As filed with the Securities and Exchange Commission on August 7, 1995
Registration No. 33-72564
811-8196
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 2
Post-Effective Amendment No. ____
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 7
SECURITY LIFE SEPARATE ACCOUNT A1
(Exact Name of Registrant)
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Name of Depositor)
1290 Broadway
Denver, Colorado 80203-5699
(Address of Depositor's Principal Executive Offices)
(303) 860-1290
(Depositor's Telephone Number, including Area Code)
JERRIANNE SMITH
Director, Variable Operations
Security Life of Denver Insurance Company
1290 Broadway
Denver, Colorado 80203-5699
(Name and Address of Agent for Service)
Copies to:
DIANE E. AMBLER
Mayer, Brown & Platt
2000 Pennsylvania Avenue, N.W.
Suite 6500
Washington, D.C. 20006-1885
_____________
Approximate Date of Proposed Public Offering: As soon after the effective
date of this Registration Statement as is practicable.
Registrant intends to file a Rule 24f-2 Notice for its fiscal year ended
December 31, 1995, on or before February 28, 1996.
Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until Registrant shall file
a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
SECURITY LIFE OF DENVER INSURANCE COMPANY
Cross-Reference Sheet
Pursuant to Rule 495(a)
Under the Securities Act of 1933
Form N-4 Caption in Prospectus
Item No.
1. Cover Page Cover Page
2. Definitions Glossary of Terms
3. Synopsis or Highlights Summary of the Fulcrum Fund
Variable Annuity
4. Condensed Financial Information Financial Information
5. General Description of Registrant Facts about Security Life and the
Depositor and Portfolio Companies Variable Account
6. Deductions and Expenses Fee Table; Summary of the Fulcrum
Fund Variable Annuity; Contract
Changes and Fees
7. General Description of Variable Facts about the Contract
Annuity Contracts
8. Annuity Period Choosing an Annuity Option
9. Death Benefit Summary of the Fulcrum Fund
Variable Annuity; Values under
the Contract
10. Purchase and Contract Values Summary of the Fulcrum Fund
Variable Annuity; Facts about
the Contract; Values under the
Contract
11. Redemptions Summary of the Fulcrum Fund
Variable Annuity; Contract Charges
and Fees; Values under the
Contract; Choosing an Annuity
Option
12. Taxes Summary of the Fulcrum Fund
Variable Annuity; Contract Charges
and Fees; Federal Tax
Considerations
13. Legal Proceedings Regulatory Information
14. Table of Contents of Statement Table of Contents of Statement of
of Additional Information Additional Information
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History Security Life; Prospectus -- Facts
about Security Life and the
Variable Account
18. Services Security Life; The Administrator
19. Purchase of Securities Prospectus -- Facts About the
Contract
20. Underwriters Security Life
21. Calculation of Yield Quotations Performance Information
of Money Market Sub-Accounts
22. Annuity Payments Prospectus -- Choosing an Annuity
Option
23. Financial Statements Financial Statements of Security
Life of Denver Insurance Company
and Security Life Separate Account
A1
The Fulcrum Fund Variable Annuity Prospectus
A Flexible Premium Deferred
Combination Fixed and Variable
Annuity Contract
issued by
Security Life of Denver Insurance Company
and
Security Life Separate Account A1
This prospectus describes The Fulcrum Fund Variable Annuity,
a flexible premium deferred combination fixed and variable
annuity contract (the "Contract") offered by Security Life
of Denver Insurance Company ("Security Life," "we," "our" or
"us"). The Contract is designed to aid in long-term
financial planning and provides automatic reinvestment and
compounding of interest, dividends and capital gains on a
tax-deferred basis for retirement or other long-term
purposes. The Owner ("you" or "your") purchases the
Contract with an initial Purchase Payment and is permitted
to make additional Purchase Payments.
The Contract is funded by Security Life Separate Account A1
(the "Variable Account"). Six Divisions of the Variable
Account are currently available under the Contract. The
investments available through the Divisions of the Variable
Account include mutual fund Portfolios of The Palladian
Trust (the "Trust"). An additional Division of the Variable
Account, the Fidelity Investments Money Market Division, is
used only for allocation of the initial Purchase Payment and
any Purchase Payments received during the Free Look period
if the Contract is issued in a state that requires the
return of Purchase Payments during the Free Look period. A
Guaranteed Interest Division, which guarantees a minimum
fixed rate of interest, is also available. Investors may
utilize both the Variable Account and the Guaranteed
Interest Division simultaneously.
You may allocate your Purchase Payments among the Divisions
available under the Contract in any way you choose, subject
to certain restrictions. During the Accumulation Period,
you may change the allocation of your Accumulation Value up
to 12 times per Contract Year free of charge.
You may surrender the Contract for its Cash Surrender Value
at any time prior to the Annuity Date. The Cash Surrender
Value will vary daily with the investment results of the
Divisions of the Variable Account and any interest credited
to the Guaranteed Interest Division. We do not guarantee
any minimum Cash Surrender Value for amounts allocated to
the Divisions of the Variable Account. You may withdraw
some of your Cash Surrender Value by making partial
withdrawals, subject to certain restrictions. Surrenders
and withdrawals may be subject to a surrender charge and a
10% tax penalty.
We will pay a Death Benefit to the Beneficiary if the Owner
dies prior to the Annuity Date.
This prospectus describes the Contract and your principal
rights and limitations and sets forth the information
concerning the Variable Account that investors should know
before investing. The prospectuses for the Trust and the
Fidelity Investments Money Market Portfolio, which must
accompany this prospectus, provide information regarding
investment activities and objectives of the Trust and the
Fidelity Investments Money Market Portfolio and should be
read in conjunction with this prospectus. A Statement of
Additional Information, dated August 14, 1995, about the
Variable Account has been filed with the Securities and
Exchange Commission ("SEC") and is available without charge.
To obtain a copy of this document, call or write our
Customer Service Center. The Table of Contents of the
Statement of Additional Information may be found on the last
page of this prospectus. The Statement of Additional
Information is incorporated herein by reference.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Date of Prospectus: August 14, 1995
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE
REFERENCE. IT IS NOT VALID UNLESS ACCOMPANIED BY THE CURRENT
PROSPECTUSES FOR THE PALLADIAN TRUST AND THE
FIDELITY INVESTMENTS MONEY MARKET PORTFOLIO.
Issued by: Distributed by: Customer Service Center:
Security Life of Denver ING America P.O. Box 173763
Insurance Company Equities, Inc. Denver, CO 80217-3763
P.O. Box 173763 1290 Broadway, 1-800-933-5858
Denver, CO 80217-3763 Attn: Variable
Denver, CO 80203
TABLE OF CONTENTS
GLOSSARY OF TERMS 5
FEE TABLE 8
SUMMARY OF THE FULCRUM FUND VARIABLE ANNUITY 12
GENERAL DESCRIPTION 12
PURCHASE PAYMENTS 13
THE VARIABLE ACCOUNT 13
ENHANCED GUARANTEED DEATH BENEFIT 14
PARTIAL WITHDRAWALS 14
SURRENDERING YOUR CONTRACT 15
YOUR RIGHT TO CANCEL THE CONTRACT 15
CONTRACT CHARGES AND FEES 15
PERFORMANCE INFORMATION 16
FINANCIAL INFORMATION 17
FACTS ABOUT SECURITY LIFE AND THE VARIABLE ACCOUNT 17
SECURITY LIFE 17
THE ADMINISTRATOR 18
THE VARIABLE ACCOUNT 18
THE PORTFOLIOS 19
CHANGES WITHIN THE VARIABLE ACCOUNT 20
THE GUARANTEED INTEREST DIVISION 21
FACTS ABOUT THE CONTRACT 21
PURCHASE PAYMENTS 21
DOLLAR COST AVERAGING OPTION 23
AUTOMATIC REBALANCING 23
REPORTS TO OWNERS 24
GROUP OR SPONSORED ARRANGEMENTS 24
OFFERING THE CONTRACT 25
VALUES UNDER THE CONTRACT 25
ENHANCED GUARANTEED DEATH BENEFIT 25
DEATH BENEFIT PROCEEDS 25
YOUR ACCUMULATION VALUE 26
MEASUREMENT OF INVESTMENT EXPERIENCE FOR THE DIVISIONS OF
THE VARIABLE ACCOUNT 26
ACCUMULATION VALUE OF EACH DIVISION OF THE VARIABLE ACCOUNT 27
ACCUMULATION VALUE OF THE GUARANTEED INTEREST DIVISION 27
YOUR RIGHT TO TRANSFER AMONG DIVISIONS 28
PARTIAL WITHDRAWALS 28
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE 31
YOUR RIGHT TO CANCEL THE CONTRACT 32
WHEN WE MAKE PAYOUTS 32
OTHER INFORMATION 32
THE OWNER 32
THE ANNUITANT 33
THE BENEFICIARY 33
CHANGE OF OWNER, BENEFICIARY OR ANNUITANT 33
OTHER CONTRACT PROVISIONS 34
AUTHORITY TO CHANGE CONTRACT TERMS 34
CONTRACT CHARGES AND FEES 35
DEDUCTION OF CHARGES 35
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE 35
CHARGES DEDUCTED FROM THE DIVISIONS OF THE VARIABLE ACCOUNT 37
PORTFOLIO EXPENSES 37
CHOOSING AN ANNUITY OPTION 37
GENERAL PROVISIONS 37
PAYOUT OPTIONS 38
PAYOUT PERIOD OPTIONS 39
REGULATORY INFORMATION 40
VOTING PRIVILEGES 40
STATE REGULATION 42
LEGAL PROCEEDINGS 42
LEGAL MATTERS 42
EXPERTS 42
FEDERAL TAX CONSIDERATIONS 42
INTRODUCTION 42
SECURITY LIFE TAX STATUS 42
TAXATION OF ANNUITIES 43
TAXATION OF INDIVIDUAL RETIREMENT ANNUITIES 44
DISTRIBUTION-AT-DEATH RULES 44
TAXATION OF DEATH BENEFIT PROCEEDS 45
EXCHANGE OF ANNUITY CONTRACTS 45
CONTRACTS OWNED BY NON-NATURAL PERSONS 45
SECTION 1035 EXCHANGES 46
ASSIGNMENTS 46
MULTIPLE CONTRACTS RULE 46
DIVERSIFICATION STANDARDS 46
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION 47
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE
MADE. NO PERSON IS AUTHORIZED TO MAKE ANY REPRESENTATIONS IN
CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
GLOSSARY OF TERMS
Accumulation Experience Factor -- The factor which reflects
the investment experience of the Portfolio in which a
Division of the Variable Account invests as well as the
charges assessed against that Division for a Valuation
Period during the Accumulation Period.
Accumulation Period -- The period of time from the Contract
Date to the Annuity Date.
Accumulation Unit -- A unit of measurement which we use to
calculate the Accumulation Value during the Accumulation
Period.
Accumulation Unit Value -- The value of the Accumulation
Units of the Divisions of the Variable Account. The
Accumulation Unit Value is determined as of each Valuation
Date.
Accumulation Value -- The amount that your Contract provides
which is available for investment at any time prior to the
Annuity Date. Initially, this amount is equal to the
initial Purchase Payment. Thereafter, the Accumulation
Value will reflect additional Purchase Payments made,
investment experience of the Divisions of the Variable
Account you select, interest credited to the Guaranteed
Interest Division, charges deducted and partial withdrawals
taken.
Age -- The Age on the birthday prior to any date for which
Age is to be determined.
Annuitant -- The person designated by the Owner to receive
the Annuity Payouts and on whose life Annuity Payouts are
based.
Annuity Date -- The date as of which Annuity Payouts begin.
Annuity Experience Factor -- The factor which reflects the
investment experience of the Portfolio in which a Division
of the Variable Account invests as well as the asset-based
charges assessed against that Division for a Valuation
Period during the Annuity Period.
Annuity Options -- Options the Owner elects composed of both
the Payout Option and the Payout Period Option that
determine the Annuity Payout.
Annuity Payout -- The periodic payouts an Annuitant receives.
They may be either a fixed or a variable amount, or a
combination of fixed and variable, based on the Payout
Option elected.
Annuity Period -- The period of time from the Annuity Date
until the last Annuity Payout is made to the Annuitant.
Annuity Unit -- A unit of measurement which we use to
calculate Annuity Payouts during the Annuity Period.
Annuity Unit Value -- The value of the Annuity Units of the
Divisions of the Variable Account. The Annuity Unit Value
is determined as of each Valuation Date.
Beneficiary (or Beneficiaries) -- The person (or persons)
designated to receive the Death Benefit in the case of the
death of the Owner during the Accumulation Period.
Benchmark Total Return -- The interest rate assumed for the
purposes of calculating the payout amount upon
annuitization.
Business Day -- Any day which is a Valuation Date.
Cash Surrender Value -- The amount the Owner receives upon
surrendering the Contract.
Code -- Internal Revenue Code of 1986, as amended.
Contingent Annuitant -- The person designated by the Owner
who becomes the Annuitant upon the Annuitant's death.
Contingent Beneficiary -- The person designated by the Owner
who, upon the Beneficiary's death, becomes the Beneficiary.
Contract -- The entire Contract consisting of the basic
Contract, any applications and any Riders or Endorsements.
Contract Anniversary -- The anniversary of the Contract Date.
Contract Date -- The date as of which we have received and
accepted the initial Purchase Payment and as of which we
begin determining the Contract values. The Contract Date is
used to determine Contract Processing Dates, Contract Years
and Contract Anniversaries.
Contract Processing Date -- The day when we deduct the annual
administration charge from the Accumulation Value. Current
practice is that the Contract Processing Date will be as of
each Contract Anniversary. Any Contract Processing Date
that is not a Valuation Date will be deemed to occur as of
the next succeeding Valuation Date.
Contract Year -- A period of 12 months commencing with the
Contract Date or any Contract Anniversary.
Customer Service Center -- Where service is provided to
Owners. The mailing address and telephone number of the
Customer Service Center are shown on the cover.
Death Benefit -- The amount actually payable due to the death
of the Owner during the Accumulation Period.
Division -- A Division of the Variable Account or the
Guaranteed Interest Division.
Earnings -- For purposes of calculating surrender charges, an
amount equal to the Accumulation Value less Purchase
Payments not previously withdrawn.
Endorsements -- An Endorsement changes or adds provisions to
the Contract.
Free Look Period -- The period of time within which an Owner
may examine the Contract and return it for a refund.
General Account -- The account which contains all of our
assets other than those held in our separate accounts.
Gross Partial Withdrawal -- A partial withdrawal plus any
applicable partial withdrawal transaction charges plus any
applicable surrender charges.
Guaranteed Interest Division -- Part of our General Account
to which a portion of your Accumulation Value may be
allocated and which provides guarantees of principal and
interest.
IRA Contract -- An Individual Retirement Annuity, an IRA
Rollover or an IRA Transfer offered to an individual for use
in connection with Sections 408(a) and (b) of the Code.
Net Purchase Payments -- Purchase Payments made less Gross
Partial Withdrawals taken.
Owner -- The person or persons who own the Contract and are
entitled to exercise all rights under the Contract. This
person's death during the Accumulation Period usually
initiates payout of the Death Benefit.
Payout Option -- Specifies the type of annuity to be paid and
may be either fixed, variable or a combination of fixed and
variable.
Payout Period Option -- Determines how long the annuity will
be paid and the amount of the first payout.
Portfolios -- The investment options available to the
Divisions of the Variable Account. Each Portfolio has a
defined investment objective.
Proceeds -- The amount to be paid as of the Annuity Date to
provide Annuity Payouts, upon surrender of the Contract
prior to the Annuity Date, or as a Death Benefit prior to
the Annuity Date.
Purchase Payments -- The initial Purchase Payment and any
future payments made with respect to your Contract.
Rider -- A Rider adds benefits to the Contract.
Supplementary Contract -- The Election and Supplementary
Agreement for a Settlement Option amends the entire Contract
when an Annuity Option becomes effective. The Supplementary
Contract describes the manner of settlement and the rights
of the Annuitant.
Supplementary Contract Effective Date -- The Annuity Date or
the date of other settlement, whenever the Annuity Option
becomes effective.
Valuation Date -- Each date as of which the Variable Account
is valued, which currently includes each day that the New
York Stock Exchange is open for trading and on which
Security Life's Customer Service Center is open. The New
York Stock Exchange is currently closed on weekends and on
the following holidays: New Year's Day, Presidents' Day,
Good Friday, Memorial Day, July Fourth, Labor Day,
Thanksgiving Day, and Christmas Day. Security Life's
Customer Service Center is normally not open on the
following days: the Monday before New Year's Day, July
Fourth, or Christmas Day if any of these holidays falls on a
Tuesday; the Monday after New Year's Day, July Fourth, or
Christmas Day if any of these holidays falls on a Sunday;
the Friday after New Year's Day, July Fourth, or Christmas
Day if any of these holidays falls on a Thursday; the Friday
before New Year's Day, July Fourth, or Christmas Day if any
of these holidays falls on a Saturday; and the Friday after
Thanksgiving.
Valuation Period -- The period that starts at 4 pm Eastern
Time on a Valuation Date and ends at 4 pm Eastern Time on
the next succeeding Valuation Date.
Variable Account -- Security Life Separate Account A1
established by Security Life to segregate the assets funding
the variable benefits provided by the Contract from the
assets in our General Account.
<TABLE>
FEE TABLE
<CAPTION>
<S> <C>
Transaction Expenses<F1>
Sales Load Imposed on Purchase Payments 0%
Surrender Charge<F2>
Contract Anniversaries Since Surrender Charge as a Percentage
Purchase Payment Was Made of Purchase Payment Withdrawn
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
Partial Withdrawal Transaction Charge<F3> $25
Excess Transfer Charge (does not
apply to the first 12 transfers in
a Contract Year)<F4> $25
Annual Contract Fees
Administrative Charge (does not apply
after the Annuity Date)<F5>
If Net Purchase Payments made are
less than $100,000 $30
If Net Purchase Payments made are
$100,000 or more $0
Variable Account Annual Expenses (as a
percentage of assets in each Division
of the Variable Account)
Mortality and Expense Risk Charge<F6>
Basic 1.25%
Enhanced Death Benefit (does not apply
after the Annuity Date) 0.30%
Total Mortality & Expense Risk Charge 1.55%
Asset-based Administrative Charge 0.15%
Total Variable Account Annual Expenses<F7> 1.70%
<FN>
<F1>
We also deduct from the Proceeds taxes incurred but not paid
to cover the state or local tax charge on Purchase Payments. See Taxes
on Purchase Payments, page 36.
<F2>
Up to certain limits, partial withdrawals may be taken without
incurring a surrender charge. See Charges Deducted from the
Accumulation Value, page 35.
<F3>
The partial withdrawal transaction charge is the lesser of 2%
of the amount withdrawn and $25, and is assessed on each demand
withdrawal after the first in any Contract Year. See Partial Withdrawal
Transaction Charge, page 35.
<F4>
Any allocation under the Dollar Cost Averaging Option is not
considered a transfer for this purpose. See Dollar Cost Averaging
Option, page 23. After the Annuity Date, transfers are limited to four
each Contract year, and no transfer charge applies. See Excess
Transfer Charge, page 36.
<F5>
The administrative charge is deducted as of each Contract Anniversary
or upon surrender. See Administrative Charge, page 36.
<F6>
See Enhanced Guaranteed Death Benefit, page 25, for a description
of the Basic and Enhanced Death Benefit. See Mortality and Expense
Risk Charge, page 37.
<F7>
1.40% for a Variable Annuity during the Annuity Period. See Payout
Options, page 38. We may reduce certain charges under group or sponsored
arrangements. See Group or Sponsored Arrangements, page 24.
</FN>
</TABLE>
<TABLE>
Portfolio Annual Expenses (as a percentage of Portfolio average net assets) and
Total Expenses
<CAPTION>
Administration,
Management and Other Total Annual Total Variable Grand
Advisory Fees<F8> Expenses<F9> Expenses<F9> Account Expenses<F10> Total
<S> <C> <C> <C> <C> <C>
The Value Portfolio<F11> 0.80% 0.85% 1.65% 1.70% 3.35%
The Growth Portfolio<F11> 0.80% 1.10% 1.90% 1.70% 3.60%
The Balanced Opportunity
Portfolio<F11> 0.80% 1.23% 2.03% 1.70% 3.73%
The International Growth
Portfolio<F11> 0.80% 1.23% 2.03% 1.70% 3.73%
The Global Strategic
Income Portfolio<F11> 0.80% 1.23% 2.03% 1.70% 3.73%
The Global Interactive/
Telecomm Portfolio<F11> 0.80% 0.96% 1.76% 1.70% 3.46%
Fidelity Investments
Money Market
Portfolio<F12> 0.14% 0.08% 0.22%<F13> 1.70% 1.92%
<FN>
<F8>
The Management Advisory fee schedule provides for an incentive performance
fee for the Portfolios of the Trust in excess of the listed fee for superior
performance; it also provides for a lower fee for sub-par performance.
See the prospectuses for the Trust and the Fidelity Investments
Money Market Portfolio for complete details.
<F9>
Other Expenses, and therefore Total Annual Expenses, have been estimate
and are annualized. See the prospectuses for the Trust and the Fidelity
Investments Money Market Portfolio for complete details.
<F10>
1.40% for a Variable Annuity during the Annuity Period. See Payout Options,
page 38. We may reduce certain charges under group or sponsored
arrangements. See Group or Sponsored Arrangements, page 24.
<F11>
The total advisory fee for PAI, the Portfolio Adviser and the Portfolio
Managers for the first 12 months of operations, is for each Portfolio,
0.80% of average daily net assets. After that time, there will be an
incentive fee arrangement. The base fee will be 2.00%, but it may vary
from 0.00% to 4.00% depending on the Portfolio's performance. See the
prospectus of the Trust for more details.
<F12>
This Portfolio is used only for allocation of the initial Purchase Payment
and any Purchase Payments received during the Free Look period if the
Contract is issued in a state that requires the return of Purchase
Payments during the Free Look Period.
<F13>
Money Market Portfolio's expenses were reduced by expense
reimbursement from Fidelity Management & Research Company. If no expense
reimbursement occurred, the total annual expenses would have been 0.23%.
[/FN]
</TABLE>
Fee Examples
If you surrender your Contract at the end of the applicable
time period, you would pay the following expenses on a $1,000 initial
Purchase Payment assuming a 5% annual rate of return on assets:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
The Value Division $ 103.70 $ 152.66 $ 203.72 $ 361.11
The Growth Division 106.10 159.70 215.20 382.60
The Balanced Opportunity Division 107.35 163.35 221.11 393.57
The International Growth Division 107.35 163.35 221.11 393.57
The Global Strategic Income Division 107.35 163.35 221.11 393.57
The Global Interactive/Telecomm
Division 104.76 155.76 208.79 370.63
</TABLE>
If you do not surrender your Contract or if you annuitize,
you would pay the following expenses on a $1,000 initial
Purchase Payment assuming a 5% annual rate of return on
assets:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
The Value Division $33.70 $ 102.66 $ 173.72 $ 361.11
The Growth Division 36.10 109.70 185.20 382.60
The Balanced Opportunity Division 37.35 113.35 191.11 393.57
The International Growth Division 37.35 113.35 191.11 393.57
The Global Strategic Income Division 37.35 113.35 191.11 393.57
The Global Interactive/Telecomm
Division 34.76 105.76 178.79 370.63
</TABLE>
The dollar amounts shown in the examples each are based on
an initial Purchase Payment of $50,000 allocated to that
Division. Other expenses of the Portfolios are estimated
since the Portfolios have recently commenced operations.
Actual Portfolio expenses may be greater or less than those
on which these examples were based. Taxes on Purchase
Payments may also be applicable. See Taxes on Purchase
Payments, page 36. The Enhanced Death Benefit risk charge
and the annual administrative charge do not apply during the
Annuity Period.
The purpose of the fee table is to assist you in
understanding the various costs and expenses that you may
bear directly or indirectly. The examples in the fee table
reflect expenses of the Variable Account as well as the
Portfolios. For a complete description of Contract costs and
expenses, see CONTRACT CHARGES AND FEES, page 35. For a
more complete description of the Portfolio's costs and
expenses, see the prospectuses for the Trust and the
Fidelity Investments Money Market Portfolio.
THESE EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION
OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN, SUBJECT TO THE
GUARANTEES UNDER THE CONTRACT.
SUMMARY OF THE FULCRUM FUND VARIABLE ANNUITY
General Description
This prospectus has been designed to provide you with the
necessary information to make a decision on purchasing The
Fulcrum Fund Variable Annuity offered by Security Life and
funded by the Variable Account as well as by our General
Account.
This summary is intended to provide a brief overview of the
more significant aspects of the Contract. Further detail is
provided in this prospectus, the related Statement of
Additional Information, the Contract, and the prospectuses
for the Trust and the Fidelity Investments Money Market
Portfolio. The Contract, together with any applications and
any Riders or Endorsements, constitutes the entire agreement between you
and us and should be retained. For further information
about the Contract, contact the Security Life Customer
Service Center.
A purchase of the Contract gives you a choice of
investments. The Portfolios of the Trust are managed by
unaffiliated professional money managers. Each money manager
is paid on an incentive fee basis, which could result in
either higher than average advisory fees or, possibly, no
advisory fee at all, depending on how well each money
manager performs for you. Each money manager has also agreed
to invest $1 million in the Portfolio it manages, so it is
managing a portion of its money along with your money. The
Fidelity Investments Money Market Portfolio is managed by an
experienced mutual fund company and is used only for the
allocation of the initial Purchase Payment and any Purchase
Payments received during the Free Look period if the
Contract is issued in a state that requires the return of
Purchase Payments during the Free Look period. These
Portfolios are available only to serve as the underlying
investment for variable annuity and variable life insurance
contracts issued through separate accounts of Security Life
as well as other life insurance companies, and certain
qualified pension and retirement plans. They are not
available to individual investors.
This Contract also offers a Guaranteed Interest Division
where you may allocate all or a portion of your Purchase
Payments and transfer your Accumulation Value. The
Guaranteed Interest Division is a part of our General
Account and guarantees principal and a minimum interest rate
of 3%. This interest will be paid regardless of the actual
investment experience of the General Account; we bear the
full amount of the investment risk for any amounts allocated
to the Guaranteed Interest Division.
We do not promise that your Accumulation Value will
increase. Depending on the Contract's investment experience
for funds invested in the Divisions of the Variable Account
and interest credited to the Guaranteed Interest Division,
the Accumulation Value, Cash Surrender Value and Death
Benefit may increase or decrease on any day. You bear the
investment risk for funds invested in the Divisions of the
Variable Account but also enjoy the potential rewards.
You have the opportunity to benefit from growth of the
Accumulation Value based on investment results of the
Divisions of the Variable Account and interest credited to
the Guaranteed Interest Division. Furthermore, all
dividends, interest and capital gains accumulate free from
annual taxation under current tax law until distributed.
The Contract also offers a choice of Annuity Options to
which you may apply the Accumulation Value less taxes
incurred but not deducted as of the Annuity Date. These
Annuity Options are also available to the Beneficiary to
apply the Death Benefit as of the Supplementary Contract
Effective Date. You have the option to change the Annuity
Date within certain limits.
The Contract may be used as an Individual Retirement
Annuity, an IRA Rollover, or an IRA Transfer ("IRA
Contracts"). IRA Contracts are offered to individuals for
use in connection with Sections 408(a) and (b) of the Code.
See your tax adviser concerning these matters.
We can issue a Contract if the Owner and Annuitant are not
older than Age 85, and we can accept additional Purchase
Payments prior to the Annuity Date until the Owner reaches
the Age of 86. For an IRA Contract, you may not make Purchase
Payments after March 31 of the year following the year in
which you reach Age 70 1/2.
The ultimate effect of federal income taxes on the amounts
held under a Contract, on Annuity Payouts and on the
economic benefits to the Owner, Annuitant or Beneficiary
depends on Security Life's tax status and upon the tax
status of the parties concerned. In general, an Owner is
not taxed on increases in value under an annuity Contract
until some form of distribution is made under it. There may
be tax penalties if you make a partial withdrawal or
surrender the Contract before reaching age 59 1/2. See FEDERAL
TAX CONSIDERATIONS, page 42.
Purchase Payments
The minimum initial Purchase Payment is $25,000 ($1,000 for
an IRA Contract). The minimum additional Purchase Payment
we will accept is $500 ($250 for an IRA Contract or $90 if
you have set up your IRA on a monthly program of Purchase
Payments). We will take under consideration and may refuse
to accept a Purchase Payment if it would cause the sum of
all Net Purchase Payments under the Contract to exceed
$1,500,000.
The initial Purchase Payment is allocated to each Division
according to your most recent written instructions, unless
the Contract is issued in a state that requires the return
of Purchase Payments during the Free Look period. In those
states, your initial Purchase Payment allocated to the
Guaranteed Interest Division will be allocated to that
Division upon receipt; your initial Purchase Payment
allocated to the Divisions of the Variable Account will be
allocated to the Fidelity Investments Money Market Division
during the Free Look period and then transferred to the
Divisions of the Variable Account according to your most
recent written instructions. The Fidelity Investments Money
Market Division is used only during the Free Look period.
See The Variable Account, page 13, and Your Right to Cancel
the Contract, page 32.
If you elect to invest in a particular Division, at least 1%
of your Purchase Payment must be allocated to that Division.
All percentage allocations must be in whole numbers. We
allocate any additional Purchase Payments among the
Divisions in the same proportion that the amount of
Accumulation Value in each Division bears to the total
Accumulation Value as of the date we receive that additional
Purchase Payment at our Customer Service Center, or as
otherwise instructed by you. You may designate a different
allocation with respect to any Purchase Payment by sending
us a written notice with the Purchase Payment. See
Crediting and Allocation of Purchase Payments, page 22.
You may choose to have a specified dollar amount transferred
from the Global Strategic Income Division to the other
Divisions of the Variable Account on a monthly basis during
the Accumulation Period, with the objective of shielding
your investment from short-term price fluctuations. See
Dollar Cost Averaging Option, page 23.
You may transfer or reallocate your Accumulation Value among
the Divisions of the Variable Account any time after the end
of the Free Look period. The Fidelity Investments Money
Market Division is used only during the Free Look period.
See The Variable Account, page 13. There is no charge for
the first 12 transfers per Contract Year during the
Accumulation Period. A $25 charge will be assessed for
each transfer in excess of 12 during a Contract Year. If
you elect a Variable Annuity Payout Option, you may make up
to four transfers per Contract Year during the Annuity
Period, and no transfer charge will be assessed.
The Variable Account
The Variable Account is a separate account of Security
Life. Each of the Divisions of the Variable Account offered
under this prospectus has its own distinct investment
objectives. The Fidelity Investments Money Market Division
invests in the Fidelity Investments Money Market Portfolio;
the remaining Divisions invest in The Palladian Trust,
managed by Palladian Advisors, Inc. ("PAI"). The Trust and
PAI have retained several Portfolio Managers to manage the
assets of each Portfolio as indicated below. PAI has also
retained Tremont Advisors, Inc., as Portfolio Advisor, to
research, evaluate, recommend and monitor the Portfolio
Managers.
Portfolio Portfolio Managers
The Palladian Trust:
The Value Portfolio Gabelli Asset Management Co.
The Growth Portfolio Stonehill Capital
Management, Inc.
The Balanced Opportunity
Portfolio Maverick Capital, Ltd.
The International Growth
Portfolio Bee & Associates Incorporated
The Global Strategic Income
Portfolio Fischer Francis Trees & Watts, Inc.
The Global Interactive/
Telecomm Portfolio Gabelli Asset Management Co.
Variable Insurance Products Fund:
Fidelity Management &
Research Company Fidelity Investments Money
Market Portfolio
The Fidelity Investments Money Market Division is used only
for allocation of the initial Purchase Payment and any
Purchase Payments received during the Free Look period if
the Contract is issued in a state that requires the return
of Purchase Payments during the Free Look period.
For more information regarding the Variable Account and its
Divisions, see The Portfolios, page 19.
The Accumulation Value varies each day based on the
investment experience of the Divisions of the Variable
Account you select. It also reflects Purchase Payments, any
interest credited to the Guaranteed Interest Division,
charges deducted and partial withdrawals. For amounts
allocated to the Divisions of the Variable Account, you
receive the benefits from favorable investment experience,
and you bear the risk of poor investment experience. See
Measurement of Investment Experience, page 26.
Enhanced Guaranteed Death Benefit
The Contract provides an Enhanced Guaranteed Death Benefit
to the Beneficiary if the Owner dies prior to the Annuity
Date. The Enhanced Guaranteed Death Benefit is the greatest
of the following amounts as of the Valuation Date Death
Benefit Proceeds are determined:
1. Net Purchase Payments accumulated at 7% per year (0%
after the Owner's attained age 75) up to a maximum of
two times the sum of all Net Purchase Payments. Net
Purchase Payments are Purchase Payments made less
Gross Partial Withdrawals taken; or
2. The Accumulation Value; or
3. The Step-Up Benefit plus Net Purchase Payments since
the last step-up anniversary.
The Step-Up Benefit at issue is the initial Purchase
Payment. As of each step-up anniversary, the current
Accumulation Value is compared to the prior
determination of the Step-Up Benefit increased by Net
Purchase Payments made since the last step-up
anniversary. The greater of these becomes the new
Step-Up Benefit.
The step-up anniversaries are every 6th Contract
Anniversary for the duration of the Contract (i.e.,
the 6th, 12th, 18th, etc.).
The Death Benefit payable to the Beneficiary is the Enhanced
Guaranteed Death Benefit as calculated above minus taxes
incurred but not deducted. For more details, see Enhanced
Guaranteed Death Benefit, page 25, and Death Benefit
Proceeds, page 25.
Partial Withdrawals
After the Free Look period, prior to the Annuity Date and
while the Contract is in effect, you may take partial
withdrawals each year under any of three options: the
Demand Withdrawal Option, the Systematic Income Program or
the IRA Income Program.
The Contract provides an enhanced Demand Withdrawal Option
which allows you in each Contract Year to withdraw, without
a surrender charge, 15% of the Accumulation Value as of the
last Contract Anniversary (less any Gross Partial
Withdrawals already made during the Contract Year which are
not considered to be withdrawals of Purchase Payments) or
the Earnings, if greater, as well as Purchase Payments held
for at least five full Contract Years since the Contract
Anniversary at the end of the Contract Year in which the
Purchase Payment was made. If a Purchase Payment is made as
of the first day of a Contract Year, a surrender charge will
apply against this Purchase Payment for six full years.
Additional amounts withdrawn in a Contract Year, including
any remaining withdrawals under the Systematic Income
Program, will be subject to a surrender charge. See Partial
Withdrawals, page 28, and Surrender Charge, page 35.
A penalty tax may be assessed upon partial withdrawals. See
Taxation of Annuities, page 43.
Surrendering Your Contract
You may surrender the Contract at any time prior to the
Annuity Date and receive its Cash Surrender Value. No
Annuity Options are available upon surrender. No surrender
may be made on or after the Annuity Date or with respect to
any amounts applied under an Annuity Option. The Cash
Surrender Value equals the Accumulation Value less any
surrender charge for Purchase Payments held less than five
full Contract Years since the Contract Anniversary at the
end of the Contract Year in which that Purchase Payment was made,
less taxes incurred but not deducted, and less the administrative
charge, if any, due at the end of the Contract Year. If a Purchase
Payment is made as of the first day of a Contract Year, a
surrender charge will apply against this Purchase Payment
for six full years.
The Cash Surrender Value, as is true with all mutual fund
type investments, varies daily depending on investment
experience, Purchase Payments, interest credited to the
Guaranteed Interest Division, charges deducted and partial
withdrawals. We do not guarantee any minimum Cash Surrender
Value for amounts allocated to the Divisions of the Variable
Account. The principal and a minimum interest rate are
guaranteed for amounts allocated to the Guaranteed Interest
Division. Surrenders may be subject to a surrender charge.
See Surrender Charge, page 35. A penalty tax may be
assessed upon surrender. See Taxation of Annuities, page
43.
Your Right to Cancel the Contract
At any time during the Free Look Period, you may cancel your
Contract and receive a refund equal to your Accumulation
Value plus charges deducted. However, if required by state
law, we will return the Purchase Payments made. The Free
Look period is a ten day period of time beginning when the
Contract is delivered to you. We deem this period as ending
15 days after the Contract is mailed from our Customer
Service Center. Some states may require that we provide a
longer Free Look period. In some states, we restrict the
initial Purchase Payment allocation during the Free Look
period. See Crediting and Allocation of Purchase Payments,
page 22.
Contract Charges and Fees
We deduct charges for certain transactions and make
deductions from the Divisions of the Variable Account and
the Guaranteed Interest Division in the same proportion that
the Accumulation Value of each Division bears to the total
Accumulation Value. We may reduce certain charges for group
or sponsored arrangements. See Group or Sponsored
Arrangements, page 24. A description of the charges we
deduct follows.
If a Purchase Payment is withdrawn or surrendered within
five full Contract Years since the Contract Anniversary at
the end of the Contract Year in which that Purchase Payment
was made, a surrender charge is assessed. If a Purchase
Payment is made as of the first day of a Contract Year, a
surrender charge will apply against this Purchase Payment
for six full years. For purposes of determining the amount
of Purchase Payments withdrawn and the surrender charge,
withdrawals will be allocated first to the Earnings, then to
Purchase Payments held for at least five full Contract Years
since the Contract Anniversary at the end of the Contract
Year in which the Purchase Payment was made, then to the
amount by which 15% of the Accumulation Value as of the last
Contract Anniversary (less any Gross Partial Withdrawals
already made during the Contract Year which are not
considered to be withdrawals of Purchase Payments) exceeds
the Earnings in the Contract, if any, and finally to
Purchase Payments to which the lowest surrender charge
applies. The surrender charge is 7% of the Purchase Payment
if withdrawn in the Contract Year during which the Purchase
Payment was made, reduces by 1% each year for the next five
Contract Years and is 0% in the sixth Contract Year
following the Contract Year in which the Purchase Payment
was made. See Surrender Charge, page 35.
If you take more than one demand withdrawal in a Contract
Year or take a demand withdrawal in the same Contract Year
while the Systematic Income Program is in effect, we impose
a partial withdrawal transaction charge equal to the lesser
of $25 or 2% of the amount withdrawn. See Partial
Withdrawal Transaction Charge, page 35.
We charge each Division of the Variable Account with a daily
asset-based charge equivalent to an annual rate of 1.55% for
mortality and expense risks, which includes 0.30% for the
cost of the Enhanced Death Benefit guarantee. During the
Annuity Period, the charge is reduced to 1.25%. See
Mortality and Expense Risk Charge, page 37.
We charge each Division of the Variable Account with a daily
asset-based charge equivalent to an annual rate of 0.15% to
cover a portion of Contract administration costs. See Asset
based Administrative Charge, page 37.
During the Accumulation Period, we deduct an Administrative
charge of $30 per Contract Year if Net Purchase Payments are
less than $100,000. If Net Purchase Payments equal $100,000
or more, the charge is zero. See Administrative Charge,
page 36.
A $25 charge will be assessed for each transfer in excess of
12 during a Contract Year during the Accumulation Period.
See Excess Transfer Charge, page 36.
Generally, taxes on Purchase Payments are incurred as of
the Annuity Date, and a charge for taxes on Purchase
Payments is deducted from the Accumulation Value as of
that date. Some jurisdictions impose a tax on Purchase
Payments at the time a Purchase Payment is made. In these
jurisdictions, our current practice is to pay the tax on
Purchase Payments for you and then deduct the charge for
these taxes from the payout of Proceeds. See Taxes on
Purchase Payments, page 36.
There are fees and expenses deducted from the Portfolios.
The investment experience of the Portfolios and deductions
for fees and expenses from the Portfolios underlying the
Divisions of the Variable Account in which you are invested
will affect your Accumulation Value. Please read the
prospectuses for the Trust and the Fidelity Investments
Money Market Portfolio for details.
Performance Information
Performance Data for Divisions of the Variable Account
The Variable Account may advertise certain performance
related information for the Divisions of the Variable
Account, including average annual total return.
Performance information for a Division may be compared, in
reports and promotional literature, to: (i) the Standard &
Poor's 500 Index ("S & P 500"), the Dow Jones Industrial
Average ("DJIA"), or other indices measuring performance of
a pertinent group of securities so that investors may
compare that Division's results with those of a group of
securities widely regarded by investors as representative of
the securities markets in general; (ii) other variable
annuity separate accounts or other investment products
tracked by Lipper Analytical Services or Morningstar, Inc. _
two widely used independent research firms which rank mutual
funds and other investment companies by overall performance,
investment objectives, and assets _ or tracked by other ratings
services, companies, publications, or persons who rank
separate accounts or other investment products on overall
performance or other criteria; and (iii) the Consumer Price
Index (as a measure for inflation) to assess the real rate
of return from an investment in the Contract. Unmanaged
indices may assume the reinvestment of dividends but
generally do not reflect deductions for administrative and
management costs and expenses.
Performance information for any Division of the Variable
Account will reflect only the performance of a hypothetical
Contract under which the Accumulation Value is allocated to
that Division during the particular time period on which
the calculations are based. The performance information
will be based on historical results and is not intended to
indicate past or future performance under an actual
Contract.
Quotations of the average annual total returns will be based
on the average percentage change in value of a hypothetical
investment in the specific Division over a given period of
time. They will reflect the deduction of the surrender
charge that would apply if an Owner terminated the Contract
at the end of the period indicated, the administrative
charge, the mortality and expense risk charge and the asset-
based administrative charge as well as fees and charges of
the respective Portfolio. Average annual total return will
be calculated as shown in the Statement of Additional
Information.
Performance information should be considered in light of the
investment objectives, characteristics and quality of the
Portfolios in which that Division invests, and the market
conditions during the given time period, and should not be
considered as a representation of what may be achieved in
the future. For a description of the methods used to
determine total return for the Divisions of the Variable
Account, see the Statement of Additional Information.
Reports and promotional literature may also contain other
information including the ranking of any Division derived
from rankings of variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services,
Morningstar, Inc., or by ratings services, companies,
publications, or other persons who rank separate accounts or
other investment products on overall performance or other
criteria.
FINANCIAL INFORMATION
Audited Financial Statements
The audited consolidated financial statements of Security
Life at December 31, 1994 and 1993 and for each of the three
years in the period ended December 31, 1994, (as well as the
auditors' reports thereon) are in the Statement of
Additional Information. The audited financial statements
included for the Separate Account A1 at December 31, 1994,
and for the year then ended (as well as the auditors'
reports thereon) represent only those Divisions that had
commenced operations by that date.
Unaudited Financial Statements
The unaudited financial statements included for Separate
Account A1 at March 31, 1995, and for the period then ended
represent those Divisions that had commenced operations by
that date.
FACTS ABOUT SECURITY LIFE AND THE VARIABLE ACCOUNT
Security Life
Security Life is a stock life insurance company organized
under the laws of the State of Colorado in 1928. Our
headquarters are located at 1290 Broadway, Denver, Colorado
80203-5699. We are admitted to do business in the District
of Columbia and all states except New York. As of the end
of 1994, Security Life and its consolidated subsidiaries
had over $77 billion of life insurance in force. Our total
assets exceeded $5.0 billion, and our shareholder's equity
exceeded $490 million on a generally accepted accounting
principles basis as of December 31, 1994. We offer a
complete line of life insurance and retirement products,
including annuities, individual and group life, and pension
products. Security Life's ratings by the independent
ratings services are as follows:
A.M. Best A+ (superior)
Duff & Phelp's AAA
Moody's Aa2
Standard & Poors AAA
Weiss Research, Inc. A+
The above ratings refer to the claims-paying ability of
Security Life's General Account and do not relate to an
investment in the Variable Account or the underlying
Portfolios.
On March 8, 1995, Security Life's parent corporation,
Internationale Nederlanden Group, N.V., ("ING"), finalized
its acquisition of Barings P.L.C. As a result, Standard &
Poor's Ratings Group, Duff & Phelps and Moody's have placed
the ratings of all of ING's United States life insurance
companies, including Security Life, under credit watch.
This status is solely the result of ING's purchase of the
businesses, assets and liabilities of the Barings group,
including Baring Brothers & Co. Bank, Baring Securities and
Baring Asset Management. Putting a company's ratings under
credit watch, under these circumstances, is standard
operating procedure for the rating agencies. Standard &
Poors Rating Group has since reaffirmed its ratings of ING
and its subsidiaries, including Security Life.
Security Life is a wholly-owned indirect subsidiary of ING, one of
the world's three largest diversified financial
services organizations. ING is headquartered in Amsterdam,
Netherlands, and has consolidated assets exceeding $206.7
billion.
The principal underwriter and distributor of the Contracts
is ING America Equities, Inc. , a wholly-owned subsidiary of
Security Life. ING America Equities, Inc., (formerly SLD Equities, Inc.),
is registered as a broker-dealer with the SEC and is a member of
the National Association of Securities Dealers, Inc. ("NASD").
The Administrator
Financial Administrative Services Corporation provides
administrative services for Security Life at our Customer
Service Center at P.O. Box 173763, Denver, CO 80217-3763.
The administrative services include processing Purchase
Payments, Annuity Payouts, Death Benefits, surrenders,
partial withdrawals and transfers; preparing confirmation
notices and periodic reports; calculating mortality and expense risk
charges; calculating Accumulation and Annuity Unit Values
and distributing voting materials and tax reports.
The Variable Account
All obligations under the Contract are general obligations
of Security Life. The Variable Account is a separate
investment account used to support our variable annuity
contracts and for other purposes as permitted by applicable
laws and regulations. The assets of the Variable Account
are our property, but are kept separate from our General
Account and our other variable accounts. We may offer other
variable annuity contracts investing in the Variable Account
which are not discussed in this prospectus. The Variable
Account may also invest in other portfolios which are not
available to the Contract described in this prospectus.
We own all the assets in the Variable Account. Income and
realized and unrealized gains or losses from assets in the
Variable Account are credited to or charged against the
Variable Account without regard to other income, gains or
losses in our other investment accounts. That portion of
the assets of the Variable Account which is equal to the
reserves and other contract liabilities with respect to the
Variable Account is not subject to creditor claims against
us. It may, however, be subject to liabilities arising from
Divisions of the Variable Account whose assets are
attributable to other variable annuity contracts offered by
the Variable Account. If the assets exceed the required
reserves and other contract liabilities, we may transfer the
excess to our General Account. The assets in the Variable
Account will at all times equal or exceed the sum of the
accumulation values of all contracts funded by this Variable
Account.
The Variable Account was established on November 3, 1993,
and it may invest in mutual funds or other investment
portfolios which we determine to be suitable for the
contracts' purposes. The Variable Account is treated as a
unit investment trust under federal securities laws. It is
registered with the SEC under the Investment Company Act of
1940 (the "1940 Act") as an investment company. Such
registration does not involve any supervision by the SEC of
the management of the Variable Account or Security Life.
The Variable Account is governed by the laws of Colorado,
our state of domicile, and may also be governed by laws of
other states in which we do business.
The Variable Account has several Divisions. The Fidelity
Investments Money Market Division invests in the Fidelity
Investments Money Market Portfolio and is used only for the
allocation of the initial Purchase Payment and any Purchase
Payments received during the Free Look period if the
Contract is issued in a state that requires the return of
Purchase Payments during the Free Look period. The
remaining Divisions currently available under the Contract
invest in shares of a corresponding Portfolio of the
Palladian Trust. Therefore the investment experience of
your Contract depends on the experience of the Divisions you
select. For example, the Value Division invests solely in
shares of the Palladian Trust Value Portfolio. These
Portfolios are available only to serve as the underlying
investment for variable annuity and variable life insurance
contracts issued through separate accounts of Security Life
as well as other life insurance companies. They are not
available directly to individual investors.
The Portfolios
Currently, each Division of the Variable Account offered
pursuant to this prospectus invests in a Portfolio of The
Palladian Trust except for the Fidelity Investments Money
Market Division. PAI serves as the manager to each
Portfolio of the Trust. See the Trust prospectus for
details. The Trust and PAI have retained several Portfolio
Managers to manage the assets of the Portfolios as indicated
below. PAI has also retained Tremont Advisors, Inc., as
Portfolio Advisor to research, evaluate, recommend and
monitor the Portfolio Managers for each Portfolio.
The Fidelity Investments Money Market Division invests in a
mutual fund Portfolio and is used only for the allocation of
the initial Purchase Payment and any Purchase Payments
received during the Free Look period if the Contract is
issued in a state that requires the return of Purchase
Payments during the Free Look period. See the prospectus
for this Portfolio for details.
The Trust pays PAI and the Portfolio Managers a monthly fee
(the "advisory fee") based on the average daily net assets
of each Portfolio. There are two components to the advisory
fee: the basic fee and the incentive fee. The advisory fee
is structured to vary based upon the Portfolio's performance
(after expenses ) compared to that of an appropriate market
benchmark selected for that Portfolio. PAI is responsible
for paying the fee of the Portfolio Advisor, which is
structured to vary based on how well the Portfolio Managers
perform.
The Trust is an open-end management investment company, more
commonly called a mutual fund. The Trust's shares and the
shares of the Fidelity Investments Money Market Portfolio
may also be sold to separate accounts of insurance
companies, which may or may not be affiliated with Security
Life or each other, a practice known as "shared funding".
These shares may also be sold to separate accounts funding
both variable annuity contracts and variable life insurance
policies, a practice known as "mixed funding". As a result,
there is a possibility that a material conflict may arise
between the interests of Owners of Contracts in which
Accumulation Values are allocated to the Variable Account
and of owners of contracts in which accumulation values are
allocated to one or more other separate accounts investing
in any one of the Portfolios. Shares of these Portfolios
may also be sold to certain qualified pension and retirement
plans qualifying under Section 401 of the Code that include
cash or deferred arrangements under Section 401(k) of the
Code. As a result, there is a possibility that a material
conflict may arise between the interests of owners generally
or certain classes of owners, and such retirement plans or
participants in such retirement plans. In the event of a
material conflict, Security Life will consider what action
may be appropriate, including removing the Portfolio from
the Variable Account. There are certain risks associated
with mixed and shared funding and with the sale of shares to
qualified pension and retirement plans, as disclosed in the
prospectuses of the Trust and the Fidelity Investments Money
Market Portfolio.
The Portfolios as well as their investment objectives are
described below. There is no guarantee that any Portfolio
will meet its investment objectives. Meeting objectives
depends on various factors, including, in certain cases, how
well the Portfolio Manager anticipates changing economic and
market conditions.
Please refer to the prospectus for each of the Portfolios
for more information.
The Palladian Trust
Value Division -- seeks to make money for investors by
investing primarily in companies that the Portfolio
Manager believes are undervalued and that by virtue of
anticipated developments may, in the Portfolio Manager's
judgment, achieve significant capital appreciation.
Growth Division -- seeks to make money for investors by
investing primarily in securities selected for their long
term growth prospects.
Balanced Opportunity Division -- seeks to make money for
investors through equity and income investments that
provide the potential for high total returns, whether
through income or capital appreciation or both. The
Portfolio Manager pursues such opportunities in both
domestic and international markets.
International Growth Division -- seeks to make money for
investors by investing internationally for long-term
capital appreciation, primarily in equity securities.
Global Strategic Income Division -- seeks to make money
for investors by investing for high current income and
capital appreciation in a variety of domestic and foreign
fixed-income securities.
Global Interactive/Telecomm Division -- seeks to make
money for investors primarily by investing globally in
equity securities of companies engaged in the
development, manufacture or sale of interactive and/or
telecommunications services and products.
Fidelity Management & Research Company
Variable Insurance Products Fund:
Money Market Portfolio -- seeks as high a level of current
income as is consistent with preserving capital and providing
liquidity. The Portfolio will invest only in high quality
U.S. dollar denominated money market securities of domestic
and foreign issuers.
This Division is only used for the allocation of the initial
Purchase Payment and any Purchase Payments received during the
Free Look period if the Contract is issued in a state that
requires the return of Purchase Payments during the Free Look
period.
Changes Within The Variable Account
We may from time to time make the following changes to the
Variable Account:
1. Make additional Divisions available. These Divisions
will invest in portfolios we find suitable for the
Contract.
2. Eliminate Divisions from the Variable Account,
combine two or more Divisions, or substitute a new
Portfolio for the Portfolio in which a Division invests.
A substitution may become necessary if, in our judgment,
a Portfolio no longer suits the purposes of the Contract.
This may happen due to a change in laws or regulations,
or a change in a Portfolio's investment objectives or
restrictions, or because the Portfolio is no longer
available for investment, or for some other reason,
such as a declining asset base.
3. Transfer assets of the Variable Account, which we
determine to be associated with the class of contracts to
which your Contract belongs, to another variable account.
4. Withdraw the Variable Account from registration under
the 1940 Act.
5. Operate the Variable Account as a management investment
company under the 1940 Act.
6. Cause one or more Divisions to invest in a mutual fund
other than or in addition to the Portfolios.
7. Discontinue the sale of Contracts and certificates.
8. Terminate any employer or plan trustee agreement with
us pursuant to its terms.
9. Restrict or eliminate any voting rights as to the
Variable Account.
10. Make any changes required by the 1940 Act or the rules
or regulations thereunder.
No such changes will be made without any necessary approval
of the SEC and applicable state insurance departments.
Owners will be notified of any changes.
The Guaranteed Interest Division
You may allocate all or a portion of your Purchase Payments
and transfer your Accumulation Value to or from the
Guaranteed Interest Division subject to certain
restrictions. The Guaranteed Interest Division is part of
our General Account and pays interest at a declared rate.
See Your Right to Transfer Among Divisions, page 28. The
General Account supports our non-variable insurance and
annuity obligations. Because of exemptive and exclusionary
provisions, interests in the Guaranteed Interest Division
have not been registered under the Securities Act of 1933,
and neither the Guaranteed Interest Division nor the General
Account has been registered as an investment company under
the Investment Company Act of 1940. Accordingly, neither
the General Account, the Guaranteed Interest Division nor
any interests therein is generally subject to regulation
under these Acts. As a result, the staff of the SEC has not
reviewed the disclosures which are included in this
prospectus which relate to the General Account and the
Guaranteed Interest Division. These disclosures, however,
may be subject to certain provisions of the federal
securities laws relating to the accuracy and completeness of
statements made in this prospectus. For more details
regarding the General Account, see the Contract.
Accumulation Value of the Guaranteed Interest Division
You may accumulate amounts in the Guaranteed Interest
Division by (i) allocating Purchase Payments, (ii)
transferring amounts from the Divisions of the Variable
Account, and (iii) earning interest on amounts you already
have in the Guaranteed Interest Division.
The amount you have in the Guaranteed Interest Division at
any time is the sum of all Purchase Payments allocated to
this Division, all transfers, and earned interest. This
amount is reduced by amounts transferred out of or withdrawn
from the Guaranteed Interest Division and deductions
allocated to the Guaranteed Interest Division.
We pay a declared interest rate on all amounts that you have
in the Guaranteed Interest Division. These interest rates
will never be less than the minimum guaranteed interest rate
of 3%. We may declare rates higher than the guaranteed
minimum that will apply to amounts in the Guaranteed
Interest Division. Any higher rate is guaranteed to be in effect for
at least 12 months. Interest is compounded daily at an
effective annual rate that equals this declared rate. The
interest is credited as of each Valuation Date to the amount
you have in the Guaranteed Interest Division. This interest
will be paid regardless of the actual investment experience
of the General Account; we bear the full amount of the
investment risk for the amount allocated to the Guaranteed
Interest Division.
FACTS ABOUT THE CONTRACT
Purchase Payments
Initial Purchase Payment
You purchase the Contract with an initial Purchase Payment.
The minimum initial Purchase Payment is $25,000 ($1,000 for
an IRA). We may reduce the minimum initial Purchase Payment
requirements for certain group or sponsored arrangements.
See Group or Sponsored Arrangements, page 24. We may refuse
to accept an initial Purchase Payment in excess of
$1,500,000.
Additional Purchase Payments
We can accept additional Purchase Payments until the Owner
reaches the Age of 86 or the Annuity Date if earlier. The
minimum additional Purchase Payment we will accept is $500
($250 for an IRA or $90 if you have set up your IRA on a
monthly program of Purchase Payments). We may reduce the
minimum additional Purchase Payment requirements for certain
group or sponsored arrangements. We may refuse to accept a
Purchase Payment if it would cause the sum of all Net
Purchase Payments to exceed $1,500,000.
We will accept rollover contributions to IRA rollover
Contracts. The IRA maximums for annual contributions to an
IRA do not apply to any Purchase Payment which is the result
of a rollover or transfer from another qualified plan. For
individual IRA Contracts, the Purchase Payment in any year
on behalf of an individual Contract may not exceed $2,000.
A working spouse may contribute to a separate individual IRA
in the same manner. If your spouse is not working, or if
your spouse is working but does not contribute to an IRA,
you may contribute up to an amount equal to the lesser of
$2,250 or 100% of your compensation. This amount may be
contributed in any combination, to your own IRA and a
spousal IRA, provided that the contribution to either IRA
does not exceed $2,000 for the year, and the total
contribution to both your IRA and the spousal IRA does not
exceed $2,250 For example, $1,750 may go to your IRA and
$500 to your spouse's IRA.
Where to Make Payments
Send Purchase Payments to our Customer Service Center at the
address shown on the cover. We will send you a confirmation
notice upon receipt. Make checks payable to The Fulcrum
Fund Annuity/Security Life of Denver.
Crediting and Allocation of Purchase Payments
We will credit the initial Purchase Payment within two
business days of receipt of a completed application at our
Customer Service Center. We may retain the initial Purchase
Payment for up to five business days while attempting to
complete an incomplete application. If the application
cannot be made complete within five business days, the
applicant will be informed of the reasons for the delay and
the initial Purchase Payment will be returned immediately
unless the applicant specifically consents to our retaining
the initial Purchase Payment until the application is made complete. The
initial Purchase Payment will then be credited within two
business days of the proper completion of the application.
We will credit additional Purchase Payments that are
accepted by us as of the Valuation Date of receipt at our
Customer Service Center.
The initial Purchase Payment is allocated among any or all
of the available Divisions according to your most recent
written instructions, unless the Contract is issued in a
state that requires the return of Purchase Payments during
the Free Look period. See Your Right to Cancel the
Contract, page 32. In those states, your initial Purchase
Payment allocated to the Guaranteed Interest Division will
be allocated to that Division upon receipt; your initial
Purchase Payment allocated to the Divisions of the Variable
Account will be allocated to the Fidelity Investments Money
Market Division during the Free Look period and then
transferred to the Divisions of the Variable Account
according to your most recent written instructions. The
Fidelity Investments Money Market Division is used only for
allocation of the initial Purchase Payment and any Purchase
Payments received during the Free Look period only for
Contracts issued in states requiring the return of Purchase
Payments during the Free Look period.
The Fidelity Investments Money Market Division is used only
during the Free Look period. See The Variable Account, page
13. If you elect to invest in a particular Division, at
least 1% of your Purchase Payment must be allocated to that
Division. All percentage allocations must be in whole
numbers.
We allocate any additional Purchase Payments among the
Divisions in the same proportion that the amount of
Accumulation Value in each Division bears to the total
Accumulation Value as of the date we receive that additional
Purchase Payment at our Customer Service Center, or as
otherwise instructed by you. You may designate a different
allocation with respect to any Purchase Payment by sending
us a written notice with the Purchase Payment.
Dollar Cost Averaging Option
The main objective of Dollar Cost Averaging is to protect
your investment from short-term price fluctuations. Since
the same dollar amount is transferred to a Division each
month, more units are purchased in a Division if the value
per unit that month is low, and fewer units are purchased if
the value per unit that month is high. This plan of
investing keeps you from investing too much when the price
of shares is high and too little when the price of shares is
low.
During the Accumulation Period only, if you have at least
$10,000 of Accumulation Value in the Global Strategic Income
Division, you may choose to transfer a specified dollar
amount each month from this Division to other Divisions of
the Variable Account. Dollar Cost Averaging transfers may
not be made to the Guaranteed Interest Division. The
minimum amount that you may elect to transfer each month
under this option is $100. The maximum amount that you may
transfer under this option is equal to the Accumulation
Value in the Global Strategic Income Division when the
election is made, divided by 12. Percentage allocations of
the transfer amount must be designated as whole number
percentages; no specific dollar designation may be made to
the Divisions of the Variable Account. If you elect to
transfer to a particular Division, the minimum percentage
that may be transferred to that Division is 1% of the total
amount transferred. You may specify a date for Dollar Cost
Averaging to terminate. You may also specify a dollar amount
so that when the Accumulation Value of the Global Strategic
Income Division reaches this dollar amount, Dollar Cost
Averaging will terminate.
The transfer date will be the same calendar day each month
as the Contract Date. If this calendar day is not a
Valuation Date, the next Valuation Date will be used. If,
on any transfer date, the Accumulation Value in the Global
Strategic Income Division is equal to or less than the
amount you have elected to have transferred, the entire
amount will be transferred, and this option will end.
You may change the transfer amount or the Divisions to which
transfers are to be made once each Contract Year, subject to
the above limitations. You may cancel this election by
sending us written notice to our Customer Service Center at
least seven days before the next transfer date. Any
transfer under this option will not be included for purposes
of the excess transfer charge.
Dollar cost averaging will end as of the Valuation Date
immediately preceding the Annuity Date.
If you elect both Dollar Cost Averaging and Automatic
Rebalancing, Dollar Cost Averaging will take place first.
As of the first Valuation Date of the next calendar quarter
after Dollar Cost Averaging has terminated, Automatic
Rebalancing will begin. Dollar Cost Averaging is available
without charge.
Automatic Rebalancing
Automatic Rebalancing provides a method for maintaining a
balanced approach to investing your Accumulation Values and
to simplify the process of asset allocation over time.
There is no charge for Automatic Rebalancing and any
transfers as a result of the operation of Automatic
Rebalancing are not counted toward the limit of 12 transfers
per Contract Year without an additional transfer charge. If
you wish to transfer among the Divisions during the
operation of Automatic Rebalancing, you must change your
allocations to achieve the transfer.
When you apply for the Contract, or at any subsequent time,
you may elect Automatic Rebalancing by electing Automatic
Rebalancing on the application or completing the client
service application. Automatic Rebalancing allows you to
match your Accumulation Value allocations over time with the
allocation percentages you have selected. As of the first
Valuation Date of each calendar quarter, we will
automatically rebalance the amounts in each of the Divisions
into which you allocate Purchase Payments to match your
allocation percentages. This will rebalance your
Accumulation Values that may be out of line with the
allocation percentages you initially indicated, which may
result, for example, from Divisions which underperform the
other Divisions in certain months.
If you elect Automatic Rebalancing, as of the first
Valuation Date of the next calendar quarter we will transfer
amounts among the Divisions so that the ratio of your
Accumulation Value in each Division to your total
Accumulation Value matches your selected allocation percentage for that
Division.
If you elect Automatic Rebalancing with your application,
the first transfer will occur as of the first Valuation Date
of the next calendar quarter following the end of the Free-
Look Period. If you elect Automatic Rebalancing after the
Contract Date, the first transfer will be processed as of
the first Valuation Date of the next calendar quarter after
we receive the written notification at our Customer Service
Center and the Free-Look Period has ended.
You may change the allocation percentages for Automatic
Rebalancing. We will adjust your Automatic Rebalancing
percentages accordingly, and your Accumulation Value will be
reallocated as of the Valuation Date that we receive your
written allocation instructions at our Customer Service
Center.
Automatic Rebalancing may be terminated at any time, so long
as we receive notice of the termination at least seven days
prior to the first Valuation Date of the next calendar
quarter. Unless you specify otherwise, the percentage
allocations will match your initial Purchase Payment
allocations. If Automatic Rebalancing is active on your
Contract and you request an allocation which does not meet
the requirements, we will notify you that your allocation
must be changed. We will not process such a request unless
you also request that Automatic Rebalancing be discontinued.
If you elect both Dollar Cost Averaging and Automatic
Rebalancing, Dollar Cost Averaging will take place first.
As of the first Valuation Date of the next calendar quarter
after Dollar Cost Averaging has terminated, Automatic
Rebalancing will begin.
Reports to Owners
During the Accumulation Period, we will send you a report
within 31 days after the end of each calendar quarter. This
report will show the current Accumulation Value in each
Division, the total Accumulation Value, the Cash Surrender
Value and the Death Benefit, as of the end of the calendar
quarter, as well as activity under the Contract since the
last report. During the Annuity Period, we will send you a
report within 31 days after the end of each calendar year
showing any information required by law. The reports will
include any information that may be required by the SEC or
the insurance supervisory official of the jurisdiction in
which the Contract is delivered.
We will also send you copies of any shareholder reports of
the Portfolios in which the Divisions of the Variable
Account invest, as well as any other reports, notices or
documents required by law to be furnished to Owners.
Group or Sponsored Arrangements
For certain group or sponsored arrangements, we may reduce
or eliminate the surrender charge, the length of time a
surrender charge applies, the administrative charge, the
minimum initial Purchase Payment and the minimum additional
Purchase Payment requirements, as well as other fees or
charges. See CONTRACT CHARGES AND FEES, page 35. We may
also increase the amount of partial withdrawals which may be
withdrawn without surrender charge. Group arrangements
include those in which a trustee, an employer or an
association, for example, purchases Contracts covering a
group of individuals on a group basis. Sponsored arrangements
include those in which an employer or association allows us
to offer Contracts to its employees or members on an individual basis.
Our costs for sales, administration, and mortality generally
vary with the size and stability of the group, among other
factors. We take all these factors into account when
reducing charges. To qualify for reduced charges, a group
or sponsored arrangement must meet certain requirements. We
will make any reductions according to our rules in effect
when an application form for a Contract is approved. We may
change these rules from time to time. Any variation in the
surrender charge, administrative charge or other charges,
fees and privileges will reflect differences in costs or
services and will not be unfairly discriminatory.
Offering the Contract
ING America Equities, Inc. is the principal underwriter and
distributor of the Contract as well as of other contracts
issued through the Variable Account and other variable
accounts of Security Life. ING America Equities, Inc. is a
wholly owned subsidiary of Security Life. It is registered
with the SEC as a broker-dealer and is a member of the NASD.
We pay ING America Equities Inc., for acting as principal
underwriter under a distribution agreement. The offering of
the Contract will be continuous.
ING America Equities, Inc. will enter into sales agreements
with broker-dealers to solicit for the sale of the Contract
through registered representatives who are licensed to sell
securities and variable insurance products including
variable annuities. The broker-dealer involved will
generally receive commissions based on a percentage of
Purchase Payments made (up to a maximum of 5.5%), a percent
of Accumulation Value (up to a maximum of 0.20%), or a
combination of these two. The writing agent will receive a
percentage of these commissions from the respective broker-
dealer, depending on the practice of that broker-dealer.
In addition, we may also pay override payments, expense
allowances, bonuses, wholesaler fees, and training
allowances. These commissions will be paid to the broker-
dealer by ING America Equities, Inc., and will not be
charged to the Owner.
VALUES UNDER THE CONTRACT
Enhanced Guaranteed Death Benefit
The Death Benefit payable under the Contract provides for an
Enhanced Guaranteed Death Benefit amount which is greater
than the traditional basic death benefit payable under
annuity contracts. The Enhanced Guaranteed Death Benefit is
the greatest of the following amounts as of the Valuation
Date Death Benefit Proceeds are determined:
1. Net Purchase Payments accumulated at 7% per year (0%
after the Owner's attained age 75) up to a maximum of
two times the sum of all Net Purchase Payments. Net
Purchase Payments are Purchase Payments made less
Gross Partial Withdrawals taken; or
2. The Accumulation Value; or
3. The Step-Up Benefit, plus Net Purchase Payments since
the last step-up anniversary.
The Step-Up Benefit at issue is the initial Purchase
Payment. As of each step-up anniversary, the
current Accumulation Value is compared to the prior
determination of the Step-Up Benefit increased by
Net Purchase Payments since the last step-up
anniversary. The greater of these becomes the new
Step-Up Benefit.
The step-up anniversaries are every 6th Contract
Anniversary for the duration of the Contract (i.e.,
the 6th, 12th, 18th, etc.).
The Death Benefit payable to the Beneficiary is the Enhanced
Guaranteed Death Benefit as calculated above minus taxes
incurred but not deducted.
Death Benefit Proceeds
Proceeds payable to the Beneficiary upon the death of the
Owner before the Annuity Date will be the Death Benefit and
will be paid according to the provisions in Distribution-at
Death Rules, page 44. If the Owner is not an individual,
Proceeds are payable upon the death of the Annuitant.
The Death Benefit will be determined as of the Valuation
Date we receive both due proof of death and all information
needed to process the claim including designation of a
Beneficiary and the election of a one sum payout or election
under an Annuity Option.
We will pay the Proceeds in one lump sum unless the
Beneficiary elects an Annuity Option within 60 days of our
receipt of due proof of death but prior to the date on which
we pay the Proceeds. See CHOOSING AN ANNUITY OPTION, page
37. If a one sum payout is elected, the Proceeds will
usually be paid within 7 days of determination of the amount
of the Death Benefit described above. Interest will be paid
on the Proceeds from the date of determination of the Death
Benefit to the date of payout, or until an Annuity Option is
elected. Interest is at the rate we declare, or any higher
rate required by law, but not less than 3% per year. If the
Proceeds are paid under an Annuity Option, the Beneficiary
becomes the Annuitant, and the Contingent Beneficiary
becomes the Contingent Annuitant. Contact our Customer
Service Center or your agent for more information.
How to Claim Payouts to Beneficiary
Before we will make any payouts to the Beneficiary, we must
receive due proof of the death of the Owner in the form of a
certified death certificate and all information needed to
process the claim including designation of a Beneficiary and
the election of a one sum payout or election under an
Annuity Option. The Beneficiary should contact our Customer
Service Center for instructions. For information on tax
matters relating to death benefit proceeds, see FEDERAL TAX
CONSIDERATIONS, page 42.
Your Accumulation Value
The Accumulation Value of your Contract is the sum of the
Accumulation Values of all the Divisions of the Variable
Account in which your Contract is invested plus any
Accumulation Value of the Guaranteed Interest Division.
Your Accumulation Value of a Division of the Variable
Account as of any day is determined by multiplying the
number of your Accumulation Units in that Division by the
Accumulation Unit Value as of that day for that Division.
We adjust your Accumulation Value as of each Valuation Date
to reflect Purchase Payments and transfers made, partial withdrawals
taken, deduction of certain charges, earned interest of the
Guaranteed Interest Division and the investment experience
of the Divisions of the Variable Account. The Accumulation
Value, less applicable taxes, is applied under the elected
Annuity Option as of the Annuity Date. See CHOOSING AN
ANNUITY OPTION, page 37.
You may allocate your Accumulation Value among all the
Divisions available, subject to the restrictions on the
percentages and amounts allocated from a Purchase Payment or
a transfer to or from any Division.
Measurement of Investment Experience for the Divisions of
the Variable Account
Accumulation Unit Value
The investment experience of a Division of the Variable
Account is determined as of each Valuation Date. We use an
Accumulation Unit Value to measure the experience of each of
the Divisions of the Variable Account during a Valuation
Period. The Accumulation Unit Value for a Valuation Period
equals the Accumulation Unit Value for the preceding
Valuation Period multiplied by the Accumulation Experience
Factor for the Valuation Period.
We determine the number of Accumulation Units related to a
given transaction in a Division of the Variable Account as
of a Valuation Date by dividing the dollar value of that
transaction in that Division by that Division's Accumulation
Unit Value for that date.
How We Determine the Accumulation Experience Factor
For each Division of the Variable Account, the Accumulation
Experience Factor reflects the investment experience of the
Portfolio in which that Division invests and the charges
assessed against that Division for a Valuation Period. The
Accumulation Experience Factor is calculated as follows:
a) The net asset value of the Portfolio in which that
Division invests as of the end of the current Valuation
Period; plus
b) The amount of any dividend or capital gains
distribution declared and reinvested in that Portfolio
during the current Valuation Period; minus
c) A charge for taxes, if any.
d) The result of (a), (b), and (c), divided by the net
asset value of that Portfolio as of the end of the preceding
Valuation Period; minus
e) The daily mortality and expense risk charge for that
Division for each day in the Valuation Period; minus
f) The daily asset-based administrative charge for that
Division for each day in the Valuation Period.
Net Rate of Return for a Division of the Variable Account
The Net Rate of Return for a Division of the Variable
Account during a Valuation Period is the Accumulation
Experience Factor for that Valuation Period minus one.
Accumulation Value of Each Division of the Variable Account
The Accumulation Value of each Division of the Variable
Account as of the Contract Date is equal to the amount of
the initial Purchase Payment allocated to that Division.
On subsequent Valuation Dates, the amount of Accumulation
Value of each Division of the Variable Account is calculated
as follows:
1) The number of Accumulation Units in that Division of the
Variable Account as of the end of the preceding Valuation
Period multiplied by that Division's Accumulation Unit
Value for the current Valuation Period; plus
2) Any additional Purchase Payments allocated to that
Division during the current Valuation Period; plus
3) Any Accumulation Value transferred to such Division
during the current Valuation Period; minus
4) Any Accumulation Value transferred from such Division
during the current Valuation Period; minus
5) Any excess transfer charge allocated to such Division
during the current Valuation Period; minus
6) Any Gross Partial Withdrawals allocated to that Division
during the current Valuation Period; minus
7) The portion of the administrative charge applicable to
that Division if a Contract Anniversary occurs during the
Valuation Period.
Accumulation Value of the Guaranteed Interest Division
The Accumulation Value of the Guaranteed Interest Division as of
the Contract Date is equal to the amount of the initial Purchase
Payment allocated to that Division.
On subsequent Valuation Dates, the Accumulation Value of the
Guaranteed Interest Division is calculated as follows:
1) The Accumulation Value of the Guaranteed Interest
Division as of the end of the preceding Valuation Period plus
earned interest during the Valuation Period; plus
2) Any additional Purchase Payments allocated to the
Guaranteed Interest Division during the current Valuation
Period; plus
3) Any Accumulation Value transferred to the Guaranteed
Interest Division during the current Valuation Period; minus
4) Any Accumulation Value transferred from the Guaranteed
Interest Division during the current Valuation Period; minus
5) Any excess transfer charge allocated to the Guaranteed
Interest Division during the current Valuation Period; minus
6) Any Gross Partial Withdrawals allocated to the
Guaranteed Interest Division during the current Valuation
Period; minus
7) The portion of the administrative charge applicable to
the Guaranteed Interest Division if a Contract Anniversary
occurs during the current Valuation Period.
Your Right to Transfer Among Divisions
Prior to the Annuity Date, while the Contract is in effect
and after the Free Look period, you may transfer your
Accumulation Value among the Divisions of the Variable
Account and the Guaranteed Interest Division. The Fidelity
Investments Money Market Division is used only during the
Free Look period. See The Variable Account, page 13. The
minimum amount that may be transferred from each Division is
the lesser of $100 or the balance of a Division.
Percentages must be in whole numbers. Transfers due to the
operation of Dollar Cost Averaging or Automatic Rebalancing
are not included in determining the limit on transfers
without a charge. Each request to transfer for your Contract
is considered one transfer regardless of how many Divisions
are affected by the transfer. The table below summarizes
the number of transfers available and any associated charges
during any Contract Year:
Accumulation Period Annuity Period
Free Transfers 12 4
Total Number of Transfers Permitted Unlimited 4
Excess Transfer Charge $25 for each transfer Not
of 12 during any Applicable
Contract Year
We reserve the right to limit the number of transfers per
Contract Year to 12 and to limit excessive trading activity
which can disrupt Portfolio management strategy and increase
Portfolio expenses.
Once during the first 30 days of each Contract Year, you may
transfer amounts from the Guaranteed Interest Division.
Transfer requests received within 30 days prior to the
Contract Anniversary will be deemed to occur as of the
Contract Anniversary. Transfer requests received on the
Contract Anniversary or within the following 30 days will be
processed; transfer requests received at any other time will
not be processed. Transfers of your Accumulation Value to
the Guaranteed Interest Division are not limited to this 30-
day period.
The maximum transfer amount from the Guaranteed Interest
Division to the Divisions of the Variable Account in any
Contract Year is the greatest of:
(a) 25% of the balance in the Guaranteed Interest Division
immediately prior to the transfer;
(b) $100; or
(c) the total of all transfers and partial withdrawals
(including Systematic Income Program partial
withdrawals) from the Guaranteed Interest Division
in the prior Contract Year.
When a transfer is made involving the Divisions of the
Variable Account, we redeem Accumulation Units in the
Divisions you are transferring from, and purchase
Accumulation Units in the Divisions you are transferring to,
at their values next computed after receipt of your request
at our Customer Service Center.
If you have elected telephone privileges in an application
or sent written notice to our Customer Service Center
requesting this privilege, you may make transfers by
telephoning our Customer Service Center. See Telephone
Privileges, page 34.
Partial Withdrawals
Prior to the Annuity Date, while the Contract is in effect
and after the Free Look period, you may withdraw in cash all
or a part of the Cash Surrender Value of your Contract.
Partial withdrawals may be subject to a 10% tax penalty. See
Tax Consequences of Partial Withdrawals, page 31.
Partial withdrawals from the Divisions of the Variable
Account will be made by redeeming Accumulation Units in the
affected Divisions at their values next computed after we
receive your written request at our Customer Service Center.
A partial withdrawal will result in a decrease in the
Accumulation Value of your Contract. The decrease is equal
to the amount of the Gross Partial Withdrawal. A surrender
charge and a partial withdrawal transaction charge could be
incurred for withdrawals in excess of certain amounts. See
Charges Deducted from the Accumulation Value, page 35, and
The Amount You May Withdraw Without a Surrender Charge, page 30.
Certain plans or programs sold on a group or sponsored basis
to employee or professional groups may have different
withdrawal privileges. See Group or Sponsored Arrangements,
page 24.
Withholding of Federal income taxes on all distributions may
be required unless you elect not to have any such amounts
withheld and properly notify Security Life of that election.
Even if you elect no withholding, special "back-up
withholding" rules may require Security Life to disregard
your election if you fail to supply Security Life with a
"TIN" or taxpayer identification number (social security
number for individuals) or if the Internal Revenue Service
notifies Security Life that the TIN provided by you is
incorrect. In addition, withholding is required for all
payees with addresses outside the United States. Some
states also impose withholding requirements.
There are three options available for selecting partial
withdrawals: the Demand Withdrawal Option, the Systematic
Income Program and the IRA Income Program. All three
options are described below.
Demand Withdrawal Option
Partial withdrawals may be subject to a 10% tax penalty.
See Tax Consequences of Partial Withdrawals, page 31.
The minimum amount you may withdraw under this option is
$100, and the maximum demand withdrawal amount is the Cash
Surrender Value minus $500. If the amount of the demand
withdrawal you specify exceeds the maximum level, the amount
of the demand withdrawal will automatically be adjusted to
leave $500 remaining as the Cash Surrender Value. See
Surrendering to Receive the Cash Surrender Value, page 31.
Unless you specify otherwise, the amount of the partial
withdrawal will be taken from each Division in the same
proportion that the amount of Accumulation Value in that
Division bears to the Accumulation Value in all of the
Divisions immediately before the withdrawal.
You may not withdraw from the Guaranteed Interest Division
an amount that is greater than the total demand withdrawal
multiplied by the ratio of the Accumulation Value in the
Guaranteed Interest Division to the total Accumulation Value
immediately before the withdrawal.
We impose a partial withdrawal transaction charge for each
demand withdrawal after the first in any Contract Year. See
Partial Withdrawal Transaction Charge, page 35.
If you have elected telephone privileges in an application
or sent written notice to our Customer Service Center
requesting this privilege, you may make demand withdrawals
by telephoning our Customer Service Center. Any telephone
request for a demand withdrawal must be for an amount less
than $25,000. See Telephone Privileges, page 34.
Systematic Income Program
Partial withdrawals may be subject to a 10% tax penalty.
See Tax Consequences of Partial Withdrawals, page 31.
You may choose to receive Systematic Income Program partial
withdrawals on a monthly or quarterly basis from the
Accumulation Value. Withdrawals will be taken from each
Division of the Variable Account and the Guaranteed Interest
Division in the same proportion that the Accumulation Value
of that Division bears to the total Accumulation Value. The
payouts under this option may not start sooner than one
month after the Contract Date.
You may select the day of the month when the withdrawals
will be made. If no day is selected, the withdrawals will
be made on the same calendar day of the month as the
Contract Date. If this calendar day is not a Valuation Date,
the next Valuation Date will be used. You may select a
dollar amount or a percentage amount for your withdrawal
subject to the following maximums:
Frequency Maximum Income Payment Percentage
Monthly 1.25% of Accumulation Value
Quarterly 3.75% of Accumulation Value
Except as described in the following sections, in no event
will a payout be less than $100.
If a dollar amount is selected and the amount to be
systematically withdrawn would exceed the applicable maximum
percentage as of the withdrawal date, the amount withdrawn
will be reduced to equal such percentage. If the amount to
be withdrawn is less than $100, the withdrawal will be made,
the Systematic Income Program will be canceled, and any
remaining Cash Surrender Value will be paid to you. This
will result in the termination of the Contract.
If a percentage is selected and the amount to be
systematically withdrawn based on that percentage would be
less than $100, the amount withdrawn will be increased to
the lesser of $100 or the maximum percentage. If this
amount to be withdrawn is then less than $100, the
withdrawal will be made, the Systematic Income Program will
be canceled, and any remaining Cash Surrender Value will be
paid to you. This will result in the termination of the
Contract.
Systematic Income Program partial withdrawals may be subject
to a surrender charge and partial withdrawal transaction
charges if a demand withdrawal is taken in the same Contract
Year. See The Amount You May Withdraw Without a Surrender
Charge, page 30.
You may change the amount or percentage of your Systematic
Income Program partial withdrawal once each Contract Year.
You may cancel your election at any time by sending written
notice to our Customer Service Center at least seven days
prior to the next scheduled withdrawal date.
In no event will you be allowed to withdraw more than the
Cash Surrender Value.
IRA Income Program -- IRA Contracts Only
If you have an IRA Contract, we will provide payout of
amounts required to be distributed by the Internal Revenue
Service. See Taxation of Individual Retirement Annuities,
page 44.
We will determine the amount that is required to be
distributed from your Contract each year based on the
information you give us and various choices you make. For
information regarding the calculation and choices you must
make, see the Statement of Additional Information. The
minimum dollar amount of each distribution is $100. At any
time while minimum distributions are being made, if your
Cash Surrender Value falls below $2,000, we will cancel the
Contract and send you the amount of your Cash Surrender
Value.
In no event will you be allowed to withdraw more than the
Cash Surrender Value.
The Amount You May Withdraw Without a Surrender Charge
You may withdraw each Contract Year without a surrender
charge the greater of Earnings (as of the date of the
written request) or 15% of the Accumulation Value as of the
last Contract Anniversary (less any Gross Partial
Withdrawals already made during the Contract Year which are
not considered to be withdrawals of Purchase Payments) as
well as Purchase Payments held beyond the surrender charge
period.
Demand Withdrawals and any Systematic Income Program partial
withdrawals which occur in the same Contract Year as a
demand withdrawal are deemed to withdraw first the Earnings
in the Contract; followed by Purchase Payments held for at
least five full Contract Years since the Contract
Anniversary at the end of the Contract Year in which the
Purchase Payment was made. Then the amount by which 15% of
the Accumulation Value as of the last Contract Anniversary
(less any Gross Partial Withdrawals already made during the
Contract Year which are not considered to be withdrawals of
Purchase Payments) exceeds the Earnings in the Contract, if
any, is withdrawn. Finally, any Purchase Payments
remaining, on a first-in, first-out basis are withdrawn.
During any Contract Year, if a demand withdrawal is made
while the Systematic Income Program is in effect, the
remaining payouts to be made under the Systematic Income
Program for that Contract Year will be considered demand
withdrawals for purposes of calculating partial withdrawal
transaction charges and any applicable surrender charges.
If a demand withdrawal is not made in the same Contract
Year, Systematic Income Program partial withdrawals will not
be assessed a surrender charge. IRA Income Program partial
withdrawals will not be assessed a surrender charge.
However, the amount available for Systematic Income Program
partial withdrawals and IRA Income Program partial
withdrawals is never greater than the Cash Surrender Value.
A surrender charge applies only to the withdrawal of
Purchase Payments held less than five full Contract Years
since the Contract Anniversary at the end of the Contract
Year in which the Purchase Payment was made. If a Purchase
Payment is made as of the first day of a Contract Year, a
surrender charge will apply against this Purchase Payment
for six full years. See Surrender Charge, page 35.
Certain plans or programs sold on a group or sponsored basis
to employee or professional groups may have different
withdrawal privileges. See Group or Sponsored Arrangements,
page 24.
Tax Consequences of Partial Withdrawals
CONSULT YOUR TAX ADVISER REGARDING THE TAX CONSEQUENCES
ASSOCIATED WITH TAKING PARTIAL WITHDRAWALS. A partial
withdrawal made before the taxpayer reaches Age 59 1/2 may
result in imposition of a tax penalty of 10% of the taxable
portion withdrawn. Please refer to FEDERAL TAX
CONSIDERATIONS, page 42, for more details.
Surrendering to Receive the Cash Surrender Value
You may surrender the Contract for its Cash Surrender Value at
any time prior to the Annuity Date.
Your Contract's Cash Surrender Value fluctuates daily with the
investment experience of the Divisions of the Variable Account
in which you are invested and any interest credited to amounts
you have invested in the Guaranteed Interest Division. We do
not guarantee any minimum Cash Surrender Value for amounts
invested in the Divisions of the Variable Account. The amount
allocated to the Guaranteed Interest Division and a minimum
interest rate are guaranteed for amounts allocated to the
Guaranteed Interest Division. As of any Valuation Date while
the Contract is in effect, the Cash Surrender Value is
calculated as follows:
1) We take the Contract's Accumulation Value as of that
date less any taxes incurred but not deducted (see Taxes
on Purchase Payments, page 36);
2) We deduct any surrender charge (see Surrender Charge,
page 35);
3) We deduct the $30 administrative charge, if any, due at
the end of the Contract Year (see Administrative Charge, page
36).
When a Contract is surrendered, we redeem Accumulation Units
in the Divisions of the Variable Account at their value next
computed after we receive at our Customer Service Center your
written request along with the Contract. All benefits under
the Contract are then terminated. We will normally pay the
Cash Surrender Value within seven days, but we may delay
payout as described in When We Make Payouts, page 32.
Withholding of Federal income taxes on all distributions may
be required unless you elect not to have any such amounts
withheld and properly notify Security Life of that election.
Even if you elect no withholding, special "back-up
withholding" rules may require Security Life to disregard your
election if you fail to supply Security Life with a "TIN" or
taxpayer identification number (social security number for
individuals) or if the Internal Revenue Service notifies
Security Life that the TIN provided by you is incorrect. In
addition, withholding is required for all payees with
addresses outside the United States. Some states also impose
withholding requirements.
If you do not wish to receive your Cash Surrender Value in a
one sum payout and you are also the Annuitant, you may avoid a
surrender charge by applying the Accumulation Value, less any
taxes incurred but not deducted, to Payout Period Options II
or III by accelerating the Annuity Date under the Contract.
See CHOOSING AN ANNUITY OPTION, page 37.
Your Right to Cancel the Contract
Canceling your Contract
You may cancel the Contract within your Free Look period which
is ten days after you receive your Contract. We deem this
period to expire 15 days after the Contract is mailed from our
Customer Service Center. Some states may require a longer
Free Look period. If you decide to cancel, you may mail or
deliver the Contract to us at our Customer Service Center. We
will refund the Accumulation Value plus any charges we
deducted. If you have purchased a Contract in a state that
requires the return of Purchase Payments during the Free Look
period and you choose to exercise your Free Look right, we
will return the Purchase Payment invested.
When We Make Payouts
Partial withdrawals or payout of Proceeds from the Divisions
of the Variable Account will usually be processed within
seven days of receipt of the request at our Customer Service
Center. However, we may postpone the processing of any such
transactions for any of the following reasons:
a) When the New York Stock Exchange (NYSE) is closed for
trading;
b) When trading on the NYSE is restricted by the SEC;
c) When an emergency exists such that it is not reasonably
practical to dispose of securities in the applicable
Division of the Variable Account or to determine the value
of its assets; or
d) When a governmental body having jurisdiction over the
Variable Account permits such suspension by order.
Rules and regulations of the SEC are applicable and will
govern as to whether conditions described in (b), (c), or
(d) exist.
We may defer up to six months the payout of any partial
withdrawal or Proceeds from the Guaranteed Interest
Division.
OTHER INFORMATION
The Owner
You are the Owner. You are also the Annuitant unless
another Annuitant is named in the application. You have the
rights and options described in the Contract. You and your
spouse may be joint Owners; no other joint ownership is
allowed. You (and your spouse, in the case of joint
ownership) must be younger than Age 86 as of the Contract
Date.
Subject to the applicable provisions of the Distribution-at
Death Rules, page 44, if the Owner (or a Deemed Owner as
defined in Distribution-at-Death Rules) dies prior to the
Annuity Date, and:
1. If the Owner's spouse is the Joint Owner, then the
spouse becomes the new Owner and no Death Benefit is payable; or
2. If the Owner's spouse is the Beneficiary, then the
spouse may elect to become the Owner (in which case there is no
Death Benefit payable) by so electing within 60 days of our
receipt of due proof of death and prior to the distribution
of Proceeds; if there is no such election, the Death Benefit
is payable to the Beneficiary; or
3. If the Owner's spouse is not the Joint Owner or the
Beneficiary, then the Death Benefit is payable to the
Beneficiary.
See Enhanced Guaranteed Death Benefit, page 14.
The Annuitant
The Annuitant will receive the annuity benefits of the
Contract as of the Annuity Date if the Annuitant is living
and the Contract is then in force. If the Annuitant dies
before the Annuity Date and a Contingent Annuitant is named,
the Contingent Annuitant becomes the Annuitant (unless the
Owner is not an individual, in which case the Proceeds
become payable). If no Contingent Annuitant has been named,
the Owner must designate a new Annuitant. If no designation
is made within 30 days of the Annuitant's death, the Owner
will become the Annuitant.
Upon the death of the Annuitant after the Annuity Date, any
remaining designated period payouts will be continued to any
Contingent Annuitant. Upon the death of both the Annuitant
and all Contingent Annuitants, any remaining designated
period payouts will be paid to the estate of the last to die
of the Annuitant and Contingent Annuitants. Amounts may be
released in one sum if the Owner's election allows. See
CHOOSING AN ANNUITY OPTION, page 37.
The Beneficiary
The Beneficiary is the person to whom we pay Proceeds upon
the death of the Owner (or of the Annuitant, if the Owner is
not an individual) prior to the Annuity Date.
The original Beneficiary and any Contingent Beneficiaries
are named in the application. Surviving Contingent
Beneficiaries are paid Death Benefit Proceeds only if no
Beneficiary survives. If more than one Beneficiary in a
class survives, they will share the Proceeds equally, unless
the Owner's designation provides otherwise. If there is no
designated Beneficiary or Contingent Beneficiary surviving,
we will pay the Proceeds to the Owner's estate. The
Beneficiary designation will be on file with us or at a
location designated by us. We will pay Proceeds to the most
recent Beneficiary designation on file.
Change of Owner, Beneficiary or Annuitant
Prior to the Annuity Date and while the Contract is in
effect after the Free Look period, you may transfer
Ownership of the Contract (unless the Contract is an IRA
Contract) subject to our published rules at the time of the
change. A new Owner must be younger than Age 86.
You may name a new Annuitant prior to the Annuity Date. Any
Annuitant or Contingent Annuitant must be younger than Age
86 when named. An Annuitant or Contingent Annuitant that is
not an individual may not be named without our consent. If
the Owner is not an individual, the Annuitant may not be
changed without our consent.
The Owner may name a new Beneficiary unless an irrevocable
Beneficiary has been named. When an irrevocable Beneficiary
has been designated, the Owner and the irrevocable
Beneficiary must act together to make any Beneficiary
changes. If the Contract is an IRA Contract and a
Beneficiary change is being made, the Owner's spouse must
sign a statement agreeing to this designation.
To make any of these changes, you must send us written
notice of the change to our Customer Service Center. The
change will take effect as of the day the notice is signed
and dated provided that the request was received at our
Customer Service Center prior to any payout. The change
will not affect any payout made or action taken by us before
recording the change at our Customer Service Center. There
may be tax consequences, see FEDERAL TAX CONSIDERATIONS,
page 42.
Other Contract Provisions
In Case of Errors on the Application or Enrollment Form
If an Age or sex given in the application is misstated, the
amounts payable or benefits provided by the Contract will be
those that the Purchase Payment would have bought at the
correct Age or sex.
Procedures
We must receive any election, designation, change,
assignment, or any other change request you make in writing,
except those you have chosen to request by telephone. We
may require a return of your Contract for any Contract
change or for paying Proceeds. We may require proof of age,
death, or survival of an Annuitant or Beneficiary when such
proof is relevant to the payout of a benefit, claim, or
settlement under the Contract. If your Contract has been
lost, we will require that you complete and return a
Contract Replacement Form. The effective date of any change
in provisions of the Contract will be the date the request
was signed. Any change will not affect payouts made or
action taken by us before the change is recorded at our
Customer Service Center.
In the event of the Owner's death prior to the Annuity Date,
we should be informed as soon as possible. Claim procedure
instructions will be sent to your Beneficiary immediately.
We require a certified copy of the death certificate and may
require proof of the Owner's Age. We may require the
Beneficiary and the Owner's next of kin to sign all
authorizations as part of due proof.
Telephone Privileges
If you have elected this privilege in a form required by us,
you may make transfers or request partial withdrawals by
telephoning our Customer Service Center.
Our Customer Service Center will employ reasonable
procedures to confirm that instructions communicated by
telephone are genuine. Such procedures may include, among
others, requiring some form of personal identification prior
to acting upon instructions received by telephone, providing
written confirmation of such transactions, and/or tape
recording of telephone instructions. Your request for
telephone privileges authorizes us to record telephone
calls. If reasonable procedures are not used in confirming
instructions, we may be liable for any losses due to
unauthorized or fraudulent instructions. We reserve the
right to discontinue this privilege at any time.
Assigning the Contract as Collateral
You may assign this Contract as collateral security upon
written notice to us. Once it is recorded with us, the
rights of the Owner and Beneficiary are subject to the
assignment. It is your responsibility to make sure the
assignment is valid. See Exchange of Annuity Contracts,
page 45 and Assignments, page 46.
Non-Participating
The Contract does not participate in Security Life's surplus
earnings.
Authority to Change Contract Terms
All agreements made by us must be signed by our president or
an officer and by our secretary or assistant secretary. No
other person, including an insurance agent or broker, can
change any of the Contract's terms or make any agreements
binding on us.
Contract Changes - Applicable Tax Law
This Contract is intended to qualify as an annuity contract
under the Code. To that end, all terms and provisions of
the Contract shall be interpreted to ensure or maintain such
qualification, notwithstanding any other provisions to the
contrary. Payouts and distributions under the Contract
shall be made in the time and manner necessary to maintain
such qualification under the applicable provisions of the
Code in existence at the time the Contract is issued.
We reserve the right to amend this Contract, to reflect any
clarifications or changes that may be needed or are
appropriate, or to conform it to any applicable changes in
the tax requirements to qualify the Contract as an annuity.
Any such changes will apply uniformly to all Contracts that
are affected. We will send you written notice of such
changes.
CONTRACT CHARGES AND FEES
Deduction of Charges
We invest the entire amount of the initial and any
additional Purchase Payments in the Divisions of the
Variable Account and the Guaranteed Interest Division. We
then periodically deduct certain amounts from your
Accumulation Value invested in the Divisions of the Variable
Account and the Guaranteed Interest Division. We may reduce
certain charges under group or sponsored arrangements. See
Group or Sponsored Arrangements, page 24. A description of
the charges we deduct follows.
Charges Deducted from the Accumulation Value
Surrender Charge
The withdrawal of Purchase Payments held less than five full
Contract Years since the Contract Anniversary at the end of
the Contract Year in which the Purchase Payment was made,
either by surrender or partial withdrawal, is subject to a
surrender charge. If a Purchase Payment is made as of the
first day of a Contract Year, a surrender charge will apply
against this Purchase Payment for six full years. The
surrender charge that applies is calculated as follows.
Contract Anniversaries Since Surrender Charge as a Percentage
Purchase Payment Was Made of Purchase Payment Withdrawn
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
Up to certain limits, Partial Withdrawals may be taken
without surrender charge. See The Amount You May Withdraw
Without a Surrender Charge, page 30.
Any applicable surrender charges will reduce the
Accumulation Value of each Division in the same proportion
that the Accumulation Value in each Division bears to the
total Accumulation Value immediately after the withdrawal.
Proceeds from the surrender charge may not cover the
expected costs of distributing the Contracts. Any shortfall
will be recovered from Security Life's general assets, which
may include revenues from the mortality and expense risk
charge deducted from the Variable Account.
Partial Withdrawal Transaction Charge
Prior to the Annuity Date and while the Contract is in
effect after the Free Look period, you may take one demand
withdrawal each Contract Year without a partial withdrawal
transaction charge. We impose a partial withdrawal
transaction charge to each additional demand withdrawal in
that Contract Year, equal to the lesser of $25 and 2% of the
amount withdrawn. The partial withdrawal transaction charge
will reduce the Accumulation Value of each Division in the
same proportion that the Accumulation Value in each Division
bears to the total Accumulation Value immediately after the
withdrawal. The partial withdrawal transaction charge will
not apply to withdrawals made pursuant to the Systematic
Income Program and IRA Income Programs unless a demand
withdrawal occurs while the Systematic Income Program is in
effect. Then, the remaining payouts to be made under the
Systematic Income Program for that year will be considered
demand withdrawals for purposes of calculating partial
withdrawal transaction charges and surrender charges.
We do not expect that the total revenue from the partial
withdrawal transaction charge will be greater than the total
expected cost of administering demand withdrawals, on
average, over the period that the Contracts are in force.
Administrative Charge
The administrative charge is deducted each year during the
Accumulation Period as of the Contract Processing Date. We
deduct this charge when determining the Cash Surrender Value
payable if you surrender the Contract prior to the end of a
Contract Year. The amount deducted is $30 per Contract Year
if Net Purchase Payments are less than $100,000. If Net
Purchase Payments equal $100,000 or more, the charge is
zero. This charge is to cover a portion of our
administrative expenses.
The administrative charge is allocated to a Division in the
same proportion that the amount of Accumulation Value in
that Division bears to the total Accumulation Value. In
certain states, the administrative charge is not allocated
to the Guaranteed Interest Division.
Excess Transfer Charge
We allow you 12 free transfers among Divisions per Contract
Year during the Accumulation Period. For each additional
transfer, we will charge you $25 at the time the transfer is
processed. The charge will be deducted from each of the
Divisions in which you are invested in the same proportion
that the amount of Accumulation Value in each Division bears
to the total Accumulation Value of all the Divisions
immediately after the transfer. We do not expect that the
total revenues from the excess transfer charge will be
greater than the total expected cost of administering
transfers, on average, over the period that the Contracts
are in force. Any transfer(s) due to the election of Dollar
Cost Averaging, Automatic Rebalancing and/or pursuant to
Changes Within The Variable Account, page 20, will not be
included in determining if the excess transfer charge should
apply.
After the Annuity Date, only four transfers each Contract
Year are allowed, and no transfer charge will be deducted.
Taxes on Purchase Payments
We make a charge for state and local taxes on Purchase
Payments in certain states, which currently ranges from 0%
to 3.5% of the Purchase Payment (5% for the Virgin Islands).
The charge depends on the Annuitant's state of residence.
Taxes on Purchase Payments are generally incurred as of the
Annuity Date, and we deduct the charge for taxes on Purchase
Payments from your Accumulation Value as of the Annuity
Date. Some jurisdictions impose a tax on Purchase Payments
at the time the Purchase Payments are paid, regardless of
the Annuity Date. In those states, our current practice is
to advance the payment of your taxes on Purchase Payments
and charge it against your Accumulation Value either upon
surrender of the Contract, payout of Death Benefit Proceeds,
or upon the Annuity Date. We reserve the right to deduct
any state and local taxes on Purchase Payments from your
Accumulation Value at the time such tax is due.
Charges Deducted From The Divisions of the Variable Account
Mortality and Expense Risk Charge
We will deduct a daily charge from the assets in the
Divisions of the Variable Account to compensate Security
Life for mortality and expense risks we assume under the
Contract. The daily charge during the Accumulation Period
is at the rate of 0.004247% (equivalent to an annual rate of
1.55%) on the assets in the Divisions of the Variable
Account. The daily charge during the Annuity Period is at
the rate of 0.003425% (equivalent to an annual rate of
1.25%) on the assets in the Divisions of the Variable
Account. Approximately 1.20% of this annual charge is
allocated to the mortality risk and 0.35% is allocated to
the expense risk. The mortality risk is reduced to 0.90%
during the Annuity Period when the Death Benefit is no
longer available. This charge is not deducted from the
Guaranteed Interest Division. We will realize a gain from
this charge to the extent it is not needed to provide for
benefits and expenses under the Contract.
The mortality risk assumed is the risk that Annuitants as a
group will live for a longer time than our actuarial tables
predict. As a result, we would be paying more in annuity
income than we planned. Security Life also assumes a risk
for paying an Enhanced Guaranteed Death Benefit, which in
periods of declining value and higher mortality rates, could
result in a loss for Security Life. The expense risk
assumed is the risk that it will cost us more to issue and
administer the Contract than we expected in setting the
charge levels guaranteed in the Contract.
Asset-based Administrative Charge
We will deduct a daily charge from the assets in each
Division of the Variable Account to compensate Security Life
for a portion of the administrative expenses under the
Contract. The daily charge is at a rate of 0.000411%
(equivalent to an annual rate of 0.15%) on the assets in
each Division of the Variable Account. This charge is not
deducted from the Guaranteed Interest Division.
We do not expect that the total revenues from the
administrative charges will be greater than the total
expected cost of administering the Contracts, on average,
excluding costs that are properly categorized as
distribution expenses, over the period that the Contracts
are in force.
Portfolio Expenses
There are fees and charges deducted from the Portfolios.
Please read the prospectuses for the Trust and the Fidelity
Investments Money Market Portfolio for complete details.
CHOOSING AN ANNUITY OPTION
General Provisions
Supplementary Contract
When an Annuity Option becomes effective, your Contract will
be amended to include a Supplementary Contract which will
put the Annuity Option elected into effect. The
Supplementary Contract Effective Date will be the date the
Annuity Option becomes effective. The computation of the
first payout will be made as of the Supplementary Contract
Effective Date. The first payout will be paid within 10
days of this date.
Election and Changes of Annuity Date
The Annuity Date is the date as of which Annuity Payouts
begin. It may be elected on your application. You may elect
any Annuity Date following the second Contract Anniversary
but no later than the Annuitant's 95th birthday. If no
Annuity Date is elected in the application, the Annuity Date
will be the first day of the month following the Annuitant's
95th birthday. However, the Annuity Date limitations may
vary according to state regulation. Please refer to your
Contract for a description of these limitations. For an IRA
Contract, distribution must commence not later than April
1st of the calendar year following the calendar year in
which you attain age 70 1/2. Consult your tax adviser. You
may change the Annuity Date by sending a written request to
our Customer Service Center at least 60 days prior to the
currently elected Annuity Date of the Contract.
Election and Changes of Annuity Option
The Annuity Option is composed of both the Payout Option
which specifies the type of annuity to be paid and the
Payout Period Option which determines how long the annuity
will be paid, the frequency and the amount of the first
payout. The Owner elects the Annuity Option that applies
upon annuitization. The Owner may change that Annuity Option
at any time prior to the Annuity Date. The Beneficiary may
select an Annuity Option for any payouts to be made pursuant
to death benefit Proceeds. Any death benefit Proceeds to be
applied under a Payout Option will be allocated to each of
the Divisions of the Variable Account or the Guaranteed
Interest Division as instructed by the Beneficiary.
Commutation rights are provided to an Annuitant or
Contingent Annuitant as provided in Commuting Provisions,
page 40. The available options are described in the Annuity
Option provisions of the Contract.
The various methods of settlement are shown below.
Payout Options
Proceeds applied as of the Annuity Date to provide an
annuity under an Annuity Option will be the Accumulation
Value minus taxes incurred but not deducted. The taxes will
be taken from each of the Divisions in the same proportion
that the Accumulation Value in each Division bears to the
Accumulation Value in all Divisions immediately prior to the
Annuity Date.
If no Annuity Option has been chosen upon annuitization, we
will apply Proceeds to Payout Period Option Table I, using a
Benchmark Total Return of 3%, with a designated period of 30
years. The Annuity Option will be allocated among the
Guaranteed Interest Division and the Divisions of the
Variable Account in the same proportion that the
Accumulation Value was allocated prior to the Annuity Date.
For example if all of the Accumulation Value is allocated to
the Guaranteed Interest Division, the Annuity Payout will
be a Fixed Annuity Payout.
Variable Annuity Payout
A Variable Annuity Payout is an annuity with payouts which:
(1) are not pre-determined or guaranteed as to dollar
amount; and (2) vary in amount with the investment
experience of the Divisions of the Variable Account in which
you invest.
As of the Annuity Date, any Accumulation Value invested in
the Guaranteed Interest Division will be allocated among the
Divisions of the Variable Account in the same proportion
that the Accumulation Value of each Division bears to the
total Accumulation Value of all the Divisions of the
Variable Account.
The first Variable Annuity Payout for each Division of the
Variable Account will be the amount that the Proceeds will
provide as of the close of business on the Valuation Date
immediately preceding the Supplementary Contract Effective
Date at the Benchmark Total Return elected. If you have
elected to have payouts made less frequently than monthly,
the payout amount is then adjusted according to the factors
in Payouts Other Than Monthly, page 40.
Variable Annuity Payouts, after the first payout, vary in
amount with the investment experience of the Divisions of
the Variable Account. The dollar amount of each Variable
Annuity Payout after the first payout is calculated by
adding the amount due for each Division of the Variable
Account.
The Annuitant or Beneficiary may transfer all or a portion
of the Annuity Units in a Division of the Variable Account
to another Division of the Variable Account.
For a description of the method for determining the amount
of Annuity Payouts, the Annuity Unit Value and transfer
provisions during the Annuity Period, see the Statement of
Additional Information.
Fixed Annuity Payout
A Fixed Annuity Payout is an annuity with payouts which
remain fixed as to dollar amount throughout the Payout
Period. As of the Annuity Date, any Accumulation Value
invested in the Divisions of the Variable Account will be
allocated to the Guaranteed Interest Division. The Fixed
Annuity Payout will be that amount that the Proceeds will
provide as of the Supplementary Contract Effective Date at
the guaranteed Benchmark Total Return of 3%. If the Fixed
Annuity Payout is credited at an interest rate above the
guaranteed minimum, the installment dollar amount will be
greater than the determined installment dollar amount for
the time period that the higher rate is declared. If you
have elected to have payouts made less frequently than
monthly, the payout amount is adjusted according to the
factors in Payouts Other Than Monthly, page 40.
For Fixed Annuity Payouts, Security Life guarantees that,
after the Supplementary Contract Effective Date, monies held
under an Annuity Option will be credited with interest at a
minimum guaranteed effective rate of 3%. We may declare
that Fixed Annuity Payouts are to be credited at an interest
rate above the guaranteed minimum. We guarantee that any
higher rate will be in effect for at least 12 months.
Combination Annuity Payout
A Combination Annuity Payout is an annuity where a portion
of the payout is variable and a portion of the payout is
fixed as to dollar amount throughout the Payout Period. You
can split the Proceeds among Fixed and Variable Annuity
Payouts in any proportion you choose, with the exception
that a minimum of 25% must be allocated to either option you
elect as of the Supplementary Contract Effective Date. As of the
Supplementary Contract Effective Date, we will allocate
Accumulation Value between the Guaranteed Interest Division
and the Divisions of the Variable Account to meet the
proportions selected.
The potential benefit of splitting the Proceeds between a
Fixed and a Variable Annuity Payout is that you will have a
portion of your Annuity Payout fixed and guaranteed and a
portion which may increase over time, helping to offset
inflation. Of course, the payouts attributable to the
Variable Annuity Payout are not guaranteed and could
decrease, since their value is determined by the investment
experience of the Divisions of the Variable Account you
select. Once you elect your Combination Annuity Payout, you
may subsequently increase your allocation to a Fixed Annuity
Payout, but you may not increase your allocation to the
Variable Annuity Payout.
Frequency and Amount of Annuity Payouts
Annuity Payouts will be made to the Annuitant based on the
Annuity Option and frequency elected. They may be made
monthly, quarterly, semiannually or annually. If we do not
receive written notice from you, the Annuity Payouts will be
made monthly. There may be certain restrictions on minimum
payouts that we will allow. We may require that a one sum
payout be made if the Proceeds to be applied is less than
$2,000 or, if the payouts to the Annuitant are ever less
than $20, we may change the frequency of payouts to result
in payouts of at least that amount or require a one sum
payout.
Payout Period Options
Under each Payout Option, the Payout Period is elected from
one of the following 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. If a Fixed
Annuity Payout is elected, the installment dollar amounts
will be equal except for any excess interest as described in
Fixed Annuity Payout, page 38. If a Variable Annuity Payout
is elected, the number of Annuity Units of each installment
will be equal, but the dollar amounts of each installment
will vary based on the Annuity Unit Values of the Divisions
chosen. If the Annuitant dies before the end of the
designated period, payouts will be continued to the
Contingent Annuitant, if one has been named, until the end
of the designated period. The amount of each payout will
depend upon the designated period elected and, if a Variable
Annuity Payout is elected, the investment experience of the
Divisions of the Variable Account selected. The amount of
the first monthly payout for each $1,000 of Accumulation
Value applied is shown in Payout Option Table I in the
Contract.
Option II - Life Income with Payouts for a Designated
Period. Payouts will be made in 1, 2, 4, or 12 installments
per year throughout the Annuitant's lifetime or, if longer,
for a period of 5, 10, 15 or 20 years as elected. If a Fixed
Annuity Payout is elected, the installment dollar amounts
will be equal except for any excess interest as described in
Fixed Annuity Payout, page 38. If a Variable Annuity Payout
is elected, the number of Annuity Units of each installment
will be equal, but the dollar amounts of each installment
will vary based on the Annuity Unit Values of the Divisions
chosen. If the Annuitant dies before the end of the
designated period, payouts will be continued to the Contingent Annuitant, if
one has been named, until the end of the designated period.
The amount of each payout will depend upon the Annuitant's
sex, Age at the time the first payout is due, the designated
period elected and, if a Variable Annuity Payout is elected,
the investment experience of the Divisions of the Variable
Account selected. The amount of the first monthly payout
for each $1,000 of Accumulation Value applied is shown in
Payout Option Table II in the Contract. This option is only
available for Ages shown in these tables.
Option III. Joint and Last Survivor. Payouts will be made
in 1, 2, 4, or 12 installments per year while both
Annuitants are living. Upon the death of one Annuitant, the
Survivor's Annuity Payout will be paid throughout the
lifetime of the Surviving Annuitant.
If a Fixed Annuity Payout is elected, the installment dollar
amount will be equal while both Annuitants are living and,
upon the death of one Annuitant, will be reduced to 2/3rds
of the installment dollar amount while both Annuitants were
living excluding any excess interest as described in Fixed
Annuity Payout, page 38.
If a Variable Annuity Payout is elected, the number of
Annuity Units applied to each installment will be level
while both Annuitants are living and, upon the death of one
Annuitant, will be reduced to 2/3rds of the number of
Annuity Units applied to each installment while both
Annuitants were living. The dollar amounts of each
installment will vary based on the Annuity Unit Values of
the Divisions chosen.
The amount of each payout will depend upon the Age and sex
of each Annuitant at the time the first payout is due and,
if a Variable Annuity Payout is elected, the investment
experience of the Divisions of the Variable Account
selected.
A description of how the first monthly installment for
Payout Period Option III is calculated is provided in your
Contract.
Option IV. Other. Payouts will be made in any other manner
as agreed upon in writing between you or the Beneficiary and
us.
Payouts Other Than Monthly
The Payout Option Tables in your Contract show the first
monthly installments for Payout Period Options I and II. To
arrive at the first annual, semiannual or quarterly payouts,
multiply the appropriate figures by 11.837, 5.962 or 2.992
if the Benchmark Total Return is 3%, and by 11.730, 5.909 or
2.966 if the Benchmark Total Return is 5%. Factors for
other designated periods or for other options that may be
provided by mutual agreement will be provided upon
reasonable request.
Commuting Provisions
The Annuitant may commute remaining designated period
installments under Payout Period Option I. The Contingent
Annuitant may commute remaining designated period
installments after the death of the Annuitant under Payout
Period Options I or II. If no Contingent Annuitant is
named, any remaining designated period installments may be
commuted by the estate. Any computation shall be at the
appropriate Benchmark Total Return rate.
REGULATORY INFORMATION
Voting Privileges
We invest the assets in the Divisions of the Variable
Account in shares of the corresponding Portfolios. See The
Portfolios, page 19. Security Life is the legal owner of
the shares held in the Variable Account and, as such, has
the right to vote on certain matters. Among other things,
we may vote on any matters described in the current
prospectuses of the Trust or the Fidelity Investments Money
Market Portfolio or requiring a vote by shareholders under
the Investment Company Act of 1940.
Even though we own the shares, to the extent required by the
interpretations of the SEC, we give you the opportunity to
tell us how to vote the number of shares that are
attributable to your Contract. We will vote those shares at
meetings of Portfolio shareholders according to your
instructions. We will also vote any Portfolio shares that
are not attributable to the Contracts and shares for which
instructions from Owners were not received in the same
proportion that Owners vote. If the Federal securities laws
or regulations or interpretations of them change so that we
are permitted to vote shares of a Portfolio in our own right
or to restrict Owner voting, we reserve the right to do so.
You may participate in voting only on matters affecting the
Portfolios in which your assets have been invested. We
determine the number of Portfolio shares in each Division
that are attributable to your Contract by dividing the
amount of your Accumulation Value allocated to that Division
by the net asset value of one share of the corresponding
Portfolio. The number of shares as to which you may give
instructions will be determined as of the record date set by
the Portfolio's Board for the Portfolio's shareholders
meeting. We count fractional shares. If you have a voting
interest, we will send you proxy material and a form for
giving us voting instructions.
All Portfolio shares are entitled to one vote. The votes of
all Portfolios are cast together on an aggregate basis,
except on matters where the interests of the Portfolios
differ. In such cases, voting is on a portfolio-by-portfolio
basis. In these cases, the approval of the shareholders in
one Portfolio is not needed in order to make a decision in
another Portfolio. Examples of matters that would require a
portfolioby-portfolio vote are changes in the fundamental
investment policy of a particular Portfolio or approval of
an investment advisory agreement. Shareholders in a
Portfolio not affected by a particular matter generally
would not be entitled to vote on it.
The Boards of the Portfolios and Security Life and any other
insurance companies participating in the Portfolios are
required to monitor events to identify any material
conflicts that may arise from the use of the Portfolios for
variable life and variable annuity separate accounts.
Conflict might arise as a result of changes in state
insurance law or Federal income tax law, changes in
investment management of any Portfolio, or differences in
voting instructions given by owners of variable life
insurance policies and variable annuity contracts. Shares of
these Portfolios may also be sold to certain pension and
retirement plans qualifying under Section 401 of the Code
and plans that include cash or deferred arrangements under
Section 401(k) of the Code. As a result, there is a
possibility that a material conflict may
arise between the interests of owners generally, or certain
classes of owners, and such retirement plans or participants
in such retirement plans. If there is a material conflict,
Security Life will have an obligation to determine what
action should be taken including the removal of the affected
Portfolios from eligibility for investment by the Variable
Account. Security Life will consider taking other action to
protect Owners. However, there could be unavoidable delays
or interruptions of operations of the Variable Account that
Security Life may be unable to remedy.
In certain cases, when required by state insurance
regulatory authorities, we may disregard instructions
relating to changes in the Portfolio's adviser or the
investment policies of the Portfolios. In the event we do
disregard voting instructions, we will include a summary of
our actions and give our reasons in the next semiannual
report to Owners.
Under the Investment Company Act of 1940, certain actions
affecting the Variable Account (such as some of those
described under Changes Within The Variable Account, page 20) may require
Owner approval. In that case, you will be entitled to one
vote for every $100 of value you have in the Divisions of
the Variable Account. We will cast votes attributable to
amounts in the Divisions not attributable to Contracts in
the same proportions as votes cast by Owners.
State Regulation
We are regulated and supervised by the Division of
Insurance of the Department of Regulatory Agencies of the
State of Colorado, which periodically examines our financial
condition and operations. We are also subject to the
insurance laws and regulations of all jurisdictions in which
we do business. The Contract has been approved by the
Division of Insurance of the Department of Regulatory
Agencies of the State of Colorado and by the Insurance
Departments of other jurisdictions. We are required to
submit annual statements of our operations, including
financial statements, to the Insurance Departments of the
various jurisdictions in which we do business to determine
solvency and compliance with state insurance laws and
regulations.
Legal Proceedings
Security Life, as an insurance company, is ordinarily
involved in litigation. We do not believe that any current
litigation is material to Security Life's ability to meet
its obligations under the Contract or to the Variable
Account, and we do not expect to incur significant losses
from such actions.
Legal Matters
The legality of the Contract described in this prospectus
has been passed on by Eugene L. Copeland, General Counsel
and Secretary of Security Life. Mayer, Brown & Platt of
Washington, D.C. has passed on certain matters relating to
federal securities laws.
Experts
The consolidated financial statements and schedules of
Security Life of Denver Insurance Company and Subsidiaries
at December 31, 1994 and 1993, and for each of the three
years in the period ended December 31, 1994, and the
financial statements of the Separate Account A1 at December
31, 1994, and for the year then ended appearing in the Statement of
Additional Information have been audited by Ernst & Young
LLP, independent auditors, as set forth in their reports
thereon also appearing in the Statement of Additional
Information and in the Registration Statement, and are
included in reliance upon such reports given upon the
authority of such firm as experts in accounting and
auditing.
FEDERAL TAX CONSIDERATIONS
Introduction
The ultimate effect of federal income taxes on the amounts
paid for the Contract, on the investment return on assets
held under a Contract, on Annuity Payouts and on the
economic benefits to the Owner, Annuitant or Beneficiary
depends upon the terms of the Contract, upon Security Life's
tax status and upon the tax status of the parties concerned.
The following discussion is general in nature and is not
intended as tax advice. Each party concerned should consult
a competent tax adviser. The discussion below is based upon
Security Life's understanding of the federal income tax laws
as they are currently interpreted and does not include state
or local tax issues. No representation is made regarding
the likelihood of continuation of the federal income tax
laws, the Treasury Regulations, or the current
interpretations by the Internal Revenue Service. For a
discussion of federal income taxes as they relate to the
Portfolios, please see the accompanying prospectuses for the
Portfolios.
Security Life Tax Status
Security Life is taxed as a life insurance company under
Part I of Subchapter L of the Code. Since the Variable
Account is not a separate entity from Security Life and its
operations form a part of Security Life, it will not be
taxed separately as a "regulated investment company" under
Subchapter M of the Code. Investment income and realized
capital gains on the assets of the Variable Account are
reinvested and taken into account in determining the
Contract's Accumulation Value. Under existing federal income
tax laws, the Variable Account's investment income,
including realized net capital gains, is not taxed to
Security Life. Security Life reserves the right to make a
deduction for taxes should they be imposed with respect to
such items in the future.
Taxation of Annuities
Section 72 of the Code governs taxation of annuities. In
general, the Owner (holder) of an annuity Contract will not
be taxed on increases in value under the Contract until some
form of distribution occurs. (For purposes of this rule, the
amount of any indebtedness that is secured by a pledge or
assignment of a Contract is treated as a payment received on
account of a partial withdrawal from the Contract.) Under
certain circumstances, however, the amount of any increase
in the value of a Contract may be subject to current federal
income tax. See Contracts Owned by Non-Natural Persons,
page 45, and Diversification Standards, page 46.
1. Withdrawals Prior to the Annuity Commencement Date.
Section 72 of the Code provides, in effect, that the
Proceeds from a surrender of the Contract or a partial
withdrawal from the Contract prior to the Annuity Date will
be treated as taxable income to the extent that the amount held under the
Contract immediately prior to the distribution exceeds the
"investment in the Contract". The "investment in the
Contract" is defined in the Code as that portion, if any, of
Purchase Payments by or on behalf of a taxpayer under the
Contract which was not excluded from the taxpayer's gross
income at the time of such payment less any amounts
previously received under the Contract which were excluded
from the taxpayer's gross income at the time of their
receipt. The taxable portion of any distribution received
prior to the Annuity Date will be subject to tax at ordinary
income tax rates. For purposes of this rule, a pledge or
assignment of a Contract is treated as a payout received on
account of a partial withdrawal of a Contract.
2. Annuity Payouts after the Annuity Date.
Upon receipt of the Proceeds of a surrender of the Contract
after the Annuity Date, the recipient is taxed to the extent
the Proceeds exceed the investment in the Contract. Upon
receipt of an Annuity Payout under the Contract, the
recipient will be taxed on a portion of each payout received
if the value of the Contract exceeds the investment in the
Contract. The taxable portion of a payout received after the
Annuity Date will be subject to tax at ordinary income tax
rates.
For Fixed Annuity Payouts, the taxable portion of each
payout is determined by using a formula known as the
"exclusion ratio," which establishes the ratio that the
investment in the Contract bears to the total expected
amount of Annuity Payouts for the term of the Contract.
That ratio is then applied to each payout to determine the
non-taxable portion of the payout. The remaining portion of
each payout is taxed at ordinary income rates. For Variable
Annuity Payouts, in general, the taxable portion is
determined by a formula which establishes a specific dollar
amount of each payout that is not taxed. The dollar amount
is determined by dividing the investment in the Contract by
the total number of expected periodic payouts. The
remaining portion of each payout is taxed at ordinary income
rates. For Contracts with Annuity Dates after December 31,
1986, once the excludable portion of Annuity Payouts to date
equals the investment in the Contract, the balance of the
Annuity Payouts will be fully taxable. Withholding of
federal income taxes on all distributions may be required
unless the recipient elects not to have any amounts withheld
and properly notifies Security Life of that election.
3. Penalty Tax on Certain Withdrawals or Distributions.
With respect to amounts withdrawn or distributed before the
taxpayer reaches Age 59 1/2, a penalty tax is imposed equal to
10% of the taxable portion of amounts withdrawn or
distributed. However, the penalty tax will not apply to
withdrawals:
(i) made on or after the death of the Owner or, where the
Owner is not an individual, the death of the "primary
Annuitant." The primary Annuitant is defined as the
individual the events in whose life are of primary
importance in affecting the timing and amount of the
payout under the Contract;
(ii) attributable to the taxpayer's becoming totally
disabled within the meaning of Code Section 72(m)(7);
(iii) which are part of a series of substantially equal
periodic payouts made at least annually for the life
(or life expectancy) of the taxpayer, or the joint
lives (or joint life expectancies) of the taxpayer
and his Beneficiary;
(iv) from an IRA;
(v) allocable to investment in the Contract prior to
August 14, 1982;
(vi) under a qualified funding asset (as defined in
Code Section 130(d));
(vii) under an immediate annuity contract, or
(viii) which are purchased by an employer on termination
of certain types of qualified plans and which are
held by the employer until the employee separates
from service.
Other tax penalties may apply to certain distributions as
well as to certain contributions and other transactions under
a qualified plan.
If the penalty tax does not apply to a withdrawal as a result
of the application of item (iii) above, and the series of
payouts are subsequently modified (other than by reason of
death or disability), the tax for the year when the
modification occurs will be increased by an amount (as
determined by the regulations) equal to the tax that would
have been imposed but for item (iii) above, plus interest for
the deferral period, if the modification takes place (a)
before the close of the period which is five years from the
date of the first payout and after the taxpayer attains Age
59 1/2, or (b) before the taxpayer reaches Age 59 1/2.
Taxation of Individual Retirement Annuities
Code Section 408 permits individuals or their employers to
contribute to an individual retirement program known as an
IRA. In addition, distributions from certain other types of
qualified plans may be placed into an IRA on a tax deferred
basis. IRAs are subject to limitations on the amount which
may be contributed and the time when distributions may
commence. Tax penalties may apply to contributions in excess
of specified limits, loans or assignments, distributions in
excess of a specified amount annually or that do not meet
specified requirements, and in certain other circumstances.
Under the Code, distributions from IRAs generally must begin
no later than April 1st of the calendar year following the
calendar year in which the Owner attains Age 70 1/2. If the
required minimum distribution is not withdrawn, there may be
a penalty tax in an amount equal to 50% of the difference
between the amount required to be withdrawn and the amount
actually withdrawn. See the Statement of Additional
Information for a discussion of the various special rules
concerning the minimum distribution requirements.
Under amendments to the Code which became effective in 1993,
distributions from a qualified plan (other than non-taxable
distributions representing a return of capital, distributions
meeting the minimum distribution requirement, distributions
for the life or life expectancy of the recipient(s) or
distributions that are made over a period of more than 10
years) are eligible for tax-free rollover within 60 days of
the date of distribution, but are also subject to federal
income tax withholding at a 20% rate unless paid directly to
another qualified plan. If the recipient is unable to take
full advantage of the tax-free rollover provisions, there may
be taxable income, and the imposition of a 10% penalty tax if
the recipient is under Age 59 1/2.
It is important that you consult your tax adviser before
purchasing an IRA.
Distribution-at-Death Rules
The following required distribution rules shall apply if and
to the extent required under Section 72(s) of the Internal
Revenue Code:
1. Subject to the alternative election or spouse
beneficiary provisions in subsection (2) or (3)
below,
a) If any Owner dies on or after the annuity
starting date and before the entire interest in this
Contract has been distributed, the remaining
portion of such interest shall be distributed at
least as rapidly as under the method of
distribution being used as of the date of such
death;
b) If any Owner dies before the annuity starting
date, the entire interest in this Contract will be
distributed within 5 years after such death; and
c) If any Owner is not an individual, then for
purposes of this subsection (1), the primary
Annuitant under the Contract shall be treated as
the Owner (the "Deemed Owner"), and any change in
the primary Annuitant shall be treated as the
death of the Owner. The primary Annuitant is the
individual, the events in the life of whom are of
primary importance in affecting the timing or
amount of the payout under the Contract.
2. If any portion of the interest of an Owner (or a
Deemed Owner) in subsection (1) is payable to or for
the benefit of a designated beneficiary, and such
beneficiary elects within 60 days of receipt of due
proof of death but prior to the distribution of
Proceeds to have such portion distributed in an
Annuity Option over a period that: A) does not
extend beyond such beneficiary's life or life
expectancy, and B) starts within 1 year after such
death (a "Qualifying Distribution Period"); then for
purposes of satisfying the requirements of subsection
(1), such portion shall be treated as distributed
entirely on the date such periodic distributions
begin. Such beneficiary may elect any Payout Period
Option for a Qualifying Distribution Period, subject
to any restrictions imposed by any regulations under
Section 72(s) of the Internal Revenue Code.
3. If any portion of the interest of an Owner (or a
Deemed Owner) described in subsection (1) is payable
to or for the benefit of such Owner's spouse, or is co-owned
by such spouse, then such spouse shall be treated as the
Owner of such portion for purposes of the requirements of
subsection (1).
Our Contract complies with these rules. See the Required
Distribution section of your Contract.
Taxation of Death Benefit Proceeds
Amounts may be distributed from a non-qualified Contract
because of the death of the Owner. Generally, such amounts
are includible in the income of the recipient as follows: (a)
if distributed in a lump sum, they are taxed in the same
manner as a full surrender of the Contract, as described
above, or (b) if distributed under an Annuity Option, they
are taxed in the same manner as Annuity Payouts, as described
above.
Exchange of Annuity Contracts
Exchanges of non-qualified annuity Contracts prior to the
Annuity Date for less than the full and adequate
consideration will trigger tax on the gain in the Contract,
at the time of such transfer, with the transferee getting a
step-up in basis for the amount included in the Owner's
income. This provision does not apply to transfers between
spouses or incident to a divorce.
Contracts Owned by Non-Natural Persons
For contributions to Contracts where the Contract is held by
a non-natural person (for example, a corporation) the income
on that Contract (generally the increase in the Cash
Surrender Value less the Purchase Payments) is includible in
taxable income each year. The rule does not apply where the
non-natural person is the nominal Owner of a Contract and
the Beneficiary is a natural person. The rule also does not
apply where the Contract is acquired by the estate of a
decedent, where the Contract is an IRA Contract, where the
Contract is a qualified funding asset for structured
settlements or where the Contract is purchased on behalf of
an employee upon termination of a qualified plan.
Section 1035 Exchanges
Section 1035 of the Code provides that no gain or loss shall
be recognized on the exchange of an annuity Contract for
another. If the exchanged contract was issued prior to
August 14, 1982, the new Contract retains some of the
exchanged contract's tax attributes. The pre-August 14,
1982, cost recovery rules will continue to apply to
distributions characterized as amounts not received as an
annuity with respect to such distributions allocable to
investments made before August 14, 1982. Under the cost
recovery rule, such amounts are received tax-free until the
taxpayer has received amounts equal to the pre-August 14,
1982 investments. Amounts allocable to post-August 13,
1982, investments, are subject to the interest first rule.
In contrast, a new Contract issued in exchange for a
contract issued before January 18, 1985, does not retain the
exchanged contract's grandfathering for purposes of the
penalty and distribution-at-death rules. Special rules and
procedures apply to Section 1035 transactions. Prospective
Owners wishing to take advantage of Section 1035 should
consult their tax advisers.
Assignments
A transfer of Ownership, a collateral assignment or the
designation of an Annuitant or other Beneficiary who is not
also the Owner may result in tax consequences to the Owner,
Annuitant or Beneficiary that are not discussed herein. An
Owner contemplating such a transfer or assignment of a
Contract should contact a competent tax adviser with respect
to the potential tax effects of such a transaction.
Multiple Contracts Rule
The Technical and Miscellaneous Revenue Act of 1988 (the
"1988 Act") provides that, for Contracts entered into on or
after October 21, 1988, for purposes of determining the
amount of any distribution under Section 72(e) (amounts not
received as annuities) that is includible in gross income, all non-
qualified deferred annuity contracts issued by the same (or
an affiliated) insurer to the same Owner during any calendar
year are to be aggregated and treated as one contract.
Thus, any amount received under any such contract prior to
the contract's annuity starting date, such as a partial
withdrawal, dividend, or loan, will be taxable (and possibly
subject to the 10% penalty tax) to the extent of the
combined income in all such contracts. The Treasury
Department has specific authority to issue regulations that
prevent the avoidance of Section 72(e) income through the
serial purchase of annuity contracts or otherwise. In
addition, there may be other situations in which the
Treasury Department may conclude that it would be
appropriate to aggregate two or more contracts purchased by
the same Owner. Accordingly, an Owner should consult a
competent tax adviser before purchasing more than one
annuity contract.
Diversification Standards
To comply with the diversification regulations
("Regulations") issued under Code Section 817(h), the
Divisions will be required to diversify their investments.
The Regulations generally require that on the last day of
each quarter of a calendar year (i) no more than 55% of the
value of each Division is represented by any one investment;
(ii) no more than 70% is represented by any two investments;
(iii) no more than 80% is represented by any three
investments; and (iv) no more than 90% is represented by any
four investments. With respect to each Division, a "look-
through" rule applies which suggests that each Division of
the Variable Account will be tested for compliance with the
percentage limitations by looking through to the assets of
the Portfolios in which that Division invests. All
securities of the same issuer are treated as one investment.
As a result of the 1988 Act, each government agency or
instrumentality will be treated as a separate issuer for the
purposes of these limitations.
In connection with the issuance of the temporary
diversification regulations in 1986, the Treasury Department
announced that such regulations did not provide guidance
concerning the extent to which owners may direct their
investments to particular divisions of a separate account
without being considered the owners of the assets of the
account. It is possible that regulations or revenue rulings
may be issued in this area at some time in the future. It
is not clear at this time what these regulations or rulings
would provide. It is possible that if such regulations or
rulings are issued, the Contract may need to be modified in
order to remain in compliance. For these reasons, Security
Life reserves the right to modify the Contract, as
necessary, to prevent the Owner from being considered the
Owner of the assets of the Variable Account.
The Trust and Fidelity Management & Research Company have
committed to comply with the Regulations to assure that the
Contract continues to be treated as an annuity Contract for
federal income tax purposes.
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
SECURITY LIFE 3
THE ADMINISTRATOR 3
PERFORMANCE INFORMATION 3
SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY
MARKET DIVISIONS 3
ACCUMULATION UNIT VALUE 4
ILLUSTRATION OF CALCULATION OF ACCUMULATION UNIT VALUE 4
ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE TAX ON
PURCHASE PAYMENTS) 4
DETERMINATION OF ANNUITY PAYOUTS 4
IRA INCOME PROGRAM 6
OTHER INFORMATION 6
FINANCIAL STATEMENTS OF SECURITY LIFE OF DENVER INSURANCE
COMPANY AND SECURITY LIFE SEPARATE ACCOUNT A1 7
STATEMENT OF ADDITIONAL INFORMATION
The Fulcrum Fund Variable Annuity
A Flexible Premium Deferred Combination Fixed and Variable
Annuity Contract
Issued By
Security Life of Denver Insurance Company
and
Security Life Separate Account A1
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A
PROSPECTUS. THE INFORMATION CONTAINED HEREIN SHOULD BE READ
IN CONJUNCTION WITH THE PROSPECTUS FOR THE SECURITY LIFE OF
DENVER INSURANCE COMPANY FULCRUM FUND DEFERRED COMBINATION
FIXED AND VARIABLE ANNUITY CONTRACT WHICH IS REFERRED TO
HEREIN.
THE PROSPECTUS SETS FORTH INFORMATION THAT A PROSPECTIVE
INVESTOR OUGHT TO KNOW BEFORE INVESTING. FOR A COPY OF THE
PROSPECTUS, SEND A WRITTEN REQUEST TO SECURITY LIFE OF
DENVER INSURANCE COMPANY, CUSTOMER SERVICE CENTER, OR
TELEPHONE 1-800-933-5858.
Date of Prospectus: August 14, 1995
Date of Statement of Additional Information: August 14, 1995
TABLE OF CONTENTS
SECURITY LIFE 3
THE ADMINISTRATOR 3
PERFORMANCE INFORMATION 3
SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR
NON-MONEY MARKET 3
ACCUMULATION UNIT VALUE 4
ILLUSTRATION OF CALCULATION OF ACCUMULATION UNIT VALUE 4
ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE TAX ON
PURCHASE PAYMENTS) 4
DETERMINATION OF ANNUITY PAYOUTS 4
IRA INCOME PROGRAM 6
OTHER INFORMATION 6
FINANCIAL STATEMENTS OF SECURITY LIFE OF DENVER INSURANCE
COMPANY AND SECURITY LIFE SEPARATE ACCOUNT A1 7
SECURITY LIFE
Security Life's immediate parent, Internationale-Nederlanden
US Insurance Holdings, Inc., is a Delaware corporation whose
principal business is to act as the holding company for
Internationale-Nederlanden Group, N.V.'s US insurance
companies.
Security Life's indirect intermediate parents, Nationale
Nederlanden Internationale B.V. and Internationale
Nederlanden Verzekeringen N.V. are Dutch insurance and
financial corporations.
Security Life's ultimate parent, Internationale Nederlanden
Group, N.V., is a Dutch insurance and financial corporation
primarily engaged in banking and insurance services which
include life and non-life insurance, life reinsurance, funds
transfer services, savings plans, investments in securities
and other capital market instruments, lending, mortgages,
leasing, investment banking, debtor finance, debt conversion
and international project management, property development,
finance and management.
Security Life acts as its own custodian for the Variable
Account, and its affiliate, ING America Equities, Inc., is
the principal underwriter and distributor of the Contracts
in a continuous offering.
THE ADMINISTRATOR
Financial Administrative Services Corporation and its
affiliate Great-West Life & Annuity Insurance Company have
an Administrative Services Agreement with Security Life.
Financial Administrative Services Corporation or its
affiliate Great-West Life & Annuity Insurance Company
provide administrative services for all of Security Life's
variable annuity Contracts, such as Contract underwriting
and issue, Owner service and the administration of the
Variable Account.
PERFORMANCE INFORMATION
Performance information for the Divisions of the Variable
Account, including the total return of the Divisions, may
appear in reports or promotional literature to current or
prospective Owners. Negative values are denoted by
parentheses. Performance information for measures other than
total return do not reflect surrender charges which can have
a maximum level of 7.0% of Purchase Payments, and any
applicable tax on Purchase Payments that currently ranges
from 0% to 3.5% (5% in the Virgin Islands).
See Performance Related Information in the Prospectus for a
discussion of the types of performance information that may
be published for the Divisions.
SEC Standard Average Annual Total Return for Non-Money
Market Divisions
Quotations of average annual total return for the Divisions
of the Variable Account are expressed in terms of the
average annual compounded rate of return of a hypothetical
investment in a Contract over a period of 1, 3, 5 and 10
years (or, if less, up to the life of the Division)
calculated pursuant to the following formula:
Where:
[P] equals a hypothetical initial Purchase Payment of
$1,000
[T] equals the average annual total return
[n] equals the number of years
[ERV] equals the ending redeemable value of a
hypothetical $1,000 Purchase Payment made at the
beginning of the period (or fractional portion
thereof)
Fees that vary with the size of the account are included
assuming an account size equal to the Division's mean (or
median) account size. The SEC requires that an assumption
be made that the Owner surrenders the entire Contract at
the end of the 1, 3, 5 and 10 year periods (or, if less, up
to the life of the Division) for which performance is
required to be calculated. This assumption may not be
consistent with the typical Owner's intentions in
purchasing a Contract and may adversely affect advertised
or quoted returns.
Accumulation Unit Value
The calculation of the Accumulation Unit Value ("AUV") is
discussed in the Prospectus under Accumulation Value of
each Division of the Variable Account. The following
illustrations show a calculation of a new AUV and the
purchase of Accumulation Units (using hypothetical
examples):
Illustration of Calculation of Accumulation Unit Value
1. AUV, beginning of period $5.00000000
2. Value of Portfolio share,
beginning of period $25.00
3. Change in value of Portfolio
share $1.00
4. Gross investment return [(3)
divided by (2)] .04000000
5. Less daily mortality and
expense risk charge .00004247
5a. Less daily asset-based
administrative charge .00000411
6. Net investment return [(4)
minus (5) and (5a)] .03995342
7. Net investment factor [(1.000000)
plus (6)] 1.03995342
8. AUV, end of period [(1)
multiplied by (7)] 5.19976710
Illustration of Purchase of Units (Assuming No State Tax on
Purchase Payments)
1. Initial Purchase Payment $100.00
2. AUV on effective date of purchase
(see Example 1) $5.00
3. Number of Accumulation Units purchased
[(1) divided by (2)] 20.00000
4. AUV for Valuation Date following purchase
(see Example 1) $5.19976710
5. Accumulation Value in account for Valuation
Date following purchase [(3) multiplied by
(4)] $104.00
Determination of Annuity Payouts
For Variable Annuity Payouts, you have the option of
electing either a 3% or 5% Benchmark Total Return. The rate
is elected at the same time the Variable Annuity Payout is
elected and may not be changed after the Annuity Date.
Electing the 5% Benchmark Total Return would mean a higher
initial payment but more slowly rising or more rapidly
falling subsequent payouts if actual investment experience
varied from 5%. The 3% Benchmark Total Return assumption
would have the opposite effect. If the actual investment
rate is at the annual rate of 3% or 5%, the Annuity Payouts
will be level if you elected either 3% or 5% respectively.
As of the Annuity Date, any Accumulation Value invested in
the Guaranteed Interest Division will be allocated among the
Divisions of the Variable Account in the same proportion
that the Accumulation Value of each Division of the Variable
Account bears to the total Accumulation Value of all the
Divisions of the Variable Account.
The first Variable Annuity Payout for each Division of the
Variable Account will be the amount that the Proceeds will
provide as of the close of business on the Valuation Date
immediately preceding the Supplementary Contract Effective
Date at the Benchmark Total Return chosen. If you have
elected to have payouts made less frequently than monthly,
the payout amount is then adjusted according to the factors
in Payouts Other Than Monthly section in the prospectus.
The initial number of Annuity Units for a Division of the
Variable Account is calculated by dividing the payout amount
of that Division by the Annuity Unit Value of that Division
as of the Supplementary Contract Effective Date. The number
of Annuity Units for a Division of the Variable Account does
not change throughout the Annuity Period unless a transfer
is made between Divisions of the Variable Account or, if a
Combination Annuity Payout is selected, an increase in
allocation from the Variable Annuity Payout to the Fixed
Annuity Payout is made. The total Variable Annuity Payout is
the sum of the Variable Annuity Payouts from all Divisions
of the Variable Account.
Variable Annuity Payouts, after the first payout, vary in
amount with the investment experience of the Divisions of
the Variable Account. The dollar amount of each Variable
Annuity Payout after the first payout is calculated by
adding the amount due for each Division of the Variable
Account. The amount due for each Division equals:
1. The number of Annuity Units for that Division; multiplied
by,
2. The Annuity Unit Value for that Division as of the
Valuation Date for which each payout is due.
The dollar amount of each Annuity Payout after the first
payout will not be affected by variations in our expenses or
mortality experience.
The Annuitant or Beneficiary may transfer all or a portion
of the Annuity Units in a Division of the Variable Account
to another Division of the Variable Account. After the
transfer, the number of Annuity Units in the Division of the
Variable Account from which you are transferring will be
reduced by the number of Annuity Units transferred. The
number of Annuity Units in the Division of the Variable
Account to which the transfer is made will be increased by
the number of Annuity Units transferred multiplied by:
(a) the value of an Annuity Unit in the Division of the
Variable Account from which the transfer is made,
divided by
(b) the value of an Annuity Unit in the Division of the
Variable Account to which the transfer is made.
Annuity Unit Value
We use an Annuity Unit Value to calculate the Variable Annuity
Payouts. The Annuity Unit Value for any later Valuation Period
is:
a) The Annuity Unit Value for each Division as of the last
prior Valuation Period multiplied by the Annuity
Experience Factor for that Division for the Valuation
Period for which the Annuity Unit Value is being
calculated; divided by
b) An interest factor based on the Benchmark Total Return
selected. (This is done to neutralize the Benchmark Total
Return.)
Annuity Experience Factor
For each Division of the Variable Account, the Annuity
Experience Factor reflects the investment experience of the
Portfolio in which that Division invests and the charges
assessed against that Division for a Valuation Period. The
Annuity Experience Factor is calculated as follows:
(a) The net asset value of the Portfolio in which
that Division invests as of the end of the current
Valuation Period; plus
(b) The amount of any dividend or capital gains
distribution declared and reinvested in that
Portfolio during the current Valuation Period; minus
(c) A charge for taxes, if any.
(d) The result of (a), (b) and (c) divided by the net
asset value of that Portfolio in which that Division
invests as of the end of the preceding Valuation Period;
minus
(e) The daily equivalent of the Variable Account Annual
Expenses shown in the Schedule of the Contract for each
day in the current Valuation Period.
IRA INCOME PROGRAM
If the Owner has an IRA Contract, we will provide payout of
amounts required to be distributed by the Internal Revenue
Service.
We will determine the amount that is required to be distributed
from your Contract each year based on the information you give
us and various choices you make. The minimum dollar amount of
each distribution is $100. For purposes of calculating the
minimum distribution amount, all demand withdrawals, Systematic
Income Program partial withdrawals, and Annuity Payouts must be
summed between IRA required distribution payout dates to
determine if the minimum distribution amount has been met
through these other distributions. If there have been
sufficient distributions made from the Contract during the
calendar year, no further distributions will be made for that
year. If there have not been sufficient distributions made from
the Contract during the calendar year, the remaining minimum
distribution amount will be paid to the Owner. At any time while
minimum distributions are being made, if your Cash Surrender Value
falls below $2,000, we will cancel the Contract and send you the
amount of the Cash Surrender Value.
Security Life notifies the Owner of the current IRA regulations
in the IRA Disclosure Statement which you will receive during
the application process. The Owner specifies whether the
withdrawal amount will be based on a life expectancy calculated
on a single life basis (Owner's life only) or, if the Owner is
married, on a joint life basis (Owner's and spouse's life
combined).
Security Life calculates a required distribution amount each
year based on the Code's minimum distribution rules. We do this
by dividing the Accumulation Value as of December 31 of the
prior year by the life expectancy. The life expectancy is
recalculated each year. Special minimum distribution rules
govern payouts if the Beneficiary is other than the Owner's
spouse and the Beneficiary is more than ten years younger than
the Owner.
OTHER INFORMATION
Registration statements have been filed with the Securities and
Exchange Commission, with respect to the Contracts discussed in
this Statement of Additional Information. Not all of the
information set forth in the registration statements, amendments
and exhibits thereto has been included in this Statement of
Additional Information. Statements contained in this Statement
of Additional Information concerning the content of the
Contracts and other legal instruments are intended to be
summaries. For a complete statement of the terms of these
documents, reference should be made to the instruments filed
with the Securities and Exchange Commission.
FINANCIAL STATEMENTS OF SECURITY LIFE OF DENVER INSURANCE
COMPANY AND SECURITY LIFE SEPARATE ACCOUNT A1
Ernst & Young LLP, independent auditors, 4300 Republic Plaza,
Denver, CO 80202, will perform annual audits of the
consolidated financial statements of Security Life and the
financial statements of Separate Account A1.
The consolidated financial statements of Security Life, which
are included in this Statement of Additional Information, should
be considered only as bearing on the ability of Security Life to
meet its obligations under the Contract.
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Financial Statements and Schedules Years ended
December 31, 1994, 1993 and 1992
Contents Page
Report of Independent Auditors 9
Audited Consolidated Financial Statements
Consolidated Balance Sheets 10
Consolidated Statements of Income 12
Consolidated Statements of Stockholder's Equity 13
Consolidated Statements of Cash Flows 14
Notes to Consolidated Financial Statements 16
Financial Statement Schedules
Schedule VI Reinsurance 39
Schedule VIII Valuation and Qualifying
Accounts and Reserves 40
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted or the information is presented in
the consolidated financial statements or related notes.
Report of Independent Auditors
Board of Directors and Stockholder
Security Life of Denver Insurance Company
We have audited the accompanying consolidated balance
sheets and accompanying schedules of Security Life of
Denver Insurance Company (a wholly-owned subsidiary of
Internationale Nederlanden U.S. Insurance Holdings) and
subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income,
stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1994.
These financial statements and accompanying schedules
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements and accompanying schedules based
on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. 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 and accompanying schedules
referred to above present fairly, in all material
respects, the consolidated financial position of
Security Life of Denver Insurance Company and
subsidiaries at December 31, 1994 and 1993, and the
consolidated results of their operations and their cash
flows for each of the three years in the period ended
December 31, 1994, in conformity with generally
accepted accounting principles.
As discussed in Notes 1, 8 and 11 to the consolidated
financial statements, the Company made certain
accounting changes in 1994 and 1993.
Ernst & Young LLP
April 5, 1995
<TABLE>
Security Life of Denver Insurance Company and
Subsidiaries Consolidated Balance Sheets
(Dollars in Thousands)
<CAPTION>
December 31
Assets 1994 1993
Investments (Note 4):
<S> <C> <C>
Fixed maturities $1,955,460 $1,739,025
Equity securities 11,904 35,311
Mortgage loans on real estate 175,459 102,469
Investment real estate, at cost,
less accumulated depreciation
(1994--$378; 1993--$641) 3,152 5,377
Policy loans 690,494 618,477
Other long-term investments 10,765 10,366
Short-term investments 7,978 12,077
_________________________
Total investments 2,855,212 2,523,102
Cash 17,719 24,883
Accrued investment income 32,393 26,742
Reinsurance recoverable:
Paid benefits 14,734 6,709
Unpaid benefits and IBNR 9,919 16,177
Prepaid reinsurance premiums (Note 10) 1,360,991 963,528
Deferred policy acquisition costs 620,439 518,104
Property and equipment, at cost, less
accumulated depreciation
(1994--$15,938; 1993--$12,806) 42,648 43,946
Deferred federal income taxes (Note 11) 62,694 34,414
Indebtedness of related parties 10,178 22,759
Other assets 72,912 43,872
__________________________
Total assets $5,099,839 $4,224,236
==========================
</TABLE>
See accompanying notes.
<TABLE>
<CAPTION> December
31
1994 1993
<S> <C> <C>
Liabilities and stockholder's equity
Liabilities:
Future policy benefits (Note 10):
Life and annuity reserves $2,827,307 $2,444,040
Guaranteed investment contracts 1,303,815 918,490
Policyholders' funds 62,099 56,088
Advance premiums 1,332 2,772
Accrued dividends and dividends
on deposit 21,558 20,736
Unpaid claims 53,158 60,677
Funds held under reinsurance
treaties 58,315 42,339
_______________________
Total future policy benefits 4,327,584 3,545,142
Accounts payable and accrued
expenses 60,687 63,838
Indebtedness to related parties 112,742 108,124
Long-term debt to related parties
(Note 12) 50,032 --
Other liabilities 47,402 38,798
Federal income taxes payable (Note 11) 11,218 8,444
_______________________
Total liabilities 4,609,665 3,764,346
Commitments and contingent liabilities
(Notes 9, 10 and 15)
Stockholder's equity (Notes 13 and 14):
Common stock, $20,000 par value:
Authorized - 149 shares
Issued and outstanding - 144 shares 2,880 2,880
Additional paid-in capital 150,792 150,792
Net unrealized gains (losses) 6,862 (131)
Retained earnings 329,640 306,349
________________________
Total stockholder's equity 490,174 459,890
________________________
Total liabilities and stockholder's
equity $5,099,839 $4,224,236
=========================
</TABLE>
See accompanying notes.
<TABLE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Income
(Dollars in Thousands)
<CAPTION>
Year ended December 31
1994 1993 1992
<S> <C> <C> <C>
Revenues:
Traditional life insurance premiums $147,418 $120,475 $99,860
Universal life and investment product
charges 152,771 124,206 104,865
Reinsurance assumed 299,632 274,21 247,475
________ ________ ________
599,821 518,899 452,200
Reinsurance ceded premiums (101,459) (92,918) (68,397)
________ ________ ________
498,362 425,981 383,803
Net investment income 209,605 195,269 178,756
Net realized (losses) gains on
investments (7,245) 18,733 6,665
________ ________ ________
700,722 639,983 569,224
Benefits and expenses:
Insurance claims and benefits incurred:
Traditional life insurance:
Death benefits 231,018 225,021 220,663
Other benefits 72,298 55,177 61,662
Universal life and investment contracts:
Interest credited to account
balances 139,942 115,761 114,684
Death benefits incurred in
excess of account balances 73,869 56,130 23,255
Increase in policy reserves and
other funds 82,236 114,009 27,362
Reinsurance recoveries (73,379) (70,613) (43,989)
________ ________ ________
525,984 495,485 403,637
Commissions 42,640 37,530 31,846
Insurance operating expenses 62,156 36,805 35,492
Amortization of deferred policy
acquisition costs (DPAC) 27,469 8,742 46,335
________ ________ ________
658,249 578,562 517,310
_________ ________ ________
Income before federal income taxes 42,473 61,421 51,914
Federal income taxes (Note 11) 14,921 21,605 20,310
_________ ________ ________
Net income before cumulative effect
of accounting changes 27,552 39,816 31,604
Cumulative effect of accounting changes
(net of tax):
Accounting for income taxes (Note 11) - 16,933 -
Employers' accounting for OPEB (Note 8) - (5,102) -
Employers' accounting for postemployment
benefits (Note 1) (1,381) - -
________ ________ ________
Net income $ 26,171 $ 51,647 $31,604
======== ======== ========
</TABLE>
See accompanying notes.
<TABLE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Stockholder's Equity
(Dollars in Thousands)
<CAPTION>
Year ended December 31
1994 1993 1992
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 2,880 $ 2,880 $2,880
======== ======== ========
Additional paid-in capital:
Balance at beginning of year $150,792 $135,792 $135,792
Capital contribution _ 15,000 _
Balance at end of year $150,792 $150,792 $135,792
==================================
Net unrealized gains (losses) on preferred
and common stocks:
Balance at beginning of year $ (131) $ (505) $ (534)
Adjustment to beginning balance for
change in accounting method, net of
income taxes of $46,916 (Note 4) 87,630 _ _
Effect on DPAC of change in accounting
method, net of income taxes of $ 10,117 (18,790) _ _
Change in net unrealized (losses)
gains (106,911) 374 29
Effect on DPAC of unrealized losses
on fixed maturities 45,064 _ _
_________ _________ _________
Balance at end of year $ 6,862 $ (131) $ (505)
========== ========= =========
Retained earnings:
Balance at beginning of year $306,349 $257,582 $228,858
Net income 26,171 51,647 31,604
Dividends paid to stockholder (2,880) (2,880) (2,880)
__________ __________ _________
Balance at end of year $329,640 $306,349 $257,582
========== ========= =========
Total stockholder's equity $490,174 $459,890 $395,749
========== ========= =========
</TABLE>
See accompanying notes.
<TABLE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<CAPTION>
Year ended December 31
1994 1993 1992
<S> <C> <C> <C>
Operating activities
Net income $ 26,171 $ 51,647 $ 31,604
Adjustments to reconcile net income
to net cash provided by operating
activities:
Increase in future policy benefits 621,578 690,875 172,425
Net decrease in federal income taxes (25,506) (36,930) (18,088)
Increase (decrease) in accounts
payable and accrued expenses 3,771 9,939 (396)
(Increase) decrease in accrued
investment income (5,651) (9,194) 2,831
(Increase) decrease in reinsurance
recoverable (1,767) (13,630) 2,116
Increase in prepaid reinsurance
premiums (397,463) (411,053) (106,379)
Depreciation and amortization expense 3,500 3,780 3,366
Policy acquisition costs deferred (89,381) (91,343) (94,375)
Amortization of deferred policy
acquisition costs 27,469 8,742 46,335
Other, net 4,583 (3,852) 2,459
_________ _________ _________
Net cash provided by operating
activities 167,304 198,981 41,898
Investing activities
Securities available for sale:
Sales:
Fixed maturities 731,460 _ _
Equity securities 148,176 _ _
Maturities_fixed maturities 237,586 _ _
Purchases:
Fixed maturities (1,202,024) _ _
Equity securities (130,856) _ _
Securities held to maturity:
Sales_fixed maturities _ _ _
Maturities_fixed maturities 1,665 _ _
Purchases_fixed maturities (42,454) _ _
Sale, maturity or repayment of investments:
Fixed maturities _ 973,460 1,099,787
Equity securities _ 105,229 162
Mortgage loans on real estate 17,570 14,012 19,725
Investment real estate 1,534 636 2,900
Other long-term investments _ 1,871 _
</TABLE>
See accompanying notes.
<TABLE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
<CAPTION>
Year ended December 31
1994 1993 1992
<S> <C> <C> <C>
Investing activities (continued)
Purchase or issuance of investments:
Fixed maturities $ _ $(1,311,286) $(1,299,349)
Equity securities _ (142,906) _
Mortgage loans on real estate (91,410) (44,543) (5,466)
Investment real estate (156) _ (3,809)
Policy loans, net (72,017) (73,943) (50,175)
Other long-term investments (399) (3,316) _
Short-term investments, net 4,099 102,259 (113,597)
Additions to property and equipment (2,280) (3,722) (3,009)
Disposals of property and equipment (177) _ _
Purchase of subsidiary _ (7,937) _
____________ __________ __________
Net cash used by investing activities (399,683) (390,186) (352,831)
Financing activities
Increase in indebtedness to related
parties 67,231 102,522 4,822
Receipts from interest sensitive
products credited to policyholder
account balances 250,396 225,967 364,772
Return of policyholder account
balances on interest sensitive
policies (89,532) (119,743) (71,843)
Dividends paid to stockholder (2,880) (2,880) (2,880)
_________ __________ _________
Net cash provided by financing activities 225,215 205,866 294,871
_________ __________ __________
Net (decrease) increase in cash (7,164) 14,661 (16,062)
Cash at beginning of year 24,883 10,222 26,284
_________ __________ _________
Cash at end of year $ 17,719 $ 24,883 $ 10,222
_________ __________ __________
</TABLE>
Noncash transaction:
In 1993, the Company's parent company contributed
$15,000,000 to additional paid-in capital as a
capital contribution. As of December 31, 1993, the
cash representing the capital contribution had not
yet been received and the amount is presented as
indebtedness of related parties. The cash was
received by the Company in February 1994.
See accompanying notes.
Security Life of Denver Insurance Company and
Subsidiaries Notes to Consolidated Financial Statements
December 31, 1994
1. Accounting Policies
Basis of Presentation
The significant accounting policies followed by Security
Life of Denver Insurance Company and subsidiaries (the
Company), a wholly-owned subsidiary of Internationale
Nederlanden U.S. Insurance Holdings (ING U.S. Insurance
Holdings), that materially affect financial reporting
are summarized below. The accompanying consolidated
financial statements have been prepared in accordance
with generally accepted accounting principles (GAAP)
which, as to insurance companies included in the
consolidation, differ from statutory accounting
practices prescribed or permitted by state insurance
regulatory authorities.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts and operations, after intercompany
eliminations, of Security Life of Denver Insurance
Company (Security Life) and its wholly-owned
subsidiaries: Midwestern United Life Insurance Company
(Midwestern United); First ING Life Insurance Company of
New York, formerly The Urbaine Life Reinsurance Company
(First ING); Camvest Company No. 3; United Protective
Company; First Secured Mortgage Deposit Corporation; and
SLD Equities, Inc.
New Financial Accounting Standards
In 1993 the Company adopted Financial Accounting
Standards Board (FASB) Statement No. 106, Employers'
Accounting for Postretirement Benefits Other Than
Pensions. This statement establishes the accrual basis
of accounting for health care benefit plans and life
insurance plans (OPEBs) of the Company's retired
employees (see Note 8).
In 1993 the Company adopted FASB Statement No. 109,
Accounting for Income Taxes. In 1992 and 1991 the
Company accounted for income taxes under the provisions
of APB Opinion No. 11, Accounting for Income Taxes (see
Note 11).
In 1993 the Company adopted FASB Statement No. 113,
Accounting and Reporting for Reinsurance of Short-
Duration and LongDuration Contracts. This statement
eliminates the practice of reporting amounts for
reinsured contracts net of the effects of reinsurance.
The statement requires that reinsurance receivables and
prepaid reinsurance premiums are to be reported as
assets. The statement establishes conditions required
for a contract with a reinsurer to qualify for
reinsurance accounting. Contracts that do not result in
the possibility that the reinsurer may realize
significant gain or loss from the insurance risk assumed
would be accounted for as deposits.
In May 1993, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Company adopted the
provisions of the new standard for investments held as
of or acquired after January 1, 1994. In accordance with
the statement, prior period financial statements have
not been restated to reflect the change in accounting
principle. The cumulative effect as of January 1,
1994 of adopting Statement 115 had no impact on
income. The opening balance of stockholder's equity
was increased by $68,840,000 (net of $36,799,000 in
deferred income taxes) to reflect the net unrealized
holding gains on securities classified as available-
for-sale previously carried at amortized cost less an
adjustment to deferred policy acquisition
costs for the change in expected future gross
profits.
Effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 112,
Employers' Accounting for Postemployment Benefits, in
accounting for disability benefits. The cumulative
effect as of January 1, 1994 of this change in
accounting was to decrease net income by $1,381,000
(net of tax of $743,000). The effect of the change on
1994 income before the cumulative effect of the
change was not material.
Prior to January 1, 1994, the Company recognized
the cost of providing these benefits on a cash basis.
Under the new method of accounting, the Company
accrues the benefits when it becomes probable that
such benefits will be paid and when sufficient
information exists to make reasonable estimates of
the amounts to be paid. As required by the statement,
prior year financial statements have not been
restated to reflect the change in accounting method.
Investments
Investments are shown on the following bases:
Fixed maturities: 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.
Heldtomaturity 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 the unrealized gains and
losses, net of tax, reported in a separate component
of stockholder's equity. The Company does not hold
trading securities.
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
interest income from investments.
Other investments are shown on the following bases:
Mortgage loans on real estate--at unpaid balances.
Investment real estate--at cost, less allowances for
depreciation.
Policy loans--at unpaid balances.
Short-term investments--at cost, which approximates
market value.
Derivatives--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 securities gains (losses). The cost of
securities sold is based on the specific
identification method.
Recognition of Revenue
Premiums for traditional life insurance products,
which include those products with fixed and
guaranteed premiums and benefits and consist
principally of whole life insurance policies, are
recognized as revenue when due. Revenues for
universal life insurance policies and for investment
products consist of policy charges for the cost of
insurance, policy administration charges, and
surrender charges assessed against policyholder
account balances during the year.
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. The
deferred policy acquisition cost offsets to the
unrealized gains or losses represent valuation
adjustments or reinstatements of deferred policy
acquisition costs that would have been required as a
charge or credit to operations had such unrealized
amounts been realized.
Future Policy Benefits and Expenses
The liabilities for traditional life insurance
policy benefits and expenses are computed using a
net level 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 and to include provisions for
possible unfavorable deviations. Reserve interest
assumptions are those deemed appropriate at the time
of policy issue, and range from 2% to 10%. Policy
benefit claims are charged to expense in the year
that the claims are incurred. Benefit reserves for
universal life (including interest sensitive
products) 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 6.15% to 8.10% during
1994, 6.15% to 8.75% during 1993, and 7.03% to 8.90%
during 1992.
Included in life and annuity reserves is an unearned
revenue reserve that reflects the unamortized balance
of excess first year policy service fees over renewal
period policy service 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.
Claim Liabilities
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.
Home Office Property and Equipment
Home office property and equipment are carried at
cost less accumulated depreciation. Depreciation for
major classes of assets is calculated on a straight-
line basis.
Participating Insurance
The Company accrues a liability for earnings on
participating policies that cannot inure to the
benefit of the Company's stockholder. The liability
is determined based on earnings on participating
policies in excess of 10% of profits on participating
business before payment of policyholder dividends.
The liability for these undistributed earnings was
$6,052,119 and $5,965,247 at December 31, 1994 and
1993, respectively. Participating business
approximates 0.6% of the Company's ordinary life
insurance in force and 2% of premium income. Earnings
for participating insurance are based on the actual
earnings of the participation block of policies.
Expenses and taxes are allocated based on the amount
of participating insurance in force. Investment
income is allocated based on the yield of the
participating investment portfolio.
The amount of dividends to be paid is
determined annually by the Board of Directors.
Amounts allocable to participating policyholders are
based on published dividend projections or expected
dividend scales. Dividends of $3,683,447, $3,028,332
and $3,519,000 were incurred in 1994, 1993 and 1992,
respectively.
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.
Pension Plans
The Company provides noncontributory retirement plans
for substantially all employees and certain agents.
The pension costs include the cost of benefits earned
during the current period and interest on the
projected benefit obligation, reduced by the earnings
on assets held by the retirement plan and
amortization of the plan's excess funding over the
estimated remaining average service life of current
participants. The Company also provides a
contributory retirement
plan for substantially all employees.
Cash Flow Information
Cash includes cash on hand and demand deposits.
Included as a component of operating activities is
interest paid of $538,044, $1,661,000 and $811,000
for 1994, 1993 and 1992, respectively.
Pending Accounting Standards
In May 1993, the FASB issued Statement No. 114,
Accounting by Creditors for Impairment of a Loan. In
October 1993 the FASB issued Statement 118, which
amends Statement 114. The amended statement requires
measurement of impaired loans at the present value
of expected future cash flows discounted at the
loan's effective interest rate, or at the loan's
observable market price or the fair value of the
collateral if the loan is collateral
dependent. In the case of troubled debt
restructuring, the statement requires the loan to be
remeasured based on its fair value at the date of
restructuring. FASB Statement No. 114 is effective
for the year ending December 31, 1995. Management has
not yet quantified the impact of implementation of
this statement.
Reclassifications
Certain amounts in the 1993 financial statements have
been reclassified to conform to the 1994
presentation.
During 1994 and 1993, the Company recognized certain
purchase GAAP adjustments to comply with the rules
and regulations prescribed by the Securities and
Exchange Commission for the years ended December 31,
1994, 1993, and 1992. Accordingly, net income and
stockholder's equity, as reported in 1992 and prior
years, vary with the amounts presented in the
accompanying financial statements by insignificant
amounts.
2. Fair Values of Financial Instruments
FASB Statement No. 107, Disclosures about Fair Value
of Financial Instruments, requires disclosure of fair
value information about financial instruments,
whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In
cases where quoted market prices are not available,
fair values are based on estimates using present
value or other valuation techniques. Those techniques
are significantly affected by the assumptions used,
including the discount rate and estimates of future
cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be
realized in immediate settlement of the instrument.
FASB Statement No. 107 excludes life insurance
liabilities that contain mortality risk and all
nonfinancial instruments from its disclosure
requirements.
Accordingly, the aggregate fair value
amounts presented do not represent the underlying
value of the Company.
The carrying amounts and fair values of the Company's
investments and liabilities for investment-type
insurance contracts at December 31, 1994 and 1993 are
summarized below. The fair values for the Company's
insurance contracts other than investment contracts
are not required to be disclosed. However, the fair
values of liabilities under all insurance contracts
are taken into consideration in the Company's overall
management of interest rate risk, such that the
Company's exposure to changing interest rates is
minimized through the matching of investment
maturities with amounts due under insurance
contracts.
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
(Dollars in Thousands)
<S> <C> <C>
December 31, 1994:
Fixed maturities (Note 4) $1,955,460 $1,951,209
Equity securites (Note 4) 11,904 11,904
Other investments (Note 4) 887,848 886,530
Individual and group annuities,
net of reinsurance (50,701) (49,931)
Guaranteed investment contracts,
net of reinsurance (32,779) (32,029)
Other policyholder funds left
on deposit (63,431) (63,431)
Policyholder dividends (21,558) (21,558)
</TABLE>
<TABLE>
<CAPTION>
Carrying Fair
Amount Value
(Dollars in Thousands)
<S> <C> <C>
December 31, 1993:
Fixed maturities (Note 4) $1,739,025 $1,878,834
Equity securites (Note 4) 35,311 35,311
Other investments (Note 4) 748,766 754,365
Individual and group annuities,
net of reinsurance (52,079) (51,047)
Guaranteed investment contracts,
net of reinsurance (46,558) (48,321)
Other policyholder funds left
on deposit (58,860) (58,860)
Policyholder dividends (20,736) (20,736)
</TABLE>
The following methods and assumptions were used by the
Company in estimating the "fair value" disclosures for
financial instruments:
Fixed Maturities and Equity Securities: The fair
values for fixed maturities and equity securities
(including preferred and common 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 discount rate used as of
December 31, 1994 and 1993 was 10%. The fair values
for equity securities are based on quoted market
prices.
Investment Real Estate (included in other investments
above): Fair values are determined using independent
appraisals conducted every five years.
Mortgage Loans on Real Estate (included in other
investments above): Estimated market values for
commercial real estate loans were generated using
a discounted cash flow approach. Loans in good standing
are discounted using interest rates determined by U.S.
Treasury yields on December 31, and spreads required on new loans with
similar characteristics. The amortizing features of all
loans were incorporated in the valuation. Where data on
option features was available, option values
were determined using a binomial valuation method, and
were incorporated into the mortgage valuation.
Restructured loans are valued in the same manner;
however, these were discounted at a greater spread to reflect increased
risk. Fair market value for residential loans
approximates the carrying value.
Policy Loans (included in other investments above): The
carrying amounts reported in the balance sheet for these
financial instruments approximate their fair values.
Derivative Financial Instruments (included in
fixed maturities and equity securities above): Fair
values for onbalance-sheet derivative financial
instruments (caps and floors) and off balance-sheet
derivative financial instruments (swaps) 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.
Short-Term Investments (included in other investments
above): The carrying amounts reported in the balance
sheet for these financial instruments approximate their
fair values.
Guaranteed Investment Contracts: The fair values of the
Company's guaranteed investment contracts are estimated
using discounted cash flow calculations, based on
interest rates currently being offered for similar
contracts with maturities consistent with those
remaining for the contracts being valued.
Other Investment-type Insurance Contracts: The fair
values of the Company's deferred annuity contracts are
estimated based on the cash surrender value. The
carrying values of other liabilities including immediate
annuities, dividend accumulations, supplementary
contracts without life contingencies and premium
deposits approximate their fair values.
Off-Balance-Sheet Instruments: The Company had
synthetic guaranteed investment contract sales in the
amounts of $78,428,000 and $349,771,000 in 1994 and
1993, respectively. The book value of assets wrapped
was $684,578,312 and $603,083,000 at December 31, 1994
and 1993, respectively.
Under synthetic guaranteed investment contracts, the
synthetic issuer may assume interest rate risk on
individual plan participant initiated withdrawals from
stable value options of 401(k) plans. Approximately
87% of the synthetic guaranteed investment contract
book values are on a participating basis and have a
credited interest rate reset mechanism which passes
such interest rate risk to plan participants.
Letters of Credit: The Company is the recipient of
two letters of credit totalling $120 million which
have a market value to the Company of $0. In addition,
First ING is the recipient of a $12,077,000 letter of
credit which has a market value to First ING of $0
(see Note 16).
The carrying values of amounts recoverable from
reinsurers, funds withheld from reinsurers and all
other assets approximate their fair values.
3. Acquisition
Effective March 31, 1993, the Company completed the
acquisition of 100% of the capital stock of First ING
for a total cash consideration of $9,563,001
(including $353,882 of fees and miscellaneous
expenses). The acquisition was accounted for using the
purchase method of accounting. The fair market value
of assets acquired totaled $19,107,818 (primarily
investment securities), and liabilities assumed
totaled $9,898,699. The purchase price equals the fair
market value of net assets acquired; thus, no goodwill
was generated from this transaction. The accompanying
consolidated income statement for 1993 includes the
results of First ING operations for the period from
April 1, 1993 to December 31, 1993. On a pro forma
basis, assuming the acquisition had occurred on
January 1, 1993, revenues would have been $641,446,000
and net income would have been $50,927,000 for the
year ended December 31, 1993.
During 1994, Security Life contributed capital of
$317,000 in creation of SLD Equities, Inc., a
wholesale broker/dealer incorporated September 27,
1993 and approved for membership in the National
Association of Securities Dealers on August 18, 1994.
The business of SLD Equities, Inc. consists only of
variable life and annuity contracts. SLD Equities,
Inc. does not hold customer funds or securities.
4. Investments
The amortized cost and estimated market value of
investments in fixed maturities and equity securities
are as follows at December 31, 1994:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unreazlied Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
(Dollars in Thousands)
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 175,092 $ 198 $ 5,843 $169,447
States, municipalities and political
subdivisions 72,203 _ 7,668 64,535
Public utilities securities 84,264 841 5,588 79,517
Debt securities issued by foreign
governments 3,272 _ 35 3,237
Corporate securities 433,016 3,913 22,445 414,484
Mortgage-backed securities 1,010,939 85,077 76,251 1,019,765
Other asset-backed securities 86,159 180 3,474 82,865
Derivatives backing fixed maturities
(Note 5) 6,221 4,637 2,539 8,319
_________ ______ _______ _________
Total fixed maturities 1,871,166 94,846 123,843 1,842,169
Preferred stocks (nonredeemable) 10,559 262 1,058 9,763
Common stocks 2,203 _ 62 2,141
---------------------------------------
Total $1,883,928 $95,108 $124,963$1,854,073
=======================================
Held-to-maturity:
States, municipalities and political
subdivisions $ 500 $ _ $ 33 $ 467
Public utilities securities 11,649 _ 571 11,078
Corporate securities 100,641 457 4,107 96,991
Other asset-backed securities 501 4 _ 505
----------------------------------------
Total fixed securities $ 113,291 $ 461 $ 4,711 $109,041
========================================
</TABLE>
Reconciliation of fixed maturities to the
consolidated balance sheet at December 31, 1994 is
as follows (dollars in thousands):
Available for sale $1,842,169
Held to maturity 113,291
__________
Total fixed maturities $1,955,460
==========
The amortized cost and estimated market value of
investments in fixed maturities and equity
securities are as follows at December 31, 1993:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Actively managed:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 183,127 $ 6,307 $ 745 $188,689
States, municipalities and
political subdivisions 80,781 1,291 485 81,587
Public utilities securities 26,565 1,654 3 28,216
Debt securities issued by
foreign governments 3,272 93 10 3,355
Corporate securities 262,997 17,709 762 279,944
Mortgage-backed securities 1,102,033 123,922 14,419 1,211,536
Derivatives backing fixed
maturities 3,932 _ _ 3,932
------------------------------------------
Total fixed maturities 1,662,707 150,976 16,424 1,797,259
Derivatives backing
equity securities (1,949) 491 224 (1,682)
Preferred stocks
(nonredeemable) 13,489 817 453 13,853
Equity securities 23,700 427 987 23,140
-------------------------------------------
Total $1,697,947 $152,711 $18,088 $1,832,570
===========================================
Held-for-investment:
States, municipalities
and political subdivisions $ 500 $ _ $ _ $ 500
Public utilities securities 714 36 15 735
Corporate securities 75,104 5,398 162 80,340
--------------------------------------------
Total fixed securities $ 76,318 $ 5,434 $ 177 $ 81,575
============================================
</TABLE>
Reconciliation of fixed maturities to the
consolidated balance sheet at December 31, 1993
is as follows (dollars in thousands):
Actively managed $1,662,707
Held for investment 76,318
----------
Total fixed maturities $1,739,025
==========
Note that at December 31, 1993 all fixed maturities
are recorded at amortized cost.
The amortized cost and estimated market value of
investments in fixed maturities at December 31,
1994, by contractual maturity, 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.
<TABLE>
<CAPTION>
Estimated
Amortized Market
Expected Maturity Cost Value
(Dollars in Thousands)
<S> <C> <C>
Available for sale:
Due in one year or less $ 9,677 $ 10,760
Due after one year through five years 286,756 285,087
Due after five years through ten years 425,569 396,959
Due after ten years 52,066 46,733
---------------------
774,068 739,539
Mortgage-backed securities 1,010,939 1,019,765
Other asset-backed securities 86,159 82,865
Equity securities 12,762 11,904
---------------------
Total available for sale $1,883,928 $1,854,073
=====================
Held to maturity:
Due in one year or less $ 449 $ 449
Due after one year through five years 17,546 17,376
Due after five years through ten years 75,887 72,366
Due after ten years 18,908 18,345
---------------------
112,790 108,536
Other asset-backed securities 501 505
_____________________
Total held to maturity $ 113,291 $109,041
=====================
</TABLE>
Changes in unrealized gains (losses) on
investments in availablefor-sale securities
for the year ended December 31, 1994 are
summarized as follows:
<TABLE>
<CAPTION>
Fixed Equity Total
(Dollars in Thousands)
<S> <C> <C> <C>
Gross unrealized gains $ 94,846 $ 262 $ 95,108
Gross unrealized losses 123,843 1,120 124,963
-------------------------------
Net unrealized losses (28,997) (858) (29,855)
Deferred income tax benefit 10,143 300 10,443
--------------------------------
Net unrealized losses after taxes (18,854) (558) (19,412)
Less:
Balance at beginning of year _ (131) (131)
Adjustments for change in accounting method 87,630 _ 87,630
-------------------------------
Change in net unrealized losses $(106,484) $ (427) $(106,911)
================================
</TABLE>
Changes in unrealized gains (losses) on securities
for the years ended December 31, 1993 and 1992 are
summarized as follows:
<TABLE>
<CAPTION>
Fixed Equity Total
(Dollars in Thousands)
<S> <C> <C> <C>
December 31, 1993:
Gross unrealized gains $156,410 $1,735 $158,145
Gross unrealized losses 16,601 1,664 18,265
--------------------------------
Net unrealized gains 139,809 71 139,880
Deferred income tax expense (48,933) (202) (49,135)
---------------------------------
Net unrealized gains (losses) after taxes 90,876 (131) 90,745
Less:
Balance at beginning of year 64,755 (505) 64,250
--------------------------------
Change in net unrealized gains $ 26,121 $ 374 $ 26,495
================================
December 31, 1992:
Gross unrealized gains $108,459 $ 9 $108,468
Gross unrealized losses 10,346 514 10,860
--------------------------------
Net unrealized gains (losses) 98,113 (505) 97,608
Deferred income tax expense (33,358) _ (33,358)
---------------------------------
Net unrealized gains (losses) after taxes 64,755 (505) 64,250
Less:
Balance at beginning of year 37,141 (534) 36,607
---------------------------------
Change in net unrealized gains $ 27,614 $ 29 $ 27,643
=================================
</TABLE>
The carrying amounts and fair values of the
Company's investment mortgage loans, investment
real estate, limited partnerships, short-term
investments, and policy loans at December 31,
1994 and 1993 are summarized as follows:
<TABLE>
<CAPTIONS>
Carrying Fair
Amounts Value
(Dollars in Thousands)
<S> <C> <C>
December 31, 1994:
Commercial mortgages $165,992 $163,215
Residential mortgages 9,467 9,467
Policy loans 690,494 690,494
Investment real estate 1,139 2,818
Foreclosed real estate 2,013 1,793
Limited partnerships 10,765 10,765
Short-term investments 7,978 7,978
----------------------
$887,848 $886,530
======================
December 31, 1993:
Commercial mortgages $ 92,209 $ 96,772
Residential mortgages 10,260 10,260
Policy loans 618,477 618,477
Investment real estate 5,377 6,413
Limited partnerships 10,366 10,366
Short-term investments 12,077 12,077
----------------------
$748,766 $754,365
======================
</TABLE>
As part of its overall investment management
strategy, the Company has entered into
agreements to purchase and sell securities
as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
(Dollars in Thousands)
<S> <C> <C>
Investment purchase commitments $ _ $28,862
Investment sale commitments _ _
</TABLE>
Major categories of investment income for
the years ended December 31 are summarized
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C>
Fixed maturities $153,777 $143,584 $130,424
Mortgage loans on real estate 12,221 8,110 8,258
Policy loans 42,456 43,638 38,782
Other investments 5,654 6,000 5,487
214,108 201,332 182,951
---------------------------
Investment expenses (4,503) (6,063) (4,195)
---------------------------
Net investment income $209,605 $195,269 $178,756
</TABLE>
Net realized gains (losses) on investments
for the years ended December 31 are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C>
Fixed maturities $ (3,847) $ 17,340 $ 12,289
Equity securities (1,761) (770) (3,661)
Real estate and other (1,637) 2,163 (1,963)
----------------------------
Net realized (losses) gains on investments $ (7,245) $ 18,733 $6,665
============================
</TABLE>
During 1994, debt and marketable equity securities
available forsale with fair value at the date of sale of
$534,094,257 were sold. Gross gains of $6,124,901 and
gross losses of $11,733,694 were realized on those sales
in 1994.
Proceeds from sales of investments in fixed maturities
during 1993 and 1992 were $973,460,000 and
$1,099,787,000, respectively. Gross gains of $11,374,000
and $22,526,000 and gross losses of $9,011,000 and
$2,571,000 were realized on those sales in 1993 and 1992,
respectively.
5. 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
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.
Interest rate cap and interest rate floor agreements
owned hedge exposure to increasing or decreasing interest
rates. These contracts entitle the Company to receive
payments to the extent reference interest rates exceed or
fall below strike levels in the contracts based on the
notional amounts. Premiums paid for the purchase of
interest rate caps and floors are included in other
assets and are being amortized to interest expense over
the remaining terms of the contracts. Payments
received, if any, from such contracts are included in
interest income. The fair values of interest rate
contracts are not recognized in the financial statements.
The Company manages the potential credit exposure from
interest rate contracts through careful evaluation of
the counterparty credit standing, collateral
agreements, 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.
The table below summarizes the Company's interest
rate contracts at December 31, 1994:
<TABLE>
<CAPTION>
Notional Carrying Fair
Amount Value Value
<S> <C> <C> <C>
Interest rate contracts:
Swaps $ 571,700,000 $ _ $(22,387,129)
Swaps_affiliates 567,700,000 _ 20,321,816
----------------------------------------
Total swaps 1,139,400,000 _ (2,065,313)
Caps owned 560,000,000 5,080,442 7,822,500
Caps owned_affiliates 165,000,000 1,033,475 2,552,058
----------------------------------------
Total caps owned 725,000,000 6,113,917 10,374,558
Floors owned 120,000,000 107,533 10,000
Floors owned_affiliates _ _ _
----------------------------------------
Total floors owned 120,000,000 107,533 10,000
----------------------------------------
$1,984,400,000 $6,221,450 $ 8,319,245
========================================
</TABLE>
6. Concentrations of Credit Risk
At December 31, 1994, the Company held less-than
investment grade bonds classified as available-for-
sale of $18,512,450 with carrying value and market
value of $19,084,500. These holdings amounted to 1%
of the Company's investments in bonds and less than
0.5% of total assets. The holdings of less-than
investmentgrade bonds are widely diversified and of
satisfactory quality based on the Company's
investment policies and credit standards. The
Company's investments in mortgage loans consist of
$165,992,000 involving commercial real estate and
$9,467,467 involving residential real estate. At
December 31, 1994, 64% of such mortgages
($111,950,000) involved properties located in
Colorado, Florida, Georgia and Pennsylvania. These
holdings amount to 2% of total assets. Mortgages on
individual properties do not exceed $8,000,000.
7. Pension Plans
The Company has a qualified noncontributory
defined benefit retirement plan covering
substantially all employees. The Company also
has a number of deferred compensation plans. In
addition, the Company has a contributory
retirement plan for substantially all
employees.
The funded status and the amounts recognized in
the balance sheets for the defined benefit
plans are as follows:
<TABLE>
<CAPTION>
December 31
1994 1993
(Dollars in Thousands)
<S> <C> <C>
Actuarial present value of accumulated
benefit obligation:
Vested $14,927 $17,025
Nonvested 857 709
---------------------
15,784 17,734
Effect of projected future compensation 8,815 6,386
---------------------
Projected benefit obligation 24,599 24,120
Less plan assets at fair value 28,147 30,831
---------------------
Plan assets in excess of projected benefit
obligation 3,548 6,711
Unrecognized net asset (1,885) (2,170)
Unrecognized prior service cost 175 920
Unrecognized net gain (883) (3,657)
--------------------
Net pension asset $ 955 $ 1,804
======================
</TABLE>
Assumptions used in accounting for the defined
benefit plans as of December 31, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Weighted-average discount rate 8.0% 7.0% 8.0%
Rate of increase in compensation level 6.0% 5.0% 6.0%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
</TABLE>
The net pension credit for the defined benefit
plans included the following components:
<TABLE>
<CAPTION>
Year ended December 31
1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost -- benefits earned during
the period $1,617 $1,388 $1,037
Interest cost on projected benefit
obligation 1,740 1,538 1,264
Return on plan assets (1,900) (7,618) (1,836)
Net amortization and deferral (459) 5,414 (343)
---------------------------
Net pension debit $ 998 $ 722 $ 122
===========================
</TABLE>
Plan assets of the defined benefit plans at December
31, 1994 are invested primarily in U.S. government
securities, corporate bonds, mutual funds, mortgage
loans and money market funds.
The Security Life of Denver Insurance Company Savings
Incentive Plan (the Savings Plan) is a defined
contribution individual account plan which is available
to substantially all full-time home office employees to
provide a savings program for additional retirement
benefits, qualifying as a 401(k) plan. As a 401(k)
plan, participants may make contributions to the plan
through salary reductions up to a maximum of $9,240 in
1994, $8,994 in 1993 and $8,728 in 1992. Such
contributions are not currently taxable to the
participants. Beginning in 1994, the Company matches
100% of the first 3% of participants' contributions,
plus 50% of contributions which exceed 3% of
participant's compensation, subject to a maximum
matching percentage of 4 1/2% of the individual's
salary. Prior to 1994, the Company matched participant
contributions up to 3% of the individual's salary,
subject to a maximum matching contribution of $1,500
per year. Company matching contributions were
$1,042,000, $570,000 and $502,000 for 1994, 1993 and
1992, respectively.
Plan assets of the Savings Plan at December 31, 1994
are invested in a group deposit administration
contract (the Contract) with the Company, various
mutual funds maintained by the Principal Financial
Group, and loans to participants. The Contract is a
policyholder liability of the Company and had a balance
of $21.6 and $18.2 million at December 31, 1994 and
1993, respectively.
8. Other Postretirement Benefit Plans
In addition to the Company's pension plans, the
Company has two defined benefit postretirement plans
(OPEB) covering substantially all employees. One plan
provides medical benefits and another provides life
insurance benefits.
The postretirement life plan is contributory with
retirees under age 65 contributing $0.10 per $1,000 of
coverage. The plan is noncontributory for retirees
age 65 and older. The medical plan is contributory,
and includes both a deductible and copay. The lifetime
maximum benefit is $2,000,000.
In 1993, the Company adopted FASB Statement No. 106,
Employers' Accounting for Postretirement Benefits
Other Than Pensions. The effect of adopting the new
rules decreased 1993 net income before cumulative
effect of accounting change by $653,000 and decreased
1993 net income by $5,755,500. The effect on net
income for 1993 includes the adjustment of $5,102,500
(net of tax of $2,747,500) to retroactively apply the
new rules. Postretirement benefit cost for 1992, which
was recorded on a cash basis, has not been restated.
The following table shows the two plans' combined
funded status reconciled with the amounts recognized
in the Company's balance sheets:
<TABLE>
<CAPTION>
December 31
1994 1993
Life Life
Medical Insurance Medical Insurance
Plan Plan Plan Plan
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $(2,612) $(274) $(4,485) $(348)
Fully eligible active
plan participants (492) (65) (535) (57)
Other active plan participants (2,347) (197) (3,281) (148)
-------------------------------------
(5,451) (536) (8,301) (553)
-------------------------------------
Plan assets at fair value _ _ _ _
Accumulated postretirement benefit
obligation in excess of plan assets (5,451) (536) (8,301) (553)
Unrecognized prior service cost 571 52 _ _
Unrecognized net gain (3,982) (359) _ _
Unrecognized transition obligation _ _ _ _
-------------------------------------
Accrued postretirement benefit cost $(8,862) $(843) $(8,301) $(553)
=====================================
</TABLE>
Net periodic postretirement benefit cost
included the following components:
<TABLE>
<CAPTION>
1994 1993
Life Life
Medical Insurance Medical Insurance
Plan Plan Plan Plan
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Service cost $436 $30 $ 434 $22
Interest cost 448 39 573 36
Actual return on plan assets _ _ _ _
Net amortization and deferral (93) (8) _ _
----------------------------------
Net periodic postretirement
benefit cost $791 $61 $1,007 $58
==================================
</TABLE>
The annual assumed rate of increase in the per capita
cost of covered benefits (i.e., health care cost trend
rate) for the medical plan is 14.9% for participants under
65 and 4% for participants over 65 for 1995. The rate for
participants under 65 is assumed to decrease
gradually to 6% in 2012 and remain at that level
thereafter. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one
percentage point in each year would increase the
accumulated postretirement benefit obligation for the
medical plan as of December 31, 1994 by $1,274,400 and the
aggregate of the service and interest cost components of
net periodic postretirement benefit cost for 1994 by
$203,700.
The weighted-average discount rate used in
determining the accumulated postretirement benefit
obligation was 8.5% at December 31, 1994 and 7.0%
at December 31, 1993.
9. Leases
The Company is committed under various
noncancellable long term operating leases relating
to electronic data processing equipment that
provide for annual rentals as follows:
1995 $ 3,864,000
1996 3,808,000
1997 3,941,000
1998 3,118,000
1999 and thereafter 35,000
------------
$14,766,000
============
These leases expire between 1996 and 1999. Rental
expense for all equipment leases was approximately
$5,620,000, $4,798,000 and $3,170,000 for the years
ended December 31, 1994, 1993 and 1992, respectively.
10. 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. As of December 31, 1994, the Company's
retention limit for acceptance of risk on life
insurance policies had been set at various levels up
to $1,500,000. 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 thr
reinsurance contracts.
To the extent that the assuming companies become
unable to meet their obligations under these treaties, the
Company remains contingently 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 Company assumes and cedes, on a coinsurance basis,
guaranteed investment contracts to and
from affiliates under the common ownership. The
Company does not hold any collateral under
these agreements. These transactions are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
GAAP GAAP
Premiums Reserves Premiums Reserves
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Direct (nonaffiliated) $ 660,030 $1,200,001 $555,187 $906,872
Assumed from Life of Georgia 47,450 103,553 _ _
Ceded to Columbine Life
Insurance Company (602,680) (1,163,910) (555,187) (860,315)
Ceded to Life of Georgia (104,800) (106,865) _ _
-------------------------------------------
Net $ _ $ 32,779 $ _ $46,557
===========================================
</TABLE>
In accordance with FASB Statement No. 113, ceded GIC
reserves totalling $1,271 million are classified as
part of prepaid reinsurance premiums. GIC reserves
are reflected at their gross value of $1,304 million.
The Company has ceded blocks of insurance under
reinsurance treaties to provide funds for financing
and other purposes. These reinsurance transactions,
generally known as "surplus relief reinsurance,"
represent financing arrangements and, in accordance
with generally accepted accounting principles, are
not reflected in the accompanying financial
statements except for the risk fees paid to or
received from reinsurers. Surplus relief reinsurance
has the effect of increasing current statutory
surplus while reducing future statutory surplus as
amounts are recaptured by the reinsurers. The
Company's surplus relief agreements are primarily
with affiliated companies.
11. Income Taxes
Effective January 1, 1993, the Company changed its
method of accounting for income taxes from the
deferred method to the liability method required by
FASB Statement No. 109, Accounting for Income Taxes
(see Note 1, "Accounting Policies"). As permitted
under the new rules, prior years' financial
statements have not been restated. The cumulative
effect of adopting FASB Statement No. 109 as of
January 1, 1993 was to increase net income by
$16,933,000.
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
(dollars in thousands):
<TABLE>
<CAPTION>
December 31
1994 1993
<S> <C> <C>
Deferred tax assets:
Benefit reserves and surplus relief $172,760 $152,914
Tax-basis deferred acquisition costs 41,183 33,762
Investment income differences 29,806 11,504
Unrealized gains/losses 10,449 (25)
Unearned investment income 9,789 7,994
Nonqualified deferred compensation 6,326 6,215
------------------
Total deferred tax assets 270,313 212,364
Valuation allowance for deferred tax assets (438) (438)
------------------
Net deferred tax assets 269,875 211,926
==================
Deferred tax liabilities:
Expense reserves 203,468 169,955
Depreciation 3,003 2,832
Other-net 710 4,725
------------------
Total deferred tax liabilities 207,181 177,512
------------------
Net deferred tax assets $ 62,694 $ 34,414
==================
</TABLE>
A valuation allowance has been established by the
Company to account for the fact that the full benefit
of the deferred tax asset established by First ING
for tax basis deferred acquisition costs more than
likely will not be fully realized. The components of
the provision for deferred income taxes for the year
ended December 31, 1992 are as follows:
Benefit reserves $ (14,620)
Investment income differences (8,746)
Expense reserves 11,782
Tax-basis deferred acquisition costs (10,030)
Other-net (5,417)
---------
Provision for deferred income taxes $ (27,031)
=========
The Company files a consolidated federal income tax
return with its parent, Internationale Nederlanden
U.S. Insurance Holdings, and other U.S. affiliates
and subsidiaries, with the exception of First ING.
The affiliated companies that join in the filing of
the consolidated federal return have entered into a
tax sharing agreement which provides for an
allocation of taxes between life insurance affiliates
and another allocation between nonlife members of the
group. For life insurance company members, the
agreement provides that to the extent one affiliate's
taxable income is offset by another's loss, 50% of
the resulting tax reduction will be paid to the
affiliate with the loss in the current year. If, in
another year, the affiliate incurring the loss could
have utilized the loss carryforward had it not been
previously utilized, the affiliate incurring the loss will receive a 50%
reduction in taxes at that time. The deferred payments
or receipts for the use of losses are accounted for as a
component of the Company's deferred tax liability.
The Policyholder's Surplus Account is an accumulation of
certain special deductions for income tax purposes and a
portion of the "gains from operations" which were not
subject to current taxation under the Life Insurance Tax
Act of 1959. At December 31, 1984, the balance in this
account for tax return purposes was approximately
$70,800,000. The Tax Reform Act of 1984 provides that no
further accumulations will be made in this account. If
amounts accumulated in the Policyholder's Surplus
Account exceed certain limits, or if distributions to
the shareholder exceed amounts in the Shareholder's
Surplus Account, to the extent of such excess amount or
excess distributions, as determined for income tax
purposes, amounts in the Policyholder's Surplus Account
would become subject to income tax at rates in effect at
that time. Should this occur, the maximum tax which
would be paid is $24,780,000. The Company does not
anticipate any such action or foresee any events which
would result in such tax. FASB Statement No. 109
provides that a deferred tax liability associated with
the Policyholder's Surplus Account must be provided only
for any future increases in the Account in fiscal
years beginning after December 15, 1992. As no
further accumulations can be made to the Account, and
the Company does not anticipate any events which
would result in amounts in the Policyholder's Surplus
Account becoming taxed, a related deferred tax
liability has not been established.
For financial reporting purposes, federal income tax
expense (benefit) consists of the following:
<TABLE>
<CAPTION>
Liability Deferred
Method Method
1994 1993 1992
(Dollars in Thousands)
<S> <C> <C> <C>
Current $44,121 $31,721 $47,341
Deferred (29,200) (10,339) (27,031)
Current year change in valuation allowance _ 223 _
---------------------------
Federal income tax expense $14,921 $21,605 $20,310
===========================
</TABLE>
The Company's effective income tax rate did not vary
significantly from the statutory federal income tax
rate.
The Company had net income tax payments of $41,278,000
during 1994, $39,042,000 during 1993, and $41,719,000
during 1992 for current income tax payments and
settlements of prior year returns.
12. Long-Term Debt
Long-term indebtedness to related parties for
$50,000,000 represents the initial cash draw on a
$100,000,000 line of credit issued by ING U.S.
Insurance Holdings (parent) on December 29, 1994.
Additional draws on this line of credit may be made by
the Company at their option through December 1, 2004.
This subordinated note bears interest at a variable
rate equal to the prevailing rate for 10-year U.S.
Treasury Bonds plus 1/4% adjusted annually. The
principal and interest will be repaid in five annual
installments beginning on December 31, 1999 and
continuing through December 31, 2003. Minimum payments,
assuming a current interest rate of 7.79%, are as
follows:
Total
Year Payments
1999 $17,091,184
Subsequent years 68,364,737
-----------
Total 85,455,921
Less imputed interest 35,455,921
-----------
Present value of payments $50,000,000
===========
The repayment of this note requires approval of the
Commissioner of Insurance of the State of Colorado and
is payable only out of surplus funds of the Company and
only at such time as the surplus of the Company, after
payment, is made, does not fall below the prescribed
level.
13. Statutory Accounting Practices
Stockholder's equity, determined in accordance with
statutory accounting practices (SAP), was $308,993,000
and $301,954,000 at December 31, 1994 and 1993,
respectively. Net income, determined in accordance with
SAP, was $9,383,000, $23,813,000, and $27,867,000 for
the years ended December 31, 1994, 1993, and 1992,
respectively.
Security Life and Midwestern United are each required
to maintain a minimum total statutory capital and
surplus in the state of domicile of $1,500,000 and
$1,250,000, respectively. First ING is required to
maintain a minimum statutory capital and surplus in the
state of domicile of $1,550,000. Each Company exceeded
its respective minimum statutory capital and surplus
requirements at December 31, 1994. Additionally, the
amount of dividends which can be paid by each company
to its stockholder without prior approval of the
various state insurance departments is generally
limited to the greater of 10% of statutory surplus or
the statutory net gain from operations.
Security Life and its subsidiaries prepare their
statutory basis financial statements in accordance with
accounting practices prescribed or permitted by their
state of domicile. "Prescribed" statutory accounting
practices include state laws, regulations and general
administrative rules, as well as a variety of
publications of the National Association of Insurance
Commissioners (NAIC). "Permitted" statutory accounting
practices encompass all accounting practices that are
not prescribed; such practices may differ from state to
state, from company to company within the state, and
may change in the future. The NAIC is currently in the
process of codifying statutory accounting practices,
the result of which is expected to constitute the only
source of "prescribed" statutory accounting practices.
Accordingly, that project, which is expected to be
completed in 1996, will likely change, to some extent,
prescribed statutory accounting practices, and may
result in changes to the accounting practices that
insurance companies use to prepare their statutory
financial statements.
Prescribed statutory reserve methodology does not fully
encompass universal life-type products. The NAIC,
however, has promulgated a Model Regulation regarding
universal life reserves, which the Colorado Division of
Insurance (DOI) has not adopted. The Company sets up
basic reserves on its universal life products equal to
the account value less unamortized expense allowance
plus onehalf the monthly guaranteed cost of insurance.
The expense allowance is amortized over the surrender
charge period. The Colorado DOI will neither approve
nor disapprove the Company's current methodology for
calculating universal life reserves. The Company
believes this reserve methodology is more conservative
than that specified by the NAIC Universal Life Model
Regulation. The amount of this difference cannot be
quantified.
14. Regulatory Risk-Based Capital
The National Association of Insurance Commissioners
(NAIC) has developed a risk-based capital program that
would replace minimum capital and surplus requirements
with dynamic surplus requirements based on formulas
similar to target surplus formulas used by commercial
rating agencies. The formulas specify various weighting
factors that are applied to financial balances or
various levels of activity based on the perceived
degree of risk.
Regulatory compliance is determined by a ratio of the
enterprise's regulatory total adjusted capital to its
authorized control level risk-based capital, both as
defined in the NAIC Life Risk-Based Capital Report
Instructions dated November 15, 1993. Enterprises below
specific trigger points or ratios are classified
within certain levels and may be subjected to
corrective action. The levels and ratios are as
follows:
Ratio of Total Adjusted Capital to
Authorized Control Level Risk-Based
Capital
Level (less than or equal to)
Company Action Level 2 or 2.5 with negative trends, as defined
Regulatory Action Level 1.5 or unsatisfactory comprehensive plan
Authorized Control Level 1
Mandatory Control Level 0.7
The NAIC established a number of corrective actions
for each riskbased capital level. Enterprises that are
in the "company action level" are required to submit a
detailed comprehensive financial plan to the state
insurance department. In the "regulatory action
level," in addition to submitting the comprehensive
financial plan, an enterprise may be subjected to a
detailed regulatory investigation. The state insurance
department is permitted but not required to place the
life insurance enterprise under regulatory control
when it falls to the "authorized control level";
regulatory control is required in the "mandatory
control level."
At December 31, 1994, the Company has
regulatory total adjusted capital of
$265 million and authorized control
level risk-based capital of $26 million.
15. Commitments and Contingent
Liabilities
The Company is a party to pending or
threatened lawsuits arising from the
normal conduct of its business. Due to
the climate in insurance and business
litigation, suits against the Company
sometimes include substantial additional
claims for consequential damages,
punitive damages and other similar types
of relief. While it is not possible to
forecast the outcome of such litigation,
it is the opinion of management that the
disposition of such lawsuits will not
have a materially adverse effect on the
Company's financial position or
interfere with its operations.
16. Financing
Arrangements The Company has a
$50,000,000 line of credit to provide
short term liquidity. There were no
outstanding borrowings under this
agreement at December 31, 1994 or 1993.
The Company is also the beneficiary of
two letters of credit totalling
$120,000,000 that were established in
accordance with the terms of a
reinsurance agreement. The letters of
credit expire on December 31, 1995. The
letters of credit were unused during
both 1994 and 1993.
In addition, First ING is the
beneficiary of a $12,077,000 renewable
letter of credit that was established in
accordance with the terms of a
reinsurance agreement. This letter of
credit expired on December 31, 1994. The
letter of credit was unused during both
1994 and 1993.
The average balance of short-term debt
was $5.8 million. The weighted average
interest rate paid on this debt was
4.4%.
<TABLE>
SCHEDULE VI
SECURITY LIFE OF DENVER INSURANCE COMPANY AND SUBSIDIARIES
REINSURANCE
For the Years Ended December 31, 1994, 1993 and 1992
(Dollars in Thousands)
<CAPTION>
Assumed Percentage
Ceded to from of Amount
Gross Other Other Net Assumed
Description Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
Year ended December
31, 1994:
Life insurance in
force <F1> $ 30,701,660 $ 14,566,271 $ 61,146,122 $ 77,284,511 79%
Premium income and
other considerations:
Individual Life 268,331 88,613 299,602 479,320 63%
Group and other 31,858 12,846 30 19,042 0%
---------------------------------------------------
Total 300,189 101,459 299,632 498,362 60%
Year ended December
31, 1993:
Life insurance in
force <F1> $ 27,762,257 $ 15,616,495 $ 54,152,415 $ 66,298,177 82%
Premium income and
other considerations:
Individual Life 217,939 83,059 273,373 408,253 67%
Group and other 26,742 9,859 845 17,728 5%
---------------------------------------------------
Total 244,681 92,918 274,218 425,981 64%
Year ended December
31, 1992:
Life insurance in
force <F1> $ 25,716,685 $ 13,123,261 $ 43,432,094 $ 56,025,518 78%
Premium income and
other considerations:
Individual Life 179,097 60,342 246,371 365,126 67%
Group and other 25,628 8,055 1,104 18,677 6%
---------------------------------------------------
Total 204,725 68,397 247,475 383,803 64%
<FN>
<F1>
Excludes face amount of life insurance in force assumed from or ceded to other
unaffiliated companies under financial reinsurance agreements with
unaffiliated insurers generally in return for fees, as follows (in thousands):
1994 1993 1992
Assumed from other companies $ 0 $ 0 $ 0
Ceded to other companies 26,293,453 30,353,061 25,369,291
These agreements ill terminate during the next few years.
</FN>
</TABLE>
<TABLE>
SCHEDULE VIII
SECURITY LIFE OF DENVER INSURANCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 1994, 1993 and 1992
(In Thousands)
<CAPTION>
Additions Additions
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1994:
Allowance for mortgage
loans losses $ 494 $ $ 176 $ $ 670
Allowance for losses
on real estate 860 860 0
Allowance for bond
losses 0 0
Allowance for doubtful
accounts 3,484 404 3,080
Accumulated depreciation
on property and
equipment 12,806 3,521 389 15,938
Accumulated depreciation
on real estate 641 56 319 378
Year Ended December 31,
1993:
Allowance for mortgage
loans losses 0 494 494
Allowance for losses
on real estate 385 475 860
Allowance for bond
losses 3,859 (3,859)<F1> 0
Allowance for doubtful
accounts 4,335 (851) 3,484
Accumulated depreciation
on property and
equipment 13,953 3,767 (4,914)<F2> 12,806
Accumulated depreciation
on real estate 578 84 (21)<F2> 641
Year Ended December 31,
1992:
Allowance for mortgage
loans losses 0 0
Allowance for losses
on real estate 385 385
Allowance for bond
losses 3,859 3,859
Allowance for doubtful
accounts 3,221 1,114 4,335
Accumulated depreciation
on property and
equipment 11,091 3,174 (312)<F2> 13,953
Accumulated depreciation
on real estate 518 77 (17)<F2> 578
<FN>
<F1>
Recapture of bond loss reserve upon sale of bonds.
<F2>
Write-off of accumulated depreciation on disposed assets.
</FN>
</TABLE>
Security Life of Denver Separate Account A1
Financial Statements
Year ended December 31, 1994
Contents Page
Report of Independent Auditors 42
Audited Financial Statements
Statement of Net Assets 43
Statement of Operations 44
Statement of Changes in Net Assets 45
Notes to Financial Statements 46
Report of Independent Auditors
Contractholders
Security Life Separate Account A1
We have audited the accompanying statement of assets and liabilities of
Security Life Separate Account A1 as of December 31, 1994, and the
related statement of operations and changes in net assets for the year
then ended. These financial statements are the responsibility of the
Separate Account's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. 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 audit
provides 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 Security Life
Separate Account A1 at December 31, 1994, and the results of its
operations and changes in its net assets for the year then ended in
conformity with generally accepted accounting principles.
Ernst & Young LLP
January 27, 1995
<TABLE>
SECURITY LIFE SEPARATE ACCOUNT A1
<CAPTION>
STATEMENT OF NET ASSETS DIVISIONS
December 31, 1994 Alger Fidelity Investments INVESCO Van Eck
American Gold and
Midcap Money High Worldwide Natural
Combined Growth Overseas Market Yield Balanced Resources
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in
mutual funds - at
market value
(combined cost
$568,117) - Note C $568,473 $9,994 $13,000 $527,083 $6,824 $5,130 $6,442
--------------------------------------------------------------------------
TOTAL ASSETS 568,473 9,994 13,000 527,083 6,824 5,130 6,442
--------------------------------------------------------------------------
LIABILITIES
Due to Security
Life of Denver 872 3 4 860 2 1 2
--------------------------------------------------------------------------
TOTAL LIABILITIES 872 3 4 860 2 1 2
==========================================================================
NET ASSETS $567,601 $9,991 $12,996 $526,223 $6,822 $5,129 $6,440
CONTRACT OWNER RESERVES:
Reserves for
redeemable annuity
contracts - Note B $567,601 $9,991 $12,996 $526,223 $6,822 $5,129 $6,440
-----------------------------------------------------------------------
TOTAL CONTRACT
OWNERS RESERVES $567,601 $9,991 $12,996 $526,223 $6,822 $5,129 $6,440
========================================================================
Number of Divisional
Units Outstanding -
Note F 983.060 1,358.026 52,413.096 676.252 513.000 700.158
Value per Divisional Unit $10.16 $9.57 $10.04 $10.09 $10.00 $9.20
See the accompanying notes to these financial statements.
</TABLE>
<TABLE>
SECURITY LIFE SEPARATE ACCOUNT A1
<CAPTION>
STATEMENT OF OPERATIONS DIVISIONS
December 31, 1994 Alger Fidelity Investments INVESCO Van Eck
American Gold and
Midcap Money High Worldwide Natural
Combined Growth Overseas Market Yield Balanced Resources
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME:
Income
Dividends from
mutual funds $3,117 $0 $0 $3,083 $34 $0 $0
Expenses:
Valuation period
deductions - Note B 872 3 4 860 2 1 2
----------------------------------------------------------------------
Net investment
income 2,245 (3) (4) 2,223 32 (1) (2)
----------------------------------------------------------------------
REALIZED AND
UNREALIZED GAINS
(LOSSES) ON
INVESTMENTS:
Net realized gain
(loss) on investments 0 0 0 0 0 0 0
Net unrealized gain
(loss) on investments 356 104 100 0 (20) 0 172
---------------------------------------------------------------------
Net realized and
unrealized gain (loss)
on investments 356 104 100 0 (20) 0 172
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $2,601 $101 $ 96 $2,223 $12 ($1) $170
======================================================================
</TABLE>
See the accompanying notes to these financial statements.
<TABLE>
SECURITY LIFE SEPARATE ACCOUNT A1
STATEMENT OF CHANGES IN NET ASSETS DIVISIONS
December 31, 1994 Alger Fidelity Investments INVESCO Van Eck
American Gold and
Midcap Money High Worldwide Natural
Combined Growth Overseas Market Yield Balanced Resources
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
OPERATIONS:
Net investment income $2,245 ($3) ($4) $2,223 $32 ($1) ($2)
Net realized gains
(losses) on investments 0 0 0 0 0 0 0
Net unrealized gain
(loss) on investments 356 104 100 0 (20) 0 172
---------------------------------------------------------------------
INCREASE (DECREASE)
IN NET ASSETS
FROM OPERATIONS 2,601 101 96 2,223 12 (1) 170
=====================================================================
CHANGES FROM PRINCIPAL
TRANSACTIONS:
Contract purchase
payments 565,000 565,000
Net transfers among
divisions 0 9,890 12,900 (41,000) 6,810 5,130 6,270
----------------------------------------------------------------------
INCREASE FROM PRINCIPAL
TRANSACTIONS 565,000 9,890 12,900 524,000 6,810 5,130 6,270
======================================================================
TOTAL INCREASE IN
NET ASSETS 567,601 9,991 12,996 526,223 6,822 5,129 6,440
Net assets at
beginning of year 0 0 0 0 0 0 0
NET ASSETS AT END
OF YEAR $567,601$9,991 $12,996 $526,223 $6,822 $5,129 $6,440
=======================================================================
</TABLE>
See the accompanying notes to these financial statements.
Security Life Separate Account A1
Notes to Financial Statements
December 31, 1994
Note A -- Organization
The Security Life Separate Account A1 (the Separate Account) was
established by resolution of the Board of Directors of Security Life
of Denver Insurance Company (the Company) on November 3, 1993. The Separate
Account was inactive prior to November 23, 1994, 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.
The Separate Account supports the operations of the Exchequer Variable
Annuity (Exchequer) contracts offered by the Company. The Separate
Account may be used to support other variable annuity contracts 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 contracts will not be chargeable with
liabilities arising out of any other operations of the Company.
The Separate Account currently consists of seventeen investment divisions
available to the contractholders, each of which invests in an
independently managed mutual fund portfolio (Fund). The Funds are as
follows:
Portfolio Managers/Portfolios (Funds)
Neuberger & Berman
Neuberger & Berman Limited Maturity Bond Portfolio
Neuberger & Berman Growth Portfolio
Neuberger & Berman Government Income Portfolio
Neuberger & Berman Partners Portfolio
Fred Alger Management, Inc.
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Fidelity Management & Research Company
Fidelity Investments Growth Portfolio
Fidelity Investments Overseas Portfolio
Fidelity Investments Money Market Portfolio
Fidelity Investments Asset Manager Portfolio
Fidelity Investments Index 500 Portfolio
INVESCO Funds Group, Inc.
INVESCO VIF Total Return Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Utilities Portfolio
Van Eck Investment Trust
Van Eck Worldwide Balanced Portfolio
Van Eck Gold and Natural Resources Portfolio
The Exchequer contracts allow the contractholders to specify the
allocation of their purchase payments to the various Funds. They can also
transfer their accumulation values among the Funds. The Exchequer product
also provides the contractholders the option to allocate their purchase
payments, or to transfer their accumulation values, to a Guaranteed
Interest Division (GID). The GID guarantees a rate of interest to the
contractholder and it is not variable in nature. Therefore, it is not
included in the Separate Account statements.
Note B -- Summary of significant accounting policies
The accompanying financial statements of the Separate Account have been
prepared on the basis of generally accepted accounting principles (GAAP).
The accounting principles followed by the Separate Account and the
methods of applying those principles are presented below or in the
footnotes which follow:
Security Valuation -- The investment 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.
Security transactions and related investment income _ The investment in
shares of the Funds are accounted for on the date the order to buy or
sell is executed (trade date). Dividend income and distributions of
capital gains are recorded on the ex_dividend date. Realized gains and
losses from security transactions are reported using the first-in-first-
out (FIFO) method of accounting for cost for financial reporting and
federal income tax purposes. The difference between cost and current
market value of investments owned on the day of measurement is recorded
as unrealized gain or loss on investment.
Valuation Period Deductions -- Charges are made directly against the
assets of the Separate Account divisions and are reflected daily in the
computation of the unit values of the divisions.
For Exchequer contracts, a daily deduction, at an annual rate of 1.37%
of the daily asset value of the Separate Account divisions is charged to
the Separate Account for mortality and expense risks assumed by the
Company. Total mortality and expense charges for the year ended December
31, 1994 were $786.
Exchequer contracts are subject to a daily deduction, at an annual rate
of .15% of the daily asset value of the Separate Account divisions, for
an asset based administrative charge to compensate the Company for a
portion of the administrative expenses under the contract. Total asset
based administrative charges for the year ended December 31, 1994 were
$86. Annuity reserves _ All of the Exchequer contracts in the Separate
Account have not yet annuitized (reached the annuity date) and are
redeemable for the net cash surrender value of the contracts. The
annuity reserves are recorded in the Separate Account at the aggregate
account values of the contractholders invested in the Separate Account
divisions.
Note C -- Investments
Fund shares are purchased at net asset value with purchase payments and
divisional transfers from other Funds. Fund shares are redeemed at net
asset value for the payment of benefits, for surrenders, for divisional
transfers to other Funds, and for certain administrative charges by the
Company which were $0 for the year ended December 31, 1994.
Distributions made by the Funds are reinvested in the Funds.
Some Funds have not yet been utilized by the Separate Account
contractholders. The following is a summary of fund shares owned as of
December 31, 1994.
<TABLE>
<CAPTION>
Number Net Value
of Asset of Shares Cost of
Fund Shares Value at Market Shares
<S> <C> <C> <C> <C>
Fred Alger Management, Inc:
American MidCap Growth 742.492 $13.46 $ 9,994 $9,890
Fidelity Management &
Research Co.:
Overseas 829.582 15.67 13,000 12,900
Money Market 527,083.410 1.00 527,083 527,083
INVESCO Funds Group, Inc.:
High Yield 681.677 10.01 6,824 6,844
Van Eck Investment Trust:
Worldwide Balanced 513.000 10.00 5,130 5,130
Gold & Natural Resources 490.995 13.12 6,442 6,270
------------------
Totals $568,473 $568,117
==================
The aggregate cost of purchases (plus reinvested dividends) and proceeds
from sales of investments for the period ended December 31, 1994 were
$609,117 and $41,000, respectively. At December 31, 1994, the cost of
total investments owned is the same for both financial reporting purposes
and federal income tax purposes.
Note D - Other Contract Deductions
The Exchequer product provides for certain deductions for surrender
charges and taxes from amounts paid to contractholders. Such deductions
are taken after the redemption of divisional units of the Separate
Account and are not included in the Separate Account financial
statements.
Note E - 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. No taxes are
payable on the investment income or on the realized gains of the Separate
Account.
Note F - Summary of Changes in Units
The following schedule summarizes the change in divisional units for the
year ended December 31, 1994:
</TABLE>
<TABLE>
<CAPTION>
Divisional Units
Increase
Outstanding Increase (Decrease)
at for for Outstanding
Beginning Payments Divisional at End
Fund of year Received Transfers of year
<S> <C> <C> <C> <C>
Fred Alger Management, Inc:
American MidCap Growth 0.000 0.000 983.060 983.060
Fidelity Management &
Research Co.:
Overseas 0.000 0.000 1,358.026 1,358.026
Money Market 0.000 56,500.000 (4,086.904) 52,413.096
INVESCO Funds Group, Inc.:
High Yield 0.000 0.000 676.252 676.252
Van Eck Investment Trust:
Worldwide Balanced 0.000 0.000 513.000 513.000
Gold & Natural Resources 0.000 0.000 700.158 700.158
</TABLE>
Note G -- Net Assets
Net Assets at December 31, 1994 consisted of the following:
<TABLE>
<CAPTION>
Accumulated Net
Net Realized Unrealized
Principal Accumulated Gains Gains
Trans- Investment (Losses) on (Losses) on Net
Funds actions Income Investments Investments Assets
<S> <C> <C> <C> <C> <C>
Fred Alger
Management, Inc:
American MidCap
Growth $ 9,890 ($3) $0 $104 $9,991
Fidelity
Management
& Research Co.:
Overseas 12,900 (4) 0 100 12,996
Money Market 524,000 2,223 0 0 526,223
INVESCO Funds
Group, Inc.:
High Yield 6,810 32 0 (20) 6,822
Van Eck Investment
Trust:
Worldwide Balanced 5,130 (1) 0 0 5,129
Gold & Natural
Resources 6,270 (2) 0 172 6,440
</TABLE>
Security Life of Denver Separate Account A1
Unaudited Financial Statements
Period ended March 31, 1995
Contents
Unaudited Financial Statements
Unaudited Statement of Net Assets 51
Unaudited Statement of Operations 52
Unaudited Statement of Changes in Net Assets 53
Notes to Unaudited Financial Statements 54
<TABLE>
SECURITY LIFE SEPARATE ACCOUNT A1
<CAPTION>
UNAUDITED STATEMENT OF NET ASSETS
March 31, 1995 Alger Fidelity Investments INVESCO Van Eck
American Gold and
MidCap Asset Money Index Total High Worldwide Natural
Combined Growth Manager Overseas Market 500 Return Yield Balanced Resources
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual
funds - at market
value (combined cost
$175,606 )--Note C $177,498 $20,725 $0 $21,857 $106,827 $3,196 $3,210 $11,908 $4,455 $5,320
-------------------------------------------------------------------------------------------
TOTAL ASSETS 177,498 20,725 0 21,857 106,827 3,196 3,210 11,908 4,455 5,320
===========================================================================================
LIABILITIES
Due to Security Life
of Denver 2,628 51 0 60 2,461 1 1 24 9 21
Due to Other Divisions (2,755) 2,755
----------------------------------------------------------------------------------------
TOTAL LIABILITIES 2,628 51 (2,755) 60 5,216 1 1 24 9 21
----------------------------------------------------------------------------------------
NET ASSETS $174,870 $20,674 $2,755 $21,797 $101,611 $3,195 $3,209 $11,884 $4,446 $5,299
============================================================================================
CONTRACT OWNER
RESERVES
Reserves for
redeemable annuity
contracts - Note B $174,870 $20,674 $2,755 $21,797 $101,611 $3,195 $3,209 $11,884 $4,446 $5,299
--------------------------------------------------------------------------------------------
TOTAL CONTRACT OWNER
RESERVES $174,870 $20,674 $2,755 $21,797 $101,611 $3,195 $3,209 $11,884 $4,446 $5,299
============================================================================================
Number of Divisional
Units Outstanding - Note F 1,881.041 285.716 2,307.805 10,011.447 301.456 305.255 1,129.439 445.786 571.370
Value per Divisional Unit $10.99 $9.64 $9.44 $10.15 $10.60 $10.51 $10.52 $9.97 $9.27
===================================================================================
</TABLE>
See the accompanying notes to these financial statements.
<TABLE>
SECURITY LIFE SEPARATE ACCOUNT A1
<CAPTION>
UNAUDITED STATEMENT
OF OPERATIONS
March 31, 1995 Alger Fidelity Investments INVESCO Van Eck
American Gold and
Midcap Asset Money Index Total High Worldwide Natural
Combined Growth Manager Overseas Market 500 Return Yield Balanced Resources
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual
funds $6,226 $0 $0 $92 $6,134 $0 $0 $0 $0 $0
Less: Valuation period
deductions--Note B (1,768) (49) 0 (57) (1,611) (1) (1) (22) (8) (19)
----------------------------------------------------------------------------------------
Net investment income 4,458 (49) 0 35 4,523 (1) (1) (22) (8) (19)
========================================================================================
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS
Net realized gain (loss)
on investments (368) 245 0 (465) 0 0 0 17 0 (165)
Net unrealized gain
(loss) on investments 1,536 675 0 514 0 (2) 12 215 0 122
-----------------------------------------------------------------------------------------
Net realized and
unrealized gain
(loss) on investments 1,168 920 0 49 0 (2) 12 232 0 (43)
-----------------------------------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $5,626 $871 $0 $84 $4,523 ($3) $11 $210 ($8) ($62)
==========================================================================================
</TABLE>
See the accompanying notes to these financial statements.
<TABLE>
SECURITY LIFE SEPARATE ACCOUNT A1
UNAUDITED STATEMENT OF
CHANGES IN NET ASSETS
<CAPTION>
March 31, 1995 Alger Fidelity Investments INVESCO Van Eck
American Gold and
Midcap Asset Money Index Total High Worldwide Natural
Combined Growth Manager Overseas Market 500 Return Yield Balanced Resources
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE)
IN NET ASSETS
OPERATIONS
Net investment income $4,458 ($49) $0 $35 $4,523 ($1) ($1) ($22) ($8) ($19)
Net realized gains
(losses) on
investments (368) 245 0 (465) 0 0 0 17 0 (165)
Net unrealized gain
(loss) on
investments 1,536 675 0 514 0 (2) 12 215 0 122
---------------------------------------------------------------------------------------------
Increase (decrease) in
net assets from
operations 5,626 871 0 84 4,523 (3) 11 210 (8) (62)
--------------------------------------------------------------------------------------------
CHANGES FROM
PRINCIPAL
TRANSACTIONS
Contract purchase
payments 45,516 0 0 0 45,516 0 0 0 0 0
Surrenders and
withdrawals (363,887) 0 0 0 (363,887) 0 0 0 0 0
Net transfers
among divisions
(including the
guaranteed interest
division in the
general acount) (79,997) 9,812 2,755 8,716 (110,774) 3,198 3,198 4,851 (675) (1,078)
Other 11 0 1 10 1 (1)
----------------------------------------------------------------------------------------------
Increase (decrease)
from principal
transactions (398,357) 9,812 2,755 8,717 (429,13) 3,198 3,198 4,852 (675) (1,079)
------------------------------------------------------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET
ASSETS (392,731) 10,683 2,755 8,801 (424,612) 3,195 3,209 5,062 (683) (1,141)
Net assets at
beginning of year 567,601 9,991 0 12,996 526,223 0 0 6,822 5,129 6,440
------------------------------------------------------------------------------------------------
NET ASSETS AT END
OF YEAR $174,870 $20,674 $2,755 $21,797 $101,611 $3,195 $3,209 $11,884 $4,446 $5,299
================================================================================================
</TABLE>
See the accompanying notes to these financial statements.
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO UNAUDITED FINANCIAL STATEMENTS
March 31, 1995
Note A - Organization
The Security Life Separate Account A1 (the Separate Account) was
established by resolution of the Board of Directors of Security
Life of Denver Insurance Company (the Company) on November 3,
1993. The Separate Account was inactive prior to November 23,
1994, 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.
The Separate Account supports the operations of the Exchequer
Variable Annuity (Exchequer) contracts offered by the Company.
The Separate Account may be used to support other variable annuity
contracts 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
contracts will not be chargeable with liabilities arising out of
any other operations of the Company.
The Separate Account currently consists of seventeen investment
divisions available to the contractholders, each of which invests
in an independently managed mutual fund portfolio (Fund). The
Funds are as follows:
Portfolio Managers/Portfolios (Funds)
Neuberger & Berman
Neuberger & Berman Limited Maturity Bond Portfolio
Neuberger & Berman Growth Portfolio
Neuberger & Berman Government Income Portfolio
Neuberger & Berman Partners Portfolio
Fred Alger Management, Inc.
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Fidelity Management & Research Company
Fidelity Investments Growth Portfolio
Fidelity Investments Overseas Portfolio
Fidelity Investments Money Market Portfolio
Fidelity Investments Asset Manager Portfolio
Fidelity Investments Index 500 Portfolio
INVESCO Funds Group, Inc.
INVESCO VIF Total Return Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Utilities Portfolio
Van Eck Investment Trust
Van Eck Worldwide Balanced Portfolio
Van Eck Gold and Natural Resources Portfolio
The Exchequer contracts allow the contractholders to specify the
allocation of their purchase payments to the various Funds. They
can also transfer their account values among the Funds. The
Exchequer product also provides the contractholders the option to
allocate their purchase payments, or to transfer their account
values, to a Guaranteed Interest Division (GID). The GID
guarantees a rate of interest to the contractholder and it is not
variable in nature. Therefore, it is not included in the
Separate Account statements.
NOTE B - Summary of significant accounting policies
The accompanying financial statements of the Separate Account
have been prepared on the basis of generally accepted accounting
principles (GAAP). The accounting principles followed by the
Separate Account and the methods of applying those principles are
presented below or in the footnotes which follow:
Security Valuation - The investment 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.
Security transactions and related investment income - The
investment in shares of the Funds are accounted for on the date
the order to buy or sell is executed (trade date). Dividend
income and distributions of capital gains are recorded on the ex-
dividend date. Realized gains and losses from security
transactions are reported using the first-in-first-out (FIFO)
method of accounting for cost for financial reporting and federal
income tax purposes. The difference between cost and current
market value of investments owned on the day of measurement is
recorded as unrealized gain or loss on investment.
Valuation Period Deductions - Charges are made directly against
the assets of the Separate Account divisions and are reflected
daily in the computation of the unit values of the divisions.
For Exchequer contracts, a daily deduction, at an annual rate of
1.37% of the daily asset value of the Separate Account divisions
is charged to the Separate Account for mortality and expense
risks assumed by the Company. Total mortality and expense
charges for the quarter ended March 31, 1995 were $1,593.
Exchequer contracts are subject to a daily deduction, at an
annual rate of .15% of the daily asset value of the Separate
Account divisions, for an asset based administrative charge to
compensate the Company for a portion of the administrative
expenses under the contract. Total asset based administrative
charges for the quarter ended March 31, 1995 were $ 175.
Annuity reserves - All of the Exchequer contracts in the Separate
Account have not yet annuitized (reached the annuity date) and
are redeemable for the net cash surrender value of the contracts.
The annuity reserves are recorded in the Separate Account at the
aggregate account values of the contractholders invested in the
Separate Account divisions.
Note C - Investments
Fund shares are purchased at net asset value with contract
payments and divisional transfers from other Funds. Fund shares
are redeemed at net asset value for the payment of benefits, for
surrenders, for divisional transfers to other Funds, and for
certain administrative charges by the Company which were $0 for
the quarter ended March 31 1995. Distributions made by the Funds
are reinvested in the Funds.
Some Funds have not yet been utilized by the Separate Account
contractholders. The following is a summary of fund shares
owned as of March 31, 1995:
<TABLE>
<CAPTION>
Number Net Value
of Asset of Shares Cost of
Fund Shares Value at Market Shares
<S> <C> <C> <C> <C>
Fred Alger Management, Inc:
American MidCap Growth 1,418.567 $14.61 $20,725 $19,946
Fidelity Management & Research Co:
Overseas 1,419.302 15.40 21,857 21,243
Money Market 106,827.000 1.00 106,827 106,827
Index 500 52.794 60.54 3,196 3,198
INVESCO Funds Group, Inc.:
Total Return 302.533 10.61 3,210 3,198
High Yield 1,136.256 10.48 11,908 11,713
Van Eck Investment Trust:
Worldwide Balanced 445.523 10.00 4,455 4,455
Gold & Natural Resources 400.578 13.28 5,320 5,026
--------------------
Totals $177,498 $175,606
====================
</TABLE>
The aggregate cost of purchases (plus reinvested dividends) and
proceeds from sales of investments for the quarter ended March
31, 1995 were $187,305 and $579,450 respectively. At March 31,
1995, the cost of total investments owned is the same for both
financial reporting purposes and federal income tax purposes.
Note D - Other Contract Deductions
The Exchequer contracts provide for certain deductions for
surrender charges and taxes from amounts paid to contractholders.
Such deductions are taken after the redemption of divisional
units in the Separate Account and are not included in the
Separate Account financial statements.
Note E - 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. No taxes are
payable on the investment income or on the realized gains of the
Separate Account.
Note F - Summary of Changes in Units
The following schedule summarizes the change in divisional
units for the quarter ended March 31, 1995:
<TABLE>
Divisional Units
<CAPTION>
Increase (Decrease)
Increase (Decrease) for
Outstanding for for Surrenders Outstanding
at Beginning Payments Divisional and at End
of year Received Transfers Withdrawals of year
<S>
Fred Alger Management, <C> <C> <C> <C> <C>
Inc:
American MidCap Growth 983.060 0.000 897.981 0.000 1,881.041
Fidelity Management &
Research Co:
Asset Manager 0.000 0.000 285.716 0.000 285.716
Overseas 1,358.026 0.000 949.779 0.000 2,307.805
Money Market 52,413.096 4,510.617 (10,945.485)(35,966.781) 10,011.447
Index 500 0.000 0.000 301.456 0.000 301.456
INVESCO Funds Group,
Inc.:
Total Return 0.000 0.000 305.255 0.000 305.255
High Yield 676.252 0.000 453.187 0.000 1,129.439
Van Eck Investment
Trust:
Worldwide Balanced 513.000 0.000 (67.214) 0.000 445.786
Gold & Natural Resources 700.158 0.000 (128.788) 0.000 571.370
</TABLE>
Note G - Net Assets
Net Assets at March 31, 1995 consisted of the
following:
<TABLE>
<CAPTION>
Accumulated Net
Net Realized Unrealized
Accumulated Gains Gains
Principal Investment (Losses) on (Losses) on
Fund Transactions Income Investments Investments Net Assets
<S> <C> <C> <C> <C> <C>
Fred Alger Management,
Inc:
American MidCap Growth $19,702 ($52) $245 $779 $20,674
Fidelity Management &
Research Co:
Asset Manager 2,755 0 0 0 2,755
Overseas 21,617 31 (465) 614 21,797
Money Market 94,865 6,746 0 0 101,611
Index 500 3,198 (1) 0 (2) 3,195
INVESCO Funds Group,
Inc.:
Total Return 3,198 (1) 0 12 3,209
High Yield 11,662 10 17 195 11,884
Van Eck Investment Trust:
Worldwide Balanced 4,455 (9) 0 0 4,446
Gold & Natural Resources 5,191 (21) (165) 294 5,299
-------------------------------------------------------------
Total $166,643 $6,703 ($368) $1,892 $174,870
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, Security Life of Denver Insurance Company
has duly caused this Registration Statement to be signed on its behalf by
the undersigned, therunto duly authorized, and its seal to be hereunto fixed
and attested, all in the City and County of Denver and the State of Colorado
on the ______ day of __________, 1995.
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
BY: Stephen M. Christopher
President
(SEAL)
ATTEST:
Eugene L. Copeland
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
with Security Life of Denver Insurance Company and on the date indicated.
PRINCIPAL EXECUTIVE OFFICERS:
Robert J. St. Jacques
Chief Executive Officer
Stephen M. Christopher
President
PRINCIPAL FINANCIAL OFFICER:
James D. Thompson
Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
Gregory C. Boyko
Chief Accounting Officer and Controller
DIRECTORS:
R. Glenn Hilliard (Chairman)*
Name
Robert J. St. Jacques *
Name
Thomas F. Conroy *
Name
Michael W. Cunningham *
Name
Linda B. Emory *
Name
Stephen M. Christopher *
Name
James D. Thompson *
Name
* By: Edward K. Campbell
Attorney-in-fact
_____________, 1995
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the
Investment Company Act of 1940, the Registrant, Security Life Separate
Account A1, has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, and its
seal to be hereunto fixed and attested, all in the City and County of
Denver and the State of Colorado on the ______ day of __________, 1995.
SECURITY LIFE SEPARATE ACCOUNT A1
(Registrant)
By: SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
(SEAL)
By: Stephen M. Christopher
President
ATTEST:
Eugene L. Copeland
Secretary
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included in Part B:
Security Life of Denver Insurance Company.
Report of Independent Auditors.
Audited Consolidated Financial Statements
Consolidated Balance Sheets at December 31, 1994 and 1993.
Consolidated Statements of Income for Years Ended December
31, 1994, 1993, and 1992.
Consolidated Statements of Stockholder's Equity for Years
Ended December 31, 1994, 1993, and 1992.
Consolidated Statements of Cash Flows for Years Ended
December 31, 1994, 1993, and 1992.
Notes to Consolidated Financial Statements.
Financial Statement Schedules
Schedule VI Reinsurance
Schedule VIII Valuation and Qualifying Accounts and Reserves
Separate Account A1 of Security Life of Denver Insurance Company.
Report of Independent Auditors.
Audited Financial Statements
Statement of Net Assets at December 31, 1994.
Statement of Operations for the Year Ended December 31, 1994.
Statement of Changes in Net Assets for the Year Ended December
31, 1994.
Notes to Financial Statements
Unaudited Financial Statements
Statement of Net Assets at March 31, 1995.
Statement of Operations for the Period Ended March 31, 1995.
Statement of Changes in Net Assets for the Period Ended March
31, 1995.
Notes to Financial Statements.
(b) Exhibits:
The following exhibits are filed herewith:
1. Resolutions of the Executive Committee of the Board of Directors of
Security Life of Denver Insurance Company ("Security Life of Denver")
authorizing the establishment of the Registrant. (1)
2. Not applicable.
3.(a) Security Life of Denver Insurance Company Distribution Agreement (2)
(b) Specimen Broker-Dealer Supervisory and Selling Agreement for
Variable Contracts (3) and Compensation Schedule C.
4.(a) Specimen Variable Annuity Contract (Form No. 2000 (VA) - 7/95).
(b) Specimen Election and Supplementary Agreement for a Settlement
Option (Form 4935).
5. Specimen Fulcrum Fund Application (Form Q-2000 - 7/95).
6.(a) Restated Articles of Incorporation of Security Life and Accident
Company, as presently Amended, dated April 5, 1977. (1)
(b-g)Articles of Amendment to the Articles of Incorporation throug
June 12, 1987. (4)
(h) By-Laws of Security Life of Denver. (1)
7. Not Applicable.
8.(a) Participation Agreements (3) and Form of Palladian Trust
Participation Agreement.
(b) Amendments to Participation Agreements. (1)
(c) Service Agreement. (1)
(d) Administrative Services Agreement between Security Life of
Denver Insurance Company and Financial Administrative Services
Corporation. (2)
9. Opinion and consent of Eugent L. Copeland as to the legality of the
securities being registered.
10.(a) Consent of Ernst & Young LLP.
(b) Consent of Mayer, Brown & Platt.
11. None.
12. None.
13. Not applicable.
14. Not applicable.
15. Powers of Attorney. (1)
(1) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement of Security Life of Denver and its Separate
Account L1, filed with the Securities and Exchange Commission on August 4,
1995 (File No. 33-88148).
(2) Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement of Security Life of Denver and its Separate
Account A1, filed with the Securities and Exchange Commission on February
21, 1995 (File No. 33-72564).
(3) Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Form N-4 Registration Statement of Security Life of Denver and its Separate
Account L1, filed with the Securities and Exchange Commission on October 25,
1994 (File No. 33-72564).
(4) Incorporated herein by reference to the Form N-4 Registration Statement
of Security Life of Denver and its Separate Account A1, file with the
Securities and Exchange Commission on December 3, 1993 (File No. 33-72564).
Item 25. Directors and Officers
Set forth below is information regarding the directors and principal officers
of Security Life of Denver Insurance Company. Security Life's address, and
the business address of each person named, except as noted otherwise, is
Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699.
Name and Principal Position and Offices with Security
Business and Address Life of Denver
R. Glenn Hilliard Chairman of the Board
Internationale Nederlanden
North America Insurance Corporation
5780 Powers Ferry Road
Atlanta, GA 30327-4390
Robert J. St. Jacques Director, Chief Executive Officer
Internationale Nederlanden
North America Insurance Corporation
5780 Powers Ferry Road
Atlanta, GA 30327-4390
Stephen M. Christopher Director, President and Chief
Operating Officer
Thomas F. Conroy Director and President - Reinsurance
and Institutional Markets
Michael W. Cunningham Director
Internationale Nederlanden
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Linda B. Emory Director
Internationale Nederlanden
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
James D. Thompson Director and Chief Financial Officer
Internationale Nederlanden
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Keith T. Glover President, ING America Life Services
Internationale Nederlanden (Division of Corporate Services)
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Wayne D. Bidelman Sr. Vice President; Chief Operating
Officer - Reinsurance
Gregory A. Boyko Sr. Vice President - Finance, Chief
Accounting Officer and Controller
Eugene L. Copeland Sr. Vice President, General Counsel &
Corporate Secretary
Benjamin A. Currier Sr. Vice President - Operations
Catherine T. Fitzgerald Sr. Vice President - Human Resources
Jean C. Gallagher Sr. Vice President - Insurance
Services
James L. Livingston Sr. Vice President - Actuarial and
Finance
Jeffery W. Seel Sr. Vice President - Chief Investment
Officer
Jess A. Skriletz Sr. Vice President - Institutional
Markets
Louis N. Trapolino Sr. Vice President - Distribution
Frank T. Wright Sr. Vice President - Variable Sales
Evelyn A. Bentz Vice President - M Financial Sales
Daniel S. Clements Vice President, Chief Underwriter
Jeffery L. Davis Vice President - Marketing
Lyndon E. Oliver Treasurer
Richard D. King Vice President - Medical Director
Philip R. Kruse Vice President - Reinsurance Marketing
Charles D. Lewis, Jr. Vice President - Corporate Education
and Development
Lynn Mc Pherson Vice President - Business Insurance
Operations
Sue A. Miskie Vice President - Corporate Services
David E. Pavelka Vice President - Administration
Ronald K. Peterson Vice President - Pricing & Financial
Planning
Kristen Rhodes-Anderson Vice President - Communications
Mark A. Smith Vice President - Strategic Planning
& Technology
James Lyle Walker Vice President - Chief Underwriter
Richard L. Wisott Vice President - New Market Development
Marsha K. Crest Agency Administration Officer
John F. Kerper Appointed Actuary
Casey J. Scott Field Operations Manager
Jerome M. Strop Financial Officer
Amy L. Winsor Financial Officer
Item 26. Persons Controlled by or Under Common Control with Security Life
or Registrant
Incorporated by reference to the Form N-4 Registration Statement of Security
Life of Denver and its Separate Account A1, filed with the Commission on
February 21, 1995 (File No. 33-72564).
Item 27. Number of Contract Owners
None
Item 28. Indemnification
Security Life of Denver's (the "corporation") Certificate of Incorporation
and bylaws provide that the corporation shall have every power and duty of
indemnification of directors, officers, employees and agents, without
limitation, provided by the laws of the state of Colorado. Under Colorado
law, the corporation has the power to indemnify such persons against expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with any threatened, pending or
completed action, suit or proceeding, if such person acted in good faith and
in a manner which that person reasonably believed to be in or not opposed to
the best interest of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
In the case of actions by or in the right of the corporation, such
indemnification cannot be made where such person is adjudged liable to the
corporation, except pursuant to court order. The corporation is required
to indemnify directors, officers, employees and agents against expenses
actually and reasonably incurred in connection with actions where such
persons have been successful on the merits or otherwise in defense of such
actions.
Consistent with applicable law, the corporation's bylaws provide as follows:
Section 1. Non-Derivative Actions The corporation shall indemnify any person
who was or is a party or is threatened to be made a party to any threatened,
pendin, or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right
of the corporation), by reason of the fact that he is or was a director,
member of a committee appointed by the Board of Directors, officer, salaried
employee, or fiduciary of the corporation or is or was serving at the
request of the corporation (whether or not as a representative of the
corporation) as a director, officer, employee, (for example, acting in
a fiduciary capacity for welfare benefit plans including but not limited to
Employees' Retirement Plan, Savings Incentive Plan, Group Medical Plan,
Prescription Drug Program, Group Term Life Insurance, Group Dental Plan,
Travel Accident Plan or Deferred Compensation Plan, et al.), or fiduciary
of another corporation, partnership, joint venture, trust, or other
enterprise, against expenses (including attorney fees), judgments, fines,
and amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit, or proceeding if he acted in
good faith and in a manner he reasonably believed to be in the best
interests of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit, or proceeding by judgment, order,
settlement, or conviction or upon a plea of nolo contendere or its
equivalent shall not of itself create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to
be in the best interest of the corporation and, with respect to any
original criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
Section 2. Derivative Actions The corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or suit by or in the right of the corporation
to procure a judgment in its favor by reason of the fact that he is or was a
director, member of a committee appointed by the Board of Directors, officer,
salaried employee, or fiduciary of the corporation or is or was serving at
the request of the corporation (whether or not as a representative of the
corporation) as a director, officer, employee, (for example, acting in a
fiduciary capacity for welfare benefit plans including but not limited to
Employees' Retirement Plan, Savings Incentive Plan, Group Medical Plan,
Prescription Drug Program, Group Term Life Insurance, Group Dental Plan,
Travel Accident Plan or Deferred Compensation Plan et al.), or
fiduciary of another corporation, partnership, joint venture, trust, or other
entrerprise against expenses (including attorney fees) actually and
reasonably incurred by him in connection with the defense or settlement
of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in the best interest of the corporation; but no
indemnification shall be made in any respect of any claim, issue, or matter
as to which such person has been adjudged to be liable for negligence
or misconduct in the performance of his duty to the corporation unless and
only to the extent that the court in which such action or suit was brought
determines upon application that, despite adjudication of liability, but
in view of all circumstances of the case, such person is farily and
reasonably entitled to indemnification for such expense which such court
deems proper.
Section 3. Expenses. To the extent that a director, member of a committee
appointed by the Board of Directors, officer, salaried employee, or
fiduciary of the corporation shall be successful on the merits in defense
of any action, suit, or proceeding referred to in Section 1 or Section 2
of this Article VIII or in defense of any claim, issue, or matter therein,
he shall be indemnified by the corporation against expenses (including
attorney fees) actually and reasonably incurred by him in connection
therewith.
Section 4. Authorization. Any indemnification under Section 1 or Section 2
of this Article VIII (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination
that indemnification of the director, member of a committee appointed by
the Board of Directors, officer, salaried employee, or fiduciary is proper
in the circumstances because he has met the applicable standard of conduct
set forth in Section 1 or Section 2. Such determination shall be made by
the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit, or proceeding, or,
if such a quorum is not obtainable or even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a
written opinion, or by the Stockholder.
Section 5. Advance Payment of Expenses. Expenses (including attorney fees)
incurred in defending a civil or criminal action, suit, or proceeding may
be paid by the corporation in advance of the final disposition of such
action, suit, or porceeding as authorized in Section 4 of this Article VIII
upon receipt of an undertaking by or on behalf of the director, member of a
committee appointed by the Board of Directors, officer, salaried employee,
or fiduciary to repay such amount unless it is ultimately determined
that he is entitled to be indemnified by the corporation as authorized
in this Article VIII.
Section 6. Non-Exclusivity and Continuance. The indemnification provided
by this Article VIII shall not be deemed exclusive of any other rights
to which any person indemnified may be entitled under the Articles of
Incorporation, any agreement, insurance policy, vote of the Stockholder
or disinterested directors, or otherwise, and any procedure provided for
by any of the foregoing, bot as to action in his official capacity and
as to action in another capacity while holding such office. Any indemnity
otherwise payable under this Article VIII on account of any specific loss
or expense shall be reduced by the amount of any insurance proceeds paid or
payable to the person to be indemnified on account of the same loss or
expense if such insurance is provided by the corporation or any of its
affiliates. The indemnification provided by this Article VIII shall
continue as to a person who has ceased to be a director, member of a
committee appointed by the Board of Directors, officer, salaried employee,
or fiduciary with regard to acts or omissions of such person occurring or
alleged to have occurred while the person was so engaged, and shall inure
to the benefit of heirs, executors, and administrators of such a person.
Section 7. Application of this Article. The provisions of this Article VIII
shall apply to all actions, suits or proceedings described in Section 1 or
Section 2 arising or alleged to arise out of any acts or omissions on
the part of any person referred to in Section 1 or Section 2 occurring
or alleged to occur prior to the adoption of this Article VIII or at any
time while it remains in force.
Section 8. Exclusions. No indemnification is provided under this Article VIII
for unsalaried persons under contract with the corporation in sales capacities
such as General Agents, Agents and Brokers. Except as expressly provided in
this Article VIII no indemnity is provided for persons performing services
to the corporation as independent contractors.
Insofar as indemnification for liablity arising under the Securities Act of
1933 ("Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters
a) None
b) The following table sets forth certain information regarding the officers
and directors of ING America Equities, Inc. The business address of each
person named below is that of Security Life of Denver, Security Life Center,
1290 Broadway, Attn: Variable, Denver, Colorado 80203-5699.
Name and Principal Position and Offices
Business and Address with Underwriter
Vacant Director and President
Edward K. Campbell Director and Vice President
Eugene L. Copeland Secretary
Bonnie C. Dailey Vice President and Compliance
Legal Officer
Shari A. Enger Treasurer
Frank T. Wright Director and Vice President
c) None
Item 30. Location of Accounts and Records
The records required to be maintained by Section 31(a) of the Investment
Act of 1940 and Rules 31a-1 and 31a-3 thereunder are maintained by Security
Life of Denver at Security Life Center, 1290 Broadway, Denver, Colorado
80203-5699, and at Financial Administrative Services Corporation,
8515 East Orchard Road, Englewood, Colorado 80111.
Item 31. Management Services
Not applicable.
Item 32. Undertakings
Incorporated by reference to the Form S-6 Registration Statement of Security
Life of Denver and its Separate Account A1, filed with the Commission on
August 4, 1995 (File No. 33-88148).
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
3. (b) Compensation Schedule C.
4. (a) Specimen Variable Annuity Contract (Form No. 2000 (VA) - 7/95).
(b) Specimen Election and Supplementary Agreement for a Settlement Option
(Form No. 4935).
5. Specimen Fulcrum Fund Application (Form No. Q-2000 - 7/95).
8. (a) Form of Palladian Trust Participation Agreement.
9. Opinion and consent of Eugene L. Copeland as to the legality of the
securities being registered.
10.(a) Consent of Ernst & Young LLP.
(b) Consent of Mayer, Brown & Platt.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from
Security Life Separate Account A1 Financial Statements and is qualified
in its entirety by reference to such Security Life Separate Account A1
Financial Statements.
</LEGEND>
<SERIES>
<NUMBER> 20
<NAME> VALUE
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 MAR-31-1995
<INVESTMENTS-AT-COST> 0 0
<INVESTMENTS-AT-VALUE> 0 0
<RECEIVABLES> 0 0
<ASSETS-OTHER> 0 0
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 0 0
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 0 0
<TOTAL-LIABILITIES> 0 0
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 0 0
<SHARES-COMMON-STOCK> 0 0
<SHARES-COMMON-PRIOR> 0 0
<ACCUMULATED-NII-CURRENT> 0 0
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 0 0
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 0 0
<OTHER-INCOME> 0 0
<EXPENSES-NET> 0 0
<NET-INVESTMENT-INCOME> 0 0
<REALIZED-GAINS-CURRENT> 0 0
<APPREC-INCREASE-CURRENT> 0 0
<NET-CHANGE-FROM-OPS> 0 0
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 0 0
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 0 0
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from
Security Life Separate Account A1 Financial Statements and is qualified
in its entirety be reference to such Security Life Separate Account A1
Financial Statements.
</LEGEND>
<SERIES>
<NUMBER> 21
<NAME> GROWTH
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 MAR-31-1995
<INVESTMENTS-AT-COST> 0 0
<INVESTMENTS-AT-VALUE> 0 0
<RECEIVABLES> 0 0
<ASSETS-OTHER> 0 0
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 0 0
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 0 0
<TOTAL-LIABILITIES> 0 0
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 0 0
<SHARES-COMMON-STOCK> 0 0
<SHARES-COMMON-PRIOR> 0 0
<ACCUMULATED-NII-CURRENT> 0 0
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 0 0
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 0 0
<OTHER-INCOME> 0 0
<EXPENSES-NET> 0 0
<NET-INVESTMENT-INCOME> 0 0
<REALIZED-GAINS-CURRENT> 0 0
<APPREC-INCREASE-CURRENT> 0 0
<NET-CHANGE-FROM-OPS> 0 0
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 0 0
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 0 0
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from
Security Life Separate Account A1 Financial Statements and is qualified
in its entirety by reference to such Security Life Separate Account
A1 Financial Statements.
</LEGEND>
<SERIES>
<NUMBER> 22
<NAME> BALANCED OPPORTUNITY
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 MAR-31-1995
<INVESTMENTS-AT-COST> 0 0
<INVESTMENTS-AT-VALUE> 0 0
<RECEIVABLES> 0 0
<ASSETS-OTHER> 0 0
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 0 0
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 0 0
<TOTAL-LIABILITIES> 0 0
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 0 0
<SHARES-COMMON-STOCK> 0 0
<SHARES-COMMON-PRIOR> 0 0
<ACCUMULATED-NII-CURRENT> 0 0
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 0 0
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 0 0
<OTHER-INCOME> 0 0
<EXPENSES-NET> 0 0
<NET-INVESTMENT-INCOME> 0 0
<REALIZED-GAINS-CURRENT> 0 0
<APPREC-INCREASE-CURRENT> 0 0
<NET-CHANGE-FROM-OPS> 0 0
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 0 0
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 0 0
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from
Security Life Separate Account A1 Financial Statements and is qualified
in its entirety by reference to such Security Life Separate Account A1
Financial Statements.
</LEGEND>
<SERIES>
<NUMBER> 23
<NAME> INTERNATIONAL GROWTH
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 MAR-31-1995
<INVESTMENTS-AT-COST> 0 0
<INVESTMENTS-AT-VALUE> 0 0
<RECEIVABLES> 0 0
<ASSETS-OTHER> 0 0
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 0 0
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 0 0
<TOTAL-LIABILITIES> 0 0
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 0 0
<SHARES-COMMON-STOCK> 0 0
<SHARES-COMMON-PRIOR> 0 0
<ACCUMULATED-NII-CURRENT> 0 0
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 0 0
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 0 0
<OTHER-INCOME> 0 0
<EXPENSES-NET> 0 0
<NET-INVESTMENT-INCOME> 0 0
<REALIZED-GAINS-CURRENT> 0 0
<APPREC-INCREASE-CURRENT> 0 0
<NET-CHANGE-FROM-OPS> 0 0
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 0 0
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 0 0
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from
Security Life Separate Account A1 Financial Statements and is qualified
in its entirety by reference to such Security Life Separate Account A1
Financial Statements.
</LEGEND>
<SERIES>
<NUMBER> 24
<NAME> GLOBAL STRATEGIC INCOME
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 MAR-31-1994
<INVESTMENTS-AT-COST> 0 0
<INVESTMENTS-AT-VALUE> 0 0
<RECEIVABLES> 0 0
<ASSETS-OTHER> 0 0
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 0 0
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 0 0
<TOTAL-LIABILITIES> 0 0
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 0 0
<SHARES-COMMON-STOCK> 0 0
<SHARES-COMMON-PRIOR> 0 0
<ACCUMULATED-NII-CURRENT> 0 0
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 0 0
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 0 0
<OTHER-INCOME> 0 0
<EXPENSES-NET> 0 0
<NET-INVESTMENT-INCOME> 0 0
<REALIZED-GAINS-CURRENT> 0 0
<APPREC-INCREASE-CURRENT> 0 0
<NET-CHANGE-FROM-OPS> 0 0
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 0 0
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 0 0
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from
Security Life Separate Account A1 Financial Statements and is qualified
in its entirety by reference to such Security Life Separate Account A1
Financial Statements.
</LEGEND>
<SERIES>
<NUMBER> 25
<NAME> GLOBAL INTERACTIVE/TELECOMM
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 MAR-31-1994
<INVESTMENTS-AT-COST> 0 0
<INVESTMENTS-AT-VALUE> 0 0
<RECEIVABLES> 0 0
<ASSETS-OTHER> 0 0
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 0 0
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 0 0
<TOTAL-LIABILITIES> 0 0
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 0 0
<SHARES-COMMON-STOCK> 0 0
<SHARES-COMMON-PRIOR> 0 0
<ACCUMULATED-NII-CURRENT> 0 0
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 0 0
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 0 0
<OTHER-INCOME> 0 0
<EXPENSES-NET> 0 0
<NET-INVESTMENT-INCOME> 0 0
<REALIZED-GAINS-CURRENT> 0 0
<APPREC-INCREASE-CURRENT> 0 0
<NET-CHANGE-FROM-OPS> 0 0
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 0 0
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 0 0
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This Schedule contains Summary Financial Information extracted from
Security Life Separate Account A1 Financial Statements and is qualified
in its entirety by reference to such Security Life Separate Account A1
Financial Statements.
</LEGEND>
<SERIES>
<NUMBER> 26
<NAME> FIDELITY MONEY MARKET
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 MAR-31-1995
<INVESTMENTS-AT-COST> 0 0
<INVESTMENTS-AT-VALUE> 0 0
<RECEIVABLES> 0 0
<ASSETS-OTHER> 0 0
<OTHER-ITEMS-ASSETS> 0 0
<TOTAL-ASSETS> 0 0
<PAYABLE-FOR-SECURITIES> 0 0
<SENIOR-LONG-TERM-DEBT> 0 0
<OTHER-ITEMS-LIABILITIES> 0 0
<TOTAL-LIABILITIES> 0 0
<SENIOR-EQUITY> 0 0
<PAID-IN-CAPITAL-COMMON> 0 0
<SHARES-COMMON-STOCK> 0 0
<SHARES-COMMON-PRIOR> 0 0
<ACCUMULATED-NII-CURRENT> 0 0
<OVERDISTRIBUTION-NII> 0 0
<ACCUMULATED-NET-GAINS> 0 0
<OVERDISTRIBUTION-GAINS> 0 0
<ACCUM-APPREC-OR-DEPREC> 0 0
<NET-ASSETS> 0 0
<DIVIDEND-INCOME> 0 0
<INTEREST-INCOME> 0 0
<OTHER-INCOME> 0 0
<EXPENSES-NET> 0 0
<NET-INVESTMENT-INCOME> 0 0
<REALIZED-GAINS-CURRENT> 0 0
<APPREC-INCREASE-CURRENT> 0 0
<NET-CHANGE-FROM-OPS> 0 0
<EQUALIZATION> 0 0
<DISTRIBUTIONS-OF-INCOME> 0 0
<DISTRIBUTIONS-OF-GAINS> 0 0
<DISTRIBUTIONS-OTHER> 0 0
<NUMBER-OF-SHARES-SOLD> 0 0
<NUMBER-OF-SHARES-REDEEMED> 0 0
<SHARES-REINVESTED> 0 0
<NET-CHANGE-IN-ASSETS> 0 0
<ACCUMULATED-NII-PRIOR> 0 0
<ACCUMULATED-GAINS-PRIOR> 0 0
<OVERDISTRIB-NII-PRIOR> 0 0
<OVERDIST-NET-GAINS-PRIOR> 0 0
<GROSS-ADVISORY-FEES> 0 0
<INTEREST-EXPENSE> 0 0
<GROSS-EXPENSE> 0 0
<AVERAGE-NET-ASSETS> 0 0
<PER-SHARE-NAV-BEGIN> 0 0
<PER-SHARE-NII> 0 0
<PER-SHARE-GAIN-APPREC> 0 0
<PER-SHARE-DIVIDEND> 0 0
<PER-SHARE-DISTRIBUTIONS> 0 0
<RETURNS-OF-CAPITAL> 0 0
<PER-SHARE-NAV-END> 0 0
<EXPENSE-RATIO> 0 0
<AVG-DEBT-OUTSTANDING> 0 0
<AVG-DEBT-PER-SHARE> 0 0
</TABLE>
SCHEDULE C
COMPENSATION SCHEDULE
TO ING AMERICA EQUITIES SELLING AGREEMENT FOR
SECURITY LIFE FULCRUM FUND ANNUITY
A FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED & VARIABLE ANNUITY
CONTRACT FORM 2000 (VA) - 7/95
This Schedule is an amendment to the Broker-Dealer Supervisory
and Selling Agreement for Variable Contracts ("Selling
Agreement") among ING AMERICA EQUITIES, INC. ("ING America
Equities"), SECURITY LIFE OF DENVER INSURANCE COMPANY ("Security
Life") and the broker-dealer and agency(s) signatory thereto,
pursuant to paragraph 17 of that Selling Agreement, is effective
as of September 1, 1995, or as set forth below. The provisions
of this Schedule will apply only to Security Life Variable
Annuity Flexible Premium Deferred Combination Fixed and Variable
Annuity Contracts Form 2000 (VA) - 7/95 ("Contract"), solicited
and issued while this Schedule is in effect. All compensation
payable under this Schedule will be subject to the terms and
conditions contained herein at the time of issue of the Contract
by Security Life.
ELECTION OF SCHEDULE
The Selling Broker-Dealer may elect the compensation schedule
under which commission payments will be based. Selling Broker-
Dealer may elect to be paid under Option A or Option B. If
neither option is checked, Option A will be in effect.
Selling Broker-Dealer shall be paid compensation as follows:
(Check Option elected)
Purchase Payment Commission Percentage
Option A:
Owner's Age at Issue
0-70 5.5%
71+ 4.5%
Option B:
Owner's Age at Issue
0-70 4.5% + 0.20% trail
71+ 3.5% + 0.20% trail
1. Commission Calculation: Commissions based on purchase
payments will be calculated only on funds actually received and
accepted by Security Life. Commissions will be paid only on an
earned basis.
2. Trail Commission: Under Option B, a trail commission (the
percentage indicated) on an annualized basis is calculated at the
end of each month based on the Contract's Accumulation Value at
the end of the prior month. The trail commission will be payable
annually at the end of a Contract year prior to the annuity date
provided the Contract is in force on such date.
3. Compensation Payments: Compensation on initial purchase
payment will be due to the Selling Broker-Dealer at the time of
issuance of the Contract and for all other purchase payments at
the time of the receipt and acceptance of the purchase payments
by Security Life. The amount, if any, and the time of payment of
compensation on replacements, changes, exchanges and other
special cases and programs will be governed by Security Life's
underwriting and administrative rules then in effect.
4. Commission Chargeback: In the event that a Contract for
which a commission has been paid is surrendered by the Contract
Owner, is returned to Security Life during the Free Look Period
as described in the Contract or upon payout of Death Benefit
Proceeds, Security Life and ING America Equities will require
reimbursement from Selling Broker-Dealer as follows:
* 100% of commissions paid if the event occurs during the
first six months of the Contract.
* 50% of commissions paid if the event occurs during the
second six months of the Contract.
If a purchase payment for which a commission has been paid is
refunded by Security Life, a reimbursement of the commissions
paid on the amount refunded will be due from the Selling Broker-
Dealer.
The reimbursement may be deducted by ING America Equities from
the next, or any subsequent, commission payment to Selling Broker-
Dealer.
If the amount to be reimbursed exceeds compensation otherwise
due, Selling Broker-Dealer shall promptly reimburse ING America
Equities before the next commission cycle.
5. Termination and Amendment: Security Life and ING America
Equities reserve the right to terminate or amend this Schedule by
providing written notification to the Selling Broker-Dealer in
accordance with Sections 9, 15 and 17 of the Selling Agreement.
With the exception of the terms changed by any such Amendment,
all other terms and conditions of the original Schedule shall
remain in full force and effect.
This Schedule shall be effective as of September 1, 1995, or the
date the operative Selling Agreement is accepted and executed by
Security Life, whichever is later.
Security Life of Denver
Insurance Company
OWNER: John Doe
CONTRACT DATE: July 1 ,1995
CONTRACT NUMBER: 310000011
WE AGREE TO PAY the annuity benefit to the Annuitant beginning on
the Annuity Date, subject to the provisions of this Contract.
WE ALSO AGREE to provide the other rights and benefits of this
Contract. These agreements are subject to the provisions of this
Contract.
10 DAY CONTRACT EXAMINATION PERIOD. You have the right to
examine and return this Contract within 10 days after receipt. It
may be returned by delivering or mailing it to us at our Customer
Service Center. Immediately upon return, it will be deemed void
as of the Contract Date. Upon return of the Contract, we will
refund the Accumulation Value, in addition to any charges
deducted, as of the date the returned Contract is received by us
at our Customer Service Center. This 10 day period ends 15 days
after the Contract is mailed from our Customer Service Center. If
required by state regulation, we are required to return Purchase
Payments if the Contract is returned to us during the 10 Day
Contract Examination Period.
Eugene L. Copeland Stephen M. Christopher
Secretary President
In this Contract, "you" and "your" refer to the Owner of this
Contract. "We", "us" and "our" refer to Security Life of Denver
Insurance Company.
This Contract is a FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED
AND VARIABLE ANNUITY CONTRACT.
Annuity Payouts and other values provided by this Contract, when
based on the investment experience of a separate account, are
variable. These values may increase or decrease based on
investment experience and are not guaranteed as to fixed dollar
amount. Annuity Payouts begin as of the Annuity Date. Purchase
Payments are flexible and may be made until the earlier of the
Annuity Date or the Maximum Age shown in the Schedule. The
Guaranteed Death Benefit will be paid if the Owner dies prior to
the Annuity Date.
SECURITY LIFE OF DENVER INSURANCE COMPANY
A Stock Company
Customer Service Center
[P.O. Box 173763, Denver, Colorado 802173763]
[Toll-Free Number: 1(800)933-5858]
TABLE OF CONTENTS
This Contract is a legal Contract between you and us. READ IT
CAREFULLY.
GUIDE TO KEY PROVISIONS
SCHEDULE 5
CONTRACT EXPENSE PROVISIONS 7
BENEFIT PROVISIONS 8
EFFECTIVE DATE OF COVERAGE 8
ELECTION AND CHANGES OF ANNUITY DATE 8
ELECTION AND CHANGES OF ANNUITY OPTION 8
PAYOUT OF PROCEEDS 8
AS OF THE ANNUITY DATE, TO PROVIDE ANNUITY PAYOUTS 8
UPON SURRENDER OF THIS CONTRACT PRIOR TO THE ANNUITY DATE 9
AS A DEATH BENEFIT PRIOR TO THE ANNUITY DATE 9
OWNERS AND DEATH OF THE OWNERS 9
REQUIRED DISTRIBUTIONS 10
GUARANTEED DEATH BENEFIT 10
ANNUITANTS AND DEATH OF ANNUITANTS 11
BENEFICIARIES AND DEATH OF BENEFICIARIES 11
PURCHASE PAYMENT PROVISIONS 11
PURCHASE PAYMENTS 11
PURCHASE PAYMENT ALLOCATION 12
VARIABLE ACCOUNT PROVISIONS 12
THE VARIABLE ACCOUNT 12
VARIABLE ACCOUNT DIVISIONS 12
CHANGES WITHIN THE VARIABLE ACCOUNT 12
GENERAL ACCOUNT PROVISIONS 13
THE GENERAL ACCOUNT 13
GUARANTEED INTEREST DIVISION 13
TRANSFER PROVISIONS 13
TRANSFERS TO OR FROM THE GUARANTEED INTEREST DIVISION 14
EXCESS TRANSFER CHARGE 14
DOLLAR COST AVERAGING TRANSFER OPTION 14
AUTOMATIC REBALANCING 15
ACCUMULATION VALUE PROVISIONS 15
VALUATION DATE 16
VALUATION PERIOD 16
ACCUMULATION UNIT VALUE 16
ACCUMULATION EXPERIENCE FACTOR 16
ACCUMULATION VALUE OF THE DIVISIONS OF THE VARIABLE ACCOUNT 17
ACCUMULATION VALUE IN THE GUARANTEED INTEREST DIVISION 17
PARTIAL WITHDRAWAL PROVISIONS 18
DEMAND WITHDRAWAL OPTION 18
PARTIAL WITHDRAWAL TRANSACTION CHARGE 19
SYSTEMATIC INCOME PROGRAM 19
IRA INCOME PROGRAM 20
SURRENDER PROVISIONS 20
CASH SURRENDER VALUE 20
GENERAL CONTRACT PROVISIONS 20
THE CONTRACT 20
AGE 20
PROCEDURES 21
DEFERRAL OF PAYOUT 21
TAX QUALIFICATION 21
CONTRACT CHANGES 21
COLLATERAL ASSIGNMENT 22
INCONTESTABILITY 22
MISSTATEMENT OF AGE OR SEX 22
PERIODIC REPORTS 22
BASIS OF COMPUTATIONS 22
TAXES 22
NON PARTICIPATING 22
CUSTOMER SERVICE CENTER 23
ANNUITY OPTION PROVISIONS 23
SUPPLEMENTARY CONTRACT 23
PAYOUT OPTIONS 23
VARIABLE ANNUITY PAYOUT 23
FIXED ANNUITY PAYOUT 25
COMBINATION ANNUITY PAYOUT 25
PAYOUT PERIOD OPTIONS 25
COMMUTING 26
EXCESS INTEREST 26
MINIMUM AMOUNTS 27
INCOME PROTECTION 27
PAYOUTS OTHER THAN MONTHLY 27
PAYOUT PERIOD OPTION TABLES 28
ADDITIONAL BENEFITS OR RIDERS, IF ANY, WILL BE SHOWN IN THE
SCHEDULE. THE ADDITIONAL PROVISIONS WILL BE INSERTED IN THIS
CONTRACT.
SCHEDULE
Owner: John Doe Age and Sex: 35, Male
Annuitant: John Doe Age and Sex: 35, Male
Contract Number: 310000011
Contract Date: July 1, 1995
Annuity Date: July 1, 2035
Initial Purchase Payment: $25,000.00
Minimum for Each Additional Purchase Payment: [$500]
Maximum Cumulative Net Purchase Payment: [$1,500,000]
Maximum Owner's Age to Which Purchase Payments May be Made: 86
Customer Service Center: [P.O. Box 173763
Denver, Colorado 80217 3763]
ALLOCATION OF INITIAL PURCHASE PAYMENTS AS SHOWN ON APPLICATION
[Value Division] 25%
[Growth Division] 0%
[Balanced Opportunity Division] 5%
[International Growth Division] 0%
[Global Strategic Income Division] 25%
[Global Interactive/Telecomm Division] 25%
[Money Market Division] 0%
Guaranteed Interest Division 0%
If you elect to invest in a particular Division, at least 1% of
your Purchase Payment must be allocated to that Division.
All percentage allocations must be in whole numbers. In some
states which require the return of Purchase Payments during the
10 Day Contract Examination Period, the initial Purchase Payments
are allocated to the [Money Market Division] during the 10 Day
Contract Examination Period. As of the end of the 10 Day
Contract Examination Period, the initial Purchase Payments are
then transferred to the Divisions as shown above.
CONTRACT EXPENSE PROVISIONS
Owner Transaction Expenses (Deducted from the Accumulation Value)
1. Excess Transfer Charges: Refer to the Transfer provisions
section for details.
2. Partial Withdrawal Charges: Refer to the Partial Withdrawal
provision section for details.
3. Surrender Charge: This charge is deducted upon Surrender or
Partial Withdrawal of Purchase Payments held less than 5 full
Contract Years since the Contract Anniversary at the end of the
Contract Year in which the Purchase Payment was made. It is
calculated as a percentage of the Purchase Payments withdrawn or
surrendered. The percentage is based on the number of Contract
Anniversaries since the Contract Year in which each Purchase
Payment was made.
CONTRACT ANNIVERSARIES 0 1 2 3 4 5 6 and more
SINCE PURCHASE PAYMENT
WAS MADE:
PERCENTAGE: 7% 6% 5% 4% 3% 2% 0%
Annual Administrative Charge (Deducted from the Accumulation
Value)
This charge is based on Net Purchase Payments. If Net Purchase
Payments received are:
less than $100,000: $30.00 per year
$100,000 or more: 0 per year
Variable Account Annual Expenses (Based on the percentage of
assets in each Division of the Variable Account.)
Mortality And Expense Risk Charge During The Accumulation
Period: 1.55%
Mortality And Expense Risk Charge During The Annuity Period: 1.25%
Asset Based Administrative Charge: 0.15%
Guaranteed Interest Rate
The Guaranteed Interest Rate for the Guaranteed Interest Division
is 3.00% per year.
Guaranteed Death Benefit Accumulation Rate
Up to Attained Age 75: 7.00% per year
After Attained Age 75: 0.00%
BENEFIT PROVISIONS
EFFECTIVE DATE OF COVERAGE
The Contract Date shown in the Schedule is the effective date for
all coverage provided under this Contract. This is subject to
our receipt of the initial Purchase Payment. The Contract Date
is the date from which we measure Contract Anniversaries. A
Contract Anniversary occurs each Contract Year on the same month
and day as the Contract Date. If the Contract Date is February
29th, the Contract Anniversary will be February 28th in Contract
Years in which there is not a February 29th.
ELECTION AND CHANGES OF ANNUITY DATE
The Annuity Date is the date as of which Annuity Payouts begin.
It may be elected on your application, but may not be earlier
than the second Contract Anniversary. If no Annuity Date is
elected in the application, the Annuity Date will be the first
day of the month following the Annuitant's 95th birthday. You
may change the Annuity Date at any time prior to 60 days before
the Annuity Date currently elected by sending written notice to
our Customer Service Center.
ELECTION AND CHANGES OF ANNUITY OPTION
The Annuity Option is composed of both the Payout Option which
specifies the type of annuity to be paid and the Payout Period
Option which determines how long the annuity will be paid, the
frequency and the amount of each payout. The Owner elects the
Annuity Option. The Owner may change the Annuity Option at any
time prior to the Annuity Date. The Beneficiary may select an
Annuity Option for any Payouts to be made pursuant to death
Proceeds. Any death benefit Proceeds to be applied under an
Annuity Option will be allocated to each of the Divisions of the
Variable Account or the Guaranteed Interest Division as
instructed by the Beneficiary. The available options are
described in the Annuity Option provisions section. Commutation
rights are provided to an Annuitant or Contingent Annuitant as
described in the Commuting section of this Contract.
PAYOUT OF PROCEEDS
Proceeds are paid or applied under the following circumstances:
1. As of the Annuity Date, to provide Annuity Payouts;
2. Upon surrender of this Contract prior to the Annuity Date;or
3. As a death benefit prior to the Annuity Date.
The amount and method of payout under each circumstance is
described below. The payout of Proceeds is subject to the
Required Distributions section in this Contract. We may delay
payout of the Proceeds for reasons listed in the Deferral of
Payout section.
As of the Annuity Date, to Provide Annuity Payouts
Proceeds applied as of the Annuity Date to provide an annuity
under an Annuity Option will be the Accumulation Value minus
taxes incurred but not deducted. This deduction will be
allocated to each of the Divisions of the Variable Account in the
same proportion that the Accumulation Value in each Division of
the Variable Account bears to the Accumulation Value in all
Divisions immediately prior to the Annuity Date. We will provide
an annuity under the Annuity Option then in effect. If no
Annuity Option is in effect, we will apply Proceeds to Payout
Period Option Table I using a Benchmark Total Return of 3%, with
a designated period of 30 years. The Annuity Option will be
allocated among the Guaranteed Interest Division and the
Divisions of the Variable Account in the same proportion that the
Accumulation Value was allocated prior to the Annuity Date. The
available options are described in the Annuity Option provisions
section. Contact our Customer Service Center or your agent for
more information.
Upon Surrender of this Contract Prior to the Annuity Date
Proceeds payable upon the surrender of this Contract prior to the
Annuity Date will be the Cash Surrender Value. No Annuity
Options are available upon surrender, however you may accelerate
the Annuity Date under the Contract as described in the Surrender
Provisions section of this Contract.
As a Death Benefit Prior to the Annuity Date
Proceeds payable upon the death of the Owner before the Annuity
Date will be the Guaranteed Death Benefit and will be paid
according to the provisions in the Owners and Death of Owners and
the Required Distributions sections. We will pay the Proceeds in
one lump sum unless the Beneficiary elects an Annuity Option
within 60 days of our receipt of due proof of death. If a one
sum payout is elected, the Proceeds will usually be paid within 7
days of determination of the amount of the Guaranteed Death
Benefit. Interest will be paid on the Proceeds from the date of
determination of the Guaranteed Death Benefit to the date of
payout. Interest is at the rate we declare, or any higher rate
required by law, but not less than 3% per year. If the Proceeds
are paid under an Annuity Option, the Beneficiary becomes the
Annuitant and the Contingent Beneficiary becomes the Contingent
Annuitant. The available options are described in the Annuity
Option Provisions section. Contact our Customer Service Center or
your agent for more information.
OWNERS AND DEATH OF THE OWNERS
The original Owner of this Contract is the person named as the
Owner in the application. Consistent with the terms of any
Beneficiary designation and any assignment, the Owner may, prior
to the Annuity Date:
1. Assign this Contract or surrender it in whole or in part;
2. Amend or change this Contract with the consent of the Company;
3. Exercise any right and receive any benefit; or
4. Change the ownership.
Subject to the applicable provisions of the Required
Distributions section, if the Owner (or Deemed Owner as defined
in the Required Distributions section) dies prior to the Annuity
Date, and:
1. If the Owner's spouse is the Joint Owner, then the spouse
becomes the new Owner and no death benefit is payable; or
2. If the Owner's spouse is the Beneficiary, then the spouse may
elect to become the Owner (in which case there is no death benefit
payable) by so electing within 60 days of our receipt of due
proof of death and prior to the distribution of Proceeds; if
there is no such election, the Guaranteed Death Benefit is
payable to the Beneficiary; or
3. If the Owner's spouse is not the Joint Owner or the
Beneficiary, then the Guaranteed Death Benefit is payable to the
Beneficiary.
REQUIRED DISTRIBUTIONS
The following required distribution rules shall apply if and to
the extent required under Section 72(s) of the Internal Revenue
Code:
1. Subject to the alternative election or spouse beneficiary
provisions in subsection (2) or (3) below,
a) If any Owner dies on or after the annuity starting date and
before the entire interest in this Contract has been distributed,
the remaining portion of such interest shall be distributed at
least as rapidly as under the method of distribution being used
as of the date of such death;
b) If any Owner dies before the annuity starting date, the entire
interest in this Contract will be distributed within 5 years
after such death; and
c) If any Owner is not an individual, then for purposes of this
subsection(1), the primary Annuitant under this Contract shall be
treated as the Owner (the "Deemed Owner"), and any change in the
primary Annuitant shall be treated as the death of the Owner. The
primary Annuitant is the individual, the events in the life of
whom are of primary importance in affecting the timing or amount
of the payout under the Contract.
2. If any portion of the interest of an Owner (or a Deemed Owner)
in subsection (1) is payable to or for the benefit of a
designated beneficiary, and such beneficiary elects within 60
days after our receipt of due proof of death but prior to the
distribution of Proceeds to have such portion distributed in an
Annuity Option over a period that: A) does not extend beyond such
beneficiary's life or life expectancy and B) starts within 1 year
after such death (a "Qualifying Distribution Period"); then for
purposes of satisfying the requirements of subsection (1), such
portion shall be treated as distributed entirely on the date such
periodic distributions begin. Such beneficiary may elect any
Payout Period Option for a Qualifying Distribution Period,
subject to any restrictions imposed by any regulations under
Section 72(s) of the Internal Revenue Code.
3. If any portion of the interest of an Owner (or a Deemed Owner)
described in subsection (1) is payable to or for the benefit of
such Owner's spouse, or is coowned by such spouse, then such
spouse shall be treated as the Owner of such portion for purposes
of the requirements of subsection (1).
GUARANTEED DEATH BENEFIT
The Guaranteed Death Benefit is the greatest of the following
amounts. These amounts are calculated as of the Valuation Date we
receive due proof of death and all information necessary to
process the claim including the election of a one sum payout or
election under an Annuity Option:
1. Net Purchase Payments accumulated at the Guaranteed Death
Benefit Accumulation Rates shown in the Schedule up to a maximum
of 2 times the sum of all Net Purchase Payments. Net Purchase
Payments are Purchase Payments made minus Partial Withdrawals
taken and associated charges. See detailed definition in the
Purchase Payment provisions section.
2. The Accumulation Value; or
3. The Step-Up Benefit, plus Net Purchase Payments since the last
step-up anniversary.
The Step-Up Benefit at issue is the initial Purchase Payment. As
of each step-up anniversary, the current Accumulation Value is
compared to the prior Step-Up Benefit increased by Net Purchase
Payments since the last stepup anniversary. The greater of these
becomes the new Step-Up Benefit.
The step-up anniversaries are every 6th Contract Anniversary for
the duration of the Contract (i.e., the 6th, 12th, 18th, etc.).
The Guaranteed Death Benefit payable to the Beneficiary is the
Guaranteed Death Benefit as calculated above minus taxes incurred
but not deducted.
ANNUITANTS AND DEATH OF ANNUITANTS
The original Annuitant and any Contingent Annuitant are named in
the application. The Annuitant will receive the annuity benefits
of the Contract if, on the Annuity Date, the Annuitant is living
and the Contract is then in force. You may name a new Annuitant
prior to the Annuity Date. Any Annuitant or Contingent Annuitant
must be younger than age 96 when named. Any Annuitant or
Contingent Annuitant that is not an individual may not be named
without our consent. If the Owner is not an individual, the
Annuitant may not be changed without our consent.
If the Annuitant dies before the Annuity Date, and a Contingent
Annuitant has been named, the Contingent Annuitant becomes the
Annuitant. If no Contingent Annuitant has been named, you must
designate a new Annuitant. If no designation is made within 30
days of the Annuitant's death, the Owner will become the
Annuitant.
If any Owner is not an individual, the death of the Annuitant
will be treated as the death of the Owner.
Upon the death of the Annuitant after the Annuity Date, any
remaining Designated Period payouts will be continued to any
Contingent Annuitant. Upon the death of both the Annuitant and
all Contingent Annuitants, any remaining Designated Period
payouts will be paid to the estate of the last to die of the
Annuitant and Contingent Annuitants. Amounts may be released in
one sum if the Owner's election allows. See the Annuity Options
provisions section.
BENEFICIARIES AND DEATH OF BENEFICIARIES
The original Beneficiary and any Contingent Beneficiaries are
named in the application. Surviving Contingent Beneficiaries are
paid death Proceeds only if no Beneficiary survives. If more than
one Beneficiary in a class survives, they will share the Proceeds
equally, unless the Owner's designation provides otherwise. If
there is no designated Beneficiary or Contingent Beneficiary
surviving, we will pay the Proceeds to the Owner's estate. The
Beneficiary designation will be on file with us or at a location
designated by us. We will pay Proceeds to the most recent
Beneficiary designation on file. The Owner may name a new
Beneficiary unless an irrevocable Beneficiary has been named.
When an irrevocable Beneficiary has been designated, the Owner
and the irrevocable Beneficiary must act together to make any
Beneficiary changes.
PURCHASE PAYMENT PROVISIONS
PURCHASE PAYMENTS
This Contract will not be effective until the initial Purchase
Payment is received by us and accepted at our Customer Service
Center. Any subsequent Purchase Payments may be made at any time
prior to the Annuity Date, subject to the Minimum for Each
Additional Purchase Payment amount and Maximum Owner's Age to
Which Purchase Payments May be Made shown in the Schedule. No
benefit associated with any Purchase Payment will be provided
until the Purchase Payment is received by us at our Customer
Service Center. We reserve the right to refuse to accept,
without our prior approval, any Purchase Payment when the sum of
Net Purchase Payments to date exceeds the Maximum Cumulative Net
Purchase Payment shown in the Schedule. Net Purchase Payments are
Purchase Payments made minus Gross Partial Withdrawals taken. A
Gross Partial Withdrawal is a Partial Withdrawal plus any
applicable Partial Withdrawal Transaction Charge and any
applicable Surrender Charge.
PURCHASE PAYMENT ALLOCATION
The initial Purchase Payment will be allocated to the Guaranteed
Interest Division and the Divisions of the Variable Account
according to your most recent written instructions. In some
states which require the return of Purchase Payments during the
10 Day Contract Examination Period, the initial Purchase Payments
are allocated to the [Money Market Division] during the 10 Day
Contract Examination Period. As of the end of the 10 Day Contract
Examination Period, the initial Purchase Payments are then
transferred to the Divisions as shown on the Allocation Table in
the Schedule. Any Purchase Payments thereafter will be allocated
to each Division in the same proportion that the Accumulation
Value in each Division bears to the total Accumulation Value as
of the date we receive that additional Purchase Payment at our
Customer Service Center, or as otherwise instructed by you. You
may designate a different allocation with respect to any Purchase
Payments by sending us a written notice with the Purchase
Payment.
VARIABLE ACCOUNT PROVISIONS
THE VARIABLE ACCOUNT
The Variable Account is an account established by us, pursuant to
the laws of the State of Colorado, to separate the assets funding
the variable benefits for the class of policies to which this
Contract belongs from the other assets of Security Life of
Denver. The Variable Account is registered as a unit investment
trust under the Investment Company Act of 1940. All income,
gains and losses, whether or not realized, from assets allocated
to the Variable Account are credited to or charged against the
Variable Account without regard to income, gains or losses of our
General Account. The assets of the Variable Account are our
property, but are separate from our General Account and our other
Variable Accounts. That portion of the assets of the Variable
Account which is equal to the reserves and other contract
liabilities with respect to the Variable Account is not subject
to creditor claims against us.
VARIABLE ACCOUNT DIVISIONS
The Variable Account is divided into Divisions, each of which
invests in a series fund Portfolio designed to meet the
objectives of the Division. The current eligible Divisions are
shown in the Schedule. We may, from time to time, add additional
Divisions. If we do, you may be permitted to select from these
other Divisions subject to the terms and conditions we may impose
on those allocations.
We reserve the right to limit the number of Divisions in which
you may invest.
CHANGES WITHIN THE VARIABLE ACCOUNT
When permitted by law, and subject to any required notice to you
and approval of the Securities and Exchange Commission ("SEC"),
state regulatory authorities or Contract Owners, we may from time
to time make the following changes to the Variable Account:
* Make additional Divisions available. These Divisions will invest
in investment Portfolios we find suitable for the Contract.
* Eliminate Divisions from the Variable Account, combine 2 or more
Divisions, or substitute a new Portfolio for the Portfolio in
which a Division invests. A substitution may become necessary
if, in our judgment, a Portfolio no longer suits the purposes of
the Contract. This may happen due to a change in laws or
regulations, or a change in a Portfolio's investment objectives
or restrictions. This may also happen if the Portfolio is no
longer available for investment, or for some other reason, such
as a declining asset base.
* Transfer assets of the Variable Account, which we determine to be
associated with the class of contracts to which your Contract
belongs, to another Variable Account.
* Withdraw the Variable Account from registration under the
Investment Company Act of 1940.
* Operate the Variable Account as a management investment company
under the Investment Company Act of 1940.
* Cause one or more Divisions to invest in a mutual fund other than
or in addition to the Portfolios.
* Discontinue the sale of Contracts and certificates. Terminate any
employer or plan trustee agreement with us pursuant to its terms.
* Restrict or eliminate any voting rights as to the Variable
Account. Make any changes required by the Investment Company Act
of 1940 or the rules or regulations thereunder.
GENERAL ACCOUNT PROVISIONS
THE GENERAL ACCOUNT
The General Account holds all of our assets other than those held
in the Variable Account or our other separate accounts. The
Guaranteed Interest Division is a part of our General Account.
GUARANTEED INTEREST DIVISION
The Guaranteed Interest Division is another Division to which you
may allocate Purchase Payments or make transfers. The
Accumulation Value of the Guaranteed Interest Division is equal
to the Net Purchase Payments allocated to this Division plus any
earned interest minus deductions taken from this Division.
Interest is credited at the guaranteed rate shown in the schedule
or may be credited at a higher rate. Any higher rate is
guaranteed to be in effect for at least 12 months.
TRANSFER PROVISIONS
After the Contract Examination Period, the Accumulation Value in
each Division may be transferred, upon request, to any other
Division subject to the limitations on transfers involving the
Guaranteed Interest Division as detailed in the following
section. Any transfers made due to the operation of Dollar Cost
Averaging or Automatic Rebalancing will not count toward the
limit on the number of transfers allowed free of charge. The
minimum amount that may be transferred from each Division is the
lesser of $100 or the balance of a Division. The following table
summarizes the number of transfers available and the associated
charges during any Contract Year:
Accumulation Period Annuity Period
Free Transfers 12 4
Total Number of Transfers Unlimited 4
Permitted
Excess Transfer Charge $25 for each Not Applicable
transfer in excess
of 12 during any
Contract Year
We reserve the right to limit the number of transfers per
Contract Year to 12 and to limit excessive trading activity.
TRANSFERS TO OR FROM THE GUARANTEED INTEREST DIVISION
Once during the first 30 days of each Contract Year, you may
transfer amounts to or from the Guaranteed Interest Division.
Transfer requests received within 30 days before the Contract
Anniversary will be deemed to occur as of the Contract
Anniversary. Transfer requests received on the Contract
Anniversary or during the next 30 days will be processed.
Transfer requests received at any other time will not be
processed. The maximum transfer amount from the Guaranteed
Interest Division in any Contract Year is the greatest of:
1. 25 % of the Accumulation Value in the Guaranteed Interest
Division at the time of the first transfer or withdrawal in a
Contract Year;
2. The minimum transfer amount; or,
3. The amount transferred and withdrawn from the Guaranteed
Interest Division in the prior Contract Year. For the purposes of
calculating the maximum transfer from the Guaranteed Interest
Division, all withdrawals (including Systematic Income Partial
Withdrawals) and transfers from the Guaranteed Interest Division
in a Contract Year are summed.
EXCESS TRANSFER CHARGE
If you exceed the number of free transfers allowed, you will be
assessed an Excess Transfer Charge. This charge will be deducted
from each of the Divisions in which you are invested in the same
proportion that the amount of Accumulation Value in that Division
bears to the total Accumulation Value immediately after the
transfer.
DOLLAR COST AVERAGING TRANSFER OPTION
During the Accumulation Period only, if you have at least $10,000
of Accumulation Value in the [Global Strategic Income Division],
you may choose to transfer a specified dollar amount each month
from this Division to other Divisions of the Variable Account.
Dollar Cost Averaging transfers may not be made to the Guaranteed
Interest Division. You may elect the Dollar Cost Averaging
transfer option at any time prior to the Annuity Date.
The minimum amount that you may elect to transfer each month is
$100. The maximum amount that you may transfer is equal to the
Accumulation Value in the [Global Strategic Income Division] when
the election is made, divided by 12.
Dollar Cost Averaging may be elected to end on a specified date
or when a specific balance remains in the [Global Strategic
Income Division].
Allocations of the transfer amount must be designated as whole
number percentages; no specific dollar designation may be made to
the Divisions of the Variable Account. If you elect to transfer
to a particular Division, the minimum percentage that may be
transferred to that Division is 1% of the total amount
transferred. The transfer date will be the same calendar day each
month as the Contract Date. If this calendar day is not a
Valuation Date, the next Valuation Date will be used. If, on any
transfer date, the Accumulation Value in the [Global Strategic
Income Division] is equal to or less than the amount you have
elected to have transferred, the entire amount will be
transferred, and this option will end. Dollar Cost Averaging will
end as of the Valuation Date immediately preceding the Annuity
Date.
You may change the transfer amount or the Divisions to which
transfers are to be made once each Contract Year. You may cancel
this election by sending us written notice at our Customer
Service Center at least 7 days before the next transfer date. Any
transfer under this option will not be included for purposes of
the Excess Transfer Charge.
If you elect both Dollar Cost Averaging and Automatic
Rebalancing, Dollar Cost Averaging will occur first. On the
first Valuation Date of the next calendar quarter after Dollar
Cost Averaging has terminated, Automatic Rebalancing will begin.
AUTOMATIC REBALANCING
Automatic Rebalancing allows you to match your Accumulation Value
in each Division of the Variable Account to your allocation
percentages. Automatic Rebalancing can be elected in your
application or by completing the client service application and
returning it to our Customer Service Center. As of the first
Valuation Date of each calendar quarter thereafter we will
reallocate your Accumulation Value so that the amount in each
Division of the Variable Account matches your allocation
percentages. Automatic Rebalancing may not begin until the
Monthly Processing Date following the end of the Contract
Examination Period.
When you request a change in your allocation percentages, your
Accumulation Value will be reallocated as of the Valuation Date
that we receive your written allocation instructions.
Any transfer as a result of the operation of Automatic
Rebalancing will not be included in determining if the Excess
Transfer Charge will apply. You may not transfer among Divisions
of the Variable Account while the Automatic Rebalancing feature
is in effect.
If you elect both Dollar Cost Averaging and Automatic
Rebalancing, Dollar Cost Averaging will occur first. On the
first Valuation Date of the next calendar quarter after Dollar
Cost Averaging has terminated, Automatic Rebalancing will begin.
ACCUMULATION VALUE PROVISIONS
The Accumulation Value of this Contract is the sum of the
Accumulation Values of all the Divisions of the Variable Account
in which your Contract is invested plus any Accumulation Value of
the Guaranteed Interest Division.
The Accumulation Values are based on the Purchase Payments and
transfers made, Partial Withdrawals, the Contract charges, earned
interest of the Guaranteed Interest Division, and the investment
experience of the Divisions of the Variable Account.
All Contract processing occurs as of a Valuation Date. If a transaction
occurs on a day other than a Valuation Date, the transaction will
be processed as of the next Valuation Date.
VALUATION DATE
A Valuation Date is any day:
1. The New York Stock Exchange ("NYSE") is open for trading and on
which Security Life's Customer Service Center is open; or
2. As may be required by law.
VALUATION PERIOD
A Valuation Period begins at 4 p.m. Eastern time on a Valuation
Date. It ends at 4 p.m. Eastern time on the next succeeding
Valuation Date.
All Contract processing for a Valuation Period takes place as of
the end of the Valuation Period.
ACCUMULATION UNIT VALUE
The investment experience of a Division of the Variable Account
is determined as of each Valuation Date. We use an Accumulation
Unit Value to measure the experience of each of the Divisions of
the Variable Account during a Valuation Period. The Accumulation
Unit Value for a Valuation Period equals the Accumulation Unit
Value for the preceding Valuation Period multiplied by the
Accumulation Experience Factor for the Valuation Period.
The number of units for a given transaction related to a Division
of the Variable Account as of a Valuation Date is determined by
dividing the dollar value of that transaction by that Division's
Accumulation Unit Value for that date.
ACCUMULATION EXPERIENCE FACTOR
For each Division of the Variable Account, the Accumulation
Experience Factor reflects the investment experience of the
Portfolio in which that Division invests and the charges assessed
against that Division for a Valuation Period. The Accumulation
Experience Factor is calculated as follows:
1. The net asset value of the Portfolio in which that Division
invests as of the end of the current Valuation Period; plus
2. The amount of any dividend or capital gains distribution declared and
reinvested in that Portfolio during the current Valuation Period;
minus
3. A charge for taxes, if any.
4. The result of (1), (2) and (3) divided by the net asset value
of that Portfolio as of the end of the preceding Valuation
Period; minus
5. The daily equivalent of the Variable Account Annual Expenses
shown in the Schedule for each day in the current Valuation
Period.
ACCUMULATION VALUE OF THE DIVISIONS OF THE VARIABLE ACCOUNT
The Accumulation Value of each Division of the Variable Account
as of the Contract Date is equal to the amount of the initial
Purchase Payment allocated to that Division.
On subsequent Valuation Dates, the Accumulation Value of each
Division of the Variable Account is calculated as follows:
1. The number of Accumulation Units in that Division as of the end
of the preceding Valuation Period multiplied by that Division's
Accumulation Unit Value for the current Valuation Period; plus
2. Any additional Purchase Payments allocated to that Division
during the current Valuation Period; plus
3. Any Accumulation Value transferred to such Division during the
current Valuation Period; minus
4. Any Accumulation Value transferred from such Division
during the current Valuation Period; minus
5. Any Excess Transfer Charge allocated to such Division during
the current Valuation Period; minus
6. Any Gross Partial Withdrawals allocated to that Division during
the current Valuation Period; minus
7. The portion of the Administrative Charge applicable to that
Division if a Contract Anniversary occurs during the Valuation
Period.
The Administrative Charge is allocated to each of the Divisions
of the Variable Account and the Guaranteed Interest Division in
the same proportion that the Accumulation Value in that Division
bears to the Accumulation Value in all of the Divisions.
ACCUMULATION VALUE IN THE GUARANTEED INTEREST DIVISION
The Accumulation Value in the Guaranteed Interest Division as of
the Contract Date is equal to the amount of the initial Purchase
Payment allocated to that Division.
On subsequent Valuation Dates, the Accumulation Value of the
Guaranteed Interest Division is calculated as follows:
1.The Accumulation Value of the Guaranteed Interest Division as
of the end of the preceding Valuation Period plus any earned
interest during the Valuation Period; plus
2. Any additional Purchase Payments allocated to the Guaranteed
Interest Division during the current Valuation Period; plus
3. Any Accumulation Value transferred to the Guaranteed Interest
Division during the current Valuation Period; minus
4. Any Accumulation Value transferred from the Guaranteed Interest
Division during the current Valuation Period; minus
5. Any Excess Transfer Charge allocated to the Guaranteed Interest
Division during the current Valuation Period; minus
6. Any Gross Partial Withdrawals allocated to the Guaranteed
Interest Division during the current Valuation Period; minus
7. The portion of the Administrative Charge applicable to the
Guaranteed Interest Division if a Contract Anniversary occurs
during the current Valuation Period.
The Administrative Charge is allocated to each of the Divisions
of the Variable Account and the Guaranteed Interest Division in
the same proportion that the Accumulation Value in that Division
bears to the Accumulation Value in all of the Divisions.
PARTIAL WITHDRAWAL PROVISIONS
After the Contract Examination Period and prior to the Annuity
Date, you may withdraw, in cash, all or part of the Cash
Surrender Value of this Contract. A Partial Withdrawal may incur
Partial Withdrawal Transaction Charges and may incur Surrender
Charges. Withdrawals may be subject to a 10% penalty tax. A
Gross Partial Withdrawal is a Partial Withdrawal plus any
applicable Partial Withdrawal Transaction Charges and any
applicable Surrender Charges.
In no case will you be allowed to withdraw more than your Cash
Surrender Value.
A Partial Withdrawal will result in a decrease in the
Accumulation Value of this Contract. The decrease is equal to
the amount of the Gross Partial Withdrawal. Partial Withdrawals
from the Divisions of the Variable Account will be made by
redeeming Accumulation Units in the affected Divisions at their
value as next computed after we receive your written request at
our Customer Service Center. The Partial Withdrawal Transaction
Charge, and any Surrender Charge if applicable, will reduce the
Accumulation Value of each Division in the same proportion that
the Accumulation Value in each Division bears to the total
Accumulation Value immediately after the withdrawal.
There are 3 Partial Withdrawal options available:
1. Demand Withdrawal Option
2. Systematic Income Program
3. IRA Income Program.
DEMAND WITHDRAWAL OPTION
After the Contract Examination Period and prior to the Annuity
Date, you may make a Demand Withdrawal. The minimum Demand
Withdrawal amount is $100. The maximum Demand Withdrawal amount
is the Cash Surrender Value minus $500. If the amount of Demand
Withdrawal you specify exceeds the maximum level, the amount of
the withdrawal will automatically be adjusted. Demand Withdrawals
are deemed to be withdrawn in the following order:
1. Earnings in the Contract;
2. Purchase Payments held more than 5 full Contract Years since
the Contract Anniversary immediately following the end of the
Contract Year in which the Purchase Payment was made;
3. The amount by which 15% of the Accumulation Value as of the
last Contract Anniversary (minus any Gross Partial Withdrawals
already made during the Contract Year which are not considered
withdrawals of Purchase Payments) exceeds earnings, if any;
4. Purchase Payments held less than 5 full Contract Years since
the Contract Anniversary at the end of the Contract Year in which
the Purchase Payment was made, withdrawn on a firstin, firstout
basis.
Unless you specify otherwise, the amount of the Partial
Withdrawal will be taken from each Division of the Variable
Account in the same proportion that the amount of Accumulation
Value in that Division bears to the Accumulation Value in all of
the Divisions of the Variable Account immediately before the
withdrawal. You may not withdraw from the Guaranteed Interest
Division an amount that is greater than the total withdrawal
multiplied by the ratio of the Accumulation Value in the
Guaranteed Interest Division to the total Accumulation Value
immediately prior to the withdrawal.
Earnings in the contract, for the purpose of calculating
Surrender Charges, equal the current Accumulation Value minus any
Purchase Payments not previously withdrawn.
Partial Withdrawal Transaction Charge
After the Contract Examination Period and prior to the Annuity
Date, you may take a Demand Withdrawal once each Contract Year
without a Partial Withdrawal Transaction Charge. If you take
more than one Demand Withdrawal in a Contract Year, we will
impose a Partial Withdrawal Transaction Charge. This charge is
equal to the lesser of $25 or 2% of the amount withdrawn.
SYSTEMATIC INCOME PROGRAM
You may elect this option at any time prior to the Annuity Date.
You may choose to receive Systematic Income Partial Withdrawals
on a monthly or quarterly basis from the Accumulation Value.
Withdrawals will be taken from each Division of the Variable
Account and the Guaranteed Interest Division in the same
proportion that the Accumulation Value of that Division bears to
the total Accumulation Value. The payouts under this option may
not start sooner than one month after the Contract Date. You may
select the day of the month when the withdrawals will be made. If
no day is selected, the withdrawals will be made on the same
calendar day of the month as the Contract Date. If this calendar
day is not a Valuation Date, the next Valuation Date will be
used. You may select a dollar amount or a percentage amount for
your withdrawal subject to the following maximums:
MONTHLY: 1.25% of the Accumulation Value
QUARTERLY: 3.75% of the Accumulation Value
Except as described in the following sections, in no event will a
payout be less than $100.
If a dollar amount is selected and the amount to be
systematically withdrawn would exceed the applicable maximum
percentage listed above on the withdrawal date, the amount
withdrawn will be reduced to equal such percentage. If the
amount to be withdrawn is then less than $100, the withdrawal
will be made and the Systematic Income Program will be canceled.
If a percentage is selected and the amount to be systematically
withdrawn based on that percentage would be less than $100, the
amount will be increased to the lesser of $100 or the maximum
percentage. If the amount to be withdrawn is then less than
$100, the withdrawal will be made and the Systematic Income
Program will be canceled.
If the Systematic Income Program is canceled due to an
insufficient Accumulation Value, any remaining Cash Surrender
Value will be paid to you. This will result in the termination
of the Contract.
You may change the amount or percentage of your Systematic Income
Partial Withdrawal once each Contract Year. You may cancel your
election at any time by sending written notice to us to our
Customer Service Center at least 7 days prior to the next
scheduled withdrawal date.
During any Contract Year, if a Demand Withdrawal is made while
the Systematic Income Program is in effect, the remaining payouts
to be made under the Systematic Income Program for that Contract
Year will be considered Demand Withdrawals for purposes of
calculating Partial Withdrawal Transaction Charges and any
applicable Surrender Charges. If a Demand Withdrawal is not made
in the same Contract Year, Systematic Income Partial Withdrawals
will not be assessed a Surrender Charge. However, the amount
available for Systematic Income Partial Withdrawals is never
greater than the Cash Surrender Value.
IRA INCOME PROGRAM
If you have an IRA Contract, we will send you Partial Withdrawals
to accommodate IRS required minimum distribution rules. These
Partial Withdrawals will begin automatically if the minimum
distributions are not otherwise satisfied. If this Contract is
intended as an Individual Retirement Annuity, notwithstanding any
provisions of this Contract, this Contract shall meet all
requirements of section 408(b) of the Internal Revenue Code and
any other sections as required and as related to the sale and
marketing of this product.
SURRENDER PROVISIONS
CASH SURRENDER VALUE
The Cash Surrender Value of this Contract is the Accumulation
Value minus any Surrender Charges, taxes incurred but not
deducted and the Administrative Charge, if any, due at the end of
the Contract Year. The applicable Surrender and Administrative
Charges are shown in the Schedule.
Surrenders may be subject to a 10% penalty tax.
You may surrender this Contract for its Cash Surrender Value at
any time prior to the Annuity Date. The Surrender Charge shown
in the Schedule will be deducted on surrender. A Surrender
Charge is applicable only to the Surrender or Partial Withdrawal
of Purchase Payments held less than 5 full Contract Years since
the Contract Anniversary at the end of the Contract Year in which
the Purchase Payment was made.
If you do not wish to receive your Cash Surrender Value in a one
sum payout and you are also the Annuitant, you may avoid a
Surrender Charge by applying the Proceeds to Payout Period
Options II or III by accelerating the Annuity Date under the
Contract, subject to the limitations in the Election and Changes
of Annuity Date section. No surrender may be made on or after
the Annuity Date or with respect to any amounts applied under an
Annuity Option.
GENERAL CONTRACT PROVISIONS
THE CONTRACT
This Contract, including any applications, riders and
endorsements, makes up the entire Contract between you and us. A
copy of the initial application will be attached to this Contract
at issue. In the absence of fraud, all statements made in an
application will be considered representations and not
warranties. No statement will be used to deny a claim unless it
is in an application.
AGE
This Contract is issued at the Owner's Age shown in the Schedule.
This is the Owner's Age as of last birthday on the Contract Date.
The Annuitant's attained age on any date for which age is to be
determined is the Annuitant's age as of last birthday.
PROCEDURES
We must receive any election, designation, assignemnt or any
other change request you make in writing, except those specified
on the application. We may require a return of this Contract for
any Contract change or for paying its Cash Surrender Value. The
effective date of any change in provisions of the Contract will
be the date the request was signed. Any change will not affect
payouts made or action taken by us prior to the time the change
is recorded at our Customer Service Center.
We may require proof of age, death, or survival of an Annuitant
or any Beneficiary when such proof is relevant to the payout of
a benefit claim, or settlement under the Contract.
In the event of the Owner's death prior to the Annuity Date, we
should be informed as soon as possible. Claim procedure
instructions will be sent to your Beneficiary immediately. We
require a certified copy of the death certificate and may require
proof of the Owner's Age. We may require the Beneficiary and the
Owner's next of kin to sign authorizations as part of due proof.
DEFERRAL OF PAYOUT
Partial Withdrawals or payout of Proceeds from Divisions of the
Variable Account will usually be processed within 7 days of
receipt of the request at our Customer Service Center. However,
we may postpone the processing of any such transactions for any
of the following reasons:
1. When the NYSE is closed for trading;
2. When trading on the NYSE is restricted by the SEC;
3. When an emergency exists such that it is not reasonably
practical to dispose of securities in the applicable Division of
the Variable Account or to determine the value of its assets; or
4. When a governmental body having jurisdiction over the Variable
Account permits such suspension by order.
Rules and regulations of the SEC are applicable and will govern
as to whether conditions described in (2), (3), or (4) exist.
We may defer up to 6 months, the payout of any Partial Withdrawal
or Proceeds from the Guaranteed Interest Division.
TAX QUALIFICATION
This Contract is intended to qualify as an annuity contract under
the Internal Revenue Code. To that end, all terms and provisions
of the Contract shall be interpreted to ensure or maintain such
qualification, notwithstanding any other provisions to the
contrary. Payouts and distributions under this Contract shall be
made in the time and manner necessary to maintain such
qualification under the applicable provisions of the Internal
Revenue Code in existence at the time this Contact is issued. We
reserve the right to amend this Contract, to reflect any
clarifications or changes that may be needed or are appropriate,
or to conform it to any applicable changes in the tax
requirements. Such changes will apply uniformly to all Contracts
that are affected. We will send you written notice of any such
changes.
CONTRACT CHANGES
All changes made by us must be signed by our president or an
officer and by our secretary or assistant secretary. No other
person can change any of this Contract's terms and conditions.
COLLATERAL ASSIGNMENT
The Owner may assign this Contract as collateral security upon
written notice to us. Once it is recorded with us, the rights of
the Owner and Beneficiary are subject to the assignment. It is
your responsibility to make sure the assignment is valid.
INCONTESTABILITY
We will not contest the statements in an application for this
Contract after the Contract Date.
MISSTATEMENT OF AGE OR SEX
If the Age or sex has been misstated in an application, the
amounts payable or benefits provided by this Contract will be
those that the Purchase Payouts made would have purchased at the
actual Age or sex.
PERIODIC REPORTS
During the Accumulation Period, we will send you a report within
31 days after the end of each calendar quarter. This report will
show the current Accumulation Value, Cash Surrender Value,
Guaranteed Death Benefit and activity under the Contract since
the last report. During the Annuity Period, we will send you a
report within 31 days after the end of each calendar year showing
any information required by law. The reports will also include
any other information that may be required by the SEC or the
insurance supervisory official of the jurisdiction in which this
Contract is delivered.
BASIS OF COMPUTATIONS
The Cash Surrender Values under this Contract are not less than
the minimums required on the Contract Date by the state in which
this Contract was delivered. A detailed statement of the method
of computation of Accumulation Values under this Contract has
been filed with the insurance department of the state in which
this Contract was delivered, if requested by that state.
TAXES
Taxes relating to this Contract paid by us to any governmental
entity will be deducted from the Purchase Payments or
Accumulation Value. We will, at our sole discretion, determine
when taxes have resulted from: the investment experience of the
Divisions of the Variable Account; receipt by us of the Purchase
Payments; Surrenders and Partial Withdrawals; or the start of an
Annuity Option. We may, at our sole discretion, pay taxes when
incurred and deduct that amount from the Accumulation Value at a
later date. Payment at an earlier date does not waive any right
we may have to deduct amounts at this later date. We will deduct
any withholding taxes required by applicable law.
NON PARTICIPATING
This Contract does not participate in our surplus earnings.
CUSTOMER SERVICE CENTER
Our Customer Service Center is at the address shown in the
Schedule. Unless you are otherwise notified:
1. All requests and payments should be sent to us at our Customer
Service Center; and
2. All transactions are effective as of the date the required
information is received at our Customer Service Center.
ANNUITY OPTION PROVISIONS
The Annuity Option is composed of both the Payout Option which
specifies the type of annuity to be paid and the Payout Period
Option which determines how long the annuity will be paid, the
frequency and the amount of the first payout.
SUPPLEMENTARY CONTRACT
When an Annuity Option becomes effective, this Contract will be
amended to include a Supplementary Contract. The Supplementary
Contract will provide for the manner of settlement and rights of
the Annuitant. The Supplementary Contract Effective Date will be
the Annuity Date or the date of other settlement, whenever the
Annuity Option becomes effective. The first payout will be
payable as of the Supplementary Contract Effective Date.
PAYOUT OPTIONS
Annuity Payouts can be made under a Variable Annuity Payout, a
Fixed Annuity Payout, or a Combination Annuity Payout, each under
various Payout Period Options. Each of these options is
described below.
Variable Annuity Payout A Variable Annuity is an annuity with
payouts which:
1. Are not pre-determined or guaranteed as to dollar amount; and
2. Vary in amount with the investment experience of the Divisions
of the Variable Account in which you invest.
As of the Annuity Date, any Accumulation Value invested in the
Guaranteed Interest Division will be allocated among the
Divisions of the Variable Account in the same proportion that the
Accumulation Value of each Division bears to the total
Accumulation Value of all of the Divisions of the Variable
Account.
The first Variable Annuity Payout for each Division of the
Variable Account will be the amount that the Proceeds will
provide as of the close of business on the Valuation Date
immediately preceding the Supplementary Contract Effective Date
at the Benchmark Total Return elected. If you have elected to
have payouts made less frequently than monthly, the payout amount
is then adjusted according to the factors in the Payouts Other
Than Monthly section. The initial number of Annuity Units for a
Division of the Variable Account is calculated by dividing the
payout amount of that Division by the Annuity Unit Value of that
Division as of the Supplementary Contract Date. The total
Variable Annuity Payout is the sum of the Variable Annuity
Payouts from all Divisions of the Variable Account.
Variable Annuity Payouts, after the first payout, vary in amount with the
investment experience of the Divisions of the Variable Account.
The dollar amount of each Variable Annuity Payout after the first
payout is calculated by adding the amount due for each Division
of the Variable Account. The amount due for each Division
equals:
1. The number of Annuity Units for that Division; multiplied by,
2. The Annuity Unit Value for that Division for the Valuation
Period for which each payout is due.
The dollar amount of each Annuity Payout after the first will not
be affected by variations in our expenses or mortality
experience.
Benchmark Total Return
You must elect either a 3% or 5% Benchmark Total Return. Your
election may not be changed after the Annuity Date. Electing
the 5% Benchmark Total Return would mean a higher initial payout but
more slowly rising or more rapidly falling subsequent payouts if
actual investment experience varied from 5%. The 3% Benchmark
Total Return assumption would have the opposite effect. If the
actual investment rate is at the annual rate of 3% or 5%, the
Annuity Payouts will be level if you elected either the 3% or 5%
respectively.
Annuity Unit Value
We use an Annuity Unit Value to calculate the value of Variable
Annuity Payouts. The Annuity Unit Value for a Valuation Period
is:
a) The Annuity Unit Value for each Division as of the last prior
Valuation Period multiplied by the Annuity Experience Factor for
that Division for the Valuation Period for which the Annuity Unit
Value is being calculated; divided by
b) An interest factor based on the Benchmark Total Return
selected. (This is done to neutralize the Benchmark Total
Return.)
Annuity Experience Factor
For each Division of the Variable Account, the Annuity Experience
Factor reflects the investment experience of the Portfolio in
which that Division invests and the charges assessed against that
Division for a Valuation Period. The Annuity Experience Factor
is calculated as follows:
a) The net asset value of the Portfolio in which that Division
invests as of the end of the current Valuation Period; plus
b) The amount of any dividend or capital gains distribution
declared and reinvested in such Portfolio during the current
Valuation Period; minus
c) A charge for taxes, if any.
d) The result of (a), (b) and (c), divided by the net asset value
of thePortfolio in which the Division invests as of the end of
the preceding Valuation Period; minus
e) The daily equivalent of the Variable Account Annual Expenses
shown in the Schedule for each day in the current Valuation
Period.
Transfer of Annuity Units
The Annuitant may transfer all or a portion of the Annuity Units
in a Division of the Variable Account to another Division of the
Variable Account. The limit on transfers is shown in the table in
the Transfer provisions section. After the transfer, the number
of Annuity Units in the Division of the Variable Account from
which you are transferring will be reduced by the number of
Annuity Units transferred. The number of Annuity Units in the
Division of the Variable Account to which the transfer is made
will be increased by the number of Annuity Units transferred
multiplied by:
a) The value of an Annuity Unit in the Division of the Variable
Account from which the transfer is made, divided by
b) The value of an Annuity Unit in the Division of the Variable
Account to which the transfer is made.
Fixed Annuity Payout
A Fixed Annuity Payout is an annuity with payouts which remain
fixed as to dollar amount throughout the Payout Period. As of
the Supplementary Contract Effective Date, any Proceeds invested
in the Divisions of the Variable Account will be allocated to the
Guaranteed Interest Division. The Fixed Annuity Payout will be
that amount that the Proceeds will provide as of the
Supplementary Contract Effective Date at the guaranteed Benchmark
Total Return of 3%. If the Fixed Annuity Payout is credited at
an interest rate above the guaranteed minimum, the installment
dollar amount will be greater than the determined installment
dollar amount for the time period that the
higher rate is declared. If you have chosen to have payouts made
less frequently than monthly, the payout amount is adjusted
according to the factors in Payouts Other Than Monthly section.
Combination Annuity Payout
A Combination Annuity Payout is an annuity where a portion of the
payout is variable and a portion of the payout is fixed as to
dollar amount throughout the Payout Period. At least 25% of the
Proceeds must be allocated to each selected option as of the
Supplementary Contract Effective Date. As of the Supplementary
Contract Effective Date, we will allocate Accumulation Value
between the Guaranteed Interest Division and the Divisions of the
Variable Account to meet the proportions chosen. Once a
Combination Annuity Payout is selected, the Annuitant may
subsequently increase the allocation to a Fixed Annuity Payout,
but may not increase the allocation to the Variable Annuity
Payout.
PAYOUT PERIOD OPTIONS
Under each Payout Option, the Payout Period is elected from one
of the following:
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. If a Fixed Annuity
Payout is chosen, the installment dollar amounts will be equal except
for any Excess Interest as described below. If a Variable Annuity Payout
is chosen, the number of Annuity Units of each installment will
be equal, but the dollar amount of each installment will vary
based on the Annuity Unit Values of the Divisions chosen. If the
Annuitant dies before the end of the designated period, payouts
will be continued to the Contingent Annuitant, if one has been
named, until the end of the designated period. The amount of
each payout will depend upon the designated period chosen, and if
a Variable Annuity Payout is chosen, the investment experience of
the Divisions of the Variable Account selected. The amount of the
first monthly payout for each $1,000 of Accumulation Value
applied is shown in Payout Option Table I.
OPTION II. Life Income With Payouts for a Designated period.
Payouts will be made in 1, 2, 4, or 12 installments per year
throughout the Annuitant's lifetime, or if longer, for a period
of 5, 10, 15 or 20 years as elected. If a Fixed Annuity Payout
is chosen, the installment dollar amounts will be equal except
for any Excess Interest, as described below. If a Variable
Annuity Payout is chosen, the number of Annuity Units of each
installment will be equal, but the dollar amounts of each
installment will vary based on the Annuity Unit Values of the
Divisions chosen. If the Annuitant dies before the end of the
designated period, payouts will be continued to the Contingent
Annuitant, if one has been named, until the end of the designated
period. The amount of each payout will depend upon the
Annuitant's sex, age at the time the first payout is due, the
designated period chosen and, if a Variable Annuity Payout is
chosen, the investment experience of the Divisions of the
Variable Account selected. The amount of the first monthly payout
for each $1,000 of Accumulation Value applied is shown in Payout
Period Option Table II. This option is only available for ages
shown in these Tables.
OPTION III. Joint and Last Survivor. Payouts will be made in
1, 2, 4, or 12 installments per year as elected while both
Annuitants are living. Upon the death of one Annuitant, the
Survivor's Annuity Payout will be paid throughout the lifetime of
the Surviving Annuitant.
If a Fixed Annuity Payout is chosen, the installment dollar
amount will be level while both Annuitants are living and upon
the death of one Annuitant will be reduced to 2/3rds of the
installment dollar amount (excluding any Excess Interest paid) while both
Annuitants were living.
If a Variable Annuity Payout is chosen, the number of Annuity
Units applied to each installment will be level while both
Annuitants are living and upon the death of one Annuitant will be
reduced to 2/3rds of the number of Annuity Units applied to each
installment while both Annuitants were living. The dollar
amounts of each installment will vary based on the Annuity Unit
Values of the selected Divisions.
The amount of each payout will depend upon the age last birthday
and sex of each Annuitant at the time the first payout is due
and, if a Variable Annuity Payout is chosen, the investment
experience of the Divisions of the Variable Account selected.
Payouts for Payout Period Option III will be determined by using
the 1983A Individual Annuity Mortality Table. Contact our
Customer Service Center to determine the amount of the first
monthly installment for each $1,000 of
Accumulation Value applied.
OPTION IV. Other. Payouts will be made in any other manner as
agreed upon in writing between you or the Beneficiary and us.
COMMUTING
The Annuitant may commute remaining designated period
installments under Payout Period Option I. The Contingent
Annuitant may commute remaining
designated period installments after the death of the Annuitant
under Payout Period Options I or II. If no Contingent Annuitant
is named, any remaining designated period installments after the
death of the Annuitant may be commuted by the estate. Any
computation shall be at the appropriate Benchmark Total Return
rate.
EXCESS INTEREST
We may declare that Fixed Annuity Payouts will be credited at an
interest rate above the guaranteed minimum. We guarantee that
any higher rate will be in effect for at least 12 months.
MINIMUM AMOUNTS
The minimum amount that may be applied under any Annuity Option
is $2,000. If the Proceeds to be applied are less than $2,000,
or if the payouts to the Annuitant are ever less than $20, we may
change the frequency of payouts to result in payouts of at least
that amount or require a one sum payout.
INCOME PROTECTION
Unless otherwise provided in the election, an Annuitant or
Contingent Annuitant does not have the right to assign, transfer
to a third party or encumber amounts held or installments to
become payable pursuant to this Contract. To the extent provided
by law, the Proceeds, amount retained, and installments are not
subject to any Annuitant's debts, contracts, or engagements.
PAYOUTS OTHER THAN MONTHLY
The following tables show initial monthly installments for Payout
Period Options I and II. To arrive at annual, semiannual, or
quarterly payouts, multiply the appropriate figures by 11.837,
5.962, or 2.992 if the Benchmark Total Return is 3%, and by
11.730, 5.909 or 2.966 if the Benchmark Total Return is 5%,
respectively. Factors for other designated periods or for other
options that may be provided by mutual agreement will be provided
upon reasonable request.
<TABLE>
PAYOUT PERIOD OPTION TABLES
PAYOUT PERIOD OPTION TABLE I
(Benchmark Total Return is 3% -- Per $1,000 of Net Proceeds)
<CAPTION>
No. of Monthly No.of Monthly
Years Payable Installments Years Payable Installments
<S> <C> <C> <C>
5 $17.92 20 $5.53
6 15.16 21 5.34
7 13.18 22 5.17
8 11.70 23 5.01
9 10.55 24 4.86
10 9.63 25 4.73
11 8.88 26 4.61
12 8.26 27 4.50
13 7.73 28 4.39
14 7.28 29 4.30
15 6.89 30 4.21
16 6.55
17 6.25
18 5.98
19 5.75
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE I -- VARIABLE ANNUITY ONLY
(Benchmark Total Return is 5% -- Per $1,000 of Net Proceeds)
<CAPTION>
No.of Monthly No. of Monthly
Years Payable Installments Years Payable Installments
<S> <C> <C> <C>
5 $18.79 20 $6.57
6 16.04 21 6.39
7 14.08 22 6.23
8 12.61 23 6.08
9 11.47 24 5.94
10 10.56 25 5.82
11 9.82 26 5.71
12 9.21 27 5.61
13 8.69 28 5.51
14 8.25 29 5.43
15 7.88 30 5.35
16 7.55
17 7.26
18 7.00
19 6.77
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II
(Benchmark Total Return is 3% -- Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment is Payable Monthly Installment
5 10 15 20 5 10 15 20
Years Years Years Years Years Years Years Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
<S> <C> <C> <C> <C> <C> <C> <C> <C>
15 2.94 2.94 2.94 2.93 40 3.63 3.62 3.61 3.58
16 2.96 2.95 2.95 2.95 41 3.68 3.67 3.65 3.62
17 2.97 2.97 2.97 2.96 42 3.73 3.72 3.70 3.66
18 2.99 2.99 2.99 2.98 43 3.78 3.77 3.74 3.71
19 3.01 3.01 3.00 3.00 44 3.84 3.82 3.79 3.75
20 3.03 3.02 3.02 3.02 45 3.89 3.88 3.84 3.80
21 3.05 3.04 3.04 3.04 46 3.95 3.93 3.90 3.85
22 3.07 3.06 3.06 3.06 47 4.01 3.99 3.95 3.90
23 3.09 3.08 3.08 3.08 48 4.08 4.05 4.01 3.95
24 3.11 3.11 3.10 3.10 49 4.15 4.12 4.07 4.00
25 3.13 3.13 3.13 3.12 50 4.22 4.19 4.13 4.06
26 3.16 3.15 3.15 3.14 51 4.29 4.26 4.20 4.11
27 3.18 3.18 3.17 3.17 52 4.37 4.33 4.27 4.17
28 3.21 3.20 3.20 3.19 53 4.45 4.41 4.34 4.23
29 3.23 3.23 3.23 3.22 54 4.54 4.49 4.41 4.29
30 3.26 3.26 3.25 3.25 55 4.63 4.58 4.49 4.36
31 3.29 3.29 3.28 3.27 56 4.73 4.67 4.57 4.42
32 3.32 3.32 3.31 3.30 57 4.83 4.76 4.65 4.48
33 3.36 3.35 3.34 3.33 58 4.94 4.87 4.74 4.55
34 3.39 3.39 3.38 3.36 59 5.05 4.97 4.82 4.61
35 3.43 3.42 3.41 3.40 60 5.18 5.08 4.92 4.68
36 3.46 3.46 3.45 3.43 61 5.31 5.20 5.01 4.75
37 3.50 3.50 3.48 3.47 62 5.45 5.32 5.11 4.81
38 3.54 3.54 3.52 3.50 63 5.60 5.45 5.21 4.87
39 3.59 3.58 3.56 3.54 64 5.76 5.59 5.31 4.94
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE I
(Benchmark Total Return is 3% -- Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment is Installment is
Payable Monthly Installment Payable Monthly Installment
_________________________________________________________________________________________________
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
65 5.92 5.73 5.41 5.00 85 11.79 8.90 6.80 5.51
66 6.10 5.88 5.51 5.05 86 12.18 9.00 6.81 5.51
67 6.29 6.03 5.61 5.11 87 12.56 9.10 6.83 5.51
68 6.49 6.19 5.71 5.16 88 12.94 9.18 6.84 5.51
69 6.70 6.35 5.81 5.21 89 13.32 9.26 6.85 5.51
70 6.93 6.52 5.91 5.25 90 13.69 9.32 6.86 5.51
71 7.16 6.69 6.01 5.29 91 14.06 9.38 6.86 5.51
72 7.41 6.86 6.10 5.33 92 14.43 9.43 6.87 5.51
73 7.67 7.04 6.19 5.36 93 14.79 9.48 6.87 5.51
74 7.95 7.22 6.27 5.38 94 15.13 9.51 6.87 5.51
75 8.24 7.39 6.34 5.41 95 15.47 9.54 6.87 5.51
76 8.55 7.57 6.42 5.43
77 8.87 7.74 6.48 5.45
78 9.20 7.91 6.54 5.46
79 9.54 8.08 6.59 5.47
80 9.90 8.24 6.64 5.48
81 10.27 8.39 6.68 5.49
82 10.64 8.53 6.72 5.50
83 11.02 8.66 6.75 5.50
84 11.41 8.79 6.77 5.51
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II - VARIABLE ANNUITY ONLY
(Benchmark Total Return is 5% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment Payable Monthly Installment
____________________________________________________________________________________________________
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 4.27 4.27 4.26 4.26 40 4.84 4.83 4.80 4.77
16 4.28 4.28 4.27 4.27 41 4.88 4.87 4.84 4.80
17 4.29 4.29 4.29 4.28 42 4.93 4.91 4.88 4.84
18 4.31 4.30 4.30 4.29 43 4.97 4.95 4.92 4.87
19 4.32 4.32 4.31 4.31 44 5.02 5.00 4.96 4.91
20 4.33 4.33 4.33 4.32 45 5.08 5.05 5.01 4.95
21 4.35 4.34 4.34 4.33 46 5.13 5.10 5.06 4.99
22 4.36 4.36 4.35 4.35 47 5.19 5.16 5.11 5.04
23 4.38 4.38 4.37 4.36 48 5.25 5.21 5.16 5.08
24 4.40 4.39 4.39 4.38 49 5.31 5.27 5.21 5.13
25 4.41 4.41 4.40 4.40 50 5.38 5.33 5.27 5.18
26 4.43 4.43 4.42 4.41 51 5.45 5.40 5.32 5.23
27 4.45 4.45 4.44 4.43 52 5.52 5.47 5.39 5.28
28 4.47 4.47 4.46 4.45 53 5.60 5.54 5.45 5.33
29 4.50 4.49 4.48 4.47 54 5.68 5.61 5.52 5.38
30 4.52 4.51 4.51 4.49 55 5.76 5.69 5.58 5.44
31 4.54 4.54 4.53 4.52 56 5.86 5.78 5.66 5.49
32 4.57 4.56 4.55 4.54 57 5.95 5.87 5.73 5.55
33 4.60 4.59 4.58 4.56 58 6.06 5.96 5.81 5.61
34 4.63 4.62 4.61 4.59 59 6.17 6.06 5.89 5.66
35 4.66 4.65 4.64 4.62 60 6.29 6.17 5.97 5.72
36 4.69 4.68 4.67 4.64 61 6.42 6.28 6.06 5.78
37 4.72 4.71 4.70 4.67 62 6.55 6.40 6.15 5.84
38 4.76 4.75 4.73 4.70 63 6.70 6.52 6.24 5.89
39 4.80 4.79 4.77 4.73 64 6.85 6.65 6.33 5.95
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II - VARIABLE ANNUITY ONLY
(Benchmark Total Return is 5% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment is Payable Monthly Installment
_________________________________________________________________________________________________
5 Years 10 Years 15 Years 20 years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
65 7.02 6.78 6.42 6.00 85 12.73 9.75 7.68 6.45
66 7.19 6.92 6.52 6.05 86 13.10 9.85 7.70 6.45
67 7.38 7.06 6.61 6.10 87 13.47 9.93 7.71 6.45
68 7.57 7.21 6.70 6.14 88 13.83 10.01 7.72 6.46
69 7.78 7.37 6.79 6.18 89 14.19 10.08 7.73 6.46
70 8.00 7.52 6.88 6.22 90 14.55 10.15 7.74 6.46
71 8.23 7.69 6.97 6.26 91 14.91 10.20 7.74 6.46
72 8.47 7.85 7.05 6.29 92 15.25 10.25 7.75 6.46
73 8.73 8.01 7.13 6.32 93 15.59 10.29 7.75 6.46
74 9.00 8.18 7.20 6.34 94 15.93 10.32 7.75 6.46
75 9.29 8.35 7.27 6.36 95 16.25 10.35 7.75 6.46
76 9.59 8.51 7.34 6.38
77 9.90 8.67 7.40 6.40
78 10.22 8.83 7.45 6.41
79 10.56 8.99 7.50 6.42
80 10.91 9.13 7.54 6.43
81 11.26 9.27 7.58 6.44
82 11.62 9.41 7.61 6.44
83 11.99 9.53 7.64 6.45
84 12.36 9.64 7.66 6.45
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II
(Benchmark Total Return is 3% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment is Payable Monthly Installment
_______________________________________________________________________________________________
5 Years 10 Years 15 Years 20 years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 2.85 2.85 2.85 2.85 40 3.41 3.40 3.40 3.38
16 2.87 2.87 2.86 2.86 41 3.44 3.44 3.43 3.42
17 2.88 2.88 2.88 2.88 42 3.48 3.48 3.47 3.45
18 2.89 2.89 2.89 2.89 43 3.52 3.52 3.51 3.49
19 2.91 2.91 2.91 2.91 44 3.57 3.56 3.55 3.53
20 2.92 2.92 2.92 2.92 45 3.61 3.60 3.59 3.57
21 2.94 2.94 2.94 2.94 46 3.66 3.65 3.64 3.61
22 2.96 2.96 2.95 2.95 47 3.71 3.70 3.68 3.66
23 2.97 2.97 2.97 2.97 48 3.76 3.75 3.73 3.70
24 2.99 2.99 2.99 2.99 49 3.81 3.80 3.78 3.75
25 3.01 3.01 3.01 3.00 50 3.87 3.86 3.84 3.80
26 3.03 3.03 3.03 3.02 51 3.93 3.92 3.89 3.85
27 3.05 3.05 3.05 3.04 52 4.00 3.98 3.95 3.90
28 3.07 3.07 3.07 3.06 53 4.06 4.04 4.01 3.96
29 3.09 3.09 3.09 3.08 54 4.13 4.11 4.08 4.02
30 3.12 3.11 3.11 3.11 55 4.21 4.18 4.14 4.08
31 3.14 3.14 3.13 3.13 56 4.29 4.26 4.21 4.14
32 3.16 3.16 3.16 3.15 57 4.37 4.34 4.29 4.20
33 3.19 3.19 3.18 3.18 58 4.46 4.42 4.36 4.27
34 3.22 3.21 3.21 3.20 59 4.55 4.51 4.44 4.33
35 3.24 3.24 3.24 3.23 60 4.65 4.61 4.53 4.40
36 3.27 3.27 3.27 3.26 61 4.76 4.71 4.61 4.47
37 3.30 3.30 3.30 3.29 62 4.87 4.81 4.71 4.54
38 3.34 3.33 3.33 3.32 63 4.99 4.92 4.80 4.62
39 3.37 3.37 3.36 3.35 64 5.11 5.04 4.90 4.69
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II
(Benchmark Total Return is 3% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment is Payable Monthly Installment
_____________________________________________________________________________________________
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
65 5.25 5.16 5.00 4.76 85 10.88 8.65 6.75 5.50
66 5.39 5.29 5.10 4.83 86 11.32 8.79 6.78 5.51
67 5.54 5.43 5.21 4.90 87 11.77 8.92 6.80 5.51
68 5.71 5.57 5.32 4.97 88 12.21 9.03 6.82 5.51
69 5.88 5.72 5.43 5.03 89 12.65 9.13 6.83 5.51
70 6.07 5.88 5.55 5.10 90 13.07 9.21 6.84 5.51
71 6.27 6.05 5.66 5.15 91 13.48 9.28 6.85 5.51
72 6.49 6.22 5.77 5.21 92 13.87 9.35 6.86 5.51
73 6.72 6.40 5.88 5.26 93 14.24 9.40 6.86 5.51
74 6.97 6.59 5.99 5.30 94 14.59 9.45 6.87 5.51
75 7.23 6.78 6.09 5.34 95 14.94 9.49 6.87 5.51
76 7.52 6.98 6.19 5.37
77 7.82 7.18 6.29 5.40
78 8.14 7.38 6.37 5.42
79 8.48 7.58 6.45 5.44
80 8.83 7.78 6.52 5.46
81 9.21 7.98 6.58 5.47
82 9.61 8.16 6.63 5.48
83 10.02 8.34 6.68 5.49
84 10.44 8.50 6.72 5.50
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II -- VARIABLE ANNUITY ONLY
(Benchmark Total Return is 5% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment is Payable Monthly Installment
___________________________________________________________________________________________
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
___________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 4.20 4.20 4.20 4.20 40 4.63 4.62 4.61 4.60
16 4.21 4.21 4.21 4.21 41 4.66 4.65 4.64 4.62
17 4.22 4.22 4.22 4.22 42 4.69 4.69 4.67 4.65
18 4.23 4.23 4.23 4.23 43 4.73 4.72 4.71 4.69
19 4.24 4.24 4.24 4.23 44 4.77 4.76 4.74 4.72
20 4.25 4.25 4.25 4.25 45 4.81 4.80 4.78 4.75
21 4.26 4.26 4.26 4.26 46 4.85 4.84 4.82 4.79
22 4.28 4.27 4.27 4.27 47 4.89 4.88 4.86 4.82
23 4.29 4.29 4.28 4.28 48 4.94 4.92 4.90 4.86
24 4.30 4.30 4.29 4.29 49 4.99 4.97 4.94 4.90
25 4.31 4.31 4.31 4.30 50 5.04 5.02 4.99 4.95
26 4.33 4.33 4.32 4.32 51 5.09 5.07 5.04 4.99
27 4.34 4.34 4.34 4.33 52 5.15 5.13 5.09 5.04
28 4.36 4.36 4.35 4.35 53 5.21 5.19 5.14 5.08
29 4.37 4.37 4.37 4.36 54 5.28 5.25 5.20 5.13
30 4.39 4.39 4.38 4.38 55 5.35 5.32 5.26 5.19
31 4.41 4.41 4.40 4.40 56 5.42 5.39 5.32 5.24
32 4.43 4.43 4.42 4.41 57 5.50 5.46 5.39 5.29
33 4.45 4.45 4.44 4.43 58 5.58 5.54 5.46 5.35
34 4.47 4.47 4.46 4.45 59 5.67 5.62 5.53 5.41
35 4.49 4.49 4.48 4.47 60 5.76 5.71 5.61 5.47
36 4.52 4.51 4.51 4.50 61 5.86 5.80 5.69 5.53
37 4.54 4.54 4.53 4.52 62 5.97 5.90 5.77 5.60
38 4.57 4.57 4.56 4.54 63 6.09 6.00 5.86 5.66
39 4.60 4.59 4.58 4.57 64 6.21 6.11 5.95 5.72
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II - VARIABLE ANNUITY ONLY
(Benchmark Total Return is 5% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installments is Payable Monthly Installments
___________________________________________________________________________________________
5 Years 10 Years 15 Years 20 years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
___________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
65 6.34 6.23 6.04 5.79 85 11.84 9.52 7.64 6.45
66 6.48 6.35 6.14 5.85 86 12.27 9.65 7.67 6.45
67 6.62 6.48 6.23 5.91 87 12.70 9.77 7.69 6.45
68 6.78 6.61 6.33 5.97 88 13.13 9.87 7.70 6.45
69 6.95 6.76 6.44 6.03 89 13.55 9.96 7.72 6.46
70 7.14 6.91 6.54 6.08 90 13.96 10.04 7.73 6.46
71 7.33 7.07 6.64 6.14 91 14.35 10.11 7.73 6.46
72 7.54 7.23 6.75 6.18 92 14.72 10.17 7.74 6.46
73 7.77 7.40 6.85 6.23 93 15.07 10.22 7.74 6.46
74 8.02 7.58 6.95 6.27 94 15.41 10.26 7.75 6.46
75 8.28 7.76 7.04 6.30 95 15.74 10.30 7.75 6.46
76 8.55 7.95 7.13 6.33
77 8.85 8.14 7.22 6.36
78 9.16 8.33 7.30 6.38
79 9.49 8.52 7.37 6.39
80 9.85 8.71 7.43 6.41
81 10.22 8.89 7.49 6.42
82 10.60 9.06 7.53 6.43
83 11.00 9.23 7.58 6.44
84 11.42 9.38 7.61 6.44
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II
(Benchmark Total Return is 3% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installments is Payable Monthly Installments
___________________________________________________________________________________________
5 Years 10 Years 15 Years 20 years 5 Years 10 Years 15 Years 20 Years
Unisex Certain Certain Certain Certain Unisex Certain Certain Certain Certain
___________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 2.98 2.98 2.97 2.97 45 3.75 3.74 3.72 3.69
21 2.99 2.99 2.99 2.99 46 3.81 3.79 3.77 3.73
22 3.01 3.01 3.01 3.01 47 3.86 3.85 3.82 3.78
23 3.03 3.03 3.03 3.02 48 3.92 3.91 3.88 3.83
24 3.05 3.05 3.05 3.04 49 3.98 3.96 3.93 3.88
25 3.07 3.07 3.07 3.06 50 4.05 4.03 3.99 3.93
26 3.09 3.09 3.09 3.09 51 4.11 4.09 4.05 3.99
27 3.12 3.12 3.11 3.11 52 4.19 4.16 4.11 4.04
28 3.14 3.14 3.14 3.13 53 4.26 4.23 4.18 4.10
29 3.17 3.16 3.16 3.15 54 4.34 4.31 4.25 4.16
30 3.19 3.19 3.18 3.18 55 4.42 4.39 4.32 4.22
31 3.22 3.22 3.21 3.20 56 4.51 4.47 4.40 4.29
32 3.25 3.24 3.24 3.23 57 4.60 4.56 4.47 4.35
33 3.27 3.27 3.27 3.26 58 4.70 4.65 4.56 4.42
34 3.31 3.30 3.30 3.29 59 4.81 4.75 4.64 4.48
35 3.34 3.33 3.33 3.32 60 4.92 4.85 4.73 4.55
36 3.37 3.37 3.36 3.35 61 5.04 4.96 4.82 4.62
37 3.41 3.40 1.39 3.38 62 5.16 5.07 4.91 4.69
38 3.44 3.44 3.43 3.41 63 5.30 5.19 5.01 4.75
39 3.48 3.48 3.47 3.45 64 5.44 5.32 5.11 4.82
40 3.52 3.52 3.50 3.49 65 5.59 5.45 5.21 4.89
41 3.56 3.56 3.54 3.52 66 5.75 5.59 5.32 4.95
42 3.61 3.60 3.59 3.56 67 5.92 5.73 5.42 5.01
43 3.66 3.65 3.63 3 60 68 6.10 5.89 5.53 5.07
44 3.70 3.69 3.67 3.65 69 6.29 6.04 5.63 5.13
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II
(Benchmark Total Return is 3% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment is Payable Monthly Installment
____________________________________________________________________________________________
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Unisex Certain Certain Certain Certain Unisex Certain Certain Certain Certain
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
70 6.50 6.21 5.74 5.18 85 11.33 8.78 6.78 5.51
71 6.72 6.38 5.84 5.23 86 11.75 8.90 6.80 5.51
72 6.95 6.55 5.95 5.27 87 12.16 9.01 6.82 5.51
73 7.20 6.73 6.04 5.31 88 12.58 9.11 6.83 5.51
74 7.46 6.91 6.14 5.35 89 12.98 9.20 6.84 5.51
75 7.74 7.10 6.23 5.38 90 13.39 9.27 6.85 5.51
76 8.03 7.29 6.31 5.40 91 13.78 9.34 6.86 5.51
77 8.34 7.47 6.39 5.43 92 14.16 9.40 6.86 5.51
78 8.67 7.66 6.46 5.45 93 14.52 9.44 6.87 5.51
79 9.01 7.84 6.53 5.46 94 14.88 9.49 6.87 5.51
80 9.37 8.02 6.59 5.47 95 15.22 9.52 6.87 5.51
81 9.74 8.19 6.64 5.48
82 10.12 8.35 6.68 5.49
83 10.52 8.51 6.72 5.50
84 10.92 8.65 6.75 5.50
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II - VARIABLE ANNUITY ONLY
(Benchmark Total Return is 5% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment is Payable Monthly Installment
__________________________________________________________________________________________
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Unisex Certain Certain Certain Certain Unisex Certain Certain Certain Certain
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 4.29 4.29 4.29 4.28 45 4.94 4.93 4.90 4.86
21 4.31 4.30 4.30 4.30 46 4.99 4.97 4.94 4.90
22 4.32 4.32 4.31 4.31 47 5.04 5.02 4.98 4.94
23 4.33 4.33 4.33 4.32 48 5.10 5.07 5.03 4.98
24 4.35 4.35 4.34 4.34 49 5.15 5.12 5.08 5.02
25 4.37 4.36 4.36 4.35 50 5.21 5.18 5.13 5.07
26 4.38 4.38 4.37 4.37 51 5.27 5.24 5.19 5.11
27 4.40 4.40 4.39 4.38 52 5.34 5.30 5.24 5.16
28 4.42 4.41 4.41 4.40 53 5.41 5.37 5.30 5.21
29 4.44 4.43 4.43 4.42 54 5.48 5.44 5.36 5.26
30 4.46 4.45 4.45 4.44 55 5.56 5.51 5.43 5.32
31 4.48 4.47 4.47 4.46 56 5.64 5.59 5.50 5.37
32 4.50 4.50 4.49 4.48 57 5.73 5.67 5.57 5.43
33 4.53 4.52 4.51 4.50 58 5.82 5.76 5.64 5.49
34 4.55 4.55 4.54 4.52 59 5.92 5.85 5.72 5.54
35 4.58 4.57 4.56 4.55 60 6.03 5.94 5.80 5.60
36 4.61 4.60 4.59 4.57 61 6.14 6.05 5.88 5.66
37 4.64 4.63 4.62 4.60 62 6.27 6.15 5.97 5.72
38 4.67 4.66 4.65 4.63 63 6.40 6.27 6.06 5.78
39 4.70 4.69 4.68 4.66 64 6.53 6.39 6.15 5.84
40 4.74 4.73 4.71 4.69 65 6.68 6.51 6.24 5.90
41 4.77 4.76 4.74 4.72 66 6.84 6.64 6.34 5.96
42 4.81 4.80 4.78 4.75 67 7.00 6.78 6.43 6.01
43 4.85 4.84 4.82 4.78 68 7.18 6.92 6.53 6.06
44 4.90 4.88 4.86 4.82 69 7.37 7.07 6.63 6.11
</TABLE>
<TABLE>
PAYOUT PERIOD OPTION TABLE II - VARIABLE ANNUITY ONLY
(Benchmark Total Return is 5% - Per $1,000 of Net Proceeds)
<CAPTION>
Age of Age of
Annuitant Annuitant
Last Birthday Last Birthday
When First When First
Installment Installment
is Payable Monthly Installment is Payable Monthly Installment
_________________________________________________________________________________________
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Unisex Certain Certain Certain Certain Unisex Certain Certain Certain Certain
_________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
70 7.57 7.23 6.72 6.16 85 12.28 9.64 7.66 6.45
71 7.78 7.39 6.82 6.20 86 12.68 9.75 7.69 6.45
72 8.01 7.55 6.91 6.24 87 13.08 9.85 7.70 6.45
73 8.25 7.72 7.00 6.28 88 13.48 9.94 7.71 6.45
74 8.51 7.89 7.08 6.31 89 13.87 10.03 7.73 6.46
75 8.78 8.07 7.17 6.34 90 14.26 10.10 7.73 6.46
76 9.07 8.24 7.24 6.36 91 14.64 10.16 7.74 6.46
77 9.37 8.42 7.31 6.38 92 15.00 10.21 7.74 6.46
78 9.69 8.59 7.38 6.40 93 15.34 10.26 7.75 6.46
79 10.03 8.76 7.44 6.41 94 15.68 10.30 7.75 6.46
80 10.38 8.93 7.49 6.42 95 16.00 10.33 7.75 6.46
81 10.74 9.09 7.54 6.43
82 11.11 9.24 7.58 6.44
83 11.50 9.38 7.61 6.44
84 11.89 9.52 7.64 6.45
</TABLE>
This Contract is a FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED AND
VARIABLE ANNUITY CONTRACT.
Annuity Payouts and other values provided by this Contract, when
based on the investment experience of a separate account, are
variable. These values may increase or decrease based on
investment experience and are not guaranteed as to fixed dollar
amount. Annuity Payouts begin as of the Annuity Date. Purchase
Payments are flexible and may be made until the earlier of the
Annuity Date or the Maximum Age shown in the Schedule. The
Guaranteed Death Benefit will be paid if the Owner dies prior to
the Annuity Date.
SECURITY LIFE OF DENVER INSURANCE COMPANY A Stock Company
Customer Service Center
[P.O. Box 173763, Denver, Colorado
80217]
FORM 4935
ELECTION AND SUPPLEMENTARY AGREEMENT FOR A SETTLEMENT OPTION
SECURITY LIFE OF DENVER INSURANCE COMPANY
Customer Service Center:
Contract No.: Annuitant:
Supplementary Contract Effective Date: [Date]
First Payout Amount: [$X,XXX.XX]
SECURITY LIFE, subject to the terms of the attached
contract, hereby agrees to pay the net proceeds due in the
manner indicated below. If this contract is part of a
qualified pension, profit-sharing, or HR-10 plan we may
require additional forms, and the law may restrict the form
of distribution.
Section I - Designation of Annuitants
Contingent Annuitants:
First Contingent Annuitant: [Name and Address]
Second Contingent Annuitant: [Name and Address]
Section II - How Payouts Will be Made
(Refer to the attached Contract for description of Annuity Options)
[Payouts for a Designated Period, Fixed Annuity Payout.
Monthly installments guaranteed for x years in an amount not
less than $xxx.xx.]
[Payouts for a Designated Period, Variable Annuity Payout.
Monthly installments for x years in an amount which will
vary in amount with the performance of the Divisions to
which the funds are invested. Initial payouts based upon a
benchmark total return of x%.]
[Life Income with Payouts for a Designated Period, Fixed
Annuity Payout. Monthly installments in an amount not less
than $xxx.xx payable throughout the Annuitant's lifetime.
If the Annuitant dies before the end of the Designated
Period of x years, payouts will be continued to the
Contingent Annuitant until the end of the Designated
Period.]
[Life Income with Payouts for a Designated Period, Variable
Annuity Payout. Monthly installments payable throughout the
Annuitant's lifetime in an amount which will vary in amount
with the performance of the Divisions to which the funds are
invested. If the Annuitant dies before the end of the
Designated Period of x years, payouts will be continued to
the Contingent Annuitant until the end of the Designated
Period. Initial payouts based upon a benchmark total return
of x%.]
[Joint and Last Survivor, Fixed Annuity Payout. Monthly
installments in an amount not less than $xxx.xx payable
while both Annuitants are living. Upon the Death of one
Annuitant, the Survivor's Annuity Payout in an amount not
less than $xxx.xx will be paid throughout the lifetime of
the Surviving Annuitant.]
[Joint and Last Survivor, Variable Annuity Payout. Monthly
installments payable while both Annuitants are living in an
amount which will vary in amount with the performance of the
Divisions to which the funds are invested. The number of
Annuity Units applied to each installment will be level
while both Annuitants are living and upon the death of one
Annuitant will be reduced to 2/3rds of the number of Annuity
Units applied to each installment while both Annuitants were
living. This Survivor's Annuity Payout will be paid
throughout the lifetime of the Surviving Annuitant.]
This Supplementary Contract may not be assigned, not payouts
made to another without our consent.
Supplementary Contract Effective Date:
Date: SECURITY LIFE OF DENVER INSURANCE COMPANY
By:
The Fulcrum Fund Annuity Application
Security Life of Denver Insurance Company
Q2000 - 7/95
The Fulcrum Fund Annuity Application Instructions
If you need assistance completing this application, a Security Life
Customer Service Representative will be happy to help you. Please call us
toll-free at 1-800-933-5858.
Initial Purchase Payment
Please indicate the amount of money you are initially investing in The
Fulcrum Fund Annuity. The minimum initial amount is $25,000 ($1,000 for
IRAs). Make check(s) payable to: The Fulcrum Fund Annuity/Security Life of
Denver.
Annuity Date
On the Annuity Date you select, The Fulcrum Fund Annuity will begin to make
Annuity Payouts to the Annuitant. You can elect any Annuity Date (but no
earlier than the second Contract Anniversary) up through the Annuitant's
95th birthday. If this is a Qualified Contract, distributions must begin no
later than the first day of April following the calendar year in which you
reach age 70 1/2.
Dollar Cost Averaging
You must have at least $10,000 of Accumulation Value in the Global
Strategic Income Division to exercise this option. The minimum transfer
amount each month is $100. The maximum transfer amount is equal to the
Accumulation Value in the Global Strategic Income Division when the
election is made, divided by 12. You may specify a date for Dollar Cost
Averaging to terminate. You may also specify a dollar amount so that when
the Accumulation Value reaches this dollar amount, Dollar Cost Averaging
will terminate.
Automatic Rebalancing
If you elect this feature, each quarter we will transfer amounts among the
Variable Account Divisions so that the percentages of your Accumulation
Value match your requested percentage allocations. Unless you specify
otherwise, these percentage allocations will match your initial Purchase
Payment allocations.
Systematic Income Program
The Fulcrum Fund Annuity allows for income to be withdrawn prior to the
Annuity Date. If you select a monthly withdrawal, the maximum amount is
1.25% of your Accumulation Value. The maximum amount for quarterly
withdrawals is 3.75% of your Accumulation Value. The minimum withdrawal
amount is $100. The Systematic Income Program will not be processed unless
Section 10 of this application is completed in its entirety.
What is the primary purpose of the annuity?
(box) Retirement Funding
(box) Business/Qualified
(box) Business/Non-Qualified
(box) Personal
(box) Income Distribution-Life Proceeds
(box) Savings
(box) Tax Deferral
(box) Competitive rates
(box) Structured Settlement
(box) Safety/Guarantees
(box) Relief From Management of Funds
(box) Avoid Probate
(box) Creditor Proof
(box) Other
Who was the Primary Decision-Maker(s)
(box) Annuitant
(box) Annuitant and Spouse
(box) Trustee
(box) Accountant/Attorney
(box) Child/Children
(box) Parent
(box) Other
Occupation of Annuitant
(box) Professional
(box) Business Owner
(box) Manager/Administrator
(box) Technical
(box) Retired
(box) Other
Marital Status
(box) Single (box) Married (box) Divorced
(box) Separated (box) Widowed
Who Is:
Annuitant Spouse Business Other (Specify)
Owner (box) (box) (box) (box)
Beneficiary (box) (box) (box) (box)
Premium Payor (box) (box) (box) (box)
Security Life of Denver Insurance Company Application
P. O. Box 173763, Denver, CO 80217-3763 The Fulcrum Fund Annuity
1-800-933-5858 Deferred Combination Fixed
and Variable Annuity
1 Contract Owner(s)
Name (box) Joint Owner
Address Name
Address
Telephone
Social Security Number Social Security Number
Date of Birth ____/____/____ Date of Birth ____/____/____
Sex (box) Male (box) Female Sex (box) Male (box) Female
2 Annuitant (If other than Owner)
Name (box) Joint or
(box) Contingent Annuitant
Address Name
Address
Telephone
Social Security Number Social Security Number
Date of Birth ____/____/____ Date of Birth ____/____/____
Sex (box) Male (box) Female Sex (box) Male (box) Female
3 Beneficiary(ies)
Primary Beneficiary(ies) Contingent Beneficiary(ies)
Print Full Name % Print Full Name %
Relationship Relationship
4 Initial Purchase Payment/Annuity Date
Initial Purchase Payment $ Annuity Date
(see instructions) (see instructions)
5 Initial Purchase Payment Allocation
Allocate your Initial Purchase Payment among the Divisions listed below.
Please use whole percentages. If you elect to invest in a particular
Division, at least 1% of your Purchase Payment must be allocated to that
Division. The total must equal 100%.
[Value Division Gabelli Asset Management Co.] %
[Growth Division Stonehill Capital Management, Inc.] %
[Balanced Opportunity Division Maverick Capital, Ltd.] %
[International Growth Division Bee & Associates Incorporated] %
[Global Strategic Income Division Fischer Francis Trees & Watts, Inc.] %
[Global Interactive/Telecomm Division Gabelli Asset Management Co.] %
Guaranteed Interest Division %
TOTAL 100%
6 Dollar Cost Averaging (see instructions)
(box) Check if you wish to select this option.
Please transfer $_____________ from my Global Strategic Income Division
into the other Division(s) selected below (whole numbers only, minimum 1%):
[Value Division Gabelli Asset Management Co.] %
[Growth Division Stonehill Capital Management, Inc.] %
[Balanced Opportunity Division Maverick Capital, Ltd.] %
[International Growth Division Bee & Associates Incorporated] %
[Global Interactive/Telecomm Division Gabelli Asset Management Co.] %
TOTAL 100%
Please specify desired stop date and/or stop dollar amount
7 Automatic Rebalancing
(see instructions)
(box) Check if you wish to select this option
8 Type of Plan
Please indicate type of plan (If no plan is selected, the type of plan will
be issued as Non-Qualified):
(box) Non-Qualified (box) Qualified If you are funding a qualified plan,
please specify what type:
(box) IRA: (Tax year ________) (box) IRA Rollover (box) Other
9 Replacement
Will the Contract applied for replace any existing annuity or life
insurance? (box) Yes (box) No
If yes, please indicate the Company name, amount, type of policy and
termination date:
10 Systematic Income Program
Frequency (select one) Income Desired (select one)
(box) Monthly (box) Quarterly (box) _____% of Accumulation Value; or (box) $
Payments to commence on _____ of _______________ (box) I do not want to
Day Month have Federal income tax withheld.
11 Telephone Authorization
(box) Check if you wish to select this option. I/We hereby authorize and
direct the Customer Service Center of Security Life of Denver Insurance
Company to accept telephone instructions from either the Owner or
___________________________ _____________________________ (insert name of
your registered representative if you wish the representative to have
telephone authorization) to reallocate my Accumulation Value among the
Divisions available or to request a Partial Withdrawal. I/We agree to hold
harmless and indemnify Security Life for any losses arising from such
instructions.
I/We further acknowledge that all telephone conversations with the Customer
Service Center will be recorded. (Initials of Owner _______)
12 Agreements and Signatures
Read the following statements carefully and sign below:
By signing below, I/we acknowledge receipt of the Prospectus for the
Fulcrum Fund Annuity dated _________________. I/We also acknowledge receipt
of the Prospectuses for the Variable Account Divisions of the Fulcrum Fund
Annuity. I/We understand that this Contract's cash surrender value may
increase or decrease on any day depending on the investment results. No
minimum cash surrender value is guaranteed. This Contract is in accord with
my/our anticipated financial needs.
Any person who, with intent to defraud or knowing that he/she is
facilitating a fraud against an insurer, submits an application or files a
claim containing a false, incomplete, or deceptive statement of material
fact may be guilty of insurance fraud.
I/We understand that, to the best of my/our knowledge and belief, all
statements and answers in the application form are complete and true and
may be relied upon in determining whether to issue the Contract. My/Our
answers will form a part of any Contract to be issued, and only the
Owner(s) and Security Life have the authority to modify this application.
If Security Life amends the application as indicated in the Amendment
Section below, I/we will approve of the change by accepting the Contract
where permitted by state regulation. I/We understand that any change in
plan, benefits applied for, or age at issue must be agreed to in writing.
Under penalties of perjury, I/we certify that the Social Security/Tax
Identification Number(s) shown in this application is/are correct; and I/we
are not subject to backup withholding.
X
Signature of Owner
Signed at (City, State) Date
Signature of Joint Owner/Spouse (if applicable) By signing above as a
spouse, I acknowledge that if this Contract is a Qualified Contract and a
Beneficiary other than myself has been selected, I agree to this
designation.
X
Signature of Annuitant (if other than Owner)
Please make your check(s) payable to: The Fulcrum Fund Annuity/Security
Life of Denver
13 Statement of Additional Information
(box) I hereby request a Statement of Additional Information for the Fulcrum
Fund Annuity.
Representative's Report
Do you have reason to believe that the Contract applied for will replace
any existing annuity or life insurance?
(box) Yes (box) No
X
Representative's Signature Printed Name & Number of Representative
Name of Broker/Dealer/Branch Address of Broker/Dealer/Branch
Agent Number
Home OFFICE Corrections
For Home Office Use Only
SALES AGREEMENT
THIS AGREEMENT is made by and between The Palladian Trust
("TRUST"), a [] business trust, Palladian Advisors, Inc., a []
corporation ("ADVISOR"), and SECURITY LIFE OF DENVER INSURANCE
COMPANY ("LIFE COMPANY"), a life insurance company organized
under the laws of the State of Colorado.
WHEREAS, TRUST is registered with the Securities and
Exchange Commission ("SEC") under the Investment Company Act of
1940 ("'40 Act") as an open-end diversified management investment
company; and
WHEREAS, TRUST is organized as a series fund, comprised of
several Portfolios which are listed on Appendix A hereto; and
WHEREAS, TRUST was initially organized to act as the funding
vehicle for certain variable life insurance and/or variable
annuity contracts ("variable contracts") offered by life
insurance companies through separate accounts of such life
insurance companies; and
WHEREAS, ADVISOR is registered with the SEC as an investment
adviser under the Investment Advisers Act of 1940 and as a broker-
dealer under the Securities Exchange Act of 1934, as amended; and
WHEREAS, ADVISOR is the investment adviser to TRUST and the
distributor of the shares of TRUST; and
WHEREAS, LIFE COMPANY has established or will establish one
or more separate accounts ("Separate Accounts") to offer variable
contracts and is desirous of having TRUST as one of the
underlying funding vehicles for such variable contracts; and
WHEREAS, to the extent permitted by applicable insurance
laws and regulations, LIFE COMPANY intends to purchase shares of
TRUST to fund the aforementioned variable contracts and TRUST is
authorized to sell such shares to LIFE COMPANY at net asset
value;
NOW, THEREFORE, in consideration of their mutual promises,
LIFE COMPANY, TRUST and ADVISOR agree as follows:
1. TRUST will make available to the designated Separate
Accounts of LIFE COMPANY shares of the selected Portfolios for
investment of purchase payments of variable contracts allocated
to the designated Separate Accounts as provided in TRUST's
Prospectus.
2. TRUST represents and warrants that all shares of the
Portfolios of TRUST will be sold only to other insurance
companies which have agreed to participate in TRUST to fund their
Separate Accounts, all in accordance with the requirements of
Section 817(h) of the Internal Revenue Code of 1986, as amended
("Code") and Treasury Regulation 1.817-5. Shares of the
Portfolios of TRUST will not be sold directly to the general
public.
3. (a) TRUST agrees to sell to LIFE COMPANY those shares
of the selected Portfolios of TRUST which LIFE COMPANY orders,
executing such orders on a daily basis at the net asset value
next computed after receipt by TRUST or its designee of the order
for the shares of TRUST. For purposes of this Section 3(a), LIFE
COMPANY shall be the designee of TRUST for receipt of such orders
from LIFE COMPANY and receipt by such designee shall constitute
receipt by TRUST; provided that TRUST receives notice of such
order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which Trust calculates
its net asset value pursuant to the rules of the SEC.
(a) TRUST agrees to redeem for cash, on LIFE COMPANY's
request, any full or fractional shares of TRUST held by LIFE
COMPANY, executing such requests on a daily basis at the net
asset value next computed after receipt by TRUST or its designee
of the request for redemption. For purposes of this Section
3(b), LIFE COMPANY shall be the designee of TRUST for receipt of
requests for redemption from LIFE COMPANY and receipt by such
designee shall constitute receipt by TRUST; provided that TRUST
receives notice of such request for redemption by 9:30 a.m. New
York time on the next following Business Day.
(b) TRUST shall make the net asset value per share for the
selected Portfolio(s) available to LIFE COMPANY on a daily basis
as soon as reasonably practical after the net asset value per
share is calculated but shall use its best efforts to make such
net asset value available by 6:15 p.m. New York time. If TRUST
provides LIFE COMPANY with the incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on
behalf of the Separate Accounts, shall be entitled to an
adjustment to the number of shares purchased or redeemed to
reflect the correct share net asset value. Any error in the
calculation of net asset value, dividend and capital gain
information greater than or equal to $.01 per share of TRUST,
shall be reported immediately upon discovery to LIFE COMPANY.
Any error of a lesser amount shall be corrected in the next
Business Day's net asset value per share for TRUST.
(c) At the end of each Business Day, LIFE COMPANY shall use
the information described in Section 3(c) to calculate Separate
Account unit values for the day. Using these unit values, LIFE
COMPANY shall process each such Business Day's Separate Account
transactions based on requests and premiums received by it by the
close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m. New York time) to determine the net dollar
amount of TRUST shares which shall be purchased or redeemed at
that day's closing net asset value per share. The net purchase
or redemption orders so determined shall be transmitted to TRUST
by LIFE COMPANY by 9:30 a.m. New York time on the Business Day
next following LIFE COMPANY's receipt of such requests and
premiums in accordance with the terms of Sections 3(a) and 3(b)
hereof.
(d) If LIFE COMPANY's order requests the purchase of TRUST
shares, LIFE COMPANY shall pay for such purchase by wiring
federal funds to TRUST or its designated custodial account on the
day the order is transmitted by LIFE COMPANY. If LIFE COMPANY's
order requests a net redemption resulting in a payment of
redemption proceeds to LIFE COMPANY, TRUST shall wire the
redemption proceeds to LIFE COMPANY by the next Business Day,
unless doing so would require Trust to dispose of portfolio
securities or otherwise incur additional costs, but in such
event, proceeds shall be wired to LIFE COMPANY within seven days
and TRUST shall notify the person designated in writing by LIFE
COMPANY as the recipient for such notice of such delay by 3:00
p.m. New York time the same Business Day that LIFE COMPANY
transmits the redemption order to Trust. If LIFE COMPANY's order
requests the application of redemption proceeds from the
redemption of shares to the purchase of shares of another fund
managed or distributed by ADVISOR, TRUST shall so apply such
proceeds the same Business Day that LIFE COMPANY transmits such
order to TRUST.
4.(a) TRUST will bear the printing costs (or duplicating
costs with respect to the statement of additional information)
and mailing costs associated with the delivery of the following
Trust (or individual portfolio) documents, and any supplements
thereto, to existing variable contract owners of LIFE COMPANY:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
LIFE COMPANY will submit any bills for printing, duplicating
and/or mailing costs, relating to the TRUST documents described
above, to TRUST for reimbursement by TRUST. LIFE COMPANY shall
monitor such costs and shall use its best efforts to control
these costs. LIFE COMPANY will provide TRUST on a semi-annual
basis, or more frequently as reasonably requested by TRUST, with
a current tabulation of the number of existing variable contract
owners of LIFE COMPANY whose variable contract values are
invested in TRUST. This tabulation will be sent to TRUST in the
form of a letter signed by a duly authorized officer of LIFE
COMPANY attesting to the accuracy of the information contained in
the letter. If requested by LIFE COMPANY, TRUST shall provide
such documentation (including a final copy of TRUST's prospectus
as set in type or in camera-ready copy) and other assistance as
is reasonably necessary in order for LIFE COMPANY to print
together in one document the current prospectus for the variable
contracts issued by LIFE COMPANY and the current prospectus for
TRUST.
(b) TRUST will provide, at its expense, LIFE COMPANY with
the following TRUST (or individual Portfolio) documents, and any
supplements thereto, with respect to prospective variable
contract owners of LIFE COMPANY:
(i) camera ready copy of the current prospectus
for printing by the LIFE COMPANY;
(ii) a copy of the statement of additional
information suitable for duplication;
(iii) camera ready copy of proxy material
suitable for printing; and
(iv) camera ready copy of the annual and semi-
annual reports for printing by the LIFE COMPANY.
5. (a) LIFE COMPANY will furnish, or will cause to be
furnished, to TRUST and ADVISOR, each piece of sales literature
or other promotional material in which TRUST or ADVISOR is named
at least fifteen days prior to its intended use. No such
material will be used if TRUST or ADVISOR objects to its use in
writing within ten Business Days after receipt of such material.
(b) TRUST and ADVISOR will furnish, or will cause to be
furnished, to LIFE COMPANY, each piece of sales literature or
other promotional material in which LIFE COMPANY is named, at
least fifteen Business Days prior to its intended use. No such
material will be used if LIFE COMPANY objects to its use in
writing within ten Business Days after receipt of such material.
(c) TRUST and its affiliates and agents shall not give any
information or make any representations on behalf of LIFE COMPANY
or concerning LIFE COMPANY, the Separate Accounts, or the
variable contracts issued by LIFE COMPANY, other than the
information or representations contained in a registration
statement or prospectus for such variable contracts, as such
registration statement and prospectus may be amended or
supplemented from time to time, or in reports for the Separate
Accounts or prepared for distribution to owners of such variable
contracts, or in sales literature or other promotional material
approved by LIFE COMPANY or its designee, except with the
permission of LIFE COMPANY.
(d) LIFE COMPANY and its affiliates and agents shall not
give any information or make any representations on behalf of
TRUST or concerning TRUST other than the information or
representations contained in a registration statement or
prospectus for TRUST, as such registration statement and
prospectus may be amended or supplemented from time to time, or
in sales literature or other promotional material approved by
TRUST or its designee, except with the permission of TRUST.
(e) For purposes of this Agreement, the phrase "sales
literature or other promotional material" or words of similar
import include, without limitation, advertisements (such as
material published, or designed for use, in a newspaper, magazine
or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion
pictures or other public media), sales literature (such as any
written communication distributed or made generally available to
customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, or reprints
or excerpts or any other advertisement, sales literature, or
published article), educational or training materials or other
communications distributed or made generally available to some or
all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales
literature or advertising under National Association of
Securities Dealers, Inc. rules, the '40 Act or the Securities Act
of 1933 ("`33 Act").
6. Each Portfolio of TRUST will comply with Section 817(h)
of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or
life insurance contracts and any amendments or other
modifications to such Section or Regulations. In the event TRUST
becomes aware that any Portfolio of TRUST has failed to comply,
it will take all reasonable steps (a) to notify LIFE COMPANY of
such failure, and (b) to adequately diversify the Portfolio so as
to achieve compliance.
7.(a) Except as limited by and in accordance with the
provisions of Sections 7(b) and 7(c) hereof, LIFE COMPANY agrees
to indemnify and hold harmless TRUST and ADVISOR and each trustee
of the Board of Trustees of TRUST and officers and each person,
if any, who controls TRUST and each of the directors and officers
of ADVISOR and each person, if any, who controls ADVISOR within
the meaning of Section 15 of the '33 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7) against any
and all losses, claims, damages, liabilities (including amounts
paid in settlement with the written consent of LIFE COMPANY) or
litigation (including legal and other expenses), to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of
TRUST's shares or the variable contracts and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in the registration statement or prospectus for the
variable contracts or contained in the variable contracts (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission of a
material fact required to be stated therein, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to LIFE COMPANY by or on behalf of TRUST
for use in the registration statement or prospectus for the
variable contract or in the variable contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the variable contracts or TRUST
shares; or
(ii) arise out of or as a result of statements
or representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature of TRUST not supplied by LIFE COMPANY, or persons
under its contract) or wrongful conduct of LIFE COMPANY or
persons under its control, with respect to the sale or
distribution of the variable contracts or TRUST shares; or
(iii) arise out of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature of TRUST
or any amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with information furnished to TRUST by or on behalf of LIFE
COMPANY; or
(iv) arise as a result of any failure by LIFE
COMPANY to substantially provide the services and furnish the
materials under the terms of this Agreement; or
(v) arise out of or result from any material
breach of any representation and/or warranty made by LIFE COMPANY
in this Agreement or arise out of or result from any other
material breach of this Agreement by LIFE COMPANY.
(b) LIFE COMPANY shall not be liable under this
indemnification provision with respect to any losses, claims,
damages, liabilities or litigation incurred or assessed against
an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in
the performance of such Indemnified Party's duties or by reason
of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to TRUST, whichever is applicable.
(c) LIFE COMPANY shall not be liable under this
indemnification provision with respect to any claim made against
an Indemnified Party unless such Indemnified Party shall have
notified LIFE COMPANY in writing within a reasonable time after
the summons or other first legal process giving information of
the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have
received notice of such service on any designated agent), but
failure to notify LIFE COMPANY of any such claim shall not
relieve LIFE COMPANY from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise
than on account of this indemnification provision. In case any
such action is brought against an Indemnified Party, LIFE COMPANY
shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from
LIFE COMPANY to such party of LIFE COMPANY's election to assume
the defense thereof, the Indemnified Party shall bear the fees
and expenses of any additional counsel retained by it, and LIFE
COMPANY will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than
reasonable costs of investigation.
8.(a) Except as limited by and in accordance with the
provisions of Sections 8(b) and 8(c), ADVISOR agrees to indemnify
and hold harmless LIFE COMPANY and each of its directors and
officers and each person, if any, who controls LIFE COMPANY
within the meaning of Section 15 of the '33 Act (collectively,
the "Indemnified Parties" for purposes of this Section 8) against
any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of ADVISOR)
or litigation (including legal and other expenses) to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of
TRUST's shares or the variable contracts and:
(i) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact
contained in the registration statement or prospectus or sales
literature of TRUST (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to ADVISOR or TRUST
by or on behalf of LIFE COMPANY for use in the registration
statement or prospectus for TRUST or in sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the variable contracts or TRUST shares; or
(ii) arise out of or as a result of statements
or representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature for the variable contracts not supplied by ADVISOR or
persons under its control) or wrongful conduct of TRUST, its
adviser or ADVISOR or persons under their control, with respect
to the sale or distribution of the variable contracts or TRUST
shares; or
(iii) arise out of any untrue statement or
alleged untrue statement of a material fact contained in a
registration statement, prospectus, or sales literature covering
the variable contracts, or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
LIFE COMPANY by or on behalf of TRUST; or
(iv) arise as a result of (a) a failure by TRUST
to substantially provide the services and furnish the materials
under the terms of this Agreement; (b) a failure by TRUST to
comply with the diversification requirements of Section 817(h) of
the Code; (c) a failure by TRUST to qualify as a Regulated
Investment Company under Subchapter M of the Code; or (d) a
failure by TRUST to register its shares as required by the laws
of the various states;
(v) arise out of or result from any material
breach of any representation and/or warranty made by ADVISOR in
this Agreement or arise out of or result from any other material
breach of this Agreement by ADVISOR.
(b) ADVISOR shall not be liable under this indemnification
provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would
otherwise be subject by reason of such Indemnified Party's
willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of
such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to LIFE COMPANY.
(c) ADVISOR shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified ADVISOR
in writing within a reasonable time after the summons or other
first legal process giving information of the nature of the claim
shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify ADVISOR of any such
claim shall not relieve ADVISOR from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In
case any such action is brought against the Indemnified Parties,
ADVISOR shall be entitled to participate at its own expense in
the defense thereof. ADVISOR also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named
in the action. After notice from ADVISOR to such party of
ADVISOR's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and ADVISOR will not be liable to such party
under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the
defense thereof other than reasonable costs of investigation.
9. TRUST represents and warrants that TRUST Shares sold
pursuant to this Agreement shall be registered under the '33 Act
and duly authorized for issuance, and shall be issued, in
compliance in all material respects with applicable law, and that
TRUST is and shall remain registered under the `40 Act for so
long as required thereunder. TRUST further represents and
warrants that TRUST currently qualifies and will make every
effort to continue to qualify as a Regulated Investment Company
under Subchapter M of the Code, and to maintain such
qualification (under Subchapter M or any successor or similar
provisions), and that TRUST will notify LIFE COMPANY immediately
upon having a reasonable basis for believing that it has ceased
to so qualify or that it might not so qualify in the future.
TRUST will register and qualify its shares for sale in accordance
with the laws of the various states as may be required by law.
10. TRUST will provide LIFE COMPANY with at least one
complete copy of all prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements,
exemptive applications and all amendments or supplements to any
of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory
authority. LIFE COMPANY will provide TRUST with at least one
complete copy of all prospectuses, statements of additional
information, annual and semi-annual reports, proxy statements,
exemptive applications and all amendments or supplements to any
of the above that relate to a Separate Account promptly after the
filing of each such document with the SEC or other regulatory
authority.
11. TRUST will disclose in its prospectus that (1) shares
of TRUST are offered to affiliated or unaffiliated insurance
company separate accounts which fund both annuity and life
insurance contracts, (2) due to differences in tax treatment or
other considerations, the interests of various variable contract
owners participating in TRUST might at some time be in conflict,
and (3) the Board of Trustees of TRUST will monitor for any
material conflicts and determine what action, if any, should be
taken. TRUST hereby notifies LIFE COMPANY that prospectus
disclosure may be appropriate regarding potential risks of
offering shares of TRUST to separate accounts funding both
variable annuity contracts and variable life insurance policies
and to separate accounts funding variable contracts of
unaffiliated life insurance companies.
12. Each party hereto shall cooperate with each other party
and all appropriate governmental authorities having jurisdiction
(including, without limitation, the SEC, the NASD, and state
insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the
transactions contemplated hereby.
13. LIFE COMPANY agrees to inform the Board of Trustees of
TRUST of the existence of or any potential for any material
irreconcilable conflict of interest between the interest of the
contract owners of the Separate Accounts of LIFE COMPANY
investing in TRUST and/or any other separate account of any other
insurance company investing in TRUST upon LIFE COMPANY having
knowledge of same. TRUST agrees to inform LIFE COMPANY of the
existence of or any potential for any material irreconcilable
conflict of interest between the interests of the contract owners
of the Separate Accounts of LIFE COMPANY investing in TRUST
and/or any other separate account of any other insurance company
investing in TRUST (upon TRUST having knowledge of same).
A material irreconcilable conflict may arise for any one of
a variety of reasons, including:
(a) an action by any state insurance regulatory
authority;
(b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any
similar action by insurance, tax or securities regulatory
authorities;
(c) an administrative or judicial decision in any
relevant proceeding;
(d) the manner in which the investments of any
Portfolio are being managed;
(e) a difference in voting instructions given by
variable annuity contract owners and variable life insurance
contract owners or by contract owners of different life insurance
companies utilizing TRUST; or
(f) a decision by a participating life insurance
company to disregard the voting instructions of contract owners.
The Board of Trustees of TRUST shall promptly inform LIFE
COMPANY if it determines that an irreconcilable material conflict
exists and the implications thereof.
LIFE COMPANY will be responsible for assisting the Board of
Trustees of TRUST in carrying out its responsibilities by
providing the Board with all information reasonably necessary for
the Board to consider any issue raised including information as
to a decision by LIFE COMPANY to disregard voting instructions of
contract owners.
It is agreed that if it is determined by a majority of the
members of the Board of Trustees of TRUST or a majority of its
disinterested Trustees that a material irreconcilable conflict
exists affecting LIFE COMPANY, LIFE COMPANY shall, at its own
expense, to the extent reasonably practicable, take whatever
steps are necessary to remedy or eliminate the material
irreconcilable conflict, which steps may include, but are not
limited to,
(a) withdrawing the assets allocable to some or all of
the Separate Accounts from TRUST or any Portfolio and
reinvesting such assets in a different investment
medium, including another Portfolio of TRUST or
submitting the questions of whether such segregation
should be implemented to a vote of all affected
contract owners and, as appropriate, segregating the
assets of any particular group (i.e., annuity contract
owners, life insurance contract owners or qualified
contract owners) that votes in favor of such
segregation, or offering to the affected contract
owners the option of making such a change;
(b) establishing a new registered management
investment company or managed separate account.
If a material irreconcilable conflict arises because of LIFE
COMPANY's decision to disregard contract owner voting
instructions and that decision represents a minority position or
would preclude a majority vote, the LIFE COMPANY may be required,
at TRUST's election, to withdraw its Separate Account's
investment in TRUST. No charge or penalty will be imposed
against a Separate Account of LIFE COMPANY as a result of such
withdrawal. LIFE COMPANY agrees that any remedial action taken
by it in resolving any material conflicts of interest will be
carried out in the interests of contract owners.
For purposes hereof, a majority of the disinterested members
of the Board of Trustees of TRUST shall determine whether or not
any proposed action adequately remedies any material
irreconcilable conflict. In no event will TRUST be required to
establish a new funding medium for any variable contracts. LIFE
COMPANY shall not be required by the terms hereof to establish a
new funding medium for any variable contracts if an offer to do
so has been declined by vote of a majority of affected contract
owners.
14. LIFE COMPANY shall provide pass-through voting
privileges, as provided in this paragraph, to all variable
contract owners so long as the SEC or its staff continues to
interpret the '40 Act to require such pass-through voting
privileges for variable contract owners. LIFE COMPANY will vote
shares for which it has not received voting instructions as well
as shares attributable to it in the same proportion as it votes
shares for which it has received instructions. LIFE COMPANY
shall be responsible for assuring that each of its Separate
Accounts participating in TRUST calculates voting privileges in a
manner consistent with other life companies utilizing TRUST
provided that each participating life insurance company enters
into an agreement containing a provision or provisions, which do
not vary in any material respect, from the terms of Section 13
hereof.
15.(a) This Agreement shall be effective as of the date
hereof and shall continue in force until terminated in accordance
with the provisions herein.
(b) This Agreement shall terminate automatically in the
event of its assignment unless such assignment is made with the
written consent of LIFE COMPANY and TRUST.
(c) This Agreement shall terminate without penalty at the
option of the terminating party in accordance with the following
provisions:
(i) At the option of LIFE COMPANY or TRUST at
any time from the date hereof upon 180 days' advance written
notice, unless a shorter time is agreed to by the parties;
(ii) At the option of LIFE COMPANY if TRUST
shares are not reasonably available to meet the requirements of
the variable contracts as determined by LIFE COMPANY. Notice of
election to terminate shall be furnished by LIFE COMPANY and
termination shall be effective ten days after Trust's receipt of
said notice unless TRUST makes available a sufficient number of
shares, to the satisfaction of LIFE COMPANY, to meet the
requirements of the variable contracts within said ten-day
period;
(iii) At the option of LIFE COMPANY, upon the
institution of formal proceedings against TRUST by the SEC, the
National Association of Securities Dealers, Inc., or any other
regulatory body, the expected or anticipated ruling, judgment or
outcome of which would, in LIFE COMPANY'S reasonable judgment,
materially impair TRUST'S ability to meet and perform TRUST'S
obligations and duties hereunder. Prompt notice of election to
terminate under this paragraph shall be furnished by LIFE COMPANY
with said termination to be effective upon receipt of notice;
(iv) At the option of LIFE COMPANY, upon its
good faith determination, or at the option of TRUST upon a
determination by a majority of the Board, or a majority of
disinterested Board members, that an irreconcilable material
conflict exists among the interests of (i) owners of variable
contracts issued by participating life insurance companies; or
(ii) the interest of participating life insurance companies;
(v) At the option of TRUST, upon the
institution of formal proceedings against LIFE COMPANY by the
SEC, the National Association of Securities Dealers, Inc., or any
other regulatory body, the expected or anticipated ruling,
judgement or outcome which would, in TRUST'S reasonable judgment,
materially impair LIFE COMPANY'S ability to meet and perform its
obligations and duties hereunder. Prompt notice of election to
terminate under this paragraph shall be furnished by TRUST with
said termination to be effective upon receipt of notice;
(vi) At the option of TRUST, if (1) TRUST shall
determine in its sole judgement reasonably exercised in good
faith, that LIFE COMPANY has suffered a material adverse change
in its business or financial condition or is the subject of
material adverse publicity and such material adverse change or
material adverse publicity is likely to have a material adverse
impact upon the business and operation of TRUST and ADVISOR, (2)
TRUST shall have notified LIFE COMPANY in writing of such
determination and its intent to terminate this Agreement, and,
(3) after consideration of the actions taken by LIFE COMPANY and
any other changes in circumstances since the giving of such
notice, the determination of TRUST shall continue to apply on the
sixtieth (60th) day since giving of such notice, then such
sixtieth day shall be the effective date of termination;
(vii) At the option of LIFE COMPANY after having
been notified by TRUST of a termination or proposed termination
of the Investment Advisory Agreement between TRUST and ADVISOR or
its successors, which notice TRUST shall provide promptly to LIFE
COMPANY, the effective date of termination of the Agreement to be
as determined by LIFE COMPANY;
(viii) In the event TRUST's shares are not
registered, issued or sold in accordance with applicable federal
law, or such law precludes the use of such shares of the
underlying investment medium of variable contracts issued or to
be issued by LIFE COMPANY. Termination shall be effective
immediately upon such occurrence without notice;
(ix) At the option of TRUST upon a reasonable
determination by the Board in good faith that it is no longer
advisable and in the best interests of shareholders for TRUST to
continue to operate pursuant to this Agreement;
(x) At the option of TRUST if the variable
contracts cease to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code, or if TRUST reasonably
believes that the variable contracts may fail to so qualify;
(xi) At the option of LIFE COMPANY, upon TRUST'S
breach of any material provision of this Agreement, which breach
has not been cured to the satisfaction of LIFE COMPANY within ten
days after written notice of such breach is delivered to TRUST;
(xii) At the option of TRUST, upon LIFE COMPANY's
breach of any material provision of this Agreement, which breach
has not been cured to the satisfaction of TRUST within ten days
after written notice of such breach is delivered to LIFE COMPANY;
(xiii) At the option of TRUST, if the variable
contracts are not registered, issued or sold in accordance with
applicable federal and/or state law. Termination shall be
effective immediately upon such occurrence without notice;
(xiv) At the option of LIFE COMPANY, if LIFE
COMPANY shall determine, in its sole judgment reasonably
exercised in good faith, that TRUST is the subject of material
adverse publicity and such material adverse publicity is likely
to have a material adverse impact on the sale of the variable
contracts and/or the operations or business reputation of LIFE
COMPANY, the LIFE COMPANY shall have notified TRUST in writing of
such determination and its intent to terminate this Agreement,
and, after consideration of the actions taken by TRUST and any
other changes in circumstances since the giving of such notice,
the determination of the LIFE COMPANY shall continue to apply on
the sixtieth (60th) day since giving of such notice, which
sixtieth day shall be the effective date of termination;
(xv) Upon requisite vote of the variable
contract owners having an interest in the Separate Accounts to
substitute the shares of another investment company for the
corresponding shares of TRUST in accordance with the terms of the
variable contracts for which those shares had been selected to
serve as the underlying investment media.
(d) Notwithstanding any termination of this Agreement
pursuant to Section 15(c) hereof, at the election of LIFE
COMPANY, TRUST shall continue to make available additional TRUST
shares, as provided below, pursuant to the terms and conditions
of this Agreement, for all variable contracts in effect on the
effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without
limitation, if LIFE COMPANY elects to have TRUST make additional
shares available, the owners of the Existing Contracts or LIFE
COMPANY, whichever shall have legal authority to do so, shall be
permitted to reallocate investments in TRUST, redeem investments
in TRUST and/or invest in TRUST upon the payment of additional
premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 15(c) hereof,
LIFE COMPANY, as promptly as is practicable under the
circumstances, shall notify TRUST whether LIFE COMPANY shall
elect to continue to have TRUST shares made available after such
termination. If TRUST shares continue to be made available after
such termination, the provisions of this Agreement shall remain
in effect and thereafter either TRUST or LIFE COMPANY may
terminate the Agreement, as so continued pursuant to this Section
15(d), upon prior written notice to the other party such notice
to be for a period that is reasonable under the circumstances.
In determining whether to elect to continue to have additional
TRUST shares made available, LIFE COMPANY shall act in good
faith, giving due consideration to the interests of existing
shareholders, including holders of Existing Contracts.
16. This Agreement shall be subject to the provisions of
the '40 Act and the rules and regulations thereunder, including
any exemptive relief therefrom and the orders of the SEC setting
forth such relief.
17. This Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of the
State of Colorado.
18. It is understood by the parties that this Agreement is
not an exclusive arrangement.
19. This Agreement is made by TRUST pursuant to authority
granted by the Trustees, and the obligations created hereby are
binding on TRUST and its property, but not on any of the Trustees
or shareholders of TRUST individually.
Executed this ____ day of July, 1994.
THE PALLADIAN TRUST
ATTEST:_________________________ BY:
SECURITY LIFE INSURANCE
COMPANY OF DENVER
ATTEST:_________________________ BY:
PALLADIAN ADVISORS, INC.
ATTEST:_________________________ BY:
APPENDIX A
[LIST]
The Value Portfolio
The Growth Portfolio
The Balanced Opportunity Portfolio
The International Growth Portfolio
The Global Strategic Income Portfolio
The Global Interactive/Telecomm Portfolio
February 1, 1995
Security Life of Denver Insurance Company
Security Life Center
1290 Broadway
Denver, Colorado 80203-5699
Dear Sirs:
This opinion is furnished in connection with the Form N-4 Registration
Statement being filed by Security Life of Denver Insurance Company
("Security Life") under the Securities Act of 1933, as amended (the "Act"),
for the offering of units of interest ("Units") in the Security Life
Separate Account A1 ("Separate Account A1") under Fulcrum Fund
Annuity deferred combination fixed and variable annuity contract
("Contract") to be issued by Security Life. The securities being
registered under the Act are to be offered in the manner described in
the Registration Statement.
I have supervised the examination of all such corporate records of Security
Life and such other documents and such laws as I consider appropriate as a
basis for the opinion hereinafter expressed. On the basis of such
examination, it is my opinion that:
1. Security Life is a corporation duly organized and validly existing under
the laws of the State of Colorado.
2. Separate Account A1 was duly created as a separate investment account
of Security Life pursuant to the laws of the State of Colorado.
3. The assets of Separate Account A1 will be owned by Security Life. Under
Colorado law and the provisions of the Contract, the income, gains and
losses, whether or not realized, from assets allocated to Separate Account
A1 must be credited to or charged against such Account, without regard to
the other income, gains or losses of Security Life.
4. The Contract provides that the assets of Separate Account A1 may not be
charged with liabilities arising out of any other business Security Life
may conduct.
5. The Contract and the Units in Separate Account A1 to be issued under
the Contract have been duly authorized by the corporation; and the Contract,
including the Units thereunder, when issued and delivered, will constitute
validly issued and binding obligations of Security Life in accordance
with their terms.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of my name under the caption
"Legal Matters" in the Prospectus contained in the Registration Statement.
Very truly yours,
Eugene L. Copeland
Senior Vice President
Secretary and General Counsel
Consent of Independent Auditors
We consent to the reference to our firm under the caption
"Experts" and "Financial Statements of Security
Life of Denver Insurance Company and Security Life
Separate Account A1" and to the use of our reports dated
January 27, 1995 (with respect to Security Life Separate
Account A1) and April 5, 1995 (with respect to Security
Life of Denver Insurance Company), in Pre-Effective Amendment No.
2 to the Registration Statement (Form N-4 No. 33-72564
and 811-8196) and related Prospectus of Security Life of
Denver Insurance Company and Security Life Separate
Account A1 dated August 4, 1995.
August 2, 1995
ERNST & YOUNG LLP
July 19, 1995
CONSENT OF MAYER, BROWN & PLATT
We hereby consent to the reference to our firm
under the caption "Legal Matters" in the prospectus
comprising a part of the Form N-4 Registration
Statement of Security Life of Denver Insurance
Company.
MAYER, BROWN & PLATT
Washington, D.C.
August 7, 1995
