<PAGE>
As filed with the Securities and Exchange Commission on April 27, 1998
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. 6
and
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11
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:
GARY W. WAGGONER, ESQ. DIANE AMBLER, ESQ.
Security Life of Denver Insurance Company Mayer, Brown & Platt
1290 Broadway 2000 Pennsylvania Avenue, N.W.
Denver, Colorado 80203-5699 Washington, D.C. 20006-1882
(Name and Address of Agent for Service) (202) 778-0641
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, 1998 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.
Title of securities being registered: Flexible Premium Deferred Combination
Fixed and Variable Annuity Contracts
<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
- ----------------- ---------------------
<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 Account;
Depositor and Portfolio Companies 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 Information
Additional Information
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Caption in Statement of Additional Information
----------------------------------------------
Form N-4 Item No. (or Prospectus, Where Indicated)
- ----------------- --------------------------------
<S> <C>
15. Cover Page Cover Page
16. Table of Contents Table of Contents
17. General Information and History Security Life; Prospectus -- Facts about Security Life and the
Variable Account
18. Services Security Life; The Administrator
19. Purchase of Securities 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 utilize a maximum of 18 Divisions for investment over the lifetime of
the Contract until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division. For example, if you have allocated or transferred funds to 17
Divisions of the Variable Account and to the Guaranteed Interest Division (or to
18 Divisions of the Variable Account), those will be the only Divisions to which
you can subsequently allocate or transfer funds. Therefore, you may prefer to
utilize fewer Divisions in the early years of the Contract so as to leave open
the option to invest in other Divisions in the future. An Owner who has used 18
Variable Divisions will no longer have the Guaranteed Interest Division
available for future use.
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 tax penalty.
We will pay a Death Benefit to the Beneficiary if the Owner dies prior to the
Annuity Date.
AN INVESTMENT IN A CONTRACT IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK NOR IS THE CONTRACT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE
CONTRACT INVOLVES CERTAIN RISKS, INCLUDING THE RISK OF LOSS OF PURCHASE PAYMENTS
(PRINCIPAL).
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.
Date of Prospectus: May 1, 1998
<PAGE>
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, 1998, 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 44 of this
prospectus. The Statement of Additional Information is incorporated herein by
reference.
Issued By:
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203-5699
1-800-525-9852
Distributed By:
ING America Equities, Inc.
1290 Broadway, Attn: Variable
Denver, CO 80203-5699
Customer Service Center:
P.O. Box 173763
Denver, CO 80217-3763
1-800-933-5858
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Exchequer 2
<PAGE>
TABLE OF CONTENTS
GLOSSARY OF TERMS ......................................................... 6
FEE TABLE ................................................................. 9
Portfolio Annual Expenses .......................................... 10
SUMMARY OF THE EXCHEQUER VARIABLE ANNUITY ................................. 13
GENERAL DESCRIPTION ....................................................... 13
MAXIMUM NUMBER OF INVESTMENT DIVISIONS .................................... 13
PURCHASE PAYMENTS ......................................................... 13
ENHANCED GUARANTEED DEATH BENEFIT ......................................... 14
PARTIAL WITHDRAWALS ....................................................... 14
SURRENDERING YOUR CONTRACT ................................................ 14
YOUR RIGHT TO CANCEL THE CONTRACT ......................................... 14
CONTRACT CHARGES AND FEES ................................................. 14
TAX CONSIDERATIONS ........................................................ 15
CONDENSED FINANCIAL INFORMATION ........................................... 16
FACTS ABOUT SECURITY LIFE AND THE VARIABLE ACCOUNT ........................ 18
SECURITY LIFE ............................................................. 18
CUSTOMER SERVICE CENTER ................................................... 18
THE VARIABLE ACCOUNT ...................................................... 18
MAXIMUM NUMBER OF INVESTMENT DIVISIONS .................................... 18
THE PORTFOLIOS ............................................................ 19
CHANGES WITHIN THE VARIABLE ACCOUNT ....................................... 21
FACTS ABOUT THE CONTRACT .................................................. 22
YOUR RIGHT TO CANCEL THE CONTRACT ......................................... 22
PURCHASE PAYMENTS ......................................................... 22
Initial Purchase Payment ............................................ 22
Additional Purchase Payments ........................................ 22
Where to Make Payments .............................................. 22
Crediting and Allocation of Purchase Payments ....................... 23
DOLLAR COST AVERAGING ..................................................... 23
AUTOMATIC REBALANCING ..................................................... 24
REPORTS TO OWNERS ......................................................... 24
GROUP OR SPONSORED ARRANGEMENTS ........................................... 25
OFFERING THE CONTRACT ..................................................... 25
VALUES UNDER THE CONTRACT ................................................. 25
ENHANCED GUARANTEED DEATH BENEFIT ......................................... 25
DEATH BENEFIT PROCEEDS .................................................... 25
How to Claim Payouts to Beneficiary ................................. 26
YOUR ACCUMULATION VALUE ................................................... 26
MEASUREMENT OF INVESTMENT EXPERIENCE FOR THE DIVISIONS OF THE VARIABLE
ACCOUNT ................................................................... 26
Accumulation Unit Value ............................................. 26
How We Determine the Accumulation Experience Factor ................. 26
Net Rate of Return for a Division of the Variable Account ........... 27
DIVISION ACCUMULATION VALUE OF EACH DIVISION OF THE VARIABLE ACCOUNT ...... 27
DIVISION ACCUMULATION VALUE OF THE GUARANTEED INTEREST DIVISION ........... 27
YOUR RIGHT TO TRANSFER AMONG DIVISIONS .................................... 27
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Exchequer 3
<PAGE>
PARTIAL WITHDRAWALS ....................................................... 28
Demand Withdrawal Option ............................................ 29
Systematic Income Program ........................................... 29
IRA Income Program--IRA Contracts Only .............................. 30
The Amount You May Withdraw Without a Surrender Charge .............. 30
Tax Consequences of Partial Withdrawals ............................. 30
SURRENDERING TO RECEIVE THE CASH SURRENDER VALUE .......................... 30
WHEN WE MAKE PAYOUTS ...................................................... 31
THE GUARANTEED INTEREST DIVISION .......................................... 31
OTHER INFORMATION ......................................................... 32
THE OWNER ................................................................. 32
THE ANNUITANT ............................................................. 32
CHANGE OF OWNER, BENEFICIARY OR ANNUITANT ................................. 32
In Case of Errors on the Application or Enrollment Form ............. 33
Procedures .......................................................... 33
Telephone Privileges ................................................ 33
Assigning the Contract as Collateral ................................ 33
Non-Participating ................................................... 33
AUTHORITY TO CHANGE CONTRACT TERMS ........................................ 33
Contract Changes - Applicable Tax Law ............................... 33
CONTRACT CHARGES AND FEES ................................................. 34
DEDUCTION OF CHARGES ...................................................... 34
CHARGES DEDUCTED FROM THE ACCUMULATION VALUE .............................. 34
Surrender Charge .................................................... 34
Partial Withdrawal Transaction Charge ............................... 34
Administrative Charge ............................................... 34
Excess Transfer Charge .............................................. 35
Taxes on Purchase Payments .......................................... 35
CHARGES DEDUCTED FROM THE DIVISIONS ....................................... 35
Mortality and Expense Risk Charge ................................... 35
Asset-Based Administrative Charge ................................... 35
PORTFOLIO EXPENSES ........................................................ 35
CHOOSING AN ANNUITY OPTION ................................................ 35
GENERAL PROVISIONS ........................................................ 35
Supplementary Contract .............................................. 35
Election and Changes of Annuity Date ................................ 36
Election and Changes of Annuity Option .............................. 36
PAYOUT OPTIONS ............................................................ 36
Variable Annuity Payout ............................................. 36
Fixed Annuity Payout ................................................ 37
Combination Annuity Payout .......................................... 37
Frequency and Amount of Annuity Payouts ............................. 37
PAYOUT PERIOD OPTIONS ..................................................... 37
Payouts Other Than Monthly .......................................... 38
Commuting Provisions ................................................ 38
REGULATORY INFORMATION .................................................... 38
VOTING PRIVILEGES ......................................................... 38
STATE REGULATION .......................................................... 39
LEGAL PROCEEDINGS ......................................................... 39
LEGAL MATTERS ............................................................. 39
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Exchequer 4
<PAGE>
EXPERTS ................................................................... 39
FEDERAL TAX CONSIDERATIONS ................................................ 39
INTRODUCTION .............................................................. 39
SECURITY LIFE TAX STATUS .................................................. 40
TAXATION OF ANNUITIES ..................................................... 40
1. Withdrawals Prior to the Annuity Commencement Date .............. 40
2. Annuity Payouts after the Annuity Date .......................... 40
3. Penalty Tax on Certain Withdrawals or Distributions ............. 40
TAXATION OF INDIVIDUAL RETIREMENT ANNUITIES ............................... 41
DISTRIBUTION-AT-DEATH RULES ............................................... 41
TAXATION OF DEATH BENEFIT PROCEEDS ........................................ 42
CONTRACTS OWNED BY NON-NATURAL PERSONS .................................... 42
SECTION 1035 EXCHANGES .................................................... 42
ASSIGNMENTS ............................................................... 42
MULTIPLE CONTRACTS RULE ................................................... 43
DIVERSIFICATION STANDARDS ................................................. 43
STATEMENT OF ADDITIONAL INFORMATION CONTENTS............................... 44
APPENDIX A ................................................................ 45
Example 1: Hypothetical Illustration of Systematic Income Program
Withdrawals ............................................. 45
Example 2: Hypothetical Illustration of a Series of Demand
Withdrawals ............................................. 45
Example 3: Hypothetical Illustration of a Full Surrender ........... 47
APPENDIX B ................................................................ 48
PERFORMANCE INFORMATION ................................................... 48
PERFORMANCE CHART ......................................................... 50
APPENDIX C ................................................................ 51
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 5
<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 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.
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Exchequer 6
<PAGE>
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 - The Guaranteed Interest Division or sub-account of the
Variable Account, the assets of which are invested in a corresponding
Portfolio.
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.
Individual 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.
IRA - An individual Retirement Annuity used as an Individual IRA Contract, a SEP
Contract or a SIMPLE Contract.
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.
SARSEP - A Contract established as part of a salary reduction simplified
employee pension plan. A SARSEP is a type of SEP.
SEC - The United States Securities and Exchange Commission.
SEP Contract - A Contract which is part of a simplified employer pension
plan (SEP) established by an employer for use in connection with
Section 408(k) of the Code. A SEP Contract is a type of IRA.
SIMPLE Contract - A Contract which is part of a savings incentive match plan
for employees (SIMPLE) established by an employer for use in connection
with Section 408(p) of the Code. A SIMPLE Contract is a type of IRA.
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
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Exchequer 7
<PAGE>
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 8
<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 35.
We may reduce certain charges under group or sponsored arrangements. See Group
or Sponsored Arrangements, page 25.
Transaction Expenses
Sales Load Imposed on Purchase Payment...................................... 0%
Surrender Charge/1/
Contract Anniversaries Since Surrender Charge as a Percentage of
Purchase Payment Was Made Purchase Payment Withdrawn
0.....................................7%
1.....................................6%
2.....................................5%
3.....................................4%
4.....................................3%
5.....................................2%
6+....................................0%
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%
- ---------------------------------
/1/ Up to certain limits, partial withdrawals may be taken without incurring a
current surrender charge. See Charges Deducted from the Accumulation Value,
page 34.
/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 35.
/3/ Any transfer under Dollar Cost Averaging or Automatic Rebalancing is not
considered a transfer for this purpose. See Dollar Cost Averaging , page
23, Automatic Rebalancing, page 24. After the Annuity Date, transfers are
limited to four each Contract Year, and no transfer charge applies. See
Excess Transfer Charge, page 35.
/4/ The administrative charge is deducted as of each Contract Anniversary or
upon surrender. See Administrative Charge, page 35.
/5/ See Enhanced Guaranteed Death Benefit, page 25, for a description of the
Basic and Enhanced Death Benefit. See Mortality and Expense Risk Charge,
page 36.
/6/ 1.40% for a Variable Annuity during the Annuity Period. See Payout Options,
page 37.
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Exchequer 9
<PAGE>
Portfolio Annual Expenses (As a Percentage of Portfolio Average Net Assets)(1)
<TABLE>
<CAPTION>
Investment Total Portfolio
Portfolio Management Fees Other Expenses Expenses
--------- --------------- -------------- --------
<S> <C> <C> <C>
Neuberger & Berman Advisers Management Trust(2)
Limited Maturity Bond Portfolio 0.65% 0.12% 0.77%
Growth Portfolio 0.83% 0.07% 0.90%
Partners Portfolio 0.80% 0.06% 0.86%
The Alger American Fund
Alger American Small Capitalization Portfolio 0.85% 0.04% 0.89%
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84%
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American Leveraged AllCap Portfolio 0.85% 0.15% 1.00%(3)
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 0.60% 0.09% 0.69%(4)
VIP Overseas Portfolio 0.75% 0.17% 0.92%(4)
VIP Money Market Portfolio 0.21% 0.10% 0.31%
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 0.55% 0.10% 0.65%(4)
VIP II Index 500 Portfolio 0.24% 0.04% 0.28%(5)
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Total Return Portfolio 0.75% 0.17% 0.92%(6), (7)
INVESCO VIF - Industrial Income Portfolio 0.75% 0.16% 0.91%(6), (8)
INVESCO VIF - High Yield Portfolio 0.60% 0.23% 0.83%(6), (9)
INVESCO VIF - Utilities Portfolio 0.60% 0.39% 0.99%(6), (10)
INVESCO VIF - Small Company Growth Fund 0.75% 0.25% 1.00%(6), (11)
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets Fund 1.00% 0.17% 1.17%(12)
Worldwide Real Estate Fund 0.00% 0.00% 0.00%(13)
Worldwide Emerging Markets Fund 0.80% 0.00% 0.80%(14)
Worldwide Bond Fund 1.00% 0.12% 1.12%
AIM Variable Insurance Funds, Inc.
AIM VI - Capital Appreciation 0.64% 0.09% 0.73%
AIM VI - Government Securities 0.50% 0.41% 0.91%
</TABLE>
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Exchequer 10
<PAGE>
(1) 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
reduction from Contract values; rather these Portfolio expenses are taken
into consideration in computing each underlying Portfolio's net asset
value, which 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.
(2) 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.
The figures reported under "Investment Management and Administration Fees"
include the aggregate of the administration fees paid by the Portfolio and
the management fees paid by its corresponding Series. Similarly, the
"Other Expenses" includes all other expenses of the Portfolio and its
corresponding series. See "Expenses" in the Trust's Prospectus. Expenses
may reflect expense reimbursement. NBMI has voluntarily undertaken to
limit the Portfolios' compensation of NBMI and excluding taxes, interest,
extraordinary expense, brokerage commissions and transaction costs, that
exceed 1% of the Portfolios' average daily net asset value. These expense
reimbursement policies are subject to termination upon 60 days written
notice to the Portfolios.
(3) The Alger American Leverage AllCap Portfolio's "Other Expenses" includes
0.04% of interest expense.
(4) A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table
would have been 0.67% for Growth Portfolio, 0.90% for Overseas Portfolio,
and 0.64% for Asset Manager Portfolio.
(5) FMR agreed to reimburse a portion of Index 500 Portfolio's expenses during
the period. Without this reimbursement, the funds' management fee, other
expenses and total expenses would have been 0.27%, 0.13% and 0.40%
respectively.
(6) 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.
(7) Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1997, 1996 and 1995. If such expenses had not
been voluntarily absorbed, the ratio of expenses to average net assets
would have been 1.10%, 1.30% and 2.51%, respectively, and the ratio of net
investment income to average net assets would have been 2.89%, 3.08% and
2.41%, respectively.
(8) Various expenses of the Portfolios were voluntarily absorbed by IFG for
the years ended December 31, 1997, 1996 and 1995. If such expenses had not
been voluntarily absorbed, the ratio of expenses to average net assets
would have been 0.97%, 1.19%, and 2.31%, respectively, and the ratio of
net investment income to average net assets would have been 2.12%, 2.63%
and 2.22%, respectively.
(9) Various expenses of the Portfolios were voluntarily absorbed by IFG for
the years ended December 31, 1997, 1996 and 1995. If such expenses had not
been voluntarily absorbed, the ratio of expenses to average net assets
would have been 0.94%, 1.32% and 2.71%, respectively, and the ratio of net
investment income to average net assets would have been 8.56%, 8.74% and
7.05%, respectively.
(10) Various expenses of the Portfolios were voluntarily absorbed by IFG for
the years ended December 31, 1997, 1996 and 1995. If such expenses had not
been voluntarily absorbed, the ratio of expenses to average net assets
would have been 2.07%, 5.36% and 57.13%, respectively, and the ratio of
net investment income to average net assets would have been 1.84%, (1.28%)
and (52.86%) respectively.
(11) Various expenses of the Portfolios were voluntarily absorbed by IFG for
the years ended December 31, 1997. If such expenses had not been
voluntarily absorbed, the ratio of expenses to average net assets would
have been 35.99% and the ratio of net investment income to average net
assets would have been (34.86%).
(12) Various expenses of the Portfolio were voluntarily absorbed by the
Portfolio's investment manager. Absent such reimbursement, "Investment
Management Fees," "Other Expenses" and "Total Portfolio Expenses" would
have been 1.0%, 0.18%, and 1.18%, respectively.
(13) Various expenses of the Portfolio were voluntarily absorbed by the
Portfolio's investment manager. Absent such reimbursement, "Investment
Management Fees," "Other Expenses" and "Total Portfolio Expenses" would
have been 1.0%, 3.92%, and 4.92%, respectively.
(14) Various expenses of the Portfolio were voluntarily absorbed by the
Portfolio's investment manager. Absent such reimbursement, "Investment
Management Fees," "Other Expenses" and "Total Portfolio Expenses" would
have been 1.0%, 0.34%, and 1.34%, respectively.
- --------------------------------------------------------------------------------
Exchequer 11
<PAGE>
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 35. The Enhanced Death
Benefit Risk Charge and the annual administrative charge do not apply during the
Annuity Period.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------------
If you surrender your Contract If you do not surrender your
at the end of the applicable Contract or if you annuitize at
time period. the end of the applicable time
period.
--------------------------------------------------------------------------------------------------------------------------------
Division Investing In: 1 3 5 10 1 3 5 10
Year Years Years Years Year Years Years Years
--------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Neuberger & Berman Advisers Management Trust
Limited Maturity Bond Portfolio 94 123 155 267 24 73 125 267
Growth Portfolio 95 127 162 279 25 77 132 279
Partners Portfolio 95 126 160 275 25 76 130 275
The Alger American Fund
Alger American Small Capitalization Portfolio 95 127 161 278 25 77 131 278
Alger American MidCap Growth Portfolio 95 125 159 274 25 75 129 274
Alger American Growth Portfolio 94 124 156 269 24 74 126 269
Alger American Leveraged AllCap Portfolio 96 130 166 289 26 80 136 289
Fidelity Variable Insurance Products Funds
VIP Growth Portfolio 93 121 151 259 23 71 121 259
VIP Overseas Portfolio 95 128 163 281 25 78 133 281
VIP Money Market Portfolio 89 110 133 222 19 60 103 222
Fidelity Variable Insurance Products Funds II
VIP II Asset Manager Portfolio 93 120 149 255 23 70 119 255
VIP II Index 500 Portfolio 89 109 131 219 19 59 101 219
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Total Return Portfolio 95 128 163 281 25 78 133 281
INVESCO VIF - Industrial Income Portfolio 95 127 162 280 25 77 132 280
INVESCO VIF - High Yield Portfolio 94 125 158 273 24 75 128 273
INVESCO VIF - Utilities Portfolio 96 130 166 288 26 80 136 288
Van Eck Worldwide Insurance Trust
Worldwide Emerging Markets Fund 94 124 157 270 24 74 127 270
Worldwide Hard Assets Fund 98 135 174 305 28 85 144 305
AIM VI Funds, Inc.
AIM Variable Insurance Government Securities 95 127 162 280 25 77 132 280
--------------------------------------------------------------------------------------------------------------------------------
</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.
THE ASSUMED 5% ANNUAL RATE OF RETURN IS HYPOTHETICAL AND SHOULD
NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE ANNUAL
RETURNS WHICH MAY BE GREATER OR LESS THAN THE ASSUMED RATE.
- --------------------------------------------------------------------------------
Exchequer 12
<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 our General and Variable Accounts. 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 IRA Contract. Individual IRA Contracts
are offered to individuals for use in connection with Sections 408(a) and (b) of
the Code. The Contract may also be used as a SEP Contract or a SIMPLE Contract
in connection with sections 408(k) and 408(p) of the code respectively. See your
tax adviser concerning these matters.
Purchase Payments or Accumulation Value may be allocated among one or more of
the 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. 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.
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.
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 18, and The
Portfolios, page 19.
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 32.
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 40.
Maximum Number of Investment Divisions
You may utilize a maximum of 18 Divisions for investment over the lifetime of
the Contract until current administrative systems are enhanced. See Maximum
Number of Investment Divisions, page 19.
Purchase Payments
The minimum initial Purchase Payment is $5,000 ($1,000 for an IRA). 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 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.
- --------------------------------------------------------------------------------
Exchequer 13
<PAGE>
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 22.
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 23.
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 23.
You may transfer or reallocate your Accumulation Value among the Divisions of
the Variable Account any time after the end of the Free Look Period. 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 Enhanced
Guaranteed Death Benefit, page 25, and Death Benefit Proceeds, page 26.
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 41.
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 31.
A penalty tax may be assessed upon surrender. See Taxation of Annuities, page
41.
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 previously
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, or such other
period as required by a state, beginning when the Contract is delivered to you.
See Your Right to Cancel the Contract, page 22.
Contract Charges And Fees
We deduct charges for certain transactions and make deductions from the
Divisions of the Variable Account and the Guaranteed Interest Division in the
same proportion that the Division Accumulation Value of each Division bears to
the total Accumulation Value. We may reduce certain charges for group or
sponsored arrangements. See Group or Sponsored Arrangements, page 25. 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. 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 34.
If you take more than one demand withdrawal in a Contract Year or take a demand
withdrawal in the same Contract Year while the Systematic Income Program is in
effect, we impose a partial withdrawal transaction charge equal to the lesser of
$25 or 2% of the amount withdrawn. See Partial Withdrawal Transaction Charge
page 35.
- --------------------------------------------------------------------------------
Exchequer 14
<PAGE>
During the Accumulation Period, 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 34.
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 36.
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 35.
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
35.
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 or on the Annuity Date.
See Taxes on Purchase Payments, page 35.
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.
Tax Considerations
Under current Federal income tax law, the increase in value of an annuity
contract owned by an individual generally is not taxed until it is distributed.
Prior to the Annuity Date, partial withdrawals, surrenders or assignments may
result in the recognition of ordinary income for tax purposes and may also
result in tax penalties if the taxpayer is under age 59 1/2. After the Annuity
Date, the taxable portion of each annuity payout will be subject to tax at
ordinary income rates.
Generally, under current Federal income tax law, proceeds of an annuity Contract
must be distributed within five years of the death of the Owner. Death proceeds
may result in the recognition of ordinary income by the recipient.
Section 1035 of the Code generally provides that no gain or loss shall be
recognized on the exchange of an annuity contract for another. Special rules and
procedures apply to Section 1035 transactions. See Federal Tax Considerations,
page 40.
- --------------------------------------------------------------------------------
Exchequer 15
<PAGE>
CONDENSED FINANCIAL INFORMATION
The audited consolidated financial statements of Security Life of Denver
Insurance Company as of December 31, 1997, and 1996, and for each of the three
years in the period ended, are in the Statement of Additional Information. The
audited financial statements of the Security Life Separate Account A1 as of
December 31, 1997, and for each of the two years in the period then ended, are
included in the Statement of Additional Information and reflect activity for
only those divisions that had commenced operations by that date.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Division Investing In: Accumulation Accumulation Number Of
Unit Value At Unit Value At Accumulation Units Calendar
Beginning Of End Of Period At End Of The Period Year
Period
<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
10.35 10.64 288,635.255 1996
10.64 11.18 257,388.684 1997
Government Income Portfolio**** 10.00 10.05 0.000 1994*
10.05 10.72 13,437.293 1995
10.72 10.70 61,534.920 1996
10.70 11.54 41,289.281 1997
Growth Portfolio 10.00 9.83 0.000 1994*
9.83 12.37 13,967.690 1995
12.37 13.30 144,473.402 1996
13.30 16.90 181,151.566 1997
Partners Portfolio 10.00 9.82 0.000 1994*
9.82 13.17 18,425.180 1995
13.17 16.81 194,111.730 1996
16.81 21.73 461,640.407 1997
The Alger American Fund:
Alger American Small Capitalization Portfolio 10.00 10.18 0.000 1994*
10.18 14.53 109,121.103 1995
14.53 14.91 353,902.764 1996
14.91 16.36 415,536.860 1997
Alger American MidCap Growth Portfolio 10.00 10.16 983.060 1994*
10.16 14.46 45,272.292 1995
14.46 15.94 207,341.752 1996
15.94 18.05 287,715.601 1997
Alger American Growth Portfolio 10.00 11.98 60,576.492 1995**
11.98 13.37 206,009.336 1996
13.32 16.56 381,816.079 1997
Alger American Leveraged AllCap Portfolio 10.00 14.74 20,636.526 1995**
14.74 16.27 99,823.309 1996
16.27 19.17 173,762.478 1997
Fidelity Variable Insurance Products Fund:
VIP Growth Portfolio 10.00 10.14 0.000 1994*
10.14 13.50 91,703.491 1995
13.50 15.25 386,707.380 1996
15.25 18.55 509,401.880 1997
VIP Overseas Portfolio 10.00 9.57 1,358.026 1994*
9.57 10.34 91,367.590 1995
10.34 11.53 417,669.832 1996
11.53 12.67 530,643.090 1997
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Exchequer 16
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Division Investing In: Accumulation Accumulation Number Of
Unit Value At Unit Value At Accumulation Units Calendar
Beginning Of End Of Period At End Of The Period Year
Period
<S> <C> <C> <C> <C>
Fidelity Variable Insurance Products Fund, continued:
VIP Money Market Portfolio 10.00 10.04 52,413.096 1994*
10.04 10.47 259,770.455 1995
10.47 10.87 918,154.339 1996
10.87 11.30 610,876.374 1997
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
10.90 12.31 254,932.411 1996
12.31 14.62 413,630.978 1997
VIP II Index 500 Portfolio 10.00 9.85 0.000 1994*
9.85 13.11 45,041.743 1995
13.11 15.86 349,173.950 1996
15.86 20.72 496,758.720 1997
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
12.14 13.41 228,925.945 1996
13.41 16.24 318,654.361 1997
INVESCO VIF - Industrial Income Portfolio 10.00 10.10 0.000 1994*
10.10 12.96 81,266.429 1995
12.96 15.61 294,419.794 1996
15.61 19.71 408,254.168 1997
INVESCO VIF - High Yield Portfolio 10.00 10.09 676.252 1994*
10.09 11.90 54,748.222 1995
11.90 13.67 280,339.680 1996
13.67 15.79 371,947.154 1997
INVESCO VIF - Utilities Portfolio 10.00 10.00 0.000 1994*
10.00 10.82 22,313.580 1995
10.82 12.02 200,534.253 1996
12.02 14.61 228,555.316 1997
Van Eck Worldwide Insurance Trust:
Worldwide Balanced Fund**** 10.00 10.00 513.000 1994*
10.00 9.85 14,721.975 1995
9.85 10.83 86,789.616 1996
10.83 11.78 87,130.936 1997
Worldwide Hard Assets Fund 10.00 9.20 700.158 1994*
9.20 10.06 7,301.735 1995
10.06 11.69 86,244.713 1996
11.69 11.31 82,978.958 1997
Worldwide Emerging Markets 10.00 10.00 0.000 1997***
AIM VI
Government Securities 10.00 10.00 0.000 1997***
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Commencement of business in these Divisions was on October 14, 1994.
** Commencement of business in these Divisions was on May 1, 1995.
*** Investment in these Divisions became available on December 31, 1997.
**** No longer available for investment.
- --------------------------------------------------------------------------------
Exchequer 17
<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 1997, Security Life
and its consolidated subsidiaries had over $120.2 billion of life insurance in
force. Our total assets exceeded $8.5 billion and our shareholder's equity
exceeded $870 million on a generally accepted accounting principles basis as of
December 31, 1997. 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, The Netherlands, and had consolidated assets
exceeding $307.6 billion on a Dutch (modified U.S.) generally accepted
accounting principles basis as of December 31, 1997.
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 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.
Maximum Number of Investment Divisions
You may utilize a maximum of 18 Divisions for investment over the lifetime of
the Contract until current administrative systems are enhanced. The Divisions
include the Divisions of the
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Variable Account and the Guaranteed Interest Division. For example, if you have
allocated or transferred funds to 17 Divisions of the Variable Account and to
the Guaranteed Interest Division (or to 18 Divisions of the Variable Account),
those will be the only Divisions to which you can subsequently allocate or
transfer funds. Therefore, you may prefer to utilize fewer Divisions in the
early years of the Contract so as to leave open the option to invest in other
Divisions in the future. An Owner who has used 18 Variable Divisions will no
longer have the Guaranteed Interest Division available for future use.
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 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 by investing in a diversified portfolio of
U.S. Government and Agency securities and investment grade debt securities
issued by financial institutions, corporations and others. The Limited
Maturity bond Portfolio may invest up to 10% of its net assets, measured at
the time of investment, in fixed income 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 four
years although the series may invest in securities of any duration.
Growth Portfolio -- seeks capital appreciation without regard to income and
invests in small, medium and large capitalization securities believed to have
maximum potential for long term capital appreciation. The portfolio managers
currently intend to focus primarily on the securities of
medium-capitalization companies. The portfolio utilizes a "growth at a
reasonable price" strategy in selecting these securities. 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
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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 to obtain long term
capital appreciation. Except during temporary defensive periods, the
Portfolio invests at least 65% of its total assets in equity securities of
companies that, at the time of purchase of the securities, have total market
capitalization within the range of companies included in the Russell 2000
Growth Index ("Russell Index") or the S&P SmallCap 600 Index ("S&P Index"),
updated quarterly. Both indexes are broad indexes of small capitalization
stocks. As of December 31, 1997, the range of market capitalization of the
companies in the Russell Index was $20 million to $2.97 billion; the range of
market capitalization of the companies in the S&P Index at that date was $21
million to $2.934 billion. The combined range was $20 million to $2.97
billion.
Alger American MidCap Growth Portfolio -- seeks long term capital appreciation.
Except during temporary defensive periods, the Portfolio invests at least 65%
of its total assets in equity securities 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 400 Index, updated quarterly. The S&P
MidCap 400 Index is designed to track the performance of medium
capitalization companies. As of December 31, 1997, the range of market
capitalization of these companies was $213 million to $13.737 billion.
Alger American Growth Portfolio -- seeks to obtain long term capital
appreciation. The Portfolio will invest its assets primarily in companies
whose securities are traded on domestic stock exchanges or in the
over-the-counter market. Except during temporary defensive periods, the
Portfolio will invest at least 65% of its total assets in the securities of
companies that, at the time of purchase of the securities, have a total
market capitalization of $1 billion or greater.
Alger American Leveraged AllCap Portfolio -- seeks long term capital
appreciation. The Portfolio may purchase put and call options and sell
(write) covered call and put options on securities and securities indexes to
increase gain and to hedge against the risk of unfavorable price movements,
and may enter into futures contracts on securities indexes and purchase and
sell call and put options on these futures contracts. The Portfolio may also
borrow money for the purchase of additional securities. The Portfolio may
borrow only from banks and may not borrow in excess of one third of the
market value of its assets, less liabilities other than such borrowing.
Except during temporary defensive periods, the Portfolio will invest 85% of
its net assets in equity securities of companies of any size.
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 money market instruments.
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.
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Investment Funds, Inc. is a registered, open-end management
investment company that was organized
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as a Maryland corporation on August 19, 1993, and is currently comprised of four
diversified investment Portfolios, described below. INVESCO Funds Group, Inc.,
the Funds' investment adviser, is primarily responsible for providing the
Portfolios with various administrative services and supervising the Funds' 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 consideration in the selection of portfolio securities. The
Portfolio normally invests at least 65% of its total assets in
dividend-paying common stocks. Up to 10% of the Portfolio's total assets may
be invested in equity securities that do not pay regular dividends. The
remaining assets are invested in other income-producing securities, such as
corporate bonds. The Portfolio also has the flexibility to invest in other
types of securities.
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 Worldwide Hard Assets Fund, the Worldwide
Balanced Fund and the Worldwide Emerging Markets Fund. Fiduciary International
Inc. does not currently serve as sub-investment adviser to the Worldwide
Balanced Fund, but it is expected to do so when the Fund's assets reach a point
at which it is appropriate to utilize the sub-investment adviser's services. On
April 30, 1997, the Van Eck Gold and Natural Resources Fund was renamed the
Worldwide Hard Assets Fund to reflect the Fund's new investment objective and
concentration policy approved by shareholders on April 9, 1997. The Fund's new
investment objective is described below.
Van Eck Worldwide Hard Assets Fund -- (formerly the Van Eck Gold and Natural
Resources Fund) seeks long term capital appreciation by investing globally,
primarily in hard assets securities. Hard assets are tangible, finite assets,
such as real estate, energy, timber, and industrial and precious metals.
Income is a secondary consideration.
Van Eck Worldwide Emerging Markets Fund -- seeks long term capital appreciation
by investing primarily in equity securities in emerging markets around the
world.
AIM Variable Insurance Funds, Inc.
AIM Variable Insurance Funds, Inc. is a registered, open-end, series management
investment company. AIM Advisors, Inc., ("AIM") manages each Fund's assets
pursuant to a master investment advisory agreement dated February 28, 1997. AIM
was organized in 1976 and is a wholly owned subsidiary of AIM Management Group,
Inc., an indirect subsidiary of AMVESCAP PLC, (formerly INVESCO PLC).
AIM VI Government Securities Portfolio -- seeks to achieve a high level of
current income consistent with reasonable concern for safety of principal by
investing in debt securities issued, guaranteed or otherwise backed by the
U.S. Government.
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
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due to a change in laws or regulations, or a change in a
Portfolio's investment objectives or restrictions, or because the
Portfolio is no longer available for investment, or for some other
reason, such as a declining asset base.
3) Transfer assets of the Variable Account, which we determine to be
associated with the class of contracts to which your Contract
belongs, to another Variable Account.
4) Withdraw the Variable Account from registration under the 1940
Act.
5) Operate the Variable Account as a management investment company
under the 1940 Act.
6) Cause one or more Divisions to invest in a mutual fund other than
or in addition to the Portfolios.
7) Discontinue the sale of Contracts and Certificates.
8) Terminate any employer or plan trustee agreement with us pursuant
to its terms.
9) Restrict or eliminate any voting rights as to the Variable
Account.
10) Make any changes required by the 1940 Act or the rules or
regulations thereunder.
No such change will be made until it becomes effective with the SEC or without
any necessary approval of the applicable state insurance departments. Owners
will be notified of all 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' laws 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 purchased a Contract in
a state that requires the return of Purchase Payments during the Free Look
Period and you exercise your Free Look right, we will return the Accumulation
Value plus any charges we previously deducted or the Purchase Payments made,
whichever is greater.
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 or with approval by us. See Group or Sponsored Arrangements, page
25. 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 or with
approval by Security Life. We may refuse to accept a Purchase Payment if it
would cause the sum of all Net Purchase Payments to exceed $1,500,000.
Under the Code, contributions to an Individual IRA contract may not exceed
$2,000 in any year. For married individuals filing joint returns, each spouse
may establish an IRA Contract and contribute up to $2,000 per year ($4,000 total
even if one spouse doesn't work), provided that the combined contributions do
not exceed the total combined compensation of both spouses. Employer
contributions to a SEP cannot exceed the lesser of $30,000 or 15% of an
employee's compensation. Under a SARSEP established prior to January 1, 1997,
salary reduction contributions are permitted up to a maximum of $7,000, indexed
for inflation. A SARSEP may not be established after January 1, 1997. Under a
SIMPLE plan, employees may elect to make salary reduction contributions up to a
maximum of $6,000 per year, indexed for inflation, and, in addition, the
employer must make either dollar-for-dollar matching contributions up to 3% of
each contributing employee's compensation or 2% of compensation for every
employee earning at least $5,000 per year. Special limitations apply to SEP
Contracts and SIMPLE Contracts. Consult your tax adviser for assistance in
determining the maximum contribution limits for your SEP or SIMPLE Contract.
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
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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 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 22. 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 of the 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.
You may utilize a maximum of 18 Divisions for investment over the lifetime of
the Contract until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division. For example, if you have allocated or transferred funds to 17
Divisions of the Variable Account and to the Guaranteed Interest Division (or to
18 Divisions of the Variable Account), those will be the only Divisions to which
you can subsequently allocate or transfer funds. Therefore, you may prefer to
utilize fewer Divisions in the early years of the Contract so as to leave open
the option to invest in other Divisions in the future. An Owner who has used 18
Variable Divisions will no longer have the Guaranteed Interest Division
available for future use.
You may allocate your Purchase Payments among the Division 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.
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 sending written notice to our Customer Service Center at least
seven days before the next transfer date. Any transfer under this option is not
counted toward the limit of 12 transfers per
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Contract Year 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 Privileges, page 33.
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 for purposes of the Excess 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 reallocate 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 quarterly periods.
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
33. 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
written 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 33.
Reports to Owners
During the Accumulation Period, we will send you a report within 31 days after
the end of each calendar quarter. This report will show the current Accumulation
Value in each Division, the total Accumulation Value, the Cash Surrender Value
and the Guaranteed 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
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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 . We may also increase the amount of partial
withdrawals which may be withdrawn without surrender charge. For example, group
arrangements include those in which a trustee, an employer or an association
purchases 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 Distribution-at-Death Rules, page 41. If the Owner is not an
individual, Proceeds are
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payable upon the death of the Annuitant.
The Death Benefit will be determined as of the Valuation Date we receive both
due proof of death and all information needed to process the claim, including
designation of a Beneficiary and the election of a one sum payout or election
under an Annuity Option.
We will pay the Proceeds in one lump sum unless the Beneficiary elects an
Annuity Option within 60 days of our receipt of due proof of death but prior to
the date on which we pay the Proceeds. See Choosing an Annuity Option, page . 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 39.
Your Accumulation Value
The Accumulation Value of your Contract is the sum of all the Division
Accumulation Values of the Variable Account in which your Contract is invested,
plus any Accumulation Value of the Guaranteed Interest Division. Each
Accumulation Value 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 35.
You may allocate your Accumulation Value among 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, and the 18 fund limitation.
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
5) The daily mortality and expense risk charge for that Division for
each day in the Valuation Period; minus
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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
Each Division Accumulation Value 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 each Division Accumulation Value 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 table below summarizes the number of transfers
available and any associated charges during any Contract Year.
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Accumulation Annuity
Period Period
------ ------
Free Transfer 12 4
Total Number of
Transfers Permitted Unlimited 4
Excess Transfer $25 for each Not
Charge transfer in applicable
excess of 12
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.
You may utilize a maximum of 18 Divisions for investment over the lifetime of
the Contract until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division. For example, if you have allocated or transferred funds to 17
Divisions of the Variable Account and to the Guaranteed Interest Division (or to
18 Divisions of the Variable Account), those will be the only Divisions to which
you can subsequently allocate or transfer funds. Therefore, you may prefer to
utilize fewer Divisions in the early years of the Contract so as to leave open
the option to invest in other Divisions in the future. An Owner who has used 18
Variable Divisions will no longer have the Guaranteed Interest Division
available for future use.
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 into 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 33.
Partial Withdrawals
Prior to the Annuity Date, while the Contract is in effect and after the Free
Look Period, you may withdraw in cash all or a part of the Cash Surrender Value
of your Contract. Partial withdrawals may be subject to a 10% tax penalty. See
Tax Consequences of Partial Withdrawals, page 30.
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 34, and The Amount You May Withdraw Without a Surrender
Charge, page 30.
Certain plans or programs sold on a group or sponsored basis to employee or
professional groups may have different withdrawal privileges. See Group or
Sponsored Arrangements, page 25.
Withholding of Federal income taxes on all distributions may be
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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 may 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 33.
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 Withdrawals, page 30.
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
30.
Unless you specify otherwise, the amount of the partial withdrawal will be taken
from each Division in the same proportion that the amount of Accumulation Value
in that Division bears to the Accumulation Value in all of the Divisions
immediately before the withdrawal.
We impose a partial withdrawal transaction charge for each demand withdrawal
after the first in any Contract Year. See Partial Withdrawal Transaction Charge,
page 34. In addition, a surrender charge could be incurred for demand
withdrawals in excess of certain amounts. See Charges Deducted from the
Accumulation Value, page 34, The Amount You May Withdraw Without a Surrender
Charge, page 30, and Appendix A, page 44.
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 Accumulation Value of that Division
bears to the total Accumulation Value. The payouts under this option may not
start sooner than one month after the Contract Date.
You may select the day of the month when the withdrawals will be made. If no day
is selected, the withdrawals will be made on the same calendar day of the month
as the Contract Date. If this calendar day is not a Valuation Date, the next
Valuation Date will be used. You may select a dollar amount or a percentage
amount for your withdrawal subject to the following maximums:
Frequency Maximum Income Payment Percentage
- --------- ---------------------------------
Monthly 1.25% of Accumulation Value
Quarterly 3.75% of Accumulation Value
Except as described in the following sections, in no event will a payout be less
than $100.
If a dollar amount is selected and the amount to be systematically withdrawn
would exceed the applicable maximum percentage as of the withdrawal date, the
amount withdrawn will be reduced to equal such percentage. If the amount to be
withdrawn is then less than $100, the withdrawal will be made, the Systematic
Income Program will be canceled. See Appendix A, page 44.
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
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Income Program partial withdrawals is never greater than the Cash Surrender
Value.
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 41.
Amounts taken pursuant to the IRA Income Program are not subject to a surrender
charge.
You may either provide us with the minimum required distribution amount or 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 41.
In no event will you be allowed to withdraw more than the Cash Surrender Value.
The Amount You May Withdraw Without a Surrender Charge
Each Contract Year after the first, you may withdraw 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 34.
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 25.
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 44.
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 39, 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 Account. The amount allocated to the Guaranteed
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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 35);
2) We deduct any surrender charge (see Surrender Charge, page 34);
3) We deduct the $30 annual administrative charge, if any, due at the
end of the Contract Year (see Administrative Charge, page 34).
For an example illustrating how we determine Cash Surrender Value in certain
hypothetical situations, see Appendix A, page 44.
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 35.
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 . 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 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.
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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 41, if
the Owner (or a Deemed Owner as defined in Distribution-at-Death Rules, page 41)
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 shall be
treated as the Owner; 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 25.
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 35.
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.
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
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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 39.
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 42.
Non-Participating
The Contract does not participate in Security Life's surplus earnings.
Authority to Change Contract Terms
All agreements made by us must be signed by our president or an officer and by
our secretary or assistant secretary. No other person, including an insurance
agent or broker, can change any of the Contract's terms or make any agreements
binding on us.
Contract Changes - Applicable Tax Law
This Contract is intended to qualify as an annuity contract under the Code. To
that end, all terms and provisions of the Contract shall be interpreted to
ensure or maintain such qualification, notwithstanding any other provisions to
the contrary. Payouts and distributions under 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
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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 25. 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.
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 that applies
is calculated as follows.
Contract Anniversaries Surrender Charge as a
Since Purchase Percentage of Purchase
Payment was Made Payment Withdrawal
---------------- ------------------
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
Up to certain limits, partial withdrawals may be taken without a surrender
charge. See The Amount You May Withdraw Without a Surrender Charge, page 30.
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 Accumulation Value of each Division in the
same proportion that the Accumulation Value in each Division bears to the total
Accumulation Value immediately after the withdrawal. The partial withdrawal
transaction charge will not apply to withdrawals made pursuant to the Systematic
Income and IRA Income Programs unless a demand withdrawal occurs while the
Systematic Income Program is in effect. Then, the remaining payouts to be made
under the Systematic Income Program for that year will be considered demand
withdrawals for purposes of calculating partial withdrawal transaction charges
and surrender charges.
We do not expect that the total revenue from the partial withdrawal transaction
charge will be greater than the total expected cost of administering demand
withdrawals, on average, over the period that the Contracts are in force.
Administrative Charge
The administrative charge is deducted each year during the Accumulation Period
as of the Contract Processing Date. We deduct this charge when determining the
Cash Surrender Value payable if you surrender the Contract prior to the end of a
Contract Year. The amount deducted is $30 per Contract Year if Net Purchase
Payments are less than $100,000. If Net
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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 35.
The administrative charge is allocated to a Division in the same proportion that
the amount of Accumulation Value in that Division bears to the total
Accumulation Value 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
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 21, 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 that 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. 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.
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 9. 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.
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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 generally 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. The new Annuity Date must be at least ten (10) days after receipt of
the request by our Customer Service Center.
Election and Changes of Annuity Option
The Annuity Option is composed of both the Payout Option which specifies the
type of annuity to be paid and the Payout Period Option which determines how
long the annuity will be paid, the frequency, and the amount of 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 payout are shown below.
Payout Options
Proceeds applied as of the Annuity Date to provide an annuity under an Annuity
Option will be the Accumulation Value minus taxes incurred but not deducted. The
taxes will be taken from each of the Divisions in the same proportion that the
Accumulation Value in each Division bears to the Accumulation Value in all
Divisions immediately prior to the Annuity Date.
If no Annuity Option has been chosen upon annuitization, we will apply Proceeds
to Payout Period Option Table I, using a Benchmark Total Return of 3%, with a
designated period of 30 years. The Annuity Option will be allocated among the
Guaranteed Interest Division and the Divisions of the Variable Account in the
same proportion that the Accumulation Value was allocated prior to the Annuity
Date. For example, if all of the Accumulation Value is allocated to the
Guaranteed Interest Division, the Annuity Payout will be a Fixed Annuity Payout.
Variable Annuity Payout
A Variable Annuity Payout is an annuity with payouts which: 1) are not
pre-determined or guaranteed as to dollar amount; and 2) vary in amount with the
investment experience of the Divisions of the Variable Account in which you
invest.
For Variable Annuity Payouts, the Owner has the option of electing either a 3%
or a 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 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 would 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 Accumulation Value of each
Division bears to the total Accumulation Value of all the Divisions of the
Variable Account.
The first Variable Annuity Payout for each Division of the Variable Account will
be the amount that the Proceeds will provide as of the close of business on the
Valuation Date immediately preceding the Supplementary Contract Effective Date
at the Benchmark Total Return elected. If you have elected to receive payouts
less frequently than monthly, the payout amount is then adjusted according to
the factors in Payouts Other Than Monthly, page 38.
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
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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 38.
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 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 34. 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
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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 37.
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.
Commuting Provisions
The Annuitant may commute remaining designated period installments under Payout
Period Option I. The Contingent Annuitant may commute remaining designated
period installments after the death of the Annuitant under Payout Period Options
I or II. If no Contingent Annuitant is named, any remaining designated period
installments may be commuted by the estate. Any computation shall be at the
appropriate Benchmark Total Return rate.
REGULATORY INFORMATION
Voting Privileges
We invest the assets in the Divisions of the Variable Account in shares of the
corresponding Portfolios. See The Portfolios, page 19. Security Life is the
legal owner of the shares held in the Variable Account and, as such, has the
right to vote on certain matters. Among other things, we may vote on any matters
described in the 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 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
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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 21) may
require Owner approval. In that case, you will be entitled to one vote for every
$100 of Accumulation Value you have in the Divisions of the Variable Account. We
will cast votes attributable to amounts in the Divisions of the 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 Insurance Department of jurisdictions that require such
approval. 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 the General Counsel of Security Life and Mayer, Brown & Platt.
Experts
The consolidated financial statements and schedules of Security Life of Denver
Insurance Company and Subsidiaries as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997, and the financial
statements of the Separate Account at December 31, 1997, and for each of the two
years in the period ended December 31, 1997, 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.
YEAR 2000 PREPAREDNESS
Security Life is aware of potential computer system challenges associated with
the year 2000. We plan to upgrade our current variable life administrative
system by early 1999. It is expected that this upgrade will make our system year
2000 compatible. We do not anticipate delays or problems in processing or
administering variable life products in the year 2000 or beyond.
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
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<PAGE>
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 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 42, and Diversification Standards,
page 43.
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. This penalty is 25% for withdrawals from SIMPLE
Contracts within the first two years of participation. 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
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<PAGE>
"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) allocable to investment in the Contract prior to August 14, 1982;
5) under a qualified funding asset (as defined in Code Section 130(d));
6) under an immediate annuity Contract, or
7) on Contracts which are purchased by an employer on termination of
certain types of qualified plans and which are held by the employer
until the employee separates from service.
Other tax penalties may apply to certain distributions as well as to certain
contributions and other transactions under a qualified plan.
If the penalty tax does not apply to a withdrawal as a result of the application
of item 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, contributions to an Individual IRA contract may not exceed
$2,000 in any year. For married individuals filing joint returns, each spouse
may establish an IRA Contract and contribute up to $2,000 per year ($4,000 total
even if one spouse doesn't work), provided that the combined contributions do
not exceed the total combined compensation of both spouses. Employer
contributions to a SEP cannot exceed the lesser of $30,000 or 15% of an
employee's compensation. Under a SARSEP established prior to January 1, 1997,
salary reduction contributions are permitted up to a maximum of $7,000, indexed
for inflation. A SARSEP may not be established after January 1, 1997. Under a
SIMPLE plan, employees may elect to make salary reduction contributions up to a
maximum of $6,000 per year, indexed for inflation, and, in addition, the
employer must make either dollar-for-dollar matching contributions up to 3% of
each contributing employee's compensation or 2% of compensation for every
employee earning at least $5,000 per year.
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 (25% in the case of distributions from SIMPLE plans) if the
recipient is under Age 59 1/2.
Security Life provides the Owner with the IRA Disclosure Statement attached to
the Prospectus as Appendix C. It is important that you consult your tax adviser
before purchasing any type of 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:
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<PAGE>
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.
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 includable 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 includable
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.
If the Contract is held by a trust, contact your tax adviser for the tax
effects.
Section 1035 Exchanges
Section 1035 of the Code generally 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
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<PAGE>
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.
IRA Contracts may not be transferred or assigned.
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 includable 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:
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.
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<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
T A B L E OF C O N T E N T S
<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>
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<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:
Accumulation Value Systematic Income
Month At Time of Withdrawal Program Withdrawal Amount
----- --------------------- -------------------------
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
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 29.
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:
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<PAGE>
<TABLE>
<CAPTION>
First Gross Second Gross Third Gross
Demand Withdrawal Demand Withdrawal Demand Withdrawal
----------------- ----------------- -----------------
<S> <C> <C> <C>
1) Hypothetical Accumulation Value Before Demand $34,200 $33,000/1/ $29,400/2/
Withdrawal
2) 15% Of The Accumulation Value As Of The Last $ 5,100 $ 3,100/3/ $ 0/4/
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 Attributable To $ 4,200/5/ $ 3,000/6/ $ 400/7/
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 Purchase $ 0 $ 0 $ 0
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 Amount $ 0 $ 100 $ 0
By Which 2) Exceeds 3)
8) Amount Withdrawn Attributable To Any Purchase $ 0 $ 900 $ 0
Payments Remaining On A First-In,
First-Out Basis
9) Surrender Charge [8) Multiplied By 5%, The $ 0 $ 45 $ 130
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) Minus 9) $ 2,000 $ 3,930 $ 2,845
Minus 10)
</TABLE>
For more information, see Demand Withdrawal Option, page 29, and The Amount You
May Withdraw Without a Surrender Charge, page 30.
- --------------------
/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.
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<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 Hypothetical Purchase Surrender Cash
Your 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 5% $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 34, and Administrative Charge,
page 34.
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<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"), CDA/Wiesenberger or Morningstar, Inc.
- -- four 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 Adviser, 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 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
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<PAGE>
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 49
<PAGE>
Performance Chart
The information below shows how the actual charges of a hypothetical contract
held for specified time periods ending December 31, 1997, 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
Shorter of Shorter of
Division Portfolio 10 years or 10 Years or
Inception 1 Year 5 Years Inception 1 Year 5 Years Inception
<S> <C> <C> <C> <C> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
AIM VI - Government Securities 05-05-93 6.43% N/A 3.65% -0.57% N/A 3.08%
The Alger American Fund
Alger American Leveraged AllCap Portfolio 01-25-95 17.78% N/A 31.52% 10.78% N/A 30.50%
Alger American Growth Portfolio 01-09-89 23.76% 17.41% 17.63% 16.76% 17.10% 17.63%
Alger American MidCap Growth Portfolio 05-03-93 13.17% N/A 20.20% 6.17% N/A 19.87%
Alger American Small Capitalization Portfolio 09-21-88 9.61% 10.87% 17.39% 2.61% 10.47% 17.39%
Fidelity Variable Insurance Products Fund
VIP Overseas Portfolio 01-28-87 9.78% 12.33% 7.89% 2.78% 11.95% 7.89%
VIP Growth Portfolio 10-09-86 21.53% 16.15% 15.36% 14.53% 15.82% 15.36%
VIP Money Market Portfolio* 04-01-82 3.78% 3.17% 4.19% -3.22% 2.64% 4.19%
Fidelity Variable Insurance Products Fund II
VIP II Asset Manger Portfolio 09-06-89 18.74% 11.18% 10.96% 11.74% 10.79% 10.96%
VIP II Index 500 Portfolio 08-27-92 30.61% 18.03% 17.99% 23.61% 17.72% 17.81%
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Industrial Income Portfolio 08-10-94 26.15% N/A 21.45% 19.15% N/A 20.70%
INVESCO VIF - Utilities Portfolio 01-01-95 21.47% N/A 13.12% 14.47% N/A 12.06%
INVESCO VIF - High Yield Portfolio 05-27-94 15.47% N/A 12.76% 8.47% N/A 11.94%
INVESCO VIF - Total Return Portfolio 06-02-94 20.97% N/A 14.56% 13.97% N/A 13.77%
Neuberger & Berman Advisers Management Trust
Growth Portfolio 09-10-84 26.97% 11.68% 13.09% 19.97% 11.29% 13.09%
Partners Portfolio 03-22-94 29.19% N/A 22.25% 22.19% N/A 21.64%
Government Income Portfolio 03-22-94 7.77% N/A 4.58% 0.77% N/A 3.63%
Limited Maturity Bond Portfolio 09-10-84 5.04% 3.94% 5.38% -1.96% 3.43% 5.38%
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets 09-01-89 -3.32% 13.30% 5.29% -10.32% 12.94% 5.29%
Worldwide Balanced Fund 12-23-94 8.66% N/A 5.40% 1.66% N/A 4.20%
Worldwide Emerging Markets Fund 12-27-95 -13.04% N/A 3.59% -20.04% N/A 1.16%
</TABLE>
*The 7-day yield and effective yield for the Division investing in the Fidelity
VIP Money Market Portfolio was 3.92% and 3.99%, respectively, as of December 31,
1997.
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 50
<PAGE>
APPENDIX C
DISCLOSURE STATEMENT
SECURITY LIFE OF DENVER INSURANCE COMPANY
EXCHEQUER ANNUITY
PROTOTYPE VARIABLE INDIVIDUAL RETIREMENT ANNUITY ACCOUNT
1. What is an IRA?
An IRA is intended to enable you to plan for your retirement by creating a
personal "retirement plan" subject to certain federal income tax
advantages, including, in some cases, a tax deduction for contributions. In
addition, any earnings on your IRA will not be subject to federal income
tax until you actually begin to receive a distribution from your account.
The state income tax treatment of your account may differ, and details
should be available from your state taxing authority or your own tax
adviser. As with most other laws that provide special tax treatment, there
are certain restrictions and limitations involved with respect to your IRA.
2. What if I establish an Individual Retirement Annuity (IRA) Account and then
change my mind?
You may revoke your IRA account at anytime and are entitled to a full
refund of any amount you have contributed to this account if you revoke the
account before the end of the 10th day following the day you execute the
account. The period of time during which you may revoke the account is
called the "Free Look" period. You may revoke the account in writing by
mailing or delivering a written notice of your intent to revoke on or
before the 10th day after the day you execute the account. Your notice must
be postmarked on or before the 10th day after the day you executed the
account. To revoke the account, mail or deliver the revocation to:
Security Life of Denver
Customer Service Center
P.O. Box 173763
Denver, Colorado 80217-3763
800-933-5858
3. How may I make contributions to my IRA?
You may make annual contributions to your IRA from your own earnings, or
those of your spouse if you are not employed, or you may make special
rollover contributions of distributions from other qualified retirement
plans, including other IRAs. In addition, your employer may establish for
you an IRA known as a "Simplified Employee Pension" (SEP) plan.
4. How much may I contribute annually?
You may contribute annually up to 100% of your compensation or earnings
from self-employment, up to a maximum of $2,000. If your spouse is not
employed, he or she may open a separate IRA. The combined total that may be
contributed to both IRAs is the lesser of 100% of your compensation or
earnings from self-employment, or $4,000. You may divide your contribution
between the IRAs in any way, provided that no more than $2,000 is
contributed to either IRA for any year. (You and your spouse must file a
joint return in order to establish a spousal IRA.) In the case of a SEP,
your employer may contribute annually up to 15% of your compensation, to a
maximum of $30,000. If you participate in a SEP, you may also establish
your own IRA. Rollover contributions are not subject to the annual limits.
5. How much of my annual contribution may I deduct?
The amount of your deduction depends on whether you or your spouse are
covered by a retirement plan at work including a SEP, and on your level of
income. Whether you are covered by a retirement plan at work will be
reported on your Form W-2. For any year before you turn 70-1/2, if you are
not covered by a retirement plan at work, you may deduct the entire amount
of your IRA (and spousal IRA) contributions (up to the maximum contribution
limits). However, if you are covered by a retirement plan at work, the
amount of your IRA contribution that you may deduct depends upon your
income for federal tax purposes. If your "modified adjusted gross income"
shown on your tax return exceeds certain levels ($25,000 if single, $40,000
if married filing jointly), your deduction may be limited or eliminated
(above $35,000 if single, $50,000 if married filing jointly). These rules
are quite complicated. Refer to IRS Publication 590, or 560 regarding SEPs,
or consult your tax advisor for further detail. Even if your deduction is
limited, you may still contribute to your IRA, up to your maximum
contribution limit, on a nondeductible basis.
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Exchequer 51
<PAGE>
6. When may I contribute?
You may make your regular IRA contribution for any year not later than the
due date for filing your tax return for the year (not including
extensions). However, rollover IRA contributions are subject to special
limitations on timing discussed below.
7. What if I contribute too much?
There is a 6% penalty tax on any amount you contribute to your IRAs in
excess of your annual contribution limit (except in the case of a rollover
contribution). This may happen, for example, if you contribute to more than
one IRA or contribute during or after the year in which you turn 70-1/2.
The 6% penalty for any "excess contribution" applies for each year until
the excess amount is withdrawn or used up. If the excess contribution is
withdrawn before you are required to file your tax return for the year in
which it was made, there will be no penalty, although you will have
additional tax on any earnings on the excess amount. Excess contributions
for one year may be carried forward and deducted in the next year but the
6% penalty will apply.
8. Who may establish a Security Life of Denver Insurance Company (Security
Life) Individual Retirement Annuity Account?
A Security Life Individual Retirement Annuity Account may be established by
any individual over age 18.
9. What is a rollover contribution?
A rollover contribution is a special contribution method that allows you to
avoid immediate taxation on a qualifying distribution from a retirement
plan or an IRA. However, the rollover contribution must satisfy the
definition of "Eligible Rollover Distribution." See paragraph 10, below,
for requirements.
Generally, any distribution that you receive from a qualified plan will
qualify as an Eligible Rollover Contribution unless the distribution
represents (1) a required minimum distribution or (2) one of a series of
equal payments to you for life (or over your life expectancy or the
combined life expectancies of you and your beneficiary). You cannot roll
over a distribution of contributions you made to your employer's plan,
except for voluntary deductible contributions or pre-tax contributions made
by you to a 401(k) plan. (Voluntary deductible contributions were special
contributions available before 1987.) You may request that your employer
transfer all or any part of your Eligible Rollover Distribution directly to
your IRA under a "Direct Rollover Option."
If you have attained age 70-1/2, you may not roll over a distribution made
if the distribution was required under Code Section 401(a)(9).
If you inherit an individual retirement account, it is not eligible for
rollover into another IRA.
Within 60 days from the date the distribution is received, all or part of
the distribution, except any nondeductible contributions you have made to a
qualified plan, may be put into an IRA.
Assets of one IRA may be rolled over tax free into another IRA. However,
once an IRA has been rolled over, it may not be rolled over again into
another IRA for one year.
10. What is a "Direct Rollover Option"?
If you elect to have your Eligible Rollover Distribution paid directly to
you before you make a rollover contribution to your IRA, your employer will
be required to withhold 20% of the Eligible Rollover Distribution to be
applied as a credit toward your income taxes for the year (you may later be
entitled to a tax refund with respect to some or all of the withheld
amount). Accordingly, the amount available to be rolled over to your IRA
will be reduced by 20%, unless you choose to make it up from other
available funds. If you do not make up the difference, the amount withheld
will be treated as a taxable distribution to you. In order to avoid this
dilemma, you may instead request that your employer transfer all or any
part of your Eligible Rollover Distribution directly to your IRA as a
"Direct Rollover Option." The 20% withholding tax does not apply to any
amount that is transferred to your IRA under the Direct Rollover Option.
Your employer will provide you with information as to how to elect the
Direct Rollover Option, sometimes called a trustee-to-trustee transfer. Any
part of your Eligible Rollover Distribution not transferred by you or your
employer as a rollover must be reported by you as ordinary income in the
taxable year in which it is received. However, certain special tax
treatments like lump sum averaging may apply.
11. How do the rollover rules apply to a spouse in the event of death or
divorce?
If you receive an Eligible Rollover Distribution as a death benefit from a
qualified retirement plan in which your spouse participated, you may make a
rollover contribution of all or any portion of the distribution in the same
manner that your spouse may have elected. However, your IRA may not be
treated as a "conduit IRA" (see below) which you may later roll over into
another qualified plan. If you receive an Eligible Rollover Distribution
from your spouse's qualified retirement plan under a "qualified domestic
relations order" in connection with a divorce, you will be eligible to use
the rollover rules in the same manner as your ex-spouse.
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Exchequer 52
<PAGE>
12. What is a "conduit" IRA?
If you receive an Eligible Rollover Distribution from your employer's
qualified retirement plan and want to roll it over into another qualified
retirement plan of your new employer, but are not yet eligible to
participate in the new plan, you may roll over the distribution into an IRA
(subject to all of the rollover rules summarized above) and, when you are
finally eligible to participate in your new employer's plan, you may roll
over the amount from your IRA. In order to qualify your IRA as a conduit
IRA, you may not make regular annual contributions to the IRA or make any
other rollover contribution that will not later be eligible for rollover
into your new employer's plan. Instead, you should establish separate IRAs.
13. What will happen to my contribution?
Your contribution will be used to purchase a deferred variable annuity
Contract from Security Life Insurance Company. Your interest in the
Contract is nonforfeitable and nontransferable.
14. What happens if I borrow on the Contract or invest part of my IRA in
collectibles?
If you borrow on the Contract or pledge the Contract or your benefits under
the Contract as security for a loan, your IRA will cease to be qualified
and the value of your Contract will have to be included in your income for
that year for tax purposes. If you are under age 59-1/2, your federal
income tax also will be increased by a penalty equal to 10% of the value of
the Contract that is included in your income. If you invest any part of an
IRA in collectibles, it will be considered a distribution in the amount of
the cost of the collectible.
15. Is there any other way I can endanger the qualification of my IRA?
If you or your beneficiaries commit a prohibited transaction with respect
to your IRA assets under the plan, your IRA will be disqualified with the
same result and penalty described in Question 14. Borrowing money on your
annuities is an example of a prohibited transaction.
16. How are distributions made from an IRA?
Distributions are made in a single lump sum payment, in annuity payments
for your life, in annuity payments for the joint lives of you and your
beneficiary, or in annuity payments for a period certain.
17. When do distributions begin?
Distributions must begin not later than the first day of April following
the calendar year in which you reach age 70-1/2. Distributions should not
begin before you reach age 59-1/2 unless you die, are disabled, or ask
Security Life for a distribution so you can transfer the value of your
Contracts to another plan.
18. What happens if I take a distribution before I reach age 59-1/2?
Unless you are disabled or die or unless the distribution is an eligible
rollover and is rolled over into another plan within 60 days, the
distribution will be included in your income for the year you received it
and you will be subject to a penalty tax equal to 10% of the value of the
distribution.
19. What constitutes disability under the Contract?
Under the Contract, disability means an inability to engage in any
substantial gainful activity because of a physical or mental impairment
that can be expected to result in death or to be of long and indefinite
duration. Your disability for purposes of the Contract must be determined
by a competent physician and proof must be furnished to Security Life.
20. Are there any other tax penalties to which my IRA can be subjected?
A penalty tax of 50% is attached if distribution is not commenced by the
required date under the law and under the distribution provisions of the
plan. The recipient of the distribution must pay this penalty tax. A
penalty tax of 50% also is imposed if a certain minimum level of
distributions is not maintained. Once you reach age 70-1/2, the minimum
amount that is required to be distributed each year is equal to the
remaining balance of your account divided by the remaining number of years
of your life expectancy or the life expectancies of you and your
beneficiary. If Security Life is unable to make distribution because it
cannot locate you or your beneficiary, Security Life may automatically
treat your IRA as if a distribution had been made and issue a W-2.
You may also be subject to a penalty tax of 15% if you receive total
distributions in any year from all of your IRAs and all other qualified
retirement plans in which you participate in excess of certain limitations
(currently $150,000 for annual annuity payments, $750,000 for lump sums,
but these amounts may be increased for future inflation).
- --------------------------------------------------------------------------------
Exchequer 53
<PAGE>
21. What if I die?
If you die after distribution has begun, the remaining interest, if any,
will be distributed at least as rapidly as the distribution method used
prior to your death.
If you die before distribution begins, your entire interest will be
distributed as follows:
a. Within five years after the date of your death.
b. If payable to your beneficiary and you have not elected payment in a
single lump sum, your interest will be paid over the life of your
beneficiary or a period certain not longer than the life expectancy of
your beneficiary beginning no later than one year after the date of
your death.
c. If your beneficiary is your surviving spouse, your spouse may elect to
receive payments for life or over a period certain not exceeding the
life expectancy of your surviving spouse. The payment may begin on any
date prior to the date you would have reached age 70-1/2. The
surviving spouse may accelerate these payments at any time.
d. If your beneficiary is your surviving spouse, your spouse may treat
the account as his or her own individual retirement arrangement.
22. What are the federal income tax aspects of my distribution?
Retirement funds accumulated in an IRA are taxable to you when distributed
as described below. The special qualifying lump sum distribution treatment
afforded to distributions from certain types of retirement plans is not
available for an IRA distribution. This rule applies even if the original
contribution to the IRA was a rollover contribution that would have
qualified for special treatment if you had not rolled the lump sum
distribution over into an IRA.
Because nondeductible IRA contributions are made using income that has
already been taxed, the portion of an IRA distribution consisting of
nondeductible contributions will not be taxed again when received by you.
If you make any nondeductible IRA contributions, each distribution from
your IRA will consist of a nontaxable portion (return of nondeductible
contributions) and a taxable portion (return of deductible contributions,
if any, and account earnings).
You must maintain your own records of your nondeductible contributions in
order to avoid double taxation upon distribution.
Thus, you may not take a distribution that is entirely tax-free. The
following formula is used to determine the taxable portion of your
distributions for a taxable year:
Remaining
Nondeductible Total Nontaxable
Contributions X Distributions = Distributions
-------------
Year-end Total IRA (for the year) (for the year)
Account Balances
To figure the year-end total IRA account balance, you treat all of your
IRAs as a single IRA. This includes all regular IRAs, as well as Simplified
Employee Pension (SEP) IRAs, and Rollover IRAs. You also add back the
distributions taken during the year.
Example: An individual makes the following contributions to his or her
IRAs:
Year Deductible Nondeductible
---- ---------- -------------
1991 $2,000
1992 1,800
1993 1,000 $1,000
1994 600 1,400
------ ------
$5,400 $2,400
Deductible Contributions: $5,400
Nondeductible Contributions: $2,400
Earnings on IRAs: $1,200
Total Account Balance of IRAs as of 12/31/94
(including distributions in 1995) $9,000
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Exchequer 54
<PAGE>
In 1995 the individual takes a distribution of $3,000. The total account
balance in the IRAs on 12/31/95 including 1995 distributions is $9,000. The
nontaxable portion of the distributions for 1995 is figured as follows:
Total nondeductible contributions $2,400
Total account balance in the IRAs $9,000 x $3,000 = $800
times distributions
Thus $800 of the $3,000 distribution in 1995 will not be included in the
individual's taxable income. The remaining $2,200 will be taxable for 1995.
23. Can I terminate my IRA?
You may terminate your IRA at any time by notifying Security Life of Denver
Insurance Company in writing that the Contract is to be terminated.
24. Has the Security Life Individual Retirement Annuity been approved by the
Internal Revenue Service?
The Security Life Individual Retirement Annuity has been approved as to
form by the Internal Revenue Service. Approval as to form by the IRS of an
IRA does not represent a determination of the merits of investing in the
IRA.
25. Must I file anything with the IRS?
If you make nondeductible IRA contributions in any year, you must report
the amount of such contributions on Form 8606 filed with your tax return
for the year. In addition, you must file Form 5329 for any year in which
you have made an excess contribution, received a premature distribution
subject to the 10% excise tax, or received an insufficient or excess
distribution.
26. Where can I get additional information?
Additional information can be obtained from any District Office of the
Internal Revenue Service.
27. If I make contributions to my IRA, how will it be determined how much I
will have accumulated by the time I retire or if I decide to withdraw my
funds during the first five years?
The amount of your Accumulation Value is determined by the contributions
you have made, withdrawals taken, administrative charges, the investment
performance of the Divisions in which your funds are invested, mortality
and expense risk charges, and transaction charges which may be incurred as
a result of a requested transaction. Due to the variable nature of the
Contract, the amount of your Accumulation Value may increase or decrease on
any day, and the growth in value of the account is neither guaranteed nor
projected.
For this variable annuity, assuming you make (1) level annual contributions
in the amount of $1,000 on the first day of each Contract year, (2) a
rollover contribution of $1,000 on the first day of the year and no other
contributions, or (3) a rollover contribution of $1,000 on the first day of
each year, an annual administrative charge in the amount of $30 will be
deducted from your Accumulation Value at the end of each Contract year. The
amount of each annual contribution is added to your Accumulation Value and
invested in the options which you have selected.
Each investment Division of the Variable Account will experience a unique
rate of return based upon the underlying mutual funds in which it is
invested. A daily charge is deducted from the amount of your Accumulation
Value which is invested in the Variable Account to compensate Security Life
for mortality and expense risks we assume under the Contract as well as to
cover administrative costs associated with this Contract. This daily charge
during the Accumulation Period is at the rate of 0.004164% (equivalent to
an annual rate of 1.52%) on the assets in the Divisions of the Variable
Account. The daily charge during the Annuity Period is at the rate of
0.003836% (equivalent to an annual rate of 1.40%) on the assets in the
Divisions of the Variable Account.
The Cash Surrender Value is the amount of money which is available to you
at any time upon a surrender of the Contract. The amount of your Cash
Surrender Value is your Accumulation Value less surrender charges, taxes
and the administrative charge of $30. An explanation of each of these
charges follows.
Surrender Charge
This charge is calculated as a percentage of the Purchase Payments
withdrawn. The percentage is based on the number of anniversaries since
the Contract year in which each payment was made.
- --------------------------------------------------------------------------------
Exchequer 55
<PAGE>
Anniversaries Since Surrender Charge as a
Purchase Payment Percentage of Purchase
Was Made Payment Withdrawn
0 7%
1 6%
2 5%
3 4%
4 3%
5 2%
6+ 0%
Taxes on Purchase Payments
Some states and localities charge a tax on Purchase Payments. This tax 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 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, payment of Death 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.
Transaction charges may be deducted from your Accumulation Value in the event
you request a particular transaction. These are outlined below.
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 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.
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 each transfer is processed.
After the Annuity Date, only four transfers each Contract Year are allowed, and
no transfer charge will be deducted.
The above represents a brief summary of the tax consequences of maintaining an
IRA. For more information, consult your personal tax advisor or refer to
Publication 590, or 560 regarding SEPs, which is available on request from the
Internal Revenue Service.
56
<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>
<CAPTION>
T A B L E OF C O N T E N T S
<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, 1998
DATE OF STATEMENT OF ADDITIONAL INFORMATION: MAY 1, 1998
<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 years ended December 31, 1996, December 31, 1995 and December 31, 1994
were $2,971,177, $1,167,779, and $39,550, respectively.
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):
ILLUSTRATION OF CALCULATION OF ACCUMULATION UNIT VALUE
<TABLE>
<S> <C> <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 $ 25.00
Valuation Period
3) Net asset value per share of the Portfolio at the end of the current $ 25.50
Valuation Period
4) Dividends and capital gains declared and reinvested in the Portfolio $ 0.55
during the current Valuation Period
5) Charge for taxes per share in the Portfolio during the current $ 0.05
Valuation Period
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 1.03995836
[6) minus 7) minus 8)]
10) AUV for the Division at the end of the current Valuation Period [1) $5.19979178
times 9)]
11) Net Rate of Return for the Division during the current Valuation Period 3.995836%
</TABLE>
3
<PAGE>
ILLUSTRATION OF PURCHASE OF UNITS (ASSUMING NO STATE TAX ON PURCHASE PAYMENTS)
<TABLE>
<S> <C> <C>
1) Purchase Payment $ 100.00
2) AUV for the Division on the effective date of purchase (see above $5.00000000
example)
3) Number of Accumulation Units purchased [1) divided by 2)] 20.000000
4) AUV for the Division on the Valuation Date following purchase $5.19979178
(see above example)
5) Value of the Division on the Valuation Date following purchase $ 104.00
[3) multiplied by 4)]
</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 10.00000000
Valuation Period
2) Net asset value per share of the Portfolio at the end of the preceding $ 25.00
Valuation Period
3) Net asset value per share of the Portfolio at the end of the current $ 25.50
Valuation Period
4) Dividends and capital gains declared and reinvested in the Portfolio $ 0.55
during the current Valuation Period
5) Charge for taxes per share in the Portfolio during the current $ 0.05
Valuation 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 [6) minus 7) 1.03996164
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 [9) 1.03987743
divided by 10)]
12) Annuity Unit Value at the end of the current Valuation Period [1) times 10.39877428
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 $ 9.63
value
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
</TABLE>
IRA INCOME PROGRAM
If the Owner has an IRA Contract, we will provide payout of amounts required to
be distributed by the Internal Revenue Service unless the minimum distributions
are otherwise satisfied.
You may either provide us with the minimum required distribution amount or 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 provides the Owner with the IRA Disclosure Statement attached to
the Prospectus as Appendix C. 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 unless elected otherwise. 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, 370 17th Street, Suite 4300, Denver, CO
80202, performs 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, 1997, 1996 and 1995
with Report of Independent Auditors
8
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1997, 1996 and 1995
CONTENTS
<TABLE>
<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
</TABLE>
9
<PAGE>
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
Denver, Colorado
April 10, 1998 Ernst & Young, LLP
10
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------------------------------
<S> <C> <C>
ASSETS
Investments (Note 2):
Fixed maturities, at fair value (amortized cost:
1997--$3,007,012; 1996--$2,765,488) $3,152,355 $2,875,084
Equity securities, at fair value (cost: 1997--$6,754;
1996--$4,899) 8,019 5,345
Mortgage loans on real estate 576,620 452,795
Investment real estate, at cost, less accumulated
depreciation (1997--$667; 1996--$628) 1,767 1,769
Policy loans 875,405 795,311
Other long-term investments 14,307 11,063
-------------------------------
Total investments 4,628,473 4,141,367
Cash and cash equivalents 77,765 20,840
Accrued investment income 49,726 45,426
Reinsurance recoverable:
Paid benefits 11,170 10,188
Unpaid benefits 14,988 19,703
Prepaid reinsurance premiums (Note 8) 2,721,515 1,951,012
Deferred policy acquisition costs (DPAC) 682,905 673,560
Property and equipment, at cost, less accumulated
depreciation (1997--$22,925; 1996--$21,407) 37,943 38,848
Federal income tax recoverable (Note 9) 5,722 -
Indebtedness of related parties 2,443 5,383
Other assets 87,298 109,751
Separate account assets (Note 6) 263,035 124,986
-------------------------------
Total assets $8,582,983 $7,141,064
===============================
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996
-------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits:
Life and annuity reserves $4,305,229 $3,834,140
Guaranteed investment contracts 2,634,654 1,911,201
Policyholders' funds 82,291 81,273
Advance premiums 365 236
Accrued dividends and dividends on deposit 21,129 20,338
Unpaid claims 103,525 88,074
Funds held under reinsurance treaties -- 18,967
-------------------------------
Total future policy benefits 7,147,193 5,954,229
Accounts payable and accrued expenses 99,335 85,858
Indebtedness to related parties 7,704 5,427
Long-term debt to related parties (Note 10) 75,000 75,000
Accrued interest on long-term debt to related
parties (Note 10) 5,128 3,700
Other liabilities 61,424 53,311
Federal income taxes payable (Note 9) -- 11,883
Deferred federal income taxes (Note 9) 53,829 48,541
Separate account liabilities (Note 6) 263,035 124,986
-------------------------------
Total liabilities 7,712,648 6,362,935
Commitments and contingent liabilities
(Notes 8 and 13)
Stockholder's equity (Note 11):
Common stock, $20,000 par value:
Authorized -- 149 shares
Issued and outstanding -- 144 shares 2,880 2,880
Additional paid-in capital 315,722 302,722
Net unrealized gains on investments 50,938 58,718
Retained earnings 500,795 413,809
-------------------------------
Total stockholder's equity 870,335 778,129
-------------------------------
Total liabilities and stockholder's equity $8,582,983 $7,141,064
===============================
</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
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Revenues:
Traditional life insurance premiums $ 122,429 $ 118,200 $ 124,619
Universal life and investment product charges 217,108 202,081 202,908
Reinsurance premiums assumed 446,434 339,335 326,315
----------------------------------------------
785,971 659,616 653,842
Reinsurance premiums ceded (124,815) (117,880) (117,061)
----------------------------------------------
661,156 541,736 536,781
Net investment income 340,898 312,121 256,065
Net realized gains on investments 28,645 4,770 6,564
Miscellaneous income 6,743 526 1,941
----------------------------------------------
1,037,442 859,153 801,351
Benefits and expenses:
Benefits:
Traditional life insurance:
Death benefits 299,305 235,828 217,136
Other benefits 79,849 71,939 88,326
Universal life and investment contracts:
Interest credited to account balances 217,614 186,908 164,536
Death benefits incurred in excess of account
balances 73,260 54,004 63,672
Increase in policy reserves and other funds 72,685 121,946 23,895
Reinsurance recoveries (98,376) (80,276) (74,305)
Product conversions 7,014 16,379 74,291
----------------------------------------------
651,351 606,728 557,551
Expenses:
Commissions 46,516 25,846 51,189
Insurance operating expenses 89,075 69,580 52,414
Amortization of deferred policy acquisition costs 116,495 94,685 71,450
----------------------------------------------
903,437 796,839 732,604
----------------------------------------------
Income before federal income taxes 134,005 62,314 68,747
Federal income taxes (Note 9) 47,019 21,876 24,296
----------------------------------------------
Net income $ 86,986 $ 40,438 $ 44,451
==============================================
</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
1997 1996 1995
--------------------------------------------
<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 $302,722 $297,422 $150,792
Capital contributions 13,000 5,300 146,630
--------------------------------------------
Balance at end of year $315,722 $302,722 $297,422
============================================
Net unrealized gains on investments:
Balance at beginning of year $ 58,718 $ 72,973 $ 6,862
Net change in unrealized gains (losses),
net of tax 23,766 (27,716) 118,654
Effect on DPAC of unrealized gains and
losses on fixed maturities, net of tax (31,546) 13,461 (52,543)
--------------------------------------------
Balance at end of year $ 50,938 $ 58,718 $ 72,973
============================================
Retained earnings:
Balance at beginning of year $413,809 $373,371 $329,640
Net income 86,986 40,438 44,451
Dividends paid to stockholder -- -- (720)
--------------------------------------------
Balance at end of year $500,795 $413,809 $373,371
============================================
Total stockholder's equity $870,335 $778,129 $746,646
============================================
</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
1997 1996 1995
-------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 86,986 $ 40,438 $ 44,451
Adjustments to reconcile net income to net cash and
cash equivalents provided by operating activities:
Increase in future policy benefits 972,284 585,581 471,331
Net decrease (increase) in federal income taxes (12,317) 78,668 33,232
Increase (decrease) in accounts payable and
accrued expenses 21,033 (1,361) 31,334
Increase in accrued interest on long-term debt 1,428 3,676 24
Increase in accrued investment income (4,300) (7,294) (5,739)
(Increase) decrease in reinsurance recoverable 3,733 (5,214) (24)
Increase in prepaid reinsurance premiums (770,503) (336,053) (253,968)
Net realized investment gains (28,645) (4,770) (6,564)
Depreciation and amortization expense 3,630 3,857 4,036
Policy acquisition costs deferred (174,374) (152,299) (127,069)
Amortization of deferred policy acquisition
costs 116,495 94,685 71,450
Increase in accrual for postretirement benefits 557 484 623
Other, net 43,538 (15,524) (20,553)
-------------------------------------------------------
Net cash and cash equivalents provided by
operating activities 259,545 284,874 242,564
INVESTING ACTIVITIES
Securities available-for-sale:
Sales:
Fixed maturities 2,279,598 334,482 357,059
Equity securities 648 4,198 4,730
Maturities--fixed maturities 410,632 727,937 280,581
Purchases:
Fixed maturities (2,919,145) (1,522,369) (935,210)
Equity securities (2,561) (428) (1,300)
Securities held-to-maturity:
Maturities--fixed maturities -- -- 14,156
Sale, maturity or repayment of investments:
Mortgage loans on real estate 38,756 18,102 16,061
Investment real estate -- 1,354 215
Other long-term investments 2,002 -- 1,064
</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
1997 1996 1995
-------------------------------------------------
<S> <C> <C> <C>
INVESTING ACTIVITIES (CONTINUED)
Purchase or issuance of investments:
Mortgage loans on real estate $(163,528) $(186,228) $(136,218)
Investment real estate (35) -- 14
Policy loans, net (80,094) (41,071) (63,746)
Other long-term investments (5,248) 809 (2,169)
Additions to property and equipment (2,687) (4,482) (1,812)
Disposals of property and equipment 145 2,389 79
-------------------------------------------------
Net cash and cash equivalents used by
investing activities (441,517) (665,307) (466,496)
-------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in indebtedness to related 5,217 42,206 (17,011)
parties
Cash contributions from parent 13,000 5,300 --
Receipts from interest sensitive products
credited to policyholder account balances 555,223 434,726 387,904
Return of policyholder account balances on
interest sensitive policies (334,543) (123,949) (128,948)
Dividends paid to stockholder -- -- (720)
-------------------------------------------------
Net cash and cash equivalents provided by
financing activities 238,897 358,283 241,225
-------------------------------------------------
Net increase (decrease) in cash and cash
equivalents 56,925 (22,150) 17,293
Cash and cash equivalents at beginning of year 20,840 42,990 25,697
-------------------------------------------------
Cash and cash equivalents at end of year $ 77,765 $ 20,840 $ 42,990
=================================================
</TABLE>
Noncash transaction:
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
was presented as indebtedness of related parties. The cash was received by the
Company in January 1996.
See accompanying notes.
16
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1997
1. SIGNIFICANT ACCOUNTING 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 (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, universal life, variable annuity and variable 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 offers financial security to clients through a mix of total
risk management and traditional life insurance services.
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
During June 1996, the Financial Accounting Standards Board (FASB) issued
Statement No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. This Statement was effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. Also in 1996, the FASB issued Statement No. 127,
which delayed certain provisions of FAS 125 dealing with transactions such as
securities lending, repurchase and dollar repurchase agreements until 1998. The
portion of FAS 125 that became effective in 1997 requires the entity to
recognize financial and servicing assets it controls and the liabilities it has
incurred and to derecognize financial assets when control has been surrendered
in accordance with the criteria provided in the Statement. The application of
the new rules did not have a material impact on the financial statements of the
Company. The portion of FAS 125 deferred by FAS 127 is not expected to impact
the Company.
Beginning in 1995, the Company adopted FASB Statement No. 114, Accounting by
Creditors for Impairment of a Loan, and Statement No. 118, which amended
Statement 114. Under the amended statement, the 1997 and 1996 allowances for
credit losses related to loans that are identified for evaluation in accordance
with Statement 114 are 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.
Effective January 1, 1996, the Company adopted FASB 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. Adoption of this standard
resulted in an insignificant impact to net income and stockholder's equity.
18
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS
Investments are presented 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.
The Company does not hold any securities classified as held-to-maturity or
trading securities.
Debt securities 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 policy acquisition
adjustments, reported in a separate component of stockholder's equity.
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 less an allowance for credit
losses. Investment real estate is carried at cost, less accumulated
depreciation. Policy loans are carried at unpaid balances. 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 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
19
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
charges, and surrender charges assessed against policyholder account balances
during the year.
DEFERRED POLICY ACQUISITION COSTS
Commissions, reinsurance allowances, and other costs of acquiring traditional
life insurance including reinsurance assumed, 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
using assumptions consistent with those used in computing policy benefit
reserves. The period of amortization is normally over the premium-paying
period. In the case of policies with no first year premium, the period of
amortization includes the first year, in addition to the premium-paying period.
For universal life insurance and investment products, acquisition costs are
being amortized generally in proportion to the present value (using the assumed
crediting rate) of expected gross margins from surrender charges, investments,
mortality, and expenses. This amortization is adjusted retrospectively when
estimates of current or future gross margins 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 for traditional life insurance products (other than reinsurance
assumed) 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 reinsurance assumed are computed using pricing assumptions
with provisions for adverse deviation. Benefits for level-term reinsurance
assumed are computed to recognize profits in proportion with premiums. Benefit
reserves for all other reinsurance assumed are computed to recognize profits in
proportion to the coverage provided.
20
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 7.81% during 1997, 4.60% to 7.45% during 1996, and 4.60% to 8.10%
during 1995.
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.
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.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Impairment losses are recorded when indicators of impairment are present and the
estimated undiscounted cash flows are less than the assets' carrying value.
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 $6,074,000 and $6,211,000 at
December 31, 1997 and 1996, respectively. Participating business approximates
.3% of the Company's ordinary life insurance in force and 1.4% of premium
income. Earnings for participating insurance are based on the actual earnings
of the
21
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
participation block of policies. Expenses and taxes are allocated based on the
amount of participating insurance in force. Investment income is allocated
based on the yield of the participating investment portfolio. The amount of
dividends to be paid is determined annually by the Board of Directors. Amounts
allocable to participating policyholders are based on published dividend
projections or expected dividend scales. Dividends of $3,377,000, $3,307,000,
and $2,964,000 were incurred in 1997, 1996, and 1995, 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 and cash equivalents includes cash on hand, demand deposits and short-term
fixed maturity instruments (with a maturity of less than one year at date of
purchase). Included as a component of operating activities is interest paid of
$10,110,000, $1,016,000, and $4,861,000 for 1997, 1996, and 1995, respectively.
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
During 1998, the FASB issued Statement No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which standardizes the disclosure
requirements for pension and other postretirement benefits. Neither the
measurement nor recognition of pension and other postretirement benefits will
change as a result of Statement No. 132. The
22
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company will apply the new disclosure requirements beginning in 1998. Based on
current guidance, the Company believes the application of the new standard will
not have a financial impact on the financial statements.
During 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income,
which requires an entity to divide comprehensive income into net income and
other comprehensive income in the period which they are recognized. The Company
will need to classify items of other comprehensive income by their nature in the
financial statements and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of the balance sheet. This statement will only affect the
presentation of the financial statements, with no change in the valuation of
total stockholder's equity. The implementation of this Statement is required in
fiscal years beginning after December 15, 1997. The Company plans to implement
these new rules in 1998 and will present prior year information in a comparative
format.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 financial statements have been reclassified
to conform to the 1997 presentation.
23
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 51,387 $ 1,629 $ 39 $ 52,977
States, municipalities and political
subdivisions 43,185 1,023 128 44,080
Public utilities securities 151,642 5,030 1,216 155,456
Debt securities issued by foreign
governments 3,272 - - 3,272
Corporate securities 1,147,380 48,001 6,539 1,188,842
Mortgage-backed securities 1,165,376 89,539 6,661 1,248,254
Other asset-backed securities 443,473 13,285 584 456,174
Derivatives hedging fixed maturities
(Note 3) 1,297 3,118 1,115 3,300
----------------------------------------------------------------------
Total fixed maturities 3,007,012 161,625 16,282 3,152,355
Preferred stocks (nonredeemable) 3,368 67 122 3,313
Common stocks 3,386 1,446 126 4,706
----------------------------------------------------------------------
Total equity securities 6,754 1,513 248 8,019
----------------------------------------------------------------------
Total $3,013,766 $163,138 $16,530 $3,160,374
======================================================================
</TABLE>
24
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------------------------------------------
COST OR GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 88,526 $ 1,035 $ 858 $ 88,703
States, municipalities and political
subdivisions 71,857 984 1,058 71,783
Public utilities securities 105,110 1,130 748 105,492
Debt securities issued by foreign
governments 3,272 - - 3,272
Corporate securities 921,565 20,095 5,646 936,014
Mortgage-backed securities 1,273,251 108,367 18,924 1,362,694
Other asset-backed securities 299,809 8,186 1,286 306,709
Derivatives hedging fixed maturities
(Note 3) 2,098 292 1,973 417
----------------------------------------------------------------------
Total fixed maturities 2,765,488 140,089 30,493 2,875,084
Preferred stocks (nonredeemable) 2,112 66 301 1,877
Common stocks 2,787 756 75 3,468
----------------------------------------------------------------------
Total equity securities 4,899 822 376 5,345
----------------------------------------------------------------------
Total $2,770,387 $140,911 $30,869 $2,880,429
======================================================================
</TABLE>
25
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of investments in fixed maturities at December
31, 1997, 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
COST FAIR VALUE
-----------------------------
<S> <C> <C>
Available for sale:
Due in one year or less $ 35,748 $ 35,665
Due after one year through five years 313,045 320,825
Due after five years through ten years 486,875 503,629
Due after ten years 561,198 584,508
-----------------------------
1,396,866 1,444,627
Mortgage-backed securities 1,165,376 1,248,254
Other asset-backed securities 443,473 456,174
Derivatives 1,297 3,300
-----------------------------
Total available-for-sale $3,007,012 $3,152,355
=============================
</TABLE>
Changes in unrealized gains (losses) on investments in available-for-sale
securities for the years ended December 31, 1997, 1996 and 1995 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------
FIXED EQUITY TOTAL
------------------------------------------------
<S> <C> <C> <C>
Gross unrealized gains $161,625 $1,513 $163,138
Gross unrealized losses 16,282 248 16,530
------------------------------------------------
Net unrealized gains (losses) 145,343 1,265 146,608
Deferred income tax (expense)
benefit (50,873) (443) (51,316)
------------------------------------------------
Net unrealized gains (losses) after
taxes 94,470 822 95,292
Less:
Balance at beginning of year 71,237 289 71,526
------------------------------------------------
Change in net unrealized gains
(losses) $ 23,233 $ 533 $ 23,766
================================================
</TABLE>
26
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------------------------------
FIXED EQUITY TOTAL
------------------------------------------------
<S> <C> <C> <C>
Gross unrealized gains $140,089 $ 822 $140,911
Gross unrealized losses 30,493 376 30,869
------------------------------------------------
Net unrealized gains (losses) 109,596 446 110,042
Deferred income tax (expense)
benefit (38,359) (157) (38,516)
------------------------------------------------
Net unrealized gains (losses) after
taxes 71,237 289 71,526
Less:
Balance at beginning of year 99,389 (147) 99,242
------------------------------------------------
Change in net unrealized gains
(losses) $(28,152) $ 436 $(27,716)
================================================
</TABLE>
<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>
As part of its overall investment management strategy, the Company has entered
into agreements to purchase $9,595,943 in fixed maturity securities and
$27,910,000 in mortgage loans as of December 31, 1997. These agreements were
settled during 1998. The Company had no agreements to sell securities at
December 31, 1997.
27
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Major categories of investment income for the years ended December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $259,936 $240,931 $190,327
Mortgage loans on real estate 40,908 29,143 16,601
Policy loans 56,087 52,205 55,438
Other investments 3,159 2,197 4,360
------------------------------------------------
360,090 324,476 266,726
Investment expenses (19,192) (12,355) (10,661)
------------------------------------------------
Net investment income $340,898 $312,121 $256,065
================================================
</TABLE>
Net realized gains on investments for the years ended December 31 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Fixed maturities $27,717 $4,540 $6,538
Equity securities (57) 79 5
Real estate and other 985 151 21
----------------------------------------------
Net realized gains on
investments $28,645 $4,770 $6,564
==============================================
</TABLE>
During 1997, 1996 and 1995, debt and marketable equity securities available-for-
sale were sold with fair values at the date of sale of $2,281,886,000,
$334,482,000 and $306,219,000, respectively. Gross gains of $41,017,000,
$7,248,000 and $9,691,000 and gross losses of $13,357,000, $2,629,000 and
$3,148,000 were realized on those sales in 1997, 1996 and 1995, respectively.
At December 31, 1997 and 1996, bonds with an amortized cost of $28,434,000 and
$26,140,000, respectively, were on deposit with various state insurance
departments to meet regulatory requirements.
28
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
The Company enters into interest rate and currency 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, exchange rates 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. Currency swap agreements generally involve
the exchange of local and foreign currency payments over the life of the
agreements 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.
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 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 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 counterparties' 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.
29
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
The table below summarizes the Company's interest rate contracts at December 31,
1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------------------------------------------
NOTIONAL AMORTIZED FAIR BALANCE
AMOUNT COST VALUE SHEET
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps $ 913,630 $ (185) $ (625) $ (625)
Swaps-affiliates 879,745 185 1,429 1,429
-----------------------------------------------------------------------------
Total swaps 1,793,375 - 804 804
Caps owned 760,000 986 766 766
-----------------------------------------------------------------------------
Total caps owned 760,000 986 766 766
Floors owned 354,000 311 1,730 1,730
-----------------------------------------------------------------------------
Total floors owned 354,000 311 1,730 1,730
Options owned 384,300 6,192 4,312 4,312
-----------------------------------------------------------------------------
Options owned-affiliates 384,300 (6,192) (4,312) (4,312)
-----------------------------------------------------------------------------
Total options owned 768,600 - - -
-----------------------------------------------------------------------------
Total derivatives $3,675,975 $ 1,297 $ 3,300 $ 3,300
=============================================================================
</TABLE>
30
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1996
----------------------------------------------------------------------------
NOTIONAL AMORTIZED FAIR BALANCE
AMOUNT COST VALUE SHEET
----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate contracts:
Swaps $ 794,520 $ - $(1,452) $(1,452)
Swaps-affiliates 774,520 - 1,272 1,272
----------------------------------------------------------------------------
Total swaps 1,569,040 - (180) (180)
----------------------------------------------------------------------------
Caps owned 400,000 2,073 592 592
----------------------------------------------------------------------------
Total caps owned 400,000 2,073 592 592
----------------------------------------------------------------------------
Floors owned 100,000 25 5 5
----------------------------------------------------------------------------
Total floors owned 100,000 25 5 5
----------------------------------------------------------------------------
Options owned 212,000 3,330 3,772 3,772
Options owned-affiliates 212,000 (3,330) (3,772) (3,772)
----------------------------------------------------------------------------
Total options owned 424,000 - - -
----------------------------------------------------------------------------
Total derivatives $2,493,040 $ 2,098 $ 417 $ 417
============================================================================
</TABLE>
4. CONCENTRATIONS OF CREDIT RISK
At December 31, 1997, the Company held less-than-investment-grade bonds
classified as available-for-sale with a carrying value and market value of
$186,614,000. These holdings amounted to 6% of the Company's investments in
fixed maturity securities and 2% 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, 1997, the Company's commercial mortgages involved a
concentration of properties located in Florida (17%), Texas (10%), and Georgia
(9%). The remaining commercial mortgages relate to properties located in 29
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 $10,911,000.
31
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS
PENSION PLAN
The Company has a qualified noncontributory defined benefit retirement plan
covering substantially all employees. In addition, the Company maintains a non-
qualified unfunded Supplemental Employees Retirement Plan (SERP). The benefits
of both plans 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 Employee 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
1997 1996
--------------------------------------------------------------
QUALIFIED QUALIFIED
PLAN SERP PLAN SERP
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Vested $(31,338) $(7,903) $(26,058) $(6,725)
Nonvested (805) (285) (733) (132)
--------------------------------------------------------------
(32,143) (8,188) (26,791) (6,857)
Effect of projected future
compensation (5,658) (966) (5,479) (951)
--------------------------------------------------------------
Projected benefit obligation (37,801) (9,154) (32,270) (7,808)
Less plan assets at fair value 40,150 - 33,682 -
--------------------------------------------------------------
Plan assets in excess of
projected benefit obligation 2,349 (9,154) 1,412 (7,808)
Unrecognized net asset (1,032) - (1,316) -
Unrecognized prior service (84) 206 (97) 236
benefit cost
Unrecognized net loss 89 4,813 1,930 4,622
--------------------------------------------------------------
Net pension asset (liability) $ 1,322 $(4,135) $ 1,929 $(2,950)
==============================================================
</TABLE>
As of December 31, 1997 and 1996, the Company recognized an additional liability
on the SERP of $3,848,000 and $3,671,000, respectively, as this plan is unfunded
and the actuarial present value of accumulated benefit obligation exceeds the
net pension liability.
32
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The net periodic pension cost for the defined benefit plans includes the
following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------------------------------------------------
QUALIFIED QUALIFIED QUALIFIED
PLAN SERP PLAN SERP PLAN SERP
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 1,420 $ 524 $ 1,320 $ 388 $ 1,147 $ 285
Interest cost 2,613 639 2,262 463 1,856 517
Return on plan assets (7,279) - (4,075) - (3,497) -
Net amortization and
deferral 3,853 339 883 258 553 239
----------------------------------------------------------------------------------------
Net periodic pension
expense $ 607 $1,502 $ 390 $1,109 $ 59 $1,041
========================================================================================
</TABLE>
Assumptions used in accounting for the defined benefit plans as of December 31,
1997, 1996, and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------------
<S> <C> <C> <C>
Weighted-average discount rate 7.25% 7.50% 7.25%
Rate of increase in compensation level 4.25% 4.50% 4.25%
Expected long-term rate of return on assets 9.50% 9.50% 9.50%
</TABLE>
Plan assets of the defined benefit plans at December 31, 1997 are invested
primarily in U.S. government securities, corporate bonds, mutual funds, mortgage
loans, money market funds and common stock.
401(k) PLAN
The Security Life of Denver Insurance Company Savings Incentive Plan (the
Savings Plan) is a defined contribution plan which is available to substantially
all home office employees, who work 1,000 hours or more in a plan year, to
provide a savings program for additional retirement benefits. Participants may
make contributions to the plan through salary reductions up to a maximum of
$9,500 in 1997 and 1996 and $9,240 in 1995. Such contributions are not currently
taxable to the participants. The Company matches 100% of the first 3% of
participants' contributions, plus 50% of contributions which exceed 3% of
participants' compensation, subject to a maximum matching percentage of 4 1/2%
of the individual's salary. Company matching contributions were $1,211,000 for
1997, $1,143,000 for 1996, and $1,071,000 for 1995.
33
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
Plan assets of the Savings Plan at December 31, 1997 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
$26.6 million and $25.5 million at December 31, 1997 and 1996, 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
1997 1996
--------------------------------------------------------------------------------
LIFE LIFE
MEDICAL INSURANCE MEDICAL INSURANCE
PLAN PLAN TOTAL PLAN PLAN TOTAL
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $(1,032) $(1,228) $ (2,260) $(1,315) $(1,226) $ (2,541)
Fully eligible active plan
participants (665) (526) (1,191) (409) (392) (801)
Other active plan participants (2,881) (1,258) (4,139) (2,038) (1,220) (3,258)
--------------------------------------------------------------------------------
(4,578) (3,012) (7,590) (3,762) (2,838) (6,600)
- - - - - -
Plan assets at fair value --------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation in excess of plan (4,578) (3,012) (7,590) (3,762) (2,838) (6,600)
assets
Unrecognized prior service cost 248 22 270 355 32 387
Unrecognized net gains (losses) (5,179) 1,130 (4,049) (5,870) 1,271 (4,599)
--------------------------------------------------------------------------------
Accrued postretirement benefit
cost $(9,509) $(1,860) $(11,369) $(9,277) $(1,535) $(10,812)
================================================================================
</TABLE>
34
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
Net periodic postretirement benefit cost for 1997, 1996 and 1995 includes the
following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------------------------------------------------------
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 $ 287 $126 $ 413 $ 236 $151 $ 387 $ 359 $175 $ 534
Interest cost 313 205 518 268 200 468 291 112 403
Net amortization and deferral (238) 62 (176) (275) 89 (186) (209) 65 (144)
-----------------------------------------------------------------------------------------
Net periodic postretirement benefit
cost $ 362 $393 $ 755 $ 229 $440 $ 669 $441 $352 $ 793
=========================================================================================
</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 10.25% graded to 5%
over 10.5 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, 1997 by $784,000 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1997 by $112,000.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25% at December 31, 1997 and 7.50% at
December 31, 1996.
6. 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.
35
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LEASES
The Company terminated a significant operating lease agreement relating to
electronic data processing equipment due to outsourcing of computer operations.
The Company incurred $4,819,000 in lease expense in 1997 related to that
agreement prior to termination. The Company does not have any other significant
lease obligations. Total rental expense for all equipment leases was
approximately $4,993,000, $6,151,000 and $5,620,000 for the years ended December
31, 1997, 1996 and 1995, respectively.
8. 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, 1997, 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, and expense reimbursements 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
contracts. Reserves are based on the terms of the reinsurance contracts, and
are consistent with the risks assumed.
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 reinsurers and monitors concentrations of credit risk
arising from similar geographic regions, activities, or economic characteristics
of the reinsurers.
The Company assumes and cedes, on a coinsurance basis, guaranteed investment
contracts (GICs) to and from affiliates under common ownership. As of December
31, 1997, $2.2 billion of an affiliate's invested assets were held in trust
pursuant to these agreements.
36
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. REINSURANCE (CONTINUED)
These transactions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-----------------------------------------------------------------
PREMIUMS RESERVES PREMIUMS RESERVES
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct (nonaffiliated) $ 1,673,471 $ 2,527,957 $ 767,312 $ 1,785,689
Assumed from Life Insurance Company of
Georgia 35,000 106,698 50,000 125,512
-----------------------------------------------------------------
1,708,471 2,634,655 817,312 1,911,201
Ceded to Columbine Life Insurance
Company (1,479,371) (2,231,118) (484,512) (1,425,545)
-----------------------------------------------------------------
Ceded to Life Insurance Company of
Georgia (116,100) (403,537) (282,800) (435,586)
-----------------------------------------------------------------
Net $ 113,000 $ - $ 50,000 $ 50,070
=================================================================
</TABLE>
Ceded GIC reserves totaling $2,635 and $1,861 million as of December 31, 1997
and 1996, respectively, are classified as part of prepaid reinsurance premiums.
GIC reserves are reflected at their gross value of $2,635 and $1,911 million as
of December 31, 1997 and 1996, respectively.
During 1997 and 1996, the Company had 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. As of December 31, 1997, all surplus relief reinsurance contracts
had been recaptured.
9. 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 an agreement for the allocation of taxes between members that
join in the consolidated return. The agreement specifies that the separate
return payable or the separate return receivable of each member will be the
federal income tax payable or receivable that the member would have had for the
period had it filed a separate return.
37
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. 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
1997 1996
-----------------------------
<S> <C> <C>
Deferred tax liabilities:
Deferred policy acquisition costs $(239,678) $(236,445)
Unrealized gains/losses (51,312) (38,516)
-----------------------------
Total deferred tax liabilities (290,990) (274,961)
Deferred tax assets:
Benefit reserves and surplus relief 111,610 123,410
Tax-basis deferred policy acquisition costs 71,241 60,727
Investment income 13,459 11,037
Unearned investment income 9,208 8,705
Nonqualified deferred compensation 14,129 10,649
Postretirement employee benefits 3,979 3,784
Separate accounts 8,571 4,138
Other, net 4,964 3,970
-----------------------------
Total deferred tax assets 237,161 226,420
-----------------------------
Net deferred tax liabilities $ (53,829) $ (48,541)
=============================
</TABLE>
The components of federal income tax expense consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Current $37,542 $10,340 $(48,136)
Deferred 9,477 11,536 72,870
Current year change in valuation
allowance - - (438)
-----------------------------------------
Federal income tax expense $47,019 $21,876 $ 24,296
=========================================
</TABLE>
The Company's effective income tax rate did not vary significantly from the
statutory federal income tax rate.
38
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
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 policy acquisition costs more than likely
would not be fully realized. In 1995, a change in judgment about the
realization of the deferred tax asset occurred and the valuation allowance was
removed.
The Company had net income tax payments (receipts) of $55,468,000 during 1997,
$(61,467,000) during 1996, and $25,875,000 during 1995 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 stockholder exceed amounts in the Stockholder'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.
10. LONG-TERM DEBT
Long-term indebtedness to related parties for $75,000,000 represents the
cumulative cash draws on a $100,000,000 commitment from ING America Insurance
Holdings, Inc. through December 31, 1997. 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.
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.
39
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. LONG-TERM DEBT (CONTINUED)
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. As of
December 31, 1997, the Company accrued interest of $5,100,000. Upon receiving
approval from the Commissioner of Insurance of the State of Colorado, the
Company made a $3,668,000 payment for accrued interest during 1997.
Future minimum payments, assuming a current effective interest rate of 6.40%,
are as follows (in thousands):
<TABLE>
<CAPTION>
TOTAL
YEAR PAYMENTS
---------------------------------------------------------
<S> <C>
1999 $ 20,456
2000 20,456
2001 20,456
Subsequent years 40,911
--------
Total 102,279
Less imputed interest (27,279)
--------
Present value of payments $ 75,000
========
</TABLE>
11. 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 in the process of codifying statutory accounting practices
("Codification"). Codification will likely change, to some extent, prescribed
statutory accounting practices and may result in changes to the accounting
practices that Security Life uses to prepare its statutory-basis financial
statements. Codification, which was approved by the NAIC in March 1998, will
require adoption by the various states before it becomes the prescribed
40
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STATUTORY ACCOUNTING INFORMATION AND PRACTICES (CONTINUED)
statutory basis of accounting for insurance companies domiciled within those
states. Accordingly, before Codification becomes effective for Security Life,
the State of Colorado must adopt Codification as the prescribed basis of
accounting on which domestic insurers must report their statutory-basis results
to the Insurance Department. At this time it is unclear whether the State of
Colorado will adopt Codification.
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, 1997, the Company exceeded all minimum RBC
requirements.
Combined capital and surplus, determined in accordance with statutory accounting
practices (SAP), was $403,239,000 and $366,451,000 at December 31, 1997 and
1996, respectively. Combined net income, determined in accordance with SAP, was
$22,261,000, $9,141,000, and $11,771,000 for the years ended December 31, 1997,
1996, and 1995, 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 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, 1997. 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.
- --------------------------------------------------------------------------------
41
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. 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.
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1997 and 1996 are summarized below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
------------------------------------ ---------------------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------------------------------ ---------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities (Note 2) $3,152,355 $3,152,355 $2,875,084 $2,875,084
Equity securities (Note 2) 8,019 8,019 5,345 5,345
Commercial mortgages 568,591 621,861 445,073 461,777
Residential mortgages 8,029 8,158 7,722 7,589
Policy loans 875,405 875,405 795,311 795,311
LIABILITIES
Guaranteed investment
contracts, net of reinsurance $ - $ - $ 50,070 $ 50,070
Supplemental contracts
without life contingencies 4,240 4,240 3,023 3,023
Other policyholder funds left
on deposit 99,545 99,545 98,824 98,824
Individual and group
annuities, net of reinsurance 43,313 43,077 45,576 45,228
</TABLE>
- --------------------------------------------------------------------------------
42
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values of all other financial instruments approximate their fair
values.
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. The discount rates used vary as a function of factors such as
yield, credit quality and maturity which fall within a range between 2% -- 12%
over the total portfolio. The fair values of equity securities are based on
quoted market prices.
MORTGAGE LOANS: Estimated market values for commercial real estate loans are
--------------
generated using a discounted cash flow approach. Loans in good standing are
discounted using interest rates determined by U.S. Treasury yields on December
31 and spreads implied by independent published surveys. The same is applied
on new loans with similar characteristics. The amortizing features of all
loans are incorporated in the valuation. Where data on option features is
available, option values are determined using a binomial valuation method, and
are incorporated into the mortgage valuation. Restructured loans are valued in
the same manner; however, these are discounted at a greater spread to reflect
increased risk.
All residential loans are valued at their outstanding principal balances, which
approximate their fair values.
POLICY LOANS: The carrying amounts reported in the balance sheets 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.
- --------------------------------------------------------------------------------
43
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
GUARANTEED INVESTMENT CONTRACTS: The fair values of the Company's guaranteed
-------------------------------
investment contracts are estimated using discounted cash flow calculations,
based on interest rates currently being offered for similar contracts with
maturities consistent with those remaining for the contracts being valued.
OTHER INVESTMENT-TYPE INSURANCE CONTRACTS: The fair values of the Company's
-----------------------------------------
deferred annuity contracts are estimated based on the cash surrender value.
The carrying values of other liabilities, including immediate annuities,
dividend accumulations, supplementary contracts without life contingencies and
premium deposits, approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS: The Company had synthetic guaranteed investment
-----------------------------
contract sales in the amounts of $1,000,000 and $55,780,000 in 1997 and 1996,
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 $493,757,000 and $637,151,000 at December 31, 1997
and 1996, 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
80% of the synthetic guaranteed investment contract book values are on a
participating basis and have a credited interest rate reset mechanism which
passes such interest rate risk to plan participants.
LETTERS OF CREDIT
-----------------
The Company is the beneficiary of letters of credit totaling $175,367,000 which
have a market value to the Company of $0 and two lines of credit totaling
$225,484,000 which have a market value to the Company of $0 (see Note 14).
13. 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 material 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)
14. OTHER FINANCING ARRANGEMENTS
The Company has a $125,484,000 line of credit issued by the Company's parent to
provide short-term liquidity. The Company has an additional non-affiliated line
of credit of $100,000,000, also to provide short-term liquidity, which expires
July 31, 1998. The amount of funds available under this line is reduced by
borrowings of certain affiliates also party to the agreement. There were no
outstanding borrowings under either of these agreements at December 31, 1997 or
1996. The average balance of short-term debt was $26.5 million during 1997.
The weighted average interest rate paid on this debt during 1997 was 5.71% (see
Note 12).
The Company is the beneficiary of letters of credit totaling $175,367,000 that
were established in accordance with the terms of reinsurance agreements. The
terms of the letters of credit provide for automatic renewal for the following
year at December 31, unless otherwise canceled or terminated by either party to
the financing. The letters were unused during both 1997 and 1996.
YEAR 2000 (UNAUDITED)
The Company has initiated a program to prepare the Company's computer systems
and applications for the year 2000. This program includes all systems utilized
by the Company as well as the systems of other companies that interface
with the Company. The Company has completed an assessment and is in the process
of modifying portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total Year
2000 project cost is estimated at approximately $8.5 million. To date the
Company has incurred approximately $1 million, primarily for assessment of the
Year 2000 issue and development of the modification plan. Accordingly, the
Company does not expect the amounts required for this project to have a material
effect on its financial position.
The project is estimated to be completed no later than June 1999, which is prior
to any anticipated impact on its operating systems. The Company believes that
with modifications to existing software, and conversions to new software, the
Year 2000 will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are
not completed in a timely manner, it could have a material impact on the
operations of the Company.
The Company has initiated formal communications and interface testing plans with
all of its suppliers and customers to determine the extent to which its
interface systems are vulnerable to those third parties' failure to have their
systems Year 2000 compatible and will act accordingly to prevent operational
disruptions.
- --------------------------------------------------------------------------------
45
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholder
First ING Life Insurance Company of New York
We have audited the accompanying balance sheets of First ING Life Insurance
Company of New York (a wholly-owned subsidiary of Security Life of Denver
Insurance Company) as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, and have issued our report thereon
dated April 10, 1998 (included elsewhere in this Registration Statement). Our
audits also included the financial statement schedule listed in Item 23 of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
April 10, 1998
<PAGE>
SCHEDULE IV
SECURITY LIFE OF DENVER INSURANCE COMPANY AND SUBSIDIARIES
REINSURANCE
For the Years Ended December 31, 1997, 1996 and 1995
(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, 1997:
Life insurance in force (A).. $38,712,402 $71,341,322 $152,867,839 $120,238,919 128%
Premium income and other
Considerations:
Individual Life.............. 295,706 96,839 444,602 643,469 69%
Group and other.............. 43,831 27,976 1,832 17,687 10%
----------- ----------- ------------ ------------
Total.................... 339,537 124,815 446,434 661,156 68%
Year ended December 31, 1996:
Life insurance in force (A).. $37,914,846 $48,740,400 $101,956,967 $ 91,131,413 112%
Premium income and other
Considerations:
Individual Life.............. 280,761 94,351 332,372 518,782 64%
Group and other.............. 39,520 23,529 1,479 17,470 8%
----------- ----------- ------------ ------------
Total.................... 320,281 117,880 333,851 536,252 62%
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.............. 290,114 101,364 321,262 510,012 63%
Group and other.............. 37,413 15,697 469 22,185 2%
----------- ----------- ------------ ------------
Total.................... 327,527 117,061 321,731 532,197 60%
</TABLE>
- --------------------------------------------------------------------------------
(A) Excludes face amount of life insurance in force assumed from or ceded to
other unaffiliated companies under financial Reinsurance agreements with
unaffiliated insurers generally in return for fees, as follows (in thousands):
<TABLE>
1997 1996 1995
---- ---- -----
<S> <C> <C> <C>
Assumed from other companies $ 0 $ 0 $ 0
Ceded to other companies............. 0 2,536,0047 19,071,586
</TABLE>
These agreements have all terminated as of December 31, 1997
<PAGE>
SCHEDULE V
SECURITY LIFE OF DENVER INSURANCE COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1997, 1996 and 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Additions
--------------------------------- Balance at
Beginning Charged to Costs Charge to Other End of
Description Of Period and Expenses Accounts Deductions Period
- ----------- --------- ------------ -------- ---------- -------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997:
Allowance for mortgage
loans losses .............. $ 4,568 $ 1,252 $ 5,820
Allowance for doubtful accounts 697 46 743
Accumulated depreciation on
property and equipment..... 21,407 3,741 $ 2,223 22,925
Accumulated depreciation on
real estate ............... 628 39 667
Year Ended December 31, 1996:
Allowance for mortgage
loans losses .............. $ 2,726 $ 1,842 $ 4,568
Allowance for doubtful accounts 3,222 $ 2,525 697
Accumulated depreciation on
property and equipment..... 19,556 3,807 l,956 21,407
Accumulated depreciation on
real estate ............... 641 50 63 628
Year Ended December 31, 1995:
Allowance for mortgage
loans losses .............. $ 670 $ 2,726 $ 670 $ 2,726
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
</TABLE>
<PAGE>
Financial Statements
Security Life Separate Account A1 of Security Life of Denver
Insurance Company
Year ended December 31, 1997
with Report of Independent Auditors
- --------------------------------------------------------------------------------
49
<PAGE>
Security Life Separate Account A1
Financial Statements
Year ended December 31, 1997
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors........ 48
Financial Statements
Statement of Net Assets............... 49
Statement of Operations............... 55
Statements of Changes in Net Assets... 61
Notes to Financial Statements......... 73
</TABLE>
- --------------------------------------------------------------------------------
50
<PAGE>
Report of Independent Auditors
Contractholders
Security Life Separate Account A1 of
Security Life of Denver Insurance Company
We have audited the accompanying statement of net assets of Security Life
Separate Account A1 (comprising, respectively, the Neuberger & Berman Advisers
Management Trust (comprising the Limited Maturity Bond, Growth, Government
Income and Partners Divisions) ("N&B"), the Alger American Fund (comprising the
American Small Capitalization, American MidCap Growth, American Growth and
American Leveraged AllCap Divisions) ("Alger"), the Fidelity Variable Insurance
Products Fund and Variable Insurance Products Fund II (comprising the Asset
Manager, Growth, Overseas, Money Market and Index 500 Divisions) ("Fidelity"),
the INVESCO Variable Investment Funds, Inc. (comprising the Total Return,
Industrial Income, High Yield and Utilities Divisions) ("INVESCO") and Van Eck
Worldwide Trust (comprising the Worldwide Balanced and Worldwide Hard Assets
Divisions) ("Van Eck") Portfolios) as of December 31, 1997, 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, 1997, 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 Separate Account
A1 at December 31, 1997, 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.
ERNST & YOUNG LLP
April 13, 1998
Denver, Colorado
- --------------------------------------------------------------------------------
51
<PAGE>
Security Life Separate Account A1
Statement of Net Assets
December 31, 1997
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS N&B ALGER FIDELITY INVESCO VAN ECK
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value; combined cost
$91,143,075 (see Note C) $101,832,708 $16,461,643 $21,645,773 $39,304,133 $22,452,929 $1,968,230
-----------------------------------------------------------------------------------------
Total assets 101,832,708 16,461,643 21,645,773 39,304,133 22,452,929 1,968,230
-----------------------------------------------------------------------------------------
LIABILITIES
Due to (from) Security Life of Denver (79,204) 15,112 30,673 (151,626) 23,799 2,838
Due to (from) other divisions - (3,103) (33,663) 41,947 (5,181) -
-----------------------------------------------------------------------------------------
Total liabilities (79,204) 12,009 (2,990) (109,679) 18,618 2,838
-----------------------------------------------------------------------------------------
Net assets $101,911,912 $16,449,634 $21,648,763 $39,413,812 $22,434,311 $1,965,392
=========================================================================================
CONTRACT OWNER RESERVES
Reserves for redeemable annuity
contracts (See Note B) $101,911,912 $16,449,634 $21,648,763 $39,413,812 $22,434,311 $1,965,392
-----------------------------------------------------------------------------------------
TOTAL CONTRACT OWNER RESERVES $101,911,912 $16,449,634 $21,648,763 $39,413,812 $22,434,311 $1,965,392
=========================================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
52
<PAGE>
Security Life Separate Account A1
Statement of Net Assets (continued)
December 31, 1997
<TABLE>
<CAPTION>
N&B
----------------------------------------------------------------------------
TOTAL LIMITED GOVERNMENT
N&B MATURITY BOND GROWTH INCOME PARTNERS
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value $16,461,643 $2,874,484 $3,066,356 $477,131 $10,043,672
----------------------------------------------------------------------------
Total assets 16,461,643 2,874,484 3,066,356 477,131 10,043,672
----------------------------------------------------------------------------
LIABILITIES
Due to (from) Security Life of Denver 15,112 (4,000) 4,307 694 14,111
Due to (from) other divisions (3,103) - 335 - (3,438)
----------------------------------------------------------------------------
Total liabilities 12,009 (4,000) 4,642 694 10,673
----------------------------------------------------------------------------
Net assets $16,449,634 $2,878,484 $3,061,714 $476,437 $10,032,999
============================================================================
CONTRACT OWNER RESERVES
Reserves for redeemable annuity
contracts (See Note B) $16,449,634 $2,878,484 $3,061,714 $476,437 $10,032,999
----------------------------------------------------------------------------
TOTAL CONTRACT OWNER RESERVES $16,449,634 $2,878,484 $3,061,714 $476,437 $10,032,999
============================================================================
Number of division units outstanding
(See Note F) 257,388.684 181,151.566 41,289.281 461,640.407
==============================================================
Value per divisional unit $11.18 $16.90 $11.54 $21.73
==============================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
53
<PAGE>
Security Life Separate Account A1
Statement of Net Assets (continued)
December 31, 1997
<TABLE>
<CAPTION>
ALGER
--------------------------------------------------------------------------------
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
--------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Investments in mutual funds at
market value $21,645,773 $6,806,115 $5,171,379 $6,331,836 $3,336,443
--------------------------------------------------------------------------------
Total assets 21,645,773 6,806,115 5,171,379 6,331,836 3,336,443
--------------------------------------------------------------------------------
LIABILITIES
Due to (from) Security Life of Denver 30,673 9,669 7,288 8,954 4,762
Due to (from) other divisions (33,663) (1,743) (30,084) (1,836) -
--------------------------------------------------------------------------------
Total liabilities (2,990) 7,926 (22,796) 7,118 4,762
--------------------------------------------------------------------------------
Net assets $21,648,763 $6,798,189 $5,194,175 $6,324,718 $3,331,681
================================================================================
CONTRACT OWNER RESERVES
Reserves for redeemable annuity
contracts (See Note B) $21,648,763 $6,798,189 $5,194,175 $6,324,718 $3,331,681
--------------------------------------------------------------------------------
TOTAL CONTRACT OWNER RESERVES $21,648,763 $6,798,189 $5,194,175 $6,324,718 $3,331,681
================================================================================
Number of division units outstanding
(See Note F) 415,536.860 287,715.601 381,816.079 173,762.478
==================================================================
Value per divisional unit $16.36 $18.05 $16.56 $19.17
==================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
54
<PAGE>
Security Life Separate Account A1
Statement of Net Assets (continued)
December 31, 1997
<TABLE>
<CAPTION>
FIDELITY
--------------------------------------------------------------------------------------------
TOTAL ASSET MONEY
FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value $39,304,133 $6,048,521 $9,456,330 $6,731,184 $6,762,225 $10,305,873
--------------------------------------------------------------------------------------------
Total assets 39,304,133 6,048,521 9,456,330 6,731,184 6,762,225 10,305,873
--------------------------------------------------------------------------------------------
LIABILITIES
Due to (from) Security Life of Denver (151,626) 154 13,479 9,726 (189,634) 14,649
Due to (from) other divisions 41,947 (871) (5,224) - 51,894 (3,852)
-------------------------------------------------------------------------------------------
Total liabilities (109,679) (717) 8,255 9,726 (137,740) 10,797
--------------------------------------------------------------------------------------------
Net assets $39,413,812 $6,049,238 $9,448,075 $6,721,458 $6,899,965 $10,295,076
============================================================================================
CONTRACT OWNER RESERVES
Reserves for redeemable annuity
contracts (See Note B) $39,413,812 $6,049,238 $9,448,075 $6,721,458 $6,899,965 $10,295,076
--------------------------------------------------------------------------------------------
TOTAL CONTRACT OWNER RESERVES $39,413,812 $6,049,238 $9,448,075 $6,721,458 $6,899,965 $10,295,076
============================================================================================
Number of division units outstanding
(See Note F) 413,630.978 509,401.880 530,643.090 610,876.374 496,758.720
==============================================================================
Value per divisional unit $14.62 $18.55 $12.67 $11.30 $20.72
==============================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
55
<PAGE>
Security Life Separate Account A1
Statement of Net Assets (continued)
December 31, 1997
<TABLE>
<CAPTION>
INVESCO
----------------------------------------------------------------------------
TOTAL TOTAL INDUSTRIAL
INVESCO RETURN INCOME HIGH YIELD UTILITIES
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value $22,452,929 $5,181,321 $8,052,107 $5,882,869 $3,336,632
--------------------------------------------------------------------------
Total assets 22,452,929 5,181,321 8,052,107 5,882,869 3,336,632
--------------------------------------------------------------------------
LIABILITIES
Due to (from) Security Life of Denver 23,799 7,408 11,461 8,478 (3,548)
Due to (from) other divisions (5,181) - (5,181) - -
--------------------------------------------------------------------------
Total liabilities 18,618 7,408 6,280 8,478 (3,548)
--------------------------------------------------------------------------
Net assets $22,434,311 $5,173,913 $8,045,827 $5,874,391 $3,340,180
==========================================================================
CONTRACT OWNER RESERVES
Reserves for redeemable annuity
contracts (See Note B) $22,434,311 $5,173,913 $8,045,827 $5,874,391 $3,340,180
--------------------------------------------------------------------------
TOTAL CONTRACT OWNER RESERVES $22,434,311 $5,173,913 $8,045,827 $5,874,391 $3,340,180
==========================================================================
Number of division units outstanding
(See Note F) 318,654,361 408,254,168 371,947,154 228,555,316
============================================================
Value per divisional unit $16.24 $19.71 $15.79 $14.61
============================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
56
<PAGE>
Security Life Separate Account A1
Statement of Net Assets (continued)
December 31, 1997
<TABLE>
<CAPTION>
VAN ECK
--------------------------------------------------------------------
WORLDWIDE
TOTAL WORLDWIDE HARD
VAN ECK BALANCED ASSETS
--------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value $1,968,230 $1,028,041 $940,189
--------------------------------------------------------------------
Total assets 1,968,230 1,028,041 940,189
--------------------------------------------------------------------
LIABILITIES
Due to (from) Security Life of Denver 2,838 1,493 1,345
Due to (from) other divisions - - -
--------------------------------------------------------------------
Total liabilities 2,838 1,493 1,345
--------------------------------------------------------------------
Net assets $1,965,392 $1,026,548 $938,844
====================================================================
CONTRACT OWNER RESERVES
Reserves for redeemable annuity
contracts (See Note B) $1,965,392 $1,026,548 $938,844
--------------------------------------------------------------------
TOTAL CONTRACT OWNER RESERVES $1,965,392 $1,026,548 $938,844
====================================================================
Number of division units outstanding
(See Note F) 87,130,936 82,978,958
==============================================
Value per divisional unit $11.78 $11.31
==============================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
57
<PAGE>
Security Life Separate Account A1
Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS N&B ALGER FIDELITY INVESCO VAN ECK
-----------------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C> <C>
Dividends from mutual funds $ 4,023,129 $ 616,871 $ 273,707 $1,705,614 $1,356,226 $ 70,711
Less: Valuation period deductions
(See Note B) 1,288,186 195,816 260,609 533,320 265,310 33,131
-----------------------------------------------------------------------------
Net investment income (loss) 2,734,943 421,055 13,098 1,172,294 1,090,916 37,580
-----------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,882,165 306,757 10,679 1,099,000 414,884 50,845
Net unrealized gains (losses) on
investments 8,146,123 1,516,929 2,037,220 2,749,616 1,855,171 (12,813)
----------------------------------------------------------------------------
Net realized and unrealized gains
(losses) on investments 10,028,288 1,823,686 2,047,899 3,848,616 2,270,055 38,032
-----------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $12,763,231 $2,244,741 $2,060,997 $5,020,910 $3,360,971 $ 75,612
=============================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
58
<PAGE>
Security Life Separate Account A1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
N&B
-------------------------------------------------------------------
TOTAL LIMITED GOVERNMENT
N&B MATURITY BOND GROWTH INCOME PARTNERS
-------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C>
Dividends from mutual funds $ 616,871 $208,265 $174,901 $35,934 $ 197,771
Less: Valuation period deductions
(See Note B) 195,816 50,382 37,699 10,557 97,178
-------------------------------------------------------------------
Net investment income (loss) 421,055 157,883 137,202 25,377 100,593
-------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 306,757 41,035 48,854 19,662 197,206
Net unrealized gains (losses) on
investments 1,516,929 (33,093) 363,711 4,386 1,181,925
-------------------------------------------------------------------
Net realized and unrealized gains
(losses) on investments 1,823,686 7,942 412,565 24,048 1,379,131
-------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $2,244,741 $165,825 $549,767 $49,425 $1,479,724
===================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
59
<PAGE>
Security Life Separate Account A1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
ALGER
-------------------------------------------------------------------
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
-------------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C>
Dividends from mutual funds $ 273,707 $ 177,127 $ 60,412 $ 36,168 $ -
Less: Valuation period deductions
(See Note B) 260,609 85,778 65,988 67,670 41,173
-------------------------------------------------------------------
Net investment income (loss) 13,098 91,349 (5,576) (31,502) (41,173)
-------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 10,679 (190,946) 85,687 63,982 51,956
Net unrealized gains (losses) on
investments 2,037,220 442,646 450,685 767,310 376,579
-------------------------------------------------------------------
Net realized and unrealized gains
(losses) on investments 2,047,899 251,700 536,372 831,292 428,535
-------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $2,060,997 $ 343,049 $530,796 $799,790 $387,362
===================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
60
<PAGE>
Security Life Separate Account A1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
FIDELITY
-------------------------------------------------------------------------
TOTAL ASSET MONEY
FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $1,705,614 $373,139 $ 229,776 $422,432 $474,829 $ 205,438
Less: Valuation period deductions
(See Note B) 533,320 65,359 115,741 90,639 135,705 125,876
-------------------------------------------------------------------------
Net investment income (loss) 1,172,294 307,780 114,035 331,793 339,124 79,562
-------------------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,099,000 62,202 246,757 178,975 - 611,066
Net unrealized gains (losses) on
investments 2,749,616 328,750 1,078,781 (82,460) - 1,424,545
------------------------------------------------------------------------
Net realized and unrealized gains
(losses) on investments 3,848,616 390,952 1,325,538 96,515 - 2,035,611
-------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $5,020,910 $698,732 $1,439,573 $428,308 $339,124 $2,115,173
=========================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
61
<PAGE>
Security Life Separate Account A1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
--------------------------------------------------------------
TOTAL TOTAL INDUSTRIAL
INVESCO RETURN INCOME HIGH YIELD UTILITIES
--------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C> <C> <C>
Dividends from mutual funds $1,356,226 $133,272 $ 567,926 $578,527 $ 76,501
Less: Valuation period deductions
(See Note B) 265,310 60,366 92,358 71,181 41,405
--------------------------------------------------------------
Net investment income (loss) 1,090,916 72,906 475,568 507,346 35,096
--------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 414,884 75,286 159,424 107,313 72,861
Net unrealized gains (losses) on
investments 1,855,171 582,044 748,446 60,308 464,373
-------------------------------------------------------------
Net realized and unrealized gains
(losses) on investments 2,270,055 657,330 907,870 167,621 537,234
--------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $3,360,971 $730,236 $1,383,438 $674,967 $572,330
==============================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
62
<PAGE>
Security Life Separate Account A1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
VAN ECK
--------------------------------------------------------------------
WORLDWIDE
TOTAL WORLDWIDE HARD
VAN ECK BALANCED ASSETS
---------------------------------------------------------------
INVESTMENT INCOME
<S> <C> <C> <C>
Dividends from mutual funds $ 70,711 $22,351 $ 48,360
Less: Valuation period deductions
(See Note B) 33,131 16,609 16,522
---------------------------------------------------------------
Net investment income (loss) 37,580 5,742 31,838
---------------------------------------------------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 50,845 27,192 23,653
Net unrealized gains (losses) on
investments (12,813) 57,466 (70,279)
--------------------------------------------------------------
Net realized and unrealized gains
(losses) on investments 38,032 84,658 (46,626)
---------------------------------------------------------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 75,612 $90,400 $(14,788)
===============================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
63
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS N&B ALGER FIDELITY INVESCO VAN ECK
------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 2,734,943 $ 421,055 $ 13,098 $ 1,172,294 $ 1,090,916 $ 37,580
Net realized gains (losses) on
investments 1,882,165 306,757 10,679 1,099,000 414,884 50,845
Net unrealized gains (losses) on
investments 8,146,123 1,516,929 2,037,220 2,749,616 1,855,171 (12,813)
------------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations 12,763,231 2,244,741 2,060,997 5,020,910 3,360,971 75,612
------------------------------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 26,530,254 3,110,586 2,405,178 19,010,508 1,839,758 164,224
Administrative charges (21,601) (2,918) (5,450) (9,599) (3,044) (590)
Benefit payments (354,204) (39,054) (27,556) (267,678) (17,349) (2,567)
Surrenders and withdrawals (4,268,639) (508,934) (621,163) (2,445,551) (638,051) (54,940)
Net transfers among divisions
(including the guaranteed interest
division in the general account) 65,520 2,720,421 4,868,152 (11,332,937) 3,976,675 (166,791)
Other 98,314 11,707 7,633 69,418 7,527 2,029
------------------------------------------------------------------------------------------
Increase (decrease) from principal
transactions 22,049,644 5,291,808 6,626,794 5,024,161 5,165,516 (58,635)
------------------------------------------------------------------------------------------
Total increase (decrease) in net
assets 34,812,875 7,536,549 8,687,791 10,045,071 8,526,487 16,977
Net assets at beginning of year 67,099,037 8,913,085 12,960,972 29,368,741 13,907,824 1,948,415
------------------------------------------------------------------------------------------
Net assets at end of year $101,911,912 $16,449,634 $21,648,763 $ 39,413,812 $22,434,311 $1,965,392
==========================================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
64
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
N&B
--------------------------------------------------------------------------
TOTAL LIMITED GOVERNMENT
N&B MATURITY BOND GROWTH INCOME PARTNERS
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 421,055 $ 157,883 $ 137,202 $ 25,377 $ 100,593
Net realized gains (losses) on
investments 306,757 41,035 48,854 19,662 197,206
Net unrealized gains (losses) on
investments 1,516,929 (33,093) 363,711 4,386 1,181,925
--------------------------------------------------------------------------
Increase (decrease) in net assets from
operations 2,244,741 165,825 549,767 49,425 1,479,724
--------------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 3,110,586 695,425 357,973 32,355 2,024,833
Administrative charges (2,918) (375) (871) (153) (1,519)
Benefit payments (39,054) (12,654) (15,132) - (11,268)
Surrenders and withdrawals (508,934) (114,571) (94,392) (53,366) (246,605)
Net transfers among divisions
(including the guaranteed interest
division in the general account) 2,720,421 (925,750) 341,615 (209,027) 3,513,583
Other 11,707 376 1,167 (1,033) 11,197
--------------------------------------------------------------------------
Increase (decrease) from principal
transactions 5,291,808 (357,549) 590,360 (231,224) 5,290,221
--------------------------------------------------------------------------
Total increase (decrease) in net
assets 7,536,549 (191,724) 1,140,127 (181,799) 6,769,945
Net assets at beginning of year 8,913,085 3,070,208 1,921,587 658,236 3,263,054
--------------------------------------------------------------------------
Net assets at end of year $16,449,634 $2,878,484 $3,061,714 $ 476,437 $10,032,999
==========================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
65
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
ALGER
--------------------------------------------------------------------------
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
--------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net investment income (loss) $ 13,098 $ 91,349 $ (5,576) $ (31,502) $ (41,173)
Net realized gains (losses) on
investments 10,679 (190,946) 85,687 63,982 51,956
Net unrealized gains (losses) on
investments 2,037,220 442,646 450,685 767,310 376,579
--------------------------------------------------------------------------
Increase (decrease) in net assets from
operations 2,060,997 343,049 530,796 799,790 387,362
--------------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 2,405,178 510,441 419,897 1,293,978 180,862
Administrative charges (5,450) (1,522) (1,406) (1,470) (1,052)
Benefit payments (27,556) (12,955) (14,601) - -
Surrenders and withdrawals (621,163) (173,242) (186,399) (165,085) (96,437)
Net transfers among divisions
(including the guaranteed interest
division in the general account) 4,868,152 844,740 1,150,007 1,642,126 1,231,279
Other 7,633 10,252 (8,746) 187 5,940
--------------------------------------------------------------------------
Increase (decrease) from principal
transactions 6,626,794 1,177,714 1,358,752 2,769,736 1,320,592
--------------------------------------------------------------------------
Total increase (decrease) in net
assets 8,687,791 1,520,763 1,889,548 3,569,526 1,707,954
Net assets at beginning of year 12,960,972 5,277,426 3,304,627 2,755,192 1,623,727
--------------------------------------------------------------------------
Net assets at end of year $21,648,763 $6,798,189 $5,194,175 $6,324,718 $3,331,681
==========================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
66
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
FIDELITY
----------------------------------------------------------------------------------------
TOTAL ASSET MONEY
FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500
----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 1,172,294 $ 307,780 $ 114,035 $ 331,793 $ 339,124 $ 79,562
Net realized gains (losses) on
investments 1,099,000 62,202 246,757 178,975 - 611,066
Net unrealized gains (losses) on
investments 2,749,616 328,750 1,078,781 (82,460) - 1,424,545
----------------------------------------------------------------------------------------
Increase (decrease) in net assets from
operations 5,020,910 698,732 1,439,573 428,308 339,124 2,115,173
----------------------------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 19,010,508 595,923 1,103,322 987,472 14,933,516 1,390,275
Administrative charges (9,599) (1,226) (2,523) (1,117) (1,914) (2,819)
Benefit payments (267,678) (39,936) (64,305) (57,424) (19,642) (86,371)
Surrenders and withdrawals (2,445,551) (119,508) (669,627) (219,543) (964,672) (472,201)
Net transfers among divisions
(including the guaranteed interest
division in the general account) (11,332,937) 1,769,020 1,705,657 768,517 (17,357,920) 1,781,789
Other 69,418 9,033 38,975 282 (11,941) 33,069
----------------------------------------------------------------------------------------
Increase (decrease) from principal
transactions 5,024,161 2,213,306 2,111,499 1,478,187 (3,422,573) 2,643,742
----------------------------------------------------------------------------------------
Total increase (decrease) in net
assets 10,045,071 2,912,038 3,551,072 1,906,495 (3,083,449) 4,758,915
Net assets at beginning of year 29,368,741 3,137,200 5,897,003 4,814,963 9,983,414 5,536,161
----------------------------------------------------------------------------------------
Net assets at end of year $ 39,413,812 $6,049,238 $9,448,075 $6,721,458 $ 6,899,965 $10,295,076
========================================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
67
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
----------------------------------------------------------------------
TOTAL TOTAL INDUSTRIAL
INVESCO RETURN INCOME HIGH YIELD UTILITIES
----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net investment income (loss) $ 1,090,916 $ 72,906 $ 475,568 $ 507,346 $ 35,096
Net realized gains (losses) on
investments 414,884 75,286 159,424 107,313 72,861
Net unrealized gains (losses) on
investments 1,855,171 582,044 748,446 60,308 464,373
----------------------------------------------------------------------
Increase (decrease) in net assets from
operations 3,360,971 730,236 1,383,438 674,967 572,330
----------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 1,839,758 796,656 649,652 309,341 84,109
Administrative charges (3,044) (776) (1,259) (541) (468)
Benefit payments (17,349) (6,498) (10,851) - -
Surrenders and withdrawals (638,051) (75,427) (235,870) (189,555) (137,199)
Net transfers among divisions
(including the guaranteed interest
division in the general account) 3,976,675 656,809 1,664,429 1,246,352 409,085
Other 7,527 2,834 281 2,769 1,643
----------------------------------------------------------------------
Increase (decrease) from principal
transactions 5,165,516 1,373,598 2,066,382 1,368,366 357,170
----------------------------------------------------------------------
Total increase (decrease) in net
assets 8,526,487 2,103,834 3,449,820 2,043,333 929,500
Net assets at beginning of year 13,907,824 3,070,079 4,596,007 3,831,058 2,410,680
----------------------------------------------------------------------
Net assets at end of year $22,434,311 $5,173,913 $8,045,827 $5,874,391 $3,340,180
======================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
68
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
VAN ECK
---------------------------------------------------------------------
WORLDWIDE
TOTAL WORLDWIDE HARD
VAN ECK BALANCED ASSETS
---------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C>
Net investment income (loss) $ 37,580 $ 5,742 $ 31,838
Net realized gains (losses) on
investments 50,845 27,192 23,653
Net unrealized gains (losses) on
investments (12,813) 57,466 (70,279)
---------------------------------------------------------------------
Increase (decrease) in net assets from
operations 75,612 90,400 (14,788)
---------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 164,224 77,963 86,261
Administrative charges (590) (284) (306)
Benefit payments (2,567) (2,567) -
Surrenders and withdrawals (54,940) (18,435) (36,505)
Net transfers among divisions
(including the guaranteed interest
division in the general account) (166,791) (62,522) (104,269)
Other 2,029 1,800 229
---------------------------------------------------------------------
Increase (decrease) from principal
transactions (58,635) (4,045) (54,590)
---------------------------------------------------------------------
Total increase (decrease) in net
assets 16,977 86,355 (69,378)
Net assets at beginning of year 1,948,415 940,193 1,008,222
---------------------------------------------------------------------
Net assets at end of year $1,965,392 $1,026,548 $ 938,844
=====================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
69
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets
Year Ended December 31, 1996
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS N&B ALGER FIDELITY INVESCO VAN ECK
----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 1,346,784 $ 409,749 $ (24,548) $ 297,370 $ 673,261 $ (9,048)
Net realized gains (losses) on
investments 249,385 (282,697) 241,717 129,386 132,183 28,796
Net unrealized gains (losses) on
investments 2,280,056 386,576 188,595 1,247,734 365,750 91,401
----------------------------------------------------------------------------------------
Increase in net assets from
operations 3,876,225 513,628 405,764 1,674,490 1,171,194 111,149
----------------------------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 45,593,592 3,103,422 5,705,739 32,867,221 3,482,261 434,949
Administrative charges (4,805) (668) (1,121) (2,284) (579) (153)
Benefit payments (73,051) (32,701) (10,631) (16,286) (5,472) (7,961)
Surrenders and withdrawals (1,070,304) (234,213) (223,811) (441,253) (155,835) (15,192)
Net transfers among divisions
(including the guaranteed interest
division in the general account) 491 (818,074) 3,820,402 (10,875,570) 6,667,323 1,206,410
Other (25,821) (12,712) (5,565) (8,533) 316 673
----------------------------------------------------------------------------------------
Increase (decrease) from principal
transactions 44,420,102 2,005,054 9,285,013 21,523,295 9,988,014 1,618,726
----------------------------------------------------------------------------------------
Total increase (decrease) in net
assets 48,296,327 2,518,682 9,690,777 23,197,785 11,159,208 1,729,875
Net assets at beginning of year 18,802,710 6,394,403 3,270,195 6,170,956 2,748,616 218,540
----------------------------------------------------------------------------------------
Net assets at end of year $67,099,037 $8,913,085 $12,960,972 $ 29,368,741 $13,907,824 $1,948,415
========================================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
70
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
N&B
----------------------------------------------------------------------
TOTAL LIMITED GOVERNMENT
N&B MATURITY BOND GROWTH INCOME PARTNERS
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 409,749 $ 381,453 $ 26,507 $ 2,393 $ (604)
Net realized gains (losses) on
investments (282,697) (273,831) (47,382) (4,839) 43,355
Net unrealized gains (losses) on
investments 386,576 (53,506) 75,841 19,442 344,799
----------------------------------------------------------------------
Increase in net assets from
operations 513,628 54,116 54,966 16,996 387,550
----------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 3,103,422 775,080 852,082 284,980 1,191,280
Administrative charges (668) (200) (244) (24) (200)
Benefit payments (32,701) (9,654) - (9,423) (13,624)
Surrenders and withdrawals (234,213) (125,774) (32,841) (7,552) (68,046)
Net transfers among divisions
(including the guaranteed interest
division in the general account) (818,074) (3,444,983) 875,871 228,842 1,522,196
Other (12,712) (13,266) (962) 303 1,213
----------------------------------------------------------------------
Increase (decrease) from principal
transactions 2,005,054 (2,818,797) 1,693,906 497,126 2,632,819
----------------------------------------------------------------------
Total increase (decrease) in net
assets 2,518,682 (2,764,681) 1,748,872 514,122 3,020,369
Net assets at beginning of year 6,394,403 5,834,889 172,715 144,114 242,685
----------------------------------------------------------------------
Net assets at end of year $8,913,085 $ 3,070,208 $1,921,587 $658,236 $3,263,054
======================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
71
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
ALGER
--------------------------------------------------------------------------
AMERICAN AMERICAN AMERICAN
TOTAL SMALL MIDCAP AMERICAN LEVERAGED
ALGER CAPITALIZATION GROWTH GROWTH ALLCAP
--------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net investment income (loss) $ (24,548) $ (48,111) $ 5,616 $ 26,385 $ (8,438)
Net realized gains (losses) on
investments 241,717 89,528 55,044 57,743 39,402
Net unrealized gains (losses) on
investments 188,595 (39,219) 71,238 131,641 24,935
--------------------------------------------------------------------------
Increase in net assets from
operations 405,764 2,198 131,898 215,769 55,899
--------------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 5,705,739 2,214,204 1,400,655 1,552,491 538,389
Administrative charges (1,121) (364) (307) (269) (181)
Benefit payments (10,631) - - (10,631) -
Surrenders and withdrawals (223,811) (61,804) (23,510) (30,802) (107,695)
Net transfers among divisions
(including the guaranteed interest
division in the general account) 3,820,402 1,538,980 1,142,942 303,666 834,814
Other (5,565) (1,125) (1,914) (858) (1,668)
--------------------------------------------------------------------------
Increase (decrease) from principal
transactions 9,285,013 3,689,891 2,517,866 1,813,597 1,263,659
--------------------------------------------------------------------------
Total increase (decrease) in net
assets 9,690,777 3,692,089 2,649,764 2,029,366 1,319,558
Net assets at beginning of year 3,270,195 1,585,337 654,863 725,826 304,169
--------------------------------------------------------------------------
Net assets at end of year $12,960,972 $5,277,426 $3,304,627 $2,755,192 $1,623,727
==========================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
72
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
FIDELITY
---------------------------------------------------------------------------------------
TOTAL ASSET MONEY
FIDELITY MANAGER GROWTH OVERSEAS MARKET INDEX 500
---------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) $ 297,370 $ 32,016 $ 47,914 $ (14,948) $ 231,080 $ 1,308
Net realized gains (losses) on
investments 129,386 40,989 1,066 38,567 - 48,764
Net unrealized gains (losses) on
investments 1,247,734 184,003 308,218 304,189 - 451,324
---------------------------------------------------------------------------------------
Increase in net assets from
operations 1,674,490 257,008 357,198 327,808 231,080 501,396
---------------------------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 32,867,221 1,610,002 2,297,607 1,319,754 25,791,063 1,848,795
Administrative charges (2,284) (227) (698) (238) (656) (465)
Benefit payments (16,286) (16,286) - - - -
Surrenders and withdrawals (441,253) (52,166) (47,221) (50,070) (239,360) (52,436)
Net transfers among divisions
(including the guaranteed interest
division in the general account) (10,875,570) 661,458 2,055,158 2,273,553 (18,514,364) 2,648,625
Other (8,533) 136 (2,580) (249) (5,444) (396)
---------------------------------------------------------------------------------------
Increase (decrease) from principal
transactions 21,523,295 2,202,917 4,302,266 3,542,750 7,031,239 4,444,123
---------------------------------------------------------------------------------------
Total increase (decrease) in net
assets 23,197,785 2,459,925 4,659,464 3,870,558 7,262,319 4,945,519
Net assets at beginning of year 6,170,956 677,275 1,237,539 944,405 2,721,095 590,642
---------------------------------------------------------------------------------------
Net assets at end of year $ 29,368,741 $3,137,200 $5,897,003 $4,814,963 $ 9,983,414 $5,536,161
=======================================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
73
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
INVESCO
----------------------------------------------------------------------
TOTAL TOTAL INDUSTRIAL
INVESCO RETURN INCOME HIGH YIELD UTILITIES
----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
<S> <C> <C> <C> <C> <C>
Net investment income (loss) $ 673,261 $ 63,030 $ 272,811 $ 296,378 $ 41,042
Net realized gains (losses) on
investments 132,183 16,548 76,264 26,819 12,552
Net unrealized gains (losses) on
investments 365,750 133,324 185,477 (14,895) 61,844
----------------------------------------------------------------------
Increase in net assets from
operations 1,171,194 212,902 534,552 308,302 115,438
----------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 3,482,261 882,507 1,030,329 934,353 635,072
Administrative charges (579) (161) (259) (87) (72)
Benefit payments (5,472) - - (5,472) -
Surrenders and withdrawals (155,835) (22,554) (70,552) (55,987) (6,742)
Net transfers among divisions
(including the guaranteed interest
division in the general account) 6,667,323 1,195,393 2,048,163 1,998,119 1,425,648
Other 316 24 155 345 (208)
----------------------------------------------------------------------
Increase (decrease) from principal
transactions 9,988,014 2,055,209 3,007,836 2,871,271 2,053,698
----------------------------------------------------------------------
Total increase (decrease) in net
assets 11,159,208 2,268,111 3,542,388 3,179,573 2,169,136
Net assets at beginning of year 2,748,616 801,968 1,053,619 651,485 241,544
----------------------------------------------------------------------
Net assets at end of year $13,907,824 $3,070,079 $4,596,007 $3,831,058 $2,410,680
======================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
74
<PAGE>
Security Life Separate Account A1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
VAN ECK
--------------------------------------------------------------------
WORLDWIDE
TOTAL WORLDWIDE HARD
VAN ECK BALANCED ASSETS
--------------------------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (9,048) $ (9,814) $ 766
Net realized gains (losses) on
investments 28,796 20,242 8,554
Net unrealized gains (losses) on
investments 91,401 63,266 28,135
--------------------------------------------------------------------
Increase in net assets from
operations 111,149 73,694 37,455
--------------------------------------------------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Contract purchase payments 434,949 366,629 68,320
Administrative charges (153) (61) (92)
Benefit payments (7,961) (7,961) -
Surrenders and withdrawals (15,192) (7,693) (7,499)
Net transfers among divisions
(including the guaranteed interest
division in the general account) 1,206,410 370,673 835,737
Other 673 (173) 846
--------------------------------------------------------------------
Increase (decrease) from principal
transactions 1,618,726 721,414 897,312
--------------------------------------------------------------------
Total increase (decrease) in net
assets 1,729,875 795,108 934,767
Net assets at beginning of year 218,540 145,085 73,455
--------------------------------------------------------------------
Net assets at end of year $1,948,415 $940,193 $1,008,222
====================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
75
<PAGE>
Security Life Separate Account A1
Notes to Financial Statements
December 31, 1997
NOTE A. ORGANIZATION
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 is organized
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 charged with liabilities arising out of any other
operations of the Company.
As of December 31, 1997, the Separate Account consisted 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 Management Incorporated (N&B)
Neuberger & Berman Limited Maturity Bond Portfolio
Neuberger & Berman Growth Portfolio
Neuberger & Berman Partners Portfolio
Fred Alger Management, Inc.
(Alger)
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Fidelity Management & Research Company (Fidelity)
Fidelity Investments VIP II Asset Manager Portfolio
Fidelity Investments VIP Growth Portfolio
Fidelity Investments VIP Overseas Portfolio
Fidelity Investments VIP Money Market Portfolio
Fidelity Investments VIP II Index 500 Portfolio
- --------------------------------------------------------------------------------
76
<PAGE>
NOTE A. ORGANIZATION (CONTINUED)
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Total Return Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Utilities Portfolio
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Hard Assets (formerly known as the
Van Eck Gold and Natural Resources Portfolio)
Van Eck Worldwide Emerging Markets Fund*
AIM Advisors, Inc. (AIM)
AIM VI--Government Securities*
Effective May 1, 1997, the Divisions of the Separate Account investing in the
Neuberger & Berman Government Income Portfolio and the Van Eck Worldwide
Balanced Portfolio stopped accepting new investments. The Company and the fund
managers intend to discontinue these divisions in 1998 pending approval by the
Securities and Exchange Commission.
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") in the Company's
general account. 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.
* These divisions became available on December 31, 1997, but had not yet had any
activity as of December 31, 1997.
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 GAAP 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.
- --------------------------------------------------------------------------------
77
<PAGE>
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The significant accounting principles followed by the Separate Account and the
methods of applying those principles are presented below or in the footnotes
which follow.
INVESTMENT VALUATION-The investments in shares of the Funds are valued at the
closing net asset value (market value) per share as determined by the Funds on
the day of measurement.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME-The investments in shares
of the Funds are accounted for on the date the order to buy or sell is
confirmed. Dividend income and distributions of capital gains are recorded on
the ex-dividend date. Realized gains and losses from sales transactions are
reported using the first-in, first-out (FIFO) method of accounting for cost. The
difference between cost and current market value of investments owned on the day
of measurement is recorded as unrealized gain or loss on investments.
VALUATION PERIOD DEDUCTIONS-Charges are made directly against the assets of the
Separate Account divisions and are reflected daily in the computation of the
unit values of the divisions.
A daily deduction, at an annual rate of 1.37% of the daily asset value of the
Separate Account divisions, is charged to the Separate Account for mortality and
expense risks assumed by the Company. Total mortality and expense charges for
the year ended December 31, 1997 were $1,161,339.
A daily deduction, at an annual rate of .15% of the daily asset value of the
Separate Account divisions, is charged to the Separate Account 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, 1997 were
$126,847.
ANNUITY RESERVES-As of December 31, 1997, none of the annuity contracts in the
Separate Account have 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.
- --------------------------------------------------------------------------------
78
<PAGE>
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
$21,601 for the year ended December 31, 1997. Distributions made by the Funds
are reinvested in the Funds.
The following is a summary of fund shares owned as of December 31, 1997:
<TABLE>
<CAPTION>
NUMBER NET VALUE
OF ASSET OF SHARES COST OF
FUND SHARES VALUE AT MARKET SHARES
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger & Berman Management Incorporated:
Limited Maturity Bond 203,575,329 $ 14.12 $ 2,874,484 $ 2,808,998
Growth 100,404,566 30.54 3,066,356 2,628,515
Government Income 42,830,420 11.14 477,131 448,408
Partners 487,556,893 20.60 10,043,672 8,510,297
Fred Alger Management, Inc.:
American Small Capitalization 155,568,340 43.75 6,806,115 6,393,034
American MidCap Growth 213,870,098 24.18 5,171,379 4,634,211
American Growth 148,078,485 42.76 6,331,836 5,431,603
American Leveraged AllCap 143,998,399 23.17 3,336,443 2,921,881
Fidelity Management & Research Co.:
Asset Manager 335,842,370 18.01 6,048,521 5,510,677
Growth 254,887,612 37.10 9,456,330 8,090,333
Overseas 350,582,519 19.20 6,731,184 6,478,612
Money Market 6,762,225,260 1.00 6,762,225 6,762,225
Index 500 90,094,179 114.39 10,305,873 8,404,998
INVESCO Funds Group, Inc.:
Total Return 327,724,303 15.81 5,181,321 4,458,075
Industrial Income 472,541,496 17.04 8,052,107 7,110,588
High Yield 472,140,377 12.46 5,882,869 5,864,305
Utilities 231,710,535 14.40 3,336,632 2,798,949
Van Eck Associates Corporation:
Worldwide Balanced 85,456,457 12.03 1,028,041 907,302
Worldwide Hard Assets 59,808,483 15.72 940,189 980,064
-----------------------------
Total $101,832,708 $91,143,075
=============================
</TABLE>
- --------------------------------------------------------------------------------
79
<PAGE>
NOTE C. INVESTMENTS (CONTINUED)
For the year ended December 31, 1997, the aggregate cost of purchases (plus
reinvested dividends) and the proceeds from sales of investments were
$72,382,888 and $47,753,831, 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.
- --------------------------------------------------------------------------------
80
<PAGE>
NOTE F. SUMMARY OF CHANGES IN UNITS
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FOR
OUTSTANDING INCREASE (DECREASE) SURRENDERS, OUTSTANDING
AT BEGINNING FOR PAYMENTS FOR DIVISIONAL BENEFITS AND AT END
DIVISION OF YEAR RECEIVED TRANSFERS CHARGES OF YEAR
- -----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Management Incorporated:
<S> <C> <C> <C> <C> <C>
Limited Maturity Bond 288,635.255 64,493.650 (85,344.719) (10,395.502) 257,388.684
Growth 144,473.402 24,975.513 18,310.256 (6,607.605) 181,151.566
Government Income 61,534.920 3,030.211 (18,389.635) (4,886.215) 41,289.281
Partners 194,111.730 102,635.743 177,588.335 (12,695.402) 461,640.406
Fred Alger Management, Inc.:
American Small Capitalization 353,902.764 33,471.971 39,812.933 (11,650.808) 415,536.860
American MidCap Growth 207,341.752 25,814.850 65,599.437 (11,040.438) 287,715.601
American Growth 206,009.336 81,534.105 105,589.311 (11,316.673) 381,816.079
American Leveraged AllCap 99,823.309 4,339.524 69,616.472 (16.827) 173,762.478
Fidelity Management & Research Co:
Asset Manager 254,932.411 44,014.197 123,569.612 (8,885.242) 413,630.978
Growth 386,707.380 65,870.089 94,355.789 (37,531.378) 509,401.880
Overseas 417,669.832 78,224.778 52,121.147 (17,372.667) 530,643.090
Money Market 918,154.339 1,329,788.846 (1,540,150.023) (96,916.788) 610,876.374
Index 500 349,173.950 79,131.821 93,295.864 (24,842.915) 496,758.720
INVESCO Funds Group, Inc.:
Total Return 228,925.945 53,633.737 41,430.987 (5,336.308) 318,654.361
Industrial Income 294,419.794 36,734.358 91,010.879 (13,910.863) 408,254.168
High Yield 280,339.680 20,935.134 83,728.506 (13,056.166) 371,947.154
Utilities 200,534.253 6,425.556 32,609.570 (11,014.063) 228,555.316
Van Eck Associates Corporation:
Worldwide Balanced 86,789.616 7,076.749 (5,005.246) (1,730.183) 87,130.936
Worldwide Hard Assets 86,244.713 7,277.941 (7,242.672) (3,301.024) 82,978.958
</TABLE>
- --------------------------------------------------------------------------------
81
<PAGE>
Security Life Separate Account A1
Notes to Financial Statements (continued)
NOTE F. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
INCREASE (DECREASE) FOR
OUTSTANDING INCREASE (DECREASE) SURRENDERS, OUTSTANDING
AT BEGINNING FOR PAYMENTS FOR DIVISIONAL BENEFITS AND AT END
DIVISION OF YEAR RECEIVED TRANSFERS CHARGES OF YEAR
- -----------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Management Incorporated:
<S> <C> <C> <C> <C> <C>
Limited Maturity Bond 563,487.916 73,470.349 (335,429.660) (12,893.350) 288,635.255
Growth 13,967.690 66,509.482 66,351.310 (2,355.080) 144,473.402
Government Income 13,437.293 27,299.157 22,412.120 (1,613.650) 61,534.920
Partners 18,425.180 80,281.690 100,414.600 (5,009.740) 194,111.730
Fred Alger Management, Inc.:
American Small Capitalization 109,121.103 148,656.971 100,166.800 (4,042.110) 353,902.764
American MidCap Growth 45,272.292 90,989.150 72,614.690 (1,534.380) 207,341.752
American Growth 60,576.492 123,545.054 25,083.120 (3,195.330) 206,009.336
American Leveraged AllCap 20,636.526 33,328.073 52,201.830 (6,343.120) 99,823.309
Fidelity Management & Research Co:
Asset Manager 62,156.503 138,540.658 59,501.670 (5,266.420) 254,932.411
Growth 91,703.491 158,267.199 139,957.160 (3,220.470) 386,707.380
Overseas 91,367.590 120,909.502 209,730.760 (4,338.020) 417,669.832
Money Market 259,770.455 2,415,085.474 (1,734,351.930) (22,349.660) 918,154.339
Index 500 45,041.743 127,466.237 179,821.810 (3,155.840) 349,173.950
INVESCO Funds Group, Inc.:
Total Return 66,073.393 69,951.652 94,649.130 (1,748.230) 228,925.945
Industrial Income 81,266.429 72,944.905 144,818.800 (4,610.340) 294,419.794
High Yield 54,748.222 73,701.468 156,331.870 (4,441.880) 280,339.680
Utilities 22,313.580 56,388.943 122,408.710 (576.980) 200,534.253
Van Eck Associates Corporation:
Worldwide Balanced 14,721.975 36,117.781 37,449.230 (1,499.370) 86,789.616
Worldwide Hard Assets 7,301.735 6,062.738 73,541.780 (661.540) 86,244.713
</TABLE>
- --------------------------------------------------------------------------------
82
<PAGE>
Security Life Separate Account A1
Notes to Financial Statements (continued)
NOTE G. NET ASSETS
Net assets at December 31, 1997 consisted of the following:
<TABLE>
<CAPTION>
ACCUMULATED NET
ACCUMULATED NET REALIZED UNREALIZED
INVESTMENT GAINS GAINS
PRINCIPAL INCOME (LOSSES) ON (LOSSES) ON
DIVISION TRANSACTIONS (LOSS) INVESTMENTS INVESTMENTS NET ASSETS
- -------------------------------------------------------------------------------------------------------------------
Neuberger & Berman Management Incorporated:
<S> <C> <C> <C> <C> <C>
Limited Maturity Bond $ 2,468,821 $ 501,793 $ (157,616) $ 65,486 $ 2,878,484
Growth 2,444,776 162,463 16,635 437,840 3,061,714
Government Income 405,585 27,130 14,999 28,723 476,437
Partners 8,159,457 99,606 240,561 1,533,375 10,032,999
Fred Alger Management, Inc.:
American Small Capitalization 6,440,155 36,810 (91,857) 413,081 6,798,189
American MidCap Growth 4,506,093 (2,459) 153,373 537,168 5,194,175
American Growth 5,308,993 (6,472) 121,964 900,233 6,324,718
American Leveraged AllCap 2,875,578 (50,542) 92,083 414,562 3,331,681
Fidelity Management & Research Co:
Asset Manager 5,069,455 337,808 104,131 537,844 6,049,238
Growth 7,675,075 159,064 247,939 1,365,997 9,448,075
Overseas 5,936,358 312,794 219,734 252,572 6,721,458
Money Market 6,278,284 621,681 - - 6,899,965
Index 500 7,653,308 79,273 661,618 1,900,877 10,295,076
INVESCO Funds Group, Inc.:
Total Return 4,207,627 150,649 92,391 723,246 5,173,913
Industrial Income 6,084,706 783,289 236,313 941,519 8,045,827
High Yield 4,865,839 852,846 137,142 18,564 5,874,391
Utilities 2,640,099 76,927 85,471 537,683 3,340,180
Van Eck Associates Corporation:
Worldwide Balanced 862,650 (4,275) 47,434 120,739 1,026,548
Worldwide Hard Assets 913,594 32,599 32,526 (39,875) 938,844
----------------------------------------------------------------------------
Total $84,796,453 $4,170,984 $2,254,841 $10,689,634 $101,911,912
============================================================================
</TABLE>
- --------------------------------------------------------------------------------
83
<PAGE>
Security Life Separate Account A1
Notes to Financial Statements (continued)
NOTE H. YEAR 2000 (UNAUDITED)
The Company has initiated a program to prepare the Company's computer systems
and applications for the year 2000. This program includes all systems utilized
by the Company as well as the systems of other companies that interface with the
Company. The Company has completed an assessment and is in the process of
modifying portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. Accordingly,
the Company does not expect the amounts required for this project to have a
material effect on its financial position.
The project is estimated to be completed no later than June 1999, which is prior
to any anticipated impact on its operating systems. The Company believes that
with modifications to existing software, and conversions to new software, the
Year 2000 will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are
not completed in a timely manner, it could have a material impact on the
operations of the Company.
The Company has initiated formal communications and interface testing plans with
all of its suppliers and customers to determine the extent to which its
interface systems are vulnerable to those third parties' failure to have their
systems Year 2000 compatible and will act accordingly to prevent operational
disruptions.
84
<PAGE>
Part C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
---------------------------------
(a) All required financial statements are included in Parts A and B of
this Registration Statement.
(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.
2. Not applicable.
3. (a) Security Life of Denver Insurance Company Distribution
Agreement.
(b) Specimen Broker-Dealer Supervisory and Selling Agreement
for Variable Contracts.
(c) Marketing Service Agreement. /1/
4. (a) Specimen Variable Annuity Contract (Form No. 1198(VA)).
/2/
(b) Specimen Election and Supplementary Agreement for a
Settlement Option.
5. (a) Exchequer Annuity Application (Form No. Q-1154 1/98). 2
6. (a) Restated Articles of Incorporation of Security Life of
Denver Insurance Company, dated May 31, 1995.
(b) (i) By-Laws of Security Life of Denver Insurance
Company, with Amendments through February 14,
1994.
(ii) By-Laws of Security Life of Denver Insurance
Company (Restated with Amendments through
September 30, 1997). /2/
7. Not applicable.
8. (a) Form of Amendment to the Participation Agreement.
Amendments to the Participation Agreements.
(b) (i) First Amendment to Fund Participation Agreement
between Security Life of Denver, Van Eck
Investment Trust and Van Eck Associates
Corporation.
(ii) Second Amendment to Fund Participation Agreement
between Security Life of Denver, Van Eck
Investment Trust and Van Eck Associates
Corporation. 2
(iii) First Amendment to Participation Agreement by
and among The Alger American Fund, Fred Alger
Management, Inc., Security Life of Denver
Insurance Company.
(iv) First Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company.
(v) Second Amendment to Participation Agreement
among Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company.
(vi) First Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company.
- --------------------------------------------------------------------------------
C-1
<PAGE>
(vii) Second Amendment to Participation Agreement
among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Security
Life of Denver Insurance Company.
(viii) First Amendment to Participation Agreement among
Security Life of Denver Insurance Company,,
Invesco Variable Funds, Inc. and Invesco Funds
Group, Inc.
(ix) Assignment and Modification Agreement between
Neuberger & Berman Advisers Management Trust,
Neuberger & Berman Management Incorporated,
Neuberger & Berman Advisers Management Trust,
Advisers Managers Trust and Security Life of
Denver Insurance Company.
(c) Service Agreement.
Participation Agreements.
(d) (i) Participation Agreement by and among AIM
Variable Insurance Funds, Inc., Security Life
of Denver, on Behalf of Itself and its Separate
Accounts and ING America Equities, Inc.
(ii) Sales Agreement by and among The Alger American
Fund, Fred Alger Management, Inc., and Security
Life of Denver Insurance Company.
(iii) Sales Agreement by and among Neuberger & Berman
Advisers Management Trust, Neuberger & Berman
Management Incorporated, and Security Life of
Denver Insurance Company.
(iv) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company.
(v) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver
Insurance Company.
(vi) Participation Agreement among INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group,
Inc., and Security Life of Denver Insurance
Company.
(vii) Participation Agreement between Van Eck
Investment Trust and the Trust's investment
adviser, Van Eck Associates Corporation, and
Security Life of Denver Insurance Company.
(e) Administrative Services Agreement between Security Life
of Denver Insurance Company and Financial Administrative
Services Corporation.
(f) Amendment to Administrative Services Agreement between
Security Life of Denver Insurance Company and Financial
Administrative Services Corporation.
9. (a) Opinion and Consent of Eugene L Copeland as to the
legality of the securities being registered.
(b) Opinion and Consent of Gary W. Waggoner as to the
legality of the securities being registered.
10. (a) Consent of Ernst & Young, L.L.P.
(b) Consent of Mayer, Brown & Platt.
11. None.
12. None.
13. Schedule for Computation of Performance Quotations.
14. None.
15. List of Affiliated Companies of Security Life of Denver Insurance
Company. /2/
- -------------------------
/1/ Incorporated by reference to the Post-Effective Amendment No. 4 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
April 30, 1997 (File No. 33-78444).
/2/ Incorporated by reference to the Post-Effective Amendment No. 5 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 18, 1997 (File No. 33-78444).
- --------------------------------------------------------------------------------
C-2
<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 with one or two asterisks
(*/**), is Security Life Center, 1290 Broadway, Denver, Colorado 80203-5699.
The business address of each person denoted with one asterisk (*) is ING North
America Insurance Corporation, 5780 Powers Ferry Road, Atlanta, Georgia 30327-
4390. The business address of each person denoted with two asterisks (**) is
Security Life of Denver Insurance Company, 9140 Arrowpoint Blvd., Suite 400,
Charlotte, North Carolina 28273.
<TABLE>
<CAPTION>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- ------------------------------------------------
<S> <C>
Fred S. Hubbell Chairman and Chief Executive Officer
909 Locust St.
Des Moines, IA 50309
Stephen M. Christopher Director, President and Chief Operating Officer
Thomas F. Conroy Director, President Security Life Reinsurance
Michael W. Cunningham* Director, Executive Vice President
Linda B. Emory* Director, Vice President and Appointed Actuary
Catherine T. Fitzgerald* Executive Vice President
James L. Livingston, Jr. Executive Vice President, Operations
Jeffrey R. Messner Executive Vice President and Chief Marketing Officer
Jess A. Skriletz President, ING Institutional Markets
John R. Barmeyer Senior Vice President and Chief Legal Officer
Wayne D. Bidelman Senior Vice President, New Business Development
Eugene L. Copeland Senior Vice President and General Counsel, Security Life Reinsurance
and ING Institutional Markets
Michael Fisher Senior Vice President, Litigation
Carol D. Hard Senior Vice President, Variable
Philip R. Kruse Senior Vice President, Sales & Marketing
Charles LeDoyen** Senior Vice President, Structured Settlements
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
Timothy P. McCarthy Senior Vice President, Marketing Services
Jeffery W. Seel* Senior Vice President and Chief Investment Officer
</TABLE>
- --------------------------------------------------------------------------------
C-3
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Lawrence D. Taylor Senior Vice President and Chief Actuary
Louis N. Trapolino Senior Vice President, Distribution
William D. Tyler Senior Vice President and Chief Information Officer
William H. Alexander Vice President and Medical Director
Katherine Anderson Vice President, Chief Product Actuary, Security Life Reinsurance
Carole A. Baumbusch Vice President, Reinsurance Operations
Evelyn A. Bentz Vice President, M Financial Sales
Thomas Kirby Brown Vice President, Operations, ING Institutional Markets
Daniel S. Clements Vice President and Chief Underwriter
Linda Elliott Vice President, Information Technology
Larry D. Erb Vice President, Information Technology
Martha K. Evans Vice President, Variable Operations
Deborah B. Holden Vice President, Human Resources
Brian Holland Vice President, Sales and International Risk Management
Kenneth Kiefer** Vice President, Operations, Structured Settlements
Richard D. King Vice President and Medical Director
Greg McGreevey Vice President, Marketing, ING Institutional Markets
C. Lynn McPherson* Vice President, Medical Risk Solutions
Sue A. Miskie Vice President, Corporate Services
Donna T. Mosely Vice President, Valuation
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
David S. Pendergrass* Vice President and Treasury Officer
Steve Pryde Vice President, Administration
Christiaan M. Rutten Vice President, Structured Reinsurance
Casey J. Scott Vice President, Sales Operations
Alan C. Singer Vice President, Customer Relations and Regulatory Compliance
Mark A. Smith Vice President, Insurance Services
</TABLE>
- --------------------------------------------------------------------------------
C-4
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Jerome M. Strop Vice President, Strategic Marketing
Gary W. Waggoner Vice President, General Counsel and Corporate Secretary
William Wojciechowski Vice President, Business Consulting and Financial Markets
Stephen J. Yarina Vice President, Treasurer and Chief Financial Officer
Relda A. Fleshman Deputy General Counsel
Eric Banta Assistant Secretary
Roger O. Beebe Actuarial Officer
John B. Dickinson Actuarial Officer
Shirley A. Knarr Actuarial Officer
Glen E. Stark Actuarial Officer
William J. Wagner Actuarial Officer
Marsha K. Crest Agency Administration Officer
Amy L. Winsor Tax and Finance Officer
</TABLE>
- --------------------------------------------------------------------------------
C-5
<PAGE>
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 shares of ING are owned by and registered in the name of a Netherlands
trustee, Stichting Administratiekantoor ING Groep N.V. ("Trustee"), under a
trust agreement by which the Trustee has issued against these shares non-voting
depositary receipts in bearer form which are traded and quoted on several
European stock exchanges. This kind of trust arrangement is not uncommon among
public companies in The Netherlands. The Trustee's principal business is the
administration of such trust arrangements with respect to the common stock of
ING. Although trustees in The Netherlands formally have and exercise limited
voting rights, the Trustee adheres to the general policy in The Netherlands that
these trustees follow the recommendations of the boards of directors and the
management of corporations whose stock they hold and do 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 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. Wildernest Associates, a Colorado partnership in which Security Life is
a 49% partner.
b. CAMVEST Company No. 3, a wholly owned Colorado subsidiary corporation.
c. First Secured Mortgage Deposit Corp., a wholly owned Colorado
subsidiary corporation.
d. Midwestern United Life Insurance Company, a wholly owned Indiana
subsidiary corporation.
e. First ING Life Insurance Company of New York, a wholly owned New York
subsidiary corporation.
f. 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 1997.
Item 27. NUMBER OF CONTRACT OWNERS
-------------------------
As of March 31, 1998, a date within 90 days prior to the date of filing,
there were 1,148 owners of contracts offered by the prospectus filed as part of
Registrant's Registration Statement (File No. 33-78444).
Item 28. INDEMNIFICATION
---------------
Security Life of Denver's (the "corporation") Certificate of Incorporation
and bylaws provide that the corporation shall have
- --------------------------------------------------------------------------------
C-6
<PAGE>
every power and duty of indemnification of directors, officers, salaried
employees and fiduciaries, without limitation, provided by the laws of the state
of Colorado. Under Colorado law, the corporation has the power to indemnify such
persons against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with any
threatened, pending or completed action, suit or proceeding, if such person
acted in good faith and in a manner which that person reasonably believed to be
in or not opposed to the best interest of the corporation and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. In the case of actions by or in the right of the
corporation, such indemnification cannot be made where such person is adjudged
liable to the corporation, except pursuant to court order. The corporation is
required to indemnify directors, officers, salaried employees and fiduciaries
against expenses actually and reasonable incurred in connection with actions
where such persons have been successful on the merits or otherwise in defense of
such actions.
Consistent with applicable law, the corporation's bylaws provide as
follows:
ARTICLE VII
Indemnification of Directors,
-----------------------------
Officers and Other Personnel
----------------------------
Section 7.1. Definitions. As used in this article, the term:
-----------
(a) "Corporation" includes any domestic or foreign entity that is a
predecessor of this Corporation by reason of merger or other transaction in
which the predecessor's existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation is or was
serving at the Corporation's request as a director, officer, employee, attorney-
in-fact, agent, fiduciary, manager, member, partner, or trustee of, or to hold
any similar position with, another domestic or foreign corporation, partnership,
limited liability company, joint venture, employee benefit plan, or other
entity. A director is considered to be serving an employee benefit plan at the
Corporation's request if the director's duties to the Corporation also impose
duties on, or otherwise involve services by, the director to the plan or to
participants in or beneficiaries of the plan. "Director" includes, unless the
context requires otherwise, the estate or personal representative of a director.
(c) "Expenses" includes counsel fees
(d) "Liability" means the obligation incurred with respect to a
proceeding to pay a judgment, settlement, penalty, fine, including an excise tax
assessed with respect to an employee benefit plan, or reasonable expenses.
(e) "Official capacity" means, when used with respect to a director,
the office of director in the Corporation and, when used with respect to a
person other than a director as contemplated in Section 7.7, the office in the
Corporation held by the officer or the employment or fiduciary relationship
undertaken by the employee or fiduciary on behalf of the Corporation. "Official
capacity" does not include service for any other domestic or foreign
corporation, partnership, limited liability company, joint venture, employee
benefit plan, or other entity.
(f) "Officer" means an individual who is or was an officer of the
Corporation or an individual who, while an officer of the Corporation, is or was
serving at the Corporation's request as a director, officer, employee, attorney-
in-fact, agent, fiduciary, manager, member, partner, or trustee of, or to hold
any similar position with, another domestic or foreign corporation, partnership,
limited liability company, joint venture, employee benefit plan, or other
entity. An officer is considered to be serving an employee benefit plan at the
Corporation's request if his duties to the corporation also impose duties on, or
otherwise involve services by, him to the plan or to participants in or
beneficiaries of the plan. "Officer" includes, unless the context requires
otherwise, the estate or personal representative of an officer.
(g) "Party" includes a person who was, is, or is threatened to be made
a named defendant or respondent in a proceeding.
(h) "Proceeding" means any threatened, pending, or completed action,
suit, or proceeding, whether civil, criminal, administrative, or investigative
and whether formal or informal.
- -------------------------------------------------------------------------------
C-7
<PAGE>
Section 7.2. Authority to Indemnify Directors.
--------------------------------
(a) Except as provided in subsection 7.2(d) below, the Corporation
shall indemnify a person made a party to a proceeding because such person is or
was a director against liability incurred in the proceeding if (i) the person
conducted himself or herself in good faith; and (ii) the person reasonably
believed: (1) in the case of conduct in an official capacity with the
Corporation, that his or her conduct was in the Corporation's best interests;
and, (2) in all other cases, that his or her conduct was at least not opposed to
the Corporation's best interests; and (iii) in the case of any criminal
proceeding, the person had no reasonable cause to believe his or her conduct was
unlawful.
(b) A director's conduct with respect to an employee benefit plan for
a purpose the director reasonably believed to be in the interests of the
participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection 7.2(a)(ii)(2). A director's conduct with respect to
an employee benefit plan for a purpose that the director did not reasonably
believe to be in the interests of the participants in or the beneficiaries of
the plan shall be deemed not to satisfy the requirements of subsection
7.2(a)(i).
(c) The termination of a proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent is not, of
---- ----------
itself, determinative that the director did not meet the standard of conduct set
forth in this Section 7.2.
(d) The Corporation may not indemnify a director under this Article
VII in connection with (i) a proceeding by or in the right of the Corporation in
which such person was adjudged liable to the Corporation, or (ii) any other
proceeding charging that the director derived an improper personal benefit,
whether or not involving action in an official capacity, in which proceeding the
director was adjudged liable on the basis that he or she derived an improper
personal benefit.
(e) Indemnification permitted under this Article in connection with a
proceeding by or in the right of the Corporation is limited to reasonable
expenses incurred in connection with the proceeding.
Section 7.3. Mandatory Indemnification. The Corporation shall
-------------------------
indemnify a person who was wholly successful on the merits or otherwise, in the
defense of any proceeding to which the person was a party because the person is
or was a director, against reasonable expenses incurred by him or her in
connection with the proceeding.
Section 7.4. Advances for Expenses.
---------------------
(a) The Corporation shall pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding if: (i) the director furnishes to the Corporation
a written affirmation of the director's good faith belief that he or she has met
the standard of conduct set forth in Section 7.2 above; (ii) the director
furnishes to the Corporation a written undertaking, executed personally or on
the director's behalf, to repay the advance if it is ultimately determined that
he or she did not meet the standard of conduct; and (iii) a determination is
made that the facts then known to those making the determination would not
preclude indemnification under this Article VII.
(b) The undertaking required by subsection 7.4(a)(ii) above shall be
an unlimited general obligation of the director or officer but need not be
secured and may be accepted without reference to financial ability to make
repayment.
(c) Determinations and authorizations of payments under this Section
shall be made in the manner specified in Section 7.6, below.
Section 7.5. Court-Ordered Indemnification and Advances for Expenses.
-------------------------------------------------------
A director who is or was a party to a proceeding may apply for indemnification
to the court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court, after giving any notice
the court considers necessary, may order indemnification in the following
manner:
(a) If it determines that the director is entitled to mandatory
indemnification under Section 7.4, above, the Corporation shall pay the
director's reasonable expenses incurred to obtain court-ordered indemnification;
- -------------------------------------------------------------------------------
C-8
<PAGE>
(b) If it determines that the director is fairly and reasonably
entitled to indemnification in view of all the relevant circumstances, whether
or not the director met the standard of conduct set forth in subsection 7.2(a)
above or was adjudged liable as described in subsection 7.2(d) above; except
that the indemnification with respect to any proceeding in which liability shall
have been adjudged in the circumstances described in subsection 7.2(d) is
limited to reasonable expenses incurred in connection with the proceeding and
reasonable expenses incurred to obtain court-ordered indemnification.
Section 7.6. Determination and Authorization of Indemnification of
-----------------------------------------------------
Directors.
---------
(a) The Corporation acknowledges that any indemnification of a
director under Section 7.2 has been pre-authorized by the Corporation in the
manner described in subsection 7.6(b) below. Nevertheless, the Corporation
shall not indemnify a director under Section 7.2 unless authorized in the
specific case after a determination has been made that indemnification of the
director is permissible in the circumstances because the director has met the
standard of conduct set forth in Section 7.2. The Corporation shall not advance
expenses to a director under Section 7.4 unless authorized in the specific case
after the written affirmation and undertaking required by subsections 7.4(a) &
(b) are received and the determination required by subsection 7.4(a) has been
made.
(b) The determination required by subsection 7.6(a) shall be made:
(i) by the Board of Directors by majority vote of those present at a meeting at
which a quorum is present, and only those directors not parties to the
proceeding shall be counted in satisfying the quorum; or (ii) if a quorum cannot
be obtained, by a majority vote of a committee of the Board of Directors
designated by the Board of Directors, which committee shall consist of two or
more directors not parties to the proceeding; except that directors who are
parties to the proceeding may participate in the designation of directors for
the committee.
(c) If a quorum cannot be obtained as contemplated in subsection
7.6(b)(i) and a committee cannot be established under subsection 7.6(b)(ii), or,
even if a quorum is obtained or a committee is designated, if a majority of the
directors constituting such quorum or such committee so directs, the
determination required to be made by subsection 7.6(a) shall be made:
(i) by independent legal counsel selected by a vote of the
Board of Directors or the committee in the manner specified in subsections
7.6(b)(i) or (ii), or, if a quorum of the full board cannot be obtained and a
committee cannot be established, by independent legal counsel selected by a
majority of the full Board of Directors; or
(ii) by the shareholders.
(d) Authorization of indemnification and advance of expenses shall be
made in the same manner as the determination that indemnification or advance of
expenses is permissible; except that, if the determination that indemnification
or advance of expenses is permissible is made by independent legal counsel,
authorization of indemnification and advance of expenses shall be made by the
body that selected such counsel.
Section 7.7. Indemnification of Officers and Employees. A person
-----------------------------------------
made a party to a proceeding because such person is or was an officer is
entitled to mandatory indemnification under Section 7.3 and is entitled to apply
for court-ordered indemnification under Section 7.5, in each case to the same
extent as a director. The Corporation shall indemnify and advance expenses
under this Article to an officer, or employee of the Corporation to the maximum
extent allowed by law.
Section 7.8. Exclusions. Except as may be otherwise authorized by
----------
the Board of Directors, no indemnification is provided under this Article VII
for unsalaried persons under contract with the corporation in sales capacities
such as General Agents, Agents and Brokers, or for persons performing services
to the corporation as independent contractors.
Section 7.9. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of a person who is or was a director, officer, employee,
fiduciary, partner, trustee, or agent of the Corporation or who, while a
director, officer, employee, fiduciary, partner, trustee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee or agent of another foreign or domestic
corporation, partnership, limited liability company, joint venture, employee
benefit plan, or other entity against liability asserted against or incurred by
the person in that capacity or arising from his or her status as a director,
officer, employee, fiduciary, partner, trustee, or agent, whether or not the
Corporation would have power to indemnify the person against the same liability
under Sections 7.2, 7.3, or 7.7 above.
Section 7.10. Report to Shareholders. If the Corporation indemnifies
----------------------
or advances expenses to a director under this Article VII in connection with a
proceeding by or in the right of the Corporation, the Corporation shall give
written notice of the indemnification or advance to the shareholders with or
before the notice of the next shareholders' meeting. If the next shareholder
- -------------------------------------------------------------------------------
C-9
<PAGE>
action is taken without a meeting at the instigation of the Board of Directors,
such notice shall be given to the shareholders at or before the time the first
shareholder signs a writing consenting to such action.
Section 7.11. Non-Exclusivity. The indemnification provided by this
---------------
Article VII shall not be deemed exclusive of any other rights to which any
person indemnified may be entitled under the Articles of Incorporation, any
agreement, insurance policy, vote of the shareholders or disinterested
directors, or otherwise, and any procedure provided for by any of the foregoing,
both as to action in his or her official capacity and as to action in another
capacity while holding such office. This Article VII does not limit the
Corporation's power to pay or reimburse expenses incurred by a director,
officer, employee, or agent in connection with the person's appearance as a
witness in a proceeding at a time when the person has not been made a named
defendant or respondent to the proceeding.
Section 7.12. Continuance. The indemnification and advancement of
-----------
expenses provided by, or granted pursuant to, this Article VII shall continue as
to a person who has ceased to be a director, officer or employee of the
corporation with regard to acts or omissions of such person occurring or alleged
to have occurred while the person was so engaged, and shall inure to the benefit
of heirs, executors, and administrators of such a person.
Section 7.13. Application of this Article. The provisions of this
---------------------------
Article VII shall apply to all actions, suits or proceedings described in
Section 7.2 arising or alleged to arise out of any acts or omissions on the part
of any person referred to in Section 7.2 or Section 7.7, occurring or alleged to
occur prior to the adoption of this Article VII or at any time while it remains
in force. By this Article VII, it is intended that the Corporation provide the
maximum indemnification allowed by law to directors, officers and employees of
the Corporation. If any portion of this Article VII is invalid under any
applicable statute or rule of law, it shall not affect the remainder of this
Article VII, which shall remain valid and binding.
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, except as noted
otherwise, is that of Security Life of Denver, Security Life
Center, 1290 Broadway, Attn: Variable, Denver, Colorado 80203-
5699.
Name and Principal Position and Offices
Business and Address with Underwriter
- -------------------- ----------------
Carol D. Hard Director and President
Anna M. Kautzman Director and Chief Legal Officer
Daniel B. Lazarus Director
5780 Powers Ferry Road
Atlanta, Georgia 30327
Melodie A. Maxwell-Jones Director and Chief Compliance Officer
Debra Bell Chief Financial Officer and Financial Operations
Officer
Edward K. Campbell Vice President
Shari A. Enger Treasurer
- -------------------------------------------------------------------------------
C-10
<PAGE>
Martha K. Evans Vice President
Jerrianne Smith Chief Operating Officer
Gary W. Waggoner Secretary
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
------------
(a) Security Life of Denver Insurance Company represents that the
fees and charges deducted under the Policy, in the aggregate, are
reasonable in relation to the services rendered, the expenses
expected to be incurred and the risks assumed by the Company.
(b) Registrant undertakes that it will file a post-effective
amendment to this registration statement as frequently as
necessary to ensure that the audited financial statements in the
registration statement are never more than 16 months old for so
long as payments under the variable annuity contracts may be
accepted.
(c) Registrant undertakes that it will include either (1) as part of
any application to purchase a Certificate offered by the
Prospectus, a space that an applicant may check to request a
Statement of Additional Information, or (2) a post card or
similar written communication affixed to or included in the
Prospectus that the applicant can remove to send for a Statement
of Additional Information.
(d) Registrant undertakes to deliver any Prospectus and Statement of
Additional Information and any financial statements required to
be made available under this Form promptly upon written or oral
request to the Company at the address or phone number listed in
the Prospectus.
- -------------------------------------------------------------------------------
C-11
<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. 6 to the Registration Statement to be signed on its
behalf by the undersigned, hereunto 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 27th day of April, 1998.
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. 6 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 OFFICER:
/s/: Fred S. Hubbell
- ----------------------------
Fred S. Hubbell
Chief Executive Officer
PRINCIPAL FINANCIAL OFFICER
/s/: Stephen J. Yarina
- ----------------------------
Stephen J. Yarina
Vice President, Treasurer and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Stephen J. Yarina
- ----------------------------
Stephen J. Yarina
Vice President, Treasurer and Chief Financial Officer
- -------------------------------------------------------------------------------
C-12
<PAGE>
DIRECTORS:
/s/: Fred S. Hubbell
- ----------------------------
Fred S. Hubbell
/s/: Michael W. Cunningham
- ----------------------------
Michael W. Cunningham
/s/: Linda B. Emory
- ----------------------------
Linda B. Emory
/s/: Stephen M. Christopher
- ----------------------------
Stephen M. Christopher
- -------------------------------------------------------------------------------
C-13
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
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.
2. Not Applicable.
3. (a) Security Life of Denver Distribution Agreement.
(b) Specimen Broker/Dealer Supervisory and Selling Agreement for
Variable Contracts.
(c) Marketing Services Agreement. /1/
4. (a) Specimen Variable Annuity Contract (Form No. 1198(VA)). /2/
(b) Specimen Election and Supplementary Agreement for a
Settlement Option.
5. (a) Exchequer Annuity Application (Form No. Q-1154 1/98). /2/
6. (a) Restated Articles of Incorporation of Security Life of
Denver Insurance Company dated May 31, 1995.
(b)(i) By-Laws of Security Life of Denver Insurance Company, with
Amendments through February 14, 1995.
(ii) By-Laws of Security Life of Denver Insurance Company
(Restated with Amendments through September 30, 1997). /2/
7. Not Applicable.
8. (a) Form of Amendment to the Participation Agreement.
Amendments to the Participation Agreements.
(b)(i) Amendment to Fund Participation Agreement between Security
Life of Denver, Van Eck Investment Trust and Van Eck
Associates Corporation.
(ii) Second Amendment to Fund Participation Agreement between
Security Life of Denver, Van Eck Investment Trust and Van
Eck Associates Corporation. /2/
(iii) First Amendment to Participation Agreement by and among The
Alger American Fund, Fred Alger Management, Inc., Security
Life of Denver Insurance Company.
(iv) First Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company.
(v) Second Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company.
(vi) First Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver Insurance Company.
(vii) Second Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver Insurance Company.
(viii)First Amendment to Participation Agreement among Security
Life of Denver Insurance Company, INVESCO Variable Funds,
Inc. and INVESCO Funds Group, Inc.
(ix) Assignment and Modification Agreement between Neuberger &
Berman Advisers Management Trust, Neuberger & Berman
Management Incorporated, Neuberger & Berman Advisers
Management Trust, Advisers Managers Trust and Security Life
of Denver Insurance Company.
(c) Service Agreement.
Participation Agreements.
(d)(i) Participation Agreement by and among AIM Variable Insurance
Funds, Inc., Security Life of Denver on Behalf of Itself and
its Separate Accounts and ING America Equities, Inc.
- -------------------------------------------------------------------------------
C-14
<PAGE>
(ii) Sales Agreement by and among The Alger American Fund, Fred
Alger Management, Inc., and Security Life of Denver
Insurance Company.
(iii) Sales Agreement by and among Neuberger & Berman Advisers
Management Trust, Neuberger & Berman Management
Incorporated, and Security Life of Denver Insurance Company.
(iv) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Security Life of
Denver Insurance Company.
(v) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Security Life
of Denver Insurance Company.
(vi) Participation Agreement among INVESCO Variable Investment
Funds, Inc., INVESCO Funds Group, Inc., and Security Life
of Denver Insurance Company.
(vii) Participation Agreement between Van Eck Investment Trust and
the Trust's investment adviser, Van Eck Associates
Corporation, and Security Life of Denver Insurance Company.
(e) Administrative Services Agreement between Security Life of
Denver Insurance Company and Financial Administrative
Services Corporation.
(f) Amendment to Administrative Services Agreement between
Security Life of Denver Insurance Company and Financial
Administrative Services Corporation
9. (a) Opinion and Consent of Eugene L. Copeland as to the legality
of the securities being registered.
(b) Opinion and Consent of Gary W. Waggoner as to the legality
of the securities being registered.
10. (a) Consent of Ernst & Young, L.L.P.
(b) Consent of Mayer, Brown & Platt.
11. None.
12. None.
13. Schedule for Computation of Performance Quotations.
14. None.
15. List of Affiliated Companies of Security Life of Denver Insurance
Company./2/
- -----------------------------
1 Incorporated by reference to the Post-Effective Amendment No. 4 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
April 30, 1997 (File No. 33-78444).
2 Incorporated by reference to the Post-Effective Amendment No. 5 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 18, 1997 (File No. 33-78444).
- --------------------------------------------------------------------------------
C-15
<PAGE>
EXHIBIT 1.
RESOLUTION: AUTHORIZATION AND ESTABLISHMENT OF SECURITY LIFE SEPARATE ACCOUNT
-----------------------------------------------------------------
A1
--
BE IT RESOLVED, That the Executive Committee of the Board of Directors of
Security Life of Denver Insurance Company ("Company"), pursuant to the
provisions of C.R.S. Section 10-7-402 of the Colorado Insurance Laws, hereby
authorizes and directs the establishment of Security Life Separate Account A1
("Separate Account A1") for the following use and purposes, and subject to such
conditions as hereinafter set forth:
FURTHER RESOLVED, That Separate Account A1 is established for the purpose of
providing a funding medium to support reserves under flexible premium deferred
variable annuity contracts, or other annuity contracts as may be issued by the
Company and as the President, any Senior Vice President, any Vice President, or
the Treasurer (such persons hereinafter referred to as the "Officers") may
designate for such purpose ("Contracts"), and shall constitute a separate
account into which are allocated amounts paid to or held by the Company under
such contracts.
FURTHER RESOLVED, That the income, gains and losses, realized or unrealized from
assets allocated to Separate Account A1 shall, in accordance with the Contracts,
be credited to or charged against such account without regard to other income,
gains, or losses of the Company; and
FURTHER RESOLVED, That the fundamental investment policy of Separate Account A1
shall be to invest or reinvest the assets of the Separate Account A1 in
securities issued by investment companies registered under the Investment
Company Act of 1940, as amended, as the Officers may designate pursuant to the
provisions of the Contracts; and
FURTHER RESOLVED, That Separate Account A1 shall be divided into Investment
Subdivisions, each Investment Subdivision in Separate Account A1 shall invest in
the shares of a designated mutual fund portfolio, and net premiums under the
Contracts shall be allocated to the eligible Portfolios set forth in the
Contracts in accordance with instructions received from owners of the Contracts;
and
FURTHER RESOLVED, That the Executive Committee of the Board of Directors
expressly reserves the right to add or remove any Investment Subdivision of
Separate Account A1 as it may hereafter deem necessary or appropriate; and
FURTHER RESOLVED, That the President, any Senior Vice President, or the
Treasurer, and each of them, with full power to act without the others, be, and
they hereby are, severally authorized to invest such amount or amounts of the
Company's cash in Separate Account A1 or in any Investment Subdivision thereof
as may be deemed necessary or appropriate to facilitate the commencement of
Separate Account A1's operations and/or to meet any minimum capital requirements
under the Investment Company Act of 1940; and
1
<PAGE>
FURTHER RESOLVED, That the Officers, and each of them, with full power to act
without the others, be, and they hereby are, severally authorized to transfer
cash from time to time between the Company's general account and Separate
Account A1 as deemed necessary or appropriate and consistent with the terms of
the Contracts; and
FURTHER RESOLVED, That the Officers, and each of them, with full power to act
without the others, with such assistance from the Company's independent
certified public accountants, legal counsel and independent consultants or
others as they may require, be, and they hereby are, severally authorized and
directed to take all action necessary to: (a) Register Separate Account A1 as a
unit investment trust under the Investment Company Act of 1940, as amended; (b)
Register interests in the Contracts in such amounts, which may be an indefinite
amount, as the Officers of the Company shall from time to time deem appropriate
under the Securities Act of 1933; (c) Take all other actions which are
necessary in connection with the offering of said Contracts for sale and the
operation of Separate Account A1 in order to comply with the Investment Company
Act of 1940, the Securities Exchange Act of 1934, the Securities Act of 1933,
and other applicable federal laws, including the filing of any registration
statements and amendments thereto, any undertakings, and any applications for
exemptions, including any amendments thereto, from the Investment Company Act of
1940 or other applicable federal laws as the officers of the Company shall deem
necessary or appropriate; and
FURTHER RESOLVED, That the Officers, and each of them, with full power to act
without the other, hereby are severally authorized and empowered to prepare,
execute and cause to be filed with the Securities and Exchange Commission on
behalf of Separate Account A1, and by the Company as sponsor and depositor a
Form of Notification of Registration Statement under the Securities Act of 1933
registering the Contracts, and any and all amendments to the foregoing on behalf
of Separate Account A1 and the Company and on behalf of and as attorneys-in-fact
for the principal executive officer and/or the principal financial officer
and/or the principal accounting officer and/or any other officer of the Company;
and
FURTHER RESOLVED, That Stephan M. Largent, Vice President, Variable Life and
Product Research and Development, is duly appointed as agent for service of
process for the Company to receive communications and notices from the
Securities and Exchange Commission; and
FURTHER RESOLVED, That the Officers, and each of them, with full power to act
without the others, hereby is severally authorized on behalf of Separate Account
A1 and on behalf of the Company to take any and all action that each of them may
deem necessary or advisable in order to offer and sell the Contracts, including
any registrations, filings and qualifications both of the Company, its officers,
agents and employees, and of the policies, under the insurance and securities
laws of any of the states of the United States of America or other
jurisdictions, and in connection therewith to prepare, execute, deliver and file
all such applications, reports, covenants, resolutions, applications for
exemptions, consents to service of process and other papers and instruments as
may be required under such laws, and to take any and all further action which
the Officers or legal counsel of the Company may deem necessary or desirable
(including entering into whatever agreements and contracts may be necessary) in
order to maintain such registrations or qualifications for as long as the
Officers or legal counsel deem it to be in the best interests of Separate
Account A1 and the Company; and
2
<PAGE>
FURTHER RESOLVED, That the Officers, and each of them, with full power to act
without the others, be and they hereby are, severally authorized in the names
and on behalf of Separate Account A1 and the Company to execute and file
irrevocable written consents on the part of Separate Account A1 and of the
Company to be used in such states wherein such consents to service of process
may be requisite under the insurance or securities laws therein in connection
with said registration or qualification of the Contracts and to appoint the
appropriate state official, or such other person as may be allowed by said
insurance or securities laws, agent of Separate Account A1 and of the Company
for the purpose of receiving and accepting process; and
FURTHER RESOLVED, That the Officers, and each of them, with full power to act
without the others, be, and hereby are, severally authorized to establish
procedures under which the Company will institute procedures for providing a
pass-through of voting rights for owners of the Contracts as required by
applicable laws with respect to the shares of any investment companies which are
held in Separate Account A1; and
FURTHER RESOLVED, That the Officers, and each of them, with full power to act
without the others, are hereby severally authorized to execute such agreement or
agreements as deemed necessary and appropriate (i) with SLD Equities, Inc. ("SLD
Equities") or other qualified entity under which SLD Equities or such other
entity will be appointed principal underwriter and distributor for the Contracts
and (ii) with one or more qualified banks or other qualified entities to provide
administrative and/or custodial services in connection with the establishment
and maintenance of Separate Account A1 and the design, issuance, and
administration of the Contracts; and
FURTHER RESOLVED, That the Officers, and each of them, with full power to act
without the others, are hereby severally authorized to execute and deliver such
agreements and other documents and do such acts and things as each of them may
deem necessary or desirable to carry out the foregoing resolutions and the
intent and purposes thereof; and
*********************************
The undersigned hereby certifies that she is the Assistant Secretary of Security
Life of Denver Insurance Company, a corporation organized and existing under the
laws of the State of Colorado; that the foregoing is a true and correct copy of
a resolution duly adopted by the Executive Committee of the Board of Directors
on November 3, 1993; that passage of this resolution is in all respects legal
and that this resolution remains in full force and effect as of this 31st day of
December 1997.
/s/ Eric Banta
Assistant Secretary
3
<PAGE>
EXHIBIT A
---------
Resolution of the Executive Committee of the Board of Directors of
SECURITY LIFE OF DENVER INSURANCE COMPANY
Authorizing the Filing of this Application
BE IT RESOLVED, That the Executive Committee of the Board of Directors of
Security Life of Denver Insurance Company ("Company"), pursuant to the
provisions of C.R.S. Section 10-7-402 of the Colorado Insurance Laws,
hereby authorizes and directs the establishment of Security Life Separate
Account L1 ("Separate Account L1") for the following use and purposes, and
subject to such conditions as hereinafter set forth:
* * * *
FURTHER RESOLVED, That the Officers, and each of them, with full power to
act without the others, with such assistance from the Company's independent
certified public accountants, legal counsel and independent consultants or
others as they may require, be, and they hereby are, severally authorized
and directed to take all action necessary to: (a) Register Separate
Account L1 as a unit investment trust under the Investment Company Act of
1940, as amended; (b) Register interests in the Contracts in such amounts,
which may be an indefinite amount, as the Officers of the Company shall
from time to time deem appropriate under the Securities Act of 1933; (c)
Take all other actions which are necessary in connection with the offering
of said Contracts for sale and the operation of Separate Account L1 in
order to comply with the Investment Company Act of 1940, the Securities
Exchange Act of 1934, the Securities Act of 1933, and other applicable
federal laws, including the filing of any registration statements and
amendments thereto, any undertakings, and any applications for exemptions,
including any amendments thereto, from the Investment Company Act of 1940
or other applicable federal laws as the officers of the Company shall deem
necessary or appropriate and . . . .
The undersigned hereby certifies that the resolution set out above is a
true and correct copy of an excerpt of resolutions duly adopted on November 3,
1993, by the Executive Committee of the Board of Directors of Security Life of
Denver Insurance Company; that said resolutions have not been amended, annulled,
rescinded, or revoked; and that the same is still in full force and effect.
IN WITNESS WHEREOF, I have hereunto affixed my signature and the Seal of
said Company this 31st day of December, 1997.
/s/ Eric Banta
--------------------------------
Eric Banta
Assistant Secretary
4
<PAGE>
EXHIBIT 3(a)
SECURITY LIFE OF DENVER INSURANCE COMPANY
DISTRIBUTION AGREEMENT
AGREEMENT made this 22nd day of September 1994, by and between Security
Life of Denver Insurance Company, a Colorado domestic insurance company
("Security Life") on its own behalf and on behalf of Security Life Separate
Account Al ("Separate Account Al") and Security Life Separate Account L1
("Separate Account L1" and both collectively referred to as "Separate
Accounts"), and SLD Equities, Inc., a Colorado corporation, ("SLD Equities")
WHEREAS, Security Life has established and maintains Separate account Al
and Separate Account L1, which are separate investment accounts, for the purpose
of selling variable annuity contracts and variable life contracts ("Contracts")
to commence after the effectiveness of the Registration Statements relating
thereto filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended (the "1933 Act"), through SLD Equities,
acting as general agent of Security Life;
WHEREAS, the Separate Accounts are registered as unit investment trusts
under the Investment Company Act of 1940 ("the 1940 Act");
WHEREAS, SLD Equities is registered as a broker-dealer under the Securities
Exchange Act of 1934 (the "Securities Exchange Act") and is a member of the
National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, Security Life desires to retain SLD Equities as the Distributor
and Principal Underwriter to provide for the sale and distribution to the public
of the Contracts issued by Security Life and funded by interests in the General
Account of Security Life and in Separate Account Al or Separate Account L1, and
SLD Equities is willing to render such services:
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
1. Principal Underwriter. Security Life hereby appoints SLD Equities,
during the term of this Agreement, subject to the registration requirements of
the 1933 Act and the 1940 Act and the provisions of the Securities Exchange Act,
to be the Distributor and Principal Underwriter for the sale of Contracts to the
public in each state and other jurisdictions in which the Contracts may be
lawfully sold. Security Life also appoints SLD Equities as its independent
General Agent for sale of its Contracts (including any riders which Security
Life may make available in connection therewith or any contracts for which the
Contracts may be exchanged or converted) and for sale of such other insurance
contracts or annuity contracts as Security Life may, from time to time,
authorize in writing by amendment thereto. SLD Equities shall offer the
Contracts for sale and distribution at premium rates set by Security Life.
<PAGE>
2. Selling Agreements. SLD Equities is hereby authorized to enter into
separate written agreements, on such terms and conditions as SLD Equities
determines are not inconsistent with this Agreement, with such organizations
which agree to participate as a general agent and/or broker-dealer in the
distribution of the Contracts and to use their best efforts to solicit
applications for Contracts. Any such broker-dealer (hereinafter "Broker") shall
be both registered as a broker-dealer under the Securities Exchange Act and a
member of the NASD. SLD Equities shall be responsible for ensuring that Broker
and its agents or representatives and general agent and its sub-agents
soliciting applications for Contracts shall be duly and appropriately licensed,
registered and otherwise qualified for the sale of the Contracts (and the riders
and other contracts offered in connection therewith) under the insurance laws
and any applicable blue sky laws of each state or other jurisdiction in which
such policies may be lawfully sold and in which Security Life is licensed to
sell such Contracts. Security Life shall undertake to appoint Broker's qualified
agents or representatives and general agent's sub-agents as life insurance
agents of Security Life, provided that Security Life reserves the right to
refuse to appoint any proposed representative, agent, or sub-agent, or once
appointed, to terminate such appointment. SLD Equities shall be responsible for
ensuring that Broker and general agent supervise its agents, representatives, or
sub-agents.
SLD Equities is also authorized to enter into separate written agreements,
on such terms and conditions as SLD Equities determines are not inconsistent
with this Agreement, with such organizations ("wholesalers") that agree to
participate in the distribution of the Contracts and to use their best efforts
to solicit Brokers and general agents that, in turn, will solicit applications
of the Contracts.
3. Life Insurance Agents. Security Life shall be responsible for ensuring
that Broker and its agents or representatives and general agent and its sub-
agents meet all qualifications and hold any Licenses or authorizations that may
be required for the solicitation or sale of the Contracts under the insurance
laws of the applicable jurisdictions.
4. Suitability. Security Life desires to ensure that Contracts will be
sold to purchasers for whom the Contract will be suitable. SLD Equities shall
take reasonable steps to ensure that the various representatives of Broker and
sub-agents of general agents shall not make recommendations to an applicant to
purchase a contract in the absence of reasonable grounds to believe the purchase
of the Contract is suitable for such applicant. While not limited to the
following, a determination of suitability shall be based on information
furnished to a representative or sub-agent after reasonable inquiry of such
applicant concerning the applicant's other security holdings, insurance and
investment objectives, financial situation and needs, and the likelihood that
the applicant will continue to make any premium payments contemplated by the
Contracts and will keep the Policy in force for a sufficient period of time so
that Security Life's acquisition costs are amortized over a reasonable period of
time.
2
<PAGE>
5. Conformity With Registration Statement and Approved Sales Materials. In
performing its duties as Distributor, SLD Equities will act in conformity with
the Prospectus and with the instructions and directions of Security Life, the
requirements of the 1933 Act, the 1940 Act, the Securities Exchange Act, and all
other applicable federal and state laws and regulations. SLD Equities shall not
give any information nor make any representations, concerning any aspect of the
Contract or of Security Life's operations to any persons or entity unless such
information or representations are contained in the Registration Statement and
the pertinent prospectus filed with the Securities and Exchange Commission, or
are contained in sales or promotional literature approved by Security Life. SLD
Equities will not use and will take reasonable steps to ensure Broker will not
use any sales promotion material and advertising which has not been previously
approved by Security Life.
6. Expenses. During the term of this Agreement, SLD Equities will bear all
of its expenses in complying with this Agreement, including the following
expenses:
(a) costs of sales presentations, mailings, sales promotion
materials, advertising, and any other marketing efforts by
SLD Equities in connection with the distribution or sale of
the Contracts; and
(b) any compensation paid to employees of SLD Equities and to
wholesalers, Brokers and general agents in connection with
the distribution or sale of the Contracts.
Notwithstanding any other provision of this Agreement, it is understood and
agreed that Security Life shall at all times retain the ultimate responsibility
for and control of all functions performed pursuant to this Agreement, and for
marketing the Contract, and reserves the right to direct, approve or disapprove
any action hereunder taken on its behalf by SLD Equities.
7. Applications. Completed applications for Contracts solicited by such
Broker through its agents or representatives or by general agent through its
sub-agents shall be transmitted directly to Security Life. All payments under
the Contracts shall be made by check to Security Life, or by other method
acceptable to Security Life, and if received by SLD Equities, shall be held at
all times in a fiduciary capacity and remitted promptly to Security Life. All
such payments will be the property of Security Life. Security Life has the sole
authority to approve or reject such applications or payments and maintains
ultimate responsibility for underwriting. Anything in this Agreement to the
contrary notwithstanding, Security Life retains the ultimate right to control
the sale of the Contracts and to appoint and discharge life insurance agents of
Security Life.
8. Standard of Care. SLD Equities shall be responsible for exercising
reasonable care in carrying out the provisions of this Agreement.
3
<PAGE>
9. Reports. SLD Equities shall be responsible for maintaining the records
of Broker and general agent and their agents, representatives or sub-agents who
are licensed, registered and otherwise qualified to sell the Contracts;
calculating and furnishing the fees payable to Brokers or general agents; and
for furnishing periodic reports to Security Life as to the sale of Contracts
made pursuant to this Agreement.
10. Records. SLD Equities shall maintain and preserve such records as are
required of it by applicable laws and regulations. The books, accounts and
records of Security Life, the Separate Accounts and SLD Equities shall be
maintained so as to clearly and accurately disclose the nature and details of
the transactions, including such accounting information as necessary to support
the reasonableness of the amounts to be paid by Security Life hereunder.
11. Compensation. For the service rendered and product development in the
initial sales efforts and continuing obligations under this Agreement, Security
Life shall pay SLD Equities in the amounts set forth in Schedule A, which
schedule is incorporated herein. Security Life shall arrange for the payment of
commissions, through SLD Equities to those Brokers and general agents that sell
Contracts under agreements entered into pursuant to Section 2, hereof, and to
wholesalers that solicit brokers and general agents to sell Contracts under
agreements entered into pursuant to Section 2, hereof, in amounts as may be
agreed to by Security Life and SLD Equities specified in such written
agreements.
12. Investigation and Proceedings. SLD Equities and Security Life agree to
cooperate fully in any insurance regulatory investigation or proceeding or
judicial proceeding arising in connection with the Contracts distributed under
this Agreement. SLD Equities further agrees to furnish regulatory authorities
with any information or reports in connection with such services which may be
requested in order to ascertain whether the operations of Security Life and the
Separate Account are being conducted in a manner consistent with applicable laws
and regulations. SLD Equities and Security Life further agree to cooperate fully
in any securities regulatory investigation or proceeding with respect to
Security Life, SLD Equities, their affiliates and their agents or
representatives to the extent that such investigation or proceeding is in
connection with Contracts distributed under this Agreement. Without limiting the
foregoing:
(a) SLD Equities will be notified promptly of any customer
complaint or notice of any regulatory investigation or
proceeding or judicial proceeding received by Security Life
with respect to SLD Equities or any agent, representative, or
sub-agent of a Broker or general agent or which may affect
Security Life's issuance of any Contract sold under this
Agreement; and
(b) SLD Equities will promptly notify Security Life of any customer
complaint or notice of any regulatory investigation or
proceeding received by SLD Equities or its affiliates with
respect to Security Life or any agent, representative, or sub-
agent of a Broker or general agent in connection
4
<PAGE>
with any Contract distributed under this Agreement or any
activity in connection with any such Contract.
In the case of a meritorious customer complaint, SLD Equities and Security Life
will cooperate in investigating such complaint and any response will be sent to
the other party to this Agreement for approval not less than five business days
prior to its being sent to the customer or regulatory authority, except that if
a more prompt response is required, the proposed response shall be communicated
by telephone or telegraph.
13. Indemnification. Security Life hereby agrees to indemnify and hold
harmless SLD Equities and its officers and directors, and employees for any
expenses (including legal expenses), losses, claims, damages, or liabilities
incurred by reason of any untrue or alleged untrue statement or representation
of a material fact or any omission or alleged omission to state a material fact
required to be stated to make other statements not misleading, if made in
reliance on any prospectus, registration statement, post-effective amendment
thereof, or sales materials supplied or approved by Security Life or the
Separate Accounts. Security Life shall reimburse each such person for any legal
or other expenses reasonably incurred in connection with investigating or
defending any such loss, liability, damage, or claim. However, in no case shall
Security Life be required to indemnify for any expenses, losses, claims,
damages, or liabilities which have resulted from the willful misfeasance, bad
faith, negligence, misconduct, or wrongful act of SLD Equities.
SLD Equities hereby agrees to indemnify and hold harmless Security Life,
its officers, directors, and employees, and the Separate Accounts for any
expenses, losses, claims, damages, or liabilities arising out of or based upon
any of the following in connection with the offer or sale of the contracts: 1)
except for such statements made in reliance on any prospectus, registration
statement or sales material supplied or approved by Security Life or the
Separate Accounts, any untrue or alleged untrue statement or representation
made; 2) any failure to deliver a currently effective prospectus; 3) the use of
any unauthorized sales literature by any officer, employee, agent, or sub-agent
of SLD Equities, Broker or general agent; or 4) any willful misfeasance, bad
faith, negligence, misconduct or wrongful act. SLD Equities shall reimburse each
such person for any legal or other expenses reasonably incurred in connection
with investigating or defending any such loss, liability, damage, or claim.
Promptly after receipt by a party entitled to indemnification ("indemnified
party") of notice of the commencement of any action, if a claim for
indemnification in respect thereof is to be made against Security Life or SLD
Equities ("indemnifying party") such indemnified party will notify indemnifying
party in writing of the commencement thereof, but failure to notify the
indemnifying party of any claim shall not relieve it from any liability which it
may have to the person against whom such action is brought otherwise than on
account of this agreement contained in this Section 13. The indemnifying party
will be entitled to participate in the defense of the indemnified party and such
participation will not relieve such indemnifying party of the obligation to
reimburse the indemnified party, for reasonable legal and other expenses
incurred by such indemnified party in defending himself.
5
<PAGE>
14. Agent of Security Life or Separate Accounts. Any person, even though
also an officer, director, employee, or agent of SLD Equities, who may be or
become an officer, director, employee, or agent of Security Life or the Separate
Accounts shall be deemed, when rendering services to Security Life or the
Separate Accounts or acting in any business of Security Life or the Separate
Accounts, to be rendering such services to or acting solely for Security Life or
the Separate Accounts and not as an officer, director, employee, or agent or one
under the control or direction of SLD Equities even though paid by SLD Equities.
Likewise, any person, even though also an officer, director, employee, or agent
of Security Life or the Separate Accounts, who may be or become an officer,
director, employee, or agent of SLD Equities shall be deemed, when rendering
services to SLD Equities or acting in any business of SLD Equities to be
rendering such services to or acting solely for SLD Equities and not as an
officer, director, employee, or agent or one under the control or direction of
Security Life or the Separate Accounts even though paid by Security Life or the
Separate Accounts.
15. Books and Records. It is expressly understood and agreed that all
documents, reports, records, books, files and other materials relating to this
Agreement and the services to be performed hereunder shall be the sole property
of Security Life and the Separate Accounts and that such property shall be held
by SLD Equities as agent, during the effective term of this Agreement. This
material shall be delivered to Security Life upon the termination of this
Agreement free from any claim or retention of rights by SLD Equities. During the
term of this Agreement and for a period of three years from the date of
termination of this Agreement, SLD Equities will not disclose or use any records
or information and will regard and preserve as confidential all information
related to the business of Security Life or the Separate Accounts that may be
obtained by SLD Equities from any source as a result of this Agreement and will
disclose such information only if Security Life or the Separate Accounts have
authorized such disclosure, or if such disclosure is expressly required by
applicable federal or state regulatory authorities. SLD Equities further
acknowledges and agrees that, in the event of a breach or threatened breach by
it of the provisions of this article, Security Life will have no adequate remedy
in moneys or damages and, accordingly, Security Life shall be entitled in its
discretion to seek an injunction against such breach. However, no specification
in this Agreement of a specific legal or equitable remedy shall be construed as
a waiver or prohibition against any other legal or equitable remedy in the event
of a breach of a provision of this Agreement.
16. Employees. SLD Equities will not employ, except with the prior written
approval of the Commissioner of Insurance of the state of Colorado, in any
material connection with the handling of the Separate Accounts' assets any
person who, to the knowledge of SLD Equities:
(a) in the last 10 years has been convicted of any felony or
misdemeanor arising out of conduct involving embezzlement,
fraudulent conversion, or misappropriation of funds or
securities, or involving violations of Sections 1341, 1342, or
1343 of Title 18, United States Code; or
6
<PAGE>
(b) within the last 10 years has been found by any state regulatory
authority to have violated or has acknowledged violation of any
provision of any state insurance law involving fraud, deceit,
or knowing misrepresentation or
(c) within the last 10 years has been found by any federal or state
regulatory authorities to have violated or have acknowledged
violation of any provision of federal or state securities laws
involving fraud, deceit, or knowing misrepresentation.
17. Termination. This Agreement shall terminate automatically upon its
assignment without the prior written consent of both parties. This Agreement may
be terminated at any time, for any reason, by either party on 60 days' written
notice to the other party, without the payment of any penalty. Upon termination
of this Agreement, all authorizations, rights and obligations shall cease except
the obligation to settle accounts hereunder, including commissions on premiums
subsequently received for Contracts in effect at time of termination, and the
agreements contained in Sections 12 and 13 hereof.
18. Regulation. This Agreement shall be subject to the provisions of the
1940 Act and the Securities Exchange Act and the rules, regulations and rulings
thereunder, and of the applicable rules and regulations of the NASD, and
applicable state insurance law and other applicable law, from time to time in
effect, and the terms hereof shall be interpreted and construed in accordance
therewith.
19. Independent Contractor. SLD Equities shall act as an independent
contractor and nothing herein contained shall constitute SLD Equities or its
agents, officers or employees as agents, officers, or employees of Security Life
in connection with the sale of the Contacts.
20. Notices. Notices of any kind to be given to SLD Equities by Security
Life or the Separate Accounts shall be in writing and shall be duly given if
mailed, first class postage prepaid, or delivered to SLD Equities at 1290
Broadway, Denver, Colorado 80203, or at such other address or to such individual
as shall be specified by SLD Equities. Notices of any kind to be given to
Security Life or the Separate Accounts shall be in writing and shall be duly
given if mailed, first class postage prepaid, or delivered to them at 1290
Broadway, Denver, Colorado 80203, or at such other address or to such individual
as shall be specified by Security Life.
If any provisions of this Agreement shall be held or made invalid by a
court decision, statute rule or otherwise, the remainder of this Agreement shall
not be affected thereby.
21. Governing Law. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of Colorado.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
SECURITY LIFE OF DENVER INSURANCE COMPANY
By: /s/ V. S. Benfell
PRESIDENT
ATTEST:
/s/ Eugene L. Copeland
SECRETARY
SLD EQUITIES, INC.
By: /s/ Steve Largent
PRESIDENT
WITNESS:
/s/ Bonnie C. Dailey
VICE PRESIDENT
8
<PAGE>
SCHEDULE "A"
COMPENSATION SCHEDULE
This Schedule "A" to the Distribution Agreement between Security Life of Denver
Insurance Company ("Security Life") and SLD Equities, Inc. ("SLD Equities"),
dated September 22, 1994, sets forth the compensation to be paid to SLD Equities
for its services as underwriter and distributor of the following products, as
follows:
1. EXCHEQUER ANNUITY
A Flexible Premium Deferred Combination Fixed & Variable Annuity Contract
Form 1192(VA)
Total Gross Dealer Concessions earned in the first year by Selling Broker-
Dealer pursuant to its Selling Agreement with Security Life and SLD Equities
(pursuant to the Selling Broker-Dealer's election, this will be either 5% or
6% of funds actually received and accepted by Security Life during the first
year of the contract), plus an additional 1% of funds actually received and
accepted by Security Life during the first year of the contract.
After the first year, all Trail Commissions calculated by Security Life to
be due and payable to the Selling Broker-Dealers under the Selling
Agreements.
2. FIRSTLINE
Variable Life Policy
Form 1191(VUL)
Total Gross Dealer Concessions earned by Selling Broker-Dealer pursuant to
its Selling Agreement with Security life and SLD Equities (this will be 95%
of all premium allocated to the first target, regardless of policy year),
plus 10% of all such target premium.
All Trail Commissions, including Renewal and Ultimate Commissions,
calculated by Security Life to be due and payable to the Selling Broker-
Dealers under the Selling Agreements.
All commissions shall be paid only on an earned basis, as calculated on the next
Commission cycle.
9
<PAGE>
EXHIBIT 3(b)
BROKER-DEALER SUPERVISORY AND SELLING AGREEMENT
FOR VARIABLE CONTRACTS
This Broker-Dealer Supervisory and Selling Agreement (the "Agreement") is made
this _____ day of _________________, 19___, by and among the "INSURER" (either
SECURITY LIFE OF DENVER INSURANCE COMPANY "SECURITY LIFE" or FIRST ING LIFE
INSURANCE COMPANY OF NEW YORK "FIRST ING", whichever is the issuer of the
Contracts), ING AMERICA EQUITIES, INC. ("ING AMERICA EQUITIES"), a broker-dealer
registered with the Securities and Exchange Commission ("SEC") under the
Securities Act of 1934 (the "1934 Act") and a member of the National Association
of Securities Dealers, Inc. ("NASD"),
_____________________________________________ ("SELLING BROKER-DEALER"), also a
broker-dealer registered with the SEC under the 1934 Act and a member of the
NASD, and any insurance AGENCY subsidiaries or affiliates ("AGENCY OR Agencies")
of SELLING BROKER-DEALER, as listed on the signature pages of this Agreement.
RECITALS
WHEREAS, the INSURER issues certain variable life insurance policies and
variable annuity contracts (the "Contracts") and offers for sale such Contracts
in accordance with federal securities laws and the applicable laws of those
states in which the Contracts have been qualified for sale; and
WHEREAS, the INSURER has authorized ING AMERICA EQUITIES, as principal
underwriter and distributor of the Contracts, to enter into agreements, subject
to the consent of the INSURER, with SELLING BROKER-DEALERS and the Agencies for
the distribution of the Contracts; and
WHEREAS, SELLING BROKER-DEALER and the Agencies wish to participate in the
distribution of the Contracts, which are deemed to be securities under the
Securities Act of 1933 (the "1933 Act"); and
WHEREAS, SELLING BROKER-DEALER has registered representatives
("Representatives") who are also licensed and appointed as life insurance agents
of the INSURER, who will solicit and sell the Contracts; and
WHEREAS, SELLING BROKER-DEALER proposes to undertake certain supervisory
and administrative obligations described below in connection with the
distribution of the Contracts.
AGREEMENTS
NOW THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
<PAGE>
1. RELATIONSHIP OF PARTIES. The INSURER is the Insurer and issuer of
-----------------------
Contracts covered by this Agreement. ING AMERICA EQUITIES is the principal
underwriter and distributor of the Contracts. SELLING BROKER-DEALER
represents that it is a registered broker-dealer under the 1934 Act and a
member of the NASD. The INSURER hereby appoints the Agencies under the
insurance laws and the INSURER and ING AMERICA EQUITIES authorize the
SELLING BROKER-DEALER under the securities laws to distribute the
Contracts. SELLING BROKER-DEALER agrees to supervise the Representatives
in connection with the distribution, solicitation and sale of the Contracts
and to perform other services as described below.
2. AUTHORITY AND DUTIES OF SELLING BROKER-DEALER. SELLING BROKER-DEALER
---------------------------------------------
agrees that it shall, at all times when performing its functions under this
Agreement, be registered as a securities broker-dealer with the SEC and
will maintain its membership with the NASD, and shall be licensed or
registered as a securities broker-dealer in the states that require such
licensing or registration in connection with supervision and other services
pertaining to Contract sales activities. SELLING BROKER-DEALER shall
distribute the Contracts and agrees that it shall have all the attendant
duties, responsibilities and liabilities associated with that function, for
compliance, supervision and servicing purposes. SELLING BROKER-DEALER
agrees to use its best efforts to find suitable purchasers for the
Contracts.
a) SELECTION AND SUPERVISION OF REPRESENTATIVES. SELLING BROKER-DEALER
--------------------------------------------
shall select and employ Representatives and shall have full
responsibility for the training, supervision and control of such
Representatives as contemplated by Section 15(b)(4)(E) of the 1934 Act
and applicable NASD Rules. Such Representatives shall be subject to
the control of SELLING BROKER-DEALER with respect to such persons'
securities-regulated activities in connection with the Contracts.
SELLING BROKER-DEALER shall cause such Representatives to be NASD
registered representatives and appropriately licensed with SELLING
BROKER-DEALER before such Representatives engage in the solicitation
of applications for the Contracts and shall cause such Representatives
to limit solicitation of applications for the Contracts to
jurisdictions where such Representatives are licensed and where the
INSURER has authorized solicitations of its Contracts. SELLING
BROKER-DEALER agrees that it will permit only its Representatives who
are appointed with the INSURER to solicit and sell the Contracts.
The INSURER and ING AMERICA EQUITIES shall not have any responsibility
for the supervision of any Representative or any other associated
person or affiliate of SELLING BROKER-DEALER. If the act or omission
of a Representative or any other associated person or affiliate of
SELLING BROKER-DEALER is the proximate cause of any claim, damage or
liability (including reasonable attorneys' fees) to the INSURER or ING
AMERICA EQUITIES, SELLING BROKER-DEALER shall be entirely responsible
and liable therefor.
2
<PAGE>
b) NOTICE OF REPRESENTATIVE'S NONCOMPLIANCE. In the event a
----------------------------------------
Representative fails or refuses to submit to supervision of SELLING
BROKER-DEALER, ceases to be a Representative of SELLING BROKER-DEALER,
or fails to meet the rules and standards imposed by SELLING BROKER-
DEALER on its Representatives, SELLING BROKER-DEALER shall certify
such fact to the INSURER in writing immediately, and shall immediately
notify such Representative that he or she is no longer authorized to
sell the Contracts.
c) COMPLIANCE WITH NASD RULES OF FAIR PRACTICE AND FEDERAL AND STATE
-----------------------------------------------------------------
SECURITIES LAWS. SELLING BROKER-DEALER shall fully comply with the
---------------
requirements of the 1934 Act and all other applicable federal or state
laws and with the rules of the NASD and shall establish such rules and
procedures as may be necessary to cause diligent supervision of the
securities activities of Representatives. SELLING BROKER-DEALER
agrees to maintain appropriate books, records and supervisory
procedures as are required by the SEC, NASD and other regulatory
Agencies having jurisdiction.
d) PURCHASER SUITABILITY. SELLING BROKER-DEALER shall be responsible for
---------------------
suitability and shall take reasonable steps to ensure that its
Representatives shall not make recommendations to applicants to
purchase Contracts in the absence of reasonable grounds to believe the
purchase of each Contract is suitable for the applicant. The
procedure shall include review of all proposals and applications for
Contracts for suitability and completeness and correctness as to form
as well as review and endorsement on an internal record of SELLING
BROKER-DEALER of the transactions. SELLING BROKER-DEALER shall
promptly forward to the INSURER'S Customer Service Center all
applications found suitable, together with any payments received with
the applications, without deduction or reduction. The INSURER
reserves the right to reject any Contract application and return any
payment made in connection with an application which is rejected.
Unless otherwise agreed, Contracts issued on applications accepted by
the INSURER shall be forwarded to the Representative of SELLING
BROKER-DEALER for delivery to the Contract owner.
3
<PAGE>
e) PROSPECTUS AND STATEMENT OF ADDITIONAL INFORMATION. ING AMERICA
--------------------------------------------------
EQUITIES shall provide SELLING BROKER-DEALER with prospectuses and any
supplements or amendments thereto, and the Statement of Additional
Information ("SAI") describing the Contracts subject to this
Agreement. The INSURER is responsible for maintaining in effect, in
accordance with the requirements of the SEC, each Registration
Statement of which the prospectus is part. The INSURER shall
immediately notify SELLING BROKER-DEALER of the issuance of any stop
order or any federal or state regulatory proceeding which would
prevent the sale of their respective Contracts in any state or
jurisdiction. SELLING BROKER-DEALER shall ensure compliance with the
prospectus delivery requirements of the 1933 Act. SELLING BROKER-
DEALER agrees to deliver a copy of the SAI concurrently with a copy of
the prospectus to all California Contract applicants and to Contract
applicants in other jurisdictions where such delivery may be required.
f) ADVERTISING AND SALES PROMOTION MATERIALS. SELLING BROKER-DEALER
-----------------------------------------
shall perform the selling functions required by this Agreement only in
accordance with the terms and conditions of the then current
prospectus applicable to the Contracts and shall make no
representations not included in the prospectus or in any authorized
supplemental material, including illustrations. SELLING BROKER-DEALER
warrants that only advertising and sales materials, including
illustrations, approved by the INSURER and ING AMERICA EQUITIES will
be used by its Representatives in the solicitation and sale of the
Contracts.
g) SECURING APPLICATION. Each application for a Contract shall be made
--------------------
on an application form provided by the INSURER and all payments
collected by SELLING BROKER-DEALER or any of its Representatives shall
be remitted promptly in full, together with such application form and
any other required documentation directly to the INSURER at the
address indicated on such application or to such other address as may
be designated by the INSURER. All such payments and documents shall
be the property of the INSURER. SELLING BROKER-DEALER shall review
all such applications for completeness and for compliance with the
conditions herein including the suitability and prospectus delivery
requirements set forth above under Sections 2(d) and (e). Check or
money order in payment of such Contracts should be made payable to the
order of SECURITY LIFE or First ING, whichever is the issuer of the
Contracts. All applications are subject to acceptance or rejection by
the Insurer in its sole discretion.
3. AUTHORITY AND DUTIES OF AGENCY.
------------------------------
a. RESPONSIBILITIES OF THE AGENCY.
------------------------------
(i) The AGENCY agrees to procure applications for the Insurer's
Contracts. Production must be through the SELLING BROKER-DEALER
4
<PAGE>
and subagents appointed by the AGENCY, who are duly appointed by
the Insurer.
(ii) The AGENCY warrants that it and all of its subagents appointed
pursuant to this Agreement shall not solicit nor aid, directly
or indirectly, in the solicitation of any application for any
Contract until they are fully licensed by the proper authorities
under the applicable insurance laws within the applicable
jurisdictions where the AGENCY and subagents propose to offer
the Contracts, where the Insurer is authorized to conduct
business and where the Contracts may be lawfully sold.
(iii) The AGENCY shall periodically provide the Insurer with a list
of all subagents appointed by the AGENCY and the jurisdictions
where such subagents are licensed to solicit sales of the
Contracts.
(iv) The AGENCY shall prepare and transmit the appropriate
appointment forms to the Insurer. The AGENCY shall pay all fees
to state insurance regulatory authorities, all initial
appointment and renewal fees in connection with obtaining
necessary licenses and authorizations for AGENCY and subagents
to solicit and sell the Contracts. The Insurer may refuse for
any reason to apply for the appointment of a subagent and may
cancel any existing appointment at any time.
(v) The AGENCY shall supervise all subagents appointed pursuant to
this Agreement to solicit sales of the Contracts and bear
responsibility for all acts and omissions of each subagent. The
AGENCY shall comply with and exercise all responsibilities
required by applicable federal and state law and regulations.
The AGENCY shall train and supervise its subagents to ensure
that purchase of a Contract is not recommended to an applicant
in the absence of reasonable grounds to believe the purchase of
the Contract is suitable for that applicant. While not limited
to the following, a determination of suitability shall be based
on information furnished to a subagent after reasonable inquiry
of such applicant concerning the applicant's insurance and
investment objectives, financial situation and needs, and the
likelihood that the applicant will continue to make any premium
payments contemplated by the Contracts and will keep the
Contract in force.
5
<PAGE>
(vi) The AGENCY and SELLING BROKER-DEALER hereby warrant and
represent that before a subagent is permitted to sell the
Contracts, the AGENCY, SELLING BROKER-DEALER and subagent shall
have entered into a written agreement pursuant to which: (i)
subagent is appointed a subagent of the AGENCY and a
Representative of SELLING BROKER-DEALER, (ii) subagent agrees
that his or her selling activities relating to the Contracts
shall be under the supervision and control of SELLING BROKER-
DEALER; and (iii) that subagent's right to continue to sell
such Contracts is subject to his or her continued compliance
with such agreement and any procedures, rules or regulations
implemented by SELLING BROKER-DEALER and the AGENCY.
(vii) The AGENCY agrees to treat money received or collected for the
Insurer as property held in trust, and to remit such money
promptly in full, together with the application form and any
other required documentation, to the Insurer's Customer Service
Center at the address shown on the application form for the
Contract. All such payment and documents shall be the property
of the Insurer.
(viii) The AGENCY agrees to adhere to the "cash with application"
requirements as set forth in the Insurer's rules and
regulations, a copy of which the AGENCY acknowledges it has
received. The AGENCY further agrees, when applicable, to
provide the proper form of interim coverage and inform the
applicant of the specific conditions of the coverage.
(ix) The AGENCY agrees to comply with the underwriting and issue
requirements of the Insurer and the applicable insurance laws
and regulations of the state or states in which the AGENCY
operates. Such laws and regulations include, but are not
limited to, those pertaining to client funds, privacy and
confidentiality, licensing, rebating, replacements,
solicitation and advertising.
(x) The AGENCY agrees to inform the Insurer of all material facts
of which the AGENCY is aware relating to insurance of insureds
or proposed insureds.
(xi) The AGENCY agrees to train and exercise general supervision
over subagents.
b. REJECTION OF SUBAGENT.
---------------------
The Insurer may refuse for any reason, by written notice to the
AGENCY, to permit any subagent the right to solicit applications for
the sale of any of
6
<PAGE>
the Contracts. Upon receipt of such notice, AGENCY immediately shall
cause such subagent to cease such solicitations of sales and cancel
the appointment of any subagent under this Agreement.
c. LIMITATION OF AUTHORITY.
-----------------------
(i) The AGENCY shall have no authority and agrees not to bind the
INSURER by any promise or agreement; incur any debt, expense, or
liability whatever in its name or account; or receive any money
due or to become due to the INSURER except first premiums on
applications or Contracts and except where the INSURER otherwise
agrees in writing.
(ii) The AGENCY shall have no authority and agrees not to deliver any
policy or allow any policy to be delivered until the first
premium has been paid in full. No delivery shall take place if,
after an inquiry, the AGENCY or subagent is aware that any
person proposed for insurance is not in the same condition of
health, habits, occupation and other facts as are represented in
the application.
(iii) The AGENCY shall have no authority and agrees not to make,
modify or discharge any Contract, or bind the INSURER by making
any promises respecting any Contract, except when authorized in
writing to do so by an authorized officer of the INSURER.
(iv) The AGENCY shall have no authority and agrees not to authorize
or allow a subagent to do any act prohibited under this
contract.
d. GENERAL PROVISIONS.
------------------
(i) The AGENCY may not assign the rights to procure applications or
be relieved of the obligations of the AGENCY under this
Agreement without the INSURER'S prior written consent.
(ii) The AGENCY shall be solely responsible for hiring any staff the
AGENCY may desire and for maintaining office space and meeting
necessary expenses without reimbursement from the INSURER.
(iii) The AGENCY and its subagents shall be free to exercise
independent judgment as to the time, place and means of
performing all acts under this Agreement, and the relationship
of the AGENCY and its subagents to the INSURER shall be that of
an independent contractor. Nothing in this Agreement shall be
construed to create the relationship of employer and employee
between the AGENCY (or any of its subagents) and the INSURER.
7
<PAGE>
(iv) The INSURER and the AGENCY recognize and respect each other's
interest in providing continuing service to those who purchase
Contracts. Each party agrees to provide the others relevant
information regarding the Contracts on a reasonable basis, as
done in the normal course of business.
(v) Failure of the AGENCY or the INSURER to insist upon strict
compliance with any of the conditions of this agreement shall
not be construed as a waiver of any such conditions.
(vi) No oral promises or representations shall be binding nor shall
this Agreement be modified except by agreement in writing,
executed on behalf of the INSURER and ING AMERICA EQUITIES by a
duly authorized officer of each of them.
(vii) This Agreement supersedes all previous contracts and agreements
between the AGENCY and the INSURER made for the procurement of
variable products; but it shall not affect any contract or
agreement between the AGENCY and the INSURER made for the
procurement of non-variable insurance products, or the economic
obligations of either party on existing policies which exist
under any such previous or continuing contracts or agreements.
(viii) The provisions under this Section shall survive any
termination of this Agreement.
(ix) The AGENCY hereby grants a limited Power of Attorney to the
SELLING BROKER-DEALER, to execute any amendments, modifications
or waivers with respect to this Agreement.
4. PROPERTY OF INSURER. All money payable in connection with any of the
-------------------
Contracts, whether as premium, purchase payment or otherwise and whether
paid by or on behalf of any contract owner or anyone else having an
interest in the Contracts, is the property of the INSURER and shall be
transmitted immediately in accordance with the administrative procedures of
the INSURER without any deduction or offset for any reason including, but
not limited to, any deduction or offset for compensation claimed by SELLING
BROKER-DEALER or the AGENCY.
5. COMPENSATION. While this Agreement is in force, ING AMERICA EQUITIES shall
------------
arrange for payment to SELLING BROKER-DEALER of compensation payable on
sales of the Contracts solicited in accordance with the compensation
schedules attached hereto, as in effect at the time the Contract premiums
or purchase payments (both referred to as "Premiums") are received by the
INSURER. Compensation to the AGENCY and the Representative for Contracts
solicited and sold by the
8
<PAGE>
Representative shall be governed by an agreement between SELLING BROKER-
DEALER and its Representative, and to the extent deemed necessary by the
SELLING BROKER-DEALER, by an agreement between the SELLING BROKER-DEALER
and the AGENCY.
Upon termination of this Agreement, all compensation to SELLING BROKER-
DEALER hereunder shall cease. However, SELLING BROKER-DEALER shall be
entitled to receive compensation for all new and additional premium
payments which are in process at the time of termination, and shall
continue to be liable for any charge-backs pursuant to the provisions of
Exhibit A or B and for any other amount advanced by or otherwise due the
INSURER or ING AMERICA EQUITIES.
SELLING BROKER-DEALER represents that no commissions or other compensation
based upon a percentage of premiums or based upon a percentage of assets or
other valuable consideration will be paid for services rendered in
soliciting the purchase of the Contracts by any person or entity which is
not duly licensed and registered by the required authority and appointed by
the INSURER to sell the Contracts in the state of such solicitation or
sale; provided, however, that this representation shall not prohibit the
payment of compensation to the surviving spouse or other beneficiary of a
person entitled to receive such compensation pursuant to a bona fide
written contract that calls for such payment. SELLING BROKER-DEALER agrees
that no compensation of any kind other than described in this Section 5 of
this Agreement is payable by the INSURER or ING AMERICA EQUITIES to SELLING
BROKER-DEALER.
The amount of compensation, if any, and its time of payment for replacements,
changes, conversions, exchanges, term renewals, term conversions, premiums paid
in advance, policies issued on a "guaranteed issue" basis, or other special
cases and programs, shall be governed by the INSURER'S underwriting and
administrative rules then in effect.
a. COMPENSATION FOR VARIABLE LIFE CONTRACTS. In the case of variable
----------------------------------------
life Contracts, SELLING BROKER-DEALER agrees that in the event a
Representative ceases to be an associated person of SELLING BROKER-
DEALER or ceases to be validly licensed or registered, SELLING BROKER-
DEALER shall not receive any compensation based on any Contract or on
premiums or purchase payments thereafter received by the INSURER from
such former Representative's customers. Provided however,
9
<PAGE>
(i) if the former Representative becomes registered and licensed
with another SELLING BROKER-DEALER which has a valid Selling
Agreement with the INSURER and ING AMERICA EQUITIES, the
Representative is appointed by the INSURER for the sale of
Contracts, and a Contract owner files a written request (change
of dealer authorization) with ING AMERICA EQUITIES that such
owner's Contracts be serviced through the Representative's new
SELLING BROKER-DEALER, then such Contracts may be transferred
by the INSURER to the Representative's new SELLING BROKER-
DEALER, the compensation not paid shall be payable to the new
SELLING BROKER-DEALER and the commission portion thereof shall
be passed on to the Representative;
(ii) if within 60 days after the former Representative's retirement,
disability or death, SELLING BROKER-DEALER notifies the INSURER
and ING AMERICA EQUITIES that a bona fide written contract
exists between the Representative and SELLING BROKER-DEALER
which calls for the payment of compensation to the retired
Representative, surviving spouse or other beneficiary, and
SELLING BROKER-DEALER agrees to continue to service each
affected account, then compensation shall continue to be paid
to the SELLING BROKER-DEALER as it would have been if the
Representative were still licensed with the SELLING BROKER-
DEALER; and
(iii) if within 180 days after the former Representative ceases to be
a Representative of SELLING BROKER-DEALER, if neither (i) nor
(ii) has occurred, and SELLING BROKER-DEALER designates another
Representative of SELLING BROKER-DEALER who is assigned by
SELLING BROKER-DEALER to service the former Representative's
business, and such assigned Representative is licensed with and
approved by the INSURER, then the compensation not paid shall
be payable to SELLING BROKER-DEALER and the commission portion
thereof shall be passed on to the assigned Representative who
is servicing the former Representative's customers. If an
assigned Representative is not designated within such 180 day
period, SELLING BROKER-DEALER may not thereafter designate a
replacement Representative for such Contracts and shall not be
entitled to such compensation.
If a Contract owner files a written request (change of dealer
authorization) with ING AMERICA EQUITIES that such owner's Contracts
be serviced through a new SELLING BROKER-DEALER which has a valid
Selling Agreement with the INSURER, the owner's request will be
honored in all cases, for purposes of servicing only. Compensation
based on any Contract sold through the original SELLING BROKER-DEALER
shall continue to be paid to the original SELLING BROKER-DEALER,
including compensation due to an increase in coverage, as long as the
Representative remains with the original SELLING
10
<PAGE>
BROKER-DEALER. Any compensation already paid pursuant to subparagraphs
(i), (ii) or (iii) prior to ING AMERICA EQUITIES' receipt and
acceptance of such written request shall not be affected. Compensation
shall continue to be paid pursuant to subparagraph (i) and (ii), if
applicable, regardless of any such change or additional change of
broker-dealer.
b. COMPENSATION FOR VARIABLE ANNUITIES. In the case of variable annuity
-----------------------------------
Contracts, the INSURER recognizes the Contract owners' right on issued
Contracts to terminate SELLING BROKER-DEALER and/or change a SELLING
BROKER-DEALER, provided that the Contract owner notifies ING AMERICA
EQUITIES in writing. When a Contract owner terminates SELLING BROKER-
DEALER, no further compensation on any payments due or received shall
be payable to that SELLING BROKER-DEALER after the notice of
termination is received and accepted by ING AMERICA EQUITIES.
However,
(i) when a Contract owner designates a SELLING BROKER-DEALER other
than the SELLING BROKER-DEALER of record, compensation on any
payments due or received shall be payable to the new SELLING
BROKER-DEALER in accordance with the Compensation Schedule in
effect at the time of issuance of the Contract;
(ii) A change of dealer authorization shall be honored only if there
exists a valid Selling Agreement between the INSURER, ING AMERICA
EQUITIES and the new SELLING BROKER-DEALER and (A) the Contract
---
owner(s) requests in writing that the subagent remains as
representative of record, or (B) both the former and future
--
SELLING BROKER-DEALERS direct the INSURER and ING AMERICA
EQUITIES in a joint writing to transfer all policies and future
compensation to the new SELLING BROKER-DEALER, or (C) the NASD
approves and effects a bulk transfer of all representatives to a
new SELLING BROKER-DEALER.
6. TRAIL COMMISSIONS. For any Contracts for which a trail commission is paid,
------------------
such commission shall be credited on an annualized basis. Such commissions
shall be computed monthly as of the end of each policy month on the
Contract's Accumulated Value less policy debt. The trail commission shall
be payable as specified in the applicable Compensation Schedule, on each
Contract anniversary at the end of the Contract year. Trail commission
shall be paid only if the Contract is in force on the date the trail
commission becomes payable. No trail commissions whatsoever may be earned,
paid, credited or accrued in any way with respect to sales in the State of
New York.
7. REFUND OF COMPENSATION. No compensation shall be payable, and SELLING
----------------------
BROKER-DEALER and AGENCY jointly and severally agree to reimburse ING
AMERICA EQUITIES promptly, and in any event within 30 days, for any
compensation paid to SELLING BROKER-DEALER or its Representatives under
each of the following
11
<PAGE>
conditions: a) if the INSURER, in its sole discretion, determines not to
issue the Contract applied for; b) if the INSURER refunds the premiums or
purchase payments upon the applicant's surrender or withdrawal pursuant to
any "free-look" privilege; c) if the INSURER refunds the premiums or
purchase payments paid by applicant as a result of a complaint by
applicant, recognizing that the INSURER has sole discretion to refund
premiums or purchase payments; d) if the INSURER determines that any person
signing an application who is required to be licensed or any other person
or entity receiving compensation for soliciting purchase of the Contracts
is not duly licensed to sell the Contracts in the jurisdiction of such sale
or attempted sale; e) if a Contract is surrendered, lapsed or exchanged
within six months of the date it was issued by the INSURER; and f) as may
be otherwise provided in the Compensation Schedule.
8. INDEBTEDNESS AND RIGHT OF SETOFF. Nothing contained herein shall be
--------------------------------
construed as giving SELLING BROKER-DEALER or Representative the right to
incur any indebtedness on behalf of the INSURER or ING AMERICA EQUITIES.
SELLING BROKER-DEALER hereby authorizes the INSURER and ING AMERICA
EQUITIES to set off liabilities, however created, of SELLING BROKER-DEALER
and Representative to the INSURER and ING AMERICA EQUITIES against any and
all amounts otherwise payable to SELLING BROKER-DEALER.
9. TERMINATION. This Agreement may not be assigned except by written mutual
-----------
consent and shall continue for an indefinite term, subject to the
termination by any party upon ten-days' advance written notice to the other
parties, except that in the event ING AMERICA EQUITIES or SELLING BROKER-
DEALER ceases to be a registered broker-dealer or a member of the NASD,
this Agreement shall immediately terminate. Upon its termination, all
authorizations, rights and obligations shall cease, except the agreements
in Sections 3, 7, 8, 12 and 13 and the payment of any accrued but unpaid
compensation to SELLING BROKER-DEALER or refund of compensation due to ING
AMERICA EQUITIES and the INSURER.
10. NON-EMPLOYEE RELATIONSHIP. For the purpose of compliance with any
-------------------------
applicable federal or state securities laws or regulations, SELLING BROKER-
DEALER acknowledges and agrees that in performing the services covered by
this Agreement, it is acting in the capacity of an independent "broker" or
"dealer" as defined in the By-Laws of the NASD and not as an agent or
employee of the INSURER or ING AMERICA EQUITIES or any registered
investment company. In furtherance of its responsibilities as a broker or
dealer, SELLING BROKER-DEALER acknowledges that it is responsible for
statutory and regulatory compliance in securities transactions involving
any business produced by its Representatives concerning the Contracts.
11. NON-EXCLUSIVITY. SELLING BROKER-DEALER agrees that no territory or product
---------------
is assigned exclusively hereunder and that the INSURER and ING AMERICA
EQUITIES reserve the right in their discretion to enter into Selling
Agreements with other
12
<PAGE>
broker-dealers, and to contract with or establish one or more insurance
Agencies in any jurisdiction in which SELLING BROKER-DEALER transacts
business hereunder.
12. CO-OPERATION IN INVESTIGATION. SELLING BROKER-DEALER, AGENCY, ING AMERICA
-----------------------------
EQUITIES, and the INSURER jointly agree to cooperate fully in any
insurance, securities or other regulatory investigation or proceeding or
judicial proceeding arising in connection with any Contract. Without
limiting the foregoing:
a. SELLING BROKER-DEALER shall promptly notify the INSURER and ING
AMERICA EQUITIES of any customer complaint or notice of any regulatory
authority investigation or proceeding or judicial proceeding which it
might receive with respect to any Contract.
b. In the case of a substantive customer complaint, the parties shall
cooperate in investigating and responding to such complaint. Any
response shall be sent to the other parties to this Agreement for
approval not less than five business days prior to its being sent to
the customer or regulatory authority, except that if a more prompt
response is required, the proposed response shall be communicated by
telephone and facsimile transmission.
13. INDEMNIFICATION.
---------------
a. The INSURER and ING AMERICA EQUITIES (referred to jointly in this
Section 13 as "SLD") agree to indemnify and hold harmless SELLING
BROKER-DEALER and Agencies (referred to jointly in this Section 13 as
the "SELLING GROUP") and such associated persons as its officers,
directors, agents and employees, against any losses, claims, damages
or liabilities, joint or several, to which SELLING GROUP or such
associated persons may become subject under the 1933 Act, the 1934 Act
or other federal or state statutory law or regulation, at common law
or otherwise, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
required to be stated therein or necessary to make the statements
therein not misleading contained (i) in any Registration Statement,
any prospectus or any document executed by SLD specifically for the
purpose of qualifying a Contract for sale under the laws of any
jurisdiction or (ii) in any written information or sales material
authorized for and supplied or furnished to SELLING GROUP and its
agents or representatives by SLD, their employees or agents, in
connection with the sale of the Contract. SLD shall reimburse SELLING
GROUP and each such associated person for legal or other expenses
reasonably incurred by SELLING GROUP or such associated person in
connection with investigating or defending any such loss, claim,
damage, liability or action.
13
<PAGE>
b. The SELLING GROUP jointly and severally agree to indemnify and hold
harmless SLD, and their affiliates and such associated persons as
their officers, directors, agents and employees, against any losses,
claims, damages or liabilities to which SLD and any such associated
person may become subject under the 1933 Act, the 1934 Act or other
federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon:
(i) any unauthorized use of sales materials or any oral or written
misrepresentations or any unlawful sales practices concerning a
Contract by the SELLING GROUP, its officers, directors,
employees, agents, Representatives or associated persons; and
(ii) claims by agents or Representatives or employees of the SELLING
GROUP for commissions or other compensation or remuneration of
any type; and
(iii) failure by agents, Representatives or employees of the SELLING
GROUP to comply with all applicable state insurance laws and
regulations including but not limited to state licensing
requirements, rebate statutes and replacement regulations, and
the provisions of this Agreement; and
(iv) telephone instructions by a Representative to SLD in connection
with any Contracts.
The SELLING GROUP shall reimburse SLD and any director, officer,
employee or agent for any legal or other expenses reasonably incurred
by SLD or such associated person in connection with investigating or
defending any such loss, claim, damage, liability or action. This
indemnity provision shall be in addition to any liability which the
SELLING GROUP may otherwise have.
c. After a party entitled to indemnification receives notice of the
commencement of any action, if a claim in respect thereof is to be
made against any person obligated to provide indemnification, such
indemnified party shall notify the indemnifying party in writing of
the commencement thereof as soon as practicable thereafter. However,
the omission to so notify the indemnifying party shall not relieve it
from any liability except to the extent that the omission results in a
failure of actual notice to the indemnifying party, and such
indemnifying party is damaged solely as a result of the failure to
give such notice.
14. FIDELITY BOND AND ERRORS AND OMISSIONS INSURANCE. SELLING BROKER-DEALER
------------------------------------------------
shall secure and maintain a fidelity bond (including coverage for larceny
and
14
<PAGE>
embezzlement), issued by a reputable bonding company, covering all of its
directors, officers, agents, Representatives, associated persons and
employees who have access to funds of the INSURER or ING AMERICA EQUITIES.
This bond shall be maintained at SELLING BROKER-DEALER's expense in at
least the amount prescribed under Article III, Section 32 of the NASD Rules
of Fair Practice or future amendments thereto. SELLING BROKER-DEALER shall
provide ING AMERICA EQUITIES with a copy of said bond or verification of an
applicable exception before executing this Agreement. SELLING BROKER-DEALER
shall also secure and maintain errors and omissions insurance acceptable to
the INSURER and covering SELLING BROKER-DEALER and Representatives. SELLING
BROKER-DEALER hereby assigns any proceeds received from a fidelity bonding
company, errors and omissions or other liability coverage, to the INSURER
or ING AMERICA EQUITIES as their interest may appear, to the extent of
their loss due to activities covered by the bond, policy or other liability
coverage. If there is any deficiency amount, whether due to a deductible or
otherwise, SELLING BROKER-DEALER shall promptly pay such amounts on demand.
SELLING BROKER-DEALER hereby indemnifies and holds harmless the INSURER and
ING AMERICA EQUITIES from any such deficiency and from the costs of
collection thereof, including reasonable attorneys' fees.
15. NOTICES. All notices to the INSURER or ING AMERICA EQUITIES should be
-------
mailed to:
ING America Equities, Inc.
Attn: Chief Compliance Officer
1290 Broadway
Denver, CO 80203-5699
All notices to SELLING BROKER-DEALER and Agencies shall be duly given if
mailed to:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
16. GOVERNING LAW AND VENUE. This Agreement shall be governed by and construed
-----------------------
in accordance with the laws of the State of Colorado. The parties agree
that the District Court for the City and County of Denver, Colorado shall
have jurisdiction and be the appropriate venue for any required judicial
interpretation and enforcement of this Agreement.
17. AMENDMENT OF AGREEMENT. The INSURER or ING AMERICA EQUITIES may amend this
----------------------
Agreement, including any Exhibits and Schedules hereto, upon at least ten
(10) days' prior written notice to SELLING BROKER-DEALER. The submission
of an
15
<PAGE>
application for the Contracts by SELLING BROKER-DEALER after the effective
date of any such amendment shall constitute agreement to such amendment.
Additional Agencies may be added as parties to this Agreement at any time
by a written amendment signed by the INSURER, ING AMERICA EQUITIES, SELLING
BROKER-DEALER and such additional Agencies. All Agencies which are parties
to this Agreement at the time of such amendment hereby consent and agree in
advance to the addition of such additional Agencies.
18. BINDING EFFECT. This Agreement shall be binding on and shall inure to the
--------------
benefit of the parties to it and their respective successors in interest.
If any provision of the Agreement conflicts with any other provision, or if
any provision shall be held or made invalid by a court decision, statute,
rule or otherwise, the remainder of this Agreement shall not be affected
thereby.
19. EFFECTIVE DATE AND MERGER. This Agreement shall be effective as of the
-------------------------
date it is fully executed by all parties. This Agreement, including all
Exhibits and Schedules hereto, constitutes the entire Agreement between the
parties and supersedes in its entirety any and all previous agreements
among the parties with respect to the Contracts.
20. EXECUTION IN COUNTERPARTS. This Agreement may be executed simultaneously
--------------------------
in two or more counterparts, each of which taken together will constitute
one and the same instrument.
16
<PAGE>
In reliance on the representations set forth and in consideration of the
undertakings described, the parties represented below do hereby contract and
agree.
SECURITY LIFE OF DENVER ING AMERICA EQUITIES, INC.
INSURANCE COMPANY
By: By:
--------------------------- ------------------------------
Title: Title:
------------------------ ---------------------------
(or)
FIRST ING LIFE INSURANCE COMPANY
OF NEW YORK
By:
---------------------------
Title:
------------------------
- ------------------------------ ---------------------------------
SELLING BROKER-DEALER AGENCY
By: By:
--------------------------- ------------------------------
Name: Name:
------------------------- ----------------------------
Title: Title:
------------------------ ---------------------------
17
<PAGE>
- ------------------------------ ---------------------------------
AGENCY AGENCY
By: By:
--------------------------- ------------------------------
Name: Name:
------------------------- ----------------------------
Title: Title:
------------------------ ---------------------------
Date: Date:
------------------------- ----------------------------
- ------------------------------ ---------------------------------
AGENCY AGENCY
By: By:
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Name: Name:
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Title: Title:
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Date: Date:
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AGENCY AGENCY
By: By:
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Name: Name:
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Title: Title:
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Date: Date:
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18
<PAGE>
SCHEDULE A
COMPENSATION SCHEDULE
TO ING AMERICA EQUITIES SELLING AGREEMENT FOR
SECURITY LIFE EXCHEQUER ANNUITY
A FLEXIBLE PREMIUM DEFERRED COMBINATION FIXED & VARIABLE
ANNUITY
CONTRACT FORM 1192 (VA) & 1198 (VA)
This Schedule is an amendment to the Broker-Dealer Supervisory and Selling
Agreement for Variable Contracts ("SELLING AGREEMENT") among ING AMERICA
EQUITIES, INC. ("ING AMERICA EQUITIES"), SECURITY LIFE OF DENVER INSURANCE
COMPANY ("SECURITY LIFE") and the broker-dealer and agency(s) signatory thereto,
pursuant to paragraph 17 of that Selling Agreement, effective as of January 30,
1997, or as set forth below. The provisions of this Schedule will apply only to
Security Life Variable Annuity Flexible Premium Deferred Combination Fixed and
Variable Annuity Contracts Form 1192 (VA) & 1198 (VA) ("Contract"), solicited
and issued while this Schedule is in effect. All compensation payable under
this Schedule will be subject to the terms and conditions contained herein at
the time of issue of the Contract by SECURITY LIFE.
ELECTION OF SCHEDULE
- --------------------
The Representative of the SELLING BROKER-DEALER shall elect for each Contract
the option under which commission payments will be based for that Contract.
Once an option for a Contract is elected, such option cannot thereafter be
changed for such Contract. The Representative of the SELLING BROKER-DEALER may
elect to be paid under either Option A or Option B, as described below. To
elect Option B, the Representative of the SELLING BROKER-DEALER must designate
"Option B" or "trails" in the "Representative's Report" section of the Contract
application form. If Option B is not so designated on the Contract application,
Option A will automatically be in effect for that Contract.
Purchase payments received for Contracts issued on or after the effective date
of this Schedule will have the following commission structure:
Option A
- --------
6.0% for attained annuitant ages 0 - 74
5.0% for attained annuitant ages 75 - 79
4.0% for attained annuitant ages 80 and above
Option B
- --------
5.0% + 0.20% trail for attained annuitant ages 0 - 74
4.0% + 0.20% trail for attained annuitant ages 75 - 79
3.0% + 0.20% trail for attained annuitant ages 80 and above
Schedule A
Form No. 1192 (VA) & 1198 (VA)
01/97
<PAGE>
The sliding commission scales set forth above shall apply to all purchase
payments made at these attained annuitant ages, regardless of the age of the
annuitant at the time of Contract issuance.
Commissions for purchase payments received for Contracts issued prior to the
effective date of this Schedule will be paid according to the Compensation
Schedule in effect at the time of such Contract issuance.
1. Commission Calculation: Commissions based on purchase payments will be
----------------------
calculated only on funds actually received and accepted by SECURITY LIFE.
Commissions will be paid only on an earned basis.
2. Trail Commission: Under Option B, a trail commission (the percentage
----------------
indicated) on an annualized basis is calculated at the end of each month based
on the Contract's Accumulation Value at the end of the prior month. The trail
commission will be payable annually at the end of a Contract year prior to the
annuity date provided the Contract is in force on such date.
3. Compensation Payments: Compensation on initial purchase payment will be
---------------------
due to the SELLING BROKER-DEALER at the time of issuance of the Contract and for
all other purchase payments at the time of the receipt and acceptance of the
purchase payments by SECURITY LIFE, except that the amount, if any, and the time
of payment of compensation on replacements, reissues, changes, conversions,
exchanges, term renewals, term conversions, premiums paid in advance, policies
issued and "guaranteed issue" basis and other special cases and programs will be
governed by SECURITY LIFE'S underwriting and administrative rules then in
effect.
4. Commission Chargeback: In the event that a Contract for which a commission
---------------------
has been paid is surrendered by the Contract Owner or is returned to SECURITY
LIFE during the Free Look Period as described in the Contract, SECURITY LIFE and
ING AMERICA EQUITIES will require reimbursement from SELLING BROKER-DEALER as
follows:
. 100% of commissions paid if the event occurs during the first six months of
the Contract.
. 50% of commissions paid if the event occurs during the second six months of
the Contract.
If a purchase payment for which a commission has been paid is refunded by
SECURITY LIFE, a reimbursement of the commissions paid on the amount refunded
will be due from the SELLING BROKER-DEALER.
The reimbursement may be deducted by ING AMERICA EQUITIES from the next, or any
subsequent, commission payment to SELLING BROKER-DEALER.
If the amount to be reimbursed exceeds compensation otherwise due, SELLING
BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES before the next
commission cycle.
5. Termination and Amendment: SECURITY LIFE and ING AMERICA EQUITIES reserve
-------------------------
the right to terminate or amend this Schedule by providing written notification
to the SELLING BROKER-DEALER in accordance with Sections 9, 15 and 17 of the
Selling Agreement. With the exception of the terms changed by any such
Amendment, all other terms and conditions of the original Schedule shall remain
in full force and effect.
This Schedule shall be effective as of January 30, 1997, or the date the
operative Selling Agreement is accepted and executed by SECURITY LIFE, whichever
is later.
Schedule A
Form No. 1192 (VA) & 1198 (VA)
01/97
<PAGE>
SCHEDULE B
COMPENSATION SCHEDULE
TO SELLING AGREEMENT FOR
SECURITY LIFE FIRSTLINE
VARIABLE LIFE POLICY FORM 1191 (VUL) & 1197 (VUL)
This Schedule is an amendment to the ING AMERICA EQUITIES, INC. ("ING AMERICA
EQUITIES") Selling Agreement by and among the parties pursuant to paragraph 17
of that Selling Agreement, effective as of May 1, 1995, or as set forth below.
The provisions of this Schedule shall apply only to Security Life FirstLine
Flexible Premium Variable Universal Life policies Form 1191 (VUL) & 1197 (VUL),
solicited and issued while this Schedule is in effect. All compensation payable
under this Schedule shall be subject to the terms and conditions contained
herein at the time of issue of the policy by SECURITY LIFE OF DENVER INSURANCE
COMPANY ("SECURITY LIFE").
Commissions On
Premium Payments
-----------------
A B C
-----------------
Fully Underwritten (Non-Guaranteed Issue) 95% 4% 2%
Notes
1. Commission Structure:
--------------------
TARGET PREMIUM CALCULATION
First target A% of all premium allocated to the first target,
regardless of policy year.
Renewals B% of all premium above the first target in
policy years 1-10
Ultimate C% of all premium received after the 10th policy
anniversary
2. Target Premium: The target premium is an amount determined from tables
--------------
published by SECURITY LIFE with respect to a policy or rider upon which
commissions are based. As it applies to future business, the target premium may
be changed from time to time by SECURITY LIFE. The target premium applicable to
a particular coverage shall be determined from the table in force when the first
premium for such coverage is entered as paid in the accounting records of
SECURITY LIFE.
Schedule B
Form No. 1191 (VUL) & 1197 (VUL) 05/1/95
<PAGE>
3. Trail Commissions: A trail commission of 0.10% on an annualized basis is
-----------------
calculated at the end of each month based on the policy's Account Value less
policy debt at the end of the prior month. The trail commission begins at the
earlier of:
a. the tenth policy anniversary, or
b. the end of the policy year in which the cumulative premium payments
less partial withdrawals equals or exceeds the guideline single
premium as defined by the Internal Revenue Code.
The trail commission is payable annually at the end of a policy year provided
the policy is in force (and not subject to the Grace Period provision) on such
date.
If trail commissions begin prior to the tenth policy anniversary pursuant to b)
above, the trail commission in the first year will be calculated for the entire
year.
4. Riders: Waiver of Cost of Insurance Rider, Additional Insured Rider,
------
Children's Insurance Rider, Guaranteed Insurability Rider, Accidental Death
Benefit Rider and Waiver of Specified Premium Rider are commissionable and will
have a separate target premium which is set at issue and is level thereafter.
The Adjustable Term Insurance Rider has no target premium associated with it.
Flat extra ratings with a duration of six years or more are commissionable and
substandard table ratings are commissionable based upon the first year
additional cost of insurance charge. The only rider available for Guaranteed
Issue is the Adjustable Term Rider.
5. Commission Calculation: Commissions shall be calculated only on premium
----------------------
actually received and accepted by SECURITY LIFE. Commissions shall be paid only
on an earned basis.
6. Premium Allocation: If the Stated Death Benefit has been increased since
------------------
the policy date, premiums received are allocated to the coverage segments in the
same proportion that the guideline annual premium for each segment bears to the
total guideline annual premium of the policy.
7. Guaranteed Issue: First year commission rates will be reduced for
----------------
Guaranteed Issue for all issue ages. SECURITY LIFE offers two Guaranteed Issue
programs known as Regular and Select. The commission levels for each of these
programs for first target as described under Commission Structure are shown in
the tables below. The commission levels for renewals, ultimate and trail, are
the same as the fully underwritten version.
Schedule B
Form No. 1191 (VUL) & 1197 (VUL) 05/1/95
<PAGE>
Guaranteed Issue:
First Year Commission Rate
--------------------------
Issue Age Non-Smokers Smokers
Regular Guaranteed Issue: 0-40 77% 48%
41-45 77% 43%
46-50 61% 27%
51-55 35% 11%
56-60 17% 4%
61-65 8% 4%
66+ 4% 4%
Select Guaranteed Issue: 0-40 82% 65%
41-45 82% 57%
46-50 70% 38%
51-55 52% 15%
56-60 34% 4%
61-65 14% 4%
66+ 4% 4%
Guaranteed Issue is available for ages 71 and above by exception only.
8. Compensation Payments: Compensation on initial premium shall be due to the
---------------------
SELLING BROKER-DEALER at the time of the issuance of the policy and for all
other premium payments at the time of the receipt and acceptance of premium by
SECURITY LIFE, except that the amount, if any, and the time of payment of
compensation on replacements, reissues, changes, conversions, exchanges, term
renewals, term conversions, premiums paid in advance, policies issued on a
"guaranteed issue" basis, policies requiring facultative reinsurance
arrangements, and other special cases and programs shall be governed by SECURITY
LIFE'S underwriting and administrative rules then in effect. The Compensation
shall be payable to the SELLING BROKER-DEALER in accordance with the Schedule B
in effect at the time of issue of the policy.
9. Commission Chargeback: In the event that a policy for which a commission
---------------------
has been paid is lapsed or surrendered by the Policy Owner during the first six
months, or is returned to SECURITY LIFE for refund of premium during the Free
Look Period as described in the policy, SECURITY LIFE and ING AMERICA EQUITIES
shall require reimbursement from SELLING BROKER-DEALER equal to 100% of the
commission paid. If a premium payment for which a commission has been paid is
refunded by SECURITY LIFE, a reimbursement of the commission paid on the amount
refunded will be due from the SELLING BROKER-DEALER.
Schedule B
Form No. 1191 (VUL) & 1197 (VUL) 05/1/95
<PAGE>
The reimbursement may be deducted by ING AMERICA EQUITIES from the next, or any
subsequent, commission payment to SELLING BROKER-DEALER.
If the amount to be reimbursed exceeds compensation otherwise due, SELLING
BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES before the next
commission cycle.
10. Broker-Dealer Transfer: In the event that a Representative terminates from
----------------------
the SELLING BROKER-DEALER of record, the compensation provisions set forth in
the Selling Agreement will apply.
11. Production Credits: Representatives may receive Production Credits from
------------------
SECURITY LIFE which may result in an award of trips, bonuses or other items of
monetary value.
12. Internal Exchanges: Commissions on the exchange of any SECURITY LIFE
------------------
policy for FirstLine will be paid in accordance with the exchange procedures in
effect at SECURITY LIFE on the date the exchange is completed. The commission
rates and/or target premiums may be adjusted in accordance with the rules in
effect at the time of the exchange. If the Representative responsible for the
exchange is not the producer of the original policy, and the original producer
is still active with SECURITY LIFE, no commission will be payable to the
Representative or the SELLING BROKER-DEALER.
13. Termination and Amendment: SECURITY LIFE and ING AMERICA EQUITIES reserve
-------------------------
the right to terminate or amend this Schedule by providing written notification
to the SELLING BROKER-DEALER in accordance with Sections 9, 15 and 17 of the
Selling Agreement. With the exception of the terms changed by any such
Amendment, all other terms and conditions of the original Schedule shall remain
in full force and effect.
This Schedule shall be effective as of September 1, 1995, or the date the
operative Selling Agreement is accepted and executed by SECURITY LIFE, whichever
is later.
Schedule B
Form No. 1191 (VUL) & 1197 (VUL) 05/1/95
<PAGE>
SCHEDULE D
COMPENSATION SCHEDULE
TO SELLING AGREEMENT FOR
SECURITY LIFE STRATEGIC ADVANTAGE
VARIABLE LIFE POLICY FORM 1195 (VUL)
This Schedule is an amendment to the ING AMERICA EQUITIES, INC. ("ING AMERICA
EQUITIES") Selling Agreement by and among the parties pursuant to paragraph 17
of that Selling Agreement effective as of September 1, 1995, or as set forth
below. The provisions of this Schedule shall apply only to Security Life
Strategic Advantage Flexible Premium Variable Universal Life policies Form 1195
(VUL), solicited and issued while this Schedule is in effect. All compensation
payable under this Schedule shall be subject to the terms and conditions
contained herein at the time of issue of the policy. by SECURITY LIFE OF DENVER
INSURANCE COMPANY ("SECURITY LIFE").
1. Fully Underwritten (Non-Guaranteed Issue) and Guaranteed Issue:
--------------------------------------------------------------
Commissions
Up to Annual Target Above Annual Target All Premiums
------------------- ------------------- ------------
Policy Policy Policy Policy
Year Years Years Years
1 2-5 1-5 6+
------ ------ ------ ------
15% 10% 3% 3%
2. Target Premium: The target premium is an annual amount determined from
--------------
tables published by SECURITY LIFE with respect to a policy or rider upon which
commissions are based. As it applies to future business, the target premium may
be changed from time to time by SECURITY LIFE. The target premium applicable to
a particular coverage shall be determined from the table in force when the first
premium for such coverage is entered as paid in the accounting records of
SECURITY LIFE.
3. Trail Commissions: A trail commission of 0.15% on an annualized basis is
-----------------
calculated at the end of each month based on the policy's Account Value less
policy debt at the end of the prior month. The trail commission begins on the
sixth policy anniversary.
The trail commission is payable annually at the end of a policy year provided
the policy is in force (and not subject to the Grace Period provision) on such
date.
4. Riders: Waiver of Cost of Insurance Rider, Additional Insured Rider,
------
Guaranteed Insurability Rider, Accidental Death Benefit Rider and Waiver of
Specified Premium Rider are
Schedule D
Form No. 1195 (VUL) 09/01/95
<PAGE>
commissionable and will have a separate target premium which is set at issue and
is level thereafter. The Adjustable Term Insurance Rider has no target premium
associated with it. Flat extra ratings with a duration of six years or more are
commissionable and substandard table ratings are commissionable based upon the
first year additional cost of insurance charge.
5. Commission Calculation: Commissions shall be calculated only on premium
----------------------
actually received and accepted by SECURITY LIFE. Commissions shall be paid only
on an earned basis.
6. Premium Allocation: If the Stated Death Benefit has been increased since
------------------
the policy date, premiums received are allocated to the coverage segments in the
same proportion that the guideline annual premium for each segment bears to the
total guideline annual premium of the policy.
7. Guaranteed Issue: Commission rates for Guaranteed Issue are the same as for
----------------
fully underwritten cases. SECURITY LIFE offers two Guaranteed Issue programs
known as Regular and Select. Guaranteed Issue is available for ages 71 and above
by exception only.
8. Compensation Payments: Compensation on initial premium shall be due to the
---------------------
SELLING BROKER-DEALER at the time of the issuance of the policy and for all
other premium payments at the time of the receipt and acceptance of premium by
SECURITY LIFE, except that the amount, if any, and the time of payment of
compensation on replacements, reissues, changes, conversions, exchanges, term
renewals, term conversions, premiums paid in advance, policies issued on a
"guaranteed issue" basis, policies requiring facultative reinsurance
arrangements, and other special cases and programs shall be governed by SECURITY
LIFE'S underwriting and administrative rules then in effect. The Compensation
shall be payable to the SELLING BROKER-DEALER in accordance with the Schedule D
in effect at the time of issue of the policy.
9. Commission Chargeback: In the event that a policy for which a commission
---------------------
has been paid or is returned to SECURITY LIFE for refund of premium during the
Free Look Period as described in the policy, SECURITY LIFE and ING AMERICA
EQUITIES shall require reimbursement from SELLING BROKER-DEALER equal to 100% of
the commission paid. In the event that a policy for which a commission has been
paid is lapsed, surrendered or has a requested decrease to the Stated Death
Benefit within the first three policy years, SECURITY LIFE and ING AMERICA
EQUITIES shall require reimbursement from SELLING BROKER-DEALER. The
chargebacks are based on the lesser of the target premium or the actual premium
paid in that policy year.
Schedule D
Form No. 1195 (VUL) 09/01/95
<PAGE>
Commission Chargeback Table
Policy Percent of Annual
Year Target Premium Paid
----- -------------------
1 8%
2 4%
3 2%
4 0%
If a premium payment for which a commission has been paid is refunded by
SECURITY LIFE, a reimbursement of the commission paid on the amount refunded
will be due from the SELLING BROKER-DEALER.
The reimbursement may be deducted by ING AMERICA EQUITIES from the next, or any
subsequent, commission payment to SELLING BROKER-DEALER.
If the amount to be reimbursed exceeds compensation otherwise due, SELLING
BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES before the next
commission cycle.
10. Broker-Dealer Transfer: In the event that a Representative terminates from
----------------------
the SELLING BROKER-DEALER of record, the compensation provisions set forth in
the Selling Agreement will apply.
11. Production Credits: Representatives may receive Production Credits from
------------------
SECURITY LIFE which may result in an award of trips, bonuses or other items of
monetary value.
12. Internal Exchanges: Commissions on the exchange of any SECURITY LIFE
------------------
policy for Strategic Advantage will be paid in accordance with the exchange
procedures in effect at SECURITY LIFE on the date the exchange is completed.
The commission rates and/or target premiums may be adjusted in accordance with
the rules in effect at the time of the exchange. If the Representative
responsible for the exchange is not the producer of the original policy, and the
original producer is still active with SECURITY LIFE, no commission will be
payable to the Representative or the SELLING BROKER-DEALER.
13. Termination and Amendment: SECURITY LIFE and ING AMERICA EQUITIES reserve
-------------------------
the right to terminate or amend this Schedule by providing written notification
to the SELLING BROKER-DEALER in accordance with Sections 9, 15 and 17 of the
Selling Agreement. With the exception of the terms changed by any such
Amendment, all other terms and conditions of the original Schedule shall remain
in full force and effect.
Schedule D
Form No. 1195 (VUL) 09/01/95
<PAGE>
This Schedule shall be effective as of September 1, 1995, or the date the
operative Selling Agreement is accepted and executed by SECURITY LIFE, whichever
is later.
Schedule D
Form No. 1195 (VUL) 09/01/95
<PAGE>
SCHEDULE F
COMPENSATION SCHEDULE
TO ING AMERICA EQUITIES SELLING AGREEMENT FOR
FIRST ING OF NEW YORK EXCHEQUER ANNUITY
A FLEXIBLE PREMIUM DEFERRED COMBINATION
FIXED & VARIABLE ANNUITY
CONTRACT FORM 1192 (VA) - NY
This Schedule is an amendment to the Broker-Dealer Supervisory and Selling
Agreement for Variable Contracts ("SELLING AGREEMENT") among ING AMERICA
EQUITIES, INC. ("ING AMERICA EQUITIES"), FIRST ING LIFE INSURANCE COMPANY OF NEW
YORK ("FIRST ING OF NEW YORK") and the broker-dealer and agency(s) signatory
thereto, pursuant to paragraph 17 of that Selling Agreement, effective as of
January 30, 1997, or as set forth below. The provisions of this Schedule will
apply only to First ING of New York Variable Annuity Flexible Premium Deferred
Combination Fixed and Variable Annuity Contracts Form 1192 (VA) - NY
("Contract"), solicited and issued while this Schedule is in effect. All
compensation payable under this Schedule will be subject to the terms and
conditions contained herein at the time of issue of the Contract by FIRST ING OF
NEW YORK.
ELECTION OF SCHEDULE
- --------------------
The Representative of the SELLING BROKER-DEALER shall elect for each Contract
the option under which commission payments will be based for the Contract. Once
an option for a Contract is elected, such option cannot thereafter be changed
for such Contract. The Representative of the SELLING BROKER-DEALER may elect to
be paid under either Option A or Option B, as described below. To elect Option
B, the Representative of the SELLING BROKER-DEALER must designate "Option B" or
"trails" in the "Representative's Report" section of the Contract application
form. If Option B is not so designated on the Contract application, Option A
will automatically be in effect for that Contract.
Purchase payments received for Contracts issued on or after the effective date
of this Schedule will have the following commission structure:
Option A
- --------
6.0% for attained annuitant ages 0 - 74
5.0% for attained annuitant ages 75 - 79
4.0% for attained annuitant ages 80 and above
Option B
- --------
5.0% + 0.20% trail for attained annuitant ages 0 - 74
4.0% + 0.20% trail for attained annuitant ages 75 -79
3.0% + 0.20% trail for attained annuitant ages 80 and above
Schedule F
Form No. 1192(VA) - NY
<PAGE>
The sliding commission scales set forth above shall apply to all purchase
payments made at these attained annuitant ages, regardless of the age of the
annuitant at the time of Contract issuance.
Commissions for purchase payments received for Contracts issued prior to the
effective date of this Schedule will be paid according to the Compensation
Schedule in effect at the time of such Contract issuance.
1. Commission Calculation: Commissions based on purchase payments will be
----------------------
calculated only on funds actually received and accepted by FIRST ING OF NEW
YORK. Commissions will be paid only on an earned basis.
2. Trail Commission: Under Option B, a trail commission (the percentage
----------------
indicated) on an annualized basis is calculated at the end of each month based
on the Contract's Accumulation Value at the end of the prior month. The trail
commission will be payable annually at the end of a Contract year prior to the
annuity date provided the Contract is in force on such date.
3. Compensation Payments: Compensation on initial purchase payment will be
---------------------
due to the SELLING BROKER-DEALER at the time of issuance of the Contract and for
all other purchase payments at the time of the receipt and acceptance of the
purchase payments by FIRST ING OF NEW YORK, except that the amount, if any, and
the time of payment of compensation on replacements, reissues, changes,
conversions, exchanges, term renewals, term conversions, premiums paid in
advance, policies issued and "guaranteed issue" basis and other special cases
and programs will be governed by FIRST ING OF NEW YORK'S underwriting and
administrative rules then in effect.
4. Commission Chargeback: In the event that a Contract for which a commission
---------------------
has been paid is surrendered by the Contract Owner or is returned to FIRST ING
OF NEW YORK during the Free Look Period as described in the Contract, FIRST ING
OF NEW YORK and ING AMERICA EQUITIES will require reimbursement from SELLING
BROKER-DEALER as follows:
. 100% of commissions paid if the event occurs during the first six months of
the Contract.
. 50% of commissions paid if the event occurs during the second six months of
the Contract.
If a purchase payment for which a commission has been paid is refunded by FIRST
ING OF NEW YORK, a reimbursement of the commissions paid on the amount refunded
will be due from the SELLING BROKER-DEALER.
Schedule F
Form No. 1192(VA) - NY
<PAGE>
The reimbursement may be deducted by ING AMERICA EQUITIES from the next, or any
subsequent, commission payment to SELLING BROKER-DEALER.
If the amount to be reimbursed exceeds compensation otherwise due, SELLING
BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES before the next
commission cycle.
5. Termination and Amendment: FIRST ING OF NEW YORK and ING AMERICA
-------------------------
EQUITIES reserve the right to terminate or amend this Schedule by providing
written notification to the SELLING BROKER-DEALER in accordance with Sections 9,
15 and 17 of the Selling Agreement. With the exception of the terms changed by
any such Amendment, all other terms and conditions of the original Schedule
shall remain in full force and effect.
This Schedule shall be effective as of June 16, 1997, or the date the operative
Selling Agreement is accepted and executed by FIRST ING OF NEW YORK, whichever
is later.
Schedule F
Form No. 1192(VA) - NY
<PAGE>
EXHIBIT 4.(b)
ELECTION AND SUPPLEMENTARY AGREEMENT FOR A SETTLEMENT OPTION
SECURITY LIFE OF DENVER INSURANCE COMPANY
Customer Service Center:
Contract No.: Annuitant:
Supplementary Contract Effective Date: [Date] First Payout Amount: [$X,XXX.XX]
SECURITY LIFE, subject to the terms of the attached contract, hereby agrees to
pay the net proceeds due in the manner indicated below. If this contract is part
of a qualified pension, profit-sharing, or HR-10 plan we may require additional
forms, and the law may restrict the form of distribution.
Section I - Designation of Annuitants
Contingent Annuitants:
First Contingent Annuitant: [Name and Address]
Second Contingent Annuitant: [Name and Address]
Section II - How Payouts Will be Made
(Refer to the attached Contract for description of Annuity Options)
[Payouts for a Designated Period. Fixed Annuity Payout. Monthly installments
guaranteed for x years in an amount not less $xxx.xx]
[Payouts for a Designated Period. Variable Annuity Payout. Monthly installments
for x years in an amount which will vary in amount with the performance of the
Divisions to which the funds are invested. Initial payouts based upon a
benchmark total return of x%.]
[Life Income with Payouts for a Designated Period. Fixed Annuity Payout. Monthly
installments in an amount not less than $xxx.xx, payable throughout the
Annuitant's lifetime. If the Annuitant dies before the end of the Designated
Period of x years, payouts will be continued to the Contingent Annuitant until
the end of the Designated Period.]
[Life Income with Payouts for a Designated Period. Variable Annuity Payout.
Monthly installments payable throughout the Annuitant's lifetime in an amount
which will vary in amount with the performance of the Divisions to which the
funds are invested. If the Annuitant dies before the end of the Designated
Period of x years, payouts will be continued to the Contingent Annuitant until
the end of the Designated Period. Initial payouts based upon a benchmark total
return of x%.]
[Joint and Last Survivor, Fixed Annuity Payout. Monthly installments in an
amount not less than $xxx.xx payable while both Annuitants are living. Upon the
death of one Annuitant, the Survivor's Annuity Payout in an amount not less than
$xxx.xx will be paid throughout the lifetime of the Surviving Annuitant.]
<PAGE>
[Joint and Last Survivor, Variable Annuity Payout. Monthly installments payable
while both Annuitants are living in an amount which will vary in amount with the
performance of the Divisions to which the funds are invested. The number of
Annuity Units applied to each installment will be level while both Annuitants
are living and upon the death of one annuitant will be reduced to 2/3rds of the
number of Annuity Units applied to each installment while both Annuitants were
living. This Survivor's Annuity Payout will be paid throughout the lifetime of
the Surviving Annuitant.]
This Supplementary Contract may not be assigned, nor payouts made to another
without our consent.
Supplementary Contract Effective Date:
Date: SECURITY LIFE OF DENVER INSURANCE COMPANY
By:
<PAGE>
EXHIBIT 6(a)
RESTATED ARTICLES OF INCORPORATION OF
SECURITY LIFE AND ACCIDENT COMPANY
AS PRESENTLY AMENDED
KNOW ALL MEN BY THESE PRESENTS, That pursuant to Section 7-2-112 Colorado
Revised Statutes (1973), as amended, the following are Restated Articles of
Incorporation of Security Life and Accident Company, which correctly set forth
without change the corresponding provisions of the Articles of Incorporation as
heretofore amended, and these Restated Articles of Incorporation supersede the
original Articles of Incorporation and all Amendments thereto:
ARTICLE I
The corporate name of our said company shall be
SECURITY LIFE AND ACCIDENT COMPANY
ARTICLE II
The objects and said purposes for which our said company is formed and
incorporated are: To make insurance or reinsurance upon the lives of persons,
and every insurance pertaining thereto or connected therewith, including health
and accident insurance, and to grant, purchase or dispose of annuities.
ARTICLE III
The authorized capital stock of said company is $2,995,200 consisting of
1,497,600 shares of $2.00 par value COMMON STOCK which shall be divided into
1,364,500 shares of SERIES A COMMON STOCK having one (1) vote each, and 133,100
shares of SERIES B COMMON STOCK having eight (8) votes each. In no event shall
each share of SERIES A COMMON STOCK have more than one-eighth (1/8th) the number
of votes allowed to each share of SERIES B COMMON STOCK. Each share of each
series shall share equally with each share of the other series of stock in all
types of dividends, distributions and in the assets distributed in liquidation
of the company. Any or all of such shares shall be issued by the company from
time to time, for such consideration in money, property, or services as may be
fixed by the Board of Directors without the necessity of action by the
shareholders. All such shares shall be issued fully paid and non-assessable.
ARTICLE IV
The term of existence of our said company shall be perpetual.
ARTICLE V
The business and affairs of the company shall be under the control and
management of a Board of Directors consisting of not less than five (5) and not
more than seven (7) members, the
<PAGE>
number to be fixed by the bylaws of the company.
ARTICLE VI
The principal business and operations of our said company shall be
conducted and carried on in the City and County of Denver, Sate of Colorado.
However, the company shall have the right to conduct its business, carry on its
operations, and have officers and exercise the powers granted by the corporation
laws of the State of Colorado in any state, territory, district, or possession
of the United States, or in any foreign country. The address of the company's
registered offices is The Security Life Building, 1616 Glenarm Place, Denver,
Colorado 80202, which is located in Denver County, Colorado, and the name of its
registered agent is Shelby F. Harper, whose address is the Security Life
Building 1616 Glenarm Place, Denver, Colorado 80202.
ARTICLE VII
The Board of Directors and shareholders of our said company shall have the
power to meet and transact any business which they are empowered to transact in
any state, territory, district, or possession of the United States, or in any
foreign country that may be designated by the bylaws of the company, or by order
of the Board of Directors.
ARTICLE VIII
Cumulative voting shall not be allowed at any stockholders meeting of our
said company.
ARTICLE IX
The Board of Directors shall have the power to enact, alter, amend and
repeal such bylaws not inconsistent with the laws of the State of Colorado and
these Articles of Incorporation as it may deem best for the management of the
corporation.
ARTICLE X
Shareholders shall not have a preemptive right to subscribe for additional
shares of the corporation issued from time to time by the Board of Directors.
ARTICLE XI
A majority of the votes entitled to be cast by the shareholders, exclusive
of any votes attributable to unissued or treasury stock, shall be necessary to
constitute a quorum at meetings of shareholders.
ARTICLE XII
The Board of Directors of the company shall have the powers to indemnify
any director or
<PAGE>
officer or former director or officer of the corporation or any person who may
have served at its request as a director or officer of another corporation in
which this company owns shares of capital stock or of which this company is a
creditor, and the personal representatives of all such persons, against expenses
actually and necessarily incurred by him in connection with the defense of any
action, suit or proceeding in which he is made a party by reason of being or
having been such director or officer, except in relation to matters as to which
he shall he adjudged in such action, suit or proceeding to be liable for
negligence or misconduct in the performance of duty. "Expenses actually and
necessarily incurred" shall be deemed to include the cost to such director or
officer of reasonable settlements made with the consent of the company,
including amounts paid with such consent upon a plea of nolo contendere or
similar plea. Such indemnification shall not be deemed exclusive of any other
rights to which such director or officer may be entitled, under any bylaw,
agreement, vote of shareholders, or otherwise.
ATTEST: SECURITY LIFE AND ACCIDENT COMPANY
/s/ Shelby F. Harper By: /s/ Fred A. Deering
Shelby F. Harper, Secretary Fred A. Deering
STATE OF COLORADO )
) SS.
CITY AND COUNTY OF DENVER )
I Denise C. Crumbaker, a notary public within and for said city and county,
in the state aforesaid, do hereby certify that FRED A. DEERING and SHELBY F.
HARPER, known to me to be the persons whose names are subscribed to the annexed
and foregoing Restated Articles of Incorporation, appeared before me this day in
person, and severally acknowledged that they signed, sealed and delivered the
said instrument of writing as their free and voluntary act and deed for the uses
and purposes therein set forth, and that the statements therein contained are
true.
Given under my hand and notarial seal this 16th day of February, 1977.
My commission expires: My Commission expires Nov. 12, 1977
/s/ Denise C. Crumbaker
<PAGE>
EXHIBIT 6(b)(i)
BYLAWS
OF
SECURITY LIFE OF DENVER INSURANCE COMPANY
With Amendments through February 14, 1994
ARTICLE I
Officers
Section 1. Number. The executive Officers of the corporation shall be the
--------- ------
Chairman of the Board, President, and Chief Executive Officer, Secretary,
Treasurer and Actuary. As additional Executive Officers, there shall be any
number of Executive Vice Presidents, Senior Vice Presidents, Vice Presidents,
Second Vice Presidents, and General Auditors, who shall be elected by the Board
of Directors. The Board of Directors may, in its discretion, designate an
Honorary Chairman, honorary members of the Board and emeritus officers, who
shall not be Board members, officers or employees of the corporation. The Board
of Directors may, in its discretion, designate other officers: Assistant Vice
Presidents, Assistant Secretaries, Assistant Treasurers, Assistants to the
President and Chief Executive Officer, Associate and the Assistant Actuaries,
Controllers, Associate and Assistant Controllers, Assistant Auditors, Directors
of Agencies, Medical Directors, General Counsel, Associate and Assistant General
Counsel, for such terms of office as it may direct and to perform such acts and
carry out duties as the Board of Directors or the President and Chief Executive
Officer may determine. Any sales director who has been recognized for his
performance of services by being given the honorary title of Regional Vice
President shall not be an "officer" of the Company. Any employee who has been
recognized for his performance of services by being given the honorary title of
Field Vice President shall not be an "officer" of the Company. One person may
hold any two of the executive offices of the corporation (except the same person
shall not be both President and Secretary) but no such officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument is required by law or by these Bylaws or by resolution of the Board
of Directors to be executed, acknowledged or verified by any two or more
officers.
Section 2. Election, Term of Office and Qualifications. The Executive
--------- -------------------------------------------
Officers of the corporation shall be chosen annually by the Board of Directors.
Each officer shall hold his office until a successor shall have been duly chosen
and qualified, or until his death, or until he shall resign or shall have been
removed in the manner hereinafter provided.
Section 3. Removal. The officers designated in Section 1 of this Article
--------- -------
may be removed, either with or without cause, by a vote of a majority of the
whole Board of Directors at a meeting called for the purpose.
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<PAGE>
Section 4. Resignation. Any officer may resign at any time by giving
--------- -----------
written notice to the Board of Directors, to the President and Chief Executive
Officer, or to the Secretary of the corporation. Any such resignation shall take
effect at the same time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective.
Section 5. Vacancies. A vacancy in any office because of death,
--------- ---------
resignation, removal, disqualification or any other cause, shall be filled for
the unexpired portion of the term by the Board of Directors.
Section 6. The Chairman of the Board. The Chairman of the Board shall be
--------- -------------------------
responsible to the Board of Directors. He shall perform all duties usual and
incident to the office of the Chairman of the Board and such other duties as
from time to time may be assigned to him by the Board of Directors.
Section 7. The President and Chief Executive Officer. The President shall
--------- -----------------------------------------
be the chief executive officer of the corporation and shall be responsible to
the Board of Directors for the operation of the corporation and the conduct of
its business. The President and Chief Executive Officer shall perform such
duties as are given to him by these Bylaws and by the Chairman of the Board, and
the Board of Directors. In the event of a vacancy in the office of the Chairman
of the Board or in the absence of the Chairman of the Board, the President and
Chief Executive Officer shall perform all the duties of the Chairman of the
Board, and, when so acting, shall have all the powers of, and be subject to all
the restrictions upon, the Chairman of the Board.
Section 8. Executive Vice Presidents, Senior Vice Presidents, Vice
--------- -------------------------------------------------------
Presidents, Second Vice Presidents, and General Auditors. Executive Vice
- --------------------------------------------------------
Presidents, Senior Vice Presidents, Vice Presidents, Second Vice Presidents, and
General Auditors shall perform such duties as are assigned by these Bylaws and
by the Board of Directors, the Chairman of the Board and the President.
Section 9. The Secretary. The Secretary shall be sworn to the faithful
--------- -------------
discharge of his duty. He shall:
A. Keep the minutes of the meetings of the Stockholder and of the Board of
Directors in books provided for the purpose.
B. See that all notices are duly give in accordance with the provisions of
these Bylaws or as required by law.
C. Be custodian of the records and seal of the corporation, and see that
such seal is affixed to all stock certificates prior to their issue and to
all documents the execution of which on behalf of the corporation under
its seal is duly authorized in accordance with these Bylaws.
D. Have charge of the stock books of the corporation and keep or cause to
be kept the stock and transfer books in such manner as to show at any time
the amount of the
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<PAGE>
stock of the corporation issued and outstanding, the manner in which and
the time when such stock was transferred, the names, alphabetically
arranged, and the addresses of the holders of record thereof, the number
of shares held by each, and the time when each became such holder of
record; and exhibit at all reasonable times to any Director, upon
application, the original or duplicate stock ledger.
E. Sign, with the President, certificates of stock of the corporation.
F. See that the books, reports, statements, certificates and all other
documents and records of the corporation required by law are properly kept
and filed.
G. In general, perform all duties incident to the office of Secretary, and
such other duties as, from time to time, may be assigned to him by the
Board of Directors, the Chairman of the Board, or the President.
Section 10. The Treasurer. The treasurer shall:
---------- -------------
A. Have charge of, and be responsible for, all funds and securities of the
corporation.
B. From time to time, render a statement of the condition of the finances
of the corporation at the request of the Board of Directors.
C. Receive, and give receipt for, monies due and payable to the
corporation from any source whatsoever.
D. In general, perform all the duties incident to the office of Treasurer
and such other duties as, from time to time, may be assigned to him by the
Board of Directors, the Chairman of the Board, or the President.
The Treasurer may be required to give a bond for the faithful performance
of his duties in such sum and with such surety as may be determined by the Board
of Directors.
Section 11. The Actuary. The Actuary shall perform all duties incident to
---------- -----------
the office of the Actuary, and such other duties as, from time to time, may be
assigned to him by the Board of Directors, by the Chairman of the Board, or by
the President.
Section 12. Modification of Policies. The executive officers designated in
---------- ------------------------
Section 1 of this Article, together with any officers designated by the Board of
Directors, shall have the authority to sign and modify insurance policies for
the company.
Section 13. Salaries and Compensation of Officers. Salaries and
---------- -------------------------------------
compensation of all Executive Officers shall be fixed by the Board of Directors.
In addition, the Board of Directors may, in its discretion, delegate its
authority in whole or part, to the extent permitted by law, to
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<PAGE>
an Executive Officer to approve salaries and compensation for officers as
designated in Section 1.
ARTICLE II
----------
Directors
---------
Section 1. Number and Qualifications. The property, interests, business and
--------- -------------------------
transactions of the corporation shall be managed by a Board of Directors
consisting of not less than five(5) nor more than twelve (12) persons elected
annually by the holder of the capital stock for the term of one (1) year, and
shall serve until the election and qualification of their successors, unless
they sooner resign.
Section 2. Vacancies. Any vacancy occurring in the Board of Directors may
--------- ---------
be filled for the unexpired term by a majority vote of the remaining members of
the Board of Directors. In the event that the membership of the Board of
Directors falls below the number necessary for a quorum, a special meeting of
the Stockholders shall be called, and such number of Directors shall be elected
thereat as may be necessary to restore the membership of the Board to its full
number.
Section 3. Meetings. Regular meetings of the Board of Directors shall be
--------- --------
held three times in each calendar each year. The exact dates for the regular
meetings in a calendar year will be set in the preceding year at the last
regular meeting of the Board of Directors and included as part of the minutes
thereof. The Board of Directors shall meet at such other time as it may, from
time to time, determine. No notice need be given of the time of the meeting of
any regular meeting of the Board of Directors.
Section 4. Place of Meetings. The Board of Directors may hold its meetings
--------- -----------------
at such place or places within or without the State of Colorado as the Board
may, from time to time, determine, or with respect to its meetings, as shall be
specified or fixed in the respective notices or waivers of notice of such
meetings.
Section 5. Special Meetings; Notice. Special meetings of the Board of
--------- ------------------------
Directors shall be held whenever called by the Chairman of the Board or by the
President or three (3) of the Directors. Notice of each such meeting shall be
mailed to each Director, addressed to him at his address as it appears on the
records of the corporation, at least three (3) days before the day on which the
meeting is to be held. No notice need be given to any Director of the meeting,
either before or after the holding thereof, who waives such notice. No notice
need be given of an adjourned meeting of the Board of Directors.
As to any Directors who shall sign the minutes of any Directors' meeting,
such meeting shall be deemed to have been legally and duly called, noticed, held
and conducted, and the action thereof approved, and, for all purposes and as to
such persons, the minutes of the Directors' meeting shall be construed as if all
the Directors were actually present at said
-4-
<PAGE>
meeting, and all who signed the minutes were duly noticed, and the signature of
any Director to the minutes of a meeting shall, for all purposes and as to all
persons, be held to be an approval of the actions taken thereat.
Section 6. Quorum and Manner of Action. A majority of the number of
--------- ---------------------------
Directors, determined pursuant to ARTICLE II, Section 1, shall form a quorum for
the transaction of business at any regular or special meeting of the Board of
Directors. Except as otherwise provided by law, by the charter, or by these
Bylaws, the act of a majority of the Directors present at any meeting, at which
a quorum is present, shall be the act of the Board of Directors. In the absence
of a quorum, the Director present may adjourn the meeting from time to time
until a quorum be had.
Section 7. Election of Officers. At the first meeting of the Board of
--------- --------------------
Directors after the annual election, the Executive Officers named in Section 1
of ARTICLE I of these Bylaws shall be elected to serve for the ensuing year and
until the election of their respective successors. In addition, the Board of
Directors shall elect their Chairman and may elect an Executive Committee and
such other committees, including an Investment Committee, with such membership,
duties and authority as the Board may designate. Elections shall be by ballot,
and a majority of the votes cast shall be necessary to elect. Any vacancies that
occur may be filled by the Board for the unexpired term. All other officers who
are not Executive Officers shall serve for such terms as may be determined by
the Board of Directors electing them subject, however, to the right of removal
with or without cause by any subsequent Board of Directors.
Section 8. Chairman. The Board of Directors shall designate a Chairman who
--------- --------
shall preside at all meetings of the Board of Directors and Shareholders'
meetings. If no Chairman is so designated, or in the absence of the Chairman,
the President and Chief Executive Officer of the corporation shall act as
Chairman.
Section 9. Duties. The Board of Directors shall exercise a general
--------- ------
supervision over the affairs of the corporation, and receive and pass upon the
reports of the officers. The Board may direct any officer or officers of the
corporation to transact any particular branch of business which it may see fit
to designate. The Board of Directors may, from time to time, employ such persons
as the Board may deem necessary for the carrying on of the business of the
corporation, any of whom may also be Officers or Directors of the corporation.
Section 10. Removal. Any Director may be removed from office, either with
---------- -------
or without cause, at any time, and another person may be elected to his place,
to serve for the remainder of his term, at any special meeting of the
Stockholder called for the purpose, by a majority vote of the total number of
votes entitled to be cast by the Stockholder. In case any vacancy so created
shall not be filled by the Stockholder at such meeting, such vacancy my be
filled by the Directors as provided hereinabove.
Section 11. Executive Committee. At the first meeting of the Board of
---------- -------------------
Directors after the annual election, an Executive Committee may be elected from
the membership of the
-5-
<PAGE>
Board of Directors. Said Committee shall consist of not more than four (4)
members, among whom shall be the Chairman of the Board. The Executive Committee
may meet at any time or place in or out of the State of Colorado, with or
without notice, and a majority of the members of the Committee shall constitute
a quorum for the transaction of business. Except when the Board of Directors is
in session the Executive Committee shall have an exercise every right, power and
authority of the Board of Directors permitted by law. Any act ratified by a
majority of the Executive Committee shall be of the same force, effect and
validity as if such act had been authorized in advance. The members of the
Executive Committee shall hold office until the first meeting of the Board of
Directors after the next annual election and until their successors shall have
been duly elected and qualified, unless prior thereto they shall have been
removed by the Board of Directors. The Board of Director may, at any time,
remove any member or all members of the Executive Committee and elect another or
others in lieu thereof, excepting the Chairman of the Board. The Executive
Committee shall keep a record of all meetings and all business done thereat and
the records shall be at all times subject to inspection by the Board of
Directors. The Executive Committee may annually designate one member of the
Committee as its Chairman, who shall preside at meetings of the Committee. If no
Chairman is so designated, or in the absence of the Chairman, the Chairman of
the Board of the corporation shall act as Chairman of the Executive Committee.
Section 12. Retirement. Mandatory retirement from the Board will occur for
---------- ----------
members of the Board of Directors in office on January 1, 1978 at the first
Annual Shareholders' Meeting following the attainment of age 72. Thereafter,
Board members will be retired from the Board at the December 31st next following
the attainment of age 70.
ARTICLE III
-----------
Stock
-----
Section 1. Certificates. The Stockholder of the corporation whose stock has
--------- ------------
been paid for in full shall be entitled to a certificate showing the amount of
stock of the corporation standing on the books in his name. Each certificate
shall be numbered, shall bear the signatures of the President and of the
Secretary or an Assistant Secretary, and shall be manually countersigned by an
authorized officer of any transfer agent which has been duly appointed by the
corporation. Each certificate shall bear the seal of the corporation and be
issued in numerical order. The signatures of the President, the Secretary and
any Assistant Secretary may all be facsimiles, and the seal of the corporation
may be facsimile reproduction, but the countersignature of any transfer agent
shall be manual.
Section 2. Transfer. Transfers of all stock shall be made upon the proper
--------- --------
stock books of the corporation, and must be accompanied by the surrender of the
duly endorsed certificates representing the transferred stock. Surrendered
certificates shall be canceled and new certificates issued to the parties
entitled thereto. The stock book shall be closed to transfers fifteen (15) days
before general elections and fifteen (15) days before dividend dates.
-6-
<PAGE>
Section 3. Lost Certificates. The Board of Directors may order a new
--------- -----------------
certificate of stock to be issued in the place of any certificate of the
corporation alleged to have been lost or destroyed, but in either such case the
owner of the lost certificate shall first cause to be given to the corporation a
bond in such sum and with such surety as said Board may direct as indemnity
against any loss or claim that the corporation may incur by reason of the
issuance of such certificate, but the Board of Directors may, in its discretion,
refuse to replace any lost certificate, save upon the order of some court having
jurisdiction in such matters.
Section 4. Stock and Transfer Books. The stock and transfer books and all
--------- ------------------------
other books and records of the corporation shall be kept at its principal office
in Denver, Colorado, except that the stock and transfer books may be kept in the
office of any duly appointed transfer agent of the corporation. All such books
and records shall be open for inspection by the shareholder and judgment
creditors of the corporation and their personal representatives, at the
principal office of the corporation in Denver, Colorado, or with regard to stock
and transfer books at the office of any duly appointed transfer agent of the
corporation, and extracts may be made therefrom, as provided by law; provided,
however, as permitted by law, the following limitations of such right of
inspection and making extracts shall be and is hereby made, to-wit:
A. Prior to any such inspection being made, the requesting party first
shall give written notice to the Secretary of the corporation of the
requesting party's desire to inspect and/or make extracts from such books
and records of the corporation, said written notice to identify the
particular books desired to be examined and to set forth the purpose or
purposes of such examination. Within fifteen (15) days after receipt of
such notice, the Secretary, in writing or orally, shall inform the
requesting party of the date, time and place the requested books and/or
records of the corporation may be examined by the requesting party.
B. The requesting party shall not remove any of the requested books and/or
records of the corporation from the place of examination indicated by the
Secretary, as set forth in paragraph "A" above.
C. The Secretary and/or any person designated by the Secretary shall be
permitted to remain present with the requesting party at all times during
the examination of the books and/or records of the corporation by the
requesting party.
D. All notes, memoranda, or extracts of books and/or records of the
corporation, made and/or taken by the requesting party, shall be made in
duplicate by the requesting party, and a copy thereof shall be delivered
forthwith by the requesting party to the Secretary or to the designated
representative of the Secretary, as the case may be.
E. Before making any such examination of said books and/or records of the
corporation and upon demand therefor by the Secretary or by the designated
representative of the Secretary, the requesting party shall pay the
corporation for all
-7-
<PAGE>
reasonable costs and/or expenses, if any, incurred by the corporation in
connection with the examination, said costs and/or expenses to be itemized
and set forth in a written statement to be furnished by the Secretary or
by the Secretary's designated representative to the requesting party at
the time of the aforesaid demand for reimbursement therefor.
F. The Secretary, in his discretion, may refuse to permit any examination
of the books and/or records of the corporation during the fifteen (15) day
period referred to in Section 2 of ARTICLE III of these Bylaws, anything
hereinabove set forth in this section of the Bylaws to the contrary
notwithstanding.
ARTICLE IV
----------
Section 1. Annual Meetings. The regular Annual Meeting of the Shareholder
--------- ---------------
of the corporation shall be held at the office of the corporation in Denver,
Colorado, or at such other place, either within or without the State of
Colorado, as may be ordered by the Chairman of the Board, President and Chief
Executive Officer, or the Board of Directors. The Annual Meeting shall be held
immediately preceding the first regular Board of Directors meeting in each
calendar year, or at such other time as the Board of Directors in its discretion
may determine. At such meeting, the Directors for the ensuing year shall be
elected. The officers of the corporation may present their annual reports.
Section 2. Special Meetings. Special Shareholders' meetings may be called
--------- ----------------
by the Chairman of the Board or the President and Chief Executive Officer, or
the Secretary, or by resolution adopted at a meeting of the Board of Directors
or on call signed by the corporation's Shareholder. Unless the Board of
Directors directs otherwise, said meetings shall be held at the office of the
corporation in Denver, Colorado, but may be held at such other place, within or
without the State of Colorado, as may be designated by the Board of Directors.
Calls for special meetings shall specify the time, place and objects therefor,
and no other business than that specified in the call shall be considered in any
such meeting.
Section 3. Notice of Meetings. Notice of the time and place of all regular
--------- ------------------
and special meetings shall be prepared by the Secretary, and may be delivered
personally, or deposited in the post office, properly addressed, with postage
prepaid, to the Shareholder not less than ten (10) nor more than fifty (50) days
before such meeting. If the Shareholder shall fail to furnish the Secretary with
its correct post office address, it shall not be entitled to the separate,
personal notice referred to herein. Regular and special meetings may be held
upon waiver duly signed by the Shareholder of record, without notice thereof
being published or mailed. No notice of any Shareholder's meeting shall be
required when the Shareholder is present, either in person or by proxy at such
meeting.
Section 4. Election of Directors. At each annual meeting of the Shareholder
--------- ---------------------
of the corporation not less than five (5) nor more than fifteen (15) Directors
shall be elected who shall
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<PAGE>
serve until their successors are duly elected and qualified, unless they sooner
resign. Election of Directors shall be by the Shareholder, either in person or
by proxy.
Section 5. Proxies. The Shareholder entitled to vote may be represented at
--------- -------
any regular or special meeting of the Shareholder by a duly executed proxy. The
proxy shall be in writing and properly signed, and no proxy shall be recognized
unless executed within eleven (11) months of the date of the meeting at which it
is presented unless otherwise provided in the proxy.
Section 6. Order of Business. The order of business at the annual meeting
--------- -----------------
and, so far as is practicable, at all other meetings of the Shareholder, shall
include, but not be limited to, the following:
1. Call of roll.
2. Proof of due notice of meeting.
3. Reading and disposal of any unapproved minutes.
4. Annual reports of officers and committees.
5. Election of Directors.
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<PAGE>
ARTICLE V
---------
Dividends
---------
Section 1. Dividends. Dividends shall be declared at such times and in such
--------- ---------
amounts as the Board may direct, but no dividends shall be declared which will
violate the statutes of the State of Colorado.
ARTICLE VI
----------
Miscellaneous Provisions
------------------------
Section 1. Corporate Seal. The corporate seal of the corporation shall
--------- --------------
consist of two concentric circles, between which shall be "Security Life of
Denver Insurance Company" and in the center shall be inscribed the word "Seal",
which seal, as impressed on the margin hereof, is adopted as the seal of the
corporation.
Section 2. Depositories and Withdrawals. The Board of the Directors may
--------- ----------------------------
designate depositories for the funds of the corporation and funds deposited
therein by any officer or other person connected with the corporation shall not
place any personal liability upon the person or persons authorized to make such
deposits should any loss occur through failure of any such depository. Funds
shall not be withdrawn from any depository except upon two authorized signatures
unless the instrument for withdrawal of funds bears the authorized facsimile
signature produced by a check signing device, the use of which may be authorized
by the Board of Directors or the Executive Committee.
Section 3. Bonds. Such bond or bonds may be required of the officers and
--------- -----
employees of the corporation as the Board of Directors shall require. The
corporation may pay the charges for any bond or for bonds that may be otherwise
given in favor of the corporation.
ARTICLE VII
-----------
Section 1. Amendments. Any and all provisions of these Bylaws may be
--------- ----------
altered, amended, repealed or added to by the Board of Directors.
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<PAGE>
ARTICLE VIII
------------
Indemnification of Directors,
-----------------------------
Officers and Other Personnel
----------------------------
Section 1. Non-Derivative Actions. The corporation shall indemnify any
--------- ----------------------
person who was or is a party or is threatened to be made a party to any
threatened, pending, or completed action, suit or proceeding, whether civil,
criminal, administrative, or investigative (other than an action by or in the
right of the corporation), by reason of the fact that he is or was a director,
member of a committee appointed by the Board of Directors, officer, salaried
employee, or fiduciary of the corporation or is or was serving at the request of
the corporation (whether or not as a representative of the corporation) as a
director, officer, employee, (for example, acting in a fiduciary capacity for
welfare benefit plans including but not limited to Employees' Retirement Plan,
Savings Incentive Plan, Group Medical Plan, Prescription Drug Program, Group
Term Life Insurance, Group Dental Plan, Travel Accident Plan or Deferred
Compensation Plan, et al.), or fiduciary of another corporation, partnership,
joint venture, trust, or other enterprise, against expenses (including attorney
fees), judgments, fines, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in the best interests
of the corporation and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgement, order, settlement, or conviction or
upon a plea of nolo contendere or its equivalent shall not of itself create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in the best interests of the corporation and, with
respect to any original criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
Section 2. Derivative Actions. The corporation shall indemnify any person
--------- ------------------
who was or is a party or is threatened to be made a party to any threatened,
pending, or completed action or in suit by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that he is or was a
director, member of a committee appointed by the Board of Directors, officer,
salaried employee, or fiduciary of the corporation or is or was serving at the
request of the corporation (whether or not as a representative of the
corporation) as a director, officer, employee, (for example, acting in a
fiduciary capacity for welfare benefit plan including but not limited to
Employee's Retirement Plan, Savings Incentive Plan, Group Medical Plan,
Prescription Drug Program, Group Term Life Insurance, Group Dental Plan, Travel
Accident Plan or Deferred Compensation Plan, et al.), or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorney fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in the best interests of
the corporation; but no indemnification shall be made in respect of any claim,
issue, or matter as to which such person has been adjudged to be liable for the
negligence or misconduct in the performance of his duty to the corporation
unless and only to the extent that the court in which such action or suit was
brought determines upon application that, despite the
-11-
<PAGE>
adjudication of liability, but in view of all circumstances of the case, such
person is fairly and reasonably entitled to indemnification for such expenses
which such court deems proper.
Section 3. Expenses. To the extent that a director, member of a committee
--------- --------
appointed by the Board of Directors, officer, salaried employee, or fiduciary of
the corporation shall be successful on the merits in defense of any action,
suit, or proceeding referred to in Section 1 or Section 2 of this Article VIII
or in defense of any claim, issue, or matter therein, he shall be indemnified by
the corporation against expenses (including attorney fees) actually and
reasonably incurred by him in connection therewith.
Section 4. Authorization. Any indemnification under Section 1 or Section 2
--------- -------------
of this Article VIII (unless ordered by a court) shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, member of a committee appointed by the Board of
Directors, officer, salaried employee, or fiduciary is proper in the
circumstances because he has met the applicable standard of conduct set forth in
Section 1 or Section 2. Such determination shall be made by the Board of
Directors by a majority vote of a quorum consisting of directors who were not
parties to such action, suit, or proceeding, or, if such a quorum is not
obtainable or even if obtainable a quorum of disinterested directors so directs,
by independent legal counsel in a written opinion, or by the Stockholder.
Section 5. Advance Payment of Expenses. Expenses (including attorney fees)
--------- ---------------------------
incurred in defending a civil or criminal action, suit, or proceeding may be
paid by the corporation in advance of the final disposition of such action,
suit, or proceeding as authorized in Section 4 of this Article VIII upon receipt
of an undertaking by or on behalf of the director, member of a committee
appointed by the Board of Directors, officer, salaried employee, or fiduciary to
repay such amount unless it is ultimately determined that he is entitled to be
indemnified by the corporation as authorized in this Article VIII.
Section 6. Non-Exclusivity and Continuance. The indemnification provided by
--------- -------------------------------
this Article VIII shall not be deemed exclusive of any other rights to which any
person indemnified may be entitled under the Articles of Incorporation, any
agreement, insurance policy, vote of the Stockholder or disinterested directors,
or otherwise, and any procedure provided for by any of the foregoing, both as to
action in his official capacity and as to action in another capacity while
holding such office. Any indemnity otherwise payable under this Article VIII on
account of any specific loss or expense shall be reduced by the amount of any
insurance proceeds paid or payable to the person to be indemnified on account of
the same loss or expense is such insurance is provided by the corporation or any
of its affiliates. The indemnification provided by this Article VIII shall
continue as to a person who has ceased to be a director, member of a committee
appointed by the Board of Directors, officer, salaried employee, or fiduciary
with regard to acts or omissions of such person occurring or alleged to have
occurred while the person was so engaged, and shall inure to the benefit of
heirs, executors, and administrators of such a person.
-12-
<PAGE>
Section 7. Application of this Article. The provisions of this Article VIII
--------- ---------------------------
shall apply to all actions, suits or proceedings described in Section 1 or
Section 2 arising or alleged to arise out of any acts or omissions on the part
of any person referred to in Section 1 or Section 2 occurring or alleged to
occur prior to the adoption of this Article VIII or at any time while it remains
in force.
Section 8. Exclusions. No indemnification is provided under this Article
--------- ----------
VIII for unsalaried persons under contract with the corporation in sales
capacities such as General Agents, Agents and Brokers. Except as expressly
provided in this Article VIII no indemnity is provided for persons performing
services to the corporation as independent contractors.
I certify that the foregoing is a full and complete copy of the Bylaws of
Security Life of Denver Insurance Company as amended on January 29, February 18,
1969, October, 1974, May 11, July 27, 1977, February 17, 1978, February 22,
1980, April 28, 1980, May 14, 1980, May 29, 1981, November 10, 1982, May 10,
1984, May 29, 1985, May 5, 1988, November 2, 1989, October 31, 1990, November 8,
1991, and February 14, 1994.
Date: February 21, 1995 /s/ Irene M. Colorosa
---------------------
Irene M. Colorosa
Assistant Secretary
-13-
<PAGE>
EXHIBIT 8.(a)
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Security Life of Denver Insurance Company,
Van Eck Investment Trust, and Van Eck Associates Corporation (collectively, the
"Parties").
WHEREAS, the Parties executed a participation agreement dated August 31, 1994
(the "Participation Agreement"), governing how shares of Fund's portfolios are
to be made available to certain variable life insurance and/or variable annuity
contracts (the "Contracts") offered by Insurance Company through certain
separate accounts (the "Separate Accounts").
WHEREAS, Section 17 of the Participation Agreement requires the Parties to
share certain information with California Insurance regulators;
WHEREAS, states other than California require access to such information
before one can sell such insurance within their borders;
WHEREAS, the Parties have agreed that it is in their interests to make such
information available to states which require it;
NOW, THEREFORE, in consideration of their mutual promises, the Parties agree
as follows:
1. The Participation Agreement is hereby amended by substituting for the first
sentence of Section 17 of the following amended sentence:
Each party hereto agrees to furnish any state insurance regulatory
agency with any information or reports in connection with services provided
under this Agreement which such agency may request in order to ascertain
whether the insurance operations of Insurance Company are being conducted
in a manner consistent with the state's insurance regulations and any other
applicable law and regulations.
<PAGE>
Executed this __ day of February, 1995.
Security Life of Denver Insurance Company
ATTEST: BY:
Van Eck Investment Trust
ATTEST: BY:
Van Eck Associates Corporation
ATTEST: BY:
2
<PAGE>
EXHIBIT 8(b)(i)
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Security Life of Denver Insurance
Company, Van Eck Investment Trust, and Van Eck Associates Corporation
(collectively, the "Parties").
WHEREAS, the Parties executed a participation agreement dated August 31,
1994 (the "Participation Agreement"), governing how shares of Fund's portfolios
are to be made available to certain variable life insurance and/or variable
annuity contracts (the "Contracts') offered by Insurance Company through certain
separate accounts (the "Separate Accounts").
WHEREAS, Section 17 of the Participation Agreement requires the Parties to
share certain information with California Insurance regulators;
WHEREAS, states other than California require access to such information
before one can sell such insurance within their borders;
WHEREAS, the parties have agreed that it is in their interests to make such
information available to states which require it;
NOW, THEREFORE, in consideration of their mutual promises, the Parties
agree as follows:
1. The Participation Agreement is hereby amended by substituting for the
first sentence of Section 17 the following amended sentence:
Each party hereto agrees to furnish any state
insurance regulatory agency with any information or
reports in connection with services provided under this
Agreement which such agency may request in order to
ascertain whether the insurance operations of Insurance
Company are being conducted in a manner consistent with
the state's insurance regulations and any other
applicable law and regulations.
<PAGE>
Executed this __ day of February, 1995.
SECURITY LIFE OF DENVER INSURANCE COMPANY
Attest: /s/ By: /s/
------------------------- ------------------------------------------
VAN ECK INVESTMENT TRUST
Attest: /s/ By: /s/
------------------------- ------------------------------------------
VAN ECK ASSOCIATES CORPORATION
Attest: /s/ By: /s/
------------------------- ------------------------------------------
<PAGE>
EXHIBIT 8(b)(iii)
FIRST AMENDMENT TO SALES AGREEMENT
THIS AGREEMENT is made by and between The Alger American Fund ("FUND"), a
Massachusetts business trust, FRED ALGER MANAGEMENT, INC., a New York
corporation ("ADVISER"), and SECURITY LIFE OF DENVER INSURANCE COMPANY ("LIFE
COMPANY"), a life insurance company organized under the laws of the State of
Colorado (collectively, the "PARTIES").
WHEREAS, the PARTIES executed a sales agreement dated August 26, 1994 (the
"Sales Agreement"), governing how shares of FUND's portfolios are to be made
available to certain variable life insurance and/or variable annuity contracts
offered by LIFE COMPANY through certain separate accounts (the "Separate
Accounts").
WHEREAS, the FUND portfolios available to the Separate Accounts are listed
in Appendix A of the Sales Agreement;
WHEREAS, the PARTIES have agreed that it is in their interests to make two
additional FUND portfolios available to the separate accounts;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
FUND and ADVISER agree as follows:
1. The Sales Agreement is hereby amended by substituting for the original
Appendix A an amended Appendix A in the form attached hereto which adds the
Alger American Growth Portfolio and Alger American Leveraged Allcap Portfolio to
the list of portfolios made available to the Separate Accounts.
Executed this 28th day of February, 1995.
The Alger American Fund
ATTEST: /s/ Nanci Staple BY: /s/ Gregory Duch
Security Life of Denver Insurance
Company
ATTEST: /s/Bonnie C. Dailey BY: /s/ Steve Largent
Fred Alger Management, Inc.
ATTEST: /s/ Nanci Staple BY: /s/ Gregory Duch
<PAGE>
APPENDIX A
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged Allcap Portfolio
<PAGE>
EXHIBIT 8(b)(iv)
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Security Life of Denver Insurance
Company, a life insurance company organized under the laws of the State of
Colorado ("Insurance Company"), Variable Insurance Products Fund, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (the "Fund"), and Fidelity Distributors Corporation, a
Massachusetts corporation (the "Underwriter") (collectively, the "Parties").
WHEREAS, the Parties executed a participation agreement dated August 10,
1994 (the "Participation Agreement"), governing how shares of Fund's portfolios
are to be made available to certain variable life insurance and/or variable
annuity contracts (the "Contracts") offered by Insurance Company through certain
separate accounts (the "Separate Accounts").
WHEREAS, the various Contracts for which shares are purchased are listed in
Schedule A of the Participation Agreement and the various portfolios made
available to the Separate Accounts are listed in Schedule C;
WHEREAS, the Parties have agreed that it is in their interests to add two
additional Contracts funded by the Separate Accounts and two additional
portfolios made available to the Separate Accounts;
NOW, THEREFORE, in consideration of their mutual promises, Insurance
Company, Fund, and Underwriter agree as follows:
1. The Participation Agreement is hereby amended by substituting for the
original Schedule A an amended Schedule A in the form attached hereto which adds
the Strategic Advantage Variable Universal Life policy and the Fulcrum Fund
Variable Account to the list of Contracts funded by the Separate Accounts.
2. The Participation Agreement is hereby amended by substituting for the
original Schedule C an amended Schedule C in the form attached hereto which adds
the Alger American Growth Portfolio and Alger American Leveraged AllCap
Portfolio to the list of portfolios made available to the Separate Accounts.
<PAGE>
Executed this day of February, 1995.
Variable Insurance Products Fund
ATTEST: BY: /s/ J. Gary Burkhead
Security Life of Denver Insurance Company
ATTEST: /s/ Bonnie C. Dailey BY: /s/ Steve Largent
Fidelity Distributors Corporation
ATTEST: BY: /s/ Kurt A. Lange
-2-
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
Security Life Separate Account Al The Exchequer Variable Annuity
(November 3, 1993) (Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract)
The Fulcrum Fund Variable Account
Security Life Separate Account LI First Line (Flexible Premium Variable
(November 3, 1993) Life Insurance Policy)
Strategic Advantage Variable Universal
Life (Flexible Premium Variable
Universal Life Insurance Policy)
-3-
<PAGE>
Schedule C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF Total Return Portfolio
INVESCO VIF Utilities Portfolio
Neuberger and Berman Government Income Portfolio
Neuberger and Berman Growth Portfolio
Neuberger and Berman Limited Maturity Bond Portfolio
Neuberger and Berman Partners Portfolio
Van Eck Gold and Natural Resources Portfolio
Van Eck Worldwide Balanced Portfolio
Fidelity Investments Variable Insurance Products Fund II
Asset Manager Portfolio
Index 500 Portfolio
-4-
<PAGE>
EXHIBIT 8(b)(v)
AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND
FIDELITY DISTRIBUTORS CORPORATION
and
SECURITY LIFE OF DENVER INSURANCE COMPANY
WHEREAS, SECURITY LIFE OF DENVER INSURANCE COMPANY (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION have previously entered into a Participation Agreement (the
"Agreement") containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes containing
the Fund's prospectus and/or Statement of Additional Information in lieu of
receiving hard copies of these documents, the Fund will reimburse the Company in
an amount computed as follows. The number of prospectuses and Statements of
Additional Information actually distributed to existing contract owners by the
Company will be multiplied by the Fund's actual per-unit cost of printing the
documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 15th day of December,
1994.
SECURITY LIFE OF DENVER INSURANCE COMPANY
By: /s/ Steve Largent
Name: Steve Largent
Title: Vice President
VARIABLE INSURANCE PRODUCTS FUND FIDELITY DISTRIBUTORS CORPORATION
By: /s/ J. Gary Burkhead By: /s/ Kurt A. Lange
Name: J. Gary Burkhead Name: Kurt A. Lange
Title: Senior Vice President Title: President
<PAGE>
EXHIBIT 8(b)(vi)
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Security Life of Denver Insurance
Company, a life insurance company organized under the laws of the State of
Colorado ("Insurance Company"), Variable Insurance Products Fund II, an
unincorporated business trust organized under the laws of the Commonwealth of
Massachusetts (the "Fund"), and Fidelity Distributors Corporation, a
Massachusetts corporation (the "Underwriter") (collectively, the "Parties").
WHEREAS, the Parties executed a participation agreement dated August 10,
1994 (the "Participation Agreement"), governing how shares of Fund's portfolios
are to be made available to certain variable life insurance and/or variable
annuity contracts (the "Contracts") offered by Insurance Company through certain
separate accounts (the "Separate Accounts").
WHEREAS, the various Contracts for which shares are purchased are listed in
Schedule A of the Participation Agreement and the various portfolios made
available to the Separate Accounts are listed in Schedule C;
WHEREAS, the Parties have agreed that it is in their interests to add an
additional Contract funded by the Separate Accounts and two additional
portfolios made available to the Separate Accounts;
NOW, THEREFORE, in consideration of their mutual promises, Insurance
Company, Fund, and Underwriter agree as follows:
1. The Participation Agreement is hereby amended by substituting for the
original Schedule A an amended Schedule A in the form attached hereto which adds
the Strategic Advantage Variable Universal Life policy to the list of Contracts
funded by the Separate Accounts.
2. The Participation Agreement is hereby amended by substituting for the
original Schedule C an amended Schedule C in the form attached hereto which adds
the Alger American Growth Portfolio and Alger American Leveraged AllCap
Portfolio to the list of portfolios made available to the Separate Accounts.
<PAGE>
Executed this day of February, 1995.
Variable Insurance Products Fund II
ATTEST: BY: /s/ J. Gary Burkhead
Security Life of Denver Insurance Company
ATTEST: /s/ Bonnie C. Dailey BY: /s/ Steve Largent
Fidelity Distributors Corporation
ATTEST: BY: /s/ Kurt A. Lange
-2-
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
Security Life Separate Account Al The Exchequer Variable Annuity
(November 3, 1993) (Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract)
Security Life Separate Account LI First Line (Flexible Premium Variable
(November 3, 1993) Life Insurance Policy)
Strategic Advantage Variable Universal
Life (Flexible Premium Variable
Universal Life Insurance Policy)
-3-
<PAGE>
Schedule C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF Total Return Portfolio
INVESCO VIF Utilities Portfolio
Neuberger and Berman Government Income Portfolio
Neuberger and Berman Growth Portfolio
Neuberger and Berman Limited Maturity Bond Portfolio
Neuberger and Berman Partners Portfolio
Van Eck Gold and Natural Resources Portfolio
Van Eck Worldwide Balanced Portfolio
Fidelity Investments Variable Insurance Products Fund
Growth Portfolio
Money Market Portfolio
Overseas Portfolio
-4-
<PAGE>
EXHIBIT 8(b)(vii)
AMENDMENT NO. 2 TO PARTICIPATION AGREEMENT AMONG
VARIABLE INSURANCE PRODUCTS FUND II
FIDELITY DISTRIBUTORS CORPORATION
and
SECURITY LIFE OF DENVER INSURANCE COMPANY
WHEREAS, SECURITY LIFE OF DENVER INSURANCE COMPANY (the "Company"),
VARIABLE INSURANCE PRODUCTS FUND II (the "Fund") and FIDELITY DISTRIBUTORS
CORPORATION have previously entered into a Participation Agreement (the
"Agreement") containing certain arrangements concerning prospectus costs; and
WHEREAS, the Trustees of the Fund have approved certain changes to the
expense structure of the Fund; and
NOW, THEREFORE, the parties do hereby agree to amend the Agreement by
substituting the following arrangement in place of any inconsistent language in
the Participation Agreement, wherever found:
1. The Fund will provide to the Company each year, at the Fund's cost,
such number of prospectuses and Statements of Additional Information as are
actually distributed to the Company's then-existing variable life and/or
variable annuity contract owners.
2. If the Company takes camera-ready film or computer diskettes containing
the Fund's prospectus and/or Statement of Additional Information in lieu of
receiving hard copies of these documents, the Fund will reimburse the Company in
an amount computed as follows. The number of prospectuses and Statements of
Additional Information actually distributed to existing contract owners by the
Company will be multiplied by the Fund's actual per-unit cost of printing the
documents.
3. The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund in order to verify that
the prospectuses and Statements of Additional Information provided to the
Company, or the reimbursement made to the Company, are or have been used only
for the purposes set forth hereinabove.
IN WITNESS WHEREOF we have set our hand as of the 15th day of December,
1994.
SECURITY LIFE OF DENVER INSURANCE COMPANY
By: /s/ Steve Largent
Name: Steve Largent
Title: Vice President
VARIABLE INSURANCE PRODUCTS FUND II FIDELITY DISTRIBUTORS CORPORATION
By: /s/ J. Gary Burkhead By: /s/ Kurt A. Lange
Name: J. Gary Burkhead Name: Kurt A. Lange
Title: Senior Vice President Title: President
<PAGE>
EXHIBIT 8(b)(viii)
FIRST AMENDMENT TO PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Security Life of Denver Insurance
Company, a life insurance company organized under the laws of the State of
Colorado ("Insurance Company"), Invesco Variable Investment Funds, Inc., a
Maryland corporation (the "Company"), and Invesco Funds Group, Inc., a Delaware
corporation ("Invesco") (collectively, the "Parties").
WHEREAS, the Parties executed a participation agreement dated August 26
1994 (the "Participation Agreement"), governing how shares of Company's
portfolios are to be made available to certain variable life insurance and/or
variable annuity contracts (the "Contracts") offered by Insurance Company
through certain separate accounts (the "Separate Accounts").
WHEREAS, the various Contracts for which shares are purchased are listed in
Schedule B of the Participation Agreement;
WHEREAS, the Parties have agreed that it is in their interests to add an
additional Contract funded by the Separate Accounts;
NOW, THEREFORE, in consideration of their mutual promises, Insurance
Company, Company, and Invesco agree as follows:
1. The Participation Agreement is hereby amended by substituting for the
original Schedule B an amended Schedule B in the form attached hereto which adds
the Strategic Advantage Variable Universal Life policy to the list of Contracts
funded by the Separate Accounts.
Executed this 22nd day of February, 1995.
Invesco Variable Investment Funds, Inc.
ATTEST: /s/ Glen A. Payne BY: /s/ J. Hansen
Security Life of Denver Insurance Company
ATTEST: /s/ Bonnie C. Dailey BY: /s/ Steve Largent
Invesco Funds Group, Inc.
ATTEST: /s/ Glen A. Payne BY: /s/ J. Hansen
<PAGE>
Schedule B
Contracts
1. The Exchequer Variable Annuity (Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract)
2. First Line (Flexible Premium Variable Life
Insurance Policy)
3. Strategic Advantage Variable (Flexible Premium Variable
Universal Life Universal Life Insurance Policy)
2
<PAGE>
EXHIBIT 8(b)(ix)
ASSIGNMENT AND MODIFICATION AGREEMENT
This Agreement is made by and between Neuberger & Berman Advisers
Management Trust ("Trust"), a Massachusetts business trust, Neuberger & Berman
Management Incorporated ("N&B Management"), a New York corporation, Neuberger &
Berman Advisers Management Trust ("Successor Trust"), a Delaware business trust,
Advisers Managers Trust ("Managers Trust") and Security Life of Denver Insurance
Company ("Life Company"), a life insurance company organized under the laws of
the State of Colorado.
WHEREAS, the Life Company has previously entered into a Sales Agreement
dated September 28, 1994 (the "Sales Agreement") with the Trust and N&B
Management regarding the purchase of shares of the Trust by Life Company; and
WHEREAS, as part of the reorganization into a "master-feeder" fund
structure (the "Reorganization"), the Trust will be converted into the Successor
Trust, a Delaware business trust; and
WHEREAS, as part of the Reorganization, each Portfolio of the Trust will
transfer all of its assets to the corresponding Portfolio of the Successor Trust
("Successor Portfolio") and each Successor Portfolio will invest all of its net
investable assets in a corresponding series of Managers Trust; and
WHEREAS, as part of the Reorganization, an Order under Section 6(c) of the
Investment Company Act of 1940 ("'40 Act") is expected to be issued by the
Securities and Exchange Commission ("SEC") granting exemptions from Sections
9(a), 13(a), 15(a) and 15(b) of the '40 Act and Rules 6e-2(b)(15) and 6e-
3(T)(b)(15) thereunder; and
WHEREAS, the Order is expected to require that certain conditions (the
"Conditions") as set forth in the Notice (Investment Company Act Release No.
21003 (April 12, 1995)) be made a part of the Sales Agreement; and
WHEREAS, the parties hereto desire to assign the Sales Agreement form the
Trust to the Successor Trust, to modify the Sales Agreement to include the
Conditions and to rename the Sales Agreement; and
WHEREAS, Managers Trust will become a party to the Sales Agreement as
modified hereby, due to and for purposes of its obligations under the
Conditions.
NOW THEREFORE, in consideration of their mutual promises, Trust, N&B
Management, Successor Trust, Managers Trust and Life Company agree as follows:
1. The Sales Agreement is hereby assigned by the Trust to the Successor
Trust.
2. Pursuant to such assignment, the Successor Trust hereby accepts all
rights and benefits of the Trust under the Sales Agreement and agrees
to perform all duties and obligations of the Trust under the Sales
Agreement. Upon the effectiveness of this Assignment and Modification
Agreement, the Trust will be released from all obligations and duties
under the Sales Agreement.
3. The Sales Agreement is hereby modified to include the Conditions as
follows:
Sections 13 and 14 of the Sales Agreement are replaced by the following:
<PAGE>
13. a) The Board of Trustees of each of the Successor Trust and
Managers Trust (the "boards") will monitor the Successor Trust and
Managers Trust, respectively, (collectively the "Funds") for the
existence of any material irreconcilable conflict between the interests
of the contract owners of all insurance company separate accounts
investing in the Funds. A material irreconcilable conflict may arise
for a variety of reasons, including: (a) state insurance regulatory
authority action; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private
letter ruling, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in
any relevant preceding; (d) the manner in which the investments of the
Funds are being managed; (e) a difference in voting instructions given
by variable annuity and variable life insurance contract owner or by
contract owners of different participating insurance companies; or (f) a
decision by a participating insurance company to disregard voting
instructions of contract owners.
b) Life Company, other participating insurance companies, N&B
Management (or any other manager or administrator of the Funds), and any
qualified pension and retirement plan that executes a fund participation
agreement upon becoming an owner of 10% or more of the assets of the
Funds (collectively, "Participants") will report any potential or
existing conflicts to the Boards. Participants will be responsible for
assisting the appropriate Board in carrying out its responsibilities
under these Conditions by providing the Board with all information
reasonably necessary for it to consider any issues raised. This
responsibility includes, but is not limited to, an obligation by each
Participant to inform the Board whenever variable contract owner voting
instructions are disregarded. These responsibilities will be carried
out with a view only to the interests of the contact owners.
c) If a majority of the Board of a Fund or a majority of its
disinterested trustees or directors, determines that a material
irreconcilable conflict exists, the relevant Participant, at its expense
and to the extent reasonably practicable (as determined by a majority of
disinterested trustees or directors), will take any steps necessary to
remedy or eliminate the irreconcilable material conflict, including:
(a) withdrawing the assets allocable to some or all of the separate
accounts from the Funds or any series thereof and reinvesting those
assets in a different investment medium, which may include another
series of the Successor Trust or Managers Trust, or another investment
company or submitting the question as to whether such segregation should
be implemented to a vote of all affected variable contract owners and,
as appropriate, segregating the assets of any appropriate group (i.e.,
variable annuity or variable annuity contract owners of one or more
Participants) that votes in favor of such segregation, or offering to
the affected variable contract owners the option of making such a
change; and (b) establishing a new registered management investment
company or managed separate account. If a material irreconcilable
conflict arises because of a Participant's decision to disregard
contract owner voting instructions, and that decision represents a
minority position or would preclude a majority vote, the Participant may
be required, at the election of the relevant Fund, to withdraw its
separate account's investment in such Fund, and no charge or penalty
will be imposed as a result of such withdrawal.
The responsibility to take remedial action in the event of a
Board determination of an irreconcilable material conflict and to bear
the cost of such remedial action shall be a contractual obligation of
all Participants under their agreements governing their participation in
the Funds. The responsibility to take such remedial action shall be
carried out with a view
<PAGE>
EXHIBIT 8(c)
SERVICE AGREEMENT
This Agreement is made as of the 28th day of February, 1995 by and between
Security Life of Denver Insurance Company ("Security Life") and Fred Alger
Management, Inc., a New York corporation ("Adviser") (collectively, the
"Parties").
W I T N E S S E T H:
WHEREAS, the Adviser serves as the investment adviser of The Alger American
Fund, a Massachusetts business trust (the "Fund"), which currently consists of
six separate series (each, a "Portfolio"); and
WHEREAS, Security Life has entered into an agreement, dated August 26,
1994, and amended February 28, 1995, with the Fund and Adviser (the "Sales
Agreement") pursuant to which the Fund will make shares of each Portfolio listed
from time to time on Schedule A thereto available to certain variable life
insurance and/or variable annuity contracts offered by Security Life through
certain separate accounts (the "Separate Accounts") at net asset value and with
no sales charges, subject to the terms of the Sales Agreement; and
WHEREAS, the Sales Agreement provides that the Fund will bear the costs of
preparing, filing with the Securities and Exchange Commission, printing or
duplicating and mailing the Fund's prospectus, statement of additional
information and any amendments or supplements thereto, periodic reports to
shareholders, Fund proxy material and other shareholder communications
(collectively, the "Fund Materials") required by law to be sent to owners of
Contracts ("Contract owners") who have allocated any Contract value to a
Portfolio; and
WHEREAS, the Sales Agreement provides that the Adviser, at its expense,
will provide Security Life with camera ready copies or copies suitable for
duplication of all Fund Materials with respect to prospective Variable Contract
owners of Security Life; and
WHEREAS, the Sales Agreement makes no provision for which party shall incur
various administrative expenses in connection with the servicing of Contract
owners who have allocated Contract value to a portfolio, including, but not
limited to, responding to various Contract owner inquiries regarding a
Portfolio; and
WHEREAS, the Parties hereto wish to allocate the expenses in a manner that
is fair and equitable, and consistent with the best interests of Contract
owners; and
WHEREAS, the Parties hereto wish to establish a means for allocating the
expenses that does not entail the expense and inconvenience of separately
identifying and accounting for each item of Fund expense;
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NOW THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
I. Services Provided:
Security life agrees to provide services to the Adviser including the
following:
a) responding to inquiries from Security Life Contract owners using one or
more of the Portfolios as an investment vehicle regarding the services performed
by Security life as they relate to the Fund or its Portfolios;
b) providing information to the Adviser and to Contract owners with
respect to shares attributable to Contract owner accounts;
c) printing and mailing of shareholder communications from the Fund as may
be required pursuant to Paragraph 4 of the Sales Agreement;
d) communication directly with Contract owners concerning the Fund's
operations;
e) providing such similar services as Adviser may reasonably request to
the extent permitted or required under applicable statutes, rules and
regulations.
II. Expense Allocations:
Subject to Section III hereof, Security Life or its affiliates shall
initially bear the costs of the following:
a) printing and distributing all Fund Materials to be distributed to
prospective Contract owners;
b) printing and distributing all sales literature or promotional material
developed by Security Life or its affiliates and relating to the Contracts;
c) servicing Contract owners who have allocated Contract value to a
Portfolio, which servicing shall include, but is not limited to, the items
listed in Paragraph I of this Agreement.
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III. Payment of Expenses:
a) The Adviser shall pay to Security Life a quarterly fee equal to a
percentage of the average daily net assets of the Portfolio attributable to
Contracts, at the annual rate of .10% (hereinafter, the "Quarterly Fee"), in
connection with the expenses incurred by Security Life under Section 11 hereof.
The payment of the Quarterly Fee shall commence at the end of the first calendar
quarter in which Contract value has been allocated to a Portfolio.
b) From time to time, the Parties hereto shall review the Quarterly Fee to
determine whether it reasonably approximates the incurred and anticipated costs,
over time, of Security Life in connection with its duties hereunder. The Parties
agree to negotiate in good faith any change to the Quarterly Fee proposed by a
Party in good faith.
c) This Agreement shall not modify any of the provisions of Paragraph 4 of
the Sales Agreement, but shall supplement those provisions.
IV. Term of Agreement:
Any Party may terminate this Agreement, without penalty, on 60 days'
written notice to the other Parties. Unless so terminated, this Agreement shall
continue in effect for so long as the Adviser or its successor(s) in interest,
or any affiliate thereof, continues to perform in a similar capacity for the
Fund, and for so long as any Contract value or any monies attributable to
Security life is allocated to a Portfolio.
V. Indemnification:
a) Security Life agrees to indemnify and hold harmless the Adviser and its
officers and directors, from any and all loss, liability and expense resulting
from the gross negligence or willful wrongful act of Security Life under this
Agreement, except to the extent such loss, liability or expense is the result of
the willful misfeasance, bad faith or gross negligence of the Adviser in the
performance of its duties, or by reason of the reckless disregard of its
obligations and duties under this Agreement.
b) Adviser agrees to indemnify and hold harmless Security Life and its
officers and directors from any and all loss, liability and expense resulting
from the gross negligence or willful wrongful act of Adviser under this
Agreement, except to the extent such loss, liability or expense is the result of
the willful misfeasance, bad faith or gross negligence of Security Life in the
performance of its duties, or by reason of the reckless disregard of its
obligations and duties under this Agreement.
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VI. Notices:
Notices and communications required or permitted hereby will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
Fred Alger Management, Inc.
75 Maiden Lane
New York, N.Y. 10038
Attn: Gregory S. Duch
FAX: (201) 434-1459
Security Life of Denver Insurance Company
1290 Broadway
Denver, Colorado 80203-5699
Attn: Stephan M. Largent
FAX: (303) 860-2134
VII. Applicable Law:
Except insofar as the Investment Company Act of 1940 or other federal laws
and regulations may be controlling, this Agreement will be construed and the
provisions hereof interpreted under and in accordance with New York law, without
regard for that state's principles of conflict of laws.
VIII. Execution in Counterparts:
This Agreement may be executed simultaneously in two or more counterparts,
each of which taken together will constitute one and the same instrument.
IX. Severability:
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
X. Rights Cumulative:
The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, that the Parties are entitled to under federal and state
laws.
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XI. Headings:
The headings used in this Agreement are for purposes of reference only and
shall not limit or define the meaning of the provisions of this Agreement.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
FRED ALGER MANAGEMENT, INC. SECURITY LIFE OF DENVER INSURANCE
COMPANY
By: /s/ Gregory Duch By: /s/ Steve Largent
Name: Gregory Duch Name: Stephan M. Largent
Title: Executive Vice President Title: Vice President
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EXHIBIT 8(d)(i)
PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the 3rd day of December, 1997
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); Security Life of Denver, a Colorado life insurance company
("SECURITY LIFE"), on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and ING America
Equities, Inc., an affiliate of SECURITY LIFE and the principal underwriter of
the Contracts ("ING') (collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission ("SEC")
as an open-end management investment company under the Investment Company Act of
1940, as amended (the " 1940 Act"); and
WHEREAS, AVIF currently consists of nine separate series ("Series"), shares
("Shares") of each of which are registered under the Securities Act of 1933, as
amended (the " 1933 Act") and are currently sold to one or more separate
accounts of life insurance companies to fund benefits under variable annuity
contracts and variable life insurance contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto as the
Parties hereto may amend from time to time (each a "Fund'; reference herein to
"AVIF" includes reference to each Fund, to the extent the context requires)
available for purchase by the Accounts; and
WHEREAS, SECURITY LIFE will be the issuer of certain variable annuity contracts
and variable life insurance contracts ("Contracts") as set forth on Schedule A
hereto, as the Parties hereto may amend from time to time, which Contracts
(hereinafter collectively, the "Contracts"), if required by applicable law, will
be registered under the 1933 Act; and
WHEREAS, SECURITY LIFE will fund the Contracts through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
WHEREAS, SECURITY LIFE will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Contracts will be registered as securities under the 1933 Act
(or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
SECURITY LIFE intends to purchase Shares in one or more of the Funds on behalf
of the Accounts to fund the Contracts; and
WHEREAS, ING is a broker-dealer registered with the SEC under the Securities
Exchange Act of 1934 (" 1934 Act") and a member in good standing of the National
Association of Securities Dealers, Inc. ("NASD");
NOW, THEREFORE, in consideration of the mutual benefits and promises contained
herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
1.1 AVAILABILITY.
AVIF will make Shares of each Fund available to SECURITY LIFE for purchase and
redemption at net asset value and with no sales charges, subject to the terms
and conditions of this Agreement. The Board of Directors of AVIF may refuse to
sell Shares of any Fund to any person, or suspend or terminate the offering of
Shares of any Fund if such action is required by law or by regulatory
authorities having jurisdiction or if, in the sole discretion of the Directors
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, such action is deemed in the best interests of the
shareholders of such Fund.
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1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
The Parties hereto may agree, from time to time, to add other Funds to provide
additional funding media for the Contracts, or to delete, combine, or modify
existing Funds, by amending Schedule A hereto. Upon such amendment to Schedule
A, any applicable reference to a Fund, AVIF, or its Shares herein shall include
a reference to any such additional Fund. Schedule A, as amended from time to
time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
AVIF represents and warrants that no Shares of any Fund have been or will be
sold to the general public.
SECTION 2. PROCESSING TRANSACTIONS
2.1 TIMELY PRICING AND ORDERS.
(a) AVIF or its designated agent will use its best efforts to provide SECURITY
LIFE with the net asset value per Share for each Fund by 5:30 p.m. Central Time
on each Business Day.
As used herein, "Business Day" shall mean any day on which (i) the New York
Stock Exchange is open for regular trading, (ii) AVIF calculates the Fund's net
asset value, and (iii) SECURITY LIFE is open for business.
(b) SECURITY LIFE will use the data provided by AVIF each Business Day pursuant
to paragraph (a) immediately above to calculate Account unit values and to
process transactions that receive that same Business Day's Account unit values.
SECURITY LIFE will perform such Account processing the same Business Day, and
will place corresponding orders to purchase or redeem Shares with AVIF by 9:00
a.m. Central Time the following Business Day; provided, however, that AVIF shall
provide additional time to SECURITY LIFE in the event that AVIF is unable to
meet the 5:30 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to SECURITY LIFE.
(c) With respect to payment of the purchase price by SECURITY LIFE and of
redemption proceeds by AVIF, SECURITY LIFE and AVIF shall net purchase and
redemption orders with respect to each Fund and shall transmit one net payment
per Fund in accordance with Section 2.2, below.
(d) If AVIF provides materially incorrect Share net asset value information (as
determined under SEC guidelines), SECURITY LIFE shall be entitled to an
adjustment to the number of Shares purchased or redeemed to reflect the correct
net asset value per Share. Any material error in the calculation or reporting of
net asset value per Share, dividend or capital gain information shall be
reported promptly upon discovery to SECURITY LIFE.
2.2 TIMELY PAYMENTS.
SECURITY LIFE will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by SECURITY LIFE by 1:00 p.m. Central Time
on the same day as the Order is placed, to the extent practicable, but in any
event within five (5) calendar days after the date the order is placed in order
to enable SECURITY LIFE to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
2.3 APPLICABLE PRICE.
(a) Share purchase payments and redemption orders that result from purchase
payments, premium payments, surrenders and other transactions under Contracts
(collectively, "Contract transactions") and that SECURITY LIFE receives prior to
the close of regular trading on the New York Stock Exchange on a Business Day
will be executed at the net asset values of the appropriate Funds next computed
after receipt by AVIF or its designated agent of the orders. For purposes of
this Section 2.3(a), SECURITY LIFE shall be the
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designated agent of AVIF for receipt of orders relating to Contract transactions
on each Business Day and receipt by such designated agent shall constitute
receipt by AVIF; provided that AVIF receives notice of such orders by 9:00 a.m.
Central Time on the next following Business Day or suc h later time as computed
in accordance with Section 2. 1 (b) hereof.
(b) All other Share purchases and redemptions by SECURITY LIFE will be effected
at the net asset values of the appropriate Funds next computed after receipt by
AVIF or its designated agent of the order therefor, and such orders will be
irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
AVIF will furnish notice by wire or telephone (followed by written confirmation)
on or prior to the payment date to SECURITY LIFE of any income dividends or
capital gain distributions payable on the Shares of any Fund. SECURITY LIFE
hereby elects to reinvest all dividends and capital gains distributions in
additional Shares of the corresponding Fund at the ex-dividend date net asset
values until SECURITY LIFE otherwise notifies AVIF in writing, it being agreed
by the Parties that the ex-dividend date and the payment date with respect to
any dividend or distribution will be the same Business Day. SECURITY LIFE
reserves the right to revoke this election and to receive all such income
dividends and capital gain distributions in cash.
2.5 BOOK ENTRY.
Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to SECURITY LIFE. Shares ordered from AVIF will
be recorded in an appropriate title for SECURITY LIFE, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
3.1 GENERAL.
Except as otherwise specifically provided herein, each Party will bear all
expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
(a) AVIF will bear the cost of its registering as a management investment
company under the 1940 Act and registering its Shares under the 1933 Act, and
keeping such registrations current and effective; including, without limitation,
the preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
with respect to AVIF and its Shares and payment of all applicable registration
or filing fees with respect to any of the foregoing.
(b) SECURITY LIFE will bear the cost of registering, to the extent required,
each Account as a unit investment trust under the 1940 Act and registering units
of interest under the Contracts under the 1933 Act and keeping such
registrations current and effective; including, without limitation, the
preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with
respect to each Account and its units of interest and payment of all applicable
registration or filing fees with respect to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
(a) AVIF will bear, or arrange for others to bear, the costs of preparing,
filing with the SEC and setting for printing AVIF's prospectus, statement of
additional information and any amendments or supplements thereto (collectively,
the "AVIF Prospectus"), periodic reports to shareholders, AVIF proxy material
and other shareholder communications.
(b) SECURITY LIFE will bear the costs of preparing, filing with the SEC and
setting for printing each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Contract owners, annuitants,
insureds or participants (as appropriate) under the Contracts (collectively,
"Participants"), voting instruction solicitation material, and other Participant
communications.
(c) SECURITY LIFE will print in quantity and deliver to existing Participants
the documents described in Section 3.3(b) above
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and the prospectus provided by AVIF in camera ready form. AVIF will print the
AVIF statement of additional information, proxy materials relating to AVIF and
periodic reports of AVIF.
3.4 OTHER (SALES-RELATED).
SECURITY LIFE will bear the expenses of distribution. These expenses would
include by way of illustration, but are not limited to, the costs of
distributing to Participants the following documents, whether they relate to the
Account or AVIF: prospectuses, statements of additional information, proxy
materials and periodic reports. These costs would also include the costs of
preparing, printing, and distributing sales literature and advertising relating
to the Funds, as well as filing such materials with, and obtaining approval
from, the SEC, the NASD, any state insurance regulatory authority, and any other
appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
Each Party agrees to cooperate with the others, as applicable, in arranging to
print, mail and/or deliver, in a timely manner, combined or coordinated
prospectuses or other materials of AVIF and the Accounts.
SECTION 4. LEGAL COMPLIANCE
4.1 TAX LAWS.
(a) AVIF represents and warrants that each Fund is currently qualified as a
regulated investment company ("RIC") under Subchapter M of the Internal Revenue
Code of 1986, as amended (the "Code"), and represents that it will use its best
efforts to qualify and to maintain qualification of each Fund as a RIC. AVIF
will notify SECURITY LIFE immediately upon having a reasonable basis for
believing that a Fund has ceased to so qualify or that it might not so qualify
in the future.
(b) AVIF represents that it will use its best efforts to comply and to maintain
each Fund's compliance with the diversification requirements set forth in
Section 817(h) of the Code and Section 1.817-5(b) of the regulations under the
Code. AVIF will notify SECURITY LIFE immediately upon having a reasonable basis
for believing that a Fund has ceased to so comply or that a Fund might not so
comply in the future. In the event of a breach of this Section 4. 1 (b) by AVIF,
it will take all reasonable steps to adequately diversify the Fund so as to
achieve compliance within the grace period afforded by Section 1.817-5 of the
regulations under the Code.
(c) SECURITY LIFE agrees that if the Internal Revenue Service ("IRS") asserts
in writing in connection with any governmental audit or review of SECURITY LIFE
or, to SECURITY LIFE's knowledge, of any Participant, that any Fund has failed
to comply with the diversification requirements of Section 817(h) of the Code or
SECURITY LIFE otherwise becomes aware of any facts that could give rise to any
claim against AVIF or its affiliates as a result of such a failure or alleged
failure:
i. SECURITY LIFE shall promptly notify AVIF of such assertion or
potential claim (subject to the Confidentiality provisions of Section
18 as to any Participant);
ii. SECURITY LIFE shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged
failure;
iii. SECURITY LIFE shall use its best efforts to minimize any liability of
AVIF or its affiliates resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury Regulations Section
1.8175(a)(2), to the Commissioner of the IRS that such failure was
inadvertent;
iv. SECURITY LIFE shall permit AVIF, its affiliates and their legal and
accounting advisors to participate in any conferences, settlement
discussions or other administrative or judicial proceeding or contests
(including judicial appeals thereof) with the IRS, any Participant or
any other claimant regarding any claims that could give rise to
liability to AVIF or its affiliates as a result of such a failure or
alleged failure; provided, however, that SECURITY LIFE will retain
control of the conduct of such conferences discussions, proceedings,
contests or appeals;
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v. any written materials to be submitted by SECURITY LIFE to the IRS,
any Participant or any other claimant in connection with any of the
foregoing proceedings or contests (including, without limitation, any
such materials to be submitted to the IRS pursuant to Treasury
Regulations Section 1.817-5(a)(2)), (a) shall be provided by SECURITY
LIFE to AVIF (together with any supporting information or analysis);
subject to the confidentiality provisions of Section 18, at least ten
(10) business days or such shorter period to which the Parties hereto
agree prior to the day on which such proposed materials are to be
submitted, and (b) shall not be submitted by SECURITY LIFE to any
such person without the express written consent of AVIF which shall
not be unreasonably withheld;
vi. SECURITY LIFE shall provide AVIF or its affiliates and their
accounting and legal advisors with such cooperation as AVIF shall
reasonably request (including, without limitation, by permitting AVIF
and its accounting and legal advisors to review the relevant books
and records of SECURITY LIFE) in order to facilitate review by AVIF
or its advisors of any written submissions provided to it pursuant to
the preceding clause or its assessment of the validity or amount of
any claim against its arising from such a failure or alleged failure;
vii. SECURITY LIFE shall not with respect to any claim of the IRS or any
Participant that would give rise to a claim against AVIF or its
affiliates (a) compromise or settle any claim, (b) accept any
adjustment on audit, or (c) forego any allowable administrative or
judicial appeals, without the express written consent of AVIF or its
affiliates, which shall not be unreasonably withheld, provided that
SECURITY LIFE shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial decision
unless AVIF or its affiliates shall have provided an opinion of
independent counsel to the effect that a reasonable basis exists for
taking such appeal; and provided further that the costs of any such
appeal shall be borne equally by the Parties hereto; and
viii. AVIF and its affiliates shall have no liability as a result of such
failure or alleged failure if SECURITY LIFE fails to comply with any
of the foregoing clauses (i) through (vii), and such failure could be
shown to have materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written consent to any
compromise or settlement of any claim or liability hereunder, SECURITY LIFE may,
in its discretion, authorize AVIF or its affiliates to act in the name of
SECURITY LIFE in, and to control the conduct of, such conferences, discussions,
proceedings, contests or appeals and all administrative or judicial appeals
thereof, and in that event AVIF or its affiliates shall bear the fees and
expenses associated with the conduct of the proceedings that it is so authorized
to control; provided, that in no event shall SECURITY LIFE have any liability
resulting from AVIF's refusal to accept the proposed settlement or compromise
with respect to any failure caused by AVIF. As used in this Agreement, the term
" affiliates " shall have the same meaning as " affiliated person " as defined
in Section 2(a)(3) of the 1940 Act.
(d) SECURITY LIFE represents and warrants that the Contracts currently are and
will be treated as annuity contracts or life insurance contracts under
applicable provisions of the Code and that it will use its best efforts to
maintain such treatment; SECURITY LIFE will notify AVIF immediately upon having
a reasonable basis for believing that any of the Contracts have ceased to be so
treated or that they might not be so treated in the future.
(e) SECURITY LIFE represents and warrants that each Account is a "segregated
asset account" and that interests in each Account are offered exclusively
through the purchase of or transfer into a "variable contract," within the
meaning of such terms under Section 817 of the Code and the regulations
thereunder. SECURITY LIFE will use its best efforts to continue to meet such
definitional requirements, and it will notify AVIF immediately upon having a
reasonable basis for believing that such requirements have ceased to be met or
that they might not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
(a) AVIF will use its best efforts to comply with any applicable state
insurance laws or regulations, to the extent specifically requested in writing
by SECURITY LIFE, including, the furnishing of information not otherwise
available to SECURITY LIFE which is required by state insurance law to enable
SECURITY LIFE to obtain the authority needed to issue the Contracts in any
applicable state.
(b) SECURITY LIFE represents and warrants that (i) it is an insurance company
duly organized, validly existing and in good standing under the laws of the
State of Colorado and has full corporate power, authority and legal right to
execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account
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as a segregated asset account under Section 10-7-402 of the Colorado Insurance
Law and the regulations thereunder, and (iii) the Contracts comply in all
material respects with all other applicable federal and state laws and
regulations.
(c) AVIF represents and warrants that it is a corporation duly organized,
validly existing, and in good standing under the laws of the State of Maryland
and has full power, authority, and legal right to execute, deliver, and perform
its duties and comply with its obligations under this Agreement.
4.3 SECURITIES LAWS.
(a) SECURITY LIFE represents and warrants that (i) interests in each Account
pursuant to the Contracts are or will be registered under the 1933 Act to the
extent required by the 1933 Act, (ii) the Contracts will be duly authorized for
issuance and sold in compliance with all applicable federal and state laws,
including, without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Colorado law, (iii) each Account is and will remain registered under the 1940
Act, to the extent required by the 1940 Act, (iv) each Account does and will
comply in all material respects with the requirements of the 1940 Act and the
rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Contracts, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) SECURITY LIFE will amend the
registration statement for its Contracts under the 1933 Act and for its Accounts
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Contracts or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF represents and warrants that (i) Shares sold pursuant to this
Agreement will be registered under the 1933 Act to the extent required by the
1933 Act and duly authorized for issuance and sold in compliance with Maryland
law, (ii) AVIF is and will remain registered under the 1940 Act to the extent
required by the 1940 Act, (iii) AVIF will amend the registration statement for
its Shares under the 1933 Act and itself under the 1940 Act from time to time as
required in order to effect the continuous offering of its Shares, (iv) AVIF
does and will comply in all material respects with the requirements of the 1940
Act and the rules thereunder, (v) AVIF's 1933 Act registration statement,
together with any amendments thereto, will at all times comply in all material
respects with the requirements of the 1933 Act and rules thereunder, and (vi)
AVIF's Prospectus will at all times comply in all material respects with the
requirements of the 1933 Act and the rules thereunder.
(c) AVIF will at its expense register and q@ its Shares for sale in accordance
with the laws of any state or other jurisdiction if and to the extent reasonably
deemed advisable by AVIF.
(d) AVIF currently does not intend to make any payments to finance distribution
expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise, although it
reserves the right to make such payments in the future. To the extent that it
decides to finance distribution expenses pursuant to Rule 12b-1, AVIF undertakes
to have its Board of Directors, a majority of whom are not "interested' persons
of the Fund, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
(e) AVIF represents and warrants that all of its trustees, officers, employees,
investment advisers, and other individuals/entities having access to the funds
and/or securities of the Fund are and continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimal coverage as required currently by Rule 17g-l of
the 1940 Act or related provisions as may be promulgated from time to time. The
aforesaid bond includes coverage for larceny and embezzlement and is issued by a
reputable bonding company.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
(a) AVIF will immediately notify SECURITY LIFE of (i) the issuance by any court
or regulatory body of any stop order, cease and desist order, or other similar
order with respect to AVIF's registration statement under the 1933 Act or AVIF
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or AVIF Prospectus that may affect the offering of Shares of AVIF,
(iii) the initiation of any proceedings for that purpose or for any other
purpose relating to the registration or offering of AVIF's Shares, or (iv) any
other action or circumstances that may prevent the lawful offer or sale of
Shares of any Fund in any state or jurisdiction, including, without limitation,
any circumstances in which (a) such Shares are not registered and, in all
material respects, issued and sold in accordance with applicable state and
federal law, or (b) such law precludes the use of such Shares as an underlying
investment medium of the Contracts issued or to be issued by SECURITY LIFE. AVIF
will make every reasonable effort to prevent the issuance, with respect to any
Fund, of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof
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at the earliest possible time.
(b) SECURITY LIFE will immediately notify AVIF of (i) the issuance by any court
or regulatory body of any stop order, cease and desist order, or other similar
order with respect to each Account's registration statement under the 1933 Act
relating to the Contracts or each Account Prospectus, (ii) any request by the
SEC for any amendment to such registration statement or Account Prospectus that
may affect the offering of Shares of AVIF, (iii) the initiation of any
proceedings for that purpose or for any other purpose relating to the
registration or offering of each Account's interests pursuant to the Contracts,
or (iv) any other action or circumstances that may prevent the lawful offer or
sale of said interests in any state or jurisdiction, including, without
limitation, any circumstances in which said interests are not registered and, in
all material respects, issued and sold in accordance with applicable state and
federal law. SECURITY LIFE will make every reasonable effort to prevent the
issuance of any such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the earliest possible
time.
4.5 SECURITY LIFE TO PROVIDE DOCUMENTS: INFORMATION ABOUT AVIF.
(a) SECURITY LIFE will provide to AVIF or its designated agent at least one (1)
complete copy of all SEC registration statements, Account Prospectuses, reports,
any preliminary and final voting instruction solicitation material, applications
for exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to each Account or the Contracts, contemporaneously with the
filing of such document with the SEC or other regulatory authorities.
(b) SECURITY LIFE will provide to AVIF or its designated agent at least one (1)
complete copy of each piece of sales literature or other promotional material in
which AVIF or any of its affiliates is named, at least five (5) Business Days
prior to its use or such shorter period as the Parties hereto may, from time to
time, agree upon. No such material shall be used if AVIF or its designated agent
objects to such use within five (5) Business Days after receipt of such material
or such shorter period as the Parties hereto may, from time to time, agree upon.
AVIF hereby designates A I M as the entity to receive such sales literature,
until such time as AVIF appoints another designated agent by giving notice to
SECURITY LIFE in the manner required by Section 9 hereof.
(c) Neither SECURITY LIFE nor any of its affiliates, will give any information
or make any representations or statements on behalf of or concerning AVIF or its
affiliates in connection with the sale of the Contracts other than (i) the
information or representations contained in the registration statement,
including the AVIF Prospectus contained therein, relating to Shares, as such
registration statement and AVIF Prospectus may be amended from time to time; or
(ii) in reports or proxy materials for AVIF; or (iii) in published reports for
AVIF that are in the public domain and approved by AVIF for distribution; or
(iv) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
(d) SECURITY LIFE shall adopt and implement procedures reasonably designed to
ensure that information concerning AVIF and its affiliates that is intended for
use only by brokers or agents selling the Contracts (i.e., information that is
not intended for distribution to Participants) ("broker only materials") is so
used, and neither AVIF nor any of its affiliates shall be liable for any losses,
damages or expenses relating to the improper use of such broker only materials.
(e) For the purposes of this Section 4.5, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media, (e.g., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or advertising under the
NASD rules, the 1933 Act or the 1940 Act.
4.6 AVIF TO PROVIDE DOCUMENTS; INFORMATION ABOUT SECURITY LIFE.
(a) AVIF will provide to SECURITY LIFE at least one (1) complete copy of all
SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
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(b) AVIF will provide to SECURITY LIFE camera ready or computer diskette copies
of all AVIF prospectuses and printed copies, in an amount specified by SECURITY
LIFE, of AVIF statements of additional information, proxy materials, periodic
reports to shareholders and other materials required by law to be sent to
Participants who have allocated any Contract value to a Fund. AVIF will provide
such copies to SECURITY LIFE in a timely manner so as to enable SECURITY LIFE,
as the case may be, to print and distribute such materials within the time
required by law to be furnished to Participants.
(c) AVIF will provide to SECURITY LIFE or its designated agent at least one (1)
complete copy of each piece of sales literature or other promotional material in
which SECURITY LIFE, or any of its respective affiliates is named, or that
refers to the Contracts, at least five (5) Business Days prior to its use or
such shorter period as the Parties hereto may, from time to time, agree upon. No
such material shall be used if SECURITY LIFE or its designated agent objects to
such use within five (5) Business Days after receipt of such material or such
shorter period as the Parties hereto may, from time to time, agree upon.
SECURITY LIFE shall receive all such sales literature until such time as it
appoints a designated agent by giving notice to AVIF in the manner required by
Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information or make
any representations or statements on behalf of or concerning SECURITY LIFE, each
Account, or the Contracts other than (i) the information or representations
contained in the registration statement, including each Account Prospectus
contained therein, relating to the Contracts, as such registration statement and
Account Prospectus may be amended from time to time; or (ii) in published
reports for the Account or the Contracts that are in the public domain and
approved by SECURITY LIFE for distribution; or (iii) in sales literature or
other promotional material approved by SECURITY LIFE or its affiliates, except
with the express written permission of SECURITY LIFE.
(e) AVIF shall cause its principal underwriter to adopt and implement
procedures reasonably designed to ensure that information concerning SECURITY
LIFE, and its respective affiliates that is intended for use only by brokers or
agents selling the Contracts (i.e., information that is not intended for
distribution to Participants) ("broker only materials") is so used, and neither
SECURITY LIFE, nor any of its respective affiliates shall be liable for any
losses, damages or expenses relating to the improper use of such broker only
materials.
(f) For purposes of this Section 4.6, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media, (e.g., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, registration statements, prospectuses,
statements of additional information, shareholder reports, and proxy materials
and any other material constituting sales literature or advertising under the
NASD rules, the 1933 Act or the 1940 Act.
SECTION 5. MIXED AND SHARED FUNDING
5.1 GENERAL.
The SEC has granted an order to AVIF exempting it from certain provisions of the
1940 Act and rules thereunder so that AVIF may be available for investment by
certain other entities, including, without limitation, separate accounts funding
variable annuity contracts or variable life insurance contracts, separate
accounts of insurance companies unaffiliated with SECURITY LIFE, and trustees of
qualified pension and retirement plans (collectively, "Mixed and Shared
Funding"). The Parties recognize that the SEC has imposed terms and conditions
for such orders that are substantially identical to many of the provisions of
this Section 5. Sections 5.2 through 5.8 below shall apply pursuant to such an
exemptive order granted to AVIF. AVIF hereby notifies SECURITY LIFE that, in
the event that AVIF implements Mixed and Shared Funding, it may be appropriate
to include in the prospectus pursuant to which a Contract is offered disclosure
regarding the potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
AVIF agrees that its Board of Directors shall at all times consist of directors
a majority of whom (the "Disinterested Directors") are not
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interested persons of AVIF within the meaning of Section 2(a)(19) of the 1940
Act and the Rules thereunder and as modified by any applicable orders of the
SEC, except that if this condition is not met by reason of the death,
disqualification, or bona fide resignation of any director, then the operation
of this condition shall be suspended (a) for a period of forty-five (45) days if
the vacancy or vacancies may be filled by the Board; (b) for a period of sixty
(60) days if a vote of shareholders is required to fill the vacancy or
vacancies; or (c) for such longer period as the SEC may prescribe by order upon
application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
AVIF agrees that its Board of Directors will monitor for the existence of any
material irreconcilable conflict between the interests of the Participants in
all separate accounts of life insurance companies utilizing AVIF ("Participating
Insurance Companies"), including each Account, and participants in all qualified
retirement and pension plans investing in AVIF ("Participating Plans").
SECURITY LIFE agrees to inform the Board of Directors of AVIF of the existence
of or any potential for any such material irreconcilable conflict of which it is
aware. The concept of a "material irreconcilable conflict" is not defined by
the 1940 Act or the rules thereunder, but the Parties recognize that such a
conflict may arise for a variety of reasons, including, without limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretative letter, or any similar action by insurance, tax or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity contract and
variable life insurance contract Participants or by Participants of different
Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the voting
instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting instructions of
Plan participants.
Consistent with the SEC's requirements in connection with exemptive orders of
the type referred to in Section 5.1 hereof, SECURITY LIFE will assist the Board
of Directors in carrying out its responsibilities by providing the Board of
Directors with all information reasonably necessary for the Board of Directors
to consider any issue raised, including information as to a decision by SECURITY
LIFE to disregard voting instructions of Participants.
5.4 CONFLICT REMEDIES.
(a) It is agreed that if it is determined by a majority of the members of the
Board of Directors or a majority of the Disinterested Directors that a material
irreconcilable conflict exists, SECURITY LIFE will, if it is a Participating
Insurance Company for which a material irreconcilable conflict is relevant, at
its own expense and to the extent reasonably practicable (as determined by a
majority of the Disinterested Directors), take whatever steps are necessary to
remedy or eliminate the material irreconcilable conflict, which steps may
include, but are not limited to:
i. withdrawing the assets allocable to some or all of the Accounts from
AVIF or any Fund and reinvesting such assets in a different investment
medium, including another Fund of AVIF, or submitting the question
whether such segregation should be implemented to a vote of all
affected Participants and, as appropriate, segregating the assets of
any particular group (e.g., annuity Participants, life insurance
Participants or all Participants) that votes in favor of such
segregation, or offering to the affected Participants the option of
making such a change; and
ii. establishing a new registered investment company of the type defined
as a "management company" in Section 4(3) of the 1940 Act or a new
separate account that is operated as a management company.
(b) If the material irreconcilable conflict arises because of SECURITY LIFE's
decision to disregard Participant voting instructions
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and that decision represents a minority position or would preclude a majority
vote, SECURITY LIFE may be required, at AVIF's election, to withdraw each
Account's investment in AVIF or any Fund. No charge or penalty will be imposed
as a result of such withdrawal. Any such withdrawal must take place within six
(6) months after AVIF gives notice to SECURITY LIFE that this provision is being
implemented, and until such withdrawal AVIF shall continue to accept and
implement orders by SECURITY LIFE for the purchase and redemption of Shares of
AVIF.
(c) If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to SECURITY LIFE conflicts with the
majority of other state regulators, then SECURITY LIFE will withdraw each
Account's investment in AVIF within six (6) months after AVIF's Board of
Directors informs SECURITY LIFE that it has determined that such decision has
created a material irreconcilable conflict, and until such withdrawal AVIF shall
continue to accept and implement orders by SECURITY LIFE for the purchase and
redemption of Shares of AVIF. No charge or penalty will be imposed as a result
of such withdrawal.
(d) SECURITY LIFE agrees that any remedial action taken by it in resolving any
material irreconcilable conflict will be carried out at its expense and with a
view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors will
determine whether or not any proposed action adequately remedies any material
irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Contracts.
SECURITY LIFE will not be required by the terms hereof to establish a new
funding medium for any Contracts if an offer to do so has been declined by vote
of a majority of Participants materially adversely affected by the material
irreconcilable conflict.
5.5 NOTICE TO SECURITY LIFE.
AVIF will promptly make known in writing to SECURITY LIFE the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
SECURITY LIFE and AVIF (or its investment adviser) will at least annually submit
to the Board of Directors of AVIF such reports, materials or data as the Board
of Directors may reasonably request so that the Board of Directors may fully
carry out the obligations imposed upon it by the provisions hereof or any
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors actions
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Participating Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 COMPLIANCE WITH SEC RULES.
If, at any time during which AVIF is serving as an investment medium for
variable life insurance Contracts, 1940 Act Rules 6e-3(T) or, if applicable, 6e-
2 are amended or Rule 6e-3 is adopted to provide exemptive relief with respect
to Mixed and Shared Funding, AVIF agrees that it will comply with the terms and
conditions thereof and that the terms of this Section 5 shall be deemed modified
if and only to the extent required in order also to comply with the terms and
conditions of such exemptive relief that is afforded by any of said rules that
are applicable.
5.8 OTHER REQUIREMENTS.
AVIF will require that each Participating Insurance Company and Participating
Plan enter into an agreement with AVIF that contains in substance the same
provisions as are set forth in Sections 4.l(b), 4.l(d), 4.3(a), 4.4(b), 4.5(a),
5, and 10 of this Agreement.
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SECTION 6. TERMINATION
6.1 EVENTS OF TERMINATION.
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
(a) at the option of any party, with or without cause with respect to the Fund,
upon six(6) months advance written notice to the other parties, or, if later,
upon receipt of any required exemptive relief from the SEC, unless otherwise
agreed to in writing by the parties; or
(b) at the option of AVIF upon institution of formal proceedings against
SECURITY LIFE or its affiliates by the NASD, the SEC, any state insurance
regulator or any other regulatory body regarding SECURITY LIFE's obligations
under this Agreement or related to the sale of the Contracts, the operation of
each Account, or the purchase of Shares, if, in each case, AVIF reasonably
determines that such proceedings, or the facts on which such proceedings would
be based, have a material likelihood of imposing material adverse consequences
on the Fund with respect to which the Agreement is to be terminated; or
(c) at the option of SECURITY LIFE upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, SECURITY
LIFE reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on SECURITY LIFE, or the Subaccount corresponding to the
Fund with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares are not
registered and, in all material respects, issued and sold in accordance with any
applicable federal or state law, or (ii) such law precludes the use of such
Shares as an underlying investment medium of the Contracts issued or to be
issued by SECURITY LIFE; or
(e) upon termination of the corresponding Subaccount's investment in the Fund
pursuant to Section 5 hereof; or
(f) at the option of SECURITY LIFE if the Fund ceases to qualify as a RIC under
Subchapter M of the Code or under successor or similar provisions, or if
SECURITY LIFE reasonably believes that the Fund may fail to so qualify; or
(g) at the option of SECURITY LIFE if the Fund fails to comply with Section
817(h) of the Code or with successor or similar provisions, or if SECURITY LIFE
reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF if the Contracts issued by SECURITY LIFE cease to
qualify as annuity contracts or life insurance contracts under the Code (other
than by reason of the Fund's noncompliance with Section 817(h) or Subchapter M
of the Code) or if interests in an Account under the Contracts are not
registered, where required, and, in all material respects, are not issued or
sold in accordance with any applicable federal or state law; or
(i) upon another Party's material breach of any provision of this Agreement.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
No termination of this Agreement will be effective unless and until the Party
terminating this Agreement gives prior written notice to the other Party to this
Agreement of its intent to terminate, and such notice shall set forth the basis
for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of Sections
6. l (a) or 6. l(e) hereof, such prior written notice shall be given at least
six (6) months in advance of the effective date of termination unless a shorter
time is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of Sections
6. 1 (b) or 6. 1 (c) hereof, such prior written notice shall be given at least
ninety (90) days in advance of the effective date of termination unless a
shorter time is agreed to by the Parties hereto; and
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<PAGE>
(c) in the event that any termination is based upon the provisions of Sections
6. 1 (d), 6.1(f), 6.1(g),6.1(h) or 6.1(i) hereof, such prior written notice
shall be given as soon as possible within twenty-four (24) hours after the
terminating Party learns of the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
Notwithstanding any termination of this Agreement, AVIF will, at the option of
SECURITY LIFE, continue to make available additional shares of the Fund pursuant
to the terms and conditions of this Agreement, for all Contracts in effect on
the effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts."). Specifically, without limitation, the owners of the
Existing Contracts will be permitted to reallocate investments in the Fund (as
in effect on such date), redeem investments in the Fund and/or invest in the
Fund upon the making of additional purchase payments under the Existing
Contracts. The parties agree that this -Section 6.3 will not apply to any
terminations under Section 5 and the effect of such terminations will be
governed by Section 5 of this Agreement.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
All warranties and indemnifications will survive the termination of this
Agreement.
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6. 1 (b), 6. 1 (c), 6. 1 (d), 6. 1 (f), 6. 1 (g), 6. 1 (h) or 6. 1 (i)
hereof, this Agreement shall nevertheless continue in effect as to any Shares of
that Fund that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the earlier of the date
as of which an Account owns no Shares of the affected Fund or a date (the "Final
Termination Date") six (6) months following the Initial Termination Date, except
that SECURITY LIFE may, by written notice shorten said six (6) month period in
the case of a termination pursuant to Sections 6. 1 (d), 6. 1 (f), 6. 1 (g), 6.
1 (h) or 6. 1 (i).
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
The Parties hereto agree to cooperate and give reasonable assistance to one
another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6. 1 (a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Contracts in such Fund.
SECTION 8. ASSIGNMENT
This Agreement may not be assigned by any Party, except with the written consent
of each other Party.
SECTION 9. NOTICES
Notices and communications required or permitted by Section 9 hereof will be
given by means mutually acceptable to the Parties concerned. Each other notice
or communication required or permitted by this Agreement will be given to the
following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
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AIM VARIABLE INSURANCE FUNDS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
SECURITY LIFE OF DENVER
1290 Broadway
Denver, CO 80203
Facsimile: (303) 860-2134
Attn: Anna M. Kautzman,
Assistant General Counsel
ING AMERICA EQUITIES, INC.
1290 Broadway
Denver, CO 80203
Facsimile: (303) 860-2134
Attn: Anna M. Kautzman,
Assistant General Counsel
SECTION 10. VOTING PROCEDURES
Subject to the cost allocation procedures set forth in Section 3 hereof,
SECURITY LIFE will distribute all proxy material furnished by AVIF to
Participants to whom pass-through voting privileges are required to be extended
and will solicit voting instructions from Participants. SECURITY LIFE will vote
Shares in accordance with timely instructions received from Participants.
SECURITY LIFE will vote Shares that are (a) not attributable to Participants to
whom pass-through voting privileges are extended, or (b) attributable to
Participants, but for which no timely instructions have been received, in the
same proportion as Shares for which said instructions have been received from
Participants, so long as and to the extent that the SEC continues to interpret
the 1940 Act to require pass through voting privileges for Participants.
Neither SECURITY LIFE nor any of its affiliates will in any way recommend action
in connection with or oppose or interfere with the solicitation of proxies for
the Shares held for such Participants. SECURITY LIFE reserves the right to vote
shares held in any Account in its own right, to the extent permitted by law.
SECURITY LIFE shall be responsible for assuring that each of its Accounts
holding Shares calculates voting privileges in a manner consistent with that of
other Participating Insurance Companies or in the manner required by the Mixed
and Shared Funding exemptive order obtained by AVIF. AVIF will notify SECURITY
LIFE of any changes of interpretations or amendments to Mixed and Shared Funding
exemptive order it has obtained. AVIF will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular, AVIF either will
provide for annual meetings (except insofar as the SEC may interpret Section 16
of the 1940 Act not to require such meetings) or will comply with Section 16(c)
of the 1940 Act (although AVIF is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when applicable,
16(b). Further, AVIF will act in accordance with the SEC's interpretation of
the requirements of Section 16(a) with respect to periodic elections of
directors and with whatever rules the SEC may promulgate with respect thereto.
SECTION 11. FOREIGN TAX CREDITS
AVIF agrees to consult in advance with SECURITY LIFE concerning any decision to
elect or not to elect pursuant to Section 853 of the Code to pass through the
benefit of any foreign tax credits to its shareholders.
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SECTION 12. INDEMNIFICATION
12.1 OF AVIF BY SECURITY LIFE AND ING.
(a) Except to the extent provided in Sections 12. 1 (b) and 12. 1 (c), below,
SECURITY LIFE and ING agree to indemnify and hold harmless AVIF, its affiliates,
and each person, if any, who controls AVIF or its affiliates within the meaning
of Section 15 of the 1933 Act and each of their respective directors and
officers, (collectively, the "Indemnified Parties" for purposes of this Section
12. 1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of SECURITY LIFE and ING) or
actions in respect thereof (including, to the extent reasonable, legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise; provided, the Account owns
shares of the Fund and insofar as such losses, claims, damages, liabilities or
actions:
i. arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Account's 1933 Act
registration statement, any Account Prospectus, the Contracts, or
sales literature or advertising for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; provided, that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to SECURITY LIFE or
ING by or on behalf of AVIF for use in any Account's 1933 Act
registration statement, any Account Prospectus, the Contracts, or
sales literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or supplement
to any of the foregoing); or
ii. arise out of or as a result of any other statements or representations
(other than statements or representations contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the
foregoing, not supplied for use therein by or on behalf of SECURITY
LIFE, ING or their respective affiliates and on which such persons
have reasonably relied) or the negligent, illegal or fraudulent
conduct of SECURITY LIFE, ING or their respective affiliates or
persons under their control (including, without limitation, their
employees and "Associated Persons," as that term is defined in
paragraph (m) of Article I of the NASD's By-Laws), in connection with
the sale or distribution of the Contracts or Shares; or
iii. arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in AVIF's 1933 Act
registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission was
made in reliance upon and in conformity with information furnished to
AVIF or its affiliates by or on behalf of SECURITY LIFE, ING or their
respective affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, sales literature or advertising of AVIF,
or any amendment or supplement to any of the foregoing; or
iv. arise as a result of any failure by SECURITY LIFE or ING to perform
the obligations, provide the services and furnish the materials
required of them under the terms of this Agreement, or any material
breach of any representation and/or warranty made by SECURITY LIFE or
ING in this Agreement or arise out of or result from any other
material breach of this Agreement by SECURITY LIFE or ING; or
v. arise as a result of failure by the Contracts issued by SECURITY LIFE
to qualify as annuity contracts or life insurance contracts under the
Code, otherwise than by reason of any Fund's failure to comply with
Subchapter M or Section 817(h) of the Code.
(b) Neither SECURITY LIFE nor ING shall be liable under this Section 12.1 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of that Indemnified Party's reckless disregard of
obligations or duties (i) under this Agreement, or (ii) to AVIF.
(c) Neither SECURITY LIFE nor ING shall be liable under this Section 12.1 with
respect to any action against an Indemnified Party unless AVIF shall have
notified SECURITY LIFE and ING in writing within a reasonable time after the
summons or other first legal
14
<PAGE>
process giving information of the nature of the action shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify SECURITY
LIFE and ING of any such action shall not relieve SECURITY LIFE and ING from any
liability which they may have to the Indemnified Party against whom such action
is brought otherwise than on account of this Section 12. 1. Except as otherwise
provided herein, in case any such action is brought against an Indemnified
Party, SECURITY LIFE and ING shall be entitled to participate, at their own
expense, in the defense of such action and also shall be entitled to assume the
defense thereof, with counsel approved by the Indemnified Party named in the
action, which approval shall not be unreasonably withheld. After notice from
SECURITY LIFE or ING to such Indemnified Party of SECURITY LIFE's or ING's
election to assume the defense thereof, the Indemnified Party will cooperate
fully with SECURITY LIFE and ING and shall bear the fees and expenses of any
additional counsel retained by it, and neither SECURITY LIFE nor ING will be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
12.2 OF SECURITY LIFE AND ING BY AVIF.
(a) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e),
below, AVIF agrees to indemnify and hold harmless SECURITY LIFE, ING, their
respective affiliates, and each person, if any, who controls SECURITY LIFE, ING
or their respective affiliates within the meaning of Section 15 of the 1933 Act
and each of their respective directors and officers, (collectively, the
"Indemnified Parties" for purposes of this Section 12.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of AVIF ) or actions in respect thereof (including, to the
extent reasonable, legal and other expenses), to which the Indemnified Parties
may become subject under any statute, regulation, at common law, or otherwise;
provided, the Account owns shares of the Fund and insofar as such losses,
claims, damages, liabilities or actions:
i. arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in AVIF's 1933 Act
registration statement, AVIF Prospectus or sales literature or
advertising of AVIF (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading; provided, that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to AVIF or its affiliates by or
on behalf of SECURITY LIFE, ING or their respective affiliates for use
in AVIF's 1933 Act registration statement, AVIF Prospectus, or in
sales literature or advertising or otherwise for use in connection
with the sale of Contracts or Shares (or any amendment or supplement
to any of the foregoing); or
ii. arise out of or as a result of any other statements or representations
(other than statements or representations contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or advertising for the Contracts, or any amendment or
supplement to any of the foregoing, not supplied for use therein by or
on behalf of AVIF or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent conduct of
AVIF or its affiliates or persons under its control (including,
without limitation, their employees and "Associated Persons" as that
Tenn is defined in Section (n) of Article 1 of the NASD By-Laws), in
connection with the sale or distribution of AVIF Shares; or
iii. arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in any Account's 1933 Act
registration statement, any Account Prospectus, sales literature or
advertising covering the Contracts, or any amendment or supplement to
any of the foregoing, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, if such statement or
omission was made in reliance upon and in conformity with information
furnished to SECURITY LIFE, ING or their respective affiliates by or
on behalf of AVIF for use in any Account's 1933 Act registration
statement, any Account Prospectus, sales literature or advertising
covering the Contracts, or any amendment or supplement to any of the
foregoing; or
iv. arise as a result of any failure by AVIF to perform the obligations,
provide the services and furnish the materials required of it under
the terms of this Agreement, or any material breach of any
representation and/or warranty made by AVIF in this Agreement or arise
out of or result from any other material breach of this Agreement by
AVIF.
15
<PAGE>
(b) Except to the extent provided in Sections 12.2(c), 12.2(d) and 12.2(e)
hereof, AVIF agrees to indemnify and hold harmless the Indemnified Parties from
and against any and all losses, claims, damages, liabilities (including amounts
paid in settlement thereof with, the written consent of AVIF) or actions in
respect thereof (including, to the extent reasonable, legal and other expenses)
to which the Indemnified Parties may become subject directly or indirectly under
any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions directly or indirectly result from or arise out
of the failure of any Fund to operate as a regulated investment company in
compliance with (i) Subchapter M of the Code and regulations thereunder, or (ii)
Section 817(h) of the Code and regulations thereunder, including, without
limitation, any income taxes and related penalties, rescission charges,
liability under state law to Participants asserting liability against SECURITY
LIFE pursuant to the Contracts, the costs of any ruling and closing agreement or
other settlement with the IRS, and the cost of any substitution by SECURITY LIFE
of Shares of another investment company or portfolio for those of any adversely
affected Fund as a funding medium for each Account that SECURITY LIFE reasonably
deems necessary or appropriate as a result of the noncompliance.
(c) AVIF shall not be liable under this Section 12.2 with respect to any
losses, claims, damages, liabilities or actions to which an Indemnified Party
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance by that Indemnified Party of its duties or by
reason of such Indemnified Party's reckless disregard of its obligations and
duties (i) under this Agreement, or (ii) to SECURITY LIFE, ING, each Account or
Participants.
(d) AVIF shall not be liable under this Section 12.2 with respect to any action
against an Indemnified Party unless the Indemnified Party shall have notified
AVIF in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the action shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify AVIF of
any such action shall not relieve AVIF from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this Section 12.2. Except as otherwise provided herein, in case any
such action is brought against an Indemnified Party, AVIF will be entitled to
participate, at its own expense, in the defense of such action and also shall be
entitled to assume the defense thereof (which shall include, without limitation,
the conduct of any ruling request and closing agreement or other settlement
proceeding with the IRS), with counsel approved by the Indemnified Party named
in the action, which approval shall not be unreasonably withheld. After notice
from AVIF to such Indemnified Party of AVIF's election to assume the defense
thereof, the Indemnified Party will cooperate fully with AVIF and shall bear the
fees and expenses of any additional counsel retained by it, and AVIF will not be
liable to such Indemnified Party under this Agreement for any legal or other
expenses subsequently incurred by such Indemnified Party independently in
connection with the defense thereof, other than reasonable costs of
investigation.
(e) In no event shall AVIF be liable under the indemnification provisions
contained in this Agreement to any individual or entity, including, without
limitation, SECURITY LIFE, ING or any other Participating Insurance Company or
any Participant, with respect to any losses, claims, damages, liabilities or
expenses that arise out of or result from (i) a breach of any representation,
warranty, and/or covenant made by SECURITY LIFE or ING hereunder or by any
Participating Insurance Company under an agreement containing substantially
similar representations, warranties and covenants; (ii) the failure by SECURITY
LIFE or any Participating Insurance Company to maintain its segregated asset
account (which invests in any Fund) as a legally and validly established
segregated asset account under applicable state law and as a duly registered
unit investment trust under the provisions of the 1940 Act (unless exempt
therefrom); or (iii) the failure by SECURITY LIFE or any Participating Insurance
Company to maintain its variable annuity or life insurance contracts (with
respect to which any Fund serves as an underlying funding vehicle) as annuity
contracts or life insurance contracts under applicable provisions of the Code.
12.3 EFFECT OF NOTICE.
Any notice given by the Indemnifying Party to an Indemnified Party referred to
in Sections 12. l(c) or 12.2(d) above of participation in or control of any
action by the indemnifying Party will in no event be deemed to be an admission
by the indemnifying Party of liability, culpability or responsibility, and the
indemnifying@g Party will remain free to contest liability with respect to the
claim among the Parties or otherwise.
12.4 SUCCESSORS.
A successor by law of any Party shall be entitled to the benefits of the
indemnification contained in this Section 12.
16
<PAGE>
SECTION 13. APPLICABLE LAW
This Agreement will be construed and the provisions hereof interpreted under and
in accordance with Maryland law, without regard for that state's principles of
conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
This Agreement may be executed simultaneously in two or more counterparts, each
of which taken together will constitute one and the same instrument.
SECTION 15. SEVERABILITY
If any provision of this Agreement is held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Agreement will not be affected
thereby.
SECTION 16. RIGHTS CUMULATIVE
The rights, remedies and obligations contained in this Agreement are cumulative
and are in addition to any and all rights, remedies and obligations, at law or
in equity, that the Parties are entitled to under federal and state laws.
SECTION 17. HEADINGS
The Table of Contents and headings used in this Agreement are for purposes of
reference only and shall not limit or define the meaning of the provisions of
this Agreement.
SECTION 18. CONFIDENTIALITY
AVIF acknowledges that the identities of the customers of SECURITY LIFE or any
of its affiliates (collectively, the "SECURITY LIFE Protected Parties" for
purposes of this Section 18), information maintained regarding those customers,
and all computer programs and procedures or other information developed by the
SECURITY LIFE Protected Parties or any of their employees or agents in
connection with SECURITY LIFE's performance of its duties under this Agreement
are the valuable property of the SECURITY LIFE Protected Parties. AVIF agrees
that if it comes into possession of any list or compilation of the identities of
or other information about the SECURITY LIFE Protected Parties' customers, or
any other information or property of the SECURITY LIFE Protected Parties, other
than such information as may be independently developed or compiled by AVIF from
information supplied to it by the SECURITY LIFE Protected Parties' customers who
also maintain accounts directly with AVIF, AVIF will hold such information or
property in confidence and refrain from using, disclosing or distributing any of
such information or other property except: (a) with SECURITY LIFE's prior
written consent; or (b) as required by law or judicial process. SECURITY LIFE
acknowledges that the identities of the customers of AVIF or any of its
affiliates (collectively the "AVIF Protected Parties" for purposes of this
Section 18), information maintained regarding those customers, and all computer
programs and procedures or other information developed by the AVIF Protected
Parties or any of their employees or agents in connection with AVIF's
performance of its duties under this Agreement are the valuable property of the
AVIF Protected Parties. SECURITY LIFE agrees that if it comes into possession
of any list or compilation of the identities of or other information about the
AVIF Protected Parties' customers or any other information or property of the
AVIF Protected Parties, other than such information as may be independently
developed or compiled by SECURITY LIFE from information supplied to it by the
AVIF Protected Parties' customers who also maintain accounts directly with
SECURITY LIFE, SECURITY LIFE will hold such information or property in
confidence and refrain from using, disclosing or distributing any of such
information or other property except: (a) with AVIF's prior written consent; or
(b) as required by law or judicial process. Each party acknowledges that any
breach of the agreements in this Section 18 would result in immediate and
irreparable harm to the other parties for which there would be no adequate
remedy at
17
<PAGE>
law and agree that in the event of such a breach, the other parties will be
entitled to equitable relief by way of temporary and permanent injunctions, as
well as such other relief as any court of competent jurisdiction deems
appropriate.
SECTION 19. TRADEMARKS AND FUND NAMES
(a) A I M Management Group Inc. ("AIM" or "licensor"), an affiliate of AVIF,
owns all right, title and interest in and to the name, trademark and service
mark "AIM" and such other tradenames, trademarks and service marks as may be set
forth on Schedule B, as amended from time to time by written notice from AIM to
SECURITY LIFE (the "AIM licensed marks" or the "licensor's licensed marks") and
is authorized to use and to license other persons to use such marks. SECURITY
LIFE and its affiliates are hereby granted a non-exclusive license to use the
AIM licensed marks in connection with SECURITY LIFE's performance of the
services contemplated under this Agreement, subject to the terms and conditions
set forth in this Section 19.
(b) The grant of license to SECURITY LIFE and its affiliates ( the "licensee")
shall terminate automatically upon termination of this Agreement. Upon automatic
termination, the licensee shall cease to use the licensor's licensed marks,
except that SECURITY LIFE shall have the right to continue to service any
outstanding Contracts bearing any of the AIM licensed marks. Upon AIM's elective
termination of this license, SECURITY LIFE and its affiliates shall immediately
cease to issue any new annuity or life insurance contracts bearing any of the
AIM licensed marks and shall likewise cease any activity which suggests that it
has any right under any of the AIM licensed marks or that it has any association
with AIM, except that SECURITY LIFE shall have the right to continue to service
outstanding Contracts bearing any of the AIM licensed marks.
(c) The licensee shall obtain the prior written approval of the licensor for
the public release by such licensee of any materials bearing the licensor's
licensed marks. The licensor's approvals shall not be unreasonably withheld.
(d) During the term of this grant of license, a licensor may request that a
licensee submit samples of any materials bearing any of the licensor's licensed
marks which were previously approved by the licensor but, due to changed
circumstances, the licensor may wish to reconsider. If, on reconsideration, or
on initial review, respectively, any such samples fail to meet with the written
approval of the licensor, then the licensee shall immediately cease distributing
such disapproved materials. The licensor's approval shall not be unreasonably
withheld, and the licensor, when requesting reconsideration of a prior approval,
shall assume the reasonable expenses of withdrawing and replacing such
disapproved materials. The licensee shall obtain the prior written approval of
the licensor for the use of any new materials developed to replace the
disapproved materials, in the manner set forth above.
(e) The licensee hereunder: (i) acknowledges and stipulates that, to the best
of the knowledge of the licensee, the licensor's licensed marks are valid and
enforceable trademarks and/or service marks and that such licensee does not own
the licensor's licensed marks and claims no rights therein other than as a
licensee under this Agreement; (ii) agrees never to contend otherwise in legal
proceedings or in other circumstances; and (iii) acknowledges and agrees that
the use of the licensor's licensed marks pursuant to this grant of license shall
inure to the benefit of the licensor.
SECTION 20. PARTIES TO COOPERATE
Each party to this Agreement will cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and will permit each other and such
authorities reasonable access to its books and records (including copies
thereof) in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
___________________________
18
<PAGE>
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed in
their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ By: /s/
------------------------------ ----------------------------
Nancy L. Martin Name: Robert H. Graham
Assistant Secretary Title: President
SECURITY LIFE OF DENVER, on
behalf of itself and its
separate accounts
Attest: /s/ By: /s/
------------------------------ ---------------------------
Name: Anna M. Kautzman Name: Carol D. Hard
Title: Assistant General Counsel Title: Senior Vice President
ING AMERICA EQUITIES, INC.
Attest: /s/ By: /s/
------------------------------ ---------------------------
Name: M. Kautzman Name: Carol D. Hard
Title: Assistant General Counsel Title: President
19
<PAGE>
SCHEDULE A
FUNDS AVAILABLE UNDER THE CONTRACTS
- -----------------------------------
. AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
. SECURITY LIFE OF DENVER
Separate Account Ll
Separate Account Al
CONTRACTS FUNDED BY THE SEPARATE ACCOUNTS
- -----------------------------------------
. STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
. STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
. FIRST LINE VARIABLE UNIVERSAL LIFE
. FIRST LINE II VARIABLE UNIVERSAL LIFE
. THE EXCHEQUER VARIABLE ANNUITY
20
<PAGE>
SCHEDULE B
. AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
. AIM and Design
21
<PAGE>
EXHIBIT 8(d)(ii)
SALES AGREEMENT
THIS AGREEMENT is made by and between The Alger American Fund ("FUND"), a
Massachusetts business trust, FRED ALGER MANAGEMENT, INC., a New York
corporation ("ADVISER"), and SECURITY LIFE OF DENVER INSURANCE COMPANY ("LIFE
COMPANY"), a life insurance company organized under the laws of the State of
Colorado.
WHEREAS, FUND is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 (" '40 Act") as an open-end
diversified management investment company; and
WHEREAS, FUND is organized as a series fund, comprised of several
Portfolios which are listed on Appendix A hereto; and
WHEREAS, FUND was initially organized to act as the funding vehicle for
certain variable life insurance and/or variable annuity contracts ("Variable
Contracts") offered by life insurance companies through separate accounts of
such life insurance companies; and
WHEREAS, ADVISER is registered with the SEC as an investment adviser under
the Investment Advisers Act of 1940 and as a broker-dealer under the Securities
Exchange Act of 1934, as amended; and
WHEREAS, ADVISER is the investment adviser to FUND and the distributor of
the shares of FUND; and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having FUND as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of FUND to fund the
aforementioned Variable Contracts and FUND is authorized to sell such shares to
LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
FUND and ADVISER agree as follows:
1.FUND will make available to the designated Separate Accounts of LIFE
COMPANY shares of the selected Portfolios for investment of purchase payments of
Variable Contracts allocated to the designated Separate Accounts as provided in
FUND's Prospectus.
2.FUND represents and warrants that all shares of the Portfolios of FUND
will be sold only to other insurance companies which have agreed to participate
in FUND to fund their Separate Accounts, all in accordance with the requirements
of Section 817(h) of the Internal Revenue Code of 1986, as amended ("Code") and
Treasury Regulation 1.817-5. Shares of the
<PAGE>
Portfolios of FUND will not be sold directly to the general public.
3.(a)FUND agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of FUND which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by FUND or its designee
of the order for the shares of FUND. For purposes of this Section 3(a), LIFE
COMPANY shall be the designee of FUND for receipt of such orders and receipt by
such designee shall constitute receipt by FUND; provided that FUND receives
notice of such order by 9:30 a.m. New York time on the next following Business
Day. "Business Day" shall mean any day on which the New York Stock Exchange is
open f or trading and on which FUND calculates its net asset value pursuant to
the rules of the SEC.
(b)FUND agrees to redeem for cash, on LIFE COMPANY's request, any full or
fractional shares of FUND held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by FUND or its
designee of the request for redemption. For purposes of this Section 3(b), LIFE
COMPANY shall be the designee of FUND for receipt of requests for redemption and
receipt by such designee shall constitute receipt by FUND; provided that FUND
receives notice of such request for redemption by 9:30 a.m. New York time on the
next following Business Day.
(c)FUND shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practical after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:15 p.m. New York time.
If FUND provides LIFE COMPANY with the incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any error in
the calculation of net asset value, dividend and capital gain information
greater than or equal to $.01 per share of FUND, shall be reported immediately
upon discovery to LIFE COMPANY. Any error of a lesser amount shall be corrected
in the next Business Day's net asset value per share for FUND.
(d)At the end of each Business Day, LIFE COMPANY shall use the information
described in Section 3 (c) to calculate Separate Account unit values for the
day. Using these unit values, LIFE COMPANY shall process each such Business
Day's Separate Account transactions based on requests and premiums received by
it by the close of trading on the floor of the New York Stock Exchange
(currently 4:00 p.m. New York time) to determine the net dollar amount of FUND
shares which shall be purchased or redeemed at that day's closing net asset
value per share. The net purchase or redemption orders so determined shall be
transmitted to FUND by LIFE COMPANY by 9:30 a.m. New York time on the Business
Day next following LIFE COMPANY's receipt of such requests and premiums 'in
accordance with the terms of Sections 3(a) and 3(b) hereof.
(e)If LIFE COMPANY's order requests the purchase of FUND shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to FUND or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE
<PAGE>
COMPANY's order requests a net redemption resulting in a payment of redemption
proceeds to LIFE COMPANY, FUND shall wire the redemption proceeds to LIFE
COMPANY by the next Business Day, unless doing so would require FUND to dispose
of portfolio securities or otherwise incur additional costs, but in such event,
proceeds shall be wired to LIFE COMPANY within seven days and FUND shall notify
the person designated in writing by LIFE COMPANY as the recipient for such
notice of such delay by 3:00 p.m. New York time the same Business Day that LIFE
COMPANY transmits the redemption order to FUND. If LIFE COMPANY's order requests
the application of redemption proceeds from the redemption of shares to the
purchase of shares of another portfolio managed or distributed by ADVISER, FUND
shall so apply such proceeds the same Business Day that LIFE COMPANY transmits
such order to FUND.
4.(a) FUND will bear the printing costs (or duplicating costs with respect
to the statement of additional information) and mailing costs associated with
the delivery of the following FUND (or individual portfolio) documents, and any
supplements thereto, to existing Variable Contract owners of LIFE COMPANY whose
Variable Contract values are invested in the Fund:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
LIFE COMPANY will submit any bills for printing, duplicating and/or mailing
costs, relating to the FUND documents described above, to FUND for reimbursement
by FUND. LIFE COMPANY shall monitor such costs and shall use its best efforts to
control these costs. LIFE COMPANY will provide FUND on a semi-annual basis, or
more frequently as reasonably requested by FUND, with a current tabulation of
the number of existing Variable Contract owners of LIFE COMPANY whose Variable
Contract values are invested in FUND. This tabulation will be sent to FUND in
the form of a letter signed by a duly authorized officer of LIFE COMPANY
attesting to the accuracy of the information contained in the letter.
(b)ADVISER will provide, at its expense, LIFE COMPANY with the following
FUND (or individual Portfolio) documents, and any supplements thereto, with
respect to prospective Variable Contract owners of LIFE COMPANY:
(i) camera ready copy of the current prospectus for printing by the LIFE
COMPANY;
(ii) a copy of the statement of additional information suitable for
duplication;
(iii) camera ready copy of proxy material suitable for printing; and
(iv) camera ready copy of the annual and semiannual reports for
<PAGE>
printing by the LIFE COMPANY.
(c)FUND shall provide LIFE COMPANY with as many copies of the current
prospectus of FUND as LIFE COMPANY may reasonably request. Where FUND is not
obligated to bear the costs of such prospectuses under Sections 4 (a) and (b) ,
LIFE COMPANY will reimburse FUND for the cost of providing the requested
prospectuses. If requested by LIFE COMPANY, FUND shall provide such
documentation (including a final copy of FUND's prospectus as set in type or in
camera-ready copy) and other assistance as is reasonably necessary in order for
LIFE COMPANY to print together in one document the current prospectus for the
Variable Contracts issued by LIFE COMPANY and the current prospectus for FUND.
5.(a)LIFE COMPANY will furnish, or will cause to be furnished, to FUND
and ADVISER, each piece of sales literature or other promotional material in
which FUND or ADVISER is named at least fifteen Business Days prior to its
intended use. No such material will be used if FUND or ADVISER objects to its
use in writing within ten Business Days after receipt of such material. LIFE
COMPANY will be responsible for making submissions to the NASD or other
regulatory authorities of such sales literature or other promotional materials.
(b)FUND and ADVISER will furnish, or will cause to be furnished, to LIFE
COMPANY, each piece of sales literature or other promotional material in which
LIFE COMPANY is named, at least fifteen Business Days prior to its intended use.
No such material will be used if LIFE COMPANY objects to its use in writing
within ten Business Days after receipt of such material. FUND or ADVISOR will be
responsible for making submissions to the NASD or other regulatory authorities
of such sales literature or other promotional materials.
(c)FUND and its affiliates and agents shall not give any information or
make any representations on behalf of LIFE COMPANY or concerning LIFE COMPANY,
the Separate Accounts, or the Variable Contracts issued by LIFE COMPANY, other
than the information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports for
the Separate Accounts or prepared for distribution to owners of such Variable
Contracts, or in sales literature or other promotional material approved by LIFE
COMPANY or its designee, except with the permission of LIFE COMPANY.
(d)LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of FUND or concerning FUND or
ADVISER other than the information or representations contained in a
registration statement or prospectus for FUND, as such registration statement
and prospectus may be amended or supplemented from time to time, or in published
reports for FUND which are in the public domain or approved by FUND or ADVISER
for distribution, or in sales literature or other promotional material approved
by FUND or its designee, except with the permission of FUND.
(e)For purposes of this Agreement, the phrase "sales literature or other
promotional material,, or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio,
<PAGE>
television, telephone or tape recording, videotape display, signs or billboards,
motion pictures or other public media), sales literature (such as any written
communication distributed or made generally available to customers or the
public, including brochures, circulars, research reports, market letters, form
letters, seminar texts, or reprints or excerpts or any other advertisement,
sales literature, or published article) , educational or training materials or
other communications distributed or made generally available to some or all
agents or employees, registration statements, prospectuses, statements of
additional information, shareholder reports and proxy materials, and any other
material constituting sales literature or advertising under National Association
of Securities Dealers, Inc. rules, the 140 Act or the Securities Act of 1933
(11133 Act").
6.Each Portfolio of FUND will comply with Section 817 (h) of the Code and
Treasury Regulation 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulation. In the event FUND becomes
aware that any Portfolio of FUND has failed to comply, it will take all
reasonable steps (a) to notify LIFE COMPANY of such failure, and
(b)to adequately diversify the Portfolio so as to achieve compliance.
7.(a) Except as limited by and in accordance with the provisions of
Sections 7 (b) and 7 (c) hereof, LIFE COMPANY agrees to indemnify and hold
harmless FUND and ADVISER, each of the officers and members of the Board of
Trustees of FUND, each of the directors and officers of ADVISER, and each
person, if any, who controls FUND or ADVISER within the meaning of Section 15 of
the 133 Act (collectively, the "Indemnified Parties" for purposes of this
Section 7) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of LIFE COMPANY) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of FUND's shares or the Variable Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the registration
statement or prospectus for the Variable Contracts or contained in
the Variable Contracts or sales literature therefore (or any
amendment or supplement to any of the foregoing) , or arise out of
or are based upon the omission or the alleged omission of a material
fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished
to LIFE COMPANY by or on behalf of FUND for use in the
registration statement or prospectus for the Variable Contract or in
the Variable Contracts or sales literature (or any amendment or
<PAGE>
supplement) or otherwise for use in connection with the sale of
the Variable Contracts or FUND shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of FUND
not supplied by LIFE COMPANY, or persons under its contract) or
wrongful conduct of LIFE COMPANY or persons under its control,
with respect to the sale or distribution of the Variable
Contracts or FUND shares; or
(iii) arise out of any untrue statement or alleged untrue statement- of
a material fact contained in a registration statement,
prospectus, or sales literature of FUND or any amendment thereof
or supplement thereto or the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to FUND or ADVISER by or on behalf of LIFE COMPANY; or
(iv) arise as a result of any failure by LIFE COMPANY to substantially
provide the services and furnish the materials under the terms of
this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in this
Agreement or arise out of or result from any other material
breach of this Agreement by LIFE COMPANY.
(b)LIFE COMPANY shall not be liable under this indemnification provision
for any losses, claims, damages, or liabilities incurred or assessed against an
Indemnified Party arising from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to FUND, whichever is applicable.
(c)LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to assume
<PAGE>
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from LIFE COMPANY to such party of LIFE COMPANY's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and LIFE COMPANY will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.(a)Except as limited by and in accordance with the provisions of
Sections 8(b) and 8(c) hereof, ADVISER agrees to indemnify and hold harmless
LIFE COMPANY and each of its directors and officers and each person, if any, who
controls LIFE COMPANY within the meaning of Section 15 of the 133 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of ADVISER) or litigation (including legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of FUND's shares or the
Variable Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of FUND
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to ADVISER or FUND
by or on behalf of LIFE COMPANY for use in the registration
statement or prospectus for FUND or in sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Variable Contracts or FUND shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Variable Contracts not supplied by ADVISER or persons under its
control) or wrongful conduct of FUND, ADVISER or persons under
their control, with respect to the sale or distribution of the
Variable Contracts or FUND shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Contracts,
or any amendment
<PAGE>
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information
furnished to LIFE COMPANY by or on behalf of FUND; or
(iv) arise as a result of (a) a failure by FUND to substantially
provide the services and furnish the materials under the terms of
this Agreement; (b) a failure by FUND to comply with the
diversification requirements of Section 817 (h) of the Code; (c)
a failure by FUND to qualify as a Regulated Investment Company
under Subchapter M of the Code; or (d) a failure by FUND to
register its shares f or sale as required by the laws of the
various states.
(v) arise out of or result from any material breach of any
representation and/or warranty made by ADVISER in this Agreement
or arise out of or result from any other material breach of this
Agreement by ADVISER.
(b)ADVISER shall not be liable under this indemnification provision for
any losses, claims, damages, or liabilities incurred or assessed against an
Indemnified Party arising from the Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to LIFE COMPANY.
(c)ADVISER shall not be liable under this indemnification provision with
respect to any claim made against an Indemnified Party unless such Indemnified
Party shall have notified ADVISER in writing within a reasonable time after the
summons or other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent) , but failure to notify ADVISER of any such claim shall not relieve
ADVISER from any liability which it may have to the Indemnified Party against
whom such action is brought ,otherwise than on account of this indemnification
provision. In case any such action is brought against an Indemnified Party,
ADVISER shall be entitled to participate at its own expense in the defense
thereof. ADVISER also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from ADVISER
to such party of ADVISER's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and ADVISER will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
9.FUND represents and warrants that FUND Shares sold pursuant to this
Agreement
<PAGE>
shall be registered under the '33 Act and duly authorized for issuance, and
shall be issued, in compliance in all material respects with applicable law, and
that FUND is and shall remain registered under the 140 Act for so long as
required thereunder. FUND further represents and warrants that FUND currently
qualifies and will make every effort to continue to qualify as a Regulated
Investment Company under Subchapter M of the Code, and to maintain such
qualification (under Subchapter M or any successor or similar provisions), and
that FUND will notify LIFE COMPANY immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future. FUND will register and qualify its shares for sale in accordance
with the laws of the various states as may be required by law.
10.FUND will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide FUND with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
11.FUND will disclose in its prospectus that (1) shares of FUND are
offered to affiliated or unaffiliated insurance company separate accounts which
fund both annuity and life insurance contracts, (2) due to differences in tax
treatment or other considerations, the interests of various Variable Contract
owners participating in FUND might at some time be in conflict, and (3) the
Board of Trustees of FUND will monitor for any material conflicts and determine
what action, if any, should be taken. FUND hereby notifies LIFE COMPANY that
prospectus disclosure may be appropriate regarding potential risks of offering
shares of FUND to separate accounts funding both variable annuity contracts and
variable life insurance policies and to separate accounts funding variable
contracts of unaffiliated life insurance companies.
12.Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having Jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities reasonable access to its books and records in connection with
any investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
13.LIFE COMPANY agrees to inform the Board of Trustees of FUND of the
existence of or any potential for any material irreconcilable conflict of
interest between the interest of the contract owners of the Separate Accounts of
LIFE COMPANY investing in FUND and/or any other separate account of any other
insurance company investing in FUND upon LIFE COMPANY having knowledge of same.
'FUND agrees to inform LIFE COMPANY of the existence of or any potential for any
material irreconcilable conflict of interest between the interests of the
contract owners of the Separate Accounts of LIFE COMPANY investing in FUND
and/or any other separate account of any other insurance company investing in
FUND (upon FUND having knowledge of same).
<PAGE>
A material irreconcilable conflict may arise for any one of a variety of
reasons, including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities
laws or regulations, or a public ruling, private letter ruling, no-
action or interpretive letter, or any similar action by insurance, tax
or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting. instructions given by variable annuity
contract owners and variable life insurance contract owners or by
contract owners of different life insurance companies utilizing FUND;
or
(f) a decision by a participating life insurance company to disregard the
voting instructions of contract owners.
The Board of Trustees of FUND shall promptly inform LIFE COMPANY if it
determines that an irreconcilable material conflict exists and the implications
thereof.
LIFE COMPANY will be responsible for assisting the Board of Trustees of
FUND in carrying out its responsibilities by providing the Board with all
information reasonably necessary for the Board to consider any issue raised
including information as to a decision by LIFE COMPANY to disregard voting
instructions of contract owners.
It is agreed that if it is determined by a majority of the members of the
Board of Trustees of FUND or a majority of its disinterested Trustees that a
material irreconcilable conflict exists affecting LIFE COMPANY, LIFE COMPANY
shall, at its own expense, to the extent reasonably practicable, take whatever
steps are necessary to remedy or eliminate the material irreconcilable conflict,
which steps may include, but are not limited to,
(a) withdrawing the assets allocable to some or all of the Separate
Accounts from FUND or any Portfolio and reinvesting such assets in a
different investment medium, including another Portfolio of FUND or
submitting the questions of whether such segregation should be
implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any particular group (i.e.,
annuity contract owners or life insurance contract owners) that votes
in favor of such segregation, or offering to the affected contract
owners the option of making such a change;
(b) establishing a new registered management investment company or managed
separate account.
<PAGE>
If a material irreconcilable conflict arises because of LIFE COMPANY' s
decision to disregard contract owner voting instructions and that -decision
represents a minority position or would preclude a majority vote, the LIFE
COMPANY may be required, at FUND's election, to withdraw its Separate Account's
investment in FUND. No charge or penalty will be imposed against a Separate
Account of LIFE COMPANY as a result of such withdrawal. LIFE COMPANY agrees that
any remedial action taken by it in resolving any material conflicts of interest
will be carried out in the interests of contract owners.
For purposes hereof, a majority of the disinterested members of the Board
of Trustees of FUND shall determine whether or not any proposed action
adequately remedies any material irreconcilable conflict. In no event will FUND
be required to establish a new funding medium for any Variable Contracts. LIFE
COMPANY shall not be required by the terms hereof to establish a new funding
medium for any Variable Contracts if an offer to do so has been declined by vote
of a majority of affected contract owners.
14.LIFE COMPANY shall provide pass-through voting privileges, as provided
in this paragraph, to all Variable Contract owners so long as the SEC or its
staff continues to interpret the 140 Act to require such pass-through voting
privileges for Variable Contract owners. LIFE COMPANY will vote shares for which
it has not received voting instructions as well as shares attributable to it in
the same proportion as it votes shares for which it has received instructions.
LIFE COMPANY shall be responsible for assuring that each of its Separate
Accounts participating in FUND calculates voting privileges in a manner
consistent with other life companies utilizing FUND provided that each
participating life insurance company enters into an agreement containing a
provision or provisions, which do not vary in any material respect, from the
terms of Section 13 hereof.
15.(a) This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the
provisions herein.
(b) This Agreement shall terminate automatically in the event of its
assignment unless such assignment is made with the written consent of LIFE
COMPANY and FUND.
(c) This Agreement shall terminate without penalty at the option of the
terminating party in accordance with the following provisions:
(i) At the option of LIFE COMPANY or FUND at any time from the
date hereof upon 180 days' advance written notice, unless a shorter
time is agreed to in writing by the parties;
(ii) At the option of LIFE COMPANY if FUND shares are not
reasonably available to meet the requirements of the Variable
Contracts as determined by LIFE COMPANY. Notice of election
to terminate shall be furnished by LIFE COMPANY and
termination shall be effective ten days after FUND's receipt of said
notice unless FUND makes available a sufficient number of shares,
<PAGE>
to the satisfaction of LIFE COMPANY, to meet the requirements
of the Variable Contracts within said ten-day period;
(iii) At the option of LIFE COMPANY, upon the institution of formal
proceedings against FUND by the SEC, the National Association of
Securities Dealers, Inc., or any other regulatory body, the
expected or anticipated ruling, judgment or outcome of which
would, in LIFE COMPANY'S reasonable judgment, materially impair
FUND'S ability to meet and perform FUND'S obligations and duties
hereunder. Prompt notice of election to terminate under this
paragraph shall be furnished by LIFE COMPANY with said
termination to be effective upon receipt of notice;
(iv) At the option of LIFE COMPANY, upon its good faith determination,
or at the option of FUND upon a determination by a majority of
the Board, or a majority of disinterested Board members, that an
irreconcilable material conflict exists among the interests of
(i) owners of Variable Contracts issued by participating life
insurance companies; or (ii) the interest of participating life
insurance companies;
(v) At the option of FUND, upon the institution of formal proceedings
against LIFE COMPANY by the SEC, the National Association of
Securities Dealers, Inc., or any other regulatory body, the
expected or anticipated ruling, judgement or outcome which would,
in FUND'S reasonable judgment, materially impair LIFE COMPANY'S
ability to meet and perform its obligations and duties hereunder.
Prompt notice of election to terminate under this paragraph shall
be furnished by FUND with said termination to be effective upon
receipt of notice;
(vi) At the option of FUND, if (1) FUND shall determine in its sole
judgement reasonably exercised in good faith, that LIFE COMPANY
has suffered a material adverse change in its business or
financial condition or -is the subject of material adverse
publicity and such material adverse change or material adverse
publicity is likely to have a material adverse impact upon the
business and operation of FUND and ADVISER, (2) FUND shall have
notified LIFE COMPANY in writing of such determination and its
intent to terminate this Agreement, and, (3) after consideration
of the actions taken by LIFE COMPANY and any other changes in
circumstances since the giving of such notice, the determination
of FUND shall continue to apply on the sixtieth (60th) day since
giving of such notice, then such sixtieth day shall be the
effective date of termination;
<PAGE>
(vii) At the option of LIFE COMPANY after having been notified by
FUND of a termination or proposed termination of the Investment
Advisory Agreement between FUND and ADVISER or its
successors, which notice FUND shall provide promptly to LIFE
COMPANY, the effective date of termination of the Agreement to
be as determined by LIFE COMPANY;
(viii) in the event FUND's shares are not registered, issued or sold in
accordance with applicable federal law, or such law precludes the
use of such shares as the underlying investment medium of
Variable Contracts issued or to be issued by LIFE COMPANY.
Termination shall be effective immediately upon such occurrence
without notice;
(ix) At the option of FUND upon a reasonable determination by the
Board in good faith that it is no longer advisable and in the
best interests of shareholders for FUND to continue to operate
pursuant to this Agreement;
(x) At the option of FUND if the Variable Contracts cease to qualify
as annuity contracts or life insurance contracts, as applicable,
under the Code, or if FUND reasonably believes that the Variable
Contracts may fail to so qualify;
(xi) At the option of LIFE COMPANY, upon FUND'S breach of any material
provision of this Agreement, which breach has not been cured to
the satisfaction of LIFE COMPANY within ten days after written
notice of such breach is delivered to FUND;
(xii) At the option of FUND, upon LIFE COMPANY's breach of any
material provision of this Agreement, which breach has not been
cured to the satisfaction of FUND within ten days after written
notice of such breach is delivered to LIFE COMPANY;
(xiii) At the option of FUND, if the Variable Contracts are not
registered, issued or sold in accordance with applicable federal
and/or state law. Termination shall be effective immediately upon
such occurrence without notice;
(xiv) At the option of LIFE COMPANY, if LIFE COMPANY shall determine,
in its sole judgment reasonably exercised in good faith, that
FUND is the subject of material adverse publicity and such
material adverse publicity is likely to have a material adverse
impact on the sale of the Variable Contracts and/or the
operations or business reputation of LIFE COMPANY, the LIFE
COMPANY
<PAGE>
shall have notified FUND in writing of such determination
and its intent to terminate this Agreement, and, after
consideration of the actions taken by FUND and any other changes
in circumstances since the giving of such notice, the
determination of the LIFE COMPANY shall continue to apply on the
sixtieth (60th) day since giving of such notice, which sixtieth
day shall be the effective date of termination; or
(xv) Upon requisite vote of the Variable Contract owners having an
interest in the Separate Accounts to substitute the shares of
another investment company for the corresponding shares of FUND
in accordance with the terms of the Variable Contracts f or which
those shares had been selected to serve as the underlying
investment media.
(d)Notwithstanding any termination of this Agreement pursuant to Section
15 (c) hereof, at the election of LIFE COMPANY, FUND shall continue to make
available additional FUND shares, as provided below, pursuant to the terms and
conditions of this Agreement, for all Variable Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred to as
"Existing Contracts"). Specifically, without limitation, at the .election of
LIFE COMPANY, the owners of the Existing Contracts or LIFE COMPANY, whichever
shall have legal authority to do so, shall be permitted to reallocate
investments in FUND, redeem investments in FUND and/or invest in FUND upon the
payment of additional premiums under the Existing Contracts. In the event of a
termination of this Agreement pursuant to Section 15(c) hereof, LIFE COMPANY, as
promptly as is practicable under the circumstances, shall notify FUND whether
LIFE COMPANY shall elect to continue to have FUND make shares available after
such termination. If FUND shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either FUND or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 15(d), upon prior written notice to the other
party such notice to be for a period that is reasonable under the circumstances
but, if given by FUND, need not be for more than six months. In determining
whether to elect to continue to make available additional FUND shares, LIFE
COMPANY shall act in good faith, giving due consideration to the interests of
existing shareholders, including holders of Existing Contracts.
16.This Agreement shall be subject to the provisions of the '40 Act and
the rules and regulations thereunder, including any exemptive relief therefrom
and the orders of the SEC setting forth such relief.
17.Each party hereto agrees to furnish the California Insurance
Commissioner with any information or reports in connection with services
provided under this Agreement which such Commissioner may request in order to
ascertain whether the insurance operations of LIFE COMPANY are being conducted
in a manner consistent with the California Insurance Regulations and any other
applicable law or regulations. FUND agrees that LIFE COMPANY shall have the
right to inspect, audit and copy all records pertaining to the performance of
services under this
<PAGE>
Agreement pursuant to the requirements of the California insurance Department.
However, FUND and ADVISER shall own and control all the pertinent records
pertaining to their performance of services under this Agreement.
18.This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Colorado.
19.It is understood by the parties that this Agreement is not an exclusive
arrangement.
20.FUND represents that a copy of its Agreement and Declaration - of
Trust, dated April 6, 1988, together with all amendments thereto, is on file in
the office of the Secretary of the Commonwealth of Massachusetts. This Agreement
has been executed on behalf of FUND by the undersigned officer of FUND in his
capacity as an officer of FUND. The obligations of this Agreement shall be
binding on the assets and property of FUND only and shall not be binding on any
Trustee, officer, or shareholder of FUND individually.
Executed this 26th day of August, 1994.
THE ALGER AMERICAN FUND
ATTEST: Nanci Staple BY: Gregory Duch
SECURITY LIFE INSURANCE
COMPANY OF DENVER
ATTEST: Bonnie C. Dailey BY: Stephan M. Largent
FRED ALGER MANAGEMENT, INC.
ATTEST: Nanci Staple BY: Gregory Duch
<PAGE>
APPENDIX A
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
<PAGE>
EXHIBIT 8(d)(iii)
SALES AGREEMENT
THIS AGREEMENT is made by and between NEUBERGER & BERMAN ADVISERS
MANAGEMENT TRUST ("TRUST") , a Massachusetts business trust, NEUBERGER & BERMAN
MANAGEMENT INCORPORATED ("N&B MANAGEMENT"), a New York corporation, and SECURITY
LIFE OF DENVER INSURANCE COMPANY ("LIFE COMPANY") , a life insurance company
organized under the laws of the State of Colorado.
WHEREAS, TRUST is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 (11"40 Act") as an open-end
diversified management investment company; and
WHEREAS, TRUST is organized as a series fund, comprised of several
Portfolios which are listed on Appendix A hereto; and
WHEREAS, TRUST was initially organized to act as the funding vehicle for
certain variable life insurance and/or variable annuity contracts ("variable
contracts") offered by life insurance companies through separate accounts of
such life insurance companies and now also offers its shares to certain
qualified pension and retirement plans; and
WHEREAS, N&B MANAGEMENT is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940 and as a broker-dealer under the
Securities Exchange Act of 1934, as amended; and
WHEREAS, N&B MANAGEMENT is the investment adviser to TRUST and the
distributor of the shares of TRUST; and
WHEREAS, LIFE COMPANY has established or will establish one or more
separate accounts ("Separate Accounts") to offer variable contracts and is
desirous of having TRUST as one of the underlying funding vehicles for such
variable contracts; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, LIFE COMPANY intends to purchase shares of TRUST to fund the
aforementioned variable contracts and TRUST is authorized to sell such shares to
LIFE COMPANY at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, LIFE COMPANY,
TRUST and N&B MANAGEMENT agree as follows:
1. TRUST will make available to the designated Separate Accounts of LIFE
COMPANY shares of the selected Portfolios for investment of purchase payments of
variable contracts allocated to the designated Separate Accounts as provided in
TRUST's Prospectus.
<PAGE>
2. TRUST represents and warrants that all shares of the Portfolios of
TRUST will be sold only to other insurance companies which have agreed to
participate in TRUST to fund their Separate Accounts and/or to certain qualified
pension and other retirement plans, all in accordance with the requirements of
Section 817(h) of the Internal Revenue Code of 1986, as amended ("Code") and
Treasury Regulation 1.817-5. Shares of the Portfolios of TRUST will not be sold
directly to the general public.
3. (a) TRUST agrees to sell to LIFE COMPANY those shares of the selected
Portfolios of TRUST which LIFE COMPANY orders, executing such orders on a daily
basis at the net asset value next computed after receipt by TRUST or its
designee of the order for the shares of TRUST. For purposes of this Section
3(a), LIFE COMPANY shall be the designee of TRUST for receipt of such orders
from LIFE COMPANY and receipt by such designee shall constitute receipt by
TRUST; provided that TRUST receives notice of such order by 9:30 a.m. New York
time on the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange is open for trading and on which TRUST
calculates its net asset value pursuant to the rules of the SEC.
(b) TRUST agrees to redeem for cash, on LIFE COMPANY's request, any full
or fractional shares of TRUST held by LIFE COMPANY, executing such requests on a
daily basis at the net asset value next computed after receipt by TRUST or its
designee of the request for redemption. For purposes of this Section 3(b), LIFE
COMPANY shall be the designee of TRUST for receipt of requests for redemption
from LIFE COMPANY and receipt by such designee shall constitute receipt by
TRUST; provided that TRUST receives notice of such request for redemption by
9:30 a.m. New York time on the next following Business Day.
(c) TRUST shall make the net asset value per share for the selected
Portfolio(s) available to LIFE COMPANY on a daily basis as soon as reasonably
practical after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by 6:15 p.m. New York time.
If TRUST provides LIFE COMPANY with the incorrect share net asset value
information through no fault of LIFE COMPANY, LIFE COMPANY on behalf of the
Separate Accounts, shall be entitled to an adjustment to the number of shares
purchased or redeemed to reflect the correct share net asset value. Any error in
the calculation of net asset value, dividend and capital gain information
greater than or equal to $.01 per share of TRUST, shall be reported immediately
upon discovery to LIFE COMPANY. Any error of a lesser amount shall be corrected
in the next Business Day's net asset value per share for TRUST.
(d) At the end of each Business Day, LIFE COMPANY shall use the
information described in Section 3(c) to calculate Separate Account unit values
f or the day. Using these unit values, LIFE COMPANY shall process each such
Business Day's Separate Account transactions based on requests and premiums
received by it by the close of trading on the floor of the New York Stock
Exchange (currently 4:00 p.m. New York time) to determine the net dollar amount
of TRUST shares which shall be purchased or redeemed at that day's closing net
asset value per share. The net purchase or redemption orders so determined shall
be transmitted to TRUST by LIFE
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COMPANY by 9:30 a.m. New York time on the Business Day next following LIFE
COMPANY's receipt of such requests and premiums in accordance with the terms of
Sections 3(a) and 3(b) hereof.
(e) If LIFE COMPANY's order requests the purchase of TRUST shares, LIFE
COMPANY shall pay for such purchase by wiring federal funds to TRUST or its
designated custodial account on the day the order is transmitted by LIFE
COMPANY. If LIFE COMPANY's order requests a net redemption resulting in a
payment of redemption proceeds to LIFE COMPANY, TRUST shall wire the redemption
proceeds to LIFE COMPANY by the next Business Day, unless doing so would require
TRUST to dispose of portfolio securities or otherwise incur additional costs,
but in such event, proceeds shall be wired to LIFE COMPANY within seven days and
TRUST shall notify the person designated in writing by LIFE COMPANY as the
recipient for such notice of such delay by 3:00 p.m. New York time the same
Business Day that LIFE COMPANY transmits the redemption order to TRUST. If LIFE
COMPANY's order requests the application of redemption proceeds from the
redemption of shares to the purchase of shares of another fund managed or
distributed by N&B MANAGEMENT, TRUST shall so apply such proceeds the same
Business Day that LIFE COMPANY transmits such order to TRUST.
4. (a) TRUST will bear the printing costs (or duplicating costs with
respect to the statement of additional information) and mailing costs associated
with the delivery of the following TRUST (or individual portfolio) documents,
and any supplements thereto, to existing variable contract owners of LIFE
COMPANY:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
LIFE COMPANY will submit any bills for printing, duplicating and/or mailing
costs, relating to the TRUST documents described above, to TRUST for
reimbursement by TRUST. LIFE COMPANY shall monitor such costs and shall use its
best efforts to control these costs. LIFE COMPANY will provide TRUST on a semi-
annual basis, or more frequently as reasonably requested by TRUST, with a
current tabulation of the number of existing variable contract owners of LIFE
COMPANY whose variable contract values are invested in TRUST. This tabulation
will be sent to TRUST in the form of a letter signed by a duly authorized
officer of LIFE COMPANY attesting to the accuracy of the information contained
in the letter. if requested by LIFE COMPANY, the TRUST shall provide such
documentation (including a final copy of the TRUST's prospectus as set in type
or in camera-ready copy) and other assistance as is reasonably necessary in
order for LIFE COMPANY to print together in one document the current prospectus
for the variable contracts issued by LIFE COMPANY and the current prospectus for
the TRUST.
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<PAGE>
(b) TRUST will provide, at its expense, LIFE COMPANY with the following
TRUST (or individual Portfolio) documents, and any supplements thereto, with
respect to prospective variable contract owners of LIFE COMPANY:
(i) camera ready copy of the current prospectus for printing
by the LIFE COMPANY;
(ii) a copy of the statement of additional information
suitable for duplication;
(iii) camera ready copy of proxy material suitable for
printing; and
(iv) camera ready copy of the annual and semiannual reports
for printing by the LIFE COMPANY.
5. (a) LIFE COMPANY will furnish, or will cause to be furnished, to TRUST
and N&B MANAGEMENT, each piece of sales literature or other promotional material
in which TRUST or N&B MANAGEMENT is named at least fifteen days prior to its
intended use. No such material will be used if TRUST or N&B MANAGEMENT objects
to its use in writing within ten Business Days after receipt of such material.
(b) TRUST and N&B MANAGEMENT will furnish, or will cause to be furnished,
to LIFE COMPANY, each piece of sales literature or other promotional material in
which LIFE COMPANY or its Separate Accounts are named, at least fifteen Business
Days prior to its intended use. No such material will be used if LIFE COMPANY
objects to its use in writing within ten Business Days after receipt of such
material.
(c) The TRUST and its affiliates and agents shall not give any information
or make any representations on behalf of LIFE COMPANY or concerning LIFE
COMPANY, the Separate Accounts, or the variable contracts issued by LIFE
COMPANY, other than the information or representations contained in a
registration statement or prospectus for such variable contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Separate Accounts or reports prepared for
distribution to owners of such variable contracts, or in sales literature or
other promotional material approved by LIFE COMPANY or its designee, except with
the permission of LIFE COMPANY.
(d) LIFE COMPANY and its affiliates and agents shall not give any
information or make any representations on behalf of TRUST or concerning TRUST
other than the information or representations contained in a registration
statement or prospectus for TRUST, as such registration statement and prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by TRUST or its designee, except with the
permission of TRUST.
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<PAGE>
(e) For purposes of this Agreement, the phrase "sales literature or other
promotional material" or words of similar import include, without limitation,
advertisements (such as material published, or designed for use, in a newspaper,
magazine or other periodical, radio, television, telephone or tape recording,
videotape display, signs or billboards, motion pictures or other public media) ,
sales literature (such as any written communication distributed or made
generally available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts or any other advertisement, sales literature, or published article) ,
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports and
proxy materials, and any other material constituting sales literature or
advertising under National Association of Securities Dealers, Inc. rules, the
140 Act or the Securities Act of 1933 (11"33 Act").
6. Each Portfolio of TRUST will comply with Section 817(h) of the Code and
Treasury Regulation 1.817-5, relating to the diversification requirements for
variable annuity, endowment, or life insurance contracts and any amendments or
other modifications to such Section or Regulations. In the event TRUST becomes
aware that any Portfolio of TRUST has failed to comply, it will take all
reasonable steps (a) to notify LIFE COMPANY of such failure, and (b) to
adequately diversify t@e Portfolio so as to achieve compliance.
7. (a) Except as limited by and in accordance with the provisions of
Sections 7(b) and 7(c) hereof, LIFE COMPANY agrees to indemnify and hold
harmless TRUST and N&B MANAGEMENT and each trustee of the Board of Trustees of
TRUST and officers and each person, if any, who controls TRUST and each of the
directors and officers of N&B MANAGEMENT and each person, if any, who controls
N&B MANAGEMENT within the meaning of Section 15 of the 133 Act (collectively,
the "Indemnified Parties" for purposes of this Section 7) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of LIFE COMPANY) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of TRUST's shares or the variable
contracts and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained
in the registration statement or prospectus for the
variable contracts or contained in the variable contracts
(or any amendment or supplement to any of the foregoing) ,
or arise out of or are based upon the omission or the
alleged omission to state therein or necessary to make the
statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to LIFE
COMPANY by or on behalf of
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<PAGE>
TRUST for use in the registration statement or
prospectus for the variable contract or in the variable
contracts or sales literature (or any amendment or
supplement) or otherwise for use in connection with the
sale of the variable contracts or TRUST shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature of TRUST not
supplied by LIFE COMPANY, or persons under its
contract) or wrongful conduct of LIFE COMPANY or
persons under its control, with respect to the sale or
distribution of the variable contracts or TRUST shares;
or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales literature
of TRUST or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not misleading
if such statement or omission or such alleged statement
or omission was made in reliance upon and in conformity
with information furnished to TRUST by or on behalf of
LIFE COMPANY; or
(iv) arise as a result of any failure by LIFE COMPANY to
substantially provide the services and furnish the
materials under the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by LIFE COMPANY in
this Agreement or arise out of or result from any other
material breach of this Agreement by LIFE COMPANY.
(b)LIFE COMPANY shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to TRUST,
whichever is applicable.
(c)LIFE COMPANY shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified LIFE COMPANY in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify LIFE COMPANY of any
such claim shall not relieve LIFE COMPANY from any liability which it may have
to the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, LIFE COMPANY shall be entitled to assume
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<PAGE>
the defense thereof, with counsel satisfactory to the party named in the action.
After notice from LIFE COMPANY to such party of LIFE COMPANY's election to
assume the defense thereof, the Indemnified Party shall bear the fees and
expenses of any additional counsel retained by it, and LIFE COMPANY will not be
liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
8. (a) Except as limited by and in accordance with the provisions of
sections 8(b) and 8(c) hereof, N&B MANAGEMENT agrees to indemnify and hold
harmless LIFE COMPANY and each of its directors and officers and each person, if
any, who controls LIFE COMPANY within the meaning of Section 15 of the 133 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8) against
any and all losses, claims, damages, liabilities (including amounts paid in
settlement with the written consent of N&B MANAGEMENT) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, or regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
or settlements are related to the sale or acquisition of TRUST's shares or the
variable contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement or prospectus or sales
literature of TRUST (or any amendment or supplement to
any of the foregoing), or arise out of or are based
upon the omission or the alleged. omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to N&B MANAGEMENT or TRUST
by or on behalf of LIFE COMPANY for use in the
registration statement or prospectus for TRUST or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
variable contracts or TRUST shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
variable contracts not supplied by N&B MANAGEMENT or
persons under its control) or wrongful conduct of
TRUST, its adviser or N&B MANAGEMENT or persons under
their control, with respect to the sale or distribution
of the variable contracts or TRUST shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a
registration statement, prospectus, or sales literature
covering the variable contracts, or any amendment
thereof or supplement thereto or the omission or
alleged omission to state therein a material fact
required to be stated therein or necessary to make the
statements therein not misleading, if such
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<PAGE>
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to LIFE COMPANY by or on
behalf of TRUST; or
(iv) arise as a result of (a) a failure by TRUST to
substantially provide the services and furnish the
materials under the terms of this Agreement; or (b) a
failure by TRUST to comply with the diversification
requirements of Section 817 (h) of the Code; or (c) a
failure by TRUST to qualify as a Regulated Investment
Company under Subchapter M of the Code; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by N&B MANAGEMENT
in this Agreement or arise out of or result from any
other material breach of this Agreement by N&B
MANAGEMENT.
(b) N&B MANAGEMENT shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
LIFE COMPANY.
(c) N&B MANAGEMENT shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified N&B MANAGEMENT in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify N&B MANAGEMENT of
any such claim shall not relieve N&B MANAGEMENT from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, N&B MANAGEMENT shall be entitled to participate
at its own expense in the defense thereof. N&B MANAGEMENT. also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from N&B MANAGEMENT to such party of N&B
MANAGEMENT'S election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and N&B
MANAGEMENT will not be liable to such party under this Agreement for any legal
or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
9. (a) TRUST represents and warrants that TRUST shares sold pursuant to
this Agreement shall be registered under the 133 Act and duly authorized for
issuance, and shall be issued, in compliance in all material respects with
applicable law, and that TRUST is and shall remain registered under the 140 Act
for so long as required thereunder.
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<PAGE>
(b) TRUST represents and warrants that it currently qualifies and will
make every effort to continue to qualify as a Regulated Investment Company under
Subchapter M of the Code, and to maintain such qualification (under Subchapter M
or any successor or similar provisions) , and that TRUST will notify LIFE
COMPANY immediately upon having a reasonable basis for believing that it has
ceased to so qualify or that it might not so qualify in the future.
(c) TRUST will register and qualify its shares for sale in accordance with
the laws of the various states as may be required by law.
10. TRUST will provide LIFE COMPANY with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. LIFE
COMPANY will provide TRUST with at least one complete copy of all prospectuses,
statements of additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to a Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
11. TRUST will disclose in its prospectus that (1) shares of the TRUST are
offered to affiliated or unaffiliated insurance company separate accounts and
qualified plans which fund both annuity and life insurance contracts, (2) due to
differences in tax treatment or other considerations, the interests of various
variable contract owners and qualified plans participating in the TRUST might at
some time be in conflict, and (3) the Board of Trustees of the TRUST will
monitor for any material conflicts and determine what action, if any, should be
taken. The TRUST hereby notifies LIFE COMPANY that prospectus disclosure may be
appropriate regarding potential risks of offering shares of the TRUST to
separate accounts and qualified plans funding both variable annuity contracts
and variable life insurance policies and to separate accounts and qualified
plans funding variable contracts of unaffiliated life insurance companies.
12. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having Jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
each other and such authorities reasonable access to its books and records in
connection with any investigation or inquiry relating to this Agreement or the
transactions contemplated hereby. TRUST and N&B MANAGEMENT shall own and control
all the pertinent records pertaining to their performance of services under this
Agreement.
13. LIFE COMPANY agrees to inform the Board of Trustees of TRUST of the
existence of or any potential for any material irreconcilable conflict of
interest between the interest of the contract owners of the Separate Accounts of
LIFE COMPANY investing in TRUST and/or any other separate account of any other
insurance company investing in TRUST upon LIFE COMPANY having knowledge of same.
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<PAGE>
A material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities
laws or regulations, or a-public ruling, private letter ruling, no-
action or interpretive letter, or any similar action by insurance,
tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by
contract owners of different life insurance companies utilizing
TRUST; or
(f) a decision by a participating life insurance company to disregard the
voting instructions of contract owners.
LIFE COMPANY will be responsible for assisting the Board of Trustees of
TRUST in carrying out its responsibilities by providing the Board with all
information reasonably necessary for the Board to consider any issue raised
including information as to a decision by LIFE COMPANY to disregard voting
instructions of contract owners.
It is agreed that if it is determined by a majority of the members of the
Board of Trustees of TRUST or a majority of its disinterested Trustees that an
irreconcilable material conflict exists affecting LIFE COMPANY, LIFE COMPANY
shall, at its own expense, take whatever steps are necessary to remedy or
eliminate the material irreconcilable conflict, which steps may include, but are
not limited to,
(a) withdrawing the assets allocable to some or all of the Separate
Accounts from TRUST or any Portfolio and reinvesting such assets in a
different investment medium, including another Portfolio of TRUST or
submitting the questions of whether such segregation should be
implemented to a vote of all affected contract owners and, as
appropriate, segregating the assets of any particular group (i.e.,
annuity contract owners, life insurance contract owners or qualified
contract owners) that votes in favor of such segregation, or offering
to the affected contract owners the option of making such a 'change;
(b) establishing a new registered management investment company or
managed separate account.
If a material irreconcilable conflict arises because of LIFE COMPANY's
decision to disregard contract owner voting instructions and that decision
represents a minority position or
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<PAGE>
would preclude a majority vote, the LIFE COMPANY may be required, at TRUST's
election, to withdraw its Separate Account's investment in TRUST. No charge or
penalty will be imposed against a Separate Account of LIFE COMPANY as a result
of such withdrawal. LIFE COMPANY agrees that any remedial action taken by it in
resolving any material conflicts of interest will be carried out with a view
only to the interest of contract owners.
For purposes hereof, a majority of the disinterested members of the Board
of Trustees of TRUST shall determine whether or not any proposed action
adequately remedies any material irreconcilable conflict. In no event will TRUST
be required to establish a new funding medium for any variable contracts. LIFE
COMPANY shall not be required by the terms hereof to establish a new funding
medium for any variable contracts if an offer to do so has been declined by vote
of a majority of affected contract owners.
TRUST agrees to inform LIFE COMPANY of the existence of or any potential
for any material irreconcilable conflict of interest between the interests of
the contract owners of the Separate Accounts of LIFE COMPANY investing in TRUST
and/or any other separate account of any other insurance company investing in
TRUST (upon TRUST having knowledge of same).
A material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax,, or
securities law or regulations, or a public ruling, private letter
ruling, or any similar action by insurance, tax, or securities
regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being
managed;
(e) a difference in voting instructions given by variable annuity
contract owners and variable life insurance contract owners or by
contract owners of different Participating life insurance companies
utilizing TRUST; or
(f) a decision by a participating life insurance company to disregard the
voting instructions of contract owners.
The Board of Trustees of TRUST shall promptly inform LIFE COMPANY if it
determines that an irreconcilable material conflict exists and the implications
thereof.
14.LIFE COMPANY shall provide pass-through voting privileges, as provided
in this paragraph, to all variable contract owners so long as the SEC or its
staff continues to interpret the 140 Act to require such pass-through voting
privileges for variable contract owners. LIFE
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<PAGE>
COMPANY will vote shares for which it has not received voting instructions as
well as shares attributable to it in the same proportion as it votes shares for
which it has received instructions. LIFE COMPANY shall be responsible for
assuring that each of its Separate Accounts participating in TRUST calculates
voting privileges in a manner consistent with other life companies utilizing
TRUST provided that each participating life insurance company enters into an
agreement containing a provision or provisions, which do not vary in any
material respects, from the terms of Section 13 hereof.
15. (a) This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
(b) This Agreement shall terminate automatically in the event of its
assignment unless such assignment is made with the written consent of LIFE
COMPANY and TRUST.
(c) This Agreement shall terminate without penalty at the option of the
terminating party in accordance with the following provisions:
(i) At the option of LIFE COMPANY or TRUST at any time from
the date hereof upon 180 days' advance written notice,
unless a shorter time is agreed to by the parties;
(ii) At the option of LIFE COMPANY, if TRUST shares are not
reasonably available to meet the requirements of the
variable contracts as determined by LIFE COMPANY.
Prompt notice of election to terminate shall be
furnished by LIFE COMPANY, said termination to be
effective ten days after receipt of notice unless TRUST
makes available a sufficient number of shares to
reasonably meet the requirements of the variable
contracts within said ten-day period;
(iii) At the option of LIFE COMPANY, upon the institution of
formal proceedings against TRUST by the SEC, the
National Association of Securities Dealers, Inc., or
any other regulatory body, the expected or anticipated
ruling, judgment or outcome of which would, in LIFE
COMPANY'S reasonable judgment, materially impair
TRUST'S ability to meet and perform TRUST'S obligations
and duties hereunder. Prompt notice of election to
terminate shall be furnished by LIFE COMPANY with said
termination to be effective upon receipt of notice;
(iv) At the option of LIFE COMPANY, upon its good faith
determination, or at the option of TRUST upon a
determination by a majority of the Board, or a majority
of disinterested Board members, that an irreconcilable
material conflict exists among the interests of (i)
owners of variable contracts issued by participating
life insurance companies; or (ii) the interests of
participating life insurance companies.
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<PAGE>
(v) At the option of TRUST, upon the institution of formal
proceedings against LIFE COMPANY by the SEC, the
National Association of Securities Dealers, Inc., or
any other regulatory body, the expected or anticipated
ruling, judgement or outcome which would, in TRUST'S
reasonable judgment, materially impair LIFE COMPANY'S
ability to meet and perform its obligations and duties
hereunder. Prompt notice of election to, terminate
shall be furnished by TRUST with said termination to be
effective upon receipt of notice;
(vi) At the option of TRUST, if (i) TRUST shall determine in
its sole judgement reasonably exercised in good faith,
that LIFE COMPANY has suffered a material adverse
change in its business or financial condition or is the
subject of material adverse publicity and such material
adverse change or material adverse publicity is likely
to have a material adverse impact upon business and
operation of TRUST and N&B MANAGEMENT, (ii) TRUST shall
have notified LIFE COMPANY in writing of such
determination and its intent to terminate this
Agreement, and, (iii) after consideration of the
actions taken by LIFE COMPANY and any other changes in
circumstances since the giving of such notice, the
determination of TRUST shall continue to apply on the
sixtieth (60th) day since giving of such notice, then
such sixtieth day shall be the effective date of
termination;
(vii) At the option Of LIFE COMPANY after having been
notified by TRUST of a termination or proposed
termination of the Investment Advisory Agreement
between TRUST and N&B MANAGEMENT or its successors,
which notice TRUST shall provide promptly to LIFE
COMPANY, the effective date of termination of the
Agreement to be as determined by LIFE COMPANY;
(viii) In the event TRUST's shares are not registered, issued
or sold in accordance with applicable state or federal
law, or such law precludes the use of such shares of
the underlying investment medium of variable contracts
issued or to be issued by LIFE COMPANY. Termination
shall be effective immediately upon such occurrence
without notice;
(ix) At the option of TRUST upon a reasonable determination
by the Board in good faith that it is no longer
advisable and in the best interests of shareholders for
TRUST to continue to operate pursuant to this
Agreement;
(x) At the option of TRUST if the variable contracts cease
to qualify as annuity contracts or life insurance
contracts, as applicable, under the Code, or if TRUST
reasonably believes that the variable contracts may
fail to so qualify;
(xi) At the option of LIFE COMPANY, upon TRUST'S breach of
any material provision of this Agreement, which breach
has not been cured to the satisfaction
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<PAGE>
of LIFE COMPANY within ten days after written notice of
such breach is delivered to TRUST;
(xii) At the option of TRUST, upon LIFE COMPANY's breach of
any material provision of this Agreement, which breach
has not been cured to the satisfaction of TRUST within
ten days after written notice of such breach is
delivered to LIFE COMPANY;
(xiii) At the option of TRUST, if the variable contracts are
not registered, issued or sold in accordance with
applicable federal and/or state law. Termination shall
be effective immediately upon such occurrence without
notice;
(xiv) At the option of LIFE COMPANY, if LIFE COMPANY shall
determine, in its sole judgment reasonably exercised in
good faith, that TRUST is the subject of material
adverse publicity and such material adverse publicity
is likely to have a material adverse impact on the sale
of the variable contracts and/or the operations or
business reputation of LIFE COMPANY, the LIFE COMPANY
shall have notified TRUST in writing of such
determination and its intent to terminate this
Agreement, and, after consideration of the actions
taken by TRUST and any other changes in circumstances
since the giving of such notice, the determination of
the LIFE COMPANY shall continue to apply on the
sixtieth day since giving of such notice, which
sixtieth (60th) day shall be the effective date of
termination; or
(xv) Upon requisite vote of the variable contract owners
having an interest in the Separate Accounts to
substitute the shares of another investment company for
the corresponding shares of the TRUST in accordance
with the terms of the variable contracts for which
those shares had been selected to serve as the
underlying investment media, such termination to be
effective sixty days after notification of TRUST.
(d) Notwithstanding any termination of this Agreement pursuant to Section
15(c) hereof, TRUST at its option may elect to continue to make available
additional TRUST shares, as provided below, for so long as TRUST desires
pursuant to the terms and conditions of this Agreement, for all variable
contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if TRUST so elects to make additional TRUST shares available, the
owners of the Existing Contracts or LIFE COMPANY, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in TRUST,
redeem investments in TRUST and/or invest in TRUST upon the payment of
additional premiums under the Existing Contracts. In the event of a termination
of this Agreement pursuant to Section 15(c) hereof, TRUST and N&B MANAGEMENT, as
promptly as is practicable under the circumstances, shall notify LIFE COMPANY
whether TRUST shall elect to continue to make TRUST shares available after such
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termination. If TRUST shares continue to be made available after such
termination, the provisions of this Agreement shall remain in effect and
thereafter either TRUST or LIFE COMPANY may terminate the Agreement, as so
continued pursuant to this Section 15 (d) , upon prior written notice to the
other party such notice to be for a period that is reasonable under the
circumstances but, if given by TRUST, need not be for more than six months. In
determining whether to elect to continue to make available additional TRUST
shares, TRUST shall act in good faith, giving due consideration to the interests
of existing shareholders, including holders of Existing Contracts.
16. This Agreement shall be subject to the provisions of the '40 Act and
the rules and regulations thereunder, including any exemptive relief therefrom
and the orders of the SEC setting forth such relief.
17. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Colorado.
18. It is understood by the parties that this Agreement is not an
exclusive arrangement.
19. This Agreement is made by TRUST pursuant to authority granted by the
Trustees, and the obligations created hereby are binding on the Trust and its
property, but not on any of the Trustees or shareholders of TRUST individually.
A copy of the Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts and notice is hereby given that the Agreement has
been executed by a Trustee on behalf of the TRUST in his or her capacity as
Trustee and not individually.
Executed this 28th day of September, 1994.
NEUBERGER & BERMAN
ADVISERS MANAGEMENT TRUST
ATTEST: /s/ Stacy Cooper BY: /s/ Stanley Egener
Stanley Egener, Chairman
SECURITY LIFE INSURANCE
COMPANY OF DENVER
ATTEST: /s/ Bonnie C. Dailey BY: /s/ Steve Largent
NEUBERGER & BERMAN MANAGEMENT
INCORPORATED
ATTEST: /s/ Ellen Metzger BY: /s/ Alan Dynner
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APPENDIX A
Neuberger and Berman Limited Maturity Bond Portfolio
Neuberger and Berman Growth Portfolio
Neuberger and Berman Partners Portfolio
Neuberger and Berman Government Income Portfolio
<PAGE>
EXHIBIT 8(d)(iv)
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND,
FIDELITY DISTRIBUTORS CORPORATION
and
SECURITY LIFE OF DENVER INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 10th day of August, 1994 by
and among SECURITY LIFE OF DENVER INSURANCE COMPANY, (hereinafter the
"Company"), a Colorado corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND, an unincorporated business
trust organized under the laws of the Commonwealth of Massachusetts (hereinafter
the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets (a list of the
Portfolios of the Fund to which this Agreement applies is included in Schedule D
hereto, as may be amended from time to time); and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated October 15, 1985 (File No. 812-6102), granting, Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
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WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the " 1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc. (hereinafter
"NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
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1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission and the Fund shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day. Proceeds of any net redemption
are normally wired to the Company on the Business Day immediately following
receipt of the redemption order.
1.6. The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund and in accordance with the
provisions of such prospectus. The Company agrees that all net amounts available
under the variable annuity contracts with the form number(s) which are listed on
Schedule A attached hereto and incorporated herein by this reference, as such
Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement (a list
of such funds appearing on
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<PAGE>
Schedule C to this Agreement); or (d) the Fund or Underwriter consents to the
use of such other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 10-7-402 of the Colorado Insurance Laws and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with
4
<PAGE>
the laws of the State of Colorado and all applicable federal and state
securities laws and that the Fund is and shall remain registered under the 1940
Act. The Fund shall amend the Registration Statement for its shares under the
1933 Act and the 1940 Act from time to time as required in order to effect the
continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance or annuity contracts, under applicable provisions of the Code and
that it will make every effort to maintain such treatment and that it will
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Colorado and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Colorado to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Colorado and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
5
<PAGE>
2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Colorado and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(l) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of the persons
affiliated with it who are described in Rule 17g-(1) under the 1940 Act are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, in an amount not less $5 million. The aforesaid includes coverage for
larceny and embezzlement is issued by a reputable bonding company. The Company
agrees to make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, and agrees to notify the Fund
and the Underwriter in the event that such coverage no longer applies.
2.12 The Fund and the Underwriter represent that they will own and control
all the pertinent records pertaining to their performance of services under this
Agreement.
ARTICLE III. Prospectuses and Proxy Statements, Voting
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
6
<PAGE>
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Fund or its designee reasonably objects to such use within fifteen Business Days
after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which
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<PAGE>
the Company and/or its separate account(s), is named at least fifteen Business
Days prior to its use. No such material shall be used if the Company or its
designee reasonably objects to such use within fifteen Business Days after
receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan
8
<PAGE>
pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to the underwriter for the Contracts if and
in amounts agreed to by the Underwriter in writing and such payments will be
made out of existing fees otherwise payable to the Underwriter, past profits of
the Underwriter or other resources available to the Underwriter. No such
payments shall be made directly by the Fund. Currently, no such payments are
contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, all taxes on the issuance or
transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action
9
<PAGE>
or interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and
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<PAGE>
terminate this Agreement with respect to such Account within six months after
the Board informs the Company in writing that it has determined that such
decision has created an irreconcilable material conflict; provided, however,
that such withdrawal and termination shall be limited to the extent required by
the foregoing material irreconcilable conflict as determined by a majority of
the disinterested members of the Board. Until the end of the foregoing six month
period, the Underwriter and Fund shall continue to accept and implement orders
by the Company for the purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7. 1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1 (a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at
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<PAGE>
common law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration
Statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reliance upon and in conformity with information furnished to the
Company by or on behalf of the Fund for use in the Registration
Statement or prospectus for the Contracts or in the Contracts or
sales literature (or any amendment or supplement) or otherwise for
use in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied
by the Company, or persons under its control) or wrongful conduct of
the Company or persons under its control, with respect to the sale
or distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or
sales literature of the Fund or any amendment thereof or supplement
thereto or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading if such a statement or omission
was made in reliance upon information furnished to the Fund by or on
behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1 (b) and 8. 1(c) hereof.
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8.l(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1 (c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1 (d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or sales literature of the Fund (or any amendment or
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<PAGE>
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any
amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser or Underwriter or persons under their
control, with respect to the sale or distribution of the Contracts or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus, or
sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI
of this Agreement); or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Underwriter in this Agreement or arise out
of or result from any other material breach of this Agreement by the
Underwriter; as limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
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<PAGE>
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Underwriter to such party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such party under this Agreement for
any legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the services
and furnish the materials under the terms of this Agreement (including
a failure to comply with the diversification requirements specified in
Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any representation
and/or warranty made by the Fund in this Agreement or arise out of or
result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
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<PAGE>
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
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<PAGE>
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision,
or if the Company reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof, or
(f) termination by either the Fund or the Underwriter by written notice to
the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
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<PAGE>
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any
other provision of this Agreement; provided, however any termination
under this Section 10.1(h) shall be effective forty five (45) days
after the notice specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
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If to the Company:
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203-5699
Attention: Bonnie Dailey
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a
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<PAGE>
manner consistent with the California Insurance Regulations and any other
applicable law or regulations. The Fund agrees that the Company shall have the
right to inspect, audit and copy all records pertaining to the performance of
services under this Agreement to the requirements of the California Insurance
Department.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP")), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory and GAAP), as soon as
practical and in any event within 45 days after the end of each
quarterly period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after the filing
thereof;
(e) any other report submitted to the Company by independent accountants
in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt
thereof.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
SECURITY LIFE OF DENVER INSURANCE COMPANY
By its authorized officer,
By: /s/ Steve Largent
Name: Stephan M. Largent
Title: Vice President
VARIABLE INSURANCE PRODUCTS FUND
By its authorized officer,
By: /s/ J. Gary Burkhead
Name: J. Gary Burkhead
Title: Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/ Kurt A. Lange
Name: Kurt A. Lange
Title: President
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<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
Security Life Separate Account Al The Exchequer Variable Annuity
(November 3, 1993) (Flexible Premium Deferred
Combination Fixed and Variable
Annuity Contract)
Security Life Separate Account L1 First Line (Flexible Premium
Variable Life Insurance Policy)
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<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement.
Underwriter will provide at least one copy of the last Annual Report to the
Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid for by
the Insurance Company). Contents of envelope sent to Customers by Company
will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be-due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
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<PAGE>
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
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SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF Total Return Portfolio
INVESCO VIF Utilities Portfolio
Neuberger and Berman Government Income Portfolio
Neuberger and Berman Growth Portfolio
Neuberger and Berman Limited Maturity Bond Portfolio
Neuberger and Berman Partners Portfolio
Van Eck Gold and Natural Resources Portfolio
Van Eck Worldwide Balanced Portfolio
Fidelity Investments Variable Insurance Products Fund II
Asset Manager Portfolio
Index 500 Portfolio
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<PAGE>
SCHEDULE D
Portfolios of the Fund available as funding vehicles under the Contracts:
Growth Portfolio
Money Market Portfolio
Overseas Portfolio
27
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EXHIBIT 8(d)(v)
PARTICIPATION AGREEMENT
Among
VARIABLE INSURANCE PRODUCTS FUND II,
FIDELITY DISTRIBUTORS CORPORATION
and
SECURITY LIFE OF DENVER INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 10th day of August, 1994 by
and among, SECURITY LIFE OF DENVER INSURANCE COMPANY, (hereinafter the
"Company"), a Colorado corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND II, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(collectively, the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and the
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets (a list of the
Portfolios of the Fund to which this Agreement applies is included in Schedule D
hereto, as may be amended from time to time); and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission, dated September 17, 1986 (File No. 812-6422), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Exemptive
Order"); and
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WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, Fidelity Management & Research Company (the "Adviser") is duly
registered as an investment adviser under the federal Investment Advisers Act of
1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE 1. Sale of Fund Shares
1.1. The Underwriter agrees to sell to the Company those shares of the Fund
which each Account orders, executing such orders on a daily basis at the net
asset value next computed after receipt by the Fund or its designee of the order
for the shares of the Fund. For purposes of this Section 1.1, the Company shall
be the designee of the Fund for receipt of such orders from each Account and
receipt by such designee shall constitute receipt by the Fund; provided that the
Fund receives notice of such order by 9:00 a.m. Boston time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the Securities and Exchange Commission.
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1.2. The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules of
the Securities and Exchange Commission and the Fund shall use reasonable efforts
to calculate such net asset value on each day which the New York Stock Exchange
is open for trading. Notwithstanding the foregoing, the Board of Trustees of the
Fund (hereinafter the "Board") may refuse to sell shares of any Portfolio to any
person, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by the Company, executing such requests on
a daily basis at the net asset value next computed after receipt by the Fund or
its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption on the next following Business Day. Proceeds of any net redemption
are normally wired to the Company on the Business Day immediately following
receipt of the redemption order.
1.6. The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund and in accordance with the
provisions of such prospectus. The Company agrees that all net amounts available
under the variable annuity contracts with the form number(s) which are listed on
Schedule A attached hereto and incorporated herein by this reference, as such
Schedule A may be amended from time to time hereafter by mutual written
agreement of all the parties hereto, (the "Contracts") shall be invested in the
Fund, in such other Funds advised by the Adviser as may be mutually agreed to in
writing by the parties hereto, or in the Company's general account, provided
that such amounts may also be invested in an investment company other than the
Fund if (a) such other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Portfolios of the Fund; or (b) the Company
gives the Fund and the Underwriter 45 days written notice of its intention to
make such other investment company available as a funding vehicle for the
Contracts; or (c) such other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Company so
informs the Fund and Underwriter prior to their signing this Agreement (a list
of such funds appearing on
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Schedule C to this Agreement); or (d) the Fund or Underwriter consents to the
use of such other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day after
an order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal funds
so wired, such funds shall cease to be the responsibility of the Company and
shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Fund's shares. The Company hereby elects to receive
all such income dividends and capital gain distributions as are payable on the
Portfolio shares in additional shares of that Portfolio. The Company reserves
the right to revoke this election and to receive all such income dividends and
capital gain distributions in cash. The Fund shall notify the Company of the
number of shares so issued as payment of such dividends and distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated and shall use its best efforts to
make such net asset value per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable Federal and State laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under Section 10-7-402 of the Colorado Insurance Laws and has registered or,
prior to any issuance or sale of the Contracts, will register each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in
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compliance with the laws of the State of Colorado and all applicable federal and
state securities laws and that the Fund is and shall remain registered under the
1940 Act. The Fund shall amend the Registration Statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in order to effect
the continuous offering of its shares. The Fund shall register and qualify the
shares for sale in accordance with the laws of the various states only if and to
the extent deemed advisable by the Fund or the Underwriter.
2.3. The Fund represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain such
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might not so qualify in
the future.
2.4. The Company represents that the Contracts are currently treated as
life insurance or annuity contracts, under applicable provisions of the Code and
that it will make every effort to maintain such treatment and that it will
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.5. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. The Fund has adopted a "no
fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Colorado and the Fund and the Underwriter represent that their
respective operations are and shall at all times remain in material compliance
with the laws of the State of Colorado to the extent required to perform this
Agreement.
2.7. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Colorado and all applicable state
and federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly existing
under the laws of the Commonwealth of Massachusetts and that it does and will
comply in all material respects with the 1940 Act.
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2.9. The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal and
state securities laws and that the Adviser shall perform its obligations for the
Fund in compliance in all material respects with the laws of the State of
Colorado and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of the persons
affiliated with it who are described in Rule 17g-(1) under the 1940 Act are
covered by a blanket fidelity bond or similar coverage for the benefit of the
Fund, in an amount not less $5 million. The aforesaid includes coverage for
larceny and embezzlement is issued by a reputable bonding company. The Company
agrees to make all reasonable efforts to see that this bond or another bond
containing these provisions is always in effect, and agrees to notify the Fund
and the Underwriter in the event that such coverage no longer applies.
2.12 The Fund and the Underwriter represent that they will own and control
all the pertinent records pertaining to their performance of services under this
Agreement.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document (such printing to be at the
Company's expense).
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, the Prospectus shall state that such Statement is available from the
Fund), and the Underwriter (or the Fund), at its expense, shall print and
provide such Statement free of charge to the Company and to any owner of a
Contract or prospective owner who requests such Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
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3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
received from Contract owners; and
(iii) vote Fund shares for which no instructions have been
received in the same proportion as Fund shares of such
portfolio for which instructions have been received,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in the Fund calculates voting
privileges in a manner consistent with the standards set forth on Schedule B
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the Securities and Exchange Commission's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material in
which the Fund or its investment adviser or the Underwriter is named, at least
fifteen Business Days prior to its use. No such material shall be used if the
Fund or its designee reasonably objects to such use within fifteen Business Days
after receipt of such material.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee or
by the Underwriter, except with the permission of the Fund or the Underwriter or
the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which
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the Company and/or its separate account(s), is named at least fifteen Business
Days prior to its use. No such material shall be used if the Company or its
designee reasonably objects to such use within fifteen Business Days after
receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Fund or its shares, contemporaneously
with the filing of such document with the Securities and Exchange Commission or
other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, contemporaneously with the filing of such document with the SEC or
other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
Statements of Additional Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
5.1. The Fund and Underwriter shall pay no fee or other compensation to the
Company under this agreement, except that if the Fund or any Portfolio adopts
and implements a plan
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pursuant to Rule 12b-1 to finance distribution expenses, then the Underwriter
may make payments to the Company or to the underwriter for the Contracts if and
in amounts agreed to by the Underwriter in writing and such payments will be
made out of existing fees otherwise payable to the Underwriter, past profits of
the Underwriter or other resources available to the Underwriter. No such
payments shall be made directly by the Fund. Currently, no such payments are
contemplated.
5.2. All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the expenses for
the cost of registration and qualification of the Fund's shares, preparation and
filing of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law, all taxes on the issuance or
transfer of the Fund's shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
ARTICLE VI. Diversification
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify Company of such breach and (b) to adequately diversify the
Fund so as to achieve compliance with the grace period afforded by Regulation
817-5.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action
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or interpretative letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by an insurer to disregard the voting instructions of contract owners. The Board
shall promptly inform the Company if it determines that an irreconcilable
material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however that such withdrawal and termination shall be limited
to the extent required by the foregoing material irreconcilable conflict as
determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders to the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs
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the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contracts if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination, provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding, (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of this Agreement shall
continue in effect only to the extent that terms and conditions substantially
identical to such Sections are contained in such Rule(s) as so amended or
adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Company
8.1 (a). The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who controls the
Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8. 1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or
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actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or
contained in the Contracts or sales literature for the Contracts
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Company by
or on behalf of the Fund for use in the Registration Statement
or prospectus for the Contracts or in the Contracts or sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the
Fund not supplied by the Company, or persons under its control)
or wrongful conduct of the Company or persons under its control,
with respect to the sale or distribution of the Contracts or
Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company, as limited by and in
accordance with the provisions of Sections 8.1(b) and 8.1(c)
hereof.
8.l(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified
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<PAGE>
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Company will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.1 (d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2. Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements are related to the
sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
Registration Statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing),
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to
13
<PAGE>
be stated therein or necessary to make the statements therein
not misleading, provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Underwriter or Fund by or on behalf of the Company for use
in the Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature for the
Contracts not supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund, Adviser or
Underwriter or persons under their control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement,
prospectus, or sales literature covering the Contracts, or any
amendment thereof or supplement thereto, or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the
Company by or on behalf of the Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Underwriter; as limited by and
in accordance with the provisions of Sections 8.2(b) and 8.2(c)
hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have
14
<PAGE>
notified the Underwriter in writing within a reasonable time after the summons
or other first legal process giving information of the nature of the claim shall
have been served upon such Indemnified Party (or after such Indemnified Party
shall have received notice of such service on any designated agent), but failure
to notify the Underwriter of any such claim shall not relieve the Underwriter
from any liability which it may have to the Indemnified Party against whom such
action is brought otherwise than on account of this indemnification provision.
In case any such action is brought against the Indemnified Parties, the
Underwriter will be entitled to participate, at its own expense, in the defense
thereof. The Underwriter also shall be entitled to assume the defense thereof,
with counsel satisfactory to the party named in the action. After notice from
the Underwriter to such party of the Underwriter's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Underwriter will not be liable to
such party under this Agreement for any legal or other expenses subsequently
incurred by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified
15
<PAGE>
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith, or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company, the Fund, the Underwriter or each
Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceedings against it or any of its
respective officers or directors in connection with this Agreement, the issuance
or sale of the Contracts, with respect to the operation of either Account, or
the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the Securities and
Exchange Commission may grant (including, but not limited to, the Shared Funding
Exemptive Order) and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. Termination
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
16
<PAGE>
(a) termination by any party for any reason by sixty (60) days advance
written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in accordance
with applicable state and/or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts
issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code or under any successor or similar provision,
or if the Company reasonably believes that the Fund may fail to so
qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in
Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written notice to
the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity; or
(h) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the written
notice specified in Section 1.6(b) hereof and at the time such notice
was given there was no notice of termination outstanding under any
other provision of this Agreement; provided, however any termination
under this Section 10.1 (h) shall be effective forty-five (45) days
after the notice specified in Section 1.6(b) was given.
17
<PAGE>
10.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"). Upon request, the
Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption. Furthermore, except in cases where
permitted under the terms of the Contracts, the Company shall not prevent
Contract Owners from allocating payments to a Portfolio that was otherwise
available under the Contracts without first giving the Fund or the Underwriter
90 days notice of its intention to do so.
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203-5699
Attention: Bonnie Dailey
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
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<PAGE>
ARTICLE XII. Miscellaneous
12.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing, by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations. The Fund
agrees that the Company shall have the right to inspect, audit and copy all
records pertaining to the performance of services under this Agreement to the
requirements of the California Insurance Department.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto; provided, however, that the Underwriter may assign this Agreement or any
rights or obligations hereunder to any affiliate of
19
<PAGE>
or company under common control with the Underwriter, if such assignee is duly
licensed and registered to perform the obligations of the Underwriter under this
Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee copies of the following reports:
(a) the Company's annual statement prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP")), as soon as practical and in any event
within 90 days after the end of each fiscal year;
(b) the Company's quarterly statements (statutory and GAAP), as soon as
practical and in any event within 45 days after the end of each
quarterly period;
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the Securities and Exchange Commission or any
state insurance regulator, as soon as practical after the filing
thereof;
(e) any other report submitted to the Company by independent accountants
in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt
thereof.
20
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
SECURITY LIFE OF DENVER INSURANCE COMPANY
By its authorized officer,
By: /s/ Steve Largent
Name: Stephan M. Largent
Title: Vice President
VARIABLE INSURANCE PRODUCTS FUND II
By its authorized officer,
By: /s/ J. Gary Burkhead
Name: J. Gary Burkhead
Title: Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By its authorized officer,
By: /s/ Kurt A. Lange
Name: Kurt A. Lange
Title: President
21
<PAGE>
Schedule A
Separate Accounts and Associated Contracts
Name of Separate Account and Contracts Funded
Date Established by Board of Directors By Separate Account
Security Life Separate Account Al The Exchequer Variable Annuity
(November 3, 1993) (Flexible Premium Deferred
Combination Fixed and Variable
Annuity Contract
Security Life Separate Account L1 First Line (Flexible Premium
Variable Life Insurance Policy)
22
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of
units which are attributed to each contract owner/policyholder (the
"Customer") as of the Record Date. Allowance should be made for account
adjustments made after this date that could affect the status of the
Customers' accounts as of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report must be sent to each Customer by the Company
either before or together with the Customers' receipt of a proxy statement.
Underwriter will provide at least one copy of the last Annual Report to the
Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the
Card before it is printed. Allow approximately 2-4 business days for
printing information on the Cards. Information commonly found on the Cards
includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Company for insertion
into envelopes (envelopes and return envelopes are provided and paid for by
the Insurance Company). Contents of envelope sent to Customers by Company
will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the Company
or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Fund.)
e. cover letter - optional, supplied by Company and reviewed and approved
in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews and
approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including) the meeting,
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used procedure is to sort Cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The
24
<PAGE>
mutilated or illegible Card is disregarded and considered to be not
received for purposes of vote tabulation. Any Cards that have "kicked out"
(e.g. mutilated, illegible) of the procedure are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions on those
Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations stated
in terms of a percentage and the number of shares.) Fidelity Legal must
review and approve tabulation format.
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
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SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company:
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF Total Return Portfolio
INVESCO VIF Utilities Portfolio
Neuberger and Berman Government Income Portfolio
Neuberger and Berman Growth Portfolio
Neuberger and Berman Limited Maturity Bond Portfolio
Neuberger and Berman Partners Portfolio
Van Eck Gold and Natural Resources Portfolio
Van Eck Worldwide Balanced Portfolio
Fidelity Investments Variable Insurance Products Fund
Growth Portfolio
Money Market Portfolio
Overseas Portfolio
26
<PAGE>
SCHEDULE D
Portfolios of the Fund available. as funding vehicles under the Contracts:
Asset Manager Portfolio
Index 500 Portfolio
27
<PAGE>
EXHIBIT 8(d)(vi)
PARTICIPATION AGREEMENT
Among
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO FUNDS GROUP, INC.
and
SECURITY LIFE OF DENVER INSURANCE COMPANY
THIS AGREEMENT, made and entered into this 26th day of August 1994 by and
among SECURITY LIFE OF DENVER INSURANCE COMPANY, (hereinafter the "Insurance
Company"), a Colorado corporation, on its own behalf and on behalf of each
segregated asset account of the Insurance Company set forth on Schedule A hereto
as may be amended from time to time (each such account hereinafter referred to
as the "Account"), INVESCO VARIABLE INVESTMENT FUNDS, INC., a Maryland
corporation (the "Company") and INVESCO FUNDS GROUP, INC. ("INVESCO"), a
Delaware corporation.
WHEREAS, the Company engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable annuity and life insurance contracts
to be offered by insurance companies which have entered into participation
agreements substantially identical to this Agreement ("Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Company is divided into several
series of shares, each designated a "Fund" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Company has obtained an order from the Securities and Exchange
Commission (the "Commission"), dated December 29, 1993 (File No. 812-8590),
granting Participating Insurance Companies and their separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
Investment Company Act of 1940, as amended, (the "1940 Act") and Rules 6e-2(b)
(15) and 6e-3(T) (b) (15) thereunder, to the extent necessary to permit shares
of the Company to be sold to and held by variable annuity and variable life
insurance separate accounts of life insurance companies that may or may not be
affiliated with one another (the "Mixed and Shared Funding Exemptive Order");
and
WHEREAS, the Company is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, INVESCO is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law and as a
broker dealer under the Securities Exchange Act of 1934, as amended, (the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"); and
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WHEREAS, the Insurance Company has registered under the 1933 Act, or will
register under the 1933 Act, certain variable annuity and variable life
insurance contracts identified by the form number(s) listed on Schedule B to
this Agreement, as amended from time to time hereafter by mutual written
agreement of all the parties hereto (the "Contracts"); and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the board of directors of the
Insurance Company on the date shown for that Account on Schedule A hereto, to
set aside and invest assets attributable to the Contracts; and
WHEREAS, the Insurance Company has registered or will register each Account
as a unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurance Company intends to purchase shares in the Funds on
behalf of the Accounts to fund the Contracts and INVESCO is authorized to sell
such shares to unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Insurance
Company, the Company and INVESCO agree as follows:
ARTICLE I. Sale of Company Shares
1.1. INVESCO agrees to sell to the Insurance Company those shares of the
Company which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Company or its designee of
the order for the shares of the Company. For purposes of this Section 1.1, the
Insurance Company shall be the designee of the Company for receipt of such
orders from the Accounts and receipt by such designee shall constitute receipt
by the Company; provided, that the Company receives notice of such order by 8:00
a.m., Mountain Time, on the next following Business Day. "Business Day" shall
mean any day on which the New York Stock Exchange is open for trading and on
which the Company calculates its net asset value pursuant to the rules of the
Commission.
1.2. The Company agrees to make its shares available for purchase at the
applicable net asset value per share by the Insurance Company and its Accounts
on those days on which the Company calculates its Funds' net asset values
pursuant to rules of the Commission and the Company shall use reasonable efforts
to calculate its Funds' net asset values on each day on which the New York Stock
Exchange is open for trading. Notwithstanding the foregoing, the board of
directors of the Company (hereinafter the "Board") may refuse to sell shares of
any Fund to any person, or suspend or terminate the offering of shares of any
Fund if such action is required by law or by regulatory authorities having
jurisdiction or is, in the sole discretion of the Board acting in good faith and
in light of their fiduciary duties under federal and any applicable state laws,
necessary in the best interests of the shareholders of that Fund.
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1.3. The Company and INVESCO agree that shares of the Company will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Fund will be sold to the general public.
1.4. The Company and INVESCO will not sell Company shares to any insurance
company or separate account unless an agreement containing provisions
substantially the same as Sections 2.1, 3.4, 3.5 and Article VII of this
Agreement is in effect to govern such sales.
1.5. The Company agrees to redeem, on the Insurance Company's request, any
full or fractional shares of the Company held by the Insurance Company,
executing such requests on a daily basis at the net asset value next computed
after receipt by the Company or its designee of the request for redemption. For
purposes of this Section 1.5, the Insurance Company shall be the designee of the
Company for receipt of requests for redemption from each Account and receipt by
that designee shall constitute receipt by the Company; provided that the Company
receives notice of the request for redemption by 8:00 a.m., Mountain Time, on
the next following Business Day.
1.6. The Insurance Company agrees to purchase and redeem the shares of
each Fund offered by the then-current prospectus of the Company in accordance
with the provisions of that prospectus. The Insurance Company agrees that all
net amounts available under the Contracts shall be invested in the Company, in
such other Funds advised by INVESCO as may be mutually agreed to in writing by
the parties hereto, or in the Insurance Company's general account, provided that
such amounts may also be invested in an investment company other than the
Company if (a) the other investment company, or series thereof, has investment
objectives or policies that are substantially different from the investment
objectives and policies of all the Funds of the Company; or (b) the Insurance
Company gives the Company and INVESCO 45 days written notice of its intention to
make the other investment company available as a funding vehicle for the
Contracts; or (c) the other investment company was available as a funding
vehicle for the Contracts prior to the date of this Agreement and the Insurance
Company so informs the Company and INVESCO prior to their signing this
Agreement; or (d) the Company or INVESCO consents to the use of the other
investment company.
1.7. The Insurance Company shall pay for Company shares by 9:00 a.m.,
Mountain Time, on the next Business Day after an order to purchase Company
shares is made in accordance with the provisions of Section 1.1 hereof. Payment
shall be in federal funds transmitted by wire. For the purpose of Sections 2.10
and 2.11, upon receipt by the Company of the federal funds so wired, such funds
shall cease to be the responsibility of the Insurance Company and shall become
the responsibility of the Company. Payment of net redemption proceeds (aggregate
redemptions of a Fund's shares by an Account minus aggregate purchases of that
Fund's shares by that Account) of less than $1 million for a given Business Day
will be made by wiring federal funds to the Insurance Company on the next
Business Day after receipt of the redemption request. Payment of net redemption
proceeds of $1 million or more will be by wiring federal funds within seven days
after receipt of the redemption request. Notwithstanding the foregoing, in the
event that one or more Funds has insufficient cash on hand to pay net
redemptions on the next Business
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Day, and if such Fund has determined to settle redemption transactions for all
of its shareholders on a delayed basis (more than one Business Day, but in no
event more than seven calendar days, after the date on which the redemption
order is received, unless otherwise permitted by an order of the Commission
under Section 22(e) of the 1940 Act), the Company shall be permitted to delay
sending redemption proceeds to the Insurance Company by the same number of days
that the Company is delaying sending redemption proceeds to the other
shareholders of the Fund. Redemptions of up to the lesser of $250,000 or 1% of
the net asset value of the Fund whose shares are to be redeemed in any 90-day
period will be made in cash. Redemptions in excess of that amount in any 90-day
period may, in the sole discretion of the Company, be in-kind redemptions, with
the securities to be delivered in payment of redemptions selected by the Company
and valued at the value assigned to them in computing the Fund's net asset value
per share.
1.8. Issuance and transfer of the Company's shares will be by book entry
only. Stock certificates will not be issued to the Insurance Company or any
Account. Shares ordered from the Company will be recorded in an appropriate
title for each Account or the appropriate subaccount of each Account.
1.9. The Company shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurance Company of any income,
dividends or capital gain distributions payable on the Funds' shares. The
Insurance Company hereby elects to receive all income dividends and capital gain
distributions payable on a Fund's shares in additional shares of that Fund. The
Insurance Company reserves the right to revoke this election and to receive all
such income dividends and capital gain distributions in cash. The Company shall
notify the Insurance Company of the number of shares issued as payment of
dividends and distributions.
1.10. The Company shall make the net asset value per share for each Fund
available to the Insurance Company on a daily basis as soon, as reasonably
practical after the net asset value per share is calculated and shall use its
best efforts to make those per-share net asset values available by 6:00 p.m.,
Mountain Time.
ARTICLE II. Representations and Warranties
2.1. The Insurance Company represents and warrants that the Contracts are,
or will be, registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable federal and
state laws and that the sale of the Contracts shall comply in all material
respects with applicable state insurance suitability requirements. The Insurance
Company further represents and warrants that it is an insurance company duly
organized and in good standing under applicable law and that it has legally and
validly established the Account prior to any issuance or sale thereof as a
segregated asset account under Colorado Revised Statutes Section 10-7-402 and
has registered, or prior to any issuance or sale of the Contracts will register,
the Account as a unit investment trust in accordance with the provisions of the
1940 Act to serve as a segregated investment account for the Contracts.
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2.2. The Company represents and warrants that Company shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sale in compliance with the laws of the State of Maryland and all
applicable federal securities laws and that the Company is and shall remain
registered under the 1940 Act. The Company shall amend the registration
statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The
Company shall register and qualify the shares for sale in accordance with the
laws of the various states only if and to the extent deemed advisable by the
Company or INVESCO.
2.3. The Company represents that it is currently qualified as a Regulated
Investment Company under Subchapter M of the Internal Revenue Code of 1986, as
amended, (the "Code") and that it will make every effort to maintain that
qualification (under Subchapter M or any successor or similar provision) and
that it will notify the Insurance Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.4. The Insurance Company represents and warrants that the Contracts are
currently treated as annuity or life insurance contracts, under applicable
provisions of the Code and that it will make every effort to maintain such
treatment and that it will notify the Company and INVESCO immediately upon
having a reasonable basis for believing that the Contracts have ceased to be so
treated or that they might not be so treated in the future.
2.5. The Company currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Company undertakes
to have a board of directors, a majority of whom are not interested persons of
the Company, formulate and approve any plan under Rule 12b-1 to finance
distribution expenses.
2.6. The Company makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states.
2.7. INVESCO represents and warrants that it is a member in good standing
of the NASD and is registered as a broker-dealer with the Commission. INVESCO
further represents that it will sell and distribute the Company shares in
accordance with the laws of the State of Maryland and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.8. The Company represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
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2.9. INVESCO represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Company in
compliance in all material respects with the laws of the State of Colorado and
any applicable state and federal securities laws.
2.10. The Company and INVESCO represent and warrant that all of their
officers, employees, investment advisers, investment sub-advisers, and other
individuals or entities described in Rule 17g-1 under the 1940 Act are, and
shall continue to be at all times, covered by a blanket fidelity bond or similar
coverage for the benefit of the Company in an amount not less than the minimum
coverage required currently by Rule 17g-1 under the 1940 Act or related
provisions as may be promulgated from time to time. That fidelity bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.11. The Insurance- Company represents and warrants that all of its
officers, employees, investment advisers, and other individuals or entities
described in Rule 17g-1 under the 1940 Act are and shall continue to be at all
times covered by a blanket fidelity bond or similar coverage for the benefit of
the Company, in an amount not less than the minimum coverage required currently
for entities subject to the requirements of Rule 17g-1 under the 1940 Act or
related provisions or may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.12. The Insurance Company represents and warrants that it will not
purchase Company shares with Account assets derived from tax-qualified
retirement plans except indirectly, through Contracts purchased in connection
with such plans.
2.13. The Insurance Company represents and warrants that the allocation of
expenses between the Insurance Company and the Company and/or INVESCO in this
Agreement is substantially similar to the allocation provisions in the majority
of the Insurance Company's current participation agreements with other funds.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Company will bear the printing costs (or duplicating costs with
respect to the statement of additional information) and mailing costs associated
with the delivery of the following Company (or individual Fund) documents, and
any supplements thereto, to existing Contract owners of the Insurance Company
whose Contract values are invested in the Company:
(i) prospectuses and statements of additional information;
(ii) annual and semi-annual reports; and
(iii) proxy materials.
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3.2. The Insurance Company will submit any bills for printing, duplicating
and/or mailing costs, relating to the Company documents described above, to
Company for reimbursement by the Company. The Insurance Company shall monitor
such costs and shall use its best efforts to control these costs. The Insurance
Company will provide the Company (or INVESCO) on a semi-annual basis, or more
frequently as reasonably requested by the Company (or INVESCO), with a current
tabulation of the number of existing Contract owners of the Insurance Company
whose Contract values are invested in the Company. This tabulation will be sent
to the Company (or INVESCO) in the form of a letter signed by a duly authorized
officer of the Insurance Company attesting to the accuracy of the information
contained in the letter. If requested by the Insurance Company, the Company
shall provide such documentation (including a final copy of the Company's
prospectus as set in type or in camera-ready copy) and other assistance as is
reasonably necessary in order for the Insurance Company to print together in one
document the current prospectus for the Company, the current prospectus for the
Contracts issued by the Insurance Company and/or the prospectuses of other
investment companies available for purchase by the Accounts. In the event that
such prospectuses are printed together in one document, the costs of printing
and mailing copies of the document shall be allocated based on the Company's
share of the total costs determined according to the number of pages of the
parties' and other investment companies' respective portions of the document.
3.3. The Company will provide, at its expense, the Insurance Company with
the following Company (or individual Fund) documents, and any supplements
thereto, with respect to prospective Contract owners of the Insurance Company,
and Insurance Company shall bear the expense of printing and mailing such
documents:
(i) camera ready copy of the current prospectus for printing
by the Insurance Company;
(ii) a copy of the statement of additional information
suitable for duplication; and
(iii) camera ready copy of the annual and semi-annual reports
for printing by the Insurance Company.
3.4. If and to the extent required by law, the Insurance Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Company shares in accordance with instructions
received from Contract owners; and
(iii) vote Company shares for which no instructions have been
received in the same proportion as Company shares of such
Fund for which instructions have been received:
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so long as and to the extent that the Commission continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners. The
Insurance Company reserves the right to vote Company shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that each of
their separate accounts participating in the Company calculates voting
privileges in a manner consistent with the standards set forth on Schedule C
attached hereto and incorporated herein by this reference, which standards will
also be provided to the other Participating Insurance Companies. The Insurance
Company shall fulfill its obligations under, and abide by the terms and
conditions of, the Mixed and Shared Funding Exemptive Order.
3.5. The Company will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Company will either provide for
annual meetings (except insofar as the Commission may interpret Section 16 of
the 1940 Act not to require such meetings) or, as the Company currently intends,
comply with Section 16(c) of the 1940 Act (although the Company is not one of
the trusts described in Section 16(c) of that Act) as well as with Sections
16(a) and, if and when applicable, 16(b). Further, the Company will act in
accordance with the Commission's interpretation of the requirements of Section
16(a) with respect to periodic elections of directors and with whatever rules
the Commission may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1. The Insurance Company shall furnish, or shall cause to be furnished,
to the Company or its designee, each piece of sales literature or other
promotional material in which the Company, a sub-adviser of one of the Funds, or
INVESCO is named, at least fifteen calendar days prior to its use. No such
material shall be used if the Company or its designee objects to such use within
ten calendar days after receipt of such material.
4.2. The Insurance Company shall not give any information or make any
representations or statements on behalf of the Company or concerning the Company
in connection with the sale of the Contracts other than the information or
representations contained in the registration statement, prospectus or statement
of additional information for the Company's shares, as such registration
statement, prospectus and statement of additional information may be amended or
supplemented from time to time, or in reports or proxy statements for the
Company, or in sales literature or other promotional material approved by the
Company or its designee or by INVESCO, except with the permission of the Company
or INVESCO.
4.3. The Company, INVESCO, or its designee shall furnish, or shall cause
to be furnished, to the Insurance Company or its designee, each piece of sales
literature or other promotional material in which the Insurance Company and/or
its separate account(s), is named at least fifteen calendar days prior to its
use. No such material shall be used if the Insurance Company or its designee
objects to such use within ten calendar days after receipt of that material.
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4.4. The Company and INVESCO shall not give any information or make any
representations on behalf of the Insurance Company or concerning the Insurance
Company, the Account, or the Contracts other than the information or
representations contained in a registration statement, prospectus or statement
of additional information for the Contracts, as that registration statement,
prospectus and statement of additional information may be amended or
supplemented from time to time, or in published reports for the Account which
are in the public domain or approved by the Insurance Company for distribution
to Contract owners, or in sales literature or other promotional material
approved by the Insurance Company or its designee, except with the permission of
the Insurance Company.
4.5. The Company will provide to the Insurance Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, proxy statement, piece of sales literature or
other promotional material, application for exemption, request for no-action
letter, and any amendment to any of the above, that relate to the Company or its
shares, contemporaneously with the filing of the document with the Commission,
the NASD, or other regulatory authorities.
4.6. The Insurance Company will provide to the Company at least one
complete copy of each registration statement, prospectus, statement of
additional information, report, solicitation for voting instructions, piece of
sales literature and other promotional material, application for exemption,
request for no action letter, and any amendment to any of the above, that
relates to the Contracts or the Account, contemporaneously with the filing of
the document with the Commission, the NASD, or other regulatory authorities.
4.7. For purposes of this Agreement, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements,
newspaper, magazine, or other periodical, radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or other
public media, sales literature (i.e., any written communication distributed or
made generally available to customers or the public, including brochures,
circulars, research reports, market letters, form letters, seminar texts,
reprints or excerpts of any other advertisement, sales literature, or published
article), educational or training materials or other communications distributed
or made generally available to some or all agents or employees, and registration
statements, prospectuses, statements of additional information, shareholder
reports, and proxy materials.
4.8. At the request of any party to this Agreement, each other party will:
make available to the other party's independent auditors and/or representative
of the appropriate regulatory agencies, all records, data and access to
operating procedures that may be reasonably requested. Company agrees that
Insurance Company shall have the right to inspect, audit and copy all records
pertaining to the performance of services under this Agreement pursuant to the
requirements of the California Insurance Department. However, Company and
INVESCO shall own and control all of their respective records pertaining to
their performance of the services under this Agreement.
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ARTICLE V. Fees and Expenses
5.1. The Company and INVESCO shall pay no fee or other compensation to the
Insurance Company under this agreement, except that if the Company or any Fund
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then INVESCO may make payments to the Insurance Company if and in
amounts agreed to by INVESCO in writing, subject to review by the board of
directors of the Company. No such payments shall be made directly by the
Company.
5.2. All expenses incident to performance by the Company under this
Agreement shall be paid by the Company. The Company shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Company or
INVESCO, in accordance with applicable state laws prior to their sale. The
Company shall bear the expenses for the cost of registration and qualification
of the Company's shares, preparation and filing of the Company's prospectus and
registration statement, proxy materials and reports, setting the prospectus in
type, setting in type and printing the proxy materials and reports to
shareholders (including the costs of printing a prospectus that constitutes an
annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Company's
shares.
5.3. The Insurance Company shall bear the expenses of printing and
distributing to Contract owners the Contract prospectuses and, except as
provided in Section 3.1, of distributing to Contract owners the Company's
prospectus, proxy materials and reports.
ARTICLE VI. Diversification
6.1. The Company will, at the end of each calendar quarter, comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5 relating to the
diversification requirements for variable annuity, endowment, modified endowment
or life insurance contracts and any amendments or other modifications to that
Section or Regulation.
ARTICLE VII. Potential Conflicts
7.1. The Board will monitor the Company for the existence of any material
irreconcilable conflict between the interests of the variable contract owners of
all separate accounts investing in the Company. An irreconcilable material
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretive letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Fund are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by a Participating Insurance Company to
disregard the voting
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instructions of variable contract owners. The Board shall promptly inform the
Insurance Company if it determines that an irreconcilable material conflict
exists and the implications thereof. The Board shall have sole authority to
determine whether an irreconcilable material conflict exists, and such
determination shall be binding upon the Insurance Company.
7.2. The Insurance Company will report promptly any potential or existing
conflicts of which it is aware to the Board. The Insurance Company will assist
the Board in carrying out its responsibilities under the Mixed and Shared
Funding Exemptive Order, by providing the Board with all information reasonably
necessary for the Board to consider any issues raised. This includes, but is not
limited to, an obligation by the Insurance Company to inform the Board whenever
Contract owner voting instructions are to be disregarded. Such responsibilities
shall be carried out by Insurance Company with a view only to the interests of
the Contract owners.
7.3. If it is determined by a majority of the Board, or a majority of its
directors who are not interested persons of the Company, INVESCO, or any
subadviser to any of the Funds (the "Independent Directors"), that a material
irreconcilable conflict exists, the Insurance Company and/or other Participating
Insurance Companies shall, at their expense and to the extent reasonably
practicable (as determined by a majority of the Independent Directors), take
whatever steps are necessary to remedy or eliminate the irreconcilable material
conflict, up to and including: (1), withdrawing the assets allocable to some or
all of the separate accounts from the Company or any Fund and reinvesting those
assets in a different investment medium, including (but not limited to) another
Fund of the Company, or submitting the question whether such segregation should
be implemented to a vote of all affected variable contract owners and, as
appropriate, segregating the assets of any appropriate group (e.g., annuity
contract owners, life insurance contract owners, or variable contract owners of
one or more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected variable contract owners the option of
making such a change; and (2), establishing a new registered management
investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Insurance Company to disregard Contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Insurance Company may be required, at the Company's election, to withdraw the
affected Account's investment in the Company and terminate this Agreement with
respect to that Account; provided, however that such withdrawal and termination
shall be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the Independent Directors. Any such
withdrawal and termination must take place within six (6) months after the
Company gives written notice that this provision is being implemented, and until
the end of that six month period INVESCO and the Company shall continue to
accept and implement orders by the Insurance Company for the purchase (and
redemption) of shares of the Company.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Insurance Company
conflicts with the majority of other state
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regulators, then the Insurance Company will withdraw the affected Account's
investment in the Company and terminate this Agreement with respect to that
Account within six months after the Board informs the Insurance Company in
writing that it has determined that the state insurance regulator's decision has
created an irreconcilable material conflict; provided, however, that such
withdrawal and termination shall be limited to the extent required by the
foregoing material irreconcilable conflict as determined by a majority of the
Independent Directors. Until the end of the foregoing six month period, INVESCO
and the Company shall continue to accept and implement orders by the Insurance
Company for the purchase (and redemption) of shares of the Company.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the Independent Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Company be required to establish a new funding medium for the
Contracts. The Insurance Company shall not be required by Section 7.3 to
establish a new funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners materially adversely affected
by the irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable material
conflict, then the Insurance Company will withdraw the Account's investment in
the Company and terminate this Agreement within six (6) months after the Board
informs the Insurance Company in writing of the foregoing determination,
provided, however, that the withdrawal and termination shall be limited to the
extent required by the material irreconcilable conflict, as determined by a
majority of the Independent Directors.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Mixed and Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Mixed and Shared Funding
Exemptive Order, then (a) the Company and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to comply
with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the
extent those rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3,
7.4, and 7.5 of this Agreement shall continue in effect only to the extent that
terms and conditions substantially identical to those Sections are contained in
the Rule(s) as so-amended or adopted.
ARTICLE VIII. Indemnification
8.1. Indemnification By The Insurance Company
8.1(a). The Insurance Company agrees to indemnify and hold harmless the
Company and each director of the Board and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurance Company) or litigation
(including legal and
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other expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Company's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or alleged untrue
statements of any material fact contained in the registration
statement or prospectus for the Contracts or contained in the
Contracts or sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished in writing to the
Insurance Company by or on behalf of the Company for use in the
registration statement or prospectus for the Contracts or in the
Contracts or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts or
shares of the Company;
(ii) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus or sales literature of the Company not supplied
by the Insurance Company, or persons under its control) or wrongful
conduct of the Insurance Company or persons under its control, with
respect to the sale or distribution of the Contracts or Company
Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, or sales literature of the Company or any amendment
thereof or supplement thereto or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading if such a
statement or omission was made in reliance upon information
furnished in writing to the Company by or on behalf of the
Insurance Company: or
(iv) arise as a result of any failure by the Insurance Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any representation
and/or warranty made by the Insurance Company in this Agreement or
arise out of or result from any other material breach of this
Agreement by the Insurance Company,
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as limited by and in accordance with the provisions of Sections 8.1(b) and
8.l(c) hereof.
8.1(b). The Insurance Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified Party that
may arise from that Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of that Indemnified Party's duties or by reason of
that Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Company, whichever is applicable.
8.1(c). The Insurance Company shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless that Indemnified Party shall have notified the Insurance Company in
writing within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon that
Indemnified Party (or after the Indemnified Party shall have received notice of
such service on any designated agent). Notwithstanding the foregoing, the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Insurance Company of its obligations hereunder except to the extent
that the Insurance Company has been prejudiced by such failure to give notice.
In addition, any failure by the Indemnified Party to notify the Insurance
Company of any such claim shall not relieve the Insurance Company from any
liability which it may have to the Indemnified Party against whom the action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Insurance Company
shall be entitled to participate, at its own expense, in the defense of the
action. The Insurance Company also shall be entitled to assume the defense
thereof, with counsel satisfactory to the party named in the action; provided,
however, that if the Indemnified Party shall have reasonably concluded that
there may be defenses available to it which are different from or additional to
those available to the Insurance Company, the Insurance Company shall not have
the right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Insurance Company be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
the Insurance Company to the Indemnified Party of the Insurance Company's
election to assume the defense thereof, and in the absence of such a reasonable
conclusion that there may be different or additional defenses available to the
Indemnified Party, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Insurance Company will not be liable
to that party under this Agreement for any legal or other expenses subsequently
incurred by the party independently in connection with the defense thereof other
than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Insurance Company
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Company's shares or the Contracts or the
operation of the Company.
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8.2. Indemnification by INVESCO
8.2(a). INVESCO agrees to indemnify and hold harmless the Insurance
Company and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of INVESCO) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Company's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material. fact contained
in the registration statement or prospectus or sales
literature of the Company (or any amendment or supplement
to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary
to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if the statement or omission or alleged
statement or omission was made in reliance upon and in
conformity with information furnished in writing to
INVESCO or the Company by or on behalf of the Insurance
Company for use in the registration statement or
prospectus for the Company or in sales literature (or any
amendment or supplement) or otherwise for use in
connection with the sale of the Contracts or Company
shares: or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the registration statement, prospectus or
sales literature for the Contracts not supplied by INVESCO
or persons under its control) or wrongful conduct of the
Company, INVESCO or persons under their control , with
respect to the sale or distribution of the Contracts or
shares of the Company; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary
to make the statement or statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished in writing to the
Insurance Company by or on behalf of the Company; or
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(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether unintentional
or in good faith or otherwise, to comply with the
diversification requirements specified in Article VI of
this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by INVESCO in this
Agreement or arise out of or result from any other
material breach of this Agreement by INVESCO; as limited
by and in accordance with the provisions of Sections
8.2(b) and 8.2(c) hereof.
8.2(b). INVESCO shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party that may arise from the Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of the Indemnified Party's duties or by reason of the Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Insurance Company or the Account, whichever is applicable.
8.2(c). INVESCO shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified INVESCO in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve INVESCO of its
obligations hereunder except to the extent that INVESCO has been prejudiced by
such failure to give notice. In addition, any failure by the Indemnified Party
to notify INVESCO of any such claim shall not relieve INVESCO from any liability
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, INVESCO will be entitled to
participate, at its own expense, in the defense thereof. INVESCO also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action; provided, however, that if the Indemnified Party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to INVESCO, INVESCO shall not
have the right to assume said defense, but shall pay the costs and expenses
thereof (except that in no event shall INVESCO be liable for the fees and
expenses of more than one counsel for Indemnified Parties in connection with any
one action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
INVESCO to the Indemnified Party of INVESCO's election to assume the defense
thereof, and in the absence of such a reasonable conclusion that there may be
different or additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and INVESCO will not be liable to that party under this
Agreement for any legal or other expenses subsequently incurred by that party
independently in connection with the defense thereof other than reasonable costs
of investigation.
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8.2(d). The Insurance Company agrees to notify INVESCO promptly of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3. Indemnification By the Company
8.3(a). The Company agrees to indemnify and hold harmless the Insurance
Company, and each of its directors and officers and each person, if any, who
controls the Insurance Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Company) or litigation (including
legal and other expenses) to which the Indemnified Parties may become subject
under any statute, at common law or otherwise, insofar as those losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
result from the gross negligence, bad faith or willful misconduct of the Board
or any member thereof, are related to the operations of the Company and:
(i) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement (including a failure to comply with the
diversification requirements specified in Article VI of
this Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Company;
as limited by, and in accordance with the provisions of, Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party that may arise from the
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of the Indemnified Party's duties or by reason of the Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Insurance Company, the Company, INVESCO or the Account, whichever is
applicable.
8.3(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless the
Indemnified Party shall have notified the Company in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon the Indemnified Party (or after
the Indemnified Party shall have received notice of such service on any
designated agent). Notwithstanding the foregoing, the failure of any Indemnified
Party to give notice as provided herein shall not relieve the Company of its
obligations hereunder except to the extent that the Company has been prejudiced
by such failure to give notice. In addition, any failure by
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the Indemnified Party to notify the Company of any such claim shall not relieve
the Company from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Company will be entitled to participate, at its own
expense, in the defense thereof. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in the action;
provided, however, that if the Indemnified Party shall have reasonably concluded
that there may be defenses available to it which are different from or
additional to those available to the Company, the Company shall not have the
right to assume said defense, but shall pay the costs and expenses thereof
(except that in no event shall the Company be liable for the fees and expenses
of more than one counsel for Indemnified Parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances). After notice from
the Company to the Indemnified Party of the Company's election to assume the
defense thereof, and in the absence of such a reasonable conclusion that there
may be different or additional defenses available to the Indemnified Party, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to that party under this
Agreement for any legal or other expenses subsequently incurred by that party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.3(d). The Insurance Company and INVESCO agree promptly to notify the
Company of the commencement of any litigation or proceedings against it or any
of its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Company.
ARTICLE IX. Applicable Law
9.1. This Agreement shall be construed and provisions hereof interpreted
under and in accordance with the laws of the State of Colorado.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 acts, and the rules and regulations and rulings thereunder, including
any exemptions from those statutes, rules and regulations the Commission may
grant (including, but not limited to, the Mixed and Shared Funding Exemptive
Order) and the terms hereof shall be interpreted and construed in accordance
therewith.
ARTICLE X. Termination
10.1. This Agreement shall terminate:
(a) at the option of any party upon one year advance written notice to the
other parties; provided, however such notice shall not be given
earlier than one year following the date of this Agreement; or
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(b) at the option of the Insurance Company to the extent that shares of
Funds are not reasonably available to meet the requirements of the
Contracts as determined by the Insurance Company, provided however,
that such a termination shall apply only to the Fund(s) not reasonably
available. Prompt written notice of the election to terminate for such
cause shall be furnished by the Insurance Company; or
(c) at the option of the Company in the event that formal administrative
proceedings are instituted against the Insurance Company by the NASD,
the Commission, an insurance commissioner or any other regulatory body
regarding the Insurance Company's duties under this Agreement or
related to the sale of the Contracts, the operation of any Account, or
the purchase of the Company's shares, provided, however, that the
Company determines in its sole judgment exercised in good faith, that
any such administrative proceedings will have a material adverse
effect upon the ability of the Insurance Company to perform its
obligations under this Agreement; or
(d) at the option of the Insurance Company in the event that formal
administrative proceedings are instituted against the Company or
INVESCO by the NASD, the Commission, or any state securities or
insurance department or any other regulatory body, provided, however,
that the Insurance Company determines in its sole judgement exercised
in good faith, that any such administrative proceedings will have a
material adverse effect upon the ability of the Company or INVESCO to
perform its obligations under this Agreement; or
(e) with respect to any Account, upon requisite vote of the Contract
owners having an interest in that Account (or any subaccount) to
substitute the shares of another investment company for the
corresponding Fund shares in accordance with the terms of the
Contracts for which those Fund shares had been selected to serve as
the underlying investment media. The Insurance Company will give at
least 30 days' prior written notice to the Company of the date of any
proposed vote to replace the Company's shares; or
(f) at the option of the Insurance Company, in the event any of the
Company's shares are not registered, issued or sold in accordance with
applicable state and/or federal law or exemptions therefrom, or such
law precludes the use of those shares as the underlying investment
media of the Contracts issued or to be issued by the Insurance
Company; or
(g) at the option of the Insurance Company, if the Company ceases to
qualify as a regulated investment company under Subchapter M of the
Code or
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under any successor or similar provision, or if the Insurance Company
reasonably believes that the Company may fail to so qualify; or
(h) at the option of the Insurance Company, if the Company fails to meet
the diversification requirements specified in Article VI hereof; or
(i) at the option of either the Company or INVESCO, if (1) the Company or
INVESCO, respectively, shall determine, in their sole judgment
reasonably exercised in good faith, that the Insurance Company has
suffered a material adverse change in its business or financial
condition or is the subject of material adverse publicity and that
material adverse change or material adverse publicity will have a
material adverse impact upon the business and operations of either the
Company or INVESCO, (2) the Company or INVESCO shall notify the
Insurance Company in writing of that determination and its intent to
terminate this Agreement, and (3) after considering the actions taken
by the Insurance Company and any other changes in circumstances since
the giving of such a notice, the determination of the Company or
INVESCO shall continue to apply on the sixtieth (60th) day following
the giving of that notice, which sixtieth day shall be the effective
date of termination; or
(i) at the option of the Insurance Company, if (1) the Insurance Company
shall determine, in its sole judgment reasonably exercised in good
faith, that either the Company or INVESCO has suffered a material
adverse change in its business or financial condition or is the
subject of material adverse publicity and that material adverse change
or material adverse publicity will have a material adverse impact upon
the business and operations of the Insurance Company, (2) the
Insurance Company shall notify the Company and INVESCO in writing of
the determination and its intent to terminate the Agreement, and (3)
after considering the actions taken by the Company and/or INVESCO and
any other changes in circumstances since the giving of such a notice,
the determination shall continue to apply on the sixtieth (60th) day
following the giving of the notice, which sixtieth day shall be the
effective date of termination; or
(k) at the option of either the Company or INVESCO, if the Insurance
Company gives the Company and INVESCO the written notice specified in
Section 1.6(b) hereof and at the time that notice was given there was
no notice of termination outstanding under any other provision of this
Agreement; provided, however any termination under this Section
10.1(k) shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
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10.2. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 10.1(a) may be exercised for any
reason or for no reason.
10.3. Notice Requirement. No termination of this Agreement shall be
effective unless and until the party terminating this Agreement gives prior
written notice to all other parties to this Agreement of its intent to
terminate, which notice shall set forth the basis for the termination.
Furthermore,
(a) in the event that any termination is based upon the provisions of
Article VII, or the provisions of Section 10.1(a), 10.1,(i), 10.1(j),
or 10.1(k) of this Agreement, the prior written notice shall be given
in advance of the effective date of termination as required by those
provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, the prior written notice
shall be given at least ninety (90) days before the effective date of
termination.
10.4. Effect of Termination. Notwithstanding any termination of this
Agreement, the Company and INVESCO shall at the option of the Insurance Company,
continue to make available additional shares of the Company pursuant to the
terms and conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement ("Existing Contracts").
Specifically without limitation, the owners of the Existing Contracts shall be
permitted to reallocate investments in the Company, redeem investments in the
Company and/or invest in the Company upon the making of additional purchase
payments under the Existing Contracts. The parties agree that this Section 10.4
shall not apply to any terminations under Article VII and the effect of Article
VII terminations shall be governed by Article VII of this Agreement.
10.5. The Insurance Company shall not redeem Company shares attributable
to the Contracts (as opposed to Company shares attributable to the Insurance
Company's assets held in the Account) except (i) as necessary to implement
Contract-owner-initiated transactions, or (ii) as required by state and/or
federal laws or regulations or judicial or other legal precedent of general
application (a "Legally Required Redemption"). Upon request, the Insurance
Company will promptly furnish to the Company and INVESCO the opinion of counsel
for the Insurance Company (which counsel shall be reasonably satisfactory to the
Company and INVESCO) to the effect that any redemption pursuant to clause (ii)
above is a Legally Required Redemption.
ARTICLE XI. Notices.
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of that other party set forth below or at
such other address as the other party may from time to time specify in writing.
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If to the Company:
P.O. Box 173706
Denver, Colorado 80217-3706 Attention: General Counsel
If to the Insurance Company:
1290 Broadway
Denver, Colorado 80203-5699 Attention: Bonnie Dailey
If to INVESCO:
P.O. Box 173706
Denver, Colorado 80217-3706 Attention: General Counsel
ARTICLE XII.Miscellaneous
12.1. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party unless and until that information may come into the public
domain.
12.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.3. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.5. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the NASD and state insurance regulators) and shall permit those
authorities reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby.
12.6. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.7. No party may assign this Agreement without the prior written consent
of the others.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
Insurance Company:
SECURITY LIFE OF DENVER INSURANCE COMPANY
By its authorized officer,
By: /s/ Steve Largent
Title: Vice President
Date: August 26, 1994
Company:
INVESCO VARIABLE INVESTMENT FUNDS, INC.
By its authorized officer,
BY: /s/ Ronald L. Groom
Title: Treasurer
Date: August 26, 1994
INVESCO:
INVESCO FUNDS GROUP, INC.
By its authorized officer,
By: /s/ Ronald L. Groom
Title: Senior Vice President
Date: August 26, 1994
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Schedule A
Accounts
Date Established
Separate Account Al November 3, 1993
Separate Account Ll November 3, 1993
24
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Schedule B
Contracts
1. The Exchequer Variable Annuity (Flexible Premium Deferred Combination
Fixed and Variable Annuity Contract)
2. First Line (Flexible Premium Variable Life
Insurance Policy)
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SCHEDULE C
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Company by INVESCO, the Company and the
Insurance Company. The defined terms herein shall have the meanings assigned in
the Participation Agreement except that the term "Insurance Company" shall also
include the department or third party assigned by the Insurance Company to
perform the steps delineated below.
1. The number of proxy proposals is given to the Insurance Company by INVESCO
as early as possible before the date set by the Company for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time INVESCO will inform the Insurance Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Insurance Company will perform a "tape
run", or other activity, which will generate the names, addresses and
number of units which are attributed to each contract owner/policyholder
(the "Customer") as of the Record Date. Allowance should be made for
account adjustments made after this date that could affect the status of
the Customers' accounts of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Insurance company will use its best
efforts to call in the number of Customers to INVESCO, as soon as
possible, but no later than one week after the Record Date.
3. The Company's Annual Report must be sent to each Customer by the Insurance
Company either before or together with the Customers' receipt of a proxy
statement. INVESCO will provide at least one copy of the last Annual Report
to the Insurance Company.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Insurance Company by the Company. The Insurance Company, at
its expense, shall produce and personalize the Voting Instruction cards.
The Legal Department of INVESCO ("INVESCO Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Company).
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
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5. During this time, INVESCO Legal will develop, produce, and the Company will
pay for the Notice of Proxy and the Proxy Statement (one document). Printed
and folded notices and statements will be sent to Insurance Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to customers
by Insurance Company will include:
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. Return envelope (postage pre-paid by Insurance Company) addressed to
the Insurance Company or its tabulation agent
d. "Urge buckslip" - optional, but recommended. (This is a small, single
sheet of paper that requests Customers to vote as quickly as possible
and that their vote is important. One copy will be supplied by the
Company.)
e. Cover letter - optional, supplied by Insurance Company and reviewed
and approved in advance by INVESCO Legal.
6. The above contents should be received by the Insurance Company
approximately 3-5 business days before mail date. Individual in charge at
Insurance Company reviews and approves the contents of the mailing package
to ensure correctness and completeness. Copy of this approval sent to
INVESCO Legal.
7. Package mailed by the Insurance Company.
* The Company must allow at least a 15-day solicitation time to the
Insurance Company as the shareowner. (A 5-week period is recommended.)
Solicitation time is calculated as calendar days from (but not
including) the meeting, counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An often
used Procedure is to sort cards on arrival by proposal into vote categories
of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark
information would be due to an insurance company's internal
procedure.
9. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to the Customer with an explanatory letter, a
new Card and return envelope. The mutilated or illegible Card is
disregarded and considered to be not received for purposes of vote
tabulation. Such mutilated or illegible Cards are "hand verified," i.e.,
examined as to why they did not complete the system. Any questions on those
Cardsare usually remedied individually.
10. There are various control procedures used to ensure proper tabulation of
votes and accuracy of the tabulation. The most prevalent is to sort the
Cards as they first arrive into
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categories depending upon their vote; an estimate of how the vote is
progressing may then be calculated. If the initial estimates and the actual
vote do not coincide, then an internal audit of that vote should occur.
This may entail a recount.
11. The actual tabulation of votes is done in units which are then converted to
shares. (It is very important that the Company receives the tabulations
stated in terms of a percentage and the number of shares.) INVESCO Legal
must review and approve tabulation format.
12. Final tabulation in shares is verbally given by the Insurance Company to
INVESCO Legal on the morning of the meeting not later than 10:00 a.m.
Denver time. INVESCO Legal may request an earlier deadline if required to
calculate the vote in time for the meeting.
13. A Certificate of Mailing and Authorization to Vote Shares will be required
from the Insurance Company as well as an original copy of the final vote.
INVESCO Legal will provide a standard form for each Certification.
14. The Insurance Company will be required to box and archive the Cards
received from the Customers. In the event that any vote is challenged or if
otherwise necessary for legal, regulatory, or accounting purposes, INVESCO
Legal will be permitted reasonable access to such Cards.
15. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
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<PAGE>
EXHIBIT 8(d)(vii)
FUND PARTICIPATION AGREEMENT
Security Life of Denver ("Insurance Company"), Van Eck Investment Trust
("Trust") and the Trust's investment adviser, Van Eck Associates Corporation
("Advisee") hereby agree that shares of the series of the Trust as listed on
Exhibit A, as it may, from time to time, be amended ("Portfolios"), shall be
Made available to serve as an underlying investment medium for Individual
Deferred Variable Life Contracts and Variable Annuity Contracts ("Contracts") to
be offered by Insurance Company subject to the following provisions:
1. Insurance Company represents that it has established separate Accounts Al and
LI (each such account hereinafter, a "Variable Account"), a separate account
under Colorado law, and has registered it as a unit investment trust under
the Investment Company Act of 1940 ("1940 Act") to serve as an investment
vehicle for the Contracts. The Contracts provide for the allocation of net
amounts received by Insurance Company to separate series of the Variable
Account for investment in the shares of specified investment companies
selected among those companies available through the Variable Account to act
as underlying investment media. Selection of a particular investment company
is made by the Contract owner who may change such selection from time to time
in accordance with the terms of the applicable Contract.
2. Insurance Company agrees to make every reasonable effort to market its
Contracts. It will use its best efforts to give equal emphasis and promotion
to shares of the Trust as is given to other underlying investments of the
Variable Account. In marketing its Contracts, Insurance Company will comply
with all applicable state or Federal laws.
3. The Trust or the Adviser will provide closing net asset value, dividend and
capital gain information to Insurance Company each business day by 6:15 p.m.
New York time. Insurance Company will use this data to calculate unit values,
which will in turn be used to process that same business day's Variable
Account unit value. The Variable Account processing will be done the same
evening, and orders will be placed by 9:30 a.m. New York time on the morning
of the following business day. Orders will be sent by the Insurance Company
directly to the Trust or its specified agent, and payment for purchases will
be wired to a custodial account designated by the Trust or the Adviser on the
same day that the purchase order is executed by the Trust. The Trust will
execute the orders at the net asset value as determined as of the close of
trading on the prior day. Dividends and capital gains distributions shall be
reinvested in additional shares at the ex-date net asset value.
4. If Insurance Company's order requests a net redemption resulting in a payment
of redemption proceeds to Insurance Company, Trust shall wire the redemption
proceeds to Insurance Company by the next business day, unless doing so would
require Trust to dispose of portfolio securities or otherwise incur
additional costs, but in such event, proceeds shall be wired to Insurance
Company within seven days and Trust shall notify the person designated in
writing by Insurance Company as the recipient for such notice of such delay
by 3:00 p.m. New York time the same business day that Insurance Company
transmits the redemption order to Trust. If Insurance Company's order
requests the application of redemption proceeds from the redemption of shares
to the purchase of shares of another fund managed or distributed by
<PAGE>
Adviser, Trust shall so apply such proceeds the following business day that
Insurance Company transmits such order to Trust.
5. Trust will bear the printing costs (or duplicating costs with respect to the
statement of additional information) and incremental mailing Costs associated
with the delivery of the following Trust (or individual portfolio) documents,
and any supplements thereto, to existing variable contract owners of
Insurance Company.
(a) prospectuses and statements of additional information;
(b) annual and semi-annual reports; and
(c) proxy materials.
For purposes of this Section, incremental mailing costs shall mean (1) all
costs attributable to any mailing that includes only the document or
documents listed in the preceding sentence and (ii) where the document or
documents listed in the preceding sentence are mailed with other materials,
any cost in excess of what Insurance Company would have otherwise paid to
mail periodic confirmation statements or similar documents.
Insurance Company will submit any bills for printing, duplicating and/or
mailing costs, relating to the Trust documents described above, to Trust for
reimbursement by Trust, which reimbursement shall not exceed the Trust's cost
of production of such materials. Insurance Company shall monitor such costs
and shall use its best efforts to control these costs. Insurance Company will
provide Trust on a semi-annual basis, or more frequently as reasonably
requested by Trust, with a current tabulation of the number of existing
variable contract owners of Insurance Company whose variable contract values
are invested in Trust. This tabulation will be sent to Trust in the form of a
letter signed by a duly authorized officer of Insurance Company attesting to
the accuracy of the information contained in the letter. If requested by
Insurance Company, the Trust shall provide such documentation (including a
final copy of the Trust prospectus as set in type or in camera-ready copy)
and other assistance as is reasonably necessary in order for Insurance
Company to print together in one document the current prospectus for the
variable contracts issued by Insurance Company and the current prospectus for
the Trust.
Trust will provide, at its expense, Insurance Company with the following
Trust (or individual Portfolio) documents, and any supplements thereto, with
respect to prospective variable contract owners of Insurance Company.
(d) camera ready copy of the current prospectus for printing by the
Insurance Company;
(e) a copy of the statement of additional information suitable for
duplication;
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(f) camera ready copy of proxy material suitable for printing; and
(g) camera ready copy of the annual and semi-annual reports for printing by
the Insurance Company.
6. Insurance Company and its agents shall make no representations concerning the
Trust or Trust shares except those contained in the then current prospectuses
of the Trust and in current printed sales literature of the Trust.
7. Administrative services to Contract owners shall be the responsibility of
Insurance Company, and shall not be the responsibility of the Trust or the
Adviser. The Trust and Adviser recognize that Insurance Company shall be the
sole shareholder of Trust shares issued pursuant to the Contracts. Such
arrangement will result in multiple share orders.
8. The Trust shall comply with Sections 817(h) and 851 of the Internal Revenue
Code of 1986, if applicable, and the regulations thereunder, and the
applicable provisions of the 1940 Act relating to the diversification
requirements for variable annuity, endowment, and life insurance contracts.
Upon request, the Trust shall provide Insurance Company with a letter from
the appropriate Trust officer certifying the Trust's compliance with the
diversification requirements and qualification as a regulated investment
company.
9. Insurance Company agrees to inform the Board of Trustees of the Trust of the
existence of, or any potential for, any material irreconcilable conflict of
interest between the interests of the Contract owners of the Variable Account
investing in the Trust and/or any other separate account of any other
insurance company investing in the Trust.
A material irreconcilable conflict may arise for a variety of reasons,
including:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or securities
laws or regulations, or a public ruling, private letter ruling, or any
similar action by insurance, tax or securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Portfolio are being managed;
(e) a difference in voting instructions given by Contract owners and
variable annuity insurance contract owners or by variable annuity or
life insurance contract owners of different life insurance companies
utilizing the Trust; or
(f) a decision by Insurance Company to disregard the voting instructions of
contract owners.
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<PAGE>
Insurance Company will be responsible for assisting the Board of Trustees of
the Trust in carrying out its responsibilities by providing the Board with
all information reasonably necessary for the Board to consider any issue
raised, including information as to a decision by Insurance Company to
disregard voting instructions of Contract owners.
It is agreed that if it is determined by a majority of the members of the
Board of Trustees of the Trust or a majority of its disinterested Trustees
that a material irreconcilable conflict exists affecting Insurance Company,
Insurance Company shall, at its own expense, take whatever steps are
necessary to remedy or eliminate the irreconcilable material conflict, which
steps may include, but are not limited to,
(a) withdrawing the assets allocable to some or all of the separate
accounts from the Trust or any Portfolio and reinvesting such assets
in a different investment medium, including another Portfolio of the
Trust or submitting the questions of whether such segregation should
be implemented to a vote of all affected Contract owners and, as
appropriate, segregating the assets of any particular group (i.e.,
annuity Contract owners, life insurance Contract owners or qualified
Contract owners) that votes in favor of such segregation, or offering
to the affected Contract owners the option of making such a change;
(b) establishing a new registered management investment company or managed
separate account.
If a material irreconcilable conflict arises because of Insurance Company's
decision to disregard Contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, Insurance
Company may be required, at the Trusts election, to withdraw the Variable
Account's investment in the Trust. No charge or penalty will be imposed
against the Variable Account as a result of such withdrawal. Insurance
Company agrees that any remedial action taken by it in resolving any
material conflicts of interest will be carried out with a view only to the
interests of Contract owners.
For purposes hereof, a majority of the disinterested members of the Board of
Trustees of the Trust shall determine whether any proposed action adequately
remedies any material irreconcilable conflict. In no event will the Trust be
required to establish a new funding medium for any Contracts. Insurance
Company shall not be required by the terms hereof to establish a new funding
medium for any Contracts if an offer to do so has been declined by vote of a
majority of affected Contract owners.
The Trust will undertake to promptly make known to Insurance Company the
Board of Trustees' determination of the existence of a material
irreconcilable conflict and its implications.
10. This Agreement shall terminate as to the sale and issuance of new Contracts:
4
<PAGE>
(a) at the option of Insurance Company, the Adviser or the Trust upon six
months' advance written notice to the other parties;
(b) at the option of Insurance Company, if Trust shares are not available
for any reason to meet the requirements of Contracts as determined by
Insurance Company. Reasonable advance notice of election to terminate
shall be furnished by Insurance Company;
(c) at the option of Insurance Company, the Adviser or the Trust, upon
institution of formal proceedings against the Broker-Dealer or Broker-
Dealers marketing the Contracts, the Variable Account, Insurance
Company or the Trust by the National Association of Securities Dealers
("NASD"), the SEC or any other regulatory body;
(d) upon a decision by Insurance Company, in accordance with regulations
of the SEC, to substitute such Trust shares with the shares of another
investment company for Contracts for which the Trust shares have been
selected to serve as the underlying investment medium. Insurance
Company will give 60 days' written notice to the Trust and the Adviser
of any proposed vote to replace Trust shares;
(e) upon assignment of this Agreement unless made with the written consent
of each other party;
(f) in the event Trust shares are not registered, issued or sold in
conformance with Federal or State law or such law precludes the use of
Trust shares as an underlying investment medium of Contracts issued or
to be issued by Insurance Company. Prompt notice shall be given by
either party to the other in the event the conditions of this
provision occur.
11. Notwithstanding any termination of this Agreement pursuant to this
Agreement, at the election of Insurance Company, Trust shall continue to
make available additional Trust shares, as provided below, pursuant to the
terms and conditions of this Agreement, for all Variable contracts in
effect on the effective date of termination of this agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts or Insurance Company, whichever shall have
legal authority to do so, shall be permitted to reallocate investments in
Trust, redeem investments in Trust and/or invest in Trust upon the payment
of additional premiums under the Existing Contracts unless proscribed by
Federal or State law.
12. Each notice required by this Agreement shall be given by wire and confirmed
in writing to:
Security Life of Denver
1290 Broadway
Denver, Colorado 80203
Attn: Bonnie Dailey, Esq.
5
<PAGE>
Van Eck Investment Trust
122 East 42nd Street
New York, New York 10168
Attn: President, with a copy to the Secretary
Van Eck Associates Corporation
122 East 42nd Street
New York, New York 10168
Attn: President, with a copy to the General Counsel
13. Advertising and sales literature with respect to the Trust prepared by
Insurance Company or its agents for use in marketing its Contracts will be
submitted to the Trust for review before such material is submitted to the
SEC or NASD for review.
14. Insurance Company will distribute all proxy material furnished by the Trust
and will vote Trust shares in accordance with instructions received from
the Contract owners of such Trust shares. Insurance Company shall vote the
Trust shares for which no instructions have been received in the same
proportion as Trust shares for which said instructions have been received
from Contract owners. Insurance Company and its agents will in no way
recommend action in connection with or oppose or interfere with the
solicitation of proxies for the Trust shares held for such Contract owners.
15. (a) Insurance Company agrees to indemnify and hold harmless the Trust, the
Adviser, and each of its trustees, directors, officers, employees,
agents and each person, if any, who controls the Trust within the
meaning of the Securities Act of 1933 (the "Act") (the Trust and such
persons collectively, "Trust Indemnified Person") against any losses,
claims, damages or liabilities to which a Trust Indemnified Person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in information furnished by
Insurance Company for use in the Registration Statement or prospectus
of the Trust or in the Registration Statement or prospectus for the
Variable Account, or arise out of or are based upon the omission or
the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, or arise out of or as a result of conduct, statements or
representations (other than statements or representations contained in
the prospectus and Trust prepared sales literature of the Trust) of
Insurance Company or its agents with respect to the sale and
distribution of contracts for which Trust shares are an underlying
investment or arise out of a material breach of this Agreement by
insurance Company or its agents; and Insurance Company will reimburse
any legal or other expenses reasonably incurred by a Trust Indemnified
Person in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be
in addition to any liability which Insurance Company may otherwise
have.
6
<PAGE>
(b) The Trust agrees to indemnify and hold harmless Insurance Company and
each of its directors, officers, employees, agents and each person, if
any, who controls Insurance Company within the meaning of the Act
(insurance Company and such persons collectively, "Insurance Company
Indemnified Person") against any losses, claims, damages or
liabilities to which an Insurance Company Indemnified Person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or Trust-prepared sales literature of the Trust, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arise out
of or are based upon the Trust's failure to comply with the
diversification requirements of the Investment Company Act of 1940 and
of Section 817 (h) of the Internal Revenue Code of 1986, as amended
(the "Code"), and to maintain the Fund as a Regulated Investment
Company under the Code, or arise out of a material breach of this
Agreement by the Trust or its agents and the Trust will reimburse any
legal or other expenses reasonably incurred by an Insurance Company
Indemnified Person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that
the Trust will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon
an untrue statement or omission or alleged omission made in such
Registration Statement or prospectus in conformity with written
information furnished to the Trust by Insurance Company specifically
for use therein or in Insurance Company-prepared sales literature.
This indemnity agreement will be in addition to any liability which
the Trust may otherwise have.
(c) The Adviser agrees to indemnify and hold harmless each Insurance
Company Indemnified Person against any losses, claims, damages or
liabilities to which an Insurance Company Indemnified Person may
become subject, under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or Adviser-prepared sales literature of the Trust, or
arise out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arise out
of or are based upon the Adviser's failure to comply with the
diversification requirements of the Investment Company Act of 1940 and
of Section 817(h) of the Code as amended, and to maintain the Fund as
a Regulated Investment Company under the Code, or arise out of a
material breach of this Agreement by the Adviser or its agents and the
Adviser will reimburse any legal or other expenses reasonably incurred
by each Insurance Company Indemnified Person in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Adviser will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or omission or
alleged omission made in such Registration Statement or prospectus in
conformity with written information furnished to the Adviser by
Insurance Company specifically for use therein or Insurance Company-
prepared sales literature. This
7
<PAGE>
indemnity agreement will be in addition to any liability which the
Adviser may otherwise have.
(d) The Trust and the Adviser shall indemnify and hold Insurance Company
harmless against any and all liability, loss, damages, costs or
expenses which Insurance Company may incur, suffer or be required to
pay directly due to the Trust's or Adviser's (or their designated
agent's) (1) incorrect calculation of the daily net asset value,
dividend rate or capital gain distribution rate; (2) incorrect
reporting of the daily net asset value, dividend rate or capital gain
distribution rate; or (3) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate. Any gain to Insurance
Company attributable to the Trust's, or Adviser's (or their designated
agent's) incorrect calculation or reporting of the daily net asset
value shall be immediately returned to the Trust, to the extent
reasonably practicable unless such gain has been paid to the Contract
owner and the owner is no longer invested in the Separate Account.
(e) Promptly after receipt by an indemnified party under this paragraph of
notice of the commencement of action, such indemnified party will, if
a claim in respect thereof is to be made against the indemnifying
party under this paragraph, notify the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this, paragraph. In case any
such action is brought against any indemnified party, and it notified
the indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent that
it may wish, assume the defense thereof, with counsel satisfactory to
such indemnified party. After notice from the indemnifying party to
such indemnified party under this paragraph of indemnified party's
election to assume the defense thereof, the indemnified party will
bear the fees and expenses of any additional counsel retained by it
and the indemnifying party will not be liable to the indemnified party
under this paragraph for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation.
(f) Nothing herein shall entitle an indemnified party to special,
consequential or exemplary damages or damages of like kind or nature
and with respect to section 15(d) hereof all liability, loss and
damages shall be limited to the amount required to correct the value
of the account as if there had been no incorrect calculation or
reporting or untimely reporting of net asset value, dividend rate or
capital gain distribution rate.
(g) No indemnifying party shall be liable under Sections 15(a), (b), or
(c) of this Agreement where such liability arises from the willful
misfeasance, bad faith, or gross negligence of the indemnified party
in the performance of such indemnified party's duties or by reason of
such indemnified party's reckless disregard of obligations or duties
under this Agreement.
8
<PAGE>
16. If, in the course of future marketing of the Contracts, Insurance Company
or its agents shall request the continued assistance of the Trust's sales
personnel, compensation (which will be negotiated by the Trust and
Insurance Company) shall be paid by Insurance Company to the Trust.
17. Each party hereto agrees to furnish the California Insurance Commissioner
with any information or reports in connection with services provided under
this Agreement which such Commissioner may request in order to ascertain
whether the insurance operations Insurance Company are being conducted in a
manner consistent with the California Insurance Regulations and any other
applicable law or regulations. Insurance Company agrees to inform the Trust
and Adviser of any applicable law or regulation of the State of California
or any other State. Trust agrees that Insurance Company shall have the
right to inspect, audit and copy all records pertaining to the performance
of services under this Agreement pursuant to the requirements of the
California Insurance Department. However, Trust and Adviser shall own and
control all the pertinent records pertaining to their performance of
services under this Agreement.
9
<PAGE>
SECURITY LIFE OF DENVER
August 31, 1994 By /s/ Steve Largent
Date
VAN ECK INVESTMENT TRUST
August 31, 1994 By /s/ Thaddeus Laszczynski
Date
VAN ECK ASSOCIATES CORPORATION
August 31, 1994 By /s/ Thaddeus Laszczynski
Date
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<PAGE>
EXHIBIT A
FUND
Gold and Natural Resources Fund
World Wide Balanced Fund
<PAGE>
EXHIBIT 8(e)
ADMINISTRATION SERVICES AGREEMENT
between
Security Life of Denver Insurance Company
and
Financial Administrative Services Corporation
AGREEMENT made as of the 21st day of November, 1994 by and between Financial
Administrative Services Corporation ("FASCorp"), of 8515 East Orchard Road,
Englewood, Colorado, 80111, and Security Life of Denver Insurance Company
("SLD"), of 1290 Broadway, Denver, Colorado, 80203-5699.
WHEREAS, FASCorp shall provide data processing and other services to SLD
pursuant to the terms and conditions of this Agreement and such other terms and
conditions as SLD and FASCorp may agree in written amendments to this Agreement,
NOW, THEREFORE, in consideration of the mutual covenants herein contained, the
parties hereto agree as follows:
SECTION 1 Terms of Appointment
1.01 Subject to the conditions set forth in this Agreement, SLD hereby
appoints FASCorp as Administrative Services Agent.
1.02 FASCorp agrees to provide at its expense the necessary facilities,
equipment, and personnel to perform its duties and obligations
hereunder in accordance with accepted industry practice, and in full
compliance with the rules and regulations of state insurance
departments, and other regulatory bodies with jurisdiction over SLD,
SLD Equities, Inc. and FASCorp.
1.03 Beacon Software Development Company ("Beacon") will provide the
LifeCAD software package ('LifeCAD') to SLD to support the Contracts
for which recordkeeping services will be provided by FASCorp
hereunder.
1.04 SLD will facilitate the delivery by Beacon to FASCorp of LifeCAD and
arrange for training by Beacon of FASCorp on LifeCAD.
1.05 FASCorp will provide the Unit Value Calculator software package (the
"Unit Value Calculator") and build a connection between LifeCAD and
the Unit Value Calculator to generate all the unit values as well as
the accounting in support of the Contracts for which administrative
and recordkeeping services will be provided by FASCorp hereunder.
<PAGE>
1.06 SLD will provide necessary training of FASCorp on SLD's Contracts.
1.07 FASCorp agrees that it will perform, at the direction of SLD, those
Administrative Services as set forth in Exhibit B attached, which may
be amended by mutual agreement from time to time, and which is
incorporated into this Agreement by this reference. FASCorp shall have
only the authority necessary or incident to the performance of those
services expressly set forth in this Agreement or in Exhibit B and
shall have no other express or implied authority or right to act on
behalf of SLD or to bind SLD with regard to any statement,
representation or undertaking. FASCorp shall have no authority to
alter, amend or waive any contractual provision on behalf of SLD
without SLD's express written authorization. FASCorp shall be limited
to act only in the capacity in which it is licensed.
SECTION 2 Term
2.01 Subject to termination as hereinafter provided, this Agreement shall
remain in full force and effect for a period of five (5) years, the
initial term of the Agreement. This Agreement shall be renewed
automatically for additional successive terms of eighteen (18) months
at the end of the initial term and the end of each renewal term,
subject to the provisions of Section 9.02, unless terminated as herein
provided.
SECTION 3 Fees and Expenses
3.01 SLD shall pay to FASCorp such fees and charges as are set forth in
Exhibit A attached hereto and incorporated herein by reference.
3.02 SLD shall also reimburse FASCorp for all reasonable out-of-pocket
expenses listed in the attached Exhibit A, as may be incurred by
FASCorp in the performance of this Agreement.
3.03 FASCorp may impose a 1.5% per month late payment charge on balances of
fees, charges or expenses outstanding for over 45 days.
SECTION 4 Representations and Warranties of FASCorp
FASCorp represents and warrants to SLD as follows:
4.01 It is a corporation duly organized and in good standing under the laws
of the State of Colorado.
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<PAGE>
4.02 It is empowered under applicable laws to enter into and perform the
services contemplated in this Agreement.
4.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform the services contemplated in the Agreement.
4.04 It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
4.05 It has and will maintain a minimum capital and surplus of at least
$50,000 during the term of this Agreement. FASCorp will provide to SLD
within 30 days after execution of this Agreement, and thereafter at
SLD's request, a copy of its most recent audited financial statement.
SECTION 5 Representations and Warranties of SLD
SLD represents and warrants to FASCorp as follows:
5.01 It is a corporation duly organized and in good standing under the laws
of the State of Colorado.
5.01 It is empowered under the applicable laws to enter into and perform
this Agreement.
5.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
5.04 No policy or other form will be provided by SLD to be administered by
FASCorp unless it has been duly filed as necessary and approved by all
applicable state insurance departments and other regulatory bodies
with jurisdiction over SLD, and is in compliance with all federal and
state laws and regulations.
SECTION 6 Indemnification
6.01 FASCorp shall not be responsible for and SLD shall indemnify and hold
FASCorp harmless from and against, any and all costs, expenses,
losses, damages, charges, reasonable attorney's fees, payments and
liability, which may be asserted against FASCorp or for which it may
be held to be liable, arising out of or attributable to:
a. SLD's refusal or failure to comply with the terms of this Agreement,
or SLD's failure to act in a reasonable or customary manner in
connection
3
<PAGE>
with this Agreement, or which arise out of SLD's negligence or
misconduct or which arise out of the breach of any representation or
warranty of SLD hereunder;
b. Reliance on or use by FASCorp in accordance with the terms of this
Agreement such information and materials provided by or at the
direction of SLD and instructions or directions given by the
authorized individuals described in Exhibit C; or
c. Reliance by FASCorp on LifeCAD to function properly and to accurately
support SLD's Contracts.
d. Any failure by SLD to comply with Federal, state or local laws or
regulations with respect to the offering and/or sale of any insurance
products or securities.
e. Any matters associated with SLD or its Contracts or the sale of such
Contracts subject to this Agreement which are unrelated to the
services provided by FASCorp hereunder.
6.02 FASCorp shall be responsible for and shall indemnify and hold SLD
harmless from and against any and all losses, damages, costs, charges,
reasonable attorney's fees, payments, expenses and liability arising,
out of or attributable to FASCorp's refusal or failure to comply with
the terms of this Agreement, FASCorp's failure to act in a reasonable
manner in connection with this Agreement, any failure by FASCorp to
comply with federal, state or local regulations with respect to the
books and records maintained by FASCorp, or which arise out of
FASCorp's negligence or misconduct or which arise out of the breach of
any representation or warranty of FASCorp hereunder.
6.03 At any time FASCorp may apply to a person indicated on SLD's "Schedule
of Authorized Personnel" set forth in Exhibit C attached hereto and
incorporated herein by reference as a person authorized to give
instructions under this section with respect to any matter arising in
connection with this Agreement. FASCorp shall not be liable for, and
shall be indemnified by SLD, against any action taken or omitted by
FASCorp in good faith and in the exercise of due care and diligence in
reliance upon such instructions.
6.04 In the event malfunction of any FASCorp system causes an error or
mistake in any record, report, data, information or output under the
terms of this Agreement FASCorp shall at its expense correct and
reprocess such records, provided that SLD shall promptly notify
FASCorp in writing of such error or mistake in any
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<PAGE>
record, report, data, information, or output received by SLD. Such
writing may be hand-delivered, sent by mail or courier or transmitted
by telefax.
6.05 If either party believes it is entitled to indemnification hereunder,
it shall, within five business (5) days of the commencement of any
action or threat of any action, give written notice to the other party
of any claim for which it believes it is entitled to indemnification;
provided, however, that the failure to provide timely notice shall not
relieve the indemnifying party of any liability which it may have to
the other party as long as such notice is not unreasonably withheld or
delayed.
The parties shall cooperate with each other concerning any defense and
give each other all information and assistance which either may
reasonably request in defending any matter hereunder.
6.06 The provisions of this Section shall survive termination of this
Agreement.
6.07 The provisions of this Section shall not be deemed to be a limitation
upon a party's right to injunction, specific performance or any other
legal or equitable remedy to which either party may be entitled by
virtue of this Agreement or to prevent any breach or threatened breach
of this Agreement.
6.08 IN NO EVENT AND UNDER NO CIRCUMSTANCES, HOWEVER, SHALL ANY PARTY UNDER
THIS AGREEMENT BE LIABLE TO THE OTHER PARTIES UNDER ANY PROVISION OF
THIS AGREEMENT FOR LOST PROFITS OR FOR EXEMPLARY, SPECIAL, PUNITIVE OR
CONSEQUENTIAL DAMAGES.
SECTION 7 Covenants of FASCorp
7.01 FASCorp shall establish and maintain facilities and procedures for the
safekeeping of check forms and facsimile signature imprinting devices,
if any, and all other documents, reports, records, books, files and
other materials relative to this Agreement.
7.02 It is expressly understood and agreed that all documents, reports,
records, books, files and other materials relative to this Agreement
shall be the sole property of SLD and SLD Equities and that such as
agent, during the effective terms property shall be held by FASCorp,
of this Agreement.
7.03 FASCorp shall maintain back-up computer files, as necessary, so long
as LifeCAD currently and continually allows FASCorp to maintain such
records. The purpose of back-up and recovery is to permit file
recovery in the event of destruction of
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normal processing files. SLD may review the procedures in effect and
inspect the storage facility upon demand. A copy of FASCorp's current
procedures is attached hereto as Exhibit F.
7.04 All charges or premiums received by FASCorp on behalf of SLD from
SLD's Lockbox Account shall be promptly remitted by FASCorp to the
person entitled to it or deposited in a fiduciary account. Any
payments received by FASCorp for insurance on behalf of SLD shall be
deemed received by SLD, shall be held in a separate SLD trust account
and shall be administered as set out in Exhibit B. Premium bills shall
direct premium payors to send premiums to a lock box as set forth in
Exhibit B.
7.05 No advertising or sales literature in connection with the Contracts
shall be utilized by FASCorp unless it has been approved in writing by
SLD prior to such use.
7.06 Except as specifically provided to the contrary in this Agreement,
FASCorp shall be responsible for providing all technical and
operational support, obtaining office space, purchasing all equipment
and paying all costs and expenses associated with its provision of
administration services to SLD hereunder, including, but not limited
to, all rents, salaries and other overhead expenditures.
7.07 If FASCorp receives any notice from any source (including, but not
limited to, the policy Owner or regulatory agency) of a lawsuit or
other legal or administrative hearing, or proceeding being brought
against SLD and involving the business administered for SLD by
FASCorp, or the threat of any such lawsuit, hearing or proceeding,
FASCorp shall immediately notify SLD and send a copy of all legal
documents, correspondence and other material relevant thereto which
FASCorp reasonably has access to: FASCorp agrees to cooperate fully
with SLD in connection with any suit, hearing or proceeding and shall
provide SLD with all books, records, documents and data requested by
SLD in connection therewith; provided, however, FASCorp shall be
entitled to review such requests with its counsel prior to furnishing
SLD with such materials so long as such review is done in a timely
manner.
7.08 FASCorp will conduct its business and performance obligations in
accordance with all applicable federal and state laws, rules and
regulations and in a manner which will not put SLD's or its
affiliates' registrations and licenses in any jeopardy of revocation
or suspension or cause SLD or any of its affiliates to sustain any
disciplinary action of any nature, subject only to any limitations to
which FASCorp may be subject due to the use of the LifeCAD system.
7.09 FASCorp acknowledges and agrees that all books and records maintained
by FASCorp in connection with the Contracts shall be maintained and
preserved in
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conformity with the requirements of Rules 17a-3 and 17a-4 of the
Securities Exchange Act of 1934 (the "1934 Act"), to the extent that
such requirements are applicable to the Contracts; that all such books
and records are maintained and held by FASCorp on behalf of SLD and
SLD Equities, whose property they are and shall remain. FASCorp
further acknowledges and agrees that all such books and records are at
all times subject to inspection by the Securities and Exchange
Commission ("SEC") in accordance with Section 17(a) of the 1934 Act,
and undertakes to permit examination of such books and records at any
time and from time to time during business hours by representatives or
designees of the SEC or National Association of Securities Dealers,
Inc., true, correct, complete and current hard copies of any or all or
any part of such books and records.
7.10 FASCorp acknowledges, covenants and agrees that it shall issue
payments, including commission payments to retail broker-dealers, on
behalf of and on the account(s) of SLD, as a purely ministerial
services for and on behalf of SLD Equities, and that the records in
respect of such payments shall be properly reflected by FASCorp on the
books and records maintained by it for SLD and SLD Equities.
7.11 FASCorp acknowledges, covenants and agrees that it will send a
confirmation for each transaction which constitutes the sale of a
security to the contract owner as required by applicable law,
regulation or rule in such form as required by applicable law,
regulation or rule.
7.12 FASCorp shall provide SLD with full and free access as reasonably
requested, during ordinary business hours, to all documents, records,
reports, books, files and other materials relative to this Agreement
and maintained by FASCorp.
7.13 FASCorp shall furnish to SLD any information or reports in connection
with its services to SLD, which the California Commissioner of
Insurance may request in order to ascertain whether the variable life
insurance operations of SLD are being conducted in a manner consistent
with applicable California law, regulations and rules.
SECTION 8 Covenants of SLD.
8.01 SLD shall, on a prompt basis, provide FASCorp with current forms of
policies, prospectuses and applications, names and states of license
of all insurance and/or broker-dealer agents and representatives
authorized to sell the Contracts.
8.02 All policies subject to the services performed under this Agreement
are underwritten by SLD.
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8.03 SLD shall immediately provide FASCorp with written notice of any
change of authority of persons authorized and enumerated in Exhibit C
to provide FASCorp with instructions or directions relating to
services to be performed by FASCorp under this Agreement.
SECTION 9 Termination of Agreement
9.01 a) Either party may terminate this Agreement at the end of the
initial term or any renewal term by providing at least 180 days
prior written notice to the other.
b) This Agreement may be terminated at any time upon the mutual written
consent of the parties hereto.
c) This Agreement may be terminated upon written notice of one party to
the other hereto in the event of bankruptcy or insolvency of such
party to which notice is given.
d) This Agreement shall automatically be terminated in the event of its
assignment, subject to the provisions of Section 10.01.
9.02 At least 180 days prior to the end of the initial or any renewal term
hereof, FASCorp shall give SLD written notice if FASCorp desires to
increase its fees or charges to SLD or to change the manner of
payment. If FASCorp and SLD do not agree to fees and charges before
the end of the term during which such notice is given by FASCorp, this
Agreement shall terminate at the end of such term.
9.03 Additionally, this Agreement shall terminate at SLD's option because
of:
a) fraud, misrepresentation, conversion or unlawful withholding of funds
by FASCorp; or
b) the dissolution or disqualification of FASCorp to do business under
any applicable state or federal law; or
c) the suspension or revocation of any material license or permit held by
FASCorp by the appropriate governmental agency or authority; or
d) the sale (without the prior written consent of SLD, which consent
shall not be unreasonably withheld) of FASCorp's business to an
unaffiliated person
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or entity, whether by merger, consolidation, or sale of substantially
all of FASCorp's assets or stock or otherwise, during the term of, and
any extension to, this Agreement.
9.04 At FASCorp's option because of fraud, misrepresentation, conversion,
or withholding of funds belonging to FASCorp by SLD.
9.05 In order to act as administrative agent for the Contracts, FASCorp
will depend on the correct operation and adequate functionality of
LifeCAD provided by Beacon. The parties therefore agree that if during
testing prior to initial "production" implementation, LifeCAD does not
meet the requirements of FASCorp for Contract administration and if
Beacon is unable to provide the necessary software modifications by
the date actual production must commence, the Agreement will terminate
automatically. Once production has commenced, if LifeCAD is not
capable of supporting the Contract administration and if Beacon is
unable to make reasonable corrections in a timely manner, the
Agreement will terminate automatically.
9.06 The parties acknowledge that regulatory approval will be required for
the policies and contracts to be administered under this Agreement and
for their distribution by SLD 's broker-dealer. The parties agree that
if regulatory approval for SLD 's broker-dealer distribution procedure
is not received the Agreement will automatically terminate so long as
no Contracts are in force. If there are in force Contracts, the
termination procedures set forth in Section 9.01 will apply.
Additionally, the parties agree that if all regulatory approval
necessary for SLD to sell any one or more of the contracts to be
administered hereunder is not received, the Agreement will
automatically terminate, but only as to that contract or contracts.
9.07 If either of the parties hereto shall breach this Agreement or be in
default in the performance of any of its duties and obligations
hereunder ("the defaulting party"), the other party hereto may give
written notice thereof to the defaulting party and if such default or
breach shall not have been remedied within ninety (90) days after such
written notice is given, then the party giving such written notice may
terminate this Agreement by giving ninety (90) days written notice of
such termination to the defaulting party, provided, however, that
FASCorp will not be deemed to be in default if its failure to perform
any of its duties and obligations hereunder is due to a defect or flaw
in LifeCAD.
9.08 Termination of this Agreement by default or breach by SLD shall not
constitute a waiver of any rights of FASCorp in reference to services
performed prior to such termination of rights of FASCorp to be
reimbursed for out-of-pocket expenditures and to collect fees;
termination of this Agreement by default or breach by
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FASCorp shall not constitute a waiver by SLD of any other rights it
might have under this Agreement.
9.09 In the event of a termination, FASCorp will return LifeCAD to SLD and
will make its computer record formats and other relevant systems
information available to SLD for a machine conversion, subject to
reimbursement to FASCorp for such assistance at its standard rates and
fees in effect at that time. Additionally, the Unit Value Calculator
may be purchased at FASCorp's standard rate and applicable fees for
the transition thereof shall be assessed by FASCorp. FASCorp will
provide any required training in any such conversion or transition at
FASCorp's standard rate and applicable fees. As described in Sections
7.02 and 7.09, all data contained in the computer flies is the
exclusive property of SLD.
9.10 During the period between the date of any notice of intention to
terminate given pursuant to this Section 9 and the date of actual
termination of the Agreement, each party shall continue to perform its
obligations under this Agreement.
9.11 During any transition period FASCorp agrees to cooperate with SLD to
effectuate an orderly transfer of all policy records and materials to
SLD or its designee. For services performed during the transition
period, FASCorp shall be compensated for its services pursuant to
Exhibit A of this Agreement.
9.12 The parties agree that following a termination of this Agreement, for
a period reasonable to effect an orderly transition, they will
continue to perform each and every obligation hereunder.
SECTION 10 Assignment
10.01 Neither this Agreement nor any rights or obligations hereunder may
be assigned by either party without the prior written consent of the
other.
10.01 This Agreement shall inure to the benefit of and be binding upon the
parties hereto, SLD Equities and their respective successors and
assigns, provided that any assignment is performed in accordance
with Section 10.01 above.
SECTION 11 Confidentiality
11.01 The parties hereto agree that all tapes, books, reference manuals,
instructions, records, information and data pertaining to the
business of the other party, FASCorp's systems, and the policyowners
serviced by FASCorp hereunder, which
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are exchanged or received pursuant to the negotiation of and/or the
carrying out of this Agreement, shall remain confidential and shall
not be voluntarily disclosed to any other person, except to the
extent disclosure thereof may be required by law All such tapes,
books, reference manuals, instructions, records, information and
data in the possession of each of the parties hereto shall be
returned to the party from whom it was obtained upon the termination
or expiration of this Agreement.
11.02 FASCorp shall maintain the confidentiality of all trade secrets and
other confidential information obtained from SLD or its affiliates,
SLD Equities, First ING and Southland (collectively "SLD" for
purposes of this Section 11). FASCorp will use all reasonable
precautions and take all necessary steps to prevent any information
obtained by FASCorp provided to it hereunder from being acquired by
any unauthorized persons, including its parent company or any of its
affiliates. FASCorp acknowledges that such information has been
disclosed by SLD only to enable FASCorp to provide the services
hereunder and that disclosure thereof would be damaging to SLD if
such information were obtained by any competitor of SLD.
11.03 SLD shall maintain the confidentiality of all trade secrets and
other confidential information obtained from FASCorp. SLD will use
all reasonable precautions and take all necessary steps to prevent
any information obtained by SLD provided to it hereunder from being
acquired by any unauthorized persons, including its parent company
or any of its affiliates other than First ING or Southland. SLD
acknowledges that such information has been disclosed by FASCorp
only to enable FASCorp to provide the services hereunder and that
disclosure thereof would be damaging to FASCorp if such information
were obtained by any competitor of FASCorp.
11.04 SLD shall use its best efforts to facilitate a confidentiality
agreement between FASCorp and Beacon.
SECTION 12 Insurance
12.01 Errors and Omissions Insurance. FASCorp, as a member of the Great-
West Life family of companies, is currently self insured for errors
and omissions coverage. Such coverage is for amounts up to and in
excess of one million dollars per claim.
12.02 Fidelity and Theft Insurance. For the duration of this Agreement,
FASCorp shall carry fidelity and theft insurance from any insurer
rated "A" or better by A.M. Best Company. Such insurance shall
cover the theft, loss or disappearance of any monies collected by
FASCorp on SLD's behalf and shall
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provide at least $1,000,000 coverage per occurrence. The policy
shall not exclude any employee or principal of FASCorp.
12.03 Approval and Evidence of Insurance. FASCorp shall provide SLD with
a copy of the fidelity and theft insurance prior to the effective
date of this Service Agreement, with evidence that policy is full
force. Additionally, FASCorp shall, on an annual basis, provide SLD
with written certification from the insurers that the required
insurance coverage has been renewed.
12.04 Notice of Cancellation. All required insurance contracts shall
contain a clause which requires the insurers issuing the fidelity
and theft insurance to provide SLD with thirty (30) days prior
written notice in the event any required insurance coverage is
canceled or the tenons of the insurance are materially altered.
FASCorp shall give SLD written notice of any change or cancellation
of such insurance.
12.05 Review of Required Insurance. The parties agree to review the
amounts and terms of all required insurance from time to time to
determine the adequacy of such insurance.
12.06 Survival. If this Service Agreement terminates for any reason,
FASCorp shall use its best efforts to keep the insurance called for
in this section in force for 3 years following termination. FASCorp
shall give SLD at least 30 days prior notice of any change or
cancellation of such insurance.
SECTION 13 Arbitration
13.01 Any dispute which arises between the parties with respect to any of
the terms of this Agreement, whether such dispute arises during the
term of the Agreement or after the termination, shall be resolved
through binding arbitration. Arbitration shall be conducted in
accordance with the commercial rules of the American Arbitration
Association ("AAA"). Each party agrees to waive its right, if any,
to a jury trial. Each party shall bear its own cost in the
arbitration proceedings. The judgment of the AAA may be entered in,
and enforced by, any court of competent jurisdiction.
SECTION 14 Miscellaneous
14.01 SLD or its duly authorized independent auditors have the right
under this Agreement to perform on-site audits of records and
accounts directly pertaining to the Contracts serviced by FASCorp
at FASCorp's facilities in accordance with reasonable procedures
and at mutually agreeable dates and times, but at least once
annually. At the request of SLD FASCorp will make available to
SLD's auditors
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and representatives of the appropriate regulatory agencies all
reasonably requested records and data.
14.02 This Agreement constitutes the entire agreement between the parties
hereto and may not be modified except in written instrument executed
by both of the parties hereto and except that if any section herein
contained shall be found to be unenforceable as contrary to the
current law, that section shall be severed and the remaining sections
of this Agreement shall continue to be enforceable.
14.03 Neither party shall be liable for damages due to delay or failure to
perform any obligation under this Agreement if such delay or failure
results directly or indirectly from circumstances beyond the control
and without the fault or negligence of such party.
14.04 It is understood and agreed that all services performed hereunder by
FASCorp shall be as an independent contractor and not as an employee
of SLD.
14.05 Beacon, through agreement with SLD, will provide FASCorp with LifeCAD
at no charge to FASCorp. SLD agrees to execute and keep current a
maintenance agreement for LifeCAD with Beacon, also at no charge to
FASCorp.
14.06 FASCorp agrees not to use LifeCAD for any other party including
FASCorp without entering into a separate agreement with Beacon.
14.07 FASCorp and SLD acknowledge that in using LifeCAD, FASCorp may
encounter routine difficulties caused by software failure. FASCorp is
authorized, without SLD's prior approval, to contact Beacon and
incur, on SLD's behalf and at SLD's expense, any service costs that
may be charged by Beacon to correct such failures, up to $1,000 per
separate occurrence. Except for the foregoing, FASCorp is not
authorized to cause SLD to incur any costs to make any changes or
customizations of LifeCAD without SLD's express written consent.
14.08 This Agreement shall be governed by the laws of the State of
Colorado.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate, in their names and on their behalf by and through their duly
authorized officers as of the day and year first above written.
Security Life of Denver Insurance Company
By: /s/ Steve Largent
Title: Vice President Variable & Product
Financial Administrative Services Corporation
By: /s/ Joan W. McCallen
Title: Vice President, Operations
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Exhibit A Fee Schedule
CONTRACTS:
Individual variable life and variable annuity products of Security Life of
Denver ("SLD").
FEES:
A. Basic one-time set up charge due upon the signing of this Agreement:
$70,000 which consists of two variable annuity products and one
variable life product of SLD and one variable annuity product and one
variable life product for each of First ING and Southland.
If one additional affiliate of SLD contracts with FASCorp for similar
services, that affiliate shall pay FASCorp $45,000 as a one-time set
up charge, and FASCorp shall pay SLD $25,000 to reimburse SLD for the
affiliate's share of the one-time set up charge.
If two additional affiliates of SLD contract with FASCorp for similar
services, the second affiliate shall pay FASCorp $36,666 as a one-time
set up charge, and FASCorp shall pay SLD and the first affiliate each
$8,333 to reimburse SLD and the first affiliate for their respective
shares of the one-time set up charge.
B. Processing Charges:
1. Policy Contract Processing Charges:
Variable Monthly Service Fee
Contract Volume Per Contract
Variable Annuities
First 30,000 $2.50 per policy, per month
Over 30,000 $2.50 per policy, per month
Storage, all contracts .08 per policy, per month
Variable Life
All $3.00 per policy, per month
Storage, all contracts .08 per policy, per month
<PAGE>
The policy contract processing charges will be based on the aggregate
policy count for each company at the end of the month.
2. Investment Option Unit Value Processing Charges:
For each daily unit value calculation, the processing charge will be $70
per month.
C. Minimum Monthly Contract Service Fee:
The minimum monthly contract service fee schedule for SLD and any
subsidiary of SLD contracting with FASCorp for similar services is:
$70 per month for each daily unit value calculation, PER COMPANY, plus
1. For SLD alone - the greater of $10,000 per month or the actual Policy
Contract Processing Charges plus the Unit Value Processing Charges.
2. For SLD and one affiliate - per company, the greater of $6,000 per month
or the companies' aggregate of the actual Policy Contract Processing
Charges plus the Unit Value Processing Charges, with such Processing
Charges prorated between the companies according to Contract Volume.
3. For SLD and two affiliates - per company, the greater of $4,667 per
month or the companies' aggregate of the actual Policy Contract Processing
Charges plus the Unit Value Processing Charges, with such Processing
Charges prorated among the companies according to Contract Volume.
Effective the end of the month in which the first application is received,
that company will be included in the above calculations for the minimum
Monthly Contract Services Fee, and FASCorp will begin billing, the greater
of the Minimum Monthly Contract Service Fee or the actual Policy Contract
Processing Charges plus the Unit Value Processing Charges.
D. Out-Of-Pocket Expenses:
In addition to the fees set forth above, FASCorp will bill out-of-pocket
expenses as they are incurred. Out-of-pocket expenses are expenditures for
the items such as those listed below and any other items agreed to by the
parties:
1. The cost of long distance telephone calls including toll-free "800"
lines and facsimile (fax) transmissions to or from SLD, and to or from
policyowners. Costs of any lines installed for network communications
between FASCorp and SLD,
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including CRT's and related minicomputer equipment. Costs of
telecommunication lines and equipment installed to provide primary and
backup support for on-line access to the administrative system,
including transmission capabilities between FASCorp and SLD.
2. Cost of equipment (including maintenance) which is provided to or
obtained by FASCorp for purposes of the Services Agreement. SLD will
be responsible for such costs including costs under FASCorp leases and
maintenance agreements with third parties for such equipment,
including leases and maintenance agreements which may extend beyond
the termination or expiration of the Services Agreement.
3. Cost of postage for mailing forms, reports, contracts, bills,
statements, prospectuses, and other materials to policyowners or
agents, and cost for postage and overnight delivery for any other
communication to policyowners or FASCorp or SLD.
4. Cost of printing blank stock and the cost of set-up and printing
(including per impression costs) confirmation statements, contract
file folders, checks, tax reporting forms, contract pages,
specification pages, envelopes, proxy or voting, instructions cards,
periodic policyowner statements, separate account statements,
individual and list bills, and any other required forms or reports.
Cost of labor for folding, inserting and mailing functions
5. Cost of microfilm and microfiche equipment and supplies and the cost
of transferring all necessary information to microfilm and/or
microfiche.
6. Costs involved with on- or off-site storage for SLD records,
documents, correspondence and other items.
7. Custom programming, and new product implementation at $75 per hour.
8. Normal and reasonable travel, meal and lodging expenses incurred
during FASCorp's performance of the Services Agreement, if any.
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Exhibit B Operational Plan
Systems
A. LifeCAD System will:
1. Produce the contract data page, standard policy pages, state variation
pages.
2. Calculate and process periodic charges as specified in product
prospectuses.
3. Calculate and process valuations as specified by product
prospectus(es).
4. Calculate and process withdrawals (partial, full, periodic) as
specified.
5. Calculate and process annuity payout amounts.
6. Calculate and process periodic transactions including free look
transfer, dollar cost averaging transfer, automatic rebalance transfer
as specified in the prospectus.
7. Produce reporting including confirmations, client statements, daily
transactions, notification of upcoming maturities, lapse notification,
billing notices, qualified plan reporting, COLI reporting.
8. Produce required extract files including accounting, tax reporting,
production, electronic funds transfer, check writing, reinsurance,
valuation, inforce illustration, SLD client alpha index, proxy
solicitation.
9. Produce reports required to transact daily business with the mutual
funds and for periodic reconciliations.
10. Accept import of unit values (accumulation, annuity) from FASCorp
system.
11. Calculate and process changes in death benefits.
12. Perform appropriate past due processing on life products. Allow for
reinstatements.
13. Accommodate other product features described in prospectus including
persistency refunds, guaranteed death benefit provisions and riders.
14. Handle subsidiary/affiliate companies with products substantially
similar to those of SLD.
<PAGE>
15. Track state approvals by product, by company. As SLD will do the
actual product filings information regarding approvals will be
provided to FASCorp.
16. Store and provide access to agent licensing information. As SLD will
do the actual agent appointments, information will be provided to
FASCorp via interface with SLD systems and LifeCAD.
17. Accommodate SLD and regulatory audit requirements.
18. Maintain client account history as required to process transactions
and administer contract provisions.
19. Systems will automatically interface with SLD and FASCorp systems. A
scheduled time for data transmission will be determined and daily user
involvement will not be required.
20. Interface LifeCAD with SLD to automatically feed to SLD systems any
necessary updates for other SLD policies.
21. Provide information necessary for proxy preparation and mailings.
B. Additional systems support is required to provide the following functions:
1. Automated voice response
a. Inquiry for unit values, account values
b. Transactions which update the account.
2. Interfaces, reporting requirements and other special requests from
outside broker/dealers.
3. Electronic funds transfer capabilities
a. Draw from accounts for premium payments
b. Deposit disbursements to accounts.
The functions described in this section B are considered essential by FASCorp.
Development and implementation of these functions will be mutually agreed upon
by SLD and FASCorp. Item 1 will be addressed during the first half of 1995. Item
2 will be bid by FASCorp on a per occurrence basis. Item 3(b) will be bid on by
FASCorp at a future date. Item 3(a) has been bid by FASCorp and is scheduled for
implementation 4th quarter, 1994.
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ADMINISTRATIVE SERVICES
A. Contract Issue - Annuity
1. Reviews application, applies issue criteria developed by SLD to
application for annuity contract. Verifies license status of
brokers/agents based on information supplied by SLD. SLD to provide a
written set of issue criteria to FASCorp
2. Prepares contract data page, issues contract for paid business and
mails to contract owners or agents. System will produce contract data
pages. Policy page production to be automated as agreed upon by SLD
and FASCorp.
3. Establishes and maintains annuitant and contract owner records, as
applicable, on computer and manual systems.
4. Notifies dealer/agent of any error or missing data needed to establish
annuitant or contract owner records.
5. Produces and mails required confirmation statements.
6. Deposits monies received with application into depository account.
7. Maintains inventory of all issue-related forms, contracts and
endorsements based on updates provided by SLD. Printing to be
coordinated with SLD.
8. For policies being exchanged from another company or IRA funds being
transferred, FASCorp will request the funds from the other insurance
company (or IRA custodian) using forms supplied by SLD. SLD will
establish signing authority for FASCorp personnel.
B. Policy Issue - Life
1. Upon receipt of a life application, FASCorp will check the binding
requirements. Return of money, if required, will be coordinated with
SLD.
2. Verifies license status of brokers/agents based on information
supplied by SLD.
3. Upon completion of the underwriting and approval of the life
application by SLD, FASCorp will prepare policy data page and issue
policies for SLD approved applications and mail to brokers/agents.
Policy data pages to be produced by LifeCAD. Policy page production to
be automated as agreed upon by SLD and FASCorp. If any outstanding
requirements at issue, SLD will inform FASCorp when to place policy
into inforce status. Any required amendments will be prepared by SLD.
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4. Establishes and maintains all policyowner records, as applicable, on
computer and manual systems. SLD will be responsible for establishing
and maintaining underwriting records both manual and system. Policy
changes requiring underwriting will be coordinated with SLD.
5. Deposits premiums received into depository account.
6. Prepares and mails "Notice of Withdrawal Right" to life policyowners.
7. For policies being exchanged from another company, SLD will request
the funds from the other insurance company.
8. Reissue and duplicate policy requests will be coordinated between
FASCorp and SLD.
9. Maintains inventory of all issue-related forms, contracts and
endorsements based on updates provided by SLD. Printing to be
coordinated with SLD.
C. Collection procedures (after policy/contract is in force)
1. Receives from lockbox the remittance information in accordance with
processing requirements.
2. Processes payments received to customer accounts.
3. Prepares and mails required confirmation of transactions.
4. Deposits cash received directly by FASCorp under the policies into a
designated bank account.
5. Transmits daily accounting and bank transfer authorization summaries
prepared for each valuation period.
6. Bills for planned premiums at appropriate frequencies for life
policies.
7. Notifies policyowner of approaching lapse. Administers grace period
provisions.
8. Prepares and mails refunds as appropriate (declines, free look).
D. Banking
1. Photocopies checks received directly by FASCorp and assigns them a
control number. Balances, edits, endorses and prepares daily deposit.
Reconciles bank lockbox deposits to applications received.
4
<PAGE>
2. Deposits are placed into a depository account.
3. Transfers funds from the depository account to one of the following,
as appropriate:
a. General Account of Security Life
b. Mutual Fund Custodian Account(s)
c. Disbursement Account of Security Life and SLD Equities, Inc.
d. Separate Accounts of Security Life Bank accounts and mutual fund
accounts to be established by SLD with appropriate signing and
trading authorizations established for FASCorp personnel.
4. Generates from the system daily cash journal summary reports and
maintains detail of activity.
5. Processes disbursement transactions for policyowner or beneficiary,
surrenders, withdrawals, loans, and death claims. Death claims
administered by SLD. LifeCAD will produce check production extract
file. Check production will be through a FASCorp checkwriting system.
6. LifeCAD will produce check production extract file for annuitants in
payout phase whose contracts are administered by LifeCAD. Supplemental
contract administered by LifeCAD. Supplemental Contract is the
contract issued when an annuity is in the payout phase. The actual
form of the contract is to be supplied by Security Life. Check
production will be through a FASCorp checkwriting system.
7. SLD will maintain balances in the appropriate SLD bank accounts
necessary to meet administrative needs identified in the contract.
8. SLD will obtain the appropriate authorizations to allow FASCorp to
transfer funds amongst SLD accounts.
9. Reprocess dishonored items. Reverses associated transactions, prepares
reports and communicates with policyowner. LifeCAD will reverse all
ledger entries associated with dishonored items.
10. LifeCAD will produce check production extract file for systematic
payouts (IRA income, systematic income and others which may be
established). Check production will be through a FASCorp checkwriting
system.
E. Accounting/Auditing
1. Generates from the LifeCAD system daily accounting extracts for
policies maintained on the system.
5
<PAGE>
2. Generates from the LifeCAD system accounting information necessary to
post entries to ledgers.
3. Retains systems generated reports in accordance with a retention
schedule [tbd] mutually established and as required by regulatory
authorities. Provides access to such reports for internal and external
auditing.
4. Determines the "Net Amount Available for Investment" in mutual fund
and places fund purchase/redemption orders with the appropriate mutual
funds. Receives confirmation of mutual fund investments.
5. Maintains an inventory of all mutual fund shares owned, including the
date purchased and sold, cost, book value, gain, loss, and other
relevant information.
6. Reconciles inventory of mutual fund shares owned to reports of mutual
fund shares owned supplied by mutual funds.
7. Cooperates in annual audit of separate account financials conducted
for purposes of financial statement certification and publication and
accommodates SLD or regulatory audits, as required.
F. Pricing/Valuation
1. Collects information needed in determining variable account unit
values from the mutual fund. This information includes the daily net
asset value of the underlying mutual funds, any capital gains or
dividend distribution made by the mutual funds and the number of
mutual fund shares acquired or sold during the immediate preceding
valuation date.
2. Enters required information into FASCorp system for unit value
calculation to be performed.
3. FASCorp system will generate separate account ledger activity
associated with unit valuation. SLD will specify the required
accounting entries based on information available from the Unit Value
Calculator. LifeCAD will be updated with the calculated unit values.
G. Contract Owner Service/Record Maintenance
1. Receives and implements contract owner service requests including
information requests, beneficiary changes, transfer of funds between
eligible mutual funds, loan request, payout requests, exchange of
policies, and changes of any other information maintained on the
system.
6
<PAGE>
2. Researches contract owner inquiries using both data stored in the
system and manual records. Responds directly to any questions or
inquires.
3. LifeCAD will generate a set of daily journals confirming financial
changes made to annuity or life accounts.
4. Address changes will be coordinated between SLD and FASCorp. An
interface to SLD systems to coordinate policy changes (name, address,
beneficiary) will be developed.
5. Processes reinstatements when approved by SLD.
6. Produces tax reporting based on extracts from LifeCAD.
H. Disbursement (Surrenders, Loans)
1. Receives requests for systematic, partial and full surrenders and
loans from contract owners. Retains and accounts for any contract
administrative charges.
2. Processes all surrender and loan requests against the policyowner
files. Generates related separate account ledger accounting.
3. LifeCAD will produce check production extract file for surrenders and
loans and forwards to contract owner in accordance with applicable
law. Check production will be through a FASCorp checkwriting system.
4. Prepares and mails confirmation statements of disbursement
transactions to contract owners.
5. LifeCAD will generate a report on surrenders and loans.
6. Reviews, causes to have printed, and maintains adequate supply of
checks.
7. Contacts policyowner regarding tax withholding procedures, if
required.
8. Backup withholding will be coordinated between FASCorp and SLD.
I. Claims
1. Receives request for death claim from contract owners and
beneficiaries. Immediately notifies SLD. In addition, any notification
received by SLD regarding a policy administered by FASCorp will
immediately be communicated to FASCorp. This is necessary to freeze
the account.
7
<PAGE>
2. If multiple policies are involved, SLD and FASCorp will coordinate
sending claim forms.
3. Respond to request from SLD for disbursement of proceeds. Generate
related separate account ledger accounting.
4. LifeCAD will produce check production extract file for disbursements
as directed by SLD. Check production will be through a FASCorp
checkwriting system.
5. Make changes to owner and/or annuitant information on LifeCAD as
directed by SLD where no payout is required.
6. LifeCAD will generate report on death claims, if required.
7. Claims examination will be done by SLD.
J. Commissions
1. Verifies license status of brokers/agents based on information
supplied by SLD.
2. LifeCAD will produce detailed commission transactions for each policy
financial transaction processed including premium application or
reversal, cancellation, etc. for which a commission is required.
3. Prepares commission statements for broker/dealer firms. LifeCAD will
produce check production extract file for any required checks. Check
production will be through a FASCorp checkwriting system.
4. Creates tax reporting forms, if required, based on extracts from
LifeCAD.
4. LifeCAD will generate required production information.
K. Annuity Benefit Processing
1. Notifies owner of approaching annuitization approximately 90 days
before annuitization date based on information generated by LifeCAD.
2. Receives information regarding annuitants going into the annuity
(payout) phase.
3. Calculates the amount of the initial annuity payment for variable
payout based on tables supplied by Security Life. Calculation of fixed
payout based on information supplied by Security Life.
8
<PAGE>
4. Deducts applicable premium taxes. LifeCAD will produce accounting
information. Premium tax reporting and payment will be done by
Security Life.
5. Establishes and maintains annuitant records.
6. Withholds appropriate federal and state income tax; LifeCAD generates
journal entries for Security Life general ledger.
7. Provides information for general account ledger maintenance.
8. Maintains inventory of variable annuity units on annuitant master
files using LifeCAD. Inventory of fixed annuity units to be maintained
on LifeCAD (subject to system constraints).
9. LifeCAD will produce check production or electronic fund transfer
extract file for payment of amount due to annuitant in accordance with
applicable law. Check production will be through a FASCorp
checkwriting system.
10. issues supplemental contract as defined in the variable annuity
contract. Actual form of contract to be supplied by Security Life.
Contract filing to be done by Security Life.
11. FASCorp will generate tax reporting based on extracts from LifeCAD.
SLD will make all payments to the appropriate regulatory agencies for
any taxes withheld and will effect all necessary associated reports.
L. Proxy Processing
1. Receives record date information from the underlying mutual funds.
Receives proxy solicitation material from underlying mutual funds.
2. Prepares proxy cards, if applicable.
3. Mails solicitation and resolicitations, if necessary.
4. Maintains all proxy registers and other required proxy material.
5. LifeCAD will provide all necessary information for preparation of
proxy cards, if applicable.
6. Tabulates returned proxy cards and transmits results to underlying
mutual funds.
9
<PAGE>
M. Periodic Reports to Policyowners
1. Prepares and mails statement of account to each policyowner. Mails on
schedule supplied by SLD.
2. Inserts and mails semi-annual and annual reports to policyowners, as
required, both underlying mutual fund and Separate Account reports.
Filing of reports with NASD and SEC will be done by Security Life.
Printing of reports will be done by Security Life.
N. Regulatory/Statement Reports
1. Prepares IRS reports for contract owners who received annuity payments
or distributions. Mails to contract owners and transmits to IRS.
2. Prepares other IRS reports as required for IRAs (i.e., 5498s).
3. Responds to requests for calculations applicable to annuity payments
as may be necessary to tax calculations.
O. Actuarial and Management Reports
1. Provides, on the time schedule [tbd], extracts listed below:
a. Reserve Extracts
b. Production Extracts
c. Premium Tax Extracts
d. Loan Extracts
e. Surrender Extracts
f. Claims Report
10
<PAGE>
EXHIBIT C
SCHEDULE OF AUTHORIZED PERSONNEL
The following individuals are authorized by Security Life of Denver Insurance
Company to give instructions or direction to Financial Administrative Services
Corporation with respect to matters arising in connection with the servicing to
be performed under this Agreement:
Steve Largent /s/ Steve Largent
Jerrianne Smith /s/ Jerrianne Smith
Donna Mosely
Jan Gaston
Bonnie Dailey
Melodie Jones
<PAGE>
Exhibit D Backup Procedures
Current backup practices and procedures are described herein and may be changed
upon mutual agreement of Security Life of Denver ("SLD") and Financial
Administrative Services Corporation ("FASCorp").
SLD products are administered on the LifeCAD system that resides on a PC
network. Every night all LifeCAD data is copied from the PC network to the UNIX
system where data is backed up on a corporate basis.
PC Network:
1. For daily on line processes, the hardware configuration provides for all
activity to be written to twin, redundant hard drives.
2. Before the nightly batch processing takes place, an image copy of the data
is taken in case any batch problems require a rerun of the cycle.
3. Every night, after the batch cycle, the LifeCAD data is copied to the UNIX
network where corporate backup procedures are followed.
UNIX Network:
Every night the UNIX network back up process waits for the data to be received
from the LifeCAD PC network. At that time, the backup process is done according
to the following corporate schedule:
Level 0 - Each UNIX machine is totally backed up. This takes place every 3
to 4 months and the backup files are kept for 1 year.
Every year end a special Level 0 is done and the backup files are kept for
7 years.
Level 1 - Everything that changed since the last Level 0 back up is copied.
This takes place every Friday night and the backup files are kept for 120
days.
Level 5 - Everything that changed since the last Level 1 back up is copied.
This takes place every night and the backup files are kept for 60 days.
The back up files are moved to off-site storage daily, on a rotating basis.
Hardware Location.
The hardware that stores and backs up the SLD data is located in a separate
computer operations building which has its own emergency power supply.
<PAGE>
EXHIBIT E
Great-West Life & Annuity Insurance Company
Statement of Support
(See Attached)
<PAGE>
Great-West
LIFE & ANNUITY INSURANCE COMPANY
8515 Past Orchard Road
Englewood, CO 80111 Tel. (303) 689-3000
Address mail to: P.O. Box 1700. Denver, CO 80201
November 21, 1994
Security Life of Denver
Insurance Company
1290 Broadway
Denver. CO 80203-5699
Re: Financial Administrative Services Corporation ("FASCorp")
Dear Madam or Sir:
Please be advised that FASCorp is a member of the Great-West Life family of
companies. As such, FASCorp is entitled to coverage through the self insurance
arrangement for errors and omissions coverage maintained by the Great-West
family of companies.
Further, FASCorp is a wholly owned subsidiary of Great-West Life & Annuity
Insurance Company ("GWL&A") and, as such, has the full financial backing of
GWL&A.
Sincerely,
Dennis Low
Executive Vice President
Financial Services
Great-West Life & Annuity
Insurance Company
<PAGE>
EXHIBIT 8(f)
SERVICES AGREEMENT
THIS SERVICES AGREEMENT is made this 24th day of April, 1995 among Great
West Life & Annuity Insurance Company ("GWL&A"), Financial Administrative
Services Corporation ("FASCorp") and Security Life of Denver Insurance Company
("SLD"), collectively (the "Parties").
WHEREAS, SLD and FASCorp entered into an Administrative Services Agreement
("The Agreement") on November 21, 1994; and at this time FASCorp is in the
process of becoming licensed in all states, plus the District of Columbia, but
is not now licensed in all of these jurisdictions.
WHEREAS, as time is of the essence, GWL&A has agreed to deliver the
administrative services anticipated by The Agreement with SLD. In those
jurisdictions where a Third Party Administrator ("TPA") license may be required,
and FASCorp is not licensed;
NOW, THEREFORE, the Parties agree to the following:
1. GWL&A agrees to provide the administrative services, as set forth in
The Agreement, to SLD in jurisdictions where a TPA license may be
required, but FASCorp is not licensed.
2. Attachment A to this Agreement enumerates the states where these
services are to be provided by GWL&A. As FASCorp is licensed as a TPA
in a jurisdiction, FASCorp will assume the provision of services set
forth in The Agreement, and Attachment A will be updated. FASCorp
agrees to promptly obtain licenses in all jurisdictions in which
FASCorp is required to be licensed, and to timely obtain such license
in any state which in the future enacts or promulgates legislation or
regulations requiring such license.
3. All of the terms and conditions of The Agreement will apply to the
Parties, with GWL&A substituting for FASCorp for the jurisdictions
listed in Attachment A, as updated.
4. If disputes arising from this agreement can not be settled through
negotiation, the Parties will first make a good faith effort to settle
the dispute by mediation under the Commercial Mediation Rules of the
American Arbitration Association, if such mediation does not resolve
the dispute, Section 13 of The Agreement shall apply.
5. This Agreement will terminate on the earlier of the termination of The
Agreement or the date when FASCorp is licensed in the last of the
jurisdictions listed on Attachment A.
<PAGE>
THIS AGREEMENT IS AGREED TO BY:
Great West Life & Annuity Insurance Security Life of Denver Insurance
Company: Company
/s/ Dennis Low /s/ Frank Wright
Name: Dennis Low Name: Frank Wright
Title: Executive Vice President, Title: Sr. Vice President,
Financial Services Variable Sales
/s/ Roy Weinstein /s/ Shirley A. Knarr
Name: Roy Weinstein Name: Shirley A. Knarr
Title: Asst. Vice President, Title: Actuarial Officer
Systems
Financial Administrative Services
Corporation:
/s/ Joan W. McCallin
Name: Joan W. McCallin
Title: President
/s/ Beverly A. Byrne
Name: Beverly A. Byrne
Title: Secretary
<PAGE>
ATTACHMENT A
April 21, 1995
Alaska New Mexico
Arizona North Carolina
Idaho Oklahoma
Indiana Pennsylvania
Maine South Carolina
Missouri Tennessee
Montana Wisconsin
Nevada Wyoming
New Hampshire
<PAGE>
EXHIBIT 9.A
SECURITY LIFE
DENVER COLORADO
Eugene L. Copeland
Senior Vice President,
General Counsel and Secretary
November 18, 1993
Security Life of Denver
Insurance Company
Security Life Center
1290 Broadway
Denver, Colorado 80203-5699
Dear Sirs:
This opinion is furnished in connection with the Form N-4 Registration Statement
being filed by Security Life of Denver Insurance Company ("Security Life") under
the Securities Act of 1933, as amended (the "Act"), for the offering of units of
interest ("Units") in Separate Account Al under The Fulcrum Fund individual
deferred variable annuity contract ("Contract") to be issued by Security Life.
The securities being registered under the Act are to be offered in the manner
described in the Registration Statement.
I have supervised the examination of all such corporate records of Security Life
and such other documents and such laws as I consider appropriate as a basis for
the opinion hereinafter expressed. On the basis of such examination, it is my
opinion that:
1. Security Life is a corporation duly organized and validly existing under the
laws of the State of Colorado.
2. Separate Account Al was duly created as a separate investment account of
Security Life pursuant to the laws of the State of Colorado.
3. The assets of Separate Account Al will be owned by Security Life. Under
Colorado law and the provisions of the Contract, the income, gains and
losses, whether or not realized, from assets allocated to Separate Account
Al must be credited to or charged against such Account, without regard to
the other income, gains or losses of Security Life.
4. The Contract provides that the assets of Separate Account Al may not be
charged with liabilities arising out of any other business Security Life may
conduct, except to the extent that assets of Separate Account Al exceed its
liabilities arising under the Contract.
<PAGE>
November 18, 1993
page 2
5. The Contract and the Units in Separate Account Al to be issued under the
Contract have been duly authorized by the corporation; and the Contract,
including the Units thereunder, when issued and delivered, will constitute
validly issued and binding obligations of Security Life in accordance with
their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Eugene L. Copeland
Senior Vice President
Secretary and General Counsel
<PAGE>
EXHIBIT 9.B
[Logo of Security Life appears here]
April 27, 1998
Security Life of Denver
Insurance Company
Security Life Center
1290 Broadway
Denver, Colorado 80203-5699
Dear Sirs:
This opinion is furnished in connection with the Form N-4 Registration Statement
being filed by Security Life of Denver Insurance Company ("Security Life") under
the Securities Act of 1933, as amended (the "Act"), for the offering of units of
interest ("Units") in Separate Account Al under The Fulcrum Fund individual
deferred variable annuity contract ("Contract") to be issued by Security Life.
The securities being registered under the Act are to be offered in the manner
described in the Registration Statement.
I have supervised the examination of all such corporate records of Security Life
and such other documents and such laws as I consider appropriate as a basis for
the opinion hereinafter expressed. On the basis of such examination, it is my
opinion that:
1. Security Life is a corporation duly organized and validly existing under the
laws of the State of Colorado.
2. Separate Account Al was duly created as a separate investment account of
Security Life pursuant to the laws of the State of Colorado.
3. The assets of Separate Account Al will be owned by Security Life. Under
Colorado law and the provisions of the Contract, the income, gains and
losses, whether or not realized, from assets allocated to Separate Account
Al must be credited to or charged against such Account, without regard to
the other income, gains or losses of Security Life.
4. The Contract provides that the assets of Separate Account Al may not be
charged with liabilities arising out of any other business Security Life may
conduct, except to the extent that assets of Separate Account Al exceed its
liabilities arising under the Contract.
<PAGE>
April 27, 1998
page 2
5. The Contract and the Units in Separate Account Al to be issued under the
Contract have been duly authorized by the corporation; and the Contract,
including the Units thereunder, when issued and delivered, will constitute
validly issued and binding obligations of Security Life in accordance with
their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Gary W. Waggoner
Vice President, General Counsel
and Corporate Secretary
<PAGE>
EXHIBIT 10 (a)
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our reports dated April 13, 1998 (with
respect to the financial statements of Security Life Separate Account A1) and
April 10, 1998 (with respect to the financial statements of Security Life of
Denver Insurance Company) and April 10, 1998 (with respect to the Financial
Statement Schedules of Security Life of Denver Insurance Company), included in
Post-Effective Amendment No. 6 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, 1998.
ERNST & YOUNG LLP
Denver, Colorado
April 24, 1998
<PAGE>
EXHIBIT 10(b)
CONSENT OF MAYER, BROWN & PLATT
We hereby consent to the reference to our firm under the caption "Legal Matters"
in the Prospectus of Post-Effective Amendment No. 6 to the Form N-4 Registration
Statement of Security Life Separate Account A1 with respect to File Nos. 33-
78444.
/s/ Mayer, Brown & Platt
Mayer, Brown & Platt
Washington, D.C.
April 24, 1998
<PAGE>
Van Eck Worldwide Emerging Markets
Period: 1
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------ ---------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 11.490072 10.002815 870.56 870.56
12/31/97 -70.00 0.00 10.002815 10.002815 -70.00 0.00
12/31/97 -1.00 -1.00 10.002815 10.002815 -1.00 -1.00
- -----------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 799.56 Avg. Annual Return: -20.04%
Assuming Contract Not Surrendered ERV: 869.56 Avg. Annual Return: -13.04%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------ ---------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/27/95 1000.00 1000.00 9.292867 10.002815 1076.40 1076.40
12/27/96 -1.00 -1.00 11.493130 10.002815 -0.87 -0.87
12/27/97 -1.00 -1.00 10.003577 10.002815 -1.00 -1.00
12/31/97 -50.00 0.00 10.002815 10.002815 -50.00 0.00
12/31/97 -1.00 -1.00 10.002815 10.002815 -1.00 -1.00
- -----------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1023.53 Avg. Annual Return: 1.16%
Assuming Contract Not Surrendered ERV: 1073.53 Avg. Annual Return: 3.59%
</TABLE>
<PAGE>
AIM VI Government Securities
Period: 1
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------- ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 9.386998 9.999847 1065.29 1065.29
12/31/97 -70.00 0.00 9.999847 9.999847 -70.00 0.00
12/31/97 -1.00 -1.00 9.999847 9.999847 -1.00 -1.00
- -------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 994.29 Avg. Annual Return: -0.57%
Assuming Contract Not Surrendered ERV: 1064.29 Avg. Annual Return: 6.43%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------- ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/5/93 1000.00 1000.00 8.420853 9.999847 1187.51 1187.51
5/5/94 -1.00 -1.00 8.243227 9.999847 -1.21 -1.21
5/5/95 -1.00 -1.00 8.709955 9.999847 -1.15 -1.15
5/3/96 -1.00 -1.00 8.950402 9.999847 -1.12 -1.12
5/5/97 -1.00 -1.00 9.530942 9.999847 -1.05 -1.05
12/31/97 -30.00 0.00 9.999847 9.999847 -30.00 0.00
12/31/97 -1.00 -1.00 9.999847 9.999847 -1.00 -1.00
- --------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1151.98 Avg. Annual Return: 3.08%
Assuming Contract Not Surrendered ERV: 1181.98 Avg. Annual Return: 3.65%
</TABLE>
<PAGE>
Neuberger & Berman Limited Maturity Bond
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- --------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 10.636980 11.183417 1051.37 1051.37
12/31/97 -70.00 0.00 11.183417 11.183417 -70.00 0.00
12/31/97 -1.00 -1.00 11.183417 11.183417 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 980.37 Avg. Annual Return: -1.96%
Assuming Contract Not Surrendered ERV: 1050.37 Avg. Annual Return: 5.04%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- --------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 9.175083 11.183417 1218.89 1218.89
12/31/93 -1.00 -1.00 9.635558 11.183417 -1.16 -1.16
12/30/94 -1.00 -1.00 9.476333 11.183417 -1.18 -1.18
12/29/95 -1.00 -1.00 10.354473 11.183417 -1.08 -1.08
12/31/96 -1.00 -1.00 10.636980 11.183417 -1.05 -1.05
12/31/97 -30.00 0.00 11.183417 11.183417 -30.00 0.00
12/31/97 -1.00 -1.00 11.183417 11.183417 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1183.42 Avg. Annual Return: 3.43%
Assuming Contract Not Surrendered ERV: 1213.42 Avg. Annual Return: 3.94%
</TABLE>
Period: 10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- --------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/87 1000.00 1000.00 6.574126 11.183417 1701.13 1701.13
12/30/88 -1.00 -1.00 6.939007 11.183417 -1.61 -1.61
12/29/89 -1.00 -1.00 7.570956 11.183417 -1.48 -1.48
12/31/90 -1.00 -1.00 8.076844 11.183417 -1.38 -1.38
12/31/91 -1.00 -1.00 8.857421 11.183417 -1.26 -1.26
12/31/92 -1.00 -1.00 9.175083 11.183417 -1.22 -1.22
12/31/93 -1.00 -1.00 9.635558 11.183417 -1.16 -1.16
12/30/94 -1.00 -1.00 9.476333 11.183417 -1.18 -1.18
12/29/95 -1.00 -1.00 10.354473 11.183417 -1.08 -1.08
12/31/96 -1.00 -1.00 10.636980 11.183417 -1.05 -1.05
12/31/97 -1.00 -1.00 11.183417 11.183417 -1.00 -1.00
12/31/97 0.00 0.00 11.183417 11.183417 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1688.70 Avg. Annual Return: 5.38%
Assuming Contract Not Surrendered ERV: 1688.70 Avg. Annual Return: 5.38%
</TABLE>
<PAGE>
Neuberger & Berman Growth
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- --------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 13.300629 16.901394 1270.72 1270.72
12/31/97 -70.00 0.00 16.901394 16.901394 -70.00 0.00
12/31/97 -1.00 -1.00 16.901394 16.901394 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1199.72 Avg. Annual Return: 19.97%
Assuming Contract Not Surrendered ERV: 1269.72 Avg. Annual Return: 26.97%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- --------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 9.687686 16.901394 1744.63 1744.63
12/31/93 -1.00 -1.00 10.189535 16.901394 -1.66 -1.66
12/30/94 -1.00 -1.00 9.535951 16.901394 -1.77 -1.77
12/29/95 -1.00 -1.00 12.373154 16.901394 -1.37 -1.37
12/31/96 -1.00 -1.00 13.300629 16.901394 -1.27 -1.27
12/31/97 -30.00 0.00 16.901394 16.901394 -30.00 0.00
12/31/97 -1.00 -1.00 16.901394 16.901394 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1707.56 Avg. Annual Return: 11.29%
Assuming Contract Not Surrendered ERV: 1737.56 Avg. Annual Return: 11.68%
</TABLE>
Period: 10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- --------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/87 1000.00 1000.00 4.912190 16.901394 3440.70 3440.70
12/30/88 -1.00 -1.00 6.094771 16.901394 -2.77 -2.77
12/29/89 -1.00 -1.00 7.772261 16.901394 -2.17 -2.17
12/31/90 -1.00 -1.00 7.027747 16.901394 -2.40 -2.40
12/31/91 -1.00 -1.00 8.979787 16.901394 -1.88 -1.88
12/31/92 -1.00 -1.00 9.687686 16.901394 -1.74 -1.74
12/31/93 -1.00 -1.00 10.189535 16.901394 -1.66 -1.66
12/30/94 -1.00 -1.00 9.535951 16.901394 -1.77 -1.77
12/29/95 -1.00 -1.00 12.373154 16.901394 -1.37 -1.37
12/31/96 -1.00 -1.00 13.300629 16.901394 -1.27 -1.27
12/31/97 -1.00 -1.00 16.901394 16.901394 -1.00 -1.00
12/31/97 0.00 0.00 16.901394 16.901394 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 3422.66 Avg. Annual Return: 13.09%
Assuming Contract Not Surrendered ERV: 3422.66 Avg. Annual Return: 13.09%
</TABLE>
<PAGE>
Neuberger & Berman Partners
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 16.810185 21.733406 1292.87 1292.87
12/31/97 -70.00 0.00 21.733406 21.733406 -70.00 0.00
12/31/97 -1.00 -1.00 21.733406 21.733406 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1221.87 Avg. Annual Return: 22.19%
Assuming Contract Not Surrendered ERV: 1291.87 Avg. Annual Return: 29.19%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/22/94 1000.00 1000.00 10.147149 21.733406 2141.82 2141.82
3/22/95 -1.00 -1.00 10.435004 21.733406 -2.08 -2.08
3/22/96 -1.00 -1.00 14.252438 21.733406 -1.52 -1.52
3/24/97 -1.00 -1.00 17.429811 21.733406 -1.25 -1.25
12/31/97 -40.00 0.00 21.733406 21.733406 -40.00 0.00
12/31/97 -1.00 -1.00 21.733406 21.733406 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2095.97 Avg. Annual Return: 21.64%
Assuming Contract Not Surrendered ERV: 2135.97 Avg. Annual Return: 22.25%
</TABLE>
<PAGE>
Alger American Small Cap
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
----------------------------------------- -----------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 14.912080 16.360014 1097.10 1097.10
12/31/97 -70.00 0.00 16.360014 16.360014 -70.00 0.00
12/31/97 -1.00 -1.00 16.360014 16.360014 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1026.10 Avg. Annual Return: 2.61%
Assuming Contract Not Surrendered ERV: 1096.10 Avg. Annual Return: 9.61%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
----------------------------------------- -----------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 9.729723 16.360014 1681.45 1681.45
12/31/93 -1.00 -1.00 10.855579 16.360014 -1.51 -1.51
12/30/94 -1.00 -1.00 10.224293 16.360014 -1.60 -1.60
12/29/95 -1.00 -1.00 14.532525 16.360014 -1.13 -1.13
12/31/96 -1.00 -1.00 14.912080 16.360014 -1.10 -1.10
12/31/97 -30.00 0.00 16.360014 16.360014 -30.00 0.00
12/31/97 -1.00 -1.00 16.360014 16.360014 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1645.12 Avg. Annual Return: 10.47%
Assuming Contract Not Surrendered ERV: 1675.12 Avg. Annual Return: 10.87%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
----------------------------------------- -----------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9/21/88 1000.00 1000.00 3.684017 16.360014 4440.81 4440.81
9/21/89 -1.00 -1.00 5.622091 16.360014 -2.91 -2.91
9/21/90 -1.00 -1.00 5.414196 16.360014 -3.02 -3.02
9/21/91 -1.00 -1.00 8.102764 16.360014 -2.02 -2.02
9/21/92 -1.00 -1.00 8.412239 16.360014 -1.94 -1.94
9/21/93 -1.00 -1.00 10.085818 16.360014 -1.62 -1.62
9/21/94 -1.00 -1.00 9.894775 16.360014 -1.65 -1.65
9/21/95 -1.00 -1.00 16.299758 16.360014 -1.00 -1.00
9/23/96 -1.00 -1.00 15.277735 16.360014 -1.07 -1.07
9/22/97 -1.00 -1.00 17.649312 16.360014 -0.93 -0.93
12/31/97 -1.00 -1.00 16.360014 16.360014 -1.00 -1.00
12/31/97 0.00 0.00 16.360014 16.360014 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 4423.64 Avg. Annual Return: 17.39%
Assuming Contract Not Surrendered ERV: 4423.64 Avg. Annual Return: 17.39%
</TABLE>
<PAGE>
Alger American MidCap
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------------ ----------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 15.938068 18.053154 1132.71 1132.71
12/31/97 -70.00 0.00 18.053154 18.053154 -70.00 0.00
12/31/97 -1.00 -1.00 18.053154 18.053154 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1061.71 Avg. Annual Return: 6.17%
Assuming Contract Not Surrendered ERV: 1131.71 Avg. Annual Return: 13.17%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------------ ----------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/3/93 1000.00 1000.00 7.633996 18.053154 2364.84 2364.84
5/3/94 -1.00 -1.00 9.902054 18.053154 -1.82 -1.82
5/3/95 -1.00 -1.00 11.372863 18.053154 -1.59 -1.59
5/3/96 -1.00 -1.00 15.956467 18.053154 -1.13 -1.13
5/5/97 -1.00 -1.00 15.854189 18.053154 -1.14 -1.14
12/31/97 -30.00 0.00 18.053154 18.053154 -30.00 0.00
12/31/97 -1.00 -1.00 18.053154 18.053154 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2328.16 Avg. Annual Return: 19.87%
Assuming Contract Not Surrendered ERV: 2358.16 Avg. Annual Return: 20.20%
</TABLE>
<PAGE>
Fidelity VIP II Asset Manager
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 12.306005 14.624720 1188.42 1188.42
12/31/97 -70.00 0.00 14.624720 14.624720 -70.00 0.00
12/31/97 -1.00 -1.00 14.624720 14.624720 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1117.42 Avg. Annual Return: 11.74%
Assuming Contract Not Surrendered ERV: 1187.42 Avg. Annual Return: 18.74%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 8.574688 14.624720 1705.57 1705.57
12/31/93 -1.00 -1.00 10.238603 14.624720 -1.43 -1.43
12/30/94 -1.00 -1.00 9.463751 14.624720 -1.55 -1.55
12/29/95 -1.00 -1.00 10.901988 14.624720 -1.34 -1.34
12/31/96 -1.00 -1.00 12.306005 14.624720 -1.19 -1.19
12/31/97 -30.00 0.00 14.624720 14.624720 -30.00 0.00
12/31/97 -1.00 -1.00 14.624720 14.624720 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1669.07 Avg. Annual Return: 10.79%
Assuming Contract Not Surrendered ERV: 1699.07 Avg. Annual Return: 11.18%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9/6/89 1000.00 1000.00 6.122528 14.624720 2388.67 2388.67
9/6/90 -1.00 -1.00 6.103416 14.624720 -2.40 -2.40
9/6/91 -1.00 -1.00 7.512977 14.624720 -1.95 -1.95
9/7/92 -1.00 -1.00 8.292409 14.624720 -1.76 -1.76
9/6/93 -1.00 -1.00 9.594260 14.624720 -1.52 -1.52
9/6/94 -1.00 -1.00 9.895360 14.624720 -1.48 -1.48
9/6/95 -1.00 -1.00 10.516803 14.624720 -1.39 -1.39
9/6/96 -1.00 -1.00 11.298560 14.624720 -1.29 -1.29
9/8/97 -1.00 -1.00 14.253231 14.624720 -1.03 -1.03
12/31/97 -1.00 -1.00 14.624720 14.624720 -1.00 -1.00
12/31/97 0.00 0.00 14.624720 14.624720 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2374.85 Avg. Annual Return: 10.96%
Assuming Contract Not Surrendered ERV: 2374.85 Avg. Annual Return: 10.96%
</TABLE>
<PAGE>
Fidelity VIP Growth
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------ ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 15.249262 18.547386 1216.28 1216.28
12/31/97 -70.00 0.00 18.547386 18.547386 -70.00 0.00
12/31/97 -1.00 -1.00 18.547386 18.547386 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1145.28 Avg. Annual Return: 14.53%
Assuming Contract Not Surrendered ERV: 1215.28 Avg. Annual Return: 21.53%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------ ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 8.744036 18.547386 2121.15 2121.15
12/31/93 -1.00 -1.00 10.280387 18.547386 -1.80 -1.80
12/30/94 -1.00 -1.00 10.123779 18.547386 -1.83 -1.83
12/29/95 -1.00 -1.00 13.498056 18.547386 -1.37 -1.37
12/31/96 -1.00 -1.00 15.249262 18.547386 -1.22 -1.22
12/31/97 -30.00 0.00 18.547386 18.547386 -30.00 0.00
12/31/97 -1.00 -1.00 18.547386 18.547386 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2083.92 Avg. Annual Return: 15.82%
Assuming Contract Not Surrendered ERV: 2113.92 Avg. Annual Return: 16.15%
</TABLE>
Period: 10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------ ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/87 1000.00 1000.00 4.420589 18.547386 4195.68 4195.68
12/30/88 -1.00 -1.00 5.032390 18.547386 -3.69 -3.69
12/29/89 -1.00 -1.00 6.518761 18.547386 -2.85 -2.85
12/31/90 -1.00 -1.00 5.666544 18.547386 -3.27 -3.27
12/31/91 -1.00 -1.00 8.121373 18.547386 -2.28 -2.28
12/31/92 -1.00 -1.00 8.744036 18.547386 -2.12 -2.12
12/31/93 -1.00 -1.00 10.280387 18.547386 -1.80 -1.80
12/30/94 -1.00 -1.00 10.123779 18.547386 -1.83 -1.83
12/29/95 -1.00 -1.00 13.498056 18.547386 -1.37 -1.37
12/31/96 -1.00 -1.00 15.249262 18.547386 -1.22 -1.22
12/31/97 -1.00 -1.00 18.547386 18.547386 -1.00 -1.00
12/31/97 0.00 0.00 18.547386 18.547386 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 4174.25 Avg. Annual Return: 15.36%
Assuming Contract Not Surrendered ERV: 4174.25 Avg. Annual Return: 15.36%
</TABLE>
<PAGE>
Fidelity VIP Overseas
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------- ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 11.528156 12.666630 1098.76 1098.76
12/31/97 -70.00 0.00 12.666630 12.666630 -70.00 0.00
12/31/97 -1.00 -1.00 12.666630 12.666630 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1027.76 Avg. Annual Return: 2.78%
Assuming Contract Not Surrendered ERV: 1097.76 Avg. Annual Return: 9.78%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------- ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 7.060068 12.666630 1794.12 1794.12
12/31/93 -1.00 -1.00 9.551010 12.666630 -1.33 -1.33
12/30/94 -1.00 -1.00 9.569602 12.666630 -1.32 -1.32
12/29/95 -1.00 -1.00 10.337964 12.666630 -1.23 -1.23
12/31/96 -1.00 -1.00 11.528156 12.666630 -1.10 -1.10
12/31/97 -30.00 0.00 12.666630 12.666630 -30.00 0.00
12/31/97 -1.00 -1.00 12.666630 12.666630 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1758.15 Avg. Annual Return: 11.95%
Assuming Contract Not Surrendered ERV: 1788.15 Avg. Annual Return: 12.33%
</TABLE>
Period: 10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------- ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/87 1000.00 1000.00 5.884444 12.666630 2152.56 2152.56
12/30/88 -1.00 -1.00 6.266786 12.666630 -2.02 -2.02
12/29/89 -1.00 -1.00 7.794755 12.666630 -1.63 -1.63
12/31/90 -1.00 -1.00 7.548683 12.666630 -1.68 -1.68
12/31/91 -1.00 -1.00 8.029405 12.666630 -1.58 -1.58
12/31/92 -1.00 -1.00 7.060068 12.666630 -1.79 -1.79
12/31/93 -1.00 -1.00 9.551010 12.666630 -1.33 -1.33
12/30/94 -1.00 -1.00 9.569602 12.666630 -1.32 -1.32
12/29/95 -1.00 -1.00 10.337964 12.666630 -1.23 -1.23
12/31/96 -1.00 -1.00 11.528156 12.666630 -1.10 -1.10
12/31/97 -1.00 -1.00 12.666630 12.666630 -1.00 -1.00
12/31/97 0.00 0.00 12.666630 12.666630 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2137.89 Avg. Annual Return: 7.89%
Assuming Contract Not Surrendered ERV: 2137.89 Avg. Annual Return: 7.89%
</TABLE>
<PAGE>
Fidelity VIP Money Market
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 10.873351 11.295192 1038.80 1038.80
12/31/97 -70.00 0.00 11.295192 11.295192 -70.00 0.00
12/31/97 -1.00 -1.00 11.295192 11.295192 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 967.80 Avg. Annual Return: -3.22%
Assuming Contract Not Surrendered ERV: 1037.80 Avg. Annual Return: 3.78%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 9.616996 11.295192 1174.50 1174.50
12/31/93 -1.00 -1.00 9.778098 11.295192 -1.16 -1.16
12/30/94 -1.00 -1.00 10.039907 11.295192 -1.13 -1.13
12/29/95 -1.00 -1.00 10.472600 11.295192 -1.08 -1.08
12/31/96 -1.00 -1.00 10.873351 11.295192 -1.04 -1.04
12/31/97 -30.00 0.00 11.295192 11.295192 -30.00 0.00
12/31/97 -1.00 -1.00 11.295192 11.295192 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1139.11 Avg. Annual Return: 2.64%
Assuming Contract Not Surrendered ERV: 1169.11 Avg. Annual Return: 3.17%
</TABLE>
Period: 10
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/87 1000.00 1000.00 7.436058 11.295192 1518.98 1518.98
12/30/88 -1.00 -1.00 7.864588 11.295192 -1.44 -1.44
12/29/89 -1.00 -1.00 8.452319 11.295192 -1.34 -1.34
12/31/90 -1.00 -1.00 8.993961 11.295192 -1.26 -1.26
12/31/91 -1.00 -1.00 9.397774 11.295192 -1.20 -1.20
12/31/92 -1.00 -1.00 9.616996 11.295192 -1.17 -1.17
12/31/93 -1.00 -1.00 9.778098 11.295192 -1.16 -1.16
12/30/94 -1.00 -1.00 10.039907 11.295192 -1.13 -1.13
12/29/95 -1.00 -1.00 10.472600 11.295192 -1.08 -1.08
12/31/96 -1.00 -1.00 10.873351 11.295192 -1.04 -1.04
12/31/97 -1.00 -1.00 11.295192 11.295192 -1.00 -1.00
12/31/97 0.00 0.00 11.295192 11.295192 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1507.17 Avg. Annual Return: 4.19%
Assuming Contract Not Surrendered ERV: 1507.17 Avg. Annual Return: 4.19%
</TABLE>
<PAGE>
Fidelity VIP II Index 500
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 15.855024 20.724502 1307.13 1307.13
12/31/97 -70.00 0.00 20.724502 20.724502 -70.00 0.00
12/31/97 -1.00 -1.00 20.724502 20.724502 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1236.13 Avg. Annual Return: 23.61%
Assuming Contract Not Surrendered ERV: 1306.13 Avg. Annual Return: 30.61%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 9.015211 20.724502 2298.84 2298.84
12/31/93 -1.00 -1.00 9.744116 20.724502 -2.13 -2.13
12/30/94 -1.00 -1.00 9.697846 20.724502 -2.14 -2.14
12/29/95 -1.00 -1.00 13.105685 20.724502 -1.58 -1.58
12/31/96 -1.00 -1.00 15.855024 20.724502 -1.31 -1.31
12/31/97 -30.00 0.00 20.724502 20.724502 -30.00 0.00
12/31/97 -1.00 -1.00 20.724502 20.724502 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2260.68 Avg. Annual Return: 17.72%
Assuming Contract Not Surrendered ERV: 2290.68 Avg. Annual Return: 18.03%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------------- -------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8/27/92 1000.00 1000.00 8.524935 20.724502 2431.05 2431.05
8/27/93 -1.00 -1.00 9.590550 20.724502 -2.16 -2.16
8/29/94 -1.00 -1.00 9.978250 20.724502 -2.08 -2.08
8/28/95 -1.00 -1.00 11.871460 20.724502 -1.75 -1.75
8/27/96 -1.00 -1.00 14.240640 20.724502 -1.46 -1.46
8/27/97 -1.00 -1.00 19.527012 20.724502 -1.06 -1.06
12/31/97 -20.00 0.00 20.724502 20.724502 -20.00 0.00
12/31/97 -1.00 -1.00 20.724502 20.724502 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2401.54 Avg. Annual Return: 17.81%
Assuming Contract Not Surrendered ERV: 2421.54 Avg. Annual Return: 17.99%
</TABLE>
<PAGE>
INVESCO Total Return
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------------- ---------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 13.410796 16.236755 1210.72 1210.72
12/31/97 -70.00 0.00 16.236755 16.236755 -70.00 0.00
12/31/97 -1.00 -1.00 16.236755 16.236755 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1139.72 Avg. Annual Return: 13.97%
Assuming Contract Not Surrendered ERV: 1209.72 Avg. Annual Return: 20.97%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
-------------------------------------------- ---------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
6/2/94 1000.00 1000.00 9.949878 16.236755 1631.85 1631.85
6/2/95 -1.00 -1.00 11.137010 16.236755 -1.46 -1.46
6/3/96 -1.00 -1.00 12.565703 16.236755 -1.29 -1.29
6/3/97 -1.00 -1.00 14.617305 16.236755 -1.11 -1.11
12/31/97 -40.00 0.00 16.236755 16.236755 -40.00 0.00
12/31/97 -1.00 -1.00 16.236755 16.236755 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1586.99 Avg. Annual Return: 13.77%
Assuming Contract Not Surrendered ERV: 1626.99 Avg. Annual Return: 14.56%
</TABLE>
<PAGE>
INVESCO Industrial Income
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------- -----------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 15.610389 19.707890 1262.49 1262.49
12/31/97 -70.00 0.00 19.707890 19.707890 -70.00 0.00
12/31/97 -1.00 -1.00 19.707890 19.707890 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1191.49 Avg. Annual Return: 19.15%
Assuming Contract Not Surrendered ERV: 1261.49 Avg. Annual Return: 26.15%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------- -----------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
8/10/94 1000.00 1000.00 10.168040 19.707890 1938.22 1938.22
8/10/95 -1.00 -1.00 11.616629 19.707890 -1.70 -1.70
8/12/96 -1.00 -1.00 14.331076 19.707890 -1.38 -1.38
8/11/97 -1.00 -1.00 18.856840 19.707890 -1.05 -1.05
12/31/97 -40.00 0.00 19.707890 19.707890 -40.00 0.00
12/31/97 -1.00 -1.00 19.707890 19.707890 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1893.10 Avg. Annual Return: 20.70%
Assuming Contract Not Surrendered ERV: 1933.10 Avg. Annual Return: 21.45%
</TABLE>
<PAGE>
INVESCO High Yield
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------ -------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 13.665773 15.793620 1155.71 1155.71
12/31/97 -70.00 0.00 15.793620 15.793620 -70.00 0.00
12/31/97 -1.00 -1.00 15.793620 15.793620 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1084.71 Avg. Annual Return: 8.47%
Assuming Contract Not Surrendered ERV: 1154.71 Avg. Annual Return: 15.47%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------ -------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
5/27/94 1000.00 1000.00 10.220611 15.793620 1545.27 1545.27
5/30/95 -1.00 -1.00 10.935448 15.793620 -1.44 -1.44
5/28/96 -1.00 -1.00 12.415184 15.793620 -1.27 -1.27
5/27/97 -1.00 -1.00 14.286079 15.793620 -1.11 -1.11
12/31/97 -40.00 0.00 15.793620 15.793620 -40.00 0.00
12/31/97 -1.00 -1.00 15.793620 15.793620 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1500.45 Avg. Annual Return: 11.94%
Assuming Contract Not Surrendered ERV: 1540.45 Avg. Annual Return: 12.76%
</TABLE>
<PAGE>
INVESCO Utilities
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------- ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 12.021293 14.614317 1215.70 1215.70
12/31/97 -70.00 0.00 14.614317 14.614317 -70.00 0.00
12/31/97 -1.00 -1.00 14.614317 14.614317 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1144.70 Avg. Annual Return: 14.47%
Assuming Contract Not Surrendered ERV: 1214.70 Avg. Annual Return: 21.47%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
------------------------------------- ------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/1/95 1000.00 1000.00 10.072302 14.614317 1450.94 1450.94
1/2/96 -1.00 -1.00 10.832269 14.614317 -1.35 -1.35
1/2/97 -1.00 -1.00 11.970494 14.614317 -1.22 -1.22
12/31/97 -40.00 0.00 14.614317 14.614317 -40.00 0.00
12/31/97 -1.00 -1.00 14.614317 14.614317 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1407.37 Avg. Annual Return: 12.06%
Assuming Contract Not Surrendered ERV: 1447.37 Avg. Annual Return: 13.12%
</TABLE>
<PAGE>
Van Eck Hard Assets
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
-------------------------------------- ---------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 11.690254 11.314243 967.84 967.84
12/31/97 -70.00 0.00 11.314243 11.314243 -70.00 0.00
12/31/97 -1.00 -1.00 11.314243 11.314243 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 896.84 Avg. Annual Return: -10.32%
Assuming Contract Not Surrendered ERV: 966.84 Avg. Annual Return: -3.32%
</TABLE>
Period: 5
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
-------------------------------------- ---------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 6.041523 11.314243 1872.75 1872.75
12/31/93 -1.00 -1.00 9.808442 11.314243 -1.15 -1.15
12/30/94 -1.00 -1.00 9.197895 11.314243 -1.23 -1.23
12/29/95 -1.00 -1.00 10.056038 11.314243 -1.13 -1.13
12/31/96 -1.00 -1.00 11.690254 11.314243 -0.97 -0.97
12/31/97 -30.00 0.00 11.314243 11.314243 -30.00 0.00
12/31/97 -1.00 -1.00 11.314243 11.314243 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1837.27 Avg. Annual Return: 12.94%
Assuming Contract Not Surrendered ERV: 1867.27 Avg. Annual Return: 13.30%
</TABLE>
Period: Inception
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
-------------------------------------- ---------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
9/1/89 1000.00 1000.00 7.308592 11.314243 1548.07 1548.07
9/4/90 -1.00 -1.00 7.305985 11.314243 -1.55 -1.55
9/3/91 -1.00 -1.00 6.471593 11.314243 -1.75 -1.75
9/1/92 -1.00 -1.00 6.590711 11.314243 -1.72 -1.72
9/1/93 -1.00 -1.00 8.904001 11.314243 -1.27 -1.27
9/1/94 -1.00 -1.00 10.265811 11.314243 -1.10 -1.10
9/1/95 -1.00 -1.00 9.926361 11.314243 -1.14 -1.14
9/3/96 -1.00 -1.00 11.241954 11.314243 -1.01 -1.01
9/2/97 -1.00 -1.00 12.385055 11.314243 -0.91 -0.91
12/31/97 -1.00 -1.00 11.314243 11.314243 -1.00 -1.00
12/31/97 0.00 0.00 11.314243 11.314243 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1536.63 Avg. Annual Return: 5.29%
Assuming Contract Not Surrendered ERV: 1536.63 Avg. Annual Return: 5.29%
</TABLE>
<PAGE>
Alger American Growth
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------- ----------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/96 1000.00 1000.00 13.374111 16.564830 1238.57 1238.57
12/31/97 -70.00 0.00 16.564830 16.564830 -70.00 0.00
12/31/97 -1.00 -1.00 16.564830 16.564830 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1167.57 Avg. Annual Return: 16.76%
Assuming Contract Not Surrendered ERV: 1237.57 Avg. Annual Return: 23.76%
Period: 5
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------- ----------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12/31/92 1000.00 1000.00 7.398782 16.564830 2238.86 2238.86
12/31/93 -1.00 -1.00 8.924397 16.564830 -1.86 -1.86
12/30/94 -1.00 -1.00 8.917268 16.564830 -1.86 -1.86
12/29/95 -1.00 -1.00 11.979391 16.564830 -1.38 -1.38
12/31/96 -1.00 -1.00 13.374111 16.564830 -1.24 -1.24
12/31/97 -30.00 0.00 16.564830 16.564830 -30.00 0.00
12/31/97 -1.00 -1.00 16.564830 16.564830 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2201.52 Avg. Annual Return: 17.10%
Assuming Contract Not Surrendered ERV: 2231.52 Avg. Annual Return: 17.41%
Period: Inception
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
--------------------------------------- ----------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/9/89 1000.00 1000.00 3.839553 16.564830 4314.26 4314.26
1/9/90 -1.00 -1.00 4.708103 16.564830 -3.52 -3.52
1/9/91 -1.00 -1.00 4.577247 16.564830 -3.62 -3.62
1/9/92 -1.00 -1.00 6.964488 16.564830 -2.38 -2.38
1/9/93 -1.00 -1.00 7.392342 16.564830 -2.24 -2.24
1/9/94 -1.00 -1.00 9.109101 16.564830 -1.82 -1.82
1/9/95 -1.00 -1.00 8.906842 16.564830 -1.86 -1.86
1/9/96 -1.00 -1.00 11.140019 16.564830 -1.49 -1.49
1/9/97 -1.00 -1.00 13.747493 16.564830 -1.20 -1.20
12/31/97 -1.00 -1.00 16.564830 16.564830 -1.00 -1.00
12/31/97 0.00 0.00 16.564830 16.564830 0.00 0.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 4295.13 Avg. Annual Return: 17.63%
Assuming Contract Not Surrendered ERV: 4295.13 Avg. Annual Return: 17.63%
</TABLE>
<PAGE>
Alger American Leveraged AllCap
Period: 1
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
---------------------------------------- -------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/25/95 1000.00 1000.00 8.575351 19.173761 2235.92 2235.92
12/31/96 1000.00 1000.00 16.266010 19.173761 1178.76 1178.76
12/31/97 -70.00 0.00 19.173761 19.173761 -70.00 0.00
12/31/97 -1.00 -1.00 19.173761 19.173761 -1.00 -1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 1107.76 Avg. Annual Return: 10.78%
Assuming Contract Not Surrendered ERV: 1177.76 Avg. Annual Return: 17.78%
<CAPTION>
Period: Inception
- ------------------------------------------------------------------------------------------------------------------------------------
Payments Value
---------------------------------------- -------------------------------------------
DATE Surrendered Not Surrendered AUV Begin AUV End Surrender Non-Surrender
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1/25/95 1000.00 1000.00 8.575351 19.173761 2235.92 2235.92
1/25/96 -1.00 -1.00 14.764072 19.173761 -1.30 -1.30
1/27/97 -1.00 -1.00 16.952817 19.173761 -1.13 -1.13
12/31/97 -50.00 0.00 19.173761 19.173761 -50.00 0.00
12/31/97 -1.00 -1.00 19.173761 19.173761 -1.00 -1.00
- -----------------------------------------------------------------------------------------------------------------------------------
Assuming Contract Surrendered ERV: 2182.49 Avg. Annual Return: 30.50%
Assuming Contract Not Surrendered ERV: 2232.49 Avg. Annual Return: 31.52%
</TABLE>
