<PAGE>
As filed with the Securities and Exchange Commission on April 23, 1996
Registration No. 33-78444
811-8196
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM N-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 3
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8
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)
Copy to:
EUGENE L. COPELAND KURT W. BERNLOHR
Security Life of Denver Security Life of Denver
Insurance Company Insurance Company
1290 Broadway 1290 Broadway
Denver, Colorado 80203-5699 Denver, Colorado 80203-5699
(Name and Address of Agent for Service) (303) 894-4923
Approximate Date of Proposed Public Offering: As soon as practical after the
effective date.
________________
It is proposed that this filing will become effective (check appropriate box)
immediately upon filing pursuant to paragraph (b) of Rule 485
---
X on May 1, 1996 pursuant to paragraph (b) of Rule 485
---
60 days after filing pursuant to paragraph (a)(i) of Rule 485
---
on (date) pursuant to paragraph (a)(i) of Rule 485
---
75 days after filing pursuant to paragraph (a)(ii)
---
on (date) pursuant to paragraph (a)(ii) of Rule 485
---
If appropriate, check the following box:
this post-effective amendment designates a new effective date for a
--- previously filed post-effective amendment.
DECLARATION PURSUANT TO RULE 24f-2
An indefinite amount of the Registrant's securities has been registered under
the Securities Act of 1933 pursuant to paragraph (b)(2) of Rule 24f-2 under the
Investment Company Act of 1940. Registrant filed its Form 24f-2 for the fiscal
year ending December 31, 1995 on February 28, 1996.
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1 (File No. 33-78444)
Cross-Reference Sheet
Pursuant to Rule 495(a)
Under the Securities Act of 1933
<TABLE>
<CAPTION>
Form N-4 Item No. Caption in Prospectus
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<S> <C>
1. Cover Page Cover Page
2. Definitions Glossary of Terms
3. Synopsis Summary of the Exchequer Variable Annuity
4. Condensed Financial Information Condensed Financial Information
5. General Description of Registrant, Facts about Security Life and the Variable
Depositor and Portfolio Companies Account; The Guaranteed Interest Division
6. Deductions and Expenses Fee Table; Summary of the Exchequer
Variable Annuity; Contract Charges and Fees
7. General Description of Variable Annuity Facts about the Contract
Contracts
8. Annuity Period Choosing an Annuity Option
9. Death Benefit Summary of the Exchequer Variable Annuity;
Values under the Contract
10. Purchases and Contract Value Summary of the Exchequer Variable Annuity;
Facts about the Contract; Values under the
Contract
11. Redemptions Summary of the Exchequer Variable Annuity;
Contract Charges and Fees; Values under the
Contract; Choosing an Annuity Option
12. Taxes Summary of the Exchequer Variable Annuity;
Contract Charges and Fees; Federal Tax
Considerations
13. Legal Proceedings Regulatory Information
14. Table of Contents of Statement of Table of Contents of Statement of Additional
Additional Information Information
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
Caption in Statement of Additional
----------------------------------
Form N-4 Item No. Information (or Prospectus, Where Indicated)
- ----------------- --------------------------------------------
<S> <C>
15. Cover Page Cover Page
16. Table 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 Being Offered Prospectus -- Facts About the Contract
20. Underwriters Security Life
21. Calculation of Performance Data Performance Information; Prospectus -
Appendix A, Performance Information
22. Annuity Payouts Performance Information; Prospectus --
Choosing an Annuity Option
23. Financial Statements Financial Statements of Security Life Separate
Account A1 of Security Life of Denver
Insurance Company
Financial Statements of Security Life of
Denver Insurance Company; Prospectus -
Condensed Financial Information
</TABLE>
Part C - Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
(iii)
<PAGE>
The Exchequer 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 prospectus describes The Exchequer 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 generally provides automatic reinvestment and compounding of any investment
earnings 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"). Nineteen Divisions of the Variable Account are currently available
under the Contract. Each of the Divisions of the Variable Account invests in
shares of a corresponding Portfolio of a mutual fund. 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. A prospectus for each Portfolio being considered
must accompany this prospectus and should be read in conjunction with this
prospectus. The prospectuses provide information regarding investment activities
and objectives of the Portfolios. A Statement of Additional Information, dated
May 1, 1996, 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 page 41 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.
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
IT IS NOT VALID UNLESS ACCOMPANIED BY THE CURRENT PROSPECTUS
FOR EACH OF THE PORTFOLIOS BEING CONSIDERED.
<TABLE>
<S> <C> <C>
Issued by: Distributed by: Customer Service Center:
Security Life of Denver Insurance Company ING America Equities, Inc. P.O. Box 173763
1290 Broadway 1290 Broadway, Attn: Variable Denver, CO 80217-3763
Denver, CO 80203-5699 Denver, CO 80203 1-800-933-5858
1-800-525-9852
</TABLE>
Date of Prospectus: May 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
GLOSSARY OF TERMS........................................................ 5
FEE TABLE................................................................ 7
SUMMARY OF THE EXCHEQUER VARIABLE ANNUITY................................ 10
General Description...................................................... 10
Purchase Payments........................................................ 11
Enhanced Guaranteed Death Benefit........................................ 11
Partial Withdrawals...................................................... 11
Surrendering Your Contract............................................... 11
Your Right to Cancel the Contract........................................ 11
Contract Charges and Fees................................................ 11
CONDENSED FINANCIAL INFORMATION.......................................... 13
FACTS ABOUT SECURITY LIFE AND THE VARIABLE ACCOUNT....................... 14
Security Life............................................................ 14
Customer Service Center.................................................. 14
The Variable Account..................................................... 14
The Portfolios........................................................... 15
Changes Within The Variable Account...................................... 17
FACTS ABOUT THE CONTRACT................................................. 18
Your Right to Cancel the Contract........................................ 18
Purchase Payments........................................................ 18
Initial Purchase Payment............................................... 18
Additional Purchase Payments........................................... 18
Where to Make Payments................................................. 18
Crediting and Allocation of Purchase Payments.......................... 18
Dollar Cost Averaging.................................................... 19
Automatic Rebalancing.................................................... 20
Reports to Owners........................................................ 20
Group or Sponsored Arrangements.......................................... 20
Offering the Contract.................................................... 21
VALUES UNDER THE CONTRACT................................................ 21
Enhanced Guaranteed Death Benefit........................................ 21
Death Benefit Proceeds................................................... 21
How to Claim Payouts to Beneficiary.................................... 22
Your Accumulation Value.................................................. 22
Measurement of Investment Experience for the Divisions of the Variable
Account................................................................. 22
Accumulation Unit Value................................................ 22
How We Determine the Accumulation Experience Factor.................... 22
Net Rate of Return for a Division of the Variable Account.............. 23
Division Accumulation Value of Each Division of the Variable Account..... 23
Division Accumulation Value of the Guaranteed Interest Division.......... 23
Your Right to Transfer Among Divisions................................... 23
Partial Withdrawals...................................................... 24
Demand Withdrawal Option............................................... 25
Systematic Income Program.............................................. 25
IRA Income Program -- IRA Contracts Only............................... 26
The Amount You May Withdraw Without a Surrender Charge................. 26
</TABLE>
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Exchequer 2
<PAGE>
<TABLE>
<S> <C>
Tax Consequences of Partial Withdrawals................................ 26
Surrendering to Receive the Cash Surrender Value......................... 26
When We Make Payouts..................................................... 27
THE GUARANTEED INTEREST DIVISION......................................... 27
OTHER INFORMATION........................................................ 28
The Owner................................................................ 28
The Annuitant............................................................ 28
The Beneficiary.......................................................... 28
Change of Owner, Beneficiary or Annuitant................................ 29
Other Contract Provisions................................................ 29
In Case of Errors on the Application or Enrollment Form................ 29
Procedures............................................................. 29
Telephone Privileges................................................... 29
Assigning the Contract as Collateral................................... 29
Non-Participating...................................................... 29
Authority to Change Contract Terms....................................... 30
Contract Changes - Applicable Tax Law.................................. 30
CONTRACT CHARGES AND FEES................................................ 30
Deduction of Charges..................................................... 30
Charges Deducted from the Accumulation Value............................. 30
Surrender Charge....................................................... 30
Partial Withdrawal Transaction Charge.................................. 30
Administrative Charge.................................................. 31
Excess Transfer Charge................................................. 31
Taxes on Purchase Payments............................................. 31
Charges Deducted From The Divisions...................................... 31
Mortality and Expense Risk Charge...................................... 31
Asset-based Administrative Charge...................................... 32
Portfolio Expenses....................................................... 32
CHOOSING AN ANNUITY OPTION............................................... 32
General Provisions....................................................... 32
Supplementary Contract................................................. 32
Election and Changes of Annuity Date................................... 32
Election and Changes of Annuity Option................................. 32
Payout Options........................................................... 32
Variable Annuity Payout................................................ 33
Fixed Annuity Payout................................................... 33
Combination Annuity Payout............................................. 33
Frequency and Amount of Annuity Payouts................................ 33
Payout Period Options.................................................... 34
Payouts Other Than Monthly............................................. 34
Commuting Provisions................................................... 35
REGULATORY INFORMATION................................................... 35
Voting Privileges........................................................ 35
State Regulation......................................................... 36
Legal Proceedings........................................................ 36
Legal Matters............................................................ 36
Experts.................................................................. 36
FEDERAL TAX CONSIDERATIONS............................................... 36
</TABLE>
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Exchequer 3
<PAGE>
<TABLE>
<S> <C>
Introduction............................................................. 36
Security Life Tax Status................................................. 36
Taxation of Annuities.................................................... 36
1. Withdrawals Prior to the Annuity Commencement Date.................. 37
2. Annuity Payouts after the Annuity Date.............................. 37
3. Penalty Tax on Certain Withdrawals or Distributions................. 37
Taxation of Individual Retirement Annuities.............................. 38
Distribution-at-Death Rules.............................................. 38
Taxation of Death Benefit Proceeds....................................... 39
Contracts Owned by Non-Natural Persons................................... 39
Section 1035 Exchanges................................................... 39
Assignments.............................................................. 39
Multiple Contracts Rule.................................................. 39
Diversification Standards................................................ 39
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION................. 41
APPENDIX A............................................................... 42
Example 1: Hypothetical Illustration of Systematic Income Program
Withdrawals.......................................................... 42
Example 2: Hypothetical Illustration of a Series of Demand
Withdrawals.......................................................... 42
Example 3: Hypothetical Illustration of a Full Surrender.............. 44
APPENDIX B............................................................... 45
Performance Information.................................................. 45
PERFORMANCE CHART........................................................ 47
</TABLE>
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.
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Exchequer 4
<PAGE>
GLOSSARY OF TERMS
As used in this prospectus, the following terms have the indicated meanings.
There are other capitalized terms which are explained or defined in other parts
of this prospectus.
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 asset-based 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 consisting 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 used to calculate any periodic 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 Annuity Payout upon annuitization.
Business Day -- Any day which is a Valuation Date.
Cash Surrender Value -- The amount the Owner receives upon surrendering the
Contract.
Code -- The 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 (or Beneficiaries) -- The person (or persons) 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 Accumulation Value.
The Contract Date is used to determine Contract Processing Dates, Years and
Anniversaries.
Contract Processing Date -- The day the annual administrative charge is deducted
from the
- --------------------------------------------------------------------------------
Exchequer 5
<PAGE>
Accumulation Value. The Contract Processing Date is as of each
Contract Anniversary. Any Contract Processing Date that is not a Valuation
Date is 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 sub-account of the Variable Account, the assets of which are
invested in a corresponding Portfolio or the Guaranteed Interest Division.
Division Accumulation Value -- The value under a Contract in a particular
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.
NASD -- The National Association of Securities Dealers, Inc.
Net Purchase Payments -- Total 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(s) -- A Rider adds benefits to the Contract.
SEC -- The United States Securities and Exchange Commission.
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 net asset value of the shares of any
of the Portfolios and unit values of the Divisions are determined. Valuation
Dates currently occur on each day on which the New York Stock Exchange and
Security Life's Customer Service Center are open for business, except for days
on which a Division's corresponding Portfolio does not value its shares.
Valuation Period -- The period that starts at 4 p.m. Eastern Time on a Valuation
Date and ends at 4 p.m. 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.
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Exchequer 6
<PAGE>
FEE TABLE
The purpose of the following tables is to assist you in understanding the
various costs and expenses that you may bear directly or indirectly. The tables
reflect charges under the Contracts, expenses of the Divisions and expenses of
the Portfolios. In addition to the charges and expenses described below, we may
also deduct from the Proceeds taxes incurred but not paid to cover any state or
local tax charge on Purchase Payments. See Taxes on Purchase Payments,
page 31. We may reduce certain charges under group or sponsored arrangements.
See Group or Sponsored Arrangements, page 20.
<TABLE>
<CAPTION>
Transaction Expenses
<S> <C>
Sales Load Imposed on Purchase Payments ................................... 0%
Surrender Charge/1/
<CAPTION>
Contract Anniversaries Since Surrender Charge as a Percentage of
Purchase Payment Was Made Purchase Payment Withdrawn
<S> <C>
0...................................7%
1...................................6%
2...................................5%
3...................................4%
4...................................3%
5...................................2%
6+..................................0%
</TABLE>
<TABLE>
<S> <C>
Partial Withdrawal Transaction Charge/2/.................................. $25
Excess Transfer Charge (does not apply to the first 12 transfers in a
Contract Year)/3/....................................................... $25
Annual Contract Fees
Administrative Charge (does not apply after the Annuity Date)/4/
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/5/
Basic.................................................................. 1.25%
Enhanced Death Benefit (does not apply after the Annuity Date)......... 0.12%
-----
Total Mortality & Expense Risk Charge.................................. 1.37%
Asset-based Administrative Charge........................................ 0.15%
-----
Total Variable Account Annual Expenses/6/................................ 1.52%
</TABLE>
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/1/ Up to certain limits, partial withdrawals may be taken without incurring a
current surrender charge. See Charges Deducted from the Accumulation Value,
page 30.
/2/ The partial withdrawal transaction charge is the lesser of $25 or 2% of the
amount withdrawn, and is assessed on each demand withdrawal after the first
in any Contract Year. See Partial Withdrawal Transaction Charge, page 30.
/3/ Any allocation under Dollar Cost Averaging is not considered a transfer for
this purpose. See Dollar Cost Averaging, page 19. After the Annuity Date,
transfers are limited to four each Contract Year, and no transfer charge
applies. See Excess Transfer Charge, page 31.
/4/ The administrative charge is deducted as of each Contract Anniversary or
upon surrender. See Administrative Charge, page 31.
/5/ See Enhanced Guaranteed Death Benefit, page 21, for a description of the
Basic and Enhanced Death Benefit. See Mortality and Expense Risk Charge,
page 31.
/6/ 1.40% for a Variable Annuity during the Annuity Period. See Payout Options,
page 32.
- --------------------------------------------------------------------------------
Exchequer 7
<PAGE>
<TABLE>
<CAPTION>
Portfolio Annual Expenses (as a percentage of Portfolio average net assets)/7/
Management Other Total Portfolio
Portfolio Fees Expenses Expenses
--------- ---- -------- --------
<S> <C> <C> <C>
Neuberger & Berman Advisers Management Trust/8/
Limited Maturity Bond Portfolio 0.65% 0.10% 0.75%
Government Income Portfolio/9/ 0.00% 1.04% 1.04%
Growth Portfolio 0.84% 0.10% 0.94%
Partners Portfolio 0.85% 0.30% 1.15%
The Alger American Fund
Alger American Small Capitalization Portfolio 0.85% 0.07% 0.92%
Alger American MidCap Growth Portfolio 0.80% 0.10% 0.90%
Alger American Growth Portfolio 0.75% 0.10% 0.85%
Alger American Leveraged AllCap Portfolio 0.85% 0.71%/10/ 1.56%/10/
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 0.61% 0.09% 0.70%
VIP Overseas Portfolio 0.76% 0.15% 0.91%
VIP Money Market Portfolio 0.24% 0.09% 0.33%
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 0.71% 0.08% 0.79%/11/
VIP II Index 500 Portfolio 0.00% 0.28% 0.28%/12/
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Total Return Portfolio 0.75% 0.26% 1.01%/13, 14/
INVESCO VIF - Industrial Income Portfolio 0.75% 0.28% 1.03%/13, 15/
INVESCO VIF - High Yield Portfolio 0.60% 0.37% 0.97%/13, 16/
INVESCO VIF - Utilities Portfolio 0.60% 1.20% 1.80%/13, 17/
Van Eck Worldwide Insurance Trust
Worldwide Balanced Fund 0.00%/18/ 0.00%/18/ 0.00%/18/
Gold and Natural Resources Fund 1.00% 0.21% 1.21%
</TABLE>
- --------------------
/7/ The preceding Portfolio expense information was provided to us by the
Portfolios, and we have not independently verified such information. These
Portfolio expenses are not direct charges against Division assets or
reductions from Contract values; rather these Portfolio expenses are taken
into consideration in computing each underlying Portfolio's net asset value,
which is the share price used to calculate the unit values of the Divisions.
For a more complete description of the Portfolios' costs and expenses, see
the prospectuses for the Portfolios.
/8/ Neuberger & Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"), each of which invests all of its net investable
assets in a corresponding series ("Series") of Advisers Managers Trust.
Expenses in the table reflect expenses of the Portfolios and include each
Portfolio's pro rata portion of the operating expenses of each Portfolio's
corresponding Series. The Portfolios pay Neuberger & Berman Management, Inc.
("NBMI"), an administration fee based on the Portfolios' net asset value.
Each Portfolio's corresponding Series pays NBMI a management fee based on
the Series' average daily net assets. Accordingly, this table combines
management fees at the Series level and administration fees at the Portfolio
level in a unified fee rate. See "Expenses" in the Trust's Prospectus.
/9/ Expenses reflect expense reimbursement. NBMI has undertaken to reimburse the
Government Income Portfolio for certain operating expenses, including the
compensation of NBMI and excluding taxes, interest, extraordinary expense,
brokerage commissions and transaction costs, that exceed 1% of the
Government Income Portfolio's average daily net asset value. Absent such
reimbursement, the "Total Portfolio Expenses" for the year ended December
31, 1995, would have been 4.80%. These expense reimbursement policies are
subject to termination upon 60 days written notice to the Portfolio.
/10/The Alger American Leverage AllCap Portfolio's "Other Expenses" includes
0.06% of interest expense. Absent reimbursements to the Portfolio by its
Manager, the amount of "Other Expenses" and "Total Portfolio Expenses" would
have been 3.07% and 3.92%, respectively.
/11/A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. Without this reduction, "Total Portfolio Expenses" would have
been 0.81%.
/12/The Portfolio's expenses were voluntarily reduced by the Portfolio's
investment adviser. Absent such reimbursement, "Management Fees", "Other
Expenses" and "Total Portfolio Expenses" would have been 0.28%, 0.19% and
0.47%, respectively.
/13/The Portfolios' custodian fees were reduced under an expense offset
arrangement. In addition, certain expenses of the Portfolios are being
absorbed voluntarily by INVESCO Funds Group, Inc. ("IFG"). The above ratios
reflect total expenses, less expenses absorbed by IFG, prior to any expense
offset.
/14/In the absence of the voluntary expense limitation, the Total Return
Portfolio's "Other Expenses" and "Total Portfolio Expenses" would have been
1.76% and 2.51%, respectively, based on the Portfolio's actual expenses for
the fiscal year ended December 31, 1995.
/15/Portfolio's "Other Expenses" and "Total Portfolio Expenses" would have been
1.56% and 2.31%, respectively, based on the Portfolio's actual expenses for
the fiscal year ended December 31, 1995.
/16/In the absence of the voluntary expense limitation, the High Yield
Portfolio's "Other Expenses" and "Total Portfolio Expenses" would have been
2.11% and 2.71%, respectively, based on the Portfolio's actual expenses for
the fiscal year ended December 31, 1995.
/17/In the absence of the voluntary expense limitation, the Utilities
Portfolio's "Other Expenses" and "Total Portfolio Expenses" would have been
56.53% and 57.13%, respectively, based on the Portfolio's actual expenses
for the fiscal year ended December 31, 1995.
/18/The Portfolio's expenses were voluntarily reduced by the Portfolio's
investment manager. Absent such reimbursement, "Management Fees", Other
Expenses" and "Total Portfolio Expenses" would have been 0.75%, 0.60% and
1.35%, respectively. "Other Expenses" of 0.60% are based on a net asset
estimation of $30 million.
- --------------------------------------------------------------------------------
Exchequer 8
<PAGE>
Examples
The following examples depict the dollar amount of expenses that would be
incurred under this Contract assuming a $1,000 initial Purchase Payment and 5%
annual return on assets. The expense amounts presented are derived from a
formula which allows the maximum $30 annual administrative charge to be
expressed as a percentage of the average Contract account size for existing
Contracts. Because the average Contract account size is greater than $1,000, the
expense effect of the annual administrative charge is reduced accordingly.
Taxes on Purchase Payments may also be applicable but are not reflected in the
expenses below. See Taxes on Purchase Payments, page 31. The Enhanced Death
Benefit Risk Charge and the annual administrative charge do not apply during
the Annuity Period.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
If you surrender your If you do not surrender
----------------
Contract at the end of the your Contract or if you
applicable time period. annuitize at the end of the
applicable time period.
- ---------------------------------------------------------------------------------------------------------------------------------
Division Investing In: 1 3 5 10 1 3 5 10
Year Year Year Year Year Year Year Year
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Neuberger & Berman Advisers Management Trust
Limited Maturity Bond Portfolio 94 123 154 265 24 73 124 265
Government Income Portfolio 96 131 168 293 26 81 138 293
Growth Portfolio 95 128 163 283 25 78 133 283
Partners Portfolio 98 134 173 303 28 84 143 303
The Alger American Fund
Alger American Small Capitalization Portfolio 95 128 163 281 25 78 133 281
Alger American MidCap Growth Portfolio 95 127 162 279 25 77 132 279
Alger American Growth Portfolio 95 126 159 275 25 76 129 275
Alger American Leveraged AllCap Portfolio 101 146 193 340 31 96 163 340
Fidelity Variable Insurance Products Funds
VIP Growth Portfolio 93 121 152 260 23 71 122 260
VIP Overseas Portfolio 95 127 162 280 25 77 132 280
VIP Money Market Portfolio 90 111 134 224 20 61 104 224
Fidelity Variable Insurance Products Funds II
VIP II Asset Manager Portfolio 94 124 156 269 24 74 126 269
VIP II Index 500 Portfolio 89 109 131 219 19 59 101 219
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Total Return Portfolio 96 130 167 290 26 80 137 290
INVESCO VIF - Industrial Income Portfolio 96 131 168 292 26 81 138 292
INVESCO VIF - High Yield Portfolio 96 129 165 286 26 79 135 286
INVESCO VIF - Utilities Portfolio 104 153 204 361 34 103 174 361
Van Eck Worldwide Insurance Trust
Worldwide Balanced Fund 86 101 118 190 16 51 88 190
Gold and Natural Resources Fund 98 136 176 308 28 86 146 308
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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.
- --------------------------------------------------------------------------------
Exchequer 9
<PAGE>
SUMMARY OF THE EXCHEQUER VARIABLE ANNUITY
General Description
This prospectus provides you with the necessary information to make a decision
on purchasing the Exchequer Variable Annuity offered by Security Life and funded
by the Variable Account as well as by our General Account. The description of
the Contracts in this prospectus is subject to the terms of the Contract
purchased by an Owner and any Endorsement or Rider to it. An applicant may
review a copy of the Contract and any Endorsement or Rider to it on request.
This summary provides 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 of the Portfolios
being considered. The description of the Contract in this prospectus, together
with any applications and any Riders or Endorsements, constitute the entire
agreement between you and us and should be retained. For further information
about the Contract, contact the Security Life Customer Service Center.
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 Age 86. For an IRA Contract, you generally may not make
Purchase Payments after March 31 of the year following the year in which you
reach Age 70 1/2.
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.
Purchase Payments or Accumulation Value may be allocated among one or more of
nineteen Divisions of the Variable Account, a separate account of Security
Life, or 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.
Furthermore, any investment earnings under the Contract generally accumulate
free from annual taxation under current tax law until distributed.
Each Division of the Variable Account invests its assets without sales charge in
a corresponding mutual fund Portfolio. The Portfolios have their own distinct
investment objectives and are managed by experienced fund investment advisers.
You bear the investment risk for funds invested in the Divisions of the Variable
Account; you receive the benefits from favorable experience but also bear the
risk of poor investment experience. 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 to certain qualified pension and retirement plans.
They are not directly available to individual investors. For more information
regarding the Variable Account, the Divisions and the Portfolios, see The
Variable Account, page 14, and The Portfolios, page 15.
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. For more information about The Guaranteed Interest
Division, see THE GUARANTEED INTEREST DIVISION, page 27.
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 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 36.
- --------------------------------------------------------------------------------
Exchequer 10
<PAGE>
Purchase Payments
The minimum initial Purchase Payment is $5,000 ($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 received under
the Contract to exceed $1,500,000.
The initial Purchase Payment is allocated to each Division according to your
most recent allocation 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 Division investing in the Fidelity VIP Money Market Portfolio during the
Free Look Period and then transferred to the Divisions of the Variable Account
according to your most recent allocation instructions. See Your Right to Cancel
the Contract, page 18.
All percentage allocations must be in whole numbers. We allocate any additional
Purchase Payments among the Divisions in accordance with your most recent
allocation instructions, 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 or by telephone, if the proper
telephone authorization form is on file with us. See Crediting and Allocation of
Purchase Payments, page 18.
You may choose to have a specified dollar amount transferred from the Divisions
investing in the Fidelity VIP Money Market Portfolio or the Neuberger & Berman
AMT Limited Maturity Bond Portfolio 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, page 19.
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. 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. During the Annuity Period, you may make up to four transfers per
Contract Year and no transfer charge will be assessed.
Enhanced Guaranteed Death Benefit
The Contract provides an Enhanced Guaranteed Death Benefit to the Beneficiary if
the Owner dies prior to the Annuity Date. For more details, see Enchanced
Guaranteed Death Benefit, page 21, and Death Benefit Proceeds, page 21.
Partial Withdrawals
After the Free Look Period, prior to the Annuity Date and while the Contract is
in effect, you may take partial withdrawals under any of three options: the
Demand Withdrawal Option, the Systematic Income Program or the IRA Income
Program.
A penalty tax may be assessed upon partial withdrawals. See Taxation of
Annuities, page 36.
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. See Surrendering to Receive the Cash
Surrender Value, page 26.
A penalty tax may be assessed upon surrender. See Taxation of Annuities,
page 36.
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. See Your Right to Cancel the Contract, page 18.
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 Division Accumulation Value of each
- --------------------------------------------------------------------------------
Exchequer 11
<PAGE>
Division bears to the total Accumulation Value. We may reduce certain charges
for group or sponsored arrangements. See Group or Sponsored Arrangements, page
20. 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
the 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, reduced 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 30.
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 Wighdrawal Transaction Charge,
page 30.
We charge each Division of the Variable Account with a daily asset-based charge
equivalent to an annual rate of 1.37% for mortality and expense risks which
includes 0.12% for the cost of the Enhanced Death Benefit guarantee. During the
Annuity Period, the charge is reduced to 1.25%. See Charges Deducted from the
Accumulation Value, page 30.
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 32.
During the Accumulation Period, we deduct an annual 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. We also deduct
this charge when determining the Cash Surrender Value payable if you surrender
the Contract prior to the end of a Contract Year. See Administrative Charge,
page 31.
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 31.
Generally, taxes on Purchase Payments, if any, 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 paid. 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 31.
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 in which you are invested will affect your
Accumulation Value. Please read the prospectus for each of the Portfolios you
are considering for details.
- --------------------------------------------------------------------------------
Exchequer 12
<PAGE>
CONDENSED FINANCIAL INFORMATION
The consolidated financial statements and schedules of Security Life and its
subsidiaries at December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, and the financial statements of the Separate
Account at December 31, 1995, and for the year ended December 31, 1995, appear
in the Statement of Additional Information.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation Accumulation Number Of
Unit Value At Unit Value Accumulation
Beginning Of At End Units At End Calendar
Division Investing In: Period Of Period Of The Period Year
<S> <C> <C> <C> <C>
Neuberger & Berman Advisers Management Trust:
Limited Maturity Bond Portfolio 10.00 9.98 0.000 1994*
9.98 10.35 563,487.916 1995
Government Income Portfolio 10.00 10.05 0.000 1994*
10.05 10.72 13,437.293 1995
Growth Portfolio 10.00 9.83 0.000 1994*
9.83 12.37 13,967.690 1995
Partners Portfolio 10.00 9.82 0.000 1994*
9.82 13.17 18,425.180 1995
The Alger American Fund:
Alger American Small Capitalization Portfolio 10.00 10.18 0.000 1994*
10.18 14.53 109,121.103 1995
Alger American MidCap Growth Portfolio 10.00 10.16 983.060 1994*
10.16 14.46 45,272.292 1995
Alger American Growth Portfolio 10.00 11.98 60,576.492 1995**
Alger American Leveraged AllCap Portfolio 10.00 14.74 20,636.526 1995**
Fidelity Variable Insurance Products Fund:
VIP Growth Portfolio 10.00 10.14 0.000 1994*
10.14 13.50 91,703.491 1995
VIP Overseas Portfolio 10.00 9.57 1,358.026 1994*
9.57 10.34 91,367.590 1995
VIP Money Market Portfolio 10.00 10.04 52,413.096 1994*
10.04 10.47 259,770.455 1995
Fidelity Variable Insurance Products Fund II:
VIP II Asset Manager Portfolio 10.00 9.63 0.000 1994*
9.63 10.90 62,156.503 1995
VIP II Index 500 Portfolio 10.00 9.85 0.000 1994*
9.85 13.11 45,041.743 1995
INVESCO Variable Investment Funds, Inc.:
INVESCO VIF - Total Return Portfolio 10.00 10.00 0.000 1994*
10.00 12.14 66,073.393 1995
INVESCO VIF - Industrial Income Portfolio 10.00 10.10 0.000 1994*
10.10 12.96 81,266.429 1995
INVESCO VIF - High Yield Portfolio 10.00 10.09 676.252 1994*
10.09 11.90 54,748.222 1995
INVESCO VIF - Utilities Portfolio 10.00 10.00 0.000 1994*
10.00 10.82 22,313.580 1995
Van Eck Worldwide Insurance Trust:
Worldwide Balanced Fund 10.00 10.00 513.000 1994*
10.00 9.85 14,721.975 1995
Gold and Natural Resources Fund 10.00 9.20 700.158 1994*
9.20 10.06 7,301.735 1995
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Commencement of business in these Divisions was on October 14, 1994.
**Commencement of business in these Divisions was on May 1, 1995.
- --------------------------------------------------------------------------------
Exchequer 13
<PAGE>
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 1995, Security Life
and its consolidated subsidiaries had over $109 billion of life insurance in
force. Our total assets exceeded $6 billion and our shareholder's equity
exceeded $746 million on a generally accepted accounting principles basis as of
December 31, 1995. We offer a complete line of life insurance and retirement
products, including annuities, individual and group life, pension products, and
market life reinsurance.
Security Life actively manages its General Account investment portfolio to meet
both long-term and short-term contractual obligations. The General Account
portfolio invests primarily in investment-grade bonds and low-risk policy loans.
Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING"),
one of the world's three largest diversified financial services organizations.
ING is headquartered in Amsterdam, Netherlands, and had consolidated assets
exceeding $247 billion on a Dutch (modified U.S.) generally accepted accounting
principles basis as of December 31, 1995.
The principal underwriter and distributor for the Contracts is ING America
Equities, Inc. ("ING America Equities"), a wholly owned subsidiary of Security
Life. ING America Equities is registered as a broker-dealer with the SEC and is
a member of the NASD. The current address for ING America Equities is 1290
Broadway, Denver, Colorado 80203-5699.
Customer Service Center
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 chargeable with liabilities arising
out of any other business we may conduct. 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.
Nineteen Divisions of the Variable Account are currently available under the
Contract. Each of the Divisions invests in shares of a corresponding Portfolio
of a mutual fund. Therefore, the investment experience of your
- --------------------------------------------------------------------------------
Exchequer 14
<PAGE>
Contract depends on the experience of the Divisions you select. 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 to certain
qualified pension and retirement plans. 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 corresponding Portfolio. See the prospectus for each of
the Portfolios being considered for details.
Shares of these Portfolios are 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 Division 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 each Portfolio's prospectus.
Each of the Portfolios is part of a separate series of an open-end diversified
management investment company which receives investment advice from a registered
investment adviser. The Neuberger & Berman Advisers Management Trust utilizes a
master feeder structure. See the prospectus for the Neuberger & Berman Advisers
Management Trust for more details.
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 you are considering
for more information. A description of each Portfolio, its objectives and
investments of each Portfolio follows.
Neuberger & Berman Advisers Management Trust
The Neuberger & Berman Advisers Management Trust (the "Trust") is a registered,
open-end management investment company organized as a Delaware business trust
pursuant to a Trust Instrument dated May 23, 1994. The Trust is comprised of
separate Portfolios, each of which invests all of its net investable assets in a
corresponding series of Advisers Managers Trust ("Managers Trust"), a
diversified, open-end management investment company organized as of May 24, 1994
as a New York common law trust. This master feeder structure is different from
that of many other investment companies which directly acquire and manage their
own portfolios of securities. Neuberger & Berman Management Incorporated acts
as investment manager to Managers Trust and Neuberger & Berman, L.P. as sub-
adviser.
Limited Maturity Bond Portfolio -- seeks the highest level of current income
consistent with low risk to principal and liquidity. As a secondary
objective, it also seeks to enhance its total return. The Limited Maturity
Bond Portfolio pursues its investment objectives primarily by investing in
a diversified portfolio of short-to-intermediate term U.S. Government and
Agency securities and debt securities issued by financial institutions,
corporations and others, primarily of investment grade. The Limited
Maturity Bond Portfolio may invest up to 10% of its net assets, measured
at the time of investment, in debt securities rated below investment grade
or in comparable unrated securities. The Limited Maturity Bond Portfolio's
dollar weighted average portfolio duration may range up to five years.
Government Income Portfolio -- seeks a high level of current income and total
return, consistent with safety of principal. The Portfolio invests at least
65% of its total assets in U.S. Government and Agency securities, with an
emphasis on U.S. Government mortgage-backed securities. In addition, the
Portfolio invests at least 25% of its total assets in mortgage-backed
securities (including U.S. Government mortgage-backed securities) and asset-
backed securities. The investment manager
- --------------------------------------------------------------------------------
Exchequer 15
<PAGE>
follows a flexible investment strategy depending on market conditions and
interest rate trends.
Growth Portfolio -- seeks capital appreciation without regard to income. Invests
in securities believed to have maximum potential for long-term capital
appreciation. To maximize this potential, securities convertible into common
stocks and warrants and options to purchase stocks may be utilized. This
investment program involves greater risks and share price volatility than
programs that invest in more conservative securities.
Partners Portfolio -- seeks capital growth through an investment approach that
is designed to increase capital with reasonable risk. Its investment program
seeks securities believed to be undervalued based on strong fundamentals such
as low price-to-earnings ratio, consistent cash flow, and support from asset
values. Up to 15% of the series net assets, measured at the time of
investment, may be invested in corporate debt securities rated below
investment grade.
The Alger American Fund
The Alger American Fund is a registered investment company organized on April 6,
1988 as a multi-series Massachusetts business trust. The Fund's investment
manager is Fred Alger Management, Inc., which has been in the business of
providing investment advisory services since 1964.
Alger American Small Capitalization Portfolio -- seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities, primarily of companies that, at the time of purchase of
the securities, have "total market capitalization" - present market value
per share multiplied by the number of shares outstanding - within the
range of companies included in the Russell 2000 Growth Index, updated
quarterly. The Russell 2000 Growth Index is designed to track the
performance of small capitalization companies. As of December 31, 1995,
the range of market capitalization of these companies was $20 million to
$2.2 billion.
Alger American MidCap Growth Portfolio -- seeks long-term capital appreciation
by investing in a diversified, actively managed portfolio of equity
securities, primarily of companies that, at the time of purchase of the
securities, have total market capitalization within the range of companies
included in the S&P MidCap 4000 Index, updated quarterly. The S&P MidCap 400
Index is designed to track the performance of medium capitalization
companies. As of December 31, 1995, the range of market capitalization of
these companies was $118 million to $7.5 billion.
Alger American Growth Portfolio -- seeks long-term capital appreciation by
investing in a diversified, actively managed portfolio of equity securities,
primarily of companies with a total market capitalization of $1 billion or
greater.
Alger American Leveraged AllCap Portfolio -- seeks long-term capital
appreciation by investing in a diversified, actively managed portfolio of
equity securities. The Portfolio may engage in leveraging (up to 33 1/3% of
its assets) and options and futures transactions, which are deemed to be
speculative and which may cause the Portfolio's net asset value to be more
volatile than the net asset value of a fund that does not engage in these
activities.
Fidelity Variable Insurance Products Fund and Variable Insurance Products
Fund II
Fidelity Variable Insurance Products Fund and Variable Insurance Products Fund
II are open-end, diversified, management investment companies organized as
Massachusetts business trusts on November 13, 1981 and March 21, 1988,
respectively. The funds are managed by Fidelity Management & Research Company
("FMR") which handles the Funds' business affairs. FMR is the management arm of
Fidelity Investments, which was established in 1946 and is now America's largest
mutual fund manager.
VIP Growth Portfolio -- seeks capital appreciation by investing in common
stocks, although the Portfolio is not limited to any one type of security.
VIP Overseas Portfolio -- seeks long term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means
for investors to diversify their own portfolios by participating in companies
and economies outside of the United States.
VIP 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.
VIP II Asset Manager Portfolio -- seeks high total return with reduced risk over
the long-term by allocating its assets among domestic and foreign stocks,
bonds, and short-term fixed-income instruments.
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VIP II Index 500 Portfolio -- seeks to provide investment results that
correspond to the total return (i.e., the combination of capital changes and
income) of common stocks publicly traded in the United States. In seeking
this objective, the Portfolio attempts to duplicate the composition and total
return of the Standard & Poor's Composite Index of 500 Stocks while keeping
transaction costs and other expenses low. The Portfolio is designed as a
long-term investment option.
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Investment Funds, Inc. is a registered, open-end management
investment company that was organized as a Maryland corporation on August 19,
1993, and is currently comprised of four diversified investment Portfolios,
described below. INVESCO Funds Group, Inc., the Fund's investment adviser, is
primarily responsible for providing the Portfolios with various administrative
services and supervising the Fund's daily business affairs. Portfolio management
is provided to each Portfolio by its sub-adviser. INVESCO Trust Company serves
as sub-adviser to the Industrial Income, High Yield and Utilities Portfolios.
INVESCO Capital Management, Inc. serves as sub-adviser to the Total Return
Portfolio.
INVESCO VIF Total Return Portfolio -- seeks a high total return on investment
through capital appreciation and current income. The Total Return Portfolio
seeks to achieve its investment objective by investing in a combination of
equity securities (consisting of common stocks and, to a lesser degree,
securities convertible into common stock) and fixed income securities.
INVESCO VIF Industrial Income Portfolio -- seeks the best possible current
income while following sound investment practices. Capital growth potential
is an additional, but secondary, consideration in the selection of portfolio
securities. The Industrial Income Portfolio seeks to achieve its investment
objective by investing in securities which will provide a relatively high
yield and stable return and which, over a period of years, also may provide
capital appreciation.
INVESCO VIF High Yield Portfolio -- seeks a high level of current income by
investing substantially all of its assets in lower rated bonds and other debt
securities and in preferred stock. Under normal circumstances, at least 65%
of the Portfolio's total assets will be invested in debt securities having
maturities at the time of issuance of at least three years. Potential capital
appreciation is a factor in the selection of investments, but is secondary to
the Portfolio's primary objective. This Portfolio may not be appropriate for
all Owners due to the higher risk of lower rated bonds commonly known as
"junk bonds." See the prospectus for the INVESCO VIF High Yield Portfolio for
more information concerning these risks.
INVESCO VIF Utilities Portfolio -- seeks capital appreciation and income through
investments primarily in equity securities of companies principally engaged
in the public utilities business.
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a "business trust" under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Van Eck Associates Corporation serves as
investment adviser and manager to the Gold and Natural Resources Fund, and
Fiduciary International Inc. serves as sub-investment adviser to the Worldwide
Balanced Fund.
Van Eck Worldwide Balanced Fund -- seeks long-term capital appreciation together
with current income by investing in stocks, bonds and money market
instruments worldwide.
Van Eck Gold and Natural Resources Fund -- seeks long-term capital appreciation
by investing in equity and debt securities of companies engaged in the
exploration, development, production and distribution of gold and other
natural resources, such as strategic and other metals, minerals, forest
products, oil, natural gas and coal. Current income is not an investment
objective.
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 also 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
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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.
FACTS ABOUT THE CONTRACT
Your Right to Cancel the 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 greater of
Purchase Payments or the Accumulation Value plus any charges we deducted.
Purchase Payments
Initial Purchase Payment
You purchase the Contract with an initial Purchase Payment. The minimum initial
Purchase Payment is $5,000 ($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 20. We will take under
consideration and 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.
For IRA Contracts, the Purchase Payment in any year on behalf of an individual
Contract may not exceed $2,000. Provided your spouse does not make a
contribution to an IRA, you may set up a spousal IRA even if your spouse has
earned some compensation during the year. The maximum amount we will accept for
a spousal IRA is the lesser of $2,250 or 100% of compensation reduced by the
contribution (if any) made by you for the taxable year to your own IRA. However,
no more than $2,000 can go to either your IRA or your spouse's IRA in any one
year. For example, $1,750 may go to your IRA and $500 to your spouse's IRA.
These maximums are not applicable to any Purchase Payment which is the result of
a rollover or transfer from another qualified plan.
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 Exchequer Annuity/Security Life.
Crediting and Allocation of Purchase Payments
We will credit the initial Purchase Payment within two business days of receipt
at our Customer Service Center of a completed application. We may retain the
initial
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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 Period of receipt at our Customer Service Center.
The initial Purchase Payment is allocated among the Divisions according to your
most recent allocation 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 18. 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 Division investing in
the Fidelity VIP Money Market Portfolio during the Free Look Period and then
transferred to the Divisions of the Variable Account according to your most
recent instructions.
You may allocate your Purchase Payments among any or all Divisions available.
All percentage allocations must be in whole numbers. We allocate any additional
Purchase Payments among the Divisions in accordance with your most recent
allocation instructions, 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 or by telephone, if the proper
telephone authorization form is on file with us.
Dollar Cost Averaging
The main objective of Dollar Cost Averaging is to protect your investment from
short-term price fluctuations. Because 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 Division
Accumulation Value in either the Division investing in the Fidelity VIP Money
Market Portfolio or the Neuberger & Berman AMT Limited Maturity Bond Portfolio,
you may choose to transfer a specified dollar amount each month from one of
these Divisions 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
Division Accumulation Value in the Division from which the transfer is taken
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. You may
specify a date for Dollar Cost Averaging to terminate. You may also specify a
dollar amount so that when the Division Accumulation Value in the Division from
which dollar cost averaging transfers are made 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 value in the chosen Division is equal to or
less than the amount you have elected to transfer, 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 notifying 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.
If you elect telephone privileges in an application or send written notice to
our Customer Service Center requesting this privilege, you may make changes to
your Dollar Cost Averaging options by telephoning our Customer Service Center.
See Telephone Priviledges, page 29.
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Automatic Rebalancing
The Automatic Rebalancing feature provides a method for maintaining a balanced
approach to investing your Accumulation Value and simplifying the process of
asset allocation over time. There is no charge for this feature. Any transfers
as a result of the operation of this feature 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 the Automatic
Rebalancing feature, you must change your Automatic Rebalancing allocation
instructions to achieve the transfer.
When you apply for the Contract, or at any subsequent time during the
Accumulation Period, you may elect Automatic Rebalancing by electing this
feature on the application or notifying us in writing or by telephone, if the
proper telephone authorization form is on file with us. Automatic Rebalancing
allows you to match your Division 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 any Division Accumulation Values that may be
out of line with the allocation percentages you initially indicated, which may
result, for example, from Divisions which do not perform as well as the other
Divisions in certain months.
If you elect this feature, as of the first Valuation Date of the next calendar
quarter we will transfer amounts among the Divisions so that the ratio of your
Division 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 this feature 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 notification at our Customer Service
Center and the Free Look Period has ended.
You may change the allocation percentages for Automatic Rebalancing at any time
and your Accumulation Value will be reallocated as of the Valuation Date that we
receive your allocation instructions at our Customer Service Center. Any
reduction in your allocation to the Guaranteed Interest Division, however, will
be considered a transfer from that Division and, therefore, must comply with the
maximum transfer amount and time limitations on transfers from the Guaranteed
Interest Division, as described in Your Right to Transfer Among Divisions,
page 23. We will not process a request which is in conflict with these
requirements.
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.
If you elect both Automatic Rebalancing and Dollar Cost Averaging, 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.
If you elect telephone privileges in an application or send written notice to
our Customer Service Center requesting this privilege, you may make changes to
your Automatic Rebalancing options by telephoning our Customer Service Center.
See Telephone Privileges, page 29.
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 Division
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 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 30. We may also increase the amount of partial
withdrawals which may be withdrawn without surrender charge. For example, group
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arrangements include those in which a trustee, an employer or an association
purchase Contracts covering a group of individuals on a group basis or special
exchange programs Security Life may offer, including programs to officers,
directors and employees (and their families) of Security Life or its affiliates.
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 is 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 and its affiliates. ING America Equities 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. Security Life pays ING America
Equities for acting as principal underwriter under a distribution agreement. The
offering of the Contract will be continuous.
ING America Equities 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 percent of Purchase Payments made (up to a maximum of 6.0%), a percent of
Accumulation Value (up to a maximum of 0.20%), or a combination of these two.
Compensation arrangements may vary among broker-dealers. In addition, we may
also pay override payments, expense allowances, bonuses, wholesaler fees, and
training allowances. Certain registered representatives who meet specified
production levels may qualify, under our sales incentive programs, to receive
non-cash compensation such as expense-paid trips, educational seminars and
merchandise. The writing registered representative will receive a percentage of
these commissions from the respective broker-dealer, depending on the practice
of that broker-dealer. These commissions will be paid to the broker-dealer by
ING America Equities 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 Enhanced Guaranteed
Death Benefit Proceeds are determined:
1) Net Purchase Payments accumulated at 4% per year (0% after attained
Age 75 and for Contracts issued in certain states) 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 Distributions-at-Death Rules, page 38. 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
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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 32.
If a one sum payout is elected, the Proceeds will 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. 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 necessary 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 36.
Your Accumulation Value
The Accumulation Value of your Contract is the sum of the Division Accumulation
Values of all the Divisions of the Variable Account in which your Contract is
invested, plus any Division Accumulation Value of the Guaranteed Interest
Division. Your Division Accumulation Value in 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 32.
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 Variable Account Divisions 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.
For a description of the method of calculating the Accumulation Unit Value, see
the Statement of Additional Information.
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:
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
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5) The daily mortality and expense risk charge for that Division for
each day in the Valuation Period; minus
6) 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.
Division Accumulation Value of Each Division of the Variable Account
The Division 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 Division 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 Division Accumulation Value transferred to such Division during
the current Valuation Period; minus
4) Any Division 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 annual administrative charge applicable to that
Division if a Contract Anniversary occurs during the Valuation
Period.
Division Accumulation Value of the Guaranteed Interest Division
The Division 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 Division Accumulation Value of the Guaranteed
Interest Division is calculated as follows:
1) The Division 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 Division Accumulation Value transferred to the Guaranteed
Interest Division during the current Valuation Period; minus
4) Any Division 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 annual 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 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
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table below summarizes the number of transfers available and any associated
charges during any Contract Year.
<TABLE>
<CAPTION>
Accumulation Annuity
Period Period
------ ------
<S> <C> <C>
Free Transfer 12 4
Total Number of Unlimited 4
Transfers Permitted
Excess Transfer Charge $25 for each Not
Transfer in Applicable
excess of 12
</TABLE>
Except for Contracts issued in certain states, 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. For example, we may refuse to accept or to place certain restrictions
on transfers made by third-party agents acting on behalf of multiple Owners or
made pursuant to market timing services when we determine, at our sole
discretion, that such transfers will be detrimental to the Portfolios and the
Owners as a whole. Such transfers may cause increased trading and transaction
costs, disruption of planned investment strategies, forced and unplanned
portfolio turnover, and lost opportunity costs, and may subject the Portfolios
to large asset swings that diminish the Portfolios' ability to provide maximum
investment return to all Owners.
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:
1) 25% of the balance in the Guaranteed Interest Division immediately
prior to the transfer;
2) $100; or
3) the sum of the amounts that were transferred or withdrawn from the
Guaranteed Interest Division in the prior Contract Year. For
purposes of calculating the maximum transfer amount from the
Guaranteed Interest Division, all partial withdrawals (including
Systematic Income Program partial withdrawals) and transfers from
the Guaranteed Interest Division in a Contract Year are summed.
When a transfer involving the Divisions of the Variable Account is made, 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 elect telephone privileges in an application or send written notice to
our Customer Service Center requesting this privilege, you may make transfers by
telephoning our Customer Service Center. See Telephone Privileges, page 29.
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 Withdrawls, page 26.
Partial withdrawals from the Divisions of the Variable Account will be made by
redeeming Accumulation Units in the affected Divisions at their values as next
computed after we receive your request at our Customer Service Center. 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. 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 30, and The Amount You May Withdrawl Without a
Surrender Charge, page 26.
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 20.
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 taxpayer identification number ("TIN") or
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
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<PAGE>
States. Some states also impose withholding requirements.
If you elect telephone privileges in an application or send 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 29.
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.
Partial withdrawals may be subject to a 10% tax penalty. See Tax Consequences of
Partial Withdrawls, page 26.
Demand Withdrawal Option
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
Cash Surrender Value. See Surrendering to Receive the Cash Surrender Value,
page 26.
Unless you specify otherwise, the amount of the partial withdrawal will be taken
from each Division in the same proportion that the amount of Division
Accumulation Value in that Division bears to the Accumulation Value in all of
the Divisions immediately before the withdrawal.
We impose a partial withdrawal transaction charge for each demand withdrawal
after the first in any Contract Year. See Partial Withdrawl Transaction Charge,
page 30. In addition, a surrender charge could be incurred for demand
withdrawals in excess of certain amounts. See Charges Deducted from the
Accumulation Value, page 30, The Amount You May Withdrawl Without a Surrender
Charge, page 26, and APPENDIX A, page 42.
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 Division
Accumulation Value in the Guaranteed Interest Division to the total Accumulation
Value immediately before the withdrawal.
Systematic Income Program
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 Division 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:
<TABLE>
<CAPTION>
Frequency Maximum Income Payment Percentage
- --------- ---------------------------------
<S> <C>
Monthly 1.25% of Accumulation Value
Quarterly 3.75% of Accumulation Value
</TABLE>
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 then less than $100, the withdrawal will be made, the Systematic
Income Program will be canceled. See APPENDIX A, page 42.
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.
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 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.
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<PAGE>
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 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 unless the minimum distributions are
otherwise satisfied. See Taxation of Individual Retirement Annuities, page 38.
Amounts taken pursuant to the IRA Income Program are not subject to a surrender
charge.
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. See Taxation of Individual
Retirement Annuities, page 38.
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 receipt 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. Any unused portion of a partial withdrawal amount not
subject to a surrender charge is non-cumulative and does not apply to a partial
withdrawal made in subsequent Contract Years.
Demand withdrawals and any Systematic Income Program partial withdrawals which
occur in the same Contract Year as a demand withdrawal are deemed to be made in
the following order:
1) Any Earnings in the Contract;
2) 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;
3) 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;
4) Any Purchase Payments remaining on a first-in, first-out basis.
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 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 20.
For an example illustrating how we would determine the surrender charge (and the
amounts that may be withdrawn without a surrender charge) for a hypothetical
series of demand withdrawals, see APPENDIX A, page 42.
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 36, 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.
We do not guarantee any minimum Cash Surrender Value for amounts invested in the
Divisions of the Variable
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<PAGE>
Account. The amount allocated to the Guaranteed Interest Division and a minimum
interest rate are guaranteed for amounts allocated to the Guaranteed Interest
Division; the amount allocated to the Guaranteed Interest Division will vary
depending on any partial withdrawals, transfers, surrenders, and charges
deducted. 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 31);
2) We deduct any surrender charge (see Surrender Charge, page 30);
3) We deduct the $30 annual administrative charge, if any, due at the
end of the Contract Year (see Administrative Charge, page 31).
For an example illustrating how we determine Cash Surrender Value in certain
hypothetical situations, see APPENDIX A, page 42.
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 on this page.
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 taxpayer identification number ("TIN") or
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 32.
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 in
proper form at our Customer Service Center. However, we may postpone the
processing of any such transactions for any of the following reasons:
1) When the New York Stock Exchange ("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 for up to six months the payout of any partial withdrawal or
Proceeds from the Guaranteed Interest Division.
THE GUARANTEED INTEREST DIVISION
You may allocate all or a portion of your Purchase Payments and transfer your
Accumulation Value subject to certain restrictions to or from the Guaranteed
Interest Division, which is part of our General Account and which pays interest
at a declared rate. See Your Right to Transfer Among Divisions, page 23. 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 interest therein are 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
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<PAGE>
to the accuracy and completeness of statements made in this prospectus. For more
details regarding the General Account, see your Contract.
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.
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 Distribution-at-Death Rules, page 38, if
the Owner (or a Deemed Owner as defined in Distribution-at-Death Rules, page 38)
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 the death; 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 21.
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 32.
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. We will pay Proceeds according
to the most recent Beneficiary designation on file.
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<PAGE>
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 36.
Other Contract Provisions
In Case of Errors on the Application or Enrollment Form
If the Age or sex given in the application is misstated, the amounts payable or
benefits provided by the Contract shall 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, changes in your Dollar Cost Averaging and Automatic Rebalancing
options, 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 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. There may be tax consequences for an assignment. IRA Contracts may not
be assigned. See Assignments, page 39.
Non-Participating
The Contract does not participate in Security Life's surplus earnings.
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<PAGE>
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 this 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 this 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 20. 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. The surrender charge will not apply to partial
withdrawals made pursuant to the Systematic Income and IRA Income Programs
unless a demand withdrawal occurs while the Systematic Income Program is in
effect. 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.
<TABLE>
<CAPTION>
Contract
Anniversaries Since Surrender Charge as a
Purchase Payment Percentage of Purchase
was Made Payment Withdrawal
- -------- ----------------------
<S> <C>
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
</TABLE>
Up to certain limits, partial withdrawals may be taken without a surrender
charge. See The Amount You May Withdraw Without a Surrender Charge, page 26.
Any applicable surrender charges will reduce the Division Accumulation Value of
each Division in the same proportion that the Division 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 or 2% of the amount withdrawn. The partial withdrawal
transaction charge will reduce the Division Accumulation Value of each Division
in the same proportion that the Division 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 and IRA Income Programs unless a demand
withdrawal occurs while the Systematic Income Program is in effect. Then, the
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<PAGE>
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 covers a portion of our administrative
expenses. See Asset-based Administrative Charge, page 32.
The administrative charge is allocated to a Division in the same proportion that
the amount of Division Accumulation Value in that Division bears to the total
Accumulation Value immediately after the withdrawal. For Contracts issued in
certain states, the administrative charge is allocated only among the Divisions
of the Variable Account.
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
Division Accumulation Value in that 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 17, 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 can range 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, if any, 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
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 0.003753% (equivalent to an annual rate of 1.37%) 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 1.02% 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
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<PAGE>
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 as described in the FEE
TABLE on page 7. Please read the prospectus for the Portfolios you are
considering 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. Your Annuity Date election must follow the second
Contract Anniversary but may not be later than the Annuitant's 85th birthday or
the tenth Contract Anniversary, whichever is later. In certain states, the
latest Annuity Date may be limited to an earlier date. If no Annuity Date is
elected in the application, the Annuity Date will be the first day of the month
following the Annuitant's 85th birthday or the first day of the month following
the tenth Contract Anniversary, whichever is later. 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 no later than April 1st of the calendar year
following the calendar year in which you attain Age 70 1/2 unless the minimum
distributions are otherwise satisfied. 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. 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
Division Accumulation Value in each Division bears to the Division 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
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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 Division Accumulation Value invested in the
Guaranteed Interest Division will be allocated among the Divisions of the
Variable Account in the same proportion that the Division Accumulation Value of
each Division bears to the total Division 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 receive payouts
less frequently than monthly, the payout amount is then adjusted according to
the factors in Payouts Other Than Monthly, page 34.
After the first payout, Variable Annuity Payouts 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 Owner may transfer, up to four times each Contract Year, 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 Division
Accumulation Value invested in the Divisions of the Variable Account will be
allocated to the Guaranteed Interest Division. The Fixed Annuity Payouts will be
that amount that the Proceeds will provide as of the Supplementary Contract
Effective Date at the 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 receive
payouts less frequently than monthly, the payout amount is adjusted according to
the factors in Payouts Other Than Monthly, page 34.
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
could decrease and are not guaranteed, 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 are less than $2,000 or, if the
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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 41. 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 33. 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 (unless otherwise prohibited by state law), 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 not available for Ages not 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 2/3 of the installment dollar amount while both Annuitants
were living, excluding any excess interest as described in Fixed Annuity
Payout, page 33.
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 2/3 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 (unless otherwise
prohibited by state law) 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 11.839, 5.963 or 2.993 if
the Benchmark Total Return is 3% and by 11.736, 5.939 or 2.988 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.
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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 Porfolios, page 15. 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 Fund's current prospectus or requiring a vote by shareholders
under the 1940 Act.
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 Division 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 portfolio-by-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, probably
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 1940 Act, certain actions affecting the Variable Account (such as some
of those described under Changes Within The Variable Account, page 17) may
require Owner approval. In that case, you will be entitled to one vote for every
$100 of Division Accumulation Value you have in the Divisions of the Variable
Account. We will cast votes attributable to amounts in the Divisions of the
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Variable Account not attributable to Contracts in the same proportion 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. ING America
Equities, the principal underwriter and distributor of the Contact, is not
engaged in any litigation of any material nature.
Legal Matters
The legality of the Contract described in this prospectus has been passed upon
by Eugene L. Copeland, General Counsel and Secretary of Security Life.
Experts
The consolidated financial statements and schedules of Security Life of Denver
Insurance Company and Subsidiaries at December 31, 1995 and 1994, and for each
of the three years in the period ended December 31, 1995, and the financial
statements of the Separate Account at December 31, 1995, and for each of the two
years in the period ended December 31, 1995, appearing in the Statement of
Additional Information have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon 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 that you are considering.
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 payout received on account of a partial withdrawal from
the Contract.) Under certain circumstances, however, the
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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 39, and
Diversification Standards, page 39.
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 payout less any amounts previously received under the Contract which were
excluded from the taxpayer's gross income at the time of their receipt. For
these purposes, "investment in the Contract" is not affected by the Owner's or
Annuitant's death. That is, the investment in the Contract remains the amount of
any Purchase Payments made which were not excluded from gross income. 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:
1) 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;
2) attributable to the taxpayer's becoming totally disabled within the
meaning of Code Section 72(m)(7);
3) 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;
4) from an IRA;
5) allocable to investment in the Contract prior to August 14, 1982;
6) under a qualified funding asset (as defined in Code Section 130(d));
7) under an immediate annuity Contract, or
8) 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.
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If the penalty tax does not apply to a withdrawal as a result of the application
of item 3) 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 3)
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 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 of receipt
of due proof of death 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.
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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.
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
- --------------------------------------------------------------------------------
Exchequer 39
<PAGE>
1) no more than 55% of the value of each Division is represented by any one
investment;
2) no more than 70% is represented by any two investments;
3) no more than 80% is represented by any three investments; and
4) 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 Portfolio 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 Portfolios in which the Variable Account invests have provided certain
assurances that they will meet the applicable diversification standards.
However, in the case of a master feeder arrangement, we note that the Internal
Revenue Service had not previously ruled that the "look-through" rule referenced
above may be applied to both the feeder fund and the master fund in order to
meet the diversification requirements of Code Section 817(h). Thus, in
connection with the conversion of the Neuberger & Berman Advisers Management
Trust into a master feeder structure effective May 1, 1995 (see "Facts about
Security Life and the Variable Account -- The Portfolios"), Neuberger & Berman
Management Incorporated advised Security Life that it applied for a private
letter ruling from the Internal Revenue Service authorizing such a multiple
look-through. On June 29, 1995, the Internal Revenue Service issued a favorable
private letter ruling regarding the applicability of the "look-through"
provisions of Internal Revenue Code Section 817(h) to the master feeder
structure.
- --------------------------------------------------------------------------------
Exchequer 40
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<S> <C>
SECURITY LIFE 2
THE ADMINISTRATOR 2
PERFORMANCE INFORMATION 2
SEC YIELD FOR THE DIVISION INVESTING IN THE FIDELITY VIP MONEY MARKET PORTFOLIO 2
SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS 3
ACCUMULATION UNIT VALUE 3
DETERMINATION OF ANNUITY PAYOUTS 4
IRA INCOME PROGRAM 6
OTHER INFORMATION 7
FINANCIAL STATEMENTS 7
</TABLE>
- --------------------------------------------------------------------------------
Exchequer 41
<PAGE>
APPENDIX A
Example 1: Hypothetical Illustration of Systematic Income Program Withdrawals
The following example illustrates how Systematic Income Program partial
withdrawals would work if you elected a monthly withdrawal program with the
maximum monthly income payment percentage of 1.25% of Accumulation Value, based
on hypothetical Accumulation Values as shown:
<TABLE>
<CAPTION>
Accumulation Value Systematic Income
Month At Time of Withdrawal Program Withdrawal Amount
- ------- --------------------- -------------------------
<S> <C> <C>
1 $8,500.00 $106.25
2 $8,425.00 $105.31
3 $8,700.00 $108.75
4 $8,150.00 $101.87
5 $7,900.00 $ 98.75
</TABLE>
Because the fifth monthly Systematic Income Program withdrawal amount would be
less than $100 (and is based on the maximum monthly percentage of 1.25%), the
Systematic Income Program would be canceled after this withdrawal, and no
withdrawal would be made for the sixth and subsequent months.
For additional information about the Systematic Income Program, see Systematic
Income Program, page 25.
Example 2: Hypothetical Illustration of a Series of Demand Withdrawals
The following example illustrates how we would determine the surrender charge
(and the amounts that could be withdrawn without a surrender charge) and the
partial withdrawal transaction charge for a hypothetical series of three demand
withdrawals made in the third Contract Year.
For example, assume that:
1) An Owner has made an initial Purchase Payment of $30,000 to a Contract;
2) The Owner has not subsequently made any additional Purchase Payments to
the Contract;
3) The Owner has not taken any partial withdrawals during the first two
Contract Years; and
4) The Accumulation Value of the Contract as of the second Contract
Anniversary is $34,000.
The surrender and partial withdrawal transaction charges associated with each of
the following three hypothetical demand withdrawals would therefore be as
follows:
- --------------------------------------------------------------------------------
Exchequer 42
<PAGE>
<TABLE>
<CAPTION>
First Gross Second Gross
Demand Demand Third Gross
Withdrawal Withdrawal Demand Withdrawal
--------------- --------------- -----------------
<S> <C> <C> <C>
1) Hypothetical Accumulation Value Before $34,200 $33,000/1/ $29,400/2/
Demand Withdrawal
2) 15% Of The Accumulation Value As Of $ 5,100 $ 3,100/3/ $ 0/4/
The Last Contract Anniversary (Less Any
Gross Partial Withdrawals Already Made
During The Contract Year That Are Not
Considered To Be Withdrawals Of
Purchase Payments)
3) Amount Of Accumulation Value $ 4,200/5/ $ 3,000/6/ $ 400/7/
Attributable To Earnings
4) Gross Demand Withdrawal Requested/8/ $ 2,000 $ 4,000 $ 3,000
5) Amount Withdrawn Attributable To Any $ 2,000 $ 3,000 $ 400
Earnings In The Contract
6) Amount Withdrawn Attributable To $ 0 $ 0 $ 0
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
7) Amount Withdrawn Attributable To The $ 0 $ 100 $ 0
Amount By Which 2) Exceeds 3)
8) Amount Withdrawn Attributable To Any $ 0 $ 900 $ 0
Purchase Payments Remaining On A First-
In, First-Out Basis
9) Surrender Charge $ 0 $ 45 $ 130
[8) Multiplied By 5%, The Applicable
Surrender Charge Percentage For
Surrenders Of Purchase Payments Made
During The Contract Year.]
10) Partial Withdrawal Transaction Charge $ 0 $ 25 $ 25
11) Amount Of Net Demand Withdrawal [4) $ 2,000 $ 3,930 $ 2,845
Minus 9) Minus 10)]
</TABLE>
For more information, see Demand Withdrawl Option, page 25, and The Amount You
May Withdrawl Without a Surrender Charge, page 26.
- --------------------
/1/ Accumulation Value after the first Net Demand Withdrawal ($32,200) plus any
Earnings since that time, assumed to be $800.
/2/ Accumulation Value after the second Net Demand Withdrawal ($29,000) plus any
Earnings since that time, assumed to be $400.
/3/ $5,100 minus $2,000, the amount of Gross Partial Withdrawals already made
during the Contract Year that are not considered to be withdrawals of
Purchase Payments.
/4/ $5,100 minus $2,000 minus $3,100, the amount of Gross Partial Withdrawals
already made during the Contract Year that are not considered to be
withdrawals of Purchase Payments.
/5/ Current Accumulation Value ($34,200) minus amount of initial Purchase
Payment ($30,000).
/6/ Cumulative Earnings remaining after the first Demand Withdrawal ($2,200)
plus the Earnings since that time, assumed to be $800.
/7/ Cumulative Earnings remaining after the first and second Demand Withdrawals
($0) plus the Earnings since that time, assumed to be $400.
/8/ We would deem the Gross Demand Withdrawal to be made in the following order
-- 5), 6), 7) and 8) -- for purposes of determining the amount of any
surrender charge. Withdrawals deemed to be taken from 5), 6) or 7) are not
subject to a surrender charge.
- --------------------------------------------------------------------------------
Exchequer 43
<PAGE>
Example 3: Hypothetical Illustration of a Full Surrender
The following example illustrates how we impose the surrender charge and
administrative charge on full surrenders to arrive at the Cash Surrender Value.
For example, assuming that:
1) An Owner has made an initial Purchase Payment of $30,000 to a Contract;
and
2) The Owner has not made any additional Purchase Payments to the Contract;
The Owner's Cash Surrender Value would be as follows, based on hypothetical
Accumulation Values, if the Contract were surrendered at the end of the
applicable time periods:
<TABLE>
<CAPTION>
If You
Surrender Your Hypothetical Purchase Surrender Cash
Contract in Accumulation Earnings Payment Charge Surrender Administrative Surrender
Contract Year Value Withdrawal Withdrawn Percentage Charge Charge Value
- ------------- ----- ---------- --------- ----------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
1 $31,000 $ 1,000 $30,000 7% $2,100 $30 $28,870
3 $40,000 $10,000 $30,000 6% $1,500 $30 $38,470
6 $60,000 $30,000 $30,000 2% $ 600 $30 $59,370
8 $70,000 $40,000 $30,000 0% $ 0 $30 $69,970
</TABLE>
For more information, see Surrender Charge, page 30, and Administrative Charge,
page 31.
- --------------------------------------------------------------------------------
Exchequer 44
<PAGE>
APPENDIX B
Performance Information
We may advertise certain performance related information for the Divisions of
the Variable Account, including yields and average annual total return. Certain
Portfolios have been in existence prior to the commencement of the offering of
the Contract described in this prospectus. We may advertise the performance of
the Divisions that invest in these Portfolios for these prior periods. The
performance information of any period prior to the commencement of the offering
of the Contract is calculated as if the Contract had been offered during those
periods using current charges and expenses.
Performance information for a Division of the Variable Account 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"), the Shearson/Lehman
Intermediate Government/Corporate Bond Index, the Shearson/Lehman Long-Term
Government/Corporate Bond Index; the Donoghue Money Fund Average, the U.S.
Treasury Note Index, 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, Variable
Annuity Research Data Service ("VARDS') or Morningstar, Inc. -- three 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.
Normally these rankings and ratings are published by independent tracking
services and publications of general interest including, but not limited to:
Lipper, VARDS, Morningstar, Donoghue, magazines such as Money, Forbes,
Kiplinger's Personal Finance Magazine, Financial World, Consumer Reports,
Business Week, Time, Newsweek, National Underwriter, U.S. News and World Report,
On Wall Street, Smart Money, Investment Advisor, Securities Industry Management,
Life Insurance Selling, Financial Planning; rating services such as LIMRA,
Value, Best's Agent Guide, Western Annuity Guide, Comparative Annuity Reports,
and other publications such as The Wall Street Journal, Barron's, Investor's
Daily, and Standard & Poor's Outlook.
Performance information for any Division of the Variable Account reflects only
the performance of a hypothetical Contract under which the Division Accumulation
Value is allocated to that Division during the particular time period on which
the calculations are based. The performance information is based on historical
results and is not intended to indicate past or future performance under an
actual Contract.
Below are tables of total return for each Division of the Variable Account for
the most recent one, five and ten years (or since inception of the underlying
Portfolio if less than ten years). Below also are the 7-day yield and effective
yield for the Division investing in the Fidelity VIP Money Market Portfolio.
The yield of the Division investing in the Fidelity VIP Money Market Portfolio
refers to the income generated by an investment in the Division over a 7-day
period (which period will be specified in the advertisement). This income is
then "annualized" by assuming that the income generated in the specific week is
generated over a 52-week period. This annualized yield is shown as a percentage
of the investment. The effective yield calculation is similar, but when
annualized, the income earned by an investment in the Division is assumed to be
reinvested. Thus the effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The yield and
effective yield of this Division reflects the deduction of all charges, expenses
and fees applicable to that Division but not the surrender charge, partial
withdrawal transaction charge, excess transfer charge, or taxes on Purchase
Payments. Yield and effective yield are calculated as shown in the Statement of
Additional Information.
Quotations of the average annual total returns are based on the average
percentage change in value of a hypothetical investment in the specific Division
over a given period of one, five or ten years (or, if less, up to the life of
the Portfolio.) They reflect the deduction of the surrender charge that would
apply if an Owner terminated the Contract at the end of the period indicated,
the
- --------------------------------------------------------------------------------
Exchequer 45
<PAGE>
administrative charge, the mortality and expense risk charge and the asset-
based administrative charge as well as fees and charges of the respective
Portfolio. In addition, average annual total return quotations may also be
accompanied by total return quotations, computed on the same basis as described
above, except deductions will not include the surrender charge. Average annual
total return is calculated as shown in the Statement of Additional Information.
The performance results shown in the following tables are not an estimate or
guarantee of future investment performance, and do not represent the actual
experience of amounts invested by a particular Owner.
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 yield and 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.
The Variable Account may also report other information, including the effect of
tax-deferred compounding on a Division's investment returns, or returns in
general, which may be illustrated by tables, graphs, or charts. All income and
capital gains derived from Division investments are reinvested and can lead to
substantial long-term accumulation of assets, provided that the Division
investment experience exceeds 1.52% on an annual basis over many years.
Security Life is also ranked and rated by independent financial rating services,
among which may include A. M. Best, Duff & Phelps, Moody's, Standard & Poor's
and Weiss Research, Inc. The purpose of these ratings is to reflect the
financial strength or claims-paying ability of Security Life. The ratings are
not intended to reflect the investment experience or financial strength of the
Variable Account.
- --------------------------------------------------------------------------------
Exchequer 46
<PAGE>
Performance Chart
The information below shows how the actual charges of a hypothetical contract
held for specified time periods ending December 31, 1995, would affect the
investment experience of the various Divisions available under the Contract.
The rates of return assume a $1,000 single purchase payment allocated to each
individual Division and no taxes deducted from the Purchase Payment. The returns
for a Contract that is not surrendered and for the 7-day yield for the Division
investing in the Fidelity VIP Money Market Portfolio include all deductions for
contract charges except the surrender charge. The returns for a Contract that is
surrendered reflect all Contract costs -- including the surrender charge -- that
would apply if the Contract were terminated at the end of the period indicated.
(The maximum sales surrender charge on each payment is 7% the first year,
decreasing 1% each year thereafter and equaling 0% after six years.) The maximum
$30 annual administrative charge is reflected using a formula which allows this
charge to be expressed as a percentage of the average Contract size for existing
Contracts. Because the average Contact account size is greater than $1,000, the
expense effect of the annual administrative charge is reduced accordingly.
<TABLE>
<CAPTION>
Total Average Annual Returns Total Average Annual Returns
Assuming Contract Not Surrendered Assuming Contract Surrendered
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio Shorter of Shorter of
--------- 10 Years or 10 Years or
Division Inception 1 Year 5 Years Inception 1 Year 5 Years Inception
- -------- --------- ------ ------- --------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Neuberger & Berman Advisers Management Trust
Limited Maturity Bond Portfolio 09-10-84 9.17% 5.00% 5.92% 2.17% 4.51% 5.92%
Government Income Portfolio 03-22-94 9.98% 5.63% 2.98% 2.36%
Growth Portfolio 09-10-94 29.65% 11.90% 10.25% 22.65% 11.51% 10.25%
Partners Portfolio 03-22-94 34.33% 15.71% 27.33% 12.66%
The Alger American Fund
Alger American Small Capitalization Portfolio 09-21-88 42.04% 18.70% 20.70% 35.04% 18.39% 20.70%
Alger American MidCap Growth Portfolio 05-03-93 42.18% 27.01% 35.18% 25.74%
Alger American Growth Portfolio 01-09-89 34.24% 19.83% 17.65% 27.24% 19.54% 17.65%
Alger American Leveraged AllCap Portfolio 01-25-95 71.77% 64.77%
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 10-09-86 33.23% 18.89% 13.04% 26.23% 18.59% 13.04%
VIP Overseas Portfolio 01-28-87 7.93% 6.40% 5.61% 0.93% 5.93% 5.61%
VIP Money Market Portfolio* 04-01-82 4.21% 3.00% 4.41% -2.79% 2.46% 4.41%
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 09-06-89 15.10% 10.97% 9.48% 8.10% 10.57% 9.48%
VIP II Index 500 Portfolio 08-27-92 35.04% 13.61% 28.04% 12.72%
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Total Return Portfolio 06-02-94 20.85% 13.27% 13.85% 9.71%
INVESCO VIF - Industrial Income Portfolio 08-10-94 27.21% 19.08% 20.21% 15.08%
INVESCO VIF - High Yield Portfolio 05-27-94 17.86% 10.56% 10.86% 6.98%
INVESCO VIF - Utilities Portfolio 01-01-95 7.34% 7.34% 0.34% 0.34%
Van Eck Worldwide Insurance Trust
Worldwide Balanced Fund 12-23-94 -1.70% -2.96% -8.70% -8.84%
Gold and Natural Resources Fund 09-01-89 9.23% 8.41% 5.07% 2.23% 7.97% 5.07%
</TABLE>
*The yield and effective yield for the Division investing in the Fidelity VIP
Money Market Portfolio was 3.93% and 4.00%, respectively, as of December 31,
1995.
The above performance figures reflect past performance only. They neither
guarantee nor predict future investment results under a Contract. Actual rates
of return and values will fluctuate, and you may have a gain or loss when money
is withdrawn from the Contract. The Accumulation Values of the Contract will
depend upon a number of factors, including what investment allocations you
choose and the experience of the Divisions in which you invest.
- --------------------------------------------------------------------------------
Exchequer 47
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
The Exchequer 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 EXCHEQUER 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.
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECURITY LIFE 2
THE ADMINISTRATOR 2
PERFORMANCE INFORMATION 2
SEC YIELD FOR THE DIVISION INVESTING IN THE FIDELITY VIP MONEY MARKET PORTFOLIO 2
SEC STANDARD AVERAGE ANNUAL TOTAL RETURN FOR NON-MONEY MARKET DIVISIONS 3
ACCUMULATION UNIT VALUE 3
DETERMINATION OF ANNUITY PAYOUTS 4
IRA INCOME PROGRAM 6
OTHER INFORMATION 7
FINANCIAL STATEMENTS 7
</TABLE>
Date of Prospectus: May 1, 1996
Date of Statement of Additional Information: May 1, 1996
<PAGE>
SECURITY LIFE
Security Life's immediate parent, ING America Insurance Holdings, Inc., is a
Delaware corporation whose principal business is to act as the holding company
for ING Groep, N.V.'s U.S. insurance companies.
Security Life's indirect intermediate parents, ING Insurance International B.V.
and ING N.V., are Dutch insurance and financial corporations.
Security Life's ultimate parent, ING Groep, 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 of the
Contracts in a continuous offering. The aggregate amount of underwriting
commissions paid to the principal underwriter for Contract sales during the
fiscal year ended December 31, 1995 was $1,167,779.
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
yield of the Divisions and 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,
currently ranging from 0% to 3.5% (5.0% in the Virgin Islands).
See Appendix B, Performance Information, in the Prospectus for a discussion of
the types of performance information that may be published for the Divisions.
SEC Yield for the Division Investing in the Fidelity VIP Money Market Portfolio
The yield and effective yield figures are calculated by standardized methods
prescribed by rules of the Securities and Exchange Commission. Under those
methods, the yield quotation is computed by determining the net change
(exclusive of capital changes) in the value of a hypothetical pre-existing
account having a balance of one Accumulation Unit of the Division at the
beginning of the period, subtracting a charge reflecting deductions from the
account, and dividing the difference by the value of the account at the
beginning of the same period to obtain the base period return, and then
multiplying the return for a seven-day period by (365/7), with the resulting
yield carried to the nearest hundredth of one percent. Effective yield is
computed by compounding the unannualized base period return by using the
formula:
Effective Yield = [base period return + 1 /(365/7)/] - 1
- --------------------------------------------------------------------------------
2
<PAGE>
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, 5 and 10 years,
calculated pursuant to the following formula:
P (1 + T)/n/ = ERV
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, 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 Division Accumulation Value in 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):
<TABLE>
<CAPTION>
Illustration of Calculation of Accumulation Unit Value
<S> <C>
1) AUV for the Division at the end of the preceding Valuation Period $5.00000000
2) Net asset value per share of the Portfolio at the end of the preceding Valuation Period $ 25.00
3) Net asset value per share of the Portfolio at the end of the current Valuation Period $ 25.50
4) Dividends and capital gains declared and reinvested in the Portfolio during the current Valuation Period $ 0.55
5) Charge for taxes per share in the Portfolio during the current Valuation Period $ 0.05
6) Gross investment return factor [3) plus 4) minus 5)] divided by 2) 1.04000000
7) Less daily mortality and expense risk charge .00003753
8) Less daily asset-based administrative charge .00000411
9) Accumulation Experience Factor for the current Valuation Period [6) minus 7) minus 8)] 1.03995836
10) AUV for the Division at the end of the current Valuation Period [1) times 9)] $5.19979178
11) Net Rate of Return for the Division during the current Valuation Period 3.995836%
</TABLE>
- --------------------------------------------------------------------------------
3
<PAGE>
<TABLE>
<CAPTION>
Illustration of Purchase of Units (Assuming No State Tax on Purchase Payments)
<S> <C>
1) Purchase Payment $ 100.00
2) AUV for the Division on the effective date of purchase (see above example) $5.00000000
3) Number of Accumulation Units purchased [1) divided by 2)] 20.000000
4) AUV for the Division on the Valuation Date following purchase (see above example) $5.19979178
5) Value of the Division on the Valuation Date following purchase [3) multiplied by 4)] $ 104.00
</TABLE>
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 Division Accumulation Value invested in the
Guaranteed Interest Division will be allocated among the Divisions of the
Variable Account in the same proportion that the Division Accumulation Value of
each Division of the Variable Account bears to the total Division 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 receive payouts
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:
1) The value of an Annuity Unit in the Division of the Variable Account
from which the transfer is made; divided by
2) The value of an Annuity Unit in the Division of the Variable Account to
which the transfer is made.
- --------------------------------------------------------------------------------
4
<PAGE>
Annuity Unit Value
We use an Annuity Unit Value to calculate the Variable Annuity Payouts. We set
the Annuity Unit Value at $10 on the Valuation Date when the first Annuity
Period investments in a Division of the Variable Account are made. The Annuity
Unit Value for any later Valuation Period is:
1) 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
2) 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:
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 such 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 such
Portfolio in which that Division invests as of the end of the preceding
Valuation Period; minus
5) The daily equivalent of the Variable Account Annual Expenses shown
in the Schedule of the Contract for each day in the current Valuation
Period.
Hypothetical Examples
The following illustrations show, by use of hypothetical examples, the method of
determining the Annuity Unit Value and the amount of several variable Annuity
Payments based on one Division.
Illustration of Calculation of Annuity Unit Value
<TABLE>
<S> <C>
1) Annuity Unit Value for the Division at the end of the preceding Valuation 10.00000000
Period
2) Net asset value per share of the Portfolio at the end of the preceding Valuation $ 25.00
Period
3) Net asset value per share of the Portfolio at the end of the current Valuation $ 25.50
Period
4) Dividends and capital gains declared and reinvested in the Portfolio during the $ 0.55
current Valuation Period
5) Charge for taxes per share in the Portfolio during the current Valuation $ 0.05
Period
6) Gross investment return factor [3) plus 4) minus 5)] divided by 2) 1.04000000
7) Less daily mortality and expense risk charge 0.00003425
8) Less daily asset based administrative charge 0.00000411
9) Annuity Experience Factor for the current Valuation Period 1.03996164
[6) minus 7) minus 8)]
10) Daily factor to compensate for Benchmark Total Return of 3% 1.00008099
</TABLE>
- --------------------------------------------------------------------------------
5
<PAGE>
<TABLE>
<S> <C>
11) Adjusted Annuity Experience Factor for the current Valuation Period 1.03987743
[9) divided by 10)]
12) Annuity Unit Value at the end of the current Valuation Period 10.39877428
[1) times 11)]
</TABLE>
Illustration of Variable Annuity Payments
(assuming no premium tax is applicable)
<TABLE>
<S> <C>
1) Number of Accumulation Units at Annuity Date 1,000.00
2) Accumulation Unit Value 12.55548000
3) Adjusted contract value [1) x 2)] $ 12,555.48
4) First monthly annuity payment per $1,000 of adjusted contract value $ 9.63
5) First monthly annuity payment [3 x 4)/1,000] $ 120.91
6) Annuity Unit Value 10.39877428
7) Number of Annuity Units [5/6)] 11.62726194
8) Assume Annuity Unit Value for second month equal to 10.50000000
9) Second monthly annuity payment [7 x 8)] $ 122.09
10) Assume Annuity Unit Value for third month equal to 10.60000000
11) Third monthly annuity payment [7 x 10)] $ 123.25
IRA INCOME PROGRAM
</TABLE>
If the Owner has an IRA Contract, we will provide payout of amounts required to
be distributed by the Internal Revenue Service unless the minimum distributions
are otherwise satisfied.
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 payment 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.
- --------------------------------------------------------------------------------
6
<PAGE>
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
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 Security Life 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
- --------------------------------------------------------------------------------
7
<PAGE>
Consolidated Financial Statements
Security Life of Denver
Insurance Company
and Subsidiaries
Years ended December 31, 1995, 1994 and 1993
with Report of Independent Auditors
- --------------------------------------------------------------------------------
8
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Financial Statements and Schedules
Years ended December 31, 1995, 1994 and 1993
CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors............................................ 10
Audited Consolidated Financial Statements
Consolidated Balance Sheets.......................................... 11
Consolidated Statements of Income.................................... 13
Consolidated Statements of Stockholder's Equity...................... 14
Consolidated Statements of Cash Flows................................ 15
Notes to Consolidated Financial Statements........................... 17
Financial Statement Schedules
Schedule IV Reinsurance........................................... 46
Schedule V Valuation and Qualifying Accounts and Reserves........ 47
</TABLE>
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.
- --------------------------------------------------------------------------------
9
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
Board of Directors and Stockholder
Security Life of Denver Insurance Company
We have audited the accompanying consolidated balance sheets of Security Life of
Denver Insurance Company (a wholly-owned subsidiary of ING America Insurance
Holdings, Inc.) and subsidiaries as of December 31, 1995 and 1994, 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, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with 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 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, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
made certain accounting changes in 1995, 1994 and 1993.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Denver, Colorado
April 5, 1996
- --------------------------------------------------------------------------------
10
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31
1995 1994
-----------------------
<S> <C> <C>
Assets
Investments (Note 4):
Fixed maturities $2,470,944 $1,955,460
Equity securities 8,369 11,904
Mortgage loans on real estate 285,544 175,459
Investment real estate, at cost, less accumulated
depreciation (1995-$640;1994-$378) 2,908 3,152
Policy loans 754,240 690,494
Other long-term investments 11,870 10,765
Short-term investments 10,946 7,978
----------------------
Total investments 3,544,821 2,855,212
Cash 32,044 17,719
Accrued investment income 38,132 32,393
Reinsurance recoverable:
Paid benefits 11,096 14,734
Unpaid benefits 13,581 9,919
Prepaid reinsurance premiums (Note 10) 1,614,959 1,360,991
Deferred policy acquisition costs (DPAC) 595,232 620,439
Property and equipment, at cost, less
accumulated depreciation (1995-$19,556;
1994-$15,938) 40,418 42,648
Federal income tax recoverable (Note 11) 62,990 -
Deferred federal income taxes (Note 11) - 62,694
Indebtedness of related parties 33,418 10,178
Other assets 64,314 72,912
Separate account asset (Note 8) 31,825 -
----------------------
Total assets $6,082,830 $5,099,839
======================
</TABLE>
See accompanying notes
- --------------------------------------------------------------------------------
11
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Balance Sheets (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31
1995 1994
------------------------
<S> <C> <C>
Liabilities and stockholder's equity
Liabilities:
Future policy benefits (Note 10):
Life and annuity reserves $3,328,405 $2,827,307
Guaranteed investment contracts 1,520,926 1,303,815
Policyholders' funds 75,809 62,099
Advance premiums 231 1,332
Accrued dividends and dividends on deposit 19,886 21,558
Unpaid claims 79,821 53,158
Funds held under reinsurance treaties 32,793 58,315
----------------------
Total future policy benefits 5,057,871 4,327,584
Accounts payable and accrued expenses 75,019 60,687
Indebtedness to related parties 16,248 112,742
Long-term debt to related parties (Note 12) 50,032 50,032
Other liabilities 60,443 47,402
Federal income taxes payable (Note 11) - 11,218
Deferred federal income taxes (Note 11) 44,746 -
Separate account liability (Note 8) 31,825 -
----------------------
Total liabilities 5,336,184 4,609,665
Commitments and contingent liabilities
(Notes 9, 10 and 14)
Stockholder's equity (Note 13):
Common stock, $20,000 par value:
Authorized - 149 shares
Issued and outstanding - 144 shares 2,880 2,880
Additional paid-in capital 297,422 150,792
Net unrealized gains 72,973 6,862
Retained earnings 373,371 329,640
----------------------
Total stockholder's equity 746,646 490,174
----------------------
Total liabilities and stockholder's equity $6,082,830 $5,099,839
======================
</TABLE>
See accompanying notes
- --------------------------------------------------------------------------------
12
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Income
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Revenues:
Traditional life insurance
premiums $150,372 $144,838 $118,355
Universal life and investment
product charges 191,869 152,771 124,206
Reinsurance premiums
assumed 279,308 299,632 274,218
-------------------------------
621,549 597,241 516,779
Reinsurance premiums ceded (96,082) (101,459) (92,918)
-------------------------------
525,467 495,782 423,861
Net investment income 256,065 209,605 195,269
Net realized gains (losses)
on investments 6,564 (7,245) 18,733
Miscellaneous Income 1,941 6,312 2,120
-------------------------------
790,037 704,454 639,983
Benefits and expenses:
Benefits:
Traditional life insurance:
Death benefits 217,136 231,018 225,021
Other benefits 88,326 72,298 55,177
Universal life and investment contracts:
Interest credited to
account balances 164,536 139,942 115,761
Death benefit incurred in excess
of account balances 63,672 73,869 56,130
Increase in policy reserves
and other funds 12,856 85,968 114,009
Reinsurance recoveries (74,305) (73,379) (70,613)
Product conversions 74,291 - -
-------------------------------
546,512 529,716 495,485
Expenses:
Commissions 50,914 16,564 37,530
Insurance operating
expenses 52,414 50,309 36,805
Amortization of deferred
policy acquisition costs 71,450 65,393 8,742
-------------------------------
721,290 661,982 578,562
-------------------------------
Income before federal income
taxes 68,747 42,473 61,421
Federal income taxes (Note 11) 24,296 14,921 21,605
-------- --------- --------
Net income before cumulative
effect of accounting
changes 44,451 27,552 39,816
Cumulative effect of accounting
changes (net of tax):
Accounting for income taxes (Note 11) - - 16,933
Employers accounting for OPEB (Note 7) - - (5,102)
Employers accounting for postemployment
benefits (Note 7) - (1,381) -
-------------------------------
Net income $ 44,451 $ 26,171 $ 51,647
===============================
</TABLE>
See accompanying notes
- --------------------------------------------------------------------------------
13
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Stockholder's Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
-------------------------------
<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 $ 150,792 $135,792
Capital contribution 146,630 - 15,000
-------- --------- --------
Balance at end of year $297,422 $ 150,792 $150,792
======== ========= ========
Net unrealized gains (losses) on investments:
Balance at beginning of year $ 6,862 $ (131) $ (505)
Adjustment to beginning balance for
change in accounting method, net of
income taxes of $46,916 (Note 1) - 87,630 -
Effect on DPAC of change in accounting
method, net of income taxes of $10,117 - (18,790)
Net change in unrealized gains
(losses), net of tax 118,654 (106,911) 374
Effect on DPAC of unrealized
gains and losses
on fixed maturities, net of tax (52,543) 45,064 -
-------- --------- --------
Balance at end of year $ 72,973 $ 6,862 $ (131)
======== ========= ========
Retained earnings:
Balance at beginning of year $329,640 $ 306,349 $257,582
Net income 44,451 26,171 51,647
Dividends paid to stockholder (720) (2,880) (2,880)
-------- --------- --------
Balance at end of year $373,371 $ 329,640 $306,349
======== ========= ========
Total stockholder's equity $746,646 $ 490,174 $459,890
======== ========= ========
</TABLE>
See accompanying notes
- --------------------------------------------------------------------------------
14
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 44,451 $ 26,171 $ 51,647
Adjustments to reconcile net income to net
cash provided by operating activities:
Increase in future policy benefits 471,331 621,578 690,875
Net decrease (increase) in federal income
taxes 33,232 (25,506) (36,930)
Increase in accounts payable and accrued
expenses 26,751 3,771 30,276
Increase in accrued investment income (5,739) (5,651) (9,194)
Increase in reinsurance recoverable (24) (1,767) (13,630)
Increase in prepaid reinsurance premiums (253,968) (397,463) (411,053)
Net realized investment (gains) losses (6,564) 7,245 (18,733)
Depreciation and amortization expense 4,036 3,500 3,780
Policy acquisition costs deferred (127,069) (127,305) (91,343)
Amortization of deferred policy
acquisition costs 71,450 65,393 8,742
Cumulative effect of accounting changes - 1,381 (11,831)
Increase in accrual for postretirement
benefits 623 851 -
Other, net (9,784) (4,894) 6,375
-------- --------- --------
Net cash provided by operating activities 248,726 167,304 198,981
Investing activities
Securities available for sale:
Sales:
Fixed maturities 357,059 73l,460
Equity securities 4,730 148,176 -
Maturities-fixed maturities 280,581 237,586 -
Purchases:
Fixed maturities (935,210) (1,202,024) -
Equity securities (1,300) (130,856) -
Securities held to maturity:
Maturities-fixed maturities 14,156 1,665 -
Purchases-fixed maturities (42,454) -
Sale, maturity or repayment of investments:
Fixed maturities - - 973,460
Equity securities - - l05,229
Mortgage loans on real estate 16,061 17,570 14,012
Investment real estate 215 1,534 636
Other long-term investments 1,064 - 1,871
</TABLE>
- --------------------------------------------------------------------------------
15
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended December 31
1995 1994 1993
-------------------------------
<S> <C> <C> <C>
Investing activities (continued)
Purchase or issuance of investments:
Fixed maturities $ - $ $(1,311,286)
Equity securities - - (142,906)
Mortgage loans on real estate (136,218) (91,410) (44,543)
Investment real estate 14 (156) -
Policy loans, net (63,746) (72,017) (73,943)
Other long-term investments (2,169) (399) (3,316)
Short-term investments, net (9,154) 4,099 102,259
Additions to property and equipment (1,812) (2,280) (3,722)
Disposal of property and equipment 79 (177) -
Purchase of subsidiary - - (7,937)
-------- --------- --------
Net cash used by investing activities (475,650) (399,683) (390,186)
Financing activities
(Decrease) increase in indebtedness to related
parties (16,987) 52,231 102,522
Cash contributions from parent - 15,000 -
Receipts from interest sensitive products
credited to policyholder account balances 387,904 250,396 225,967
Return of policyholder account balances on
interest sensitive policies (128,948) (89,532) (119,743)
Dividends paid to stockholder (720) (2,880) (2,880)
-------- --------- --------
Net cash provided by financing activities 241,249 225,215 205,866
-------- --------- --------
Net increase (decrease) in cash 14,325 (7,164) 14,661
Cash at beginning of year 17,719 24,883 10,222
-------- --------- --------
Cash at end of year $ 32,044 $ 17,719 $ 24,883
======== ========= ========
</TABLE>
Noncash transactions:
In 1995, the Company received a capital contribution of $124,630,000 in fixed
maturities and equity securities. The Company's parent also contributed
$22,000,000 in cash to additional paid-in capital. As of December 31, 1995,
the cash representing the capital contribution had not been received, and the
amount is presented as indebtedness of related parties in the accompanying
consolidated balance sheet. The cash was received by the Company in January
1996.
In 1993, the Company's parent contributed $15,000,000 to additional paid-in
capital. 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
- --------------------------------------------------------------------------------
16
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1995
1. Significant Account Policies
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);
First Secured Mortgage Deposit Corporation; and ING America Equities, Inc.,
formerly SLD Equities, Inc.
Nature of Operations
Security Life of Denver Insurance Company and its subsidiaries (the Company) is
a wholly-owned subsidiary of ING America Insurance Holdings, Inc. (ING America).
The Company focuses on two markets, the advanced market and reinsurance to other
insurers. The life insurance products offered for the advanced market include
wealth transfer and estate planning, executive benefits, charitable giving and
corporate owned life insurance. These products include traditional life,
interest sensitive life, and universal life. Operations are conducted almost
entirely on the general agency basis and the Company is presently licensed in
all states (approved for reinsurance only in New York), the District of Columbia
and the Virgin Islands. In the reinsurance market, the Company focuses on
automatic reinsurance coverages provided to other insurance companies.
The significant accounting policies followed by the Company that materially
affect the financial statements are summarized below:
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which, as to the
insurance companies included in the consolidation, differ from statutory
accounting practices prescribed or permitted by state insurance regulatory
authorities.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
17
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Accounting Changes
Effective January 1, 1993 the Company adopted Financial Accounting Standards
Board (FASB) Statement No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. This statement requires that the projected future
cost of providing postretirement benefits, such as health care and life
insurance be recognized as an expense as employees render service rather than
when benefits are paid. 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 $5,755,000. The effect on net income for 1993
includes the adjustment of $5,102,000 (net of tax of $2,747,000) to
retroactively apply the new rules.
Effective January 1, 1993, the Company adopted FASB Statement No. 109,
Accounting for Income Taxes which requires the adoption of the liability method
for computing deferred tax assets and liabilities. The cumulative effect of
adopting FASB Statement 109 as of January 1, 1993 was to increase net income by
$16,933,000.
Effective January 1, 1994, the Company adopted FASB Statement 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
benefit 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
methods.
In May 1993, the Financial Accounting Standards Board issued FASB Statement No.
115, Accounting for Certain Investments in Debt and Equity Securities (FASB
115). 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 FASB 115 had no impact on income. The opening balance of stockholder's
equity was increased by $68,840,000 (net of tax of $36,799,000) 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.
- --------------------------------------------------------------------------------
18
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Because of the numerous questions that arose during the implementation of FASB
115, the Financial Accounting Standards Board issued A Guide to Implementation
of Statement 115 on Accounting for Certain Investments in Debt and Equity
Securities in November 1995. This Special Report provided interpretive guidance
to the implementation of FASB 115 and provided companies with a one-time period
until December 31, 1995 to reassess the appropriateness of the classifications
of all securities held at the time and account for any resulting
reclassifications at fair value. Reclassifications from the held-to-maturity
category that result from this one-time reassessment do not call into question
the intent of an enterprise to hold other debt securities to maturity in the
future. As a result of this reassessment, the Company reclassified all held-to-
maturity securities to the available-for-sale category effective December 26,
1995. The book value of these securities at the date of transfer was
$98,818,000. At transfer, an unrealized gain of $4,082,000 (net of tax of
$2,198,000) was recognized as a direct increase to stockholder's equity.
Beginning in 1995, the Company adopted FASB Statement No. 114, Accounting by
Creditors for Impairment of a Loan, and Statement No. 118 which amends Statement
No. 114. Under the amended statement, the 1995 allowance for credit losses
related to loans that are identified for evaluation in accordance with Statement
114 is based on discounted cash flows using the loan's initial effective
interest rate or the fair value of the collateral for certain collateral
dependent loans. Adoption of this standard resulted in an insignificant impact
to net income and stockholder's equity.
Investments
Investments are shown on the following bases:
The carrying value of fixed maturities depends on the classification of the
security: securities held to maturity, securities available for sale, and
trading securities. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date. Prior to the reassessment described above, debt
securities were classified as held-to-maturity when the Company had the positive
intent and ability to hold the securities to maturity. Held-to-maturity
securities were 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 and
deferred acquisition cost adjustments, reported in a separate component of
stockholder's equity.
- --------------------------------------------------------------------------------
19
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Investments (continued)
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 net investment
income as earned.
Mortgage loans are carried at the unpaid balances. Investment real estate is
carried at cost, less accumulated depreciation. Policy loans are carried at
unpaid balances. Short-term investments are carried at cost, which approximates
fair value. Derivatives are accounted for on the same basis as the asset
hedged.
Realized gains and losses, and declines in value judged to be other-than-
temporary are included in net realized gains (losses) on investments. The cost
of securities sold is based on the specific identification method.
Recognition of Premium Revenues
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.
- --------------------------------------------------------------------------------
20
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
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 cost are being
amortized generally in proportion to the present value (using the assumed
crediting rate) of expected gross profits from surrender charges and investment,
mortality, and expense margins. This amortization is adjusted retrospectively
when estimates of current or future gross profits to be realized from a group of
products are revised.
Deferred policy acquisition costs are adjusted to reflect changes that would
have been necessary if unrealized investment gains and losses related to
available-for-sale securities had been realized. The Company has reflected
those adjustments in the asset balance with the offset as a direct adjustment to
stockholder's equity.
Future Policy Benefits
Benefit reserves, with the exception of reserves for universal life-type
policies and investment products are computed using a net level premium method
including assumptions as to investment yields, mortality, withdrawals and other
assumptions based on the Company's and industry experience, modified as
necessary to reflect anticipated trends to include provisions for possible
unfavorable deviations. Reserve interest assumptions are those deemed
appropriate at the time of policy issue, and range from 2% to 10%. Policy
benefit claims are charged to expense in the year that the claims are incurred.
Benefit reserves for universal life-type policies (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
4.60% to 8.10% during 1995, 6.15% to 8.10% during 1994, and 6.15% to 8.75%
during 1993.
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.
- --------------------------------------------------------------------------------
21
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Unpaid Claims
The liabilities for unpaid claims include estimates of amounts due on reported
claims and claims that have been incurred but were not reported as of December
31. Such estimates are based on actuarial projections applied to historical
claim payment data and are considered 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 $6,218,000 and $6,052,000 at
December 31, 1995 and 1994, respectively. Participating business approximates
.5% of the Company's ordinary life insurance in force and 1.5% 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 $2,964,000, $3,683,000,
and $3,028,000 were incurred in 1995, 1994, and 1993, 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.
Cash Flow Information
Cash includes cash on hand and demand deposits. Included as a component of
operating activities is interest paid of $4,861,000, $538,000, and $1,661,000
for 1995, 1994, and 1993, respectively.
- --------------------------------------------------------------------------------
22
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. Significant Accounting Policies (continued)
Guaranty Fund Assessments
Insurance companies are assessed the costs of funding the insolvencies of other
insurance companies by the various state guaranty associations generally based
on the amount of premium companies collect in that state. The Company accrues
the cost of future guaranty fund assessments based on estimates of insurance
company insolvencies provided by the National Organization of Life and Health
Insurance Guaranty Associations (NOLHGA) and the amount of premiums written in
each state. The Company reduces the accrual by credits allowed in some states
to reduce future premium taxes by a portion of assessments in that state.
Pending Accounting Standards
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the assets' carrying amount.
Statement 121 also addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt Statement 121 in the first
quarter of 1996 and, based on current circumstances, management does not believe
the effect of adoption will be material.
Reclassifications
Certain amounts in the 1993 and 1994 financial statements have been reclassified
to conform to the 1995 presentation.
2. Fair Values of Financial Instruments
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 instruments.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company. Life insurance liabilities that contain
mortality risk and all nonfinancial instruments are excluded from disclosure
requirements. 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.
- --------------------------------------------------------------------------------
23
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments (continued)
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1995 and 1994 are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
-------------------- --------------------
<S> <C> <C> <C> <C>
Assets
Fixed maturities (Note 4) $2,470,944 $2,470,944 $1,955,460 $1,951,460
Equity securities (Note 4) 8,369 8,369 11,904 11,904
Commercial mortgages 276,552 304,442 165,992 163,215
Residential mortgages 8,992 9,172 9,467 9,467
Policy loans 754,240 754,240 690,494 690,494
Short-term investments 10,946 10,946 7,978 7,978
Liabilities
Guaranteed investment
contracts, net of reinsurance - - 32,779 32,029
Supplemental contracts without
life contingencies 3,033 3,033 3,135 3,135
Other policyholder funds left
on deposit 92,893 92,893 81,854 81,854
Individual and group annuities,
net of reinsurance 49,020 48,457 50,701 49,931
</TABLE>
The carrying values of all other financial instruments approximate their fair
value.
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 (including redeemable preferred stocks) are based on quoted market
prices, where available. For fixed maturities not actively traded, fair
values are estimated using values obtained from independent pricing services
or, in the case of private placements and collateralized mortgage obligations
and other mortgage derivative investments, are estimated by discounting
expected future cash flows using a current market rate applicable to the
yield, credit quality, and maturity of the investments. The discount rate
used as of December 31, 1995 and 1994 was 10%. The fair value of equity
securities are based on quoted market prices.
- --------------------------------------------------------------------------------
24
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments (continued)
Mortgage Loans: 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. The carrying
value for residential loans approximates the fair value.
All residential loans are valued at their outstanding principal balances,
which approximates their fair values.
Policy Loans: The carrying amounts reported in the balance sheet for these
-------------
financial instruments approximate their fair values.
Derivative Financial Instruments: Fair values for on-balance-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.
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 contact sales in the amounts of $10,358,000 and $78,428,000 in
1995 and 1994, respectively to trustees of 401 (k) plans. Pursuant to the
terms of these contracts, the trustees own and retain the assets related to
these contracts. Such assets had a value of $695,288,000 and $684,578,000 at
December 31, 1995 and 1994, 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 86% 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.
- --------------------------------------------------------------------------------
25
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. Fair Values of Financial Instruments (continued)
Letters of Credit
- -----------------
The Company is the beneficiary of letters of credit totaling $71,615,000 which
have a market value to the Company of $0 and two lines of credit totaling
$161,411,000 which have a market value to the Company of $0. (see Note 15).
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 $9,563,000
(including $354,000 of fees and miscellaneous expenses). The acquisition was
accounted for using the purchase method of accounting. The fair market value of
assets acquired totaled $19,108,000 (primarily investment securities), and
liabilities assumed totaled $9,899,000. 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 ING
America 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 ING Equities, Inc. consists only of
distribution of variable life and annuity contracts. ING America Equities, Inc.
does not hold customer funds or securities.
4. Investments
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows at December 31, 1995 and 1994 (in thousands):
- --------------------------------------------------------------------------------
26
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
December 31, 1995
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 99,780 $ 3,503 $ 154 $ 103,129
States, municipalities and
political subdivisions 74,126 1,760 234 75,652
Public utilities securities 76,470 2,841 50 79,261
Debt securities issued by
foreign governments 3,272 -0- -0- 3,272
Corporate securities 659,902 34,246 911 693,237
Mortgage-backed securities 1,230,943 123,306 18,690 1,335,559
Other asset-backed securities 169,847 10,946 2,174 178,619
Derivatives hedging fixed
maturities (Note 5) 3,698 909 2,392 2,215
---------------------------------------------
Total fixed maturities 2,318,038 177,511 24,605 2,470,944
Preferred stocks (nonredeemable) 6,196 275 443 6,028
Common stocks 2,397 13 69 2,341
---------------------------------------------
Total $2,326,631 $177,799 $25,117 $2,479,313
=============================================
</TABLE>
- --------------------------------------------------------------------------------
27
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
<TABLE>
<CAPTION>
4. Investments (continued)
December 31, 1995
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------
<S> <C> <C> <C> <C>
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 hedging 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 $ 113,291 $ 461 $ 4,711 $ 109,041
=============================================
</TABLE>
- --------------------------------------------------------------------------------
28
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
Reconciliation of fixed maturities to the consolidated balance sheet at December
31 is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Available for sale $ 2,470,944 $ 1,842,169
Held to Maturity -0- 113,291
----------- -----------
Total fixed maturities $ 2,470,944 $ 1,955,460
=========== ===========
</TABLE>
The amortized cost and fair value of investments in fixed maturities at December
31, 1995, by contractual maturity, are shown in the following table (in
thousands). 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>
Amortized Fair
Cost Value
----------- -----------
<S> <C> <C>
Available for sale:
Due in one year or less $ 21,465 $ 21,723
Due after one year through five years 328,210 338,964
Due after five years through ten years 461,294 485,319
Due after ten years 106,279 110,760
----------- -----------
917,248 956,766
Mortgage-backed securities 1,230,943 1,335,559
Other asset-backed securities 169,847 178,619
----------- -----------
Total available-for-sale $ 2,318,038 $ 2,470,944
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
29
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
Changes in unrealized gains (losses) on investments in available-for-sale
securities for the year ended December 31, 1995 and 1994 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1995
Fixed Equity Total
-----------------------------------
<S> <C> <C> <C>
Gross unrealized gains $ 177,511 $ 288 $ 177,799
Gross unrealized losses 24,605 512 25,117
-----------------------------------
Net unrealized gains (losses) 152,906 (224) 152,682
Deferred income tax (expense) benefit (53,517) 77 (53,440)
-----------------------------------
Net unrealized gains (losses) after taxes 99,389 (147) 99,242
Less:
Balance at beginning of year (18,854) (558) (19,412)
-----------------------------------
Change in net unrealized gains (losses) $ 118,243 $ 411 $ 118,654
===================================
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
Fixed Equity Total
-----------------------------------
<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 (net of tax of $46,916) 87,630 - 87,630
-----------------------------------
Change in net unrealized losses $ (106,484) $ (427) $(106,911)
===================================
</TABLE>
- --------------------------------------------------------------------------------
30
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
Changes in unrealized gains (losses) on securities for the year ended December
31, 1993 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
December 31, 1993
Fixed Equity Total
---------------------------------
<S> <C> <C> <C>
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 (losses) $ 26,121 $ 374 $ 26,495
=================================
</TABLE>
As part of its overall investment management strategy, the Company has entered
into agreements to purchase $36,700,000 in mortgage loans as of December 31,
1995. These agreements were settled during 1996. The Company had no agreements
to sell securities at December 31, 1995.
Major categories of investment income for the years ended December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------
<S> <C> <C> <C>
Fixed maturities $ 190,327 $ 153,777 $ 143,584
Mortgage loans on real estate 16,601 12,221 8,110
Policy loans 55,438 42,456 43,638
Other investments 4,360 5,654 6,000
---------------------------------
266,726 214,108 201,332
Investment expenses (10,661) (4,503) (6,063)
---------------------------------
Net investment income $ 256,065 $ 209,605 $ 195,269
=================================
</TABLE>
- --------------------------------------------------------------------------------
31
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
4. Investments (continued)
Net realized gains (losses) on investments for the years ended December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ---------- ---------
<S> <C> <C> <C>
Fixed maturities $6,538 $( 3,847) $17,340
Equity securities 5 (1,761) (770)
Real estate and other 21 (1,637) 2,163
------ -------- -------
Net realized gains (losses) on
investments $6,564 $ (7,245) $18,733
====== ======== =======
</TABLE>
During 1995 and 1994, debt and marketable equity securities available-for-sale
were sold with fair value at the date of sale of $306,219,000 and $292,483,000
respectively. Gross gains of $9,691,000 and $6,125,000 and gross losses of
$3,148,000 and $11,733,000 were realized on those sales in 1995 and 1994
respectively.
Proceeds from sales of investments in fixed maturities during 1993 were
$973,460,000. Gross gains of $11,374,000 and gross losses of $9,011,000 were
realized on those sales in 1993.
At December 31, 1995 and 1994, bonds with an amortized cost of $26,730,000 and
$24,547,000, respectively, were on deposit with various state insurance
departments to meet regulatory requirements.
5. Derivative Financial Instruments Held for Purposes Other Than Trading
The Company enters into interest rate contracts, including swaps, caps, floors,
and options, to reduce and manage risks which include, the risk of a change in
the value, yield, price, cash flows, or quantity of, or a degree of exposure
with respect to assets, liabilities, or future cash flows which the Company has
acquired or incurred. Hedge accounting practices are supported by cash flow
matching, scenario testing and duration matching.
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. Interest rate cap and interest rate floor
agreements owned 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. Option agreements owned are used to facilitate asset
liability matching with respect to certain of the Company's Guaranteed
Investment Contract (GIC) liabilities. These contracts give the Company the
option of entering into swaps at specified dates in the future.
Premiums paid for the purchase of interest rate contracts are included in other
assets and are being amortized to interest expense over the remaining terms of
the contracts or in a manner consistent with the
- --------------------------------------------------------------------------------
32
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Derivative Financial Instruments Held for Purposes Other Than Trading
(continued)
financial instruments being hedged. Amounts paid or received, if any, from such
contracts are included in
interest expense or income. Accrued amounts payable to or receivable from
counterparties are included in other liabilities or assets.
Gains and losses as a result of early terminations of interest rate contracts
are amortized to investment income over the remaining term of the items being
hedged to the extent the hedge is considered to be effective, otherwise, they
are recognized upon termination.
Interest rate contracts that are matched or otherwise designated to be
associated with other financial instruments are recorded at fair market value if
the related financial instruments mature, are sold, or are otherwise terminated
or if the interest rate contracts cease to be effective hedges.
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 contacts.
The table below summarizes the Company's interest rate contracts at December 31,
1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
December 31, 1995
Notional Amortized Fair Balance
Amount Cost Value Sheet
------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Interest rate contacts:
Swaps $ 884,632 $ 448 $ 4,034 $ 4,034
Swaps-affiliates 864,632 (448) (3,453) (3,453)
------------ ------- ------- -------
Total swaps 1,749,264 -0- 581 581
Caps owned 400,000 3,580 1,308 1,308
Caps owned-affilaites 40,000 61 -0- -0-
------------ ------- ------- -------
Total caps owned 440,000 3,641 1,308 1,308
Floors owned 100,000 57 326 326
Floors owned-affiliates -0- -0- -0- -0-
------------ ------- ------- -------
Total floors owned 100,000 57 326 326
Options owned 152,000 2,848 2,255 2,255
Options owned-affiliates 152,000 (2,848) (2,255) (2,255)
------------ ------- ------- -------
Total options owned 304,000 -0- -0- -0-
------------ ------- ------- -------
$ 2,593,264 $ 3,698 $ 2,215 $ 2,215
============ ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
33
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. Derivative Financial Instruments Held for Purposes Other Than Trading
(continued)
<TABLE>
<CAPTION>
December 31, 1994
Notional Amortized Fair Balance
Amount Cost Value Sheet
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest rate contacts:
Swaps $ 571,700 $ $(22,387) $(22,387)
-
Swaps-affiliates 567,700 - 20,322 20,322
---------- ------ -------- --------
Total swaps 1,139,400 - (2,065) (2,065)
Caps owned 560,000 5,080 7,822 7,822
Caps owned-affiliates 165,000 1,034 2,552 2,552
---------- ------ -------- --------
Total caps owned 725,000 6,114 10,374 10,374
Floors owned 120,000 107 10 10
Floors owned-affiliates - - - -
---------- ------ -------- --------
Total floors owned 120,000 107 10 10
---------- ------ -------- --------
$1,984,400 $6,221 $ 8,319 $ 8,319
========== ====== ======== ========
</TABLE>
6. Concentrations of Credit Risk
At December 31, 1995, the Company held less-than-investment-grade bonds
classified as available-for-sale with a carrying value of $5,003,000 and market
value of $5,105,000. These holdings amounted to 2% of the Company's
investments in bonds and less than 1% of total assets. The holdings of less-
than-investment-grade bonds are widely diversified and of satisfactory quality
based on the Company's investment policies and credit standards.
At December 31, 1995, the Company's commercial mortgages involved a
concentration of properties located in Colorado (10%), Florida (21%), and
Georgia (10%). The remaining commercial mortgages relate to properties located
in 26 other states. The portfolio is well diversified, covering many different
types of income-producing properties on which the Company has first mortgage
liens. The maximum mortgage outstanding on any individual property is
$8,202,000.
- --------------------------------------------------------------------------------
34
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Employees Benefit Plan
Pension Plan
The Company has a qualified noncontributory defined benefit retirement plan as
well as a non-qualified unfunded Supplemental Employees Retirement Plan (SERP)
covering substantially all permanent employees. The benefits are based on
final average earnings from the time of eligibility for the plan, subject to
minimum benefits based on career earnings. The Company's funding policy for the
qualified plan is to contribute amounts annually to the plan sufficient to meet
the minimum funding requirements set forth in the Employees Retirement Income
Security Act of 1974, plus additional amounts as may be determined to be
appropriate.
The funded status and the amounts recognized in the balance sheets for the
defined benefit plan are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1995 1994
--------------------------------------------
Qualified Qualified
Plan SERP Plan SERP
--------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit
obligation:
Vested $(13,318) $ (5,637) $(13,375) $(1,552)
Nonvested (9,370) - (857) -
-------- -------- -------- -------
(22,688) (5,637) (14,232) (1,552)
Effect of projected future
compensation (5,355) (1,297) (7,337) (1,478)
-------- -------- -------- -------
Projected benefit obligation (28,043) (6,934) (21,569) (3,030)
Less plan assets at fair value 31,074 - 28,147 -
-------- -------- -------- -------
Plan assets in excess of
projected benefit obligation 3,031 (6,934) 6,578 (3,030)
Unrecognized net asset (1,601) - (1,885) -
Unrecognized prior service
benefit cost (109) 267 (122) 297
Unrecognized net loss (gain) 998 4,507 (2,193) 1,310
-------- -------- -------- -------
Net pension asset (liability) $ 2,319 $ (2,160) $ 2,378 $(1,423)
======== ======== ======== =======
</TABLE>
- --------------------------------------------------------------------------------
35
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. Employees Benefit Plan (continued)
Pension Plan (continued)
The net periodic pension cost for the defined benefit plans included the
following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------------------------------------------------------------
Qualified Qualified Qualified
Plan SERP Plan SERP Plan SERP
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,147 $ 285 $1,369 $ 248 $1,303 $ 85
Interest cost 1,856 517 1,521 219 1,373 165
Return on plan
assets (3,497) (1,900) - (7,618) -
Net amortization
and deferral 553 239 (659) 200 5,250 163
------- ------- ------ ------- ------ ----
Net periodic
pension expense $ 59 $ 1,041 $ 331 $ 667 $ 308 $413
======= ======= ====== ======= ====== ====
Assumptions used in accounting for the defined benefit plans as of
December 31, 1995, 1994, and 1993
were as follows:
1995 1994 1993
-----------------------------------
<S> <C> <C> <C>
Weighted-average discount rate 7.25% 8.00% 7.00%
Rate of increase in compensation
level 4.25% 6.00% 5.00%
Expected long-term rate of return
on assets 9.50% 8.50% 8.50%
</TABLE>
Plan assets of the defined benefit plans at December 31, 1995 are invested
primarily in U.S. government securities, corporate bonds, mutual funds, mortgage
loans and money market funds.
401(k) Plan
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 1995 and 1994, and $8,994 in 1993. Such
contributions are not currently taxable to the participants. Beginning in 1994,
the Company matched 100% of the first 3% of participants' contributions, plus
50% of contributions which exceeded 3% of participants' 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 $1,071,000 for 1995, $1,042,000 for 1994, and
$570,000 for 1993.
- --------------------------------------------------------------------------------
36
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
401(k) Plan (continued)
Plan assets of the Savings Plan at December 31, 1995 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
$23.9 million and $21.6 million at December 31, 1995 and 1994, respectively.
Postretirement Benefits
In addition to providing pension and profit sharing plans, the Company provides
certain health care and life insurance benefits for retired employees. Under
the current plans, all employees become eligible for these benefits if they
achieve a minimum of 120 months of service prior to retirement. The plans are
contributory, with retiree contributions adjusted annually, and contain other
cost-sharing features such as deductible amounts and coinsurance.
The following table presents the amounts recognized in the Company's balance
sheets (in thousands):
<TABLE>
<CAPTION>
December 31
--------------------------------------------------------------
1995 1994
--------------------------------------------------------------
Life Life
Medical Insurance Medical Insurance
Plan Plan Total Plan Plan Total
--------- ---------- --------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $(1,234) $(1,140) $ (2,374) $(2,612) $(274) $(2,886)
Fully eligible active plan
participants (383) (364) (747) (492) (65) (557)
Other active plan participants (1,913) (1,134) (3,047) (2,347) (197) (2,544)
------- ------- -------- ------- ----- -------
(3,530) (2,638) (6,168) (5,451) (536) (5,987)
Plan assets at fair value - - - - - -
------- ------- -------- ------- ----- -------
Accumulated postretirement benefit
obligation in excess of plan assets (3,530) (2,638) (6,168) (5,451) (536) (5,987)
Unrecognized prior service cost 463 42 505 571 52 623
Unrecognized net gain (6,114) 1,449 (4,665) (3,982) (359) (4,341)
------- ------- -------- ------- ----- -------
Accrued postretirement benefit cost $(9,181) $(1,147) $(10,328) $(8,862) $(843) $(9,705)
======= ======= ======== ======= ===== =======
</TABLE>
- --------------------------------------------------------------------------------
37
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Postretirement Benefits (continued)
Net periodic postretirement benefit cost for 1995, 1994, and 1993 included the
following components (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
---------------------------------------------------------------------------------
Life Life Life
Medical Insurance Medical Insurance Medical Insurance
Plan Plan Total Plan Plan Total Plan Plan Total
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost $ 359 $175 $ 534 $436 $30 $ 466 $ 434 $22 $ 456
Interest cost 291 112 403 448 39 487 573 36 609
Net amortization and deferral (209) 65 (144) (93) (8) (101) - - -
----- ---- ----- ---- --- ----- ------ --- ------
Net periodic postretirement
benefit cost $ 441 $352 $ 793 $791 $61 $ 852 $1,007 $58 $1,065
===== ==== ===== ==== === ===== ====== === ======
</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 11% graded to 5%
over 18 years. 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, 1995 by $582,200 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1995 by $122,500.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at December 31, 1995 and 8.5% at
December 31, 1994.
8. Separate Accounts
Separate account assets and liabilities represent funds segregated by the
Company for the benefit of certain policyholders who bear the investment risk.
The separate account assets and liabilities are carried at fair value. Revenues
and expenses on the separate account assets and related liabilities equal the
benefits paid to the separate account policyholders and are excluded from the
amounts reported in the Consolidated Statements of Income except for fees
charged for administration services and mortality risk.
- --------------------------------------------------------------------------------
38
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 (in thousands):
<TABLE>
<S> <C>
1996 $4,064
1997 4,207
1998 3,343
1999 271
2000 247
-------
$12,132
=======
</TABLE>
These leases expire between 1996 and 2000. Rental expense for all equipment
leases was approximately $4,344,000, $5,620,000, and $4,798,000 for the years
ended December 31, 1995, 1994, and 1993, 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, 1995, 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 the reinsurance
contacts.
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 the reinsurer 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 (GICs) to and from affiliates under common ownership. In 1995, the
Company ceded a block of GIC business issued in prior years to an affiliate. No
gain or loss was recognized on the transaction. The Company does not hold any
collateral under these agreements.
- --------------------------------------------------------------------------------
39
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. Reinsurance (continued)
These transactions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
--------------------------------------------------
1995 1994
--------------------------------------------------
Premiums Reserves Premiums Reserves
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Direct (nonaffiliated) $ 556,571 $ 1,380,951 $ 660,030 $ 1,200,001
Assumed from Life Insurance Company of Georgia 25,000 128,137 47,450 103,553
Assumed from Southland Life Insurance Company 8,000 11,838
Ceded to Columbine Life Insurance Company (530,291) (1,328,950) (602,680) (1,163,910)
Ceded to Life Insurance Company of Georgia (78.200) (191,976) (104,800) (106,865)
--------- ----------- --------- -----------
Net $ (18,920) $ - $ - $ 32,779
========= =========== ========= ===========
</TABLE>
Ceded GIC reserves totalling $1,521 million are classified as part of prepaid
reinsurance premiums. GIC reserves are reflected at their gross value of $1,521
million.
The Company has ceded blocks of insurance under reinsurance treaties to provide
funds for financial and other purposes. These reinsurance transactions,
generally known as "surplus relief reinsurance," represent financial
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 from reinsurers. During 1995, most of the
agreements were recaptured as part of an overall capital restructuring plan.
This capital restructuring also resulted in a capital contribution from the
Company's parent, of $146,630,000 to replace the reduction in statutory surplus
that resulted from the recapture.
11. Income Taxes
The Company files a consolidated federal income tax return with its parent, 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 income
tax return have entered into a tax sharing agreement that provides for an
allocation of taxes among life and nonlife members. Under the agreement, a life
member may not receive the full benefit of a taxable loss in the year the loss
is incurred. The agreement provides that a loss member will receive at least 50%
of the loss utilized by other members, and that any remaining benefit will be
fully repaid when the loss member could have used the loss if they filed a
separate federal income tax return. The deferred payments or receipts for the
use of losses are accounted for as a component of the Company's deferred tax
liability. At December 31, 1995, there were no deferred benefits or liabilities
recorded with respect to life member losses.
- --------------------------------------------------------------------------------
40
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
1995 1994
---------- ----------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $(197,355) $(203,468)
Unrealized gains/losses (53,440) 10,449
--------- ---------
Total deferred tax liabilities $(250,795) $(193,019)
--------- ---------
Deferred tax assets:
Benefit reserves and surplus relief $ 120,439 $ 172,760
Tax-basis deferred acquisition costs 48,945 41,183
Investment income 12,060 29,806
Unearned investment income 9,383 9,789
Nonqualified deferred compensation 8,785 6,326
Post retirement employee benefits 3,615 3,397
Other, net 2,822 (7,110)
--------- ---------
Total deferred tax assets $ 206,049 $ 256,151
Valuation allowances for deferred tax assets -0- (438)
--------- ---------
Net deferred tax assets 206,049 255,713
--------- ---------
Net deferred tax (liabilities) assets $ (44,746) $ 62,694
========= =========
</TABLE>
Prior to 1995 a valuation allowance had 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 would not
be fully realized. In 1995, a change in judgement about the realization of the
deferred tax asset occurred and the valuation allowance was removed.
- --------------------------------------------------------------------------------
41
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. Income Taxes (continued)
The components of federal income tax expense (benefit) consists of the following
(in thousands):
<TABLE>
<CAPTION>
December 31
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current $(48,136) $ 44,121 $ 31,721
Deferred 72,870 (29,200) (10,339)
Current year change in valuation allowance (438) - 223
-------- -------- --------
Federal income tax expense $ 24,296 $ 14,921 $ 21,605
======== ======== ========
</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 $25,875,000 during 1995, $41,278,000
during 1994, and $39,042,000 during 1993, for current income tax payments and
settlements of prior year returns.
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 at the current tax rate is $24,780,000. The Company does
not anticipate any such action or foresee any events which would result in such
tax, accordingly, a deferred tax liability has not been established.
12. Long-Term Debt
Long-term indebtedness to related parties for $50,000,000 represents the initial
cash draw on a $100,000,000 commitment from ING America Insurance Holdings, Inc.
on December 29, 1994. Additional draws may be made by the Company at its 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.
- --------------------------------------------------------------------------------
42
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. Long-Term Debt (continued)
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.
The principal and interest is scheduled to be repaid in five annual installments
beginning December 31, 1999 and continuing through December 31, 2003 with the
option of prepaying any outstanding principal and accrued interest. On December
29, 1995 after receiving approval from the Colorado State Commissioner of
Insurance a payment of $4,024,000 was made for accrued interest.
Future minimum payments, assuming a current effective interest rate of 5.57%,
are as follows (in thousand):
<TABLE>
<CAPTION>
Total
Year Payments
----------------- --------
<S> <C>
1999 $14,000
2000 14,000
Subsequent years 42,002
-------
Total 70,002
Less imputed interest 20,002
-------
Present value of payments $50,000
=======
</TABLE>
13. Statutory Accounting Information and Practices
Security Life and its insurance 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 1997, 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.
- --------------------------------------------------------------------------------
43
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. Statutory Accounting Information and Practices (continued)
Prescribed statutory reserve methodology does not fully encompass universal
life-type products. The NAIC, however, has promulgated a Model Regulation
regarding Universal Life Reserves. The Colorado Division of Insurance has not
adopted the regulation, but requires that reserves be held which are at least as
great as those required by Colorado Statutes. The NAIC UL Model Regulation is
used by the Company to provide reserves consistent with the principles of this
article. Because the reserves satisfy the requirements prescribed by the State
of Colorado for the valuation of universal life insurance, the Company is
permitted to compute reserves in accordance with this model regulation.
The NAIC prescribes Risk-Based Capital (RBC) requirements for life/health
insurance companies. At December 31, 1995 the Company met RBC requirements.
Capital and surplus, determined in accordance with statutory accounting
practices (SAP), was $333,686,000 and $308,933,000 at December 31, 1995 and
1994, respectively. Net income, determined in accordance with SAP, was
$11,771,000, $9,383,000, and $23,813,000 for the years ended December 31, 1995,
1994, and 1993, respectively.
Security Life is required to maintain a minimum total statutory capital and
surplus in the state of domicile of $1,500,000. Midwestern United is required to
maintain minimum statutory capital of $200,000 and surplus of $250,000 in the
state of domicile. First ING is required to maintain a minimum statutory capital
of $1,000,000 and paid-in surplus of at least 50% of paid-in-capital in the
state of domicile. Each Company exceeded its respective minimum statutory
capital and surplus requirements at December 31, 1995. 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.
14. 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 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.
- --------------------------------------------------------------------------------
44
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. Financing Arrangements
The Company has a $86,411,000 line of credit issued by the Company's parent to
provide short-term liquidity. The amount of funds available under this line are
reduced by any other indebtedness outstanding to the parent including long-term
indebtedness (Note 12). The Company has an additional non-affiliated line of
credit of $75,000,000 also to provide short-term liquidity which expires March
31, 1996. There were no outstanding borrowings under either of these agreements
at December 31, 1995 or 1994. The average balance of short-term debt was $20.8
million during 1995. The weighted average interest rate paid on this debt during
1995 was 5.93%.
The Company is the beneficiary of letters of credit totaling $71,615,000 that
were established in accordance with the terms of reinsurance agreements. The
letters of credit expired on December 31, 1995 and were renewed in 1996. The
letters were unused during both 1995 and 1994.
- --------------------------------------------------------------------------------
45
<PAGE>
SCHEDULE IV
SECURITY LIFE OF DENVER INSURANCE COMPANY AND SUBSIDIARIES
REINSURANCE
For the Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
<TABLE>
<CAPTION>
CEDED ASSUMED PERCENTAGE
GROSS TO OTHER FROM OTHER NET OF AMOUNT
DESCRIPTION AMOUNT COMPANIES COMPANIES AMOUNT ASSUMED TO NET
----------- ------ --------- ---------- ------ --------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1995
Life insurance in force (A)......... $ 35,147,167 $ 31,359,870 $ 74,763,208 $ 78,550,505 95%
Premium income and other
considerations:
Individual Life.................... 285,470 80,385 278,839 483,924 58%
Group and other.................... 56,771 15,697 469 41,543 1%
------------ ------------ ------------ ------------
Total............................ 342,241 96,082 279,308 525,467 53%
Year ended December 31, 1994
Life insurance in force (A)......... $ 30,704,660 $ 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 (A)......... $ 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%
</TABLE>
- --------------------------------------------------------------------------------
(A) Excludes face amount of life insurance in force assumed from or ceded to
other unaffiliated companies under finical reinsurance agreements with
unaffiliated insures generally in return for fees, as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Assumed from other companies.... $ -0- $ -0- $ -0-
Ceded to other companies........ 19,071,586 26,293,453 30,353,061
</TABLE>
These agreements will terminate during the next few years.
- --------------------------------------------------------------------------------
46
<PAGE>
SCHEDULE V
SECURITY LIFE OF DENVER INSURANCE COMPANY AND SUBSIDIARIES
VALIDATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Years Ended December 31, 1995, 1994 and 1993
(In Thousands)
<TABLE>
<CAPTION>
Additions
Balance at --------------------------------
Beginning Charged to Costs Charge to Other Balance at
Description of Period and Expenses Accounts Deductions End of Period
----------- --------- ------------ -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Allowance for mortgage
Loans Losses.......................... $ 670 $2,726 $ $ 670 $ 2,726
Allowance for losses on
real estate.......................... -0- 860 -0-
Allowance for bond losses............. -0- -0-
Allowance for doubtful accounts....... 3,080 142 3,222
Accumulated depreciation on
property and equipment............... 15,938 3,763 145 19,556
Accumulated depreciation on
real estate.......................... 378 263 641
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) (1) -0-
Allowance for doubtful accounts....... 4,335 (851) 3,484
Accumulated depreciation on
property and equipment............... 13,953 3,767 (4,914) (2) 12,806
Accumulated depreciation on
real estate.......................... 578 84 (21) (2) 640
</TABLE>
- -------------
(1) Recapture of bond loss reserve upon sale of the bonds.
(2) Write-off of accumulated depreciation on disposed assets.
- --------------------------------------------------------------------------------
47
<PAGE>
Security Life of Denver Separate Account A1
Financial Statements
Year ended December 31, 1995
<TABLE>
<CAPTION>
CONTENTS
Page
<S> <C>
Report of Independent Auditors............................................ 49
Audited Financial Statements
Statement of Net Assets.............................................. 50
Statement of Operations.............................................. 52
Statements of Changes in Net Assets.................................. 54
Notes to Financial Statements........................................ 57
</TABLE>
- --------------------------------------------------------------------------------
48
<PAGE>
[LETTERHEAD OF ERNST & YOUNG LLP APPEARS HERE]
Report of Independent Auditors
Contractholders
Security Life of Denver Separate Account A1 of
Security Life of Denver Insurance Company
We have audited the accompanying statement of net assets of Security Life of
Denver Separate Account A1 (comprising, respectively, the Neuberger & Berman
Advisers Management Trust (comprising the Limited Maturity Bond, Growth,
Government Income and Partners Portfolios) ("Neuberger and Berman"), the Alger
American Fund (comprising the American Small Capitalization, American MidCap
Growth, American Growth and American Leveraged All Cap Portfolios) ("Alger"),
the Fidelity Variable Insurance Products Fund and Variable Insurance Products
Fund II (comprising the Asset Manager, Growth, Overseas, Money Market and Index
500 Portfolios) ("Fidelity Investments"), the INVESCO Variable Investment Funds,
Inc. (comprising the Total Return, Industrial Income, High Yield and Utilities
Portfolios) ("INVESCO") and Van Eck Worldwide Trust (comprising the Worldwide
Balanced and Gold and Natural Resources Portfolios) ("Van Eck") Divisions) as of
December 31, 1995, and the related statements of operations for the year then
ended and changes in net assets for each of the two years in the period 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 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. Our procedures included
confirmation of securities owned as of December 31, 1995, by correspondence with
the transfer agent. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Life of Denver
Separate Account A1 at December 31, 1995, and the results of its operations for
the year then ended and changes in its net assets for each of the two years in
the period then ended, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
ERNST & YOUNG LLP
Denver, Colorado
April 1, 1996
- --------------------------------------------------------------------------------
49
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
<TABLE>
<CAPTION>
STATEMENT OF NET ASSETS DIVISIONS
---------------------------------------------------------------------
December 31, 1995 NEUBERGER & BERMAN
---------------------------------------------------------------------
Limited
Maturity Government
Combined Bond Growth Income Partners
----------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual
funds at market value
(combined cost
$18,509,222 - Note C) $18,772,321 $5,821,808 $172,915 $144,607 $243,070
----------- -------------------------------------------------------
TOTAL ASSETS 18,772,321 5,821,808 172,915 144,607 243,070
----------- -------------------------------------------------------
LIABILITIES
Due to (from) Security Life of
Denver (30,389) (13,081) 200 493 385
Due to (from) other
divisions 0 0 0 0 0
----------- -------------------------------------------------------
TOTAL LIABILITIES (30,389) (13,081) 200 493 385
----------- -------------------------------------------------------
NET ASSETS $18,802,710 $5,834,889 $172,715 $144,114 $242,685
=========== =======================================================
CONTRACT OWNER
RESERVES
Reserves for redeemable
annuity contracts - Note B $18,802,710 $5,834,889 $172,715 $144,114 $242,685
----------- -------------------------------------------------------
TOTAL CONTRACT OWNER
RESERVES $18,802,710 $5,834,889 $172,715 $144,114 $242,685
=========== =======================================================
Number of divisional units
outstanding - Note F 563,487.916 13,967.690 13,437.293 18,425.180
Value per divisional unit $10.35 $12.37 $10.72 $13.17
=======================================================
<CAPTION>
STATEMENT OF NET ASSETS DIVISIONS
----------------------------------------------------
December 31, 1995 ALGER
----------------------------------------------------
American American American
Small MidCap American Leveraged
Capital Growth Growth AllCap
----------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in mutual
funds at market value
(combined cost
$18,509,222 - Note C) $1,585,965 $653,853 $725,729 $305,100
----------------------------------------------------
TOTAL ASSETS 1,585,965 653,853 725,729 305,100
----------------------------------------------------
LIABILITIES
Due to (from) Security
Life of Denver 628 (1,010) (97) 931
Due to (from) other
divisions 0 0 0 0
----------------------------------------------------
TOTAL LIABILITIES 628 (1,010) (97) 931
----------------------------------------------------
NET ASSETS $1,585,337 $654,863 $725,826 $304,169
====================================================
CONTRACT OWNER
RESERVES
Reserves for redeemable
annuity contracts - Note B $1,585,337 $654,863 $725,826 $304,169
----------------------------------------------------
TOTAL CONTRACT OWNER
RESERVES $1,585,337 $654,863 $725,826 $304,169
====================================================
Number of divisional
units outstanding - Note F 109,121.103 45,272.292 60,576,492 20,636,526
Value per divisional unit $14.53 $14.46 $11.98 $14.74
====================================================
</TABLE>
See the accompanying notes to these financial statements.
- --------------------------------------------------------------------------------
50
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
<TABLE>
<CAPTION>
STATEMENT OF NET
ASSETS (continued) DIVISIONS
---------------------------------------------------------------------
December 31, 1995 FIDELITY INVESTMENTS
---------------------------------------------------------------------
Asset Money
Manager Growth Overseas Market Index 500
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds
at market value $678,420 $1,236,191 $946,493 $2,699,391 $590,402
---------------------------------------------------------------------
TOTAL ASSETS 678,420 1,236,191 946,493 2,699,391 590,402
---------------------------------------------------------------------
LIABILITIES
Due to(from) Security Life
of Denver 1,145 (1,348) 2,088 (21,704) (240)
Due to(from) other
divisions 0 0 0 0 0
---------------------------------------------------------------------
TOTAL LIABILITIES 1,145 (1,348) 2,088 (21,704) (240)
---------------------------------------------------------------------
NET ASSETS $677,275 $1,237,539 $944,405 $2,721,095 $590,642
=====================================================================
CONTRACT OWNER
RESERVES
Reserves for redeemable
annuity contracts - Note B $677,275 $1,237,539 $944,405 $2,721,095 $590,642
---------------------------------------------------------------------
TOTAL CONTRACT OWNER
RESERVES $677,275 $1,237,539 $944,405 $2,721,095 $590,642
=====================================================================
Number of divisional units
outstanding - Note F 62,156.503 91,703.491 91,367.590 259,770.455 45,041.743
Value per divisional unit $10.90 $13.50 $10.34 $10.47 $13.11
=====================================================================
<CAPTION>
DIVISIONS
----------------------------------------------------------------------------------
December 31, 1995 INVESCO VAN ECK
----------------------------------------------------------------------------------
Gold and
Total Industrial Worldwide Natural
Return Income High Yield Utilitites Balanced Resources
----------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual
funds at market value $802,041 $1,053,203 $651,549 $242,253 $145,663 $73,668
----------------------------------------------------------- ---------------------
TOTAL ASSETS 802,041 1,053,203 651,549 242,253 145,663 73,668
----------------------------------------------------------- ---------------------
LIABILITIES
Due to(from) Security Life
of Denver 73 (416) 64 709 578 213
Due to(from) other
divisions 0 0 0 0 0 0
----------------------------------------------------------- ---------------------
TOTAL LIABILITIES 73 (416) 64 709 578 213
----------------------------------------------------------- ---------------------
NET ASSETS $801,968 $1,053,619 $651,485 $241,544 $145,085 $73,455
=========================================================== =====================
CONTRACT OWNER
RESERVES
Reserves for redeemable
annuity contracts - Note B $801,968 $1,053,619 $651,485 $241,544 $145,085 $73,455
----------------------------------------------------------- ---------------------
TOTAL CONTRACT OWNER
RESERVES $801,968 $1,053,619 $651,485 $241,544 $145,085 $73,455
=========================================================== =====================
Number of divisional units
outstanding - Note F 66,073.393 81,266.429 54,748.222 22,313.580 14,721.975 7,301.735
Value per divisional unit $12.14 $12.96 $11.90 $10.82 $9.85 $10.06
=========================================================== =====================
</TABLE>
See the accompanying notes to these financial statements.
- --------------------------------------------------------------------------------
51
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DIVISIONS
------------------------------------------------------------------
December 31, 1995 NEUBERGER & BERMAN
------------------------------------------------------------------
Limited Government
Combined Maturity Bond Growth Income Partners
---------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $174,207 $0 $0 $0 $0
Less: Valuation period
deductions - Note B (87,195) (37,543) (1,246) (640) (383)
---------- ---------------------------------------------------
NET INVESTMENT INCOME 87,012 (37,543) (1,246) (640) (383)
---------- ---------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 123,291 75,180 15,163 176 0
Net unrealized gains (losses) on
investments 263,099 152,085 (1,712) 4,895 6,651
---------- ---------------------------------------------------
Net realized and unrealized gains
(losses) on investments 386,390 227,265 13,451 5,071 6,651
---------- ---------------------------------------------------
NET INCREASE(DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $473,402 $189,722 $12,205 $4,431 $6,268
========== ===================================================
<CAPTION>
STATEMENT OF OPERATIONS DIVISIONS
-------------------------------------------------
December 31, 1995 ALGER
-------------------------------------------------
American American American American
Small MidCap Growth Leveraged
Capital Growth AllCap
-------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $0 $4 $0 $0
Less: Valuation period deductions
- Note B (6,428) (2,500) (1,355) (931)
-------------------------------------------------
NET INVESTMENT INCOME (6,428) (2,496) (1,355) (931)
-------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 9,561 12,642 239 725
Net unrealized gains (losses) on
investments 9,654 15,141 1,282 13,048
-------------------------------------------------
Net realized and unrealized gains
(losses) on investments 19,215 27,783 1,521 13,773
-------------------------------------------------
NET INCREASE(DECREASE) IN
NET ASSETS RESULTING
FROM OPERATIONS $12,787 $25,287 $166 $12,842
=================================================
</TABLE>
See the accompanying notes to these financial statements.
- --------------------------------------------------------------------------------
52
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS
(continued) DIVISIONS
--------------------------------------------------------------
December 31, 1995 FIDELITY INVESTMENTS
--------------------------------------------------------------
Asset Growth Overseas Money Index 500
Manager Market
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds
$0 $0 $92 $67,107 $0
Less: Valuation period
deductions - Note B (1,988) (2,885) (4,139) (17,853) (1,597)
--------------------------------------------------------------
NET INVESTMENT INCOME (1,988) (2,885) (4,047) 49,254 (1,597)
--------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains
(losses) on investments 940 116 2,192 0 1,788
Net unrealized gains
(losses) on investments 25,091 (21,002) 30,743 0 25,008
--------------------------------------------------------------
Net realized and unrealized
gains (losses) on
investments 26,031 (20,886) 32,935 0 26,796
--------------------------------------------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $ 24,043 ($23,771) $ 28,888 $ 49,254 $25,199
--------------------------------------------------------------
<CAPTION>
DIVISIONS
--------------------------------------------------------------------------
December 31, 1995 INVESCO VAN ECK
--------------------------------------------------------------------------
Gold and
Total Industrial High Worldwide Natural
Return Income Yield Utilitites Balanced Resources
----------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds
$16,188 $37,269 $ 51,519 $1,510 $310 $208
Less: Valuation period
deductions - Note B (1,475) (2,359) (2,429) (721) (512) (211)
----------------------------------------------- -------------------------
NET INVESTMENT INCOME 14,713 34,910 49,090 789 (202) (3)
----------------------------------------------- -------------------------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON
INVESTMENTS
Net realized gains
(losses) on investments 557 625 3,010 58 0 319
Net unrealized gains
(losses) on
investments 7,878 7,596 (26,829) 11,466 7 2,097
----------------------------------------------- ----------------------------
Net realized and
unrealized gains
(losses) on investments 8,435 8,221 (23,819) 11,524 7 2,416
----------------------------------------------- ----------------------------
NET INCREASE (DECREASE)
IN NET ASSETS RESULTING
FROM OPERATIONS $23,148 $43,131 $25,271 $12,313 ($195) $2,413
=============================================== ============================
</TABLE>
See the accompanying notes to these financial statements.
- --------------------------------------------------------------------------------
53
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN
NET ASSETS DIVISIONS
--------------------------------------------------------------------
December 31, 1995 NEUBERGER & BERMAN
--------------------------------------------------------------------
Limited
Maturity Government
Combined Bond Growth Income Partners
----------- ----------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS
Net investment income $87,012 ($37,543) ($1,246) ($640) ($383)
Net realized gains
(losses) on investments 123,291 75,180 15,163 176 0
Net unrealized gains
(losses)on investments 263,099 152,085 (1,712) 4,895 6,651
----------- --------------------------------------------------
INCREASE(DECREASE) IN NET
ASSETS FROM OPERATIONS 473,402 189,722 12,205 4,431 6,268
----------- --------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 18,285,858 282,985 76,980 48,315 93,933
Surrenders and withdrawals (407,860) (9,363) (295) 0 (354)
Net transfers among
divisions (including the
guaranteed interest division
in the general account) (132,700) 5,360,568 83,797 91,234 142,832
Other 16,409 10,977 28 134 6
----------- --------------------------------------------------
INCREASE (DECREASE) FROM
PRINCIPAL TRANSACTIONS 17,761,707 5,645,167 160,510 139,683 236,417
----------- --------------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET ASSETS 18,235,109 5,834,889 172,715 144,114 242,685
Net assets at beginning of 567,601 0 0 0 0
year
NET ASSETS AT END OF
YEAR $18,802,710 $5,834,889 $172,715 $144,114 $242,685
=========== ==================================================
<CAPTION>
DIVISIONS
-----------------------------------------------
December 31, 1995 ALGER
-----------------------------------------------
American American
American MidCap American Leveraged
Small Capital Growth Growth AllCap
-----------------------------------------------
<S> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
OPERATIONS
Net investment income ($6,428) ($2,496) ($1,355) ($931)
Net realized gains
(losses) on
investments 9,561 12,642 239 725
Net unrealized gains
(losses) on investments 9,654 15,141 1,282 13,048
-----------------------------------------------
INCREASE(DECREASE) IN NET
ASSETS FROM OPERATIONS 12,787 25,287 166 12,842
-----------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 494,517 91,761 234,037 43,831
Surrenders and withdrawals (3,626) (1,500) (3,259) (3,283)
Net transfers among divisions
(including the guaranteed
interest division in
the general account) 1,082,085 528,066 494,224 250,777
Other (426) 1,258 658 2
-----------------------------------------------
INCREASE (DECREASE) FROM
PRINCIPAL TRANSACTIONS 1,572,550 619,585 725,660 291,327
-----------------------------------------------
TOTAL INCREASE
(DECREASE) IN NET ASSETS 1,585,337 644,872 725,826 304,169
Net assets at beginning of 0 9,991 0 0
year
NET ASSETS AT END OF
YEAR $1,585,337 $654,863 $725,826 $304,169
===============================================
</TABLE>
See the accompanying notes to these financial statements.
- --------------------------------------------------------------------------------
54
<PAGE>
SECURITY LIFE SEPARATE
ACCOUNT A1
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN
NET ASSETS
(continued)
-------------------------------------------------------------------
December 31, 1995 FIDELITY INVESTMENTS
-------------------------------------------------------------------
Asset Index
Manager Growth Overseas Money Market 500
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income ($1,988) ($2,885) ($4,047) $ 49,254 ($1,597)
Net realized gains
(losses) on investments 940 116 2,192 0 1,788
Net unrealized gains
(losses) on investments 25,091 (21,002) 30,743 0 25,008
-----------------------------------------------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS 24,043 (23,771) 28,888 49,254 25,199
-----------------------------------------------------------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Contract purchase payments 308,361 512,787 240,374 14,895,090 160,679
Surrenders and withdrawals (364) (4,474) (1,757) (374,426) (2,171)
Net transfers among
divisions (including the
guaranteed interest
division in the
general account) 345,548 754,085 663,819 (12,379,338) 407,187
Other (313) (1,088) 85 4,292 (252)
-----------------------------------------------------------------
INCREASE (DECREASE) FROM PRINCIPAL
TRANSACTIONS 653,232 1,261,310 902,521 2,145,618 565,443
-----------------------------------------------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 677,275 1,237,539 931,409 2,194,872 590,642
Net assets at beginning of year 0 0 12,996 526,223 0
-----------------------------------------------------------------
NET ASSETS AT END OF YEAR
$ 677,275 $1,237,539 $ 944,405 $ 2,721,095 $590,642
-----------------------------------------------------------------
<CAPTION>
DIVISIONS
-----------------------------------------------------------------------------------
December 31, 1995 INVESCO VAN ECK
-----------------------------------------------------------------------------------
Gold and
Total Industrial High Worldwide Natural
Return Income Yield Utilities Balance Resources
---------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income 14,713 $ 34,910 $ 49,090 $ 789 ($202) ($3)
Net realized gains
(losses) on investments 557 625 3,010 58 0 319
Net unrealized gains
(losses) on investments 7,878 7,596 (26,829) 11,466 7 2,097
---------------------------------------------------- ---------------------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS 23,148 43,131 25,271 12,313 (195) 2,413
---------------------------------------------------- ---------------------------
CHANGES FROM PRINCIPAL TRANSACTIONS
Contract purchase payments 278,714 348,200 31,610 102,416 26,630 14,638
Surrenders and withdrawals (797) (1,106) (994) (91) 0 0
Net transfers among
divisions (including the
guaranteed interest
division in the
general account) 500,886 662,659 588,487 126,901 113,547 49,936
Other 17 735 289 5 (26) 28
---------------------------------------------------- ---------------------------
INCREASE (DECREASE) FROM
PRINCIPAL TRANSACTIONS 778,820 1,010,488 619,392 229,231 140,151 64,602
---------------------------------------------------- ---------------------------
TOTAL INCREASE (DECREASE)
IN NET ASSETS 801,968 1,053,619 644,663 241,544 139,956 67,015
Net assets at beginning of year 0 0 6,822 0 5,129 6,440
---------------------------------------------------- ---------------------------
NET ASSETS AT END OF YEAR
$801,968 $1,053,619 $651,485 $241,544 $145,085 $73,455
==================================================== ===========================
</TABLE>
See the accompanying notes to these financial statements.
- --------------------------------------------------------------------------------
55
<PAGE>
<TABLE>
<CAPTION>
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 Worldwide Natural
INCREASE (DECREASE) IN NET ASSETS Combined Growth Overseas Money Market High Yield Balanced Resources
-------- -------- ------------------------ ----------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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 gains (losses) 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 0 0 565,000 0 0 0
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.
- --------------------------------------------------------------------------------
56
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 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 nineteen 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
________________________________________________________________________________
57
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note A - Organization (continued)
Fred Alger Management, Inc.
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Fidelity Management & Research Company
Fidelity Investments VIP Growth Portfolio
Fidelity Investments VIP Overseas Portfolio
Fidelity Investments VIP Money Market Portfolio
Fidelity Investments VIP II Asset Manager Portfolio
Fidelity Investments VIP II 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.
- --------------------------------------------------------------------------------
58
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
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
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilites and disclosure of
contingent assets and liabilities at the date of financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
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.
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
________________________________________________________________________________
59
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note B - Summary of significant accounting policies (continued)
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, 1995 were $78,576.
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, 1995 were $8,619.
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 transfers to other
divisions, and for certain administrative charges by the Company which were $0
for the year ended December 31, 1995. Distributions made by the Funds are
reinvested in the Funds.
________________________________________________________________________________
60
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note C - Investments (continued)
The following is a summary of fund shares owned as of December 31, 1995:
<TABLE>
<CAPTION>
Number Net Value
of Asset of Shares Cost of
Fund Shares Value at Market Shares
- ---- ------------- ------ ----------- -----------
<S> <C> <C> <C> <C>
Neuberger & Berman:
Limited Maturity Bond 395,772.095 $14.71 $5,821,808 $5,669,723
Growth 6,687.832 25.86 172,915 174,627
Government Income 13,230.270 10.93 144,607 139,712
Partners 18,372.644 13.23 243,070 236,419
Fred Alger Management, Inc.:
American Small Capital 40,242.705 39.41 1,585,965 1,576,311
American Midcap Growth 33,634.393 19.44 653,853 638,712
American Growth 23,290.388 31.16 725,729 724,447
American Leveraged Allcap 17,504.325 17.43 305,100 292,052
Fidelity Management & Research
Co.:
Asset Manager 42,965.163 15.79 678,420 653,329
Growth 42,342.527 29.20 1,236,191 1,257,193
Overseas 55,496.697 17.05 946,493 915,750
Money Market 2,701,313.310 1.00 2,699,391 2,699,391
Index 500 7,798.203 75.71 590,402 565,394
INVESCO Funds Group, Inc.:
Total Return 66,067.307 12.14 802,041 794,163
Industrial Income 83,721.646 12.58 1,053,203 1,045,607
High Yield 59,017.120 11.04 651,549 678,378
Utilities 22,348.067 10.84 242,253 230,787
Van Eck Investment Trust:
Worldwide Balanced 14,573.663 9.99 145,663 145,656
Gold & Natural Resources 5,107.311 14.42 73,668 71,571
----------- -----------
Totals $18,772,321 $18,509,222
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
61
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note C - Investments (continued)
For the year ended December 31, 1995, the aggregate cost of purchases (plus
reinvested dividends) and the proceeds from sales of investments were
$37,656,018 and $19,838,205, respectively.
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.
________________________________________________________________________________
62
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note F - Summary of Changes in Units
The following schedule summarizes the change in divisional units for the year
ended December 31, 1995:
<TABLE>
<CAPTION>
DIVISIONAL UNITS
----------------
Increase (Decrease)
Outstanding Increase (Decrease) for Out-
at for for Surrenders standing
Beginning Payments Divisional and at End
Division of Year Received Transfers Withdrawals of Year
-------- ---------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Neuberger & Berman:
Limited Maturity Bond 0.000 28,550.417 535,423.290 (485.791) 563,487.916
Growth 0.000 6,759.201 7,231.576 (23.087) 13,967.690
Government Income 0.000 4,707.897 8,729.396 0.000 13,437.293
Partners 0.000 7,342.324 11,109.961 (27.105) 18,425.180
Fred Alger Management, Inc.:
American Small Capital 0.000 34,490.795 74,884.162 (253.854) 109,121.103
American MidCap Growth 983.060 6,379.230 38,016.700 (106.698) 45,272.292
American Growth 0.000 19,515.027 41,340.688 (279.223) 60,576.492
American Leveraged AllCap 0.000 3,111.285 17,756.660 (231.419) 20,636.526
Fidelity Management & Research Co.:
Asset Manager 0.000 29,351.671 32,839.606 (34.774) 62,156.503
Growth 0.000 37,542.280 54,491.189 (329.978) 91,703.491
Overseas 1,358.026 23,914.698 66,269.711 (174.845) 91,367.590
Money Market 52,413.096 1,440,901.131 (1,196,570.183) (36,973.589) 259,770.455
Index 500 0.000 12,914.586 32,293.190 (166.033) 45,041.743
INVESCO Funds Group, Inc.:
Total Return 0.000 23,583.529 42,555.885 (66.021) 66,073.393
Industrial Income 0.000 27,723.972 53,628.382 (85.925) 81,266.429
High Yield 676.252 2,806.893 51,352.369 (87.292) 54,748.222
Utilities 0.000 9,926.645 12,395.666 (8.731) 22,313.580
Van Eck Investment Trust:
Worldwide Balanced 513.000 2,705.801 11,503.174 0.000 14,721.975
Gold & Natural Resources 700.158 1,441.696 5,159.881 0.000 7,301.735
</TABLE>
- ----------------------------------------------------------------------------
63
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
The following schedule summarizes the change in divisional units for the year
ended December 31, 1994:
<TABLE>
<CAPTION>
DIVISIONAL UNITS
Increase (Decrease)
Outstanding Increase (Decrease) for
at for for Surrender Outstanding
Beginning Payments Divisional and at End
Division of Year Received Transfers Withdrawals of Year
-------- ----------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Fred Alger Management, Inc.:
American MidCap Growth 0.000 0.000 983.060 0.000 983.060
Fidelity Management & Research Co.:
Overseas 0.000 0.000 1,358.026 0.000 1,358.026
Money Market 0.000 56,500.000 (4,086.904) 0.000 52,413.096
INVESCO Funds Group, Inc.:
High Yield 0.000 0.000 676.252 0.000 676.252
Van Eck Investment Trust:
Worldwide Balanced 0.000 0.000 513.000 0.000 513.000
Gold & Natural Resources 0.000 0.000 700.158 0.000 700.158
</TABLE>
- --------------------------------------------------------------------------------
64
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT A1
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
Note G - Net Assets
Net Assets at December 31, 1995 consisted of the following:
<TABLE>
<CAPTION>
Accumulated Net
Net Realized Unrealized
Accumulated Gains Gains
Principal Investment (Losses) on (Losses) on
Division Transactions Income Investments Investments Net Assets
-------- ------------ ----------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Neuberger & Berman:
Limited Maturity Bond $5,645,167 (37,543) $75,180 $152,085 $5,834,889
Growth 160,510 (1,246) 15,163 (1,712) 172,715
Government Income 139,683 (640) 176 4,895 144,114
Partners 236,417 (383) 0 6,651 242,685
Fred Alger Management, Inc.:
American Small Capital 1,572,550 (6,428) 9,561 9,654 1,585,337
American MidCap Growth 629,475 (2,499) 12,642 15,245 654,863
American Growth 725,660 (1,355) 239 1,282 725,826
American Leveraged AllCap 291,327 (931) 725 13,048 304,169
Fidelity Management & Research Co.:
Asset Manager 653,232 (1,988) 940 25,091 677,275
Growth 1,261,310 (2,885) 116 (21,002) 1,237,539
Overseas 915,421 (4,051) 2,192 30,843 944,405
Money Market 2,669,618 51,477 0 0 2,721,095
Index 500 565,443 (1,597) 1,788 25,008 590,642
INVESCO Funds Group, Inc.:
Total Return 778,820 14,713 557 7,878 801,968
Industrial Income 1,010,488 34,910 625 7,596 1,053,619
High Yield 626,202 49,122 3,010 (26,849) 651,485
Utilities 229,231 789 58 11,466 241,544
Van Eck Investment Trust:
Worldwide Balanced 145,281 (203) 0 7 145,085
Gold & Natural Resources 70,872 (5) 319 2,269 73,455
----------- ------- -------- -------- -----------
Total $18,326,707 $89,257 $123,291 $263,455 $18,802,710
=========== ======= ========= ======== ===========
</TABLE>
-----------------------------------------------------------------------
65
<PAGE>
Part C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
Financial Statements included in Part A:
Condensed Financials
Financial Statements included in Part B:
Security Life Separate Account A1 of Security Life of Denver
Insurance Company.
Report of Independent Auditors.
Statement of Net Assets at December 31, 1995.
Statement of Operations for the Year Ended December 31, 1995.
Statements of Changes in Net Assets for Years Ended
December 31, 1995 and 1994.
Notes to Financial Statements.
Security Life of Denver Insurance Company.
Report to Independent Auditors
Consolidated Balance Sheets at December 31, 1995 and 1994.
Consolidated Statements of Income for Years Ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Stockholder's Equity for Years Ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for Years Ended
December 31, 1995, 1994 and 1993.
- --------------------------------------------------------------------------------
C-1
<PAGE>
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/
-
4. (a) Specimen Variable Annuity Contract (Form No. 1198(VA)). 4/
-
(b) Specimen Election and Supplementary Agreement for a
Settlement Option. 3/
-
5. Specimen Exchequer Annuity Application (Form No. Q-1154). 4/
-
6. (a) Restated Articles of Incorporation of Security Life of Denver
Insurance Company, dated May 31, 1995. 6/
-
(b) By-Laws of Security Life of Denver Insurance Company, with
Amendments through February 14, 1994. 6/
-
7. Not applicable.
8. (a) Form of Amendment to the Participation Agreement. 5/
-
(b) Amendments to the Participation Agreements. 5/
-
(c) Service Agreement. 5/
-
(d) Participation Agreements. 3/
-
- --------------------------------------------------------------------------------
C-2
<PAGE>
(e) Administrative Services Agreement between Security Life of
Denver Insurance Company and Financial Administrative
Services Corporation. 2/
-
(f) Amendment to Administrative Services Agreement between
Security Life of Denver Insurance Company and Financial
Administrative Services Corporation. 5/
-
9. Opinion and Consent of Eugene L. Copeland as to the legality the
securities being registered. 4/
-
10. Consent of Independent Auditors.
11. None.
12. None.
13. Schedule for Computation of Performance Quotations.
14. Financial Data Schedule.
15. Powers of Attorney. 4/
-
16. List of Affiliated Companies of Security Life of Denver
Insurance Company.
_______________________________
1/ Incorporated herein by reference to the Form N-4 Registration Statement
- -
of Security Life of Denver and its Security Life Separate Account A1, filed
with the Securities and Exchange Commission on December 3, 1993
(File No. 33-72564).
2/ Incorporated herein by reference to the Pre-Effective Amendment No. 1 to
- -
Form N-4 Registration Statement of Security Life of Denver and its Security
Life Separate Account A1, filed with the Securities and Exchange Commission
on February 21, 1995 (File No. 33-72564).
3/ Incorporated herein by reference to the Pre-Effective Amendment No. 2 to
- -
Form N-4 Registration Statement of Security Life of Denver and its Security
Life Separate Account A1, filed with the Securities and Exchange Commission
on October 7, 1994 (File No. 33-78444).
4/ Incorporated herein by reference to the Post-Effective Amendment No. 1 to
- -
Form N-4 Registration Statement of Security Life of Denver and its Security
Life Separate Account A1, filed with the Securities and Exchange Commission
on February 28, 1995 (File No. 33-78444).
5/ Incorporated herein by reference to the Post-Effective Amendment No. 2 to
- -
Form N-4 Registration Statement of Security Life of Denver and its Security
Life Separate Account A1, filed with the Securities and Exchange Commission
on April 28, 1995 (File No. 33-78444).
6/ Incorporated herein by reference to the Pre-Effective Amendment No. 1 to
- -
Form S-6 Registration Statement of Security Life of Denver and its Security
Life Separate Account L1, filed with the Securities and Exchange Commission
on August 4, 1995 (File No. 33-88148).
- --------------------------------------------------------------------------------
C-3
<PAGE>
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
Business and Address with Security Life of Denver
- -------------------- ----------------------------
R. Glenn Hilliard
ING Chairman of the Board
North America Insurance Corporation
5780 Powers Ferry Road
Atlanta, GA 30327-4390
Robert J. St. Jacques Vice Chairman and Chief Executive Officer
ING
North America Insurance Corporation
5780 Powers Ferry Road
Atlanta, GA 30327-4390
Stephen M. Christopher Director, President and Chief Operating
Officer
Catherine T. Fitzgerald Executive Vice President
ING
North America Insurance Corporation
5780 Powers Ferry Road
Atlanta, GA 30327-4390
Keith T. Glover Executive Vice President
ING
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Thomas F. Conroy Director and President - Reinsurance
and Institutional Markets
- --------------------------------------------------------------------------------
C-4
<PAGE>
Name and Principal Position and Offices
Business and Address with Security Life of Denver
- -------------------- ----------------------------
Michael W. Cunningham Director
ING
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Linda B. Emory Director
ING
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Wayne D. Bidelman Sr. Vice President and Chief Operating
Officer - Reinsurance
Eugene L. Copeland Sr. Vice President, General Counsel &
Corporate Secretary
Benjamin A. Currier Sr. Vice President - Operations
James L. Livingston Sr. Vice President and Chief Actuary
Jeffery W. Seel Sr. Vice President and Chief Investment
ING Officer
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Jess A. Skriletz Sr. Vice President - Institutional Markets
Louis N. Trapolino Sr. Vice President - Marketing and Chief
Marketing Officer
William D. Tyler Sr. Vice President and Chief Information
Officer
Kevin W. Ahern Vice President and Sr. Portfolio Manager
William H. Alexander Vice President and Medical Director -
Reinsurance
Evelyn A. Bentz Vice President - M Financial Sales
- --------------------------------------------------------------------------------
C-5
<PAGE>
Name and Principal Position and Offices
Business and Address with Security Life of Denver
- -------------------- ----------------------------
Daniel S. Clements Vice President and Chief Underwriter
Jeffery L. Davis Vice President - Marketing Systems
Linda Elliott Vice President - Systems Development
Lyndon E. Oliver Vice President and Treasurer
ING
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
John F. Kerper Vice President and Actuary
ING
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Richard D. King Vice President and Medical Director
Philip R. Kruse Vice President - Reinsurance Marketing
Charles D. Lewis, Jr. Vice President - Corporate Education and
Development
Charles Lynn McPherson Vice President - Business Insurance
ING Operations
North America Insurance Corp.
5780 Powers Ferry Road
Atlanta, Georgia 30327-4390
Sue A. Miskie Vice President - Corporate Services
Donna T. Mosely Vice President - Valuation
Daniel G. Patsey Vice President - Strategic Technology
Ronald K. Peterson Vice President - Pricing & Financial Planning
Kristen Rhodes-Anderson Vice President - Strategic Marketing
- --------------------------------------------------------------------------------
C-6
<PAGE>
Name and Principal Position and Offices
Business and Address with Security Life of Denver
- -------------------- ----------------------------
Christiaan M. Rutten Vice President - Structured Reinsurance
Mark A. Smith Vice President - Insurance Services
Jerome M. Strop Vice President - Finance
William J. Wagner Vice President - Product Development
James L. Walker Vice President and Chief Underwriter -
Reinsurance
Richard L. Wisott Vice President - New Market Development
Frank T. Wright Vice President - Variable Sales
T. Kirby Brown, Jr. Second Vice President and Senior Portfolio
Manager
John G. Grant Second Vice President and Senior Portfolio
Manager
Edward K. Campbell Legal Officer
Irene M. Colorosa Assistant Secretary
Marsha K. Crest Agency Administration Officer
John B. Dickinson Actuarial Officer
Denise S. Dumont Computer Services Officer
Pamela C. Erbes New Market Development Officer
Relda A. Fleshman Legal Officer
Leonard Heim Actuarial Officer
Shirley A. Knarr Actuarial Officer
Casey J. Scott Field Operations Officer
- --------------------------------------------------------------------------------
C-7
<PAGE>
Name and Principal Position and Offices
Business and Address with Security Life of Denver
- -------------------- ----------------------------
Lisa K. Smith Denver Operations Management Officer
Glen E. Stark Actuarial Officer
Gary W. Waggoner Legal Officer
Amy L. Winsor Finance and Tax Officer
Item 26. Persons Controlled by or Under Common Control with
Security Life or Registrant
--------------------------------------------------
Security Life, the depositor of Security Life Separate Account A1, is an
indirect wholly-owned subsidiary of ING Groep, N.V. ("ING"). ING is a holding
company made up of two sub-holding companies, ING Verzekeringen N.V. ("ING
Insurance") and ING Bank N.V. ("ING Bank"). The ING address is:
Post Office Box 810
1000 AV Amsterdam
The Netherlands
The voting shares of ING are registered in the name of a Trustee, which under
a trust agreement with ING has issued against these shares non-voting bearer
depository receipts which are listed on the stock exchanges of Amsterdam,
Antwerp, Basel, Brussels, Frankfurt, Geneva, Paris and Zurich. This kind of
trust arrangement is not uncommon among public companies in the Netherlands and
the ING Trustee's principal business is the administration of such trust
arrangements with respect to the shares of ING and the shares of other Dutch
corporations. The bearer depository receipts can be exchanged for voting shares
on an extremely limited basis under which no one shareholder may ever hold more
than 1% of any class of voting shares.
Although trustees formally have and exercise voting rights, these rights are
limited. For example, trustees do not have the right to elect directors. Also,
it is the general policy of the Netherlands that these trustees follow the
recommendations of the Boards of Directors and the management of corporations
and will not exercise voting rights to influence the operations of these
corporations in the normal course of events.
ING Insurance is one of the largest insurance operations in the world. More
than half of its total consolidated premium income is derived from life
insurance underwriting. ING Insurance also participates in underwriting fire,
marine and aviation, motor vehicle, accident and sickness insurance, and
professional
- --------------------------------------------------------------------------------
C-8
<PAGE>
reinsurance. ING Insurance subsidiaries are engaged in the insurance
underwriting business in Europe, North America, Latin America, Australia, the
Caribbean and Asia.
Although Security Life's ultimate parent company is ING, one hundred percent
of the issued and outstanding stock is owned directly by ING America Insurance
Holdings, Inc. ("ING America Holdings"), a holding company incorporated in the
state of Delaware. ING America Holdings is wholly owned by ING Insurance
International, B.V., which is in turn wholly owned by ING Insurance. Security
Life's subsidiary organization is composed of the following:
a. Wilderness Associates, a Colorado partnership in which Security Life is a
49% partner.
b. CAMVEST Company No. 3, a wholly owned Colorado subsidiary corporation.
c. United Protective Company, a wholly owned Arizona subsidiary corporation.
d. First Secured Mortgage Deposit Corp., a wholly owned Colorado subsidiary
corporation.
e. Midwestern United Life Insurance Company, a wholly owned Indiana
subsidiary corporation.
f. First ING Life Insurance Company of New York, a wholly owned New York
subsidiary corporation.
g. ING America Equities, Inc., a wholly owned Colorado subsidiary
corporation.
Included herein as Exhibit 16 is a list of the U.S. holdings of ING America
Holdings as of December 1995.
Item 27. Number of Contract Owners
-------------------------
As of March 1, 1996, a date within 90 days prior to the date of filing, there
were 272 owners of contracts offered by the prospectus filed as part of
Registrant's Registration Statement (File No. 33-78444). The Registrant has
registered different variable annuity contracts through another Registration
Statement (File No. 33-72564) but sales of those contracts have not yet
commenced.
Item 28. Indemnification
---------------
Incorporated herein by reference to the Form N-4 Registration Statement filed
with the Securities and Exchange Commission on August 16, 1994 (File Nos.
33-78444 and 811-8196).
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
- --------------------------------------------------------------------------------
C-9
<PAGE>
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
- -------------------- ---------------------
Edward K. Campbell Director and President
Frank T. Wright Director and Vice President
Melodie A. Maxwell-Jones Director and Chief Compliance Officer
Eugene L. Copeland Secretary
Irene M. Colorosa Assistant Secretary
Debra Bell Chief Financial Officer
Shari A. Enger Treasurer
Jerrianne Smith Chief Operating Officer
c) None
Item 30. Location of Accounts and Records
--------------------------------
The records required to be maintained by Section 31(a) of the Investment
Company 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 herein by reference to Pre-Effective Amendment No. 1 to the Form
N-4 Registration Statement filed with the Securities and Exchange Commission on
August 16, 1994 (File Nos. 33-78444 and 811-8196).
- --------------------------------------------------------------------------------
C-10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, and the Investment
Company Act of 1940, Security Life of Denver Insurance Company certifies that it
meets the requirements of Securities Act Rule 485(b) for effectiveness of the
Registration Statement, and has duly caused this Post-Effective Amendment No. 1
to the 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 23rd day of
April, 1996.
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
By: /s/: Stephen M. Christopher*
----------------------------
Stephen M. Christopher
President and Chief Operating Officer
SECURITY LIFE SEPARATE ACCOUNT A1
(Registrant)
By: SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
By: /s/: Stephen M. Christopher*
----------------------------
Stephen M. Christopher
President and Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 1 to the 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:
/s/: Robert J. St. Jacques*
- ---------------------------
Robert J. St. Jacques
Chief Executive Officer
- --------------------------------------------------------------------------------
C-11
<PAGE>
/s/: Stephen M. Christopher
- ---------------------------
Stephen M. Christopher
President and Chief Operating Officer
PRINCIPAL FINANCIAL OFFICER AND
PRINCIPAL ACCOUNTING OFFICER:
/s/: Michael W. Cunningham*
- ---------------------------
Michael W. Cunningham
Acting Chief Financial Officer and Acting Principal Accounting Officer
DIRECTORS:
/s/: R. Glenn Hilliard (Chairman)*
- -----------------------------------
R. Glenn Hilliard
/s/: Robert J. St. Jacques*
- ----------------------------
Robert J. St. Jacques
/s/: Thomas F. Conroy*
- -----------------------
Thomas F. Conroy
/s/: Michael W. Cunningham*
- ----------------------------
Michael W. Cunningham
/s/: Linda B. Emory*
- ---------------------
Linda B. Emory
/s/: Stephen M. Christopher*
- -----------------------------
Stephen M. Christopher
* By: /s/: Edward K. Campbell
-----------------------
Edward K. Campbell
Attorney-in-fact
April 23, 1996
- --------------------------------------------------------------------------------
C-12
<PAGE>
EXHIBIT INDEX
Security Life Separate Account A1
(File No. 33-78444)
Exhibit Number Description
- -------------- -----------
11. Schedule for Computation of Performance Quotations
21. List of Affiliated Companies of Security Life
of Denver Insurance Company
23. Consent of Independent Auditors
27. Financial Data Schedule
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 1, 1996 (with respect to Security Life Separate
Account A1) and April 5, 1996 (with respect to Security Life of Denver Insurance
Company), in Post-Effective Amendment No. 3 to the Registration Statement (Form
N-4 No. 33-78444 and 811-8196) and related Prospectus of Security Life of Denver
Insurance Company and Security Life Separate Account A1 dated May 1, 1996.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
Denver, Colorado
April 23, 1996
<PAGE>
VIP MONEY MARKET
7-DAY YIELD AND EFFECTIVE YIELD
7-day period ended 12/31/95
YIELD
- -----
(Base Period Return) X (365/7)
= 0.00075324 X (365/7)
= 3.93%
EFFECTIVE YIELD
- ---------------
(1 + Base Period Return)/365/7/ - 1
= (1 + 0.00075324)/365/7/ - 1
= 4.00%
Where:
UV = Unit Value
NCS = UV\\Beginning of Period\\ - UV\\End of Period\\
= 10.47260000 - 10.46451700
= 0.00808300
ES = Annual Contract Charge per Week, based on Average Account Size
= (30 / (365/7)) / Average Account Size of $30,000
= 0.00001918
Base Period Return = (NCS / UV\\Beginning of Period\\) - ES
= (0.00808300 / 10.46451700) - 0.00001918
= 0.00075324
<PAGE>
Average Annual Total Return for Non-Money Market Subaccounts
P(1 + T)/n/ = ERV
Where:
[P] equals a hypothetical initial purchase payment of $1,000
[T] equals the average annual total return ( or fractional period
thereof)
[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
Except Subaccounts with less than 1 year from the inception date to 12/31/95
Alger American Leveraged AllCap
Fidelity VIP II Contrafund
P(1 + Cumulative Total Return) = ERV
Where:
[P] equals a hypothetical initial purchase
payment of $1,000
[ERV] equals the ending redeemable value of a
hypothetical $1,000 Purchase Payment made
at the beginning of the period
[Cumulative Total Return] equals the total return since inception
<PAGE>
<TABLE>
<CAPTION>
Neuberger & Berman Limited Maturity Bond
Assuming Contract Surrendered
<S> <C> <C> <C> <C>
Period : 1
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
12/31/94 1000.00 9.47633323 10.35447300 1092.67
- ---------------------------------------------------------
12/31/95 -70.00 10.35447300 10.35447300 -70.00
- ---------------------------------------------------------
12/31/95 -1.00 10.35447300 10.35447300 -1.00
- ---------------------------------------------------------
Avg Annual Return: 2.17% Total: 1021.67
Period : 3
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
12/31/92 1000.00 9.17508261 10.35447300 1128.54
- ---------------------------------------------------------
12/31/93 -1.00 9.63555835 10.35447300 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 9.47633323 10.35447300 -1.09
- ---------------------------------------------------------
12/31/95 -50.00 10.35447300 10.35447300 -50.00
- ---------------------------------------------------------
12/31/95 -1.00 10.35447300 10.35447300 -1.00
- ---------------------------------------------------------
Avg Annual Return: 2.45% Total: 1075.38
Period : 5
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
12/31/90 1000.00 8.07684384 10.35447300 1281.99
- ---------------------------------------------------------
12/31/91 -1.00 8.85742148 10.35447300 -1.17
- ---------------------------------------------------------
12/31/92 -1.00 9.17508261 10.35447300 -1.13
- ---------------------------------------------------------
12/31/93 -1.00 9.63555835 10.35447300 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 9.47633323 10.35447300 -1.09
- ---------------------------------------------------------
12/31/95 -30.00 10.35447300 10.35447300 -30.00
- ---------------------------------------------------------
12/31/95 -1.00 10.35447300 10.35447300 -1.00
- ---------------------------------------------------------
Avg Annual Return: 4.51% Total: 1246.53
Period : 10
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
12/31/85 1000.00 5.78606247 10.35447300 1789.55
- ---------------------------------------------------------
12/31/86 -1.00 6.48722220 10.35447300 -1.60
- ---------------------------------------------------------
12/31/87 -1.00 6.57412590 10.35447300 -1.58
- ---------------------------------------------------------
12/31/88 -1.00 6.93900650 10.35447300 -1.49
- ---------------------------------------------------------
12/31/89 -1.00 7.57095578 10.35447300 -1.37
- ---------------------------------------------------------
12/31/90 -1.00 8.07684384 10.35447300 -1.28
- ---------------------------------------------------------
12/31/91 -1.00 8.85742148 10.35447300 -1.17
- ---------------------------------------------------------
12/31/92 -1.00 9.17508261 10.35447300 -1.13
- ---------------------------------------------------------
12/31/93 -1.00 9.63555835 10.35447300 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 9.47633323 10.35447300 -1.09
- ---------------------------------------------------------
12/31/95 0.00 10.35447300 10.35447300 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.35447300 10.35447300 -1.00
- ---------------------------------------------------------
Avg Annual Return: 5.92% Total: 1776.78
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Neuberger & Berman Limited Maturity Bond
Assuming Contract Not Surrendered
<S> <C> <C> <C> <C>
Period : 1
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
12/31/94 1000.00 9.47633323 10.35447300 1092.67
- ---------------------------------------------------------
12/31/95 0.00 10.35447300 10.35447300 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.35447300 10.35447300 -1.00
- ---------------------------------------------------------
Avg Annual Return: 9.17% Total: 1091.67
Period : 3
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
12/31/92 1000.00 9.17508261 10.35447300 1128.54
- ---------------------------------------------------------
12/31/93 -1.00 9.63555835 10.35447300 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 9.47633323 10.35447300 -1.09
- ---------------------------------------------------------
12/31/95 0.00 10.35447300 10.35447300 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.35447300 10.35447300 -1.00
- ---------------------------------------------------------
Avg Annual Return: 4.02% Total: 1125.38
Period : 5
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
12/31/90 1000.00 8.07684384 10.35447300 1281.99
- ---------------------------------------------------------
12/31/91 -1.00 8.85742148 10.35447300 -1.17
- ---------------------------------------------------------
12/31/92 -1.00 9.17508261 10.35447300 -1.13
- ---------------------------------------------------------
12/31/93 -1.00 9.63555835 10.35447300 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 9.47633323 10.35447300 -1.09
- ---------------------------------------------------------
12/31/95 0.00 10.35447300 10.35447300 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.35447300 10.35447300 -1.00
- ---------------------------------------------------------
Avg Annual Return: 5.00% Total: 1276.53
Period : 10
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
12/31/85 1000.00 5.78606247 10.35447300 1789.55
- ---------------------------------------------------------
12/31/86 -1.00 6.48722220 10.35447300 -1.60
- ---------------------------------------------------------
12/31/87 -1.00 6.57412590 10.35447300 -1.58
- ---------------------------------------------------------
12/31/88 -1.00 6.93900650 10.35447300 -1.49
- ---------------------------------------------------------
12/31/89 -1.00 7.57095578 10.35447300 -1.37
- ---------------------------------------------------------
12/31/90 -1.00 8.07684384 10.35447300 -1.28
- ---------------------------------------------------------
12/31/91 -1.00 8.85742148 10.35447300 -1.17
- ---------------------------------------------------------
12/31/92 -1.00 9.17508261 10.35447300 -1.13
- ---------------------------------------------------------
12/31/93 -1.00 9.63555835 10.35447300 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 9.47633323 10.35447300 -1.09
- ---------------------------------------------------------
12/31/95 0.00 10.35447300 10.35447300 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.35447300 10.35447300 -1.00
- ---------------------------------------------------------
Avg Annual Return: 5.92% Total: 1776.78
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Neuberger & Berman Government Income
Assuming Contract Surrendered
<S> <C> <C> <C> <C>
Period : 1
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
12/31/94 1000.00 9.73798625 10.71956600 1100.80
- ----------------------------------------------------------
12/31/95 -70.00 10.71956600 10.71956600 -70.00
- ----------------------------------------------------------
12/31/95 -1.00 10.71956600 10.71956600 -1.00
- ----------------------------------------------------------
Avg Annual Return: 2.98% Total: 1029.80
Period : Inception
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
3/23/94 1000.00 9.70740350 10.71956600 1104.27
- ----------------------------------------------------------
3/23/95 -1.00 10.00223829 10.71956600 -1.07
- ----------------------------------------------------------
12/31/95 -60.00 10.71956600 10.71956600 -60.00
- ----------------------------------------------------------
12/31/95 -1.00 10.71956600 10.71956600 -1.00
- ----------------------------------------------------------
Avg Annual Return: 2.36% Total: 1042.20
1.775342 Days = 283
Years= 1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Neuberger & Berman Government Income
Assuming Contract Not Surrendered
<S> <C> <C> <C> <C>
Period : 1
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
12/31/94 1000.00 9.73798625 10.71956600 1100.80
- ----------------------------------------------------------
12/31/95 0.00 10.71956600 10.71956600 0.00
- ----------------------------------------------------------
12/31/95 -1.00 10.71956600 10.71956600 -1.00
- ----------------------------------------------------------
Avg Annual Return: 9.98% Total: 1099.80
Period : Inception
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
3/23/94 1000.00 9.70740350 10.71956600 1104.27
- ----------------------------------------------------------
3/23/95 -1.00 10.00223829 10.71956600 -1.07
- ----------------------------------------------------------
12/31/95 0.00 10.71956600 10.71956600 0.00
- ----------------------------------------------------------
12/31/95 -1.00 10.71956600 10.71956600 -1.00
- ---------------------------------------------------------
Avg Annual Return: 5.63% Total: 1102.20
1.775342 Days = 283
Years= 1
</TABLE>
<PAGE>
Neuberger & Berman Growth
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.53595057 12.37315400 1297.53
- ---------------------------------------------------------
12/31/95 -70.00 12.37315400 12.37315400 -70.00
- ---------------------------------------------------------
12/31/95 -1.00 12.37315400 12.37315400 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 22.65% Total: 1226.53
Period: 3
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 9.68768607 12.37315400 1277.20
- ---------------------------------------------------------
12/31/93 -1.00 10.18953484 12.37315400 -1.21
- ---------------------------------------------------------
12/31/94 -1.00 9.53595057 12.37315400 -1.30
- ---------------------------------------------------------
12/31/95 -50.00 12.37315400 12.37315400 -50.00
- ---------------------------------------------------------
12/31/95 -1.00 12.37315400 12.37315400 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 6.96% Total: 1223.69
Period: 5
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 7.02774685 12.37315400 1760.61
- ---------------------------------------------------------
12/31/91 -1.00 8.97978720 12.37315400 -1.38
- ---------------------------------------------------------
12/31/92 -1.00 9.68768607 12.37315400 -1.28
- ---------------------------------------------------------
12/31/93 -1.00 10.18953484 12.37315400 -1.21
- ---------------------------------------------------------
12/31/94 -1.00 9.53595057 12.37315400 -1.30
- ---------------------------------------------------------
12/31/95 -30.00 12.37315400 12.37315400 -30.00
- ---------------------------------------------------------
12/31/95 -1.00 12.37315400 12.37315400 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 11.51% Total: 1724.45
Period : 10
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/85 1000.00 4.63282905 12.37315400 2670.76
- ---------------------------------------------------------
12/31/86 -1.00 5.24413115 12.37315400 -2.36
- ---------------------------------------------------------
12/31/87 -1.00 4.91218993 12.37315400 -2.52
- ---------------------------------------------------------
12/31/88 -1.00 6.09477084 12.37315400 -2.03
- ---------------------------------------------------------
12/31/89 -1.00 7.77226081 12.37315400 -1.59
- ---------------------------------------------------------
12/31/90 -1.00 7.02774685 12.37315400 -1.76
- ---------------------------------------------------------
12/31/91 -1.00 8.97978720 12.37315400 -1.38
- ---------------------------------------------------------
12/31/92 -1.00 9.68768607 12.37315400 -1.28
- ---------------------------------------------------------
12/31/93 -1.00 10.18953484 12.37315400 -1.21
- ---------------------------------------------------------
12/31/94 -1.00 9.53595057 12.37315400 -1.30
- ---------------------------------------------------------
12/31/95 0.00 12.37315400 12.37315400 0.00
- ---------------------------------------------------------
12/31/95 -1.00 12.37315400 12.37315400 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 10.25% Total: 2654.33
<PAGE>
Neuberger & Berman Growth
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.53595057 12.37315400 1297.53
- ---------------------------------------------------------
12/31/95 0.00 12.37315400 12.37315400 0.00
- ---------------------------------------------------------
12/31/95 -1.00 12.37315400 12.37315400 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 29.65% Total: 1296.53
Period: 3
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 9.68768607 12.37315400 1277.20
- ---------------------------------------------------------
12/31/93 -1.00 10.18953484 12.37315400 -1.21
- ---------------------------------------------------------
12/31/94 -1.00 9.53595057 12.37315400 -1.30
- ---------------------------------------------------------
12/31/95 0.00 12.37315400 12.37315400 0.00
- ---------------------------------------------------------
12/31/95 -1.00 12.37315400 12.37315400 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 8.40% Total: 1273.69
Period: 5
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 7.02774685 12.37315400 1760.61
- ---------------------------------------------------------
12/31/91 -1.00 8.97978720 12.37315400 -1.38
- ---------------------------------------------------------
12/31/92 -1.00 9.68768607 12.37315400 -1.28
- ---------------------------------------------------------
12/31/93 -1.00 10.18953484 12.37315400 -1.21
- ---------------------------------------------------------
12/31/94 -1.00 9.53595057 12.37315400 -1.30
- ---------------------------------------------------------
12/31/95 0.00 12.37315400 12.37315400 0.00
- ---------------------------------------------------------
12/31/95 -1.00 12.37315400 12.37315400 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 11.90% Total: 1754.45
Period : 10
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/85 1000.00 4.63282905 12.37315400 2670.76
- ---------------------------------------------------------
12/31/86 -1.00 5.24413115 12.37315400 -2.36
- ---------------------------------------------------------
12/31/87 -1.00 4.91218993 12.37315400 -2.52
- ---------------------------------------------------------
12/31/88 -1.00 6.09477084 12.37315400 -2.03
- ---------------------------------------------------------
12/31/89 -1.00 7.77226081 12.37315400 -1.59
- ---------------------------------------------------------
12/31/90 -1.00 7.02774685 12.37315400 -1.76
- ---------------------------------------------------------
12/31/91 -1.00 8.97978720 12.37315400 -1.38
- ---------------------------------------------------------
12/31/92 -1.00 9.68768607 12.37315400 -1.28
- ---------------------------------------------------------
12/31/93 -1.00 10.18953484 12.37315400 -1.21
- ---------------------------------------------------------
12/31/94 -1.00 9.53595057 12.37315400 -1.30
- ---------------------------------------------------------
12/31/95 0.00 12.37315400 12.37315400 0.00
- ---------------------------------------------------------
12/31/95 -1.00 12.37315400 12.37315400 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 10.25% Total: 2654.33
<PAGE>
Neuberger & Berman Partners
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.79797447 13.17092800 1344.25
- ---------------------------------------------------------
12/31/95 -70.00 13.17092800 13.17092800 -70.00
- ---------------------------------------------------------
12/31/95 -1.00 13.17092800 13.17092800 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 27.33% Total: 1273.25
Period: Inception
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
3/23/94 1000.00 10.14714934 13.17092800 1297.99
- ----------------------------------------------------------
3/23/95 -1.00 10.45471433 13.17092800 -1.26
- ----------------------------------------------------------
12/31/95 -60.00 13.17092800 13.17092800 -60.00
- ----------------------------------------------------------
12/31/95 -1.00 13.17092800 13.17092800 -1.00
- ----------------------------------------------------------
</TABLE>
Avg Annual Return: 12.66% Total: 1235.73
1.775342 Days = 283
Years= 1
<PAGE>
Neuberger & Berman Partners
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.79797447 13.17092800 1344.25
- -----------------------------------------------------------
12/31/95 0.00 13.17092800 13.17092800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 13.17092800 13.17092800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 34.33% Total: 1343.25
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
3/23/94 1000.00 10.14714934 13.17092800 1297.99
- ----------------------------------------------------------
3/23/95 -1.00 10.45471433 13.17092800 -1.26
- ----------------------------------------------------------
12/31/95 0.00 13.17092800 13.17092800 0.00
- ----------------------------------------------------------
12/31/95 -1.00 13.17092800 13.17092800 -1.00
- ----------------------------------------------------------
</TABLE>
Avg Annual Return: 15.71% Total: 1295.73
1.775342 Days = 283
Years= 1
<PAGE>
Alger American Small Capitalization
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.22429343 14.53252500 1421.37
- -----------------------------------------------------------
12/31/95 -70.00 14.53252500 14.53252500 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 35.04% ERV: 1350.37
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 9.72972325 14.53252500 1493.62
- -----------------------------------------------------------
12/31/93 -1.00 10.85557895 14.53252500 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 10.22429343 14.53252500 -1.42
- -----------------------------------------------------------
12/31/95 -50.00 14.53252500 14.53252500 -50.00
- -----------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 12.92% ERV: 1439.86
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 6.15035965 14.53252500 2362.87
- -----------------------------------------------------------
12/31/91 -1.00 9.54364110 14.53252500 -1.52
- -----------------------------------------------------------
12/31/92 -1.00 9.72972325 14.53252500 -1.49
- -----------------------------------------------------------
12/31/93 -1.00 10.85557895 14.53252500 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 10.22429343 14.53252500 -1.42
- -----------------------------------------------------------
12/31/95 -30.00 14.53252500 14.53252500 -30.00
- -----------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 18.39% ERV: 2326.10
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
9/21/88 1000.00 3.68401659 14.53252500 3944.75
- -----------------------------------------------------------
9/21/89 -1.00 5.62209051 14.53252500 -2.58
- -----------------------------------------------------------
9/21/90 -1.00 5.41419647 14.53252500 -2.68
- -----------------------------------------------------------
9/21/91 -1.00 8.10276439 14.53252500 -1.79
- -----------------------------------------------------------
9/21/92 -1.00 8.41223930 14.53252500 -1.73
- -----------------------------------------------------------
9/21/93 -1.00 10.08581847 14.53252500 -1.44
- -----------------------------------------------------------
9/21/94 -1.00 9.89477461 14.53252500 -1.47
- -----------------------------------------------------------
9/21/95 -1.00 16.29975800 14.53252500 -0.89
- -----------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- -----------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 20.70% ERV: 3931.16
7.276712 Days = 101
Years = 7
<PAGE>
Alger American Small Capitalization
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.22429343 14.53252500 1421.37
- -----------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- -----------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 42.04% ERV: 1420.37
Period: 3
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 9.72972325 14.53252500 1493.62
- -----------------------------------------------------------
12/31/93 -1.00 10.85557895 14.53252500 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 10.22429343 14.53252500 -1.42
- -----------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- -----------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 14.21% ERV: 1489.86
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 6.15035965 14.53252500 2362.87
- -----------------------------------------------------------
12/31/91 -1.00 9.54364110 14.53252500 -1.52
- -----------------------------------------------------------
12/31/92 -1.00 9.72972325 14.53252500 -1.49
- -----------------------------------------------------------
12/31/93 -1.00 10.85557895 14.53252500 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 10.22429343 14.53252500 -1.42
- -----------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- -----------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 18.70% ERV: 2356.10
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
9/21/88 1000.00 3.68401659 14.53252500 3944.75
- -----------------------------------------------------------
9/21/89 -1.00 5.62209051 14.53252500 -2.58
- -----------------------------------------------------------
9/21/90 -1.00 5.41419647 14.53252500 -2.68
- -----------------------------------------------------------
9/21/91 -1.00 8.10276439 14.53252500 -1.79
- -----------------------------------------------------------
9/21/92 -1.00 8.41223930 14.53252500 -1.73
- -----------------------------------------------------------
9/21/93 -1.00 10.08581847 14.53252500 -1.44
- -----------------------------------------------------------
9/21/94 -1.00 9.89477461 14.53252500 -1.47
- -----------------------------------------------------------
9/21/95 -1.00 16.29975800 14.53252500 -0.89
- -----------------------------------------------------------
12/31/95 0.00 14.53252500 14.53252500 0.00
- -----------------------------------------------------------
12/31/95 -1.00 14.53252500 14.53252500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 20.70% ERV: 3931.16
7.276712 Days = 101
Years= 7
<PAGE>
Alger American MidCap Growth
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.16321100 14.45979200 1422.76
- -----------------------------------------------------------
12/31/95 -70.00 14.45979200 14.45979200 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 14.45979200 14.45979200 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 35.18% ERV: 1351.76
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
5/3/93 1000.00 7.63399628 14.45979200 1894.13
- -----------------------------------------------------------
5/3/94 -1.00 9.90205382 14.45979200 -1.46
- -----------------------------------------------------------
5/3/95 -1.00 11.37286300 14.45979200 -1.27
- -----------------------------------------------------------
12/31/95 -50.00 14.45979200 14.45979200 -50.00
- -----------------------------------------------------------
12/31/95 -1.00 14.45979200 14.45979200 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 25.74% ERV: 1840.40
Days 242
Years 2
<PAGE>
Alger American MidCap Growth
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.16321100 14.45979200 1422.76
- -----------------------------------------------------------
12/31/95 0.00 14.45979200 14.45979200 0.00
- -----------------------------------------------------------
12/31/95 -1.00 14.45979200 14.45979200 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 42.18% ERV: 1421.76
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
5/3/93 1000.00 7.63399628 14.45979200 1894.13
- -----------------------------------------------------------
5/3/94 -1.00 9.90205382 14.45979200 -1.46
- -----------------------------------------------------------
5/3/95 -1.00 11.37286300 14.45979200 -1.27
- -----------------------------------------------------------
12/31/95 0.00 14.45979200 14.45979200 0.00
- -----------------------------------------------------------
12/31/95 -1.00 14.45979200 14.45979200 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 27.01% ERV: 1890.40
Days 242
Years 2
<PAGE>
Alger American Growth
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 8.91726831 11.97934100 1343.39
- -----------------------------------------------------------
12/31/95 -70.00 11.97934100 11.97934100 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 27.24% ERV: 1272.39
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 7.39878178 11.97934100 1619.10
- -----------------------------------------------------------
12/31/93 -1.00 8.92439742 11.97934100 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 8.91726831 11.97934100 -1.34
- -----------------------------------------------------------
12/31/95 -50.00 11.97934100 11.97934100 -50.00
- -----------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 16.11% ERV: 1565.41
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 4.83461405 11.97934100 2477.83
- -----------------------------------------------------------
12/31/91 -1.00 6.68483754 11.97934100 -1.79
- -----------------------------------------------------------
12/31/92 -1.00 7.39878178 11.97934100 -1.62
- -----------------------------------------------------------
12/31/93 -1.00 8.92439742 11.97934100 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 8.91726831 11.97934100 -1.34
- -----------------------------------------------------------
12/31/95 -30.00 11.97934100 11.97934100 -30.00
- -----------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 19.54% ERV: 2440.73
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1/9/89 1000.00 3.83955261 11.97934100 3119.98
- -----------------------------------------------------------
1/9/90 -1.00 4.70810308 11.97934100 -2.54
- -----------------------------------------------------------
1/9/91 -1.00 4.57724735 11.97934100 -2.62
- -----------------------------------------------------------
1/9/92 -1.00 6.96448759 11.97934100 -1.72
- -----------------------------------------------------------
1/9/93 -1.00 7.39234239 11.97934100 -1.62
- -----------------------------------------------------------
1/9/94 -1.00 9.10910131 11.97934100 -1.32
- -----------------------------------------------------------
1/9/95 -1.00 8.90684177 11.97934100 -1.34
- -----------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- -----------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 17.65% ERV: 3107.82
6.975342 Days = 356
Years= 6
<PAGE>
Alger American Growth
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 8.91726831 11.97934100 1343.39
- -----------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- -----------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 34.24% ERV: 1342.39
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 7.39878178 11.97934100 1619.10
- -----------------------------------------------------------
12/31/93 -1.00 8.92439742 11.97934100 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 8.91726831 11.97934100 -1.34
- -----------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- -----------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 17.34% ERV: 1615.41
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 4.83461405 11.97934100 2477.83
- -----------------------------------------------------------
12/31/91 -1.00 6.68483754 11.97934100 -1.79
- -----------------------------------------------------------
12/31/92 -1.00 7.39878178 11.97934100 -1.62
- -----------------------------------------------------------
12/31/93 -1.00 8.92439742 11.97934100 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 8.91726831 11.97934100 -1.34
- -----------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- -----------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 19.83% ERV: 2470.73
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1/9/89 1000.00 3.83955261 11.97934100 3119.98
- -----------------------------------------------------------
1/9/90 -1.00 4.70810308 11.97934100 -2.54
- -----------------------------------------------------------
1/9/91 -1.00 4.57724735 11.97934100 -2.62
- -----------------------------------------------------------
1/9/92 -1.00 6.96448759 11.97934100 -1.72
- -----------------------------------------------------------
1/9/93 -1.00 7.39234239 11.97934100 -1.62
- -----------------------------------------------------------
1/9/94 -1.00 9.10910131 11.97934100 -1.32
- -----------------------------------------------------------
1/9/95 -1.00 8.90684177 11.97934100 -1.34
- -----------------------------------------------------------
12/31/95 0.00 11.97934100 11.97934100 0.00
- -----------------------------------------------------------
12/31/95 -1.00 11.97934100 11.97934100 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 17.65% ERV: 3107.82
6.975342 Days = 356
Years= 6
<PAGE>
Alger American Leveraged AllCap
Assuming Contract Surrendered
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1/25/95 1000.00 8.57535113 14.73836400 1718.69
- ------------------------------------------------------------
12/31/95 -70.00 14.73836400 14.73836400 -70.00
- ------------------------------------------------------------
12/31/95 -1.00 14.73836400 14.73836400 -1.00
- ------------------------------------------------------------
</TABLE>
Avg Annual Return: 64.77% ERV: 1647.69
Days= 340
0.93150685 Years= 0
<PAGE>
Alger American Leveraged AllCap
Assuming Contract Not Surrendered
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
1/25/95 1000.00 8.57535113 14.73836400 1718.69
- ------------------------------------------------------------
12/31/95 0.00 14.73836400 14.73836400 0.00
- ------------------------------------------------------------
12/31/95 -1.00 14.73836400 14.73836400 -1.00
- ------------------------------------------------------------
</TABLE>
Avg Annual Return: 71.77% ERV: 1717.69
Days= 340
0.93150685 Years= 0
<PAGE>
Fidelity VIP Growth
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.12377944 13.49805600 1333.30
- -----------------------------------------------------------
12/31/95 -70.00 13.49805600 13.49805600 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 26.23% ERV: 1262.30
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 8.74403595 13.49805600 1543.69
- -----------------------------------------------------------
12/31/93 -1.00 10.28038659 13.49805600 -1.31
- -----------------------------------------------------------
12/31/94 -1.00 10.12377944 13.49805600 -1.33
- -----------------------------------------------------------
12/31/95 -50.00 13.49805600 13.49805600 -50.00
- -----------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 14.22% ERV: 1490.04
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 5.66654359 13.49805600 2382.06
- -----------------------------------------------------------
12/31/91 -1.00 8.12137302 13.49805600 -1.66
- -----------------------------------------------------------
12/31/92 -1.00 8.74403595 13.49805600 -1.54
- -----------------------------------------------------------
12/31/93 -1.00 10.28038659 13.49805600 -1.31
- -----------------------------------------------------------
12/31/94 -1.00 10.12377944 13.49805600 -1.33
- -----------------------------------------------------------
12/31/95 -30.00 13.49805600 13.49805600 -30.00
- -----------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 18.59% ERV: 2345.21
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
10/9/86 1000.00 4.33174550 13.49805600 3116.08
- -----------------------------------------------------------
10/9/87 -1.00 5.44464570 13.49805600 -2.48
- -----------------------------------------------------------
10/9/88 -1.00 5.11034980 13.49805600 -2.64
- -----------------------------------------------------------
10/9/89 -1.00 6.70453766 13.49805600 -2.01
- -----------------------------------------------------------
10/9/90 -1.00 5.26769869 13.49805600 -2.56
- -----------------------------------------------------------
10/9/91 -1.00 7.16759167 13.49805600 -1.88
- -----------------------------------------------------------
10/9/92 -1.00 7.54423144 13.49805600 -1.79
- -----------------------------------------------------------
10/9/93 -1.00 10.25831952 13.49805600 -1.32
- -----------------------------------------------------------
10/9/94 -1.00 9.70488999 13.49805600 -1.39
- -----------------------------------------------------------
10/9/95 -1.00 13.17260900 13.49805600 -1.02
- -----------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- -----------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 13.04% ERV: 3097.98
Days= 83
9.227397 Years= 9
<PAGE>
Fidelity VIP Growth
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.12377944 13.49805600 1333.30
- ----------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- ----------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- ----------------------------------------------------------
</TABLE>
Avg Annual Return: 33.23% ERV: 1332.30
Period: 3
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 8.74403595 13.49805600 1543.69
- ----------------------------------------------------------
12/31/93 -1.00 10.28038659 13.49805600 -1.31
- ----------------------------------------------------------
12/31/94 -1.00 10.12377944 13.49805600 -1.33
- ----------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- ----------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- ----------------------------------------------------------
</TABLE>
Avg Annual Return: 15.48% ERV: 1540.04
Period : 5
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 5.66654359 13.49805600 2382.06
- ----------------------------------------------------------
12/31/91 -1.00 8.12137302 13.49805600 -1.66
- ----------------------------------------------------------
12/31/92 -1.00 8.74403595 13.49805600 -1.54
- ----------------------------------------------------------
12/31/93 -1.00 10.28038659 13.49805600 -1.31
- ----------------------------------------------------------
12/31/94 -1.00 10.12377944 13.49805600 -1.33
- ----------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- ----------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- ----------------------------------------------------------
</TABLE>
Avg Annual Return: 18.89% ERV: 2375.21
Period: Inception
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
10/9/86 1000.00 4.33174550 13.49805600 3116.08
- ----------------------------------------------------------
10/9/87 -1.00 5.44464570 13.49805600 -2.48
- ----------------------------------------------------------
10/9/88 -1.00 5.11034980 13.49805600 -2.64
- ----------------------------------------------------------
10/9/89 -1.00 6.70453766 13.49805600 -2.01
- ----------------------------------------------------------
10/9/90 -1.00 5.26769869 13.49805600 -2.56
- ----------------------------------------------------------
10/9/91 -1.00 7.16759167 13.49805600 -1.88
- ----------------------------------------------------------
10/9/92 -1.00 7.54423144 13.49805600 -1.79
- ----------------------------------------------------------
10/9/93 -1.00 10.25831952 13.49805600 -1.32
- ----------------------------------------------------------
10/9/94 -1.00 9.70488999 13.49805600 -1.39
- ----------------------------------------------------------
10/9/95 -1.00 13.17260900 13.49805600 -1.02
- ----------------------------------------------------------
12/31/95 0.00 13.49805600 13.49805600 0.00
- ----------------------------------------------------------
12/31/95 -1.00 13.49805600 13.49805600 -1.00
- ----------------------------------------------------------
</TABLE>
Avg Annual Return: 13.04% ERV: 3097.98
Days= 83
9.227397 Years= 9
<PAGE>
Fidelity VIP Overseas
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.56960200 10.33796400 1080.29
- -----------------------------------------------------------
12/31/95 -70.00 10.33796400 10.33796400 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 0.93% ERV: 1009.29
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 7.06006841 10.33796400 1464.29
- -----------------------------------------------------------
12/31/93 -1.00 9.55100969 10.33796400 -1.08
- -----------------------------------------------------------
12/31/94 -1.00 9.56960200 10.33796400 -1.08
- -----------------------------------------------------------
12/31/95 -50.00 10.33796400 10.33796400 -50.00
- -----------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 12.16% ERV: 1411.12
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 7.54868331 10.33796400 1369.51
- -----------------------------------------------------------
12/31/91 -1.00 8.02940483 10.33796400 -1.29
- -----------------------------------------------------------
12/31/92 -1.00 7.06006841 10.33796400 -1.46
- -----------------------------------------------------------
12/31/93 -1.00 9.55100969 10.33796400 -1.08
- -----------------------------------------------------------
12/31/94 -1.00 9.56960200 10.33796400 -1.08
- -----------------------------------------------------------
12/31/95 -30.00 10.33796400 10.33796400 -30.00
- -----------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 5.93% ERV: 1333.59
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1/28/87 1000.00 6.30691400 10.33796400 1639.15
- -----------------------------------------------------------
1/28/88 -1.00 5.69527621 10.33796400 -1.82
- -----------------------------------------------------------
1/28/89 -1.00 6.50096436 10.33796400 -1.59
- -----------------------------------------------------------
1/28/90 -1.00 7.63203739 10.33796400 -1.35
- -----------------------------------------------------------
1/28/91 -1.00 7.49736581 10.33796400 -1.38
- -----------------------------------------------------------
1/28/92 -1.00 8.11809591 10.33796400 -1.27
- -----------------------------------------------------------
1/28/93 -1.00 7.30873784 10.33796400 -1.41
- -----------------------------------------------------------
1/28/94 -1.00 9.87268054 10.33796400 0.00
- -----------------------------------------------------------
1/28/95 -1.00 9.17412800 10.33796400 -1.13
- -----------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 5.61% ERV: 1628.19
Days= 337
8.923287 Years= 8
<PAGE>
Fidelity VIP Overseas
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.56960200 10.33796400 1080.29
- -----------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 7.93% ERV: 1079.29
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 7.06006841 10.33796400 1464.29
- -----------------------------------------------------------
12/31/93 -1.00 9.55100969 10.33796400 -1.08
- -----------------------------------------------------------
12/31/94 -1.00 9.56960200 10.33796400 -1.08
- -----------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 13.47% ERV: 1461.12
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 7.54868331 10.33796400 1369.51
- -----------------------------------------------------------
12/31/91 -1.00 8.02940483 10.33796400 -1.29
- -----------------------------------------------------------
12/31/92 -1.00 7.06006841 10.33796400 -1.46
- -----------------------------------------------------------
12/31/93 -1.00 9.55100969 10.33796400 -1.08
- -----------------------------------------------------------
12/31/94 -1.00 9.56960200 10.33796400 -1.08
- -----------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 6.40% ERV: 1363.59
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1/28/87 1000.00 6.30691400 10.33796400 1639.15
- -----------------------------------------------------------
1/28/88 -1.00 5.69527621 10.33796400 -1.82
- -----------------------------------------------------------
1/28/89 -1.00 6.50096436 10.33796400 -1.59
- -----------------------------------------------------------
1/28/90 -1.00 7.63203739 10.33796400 -1.35
- -----------------------------------------------------------
1/28/91 -1.00 7.49736581 10.33796400 -1.38
- -----------------------------------------------------------
1/28/92 -1.00 8.11809591 10.33796400 -1.27
- -----------------------------------------------------------
1/28/93 -1.00 7.30873784 10.33796400 -1.41
- -----------------------------------------------------------
1/28/94 -1.00 9.87268054 10.33796400 0.00
- -----------------------------------------------------------
1/28/95 -1.00 9.17412800 10.33796400 -1.13
- -----------------------------------------------------------
12/31/95 0.00 10.33796400 10.33796400 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.33796400 10.33796400 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 5.61% ERV: 1628.19
Days= 337
8.923287 Years= 8
<PAGE>
Fidelity Money Market
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.03990700 10.47260000 1043.10
- ---------------------------------------------------------
12/31/95 -70.00 10.47260000 10.47260000 -70.00
- ---------------------------------------------------------
12/31/95 -1.00 10.47260000 10.47260000 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: -2.79% Total: 972.10
Period: 3
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 9.61699574 10.47260000 1088.97
- ---------------------------------------------------------
12/31/93 -1.00 9.77809811 10.47260000 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 10.03990700 10.47260000 -1.04
- ---------------------------------------------------------
12/31/95 -50.00 10.47260000 10.47260000 -50.00
- ---------------------------------------------------------
12/31/95 -1.00 10.47260000 10.47260000 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 1.18% Total: 1035.85
Period: 5
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 8.99396061 10.47260000 1164.40
- ---------------------------------------------------------
12/31/91 -1.00 9.39777393 10.47260000 -1.11
- ---------------------------------------------------------
12/31/92 -1.00 9.61699574 10.47260000 -1.09
- ---------------------------------------------------------
12/31/93 -1.00 9.77809811 10.47260000 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 10.03990700 10.47260000 -1.04
- ---------------------------------------------------------
12/31/95 -30.00 10.47260000 10.47260000 -30.00
- ---------------------------------------------------------
12/31/95 -1.00 10.47260000 10.47260000 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 2.46% Total: 1129.09
Period: 10
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/85 1000.00 6.74960034 10.47260000 1551.59
- ---------------------------------------------------------
12/31/86 -1.00 7.09302459 10.47260000 -1.48
- ---------------------------------------------------------
12/31/87 -1.00 7.43605777 10.47260000 -1.41
- ---------------------------------------------------------
12/31/88 -1.00 7.86458780 10.47260000 -1.33
- ---------------------------------------------------------
12/31/89 -1.00 8.45231910 10.47260000 -1.24
- ---------------------------------------------------------
12/31/90 -1.00 8.99396061 10.47260000 -1.16
- ---------------------------------------------------------
12/31/91 -1.00 9.39777393 10.47260000 -1.11
- ---------------------------------------------------------
12/31/92 -1.00 9.61699574 10.47260000 -1.09
- ---------------------------------------------------------
12/31/93 -1.00 9.77809811 10.47260000 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 10.03990700 10.47260000 -1.04
- ---------------------------------------------------------
12/31/95 0.00 10.47260000 10.47260000 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.47260000 10.47260000 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 4.41% Total: 1539.65
<PAGE>
Fidelity Money Market
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.03990700 10.47260000 1043.10
- ---------------------------------------------------------
12/31/95 0.00 10.47260000 10.47260000 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.47260000 10.47260000 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 4.21% Total: 1042.10
Period: 3
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 9.61699574 10.47260000 1088.97
- ---------------------------------------------------------
12/31/93 -1.00 9.77809811 10.47260000 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 10.03990700 10.47260000 -1.04
- ---------------------------------------------------------
12/31/95 0.00 10.47260000 10.47260000 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.47260000 10.47260000 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 2.78% Total: 1085.85
Period: 5
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 8.99396061 10.47260000 1164.40
- ---------------------------------------------------------
12/31/91 -1.00 9.39777393 10.47260000 -1.11
- ---------------------------------------------------------
12/31/92 -1.00 9.61699574 10.47260000 -1.09
- ---------------------------------------------------------
12/31/93 -1.00 9.77809811 10.47260000 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 10.03990700 10.47260000 -1.04
- ---------------------------------------------------------
12/31/95 0.00 10.47260000 10.47260000 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.47260000 10.47260000 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 3.00% Total: 1159.09
Period: 10
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/85 1000.00 6.74960034 10.47260000 1551.59
- ---------------------------------------------------------
12/31/86 -1.00 7.09302459 10.47260000 -1.48
- ---------------------------------------------------------
12/31/87 -1.00 7.43605777 10.47260000 -1.41
- ---------------------------------------------------------
12/31/88 -1.00 7.86458780 10.47260000 -1.33
- ---------------------------------------------------------
12/31/89 -1.00 8.45231910 10.47260000 -1.24
- ---------------------------------------------------------
12/31/90 -1.00 8.99396061 10.47260000 -1.16
- ---------------------------------------------------------
12/31/91 -1.00 9.39777393 10.47260000 -1.11
- ---------------------------------------------------------
12/31/92 -1.00 9.61699574 10.47260000 -1.09
- ---------------------------------------------------------
12/31/93 -1.00 9.77809811 10.47260000 -1.07
- ---------------------------------------------------------
12/31/94 -1.00 10.03990700 10.47260000 -1.04
- ---------------------------------------------------------
12/31/95 0.00 10.47260000 10.47260000 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.47260000 10.47260000 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 4.41% Total: 1539.65
<PAGE>
Fidelity VIP II Asset Manager
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.46375076 10.90198800 1151.97
- -----------------------------------------------------------
12/31/95 -70.00 10.90198800 10.90198800 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 8.10% ERV: 1080.97
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 8.57468762 10.90198800 1271.42
- -----------------------------------------------------------
12/31/93 -1.00 10.23860276 10.90198800 -1.06
- -----------------------------------------------------------
12/31/94 -1.00 9.46375076 10.90198800 -1.15
- -----------------------------------------------------------
12/31/95 -50.00 10.90198800 10.90198800 -50.00
- -----------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 6.80% ERV: 1218.20
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 6.45632484 10.90198800 1688.57
- -----------------------------------------------------------
12/31/91 -1.00 7.79351249 10.90198800 -1.40
- -----------------------------------------------------------
12/31/92 -1.00 8.57468762 10.90198800 -1.27
- -----------------------------------------------------------
12/31/93 -1.00 10.23860276 10.90198800 -1.06
- -----------------------------------------------------------
12/31/94 -1.00 9.46375076 10.90198800 -1.15
- -----------------------------------------------------------
12/31/95 -30.00 10.90198800 10.90198800 -30.00
- -----------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 10.57% ERV: 1652.69
Period: Inception
<TABLE>
<CAPTION>
- ----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ----------------------------------------------------------
<S> <C> <C> <C> <C>
9/6/89 1000.00 6.12252830 10.90198800 1780.63
- ----------------------------------------------------------
9/6/90 -1.00 6.10341581 10.90198800 -1.79
- ----------------------------------------------------------
9/6/91 -1.00 7.51297734 10.90198800 -1.45
- ----------------------------------------------------------
9/6/92 -1.00 8.29991469 10.90198800 -1.31
- ----------------------------------------------------------
9/6/93 -1.00 9.59425986 10.90198800 -1.14
- ----------------------------------------------------------
9/6/94 -1.00 9.89535954 10.90198800 -1.10
- ----------------------------------------------------------
9/6/95 -1.00 10.51680300 10.90198800 -1.04
- ----------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- ----------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- ----------------------------------------------------------
</TABLE>
Avg Annual Return: 9.48% ERV: 1771.81
6.317808 Days = 116
Years= 6
<PAGE>
Fidelity VIP II Asset Manager
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.46375076 10.90198800 1151.97
- -----------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 15.10% ERV: 1150.97
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 8.57468762 10.90198800 1271.42
- -----------------------------------------------------------
12/31/93 -1.00 10.23860276 10.90198800 -1.06
- -----------------------------------------------------------
12/31/94 -1.00 9.46375076 10.90198800 -1.15
- -----------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 8.24% ERV: 1268.20
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/90 1000.00 6.45632484 10.90198800 1688.57
- -----------------------------------------------------------
12/31/91 -1.00 7.79351249 10.90198800 -1.40
- -----------------------------------------------------------
12/31/92 -1.00 8.57468762 10.90198800 -1.27
- -----------------------------------------------------------
12/31/93 -1.00 10.23860276 10.90198800 -1.06
- -----------------------------------------------------------
12/31/94 -1.00 9.46375076 10.90198800 -1.15
- -----------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 10.97% ERV: 1682.69
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
9/6/89 1000.00 6.12252830 10.90198800 1780.63
- -----------------------------------------------------------
9/6/90 -1.00 6.10341581 10.90198800 -1.79
- -----------------------------------------------------------
9/6/91 -1.00 7.51297734 10.90198800 -1.45
- -----------------------------------------------------------
9/6/92 -1.00 8.29991469 10.90198800 -1.31
- -----------------------------------------------------------
9/6/93 -1.00 9.59425986 10.90198800 -1.14
- -----------------------------------------------------------
9/6/94 -1.00 9.89535954 10.90198800 -1.10
- -----------------------------------------------------------
9/6/95 -1.00 10.51680300 10.90198800 -1.04
- -----------------------------------------------------------
12/31/95 0.00 10.90198800 10.90198800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.90198800 10.90198800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 9.48% ERV: 1771.81
6.317808 Days = 116
Years= 6
<PAGE>
Fidelity VIP II Index 500
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.69784582 13.10568500 1351.40
- -----------------------------------------------------------
12/31/95 -70.00 13.10568500 13.10568500 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 28.04% ERV: 1280.40
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 9.01521147 13.10568500 1453.73
- -----------------------------------------------------------
12/31/93 -1.00 9.74411553 13.10568500 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 9.69784582 13.10568500 -1.35
- -----------------------------------------------------------
12/31/95 -50.00 13.10568500 13.10568500 -50.00
- -----------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 11.87% ERV: 1400.03
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
8/27/92 1000.00 8.52493549 13.10568500 1537.34
- -----------------------------------------------------------
8/27/93 -1.00 9.59055032 13.10568500 -1.37
- -----------------------------------------------------------
8/27/94 -1.00 9.96388770 13.10568500 -1.32
- -----------------------------------------------------------
8/27/95 -1.00 11.90078900 13.10568500 -1.10
- -----------------------------------------------------------
12/31/95 -40.00 13.10568500 13.10568500 -40.00
- -----------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 12.72% ERV: 1492.55
3.345205 Days = 126
Years= 3
<PAGE>
Fidelity VIP II Index 500
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.69784582 13.10568500 1351.40
- -----------------------------------------------------------
12/31/95 0.00 13.10568500 13.10568500 0.00
- -----------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 35.04% ERV: 1350.40
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 9.01521147 13.10568500 1453.73
- -----------------------------------------------------------
12/31/93 -1.00 9.74411553 13.10568500 -1.34
- -----------------------------------------------------------
12/31/94 -1.00 9.69784582 13.10568500 -1.35
- -----------------------------------------------------------
12/31/95 0.00 13.10568500 13.10568500 0.00
- -----------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 13.19% ERV: 1450.03
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
8/27/92 1000.00 8.52493549 13.10568500 1537.34
- -----------------------------------------------------------
8/27/93 -1.00 9.59055032 13.10568500 -1.37
- -----------------------------------------------------------
8/27/94 -1.00 9.96388770 13.10568500 -1.32
- -----------------------------------------------------------
8/27/95 -1.00 11.90078900 13.10568500 -1.10
- -----------------------------------------------------------
12/31/95 0.00 13.10568500 13.10568500 0.00
- -----------------------------------------------------------
12/31/95 -1.00 13.10568500 13.10568500 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 13.61% ERV: 1532.55
3.345205 Days = 126
Years= 3
<PAGE>
INVESCO Total Return
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.03502039 12.13734600 1209.50
- -----------------------------------------------------------
12/31/95 -70.00 12.13734600 12.13734600 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 12.13734600 12.13734600 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 13.85% Total: 1138.50
Period : Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
6/2/94 1000.00 9.94987779 12.13734600 1219.85
- -----------------------------------------------------------
6/2/95 -1.00 11.13701000 12.13734600 -1.09
- -----------------------------------------------------------
12/31/95 -60.00 12.13734600 12.13734600 -60.00
- -----------------------------------------------------------
12/31/95 -1.00 12.13734600 12.13734600 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 9.71% Total: 1157.76
1.580821 Days = 212
Years= 1
<PAGE>
INVESCO Total Return
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.03502039 12.13734600 1209.50
- -----------------------------------------------------------
12/31/95 0.00 12.13734600 12.13734600 0.00
- -----------------------------------------------------------
12/31/95 -1.00 12.13734600 12.13734600 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 20.85% Total: 1208.50
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
6/2/94 1000.00 9.94987779 12.13734600 1219.85
- -----------------------------------------------------------
6/2/95 -1.00 11.13701000 12.13734600 -1.09
- -----------------------------------------------------------
12/31/95 0.00 12.13734600 12.13734600 0.00
- -----------------------------------------------------------
12/31/95 -1.00 12.13734600 12.13734600 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 13.27% Total: 1217.76
1.580821 Days = 212
Years= 1
<PAGE>
INVESCO Industrial Income
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.18066677 12.96146300 1273.14
- ---------------------------------------------------------
12/31/95 -70.00 12.96146300 12.96146300 -70.00
- ---------------------------------------------------------
12/31/95 -1.00 12.96146300 12.96146300 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 20.21% ERV: 1202.14
Period: Inception
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
8/10/94 1000.00 10.11955146 12.96146300 1280.83
- ---------------------------------------------------------
8/10/95 -1.00 11.64953200 12.96146300 -1.11
- ---------------------------------------------------------
12/31/95 -60.00 12.96146300 12.96146300 -60.00
- ---------------------------------------------------------
12/31/95 -1.00 12.96146300 12.96146300 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 15.08% ERV: 1218.72
Days 149
Years 1 1.408219178
<PAGE>
INVESCO Industrial Income
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.18066677 12.96146300 1273.14
- -----------------------------------------------------------
12/31/95 0.00 12.96146300 12.96146300 0.00
- -----------------------------------------------------------
12/31/95 -1.00 12.96146300 12.96146300 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 27.21% ERV: 1272.14
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
8/10/94 1000.00 10.11955146 12.96146300 1280.83
- -----------------------------------------------------------
8/10/95 -1.00 11.64953200 12.96146300 -1.11
- -----------------------------------------------------------
12/31/95 0.00 12.96146300 12.96146300 0.00
- -----------------------------------------------------------
12/31/95 -1.00 12.96146300 12.96146300 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 19.08% ERV: 1278.72
Days 149
Years 1 1.408219178
<PAGE>
INVESCO High Yield
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.08733700 11.89903800 1179.60
- -----------------------------------------------------------
12/31/95 -70.00 11.89903800 11.89903800 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 11.89903800 11.89903800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 10.86% Total: 1108.60
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
5/27/94 1000.00 10.11861814 11.89903800 1175.95
- -----------------------------------------------------------
5/27/95 -1.00 10.93727000 11.89903800 -1.09
- -----------------------------------------------------------
12/31/95 -60.00 11.89903800 11.89903800 -60.00
- -----------------------------------------------------------
12/31/95 -1.00 11.89903800 11.89903800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 6.98% Total: 1113.87
1.597260 Days = 218
Years= 1
<PAGE>
INVESCO High Yield
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.08733700 11.89903800 1179.60
- -----------------------------------------------------------
12/31/95 0.00 11.89903800 11.89903800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 11.89903800 11.89903800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 17.86% Total: 1178.60
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
5/27/94 1000.00 10.11861814 11.89903800 1175.95
- -----------------------------------------------------------
5/27/95 -1.00 10.93727000 11.89903800 -1.09
- -----------------------------------------------------------
12/31/95 0.00 11.89903800 11.89903800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 11.89903800 11.89903800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 10.56% Total: 1173.87
1.597260 Days = 218
Years= 1
<PAGE>
INVESCO Utilities
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- --------------------------------------------------------
Date Payment AUV Beg AUV End Value
- --------------------------------------------------------
<S> <C> <C> <C> <C>
1/1/95 1000.00 10.07439999 10.82408200 1074.41
- --------------------------------------------------------
12/31/95 -70.00 10.82408200 10.82408200 -70.00
- --------------------------------------------------------
12/31/95 -1.00 10.82408200 10.82408200 -1.00
- --------------------------------------------------------
</TABLE>
Avg Annual Return: 0.34% ERV: 1003.41
<PAGE>
INVESCO Utilities
Assuming Contract Not Surrendered
Period : 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
1/1/95 1000.00 10.07439999 10.82408200 1074.41
- ---------------------------------------------------------
12/31/95 0.00 10.82408200 10.82408200 0.00
- ---------------------------------------------------------
12/31/95 -1.00 10.82408200 10.82408200 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: 7.34% ERV: 1073.41
<PAGE>
Van Eck Worldwide Balanced
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.01083532 9.85077800 984.01
- ---------------------------------------------------------
12/31/95 -70.00 9.85077800 9.85077800 -70.00
- ---------------------------------------------------------
12/31/95 -1.00 9.85077800 9.85077800 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: -8.70% Total: 913.01
Period: Inception
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/23/94 1000.00 10.13754140 9.85077800 971.71
- ---------------------------------------------------------
12/23/95 -1.00 9.84378700 9.85077800 -1.00
- ---------------------------------------------------------
12/31/95 -60.00 9.85077800 9.85077800 -60.00
- ---------------------------------------------------------
12/31/95 -1.00 9.85077800 9.85077800 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: -8.84% Total: 909.71
Days = 8
Years= 1
<PAGE>
Van Eck Worldwide Balanced
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 10.01083532 9.85077800 984.01
- ---------------------------------------------------------
12/31/95 0.00 9.85077800 9.85077800 0.00
- ---------------------------------------------------------
12/31/95 -1.00 9.85077800 9.85077800 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: -1.70% Total: 983.01
Period : Inception
<TABLE>
<CAPTION>
- ---------------------------------------------------------
Date Payment AUV Beg AUV End Value
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
12/23/94 1000.00 10.13754140 9.85077800 971.71
- ---------------------------------------------------------
12/23/95 -1.00 9.84378700 9.85077800 -1.00
- ---------------------------------------------------------
12/31/95 0.00 9.85077800 9.85077800 0.00
- ---------------------------------------------------------
12/31/95 -1.00 9.85077800 9.85077800 -1.00
- ---------------------------------------------------------
</TABLE>
Avg Annual Return: -2.96% Total: 969.71
Days = 8
Years= 1
<PAGE>
Van Eck Gold & Natural Resources
Assuming Contract Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.19785000 10.05603800 1093.30
- -----------------------------------------------------------
12/31/95 -70.00 10.05603800 10.05603800 -70.00
- -----------------------------------------------------------
12/31/95 -1.00 10.05603800 10.05603800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 2.23% Total: 1022.30
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 6.04152337 10.05603800 1664.49
- -----------------------------------------------------------
12/31/93 -1.00 9.80844196 10.05603800 -1.03
- -----------------------------------------------------------
12/31/94 -1.00 9.19785000 10.05603800 -1.09
- -----------------------------------------------------------
12/31/95 -50.00 10.05603800 10.05603800 -50.00
- -----------------------------------------------------------
12/31/95 -1.00 10.05603800 10.05603800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 17.24% Total: 1611.37
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1/2/90 1000.00 6.68697312 10.05603800 1503.83
- -----------------------------------------------------------
12/31/91 -1.00 6.39614940 10.05603800 -1.57
- -----------------------------------------------------------
12/31/92 -1.00 6.04152337 10.05603800 -1.66
- -----------------------------------------------------------
12/31/93 -1.00 9.80844196 10.05603800 -1.03
- -----------------------------------------------------------
12/31/94 -1.00 9.19785000 10.05603800 -1.09
- -----------------------------------------------------------
12/31/95 -30.00 10.05603800 10.05603800 -30.00
- -----------------------------------------------------------
12/31/95 -1.00 10.05603800 10.05603800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 7.97% Total: 1467.47
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
9/1/89 1000.00 7.30859168 10.05603800 1375.92
- -----------------------------------------------------------
9/4/90 -1.00 7.30598546 10.05603800 -1.38
- -----------------------------------------------------------
9/3/91 -1.00 6.47159271 10.05603800 -1.55
- -----------------------------------------------------------
9/1/92 -1.00 6.59071145 10.05603800 -1.53
- -----------------------------------------------------------
9/1/93 -1.00 8.90400087 10.05603800 -1.13
- -----------------------------------------------------------
9/1/94 -1.00 10.26581081 10.05603800 -0.98
- -----------------------------------------------------------
9/1/95 -1.00 9.92636100 10.05603800 -1.01
- -----------------------------------------------------------
12/31/95 0.00 10.05603800 10.05603800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.05603800 10.05603800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 5.07% Total: 1367.34
Days = 121
Years= 6
<PAGE>
Van Eck Gold & Natural Resources
Assuming Contract Not Surrendered
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/94 1000.00 9.19785000 10.05603800 1093.30
- -----------------------------------------------------------
12/31/95 0.00 10.05603800 10.05603800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.05603800 10.05603800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 9.23% Total: 1092.30
Period: 3
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
12/31/92 1000.00 6.04152337 10.05603800 1664.49
- -----------------------------------------------------------
12/31/93 -1.00 9.80844196 10.05603800 -1.03
- -----------------------------------------------------------
12/31/94 -1.00 9.19785000 10.05603800 -1.09
- -----------------------------------------------------------
12/31/95 0.00 10.05603800 10.05603800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.05603800 10.05603800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 18.44% Total: 1661.37
Period: 5
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
1/2/90 1000.00 6.68697312 10.05603800 1503.83
- -----------------------------------------------------------
12/31/91 -1.00 6.39614940 10.05603800 -1.57
- -----------------------------------------------------------
12/31/92 -1.00 6.04152337 10.05603800 -1.66
- -----------------------------------------------------------
12/31/93 -1.00 9.80844196 10.05603800 -1.03
- -----------------------------------------------------------
12/31/94 -1.00 9.19785000 10.05603800 -1.09
- -----------------------------------------------------------
12/31/95 0.00 10.05603800 10.05603800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.05603800 10.05603800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 8.41% Total: 1497.47
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------
Date Payment AUV Beg AUV End Value
- -----------------------------------------------------------
<S> <C> <C> <C> <C>
9/1/89 1000.00 7.30859168 10.05603800 1375.92
- -----------------------------------------------------------
9/4/90 -1.00 7.30598546 10.05603800 -1.38
- -----------------------------------------------------------
9/3/91 -1.00 6.47159271 10.05603800 -1.55
- -----------------------------------------------------------
9/1/92 -1.00 6.59071145 10.05603800 -1.53
- -----------------------------------------------------------
9/1/93 -1.00 8.90400087 10.05603800 -1.13
- -----------------------------------------------------------
9/1/94 -1.00 10.26581081 10.05603800 -0.98
- -----------------------------------------------------------
9/1/95 -1.00 9.92636100 10.05603800 -1.01
- -----------------------------------------------------------
12/31/95 0.00 10.05603800 10.05603800 0.00
- -----------------------------------------------------------
12/31/95 -1.00 10.05603800 10.05603800 -1.00
- -----------------------------------------------------------
</TABLE>
Avg Annual Return: 5.07% Total: 1367.34
Days = 121
Years= 6
<PAGE>
ING GROUP - U.S.A. Holding Company System
As of December 31, 1995
ING Group N.V. (The Netherlands)-No FEIN(non-insurer)
ING Bank N.V. (The Netherlands)-No FEIN(non-insurer)
ING Verzekeringen N.V. (The Netherlands)-No Fein (non-insurer)
ING Insurance International B.V. (The Netherlands)-No FEIN(non-insurer)
Nederlandse Reassurantie Groep Holding N.V. (The Netherlands)
(non-insurer)
NRG America Holding Company (Pennsylvania) (non-insurer)(23-2074221)
NRG America Syndicate (New York) (non-insurer) (22-2281839)
NRG America Management Corporation (Pennsylvania) (23-1667532)
NRG America Life Reassurance Corporation (Pennsylvania)(23-2038295)
Philadelphia Reinsurance Corporation (Pennsylvania) (23-1620930)
Nationale-Nederlanden Intertrust B.V. (The Netherlands) (non-insurer)
Chicago Stacte (Delaware) (non-insurer) (98-0043300)
NN Intervest II (Delaware) (non-insurer) (98-0042249)
NNUS Realty Corporation (Delaware) (non-insurer)(13-3062172)
ING America Insurance Holdings, Inc. (Delaware) (non-insurer)(02-0333654)
Internationale Nederlanden North America Investment Centre Inc.
(Delaware) (non-insurer)(58-1515059)
ING North America Insurance Corporation (Delaware) (non-insurer)
(52-1317217)
Internationale-Nederlanden U.S. P&C Holdings, Inc. (Delaware)
(non-insurance)(51-0290450)
Excelsior Insurance Company (New Hampshire) (15-0302550)
Peerless Insurance Company (New Hampshire) (02-0177030)
First of Georgia Insurance Company (Georgia) (58-1438724)
America First Insurance Company (Florida) (58-0963149)
Alabama First Insurance Company (Alabama) (63-0830057)
Fidelity Southern Insurance Company (Texas) (74-1276503)
Diversified Settlements, Inc. (New Hampshire) (non-insurer)
(02-0424648)
The Netherlands Insurance Company (New Hampshire) (12-0342937)
Indiana Insurance Company (Indiana) (35-0410010)
Consolidated Insurance Company (Indiana) (35-6018568)
Cooling Grumme Mumford Company, Inc. (Indiana) (non-insurance)
(35-0246520)
Internationale Nederlanden America Life Corporation (Georgia)
(non-insurer)(58-1360182)
Southland Life Insurance Company (Texas) (75-0572420)
GAC Capital, Inc. (Delaware) (non-insurer)(51-0266924)
Life Insurance Company of Georgia (Georgia) (58-0298930)
Springstreet Associates, Inc. (Georgia) (non-insurer)(58-1822054)
Security Life of Denver Insurance Company (Colorado) (84-0499703)
ING America Equities, Inc. (Colorado) (non-insurer)(84-0499703)
Midwestern United Life Insurance Company (Indiana) (35-0838945)
First Secured Mortgage Deposit Corporation (Colorado)
(non-insurance)(84-1086427)
CAMVEST Company No. 3 (Colorado) (non-insurer)(84-0647364)
United Protective Company (Arizona) (non-insurer)(92-2535650)
First ING of New York (New York) (13-2740556)
Wilderness Associate (Colorado) (non-insurer)
Columbine Life Insurance Company (Colorado) (52-1222820)
Security Life of Denver International, LTD (non-insurer)
SLR Management, LTD (Bermuda) (non-insurer)
Lion Custom Investments(Delaware) (non-insurer)
Orange Investment Enterprises, Inc.(Delaware) (non-insurer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
Security Life Separate Account A1 financial statements at 12/31/95.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 18,509,222
<INVESTMENTS-AT-VALUE> 18,772,321
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 18,772,321
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 18,772,321
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 18,802,710
<DIVIDEND-INCOME> 174,207
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 87,195
<NET-INVESTMENT-INCOME> 87,012
<REALIZED-GAINS-CURRENT> 123,291
<APPREC-INCREASE-CURRENT> 263,099
<NET-CHANGE-FROM-OPS> 473,402
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 18,235,109
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
