As filed with the Securities and Exchange Commission on May 1, 2000
Registration No. 33-97852
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Post-Effective Amendment No. 6
-----------------
SOUTHLAND SEPARATE ACCOUNT L1
(Exact Name of Trust)
SOUTHLAND LIFE INSURANCE COMPANY
(Name of Depositor)
5780 Powers Ferry Road, N.W.
Atlanta, GA 30340
(Address of Depositor's Principal Executive Offices)
Copy to:
GARY W. WAGGONER, ESQ. KIMBERLY J. SMITH, ESQ.
Security Life of Denver Insurance Company Sutherland Asbill & Brennan LLP
1290 Broadway 1275 Pennsylvania Avenue, NW
Denver, Colorado 80203-5699 Washington, D.C. 20004-2415
(202) 383-0314
(Name and Address of Agent for Service)
----------------------------
It is proposed that this filing will become effective:
___ on ____________, 2000 pursuant to paragraph (a) of Rule 485
___ 60 days after filing pursuant to paragraph (a) of Rule 485
_x_ on May 1, 2000 pursuant to paragraph (b) of Rule 485
___ immediately upon filing pursuant to paragraph (b) of Rule 485
___ this post-effective amendment designates a new effective date
for a previously filed post-effective amendment
Title of securities being registered: Variable life insurance policies.
<PAGE>
SOUTHLAND SEPARATE ACCOUNT L1 (File No. 33-97852)
Cross-Reference Table
Form N-8B-2 Item No. Caption in Prospectus
1, 2 Cover; Southland Life Insurance Company;
Southland Separate Account L1
3 Inapplicable
4 Southland Life Insurance Company
5, 6 Southland Separate Account L1
7 Inapplicable
8 Financial Statements
9 Inapplicable
10(a), (b), (c), (d), (e) Policy Summary; Policy Values; Determining Values
in the Variable Subaccounts; Charges, Deductions
and Refunds; Surrender; Partial Withdrawals; The
Guaranteed Interest Account; Transfers of Account
Value; Right to Exchange Policy; Lapse;
Reinstatement; Premiums
10(f) Voting Privileges; Right to Change Operations
10(g), (h) Right to Change Operations
10(i) Tax Considerations; Detailed Information about the
Policy; General Policy Provisions; The Guaranteed
Interest Account
11, 12 Southland Separate Account L1
13 Policy Summary; Charges, Deductions and Refunds;
Group or Sponsored Arrangements, or Corporate
Purchasers
ii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
14, 15 Policy Summary; Free Look Period; General Policy
Provisions; Applying for a Policy
16 Premiums; Allocation of Net Premiums; How We
Calculate Accumulation Unit Values
17 Premium Payments Affect Your Coverage;
Surrender; Partial Withdrawals
18 Policy Summary; Tax Considerations; Detailed
Information about the Policy; Southland Separate
Account L1; Persistency Refund
19 Reports to Owners; Notification and Claims
Procedures; Performance Information (Appendix B)
20 See 10(g) & 10(a)
21 Policy Loans
22 Policy Summary; Premiums; Grace Period; Southland
Separate Account L1; Detailed Information
about the Policy
23 Inapplicable
24 Inapplicable
25 Southland Life Insurance Company
26 Inapplicable
27, 28, 29, 30 Southland Life Insurance Company
31, 32, 33, 34 Inapplicable
35 Inapplicable
36 Inapplicable
iii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
37 Inapplicable
38, 39, 40, 41(a) General Policy Provisions; Distribution of
the Policies; Southland Life Insurance Company
41(b), 41(c), 42, 43 Inapplicable
44 Determining Values in the Variable Subaccounts;
How We Calculate Accumulation Unit Values
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the Policy
52 Determining Values in the Variable Subaccounts;
Right to Change Operations
53(a) Tax Considerations
53(b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
iv
<PAGE>
Prospectus
FUTURE DIMENSIONS
A FLEXIBLE PREMIUM ADJUSTABLE COMBINATION FIXED
AND VARIABLE UNIVERSAL LIFE INSURANCE POLICY
issued by
SOUTHLAND LIFE INSURANCE COMPANY
AND
SOUTHLAND SEPARATE ACCOUNT L1
Consider carefully the policy charges, deductions, and refunds beginning on page
44 in this prospectus.
You should read this prospectus and keep it for future reference. A prospectus
for each underlying fund portfolio must accompany and should be read together
with this prospectus.
This policy is not available in all jurisdictions. This policy is not offered in
any jurisdiction where this type of offering is not legal. Depending on the
state where it is issued, policy features may vary. You should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information that is different.
Replacing your existing life insurance policy(ies) with this policy may not be
beneficial to you.
YOUR POLICY
o is a flexible premium adjustable combination fixed and variable life
insurance policy;
o is issued by Southland Life Insurance Company;
o is guaranteed not to lapse during the first three policy years if you
meet certain requirements; and
o is returnable by you during the free look period if you are not
satisfied.
YOUR POLICY PREMIUM PAYMENTS
o are flexible, so the premium amount and frequency may vary;
o are allocated to variable investment subaccounts and the guaranteed
interest account, based on your instructions;
o are invested in shares of the underlying investment portfolios under
each variable subaccount; and
o can be invested in as many as eighteen investment options over the
policy's lifetime.
YOUR ACCOUNT VALUE
o is the sum of your holdings in the variable subaccounts, the
guaranteed interest account and the loan account;
o has no guaranteed minimum value under the variable subaccounts. The
value varies with the value of the underlying investment portfolio;
o has a minimum guaranteed rate of return if you have allocated for
amounts in the guaranteed interest account; and
o is subject to specified expenses and charges, including possible
surrender charges.
DEATH PROCEEDS
o are paid if the policy is in force when the insured person dies;
o are equal to the death benefit minus an outstanding policy loan,
accrued loan interest and unpaid charges incurred before the
insured person dies;
o are calculated under your choice of options;
* Option A- a stated death benefit;
* Option B- a stated death benefit plus your account value; and
o are generally not federally income taxed if your policy continues to
meet the federal income tax definition of life insurance.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS LIFE INSURANCE POLICY IS NOT A BANK DEPOSIT OR OBLIGATION, FEDERALLY
INSURED OR BACKED BY ANY BANK OR GOVERNMENT AGENCY.
DATE OF PROSPECTUS: MAY 1, 2000
<PAGE>
<TABLE>
<S> <C> <C>
ISSUED BY: ADMINISTERED BY: UNDERWRITTEN BY:
Southland Life Insurance Southland Customer Service ING America Equities, Inc.
Company Center P. O. Box 173789
P.O. Box 173789 P.O. Box 173789 Denver, CO 80217-3789
Denver, CO 80217-3789 Denver, CO 80217-3789
(800) 224-3035
------------------------------------
THROUGH ITS: FOR OVERNIGHT DELIVERY:
Southland Separate Account L1 1290 Broadway
Denver, CO 80203
</TABLE>
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Future Dimensions 2
<PAGE>
TABLE OF CONTENTS
POLICY SUMMARY.................................................................4
Your Policy..............................................................4
Free Look Period ........................................................4
Premium Payments.........................................................4
Charges and Deductions...................................................4
Variable Subaccounts.....................................................6
Fees and Expenses of the Investment Portfolios
...................................................................6
Policy Values............................................................8
Transfers of Account Value...............................................8
Special Policy Features..................................................8
Policy Modification, Termination and
Continuation Features...............................................9
Death Benefits...........................................................9
Tax Considerations......................................................10
SOUTHLAND, THE SEPARATE ACCOUNT
AND THE INVESTMENT OPTIONS..............................................12
Southland Life Insurance Company........................................12
Southland Separate Account L1...........................................12
Investment Portfolio Objectives.........................................13
The Guaranteed Interest Account.........................................17
Maximum Number of Investment Options....................................18
DETAILED INFORMATION ABOUT THE
POLICY..................................................................18
Applying for a Policy...................................................18
Temporary Insurance.....................................................18
Policy Issuance.........................................................19
Premiums................................................................19
Premium Payments Affect Your Coverage...................................21
Death Benefits..........................................................21
Riders..................................................................27
Special Features........................................................29
Policy Values...........................................................30
Transfers of Account Value..............................................31
Dollar Cost Averaging...................................................32
Automatic Rebalancing...................................................33
Policy Loans............................................................34
Partial Withdrawals.....................................................35
Lapse...................................................................36
Reinstatement...........................................................37
Surrender...............................................................38
General Policy Provisions...............................................38
Administrative Information About the Policy.............................42
CHARGES, DEDUCTIONS AND REFUNDS
.......................................................................44
Deductions from Premiums................................................44
Policy Transaction Fees.................................................46
Persistency Refund......................................................47
Surrender Charge........................................................47
Group or Sponsored Arrangements, or Corporate
Purchasers.........................................................50
TAX CONSIDERATIONS............................................................51
Tax Status of the Policy................................................51
Diversification Requirements............................................51
Tax Treatment of Policy Death Benefits..................................52
Modified Endowment Contracts............................................52
Multiple Policies.......................................................52
Distributions Other than Death Benefits from
Modified Endowment Contracts.......................................52
Distributions Other than Death Benefits from
Policies That Are Not Modified Endowment
Contracts..........................................................53
Investment in the Policy................................................53
Policy Loans............................................................53
Section 1035 Exchanges..................................................53
Tax-exempt Policy Owners................................................53
Possible Tax Law Changes................................................53
Changes to Comply with the Law..........................................53
Other...................................................................54
ILLUSTRATIONS.................................................................55
ADDITIONAL INFORMATION........................................................59
Directors and Officers..................................................59
Regulation..............................................................60
Legal Matters...........................................................60
Legal Proceedings.......................................................60
Experts.................................................................60
Registration Statement..................................................60
FINANCIAL STATEMENTS..........................................................61
APPENDIX A...................................................................144
APPENDIX B...................................................................145
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Future Dimensions 3
<PAGE>
POLICY SUMMARY
YOUR POLICY
Your policy provides life insurance protection on the insured person. The policy
includes the basic policy, applications, and riders, amendments or endorsements.
As long as the policy remains in force, we pay a death benefit at the death of
the insured person. While your policy is in force, you may access a portion of
your policy value by taking loans or partial withdrawals. You may surrender your
policy for its net cash surrender value. At the policy anniversary nearest the
insured person's 100th birthday you may surrender your policy or continue it
under the continuation of coverage option. SEE CONTINUATION OF COVERAGE, PAGE
29.
LIFE INSURANCE IS NOT A SHORT-TERM INVESTMENT. YOU SHOULD EVALUATE YOUR NEED FOR
LIFE INSURANCE COVERAGE AND THIS POLICY'S LONG-TERM INVESTMENT POTENTIAL AND
RISKS BEFORE PURCHASING A POLICY.
FREE LOOK PERIOD
Within limits as specified by law, you have the right to examine your policy and
return it for a refund of all premium payments we have received or the account
value, if you are not satisfied for any reason. The policy is then void. SEE
FREE LOOK PERIOD, PAGE 38.
PREMIUM PAYMENTS
The policy is a flexible premium policy because the amount and frequency of the
premium payments you make may vary within limits. You must make premium
payments:
o for us to issue your policy;
o sufficient to keep your policy in force; and
o as necessary to continue certain benefits.
Depending on the amount of premium you choose to pay it may not be enough to
keep your policy or certain riders in force. SEE PREMIUMS, PAGE 19.
ALLOCATION OF NET PREMIUMS
This policy has premium-based charges which are subtracted from your payments.
We add the balance, or net premium, to your policy based on your investment
instructions. You may allocate the net premium among one or more variable
subaccounts or the guaranteed interest account. SEE ALLOCATION OF NET PREMIUMS,
PAGE 20.
CHARGES AND DEDUCTIONS
All charges presented here are current unless stated otherwise.
- --------
This summary highlights some important points about your policy. The policy is
more fully described in the attached, complete prospectus. Please read it
carefully. "We," "us," "our" and the "company" refer to Southland Life Insurance
Company. "You" and "your" refer to the policy owner. The owner is the
individual, entity, partnership, representative or party who may exercise all
rights over the policy and receive the policy benefits during the insured
person's lifetime.
State variations are covered in a special policy form used in that state. This
prospectus provides a general description of the policy. Your actual policy and
any riders are the controlling documents. If you would like to review a copy of
the policy and riders, contact our customer service center or your
agent/registered representative.
- --------------------------------------------------------------------------------
Future Dimensions 4
<PAGE>
POLICY CHARGES
Other Than Investment Portfolio Annual Expenses
(SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 44)
<TABLE>
<CAPTION>
- -------------------------------------- ------------------------------------ ----------------------------------------------
<S> <C> <C>
Charge When Charge is Deducted Amount Deducted
- -------------------------------------- ------------------------------------ ----------------------------------------------
Tax Charges Each premium payment received 2.5% for state and local taxes; 1.5% for
estimated federal income tax treatment of
deferred acquisition costs.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Sales Charge First ten target premiums from Guaranteed maximum of 4% of all premium
premium payments received payments; currently, 4% of the first ten
target premiums and none thereafter.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Surrender Charge First fourteen policy or segment Administrative surrender charge of $4 per
years $1,000 of stated death benefit. Sales
surrender charge of 46% of premium received
up to one target premium plus 44% of premium
received between one and two target
premium. First two policy or segment years
capped at 26% of premiums up to one target
premium, plus 6% between one and two target
premiums, plus 5% in excess of two target
premiums.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Mortality & Expense Risk Charge Daily, included in unit value 0.002466% daily (0.90% annually)
- -------------------------------------- ------------------------------------ ----------------------------------------------
Policy Charge Monthly from account value $20 monthly for first policy year.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Monthly Administrative Charge Monthly from account value $6 monthly with a guaranteed maximum of $10.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Cost of Insurance Charge Monthly from account value Varies based on current cost of insurance
rates and net amount at risk.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Guaranteed Minimum Death Benefit Monthly from account value $0.005 per $1,000 of stated death benefit
Charge with a guaranteed maximum of $0.01 per
$1,000 of stated death benefit.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Rider Charges Monthly from account value Varies depending on the rider benefits you
choose.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Partial Withdrawal Fee Transaction date from account value One free withdrawal per policy year, then up
to $25.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Transfer Fee Transaction date from account value Twelve free transfers per policy year, then
$25 per transfer.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Illustration Fee Transaction date from account value One free illustration per policy year, then
a $25 fee may apply.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Premium Allocation Change Charge Transaction date from account value Twelve free premium allocation changes per
policy year, then $25 per change.
- -------------------------------------- ------------------------------------ ----------------------------------------------
Continuation of Coverage Policy anniversary nearest insured For "Type 1" there is no fee. For "Type 2"
Administrative Fee person's 100th birthday from there is no fee on a current basis with a
account value guaranteed maximum one-time fee of $200.
- -------------------------------------- ------------------------------------ ----------------------------------------------
</TABLE>
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Future Dimensions 5
<PAGE>
VARIABLE SUBACCOUNTS
If you invest in any of the variable subaccounts under the separate account, you
may make or lose money depending on market conditions. The variable subaccounts
are described in the prospectuses for the underlying investment portfolios. Each
investment portfolio has its own investment objective. SEE INVESTMENT PORTFOLIO
OBJECTIVES, PAGE 13.
These expenses are not direct charges against variable subaccount assets or
reductions from contract values; rather these expenses are included in computing
each underlying portfolio's net asset value, which is the share price used to
calculate the unit values of the variable subaccounts. For a more complete
description of the portfolios' costs and expenses, see the prospectuses for the
portfolios. FEES AND EXPENSES OF THE INVESTMENT PORTFOLIOS
The separate account purchases shares of the underlying investment portfolios at
net asset value. This price reflects investment management fees and other direct
expenses deducted from the portfolio assets. This table describes these fees and
expenses in gross amounts and net amounts after waiver or reimbursement of fees
or expenses by the investment portfolio advisers. Waivers or reimbursements are
voluntary and subject to change. The portfolio expense information was provided
to us by the portfolios and we have not independently verified this information.
- --------------------------------------------------------------------------------
Future Dimensions 6
<PAGE>
INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
Fees and
Total Expenses Total Net
Management Other Portfolio Waived or Portfolio
Portfolio Fees Expenses Expenses Reimbursed Expenses
--------- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
THE ALGER AMERICAN FUND
Alger American Growth 0.75% 0.04% 0.79% N/A 0.79%
Alger American Leveraged AllCap 0.85% 0.08%/1/ 0.93% N/A 0.93%
Alger American MidCap Growth 0.80% 0.05% 0.85% N/A 0.85%
Alger American SmallCap 0.85% 0.05% 0.90% N/A 0.90%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Equity - Income 0.48% 0.09% 0.57% N/A 0.57%/2/
VIP Growth 0.58% 0.08% 0.66% N/A 0.66%/2/
VIP High Income 0.58% 0.11% 0.69% N/A 0.69%
VIP Money Market 0.18% 0.09% 0.27% N/A 0.27%
VIP Overseas 0.73% 0.18% 0.91% N/A 0.91%/2/
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager 0.53% 0.10% 0.63% N/A 0.63%/2/
VIP II Contrafund 0.58% 0.09% 0.67% N/A 0.67%/2/
VIP II Index 500 0.24% 0.10% 0.34% 0.06% 0.28%
VIP II Investment Grade Bond 0.43% 0.11% 0.54% N/A 0.54%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - Equity Income /3/ 0.75% 0.44% 1.19% 0.02% 1.17%
INVESCO VIF - Utilities /4/ 0.60% 1.08% 1.68% 0.47% 1.21%
JANUS ASPEN SERIES/5/
Janus Aspen Aggressive Growth 0.65% 0.02% 0.67% N/A 0.67%
Janus Aspen Balanced 0.65% 0.02% 0.67% N/A 0.67%
Janus Aspen Growth 0.65% 0.02% 0.67% N/A 0.67%
Janus Aspen International Growth 0.65% 0.11% 0.76% N/A 0.76%
Janus Aspen Worldwide Growth 0.65% 0.05% 0.70% N/A 0.70%
</TABLE>
- ----------------------------
/1/ Included in Alger American Leveraged AllCap portfolio's "Other Expenses"
is 0.01% of interest expense.
/2/ FMR absorbed a portion of the portfolio and custodian expenses for some
portfolios with part of the brokerage commissions and un-invested cash
balances. After this absorption, "Total Portfolio Expenses" are 0.56% for
Equity Income portfolio, 0.65% for Growth portfolio, 0.87% for Overseas
portfolio, 0.62% for Asset Manager portfolio and 0.65% for Contrafund
portfolio.
/3/ INVESCO absorbed a portion of VIF-Equity Income Fund's "Other Expenses"
and "Total Portfolio Expenses." After this absorption, these expenses are
0.42% and 1.17%, respectively.
/4/ INVESCO absorbed a portion of VIF-Utilities Fund's "Other Expenses" and
"Total Portfolio Expenses." After this absorption, these expenses are
0.61% and 1.21%, respectively.
/5/ Janus' expenses are based upon expenses for the fiscal year ended December
31, 1999, restated to reflect a reduction in the management fee for these
portfolios.
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Future Dimensions 7
<PAGE>
GUARANTEED INTEREST ACCOUNT
The guaranteed interest account guarantees principal and is part of our general
account. Any amount you direct into the guaranteed interest account is credited
with interest at a fixed rate. SEE GUARANTEED INTEREST ACCOUNT, PAGE 17.
POLICY VALUES
Your policy account value is the amount you have in the guaranteed interest
account, plus the amount you have in each variable subaccount. If you have an
outstanding policy loan, your account value includes the amount in the loan
account. SEE POLICY VALUES, PAGE 30 AND PARTIAL WITHDRAWALS, PAGE 35.
YOUR ACCOUNT VALUE IN THE VARIABLE SUBACCOUNTS
Accumulation units are the way we measure value in the variable subaccounts.
Accumulation unit value is the value of one unit of a variable subaccount on a
valuation date. Each variable subaccount has a different accumulation unit
value. SEE DETERMINING VALUES IN THE VARIABLE SUBACCOUNTS, PAGE 30.
The accumulation unit value for each variable subaccount reflects the investment
performance of the underlying investment portfolio during the valuation period.
Each accumulation unit value reflects asset-based charges under the policy, and
the expenses of the investment portfolios. SEE DETERMINING VALUES IN THE
VARIABLE SUBACCOUNTS, PAGE 30 AND HOW WE CALCULATE ACCUMULATION UNIT VALUES,
PAGE 31.
TRANSFERS OF ACCOUNT VALUE
With some limitations, you may make twelve free transfers among the variable
subaccounts or to the guaranteed interest account each policy year. We charge
$25 for each transfer over twelve in a policy year. There are restrictions on
transfers from the guaranteed interest division SEE TRANSFERS OF ACCOUNT VALUE,
PAGE 31 AND POLICY TRANSACTION FEES, PAGE 46.
SPECIAL POLICY FEATURES
DESIGNATED DEDUCTION INVESTMENT OPTION
You may designate one investment option from which we will deduct all of your
monthly deductions. SEE DESIGNATED DEDUCTION INVESTMENT OPTION, PAGE 29.
RIDERS
You may attach additional benefits to your policy by rider. In most cases, we
deduct a monthly charge from your account value for these benefits. SEE RIDERS,
PAGE 27.
DOLLAR COST AVERAGING
Dollar cost averaging is a systematic plan of transferring account values to
selected investment options. It is intended to protect your policy's value from
short-term price fluctuations. However, dollar cost averaging does not assure a
profit, nor does it protect against a loss in a declining market. Dollar cost
averaging is free. SEE DOLLAR COST AVERAGING, PAGE 32.
AUTOMATIC REBALANCING
Automatic rebalancing periodically reallocates your net account value among your
selected investment options to maintain your specified distribution of account
value among those investment options. Automatic rebalancing is free. SEE
AUTOMATIC REBALANCING, PAGE 33.
LOANS
You may take loans against your policy's net cash surrender value. We charge a
maximum annual loan interest rate of 4% for preferred loans and 6% for other
loans. We credit an annual interest rate of 4% on amounts held in the loan
account as collateral for your loan. Beginning in your eleventh policy year,
where permitted by law, we may include amounts in the loan division for
calculation of your policy's persistency refund. SEE POLICY LOANS, PAGE 34.
Loans may have tax consequences. SEE TAX CONSIDERATIONS, PAGE 51.
PARTIAL WITHDRAWALS
You may withdraw part of your net cash surrender value any time after your first
or second policy anniversary depending on which death benefit option you choose.
You may make up to twelve partial withdrawals per policy year. Partial
withdrawals may reduce your policy's death benefit and will
- --------------------------------------------------------------------------------
Future Dimensions 8
<PAGE>
reduce your account value. Surrender charges may apply. SEE PARTIAL WITHDRAWALS,
PAGE 35.
Partial withdrawals may have tax consequences. SEE TAX CONSIDERATIONS, PAGE 51.
PERSISTENCY REFUND
Beginning in your eleventh policy year, where permitted by law, we add a
persistency refund to your account value. SEE PERSISTENCY REFUND, PAGE 47.
POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES
RIGHT TO EXCHANGE POLICY
For 24 months after the policy date you may convert, or exchange, your policy
for a guaranteed policy, unless law requires differently. There is no charge for
this exchange. SEE RIGHT TO EXCHANGE POLICY, PAGE 29.
SURRENDER
You may surrender your policy for its net cash surrender value at any time while
the insured person is living. All insurance coverage ends on the date we receive
your request. SEE SURRENDER, PAGE 38.
LAPSE
In general, insurance coverage continues as long as your net cash surrender
value is enough to pay the monthly deductions. However, your policy and its
riders are guaranteed not to lapse during the first three years of your policy
if the conditions of the special continuation period have been met. SEE LAPSE,
PAGE 36 AND SPECIAL CONTINUATION PERIOD, PAGE 20.
REINSTATEMENT
You may reinstate your policy and its riders within five years of its lapse if
you still own the policy and the insured person meets our underwriting
requirements.
You will need to give proof of insurability. You will also need to pay required
reinstatement premiums.
If the guaranteed minimum death benefit lapses and you do not correct it, this
feature terminates. Once it terminates, you cannot reinstate this feature.
If you had a policy loan existing when coverage ended, we will reinstate it with
accrued loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 37.
POLICY MATURITY
If the insured person is still living on the maturity date or the policy
anniversary nearest the insured person's 100th birthday and you do not choose to
let the continuation of coverage feature become effective, you must surrender
your policy. We will pay the net account value. Your policy then ends. SEE
POLICY MATURITY, PAGE 29.
CONTINUATION OF COVERAGE
At the policy anniversary nearest the insured person's 100th birthday, you may
choose to let the continuation of coverage feature become effective. SEE
CONTINUATION OF COVERAGE, PAGE 29.
DEATH BENEFITS
At the death of the insured person, we pay death proceeds to the
beneficiary(ies) if your policy is still in force. Based on the death benefit
option you have chosen, the base death benefit varies.
We generally require a minimum stated death benefit of $50,000 to issue your
policy. However, we may lower this minimum for group or sponsored arrangements,
or corporate purchasers. SEE DEATH BENEFITS, PAGE 21.
You may change your death benefit amount while your policy is in force, subject
to certain restrictions. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 24.
TAX CONSIDERATIONS
Under current federal income tax law, death benefits of life insurance policies
generally are not subject to income tax. In order for this treatment to apply,
the policy must qualify as a life insurance contract. We believe it is
reasonable to conclude that the policy will qualify as a life insurance
contract. SEE TAX STATUS OF THE POLICY, PAGE 51.
Assuming the policy qualifies as a life insurance
- --------------------------------------------------------------------------------
Future Dimensions 9
<PAGE>
contract under current federal income tax law, your account value earnings are
generally not subject to income tax as long as they remain within your policy.
However depending on circumstances, the following events may cause taxable
consequences for you:
o partial withdrawals;
o surrender; or
o lapse.
In addition, if your policy is a modified endowment contract, a loan against or
secured by the policy may cause income taxation. A penalty tax may be imposed on
a distribution from a modified endowment contract as well. SEE MODIFIED
ENDOWMENT CONTRACTS, PAGE 52.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
You should consult a qualified legal or tax adviser before you purchase your
policy.
- --------------------------------------------------------------------------------
Future Dimensions 10
<PAGE>
HOW THE POLICY WORKS
<TABLE>
<S> <C> <C>
YOUR PREMIUM Premium Deductions
You make a premium ---------------------------->
payment
o sales charge
o tax charges
<----------------------------
NET PREMIUM
We allocate the net
premium to the investment
options you choose
|
|
-----------------------------------------
| |
\/ \/
GUARANTEED VARIABLE INVESTMENT INVESTMENT PORTFOLIOS The investment
INTEREST DIVISION OPTIONS The variable investment manager deducts
Amounts you allocate Amounts you allocate are <-- options invest in investment
are held in our general account held in our separate account --> investment portfolios ------> management fees
| | and other
----------------------------------------- portfolio expenses
|
|
|
o persistency refund Refunds |
------------>| Monthly Deductions o initial policy charge
| ---------------------> o cost of insurance
| | charge
| | o monthly administrative
\/ | charge
ACCUMULATED VALUE | o rider charges
The total value of your --| o guaranteed minimum
policy | death benefit charge
| | Separate Account
| | Deductions
| |---------------------> o mortality and expense
\/ | risk charge
LOAN DIVISION |
Amount set aside to |
secure a policy loan |
|
| Transaction Fees o partial withdrawal fee
---------------------> o transfer fee
o illustration fee
o premium allocation
change charge
o surrender charge
</TABLE>
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Future Dimensions 11
<PAGE>
SOUTHLAND, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
SOUTHLAND LIFE INSURANCE COMPANY
Southland Life Insurance Company is a stock life insurance company organized
under the laws of the State of Texas in 1908. Our headquarters are located at
5780 Powers Ferry Road, NW, Atlanta, Georgia 30327-4390. We are admitted to do
business in the District of Columbia and all states except New York. Our total
assets exceeded $2.5 billion, and our shareholder's equity exceeded $351 million
on a generally accepted accounting principles basis as of December 31, 1999.
(See Financial Statements.)
We have a complete line of life insurance products, including:
o annuities;
o individual life;
o group life; and
o pension products.
Southland is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING"). ING
is one of the world's three largest diversified financial services
organizations. ING is headquartered in Amsterdam, The Netherlands. It has
consolidated assets over $495 billion on a Dutch (modified U.S.) generally
accepted accounting principles basis, as of December 31, 1999.
The principal underwriter and distributor for our policies is ING America
Equities, Inc. ING America Equities is an affiliate of Southland and is a
registered broker-dealer with the SEC and the NASD. ING America Equities is a
stock corporation organized under the laws of the State of Colorado in 1993, and
is located at 1290 Broadway, Denver, Colorado 80203-5699.
SOUTHLAND SEPARATE ACCOUNT L1
SEPARATE ACCOUNT STRUCTURE
We established Southland Separate Account L1 (the "separate account") on
February 25, 1994, under Texas insurance law. It is a unit investment trust,
registered with the SEC under the Investment Company Act of 1940. The SEC does
not supervise our management of the separate account or Southland.
The separate account is used to support our variable life insurance policies and
for other purposes allowed by law and regulation. We keep the separate account
assets separate from our general account and other separate accounts. We may
offer other variable life insurance contracts with different benefits and
charges that invest in the separate account. We do not discuss these contracts
in this prospectus. The separate account may invest in other securities not
available for the policy described in this prospectus.
The company owns all the assets in the separate account. We credit gains to or
charge losses against the separate account without regard to performance of
other investment accounts.
ORDER OF SEPARATE ACCOUNT LIABILITIES
Law provides that we may not charge general account liabilities against separate
account assets equal to its reserves and other liabilities. This means that if
we ever become insolvent, the separate account assets will be used first to pay
separate account policy claims. Only if separate account assets remain after
these claims have been satisfied can these assets be used to pay other policy
owners and creditors.
The separate account may have liabilities from assets credited to other variable
life policies offered by the separate account. If the assets of the separate
account are greater than required reserves and policy liabilities, we may
transfer the excess to our general account.
VARIABLE SUBACCOUNTS
Investment options include the variable subaccounts and the guaranteed interest
account, but not the loan account. The separate account has several subaccounts
which invest in shares of underlying investment portfolios. This means that the
investment performance of a policy depends on the performance of the investment
portfolios you choose. Each investment portfolio has its own investment
objective. These investment portfolios are not available directly to individual
investors. They are available only as underlying investments for variable
annuity and variable life insurance contracts and certain pension accounts.
- --------------------------------------------------------------------------------
Future Dimensions 12
<PAGE>
INVESTMENT PORTFOLIOS
Each of the investment portfolios is a separate series of an open-end management
investment company. The investment company receives investment advice from a
registered investment adviser who is not associated with us.
The investment portfolios sell shares to separate accounts of insurance
companies. These insurance companies may or may not be affiliated with us. This
is known as "shared funding." Investment portfolios may sell shares as the
underlying investment for both variable annuity and variable life insurance
contracts. This process is known as "mixed funding."
The investment portfolios may sell shares to certain qualified pension and
retirement plans that qualify under Section 401 of the Internal Revenue Code
("IRC"). As a result, a material conflict of interest may arise between
insurance companies, owners of different types of contracts and retirement plans
or their participants.
If there is a material conflict, we will consider what should be done, including
removing the investment portfolio from the separate account. There are certain
risks with mixed and shared funding, and with selling shares to qualified
pension and retirement plans. See the investment portfolios' prospectuses.
INVESTMENT PORTFOLIO OBJECTIVES
Each investment portfolio has a different investment objective that it tries to
achieve by following its own investment strategy. The objectives and policies of
each investment portfolio affect its return and its risks. With this prospectus,
you must receive the current prospectus for each investment portfolio. We
summarize the investment objectives for each investment portfolio here. You
should read each investment portfolio prospectus.
Certain investment portfolios offered under this policy have investment
objectives and policies similar to other funds managed by the portfolio's
investment adviser. The investment results of a portfolio may be higher or lower
than those of other funds managed by the same adviser. There is no assurance and
no representation is made that the investment results of any investment
portfolio will be comparable to those of another fund managed by the same
investment adviser.
Some investment portfolio advisers (or their affiliates) may pay us
compensation, which may be significant, for servicing or administration
expenses. The amount of compensation is usually based on the aggregate assets of
the investment portfolio from contracts that we issue or administer. Some
advisers may pay us more or less than others and our affiliates may pay us more.
- --------------------------------------------------------------------------------
Future Dimensions 13
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO OBJECTIVES
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Variable Investment Option Investment Company/ Adviser/ Investment Objective
Manager/ Sub-Adviser
- ---------------------------------- -------------------------------- ------------------------------------------------------------
<S> <C> <C>
Alger American Growth Portfolio Investment Company: Seeks long-term capital appreciation by focusing on
The Alger American Fund growing companies that generally have broad product lines,
Investment Adviser: markets, financial resources and depth of management.
Fred Alger Management, Inc. Under normal circumstances, the portfolio invests
primarily in the equity securities of large companies.
The portfolio considers a large company to have a market
capitalization of $1 billion or greater.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Alger American Leveraged AllCap Investment Company: Seeks long-term capital appreciation by investing, under
Portfolio The Alger American Fund normal circumstances, in the equity securities of
Investment Adviser: companies of any size which demonstrate promising growth
Fred Alger Management, Inc. potential. The portfolio can leverage, that is, borrow
money, up to one-third of its total assets to buy
additional securities. By borrowing money, the portfolio
has the potential to increase its returns if the increase
in the value of the securities purchased exceeds the cost
of borrowing, including interest paid on the money
borrowed.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Alger American MidCap Growth Investment Company: Seeks long-term capital appreciation by focusing on
Portfolio The Alger American Fund midsize companies with promising growth potential. Under
Investment Adviser: normal circumstances, the portfolio invests primarily in
Fred Alger Management, Inc. the equity securities of companies having a market
capitalization within the range of companies in the S&P
MidCap 400 Index.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Alger American Small Investment Company: Seeks long-term capital appreciation by focusing on small,
Capitalization Portfolio The Alger American Fund fast-growing companies that offer innovative products,
Investment Adviser: services or technologies to a rapidly expanding
Fred Alger Management, Inc. marketplace. Under normal circumstances, the portfolio
invests primarily in the equity securities of small
capitalization companies. A small capitalization company
is one that has a market capitalization within the range
of the Russell 2000 Growth Index or the S&P SmallCap 600
Index.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIP Equity-Income Portfolio Investment Company: Fidelity Seeks reasonable income and potential for capital
Variable Insurance Products appreciation. With a yield which exceeds the composite
Fund yield on the securities comprising the S&P(R)500. Invests
Investment Manager: in domestic and foreign issuers. Invests at least 65% of
Fidelity Management & Research total assets in income-producing equity securities, which
Company tend to lead to investments in large cap "value" stocks.
Potentially invests in other types of equity securities
and debt securities, including lower-quality debt
securities. Uses fundamental analysis of each issuer's
financial condition and industry position and market and
economic conditions to select investments.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
- --------------------------------------------------------------------------------
Future Dimensions 14
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO OBJECTIVES
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Variable Investment Option Investment Company/ Adviser/ Investment Objective
Manager/ Sub-Adviser
- ---------------------------------- -------------------------------- ------------------------------------------------------------
<S> <C> <C>
VIP Growth Portfolio Investment Company: Fidelity Seeks capital appreciation by investing in common stocks
Variable Insurance of companies that it believes have above-average growth
Products Fund potential, either domestic or foreign issuers.
Investment Manager:
Fidelity Management & Research
Company
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIP High Income Portfolio Investment Company: Fidelity Seeks a high level of current income while also
Variable Insurance Products considering growth of capital by investing in domestic and
Fund foreign issuers and companies in troubled or uncertain
Investment Manager: financial condition. Invests at least 65% of total assets
Fidelity Management & Research in income-producing debt securities, preferred stocks and
Company convertible securities with an emphasis on lower-quality
debt securities. Potentially invests in non-income
producing debt securities, including defaulted securities
and common stocks. Uses fundamental analysis of each
issuer's financial condition, industry position, market
and economic conditions to select investments.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIP Money Market Portfolio Investment Company: Fidelity Seeks as high a level of current income as is consistent
Variable Insurance Products with the preservation of capital and liquidity by
Fund investing in U.S. dollar-denominated money market
Investment Manager: securities, including U.S. Government securities and
Fidelity Management & Research repurchase agreements, and entering into reverse
Company repurchase agreements.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIP Overseas Portfolio Investment Company: Fidelity Seeks long-term growth of capital by investing at least
Variable Insurance Products 65% of total assets in foreign securities.
Fund
Investment Manager:
Fidelity Management & Research
Company
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIP II Asset Manager Portfolio Investment Company: Fidelity Seeks high total return with reduced risk over the long
Variable Insurance Products term by allocating its assets among stocks, bonds, and
Fund II short-term instruments.
Investment Manager:
Fidelity Management & Research
Company
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIP II Contrafund Portfolio Investment Company: Fidelity Seeks long-term capital appreciation by investing
Variable Insurance Products primarily in common "growth" stocks or "value" stocks or
Fund II both of domestic and foreign issuers. Invests in
Investment Manager: securities of companies whose value it believes is not
Fidelity Management & Research fully recognized by the public. Uses fundamental analysis
Company of each issuer's financial condition, industry position,
market and economic conditions to select investments.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
- --------------------------------------------------------------------------------
Future Dimensions 15
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO OBJECTIVES
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Variable Investment Option Investment Company/ Adviser/ Investment Objective
Manager/ Sub-Adviser
- ---------------------------------- -------------------------------- ------------------------------------------------------------
<S> <C> <C>
VIP II Index 500 Portfolio Investment Company: Fidelity Seeks investment results that correspond to the total
Variable Insurance Products return of common stocks publicly traded in the United
Fund II States as represented by the S&P(R) 500.
Investment Manager:
Fidelity Management & Research
Company
Sub-Advisor:
Bankers Trust Company
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIP II Investment Grade Bond Investment Company: Fidelity Seeks as high level of current income as is consistent
Portfolio Variable Insurance Products with the preservation of capital by investing in U.S.
Fund II dollar-denominated investment grade bonds. Allocates
Investment Manager: assets across different market sectors and maturities.
Fidelity Management & Research Analyzes a security's structural features, current pricing
Company and trading opportunities, and the credit quality of its
issuer in selecting investments. Manages the portfolio to
have similar overall interest rate risk to Lehman Brothers
Aggregate Bond Index(R).
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIF-Equity Income Fund Investment Company: INVESCO Seeks high current income, with growth of capital as a
Variable Investment Funds, Inc. secondary objective by investing at least 65% of its
Investment Adviser: assets in dividend-paying common and preferred stocks.
INVESCO Funds Group, Inc. The rest of the fund's assets are invested in debt
Sub-Advisor: securities, and lower-grade debt securities.
INVESCO Capital Management,
Inc.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
VIF-Utilities Fund Investment Company: INVESCO Seeks capital appreciation and income by investing at
Variable Investment Funds, Inc. least 80% of its assets in companies doing business in the
Investment Adviser: utilities economic sector. The remainder of the fund's
INVESCO Funds Group, Inc. assets are not required to be invested in the utilities
Sub-Advisor: economic sector.
INVESCO Capital Management,
Inc.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Aspen Aggressive Growth Portfolio Investment Company: Janus Seeks long-term growth of capital by investing primarily
Aspen Series in common stocks selected for their growth potential and
Investment Adviser: normally investing at least 50% of its equity assets in
Janus Capital medium-sized companies which fall within the range of
companies in the S&P(R) MidCap 400 Index.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Aspen Balanced Portfolio Investment Company: Janus Seeks long-term growth of capital, consistent with
Aspen Series preservation of capital and balanced by current income by
Investment Adviser: normally investing 40-60% of its assets in securities
Janus Capital selected primarily for their growth potential and 40-60%
of its assets in securities selected primarily for their
income potential. The portfolio normally invests at least
25% of its assets in fixed-income securities.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
- --------------------------------------------------------------------------------
Future Dimensions 16
<PAGE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO OBJECTIVES
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Variable Investment Option Investment Company/ Adviser/ Investment Objective
Manager/ Sub-Adviser
- ---------------------------------- -------------------------------- ------------------------------------------------------------
<S> <C> <C>
Aspen Growth Portfolio Investment Company: Janus Seeks long-term growth of capital in a manner consistent
Aspen Series with preservation of capital by investing primarily in
Investment Adviser: common stocks selected for their growth potential.
Janus Capital Although the portfolio can invest in companies of any
size, it generally invests in larger, more established
companies.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Aspen International Growth Investment Company: Janus Seeks long-term growth of capital by investing at least
Portfolio Aspen Series 65% of its total assets in securities of issuers from at
Investment Adviser: least five different countries, excluding the United
Janus Capital States. Although the portfolio intends to invest
substantially all of its assets in issuers located outside
the United States, it may at times invest in U.S. issuers
and it may at times invest all of its assets in fewer than
five countries or even a single country.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
Aspen Worldwide Growth Portfolio Investment Company: Janus Seeks long-term growth of capital in a manner consistent
Aspen Series with preservation of capital by investing primarily in
Investment Adviser: common stocks of companies of any size throughout the
Janus Capital world. The portfolio normally invests in issuers from at
least five different countries, including the United
States. The portfolio may at times invest in fewer than
five countries or even in a single country.
- ---------------------------------- -------------------------------- ------------------------------------------------------------
</TABLE>
THE GUARANTEED INTEREST ACCOUNT
You may allocate all or a part of your net premium and transfer your net account
value into the guaranteed interest account. The guaranteed interest account
guarantees principal and is part of our general account. It pays interest at a
fixed rate that we declare.
The general account contains all of our assets other than those held in the
separate account (variable subaccounts) or other separate accounts.
The general account supports our non-variable insurance and annuity obligations.
We have not registered interests in the guaranteed interest account under the
Securities Act of 1933. Also, we have not registered the guaranteed interest
account or the general account as an investment company under the Investment
Company Act of 1940 (because of exemptive and exclusionary provisions). This
means that the general account, the guaranteed interest account and its
interests are generally not subject to regulation under these Acts.
The SEC staff has not reviewed the disclosures in this prospectus relating to
the general account and the guaranteed interest account. These disclosures,
however, may be subject to certain requirements of the federal securities law
regarding accuracy and completeness of statements made.
The amount you have in the guaranteed interest account is all of the net premium
you allocate to that account, plus transfers you make to the guaranteed interest
account plus interest earned.
Amounts you transfer out of or withdraw from the guaranteed interest account
reduce this amount. It is also reduced by deductions for charges from your
account value allocated to the guaranteed interest account.
We declare the interest rate that applies to all amounts in the guaranteed
interest account. This interest rate is never less than the minimum guaranteed
interest rate of 3.5%. The credited interest rate will be in effect for an
initial twelve-month period. Thereafter, the credited interest rate will be
similarly guaranteed for a successive period of at least twelve months at the
interest rate current at that time. Interest compounds
- --------------------------------------------------------------------------------
Future Dimensions 17
<PAGE>
daily at an effective annual rate that equals the declared rate. We credit
interest to the guaranteed interest account on a daily basis. We pay interest
regardless of the actual investment performance of our account. We bear all of
the investment risk for the guaranteed interest account.
MAXIMUM NUMBER OF INVESTMENT OPTIONS
There are three accounts: the separate account, the guaranteed interest account
and the loan account. Under the separate account, there are numerous variable
subaccounts. SEE SOUTHLAND SEPARATE ACCOUNT L1, PAGE 12 AND INVESTMENT PORTFOLIO
OBJECTIVES, PAGE 13.
You may invest in a total of eighteen investment options over the life of your
policy. Investment options include the variable subaccounts and the guaranteed
interest account, but not the loan account.
As an example, if you have had funds in seventeen variable subaccounts and the
guaranteed interest account, these are the only investment options to which you
may later add or transfer funds. However, you could still take a policy loan and
access the loan division.
You may want to use fewer investment options in the early years of your policy,
so that you can invest in others in the future. If you invest in eighteen
variable subaccounts, you will not be able to invest in the guaranteed interest
account.
DETAILED INFORMATION ABOUT THE POLICY
This prospectus describes our standard variable life insurance policy. There may
be differences in the policy because of state requirements where we issue your
policy. We will describe any such differences in your policy.
The illustrations beginning on page 55 show how the policies work.
APPLYING FOR A POLICY
You purchase this variable universal life policy by submitting an application to
us. On the policy date, the insured person must be no older than age 75. We may,
in our sole discretion, issue a policy covering an insured over age 75.
The insured person is the person on whose life we issue a policy and upon whose
death we pay death proceeds.
You may request that we back-date the policy up to six months to allow the
insured person to give proof of a younger age for the purposes of your policy.
TEMPORARY INSURANCE
If you apply and qualify, we may issue temporary insurance in an amount equal to
the face amount of the permanent insurance for which you applied. The maximum
amount of temporary insurance is $1 million, which includes any other in-force
coverage you have with us.
Temporary coverage begins when:
1. you have completed and signed our conditional receipt or temporary
insurance agreement, as applicable;
2. we receive and accept a premium payment of at least your scheduled
premium (selected on your application); and
3. parts I and II of the application are complete.
Temporary life insurance coverage ends on the earliest of:
o the date we return your premium payments;
o five days after we mail notice of termination to the address on your
application;
o the date your policy coverage starts;
o the date we refuse to issue a policy based on your application; or
o 90 days after you sign our conditional receipt or temporary insurance
agreement, as applicable.
There is no death benefit under the temporary insurance agreement if:
o there is a material misrepresentation in statements on your
application;
o the person or persons intended to be insured die by suicide or
self-inflicted injury; or
o the bank does not honor your premium check.
- --------------------------------------------------------------------------------
Future Dimensions 18
<PAGE>
POLICY ISSUANCE
Before we issue a policy, we require satisfactory evidence of insurability of
the insured person and payment of your initial premium. This evidence may
include a medical examination and completion of all underwriting and issue
requirements.
The policy date shown on your policy schedule determines:
o monthly processing dates;
o policy months;
o policy years; and
o policy anniversaries.
The policy date is not affected by when you receive the policy. We charge
monthly deductions from the policy date unless your policy specifies otherwise.
The policy date is determined one of three ways:
1. the date you designate on your application, subject to our approval;
2. the back-date of the policy to save age, subject to our approval and
law; or
3. if there is no designated date or back-date, the policy date is:
o the date all underwriting and administrative requirements have
been met if we receive your initial premium before we issue your
policy; or
o the date we receive your initial premium if it is after we
approve your policy for issue.
DEFINITION OF LIFE INSURANCE
We apply a test to make sure that your policy meets the federal income tax
definition of life insurance. The guideline premium/cash value corridor test
applies to your policy. We may limit premium payments relative to your policy
death benefit under this test. SEE TAX STATUS OF THE POLICY, PAGE 51.
PREMIUMS
You may choose the amount and frequency of premium payments, within limits. You
cannot make premium payments after the death of the insured person or after the
continuation of coverage period begins. SEE CONTINUATION OF COVERAGE, PAGE 29.
We consider payments we receive to be premium payments if you do not have an
outstanding loan and your policy is not in the continuation of coverage period.
After we deduct certain charges from your payment, we add the remaining net
premium to your policy.
SCHEDULED PREMIUMS
Your premiums are flexible. You may select your scheduled premium (within our
limits) when you apply for your policy. The scheduled premium, shown in your
policy and schedule, is the amount you choose to pay over a stated time period.
THIS AMOUNT MAY OR MAY NOT BE ENOUGH TO KEEP YOUR POLICY IN FORCE. You may
receive premium reminder notices for the scheduled premium on a quarterly,
semi-annual or annual basis. You are not required to pay the scheduled premium.
You may choose to pay your premium by electronic funds transfer each month. This
option is not available for your initial premium. The financial institution that
makes your electronic funds transfer may charge for this service.
You can change the amount of your scheduled premium within our minimum and
maximum limits at any time. If you fail to pay your scheduled premium or if you
change the amount of your scheduled premium, your policy performance will be
affected. During the special continuation period, your scheduled premium should
not be less than the minimum annual premium shown in your policy. If you want
one of two guaranteed minimum death benefit choices, your scheduled premium
should not be less than the guarantee period annual premium shown in your
policy. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25.
UNSCHEDULED PREMIUM PAYMENTS
Generally speaking, you may make unscheduled premium payments at any time,
however:
1. We may limit the amount of your unscheduled premium payments that
would result in an increase in the base death benefit amount required
by the federal income tax law definition of life insurance. We may
require satisfactory evidence that the insured
- --------------------------------------------------------------------------------
Future Dimensions 19
<PAGE>
person is insurable at the time that you make the unscheduled premium
payment if the death benefit is increased due to your unscheduled
premium payments;
2. We may require proof that the insured person is insurable if your
unscheduled premium payment will cause the net amount at risk to
increase; and
3. We will return premium payments which are greater than the
"seven-pay" limit for your policy if your payment would cause your
policy to become a modified endowment contract, unless you have
acknowledged in writing the new modified endowment contract status
for your policy.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 52 AND CHANGES TO COMPLY WITH THE LAW,
PAGE 53.
If you have an outstanding policy loan and you make an unscheduled payment, we
will consider it a loan repayment, unless you tell us otherwise. If your payment
is a loan repayment, we do not take tax or sales charges which apply to premium
payments.
TARGET PREMIUM
Target premium is not based on your scheduled premium. Target premium is
actuarially determined based on the age, gender and premium class of the insured
person. The target premium is used in determining your sales charge, surrender
charge and the distribution allowance we pay to broker/dealers. It may or may
not be enough to keep your policy in force. You are not required to pay the
target premium and there is no penalty for paying more or less. The target
premium for your policy and each additional segment listed in your policy
schedule. SEE PREMIUMS, PAGE 19.
MINIMUM ANNUAL PREMIUM
To qualify for the special continuation period, you must pay a minimum annual
premium during each of your first three policy years.
Your minimum annual premium is based on:
o the insured person's age, gender and premium class;
o the stated death benefit of your policy; and
o riders on your policy.
Your minimum annual premium is shown in the schedule pages of your policy. We
may reduce the minimum annual premium for group or sponsored arrangements, or
for corporate purchasers.
SPECIAL CONTINUATION PERIOD
The special continuation period, or no lapse guarantee period, is the first
three policy years. Under the special continuation period, we guarantee that
your policy will not lapse, regardless of its net cash surrender value, if on a
monthly processing date:
o the sum of all premiums you have paid, minus partial withdrawals that
you have taken, minus policy loans that you have taken, including
accrued loan interest, is greater than or equal to;
o the minimum monthly premiums for each policy month from the first
month of your policy through the current policy monthly processing
date.
The minimum monthly premium is one-twelfth of the minimum annual premium.
During the first three years of your policy, if there is not enough net cash
surrender value to pay the monthly deductions and you have satisfied our
requirements, we do not allow your policy to lapse. We do not permanently waive
policy charges. Instead, we continue to deduct these charges which may result in
a negative net cash surrender value, unless you pay enough premium to prevent
this. The negative balance is your unpaid monthly deductions owing. At the end
of the special continuation period to avoid lapse of your policy you must pay
enough premium to bring the net cash surrender value to zero plus the amount
that covers your estimated monthly deductions for the following two months. SEE
LAPSE, PAGE 38.
INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS
The net premium is the balance remaining after we deduct tax and sales charges
from your premium payment.
Insurance coverage does not begin until we receive your initial premium. It must
be at least equal to the sum of your scheduled premiums due from your policy
date through your investment date.
The investment date is the first date we apply the net premium we have received
to your policy.
- --------------------------------------------------------------------------------
Future Dimensions 20
<PAGE>
We apply the initial net premium to your policy after:
a) we receive the required amount of premium;
b) all issue requirements have been received by our customer service
center; and
c) we approve your policy for issue.
Amounts you designate for the guaranteed interest account will be allocated to
that account on the investment date. If your state requires the return of your
premium during the free look period, we initially invest amounts you have
designated for the variable subaccounts into the Fidelity VIP Money Market
Portfolio. We later transfer these amounts from the Money Market Portfolio to
your selected variable subaccounts, based on your most recent premium allocation
instructions, at the earlier of the following dates:
o five days after we mailed your policy plus your state free look
period has ended; or
o we have received your delivery receipt plus your state free look
period has ended.
If your state provides for return of account value during the free look period
or no free look period, we invest amounts you designated for the variable
subaccounts directly into your selected investment portfolios.
We allocate all later premium payments to your policy on the valuation date of
receipt. We use your most recent premium allocation instructions specified in
whole number percentages totaling 100% and using up to eighteen investment
options over the life of your policy. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS,
PAGE 18.
You may make twelve free premium allocation changes per year, after which a $25
transaction fee applies. If you change your designated deduction investment
option from which monthly deductions are taken, we consider this a premium
allocation change for which there may be a charge. SEE DESIGNATED DEDUCTION
INVESTMENT OPTION, PAGE 29 AND POLICY TRANSACTION FEES, PAGE 46.
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
Unless you have the guaranteed minimum death benefit feature or your policy is
in the special continuation period, your coverage lasts only as long as your net
cash surrender value is enough to pay the monthly charges and your account value
minus any surrender charge is more than your outstanding policy loan plus
accrued loan interest. If you do not meet these conditions, your policy will
enter the 61-day grace period and you must make a premium payment to avoid
lapse. SEE LAPSE, PAGE 36 AND SEE GRACE PERIOD, PAGE 36.
If you pay your minimum annual premium each year during the first three policy
years and take no policy loan or withdrawals, we guarantee your policy and
riders will not lapse during the special continuation period, regardless of your
net cash surrender value. SEE SPECIAL CONTINUATION PERIOD, PAGE 20.
Under the guaranteed minimum death benefit, the base death benefit portion of
your policy remains effective until the end of the guarantee period. The
guaranteed minimum death benefit feature does not apply to riders which can
lapse and terminate during the guarantee period. You must meet all conditions of
the guarantee. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25.
MODIFIED ENDOWMENT CONTRACTS
There are special federal income tax rules for distributions from life insurance
policies which are modified endowment contracts. These rules apply to policy
loans, surrenders and partial withdrawals. Whether or not these rules apply
depends upon whether or not the premiums we receive are greater than the
"seven-pay" limit.
If we find that your scheduled premium causes your policy to be a modified
endowment contract on your policy date, we will require you to acknowledge that
you know the policy is a modified endowment contract. We will issue your policy
based on the scheduled premium you selected. If you do not want your policy to
be issued as a modified endowment contract, you may reduce your scheduled
premium to a level which does not cause your policy to be a modified endowment
contract. We will then issue your policy based on the revised scheduled premium.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 52.
DEATH BENEFITS
You can decide the amount of insurance you need, now and in the future. You can
combine the long-term advantages of permanent life insurance (base coverage)
with the flexibility and short-term advantages of term life insurance. Both
permanent and term life insurance are available with your one
- --------------------------------------------------------------------------------
Future Dimensions 21
<PAGE>
policy. The stated death benefit is the permanent element of your policy. The
adjustable term insurance rider is the term insurance element of your policy.
SEE ADJUSTABLE TERM INSURANCE RIDER, PAGE 27.
Generally we require a minimum stated death benefit of $50,000. We may reduce
the minimum stated death benefit for group or sponsored arrangements, or
corporate purchasers. Our underwriting procedures in effect at the time you
apply may limit the maximum stated death benefit.
When we issue your policy, we base the initial insurance coverage on the
instructions in your application. The death benefit at issue may vary from the
stated death benefit plus adjustable term insurance coverage for some 1035
exchanges.
Your death benefit is calculated as of the date of death of the insured person.
Coverage provided by the adjustable term insurance rider is not included in the
guaranteed minimum death benefit.
It may be to your economic advantage to include part of your insurance coverage
under the adjustable term insurance rider. Both the cost of insurance under the
adjustable term insurance rider and the cost of insurance for the base death
benefit are deducted monthly from your account value and generally increase with
the age of the insured person. Use of the adjustable term insurance rider may
reduce the distribution, but may increase the monthly cost of insurance. SEE
ADJUSTABLE TERM INSURANCE RIDER, PAGE 27.
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Future Dimensions 22
<PAGE>
DEATH BENEFIT SUMMARY
THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES AND NO REQUESTED OR SCHEDULED
INCREASES OR DECREASES IN STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL
WITHDRAWALS ARE LESS THAN THE PREMIUM WE RECEIVE.
<TABLE>
<CAPTION>
OPTION A OPTION B
========================= ====================================================== =================================================
<S> <C> <C>
STATED DEATH The amount of policy death benefit at issue, The amount of policy death benefit at issue,
BENEFIT not including rider coverage. This amount not including rider coverage. This amount
stays level throughout the life of the policy. stays level throughout the life of the policy.
BASE DEATH The greater of the stated death benefit or the The greater of the stated death benefit plus
BENEFIT account value multiplied by the appropriate the account value or, the account value
death benefit corridor factor. multiplied by the appropriate death benefit
corridor factor.
TARGET DEATH Stated death benefit plus adjustable term Stated death benefit plus adjustable term
BENEFIT insurance rider benefit. This amount insurance rider benefit. This amount
remains level throughout the life of the remains level throughout the life of the
policy. policy.
TOTAL DEATH It is the greater of the target death benefit or It is the greater of the target death benefit
BENEFIT the base death benefit. plus the account value or the base death
benefit.
ADJUSTABLE TERM The adjustable term insurance rider benefit The adjustable term insurance rider benefit
INSURANCE RIDER is the total death benefit minus base death is the total death benefit minus the base
BENEFIT benefit, but it will not be less than zero. If death benefit, but it will not be less than
the account value multiplied by the death zero. If the account value multiplied by the
benefit corridor factor is greater than the death benefit corridor factor is greater than
stated death benefit, the adjustable term the stated death benefit plus the account
insurance benefit will be decreased. It will value, the adjustable term insurance rider
be decreased so that the sum of the base benefit will be decreased. It will be
death benefit and the adjustable term decreased so that the sum of the base death
insurance rider benefit is not greater than benefit and the adjustable term insurance
the target death benefit. If the base death rider benefit is not greater than the target
benefit becomes greater than the target death benefit plus the account value. If the
death benefit, then the adjustable term base death benefit becomes greater than the
insurance rider benefit is zero. target death benefit plus the account value,
then the adjustable term insurance rider
benefit is zero.
========================= ====================================================== =================================================
</TABLE>
BASE DEATH BENEFIT
Your base death benefit can be different from your stated death benefit as a
result of:
o your choice of death benefit option;
o increases or decreases in the stated death benefit; or
o a change in your death benefit option.
Federal income tax law requires that your death benefit be at least as much as
your account value multiplied by a factor defined by law. This factor is based
on:
o the insured person's age;
o the insured person's gender; and
o the guideline premium/cash value corridor test for the federal income
tax law definition of life insurance. SEE APPENDIX A, PAGE 144.
As long as your policy is in force, we will pay the death proceeds to your
beneficiary(ies) calculated at the death of the insured person. The
beneficiary(ies) is(are) the person (people) you name to receive the death
proceeds from your policy. The death proceeds are:
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Future Dimensions 23
<PAGE>
o your base death benefit; plus
o rider benefits; minus
o your outstanding policy loan with accrued loan interest; minus
o outstanding policy charges incurred before the insured person's
death.
There could be outstanding policy charges if the insured person dies while your
policy is in the grace period or in the three-year special continuation period.
DEATH BENEFIT OPTIONS
You have a choice of two death benefit options: option A or option B (described
below). Your choice may result in your base death benefit being greater than
your stated death benefit.
Under death benefit option A, your base death benefit is the greater of:
1. your stated death benefit on the date of the insured person's death;
or
2. your account value on the date of the insured person's death
multiplied by the appropriate "Death Benefit Corridor Factor" from
the table in Appendix A.
With option A, positive investment performance generally reduces your net amount
at risk, which lowers your policy's cost of insurance charge. Option A offers
insurance coverage that is a set amount with potentially lower cost of insurance
charges over time.
Under death benefit option B, your base death benefit is the greater of:
1. your stated death benefit plus your account value on the date of the
insured person's death; or
2. your account value on the date of the insured person's death
multiplied by the appropriate "Death Benefit Corridor Factor" from
the table in Appendix A.
CHANGES IN DEATH BENEFIT OPTIONS
You may request a change in your death benefit option A or B at any time on or
after your first monthly processing date and before the continuation of coverage
period begins. You may change from death benefit option A to option B, or from
option B to option A. For you to change from death benefit option A to option B.
We may require proof that the insured person is insurable under our normal rules
of underwriting. A death benefit option change applies to your entire stated or
base death benefit.
Your death benefit option change is effective on your next monthly processing
date after we approve it, so long as at least one day remains before your
monthly processing date. If less than one day remains before your monthly
processing date, the change will be effective on your second following monthly
processing date.
After we approve your request, we send a new policy schedule page to you. You
should attach it to your policy. We may ask you to return your policy to our
customer service center so that we can make this change for you.
We may not approve a death benefit option change if it reduces the target or
stated death benefit below the minimum we require to issue your policy.
On the effective date of your option change, your stated death benefit changes
as follows:
Change Change Stated Death Benefit
From To Following Change:
---- -- ----------------
Option A Option B your stated death benefit before the change
minus your account value as of the
effective date of the change.
Option B Option A your stated death benefit before the change
plus your account value as of the
effective date of the change.
We increase or decrease your stated death benefit to keep the net amount at risk
the same on the date of your death benefit option change. There is no change to
the amount of coverage under your adjustable term insurance rider. SEE COST OF
INSURANCE CHARGE, PAGE 45.
If you change your death benefit option, we adjust the stated death benefit for
each of your segments by allocating your account value to each benefit segment.
For example, if you change from death benefit option A to option B, your stated
death benefit is decreased by the amount of your account
- --------------------------------------------------------------------------------
Future Dimensions 24
<PAGE>
value allocation to that segment. If you change from death benefit option B to
option A, your stated death benefit is increased by the amount allocated to that
segment.
We do not impose a surrender charge for any decrease in your stated death
benefit due to your changing your death benefit option. We do not adjust the
target premium when you change your death benefit option. SEE SURRENDER CHARGE,
PAGE 47.
Changing your death benefit option may reduce or increase your target death
benefit, as well as your stated death benefit.
Changing your death benefit option may have tax consequences. You should consult
a tax adviser before changing your death benefit option.
CHANGES IN DEATH BENEFIT AMOUNTS
Contact your agent/registered representative or our customer service center to
request a change in your policy's death benefit. The request is effective on the
next monthly processing date after we receive and approve your request. There
may be underwriting or other requirements which must be met before your request
can be approved. Your requested change must be for at least $10,000.
After we make your requested change, we will send you a new policy schedule
page. Keep it with your policy. We may ask you to send your policy to us so that
we can make the change for you. You may change the target death benefit once in
a policy year.
We may not approve a requested change if it will disqualify your policy as life
insurance under federal income tax law. If we disapprove a change for any
reason, we provide you with a notice of our decision. SEE TAX CONSIDERATIONS,
PAGE 51.
If you decrease your death benefit, you may not decrease your target death
benefit below the minimum we require to issue your policy.
You cannot decrease the stated death benefit below $50,000, or the minimum we
require to issue your policy.
You may reduce your death benefit on or after your second policy anniversary.
Requested reductions in the death benefit will be applied first to decrease the
target death benefit. We decrease your stated death benefit only after your
adjustable term insurance rider coverage is reduced to zero. If you have more
than one segment, we divide decreases in stated death benefit among your benefit
segments pro rata unless law requires differently.
You may increase your target or stated death benefit after your first policy
anniversary and before the insured person's 75th birthday.
You must provide satisfactory evidence that the insured person is still
insurable to increase your death benefit. Unless you tell us differently, we
assume your request for an increase in your target death benefit is also a
request for an increase to your stated death benefit. Thus, the amount of your
adjustable term insurance rider will not change.
The initial death benefit segment, or first segment, is the stated death benefit
on your policy's effective date. A requested increase in stated death benefit
will cause a new segment to be created. Once created, it is permanent unless law
requires differently. The segment year runs from the segments effective date to
its anniversary.
Each new segment may have:
o a new minimum annual premium during the special continuation period;
o a new sales charge;
o new cost of insurance charges, guaranteed and current;
o a new incontestability period;
o a new suicide exclusion period; and
o a new target premium.
We allocate the net amount at risk among segments in the same proportion that
each segment bears to the total stated death benefit. Premiums we receive after
an increase are applied to your policy segments in the same proportion as the
target premium for each segment bears to the total target premium for all
segments.
There may be tax consequences as a result of a change in your death benefit
amount. You should consult a tax adviser before changing your death benefit
amount SEE TAX STATUS OF THE POLICY, PAGE 51 AND MODIFIED ENDOWMENT CONTRACTS,
PAGE 52.
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Future Dimensions 25
<PAGE>
GUARANTEED MINIMUM DEATH BENEFIT
Usually, your coverage lasts only as long as your net cash surrender value is
enough to pay the monthly charges and your account value is more than your
outstanding policy loan plus accrued loan interest. Your account value depends
on:
1. timing and amount of any premium payments;
2. the investment performance of the variable subaccounts;
3. the interest you earn in the guaranteed interest account;
4. the amount of your monthly charges;
5. partial withdrawals you take; and
6. loan activity you may have.
The guaranteed minimum death benefit rider may be put in force only at policy
issue. By adding the guaranteed minimum death benefit rider to your policy, you
can put one of two guarantee period options in force. These options extend the
period that your policy's stated death benefit remains in effect even if the
variable subaccounts perform poorly.
The two guarantee period options vary primarily by the length of time for the
guarantee period. The guarantee period options provide for a guarantee period
that lasts:
1. under one guaranteed minimum death benefit option, the later of ten
policy years or until the policy anniversary nearest insured person's
65th birthday; or
2. under the other guaranteed minimum death benefit option, the earlier
of: the lifetime of the insured person so long as your policy is
still in force; or until the maturity date.
The guaranteed minimum death benefit coverage does not apply to any riders,
including the adjustable term insurance rider. Therefore, if your net cash
surrender value is not enough to pay the deductions as they come due on your
policy and if your policy is no longer in the special continuation period, only
the stated death benefit portion of your coverage is guaranteed to stay in
force. Charges for your guaranteed minimum death benefit and base coverage are
deducted each month to the extent that there is sufficient net account value to
pay these charges. If there is not sufficient net account value to pay a charge,
it is permanently waived. Deduction of charges will resume once there is
sufficient net account value.
The guaranteed minimum death benefit is not available in some states.
During the guarantee period, we will deduct a monthly charge for this rider from
your account value. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 45.
REQUIREMENTS TO MAINTAIN THE GUARANTEE PERIOD
To qualify for the guaranteed minimum death benefit you must pay an annual
premium higher than the minimum annual premium. This higher premium is called
the guarantee period annual premium. The guarantee period monthly premium is
equal to one-twelfth of the guarantee period annual premium. Your net account
value must also meet certain diversification requirements.
Although the required guarantee period annual premium level is different for the
two guaranteed period options, the guaranteed minimum death benefit operates
similarly for either option.
Your guarantee period annual premium depends on which of the two guarantee
periods you choose, as well as:
o your policy's stated death benefit;
o the insured person's age, gender, premium
class and underwriting characteristics;
o the death benefit option you choose;
o additional rider coverage on your
policy; and
o other additional benefits on your policy.
For most policies, the guarantee period annual premium for the guarantee period
for life will be equal to the guideline annual premium determined under the
federal income tax law definition of life insurance. For most policies, the
guarantee period annual premium for the ten year or age 65 guarantee period will
be the greater of the target premium or the minimum annual premium for each
segment. The guarantee period annual premium for the guarantee period for life
will be greater than that required for the ten year or age 65 guarantee period.
At each monthly processing date we test to see if you have paid enough premium
to keep your guarantee in
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Future Dimensions 26
<PAGE>
place. We calculate:
o actual premiums paid; minus
o the amount of any partial withdrawals you make; minus
o policy loans you take with accrued loan interest. This amount must
equal or exceed:
o the sum of the guarantee period monthly premium payments for each
policy month starting with your first policy month through the end of
the policy month that begins on the current monthly processing date.
You must continually meet the requirements of the guarantee period for this
feature to remain in effect. We show the guarantee period annual premium on your
policy schedule. If your policy benefits increase, the guarantee period annual
premium increases.
The guarantee period ends if your net account value on any monthly processing
date is not diversified as follows:
1. you must invest your net account value in at least five investment
options; and
2. you may invest no more than 35% of your net account value in any one
investment option.
Your policy will continue to meet the diversification requirements if:
1. you have automatic rebalancing and you meet the two diversification
tests listed above; or
2. you have dollar cost averaging which results in transfers into at
least four investment options with no more than 35% of any transfer
directed to any one investment option.
SEE DOLLAR COST AVERAGING, PAGE 32 AND AUTOMATIC REBALANCING, PAGE 33.
If you choose to activate the guaranteed minimum death benefit, you must make
sure your policy satisfies the premium test and diversification test
continuously from your policy date. If you fail to satisfy either test and you
do not correct it, this feature terminates. Once it terminates, you cannot
reinstate the guaranteed minimum death benefit feature. The guarantee period
annual premium then no longer applies to your policy.
RIDERS
Your policy may include benefits, attached by rider. A rider may have an
additional cost. You may cancel riders at any time.
Periodically we may offer other riders not listed here. Contact your
agent/registered representative for a complete list of riders available.
Adding or canceling riders may have tax consequences. SEE MODIFIED ENDOWMENT
CONTRACTS, PAGE 52.
ADJUSTABLE TERM INSURANCE RIDER
You may increase your death proceeds by adding an adjustable term insurance
rider. This rider allows you to schedule the pattern of death benefits
appropriate for anticipated needs. The amount we pay is the term death benefit
in force at the time of the death of the insured person. As the name suggests,
the adjustable term insurance rider adjusts over time to maintain your desired
level of coverage.
You specify a target death benefit when you apply for this rider. The target
death benefit can be level for the life of your policy or can be scheduled to
change at the beginning of a selected policy year(s). SEE DEATH BENEFITS, PAGE
21.
We generally require a minimum stated death benefit of $50,000. We generally
restrict your target death benefit to an amount not more than eleven times your
stated death benefit at issue. In other words, if your stated death benefit is
$100,000, then the maximum amount of target death benefit we allow you is
$1,100,000.
The adjustable term insurance rider death benefit is the difference between your
target death benefit and your base death benefit, but not less than zero. The
rider's death benefit automatically adjusts daily as your base death benefit
changes. Your death benefit depends on which death benefit option is in effect:
OPTION A: If option A is in effect, the total death benefit is the
greater of:
a. the target death benefit; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
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Future Dimensions 27
<PAGE>
OPTION B: If option B is in effect, the total death benefit is the
greater of:
a. the target death benefit plus the account value; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
For example, under option A, assume your base death benefit changes as a result
of a change in your account value. The adjustable term insurance rider adjusts
to provide death benefits equal to your target death benefit in each year:
Target
Base Death Death Adjustable Term
Benefit Benefit Insurance Rider Amount
------- ------- ----------------------
$201,500 $250,000 $48,500
202,500 250,000 47,500
202,250 250,000 47,750
It is possible that the amount of your adjustable term insurance may be zero if
your base death benefit increases enough. Using the same example, if the base
death benefit under your policy grew to $250,000 or more, the adjustable term
insurance would be zero.
Even when the adjustable term insurance is reduced to zero, your rider remains
in effect until you remove it from your policy. Therefore, if later the base
death benefit drops below your target death benefit, the adjustable term
insurance rider coverage reappears to maintain your target death benefit.
You may change the target death benefit schedule after it is issued, based on
our rules. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 24.
We may deny future, scheduled increases to your target death benefit if you
cancel a scheduled change or if you ask for an unscheduled decrease in your
target death benefit.
Partial withdrawals, changes from death benefit option A to option B and base
decreases may reduce your target death benefit. SEE PARTIAL WITHDRAWALS, PAGE 35
AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 24.
There is no defined premium for a given amount of adjustable term insurance
coverage. Instead, we deduct a separate monthly cost of insurance charge from
your account value. The cost of insurance for this rider is calculated as the
monthly cost of insurance rate for the rider coverage multiplied by the
adjustable term death benefit in effect at the monthly processing date. The cost
of insurance rates are determined by us from time to time. They will be based on
the rider issue age, gender and premium class of the person insured, as well as
the length of time since your policy date.
The only charge for this coverage is the cost of insurance charges. The total
charges you pay may be less if you have greater coverage under an adjustable
term insurance rider rather than as base death benefit. The monthly guaranteed
maximum cost of insurance rates for this rider are in your policy. SEE COST OF
INSURANCE CHARGE, PAGE 45.
There are no sales charges or surrender charges for this coverage.
If the target death benefit is increased by you after the adjustable term
insurance rider is issued, we use the same cost of insurance rate schedule for
the entire coverage for this rider. These rates are based on the original
premium classes even though satisfactory new evidence of insurability is
required for the increased schedule. SEE COST OF INSURANCE CHARGE, PAGE 45.
Not all policy features apply to the adjustable term insurance rider. The rider
does not contribute to the policy account value nor to surrender value. It does
not affect investment performance and cannot be used for a policy loan. The
adjustable term insurance rider provides benefits only at the insured person's
death.
ACCIDENTAL DEATH BENEFIT RIDER
This rider will pay the benefit amount selected by you if the insured dies due
to an accident. The insured person may be no less than age 5 and no more than
age 69. The minimum coverage is $10,000 and the maximum coverage is the lesser
of the stated death benefit; or, $100,000 for an insured person age 5 through 25
and $300,000 for an insured person age 26 through 69. The monthly charge for
this rider is $0.08 to $0.15 per $1,000 of rider coverage depending on the
insured person's age.
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Future Dimensions 28
<PAGE>
ADDITIONAL INSURED RIDER
This rider provides death benefits upon the death of immediate family members
other than the insured person. At issue of the rider, the insured person under
the rider must be no more than age 75. You may add up to nine additional insured
person riders to your policy using this rider. We require proof of insurability
for each additional insured person. The minimum amount of coverage for each
rider is $10,000. The maximum coverage for all additional insured persons is
five times your total stated death benefit. The monthly charge for this rider is
included as part of the cost of insurance charge. SEE COST OF INSURANCE CHARGE,
PAGE 45.
CHILDREN'S INSURANCE RIDER
This rider will allow you to add death benefit coverage on your children. You
may cover children upon birth or legal adoption without presenting evidence of
insurability to us. Each child must be at least 7 days old and no more than age
18. The primary insured person must be no less than age 15 and no more than age
55. The minimum coverage per child is $1,000. If your policy date is before May
1, 2000, the maximum coverage is $10,000 per child. If your policy date is on or
after May 1, 2000, the maximum coverage is $25,000 per child. The monthly charge
for this rider is $0.50 per $1,000 of rider coverage.
GUARANTEED INSURABILITY RIDER
This rider will allow you to increase your stated death benefit without
providing us with evidence that the insured person remains insurable while the
policy is in force. The insured person may be no more than age 39. Increases are
limited in amount and timing. The monthly charge for this rider is $0.04 to
$0.19 per $1,000 of coverage depending on the insured person's age. If you add
this rider to your policy, you may not add the guaranteed minimum death benefit
rider.
GUARANTEED MINIMUM DEATH BENEFIT RIDER
This rider provides that your stated death benefit will remain in force for the
selected guarantee period regardless of the amount of your net cash surrender
value, provided certain conditions are met. The monthly rider charge is $0.005
per $1,000 of stated death benefit, guaranteed never to exceed $0.01 per $1,000
of stated death benefit. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25.
WAIVER OF COST OF INSURANCE RIDER
If the insured person becomes totally disabled while your policy is in force,
this rider provides that we waive the monthly expense charges, cost of insurance
charges and rider charges during the disability period. The insured person must
be no less than age 5 and no more than age 59. If you add this rider to your
policy, you may not add the waiver of specified premium rider. The rider charges
are part of the cost of insurance charge. SEE COST OF INSURANCE CHARGE, PAGE 45.
WAIVER OF SPECIFIED PREMIUM RIDER
If the insured person becomes totally disabled while your policy is in force,
this rider provides that after a waiting period, we credit a specified premium
amount monthly to your policy during the disability period. The insured person
must be no less than age 5 and no more than age 59. The monthly charge for this
rider is $2.15 to $13.00 per $100 of rider coverage depending on the insured
person's age and gender. If you add this rider to your policy, you may not add
the waiver of cost of insurance rider.
SPECIAL FEATURES
DESIGNATED DEDUCTION INVESTMENT OPTION
You may designate an investment option from which we will deduct your monthly
charges. You may make this designation at any time. You may not use the loan
account as your designated deduction option.
You may elect not to choose a designated deduction investment option or the
amount in your designated deduction investment option may not be enough to cover
the monthly deductions. If so, these charges are taken from the variable
subaccounts and guaranteed interest division in the same proportion that your
account value in each has to your total net account value on the monthly
processing date.
If you change your designated deduction investment option, we consider this a
premium allocation change for which there may be a charge. SEE POLICY
TRANSACTION FEES, PAGE 46.
RIGHT TO EXCHANGE POLICY
During the first 24 months after your policy date, you have the right to
exchange your policy for a guaranteed policy, unless law requires differently.
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Future Dimensions 29
<PAGE>
We transfer the amount you have in the variable division to the guaranteed
interest division. We allocate all of your future net premiums only to the
guaranteed interest division. We do not allow future payments or transfers to
the variable subaccounts after you exercise this right.
We will not charge you for this exchange. SEE THE GUARANTEED INTEREST ACCOUNT,
PAGE 17.
POLICY MATURITY
If the insured person is still living on the maturity date or the policy
anniversary nearest the insured person's 100th birthday and if you do not want
the continuation of coverage feature, the policy matures. You must then
surrender the policy for the net account value and end coverage. Part of this
payment may be taxable. You should consult your tax adviser.
CONTINUATION OF COVERAGE
The continuation of coverage feature is not available in all states. Where it is
available, it allows your insurance coverage to continue in force beyond policy
maturity. On the policy anniversary nearest the insured person's 100th birthday,
you may accept the continuation of coverage feature by not surrendering your
policy.
Your policy date determines your policy's coverage during the continuation of
coverage period and the fee, if any. You will have "Type 1" coverage if your
policy is issued before August 1, 2000, or after that date but before your state
permits us to issue "Type 2" coverage. You will have "Type 2" coverage if your
policy date is on or after August 1, 2000, and your state permits us to issue
"Type 2."
The differences between the two types are shown below.
CONTINUATION OF COVERAGE
<TABLE>
<CAPTION>
Death Benefit Option Stated Death Benefit
Administrative Fee During Continuation of During Continuation of
Continuation of Coverage Current/Guaranteed Coverage Period Coverage Period
- ------------------------ ------------------ --------------- ---------------
<S> <C> <C> <C>
Type 1 None/None Option B Zero
Type 2 None/$200 Option A Target Death Benefit as
of the policy maturity
date
</TABLE>
With either type of coverage, the insurance coverage continues until the death
of the insured person, unless the policy lapses or is surrendered. We accept no
further premium payments and deduct no further monthly deductions. However, all
riders terminate and your account value is transferred into the guaranteed
interest account. You no longer have access to the variable subaccounts.
You may take policy loans or partial withdrawals. If we pay a persistency refund
on the guaranteed interest account, it will be credited to your policy. SEE
PERSISTENCY REFUND, PAGE 47.
If you wish to stop coverage during the continuation of coverage period, you may
surrender your policy and receive the net account value with no surrender
charge. All normal consequences of surrender apply. SEE SURRENDER, PAGE 38.
The tax consequences of coverage continuing beyond the policy anniversary
nearest the insured person's 100th birthday are uncertain. You should consult a
tax adviser as to those consequences.
POLICY VALUES
ACCOUNT VALUE
Your account value, or accumulation value, is the total amount you have in the
guaranteed interest account, the variable subaccounts, and the loan account.
Your account value reflects:
o net premiums applied;
o charges deducted;
o partial withdrawals taken;
o investment performance of the
variable subaccounts;
o interest earned on the guaranteed interest account; and
o interest earned on the loan account.
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Future Dimensions 30
<PAGE>
NET ACCOUNT VALUE
Your policy's net accumulation value, or net account value, is your account
value minus the amount of your outstanding policy loan and accrued loan
interest, if any.
NET CASH SURRENDER VALUE
Your net cash surrender value is your account value minus any surrender charge
minus your outstanding policy loan balance and accrued loan interest, if any.
DETERMINING VALUES IN THE VARIABLE SUBACCOUNTS
The amounts in the variable subaccounts are measured by accumulation units and
accumulation unit values.
The value of each variable subaccount is the accumulation unit value for that
subaccount multiplied by the number of accumulation units you own in that
subaccount. Each variable subaccount has a different accumulation unit value.
The accumulation unit value is the value of one accumulation unit determined on
each valuation date. The accumulation unit value of each variable subaccount
varies with the investment performance of the underlying portfolio. It reflects:
o investment income;
o realized and unrealized gains and losses;
o investment portfolio expenses; and
o daily mortality and expense risk charges we take from the separate
account.
SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 31.
You purchase accumulation units when you allocate premium or make transfers to a
variable subaccount, including transfers from the loan account.
We redeem accumulation units:
o when amounts are transferred from a
variable subaccount (including transfers to the loan account);
o for your policy's monthly deductions from your account value;
o for policy transaction charges;
o for surrender charges;
o when you take a partial withdrawal;
o when you surrender your policy; and
o to pay the death proceeds.
We calculate the number of accumulation units purchased or sold by:
1. dividing the dollar amount of your transaction by:
2. the subaccount's accumulation unit value for that variable subaccount
calculated at the close of business on the valuation date of the
transaction.
A valuation date is one on which the net asset value of the investment portfolio
shares and unit values of the variable subaccounts are determined. A valuation
date is each day the New York Stock Exchange and the company's customer service
center are open for business, except for days on which an investment portfolio
does not value its shares or any other day as required by law. Each valuation
date ends at 4:00 p.m. Eastern time.
The date of a transaction is the date we receive your premium or transaction
request at our customer service center, so long as the date of receipt is a
valuation date. We use the accumulation unit value which is next calculated
after we receive your premium or transaction request and we use the number of
accumulation units attributable to your policy on the date of receipt.
We take monthly deductions from your account value on the monthly processing
date. If your monthly processing date is not a valuation date, the monthly
deduction is processed on the next valuation date.
The value of amounts allocated to the variable subaccounts goes up or down
depending on investment performance of the underlying investment portfolio.
FOR AMOUNTS IN THE VARIABLE SUBACCOUNTS, THERE IS NO GUARANTEED MINIMUM VALUE
FOR ACCOUNT VALUE.
HOW WE CALCULATE ACCUMULATION UNIT VALUES
We determine accumulation unit values on each valuation date.
We generally set the accumulation unit value for a variable subaccount at $10
when the subaccount is first opened. After that first date, the accumulation
unit value on any valuation date is:
1. the accumulation unit value for the preceding valuation date
multiplied by
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Future Dimensions 31
<PAGE>
2. the variable subaccount's accumulation experience factor for the
valuation period.
Every valuation period begins at 4:00 p.m. Eastern time on a valuation date and
ends at 4:00 p.m. Eastern time on the next valuation date.
We calculate an accumulation experience factor for each variable subaccount
every valuation date as follows:
1. We take the share value of the underlying portfolio shares as
reported to us by the investment portfolio managers as of the close
of business on that valuation date.
2. We add dividends or capital gain distributions declared per share and
reinvested by the investment portfolio on the date that the share
value is affected. If applicable, we subtract a charge for taxes.
3. We divide the resulting amount by the value of the shares in the
underlying investment portfolio at the close of business on the
previous valuation date.
4. We then subtract the mortality and expense risk charge under your
policy. The daily charge is .002466% (.90% annually) of the
accumulation unit value. If the previous day was not a valuation
date, the charge is multiplied by the number of days since the last
valuation date.
TRANSFERS OF ACCOUNT VALUE
You may make twelve free transfers among the variable subaccounts, or the
guaranteed interest account in each policy year with a $25 fee per transaction
after that. If your state requires a refund of premium during the free look
period, you may not make transfers until after your free look period ends. We do
not limit the number of transfers you may make. Transfers for automatic
rebalancing or dollar cost averaging do not count toward your twelve free
transfers. You may not make transfers during the continuation of coverage
period. SEE POLICY TRANSACTION FEES, PAGE 46 AND CONTINUATION OF COVERAGE, PAGE
29.
You may make transfer requests in writing, or by telephone if you have telephone
privileges, to our customer service center. Your transfer takes effect on the
valuation date we receive your request. The minimum amount you may transfer is
$100. This minimum does not need to come from one investment option or be
transferred to one investment option as long as the total amount you transfer is
at least $100. However, if the amount remaining in an investment option is less
than $100 and you make a transfer request from that investment option, we
transfer the entire amount.
EXCESSIVE TRADING
Excessive trading activity can disrupt investment portfolio management
strategies and increase portfolio expenses through:
o increased trading and transaction costs;
o forced and unplanned portfolio turnover;
o lost opportunity costs; and
o large asset swings that decrease the investment portfolio's ability
to provide maximum investment return to all policyowners.
In response to excessive trading, we may place restrictions or refuse transfers
made by third-party agents acting on behalf of owners such as market timing
services. We will refuse or place restrictions on transfers when we determine,
in our sole discretion, that transfers are harmful to the investment portfolios
or to policyowners as a whole.
GUARANTEED INTEREST DIVISION TRANSFERS
Transfers into the guaranteed interest account are not restricted.
You may transfer amounts from the guaranteed interest account only in the first
30 days of each policy year. Transfer requests received within 30 days before
your policy anniversary will be processed on your policy anniversary. A request
received by us within 30 days after your policy anniversary is effective on the
valuation date we receive it. Transfer requests made at any other time will not
be processed.
Transfers from the guaranteed interest account in each policy year are limited
to the largest of:
o 25% of your guaranteed interest account balance at the time of your
first transfer or withdrawal out of it in that policy year;
o the sum of the amounts you have transferred and withdrawn from the
guaranteed interest account in the prior policy year; or
o $100.
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Future Dimensions 32
<PAGE>
DOLLAR COST AVERAGING
If your policy has at least $10,000 invested in the Fidelity VIP Money Market
Portfolio subaccount, you may elect dollar cost averaging. The main goal of
dollar cost averaging is to protect your policy values from short-term price
changes.
DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A
LOSS IN A DECLINING MARKET.
This systematic plan of transferring account values is intended to reduce the
risk of investing too much when the price of an investment portfolio's shares is
high. It is intended to reduce the risk of investing too little when the price
of an investment portfolio's shares is low.
Since you transfer the same dollar amount to other subaccounts each period, you
purchase more units in a subaccount when the unit value is low and you purchase
fewer units if the unit value is high.
We do not count dollar cost averaging transfers toward your twelve free
transfers per policy year. There is no charge for this feature.
You may add dollar cost averaging to your policy at any time. The first dollar
cost averaging date must be at least one day after we receive your dollar cost
averaging request. If your state requires refund of all premiums we receive
during the free look period, dollar cost averaging cannot begin until your free
look period has ended.
With dollar cost averaging, you designate either a dollar amount, or a
percentage of your account value, for automatic transfer from the Fidelity VIP
Money Market subaccount. Each period we automatically transfer the amount you
select from the Fidelity VIP Money Market subaccount to one or more other
variable subaccounts. You may not use the guaranteed interest account or the
loan account in dollar cost averaging.
The minimum percentage you may transfer to any one subaccount is 1% of the total
amount you transfer. You must transfer at least $100 on each dollar cost
averaging transfer date.
Dollar cost averaging may occur on the same day of the month on a monthly,
quarterly, semi-annual, or annual basis. Unless you tell us otherwise, dollar
cost averaging automatically takes place monthly, on the monthly processing
date.
You may have both dollar cost averaging and automatic rebalancing at the same
time. However, the Fidelity VIP Money Market subaccount cannot be included in
your automatic rebalancing program.
CHANGING DOLLAR COST AVERAGING
You may change your dollar cost averaging program one time per policy year. If
you have telephone privileges, you may change the program by telephoning our
customer service center. SEE TELEPHONE PRIVILEGES, PAGE 40.
TERMINATING DOLLAR COST AVERAGING
You may cancel dollar cost averaging by sending satisfactory notice to our
customer service center. We must receive it at least one day before the next
dollar cost averaging date.
Dollar cost averaging will terminate on the date:
1. you specify; or
2. your balance in the Fidelity VIP Money Market subaccount reaches a
dollar amount you set; or
3. the amount in the Fidelity VIP Money Market subaccount is equal to or
less than the amount to be transferred on a dollar cost averaging
date. We will then transfer the remaining amount and dollar cost
averaging ends.
AUTOMATIC REBALANCING
Automatic rebalancing is a method of maintaining a consistent approach to
investing account values over time and simplifying the process of asset
allocation among your chosen investment options.
Transfers made for automatic rebalancing do not count toward your twelve free
transfers per policy year. There is no charge for this feature.
If you choose this feature, on each rebalancing date, we transfer amounts among
the investment options to match your pre-set automatic rebalancing allocation.
After the transfer, the ratio of your account value in each investment option to
your total account value for all investment options included in automatic
rebalancing matches the automatic rebalancing
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Future Dimensions 33
<PAGE>
allocation percentage you set for that investment option. This action rebalances
the amounts in the investment options that do not match your set allocation.
This mismatch can happen if an investment option outperforms the other
investment options for that time period.
You may choose the automatic rebalancing feature on your application or later by
completing our customer service form. Automatic rebalancing may occur on the
same day of the month on a monthly, quarterly, semi-annual, or annual basis. If
you do not specify a frequency, automatic rebalancing will occur quarterly.
The first transfer occurs on the date you select (after your free look period
ends if your state requires return of premium during the free look period). If
you elect this feature after your policy date, we process the first transaction
on the date you request.
When you choose automatic rebalancing allocations, you may choose up to eighteen
total investment options. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 18.
You may have both automatic rebalancing and dollar cost averaging at the same
time. However, the Fidelity VIP Money Market subaccount used for your dollar
cost averaging cannot be included in your automatic rebalancing program. You may
not include the loan account in your automatic rebalancing program.
CHANGING AUTOMATIC REBALANCING
You may change your allocation percentages for automatic rebalancing at any
time. Your allocation change is effective on the valuation date that we receive
it at our customer service center. If you reduce the amount allocated to the
guaranteed interest account, it is considered a transfer from that account. You
must meet the requirements for the maximum transfer amount and time limitations
on transfers from the guaranteed interest account. SEE TRANSFERS OF ACCOUNT
VALUE, PAGE 31.
If you have automatic rebalancing and the guaranteed minimum death benefit and
you ask for an allocation which does not meet the guaranteed minimum death
benefit diversification requirements, we will notify you that the allocation
needs to be changed and ask you for revised instructions. SEE GUARANTEED MINIMUM
DEATH BENEFIT, PAGE 25.
TERMINATING AUTOMATIC REBALANCING
You may terminate automatic rebalancing at any time, as long as we receive your
notice of termination at least one day before the next automatic rebalancing
date. If you have the guaranteed minimum death benefit and you terminate the
automatic rebalancing feature, you still must meet the diversification
requirements for the guarantee period to continue. SEE GUARANTEED MINIMUM DEATH
BENEFIT, PAGE 25.
POLICY LOANS
The loan account is part of our general account specifically designed to hold
money used as collateral for loans and loan interest.
You may borrow from your policy at any time after the first monthly processing
date, by using your policy as security for a loan, or as otherwise required
by law. The amount you borrow is called a policy
loan. Your policy loan is:
1. the total amount you borrow from your policy; plus
2. policy loan interest that is capitalized when due; minus
3. policy loan or interest repayments you make.
Unless law requires differently, a new policy loan must be at least $100. The
maximum amount you may borrow on any valuation date, unless required differently
by law, is 90% of your net cash surrender value.
Your request for a policy loan must be directed to our customer service center.
If you have telephone privileges, you may request a policy loan of less than
$25,000 by telephoning our customer service center. SEE TELEPHONE PRIVILEGES,
PAGE 40.
When you request a loan you may specify one investment option from which the
loan will be taken. If you do not specify one, the loan will be taken
proportionately from each active investment option you have, including the
guaranteed interest account.
Loan interest charges on your policy loan accrue daily at a maximum annual
interest rate of 4% for preferred loans and 6% for other loans. Interest is due
in arrears on each policy anniversary. If you do
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Future Dimensions 34
<PAGE>
not pay your interest when it is due, we add it to your
policy loan balance.
When you take a policy loan, we transfer an amount equal to your policy loan to
the loan account. We follow this same process for loan interest due at your
policy anniversary. We credit the loan account with interest at an annual rate
of 4%.
If you request an additional loan, we add the new loan amount to your existing
policy loan. This way, there is only one loan outstanding on your policy at any
time.
LOAN REPAYMENT
You may repay your policy loan at any time while your policy is in force. We
assume that payments you make, other than scheduled premiums, are policy loan
repayments. You must tell us if you want payments to be premium payments.
When you make a loan repayment, we transfer an amount equal to your payment from
the loan account to the variable subaccounts and the guaranteed interest account
in the same proportion as your current premium allocation, unless you tell us
otherwise.
PREFERRED LOANS
A preferred loan amount is an amount taken after the earlier of:
1. the tenth policy anniversary, or;
2. the fifth policy anniversary if the insured person's age is 60 or
greater.
Loan interest charges on your preferred loan amount accrue daily at a maximum
annual interest rate of 4%.
For each policy year in which your policy qualifies for preferred loan
eligibility, the first loan amount you take during that year will be considered
a preferred loan amount up to a maximum of 10% of the net account value. Any
amount loaned later in that policy year will not be considered a preferred loan
amount. Beginning in the 21st policy year and thereafter, we will consider all
loan balances to be preferred loan amounts.
If the preferred loan amount you take during any policy year is less than the
maximum allowed, you may not carry over the balance to increase the eligible
preferred loan amount in any following policy year.
EFFECTS OF A POLICY LOAN ON YOUR POLICY
Taking a loan decreases the amount you have in the investment options. Accruing
loan interest will change your net account value as compared to what it would
have been if you did not take a loan.
Even if you repay your loan, it has a permanent effect on your account value.
The benefits under your policy may be affected.
The loan is a first lien on your policy. If you do not repay your policy loan,
we deduct your outstanding policy loan and accrued loan interest from the death
proceeds payable and the account value payable on surrender.
Failure to repay your loan may affect the guaranteed minimum death benefit
feature and the length of time your policy remains in force. If you use the
continuation of coverage feature and you have a policy loan, loan interest
continues to accrue. If you do not make loan payments your policy could lapse.
POLICY LOANS MAY CAUSE YOUR POLICY TO LAPSE IF YOUR NET CASH SURRENDER VALUE IS
NOT ENOUGH TO PAY YOUR DEDUCTIONS EACH MONTH. SEE LAPSE, PAGE 36.
Policy loans may have tax consequences. If your policy lapses with a loan
outstanding, you may have further tax consequences. SEE DISTRIBUTIONS OTHER THAN
DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 52, AND DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT
CONTRACTS, PAGE 53.
PARTIAL WITHDRAWALS
By contacting our customer service center, you may request a partial withdrawal
to be processed on any valuation date after your first policy anniversary for
death benefit option B and after your second policy anniversary for option A.
You make a partial withdrawal when you withdraw part of your net account value.
If your request is by telephone, it must be for less than $25,000 and may not
cause a decrease in your death benefit. Otherwise, your request must be in
writing. SEE TELEPHONE PRIVILEGES, PAGE 40.
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Future Dimensions 35
<PAGE>
You may take twelve partial withdrawals per policy year. The minimum partial
withdrawal you may take is $100. The maximum partial withdrawal you may take is
the amount which leaves $500 as your net cash surrender value. If you request a
withdrawal of more than this maximum, we require you to surrender your policy or
reduce the withdrawal.
When you take a partial withdrawal, we deduct your withdrawal amount plus a
service fee from your account value. A surrender charge may also apply. SEE
CHARGES, DEDUCTIONS AND REFUNDS, PAGE 44.
Unless you tell us otherwise, we will make a partial withdrawal from the
guaranteed interest account and the variable subaccounts in the same proportion
that each has to your net account value immediately before your withdrawal. You
may select one investment option from which your partial withdrawal will be
taken. If you select the guaranteed interest account however, the amount
withdrawn from it may not be for more than your total withdrawal multiplied by
the ratio of your account value in the guaranteed interest account to your total
net account value immediately before the partial withdrawal transaction.
Partial withdrawals may have adverse tax consequences. SEE DISTRIBUTIONS OTHER
THAN DEATH
BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 52, AND DISTRIBUTIONS OTHER
THAN DEATH BENEFITS
FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 53.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION A
If you selected death benefit option A, no more than fifteen years have passed
since your policy date and the insured person is not yet age 81, you may make a
partial withdrawal, of up to 5% of your stated death benefit in a policy year
without decreasing your stated death benefit.
Otherwise, amounts you withdraw will reduce your stated death benefit by the
amount of the withdrawal and may be subject to a surrender charge, unless your
policy death benefit has been increased due to the federal income tax definition
of life insurance. If your policy death benefit has been increased due to the
federal income tax definition of life insurance at the time of the partial
withdrawal, then at least part of your partial withdrawal may be made without
reducing your stated death benefit.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION B
If you have selected death benefit option B, a partial withdrawal does not
reduce your stated or target death benefit. However because your account value
is reduced, we reduce the total death benefit by at least the partial withdrawal
amount.
STATED DEATH BENEFIT AND TARGET DEATH BENEFIT REDUCTIONS
Regardless of your chosen death benefit option, partial withdrawals do not
reduce your stated death benefit if:
o your base death benefit has been increased to qualify your policy as
life insurance under the federal income tax laws; and
o you withdraw an amount that is no greater than the amount that
reduces your account value to a level which no longer requires your
base death benefit to be increased to qualify as life insurance for
federal income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE
51.
We require a minimum stated death benefit and a minimum target death benefit to
issue your policy. You may not take a partial withdrawal if it reduces your
stated death benefit or target death benefit below this minimum. SEE POLICY
ISSUANCE, PAGE 50.
We will send a new policy schedule page for your policy showing the effect of
your withdrawal if there is any change to your stated death benefit or your
target death benefit. In order to make this change, we may ask that you return
the policy to our customer service center. Your withdrawal and any reductions in
the death benefits are effective as of the valuation date on which we receive
your request. SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED
ENDOWMENT CONTRACTS, PAGE 52, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM
POLICIES THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 53.
LAPSE
Your insurance coverage continues as long as your net cash surrender value is
enough to pay your deductions each month. Lapse does not apply if either the
guaranteed minimum death benefit feature or the special continuation period is
in effect and you have met all requirements. SEE SPECIAL CONTINUATION PERIOD,
PAGE 21 AND GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25.
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Future Dimensions 36
<PAGE>
GRACE PERIOD
Your policy enters a 61-day lapse grace period if, on a monthly processing date:
1. your net cash surrender value is zero (or less); and
2. the three-year special continuation period has expired, or you have
not paid the required special continuation period premium; and
3. you do not have the guaranteed minimum death benefit or it has
expired or terminated.
We notify you that your policy is in a grace period at least 30 days before it
ends. We send this notice to you (or a person to whom you have assigned your
policy) at your last known address in our records. We notify you of the premium
payment necessary to prevent your policy from lapsing. This amount is generally
the past due charges, plus your estimated monthly policy and rider deductions
for the next two months. If the insured person dies during the grace period we
do pay death proceeds to your beneficiary(ies), but with reductions for your
policy loan balance, accrued loan interest and monthly deductions owed. No lapse
notice will be sent to you if the guaranteed minimum death benefit is going to
lapse.
If we receive payment of the required amount before the end of the grace period,
we apply it to your account value in the same manner as your other premium
payments, then we deduct the overdue amounts from your account balance.
If you do not pay the full amount within the 61-day grace period, your policy
and its riders lapse without value. We withdraw your remaining account balance
from the variable subaccounts and the guaranteed interest account. We deduct
amounts you owe us including any surrender charges and inform you that your
policy coverage has ended.
IF YOU HAVE THE GUARANTEED MINIMUM DEATH BENEFIT IN EFFECT
After the special continuation period has ended and if the guaranteed minimum
death benefit is in effect, your policy's stated death benefit will not lapse
during the guarantee period. This is true even if your net cash surrender value
is not enough to cover all of the deductions from your account value on any
monthly processing date. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 25.
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Future Dimensions 37
<PAGE>
<TABLE>
<CAPTION>
LAPSE SUMMARY
SPECIAL CONTINUATION PERIOD | GUARANTEED MINIMUM DEATH BENEFIT
===================================================================|================================================================
IF YOU DO NOT MEET THE | IF YOU DO NOT MEET THE
IF YOU MEET THE REQUIREMENTS OR IT IS NO | IF YOU MEET THE REQUIREMENTS OR IT IS NO
REQUIREMENTS LONGER IN EFFECT | REQUIREMENTS LONGER IN EFFECT
- -------------------------------------------------------------------|----------------------------------------------------------------
|
<S> <C> <C> <C>
Your policy does not lapse if Your policy enters the grace |Your policy does not lapse if Your policy enters the grace
you do not have enough net period if your net cash |you do not have enough net period if your net cash
cash surrender value to pay surrender value is not |cash surrender value to pay surrender value is not
the monthly charges. The enough to pay the monthly |the monthly charges. enough to pay the monthly
charges are deducted and charges, or if your loan plus |However, if you have any charges, or if your loan plus
may cause a negative accrued loan interest is more |riders, they lapse after the accrued loan interest is more
account value until the than your account value |grace period and only your than your account value
earlier of: 1) the date you minus any surrender charge. |base coverage remains in minus any surrender charge.
have enough net cash If you do not pay enough |force. Charges for your base If you do not pay enough
surrender value to cover the premium to cover the past |coverage are then deducted premium to cover the past
monthly charge, or 2) until due monthly charges and |each month to the extent that due monthly charges and
the end of the special interest due plus the monthly |there is sufficient net interest due, plus the
continuation period. charges and interest due |account value to pay these monthly charges and interest
through the end of the grace |charges. If there is not due through the end of the
period, your policy lapses. |sufficient net account value grace period, your
|to pay a charge, it is policy lapses.
|permanently waived.
================================ ==================================|================================== =============================
</TABLE>
REINSTATEMENT
If you do not pay enough premium before the end of the grace period, your policy
lapses. You may still reinstate your policy and its riders (other than the
guaranteed minimum death benefit) within five years of the end of the grace
period if you still own the policy and the insured person meets our underwriting
requirements.
Unless law requires differently, we will reinstate your policy and riders if:
1. you have not surrendered your policy;
2. you provide satisfactory evidence to us that the insured person (and
any people insured under your riders) is still insurable according to
our normal rules of underwriting; and
3. we receive enough premium from you to keep your policy and its riders
in force from the beginning to the end of the grace period and for
two months after the reinstatement date.
Reinstatement is effective on the monthly processing date following our approval
of your reinstatement application. When we reinstate your policy, we also
reinstate the surrender charges for the amount and time remaining when your
policy lapsed. If you had a policy loan when coverage ended, we reinstate it
with accrued loan interest to the date of lapse. The cost of insurance charges
at the time of reinstatement are adjusted to reflect the time since the lapse.
We apply net premiums received after reinstatement according to your most recent
instructions which may be the premium allocation instructions in effect at the
start of the grace period.
SURRENDER
You may surrender your policy for its net cash surrender value any time while
the insured person is living. You may take your net cash surrender value in more
than one payment.
We compute your net cash surrender value as of the valuation date we receive
your written surrender request and policy at our customer service center.
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Future Dimensions 38
<PAGE>
All insurance coverage ends on the date we receive your surrender request and
policy. SEE POLICY VALUES, PAGE 30 AND SETTLEMENT PROVISIONS, PAGE 41.
We do not pro-rate or add back charges or expenses which we deducted before your
surrender to your account value. If you surrender your policy during the first
fourteen policy years or segment years, we deduct a surrender charge from your
net account value.
A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 52, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 53.
GENERAL POLICY PROVISIONS
FREE LOOK PERIOD
You have the right to examine your policy. The right to examine your policy,
often called the free look period, starts on the date you receive your policy
and is a length of time specified by law. If for any reason you do not want it,
you may return your policy to us or your agent/registered representative within
the period shown on the policy's face page. If you return your policy to us
within that time period, we will consider it canceled as of your policy date.
If you cancel your policy during this free look period, you will receive a
refund as determined under law. Generally, there are two types of free look
refunds:
o some states require a return of all premiums we receive;
o other states require payment of account value plus a refund of all
charges deducted.
Your policy will specify what type of free look refund applies in your state.
The type of free look refund in your state will affect when the net premium we
receive before the end of the free look period is invested into the variable
subaccounts. SEE INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS, PAGE 20.
YOUR POLICY
The entire contract between you and us is the combination of:
o your policy;
o a copy of your original application and any applications for benefit
increases or decreases;
o all of your riders;
o endorsements;
o policy schedule pages; and
o reinstatement applications.
If you make a change to your coverage, we give you a copy of your changed
application and new policy schedules. If you send your policy to us, we attach
these items to your policy and return it to you. Otherwise, you need to attach
them to your policy.
Unless there is fraud, we consider all statements made in an application to be
representations and not guarantees. We use no statement to deny a claim, unless
it is in an application.
A president or an officer of our company and our secretary or assistant
secretary must sign all changes or amendments we make to your policy. No other
person may change the terms or conditions of your policy.
AGE
The age stated in your policy schedule is the age of the insured person we use
to issue your policy.
The insured person must be no more than age 75. Tobacco users must be at least
age 15 at policy issue. There is no minimum issue age for non-smokers. Age is
measured as the age of the insured person on the birthday nearest the policy
anniversary.
Generally, we use age to calculate rates, charges and values. We determine age
at any given time by adding the number of completed policy years to the age
calculated at issue.
The policy anniversary nearest the insured person's 100th birthday is the date
used for policy maturity and continuation of coverage.
OWNERSHIP
The original owner is the person named as the owner in the policy application.
The owner can exercise all rights and receive benefits until the insured
person's death. This includes the right to change the owner, beneficiary(ies) or
the method designated to pay death proceeds.
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Future Dimensions 39
<PAGE>
As a matter of law, all rights of ownership are limited by the rights of any
person who has been assigned rights under the policy, and any irrevocable
beneficiary(ies).
You may name a new owner by giving us written notice. The effective date of the
change to the new owner is the date the prior owner signs the notice. However,
we will not be liable for any action we take before a change is recorded at our
customer service center. A change in ownership may cause the prior owner to
recognize taxable income on gain under the policy.
BENEFICIARY(IES)
You, as owner, name the beneficiary(ies) when you apply for your policy. The
primary beneficiary(ies) who survives the insured person receives the death
proceeds. Other surviving beneficiary(ies) receive death proceeds only if there
is no surviving primary beneficiary(ies). If more than one beneficiary(ies)
survives the insured person, they share the death proceeds equally, unless you
have told us otherwise. If none of your policy beneficiaries has survived the
insured person, we pay the death proceeds to you or to your estate, as owner.
Once you tell us who the beneficiary(ies) is/are, we keep this information on
file. You may name a new beneficiary(ies) any time before the death of the
insured person. We pay the death proceeds to the beneficiary (ies) whom you have
most recently named according to our records. We do not make payments to
multiple sets of beneficiaries.
COLLATERAL ASSIGNMENT
You may assign your policy by sending written notice to us. After we record the
assignment, your rights as owner and the beneficiary's(ies') rights (unless the
beneficiary(ies) was made an irrevocable beneficiary(ies) under an earlier
assignment) are subject to the assignment. It is your responsibility to make
sure the assignment is valid.
INCONTESTABILITY
If your policy has been in force and the insured person is alive for two years
from your policy date, we will not question the validity of the statements in
your application. If your policy has been in force while the insured person is
alive for two years from the effective date of a new segment or from the
effective date of an increase in any other benefit, with respect to the insured
person (such as an increase in stated death benefit) we will not contest the
statements in your application for the new segment or other increase.
If this policy has been in force while the insured person is alive for two years
from the effective date of reinstatement, we will not contest the statements in
your application for reinstatement.
MISSTATEMENTS OF AGE OR GENDER
If an insured person's age or gender has been misstated, we adjust the death
benefit to the amount which would have been purchased for the insured person's
correct age and gender. We base the adjusted death benefit on the cost of
insurance charges deducted from your account value on the last monthly
processing date before the insured person's death, or as otherwise required by
law.
If unisex cost of insurance rates apply, we do not make any adjustments for a
misstatement of gender.
SUICIDE
If the insured person commits suicide (while that insured person is sane or
insane) within two years of your policy date, unless otherwise required by law,
we limit death proceeds payable in one sum to:
1. the total of all premiums we receive to the time of death; minus
2. outstanding policy loan amounts and accrued loan interest; minus
3. partial withdrawals you have taken.
We make a limited payment to the beneficiary(ies) for a new segment or other
increase if the death of the insured person is due to suicide (while that
insured person is sane or insane), within two years of the effective date of a
new segment or within two years of an increase in any other benefit, unless
otherwise required by law. The limited payment we make is equal to the cost of
insurance and monthly expense charges which were deducted for such increase.
TRANSACTION PROCESSING
Generally, within seven days of when we receive all
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<PAGE>
information required to process a payment, we pay:
o death proceeds;
o net cash surrender value upon surrender;
o partial withdrawals; and
o loan proceeds.
We may delay processing these transactions if:
o the NYSE is closed for trading;
o trading on the NYSE is restricted by the
SEC;
o there is an emergency so that it is not reasonably possible to sell
securities in the variable subaccounts or to determine the value of a
variable investment option's assets; or
o a governmental body with jurisdiction over the separate account
allows suspension by its order.
SEC rules and regulations determine whether or not these conditions exist.
We execute transfers among the variable subaccounts as of the valuation date of
our receipt of your request at our customer service center.
We determine the death benefit as of the insured person's date of death. The
death proceeds are not affected by changes in the value of the variable
subaccounts after that date.
We may delay payment from our guaranteed interest division for up to six months,
unless law requires otherwise of surrender proceeds, withdrawal amounts or loan
amounts. If we delay payment more than 30 days, we pay interest at our declared
rate (or at a higher rate if required by law) from the date we receive your
complete request.
NOTIFICATION AND CLAIMS PROCEDURES
Except for certain authorized telephone requests, we must receive in writing any
election, designation, change, assignment or request made by the owner.
You must use a form acceptable to us. We are not liable for actions taken before
we receive and record the written notice. We may require you to return your
policy for policy changes and at the time of surrender.
If the insured person dies while your policy is in force, please let us or your
agent/registered representative know as soon as possible. We will immediately
send you instructions on how to make a claim at the insured person's death. As
proof of the deceased insured person's death, we may require you to provide
proof of the deceased insured person's age, and a certified copy of the deceased
insured person's death certificate.
The beneficiary(ies) and the deceased insured person's next of kin may need to
sign authorization forms. These forms allow us to get information about the
deceased insured person. This information may include medical records of doctors
and hospitals used by the deceased insured person.
TELEPHONE PRIVILEGES
If your policy was delivered on or after May 1, 1999, telephone privileges are
automatically provided to you and your agent/registered representative, unless
you decline it on the application or contact our customer service center.
Telephone privileges allow you or your agent/registered representative, if
applicable, to call our customer service center to:
o make transfers;
o change premium allocations;
o change features in your dollar cost
averaging and automatic rebalancing programs;
o request partial withdrawals; or
o request a policy loan.
Our customer service center uses reasonable procedures to make sure that
instructions received by telephone are genuine. These procedures may include:
1. requiring some form of personal identification;
2. providing written confirmation of any
transactions; and
3. tape recording telephone calls.
By accepting automatic telephone privileges, you authorize us to record your
telephone calls with us. If we use reasonable procedures to confirm
instructions, we are not liable for losses due to unauthorized or fraudulent
instructions. We may discontinue this privilege at any time.
NON-PARTICIPATION
Your policy does not participate in the surplus earnings of Southland.
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<PAGE>
DISTRIBUTION OF THE POLICIES
The principal underwriter (distributor) for our policies is ING America
Equities, Inc. ING America Equities, Inc. is an affiliate of Southland. It is
registered as a broker-dealer with the SEC and the NASD. We pay ING America
Equities, Inc. for acting as the principal underwriter under a distribution
agreement.
We sell our policies through licensed insurance agents who are registered
representatives of other broker-dealers including, but not limited to:
1. VESTAX Securities Corporation, an indirect affiliate of Southland
Life Insurance Company;
2. Locust Street Securities, Inc., an indirect affiliate of Southland
Life Insurance Company;
3. Multi-Financial Securities, Corp., an indirect affiliate of Southland
Life Insurance Company; and
4. IFG Network Securities, Inc., an indirect affiliate of Southland Life
Insurance Company.
All broker-dealers who sell this policy have entered into selling agreements
with us. Under these selling agreements, we pay a distribution allowance to
broker-dealers, who pay commissions to the agents/registered representatives who
sell this policy.
During the first policy year, the distribution allowance is 85% of the premium
we receive up to target. For premium we receive over target, the distribution
allowance is 4% in policy years one through ten.
Broker-dealers receive annual renewal payments (trails) of 0.25% of the average
net account value for policy years six through twenty.
Compensation arrangements may vary. Some broker/dealers may receive a slightly
lower distribution allowance because we provide them with greater marketing and
administrative support. In addition to the distribution allowance, we may pay
wholesaler fees and marketing or training allowances.
We pay all allowances from our resources which include sales charges deducted
from premiums.
ADVERTISING PRACTICES AND SALES LITERATURE
We may use advertisements and sales literature to promote this product,
including:
o articles on variable life insurance and other information published
in business or financial publications;
o indices or rankings of investment securities; and
o comparisons with other investment vehicles, including tax
considerations.
We may use information regarding the past performance of the variable
subaccounts. However, past performance is not indicative of future performance
of the subaccounts or the policies and is not reflective of the actual
investment experience of policyowners.
We may feature certain investment options and their managers, as well as
describe asset levels and sales volumes. We may refer to past, current, or
prospective economic trends, and investment performance or other information we
believe may be of interest to our customers.
SETTLEMENT PROVISIONS
You may elect to have the beneficiary(ies) receive the death proceeds other than
in one payment. If you make this election, you must do so before the death of
the insured person. If you have not made this election, the beneficiary(ies) may
do so within 60 days after we receive proof of the death of the insured person.
You may take your net cash surrender value in other than one payment.
The investment performance of the variable subaccounts does not affect payments
under these settlement options. Instead, interest accrues at a fixed rate based
on the option you choose. Payment options are subject to our rules at the time
you make your selection. Currently, a periodic payment must be at least $20 and
the total proceeds must be $2,000 or more.
OPTION I: PAYOUTS FOR A DESIGNATED
(FIXED) PERIOD
OPTION II: LIFE INCOME WITH PAYOUTS GUARANTEED FOR A DESIGNATED PERIOD
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<PAGE>
OPTION III: HOLD AT INTEREST (INTEREST ONLY)
OPTION IV: PAYOUTS OF A DESIGNATED AMOUNT
(FIXED INSTALLMENTS)
OPTION V: OTHER OPTIONS WE OFFER AT THE TIME WE PAY THE BENEFIT
ADMINISTRATIVE INFORMATION ABOUT THE POLICY
VOTING PRIVILEGES
We invest the variable subaccounts' assets in shares of investment portfolios.
We are the legal owner of the shares held in the separate account and we have
the right to vote on certain issues. Among other things, we may vote on issues
described in the fund's current prospectus or issues requiring a vote by
shareholders under the Investment Company Act of 1940.
Even though we own the shares, we give you the opportunity to tell us how to
vote the number of shares attributable to your account value.
We count fractional shares. If you have a voting interest, we send you proxy
material and a form on which to give us your voting instructions.
Each investment portfolio share has the right to one vote. The votes of all
investment portfolio shares are cast together on a collective basis, except on
issues for which the interests of the portfolios differ. In these cases, voting
is done on a portfolio-by-portfolio basis.
Examples of issues that require a portfolio-by-portfolio vote are:
1. changes in the fundamental investment policy of a particular
investment portfolio; or
2. approval of an investment advisory agreement.
We vote the shares in accordance with your instructions at meetings of
investment portfolio shareholders. We vote any investment portfolio shares that
are not attributable to policies and any investment portfolio shares for which
the owner does not give us instructions, the same way we vote as if we did
receive owner instructions.
We reserve the right to vote investment portfolio shares without getting
instructions from policy owners if the federal securities laws, regulations or
their interpretations change to allow this.
You may instruct us only on matters relating to the investment portfolios
corresponding to variable subaccounts in which you have invested assets as of
the record date set by the investment portfolio's board for the portfolio's
shareholders meeting. We determine the number of investment portfolio shares in
each variable subaccount that we attribute to your policy by dividing your
account value allocated to that variable subaccount by the net asset value of
one share of the matching investment portfolio.
MATERIAL CONFLICTS
We are required to track events to identify any material conflicts arising from
using investment portfolios for both variable life and variable annuity separate
accounts. The boards of the investment portfolios, Southland, and other
insurance companies participating in the investment portfolios, have this same
duty. There may be a material conflict if:
o state insurance law or federal income tax law changes;
o investment management of an investment portfolio changes; or
o voting instructions given by owners of variable life insurance
policies and variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or
deferred arrangements under Code Section 401(k). Therefore, there is a
possibility that a material conflict may arise between the interests of owners
in general or between certain classes of owners; and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine appropriate
action including removing the portfolios involved from our variable subaccounts.
We may take other action to protect policy owners. This could mean delays or
interruptions of the variable operations.
When state insurance regulatory authorities require it, we may ignore voting
instructions relating to changes
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Future Dimensions 43
<PAGE>
in an investment portfolio's adviser or its investment policies. If we do ignore
voting instructions, we give you a summary of our actions in our next
semi-annual report to owners.
Under the Investment Company Act of 1940, we must get your approval for certain
actions involving our separate account. In this case, you have one vote for
every $100 of value you have in the variable subaccounts. We cast votes credited
to amounts in the variable subaccounts, but not credited to policies in the same
proportion as votes cast by owners.
RIGHT TO CHANGE OPERATIONS
Subject to state limitations, we may from time to time make any of the following
changes to our separate account:
1. Change the investment objective.
2. Offer additional variable subaccounts which will invest in portfolios
we find appropriate for policies we issue.
3. Eliminate variable investment subaccounts.
4. Combine two or more variable subaccounts.
5. Substitute a new investment portfolio for a portfolio in which the
subaccount currently invests. A substitution may become necessary if,
in our judgment:
o a portfolio no longer suits the purposes of your policy;
o there is a change in laws or regulations;
o there is a change in a portfolio's investment objectives
or restrictions;
o the portfolio is no longer available for investment; or
o another reason we deem a substitution is appropriate.
6. Transfer assets related to your policy class to another separate
account.
7. Withdraw the separate account from registration under the 1940 Act.
8. Operate the separate account as a management investment company under
the 1940 Act.
9. Cause one or more variable subaccounts to invest in a mutual fund
other than, or in addition to, the investment portfolios.
10. Stop selling these policies.
11. End any employer or plan trustee agreement with us under the
agreement's terms.
12. Limit or eliminate any voting rights for the separate account.
13. Make any changes required by the 1940 Act or its rules or
regulations.
We will not make a change until it is effective with the SEC and approved by the
appropriate state insurance departments, if necessary. We will notify you of
changes. If you wish to transfer the amount you have in the affected subaccount
to another variable subaccount, or to the guaranteed interest account, you may
do so free of charge. Just notify us at our customer service center.
REPORTS TO OWNERS
At the end of each policy year we send a report to you that shows:
o your total net policy death benefit (your stated death benefit plus
adjustable term insurance rider death benefit, if any);
o your account value;
o your policy loan, if any, plus accrued interest;
o your net cash surrender value;
o information about the variable subaccounts; and
o your account transactions during the policy year showing net
premiums, transfers, deductions, loan amounts and withdrawals.
We also send semi-annual reports with financial information on the investment
portfolios, including a list of the investment holdings of each portfolio to
you.
We send confirmation notices to you throughout the year for certain policy
transactions.
CHARGES, DEDUCTIONS AND REFUNDS
The amount of a charge may not correspond to the cost incurred by us to provide
the service or benefits .
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<PAGE>
For example, our sales charge may not cover all of the sales and distribution
expenses. Some proceeds from other charges, including the mortality and expense
risk charge or cost of insurance charges, may be used to cover such expenses.
DEDUCTIONS FROM PREMIUMS
We consider payments we receive to be premium payment if you do not have an
outstanding loan and your policy is not in the continuation of coverage period.
After we deduct certain charges from your premium payment, we add the remaining
net premium to your policy.
SALES CHARGE
We deduct a percentage from each premium payment to compensate us for the costs
we incur in selling the policies. The sales charge helps cover the costs of
distribution, preparing our sales literature, promotional expenses and other
direct and indirect expenses.
Currently, we charge 4% of each premium we receive until the total sum of your
premium payments for your stated death benefit and any added increases in stated
death benefit equals ten times the target premium for your policy. We guarantee
that the sales charge percentage we impose on a premium payment will never
exceed 4%.
These premium deductions are in addition to any surrender charge that may be
assessed upon surrender, withdrawal or reduction in the stated death benefit
during the 14 policy years following the policy date or 14 years following an
increase in the stated death benefit. SEE SALES SURRENDER CHARGE, PAGE 48.
To determine your applicable sales charge, premiums you pay after an increase in
stated death benefit are allocated to your policy segments in the same
proportion that the guideline annual premium (defined by federal income tax law)
for each segment bears to the total guideline annual premium for your stated
death benefit.
We may reduce or waive the sales charge for certain group or sponsored
arrangements or for corporate purchasers. SEE GROUP OR SPONSORED ARRANGEMENTS
AND CORPORATE PURCHASERS, PAGE 50.
TAX CHARGES
We pay state and local taxes in almost all states. These taxes vary in amount
from state to state and may vary from jurisdiction to jurisdiction within a
state. Currently, state and local taxes range from 0.5% to 5% with some states
not imposing these types of taxes. We deduct 2.5% of each premium payment to
cover these taxes. This rate approximates the average tax rate we expect to pay
in all states.
We also deduct 1.5% of each premium payment to cover our estimated costs for the
federal income tax treatment of deferred acquisition costs. This cost is
determined solely by the amount of life insurance premiums we receive.
We reserve the right to increase or decrease your premium expense charge for
taxes as a result of changes in the tax law, within limits set by law. We also
reserve the right to increase or decrease your premium expense charge for the
federal income tax treatment of deferred acquisition costs based on any change
in that cost to us.
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
We deduct 0.002466% per day (0.90% annually) of the amount you have in the
variable subaccounts for the mortality and expense risks we assume. This charge
is deducted as part of the calculation of the daily unit values for the variable
subaccounts and does not appear as a separate charge on your statement or
confirmation.
The mortality risk is that insured people, as a group, may live less time than
we estimated. The expense risk is that the costs of issuing and administering
the
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Future Dimensions 45
<PAGE>
policies and in operating the variable subaccounts are greater than the amount
we estimated.
The mortality and expense risk charge does not apply to your account value in
the guaranteed interest account or the loan account.
MONTHLY DEDUCTIONS FROM ACCOUNT VALUE
We deduct charges from your account value on each monthly processing date.
INITIAL POLICY CHARGE
The initial policy charge is $20 per month for the first year of your policy.
This charge compensates us for such costs as:
o application processing;
o medical examinations;
o establishment of policy records; and
o insurance underwriting costs.
MONTHLY ADMINISTRATIVE CHARGE
For this policy, we charge a per month administrative charge of $6. We guarantee
that this charge will never be higher than $10 per month.
This charge is designed to compensate us for ongoing costs such as:
o premium billing and collections;
o claim processing;
o policy transactions;
o record keeping;
o reporting and communications with policy owners; and
o other expenses and overhead.
COST OF INSURANCE CHARGE
The cost of insurance charge compensates us for the ongoing costs of providing
insurance coverage under the policy, including the expected cost of paying death
proceeds that may be more than your account value at the insured person's death.
The cost of insurance charge is equal to our current monthly cost of insurance
rate multiplied by the net amount at risk for each portion of your death
benefit. We calculate the net amount at risk monthly, at the beginning of each
policy month. For the base death benefit, the net amount at risk is calculated
using the difference between the current base death benefit and your account
value. We determine your account value after we deduct your policy and rider
charges due on that date other than cost of insurance charges for the base death
benefit, adjustable term insurance rider and waiver of cost of insurance rider.
If your base death benefit at the beginning of a month increases (due to
requirements of the federal income tax law definition of life insurance), the
net amount at risk for your base death benefit for that month also increases.
Similarly, the net amount at risk for your adjustable term insurance rider
decreases. This means that your cost of insurance charge varies from month to
month with changes in your net amount at risk, changes in the death benefit and
with the increasing age of the insured person. We allocate the net amount at
risk to segments in the same proportion that each segment has to the total
stated death benefit for all coverage segments as of the monthly processing
date.
We base your current cost of insurance rates on the insured person's age, gender
and premium class on the policy and each segment date.
We apply unisex rates where appropriate under the law. This currently includes
the state of Montana and policies purchased by employers and employee
organizations in connection with employment-related insurance or benefit
programs.
Separate cost of insurance rates apply to:
o each segment of the base death benefit;
o your adjustable term insurance rider; and
o your waiver of cost of insurance rider.
We may make changes in the cost of insurance or rider charges for a class of
insured persons. We base the new charge on changes in expectations about:
o investment earnings;
o mortality;
o the time policies remain in effect;
o expenses; and
o taxes.
These rates are never more than the guaranteed maximum rates shown in your
policy. Current rates are greater for policies with a stated death benefit (or
target death benefit, if any) that is less than $250,000 on the policy date. The
guaranteed maximum rates are based on the 1980 Commissioner's Standard Ordinary
Sex Distinct Mortality Table.
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<PAGE>
The maximum rates for the initial and each new segment will be printed in your
policy schedule pages.
GUARANTEED MINIMUM DEATH BENEFIT CHARGE
If you choose the guaranteed minimum death benefit feature, we currently charge
$0.005 per $1,000 of stated death benefit each month during the guarantee
period. This charge is guaranteed never to be more than $0.01 per $1,000 of
stated death benefit each month
POLICY TRANSACTION FEES
We charge fees for certain transactions under your policy. We take these fees
from the variable subaccounts and the guaranteed interest account pro rata to
the account value in each.
If applicable, we add the persistency refund to the variable subaccounts but not
the guaranteed interest account or loan account in the same proportion that your
account value in each subaccount has to your net account value in all of the
variable subaccounts as of the monthly processing date.
RIDER CHARGES
On each monthly processing date, we deduct the cost of your riders. Rider
charges do not include the riders which are included as a cost of insurance. SEE
RIDERS, PAGE 27.
PARTIAL WITHDRAWALS
We deduct the lesser of a $25 service fee or 2% of the requested partial
withdrawal from your account value for each partial withdrawal you take to cover
our costs. WE MAY ALSO DEDUCT A SURRENDER CHARGE FROM YOUR ACCOUNT VALUE. SEE
PARTIAL WITHDRAWALS, PAGE 35.
TRANSFERS
There is a $25 fee to cover our costs for each transfer over twelve free
transfers per policy year. If you include multiple transfers in one transfer
request, it counts as one transfer. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 31.
ILLUSTRATIONS
The first policy illustration you request in a policy year is free. After that,
we charge a fee of up to $25 for each policy illustration.
PREMIUM ALLOCATION CHANGE
You may make twelve free premium allocation changes per policy year. After the
twelve free changes, we charge $25 for each additional premium allocation change
in that policy year. If you change your designated deduction investment option,
we consider it a premium allocation change. SEE MONTHLY DEDUCTIONS FROM ACCOUNT
VALUE, PAGE 45.
ACCOUNTS FROM
WHICH WE DEDUCT CHARGES, LOANS
AND PARTIAL WITHDRAWALS
<TABLE>
<CAPTION>
MONTHLY CHARGES: COST OF LOANS AND
INSURANCE CHARGES, RIDER TRANSACTION FEES PARTIAL WITHDRAWALS
CHARGES AND ADMINISTRATIVE FEES
- ------------- ---------------------------------------- -------------------------------- ------------------------------------
<S> <C> <C> <C>
Choice May choose a designated deduction Proportionally among May choose any investment
investment option, including variable subaccounts option or combination of
guaranteed interest account and guaranteed investment options
interest account
Default Proportionally among variable Proportionally among Proportionally among variable
subaccounts and guaranteed variable subaccounts subaccounts and guaranteed
interest account and guaranteed interest account
interest account
- ------------- ---------------------------------------- -------------------------------- ------------------------------------
</TABLE>
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Future Dimensions 47
<PAGE>
PERSISTENCY REFUND
Where law allows us, we pay long-term policy owners a persistency refund. Each
month your policy remains in force after your tenth policy anniversary, we
credit your account value with a refund of 0.0375% of account value. This refund
is 0.45% of your account value on an annual basis.
We add the persistency refund to the variable subaccounts in the same proportion
that your account value in each subaccount has to your total account value in
all of the variable subaccounts as of the monthly processing date.
Here are two examples of how the persistency refund may affect your account
value each month:
EXAMPLE 1: YOUR POLICY HAS NO LOAN:
o account value = $10,000 (all in the variable subaccounts)
o monthly persistency refund rate = .000375
o persistency refund = 10,000 x .000375 = $3.75
Before After
Persistency Persistency
Refund Refund
------ ------
Variable subaccounts $10,000.00 $10,003.75
EXAMPLE 2: YOUR POLICY DOES HAVE A LOAN:
o account value = $10,000
o account value in the variable subaccounts = $6,000
o account value in the loan account = $4,000
o monthly persistency refund rate = .000375
o persistency refund = 6,000 x .000375 = $2.25
Before After
Persistency Persistency
Refund Refund
------ ------
Variable subaccounts $6,000.00 $6,002.25
Loan $4,000.00 $4,000.00
SURRENDER CHARGE
We may deduct a surrender charge from your account value during the first
fourteen years of your policy or coverage segment if you:
o surrender your policy;
o reduce your stated death benefit;
o allow your policy to lapse; or
o take a partial withdrawal which decreases your stated death benefit.
The surrender charge compensates us for issuing and distributing policies. We
deduct surrender charges proportionately based on the account value in each
investment option.
The surrender charge is made up of two parts:
1. an administrative surrender charge, and
2. a sales surrender charge.
A change to your death benefit option may decrease your stated death benefit.
Under these circumstances, we do not deduct a surrender charge from your account
value and we do not reduce future surrender charges.
A change to your death benefit option may increase the stated death benefit. We
do not increase your surrender charge in this case. However, all other increases
in your stated death benefit create a new segment which will be subject to its
own fourteen year surrender charge period.
If your surrender charge changes, we send you a new policy schedule showing the
change.
For each segment, the maximum surrender charge remains level for the first nine
years of each coverage segment and then decreases at the beginning of each
following policy year by one-sixth of the amount in effect at the end of the
ninth policy year. This continues until your surrender charge reaches zero at
the earlier of the beginning of your fifteenth policy year, or the year when the
insured person reaches age 98.
We may reduce or waive the surrender charge for certain group or sponsored
arrangements, or for corporate purchasers.
ADMINISTRATIVE SURRENDER CHARGE
The administrative surrender charge is $4 per $1,000
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Future Dimensions 48
<PAGE>
of the stated death benefit for each death benefit
segment.
During the first fourteen years of your policy your administrative surrender
charge may decrease. This happens if you request a decrease in your stated death
benefit or you take a partial withdrawal which causes your stated death benefit
to decrease. Your administrative surrender charge decreases in the same
proportion that your stated death benefit decreases. Under these circumstances
we then deduct from your account value the amount by which your administrative
surrender charge decreased.
We designed your administrative surrender charge to cover part of our
administrative expenses for your policy, such as:
o application processing;
o establishing your policy records;
o insurance underwriting; and
o costs associated with developing and operating our systems to
administer the policies.
SALES SURRENDER CHARGE
We calculate the sales surrender charge for each segment by applying the
premiums you paid to each segment in the same proportion that the guideline
annual premium for each segment (as defined by the federal income tax laws) has
to the sum of the guideline annual premiums for all segments.
The sales surrender charge is:
1. 46% of the premiums we receive up to target premium for each segment
(this is known as the base standard target premium); plus
2. 44% of the premiums we receive between one and two target premiums
for each segment.
In the first two policy years or first two years after an increase in stated
death benefit, we cap the sales surrender charge at 26% of premiums we receive
up to one target premium, plus 6% of premiums we receive between one and two
target premiums, plus 5% of premiums we receive in excess of two target
premiums.
We do not determine target premiums on your scheduled premium. We determine
target premiums actuarially, based on the age and gender of the insured person.
Your policy schedule shows the initial target premium for your policy and the
target premium for any added segments. The schedule also shows the maximum sales
surrender charge for your stated death benefit.
If your stated death benefit decreases, we reduce your target premium for each
segment in the same proportion that we reduce your stated death benefit. We do
not do this if the reduction is a result of a death benefit option change. In
that case, we will send a new schedule page to you. You should attach this new
page to your policy. In some instances, we may ask you to send your policy to us
so that we can make this change for you.
If your new target premium for each segment is greater than or equal to the
premiums we receive for that segment, then we reduce your future maximum sales
surrender charge, but we do not deduct a sales surrender charge from your
account value.
If your new target premium for each segment is less than the sum of the premiums
we receive for that segment, we reduce the future maximum sales surrender charge
and we deduct a sales surrender charge from your account value equal to the
difference between your sales surrender charge before the decrease and your
sales surrender charge after the decrease. We recalculate your new sales
surrender charge as if your new target premium was always in effect for that
segment.
We reduce your future maximum sales surrender charge in the same proportion that
we reduce your stated death benefit if:
1. you make a decrease to your stated death benefit more than nine years
after your policy date; or
2. you make a partial withdrawal from your policy which reduces the
stated death benefit and you make your request more than nine years
after the date you added the additional segment.
- --------------------------------------------------------------------------------
Future Dimensions 49
<PAGE>
CALCULATION OF SURRENDER CHARGE EXAMPLE
An example of the calculation of surrender charges follows:
Assume the stated death benefit on your policy is $200,000 and the insured
person is age 45 when we issued your policy. The target premium on your policy
is $2,800. Assuming that we receive a $2,500 premium at the beginning of each
policy year, the resulting actual surrender charge for each policy year is:
Administrative Sales Actual
Policy Year Surrender Charge Surrender Charge Surrender Charge
- ----------- ---------------- ---------------- ----------------
1 $ 800 $ 650 $ 1450
2 800 860 1660
3 800 2520 3320
4 800 2520 3320
5 800 2520 3320
6 800 2520 3320
7 800 2520 3320
8 800 2520 3320
9 800 2520 3320
10 667 2100 2767
11 533 1680 2213
12 400 1260 1660
13 267 840 1107
14 133 420 553
15 0 0 0
You should review the surrender charges table in your policy schedule pages for
your specific charge amount each year.
OTHER CHARGES
Under current law, we pay no tax on investment income and capital gains included
in variable life insurance policy reserves. This means that no charge is
currently made to any variable subaccount for our federal income taxes. If the
tax law changes and we have federal income tax chargeable to the variable
subaccounts, we may make such a charge in the future.
In most states, we must pay state and local taxes. If these taxes increase, we
may charge for such taxes.
GROUP OR SPONSORED ARRANGEMENTS, OR CORPORATE PURCHASERS
Individuals, corporations or other institutions may purchase this policy. For
group or sponsored arrangements (including employees and certain family members
of employees of Southland, its affiliates and appointed sales agents), corporate
purchasers, or special exchange programs which we may offer from time to time,
we may reduce or waive the:
o surrender charge, including the surrender charge on partial
withdrawals;
o length of time a surrender charge applies;
o administrative charge;
o minimum stated death benefit;
o minimum target death benefit;
o minimum annual premium;
o target premium;
o sales charges;
o cost of insurance charges; or
o other charges normally assessed.
We can reduce or waive these items based on expected economies under a group or
sponsored arrangement or with a corporate purchaser. Group arrangements include
those in which there is a trustee, an employer or an association. The group
either purchases policies covering a group of individuals on a group basis or
endorses a policy to a group of individuals. Sponsored arrangements include
those in which an employer or association allows us to offer policies to its
employees or members on an individual basis.
- --------------------------------------------------------------------------------
Future Dimensions 50
<PAGE>
Our sales, administration and mortality costs generally vary with the size and
stability of the group, among other factors. We take all these factors into
account when we reduce charges. A group or sponsored arrangement must meet
certain requirements to qualify for reduced charges. We make reductions to
charges based on our rules in effect when we approve a policy application. We
may change these rules from time to time.
Each sponsored arrangement or corporation may have different group premium
payments and premium requirements.
We will not be unfairly discriminatory in any variation in the surrender charge,
administrative charge, or other charges, fees and privileges. These variations
are based on differences in costs or services.
TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the policy and does not purport to be complete or
to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisers should be consulted for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws. No representation is made as to the likelihood of
continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
This policy is designed to qualify as a life insurance contract under the
Internal Revenue Code. All terms and provisions of the policy shall be construed
in a manner which is consistent with that design. In order to qualify as a life
insurance contract for federal income tax purposes and to receive the tax
treatment normally accorded life insurance contracts under federal tax law, a
policy must satisfy certain requirements which are set forth in the Internal
Revenue Code. Specifically, the policy must meet the requirements of the
"guideline premium/cash value corridor test," as specified in Code section 7702.
While there is very little guidance as to how these requirements are applied, we
believe it is reasonable to conclude that our policies satisfy the applicable
requirements. If it is subsequently determined that a policy does not satisfy
the applicable requirements, we will take appropriate and reasonable steps to
bring the policy into compliance with such requirements and we reserve the right
to restrict policy transactions or modify your policy in order to do so.
The guideline premium/cash value corridor test provides for a maximum premium in
relation to the death benefit, and a minimum "corridor" of death benefit in
relation to account value. SEE APPENDIX A, PAGE 144 FOR A TABLE OF THE GUIDELINE
PREMIUM/CASH VALUE CORRIDOR TEST FACTORS.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 guideline premium/cash corridor
test, Code Section 817(h) requires separate account investments, such as our
separate account, to be adequately diversified. The Treasury has issued
regulations which set the standards for measuring the adequacy of any
diversification. To be adequately diversified, each variable subaccount must
meet certain tests. If your variable life policy is not adequately diversified
under these regulations, it is not treated as life insurance under Code Section
7702. You would then be subject to federal income tax on your policy income as
you earn it. Our variable subaccounts' investment portfolios have promised they
will meet the diversification standards that apply to your policy.
In certain circumstances, you, as owner of a variable life insurance contract,
may be considered the owner for federal income tax purposes of the separate
account assets used to support your contract. Any income and gains from the
separate account assets are includable in the gross income from your policy
under these circumstances. The IRS has stated in published rulings that a
variable contract owner is considered the owner of separate account assets if
the contract owner has "indicia of ownership" in those assets. "Indicia of
ownership" includes the ability to exercise investment control over the assets.
Your ownership rights under your policy are similar to, but different in some
ways from those described by the IRS in rulings in which it determined that
policy owners are not owners of separate account assets. For example, you have
flexibility in allocating your premium payments and in your policy values. These
differences could result in the IRS
- --------------------------------------------------------------------------------
Future Dimensions 51
<PAGE>
treating you as the owner of a pro rata share of the separate account assets. We
do not know what standards will be set forth in the future, if any, in Treasury
regulations or rulings. We reserve the right to modify your policy, as
necessary, to try to prevent you from being considered the owner of a pro rata
share of the separate account assets, or to otherwise qualify your policy for
favorable tax treatment.
We will at all times assure that the policy meets the statutory definition which
qualifies the policy as life insurance for federal income tax purposes. In
addition, as long as the policy remains in force, increases in account value as
a result of interest or investment experience will not be subject to federal
income tax unless and until there is a distribution from the policy, such as a
partial withdrawal or loan. SEE TAX TREATMENT OF POLICY DEATH BENEFITS, PAGE 52.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY DEATH BENEFITS
We believe that the death benefit under a policy is generally excludable from
the gross income of the beneficiary(ies) under section 101(a)(1) of the Code.
However, there are exceptions to this general rule. Additionally, federal and
local transfer, estate inheritance and other tax consequences of ownership or
receipt of policy proceeds depend on the circumstances of each policy owner or
beneficiary(ies). A tax adviser should be consulted about these consequences.
Generally, the policy owner will not be taxed on any of the policy account value
until there is a distribution. When distributions from a policy occur, or when
loan amounts are taken from or secured by a policy, the tax consequences depend
on whether or not the policy is a "modified endowment contract."
Special rules also apply if you are subject to the alternative minimum tax. You
should consult a tax adviser if you are subject to the alternative minimum tax.
MODIFIED ENDOWMENT CONTRACTS
Under the Internal Revenue Code, certain life insurance contracts are classified
as "modified endowment contracts" and are given less favorable tax treatment
than other life insurance contracts. Due to the flexibility of the policies as
to premiums and benefits, the individual circumstances of each policy will
determine whether or not it is classified as a modified endowment contract. The
rules are too complex to be summarized here, but generally depend on the amount
of premiums we receive during the first seven policy years. Certain changes in a
policy after it is issued could also cause it to be classified as a modified
endowment contract. A current or prospective policy owner should consult with a
competent adviser to determine whether or not a policy transaction will cause
the policy to be classified as a modified endowment contract.
If a policy becomes a modified endowment contract, distributions that occur
during the policy year will be taxed as distributions from a modified endowment
contract. In addition, distributions for a policy within two years before it
becomes a modified endowment contract will be taxed in this manner. This means
that a distribution made from a policy that is not a modified endowment contract
could later become taxable as a distribution form a modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts that are issued by us (or our affiliates) to
the same policy owner during any calendar year are treated as one modified
endowment contract for purposes of determining the amount includable in the
policy owner's income when a taxable distribution occurs.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS
Once a policy is classified as a modified endowment contract, the following tax
rules apply both prospectively and to any distributions made in the prior two
years:
1. All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a modified endowment contact
will be treated first as distributions of gain taxable as ordinary
income and as
- --------------------------------------------------------------------------------
Future Dimensions 52
<PAGE>
tax-free recovery of the policy owner's investment in the policy only
after all gain has been distributed.
2. Loan amounts taken from or secured by a policy classified as a
modified endowment contract are treated as distributions and taxed
first as distributions of gain taxable as ordinary income and as
tax-free recovery of the policy owner's investment in the policy only
after all gain has been distributed.
3. A 10% additional income tax penalty may be imposed on the
distribution amount subject to income tax. Consult a tax adviser to
determine whether or not you may be subject to this penalty tax.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS
Distributions other than death benefits from a policy that is not classified as
a modified endowment contract are generally treated first as a recovery of the
policy owner's investment in the policy. Only after the recovery of all
investment in the policy, is there taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for federal income tax purposes, if policy
benefits are reduced during the first fifteen policy years, may be treated in
whole or in part as ordinary income subject to tax.
Loan amounts from or secured by a policy that is not a modified endowment
contract are generally not treated as distributions. The tax consequences
associated with preferred loans is less certain and a tax advisor should be
consulted about such loans. Finally, neither distributions from, nor loan
amounts from or secured by, a policy that is not a modified endowment contract
are subject to the 10% additional income tax.
INVESTMENT IN THE POLICY
Your investment in the policy is generally the total of your aggregate premiums.
When a distribution is taken from the policy, your investment in the policy is
reduced by the amount of the distribution that is tax free.
POLICY LOANS
In general, interest on a policy loan will not be deductible. Moreover, the tax
consequences associated with a low-cost loan such as the loan available in the
policy are uncertain. Before taking out a policy loan, you should consult a tax
adviser as to the tax consequences.
If a loan from a policy is outstanding when the policy is canceled or lapses,
then the amount of the outstanding indebtedness will be added to the amount
treated as a distribution from the policy and will be taxed accordingly.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss shall be recognized on
the exchange of one life insurance policy for another life insurance policy or
for an endowment or annuity contract. We accept 1035 exchanges with outstanding
loans. Special rules and procedures apply to Section 1035 exchanges. If you wish
to take advantage of Section 1035, you should consult your tax adviser.
TAX-EXEMPT POLICY OWNERS
Special rules may apply to a policy that is owned by a tax-exempt entity.
Tax-exempt entities should consult their tax adviser regarding the consequences
of purchasing and owning a policy. These consequences could include an effect on
the tax-exempt status of the entity and the possibility of the unrelated
business income tax.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative action is uncertain, there is always the
possibility that the tax treatment of the policy could be changed by legislation
or otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
CHANGES TO COMPLY WITH THE LAW
So that your policy continues to qualify as life
- --------------------------------------------------------------------------------
Future Dimensions 53
<PAGE>
insurance under the Code, we reserve the right to refuse to accept all or part
of your premium payments or to change your death benefit. We may refuse to allow
you to make partial withdrawals that would cause your policy to fail to qualify
as life insurance. We also may:
o make changes to your policy or its riders; or
o take distributions from your policy to the degree that we deem
necessary to qualify your policy as life insurance for tax purposes.
If we make any change of this type, it applies the same way to all affected
policies.
The tax law limits the amount we can charge for mortality costs and other
expenses used to calculate whether your policy qualifies as life insurance for
federal income tax purposes. We must base these calculations on reasonable
mortality charges and as permitted, other charges reasonably expected to be
paid. The Treasury issued proposed regulations on what it considers reasonable
mortality charges. We believe that the charges used for your policy should meet
the Treasury's current requirement for "reasonableness." We reserve the right to
make changes to the mortality charges if future regulations have standards which
make changes necessary in order to continue to qualify your policy as life
insurance for federal income tax purposes.
Additionally, assuming that you do not want your policy to be or to become a
modified endowment contract, we include a policy endorsement under which we have
the right to amend your policy, including riders. We do this to attempt to
enable your policy to continue to meet the seven-pay test for federal income tax
purposes. If the policy premium you pay is more than the seven-pay limit, we
have the right to remove any excess premium or to make any appropriate
adjustments to your policy's account value and death benefit. It is not clear,
however, whether we can take effective action pursuant to this endorsement under
all possible circumstances to prevent a policy that has exceeded the premium
limitation from being classified as a modified endowment contract.
Any increase in your death benefit will cause an increase in your cost of
insurance charges.
OTHER
Policy owners may use our policies in various arrangements, including:
o qualified plans;
o non-qualified deferred compensation or salary continuance plans;
o split dollar insurance plans;
o executive bonus plans;
o retiree medical benefit plans; and
o other plans.
The tax consequences of these plans may vary depending on the particular facts
and circumstances of each arrangement. If you want to use any of your policies
in this type of arrangement, you should consult a qualified tax adviser
regarding the tax issues of your particular arrangement.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
The IRS requires us to withhold income taxes from any portion of the amounts
individuals receive in a taxable transaction. We do not withhold income taxes if
you elect in writing not to have withholding apply. If the amount withheld for
you is insufficient to cover income taxes, you may have to pay income taxes and
possibly penalties later.
The transfer of the policy or designation of a beneficiary may have federal,
state and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate and generation-skipping transfer taxes. For example
the transfer of the policy to, or the designation as a beneficiary of, or the
payment of proceeds to a person who is assigned to a generation which is two or
more generations below the generation assignment of the policy owner may have
generation skipping transfer tax consequences under federal tax law. The
individual situation of each policy owner or beneficiary will determine the
extent, if any, to which federal, state and local transfer and inheritance taxes
may be imposed and how ownership or receipt of policy proceeds will be treated
for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON
FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS.
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Future Dimensions 54
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, AND ACCUMULATED PREMIUMS
The following tables are intended to show how the policy works, including how
benefits and values can vary over time. Each table compares these values with
total premiums we receive with interest. The policy illustrated uses the
following assumptions:
<TABLE>
<CAPTION>
Tobacco User* Death Benefit Stated Target Death
Gender Age Status Option Death Benefit Premium Benefit
- ------ --- ------ ------ ------------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Male 45 Preferred A $250,000 $4,500 $250,000
Non-tobacco
</TABLE>
- ------------------
* "Tobacco User" includes the use of cigarettes, cigars, pipes, chewing tobacco,
nicotine chewing gum or patch, snuff or any other tobacco or nicotine-based
product.
The tables show how death benefits, account values, and net cash surrender value
of a hypothetical policy could vary over an extended period of time, assuming
the variable subaccounts had constant hypothetical gross annual investment
returns of 0%, or 10% over the periods indicated in each table. Values would
differ from those shown in the tables if the annual investment returns were not
constant. The amounts shown would differ if we had used female or unisex rates.
These illustrations assume there is no policy loan.
We illustrate premium payments as if they were made at the beginning of the
year. Each table shows what would happen if an amount equal to the assumed
premiums earned interest, after taxes, of 5% compounded annually.
The difference between the account value and the net cash surrender value in the
first fourteen years of the policy shows the effect of the surrender charge.
The net investment return on your policy is lower than the gross investment
return on the variable subaccounts as a result of the mortality and expense risk
charge, the portfolio management fees and portfolio expenses. We show the effect
of the net investment return in the amounts for death benefits, account values
and account value minus any surrender charge.
The tables reflect annual investment management fees of 0.61% of the portfolios'
aggregate average daily net assets. This hypothetical rate is a simple average
of the investment advisory fees applying to the investment portfolios for the
year ending December 31, 1999. We assume other portfolio expenses at the rate of
0.12% of the portfolios' average daily net assets. This is an average of all the
portfolios' other expenses for the year ending December 31, 1999 after any
absorption by investment portfolio managers has been made. The average of all
portfolios' total expenses is 0.73%.
Actual fees vary by portfolio. The portfolio fees and expenses used in the
illustrations are the net amounts shown after expense reimbursements or waivers
of fees and expenses by the portfolio's investment manager. Absent such expense
reimbursements or waivers, the total average investment management fees, average
other portfolio expenses and the average of all portfolios' total expenses used
in the illustrations would have been higher (0.61%, 0.14% and 0.75%,
respectively). The tables assume that the current expense reimbursement
arrangements will continue. However, they may not continue through 2000.
The effect of these portfolio charges and expenses, and mortality and expense
risk charges result in a net rate of return of :
o (1.62)% on a 0% gross rate of return; and
o 8.29% on a 10% gross rate of return.
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Future Dimensions 55
<PAGE>
The tables assume that charges have been deducted including deductions for
premiums, cost of insurance rider charges, monthly deductions, mortality and
expense risk charges, and administrative and sales charges. The tables show
charges at our current rates which includes a persistency refund. The tables
also show charges at the maximum rates we guarantee in our policies. SEE MONTHLY
DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 45. The tables reflect that we do not
currently charge against the separate account for state or federal taxes. If we
charge for the taxes in the future, it will take a higher gross rate of return
than the rates shown to produce the same death benefits, account values and
account value minus any surrender charge.
If we are asked to do so, we will give you a comparable personal illustration
based on:
o the insured person's age and gender;
o standard premium class assumptions;
o initial stated death benefit;
o the chosen death benefit option;
o scheduled premiums consistent with your policy form; and
o special features elected on your policy.
At issue, we deliver an individualized illustration showing the scheduled
premium you chose and the insured person's actual risk class. After we issue the
policy, if you ask us to, we will give you an illustration of future policy
benefits. We base these hypothetical future benefits on both guaranteed and
current cost factor assumptions and actual account value.
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Future Dimensions 56
<PAGE>
SOUTHLAND LIFE FUTURE DIMENSIONS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $250,000 ANNUAL PREMIUM: $4,500
MALE 45 PREFERRED NON-TOBACCO DEATH BENEFIT OPTION A
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------10.00%---------
PREMIUM NET CASH CASH
ACCUMULATED ACCM SURR DEATH NET ACCM SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 4500 4725 2904 934 250000 3252 1282 250000
2 4500 9686 5943 3723 250000 6968 4748 250000
3 4500 14896 8874 4724 250000 10933 6783 250000
4 4500 20365 11696 7546 250000 15168 11018 250000
5 4500 26109 14401 10251 250000 19688 15538 250000
6 4500 32139 16990 12840 250000 24518 20368 250000
7 4500 38471 19448 15298 250000 29671 25521 250000
8 4500 45120 21763 17613 250000 35166 31016 250000
9 4500 52101 23926 19776 250000 41026 36876 250000
10 4500 59431 25921 22463 250000 47270 43812 250000
15 4500 101959 33674 33674 250000 87341 87341 250000
20 4500 156237 34846 34846 250000 146249 146249 250000
25 4500 225511 24364 24364 250000 238696 238696 276887
30 4500 313924 -- -- -- 380824 380824 407482
AGE 65 4500 168773 33885 33885 250000 161344 161344 250000
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above value.
The hypothetical gross rates of return shown are illustrative only and are not a
representation of past or future investment results. Actual investment results
may be different from those shown and will depend on a number of factors,
including selected investment allocations and investment experience. No
representation is made that these hypothetical gross investment returns can be
achieved or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00% and 10.00% over a period of years but varied above or below that average
during the period. They would also be different if premiums were paid in a
different frequency than shown.
- --------------------------------------------------------------------------------
Future Dimensions 57
<PAGE>
SOUTHLAND LIFE FUTURE DIMENSIONS VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $250,000 ANNUAL PREMIUM: $4,500
MALE 45 PREFERRED NON-TOBACCO DEATH BENEFIT OPTION A
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------10.00%---------
PREMIUM NET CASH NET CASH
ACCUMULATED ACCM SURR DEATH ACCM SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 4500 4725 2953 983 250000 3304 1334 250000
2 4500 9686 6040 3820 250000 7075 4855 250000
3 4500 14896 9025 4875 250000 11107 6957 250000
4 4500 20365 11972 7822 250000 15490 11340 250000
5 4500 26109 14882 10732 250000 20255 16105 250000
6 4500 32139 17757 13607 250000 25435 21285 250000
7 4500 38471 20596 16446 250000 31066 26916 250000
8 4500 45120 23439 19289 250000 37231 33081 250000
9 4500 52101 26385 22235 250000 44085 39935 250000
10 4500 59431 29295 25837 250000 51536 48078 250000
15 4500 101959 44040 44040 250000 101851 101851 250000
20 4500 156237 54746 54746 250000 177570 177570 250000
25 4500 225511 60148 60148 250000 294245 294245 341324
30 4500 313924 57601 57601 250000 470395 470395 503323
AGE 65 4500 168773 56303 56303 250000 197105 197105 250000
</TABLE>
The expense charges and cost of insurance rates are subject to change. Account
values will vary from those illustrated if actual rates differ from those
assumed. Current mortality charges rates are based on current mortality
experience and are not dependent upon future improvements in underlying
mortality.
The hypothetical gross rates of return shown are illustrative only and are not a
representation of past or future investment results. Actual investment results
may be different from those shown and will depend on a number of factors,
including selected investment allocations and investment experience. No
representation is made that these hypothetical gross investment returns can be
achieved or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00% and 10.00% over a period of years but varied above or below that average
during the period. They would also be different if premiums were paid in a
different frequency than shown.
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Future Dimensions 58
<PAGE>
ADDITIONAL INFORMATION
DIRECTORS AND OFFICERS
Set forth below is information regarding the directors and principal officers of
Southland Life Insurance Company. Southland's address, and the business address
of each person named, except as noted with one asterisk (*) is ING North America
Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The
business address of each person denoted with one asterisk (*) is Security Life
Center, 1290 Broadway, Denver, Colorado 80203-5699.
<TABLE>
<CAPTION>
Name Position and Offices with Southland Life
- ---- ----------------------------------------
<S> <C>
Stephen M. Christopher* Chairman and President
Jerome J. Cwiok Director, Executive Vice President and Chief Operating Officer
B. Scott Burton Director
Valerie G. Brown Director
P. Randall Lowery Director
James D. Thompson Director
Michael W. Cunningham Director
Mark A. Tullis Director
James L. Livingston, Jr.* Executive Vice President, CFO and Chief Actuary
John R. Barmeyer Senior Vice President - Legal Services
R. Thomas Daniel Senior Vice President and Chief Production Officer & Chief Marketing Officer
Terry L. Morrison* Senior Vice President, New Business Operations
Derek J. Reynolds Senior Vice President and Chief Information Officer
Mark A. Smith* Senior Vice President, Insurance Services
Samuel H. Turner Senior Vice President - Emerging Markets
Gretta Ytterbo Senior Vice President - ING US Legal Services
Gary W. Waggoner* Vice President, Secretary ING US Legal Services
</TABLE>
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Future Dimensions 59
<PAGE>
REGULATION
We are regulated and supervised by the Department of Insurance of the State of
Texas which periodically examines our financial condition and operations. In
addition, we are subject to the insurance laws and regulations in every
jurisdiction in which we do business. As a result, the provisions of this policy
may vary somewhat from jurisdiction to jurisdiction.
We are required to submit annual statements, including financial statements, of
our operations and finances to the insurance departments of the various
jurisdictions in which we do business to determine solvency and compliance with
state insurance laws and regulations.
We are also subject to various federal securities laws and regulations.
LEGAL MATTERS
The legal matters in connection with the policy described in this prospectus
have been passed on by the General Counsel of Southland. Sutherland Asbill &
Brennan LLP of Washington, D.C. has provided advice on certain matters relating
to the federal securities laws.
LEGAL PROCEEDINGS
Southland, as an insurance company, is ordinarily involved in litigation. We do
not believe that any current litigation is material to Southland's ability to
meet its obligations under the policy or to the separate account, and we do not
expect to incur significant losses from such actions. ING America Equities,
Inc., the principal underwriter and distributor of the policy, is not engaged in
any litigation of any material nature.
EXPERTS
The financial statements of Southland Life Insurance Company at December 31,
1999 and 1998, and for each of the three years in the period ended December 31,
1999, and the financial statements of the Southland Separate Account L1 at
December 31, 1999, and for each of the three years in the period ended December
31, 1999, appearing in this prospectus and registration statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein, and are included in reliance upon
such reports given on the authority of such firm as experts in accounting and
auditing.
Actuarial matters in this prospectus have been examined by James L. Livingston,
Jr., F.S.A., M.A.A.A., who is Executive Vice President, CFO and Chief Actuary of
Southland. His opinion on actuarial matters is filed as an exhibit to the
Registration Statement we filed with the SEC.
REGISTRATION STATEMENT
We have filed a Registration Statement relating to the separate account and the
variable life insurance policy described in this prospectus with the SEC. The
Registration Statement, which is required by the Securities Act of 1933,
includes additional information that is not required in this prospectus under
the rules and regulations of the SEC. The additional information may be obtained
from the SEC's principal office in Washington, DC. There is a charge for this
material.
- --------------------------------------------------------------------------------
Future Dimensions 60
<PAGE>
FINANCIAL STATEMENTS
The financial statements of Southland Life Insurance company ("Southland")
at December 31, 1999, and 1998, and for each of the three years in the period
ended December 31, 1999, are prepared in accordance with accounting principles
generally accepted in the United States and start on page 62.
The financial statements included for the Southland Separate Account L1 at
December 31, 1999 and for each of the three years in the period ended
December 31, 1999, are prepared in accordance with accounting principles
generally accepted in the United States and represent those divisions that had
commenced operations by that date.
The financial statements of Southland, as well as the financial statements
included for the Southland Separate Account L1 referred to above have been
audited by Ernst & Young LLP. The financial statements of Southland should be
distinguished from the financial statements of the Southland Separate Account L1
and should be considered only as bearing upon the ability of Southland to meet
its obligations under the policies. They should not be considered as bearing
upon the investment experience of the divisions of Southland Separate
Account L1.
- --------------------------------------------------------------------------------
Future Dimensions 61
<PAGE>
Financial Statements
Southland Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Future Dimensions 62
<PAGE>
Southland Life Insurance Company
Financial Statements
Years ended December 31, 1999, 1998 and 1997
Contents
Report of Independent Auditors................................................64
Audited Financial Statements
Balance Sheets................................................................65
Statements of Income..........................................................67
Statements of Changes in Stockholder's Equity.................................68
Statements of Cash Flows......................................................69
Notes to Financial Statements.................................................71
- --------------------------------------------------------------------------------
Future Dimensions 63
<PAGE>
Report of Independent Auditors
Board of Directors
Southland Life Insurance Company
We have audited the accompanying balance sheets of Southland Life Insurance
Company as of December 31, 1999 and 1998, and the related statements of income,
changes in stockholder's equity, and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southland Life Insurance
Company at December 31, 1999 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
March 28, 2000
- --------------------------------------------------------------------------------
Future Dimensions 64
<PAGE>
Southland Life Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
December 31
1999 1998
----------------- -------------------
(In Thousands)
<S> <C> <C>
ASSETS
Investments (Notes 1, 2, 3 and 4):
Fixed maturities:
Available-for-sale, at fair value (amortized cost:
1999 - $1,338,052; 1998 - $1,140,483) $1,280,301 $1,186,813
Equity securities, at fair value (cost: 1999 -
$8,529; 1998 - $5,941) 8,926 6,503
Mortgage loans on real estate 381,082 341,673
Real estate 1,300 -
Policy loans 88,847 87,904
Short-term investments 30,079 -
----------------- -------------------
Total investments 1,790,535 1,622,893
Cash - 4,742
Accrued investment income 24,018 18,336
Reinsurance recoverable:
Paid benefits 36,922 3,539
Unpaid benefits and IBNR 15,761 5,201
Prepaid reinsurance premiums 167,597 190,035
Deferred policy acquisition costs 292,521 223,949
Present value of future profits less accumulated
amortization (1999 - $216,355; 1998 - $205,258) 62,860 59,628
Goodwill less accumulated amortization (1999 -
$15,704; 1998 - $14,163) 44,756 46,298
Separate account assets (Note 13) 95,610 54,009
Federal taxes recoverable from related party (Note 8) - 6,598
Deferred federal income tax asset 4,056 -
Other assets 11,485 16,626
----------------- -------------------
Total assets $2,546,121 $2,251,854
================= ===================
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 65
<PAGE>
Southland Life Insurance Company
Balance Sheets
<TABLE>
<CAPTION>
December 31
1999 1998
---------------------- ---------------------
(In Thousands,
Except Share Amounts)
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits:
Life and annuity reserves $1,843,154 $1,549,782
Accident and health reserves 8,367 9,647
Guaranteed investment contracts 92,545 137,714
Policyholders' funds 2,463 2,632
Advance premiums 88 97
Accrued dividends and dividends on deposit 721 742
Unpaid claims 26,054 30,442
---------------------- ----------------------
Total future policy benefits 1,973,392 1,731,056
Accounts payable and accrued expenses 7,897 12,204
Aggregate indebtedness to related parties 59,549 6,355
Other liabilities 56,700 36,437
Separate account liabilities (Note 13) 95,610 54,009
Federal income taxes payable (Note 8):
Current 1,017 -
Deferred - 31,425
---------------------- ----------------------
Total liabilities 2,194,165 1,871,486
Stockholder's equity (Note 9):
Common stock, $3 par value:
Authorized - 2,550,000 shares
Issued and outstanding - 2,500,000 shares 7,500 7,500
Additional paid-in capital 285,506 271,906
Accumulated other comprehensive income (19,308) 20,637
Retained earnings 78,258 80,325
---------------------- ----------------------
Total stockholder's equity 351,956 380,368
---------------------- ----------------------
Total liabilities and stockholder's equity $2,546,121 $2,251,854
====================== ======================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 66
<PAGE>
Southland Life Insurance Company
Statements of Income
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
----------------- ------------------ -----------------
(In Thousands)
<S> <C> <C> <C>
Revenues:
Traditional life insurance premiums $ 38,397 $ 36,383 $ 32,304
Health insurance premiums 80,470 68,947 69,997
Universal life and investment product charges 112,354 107,634 92,660
Reinsurance assumed - 397 570
----------------- ------------------ -----------------
231,221 213,360 195,531
Reinsurance ceded premiums (61,571) (52,378) (61,103)
----------------- ------------------ -----------------
169,650 160,983 134,428
Net investment income 124,624 111,408 107,563
Net realized (losses) gains on investments (5,077) 19,296 25,294
Other revenues 8,510 7,712 11,293
----------------- ------------------ -----------------
Total revenues 297,707 299,399 278,578
Benefits and expenses:
Insurance claims and benefits incurred:
Traditional life insurance:
Death benefits 28,900 29,201 27,569
Other benefits 22,881 16,524 19,452
Universal life and investment contracts:
Interest credited to account balances 65,332 57,581 46,182
Death benefit incurred in excess of account balances 37,773 27,753 21,102
Health benefits 63,137 62,470 53,613
(Decrease) increase in policy reserves and other funds (6,716) 960 (2,579)
Reinsurance recoveries (55,520) (48,478) (43,814)
----------------- ------------------ -----------------
155,787 146,011 121,525
Commissions 15,937 16,676 17,186
Insurance operating expenses (Note 11) 62,589 60,422 38,644
Amortization of goodwill 1,541 1,541 1,541
Amortization of present value of future profits, net of
accrued interest 6,280 4,694 9,473
Amortization of deferred policy acquisition costs 29,154 30,925 27,572
----------------- ------------------ -----------------
271,288 260,269 215,941
----------------- ------------------ -----------------
Income before federal income taxes 26,419 39,130 62,637
Federal income taxes (Note 8) 9,886 14,297 22,479
----------------- ------------------ -----------------
Net income $ 16,533 $ 24,833 $ 40,158
================= ================== =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 67
<PAGE>
Southland Life Insurance Company
Statements of Changes in Stockholder's Equity
<TABLE>
<CAPTION>
Accumulated
Additional Other
Common Paid-in Comprehensive Retained
Stock Capital Income Earnings Total
------------- -------------- ------------------ ------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $7,500 $246,906 $ 19,013 $ 96,734 $370,153
Dividends to stockholder - - - (42,000) (42,000)
Comprehensive income:
Change in net unrealized investment gains
net of deferred taxes of $3,255 - - 6,044 - -
Effect on DPAC and PVFP of unrealized gains
on fixed maturities, net of deferred taxes of ($397) - - (737) - -
Net income - - - 40,158 -
Total comprehensive income - - - - 45,465
-------------- -------------- ------------------ -------------- -------------
Balance at December 31, 1997 7,500 246,906 24,320 94,892 373,618
Dividends to stockholder - - - (39,400) (39,400)
Contributed surplus - 25,000 - - 25,000
Comprehensive income:
Change in net unrealized investment losses
net of deferred taxes of ($996) - - (1,851) - -
Effect on DPAC and PVFP of unrealized losses
on fixed maturities, net of deferred taxes of ($987) - - (1,832) - -
Net income - - - 24,833 -
Total comprehensive income - - - - 21,150
-------------- -------------- ------------------ -------------- -------------
Balance at December 31, 1998 7,500 271,906 20,637 80,325 380,368
Dividends to stockholder - - - (18,600) (18,600)
Contributed surplus - 13,600 - - 13,600
Comprehensive income:
Change in net unrealized investment losses
net of deferred taxes of ($36,486) - - (67,760) - -
Effect on DPAC and PVFP of unrealized losses
on fixed maturities, net of deferred taxes of
$14,977 - - 27,815 - -
Net income - - - 16,533 -
Total comprehensive income - - - - (23,412)
-------------- -------------- ------------------ -------------- -------------
Balance at December 31, 1999 $7,500 $285,506 $(19,308) $78,258 $351,956
============== ============== ================== ============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 68
<PAGE>
Southland Life Insurance Company
Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------- --------------- ----------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 16,533 $ 24,833 $ 40,158
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
(Decrease) increase in future policy benefits (7,657) (78,110) 29,507
Net (decrease) increase in federal income taxes (6,357) (22,325) 4,121
Increase in accounts payable and accrued
expenses and other liabilities 15,956 24,191 4,839
Increase in accrued investment income (5,682) (375) (652)
Net realized investment losses (gains) 5,077 (19,296) (25,294)
(Increase) decrease in reinsurance recoverable (43,943) 88 (26)
Decrease (increase) in prepaid reinsurance
premiums 22,438 85,119 (14,796)
Amortization expense 7,822 6,235 11,125
Policy acquisition costs deferred (64,446) (64,456) (51,940)
Amortization of deferred policy acquisition
costs 29,154 30,925 27,572
Other, net 4,845 (10,280) (1,124)
------------------- --------------- ----------------
(26,260) (23,451) 23,379
Net cash (used in) provided by operating activities
INVESTING ACTIVITIES
Securities available-for-sale:
Sales:
Fixed maturities 520,010 1,936,423 608,076
Equity securities 3,190 883 335
Maturities - fixed maturities 63,320 71,935 79,378
Purchases:
Fixed maturities (787,089) (2,150,706) (831,839)
Equity securities (4,617) (3,442) (2,699)
Sale, maturity or repayment of investments:
Mortgage loans on real estate 25,104 42,185 40,060
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 69
<PAGE>
Southland Life Insurance Company
Statements of Cash Flows (continued)
<TABLE>
<CAPTION>
Year ended December 31
1999 1998 1997
------------------------- ----------------- ------------------
(In Thousands)
<S> <C> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Purchase or issuance of investments:
Mortgage loans on real estate (64,265) (46,886) (22,073)
Real estate (1,300) - -
Policy loans, net (943) (1,748) (4,016)
Short-term investments, net (30,079) 3,311 11,838
------------------------- ----------------- ------------------
Net cash used in investing activities (276,669) (148,045) (120,940)
FINANCING ACTIVITIES
Capital contribution accrued in the prior year 25,000 - -
Increase (decrease) in indebtedness to related parties, net 55,794 13,252 (5,277)
Receipts from interest sensitive products credited to
policyholder account balances 301,228 238,468 162,826
Return of policyholder account balances on interest
sensitive policies (51,235) (42,900) (33,077)
Return of capital and dividends paid to stockholder (32,600) (39,400) (28,000)
------------------------- ----------------- ------------------
Net cash provided by financing activities 298,187 169,420 96,472
------------------------- ----------------- ------------------
Net decrease in cash (4,742) (2,076) (1,089)
Cash at beginning of year 4,742 6,818 7,907
------------------------- ----------------- ------------------
Cash at end of year $ - $ 4,742 $ 6,818
========================= ================= ==================
</TABLE>
The Company paid interest of $540,000, $887,000 and $1,549,000 during 1999, 1998
and 1997, respectively.
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 70
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
Southland Life Insurance Company (the Company) is a wholly-owned subsidiary of
ING America Life Corporation (America Life), an indirect, wholly-owned
subsidiary of ING Groep, N.V.
The accompanying financial statements have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NATURE OF OPERATIONS
The Company's market focus is on the middle-income consumer. The life insurance
products offered address retirement accumulation, wealth transfer and estate
planning, and death protection needs. Products include universal life,
survivorship and traditional life and products with low expense loads to
institutional and individual customers. Operations are conducted through
independent producers. An increasing portion of the Company's business is
no-load products sold to individuals, by fee-based financial planners,
businesses and institutions. The Company is presently licensed in forty-eight
states (all states except for New York and Vermont), the District of Columbia,
and Puerto Rico.
Prior to December 1999, the Company provided stop-loss coverage on group health
insurance. Effective December 1, 1999, the Company entered into a reinsurance
agreement with SAFECO Life Insurance Company to cede the Company's medical stop
loss and group term life business. The commission and expense allowance received
on this transaction resulted in a gain of $17,925,000. Of this gain, $16,166,000
has been deferred and will be recognized as income over the next twelve months.
These policies will not be renewed by the Company at the end of their current
terms.
- --------------------------------------------------------------------------------
Future Dimensions 71
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NATURE OF OPERATIONS (CONTINUED)
The significant accounting policies followed by the Company that materially
affect the financial statements are summarized below.
ACCOUNTING CHANGES
In 1998, the Company adopted FASB Statement No. 130, Reporting Comprehensive
Income. Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The adoption of this FASB had no impact on the Company's
financial position or results from operations.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
During 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement is effective for fiscal years
beginning after June 15, 2000. The Company plans to adopt this statement during
2001, and the effect of implementation on the Company's financial statements has
not yet been determined.
INVESTMENTS
Investments are shown on the following bases:
The carrying value of fixed maturities depends on the classification of the
security: securities held-to-maturity, securities available-for-sale, and
trading securities. Management determines the appropriate classification of debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. Debt securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Held-to- maturity securities are stated at amortized cost. Debt securities not
classified as held-to-maturity and marketable equity securities are classified
as available-for-sale. Available-for-sale securities are stated at fair value,
with unrealized gains and losses, net of tax, and deferred acquisition cost and
present value of future profit adjustments, reported in a separate component of
stockholder's equity.
- --------------------------------------------------------------------------------
Future Dimensions 72
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS (CONTINUED)
All of the Company's securities were classified as available-for-sale at
December 31, 1999 and 1998.
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest income
from investments. Interest and dividends are included in net investment income
as earned.
Equity securities are reported at fair value. Mortgage loans are carried at the
unpaid balances. Policy loans are carried at unpaid balances. Short-term
investments are carried at cost, which approximates fair value. Derivatives are
accounted for on the same basis as the asset hedged.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains (losses) on investments.
The cost of securities sold is based on the specific identification method.
RECOGNITION OF PREMIUM REVENUES AND COSTS
For life and annuity contracts other than universal life or investment-type
contracts, premiums are recognized as revenues over the premium-paying period,
with valuation reserves for future benefits established on a pro-rata basis from
such premiums.
Revenues for universal life and investment-type contracts consist of policy
charges for the cost of insurance and policy administration and surrender
charges assessed during the period. Expenses include interest credited to policy
account balances and benefits incurred in excess of policy account balances.
Certain profits on limited-payment policies are deferred and recognized over the
policy term.
- --------------------------------------------------------------------------------
Future Dimensions 73
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECOGNITION OF PREMIUM REVENUES AND COSTS (CONTINUED)
For accident and health policies, gross premiums are prorated over the contract
term of the policies with the unearned premium included in the policy reserves.
Anticipated investment income is considered in determining if a premium
deficiency related to short-term contracts exists.
DEFERRED POLICY ACQUISITION COSTS
Commissions and other costs of acquiring traditional life insurance, universal
life insurance (including interest sensitive products) and investment products
that vary with and are primarily related to the production of new and renewal
business have been deferred. Traditional life insurance acquisition costs are
being amortized over the premium-paying period of the related policies using
assumptions consistent with those used in computing policy benefit reserves. For
universal life insurance and investment products, acquisition costs are being
amortized generally in proportion to the present value (using the assumed
crediting rate) of expected gross profits from surrender charges and investment,
mortality, and expense margins. This amortization is adjusted retrospectively
when estimates of current or future gross profits to be realized from a group of
products are revised.
Deferred policy acquisition costs are adjusted to reflect changes that would
have been necessary if unrealized investment gains and losses related to
available-for-sale securities had been realized. The Company has reflected those
adjustments in the asset balance with the offset as a direct adjustment to
stockholder's equity.
FUTURE POLICY BENEFITS
Benefit reserves, with the exception of reserves for universal life-type
policies and investment products, are computed using a net level premium method
including assumptions as to investment yields, mortality, withdrawals and other
assumptions based on the Company's and industry experience, modified as
necessary to reflect anticipated trends to include provisions for possible
unfavorable deviations. Reserve interest assumptions are those deemed
appropriate at the time of policy issue, and range from 6% to 9%. Policy benefit
claims are charged to expense in the year that the claims are incurred. Health
reserves consist principally of unearned premiums and claim reserves.
- --------------------------------------------------------------------------------
Future Dimensions 74
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FUTURE POLICY BENEFITS (CONTINUED)
Benefit reserves for interest sensitive products (including universal life-type
policies) and investment products are computed under a retrospective deposit
method and represent policy account balances before applicable surrender
charges. Policy benefits and claims that are charged to expense include benefit
claims incurred during the year in excess of related policy account balances.
Interest crediting rates for universal life and investment products range from
4.75% to 6.25% during 1999, from 4.5% to 6% during 1998, and from 4.75% to 6%
during 1997.
Included in life and annuity reserves is an unearned revenue reserve that
reflects the unamortized balance of excess policy fees over ultimate policy fees
on universal life and investment products. These excess fees have been deferred
and are being recognized in income over the periods benefited, using the same
assumptions and factors used to amortize deferred policy acquisition costs.
UNPAID CLAIMS
The liabilities for unpaid claims include estimates of amounts due on reported
claims and claims that have been incurred but were not reported as of December
31. Such estimates are based on actuarial projections applied to historical
claim payment data. Such liabilities are reasonable and adequate to discharge
the Company's obligations for claims incurred but unpaid as of December 31.
GOODWILL
The excess cost of acquired subsidiaries over the sum of amounts assigned to
identifiable assets at acquisition, less liabilities assumed, is recorded as
goodwill. Generally, goodwill is amortized using the straight-line method over
forty years.
- --------------------------------------------------------------------------------
Future Dimensions 75
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRESENT VALUE OF FUTURE PROFITS
The present value of future profits (PVFP) represents the profits to be realized
from future premiums on insurance in-force (at the date of acquisition) from
businesses acquired. The PVFP arises from the acquisition of the Company by
America Life.
The PVFP is being amortized over the years that it is anticipated such profits
will be received. In general, this value is determined using the same
assumptions applied to compute benefit reserves and deferred policy acquisition
costs, discounted to provide an appropriate rate of return. Interest for
traditional life business is accrued at a rate of 7.75% and 7.93% in 1999 and
1998, respectively, grading down to 6% over the next 12 years. Interest for
universal life business is amortized based on the credited rate.
An analysis of the PVFP for the years ended December 31 follows:
1999 1998 1997
------------ ------------ ------------
(In Thousands)
Balance at beginning of year $ 59,628 $64,363 $ 72,345
Interest accrued on unamortized
balance 4,817 5,289 6,145
Amortization (11,097) (9,983) (15,618)
FAS 115 adjustment 9,512 (41) 1,491
------------ ------------ ------------
Balance at end of year $ 62,860 $59,628 $ 64,363
============ ============ ============
- --------------------------------------------------------------------------------
Future Dimensions 76
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRESENT VALUE OF FUTURE PROFITS (CONTINUED)
The estimated amount of amortization during each of the next five years is shown
below:
Amortization
of PVFP
-----------------------
(In Thousands)
2000 $8,498
2001 6,956
2002 6,353
2003 5,760
2004 5,433
FEDERAL INCOME TAXES
Deferred federal income taxes have been provided or credited to reflect
significant temporary differences between income reported for tax and financial
reporting purposes using reasonable assumptions.
CASH FLOW INFORMATION
Cash includes cash on hand and demand deposits.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1998 financial statements have been reclassified
to conform to the 1999 presentation.
- --------------------------------------------------------------------------------
Future Dimensions 77
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1999 and 1998 are summarized below:
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998
------------------------------- --------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------------------- ---------------- ----------------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities:
Available-for-sale $1,280,301 $1,280,301 $1,186,813 $1,186,813
Equity securities 8,926 8,926 6,503 6,503
Mortgage loans on real estate 381,082 378,086 341,673 370,736
Real estate 1,300 1,300 - -
Policy loans 88,847 77,654 87,904 83,855
Short-term investments 30,079 30,079 - -
LIABILITIES
Supplemental contracts without life
contingencies 866 866 1,079 1,079
Other policyholder funds left on
deposit 3,272 3,272 3,471 3,471
Individual annuities, net of
reinsurance 13,674 13,564 15,447 15,286
</TABLE>
The following methods and assumptions were used by the Company in estimating the
fair value disclosures for financial instruments:
FIXED MATURITIES, EQUITY SECURITIES AND SHORT-TERM INVESTMENTS: The
fair values for fixed maturities (including redeemable preferred
stocks) are based on quoted market prices, where available. For fixed
maturities not actively traded, fair values are estimated using values
obtained from independent pricing services or, in the case of private
placements and collateralized mortgage obligations and other mortgage
derivative investments, are estimated by discounting expected future
cash flows using a current market rate applicable to the yield, credit
quality, and maturity of the investments. The fair values of equity
securities are based on quoted market prices. The fair values of
short-term investments approximate the carrying amount of such assets.
- --------------------------------------------------------------------------------
Future Dimensions 78
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
2. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
MORTGAGE LOANS ON REAL ESTATE: Estimated fair values for commercial
real estate loans are generated using a discounted cash flow approach.
Loans in good standing are discounted using interest rates determined
by U.S. Treasury yields at December 31 and spreads required on new
loans with similar characteristics. The amortizing features of all
loans are incorporated in the valuation. Where data on option features
is available, option values are determined using a binomial valuation
method and are incorporated into the mortgage valuation. Restructured
loans are valued in the same manner; however, these are discounted at a
greater spread to reflect increased risk. Fair values for residential
loans are based on discounted cash flows and approximate carrying
value.
POLICY LOANS: The fair values for policy loans are estimated by
discounting cash flows at the interest rates charged on policy loans of
similar policies currently being issued. Loans with similar
characteristics are aggregated for purposes of the calculations.
DERIVATIVE FINANCIAL INSTRUMENTS: Fair values for on-balance-sheet
derivative financial instruments (swaps hedging fixed maturities) are
based on broker/dealer valuations or on internal discounted cash flow
pricing models taking into account current cash flow assumptions and
the counterparties' credit standing. Swaps with a fair value of
$(38,000) at December 31, 1999 and $1,219,000 at December 31, 1998
represent asset hedges and are reported as a component of fixed
maturity securities on the accompanying balance sheets.
OTHER INVESTMENT-TYPE INSURANCE CONTRACTS: The fair values of the
Company's deferred annuity contracts and supplemental contracts without
life contingencies are estimated based on the cash surrender value. The
carrying values of other liabilities including immediate annuities,
dividend accumulations, and premium deposits approximate their fair
values.
- --------------------------------------------------------------------------------
Future Dimensions 79
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS
The amortized cost and estimated fair value of investments in fixed maturities
and equity securities are as follows at December 31, 1999:
<TABLE>
<CAPTION>
Cost or Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 42,638 $ 297 $ 3,072 $ 39,863
States, municipalities and political
subdivisions 8,528 24 9 8,543
Public utilities securities 82,057 1,417 5,605 77,869
Corporate securities 485,210 7,526 24,426 468,310
Mortgage-backed securities 478,721 742 25,572 453,891
Other asset-backed securities 240,898 1,460 10,495 231,863
Derivatives hedging fixed maturities - - 38 (38)
-------------- -------------- -------------- --------------
Total fixed maturities 1,338,052 11,466 69,217 1,280,301
Equity securities 8,529 426 29 8,926
-------------- -------------- -------------- --------------
Total $1,346,581 $11,892 $69,246 $1,289,227
============== ============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 80
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of investments in fixed maturities
and equity securities are as follows at December 31, 1998:
<TABLE>
<CAPTION>
Cost or Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
(In Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. Government
corporations and agencies $ 48,127 $ 1,944 $ 113 $ 49,958
States, municipalities and political
subdivisions 7,589 943 - 8,532
Public utilities securities 39,712 1,572 444 40,840
Corporate securities 516,585 32,408 7,060 541,933
Mortgage-backed securities 308,710 10,582 1,895 317,397
Other asset-backed securities 219,760 7,760 586 226,934
Derivatives hedging fixed maturities - 1,232 13 1,219
-------------- -------------- -------------- --------------
Total fixed maturities 1,140,483 56,441 10,111 1,186,813
Equity securities 5,941 767 205 6,503
-------------- -------------- -------------- --------------
Total $1,146,424 $57,208 $10,316 $1,193,316
============== ============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 81
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of debt securities by contractual
maturity and marketable equity securities at December 31, 1999 are shown in the
following table. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Cost or Estimated
Amortized Fair
Cost Value
-------------- -------------------
(In Thousands)
Available-for-sale:
Due in one year or less $ 2,872 $ 2,889
Due after one year through five years 91,371 92,889
Due after five years through ten years 274,997 264,698
Due after ten years 249,193 234,071
-------------- -------------------
618,433 594,547
Mortgage-backed securities 478,721 453,891
Other asset-backed securities 240,898 231,863
Equity securities 8,529 8,926
-------------- -------------------
Total available-for-sale $1,346,581 $1,289,227
============== ===================
- --------------------------------------------------------------------------------
Future Dimensions 82
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
Changes in unrealized gains (losses) on investments in available-for-sale
securities for the years ended December 31, 1999 and 1998 are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1999
Fixed Equity Total
------------------------------------ -----------------
(In Thousands)
<S> <C> <C> <C>
Gross unrealized gains $ 11,466 $ 426 $ 11,892
Gross unrealized losses (69,217) (29) (69,246)
------------------ ----------------- ------------------
Net unrealized gains (57,751) 397 (57,354)
Deferred income tax benefit
(expense) 20,212 (139) 20,073
------------------ ----------------- ------------------
Net unrealized (losses) gains after
taxes (37,539) 258 (37,281)
Less:
Balance at beginning of year 30,114 365 30,479
------------------ ----------------- ------------------
Change in net unrealized (losses)
gains $(67,653) $(107) $(67,760)
================== ================= ==================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
Fixed Equity Total
------------------------------------ -----------------
(In Thousands)
<S> <C> <C> <C>
Gross unrealized gains $56,441 $ 767 $57,208
Gross unrealized losses (10,111) (205) (10,316)
------------------ ----------------- ------------------
Net unrealized gains 46,330 562 46,892
Deferred income tax expense (16,216) (197) (16,413)
------------------ ----------------- ------------------
Net unrealized gains after taxes 30,114 365 30,479
Less:
Balance at beginning of year 32,247 83 32,330
------------------ ----------------- ------------------
Change in net unrealized gains $(2,133) $ 282 $(1,851)
================== ================= ==================
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 83
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
As part of its overall investment management strategy, the Company has
outstanding purchase commitments of $41,351,000 and $31,242,000 in 1999 and
1998, respectively. These commitments were settled in January 2000 and 1999,
respectively.
Major categories of investment income for the years ended December 31 are
summarized as follows:
1999 1998 1997
--------------- ---------------- --------------
(In Thousands)
Fixed maturities $ 92,897 $81,350 $ 75,326
Equity securities 33 236 29
Mortgage loans on real estate 30,539 29,000 30,454
Policy loans 5,216 5,200 5,232
Short-term investments 582 165 615
Other investments 238 358 (970)
--------------- ---------------- --------------
129,505 116,309 110,686
Investment expenses (4,881) (4,901) (3,123)
--------------- ---------------- --------------
Net investment income $124,624 $111,408 $107,563
=============== ================ ==============
Net realized gains (losses) on investments for the years ended December 31 are
summarized as follows:
1999 1998 1997
------------- ------------- -----------
(In Thousands)
Fixed maturities $(6,419) $16,235 $19,881
Equity securities 1,120 310 81
Mortgage loans and other 222 2,357 1,177
Fixed maturities transferred to parent
company in 1995 - 394 4,155
Net realized (losses) gains on ------------- ------------- -----------
investments $(5,077) $19,296 $25,294
============= ============= ===========
- --------------------------------------------------------------------------------
Future Dimensions 84
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
The above realized (losses) gains for fixed maturities and equity securities are
shown net of related tax (benefit) expense of $(1,855,000), $5,929,000 and
$8,441,000 for 1999, 1998 and 1997, respectively. As these (losses) gains were
realized, they were reclassified from "Accumulated other comprehensive income"
included in stockholder's equity to "Net realized (losses) gains on investments"
in the accompanying Statements of Income.
During 1999, 1998 and 1997, debt and marketable equity securities
available-for-sale were sold with a fair value at the date of sale of
$523,200,000, $1,937,306,000 and $608,411,000, respectively. Gross gains of
$6,488,000, $26,416,000 and $23,870,000 and gross losses of $11,787,000,
$9,871,000 and $3,908,000 were realized on those sales in 1999, 1998 and 1997,
respectively.
4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
The Company enters into interest rate contracts to reduce and manage interest
rate risk associated with individual assets and liabilities and its overall
aggregate portfolio.
Interest rate swap agreements generally involve the exchange of fixed and
floating interest payments over the life of the agreement without an exchange of
the underlying principal amount. The differential to be paid or received is
accrued as interest rates change and is recognized as an adjustment to interest
expense or income. The related amount payable to or receivable from
counterparties is included in other liabilities or assets.
The Company manages the potential credit exposure from interest rate contracts
through careful evaluation of the counterparty credit standing and master
netting agreements. The Company is exposed to credit loss in the event of
nonperformance by counterparties on interest rate contracts; however, the
Company does not anticipate nonperformance by any of these counterparties. The
amount of such exposure is generally the unrealized gains in such contracts.
- --------------------------------------------------------------------------------
Future Dimensions 85
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
4. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
The table below summarizes the Company's interest rate contracts at December 31,
1999 and 1998:
<TABLE>
<CAPTION>
December 31, 1999
----------------------------------------------------------------------
Notional Amortized Fair Book
Amount Cost Value Value
----------------- ------------------ ---------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps $25,330 $ - $ (38) $ (38)
----------------- ------------------ ---------------------------------
Total swaps $25,330 $ - $ (38) $ (38)
================= ================== =================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
----------------------------------------------------------------------
Notional Amortized Fair Book
Amount Cost Value Value
----------------- ------------------ ---------------------------------
(In Thousands)
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps $28,000 $ - $1,232 $1,232
Swaps-affiliates 2,000 - (13) (13)
----------------- ------------------ ---------------------------------
Total swaps $30,000 $ - $1,219 $1,219
================= ================== =================================
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 86
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
5. CONCENTRATIONS OF RISK
At December 31, 1999, the Company held $122,791,000 in below-investment-grade
bonds classified as available-for-sale. These holdings amounted to 9.6% of the
Company's investment in bonds and 5% of total assets. The holdings of
below-investment-grade bonds are widely diversified and of satisfactory quality
based on the Company's investment policies and credit standards.
At December 31, 1999, the Company's commercial mortgages involved a
concentration of properties located in Florida (15%), Texas (10%) and
Pennsylvania (9%). The remaining commercial mortgages relate to properties
located in 25 other states. The portfolio is well diversified, covering many
different types of income-producing properties on which the Company has first
mortgage liens. The maximum mortgage outstanding on any individual property is
$7,501,000.
The Company also has a concentration of direct premium income in California
(15%) and Pennsylvania (10%) for the year ended December 31, 1999.
6. EMPLOYEE BENEFIT PLANS
The Company does not sponsor an employee retirement plan. Home office and field
office services are provided to the Company by employees of Life Insurance
Company of Georgia (Life of Georgia), an affiliated insurer. The Company
reimburses Life of Georgia for the actual cost of salaries and fringe benefits
of employees utilized in providing administrative services to the Company.
The Company does not sponsor a deferred compensation plan, but reimburses Life
of Georgia for the actual cost of fringe benefits for employees providing
administrative services to the Company. The Company has an unfunded
noncontributory, nonqualified deferred compensation plan covering certain agents
in the General Agency Sales Division.
- --------------------------------------------------------------------------------
Future Dimensions 87
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
7. REINSURANCE
The Company is involved in both ceded and assumed reinsurance with other
companies for the purpose of diversifying risk and limiting exposure on larger
risks. Substantially all of the guaranteed investment contracts and the
associated prepaid reinsurance premiums are ceded under a reinsurance agreement
with an affiliate. As of December 31, 1999, the Company's retention limit for
acceptance of risk on life insurance policies had been set at various levels up
to $250,000. Reinsurance premiums, commissions, expense reimbursements, and
reserves related to reinsured business are accounted for on bases consistent
with those used in accounting for the original policies issued and the terms of
the reinsurance contacts.
To the extent that the assuming companies become unable to meet their
obligations under these treaties, the Company remains liable to its
policyholders for the portion reinsured. Consequently, allowances are
established for amounts deemed uncollectible. To minimize its exposure to
significant losses from reinsurer insolvencies, the Company evaluates the
financial condition of its reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic characteristics
of the reinsurer.
The carrying values of amounts recoverable from reinsurers approximate their
fair value.
- --------------------------------------------------------------------------------
Future Dimensions 88
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
7. REINSURANCE (CONTINUED)
Additional information regarding the Company's reinsurance activity for the
years ended December 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of Amount
Gross Other from Other Net Assumed to
Amount Companies Companies Amount Net
------------------- ----------------- ----------------------------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C>
1999
Life insurance in
force $30,169,561 $14,359,593 $1,301 $15,811,269 nil
================== ================== ================ ================= =================
Premiums:
Life insurance $ 38,397 $18,557 $ - $19,840 nil
Health insurance 80,470 43,014 - 37,456 nil
------------------ ------------------ ---------------- ----------------- -----------------
Total premiums $ 118,867 $61,571 $ - $57,296 nil
================== ================== ================ ================= =================
1998
Life insurance in
force $28,581,594 $8,681,450 $507 $19,900,651 nil
================== ================== ================ ================= =================
Premiums:
Life insurance $ 36,383 $13,779 $ 13 $22,616 0.06%
Health insurance 68,947 38,599 384 30,732 1.25%
------------------ ------------------ ---------------- ----------------- -----------------
Total premiums $ 105,330 $52,378 $397 $53,348 0.74%
================== ================== ================ ================= =================
1997
Life insurance in
force $22,777,781 $6,764,447 $529 $16,013,863 nil
================== ================== ================ ================= =================
Premiums:
Life insurance $32,304 $11,715 $ 18 $20,607 0.09%
Health insurance 69,997 49,388 552 21,161 2.61%
------------------ ------------------ ---------------- ----------------- -----------------
Total premiums $ 102,301 $61,103 $570 $41,768 1.36%
================== ================== ================ ================= =================
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 89
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
8. INCOME TAXES
The Company files a consolidated federal income tax return with America Life's
parent, ING America Insurance Holdings, Inc., a Delaware Corporation, and other
US affiliates and subsidiaries. The Company's federal income tax return is
consolidated with the following entities: ING America Insurance Holdings, Inc.,
ING North America Insurance Corporation, First Columbine Life Insurance Company,
Security Life of Denver Insurance Company and its subsidiaries, ING Investment
Management, Inc. and ING America Life Corporation and its subsidiaries.
The method of tax allocation is governed by a written tax sharing agreement
which was revised effective January 1, 1996. The tax sharing agreement provides
that each member of the consolidated return shall reimburse ING America
Insurance Holdings, Inc. for its respective share of the consolidated federal
income tax liability for each taxable year subject to the tax sharing agreement.
The current tax liability of $1,017,000 at December 31, 1999 and current tax
receivable of $6,598,000 at December 31, 1998 are payable to and due from,
respectively, America Life under the terms of the tax sharing agreement.
- --------------------------------------------------------------------------------
Future Dimensions 90
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows:
December 31
1999 1998
------------------------------------
(In Thousands)
Deferred income tax liability:
Deferred policy acquisition costs $66,596 $48,056
PVFP 22,001 20,869
Unrealized investment gains and losses - 17,352
Bond/mortgage loans market discount 238 132
Other reserves (292) (202)
------------------ -----------------
Total deferred income tax liability 88,543 86,207
Deferred income tax asset:
Unrealized investment gains and losses 20,102 -
Benefit reserves 56,791 44,539
Other assets 15,706 10,243
------------------ -----------------
Total deferred income tax asset 92,599 54,872
------------------ -----------------
Net deferred income tax asset (liability) $ 4,056 $(31,425)
================== =================
- --------------------------------------------------------------------------------
Future Dimensions 91
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
A reconciliation of the income tax attributable to continuing operations
computed at U.S. federal statutory tax rates to the income tax expense included
in the accompanying statements of income follows:
Year ended December 31
1999 1998 1997
---------- ----------- -----------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Goodwill 2.0 1.4 .6
Other items, net .4 .1 .3
---------- ----------- -----------
Effective tax rate 37.4% 36.5% 35.9%
========== =========== ===========
The components of federal income tax expense consist of the following:
Year ended December 31
1999 1998 1997
------------- ---------------- --------------
(In Thousands)
Current $23,858 $27,757 $20,675
Deferred (13,972) (13,460) 1,804
------------- ---------------- --------------
Federal income tax expense $9,886 $14,297 $22,479
============= ================ ==============
The Company made net income tax payments of $16,243,000 during 1999, $36,621,000
during 1998, and $18,359,000 during 1997 for current income taxes and
settlements of prior year returns.
9. STATUTORY ACCOUNTING INFORMATION AND PRACTICES
Statutory capital and surplus was $92,107,000 and $82,946,000 at December 31,
1999 and 1998, respectively. Statutory net income was $8,163,000, $18,073,000
and $38,211,000, for the years ended December 31, 1999, 1998 and 1997,
respectively.
- --------------------------------------------------------------------------------
Future Dimensions 92
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
9. STATUTORY ACCOUNTING INFORMATION AND PRACTICES (CONTINUED)
The Company exceeded its minimum statutory capital and surplus requirements at
December 31, 1999. Additionally, the amount of dividends which can be paid by
the Company to its stockholder without prior approval of the state insurance
department is generally limited to the greater of 10% of statutory capital and
surplus or the statutory net gain from operations.
The Company's statutory-basis financial statements are prepared in accordance
with accounting practices prescribed or permitted by the Texas Insurance
Department. Currently, "prescribed" statutory accounting practices are
interspersed throughout state insurance laws and regulations, the NAIC's
Accounting Practices and Procedures Manual and a variety of other NAIC
publications. "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ from
state to state, may differ from company to company within a state, and may
change in the future.
In 1998, the NAIC adopted codified statutory accounting principles
("Codification") effective January 1, 2001. Codification will likely change, to
some extent, prescribed statutory accounting practices and may result in changes
to the accounting practices that the Company uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domesticated within those states. Accordingly, before Codification
becomes effective for the Company, the state of Texas must adopt Codification as
the prescribed basis of accounting on which domestic insurers must report their
statutory-basis results to the Insurance Department. At this time it is
anticipated that Texas will adopt Codification effective January 1, 2001.
Management believes that the impact of Codification will not be material to the
Company's statutory-basis financial statements.
The NAIC has established certain Risk-Based Capital (RBC) requirements for
life/health insurance companies. The NAIC RBC formula attempts to measure the
risk profile of insurance companies in relation to actual capitalization levels.
The Company exceeded the NAIC RBC minimum requirements for 1999 and 1998.
At December 31, 1999 and 1998, bonds with an amortized cost of $9,376,000 and
$9,468,000, respectively, were on deposit with various state insurance
departments to meet regulatory requirements.
- --------------------------------------------------------------------------------
Future Dimensions 93
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
10. COMMITMENTS AND CONTINGENT LIABILITIES
The Company is assessed amounts by state guaranty funds to cover losses to
policyholders of insolvent or rehabilitated insurance companies. Those mandatory
assessments may be partially recovered through a reduction in future premium
taxes in certain states. The Company has accrued for those assessments net of
anticipated future premium tax deductions.
The Company established an accrued liability of approximately $12,000,000 as of
December 31, 1999 and 1998, respectively, related to certain potential
litigation. The Company will vigorously defend its position in these cases.
11. SERVICE AGREEMENT WITH AFFILIATE
The Company has a service agreement with Life of Georgia whereby this affiliate
provides personnel, certain services and facilities for the conduct of the
Company's operations in return for payment representing the costs incurred in
providing such services and facilities. Substantially all insurance operating
expenses and employment taxes are incurred under the terms of this service
agreement. During 1999, 1998 and 1997, the Company reimbursed Life of Georgia
$47,258,000, $32,353,000 and $26,627,000, respectively, under this agreement.
The Company has a payable to Life of Georgia of $19,702,000 and $15,510,000 at
December 31, 1999 and 1998, respectively, related to this agreement. This
payable is included within indebtedness to related parties in the accompanying
balance sheets.
12. FINANCING ARRANGEMENTS
The Company has a revolving line of credit totaling $100,000,000, which matures
30 days from the date of advancement. This line of credit expires July 31, 2000.
Interest rates on these borrowings are tied to the bank's cost of funds rate
plus .25%. There were no outstanding borrowings under this agreement at December
31, 1999 and 1998.
- --------------------------------------------------------------------------------
Future Dimensions 94
<PAGE>
Southland Life Insurance Company
Notes to Financial Statements (continued)
13. SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds segregated by the
Company for the benefit of certain policyholders who bear the investment risk.
The separate account assets and liabilities are carried at fair value. Revenues
and expenses on the separate account assets and related liabilities equal the
benefits paid to the separate account policyholders and are excluded from the
amounts reported in the accompanying statements of income except for fees
charged for administration services and mortality risk.
14. IMPACT OF YEAR 2000 (UNAUDITED)
The Company utilizes data processing systems in the administration of the
insurance and financial service products that it markets. Most of the Company's
data processing systems have required modifications to enable them to process
dates including the year 2000 and beyond. The Company converted, tested for Year
2000 compliance and put into production all of its core business applications
prior to December 31, 1999. Through the end of March 2000, the Company has not
experienced any Year 2000 related business operation problems. The Company
conducts business with a multitude of business entities whose ability to comply
with Year 2000 systems issues may affect the business operations of the Company.
The Company has made an effort to determine whether such entities have adequate
plans for Year 2000 compliance, and the Company is not aware of any instances
where a key supplier or vendor is not compliant. The Company does not have the
ability to assure with any certainty the compliance capacity of all third
parties, and there can be no assurance that failure of such third parties to
complete adequate preparations in a timely manner, and any resulting system
interruption or other consequences, would not have an adverse effect, directly
or indirectly, on the Company's operations.
The Company has incurred most of the costs of the Year 2000 effort primarily
from the testing and remediation of administrative systems. These systems
support the administration of the Company and its affiliates. Therefore, the
combined costs would represent substantially all of Year 2000 costs, which will
be shared by the Company and its affiliates. Combined costs were approximately
$19.4 million and $8.1 million in 1999 and 1998, respectively.
- --------------------------------------------------------------------------------
Future Dimensions 95
<PAGE>
Financial Statements
Southland Separate Account L1
of Southland Life Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Future Dimensions 96
<PAGE>
Southland Separate Account L1
Financial Statements
Years ended December 31, 1999, 1998 and 1997
CONTENTS
Report of Independent Auditors................................................98
Audited Financial Statements
Statement of Net Assets.......................................................99
Statement of Operations......................................................104
Statement of Changes in Net Assets...........................................119
Notes to Financial Statements ...............................................134
- --------------------------------------------------------------------------------
Future Dimensions 97
<PAGE>
Report of Independent Auditors
Policyholders
Southland Separate Account L1 of
Southland Life Insurance Company
We have audited the accompanying statement of net assets of Southland Separate
Account L1 of Southland Life Insurance Company (comprising, respectively, the
Alger American Fund (comprising the American Small Capitalization, American
MidCap Growth, American Growth and American Leveraged AllCap Sub-Accounts)
("Alger"), the Fidelity Variable Insurance Products Fund and Variable Insurance
Products Fund II (comprising the Asset Manager, Growth, Overseas, Money Market,
Index 500, Equity-Income, High Income, Contrafund, and Investment Grade Bond
Sub-Accounts) ("VIP and VIP II"), the INVESCO Variable Investment Funds, Inc.
(comprising the Equity Income and Utilities Sub-Accounts) ("INVESCO") and the
Janus Aspen Series (comprising the Growth, Aggressive Growth, Worldwide Growth,
International Growth and Balanced Sub-Accounts) ("Janus")) as of December 31,
1999, and the related statements of operations and changes in net assets for
each of the three years in the period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999, by
correspondence with the transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southland Separate Account L1
at December 31, 1999, and the results of its operations and the changes in its
net assets for each of the three years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Atlanta, Georgia
April 7, 2000
- --------------------------------------------------------------------------------
Future Dimensions 98
<PAGE>
Southland Separate Account L1
Statement of Net Assets
December 31, 1999
<TABLE>
<CAPTION>
TOTAL TOTAL
ALL TOTAL VIP & TOTAL TOTAL
SUB-ACCOUNTS ALGER VIP II INVESCO JANUS
--------------- -------------- --------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at market value (Note C) $63,122,241 $11,117,650 $26,303,077 $1,983,267 $23,718,247
--------------- -------------- --------------- ------------- ----------------
Total assets 63,122,241 11,117,650 26,303,077 1,983,267 23,718,247
--------------- -------------- --------------- ------------- ----------------
LIABILITIES
Due to (from) Southland Life Insurance Company (496,172) (106,769) (132,655) (15,773) (240,975)
--------------- -------------- --------------- ------------- ----------------
Total liabilities (496,172) (106,769) (132,655) (15,773) (240,975)
--------------- -------------- --------------- ------------- ----------------
Net assets $63,618,413 $11,224,419 $26,435,732 $1,999,040 $23,959,222
=============== ============== =============== ============= ================
POLICYHOLDER RESERVES
Reserve for policyholders (Note B) $63,618,413 $11,224,419 $26,435,732 $1,999,040 $23,959,222
--------------- -------------- --------------- ------------- ----------------
Total policyholder reserves $63,618,413 $11,224,419 $26,435,732 $1,999,040 $23,959,222
=============== ============== =============== ============= ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 99
<PAGE>
Southland Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
ALGER
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
------------ --------------- -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at market value (Note C) $11,117,650 $ 1,911,189 $ 1,834,565 $ 4,479,872 $ 2,892,024
------------ --------------- -------------- ---------------- --------------
Total assets 11,117,650 1,911,189 1,834,565 4,479,872 2,892,024
------------ --------------- -------------- ---------------- --------------
LIABILITIES
Due to (from) Southland Life Insurance Company (106,769) (10,871) (17,578) (32,719) (45,601)
------------ --------------- -------------- ---------------- --------------
Total liabilities (106,769) (10,871) (17,578) (32,719) (45,601)
------------ --------------- -------------- ---------------- --------------
Net assets $11,224,419 $1,922,060 $1,852,143 $4,512,591 $2,937,625
============ =============== ============== ================ ==============
POLICYHOLDER RESERVES
Reserves for policyholders (Note B) $11,224,419 $1,922,060 $1,852,143 $4,512,591 $2,937,625
------------ --------------- -------------- ---------------- --------------
Total policyholder reserves $11,224,419 $1,922,060 $1,852,143 $4,512,591 $2,937,625
============ =============== ============== ================ ==============
Number of sub-account units outstanding (Note G) 110,112.068 94,491.630 180,584.939 89,361.549
=============== ============== ================ ==============
Net value per sub-account unit $ 17.46 $ 19.60 $ 24.99 $ 32.87
=============== ============== ================ ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 100
<PAGE>
Southland Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
VIP & VIP II
TOTAL ASSET MONEY EQUITY-
VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500 INCOME
------------ ---------- ----------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual
funds at market value (Note $26,303,077 $892,055 $3,045,618 $478,206 $5,047,949 $6,560,134 $2,511,928
------------ ---------- ----------- ---------- ----------- ------------ -----------
Total assets 26,303,077 892,055 3,045,618 478,206 5,047,949 6,560,134 2,511,928
------------ ---------- ----------- ---------- ----------- ------------ -----------
LIABILITIES
Due to (from) Southland Life
Insurance Company (132,655) (3,596) (21,850) (2,238) 7,231 (30,282) (14,371)
------------ ---------- ----------- ---------- ----------- ----------- -----------
Total liabilities (132,655) (3,596) (21,850) (2,238) 7,231 (30,282) (14,371)
------------ ---------- ----------- ---------- ----------- ------------ -----------
Net assets $26,435,732 $895,651 $3,067,468 $480,444 $5,040,718 $6,590,416 $2,526,299
============ ========== =========== ========== =========== ============ ===========
POLICYHOLDER RESERVES
Reserves for policyholders
(Note B) $26,435,732 $895,651 $3,067,468 $480,444 $5,040,718 $6,590,416 $2,526,299
------------ ---------- ----------- ---------- ----------- ------------ -----------
Total policyholder reserves $26,435,732 $895,651 $3,067,468 $480,444 $5,040,718 $6,590,416 $2,526,299
============ ========== =========== ========== =========== ============ ===========
Number of sub-account units
outstanding (Note G) 56,593.361 130,727.111 26,346.246 437,725.752 306,237.103 160,901.817
========== =========== ========== =========== ============ ===========
Net value per sub-account unit $ 15.83 $ 23.46 $ 18.24 $ 11.52 $ 21.52 $ 15.70
========== =========== ========== =========== ============ ===========
<CAPTION>
HIGH INVESTMENT
INCOME CONTRAFUND GRADE BOND
------------- -------------- -----------
<S> <C> <C> <C>
ASSETS
Investments in mutual
funds at market value (Note C) $1,044,297 $5,994,815 $728,075
------------- -------------- -----------
Total assets 1,044,297 5,994,815 728,075
------------- -------------- -----------
LIABILITIES
Due to (from) Southland Life
Insurance Company (2,430) (64,271) (848)
------------- -------------- -----------
Total liabilities (2,430) (64,271) (848)
------------- -------------- -----------
Net assets $1,046,727 $6,059,086 $728,923
============= ============== ===========
POLICYHOLDER RESERVES
Reserves for policyholders
(Note B) $1,046,727 $6,059,086 $728,923
------------- -------------- -----------
Total policyholder reserves $1,046,727 $6,059,086 $728,923
============= ============== ===========
Number of sub-account units
outstanding (Note G) 86,751.174 286,899.898 62,273.753
============= ============== ===========
Net value per sub-account unit $ 12.07 $ 21.12 $ 11.71
============= ============== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 101
<PAGE>
Southland Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
INVESCO
Total Equity
INVESCO Income Utilities
--------------- --------------- ---------------
<S> <C> <C> <C>
ASSETS
Investments in mutual funds at market value (Note C ) $1,983,267 $1,195,629 $787,638
--------------- --------------- ---------------
Total assets 1,983,267 1,195,629 787,638
--------------- --------------- ---------------
LIABILITIES
Due to (from) Southland Life Insurance Company (15,773) (14,700) (1,073)
--------------- --------------- ---------------
Total liabilities (15,773) (14,700) (1,073)
--------------- --------------- ---------------
Net assets $1,999,040 $1,210,329 $788,711
=============== =============== ===============
POLICYHOLDER RESERVES
Reserves for policyholders (Note B) $1,999,040 $1,210,329 $788,711
--------------- --------------- ---------------
Total policyholder reserves $1,999,040 $1,210,329 $788,711
=============== =============== ===============
Number of sub-account units outstanding (Note G) 74,079.617 41,629.587
=============== ===============
Net value per sub-account unit $ 16.34 $ 18.95
=============== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 102
<PAGE>
Southland Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
JANUS
TOTAL AGGRESSIVE WORLDWIDE INTERNATIONAL
JANUS GROWTH GROWTH GROWTH GROWTH BALANCED
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at market value (Note C) $23,718,247 $3,978,416 $5,047,050 $5,264,566 $2,816,075 $6,612,140
----------- ----------- ----------- ----------- ----------- ------------
Total assets 23,718,247 3,978,416 5,047,050 5,264,566 2,816,075 6,612,140
----------- ----------- ----------- ----------- ----------- ------------
LIABILITIES
Due to (from) Southland Life Insurance Company (240,975) (28,418) (71,342) (59,184) (24,608) (57,423)
----------- ----------- ----------- ----------- ----------- ------------
Total liabilities (240,975) (28,418) (71,342) (59,184) (24,608) (57,423)
----------- ----------- ----------- ----------- ----------- ------------
Net assets $23,959,222 $4,006,834 $5,118,392 $5,323,750 $2,840,683 $6,669,563
=========== =========== =========== =========== =========== ============
POLICYHOLDER RESERVES
Reserves for policyholders (Note B) $23,959,222 $4,006,834 $5,118,392 $5,323,750 $2,840,683 $6,669,563
----------- ----------- ----------- ----------- ----------- ------------
Total policyholder reserves $23,959,222 $4,006,834 $5,118,392 $5,323,750 $2,840,683 $6,669,563
=========== =========== =========== =========== =========== ============
Number of sub-account units outstanding (Note G) 168,076.782 159,640.347 201,891.184 108,181.477 320,650.834
----------- ----------- ----------- ----------- ------------
Net value per sub-account unit $ 23.84 $ 32.06 $ 26.37 $ 26.26 $ 20.80
=========== =========== =========== =========== ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 103
<PAGE>
Southland Separate Account L1
Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
TOTAL TOTAL
ALL TOTAL VIP & TOTAL TOTAL
SUB-ACCOUNTS ALGER VIP II INVESCO JANUS
------------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 1,567,924 $ 613,278 $ 679,599 $ 48,867 $ 226,180
Less valuation period deductions (Note B) 364,009 61,138 160,168 13,093 129,610
------------------- --------------- --------------- -------------- ---------------
Net investment income (loss) 1,203,915 552,140 519,431 35,774 96,570
------------------- --------------- --------------- -------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 3,389,427 493,102 202,589 31,203 2,662,533
Net unrealized gains (losses) on investments 9,438,576 1,839,516 2,205,232 157,735 5,236,093
------------------- --------------- --------------- -------------- ---------------
Net realized and unrealized gains (losses)
on investments 12,828,003 2,332,618 2,407,821 188,938 7,898,626
------------------- --------------- --------------- -------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $14,031,918 $2,884,758 $2,927,252 $224,712 $7,995,196
=================== =============== =============== ============== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 104
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
ALGER
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
--------------- ----------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 613,278 $142,584 $163,687 $239,881 $ 67,126
Less valuation period deductions (Note B) 61,138 11,332 11,010 26,013 12,783
--------------- ----------------- -------------- -------------- ----------------
Net investment income (loss) 552,140 131,252 152,677 213,868 54,343
--------------- ----------------- -------------- -------------- ----------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 493,102 1,868 22,744 219,461 249,029
Net unrealized gains (losses) on investments 1,839,516 407,699 229,004 479,515 723,298
--------------- ----------------- -------------- -------------- ----------------
Net realized and unrealized gains (losses)
on investments 2,332,618 409,567 251,748 698,976 972,327
--------------- ----------------- -------------- -------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,884,758 $540,819 $404,425 $912,844 $1,026,670
=============== ================= ============== ============== ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 105
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
VIP & VIP II
TOTAL ASSET MONEY
VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500
------------- ----------- ----------- ---------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 679,599 $46,234 $139,663 $ 9,084 $145,790 $ 52,477
Less valuation period deductions (Note B) 160,168 6,250 16,898 2,665 26,430 40,684
------------- ----------- ----------- ---------- ------------- ----------------
Net investment income (loss) 519,431 39,984 122,765 6,419 119,360 11,793
------------- ----------- ----------- ---------- ------------- ----------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 202,589 4,860 34,293 2,960 - 65,194
Net unrealized gains (losses) on investments 2,205,232 26,606 507,468 112,027 - 782,740
------------- ----------- ----------- ---------- ------------- ----------------
Net realized and unrealized gains (losses)
on investments 2,407,821 31,466 541,761 114,987 - 847,934
------------- ----------- ----------- ---------- ------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $2,927,252 $71,450 $664,526 $121,406 $119,360 $859,727
============= =========== =========== ========== ============= ================
<CAPTION>
EQUITY- HIGH INVESTMENT
INCOME INCOME CONTRAFUND GRADE BOND
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $77,765 $66,122 $118,908 $ 23,556
Less valuation period deductions (Note B) 17,870 8,228 35,858 5,285
----------- ------------ ------------ ------------
Net investment income (loss) 59,895 57,894 83,050 18,271
----------- ------------ ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 19,680 (37,455) 118,307 (5,250)
Net unrealized gains (losses) on investments 9,883 27,846 762,007 (23,345)
----------- ------------ ------------ ------------
Net realized and unrealized gains (losses)
on investments 29,563 (9,609) 880,314 (28,595)
----------- ------------ ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $89,458 $48,285 $963,364 $(10,324)
=========== ============ ============ ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 106
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
INVESCO
TOTAL EQUITY
INVESCO INCOME UTILITIES
------------- ------------------ ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 48,867 $ 42,139 $ 6,728
Less valuation period deductions (Note B) 13,093 8,847 4,246
------------- ------------------ ---------------
Net investment income (loss) 35,774 33,292 2,482
------------- ------------------ ---------------
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments 31,203 19,906 11,297
Net unrealized gains (losses) on investments 157,735 91,686 66,049
------------- ------------------ ---------------
Net realized and unrealized gains (losses)
on investments 188,938 111,592 77,346
------------- ------------------ ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $224,712 $144,884 $79,828
============= ================== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 107
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
JANUS
TOTAL AGGRESSIVE WORLDWIDE INTERNATIONAL
JANUS GROWTH GROWTH GROWTH GROWTH BALANCED
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 226,180 $ 18,383 $ 74,622 $ 6,047 $ 4,512 $ 122,616
Less valuation period deductions (Note B) 129,610 21,873 21,939 29,897 16,037 39,864
------------ ------------ ----------- -------------- ---------------- -------------
Net investment income (loss) 96,570 (3,490) 52,683 (23,850) (11,525) 82,752
------------ ------------ ----------- -------------- ---------------- -------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 2,662,533 248,417 1,836,755 147,241 179,464 250,656
Net unrealized gains (losses) on investments 5,236,093 758,550 757,939 1,825,033 1,137,882 756,689
Net realized and unrealized gains (losses) ------------ ------------ ----------- -------------- ---------------- -------------
on investments 7,898,626 1,006,967 2,594,694 1,972,274 1,317,346 1,007,345
------------ ------------ ----------- -------------- ---------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $7,995,196 $1,003,477 $2,647,377 $1,948,424 $1,305,821 $1,090,097
============ ============ =========== ============== ================ =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 108
<PAGE>
Southland Separate Account L1
Statement of Operations
Year ended December 31, 1998
<TABLE>
<CAPTION>
TOTAL TOTAL
ALL TOTAL VIP & TOTAL TOTAL
SUB-ACCOUNTS ALGER VIP II INVESCO JANUS
----------------- --------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 626,404 $179,195 $ 252,170 $37,292 $ 157,747
Less valuation period deductions (Note B) 119,686 17,962 61,507 4,011 36,206
----------------- --------------- --------------- ------------ ---------------
Net investment income (loss) 506,718 161,233 190,663 33,281 121,541
----------------- --------------- --------------- ------------ ---------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 127,820 25,905 31,103 5,430 65,382
Net unrealized gains (losses) on investments 2,657,680 642,532 1,033,851 41,691 939,606
----------------- --------------- --------------- ------------ ---------------
Net realized and unrealized gains (losses)
on investments 2,785,500 668,437 1,064,954 47,121 1,004,988
----------------- --------------- --------------- ------------ ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $3,292,218 $829,670 $1,255,617 $80,402 $1,126,529
================= =============== =============== ============ ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 109
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
ALGER
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
----------- ------------------ --------------- -------------- -----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $179,195 $50,067 $ 30,380 $ 87,268 $ 11,480
Less valuation period deductions (Note B) 17,962 4,045 4,033 6,878 3,006
----------- ------------------ --------------- -------------- -----------------
Net investment income (loss) 161,233 46,022 26,347 80,390 8,474
----------- ------------------ --------------- -------------- -----------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 25,905 2,686 9,274 6,653 7,292
Net unrealized gains (losses) on investments 642,532 49,565 120,660 303,561 168,746
----------- ------------------ --------------- -------------- -----------------
Net realized and unrealized gains (losses)
on investments 668,437 52,251 129,934 310,214 176,038
----------- ------------------ --------------- -------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $829,670 $98,273 $156,281 $390,604 $184,512
=========== ================== =============== ============== =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 110
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
VIP & VIP II
TOTAL ASSET MONEY
VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500
---------------- ----------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 252,170 $15,561 $ 37,137 $ 3,617 $104,324 $ 17,011
Less valuation period deductions (Note B) 61,507 2,798 5,164 924 17,651 11,910
---------------- ----------- ------------- ----------- ------------ ------------
Net investment income (loss) 190,663 12,763 31,973 2,693 86,673 5,101
---------------- ----------- ------------- ----------- ------------ ------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 31,103 (2,166) 3,265 (1,636) - 12,724
Net unrealized gains (losses) on investments 1,033,851 28,383 189,989 11,290 - 332,201
---------------- ----------- ------------- ----------- ------------ ------------
Net realized and unrealized gains (losses)
on investments 1,064,954 26,217 193,254 9,654 - 344,925
---------------- ----------- ------------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,255,617 $38,980 $225,227 $12,347 $ 86,673 $350,026
================ =========== ============= =========== ============ ============
<CAPTION>
EQUITY- HIGH INVESTMENT
INCOME INCOME CONTRAFUND GRADE BOND
----------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 23,486 $ 16,684 $ 30,389 $ 3,961
Less valuation period deductions (Note B) 6,837 2,983 11,312 1,928
----------- ------------- -------------- ---------------
Net investment income (loss) 16,649 13,701 19,077 2,033
----------- ------------- -------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 2,172 (2,338) 8,424 10,658
Net unrealized gains (losses) on investments 82,881 (39,195) 420,570 7,732
----------- ------------- -------------- ---------------
Net realized and unrealized gains (losses)
on investments 85,053 (41,533) 428,994 18,390
----------- ------------- -------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $101,702 $(27,832) $448,071 $20,423
=========== ============= ============== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 111
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO
TOTAL EQUITY
INVESCO INCOME UTILITIES
----------- -------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $37,292 $34,407 $ 2,885
Less valuation period deductions (Note B) 4,011 3,474 537
----------- -------------- ---------------
Net investment income (loss) 33,281 30,933 2,348
----------- -------------- ---------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 5,430 4,916 514
Net unrealized gains (losses) on investments 41,691 23,002 18,689
----------- -------------- ---------------
Net realized and unrealized gains (losses)
on investments 47,121 27,918 19,203
----------- -------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $80,402 $58,851 $21,551
=========== ============== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 112
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
JANUS
TOTAL AGGRESSIVE WORLDWIDE
JANUS GROWTH GROWTH GROWTH
--------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 157,747 $ 36,308 $ - $ 52,078
Less valuation period deductions (Note B) 36,206 5,483 4,426 11,466
--------------- --------------- ----------------- ----------------
Net investment income (loss) 121,541 30,825 (4,426) 40,612
--------------- --------------- ----------------- ----------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 65,382 30,199 4,969 21,777
Net unrealized gains (losses) on investments 939,606 189,068 227,403 208,893
Net realized and unrealized gains (losses) --------------- --------------- ----------------- ----------------
on investments 1,004,988 219,267 232,372 230,670
--------------- --------------- ----------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,126,529 $250,092 $227,946 $271,282
=============== =============== ================= ================
<CAPTION>
INTERNATIONAL SHORT-TERM
GROWTH BALANCED BOND
------------------ ---------------- ----------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $16,024 $ 49,352 $3,985
Less valuation period deductions (Note B) 6,089 8,447 295
------------------ ---------------- ----------------
Net investment income (loss) 9,935 40,905 3,690
------------------ ---------------- ----------------
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 2,697 9,053 (3,313)
Net unrealized gains (losses) on investments 41,449 271,281 1,512
Net realized and unrealized gains (losses) ------------------ ---------------- ----------------
on investments 44,146 280,334 (1,801)
------------------ ---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $54,081 $321,239 $1,889
================== ================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 113
<PAGE>
Southland Separate Account L1
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
TOTAL TOTAL
ALL TOTAL VIP & TOTAL TOTAL
SUB-ACCOUNTS ALGER VIP II INVESCO JANUS
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 47,219 $ 829 $29,532 $9,839 $ 7,019
Less valuation period deductions (Note B) 13,332 2,047 8,582 305 2,398
------------ --------------- -------------- ---------------- -----------------
Net investment income (loss) 33,887 (1,218) 20,950 9,534 4,621
REALIZED AND UNREALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gains (losses) on investments 18,964 4,877 6,680 604 6,803
Net unrealized gains (losses) on investments 118,688 26,112 69,730 (1,884) 24,730
------------ --------------- -------------- ---------------- -----------------
Net realized and unrealized gains (losses) on
investments 137,652 30,989 76,410 (1,280) 31,533
------------ --------------- -------------- ---------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $171,539 $29,771 $97,360 $8,254 $36,154
============ =============== ============== ================ =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 114
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
ALGER
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 829 $ 319 $ 18 $ 492 $ -
Less valuation period deductions (Note B) 2,047 550 511 543 443
--------- ---------- ------------- -------------- -------------
Net investment income (loss) (1,218) (231) (493) (51) (443)
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments 4,877 988 1,017 1,571 1,301
Net unrealized gains (losses) on investments 26,112 7,706 1,036 9,623 7,747
--------- ---------- ------------- -------------- -------------
Net realized and unrealized gains (losses) on investments 29,771 8,463 1,560 11,143 8,605
--------- ---------- ------------- -------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS $29,771 $8,463 $1,560 $11,143 $8,605
========= ========== ============= ============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 115
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
VIP & VIP II
TOTAL ASSET MONEY
VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500
------------- ----------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $29,532 $ - $ - $ - $29,532 $ -
Less valuation period deductions (Note B) 8,582 142 322 65 4,934 710
------------- ----------- ------------ ------------ ------------ -------------
Net investment income (loss) 20,950 (142) (322) (65) 24,598 (710)
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 6,680 238 199 (3) - 2,043
Net unrealized gains (losses) on investments 69,730 2,096 2,921 (618) - 17,360
------------- ----------- ------------ ------------ ------------ -------------
Net realized and unrealized gains (losses)
on investments 76,410 2,334 3,120 (621) - 19,403
------------- ----------- ------------ ------------ ------------ -------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $97,360 $2,192 $2,798 $(686) $24,598 $18,693
============= =========== ============ ============ ============ =============
<CAPTION>
EQUITY- HIGH INVESTMENT
INCOME INCOME CONTRAFUND GRADE BOND
---------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ - $ - $ - $ -
Less valuation period deductions (Note B) 431 398 1,381 199
---------------------------------------------------
Net investment income (loss) (431) (398) (1,381) (199)
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 660 817 2,545 181
Net unrealized gains (losses) on investments 9,223 7,284 28,977 2,487
---------------------------------------------------
Net realized and unrealized gains (losses)
on investments 9,883 8,101 31,522 2,668
---------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $9,452 $7,703 $30,141 $2,469
===================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 116
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
TOTAL INDUSTRIAL
INVESCO INCOME UTILITIES
-------------- --------------- ---------------
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $9,839 $9,766 $ 73
Less valuation period deductions (Note B) 305 300 5
-------------- --------------- ---------------
Net investment income (loss) 9,534 9,466 68
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments 604 592 12
Net unrealized gains (losses) on investments (1,884) (2,062) 178
-------------- --------------- ---------------
Net realized and unrealized gains (losses) on investments (1,280) (1,470) 190
-------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $8,254 $7,996 $258
============== =============== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 117
<PAGE>
Southland Separate Account L1
Statement of Operations (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
JANUS
TOTAL AGGRESSIVE WORLDWIDE INTERNATIONAL
JANUS GROWTH GROWTH GROWTH GROWTH
----------- ----------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 7,019 $ 2,261 $ - $ 2,031 $ 226
Less valuation period deductions(Note B) 2,398 661 240 995 297
----------- ----------- ------------- ------------- ---------------
Net investment income (loss) 4,621 1,600 (240) 1,036 (71)
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 6,803 2,977 1,170 1,592 983
Net unrealized gains (losses) on investments 24,730 6,871 6,573 11,707 (1,597)
----------- ----------- ------------- ------------- ---------------
Net realized and unrealized gains (losses) on
investments 31,533 9,848 7,743 13,299 (614)
----------- ----------- ------------- ------------- ---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $36,154 $11,448 $7,503 $14,335 $(685)
=========== =========== ============= ============= ===============
<CAPTION>
SHORT-TERM
BALANCED BOND
------------ --------------
<S> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 825 $1,676
Less valuation period deductions(Note B) 184 21
------------ --------------
Net investment income (loss) 641 1,655
REALIZED AND UNREALIZED GAINS (LOSSES)
ON INVESTMENTS
Net realized gains (losses) on investments 75 6
Net unrealized gains (losses) on investments 2,688 (1,512)
------------ --------------
Net realized and unrealized gains (losses) on
investments 2,763 (1,506)
------------ --------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING
FROM OPERATIONS $3,404 $ 149
============ ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 118
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets
Year ended December 31, 1999
<TABLE>
<CAPTION>
TOTAL TOTAL
ALL TOTAL VIP &
SUB-ACCOUNTS ALGER VIP II
----------------- ---------------- ------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 1,203,915 $ 552,140 $ 519,431
Net realized gains (losses) on investments 3,389,427 493,102 202,589
Net unrealized gains (losses) on investments 9,438,576 1,839,516 2,205,232
----------------- ---------------- ------------------
Increase (decrease) in net assets from operations 14,031,918 2,884,758 2,927,252
----------------- ---------------- ------------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 31,028,249 3,825,150 19,754,907
Cost of insurance and administrative expenses (6,549,885) (1,178,979) (3,129,796)
Benefit payments (3,452) (1,760) (1,091)
Surrenders and withdrawals (475,433) (64,071) (292,903)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) (416,231) 1,280,792 (5,299,071)
Other 551,597 107,303 133,434
----------------- ---------------- ------------------
Increase from principal transactions 24,134,845 3,968,435 11,165,480
----------------- ---------------- ------------------
Total increase in net assets 38,166,763 6,853,193 14,092,732
Net assets at beginning of year 25,451,650 4,371,226 12,343,000
----------------- ---------------- ------------------
Net assets at end of year $63,618,413 $11,224,419 $26,435,732
================= ================ ==================
<CAPTION>
TOTAL TOTAL
INVESCO JANUS
---------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 35,774 $ 96,570
Net realized gains (losses) on investments 31,203 2,662,533
Net unrealized gains (losses) on investments 157,735 5,236,093
---------------- -----------------
Increase (decrease) in net assets from operations 224,712 7,995,196
---------------- -----------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 525,568 6,922,624
Cost of insurance and administrative expenses (213,204) (2,027,906)
Benefit payments (154) (447)
Surrenders and withdrawals (10,982) (107,477)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) 574,602 3,027,446
Other (367) 311,227
---------------- -----------------
Increase from principal transactions 875,463 8,125,467
---------------- -----------------
Total increase in net assets 1,100,175 16,120,663
Net assets at beginning of year 898,865 7,838,559
---------------- -----------------
Net assets at end of year $1,999,040 $23,959,222
================ =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 119
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
ALGER
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 552,140 $ 131,252 $ 152,677 $ 213,868 $ 54,343
Net realized gains (losses) on investments 493,102 1,868 22,744 219,461 249,029
Net unrealized gains (losses) on investments 1,839,516 407,699 229,004 479,515 723,298
----------- ------------- -------------- -------------- -------------
Increase (decrease) in net assets from operations 2,884,758 540,819 404,425 912,844 1,026,670
----------- ------------- -------------- -------------- -------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 3,825,150 573,686 573,435 1,729,161 948,868
Cost of insurance and administrative expenses (1,178,979) (216,805) (193,636) (506,613) (261,925)
Benefit payments (1,760) (154) - - (1,606)
Surrenders and withdrawals (64,071) (24,776) (9,869) (17,299) (12,127)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) 1,280,792 145,564 146,550 531,839 456,839
Other 107,303 20,248 7,863 30,041 49,151
----------- ------------- -------------- -------------- -------------
Increase from principal transactions 3,968,435 497,763 524,343 1,767,129 1,179,200
----------- ------------- -------------- -------------- -------------
Total increase in net assets 6,853,193 1,038,582 928,768 2,679,973 2,205,870
Net assets at beginning of year 4,371,226 883,478 923,375 1,832,618 731,755
----------- ------------- -------------- -------------- -------------
Net assets at end of year $11,224,419 $1,922,060 $1,852,143 $4,512,591 $2,937,625
=========== ============= ============== ============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 120
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
VIP & VIP II
TOTAL ASSET MONEY
VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500
------------- ----------------------- ---------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 519,431 $ 39,984 $ 122,765 $ 6,419 $ 119,360 $ 11,793
Net realized gains (losses) on investments 202,589 4,860 34,293 2,960 - 65,194
Net unrealized gains (losses) on investments 2,205,232 26,606 507,468 112,027 - 782,740
------------- ----------------------- ---------------------- ------------
Increase (decrease) in net assets from operations 2,927,252 71,450 664,526 121,406 119,360 859,727
------------- ----------------------- ---------------------- ------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 19,754,907 312,583 1,016,105 170,489 12,459,659 2,184,085
Cost of insurance and administrative expenses (3,129,796) (89,058) (346,459) (46,035) (643,568) (783,092)
Benefit payments (1,091) - - - - -
Surrenders and withdrawals (292,903) (11,698) (41,167) (4,482) (26,778) (87,474)
Net transfers among sub-accounts (including the
guaranteed interest account in the general account) (5,299,071) 96,798 590,388 22,925 (9,142,874) 1,494,471
Other 133,434 11,589 23,910 18,690 (88,654) 38,397
------------- ----------------------- ---------------------- ------------
Increase from principal transactions 11,165,480 320,214 1,242,777 161,587 2,557,785 2,846,387
------------- ----------------------- ---------------------- ------------
Total increase in net assets 14,092,732 391,664 1,907,303 282,993 2,677,145 3,706,114
Net assets at beginning of year 12,343,000 503,987 1,160,165 197,451 2,363,573 2,884,302
------------- ----------------------- ---------------------- ------------
Net assets at end of year $26,435,732 $895,651 $3,067,468 $480,444 $5,040,718 $6,590,416
============= ======================= ====================== ============
<CAPTION>
EQUITY- HIGH INVESTMENT
INCOME INCOME CONTRAFUND GRADE BOND
---------- ------------------------ ------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 59,895 $ 57,894 $ 83,050 $ 18,271
Net realized gains (losses) on investments 19,680 (37,455) 118,307 (5,250)
Net unrealized gains (losses) on investments 9,883 27,846 762,007 (23,345)
---------- ------------------------ ------------
Increase (decrease) in net assets from operations 89,458 48,285 963,364 (10,324)
---------- ------------------------ ------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 805,398 258,179 2,277,133 271,276
Cost of insurance and administrative expenses (316,586) (106,598) (720,827) (77,573)
Benefit payments - (129) (962) -
Surrenders and withdrawals (38,406) (6,638) (56,466) (19,794)
Net transfers among sub-accounts (including the
guaranteed interest account in the general account) 469,853 213,288 803,946 152,134
Other 22,233 10,778 93,157 3,334
---------- ------------------------ ------------
Increase from principal transactions 942,492 368,880 2,395,981 329,377
---------- ------------------------ ------------
Total increase in net assets 1,031,950 417,165 3,359,345 319,053
Net assets at beginning of year 1,494,349 629,562 2,699,741 409,870
---------- ------------------------ ------------
Net assets at end of year $2,526,299 $1,046,727 $6,059,086 $728,923
========== ======================== ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 121
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
INVESCO
TOTAL EQUITY
INVESCO INCOME UTILITIES
------------------ ------------------ ------------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 35,774 $ 33,292 $ 2,482
Net realized gains (losses) on investments 31,203 19,906 11,297
Net unrealized gains (losses) on investments 157,735 91,686 66,049
------------------ ------------------ ------------------
Increase (decrease) in net assets from operations 224,712 144,884 79,828
------------------ ------------------ ------------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 525,568 312,962 212,606
Cost of insurance and administrative expenses (213,204) (127,281) (85,923)
Benefit payments (154) - (154)
Surrenders and withdrawals (10,982) (7,460) (3,522)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) 574,602 186,124 388,478
Other (367) (9,896) 9,529
------------------ ------------------ ------------------
Increase from principal transactions 875,463 354,449 521,014
------------------ ------------------ ------------------
Total increase in net assets 1,100,175 499,333 600,842
Net assets at beginning of year 898,865 710,996 187,869
------------------ ------------------ ------------------
Net assets at end of year $1,999,040 $1,210,329 $788,711
================== ================== ==================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 122
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1999
<TABLE>
<CAPTION>
JANUS
TOTAL AGGRESSIVE WORLDWIDE
JANUS GROWTH GROWTH GROWTH
-------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 96,570 $ (3,490) $ 52,683 $ (23,850)
Net realized gains (losses) on investments 2,662,533 248,417 1,836,755 147,241
Net unrealized gains (losses) on investments 5,236,093 758,550 757,939 1,825,033
-------------- --------------- ---------------- ----------------
Increase (decrease) in net assets from operations 7,995,196 1,003,477 2,647,377 1,948,424
-------------- --------------- ---------------- ----------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 6,922,624 1,525,533 1,177,003 1,318,769
Cost of insurance and administrative expenses (2,027,906) (464,803) (370,541) (414,064)
Benefit payments (447) - - (447)
Surrenders and withdrawals (107,477) (25,257) (43,008) (19,306)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) 3,027,446 613,783 487,925 251,041
Other 311,227 53,770 88,867 82,161
-------------- --------------- ---------------- ----------------
Increase from principal transactions 8,125,467 1,703,026 1,340,246 1,218,154
-------------- --------------- ---------------- ----------------
Total increase in net assets 16,120,663 2,706,503 3,987,623 3,166,578
Net assets at beginning of year 7,838,559 1,300,331 1,130,769 2,157,172
-------------- --------------- ---------------- ----------------
Net assets at end of year $23,959,222 $4,006,834 $5,118,392 $5,323,750
============== =============== ================ ================
<CAPTION>
INTERNATIONAL
GROWTH BALANCED
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (11,525) $ 82,752
Net realized gains (losses) on investments 179,464 250,656
Net unrealized gains (losses) on investments 1,137,882 756,689
---------------- ----------------
Increase (decrease) in net assets from operations 1,305,821 1,090,097
---------------- ----------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 658,686 2,242,633
Cost of insurance and administrative expenses (184,897) (593,601)
Benefit payments - -
Surrenders and withdrawals (6,069) (13,837)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) (37,815) 1,712,512
Other 38,178 48,251
---------------- ----------------
Increase from principal transactions 468,083 3,395,958
---------------- ----------------
Total increase in net assets 1,773,904 4,486,055
Net assets at beginning of year 1,066,779 2,183,508
---------------- ----------------
Net assets at end of year $2,840,683 $6,669,563
================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 123
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets
Year ended December 31, 1998
<TABLE>
<CAPTION>
TOTAL TOTAL
ALL TOTAL VIP & TOTAL TOTAL
SUB-ACCOUNTS ALGER VIP II INVESCO JANUS
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 506,718 $ 161,233 $ 190,663 $ 33,281 $ 121,541
Net realized gains (losses) on investments 127,820 25,905 31,103 5,430 65,382
Net unrealized gains (losses) on investments 2,657,680 642,532 1,033,851 41,691 939,606
------------- ------------- -------------- ------------- -------------
Increase (decrease) in net assets from operations 3,292,218 829,670 1,255,617 80,402 1,126,529
------------- ------------- -------------- ------------- -------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 20,624,321 1,162,046 17,385,636 261,529 1,815,110
Cost of insurance and administrative expenses (2,903,575) (419,601) (1,693,394) (78,336) (712,244)
Benefit payments (615) - (309) - (306)
Surrenders and withdrawals (307,094) (53,131) (142,218) (4,788) (106,957)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) (121,358) 2,273,667 (7,539,680) 497,977 4,646,678
Other (99,262) (19,523) (59,568) (2,149) (18,022)
------------- ------------- -------------- ------------- -------------
Increase (decrease) from principal transactions 17,192,417 2,943,458 7,950,467 674,233 5,624,259
------------- ------------- -------------- ------------- -------------
Total increase (decrease) in net assets 20,484,635 3,773,128 9,206,084 754,635 6,750,788
Net assets at beginning of year 4,967,015 598,098 3,136,916 144,230 1,087,771
------------- ------------- -------------- ------------- -------------
Net assets at end of year $25,451,650 $4,371,226 $12,343,000 $898,865 $7,838,559
============= ============= ============== ============= =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 124
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
ALGER
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 161,233 $ 46,022 $ 26,347 $ 80,390 $ 8,474
Net realized gains (losses) on investments 25,905 2,686 9,274 6,653 7,292
Net unrealized gains (losses) on investments 642,532 49,565 120,660 303,561 168,746
----------- --------------- ----------- ------------ ------------
Increase (decrease) in net assets from operations 829,670 98,273 156,281 390,604 184,512
----------- --------------- ----------- ------------ -------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 1,162,046 285,818 203,624 475,150 197,454
Cost of insurance and administrative expenses (419,601) (97,991) (86,531) (160,700) (74,379)
Benefit payments - - - - -
Surrenders and withdrawals (53,131) (15,643) (12,779) (17,013) (7,696)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) 2,273,667 446,424 502,094 987,565 337,584
Other (19,523) (774) (889) (15,121) (2,739)
----------- --------------- ----------- ------------ ------------
Increase (decrease) from principal transactions 2,943,458 617,834 605,519 1,269,881 450,224
----------- --------------- ----------- ------------ -------------
Total increase (decrease) in net assets 3,773,128 716,107 761,800 1,660,485 634,736
Net assets at beginning of year 598,098 167,371 161,575 172,133 97,019
----------- --------------- ----------- ------------ -------------
Net assets at end of year $4,371,226 $883,478 $923,375 $1,832,618 $731,755
=========== =============== =========== ============ =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 125
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
VIP & VIP II
<TABLE>
<CAPTION>
TOTAL ASSET MONEY
VIP & VIP II MANAGER GROWTH OVERSEAS MARKET
----------------------- ---------------------- ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 190,663 $ 12,763 $ 31,973 $ 2,693 $ 86,673
Net realized gains (losses) on investments 31,103 (2,166) 3,265 (1,636) -
Net unrealized gains (losses) on investments 1,033,851 28,383 189,989 11,290 -
----------------------- ---------------------- ------------
Increase (decrease) in net assets from operations 1,255,617 38,980 225,227 12,347 86,673
----------------------- ---------------------- ------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 17,385,636 150,080 324,965 91,305 14,635,587
Cost of insurance and administrative expenses (1,693,394) (54,468) (113,665) (25,461) (700,063
Benefit payments (309) - - - -
Surrenders and withdrawals (142,218) (6,929) (28,566) (3,338) (12,212)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) (7,539,680) 295,904 509,516 83,279 (13,025,086)
Other (59,568) (1,306) (4,893) (1,025) (31,073)
----------------------- ---------------------- ------------
Increase (decrease) from principal transactions 7,950,467 383,281 687,357 144,760 867,153
----------------------- ---------------------- ------------
Total increase (decrease) in net assets 9,206,084 422,261 912,584 157,107 953,826
Net assets at beginning of year 3,136,916 81,726 247,581 40,344 1,409,747
----------------------- ---------------------- ------------
Net assets at end of year $12,343,000 $503,987 $1,160,165 $197,451 $2,363,573
======================= ====================== ============
<CAPTION>
EQUITY- HIGH INVESTMENT
INDEX 500 INCOME INCOME CONTRAFUND GRADE BOND
---------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 5,101 $ 16,649 $ 13,701 $ 19,077 $ 2,033
Net realized gains (losses) on investments 12,724 2,172 (2,338) 8,424 10,658
Net unrealized gains (losses) on investments 332,201 82,881 (39,195) 420,570 7,732
---------------------------------------------- ------------
Increase (decrease) in net assets from operations 350,026 101,702 (27,832) 448,071 20,423
---------------------------------------------- ------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 822,531 353,365 150,989 765,529 91,285
Cost of insurance and administrative expenses (304,160) (127,836) (45,807) (294,427) (27,507)
Benefit payments - - - (309) -
Surrenders and withdrawals (54,104) (8,634) (229) (28,154) (52)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) 1,690,539 832,698 404,606 1,396,236 272,628
Other (18,689) (66) 8,758 (10,148) (1,126)
---------------------------------------------- ------------
Increase (decrease) from principal transactions 2,136,117 1,049,527 518,317 1,828,727 335,228
---------------------------------------------- ------------
Total increase (decrease) in net assets 2,486,143 1,151,229 490,485 2,276,798 355,651
Net assets at beginning of year 398,159 343,120 139,077 422,943 54,219
---------------------------------------------- ------------
Net assets at end of year $2,884,302 $1,494,349 $629,562 $2,699,741 $409,870
============================================== ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 126
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO
TOTAL EQUITY
INVESCO INCOME UTILITIES
----------------- ------------------ ------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 33,281 $ 30,933 $ 2,348
Net realized gains (losses) on investments 5,430 4,916 514
Net unrealized gains (losses) on investments 41,691 23,002 18,689
----------------- ------------------ ------------------
Increase (decrease) in net assets from operations 80,402 58,851 21,551
----------------- ------------------ ------------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 261,529 200,531 60,998
Cost of insurance and administrative expenses (78,336) (61,807) (16,529)
Benefit payments - - -
Surrenders and withdrawals (4,788) (4,417) (371)
Net transfers among sub-accounts (including the guaranteed 497,977 377,109 120,868
interest account in the general account)
Other (2,149) (272) (1,877)
----------------- ------------------ ------------------
Increase (decrease) from principal transactions 674,233 511,144 163,089
----------------- ------------------ ------------------
Total increase (decrease) in net assets 754,635 569,995 184,640
Net assets at beginning of year 144,230 141,001 3,229
----------------- ------------------ ------------------
Net assets at end of year $898,865 $710,996 $187,869
================= ================== ==================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 127
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1998
<TABLE>
<CAPTION>
JANUS
Total Aggressive Worldwide
Janus Growth Growth Growth
--------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 121,541 $ 30,825 $ (4,426) $ 40,612
Net realized gains (losses) on investments 65,382 30,199 4,969 21,777
Net unrealized gains (losses) on investments 939,606 189,068 227,403 208,893
--------------- ---------------- --------------- ---------------
Increase (decrease) in net assets from operations 1,126,529 250,092 227,946 271,282
--------------- ---------------- --------------- ---------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 1,815,110 426,022 322,364 490,342
Cost of insurance and administrative expenses (712,244) (167,261) (104,466) (187,471)
Benefit payments (306) (306) - -
Surrenders and withdrawals (106,957) (34,731) (6,451) (63,558)
Net transfers among sub-accounts (including the guaranteed 4,646,678 581,280 602,530 1,168,578
interest account in the general account)
Other (18,022) (3,705) (6,883) (4,546)
--------------- ---------------- --------------- ---------------
Increase (decrease) from principal transactions 5,624,259 801,299 807,094 1,403,345
--------------- ---------------- --------------- ---------------
Total increase (decrease) in net assets 6,750,788 1,051,391 1,035,040 1,674,627
Net assets at beginning of year 1,087,771 248,940 95,729 482,545
--------------- ---------------- --------------- ---------------
Net assets at end of year $7,838,559 $1,300,331 $1,130,769 $2,157,172
=============== ================ =============== ===============
<CAPTION>
International Short-Term
Growth Balanced Bond
--------------- --------------- ----------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 9,935 $ 40,905 $ 3,690
Net realized gains (losses) on investments 2,697 9,053 (3,313)
Net unrealized gains (losses) on investments 41,449 271,281 1,512
--------------- --------------- ----------------
Increase (decrease) in net assets from operations 54,081 321,239 1,889
--------------- --------------- ----------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 200,143 367,935 8,304
Cost of insurance and administrative expenses (98,915) (151,467) (2,664)
Benefit payments - - -
Surrenders and withdrawals (1,162) (1,055) -
Net transfers among sub-accounts (including the guaranteed 755,641 1,556,845 (18,196)
interest account in the general account)
Other 2,053 (4,471) (470)
--------------- --------------- ----------------
Increase (decrease) from principal transactions 857,760 1,767,787 (13,026)
--------------- --------------- ----------------
Total increase (decrease) in net assets 911,841 2,089,026 (11,137)
Net assets at beginning of year 154,938 94,482 11,137
--------------- --------------- ----------------
Net assets at end of year $1,066,779 $2,183,508 $ -
=============== =============== ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 128
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets
Year ended December 31, 1997
<TABLE>
<CAPTION>
TOTAL TOTAL
ALL TOTAL VIP & TOTAL TOTAL
SUB-ACCOUNTS ALGER VIP II INVESCO JANUS
-------------- ------------ -------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 33,887 $ (1,218) $ 20,950 $ 9,534 $ 4,621
Net realized gains (losses) on investments 18,964 4,877 6,680 604 6,803
Net unrealized gains (losses) on investments 118,688 26,112 69,730 (1,884) 24,730
-------------- ------------ -------------- ------------ ------------
Increase (decrease) in net assets from operations 171,539 29,771 97,360 8,254 36,154
-------------- ------------ -------------- ------------ ------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 5,248,437 102,293 4,858,995 34,087 253,062
Cost of insurance and administrative expenses (437,265) (55,276) (304,785) (8,313) (68,891)
Surrenders (1,357) (346) (677) (8) (326)
Net transfers among sub-accounts (including
the guaranteed interest account in the general
account) (14,339) 521,656 (1,513,977) 110,210 867,772
-------------- ------------ -------------- ------------ ------------
Increase from principal transactions 4,795,476 568,327 3,039,556 135,976 1,051,617
-------------- ------------ -------------- ------------ ------------
Total increase in net assets 4,967,015 598,098 3,136,916 144,230 1,087,771
Net assets at beginning of year - - - - -
-------------- ------------ -------------- ------------ ------------
Net assets at end of year $4,967,015 $598,098 $3,136,916 $144,230 $1,087,771
============== ============ ============== ============ ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 129
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
ALGER
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (1,218) $ (231) $ (493) $ (51) $ (443)
Net realized gains (losses) on investments 4,877 988 1,017 1,571 1,301
Net unrealized gains (losses) on investments 26,112 7,706 1,036 9,623 7,747
----------- -------------- ----------- ----------- -----------
Increase (decrease) in net assets from operations 29,771 8,463 1,560 11,143 8,605
----------- -------------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 102,293 19,354 41,846 21,286 19,807
Cost of insurance and administrative expenses (55,276) (14,992) (12,080) (17,070) (11,134)
Surrenders (346) (127) (23) (180) (16)
Net transfers among divisions (including the guaranteed interest
account in the general account) 521,656 154,673 130,272 156,954 79,757
----------- -------------- ----------- ----------- -----------
Increase from principal transactions 568,327 158,908 160,015 160,990 88,414
----------- -------------- ----------- ----------- -----------
Total increase in net assets 598,098 167,371 161,575 172,133 97,019
Net assets at beginning of year - - - - -
----------- -------------- ----------- ----------- -----------
Net assets at end of year $598,098 $167,371 $161,575 $172,133 $97,019
=========== ============== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 130
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
VIP & VIP II
TOTAL ASSET MONEY
VIP & VIP II MANAGER GROWTH OVERSEAS MARKET INDEX 500
-------------- ---------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 20,950 $ (142) $ (322) $ (65) $ 24,598 $ (710)
Net realized gains (losses) on investments 6,680 238 199 (3) - 2,043
Net unrealized gains (losses) on investments 69,730 2,096 2,921 (618) - 17,360
-------------- ---------------------------------- ----------------------------
Increase (decrease) in net assets from operations 97,360 2,192 2,798 (686) 24,598 18,693
-------------- ---------------------------------- ----------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 4,858,995 28,701 13,829 8,799 4,552,361 80,172
Cost of insurance and administrative expenses (304,785) (3,199) (8,783) (2,955) (215,522) (16,744)
Surrenders (677) (16) (16) - - (58)
Net transfers among sub-accounts (including the
guaranteed interest account in the general
account (1,513,977) 54,048 239,753 35,186 (2,951,690) 316,096
-------------- ---------------------------------- ----------------------------
Increase from principal transactions 3,039,556 79,534 244,783 41,030 1,385,149 379,466
-------------- ---------------------------------- ----------------------------
Total increase in net assets 3,136,916 81,726 247,581 40,344 1,409,747 398,159
Net assets at beginning of year - - - - - -
-------------- ---------------------------------- ----------------------------
Net assets at end of year $3,136,916 $81,726 $247,581 $40,344 $1,409,747 $398,159
============== ================================== ============================
<CAPTION>
EQUITY- HIGH INVESTMENT
INCOME INCOME CONTRAFUND GRADE
BOND
----------- ------------------------- -----------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (431) $ (398) $ (1,381) $ (199)
Net realized gains (losses) on investments 660 817 2,545 181
Net unrealized gains (losses) on investments 9,223 7,284 28,977 2,487
----------- ------------------------- -----------
Increase (decrease) in net assets from operations 9,452 7,703 30,141 2,469
----------- ------------------------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 26,271 49,548 80,795 18,519
Cost of insurance and administrative expenses (7,481) (9,095) (35,811) (5,195)
Surrenders (8) - (579) -
Net transfers among sub-accounts (including the
guaranteed interest account in the general
account 314,886 90,921 348,397 38,426
----------- ------------------------- -----------
Increase from principal transactions 333,668 131,374 392,802 51,750
----------- ------------------------- -----------
Total increase in net assets 343,120 139,077 422,943 54,219
Net assets at beginning of year - - - -
----------- ------------------------- -----------
Net assets at end of year $343,120 $139,077 $422,943 $54,219
=========== ========================= ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 131
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
Total Industrial
INVESCO Income Utilities
-------------- --------------- ---------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 9,534 $ 9,466 $ 68
Net realized gains (losses) on investments 604 592 12
Net unrealized gains (losses) on investments (1,884) (2,062) 178
-------------- --------------- ---------------
Increase (decrease) in net assets from operations 8,254 7,996 258
-------------- --------------- ---------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 34,087 32,647 1,440
Cost of insurance and administrative expenses (8,313) (7,681) (632)
Surrenders (8) - (8)
Net transfers among sub-accounts (including the guaranteed interest
account in the general account) 110,210 108,039 2,171
-------------- --------------- ---------------
Increase from principal transactions 135,976 133,005 2,971
-------------- --------------- ---------------
Total increase in net assets 144,230 141,001 3,229
Net assets at beginning of year - - -
Net assets at end of year $144,230 $141,001 $3,229
============== =============== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 132
<PAGE>
Southland Separate Account L1
Statement of Changes in Net Assets (continued)
Year ended December 31, 1997
<TABLE>
<CAPTION>
JANUS
TOTAL AGGRESSIVE WORLDWIDE
JANUS GROWTH GROWTH GROWTH
-------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 4,621 $ 1,600 $ (240) $ 1,036
Net realized gains (losses) on investments 6,803 2,977 1,170 1,592
Net unrealized gains (losses) on investments 24,730 6,871 6,573 11,707
-------------- ---------------- ---------------- ----------------
Increase (decrease) in net assets from operations 36,154 11,448 7,503 14,335
-------------- ---------------- ---------------- ----------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 253,062 70,041 28,978 98,303
Cost of insurance and administrative expenses (68,891) (21,920) (10,113) (25,436)
Surrenders (326) (246) (16) (64)
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) 867,772 189,617 69,377 395,407
-------------- ---------------- ---------------- ----------------
Increase from principal transactions 1,051,617 237,492 88,226 468,210
-------------- ---------------- ---------------- ----------------
Total increase in net assets 1,087,771 248,940 95,729 482,545
Net assets at beginning of year - - - -
-------------- ---------------- ---------------- ----------------
Net assets at end of year $1,087,771 $248,940 $95,729 $482,545
============== ================ ================ ================
<CAPTION>
INTERNATIONAL SHORT-TERM
GROWTH BALANCED BOND
---------------- ----------------- -----------------
<S> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (71) $ 641 $ 1,655
Net realized gains (losses) on investments 983 75 6
Net unrealized gains (losses) on investments (1,597) 2,688 (1,512)
---------------- ----------------- -----------------
Increase (decrease) in net assets from operations (685) 3,404 149
---------------- ----------------- -----------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Net premiums 36,942 18,703 95
Cost of insurance and administrative expenses (7,255) (3,564) (603)
Surrenders - - -
Net transfers among sub-accounts (including the guaranteed
interest account in the general account) 125,936 75,939 11,496
---------------- ----------------- -----------------
Increase from principal transactions 155,623 91,078 10,988
---------------- ----------------- -----------------
Total increase in net assets 154,938 94,482 11,137
Net assets at beginning of year - - -
---------------- ----------------- -----------------
Net assets at end of year $154,938 $94,482 $11,137
================ ================= =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Future Dimensions 133
<PAGE>
Southland Separate Account L1
Notes to Financial Statements
December 31, 1999
NOTE A. ORGANIZATION
The Southland Separate Account L1 (the Separate Account) was established by
resolution of the Board of Directors of Southland Life Insurance Company (the
Company) on February 25, 1994. The Separate Account was inactive prior to
January 31, 1997, except for matters relating to its organization as a unit
investment trust registered with the Securities and Exchange Commission under
the Investment Company Act of 1940, as amended.
The Separate Account supports the operations of the Future Dimensions Variable
Universal Life (Future Dimensions) policies offered by the Company. The Separate
Account may be used to support other variable life policies as they are offered
by the Company. The assets of the Separate Account are the property of the
Company. However, the portion of the Separate Account's assets attributable to
the policies will not be used to satisfy liabilities arising out of any other
operations of the Company.
As of December 31, 1999, the Separate Account consisted of twenty investment
sub-accounts available to the policyholders, each of which invests in an
independently managed mutual fund portfolio ("fund"). The funds are as follows:
PORTFOLIO MANAGERS/PORTFOLIOS (FUNDS)
The Alger American Fund (Alger):
American Small Capitalization
American MidCap Growth
American Growth
American Leveraged AllCap
Fidelity Variable Insurance Products (VIP & VIP II) Funds:
VIP II Asset Manager
VIP Growth
VIP Overseas
VIP Money Market
VIP II Index 500
VIP Equity-Income
VIP High Income
VIP II Contrafund
VIP II Investment Grade Bond
- --------------------------------------------------------------------------------
Future Dimensions 134
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE A. ORGANIZATION (CONTINUED)
INVESCO Variable Investment Funds, Inc. (INVESCO):
Equity Income (formerly known as "Industrial Income")
Utilities
Janus Aspen Series Funds (Janus):
Growth
Aggressive Growth
Worldwide Growth
International Growth
Balanced
The Future Dimensions policies allow the policyholders to specify the allocation
of their net premiums to the various funds. They can also transfer their account
values among the funds. The Future Dimensions product also provides the
policyholders the option to allocate their net premiums, or to transfer their
account values, to a Guaranteed Interest Account ("GIA") in the Company's
General Account. The GIA guarantees a rate of interest to the policyholder, and
it is not variable in nature. Therefore, it is not included in the Separate
Account financial statements.
Effective May 1, 1998, the sub-account of the Separate Account investing in
Janus Aspen Series Short-Term Bond Fund no longer accepted any new investments.
The Securities and Exchange Commission issued a substitution order and on
September 28, 1998, shares of the Fidelity VIP Money Market Fund were exchanged
for Janus Aspen Series Short-Term Bond Fund shares.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Separate Account have been prepared
on the basis of accounting principles generally accepted in the United States
("U.S. GAAP"). The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and to disclose contingent assets and
liabilities at the date of financial statements along with the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
- --------------------------------------------------------------------------------
Future Dimensions 135
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The accounting principles followed by the Separate Account and the methods of
applying those principles are presented below or in the footnotes which follow:
INVESTMENT VALUATION--The investments in shares of the funds are valued at the
closing net asset value (market value) per share as determined by the funds on
the day of measurement.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--The investments in shares
of the funds are accounted for on the date the order to buy or sell is
confirmed. Dividend income and distributions of capital gains are recorded on
the ex-dividend date. Realized gains and losses from investment transactions are
reported using the first-in, first-out ("FIFO") method of accounting for cost.
The difference between cost and current market value of investments owned on the
day of measurement is recorded as unrealized gain or loss on investments.
VALUATION PERIOD DEDUCTIONS--Charges are made directly against the assets of the
Separate Account sub-accounts, and are reflected daily in the computation of the
unit values of the sub-accounts.
For Future Dimensions policies, a daily deduction, at an annual rate of .90% of
the daily asset value of the Separate Account sub-accounts, is charged to the
Separate Account for mortality and expense risks assumed by the Company. Total
mortality and expense charges for the years ended December 31, 1999, 1998 and
1997 were $364,009, $119,686 and $13,332, respectively.
POLICYHOLDER RESERVES--Policyholder reserves are presented in the financial
statements at the aggregate account values of the policyholders invested in the
Separate Account sub-accounts. To the extent that benefits to be paid to the
policyholders exceed their account values, the Company will contribute
additional funds to the benefit proceeds.
- --------------------------------------------------------------------------------
Future Dimensions 136
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS
Fund shares are purchased at net asset value with net premiums (premium
payments, less sales and tax loads charged by the Company) and sub-account
transfers. Fund shares are redeemed at net asset value for the payment of
benefits, for surrenders, for transfers to other sub-accounts, and for charges
by the Company for certain cost of insurance and administrative charges. The
cost of insurance and administrative charges for the years ended December 31,
1999, 1998 and 1997 were $6,549,885, $2,903,575 and $437,265, respectively.
Dividends made by the funds are reinvested in the funds.
The following is a summary of Fund shares owned as of December 31, 1999:
<TABLE>
<CAPTION>
NUMBER NET ASSET VALUE
OF VALUE OF SHARES COST OF
FUND SHARES AT MARKET AT MARKET SHARES
- ------------------------------------------------------ ----------------- -------------- ---------------- -------------
<S> <C> <C> <C> <C>
The Alger American Fund:
American Small Capitalization 34,654.379 $55.15 $ 1,911,189 $ 1,446,219
American MidCap Growth 56,921.036 $32.23 1,834,565 1,483,865
American Growth 69,584.840 $64.38 4,479,872 3,687,174
American Leveraged AllCap 49,888.287 $57.97 2,892,024 1,992,232
Fidelity Variable Insurance Products (VIP & VIP II) Funds:
VIP II Asset Manager 47,780.129 $18.67 892,055 834,970
VIP Growth 55,445.440 $54.93 3,045,618 2,345,240
VIP Overseas 17,427.332 $27.44 478,206 355,507
VIP Money Market 5,047,949.000 $1.00 5,047,949 5,047,949
VIP II Index 500 39,186.034 $167.41 6,560,134 5,427,832
VIP Equity-Income 97,702.373 $25.71 2,511,928 2,409,941
VIP High Income 92,333.952 $11.31 1,044,297 1,048,363
VIP II Contrafund 205,654.031 $29.15 5,994,815 4,783,263
VIP II Investment Grade Bond 59,874.589 $12.16 728,075 741,201
INVESCO Variable Investment Funds, Inc.:
Equity Income 56,907.615 $21.01 1,195,629 1,083,003
Utilities 37,560.229 $20.97 787,638 702,722
Janus Aspen Series Funds:
Growth 118,229.302 $33.65 3,978,416 3,023,926
Aggressive Growth 84,554.347 $59.69 5,047,050 4,055,135
Worldwide Growth 110,252.691 $47.75 5,264,566 3,218,933
International Growth 72,823.248 $38.67 2,816,075 1,638,342
Balanced 236,824.499 $27.92 6,612,140 5,581,483
--------------- ---------------
Total $63,122,241 $50,907,300
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 137
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS (CONTINUED)
For the year ended December 31, 1999, the cost of purchases (plus reinvested
dividends) and sales of investments are as follows:
<TABLE>
<CAPTION>
BEGINNING END
FUND OF YEAR PURCHASES SALES OF YEAR
- ------------------------------------------------------ ------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
The Alger American Fund:
American Small Capitalization $ 823,924 $ 825,955 $ (203,660) $ 1,446,219
American MidCap Growth 802,289 953,090 (271,514) 1,483,865
American Growth 1,507,768 3,319,494 (1,140,088) 3,687,174
American Leveraged AllCap 555,761 1,838,565 (402,094) 1,992,232
Fidelity Variable Insurance Products (VIP & VIP II) Funds:
VIP II Asset Manager 473,592 678,507 (317,129) 834,970
VIP Growth 965,803 1,616,620 (237,183) 2,345,240
VIP Overseas 186,648 227,208 (58,349) 355,507
VIP Money Market 2,150,214 15,166,614 (12,268,879) 5,047,949
VIP II Index 500 2,528,232 3,344,138 (444,538) 5,427,832
VIP Equity-Income 1,400,500 1,301,224 (291,783) 2,409,941
VIP High Income 661,323 632,166 (245,126) 1,048,363
VIP II Contrafund 2,247,256 3,088,063 (552,056) 4,783,263
VIP II Investment Grade Bond 399,984 546,152 (204,935) 741,201
INVESCO Variable Investment Funds, Inc.:
Equity Income 690,059 572,001 (179,057) 1,083,003
Utilities 168,860 592,997 (59,135) 702,722
Janus Aspen Series Funds:
Growth 1,102,020 2,594,606 (672,700) 3,023,926
Aggressive Growth 896,998 5,490,433 (2,332,296) 4,055,135
Worldwide Growth 1,936,293 1,652,387 (369,747) 3,218,933
International Growth 1,027,251 1,036,570 (425,479) 1,638,342
Balanced 1,901,160 4,666,548 (986,225) 5,581,483
------------- --------------- ---------------- ---------------
Total $22,425,935 $50,143,338 ($21,661,973) $50,907,300
============= =============== ================ ===============
</TABLE>
Aggregate proceeds from sales of investments for the year ended December 31,
1999 were $25,051,400.
- --------------------------------------------------------------------------------
Future Dimensions 138
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE D. OTHER POLICY DEDUCTIONS
The Future Dimensions policies provide for certain deductions for sales and tax
loads from premium payments received from the policyholders and for surrender
charges and taxes from amounts paid to policyholders. Such deductions are taken
after the redemption of sub-account units in the Separate Account and are not
included in the Separate Account financial statements.
NOTE E. POLICY LOANS
The Future Dimensions policies allow the policyholders to borrow against their
policies by using them as collateral for a loan. At the time of borrowing
against the policies, an amount equal to the loan amount is transferred from the
Separate Account sub-accounts to a loan Guaranteed Interest Account in the
Company's General Account to secure the loan. As payments are made on the policy
loan, amounts are transferred back from the loan Guaranteed Interest Account to
the Separate Account sub-accounts. Interest is credited to the balance in the
loan Guaranteed Interest Account at a fixed rate. The loan Guaranteed Interest
Account is not variable in nature and is not included in these Separate Account
statements.
NOTE F. FEDERAL INCOME TAXES
The Separate Account is not taxed separately because the operations of the
Separate Account are part of the total operations of the Company. The Company is
taxed as a life insurance company under the Internal Revenue Code. The Separate
Account is not taxed as a "Regulated Investment Company" under subchapter "M" of
the Internal Revenue Code.
- --------------------------------------------------------------------------------
Future Dimensions 139
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS
The following schedule summarizes the changes in sub-account units for the year
ended December 31, 1999:
<TABLE>
<CAPTION>
(DECREASE)
INCREASE FOR
OUTSTANDING FOR WITHDRAWALS OUTSTANDING
AT BEGINNING PAYMENTS AND OTHER AT END
SUB-ACCOUNT OF YEAR RECEIVED DEDUCTIONS OF YEAR
- ------------------------------------------------------ -------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
The Alger American Fund:
American Small Capitalization 71,702.588 57,637.460 (19,227.980) 110,112.068
American MidCap Growth 61,552.437 53,663.692 (20,724.499) 94,491.630
American Growth 96,519.612 153,296.175 (69,230.848) 180,584.939
American Leveraged AllCap 39,281.333 78,180.937 (28,100.721) 89,361.549
Fidelity Variable Insurance Products (VIP & VIP II) Funds:
VIP II Asset Manager 35,040.789 48,638.027 (27,085.455) 56,593.361
VIP Growth 67,213.256 78,969.425 (15,455.570) 130,727.111
VIP Overseas 15,284.198 18,894.457 (7,832.409) 26,346.246
VIP Money Market 194,464.915 1,713,763.106 (1,470,502.269) 437,725.752
VIP II Index 500 159,598.401 175,786.128 (29,147.426) 306,237.103
VIP Equity-Income 100,106.288 83,760.337 (22,964.808) 160,901.817
VIP High Income 55,875.183 51,760.130 (20,884.139) 86,751.174
VIP II Contrafund 157,136.563 170,176.289 (40,412.954) 286,899.898
VIP II Investment Grade Bond 34,341.076 48,202.344 (20,269.667) 62,273.753
INVESCO Variable Investment Funds, Inc.:
Equity Income 49,352.422 39,623.897 (14,896.702) 74,079.617
Utilities 11,674.130 35,720.305 (5,764.848) 41,629.587
Janus Aspen Series Funds:
Growth 77,638.452 139,848.728 (49,410.398) 168,076.782
Aggressive Growth 78,750.742 242,015.598 (161,125.993) 159,640.347
Worldwide Growth 133,217.360 99,139.359 (30,465.535) 201,891.184
International Growth 73,359.684 69,642.489 (34,820.696) 108,181.477
Balanced 131,276.187 258,472.945 (69,098.298) 320,650.834
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 140
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in sub-account units for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
(DECREASE)
INCREASE FOR
OUTSTANDING FOR WITHDRAWALS OUTSTANDING
AT BEGINNING PAYMENTS AND OTHER AT END
SUB-ACCOUNT OF YEAR RECEIVED DEDUCTIONS OF YEAR
- ------------------------------------------------------ -------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
The Alger American Fund:
American Small Capitalization 15,602.470 66,203.578 (10,103.460) 71,702.588
American MidCap Growth 13,909.250 55,156.739 (7,513.552) 61,552.437
American Growth 13,399.380 94,364.654 (11,244.422) 96,519.612
American Leveraged AllCap 8,148.770 36,679.921 (5,547.358) 39,281.333
Fidelity Variable Insurance Products (VIP & VIP II) Funds:
VIP II Asset Manager 6,482.680 33,107.305 (4,549.196) 35,040.789
VIP Growth 19,868.310 56,789.233 (9,444.287) 67,213.256
VIP Overseas 3,494.450 14,053.495 (2,263.747) 15,284.198
VIP Money Market 115,644.200 1,334,612.678 (1,255,791.963) 194,464.915
VIP II Index 500 28,102.340 153,812.513 (22,316.452) 159,598.401
VIP Equity-Income 25,474.830 84,172.610 (9,541.152) 100,106.288
VIP High Income 11,714.000 48,130.308 (3,969.125) 55,875.183
VIP II Contrafund 31,768.100 146,734.981 (21,366.518) 157,136.563
VIP II Investment Grade Bond 4,900.060 31,738.917 (2,297.901) 34,341.076
INVESCO Variable Investment Funds, Inc.:
Equity Income 11,223.700 43,201.975 (5,073.253) 49,352.422
Utilities 250.460 12,714.459 (1,290.789) 11,674.130
Janus Aspen Series Funds:
Growth 20,034.700 71,997.593 (14,393.841) 77,638.452
Aggressive Growth 8,875.280 79,190.451 (9,314.989) 78,750.742
Worldwide Growth 38,107.830 111,570.199 (16,460.669) 133,217.360
International Growth 12,384.220 68,300.451 (7,324.987) 73,359.684
Balanced 7,592.840 134,182.102 (10,498.755) 131,276.187
Short-Term Bond 1,034.550 739.743 (1,774.293) -
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 141
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in sub-account units for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
(DECREASE)
INCREASE FOR
OUTSTANDING FOR WITHDRAWALS OUTSTANDING
AT BEGINNING PAYMENTS AND OTHER AT END
SUB-ACCOUNT OF YEAR RECEIVED DEDUCTIONS OF YEAR
- ------------------------------------------------------ -------------- ---------------- --------------- ---------------
<S> <C> <C> <C> <C>
The Alger American Fund:
American Small Capitalization - 15,614.280 (11.810) 15,602.470
American MidCap Growth - 13,911.240 (1.990) 13,909.250
American Growth - 13,413.360 (13.980) 13,399.380
American Leveraged AllCap - 8,150.060 (1.290) 8,148.770
Fidelity Variable Insurance Products (VIP & VIP II) Funds:
VIP II Asset Manager - 6,483.960 (1.280) 6,482.680
VIP Growth - 19,869.540 (1.230) 19,868.310
VIP Overseas - 3,494.450 - 3,494.450
VIP Money Market - 418,912.020 (303,267.820) 115,644.200
VIP II Index 500 - 28,106.580 (4.240) 28,102.340
VIP Equity-Income - 25,475.490 (.660) 25,474.830
VIP High Income - 11,714.000 - 11,714.000
VIP II Contrafund - 31,812.080 (43.980) 31,768.100
VIP II Investment Grade Bond - 4,900.060 - 4,900.060
INVESCO Variable Investment Funds, Inc.:
Industrial Income - 11,223.710 (.010) 11,223.700
Utilities - 251.170 (.710) 250.460
Janus Aspen Series Funds:
Growth - 20,054.580 (19.880) 20,034.700
Aggressive Growth - 8,876.800 (1.520) 8,875.280
Worldwide Growth - 38,113.040 (5.210) 38,107.830
International Growth - 12,384.220 - 12,384.220
Balanced - 7,592.840 - 7,592.840
Short-Term Bond - 1,034.550 - 1,034.550
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 142
<PAGE>
Southland Separate Account L1
Notes to Financial Statements (continued)
NOTE H. NET ASSETS
Net assets at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
ACCUMULATED NET
NET REALIZED UNREALIZED
ACCUMULATED GAINS GAINS
PRINCIPAL INVESTMENT (LOSSES) ON (LOSSES) ON
SUB-ACCOUNT TRANSACTIONS INCOME INVESTMENTS INVESTMENTS NET ASSETS
- ----------------------------------------- ---------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
The Alger American Fund:
American Small Capitalization $ 1,274,505 $ 177,043 $ 5,542 $ 464,970 $ 1,922,060
American MidCap Growth 1,289,879 178,529 33,035 350,700 1,852,143
American Growth 3,198,001 294,207 227,685 792,698 4,512,591
American Leveraged AllCap 1,717,839 62,372 257,622 899,792 2,937,625
Fidelity Variable Insurance Products (VIP &
VIP II) Funds:
VIP II Asset Manager 783,028 52,606 2,932 57,085 895,651
VIP Growth 2,174,916 154,417 37,757 700,378 3,067,468
VIP Overseas 347,376 9,048 1,321 122,699 480,444
VIP Money Market 4,810,086 230,632 - - 5,040,718
VIP II Index 500 5,361,968 16,185 79,961 1,132,302 6,590,416
VIP Equity-Income 2,325,687 76,113 22,512 101,987 2,526,299
VIP High Income 1,018,574 71,195 (38,976) (4,066) 1,046,727
VIP II Contrafund 4,617,512 100,746 129,276 1,211,552 6,059,086
VIP II Investment Grade Bond 716,354 20,106 5,589 (13,126) 728,923
INVESCO Variable Investment Funds, Inc.:
Equity Income 1,021,786 50,503 25,414 112,626 1,210,329
Utilities 687,074 4,898 11,823 84,916 788,711
Janus Aspen Series Funds:
Growth 2,741,818 28,933 281,593 954,490 4,006,834
Aggressive Growth 2,235,567 48,017 1,842,894 991,914 5,118,392
Worldwide Growth 3,089,710 17,797 170,610 2,045,633 5,323,750
International Growth 1,481,469 (1,663) 183,144 1,177,733 2,840,683
Balanced 5,254,823 124,299 259,784 1,030,657 6,669,563
---------------- --------------- --------------- -------------- --------------
Total $46,147,972 $1,715,983 $3,539,518 $12,214,940 $63,618,413
================ =============== =============== ============== ==============
</TABLE>
- --------------------------------------------------------------------------------
Future Dimensions 143
<PAGE>
APPENDIX A
DEATH BENEFIT CORRIDOR FACTORS
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age Factor Age Factor Age Factor Age Factor
--- ------- --- ------- --- ------- --- ------
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
1 2.50 26 2.50 51 1.78 76 1.05
2 2.50 27 2.50 52 1.71 77 1.05
3 2.50 28 2.50 53 1.64 78 1.05
4 2.50 29 2.50 54 1.57 79 1.05
5 2.50 30 2.50 55 1.50 80 1.05
6 2.50 31 2.50 56 1.46 81 1.05
7 2.50 32 2.50 57 1.42 82 1.05
8 2.50 33 2.50 58 1.38 83 1.05
9 2.50 34 2.50 59 1.34 84 1.05
10 2.50 35 2.50 60 1.30 85 1.05
11 2.50 36 2.50 61 1.28 86 1.05
12 2.50 37 2.50 62 1.26 87 1.05
13 2.50 38 2.50 63 1.24 88 1.05
14 2.50 39 2.50 64 1.22 89 1.05
15 2.50 40 2.50 65 1.20 90 1.05
16 2.50 41 2.43 66 1.19 91 1.04
17 2.50 42 2.36 67 1.18 92 1.03
18 2.50 43 2.29 68 1.17 93 1.02
19 2.50 44 2.22 69 1.16 94 1.01
20 2.50 45 2.15 70 1.15 95 1.00
21 2.50 46 2.09 71 1.13 96 1.00
22 2.50 47 2.03 72 1.11 97 1.00
23 2.50 48 1.97 73 1.09 98 1.00
24 2.50 49 1.91 74 1.07 99 1.00
100+ 1.00
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Future Dimensions 144
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
The following hypothetical illustrations demonstrate how the actual investment
experience of each subaccount of the separate account affects the account value
minus any surrender charge, account value and death benefit of a policy. These
hypothetical illustrations are based on the actual historical return of each
portfolio as if a policy had been issued on the date indicated. Each portfolio's
annual total return is based on the total return calculated for each fiscal
year. These annual total return figures reflect the portfolio's management fees
and other operating expenses but do not reflect the policy level or separate
account asset based charges and deductions, which if reflected, would result in
lower total return figures than those shown.
The illustrations are based on the payment of a $4,500 annual premium, received
at the beginning of each year, for a hypothetical policy with a $250,000 face
amount, death benefit option A, issued to a preferred, nonsmoker male, age 45.
In each case, it is assumed that all premiums are allocated to the subaccount
illustrated for the period shown. The benefits are calculated for a specific
date. The amount and timing of premium payments and the use of other policy
features, such as policy loans, would affect individual policy benefits.
The amounts shown for the account value minus any surrender charge, account
values and death benefits take into account the charges against premiums,
current cost of insurance and monthly deductions, the daily charge against the
separate account for mortality and expense risks, and each portfolio's charges
and expenses. SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 44. This prospectus also
contains illustrations based on assumed rates of return. SEE ILLUSTRATIONS OF
DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE
55.
Past performance is not an indication of future results. Actual investment
results may be more or less than those shown in the hypothetical illustrations.
- --------------------------------------------------------------------------------
Future Dimensions 145
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
- --------------------------------------------------------------------------------
ALGER AMERICAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 4.14% 1,153 3,123 250,000
12/31/91 40.39% 6,755 8,975 250,000
12/31/92 12.38% 9,412 13,562 250,000
12/31/93 22.47% 16,263 20,413 250,000
12/31/94 1.45% 19,589 23,739 250,000
12/31/95 36.37% 32,446 36,596 250,000
12/31/96 13.35% 40,681 44,831 250,000
12/31/97 25.75% 55,992 60,142 250,000
12/31/98 48.07% 89,524 93,674 250,000
12/31/99 33.74% 125,644 129,103 304,682
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 12.04% 1,431 3,401 250,000
12/31/97 19.68% 5,690 7,910 250,000
12/31/98 57.83% 13,436 17,586 250,000
12/31/99 78.06% 32,906 37,056 250,000
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 -1.54% 954 2,924 250,000
12/31/95 44.45% 6,744 8,964 250,000
12/31/96 11.90% 9,339 13,489 250,000
12/31/97 15.01% 14,905 19,055 250,000
12/31/98 30.30% 24,722 28,872 250,000
12/31/99 31.85% 37,948 42,098 250,000
The assumptions underlying these values are described in Performance
Information, page 145.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Future Dimensions 146
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
- --------------------------------------------------------------------------------
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 8.71% 1,314 3,284 250,000
12/31/91 57.54% 8,166 10,386 250,000
12/31/92 3.55% 9,761 13,911 250,000
12/31/93 13.28% 15,087 19,237 250,000
12/31/94 -4.38% 17,079 21,229 250,000
12/31/95 44.31% 31,005 35,155 250,000
12/31/96 4.18% 35,520 39,670 250,000
12/31/97 11.39% 43,348 47,498 250,000
12/31/98 15.53% 54,290 58,440 250,000
12/31/99 43.42% 84,828 88,286 250,000
FIDELITY VIP EQUITY-INCOME PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 -15.29% 475 2,445 250,000
12/31/91 31.44% 5,265 7,485 250,000
12/31/92 16.89% 8,243 12,393 250,000
12/31/93 18.29% 14,173 18,323 250,000
12/31/94 7.07% 18,705 22,855 250,000
12/31/95 35.09% 30,910 35,060 250,000
12/31/96 14.28% 39,306 43,456 250,000
12/31/97 28.11% 55,379 59,529 250,000
12/31/98 11.63% 65,661 69,811 250,000
12/31/99 6.33% 73,892 77,351 250,000
The assumptions underlying these values are described in Performance
Information, page 145.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Future Dimensions 147
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
- --------------------------------------------------------------------------------
FIDELITY VIP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 -11.73% 599 2,569 250,000
12/31/91 45.51% 6,299 8,519 250,000
12/31/92 9.32% 8,533 12,683 250,000
12/31/93 19.37% 14,689 18,839 250,000
12/31/94 -0.02% 17,673 21,823 250,000
12/31/95 35.36% 29,591 33,741 250,000
12/31/96 14.71% 37,966 42,116 250,000
12/31/97 23.48% 51,562 55,712 250,000
12/31/98 39.49% 77,917 82,067 250,000
12/31/99 37.44% 113,419 116,877 275,830
FIDELITY VIP HIGH INCOME
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 -2.23% 930 2,900 250,000
12/31/91 35.08% 6,097 8,317 250,000
12/31/92 23.17% 9,956 14,106 250,000
12/31/93 20.40% 16,561 20,711 250,000
12/31/94 -1.64% 19,143 23,293 250,000
12/31/95 20.72% 27,651 31,801 250,000
12/31/96 14.03% 35,513 39,663 250,000
12/31/97 17.67% 46,045 50,195 250,000
12/31/98 -4.33% 46,728 50,878 250,000
12/31/99 8.15% 54,853 58,312 250,000
The assumptions underlying these values are described in Performance
Information, page 145.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Future Dimensions 148
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
- --------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 8.04% 1,290 3,260 250,000
12/31/91 6.09% 4,591 6,811 250,000
12/31/92 3.90% 6,114 10,264 250,000
12/31/93 3.23% 9,591 13,741 250,000
12/31/94 4.25% 13,338 17,488 250,000
12/31/95 5.87% 17,564 21,714 250,000
12/31/96 5.41% 21,899 26,049 250,000
12/31/97 5.51% 26,517 30,667 250,000
12/31/98 5.46% 31,494 35,644 250,000
12/31/99 5.17% 37,294 40,752 250,000
FIDELITY VIP OVERSEAS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 -1.67% 950 2,920 250,000
12/31/91 8.00% 4,356 6,576 250,000
12/31/92 -10.72% 4,395 8,545 250,000
12/31/93 37.35% 11,951 16,101 250,000
12/31/94 1.72% 15,290 19,440 250,000
12/31/95 9.74% 20,507 24,657 250,000
12/31/96 13.15% 27,161 31,311 250,000
12/31/97 11.56% 34,143 38,293 250,000
12/31/98 12.81% 42,571 46,721 250,000
12/31/99 42.55% 67,670 71,128 250,000
The assumptions underlying these values are described in Performance
Information, page 145.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Future Dimensions 149
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
- --------------------------------------------------------------------------------
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 6.72% 1,244 3,214 250,000
12/31/91 22.56% 5,664 7,884 250,000
12/31/92 11.71% 8,115 12,265 250,000
12/31/93 21.23% 14,486 18,636 250,000
12/31/94 -6.09% 16,130 20,280 250,000
12/31/95 16.96% 23,139 27,289 250,000
12/31/96 14.60% 30,569 34,719 250,000
12/31/97 20.65% 41,395 45,545 250,000
12/31/98 15.05% 51,810 55,960 250,000
12/31/99 11.09% 62,069 65,527 250,000
FIDELITY VIP II CONTRAFUND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 21.22% 1,755 3,725 250,000
12/31/97 24.14% 6,402 8,622 250,000
12/31/98 29.98% 11,159 15,309 250,000
12/31/99 24.25% 18,726 22,876 250,000
FIDELITY VIP II INDEX 500 PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/93 9.74% 1,350 3,320 250,000
12/31/94 1.04% 4,305 6,525 250,000
12/31/95 37.19% 9,175 13,325 250,000
12/31/96 22.82% 16,033 20,183 250,000
12/31/97 32.82% 26,781 30,931 250,000
12/31/98 28.31% 39,433 43,583 250,000
12/31/99 20.51% 51,920 56,070 250,000
The assumptions underlying these values are described in Performance
Information, page 145.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Future Dimensions 150
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
- --------------------------------------------------------------------------------
FIDELITY VIP II INVESTMENT GRADE BOND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 6.21% 1,226 3,196 250,000
12/31/91 16.38% 5,222 7,442 250,000
12/31/92 6.65% 7,068 11,218 250,000
12/31/93 10.96% 11,709 15,859 250,000
12/31/94 -3.76% 13,986 18,136 250,000
12/31/95 17.32% 20,722 24,872 250,000
12/31/96 3.19% 24,582 28,732 250,000
12/31/97 9.06% 30,476 34,626 250,000
12/31/98 8.85% 36,943 41,093 250,000
12/31/99 -1.05% 40,220 43,678 250,000
INVESCO VIF-EQUITY INCOME FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 29.25% 2,039 4,009 250,000
12/31/96 22.28% 6,612 8,832 250,000
12/31/97 28.17% 11,205 15,355 250,000
12/31/98 15.30% 17,095 21,245 250,000
12/31/99 14.84% 23,738 27,888 250,000
INVESCO VIF-UTILITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 9.08% 1,327 3,297 250,000
12/31/96 12.76% 5,089 7,309 250,000
12/31/97 23.41% 8,746 12,896 250,000
12/31/98 25.48% 15,946 20,096 250,000
12/31/99 19.13% 23,436 27,586 250,000
The assumptions underlying these values are described in Performance
Information, page 145.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
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<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
- --------------------------------------------------------------------------------
JANUS ASPEN AGGRESSIVE GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 16.33% 1,582 3,552 250,000
12/31/95 27.48% 6,428 8,648 250,000
12/31/96 7.95% 8,507 12,657 250,000
12/31/97 12.66% 13,573 17,723 250,000
12/31/98 34.26% 23,836 27,986 250,000
12/31/99 125.40% 66,242 70,392 250,000
JANUS ASPEN BALANCED PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 0.84% 1,038 3,008 250,000
12/31/95 24.79% 5,560 7,780 250,000
12/31/96 16.18% 8,505 12,655 250,000
12/31/97 22.10% 15,098 19,248 250,000
12/31/98 34.28% 25,878 30,028 250,000
12/31/99 26.76% 37,761 41,911 250,000
JANUS ASPEN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 2.76% 1,105 3,075 250,000
12/31/95 30.17% 6,003 8,223 250,000
12/31/96 18.45% 9,285 13,435 250,000
12/31/97 22.75% 16,155 20,305 250,000
12/31/98 35.66% 27,619 31,769 250,000
12/31/99 43.98% 46,021 50,171 250,000
The assumptions underlying these values are described in Performance
Information, page 145.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
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Future Dimensions 152
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 45 Preferred Risk Class Death Benefit Option A
Stated Death Benefit $250,000 Annual Premium $4,500
- --------------------------------------------------------------------------------
JANUS ASPEN INTERNATIONAL GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 23.15% 1,823 3,793 250,000
12/31/96 34.71% 7,270 9,490 250,000
12/31/97 18.51% 10,785 14,935 250,000
12/31/98 17.23% 16,969 21,119 250,000
12/31/99 82.27% 40,202 44,352 250,000
JANUS ASPEN WORLDWIDE GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 1.53% 1,062 3,032 250,000
12/31/95 27.37% 5,761 7,981 250,000
12/31/96 29.04% 10,221 14,371 250,000
12/31/97 22.15% 17,192 21,342 250,000
12/31/98 28.92% 27,343 31,493 250,000
12/31/99 64.45% 52,782 56,932 250,000
The assumptions underlying these values are described in Performance
Information, page 145.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
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Future Dimensions 153
<PAGE>
Part II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, the undersigned Registrant hereby undertakes to
file with the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
Texas Business Corporations Act Article 2.02-1 is a
comprehensive provision that defines the power of Texas corporations to provide
for the indemnification of its directors, officers, employees and agents. This
Article also grants to corporations the power to purchase director and officer
insurance.
Article XXVIII of the Southland Life Insurance Company Bylaws provides as
follows:
ARTICLE XXVIII
INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHERS
SECTION 1. Authorization for indemnification of Directors and
officers in actions by or in the right of a company to procure a judgment in its
favor.
(a) Any person made party to an action by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he,
his testator or intestate, is or was a Director or officer of the Company, shall
be indemnified against the reasonable expenses, including attorneys' fees,
actually and necessarily incurred by him in connection with the defense of such
action, or in connection with an appeal therein, except in relation to matters
as to which such Director or officer is adjudged to have breached his duty to
the Company.
(b) The indemnification authorized under paragraph (a) shall
in no case include:
(1) Amounts paid in settling or otherwise disposing
of a threatened or a pending action with or without court approval; or
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Future Dimensions II - 1
<PAGE>
(2) Expenses incurred in defending a threatened
action or a pending action which is settled or otherwise disposed of without
court approval.
SECTION 2. Authorization for indemnification of Directors and
officers in actions or proceedings other than by or in the right of a company to
procure a judgment in its favor.
(a) Any person made, or threatened to be made, a party in an
action or proceeding other than one by or in the right of the company to procure
a judgment in its favor, whether civil, criminal or administrative, including an
action by or in the right of any other company of any type or kind, domestic or
foreign, which any Director or officer of the Company, served in any capacity at
the request of the Company, by reason of the fact that he, his testator or
intestate, was a Director or officer of the Company, or served such other
company in any capacity, shall be indemnified against judgments, fines, amounts
paid in settlement and reasonable expenses, including attorneys' fees actually
and necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such Director or officer acted, in good faith, for a purpose which
he reasonably believed to be in the best interests of the Company and, in
criminal actions or proceedings, in addition, had no reasonable cause to believe
that his conduct was unlawful.
(b) The termination of any such civil or criminal action or
proceeding by judgment, settlement, conviction or upon a plea of nolo
contendere, or its equivalent, shall not in itself create a presumption that any
such Director or officer did not act in good faith for a purpose which he
reasonably believed to be in the best interests of the Company or that he had
reasonable cause to believe that this conduct was unlawful.
SECTION 3. Payment of indemnification other than by court
award.
(a) A person who has been wholly successful, on the merits or
otherwise, in the defense of a civil, criminal, or administrative action or
proceeding of the character described in Section 1 or Section 2 above shall be
entitled to indemnification as authorized in such Section 1 or Section 2.
(b) Except as provided in Paragraph (a) of this Section 3, any
indemnification under Section 1 or Section 2 above, unless ordered by a court,
shall be made by the Company only if authorized in the specific case:
(1) By the Board of Directors acting by a quorum
consisting of Directors who are not parties to such action or proceeding upon a
finding that the Director or officer has met the standard of conduct set forth
in Section 1 or Section 2, as the case may be; or
(2) If a quorum of the Board of Directors is not
obtainable with due diligence:
(A) By the Board of Directors upon the
opinion in writing of independent legal counsel that indemnification is proper
in the circumstances because the applicable standard of conduct set forth in
Section 1 or Section 2 above has been met by such Director or officer, or
(B) By the stockholder (excluding the
director or officer) upon a finding that the Director or officer has met the
applicable standard of conduct set forth in Section 1 or Section 2 above.
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Future Dimensions II - 2
<PAGE>
(c) Reasonable expenses incurred in defending a civil,
criminal or administrative action or proceeding may be paid by the Company in
advance of the final disposition of such action or proceeding if authorized
under paragraph (b) of this Section 3 and if the Director or officer submits a
written affirmation that he meets the standards necessary for indemnification
and if the facts known to those making the determination would not preclude
indemnification, but subject to a written undertaking of repayment if ultimately
found not to be entitled to indemnification under the provisions hereof.
SECTION 4. General
The foregoing provisions of this Article XXVIII shall be
deemed to be a contract between the Company and each Director and officer who
serves in such capacity at any time while this bylaw is in effect, and any
repeal or modification thereof shall not affect any rights or obligations then
existing with respect to any state of facts then or therefore existing or any
action, suit or proceeding theretofore or thereafter brought based in whole or
in part upon any such state of facts.
The foregoing rights of indemnification shall not be deemed
exclusive of any other rights to which any Director or officer may be entitled
apart from the provisions of this Article XXVIII.
The Board of Directors in its discretion shall have the power
on behalf of the Company to indemnify any person, other than a Director or
officer, made a party to any action, suit or proceeding by reason of the fact
that he, his testator or intestate, is or was an employee of the company. Such
indemnification shall be to the same extent and subject to the same standards as
indemnification for a director or officer.
SECTION 5. Liability Insurance
The company and/or the Board of Directors may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the company or who is or was serving at the request of the
company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, other
enterprise or employee benefit plan, against any and all liability asserted
against him and/or incurred by him in such capacity or arising out of his status
as such a person, whether or not such person would be subject to or eligible for
indemnification under the other provisions of this Article XXVIII.
REPRESENTATIONS PURSUANT TO SECTION 26(E)(2)(A)
Southland Life Insurance Company hereby represents that the fees and charges
deducted under the Policy, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by Southland Life Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
- --------------------------------------------------------------------------------
Future Dimensions II - 3
<PAGE>
The prospectus.
Undertaking to file reports.
Rule 484 undertaking.
Representations pursuant to Section 26(e)(2)(A).
The signatures.
Written consents of the following persons:
James L. Livingston, Jr. (See Exhibit 6A).
Ernst & Young LLP (See Exhibit 7(a)).
Sutherland Asbill & Brennan LLP (See Exhibit 7(b)).
The following exhibits, corresponding to those required by paragraph A
of the instructions as to exhibits in Form N-8B-2:
1.
A.
(1) Resolution of the Board of Directors of Southland Life
Insurance Company establishing Southland Separate
Account L1/1/
(2) Not Applicable
(3) (a) Form of Underwriting Agreement between Southland
Life Insurance Company and ING America Equities,
Inc. /2/
(b) Form of Distribution Agreement /3/
(i) Amendment to Southland Life Insurance Company
Distribution Agreement
(c) Schedule of Sales Commissions /4/
(d) Form of Wholesaling Agreement
(e) Form of IIG Master Sales and Supervisory Agreement
(f) Form of Broker-Dealer Supervisory and Selling
Agreement for Variable Contracts
(4) Not applicable
(5) (a) Specimen Flexible Premium Adjustable Combination
Fixed and Variable Life Insurance Policy /5/
(i) Specimen Form of Montana Flexible Premium Adjustable
Combination Fixed and Variable Life Insurance
Policy /7/
(ii) Specimen Form of Texas Flexible Premium Adjustable
Combination Fixed and Variable Life Insurance
Policy /7/
(b) Adjustable Term Insurance Rider /4/
(c) Accidental Death Benefit Rider /4/
(d) Additional Insured Rider /4/
(e) Children's Insurance Rider /4/
(f) Exchange of Insured Rider /4/
(g) Guaranteed Insurability Rider /4/
(h) Waiver of the Cost of Insurance Rider /4/
(i) Waiver of Specified Premium Rider /4/
(j) Guaranteed Minimum Death Benefit Rider /6/
(k) Fail Safe Endorsement /8/
(l) Continuation of Coverage After Age 100 Endorsement
(6) (a) Amended and restated Articles of Incorporation of
Southland Life Insurance Company /3/
(b) By-laws of Southland Life Insurance Company /2/
(7) Not applicable
(8) (a) Form of participation/distribution agreement between
The Alger American Fund and the Company /3/
(b) Form of participation/distribution agreement between
Fidelity Variable Insurance Products Fund and the
Company /3/
(c) Form of participation/distribution agreement between
Fidelity Variable Insurance Products Fund II and the
Company /3/
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Future Dimensions II - 4
<PAGE>
(d) Form of participation/distribution agreement between
INVESCO Variable Investment Funds, Inc. and the
Company /3/
(e) Form of participation/distribution agreement between
Janus Aspen Series and the Company /3/
(f) Form of administrative services agreement between
Security Life of Denver Insurance Company and
Southland Life Insurance Company
(g) Form of administrative services agreement between
INVESCO Funds Group, Inc. and Southland Life
Insurance Company
(9) Not applicable
(10) Application form /5/
(11) Issuance, transfer and redemption procedures memorandum
B. Not applicable
C. Not applicable
2. Opinion and Consent of B. Scott Burton, Esquire /8/
3. Not applicable
4. Not applicable
5. Not applicable
6.A. Opinion and consent of James L. Livingston, Jr.
7.(a) Consent of Ernst & Young LLP
(b) Consent of Sutherland Asbill & Brennan LLP
- -------------------
/1/ Incorporated by reference to the Registration Statement on Form S-6
for Southland Separate Account L1 (File No. 33-97852) filed with the
Commission on October 6, 1995.
/2/ Incorporated by reference to the Registration Statement on Form N-4
for Southland Separate Account A1 (File No. 33-89574) filed with the
Commission on February 17, 1995.
/3/ Incorporated by reference to Pre-Effective Amendment No. 1 to the
Registration Statement on Form N- 4 for Southland Separate Account A1
(File No. 33-89574) filed with the Commission on September 29, 1995.
/4/ Incorporated by reference to Pre-Effective Amendment No. 2 to the
Registration Statement on Form S- 6 for Southland Separate Account L1
(File No. 33-97852) filed with the Commission on May 10, 1996.
/5/ Incorporated by reference to Post-Effective Amendment No. 1 to the
Registration Statement on Form S-6 for Southland Separate Account L1
(File No. 33-97852) filed with the Commission on July 30, 1996.
/6/ Incorporated by reference to Post-Effective Amendment No. 2 to the
Registration Statement on Form S-6 for Southland Separate Account L1
(File No. 33-97852) filed with the Commission on October 25, 1996.
/7/ Incorporated by reference to Post-Effective Amendment No. 3 to the
Registration Statement on Form S-6 for Southland Separate Account L1
(File No. 33-97852) filed with the Commission on April 30, 1997.
/8/ Incorporated by reference to Post-Effective Amendment No. 5 to the
Registration Statement on Form S-6 for Southland Separate Account L1
(File No. 33-97852) filed with the Commission on April 29, 1999.
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Future Dimensions II - 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Southland Life
Insurance Company and the Registrant, Southland Separate Account L1, certify
that they meet all the requirements for effectiveness of this Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and have duly
caused this Post-Effective Amendment No. 6 to the Registration Statement to be
signed on its behalf by the undersigned, hereunto duly authorized, and their
seal to be hereunto affixed and attested, all in the County of Fulton and the
State of Georgia, on the 19th day of April, 2000.
Southland Life Insurance Company
(Depositor)
By: /s/ Stephen M. Christopher
-----------------------------
Stephen M. Christopher
President
(Seal)
Attest:
/s/ Gary W. Waggoner
- -------------------------------
Gary W. Waggoner
Southland Separate Account L1
(Registrant)
BY: Southland Life Insurance Company
(Depositor)
By: /s/ Stephen M. Christopher
-----------------------------
Stephen M. Christopher
President
(Seal)
Attest:
/s/ Gary W. Waggoner
- -------------------------------
Gary W. Waggoner
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Future Dimensions II - 6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 6 to the Registration Statement has been signed below by the
following persons in the capacities indicated on the date(s) set forth below.
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Stephen M. Christopher
- ------------------------
Stephen M. Christopher
President and Chairman
/s/ James L. Livingston, Jr.
- ------------------------
James L. Livingston, Jr.
Executive Vice President, CFO and Chief Acutary
PRINCIPAL ACCOUNTING OFFICER:
/s/ Fred H. Wright
- ------------------------
Fred H. Wright
Vice President and Corporate Controller
DIRECTORS:
/s/ P. Randall Lowery
- ------------------------
P. Randall Lowery
/s/ Michael W. Cunningham
- ------------------------
Michael W. Cunningham
/s/ B. Scott Burton
- ------------------------
B. Scott Burton
/s/ Jerome J. Cwiok
- ------------------------
Jerome J. Cwiok
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Future Dimensions II - 7
<PAGE>
Exhibit Index
1.A.(3)(b)(i) Amendment to Southland Life Insurance Company Distribution
Agreement
1.A.(3)(d) Form of Wholesaling Agreement
1.A.(3)(e) Form of IIG Master Sales and Supervisory Agreement
1.A.(3)(f) Form of Broker-Dealer Supervisory and Selling Agreement for
Variable Contracts
1.A.5(l) Continuation of Coverage After Age 100 Endorsement
1.A.(8)(f) Form of Administrative Services Agreement between Security Life
of Denver Insurance Company and Southland Life Insurance Company
1.A.(8)(g) Form of administrative services agreement between INVESCO Funds
Group, Inc. and Southland Life Insurance Company
1.A.(11) Issuance, Transfer and Redemption Procedures Memorandum
6.A. Opinion and Consent of James L. Livingston, Jr.
7.(a) Consent of Ernst & Young LLP
7.(b) Consent of Sutherland, Asbill & Brennan LLP
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Future Dimensions II - 8
Exhibit 1.A(3)(b)(i)
AMENDMENT TO
SOUTHLAND LIFE INSURANCE COMPANY
DISTRIBUTION AGREEMENT
This Amendment is made and effective the 1st of March, 1999, and amends the
Distribution Agreement (the "Agreement") dated April 1, 1996, between Southland
Life Insurance Company, a Texas domestic insurance company ("Southland") on its
own behalf and on behalf of Southland Life Insurance Company Separate Account A1
("Separate Account A1") and Southland Life Insurance Company Separate Account L1
("Separate Account L1" and both Separate Account A1 and Separate Account L1
collectively referred to as "Separate Accounts") and ING America Equities, Inc.,
a Colorado corporation ("ING America Equities").
WHEREAS, Southland and ING America Equities desire to make certain
changes to the Agreement;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, Southland and ING America Equities
hereby agrees as follows:
1. Section 21 is hereby amended to read in its entirety as follows:
21. GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with and governed by the laws of
Colorado or Texas, as appropriate to the action being
commenced.
2. A new section, Section 22 is hereby added:
22. TERM OF AGREEMENT. This Agreement is for a term of five
years from its effective date and shall automatically renew
for subsequent terms of five year periods, unless
terminated under Section 17 by either party.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed.
SOUTHLAND LIFE INSURANCE COMPANY ING AMERICA EQUITIES, INC.
By: /s/ B. Scott Burton By: /s/ Gary W. Waggoner
---------------------------------- ---------------------------------
Print Name: B. Scott Burton Print Name: Gary W. Waggoner
-------------------------- --------------------------
Title: Title: Secretary
------------------------------- -------------------------------
Exhibit 1.A(3)(d)
WHOLESALING AGREEMENT
THIS WHOLESALING AGREEMENT ("Agreement"), made this ____ day of ____________,
20__, by and between SOUTHLAND LIFE INSURANCE COMPANY ("SOUTHLAND"), a Texas
corporation, and ING AMERICA EQUITIES, INC. ("ING AMERICA EQUITIES"), a Colorado
corporation, and ________________________________ ("BROKER-DEALER"), a
__________________ corporation, and ________________________________
("WHOLESALER") (collectively "THE PARTIES").
RECITALS
WHEREAS, SOUTHLAND issues certain variable life insurance policies described in
this Agreement or in the Schedules attached hereto (the "CONTRACTS"), which are
deemed securities under the Securities Act of 1933 ("1933 ACT"); and
WHEREAS, ING America Equities and BROKER-DEALER are duly licensed as
Broker-Dealers with the National Association of Securities Dealers ("NASD") and
the U.S. Securities and Exchange Commission ("SEC"); and
WHEREAS, WHOLESALER is a registered representative of BROKER-DEALER and a duly
licensed insurance agent; and
WHEREAS, SOUTHLAND has appointed ING AMERICA EQUITIES as the principal
underwriter and distributor of the
CONTRACTS; and
WHEREAS, SOUTHLAND, ING AMERICA EQUITIES, BROKER-DEALER and WHOLESALER desire to
establish an arrangement whereby Wholesaler will recommend to ING AMERICA
EQUITIES certain Broker-Dealers to solicit sales of the CONTRACTS and/or
recommend CONTRACTS to registered representatives of these Broker-Dealers for
sale to customers; and
WHEREAS, ING AMERICA EQUITIES delegates to BROKER-DEALER, to the extent legally
permitted, certain training and administrative responsibilities and duties in
connection with WHOLESALER'S activities pursuant to this Agreement.
NOW THEREFORE, in consideration of the premises and mutual promises contained
herein, THE PARTIES hereto agree as follows:
1) APPOINTMENT
SOUTHLAND and ING AMERICA EQUITIES hereby appoint WHOLESALER to
recommend certain Broker-Dealers to ING AMERICA EQUITIES to solicit
sales of the CONTRACTS which are described in the Schedules attached
hereto and/or recommend CONTRACTS to registered representatives of such
Broker-Dealers for sale to customers. SOUTHLAND hereby appoints
BROKER-DEALER and BROKER-DEALER accepts appointment to supervise
WHOLESALER'S wholesaling activities.
1
<PAGE>
2) REPRESENTATIONS
a) Each party to this Agreement represents to the others, through the
signatures below, that it has full power and authority to enter into
this Agreement and to perform the services and obligations contemplated
hereunder.
b) ING AMERICA EQUITIES represents that it is a member of the NASD and is
registered as a Broker-Dealer under the Securities Exchange Act of 1934
("1934 ACT) and under the laws of each jurisdiction in which such
registration is required for the sale of the CONTRACTS.
c) BROKER-DEALER represents that it is a member of the NASD and is
registered as a Broker-Dealer under the 1934 ACT and under the laws of
each jurisdiction in which such registration is required for the sale of
the CONTRACTS.
d) SOUTHLAND represents that the CONTRACTS and related separate accounts do
and will continue to comply with the registration and other applicable
requirements of the 1933 ACT, the Investment Company Act of 1940 ("the
1940 Act"), and the rules and regulations thereunder, including the
terms of any SEC order with respect thereto.
e) SOUTHLAND represents that the CONTRACTS have been duly filed and
accepted by the state insurance departments in jurisdictions where it is
authorized to transact business. SOUTHLAND shall provide notice of such
jurisdictions to THE PARTIES.
f) SOUTHLAND represents that the CONTRACT prospectuses currently included
in SOUTHLAND'S registration statement, as filed with the SEC, contain or
will contain, all statements and information which are required to be
stated therein by the 1933 ACT and in all respects conform to the
requirements thereof.
3) COMPLIANCE WITH NASD CONDUCT RULES AND FEDERAL AND STATE LAWS
BROKER-DEALER shall fully comply with the requirements of the 1934 Act
and all other applicable federal and state laws and with the rules of
the NASD. BROKER-DEALER shall establish such rules and procedures as are
necessary to diligently supervise the securities activities of
Representatives. BROKER-DEALER shall maintain appropriate books, records
and supervisory procedures as required by the SEC, NASD or other
regulatory agencies having jurisdiction.
4) LICENSING AND APPOINTMENT OF WHOLESALER AND BROKER-DEALERS
WHOLESALER shall recommend that certain Broker-Dealers or registered
representatives who desire to solicit CONTRACTS be contracted and
appointed with SOUTHLAND and ING AMERICA EQUITIES in accordance with
SOUTHLAND'S and ING AMERICA EQUITIES' procedures in effect at the time
of contracting and appointment. SOUTHLAND and ING AMERICA EQUITIES shall
have the right to reject or accept any such recommendation, but shall
not do so arbitrarily or unreasonably.
5) QUALIFICATION AND SUPERVISION OF WHOLESALER
a) Before WHOLESALER engages in the wholesaling activities described
herein, BROKER-DEALER will cause the Wholesaler (i) to be a registered
representative of BROKER-DEALER; (ii) to qualify under all applicable
laws to engage in wholesaling activities; (iii) to be trained in the
sale of the CONTRACTS;
2
<PAGE>
and (iv) to limit wholesaling activities to jurisdictions where
SOUTHLAND has authorized solicitation of the CONTRACTS.
b) BROKER-DEALER shall have full responsibility for the training,
supervision and control of WHOLESALER'S wholesaling activities.
WHOLESALER shall be subject to the control of BROKER-DEALER with respect
to activities in connection with the CONTRACTS. BROKER-DEALER shall
comply with the administrative procedures of SOUTHLAND and ING AMERICA
EQUITIES. Such procedures are subject to change and are freely amendable
from time to time by SOUTHLAND and ING AMERICA EQUITIES.
c) BROKER-DEALER has specific responsibility for supervising and reviewing
WHOLESALER'S use of sales literature, advertising and all other
communications in connection with the CONTRACTS. No sales solicitation,
including delivery of supplemental sales literature shall occur, be
delivered to, or used with a prospective purchaser unless accompanied or
preceded by the then current prospectus(es).
d) If WHOLESALER fails to comply with the BROKER-DEALER'S rules and
standards, the BROKER-DEALER shall terminate the wholesaling activities
of WHOLESALER relating to the CONTRACTS and shall promptly notify
SOUTHLAND and ING AMERICA EQUITIES of such termination.
e) Upon request by SOUTHLAND or ING AMERICA EQUITIES, BROKER-DEALER shall
furnish appropriate records to evidence BROKER-DEALER'S diligent
supervision.
6) ADVERTISING AND SALES PROMOTION MATERIALS
BROKER-DEALER warrants that only advertising and sales materials,
including illustrations, which have been approved in writing in advance
of use by SOUTHLAND and ING AMERICA EQUITIES will be used by WHOLESALER.
7) COMPENSATION
Compensation payable under this Agreement shall be paid to BROKER-DEALER
in accordance with the Schedule(s) attached hereto as are in effect at
the time premium payments are received by SOUTHLAND. SOUTHLAND reserves
the right to revise the Schedule(s) at any time upon ten (10) days prior
written notice to BROKER-DEALER. Compensation to WHOLESALER for
wholesaling activities shall be governed by an agreement between
BROKER-DEALER and WHOLESALER.
8) HOLD HARMLESS AND INDEMNIFICATION PROVISIONS
No party to this Agreement will be liable for any obligation, act or
omission of any other. Each party to this Agreement will hold harmless
and indemnify SOUTHLAND, ING AMERICA EQUITIES, BROKER-DEALER and
WHOLESALER, as appropriate, for losses or expenses suffered (including
reasonable attorneys' fees) as a result of a violation or non-compliance
by that party or ASSOCIATED PERSONS of that party of any applicable law
or regulation. The term "ASSOCIATED PERSON" herein shall be defined
consistently with such definition as contained in the NASD Membership
and Conduct Rules.
9) NON-WAIVER PROVISION
Failure of a party to terminate the Agreement for causes as set forth in
this Agreement does not constitute a waiver of the right to terminate
this Agreement at a later time.
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10) AMENDMENTS
Except as stated in Section 7, no amendment to this Agreement will be
effective unless it is in writing and signed by all parties hereto.
11) INDEPENDENT CONTRACTOR
BROKER-DEALER and WHOLESALER are independent contractors with respect to
SOUTHLAND and ING AMERICA EQUITIES.
12) NOTIFICATION AND COOPERATION IN INVESTIGATION
BROKER-DEALER and WHOLESALER agree to notify ING AMERICA EQUITIES
promptly of any disciplinary proceedings against WHOLESALER or any
threatened or filed arbitration action or civil litigation arising out
of WHOLESALER'S activities. BROKER-DEALER, WHOLESALER, ING AMERICA
EQUITIES and SOUTHLAND jointly agree to cooperate fully in any
insurance, securities or other regulatory investigation or proceeding or
judicial proceeding arising in connection with the activities
contemplated hereunder with regard to any CONTRACT.
13) BOOKS AND RECORDS
SOUTHLAND, ING AMERICA EQUITIES, BROKER-DEALER and WHOLESALER agree to
maintain the books, accounts and records so as to clearly and accurately
disclose the nature and details of transactions and to assist each other
in the timely presentation of records. ING AMERICA EQUITIES,
BROKER-DEALER and WHOLESALER shall each submit such records to the
regulatory and administrative bodies which have jurisdiction over THE
PARTIES hereto.
14) LIMITATIONS
No party other than SOUTHLAND or ING AMERICA EQUITIES shall have the
authority to make, alter or discharge any selling agreement on behalf of
SOUTHLAND or ING AMERICA EQUITIES. No party other than SOUTHLAND shall
have the authority to make, alter or discharge any CONTRACT issued by
SOUTHLAND, or to substitute or alter the forms which SOUTHLAND may
prescribe; or to enter into any proceeding in any forum, court or before
a regulatory agency in the name of or on behalf of SOUTHLAND.
15) AUTHORIZED ACTIVITIES
WHOLESALER's and BROKER-DEALER's activities related to, authorized by
and on behalf of SOUTHLAND and ING AMERICA EQUITIES under this Agreement
are limited to those described herein and specifically do not extend to
retail solicitation and sales of the CONTRACTS. Such solicitation or
sales are authorized only by an executed Selling and Supervisory
Agreement.
16) TERMINATION
This Agreement shall continue for an indefinite term, subject to the
termination by any party upon ten (10) days advance written notice to
the other parties, except that in the event ING AMERICA EQUITIES or
BROKER-DEALER ceases to be a registered Broker-Dealer or a member of the
NASD or in the event of a material breach of a representation or
covenant of this Agreement, this
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Agreement shall be immediately terminable. Upon termination of the
Agreement, the authorizations, rights and obligations shall cease,
except for the survival of the provisions and agreements in Sections 7,
8 and 12 and the payment of any accrued but unpaid compensation to
BROKER-DEALER or refund of compensation due to ING AMERICA EQUITIES and
SOUTHLAND, to the extent permitted by law.
17) NOTICES
All notices to SOUTHLAND and ING AMERICA EQUITIES relating to this
Agreement are deemed delivered when mailed to:
Southland Life Insurance Company
c/o Office of the General Counsel
1290 Broadway
Denver, CO 80203-5699
with a copy to:
ING America Equities, Inc.
Attn: Chief Legal Officer
1290 Broadway
Denver, CO 80203-5699
18) ASSIGNMENT
This Agreement may not be assigned except by written mutual consent of
THE PARTIES.
19) BINDING EFFECT; SEVERABILITY
This Agreement shall be binding on and shall inure to the benefit of THE
PARTIES to it and their respective successors in interest. If any
provision of the Agreement conflicts with any other provision, or if any
provision shall be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall not be affected
thereby.
20) GOVERNING LAW AND VENUE
This Agreement shall be governed by and construed in accordance with the
laws of the State of Colorado. THE PARTIES agree that the District Court
for the City and County of Denver, Colorado, shall have jurisdiction and
be the appropriate venue for any required judicial interpretation and
enforcement of this Agreement.
21) EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the
same instrument.
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22) EFFECTIVE DATE; ENTIRE AGREEMENT
This Agreement shall be effective as of the date first specified above.
This Agreement, including all Schedules and exhibits hereto,
constitutes the entire Agreement between THE PARTIES and supersedes in
its entirety any and all previous agreements among THE PARTIES with
respect to wholesale activities related to the CONTRACTS.
IN WITNESS WHEREOF, this Agreement has been executed by THE PARTIES as of the
effective date.
SOUTHLAND LIFE INSURANCE COMPANY ING AMERICA EQUITIES, INC.
By: By:
--------------------------------- ---------------------------------
Print Name: Print Name:
------------------------- --------------------------
Title: Title:
------------------------------ -------------------------------
- ------------------------------------ -------------------------------------
WHOLESALER BROKER-DEALER
By: By:
--------------------------------- ----------------------------------
Print Name: Print Name:
------------------------ --------------------------
Title: Title:
------------------------------ -------------------------------
- ------------------------------------ -------------------------------------
(Address) (Address)
- ------------------------------------ -------------------------------------
(City, State, Zip Code) (City, State, Zip Code)
6
Exhibit 1.A(3)(e)
MASTER SALES AND SUPERVISORY AGREEMENT
LIFE INSURANCE
THIS MASTER SALES AND SUPERVISORY AGREEMENT (the "Agreement") is made this ___
day of _____________, 20__, by and among Security Life of Denver Insurance
Company, Southland Life Insurance Company, Equitable Life Insurance Company of
Iowa and USG Annuity & Life Company (collectively, the "ING Insurers"), ING
America Equities, Inc. (the "ING Broker-Dealer"), ______________________(the
"Distributor") and the Distributor Agency or Distributor Agencies identified on
the signature page (the "Distributor Agency(ies)").
WITNESSETH
WHEREAS, the ING Insurers issue various life insurance contracts, both
registered under the federal securities laws and non-registered, (the
"Contracts"), and offer for sale such Contracts in accordance with federal
securities laws and/or the applicable laws of those states in which the
Contracts have been qualified for sale; and
WHEREAS, the ING Insurers have authorized the ING Broker-Dealer (which is
registered with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1934 (the "1934 Act") and is a member of the National
Association of Securities Dealers (the "NASD") as principal underwriter and
distributor of the variable Contracts to enter into, subject to the consent of
the ING Insurers, with distributors for the distribution of the Contracts; and
WHEREAS, the Distributor distributes registered and non-registered life
insurance contracts through its registered representatives (the
"Representatives") affiliated with the Distributor Agency(ies) in accordance
with applicable federal securities laws and applicable laws of those states in
which the Distributor does business; and
WHEREAS, the Distributor proposes to undertake certain supervisory and
administrative obligations discussed below in connection with the distribution
of the Contracts and is authorized to enter into dealer agreements for
distribution of Contracts;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
promises herein contained, the parties agree as follows:
1. Relationship of Parties. As set forth on Schedule 1, the ING Insurers
are the issuers of the Contracts covered by this Agreement. Each Insurer
shall have control over the offering of its Contracts and shall control
the availability and rules regarding the offering of the Contracts. The
ING Broker-Dealer is the principal underwriter and distributor of the
respective Contracts (also as set forth on Schedule 1). The Distributor
represents it is a registered broker-dealer under the 1934 Act and a
member of the NASD. The ING Insurers hereby authorize the Distributor
Agency under the insurance laws and each ING Insurer and ING
Broker-Dealer authorizes the Distributor under the securities laws to
distribute the Contracts. The Distributor agrees to supervise its
Representatives in connection with the distribution, solicitation and
sale of the Contracts and to perform other services as described below.
2. Responsibilities of the ING Insurers. The ING Insurers agree to:
(a) After receipt of the required license appointment application
forms, request all state life insurance appointments needed in
order for the Distributor Agency(ies) and its Representatives to
act as representatives of the ING Insurers.
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(b) Review, accept, modify or reject applications for policies
received from the Distributor Agency(ies) and its
Representatives.
(c) Pay compensation to the Distributor and or Distributor Agencies
as outlined in Section 6 and on the Compensation Schedule.
(d) Provide service to policyowners and relevant information to the
Distributor, Distributor Agency(ies) and its Representatives
regarding the policies written under this agreement, on a
reasonable basis, as done in the normal course of business.
(e) Accept sole responsibility for reviewing and paying, or declining
to pay, all claims, according to the ING Insurers' normal
business practices and administrative policies and procedures.
3. Authority and Duties of the Distributor. The Distributor agrees that it
shall, at all times when performing functions under this Agreement, be
registered as a securities broker-dealer with the SEC and will maintain
its membership with the NASD. Additionally, the Distributor shall be
licensed or registered as a securities broker-dealer in the states
requiring such a license or registration in connection with supervision
and other services pertaining to its Contract sales activities. The
Distributor shall distribute the Contracts and shall have all attendant
duties, responsibilities and liabilities associated with that function
for compliance, supervision and servicing purposes. The Distributor
agrees to use its best efforts to find suitable purchasers for the
Contracts.
(a) Selection and Supervision of Representatives. The Distributor
shall select and employ Representatives and shall have full
responsibility for the training, supervision and control of such
Representatives as contemplated by Section 15(b)(4)(E) of the
1934 Act and applicable NASD Rules. Such Representatives shall be
subject to the control of the Distributor with respect to such
persons' securities-regulated activities in connection with the
Contracts (where such Contracts require such regulation). In the
case of registered Contracts, the Distributor shall cause its
Representatives to be NASD registered representatives,
appropriately licensed with the applicable state and appointed by
the relevant ING Insurers before such Representatives engage in
the solicitation of applications for such registered Contracts
and in the case of all registered and non-registered Contracts,
shall cause such Representatives to limit solicitation of
applications to jurisdictions where such Representatives are
licensed and appointed and where the Contracts being solicited
have been approved for sale.
The ING Insurers and Broker-Dealer shall not have any
responsibility for the supervision of any Representative or any
other associated person or affiliate of the Distributor. If the
act or omission of a Representative or any other associated
person or affiliate of the Distributor is the proximate cause of
any claim, damage or liability (including reasonable attorneys'
fees) to an ING Insurer or ING Broker-Dealer, the Distributor
shall be entirely responsible and liable therefor.
(b) Notice of Representative's Noncompliance. In the event a
Representative fails or refuses to submit to the supervision of
the Distributor, ceases to be a Representative of the
Distributor, or fails to meet the rules and standards imposed by
the Distributor on its Representatives, the Distributor shall
communicate such fact to the ING Insurers and ING Broker-Dealer
in writing immediately, and shall immediately notify such
Representative that he or she is no longer authorized to sell the
Contracts.
(c) Compliance with NASD Registration and Conduct Rules and Federal
and State Securities Laws. In the case of registered Contracts,
the Distributor shall fully comply with the
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requirements of the 1934 Act and all other applicable federal or
state laws and with the rules of the NASD and shall establish
such rules and procedures as may be necessary to cause diligent
supervision of the securities activities of its Representatives.
The Distributor agrees to maintain appropriate books, records and
supervisory procedures as are required by the SEC, NASD and other
regulatory agencies having jurisdiction.
(d) Purchaser Suitability. In the case of all Contracts, the
Distributor shall be responsible for suitability and shall take
reasonable steps to ensure that its Representatives make
recommendations to applicants to purchase Contracts only if there
are reasonable grounds to believe the purchase of each Contract
is suitable for the applicant. The procedure shall include review
of all proposals and applications for Contracts for suitability
and completeness and correctness as to form as well as review and
endorsement on an internal record of the Distributor of the
transactions. Neither the Distributor nor its Representatives
shall engage, directly or indirectly, in the twisting or other
solicitation of the policyowners of the ING Insurers for the
purpose of inducing the termination or replacement of policies or
contracts issued by the ING Insurers unless such termination is
in the best interests of the policyowner.
(e) Prospectus and Statement of Additional Information. In the case
of registered Contracts, the ING Broker-Dealer shall provide the
Distributor with prospectuses and any supplements or amendments
thereto, and the Statement of Additional Information ("SAI")
describing the Contracts subject to this Agreement. Each ING
Insurer, with regard to Contracts it issues, is responsible for
maintaining in effect, in accordance with the requirements of the
SEC, each Registration Statement of which the prospectus is a
part. Each ING Insurer shall immediately notify the Distributor
of the issuance of any stop order or any federal or state
regulatory proceeding which would prevent the sale of their
respective Contracts in any state or jurisdiction. The
Distributor shall ensure compliance with the prospectus delivery
requirements of the 1933 Act. The Distributor agrees to deliver a
copy of the SAI concurrently with a copy of the prospectus to
Contract applicants in jurisdictions where such delivery may be
required.
(f) Advertising and Sales Promotion Materials. In the case of
registered Contracts, the Distributor and the Distributor
Agency(ies) shall perform the selling functions authorized by
this Agreement only in accordance with the terms and conditions
of the then current prospectus applicable to the Contracts and
shall make no representations not included in the prospectus or
in any authorized supplemental material, including illustrations.
In the case of all Contracts, the Distributor shall use, and
shall cause the Distributor Agency(ies) and its Representatives
to use, in the solicitation and sale of the Contracts, only those
advertising and sales materials, including illustrations, that
are or have been approved by the appropriate ING Insurer and ING
Broker-Dealer. In the event that the Distributor, Distributor
Agency(ies) or any of its Representatives create advertising and
sales promotion materials with respect to the Contracts, the
materials may only be used with the prior written approval of the
appropriate ING Insurer and ING Broker-Dealer.
(g) Securing Applications. Each application for a Contract shall be
made only on an application form provided by the appropriate ING
Insurer. The Distributor shall review all such applications for
completeness and for compliance with the conditions herein
including, in the case of registered Contracts, the suitability
and prospectus delivery requirements set forth above under
Sections 2(d) and (e). All payments collected by the Distributor,
or any of its Representatives, shall be remitted promptly, in
full, without deduction or reduction, together with such
application form and any other required documentation directly to
the appropriate ING Insurer at the address indicated on such
application or to such other address as may be designated by such
ING Insurer. All such payments and documents shall be the
property of the ING Insurers. Checks or
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<PAGE>
money orders in payment of such Contracts should be made payable
to the order of the ING Insurer issuing the Contracts. The ING
Insurers reserve the right to reject, in their sole discretion,
any Contract application and return any payment made in
connection with an application which is rejected. Unless
otherwise agreed, Contracts issued on applications accepted by an
ING Insurer shall be forwarded to the Representative of the
Distributor for prompt delivery to the policyowner.
4. Authority and Duties of the Distributor Agency(ies)
(a) Responsibilities of the Distributor Agency(ies)
i. The Distributor agrees to procure applications for the ING
Insurer's Contracts. Production must be through the
Distributor Agency(ies) and Representatives of the
Distributor Agency(ies), which are duly licensed and
appointed by the ING Insurers in the applicable states.
ii. The Distributor Agency(ies) shall recommend
Representatives for appointment by the ING Insurers by
causing such Representatives to complete any and all
application forms required by the ING Insurers and to
submit any other requirements that may be required under
applicable law or by the ING Insurers. The Distributor
Agency(ies) covenants and agrees that it and all of its
Representatives appointed pursuant to this Agreement shall
not solicit nor aid, directly or indirectly, in the
solicitation of any application for any Contract until
they are fully licensed by the proper authorities and
appointed by the relevant ING Insurers under the
applicable insurance laws within the applicable
jurisdictions where the Distributor Agency(ies) and its
Representatives propose to offer Contracts. The
Distributor Agency(ies) further covenants and agrees that
solicitations will only take place where the applicable
ING Insurer is authorized to conduct business and where
the Contracts may be lawfully sold.
iii. The Distributor Agency(ies) shall periodically provide the
ING Insurers with a list of all Representatives appointed
by the Distributor Agency(ies) and the jurisdictions where
such Representatives are licensed to solicit sales of the
Contracts. The Distributor Agency(ies) shall provide
immediate notice to the ING Insurers of any
Representatives terminating their relationship with the
Distributor Agency(ies). Upon such notice, the
Representative's appointment with the ING Insurers shall
be terminated and the Representative will no longer be
authorized to represent the ING Insurers as contemplated
by this Agreement. Notwithstanding such termination, the
ING Insurers or any of them may, in their sole discretion
reappoint and/or re-contract such Representatives.
iv. The Distributor Agency(ies) shall prepare and transmit the
appropriate appointment forms to the applicable ING
Insurer at the address provided on the license appointment
form. The ING Insurers may refuse, by written notice to
the Distributor Agency(ies), for any reason, to apply for
the appointment of a Representative and may cancel any
existing appointment at any time. Upon receipt of such
notice, the Distributor Agency(ies) agrees to immediately
cause such Representative to cease solicitation of sales
for the Contracts.
v. The Distributor Agency(ies) shall supervise all
Representatives appointed pursuant to this Agreement to
solicit sales of the Contracts and shall bear
responsibility for all acts and omissions of each
Representative. The Distributor Agency(ies) shall comply
with and exercise all responsibilities required by
applicable federal and state law and regulations. The
Distributor Agency(ies)
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shall train and supervise its Representatives to ensure
that purchase of a Contract is only recommended to an
applicant if there are reasonable grounds to believe the
purchase of the Contract is suitable for that applicant.
While not limited to the following, a determination of
suitability shall be based on information furnished to a
Representative after reasonable inquiry of such applicant
concerning the applicant's insurance and investment
objectives, financial situation and needs, and the
likelihood that the applicant will continue to make any
premium payments contemplated by the Contract and will
keep the Contract in force.
vi. The Distributor Agency(ies) agrees to treat money received
or collected for the ING Insurer who issued the Contract
as property held in trust, and to remit such money
promptly in full, together with the application form and
any other required documentation, to such ING Insurer's
Customer Service Center at the address shown on the
application form for the Contract. All such payment and
documents shall be the property of the applicable ING
Insurer.
vii. The Distributor Agency(ies) agrees to adhere to the "cash
with application" requirements as set forth in each ING
Insurer's rules and regulations, copies of which the
Distributor Agency(ies) acknowledges it has received. The
Distributor Agency(ies) further agrees, when applicable,
to provide the proper form of interim coverage and inform
the applicant of the specific conditions of the coverage.
viii. The Distributor Agency(ies) agrees to comply with the
underwriting and issue requirements of the ING Insurers,
as published by the ING Insurers, and the applicable
insurance laws and regulations of the state or states in
which the Distributor Agency(ies) operates. Such laws and
regulations include, but are not limited to, those
pertaining to client funds, privacy and confidentiality,
licensing, rebating, replacements, exchanges, solicitation
and advertising.
ix. The Distributor Agency(ies) agrees to inform the ING
Insurers of all material facts of which it is aware
relating to insurance of insureds or proposed insureds.
(b) Limitation of Authority.
i. The Distributor Agency(ies) shall have no authority and
agrees not to bind any ING Insurer by any promise or
agreement; incur any debt, expense, or liability whatever
in its name or account; or receive any money due or to
become due to ING Insurer except first premiums on
applications or Contracts and except where an ING Insurer
otherwise agrees in writing.
ii. The Distributor Agency(ies) shall have no authority and
agrees not to deliver any policy or allow any policy to be
delivered until the first premium has been paid in full.
No delivery shall take place if, after an inquiry, the
Distributor Agency(ies) or Representative is aware that
any person proposed for insurance is not in the same
condition of health, habits, occupation and other facts as
are represented in the application.
iii. The Distributor Agency(ies) shall have no authority and
agrees not to make, modify or discharge any Contract, or
bind an Insurer by making any promises respecting any
Contract, except when authorized in writing to do so by an
authorized officer of an ING Insurer.
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iv. The Distributor Agency(ies) shall have no authority and
agrees not to authorize or allow a Representative to do
any act prohibited under this Agreement.
c) General Provisions.
i. The Distributor Agency(ies) may not assign the rights to
procure applications or be relieved of the obligations of
the Distributor Agency(ies) under this Agreement without
an ING Insurer's prior written consent.
ii. There is no intention by either party under this
Agreement, to create any third party beneficiary of this
Agreement.
iii. The Distributor Agency(ies) shall be solely responsible
for hiring any staff it may desire and for maintaining
office space and meeting necessary expenses without
reimbursement from any ING Insurer.
iv. The Distributor Agency(ies) and its Representatives shall
be free to exercise independent judgment as to the time,
place and means of performing all acts under this
Agreement, and the relationship of the Distributor
Agency(ies) and its Representatives to the ING Insurers
shall be that of an independent contractor. Nothing in
this Agreement shall be construed to create the
relationship of employer and employee between the
Distributor Agency(ies) (or any of its Representatives)
and an ING Insurer.
v. Each ING Insurer and the Distributor Agency(ies) recognize
and respect each other's respective interest in providing
continuing service to those who purchase Contracts. Each
party agrees to provide the others relevant information
regarding the Contracts on a reasonable basis, as done in
the normal course of business.
vi. Failure of the Distributor Agency(ies) or any ING Insurer
to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a
waiver of any such conditions.
vii. No oral promises or representations shall be binding nor
shall this Agreement be modified except by agreement in
writing, executed on behalf of the ING Insurers and the
ING Broker-Dealer by duly authorized officers of each of
them.
viii. This Agreement supersedes all previous contracts and
agreements between or among the Distributor Agency(ies)
and the ING Insurers made for the procurement of
Contracts, but it shall not affect the economic
obligations of either party under such previous contracts
and agreements.
ix. The provisions under this Section shall survive any
termination of this Agreement.
x. The Distributor Agency(ies) hereby grants a limited Power
of Attorney to the Distributor, to execute any amendments,
modifications or waivers with respect to this Agreement.
5. Property of ING Insurers. All money payable in connection with any of
the Contracts whether as premium, purchase payment or otherwise and
whether paid by or on behalf of any policyowner or anyone else having an
interest in the Contracts is the property of the ING Insurer which
issued the Contract and shall be transmitted immediately in accordance
with the administrative
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procedures of such ING Insurer without any
deduction or offset for any reason including, but not limited to, any
deduction or offset for compensation claimed by the Distributor or the
Distributor Agency(ies).
6. Compensation.
(a) While this Agreement is in force, the ING Broker-Dealer shall
arrange for payment to the Distributor of compensation payable on
sales of the registered Contracts solicited in accordance with
the Compensation Schedule attached hereto, as in effect at the
time the Contract premiums or purchase payments (both referred to
as "Premiums") are received by an ING Insurer. Payment of
compensation for sales of non-registered Contracts is payable to
the Distributor Agency(ies) in accordance with the Compensation
Schedule attached hereto. No compensation of any kind may be
earned, paid, credited or accrued in any way with respect to
sales in the State of New York.
(b) After termination of this Agreement, payment of compensation
shall be made in the same manner as if the Agreement had remained
in force. However, the Distributor shall continue to be liable
for any charge-backs pursuant to the provisions of the
Compensation Schedules and for any other amount advanced by or
otherwise due an ING Insurer or ING Broker-Dealer.
(c) The ING Insurers shall not have responsibility for payment of any
compensation whatsoever to any Representative of the Distributor.
Compensation from the Distributor Agency(ies) to the
Representative for Contracts solicited and sold by the
Representative shall be governed by a separate agreement between
the Distributor and its Representative, and to the extent deemed
necessary by the Distributor, by an agreement between the
Distributor and the Distributor Agency(ies).
(d) The Distributor represents that no commissions or other
compensation based upon a percentage of premiums or based upon a
percentage of assets or other valuable consideration will be paid
for services rendered in soliciting the purchase of the Contracts
to any person or entity which is not duly licensed and registered
by the required authority and appointed by the ING Insurers to
sell the Contracts in the state of such solicitation or sale;
provided, however, that this representation shall not prohibit
the payment of compensation to the surviving spouse or other
beneficiary of a person entitled to receive such compensation
pursuant to a bona fide written contract that calls for such
payment. The Distributor agrees that no compensation of any kind
other than described in this Section 6 of this Agreement is
payable by an ING Insurer or ING Broker-Dealer to the
Distributor.
(e) The amount of compensation, if any, and its time of payment for
replacements, changes, conversions, exchanges, term renewals,
term conversions, premiums paid in advance, policies issued on a
"guaranteed issue" basis, or other special cases and programs,
shall be governed by the ING Insurer's underwriting and
administrative rules then in effect.
7. Refund of Compensation. No compensation shall be payable, and the
Distributor and the Distributor Agency(ies) jointly and severally agree
to reimburse the ING Broker-Dealer promptly, and in any event within 30
days, for any compensation paid to the Distributor or its
Representatives under each of the following conditions: a) if an ING
Insurer, in its sole discretion, determines not to issue the Contract
applied for; b) if an ING Insurer refunds the premiums or purchase
payments upon the applicant's surrender or withdrawal pursuant to any
"free-look" privilege; c) if an ING Insurer refunds the premiums or
purchase payments paid by applicant as a result of a complaint by
applicant, recognizing that the ING Insurer has sole
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discretion to refund premiums or purchase payments; d) if an ING Insurer
determines that any person signing an application who is required to be
licensed and appointed or any other person or entity receiving
compensation for soliciting purchase of the Contracts is not duly
licensed and appointed to sell the Contracts in the jurisdiction of such
sale or attempted sale; and e) as may be otherwise provided in the
Compensation Schedule.
8. Indebtedness and Right of Setoff. Nothing contained herein shall be
construed as giving the Distributor or its Representatives the right to
incur any indebtedness on behalf of the ING Insurers or the ING
Broker-Dealer. The Distributor hereby authorizes any ING Insurer and ING
Broker-Dealer to set off liabilities, however created, of the
Distributor and its Representatives to any ING Insurer and/or ING
Broker-Dealer against any and all amounts otherwise payable to the
Distributor.
9. Termination.
(a) This Agreement may not be assigned except by written mutual
consent and shall continue for an indefinite term, subject to the
termination by any party upon ten-days' advance written notice to
the other parties (subject to any longer time period if
prescribed by state law), except that in the event that an ING
Broker-Dealer or the Distributor ceases to be a registered
broker-dealer or a member of the NASD, this Agreement shall
immediately terminate.
(b) This Agreement shall be immediately terminated upon:
i. A breach of this Agreement by the Distributor.
ii. The sale, dissolution, termination or other
discontinuation of the Distributor, unless the ING
Insurers and the ING Broker-Dealer have given written
permission to the continuation of this Agreement, which
consent will not be unreasonably withheld.
iii. Bankruptcy of the Distributor.
(c) Upon termination of this Agreement, all authorizations, rights
and obligations shall cease, except the agreements in Sections 3,
4, 5, 6, 7, 8,12, 13, and 14 and the payment of any accrued but
unpaid compensation to the Distributor or refund of compensation
due to the ING Broker-Dealer and the ING Insurers.
(d) Also, upon termination of this Agreement, Distributor agrees to
return to the ING Insurers all marketing materials, including
illustration software, as well as all applicable confidential
items listed in Section 13 of this Agreement that may be in the
possession of the Distributor or its Representatives.
10. Non-Employee Relationship. For the purpose of compliance with any
applicable federal or state securities laws or regulations, the
Distributor acknowledges and agrees that in performing the services
covered by this Agreement, it is acting in the capacity of an
independent "broker" or "dealer" as defined in the By-Laws of the NASD
and not as an agent or employee of the ING Insurers or the ING
Broker-Dealer or any registered investment company. In furtherance of
its responsibilities as a broker or dealer, The Distributor acknowledges
that it is responsible for statutory and regulatory compliance in
securities transactions involving any business produced by its
Representatives concerning the Contracts.
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11. Non-Exclusivity. The Distributor agrees that no territory or Contract is
assigned exclusively hereunder and that the ING Insurers and ING
Broker-Dealer reserve the right in their discretion to enter into
selling agreements with other broker-dealers and distributors, and to
contract with or establish one or more insurance agencies in any
jurisdiction in which the Distributor transacts business hereunder.
12. Cooperation in Investigation. The Distributor, the Distributor
Agency(ies), the ING Broker-Dealer and the ING Insurers jointly agree to
cooperate fully in any insurance, securities or other regulatory
investigation or proceeding or judicial proceeding arising in connection
with any Contract without limiting the foregoing:
(a) The Distributor shall promptly notify the ING Insurers and the
ING Broker-Dealer of any customer complaint or notice of any
regulatory authority investigation or proceeding or judicial
proceeding which it might receive with respect to any Contract.
(b) In the case of a substantive customer complaint, the parties
shall cooperate in investigating and responding to such
complaint. Any response shall be sent to the other parties to
this Agreement for approval not less than five business days
prior to its being sent to the customer or regulatory authority,
except that if a more prompt response is required, the proposed
response shall be communicated by telephone, email or facsimile
transmission.
13. Confidentiality of Information. Distributor and the Distributor
Agency(ies) acknowledge that each may acquire information relating to
the products, strategies, systems, marketing plans, customers and
personnel of ING Insurers and the ING Broker-Dealer and that such
information is considered by the ING Insurers and the ING Broker-Dealer
to be confidential and proprietary. The Distributor and the Distributor
Agency(ies) shall hold all such information in strictest confidence and
shall not (and shall cause its Representatives to not) (a) disclose such
information to any third party; or (b) utilize such information for
their commercial benefit or to the detriment of the ING Insurers or the
ING Broker-Dealer. The Distributor and the Distributor Agency(ies)
acknowledge that a breach of this provision would result in significant
and irreparable harm to the ING Insurers and the ING Broker-Dealer and
hereby agree and consent to an injunction in addition to any other
remedies that the ING Insurers and the ING Broker-Dealer may have at law
or in equity.
14. Indemnification.
(a) The ING Insurers and ING Broker-Dealer (referred to jointly in
this Section 13 as "ING") agree to indemnify and hold harmless
the Distributor and the Distributor Agencies (referred to jointly
in this Section 13 as the "Selling Group") and such associated
persons as its officers, directors, agents and employees, against
any losses, claims, damages or liabilities, joint or several, to
which Selling Group or such associated persons may become subject
under the 1933 Act, the 1934 Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact required
to be stated therein or necessary to make the statements therein
not misleading contained (i) in any Registration Statement, any
prospectus or any document executed by ING specifically for the
purpose of qualifying a Contract for sale under the laws of any
jurisdiction or (ii) in any written information or sales material
authorized for and supplied or furnished to Selling Group and its
Representatives by ING, their employees or agents, in connection
with the sale of the Contracts. ING shall reimburse Selling Group
and each such associated person for legal or other expenses
reasonably incurred by Selling Group or
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such associated person in connection with investigating or
defending any such loss, claim, damage, liability or action.
(b) The Selling Group jointly and severally agree to indemnify and
hold harmless ING and their affiliates and such associated
persons as their officers, directors, agents and employees,
against any losses, claims, damages or liabilities to which ING
and any such associated person may become subject under the 1933
Act, the 1934 Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon:
i. any unauthorized use of sales materials or any oral or
written misrepresentations or any unlawful sales practices
concerning a Contract by the Selling Group, its officers,
directors, employees, agents, Representatives or
associated persons; and
ii. claims by agents or Representatives or employees of the
Selling Group for commissions or other compensation or
remuneration of any type; and
iii. failure by agents, Representatives or employees of the
Selling Group to comply with all applicable state
insurance laws and regulations including but not limited
to state licensing requirements, rebate statutes and
replacement regulations, and the provisions of this
Agreement; and
iv. telephone instructions by a Representative to ING in
connection with any Contract.
The Selling Group shall reimburse ING and any director, officer,
employee or agent for any legal or other expenses reasonably
incurred by ING or such associated person in connection with
investigating or defending any such loss, claim, damage,
liability or action. This indemnity provision shall be in
addition to any liability which the Selling Group may otherwise
have.
(c) After a party entitled to indemnification receives notice of the
commencement of any action, if a claim in respect thereof is to
be made against any person obligated to provide indemnification,
such indemnified party shall notify the indemnifying party in
writing of the commencement thereof as soon as practicable
thereafter. However, the omission to so notify the indemnifying
party shall not relieve it from any liability except to the
extent that the omission results in a failure of actual notice to
the indemnifying party, and such indemnifying party is damaged
solely as a result of the failure to give such notice.
15. Fidelity Bond and Errors and Omissions Insurance. The Distributor shall
secure and maintain a fidelity bond (including coverage for larceny and
embezzlement), issued by a reputable bonding company, covering all of
its directors, officers, agents, Representatives, associated persons and
employees who have access to funds of an ING Insurer or ING
Broker-Dealer. This bond shall be maintained at the Distributor's
expense in at least the amount prescribed under Article III, Section 32
of the NASD Rules of Fair Practice or future amendments thereto. The
Distributor shall provide the ING Broker-Dealer with a copy of said bond
or verification of an applicable exception upon request. The Distributor
shall also secure and maintain errors and omissions insurance acceptable
to the Insurer and covering the Distributor and its Representatives. The
Distributor hereby assigns any proceeds received from a fidelity bonding
company, errors and omissions or other liability coverage, to an ING
Insurer or ING Broker-Dealer as their interest may appear, to the extent
of their loss due to activities covered by the bond, policy or other
liability coverage. If there is any deficiency amount, whether due to a
deductible or otherwise,
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the Distributor hereby indemnifies and holds harmless an ING Insurer and
ING Broker-Dealer from any such deficiency and from the costs of
collection thereof, including reasonable attorneys' fees. Alternatively,
in the event that the Distributor self-insures this liability, it shall
submit such proof to the ING Insurers and the ING Broker-Dealer as such
parties deem satisfactory to demonstrate the adequacy of such financial
resources.
16. Notices. All notices required hereunder shall be duly given if mailed
to:
Office of General Counsel
ATTN: Variable Attorney
c/o Security Life of Denver
ING Insured Investor Group
1290 Broadway
Denver, CO 80203
All notices to the Distributor shall be duly given if mailed to:
[Distributor name and address]
17. Disputes; Arbitration.
(a) If a dispute arises between the parties, the parties agree that
their respective representatives shall meet and consult in good
faith and attempt to settle the dispute, within thirty (30) days
of written notice thereof, as a condition precedent to the
initiation of arbitration proceedings as set forth herein.
Notwithstanding any other provision of this Agreement to the
contrary, the parties hereto agree that any and all disputes with
respect to any claim pursuant to the provisions of this
Agreement, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association by a panel of three (3) arbitrators appointed
pursuant to such Rules, and judgment upon the award rendered by
such arbitrators may be entered in any court having jurisdiction.
Such arbitrators shall not have the authority or power to reform,
alter, amend or modify any of the terms or conditions of this
Agreement or to enter an award which reforms, alters, amends or
modifies such terms or conditions. Notwithstanding the forgoing,
the arbitrators shall have no authority to award any punitive
damages except upon proof of fraud with intent to deceive. The
decision of such arbitrators shall be in writing, setting forth
both findings of fact and conclusions of law, and shall be final
and conclusive upon the parties; and no suit at law or in equity
based on such dispute, controversy or claim shall be instituted
by any party hereto, other than to enforce the award of such
arbitrators. Such arbitration shall be conducted in Denver,
Colorado or in such other location as the parties thereto may
agree.
(b) In the event of a dispute, the prevailing party shall be entitled
to be reimbursed by the non-prevailing party or parties for such
prevailing party's reasonable attorney's fees and other expenses.
(c) The parties agree that as precondition to the commencement of
arbitration by any party, the dispute must be submitted to
non-binding mediation with a mediator agreed to by both parties.
If the parties cannot agree on a mediator within fourteen (14)
days from the date of a request for mediation, the dispute will
be mediated by a person selected in accordance with the rules of
the American Arbitration Association.
18. Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
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19. Entire Agreement; Amendment of Agreement. This Agreement including any
Exhibits and Schedules attached hereto contains the entire agreement
among the parties concerning the subject matter hereof and supercedes
any and all prior agreements, understandings, negotiations,
correspondence or other written or oral communications among the parties
respecting the subject matter. The ING Insurers or the ING Broker-Dealer
may amend this Agreement, including any Exhibits and Schedules hereto,
upon at least ten (10) days' prior written notice to the Distributor,
unless otherwise stated in such Schedule. The submission of an
application for the Contracts by the Distributor after the effective
date of any such amendment shall constitute agreement to such amendment.
Additional Distributor Agencies may be added as parties to this
Agreement at any time by a written amendment signed by the ING Insurers,
the ING Broker-Dealer, the Distributor and such additional Distributor
Agencies. All Distributor Agencies, which are parties to this Agreement
at the time of such amendment, hereby consent and agree in advance to
the addition of such additional Distributor Agencies.
20. Binding Effect. This Agreement shall be binding on and shall inure to
the benefit of the parties to it and their respective successors in
interest. If any provision of the Agreement conflicts with any other
provision, or if any provision shall be held of made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
21. Effective Date. This Agreement shall be effective as of the date it is
fully executed by all parties.
22. Execution in Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which taken together will
constitute one and the same instrument.
In reliance on the representations set forth and in consideration of the
undertakings described, the parties represented below do hereby contract and
agree.
[ING Insurers] [ING Broker-Dealer]
By: _________________________ By: _________________________
Title: ________________________ Title: ________________________
[Distributor]
By: __________________________
Name: ________________________
Title: _________________________
Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
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[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
13
Exhibit 1.A(3)(f)
SELLING AGREEMENT
PURPOSE
Makes possible the payment of variable contracts COMMISSIONS for any
representative of the contracted Broker/Dealer
PARTIES TO THE CONTRACT
1) Retail BROKER/DEALER
2) Broker/dealer's AGENCY(IES)* through which insurance is written
3) Southland Life
4) ING America Equities
o AGENCY(IES) MUST EXECUTE THE SELLING AGREEMENT, AS WELL AS BROKER/DEALER.
IF BROKER/DEALER HAS STATE-SPECIFIC AGENCIES SEEKING APPOINTMENT, EACH SUCH
AGENCY SOUTH SIGN.
OTHER PREREQUISITES
1) The representative AND the corporate entity for whom the commission is
intended must have the appropriate variable contracts APPOINTMENT by
Southland.
COMPENSATION
1) Commissions will be paid directly to the BROKER/DEALER.
SPECIAL CONSIDERATIONS
A "WHOLESALING AGREEMENT" (see separate sheet) must also be in effect between
Southland and the representative's broker/dealer if the representative is an
RSD, Field Director or General Agent seeking "overrides," including overrides on
his/her own sales.
<PAGE>
WHOLESALER (PRINT NAME):
BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT
FOR VARIABLE CONTRACTS
THIS BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT (the "Agreement") is made
this _____ day of _________________, 20___, by and among SOUTHLAND LIFE
INSURANCE COMPANY ("SOUTHLAND" or the "INSURER"), ING AMERICA EQUITIES, INC.
("ING AMERICA EQUITIES"), a broker-dealer registered with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1934 (the "1934 Act")
and a member of the National Association of Securities Dealers, Inc. ("NASD"),
_________________ ("SELLING BROKER-DEALER"), also a broker-dealer registered
with the SEC under the 1934 Act and a member of the NASD, and any insurance
agency subsidiaries or affiliates ("AGENCY OR AGENCIES") of SELLING
BROKER-DEALER, as listed on the signature pages of this Agreement.
RECITALS
WHEREAS, the INSURER issues certain variable life insurance policies
and variable annuity contracts (the "Contracts") and offers for sale such
Contracts in accordance with federal securities laws and the applicable laws of
those states in which the Contracts have been qualified for sale; and
WHEREAS, the INSURER has authorized ING AMERICA EQUITIES, as principal
underwriter and distributor of the Contracts, to enter into agreements, subject
to the consent of the INSURER, with SELLING BROKER-DEALERS and the AGENCIES for
the distribution of the Contracts; and
WHEREAS, SELLING BROKER-DEALER and the AGENCIES wish to participate in
the distribution of the Contracts, which are deemed to be securities under the
Securities Act of 1933 (the "1933 Act"); and
WHEREAS, SELLING BROKER-DEALER has registered representatives
("Representatives") who are also licensed and appointed as life insurance agents
of the INSURER, who will solicit and sell the Contracts; and
WHEREAS, SELLING BROKER-DEALER proposes to undertake certain
supervisory and administrative obligations described below in connection with
the distribution of the Contracts.
AGREEMENTS
NOW THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1) RELATIONSHIP OF PARTIES. The INSURER is the insurer and issuer of
Contracts covered by this Agreement. ING AMERICA EQUITIES is the
principal underwriter and distributor of the Contracts. SELLING
BROKER-DEALER represents that it is a registered broker-dealer under
the 1934 Act and a member of the NASD. The INSURER hereby appoints the
AGENCIES under the insurance laws and the INSURER and ING AMERICA
EQUITIES authorize the SELLING BROKER-DEALER under the securities laws
to distribute the Contracts. SELLING BROKER-DEALER agrees to supervise
the Representatives in connection with the distribution, solicitation
and sale of the Contracts and to perform other services as described
below.
2) AUTHORITY AND DUTIES OF SELLING BROKER-DEALER. SELLING BROKER-DEALER
agrees that it shall, at all times when performing its functions under
this Agreement, be registered as a securities
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broker-dealer with the SEC and will maintain its membership with the
NASD, and shall be licensed or registered as a securities broker-dealer
in the states that require such licensing or registration in connection
with supervision and other services pertaining to Contract sales
activities. SELLING BROKER-DEALER shall distribute the Contracts and
agrees that it shall have all the attendant duties, responsibilities
and liabilities associated with that function, for compliance,
supervision and servicing purposes. SELLING Broker-Dealer agrees to use
its best efforts to find suitable purchasers for the Contracts.
a) SELECTION AND SUPERVISION OF REPRESENTATIVES. SELLING
BROKER-DEALER shall select and employ Representatives and shall
have full responsibility for the training, supervision and control
of such Representatives as contemplated by Section 15(b)(4)(E) of
the 1934 Act and applicable NASD Rules. Such Representatives shall
be subject to the control of SELLING BROKER-DEALER with respect to
such persons' securities-regulated activities in connection with
the Contracts. SELLING BROKER-DEALER shall cause such
Representatives to be NASD registered representatives and
appropriately licensed with SELLING BROKER-DEALER before such
Representatives engage in the solicitation of applications for the
Contracts and shall cause such Representatives to limit
solicitation of applications for the Contracts to jurisdictions
where such Representatives are licensed and where the INSURER has
authorized solicitations of its Contracts. SELLING Broker-Dealer
agrees that it will permit only its Representatives who are
appointed with the INSURER to solicit and sell the Contracts.
The INSURER and ING AMERICA EQUITIES shall not have any
responsibility for the supervision of any Representative or any
other associated person or affiliate of SELLING BROKER-DEALER. If
the act or omission of a Representative or any other associated
person or affiliate of SELLING BROKER-DEALER is the proximate
cause of any claim, damage or liability (including reasonable
attorneys' fees) to the INSURER or ING AMERICA EQUITIES, SELLING
BROKER-DEALER and the AGENCIES shall be jointly and severally
responsible and liable entirely therefor.
b) NOTICE OF REPRESENTATIVE'S NONCOMPLIANCE. In the event a
Representative fails or refuses to submit to supervision of
SELLING BROKER-DEALER, ceases to be a Representative of SELLING
BROKER-DEALER, or fails to meet the rules and standards imposed by
SELLING BROKER-DEALER on its Representatives, SELLING
BROKER-DEALER shall certify such fact to the INSURER in writing
immediately, and shall immediately notify such Representative that
he or she is no longer authorized to sell the Contracts.
c) COMPLIANCE WITH NASD CONDUCT RULES AND FEDERAL AND STATE
SECURITIES LAWS. SELLING Broker-Dealer shall fully comply with the
requirements of the 1934 Act and all other applicable federal or
state laws and with the rules of the NASD and shall establish such
rules and procedures as may be necessary to cause diligent
supervision of the securities activities of Representatives.
SELLING BROKER-DEALER agrees to maintain appropriate books,
records and supervisory procedures as are required by the SEC,
NASD and other regulatory agencies having jurisdiction.
d) PURCHASER SUITABILITY. SELLING BROKER-DEALER shall be responsible
for suitability of the Contracts for the purchasers and shall take
reasonable steps to ensure that its Representatives shall not make
recommendations to applicants to purchase Contracts in the absence
of reasonable grounds to believe the purchase of each Contract is
suitable for the applicant. The procedure shall include review of
all proposals and applications for Contracts for suitability and
completeness and correctness as to form as well as review and
endorsement on an internal record of SELLING BROKER-DEALER of the
transactions. SELLING BROKER-DEALER shall promptly forward to the
INSURER'S Customer Service Center all applications found suitable,
together with any payments received with the applications, without
deduction or reduction.
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The INSURER reserves the right to reject any Contract application
and return any payment made in connection with an application
which is rejected. Unless otherwise agreed, Contracts issued on
applications accepted by the INSURER shall be forwarded to the
Representative of SELLING BROKER-DEALER for delivery to the
Contract owner.
e) PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION. ING AMERICA
EQUITIES shall provide SELLING BROKER-DEALER with prospectuses and
any supplements or amendments thereto, and the Statement of
Additional Information ("SAI") describing the Contracts subject to
this Agreement. The INSURER is responsible for maintaining in
effect, in accordance with the requirements of the SEC, each
Registration Statement of which the prospectus is part. The
INSURER shall immediately notify SELLING BROKER-DEALER of the
issuance of any stop order or any federal or state regulatory
proceeding which would prevent the sale of their respective
Contracts in any state or jurisdiction. SELLING BROKER-DEALER
shall ensure compliance with the prospectus delivery requirements
of the 1933 Act. SELLING BROKER-DEALER agrees to deliver a copy of
the SAI concurrently with a copy of the prospectus to Contract
applicants in jurisdictions where such delivery may be required,
as so indicated by SOUTHLAND.
f) ADVERTISING AND SALES PROMOTION MATERIALS. SELLING BROKER-DEALER
shall perform the selling functions required by this Agreement
only in accordance with the terms and conditions of the then
current prospectus applicable to the Contracts and shall make no
representations not included in the prospectus or in any
authorized supplemental material, including illustrations. SELLING
BROKER-DEALER warrants that only advertising and sales materials,
including illustrations, approved by the INSURER and ING AMERICA
EQUITIES will be used by its Representatives in the solicitation
and sale of the Contracts.
g) SECURING APPLICATION. Each application for a Contract shall be
made on an application form provided by the INSURER and all
payments collected by SELLING BROKER-DEALER or any of its
Representatives shall be remitted promptly in full, together with
such application form and any other required documentation
directly to the INSURER at the address indicated on such
application or to such other address as may be designated by the
INSURER. All such payments and documents shall be the property of
the INSURER. SELLING BROKER-DEALER shall review all such
applications for completeness and for compliance with the
conditions herein including the suitability and prospectus
delivery requirements set forth above under Sections 2(d) and (e).
Check or money order in payment of such Contracts should be made
payable to the order of SOUTHLAND, as the issuer of the Contracts.
All applications are subject to acceptance or rejection by the
INSURER in its sole discretion.
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3. AUTHORITY AND DUTIES OF AGENCY.
a. Responsibilities Of The Agency.
(i) The AGENCY agrees to procure applications for the
INSURER'S Contracts. Production must be through the
SELLING BROKER-DEALER and subagents appointed by the
AGENCY, who are duly appointed by the INSURER.
(ii) The AGENCY warrants that it and all of its subagents
appointed pursuant to this Agreement shall not solicit nor
aid, directly or indirectly, in the solicitation of any
application for any Contract until they are fully licensed
by the proper authorities under the applicable insurance
laws within the applicable jurisdictions where the AGENCY
and subagents propose to offer the Contracts, where the
INSURER is authorized to conduct business and where the
Contracts may be lawfully sold.
(ii) The AGENCY shall periodically provide the INSURER
with a list of all subagents appointed by the AGENCY and
the jurisdictions where such subagents are licensed to
solicit sales of the Contracts.
(iv) The AGENCY shall prepare and transmit the appropriate
appointment forms to the INSURER. The AGENCY shall pay all
fees to state insurance regulatory authorities, all
initial appointment and renewal fees in connection with
obtaining necessary licenses and authorizations for AGENCY
and subagents to solicit and sell the Contracts. The
INSURER may refuse for any reason to apply for the
appointment of a subagent and may cancel any existing
appointment at any time.
(v) The AGENCY shall supervise all subagents appointed
pursuant to this Agreement to solicit sales of the
Contracts. If the act or omission of a subagent or any
other associated person or affiliate of the AGENCY is the
proximate cause of any claim, damage or liability
(including reasonable attorneys' fees) to the INSURER or
ING AMERICA EQUITIES, the AGENCY and SELLING BROKER-DEALER
shall be jointly and severally responsible and liable
entirely therefor. The AGENCY shall comply with and
exercise all responsibilities required by applicable
federal and state law and regulations. The AGENCY shall
train and supervise its subagents to ensure that purchase
of a Contract is not recommended to an applicant in the
absence of reasonable grounds to believe the purchase of
the Contract is suitable for that applicant. While not
limited to the following, a determination of suitability
shall be based on information furnished to a subagent
after reasonable inquiry of such applicant concerning the
applicant's insurance and investment objectives, financial
situation and needs, and the likelihood that the applicant
will continue to make any premium payments contemplated by
the Contracts and will keep the Contract in force.
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(vi) The AGENCY and SELLING BROKER-DEALER hereby warrant
and represent that before a subagent is permitted to sell
the Contracts, the AGENCY, SELLING BROKER-DEALER and
subagent shall have entered into a written agreement
pursuant to which: (I) subagent is appointed a subagent of
the AGENCY and a Representative of SELLING BROKER-DEALER,
(ii) subagent agrees that his or her selling activities
relating to the Contracts shall be under the supervision
and control of SELLING BROKER-DEALER; and (iii) that
subagent's right to continue to sell such Contracts is
subject to his or her continued compliance with such
agreement and any procedures, rules or regulations
implemented by SELLING BROKER-DEALER and the AGENCY.
(vii) The AGENCY agrees to treat money received or
collected for the INSURER as property held in trust, and
to remit such money promptly in full, together with the
application form and any other required documentation, to
the INSURER'S Customer Service Center at the address shown
on the application form for the Contract. All such payment
and documents shall be the property of the INSURER.
(viii) The AGENCY agrees to adhere to the "cash with
application" requirements as set forth in the INSURER's
rules and regulations, a copy of which the AGENCY
acknowledges it has received. The AGENCY further agrees,
when applicable, to provide the proper form of interim
coverage and inform the applicant of the specific
conditions of the coverage.
(ix) The AGENCY agrees to comply with the underwriting and
issue requirements of the INSURER and the applicable
insurance laws and regulations of the state or states in
which the AGENCY operates. Such laws and regulations
include, but are not limited to, those pertaining to
client funds, privacy and confidentiality, licensing,
unfair trade practices, rebating, replacements,
solicitation and advertising.
(x) The AGENCY agrees to inform the INSURER of all
material facts of which the AGENCY is aware relating to
insurance of insureds or proposed insureds.
(xi) The AGENCY agrees to train and exercise general
supervision over subagents.
b. Rejection of Subagent.
The INSURER may refuse for any reason, by written notice to the
AGENCY, to permit any subagent the right to solicit applications
for the sale of any of the Contracts. Upon receipt of such notice,
AGENCY immediately shall cause such subagent to cease such
solicitations of sales and cancel the appointment of any subagent
under this agreement.
c. Limitation of Authority.
(i) The AGENCY shall have no authority and agrees not to
bind the INSURER by any promise or agreement; incur any
debt, expense, or liability whatever in its name or
account; or receive any money due or to become due to the
INSURER except first premiums on applications or Contracts
and except where the INSURER otherwise agrees in writing.
(ii) The AGENCY shall have no authority and agrees not to
deliver any policy or allow any policy to be delivered
until the first premium has been paid in full. No delivery
shall take place if, after an inquiry, the AGENCY or
subagent is aware that any person proposed for insurance
is not in the same condition of health, habits, occupation
and other facts as are represented in the application.
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(iii) The AGENCY shall have no authority and agrees not to
make, modify or discharge any Contract, or bind the
INSURER by making any promises respecting any Contract,
except when authorized in writing to do so by an
authorized officer of the INSURER.
(iv) The AGENCY shall have no authority and agrees not to
authorize or allow a subagent to do any act prohibited
under this contract.
d. General Provisions.
(i) The AGENCY may not assign the rights to procure
applications or be relieved of the obligations of the
AGENCY under this Agreement without the INSURER'S prior
written consent.
(ii) The AGENCY shall be solely responsible for hiring any
staff the AGENCY may desire and for maintaining office
space and meeting necessary expenses without reimbursement
from the INSURER.
(iii) The AGENCY and its subagents shall be free to
exercise independent judgment as to the time, place and
means of performing all acts under this Agreement, and the
relationship of the AGENCY and its subagents to the
INSURER and ING AMERICA EQUITIES shall be that of an
independent contractor. Nothing in this Agreement shall be
construed to create the relationship of employer and
employee between the AGENCY (or any of its subagents) and
the INSURER or ING AMERICA EQUITIES.
(iv) The INSURER and the AGENCY recognize and respect each
other's interest in providing continuing service to those
who purchase Contracts. Each party agrees to provide the
others relevant information regarding the Contracts on a
reasonable basis, as done in the normal course of
business.
(v) Failure of the AGENCY or the INSURER to insist upon
strict compliance with any of the conditions of this
agreement shall not be construed as a waiver of any such
conditions.
(vi) No oral promises or representations shall be binding
nor shall this Agreement be modified except by agreement
in writing, executed on behalf of the INSURER and ING
AMERICA EQUITIES by a duly authorized officer of each of
them.
(vii) This Agreement supersedes all previous contracts and
agreements between the AGENCY and the INSURER made for the
procurement of variable products; but it shall not affect
any contract or agreement between the AGENCY and the
INSURER made for the procurement of non-variable insurance
products, or the economic obligations of either party on
existing policies which exist under any such previous or
continuing contracts or agreements.
(viii) The AGENCY hereby appoints SELLING BROKER-DEALER as
its attorney-in-fact, to execute any amendments,
modifications or waivers with respect to this Agreement.
7
<PAGE>
4. PROPERTY OF INSURER. All money payable in connection with any of the
Contracts, whether as premium, purchase payment or otherwise and
whether paid by or on behalf of any contract owner or anyone else
having an interest in the Contracts, is the property of the INSURER and
shall be transmitted immediately in accordance with the administrative
procedures of the INSURER without any deduction or offset for any
reason including, but not limited to, any deduction or offset for
compensation claimed by SELLING BROKER-DEALER or the AGENCY.
5. COMPENSATION. While this Agreement is in force, ING AMERICA EQUITIES
shall arrange for payment to SELLING BROKER-DEALER of compensation
payable on sales of the Contracts solicited in accordance with the
compensation schedules attached hereto as Schedules A and B, as in
effect at the time the Contract premiums or purchase payments (both
referred to as "Premiums") are received by the INSURER. Compensation to
the AGENCY and the Representative for Contracts solicited and sold by
the Representative shall be governed by an agreement between SELLING
BROKER-DEALER and its Representative, and to the extent deemed
necessary by the SELLING BROKER-DEALER, by an agreement between the
SELLING BROKER-DEALER and the AGENCY.
Upon termination of this Agreement, and so long as SELLING
BROKER-DEALER continues to be validly licensed and registered,
compensation shall continue to be paid to SELLING BROKER-DEALER in
accordance with the Compensation Schedules in effect at the time of
termination, for all Contracts issued prior to the termination date
through SELLING BROKER-DEALER. SELLING BROKER-DEALER shall also be
entitled to receive compensation for all new premium payments which are
in process at the time of termination, and shall continue to be liable
for any charge-backs pursuant to the provisions of the Compensation
Schedules in effect at the time of termination and for any other amount
advanced by or otherwise due the INSURER or ING AMERICA EQUITIES.
a) SELLING BROKER-DEALER represents that no commissions or
other compensation based upon a percentage of premiums or
based upon a percentage of assets or other valuable
consideration will be paid for services rendered in
soliciting the purchase of the Contracts by any person or
entity which is not duly licensed and registered by the
required authority and appointed by the INSURER to sell
the Contracts in the state of such solicitation or sale;
provided, however, that this representation shall not
prohibit the payment of compensation to the surviving
spouse or other beneficiary of a person entitled to
receive such compensation pursuant to a bona fide written
contract that calls for such payment. SELLING
BROKER-DEALER agrees that no compensation of any kind
other than described in this Section 5 of this Agreement
is payable by the INSURER or ING AMERICA EQUITIES to
SELLING BROKER-DEALER.
The amount of compensation, if any, and its time of payment for replacements,
changes, conversions, exchanges, term renewals, term conversions, premiums paid
in advance, policies issued on a "guaranteed issue" basis, or other special
cases and programs, shall be governed by the INSURER'S underwriting and
administrative rules then in effect .
The INSURER recognizes the Contract owners' right on issued Contracts to
terminate SELLING BROKER-DEALER and/or change a SELLING BROKER-DEALER, provided
that the Contract owner notifies ING AMERICA EQUITIES in writing. When a
Contract owner terminates SELLING BROKER-DEALER, no further compensation on any
payments due or received shall be payable to that SELLING BROKER-DEALER after
the notice of termination is received and accepted by ING AMERICA EQUITIES.
However,
(i) Any compensation already paid pursuant to
subparagraphs (I), (ii) or (iii) prior to ING AMERICA
EQUITIES' receipt and acceptance of such written request
shall not be affected;
8
<PAGE>
(ii) when a Contract owner designates a SELLING
BROKER-DEALER other than the SELLING BROKER-DEALER of
record, compensation on any payments due or received shall
be payable to the new SELLING BROKER-DEALER in accordance
with the Compensation Schedule in effect at the time of
issuance of the Contract;
(iii) A change of dealer authorization shall be honored
only if there exists a valid Selling Agreement between the
INSURER, ING AMERICA EQUITIES and the new SELLING
BROKER-DEALER or the NASD approves and effects a bulk
transfer of all representatives to a new SELLING
BROKER-DEALER.
6. TRAIL COMMISSIONS. For any Contracts for which a trail commission is
paid, such commission shall be credited on an annualized basis. Such
commissions shall be computed monthly as of the end of each policy
month as defined in the Contracts. The trail commission shall be
payable as specified in the applicable Compensation Schedule, on each
Contract anniversary at the end of the Contract year. Trail commission
shall be paid only if the Contract is in force on the date the trail
commission becomes payable. No trail commissions whatsoever may be
earned, paid, credited, or accrued in any way with respect to sales in
the State of New York.
7. REFUND OF COMPENSATION. No compensation shall be payable, and SELLING
BROKER-DEALER and AGENCY jointly and severally agree to reimburse ING
AMERICA EQUITIES promptly, and in any event within 30 days, for any
compensation paid to SELLING BROKER-DEALER or its Representatives under
each of the following conditions: a) if the INSURER, in its sole
discretion, determines not to issue the Contract applied for; b) if the
INSURER refunds the premiums or purchase payments upon the applicant's
surrender or withdrawal pursuant to any "free-look" privilege; c) if
the INSURER refunds the premiums or purchase payments paid by applicant
as a result of a complaint by applicant, recognizing that the INSURER
has sole discretion to refund Premiums; d) if the INSURER determines
that any person signing an application who is required to be licensed
or any other person or entity receiving compensation for soliciting
purchase of the Contracts is not duly licensed to sell the Contracts in
the jurisdiction of such sale or attempted sale; e) if a Contract is
surrendered, lapsed or exchanged, as provided in the Compensation
Schedule; and f) as otherwise provided in the Compensation Schedule.
8. INDEBTEDNESS AND RIGHT OF SETOFF. Nothing contained herein shall be
construed as giving SELLING BROKER-DEALER or Representative the right
to incur any indebtedness on behalf of the INSURER or ING AMERICA
EQUITIES. SELLING BROKER-DEALER hereby authorizes the INSURER and ING
AMERICA EQUITIES to set off liabilities, however created, of SELLING
BROKER-DEALER and Representative to the INSURER and ING AMERICA
EQUITIES against any and all amounts otherwise payable to SELLING
BROKER-DEALER
9. TERMINATION. This Agreement may not be assigned except by written
mutual consent and shall continue for an indefinite term, subject to
the termination by any party upon ten-days' advance written notice to
the other parties, except that in the event ING AMERICA EQUITIES or
SELLING BROKER-DEALER ceases to be a registered broker-dealer or a
member of the NASD, this Agreement shall immediately terminate. Upon
termination of the Agreement, all authorizations, rights and
obligations shall cease, except the provisions and agreements in
Sections 3, 7, 8, 12 and 13 and the payment of any accrued but unpaid
compensation to SELLING BROKER-DEALER or refund of compensation due to
ING AMERICA EQUITIES and the INSURER. Any AGENCY may terminate its
participation under this Agreement by giving 30 days' prior written
notice to the other parties, and the Agreement shall continue in force
with respect to all of the other parties, so long as one or more
AGENCIES continue to be a party. Upon termination of an Agency's
participation in the Agreement, all authorizations, rights and
obligations of that AGENCY shall cease, except the
9
<PAGE>
provisions and agreements in Sections 3, 7, 8, 12 and 13 and the refund
of compensation due to ING AMERICA EQUITIES and the INSURER.
10. NON-EMPLOYEE RELATIONSHIP. For the purpose of compliance with any
applicable federal or state securities laws or regulations, SELLING
BROKER-DEALER acknowledges and agrees that in performing the services
covered by this Agreement, it is acting in the capacity of an
independent "broker" or "dealer" as defined in the By-Laws of the NASD
and not as an agent or employee of the INSURER or ING AMERICA EQUITIES
or any registered investment company. In furtherance of its
responsibilities as a broker or dealer, SELLING BROKER-DEALER
acknowledges that it is responsible for statutory and regulatory
compliance in securities transactions involving any business produced
by its Representatives concerning the Contracts. The SELLING
BROKER-DEALER and its registered representatives shall be free to
exercise independent judgment as to the time, place and means of
performing all acts under this Agreement, and the relationship of the
SELLING BROKER-DEALER and its registered representatives to the INSURER
and to ING AMERICA EQUITIES shall be that of independent contractors.
Nothing in this Agreement shall be construed to create the relationship
of employer and employer between the SELLING BROKER-DEALER (or any of
its registered representatives) and the INSURER or ING AMERICA
EQUITIES.
11. NON-EXCLUSIVITY. SELLING BROKER-DEALER agrees that no territory or
product is assigned exclusively hereunder and that the INSURER and ING
AMERICA EQUITIES reserve the right in their discretion to enter into
Selling Agreements with other broker-dealers, and to contract with or
establish one or more insurance agencies in any jurisdiction in which
SELLING BROKER-DEALER transacts business hereunder.
12. CO-OPERATION IN INVESTIGATION. SELLING BROKER-DEALER, AGENCY, ING
AMERICA EQUITIES, and the INSURER jointly agree to cooperate fully in
any insurance, securities or other regulatory investigation or
proceeding or judicial proceeding arising in connection with any
Contract. Without limiting the foregoing:
a. SELLING BROKER-DEALER shall promptly notify the INSURER and ING
AMERICA EQUITIES of any customer complaint or notice of any
regulatory authority investigation or proceeding or judicial
proceeding which it might receive with respect to any Contract.
b. In the case of a substantive customer complaint, the parties shall
cooperate in investigating and responding to such complaint.
13. INDEMNIFICATION.
a. The INSURER and ING AMERICA EQUITIES (referred to jointly in this
Section 13 as "SLIC/INGAE") agree to indemnify and hold harmless
SELLING BROKER-DEALER and AGENCIES (referred to jointly in this
Section 13 as the "SELLING GROUP"), and such associated persons as
its officers, directors, agents, and employees, against any
losses, claims, damages or liabilities, joint or several, to which
SELLING GROUP or such associated persons may become subject under
the 1933 Act, the 1934 Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact required to be stated therein
or necessary to make the statements therein not misleading
contained (I) in any Registration Statement, any prospectus or any
document executed by SLIC/INGAE specifically for the purpose of
qualifying a Contract for sale under the laws of any jurisdiction
or (ii) in any written information or sales material authorized
for and supplied or furnished to SELLING GROUP and agents or
Representatives by SLIC/INGAE, their employees or agents, in
connection with the sale of
10
<PAGE>
the Contract; B) failure by agents, Representatives or employees
of SLD to comply with federal or state law, regulation or ruling
or with any other applicable rules or regulation or with the
provisions of this Agreement; and C) grossly negligent,
intentional or fraudulent act, omission or error of SLD or its
agents, employees or Representatives in the issuing, sale or
servicing of the Contracts. SLIC/INGAE shall reimburse SELLING
GROUP and each such associated person for legal or other expenses
reasonably incurred by SELLING GROUP or such associated person in
connection with investigating or defending any such loss, claim,
damage, liability or action. This indemnity provision shall be in
addition to any liability which SLIC/INGAE may otherwise have.
b. The SELLING GROUP jointly and severally agrees to indemnify and
hold harmless SLIC/INGAE, and their affiliates and such associated
persons as their officers, directors, agents and employees,
against any losses, claims, damages or liabilities joint or
severally to which SLIC/INGAE and any such associated person may
become subject under the 1933 Act, the 1934 Act or other federal
or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any unauthorized use of sales materials or any oral or
written misrepresentations (unless such misrepresentations
are contained in materials or other writings authorized,
supplied, or furnished by SLD) or any unlawful sales
practices concerning a Contract by the SELLING GROUP, its
officers, directors, employees, agents, Representatives or
associated persons; and
(ii) claims by agents or Representatives or employees of
the SELLING GROUP for commissions or other compensation or
remuneration of any type to the extent such compensation
or remuneration has been paid to the SELLING GROUP ; and
(iii) failure by agents, Representatives or employees of
the SELLING GROUP to comply with all applicable state
insurance laws and regulations including but not limited
to state licensing requirements, rebate statutes and
replacement regulations, and the provisions of this
Agreement; and
(iv) telephone instructions received by SLIC/INGAE from a
representative or Agent of the SELLING GROUP in connection
with any Contracts.
(v) any grossly negligent, intentional or fraudulent act,
omission or error of SELLING GROUP or its agents,
employees or Representatives in the solicitation, sale or
servicing of the Contracts.
The SELLING GROUP shall reimburse SLIC/INGAE and any director,
officer, employee or agent for any legal or other expenses
reasonably incurred by SLIC/INGAE or such associated person in
connection with investigating or defending any such loss, claim,
damage, liability or action. This indemnity provision shall be in
addition to any liability which the SELLING GROUP may otherwise
have.
c. After a party entitled to indemnification receives notice of the
commencement of any action, if a claim in respect thereof is to be
made against any person obligated to provide indemnification, such
indemnified party shall notify the indemnifying party in writing
of the
11
<PAGE>
commencement thereof as soon as practicable thereafter. However,
the omission to so notify the indemnifying party shall not relieve
it from any liability except to the extent that the omission
results in a failure of actual notice to the indemnifying party,
and such indemnifying party is damaged solely as a result of the
failure to give such notice.
14. FIDELITY BOND AND ERRORS AND OMISSIONS INSURANCE. SELLING BROKER-DEALER
shall secure and maintain a fidelity bond (including coverage for
larceny and embezzlement), issued by a reputable bonding company,
covering all of its directors, officers, agents, Representatives,
associated persons and employees who have access to funds of the
INSURER or ING AMERICA EQUITIES. This bond shall be maintained at
SELLING BROKER-DEALER's expense in at least the amount prescribed under
Rule 3020 of the NASD Conduct Rules or future amendments thereto.
SELLING BROKER-DEALER shall provide ING AMERICA EQUITIES with a copy of
said bond or verification of an applicable exception before executing
this Agreement. AGENCY shall insure that its representatives secure and
maintain errors and omissions insurance acceptable to the INSURER and
covering Representatives. SELLING BROKER-DEALER hereby assigns any
proceeds received from a fidelity bonding company, errors and omissions
or other liability coverage, to the INSURER or ING AMERICA EQUITIES as
their interest may appear, to the extent of their loss due to
activities covered by the bond, policy or other liability coverage and
to the extent that INSURER or ING AMERICA EQUITIES is entitled to
indemnification pursuant to this Agreement . If there is any deficiency
amount, whether due to a deductible or otherwise, SELLING BROKER-DEALER
shall promptly pay such amounts on demand to the extent that INSURER or
ING AMERICA EQUITIES is entitled to indemnification pursuant to this
Agreement. SELLING BROKER-DEALER hereby indemnifies and holds harmless
the INSURER and ING AMERICA EQUITIES from any such deficiency and from
the costs of collection thereof, including reasonable attorneys' fees.
15. NOTICES. All notices to the INSURER or ING AMERICA EQUITIES should be
mailed to:
ING America Equities
Attn: Chief Legal Officer
1290 Broadway
Denver, CO 80203
All notices to SELLING BROKER-DEALER shall be duly given if mailed to:
-----------------------------
-----------------------------
-----------------------------
All notices to AGENCIES shall be duly given if mailed to:
-----------------------------
-----------------------------
-----------------------------
12
<PAGE>
16. GOVERNING LAW AND VENUE. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado. The
parties agree that the District Court for the City and County of
Denver, Colorado shall have jurisdiction and be the appropriate venue
for any required judicial interpretation and enforcement of this
Agreement.
17. AMENDMENT OF AGREEMENT. The INSURER or ING AMERICA EQUITIES may amend
this Agreement, including any Exhibit hereto, upon at least ten (10)
days' prior written notice to SELLING BROKER-DEALER. The submission of
an application for the Contracts by SELLING BROKER-DEALER after the
effective date of any such amendment shall constitute agreement to such
amendment. Additional AGENCIES may be added as parties to this
Agreement at any time by a written amendment signed by the INSURER, ING
AMERICA Equities, SELLING BROKER-DEALER and such additional AGENCIES.
All AGENCIES which are parties to this Agreement at the time of such
amendment hereby consent and agree in advance to the addition of such
additional AGENCIES.
18. BINDING EFFECT, SEVERABILITY. This Agreement shall be binding on and
shall inure to the benefit of the parties to it and their respective
successors in interest. If any provision of the Agreement conflicts
with any other provision, or if any provision shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby.
19. EXECUTION IN COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which taken
together will constitute one and the same instrument.
20. EFFECTIVE DATE; MERGER; ENTIRE AGREEMENT. This Agreement shall be
effective as of the date it is fully executed by all parties. This
Agreement, including all Exhibits hereto, constitutes the entire
Agreement between the parties and supersedes in its entirety any and
all previous agreements among the parties with respect to the
Contracts.
21. YEAR 2000 COMPLIANCE. Each of SELLING BROKER-DEALER, the AGENCIES,
INSURER and ING AMERICA EQUITIES represents, warrants and covenants
that any services, computer systems and software used by it to fulfill
its obligations to Contract owners, governmental and self-regulatory
organizations and each other under the terms of this Agreement are
currently "Year 2000 Compliant." For purposes of this Agreement "Year
2000 Compliant" means fault-free performance in the processing of date
and date-related data (including, but not limited to, calculating,
comparing and sequencing) by such computer systems and/or software.
SELLING BROKER-DEALER and Agency shall indemnify and hold INSURER and
ING AMERICA EQUITIES harmless from and against any damages, losses,
liabilities, judgments, settlements, costs and expenses of any nature
whatsoever (including reasonable attorneys' fees and court costs) or
causes of action asserted by anyone, resulting from any breach of the
above representation, warranty and covenant or any claim resulting
therefrom. INSURER and ING AMERICA EQUITIES shall indemnify and hold
SELLING BROKER-DEALER, the AGENCIES and the Representatives harmless
from and against any damages, losses, liabilities, judgments,
settlements, costs and expenses of any nature whatsoever (including
reasonable attorneys' fees and court costs) or causes of action
asserted by anyone, resulting from any breach of the above
representation, warranty and covenant or any claim resulting therefrom.
13
<PAGE>
In reliance on the representations set forth and in consideration of the
undertakings described, the parties represented below do hereby contract and
agree.
SOUTHLAND LIFE INSURANCE COMPANY ING AMERICA EQUITIES, INC.
By: By:
--------------------------------- --------------------------------
Date: Date:
------------------------------- ------------------------------
SELLING BROKER-DEALER: AGENCY:
By: By:
--------------------------------- --------------------------------
Name: Name:
------------------------------- ------------------------------
Title: Title:
------------------------------ -----------------------------
Date: Date:
------------------------------- ------------------------------
ADDITIONAL AGENCIES (IF ANY)
Agency: Agency:
-------------------------------- ---------------------------
By: By:
------------------------------------ --------------------------------
Title: Title:
--------------------------------- -----------------------------
Date: Date:
---------------------------------- -----------------------------
Agency: Agency:
-------------------------------- ---------------------------
By: By:
------------------------------------ --------------------------------
Title: Title:
--------------------------------- -----------------------------
Date: Date:
---------------------------------- ------------------------------
Agency: Agency:
-------------------------------- ---------------------------
By: By:
------------------------------------ --------------------------------
Title: Title:
--------------------------------- -----------------------------
Date: Date:
---------------------------------- ------------------------------
14
Exhibit 1.A(5)(l)
SOUTHLAND LIFE INSURANCE COMPANY
CONTINUATION OF COVERAGE AFTER AGE 100 ENDORSEMENT
This endorsement is part of the policy to which it is attached. It must be read
with all policy provisions. This endorsement deletes the Optional Continuance
Beyond Age 100 provision in your policy and replaces it with the following
benefit:
DESCRIPTION OF CONTINUATION OF COVERAGE AFTER AGE 100
When your policy continues beyond age 100, the following will occur:
(a) BASE DEATH BENEFIT.
o If there is no Adjustable Term Insurance Rider on the policy, the
Stated Death Benefit for the policy remains unchanged as of the
policy anniversary nearest the insured's 100th birthday.
o If there is an Adjustable Term Insurance Rider attached to the
policy, the Stated Death Benefit for the policy will equal the
target death benefit on the policy anniversary nearest the
insured's 100th birthday. Any Adjustable Term Insurance Rider
will then terminate.
(b) RIDERS. All riders attached to the policy also will terminate.
(c) SUBACCOUNTS. The portion of your accumulation value invested in the
subaccounts of the Variable Account will be transferred into the
Guaranteed Interest Account and no further investment in the subaccounts
of the Variable Account will be allowed.
(d) DEATH BENEFIT TYPE. If the death benefit type in force on the policy is
Type B, the policy will be converted to death benefit Type A in
accordance with procedures outlined in the Change of Death Benefit Type
provision of the policy. No further changes will be allowed to the death
benefit type.
POLICY PROCESSING AFTER AGE 100
After the policy anniversary nearest the insured's 100th birthday:
o No further premiums will be accepted
o No monthly deductions will be made
o Interest will continue to be credited to the accumulation value in the
Guaranteed Interest Account
o Policy loans and withdrawals continue to be available
o Any existing policy loan will continue and loan interest will continue
to accrue
o Payments on policy loans and payments on loan interest will be accepted
o The policy will enter the 61-day grace period if the cash surrender
value is zero or less
o The policy may be surrendered for its cash surrender value at any time.
DEFINITION OF LIFE INSURANCE FACTORS
o If your policy is issued using the Guideline Premium Test, the definition of
life insurance factor after age 100 is 1.00.
o If your policy is issued using the Cash Value Accumulation Test, the
definition of life insurance factor after age 100 is 1.00.
SOUTHLAND LIFE INSURANCE COMPANY
SECRETARY
Gary W. Waggoner
Exhibit 1.A(8)(f)
ADMINISTRATION SERVICES AGREEMENT
between
Security Life of Denver Insurance Company
and
Southland Life Insurance Company
This Agreement is made effective as of the __ day of _____________ 1999, by and
between Security Life of Denver Insurance Company ("SLD"), of 1290 Broadway,
Denver, Colorado, 80203-5699 and Southland Life Insurance Company ("SLIC"), of
5780 Powers Ferry Road, NW, Atlanta, GA 30327-4390.
WHEREAS, SLIC is a licensed insurance company and issuer of variable life
insurance ("Contracts"),
AND WHEREAS, ING America Equities, Inc. ("INGAE"), is a wholly-owned subsidiary
of SLD and is a registered broker-dealer and the principal underwriter and
distributor of variable life contracts for SLIC,
AND, WHEREAS SLD shall provide data processing and other administrative services
to SLIC pursuant to the terms and conditions of this Agreement and such other
terms and conditions as the parties may agree upon in written amendments to this
Agreement,
Now, therefore, in consideration of the mutual covenants herein contained, the
parties agree as follows:
SECTION 1 TERMS OF APPOINTMENT
1.1 Subject to the conditions set forth in this
Agreement, SLIC hereby appoints SLD as its
Administrative Services Agent.
1.2 SLD agrees to provide at its own expense the
necessary facilities, equipment, software and
personnel to perform its duties and obligations
hereunder in accordance with accepted industry
practice, and in full compliance with the rules and
regulations of state insurance departments, and all
other regulatory bodies with jurisdiction over SLD,
INGAE or SLIC.
1.3 SLD agrees that it will perform, at the direction of
SLIC, those Administrative Services as set forth in
Exhibit B attached hereto and incorporated herein by
reference, which may be amended by mutual agreement
from time to time. SLD shall have only the authority
necessary or incident to the performance of those
services expressly set forth in this
(April 12, 2000)
1
<PAGE>
Agreement or in Exhibit B and shall have no other express
or implied authority or right to act on behalf of SLIC or
to bind SLIC with regard to any statement, representation
or undertaking. SLIC shall, by separate document, designate
specified individuals at SLD who shall have signing
authority on behalf of SLIC to perform necessary and
standard business functions. SLD shall not alter, amend or
waive any contractual provision on behalf of SLIC without
SLIC's express written authorization. SLD shall be limited
to act only in the capacity in which it is licensed.
SECTION 2 TERM
2.1 Unless terminated as hereinafter provided, this
Agreement shall remain in full force and effect for a
period of five (5) years, the initial term of the
Agreement. This Agreement shall be renewed
automatically for additional successive terms of
eighteen (18) months at the end of the initial term
and the end of each renewal term, subject to the
provisions of Section 9.2, unless terminated.
SECTION 3 FEES AND EXPENSES
3.1 SLIC shall pay to SLD such fees and charges as are
set forth in Exhibit A attached hereto and
incorporated herein by reference.
3.2 SLIC shall reimburse SLD for such reasonable
out-of-pocket expenses as are set forth in Exhibit A,
as may be incurred by SLD in the performance of this
Agreement.
3.3 SLD may impose a late payment charge of 1.5% per
month on undisputed balances of fees, charges or
expenses outstanding for more than 45 days.
SECTION 4 REPRESENTATIONS AND WARRANTIES OF SLD
SLD represents and warrants to SLIC as follows:
4.1 It is a corporation duly organized and in good standing
under the laws of the State of Colorado.
4.2 It is empowered under all applicable laws to enter
into and perform the services contemplated in this
Agreement.
(April 12, 2000)
2
<PAGE>
4.3 All requisite corporate proceedings have been taken to
authorize it to enter into and perform the services
contemplated in the Agreement.
4.4 It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties
and obligations under this Agreement.
4.5 It has and will maintain a minimum capital and surplus of
at least Fifty Thousand Dollars ($50,000.00) during the
term of this Agreement. SLD will provide to SLIC no later
than 30 days after execution of this Agreement, and
thereafter upon request, a copy of its most recent audited
financial statement.
4.6 It has in place a plan and will be Year 2000 compliant in
systems and operations prior to December 31, 1999.
SECTION 5 REPRESENTATIONS AND WARRANTIES OF SLIC
SLIC represents and warrants to SLD as follows:
5.1 It is a corporation duly organized and in good standing
under the laws of the State of Texas.
5.2 It is empowered under the applicable laws to enter into and
perform this Agreement.
5.3 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
5.4 No policy or other form will be provided by SLIC to be
administered by SLD unless it has been duly filed as
necessary and approved by all applicable state insurance
departments and other regulatory bodies with jurisdiction
over SLIC, and is in compliance with all federal and state
laws and regulations.
SECTION 6 COVENANTS OF SLD
6.1 SLD shall maintain secure facilities and procedures for the
safekeeping of check forms and facsimile signature
imprinting devices, and all other documents, reports,
records, books, files, and other materials relative to this
Agreement.
(April 12, 2000)
3
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6.2 It is expressly understood and agreed that all documents,
reports, records, books, files and other materials relative
to this Agreement shall be the sole property of SLIC and
INGAE and that such property shall be held by SLD, only as
agent.
6.3 SLD shall maintain back-up computer files, as necessary.
The purpose of back-up and recovery is to permit file
recovery in the event of destruction of normal processing
files. SLIC may review the procedures in effect and inspect
the storage facility upon demand. A copy of SLD's current
procedures is attached hereto and incorporated by reference
as Exhibit D.
6.4 All charges or premiums received by SLD on behalf of SLIC
shall be promptly remitted to the person entitled to it or
deposited in a fiduciary account. Any payments received by
SLD for insurance on behalf of SLIC shall be deemed
received by SLIC, shall be held in a separate SLIC trust
account and shall be administered as set out in Exhibit B.
Premium bills shall direct premium payors to send premiums
to a lock box as stated in Exhibit B.
6.5 No advertising or sales literature shall be utilized by SLD
in connection with the Contracts unless it has been
approved in writing by SLIC and INGAE prior to such use.
6.6 Except as specifically provided to the contrary in this
Agreement, SLD shall be responsible for providing all
technical and operational support, office space, equipment,
and paying all costs and expenses associated with its
provision of administration services to SLIC hereunder,
including, but not limited to, all rents, salaries and
other overhead expenditures.
6.7 If SLD receives any notice from any source (including, but
not limited to, the policy owner or any regulatory agency)
of a lawsuit or other legal or administrative complaint or
proceeding being brought against SLIC or involving the
business administered for SLIC by SLD, or the threat of any
such lawsuit, hearing or proceeding, SLD shall immediately
notify SLIC and send a copy of all documents,
correspondence and other relevant material to which SLD
reasonably has access to SLIC. Further, SLD agrees to
cooperate fully with SLIC in connection with any suit,
hearing or proceeding and shall provide SLIC with all
books, records, documents and data requested by SLIC in
connection therewith; provided, however, SLD shall be
entitled to review such requests with its counsel prior to
furnishing SLIC with such materials so long as such review
is done in a timely manner.
(April 12, 2000)
4
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6.8 SLD will conduct its business and perform its obligations
in accordance with all applicable federal and state laws,
rules and regulations and in a manner which will not put
SLIC's or INGAE's registrations and licenses in any
jeopardy of revocation or suspension or cause SLIC or any
of its affiliates to sustain any disciplinary action of any
nature.
6.9 SLD acknowledges, covenants and agrees that all books and
records maintained by SLD in connection with the Contracts
shall be maintained and preserved in conformity with the
requirements of Rules 17a-3 and 17a-4 of the Securities
Exchange Act of 1934 (the "1934 Act"), to the extent that
such requirements are applicable to the Contracts; that all
such books and records are maintained and held by SLD on
behalf of SLIC and INGAE, whose property they are and shall
remain. SLD further acknowledges and agrees that all such
books and records are subject to inspection by the
Securities and Exchange Commission ("SEC") in accordance
with Section 17(a) of the 1934 Act, and undertakes to
permit examination of such books and records at any time
and from time to time during business hours by
representatives or designees of the SEC or National
Association of Securities Dealers, Inc., and to provide
true, correct, complete and current copies of any or all or
any part of such books and records.
6.10 SLD acknowledges, covenants and agrees that it shall issue
payments, including commission payments to retail
broker-dealers, on behalf of and on the account(s) of SLIC,
as a purely ministerial service for and on behalf of INGAE,
and that the records in respect of such payments shall be
properly reflected by SLD on the books and records
maintained by it for SLIC and INGAE.
6.11 SLD acknowledges, covenants and agrees that it will send a
confirmation for each transaction which constitutes the
sale or redemption of a security to or by the contract
owner as required by applicable law, regulation or rule in
such form as required by applicable law, regulation or rule
as approved and agreed to by SLIC and INGAE.
6.12 SLD shall provide SLIC with full and free access as
reasonably requested, during ordinary business hours, to
all documents, records, reports, books, files and other
materials relative to this Agreement which are maintained
by SLD for SLIC.
6.13 SLD shall furnish to SLIC any information or reports in
connection with its services to SLIC, which any state
Commissioner of Insurance may request in order to ascertain
whether the variable life insurance operations
(April 12, 2000)
5
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of SLIC are being conducted in a manner consistent
with applicable state law, regulations and rules.
6.14 SLD shall provide a written notice approved by SLIC, to
insured persons who are residents of the State of
Tennessee, advising them of the identity of and
relationship among SLD, SLIC, and the person. If SLD
collects funds directly and in its name on behalf of
residents of the State of Tennessee, it will identify and
state separately in writing to the persons paying to SLD
any charges or premiums for insurance coverage the amount
of any such charges or premiums specified by SLIC's
insurance coverage.
SECTION 7 COVENANTS OF SLIC
7.1 SLIC shall, on a reasonably prompt basis, provide SLD with
current forms of contracts, prospectuses, applications,
service forms, and names and states of licenses of all
insurance and/or broker-dealer agents and representatives
authorized to sell the Contracts.
7.2 All contracts subject to the services performed under this
Agreement are issued by SLIC.
7.3 SLIC shall immediately provide SLD with written notice of
any change of authority of persons authorized and
enumerated in Exhibit C attached hereto and incorporated
herein by reference to provide SLD with instructions or
directions relating to services to be performed by SLD
under this Agreement.
SECTION 8 INDEMNIFICATION
8.1 SLD shall not be responsible for and SLIC shall indemnify
and hold SLD harmless from and against, any and all costs,
expenses, losses, and damages, charges, including
reasonable attorney's fees, payments and liability, which
may be asserted against SLD or for which it may be held to
be liable, arising out of or attributable to:
a. SLIC's failure to comply with the terms of this
Agreement, or to act in a reasonable or customary
manner in connection with this Agreement, or which
arise out of SLIC's negligence or misconduct or the
breach of any representation or warranty of SLIC
hereunder;
(April 12, 2000)
6
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b. Reliance on or use by SLD of such information and
materials provided by or at the direction of SLIC and
instructions or directions given by the authorized
individuals described in Exhibit C for purposes of
providing services under this Agreement;
c. Any failure by SLIC to comply with federal, state or
local laws or regulations with respect to the offering
and/or sale of any insurance products or securities; or
d. Any matters associated with SLIC or its Contracts or
the sale of such Contracts which are unrelated to the
services provided by SLD.
8.2 SLD shall be responsible for and shall indemnify and hold
SLIC harmless from and against any and all losses, damages,
costs, charges, reasonable attorney's fees, payments,
expenses and liability which may be asserted against SLIC,
or for which it may be held liable arising out of or
attributable to SLD's failure to comply with or perform
under the terms of this Agreement, SLD's failure to act in
a reasonable manner in connection with this Agreement, any
failure by SLD to comply with federal, state or local
regulations with respect to the books and records
maintained by SLD, or which arise out of SLD's negligence
or misconduct or which arise out of the breach of any
representation or warranty of SLD hereunder.
8.3 As needed, SLD may apply to a person indicated on SLIC's
"Schedule of Authorized Personnel" set forth in Exhibit C
as a person authorized to give instructions under this
Section 8 with respect to any matter arising in connection
with this Agreement. SLD shall not be liable for any action
taken or omitted by SLD in good faith and in the exercise
of due care and diligence in reliance upon such
instructions.
8.4 In the event malfunction of any SLD system causes an error
or mistake in any record, report, data, information or
output under the terms of this Agreement, SLD shall at its
expense correct and reprocess such records.
8.5 If either party believes it is entitled to indemnification
hereunder, it shall, within five business (5) days of the
commencement of any action or threat of any action, give
written notice to the other party of any claim for which it
believes it is entitled to indemnification; provided,
however, that the failure to provide timely notice shall
not relieve the indemnifying party of any liability which
it may have to the other party as long as such notice is
not unreasonably withheld.
(April 12, 2000)
7
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8.6 Subject to the provisions of this Section 8.6, the parties
shall cooperate with each other concerning any defense and
give each other all information and assistance which either
may reasonably request in defending any matter hereunder.
Each party shall exchange information subject to the
protection of the attorney-client, work product and other
applicable privileges. Any information derived therefrom
shall be used solely for purposes of developing joint
positions and strategies concerning issues that may
ultimately be resolved through arbitration or litigation.
No party shall disclose any information obtained from the
other party to any third party in any negotiations,
discussions or exchange of information, without the written
consent of the other party. In addition, no party shall
disclose any information in any threatened or pending
legislative, administrative or judicial proceeding, whether
civil or criminal, unless ordered to do so by a court of
competent jurisdiction. Furthermore, any materials shared
by either party shall be returned upon request and no
copies shall be retained. The parties hereto agree that the
exchange of any information and materials will be protected
from disclosure by the attorney-client, work product or
other applicable privileges and is not intended to waive
any applicable privilege or protection. Neither party shall
have the authority to waive any applicable privilege or
doctrine on behalf of the other party; nor shall any waiver
of an applicable privilege or doctrine by the conduct of
either party be construed to apply to the other party.
8.7 The provisions of this Section 8 shall not be deemed to be
a limitation upon a party's right to injunction, specific
performance or any other legal or equitable remedy to which
either party may be entitled by virtue of this Agreement or
to prevent any breach or threatened breach of this
Agreement.
8.8 IN NO EVENT AND UNDER NO CIRCUMSTANCES, SHALL ANY PARTY TO
THIS AGREEMENT BE LIABLE TO ANY OTHER PARTIES UNDER ANY
PROVISION OF THIS AGREEMENT FOR LOST PROFITS OR FOR
EXEMPLARY, SPECIAL, PUNITIVE OR CONSEQUENTIAL DAMAGES.
8.9 The provisions of this Section 8 shall survive termination
of this Agreement.
SECTION 9 TERMINATION OF AGREEMENT
9.1 Either party may terminate this Agreement during the
initial term or any renewal term by providing at least 180
days prior written notice to the other.
(April 12, 2000)
8
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9.2 This Agreement may be terminated at any time upon the
mutual written consent of the parties hereto.
9.3 This Agreement may be terminated upon written notice of one
party to the other in the event of bankruptcy or insolvency
of such party to which notice is given.
9.4 This Agreement shall automatically be terminated in the
event of its assignment, unless such assignment is made to
an affiliate of the assigning party, subject to the
provisions of Section 10.1.
9.5 At least 30 days prior to the end of the initial or any
renewal term hereof, SLD shall give SLIC written notice if
SLD desires to increase its fees or charges to SLIC or to
change the manner of payment specified in Exhibit A. If SLD
and SLIC do not agree to fees and charges before the end of
the term during which such notice is given by SLD, this
Agreement shall terminate at the end of such term.
9.6 Additionally, this Agreement shall terminate at SLIC's
option because of:
a) fraud, misrepresentation, conversion or unlawful
withholding of funds by SLD; or
b) the dissolution or disqualification of SLD to do
business under any applicable federal, state or local
laws or regulations; or
c) the suspension or revocation of any material license or
permit held by SLD by the appropriate governmental
agency or authority; or
d) the sale (without the prior written consent of SLIC,
which consent shall not be unreasonably withheld) of
SLD's business to an unaffiliated person or entity,
whether by merger, consolidation, or sale of
substantially all of SLD's assets or stock or
otherwise, during the term of, and any extension to,
this Agreement.
9.7 This Agreement shall terminate at SLD's option because of
fraud, misrepresentation, conversion, or withholding of
funds belonging to SLD by SLIC.
9.8 If either of the parties hereto shall breach this Agreement
or be in default in the performance of any of its duties
and obligations hereunder ("the defaulting party"), the
other party hereto may give written notice thereof to the
defaulting party and if such default or breach shall not
have been
(April 12, 2000)
9
<PAGE>
remedied within ninety (90) days after such written notice
is given, then the party giving such written notice may
terminate this Agreement by giving ninety (90) days written
notice of such termination to the defaulting party.
9.9 Termination of this Agreement by default or breach by SLIC
shall not constitute a waiver of any rights of SLD in
reference to services performed prior to such termination
of rights of SLD to be reimbursed for out-of-pocket
expenditures and to collect fees; termination of this
Agreement by default or breach by SLD shall not constitute
a waiver by SLIC of any other rights it might have under
this Agreement.
9.10 During the period between the date of any notice of
intention to terminate given pursuant to this Section 9 and
the date of actual termination of the Agreement, each party
shall continue to perform its obligations under this
Agreement.
9.11 During any transition period, SLD agrees to cooperate with
SLIC to effectuate an orderly transfer of all policy
records and materials to SLIC or its designee. For services
performed during the transition period, SLD shall be
compensated for its services pursuant to Exhibit A of this
Agreement.
9.12 The parties agree that following termination of this
Agreement, for a period reasonable to effect an orderly
transition, they will continue to perform each and every
obligation hereunder.
SECTION 10 ASSIGNMENT
10.1 Neither this Agreement nor any rights or obligations
hereunder may be assigned by either party without the prior
written consent of the other.
10.2 This Agreement shall inure to the benefit of and be binding
upon the parties hereto, INGAE, and their respective
successors and assigns, provided that any assignment is
performed in accordance with Section 10.1 above.
SECTION 11 CONFIDENTIALITY
11.1 The parties hereto agree that all tapes, books, reference
manuals, instructions, records, information and data
pertaining to the business of the
(April 12, 2000)
10
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other party, SLD's systems, and the policyowners serviced
by SLD hereunder, which are exchanged or received pursuant
to the negotiation of and/or the carrying out of this
Agreement, shall remain confidential and shall not be
voluntarily disclosed to any other person, except to the
extent disclosure thereof may be required by law. All such
tapes, books, reference manuals, instructions, records,
information and data in the possession of each of the
parties hereto shall be returned to the party from whom it
was obtained upon the termination or expiration of this
Agreement.
11.2 SLD shall maintain the confidentiality of all trade secrets
and other confidential information obtained from SLIC and
its affiliates, (collectively "SLIC" for purposes of this
Section 11). SLD will use all reasonable precautions and
take all necessary steps to prevent any information
provided to SLD hereunder from being acquired by any
unauthorized persons. SLD acknowledges that such
information has been disclosed by SLIC only to enable SLD
to provide the services hereunder and that disclosure
thereof would be damaging to SLIC if such information were
obtained by any competitor of SLIC.
11.3 SLIC shall maintain the confidentiality of all trade
secrets and other confidential information obtained from
SLD. SLIC will use all reasonable precautions and take all
necessary steps to prevent any information obtained by SLIC
provided to it hereunder from being acquired by any
unauthorized persons. SLIC acknowledges that such
information has been disclosed by SLD only to enable SLD to
provide the services hereunder and that disclosure thereof
would be damaging to SLD if such information were obtained
by any competitor of SLD.
SECTION 12 INSURANCE
12.1 Errors and Omissions Insurance. SLD, as a member of the ING
Group, is currently self-insured for errors and omissions
coverage. Such coverage is for amounts up to and in excess
of One Million Dollars ($1,000,000.00) per claim.
12.2 Survival. If this Agreement terminates for any reason, SLD
shall use its best efforts to keep the insurance required
by this Section 12 in force for three (3) years following
termination. SLD shall give SLIC at least thirty (30) days
prior written notice of any change or cancellation of such
insurance.
(April 12, 2000)
11
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SECTION 13 ARBITRATION
13.1 Any dispute which arises between the parties with respect
to any of the terms of this Agreement, whether such dispute
arises during the term of the Agreement or after
termination, shall be resolved through binding arbitration.
Arbitration shall be conducted in accordance with the
commercial rules of the American Arbitration Association
("AAA"). Each party agrees to waive its right, if any, to a
jury trial. Each party shall bear its own cost in the
arbitration proceedings. The judgment of the AAA may be
entered in and enforced by any court of competent
jurisdiction. The judgment of the AAA shall be final and
binding and there shall be no appeal therefrom. This
arbitration provision shall survive the termination or
cancellation of this Agreement.
SECTION 14 MISCELLANEOUS
14.1 SLIC and its duly authorized independent auditors have the
right under this Agreement to perform on-site audits of
records and accounts directly pertaining to the Contracts
serviced by SLD at SLD's facilities in accordance with
reasonable procedures and at mutually agreeable dates and
times, but at least once annually. At the request of SLIC,
SLD will make available to SLIC's auditors and
representatives of regulatory agencies all reasonably
requested records and data.
14.2 This Agreement constitutes the entire agreement between the
parties hereto and may not be modified except by written
instrument executed by both parties hereto. If any section
herein contained shall be found to be unenforceable as
contrary to the current law, that section shall be severed
and the remaining sections of this Agreement shall continue
to be enforceable.
14.3 Neither party shall be liable for damages due to delay or
failure to perform any obligation under this Agreement if
such delay or failure results directly or indirectly from
circumstances beyond the control and without the fault or
negligence of such party.
14.4 It is understood and agreed that all services performed
hereunder by SLD shall be as an independent contractor and
not as an employee of SLIC.
14.5 This Agreement shall be governed by the laws of the State
of Texas.
(April 12, 2000)
12
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14.6 Notices under this Agreement to either party must be in
writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt),
(b) sent by facsimile (with written confirmation of
receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the
addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the
location identified in the preamble to this Agreement,
Attn: Office of the General Counsel, or to such other
address as supplied in writing by either party.
(April 12, 2000)
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate, in their names and on their behalf by and through their duly
authorized officers as of the day and year first above written.
Security Life of Denver Insurance Company
By: /s/ James L. Livingston, Jr.
--------------------------------
Name: James L. Livingston, Jr.
-----------------------------
Title: Executive Vice President
-----------------------------
Southland Life Insurance Company
By: /s/ Gary W. Waggoner
--------------------------------
Name: Gary W. Waggoner
-----------------------------
Title: Chief Legal Officer
-----------------------------
(April 12, 2000)
14
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EXHIBIT A
FEE SCHEDULE
Contracts:
Variable Life Insurance products of Southland Life Insurance Company ("SLIC").
Fees:
A.
2000
Plan Denver
Exposure Factor
PREMIUM SOLD (IN MILLIONS)
General Agency 42.1 20.94%
Low Load 21.5 2.81%
BOLI (large case) - 3.12%
------------
Total 63.6
FACE AMOUNT SOLD (IN 000'S)
Non GI/SI Face Sold 3,876 $ 1.11
Survivor Face Sold 68 $ 1.41
Total
POLICIES SOLD
Single Life 12,021 $ 141.11
BOLI (large case) - $ 74.27
Survivor Life 452 $ 980.36
------------
Total 12,472
AVERAGE POLICIES INFORCE
UL & trad 104,244 $ -
Term 14,588 $ -
VUL 7,641 $ 118.83
Paid up 23,602 $ -
------------
Total 150,075
% OF ANNUITY CV 28,800,000 0.07%
(April 12, 2000)
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B. Out-of-Pocket Expenses:
In addition to the fees set forth above, SLD will bill out-of-pocket
expenses as they are incurred. Out-of-pocket expenses are expenditures
for the items such as those listed below and any other items agreed to
by the parties:
1. Costs of telephone lines installed for network communications
between SLD and SLIC, including CRT's and related computer
equipment. Costs of telecommunication lines and equipment
installed to provide primary and back-up support for on-line
access to the administrative system, including transmission
capabilities between SLD and SLIC.
2. Cost of printing blank stock and the cost of set-up and printing
(including per impression costs) confirmation statements, contract
file folders, checks, tax reporting forms, contract pages,
specification pages, envelopes, proxy or voting instruction cards,
periodic policyowner statements, separate account statements,
individual and list bills, and any other required formats or
reports. Cost of labor for folding, inserting and mailing
functions.
3. Cost of microfilm and microfiche supplies and the cost of
transferring all necessary information to microfilm, microfiche or
such other document imaging and record system as may be used.
4. Costs involved with on- or off-site storage for SLIC records,
documents, correspondence and other items.
5. Custom programming (including additional upgrades or improvements
or customization required by SLIC) and new product implementation
at actual costs per hour. Custom programming needs are to be
submitted in writing to SLD.
6. Normal and reasonable travel, meal and lodging expenses incurred
during SLD's performance of its duties and obligations under this
Agreement, if any.
(April 12, 2000)
16
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EXHIBIT B
OPERATIONAL PLAN
A. Systems
1. Produce the Contract data page, standard Contract pages, state
variation pages.
2. Calculate and process periodic charges as specified in product
prospectuses.
3. Calculate and process applicable valuations as specified by
product prospectus(es).
4. Calculate and process withdrawals (partial, full) as specified.
5. Calculate and process payout amounts.
6. Calculate and process periodic transactions, including dollar cost
averaging, and automatic rebalance transfers, as specified in the
appropriate product prospectus.
7. Produce reporting including confirmations, client statements,
daily transactions, notification of upcoming maturities, lapse
notification, billing notices, and COLI reporting; and reports on
activities such as trades, lapses, terminations, loans, and agent
licensing.
8. Produce required extract files or reports including accounting,
tax reporting, production, electronic funds transfer, check
writing, reinsurance, valuation, inforce illustration, client
alpha index, proxy solicitation.
9. Produce reports required to transact daily business with the
mutual funds underlying the Contracts and for periodic
reconciliations.
10. Accept import of unit values (accumulation) from prior
administrative system.
11. Accommodate other product features described in prospectus as may
be updated from time to time.
12. Maintain current information and procedures on the administrative
system for state approvals by product, by company. SLIC will do
the actual product filings; and information regarding approvals
will be provided to SLD.
13. SLIC will provide access to agent licensing information and actual
agent appointments to SLD.
(April 12, 2000)
1
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14. Accommodate SLIC and regulatory audit requirements.
15. Maintain client account history as required to process
transactions and administer contract provisions.
16. Systems will automatically interface with SLIC and SLD systems. A
scheduled time for data transmission will be determined and daily
user involvement will not be required.
17. Provide information necessary for proxy preparation and mailings.
18. Provide interfaces, reporting requirements and special requests
from SLIC for outside broker-dealers, to include:
a. Lipper
b. Morningstar
19. Provide electronic funds transfer capabilities
a. Draw from accounts for premium payments
b. Deposit disbursements to accounts.
B. Contract Maintenance
1. Reviews change requests, applies criteria developed by SLIC.
Verifies license status of broker-dealers and agents based on
information supplied by SLIC.
2. Prepares a new Contract data page, issues Contract, and mails to
Contract owners or agents. Policy page production to be automated
as agreed upon by SLD and SLIC.
3. Establishes and maintains insured and owner records, as
applicable, on computer and manual systems.
4. Notifies broker-dealers and agents of any error or missing data
needed to process changes to insured or owner records.
5. Produces and mails required confirmation statements.
6. Deposits monies received into depository account.
7. For policies being exchanged from another company, SLD will
request the funds from the other insurance company using forms
supplied by SLIC. SLIC will establish signing authority for SLD
personnel.
C. Collection procedures (in-force contracts)
(April 12, 2000)
2
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1. Receives from lockbox the remittance information in accordance
with processing requirements.
2. Processes payments received to customer accounts.
3. Prepares and mails required confirmation of transactions.
4. Deposits cash received directly by SLD under the policies into a
designated bank account.
5. Transmits daily accounting and bank transfer authorization
summaries prepared for each valuation period.
6. Prepares and mails refunds as appropriate (declines, free look).
D. Banking
1. Photocopies checks received directly by SLD and assigns them a
control number. Balances, edits, endorses and prepares daily
deposit. Reconciles bank lockbox deposits to applications
received.
2. Deposits are placed into a depository account.
3. Transfers funds from the depository account to one of the
following, as appropriate:
a. General Account of Southland Life
b. Mutual Fund Custodian Account(s)
c. Disbursement Account of Southland Life and INGAE
d. Separate Account L1 of Southland Life
Bank accounts and mutual fund accounts to be established by SLIC
with appropriate signing and trading authorizations established
for SLD personnel.
4. Generates from the system daily cash journal summary reports and
maintains detail of activity.
5. Processes disbursement transactions for policyowner or
beneficiary, surrenders, withdrawals, loans, and death claims.
6. SLIC will maintain balances in the appropriate SLIC bank accounts
necessary to meet administrative needs identified in the contract.
7. SLIC will obtain the appropriate authorizations to allow SLD to
transfer funds amongst SLIC accounts.
(April 12, 2000)
3
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8. Reprocess dishonored items. Reverses associated transactions,
prepares reports and communicates with policyowner.
E. Accounting/Auditing
1. Generates daily accounting extracts for policies maintained on the
system.
2. Generates accounting information necessary to post entries to
ledgers.
3. Retains systems generated reports in accordance with a set
retention schedule mutually agreed upon and as required by
regulatory authorities. Provides access to such reports for
internal and external auditing.
4. Determines the "Net Amount Available for Investment" in mutual
fund and places fund purchase/redemption orders with the
designated trading broker/dealer. Receives confirmation of mutual
fund investments.
5. Maintains an inventory of all mutual fund shares owned, including
the date purchased and sold, cost, book value, gain, loss, and
other relevant information.
6. Reconciles inventory of mutual fund shares owned to reports of
mutual fund shares owned supplied by mutual funds.
7. Cooperates in annual audit of separate account financials
conducted for purposes of financial statement certification and
publication and accommodates SLIC or regulatory audits, as
required.
F. Pricing/Valuation
1. SLD will generate separate account ledger activity associated with
unit valuation. SLIC will specify the required accounting entries
based on information regarding Unit Value. SLD will be updated
with the calculated unit values.
2. Daily reconciliation of the Investment and Administrative systems.
G. Contract Owner Service/Record Maintenance
1. Receives and implements contract owner service requests including
information requests, beneficiary changes, transfer of funds
between eligible mutual funds, loan requests, payout or withdrawal
requests, exchange of policies, and changes of any other
information maintained on the system.
2. Researches owner inquiries using data stored in the system or
paper records.
(April 12, 2000)
4
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Responds directly to any questions or inquiries.
3. Generate daily journals confirming financial changes made to
accounts.
4. Address changes will be coordinated between SLIC and SLD. An
interface between systems to coordinate Contract changes (name,
address, beneficiary) will be developed if needed.
5. Process reinstatements.
6. Produces owner tax reporting.
H. New Business
1. All new business services and follow-up as needed.
I. Disbursement (Surrenders, Loans, Withdrawals)
1. Receives requests for systematic, partial and full surrenders and
loans from owners. Retains and accounts for any Contract
administrative charges.
2. Processes all surrender and loan requests against the Contract
Owner files. Generates related separate account ledger accounting.
3. Produce check production extract file for surrenders and loans and
forwards checks to owners in accordance with applicable law. Check
production will be through a SLD checkwriting system.
4. Prepares and mails confirmation statements of disbursement
transactions to owners.
5. Generate a report on surrenders and loans for SLIC.
6. Reviews, causes to have printed, and maintains adequate supply of
checks.
7. Contacts policyowner regarding tax withholding procedures, if
required.
8. Backup withholding will be coordinated between SLIC and SLD.
J. Claims
1. SLIC shall be notified immediately of requests for death claims
received from owners or beneficiaries. In addition, any
notification received by SLIC regarding a policy administered by
SLD will be communicated immediately to SLD to
(April 12, 2000)
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freeze the account.
2. If multiple policies are involved, SLIC and SLD will coordinate
sending claim forms.
3. Respond to request from SLIC for disbursement of proceeds.
Generate related separate account ledger accounting.
4. Produce check production extract file for disbursements as
directed by SLIC. Check production will be through a SLD
checkwriting system.
5. Make changes to owner and/or inured information as directed by
SLIC where no payout is required.
6. Generate reports on death claims.
7. Claims examination will be done by SLD.
K. Underwriting
1. All underwriting reviews and services as needed.
L. Commissions
1. Verifies license status of brokers/agents based on information
supplied by SLIC.
2. Produce detailed commission transactions for each policy financial
transaction processed including premium application or reversal,
cancellation, etc. for which a commission debit or credit is
required.
3. Prepares commission file for SLIC. SLIC is responsible for
broker-dealer firms. Produce check for making all commission
payments.
4. Creates tax reporting forms, if required.
M. Proxy Processing
1. Receives record date information from the underlying mutual funds.
Receives proxy solicitation material from underlying mutual funds.
2. Prepares proxy cards, if applicable.
3. Mails solicitation and resolicitations, if necessary.
(April 12, 2000)
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4. Maintains all proxy registers and other required proxy material.
5. Provide all necessary information for preparation of proxy cards,
if applicable.
6. Tabulates returned proxy cards and transmits results to underlying
mutual funds.
N. Periodic Reports and Prospectus Materials to Contract Owners
1. Prepares and mails statement of account to each Contract Owner.
2. Inserts and mails prospectus materials, semi-annual and annual
reports to Contract Owners, as required, both underlying mutual
fund and Separate Account reports. Filing of prospectus materials
and reports with NASD and SEC, as applicable, will be done by
SLIC. Printing of all prospectus materials and reports will be
done by SLIC.
O. Regulatory/Statement Reports
1. Prepares IRS reports as needed. Mails to owners and transmits to
IRS.
P. Actuarial, Finance and Management Reports.
1. Provides, on a set schedule, extracts listed below:
a. Reserve Extracts
b. Production Extracts
c. Premium Tax Extracts
d. Loan Extracts
e. Surrender Extracts
f. Claims Report
g. Intercompany billing and expense analysis
(April 12, 2000)
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EXHIBIT C
SCHEDULE OF AUTHORIZED PERSONNEL
The following individuals are authorized by Southland Life Insurance Company to
give instructions or direction to Security Life of Denver Insurance Company with
respect to matters arising in connection with the servicing to be performed
under this Agreement:
James Livingston, Jr.
Terry Morrison
Mark Smith
Pam Anson
Gary Waggoner
Anna Kautzman
Jerry Cwiok
Exhibit C (April 12, 2000)
<PAGE>
EXHIBIT D
BACKUP PROCEDURES
Current backup practices and procedures are described herein and may be changed
upon mutual agreement of Southland Life Insurance Company ("SLIC") and Security
Life of Denver Insurance Company ("SLD").
o Disaster recovery will be performed in accordance with the
Security Life of Denver Insurance Company Business Continuity Plan
o Backup procedures used by SLD for SLIC business shall be:
o Full backups shall be performed nightly
o Daily backups shall be kept for five (5) weeks
o Weekly backups shall be kept indefinitely
o All backups shall be kept off-site
(April 12, 2000)
Exhibit 1.A(8)(g)
ADMINISTRATIVE SERVICES AGREEMENT
This Agreement is made as of the 1st day of January, 2000, by and
between INVESCO Funds Group, Inc. ("INVESCO"), and Southland Life Insurance
Company ("Southland"), a Texas corporation, collectively, the "Parties."
WITNESSETH:
WHEREAS INVESCO serves as the administrator for the INVESCO Variable
Investment Funds, Inc. ( the "Company"); and
WHEREAS Southland has entered into an agreement, dated September 14,
1995 with the Company and INVESCO (the "Fund Participation Agreement") pursuant
to which INVESCO makes shares of certain of its Portfolios available to certain
variable life insurance and variable annuity contracts offered by Southland
through certain separate accounts (the "Separate Accounts") at net asset value
and with no sales charges, subject to the terms of the Fund Participation
Agreement; and
WHEREAS the Fund Participation Agreement provides that the Company will
bear the costs of preparing, filing with the Securities and Exchange Commission,
printing or duplicating and mailing the Company's (or the Portfolios')
prospectus, statement of additional information and any amendments or
supplements thereto, periodic reports to shareholders, Fund proxy material and
other shareholder communications (collectively, the "Fund Materials") required
by law to be sent to owners of Contracts ("Contract Owners") who have allocated
any Contract value to a Portfolio; and
WHEREAS the Fund Participation Agreement provides that Southland, at its
expense, will provide various administrative and shareholder contact services
with respect to prospective and actual Variable Contract Owners of Southland;
and
WHEREAS the Fund Participation Agreement makes no provision for the rate
at which each party shall incur expenses in connection with the servicing of
Contract Owners who have allocated Contract value to a portfolio, including, but
not limited to, responding to various Contract Owner inquiries regarding a
Portfolio; and
WHEREAS the Parties hereto wish to allocate the expenses in a manner
that is fair and equitable, and consistent with the best interests of Contract
Owners; and
WHEREAS the Parties hereto wish to establish a means for allocating the
expenses that does not entail the expense and inconvenience of separately
identifying and accounting for each item of Fund expense;
NOW THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
I. SERVICES PROVIDED:
Southland agrees to provide services to the Company and INVESCO including the
following:
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a) responding to inquiries from Southland Contract Owners using one or more
of the Portfolios as an investment vehicle regarding the services
performed by Southland as they relate to INVESCO, the Company or its
Portfolios;
b) providing information to INVESCO or the Company and to Contract Owners
with respect to shares attributable to Contract Owner accounts;
c) communicating directly with Contract Owners concerning INVESCO or the
Company's operations;
d) providing such similar services as INVESCO or the Company may reasonably
request to the extent permitted or required under applicable statutes,
rules and regulations.
II. EXPENSE ALLOCATIONS:
Subject to Section III hereof, and the provisions of Article III of the Fund
Participation Agreement, Southland or its affiliates shall initially bear the
costs of the following:
a) printing and distributing all Fund Materials to be distributed to
prospective Contract owners except as may otherwise be provided in the
Fund Participation Agreement;
b) printing and distributing all sales literature or promotional material
developed by Southland or its affiliates and relating to the Contracts;
c) servicing Contract Owners who have allocated Contract value to a
Portfolio, which servicing shall include, but is not limited to, the
items listed in Paragraph I of this Agreement.
III. PAYMENT OF EXPENSES:
In recognition of the substantial savings in administrative expenses to INVESCO
and the Company by virtue of having a sole shareholder, Southland, and having
that shareholder be responsible for the servicing of the Contract Owners,
INVESCO will pay an administrative service fee to Southland, as described below:
a) INVESCO shall pay to Southland an Administrative Services Fee
(hereinafter, the "Quarterly Fee") equal to a percentage of the average
daily net assets of the Portfolios attributable to Contracts offered by
Southland, at the annual rate of 0.20% on the aggregate net assets of
the INVESCO VIF-Equity Income Portfolio and at the annual rate of .15%
on the aggregate net assets of the INVESCO VIF-Utilities Portfolio. The
Quarterly Fee is in consideration of the expenses incurred by Southland
pursuant to Section II hereof. The payment of the Quarterly Fee shall
commence on the date first indicated above.
b) From time to time, the Parties hereto shall review the Quarterly Fee to
determine whether it reasonably approximates the incurred and
anticipated costs, over time, of Southland in connection with its duties
hereunder. The Parties agree to negotiate in good faith any change to
the Quarterly Fee proposed by another Party in good faith.
c) This Agreement shall not modify any of the provisions of Article III of
the Fund Participation Agreement, but shall supplement those provisions.
2
<PAGE>
IV. TERM OF AGREEMENT
This Agreement shall continue in effect for so long as Southland or its
successor(s) in interest, or any affiliate thereof, continues to hold shares of
the Company or its portfolios, and continues to perform in a similar capacity
for the Company and INVESCO.
V. INDEMNIFICATION:
(a) Southland agrees to indemnify and hold harmless the Company and INVESCO,
and their officers, employees, and directors, from any and all loss,
liability and expense resulting from the gross negligence or willful
wrongful act of Southland under this Agreement, except to the extent
such loss, liability or expense is the result of the willful
misfeasance, bad faith or gross negligence of the Company or INVESCO in
the performance of its duties, or by reason of the reckless disregard of
their obligations and duties under this Agreement.
(b) The Company and INVESCO agree to indemnify and hold harmless Southland
and its officers, employees, and directors from any and all loss,
liability and expense resulting from the gross negligence or willful
wrongful act of the Company or INVESCO under this Agreement, except to
the extent such loss, liability or expense is the result of the willful
misfeasance, bad faith or gross negligence of Southland in the
performance of its duties, or by reason of the reckless disregard of its
obligations and duties under this Agreement.
VI. NOTICES:
Notices and communications required or permitted hereby will be given to the
following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
INVESCO Funds Group, Inc.
7800 East Union Avenue
Denver, CO 80237
Attn: Ronald L. Grooms - Senior Vice President
FAX: 303 930-6541
Southland Life Insurance Company
c/o Security Life of Denver Office of the General Counsel
1290 Broadway
Denver, CO 80203
Attn: Variable Counsel
FAX: 303 860-2134
VII. APPLICABLE LAW:
Except insofar as the Investment Company Act of 1940 or other federal laws and
regulations may be controlling, this Agreement will be construed and the
provisions hereof interpreted under and in accordance with Colorado law, without
regard for that state's principles of conflict of laws.
3
<PAGE>
VIII. EXECUTION IN COUNTERPARTS:
This Agreement may be executed simultaneously in two or more counterparts, each
of which taken together will constitute one and the same instrument.
IX. SEVERABILITY:
If any provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby.
X. RIGHTS CUMULATIVE:
The rights, remedies and obligations contained in this Agreement are cumulative
and are in addition to any and all rights, remedies and obligations, at law or
in equity, that the Parties are entitled to under federal and state laws.
XI. HEADINGS
The headings used in this Agreement are for purposes of reference only and shall
not limit or define the meaning of the provisions of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed in their names and on their behalf by and through their duly authorized
officers signing below.
INVESCO FUNDS GROUP, INC.
By: /s/ Ronald L. Grooms
------------------------------
Ronald L. Grooms
Senior Vice President & Treasurer
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By: /s/ Ronald L. Grooms
------------------------------
Ronald L. Grooms
Treasurer
SOUTHLAND LIFE INSURANCE COMPANY
By: /s/ James L. Livingston, Jr.
----------------------------
Name: James L. Livingston, Jr.
------------------------
Title: Executive Vice President
------------------------
4
EXHIBIT 11
FUTURE DIMENSIONS VUL
DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES
FOR POLICIES PURSUANT TO RULE 6E-3(T)(B)(12)(III)
This document sets forth the administrative procedures that will be followed by
Southland Life Insurance Company ("Southland") in connection with the issuance
of its Future Dimensions flexible premium variable universal life insurance
policies (the "policies") issued through Southland Separate Account L1 (the
"Separate Account"), the transfer of assets held under the policies, and the
redemption of interests in policies.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES
A. Offering of the Policy
The policy is offered only to qualifying individuals or groups
("owners") who satisfy certain suitability standards. The policy may be
purchased to insure the life of a person (an "insured") in whom the
owner has an insurable interest. Southland requires satisfactory
evidence of insurability, which may include a medical examination of
the insured. The issue ages are 10 through 75. Age is determined by the
insured's age as of the birthday nearest the policy date.
Generally, a minimum initial stated death benefit of at least $100,000
is required. However, depending on underwriting circumstances, the
minimum for a group or corporate purchasers may be reduced.
Acceptance of an application depends on Southland's underwriting rules.
Southland reserves the right to reject an application for any reason.
If a policy has more than one owner (joint owners), then transactions
under the policy except for telephone transfers of account value
require the authorization of all owners.
B. Cost of Insurance Charges Structure, Payments and Underwriting
Standards
Southland places the insured in a premium class when the policy is
issued, based on underwriting. This original premium class applies to
the initial stated death benefit.
The cost of insurance charge for a policy is based on the age at issue,
sex, premium class of the insured, and on the policy year. Therefore
the charge varies from time to time. Southland places insureds in the
following premium classes, based on underwriting: Standard smoker (ages
0-85); and Standard Non-smoker (ages 20-85). Southland's definition of
"Smoker" includes the use of cigarettes, cigars, pipes, chewing
tobacco, nicotine chewing gun or patch, snuff or any other tobacco or
nicotine-based product or, insureds may be placed in a
1
<PAGE>
substandard rate class, with a higher mortality risk than the standard
smoker or standard non- smoker classes.
Southland guarantees that the cost of insurance rates used to calculate
the monthly cost of insurance charge will not exceed the maximum cost
of insurance set forth in the policies. The guaranteed cost of
insurance rate for standard classes are based on the 1980
Commissioners' Standard ordinary mortality Tables, Male or Female,
Smoker or Nonsmoker Mortality Premiums (1980 CSO Tables). The
guaranteed cost of insurance rates for substandard classes are based on
multiples of or additives to the 1980 CSO Tables.
At any time, Southland's current cost of insurance may be less than the
guaranteed cost of insurance that is set forth in the policy. Current
cost of insurance rates are determined based on expectations as to
future mortality, investment earnings, expenses, taxes, and persistency
experience. These rates may change from time to time.
Cost of insurance rates (whether guaranteed or current) for an insured
in a standard non-smoker class are equal to or lower than guaranteed
cost of insurance for an insured of the same age and sex in a standard
smoker class. Cost of insurance rates (whether guaranteed or current)
for an insured in a standard non-smoker or smoker class are generally
lower than guaranteed cost of insurance for an insured of the same age
and sex and smoker status in a substandard class.
The cost of insurance will not be the same for all policies. Insurance
is based on the principle of pooling and distribution of mortality
risks which assumes that each owner is charged a cost of insurance
commensurate with the insured's mortality risk as actuarially
determined, reflecting factors such as age, sex, health, and
underwriting method. A uniform cost of insurance charge for all
insureds would discriminate unfairly in favor of those insureds
representing higher risks. However, there will be a uniform cost of
insurance charge for all insureds of the same issue age, sex, policy
duration and underwriting classification.
If the insured's age or sex has been misstated in the application for
the policy or in any application for supplemental or rider benefits,
and if the misstatement becomes known during the lifetime of the
insured, then policy values will be adjusted to reflect the correct
monthly deductions (based on the correct age or sex) since the policy
date. If the policy's values are insufficient to cover the monthly
deduction on the prior monthly date, the grace period will be deemed to
have begun, and notification will be sent to the owner at least 61 days
prior to the end of the grace period. See "Policy Termination and Grace
Period," below.
C. Death Benefit
The policy provides coverage on a named insured and a Death Benefit
payable upon the death of the insured. The policy will remain in force
as long as the policy's cash surrender value is sufficient to cover the
charges due.
On or after two years from the policy date, the owner may request a
reduction in the stated death benefit, by written notice to Southland,
subject to the following rules. If a change in the
2
<PAGE>
stated death benefit would result in total premiums paid exceeding the
premium limitations prescribed under current tax law to qualify the
policy as a life insurance contract, Southland will refund promptly to
the owner the excess above the premium limitations.
Any decrease in stated death benefit will become effective on the
monthly processing date next following the date that notice requesting
the decrease is approved by Southland. Southland reserves the right to
decline a requested decrease in the stated death benefit if compliance
with the guideline premium limitations under current tax law resulting
from this decrease would result in immediate termination of the policy,
or if to effect the requested decrease, payments to the owner would
have to be made from the accumulated value for compliance with the
guideline premium limitations, and the amount of such payments would
exceed the cash surrender value under the policy.
The minimum amount of a change to the death benefit amount must be at
least $10,000. At any time the owner may request an increase in the
stated death benefit and an application must be submitted. An increase
that is not guaranteed by rider will require satisfactory evidence of
insurability and must meet Southland's underwriting rules. The increase
in stated death benefit will become effective on the next monthly
processing date after the request is approved. The account value will
be adjusted to reflect a monthly deduction (as of the effective date)
based on the increased stated death benefit.
Southland will determine a cost of insurance rate for each increase in
coverage based on the age of the insured at the time of the increase.
The following rules apply to determine the risk amount for each rate.
When an increase in stated death benefit is requested, Southland
conducts underwriting before approving the increase to determine
whether a different premium class will apply to the increase. If the
premium class for the increase has lower cost of insurance rates than
the original premium class, then the premium class for the increase
will also be applied to the initial stated death benefit. If the
premium class for the increase has higher cost of insurance rates than
the original premium class, the premium class for the increase will
apply only to the increase in stated death benefit, and the original
premium class will continue to apply to the initial stated death
benefit.
To determine the risk amount associated with a stated death benefit,
Southland will attribute the total net amount at risk for the total
stated death benefit. If there is a decrease in stated death benefit
after an increase, the decrease is applied first to decrease prior
increases in stated death benefit starting with the most recent
increase.
The policy will be offered and sold pursuant to an established
mortality structure and underwriting standards in accordance with state
insurance laws. Where state insurance laws prohibit the use of
actuarial tables that distinguish between men and women in determining
premiums and policy benefits for their insured resident, Southland will
comply.
D. Application and Payment Processing
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To purchase a policy, an application must be completed and submitted
through an authorized Southland agent. Temporary life insurance
coverage may be provided prior to the policy date under the terms of a
temporary insurance agreement. In accordance with Southland's
underwriting rules, temporary life insurance coverage may not exceed
$1,000,000 and will not remain in effect for more than ninety (90)
days.
The insurance coverage becomes effective on the policy date, which may
be specified on the application. The Policy Date is used to determine
the monthly processing date, coverage effective date and policy
anniversaries.
The policy date is: 1) the date specified on the application, 2) the
back-date of the policy to save age; or if neither 1) nor 2) apply, it
is the date all underwriting and administrative requirements are met if
the initial premium has been received. Otherwise, it is the date the
initial premium is received by Southland.
The Investment Date is the date that Southland first applies premium to
the Policy. It is the valuation date on which Southland receives: 1)
the initial premium, 2) approves the policy for issue, and 3) receives
all issue requirements.
As provided under state insurance law, the owner may be permitted to
backdate the policy to preserve insurance age. In no case may the
policy date be more than six months prior to the application date. The
monthly deductions for the backdated period are deducted on the policy
date.
The initial premium payment must be at least equal to the sum of the
scheduled premiums from the policy date through the investment date.
Planned periodic premiums and unscheduled premiums that are not
underwritten will be credited to the policy and the net premium
invested on the valuation date they are received by Southland. If a
premium payment is rejected, Southland will return it promptly, without
adjustment.
The policy date is the date from which policy months, years, and
anniversaries are measured. A policy month is a one-month period
beginning with a monthly processing date and ending with the day
immediately preceding the next following monthly processing date (i.e.
8/15 - 9/14). The monthly processing date is the same as the policy
date for each succeeding month. The monthly deductions are made each
monthly processing date.
A policy year is twelve months commencing with the policy date and
ending with the day immediately preceding the next annual date (i.e.
8/15/1999 - 8/14/2000).
The issue date, if the same as the policy date, is the date from which
the suicide and contestable periods start. It is shown in the policy.
E. Allocation of Net Premiums
4
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On the investment date, the account value equals the initial premium
payment minus premium- based charges, minus monthly deductions made as
the policy date (up to six months for backdated policies). On each
investment date thereafter, the account value is the sum of the amounts
in the variable subaccounts, the guaranteed interest account, and the
loan account. The account value will vary with the performance of the
selected subaccounts, interest credited on amounts in the guaranteed
interest account, interest credited on amounts in the loan account,
charges, transfers, partial withdrawals, loans and loan repayments. The
net account value is cash value minus outstanding policy debt.
When applying for a policy, the owner selects a plan for paying premium
payments at specified intervals, e.g., quarterly, semi-annually or
annually, until the maturity date. If the owner elects, Southland will
arrange for payment of planned period premiums on a monthly basis under
a pre-authorized, electronic funds transfer (bank draft) arrangement.
The owner is not required to pay premium in accordance with the plan;
but can pay more or less than planned or skip a planned premium
entirely. Currently, there is no minimum amount for each premium
payment. Southland may establish a minimum amount effective 90 days
after sending a written notice to the owner. Subject to certain limits
(described below), the owner can change the amount and frequency of
planned periodic premiums at any time by sending a notice to Southland.
However, Southland reserves the right to limit the amount of a premium
payment or the total premium paid.
In the application, the owner specifies the percentage of net premium
to be allocated to each subaccount including the guaranteed interest
account (G.I.A.). Net premiums generally will be invested on the
valuation date that Southland receives them and in accordance with the
owner's most recent allocation instructions.
The net premium allocation percentages specified in the application
will apply to subsequent premium payments until the owner instructs
otherwise. The minimum percentage that may be specified for a
subaccount is 1%, and all percentages must be whole numbers. The sum of
allocations must equal 100%. Southland limits the number of subaccounts
(18) to which account value may be allocated over the life of the
policy. An owner can change the allocation percentages at any time by
sending a notice to Southland or, if telephone privileges are in
effect, the request can be received by phone. The change applies to all
premium payments received with or after receipt of the owner's notice.
F. Free Look
Some states mandate that if an owner exercises his/her free look right
he/she is entitled to a full premium refund. Other states mandate that
if the owner exercises his/her free look option he/she is entitled to
receive the value of the fund allocations plus a refund of the policy
charges previously deducted.
Amounts designated for the guaranteed interest account will be invested
into that account on the investment date. If the owner's state requires
return of premium during the free look period, amounts designated for
the variable account are initially invested into the money market
5
<PAGE>
subaccount. Later, these amounts are transferred from the money market
subaccount to the selected variable subaccounts, at the earlier of:
1) five days after we mailed the policy and the state free look
period has ended; or
2) we have received the policy delivery receipt an the state free
look period has ended.
If the owner's state provides for return of account value during the
free look period or no free look period, amounts designated for the
variable account are invested directly into the selected variable
subaccounts.
G. Additional Payment
Additional unscheduled premium payments can be made at any time while
the policy is in force. Premium payments after the initial premium
payment must be made to the home office.
Southland has the right to limit the number and amount of such premium
payments. Total premium payments in a policy year may not exceed
guideline premium payment limitations for life insurance set forth in
the Internal Revenue Code. Southland will promptly refund the portion
of any premium payment that is determined to be in excess of the
premium payment limit established by law to qualify a policy as a
contract for life insurance.
Southland reserves the right to reject a requested increase in planned
periodic premiums, or unscheduled premium. Southland also reserves the
right to require satisfactory evidence of insurability prior to
accepting a premium which increases the risk amount of the policy. No
premium payment will be accepted after the maturity date.
The payment of premiums may cause a policy to be a Modified Endowment
Contract (M.E.C.) under the Internal Revenue Code. If acceptance of a
premium paid would, in Southland's view, cause the policy to become a
M.E.C., then to the extent feasible Southland will not accept that
portion of the premium that would cause the policy to become a M.E.C.
unless the owner confirms in writing that it is his/her intent to
convert the policy to a M.E.C. Southland may return the excess portion
of the payment pending receipt of instructions from the owner.
The owner may specify that a particular unscheduled payment is to be a
repayment of policy debt.
H. Policy Termination and Grace Period
The policy terminates at the earliest of: 1) the end of the grace
period, 2) the surrender of the policy or, 3) the fulfillment of
Southland's obligations under the policy (i.e., payment of the death
benefit proceeds).
If the cash surrender value on a monthly processing date is less than
the amount of the monthly deduction to be deducted, the policy will be
in default. In addition, if on a monthly
6
<PAGE>
processing date the outstanding policy debt exceeds the account value,
the policy will be in default. The owner, and any assignee of record,
will be sent notice of the default.
If a policy goes into default, the owner will be allowed a 61-day grace
period to pay a premium payment sufficient to cover the monthly
deductions due during the grace period and for two additional months,
or a sufficient amount to avoid termination caused by a high
outstanding loan balance. Southland will send notice of the amount
required ("grace period premium payment") to the owner's last known
address and the address of the assignee of record. The grace period
will begin when the notice is sent. The policy will remain in effect
during the grace period. If the insured should die during the grace
period, the death benefit proceeds will be payable to the beneficiary,
but the amount paid will be reduced for the monthly deductions which
were due as of the date of death and for outstanding policy debt. If
the grace period premium payment is not paid by the end of the grace
period, the policy will lapse. It will have no value and no benefits
will be payable.
I. Reinstatement of a Policy Terminated for Insufficient Values
The policy may be reinstated within five years after lapse and before
the maturity date, subject to compliance with certain conditions,
including a necessary premium payment and submission of satisfactory
evidence of insurability.
J. Repayment of a Loan
An owner may repay all or part of his/her policy debt at any time while
the insured person is living and the policy is in force. Loan
repayments must be sent to the home office and will be credited as of
the date received. The owner may instruct Southland that a specific
unscheduled payment is to be applied as a loan repayment. When a loan
repayment is made, account value in the loan account in an amount equal
to the repayment, is transferred from the loan account to the
subaccounts according to the owner's current premium allocation
instructions.
K. Policy Riders
Rider benefits may be available to be added to the policy. Monthly
charges for the rider will be deducted from the account value as part
of the monthly deductions. Currently available riders are: Adjustable
Term Insurance Rider, Accidental Death Benefit Rider, Additional
Insured Rider, Children's Insurance Rider, Guaranteed Insurability
Rider, Guaranteed Minimum Death Benefit Rider, Waiver of Cost of
Insurance Rider, and Waiver of Specified Premium Rider.
Additional rules and limits apply to the rider benefits and are set
forth in the rider.
II. TRANSFERS AMONG SUBACCOUNTS
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Several subaccounts of the Separate Account are available for allocation of
net premiums paid, subject to certain limitations set forth in the policy.
Each invests in shares or units of an underlying portfolio. Currently
available subaccounts invest in portfolios of AIM Variable Insurance Funds,
Inc., The Alger American Fund, Fidelity Variable Insurance Products Fund
and Fidelity Variable Insurance Products Fund II, INVESCO Variable
Investment Funds, Inc., and Janus Aspen Series. All Funds are registered
under the Investment Company Act of 1940 as open- end management investment
companies. Additional funds may be made available in the future.
After the free-look period and prior to the maturity date, the owner may
transfer all or part of the account value from the subaccounts to other
subaccounts or to the guaranteed interest account. An amount may be
transferred from the guaranteed interest account to the variable
subaccounts, subject to some restrictions. The minimum transfer amount is
the lesser of $100 or the entire amount in that subaccount. A transfer
request that would reduce the amount in an subaccount below $100 will be
treated as a transfer request for the entire amount. Transfers from the
guaranteed interest account are permitted only within the first 30 days of
a policy year. Transfer requests received within 30 days prior to a policy
anniversary will be processed on the policy anniversary. Such transfers are
limited in amount to the greatest of: 25% of the balance in the guaranteed
interest account on the policy anniversary; the total withdrawn in the
prior policy year; or $100.00. With the exception of the Right to Exchange
(described below), Southland reserves the right to limit the number or
frequency of transfers permitted in the future.
Southland will make the transfer as of the end of the valuation period
during which such transfer is received by Southland. Currently, there is a
limit on the number (12) of free transfers that can be made between
subaccounts in a policy year. Currently, Southland assesses an excess
transfer charge of $25 for each transfer in excess of the first twelve
transfers during a policy year. The excess transfer charge will be deducted
from the subaccount from which the requested transfer is being made.
Transfer requests will be accepted by telephone, provided the appropriate
authorization has been provided to Southland. Southland reserves the right
to suspend telephone transfer privileges at any time, for any reason, if
Southland deems such suspension to be in the best interests of owners.
During the first twenty-four policy months following the policy date, and
within sixty days of the later of notification of a change in the
investment policy of the separate account or the effective date of such
change, the owner may exercise a one-time Right to Exchange the policy by
requesting that all of the variable account value be transferred to the
guaranteed interest account. Exercise of the Right to Exchange is not
subject to any charge. Following the exercise of the Right to Exchange,
premium may not be allocated to the variable account, and transfers of
account value to the variable account will not be permitted. The other
terms and conditions of the policy will continue to apply.
Transfers may also be effected pursuant to the dollar cost averaging or
auto rebalancing feature if elected by the owner, as described in the
current prospectus.
III. REDEMPTION PROCEDURES, SURRENDER AND RELATED TRANSACTIONS
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A. Surrender for Cash Surrender Value
An owner may surrender the policy at any time for its cash surrender
value by submitting notice to the home office. Southland may require
return of the policy. A surrender request will be processed as of the
valuation date the surrender notice and all required documents are
received. Payment generally will be made within seven calendar days. An
owner's policy will terminate and cease to be in force if it is
surrendered. It cannot be reinstated later. A surrender payment may be
made as a lump sum or under one of the available settlement options, at
the election of the owner.
B. Death Claims
The death benefit proceeds are equal to the sum of the base death
benefit for each coverage segment under the selected death benefit
option, calculated on the date of the insured's death, plus rider
benefits, minus outstanding policy debt, minus unpaid monthly
deductions incurred prior to the date of death. If the insured's age or
sex has been misstated in the application for the policy or in an
application for supplemental or rider benefits, and if the misstatement
becomes known after the death of the insured person, then the death
benefit under the policy or such supplemental or rider benefits will be
that which the cost of insurance charge which was deducted from the
account value on the last monthly processing date prior to the death of
the insured would have purchased for the correct sex and age.
Southland will usually pay the death benefit proceeds to the
beneficiary within seven days after receipt at its home office of due
proof of death of the insured and all other requirements necessary to
make payment. If the payment of the death benefit of a policy is
contested, payment of proceeds may be delayed.
Southland will pay interest at the rate declared by us or at a higher
rate required by law.
The death benefit payable depends on the death benefit option in effect
on the date of death. Subject to certain conditions, owners may change
the death benefit option. Under Option A, the base death benefit is the
greater of the specified target death benefit amount or the applicable
percentage of account value on the date of the insured's death. Under
Option B, the base death benefit is the greater of the specified target
death benefit amount plus the account value on the date of death, or
the applicable percentage of the account value on the date of the
insured's death.
The "applicable percentage" is the appropriate factor from the
Definition of Life Insurance factors shown in the policy prospectus
appendix A.
On or after the first monthly processing date, the owner may change the
death benefit option on the policy, by notice to Southland, subject to
the following rules. A change in the death benefit option may be
requested at least one day prior to a policy anniversary. After the
change, the specified death benefit amount must still comply with the
minimum to issue a policy. The effective date of the change will be the
monthly processing date next following the
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day that Southland approves the request. Southland may require
satisfactory evidence of insurability for some changes.
An owner may change from death benefit option A to option B, or from
option B to option A.
When a change from Option A to Option B is made, the stated death
benefit amount after the change will be the stated death benefit amount
before the change minus the account value on the effective date of the
change. When a change from Option B to Option A is made, the stated
death benefit amount after the change will be the stated death benefit
amount before the change plus the account value on the effective date
of the change.
C. Policy Loan
After the first monthly processing date and while the policy is in
force and not in the grace period, the owner may borrow against the
policy by submitting a request to the home office. The minimum amount
of a loan is $100. The maximum loan amount is 90% of the net cash
surrender value. Maximum loan amounts may be different if required by
law.
A loan is processed as of the date the loan request is approved. Loan
proceeds generally will be sent to the owner within seven calendar
days.
When a policy loan is made, an amount sufficient to secure the loan is
transferred out of the subaccounts and into the policy's loan account.
Thus, a loan will have no immediate effect on the account value, but
other policy values, such as the net cash surrender value and the death
benefit proceeds, will be reduced immediately by the amount borrowed.
This transfer is made from the account value in each subaccount in
proportion to the account value in each on the date of the loan, unless
the owner specifies that transfers be made from a specific subaccount.
An amount equal to due and unpaid loan interest which exceeds interest
credited to the loan account will be transferred to the loan account on
each policy anniversary. Such interest will be transferred from each
subaccount in the same proportion that account value in each bears to
the total unloaned account value.
The loan account will be credited with interest at an effective annual
rate of not less than the annual loan interest rate of 4%. Loan
interest accrues daily at an annual interest rate of 6%. Interest is
due in arrears on each policy anniversary. Outstanding loan amounts
(including unpaid interest added to the loan) plus accrued interest not
yet due equals the total policy debt.
After the tenth policy anniversary (fifth if the insured person is 60
or older), the owner may take a "preferred" loan. A preferred loan is
the first loan amount in a policy year up to 10% of the net account
value. Amounts borrowed in excess of the 10% or later in the year will
not be considered "preferred". In the 21st policy year and thereafter,
all loan balances are "preferred."
Preferred loan amounts receive interest credited at an effective annual
rate of 4%. Loan interest on preferred loan amounts accrues at an
annual interest ate of 4%.
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D. Partial Withdrawals
An owner may make partial cash surrenders (known as partial
withdrawals) under the policy at any time after the first policy
anniversary. An owner must submit a request to the home office. Each
partial withdrawal must be at least $100. The maximum partial
withdrawal is the amount which will leave $500 as the net cash
surrender value. When a partial withdrawal is taken, the amount of the
withdrawal plus a service fee is deducted from the account value. This
service fee is 2% of the amount of the withdrawal, up to a maximum of
$25. As of the date Southland processes the partial withdrawal, the
cash value will be reduced by the partial withdrawal amount.
Unless the owner requests that a partial cash surrender be deducted
from specified subaccounts, it will be deducted from the subaccounts on
a pro-rata basis in proportion to the account value in each.
If death benefit Option A is in effect, Southland may reduce the stated
death benefit amount. Southland may reject a partial withdrawal request
if it would reduce the stated death benefit amount below the minimum
amount required to issue the policy, or if the partial withdrawal would
cause the policy to fail to qualify as a life insurance contract under
applicable tax laws, as interpreted by Southland.
Partial withdrawals will be processed as of the valuation date the
request is received by Southland, and generally will be paid within
seven calendar days.
E. Monthly Charges
On each monthly processing date, Southland will deduct from the account
value the monthly deductions due, commencing as of the policy date. An
owner's policy date is the date used to determine the applicable
monthly processing date. The monthly deduction consists of (1) cost of
insurance charges, (2) the monthly administrative charge, (3) mortality
and expense charge, and (4) charges for rider benefits. The monthly
deduction is deducted from the subaccounts, including the guaranteed
interest account pro rata based on the account value in each investment
option, unless the owner has selected a designated deduction subaccount
for the policy.
F. Continuation of Coverage
The maturity date is generally the insured's 100th birthday, and is
shown in the policy.
At the policy's maturity date, the owner may surrender the policy for
its net cash surrender value. Or, he/she may allow insurance coverage
to continue under the continuation of coverage feature.
The policy date determines the type of the continuation of coverage and
the fee, if any. Policies will have "Type 1" coverage if issued before
August 1, 2000, or after that date but
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before the issue state permits "Type 2" coverage. Policies will have
"Type 2" coverage issued on or after August 1, 2000, and the issue
state permits "Type 2". The differences between the two types is shown
below.
Death Benefit Option Stated Death Benefit
Continuation Administrative Fee During Continuation During Continuation
of Coverage Current/Guaranteed of of Coverage Period
Coverage Period
Type 1 None/None Option B Zero
Type 2 None/$200 Option A Target Death Benefit
as of the policy
maturity date
With either type of coverage, the insurance coverage continues until
the death of the insured person, unless the policy lapses or is
surrendered. No further premim payments may be made and there are no
further monthly deductions. All riders terminate and the account value
is transferred into the guaranteed interest account. The variable
account is no longer available.
The owner may take policy loans or partial withdrawals. If a
persistency refund is paid on the guaranteed interest account, it will
be credited to policies in the continuation of coverage period.
G. Change of Insured
The owner of the policy may choose, at any time after issue, to change
the insured person under the policy. There is no fee for this change.
However, the new insured must be insurable under Security Life's normal
rules of underwriting. The account value will be moved to a new policy
number and the new insured. Charges and fees under the new policy may
change based on the new insured.
At the time of the change, target premium and surrender charges are
calculated under both policies. If the surrender charge on the new
policy is higher, no surrender charge is deducted at the time of the
change. If the surrender charge on the new policy is lower, a surrender
charge in the amount of the difference (between old and new policy) is
deducted. The resulting account value, loss tax charges as described in
the prospectus, is transferred into the new policy. No initial sales
charge is deducted on the change; but the new policy is subject to all
applicable charges running from its policy date and for all new premium
payments received. If there is a policy loan outstanding, it is
transferred to the new policy.
H. Settlement Options
During the insured's lifetime, the owner may elect that the beneficiary
receive the death proceeds other than in one sum. If this election has
not been made, the beneficiary may do so
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within 60 days after the insured person's death. The owner may also
elect to take the net cash surrender value under one of these options.
Option I: Payouts for a Designated Period: Payouts will be made in
1, 2, 4 or 12 installments per year as elected for a
designated period, which may be 5 to 30 years. The
installment dollar amounts will be equal except for any
excess interest. The amount of the first monthly payout
for each $1,000 of account value applied is shown in
Settlement Option Table I in the policy.
Option II: Life Income with Payouts Guaranteed for a Designated
Period: payouts will be made in 1, 2, 4 or 12 installments
per year throughout the payee's lifetime, or if longer,
for a period of 5, 10, 15, or 20 years as elected. The
installment dollar amounts will be equal except for any
excess interest. The amount of the first monthly payout
for each $1,000 of account value applied is shown in
Settlement Option Table II in the policy. This option is
not available for ages not shown in this Table.
Option III: Hold at Interest: Amounts may be left on deposit with us
to be paid upon the death of the payee or at any earlier
date elected. Interest on any unpaid balance will be at
the rate declared by us or at any higher rate required by
law. Interest may be accumulated or paid in 1, 2, 4 or 12
installments per year, as elected. Money may not be left
on deposit for more than 30 years.
Option IV: Payouts of a Designated Amount: Payouts will be made until
proceeds, together with interest, which will be at the
rate declared by us or at any higher rate required by law,
are exhausted. Payouts will be made in 1, 2, 4 or 12 equal
installments per year, as elected.
Option V: Other: The owner may ask us to apply the money under any
other option that we make available at the time the
benefit is paid.
Payments under these options are not affected by the investment
experience of any account of our variable account. Instead, interest
accrues pursuant to the options chosen. Payment options will also be
subject to our rules at the time of selection. These alternate payment
options are only available if the proceeds applied are $2,000 or more
and a periodic payment will be at least $20.
The beneficiary or any other person who is entitled to receive payment
may name a successor to receive any amount that we would otherwise pay
to that person's estate if that person died. The person who is entitled
to receive payment may change the successor at any time.
We must approve an arrangement that involves a payee who is not a
natural person (for example, a corporation), or a payee who is a
fiduciary. Also, the details of all arrangements will be subject to our
rules at the time the arrangements take effect. This includes rules on
the minimum amount we will pay under an option, minimum amounts for
installment payments,
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withdrawal or commutation rights (i.e., the rights to receive payments
over time, for which we may offer a lump sum payment), the naming of
people who are entitled to receive payment and their successors, and
the ways of proving age and survival.
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EXHIBIT 6.A
[letterhead of Southland here]
April 26, 2000
Southland Life Insurance Company
5780 Powers Ferry Road, N.W.
Atlanta, GA 30327
Re: Southland Separate Account L1
Post-Effective Amendment No. 6; SEC File No. 33-97852
Gentlemen:
In my capacity as Executive Vice President, CFO and Chief Actuary of Southland
Life Insurance Company ("Southland"), I have provided actuarial advice
concerning:
The preparation of Post-Effective Amendment No. 6 to the Registration Statement
on Form S-6 (File No. 33-97852) to be filed by Southland and its Southland
Separate Account L1 (the "Separate Account") with the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933 with respect to the Future
Dimensions variable universal life insurance policies; and
The preparation of the policy forms for the Future Dimensions variable universal
life insurance policies described in Post-Effective Amendment No. 6 (the
"Policies").
It is my professional opinion that
1. The aggregate fees and charges under the Policies are reasonable in relation
to the services rendered the expenses expected to be incurred and the risks
assumed by Southland.
2. The illustrations of death benefits, account value, cash surrender value,
and total premiums paid plus interest at 5 percent shown in the Prospectus,
based on the assumptions stated in the illustration are consistent with the
provisions of the Policies. The rate structures of the Policies have not
been designed so as to make the relationship between premiums and benefits,
as shown in the illustrations included, appear to be correspondingly more
favorable to prospective buyers than other illustrations which could have
been provided at other combinations of ages, sex of the insured, death
benefit option and amount, definition of life insurance test, premium class,
and premium amounts. Insureds of other premium classes may have higher costs
of insurance charges.
3. All other numerical examples shown in the Prospectus are consistent with the
Policies and our other practices, and have not been designed to appear more
favorable to prospective buyers than other examples which could have been
provided.
I hereby consent to the filing of this opinion as an Exhibit to Post-Effective
Amendment No. 6 to the Registration Statement and the use of my name under the
heading "Experts" in the Prospectus.
Sincerely,
/s/ James L. Livingston, Jr.
James L. Livingston, Jr., F.S.A., M.A.A.A.
JLL:tls
<PAGE>
Exhibit 7.(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 28, 2000 and April 7, 2000, in Post-Effective
Amendment No. 6 to the Registration Statement (Form S-6 No. 33-97852) and
related Prospectus of Southland Separate Account L1 (dated May 1, 2000).
/s/ ERNST & YOUNG LLP
Atlanta, Georgia
April 26, 2000
[SUTHERLAND ASBILL & BRENNAN LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm in the prospectus included in
Post-Effective Amendment No. 6 to the Registration Statement on Form S-6 for
Southland Separate Account L1 (File No. 33-97852). In giving this consent, we do
not admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Kimberly J. Smith
Kimberly J. Smith
Washington, D.C.
April 26, 2000
