as an annuity, lump-sum/annuity conversion segmented interest rates of 5.0% for the first five years, 6.5% for the next 15 years, and 7% for all years after 20 and the 2010 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females (as required under the Internal Revenue Code), and post-retirement mortality for annuitants using the 2010 IRS-mandated annuitant table; these are the same as those used for financial reporting year-end disclosure as described in the notes to Allstate's consolidated financial statements. (See note 16 to Allstate's audited financial statements for 2009). . Retirement age: normal retirement age under the ARP and SRIP (65). Based on guidance provided by the Securities and Exchange Commission, we have assumed normal retirement age regardless of any announced or anticipated retirements. . Expected terminations, disability, and pre-retirement mortality: none assumed. . The percentages used under the Service and Expense Agreement for allocating compensation expense to Lincoln Benefit in 2009. EXTRA SERVICE AND PENSION BENEFIT ENHANCEMENT No additional service is granted under the ARP or the SRIP. Generally, Allstate has not granted additional service credit outside of the actual service used to calculate ARP and SRIP benefits. NON-QUALIFIED DEFERRED COMPENSATION The aggregate amount of the annual accrual specifically allocated to Lincoln Benefit over each named executive's career with Allstate has varied depending on the extent of services rendered by such executive to Lincoln Benefit Life and the arrangements in place at the time of accrual between Lincoln Benefit and the executive's Allstate-affiliated employer. Because the aggregate earnings and balance attributable to services rendered to Lincoln Benefit by each named executive cannot be calculated without unreasonable effort, the aggregate earnings and aggregate balance provided for each named executive in the following table is the amount determined by multiplying the value of such named executive's non-qualified deferred compensation benefit for services rendered to Allstate and all of its affiliates over the course of such named executive's career with Allstate by the percentage used for allocating such named executive's compensation to Lincoln Benefit under the Service and Expense Agreement in 2009. 73 The following table summarizes the non-qualified deferred compensation contributions, earnings, and account balances of Lincoln Benefit's named executives in 2009. All amounts relate to the Deferred Compensation Plan. NON-QUALIFIED DEFERRED COMPENSATION AT FISCAL YEAR-END 2009
EXECUTIVE REGISTRANT AGGREGATE CONTRIBUTIONS CONTRIBUTIONS AGGREGATE EARNINGS WITHDRAWALS/ AGGREGATE BALANCE IN LAST FY IN LAST FY IN LAST FY DISTRIBUTIONS AT LAST FYE NAME ($) ($) ($)/(1)/ ($) ($)/(2)/ - ---- ------------- ------------- ------------------ ------------- ----------------- Mr. Cripe.... 0 0 0 0 0 Mr. Pintozzi. 0 0 0 0 0 Mr. Dahl..... 0 0 0 0 0 Mr. Easley... 0 0 0 0 0 Mr. Lounds... 0 0 0 0 0 Mr. Smith.... 0 0 4,073 0 55,652
- -------- (1)Aggregate earnings were not included in the named executive's compensation as reported in the 2009 Summary Compensation Table. (2)There are no amounts reported in the Aggregate Balance at Last FYE column that were reported in the 2009 Summary Compensation Table. In order to remain competitive with other employers, Allstate allows employees, including the named executives, whose annual compensation exceeds the amount specified in the Internal Revenue Code (e.g., $245,000 in 2009), to defer up to 80% of their salary and/or up to 100% of their annual cash incentive award that exceeds that amount under the Deferred Compensation Plan. Allstate does not match participant deferrals and does not guarantee a stated rate of return. Deferrals under the Deferred Compensation Plan are credited with earnings, or are subject to losses, based on the results of the investment option or options selected by the participants. The investment options available under the Deferred Compensation Plan are Stable Value, S&P 500, International Equity, Russell 2000, and Bond Funds--options currently available under Allstate's 401(k) plan. Under the Deferred Compensation Plan, deferrals are not actually invested in these funds, but instead are credited with earnings or losses based on the funds' investment experience, which are net of administration and investment expenses. Because the rate of return is based on actual investment measures in Allstate's 401(k) plan, no above-market earnings are paid. Similar to Allstate's 401(k) plan, participants can change their investment elections daily. Investment changes are effective the next business day. The Deferred Compensation Plan is unfunded; participants have only the rights of general unsecured creditors. Deferrals under the Deferred Compensation Plan are segregated into pre-2005 balances and post-2004 balances. A named executive may elect to begin receiving a distribution of a pre-2005 balance upon separation from service or in one of the first through fifth years after separation from service. In either event, the named executive may elect to receive payment of a pre-2005 balance in a lump sum or in annual cash installment payments over a period of two to ten years. An irrevocable distribution election is required before making any post-2004 deferrals into the plan. The distribution options available to the post-2004 balances are similar to those available to the pre-2005 balances, except the earliest distribution date is six months following separation from service. Upon a showing of unforeseeable emergency, a plan participant may be allowed to access certain funds in a deferred compensation account earlier than the dates specified above. POTENTIAL PAYMENTS AS A RESULT OF TERMINATION OR CHANGE-IN-CONTROL TERMINATION OF EMPLOYMENT The named executives may become eligible for severance benefits that all regular full-time and regular part-time employees are eligible to receive if their employment is terminated due to lack of work, rearrangement of 74 work, reduction in workforce, or inability to satisfactorily perform the responsibilities of their position. The length of severance benefits depends on the named executive's years of service, up to the maximum provided in the plans. Allstate has entered into certain agreements or provides certain plans that will require Allstate Insurance Company or Allstate to provide compensation or benefits to certain of the named executives in the event of a termination of employment--other than compensation and benefits generally available to all salaried employees. Except where noted, the amount of compensation payable to each named executive or the value of benefits provided to the named executives that exceed the compensation or benefits generally available to all salaried employees in each situation is listed in the tables below. The amounts provided in the tables below, including amounts earned by each named executive over the course of his career with Allstate and its affiliates, have been calculated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement for 2009. The payment of the 2009 annual cash incentive award, the 2007-2009 long-term cash incentive award, and any 2009 salary earned but not paid in 2009 due to Allstate's payroll cycle are not included in these tables because these amounts are payable to the named executives regardless of termination, death, or disability. Benefits and payments are calculated assuming a December 31, 2009, employment termination date. POTENTIAL PAYMENTS UPON TERMINATION/(1)/ (NO CHANGE-IN-CONTROL)
RESTRICTED LONG-TERM STOCK OPTIONS-- STOCK UNITS-- NON-QUALIFIED CASH INCENTIVE UNVESTED AND UNVESTED AND PENSION WELFARE AWARDS/(2)/ ACCELERATED/(3)/ ACCELERATED BENEFITS/(4)/ BENEFITS SEVERANCE TOTAL NAME ($) ($) ($) ($) ($)/(5)/ ($)/(6)/ ($) - ---- -------------- --------------- ------------- ------------- -------- --------- --------- MR. CRIPE Involuntary Termination/(7)/. 0 0 0 460,439 105,662 566,101 Voluntary Termination/ Retirement/(8)/............. 0 0 0 460,439 0 460,439 Death........................ 43,120 455,298/(9)/ 323,638/(11)/ 460,439 0 1,282,495 Disability................... 43,120 455,298/(9)/ 0 460,439 336,677 0 1,295,534 MR. PINTOZZI Involuntary Termination/(7)/. 0 0 0 17,227 31,311 48,538 Voluntary Termination/ Retirement/(8)/............. 0 0 0 17,227 0 17,227 Death........................ 28,543 247,983/(9)/ 179,242/(11)/ 17,227 0 472,995 Disability................... 28,543 247,983/(9)/ 0 17,227 511,419 0 805,172 MR. DAHL Involuntary Termination/(7)/. 0 0 0 556,481 220,684 777,165 Voluntary Termination/ Retirement/(8)/............. 0 0 0 556,481 0 556,481 Death........................ 0 112,404/(9)/ 90,300/(11)/ 556,481 0 759,185 Disability................... 0 112,404/(9)/ 0 556,481 985,550 0 1,654,435 MR. EASLEY Involuntary Termination/(7)/. 0 0 0 12,001 17,056 29,057 Voluntary Termination/ Retirement/(8)/............. 0 0 0 12,001 0 12,001 Death........................ 27,604 203,619/(9)/ 186,852/(11)/ 12,001 0 430,076 Disability................... 27,604 203,619/(9)/ 0 12,001 331,774 0 574,998 MR. LOUNDS Voluntary Termination/ Retirement/(8)/............. 25,392 270,777/(10)/ 192,096/(12)/ 977,300 0 0 1,465,565 MR. SMITH Involuntary Termination/(7)/. 0 0 0 16,377 23,498 39,875 Voluntary Termination/ Retirement/(8)/............. 0 0 0 16,377 0 16,377 Death........................ 25,597 218,191/(9)/ 148,404/(11)/ 16,377 0 408,569 Disability................... 25,597 218,191/(9)/ 0 16,377 311,051 0 571,216
- -------- (1)A "0" indicates that either there is no amount payable to the named executive or no amount payable to the named executive that is not made available to all salaried employees. Since Mr. Lounds retired on July 31, 2009, the only termination scenario reflected is for Voluntary Termination/Retirement. 75 (2)If a participant dies, retires or is disabled during a performance cycle, the participant's award will be prorated based on the number of half months in which the participant was eligible to participate during the long-term cash incentive performance cycle. The amount reflected is calculated at target for purposes of this disclosure. The actual payment would be made at the time all awards are paid for that particular performance cycle and calculated based on actual results. (3)If the named executive's termination of employment is for any reason other than death, disability, or retirement, unvested stock options will be forfeited, and stock options, to the extent they are vested on the date of termination, may be exercised at any time on or before the earlier to occur of (a) the expiration date of the stock option and (b) three months after the date of termination. (4)The present value of the non-qualified pension benefits for each named executive earned through December 31, 2009, based on a 6.25% discount rate is disclosed in the Pension Benefits table. The value in this column represents the present value of each named executive's non-qualified pension benefits (SRIP) earned through December 31, 2009, after applying the applicable allocation percentage in a manner consistent with the Service and Expense Agreement and is based on the lump sum methodology (i.e., interest rate and mortality table) used by the Allstate pension plans in 2010, as required under the Pension Protection Act. Specifically, the interest rate for 2010 is based on 40% of the average August 30-year Treasury Bond rate from the prior year, and 60% of the average corporate bond segmented yield curve from August of the prior year. The mortality table for 2010 is the 2010 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females, as published by the IRS. SRIP benefits earned through December 31, 2004 (Pre 409A SRIP Benefits), are generally payable at age 65, the normal retirement date under the ARP. Pre 409A SRIP Benefits may be payable earlier upon certain terminations in accordance with the terms of the SRIP. For example, Pre 409A SRIP Benefits may become payable upon reaching age 50 if disabled, following early retirement at age 55 or older with 20 years of service, or upon death. SRIP benefits earned after December 31, 2004 (Post 409A SRIP Benefits), are paid on the January 1 following termination of employment after reaching age 55 (a minimum six month deferral period applies), or immediately upon death. . Mr. Cripe's Pre 409A SRIP Benefit would become payable as early as January 1, 2013, but is immediately payable upon death or disability. Mr. Cripe's Post 409A Benefit would be paid on January 1, 2013, or immediately upon death. Mr. Cripe will turn 65 on September 15, 2022. . Mr. Pintozzi's Pre 409A SRIP Benefit would become payable as early as January 1, 2011, but is immediately payable upon death. Mr. Pintozzi's Post 409A Benefit would be paid on January 1, 2021, or immediately upon death. Mr. Pintozzi will turn 65 on May 18, 2030. . Mr. Dahl's Pre 409A SRIP Benefit would become payable as early as January 1, 2015, but is immediately payable upon death or disability. Mr. Dahl's Post 409A Benefit would be paid on January 1, 2015, or immediately upon death. Mr. Dahl will turn 65 on August 2, 2024. . Mr. Easley's Pre 409A SRIP Benefit would become payable as early as January 1, 2011, but is immediately payable upon death. Mr. Easley's Post 409A Benefit would be paid on January 1, 2012, or immediately upon death. Mr. Easley will turn 65 on March 28, 2021. . Based on Mr. Lounds' age and service, his Pre 409A SRIP Benefit is payable under the terms of the plan. Mr. Lounds' Post 409A Benefit is payable on February 1, 2010. Mr. Lounds will turn 65 on July 2, 2014. . Mr. Smith's Pre 409A SRIP Benefit would become payable as early as January 1, 2011, but is immediately payable upon death. Mr. Smith's Post 409A Benefit would be paid on January 1, 2013, or immediately upon death. Mr. Smith will turn 65 on May 15, 2022. (5)The named executives are eligible to participate in Allstate's supplemental long-term disability plan for employees whose annual earnings exceed the level which produces the maximum monthly benefit provided by the Allstate Long Term Disability Plan (Basic Plan). The benefit is equal to 50% of the named executive's qualified annual earnings divided by twelve and rounded to the nearest one hundred dollars, 76 reduced by $7,500, which is the maximum monthly benefit payment that can be received under the Basic Plan. The amount reflected assumes the named executive remains totally disabled until age 65 and represents the present value of the monthly benefit payable until age 65. (6)The "Severance" amount is the lump sum payment that named executives would be eligible to receive in the event of employment termination resulting from a lack of work, rearrangement of work, or reduction in workforce plus an amount of vacation accrual severance benefit, if applicable. The lump sum severance benefit is equal to two weeks of pay for each complete year of service, up to a maximum of 52 weeks of pay, and is the same benefit available to all regular full-time and regular part-time employees. The vacation accrual severance benefit is equal to the value at December 31, 2009, of the vacation days accrued but not yet taken between the executive's anniversary date in 2000 and December 31, 2000. This same benefit was made available to all eligible regular full-time and regular part-time employees following a change to the company vacation policy. Messrs. Cripe, Dahl, and Lounds have a vacation accrual severance benefit amount included in the Severance column of $3,796, $11,469, and $3,861 respectively. (7)Examples of "Involuntary Termination" independent of a change-in-control include performance-related terminations, reorganization, and terminations for employee dishonesty and violation of Allstate rules, regulations, or policies. (8)As of December 31, 2009, only Mr. Lounds was eligible to retire in accordance with Allstate's policy or the terms of any of the Allstate compensation and benefit plans including the long-term cash incentive and equity incentive plans. If any of the other named executives had voluntarily terminated employment on December 31, 2009, the non-qualified pension benefit would become payable as described in footnote (4) above. (9)If the named executive's termination of employment is on account of death or disability, then stock options, to the extent not vested, will vest and may be exercised at any time on or before the earlier to occur of (1) the expiration date of the option and (2) the second anniversary of the date of termination of employment. Stock option values are based on a December 31, 2009, market close price of $30.04 per share of Allstate stock. (10)If the named executive retires at the normal retirement date or a health retirement date, unvested stock options continue to vest in accordance with their terms, and all outstanding stock options, when vested, may be exercised, in whole or in part, by the named executive at any time on or before the earlier to occur of (a) the expiration date of the stock option and (b) the fifth anniversary of the date of such termination of employment. The "normal retirement date" under the stock option awards is the date on or after the date the named executive attains age 60 with at least one year of service. The "health retirement date" is the date on which the named executive terminates for health reasons after attaining age 50, but before attaining age 60, with at least ten years of continuous service. If the named executive retires at the early retirement date, unvested stock options are forfeited, and stock options, to the extent they are vested on the date of termination, may be exercised, in whole or in part, by the named executive at any time on or before the earlier to occur of (a) the expiration date of the stock option and (b) the fifth anniversary of the date of termination of employment. The "early retirement date" is the date the named executive attains age 55 with 20 years of service. The aggregate value of unexercisable in-the-money options as of December 31, 2009 based on a market close price of $30.04 per share of Allstate stock for each of the named executives is reflected in the table. The actual amount received by the named executives would be based on the market close price on the date the stock options were exercised. (11)If the named executive's termination of employment is a result of death, restricted stock units immediately become nonforfeitable and the restrictions expire. The December 31, 2009, market close price of $30.04 per share of Allstate stock was used to value the unvested and nonforfeitable awards. (12)If the named executive retires on or after attaining age 60 with at least one year of service, then no unvested restricted shares or restricted stock units are forfeited and the unvested shares or restricted stock units will remain subject to the restriction period established in the award agreement. If the named executive dies following retirement and before the end of the restriction period, then all unvested restricted stock units immediately become nonforfeitable and vest as of the date of death. The aggregate value of unvested restricted shares or restricted stock units as of December 31, 2009 based on a market close price of $30.04 per share of Allstate stock for each of the named executives is reflected in the table. The actual amount received by the named executives would be based on the market close price on the date the stock restriction lapses. 77 CHANGE-IN-CONTROL Allstate and Allstate Insurance Company have entered into agreements with the named executives, except Mr. Dahl, to provide certain benefits and compensation in the event of a change-in-control. Although Mr. Dahl does not have a change-in-control agreement, his unvested equity awards would become immediately payable upon a change-in-control. In general, a change-in-control is one or more of the following events: (1) any person acquires 30% or more of the combined voting power of Allstate common stock within a 12-month period; (2) any person acquires more than 50% of the combined voting power of Allstate common stock; (3) certain changes are made to the composition of the Allstate Board; or (4) the consummation of a merger, reorganization, or similar transaction. These triggers were selected because, in a widely held company the size of Allstate, they could each result in a substantial change in management. There are no agreements in place with the named executives to provide benefits or compensation in the event of a change-in-control of Lincoln Benefit that does not also involve a change-in-control of Allstate. During the two-year period following a change-in-control, the change-in-control agreements provide for a minimum salary, annual cash incentive awards, long-term cash incentive awards, and other benefits. In addition, they provide that the named executives' positions, authority, duties, and responsibilities will be at least commensurate in all material respects with those held prior to the change-in-control. Under the change-in-control agreements, severance benefits would be payable if a named executive's employment is terminated either by Allstate without "cause" or by the executive for "good reason" as defined in the agreements during the two-year period following the change-in-control. Cause means the named executive has been convicted of a felony or other crime involving fraud or dishonesty, has willfully or intentionally breached the change-in-control agreement, has habitually neglected his or her duties, or has engaged in willful or reckless material misconduct in the performance of his or her duties. Good reason includes a material diminution in a named executive's base compensation, authority, duties, or responsibilities, a material change in the geographic location where the named executive performs services, or a material breach of the change-in-control agreement by Allstate. The principal severance benefits payable on post-change-in-control terminations include: pro-rated annual cash incentive awards and long-term cash incentive awards (all at target); a payment equal to three times the sum of the executive's base salary and target annual cash incentive award; the continuation of certain welfare benefits for the continuation coverage period at a cost not to exceed the amount paid by the named executive prior to termination; outplacement services; an enhanced retirement benefit consisting of an additional three years of service, age, and compensation; and reimbursement (on an after-tax basis) of any resulting excise taxes. If a named executive's employment is terminated by reason of death or disability during the two-year period commencing on the date of a change-in-control, Allstate will pay the named executive or the named executive's estate a lump-sum cash amount equal to all amounts earned but unpaid, including any annual and long-term cash incentive awards, as of the termination date. In addition, in the event of death, the named executive's estate or beneficiary will be entitled to survivor and other benefits, including retiree medical coverage, if eligible, that are not less favorable than the most favorable benefits available to the estates or surviving families of peer executives of Allstate. In the event of disability, Allstate will pay disability and other benefits, including supplemental long-term disability benefits and retiree medical coverage, if eligible, that are not less favorable than the most favorable benefits available to disabled peer executives. If Allstate terminates a named executive's employment for cause, Allstate's sole obligation is to pay the named executive a lump-sum cash amount equal to all amounts earned and due to be paid, but unpaid, as of the termination date. If a named executive incurs legal fees or other expenses in an effort to enforce the change-in-control agreement, Allstate will reimburse the named executive for these expenses unless it is established by a court that the named executive had no reasonable basis for the claim or acted in bad faith. Effective upon a change-in-control, the named executives become subject to covenants prohibiting competition and solicitation of employees, customers, and suppliers at any time until one year after termination of employment. 78 The following table describes the estimated compensation or benefits that would be provided by Allstate Insurance Company or Allstate to the named executives in the event of a change-in-control that exceed the compensation or benefits generally available to all salaried employees in each situation. The payment of the 2009 annual cash incentive award, the 2007-2009 long-term cash incentive award and any 2009 salary earned but not paid in 2009 due to Allstate's payroll cycle are not included in these tables because these amounts are payable to the named executives regardless of termination, death, or disability. Benefits and payments are calculated assuming a December 31, 2009, employment termination date or change-in-control. POTENTIAL PAYMENTS UPON CHANGE-IN-CONTROL/(1)/
STOCK RESTRICTED NON-QUALIFIED WELFARE EXCISE TAX CHANGE-IN- OPTIONS-- STOCK UNITS-- PENSION AND BENEFITS AND REIMBURSEMENT CONTROL UNVESTED AND UNVESTED AND DEFERRED OUTPLACEMENT AND TAX SEVERANCE ACCELERATED/(3)/ ACCELERATED/(5)/ COMPENSATION SERVICES GROSS-UP/(9)/ NAME ($) ($) ($) ($) ($) ($) - ---- ---------- --------------- --------------- -------------- ------------ ------------- MR. CRIPE Immediately Payable Upon Change-in-Control....... 0 455,298 323,638 460,439/(6)/ 0 0 Involuntary or Good Reason Termination...... 608,478/(2)/ See footnote 4 See footnote 4 See footnote 7 8,935/(8)/ 0 Death/Disability/For Cause Termination....... 0 0 0 0 0 0 MR. PINTOZZI Immediately Payable Upon Change-in-Control....... 0 247,983 179,242 17,227/(6)/ 0 0 Involuntary or Good Reason Termination...... 400,692/(2)/ See footnote 4 See footnote 4 See footnote 7 7,773/(8)/ 0 Death/Disability/For Cause Termination....... 0 0 0 0 0 0 MR. DAHL/(10)/ Immediately Payable Upon Change-in-Control....... 0 112,404 90,300 0 0 0 Involuntary or Good Reason Termination...... 0 0 0 0 0 0 Death/Disability/For Cause Termination....... 0 0 0 0 0 0 MR. EASLEY Immediately Payable Upon Change-in-Control....... 0 203,619 186,852 12,001/(6)/ 0 0 Involuntary or Good Reason Termination...... 382,366/(2)/ See footnote 4 See footnote 4 See footnote 7 11,422/(8)/ 0 Death/Disability/For Cause Termination....... 0 0 0 0 0 0 MR. SMITH Immediately Payable Upon Change-in-Control....... 0 218,191 148,404 72,029/(6)/ 0 0 Involuntary or Good Reason Termination...... 351,442/(2)/ See footnote 4 See footnote 4 See footnote 7 11,719/(8)/ 0 Death/Disability/For Cause Termination....... 0 0 0 0 0 0
TOTAL NAME ($) - ---- --------- MR. CRIPE Immediately Payable Upon Change-in-Control....... 1,239,375 Involuntary or Good Reason Termination...... 617,413 Death/Disability/For Cause Termination....... 0 MR. PINTOZZI Immediately Payable Upon Change-in-Control....... 444,452 Involuntary or Good Reason Termination...... 408,465 Death/Disability/For Cause Termination....... 0 MR. DAHL/(10)/ Immediately Payable Upon Change-in-Control....... 202,704 Involuntary or Good Reason Termination...... 0 Death/Disability/For Cause Termination....... 0 MR. EASLEY Immediately Payable Upon Change-in-Control....... 402,472 Involuntary or Good Reason Termination...... 393,788 Death/Disability/For Cause Termination....... 0 MR. SMITH Immediately Payable Upon Change-in-Control....... 438,624 Involuntary or Good Reason Termination...... 363,161 Death/Disability/For Cause Termination....... 0
- -------- (1)A "0" indicates that either there is no amount payable to the named executive or no amount payable to the named executive that is not made available to all salaried employees. Since Mr. Lounds retired on July 31, 2009, no change-in-control benefit and payment calculations are included for him. 79 (2)Change-in-control severance benefits upon an involuntary termination or termination for good reason contain the following elements: . two times the named executive's base salary (three times for Mr. Cripe); . two times the named executive's annual cash incentive award calculated at target (three times for Mr. Cripe); . the named executive's pro-rata long-term cash incentive award for the 2008-2010 performance cycle calculated at target; and . a lump sum payment equal to the positive difference, if any, between: (a) the sum of the lump-sum values of each maximum annuity that would be payable to the named executive under any defined benefit plan (whether or not qualified under Section 401(a) of the Internal Revenue Code) if the named executive had: (i) become fully vested in all such benefits, (ii) attained as of the named executive's termination date an age that is three years greater than named executive's actual age, (iii) accrued a number of years of service that is three years greater than the number of years of service actually accrued by the named executive as of the named executive's termination date, and (iv) received a lump-sum severance benefit consisting of three times base salary, three times annual incentive cash compensation calculated at target, plus the 2009 annual incentive cash award as covered compensation in equal monthly installments during the three-year period following the named executive's termination date; and (b) the lump-sum values of the maximum annuity benefits vested and payable to the named executive under each defined benefit plan that is qualified under Section 401(a) of the Internal Revenue Code plus the aggregate amounts simultaneously or previously paid to the named executive under the defined benefit plans (whether or not qualified under Section 401(a)). The calculation of the lump sum amounts payable under this formula does not impact the benefits payable under the ARP or the SRIP. The change-in-control agreements provide that if the after-tax benefits of all change of control payments are less than 110% of the after-tax benefit of the safe harbor benefit amount, then the change-in-control benefits are to be reduced to the safe harbor benefit amount. The safe harbor benefit amount is the highest level of benefits that can be paid before which an excise tax under section 4999 of the Internal Revenue Code would apply. (3)Stock option values are based on a December 31, 2009, market close price of $30.04 per share of Allstate stock. (4)For purposes of this table, unvested stock options and restricted stock units, which would have been immediately payable upon a change-in-control regardless of termination of employment, were assumed to have been paid immediately prior to termination and are reflected in the "Immediately Payable Upon Change-in-Control" row. (5)The December 31, 2009, market close price of $30.04 per share of Allstate stock was used to value the unvested and nonforfeitable restricted stock unit and restricted stock awards. (6)Within five business days after the effective date of a change-in-control, the named executives will receive a lump sum payment equal to the present value of the named executive's SRIP benefit and deferred compensation account balance. The present value of SRIP benefits earned through December 31, 2009, is calculated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement and is based on the lump sum methodology (i.e., interest rate and mortality table) used by the Allstate pension plans in 2010, as required under the Pension Protection Act. Specifically, the interest rate for 2010 is based on 40% of the average August 30-year Treasury Bond rate from the prior year, and 60% of the average corporate bond segmented yield curve from August of the prior year. The mortality table for 2010 is the 2010 combined static Pension Protection Act funding mortality table with a blend of 50% males and 50% females, as published by the IRS. Refer to the Retirement Benefits section beginning on page 62 for a discussion of the SRIP benefit. See the Non-Qualified Deferred Compensation at Fiscal Year-End 2009 table on page 74 for additional information on the Deferred Compensation Plan and information regarding the named executives' account balances as of December 31, 2009. 80 (7)For purposes of this table, the present value of non-qualified pension benefits earned through December 31, 2009, and the named executive's Deferred Compensation Plan account balance, if any, which would have been immediately payable upon a change-in-control regardless of termination of employment were assumed to have been paid immediately prior to termination upon the effective date of a change of control and are reflected in the "Immediately Payable Upon Change-in-Control" row. (8)The Welfare Benefits and Outplacement Services amount includes the cost to provide certain welfare benefits to the named executive and family during the period which the named executive is eligible for continuation coverage under applicable law. The amount shown reflects Allstate's costs for these benefits or programs assuming an 18-month continuation period. The value of outplacement services is $20,000 for Mr. Cripe and $15,000 for each of the other named executive officers. (9)Certain payments made as a result of a change in control are subject to a 20% excise tax imposed on the named executive by Section 4999 of the Code. The Excise Tax Reimbursement and Tax Gross-up is the amount Allstate would pay to the named executive as reimbursement for the 20% excise tax plus a tax gross-up for any taxes incurred by the named executive resulting from the reimbursement of such excise tax, allocated in a manner consistent with the allocation of compensation expenses to Lincoln Benefit under the Service and Expense Agreement. The estimated amounts of reimbursement of any resulting excise taxes were determined without regard to the effect that restrictive covenants and any other facts and circumstances may have on the amount of excise taxes, if any, that ultimately might be payable in the event these payments were made to a named executive which is not subject to reliable advance prediction or a reasonable estimate. (10)Mr. Dahl did not have a change-in-control agreement in place. However, pursuant to the terms of his equity awards, unvested stock options and restricted stock units would have become immediately payable upon a change-in-control. COMPENSATION POLICIES AND PRACTICES RISK ANALYSIS Allstate management has reviewed its compensation policies and practices and believes that they are appropriately structured, that they are consistent with its key operating priority of keeping the Allstate financially strong, and that they avoid providing incentives for employees to engage in unnecessary and excessive risk taking. The Allstate Board and its Audit Committee both play an important role in risk management oversight, including reviewing how management measures, evaluates, and manages the corporation's exposure to risks posed by a wide variety of events and conditions. In addition, the Compensation and Succession Committee employs an independent executive consultant each year to assess Allstate's executive pay levels, practices, and overall program design. Allstate's compensation programs provide a balanced mix of cash and equity through annual and long-term incentives to align with short-term and long-term business goals. Allstate utilizes a full range of performance measures that it believes correlate to long-term shareholder value creation. Cash incentive awards are paid only after a review of executive and corporate performance. Allstate's calculation of corporate income includes a quarterly re-estimation of property-liability reserves. As a result, to a significant extent, if Allstate under-estimates or over-estimates losses in a given year, income and annual cash incentives will be impacted in the following year. Furthermore, to ensure its compensation programs do not motivate imprudent risk taking, awards made after May 19, 2009, under the 2009 Equity Incentive Plan and awards made beginning in 2010 under the Annual Executive Incentive Plan are subject to clawback in the event of certain financial restatements. PERFORMANCE MEASURES Information regarding performance measures is disclosed in the limited context of annual and long-term cash incentive awards and should not be understood to be statements of management's expectations or estimates of results or other guidance. We specifically caution investors not to apply these statements to other contexts. The following are descriptions of the performance measures used for Allstate's annual cash incentive awards for 2009 (excluding the Sales Incentive Plan in which Mr. Dahl participated) and its long-term cash 81 incentive awards for the 2007-2009 cycle which may be applied to compensation of Lincoln Benefit's named executives. These measures are not GAAP measures. They were developed uniquely for incentive compensation purposes and are not reported items in Allstate's financial statements. Some of these measures use non-GAAP measures and operating measures. The Committee has approved the use of non-GAAP and operating measures when appropriate to drive executive focus on particular strategic, operational, or financial factors or to exclude factors over which Allstate's executives have little influence or control, such as capital market conditions. ANNUAL CASH INCENTIVE AWARDS FOR 2009 CORPORATE MEASURES ADJUSTED OPERATING INCOME PER DILUTED SHARE: This measure is used to assess financial performance. The measure is equal to net income adjusted to exclude the after-tax effects of the items listed below, divided by the weighted average shares outstanding on a diluted basis: . Realized capital gains and losses (which includes the related effect on the amortization of deferred acquisition and deferred sales inducement costs) except for periodic settlements and accruals on certain non-hedge derivative instruments, which are reported with realized capital gains and losses but included in Operating Income, and equity method of accounting income from limited partnership interests to be consistent with the incentive goals. . Gains and losses on disposed operations. . Adjustments for other significant non-recurring, infrequent, or unusual items, when (a) the nature of the charge or gain is such that it is reasonably unlikely to recur within two years or (b) there has been no similar charge or gain within the prior two years. . Restructuring and related charges. . Effects of acquiring businesses. . Negative operating results of sold businesses. . Underwriting results of the Discontinued Lines and Coverages segment. . Any settlement, awards, or claims paid as a result of lawsuits and other proceedings brought against Allstate subsidiaries regarding the scope and nature of coverage provided under insurance policies issued by such companies. . Identifiable effects of the adopted accounting standard for other-than-temporary impairments to be consistent with incentive goals. ALLSTATE FINANCIAL MEASURES ADJUSTED OPERATING INCOME: This is a measure Allstate management uses to assess the profitability of the business. The Allstate Financial segment measure, operating income, is adjusted to include equity method of accounting income from limited partnership interests to be consistent with the incentive goals, and to exclude the after tax effects of restructuring and related charges, the potential amount by which 2009 guaranty fund assessments related to insured solvencies exceed $6 million, and the identifiable effects of the adopted accounting standard for other-than-temporary impairments to be consistent with incentive goals. For disclosure of the Allstate Financial segment measure see footnote 18 to Allstate's audited financial statements. FINANCIAL PRODUCT SALES ("PRODUCTION CREDITS"): This measure of sales and related profitability of proprietary and non-proprietary financial products sold through the Allstate Exclusive Agency channel is used by management to assess the execution of Allstate's financial services strategy. This measure is calculated as the total amount of production credits for current year transactions. Production credits are an internal sales statistic calculated as a percent of premium or deposits to life insurance, annuities, or mutual funds which vary based on the expected profitability of the specific financial product. 82 TOTAL RETURN: Total return is principally determined using industry standards and the same sources used in preparing the financial statements to determine fair value. (See footnotes to Allstate's audited financial statements for methodologies for estimating the fair value of investments.) In general, total return represents the increase or decrease, expressed as a percentage, in the value of the portfolio over a one-year period. Time weighted returns are used. . ALLSTATE FINANCIAL TOTAL RETURN: Total return for Allstate Financial investments, including those held in certain subsidiaries, such as Allstate Life Insurance Company of New York. Allstate Financial Total Return includes derivatives and excludes the identifiable effects of the adopted accounting standard for other-than-temporary impairments to be consistent with incentive goals. LONG-TERM CASH INCENTIVE AWARDS AVERAGE ADJUSTED RETURN ON EQUITY RELATIVE TO PEERS: This measure is used to assess Allstate's financial performance against its peers. It is calculated as Allstate's ranked position relative to the insurance company peer group based upon three-year average adjusted return on equity, calculated on the same basis for Allstate and each of the peer insurance companies used for long-term cash incentive awards. Three-year average adjusted return on equity is the sum of the annual adjusted return on equity for each of the three years in the cycle divided by three. The annual adjusted return on equity is calculated as the ratio of net income divided by the average of Allstate shareholders' equity at the beginning and at the end of the year after excluding the component of accumulated other comprehensive income for unrealized net capital gains and losses. ALLSTATE FINANCIAL RETURN ON TOTAL CAPITAL: This is a measure management uses to measure the efficiency of capital utilized in the business. Three-year Allstate Financial return on total capital is the sum of the annual adjusted return on Allstate subsidiaries' shareholder's equity for each of the three years divided by three. The annual adjusted return on subsidiaries' shareholder's equity is the Allstate Financial measure, operating income, divided by the average subsidiaries' shareholder's equity at the beginning and at the end of the year. The subsidiaries' shareholder's equity is the sum of the subsidiaries' shareholder's equity for Allstate Life Insurance Company, Allstate Bank, American Heritage Life Investment Corporation, and certain other minor entities, adjusted to exclude the loan protection business and excluding the component of accumulated other comprehensive income for unrealized net capital gains. (See note 18 to Allstate's audited financial statements for Allstate Financial net income.) ALLSTATE PROTECTION GROWTH IN POLICIES IN FORCE OVER THREE-YEAR CYCLE: This is a measure used by management to assess growth in the number of policies in force, which is a driver of premiums written. The measure is calculated as the sum of the percent increase in each of the three years in the total number of policies in force at the end of the year over the beginning of the year. The measure excludes property insurance, Allstate Motor Club, and the loan protection business and includes Allstate Canada. ITEM 11(M).SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS. The following table shows the number of Lincoln Benefit shares owned by any beneficial owner who owns more than five percent of any class of Lincoln Benefit's voting securities.
AMOUNT AND NATURE OF PERCENT OF TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS (A) (B) (C) (D) - -------------- ---------------------------------------- -------------------------------- ---------- Capital Stock Allstate Life Insurance Company 100,000 100% 3100 Sanders Road, Northbrook, IL 60062 N/A Allstate Insurance Company Indirect voting and investment N/A 2775 Sanders Road, Northbrook, IL 60062 power of shares owned by Allstate Life Insurance Company N/A The Allstate Corporation Indirect voting and investment N/A 2775 Sanders Road, Northbrook, IL 60062 power of shares owned by Allstate Life Insurance Company
83 SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS. The following table shows the number of shares of Allstate common stock beneficially owned by each director and named executive officer of Lincoln Benefit individually, and by all executive officers and directors of Lincoln Benefit as a group. Shares reported as beneficially owned include shares held indirectly through the Allstate 401(k) Savings Plan and other shares held indirectly, as well as shares subject to stock options exercisable on or prior to April 16, 2010 and restricted stock units for which restrictions expire on or prior to April 16, 2010. The percentage of Allstate shares of common stock beneficially owned by any Lincoln Benefit director, named executive officer or by all directors and executive officers of Lincoln Benefit as a group does not exceed 1%. The following share amounts are as of February 15, 2010. As of February 15, 2010, none of these shares were pledged as security.
COMMON STOCK SUBJECT TO OPTIONS EXERCISABLE AND RESTRICTED STOCK UNITS FOR AMOUNT AND NATURE OF WHICH RESTRICTIONS EXPIRE ON OR BENEFICIAL OWNERSHIP OF PRIOR TO APRIL 16, 2010-- ALLSTATE COMMON STOCK INCLUDED IN COLUMN (A) NAME OF BENEFICIAL OWNER (A) (B) - ------------------------ ----------------------- ------------------------------- Frederick F. Cripe................. 169,161 146,131 Lawrence W. Dahl................... 33,508 32,079 Matthew S. Easley.................. 72,624 70,729 Susie Lees......................... 31,379 20,205 John C. Lounds..................... 167,639 153,623 John C. Pintozzi................... 90,036 82,956 J. Eric Smith...................... 2,182 0 Matthew E. Winter.................. 0 0 All directors and executive officers as a group.............. 556,771 505,723
ITEM 11(N).TRANSACTIONS WITH RELATED PERSONS, PROMOTERS AND CERTAIN CONTROL PERSONS. TRANSACTIONS WITH RELATED PERSONS. This table describes certain intercompany agreements involving Lincoln Benefit and the following companies: . Allstate Life Insurance Company ("ALIC"), the direct parent of Lincoln Benefit; . Allstate Insurance Company ("AIC"), an indirect parent of Lincoln Benefit; and . The Allstate Corporation ("AllCorp"), the ultimate indirect parent of Lincoln Benefit. 84
APPROXIMATE DOLLAR VALUE OF THE AMOUNT INVOLVED RELATED PERSON(S) INVOLVED IN THE TRANSACTION/1/ IN THE TRANSACTION, PER FISCAL AND THE APPROXIMATE DOLLAR VALUE OF THE AMOUNT TRANSACTION DESCRIPTION YEAR OF THE RELATED PERSON'S INTEREST IN THE TRANSACTION - ----------------------- --------------------------- -------------------------------------------------- ALIC AIC ALLCORP Investment Management Agreement 2007 146,726,694 83,898,860/2/ 52,363,225 536,022 among Allstate Investments, LLC, 2008 131,668,584 68,941,225/2/ 51,404,171 677,981 Allstate Insurance Company, The Allstate 2009 142,073,012 76,392,634/2/ 54,248,353 1,151,990 Corporation and certain affiliates effective January 1, 2007. Tax Sharing Agreement among The 2007 1,889,110,117/3/ 35,968,879 1,912,198,568 (126,810,136) Allstate Corporation and certain affiliates 2008 465,439,826/3/ (109,322,083) 633,316,282 (121,960,368) dated as of November 12, 1996, as 2009 1,173,212,154/3/ (534,572,879) (467,570,173) (121,813,486) supplemented by Supplemental Intercompany Tax Sharing Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company effective December 21, 2000. Cash Management Services Master 2007 1,242,569/4/ 315,281/5/ 617,385/5/ N/A Agreement between Allstate Insurance 2008 1,338,376/4/ 198,098/5/ 816,143/5/ Company, Allstate Bank (aka Allstate 2009 1,527,072/4/ 158,312/5/ 1,052,781/5/ Federal Savings Bank), and certain affiliates dated March 16, 1999, as amended by Amendment No.1 effective January 5, 2001, and Amendment No. 2 entered into November 8, 2002, between Allstate Insurance Company, Allstate Bank and Allstate Motor Club, Inc., and as supplemented by the Premium Depository Service Supplement dated as of September 30, 2005, the Variable Annuity Service Supplement dated November 10, 2005, and the Sweep Agreement Service Supplement dated as of October 11, 2006.
- -------- /1/ Each identified Related Person is a Party to the transaction. /2/ Gross amount of expense received under the transaction. /3/ Total amounts paid to Internal Revenue Service. /4/ Total fees collected for all bank accounts covered under the transaction. /5/ Fees paid under the transaction. 85
APPROXIMATE DOLLAR VALUE OF THE AMOUNT INVOLVED RELATED PERSON(S) INVOLVED IN THE TRANSACTION/1/ IN THE TRANSACTION, PER FISCAL AND THE APPROXIMATE DOLLAR VALUE OF THE AMOUNT TRANSACTION DESCRIPTION YEAR OF THE RELATED PERSON'S INTEREST IN THE TRANSACTION - ----------------------- --------------------------- ----------------------------------------------- ALIC AIC ALLCORP Amended and Restated Service and 2007 3,270,782,494 224,729,858/2/ 2,392,512,051/2/ 24,957,633/2/ Expense Agreement between Allstate 2008 3,295,180,640 215,640,945/2/ 2,186,281,461/2/ 5,351,262/2/ Insurance Company, The Allstate 2009 3,451,765,246 180,154,068/2/ 1,937,571,496/2/ 2,510,800/2/ Corporation and certain affiliates effective January 1, 2004, as amended by Amendment No. 1 effective January 1, 2009, and as supplemented by New York Insurer Supplement to Amended and Restated Service and Expense Agreement between Allstate Insurance Company, The Allstate Corporation, Allstate Life Insurance Company of New York and Intramerica Life Insurance Company, effective March 5, 2005. Reinsurance Agreements between 2007 786,600,513/6/ 786,600,513/6/ N/A N/A Lincoln Benefit Life Company and 2008 766,582,944/6/ 766,582,944/6/ Allstate Life Insurance Company: 2009 873,759,209/6/ 873,759,209/6/ Coinsurance Agreement effective December 31, 2001; Modified Coinsurance Agreement effective December 31, 2001; Modified Coinsurance Agreement effective December 31, 2001. Intercompany Loan Agreement among 2007 7,370,022,084 7,012,969,748/7/ 357,052,336 7,370,022,084 The Allstate Corporation, Allstate Life 2008 400,040,660 50,014,792/7/ 1,732,736 400,040,660 Insurance Company, Lincoln Benefit 2009 86,111,674 0/8/ 86,111,674 86,111,674 Life Company and other certain subsidiaries of The Allstate Corporation dated February 1, 1996. Agreement for the Settlement of State 2007 14,196,008 374,100/9/ 3,463,000 N/A and Local Tax Credits among Allstate 2008 2,089,067 356,331/9/ 1,732,736 Insurance Company and certain 2009 941,379 193,504/9/ 441,024 affiliates effective January 1, 2007.
REVIEW AND APPROVAL OF INTERCOMPANY AGREEMENTS: All intercompany agreements to which Lincoln Benefit is a party are approved by Lincoln Benefit's Board of Directors as well as by the board of any other affiliate of The Allstate Corporation which is a party to the agreement. Intercompany agreements are also submitted for approval to the Nebraska Department of Insurance, - -------- /6/ Net reinsurance income. /7/ Amounts loaned and repaid. /8/ No loans outstanding at year end. /9/ Value of transfer transactions. 86 Lincoln Benefit's domestic regulator, and any additional states in which Lincoln Benefit might be commercially domiciled pursuant to the applicable state's insurance holding company systems act. This process is documented in an internal procedure that captures the review and approval process of all intercompany agreements. All approvals are maintained in Lincoln Benefit's corporate records. While there is no formal process for the review and approval of related person transactions between unaffiliated entities specific to Lincoln Benefit, all directors and executive officers of Lincoln Benefit are subject to the Allstate Code of Ethics ("Code"). The Code includes a written conflict of interest policy that was adopted by the Board of Directors of the Allstate Corporation, the ultimate parent company of Lincoln Benefit. Any potential relationship or activity that could impair independent thinking and judgment, including holding a financial interest in a business venture that is similar to Allstate, or in a business that has a relationship with Allstate, must be disclosed to Human Resources. Human Resources will work with representatives from the Law Department, including Enterprise Business Conduct, to determine whether an actual conflict of interest exists. Each director and executive officer must sign a Code of Ethics certification annually. INDEPENDENCE STANDARDS FOR DIRECTORS Although not subject to the independence standards of the New York Stock Exchange, for purposes of this S-1 registration statement, Lincoln Benefit has applied the independence standards required for listed companies of the New York Stock Exchange to the Board of Directors. Applying these standards, Lincoln Benefit has been determined that none of the directors are considered to be independent. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors of Lincoln Benefit does not have a compensation committee. All compensation decisions are made by The Allstate Corporation, as the ultimate parent company of Lincoln Benefit. No executive officer of Lincoln Benefit served as a member of the compensation committee of another entity for which any executive officer served as a director for Lincoln Benefit. OTHER INFORMATION The section in your prospectus entitled "Incorporation of Certain Documents By Reference" is deleted and replaced with the following: FILING OF REPORTS Rule 12h-7 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") exempts an insurance company from filing reports under the Exchange Act when the insurance company issues certain types of insurance products that are registered under the Securities Act of 1933 and such products are regulated under state law. Your variable annuity issued by Lincoln Benefit falls within the exemption provided under rule 12h-7. We rely on the exemption provided under rule 12h-7 and do not file reports under the Exchange Act. DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted in directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling 87 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. The sections in your prospectus entitled "Experts" and "Financial Statements" are deleted and replaced with the following: EXPERTS The financial statements and the related financial statement schedules included herein have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein, and are included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing. 88 THE CONSULTANT SOLUTIONS VARIABLE ANNUITIES (CLASSIC, PLUS, ELITE, SELECT) LINCOLN BENEFIT LIFE COMPANY STREET ADDRESS: 5801 SW 6TH AVE. TOPEKA, KS 66606-0001 MAILING ADDRESS: P.O. BOX 758561, TOPEKA, KS 66675-8561 TELEPHONE NUMBER: 800-457-7617 / FAX NUMBER: 1-785-228-4584 1940 ACT FILE NUMBER: 811-07924 1933 ACT FILE NUMBER: 333-109688 PROSPECTUS DATED MAY 1, 2010 - -------------------------------------------------------------------------------- Lincoln Benefit Life Company ("LINCOLN BENEFIT") is the issuer of the following individual and group flexible premium deferred variable annuity contracts (each, a "CONTRACT"): .. Consultant Solutions Classic .. Consultant Solutions Plus .. Consultant Solutions Elite .. Consultant Solutions Select EFFECTIVE NOVEMBER 30, 2006, THIS PRODUCT IS NO LONGER BEING OFFERED FOR SALE. This prospectus contains information about each Contract that you should know before investing. Please keep it for future reference. Not all Contracts may be available in all states or through your sales representative. Please check with your sales representative for details. Each Contract currently offers several investment alternatives ("INVESTMENT ALTERNATIVES"). The Investment Alternatives include up to 2 fixed account options ("FIXED ACCOUNT OPTIONS"), depending on the Contract, and include 46 variable sub-accounts ("VARIABLE SUB-ACCOUNTS") of the Lincoln Benefit Life Variable Annuity Account ("VARIABLE ACCOUNT"). Each Variable Sub-account invests exclusively in shares of the following underlying funds ("FUNDS"): AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS) PIMCO VARIABLE INSURANCE TRUST THE ALGER PORTFOLIOS THE RYDEX VARIABLE TRUST FIDELITY(R) VARIABLE INSURANCE T. ROWE PRICE EQUITY SERIES, INC. PRODUCTS VAN ECK VIP TRUST JANUS ASPEN SERIES VAN KAMPEN LIFE INVESTMENT TRUST LEGG MASON PARTNERS VARIABLE EQUITY TRUST THE UNIVERSAL INSTITUTIONAL FUNDS, INC. LEGG MASON PARTNERS VARIABLE INCOME TRUST MFS(R) VARIABLE INSURANCE TRUST/(SM)/ OPPENHEIMER VARIABLE ACCOUNT FUNDS Each Fund has multiple investment Portfolios ("PORTFOLIOS"). Not all of the Funds and/or Portfolios, however, may be available with your Contract. You should check with your sales representative for further information on the availability of the Funds and/or Portfolios. Your annuity application will list all available Portfolios. For CONSULTANT SOLUTIONS PLUS CONTRACTS, each time you make a purchase payment, we will add to your Contract value ("CONTRACT VALUE") a credit enhancement ("CREDIT ENHANCEMENT") of up to 5% (depending on the issue age and your total purchase payments) of such purchase payment. Expenses for this Contract may be higher than a Contract without the Credit Enhancement. Over time, the amount of the Credit Enhancement may be more than offset by the fees associated with the Credit Enhancement. WE (Lincoln Benefit) have filed a Statement of Additional Information, dated May 1, 2010, with the Securities and Exchange Commission ("SEC"). It contains more information about each Contract and is incorporated herein by reference, which means that it is legally a part of this prospectus. Its table of contents appears on page 77 of this prospectus. For a free copy, please write or call us at the address or telephone number above, or go to the SEC's Web site (http://www.sec.gov). You can find other information and documents about us, including documents that are legally part of this prospectus, at the SEC's Web site. 1 PROSPECTUS IMPORTANT THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THE SECURITIES NOTICES DESCRIBED IN THIS PROSPECTUS, NOR HAS IT PASSED ON THE ACCURACY OR THE ADEQUACY OF THIS PROSPECTUS. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A FEDERAL CRIME. THE CONTRACTS MAY BE DISTRIBUTED THROUGH BROKER-DEALERS THAT HAVE RELATIONSHIPS WITH BANKS OR OTHER FINANCIAL INSTITUTIONS OR BY EMPLOYEES OF SUCH BANKS. HOWEVER, THE CONTRACTS ARE NOT DEPOSITS IN, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, SUCH INSTITUTIONS OR ANY FEDERAL REGULATORY AGENCY. INVESTMENT IN THE CONTRACTS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL. THE CONTRACTS ARE NOT FDIC INSURED.
2 PROSPECTUS TABLE OF CONTENTS - --------------------------------------------------------------------------------
PAGE ----------------------------------------------- OVERVIEW ----------------------------------------------- Important Terms 4 ----------------------------------------------- Overview of Contracts 5 ----------------------------------------------- The Contracts at a Glance 6 ----------------------------------------------- How the Contracts Work 10 ----------------------------------------------- Expense Tables 11 ----------------------------------------------- Financial Information 15 ----------------------------------------------- CONTRACT FEATURES ----------------------------------------------- The Contracts 15 ----------------------------------------------- Purchases 17 ----------------------------------------------- Contract Loans for 403(b) Contracts 19 ----------------------------------------------- Contract Value 20 ----------------------------------------------- Investment Alternatives 35 ----------------------------------------------- The Variable Sub-accounts 35 ----------------------------------------------- The Fixed Account Options 40 ----------------------------------------------- Transfers 44 ----------------------------------------------- Expenses 47 ----------------------------------------------- Access to Your Money 51 -----------------------------------------------
PAGE ----------------------------------------------------------- Income Payments 53 ----------------------------------------------------------- Death Benefits 59 ----------------------------------------------------------- OTHER INFORMATION ----------------------------------------------------------- More Information 66 ----------------------------------------------------------- Taxes 69 ----------------------------------------------------------- About Lincoln Benefit Life Company 77 ----------------------------------------------------------- STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS 78 ----------------------------------------------------------- APPENDIX A - CONTRACT COMPARISON CHART 79 ----------------------------------------------------------- APPENDIX B - MARKET VALUE ADJUSTMENT 80 ----------------------------------------------------------- APPENDIX C - EXAMPLE OF CALCULATION OF INCOME PROTECTION BENEFIT 82 ----------------------------------------------------------- APPENDIX D - WITHDRAWAL ADJUSTMENT EXAMPLE - DEATH BENEFITS 83 ----------------------------------------------------------- APPENDIX E - CALCULATION OF ENHANCED EARNINGS DEATH BENEFIT 84 ----------------------------------------------------------- APPENDIX F - WITHDRAWAL ADJUSTMENT EXAMPLE - ACCUMULATION BENEFIT 86 ----------------------------------------------------------- APPENDIX G - SUREINCOME WITHDRAWAL BENEFIT OPTION CALCULATION EXAMPLES 87 ----------------------------------------------------------- APPENDIX H - ACCUMULATION UNIT VALUES 89 -----------------------------------------------------------
3 PROSPECTUS IMPORTANT TERMS - -------------------------------------------------------------------------------- This prospectus uses a number of important terms that you may not be familiar with. The index below identifies the page that describes each term. The first use of each term in this prospectus appears in highlights.
PAGE --------------------------------------------- AB Factor 22 --------------------------------------------- Accumulation Benefit 22 --------------------------------------------- TrueReturn Accumulation Benefit Option 21 --------------------------------------------- Accumulation Phase 10 --------------------------------------------- Accumulation Unit 15 --------------------------------------------- Accumulation Unit Value 15 --------------------------------------------- Annual Increase Death Benefit Option 59 --------------------------------------------- Annuitant 16 --------------------------------------------- Automatic Additions Program 17 --------------------------------------------- Automatic Portfolio Rebalancing Program 45 --------------------------------------------- Beneficiary 16 --------------------------------------------- Benefit Base 22 --------------------------------------------- Benefit Payment 28 --------------------------------------------- Benefit Payment Remaining 28 --------------------------------------------- Benefit Year 28 --------------------------------------------- Co-Annuitant 16 --------------------------------------------- *Contract 15 --------------------------------------------- Contract Anniversary 7 --------------------------------------------- Contract Owner ("You") 15 --------------------------------------------- Contract Value 20 --------------------------------------------- Contract Year 7 --------------------------------------------- Credit Enhancement 18 --------------------------------------------- Dollar Cost Averaging Program 45 --------------------------------------------- Due Proof of Death 57 --------------------------------------------- Enhanced Earnings Death Benefit Option 59 --------------------------------------------- Excess of Earnings Withdrawal 60 --------------------------------------------- Fixed Account Options 39 --------------------------------------------- Free Withdrawal Amount 48 --------------------------------------------- Funds 1 --------------------------------------------- Guarantee Period Accounts 40 --------------------------------------------- Guarantee Options 21 --------------------------------------------- Income Plan 52 --------------------------------------------- Income Protection Benefit Option 55 --------------------------------------------- In-Force Earnings 60 --------------------------------------------- In-Force Premium 60 ---------------------------------------------
PAGE ---------------------------------------------------------- Investment Alternatives 34 ---------------------------------------------------------- IRA Contract 7 ---------------------------------------------------------- Issue Date 10 ---------------------------------------------------------- Lincoln Benefit ("We") 64 ---------------------------------------------------------- Market Value Adjustment 41 ---------------------------------------------------------- Maximum Anniversary Value (MAV) Death Benefit Option 58 ---------------------------------------------------------- Payout Phase 10 ---------------------------------------------------------- Payout Start Date 10 ---------------------------------------------------------- Payout Withdrawal 54 ---------------------------------------------------------- Portfolios 65 ---------------------------------------------------------- Qualified Contract 63 ---------------------------------------------------------- Return of Premium ("ROP") Death Benefit 58 ---------------------------------------------------------- Rider Application Date 7 ---------------------------------------------------------- Rider Anniversary 21 ---------------------------------------------------------- Rider Date 21 ---------------------------------------------------------- Rider Fee 7 ---------------------------------------------------------- Rider Maturity Date 21 ---------------------------------------------------------- Rider Period 21 ---------------------------------------------------------- Rider Trade-In Option 27 ---------------------------------------------------------- Right to Cancel 18 ---------------------------------------------------------- SEC 1 ---------------------------------------------------------- Settlement Value 58 ---------------------------------------------------------- Spousal Protection Benefit (Co-Annuitant) Option 63 ---------------------------------------------------------- Standard Fixed Account Option 40 ---------------------------------------------------------- SureIncome Withdrawal Benefit Option 27 ---------------------------------------------------------- Systematic Withdrawal Program 51 ---------------------------------------------------------- Tax Qualified Contract 70 ---------------------------------------------------------- Transfer Period Accounts 32 ---------------------------------------------------------- Trial Examination Period 6 ---------------------------------------------------------- TrueBalance/SM/ Asset Allocation Program 37 ---------------------------------------------------------- Withdrawal Benefit Factor 28 ---------------------------------------------------------- Withdrawal Benefit Payout Phase 29 ---------------------------------------------------------- Withdrawal Benefit Payout Phase Start Date 29 ---------------------------------------------------------- Valuation Date 18 ---------------------------------------------------------- Variable Account 65 ---------------------------------------------------------- Variable Sub-account 34 ----------------------------------------------------------
* In certain states a Contract may be available only as a group Contract. If you purchase a group Contract, we will issue you a certificate that represents your ownership and that summarizes the provisions of the group Contract. References to "Contract" in this prospectus include certificates, unless the context requires otherwise. References to "Contract" also include all four Contracts listed on the cover page of this prospectus, unless otherwise noted. However, we administer each Contract separately. 4 PROSPECTUS OVERVIEW OF CONTRACTS - -------------------------------------------------------------------------------- The Contracts offer many of the same basic features and benefits. They differ primarily with respect to the charges imposed, as follows: .. The CONSULTANT SOLUTIONS CLASSIC CONTRACT has a mortality and expense risk charge of 1.25%, an administrative expense charge of 0.10%*, and a withdrawal charge of up to 7% with a 7-year withdrawal charge period; .. The CONSULTANT SOLUTIONS PLUS CONTRACT offers a Credit Enhancement of up to 5% on purchase payments, a mortality and expense risk charge of 1.45%, an administrative expense charge of 0.10%*, and a withdrawal charge of up to 8.5% with an 8-year withdrawal charge period; .. The CONSULTANT SOLUTIONS ELITE CONTRACT has a mortality and expense risk charge of 1.60%, an administrative expense charge of 0.10%*, and a withdrawal charge of up to 7% with a 3-year withdrawal charge period; and .. The CONSULTANT SOLUTIONS SELECT CONTRACT has a mortality and expense risk charge of 1.70%, an administrative expense charge of 0.10%*, and no withdrawal charges. Other differences among the Contracts relate to available Fixed Account Options. For a side-by-side comparison of these differences, please refer to Appendix A of this prospectus. * The administrative expense charge may be increased, but will never exceed 0.25%. Once your Contract is issued, we will not increase the administrative expense charge for your Contract. 5 PROSPECTUS THE CONTRACTS AT A GLANCE - -------------------------------------------------------------------------------- The following is a snapshot of the Contracts. Please read the remainder of this prospectus for more information. FLEXIBLE PAYMENTS WE ARE NO LONGER OFFERING NEW CONTRACTS. You can add to your Contract as often and as much as you like, but each subsequent payment must be at least $1,000 ($100 for automatic payments). We reserve the right to accept a lesser initial purchase payment amount for each Contract. We may limit the cumulative amount of purchase payments to a maximum of $1,000,000 in any Contract. You must maintain a minimum Contract Value of $1,000. For CONSULTANT SOLUTIONS PLUS CONTRACTS, each time you make a purchase payment, we will add to your Contract Value a Credit Enhancement of up to 5% of such purchase payment. - --------------------------------------------------------------------------------------------------------- TRIAL EXAMINATION PERIOD You may cancel your Contract within 20 days of receipt or any longer period as your state may require ("TRIAL EXAMINATION PERIOD"). Upon cancellation, we will return your purchase payments adjusted, to the extent federal or state law permits, to reflect the investment experience of any amounts allocated to the Variable Account, including the deduction of mortality and expense risk charges and administrative expense charges. If you cancel your Contract during the Trial Examination Period, the amount we refund to you will not include any Credit Enhancement. See "Trial Examination Period" for details. - --------------------------------------------------------------------------------------------------------- EXPENSES Each Portfolio pays expenses that you will bear indirectly if you invest in a Variable Sub-account. You also will bear the following expenses: CONSULTANT SOLUTIONS CLASSIC CONTRACTS Annual mortality and expense risk charge equal to 1.25% of average daily net assets. Withdrawal charges ranging from 0% to 7% of purchase payments withdrawn. CONSULTANT SOLUTIONS PLUS CONTRACTS Annual mortality and expense risk charge equal to 1.45% of average daily net assets. Withdrawal charges ranging from 0% to 8.5% of purchase payments withdrawn. CONSULTANT SOLUTIONS ELITE CONTRACTS Annual mortality and expense risk charge equal to 1.60% of average daily net assets. Withdrawal charges ranging from 0% to 7% of purchase payments withdrawn. CONSULTANT SOLUTIONS SELECT CONTRACTS Annual mortality and expense risk charge equal to 1.70% of average daily net assets. No withdrawal charges.
6 PROSPECTUS ALL CONTRACTS Annual administrative expense charge of 0.10% average daily net assets (up to 0.25% for future Contracts). Annual contract maintenance charge of $40 (reduced to $30 if Contract Value is at least $2000, and waived in certain cases). If you select the MAXIMUM ANNIVERSARY VALUE (MAV) ENHANCED DEATH BENEFIT OPTION ("MAV DEATH BENEFIT OPTION") you will pay an additional mortality and expense risk charge of 0.20% (up to 0.50% for Options added in the future). If you select the Annual Increase Enhanced Death Benefit Option ("ANNUAL INCREASE DEATH BENEFIT OPTION"), you will pay an additional mortality and expense risk charge of 0.30% (up to 0.50% for options added in the future). If you select the ENHANCED EARNINGS DEATH BENEFIT OPTION you will pay an additional mortality and expense risk charge of 0.25% or 0.40% (up to 0.35% or 0.50% for Options added in the future) depending on the age of the oldest Owner, the Co-Annuitant, and/or oldest Annuitant on the date we receive the completed application or request to add the benefit, whichever is later ("RIDER APPLICATION DATE"). If you select the TRUERETURN ACCUMULATION BENEFIT OPTION you would pay an additional annual fee ("RIDER FEE") of 0.50% (up to 1.25% for Options added in the future) of the BENEFIT BASE in effect on each Contract anniversary ("CONTRACT ANNIVERSARY") during the Rider Period. You may not select the TrueReturn Accumulation Benefit Option together with the SureIncome Withdrawal Benefit Option. If you select the SUREINCOME WITHDRAWAL BENEFIT OPTION ("SUREINCOME OPTION") you would pay an additional annual fee ("SUREINCOME OPTION FEE") of 0.50% (up to 1.25% for Options added in the future) of the BENEFIT BASE on each Contract Anniversary (See the SureIncome Option Fee section). You may not select the SureIncome Option together with the TrueReturn Accumulation Benefit Option. If you select the INCOME PROTECTION BENEFIT OPTION you will pay an additional mortality and expense risk charge of 0.50% (up to 0.75% for Options added in the future) during the Payout Phase of your Contract. If you select the SPOUSAL PROTECTION BENEFIT (CO-ANNUITANT) OPTION you would pay an additional annual fee ("RIDER FEE") of 0.10% (up to 0.15% for Options added in the future) of the Contract Value ("CONTRACT VALUE") on each Contract Anniversary. This Option is available only for Individual Retirement Annuity ("IRA") Contracts qualified under Section 408 of the Internal Revenue Code. For Contracts purchased on or after May 1, 2005, we may discontinue offering the Spousal Protection Benefit (Co-Annuitant) Option at any time. NO RIDER FEE IS CHARGED FOR THE SPOUSAL PROTECTION BENEFIT (CO-ANNUITANT) OPTION FOR CONTRACT OWNERS WHO ADDED THE OPTION PRIOR TO MAY 1, 2005. Transfer fee equal to 1.00% (subject to increase to up to 2.00%) of the amount transferred after the 12/th/ transfer in any Contract Year ("CONTRACT YEAR"), but not more than $25. A Contract Year is measured from the date we issue your Contract or a Contract Anniversary. State premium tax (if your state imposes one) NOT ALL OPTIONS ARE AVAILABLE IN ALL STATES WE MAY DISCONTINUE OFFERING ANY OF THESE OPTIONS AT ANY TIME. - ------------------------------------------------------------------------------------
7 PROSPECTUS - ---------------------------------------------------------------------------------------------------------- INVESTMENT ALTERNATIVES Each Contract offers several investment alternatives including: up to 2 Fixed Account Options that credit interest at rates we guarantee, and 46 Variable Sub-accounts investing in Portfolios offering professional money management by these investment advisers: Invesco Advisers, Inc. Fred Alger Management, Inc. Fidelity Management & Research Company Janus Capital Management LLC MFS(TM) Investment Management OppenheimerFunds, Inc. Pacific Investment Management Company LLC Security Global Investors (formerly Rydex Investments) Legg Mason Partners Fund Advisor, LLC T. Rowe Price Associates, Inc. Van Eck Associates Corporation Van Kampen Asset Management Morgan Stanley Investment Management, Inc./(1)/ (1) Morgan Stanley Investment Management Inc., the adviser to the UIF Portfolios, does business in certain instances using the name Van Kampen. Not all Fixed Account Options are available in all states or with all Contracts. To find out current rates being paid on the Fixed Account Option(s), or to find out how the Variable Sub-accounts have performed, please call us at 800-457-7617. - ---------------------------------------------------------------------------------------------------------- SPECIAL SERVICES For your convenience, we offer these special services: AUTOMATIC PORTFOLIO REBALANCING PROGRAM AUTOMATIC ADDITIONS PROGRAM DOLLAR COST AVERAGING PROGRAM SYSTEMATIC WITHDRAWAL PROGRAM TRUEBALANCE/SM/ ASSET ALLOCATION PROGRAM - ---------------------------------------------------------------------------------------------------------- INCOME PAYMENTS You can choose fixed income payments, variable income payments, or a combination of the two. You can receive your income payments in one of the following ways (you may select more than one income plan): life income with guaranteed number of payments joint and survivor life income with guaranteed number of payments guaranteed number of payments for a specified period life income with cash refund joint life income with cash refund life income with installment refund joint life income with installment refund In addition, we offer an Income Protection Benefit Option that guarantees that your variable income payments will not fall below a certain level. - ----------------------------------------------------------------------------------------------------------
8 PROSPECTUS - -------------------------------------------------------------------------------------------------- DEATH BENEFITS If you die before the Payout Start Date, we will pay a death benefit subject to the conditions described in the Contract. In addition to the death benefit included in your Contract ("ROP DEATH BENEFIT"), the death benefit options we currently offer include: MAV DEATH BENEFIT OPTION; ANNUAL INCREASE DEATH BENEFIT OPTION; AND ENHANCED EARNINGS DEATH BENEFIT OPTION. - -------------------------------------------------------------------------------------------------- TRANSFERS Before the Payout Start Date, you may transfer your Contract Value among the investment alternatives, with certain restrictions. The minimum amount you may transfer is $100 or the amount remaining in the investment alternative, if less. The minimum amount that can be transferred into the Standard Fixed Account or Market Value Adjusted Account Options is $100. A charge may apply after the 12/th/ transfer in each Contract Year. - -------------------------------------------------------------------------------------------------- WITHDRAWALS You may withdraw some or all of your Contract Value at any time during the Accumulation Phase and during the Payout Phase in certain cases. In general, you must withdraw at least $50 at a time. If any withdrawal reduces your Contract Value to less than $1,000, we will treat the request as a withdrawal of the entire Contract Value, unless the SureIncome Withdrawal Benefit Option is in effect under your Contract. Withdrawals taken prior to annuitization (referred to in this prospectus as the Payout Phase) are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. A withdrawal charge and a MARKET VALUE ADJUSTMENT may also apply. - --------------------------------------------------------------------------------------------------
9 PROSPECTUS HOW THE CONTRACTS WORK - -------------------------------------------------------------------------------- Each Contract basically works in two ways. First, each Contract can help you (we assume you are the "CONTRACT OWNER") save for retirement because you can invest in your Contract's investment alternatives and generally pay no federal income taxes on any earnings until you withdraw them. You do this during what we call the "ACCUMULATION PHASE" of the Contract. The Accumulation Phase begins on the date we issue your Contract (we call that date the "ISSUE DATE") and continues until the Payout Start Date, which is the date we apply your money to provide income payments. During the Accumulation Phase, you may allocate your purchase payments to any combination of the Variable Sub-Accounts and/or Fixed Account Options. If you invest in a Fixed Account Option, you will earn a fixed rate of interest that we declare periodically. If you invest in any of the Variable Sub-Accounts, your investment return will vary up or down depending on the performance of the corresponding Portfolios. Second, each Contract can help you plan for retirement because you can use it to receive retirement income for life and/or for a pre-set number of years, by selecting one of the income payment options (we call these "INCOME PLANS") described on page 52. You receive income payments during what we call the "PAYOUT PHASE" of the Contract, which begins on the Payout Start Date and continues until we make the last payment required by the Income Plan you select. During the Payout Phase, if you select a fixed income payment option, we guarantee the amount of your payments, which will remain fixed. If you select a variable income payment option, based on one or more of the Variable Sub-Accounts, the amount of your payments will vary up or down depending on the performance of the corresponding Portfolios. The amount of money you accumulate under your Contract during the Accumulation Phase and apply to an Income Plan will determine the amount of your income payments during the Payout Phase. The timeline below illustrates how you might use your Contract. [FLOW CHART] Other income payment options are also available. See "INCOME PAYMENTS." As the Contract Owner, you exercise all of the rights and privileges provided by the Contract. If you die, any surviving Contract Owner or, if there is none, the BENEFICIARY will exercise the rights and privileges provided by the Contract. See "The Contracts." In addition, if you die before the Payout Start Date, we will pay a death benefit to any surviving Contract Owner or, if there is none, to your Beneficiary. See "Death Benefits." Please call us at 800-457-7617 if you have any question about how the Contracts work. 10 PROSPECTUS EXPENSE TABLES - -------------------------------------------------------------------------------- THE TABLE BELOW LISTS THE EXPENSES THAT YOU WILL BEAR DIRECTLY OR INDIRECTLY WHEN YOU BUY A CONTRACT. THE TABLE AND THE EXAMPLES THAT FOLLOW DO NOT REFLECT PREMIUM TAXES THAT MAY BE IMPOSED BY THE STATE WHERE YOU RESIDE. FOR MORE INFORMATION ABOUT VARIABLE ACCOUNT EXPENSES, SEE "EXPENSES," BELOW. FOR MORE INFORMATION ABOUT PORTFOLIO EXPENSES, PLEASE REFER TO THE PROSPECTUSES FOR THE PORTFOLIOS. CONTRACT OWNER TRANSACTION EXPENSES Withdrawal Charge (as a percentage of purchase payments withdrawn)*
Number of Complete Years Since We Received the Purchase Payment Being Withdrawn/Applicable Charge: ---------------------------------------------------------------------------------------------------- Contract: 0 1 2 3 4 5 6 7 8+ Consultant Solutions Classic 7% 7% 6% 5% 4% 3% 2% 0% 0% Consultant Solutions Plus 8.5% 8.5% 8.5% 7.5% 6.5% 5.5% 4% 2.5% 0% Consultant Solutions Elite: 7% 6% 5% 0% 0% 0% 0% 0% 0% Consultant Solutions Select: None All Contracts: Annual Contract Maintenance Charge $40** Transfer Fee up to 2.00% of the amount transferred, but not more than $25*** Premium Taxes 0% to 4.00% of Purchase Payment**** Loan Interest Rate 7.25%*****
* Each Contract Year, you may withdraw a portion of your purchase payments (and/or your earnings, in the case of Charitable Remainder Trusts) without incurring a withdrawal charge ("Free Withdrawal Amount"). See "Withdrawal Charges" for more information. ** Reduced to $30 if Contract Value is not less than $2000, and waived in certain cases. See "Expenses." *** Applies solely to the 13th and subsequent transfers within a Contract Year, excluding transfers due to dollar cost averaging and automatic portfolio rebalancing. We are currently assessing a transfer fee of 1.00% of the amount transferred, however, we reserve the right to raise the transfer fee to up to 2.00% of the amount transferred. The transfer fee will never be greater than $25. **** Some States charge premium taxes that generally range from 0 to 4%. We are responsible for paying these taxes, and will deduct them from your Contract Value. Our current practice is to not charge for these taxes until the Payout Start Date or surrender of the Contract. See "Premium Taxes" for more information. ***** For more information, see "Contract Loans for 403(b) Contracts." The loan interest rate is subject to change. VARIABLE ACCOUNT ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSET VALUE DEDUCTED FROM EACH VARIABLE SUB-ACCOUNT) If you select the basic Contract without any optional benefits, your Variable Account expenses would be as follows:
Mortality and Expense Administrative Total Variable Account Basic Contract (without any optional benefit) Risk Charge Expense Charge* Annual Expense - ---------------------------------------------------------------------------------------------------------------------------- Consultant Solutions Classic 1.25% 0.10% 1.35% - ---------------------------------------------------------------------------------------------------------------------------- Consultant Solutions Plus 1.45% 0.10% 1.55% - ---------------------------------------------------------------------------------------------------------------------------- Consultant Solutions Elite 1.60% 0.10% 1.70% - ---------------------------------------------------------------------------------------------------------------------------- Consultant Solutions Select 1.70% 0.10% 1.80% - ----------------------------------------------------------------------------------------------------------------------------
* We reserve the right to raise the administrative expense charge to 0.25%. If we increase this charge, we will amend the prospectus, accordingly. However, we will not increase the charge once we issue your Contract. Each Contract also offers optional riders that may be added to the Contract. For each optional rider you select, you would pay the following additional mortality and expense risk charge associated with each rider. MAV Death Benefit Option Currently 0.20%, up to a maximum of 0.50% for Options added in the future * Annual Increase Death Benefit Option Currently 0.30%, up to a maximum of 0.50% for Options added in the future * Enhanced Earnings Death Benefit Currently 0.25%, up to a maximum of Option (issue age 0-70) 0.35% for Options added in the future * Enhanced Earnings Death Benefit Currently 0.40%, up to a maximum of Option (issue age 71-79) 0.50% for Options added in the future * 11 PROSPECTUS If you select the Options with the highest possible combination of mortality and expense risk charges during the Accumulation Phase, your Variable Account expenses would be as follows, assuming current expenses:
Contract with the MAV Death Benefit Option, Annual Increase Death Benefit Option, and Mortality and Expense Administrative Total Variable Account Enhanced Earnings Death Benefit Option (issue age 71-79) Risk Charge* Expense Charge* Annual Expense - ---------------------------------------------------------------------------------------------------------------------------- Consultant Solutions Classic 2.15% 0.10% 2.25% - ---------------------------------------------------------------------------------------------------------------------------- Consultant Solutions Plus 2.35% 0.10% 2.45% - ---------------------------------------------------------------------------------------------------------------------------- Consultant Solutions Elite 2.50% 0.10% 2.60% - ---------------------------------------------------------------------------------------------------------------------------- Consultant Solutions Select 2.60% 0.10% 2.70% - ----------------------------------------------------------------------------------------------------------------------------
* As described above the administrative expense charge and the mortality and expense charge for certain Options may be higher in the future if you add this Option to your Contract. However, we will not increase the administrative expense charge once we issue your Contract, and we will not increase the charge for an Option once we add the Option to your Contract. If we increase any of these charges, we will amend the prospectus, accordingly. TRUERETURN ACCUMULATION BENEFIT OPTION ANNUAL FEE (ANNUAL RATE AS A PERCENTAGE OF BENEFIT BASE ON A CONTRACT ANNIVERSARY) TrueReturn Accumulation Benefit Option Currently 0.50%, up to a maximum of 1.25% for Options added in the future. * - --------------------------------------------------------------------------------------
* If we increase this charge, we will amend the prospectus, accordingly. See "TrueReturn Accumulation Benefit Option" for details. SPOUSAL PROTECTION BENEFIT (CO-ANNUITANT) OPTION ANNUAL FEE (ANNUAL RATE AS A PERCENTAGE OF CONTRACT VALUE ON A CONTRACT ANNIVERSARY) Spousal Protection Benefit (Co-Annuitant) Option Currently 0.10%, up to a maximum of 0.15% for Options added in the future * - --------------------------------------------------------------------------------------
* For Options added on or after 5/1/2005. If we increase this charge, we will amend the prospectus, accordingly. See "Spousal Protection Benefit (Co-Annuitant) Option" for details. SUREINCOME OPTION FEE (ANNUAL RATE AS A PERCENTAGE OF BENEFIT BASE ON A CONTRACT ANNIVERSARY) SureIncome Withdrawal Benefit Option Currently 0.50%, up to a maximum of 1.25% for SureIncome Options added in the future * - --------------------------------------------------------------------------------------
* If we increase this charge, we will amend the prospectus, accordingly. See "SureIncome Withdrawal Benefit Option" for details. INCOME PROTECTION BENEFIT OPTION FEE (PAYOUT PHASE ONLY)* (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Income Protection Benefit Option Currently 0.50%, up to a maximum of 1.25% for Options added in the future* - --------------------------------------------------------------------------------------
* See "Income Payments - Income Protection Benefit Option," below, for a description of the Income Protection Benefit Option. You may add this Option when you elect to receive annuity benefits. We begin to deduct the charge for this Option on the Payout Start Date. Currently, the charge for this Option is 0.50% of the average daily net Variable Account assets supporting the variable income payments to which the Income Protection Benefit Option applies. We will charge you the Option charge in effect when you choose to apply this Option to your Contract. We reserve the right to raise the Income Protection Benefit Option charge to up to 0.75%. If we increase this charge, we will amend the prospectus accordingly. Once your Income Protection Benefit Option is in effect, however, we will not change the option charge you will pay for this Option. See "Expenses - Mortality and Expense Risk Charge," below, for details. 12 PROSPECTUS PORTFOLIO ANNUAL EXPENSES - MINIMUM AND MAXIMUM The next table shows the minimum and maximum total operating expenses charged by the Portfolios that you may pay periodically during the time that you own the Contract. Advisors and/or other service providers of certain Portfolios may have agreed to waive their fees and/or reimburse Portfolio expenses in order to keep the Portfolios' expenses below specified limits. The range of expenses shown in this table does not show the effect of any such fee waiver or expense reimbursement. More detail concerning each Portfolio's fees and expenses appears in the second table below and in the prospectus for each Portfolio.
Minimum Maximum ---------------------------------------------------------------------------- Total Annual Portfolio Operating Expenses/(1)/ (expenses that are deducted from Portfolio assets, which may include management fees, distribution and/or services (12b-1) fees, and other expenses) 0.35% 5.43% ----------------------------------------------------------------------------
(1)Expenses are shown as a percentage of Portfolio average daily net assets (before any waiver or reimbursement) as of December 31, 2009. EXAMPLE 1 This Example is intended to help you compare the cost of investing in the Contracts with the cost of investing in other variable annuity contracts. These costs include Contract owner transaction expenses, Contract fees, Variable Account annual expenses, and Portfolio fees and expenses. The example shows the dollar amount of expenses that you would bear directly or indirectly if you: .. invested $10,000 in the Contract for the time periods indicated; .. earned a 5% annual return on your investment; .. surrendered your Contract, or you began receiving income payments for a specified period of less than 120 months, at the end of each time period; .. elected the MAV Death Benefit Option and the Annual Increase Death Benefit Option; .. elected the Enhanced Earnings Death Benefit Option (assuming issue age 71-79); .. elected the Spousal Protection Benefit (Co-Annuitant) Option; and .. elected the TrueReturn Accumulation Benefit Option or SureIncome Withdrawal Benefit Option. THE EXAMPLE DOES NOT INCLUDE ANY TAXES OR TAX PENALTIES YOU MAY BE REQUIRED TO PAY IF YOU SURRENDER YOUR CONTRACT. The first line of the example assumes that the maximum fees and expenses of any of the Portfolios are charged. The second line of the example assumes that the minimum fees and expenses of any of the Portfolios are charged. Your actual expenses may be higher or lower than those shown below.
Consultant Solutions Classic Consultant Solutions Plus 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------ Costs Based on Maximum Annual Portfolio Expenses $1,533 $3,235 $4,741 $8,144 $1,677 $3,490 $5,014 $8,222 - ------------------------------------------------------------------------------------------ Costs Based on Minimum Annual Portfolio Expenses $1,061 $1,929 $2,743 $5,003 $1,206 $2,192 $3,037 $5,146 - ------------------------------------------------------------------------------------------ Consultant Solutions Elite Consultant Solutions Select 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------ Costs Based on Maximum Annual Portfolio Expenses $1,563 $3,227 $4,511 $8,287 $ 979 $2,834 $4,559 $8,355 - ------------------------------------------------------------------------------------------ Costs Based on Minimum Annual Portfolio Expenses $1,092 $1,936 $2,550 $5,263 $ 510 $1,548 $2,610 $5,371 - ------------------------------------------------------------------------------------------
13 PROSPECTUS EXAMPLE 2 This Example uses the same assumptions as Example 1 above, except that it assumes you decided not to surrender your Contract, or you began receiving income payments for a specified period of at least 120 months, at the end of each time period.
Consultant Solutions Classic Consultant Solutions Plus 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------ Costs Based on Maximum Annual Portfolio Expenses $938 $2,725 $4,401 $8,144 $954 $2,768 $4,461 $8,222 - ------------------------------------------------------------------------------------------ Costs Based on Minimum Annual Portfolio Expenses $466 $1,419 $2,403 $5,003 $483 $1,470 $2,484 $5,146 - ------------------------------------------------------------------------------------------ Consultant Solutions Elite Consultant Solutions Select 1 Year 3 Years 5 Years 10 Years 1 Year 3 Years 5 Years 10 Years - ------------------------------------------------------------------------------------------ Costs Based on Maximum Annual Portfolio Expenses $968 $2,802 $4,511 $8,287 $979 $2,834 $4,559 $8,355 - ------------------------------------------------------------------------------------------ Costs Based on Minimum Annual Portfolio Expenses $497 $1,511 $2,550 $5,263 $510 $1,548 $2,610 $5,371 - ------------------------------------------------------------------------------------------
PLEASE REMEMBER THAT YOU ARE LOOKING AT EXAMPLES AND NOT A REPRESENTATION OF PAST OR FUTURE EXPENSES. YOUR RATE OF RETURN MAY BE HIGHER OR LOWER THAN 5%, WHICH IS NOT GUARANTEED. THE EXAMPLES DO NOT ASSUME THAT ANY PORTFOLIO EXPENSE WAIVERS OR REIMBURSEMENT ARRANGEMENTS ARE IN EFFECT FOR THE PERIODS PRESENTED. THE EXAMPLES REFLECT THE FREE WITHDRAWAL AMOUNTS, IF APPLICABLE, AND THE DEDUCTION OF THE ANNUAL CONTRACT MAINTENANCE CHARGE OF $30 EACH YEAR. THE ABOVE EXAMPLES ASSUME YOU HAVE SELECTED THE MAV DEATH BENEFIT OPTION, THE ANNUAL INCREASE DEATH BENEFIT OPTION, THE ENHANCED EARNINGS DEATH BENEFIT OPTION (ASSUMING THE OLDEST CONTRACT OWNER AND CO-ANNUITANT, OR, IF THE CONTRACT OWNER IS A NON-LIVING PERSON, THE OLDEST ANNUITANT, ARE AGE 71 OR OLDER, AND ALL ARE AGE 79 OR YOUNGER ON THE RIDER APPLICATION DATE), THE SPOUSAL PROTECTION BENEFIT (CO-ANNUITANT) OPTION, AND THE TRUERETURN ACCUMULATION BENEFIT OPTION OR SUREINCOME WITHDRAWAL BENEFIT OPTION. IF ANY OR ALL OF THESE FEATURES WERE NOT ELECTED, THE EXPENSE FIGURES SHOWN ABOVE WOULD BE SLIGHTLY LOWER. 14 PROSPECTUS FINANCIAL INFORMATION - -------------------------------------------------------------------------------- To measure the value of your investment in the Variable Sub-Accounts during the Accumulation Phase, we use a unit of measure we call the "ACCUMULATION UNIT." Each Variable Sub-Account has a separate value for its Accumulation Units we call "ACCUMULATION UNIT VALUE." Accumulation Unit Value is analogous to, but not the same as, the share price of a mutual fund. Accumulation Unit Values for the lowest and highest available combinations of Contract charges that affect Accumulation Unit Values for each Contract are shown in Appendix H of this prospectus. The Statement of Additional Information contains the Accumulation Unit Values for all other available combinations of Contract charges that affect Accumulation Unit Values for each Contract. The financial statements of Lincoln Benefit and the financial statements of the Variable Account, which are comprised of the financial statements of the underlying sub-accounts, appear in the Statement of Additional Information. THE CONTRACTS - -------------------------------------------------------------------------------- CONTRACT OWNER Each CONTRACT is an agreement between you, the Contract Owner, and Lincoln Benefit, a life insurance company. As the Contract Owner, you may exercise all of the rights and privileges provided to you by the Contract. That means it is up to you to select or change (to the extent permitted): .. the investment alternatives during the Accumulation and Payout Phases, .. the amount and timing of your purchase payments and withdrawals, .. the programs you want to use to invest or withdraw money, .. the income payment plan(s) you want to use to receive retirement income, .. the Annuitant (either yourself or someone else) on whose life the income payments will be based, .. the Beneficiary or Beneficiaries who will receive the benefits that the Contract provides when the last surviving Contract Owner dies, or, if the Contract Owner is a non-living person, an Annuitant dies, and .. any other rights that the Contract provides, including restricting income payments to Beneficiaries. If you die prior to the Payout Start Date, any surviving joint Contract Owner, or, if none, the Beneficiary, may exercise the rights and privileges provided to them by the Contract. If the sole surviving Contract Owner dies after the Payout Start Date, the Primary Beneficiary will receive any guaranteed income payments scheduled to continue. If the Annuitant dies prior to the Payout Start Date and the Contract Owner is a non-living person, we will pay the death benefit to the current Contract Owner. The Contract cannot be jointly owned by both a living and a non-living person. The CONSULTANT SOLUTIONS SELECT is not available for purchase by non-living persons. The maximum age of any Contract Owner on the date we receive the completed application for each Contract is 90. If you select the MAV Death Benefit Option, the Annual Increase Death Benefit Option, or the Enhanced Earnings Death Benefit Option, the maximum age of any Contract Owner on the Rider Application Date is currently 79. If you select the Spousal Protection Benefit (Co-Annuitant) Option, the maximum age of any Contract Owner on the Rider Application Date is currently age 90. If you select the SureIncome Withdrawal Benefit Option, the maximum age of any Contract Owner on the Rider Application Date is currently age 85. The Contract can also be purchased as an IRA or TSA (also known as a 403(b)). The endorsements required to qualify these annuities under the Code may limit or modify your rights and privileges under the Contract. We use the term "QUALIFIED CONTRACT" to refer to a Contract issued as an IRA, 403(b), or with a Qualified Plan. Except for certain Qualified Contracts, you may change the Contract Owner at any time by written notice in a form satisfactory to us. Until we receive your written notice to change the Contract Owner, we are entitled to rely on the most recent information in our files. We will provide a change of ownership form to be signed by you and filed with us. Once we accept the change, the change will take effect as of the date you signed the request. We will not be liable for any payment or settlement made prior to accepting the change. Accordingly, if you wish to change the Contract Owner, you should deliver your written notice to us promptly. Each change is subject to any payment we make or other action we take before we accept it. Changing ownership of this Contract may cause adverse tax consequences and may not be allowed under Qualified Contracts. Please consult with a competent tax advisor prior to making a request for a change of Contract Owner. 15 PROSPECTUS ANNUITANT The ANNUITANT is the individual whose age determines the latest Payout Start Date and whose life determines the amount and duration of income payments (other than under Income Plan 3). If the Contract is a Non-Qualified Contract, you also may designate a joint Annuitant, who is a second person on whose life income payments depend. Additional restrictions may apply in the case of Qualified Plans. The maximum age of the Annuitant on the date we receive the completed application for each Contract is 90. If the Owner is a living person, the Owner may change the Annuitant before the Payout Start Date by written request in a form satisfactory to us. Once we accept a change, it takes effect on the date you signed the request. Each change is subject to any payment we make or other action we take before we accept it. If you select the MAV Death Benefit Option, Annual Increase Death Benefit Option, or Enhanced Earnings Death Benefit Option, the maximum age of any Annuitant on the Rider Application Date is 79. If you select the Spousal Protection Benefit (Co-Annuitant) Option, the maximum age of any Annuitant on the Rider Application date is age 90. If you select the Income Protection Benefit Option, the oldest Annuitant and joint Annuitant (if applicable) must be age 75 or younger on the Payout Start Date. If you select the SureIncome Withdrawal Benefit Option, the maximum age of any Annuitant on the Rider Application Date is currently age 85. If you select an Income Plan that depends on the Annuitant or a joint Annuitant's life, we may require proof of age and sex before income payments begin and proof that the Annuitant or joint Annuitant is still alive before we make each payment. CO-ANNUITANT Contract Owners of IRA Contracts that meet the following conditions and that elect the Spousal Protection Benefit Option must name their spouse as a CO-ANNUITANT: .. the individually owned Contract must be either a traditional, Roth or Simplified Employee Pension IRA; .. the Contract Owner must be age 90 or younger on the Rider Application Date; .. and the Co-Annuitant must be age 79 or younger on the Rider Application Date; and .. the Co-Annuitant must be the sole Primary Beneficiary under the Contract. Under the Spousal Protection Benefit Option, the Co-Annuitant will be considered to be an Annuitant during the Accumulation Phase, except the Co-Annuitant will not be considered to be an Annuitant for purposes of determining the Payout Start Date and the "Death of Annuitant" provision of your Contract does not apply upon the death of the Co-Annuitant. If you are single when you purchase this Contract, and are married later, you may add the Spousal Protection Benefit Option within six months of your marriage only if you provide proof of marriage in a form satisfactory to us. You may change the Co-Annuitant to a new spouse within six months of re-marriage only if you provide proof of remarriage in a form satisfactory to us. At any time, there may only be one Co-Annuitant under your Contract. The Co-Annuitant will be considered an Owner for the purposes of determining the age or birthday of the Owners under the MAV Death Benefit Option, the Annual Increase Death Benefit Option and the Enhanced Earnings Death Benefit Option. See "Spousal Protection Benefit Option and Death of Co-Annuitant" for more information. BENEFICIARY You may name one or more Primary and Contingent Beneficiaries when you apply for a Contract. The Primary Beneficiary is the person who may, in accordance with the terms of the Contract, elect to receive the death settlement ("DEATH PROCEEDS") or become the new Contract Owner pursuant to the Contract if the sole surviving Contract Owner dies before the Payout Start Date. If the sole surviving Contract Owner dies after the Payout Start Date, the Beneficiary will receive any guaranteed income payments scheduled to continue. A Contingent Beneficiary is the person selected by the Contract Owner who will exercise the rights of the Primary Beneficiary if all named Primary Beneficiaries die before the death of the sole surviving Contract Owner. You may change or add Beneficiaries at any time, unless you have designated an irrevocable Beneficiary. We will provide a change of Beneficiary form to be signed by you and filed with us. After we accept the form, the change of Beneficiary will be effective as of the date you signed the form. Until we accept your written notice to change a Beneficiary, we are entitled to rely on the most recent Beneficiary information in our files. We will not be liable for any payment or settlement made prior to accepting the change. Accordingly, if you wish to change your Beneficiary, you should deliver your written notice to us promptly. Each Beneficiary change is subject to any payment made by us or any other action we take before we accept the change. You may restrict income payments to Beneficiaries. We will provide a form to be signed by you and filed with us. Once we accept the form, the restriction will take effect as of the date you signed the request. Any restriction is subject to any payment made by us or any other action we take before we accept the request. If you did not name a Beneficiary or, unless otherwise provided in the Beneficiary designation, if a named Beneficiary is no longer living and there are no other surviving Primary or Contingent Beneficiaries when the 16 PROSPECTUS sole surviving Contract Owner dies, the new Beneficiary will be: .. your spouse or, if he or she is no longer living, .. your surviving children equally, or if you have no surviving children, .. your estate. If more than one Beneficiary survives you, we will divide the death benefit among the surviving Beneficiaries according to your most recent written instructions. If you have not given us written instructions in a form satisfactory to us, we will pay the death benefit in equal amounts to the surviving Beneficiaries. If there is more than one Beneficiary in a class (e.g., more than one Primary Beneficiary) and one of the Beneficiaries predeceases the Contract Owner (the Annuitant if the Contract owner is not a living person), the remaining Beneficiaries in that class will divide the deceased Beneficiary's share in proportion to the original share of the remaining Beneficiaries. For purposes of this Contract, in determining whether a living person, including a Contract Owner, Primary Beneficiary, Contingent Beneficiary, or Annuitant ("Living Person A") has survived another living person, including a Contract Owner, Primary Beneficiary, Contingent Beneficiary, or Annuitant ("Living Person B"), Living Person A must survive Living Person B by at least 24 hours. Otherwise, Living Person A will be conclusively deemed to have predeceased Living Person B. Where there are multiple Beneficiaries, we will only value the death proceeds at the time the first Beneficiary submits the necessary documentation in good order. Any death proceed amounts attributable to any Beneficiary which remain in the Variable Sub-accounts are subject to investment risk. If there is more than one Beneficiary taking shares of the death proceeds, each Beneficiary will be treated as a separate and independent owner of his or her respective share of the death proceeds. Each Beneficiary will exercise all rights related to his or her share of the death proceeds, including the sole right to select a death settlement option, subject to any restrictions previously placed upon the Beneficiary. Each Beneficiary may designate a Beneficiary(ies) for his or her respective share, but that designated Beneficiary(ies) will be restricted to the death settlement option chosen by the original Beneficiary. If there is more than one Beneficiary and one of the Beneficiaries is a corporation, trust or other non-living person, all Beneficiaries will be considered to be non-living persons. MODIFICATION OF THE CONTRACT Only a Lincoln Benefit officer may approve a change in or waive any provision of the Contract. Any change or waiver must be in writing. None of our agents has the authority to change or waive the provisions of the Contract. We may not change the terms of the Contract without your consent, except to conform the Contract to applicable law or changes in the law. If a provision of the Contract is inconsistent with state law, we will follow state law. ASSIGNMENT You may not assign an interest in this Contract as collateral or security for a loan. However, you may assign periodic income payments under this Contract prior to the Payout Start Date. No Beneficiary may assign benefits under the Contract until they are due. We will not be bound by any assignment until the assignor signs it and files it with us. We are not responsible for the validity of any assignment. Federal law prohibits or restricts the assignment of benefits under many types of retirement plans and the terms of such plans may themselves contain restrictions on assignments. An assignment may also result in taxes or tax penalties. YOU SHOULD CONSULT WITH AN ATTORNEY BEFORE TRYING TO ASSIGN PERIODIC INCOME PAYMENTS UNDER YOUR CONTRACT. PURCHASES - -------------------------------------------------------------------------------- MINIMUM PURCHASE PAYMENTS The minimum initial purchase payment for Classic Contracts is $1,200 (Qualified or Non-Qualified Contracts); the minimum initial purchase payment for all other Non-Qualified Contracts is $10,000, ($2,000 for Qualified Contracts). All subsequent purchase payments under a Contract must be $1,000 or more ($100 for automatic payments). For CONSULTANT SOLUTIONS PLUS CONTRACTS, purchase payments do not include any Credit Enhancements. You may make purchase payments at any time prior to the Payout Start Date; however, any additional payments after the initial purchase payment may be limited in some states. Please consult with your representative for details. The total amount of purchase payments we will accept for each Contract without our prior approval is $1,000,000. We reserve the right to accept a lesser initial purchase payment amount or lesser subsequent purchase payment amounts. We reserve the right to limit the availability of the investment alternatives for additional investments. We also reserve the right to reject any application. We may apply certain limitations, restrictions, and/or underwriting standards as a condition of our issuance of a Contract and/or acceptance of purchase payments. AUTOMATIC ADDITIONS PROGRAM You may make subsequent purchase payments of $100 or more per month by automatically transferring money from your bank account. Please consult with your sales representative for detailed information. The AUTOMATIC 17 PROSPECTUS ADDITIONS PROGRAM is not available for making purchase payments into the Dollar Cost Averaging Fixed Account Option. ALLOCATION OF PURCHASE PAYMENTS At the time you apply for a Contract, you must decide how to allocate your purchase payment among the investment alternatives. The allocation you specify on your application will be effective immediately. All allocations must be in whole percents that total 100% or in whole dollars. You can change your allocations by calling 1-800-457-7617. We will allocate your purchase payments to the investment alternatives according to your most recent instructions on file with us. Unless you notify us otherwise, we will allocate subsequent purchase payments according to the allocation for the previous purchase payment. We will effect any change in allocation instructions at the time we receive written notice of the change in good order. For CONSULTANT SOLUTIONS SELECT CONTRACTS, the maximum amount that can be allocated during any single day to certain selected funds is $25,000. Please see the current list of funds affected by this restriction on page 26. We will credit the initial purchase payment that accompanies your completed application to your Contract within 2 business days after we receive the payment at our home office. If your application is incomplete, we will ask you to complete your application within 5 business days. If you do so, we will credit your initial purchase payment to your Contract within that 5 business day period. If you do not, we will return your purchase payment at the end of the 5 business day period unless you expressly allow us to hold it until you complete the application. We will credit subsequent purchase payments to the Contract at the close of the business day on which we receive the purchase payment at our home office. We use the term "business day" to refer to each day Monday through Friday that the New York Stock Exchange is open for business. We also refer to these days as "VALUATION DATES." Our business day closes when the New York Stock Exchange closes for regular trading, usually 4:00 p.m. Eastern Time (3:00 p.m. Central Time). If we receive your purchase payment after 3:00 p.m. Central Time on any Valuation Date, we will credit your purchase payment using the Accumulation Unit Values computed for the next Valuation Date. There may be circumstances where the New York Stock Exchange is open, however, due to inclement weather, natural disaster or other circumstances beyond our control, our offices may be closed or our business processing capabilities may be restricted. Under those circumstances, your Contract Value may fluctuate based on changes in the Accumulation Unit Values, but you may not be able to transfer Contract Value, or make a purchase or redemption request. With respect to both your initial purchase payment and any subsequent purchase payment that is pending investment in our Variable Account, we may hold the amount temporarily in a suspense account and may earn interest on amounts held in that suspense account. You will not be credited with any interest on amounts held in that suspense account. CREDIT ENHANCEMENT For CONSULTANT SOLUTIONS PLUS CONTRACTS, each time you make a purchase payment, we will add to your Contract Value a Credit Enhancement equal to 4% of the purchase payment if the oldest Contract Owner, or, if the Contract Owner is a non-living person, the oldest Annuitant, is age 85 or younger on the date we receive the completed application for the Contract ("Application Date"). If the oldest Contract Owner or, if the Owner is a non-living person, the oldest Annuitant is age 86 or older and 90 or younger on the Application Date, we will add to your Contract Value a Credit Enhancement equal to 2% of the purchase payment. The thresholds apply individually to each CONSULTANT SOLUTIONS PLUS CONTRACT you own. The additional Credit Enhancements and their corresponding thresholds are as follows:
ADDITIONAL CREDIT CUMULATIVE PURCHASE ENHANCEMENT FOR LARGE PAYMENTS LESS CUMULATIVE CONTRACTS WITHDRAWALS MUST EXCEED: 0.50% of the purchase payment $ 500,000 1.00% of the purchase payment $1,000,000
If, during the first Contract Year only, the cumulative purchase payments less cumulative withdrawals exceed the thresholds, the additional credit enhancement will apply to prior purchase payments, less cumulative withdrawals, and will be added to the Contract Value as of the date of the most recent purchase payment. The additional credit enhancement will be applied only once to any given purchase payment, current or prior. If you exercise your right to cancel the Contract during the Trial Examination Period, the amount we refund to you will not include any Credit Enhancement. See "TRIAL EXAMINATION PERIOD" below for details. The CONSULTANT SOLUTIONS PLUS CONTRACT may not be available in all states. We will allocate any Credit Enhancements to the investment alternatives according to the allocation instructions you have on file with us at the time we receive your purchase payment. We will allocate each Credit Enhancement among the investment alternatives in the same proportions as the most recent purchase payment. We do not consider Credit Enhancements to be investments in the Contract for income tax purposes. We use a portion of the withdrawal charge and mortality and expense risk charge to help recover the cost of providing the Credit Enhancement under the Contract. See "Expenses." Under certain circumstances (such as a period of poor market performance) the cost associated with the Credit Enhancement may exceed the sum of the 18 PROSPECTUS Credit Enhancement and any related earnings. You should consider this possibility before purchasing the Contract. TRIAL EXAMINATION PERIOD You may cancel your Contract by providing us with written notice within the Trial Examination Period, which is the 20 day period after you receive the Contract, or such longer period that your state may require. If you exercise this "RIGHT TO CANCEL," the Contract terminates and we will pay you the full amount of your purchase payments allocated to the Fixed Account. We also will return your purchase payments allocated to the Variable Account adjusted, to the extent federal or state law permits, to reflect investment gain or loss, including the deduction of mortality and expense risk charges and administrative expense charges, that occurred from the date of allocation through the date of cancellation. If your Contract is qualified under Code Section 408(b), we will refund the greater of any purchase payments or the Contract Value. For CONSULTANT SOLUTIONS PLUS CONTRACTS, we have received regulatory relief to enable us to recover the amount of any Credit Enhancement applied to Contracts that are cancelled during the Trial Examination Period. The amount we return to you upon exercise of this Right to Cancel will not include any Credit Enhancement. In states where required, we will return the amount of your purchase payments. In other states, we will return the amount of your purchase payments, reduced by the amount of any mortality and expense risk charges and administrative expense charges deducted prior to cancellation, and adjusted by any investment gain or loss associated with: .. your Variable Account purchase payments; and .. any portion of the Credit Enhancement assigned to the Variable Sub-accounts. We reserve the right to allocate your purchase payments to the PIMCO VIT Money Market - Administrative Shares Sub-Account during the Trial Examination Period. For Contracts purchased in California by persons age 60 and older, you may elect to defer until the end of the Trial Examination Period allocation of your purchase payment to the Variable Sub-accounts. Unless you instruct otherwise, upon making this election, your purchase payment will be allocated to the PIMCO VIT Money Market - Administrative Shares Sub-Account. On the next Valuation Date 40 day after the issue date, your Contract Value will then be reallocated in accordance with your most recent investment allocation instructions. State laws vary and may require a different period, other variations or adjustments. Please refer to your Contract for any state specific information. CONTRACT LOANS FOR 403(B) CONTRACTS - -------------------------------------------------------------------------------- Subject to the restrictions described below, we will make loans to the Contract Owner of a Contract used in connection with a Tax Sheltered Annuity Plan ("TSA Plan") under Section 403(b) of the Internal Revenue Code. Such loans may not be available in all states. Loans are not available under non-qualified Contracts. We will only make loans after the right to cancel period and before the Payout Start Date. All loans are subject to the terms of the Contract, the relevant qualified plan, and the Internal Revenue Code, which impose restrictions on loans. Loans may not be available with all rider options. We will not make a loan to you if the total of the requested loan and your unpaid outstanding loans will be greater than the amount available for full withdrawal, including any applicable Market Value Adjustment, under your Contract on the date of the loan. In addition, you may not borrow a loan if the total of the requested loan and all of your loans under TSA Plans with the same employer is more than the lesser of (a) or (b) where: (a) equals $50,000 minus the excess of the highest outstanding loan balance during the prior 12 months over the current outstanding loan balance; and (b) equals the greater of $10,000 or half of the amount available for full withdrawal. The minimum loan amount is $1,000. To request a Contract loan, write to us at the address given on the first page of the prospectus. You alone are responsible for ensuring that your loan and repayments comply with tax requirements. Some of these requirements are stated in Section 72 of the Internal Revenue Code. Please seek advice from your plan administrator or tax advisor. When we make a loan, we will transfer an amount equal to the loan amount from the Variable Account and/or the Fixed Account Options to the Loan Account as collateral for the loan. The Loan Account is an account established for amounts transferred from the Variable Sub-accounts or Fixed Account Options as security for an outstanding Contract loan. We will transfer to the Loan Account amounts from each Variable Sub-account in proportion to the total assets in all Variable Sub-accounts. If your loan amount is greater than your Contract Value in the Variable Sub-accounts, we will transfer the remaining required collateral from the Market Value Adjusted or Standard Fixed Account Option. If your loan amount is greater than your contract value in the Variable Sub-accounts and the Market Value Adjusted or Standard Fixed Account 19 PROSPECTUS Option, we will transfer the remaining required collateral from the Dollar Cost Averaging Fixed Account Options. We will not charge a Withdrawal Charge on the loan or on the transfer from the Variable Sub-accounts or any of the Fixed Account Options. We may, however, apply a Market Value Adjustment to a transfer from the Market Value Adjusted Fixed Account to the Loan Account. If we do, we will increase or decrease the amount remaining in the Market Value Adjusted Fixed Account by the amount of the Market Value Adjustment, so that the net amount transferred to the Loan Account will equal the desired loan amount. We will charge a Withdrawal Charge and apply a Market Value Adjustment, if applicable, on a distribution to repay the loan in full, in the event of loan default. We will credit interest to the amounts in the Loan Account. The annual interest rate credited to the Loan Account will be the greater of: (a) an annual effective rate of 3%; or (b) the loan interest rate minus 2.25%. The value of the amounts in the Loan Account are not affected by the changes in the value of the Variable Sub-accounts. When you take out a loan, we will set the loan interest rate. That rate will apply to your loan until it is repaid. From time to time, we may change the loan interest rate applicable to new loans. We also reserve the right to change the terms of new loans. We will subtract the outstanding Contract loan balance, including accrued but unpaid interest, from: (1)the Death Proceeds; (2)full withdrawal proceeds; (3)the amount available for partial withdrawal; and (4)the amount applied on the Payout Start Date to provide income payments. If a New Owner elects to continue the Contract under Death of Owner Option D, the new Contract Value will be reduced by the amount of the loan outstanding plus accrued interest and the loan will be canceled. Usually you must repay a Contract loan within five years of the date the loan is made. Scheduled payments must be level, amortized over the repayment period, and made at least quarterly. We may permit a repayment period of 15 or 30 years if the loan proceeds are used to acquire your principal residence. We may also permit other repayment periods. You must mark your loan repayments as such. We will assume that any payment received from you is a Purchase Payment, unless you tell us otherwise. Generally, loan payments are allocated to the Variable Sub-account(s) in the proportion that you have selected for your most recent Purchase Payment. Allocations of loan payments are not permitted to the Fixed Accounts (Standard Fixed Account, Market Value Adjusted Account, and Dollar Cost Averaging Fixed Account Option). If your Purchase Payment allocation includes any of the Fixed Accounts, the percentages allocated to the Fixed Accounts will be allocated instead to the PIMCO Money Market Sub-account. If you do not make a loan payment when due, we will continue to charge interest on your loan. We also will declare the entire loan in default. We will subtract the defaulted loan balance plus accrued interest from any future distribution under the Contract and keep it in payment of your loan. Any defaulted amount plus interest will be treated as a distribution for tax purposes (as permitted by law). As a result, you may be required to pay taxes on the defaulted amount and incur the early withdrawal tax penalty. Until we are permitted by law to extinguish a defaulted loan, we will continue to charge interest and add unpaid interest to your outstanding loan balance. If the total loan balance exceeds the amount available for full withdrawal, we will mail written notice to your last known address. The notice will state the amount needed to maintain the Contract in force. If we do not receive payment of this amount within 31 days after we mail this notice, we will terminate your Contract. We may defer making any loan for 6 months after you ask us for a loan, unless the loan is to pay a premium to us. CONTRACT VALUE - -------------------------------------------------------------------------------- On the Issue Date, the CONTRACT VALUE is equal to your initial purchase payment (for CONSULTANT SOLUTIONS PLUS CONTRACTS, your initial purchase payment plus the Credit Enhancement). Thereafter, your Contract Value at any time during the Accumulation Phase is equal to the sum of the value of your Accumulation Units in the Variable Sub-accounts you have selected, plus your value in the Fixed Account Option(s) offered by your Contract. ACCUMULATION UNITS To determine the number of Accumulation Units of each Variable Sub-account to allocate to your Contract, we divide (i) the amount of the purchase payment or transfer you have allocated to a Variable Sub-account by (ii) the Accumulation Unit Value of that Variable Sub-account next computed after we receive your payment or transfer. For example, if we receive a $10,000 purchase payment allocated to a Variable Sub-account when the Accumulation Unit Value for the Sub-account is $10, we 20 PROSPECTUS would credit 1,000 Accumulation Units of that Variable Sub-account to your Contract. For CONSULTANT SOLUTIONS PLUS CONTRACTS, we would credit your Contract additional Accumulation Units of the Variable Sub-account to reflect the Credit Enhancement paid on your purchase payment. See "Credit Enhancement." Withdrawals and transfers from a Variable Sub-account would, of course, reduce the number of Accumulation Units of that Sub-account allocated to your Contract. ACCUMULATION UNIT VALUE As a general matter, the Accumulation Unit Value for each Variable Sub-Account for each Contract will rise or fall to reflect: .. changes in the share price of the Portfolio in which the Variable Sub-Account invests, and .. the deduction of amounts reflecting the mortality and expense risk charge, administrative expense charge, and any provision for taxes that have accrued since we last calculated the Accumulation Unit Value. We determine any applicable withdrawal charges, Rider Fees (if applicable), transfer fees, and contract maintenance charges separately for each Contract. They do not affect the Accumulation Unit Value. Instead, we obtain payment of those charges and fees by redeeming Accumulation Units. For details on how we compute Accumulation Unit Values, please refer to the Statement of Additional Information. We determine a separate Accumulation Unit Value for each Variable Sub-Account for each Contract on each Valuation Date. We also determine a separate set of Accumulation Unit Values that reflect the cost of each optional benefit, or available combination thereof, offered under the Contract. YOU SHOULD REFER TO THE PROSPECTUSES FOR THE FUNDS FOR A DESCRIPTION OF HOW THE ASSETS OF EACH PORTFOLIO ARE VALUED, SINCE THAT DETERMINATION DIRECTLY BEARS ON THE ACCUMULATION UNIT VALUE OF THE CORRESPONDING VARIABLE SUB-ACCOUNT AND, THEREFORE, YOUR CONTRACT VALUE. TRUERETURN ACCUMULATION BENEFIT OPTION We offer the TRUERETURN ACCUMULATION BENEFIT OPTION, which is available for an additional fee. The TrueReturn Accumulation Benefit Option guarantees a minimum Contract Value on the "RIDER MATURITY DATE." The Rider Maturity Date is determined by the length of the Rider Period which you select. The Option provides no minimum Contract Value if the Option terminates before the Rider Maturity Date. See "Termination of the TrueReturn Accumulation Benefit Option" below for details on termination. The TrueReturn Accumulation Benefit Option is available at time of application for the Contract, or the date we receive a written request to add the option, whichever is later, subject to availability and issue requirements. Currently, you may not add the TrueReturn Option to your Contract after Contract issue without prior approval if your Contract Value is greater than $1,000,000 at the time you try to add the TrueReturn Option. Currently, you may have only one TrueReturn Accumulation Benefit Option in effect on your Contract at one time. You may have only either the TrueReturn Accumulation Benefit Option or the SureIncome Option in effect on your Contract at one time. The TrueReturn Accumulation Benefit Option has no maximum issue age, however the Rider Maturity Date must occur before the latest Payout Start Date, which is the later of the youngest Annuitant's 99th birthday or the 10th Contract Anniversary. Once added to your Contract, the TrueReturn Accumulation Benefit Option may be cancelled at any time on or after the 5th Rider Anniversary by: .. notifying us in writing in a form satisfactory to us; or .. changing your investment allocations or making other changes so that that the allocation of investment alternatives no longer adheres to the investment requirements for the TrueReturn Accumulation Benefit Option. For more information regarding investment requirements for this Option, see the "Investment Requirements" section below. The "RIDER ANNIVERSARY" is the anniversary of the Rider Date. We reserve the right to extend the date on which the TrueReturn Accumulation Benefit Option may be cancelled to up to the 10th Rider Anniversary at any time in our sole discretion. Any change we make will not apply to a TrueReturn Accumulation Benefit Option that was added to your Contract prior to the implementation date of the change. When you add the TrueReturn Accumulation Benefit Option to your Contract, you must select a Rider Period and a Guarantee Option. The Rider Period and Guarantee Option you select determine the AB Factor, which is used to determine the Accumulation Benefit, described below. The "RIDER PERIOD" begins on the Rider Date and ends on the Rider Maturity Date. The "RIDER DATE" is the date the TrueReturn Accumulation Benefit Option was made a part of your Contract. We currently offer Rider Periods ranging from 8 to 20 years depending on the Guarantee Option you select. You may select any Rider Period from among those we currently offer, provided the Rider Maturity Date occurs prior to the latest Payout Start Date. We reserve the right to offer additional Rider Periods in the future, and to discontinue offering any of the Rider Periods at any time. We currently offer two "GUARANTEE OPTIONS," Guarantee Option 1 and Guarantee Option 2. The Guarantee Option you select has specific investment requirements, which are described in the "Investment Requirements" section below and may depend upon the Rider Date. We reserve the right to offer additional Guarantee Options in the future, and to discontinue offering any of the Guarantee Options at any time. After 21 PROSPECTUS the Rider Date, the Rider Period and Guarantee Option may not be changed. The TrueReturn Accumulation Benefit Option may not be available in all states. We may discontinue offering the TrueReturn Accumulation Benefit Option at any time. ACCUMULATION BENEFIT. On the Rider Maturity Date, if the Accumulation Benefit is greater than the Contract Value, the Contract Value will be increased to equal the Accumulation Benefit. The excess amount of any such increase will be allocated to the PIMCO Money Market Variable Sub-account. You may transfer the excess amount out of the PIMCO Money Market Variable Sub-account and into another investment alternative at any time thereafter. However, each transfer you make will count against the 12 transfers you can make each Contract Year without paying a transfer fee. Prior to the Rider Maturity Date, the Accumulation Benefit will not be available as a Contract Value, Settlement Value, or Death Proceeds. Additionally, we will not pay an Accumulation Benefit if the TrueReturn Accumulation Benefit Option is terminated for any reason prior to the Rider Maturity Date. After the Rider Maturity Date, the TrueReturn Accumulation Benefit Option provides no additional benefit. The "ACCUMULATION BENEFIT" is equal to the Benefit Base multiplied by the AB Factor. The "AB FACTOR" is determined by the Rider Period and Guarantee Option you selected as of the Rider Date. The following table shows the AB Factors available for the Rider Periods and Guarantee Options we currently offer.
AB FACTORS RIDER PERIOD GUARANTEE GUARANTEE (NUMBER OF YEARS) OPTION 1 OPTION 2 ------------------------------------- 8 100.0% NA ------------------------------------- 9 112.5% NA ------------------------------------- 10 125.0% 100.0% ------------------------------------- 11 137.5% 110.0% ------------------------------------- 12 150.0% 120.0% ------------------------------------- 13 162.5% 130.0% ------------------------------------- 14 175.0% 140.0% ------------------------------------- 15 187.5% 150.0% ------------------------------------- 16 200.0% 160.0% ------------------------------------- 17 212.5% 170.0% ------------------------------------- 18 225.0% 180.0% ------------------------------------- 19 237.5% 190.0% ------------------------------------- 20 250.0% 200.0% -------------------------------------
The following examples illustrate the Accumulation Benefit calculations under Guarantee Options 1 and 2 on the Rider Maturity Date. For the purpose of illustrating the Accumulation Benefit calculation, the examples assume the Benefit Base is the same on the Rider Date and the Rider Maturity Date. Example 1: Guarantee Option 1 Guarantee Option: 1 Rider Period: 15 AB Factor: 187.5% Rider Date: 1/2/04 Rider Maturity Date: 1/2/19 Benefit Base on Rider Date: $50,000 Benefit Base on rider Maturity Date: $50,000
On the Rider Maturity Date (1/2/19): Accumulation Benefit =Benefit Base on Rider Maturity Date X AB Factor =$50,000 X 187.5% =$93,750
Example 2: Guarantee Option 2 Guarantee Option: 2 Rider Period: 15 AB Factor: 150.0% Rider Date: 1/2/04 Rider Maturity Date: 1/2/19 Benefit Base on Rider Date: $50,000 Benefit Base on rider Maturity Date: $50,000
On the Rider Maturity Date (1/2/19): Accumulation Benefit =Benefit Base on Rider Maturity Date X AB Factor =$50,000 X 150.0% =$75,000
Guarantee Option 1 offers a higher AB Factor and more rider periods than Guarantee Option 2. Guarantee Option 1 and Guarantee Option 2 have different investment restrictions. See "Investment Requirements" below for more information. BENEFIT BASE. The Benefit Base is used solely for purposes of determining the Rider Fee and the Accumulation Benefit. The Benefit Base is not available as a Contract Value, Settlement Value, or Death Proceeds. On the Rider Date, the "Benefit Base" is equal to the Contract Value. After the Rider Date, the Benefit Base will be recalculated for purchase payments and withdrawals as follows: .. The Benefit Base will be increased by purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made prior to or on the first Contract Anniversary following the Rider Date. Subject to the terms and conditions of your Contract, you may add purchase payments after this date, but they will not be included in the calculation of the Benefit Base. THEREFORE, IF YOU PLAN TO MAKE PURCHASE PAYMENTS AFTER THE FIRST CONTRACT ANNIVERSARY FOLLOWING THE RIDER DATE, YOU SHOULD CONSIDER CAREFULLY WHETHER THIS OPTION IS APPROPRIATE FOR YOUR NEEDS. .. The Benefit Base will be decreased by a Withdrawal Adjustment for each withdrawal you make. The Withdrawal Adjustment is equal to (a) divided by (b), with the result multiplied by (c), where: (a) = the withdrawal amount; 22 PROSPECTUS (b) = the Contract Value immediately prior to the withdrawal; and (c) = the Benefit Base immediately prior to the withdrawal. Withdrawals taken prior to annuitization (referred to in this prospectus as the Payout Phase) are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. A withdrawal charge also may apply. See Appendix G for numerical examples that illustrate how the Withdrawal Adjustment is applied. The Benefit Base will never be less than zero. INVESTMENT REQUIREMENTS. If you add the TrueReturn Option to your Contract, you must adhere to certain requirements related to the investment alternatives in which you may invest during the Rider Period. The specific requirements will depend on the model portfolio option ("Model Portfolio Option") you have selected and the effective date of your TrueReturn Option. These requirements are described below in more detail. These requirements may include, but are not limited to, maximum investment limits on certain Variable Sub-accounts or on certain Fixed Account Options, exclusion of certain Variable Sub-accounts or of certain Fixed Account Options, required minimum allocations to certain Variable Sub-accounts, and restrictions on transfers to or from certain investment alternatives. We may also require that you use the Automatic Portfolio Rebalancing Program. We may change the specific requirements that are applicable to a Guarantee Option or a Model Portfolio Option available under a Guarantee Option at any time in our sole discretion. Any changes we make will not apply to a TrueReturn Option that was made part of your Contract prior to the implementation date of the change, except for changes made due to a change in investment alternatives available under the Contract. Any changes we make will not apply to a new TrueReturn Option elected subsequent to the change pursuant to the Rider Trade-In Option. If you have an outstanding loan balance, you may not elect the TrueReturn Option until the outstanding balance has been repaid. If you elect the TrueReturn Option, we will not make a policy loan to you until the TrueReturn Option matures or is cancelled. When you add the TrueReturn Option to your Contract, you must allocate your entire Contract Value as follows: 1) to a model portfolio option ("Model Portfolio Option") available with the Guarantee Option you selected, as defined below; or 2) to the DCA Fixed Account Option and then transfer all purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS Contracts) and interest according to a Model Portfolio Option available for use with the Guarantee Option you selected; or 3) to a combination of (1) and (2) above. For (2) and (3) above, the requirements for the DCA Fixed Account Option must be met. See the "Dollar Cost Averaging Fixed Account Option" section of this prospectus for more information. On the Rider Date, you must select only one of the Model Portfolio Options in which to allocate your Contract Value. After the Rider Date, you may transfer your entire Contract Value to any of the other Model Portfolio Options available with your Guarantee Option. We currently offer several Model Portfolio Options with each of the available Guarantee Options. The Model Portfolio Options that are available under Guarantee Options may differ depending upon the effective date of your TrueReturn Option. Please refer to the Model Portfolio Option 1, Model Portfolio Option 2 and TrueBalance/SM/ Model Portfolio Options sections below for more details. We may add other Model Portfolio Options in the future. We also may remove Model Portfolio Options in the future anytime prior to the date you select such Model Portfolio Option. In addition, if the investment alternatives available under the Contract change, we may revise the Model Portfolio Options. The following table summarizes the Model Portfolio Options currently available for use with each Guarantee Option under the TrueReturn Option: GUARANTEE OPTION 1 GUARANTEE OPTION 2 --------------------------------------------------- *Model Portfolio Option 1 *Model Portfolio Option 2 *TrueBalance *TrueBalance Conservative Model Conservative Model Portfolio Option Portfolio Option *TrueBalance Moderately *TrueBalance Moderately Conservative Model Conservative Model Portfolio Option Portfolio Option *TrueBalance Moderate Model Portfolio Option *TrueBalance Moderately Aggressive Model Portfolio Option *TrueBalance Aggressive Model Portfolio Option --------------------------------------------------- You may not allocate any of your Contract Value to the Standard Fixed Account Option or to the MVA Fixed Account Option. You must transfer any portion of your Contract Value that is allocated to the Standard Fixed Account Option or to the MVA Fixed Account Option to the Variable Sub-accounts prior to adding the TrueReturn Option to your Contract. Transfers from the MVA Fixed Account Option may be subject to a Market Value Adjustment. You may allocate any portion of your purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) to the DCA 23 PROSPECTUS Fixed Account Option on the Rider Date, provided the DCA Fixed Account Option is available with your Contract and in your state. See the "Dollar Cost Averaging Fixed Account Option" section of this prospectus for more information. We use the term "Transfer Period Account" to refer to each purchase payment allocation made to the DCA Fixed Account Option for a specified term length. At the expiration of a Transfer Period Account any remaining amounts in the Transfer Period Account will be transferred to the Variable Sub-Accounts according to the percentage allocations for the Model Portfolio Option you selected. Any subsequent purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made to your Contract will be allocated to the Variable Sub-Accounts according to your most recent instructions on file with us. You must comply with any required percentage allocations for the Model Portfolio Option you have selected. You may also request that purchase payments (and Credit Enhancement for CONSULTANT SOLUTIONS PLUS CONTRACTS) be allocated to the DCA Fixed Account Option. MODEL PORTFOLIO OPTION 1. If you choose Model Portfolio Option 1 or transfer your entire Contract Value into Model Portfolio Option 1, you must allocate a certain percentage of your Contract Value into each of three asset categories. Please note that certain investment alternatives are not available under Model Portfolio Option 1. You may choose the Variable Sub-Accounts in which you want to invest, provided you maintain the percentage allocation requirements for each category. You may also make transfers among the Variable Sub-Accounts within each category at any time, provided you maintain the percentage allocation requirements for each category. However, each transfer you make will count against the 12 transfers you can make each Contract Year without paying a transfer fee. Effective May 1, 2005, certain Variable Sub-Accounts under Model Portfolio 1 have been reclassified into different asset categories. These changes apply to TrueReturn Accumulation Benefit Options effective both prior to and on or after May 1, 2005. The following table describes the percentage allocation requirements for Model Portfolio Option 1 and Variable Sub-Accounts available under each category: MODEL PORTFOLIO OPTION 1 - -------------------------------------------------------------------------------- 20% Category A 50% Category B 30% Category C 0% Category D - -------------------------------------------------------------------------------- CATEGORY A Fidelity VIP Money Market - Service Class 2 Sub-Account PIMCO VIT Money Market - Administrative Shares Sub-Account - -------------------------------------------------------------------------------- CATEGORY B Fidelity VIP Investment Grade Bond - Service Class 2 Sub-Account Legg Mason Western Asset Variable Global High Yield Bond - Class II Sub-Account/(7)/ MFS High Income - Service Class Sub-Account PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative Shares Sub-Account PIMCO VIT Real Return - Administrative Shares Sub-Account PIMCO VIT Total Return - Administrative Shares Sub-Account UIF U.S. Real Estate, Class II Sub-Account Van Kampen LIT Government, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- CATEGORY C Invesco V.I. Basic Value - Series II Sub-Account/(1)/ Invesco V.I. Core Equity - Series II Sub-Account/(1)/ Invesco V.I. Mid Cap Core Equity - Series II Sub-Account/(1)/ Fidelity VIP Contrafund(R) - Service Class 2 Sub-Account Fidelity VIP Equity-Income - Service Class 2 Sub-Account Fidelity VIP Index 500 - Service Class 2 Sub-Account Fidelity VIP Overseas - Service Class 2 Sub-Account Fidelity VIP Asset Manager/(SM)/ - Service Class 2 Sub-Account Janus Aspen Series Overseas - Service Shares Sub-Account Janus Aspen Series Forty - Service Shares Sub-Account Janus Aspen Series Perkins Mid Cap Value - Service Shares Sub-Account Janus Aspen Series Balanced - Service Shares Sub-Account Legg Mason ClearBridge Variable Fundamental All Cap Value Portfolio - Class I Sub-Account/(3)/ Legg Mason ClearBridge Variable Large Cap Value - Class I Sub-Account/(3)/ MFS Investors Trust - Service Class Sub-Account MFS Total Return - Service Class Sub-Account MFS Investors Growth Stock - Service Class Sub-Account MFS Value - Service Class Sub-Account Oppenheimer Small- & Mid-Cap Growth/VA - Service Shares Sub-Account/(4)/ Oppenheimer Main Street Small Cap(R)/VA - Service Shares Sub-Account Rydex SGI VT All-Cap Opportunity Sub-Account/(5)/ T. Rowe Price Equity Income - II Sub-Account T. Rowe Price Blue Chip Growth - II Sub-Account Van Eck VIP Multi-Manager Alternatives Sub-Account Van Kampen LIT Growth and Income, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- CATEGORY D (VARIABLE SUB-ACCOUNTS NOT AVAILABLE UNDER MODEL PORTFOLIO OPTION 1) Invesco V.I. Capital Appreciation - Series II Sub-Account/(1)/ Alger LargeCap Growth - Class S Sub-Account/(2)/ Alger Capital Appreciation - Class S Sub-Account/(2)/ Alger MidCap Growth - Class S Sub-Account/(2)/ Fidelity VIP Growth - Service Class 2 Sub-Account MFS New Discovery - Service Class Sub-Account Oppenheimer Global Securities/VA - Service Shares Sub-Account UIF Capital Growth, Class II Sub-Account/(3)/ Van Eck VIP Emerging Markets Sub-Account/(6)/ Van Eck VIP Global Hard Assets Sub-Account/(6)/ Van Kampen LIT Mid Cap Growth, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- (1)Effective April 30, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- AIM V.I. Basic Value Fund Invesco V.I. Basic Value Fund ----------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund Invesco V.I. Capital Appreciation Fund ----------------------------------------------------------------------------- AIM V.I. Core Equity Fund Invesco V.I. Core Equity Fund ----------------------------------------------------------------------------- AIM V.I. Mid Cap Core Equity Fund Invesco V.I. Mid Cap Core Equity Fund ----------------------------------------------------------------------------- 24 PROSPECTUS (2)Effective November 20, 2009, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Alger American LargeCap Growth Alger LargeCap Growth Portfolio Portfolio ----------------------------------------------------------------------------- Alger American Capital Appreciation Alger Capital Appreciation Portfolio Portfolio ----------------------------------------------------------------------------- Alger American MidCap Growth Portfolio Alger MidCap Growth Portfolio ----------------------------------------------------------------------------- (3)Effective March 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Fundamental Value Portfolio Fundamental All Cap Value Portfolio ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Large Investors Portfolio Cap Value Portfolio ----------------------------------------------------------------------------- (4)Effective May 1, 2010, Oppenheimer MidCap Fund/VA changed its name to Oppenheimer Small- & Mid-Cap Growth Fund/VA. (5)Effective May 1, 2010, Rydex VT All-Cap Opportunity Fund changed its name to Rydex SGI VT All-Cap Opportunity Fund. (6)Effective May 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Van Eck Worldwide Multi- Manager Van Eck VIP Multi-Manager Alternatives Fund Alternatives Fund ----------------------------------------------------------------------------- Van Eck Worldwide Emerging Markets Van Eck VIP Emerging Markets Fund Fund ----------------------------------------------------------------------------- Van Eck Worldwide Hard Assets Fund Van Eck VIP Global Hard Assets Fund ----------------------------------------------------------------------------- (7)Effective November 2, 2009, the following Portfolio changed its name: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason Partners Variable Global Legg Mason Western Asset Variable High Yield Bond Portfolio - Class II Global High Yield Bond Portfolio - Class II ----------------------------------------------------------------------------- (8)Subject to shareholder approval, certain portfolios of the Van Kampen Life Investment Trust will be reorganized into corresponding funds of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds) . It is anticipated that the reorganization will occur in the second quarter of 2010. Each such portfolio and its corresponding acquiring fund is shown below: REORGANIZING PORTFOLIOS ACQUIRING FUNDS ----------------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST: AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS): ----------------------------------------------------------------------------- Van Kampen LIT Mid Cap Growth Invesco Van Kampen V.I. Mid Cap Portfolio - Class II Growth Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Government Portfolio - Invesco Van Kampen V.I. Government Class II Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Growth and Income Invesco Van Kampen V.I. Growth and Portfolio - Class II Income Fund - Series II ----------------------------------------------------------------------------- EACH CALENDAR QUARTER, WE WILL USE THE AUTOMATIC PORTFOLIO REBALANCING PROGRAM TO AUTOMATICALLY REBALANCE YOUR CONTRACT VALUE IN EACH VARIABLE SUB-ACCOUNT AND RETURN IT TO THE PERCENTAGE ALLOCATION REQUIREMENTS FOR MODEL PORTFOLIO OPTION 1. WE WILL USE THE PERCENTAGE ALLOCATIONS AS OF YOUR MOST RECENT INSTRUCTIONS. MODEL PORTFOLIO OPTION 2. The investment requirements under Model Portfolio Option 2 depend on the effective date of your TrueReturn Accumulation Benefit Option. Rider Date prior to May 1, 2005 If your TrueReturn Accumulation Benefit Option Rider Date is prior to May 1, 2005, and you choose Model Portfolio Option 2 or transfer your entire Contract Value into Model Portfolio Option 2 under Guarantee Option 2, you must allocate your Contract Value among four asset categories in accordance with the percentage allocation requirements set out in the table below. You may choose the Variable Sub-Accounts in which you want to invest, provided you maintain the percentage allocation requirements for each category. You may also make transfers among the Variable Sub-Accounts within each category at any time, provided you maintain the percentage allocation requirements for each category. However, each transfer you make will count against the 12 transfers you can make each Contract Year without paying a transfer fee. The following table describes the percentage allocation requirements for Model Portfolio Option 2 (Rider Date prior to May 1, 2005) and the Variable Sub-Accounts available under each category: MODEL PORTFOLIO OPTION 2 (RIDER DATE PRIOR TO MAY 1, 2005) - -------------------------------------------------------------------------------- 10% Category A 20% Category B 50% Category C 20% Category D - -------------------------------------------------------------------------------- CATEGORY A Fidelity VIP Money Market - Service Class 2 Sub-Account PIMCO VIT Money Market - Administrative Shares Sub-Account - -------------------------------------------------------------------------------- CATEGORY B Fidelity VIP Investment Grade Bond - Service Class 2 Sub-Account Legg Mason Western Asset Variable Global High Yield Bond - Class II Sub-Account/(7)/ MFS High Income - Service Class Sub-Account PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative Shares Sub-Account PIMCO VIT Real Return - Administrative Shares Sub-Account PIMCO VIT Total Return - Administrative Shares Sub-Account UIF U.S. Real Estate, Class II Sub-Account Van Kampen LIT Government, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- CATEGORY C Invesco V.I. Basic Value - Series II Sub-Account/(1)/ Invesco V.I. Mid Cap Core Equity - Series II Sub-Account/(1)/ Fidelity VIP Equity-Income - Service Class 2 Sub-Account Fidelity VIP Index 500 - Service Class 2 Sub-Account Fidelity VIP Asset Manager/(SM)/ - Service Class 2 Sub-Account Janus Aspen Series Perkins Mid Cap Value - Service Shares Sub-Account Janus Aspen Series Balanced - Service Shares Sub-Account Legg Mason ClearBridge Variable Large Cap Value - Class I Sub-Account/(3)/ 25 PROSPECTUS MFS Investors Trust - Service Class Sub-Account MFS Total Return - Service Class Sub-Account MFS Value - Service Class Sub-Account Oppenheimer Small- & Mid-Cap Growth/VA - Service Shares Sub-Account/(4)/ Premier VIT OpCap Balanced Sub-Account T. Rowe Price Equity Income - II Sub-Account Van Eck VIP Multi-Manager Alternatives Sub-Account/(6)/ Van Kampen LIT Growth and Income, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- CATEGORY D Invesco V.I. Capital Appreciation - Series II Sub-Account/(1)/ Invesco V.I. Core Equity - Series II Sub-Account/(1)/ Alger LargeCap Growth - Class S Sub-Account/(2)/ Alger Capital Appreciation - Class S Sub-Account/(2)/ Alger MidCap Growth - Class S Sub-Account/(2)/ Fidelity VIP Contrafund(R) - Service Class 2 Sub-Account Fidelity VIP Growth - Service Class 2 Sub-Account Fidelity VIP Overseas - Service Class 2 Sub-Account Janus Aspen Series Overseas - Service Shares Sub-Account Janus Aspen Series Forty - Service Shares Sub-Account Legg Mason ClearBridge Variable Fundamental All Cap Value Portfolio - Class I Sub-Account/(3)/ MFS New Discovery - Service Class Sub-Account MFS Investors Growth Stock - Service Class Sub-Account Oppenheimer Global Securities/VA - Service Shares Sub-Account Oppenheimer Main Street Small Cap(R)/VA - Service Shares Sub-Account Rydex SGI VT All-Cap Opportunity Sub-Account/(5)/ T. Rowe Price Blue Chip Growth - II Sub-Account UIF Capital Growth, Class II Sub-Account Van Eck VIP Emerging Markets Sub-Account/(6)/ Van Eck VIP Global Hard Assets Sub-Account/(6)/ Van Kampen LIT Mid Cap Growth, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- (1)Effective April 30, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- AIM V.I. Basic Value Fund Invesco V.I. Basic Value Fund ----------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund Invesco V.I. Capital Appreciation Fund ----------------------------------------------------------------------------- AIM V.I. Core Equity Fund Invesco V.I. Core Equity Fund ----------------------------------------------------------------------------- AIM V.I. Mid Cap Core Equity Fund Invesco V.I. Mid Cap Core Equity Fund ----------------------------------------------------------------------------- (2)Effective November 20, 2009, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Alger American LargeCap Growth Alger LargeCap Growth Portfolio Portfolio ----------------------------------------------------------------------------- Alger American Capital Appreciation Alger Capital Appreciation Portfolio Portfolio ----------------------------------------------------------------------------- Alger American MidCap Growth Portfolio Alger MidCap Growth Portfolio ----------------------------------------------------------------------------- (3)Effective March 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Fundamental Value Portfolio Fundamental All Cap Value Portfolio ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Large Investors Portfolio Cap Value Portfolio ----------------------------------------------------------------------------- (4)Effective May 1, 2010, Oppenheimer MidCap Fund/VA changed its name to Oppenheimer Small- & Mid-Cap Growth Fund/VA. (5)Effective May 1, 2010, Rydex VT All-Cap Opportunity Fund changed its name to Rydex SGI VT All-Cap Opportunity Fund. (6)Effective May 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Van Eck Worldwide Multi- Manager Van Eck VIP Multi-Manager Alternatives Fund Alternatives Fund ----------------------------------------------------------------------------- Van Eck Worldwide Emerging Markets Van Eck VIP Emerging Markets Fund Fund ----------------------------------------------------------------------------- Van Eck Worldwide Hard Assets Fund Van Eck VIP Global Hard Assets Fund ----------------------------------------------------------------------------- (7)Effective November 2, 2009, the following Portfolio changed its name: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason Partners Variable Global Legg Mason Western Asset Variable High Yield Bond Portfolio - Class II Global High Yield Bond Portfolio - Class II ----------------------------------------------------------------------------- (8)Subject to shareholder approval, certain portfolios of the Van Kampen Life Investment Trust will be reorganized into corresponding funds of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds) . It is anticipated that the reorganization will occur in the second quarter of 2010. Each such portfolio and its corresponding acquiring fund is shown below: REORGANIZING PORTFOLIOS ACQUIRING FUNDS ----------------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST: AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS): ----------------------------------------------------------------------------- Van Kampen LIT Mid Cap Growth Invesco Van Kampen V.I. Mid Cap Portfolio - Class II Growth Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Government Portfolio - Invesco Van Kampen V.I. Government Class II Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Growth and Income Invesco Van Kampen V.I. Growth and Portfolio - Class II Income Fund - Series II ----------------------------------------------------------------------------- EACH CALENDAR QUARTER, WE WILL USE THE AUTOMATIC PORTFOLIO REBALANCING PROGRAM TO AUTOMATICALLY REBALANCE YOUR CONTRACT VALUE IN EACH VARIABLE SUB-ACCOUNT AND RETURN IT TO THE PERCENTAGE ALLOCATION REQUIREMENTS FOR MODEL PORTFOLIO OPTION 2 (RIDER DATE PRIOR TO MAY 1, 2005). WE WILL USE THE PERCENTAGE ALLOCATIONS AS OF YOUR MOST RECENT INSTRUCTIONS. Rider Date on or after May 1, 2005 If your TrueReturn Accumulation Benefit Option Rider Date is on or after May 1, 2005, and you choose Model Portfolio Option 2 or transfer your entire Contract Value into Model Portfolio Option 2 under Guarantee Option 2, you may allocate your Contract Value among any of a selected group of available Variable Sub-Accounts listed below. However, you may not allocate your Contract Value among any of the excluded Variable Sub-Accounts listed below. You may choose to invest in or transfer among any of the available Variable Sub-Accounts, however, each transfer you make will count against the 12 transfers you can make each Contract Year without paying a transfer fee. 26 PROSPECTUS The following table lists the available and excluded Variable Sub-Accounts under Model Portfolio Option 2 (Rider Date on or after May 1, 2005): MODEL PORTFOLIO OPTION 2 (RIDER DATE ON OR AFTER MAY 1, 2005) - -------------------------------------------------------------------------------- Available - -------------------------------------------------------------------------------- Invesco V.I. Basic Value - Series II Sub-Account/(1)/ Invesco V.I. Core Equity - Series II Sub-Account/(1)/ Invesco V.I. Mid Cap Core Equity - Series II Sub-Account/(1)/ Fidelity VIP Contrafund(R) - Service Class 2 Sub-Account Fidelity VIP Equity-Income - Service Class 2 Sub-Account Fidelity VIP Index 500 - Service Class 2 Sub-Account Fidelity VIP Investment Grade Bond - Service Class 2 Sub-Account Fidelity VIP Overseas - Service Class 2 Sub-Account Fidelity VIP Asset Manager/(SM)/ - Service Class 2 Sub-Account Fidelity VIP Money Market - Service Class 2 Sub-Account Janus Aspen Series Overseas - Service Shares Sub-Account Janus Aspen Series Forty - Service Shares Sub-Account Janus Aspen Series Perkins Mid Cap Value - Service Shares Sub-Account Janus Aspen Series Balanced - Service Shares Sub-Account Legg Mason ClearBridge Variable Fundamental All Cap Value Portfolio - Class I Sub-Account/(3)/ Legg Mason Western Asset Variable Global High Yield Bond - Class II Sub-Account/(7)/ Legg Mason ClearBridge Variable Large Cap Value - Class I Sub-Account/(3)/ MFS Investors Trust - Service Class Sub-Account MFS High Income - Service Class Sub-Account MFS Investors Growth Stock - Service Class Sub-Account MFS Total Return - Service Class Sub-Account MFS Value - Service Class Sub-Account PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative Shares Sub-Account PIMCO VIT Money Market - Administrative Shares Sub-Account PIMCO VIT Real Return - Administrative Shares Sub-Account PIMCO VIT Total Return - Administrative Shares Sub-Account Oppenheimer Small- & Mid-Cap Growth/VA - Service Shares Sub-Account/(4)/ Oppenheimer Main Street Small Cap(R)/VA - Service Shares Sub-Account Rydex SGI VT All-Cap Opportunity Sub-Account/(5)/ T. Rowe Price Equity Income - II Sub-Account T. Rowe Price Blue Chip Growth - II Sub-Account UIF U.S. Real Estate, Class II Sub-Account Van Eck VIP Multi-Manager Alternatives Sub-Account/(6)/ Van Kampen LIT Growth and Income, Class II Sub-Account/(8)/ Van Kampen LIT Government, Class II Sub-Account/(8)/ MODEL PORTFOLIO OPTION 2 (RIDER DATE ON OR AFTER MAY 1, 2005) - -------------------------------------------------------------------------------- Excluded - -------------------------------------------------------------------------------- Invesco V.I. Capital Appreciation - Series II Sub-Account/(1)/ Alger LargeCap Growth - Class S Sub-Account/(2)/ Alger Capital Appreciation - Class S Sub-Account/(2)/ Alger MidCap Growth - Class S Sub-Account/(2)/ Fidelity VIP Growth - Service Class 2 Sub-Account MFS New Discovery - Service Class Sub-Account Oppenheimer Global Securities/VA - Service Shares Sub-Account UIF Capital Growth, Class II Sub-Account Van Eck VIP Emerging Markets Sub-Account/(6)/ Van Eck VIP Global Hard Assets Sub-Account/(6)/ Van Kampen LIT Mid Cap Growth, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- (1)Effective April 30, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- AIM V.I. Basic Value Fund Invesco V.I. Basic Value Fund ----------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund Invesco V.I. Capital Appreciation Fund ----------------------------------------------------------------------------- AIM V.I. Core Equity Fund Invesco V.I. Core Equity Fund ----------------------------------------------------------------------------- AIM V.I. Mid Cap Core Equity Fund Invesco V.I. Mid Cap Core Equity Fund ----------------------------------------------------------------------------- (2)Effective November 20, 2009, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Alger American LargeCap Growth Alger LargeCap Growth Portfolio Portfolio ----------------------------------------------------------------------------- Alger American Capital Appreciation Alger Capital Appreciation Portfolio Portfolio ----------------------------------------------------------------------------- Alger American MidCap Growth Portfolio Alger MidCap Growth Portfolio ----------------------------------------------------------------------------- (3)Effective March 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Fundamental Value Portfolio Fundamental All Cap Value Portfolio ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Large Investors Portfolio Cap Value Portfolio ----------------------------------------------------------------------------- (4)Effective May 1, 2010, Oppenheimer MidCap Fund/VA changed its name to Oppenheimer Small- & Mid-Cap Growth Fund/VA. (5)Effective May 1, 2010, Rydex VT All-Cap Opportunity Fund changed its name to Rydex SGI VT All-Cap Opportunity Fund. (6)Effective May 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Van Eck Worldwide Multi- Manager Van Eck VIP Multi-Manager Alternatives Fund Alternatives Fund ----------------------------------------------------------------------------- Van Eck Worldwide Emerging Markets Van Eck VIP Emerging Markets Fund Fund ----------------------------------------------------------------------------- Van Eck Worldwide Hard Assets Fund Van Eck VIP Global Hard Assets Fund ----------------------------------------------------------------------------- (7)Effective November 2, 2009, the following Portfolio changed its name: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason Partners Variable Global Legg Mason Western Asset Variable High Yield Bond Portfolio - Class II Global High Yield Bond Portfolio - Class II ----------------------------------------------------------------------------- (8)Subject to shareholder approval, certain portfolios of the Van Kampen Life Investment Trust will be reorganized into corresponding funds of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds) . It is anticipated that the reorganization will occur in the second quarter of 2010. Each such portfolio and its corresponding acquiring fund is shown below: REORGANIZING PORTFOLIOS ACQUIRING FUNDS ----------------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST: AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS): ----------------------------------------------------------------------------- Van Kampen LIT Mid Cap Growth Invesco Van Kampen V.I. Mid Cap Portfolio - Class II Growth Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Government Portfolio - Invesco Van Kampen V.I. Government Class II Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Growth and Income Invesco Van Kampen V.I. Growth and Portfolio - Class II Income Fund - Series II ----------------------------------------------------------------------------- 27 PROSPECTUS TRUEBALANCE/SM/ MODEL PORTFOLIO OPTIONS. If you choose one of the TrueBalance/SM/ Model Portfolio Options or transfer your entire Contract Value into one of the TrueBalance/SM/ Model Portfolio Options, you may not choose the Variable Sub-Accounts or make transfers among the Variable Sub-Accounts in the TrueBalance Model Portfolio Option. Each TrueBalance Model Portfolio involves an allocation of assets among a group of pre-selected Variable Sub-Accounts. You cannot make transfers among the Variable Sub-Accounts nor vary the Variable Sub-Accounts that comprise a TrueBalance Model Portfolio Option. If you choose a TrueBalance Model Portfolio Option, we will invest and periodically reallocate your Contract Value according to the allocation percentages and requirements for the TrueBalance Model Portfolio Option you have selected currently. For more information regarding the TrueBalance program, see the "TrueBalance/SM/ Asset Allocation Program" section of this prospectus. However, note that the restrictions described in this section, specifically the restrictions on transfers and the requirement that all of your Contract Value be allocated to a TrueBalance Model Portfolio Option, apply to the TrueBalance program only if you have added the TrueReturn Option to your Contract. PLEASE NOTE ONLY CERTAIN TRUEBALANCE MODEL PORTFOLIO OPTIONS ARE AVAILABLE WITH YOUR TRUERETURN OPTION AS SUMMARIZED IN THE TABLE UNDER INVESTMENT REQUIREMENTS ABOVE. CANCELLATION OF THE TRUERETURN OPTION. You may not cancel the TrueReturn Option or make transfers, changes to your investment allocations, or changes to the Automatic Portfolio Rebalancing Program that are inconsistent with the investment restrictions applicable to your Guarantee Option and/or Model Portfolio Option prior to the 5th Rider Anniversary. Failure to comply with the investment requirements for any reason may result in the cancellation of the TrueReturn Option. On or after the 5th Rider Anniversary, we will cancel the TrueReturn Option if you make transfers, changes to your investment allocations, or changes to the Automatic Portfolio Rebalancing Program that are inconsistent with the investment requirements applicable to your Guarantee Option and/or Model Portfolio Option. We will not cancel the TrueReturn Option or make any changes to your investment allocations or to the Automatic Portfolio Rebalancing Program that are inconsistent with the investment restrictions applicable to your Guarantee Option until we receive notice from you that you wish to cancel the TrueReturn Option. No Accumulation Benefit will be paid if you cancel the Option prior to the Rider Maturity Date. DEATH OF OWNER OR ANNUITANT. If the Contract Owner or Annuitant dies before the Rider Maturity Date and the Contract is continued under Option D of the Death of Owner or Death of Annuitant provision as described on page 64 of your Contract, then the TrueReturn Option will continue, unless the new Contract Owner elects to cancel this Option. If the TrueReturn Option is continued, it will remain in effect until terminated. If the Contract is not continued under Option D, then the TrueReturn Option will terminate on the date we receive a Complete Request for Settlement of the Death Proceeds. If an Annuitant dies before the Payout Start Date, and the Contract is continued under Category 1 of the Death of Annuitant provision of the Contract, the TrueReturn Accumulation Benefit Option will remain in effect until terminated. If the Contract is not continued under Category 1, then the TrueReturn Accumulation Benefit Option will terminate on the date we receive a complete request for settlement of the Death Proceeds. RIDER TRADE-IN OPTION. We offer a "Rider Trade-In Option" that allows you to cancel your TrueReturn Accumulation Benefit Option and immediately add a new TrueReturn Accumulation Benefit Option ("NEW OPTION"), provided all of the following conditions are met: .. The trade-in must occur on or after the 5th Rider Anniversary and prior to the Rider Maturity Date. .. The New Option will be made a part of your Contract on the date the existing TrueReturn Accumulation Benefit Option is cancelled, provided it is cancelled for reasons other than the termination of your Contract. .. The New Option must be a TrueReturn Accumulation Benefit Option that we make available for use with the Rider Trade-In Option. .. The issue requirements and terms and conditions of the New Option must be met as of the date the New Option is made a part of your Contract. For example, if you trade-in your TrueReturn Accumulation Benefit Option: .. the new Rider Fee will be based on the Rider Fee percentage applicable to a new TrueReturn Accumulation Benefit Option at the time of trade-in; .. the Benefit Base for the New Option will be based on the Contract Value as of the new Rider Date; .. the AB Factor will be determined by the Rider Periods and Guarantee Options available with the New Option; .. the Model Portfolio Options will be determined by the Model Portfolio Options offered with the Guarantee Options available with the New Option; .. any waiting period for canceling the New Option will start again on the new Rider Date; .. any waiting period for exercising the Rider Trade-In Option will start again on the new Rider Date; and 28 PROSPECTUS .. the terms and conditions of the Rider Trade-In Option will be according to the requirements of the New Option. Currently, we are also making the SureIncome Option available at the time of your first utilization of this TrueReturn Accumulation Benefit Option Rider Trade-In Option. We may discontinue offering the SureIncome Option under the Rider Trade-In Option for new TrueReturn Accumulation Benefit Options added in the future at anytime at our discretion. If we do so, TrueReturn Options issued prior to this time will continue to have the SureIncome Option available at the time of the first utilization of this TrueReturn Rider Trade-In Option. You may cancel your TrueReturn Accumulation Benefit Option and immediately add a new SureIncome Option, provided all of the following conditions are met: .. The trade-in must occur on or after the 5th Rider Anniversary and prior to the Rider Maturity Date. We reserve the right to extend the date at which time the trade-in may occur to up to the 10th anniversary of the Rider Date at any time in our sole discretion. Any change we make will not apply to a TrueReturn Accumulation Benefit Option that was added to your Contract prior to the implementation date of the change. .. The new SureIncome Option will be made a part of your Contract on the date the existing TrueReturn Accumulation Benefit Option is cancelled, provided it is cancelled for reasons other than the termination of your Contract. .. The new SureIncome Option must be a SureIncome Option that we make available for use with this Rider Trade-In Option. .. The issue requirements and terms and conditions of the new SureIncome Option must be met as of the date the new SureIncome Option is made a part of your Contract. You should consult with your sales representative before trading in your TrueReturn Accumulation Benefit Option. TERMINATION OF THE TRUERETURN OPTION. The TrueReturn Option will terminate on the earliest of the following to occur: .. on the Rider Maturity Date; .. on the Payout Start Date; .. on the date your Contract is terminated; .. on the date the Option is cancelled; .. on the date we receive a Complete Request for Settlement of the Death Proceeds; or .. on the date the Option is replaced with a New Option under the Rider Trade-In Option. We will not pay an Accumulation Benefit if the TrueReturn Option is terminated for any reason prior to the Rider Maturity Date. SUREINCOME WITHDRAWAL BENEFIT OPTION We offer the SureIncome Withdrawal Benefit Option, which is available for an additional fee. The SureIncome Option provides a guaranteed withdrawal benefit that gives you the right to take limited partial withdrawals that total an amount equal to your purchase payments plus any applicable credit enhancements (subject to certain restrictions). Therefore, regardless of the subsequent fluctuations in the value of your Contract Value, you are entitled to a Benefit Payment each Benefit Year until your Benefit Base is exhausted (terms defined below). The SureIncome Option guarantees an amount up to the "BENEFIT PAYMENT REMAINING" which will be available for withdrawal from the Contract each "BENEFIT YEAR" until the "BENEFIT BASE" (defined below) is reduced to zero. If the Contract Value is reduced to zero and the Benefit Base is still greater than zero, we will distribute an amount equal to the Benefit Base to the Contract Owner as described below under the "WITHDRAWAL BENEFIT PAYOUT PHASE". For purposes of the SureIncome Option, "withdrawal" means the gross amount of a withdrawal before any applicable charges such as withdrawal charges, fees, taxes or adjustments including any applicable Market Value Adjustments and surrender charges. Under the SureIncome Option, we currently do not treat a withdrawal that reduces the Contract Value to less than $1,000 as a withdrawal of the entire Contract Value. The "RIDER DATE" is the date the SureIncome Option was made a part of your Contract. The initial Benefit Year is the period between the Rider Date and the first Contract Anniversary after the Rider Date. Each subsequent Benefit Year will coincide with (the same as) the Contract Year. The SureIncome Option is available at issue of the Contract, or may be added later, subject to availability and issue requirements. You may not add the SureIncome Option to your Contract after Contract issue without our prior approval if your Contract Value is greater than $1,000,000 at the time you try to add the SureIncome Option. You may have only one SureIncome Option in effect on your Contract at one time. You may only have either the TrueReturn Accumulation Benefit Option, or the SureIncome Option in effect on your Contract at the same time. The SureIncome Option is only available if the oldest Contract Owner and oldest Annuitant are age 85 or younger on the effective date of the Rider (the "Rider Application Date") (The maximum age may depend on your state). The SureIncome Option is not available to be added to a Contract categorized as a Tax Sheltered Annuity as defined under Internal Revenue Code Section 403(b) at this time. We reserve 29 PROSPECTUS the right to make the SureIncome Option available to such Contracts on a nondiscriminatory basis in the future at our discretion. Once added to your Contract, the SureIncome Option may be cancelled at any time on or after the 5th calendar year anniversary of the Rider Date by notifying us in writing in a form satisfactory to us. The SureIncome Option may not be available in all states. We may discontinue offering the SureIncome Option at any time to new Contract Owners and to existing Contract Owners who did not elect the SureIncome Option prior to the date of discontinuance. WITHDRAWAL BENEFIT FACTOR The "WITHDRAWAL BENEFIT FACTOR" is used to determine the "BENEFIT PAYMENT" and Benefit Payment Remaining. We currently offer a Withdrawal Benefit Factor equal to 8%. We reserve the right to make other Withdrawal Benefit Factors available in the future for new SureIncome Options and/or to eliminate the current Withdrawal Benefit Factor. Once a Withdrawal Benefit Factor has been established for a SureIncome Option, it cannot be changed after the Rider Date unless that SureIncome Option is terminated. BENEFIT PAYMENT AND BENEFIT PAYMENT REMAINING The Benefit Payment is the amount available at the beginning of each Benefit Year that you may withdraw during that Benefit Year. The Withdrawal Benefit Factor and the Benefit Base are used to determine your Benefit Payment. The Benefit Payment Remaining is the amount remaining after any previous withdrawals in a Benefit Year that you may withdraw without reducing your Benefit Base by more than the amount of the withdrawal and without reducing your Benefit Payment available in future Benefit Years. Please note that any premiums or withdrawals made on a Contract Anniversary would be applied to the Benefit Year that just ended on that Contract Anniversary. At the beginning of each Benefit Year, the Benefit Payment Remaining is equal to the Benefit Payment. During each Benefit Year the Benefit Payment Remaining will be increased by purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) multiplied by the Withdrawal Benefit Factor (currently 8% for new SureIncome Options) and reduced by the amount of each withdrawal. The Benefit Payment Remaining will never be less than zero. On the Rider Date, the Benefit Payment is equal to the greater of: .. The Contract Value multiplied by the Withdrawal Benefit Factor (currently 8% for new SureIncome Options); or .. The value of the Benefit Payment of the previous Withdrawal Benefit Option (attached to your Contract) that is being terminated under a rider trade-in option (see "Rider Trade-In Option" below for more information), if applicable. After the Rider Date, the Benefit Payment will be increased by purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) multiplied by the Withdrawal Benefit Factor and affected by withdrawals as follows: .. If the withdrawal is less than or equal to the Benefit Payment Remaining in effect immediately prior to the withdrawal, the Benefit Payment is unchanged. .. If the withdrawal is greater than the Benefit Payment Remaining in effect immediately prior to the withdrawal, the Benefit Payment will be the lesser of: . The Benefit Payment immediately prior to the withdrawal; or . The Contract Value immediately prior to withdrawal less the amount of the withdrawal, multiplied by the Withdrawal Benefit Factor. At our discretion, the Benefit Payment available during a Benefit Year may be increased on a nondiscriminatory basis and without prior notice in order to satisfy IRS minimum distribution requirements on the Contract under which this Option has been elected. We are currently not increasing the Benefit Payment available to satisfy IRS minimum distribution requirements, which may result in a withdrawal greater than the Benefit Payment Remaining. BENEFIT BASE The Benefit Base is not available as a Contract Value or Settlement Value. The Benefit Base is used solely to help calculate the Rider Fee, the amount that may be withdrawn and payments that may be received under the SureIncome Option. On the Rider Date, the Benefit Base is equal to the Contract Value. After the Rider Date, the Benefit Base will be increased by purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) and decreased by withdrawals as follows: .. If the withdrawal is less than or equal to the Benefit Payment Remaining in effect immediately prior to the withdrawal, the Benefit Base will be reduced by the amount of the withdrawal. If the withdrawal is greater than the Benefit Payment Remaining in effect immediately prior to the withdrawal, the Benefit Base will be the lesser of: .. The Contract Value immediately prior to withdrawal less the amount of the withdrawal; or .. The Benefit Base immediately prior to withdrawal less the amount of the withdrawal. The Benefit Base may also be reduced in other situations as detailed in the "Owner and Assignment of Payments or Interest" section below. IF THE BENEFIT BASE IS REDUCED TO ZERO, THIS SUREINCOME OPTION WILL TERMINATE. 30 PROSPECTUS For numerical examples that illustrate how the values defined under the SureIncome Option are calculated, see Appendix I. CONTRACT OWNER AND ASSIGNMENT OF PAYMENTS OR INTEREST If you change the Contract Owner or assign any payments or interest under this Contract, as allowed, to any living or non-living person other than your spouse on or after the first calendar year anniversary of the Rider Date, the Benefit Base will be recalculated to be the lesser of the Contract Value and the Benefit Base at the time of assignment. CONTRACT VALUE If your Contract Value is reduced to zero due to fees or withdrawals and your Benefit Base is still greater than zero, your Contract will immediately enter the Withdrawal Benefit Payout Phase. Under the SureIncome Option, we currently do not treat a withdrawal that reduces the Contract Value to less than $1,000 as a withdrawal of the entire Contract Value. We reserve the right to change this at any time. WITHDRAWAL BENEFIT PAYOUT PHASE Under the Withdrawal Benefit Payout Phase, the Accumulation Phase of the Contract ends and the Contract enters the Payout Phase subject to the following: .. The "WITHDRAWAL BENEFIT PAYOUT START DATE" is the date the Withdrawal Benefit Payout Phase is entered and the Accumulation Phase of the Contract ends. .. No further withdrawals, purchase payments or any other actions associated with the Accumulation Phase can be made after the Withdrawal Benefit Payout Start Date. .. The Payout Start Date is the first day of the next Benefit Year after the Withdrawal Benefit Payout Start Date. We reserve the right to allow other Payout Start Dates to be requested on a nondiscriminatory basis without prior notice. .. During the Withdrawal Benefit Payout Phase, we will make scheduled fixed income payments to the Owner (or new Contract Owner) at the end of each month starting one month after the Payout Start Date. The amount of each payment will be equal to the Benefit Payment divided by 12, unless a payment frequency other than monthly is requested in a form acceptable to us and received by us before the first payment is made (the amount of each payment will be adjusted accordingly; i.e. if the payment frequency requested is quarterly, the amount of each payment will be equal to the Benefit Payment divided by 4). Payments will be made over a period certain such that total payments made will equal the Benefit Base on the Payout Start Date; therefore, the final payment may be reduced. If your Contract is a qualified contract, meaning an individual retirement annuity qualified as defined under Internal Revenue Code Section 408(b) or a Tax Sheltered Annuity as defined under Internal Revenue Code Section 403(b), the period certain cannot exceed that which is required by Internal Revenue Code Section 401(a)(9) and regulations promulgated thereunder. Therefore, the amount of each payment under this Option may be larger so that the sum of the payments made over this period equals the Benefit Base on the Payout Start Date. Additionally, if your Contract is a qualified contract, we will not permit a change in the payment frequency or level. .. If your Contract is a non-qualified contract, we reserve the right to allow other payment frequencies or levels to be requested on a nondiscriminatory basis without prior notice. In no event will we allow more than one change in the payment frequency or level during a Contract Year. .. If the Contract Owner dies before all payments have been made, the remaining payments will continue to be made to the new Contract Owner as scheduled. .. Once all scheduled payments have been paid, the Contract will terminate. Generally, you may not make withdrawals, purchase payments or any other actions associated with the Accumulation Phase after the Withdrawal Benefit Payout Start Date. EXAMPLE BEGINNING OF BENEFIT YEAR 1* Contract Value = $100,000 Benefit Base = $100,000 Benefit Payment = $8,000 Benefit Payment Remaining = $8,000 In this example, you can take a Benefit Payment of up to $8,000 in Benefit Year 1. If a withdrawal of $6,000 is taken then the following values would apply: Contract Value = $94,000 (Assuming that your Contract Value has not been affected by any other factors) Benefit Base = $94,000 Benefit Payment = $8,000 Benefit Payment Remaining = $2,000 BEGINNING OF BENEFIT YEAR 2 Contract Value = $70,000 (Assuming that your contract value has declined due to poor performance) Benefit Base = $94,000 Benefit Payment = $8,000 31 PROSPECTUS Benefit Payment Remaining = $8,000 (resets at the beginning of each Benefit Year) In Benefit Year 2 you have the right to a Benefit Payment of $8,000 and since you have not taken any withdrawals yet in Benefit Year 2, the Benefit Payment Remaining would also be $8,000 at the beginning of Benefit Year 2. * THIS EXAMPLE ASSUMES AN INITIAL CONTRACT VALUE OF $100,000, NO ADDITIONAL PURCHASE PAYMENTS, A WITHDRAWAL BENEFIT FACTOR OF 8% AND DOES NOT TAKE INTO ACCOUNT FEES OR CHARGES. INVESTMENT REQUIREMENTS If you add the SureIncome Option to your Contract, you must adhere to certain requirements related to the investment alternatives in which you may invest. The specific requirements are described below in more detail and will depend on your currently selected Model Portfolio Option and your Withdrawal Benefit Factor. These requirements may include, but are not limited to, maximum investment limits on certain Variable Sub-Accounts or on certain Fixed Account Options, exclusion of certain Variable Sub-Accounts or of certain Fixed Account Options, required minimum allocations to certain Variable Sub-Accounts, and restrictions on transfers to or from certain investment alternatives. We may also require that you use the Automatic Portfolio Rebalancing Program. We may change the specific requirements that are applicable at any time in our sole discretion. Any changes we make will not apply to a SureIncome Option that was made a part of your Contract prior to the implementation date of the change, except for changes made due to a change in investment alternatives available under the Contract. This restriction does not apply to a new Option elected pursuant to the Rider Trade-In Option. We reserve the right to have requirements unique to specific Withdrawal Benefit Factors if we make other Withdrawal Benefit Factors available in the future, including specific model portfolio options ("Model Portfolio Options") as described below, available only to certain Withdrawal Benefit Factors. When you add the SureIncome Option to your Contract, you must allocate your entire Contract Value as follows: 1) to a MODEL PORTFOLIO OPTION available as described below; 2) to the DCA Fixed Account Option and then transfer all purchase payments (and Credit Enhancements for Consultant Solutions Plus Contracts) and interest to the Variable Sub-Accounts; or 3) to a combination of (1) and (2) above. For (2) and (3) above, the requirements for the DCA Fixed Account Option must be met. See the "Dollar Cost Averaging Fixed Account Option" section of this prospectus for more information. On the Rider Date, you must select only one of the Model Portfolio Options in which to allocate your Contract Value. After the Rider Date, you may transfer your entire Contract Value to any of the other available Model Portfolio Options. We currently offer several Model Portfolio Options. The Model Portfolio Options that are available may differ depending upon the effective date of your Withdrawal Benefit Option and your Withdrawal Benefit Factor. Please refer to the Model Portfolio Option and TrueBalance/SM/ Model Portfolio Options sections for more details. We may add other Model Portfolio Options in the future. We also may remove Model Portfolio Options in the future anytime prior to the date you select such Model Portfolio Option. In addition, if the investment alternatives available under the Contract change, we may revise the Model Portfolio Options. The following table summarizes the Model Portfolio Options currently available for use: *MODEL PORTFOLIO OPTION 1 - -------------------------------------------------------------------------------- *TrueBalance Conservative Model Portfolio Option *TrueBalance Moderately Conservative Model Portfolio Option *TrueBalance Moderate Model Portfolio Option *TrueBalance Moderately Aggressive Model Portfolio Option *TrueBalance Aggressive Model Portfolio Option - -------------------------------------------------------------------------------- You may not allocate any of your Contract Value to the Standard Fixed Account Option or to the Market Value Adjusted Fixed Account Option. You must transfer any portion of your Contract Value that is allocated to the Standard Fixed Account Option or to the Market Value Adjusted Fixed Account Option to the Variable Sub-Accounts prior to adding the SureIncome Option to your Contract. Transfers from the Market Value Adjusted Fixed Account Option may be subject to a Market Value Adjustment. You may allocate any portion of your purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) to the DCA Fixed Account Option on the Rider Date, provided the DCA Fixed Account Option is available with your Contract and in your state. See the "Dollar Cost Averaging Fixed Account Option" section of this prospectus for more information. We use the term "TRANSFER PERIOD ACCOUNT" to refer to each purchase payment allocation made to the DCA Fixed Account Option for a specified term length. At the expiration of a Transfer Period Account any remaining amounts in the Transfer Period Account will be transferred to the Variable Sub-Accounts according to your most recent percentage allocation selections. Any subsequent purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made to your Contract will be allocated to the Variable Sub-Accounts according to your specific instructions or your allocation for the previous purchase payment, unless you request that the purchase payment (and Credit Enhancement for CONSULTANT SOLUTIONS PLUS CONTRACTS) be allocated to the DCA Fixed Account Option. Purchase payments allocated to the DCA Fixed Account Option must be $500 or more. Any withdrawals you 32 PROSPECTUS request will reduce your Contract Value invested in each of the investment alternatives on a pro rata basis in the proportion that your Contract Value in each bears to your total Contract Value in all Variable Sub-Accounts, unless you request otherwise. MODEL PORTFOLIO OPTION 1. If you choose Model Portfolio Option 1 or transfer your entire Contract Value into Model Portfolio Option 1, you currently may allocate up to 100% of your Contract Value in any manner you choose to the Available Variable Sub-Accounts shown in the table below. You may not allocate ANY PORTION of your Contract Value to the Excluded Variable Sub-Accounts. You may make transfers among any of the Available Variable Sub-Accounts. However, each transfer you make will count against the 12 transfers you can make each Contract Year without paying a transfer fee. Currently the Available Variable Sub-Accounts and the Excluded Variable Sub-Accounts are as follows: Available - -------------------------------------------------------------------------------- Invesco AIM V.I. Basic Value - Series II Sub-Account/(1)/ Invesco V.I. Core Equity - Series II Sub-Account/(1)/ Invesco V.I. Mid Cap Core Equity - Series II Sub-Account/(1)/ Fidelity VIP Contrafund(R) - Service Class 2 Sub-Account Fidelity VIP Equity-Income - Service Class 2 Sub-Account Fidelity VIP Index 500 - Service Class 2 Sub-Account Fidelity VIP Investment Grade Bond - Service Class 2 Sub-Account Fidelity VIP Overseas - Service Class 2 Sub-Account Fidelity VIP Asset Manager/(SM)/ - Service Class 2 Sub-Account Fidelity VIP Money Market - Service Class 2 Sub-Account Janus Aspen Series Overseas - Service Shares Sub-Account Janus Aspen Series Forty - Service Shares Sub-Account Janus Aspen Series Perkins Mid Cap Value - Service Shares Sub-Account Janus Aspen Series Balanced - Service Shares Sub-Account Legg Mason ClearBridge Variable Fundamental All Cap Value - Class II Sub-Account/(3)/ Legg Mason Western Asset Variable Global High Yield Bond - Class II Sub-Account/(7)/ Legg Mason ClearBridge Variable Large Cap Value - Class II Sub-Account/(3)/ MFS Investors Trust - Service Class Sub-Account MFS High Income - Service Class Sub-Account MFS Investors Growth Stock - Service Class Sub-Account MFS Total Return - Service Class Sub-Account MFS Value - Service Class Sub-Account Oppenheimer Small- & Mid-Cap Growth/VA - Service Shares Sub-Account/(4)/ Oppenheimer Main Street Small Cap(R)/VA - Service Shares Sub-Account PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative Shares Sub-Account PIMCO VIT Money Market - Administrative Shares Sub-Account PIMCO VIT Real Return - Administrative Shares Sub-Account PIMCO VIT Total Return - Administrative Shares Sub-Account Rydex SGI VT All-Cap Opportunity Sub-Account/(5)/ T. Rowe Price Equity Income - II Sub-Account T. Rowe Price Blue Chip Growth - II Sub-Account UIF U.S. Real Estate, Class II Sub-Account/(1)/ Van Eck VIP Multi-Manager Alternatives Sub-Account/(6)/ Van Kampen LIT Growth and Income, Class II Sub-Account/(8)/ Van Kampen LIT Government, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- Excluded - -------------------------------------------------------------------------------- Invesco V.I. Capital Appreciation - Series II Sub-Account/(1)/ Alger LargeCap Growth - Class S Sub-Account/(2)/ Alger Capital Appreciation - Class S Sub-Account/(2)/ Alger MidCap Growth - Class S Sub-Account/(2)/ Fidelity VIP Growth - Service Class 2 Sub-Account MFS New Discovery - Service Class Sub-Account Oppenheimer Global Securities/VA - Service Shares Sub-Account UIF Capital Growth, Class II Sub-Account Van Eck VIP Emerging Markets Sub-Account/(6)/ Van Eck VIP Global Hard Assets Sub-Account/(6)/ Van Kampen LIT Mid Cap Growth, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- (1)Effective April 30, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- AIM V.I. Basic Value Fund Invesco V.I. Basic Value Fund ----------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund Invesco V.I. Capital Appreciation Fund ----------------------------------------------------------------------------- AIM V.I. Core Equity Fund Invesco V.I. Core Equity Fund ----------------------------------------------------------------------------- AIM V.I. Mid Cap Core Equity Fund Invesco V.I. Mid Cap Core Equity Fund ----------------------------------------------------------------------------- (2)Effective November 20, 2009, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Alger American LargeCap Growth Alger LargeCap Growth Portfolio Portfolio ----------------------------------------------------------------------------- Alger American Capital Appreciation Alger Capital Appreciation Portfolio Portfolio ----------------------------------------------------------------------------- Alger American MidCap Growth Portfolio Alger MidCap Growth Portfolio ----------------------------------------------------------------------------- (3)Effective March 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Fundamental Value Portfolio Fundamental All Cap Value Portfolio ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Large Investors Portfolio Cap Value Portfolio ----------------------------------------------------------------------------- (4)Effective May 1, 2010, Oppenheimer MidCap Fund/VA changed its name to Oppenheimer Small- & Mid-Cap Growth Fund/VA. (5)Effective May 1, 2010, Rydex VT All-Cap Opportunity Fund changed its name to Rydex SGI VT All-Cap Opportunity Fund. (6)Effective May 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Van Eck Worldwide Multi- Manager Van Eck VIP Multi-Manager Alternatives Fund Alternatives Fund ----------------------------------------------------------------------------- Van Eck Worldwide Emerging Markets Van Eck VIP Emerging Markets Fund Fund ----------------------------------------------------------------------------- Van Eck Worldwide Hard Assets Fund Van Eck VIP Global Hard Assets Fund ----------------------------------------------------------------------------- (7)Effective November 2, 2009, the following Portfolio changed its name: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason Partners Variable Global Legg Mason Western Asset Variable High Yield Bond Portfolio - Class II Global High Yield Bond Portfolio - Class II ----------------------------------------------------------------------------- 33 PROSPECTUS (8)Subject to shareholder approval, certain portfolios of the Van Kampen Life Investment Trust will be reorganized into corresponding funds of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds) . It is anticipated that the reorganization will occur in the second quarter of 2010. Each such portfolio and its corresponding acquiring fund is shown below: REORGANIZING PORTFOLIOS ACQUIRING FUNDS ----------------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST: AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS): ----------------------------------------------------------------------------- Van Kampen LIT Mid Cap Growth Invesco Van Kampen V.I. Mid Cap Portfolio - Class II Growth Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Government Portfolio - Invesco Van Kampen V.I. Government Class II Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Growth and Income Invesco Van Kampen V.I. Growth and Portfolio - Class II Income Fund - Series II ----------------------------------------------------------------------------- TRUEBALANCE/SM/ MODEL PORTFOLIO OPTIONS. If you choose one of the TrueBalance/SM/ Model Portfolio Options or transfer your entire Contract Value into one of the TrueBalance/SM/ Model Portfolio Options, you may not choose the Variable Sub-Accounts or make transfers among the Variable Sub-Accounts in the TrueBalance Model Portfolio Option. Each TrueBalance Model Portfolio involves an allocation of assets among a group of pre-selected Variable Sub-Accounts. You cannot make transfers among the Variable Sub-Accounts nor vary the Variable Sub-Accounts that comprise a TrueBalance Model Portfolio Option. If you choose a TrueBalance Model Portfolio Option, we will invest and periodically reallocate your Contract Value according to the allocation percentages and requirements for the TrueBalance Model Portfolio Option you have selected currently. For more information regarding the TrueBalance program, see the "TrueBalance/SM/ Asset Allocation Program" section of this prospectus. However, note that the restrictions described in this section, specifically the restrictions on transfers and the requirement that all of your Contract Value be allocated to a TrueBalance Model Portfolio Option, apply to the TrueBalance program only if you have added the SureIncome Option to your Contract. CANCELLATION OF THE SUREINCOME OPTION You may not cancel the SureIncome Option prior to the 5th calendar year anniversary of the Rider Date. On or after the 5th calendar year anniversary of the Rider Date you may cancel the rider by notifying us in writing in a form satisfactory to us. We reserve the right to extend the date at which time the cancellation may occur to up to the 10th calendar year anniversary of the Rider Date at any time in our sole discretion. Any change we make will not apply to a SureIncome Option that was added to your Contract prior to the implementation date of the change. RIDER TRADE-IN OPTION We offer a "RIDER TRADE-IN OPTION" that allows you to cancel your SureIncome Option and immediately add a new Withdrawal Benefit Option ("New SureIncome Option"). We may also offer other Options ("Other New Options") under the Rider Trade-In Option. However, you may only select one Option under this Rider Trade-In Option at the time you cancel your SureIncome Option. Currently, we are also making the TrueReturn Accumulation Benefit Option available at the time of your first utilization of this Rider Trade-In Option so that you have the ability to switch from the SureIncome Option to the TrueReturn Accumulation Benefit Option. We may discontinue offering the TrueReturn Option under the Rider Trade-In Option for New SureIncome Options added in the future at anytime at our discretion. This Rider Trade-in Option is available provided all of the following conditions are met: .. The trade-in must occur on or after the 5th calendar year anniversary of the Rider Date. We reserve the right to extend the date at which time the trade-in may occur to up to the 10th calendar year anniversary of the Rider Date at any time in our sole discretion. Any change we make will not apply to a SureIncome Option that was added to your Contract prior to the implementation date of the change. .. The New Option will be made a part of your Contract on the date the existing Option is cancelled, provided it is cancelled for reasons other than the termination of your Contract. .. The New Option must be an Option that we make available for use with this Rider Trade-In Option. .. The issue requirements and terms and conditions of the New Option must be met as of the date the New Option is made a part of your Contract. If the New Option is a SureIncome Option, the New Option must provide that the new Benefit Payment be greater than or equal to your current Benefit Payment as of the date the Rider Trade-In Option is exercised, if applicable. You should consult with your sales representative before trading in your SureIncome Option. DEATH OF OWNER OR ANNUITANT. If the Contract Owner dies before the Rider Maturity Date and the Contract is continued under Option D of the Death of Owner provision of your Contract, as described on page 62 of your prospectus, then the SureIncome Option will continue, unless the new Contract Owner elects to cancel this Option. If the SureIncome Option is continued, it will remain in effect until terminated. If the Contract is not continued under Option D, then the SureIncome Option will terminate on the date we receive a Complete Request for Settlement of the Death Proceeds. If an Annuitant dies before the Payout Start Date, and the Contract is continued under Category 1 of the Death of Annuitant provision of the Contract, the SureIncome Option will remain in effect until terminated. If the 34 PROSPECTUS Contract is not continued under Category 1, then the SureIncome Option will terminate on the date we receive a complete request for settlement of the Death Proceeds. TERMINATION OF THE SUREINCOME OPTION This SureIncome Option will terminate on the earliest of the following to occur: .. The Benefit Base is reduced to zero; .. On the Payout Start Date (except if the Contract enters the Withdrawal Benefit Payout Phase as defined under the Withdrawal Benefit Payout Phase section); .. On the date the Contract is terminated; .. On the date the SureIncome Option is cancelled; .. On the date we receive a Complete Request for Settlement of the Death Proceeds; or .. On the date the SureIncome Option is replaced with a New Option under the Rider Trade-In Option. INVESTMENT ALTERNATIVES: THE VARIABLE SUB-ACCOUNTS - -------------------------------------------------------------------------------- You may allocate your purchase payments to up to 46 Variable Sub-accounts. Each Variable Sub-account invests in the shares of a corresponding Portfolio. Each Portfolio has its own investment objective(s) and policies. We briefly describe the Portfolios below. For more complete information about each Portfolio, including expenses and risks associated with each Portfolio, please refer to the prospectuses for the Funds. We will mail to you a prospectus for each Portfolio related to the Variable Sub-Accounts to which you allocate your purchase payment. YOU SHOULD CAREFULLY CONSIDER THE INVESTMENT OBJECTIVES, RISKS, CHARGES AND EXPENSES OF THE INVESTMENT ALTERNATIVES WHEN MAKING AN ALLOCATION TO THE VARIABLE SUB-ACCOUNTS. TO OBTAIN ANY OR ALL OF THE UNDERLYING PORTFOLIO PROSPECTUSES, PLEASE CONTACT US AT 800-457-7617.
PORTFOLIO INVESTMENT OBJECTIVE INVESTMENT ADVISER - -------------------------------------------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS) - -------------------------------------------------------------------------------------------------------------- Invesco V.I. Basic Value Fund - Series Long-term growth of capital II/(1)/ - ---------------------------------------------------------------------------------- Invesco V.I. Capital Appreciation Fund Growth of capital INVESCO ADVISERS, INC. - Series II/(1)/ - ---------------------------------------------------------------------------------- Invesco V.I. Core Equity Fund - Series Growth of capital II/(1)/ - ---------------------------------------------------------------------------------- Invesco V.I. Mid Cap Core Equity Fund - Long-term growth of capital Series II/(1)/ - ---------------------------------------------------------------------------------- THE ALGER PORTFOLIOS - -------------------------------------------------------------------------------------------------------------- Alger LargeCap Growth Portfolio - Long-term capital appreciation Class S/(2)/ - ----------------------------------------------------------------------------------FRED ALGER MANAGEMENT, INC. Alger Capital Appreciation Portfolio - Long-term capital appreciation Class S/(2)/ - ---------------------------------------------------------------------------------- Alger MidCap Growth Portfolio - Class Long-term capital appreciation S/(2)/ - ---------------------------------------------------------------------------------- FIDELITY(R) VARIABLE INSURANCE PRODUCTS - -------------------------------------------------------------------------------------------------------------- Fidelity VIP Asset Manager/(SM)/ High total return with reduced risk Portfolio - Service Class 2 over the long term by allocating its assets among stocks, bonds, and short-term instruments. - ---------------------------------------------------------------------------------- Fidelity VIP Contrafund(R) Portfolio - Long-term capital appreciation Service Class 2 - ----------------------------------------------------------------------------------FIDELITY MANAGEMENT & Fidelity VIP Equity-Income Portfolio - Reasonable income. The fund will also RESEARCH COMPANY Service Class 2 consider the potential for capital appreciation. The fund's goal is to achieve a yield which exceeds the composite yield on the securities comprising the Standard & Poor's 500/(SM)/ Index (S&P 500(R)). - ---------------------------------------------------------------------------------- Fidelity VIP Growth Portfolio - Service To achieve capital appreciation Class 2 - ---------------------------------------------------------------------------------- Fidelity VIP Index 500 Portfolio - Investment results that correspond to Service Class 2 the total return of common stocks publicly traded in the United States as represented by the Standard & Poor's 500/(SM)/ Index (S&P 500(R)) - ---------------------------------------------------------------------------------- Fidelity VIP Investment Grade Bond As high a level of current income as is Portfolio - Service Class 2 consistent with the preservation of capital - ---------------------------------------------------------------------------------- Fidelity VIP Money Market Portfolio - As high a level of current income as is Service Class 2 consistent with preservation of capital and liquidity. - ---------------------------------------------------------------------------------- Fidelity VIP Overseas Portfolio - Long-term growth of capital Service Class 2 - ----------------------------------------------------------------------------------
35 PROSPECTUS
PORTFOLIO INVESTMENT OBJECTIVE INVESTMENT ADVISER - ------------------------------------------------------------------------------------------------------------ JANUS ASPEN SERIES - ------------------------------------------------------------------------------------------------------------ Janus Aspen Series Balanced Portfolio - Long-term capital growth, consistent Service Shares with preservation of capital and balanced by current income - ----------------------------------------------------------------------------------JANUS CAPITAL MANAGEMENT Janus Aspen Series Overseas Portfolio - Long-term growth of capital. LLC Service Shares - ---------------------------------------------------------------------------------- Janus Aspen Series Forty Portfolio - Long-term growth of capital Service Shares - ---------------------------------------------------------------------------------- Janus Aspen Series Perkins Mid Cap Capital appreciation Value Portfolio - Service Shares - ---------------------------------------------------------------------------------- LEGG MASON PARTNERS VARIABLE EQUITY TRUST - ---------------------------------------------------------------------------------- -------------------------- Legg Mason ClearBridge Variable Long-term capital growth with current Fundamental All Cap Value Portfolio - income as a secondary consideration LEGG MASON PARTNERS FUND Class I/(3)/ ADVISOR, LLC - ---------------------------------------------------------------------------------- Legg Mason ClearBridge Variable Large Long-term growth of capital with Cap Value Portfolio - Class I/(3)/ current income as a secondary objective - ---------------------------------------------------------------------------------- LEGG MASON PARTNERS VARIABLE INCOME TRUST - ------------------------------------------------------------------------------------------------------------ Legg Mason Western Asset Variable Maximum total return, consistent with LEGG MASON PARTNERS FUND Global High Yield Bond Portfolio - preservation of capital ADVISOR, LLC Class II/(9)/ - ------------------------------------------------------------------------------------------------------------ MFS(R) VARIABLE INSURANCE TRUST/(SM)/ - ------------------------------------------------------------------------------------------------------------ MFS High Income Series - Service Class Total return with an emphasis on high current income, but also considering capital appreciation - ---------------------------------------------------------------------------------- MFS Investors Growth Stock Series - Capital appreciation Service Class MFS(TM) INVESTMENT - ----------------------------------------------------------------------------------MANAGEMENT MFS Investors Trust Series - Service Capital appreciation Class - ---------------------------------------------------------------------------------- MFS New Discovery Series - Service Class Capital appreciation - ---------------------------------------------------------------------------------- MFS Total Return Series - Service Class Total return - ---------------------------------------------------------------------------------- MFS Value Series - Service Class Capital appreciation - ---------------------------------------------------------------------------------- OPPENHEIMER VARIABLE ACCOUNT FUNDS - ------------------------------------------------------------------------------------------------------------ Oppenheimer Global Securities Fund/VA - Long-term capital appreciation by Service Shares investing a substantial portion of assets in securities of foreign OPPENHEIMERFUNDS, INC. issuers, growth-type companies, cyclical industries and special situations that are considered to have appreciation possibilities. - ---------------------------------------------------------------------------------- Oppenheimer Main Street Small Cap Capital appreciation. Fund(R)/VA - Service Shares - ---------------------------------------------------------------------------------- Oppenheimer Small- & Mid-Cap Growth Capital appreciation by investing in Fund/VA - Service Shares/(4)/ "growth type" companies. - ---------------------------------------------------------------------------------- PIMCO VARIABLE INSURANCE TRUST - ------------------------------------------------------------------------------------------------------------ PIMCO VIT Foreign Bond Portfolio (U.S. Maximum total return, consistent with Dollar- Hedged) - Administrative Shares preservation of capital and prudent investment management. - ----------------------------------------------------------------------------------PACIFIC INVESTMENT PIMCO VIT Money Market Portfolio - Maximum current income, consistent with MANAGEMENT COMPANY LLC Administrative Shares preservation of capital and daily liquidity - ---------------------------------------------------------------------------------- PIMCO VIT Real Return Portfolio - Maximum real return, consistent with Administrative Shares preservation of capital and prudent investment management - ---------------------------------------------------------------------------------- PIMCO VIT Total Return Portfolio - Maximum total return, consistent with Administrative Shares preservation of capital and prudent investment management. - ---------------------------------------------------------------------------------- THE RYDEX VARIABLE TRUST - ------------------------------------------------------------------------------------------------------------ Rydex SGI VT All-Cap Opportunity Long-term capital appreciation. RYDEX INVESTMENTS Fund/(5)/ - ------------------------------------------------------------------------------------------------------------ T. ROWE PRICE EQUITY SERIES, INC. - ------------------------------------------------------------------------------------------------------------ T. Rowe Price Blue Chip Growth Long-term capital growth. Income is a Portfolio - II secondary objective. T. ROWE PRICE ASSOCIATES, - ----------------------------------------------------------------------------------INC. T. Rowe Price Equity Income Portfolio - Substantial dividend income as well as II long-term growth of capital through investments in the common stocks of established companies. - ----------------------------------------------------------------------------------
36 PROSPECTUS
PORTFOLIO INVESTMENT OBJECTIVE INVESTMENT ADVISER - ------------------------------------------------------------------------------------------------------------ THE UNIVERSAL INSTITUTIONAL FUNDS, INC. - ------------------------------------------------------------------------------------------------------------ UIF Capital Growth Portfolio, Class II Long-term capital appreciation by investing primarily in growth-oriented MORGAN STANLEY INVESTMENT equity securities of large MANAGEMENT, INC./(7)/ capitalization companies. - ---------------------------------------------------------------------------------- UIF U.S. Real Estate Portfolio, Class II Above average current income and long-term capital appreciation by investing primarily in equity securities of companies in the U.S. real estate industry, including real estate investment trusts. - ---------------------------------------------------------------------------------- VAN ECK VIP TRUST - ------------------------------------------------------------------------------------------------------------ Van Eck VIP Multi-Manager Alternatives Consistent absolute (positive) returns Fund/(6)/ in various market cycles - ----------------------------------------------------------------------------------VAN ECK ASSOCIATES Van Eck VIP Emerging Markets Fund/(6)/ Long-term capital appreciation by CORPORATION investing primarily in equity securities in emerging markets around the world - ---------------------------------------------------------------------------------- Van Eck VIP Global Hard Assets Fund/(6)/ Long-term capital appreciation by investing primarily in "hard asset securities" with income as a secondary consideration - ---------------------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST - ------------------------------------------------------------------------------------------------------------ Van Kampen LIT Mid Cap Growth Capital growth Portfolio, Class II/(8)/ - ----------------------------------------------------------------------------------VAN KAMPEN ASSET Van Kampen LIT Government Portfolio, High current return consistent with MANAGEMENT Class II/(8)/ preservation of capital - ---------------------------------------------------------------------------------- Van Kampen LIT Growth and Income Long-term growth of capital and income. Portfolio, Class II/(8)/ - ----------------------------------------------------------------------------------
(1)Effective April 30, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- AIM V.I. Basic Value Fund Invesco V.I. Basic Value Fund ----------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund Invesco V.I. Capital Appreciation Fund ----------------------------------------------------------------------------- AIM V.I. Core Equity Fund Invesco V.I. Core Equity Fund ----------------------------------------------------------------------------- AIM V.I. Mid Cap Core Equity Fund Invesco V.I. Mid Cap Core Equity Fund ----------------------------------------------------------------------------- (2)Effective November 20, 2009, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Alger American LargeCap Growth Alger LargeCap Growth Portfolio Portfolio ----------------------------------------------------------------------------- Alger American Capital Appreciation Alger Capital Appreciation Portfolio Portfolio ----------------------------------------------------------------------------- Alger American MidCap Growth Portfolio Alger MidCap Growth Portfolio ----------------------------------------------------------------------------- (3)Effective March 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Fundamental Value Portfolio Fundamental All Cap Value Portfolio ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Large Investors Portfolio Cap Value Portfolio ----------------------------------------------------------------------------- (4)Effective May 1, 2010, Oppenheimer MidCap Fund/VA changed its name to Oppenheimer Small- & Mid-Cap Growth Fund/VA. (5)Effective May 1, 2010, Rydex VT All-Cap Opportunity Fund changed its name to Rydex SGI VT All-Cap Opportunity Fund. (6)Effective May 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Van Eck Worldwide Multi- Manager Van Eck VIP Multi-Manager Alternatives Fund Alternatives Fund ----------------------------------------------------------------------------- Van Eck Worldwide Emerging Markets Van Eck VIP Emerging Markets Fund Fund ----------------------------------------------------------------------------- Van Eck Worldwide Hard Assets Fund Van Eck VIP Global Hard Assets Fund ----------------------------------------------------------------------------- (7)Morgan Stanley Investment Management Inc., the investment advisor to the Van Kampen UIF Portfolios, does business in certain instances as Van Kampen. (8)Subject to shareholder approval, certain portfolios of the Van Kampen Life Investment Trust will be reorganized into corresponding funds of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds) . It is anticipated that the reorganization will occur in the second quarter of 2010. Each such portfolio and its corresponding acquiring fund is shown below: REORGANIZING PORTFOLIOS ACQUIRING FUNDS ----------------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST: AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS): ----------------------------------------------------------------------------- Van Kampen LIT Mid Cap Growth Invesco Van Kampen V.I. Mid Cap Portfolio - Class II Growth Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Government Portfolio - Invesco Van Kampen V.I. Government Class II Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Growth and Income Invesco Van Kampen V.I. Growth and Portfolio - Class II Income Fund - Series II ----------------------------------------------------------------------------- (9)Effective November 2, 2009, the following Portfolio changed its name: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason Partners Variable Global Legg Mason Western Asset Variable High Yield Bond Portfolio - Class II Global High Yield Bond Portfolio - Class II ----------------------------------------------------------------------------- 37 PROSPECTUS AMOUNTS YOU ALLOCATE TO VARIABLE SUB-ACCOUNTS MAY GROW IN VALUE, DECLINE IN VALUE, OR GROW LESS THAN YOU EXPECT, DEPENDING ON THE INVESTMENT PERFORMANCE OF THE PORTFOLIOS IN WHICH THOSE VARIABLE SUB-ACCOUNTS INVEST. YOU BEAR THE INVESTMENT RISK THAT THE PORTFOLIOS MIGHT NOT MEET THEIR INVESTMENT OBJECTIVES. SHARES OF THE PORTFOLIOS ARE NOT DEPOSITS IN, OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. TRUEBALANCE/SM/ ASSET ALLOCATION PROGRAM THE TRUEBALANCE ASSET ALLOCATION PROGRAM ("TRUEBALANCE PROGRAM") IS NO LONGER OFFERED FOR NEW ENROLLMENTS. IF YOU ENROLLED IN THE TRUEBALANCE PROGRAM PRIOR TO JANUARY 31, 2008, YOU MAY REMAIN IN THE PROGRAM. IF YOU TERMINATE YOUR ENROLLMENT OR OTHERWISE TRANSFER YOUR CONTRACT VALUE OUT OF THE PROGRAM, YOU MAY NOT RE-ENROLL. There is no additional charge for the TrueBalance program. Participation in the TrueBalance program may be limited if you have elected certain Contract Options that impose restrictions on the investment alternatives which you may invest, such as the Income Protection Benefit Option, the TrueReturn Accumulation Benefit Option or a Withdrawal Benefit Option. See the sections of this prospectus discussing these Options for more information. Asset allocation is the process by which your Contract Value is invested in different asset classes in a way that matches your risk tolerance, time horizon, and investment goals. Theoretically, different asset classes tend to behave differently under various economic and market conditions. By spreading your Contract Value across a range of asset classes, you may, over time, be able to reduce the risk of investment volatility and potentially enhance returns. Asset allocation does not guarantee a profit or protect against loss in a declining market. Your sales representative helps you determine whether participating in an asset allocation program is appropriate for you. You complete a questionnaire to identify your investment style. Based on your investment style, you select one asset allocation model portfolio among the available model portfolios which may range from conservative to aggressive. Your Contract Value is allocated among the Variable Sub-Accounts according to your selected model portfolio. Not all Variable Sub-Accounts are available in any one model portfolio, and you must only allocate your Contract Value to the limited number of Variable Sub-Accounts available in the model portfolio you select. You should not select a model portfolio without first consulting with your sales representative. Lincoln Benefit and the principal underwriter of the Contracts, ALFS, Inc., do not intend to provide any personalized investment advice in connection with the TrueBalance program and you should not rely on this program as providing individualized investment recommendations to you. Lincoln Benefit retained an independent investment management firm ("investment management firm") to construct the TrueBalance model portfolios. The investment management firm does not provide advice to Lincoln Benefit's Contract Owners. Neither Lincoln Benefit nor the investment management firm is acting for any Contract Owner as a "fiduciary" or as an "investment manager," as such terms are defined under applicable laws and regulations relating to the Employee Retirement Income Security Act of 1974 (ERISA). The investment management firm does not take into account any information about any Contract Owner or any Contract Owner's assets when creating, providing or maintaining any TrueBalance model portfolio. Individual Contract Owners should ultimately rely on their own judgment and/or the judgment of a financial advisor in making their investment decisions. Neither Lincoln Benefit nor the investment management firm is responsible for determining the suitability of the TrueBalance model portfolios for the Contract Owners' purposes. Each of the five model portfolios specifies an allocation among a mix of Variable Sub-Accounts that considers the investment goals of the applicable investment style. On the business day we accept your participation in the TrueBalance program, we will automatically reallocate any existing Contract Value in the Variable Sub-Accounts according to the model portfolio you selected. If any portion of your existing Contract Value is allocated to the Standard Fixed Account or MVA Fixed Account Options and you wish to allocate any portion of it to the model portfolio, you must transfer that portion to the Variable Sub-Accounts. In addition, as long as you participate in the TrueBalance program, you must allocate all of your purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) to the Fixed Account Options and/or the Variable Sub-Accounts currently offered in your model portfolio. Any purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) you allocate to the DCA Fixed Account Option will be automatically transferred, along with interest, in equal monthly installments to the Variable Sub-Accounts according to the model portfolio you selected. We use the term "Transfer Period Account" to refer to each purchase payment allocation made to the DCA Fixed Account Option for a specified term length. At the expiration of a Transfer Period Account any remaining amounts in the Transfer Period Account will be transferred to the Variable Sub-Account according to the percentage allocation for the model portfolio you selected. Lincoln Benefit may offer new or revised TrueBalance model portfolios at any time, and may retain a different 38 PROSPECTUS investment management firm to create any such new or revised TrueBalance model portfolios. Lincoln Benefit will not automatically reallocate your Contract Value allocated to the Variable Sub-Accounts to match any new or revised model portfolios that are offered. If you are invested in the TrueBalance model portfolio, your registered representative or the selling broker-dealer will notify you of any new or revised TrueBalance model portfolios that may be made available. If you wish to invest in accordance with a new or revised TrueBalance model portfolio, you must submit a transfer request to transfer your Contract Value in your existing TrueBalance model portfolio to the new TrueBalance model portfolio. If you do not request a transfer to a new TrueBalance model portfolio, we will continue to rebalance your Contract Value in accordance with your existing TrueBalance model portfolio. At any given time, you may only elect a TrueBalance model portfolio that is available at the time of election. You may select only one model portfolio at a time. However, you may change your selection of model portfolio at any time, provided you select only a currently available model portfolio. Each change you make in your model portfolio selection will count against the 12 transfers you can make each Contract Year without paying a transfer fee. You should consult with your sales representative before making a change to your model portfolio selection to determine whether the new model portfolio is appropriate for your needs. Since the performance of each Variable Sub-Account may cause a shift in the percentage allocated to each Variable Sub-Account, at least once every calendar quarter we will automatically rebalance all of your Contract Value in the Variable Sub-Accounts according to your currently selected model portfolio. Unless you notify us otherwise, any purchase payments you make after electing the TrueBalance program will be allocated to your model portfolio and/or to the Fixed Account Options according to your most recent instructions on file with us. Once you elect to participate in the TrueBalance program, you may allocate subsequent purchase payments to any of the Fixed Account Options available with your Contract and/or to any of the Variable Sub-Accounts included in your model portfolio, but only according to the allocation specifications of that model portfolio. You may not allocate subsequent purchase payments to a Variable Sub-Account that is not included in your model portfolio. Subsequent purchase payments allocated to the Variable Sub-Accounts will be automatically rebalanced at the end of the next calendar quarter according to the allocation percentages for your currently selected model portfolio. You may not make transfers from the Variable Sub-Accounts to any of the other Variable Sub-Accounts. You may make transfers, as allowed under the contract, from the Fixed Account Options to other Fixed Account Options or to the Variable Sub-Accounts included in your model portfolio, but only according to the allocation specifications of that model portfolio. You may make transfers from the Variable Sub-Accounts to any of the Fixed Account Options, except the DCA Fixed Account Option. Transfers to Fixed Account Options may be inconsistent with the investment style you selected and with the purpose of the TrueBalance program. However, all of your Contract Value in the Variable Sub-Accounts will be automatically rebalanced at the end of the next calendar quarter according to the percentage allocations for your currently selected model portfolio. You should consult with your sales representative before making transfers. If you own the TrueReturn Accumulation Benefit Option, on the Rider Maturity Date the Contract Value may be increased due to the TrueReturn Accumulation Benefit Option. Any increase will be allocated to the PIMCO VIT Money Market - Administrative Shares Sub-Account. You may make transfers from this Variable Sub-Account to the Fixed Account Options (as allowed) or the Variable Sub-Accounts included in your model portfolio, but only according to the allocation specification of that model portfolio. All of your Contract Value in the Variable Sub-Accounts will be automatically rebalanced at the end of the next calendar quarter according to the percentage allocations for your currently selected model portfolio. If you make a partial withdrawal from any of the Variable Sub-Accounts, your remaining Contract Value in the Variable Sub-Accounts will be automatically rebalanced at the end of the next calendar quarter according to the percentage allocations for your currently selected model portfolio. If you are participating in the Systematic Withdrawal Program when you add the TrueBalance program or change your selection of model portfolios, you may need to update your withdrawal instructions. If you have any questions, please consult your sales representative. Your participation in the TrueBalance program is subject to the program's terms and conditions, and you may change model portfolios or terminate your participation in the TrueBalance program at any time by notifying us in a form satisfactory to us. We reserve the right to modify or terminate the TrueBalance program at any time. 39 PROSPECTUS INVESTMENT ALTERNATIVES: THE FIXED ACCOUNT OPTIONS - -------------------------------------------------------------------------------- You may allocate all or a portion of your purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) to the FIXED ACCOUNT OPTIONS. The Fixed Account Options we offer include the DOLLAR COST AVERAGING FIXED ACCOUNT OPTION, the STANDARD FIXED ACCOUNT OPTION, and the MARKET VALUE ADJUSTED FIXED ACCOUNT OPTION. We may offer additional Fixed Account Options in the future. Some Options are not available in all states. In addition, Lincoln Benefit may limit the availability of some Fixed Account Options. Please consult with your representative for current information. The Fixed Account supports our insurance and annuity obligations. The Fixed Account consists of our general assets other than those in segregated asset accounts. We have sole discretion to invest the assets of the Fixed Account, subject to applicable law. Any money you allocate to the Fixed Account does not entitle you to share in the investment experience of the Fixed Account. DOLLAR COST AVERAGING FIXED ACCOUNT OPTION The Dollar Cost Averaging Fixed Account Option ("DCA Fixed Account Option") is one of the investment alternatives that you can use to establish a Dollar Cost Averaging Program, as described on page 45. This option allows you to allocate purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) to the Fixed Account that will then automatically be transferred, along with interest, in equal monthly installments to the investment alternatives that you have selected. In the future, we may offer other installment frequencies in our discretion. Each purchase payment allocated to the DCA Fixed Account Option must be at least $100. At the time you allocate a purchase payment to the DCA Fixed Account Option, you must specify the term length over which the transfers are to take place. We use the term "Transfer Period Account" to refer to each purchase payment allocation made to the DCA Fixed Account Option for a specified term length. You establish a new Transfer Period Account each time you allocate a purchase payment to the DCA Fixed Account Option. We currently offer term lengths from which you may select for your Transfer Period Account(s), ranging from 3 to 12 months. We may modify or eliminate the term lengths we offer in the future. Refer to Appendix A for more information. Your purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) will earn interest while in the DCA Fixed Account Option at the interest rate in effect at the time of the allocation, depending on the term length chosen for the Transfer Period Account and the type of Contract you have. The interest rates may also differ from those available for other Fixed Account Options. The minimum interest rate associated with the DCA Fixed Account Option is based upon state requirements and the date an application to purchase a Contract is signed. This minimum interest rate will not change after Contract issue. You must transfer all of your money, plus accumulated interest, out of a Transfer Period Account to other investment alternatives in equal monthly installments during the term of the Transfer Period Account. We reserve the right to restrict the investment alternatives available for transfers from any Transfer Period Account. You may not transfer money from the Transfer Period Accounts to any of the Fixed Account Options available under your Contract. The first transfer will occur on the 25th day after you establish a Transfer Period Account and monthly thereafter. If we do not receive an allocation instruction from you when we receive the purchase payment, we will transfer each installment to the money market Variable Sub-account until we receive a different allocation instruction. At the expiration of a Transfer Period Account any remaining amounts in the Transfer Period Account will be transferred to the PIMCO VIT Money Market - Administrative Shares Sub-Account unless you request a different investment alternative. Transferring Contract Value to the PIMCO VIT Money Market - Administrative Shares Sub-Account in this manner may not be consistent with the theory of dollar cost averaging described on page 45. If you discontinue the DCA Fixed Account Option before the expiration of a Transfer Period Account, we will transfer any remaining amount in the Transfer Period Account to the PIMCO VIT Money Market - Administrative Shares Sub-Account unless you request a different investment alternative. If you have a TrueReturn Option or SureIncome Option, at the expiration of a Transfer Period Account or if you discontinue the DCA Fixed Account Option any amounts remaining in the Transfer Period Account will be transferred according to the investment requirements applicable to the Option you selected. You may not transfer money into the DCA Fixed Account Option or add to an existing Transfer Period Account. You may not use the Automatic Additions Program to allocate purchase payments to the DCA Fixed Account Option. The DCA Fixed Account Option currently is not available if you have selected the CONSULTANT SOLUTIONS SELECT CONTRACT. The DCA Fixed Account Option may not be available in your state. Please check with your representative for availability. 40 PROSPECTUS STANDARD FIXED ACCOUNT OPTION If you have selected the CONSULTANT SOLUTIONS CLASSIC CONTRACT, you may allocate purchase payments or transfer amounts into the Standard Fixed Account Option. Each such allocation establishes a "GUARANTEE PERIOD ACCOUNT" within the Standard Fixed Account Option ("Standard Fixed Guarantee Period Account"), which is defined by the date of the allocation. You may not allocate a purchase payment or transfer to any existing Guarantee Period Account. Each purchase payment or transfer allocated to a Standard Fixed Guarantee Period Account must be at least $100. The Standard Fixed Account Option is not available in all states. At the time you allocate a purchase payment or transfer amount to the Standard Fixed Account Option, you must select the Guarantee Period for that allocation from among the available Standard Fixed Guarantee Periods. We currently offer Standard Fixed Guarantee Periods of 1 year in length for CONSULTANT SOLUTIONS CLASSIC. For CONSULTANT SOLUTIONS PLUS, SELECT and ELITE CONTRACTS, we currently are not offering the Standard Fixed Account Option. Refer to Appendix A for more information. We may offer other Guarantee Periods in the future. If you allocate a purchase payment to the Standard Fixed Account Option, but do not select a Standard Fixed Guarantee Period for the new Standard Fixed Guarantee Period Account, we will allocate the purchase payment or transfer to a new Standard Fixed Guarantee Period Account with the same Standard Fixed Guarantee Period as the Standard Fixed Guarantee Period Account of your most recent purchase payment or transfer. If we no longer offer that Standard Fixed Guarantee Period, then we will allocate the purchase payment or transfer to a new Standard Fixed Guarantee Period Account with the next shortest term currently offered. If you have not made a prior allocation to a Guarantee Period Account, then we will allocate the purchase payment or transfer to a new Standard Fixed Guarantee Period Account of the shortest Standard Fixed Guarantee Period we are offering at that time. Some Standard Fixed Guarantee Periods are not available in all states. Please check with your representative for availability. The amount you allocate to a Standard Fixed Guarantee Period Account will earn interest at the interest rate in effect for that Standard Fixed Guarantee Period at the time of the allocation. Interest rates may differ depending on the type of Contract you have and may also differ from those available for other Fixed Account Options. The minimum interest rate associated with the Standard Fixed Account Option is based upon state requirements and the date an application to purchase a Contract is signed. This minimum interest rate will not change after Contract issue. In any Contract Year, the combined amount of withdrawals and transfers from a Standard Fixed Guarantee Period Account may not exceed 30% of the amount used to establish that Standard Fixed Guarantee Period Account. This limitation is waived if you withdraw your entire Contract Value. It is also waived for amounts in a Standard Fixed Guarantee Period Account during the 30 days following its renewal date ("30-DAY WINDOW"), described below, and for a single withdrawal made by your surviving spouse within one year of continuing the Contract after your death. Amounts under the 30% limit that are not withdrawn in a Contract Year do not carry over to subsequent Contract Years. At the end of a Standard Fixed Guarantee Period and each year thereafter, we will declare a renewal interest rate that will be guaranteed for 1 year. Subsequent renewal dates will be on the anniversaries of the first renewal date. Prior to a renewal date, we will send you a notice that will outline the options available to you. During the 30-Day Window following the expiration of a Standard Fixed Guarantee Period Account, the 30% limit for transfers and withdrawals from that Guarantee Period Account is waived and you may elect to: .. transfer all or part of the money from the Standard Fixed Guarantee Period Account to establish a new Guarantee Period Account within the Standard Fixed Account Option; or .. transfer all or part of the money from the Standard Fixed Guarantee Period Account to other investment alternatives available at the time; or .. withdraw all or part of the money from the Standard Fixed Guarantee Period Account. Withdrawal charges and taxes may apply. Withdrawals taken to satisfy IRS minimum distribution rules will count against the 30% limit. The 30% limit will be waived for a Contract Year to the extent that: .. you have already exceeded the 30% limit and you must still make a withdrawal during that Contract Year to satisfy IRS minimum distribution rules; or .. you have not yet exceeded the 30% limit but you must make a withdrawal during that Contract Year to satisfy IRS minimum distribution rules, and such withdrawal will put you over the 30% limit. The money in the Standard Fixed Guarantee Period Account will earn interest at the declared renewal rate from the renewal date until the date we receive notification of your election. If we receive notification of your election to make a transfer or withdrawal from a renewing Standard Fixed Guarantee Period Account on or before the renewal date, the transfer or withdrawal will be deemed to have occurred on the renewal date. If we receive notification of your election to make a transfer or withdrawal from the renewing Standard Fixed Guarantee Period Account after the renewal date, but before the expiration of the 30-Day Window, the 41 PROSPECTUS transfer or withdrawal will be deemed to have occurred on the day we receive such notice. Any remaining balance not withdrawn or transferred from the renewing Standard Fixed Guarantee Period Account will continue to earn interest until the next renewal date at the declared renewal rate. If we do not receive notification from you within the 30-Day Window, we will assume that you have elected to renew the Standard Fixed Guarantee Period Account and the amount in the renewing Standard Fixed Guarantee Period Account will continue to earn interest at the declared renewal rate until the next renewal date, and will be subject to all restrictions of the Standard Fixed Account Option. The Standard Fixed Account Option currently is available only with the CONSULTANT SOLUTIONS CLASSIC CONTRACT. MARKET VALUE ADJUSTED FIXED ACCOUNT OPTION You may allocate purchase payments or transfer amounts into the Market Value Adjusted Fixed Account Option. Each such allocation establishes a Guarantee Period Account within the Market Value Adjusted Fixed Account Option ("Market Value Adjusted Fixed Guarantee Period Account"), which is defined by the date of the allocation and the length of the initial interest rate guarantee period ("MARKET VALUE ADJUSTED FIXED GUARANTEE PERIOD"). You may not allocate a purchase payment or transfer to any existing Guarantee Period Account. Each purchase payment or transfer allocated to a Market Value Adjusted Fixed Guarantee Period Account must be at least $100. At the time you allocate a purchase payment or transfer amount to the Market Value Adjusted Fixed Account Option, you must select the Guarantee Period for that allocation from among the Guarantee Periods available for the Market Value Adjusted Fixed Account Option. We currently offer Market Value Adjusted Fixed Guarantee Periods of 1, 3, 5, 7, and 10 years. Refer to Appendix A for more information. We may offer other Guarantee Periods in the future. If you allocate a purchase payment to the Market Value Adjusted Fixed Account Option, but do not select a Market Value Adjusted Fixed Guarantee Period for the new Market Value Adjusted Fixed Guarantee Period Account, we will allocate the purchase payment or transfer to a new Market Value Adjusted Fixed Guarantee Period Account with the same Market Value Adjusted Fixed Guarantee Period as the Market Value Adjusted Fixed Guarantee Period Account of your most recent purchase payment or transfer. If we no longer offer that Market Value Adjusted Fixed Guarantee Period, then we will allocate the purchase payment or transfer to a new Market Value Adjusted Fixed Guarantee Period Account with the next shortest term currently offered. If you have not made a prior allocation to a Market Value Adjusted Fixed Guarantee Period Account, then we will allocate the purchase payment or transfer to a new Market Value Adjusted Fixed Guarantee Period Account of the shortest Market Value Adjusted Fixed Guarantee Period we are offering at that time. The Market Value Adjusted Fixed Account Option is not available in all states. Please check with your representative for availability. The amount you allocate to a Market Value Adjusted Fixed Guarantee Period Account will earn interest at the interest rate in effect for that Market Value Adjusted Fixed Guarantee Period at the time of the allocation. Interest rates may differ depending on the type of Contract you have and may also differ from those available for other Fixed Account Options. Withdrawals and transfers from a Market Value Adjusted Fixed Guarantee Period Account may be subject to a Market Value Adjustment. A Market Value Adjustment may also apply to amounts in the Market Value Adjusted Fixed Account Option if we pay Death Proceeds or if the Payout Start Date begins on a day other than during the 30-day period after such Market Value Adjusted Fixed Guarantee Period Account expires ("30-Day MVA Window"). We will not make a Market Value Adjustment if you make a transfer or withdrawal during the 30-Day MVA Window. We apply a Market Value Adjustment to reflect changes in interest rates from the time you first allocate money to a Market Value Adjusted Fixed Guarantee Period Account to the time the money is taken out of that Market Value Adjusted Fixed Guarantee Period Account under the circumstances described above. We use the U.S. Treasury Note Constant Maturity Yield as reported in Federal Reserve Statistical Release H.15 ("Treasury Rate") to calculate the Market Value Adjustment. We do so by comparing the Treasury Rate for a maturity equal to the Market Value Adjusted Fixed Guarantee Period at the time the Market Value Adjusted Fixed Guarantee Period Account is established with the Treasury Rate for the same maturity at the time the money is taken from the Market Value Adjusted Fixed Guarantee Period Account. The Market Value Adjustment may be positive or negative, depending on changes in interest rates. As such, you bear the investment risk associated with changes in interest rates. If interest rates have increased since the establishment of a Market Value Adjusted Fixed Guarantee Period Account, the Market Value Adjustment, together with any applicable withdrawal charges, premium taxes, and income tax withholdings could reduce the amount you receive upon full withdrawal from a Market Value Adjusted Fixed Guarantee Period Account to an amount less than the purchase payment used to establish that Market Value Adjusted Fixed Guarantee Period Account. Generally, if at the time you establish a Market Value Adjusted Fixed Guarantee Period Account, the Treasury Rate for a maturity equal to that Market Value Adjusted Fixed Guarantee Period is higher than the applicable 42 PROSPECTUS Treasury Rate at the time money is to be taken from the Market Value Adjusted Fixed Guarantee Period Account, the Market Value Adjustment will be positive. Conversely, if at the time you establish a Market Value Adjusted Fixed Guarantee Period Account, the applicable Treasury Rate is lower than the applicable Treasury Rate at the time the money is to be taken from the Market Value Adjusted Fixed Guarantee Period Account, the Market Value Adjustment will be negative. For example, assume that you purchase a Contract and allocate part of the initial purchase payment (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) to the Market Value Adjusted Fixed Account Option to establish a 5-year Market Value Adjusted Fixed Guarantee Period Account. Assume that the 5-year Treasury Rate at that time is 4.50%. Next, assume that at the end of the 3rd year, you withdraw money from the Market Value Adjusted Fixed Guarantee Period Account. If, at that time, the 5-year Treasury Rate is 4.20%, then the Market Value Adjustment will be positive. Conversely, if the 5-year Treasury Rate at that time is 4.80%, then the Market Value Adjustment will be negative. The formula used to calculate the Market Value Adjustment and numerical examples illustrating its application are shown in Appendix B of this prospectus. At the end of a Market Value Adjusted Fixed Guarantee Period, the Market Value Adjusted Fixed Guarantee Period Account expires and we will automatically transfer the money from such Guarantee Period Account to establish a new Market Value Adjusted Fixed Guarantee Period Account with the same Market Value Adjusted Fixed Guarantee Period, unless you notify us otherwise. The new Market Value Adjusted Fixed Guarantee Period Account will be established as of the day immediately following the expiration date of the expiring Market Value Adjusted Guarantee Period Account ("New Account Start Date.") If the Market Value Adjusted Fixed Guarantee Period is no longer being offered, we will establish a new Market Value Adjusted Fixed Guarantee Period Account with the next shortest Market Value Adjusted Fixed Guarantee Period available. Prior to the expiration date, we will send you a notice, which will outline the options available to you. During the 30-Day MVA Window a Market Value Adjustment will not be applied to transfers and withdrawals from the expiring Market Value Adjusted Fixed Guarantee Period Account and you may elect to: .. transfer all or part of the money from the Market Value Adjusted Fixed Guarantee Period Account to establish a new Guarantee Period Account within the Market Value Adjusted Fixed Account Option; or .. transfer all or part of the money from the Market Value Adjusted Fixed Guarantee Period Account to other investment alternatives available at the time; or .. withdraw all or part of the money from the Market Value Adjusted Fixed Guarantee Period Account. Withdrawal charges and taxes may apply. The money in the Market Value Adjusted Fixed Guarantee Period Account will earn interest at the interest rate declared for the new Market Value Adjusted Fixed Guarantee Period Account from the New Account Start Date until the date we receive notification of your election. If we receive notification of your election to make a transfer or withdrawal from an expiring Market Value Adjusted Fixed Guarantee Period Account on or before the New Account Start Date, the transfer or withdrawal will be deemed to have occurred on the New Account Start Date. If we receive notification of your election to make a transfer or withdrawal from the expiring Market Value Adjusted Fixed Guarantee Period Account after the New Account Start Date, but before the expiration of the 30-Day MVA Window, the transfer or withdrawal will be deemed to have occurred on the day we receive such notice. Any remaining balance not withdrawn or transferred will earn interest for the term of the new Market Value Adjusted Fixed Guarantee Period Account, at the interest rate declared for such Account. If we do not receive notification from you within the 30-Day Window, we will assume that you have elected to transfer the amount in the expiring Market Value Adjusted Fixed Guarantee Period Account to establish a new Market Value Adjusted Fixed Guarantee Period Account with the same Market Value Adjusted Fixed Guarantee Period, and the amount in the new Market Value Adjusted Fixed Guarantee Period Account will continue to earn interest at the interest rate declared for the new Market Value Adjusted Fixed Guarantee Period Account, and will be subject to all restrictions of the Market Value Adjusted Fixed Account Option. If we no longer offer that Market Value Adjusted Fixed Guarantee Period, the Market Value Adjusted Fixed Guarantee Period for the new Market Value Adjusted Fixed Guarantee Period Account will be the next shortest term length we offer for the Market Value Adjusted Fixed Account Option at that time, and the interest rate will be the rate declared by us at that time for such term. 43 PROSPECTUS INVESTMENT ALTERNATIVES: TRANSFERS - -------------------------------------------------------------------------------- TRANSFERS DURING THE ACCUMULATION PHASE During the Accumulation Phase, you may transfer Contract Value among the investment alternatives. You may not transfer Contract Value to the DCA Fixed Account Option or add to an existing Transfer Period Account. You may request transfers in writing on a form that we provided or by telephone according to the procedure described below. You may make up to 12 transfers per Contract Year without charge. Currently, a transfer fee equal to 1.00% of the amount transferred applies to each transfer after the 12th transfer in any Contract Year. This fee may be changed, but in no event will it exceed 2.00% of the amount transferred. Multiple transfers on a single Valuation Date are considered a single transfer for purposes of assessing the transfer fee. If you added the TrueReturn Accumulation Benefit Option or SureIncome Option to your Contract, certain restrictions on transfers apply. See the "TrueReturn Accumulation Benefit Option" and "SureIncome Withdrawal Benefit Option" sections of this prospectus for more information. In any event, the transfer fee will never be greater than $25. The minimum amount that you may transfer from the Standard Fixed Account Option, Market Value Adjusted Fixed Account Option or a Variable Sub-account is $100 or the total remaining balance in the Standard Fixed Account Option, Market Value Adjusted Fixed Account Option or the Variable Sub-account, if less. These limitations do not apply to the DCA Fixed Account Option. The total amount that you may transfer or withdraw from a Standard Fixed Guarantee Period Account in a Contract Year is 30% of the amount used to establish that Guarantee Period Account. See "Standard Fixed Account Option". The minimum amount that can be transferred to the Standard Fixed Account Option and the Market Value Adjusted Fixed Account Option is $100. We will process transfer requests that we receive before 3:00 p.m. Central Time on any Valuation Date using the Accumulation Unit Values for that Date. We will process requests completed after 3:00 p.m. on any Valuation Date using the Accumulation Unit Values for the next Valuation Date. The Contract permits us to defer transfers from the Fixed Account Options for up to 6 months from the date we receive your request. If we decide to postpone transfers from any Fixed Account Option for 30 days or more, we will pay interest as required by applicable law. Any interest would be payable from the date we receive the transfer request to the date we make the transfer. For CONSULTANT SOLUTIONS SELECT CONTRACTS, the maximum amount that may be allocated during any single day to certain selected funds by telephone, fax, Internet, overnight or express mail services, same day messenger, or in person is $25,000. All trades exceeding this daily limit must be made by first class US Mail. The funds currently affected by this restriction are: Fidelity VIP Overseas - Service Class 2 Sub-Account Janus Aspen Series Overseas - Service Shares Sub-Account Oppenheimer Global Securities/VA - Service Shares Sub-Account Van Eck VIP Emerging Markets Sub-Account MFS High Income - Service Class Sub-Account Legg Mason Western Asset Variable Global High Yield Bond - Class II Sub-Account We reserve the right to waive any transfer restrictions. TRANSFERS DURING THE PAYOUT PHASE During the Payout Phase, you may make transfers among the Variable Sub-Accounts so as to change the relative weighting of the Variable Sub-Accounts on which your variable income payments will be based. You may make up to 12 transfers per Contract Year within each Income Plan. You may not convert any portion of your fixed income payments into variable income payments. You may not make transfers among Income Plans. You may make transfers from the variable income payments to the fixed income payments to increase the proportion of your income payments consisting of fixed income payments, unless you have selected the Income Protection Benefit Option. TELEPHONE OR ELECTRONIC TRANSFERS You may make transfers by telephone by calling 800-457-7617. The cut-off time for telephone transfer requests is 3:00 p.m. Central Time. In the event that the New York Stock Exchange closes early, i.e., before 3:00 p.m. Central Time, or in the event that the Exchange closes early for a period of time but then reopens for trading on the same day, we will process telephone transfer requests as of the close of the Exchange on that particular day. We will not accept telephone requests received from you at any telephone number other than the number that appears in this paragraph or received after the close of trading on the Exchange. If you own the Contract with a joint Contract Owner, unless we receive contrary instructions, we will accept instructions from either you or the other Contract Owner. We may suspend, modify or terminate the telephone transfer privilege, as well as any other electronic or automated means we previously approved, at any time without notice. We use procedures that we believe provide reasonable assurance that the telephone transfers are genuine. For example, we tape telephone conversations with persons purporting to authorize transfers and request identifying information. Accordingly, we disclaim any liability for losses resulting from allegedly unauthorized telephone transfers. However, if we do not take reasonable steps to 44 PROSPECTUS help ensure that a telephone authorization is valid, we may be liable for such losses. MARKET TIMING & EXCESSIVE TRADING The Contracts are intended for long-term investment. Market timing and excessive trading can potentially dilute the value of Variable Sub-Accounts and can disrupt management of a Portfolio and raise its expenses, which can impair Portfolio performance and adversely affect your Contract Value. Our policy is not to accept knowingly any money intended for the purpose of market timing or excessive trading. Accordingly, you should not invest in the Contract if your purpose is to engage in market timing or excessive trading, and you should refrain from such practices if you currently own a Contract. We seek to detect market timing or excessive trading activity by reviewing trading activities. Portfolios also may report suspected market-timing or excessive trading activity to us. If, in our judgment, we determine that the transfers are part of a market timing strategy or are otherwise harmful to the underlying Portfolio, we will impose the trading limitations as described below under "Trading Limitations." Because there is no universally accepted definition of what constitutes market timing or excessive trading, we will use our reasonable judgment based on all of the circumstances. While we seek to deter market timing and excessive trading in Variable Sub-Accounts, because our procedures involve the exercise of reasonable judgment, we may not identify or prevent some market timing or excessive trading. Moreover, imposition of trading limitations is triggered by the detection of market timing or excessive trading activity, and the trading limitations are not applied prior to detection of such trading activity. Therefore, our policies and procedures do not prevent such trading activity before it is detected. As a result, some investors may be able to engage in market timing and excessive trading, while others are prohibited, and the Portfolio may experience the adverse effects of market timing and excessive trading described above. TRADING LIMITATIONS We reserve the right to limit transfers among the investment alternatives in any Contract year, require that all future transfer requests be submitted through U.S. Postal Service First Class Mail thereby refusing to accept transfer requests via telephone, facsimile, Internet, or overnight delivery, or to refuse any transfer request, if: .. we believe, in our sole discretion, that certain trading practices, such as excessive trading, by, or on behalf of, one or more Contract Owners, or a specific transfer request or group of transfer requests, may have a detrimental effect on the Accumulation Unit Values of any Variable Sub-Account or on the share prices of the corresponding Portfolio or otherwise would be to the disadvantage of other Contract Owners; or .. we are informed by one or more of the Portfolios that they intend to restrict the purchase, exchange, or redemption of Portfolio shares because of excessive trading or because they believe that a specific transfer or group of transfers would have a detrimental effect on the prices of Portfolio shares. In making the determination that trading activity constitutes market timing or excessive trading, we will consider, among other things: .. the total dollar amount being transferred, both in the aggregate and in the transfer request; .. the number of transfers you make over a period of time and/or the period of time between transfers (note: one set of transfers to and from a Variable Sub-Account in a short period of time can constitute market timing); .. whether your transfers follow a pattern that appears designed to take advantage of short term market fluctuations, particularly within certain Variable Sub-Account underlying Portfolios that we have identified as being susceptible to market timing activities (e.g., International, High Yield, and Small Cap Variable Sub-Accounts); .. whether the manager of the underlying Portfolio has indicated that the transfers interfere with Portfolio management or otherwise adversely impact the Portfolio; and .. the investment objectives and/or size of the Variable Sub-Account underlying Portfolio. We seek to apply these trading limitations uniformly. However, because these determinations involve the exercise of discretion, it is possible that we may not detect some market timing or excessive trading activity. As a result, it is possible that some investors may be able to engage in market timing or excessive trading activity, while others are prohibited, and the Portfolio may experience the adverse effects of market timing and excessive trading described above. If we determine that a Contract Owner has engaged in market timing or excessive trading activity, we will require that all future transfer requests be submitted through U.S. Postal Service First Class Mail thereby refusing to accept transfer requests via telephone, facsimile, Internet, or overnight delivery. If we determine that a Contract Owner continues to engage in a pattern of market timing or excessive trading activity we will restrict that Contract Owner from making future additions or transfers into the impacted Variable Sub-Account(s) or will restrict that Contract Owner from making future additions or transfers into the class of Variable Sub-Account(s) if the Variable Sub-Accounts(s) involved are vulnerable to arbitrage market timing trading activity (e.g., International, High Yield, and Small Cap Variable Sub-Accounts). 45 PROSPECTUS In our sole discretion, we may revise our Trading Limitations at any time as necessary to better deter or minimize market timing and excessive trading or to comply with regulatory requirements. SHORT TERM TRADING FEES The underlying Portfolios are authorized by SEC regulation to adopt and impose redemption fees if a Portfolio's Board of Directors determines that such fees are necessary to minimize or eliminate short-term transfer activity that can reduce or dilute the value of outstanding shares issued by the Portfolio. The Portfolio will set the parameters relating to the redemption fee and such parameters may vary by Portfolio. If a Portfolio elects to adopt and charge redemption fees, these fees will be passed on to the Contract Owner(s) responsible for the short-term transfer activity generating the fee. We will administer and collect redemption fees in connection with transfers between the Variable Sub-Accounts and forward these fees to the Portfolio. Please consult the Portfolio's prospectus for more complete information regarding the fees and charges associated with each Portfolio. DOLLAR COST AVERAGING PROGRAM Through our Dollar Cost Averaging Program, you may automatically transfer a fixed dollar amount on a regular basis from any Variable Sub-Account or any Fixed Account Option to any of the other Variable Sub-Accounts. You may not use the Dollar Cost Averaging Program to transfer amounts to the Fixed Account Options. This program is available only during the Accumulation Phase. We will not charge a transfer fee for transfers made under this Program, nor will such transfers count against the 12 transfers you can make each Contract Year without paying a transfer fee. The theory of dollar cost averaging is that if purchases of equal dollar amounts are made at fluctuating prices, the aggregate average cost per unit will be less than the average of the unit prices on the same purchase dates. However, participation in this Program does not assure you of a greater profit from your purchases under the Program nor will it prevent or necessarily reduce losses in a declining market. Call or write us for instructions on how to enroll. AUTOMATIC PORTFOLIO REBALANCING PROGRAM Once you have allocated your money among the Variable Sub-Accounts, the performance of each Sub-Account may cause a shift in the percentage you allocated to each Sub-Account. If you select our Automatic Portfolio Rebalancing Program, we will automatically rebalance the Contract Value in each Variable Sub-Account and return it to the desired percentage allocations. Money you allocate to the Fixed Account will not be included in the rebalancing. We will rebalance your account quarterly, semi-annually, or annually. We will measure these periods according to your instructions. We will transfer amounts among the Variable Sub-Accounts to achieve the percentage allocations you specify. You can change your allocations at any time by contacting us in writing or by telephone. The new allocation will be effective with the first rebalancing that occurs after we receive your written or telephone request. We are not responsible for rebalancing that occurs prior to receipt of proper notice of your request. Example: Assume that you want your initial purchase payment split among 2 Variable Sub-accounts. You want 40% to be in the PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative Shares Sub-Account Variable Sub-account and 60% to be in the Fidelity VIP Index 500 - Service Class 2 Sub-Account Variable Sub-account. Over the next 2 months the bond market does very well while the stock market performs poorly. At the end of the first quarter, the PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative Shares Sub-Account Variable Sub-account now represents 50% of your holdings because of its increase in value. If you choose to have your holdings in a Contract or Contracts rebalanced quarterly, on the first day of the next quarter we would sell some of your units in the PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative Shares Sub-Account Variable Sub-account for the appropriate Contract(s) and use the money to buy more units in the Fidelity VIP Index 500 - Service Class 2 Sub-Account Variable Sub-account so that the percentage allocations would again be 40% and 60% respectively. The transfers made under the program do not count towards the 12 transfers you can make without paying a transfer fee, and are not subject to a transfer fee. Portfolio rebalancing is consistent with maintaining your allocation of investments among market segments, although it is accomplished by reducing your Contract Value allocated to the Variable Sub-Accounts that performed better during the previous time period. 46 PROSPECTUS EXPENSES - -------------------------------------------------------------------------------- As a Contract Owner, you will bear, directly or indirectly, the charges and expenses described below. CONTRACT MAINTENANCE CHARGE During the Accumulation Phase, on each Contract Anniversary, we will deduct a $40 contract maintenance charge from your assets invested in the PIMCO Money Market Variable Sub-account ($30 if the Contract value is equal to or greater than $2,000.) If there are insufficient assets in that Variable Sub-account, we will deduct the balance of the charge proportionally from the other Variable Sub-accounts. We also will deduct this charge if you withdraw your entire Contract Value, unless your Contract qualifies for a waiver. During the Payout Phase, we will deduct the charge proportionately from each income payment. The charge is to compensate us for the cost of administering the Contracts and the Variable Account. Maintenance costs include expenses we incur in billing and collecting purchase payments; keeping records; processing death claims, cash withdrawals, and policy changes; proxy statements; calculating Accumulation Unit Values and income payments; and issuing reports to Contract Owners and regulatory agencies. We cannot increase the charge. We will waive this charge for a Contract Anniversary if, on that date: .. your Contract Value is equal to or greater than $50,000; or .. your entire Contract Value is allocated to the Fixed Account Options or, after the Payout Start Date, if all income payments are fixed income payments. We also reserve the right to waive this charge if you own more than one Contract and the Contracts meet certain minimum dollar amount requirements. In addition, we reserve the right to waive this charge for all Contracts. ADMINISTRATIVE EXPENSE CHARGE We currently deduct an administrative expense charge daily at an annual rate of 0.10% of the average daily net assets you have invested in the Variable Sub-accounts. We intend this charge to cover actual administrative expenses that exceed the revenues from the contract maintenance charge. There is no necessary relationship between the amount of administrative charge imposed on a given Contract and the amount of expenses that may be attributed to that Contract. We assess this charge each day during the Accumulation Phase and the Payout Phase. We may increase this charge for Contracts issued in the future, but in no event will it exceed 0.25%. We guarantee that after your Contract is issued we will not increase this charge for your Contract. MORTALITY AND EXPENSE RISK CHARGE We deduct a mortality and expense risk charge daily from the net assets you have invested in the Variable Sub-Accounts. We assess mortality and expense risk charges during the Accumulation and Payout Phases of the Contract, except as noted below. The annual mortality and expense risk charge for the Contracts without any optional benefit are as follows: Consultant Solutions Classic 1.25% ----------------------------------- Consultant Solutions Plus 1.45% ----------------------------------- Consultant Solutions Elite 1.60% ----------------------------------- Consultant Solutions Select 1.70% -----------------------------------
The mortality and expense risk charge is for all the insurance benefits available with your Contract (including our guarantee of annuity rates and the death benefits), for certain expenses of the Contract, and for assuming the risk (expense risk) that the current charges will not be sufficient in the future to cover the cost of administering the Contract. The mortality and expense risk charge also helps pay for the cost of the Credit Enhancement under the CONSULTANT SOLUTIONS PLUS CONTRACT. If the charges under the Contract are not sufficient, then we will bear the loss. We charge an additional amount for the optional benefits to compensate us for the additional risk that we accept by providing these options. You will pay additional mortality and expense risk charges if you add any optional benefits to your Contract. The additional mortality and expense risk charge you pay will depend upon which of the options you select: .. MAV Death Benefit Option: The current mortality and expense risk charge for this option is 0.20%. This charge may be increased, but will never exceed 0.50%. We guarantee that we will not increase the mortality and expense risk charge for this option after you have added it to your Contract. We deduct the charge for this option only during the Accumulation Phase. .. Annual Increase Death Benefit Option: The current mortality and expense risk charge for this option is 0.30%. This charge may be increased, but will never exceed 0.50%. We guarantee that we will not increase the mortality and expense risk charge for this option after you have added it to your Contract. We deduct the charge for this option only during the Accumulation Phase. .. Enhanced Earnings Death Benefit Option: The current mortality and expense risk charge for this option is: . 0.25% (maximum of 0.35%) if the oldest Contract Owner and Co-Annuitant, or, if the Contract is owned by a non-living person, the 47 PROSPECTUS oldest Annuitant, are age 70 or younger on the Rider Application Date; . 0.40% (maximum of 0.50%) if the oldest Contract Owner or, if older, the Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, is age 71 or older and age 79 or younger on the Rider Application Date. . The charges may be increased but they will never exceed the maximum charges shown above. We guarantee that we will not increase the mortality and expense risk charge for this option after you have added it to your Contract. However, if your spouse elects to continue the Contract in the event of your death and if he or she elects to continue the Enhanced Earnings Death Benefit Option, the charge will be based on the age of the new Contract Owner at the time the Contract is continued. Refer to the Death Benefit Payments provision in this prospectus for more information. We deduct the charge for this option only during the Accumulation Phase. .. Income Protection Benefit Option: The current mortality and expense risk charge for this option is 0.50%. This charge may be increased, but will never exceed 0.75%. We guarantee that we will not increase the mortality and expense risk for this option after you have added it to your Contract. This option may be added to your Contract on the Payout Start Date. The charge will be deducted only during the Payout Phase. TRUERETURN ACCUMULATION BENEFIT OPTION FEE We charge a separate annual Rider Fee for the TrueReturn Accumulation Benefit Option. The current annual Rider Fee is 0.50% of the Benefit Base. We deduct the Rider Fee on each Contract Anniversary during the Rider Period or until you terminate the Option, if earlier. We reserve the right to increase the Rider Fee to up to 1.25%. We currently charge the same Rider Fee regardless of the Rider Period and Guarantee Option you select, however we reserve the right to charge different fees for different Rider Periods and Guarantee Options in the future. However, once we issue your Option, we cannot change the Rider Fee that applies to your Contract. If you elect to exercise the Rider Trade-In Option, the new Rider Fee will be based on the Rider Fee percentage applicable to a new TrueReturn Accumulation Benefit Option at the time of trade-in. The Rider Fee is deducted only from the Variable Sub-account(s) on a pro rata basis in the proportion that your value in each Variable Sub-account bears to your total value in all Variable Sub-accounts. Rider Fees will decrease the number of Accumulation Units in each Variable Sub-account. If you terminate the Option, or terminate the Contract by a total withdrawal, prior to the Rider Maturity Date on a date other than the Contract Anniversary, we will deduct a Rider Fee that is prorated based on the number of full months between the Contract Anniversary immediately prior to the termination and the date of the termination. However, if the Option is terminated due to death of the Contract Owner or Annuitant, we will not charge a Rider Fee unless the date we receive a Complete Request for Settlement of the Death Proceeds is also a Contract Anniversary. If the Option is terminated on the Payout Start Date, we will not charge a Rider Fee unless the Payout Start Date is also a Contract Anniversary. Additionally, if you elect to exercise the Rider Trade-In Option and cancel the Option on a date other than a Contract Anniversary, we will not deduct a Rider Fee on the date the Option is terminated. Refer to the "TrueReturn Accumulation Benefit Option" section of this prospectus for more information. SPOUSAL PROTECTION BENEFIT (CO-ANNUITANT) OPTION FEE We charge a separate annual Rider Fee for the Spousal Protection Benefit (Co-Annuitant) Option. The current annual Rider Fee is 0.10% of the Contract Value. This fee applies to Options added on or after May 1, 2005. For Options added prior to May 1, 2005, there is no charge associated with the Options. We deduct the Rider Fee on each Contract Anniversary and in certain circumstances on the date you terminate the Option. We reserve the right to increase the annual Rider Fee on newly issued Options to up to 0.15% of the Contract Value. We also reserve the right to charge different Rider Fees for new Spousal Protection Benefit (Co-Annuitant) Options we offer in the future. However, once we issue your Option, we cannot change the Rider Fee that applies to your Contract. The Rider Fee is deducted only from the Variable Sub-Account(s) on a pro-rata basis in the proportion that your value in each Variable Sub-Account bears to your total value in all Variable Sub-Accounts. Rider Fees will decrease the number of Accumulation Units in each Variable Sub-Account. If, at the time the Rider Fee is deducted, the Rider Fee exceeds the total value in all Variable Sub-Accounts, the excess of the Rider Fee over the total value in all Variable Sub-Accounts will be waived. The first Rider Fee will be deducted on the first Contract Anniversary following the Rider Date. A Rider Fee will be deducted on each subsequent Contract Anniversary while the Rider is in force. For the first Contract Anniversary following the Rider Date, the Rider Fee is equal to the number of full months from the Rider Date to the first Contract Anniversary, divided by twelve, multiplied by 0.10%, with the result multiplied by the Contract Value as of the first Contract Anniversary. For subsequent Contract 48 PROSPECTUS Anniversaries, the Rider Fee is equal to 0.10% multiplied by the Contract Value as of that Contract Anniversary. If the Rider is terminated for any reason on a Contract Anniversary, we will deduct a full Rider Fee. If the Option is terminated on a date other than a Contract Anniversary, we will deduct a pro rata Rider Fee, except we will not charge any Rider Fee if the Option is terminated on the Payout Start Date or due to the death of the Contract Owner or Annuitant. If we charge a Rider Fee on the termination of the Option, the Rider Fee will be reduced pro rata, so that you are only charged for the number of full months this Option was in effect. SUREINCOME WITHDRAWAL BENEFIT OPTION FEE We charge a separate annual Rider Fee for the SureIncome Option ("SureIncome Option Fee" or "Rider Fee"). The current annual Rider Fee is 0.50% of the Benefit Base. We deduct the Rider Fee on each Contract Anniversary up to and including the date you terminate the Option. We reserve the right to increase the Rider Fee to up to 1.25% of the Benefit Base. We also reserve the right to charge different Rider Fees for different Withdrawal Benefit Factors we may offer in the future. However, once we issue your SureIncome Option, we cannot change the Rider Fee that applies to your Option. If you elect to exercise the Rider Trade-In Option, the new Rider Fee will be based on the Rider Fee percentage applicable to a new SureIncome Option at the time of trade-in. The Rider Fee is deducted only from the Variable Sub-Account(s) on a pro-rata basis in the proportion that your Contract Value in each Variable Sub-Account bears to your total Contract Value in all Variable Sub-Accounts. Rider Fees will decrease the number of Accumulation Units in each Variable Sub-Account. If, at the time the Rider Fee is deducted, the Rider Fee exceeds the total Contract Value in all Variable Sub-Accounts, the excess of the Rider Fee over the total Contract Value in all Variable Sub-Accounts will be waived. The first Rider Fee will be deducted on the first Contract Anniversary following the Rider Date. A Rider Fee will be deducted on each subsequent Contract Anniversary the SureIncome Option is in force. For the first Contract Anniversary following the Rider Date, the Rider Fee is equal to the number of full months from the Rider Date to the first Contract Anniversary, divided by twelve, multiplied by 0.50%, with the result multiplied by the Benefit Base as of the first Contract Anniversary. For subsequent Contract Anniversaries, the Rider Fee is equal to the 0.50% multiplied by the Benefit Base as of that Contract Anniversary. If the SureIncome Option is terminated for any reason on a Contract Anniversary, we will deduct a full Rider Fee. If the SureIncome Option is terminated on a date other than a Contract Anniversary, we will deduct a pro rata Rider Fee, except we will not charge any Rider Fee if the SureIncome Option is terminated on the Payout Start Date or due to the death of the Contract Owner or Annuitant. If we charge a Rider Fee on the termination of the SureIncome Option, the Rider Fee will be reduced pro rata, so that you are only charged for the number of full months the SureIncome Option was in effect. TRANSFER FEE We impose a fee upon transfers in excess of 12 during any Contract Year. The current fee is equal to 1.00% of the dollar amount transferred. This fee may be increased, but in no event will it exceed 2.00% of the dollar amount transferred. In any event, the transfer fee will never be greater than $25. We will not charge a transfer fee on transfers that are part of a Dollar Cost Averaging Program or Automatic Portfolio Rebalancing Program. WITHDRAWAL CHARGE For all of the contracts except the CONSULTANT SOLUTIONS SELECT, we may assess a withdrawal charge from the purchase payment(s) you withdraw. The amount of the charge will depend on the number of years that have elapsed since we received the purchase payment being withdrawn. A schedule showing the withdrawal charges applicable to each Contract appears on page 11. If you make a withdrawal before the Payout Start Date, we will apply the withdrawal charge percentage in effect on the date of the withdrawal, or the withdrawal charge percentage in effect on the following day, whichever is lower. Withdrawals also may be subject to tax penalties or income tax. You should consult with your tax counsel or other tax advisor regarding any withdrawals. Withdrawals from the Market Value Adjusted Fixed Account Option may be subject to a market value adjustment. Refer to page 39 for more information on market value adjustments. FREE WITHDRAWAL AMOUNT You can withdraw up to the Free Withdrawal Amount each Contract Year without paying the withdrawal charge. The Free Withdrawal Amount for a Contract Year is equal to 15% of all purchase payments (excluding Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) that are subject to a withdrawal charge as of the beginning of that Contract Year, plus 15% of the purchase payments added to the Contract during the Contract Year. The withdrawal charge applicable to Contracts owned by Charitable Remainder Trusts is described below. Purchase payments no longer subject to a withdrawal charge will not be used to determine the Free Withdrawal Amount for a Contract Year, nor will they be assessed a withdrawal charge, if withdrawn. The Free Withdrawal Amount is not available in the Payout Phase. You may withdraw up to the Free Withdrawal Amount in each Contract Year it is available without paying a 49 PROSPECTUS withdrawal charge; however, the amount withdrawn may be subject to a Market Value Adjustment or applicable taxes. If you do not withdraw the entire Free Withdrawal Amount in a Contract Year, any remaining portion may not be carried forward to increase the Free Withdrawal Amount in a later Contract Year. For purposes of assessing the withdrawal charge, we will treat withdrawals as coming from the oldest purchase payments first as follows: 1) Purchase payments that no longer are subject to withdrawal charges; 2) Free Withdrawal Amount (if available); 3) Remaining purchase payments subject to withdrawal charges, beginning with the oldest purchase payment; 4) Any earnings not previously withdrawn. However, for federal income tax purposes, earnings are considered to come out first, which means that you will pay taxes on the earnings portion of your withdrawal. If the Contract Owner is a Charitable Remainder Trust, the Free Withdrawal Amount in a Contract Year is equal to the greater of: .. The Free Withdrawal Amount described above; or .. Earnings as of the beginning of the Contract Year that have not been previously withdrawn. For purposes of assessing the withdrawal charge for a Charitable Remainder Trust-Owned Contract, we will treat withdrawals as coming from the earnings first and then the oldest purchase payments as follows: 1) Earnings not previously withdrawn; 2) Purchase payments that are no longer subject to withdrawal charges; 3) Free Withdrawal Amount in excess of earnings; 4) Purchase payments subject to withdrawal charges, beginning with the oldest purchase payment. If you have selected the CONSULTANT SOLUTIONS SELECT CONTRACT, there are no withdrawal charges applicable and, therefore, no Free Withdrawal Amount. Amounts withdrawn may be subject to a Market Value Adjustment or applicable taxes. ALL CONTRACTS We do not apply a withdrawal charge in the following situations: .. the death of the Contract Owner or Annuitant (unless the Settlement Value is used); .. withdrawals taken to satisfy IRS minimum distribution rules for the Contract; or .. withdrawals that qualify for one of the waivers described below. We use the amounts obtained from the withdrawal charge to pay sales commissions and other promotional or distribution expenses associated with marketing the Contracts, and to help defray the cost of the Credit Enhancement for the CONSULTANT SOLUTIONS PLUS CONTRACTS. To the extent that the withdrawal charge does not cover all sales commissions and other promotional or distribution expenses, or the cost of the Credit Enhancement, we may use any of our corporate assets, including potential profit which may arise from the mortality and expense risk charge or any other charges or fee described above, to make up any difference. Withdrawals taken prior to annuitization (referred to in this prospectus as the Payout Phase) are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal tax penalty. You should consult your own tax counsel or other tax advisers regarding any withdrawals. CONFINEMENT WAIVER. We will waive the withdrawal charge on all withdrawals taken under your Contract if the following conditions are satisfied: 1. you, or, if the Contract Owner is not a living person, the Annuitant, are first confined to a long term care facility or a hospital for at least 90 consecutive days. You or the Annuitant must first enter the long term care facility or hospital at least 30 days after the Issue Date, 2. we receive your request for withdrawal and written proof of the stay no later than 90 days following the end of your or the Annuitant's stay at the long term care facility or hospital, and 3. Due proof of confinement is received by us prior to or at the time of, a request for a withdrawal. "DUE PROOF" includes, but is not limited to, a letter signed by a physician stating the dates the Owner or Annuitant was confined, the name and location of the Long Term Care Facility or Hospital, a statement that the confinement was medically necessary, and, if released, the date the Owner or Annuitant was released from the Long Term Care Facility or Hospital. TERMINAL ILLNESS WAIVER. We will waive the withdrawal charge on all withdrawals under your Contract if: 1. you or the Annuitant, if the Contract Owner is not a living person, are diagnosed by a physician as having a terminal illness (as defined in the Contract) at least 30 days after the Issue Date, and 2. you provide Due Proof of diagnosis to us before or at the time you request the withdrawal. "DUE PROOF" includes, but is not limited to, a letter signed by a physician stating that the Owner or 50 PROSPECTUS Annuitant has a Terminal Illness and the date the Terminal Illness was first diagnosed. UNEMPLOYMENT WAIVER. We will waive the withdrawal charge on one partial or a full withdrawal taken under your Contract, if you meet the following requirements: 1. you or the Annuitant, if the Contract Owner is not a living person, become unemployed at least one year after the Issue Date, 2. you or the Annuitant receive unemployment compensation (as defined in the Contract) for at least 30 days as a result of that unemployment, and 3. you or the Annuitant claim this benefit within 180 days of your or the Annuitant's initial receipt of unemployment compensation, and we receive due proof that you are or have been unemployed and that unemployment compensation has been received for at least thirty consecutive days prior to or at the time of the request for withdrawal. "UNEMPLOYMENT COMPENSATION" means unemployment compensation received from a unit of state or federal government in the U.S. "DUE PROOF" includes, but is not limited to, a legible photocopy of an unemployment compensation payment that meets the above described criteria with regard to dates and a signed letter from you stating that you or the Annuitant meet the above described criteria. You may exercise this benefit once over the term of the Contract. Amounts withdrawn may be subject to Market Value Adjustments. These waivers do not apply under the CONSULTANT SOLUTIONS SELECT. Please refer to your Contract for more detailed information about the terms and conditions of these waivers. The laws of your state may limit the availability of these waivers and may also change certain terms and/or benefits available under the waivers. You should consult your Contract for further details on these variations. Also, even if you do not pay a withdrawal charge because of these waivers, a Market Value Adjustment may apply and you still may be required to pay taxes or tax penalties on the amount withdrawn. You should consult your tax advisor to determine the effect of a withdrawal on your taxes. PREMIUM TAXES Some states and other governmental entities (e.g., municipalities) charge premium taxes or similar taxes. We are responsible for paying these taxes and will deduct them from your Contract Value. Some of these taxes are due when the Contract is issued, others are due when income payments begin or upon surrender. Our current practice is not to charge anyone for these taxes until income payments begin or when a total withdrawal occurs including payment upon death. We may some time in the future discontinue this practice and deduct premium taxes from the purchase payments. Premium taxes generally range from 0% to 4%, depending on the state. At the Payout Start Date, we deduct the charge for premium taxes from each investment alternative in the proportion that the Contract Value in the investment alternative bears to the total Contract Value. DEDUCTION FOR VARIABLE ACCOUNT INCOME TAXES We are not currently maintaining a provision for taxes. In the future, however, we may establish a provision for taxes if we determine, in our sole discretion, that we will incur a tax as a result of the operation of the Variable Account. We will deduct for any taxes we incur as a result of the operation of the Variable Account, whether or not we previously made a provision for taxes and whether or not it was sufficient. Our status under the Internal Revenue Code is briefly described in the "Taxes" section of this prospectus. OTHER EXPENSES Each Portfolio deducts management fees and other expenses from its assets. You indirectly bear the charges and expenses of the Portfolios whose shares are held by the Variable Sub-accounts. These fees and expenses are described in the prospectuses for the Portfolios. For a summary of Portfolio annual expenses, see page 11. We receive compensation from the investment advisers, administrators or distributors, or their affiliates, of the Portfolios in connection with the administrative services we provide to the Portfolios. We collect this compensation under agreement between us and the Portfolio's investment adviser, administrators or distributors, and is calculated based on a percentage of the average assets allocated to the Portfolio. ACCESS TO YOUR MONEY - -------------------------------------------------------------------------------- WITHDRAWALS You can withdraw some or all of your Contract Value at any time prior to the Payout Start Date. Withdrawals also are available under limited circumstances on or after the Payout Start Date. See "Income Plans" on page 52. The amount payable upon withdrawal is the Contract Value (or portion thereof) next computed after we receive the request for a withdrawal at our home office, adjusted by any applicable Market Value Adjustment, less any applicable withdrawal charges, income tax 51 PROSPECTUS withholding, penalty tax, contract maintenance charge, Rider Fee, and any premium taxes. We will pay withdrawals from the Variable Account within 7 days of receipt of the request, subject to postponement in certain circumstances. You can withdraw money from the Variable Account or the Fixed Account Option(s) available under your Contract. To complete a partial withdrawal from the Variable Account, we will cancel Accumulation Units in an amount equal to the withdrawal and any applicable charges, fees and taxes. You must name the investment alternative from which you are taking the withdrawal. If none is named, then the withdrawal request is incomplete and cannot be honored. In general, you must withdraw at least $50 at a time. Withdrawals from the Standard Fixed Account Option may be subject to a restriction. See "Standard Fixed Account Options" on page 40. Withdrawals taken prior to the Payout Start Date are generally considered to come from the earnings in the Contract first. If the Contract is tax-qualified, generally all withdrawals are treated as distributions of earnings. Withdrawals of earnings are taxed as ordinary income and, if taken prior to age 59 1/2, may be subject to an additional 10% federal penalty tax. If any withdrawal reduces your Contract Value to less than $1,000, we will treat the request as a withdrawal of the entire Contract Value, unless the SureIncome Withdrawal Benefit Option is currently attached to your Contract. If you request a total withdrawal, we may require that you return your Contract to us. Your Contract will terminate if you withdraw all of your Contract Value, subject to certain exceptions if the SureIncomeWithdrawal Benefit Option is currently attached to your Contract. See "SureIncome Withdrawal Benefit Option" for more details. We will, however, ask you to confirm your withdrawal request before terminating your Contract. If we terminate your Contract, we will distribute to you its Contract Value, adjusted by any applicable Market Value Adjustment, less withdrawal and other charges and taxes. WRITTEN REQUESTS AND FORMS IN GOOD ORDER. Written requests must include sufficient information and/or documentation, and be sufficiently clear, to enable us to complete your request without the need to exercise discretion on our part to carry it out. You may contact our Customer Service Center to learn what information we require for your particular request to be in "good order." Additionally, we may require that you submit your request on our form. We reserve the right to determine whether any particular request is in good order, and to change or waive any good order requirements at any time. POSTPONEMENT OF PAYMENTS We may postpone the payment of any amounts due from the Variable Account under the Contract if: 1. The New York Stock Exchange is closed for other than usual weekends or holidays, or trading on the Exchange is otherwise restricted, 2. An emergency exists as defined by the SEC, or 3. The SEC permits delay for your protection. We may delay payments or transfers from the Fixed Account Option(s) available under your Contract for up to 6 months or shorter period if required by law. If we delay payment or transfer for 30 days or more, we will pay interest as required by law. SYSTEMATIC WITHDRAWAL PROGRAM You may choose to receive systematic withdrawal payments on a monthly, quarterly, semi-annual, or annual basis at any time prior to the Payout Start Date. Please consult your sales representative or call us at 800-457-7617 for more information. Depending on fluctuations in the value of the Variable Sub-Accounts and the value of the Fixed Account Options, systematic withdrawals may reduce or even exhaust the Contract Value. Income taxes may apply to systematic withdrawals. Please consult your tax advisor before taking any withdrawal. We will make systematic withdrawal payments to you or your designated payee. At our discretion, we may modify or suspend the Systematic Withdrawal Program and charge a processing fee for the service. If we modify or suspend the Systematic Withdrawal Program, existing systematic withdrawal payments will not be affected. MINIMUM CONTRACT VALUE If your request for a partial withdrawal would reduce your Contract Value to less than $1,000, we may treat it as a request to withdraw your entire Contract Value, unless the SureIncome Withdrawal Benefit Option is currently attached to your Contract. Your Contract will terminate if you withdraw all of your Contract Value. We will, however, ask you to confirm your withdrawal request before terminating your Contract. If we terminate your Contract, we will distribute to you its Contract Value, adjusted by any applicable Market Value Adjustment, less withdrawal and other charges and applicable taxes. 52 PROSPECTUS INCOME PAYMENTS - -------------------------------------------------------------------------------- PAYOUT START DATE The Payout Start Date is the day that we apply your Contract Value, adjusted by any applicable Market Value Adjustment and less applicable taxes, to an Income Plan. The first income payment may occur no sooner than 30 days after the Issue Date. The Payout Start Date must occur on or before the later of: .. the youngest Annuitant's 99th birthday, or .. the 10th Contract Anniversary. You may change the Payout Start Date at any time by notifying us in writing of the change at least 30 days before the scheduled Payout Start Date. Absent a change, we will use the Payout Start Date stated in your Contract. INCOME PLANS An "Income Plan" is a series of payments made on a scheduled basis to you or to another person designated by you. You may select more than one Income Plan. If you choose more than one Income Plan, you must specify what proportions of your Contract Value, adjusted by any Market Value Adjustment and less any applicable taxes, should be allocated to each such Income Plan. For tax reporting purposes, your cost basis and any gain on the Contract will be allocated proportionally to each Income Plan you select based on the proportion of your Contract Value applied to each such Income Plan. We reserve the right to limit the number of Income Plans that you may select. If you choose to add the Income Protection Benefit Option, certain restrictions may apply as described under "Income Protection Benefit Option," below. If you do not select an Income Plan, we will make income payments in accordance with Income Plan 1 with a Guaranteed Payment Period of 10 years. On the Payout Start Date, the portion of the Contract Value in any Fixed Account Option, adjusted by any applicable Market Value Adjustment and less any applicable taxes, will be used to derive fixed income payments; the portion of the Contract Value in any Variable Sub-account, less any applicable taxes, will be used to derive variable income payments. If any Contract Owner dies during the Payout Phase, the new Contract Owner will be the surviving Contract Owner. If there is no surviving Contract Owner, the new Contract Owner will be the Beneficiary(ies) as described in the "Beneficiary" section of this prospectus. Any remaining income payments will be paid to the new Contract Owner as scheduled. Income payments to Beneficiaries may be subject to restrictions established by the Contract Owner. After the Payout Start Date, you may not make withdrawals (except as described below) or change your choice of Income Plan. Currently seven Income Plans are available. Depending on the Income Plan(s) you choose, you may receive: .. fixed income payments; .. variable income payments; or .. a combination of the two. Partial annuitizations are not allowed. Your total Contract Value, adjusted by any applicable Market Value Adjustment, and less any applicable taxes, must be applied to your Income Plan(s) on the Payout Start Date. A portion of each payment will be considered taxable and the remaining portion will be a non-taxable return of your investment in the Contract, which is also called the "basis". Once the basis in the Contract is depleted, all remaining payments will be fully taxable. If the Contract is tax-qualified, generally, all payments will be fully taxable. Taxable payments taken prior to age 59 1/2 may be subject to an additional 10% federal tax penalty. The seven Income Plans are: INCOME PLAN 1 - LIFE INCOME WITH GUARANTEED NUMBER OF PAYMENTS. Under this plan, we make periodic income payments for at least as long as the Annuitant lives. If the Annuitant dies in the Payout Phase, we will continue to pay income payments until the guaranteed number of payments has been paid. The number of months guaranteed ("Guaranteed Payment Period") may be 0 months, or range from 60 to 360 months. If the Annuitant is age 90 or older as of the Payout Start Date, the Guaranteed Payment Period may range from 60 to 360 months. INCOME PLAN 2 - JOINT AND SURVIVOR LIFE INCOME WITH GUARANTEED NUMBER OF PAYMENTS. Under this plan, we make periodic income payments for at least as long as either the Annuitant or the joint Annuitant, named at the time the Income Plan was selected, lives. If both the Annuitant and joint Annuitant die in the Payout Phase, we will continue to pay the income payments until the guaranteed number of payments has been paid. The Guaranteed Payment Period may be 0 months, or range from 60 to 360 months. If either the Annuitant or joint Annuitant is age 90 or older as of the Payout Start Date, the Guaranteed Payment Period may range from 60 to 360 months. You may elect a reduced survivor plan of 50%, 66% or 75% of the payment amount. If you do not elect a reduced survivor amount, the payments will remain at 100%. If you elect a reduced survivor payment plan, the amount of each income payment initially will be higher but a reduction will take place at the later of 1) the death of an Annuitant; or 2) at the end of the guaranteed payment period. INCOME PLAN 3 - GUARANTEED NUMBER OF PAYMENTS. Under this plan, we make periodic income payments for the period you have chosen. These 53 PROSPECTUS payments do not depend on the Annuitant's life. The shortest number of months guaranteed is 60 (120 if the Payout Start Date occurs prior to the third Contract Anniversary). The longest number of months guaranteed is 360 or the number of months between the Payout Start Date and the date that the Annuitant reaches age 100, if greater. In no event may the number of months guaranteed exceed 600. We will deduct the mortality and expense risk charge from the assets of the Variable Sub-account supporting this Income Plan even though we may not bear any mortality risk. You may make withdrawals, change the length of the guaranteed payment period, or change the frequency of income payments under Income Plan 3. See "Modifying Payments" and "Payout Withdrawals" below for more details. INCOME PLAN 4 - LIFE INCOME WITH CASH REFUND. Under this plan, we make periodic income payments until the death of the Annuitant. If the death of the Annuitant occurs before the total amount applied to an Income Plan is paid out, we will pay a lump sum payment of the remaining amount. Payments under this plan are available only as fixed income payments. INCOME PLAN 5 - JOINT LIFE INCOME WITH CASH REFUND. Under this plan, we make periodic income payments until the deaths of both the Annuitant and joint Annuitant. If the deaths of both the Annuitant and joint Annuitant occur before the total amount applied to an Income Plan is paid out, we will pay a lump sum payment of the remaining amount. Currently, a reduced survivor plan is not available. Payments under this plan are available only as fixed income payments. INCOME PLAN 6 - LIFE INCOME WITH INSTALLMENT REFUND. Under this plan, we make periodic income payments until the later of (1) the death of the Annuitant, or (2) the total amount paid out under the annuity is equal to the total amount applied to the Income Plan. If the death of the Annuitant occurs before the total amount applied to an Income Plan is paid out, we will continue to make payments in the same manner until any remaining payments are paid out. Payments under this plan are available only as fixed income payments. INCOME PLAN 7 - JOINT LIFE INCOME WITH INSTALLMENT REFUND. Under this plan, we make periodic income payments until the later of (1) the deaths of both the Annuitant and joint Annuitant, or (2) the total amount paid out under the annuity is equal to the total amount applied to the Income Plan. If the deaths of both the Annuitant and joint Annuitant occur before the total amount applied to an Income Plan is paid out, we will continue to make payments in the same manner until any remaining payments are paid out. Currently, a reduced survivor plan is not available. Payments under this plan are available only as fixed income payments. If you choose an Income Plan with payments that continue for the life of the Annuitant or joint Annuitant, we may require proof of age and sex of the Annuitant or joint Annuitant before starting income payments, and proof that the Annuitant or joint Annuitant is alive before we make each payment. Please note that under Income Plans 1 and 2, if you do not select a Guaranteed Payment Period, it is possible that the payee could receive only one income payment if the Annuitant and any joint Annuitant both die before the second income payment, or only two income payments if they die before the third income payment, and so on. The length of any Guaranteed Payment Period under your selected Income Plan generally will affect the dollar amounts of each income payment. As a general rule, longer Guarantee Payment Periods result in lower income payments, all other things being equal. For example, if you choose an Income Plan with payments that depend on the life of the Annuitant but with no guaranteed payments, the income payments generally will be greater than the income payments made under the same Income Plan with a specified Guaranteed Payment Period. MODIFYING PAYMENTS After the Payout Start Date, you may make the following changes under Income Plan 3: .. You may request to modify the length of the Guaranteed Payment Period. Currently, we allow you to make this change once each Contract Year. We reserve the right to change this practice at any time without prior notice. If you elect to change the length of the Guaranteed Payment Period, the new Guaranteed Payment Period must be within the original minimum and maximum period you would have been permitted to select on the Payout Start Date. However, the maximum payment period permitted will be shortened by the period elapsed since the original Guaranteed Payment Period began. If you change the length of your Guaranteed Payment Period, we will compute the present value of your remaining payments, using the same assumptions we would use if you were terminating the income payments, as described in Payout Withdrawal. We will then adjust the remaining payments to equal what that value would support based on those same assumptions and based on the revised Guaranteed Payment Period. .. You may request to change the frequency of your payments. We currently allow you to make this change once each Contract Year. We reserve the right to change this practice at any time without prior notice. Changes to either the frequency of payments or length of the Guaranteed Payment Period will result in a change to the payment amount and may change the amount of each payment that is taxable to you. Modifying payments of this Contract may not be allowed under Qualified Contracts. In order to satisfy required 54 PROSPECTUS minimum distributions ("RMD") under current Treasury regulations, once income payments have begun over a Guaranteed Payment Period, the Guaranteed Payment Period cannot be changed even if the new period is shorter than the maximum permitted. Please consult with a competent tax advisor prior to making a request to modify payments if your Contract is subject to RMD requirements. Any change to either the frequency of payments or length of a Guaranteed Payment Period will take effect on the next payment date after we accept the requested change. PAYOUT WITHDRAWAL You may terminate all or a portion of the income payments being made under Income Plan 3 at any time and withdraw their present value ("Withdrawal Value"), subject to a Payout Withdrawal Charge, by requesting a withdrawal ("Payout Withdrawal") in writing. For variable income payments, the withdrawal value is equal to the present value of the variable income payments being terminated, calculated using a discount rate equal to the assumed investment rate that was used in determining the initial variable payment. For fixed income payments, the withdrawal value is equal to the present value of the fixed income payments being terminated, calculated using a discount rate equal to the applicable current interest rate (this may be the initial interest rate in some states.) The applicable current interest rate is the rate we are using on the date we receive your Payout Withdrawal request to determine income payments for a new annuitization with a payment period equal to the remaining payment period of the income payments being terminated. A Payout Withdrawal must be a least $50. If any Payout Withdrawal reduces the value of the remaining income payments to an amount not sufficient to provide an initial payment of at least $20, we reserve the right to terminate the Contract and pay you the present value of the remaining income payments in a lump sum. If you withdraw the entire value of the remaining income payments, the Contract will terminate. You must specify the Investment Alternative(s) from which you wish to make a Payout Withdrawal. If you withdraw a portion of the value of your remaining income payments, the payment period will remain unchanged and your remaining payment amounts will be reduced proportionately. PAYOUT WITHDRAWAL CHARGE To determine the Payout Withdrawal Charge, we assume that purchase payments are withdrawn first, beginning with the oldest payment. When an amount equal to all purchase payments have been withdrawn, additional withdrawals will not be assessed a Payout Withdrawal Charge. Payout Withdrawals will be subject to a Payout Withdrawal Charge for each Contract as follows:
Number of Complete Years Since We Received the Purchase Payment Being Withdrawn/Applicable Charge: CONTRACT: 0 1 2 3 4 5 6 7 8+ --------------------------------------------------------------------------------------- Consultant Solutions Classic 7% 7% 6% 5% 4% 3% 2% 0% 0% Consultant Solutions Plus 8.5% 8.5% 8.5% 7.5% 6.5% 5.5% 4% 2.5% 0% Consultant Solutions Elite 7% 6% 5% 0% 0% 0% 0% 0% 0% Consultant Solutions Select None
ADDITIONAL INFORMATION. We may make other Income Plans available. You may obtain information about them by writing or calling us. On the Payout Start Date, you must specify the portion of the Contract Value to be applied to variable income payments and the portion to be applied to fixed income payments. For the portion of your Contract Value to be applied to variable income payments, you must also specify the Variable Sub-Accounts on which to base the variable income payments as well as the allocation among those Variable Sub-Accounts. If you do not tell us how to allocate your Contract Value among fixed and variable income payments, we will apply your Contract Value in the Variable Account to variable income payments and your Contract Value in the Fixed Account to fixed income payments. We will apply your Contract Value, adjusted by any applicable Market Value Adjustment, less applicable taxes to your Income Plan(s) on the Payout Start Date. We can make income payments in monthly, quarterly, semi-annual or annual installments, as you select. If the Contract Value is less than $2,000 or not enough to provide an initial payment of at least $20, and state law permits, we may: .. terminate the Contract and pay you the Contract Value, adjusted by any applicable Market Value Adjustment and less any applicable taxes, in a lump sum instead of the periodic payments you have chosen, or .. reduce the frequency of your payments so that each payment will be at least $20. VARIABLE INCOME PAYMENTS The amount of your variable income payments depends upon the investment results of the Variable Sub-accounts you select, the premium taxes you pay, the age and sex of the Annuitant, and the Income Plan you choose. We 55 PROSPECTUS guarantee that the payments will not be affected by (a) company mortality experience or (b) the amount of our administration expenses. We cannot predict the total amount of your variable income payments, which may be more or less than your total purchase payments because (a) variable income payments vary with the investment results of the underlying Portfolios; and (b) under some of the Income Plans, we make income payments only so long as an Annuitant is alive or any applicable Guaranteed Payment Period has not yet expired. In calculating the amount of the periodic payments in the annuity tables in the Contracts, we used an assumed investment rate ("AIR", also known as benchmark rate) of 3%. Currently, you may choose either a 6%, 5%, or 3% AIR per year. If you select the Income Protection Benefit Option, however, the 3% AIR must apply. The 6% and 5% AIR may not be available in all states (check with your representative for availability). Currently, if you do not choose one, the 3% AIR will automatically apply. We reserve the right to offer other assumed investment rates. If the actual net investment return of the Variable Sub-accounts you choose is less than the AIR, then the dollar amount of your variable income payments will decrease. The dollar amount of your variable income payments will increase, however, if the actual net investment return exceeds the AIR. The dollar amount of the variable income payments stays level if the net investment return equals the AIR. With a higher AIR, your initial income payment will be larger than with a lower AIR. While income payments continue to be made, however, this disparity will become smaller and, if the payments have continued long enough, each payment will be smaller than if you had initially chosen a lower AIR. Please refer to the Statement of Additional Information for more detailed information as to how we determine variable income payments. You may also elect a variable income payment stream consisting of level monthly, quarterly or semi-annual payments. If you elect to receive level monthly, quarterly or semi-annual payments, the payments must be recalculated annually. You may only elect to receive level payments at or before the Payout Start Date. If you have elected level payments for an Income Plan(s), you may not make any variable to fixed payment transfers within such Income Plan(s). We will determine the amount of each annual payment as described above, place this amount in our general account, and then distribute it in level monthly, quarterly or semi-annual payments. The sum of the level payments will exceed the annual calculated amount because of an interest rate factor we use, which may vary from year to year, but will not be less than 2% per year. If the Annuitant dies while you are receiving level payments, you will not be entitled to receive any remaining level payments for that year (unless the Annuitant dies before the end of the Guaranteed Payment Period). For example, if you have selected Income Plan 1 with no Guaranteed Payment Period and the Annuitant dies during the year, the Beneficiary will not be entitled to receive the remaining level payments for that year. INCOME PROTECTION BENEFIT OPTION We offer an Income Protection Benefit Option, which may be added to your Contract on the Payout Start Date for an additional mortality and expense risk charge if you have selected variable income payments subject to the following conditions: .. The Annuitant and joint Annuitant, if applicable, must be age 75 or younger on the Payout Start Date. .. You must choose Income Plan 1 or 2 and the Guaranteed Payment Period must be for at least 120 months, unless the Internal Revenue Service requires a different payment period. .. You may apply the Income Protection Benefit Option to more than one Income Plan. .. The AIR must be 3% for the Income Plan(s) that you wish to apply this benefit to. .. You may only add the Income Protection Benefit Option on the Payout Start Date and, once added, the option cannot be cancelled. .. You may not add the Income Protection Benefit Option without our prior approval if your Contract Value is greater than $1,000,000 at the time you choose to add the Income Protection Benefit Option. .. You may not convert variable income payments to fixed income payments. If you select the Income Protection Benefit Option, we guarantee that your variable income payments under each of the Income Plans to which the option is applied will never be less that 85% of the initial variable amount income value ("Income Protection Benefit"), as calculated on the Payout Start Date under such Income Plans, unless you have elected a reduced survivor payment plan under Income Plan 2. If you have elected a reduced survivor payment plan, we guarantee that your variable income payments to which the option is applied will never be less than 85% of the initial variable amount income value prior to the later of 1) the death of an Annuitant; or 2) the end of the guaranteed payment period. On or after the later of these events, we guarantee that your variable income payments will never be less than 85% of the initial variable amount income value multiplied by the percentage you elected for your reduced survivor plan. See Appendix C for numerical examples that illustrate how the Income Protection Benefit is calculated. 56 PROSPECTUS If you add the Income Protection Benefit Option to your Contract, the mortality and expense risk charge during the Payout Phase will be increased. Currently, the charge for this option is 0.50%. We may change the amount we charge, but it will not exceed 0.75%. Once the option is issued, we will not increase what we charge you for the benefit. INVESTMENT REQUIREMENTS. If you add the Income Protection Benefit Option to your Contract, you must adhere to certain requirements related to the investment alternatives in which you may invest during the Payout Phase with respect to the assets supporting the variable income payments to which the Income Protection Benefit Option applies. These requirements may include, but are not limited to, maximum investment limits on certain Variable Sub-accounts, exclusion of certain Variable Sub-accounts, required minimum allocations to certain Variable Sub-accounts, and restrictions on transfers to or from certain investment alternatives. We may also require that you use the Automatic Portfolio Rebalancing Program. We may change the specific requirements that are applicable at any time in our sole discretion. Any changes we make will not apply to the Income Protection Benefit Option if it was added to your Contract prior to the implementation date of the change, except for changes made due to a change in Variable Sub-accounts available under the Contract. When you add the Income Protection Benefit Option to your Contract, you must allocate to a model portfolio option the entire portion of your Contract Value allocated to the Variable Sub-accounts. We currently offer one Model Portfolio Option; however, we may add more Model Portfolio Options in the future. Transfers made for purposes of adhering to your Model Portfolio Option will not count towards the number of free transfers you may make each Contract Year. THE FOLLOWING TABLE SUMMARIZES THE MODEL PORTFOLIO OPTION CURRENTLY AVAILABLE FOR USE WITH THE INCOME PROTECTION BENEFIT OPTION: *Model Portfolio Option 1 Each calendar quarter, we will use the Automatic Portfolio Rebalancing Program to automatically rebalance your Contract Value in each Variable Sub-account and return it to the percentage allocations for your Model Portfolio Option, using the percentage allocations as of your most recent instructions. MODEL PORTFOLIO OPTION 1 You must allocate a certain percentage of the portion of your Contract Value allocated to the Variable Sub-accounts into each of three asset categories. You may choose the Variable Sub-accounts in which you want to invest, provided you maintain the percentage allocation requirements for each category. You may also make transfers among the Variable Sub-accounts within each category at any time, provided you maintain the percentage allocation requirements for each category. However, each transfer you make will count against the 12 transfers you can make each Contract Year without paying a transfer fee. The following table describes the percentage allocation requirements for Model Portfolio Options 1 and Variable Sub-accounts available under each category: MODEL PORTFOLIO OPTION 1 - -------------------------------------------------------------------------------- 20% Category A 50% Category B 30% Category C - -------------------------------------------------------------------------------- CATEGORY A Fidelity VIP Money Market - Service Class 2 Sub-Account PIMCO VIT Money Market - Administrative Shares Sub-Account MODEL PORTFOLIO OPTION 1 - -------------------------------------------------------------------------------- CATEGORY B Fidelity VIP Investment Grade Bond - Service Class 2 Sub-Account Legg Mason Western Asset Variable Global High Yield Bond - Class II Sub-Account/(7)/ MFS High Income - Service Class Sub-Account PIMCO VIT Foreign Bond (U.S. Dollar-Hedged) - Administrative Shares Sub-Account PIMCO VIT Real Return - Administrative Shares Sub-Account PIMCO VIT Total Return - Administrative Shares Sub-Account UIF U.S. Real Estate, Class II Sub-Account/(1) / Van Kampen LIT Government, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- CATEGORY C Invesco V.I. Basic Value - Series II Sub-Account/(1)/ Invesco V.I. Core Equity - Series II Sub-Account/(1)/ Invesco V.I. Mid Cap Core Equity - Series II Sub-Account/(1)/ Fidelity VIP Contrafund(R) - Service Class 2 Sub-Account Fidelity VIP Equity-Income - Service Class 2 Sub-Account Fidelity VIP Index 500 - Service Class 2 Sub-Account Fidelity VIP Overseas - Service Class 2 Sub-Account Fidelity VIP Asset Manager/(SM)/ - Service Class 2 Sub-Account Janus Aspen Series Overseas - Service Shares Sub-Account Janus Aspen Series Forty - Service Shares Sub-Account Janus Aspen Series Perkins Mid Cap Value - Service Shares Sub-Account Janus Aspen Series Balanced - Service Shares Sub-Account Legg Mason ClearBridge Variable Fundamental All Cap Value - Class II Sub-Account/(3)/ Legg Mason ClearBridge Variable Large Cap Value - Class II Sub-Account/(3)/ MFS Investors Trust - Service Class Sub-Account MFS Investors Growth Stock - Service Class Sub-Account MFS Total Return - Service Class Sub-Account MFS Value - Service Class Sub-Account Oppenheimer Small- & Mid-Cap Growth/VA - Service Shares Sub-Account/(4)/ Oppenheimer Main Street Small Cap(R)/VA - Service Shares Sub-Account Rydex SGI VT All-Cap Opportunity Sub-Account/(5)/ T. Rowe Price Equity Income - II Sub-Account T. Rowe Price Blue Chip Growth - II Sub-Account Van Eck VIP Multi-Manager Alternatives Sub-Account/(6)/ Van Kampen LIT Growth and Income, Class II Sub-Account/(8)/ - -------------------------------------------------------------------------------- 57 PROSPECTUS (1)Effective April 30, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- AIM V.I. Basic Value Fund Invesco V.I. Basic Value Fund ----------------------------------------------------------------------------- AIM V.I. Capital Appreciation Fund Invesco V.I. Capital Appreciation Fund ----------------------------------------------------------------------------- AIM V.I. Core Equity Fund Invesco V.I. Core Equity Fund ----------------------------------------------------------------------------- AIM V.I. Mid Cap Core Equity Fund Invesco V.I. Mid Cap Core Equity Fund ----------------------------------------------------------------------------- (2)Effective November 20, 2009, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Alger American LargeCap Growth Alger LargeCap Growth Portfolio Portfolio ----------------------------------------------------------------------------- Alger American Capital Appreciation Alger Capital Appreciation Portfolio Portfolio ----------------------------------------------------------------------------- Alger American MidCap Growth Portfolio Alger MidCap Growth Portfolio ----------------------------------------------------------------------------- (3)Effective March 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Fundamental Value Portfolio Fundamental All Cap Value Portfolio ----------------------------------------------------------------------------- Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Large Investors Portfolio Cap Value Portfolio ----------------------------------------------------------------------------- (4)Effective May 1, 2010, Oppenheimer MidCap Fund/VA changed its name to Oppenheimer Small- & Mid-Cap Growth Fund/VA. (5)Effective May 1, 2010, Rydex VT All-Cap Opportunity Fund changed its name to Rydex SGI VT All-Cap Opportunity Fund. (6)Effective May 1, 2010, the following Portfolios changed their names: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Van Eck Worldwide Multi- Manager Van Eck VIP Multi-Manager Alternatives Fund Alternatives Fund ----------------------------------------------------------------------------- Van Eck Worldwide Emerging Markets Van Eck VIP Emerging Markets Fund Fund ----------------------------------------------------------------------------- Van Eck Worldwide Hard Assets Fund Van Eck VIP Global Hard Assets Fund ----------------------------------------------------------------------------- (7)Effective November 2, 2009, the following Portfolio changed its name: PREVIOUS NAME NEW NAME ----------------------------------------------------------------------------- Legg Mason Partners Variable Global Legg Mason Western Asset Variable High Yield Bond Portfolio - Class II Global High Yield Bond Portfolio - Class II ----------------------------------------------------------------------------- (8)Subject to shareholder approval, certain portfolios of the Van Kampen Life Investment Trust will be reorganized into corresponding funds of the AIM Variable Insurance Funds (Invesco Variable Insurance Funds). It is anticipated that the reorganization will occur in the second quarter of 2010. Each such portfolio and its corresponding acquiring fund is shown below: REORGANIZING PORTFOLIOS ACQUIRING FUNDS ----------------------------------------------------------------------------- VAN KAMPEN LIFE INVESTMENT TRUST: AIM VARIABLE INSURANCE FUNDS (INVESCO VARIABLE INSURANCE FUNDS): ----------------------------------------------------------------------------- Van Kampen LIT Mid Cap Growth Invesco Van Kampen V.I. Mid Cap Portfolio - Class II Growth Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Government Portfolio - Invesco Van Kampen V.I. Government Class II Fund - Series II ----------------------------------------------------------------------------- Van Kampen LIT Growth and Income Invesco Van Kampen V.I. Growth and Portfolio - Class II Income Fund - Series II ----------------------------------------------------------------------------- FIXED INCOME PAYMENTS We guarantee income payment amounts derived from any Fixed Account Option for the duration of the Income Plan. The guaranteed income payment amounts will change if the frequency of payments or the length of the payment period changes. We calculate the fixed income payments by: .. adjusting the portion of the Contract Value in any Fixed Account Option on the Payout Start Date by any applicable Market Value Adjustment; .. deducting any applicable taxes; and .. applying the resulting amount to the greater of: (a) the appropriate income payment factor for the selected Income Plan from the Income Payment Table in your Contract; or (b) such other income payment factor as we are offering on the Payout Start Date. We may defer your request to make a withdrawal from fixed income payments for a period of up to 6 months or whatever shorter time state law may require. If we defer payments for 30 days or more, we will pay interest as required by law from the date we receive the withdrawal request to the date we make payment. CERTAIN EMPLOYEE BENEFIT PLANS The Contracts offered by this prospectus contain income payment tables that provide for different payments to men and women of the same age, except in states that require unisex tables. We reserve the right to use income payment tables that do not distinguish on the basis of sex to the extent permitted by applicable law. In certain employment-related situations, employers are required by law to use the same income payment tables for men and women. Accordingly, if the Contract is used in connection with an employment-related retirement or benefit plan and we do not offer unisex annuity tables in your state, you should consult with legal counsel as to whether the Contract is appropriate. 58 PROSPECTUS DEATH PROCEEDS Under certain conditions, described below, we will pay a death settlement ("DEATH PROCEEDS") for this Contract on the death of the Contract Owner, Annuitant, or Co-Annuitant if the death occurs prior to the Payout Start Date. The Death Proceeds will not exceed the Contract Value plus $1 million. If the Owner or Annuitant dies after the Payout Start Date, we will pay remaining income payments as described in the "Payout Phase" section of your Contract. See "Income Payments" on page 52 for more information. We will determine the value of the Death Proceeds as of the end of the Valuation Date during which we receive the first Complete Request for Settlement (the next Valuation Date, if we receive the request after 3:00 p.m. Central Time). In order to be considered a "COMPLETE REQUEST FOR SETTLEMENT," a claim for distribution of the Death Proceeds must include "DUE PROOF OF DEATH" in any of the following forms of documentation: .. A certified copy of the death certificate; .. A certified copy of a decree of a court of competent jurisdiction as to the finding of death; or .. Any other proof acceptable to us. "DEATH PROCEEDS" are determined based on when we receive a Complete Request for Settlement: .. If we receive a Complete Request for Settlement within 180 days of the death of the Contract Owner, Annuitant, or Co-Annuitant, as applicable, the Death Proceeds are equal to the "DEATH BENEFIT." .. If we receive a Complete Request for Settlement more than 180 days after the death of the Contract Owner, Annuitant, or Co-Annuitant, as applicable, the Death Proceeds are equal to the greater of the Contract Value or Settlement Value. We reserve the right to waive or extend, in a nondiscriminatory manner, the 180-day period in which the Death Proceeds will equal the Death Benefit. Where there are multiple Beneficiaries, we will only value the Death Proceeds at the time the first Beneficiary submits the necessary documentation in good order. Any Death Proceeds amounts attributable to any Beneficiary which remain in the Variable Sub-accounts are subject to investment risk. DEATH BENEFIT OPTIONS In addition to the ROP Death Benefit included in your Contract, we offer the following death benefit options which may be added to your Contract: .. MAV Death Benefit Option .. Annual Increase Death Benefit Option .. Enhanced Earnings Death Benefit Option DEATH BENEFITS - -------------------------------------------------------------------------------- The amount of the Death Benefit depends on which death benefit option(s) you select. Not all death benefit options are available in all states. You may select any combination of death benefit options on the issue date of your Contract or at a later date, subject to state availability and issue age restrictions. You may not add any of the death benefit options to your Contract after Contract issue without our prior approval if your Contract Value is greater than $1,000,000 at the time you want to add an option. The "DEATH BENEFIT" is equal to the Enhanced Earnings Death Benefit (if selected) plus the greatest of: .. The Contract Value; .. The Settlement Value; .. The ROP Death Benefit; .. The MAV Death Benefit Option (if selected); or .. The Annual Increase Death Benefit Option (if selected). The "SETTLEMENT VALUE" is the amount that would be paid in the event of a full withdrawal of the Contract Value. The "ROP DEATH BENEFIT" is equal to the sum of all purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS), reduced by a proportional withdrawal adjustment for each withdrawal. The withdrawal adjustment is equal to the withdrawal amount divided by the Contract Value immediately prior to the withdrawal, and the result is multiplied by: The sum of all purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made prior to the withdrawal, less any prior withdrawal adjustments. MAXIMUM ANNIVERSARY VALUE DEATH BENEFIT OPTION. The MAV Death Benefit Option is available only if the oldest Contract Owner and Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, are age 79 or younger on the Rider Application Date. There is an additional mortality and expense risk charge for this death benefit option, currently equal to 0.20%. We may change what we charge for this death benefit option, but it will never exceed 0.50%. Once added to your Contract, we guarantee that we will not increase the mortality and expense risk charge you pay for this death benefit option. On the date we issue the rider for this benefit ("Rider Date"), the MAV DEATH BENEFIT is equal to the Contract Value. After the Rider Date and prior to the date we determine the Death Proceeds (see "Death Proceeds" on page 59), the MAV Death Benefit is recalculated each 59 PROSPECTUS time a purchase payment or withdrawal is made as well as on each Contract Anniversary as follows: .. Each time a purchase payment is made, the MAV Death Benefit is increased by the amount of the purchase payment (and Credit Enhancement for CONSULTANT SOLUTIONS PLUS CONTRACTS). .. Each time a withdrawal is made, the MAV Death Benefit is reduced by a proportional withdrawal adjustment, defined as the withdrawal amount divided by the Contract Value immediately prior to the withdrawal, and the result multiplied by the most recently calculated MAV Death Benefit. .. On each Contract Anniversary until the first Contract Anniversary following the 80th birthday of the oldest Contract Owner or Co-Annuitant, whichever occurs first, or, if the Contract is owned by a non-living person, the oldest Annuitant, the MAV Death Benefit is recalculated as the greater of the Contract Value on that date or the most recently calculated MAV Death Benefit. If no purchase payments or withdrawals are made after the Rider Date, the MAV Death Benefit will be equal to the greatest of the Contract Value on the Rider Date and the Contract Values on each subsequent Contract Anniversary after the Rider Date through the first Contract Anniversary following the 80th birthday of the oldest Contract Owner or Co-Annuitant, whichever occurs first, or, if the Contract is owned by a non-living person, the oldest Annuitant, but before the date we determine the Death Proceeds. If, upon death of the Contract Owner, the Contract is continued under Option D as described on page 62, and if the New Contract Owner is age 80 or younger on the date we determine the Death Proceeds, then the MAV Death Benefit Option will continue. The MAV Death Benefit will continue to be recalculated for purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS), withdrawals, and on each Contract Anniversary after the date we determine the Death Proceeds until the earlier of: .. The first Contract Anniversary following the 80th birthday of either the oldest Contract Owner or the Co-Annuitant, whichever is earlier, or, if the Contract is owned by a non-living person, the oldest Annuitant. (After the 80th birthday of either the oldest Contract Owner or the Co-Annuitant, whichever is earlier, or, if the Contract is owned by a non-living person, the oldest Annuitant, the MAV Death Benefit will be recalculated only for purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) and withdrawals); or .. The date we next determine the Death Proceeds. ANNUAL INCREASE DEATH BENEFIT OPTION. The Annual Increase Death Benefit Option is only available if the oldest Contract Owner and Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, are age 79 or younger on the Rider Application Date. There is an additional mortality and expense risk charge for this death benefit option, currently equal to 0.30%. We may change what we charge for this death benefit option, but it will never exceed 0.50%. Once added to your Contract, we guarantee that we will not increase the mortality and expense risk charge you pay for this death benefit option. On the date we issue the rider for this benefit ("Rider Date"), the Annual Increase Death Benefit is equal to the Contract Value. The Annual Increase Death Benefit, plus purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made after the Rider Date and less withdrawal adjustments for withdrawals made after the Rider Date, will accumulate interest on a daily basis at a rate equivalent to 5% per year (may be 3% in certain states), subject to the "Cap" defined below. This accumulation will continue until the earlier of: (a) the first Contract Anniversary following the 80th birthday of the oldest Contract Owner or Co-Annuitant, whichever occurs first, or, if the Contract is owned by a non-living person, the oldest Annuitant; or (b) the date we determine the Death Proceeds. After the 5% interest accumulation (may be 3% in certain states) ends, the Annual Increase Death Benefit will continue to be increased by purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) and reduced by withdrawal adjustments for withdrawals until the death benefit option terminates. The withdrawal adjustment is a proportional adjustment, defined as the withdrawal amount divided by the Contract Value immediately prior to the withdrawal, and the result multiplied by the amount of the Annual Increase Death Benefit immediately prior to the withdrawal. The Annual Increase Death Benefit Cap is equal to: .. 200% of the Contract Value as of the Rider Date; plus .. 200% of purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made after the Rider Date, but excluding any purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made in the 12-month period immediately prior to the death of a Contract Owner or the Co-Annuitant, or, if the Contract is owned by a non-living person, an Annuitant; minus 60 PROSPECTUS .. Withdrawal adjustments for any withdrawals made after the Rider Date. Refer to Appendix E for withdrawal adjustment examples. If, upon death of the Contract Owner, the Contract is continued under Option D as described on page 62, and if the New Contract Owner is age 80 or younger on the date we determine the Death Proceeds, then the Annual Increase Death Benefit Option will continue. The amount of the Annual Increase Death Benefit as of the date we determine the Death Proceeds, plus subsequent purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS), less withdrawal adjustments for any subsequent withdrawals, will accumulate daily at a rate equivalent to 5% per year (may be 3% in certain states) from the date we determine the Death Proceeds, until the earlier of: .. The first Contract Anniversary following the 80th birthday of either the oldest Contract Owner or the Co-Annuitant, whichever is earlier, or, if the Contract is owned by a non-living person, the oldest Annuitant. (After the 80th birthday of either the oldest Contract Owner or the Co-Annuitant, whichever is earlier, or, if the Contract is owned by a non-living person, the oldest Annuitant, the Annual Increase Death Benefit will be recalculated only for purchase payments and withdrawals (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS)); or .. The date we next determine the Death Proceeds. ENHANCED EARNINGS DEATH BENEFIT OPTION. The "ENHANCED EARNINGS DEATH BENEFIT OPTION" is only available if the oldest Contract Owner and Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, are age 79 or younger on the Rider Application Date. There is an additional mortality and expense risk charge for this death benefit option, currently equal to: .. 0.25%, if the oldest Contract Owner and Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, are age 70 or younger on the Rider Application Date; and .. 0.40%, if the oldest Contract Owner or, if older, the Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, is age 71 or older and age 79 or younger on the Rider Application Date. We may change what we charge for this death benefit option, but it will never exceed 0.35% for issue ages 0-70 and 0.50% for issue ages 71-79. Once added to your Contract, we guarantee that we will not increase the mortality and expense risk charge you pay for this death benefit option. However, if your spouse elects to continue the Contract in the event of your death and if he or she elects to continue the Enhanced Earnings Death Benefit Option, the mortality and expense risk charge for the death benefit option will be based on the ages of the oldest new Contract Owner and the Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, at the time the Contract is continued. If the oldest Contract Owner and Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, are age 70 or younger on the Rider Application Date, the Enhanced Earnings Death Benefit is equal to the lesser of: .. 100% of "IN-FORCE PREMIUM" (excluding purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made after the date we issue the rider for this benefit ("Rider Date") and during the twelve-month period immediately prior to the death of a Contract Owner or Co-Annuitant, or, if the Contract is owned by a non-living person, an Annuitant); or .. 40% of "IN-FORCE EARNINGS" calculated as of the date we determine the Death Proceeds. If the oldest Contract Owner or, if older, the Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, is age 71 or older and age 79 or younger on the Rider Application Date, the Enhanced Earnings Death Benefit is equal to the lesser of: .. 50% of "In-Force Premium" (excluding purchase payments (and Credit Enhancements for CONSULTANT SOLUTIONS PLUS CONTRACTS) made after the Rider Date and during the twelve-month period immediately prior to the death of a Contract Owner or Co-Annuitant, or, if the Contract is owned by a non-living person, an Annuitant); or .. 25% of "In-Force Earnings" calculated as of the date we determine the Death Proceeds. In-Force Earnings are equal to the current Contract Value less In-Force Premium. If this quantity is negative, then In-Force Earnings are equal to zero. In-Force Premium is equal to the Contract Value on the Rider Date, plus the sum of all purchase payments, including any associated credit enhancements, made after the Rider Date, less the sum of all "EXCESS-OF-EARNINGS WITHDRAWALS" made after the Rider Date. An EXCESS-OF-EARNINGS WITHDRAWAL is equal to the excess, if any, of the amount of the withdrawal over the amount of the In-Force Earnings immediately prior to the withdrawal. Refer to Appendix E for numerical examples that illustrate how the Enhanced Earnings Death Benefit Option is calculated. 61 PROSPECTUS If, upon death of the Contract Owner, the Contract is continued under Option D as described on page 62, and if the New Contract Owner is younger than age 80 on the date we determine the Death Proceeds, then this death benefit option will continue unless the New Contract Owner elects to terminate the death benefit option. If the death benefit option is continued, the following will apply as of the date we determine the Death Proceeds upon continuation: .. The Rider Date will be changed to the date we determine the Death Proceeds; .. The In-Force Premium is equal to the Contract Value as of the new Rider Date plus all purchase payments, including any associated credit enhancements, made after the Rider Date, less the sum of all the Excess-of-Earnings Withdrawals made after the Rider Date; .. The Enhanced Earnings Death Benefit after the new Rider Date will be determined as described above, but using the ages of the oldest Contract Owner and Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, as of the new Rider Date. .. The mortality and expense risk charge, for this rider, will be determined as described above, but using the ages of the oldest Contract Owner and Co-Annuitant, or, if the Contract is owned by a non-living person, the oldest Annuitant, as of the new Rider Date. If the Contract Owner's, Co-Annuitant's or Annuitant's age is misstated, the Enhanced Earnings Death Benefit and the mortality and expense risk charge for this death benefit option will be calculated according to the corrected age as of the Rider Date. Your Contract Value will be adjusted to reflect the mortality and expense risk charge for this death benefit option that should have been assessed based on the corrected age. ALL OPTIONS. WE RESERVE THE RIGHT TO IMPOSE LIMITATIONS ON THE INVESTMENT ALTERNATIVES IN WHICH YOU MAY INVEST AS A CONDITION OF THESE OPTIONS. THESE RESTRICTIONS MAY INCLUDE, BUT ARE NOT LIMITED TO, MAXIMUM INVESTMENT LIMITS ON CERTAIN INVESTMENT ALTERNATIVES, EXCLUSION OF CERTAIN INVESTMENT ALTERNATIVES, REQUIRED MINIMUM ALLOCATIONS TO CERTAIN INVESTMENT ALTERNATIVES, RESTRICTIONS ON TRANSFERS TO AND FROM CERTAIN INVESTMENT ALTERNATIVES, AND/OR THE REQUIRED USE OF AUTOMATIC PORTFOLIO REBALANCING. CURRENTLY, NO SUCH RESTRICTIONS ARE BEING IMPOSED. These death benefit options will terminate and the corresponding Rider Fee will cease on the earliest of the following to occur: .. the date the Contract is terminated; .. if, upon the death of the Contract Owner, the Contract is continued under Option D as described in the Death of Owner section on page 62, and the New Owner is older than age 80 (age 80 or older for the Enhanced Earnings Death Benefit Option) on the date we determine the Death Proceeds. The death benefit option will terminate on the date we determine the Death Proceeds; .. if the Contract is not continued in the Accumulation Phase under either the Death of Owner or Death of Annuitant provisions of the Contract. The death benefit option will terminate on the date we determine the Death Proceeds; .. on the date the Contract Owner (if the current Contract Owner is a living person) is changed for any reason other than death unless the New Contract Owner is a trust and the Annuitant is a current Contract Owner; .. on the date the Contract Owner (if the current Contract Owner is a non-living person) is changed for any reason unless the New Contract Owner is a non-living person or is a current Annuitant; or .. the Payout Start Date. Notwithstanding the preceding, in the event of the Contract Owner's death, if the Contract Owner's spouse elects to continue the Contract (as permitted in the Death of Owner provision below) he or she may terminate the Enhanced Earnings Death Benefit at that time. DEATH BENEFIT PAYMENTS DEATH OF CONTRACT OWNER If a Contract Owner dies prior to the Payout Start Date, then the surviving Contract Owners will be the "New Contract Owners". If there are no surviving Contract Owners, then subject to any restrictions previously placed upon them, the Beneficiaries will be the New Contract Owners. If there is more than one New Contract Owner taking a share of the Death Proceeds, each New Contract Owner will be treated as a separate and independent Contract Owner of his or her respective share of the Death Proceeds. Each New Contract Owner will exercise all rights related to his or her share of the Death Proceeds, including the sole right to elect one of the Option(s) below, subject to any restrictions previously placed upon the New Contract Owner. Each New Contract Owner may designate a Beneficiary(ies) for his or her respective share, but that designated Beneficiary(ies) will be restricted to the Option chosen by the original New Contract Owner. The Options available to each New Contract Owner will be determined by the applicable following Category in which the New Contract Owner is defined. An Option will be deemed to have been chosen on the day we receive written notification in a form satisfactory to us. 62 PROSPECTUS NEW CONTRACT OWNER CATEGORIES CATEGORY 1. If your spouse (or Annuitant's spouse in the case of a grantor trust-owned Contract) is the sole New Contract Owner of the entire Contract, your spouse must choose from among the death settlement Options A, B, C, D, or E described below. If he or she does not choose one of these Options, then Option D will apply. CATEGORY 2. If the New Contract Owner is a living person who is not your spouse (or Annuitant's spouse in the case of a grantor trust-owned Contract), or there is more than one New Contract Owner, all of whom are living persons, each New Contract Owner must choose from among the death settlement Options A, B, C, or E described below. If a New Contract Owner does not choose one of these Options, then Option C will apply for that New Contract Owner. CATEGORY 3. If there are one or more New Contract Owner(s) and at least one of the New Contract Owners is a non-living person such as a corporation or a trust, all New Contract Owners are considered to be non-living persons for purposes of the death settlement options. Each New Contract Owner must choose death settlement Option A or C described below. If a New Contract Owner does not choose one of these Options, then Option C will apply for that New Contract Owner. The death settlement options we currently offer are: OPTION A. The New Contract Owner may elect to receive the Death Proceeds in a lump sum. OPTION B. The New Contract Owner may elect to apply the Death Proceeds to one of the Income Plans described above. Such income payments must begin within one year of the date of death and must be payable: .. Over the life of the New Contract Owner; or .. For a guaranteed payment period of at least 5 years (60 months), but not to exceed the life expectancy of the New Contract Owner; or .. Over the life of the New Contract Owner with a guaranteed payment period of at least 5 years (60 months), but not to exceed the life expectancy of the New Contract Owner. OPTION C. The New Contract Owner may elect to receive the Contract Value payable within 5 years of the date of death. The Contract Value, as of the date we receive the first Complete Request for Settlement, will be reset to equal the Death Proceeds as of that date. Any excess amount of the Death Proceeds over the Contract Value on that date will be allocated to the PIMCO Money Market Variable Sub-account unless the New Contract Owner provides other allocation instructions. The New Contract Owner may not make any additional purchase payments under this option. Withdrawal charges will be waived for any withdrawals made during the 5-year period after the date of death; however, amounts withdrawn may be subject to Market Value Adjustments. The New Contract Owner may exercise all rights set forth in the Transfers provision. If the New Contract Owner dies before the Contract Value is completely withdrawn, the New Contract Owner's Beneficiary(ies) will receive the greater of the remaining Settlement Value or the remaining Contract Value within 5 years of the date of the original Contract Owner's death. OPTION D. The New Contract Owner may elect to continue the Contract in the Accumulation Phase. If the Contract Owner was also the Annuitant, then the New Contract Owner will be the new Annuitant. This Option may only be exercised once per Contract. The Contract Value, as of the date we receive the first Complete Request for Settlement, will be reset to equal the Death Proceeds as of that date. Unless otherwise instructed by the continuing spouse, the excess, if any, of the Death Proceeds over the Contract Value will be allocated to the Sub-accounts of the Variable Account. This excess will be allocated in proportion to your Contract Value in those Sub-accounts as of the end of the Valuation Date that we receive the complete request for settlement except that any portion of this excess attributable to the Fixed Account Options will be allocated to the PIMCO Money Market Variable Sub-account. Within 30 days after the date we determine the Death Proceeds, the New Contract Owner may transfer all or a portion of the excess of the Death Proceeds, if any, into any combination of Variable Sub-accounts, the Standard Fixed Account and the Market Value Adjusted Fixed Account without incurring a transfer fee. Any such transfer does not count as one of the free transfers allowed each Contract Year and is subject to any minimum allocation amount specified in this Contract. The New Contract Owner may make a single withdrawal of any amount within one year of the date of your death without incurring a Withdrawal Charge; however, the amount withdrawn may be subject to a Market Value Adjustment and a 10% tax penalty if the New Contract Owner is under age 59 1/2. OPTION E. For Nonqualified Contracts, the New Contract Owner may elect to make withdrawals at least annually of amounts equal to the "ANNUAL REQUIRED DISTRIBUTION" calculated for each calendar year. The first such withdrawal must occur within: .. One year of the date of death; .. The same calendar year as the date we receive the first Complete Request for Settlement; and .. One withdrawal frequency. The New Contract Owner must select the withdrawal frequency (monthly, quarterly, semi-annual, or annual). 63 PROSPECTUS Once this option is elected and frequency of withdrawals is chosen, they cannot be changed by the New Contract Owner and become irrevocable. In the calendar year in which the Death Proceeds are determined, the ANNUAL REQUIRED DISTRIBUTION is equal to the Contract Value on the date of the first distribution divided by the "Life Expectancy" of the New Contract Owner and the result multiplied by a fraction that represents the portion of the calendar year remaining after the date of the first distribution. (The Contract Value, as of the date we receive the Complete Request for Settlement, will be reset to equal the Death Proceeds as of that date. The Contract Value on the date of the first distribution may be more or less than the Contract Value as of the date we receive the Complete Request for Settlement.) The Life Expectancy in that calendar year is equal to the life expectancy value from IRS Tables based on the age of the New Contract Owner as of his or her birthday in the same calendar year. In any subsequent calendar year, the Annual Required Distribution is equal to the Contract Value as of December 31 of the prior year divided by the remaining Life Expectancy of the New Contract Owner. In each calendar year after the calendar year in which the first distribution occurred, the Life Expectancy of the New Contract Owner is the Life Expectancy calculated in the previous calendar year minus one (1) year. If the Life Expectancy is less than one (1), the Annual Required Distribution is equal to the Contract Value. If the New Contract Owner dies before the Contract Value is completely withdrawn, the scheduled withdrawals will continue to be paid to the New Contract Owner's Beneficiary(ies). The Contract Value invested in the Variable Sub-Accounts will be subject to investment risk until it is withdrawn. We reserve the right to offer additional death settlement options. DEATH OF ANNUITANT If the Annuitant dies prior to the Payout Start Date, then the surviving Contract Owners will have the Options available to the New Contract Owner, determined by the applicable following category in which the New Contract Owner is defined, unless: .. The Annuitant was also the Contract Owner, in which case the Death of Owner provisions above apply; or .. The Contract Owner is a grantor trust established by a living person, in which case the Beneficiary(ies) will be deemed the New Contract Owners and the Death of Contract Owner provisions above will apply. SURVIVING CONTRACT OWNER CATEGORIES CATEGORY 1. If the Owner is a living person, the Contract will continue in the Accumulation Phase with a new Annuitant. The Contract Value will not be increased by any excess of the Death Proceeds over the Contract Value as of the date that we determine the value of the Death Proceeds. The new Annuitant will be: .. A person you name by written request, subject to the conditions described in the Annuitant section of this Contract; otherwise, .. The youngest Owner; otherwise, .. The youngest Beneficiary. CATEGORY 2. If the Owner is a corporation, trust, or other non-living person, the Owner must choose between the following two options: OPTION A. The Owner may elect to receive the Death Proceeds in a lump sum. OPTION B. The Owner may elect to receive the Contract Value payable within 5 years of the Annuitant's date of death. Under this Option, the excess, if any, of the Death Proceeds over the Contract Value, as of the date that we determine the value of the Death Proceeds, will be added to the Contract Value. Unless otherwise instructed by the Owner, this excess will be allocated to the PIMCO Money Market Variable Sub-account. During the 5 year period that follows the Annuitant's date of death, the Owner may exercise all rights as set forth in the Transfers section. Withdrawal Charges will be waived for any withdrawals made during this 5 year period, however, the amount withdrawal may be subject to a Market Value Adjustment. No additional purchase payments may be added to the Contract under this section. Withdrawal Charges will be waived for any withdrawals made during this 5 year period. We reserve the right to offer additional death settlement options. QUALIFIED CONTRACTS The death settlement options for Qualified Plans, including IRAs, may be different to conform with the individual tax requirements of each type of Qualified Plan. Please refer to your Endorsement for IRA plans, if applicable, for additional information on your death settlement options. In the case of certain qualified plans, the terms of the plans may govern the right to benefits, regardless of the terms of the Contract. 64 PROSPECTUS SPOUSAL PROTECTION BENEFIT (CO-ANNUITANT) OPTION AND DEATH OF CO-ANNUITANT We offer a Spousal Protection Benefit (Co-Annuitant) Option that may be added to your Contract subject to the following conditions: .. The individually owned Contract must be either a traditional, Roth, or Simplified Employee Pension IRA. .. The Contract Owner's spouse must be the sole Primary Beneficiary of the Contract and will be the named Co-Annuitant. .. The Contract Owner must be age 90 or younger on the Rider Application Date; and the Co-Annuitant must be age 79 or younger on the Rider Application Date. .. The option may only be added when we issue the Contract or within 6 months of the Contract Owner's marriage. We may require proof of marriage in a form satisfactory to us. Currently, you may not add the option to your Contract without our prior approval if your Contract Value is greater than $1,000,000 at the time you choose to add the Option. Under the Spousal Protection Benefit Option, the Co-Annuitant will be considered to be an Annuitant under the Contract during the Accumulation Phase except that the Co-Annuitant will not be considered to be an Annuitant for purposes of determining the Payout Start Date and the "Death of Annuitant" provision of your Contract does not apply on the death of the Co-Annuitant. You may change the Co-Annuitant to a new spouse only if you provide proof of remarriage in a form satisfactory to us. Once we accept a change, the change will take effect on the date you signed the request. Each change is subject to any payment we make or other action we take before we accept it. At any time, there may only be one Co-Annuitant under your Contract. There is an annual Rider Fee of 0.10% of the Contract Value for Options added on or after May 1, 2005. For Options added prior to this date, there is no charge for this Option. We reserve the right to assess an annual Rider Fee not to exceed 0.15% for Options added in the future. Once this Option is added to your Contract, we guarantee that we will not increase what we charge you for this Option. For Contracts purchased on or after May 1, 2005, we may discontinue offering the Spousal Protection Benefit (Co-Annuitant) Option at any time. The option will terminate upon the date your written termination request is accepted by us or will terminate on the earliest of the following occurrences: .. upon the death of the Co-Annuitant (as of the date we determine the Death Proceeds); .. upon the death of the Contract Owner (as of the date we determine the Death Proceeds); .. on the date the Contract is terminated; .. on the Payout Start Date; or .. on the date you change the beneficiary of the Contract and the change is accepted by us; .. for options added on or after May 1, 2005, the Contract Owner may terminate the option upon the divorce of the Contract Owner and the Co-Annuitant by providing written notice and proof of divorce in a form satisfactory to us; .. for options added prior to May 1, 2005, the Owner may terminate this option at anytime by written notice in a form satisfactory to us. Once the Option is terminated, a new Spousal Protection Benefit (Co-Annuitant) Option cannot be added to the Contract unless the last Option attached to the Contract was terminated due to divorce or a change of beneficiary. DEATH OF CO-ANNUITANT. If the Co-Annuitant dies prior to the Payout Start Date, subject to the following conditions, the Contract will be continued according to Option D under the "Death of Owner" provision of your Contract: .. The Co-Annuitant must have been your legal spouse on the date of his or her death; and .. Option D of the "Death of Owner" provision of your Contract has not previously been exercised. The Contract may only be continued once under Option D under the "Death of Owner" provision. For a description of Option D, see the "Death of Owner" section of this prospectus. 65 PROSPECTUS MORE INFORMATION - -------------------------------------------------------------------------------- LINCOLN BENEFIT LIFE COMPANY Lincoln Benefit is the issuer of the Contract. Lincoln Benefit is a stock life insurance company organized under the laws of the state of Nebraska in 1938. Our legal domicile and principal business address is P.O. Box 80469, Lincoln, Nebraska. Lincoln Benefit is a wholly-owned subsidiary of Allstate Life Insurance Company ("Allstate Life"), a stock life insurance company incorporated under the laws of the State of Illinois. Allstate Life is a wholly-owned subsidiary of Allstate Insurance Company ("Allstate"), a stock property-liability insurance company incorporated under the laws of the State of Illinois. All of the capital stock issued and outstanding of Allstate Insurance Company is owned by Allstate Insurance Holdings, LLC, which is wholly owned by The Allstate Corporation. We are authorized to conduct life insurance and annuity business in the District of Columbia, Guam, U.S. Virgin Islands and all states except New York. We will market the Contract everywhere we conduct variable annuity business. The Contracts offered by this prospectus are issued by us and will be funded in the Variable Account and/or the Fixed Account. Under our reinsurance agreement with Allstate Life, substantially all contract related transactions are transferred to Allstate Life and substantially all of the assets backing our reinsured liabilities are owned by Allstate Life. Accordingly, the results of operations with respect to applications received and contracts issued by Lincoln Benefit are not reflected in our financial statements. The amounts reflected in our financial statements relate only to the investment of those assets of Lincoln Benefit that are not transferred to Allstate Life under the reinsurance agreement. These assets represent our general account and are invested and managed by Allstate Life. While the reinsurance agreement provides us with financial backing from Allstate Life, it does not create a direct contractual relationship between Allstate Life and you. Under the Company's reinsurance agreements with Allstate Life, the Company reinsures all reserve liabilities with Allstate Life except for variable contracts. The Company's variable Contract assets and liabilities are held in legally-segregated, unitized separate accounts and are retained by the Company. However, the transactions related to such variable contracts such as premiums, expenses and benefits are transferred to Allstate Life. Effective June 1, 2006, Allstate Life entered into an agreement ("the Agreement") with Prudential Financial, Inc. and its subsidiary, The Prudential Insurance Company of America ("PICA") pursuant to which Allstate Life sold, through a combination of coinsurance and modified coinsurance reinsurance, substantially all of its variable annuity business, including that of its subsidiary Lincoln Benefit. Pursuant to the Agreement Allstate Life and PICA also entered into an administrative services agreement which provides that PICA or an affiliate administer the Variable Account and the Contracts. The benefits and provisions of the Contracts have not been changed by these transactions and agreements. None of the transactions or agreements have changed the fact that we are primarily liable to you under your Contract. VARIABLE ACCOUNT Lincoln Benefit Life Variable Annuity Account was originally established in 1992, as a segregated asset account of Lincoln Benefit. The Variable Account meets the definition of a "separate account" under the federal securities laws and is registered with the SEC as a unit investment trust under the Investment Company Act of 1940. The SEC does not supervise the management of the Variable Account or Lincoln Benefit. We own the assets of the Variable Account, but we hold them separate from our other assets. To the extent that these assets are attributable to the Contract Value of the Contracts offered by this prospectus, these assets are not chargeable with liabilities arising out of any other business we may conduct. Income, gains, and losses, whether or not realized, from assets allocated to the Variable Account are credited to or charged against the Variable Account without regard to our other income, gains, or losses. Our obligations arising under the Contracts are general corporate obligations of Lincoln Benefit. The Variable Account is divided into Sub-accounts. The assets of each Sub-account are invested in the shares of one of the Portfolios. We do not guarantee the investment performance of the Variable Account, its Sub-accounts or the Portfolios. Values allocated to the Variable Account and the amount of Variable Annuity payments will rise and fall with the values of shares of the Portfolios and are also reduced by Contract charges. We may also use the Variable Account to fund our other annuity contracts. We will account separately for each type of annuity contract funded by the Variable Account. We have included additional information about the Variable Account in the Statement of Additional Information. You may obtain a copy of the Statement of Additional Information by writing to us or calling us at 1-800-457-7617. We have reproduced the Table of Contents of the Statement of Additional Information on page 77. THE PORTFOLIOS DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS. We automatically reinvest all dividends and capital gains distributions from the Portfolios in shares of the distributing Portfolios at their net asset value. 66 PROSPECTUS VOTING PRIVILEGES. As a general matter, you do not have a direct right to vote the shares of the Portfolios held by the Variable Sub-Accounts to which you have allocated your Contract Value. Under current law, however, you are entitled to give us instructions on how to vote those shares on certain matters. Based on our present view of the law, we will vote the shares of the Portfolios that we hold directly or indirectly through the Variable Account in accordance with instructions that we receive from Contract Owners entitled to give such instructions. As a general rule, before the Payout Start Date, the Contract Owner or anyone with a voting interest is the person entitled to give voting instructions. The number of shares that a person has a right to instruct will be determined by dividing the Contract Value allocated to the applicable Variable Sub-Account by the net asset value per share of the corresponding Portfolio as of the record date of the meeting. After the Payout Start Date the person receiving income payments has the voting interest. The payee's number of votes will be determined by dividing the reserve for such Contract allocated to the applicable Sub-Account by the net asset value per share of the corresponding Portfolio. The votes decrease as income payments are made and as the reserves for the Contract decrease. We will vote shares attributable to Contracts for which we have not received instructions, as well as shares attributable to us, in the same proportion as we vote shares for which we have received instructions, unless we determine that we may vote such shares in our own discretion. We will apply voting instructions to abstain on any item to be voted upon on a pro-rata basis to reduce the votes eligible to be cast. We reserve the right to vote Portfolio shares as we see fit without regard to voting instructions to the extent permitted by law. If we disregard voting instructions, we will include a summary of that action and our reasons for that action in the next semi-annual financial report we send to you. CHANGES IN PORTFOLIOS. If the shares of any of the Portfolios are no longer available for investment by the Variable Account or if, in our judgment, further investment in such shares is no longer desirable in view of the purposes of the Contract, we may eliminate that Portfolio and substitute shares of another eligible investment fund. Any substitution of securities will comply with the requirements of the Investment Company Act of 1940. We also may add new Variable Sub-Accounts that invest in additional underlying funds. We will notify you in advance of any change. CONFLICTS OF INTEREST. Certain of the Portfolios sell their shares to separate accounts underlying both variable life insurance and variable annuity contracts. It is conceivable that in the future it may be unfavorable for variable life insurance separate accounts and variable annuity separate accounts to invest in the same Portfolio. The board of directors/trustees of these Portfolios monitors for possible conflicts among separate accounts buying shares of the Portfolios. Conflicts could develop for a variety of reasons. For example, differences in treatment under tax and other laws or the failure by a separate account to comply with such laws could cause a conflict. To eliminate a conflict, the Portfolio's board of directors/trustees may require a separate account to withdraw its participation in a Portfolio. A Portfolio's net asset value could decrease if it had to sell investment securities to pay redemption proceeds to a separate account withdrawing because of a conflict. THE CONTRACTS DISTRIBUTION. ALFS, Inc. ("ALFS"), located at 3100 Sanders Road, Northbrook, IL 60062-7154 serves as distributor of the Contracts. ALFS, an affiliate of Lincoln Benefit, is a wholly owned subsidiary of Allstate Life Insurance Company. ALFS is registered as a broker-dealer under the Securities Exchange Act of 1934, as amended, and is a member of the Financial Industry Regulatory Authority ("FINRA"). ALFS does not sell Contracts directly to purchasers. ALFS enters into selling agreements with affiliated and unaffiliated broker-dealers and banks to sell the Contracts through their registered representatives. The broker-dealers are registered with the SEC and are FINRA member firms. Their registered representatives are licensed as insurance agents by applicable state insurance authorities and appointed as agents of Lincoln Benefit in order to sell the Contracts. Contracts also may be sold by representatives or employees of banks that may be acting as broker-dealers without separate registration under the Exchange Act, pursuant to legal and regulatory exceptions. We will pay commissions to broker-dealers and banks which sell the Contracts. Commissions paid vary, but we may pay up to a maximum sales commission of 7.5% of total purchase payments. In addition, we may pay ongoing annual compensation of up to 1.25% of Contract Value. Individual representatives receive a portion of compensation paid to the broker-dealer or bank with which they are associated in accordance with the broker-dealer's or bank's practices. We estimate that commissions and annual compensation, when combined, will not exceed 8.5% of total purchase payments. However, commissions and annual compensation could exceed that amount because ongoing annual compensation is related to Contract Value and the number of years the Contract is held. From time to time, we pay asset-based compensation and/or marketing allowances to banks and broker-dealers. These payments vary among individual banks and broker dealers, and the asset-based payments may be up to 0.25% of Contract Value annually. These payments are intended to contribute to the promotion and marketing of the Contracts, and they vary among 67 PROSPECTUS banks and broker-dealers. The marketing and distribution support services include but are not limited to: (1) placement of the Contracts on a list of preferred or recommended products in the bank's or broker-dealer's distribution system; (2) sales promotions with regard to the Contracts; (3) participation in sales conferences; and (4) helping to defray the costs of sales conferences and educational seminars for the bank or broker-dealer's registered representatives. A list of broker-dealers and banks that ALFS paid pursuant to such arrangements is provided in the Statement of Additional Information, which is available upon request. For a free copy, please write or call us at the address or telephone number listed on the front page of this prospectus, or go to the SEC's Web site (http://www.sec.gov). To the extent permitted by FINRA rules and other applicable laws and regulations, we may pay or allow other promotional incentives or payments in the form of cash or non-cash compensation. We may not offer the arrangements to all broker-dealers and banks and the terms of the arrangement may differ among broker-dealers and banks. Individual registered representatives, broker-dealers, banks, and branch managers within some broker-dealers and banks participating in one of these compensation arrangements may receive greater compensation for selling the contract than for selling a different contact that is not eligible for the compensation arrangement. While we take the compensation into account when establishing contract charges, any such compensation will be paid by us or ALFS and will not result in any additional charge to you. Your registered representative can provide you with more information about the compensation arrangements that apply to the sale of the contract. Lincoln Benefit does not pay ALFS a commission for distribution of the Contracts. ALFS compensates its representatives who act as wholesalers, and their sales management personnel, for Contract sales. This compensation is based on a percentage of premium payments and/or a percentage of Contract values. The underwriting agreement with ALFS provides that we will reimburse ALFS for expenses incurred in distributing the Contracts, including any liability to Contract Owners arising out of services rendered or Contracts issued. Lincoln Benefit and ALFS have also entered into wholesaling agreements with certain independent contractors and their broker-dealers. Under these agreements, compensation based on a percentage of premium payments and/or Contract values is paid to the wholesaling broker-dealer for the wholesaling activities of their registered representative. ADMINISTRATION. We have primary responsibility for all administration of the Contracts and the Variable Account. We entered into an administrative services agreement with The Prudential Insurance Company of America ("PICA") whereby, PICA or an affiliate provides administrative services to the Variable Account and the Contracts on our behalf. In addition, PICA entered into a master services agreement with se/2/, inc., of 5801 SW 6th Avenue, Topeka, Kansas 66636, whereby se/2/, inc. provides certain business process outsourcing services with respect to the Contracts. se/2/, inc. may engage other service providers to provide certain administrative functions. These service providers may change over time, and as of December 31, 2009, consisted of the following: Keane Worldzen, Inc. (administrative services) located at 625 North Michigan Avenue, Suite 1100, Chicago, IL 60611; RR Donnelly Global Investment Markets (compliance printing and mailing) located at 111 South Wacker Drive, Chicago, IL 60606; Jayhawk File Express, LLC (file storage and document destruction) located at 601 E. 5th Street, Topeka, KS 66601-2596; Co-Sentry.net, LLC (back-up printing and disaster recovery) located at 9394 West Dodge Rd, Suite 100, Omaha, NE 68114; Convey Compliance Systems, Inc. (withholding calculations and tax statement mailing) located at 3650 Annapolis Lane, Suite 190, Plymouth, MN 55447; Spangler Graphics, LLC (compliance mailings) located at 29305 44th Street, Kansas City, KS 66106; Veritas Document Solutions, LLC (compliance mailings) located at 913 Commerce Ct, Buffalo Grove, IL 60089; Records Center of Topeka, a division of Underground Vaults & Storage, Inc. (back-up tapes storage) located at 1540 NW Gage Blvd. #6, Topeka, KS 66618; EquiSearch Services, Inc. (lost shareholder search) located at 11 Martime Avenue, Suite 665, White Plains, NY 10606; ZixCorp Systems, Inc. (email encryption) located at 2711 N. Haskell Ave., Suite 2300, Dallas, TX 75204; DST Systems, Inc. (FAN mail, positions, prices) located at 333 West 11 Street, 5th Floor, Kansas City, MO 64105. In administering the Contracts, the following services are provided, among others: .. maintenance of Contract Owner records; .. Contract Owner services; .. calculation of unit values; .. maintenance of the Variable Account; and .. preparation of Contract Owner reports. We will send you Contract statements at least annually. We will also send you transaction confirmations. You should notify us promptly in writing of any address change. You should read your statements and confirmations carefully and verify their accuracy. You should contact us promptly if you have a question about a periodic statement or a confirmation. We will investigate all complaints and make any necessary adjustments retroactively, but you must notify us of a potential error within a reasonable time after the date of the questioned statement. If you wait too long, we will make the adjustment as of the date that we receive notice of the potential error. 68 PROSPECTUS We will also provide you with additional periodic and other reports, information and prospectuses as may be required by federal securities laws. ANNUITIES HELD WITHIN A QUALIFIED PLAN If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waivers of withdrawal charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if Qualified Plan limits on distributions and other conditions are not met. Please consult your Qualified Plan administrator for more information. Lincoln Benefit no longer issues deferred annuities to employer sponsored qualified retirement plans. LEGAL PROCEEDINGS There are no pending legal proceedings affecting the Variable Account. Lincoln Benefit is engaged in routine lawsuits which, in our management's judgment, are not of material importance to the respective total assets or material with respect to the Variable Account. LEGAL MATTERS All matters of Nebraska law pertaining to the Contract, including the validity of the Contract and our right to issue the Contract under Nebraska law, have been passed upon by Susan L. Lees, General Counsel of Lincoln Benefit. TAXES - -------------------------------------------------------------------------------- THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT INTENDED AS TAX ADVICE. LINCOLN BENEFIT MAKES NO GUARANTEE REGARDING THE TAX TREATMENT OF ANY CONTRACT OR TRANSACTION INVOLVING A CONTRACT. Federal, state, local and other tax consequences of ownership or receipt of distributions under an annuity contract depend on your individual circumstances. If you are concerned about any tax consequences with regard to your individual circumstances, you should consult a competent tax adviser. TAXATION OF LINCOLN BENEFIT LIFE COMPANY Lincoln Benefit is taxed as a life insurance company under Part I of Subchapter L of the Code. Since the Variable Account is not an entity separate from Lincoln Benefit, and its operations form a part of Lincoln Benefit, it will not be taxed separately. Investment income and realized capital gains of the Variable Account are automatically applied to increase reserves under the Contract. Under existing federal income tax law, Lincoln Benefit believes that the Variable Account investment income and capital gains will not be taxed to the extent that such income and gains are applied to increase the reserves under the Contract. Accordingly, Lincoln Benefit does not anticipate that it will incur any federal income tax liability attributable to the Variable Account, and therefore Lincoln Benefit does not intend to make provisions for any such taxes. If Lincoln Benefit is taxed on investment income or capital gains of the Variable Account, then Lincoln Benefit may impose a charge against the Variable Account in order to make provision for such taxes. TAXATION OF VARIABLE ANNUITIES IN GENERAL TAX DEFERRAL. Generally, you are not taxed on increases in the Contract Value until a distribution occurs. This rule applies only where: .. the Contract Owner is a natural person, .. the investments of the Variable Account are "adequately diversified" according to Treasury Department regulations, and .. Lincoln Benefit is considered the owner of the Variable Account assets for federal income tax purposes. NON-NATURAL OWNERS. Non-natural owners are also referred to as Non Living Owners in this prospectus. As a general rule, annuity contracts owned by non-natural persons such as corporations, trusts, or other entities are not treated as annuity contracts for federal income tax purposes. The income on such contracts does not enjoy tax deferral and is taxed as ordinary income received or accrued by the non-natural owner during the taxable year. EXCEPTIONS TO THE NON-NATURAL OWNER RULE. There are several exceptions to the general rule that annuity contracts held by a non-natural owner are not treated as annuity contracts for federal income tax purposes. Contracts will generally be treated as held by a natural person if the nominal owner is a trust or other entity which holds the contract as agent for a natural person. However, this special exception will not apply in the case of an employer who is the nominal owner of an annuity contract under a non-Qualified deferred compensation arrangement for its employees. Other exceptions to the non-natural owner rule are: (1) contracts acquired by an estate of a decedent by reason of the death of the decedent; (2) certain qualified contracts; (3) contracts purchased by employers upon the termination of certain Qualified Plans; (4) certain contracts used in connection with structured settlement agreements; and (5) immediate annuity contracts, purchased with a single premium, when the annuity starting date is no later than a year from purchase of the annuity and substantially equal periodic payments are made, not less frequently than annually, during the annuity period. 69 PROSPECTUS GRANTOR TRUST OWNED ANNUITY. Contracts owned by a grantor trust are considered owned by a non-natural owner. Grantor trust owned contracts receive tax deferral as described in the Exceptions to the Non-Natural Owner Rule section. In accordance with the Code, upon the death of the annuitant, the death benefit must be paid. According to your Contract, the Death Benefit is paid to the beneficiary. A trust named beneficiary, including a grantor trust, has two options for receiving any death benefits: 1) a lump sum payment, or 2) payment deferred up to five years from date of death. DIVERSIFICATION REQUIREMENTS. For a Contract to be treated as an annuity for federal income tax purposes, the investments in the Variable Account must be "adequately diversified" consistent with standards under Treasury Department regulations. If the investments in the Variable Account are not adequately diversified, the Contract will not be treated as an annuity contract for federal income tax purposes. As a result, the income on the Contract will be taxed as ordinary income received or accrued by the Contract owner during the taxable year. Although Lincoln Benefit does not have control over the Portfolios or their investments, we expect the Portfolios to meet the diversification requirements. OWNERSHIP TREATMENT. The IRS has stated that a contract owner will be considered the owner of separate account assets if he possesses incidents of ownership in those assets, such as the ability to exercise investment control over the assets. At the time the diversification regulations were issued, the Treasury Department announced that the regulations do not provide guidance concerning circumstances in which investor control of the separate account investments may cause a Contract owner to be treated as the owner of the separate account. The Treasury Department also stated that future guidance would be issued regarding the extent that owners could direct sub-account investments without being treated as owners of the underlying assets of the separate account. Your rights under the Contract are different than those described by the IRS in private and published rulings in which it found that Contract owners were not owners of separate account assets. For example, if your contract offers more than twenty (20) investment alternatives you have the choice to allocate premiums and contract values among a broader selection of investment alternatives than described in such rulings. You may be able to transfer among investment alternatives more frequently than in such rulings. These differences could result in you being treated as the owner of the Variable Account. If this occurs, income and gain from the Variable Account assets would be includible in your gross income. Lincoln Benefit does not know what standards will be set forth in any regulations or rulings which the Treasury Department may issue. It is possible that future standards announced by the Treasury Department could adversely affect the tax treatment of your Contract. We reserve the right to modify the Contract as necessary to attempt to prevent you from being considered the federal tax owner of the assets of the Variable Account. However, we make no guarantee that such modification to the Contract will be successful. TAXATION OF PARTIAL AND FULL WITHDRAWALS. If you make a partial withdrawal under a Non-Qualified Contract, amounts received are taxable to the extent the Contract Value, without regard to surrender charges, exceeds the investment in the Contract. The investment in the Contract is the gross premium paid for the contract minus any amounts previously received from the Contract if such amounts were properly excluded from your gross income. If you make a full withdrawal under a Non-Qualified Contract, the amount received will be taxable only to the extent it exceeds the investment in the Contract. TAXATION OF ANNUITY PAYMENTS. Generally, the rule for income taxation of annuity payments received from a Non-Qualified Contract provides for the return of your investment in the Contract in equal tax-free amounts over the payment period. The balance of each payment received is taxable. For fixed annuity payments, the amount excluded from income is determined by multiplying the payment by the ratio of the investment in the Contract (adjusted for any refund feature or period certain) to the total expected value of annuity payments for the term of the Contract. If you elect variable annuity payments, the amount excluded from taxable income is determined by dividing the investment in the Contract by the total number of expected payments. The annuity payments will be fully taxable after the total amount of the investment in the Contract is excluded using these ratios. If any variable payment is less than the excludable amount you should contact a competent tax advisor to determine how to report any unrecovered investment. The federal tax treatment of annuity payments is unclear in some respects. As a result, if the IRS should provide further guidance, it is possible that the amount we calculate and report to the IRS as taxable could be different. If you die, and annuity payments cease before the total amount of the investment in the Contract is recovered, the unrecovered amount will be allowed as a deduction for your last taxable year. TAXATION OF LEVEL MONTHLY VARIABLE ANNUITY PAYMENTS. You may have an option to elect a variable income payment stream consisting of level monthly payments that are recalculated annually. Although we will report your levelized payments to the IRS in the year distributed, it is possible the IRS could determine that receipt of the first monthly payout of each annual amount is constructive receipt of the entire annual amount. If the IRS were to take this position, the taxable amount of your levelized payments would be accelerated to the time of the first monthly payout and reported in the tax year in which the first monthly payout is received. WITHDRAWALS AFTER THE PAYOUT START DATE. Federal tax law is unclear regarding the taxation of any additional 70 PROSPECTUS withdrawal received after the Payout Start Date. It is possible that a greater or lesser portion of such a payment could be taxable than the amount we determine. DISTRIBUTION AT DEATH RULES. In order to be considered an annuity contract for federal income tax purposes, the Contract must provide: .. if any Contract Owner dies on or after the Payout Start Date but before the entire interest in the Contract has been distributed, the remaining portion of such interest must be distributed at least as rapidly as under the method of distribution being used as of the date of the Contract Owner's death; .. if any Contract Owner dies prior to the Payout Start Date, the entire interest in the Contract will be distributed within 5 years after the date of the Contract Owner's death. These requirements are satisfied if any portion of the Contract Owner's interest that is payable to (or for the benefit of) a designated Beneficiary is distributed over the life of such Beneficiary (or over a period not extending beyond the life expectancy of the Beneficiary) and the distributions begin within 1 year of the Contract Owner's death. If the Contract Owner's designated Beneficiary is the surviving spouse of the Contract Owner, the Contract may be continued with the surviving spouse as the new Contract Owner; .. if the Contract Owner is a non-natural person, then the Annuitant will be treated as the Contract Owner for purposes of applying the distribution at death rules. In addition, a change in the Annuitant on a Contract owned by a non-natural person will be treated as the death of the Contract Owner. We administer certain spousal rights under the Contract and related tax reporting in accordance with our understanding of the Defense of Marriage Act (which defines a "marriage" as a legal union between a man and a woman and a "spouse" as a person of the opposite sex). Depending on the state in which your Contract is issued, we may offer certain spousal benefits to civil union couples or same-sex marriage spouses. You should be aware, however, that federal tax law does not recognize civil unions or same-sex marriages. Therefore, we cannot permit a civil union partner or same-sex spouse to continue the Contract within the meaning of the tax law upon the death of the first partner under the Contract's "spousal continuance" provision. Civil union couples and same-sex marriage spouses should consider that limitation before selecting a spousal benefit under the Contract. TAXATION OF ANNUITY DEATH BENEFITS. Death Benefit amounts are included in income as follows: .. if distributed in a lump sum, the amounts are taxed in the same manner as a total withdrawal, or .. if distributed under an Income Plan, the amounts are taxed in the same manner as annuity payments. PENALTY TAX ON PREMATURE DISTRIBUTIONS. A 10% penalty tax applies to the taxable amount of any premature distribution from a non-Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions: .. made on or after the date the Contract Owner attains age 59 1/2, .. made as a result of the Contract Owner's death or becoming totally disabled, .. made in substantially equal periodic payments (as defined by the Code) over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, .. made under an immediate annuity, or .. attributable to investment in the Contract before August 14, 1982. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS. With respect to non-Qualified Contracts using substantially equal periodic payments or immediate annuity payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the Contract Owner's attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream. TAX FREE EXCHANGES UNDER INTERNAL REVENUE CODE SECTION 1035. A 1035 exchange is a tax-free exchange of a non-Qualified life insurance contract, endowment contract or annuity contract into a non-Qualified annuity contract. The contract owner(s) must be the same on the old and new contract. Basis from the old contract carries over to the new contract so long as we receive that information from the relinquishing company. If basis information is never received, we will assume that all exchanged funds represent earnings and will allocate no cost basis to them. PARTIAL EXCHANGES. The IRS has issued rulings that permit partial exchanges of annuity contracts. Effective June 30, 2008, a partial exchange, of a deferred annuity contract for another deferred annuity contract, will 71 PROSPECTUS qualify for tax-deferral only if no amount is withdrawn or surrendered from either contract for a period of 12 months. The 12 month period begins on the date when exchange proceeds are treated as premiums paid for the recipient contract. Withdrawals from, annuitizations, taxable Owner or Annuitant changes, or surrenders of either contract within the 12 month period will retroactively negate the partial exchange, unless one of the following applies: .. the contact owner reaches 59 1/2, becomes totally disabled, dies, obtains a divorce or suffers a loss of employment after the partial exchange was completed and prior to the withdrawal, annuitization, Owner or Annuitant change, or surrender; .. if the annuity is owned by an entity, the annuitant dies after the partial exchange was completed and prior to the withdrawal, annuitization, Owner or Annuitant change or surrender; .. the withdrawal is allocable to investment in the Contract before August 14, 1982; or, .. the annuity is a qualified funding asset within the meaning of Code section 130(d). If a partial exchange is retroactively negated, the amount originally transferred to the recipient contract is treated as a withdrawal from the source contract, taxable to the extent of any gain in that contract on the date of the exchange. An additional 10% tax penalty may also apply if the Contract Owner is under age 59 1/2. Your Contract may not permit partial exchanges. TAXATION OF OWNERSHIP CHANGES. If you transfer a non-Qualified Contract without full and adequate consideration to a person other than your spouse (or to a former spouse incident to a divorce), you will be taxed on the difference between the Contract Value and the investment in the Contract at the time of transfer. Any assignment or pledge (or agreement to assign or pledge) of the Contract Value is taxed as a withdrawal of such amount or portion and may also incur the 10% penalty tax. AGGREGATION OF ANNUITY CONTRACTS. The Code requires that all non-Qualified deferred annuity contracts issued by Lincoln Benefit (or its affiliates) to the same Contract Owner during any calendar year be aggregated and treated as one annuity contract for purposes of determining the taxable amount of a distribution. INCOME TAX WITHHOLDING Generally, Lincoln Benefit is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made or no U.S. taxpayer identification number is provided we will automatically withhold the required 10% of the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. Lincoln Benefit is required to withhold federal income tax using the wage withholding rates for all annuitized distributions. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. Generally, Code Section 1441 provides that Lincoln Benefit as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non- resident alien is someone other than a U.S. citizen or resident alien. We require an original IRS Form W-8BEN at issue to certify the owners' foreign status. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien's country of residence if the payee provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number ("ITIN"). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities. TAX QUALIFIED CONTRACTS The income on tax sheltered annuity (TSA) and IRA investments is tax deferred, and the income from annuities held by such plans does not receive any additional tax deferral. You should review the annuity features, including all benefits and expenses, prior to purchasing an annuity as a TSA or IRA. Tax Qualified Contracts are contracts purchased as or in connection with: .. Individual Retirement Annuities (IRAs) under Code Section 408(b); .. Roth IRAs under Code Section 408A; .. Simplified Employee Pension (SEP IRA) under Code Section 408(k); .. Savings Incentive Match Plans for Employees (SIMPLE IRA) under Code Section 408(p); .. Tax Sheltered Annuities under Code Section 403(b); .. Corporate and Self Employed Pension and Profit Sharing Plans under Code Section 401; and .. State and Local Government and Tax-Exempt Organization Deferred Compensation Plans under Code Section 457. 72 PROSPECTUS Lincoln Benefit reserves the right to limit the availability of the Contract for use with any of the retirement plans listed above or to modify the Contract to conform with tax requirements. If you use the Contract within an employer sponsored qualified retirement plan, the plan may impose different or additional conditions or limitations on withdrawals, waiver of charges, death benefits, Payout Start Dates, income payments, and other Contract features. In addition, adverse tax consequences may result if Qualified Plan limits on distributions and other conditions are not met. Please consult your Qualified Plan administrator for more information. Lincoln Benefit no longer issues deferred annuities to employer sponsored qualified retirement plans. The tax rules applicable to participants with tax qualified annuities vary according to the type of contract and the terms and conditions of the endorsement. Adverse tax consequences may result from certain transactions such as excess contributions, premature distributions, and, distributions that do not conform to specified commencement and minimum distribution rules. Lincoln Benefit can issue an individual retirement annuity on a rollover or transfer of proceeds from a decedent's IRA, TSA, or employer sponsored retirement plan under which the decedent's surviving spouse is the beneficiary. Lincoln Benefit does not offer an individual retirement annuity that can accept a transfer of funds for any other, non-spousal, beneficiary of a decedent's IRA, TSA, or employer sponsored qualified retirement plan. Please refer to your Endorsement for IRAs or 403(b) plans, if applicable, for additional information on your death settlement options. In the case of certain Qualified Plans, the terms of the Qualified Plan Endorsement and the plans may govern the right to benefits, regardless of the terms of the Contract. TAXATION OF WITHDRAWALS FROM AN INDIVIDUALLY OWNED TAX QUALIFIED CONTRACT. If you make a partial withdrawal under a Tax Qualified Contract other than a Roth IRA, the portion of the payment that bears the same ratio to the total payment that the investment in the Contract (i.e., nondeductible IRA contributions) bears to the Contract Value, is excluded from your income. We do not keep track of nondeductible contributions, and generally all tax reporting of distributions from Tax Qualified Contracts other than Roth IRAs will indicate that the distribution is fully taxable. "Qualified distributions" from Roth IRAs are not included in gross income. "Qualified distributions" are any distributions made more than five taxable years after the taxable year of the first contribution to any Roth IRA and which are: .. made on or after the date the Contract Owner attains age 59 1/2, .. made to a beneficiary after the Contract Owner's death, .. attributable to the Contract Owner being disabled, or .. made for a first time home purchase (first time home purchases are subject to a lifetime limit of $10,000). "Nonqualified distributions" from Roth IRAs are treated as made from contributions first and are included in gross income only to the extent that distributions exceed contributions. REQUIRED MINIMUM DISTRIBUTIONS. Generally, Tax Qualified Contracts (excluding Roth IRAs) require minimum distributions upon reaching age 70 1/2. Failure to withdraw the required minimum distribution will result in a 50% tax penalty on the shortfall not withdrawn from the Contract. Effective December 31, 2005, the IRS requires annuity contracts to include the actuarial present value of other benefits for purposes of calculating the required minimum distribution amount. These other benefits may include accumulation, income, or death benefits. Not all income plans offered under the Contract satisfy the requirements for minimum distributions. Because these distributions are required under the Code and the method of calculation is complex, please see a competent tax advisor. THE DEATH BENEFIT AND TAX QUALIFIED CONTRACTS. Pursuant to the Code and IRS regulations, an IRA (e.g., traditional IRA, Roth IRA, SEP IRA and SIMPLE IRA) may not invest in life insurance contracts. However, an IRA may provide a death benefit that equals the greater of the purchase payments or the Contract Value. The Contract offers a death benefit that in certain circumstances may exceed the greater of the purchase payments or the Contract Value. We believe that the Death Benefits offered by your Contract do not constitute life insurance under these regulations. It is also possible that certain death benefits that offer enhanced earnings could be characterized as an incidental death benefit. If the death benefit were so characterized, this could result in current taxable income to a Contract Owner. In addition, there are limitations on the amount of incidental death benefits that may be provided under Qualified Plans, such as in connection with a TSA or employer sponsored qualified retirement plan. Lincoln Benefit reserves the right to limit the availability of the Contract for use with any of the Qualified Plans listed above. PENALTY TAX ON PREMATURE DISTRIBUTIONS FROM TAX QUALIFIED CONTRACTS. A 10% penalty tax applies to the taxable amount of any premature distribution from a Tax Qualified Contract. The penalty tax generally applies to any distribution made prior to the date you attain age 59 1/2. However, no penalty tax is incurred on distributions: .. made on or after the date the Contract Owner attains age 59 1/2, 73 PROSPECTUS .. made as a result of the Contract Owner's death or total disability, .. made in substantially equal periodic payments (as defined by the Code) over the Contract Owner's life or life expectancy, or over the joint lives or joint life expectancies of the Contract Owner and the Beneficiary, .. made after separation from service after age 55 (does not apply to IRAs), .. made pursuant to an IRS levy, .. made for certain medical expenses, .. made to pay for health insurance premiums while unemployed (applies only for IRAs), .. made for qualified higher education expenses (applies only for IRAs) .. made for a first time home purchase (up to a $10,000 lifetime limit and applies only for IRAs), and .. from an IRA or attributable to elective deferrals under a 401(k) plan, 403(b) annuity, or certain similar arrangements made to individuals who (because of their being members of a reserve component) are ordered or called to active duty after Sept. 11, 2001, for a period of more than 179 days or for an indefinite period; and made during the period beginning on the date of the order or call to duty and ending at the close of the active duty period. During the first 2 years of the individual's participation in a SIMPLE IRA, distributions that are otherwise subject to the premature distribution penalty, will be subject to a 25% penalty tax. You should consult a competent tax advisor to determine how these exceptions may apply to your situation. SUBSTANTIALLY EQUAL PERIODIC PAYMENTS ON TAX QUALIFIED CONTRACTS. With respect to Tax Qualified Contracts using substantially equal periodic payments as an exception to the penalty tax on premature distributions, any additional withdrawal or other material modification of the payment stream would violate the requirement that payments must be substantially equal. Failure to meet this requirement would mean that the income portion of each payment received prior to the later of 5 years or the taxpayer's attaining age 59 1/2 would be subject to a 10% penalty tax unless another exception to the penalty tax applied. The tax for the year of the modification is increased by the penalty tax that would have been imposed without the exception, plus interest for the years in which the exception was used. A material modification does not include permitted changes described in published IRS rulings. You should consult a competent tax advisor prior to creating or modifying a substantially equal periodic payment stream. INCOME TAX WITHHOLDING ON TAX QUALIFIED CONTRACTS. Generally, Lincoln Benefit is required to withhold federal income tax at a rate of 10% from all non-annuitized distributions that are not considered "eligible rollover distributions." The customer may elect out of withholding by completing and signing a withholding election form. If no election is made or if no U.S. taxpayer identification number is provided, we will automatically withhold the required 10% from the taxable amount. In certain states, if there is federal withholding, then state withholding is also mandatory. Lincoln Benefit is required to withhold federal income tax at a rate of 20% on all "eligible rollover distributions" unless you elect to make a "direct rollover" of such amounts to an IRA or eligible retirement plan. Eligible rollover distributions generally include all distributions from Tax Qualified Contracts, including TSAs but excluding IRAs, with the exception of: .. required minimum distributions, or, .. a series of substantially equal periodic payments made over a period of at least 10 years, or, .. a series of substantially equal periodic payments made over the life (joint lives) of the participant (and beneficiary), or, .. hardship distributions. With respect to any Contract held under a Section 457 plan or by the trustee of a Section 401 Pension or Profit Sharing Plan, we will not issue payments directly to a plan participant or beneficiary. Consequently, the obligation to comply with the withholding requirements described above will be the responsibility of the plan. For all annuitized distributions that are not subject to the 20% withholding requirement, Lincoln Benefit is required to withhold federal income tax using the wage withholding rates. The customer may elect out of withholding by completing and signing a withholding election form. If no election is made, we will automatically withhold using married with three exemptions as the default. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In certain states, if there is federal withholding, then state withholding is also mandatory. Election out of withholding is valid only if the customer provides a U.S. residence address and taxpayer identification number. Generally, Code Section 1441 provides that Lincoln Benefit as a withholding agent must withhold 30% of the taxable amounts paid to a non-resident alien. A non-resident alien is someone other than a U.S. citizen or resident alien. We require an original IRS Form W-8BEN at issue to certify the owners' foreign status. Withholding may be reduced or eliminated if covered by an income tax treaty between the U.S. and the non-resident alien's country of residence if the payee 74 PROSPECTUS provides a U.S. taxpayer identification number on a fully completed Form W-8BEN. A U.S. taxpayer identification number is a social security number or an individual taxpayer identification number ("ITIN"). ITINs are issued by the IRS to non-resident alien individuals who are not eligible to obtain a social security number. The U.S. does not have a tax treaty with all countries nor do all tax treaties provide an exclusion or lower withholding rate for annuities. CHARITABLE IRA DISTRIBUTIONS. The Pension Protection Act of 2006 included a charitable giving incentive permitting tax-free IRA distributions for charitable purposes. The Emergency Economic Stabilization Act of 2008 extended this provision for two years. For distributions in tax years beginning after 2005 and before 2010, the Act provides an exclusion from gross income, up to $100,000, for otherwise taxable IRA distributions from a traditional or Roth IRA that are qualified charitable distributions. To constitute a qualified charitable distribution, the distribution must be made (1) directly by the IRA trustee to certain qualified charitable organizations and (2) on or after the date the IRA owner attains age 70 1/2. Distributions that are excluded from income under this provision are not taken into account in determining the individual's deduction, if any, for charitable contributions. The IRS has indicated that an IRA trustee is not responsible for determining whether a distribution to a charity is one that satisfies the requirements for the new income tax exclusion added by the Pension Protection Act. As a result the general rules for reporting IRA distributions apply. INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408(b) permits eligible individuals to contribute to an individual retirement program known as an Individual Retirement Annuity (IRA). Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. Certain distributions from other types of qualified retirement plans may be "rolled over" on a tax-deferred basis into an Individual Retirement Annuity. ROTH INDIVIDUAL RETIREMENT ANNUITIES. Code Section 408A permits eligible individuals to make nondeductible contributions to an individual retirement program known as a Roth Individual Retirement Annuity. Roth Individual Retirement Annuities are subject to limitations on the amount that can be contributed and on the time when distributions may commence. A traditional Individual Retirement Account or Annuity may be converted or "rolled over" to a Roth Individual Retirement Annuity. For distributions after 2007, the Pension Protection Act of 2006 allows distributions from qualified retirement plans including tax sheltered annuities and governmental Section 457 plans to be rolled over directly into a Roth IRA, subject to the usual rules that apply to conversions from a traditional IRA into a Roth IRA. The income portion of a conversion or rollover distribution is taxable currently, but is exempted from the 10% penalty tax on premature distributions. Prior to January 1, 2010, income and filing status limitations applied to rollovers from non-Roth accounts to a Roth IRA. Effective January 1, 2005, the IRS requires conversions of annuity contracts to include the actuarial present value of other benefits for purposes of valuing the taxable amount of the conversion. ANNUITIES HELD BY INDIVIDUAL RETIREMENT ACCOUNTS (COMMONLY KNOWN AS CUSTODIAL IRAS). Code Section 408 permits a custodian or trustee of an Individual Retirement Account to purchase an annuity as an investment of the Individual Retirement Account. If an annuity is purchased inside of an Individual Retirement Account, then the Annuitant must be the same person as the beneficial owner of the Individual Retirement Account. If you have a contract issued as an IRA under Code Section 408(b) and request to change the ownership to an IRA custodian permitted under Section 408, we will treat a request to change ownership from an individual to a custodian as an indirect rollover. We will send a Form 1099R to report the distribution and the custodian should issue a Form 5498 for the contract value contribution. Generally, the death benefit of an annuity held in an Individual Retirement Account must be paid upon the death of the Annuitant. However, in most states, the Contract permits the custodian or trustee of the Individual Retirement Account to continue the Contract in the accumulation phase, with the Annuitant's surviving spouse as the new Annuitant, if the following conditions are met: 1) The custodian or trustee of the Individual Retirement Account is the owner of the annuity and has the right to the death proceeds otherwise payable under the Contract; 2) The deceased Annuitant was the beneficial owner of the Individual Retirement Account; 3) We receive a complete request for settlement for the death of the Annuitant; and 4) The custodian or trustee of the Individual Retirement Account provides us with a signed certification of the following: (a) The Annuitant's surviving spouse is the sole beneficiary of the Individual Retirement Account; (b) The Annuitant's surviving spouse has elected to continue the Individual Retirement Account as his or her own Individual Retirement Account; and (c) The custodian or trustee of the Individual Retirement Account has continued the Individual Retirement Account pursuant to the surviving spouse's election. 75 PROSPECTUS SIMPLIFIED EMPLOYEE PENSION IRA (SEP IRA). Code Section 408(k) allows eligible employers to establish simplified employee pension plans for their employees using individual retirement annuities. These employers may, within specified limits, make deductible contributions on behalf of the employees to the individual retirement annuities. Employers intending to use the Contract in connection with such plans should seek competent tax advice. SAVINGS INCENTIVE MATCH PLANS FOR EMPLOYEES (SIMPLE IRA). Code Section 408(p) allows eligible employers with 100 or fewer employees to establish SIMPLE retirement plans for their employees using individual retirement annuities. In general, a SIMPLE IRA consists of a salary deferral program for eligible employees and matching or nonelective contributions made by employers. Employers intending to purchase the Contract as a SIMPLE IRA should seek competent tax and legal advice. SIMPLE IRA plans must include the provisions of the Economic Growth and Tax Relief Reconciliation Act of 2007 (EGTRRA) to avoid adverse tax consequences. If your current SIMPLE IRA plan uses IRS Model Form 5304-SIMPLE with a revision date of March 2002 or later, then your plan is up to date. If your plan has a revision date prior to March 2002, please consult with your tax or legal advisor to determine the action you need to take in order to comply with this requirement. TO DETERMINE IF YOU ARE ELIGIBLE TO CONTRIBUTE TO ANY OF THE ABOVE LISTED IRAS (TRADITIONAL, ROTH, SEP, OR SIMPLE), PLEASE REFER TO IRS PUBLICATION 590 AND YOUR COMPETENT TAX ADVISOR. TAX SHELTERED ANNUITIES. Code Section 403(b) provides tax-deferred retirement savings plans for employees of certain non-profit and educational organizations. Under Section 403(b), any contract used for a 403(b) plan must provide that distributions attributable to salary reduction contributions made after 12/31/88, and all earnings on salary reduction contributions, may be made only on or after the date the employee: .. attains age 59 1/2, .. severs employment, .. dies, .. becomes disabled, or .. incurs a hardship (earnings on salary reduction contributions may not be distributed on account of hardship). These limitations do not apply to withdrawals where Lincoln Benefit is directed to transfer some or all of the Contract Value to another 403(b) plan. Generally, we do not accept funds in 403(b) contracts that are subject to the Employee Retirement Income Security Act of 1974 (ERISA). CAUTION: Under recent IRS regulations we can accept contributions, transfers and rollovers only if we have entered into an information-sharing agreement, or its functional equivalent, with the applicable employer or its plan administrator. Unless your contract is grandfathered from certain provisions in these regulations, we will only process certain transactions (e.g, transfers, withdrawals, hardship distributions and, if applicable, loans) with employer approval. This means that if you request one of these transactions we will not consider your request to be in good order, and will not therefore process the transaction, until we receive the employer's approval in written or electronic form. CORPORATE AND SELF-EMPLOYED PENSION AND PROFIT SHARING PLANS. Section 401(a) of the Code permits corporate employers to establish various types of tax favored retirement plans for employees. Self-employed individuals may establish tax favored retirement plans for themselves and their employees (commonly referred to as "H.R.10" or "Keogh"). Such retirement plans may permit the purchase of annuity contracts. Lincoln Benefit no longer issues annuity contracts to employer sponsored qualified retirement plans. There are two owner types for contracts intended to qualify under Section 401(a): a qualified plan fiduciary or an annuitant owner. .. A qualified plan fiduciary exists when a qualified plan trust that is intended to qualify under Section 401(a) of the Code is the owner. The qualified plan trust must have its own tax identification number and a named trustee acting as a fiduciary on behalf of the plan. The annuitant should be the person for whose benefit the contract was purchased. .. An annuitant owner exists when the tax identification number of the owner and annuitant are the same, or the annuity contract is not owned by a qualified plan trust. The annuitant should be the person for whose benefit the contract was purchased. If a qualified plan fiduciary is the owner of the contract, the qualified plan must be the beneficiary so that death benefits from the annuity are distributed in accordance with the terms of the qualified plan. Annuitant owned contracts require that the beneficiary be the annuitant's spouse (if applicable), which is consistent with the required IRS language for qualified plans under Section 401(a). A completed Annuitant Owned Qualified Plan Designation of Beneficiary form is required in order to change the beneficiary of an annuitant owned Qualified Plan contract. STATE AND LOCAL GOVERNMENT AND TAX-EXEMPT ORGANIZATION DEFERRED COMPENSATION PLANS. Section 457 of the Code permits employees of 76 PROSPECTUS 77 PROSPECTUS state and local governments and tax-exempt organizations to defer a portion of their compensation without paying current taxes. The employees must be participants in an eligible deferred compensation plan. In eligible governmental plans, all assets and income must be held in a trust/custodial account/annuity contract for the exclusive benefit of the participants and their beneficiaries. To the extent the Contracts are used in connection with a non-governmental eligible plan, employees are considered general creditors of the employer and the employer as owner of the Contract has the sole right to the proceeds of the Contract. Under eligible 457 plans, contributions made for the benefit of the employees will not be includible in the employees' gross income until distributed from the plan. Lincoln Benefit no longer issues annuity contracts to 457 plans. ABOUT LINCOLN BENEFIT LIFE COMPANY - -------------------------------------------------------------------------------- Rule 12h-7 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") exempts an insurance company from filing reports under the Exchange Act when the insurance company issues certain types of insurance products that are registered under the Securities Act of 1933 and such products are regulated under state law. The variable annuities described in this prospectus fall within the exemption provided under rule 12h-7. We rely on the exemption provided under rule 12h-7 and do not file reports under the Exchange Act. STATEMENT OF ADDITIONAL INFORMATION TABLE OF CONTENTS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ADDITIONS, DELETIONS, OR SUBSTITUTIONS OF INVESTMENTS --------------------------------------------------------------------- THE CONTRACTS --------------------------------------------------------------------- CALCULATION OF ACCUMULATION UNIT VALUES --------------------------------------------------------------------- CALCULATION OF VARIABLE INCOME PAYMENTS ---------------------------------------------------------------------
- -------------------------------------------------------------------------------- GENERAL MATTERS ------------------------------------- EXPERTS ------------------------------------- FINANCIAL STATEMENTS ------------------------------------- ACCUMULATION UNIT VALUES -------------------------------------
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. WE DO NOT AUTHORIZE ANYONE TO PROVIDE ANY INFORMATION OR REPRESENTATIONS REGARDING THE OFFERING DESCRIBED IN THIS PROSPECTUS OTHER THAN AS CONTAINED IN THIS PROSPECTUS. 78 PROSPECTUS APPENDIX A CONTRACT COMPARISON CHART - --------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------- Feature Classic Plus Elite - ---------------------------------------------------------------------------------------------------------------------------- up to 5% depending on issue age and amount of Credit Enhancement None purchase payments None - ---------------------------------------------------------------------------------------------------------------------------- Mortality and Expense Risk Charge (Base Contract) 1.25% 1.45% 1.60% - ---------------------------------------------------------------------------------------------------------------------------- Withdrawal Charge 8.5/ 8.5/ 8.5/ 7.5/ (% of purchase payment) 7/ 7/ 6/ 5/ 4/ 3/ 2 6.5/ 5.5/ 4/2.5 7/ 6/ 5 - ---------------------------------------------------------------------------------------------------------------------------- Withdrawal Charge Confinement, Terminal Illness, Confinement, Terminal Confinement, Terminal Waivers Unemployment Illness, Unemployment Illness, Unemployment
- ------------------------------------------------------------------------------------ Feature Classic Select - ------------------------------------------------------------------------------------ Credit Enhancement None None - ------------------------------------------------------------------------------------ Mortality and Expense Risk Charge (Base Contract) 1.25% 1.70% - ------------------------------------------------------------------------------------ Withdrawal Charge (% of purchase payment) 7/ 7/ 6/ 5/ 4/ 3/ 2 None - ------------------------------------------------------------------------------------ Withdrawal Charge Confinement, Terminal Illness, Waivers Unemployment N/A
The Fixed Account Options available depend on the type of Contract you have purchased and the state in which your Contract was issued. The following tables summarize the availability of the Fixed Account Options in general. Please check with your representative for specific details for your state.
DCA Fixed Account Option* --------------------------------------------------- Classic Plus Elite Select --------------------------------------------------- 6-month 6-month 6-month N/A Transfer Periods --------------------------------- 12-month 12-month 12-month N/A
Standard Fixed Account Option (not available in all states)** - ----------------------------------------------------------------------------------------------- Classic Plus Elite Select - ----------------------------------------------------------------------------------------------- 1-year N/A N/A N/A -------------------------------------------------------- N/A N/A N/A N/A Guarantee Periods -------------------------------------------------------- N/A N/A N/A N/A -------------------------------------------------------- N/A N/A N/A N/A
MVA Fixed Account Option (not available in all states)*** - ----------------------------------------------------------------------------------------------------- Classic Plus Elite Select - ----------------------------------------------------------------------------------------------------- 1-year 1-year 1-year 1-year -------------------------------------------------------------- 3-year 3-year 3-year 3-year -------------------------------------------------------------- Guarantee Periods 5-year 5-year 5-year 5-year -------------------------------------------------------------- 7-year 7-year 7-year 7-year -------------------------------------------------------------- 10-year 10-year 10-year 10-year
* At the time you allocate a purchase payment to the DCA Fixed Account Option, if you do not specify the term length over which the transfers are to take place, the default transfer period will be 6 months for the 6-month option and 12 months for the 12 month option. ** May be available only in states where the MVA Fixed Account Option is not offered. *** Not available in states where the Standard Fixed Account Options are offered. 79 PROSPECTUS APPENDIX B - MARKET VALUE ADJUSTMENT - -------------------------------------------------------------------------------- The Market Value Adjustment is based on the following: I = the Treasury Rate for a maturity equal to the term length of the Guarantee Period for the week preceding the establishment of the Market Value Adjusted Fixed Guarantee Period Account; J = the Treasury Rate for a maturity equal to the term length of the Market Value Adjusted Fixed Guarantee Period Account for the week preceding the date amounts are transferred or withdrawn from the Market Value Adjusted Fixed Guarantee Period Account, the date we determine the Death Proceeds, or the Payout Start Date, as the case may be ("Market Value Adjustment Date"). N = the number of whole and partial years from the Market Value Adjustment Date to the expiration of the term length of the Market Value Adjusted Fixed Guarantee Period Account.
Treasury Rate means the U.S. Treasury Note Constant Maturity yield as reported in Federal Reserve Board Statistical Release H.15. If such yields cease to be available in Federal Reserve Board Statistical Release H.15, then we will use an alternate source for such information in our discretion. The Market Value Adjustment factor is determined from the following formula: .9 X [I-(J + .0025)] X N To determine the Market Value Adjustment, we will multiply the Market Value Adjustment factor by the amount transferred, withdrawn, paid as Death Proceeds, or applied to an Income Plan from a Market Value Adjusted Fixed Guarantee Period Account at any time other than during the 30 day period after such Guarantee Period Account expires. NOTE: These examples assume that premium taxes are not applicable. EXAMPLES OF MARKET VALUE ADJUSTMENT Purchase Payment: $10,000 allocated to a Market Value Adjusted Fixed Guarantee Period Account Guarantee Period: 5 years Interest Rate: 4.50% Full Withdrawal: End of Contract Year 3 Contract: Consultant Solutions Classic*
EXAMPLE 1: (ASSUMES DECLINING INTEREST RATES) Step 1: Calculate Contract Value at = $10,000.00 X (1.045)/3/ = End of Contract Year 3: $11,411.66 Step 2: Calculate the Free Withdrawal = .15 X $10,000 = $1,500 Amount: Step 3: Calculate the Withdrawal = .06 X ($10,000 - $1,500) = $510 Charge: Step 4: Calculate the Market Value I = 4.50% Adjustment: J = 4.20% 730 DAYS N = _________ = 2 365 DAYS Market Value Adjustment Factor: .9 X [I - (J + .0025)] X N = .9 X [.045 - (.042 + .0025)] X 2 = .0009 Market Value Adjustment = Market Value Adjustment Factor X Amount Subject To Market Value Adjustment: = .0009 X $11,411.66 = $10.27 Step 5: Calculate the amount received = $11,411.66 - $510 + $10.27 = by Contract owner as a result of $10,911.93 full withdrawal at the end of Contract Year 3:
80 PROSPECTUS
EXAMPLE 2: (ASSUMES RISING INTEREST RATES) Step 1: Calculate Contract Value at = $10,000.00 X (1.045)/3/ = End of Contract Year 3: $11,411.66 Step 2: Calculate the Free Withdrawal = .15 X $10,000 = $1,500 Amount: Step 3: Calculate the Withdrawal = .06 X ($10,000 - $1,500) = $510 Charge: Step 4: Calculate the Market Value I = 4.50% Adjustment: J = 4.80% 730 DAYS N = _________ = 2 365 DAYS Market Value Adjustment Factor: .9 X [I - (J + .0025)] X N = .9 X [(.045 - (.048 + .0025)] X (2) = -.0099 Market Value Adjustment = Market Value Adjustment Factor X Amount Subject To Market Value Adjustment: = -.0099 X $11,411.66 = -($112.98) Step 5: Calculate the amount received = $11,411.66 - $510 - $112.98 = by Contract owner as a result of $10,788.68 full withdrawal at the end of Contract Year 3:
* These examples assume the election of the CONSULTANT SOLUTIONS CLASSIC CONTRACT for the purpose of illustrating the Market Value Adjustment calculation. The amounts would be different under CONSULTANT SOLUTIONS PLUS, CONSULTANT SOLUTIONS ELITE CONTRACTS, and CONSULTANT SOLUTIONS SELECT CONTRACTS which have different expenses and withdrawal charges. 81 PROSPECTUS APPENDIX C EXAMPLE OF CALCULATION OF INCOME PROTECTION BENEFIT - -------------------------------------------------------------------------------- Appendix C illustrates how we calculate the amount guaranteed under the Income Protection Benefit Option. Please remember that you are looking at an example only. Please also remember that the Income Protection Benefit Option may only be added to Income Plans 1 and/or 2, and only to those Income Plans for which you have selected variable income payments. To illustrate the calculation of the amount guaranteed under the Income Protection Benefit Option, we assume the following: Adjusted age of Annuitant on the Payout Start Date: 65 ----------------------------------------------------------------- Sex of Annuitant: male ----------------------------------------------------------------- Income Plan selected: 1 ----------------------------------------------------------------- Payment frequency: monthly ----------------------------------------------------------------- Amount applied to variable income payments under the Income Plan: $100,000.00 -----------------------------------------------------------------
The example assumes that the withdrawal charge period has expired for all purchase payments. In accordance with the terms of the Contract, the following additional assumptions apply: Assumed investment rate: 3% - -------------------------------------------------------------------------------------------- Guaranteed minimum variable income payment: 85% of the initial variable amount income value - --------------------------------------------------------------------------------------------
STEP 1 - CALCULATION OF THE INITIAL VARIABLE AMOUNT INCOME VALUE: Using the assumptions stated above, the initial monthly income payment is $5.49 per $1,000 applied to variable income payments under Income Plan 1. Therefore, the initial variable amount income value = $100,000 X $5.49/1000 = $549.00. STEP 2 - CALCULATION OF THE AMOUNT GUARANTEED UNDER THE INCOME PROTECTION BENEFIT OPTION: guaranteed minimum variable income payment = 85% X initial variable amount income value = 85% X $549.00 = $466.65. STEP 3 - ILLUSTRATION OF THE EFFECT OF THE MINIMUM PAYMENT GUARANTEE UNDER THE INCOME PROTECTION BENEFIT OPTION: If in any month your variable income payments would fall below the amount guaranteed under the Income Protection Benefit Option, your payment for that month will equal the guaranteed minimum variable income payment. For example, you would receive $466.65 even if the amount of your monthly income payment would have been less than that as a result of declining investment experience. On the other hand, if your monthly income payment is greater than the minimum guaranteed $466.65, you would receive the greater amount. 82 PROSPECTUS APPENDIX D WITHDRAWAL ADJUSTMENT EXAMPLE - DEATH BENEFITS* - -------------------------------------------------------------------------------- Issue Date: January 1, 2005 Initial Purchase Payment: $50,000 (For CONSULTANT SOLUTIONS PLUS CONTRACTS, assume a $2,000 Credit Enhancement would apply assuming issue age 85 or younger (a $1,000 Credit Enhancement would apply assuming issue age 86-90)).
Death Benefit Amount ------------------------------------------------ Annual ROP Value Increase Value** ----------------- ----------------- Classic, Classic, Beginning Contract Elite Maximum Elite Type of Contract Transaction Value After And Anniversary And Date Occurrence Value Amount Occurrence Select Plus Value Select Plus - ------------------------------------------------------------------------------------------------------------------ 1/1/06 Contract Anniversary $ 55,000 _ $ 55,000 $ 50,000 $52,000 $ 55,000 $ 52,500 $54,600 - ------------------------------------------------------------------------------------------------------------------ 7/1/06 Partial Withdrawal $ 60,000 $ 15,000 $ 45,000 $ 37,500 $39,000 $ 41,250 $ 40,339 $41,953 - ------------------------------------------------------------------------------------------------------------------
The following shows how we compute the adjusted death benefits in the example above. Please note that the withdrawal reduces the Purchase Payment Value, the Maximum Anniversary Value, and the Enhanced Beneficiary Value by the same proportion as the withdrawal reduces the Contract Value. Classic, Elite and Select - ---------------------------------------------------------------------------------------------------------------------------------- ROP DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------------------- Partial Withdrawal Amount (a) $15,000 - ---------------------------------------------------------------------------------------------------------------------------------- Contract Value Immediately Prior to Partial Withdrawal (b) $60,000 - ---------------------------------------------------------------------------------------------------------------------------------- Value of Death Benefit Amount Immediately Prior to Partial Withdrawal (c) $50,000 - ---------------------------------------------------------------------------------------------------------------------------------- Withdrawal Adjustment [(a)/(b)]*(c) $12,500 - ---------------------------------------------------------------------------------------------------------------------------------- Adjusted Death Benefit $37,500 - ---------------------------------------------------------------------------------------------------------------------------------- MAV DEATH BENEFIT - ---------------------------------------------------------------------------------------------------------------------------------- Partial Withdrawal Amount (a) $15,000 - ---------------------------------------------------------------------------------------------------------------------------------- Contract Value Immediately Prior to Partial Withdrawal (b) $60,000 - ---------------------------------------------------------------------------------------------------------------------------------- Value of Death Benefit Amount Immediately Prior to Partial Withdrawal (c) $55,000 - ---------------------------------------------------------------------------------------------------------------------------------- Withdrawal Adjustment [(a)/(b)]*(c) $13,750 - ---------------------------------------------------------------------------------------------------------------------------------- Adjusted Death Benefit $41,250 - ---------------------------------------------------------------------------------------------------------------------------------- ANNUAL INCREASE DEATH BENEFIT** - ---------------------------------------------------------------------------------------------------------------------------------- Partial Withdrawal Amount (a) $15,000 - ---------------------------------------------------------------------------------------------------------------------------------- Contract Value Immediately Prior to Partial Withdrawal (b) $60,000 - ---------------------------------------------------------------------------------------------------------------------------------- Value of Death Benefit Amount Immediately Prior to Partial Withdrawal (assumes 181 days worth of interest on $52,500 and $54,600, respectively) (c) $53,786 - ---------------------------------------------------------------------------------------------------------------------------------- Withdrawal Adjustment [(a)/(b)]*(c) $13,446 - ---------------------------------------------------------------------------------------------------------------------------------- Adjusted Death Benefit $40,339 - ----------------------------------------------------------------------------------------------------------------------------------
Plus - ------------------------------------------------------------------------------------------------ ROP DEATH BENEFIT - ------------------------------------------------------------------------------------------------ Partial Withdrawal Amount $15,000 - ------------------------------------------------------------------------------------------------ Contract Value Immediately Prior to Partial Withdrawal $60,000 - ------------------------------------------------------------------------------------------------ Value of Death Benefit Amount Immediately Prior to Partial Withdrawal $52,000 - ------------------------------------------------------------------------------------------------ Withdrawal Adjustment $13,000 - ------------------------------------------------------------------------------------------------ Adjusted Death Benefit $39,000 - ------------------------------------------------------------------------------------------------ MAV DEATH BENEFIT - ------------------------------------------------------------------------------------------------ Partial Withdrawal Amount $15,000 - ------------------------------------------------------------------------------------------------ Contract Value Immediately Prior to Partial Withdrawal $60,000 - ------------------------------------------------------------------------------------------------ Value of Death Benefit Amount Immediately Prior to Partial Withdrawal $55,000 - ------------------------------------------------------------------------------------------------ Withdrawal Adjustment $13,750 - ------------------------------------------------------------------------------------------------ Adjusted Death Benefit $41,250 - ------------------------------------------------------------------------------------------------ ANNUAL INCREASE DEATH BENEFIT** - ------------------------------------------------------------------------------------------------ Partial Withdrawal Amount $15,000 - ------------------------------------------------------------------------------------------------ Contract Value Immediately Prior to Partial Withdrawal $60,000 - ------------------------------------------------------------------------------------------------ Value of Death Benefit Amount Immediately Prior to Partial Withdrawal (assumes 181 days worth of interest on $52,500 and $54,600, respectively) $55,937 - ------------------------------------------------------------------------------------------------ Withdrawal Adjustment $13,984 - ------------------------------------------------------------------------------------------------ Adjusted Death Benefit $41,953 - ------------------------------------------------------------------------------------------------
* For purpose of illustrating the withdrawal adjustment calculation, the example assumes the same hypothetical Contract Values and Maximum Anniversary Value for all Contracts, net of applicable fees and charges. Actual death benefit amounts will differ due to the different fees and charges under each Contract and the Credit Enhancement available under the CONSULTANT SOLUTIONS PLUS CONTRACT. Please remember that you are looking at an example and that your investment performance may be greater or lower than the figures shown. **Calculations for the Annual Increase Death Benefit assume that interest accumulates on a daily basis at a rate equivalent to 5% per year. There may be certain states in which the Benefit provides for interest that accumulates at a rate of 3% per year. If calculations assumed an interest rate of 3% per year, the adjusted death benefit would be lower. 83 PROSPECTUS APPENDIX E CALCULATION OF ENHANCED EARNINGS DEATH BENEFIT* - -------------------------------------------------------------------------------- The following are examples of the Enhanced Earnings Death Benefit Option. For illustrative purposes, the examples assume Earnings in each case. Please remember that you are looking at examples and that your investment performance may be greater or lower than the figures shown. EXAMPLE 1: ELECTED WHEN CONTRACT WAS ISSUED WITHOUT ANY SUBSEQUENT ADDITIONS OR WITHDRAWALS In this example, assume that the oldest Contract Owner is age 55 on the Rider Application Date and elects the Enhanced Earnings Death Benefit Option when the Contract is issued. The Contract Owner makes an initial purchase payment of $100,000. After four years, the Contract Owner dies. On the date Lincoln Benefit receives a Complete Request for Settlement, the Contract Value is $125,000. Prior to his death, the Contract Owner did not make any additional purchase payments or take any withdrawals. Excess of Earnings Withdrawals = $0 Purchase Payments in the 12 months prior to death = $0 In-Force Premium = $100,000 ($100,000 + $0 - $0) In-Force Earnings = $25,000 ($125,000 - $100,000) ENHANCED EARNINGS DEATH BENEFIT** = 40%*$25,000 = $10,000
Since In-Force Earnings are less than 100% of the In-Force Premium (excluding purchase payments in the 12 months prior to death), the In-Force Earnings are used to compute the Enhanced Earnings Death Benefit amount. * For purposes of illustrating the calculation of Enhanced Earnings Death Benefit Option, the example assumes the same hypothetical Contract Values for all Contracts, net of applicable fees and charges. Actual death benefit amounts will differ due to the different fees and charges under each Contract and the Credit Enhancement available under the CONSULTANT SOLUTIONS PLUS CONTRACT. **If the oldest Contract Owner or Co-Annuitant had been over age 70, and both were age 79 or younger on the Rider Application Date, the Enhanced Earnings Death Benefit would be 25% of the In-Force Earnings ($6,250.00). EXAMPLE 2: ELECTED WHEN CONTRACT WAS ISSUED WITH SUBSEQUENT WITHDRAWALS In this example, assume the same facts as above, except that the Contract Owner has taken a withdrawal of $10,000 during the second year of the Contract. Immediately prior to the withdrawal, the Contract Value is $105,000. Here, $5,000 of the withdrawal is in excess of the In-Force Earnings at the time of the withdrawal. The Contract Value on the date Lincoln Benefit receives a Complete Request for Settlement will be assumed to be $114,000. Excess of Earnings Withdrawals = $5,000 ($10,000 - $5,000) Purchase Payments in the 12 months prior to death = $0 In-Force Premium = $95,000 ($100,000 + $0 - $5,000) In-Force Earnings = $19,000 ($114,000 - $95,000) ENHANCED EARNINGS DEATH BENEFIT** = 40%*$19,000 = $7,600
Since In-Force Earnings are less than 100% of the In-Force Premium (excluding purchase payments in the 12 months prior to death), the In-Force Earnings are used to compute the Enhanced Earnings Death Benefit amount. * For purposes of illustrating the calculation of Enhanced Earnings Death Benefit Option, the example assumes the same hypothetical Contract Values for all Contracts, net of applicable fees and charges. Actual death benefit amounts will differ due to the different fees and charges under each Contract and the Credit Enhancement available under the CONSULTANT SOLUTIONS PLUS CONTRACT. **If the oldest Contract Owner or Co-Annuitant had been over age 70, and both were age 79 or younger on the Rider Application Date, the Enhanced Earnings Death Benefit would be 25% of the In-Force Earnings ($4,750.00). EXAMPLE 3: ELECTED AFTER CONTRACT WAS ISSUED WITH SUBSEQUENT ADDITIONS AND WITHDRAWALS This example is intended to illustrate the effect of adding the Enhanced Earnings Death Benefit Option after the Contract has been issued and the effect of later purchase payments. In this example, assume there is no Co-Annuitant and that the oldest Contract Owner is age 72 on the Rider Application Date. At the time the Contract is issued, the Contract Owner makes a purchase payment of $100,000. After two years pass, the Contract Owner elects to add the Enhanced Earnings Death Benefit Option. On the date this Rider is added, the Contract Value is $110,000. Two years 84 PROSPECTUS later, the Contract Owner withdraws $50,000. Immediately prior to the withdrawal, the Contract Value is $130,000. Another two years later, the Contract Owner makes an additional purchase payment of $40,000. Immediately after the additional purchase payment, the Contract Value is $130,000. Two years later, the Contract Owner dies with a Contract Value of $140,000 on the date Lincoln Benefit receives a Complete Request for Settlement. Excess of Earnings Withdrawals = $30,000 ($50,000 - $20,000) Purchase Payments in the 12 months prior to death = $0 In-Force Premium = $120,000 ($110,000 + $40,000 - $30,000) In-Force Earnings = $20,000 ($140,000 - $120,000) ENHANCED EARNINGS DEATH BENEFIT** = 25%*$20,000 = $5,000
In this example, In-Force Premium is equal to the Contract Value on Rider Application Date plus the additional purchase payment and minus the Excess-of-Earnings Withdrawal. Since In-Force Earnings are less than 50% of the In-Force Premium (excluding purchase payments in the 12 months prior to death), the In-Force Earnings are used to compute the Enhanced Earnings Death Benefit amount. * For purposes of illustrating the calculation of Enhanced Earnings Death Benefit Option, the example assumes the same hypothetical Contract Values for all Contracts, net of applicable fees and charges. Actual death benefit amounts will differ due to the different fees and charges under each Contract and the Credit Enhancement available under the CONSULTANT SOLUTIONS PLUS CONTRACT. **If the oldest Contract Owner had been age 70 or younger on the Rider Application Date, the Enhanced Earnings Death Benefit would be 40% of the In-Force Earnings ($8,000.00). EXAMPLE 4: SPOUSAL CONTINUATION: This example is intended to illustrate the effect of a surviving spouse electing to continue the Contract upon the death of the Contract Owner on a Contract with the Enhanced Earnings Death Benefit Option and MAV Death Benefit Option. In this example, assume that there is no Co-Annuitant and that the oldest Contract Owner is age 60 at the time the Contract is purchased (with the Enhanced Earnings Death Benefit Option but without any other option) with a $100,000 purchase payment. Five years later the Contract Owner dies and the surviving spouse elects to continue the Contract. The Contract Value and Maximum Anniversary Value at this time are $150,000 and $160,000, respectively. Excess of Earnings Withdrawals = $0 Purchase Payments in the 12 months prior to death = $0 In-Force Premium = $100,000 ($100,000 + $0 - $0) In-Force Earnings = $50,000 ($150,000 - $100,000) ENHANCED EARNINGS DEATH BENEFIT** = 40%*$50,000 = $20,000 Contract Value = $150,000 Death Benefit = $160,000 Enhanced Earnings Death Benefit = $20,000 Continuing Contract Value = $180,000 ($160,000 + $20,000)
Since In-Force Earnings are less than 100% of the In-Force Premium (excluding purchase payments in the 12 months prior to death), the In-Force Earnings are used to compute the Enhanced Earnings Death Benefit amount. Assume the surviving spouse is age 72 when the Contract is continued. At this time, the surviving spouse has the option to continue the Enhanced Earnings Death Benefit Option at an additional mortality and expense risk charge of 0.40% and with an In-Force Premium amount equal to the Contract Value and the Rider Date reset to the date the Contract is continued. If this selection is made, the Enhanced Earnings Death Benefit will be equal to the lesser of 25% of the In-Force Earnings and 50% of In-Force Premium. Otherwise, the surviving spouse may elect to terminate the Enhanced Earnings Death Benefit Option at the time of continuation. * For purposes of illustrating the calculation of Enhanced Earnings Death Benefit Option, the example assumes the same hypothetical Contract Values and Maximum Anniversary Values for all Contracts, net of applicable fees and charges. Actual death benefit amounts will differ due to the different fees and charges under each Contract and the Credit Enhancement available under the CONSULTANT SOLUTIONS PLUS CONTRACT. **If the oldest Contract Owner had been over age 70 , and both were age 79 or younger on the Rider Application Date, the Enhanced Earnings Death Benefit would be 25% of the In-Force Earnings ($12,500.00). 85 PROSPECTUS APPENDIX F WITHDRAWAL ADJUSTMENT EXAMPLE - ACCUMULATION BENEFIT* - -------------------------------------------------------------------------------- Rider Date: January 1, 2007 Initial Purchase Payment: $50,000 (For CONSULTANT SOLUTIONS PLUS CONTRACTS, assume a $2,000 Credit Enhancement would apply assuming issue age 85 or younger (a $1,000 Credit Enhancement would apply assuming issue age 86-90)) Initial Benefit Base: $50,000 for CONSULTANT SOLUTIONS CLASSIC, ELITE AND SELECT CONTRACTS, $52,000 for CONSULTANT SOLUTIONS PLUS CONTRACTS (assuming issue age 85 or younger)
Benefit Base ----------------------- Beginning Transaction Contract Value Classic, Elite Date Type of Occurrence Contract Value Amount After Occurrence and Select Plus - ------------------------------------------------------------------------------------------------------ 1/1/2008 Contract Anniversary $ 55,000 _ $ 55,000 $ 50,000 $52,000 - ------------------------------------------------------------------------------------------------------ 7/1/2008 Partial Withdrawal $ 60,000 $ 15,000 $ 45,000 $ 37,500 $39,000 - ------------------------------------------------------------------------------------------------------
The following shows how we compute the adjusted Benefit Bases in the example above. Please note the withdrawal reduces the Benefit Base by the same proportion as the withdrawal reduces the Contract Value. Classic, Elite and Select Plus - --------------------------------------------------------------------------------------------------------------- BENEFIT BASE - --------------------------------------------------------------------------------------------------------------- Partial Withdrawal Amount (a) $15,000 $15,000 - --------------------------------------------------------------------------------------------------------------- Contract Value Immediately Prior to Partial Withdrawal (b) $60,000 $60,000 - --------------------------------------------------------------------------------------------------------------- Value of Benefit Base Immediately Prior to Partial Withdrawal (c) $50,000 $52,000 - --------------------------------------------------------------------------------------------------------------- Withdrawal Adjustment [(a)/(b)]*(c) $12,500 $13,000 - --------------------------------------------------------------------------------------------------------------- Adjusted Benefit Base $37,500 $39,000 - ---------------------------------------------------------------------------------------------------------------
* For the purpose of illustrating the withdrawal adjustment calculation, the example assumes the same hypothetical Contract Values, net of applicable fees and charges. Actual Contract Values will differ due to the different fees and charges under each Contract and the Credit Enhancement available under CONSULTANT SOLUTIONS PLUS CONTRACTS. Please remember that you are looking at an example and that your investment performance may be greater or lower than the figures shown. 86 PROSPECTUS APPENDIX G - SUREINCOME WITHDRAWAL BENEFIT OPTION CALCULATION EXAMPLES - -------------------------------------------------------------------------------- Example 1: Assume you purchase a Consultant Solutions contract with a $100,000 initial purchase payment and add the SureIncome Option at issue. Your Benefit Base is $100,000, which is your initial purchase payment of $100,000. Your Benefit Payment is $8,000, which is 8% of your initial purchase payment. Your Benefit Payment Remaining for this Benefit Year is $8,000, which is equal to your Benefit Payment at the beginning of this Benefit Year. Example 2: Assume Example 1 is continued and an additional purchase payment of $40,000 is made in the first Benefit Year. The Benefit Base is increased to $140,000, which is your prior Benefit Base ($100,000) plus your additional purchase payment ($40,000). The Benefit Payment is increased to $11,200, which is your prior Benefit Payment ($8,000) plus 8% of your additional purchase payment ($40,000). The Benefit Payment Remaining is increased to $11,200, which is your Benefit Payment Remaining prior to your additional purchase payment ($8,000) plus 8% of your additional purchase payment ($40,000). Example 3: Assume Example 1 is continued and a withdrawal of $8,000 is made during the first Benefit Year. The Benefit Base is reduced to $92,000, which is your prior Benefit Base ($100,000) less your withdrawal ($8,000). The Benefit Payment is unchanged and remains $8,000. The Benefit Payment Remaining in the first Benefit Year is $0, which is your Benefit Payment Remaining prior to your withdrawal ($8,000) less your withdrawal ($8,000). Example 4: Assume example 1 is continued and a withdrawal of $25,000 is made during the first Benefit Year. Assume the Contract Value prior to the withdrawal was $130,000. Because the $25,000 withdrawal is larger than the Benefit Payment Remaining, the Benefit Base and Benefit Payment will be recalculated according to applicable formulas. The Benefit Base is reduced to $75,000, determined by the following calculation: the lesser of ($130,000 - $25,000) and ($100,000 - $25,000) = $75,000. The Benefit Payment remains $8,000, determined by the following calculation: the lesser of ($8,000) and (8% x ($130,000 - $25,000)) = $8,000. There is no Benefit Payment Remaining because the withdrawal has reduced it to $0. Example 5: Assume example 3 is continued and an additional withdrawal of $5,000 is taken in the same year (the first Benefit Year). Assume the Contract Value prior to the additional withdrawal was $60,000. Because the $5,000 withdrawal is larger than the Benefit Payment Remaining ($0), the Benefit Base and Benefit Payment will be recalculated according to applicable formulas. The Benefit Base is reduced to $55,000, determined by the following calculation: the lesser of ($60,000 - $5,000) and ($92,000 - $5,000) = $55,000. The Benefit Payment is reduced to $4,400, determined by the following formula: the lesser of ($8,000) and ((8% x ($60,000 - $5,000)) = $4,400. The Benefit Payment Remaining is unchanged at $0. Example 6: Assume example 5 is continued and an additional Purchase Payment of $40,000 is made in the same year (the first Benefit Year). The Benefit Base is increased to $95,000, which is your prior Benefit Base ($55,000) plus your additional purchase payment ($40,000). The Benefit Payment is increased to $7,600, which is your prior Benefit Payment ($4,400) plus 8% of your additional purchase payment ($40,000). 87 PROSPECTUS The Benefit Payment Remaining is increased to $3,200, which is your Benefit Payment Remaining prior to your additional purchase payment ($0) plus 8% of your additional purchase payment ($40,000). Example 7: Assume example 6 is continued and an additional withdrawal of $3,200 is taken in the same year (the first Benefit Year). The Benefit Base is reduced to $91,800, which is your prior Benefit Base ($95,000) less your withdrawal ($3,200). The Benefit Payment is unchanged and remains $7,600. The Benefit Payment Remaining is reduced to $0, which is your Benefit Payment Remaining prior to your withdrawal ($3,200) less your withdrawal ($3,200). 88 PROSPECTUS APPENDIX H - ACCUMULATION UNIT VALUES - -------------------------------------------------------------------------------- Appendix H presents the Accumulation Unit Values and number of Accumulation Units outstanding for each Variable Sub-Account since the Variable Sub-Accounts were first offered under the Contracts. This Appendix includes Accumulation Unit Values representing the highest and lowest available combinations of Contract charges that affect Accumulation Unit Values for each Contract. The Statement of Additional Information, which is available upon request without charge, contains the Accumulation Unit Values for all other available combinations of Contract charges that affect Accumulation Unit values for each Contract. Please contract us at 800-457-7617 to obtain a copy of the Statement of Additional Information. The LBL Consultant Solutions Classic, Elite, Plus and Select Contracts and all of the Variable Sub-Accounts shown below were first offered under the Contracts on February 2, 2004, except for the Premier VIT OpCap Balanced Sub-Account which was first offered under the Contracts on April 30, 2004; and the Janus Aspen Perkins Small Company Value Portfolio - Service Shares Sub-Account and Oppenheimer MidCap/VA - Service Shares Sub-Account which were first offered under the Contracts on May 1, 2005; and the AIM V.I. Core Equity - Series II Sub-Account which was first offered under the Contracts on May 1, 2006; and the Legg Mason ClearBridge Variable Fundamental Value Portfolio - Class I Value Portfolio - Class I Sub-Account and Legg Mason ClearBridge Variable Investors Portfolio - Class I - Class I Sub-Account which were first offered under the Contracts on April 27, 2007 and Janus Aspen Overseas Portfolio - Service Share Sub-Account which was first offered under the Contracts on April 30, 2008. The name of the following Sub-Accounts changed since December 31, 2009. The name shown in the tables of Accumulation Units correspond to the name of the Sub-Accounts as of December 31, 2009: SUB-ACCOUNT NAME AS OF DECEMBER 31, 2009 (AS APPEARS IN THE FOLLOWING TABLES OF ACCUMULATION UNIT VALUES) SUB-ACCOUNT NAME AS OF MAY 1, 2010 ----------------------------------------------------------------------------- AIM V.I. Basic Value Fund Invesco V.I. Basic Value Fund AIM V.I. Capital Appreciation Fund Invesco V.I. Capital Appreciation Fund AIM V.I. Core Equity Fund Invesco V.I. Core Equity Fund AIM V.I. Mid Cap Core Equity Fund Invesco V.I. Mid Cap Core Equity Fund Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Fundamental Value Portfolio Fundamental All Cap Value Portfolio Legg Mason ClearBridge Variable Legg Mason ClearBridge Variable Large Investors Portfolio Cap Value Portfolio Oppenheimer MidCap Fund/VA Oppenheimer Small- & Mid-Cap Growth Fund/VA Rydex VT All-Cap Opportunity Fund Rydex SGI VT All-Cap Opportunity Fund Van Eck Worldwide Multi-Manager Van Eck VIP Multi-Manager Alternatives Fund Alternatives Fund Van Eck Worldwide Emerging Markets Fund Van Eck VIP Emerging Markets Fund Van Eck Worldwide Hard Assets Fund Van Eck VIP Global Hard Assets Fund -----------------------------------------------------------------------------
On April 30, 2010, the Janus Aspen Series INTECH Risk Managed Core Portfolio liquidated and the Sub-Account is no longer available for investment. However, accumulation unit values for the Sub-Account are included in the tables below because the Sub-Account was available as of December 31, 2009. CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------- AIM V.I. BASIC VALUE FUND--SERIES II 2004 $10.000 $10.745 132,216 2005 $10.745 $11.176 223,522 2006 $11.176 $12.452 287,925 2007 $12.452 $12.451 280,725 2008 $12.451 $5.907 303,579 2009 $5.907 $8.610 262,919
89 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND--SERIES II 2004 $10.000 $10.303 25,665 2005 $10.303 $11.036 50,990 2006 $11.036 $11.547 61,199 2007 $11.547 $12.727 56,382 2008 $12.727 $7.203 52,348 2009 $7.203 $8.578 42,532 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CORE EQUITY FUND--SERIES II 2006 $10.000 $10.800 173,314 2007 $10.800 $11.493 185,437 2008 $11.493 $7.900 185,880 2009 $7.900 $9.974 159,397 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. MID CAP CORE EQUITY FUND--SERIES II 2004 $10.000 $10.989 110,892 2005 $10.989 $11.629 253,522 2006 $11.629 $12.732 405,969 2007 $12.732 $13.725 387,292 2008 $13.725 $9.656 323,756 2009 $9.656 $12.370 277,636 - -------------------------------------------------------------------------------------------------------------------------- ALGER LARGE CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN LARGECAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.103 121,781 2005 $10.103 $11.134 212,340 2006 $11.134 $11.523 222,959 2007 $11.523 $13.598 210,459 2008 $13.598 $7.204 237,432 2009 $7.204 $10.465 192,485 - -------------------------------------------------------------------------------------------------------------------------- ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS S 2004 $10.000 $10.219 23,051 2005 $10.219 $11.509 74,712 2006 $11.509 $13.506 132,966 2007 $13.506 $17.746 141,537 2008 $17.746 $9.582 106,723 2009 $9.582 $14.244 103,782 - -------------------------------------------------------------------------------------------------------------------------- ALGER MID CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN MIDCAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.628 94,790 2005 $10.628 $11.485 210,380 2006 $11.485 $12.450 308,342 2007 $12.450 $16.122 291,878 2008 $16.122 $6.605 291,655 2009 $6.605 $9.859 287,119
90 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.217 56,932 2005 $10.217 $10.460 111,219 2006 $10.460 $11.056 134,814 2007 $11.056 $12.561 148,955 2008 $12.561 $8.809 146,295 2009 $8.809 $11.190 119,875 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $11.389 105,161 2005 $11.389 $13.106 523,173 2006 $13.106 $14.408 891,858 2007 $14.408 $16.672 862,174 2008 $16.672 $9.425 782,708 2009 $9.425 $12.596 702,455 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.840 248,175 2005 $10.840 $11.290 457,976 2006 $11.290 $13.358 699,045 2007 $13.358 $13.344 675,449 2008 $13.344 $7.528 651,012 2009 $7.528 $9.646 556,829 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.809 193,118 2005 $9.809 $10.209 307,319 2006 $10.209 $10.734 362,183 2007 $10.734 $13.411 341,543 2008 $13.411 $6.971 316,734 2009 $6.971 $8.800 268,644 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INDEX 500 PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.668 306,038 2005 $10.668 $11.004 812,899 2006 $11.004 $12.532 1,175,182 2007 $12.532 $13.002 1,100,162 2008 $13.002 $8.060 1,084,831 2009 $8.060 $10.043 981,330 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.215 172,370 2005 $10.215 $10.269 496,639 2006 $10.269 $10.549 806,750 2007 $10.549 $10.831 811,904 2008 $10.831 $10.315 588,837 2009 $10.315 $11.750 550,819
91 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.965 319,746 2005 $9.965 $10.104 913,007 2006 $10.104 $10.429 1,383,659 2007 $10.429 $10.797 1,358,656 2008 $10.797 $10.946 1,573,766 2009 $10.946 $10.850 1,408,990 - ------------------------------------------------------------------------------------------------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.931 72,197 2005 $10.931 $12.810 311,381 2006 $12.810 $14.883 762,307 2007 $14.883 $17.185 776,150 2008 $17.185 $9.500 781,458 2009 $9.500 $11.829 694,356 - ------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES BALANCED PORTFOLIO--SERVICE SHARES 2004 $10.000 $10.625 54,585 2005 $10.625 $11.285 153,996 2006 $11.285 $12.292 242,446 2007 $12.292 $13.373 234,531 2008 $13.373 $11.074 193,608 2009 $11.074 $13.719 209,853 - ------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.317 32,940 2005 $11.317 $11.861 115,107 2006 $11.861 $13.814 165,929 2007 $13.814 $16.114 179,041 2008 $16.114 $15.166 0 - ------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FORTY PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.491 14,808 2005 $11.491 $12.759 76,819 2006 $12.759 $13.735 168,017 2007 $13.735 $18.512 143,770 2008 $18.512 $10.170 144,900 2009 $10.170 $14.650 134,229 - ------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES MID CAP VALUE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.303 68,978 2005 $11.303 $12.266 356,713 2006 $12.266 $13.924 564,227 2007 $13.924 $14.720 539,843 2008 $14.720 $10.470 471,189 2009 $10.470 $13.729 408,012
92 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES INTECH RISK-MANAGED CORE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.339 39,658 2005 $11.339 $12.407 125,616 2006 $12.407 $13.558 164,908 2007 $13.558 $14.194 134,550 2008 $14.194 $8.928 125,288 2009 $8.928 $10.793 103,124 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES 2005 $10.000 $10.974 77,386 2006 $10.974 $13.193 178,295 2007 $13.193 $12.219 196,175 2008 $12.219 $7.724 180,098 2009 $7.724 $7.321 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I 2007 $10.000 $9.509 48,073 2008 $9.509 $5.949 43,169 2009 $5.949 $7.592 39,260 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON WESTERN ASSET VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO-- CLASS II FORMERLY, LEGG MASON PARTNERS VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II 2004 $10.000 $10.871 168,236 2005 $10.871 $11.105 465,661 2006 $11.105 $12.089 703,308 2007 $12.089 $11.885 698,823 2008 $11.885 $8.104 589,498 2009 $8.104 $12.379 454,032 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I 2007 $10.000 $9.749 96,362 2008 $9.749 $6.191 93,685 2009 $6.191 $7.604 79,400 - -------------------------------------------------------------------------------------------------------------------------- MFS HIGH INCOME SERIES--SERVICE CLASS 2004 $10.000 $10.652 105,366 2005 $10.652 $10.724 209,209 2006 $10.724 $11.637 238,258 2007 $11.637 $11.655 216,819 2008 $11.655 $8.202 178,367 2009 $8.202 $11.751 144,690
93 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - --------------------------------------------------------------------------------------------------------- MFS INVESTORS GROWTH STOCK SERIES--SERVICE CLASS 2004 $10.000 $10.471 19,040 2005 $10.471 $10.767 229,340 2006 $10.767 $11.398 467,604 2007 $11.398 $12.483 434,299 2008 $12.483 $7.760 408,811 2009 $7.760 $10.648 318,596 - --------------------------------------------------------------------------------------------------------- MFS INVESTORS TRUST SERIES--SERVICE CLASS 2004 $10.000 $10.810 9,814 2005 $10.810 $11.413 32,676 2006 $11.413 $12.689 38,786 2007 $12.689 $13.772 40,966 2008 $13.772 $9.068 32,809 2009 $9.068 $11.322 33,920 - --------------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES--SERVICE CLASS 2004 $10.000 $9.945 40,927 2005 $9.945 $10.304 92,908 2006 $10.304 $11.480 113,307 2007 $11.480 $11.579 100,633 2008 $11.579 $6.908 87,061 2009 $6.908 $11.103 91,123 - --------------------------------------------------------------------------------------------------------- MFS TOTAL RETURN SERIES--SERVICE CLASS 2004 $10.000 $10.783 128,035 2005 $10.783 $10.914 326,074 2006 $10.914 $12.019 375,040 2007 $12.019 $12.323 335,392 2008 $12.323 $9.443 283,876 2009 $9.443 $10.966 279,887 - --------------------------------------------------------------------------------------------------------- MFS VALUE SERIES--SERVICE CLASS 2004 $10.000 $11.175 45,846 2005 $11.175 $11.737 129,930 2006 $11.737 $13.954 194,233 2007 $13.954 $14.810 188,327 2008 $14.810 $9.826 163,225 2009 $9.826 $11.869 120,920 - --------------------------------------------------------------------------------------------------------- OPPENHEIMER MIDCAP FUND/VA--SERVICE SHARES 2005 $10.000 $11.723 26,917 2006 $11.723 $11.877 87,641 2007 $11.877 $12.423 90,045 2008 $12.423 $6.224 86,645 2009 $6.224 $8.121 82,002 - --------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND/VA--SERVICE SHARES 2004 $10.000 $11.390 123,098 2005 $11.390 $12.817 340,222 2006 $12.817 $14.840 463,678 2007 $14.840 $15.529 425,468 2008 $15.529 $9.141 339,967 2009 $9.141 $12.566 318,882
94 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES 2004 $10.000 $11.324 138,676 2005 $11.324 $12.256 457,975 2006 $12.256 $13.864 760,414 2007 $13.864 $13.485 690,006 2008 $13.485 $8.247 595,786 2009 $8.247 $11.137 488,782 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES 2004 $10.000 $10.382 75,187 2005 $10.382 $10.769 276,055 2006 $10.769 $10.857 508,415 2007 $10.857 $11.099 482,258 2008 $11.099 $10.688 356,974 2009 $10.688 $12.192 328,033 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT MONEY MARKET PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $9.959 167,490 2005 $9.959 $10.096 325,748 2006 $10.096 $10.420 459,580 2007 $10.420 $10.781 401,905 2008 $10.781 $10.875 447,414 2009 $10.875 $10.740 560,031 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT REAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.596 206,384 2005 $10.596 $10.671 648,012 2006 $10.671 $10.602 937,569 2007 $10.602 $11.576 902,299 2008 $11.576 $10.615 928,688 2009 $10.615 $12.398 713,734 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.283 249,949 2005 $10.283 $10.392 653,328 2006 $10.392 $10.647 1,083,265 2007 $10.647 $11.424 1,062,806 2008 $11.424 $11.812 823,099 2009 $11.812 $13.293 875,022 - ------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP BALANCED PORTFOLIO 2004 $10.000 $10.805 38,773 2005 $10.805 $10.951 61,072 2006 $10.951 $11.970 86,922 2007 $11.970 $11.284 76,705 2008 $11.284 $7.661 66,388 2009 $7.661 $7.391 0 - ------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP RENAISSANCE PORTFOLIO 2004 $10.000 $11.229 121,721 2005 $11.229 $10.576 203,935 2006 $10.576 $11.620 218,567 2007 $11.620 $12.187 170,119 2008 $12.187 $11.013 0
95 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------------------------- RYDEX VT ALL-CAP OPPORTUNITY FORMERLY, RYDEX VT SECTOR ROTATION FUND 2004 $10.000 $10.599 15,602 2005 $10.599 $11.890 56,294 2006 $11.890 $13.065 91,432 2007 $13.065 $15.819 78,479 2008 $15.819 $9.249 92,524 2009 $9.249 $11.614 80,586 - ---------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE BLUE CHIP GROWTH PORTFOLIO--II 2004 $10.000 $10.490 74,071 2005 $10.490 $10.932 438,125 2006 $10.932 $11.791 846,349 2007 $11.791 $13.084 814,281 2008 $13.084 $7.402 830,392 2009 $7.402 $10.354 670,845 - ---------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE EQUITY INCOME PORTFOLIO--II 2004 $10.000 $11.106 299,734 2005 $11.106 $11.361 948,390 2006 $11.361 $13.299 1,402,991 2007 $13.299 $13.516 1,333,577 2008 $13.516 $8.498 1,156,148 2009 $8.498 $10.500 989,299 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE MULTI-MANAGER ALTERNATIVES FUND--CLS I FORMERLY, VAN ECK WORLDWIDE ABSOLUTE RETURN FUND 2004 $10.000 $9.917 33,863 2005 $9.917 $9.804 58,131 2006 $9.804 $10.509 63,097 2007 $10.509 $10.787 68,791 2008 $10.787 $9.247 106,076 2009 $9.247 $10.387 101,362 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE EMERGING MARKETS FUND 2004 $10.000 $12.106 13,596 2005 $12.106 $15.764 76,101 2006 $15.764 $21.694 140,010 2007 $21.694 $29.449 151,951 2008 $29.449 $10.231 88,994 2009 $10.231 $21.517 153,256 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE HARD ASSETS FUND 2004 $10.000 $12.455 25,156 2005 $12.455 $18.637 98,493 2006 $18.637 $22.889 151,158 2007 $22.889 $32.819 197,678 2008 $32.819 $17.442 80,392 2009 $17.442 $27.106 126,577
96 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.25
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------ VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II 2004 $10.000 $11.112 25,709 2005 $11.112 $12.180 47,131 2006 $12.180 $12.608 54,285 2007 $12.608 $14.626 48,758 2008 $14.626 $7.671 44,989 2009 $7.671 $11.833 35,133 - ------------------------------------------------------------------------------------------------------------------------ VAN KAMPEN LIT GOVERNMENT PORTFOLIO, CLASS II 2004 $10.000 $10.187 63,788 2005 $10.187 $10.379 164,577 2006 $10.379 $10.558 182,914 2007 $10.558 $11.145 211,170 2008 $11.145 $11.161 357,895 2009 $11.161 $11.105 185,515 - ------------------------------------------------------------------------------------------------------------------------ VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II 2004 $10.000 $11.083 135,175 2005 $11.083 $11.996 493,860 2006 $11.996 $13.725 824,335 2007 $13.725 $13.881 783,069 2008 $13.881 $9.283 680,370 2009 $9.283 $11.365 614,322 - ------------------------------------------------------------------------------------------------------------------------ UIF CAPITAL GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.383 14,496 2005 $10.383 $11.829 58,864 2006 $11.829 $12.114 88,585 2007 $12.114 $14.539 86,678 2008 $14.539 $7.265 87,977 2009 $7.265 $11.835 73,057 - ------------------------------------------------------------------------------------------------------------------------ UIF U.S. REAL ESTATE PORTFOLIO, CLASS II 2004 $10.000 $12.853 241,544 2005 $12.853 $14.804 448,864 2006 $14.804 $20.106 695,926 2007 $20.106 $16.407 515,759 2008 $16.407 $10.026 445,861 2009 $10.026 $12.709 374,792 - ------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN INTERNATIONAL GROWTH--SERVICE SHARES 2008 $10.000 $7.074 105,650 2009 $7.074 $12.496 123,025
* The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.25% and an administrative expense charge of 0.10%. 97 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. BASIC VALUE FUND--SERIES II 2004 $10.000 $10.656 0 2005 $10.656 $10.982 0 2006 $10.982 $12.125 0 2007 $12.125 $12.013 0 2008 $12.013 $5.647 1,098 2009 $5.647 $8.155 1,086 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND--SERIES II 2004 $10.000 $10.217 0 2005 $10.217 $10.845 0 2006 $10.845 $11.244 0 2007 $11.244 $12.279 0 2008 $12.279 $6.886 0 2009 $6.886 $8.126 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CORE EQUITY FUND--SERIES II 2006 $10.000 $10.734 0 2007 $10.734 $11.317 0 2008 $11.317 $7.708 0 2009 $7.708 $9.643 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. MID CAP CORE EQUITY FUND--SERIES II 2004 $10.000 $10.897 0 2005 $10.897 $11.427 0 2006 $11.427 $12.398 0 2007 $12.398 $13.242 0 2008 $13.242 $9.231 1,270 2009 $9.231 $11.718 1,268 - -------------------------------------------------------------------------------------------------------------------------- ALGER LARGE CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN LARGECAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.019 0 2005 $10.019 $10.942 0 2006 $10.942 $11.220 0 2007 $11.220 $13.120 0 2008 $13.120 $6.887 0 2009 $6.887 $9.913 0 - -------------------------------------------------------------------------------------------------------------------------- ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS S 2004 $10.000 $10.134 0 2005 $10.134 $11.309 0 2006 $11.309 $13.152 0 2007 $13.152 $17.121 0 2008 $17.121 $9.160 0 2009 $9.160 $13.493 0
98 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------- ALGER MID CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN MIDCAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.539 0 2005 $10.539 $11.286 0 2006 $11.286 $12.123 0 2007 $12.123 $15.555 0 2008 $15.555 $6.314 18,946 2009 $6.314 $9.339 18,946 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.132 0 2005 $10.132 $10.279 0 2006 $10.279 $10.765 0 2007 $10.765 $12.119 0 2008 $12.119 $8.421 109 2009 $8.421 $10.600 109 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $11.295 0 2005 $11.295 $12.880 303 2006 $12.880 $14.030 292 2007 $14.030 $16.085 280 2008 $16.085 $9.010 1,763 2009 $9.010 $11.932 1,704 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.750 0 2005 $10.750 $11.095 0 2006 $11.095 $13.007 0 2007 $13.007 $12.875 0 2008 $12.875 $7.197 8,417 2009 $7.197 $9.137 8,329 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.727 0 2005 $9.727 $10.032 0 2006 $10.032 $10.452 0 2007 $10.452 $12.939 0 2008 $12.939 $6.664 0 2009 $6.664 $8.336 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP INDEX 500 PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.579 0 2005 $10.579 $10.813 0 2006 $10.813 $12.202 0 2007 $12.202 $12.544 0 2008 $12.544 $7.705 1,127 2009 $7.705 $9.513 1,113
99 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.130 0 2005 $10.130 $10.091 0 2006 $10.091 $10.272 0 2007 $10.272 $10.450 0 2008 $10.450 $9.861 2,057 2009 $9.861 $11.131 2,068 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.882 0 2005 $9.882 $9.929 0 2006 $9.929 $10.155 0 2007 $10.155 $10.417 0 2008 $10.417 $10.465 3,763 2009 $10.465 $10.278 4,430 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.840 0 2005 $10.840 $12.588 0 2006 $12.588 $14.492 0 2007 $14.492 $16.580 0 2008 $16.580 $9.082 1,097 2009 $9.082 $11.205 1,129 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES BALANCED PORTFOLIO--SERVICE SHARES 2004 $10.000 $10.537 0 2005 $10.537 $11.089 0 2006 $11.089 $11.970 0 2007 $11.970 $12.902 0 2008 $12.902 $10.586 0 2009 $10.586 $12.996 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.223 0 2005 $11.223 $11.655 0 2006 $11.655 $13.452 0 2007 $13.452 $15.547 0 2008 $15.547 $14.589 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FORTY PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.395 0 2005 $11.395 $12.539 0 2006 $12.539 $13.375 0 2007 $13.375 $17.861 0 2008 $17.861 $9.723 0 2009 $9.723 $13.877 0
100 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES MID CAP VALUE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.209 0 2005 $11.209 $12.053 577 2006 $12.053 $13.558 565 2007 $13.558 $14.202 531 2008 $14.202 $10.009 547 2009 $10.009 $13.005 521 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES INTECH RISK-MANAGED CORE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.245 0 2005 $11.245 $12.192 0 2006 $12.192 $13.202 0 2007 $13.202 $13.695 0 2008 $13.695 $8.535 0 2009 $8.535 $10.224 0 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES 2005 $10.000 $10.906 0 2006 $10.906 $12.993 0 2007 $12.993 $11.923 0 2008 $11.923 $7.468 0 2009 $7.468 $7.057 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I 2007 $10.000 $9.450 0 2008 $9.450 $5.858 2,596 2009 $5.858 $7.407 2,582 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON WESTERN ASSET VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO-- CLASS II FORMERLY, LEGG MASON PARTNERS VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II 2004 $10.000 $10.781 0 2005 $10.781 $10.912 322 2006 $10.912 $11.771 310 2007 $11.771 $11.467 298 2008 $11.467 $7.747 1,488 2009 $7.747 $11.727 1,421 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I 2007 $10.000 $9.688 0 2008 $9.688 $6.096 0 2009 $6.096 $7.419 0
101 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------- MFS HIGH INCOME SERIES--SERVICE CLASS 2004 $10.000 $10.563 0 2005 $10.563 $10.538 0 2006 $10.538 $11.331 0 2007 $11.331 $11.245 0 2008 $11.245 $7.842 3,928 2009 $7.842 $11.132 3,672 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS GROWTH STOCK SERIES--SERVICE CLASS 2004 $10.000 $10.384 0 2005 $10.384 $10.580 0 2006 $10.580 $11.098 0 2007 $12.125 $12.013 0 2008 $12.013 $7.419 155 2009 $7.419 $10.087 132 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS TRUST SERIES--SERVICE CLASS 2004 $10.000 $10.720 0 2005 $10.720 $11.215 0 2006 $11.215 $12.355 0 2007 $11.098 $12.043 0 2008 $12.043 $8.669 923 2009 $8.669 $10.725 918 - ---------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES--SERVICE CLASS 2004 $10.000 $9.862 0 2005 $9.862 $10.126 0 2006 $10.126 $11.178 0 2007 $11.178 $11.171 0 2008 $11.171 $6.604 1,098 2009 $6.604 $10.518 1,092 - ---------------------------------------------------------------------------------------------------- MFS TOTAL RETURN SERIES--SERVICE CLASS 2004 $10.000 $10.694 0 2005 $10.694 $10.725 326 2006 $10.725 $11.703 314 2007 $11.703 $11.889 301 2008 $11.889 $9.027 2,083 2009 $9.027 $10.388 2,077 - ---------------------------------------------------------------------------------------------------- MFS VALUE SERIES--SERVICE CLASS 2004 $10.000 $11.082 0 2005 $11.082 $11.534 0 2006 $11.534 $13.587 0 2007 $13.587 $14.288 0 2008 $14.288 $9.393 858 2009 $9.393 $11.244 854
102 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MIDCAP FUND/VA--SERVICE SHARES 2005 $10.000 $11.651 0 2006 $11.651 $11.697 0 2007 $11.697 $12.123 0 2008 $12.123 $6.018 0 2009 $6.018 $7.780 0 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND/VA--SERVICE SHARES 2004 $10.000 $11.296 0 2005 $11.296 $12.595 0 2006 $12.595 $14.450 0 2007 $14.450 $14.982 0 2008 $14.982 $8.738 18,728 2009 $8.738 $11.903 18,643 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES 2004 $10.000 $11.230 0 2005 $11.230 $12.044 0 2006 $12.044 $13.500 0 2007 $13.500 $13.011 0 2008 $13.011 $7.884 2,247 2009 $7.884 $10.549 2,138 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES 2004 $10.000 $10.296 0 2005 $10.296 $10.583 511 2006 $10.583 $10.572 574 2007 $10.572 $10.708 546 2008 $10.708 $10.218 4,709 2009 $10.218 $11.549 4,792 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT MONEY MARKET PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $9.876 0 2005 $9.876 $9.922 602 2006 $9.922 $10.147 635 2007 $10.147 $10.401 596 2008 $10.401 $10.396 3,790 2009 $10.396 $10.174 3,856 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT REAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.508 0 2005 $10.508 $10.487 495 2006 $10.487 $10.324 477 2007 $10.324 $11.168 458 2008 $11.168 $10.148 918 2009 $10.148 $11.745 923
103 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------- PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.197 0 2005 $10.197 $10.212 0 2006 $10.212 $10.368 0 2007 $10.368 $11.022 0 2008 $11.022 $11.293 6,237 2009 $11.293 $12.592 6,277 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP BALANCED PORTFOLIO 2004 $10.000 $10.739 0 2005 $10.739 $10.785 0 2006 $10.785 $11.682 0 2007 $11.682 $10.911 0 2008 $10.911 $7.340 0 2009 $7.340 $7.061 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP RENAISSANCE PORTFOLIO 2004 $10.000 $11.136 0 2005 $11.136 $10.393 0 2006 $10.393 $11.315 0 2007 $11.315 $11.758 0 2008 $11.758 $10.620 0 - ------------------------------------------------------------------------------------------------------------------- RYDEX VT ALL-CAP OPPORTUNITY FORMERLY, RYDEX VT SECTOR ROTATION FUND 2004 $10.000 $10.511 0 2005 $10.511 $11.684 0 2006 $11.684 $12.722 0 2007 $12.722 $15.263 0 2008 $15.263 $8.841 804 2009 $8.841 $11.001 799 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE BLUE CHIP GROWTH PORTFOLIO--II 2004 $10.000 $10.403 0 2005 $10.403 $10.743 348 2006 $10.743 $11.481 335 2007 $11.481 $12.623 321 2008 $12.623 $7.076 2,407 2009 $7.076 $9.808 2,378 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE EQUITY INCOME PORTFOLIO--II 2004 $10.000 $11.014 0 2005 $11.014 $11.165 764 2006 $11.165 $12.949 737 2007 $12.949 $13.040 706 2008 $13.040 $8.124 18,755 2009 $8.124 $9.946 18,736
104 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE MULTI-MANAGER ALTERNATIVES FUND-CLS I FORMERLY, VAN ECK WORLDWIDE ABSOLUTE RETURN FUND 2004 $10.000 $9.835 0 2005 $9.835 $9.634 0 2006 $9.634 $10.233 0 2007 $10.233 $10.407 0 2008 $10.407 $8.840 1,179 2009 $8.840 $9.840 1,172 - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE EMERGING MARKETS FUND 2004 $10.000 $12.005 0 2005 $12.005 $15.491 135 2006 $15.491 $21.124 130 2007 $21.124 $28.413 124 2008 $28.413 $9.781 119 2009 $9.781 $20.382 119 - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE HARD ASSETS FUND 2004 $10.000 $12.352 0 2005 $12.352 $18.314 0 2006 $18.314 $22.288 0 2007 $22.288 $31.665 0 2008 $31.665 $16.674 818 2009 $16.674 $25.677 789 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II 2004 $10.000 $11.019 0 2005 $11.019 $11.969 0 2006 $11.969 $12.277 0 2007 $12.277 $14.111 0 2008 $14.111 $7.333 0 2009 $7.333 $11.209 0 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GOVERNMENT PORTFOLIO, CLASS II 2004 $10.000 $10.103 0 2005 $10.103 $10.200 0 2006 $10.200 $10.281 0 2007 $10.281 $10.753 0 2008 $10.753 $10.670 267 2009 $10.670 $10.520 267 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II 2004 $10.000 $10.991 0 2005 $10.991 $11.789 0 2006 $11.789 $13.365 0 2007 $13.365 $13.392 0 2008 $13.392 $8.874 6,338 2009 $8.874 $10.766 6,552
105 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION CLASSIC CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.15
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------ UIF CAPITAL GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.297 0 2005 $10.297 $11.624 0 2006 $11.624 $11.796 0 2007 $11.796 $14.027 0 2008 $14.027 $6.945 336 2009 $6.945 $11.211 331 - ------------------------------------------------------------------------------------------------------------------------ UIF U.S. REAL ESTATE PORTFOLIO, CLASS II 2004 $10.000 $12.746 0 2005 $12.746 $14.547 654 2006 $14.547 $19.578 582 2007 $19.578 $15.830 630 2008 $15.830 $9.584 29,447 2009 $9.584 $12.038 29,312 - ------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN INTERNATIONAL GROWTH--SERVICE SHARES 2008 $10.000 $6.762 0 2009 $6.762 $11.837 0
* The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 2.15% and an administrative expense charge of 0.10%. 106 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. BASIC VALUE FUND--SERIES II 2004 $10.000 $10.710 14,119 2005 $10.710 $11.100 26,910 2006 $11.100 $12.324 26,039 2007 $12.324 $12.279 15,073 2008 $12.279 $5.805 4,867 2009 $5.805 $8.431 2,549 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND--SERIES II 2004 $10.000 $10.270 209 2005 $10.270 $10.962 648 2006 $10.962 $11.429 1,382 2007 $11.429 $12.551 1,120 2008 $12.551 $7.078 840 2009 $7.078 $8.400 647 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CORE EQUITY FUND--SERIES II 2006 $10.000 $10.774 15,396 2007 $10.774 $11.424 18,197 2008 $11.424 $7.825 13,767 2009 $7.825 $9.844 15,508 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. MID CAP CORE EQUITY FUND--SERIES II 2004 $10.000 $10.953 3,434 2005 $10.953 $11.550 9,987 2006 $11.550 $12.601 25,207 2007 $12.601 $13.536 25,250 2008 $13.536 $9.489 10,026 2009 $9.489 $12.113 7,481 - -------------------------------------------------------------------------------------------------------------------------- ALGER LARGE CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN LARGECAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.070 3,205 2005 $10.070 $11.059 4,438 2006 $11.059 $11.405 4,747 2007 $11.405 $13.411 3,856 2008 $13.411 $7.079 4,663 2009 $7.079 $10.247 4,047 - -------------------------------------------------------------------------------------------------------------------------- ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS S 2004 $10.000 $10.186 4,734 2005 $10.186 $11.431 5,217 2006 $11.431 $13.368 10,380 2007 $13.368 $17.501 11,158 2008 $17.501 $9.416 23,230 2009 $9.416 $13.948 13,955
107 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------- ALGER MID CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN MIDCAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.593 16,990 2005 $10.593 $11.407 22,184 2006 $11.407 $12.323 32,839 2007 $12.323 $15.900 22,247 2008 $15.900 $6.490 21,572 2009 $6.490 $9.654 11,236 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.184 6,127 2005 $10.184 $10.390 16,830 2006 $10.390 $10.942 20,152 2007 $10.942 $12.387 18,915 2008 $12.387 $8.657 20,457 2009 $8.657 $10.957 12,979 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $11.353 13,482 2005 $11.353 $13.018 50,412 2006 $13.018 $14.260 98,161 2007 $14.260 $16.442 98,587 2008 $16.442 $9.262 69,273 2009 $9.262 $12.334 49,531 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.805 16,904 2005 $10.805 $11.214 25,309 2006 $11.214 $13.221 52,728 2007 $13.221 $13.160 47,153 2008 $13.160 $7.398 28,570 2009 $7.398 $9.445 20,770 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.777 2,742 2005 $9.777 $10.140 6,853 2006 $10.140 $10.623 8,255 2007 $10.623 $13.226 7,221 2008 $13.226 $6.850 5,106 2009 $6.850 $8.617 3,946 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP INDEX 500 PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.634 7,868 2005 $10.634 $10.930 38,047 2006 $10.930 $12.403 65,217 2007 $12.403 $12.823 59,035 2008 $12.823 $7.921 48,787 2009 $7.921 $9.834 31,067
108 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.182 21,758 2005 $10.182 $10.199 49,266 2006 $10.199 $10.441 73,225 2007 $10.441 $10.682 66,985 2008 $10.682 $10.137 32,315 2009 $10.137 $11.506 24,417 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.933 58,803 2005 $9.933 $10.036 68,484 2006 $10.036 $10.322 161,389 2007 $10.322 $10.648 125,834 2008 $10.648 $10.757 157,527 2009 $10.757 $10.624 92,275 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.896 3,480 2005 $10.896 $12.723 16,347 2006 $12.723 $14.730 67,797 2007 $14.730 $16.948 84,726 2008 $16.948 $9.336 62,637 2009 $9.336 $11.583 48,389 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES BALANCED PORTFOLIO--SERVICE SHARES 2004 $10.000 $10.591 20,549 2005 $10.591 $11.209 24,673 2006 $11.209 $12.166 20,866 2007 $12.166 $13.188 19,377 2008 $13.188 $10.882 23,268 2009 $10.882 $13.434 15,495 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.280 282 2005 $11.280 $11.781 1,583 2006 $11.781 $13.672 5,830 2007 $13.672 $15.892 7,627 2008 $15.892 $14.940 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FORTY PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.454 16 2005 $11.454 $12.673 5,639 2006 $12.673 $13.594 14,144 2007 $13.594 $18.257 18,465 2008 $18.257 $9.994 10,342 2009 $9.994 $14.345 10,515
109 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES MID CAP VALUE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.266 12,402 2005 $11.266 $12.183 48,976 2006 $12.183 $13.781 59,842 2007 $13.781 $14.517 53,518 2008 $14.517 $10.289 34,104 2009 $10.289 $13.444 24,911 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES INTECH RISK-MANAGED CORE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.302 9,724 2005 $11.302 $12.323 16,649 2006 $12.323 $13.419 21,808 2007 $13.419 $13.998 20,140 2008 $13.998 $8.773 14,493 2009 $8.773 $10.569 9,316 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES 2005 $10.000 $10.947 17,047 2006 $10.947 $13.116 20,417 2007 $13.116 $12.103 23,686 2008 $12.103 $7.624 18,835 2009 $7.624 $7.217 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I 2007 $10.000 $9.486 4,256 2008 $9.486 $5.914 1,123 2009 $5.914 $7.520 1,578 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON WESTERN ASSET VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO-- CLASS II FORMERLY, LEGG MASON PARTNERS VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II 2004 $10.000 $10.836 18,080 2005 $10.836 $11.030 43,334 2006 $11.030 $11.964 67,099 2007 $11.964 $11.721 64,359 2008 $11.721 $7.963 43,788 2009 $7.963 $12.122 22,070 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I 2007 $10.000 $9.725 16,715 2008 $9.725 $6.154 14,358 2009 $6.154 $7.532 11,945
110 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------- MFS HIGH INCOME SERIES--SERVICE CLASS 2004 $10.000 $10.617 5,239 2005 $10.617 $10.651 8,859 2006 $10.651 $11.517 9,006 2007 $11.517 $11.495 8,010 2008 $11.495 $8.061 5,959 2009 $8.061 $11.507 4,547 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS GROWTH STOCK SERIES--SERVICE CLASS 2004 $10.000 $10.437 0 2005 $10.437 $10.694 20,459 2006 $10.694 $11.281 40,226 2007 $11.281 $12.310 35,303 2008 $12.310 $7.626 25,945 2009 $7.626 $10.427 17,812 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS TRUST SERIES--SERVICE CLASS 2004 $10.000 $10.775 1,497 2005 $10.775 $11.336 2,187 2006 $11.336 $12.558 2,311 2007 $12.558 $13.582 2,327 2008 $13.582 $8.911 2,892 2009 $8.911 $11.086 3,394 - ---------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES--SERVICE CLASS 2004 $10.000 $9.912 0 2005 $9.912 $10.235 1,241 2006 $10.235 $11.362 2,619 2007 $11.362 $11.419 2,212 2008 $11.419 $6.789 512 2009 $6.789 $10.872 580 - ---------------------------------------------------------------------------------------------------- MFS TOTAL RETURN SERIES--SERVICE CLASS 2004 $10.000 $10.748 24,820 2005 $10.748 $10.841 43,498 2006 $10.841 $11.896 48,499 2007 $11.896 $12.153 36,646 2008 $12.153 $9.279 30,804 2009 $9.279 $10.738 24,445 - ---------------------------------------------------------------------------------------------------- MFS VALUE SERIES--SERVICE CLASS 2004 $10.000 $11.139 1,555 2005 $11.139 $11.658 7,507 2006 $11.658 $13.810 10,015 2007 $13.810 $14.605 11,214 2008 $14.605 $9.656 15,987 2009 $9.656 $11.623 5,318
111 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MIDCAP FUND/VA--SERVICE SHARES 2005 $10.000 $11.695 2,405 2006 $11.695 $11.807 10,770 2007 $11.807 $12.306 10,772 2008 $12.306 $6.143 10,137 2009 $6.143 $7.987 8,923 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND/VA--SERVICE SHARES 2004 $10.000 $11.354 12,335 2005 $11.354 $12.730 23,494 2006 $12.730 $14.688 32,798 2007 $14.688 $15.315 24,924 2008 $15.315 $8.982 23,059 2009 $8.982 $12.305 10,881 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES 2004 $10.000 $11.287 4,631 2005 $11.287 $12.174 27,646 2006 $12.174 $13.721 40,614 2007 $13.721 $13.299 39,454 2008 $13.299 $8.105 24,375 2009 $8.105 $10.905 13,961 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES 2004 $10.000 $10.348 4,619 2005 $10.348 $10.696 28,950 2006 $10.696 $10.745 45,056 2007 $10.745 $10.946 43,735 2008 $10.946 $10.503 23,896 2009 $10.503 $11.939 12,188 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT MONEY MARKET PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $9.927 4,061 2005 $9.927 $10.028 17,626 2006 $10.028 $10.313 110,294 2007 $10.313 $10.632 72,629 2008 $10.632 $10.687 73,225 2009 $10.687 $10.517 32,253 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT REAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.562 24,840 2005 $10.562 $10.599 77,486 2006 $10.599 $10.493 72,477 2007 $10.493 $11.416 60,196 2008 $11.416 $10.432 34,791 2009 $10.432 $12.141 21,242
112 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------- PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.250 19,456 2005 $10.250 $10.322 47,858 2006 $10.322 $10.538 83,160 2007 $10.538 $11.266 81,848 2008 $11.266 $11.608 60,359 2009 $11.608 $13.017 40,000 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP BALANCED PORTFOLIO 2004 $10.000 $10.779 3,706 2005 $10.779 $10.887 5,953 2006 $10.887 $11.858 5,951 2007 $11.858 $11.138 5,481 2008 $11.138 $7.535 3,960 2009 $7.535 $7.261 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP RENAISSANCE PORTFOLIO 2004 $10.000 $11.193 12,083 2005 $11.193 $10.505 19,478 2006 $10.505 $11.501 22,405 2007 $11.501 $12.019 16,051 2008 $12.019 $10.859 0 - ------------------------------------------------------------------------------------------------------------------- RYDEX VT ALL-CAP OPPORTUNITY FORMERLY, RYDEX VT SECTOR ROTATION FUND 2004 $10.000 $10.565 310 2005 $10.565 $11.810 295 2006 $11.810 $12.931 8,282 2007 $12.931 $15.601 6,921 2008 $15.601 $9.088 5,207 2009 $9.088 $11.372 5,103 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE BLUE CHIP GROWTH PORTFOLIO--II 2004 $10.000 $10.456 6,385 2005 $10.456 $10.858 40,786 2006 $10.858 $11.670 75,772 2007 $11.670 $12.903 81,626 2008 $12.903 $7.274 62,701 2009 $7.274 $10.138 40,435 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE EQUITY INCOME PORTFOLIO--II 2004 $10.000 $11.070 26,985 2005 $11.070 $11.285 92,669 2006 $11.285 $13.162 137,043 2007 $13.162 $13.329 129,012 2008 $13.329 $8.351 99,308 2009 $8.351 $10.281 73,212
113 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE MULTI-MANAGER ALTERNATIVES FUND--CLS I FORMERLY, VAN ECK WORLDWIDE ABSOLUTE RETURN FUND 2004 $10.000 $9.885 0 2005 $9.885 $9.738 1,220 2006 $9.738 $10.401 1,929 2007 $10.401 $10.638 1,607 2008 $10.638 $9.087 2,544 2009 $9.087 $10.171 2,363 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE EMERGING MARKETS FUND 2004 $10.000 $12.067 1,588 2005 $12.067 $15.658 12,064 2006 $15.658 $21.471 13,500 2007 $21.471 $29.043 16,859 2008 $29.043 $10.054 11,964 2009 $10.054 $21.070 11,191 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE HARD ASSETS FUND 2004 $10.000 $12.415 10,175 2005 $12.415 $18.511 27,980 2006 $18.511 $22.654 38,120 2007 $22.654 $32.366 35,969 2008 $32.366 $17.140 19,035 2009 $17.140 $26.543 17,279 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II 2004 $10.000 $11.076 625 2005 $11.076 $12.098 1,444 2006 $12.098 $12.478 1,436 2007 $12.478 $14.424 713 2008 $14.424 $7.538 715 2009 $7.538 $11.587 659 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GOVERNMENT PORTFOLIO, CLASS II 2004 $10.000 $10.155 1,515 2005 $10.155 $10.309 3,666 2006 $10.309 $10.449 6,825 2007 $10.449 $10.992 5,828 2008 $10.992 $10.968 4,131 2009 $10.968 $10.875 2,469 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II 2004 $10.000 $11.047 8,999 2005 $11.047 $11.915 42,450 2006 $11.915 $13.585 65,009 2007 $13.585 $13.689 61,062 2008 $13.689 $9.122 42,540 2009 $9.122 $11.129 24,464
114 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------ UIF CAPITAL GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.349 13,593 2005 $10.349 $11.749 18,729 2006 $11.749 $11.990 17,724 2007 $11.990 $14.338 6,708 2008 $14.338 $7.139 4,442 2009 $7.139 $11.589 2,932 - ------------------------------------------------------------------------------------------------------------------------ UIF U.S. REAL ESTATE PORTFOLIO, CLASS II 2004 $10.000 $12.811 8,873 2005 $12.811 $14.704 41,284 2006 $14.704 $19.900 69,224 2007 $19.900 $16.181 49,043 2008 $16.181 $9.852 38,054 2009 $9.852 $12.444 33,843 - ------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN INTERNATIONAL GROWTH--SERVICE SHARES 2008 $10.000 $6.951 5,243 2009 $6.951 $12.236 3,147
* The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.60% and an administrative expense charge of 0.10%. 115 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. BASIC VALUE FUND--SERIES II 2004 $10.000 $10.621 0 2005 $10.621 $10.907 0 2006 $10.907 $12.000 0 2007 $12.000 $11.845 0 2008 $11.845 $5.549 0 2009 $5.549 $7.984 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND--SERIES II 2004 $10.000 $10.184 0 2005 $10.184 $10.771 0 2006 $10.771 $11.127 0 2007 $11.127 $12.108 0 2008 $12.108 $6.766 0 2009 $6.766 $7.955 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CORE EQUITY FUND--SERIES II 2006 $10.000 $10.708 0 2007 $10.708 $11.250 0 2008 $11.250 $7.634 0 2009 $7.634 $9.517 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. MID CAP CORE EQUITY FUND--SERIES II 2004 $10.000 $10.862 0 2005 $10.862 $11.349 0 2006 $11.349 $12.269 0 2007 $12.269 $13.058 0 2008 $13.058 $9.070 0 2009 $9.070 $11.472 0 - -------------------------------------------------------------------------------------------------------------------------- ALGER LARGE CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN LARGECAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $9.986 0 2005 $9.986 $10.867 0 2006 $10.867 $11.104 0 2007 $11.104 $12.937 0 2008 $12.937 $6.767 0 2009 $6.767 $9.705 0 - -------------------------------------------------------------------------------------------------------------------------- ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS S 2004 $10.000 $10.101 0 2005 $10.101 $11.232 0 2006 $11.232 $13.015 0 2007 $13.015 $16.883 0 2008 $16.883 $9.000 0 2009 $9.000 $13.210 0
116 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------- ALGER MID CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN MIDCAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.505 0 2005 $10.505 $11.209 0 2006 $11.209 $11.998 0 2007 $11.998 $15.338 0 2008 $15.338 $6.204 0 2009 $6.204 $9.143 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.099 0 2005 $10.099 $10.209 0 2006 $10.209 $10.654 0 2007 $10.654 $11.950 0 2008 $11.950 $8.274 0 2009 $8.274 $10.377 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $11.258 0 2005 $11.258 $12.792 0 2006 $12.792 $13.885 0 2007 $13.885 $15.861 0 2008 $15.861 $8.853 0 2009 $8.853 $11.681 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.715 0 2005 $10.715 $11.019 0 2006 $11.019 $12.872 0 2007 $12.872 $12.695 0 2008 $12.695 $7.071 0 2009 $7.071 $8.945 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.695 0 2005 $9.695 $9.964 0 2006 $9.964 $10.343 0 2007 $10.343 $12.759 0 2008 $12.759 $6.547 0 2009 $6.547 $8.161 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP INDEX 500 PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.545 0 2005 $10.545 $10.740 0 2006 $10.740 $12.076 0 2007 $12.076 $12.370 0 2008 $12.370 $7.571 0 2009 $7.571 $9.313 0
117 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.097 0 2005 $10.097 $10.022 0 2006 $10.022 $10.166 0 2007 $10.166 $10.305 0 2008 $10.305 $9.689 0 2009 $9.689 $10.897 0 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.850 0 2005 $9.850 $9.861 0 2006 $9.861 $10.049 0 2007 $10.049 $10.272 0 2008 $10.272 $10.282 0 2009 $10.282 $10.062 0 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.805 0 2005 $10.805 $12.502 0 2006 $12.502 $14.342 0 2007 $14.342 $16.349 0 2008 $16.349 $8.923 0 2009 $8.923 $10.970 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES BALANCED PORTFOLIO--SERVICE SHARES 2004 $10.000 $10.502 0 2005 $10.502 $11.014 0 2006 $11.014 $11.846 0 2007 $11.846 $12.723 0 2008 $12.723 $10.402 0 2009 $10.402 $12.723 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.186 0 2005 $11.186 $11.576 0 2006 $11.576 $13.312 0 2007 $13.312 $15.331 0 2008 $15.331 $14.368 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FORTY PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.358 0 2005 $11.358 $12.453 0 2006 $12.453 $13.236 0 2007 $13.236 $17.612 0 2008 $17.612 $9.553 0 2009 $9.553 $13.586 0
118 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES MID CAP VALUE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.172 0 2005 $11.172 $11.971 0 2006 $11.971 $13.418 0 2007 $13.418 $14.004 0 2008 $14.004 $9.835 0 2009 $9.835 $12.732 0 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES INTECH RISK-MANAGED CORE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.208 0 2005 $11.208 $12.109 0 2006 $12.109 $13.065 0 2007 $13.065 $13.504 0 2008 $13.504 $8.386 0 2009 $8.386 $10.010 0 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES 2005 $10.000 $10.880 0 2006 $10.880 $12.916 0 2007 $12.916 $11.809 0 2008 $11.809 $7.371 0 2009 $7.371 $6.956 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I 2007 $10.000 $9.427 0 2008 $9.427 $5.823 0 2009 $5.823 $7.337 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON WESTERN ASSET VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO-- CLASS II FORMERLY, LEGG MASON PARTNERS VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II 2004 $10.000 $10.746 0 2005 $10.746 $10.838 0 2006 $10.838 $11.649 0 2007 $11.649 $11.307 0 2008 $11.307 $7.612 0 2009 $7.612 $11.481 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I 2007 $10.000 $9.665 0 2008 $9.665 $6.060 0 2009 $6.060 $7.348 0
119 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------- MFS HIGH INCOME SERIES--SERVICE CLASS 2004 $10.000 $10.529 0 2005 $10.529 $10.466 0 2006 $10.466 $11.214 0 2007 $11.214 $11.089 0 2008 $11.089 $7.705 0 2009 $7.705 $10.898 0 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS GROWTH STOCK SERIES--SERVICE CLASS 2004 $10.000 $10.350 0 2005 $10.350 $10.508 0 2006 $10.508 $10.983 0 2007 $12.000 $11.845 0 2008 $11.845 $7.289 0 2009 $7.289 $9.875 0 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS TRUST SERIES--SERVICE CLASS 2004 $10.000 $10.685 0 2005 $10.685 $11.139 0 2006 $11.139 $12.227 0 2007 $10.983 $11.876 0 2008 $11.876 $8.518 0 2009 $8.518 $10.500 0 - ---------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES--SERVICE CLASS 2004 $10.000 $9.830 0 2005 $9.830 $10.057 0 2006 $10.057 $11.063 0 2007 $11.063 $11.016 0 2008 $11.016 $6.489 0 2009 $6.489 $10.297 0 - ---------------------------------------------------------------------------------------------------- MFS TOTAL RETURN SERIES--SERVICE CLASS 2004 $10.000 $10.659 0 2005 $10.659 $10.652 0 2006 $10.652 $11.582 0 2007 $11.582 $11.723 0 2008 $11.723 $8.870 0 2009 $8.870 $10.170 0 - ---------------------------------------------------------------------------------------------------- MFS VALUE SERIES--SERVICE CLASS 2004 $10.000 $11.046 0 2005 $11.046 $11.455 0 2006 $11.455 $13.447 0 2007 $13.447 $14.090 0 2008 $14.090 $9.229 0 2009 $9.229 $11.008 0
120 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MIDCAP FUND/VA--SERVICE SHARES 2005 $10.000 $11.623 0 2006 $11.623 $11.627 0 2007 $11.627 $12.007 0 2008 $12.007 $5.939 0 2009 $5.939 $7.651 0 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND/VA--SERVICE SHARES 2004 $10.000 $11.259 0 2005 $11.259 $12.509 0 2006 $12.509 $14.301 0 2007 $14.301 $14.774 0 2008 $14.774 $8.586 0 2009 $8.586 $11.653 0 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES 2004 $10.000 $11.193 0 2005 $11.193 $11.962 0 2006 $11.962 $13.360 0 2007 $13.360 $12.830 0 2008 $12.830 $7.747 0 2009 $7.747 $10.328 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES 2004 $10.000 $10.262 0 2005 $10.262 $10.511 0 2006 $10.511 $10.462 0 2007 $10.462 $10.559 0 2008 $10.559 $10.039 0 2009 $10.039 $11.307 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT MONEY MARKET PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $9.844 0 2005 $9.844 $9.854 0 2006 $9.854 $10.042 0 2007 $10.042 $10.257 0 2008 $10.257 $10.215 0 2009 $10.215 $9.961 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT REAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.474 0 2005 $10.474 $10.415 0 2006 $10.415 $10.217 0 2007 $10.217 $11.013 0 2008 $11.013 $9.971 0 2009 $9.971 $11.498 0
121 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------- PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.164 0 2005 $10.164 $10.142 0 2006 $10.142 $10.260 0 2007 $10.260 $10.868 0 2008 $10.868 $11.096 0 2009 $11.096 $12.328 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP BALANCED PORTFOLIO 2004 $10.000 $10.713 0 2005 $10.713 $10.721 0 2006 $10.721 $11.571 0 2007 $11.571 $10.768 0 2008 $10.768 $7.218 0 2009 $7.218 $6.936 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP RENAISSANCE PORTFOLIO 2004 $10.000 $11.099 0 2005 $11.099 $10.322 0 2006 $10.322 $11.198 0 2007 $11.198 $11.595 0 2008 $11.595 $10.470 0 - ------------------------------------------------------------------------------------------------------------------- RYDEX VT ALL-CAP OPPORTUNITY FORMERLY, RYDEX VT SECTOR ROTATION FUND 2004 $10.000 $10.477 0 2005 $10.477 $11.604 0 2006 $11.604 $12.590 0 2007 $12.590 $15.050 0 2008 $15.050 $8.687 0 2009 $8.687 $10.771 0 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE BLUE CHIP GROWTH PORTFOLIO--II 2004 $10.000 $10.369 0 2005 $10.369 $10.670 0 2006 $10.670 $11.362 0 2007 $11.362 $12.447 0 2008 $12.447 $6.953 0 2009 $6.953 $9.602 0 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE EQUITY INCOME PORTFOLIO--II 2004 $10.000 $10.978 0 2005 $10.978 $11.089 0 2006 $11.089 $12.815 0 2007 $12.815 $12.858 0 2008 $12.858 $7.982 0 2009 $7.982 $9.737 0
122 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE MULTI-MANAGER ALTERNATIVES FUND--CLS I FORMERLY, VAN ECK WORLDWIDE ABSOLUTE RETURN FUND 2004 $10.000 $9.803 0 2005 $9.803 $9.568 0 2006 $9.568 $10.127 0 2007 $10.127 $10.262 0 2008 $10.262 $8.686 0 2009 $8.686 $9.633 0 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE EMERGING MARKETS FUND 2004 $10.000 $11.966 0 2005 $11.966 $15.386 0 2006 $15.386 $20.905 0 2007 $20.905 $28.017 0 2008 $28.017 $9.610 0 2009 $9.610 $19.955 0 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE HARD ASSETS FUND 2004 $10.000 $12.311 0 2005 $12.311 $18.189 0 2006 $18.189 $22.057 0 2007 $22.057 $31.224 0 2008 $31.224 $16.383 0 2009 $16.383 $25.138 0 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.984 0 2005 $10.984 $11.888 0 2006 $11.888 $12.149 0 2007 $12.149 $13.914 0 2008 $13.914 $7.205 0 2009 $7.205 $10.974 0 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GOVERNMENT PORTFOLIO, CLASS II 2004 $10.000 $10.070 0 2005 $10.070 $10.130 0 2006 $10.130 $10.174 0 2007 $10.174 $10.603 0 2008 $10.603 $10.484 0 2009 $10.484 $10.299 0 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II 2004 $10.000 $10.955 0 2005 $10.955 $11.708 0 2006 $11.708 $13.227 0 2007 $13.227 $13.206 0 2008 $13.206 $8.719 0 2009 $8.719 $10.540 0
123 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION ELITE CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.5
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------ UIF CAPITAL GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.263 0 2005 $10.263 $11.545 0 2006 $11.545 $11.674 0 2007 $11.674 $13.832 0 2008 $13.832 $6.824 0 2009 $6.824 $10.976 0 - ------------------------------------------------------------------------------------------------------------------------ UIF U.S. REAL ESTATE PORTFOLIO, CLASS II 2004 $10.000 $12.705 0 2005 $12.705 $14.448 0 2006 $14.448 $19.375 0 2007 $19.375 $15.610 0 2008 $15.610 $9.417 0 2009 $9.417 $11.785 0 - ------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN INTERNATIONAL GROWTH--SERVICE SHARES 2008 $10.000 $6.644 0 2009 $6.644 $11.588 0
* The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 2.50% and an administrative expense charge of 0.10%. 124 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. BASIC VALUE FUND--SERIES II 2004 $10.000 $10.725 168,023 2005 $10.725 $11.133 344,954 2006 $11.133 $12.379 418,263 2007 $12.379 $12.352 293,495 2008 $12.352 $5.849 426,442 2009 $5.849 $8.507 343,201 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND--SERIES II 2004 $10.000 $10.284 25,081 2005 $10.284 $10.994 74,461 2006 $10.994 $11.479 125,960 2007 $11.479 $12.626 110,380 2008 $12.626 $7.132 125,423 2009 $7.132 $8.476 104,680 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CORE EQUITY FUND--SERIES II 2006 $10.000 $10.785 274,689 2007 $10.785 $11.454 276,101 2008 $11.454 $7.857 288,185 2009 $7.857 $9.900 241,788 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. MID CAP CORE EQUITY FUND--SERIES II 2004 $10.000 $10.968 184,194 2005 $10.968 $11.584 295,988 2006 $11.584 $12.657 442,279 2007 $12.657 $13.617 404,724 2008 $13.617 $9.561 420,218 2009 $9.561 $12.223 365,382 - -------------------------------------------------------------------------------------------------------------------------- ALGER LARGE CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN LARGECAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.084 162,285 2005 $10.084 $11.091 310,193 2006 $11.091 $11.455 291,942 2007 $11.455 $13.491 242,972 2008 $13.491 $7.133 252,657 2009 $7.133 $10.340 217,489 - -------------------------------------------------------------------------------------------------------------------------- ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS S 2004 $10.000 $10.200 27,034 2005 $10.200 $11.464 85,491 2006 $11.464 $13.427 127,011 2007 $13.427 $17.606 140,144 2008 $17.606 $9.487 131,667 2009 $9.487 $14.074 104,489
125 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------- ALGER MID CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN MIDCAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.608 133,976 2005 $10.608 $11.441 327,548 2006 $11.441 $12.377 436,382 2007 $12.377 $15.995 397,229 2008 $15.995 $6.539 448,194 2009 $6.539 $9.741 382,540 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.198 99,090 2005 $10.198 $10.420 153,559 2006 $10.420 $10.991 196,893 2007 $10.991 $12.461 181,005 2008 $12.461 $8.722 200,576 2009 $8.722 $11.056 174,938 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $11.368 162,203 2005 $11.368 $13.056 636,774 2006 $13.056 $14.324 1,038,503 2007 $14.324 $16.540 915,580 2008 $16.540 $9.332 1,036,462 2009 $9.332 $12.446 860,886 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.820 264,960 2005 $10.820 $11.246 642,154 2006 $11.246 $13.279 914,542 2007 $13.279 $13.239 882,993 2008 $13.239 $7.453 958,622 2009 $7.453 $9.531 838,502 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.971 95,874 2005 $9.791 $10.170 162,979 2006 $10.170 $10.671 179,143 2007 $10.671 $13.305 176,462 2008 $13.305 $6.902 239,711 2009 $6.902 $8.695 226,398 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP INDEX 500 PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.648 357,590 2005 $10.648 $10.961 1,013,570 2006 $10.961 $12.458 1,364,532 2007 $12.458 $12.899 1,221,783 2008 $12.899 $7.980 1,372,538 2009 $7.980 $9.923 1,179,069
126 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.196 362,442 2005 $10.196 $10.229 877,078 2006 $10.229 $10.487 1,278,546 2007 $10.487 $10.746 1,490,496 2008 $10.746 $10.213 1,404,977 2009 $10.213 $11.610 1,239,977 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.947 499,789 2005 $9.947 $10.065 1,298,309 2006 $10.065 $10.367 1,929,547 2007 $10.367 $10.712 1,860,555 2008 $10.712 $10.838 2,312,870 2009 $10.838 $10.720 1,916,252 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.911 112,867 2005 $10.911 $12.760 307,437 2006 $12.760 $14.796 827,908 2007 $14.796 $17.049 807,662 2008 $17.049 $9.406 916,161 2009 $9.406 $11.688 807,903 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES BALANCED PORTFOLIO--SERVICE SHARES 2004 $10.000 $10.605 110,575 2005 $10.605 $11.241 317,819 2006 $11.241 $12.220 474,671 2007 $12.220 $13.267 419,411 2008 $13.267 $10.964 387,556 2009 $10.964 $13.555 378,329 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.296 17,349 2005 $11.296 $11.815 78,760 2006 $11.815 $13.733 125,898 2007 $13.733 $15.987 130,612 2008 $15.987 $15.037 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FORTY PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.470 29,307 2005 $11.470 $12.710 109,414 2006 $12.710 $13.654 160,923 2007 $13.654 $18.366 194,043 2008 $18.366 $10.069 230,987 2009 $10.069 $14.475 199,558
127 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES MID CAP VALUE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.282 130,218 2005 $11.282 $12.219 435,715 2006 $12.219 $13.842 636,948 2007 $13.842 $14.604 603,783 2008 $14.604 $10.366 628,536 2009 $10.366 $13.565 498,879 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES INTECH RISK-MANAGED CORE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.318 47,209 2005 $11.318 $12.359 136,370 2006 $12.359 $13.478 168,301 2007 $13.478 $14.082 157,185 2008 $14.082 $8.839 156,723 2009 $8.839 $10.665 133,212 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES 2005 $10.000 $10.959 52,116 2006 $10.959 $13.149 208,907 2007 $13.149 $12.153 204,185 2008 $12.153 $7.667 200,043 2009 $7.667 $7.261 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I 2007 $10.000 $9.496 77,930 2008 $9.496 $5.929 78,084 2009 $5.929 $7.551 64,493 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON WESTERN ASSET VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II FORMERLY, LEGG MASON PARTNERS VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II 2004 $10.000 $10.851 233,161 2005 $10.851 $11.062 729,975 2006 $11.062 $12.018 1,048,615 2007 $12.018 $11.791 1,007,552 2008 $11.791 $8.023 988,849 2009 $8.023 $12.232 724,610 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I 2007 $10.000 $9.735 115,189 2008 $9.735 $6.170 84,142 2009 $6.170 $7.563 69,529
128 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------- MFS HIGH INCOME SERIES--SERVICE CLASS 2004 $10.000 $10.632 173,571 2005 $10.632 $10.682 363,031 2006 $10.682 $11.568 409,143 2007 $11.568 $11.563 406,241 2008 $11.563 $8.121 391,449 2009 $8.121 $11.611 306,693 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS GROWTH STOCK SERIES--SERVICE CLASS 2004 $10.000 $10.452 27,908 2005 $10.452 $10.725 288,901 2006 $10.725 $11.331 530,447 2007 $11.331 $12.384 487,942 2008 $12.384 $7.683 536,714 2009 $7.683 $10.521 428,012 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS TRUST SERIES--SERVICE CLASS 2004 $10.000 $10.790 31,444 2005 $10.790 $11.369 69,837 2006 $11.369 $12.614 75,414 2007 $12.614 $13.663 71,252 2008 $13.663 $8.978 89,673 2009 $8.978 $11.187 85,026 - ---------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES--SERVICE CLASS 2004 $10.000 $9.926 79,708 2005 $9.926 $10.265 115,243 2006 $10.265 $11.413 143,917 2007 $11.413 $11.488 133,227 2008 $11.488 $6.840 145,739 2009 $6.840 $10.971 134,171 - ---------------------------------------------------------------------------------------------------- MFS TOTAL RETURN SERIES--SERVICE CLASS 2004 $10.000 $10.763 270,271 2005 $10.763 $10.872 649,848 2006 $10.872 $11.948 786,417 2007 $11.948 $12.225 733,113 2008 $12.225 $9.349 623,702 2009 $9.349 $10.836 575,285 - ---------------------------------------------------------------------------------------------------- MFS VALUE SERIES--SERVICE CLASS 2004 $10.000 $11.154 52,533 2005 $11.154 $11.692 155,911 2006 $11.692 $13.872 185,240 2007 $13.872 $14.693 178,813 2008 $14.693 $9.728 218,888 2009 $9.728 $11.728 183,765
129 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MIDCAP FUND/VA--SERVICE SHARES 2005 $10.000 $11.707 31,034 2006 $11.707 $11.837 86,941 2007 $11.837 $12.356 79,497 2008 $12.356 $6.178 88,007 2009 $6.178 $8.044 77,979 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND/VA--SERVICE SHARES 2004 $10.000 $11.369 135,685 2005 $11.369 $12.767 311,510 2006 $12.767 $14.753 416,951 2007 $14.753 $15.406 390,850 2008 $15.406 $9.050 394,574 2009 $9.050 $12.416 321,152 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES 2004 $10.000 $11.303 148,467 2005 $11.303 $12.209 444,920 2006 $12.209 $13.782 658,435 2007 $13.782 $13.379 616,978 2008 $13.379 $8.165 662,016 2009 $8.165 $11.004 576,312 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES 2004 $10.000 $10.363 72,884 2005 $10.363 $10.728 336,138 2006 $10.728 $10.793 524,188 2007 $10.793 $11.011 473,852 2008 $11.011 $10.582 431,280 2009 $10.582 $12.047 415,232 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT MONEY MARKET PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $9.941 306,156 2005 $9.941 $10.057 529,839 2006 $10.057 $10.359 727,162 2007 $10.359 $10.696 706,907 2008 $10.696 $10.767 859,497 2009 $10.767 $10.612 907,129 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT REAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.577 266,929 2005 $10.577 $10.630 855,244 2006 $10.630 $10.540 1,126,346 2007 $10.540 $11.484 1,038,569 2008 $11.484 $10.510 1,164,877 2009 $10.510 $12.250 983,651
130 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------- PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.264 326,918 2005 $10.264 $10.352 781,636 2006 $10.352 $10.585 1,399,499 2007 $10.585 $11.333 1,362,786 2008 $11.333 $11.695 1,498,179 2009 $11.695 $13.134 1,507,227 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP BALANCED PORTFOLIO 2004 $10.000 $10.790 49,506 2005 $10.790 $10.914 88,648 2006 $10.914 $11.906 102,842 2007 $11.906 $11.200 100,376 2008 $11.200 $7.589 91,560 2009 $7.589 $7.317 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP RENAISSANCE PORTFOLIO 2004 $10.000 $11.208 99,659 2005 $11.208 $10.535 156,525 2006 $10.535 $11.552 181,544 2007 $11.552 $12.091 133,825 2008 $12.091 $10.924 0 - ------------------------------------------------------------------------------------------------------------------- RYDEX VT ALL-CAP OPPORTUNITY FORMERLY, RYDEX VT SECTOR ROTATION FUND 2004 $10.000 $10.579 9,293 2005 $10.579 $11.844 42,301 2006 $11.844 $12.989 96,320 2007 $12.989 $15.694 104,063 2008 $15.694 $9.157 117,641 2009 $9.157 $11.475 103,531 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE BLUE CHIP GROWTH PORTFOLIO--II 2004 $10.000 $10.470 118,706 2005 $10.470 $10.890 568,834 2006 $10.890 $11.722 1,046,476 2007 $11.722 $12.980 921,017 2008 $12.980 $7.329 1,076,189 2009 $7.329 $10.230 850,454 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE EQUITY INCOME PORTFOLIO--II 2004 $10.000 $11.086 386,880 2005 $11.086 $11.318 1,352,680 2006 $11.318 $13.221 1,710,177 2007 $13.221 $13.409 1,570,162 2008 $13.409 $8.413 1,608,523 2009 $8.413 $10.374 1,377,891
131 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE MULTI-MANAGER ALTERNATIVES FUND--CLS I FORMERLY, VAN ECK WORLDWIDE ABSOLUTE RETURN FUND 2004 $10.000 $9.899 17,544 2005 $9.899 $9.766 49,850 2006 $9.766 $10.447 69,904 2007 $10.447 $10.701 67,655 2008 $10.701 $9.156 83,819 2009 $9.156 $10.264 84,209 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE EMERGING MARKETS FUND 2004 $10.000 $12.083 16,416 2005 $12.083 $15.703 107,894 2006 $15.703 $21.566 197,437 2007 $21.566 $29.216 217,317 2008 $29.216 $10.130 178,770 2009 $10.130 $21.260 178,220 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE HARD ASSETS FUND 2004 $10.000 $12.432 30,408 2005 $12.432 $18.565 144,710 2006 $18.565 $22.754 196,815 2007 $22.754 $32.560 208,194 2008 $32.560 $17.269 189,943 2009 $17.269 $26.783 172,839 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II 2004 $10.000 $11.091 21,341 2005 $11.091 $12.133 28,367 2006 $12.133 $12.534 38,306 2007 $12.534 $14.510 38,611 2008 $14.510 $7.594 49,182 2009 $7.594 $11.692 81,540 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GOVERNMENT PORTFOLIO, CLASS II 2004 $10.000 $10.169 196,904 2005 $10.169 $10.339 330,133 2006 $10.339 $10.496 394,113 2007 $10.496 $11.057 382,399 2008 $11.057 $11.051 541,227 2009 $11.051 $10.973 477,547 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II 2004 $10.000 $11.063 187,532 2005 $11.063 $11.950 597,525 2006 $11.950 $13.645 965,056 2007 $13.645 $13.771 913,686 2008 $13.771 $9.191 900,825 2009 $9.191 $11.230 788,311
132 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.45
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------ UIF CAPITAL GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.364 43,290 2005 $10.364 $11.783 100,577 2006 $11.783 $12.043 118,076 2007 $12.043 $14.424 101,174 2008 $14.424 $7.193 110,041 2009 $7.193 $11.694 91,860 - ------------------------------------------------------------------------------------------------------------------------ UIF U.S. REAL ESTATE PORTFOLIO, CLASS II 2004 $10.000 $12.829 290,164 2005 $12.829 $14.747 680,199 2006 $14.747 $19.988 844,038 2007 $19.988 $16.278 713,922 2008 $16.278 $9.926 725,507 2009 $9.926 $12.557 582,988 - ------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN INTERNATIONAL GROWTH--SERVICE SHARES 2008 $10.000 $7.003 153,801 2009 $7.003 $12.347 149,089
* The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.45% and an administrative expense charge of 0.10%. 133 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. BASIC VALUE FUND--SERIES II 2004 $10.000 $10.636 0 2005 $10.636 $10.939 0 2006 $10.939 $12.053 0 2007 $12.053 $11.917 0 2008 $11.917 $5.591 0 2009 $5.591 $8.057 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND--SERIES II 2004 $10.000 $10.198 0 2005 $10.198 $10.803 0 2006 $10.803 $11.177 0 2007 $11.177 $12.181 0 2008 $12.181 $6.817 0 2009 $6.817 $8.028 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CORE EQUITY FUND--SERIES II 2006 $10.000 $10.719 0 2007 $10.719 $11.279 0 2008 $11.279 $7.666 0 2009 $7.666 $9.571 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. MID CAP CORE EQUITY FUND--SERIES II 2004 $10.000 $10.877 0 2005 $10.877 $11.383 0 2006 $11.383 $12.324 0 2007 $12.324 $13.137 0 2008 $13.137 $9.139 0 2009 $9.139 $11.577 0 - -------------------------------------------------------------------------------------------------------------------------- ALGER LARGE CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN LARGECAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.000 0 2005 $10.000 $10.899 0 2006 $10.899 $11.154 0 2007 $11.154 $13.015 0 2008 $13.015 $6.818 626 2009 $6.818 $9.794 0 - -------------------------------------------------------------------------------------------------------------------------- ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS S 2004 $10.000 $10.115 0 2005 $10.115 $11.265 0 2006 $11.265 $13.074 0 2007 $13.074 $16.985 0 2008 $16.985 $9.069 0 2009 $9.069 $13.331 0
134 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------- ALGER MID CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN MIDCAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.520 0 2005 $10.520 $11.242 0 2006 $11.242 $12.051 0 2007 $12.051 $15.431 0 2008 $15.431 $6.251 0 2009 $6.251 $9.226 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.113 0 2005 $10.113 $10.239 0 2006 $10.239 $10.702 0 2007 $10.702 $12.022 0 2008 $12.022 $8.337 1,129 2009 $8.337 $10.472 1,128 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $11.274 0 2005 $11.274 $12.829 0 2006 $12.829 $13.947 0 2007 $13.947 $15.957 0 2008 $15.957 $8.920 0 2009 $8.920 $11.788 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.730 0 2005 $10.730 $11.051 0 2006 $11.051 $12.930 0 2007 $12.930 $12.772 0 2008 $12.772 $7.125 1,122 2009 $7.125 $9.027 1,121 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.709 0 2005 $9.709 $9.993 0 2006 $9.993 $10.390 0 2007 $10.390 $12.836 0 2008 $12.836 $6.597 0 2009 $6.597 $8.235 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP INDEX 500 PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.560 0 2005 $10.560 $10.771 0 2006 $10.771 $12.130 0 2007 $12.130 $12.444 0 2008 $12.444 $7.628 0 2009 $7.628 $9.398 0
135 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.112 0 2005 $10.112 $10.051 0 2006 $10.051 $10.211 0 2007 $10.211 $10.367 0 2008 $10.367 $9.763 0 2009 $9.763 $10.997 0 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.864 0 2005 $9.864 $9.890 0 2006 $9.890 $10.095 0 2007 $10.095 $10.334 0 2008 $10.334 $10.360 408 2009 $10.360 $10.154 0 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.820 0 2005 $10.820 $12.539 0 2006 $12.539 $14.406 0 2007 $14.406 $16.448 0 2008 $16.448 $8.991 925 2009 $8.991 $11.070 449 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES BALANCED PORTFOLIO--SERVICE SHARES 2004 $10.000 $10.517 0 2005 $10.517 $11.046 0 2006 $11.046 $11.899 0 2007 $11.899 $12.799 0 2008 $12.799 $10.481 0 2009 $10.481 $12.839 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.202 0 2005 $11.202 $11.610 0 2006 $11.610 $13.372 0 2007 $13.372 $15.423 0 2008 $15.423 $14.462 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FORTY PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.374 0 2005 $11.374 $12.490 0 2006 $12.490 $13.295 0 2007 $13.295 $17.719 0 2008 $17.719 $9.625 0 2009 $9.625 $13.710 0
136 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES MID CAP VALUE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.188 0 2005 $11.188 $12.007 0 2006 $12.007 $13.478 0 2007 $13.478 $14.089 0 2008 $14.089 $9.909 0 2009 $9.909 $12.849 0 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES INTECH RISK-MANAGED CORE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.224 0 2005 $11.224 $12.144 0 2006 $12.144 $13.124 0 2007 $13.124 $13.585 0 2008 $13.585 $8.449 0 2009 $8.449 $10.101 0 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES 2005 $10.000 $10.891 0 2006 $10.891 $12.949 0 2007 $12.949 $11.858 0 2008 $11.858 $7.412 0 2009 $7.412 $6.999 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I 2007 $10.000 $9.436 0 2008 $9.436 $5.838 0 2009 $5.838 $7.367 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON WESTERN ASSET VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO-- CLASS II FORMERLY, LEGG MASON PARTNERS VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II 2004 $10.000 $10.761 0 2005 $10.761 $10.870 0 2006 $10.870 $11.701 0 2007 $11.701 $11.376 0 2008 $11.376 $7.669 0 2009 $7.669 $11.585 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I 2007 $10.000 $9.675 0 2008 $9.675 $6.075 0 2009 $6.075 $7.379 0
137 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------- MFS HIGH INCOME SERIES--SERVICE CLASS 2004 $10.000 $10.544 0 2005 $10.544 $10.497 0 2006 $10.497 $11.264 0 2007 $11.264 $11.156 0 2008 $11.156 $7.763 0 2009 $7.763 $10.998 0 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS GROWTH STOCK SERIES--SERVICE CLASS 2004 $10.000 $10.365 0 2005 $10.365 $10.539 0 2006 $10.539 $11.033 0 2007 $12.053 $11.917 0 2008 $11.917 $7.344 0 2009 $7.344 $9.965 0 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS TRUST SERIES--SERVICE CLASS 2004 $10.000 $10.700 0 2005 $10.700 $11.172 0 2006 $11.172 $12.282 0 2007 $11.033 $11.947 0 2008 $11.947 $8.582 0 2009 $8.582 $10.596 0 - ---------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES--SERVICE CLASS 2004 $10.000 $9.844 0 2005 $9.844 $10.086 0 2006 $10.086 $11.112 0 2007 $11.112 $11.082 0 2008 $11.082 $6.538 0 2009 $6.538 $10.391 0 - ---------------------------------------------------------------------------------------------------- MFS TOTAL RETURN SERIES--SERVICE CLASS 2004 $10.000 $10.674 0 2005 $10.674 $10.684 0 2006 $10.684 $11.634 0 2007 $11.634 $11.794 0 2008 $11.794 $8.937 2,314 2009 $8.937 $10.263 1,124 - ---------------------------------------------------------------------------------------------------- MFS VALUE SERIES--SERVICE CLASS 2004 $10.000 $11.061 0 2005 $11.061 $11.489 0 2006 $11.489 $13.507 0 2007 $13.507 $14.175 0 2008 $14.175 $9.299 0 2009 $9.299 $11.108 0
138 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MIDCAP FUND/VA--SERVICE SHARES 2005 $10.000 $11.635 0 2006 $11.635 $11.657 0 2007 $11.657 $12.056 0 2008 $12.056 $5.973 0 2009 $5.973 $7.706 0 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND/VA--SERVICE SHARES 2004 $10.000 $11.275 0 2005 $11.275 $12.546 0 2006 $12.546 $14.365 0 2007 $14.365 $14.863 0 2008 $14.863 $8.651 0 2009 $8.651 $11.760 0 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES 2004 $10.000 $11.209 0 2005 $11.209 $11.997 0 2006 $11.997 $13.420 0 2007 $13.420 $12.907 0 2008 $12.907 $7.805 0 2009 $7.805 $10.422 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES 2004 $10.000 $10.276 0 2005 $10.276 $10.541 0 2006 $10.541 $10.509 0 2007 $10.509 $10.623 0 2008 $10.623 $10.116 0 2009 $10.116 $11.410 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT MONEY MARKET PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $9.858 0 2005 $9.858 $9.883 0 2006 $9.883 $10.087 0 2007 $10.087 $10.318 0 2008 $10.318 $10.292 0 2009 $10.292 $10.052 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT REAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.489 0 2005 $10.489 $10.446 0 2006 $10.446 $10.263 0 2007 $10.263 $11.079 0 2008 $11.079 $10.047 0 2009 $10.047 $11.603 0
139 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------- PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.178 0 2005 $10.178 $10.172 0 2006 $10.172 $10.306 0 2007 $10.306 $10.934 0 2008 $10.934 $11.180 1,432 2009 $11.180 $12.441 675 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP BALANCED PORTFOLIO 2004 $10.000 $10.724 0 2005 $10.724 $10.749 0 2006 $10.749 $11.618 0 2007 $11.618 $10.829 0 2008 $10.829 $7.270 0 2009 $7.270 $6.989 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP RENAISSANCE PORTFOLIO 2004 $10.000 $11.115 0 2005 $11.115 $10.352 0 2006 $10.352 $11.248 0 2007 $11.248 $11.665 0 2008 $11.665 $10.534 0 - ------------------------------------------------------------------------------------------------------------------- RYDEX VT ALL-CAP OPPORTUNITY FORMERLY, RYDEX VT SECTOR ROTATION FUND 2004 $10.000 $10.491 0 2005 $10.491 $11.638 0 2006 $11.638 $12.647 0 2007 $12.647 $15.141 0 2008 $15.141 $8.753 0 2009 $8.753 $10.869 0 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE BLUE CHIP GROWTH PORTFOLIO--II 2004 $10.000 $10.383 0 2005 $10.383 $10.701 0 2006 $10.701 $11.413 0 2007 $11.413 $12.523 0 2008 $12.523 $7.005 0 2009 $7.005 $9.690 0 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE EQUITY INCOME PORTFOLIO--II 2004 $10.000 $10.993 0 2005 $10.993 $11.121 0 2006 $11.121 $12.873 0 2007 $12.873 $12.936 0 2008 $12.936 $8.042 1,333 2009 $8.042 $9.826 0
140 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE MULTI-MANAGER ALTERNATIVES FUND--CLS I FORMERLY, VAN ECK WORLDWIDE ABSOLUTE RETURN FUND 2004 $10.000 $9.817 0 2005 $9.817 $9.596 0 2006 $9.596 $10.172 0 2007 $10.172 $10.324 0 2008 $10.324 $8.752 0 2009 $8.752 $9.721 0 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE EMERGING MARKETS FUND 2004 $10.000 $11.983 0 2005 $11.983 $15.431 0 2006 $15.431 $20.999 0 2007 $20.999 $28.186 0 2008 $28.186 $9.683 0 2009 $9.683 $20.137 0 - ---------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE HARD ASSETS FUND 2004 $10.000 $12.329 0 2005 $12.329 $18.243 0 2006 $18.243 $22.156 0 2007 $22.156 $31.412 0 2008 $31.412 $16.508 0 2009 $16.508 $25.368 0 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.999 0 2005 $10.999 $11.923 0 2006 $11.923 $12.204 0 2007 $12.204 $13.998 0 2008 $13.998 $7.259 0 2009 $7.259 $11.074 0 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GOVERNMENT PORTFOLIO, CLASS II 2004 $10.000 $10.084 0 2005 $10.084 $10.160 0 2006 $10.160 $10.220 0 2007 $10.220 $10.667 0 2008 $10.667 $10.563 0 2009 $10.563 $10.393 0 - ---------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II 2004 $10.000 $10.971 0 2005 $10.971 $11.743 0 2006 $11.743 $13.286 0 2007 $13.286 $13.286 0 2008 $13.286 $8.785 0 2009 $8.785 $10.636 0
141 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION PLUS CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.35
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------ UIF CAPITAL GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.278 0 2005 $10.278 $11.579 0 2006 $11.579 $11.726 0 2007 $11.726 $13.915 0 2008 $13.915 $6.875 0 2009 $6.875 $11.076 0 - ------------------------------------------------------------------------------------------------------------------------ UIF U.S. REAL ESTATE PORTFOLIO, CLASS II 2004 $10.000 $12.722 0 2005 $12.722 $14.491 0 2006 $14.491 $19.462 0 2007 $19.462 $15.704 0 2008 $15.704 $9.488 0 2009 $9.488 $11.893 0 - ------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN INTERNATIONAL GROWTH--SERVICE SHARES 2008 $10.000 $6.694 0 2009 $6.694 $11.694 0
* The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 2.35% and an administrative expense charge of 0.10%. 142 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. BASIC VALUE FUND--SERIES II 2004 $10.000 $10.701 11,482 2005 $10.701 $11.079 24,729 2006 $11.079 $12.288 8,519 2007 $12.288 $12.230 26,372 2008 $12.230 $5.776 28,022 2009 $5.776 $8.380 17,395 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND--SERIES II 2004 $10.000 $10.260 15,284 2005 $10.260 $10.940 18,497 2006 $10.940 $11.395 4,420 2007 $11.395 $12.501 9,752 2008 $12.501 $7.043 14,356 2009 $7.043 $8.349 12,418 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CORE EQUITY FUND--SERIES II 2006 $10.000 $10.767 3,608 2007 $10.767 $11.405 16,749 2008 $11.405 $7.804 23,452 2009 $7.804 $9.807 16,715 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. MID CAP CORE EQUITY FUND--SERIES II 2004 $10.000 $10.943 2,665 2005 $10.943 $11.528 3,174 2006 $11.528 $12.564 10,458 2007 $12.564 $13.482 12,802 2008 $13.482 $9.442 35,385 2009 $9.442 $12.040 23,028 - -------------------------------------------------------------------------------------------------------------------------- ALGER LARGE CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN LARGECAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.061 13,364 2005 $10.061 $11.038 13,863 2006 $11.038 $11.371 10,863 2007 $11.371 $13.357 10,486 2008 $13.357 $7.044 20,165 2009 $7.044 $10.186 15,504 - -------------------------------------------------------------------------------------------------------------------------- ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS S 2004 $10.000 $10.177 2,386 2005 $10.177 $11.409 39,056 2006 $11.409 $13.328 4,489 2007 $13.328 $17.432 18,890 2008 $17.432 $9.369 12,250 2009 $9.369 $13.864 8,797
143 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------- ALGER MID CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN MIDCAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.584 27,739 2005 $10.584 $11.385 54,020 2006 $11.385 $12.286 5,659 2007 $12.286 $15.837 32,351 2008 $15.837 $6.458 30,915 2009 $6.458 $9.596 15,709 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.174 20,705 2005 $10.174 $10.369 26,325 2006 $10.369 $10.910 19,985 2007 $10.910 $12.338 10,303 2008 $12.338 $8.614 15,530 2009 $8.614 $10.891 13,118 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $11.342 45,341 2005 $11.342 $12.993 144,919 2006 $12.993 $14.218 32,667 2007 $14.218 $16.377 80,603 2008 $16.377 $9.216 102,855 2009 $9.216 $12.260 81,493 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.795 46,651 2005 $10.795 $11.192 93,792 2006 $11.192 $13.182 19,478 2007 $13.182 $13.108 98,411 2008 $13.108 $7.361 102,049 2009 $7.361 $9.388 75,431 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.768 28,770 2005 $9.768 $10.120 55,605 2006 $10.120 $10.592 11,849 2007 $10.592 $13.173 75,363 2008 $13.173 $6.816 71,379 2009 $6.816 $8.565 57,607 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP INDEX 500 PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.624 125,438 2005 $10.624 $10.908 263,983 2006 $10.908 $12.366 43,696 2007 $12.366 $12.772 211,816 2008 $12.772 $7.881 225,131 2009 $7.881 $9.775 188,699
144 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.173 48,708 2005 $10.173 $10.180 101,437 2006 $10.180 $10.410 31,813 2007 $10.410 $10.639 90,643 2008 $10.639 $10.086 138,607 2009 $10.086 $11.437 109,299 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.924 168,709 2005 $9.924 $10.016 228,196 2006 $10.016 $10.291 33,135 2007 $10.291 $10.606 258,815 2008 $10.606 $10.703 280,115 2009 $10.703 $10.560 204,879 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.886 28,247 2005 $10.886 $12.698 49,873 2006 $12.698 $14.687 16,491 2007 $14.687 $16.880 84,356 2008 $16.880 $9.289 71,734 2009 $9.289 $11.514 59,741 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES BALANCED PORTFOLIO--SERVICE SHARES 2004 $10.000 $10.581 10,013 2005 $10.581 $11.187 17,505 2006 $11.187 $12.130 1,999 2007 $12.130 $13.136 14,877 2008 $13.136 $10.828 22,471 2009 $10.828 $13.353 19,202 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.270 27,022 2005 $11.270 $11.758 6,336 2006 $11.758 $13.632 2,516 2007 $13.632 $15.829 6,797 2008 $15.829 $14.875 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FORTY PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.443 1,269 2005 $11.443 $12.649 11,195 2006 $12.649 $13.554 2,354 2007 $13.554 $18.185 13,531 2008 $18.185 $9.944 14,716 2009 $9.944 $14.259 12,938
145 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES MID CAP VALUE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.256 11,610 2005 $11.256 $12.159 21,644 2006 $12.159 $13.740 10,246 2007 $13.740 $14.459 34,280 2008 $14.459 $10.238 42,657 2009 $10.238 $13.363 30,080 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES INTECH RISK-MANAGED CORE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.292 4,773 2005 $11.292 $12.299 28,781 2006 $12.299 $13.379 901 2007 $13.379 $13.943 13,792 2008 $13.943 $8.729 10,922 2009 $8.729 $10.506 5,256 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES 2005 $10.000 $10.940 3,239 2006 $10.940 $13.093 2,462 2007 $13.093 $12.071 12,418 2008 $12.071 $7.596 19,904 2009 $7.596 $7.188 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I 2007 $10.000 $9.479 553 2008 $9.479 $5.904 8,461 2009 $5.904 $7.499 6,476 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON WESTERN ASSET VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO-- CLASS II FORMERLY, LEGG MASON PARTNERS VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II 2004 $10.000 $10.286 17,645 2005 $10.826 $11.008 46,676 2006 $11.008 $11.929 15,302 2007 $11.929 $11.675 47,449 2008 $11.675 $7.924 53,932 2009 $7.924 $12.049 33,607 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I 2007 $10.000 $9.718 10,050 2008 $9.718 $6.144 8,585 2009 $6.144 $7.511 4,311
146 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------- MFS HIGH INCOME SERIES--SERVICE CLASS 2004 $10.000 $10.608 23,363 2005 $10.608 $10.631 20,622 2006 $10.631 $11.483 6,286 2007 $11.483 $11.449 23,290 2008 $11.449 $8.020 27,280 2009 $8.020 $11.438 18,164 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS GROWTH STOCK SERIES--SERVICE CLASS 2004 $10.000 $10.428 1,297 2005 $10.428 $10.673 14,429 2006 $10.673 $11.248 7,739 2007 $11.248 $12.262 18,306 2008 $12.262 $7.588 22,364 2009 $7.588 $10.365 18,949 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS TRUST SERIES--SERVICE CLASS 2004 $10.000 $10.765 1,311 2005 $10.765 $11.314 5,472 2006 $11.314 $12.521 1,693 2007 $12.521 $13.528 3,450 2008 $13.528 $8.867 5,345 2009 $8.867 $11.020 3,217 - ---------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES--SERVICE CLASS 2004 $10.000 $9.903 6,659 2005 $9.903 $10.215 7,704 2006 $10.215 $11.329 2,187 2007 $11.329 $11.374 10,252 2008 $11.374 $6.755 10,509 2009 $6.755 $10.807 13,125 - ---------------------------------------------------------------------------------------------------- MFS TOTAL RETURN SERIES--SERVICE CLASS 2004 $10.000 $10.739 19,818 2005 $10.739 $10.820 51,781 2006 $10.820 $11.861 18,099 2007 $11.861 $12.104 20,247 2008 $12.104 $9.233 26,900 2009 $9.233 $10.674 20,112 - ---------------------------------------------------------------------------------------------------- MFS VALUE SERIES--SERVICE CLASS 2004 $10.000 $11.128 3,382 2005 $11.128 $11.635 5,222 2006 $11.635 $13.770 2,124 2007 $13.770 $14.547 8,826 2008 $14.547 $9.608 4,507 2009 $9.608 $11.553 3,502
147 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MIDCAP FUND/VA--SERVICE SHARES 2005 $10.000 $11.687 7,856 2006 $11.687 $11.787 7,348 2007 $11.787 $12.272 5,022 2008 $12.272 $6.120 7,593 2009 $6.120 $7.949 8,703 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND/VA--SERVICE SHARES 2004 $10.000 $11.343 62,080 2005 $11.343 $12.706 86,497 2006 $12.706 $14.644 10,134 2007 $14.644 $15.254 111,096 2008 $15.254 $8.938 64,672 2009 $8.938 $12.231 44,368 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES 2004 $10.000 $11.277 35,420 2005 $11.277 $12.150 81,846 2006 $12.150 $13.681 11,584 2007 $13.681 $13.246 44,402 2008 $13.246 $8.064 43,930 2009 $8.064 $10.840 31,176 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES 2004 $10.000 $10.339 9,772 2005 $10.339 $10.676 47,366 2006 $10.676 $10.714 8,948 2007 $10.714 $10.902 33,647 2008 $10.902 $10.451 27,562 2009 $10.451 $11.867 25,316 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT MONEY MARKET PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $9.918 158,641 2005 $9.918 $10.009 150,481 2006 $10.009 $10.283 27,607 2007 $10.283 $10.590 32,822 2008 $10.590 $10.634 91,586 2009 $10.634 $10.454 70,508 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT REAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.552 42,470 2005 $10.552 $10.579 122,346 2006 $10.579 $10.462 16,994 2007 $10.462 $11.371 42,156 2008 $11.371 $10.380 41,393 2009 $10.380 $12.068 32,397
148 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------- PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.240 58,540 2005 $10.240 $10.302 76,949 2006 $10.302 $10.507 28,759 2007 $10.507 $11.221 79,939 2008 $11.221 $11.550 109,474 2009 $11.550 $12.939 93,450 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP BALANCED PORTFOLIO 2004 $10.000 $10.772 5,494 2005 $10.772 $10.868 6,958 2006 $10.868 $11.826 560 2007 $11.826 $11.096 7,098 2008 $11.096 $7.499 9,792 2009 $7.499 $7.225 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP RENAISSANCE PORTFOLIO 2004 $10.000 $11.182 31,488 2005 $11.182 $10.484 23,563 2006 $10.484 $11.467 6,181 2007 $11.467 $11.971 12,010 2008 $11.971 $10.815 0 - ------------------------------------------------------------------------------------------------------------------- RYDEX VT ALL-CAP OPPORTUNITY FORMERLY, RYDEX VT SECTOR ROTATION FUND 2004 $10.000 $10.555 418 2005 $10.555 $11.787 4,603 2006 $11.787 $12.893 5,562 2007 $12.893 $15.539 6,080 2008 $15.539 $9.043 13,735 2009 $9.043 $11.304 13,289 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE BLUE CHIP GROWTH PORTFOLIO--II 2004 $10.000 $10.446 6,370 2005 $10.446 $10.837 57,136 2006 $10.837 $11.636 16,451 2007 $11.636 $12.852 54,684 2008 $12.852 $7.238 68,814 2009 $7.238 $10.078 50,583 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE EQUITY INCOME PORTFOLIO--II 2004 $10.000 $11.060 57,291 2005 $11.060 $11.263 110,586 2006 $11.263 $13.123 28,044 2007 $13.123 $13.276 72,693 2008 $13.276 $8.309 93,184 2009 $8.309 $10.220 63,978
149 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE MULTI-MANAGER ALTERNATIVES FUND-CLS I FORMERLY, VAN ECK WORLDWIDE ABSOLUTE RETURN FUND 2004 $10.000 $9.876 1,961 2005 $9.876 $9.719 2,232 2006 $9.719 $10.370 8,505 2007 $10.370 $10.595 5,710 2008 $10.595 $9.042 3,607 2009 $9.042 $10.110 2,562 - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE EMERGING MARKETS FUND 2004 $10.000 $12.055 2,104 2005 $12.055 $15.627 18,780 2006 $15.627 $21.408 5,890 2007 $21.408 $28.927 22,998 2008 $28.927 $10.004 15,749 2009 $10.004 $20.943 10,954 - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE HARD ASSETS FUND 2004 $10.000 $12.403 6,528 2005 $12.403 $18.475 31,637 2006 $18.475 $22.587 59,022 2007 $22.587 $32.238 35,164 2008 $32.238 $17.055 36,260 2009 $17.055 $26.383 36,520 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II 2004 $10.000 $11.066 1,962 2005 $11.066 $12.075 3,009 2006 $12.075 $12.441 3,261 2007 $12.441 $14.367 10,156 2008 $14.367 $7.500 5,141 2009 $7.500 $11.517 10,158 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GOVERNMENT PORTFOLIO, CLASS II 2004 $10.000 $10.145 28,946 2005 $10.145 $10.289 43,426 2006 $10.289 $10.419 5,556 2007 $10.419 $10.948 21,802 2008 $10.948 $10.914 24,600 2009 $10.914 $10.809 15,906 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II 2004 $10.000 $11.037 16,781 2005 $11.037 $11.892 31,692 2006 $11.892 $13.544 12,839 2007 $13.544 $13.635 34,015 2008 $13.635 $9.076 41,700 2009 $9.076 $11.062 31,070
150 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* LOW MORTALITY & EXPENSE = 1.7
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------ UIF CAPITAL GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.340 2,987 2005 $10.340 $11.726 7,296 2006 $11.726 $11.954 1,579 2007 $11.954 $14.281 1,834 2008 $14.281 $7.103 3,770 2009 $7.103 $11.520 5,504 - ------------------------------------------------------------------------------------------------------------------------ UIF U.S. REAL ESTATE PORTFOLIO, CLASS II 2004 $10.000 $12.799 40,344 2005 $12.799 $14.675 59,925 2006 $14.675 $19.841 23,273 2007 $19.841 $16.117 49,639 2008 $16.117 $9.803 52,161 2009 $9.803 $12.369 39,348 - ------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN INTERNATIONAL GROWTH--SERVICE SHARES 2008 $10.000 $6.916 7,352 2009 $6.916 $12.163 7,507
* The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 1.70% and an administrative expense charge of 0.10%. 151 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. BASIC VALUE FUND--SERIES II 2004 $10.000 $10.611 0 2005 $10.611 $10.886 0 2006 $10.886 $11.964 0 2007 $11.964 $11.798 0 2008 $11.798 $5.521 0 2009 $5.521 $7.936 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CAPITAL APPRECIATION FUND--SERIES II 2004 $10.000 $10.175 0 2005 $10.175 $10.750 0 2006 $10.750 $11.094 0 2007 $11.094 $12.059 0 2008 $12.059 $6.732 0 2009 $6.732 $7.907 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. CORE EQUITY FUND--SERIES II 2006 $10.000 $10.700 0 2007 $10.700 $11.230 0 2008 $11.230 $7.613 0 2009 $7.613 $9.481 0 - -------------------------------------------------------------------------------------------------------------------------- AIM V.I. MID CAP CORE EQUITY FUND--SERIES II 2004 $10.000 $10.852 0 2005 $10.852 $11.327 0 2006 $11.327 $12.233 0 2007 $12.233 $13.005 0 2008 $13.005 $9.025 0 2009 $9.025 $11.403 0 - -------------------------------------------------------------------------------------------------------------------------- ALGER LARGE CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN LARGECAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $9.977 0 2005 $9.977 $10.846 0 2006 $10.846 $11.071 0 2007 $11.071 $12.885 0 2008 $12.885 $6.733 0 2009 $6.733 $9.646 0 - -------------------------------------------------------------------------------------------------------------------------- ALGER CAPITAL APPRECIATION PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN CAPITAL APPRECIATION PORTFOLIO--CLASS S 2004 $10.000 $10.092 0 2005 $10.092 $11.210 0 2006 $11.210 $12.977 0 2007 $12.977 $16.815 0 2008 $16.815 $8.955 0 2009 $8.955 $13.130 0
152 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------- ALGER MID CAP GROWTH PORTFOLIO--CLASS S FORMERLY, ALGER AMERICAN MIDCAP GROWTH PORTFOLIO--CLASS S 2004 $10.000 $10.495 0 2005 $10.495 $11.187 0 2006 $11.187 $11.962 0 2007 $11.962 $15.277 0 2008 $15.277 $6.172 0 2009 $6.172 $9.087 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP ASSET MANAGER PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.089 0 2005 $10.089 $10.189 0 2006 $10.189 $10.622 0 2007 $10.622 $11.902 0 2008 $11.902 $8.233 0 2009 $8.233 $10.314 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP CONTRAFUND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $11.247 0 2005 $11.247 $12.767 0 2006 $12.767 $13.843 0 2007 $13.843 $15.798 0 2008 $15.798 $8.809 0 2009 $8.809 $11.611 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP EQUITY-INCOME PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.705 0 2005 $10.705 $10.997 0 2006 $10.997 $12.834 0 2007 $12.834 $12.644 0 2008 $12.644 $7.035 0 2009 $7.035 $8.891 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP GROWTH PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.686 0 2005 $9.686 $9.944 0 2006 $9.944 $10.313 0 2007 $10.313 $12.707 0 2008 $12.707 $6.514 0 2009 $6.514 $8.111 0 - -------------------------------------------------------------------------------------------------------------------- FIDELITY VIP INDEX 500 PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.535 0 2005 $10.535 $10.719 0 2006 $10.719 $12.040 0 2007 $12.040 $12.320 0 2008 $12.320 $7.533 0 2009 $7.533 $9.257 0
153 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP INVESTMENT GRADE BOND PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.088 0 2005 $10.088 $10.002 0 2006 $10.002 $10.136 0 2007 $10.136 $10.263 0 2008 $10.263 $9.641 0 2009 $9.641 $10.831 0 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP MONEY MARKET PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $9.841 0 2005 $9.841 $9.842 0 2006 $9.842 $10.020 0 2007 $10.020 $10.231 0 2008 $10.231 $10.230 0 2009 $10.230 $10.001 0 - ----------------------------------------------------------------------------------------------------------------- FIDELITY VIP OVERSEAS PORTFOLIO--SERVICE CLASS 2 2004 $10.000 $10.795 0 2005 $10.795 $12.477 0 2006 $12.477 $14.299 0 2007 $14.299 $16.284 0 2008 $16.284 $8.878 0 2009 $8.878 $10.904 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES BALANCED PORTFOLIO--SERVICE SHARES 2004 $10.000 $10.493 0 2005 $10.493 $10.992 0 2006 $10.992 $11.810 0 2007 $11.810 $12.672 0 2008 $12.672 $10.349 0 2009 $10.349 $12.646 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FOREIGN STOCK PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.176 0 2005 $11.176 $11.553 0 2006 $11.553 $13.273 0 2007 $13.273 $15.270 0 2008 $15.270 $14.306 0 - ----------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES FORTY PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.348 0 2005 $11.348 $12.429 0 2006 $12.429 $13.197 0 2007 $13.197 $17.542 0 2008 $17.542 $9.505 0 2009 $9.505 $13.504 0
154 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS MID CAP VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES MID CAP VALUE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.162 0 2005 $11.162 $11.948 0 2006 $11.948 $13.378 0 2007 $13.378 $13.948 0 2008 $13.948 $9.785 0 2009 $9.785 $12.655 0 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN SERIES INTECH RISK-MANAGED CORE PORTFOLIO--SERVICE SHARES 2004 $10.000 $11.198 0 2005 $11.198 $12.085 0 2006 $12.085 $13.026 0 2007 $13.026 $13.450 0 2008 $13.450 $8.343 0 2009 $8.343 $9.949 0 - -------------------------------------------------------------------------------------------------------------------------- JANUS ASPEN PERKINS SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN SERIES SMALL COMPANY VALUE PORTFOLIO--SERVICE SHARES 2005 $10.000 $10.873 0 2006 $10.873 $12.894 0 2007 $12.894 $11.777 0 2008 $11.777 $7.343 0 2009 $7.343 $6.927 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE FUNDAMENTAL VALUE PORTFOLIO--CLASS I 2007 $10.000 $9.420 0 2008 $9.420 $5.813 0 2009 $5.813 $7.316 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON WESTERN ASSET VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO-- CLASS II FORMERLY, LEGG MASON PARTNERS VARIABLE GLOBAL HIGH YIELD BOND PORTFOLIO--CLASS II 2004 $10.000 $10.735 0 2005 $10.735 $10.817 0 2006 $10.817 $11.614 0 2007 $11.614 $11.262 0 2008 $11.262 $7.573 0 2009 $7.573 $11.411 0 - -------------------------------------------------------------------------------------------------------------------------- LEGG MASON CLEARBRIDGE VARIABLE INVESTORS PORTFOLIO--CLASS I FORMERLY, LEGG MASON PARTNERS VARIABLE INVESTORS PORTFOLIO--CLASS I 2007 $10.000 $9.658 0 2008 $9.658 $6.049 0 2009 $6.049 $7.328 0
155 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ---------------------------------------------------------------------------------------------------- MFS HIGH INCOME SERIES--SERVICE CLASS 2004 $10.000 $10.519 0 2005 $10.519 $10.446 0 2006 $10.446 $11.180 0 2007 $11.180 $11.044 0 2008 $11.044 $7.666 0 2009 $7.666 $10.832 0 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS GROWTH STOCK SERIES--SERVICE CLASS 2004 $10.000 $10.341 0 2005 $10.341 $10.488 0 2006 $10.488 $10.951 0 2007 $11.964 $11.798 0 2008 $11.798 $7.252 0 2009 $7.252 $9.815 0 - ---------------------------------------------------------------------------------------------------- MFS INVESTORS TRUST SERIES--SERVICE CLASS 2004 $10.000 $10.675 0 2005 $10.675 $11.117 0 2006 $11.117 $12.191 0 2007 $10.951 $11.828 0 2008 $11.828 $8.475 0 2009 $8.475 $10.436 0 - ---------------------------------------------------------------------------------------------------- MFS NEW DISCOVERY SERIES--SERVICE CLASS 2004 $10.000 $9.821 0 2005 $9.821 $10.037 0 2006 $10.037 $11.030 0 2007 $11.030 $10.972 0 2008 $10.972 $6.456 0 2009 $6.456 $10.234 0 - ---------------------------------------------------------------------------------------------------- MFS TOTAL RETURN SERIES--SERVICE CLASS 2004 $10.000 $10.649 0 2005 $10.649 $10.631 0 2006 $10.631 $11.548 0 2007 $11.548 $11.676 0 2008 $11.676 $8.825 0 2009 $8.825 $10.109 0 - ---------------------------------------------------------------------------------------------------- MFS VALUE SERIES--SERVICE CLASS 2004 $10.000 $11.036 0 2005 $11.036 $11.433 0 2006 $11.433 $13.407 0 2007 $13.407 $14.033 0 2008 $14.033 $9.183 0 2009 $9.183 $10.941 0
156 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MIDCAP FUND/VA--SERVICE SHARES 2005 $10.000 $11.615 0 2006 $11.615 $11.607 0 2007 $11.607 $11.974 0 2008 $11.974 $5.917 0 2009 $5.917 $7.614 0 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER GLOBAL SECURITIES FUND/VA--SERVICE SHARES 2004 $10.000 $11.249 0 2005 $11.249 $12.485 0 2006 $12.485 $14.258 0 2007 $14.258 $14.715 0 2008 $14.715 $8.542 0 2009 $8.542 $11.583 0 - ------------------------------------------------------------------------------------------------------------- OPPENHEIMER MAIN STREET SMALL CAP FUND/VA--SERVICE SHARES 2004 $10.000 $11.183 0 2005 $11.183 $11.939 0 2006 $11.939 $13.320 0 2007 $13.320 $12.778 0 2008 $12.778 $7.708 0 2009 $7.708 $10.265 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT FOREIGN BOND PORTFOLIO (U.S. DOLLAR-HEDGED)-- ADMINISTRATIVE SHARES 2004 $10.000 $10.252 0 2005 $10.252 $10.490 0 2006 $10.490 $10.431 0 2007 $10.431 $10.517 0 2008 $10.517 $9.989 0 2009 $9.989 $11.239 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT MONEY MARKET PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $9.835 0 2005 $9.835 $9.835 0 2006 $9.835 $10.012 0 2007 $10.012 $10.215 0 2008 $10.215 $10.164 0 2009 $10.164 $9.900 0 - ------------------------------------------------------------------------------------------------------------- PIMCO VIT REAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.464 0 2005 $10.464 $10.395 0 2006 $10.395 $10.186 0 2007 $10.186 $10.969 0 2008 $10.969 $9.921 0 2009 $9.921 $11.429 0
157 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------- PIMCO VIT TOTAL RETURN PORTFOLIO--ADMINISTRATIVE SHARES 2004 $10.000 $10.155 0 2005 $10.155 $10.122 0 2006 $10.122 $10.230 0 2007 $10.230 $10.824 0 2008 $10.824 $11.040 0 2009 $11.040 $12.254 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP BALANCED PORTFOLIO 2004 $10.000 $10.706 0 2005 $10.706 $10.703 0 2006 $10.703 $11.539 0 2007 $11.539 $10.728 0 2008 $10.728 $7.183 0 2009 $7.183 $6.901 0 - ------------------------------------------------------------------------------------------------------------------- PREMIER VIT OPCAP RENAISSANCE PORTFOLIO 2004 $10.000 $11.089 0 2005 $11.089 $10.302 0 2006 $10.302 $11.164 0 2007 $11.164 $11.548 0 2008 $11.548 $10.428 0 - ------------------------------------------------------------------------------------------------------------------- RYDEX VT ALL-CAP OPPORTUNITY FORMERLY, RYDEX VT SECTOR ROTATION FUND 2004 $10.000 $10.467 0 2005 $10.467 $11.582 0 2006 $11.582 $12.553 0 2007 $12.553 $14.990 0 2008 $14.990 $8.643 0 2009 $8.643 $10.705 0 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE BLUE CHIP GROWTH PORTFOLIO--II 2004 $10.000 $10.359 0 2005 $10.359 $10.649 0 2006 $10.649 $11.329 0 2007 $11.329 $12.398 0 2008 $12.398 $6.918 0 2009 $6.918 $9.544 0 - ------------------------------------------------------------------------------------------------------------------- T. ROWE PRICE EQUITY INCOME PORTFOLIO--II 2004 $10.000 $10.968 0 2005 $10.968 $11.067 0 2006 $11.067 $12.777 0 2007 $12.777 $12.807 0 2008 $12.807 $7.942 0 2009 $7.942 $9.678 0
158 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE MULTI-MANAGER ALTERNATIVES FUND-CLS I FORMERLY, VAN ECK WORLDWIDE ABSOLUTE RETURN FUND 2004 $10.000 $9.794 0 2005 $9.794 $9.549 0 2006 $9.549 $10.097 0 2007 $10.097 $10.221 0 2008 $10.221 $8.642 0 2009 $8.642 $9.575 0 - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE EMERGING MARKETS FUND 2004 $10.000 $11.955 0 2005 $11.955 $15.355 0 2006 $15.355 $20.843 0 2007 $20.843 $27.905 0 2008 $27.905 $9.562 0 2009 $9.562 $19.834 0 - --------------------------------------------------------------------------------------------------------------------- VAN ECK WORLDWIDE HARD ASSETS FUND 2004 $10.000 $12.300 0 2005 $12.300 $18.154 0 2006 $18.154 $21.992 0 2007 $21.992 $31.099 0 2008 $31.099 $16.301 0 2009 $16.301 $24.986 0 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT MID CAP GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.973 0 2005 $10.973 $11.864 0 2006 $11.864 $12.113 0 2007 $12.113 $13.859 0 2008 $13.859 $7.169 0 2009 $7.169 $10.907 0 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GOVERNMENT PORTFOLIO, CLASS II 2004 $10.000 $10.061 0 2005 $10.061 $10.110 0 2006 $10.110 $10.144 0 2007 $10.144 $10.561 0 2008 $10.561 $10.431 0 2009 $10.431 $10.237 0 - --------------------------------------------------------------------------------------------------------------------- VAN KAMPEN LIT GROWTH AND INCOME PORTFOLIO, CLASS II 2004 $10.000 $10.945 0 2005 $10.945 $11.685 0 2006 $11.685 $13.187 0 2007 $13.187 $13.153 0 2008 $13.153 $8.675 0 2009 $8.675 $10.476 0
159 PROSPECTUS CONSULTANT SOLUTIONS VARIABLE ANNUITIES: LBL CONSULTANT SOLUTION SELECT CONTRACTS--PROSPECTUS ACCUMULATION UNIT VALUE AND NUMBER OF ACCUMULATION UNITS OUTSTANDING FOR EACH VARIABLE SUB-ACCOUNT* HIGH MORTALITY & EXPENSE = 2.6
Number of Accumulation Accumulation Units For the Year Unit Value Unit Value Outstanding Ending at Beginning at End at End Sub-Accounts December 31 of Period of Period of Period - ------------------------------------------------------------------------------------------------------------------------ UIF CAPITAL GROWTH PORTFOLIO, CLASS II 2004 $10.000 $10.254 0 2005 $10.254 $11.522 0 2006 $11.522 $11.639 0 2007 $11.639 $13.776 0 2008 $13.776 $6.789 0 2009 $6.789 $10.909 0 - ------------------------------------------------------------------------------------------------------------------------ UIF U.S. REAL ESTATE PORTFOLIO, CLASS II 2004 $10.000 $12.693 0 2005 $12.693 $14.420 0 2006 $14.420 $19.318 0 2007 $19.318 $15.547 0 2008 $15.547 $9.370 0 2009 $9.370 $11.714 0 - ------------------------------------------------------------------------------------------------------------------------ JANUS ASPEN OVERSEAS PORTFOLIO--SERVICE SHARES FORMERLY, JANUS ASPEN INTERNATIONAL GROWTH--SERVICE SHARES 2008 $10.000 $6.611 0 2009 $6.611 $11.518 0
* The Accumulation Unit Values in this table reflect a mortality and expense risk charge of 2.60% and an administrative expense charge of 0.10%. 160 PROSPECTUS LBL6535-4 [LOGO] PART II INFORMATION NOT REQUIRED IN PROSPECTUS Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. Registrant anticipates that it will incur the following approximate expenses in connection with the issuance and distribution of the securities to be registered: Registration fees.....................................................$ 0 Cost of printing and engraving........................................$ 4,000.00 Legal fees............................................................$ 0 Accounting fees.......................................................$ 3,000 Mailing fees..........................................................$ 6,500.00 Item 14. Indemnification of Directors and Officers The Articles of Incorporation of Lincoln Benefit Life Company (Registrant) provide for the indemnification of its directors and officers against expenses, judgments, fines and amounts paid in settlement as incurred by such person, so long as such person shall not have been adjudged to be liable for negligence or misconduct in the performance of a duty to the Company. This right of indemnity is not exclusive of other rights to which a director or officer may otherwise be entitled. The By-Laws of ALFS, Inc. (Distributor) provide that the corporation will indemnify a director, officer, employee or agent of the corporation to the full extent of Delaware law. In general, Delaware law provides that a corporation may indemnify a director, officer, employee or agent against expenses, judgments, fines and amounts paid in settlement if that individual acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. No indemnification shall be made for expenses, including attorney's fees, if the person shall have been judged to be liable to the corporation unless a court determines such person is entitled to such indemnity. Expenses incurred by such individual in defending any action or proceeding may be advanced by the corporation so long as the individual agrees to repay the corporation if it is later determined that he or she is not entitled to such indemnification. Under the terms of the form of Underwriting Agreement, the Registrant agrees to indemnify the Distributor for any liability that the latter may incur to a Contract owner or party-in-interest under a Contract, (a) arising out of any act or omission in the course of or in connection with rendering services under such Agreement, or (b) arising out of the purchase, retention or surrender of a Contract; provided that the Registrant will not indemnify the Distributor for any such liability that results from the latter's willful misfeasance, bad faith or gross negligence, or from the reckless disregard by the latter of its duties and obligations under the Underwriting Agreement. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the forgoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suite or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. ITEM 15 RECENT SALES OF UNREGISTERED SECURITIES During the period beginning on December 1, 2008 and ending on March 26, 2009, the Registrant inadvertently sold participating interests in existing deferred annuity contracts pursuant to registration statements on Form S-3 that were not in compliance with Rule 415(a)(5) under the Securities Act of 1933. The aggregate amount of securities sold was $13,933,172. Purchasers, however, did receive all material information relating to the security prior to sale, including the prospectus from the existing registration statement. When the technical violation was discovered, the Registrant filed new registration statements on Form S-3 with the Commission to comply with the requirements of Rule 415(a)(5) for continuous offering. These registration statements were declared effective on March 27, 2009 (SEC File Nos. 333-158172, 333-158176, 333- 158180, 333-158181, 333-158192). Although the legal effect of a violation of Rule 415(a)(5) is not entirely clear, the Registrant may have been deemed to have inadvertently sold unregistered securities during the time period noted above. New procedures have been implemented to ensure timely submission of future registration statement filings. ITEM 16 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 16(a) Exh. No. Description - -------- ---------------------------------------------------------------------- 1 Principal Underwriting Agreement. Incorporated herein by reference to Post-Effective Amendment No. 1 to the Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account (File No. 333- 50545, 811-07924) filed January 28, 1999 3(i) Amended and Restated Articles of Incorporation of Lincoln Benefit Life Company dated September 26, 2000. Incorporated herein by reference to Exhibit 3(i) to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended March 31, 2002. (SEC File No. 333-111553) 3(ii) Amended and Restated By-Laws of Lincoln Benefit Life Company effective March 10, 2006. Incorporated herein by reference to Exhibit 3.2 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. (SEC File No. 333-111553) 4 (a) Form of Variable Annuity Contract. Incorporated herein by reference to the Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account (File No. 333-109688, 811-07924) filed October 14, 2003 4 (b) Form of Application. Incorporated herein by reference to the Registration Statement on Form N-4 for Lincoln Benefit Life Variable Annuity Account (File No. 333-109688, 811-07924) filed October 14, 2003 5 (a) Opinion and Consent of Counsel Regarding Legality. Incorporated herein by reference to the Registration Statement on Form S-3 for Lincoln Benefit Life Company (File No. 333-111553) filed December 24, 2003. 5 (b) Opinion and Consent of Counsel Regarding Legality. Opinion of General Counsel Re: Legality (Incorporated herein by reference to Registrant's Form S-3 Registration Statement (File No. 333-158176) dated March 24, 2009) 8 None 9 None 10 Material Contracts 10.1 Form of Investment Management Agreement among Allstate Investments, LLC, Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2007. Incorporated herein by reference to Exhibit 10.12 to Allstate Life Insurance Company's Annual Report on Form 10-K for 2007. (SEC File No. 000-31248) 10.2 Form of Tax Sharing Agreement among The Allstate Corporation and certain affiliates dated as of November 12, 1996. Incorporated herein by reference to Exhibit 10.24 to Allstate Life Insurance Company's Annual Report on Form 10-K for 2007. (SEC File No. 000-31248) 10.3 Supplemental Intercompany Tax Sharing Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company effective December 21, 2000. Incorporated herein by reference to Exhibit 10.3 to Lincoln Benefit Life Company's Annual Report on Form 10-K for the year ended December 31, 2009. (SEC File No. 333-111553) 10.4 Cash Management Services Master Agreement between Allstate Insurance Company and Allstate Bank (aka Allstate Federal Savings Bank) dated March 16, 1999. Incorporated herein by reference to Exhibit 10.4 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended March 31, 2002. (SEC File No. 333-111553) 10.5 Amendment No.1 to Cash Management Services Master Agreement effective January 5, 2001. Incorporated herein by reference to Exhibit 10.5 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended March 31, 2002. (SEC File No. 333-111553) 10.6 Amendment No. 2 entered into November 8, 2002 to the Cash Management Services Master Agreement between Allstate Insurance Company, Allstate Bank and Allstate Motor Club, Inc. dated March 16, 1999. Incorporated herein by reference to Exhibit 10.19 to Allstate Life Insurance Company's Annual Report on Form 10-K filed for 2007. (SEC File No. 000-31248) 10.7 Premium Depository Service Supplement dated as of September 30, 2005 to Cash Management Services Master Agreement between Allstate Insurance Company, Allstate Bank, Allstate Motor Club, Inc. and certain other parties. Incorporated herein by reference to Exhibit 10.20 to Allstate Life Insurance Company's Annual Report on Form 10-K filed for 2007. (SEC File No. 000-31248) 10.8 Variable Annuity Service Supplement dated November 10, 2005 to Cash Management Services Agreement between Allstate Bank, Allstate Life Insurance Company of New York and certain other parties. Incorporated herein by reference to Exhibit 10.21 to Allstate Life Insurance Company's Annual Report on Form 10-K filed for 2007. (SEC File No. 000-31248) 10.9 Sweep Agreement Service Supplement dated as of October 11, 2006 to Cash Management Services Master Agreement between Allstate Life Insurance Company, Allstate Bank, Allstate Motor Club, Inc. and certain other companies. Incorporated herein by reference to Exhibit 10.22 to Allstate Life Insurance Company's Annual Report on Form 10-K filed for 2007. (SEC File No. 000-31248) 10.10 Form of Amended and Restated Service and Expense Agreement between Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2004. Incorporated herein by reference to Exhibit 10.1 to Allstate Life Insurance Company's Annual Report on Form 10-K for 2007. (SEC File No. 000-31248) 10.11 Form of Amendment No. 1 to Amended and Restated Service and Expense Agreement between Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2009. Incorporated herein by reference to Exhibit 10.1 to Allstate Life Insurance Company's Current Report on Form 8-K filed February 17, 2010. (SEC File No. 000- 31248) 10.12 Administrative Services Agreement between Lincoln Benefit Life Company and Allstate Life Insurance Company effective June 1, 2006. Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. (SEC File No. 333-111553) 10.13 Principal Underwriting Agreement between Lincoln Benefit Life Company and ALFS, Inc., effective November 25, 1998. (Variable Universal Life Account). Incorporated herein by reference to Exhibit 10.6 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-111553) 10.14 Amended and Restated Principal Underwriting Agreement between Lincoln Benefit Life Company and ALFS, Inc. effective June 1, 2006. Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit Life Company's Current Report on Form 8-K filed December 20, 2007. (SEC File No. 333-111553) 10.15 Selling Agreement between Lincoln Benefit Life Company, ALFS, Inc. (f/k/a Allstate Financial Services, Inc.) and Allstate Financial Services, LLC (f/k/a LSA Securities, Inc.) effective August 2, 1999. Incorporated herein by reference to Exhibit 10.8 to Allstate Life Insurance Company's Annual Report on Form 10-K for 2003. (SEC File No. 000-31248) 10.16 Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.11 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-111553) 10.17 Modified Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.12 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-111553) 10.18 Modified Coinsurance Agreement between Allstate Life Insurance Company and Lincoln Benefit Life Company, effective December 31, 2001. Incorporated herein by reference to Exhibit 10.13 to Lincoln Benefit Life Company's Quarterly Report on Form 10-Q for quarter ended June 30, 2002. (SEC File No. 333-111553) 10.19 Intercompany Loan Agreement among The Allstate Corporation, Allstate Life Insurance Company, Lincoln Benefit Life Company and other certain subsidiaries of The Allstate Corporation dated February 1, 1996. Incorporated herein by reference to Exhibit 10.24 of Allstate Life Insurance Company's Annual Report on Form 10-K for 2006. (SEC File No. 000-31248) 10.20 Form of Service Agreement between Lincoln Benefit Life Company and Allstate Assignment Company effective June 25, 2001. Incorporated herein by reference to Exhibit 10.22 of Lincoln Benefit Life Company's Annual Report on Form 10-K for 2007. (SEC File No. 333-111553) 10.21 First Amendment to Service Agreement between Lincoln Benefit Life Company and Allstate Assignment Company effective December 1, 2007. Incorporated herein by reference to Exhibit 10.23 of Lincoln Benefit Life Company's Annual Report on Form 10-K for 2007. (SEC File No. 333-111553) 10.22 Agreement for the Settlement of State and Local Tax Credits among Allstate Insurance Company and certain affiliates effective January 1, 2007. Incorporated herein by reference to Exhibit 10.1 to Lincoln Benefit Life Company's Current Report on Form 8-K filed February 21, 2008. (SEC File No. 333-111553) 10.23 Administrative Services Agreement between ALFS, Inc., Allstate Life Insurance Company, Lincoln Benefit Life Company and Charter National Life Insurance Company effective January 1, 2000. Incorporated herein by reference to Exhibit 10.22 to Lincoln Benefit Life Company's Annual Report on Form 10-K for the year ended December 31, 2008. (SEC File No. 333-111553) 11 None 12 None 15 Not applicable. 16 Letter re change in certifying accountant. Not Applicable. 21 Subsidiaries of the registrant. Not applicable. 23 Consent of Independent Registered Public Accounting Firm. Filed herewith. 24(a) Powers of Attorney for Lawrence W. Dahl, Matthew S. Easley, Susan L. Lees, Samuel H. Pilch, and John Pintozzi. Incorporated herein by reference to the Registration Statement on Form S-3 File No. 333- 158172 dated March 24, 2009. 24(b) Power of Attorney for Matthew E. Winter. Filed herewith. 16(b) Financial statement schedules required by Regulation S-X (17 CFR Part 210) and Item 11(e) of Form S-1 are included in Part I. Item 17. Undertakings. (a)The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. Provided, however, that the undertakings set forth in paragraphs (i), (ii) and (iii) above do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the Registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in this registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is part of this registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use. (5) That, for the purpose of determining liability of the Registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities: The undersigned Registrant undertakes that in a primary offering of securities of the undersigned Registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned Registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser: (i) Any preliminary prospectus or prospectus of the undersigned Registrant relating to the offering required to be filed pursuant to Rule 424; (ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned Registrant or used or referred to by the undersigned Registrant; (iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned Registrant or its securities provided by or on behalf of the undersigned Registrant; and (iv) Any other communication that is an offer in the offering made by the undersigned Registrant to the purchaser. Insofar as indemnification for liabilities arising under the Securities Act of 1933 ("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, officers 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. SIGNATURES As required by the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Lincoln and State of Nebraska on April 14, 2010. LINCOLN BENEFIT LIFE COMPANY (Registrant) * By: /s/ Susan L. Lees ---------------------------------- Susan L. Lees Director, Senior Vice President, General Counsel and Secretary Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons and in the capacities indicated on April 14, 2010. (Signature) (Title)
(Signature) (Title) - ------------------------------------- ---------------------------------------- */ Lawrence W. Dahl Director, President and Chief Operating Officer - ------------------------------------- Lawrence W. Dahl */ Matthew S. Easley Director and Senior Vice President - ------------------------------------- Matthew S. Easley /s/ Susan L. Lees Director, Senior Vice President, - ------------------------------------- General Counsel and Secretary Susan L. Lees */ Samuel H. Pilch Group Vice President and Controller - ------------------------------------- Samuel H. Pilch */ John C. Pintozzi Director, Senior Vice President and - ------------------------------------- Chief Financial Officer John C. Pintozzi */ Matthew E. Winter Director, Chief Executive Officer and - ------------------------------------- Chairman of the Board Matthew E. Winter
*By Susan L. Lees, pursuant to Power of Attorney. EXHIBITS Exhibit No. Description (23) Consent of Independent Registered Public Accounting Firm 24(b) Power of Attorney for Matthew E. Winter EX-23 2 dex23.txt CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM. CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the use in this Post-Effective Amendment No. 2 to Registration Statement No. 333-158172 on Form S-1 of our report dated March 12, 2010 relating to the financial statements and financial statement schedules of Lincoln Benefit Life Company (which report expresses an unqualified opinion and includes an explanatory paragraph relating to a change in recognition and presentation for other-than-temporary impairments of debt securities in 2009), appearing in the Prospectus, which is part of this Registration Statement, and to the reference to us under the heading "Experts" in such Other Information. /s/ Deloitte & Touche LLP Chicago, Illinois April 14, 2010 EX-24.(B) 3 dex24b.txt POWER OF ATTORNEY Exhibit 24(b) DURABLE POWER OF ATTORNEY WITH RESPECT TO LINCOLN BENEFIT LIFE COMPANY (REGISTRANT) The undersigned Director, Chairman of the Board and Chief Executive Officer of Lincoln Benefit Life Company constitutes and appoints Susan L. Lees, as his true and lawful attorney-in-fact and agent, in any and all capacities, to sign the following registration statements: File No. 333-158172, 333-158192, 333-158180, 333-158181, of Lincoln Benefit Life Company, and any amendments thereto, and to file the same, with exhibits and other documents in connection therewith, with the Securities and Exchange Commission or any other regulatory authority as may be necessary or desirable. I hereby ratify and confirm each and every act that said attorney-in-fact and agent may lawfully do or cause to be done by virtue hereof. My subsequent disability or incapacity shall not affect this Power of Attorney. April 7, 2010 /s/ Matthew E. Winter - ----------------------------------- Matthew E. Winter Director, Chairman of the Board and Chief Executive Officer -----END PRIVACY-ENHANCED MESSAGE-----