<PAGE>
As filed with the Securities and Exchange Commission on February 19, 1998
Registration No. 33-88148
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Post-Effective Amendment No. 4
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SECURITY LIFE SEPARATE ACCOUNT L1
(Exact Name of Trust)
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Name of Depositor)
1290 Broadway
Denver, Colorado 80203-5699
(Address of Depositor's Principal Executive Offices)
Copy to:
GARY W. WAGGONER, ESQ. DIANE E. 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
(202) 778-0641
(Name and Address of Agent for Service)
----------------------------
It is proposed that this filing will become effective:
___ on (date) pursuant to paragraph (a) of Rule 485
X 60 days after filing pursuant to paragraph (a) of Rule 485
___ on May 1, 1997 pursuant to paragraph (b) of Rule 485 immediately
___ upon filing pursuant to paragraph (b) of Rule 485 this
___ post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title and amount of securities being registered: Interests under variable life
insurance policies. Approximate Date of Proposed Public Offering: As soon as
practical after the effective date. Pursuant to Rule 24f-2 under the Investment
Company Act of 1940, the Registrant has registered an indefinite amount of
securities. Registrant filed its Form 24f-2 on _____________ for its most recent
fiscal year ending December ________.
i
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 33-88148)
Cross-Reference Table
<TABLE>
<CAPTION>
Form N-8B-2 Item No. Caption in Prospectus
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<S> <C>
1, 2 Cover; Security Life of Denver Insurance Company;
Security Life Separate Account L1
3 Inapplicable
4 Security Life of Denver Insurance Company
5, 6 Security Life Separate Account L1
7 Inapplicable
8 Financial Statements
9 Inapplicable
10(a), (b), (c), (d), (e) Policy Summary; Policy Values, Determining the
Value of Amounts in the Divisions of the Variable
Account; Charges, Deductions and Refunds;
Surrender; Partial Withdrawals; The Guaranteed
Interest Division; Transfers of Account Values;
Right to Exchange Policy; Lapse; Reinstatement;
Premiums
10(f) Voting Privileges; Right to Change Operations
10(g), (h) Right to Change Operations
10(i) Tax Considerations; Detailed Information about the
Strategic Advantage Variable Universal Life Policy;
Other General Policy Provisions; The Guaranteed
Interest Division
11, 12 Security Life Separate Account L1
13 Policy Summary; Charges, Deductions and Refunds;
Corporate Purchasers and Group or Sponsored
Arrangements
</TABLE>
ii
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<TABLE>
<CAPTION>
Form N-8B-2 Item No. Caption in Prospectus
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<C> <S>
14, 15 Policy Summary; Free Look; Other General Policy
Provisions; Applying for a Policy
16 Premiums; Allocation of Net Premiums; How We
Calculate Accumulation Unit Values for Each
Division
17 Payment; Surrender; Partial Withdrawal
18 Policy Summary; Tax Considerations; Detailed
Information about the Strategic Advantage Variable
Universal Life Policy; Security Life Separate
Account L1; Persistency Refund
19 Reports to Policy Owners; Notification and
Claims Procedures; Performance Information
20 See 10(g) & 10(a)
21 Policy Loans
22 Policy Summary; Premiums; Grace Period; Security
Life Separate Account L1; Detailed Information
about the Strategic Advantage Variable Universal
Life Policy
23 Inapplicable
24 Inapplicable
25 Security Life of Denver Insurance Company
26 Inapplicable
27, 28, 29, 30 Security Life of Denver Insurance Company
31, 32, 33, 34 Inapplicable
35 Inapplicable
36 Inapplicable
</TABLE>
iii
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<TABLE>
<CAPTION>
Form N-8B-2 Item No. Caption in Prospectus
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<C> <S>
37 Inapplicable
38, 39, 40, 41(a) Other General Policy Provisions; Distribution of
the Policies; Security Life of Denver Insurance
Company
41(b), 41(c), 42, 43 Inapplicable
44 Determining the Value in the Divisions of the
Variable Account; How We Calculate Accumulation
Unit Values for Each Division
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the Strategic Advantage Variable Universal Life
Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the Strategic Advantage
Variable Universal Life Policy
52 Determining the Value in the Divisions of the
Variable Account; Right to Change Operations
53(a) Tax Considerations
53(b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
</TABLE>
iv
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STRATEGIC ADVANTAGE VARIABLE
UNIVERSAL LIFE
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
issued by
SECURITY LIFE OF DENVER INSURANCE COMPANY
AND
SECURITY LIFE SEPARATE ACCOUNT L1
This prospectus describes Strategic Advantage, an individual flexible premium
variable universal life insurance policy (the "Policy" or collectively,
"Policies") issued by Security Life of Denver Insurance Company ("Security
Life"). The Policy provides insurance coverage with flexibility in death
benefits and premium payments. The Policy is designed primarily for use on a
multiple-life basis where the Insureds share a common employment or business
relationship, and it may be owned individually or by a corporation, trust,
association or similar entity. The Policy is funded by Security Life Separate
Account L1 (the "Variable Account"). Twenty-three Divisions of the Variable
Account are available under the Policy. A Guaranteed Interest Division, which
guarantees a minimum fixed rate of interest, is also available. Purchasers may
utilize both the Divisions of the Variable Account and the Guaranteed Interest
Division simultaneously. The Loan Division represents amounts we set aside as
collateral for any Policy Loans taken or transferred into the Policy.
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division, but exclude the Loan Division. For example, if the Owner has 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 the Owner can subsequently allocate or
transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the
early years of the Policy 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.
We will pay the Death Proceeds when the Insured dies if the Policy is still in
force. The Death Proceeds will equal the death benefit, reduced by any
outstanding Policy Loan, accrued loan interest, and any charges incurred prior
to the date of the Insured's death but not yet deducted. The death benefit
consists of two elements: the Base Death Benefit and any amount added by Rider.
The Policy will remain in force as long as the Net Account Value remains
positive.
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.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
A PROSPECTUS FOR THE PORTFOLIO OR PORTFOLIOS BEING CONSIDERED
MUST ACCOMPANY THIS PROSPECTUS AND SHOULD BE READ IN CONJUNCTION HEREWITH.IN
THIS PROSPECTUS "WE," "US" AND "OUR" REFER TO
SECURITY LIFE OF DENVER INSURANCE COMPANY.
THIS POLICY IS NOT AVAILABLE IN ALL JURISDICTIONS. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH SUCH
OFFERING MAY NOT BE LAWFULLY MADE. THE FEATURES OF ANY POLICY ISSUED MAY VARY
DEPENDING ON THE STATE IN WHICH THE CONTRACT IS ISSUED. NO PERSON IS
AUTHORIZED TO MAKE ANY REPRESENTATION REGARDING THE OFFERING DESCRIBED IN THIS
PROSPECTUS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR ANY ATTACHED
SUPPLEMENT HERETO.
DATE OF PROSPECTUS: MAY 1, 1998
<PAGE>
The policy is guaranteed not to lapse during the first three Policy years,
regardless of its Net Account Value if, on each Monthly Processing Date during
the first three Policy years, the sum of premiums paid, less the sum of Partial
Withdrawals and Policy Loans taken including accrued loan interest, is greater
than or equal to the sum of the applicable minimum monthly premiums for each
Policy Month starting with the first Policy Month to and including the Policy
Month which begins on the current Monthly Processing Date. The minimum monthly
premium is equal to one twelfth of the Minimum Annual Premium. If the Guaranteed
Minimum Death Benefit provision is effective, the Stated Death Benefit portion
of the Policy will remain in force for the Guarantee Period. To continue the
Guarantee Period, the required premiums must be paid and the Net Account Value
must remain diversified.
The Policy permits the Owner to choose from two death benefit options: Option 1,
a fixed benefit that equals the Stated Death Benefit, and Option 2, a benefit
that equals the Stated Death Benefit plus the Account Value. The Base Death
Benefit in force as of any Valuation Date will not be less than the amount
necessary to qualify the Policy as a life insurance contract under the Internal
Revenue Code in existence at the time the Policy is issued.
When applying for the Policy, the Owner irrevocably chooses which of two tests
for compliance with the Federal income tax law definition of life insurance we
will apply to the Policy. These tests are the Cash Value Accumulation Test and
the Guideline Premium/Cash Value Corridor Test. If the Guideline Premium/Cash
Value Corridor Test is chosen, premium amounts will be limited based on the
death benefit of the Policy.
We will not allocate funds to the Policy until we receive the Initial Premium
and we have approved the Policy for issue. Thereafter, the timing and amount of
premium payments may vary, within specified limits. A higher premium level may
be required to keep the Guaranteed Minimum Death Benefit in force. After certain
deductions have been made, Net Premiums may be allocated to one or more of the
Divisions of the Variable Account and to the Guaranteed Interest Division. The
assets of the Divisions of the Variable Account will be used to purchase, at net
asset value, shares of designated Portfolios of various investment companies. A
Policy may be returned according to the terms of the Right to Examine Policy
Period (also called the Free Look Period). Net Premiums allocated to the
Variable Account will be held in the Division investing in the Fidelity VIP
Money Market Portfolio of the Variable Account during the Delivery and Free Look
Periods.
The Policy Account Value is the sum of the amounts in the Divisions of the
Variable Account plus the amount in the Guaranteed Interest Division and the
amount in the Loan Division. The value of the amounts allocated to the Divisions
of the Variable Account will vary with the investment experience of the
corresponding Portfolios; there is no minimum guaranteed cash value for amounts
allocated to the Divisions of the Variable Account. The value of amounts
allocated to the Guaranteed Interest Division will depend on the interest rates
we declare. The Account Value will also reflect deductions for the cost of
insurance and expenses, as well as increases for additional Net Premiums.
Replacing existing insurance coverage with the Policy described in this
prospectus may not be advantageous.
ISSUED BY: Security Life of Denver BROKER DEALER: ING America Equities, Inc.
Insurance Company 1290 Broadway
Security Life Center Attn: Variable
1290 Broadway Denver, CO 80203-5699
Denver, CO 80203-5699 (303) 860-2000
(800) 525-9852
THROUGH ITS: Security Life Separate Account L1
ADMINISTERED AT: Customer Service Center
P.O. Box 173888
Denver, CO 80217-3888
(800) 848-6362
PROSPECTUS DATED: May 1, 1998
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Strategic Advantage 2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
DEFINITION OF SPECIAL TERMS USED IN THIS PROSPECTUS....................... 6
POLICY SUMMARY............................................................ 9
General Information....................................................... 9
Death Benefits............................................................ 9
Benefits at Maturity...................................................... 9
Additional Benefits....................................................... 9
Premiums.................................................................. 9
Allocation of Net Premiums................................................ 9
Maximum Number of Investment Divisions.................................... 10
Policy Values............................................................. 10
Determining the Value in the Divisions of the Variable Account............ 10
How We Calculate Accumulation Unit Values for Each Division............... 10
Transfers of Account Values............................................... 10
Dollar Cost Averaging..................................................... 10
Automatic Rebalancing..................................................... 11
Loans..................................................................... 11
Partial Withdrawals....................................................... 11
Surrender................................................................. 11
Right to Exchange Policy.................................................. 11
Lapse..................................................................... 11
Reinstatement............................................................. 11
Charges and Deductions.................................................... 11
Persistency Refund........................................................ 12
Refund of Sales Charges................................................... 12
Tax Considerations........................................................ 12
INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT
OPTIONS AND THE GUARANTEED INTEREST DIVISION.................... 13
Security Life of Denver Insurance Company................................. 13
Security Life Separate Account L1......................................... 13
Maximum Number of Investment Divisions.................................... 14
Investment Objectives of the Portfolios................................... 14
The Guaranteed Interest Division.......................................... 17
DETAILED INFORMATION ABOUT THE STRATEGIC ADVANTAGE VARIABLE UNIVERSAL
LIFE POLICY..................................................... 17
Applying for a Policy..................................................... 17
Temporary Insurance....................................................... 18
Premiums.................................................................. 18
Scheduled Premiums.............................................. 18
Unscheduled Premium Payments.................................... 18
Minimum Annual Premium.......................................... 18
Special Continuation Period..................................... 19
Choice of Definitional Tests.................................... 19
Choice of Guaranteed Minimum Death Benefit Provisions........... 19
Modified Endowment Contracts.................................... 19
Allocation of Net Premiums................................................ 20
Death Benefits............................................................ 20
Death Benefit Options........................................... 20
Changes in Death Benefit Option................................. 21
Changes in Death Benefit Amounts................................ 22
Guaranteed Minimum Death Benefit Provision...................... 22
Requirements to Maintain the Guarantee Period................... 23
</TABLE>
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Strategic Advantage 3
<PAGE>
<TABLE>
<S> <C>
Additional Benefits......................................................... 23
Accidental Death Benefit Rider......................................... 23
Adjustable Term Insurance Rider........................................ 24
Additional Insured Rider............................................... 24
Guaranteed Insurability Rider.......................................... 24
Right to Change Insured Rider.......................................... 24
Waiver of Cost of Insurance Rider...................................... 25
Waiver of Specified Premium Rider...................................... 25
Benefits at Maturity........................................................ 25
Policy Values............................................................... 25
Account Value.......................................................... 25
Cash Surrender Value................................................... 25
Net Cash Surrender Value............................................... 25
Net Account Value...................................................... 25
Determining the Value of Amounts in the Divisions
of the Variable Account................................................... 25
How We Calculate Accumulation Unit Values for
Each Division............................................................. 26
Transfers of Account Values................................................. 26
Dollar Cost Averaging....................................................... 27
Automatic Rebalancing....................................................... 27
Policy Loans................................................................ 28
Partial Withdrawals......................................................... 29
Surrender................................................................... 29
Right to Exchange Policy.................................................... 30
Lapse....................................................................... 30
If the Guaranteed Minimum Death
Benefit Provision Is Not in Effect.................................... 30
If the Guaranteed Minimum Death
Benefit Provision Is in Effect........................................ 30
Grace Period................................................................ 30
Reinstatement............................................................... 31
CHARGES, DEDUCTIONS AND REFUNDS............................................. 31
Deductions from Premiums.................................................... 31
Tax Charges............................................................ 31
Sales Charges.......................................................... 31
Daily Deductions from the Variable Account.................................. 32
Mortality and Expense Risk Charge...................................... 32
Monthly Deductions from the Account Value................................... 32
Initial Policy Charge.................................................. 32
Monthly Administrative Charge.......................................... 32
Cost of Insurance Charges.............................................. 32
Charges for Additional Benefits........................................ 33
Guaranteed Minimum Death Benefit Charge................................ 33
Changes in Monthly Charges............................................. 33
Policy Transaction Fees..................................................... 33
Partial Withdrawal..................................................... 33
Transfers.............................................................. 33
Allocation Changes..................................................... 34
Illustrations.......................................................... 34
Persistency Refund.......................................................... 34
Refund of Sales Charges..................................................... 34
Charges from Portfolios..................................................... 34
Group or Sponsored Arrangements............................................. 37
Other Charges............................................................... 37
TAX CONSIDERATIONS.......................................................... 37
Life Insurance Definition................................................... 37
</TABLE>
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Strategic Advantage 4
<PAGE>
<TABLE>
<S> <C>
Diversification Requirements................................... 38
Modified Endowment Contracts................................... 38
Tax Treatment of Premiums...................................... 39
Loans, Lapses, Surrenders and Withdrawals...................... 39
If the Policy Is Not a Modified Endowment Contract........ 39
If the Policy Is a Modified Endowment Contract............ 39
Alternative Minimum Tax........................................ 40
Section 1035 Exchanges......................................... 40
Tax-exempt Policy Owners....................................... 40
Changes to Comply with Law..................................... 40
Other.......................................................... 40
ADDITIONAL INFORMATION ABOUT THE POLICY........................ 41
Voting Privileges.............................................. 41
Right to Change Operations..................................... 41
Reports to Owners.............................................. 42
OTHER GENERAL POLICY PROVISIONS................................ 42
Free Look Period............................................... 42
The Policy..................................................... 42
Age............................................................ 43
Ownership...................................................... 43
Beneficiary.................................................... 43
Collateral Assignment.......................................... 43
Incontestability............................................... 43
Misstatements of Age or Sex.................................... 43
Suicide........................................................ 43
Payment........................................................ 44
Notification and Claims Procedures............................. 44
Telephone Privileges........................................... 44
Non-participating.............................................. 44
Distribution of the Policies................................... 44
Settlement Provisions.......................................... 45
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES,
SURRENDER VALUES, AND ACCUMULATED PREMIUMS.................. 46
ADDITIONAL INFORMATION......................................... 54
Directors and Officers......................................... 54
State Regulation............................................... 57
Legal Matters.................................................. 57
Legal Proceedings.............................................. 57
Experts........................................................ 57
Registration Statement......................................... 57
Year 2000 Preparedness......................................... 57
FINANCIAL STATEMENTS........................................... 58
APPENDIX A..................................................... 59
APPENDIX B..................................................... 67
APPENDIX C..................................................... 68
PERFORMANCE INFORMATION........................................ 68
</TABLE>
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Strategic Advantage 5
<PAGE>
DEFINITION OF SPECIAL TERMS USED IN THIS PROSPECTUS
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.
ACCOUNT VALUE -- The total of the amounts allocated to the Divisions of the
Variable Account and to the Guaranteed Interest Division, plus any amount
set aside in the Loan Division to secure a Policy Loan.
ACCUMULATION UNIT -- A unit of measurement used to calculate the Account Value
in each Division of the Variable Account.
ACCUMULATION UNIT VALUE -- The value of an Accumulation Unit of each Division of
the Variable Account. The Accumulation Unit Value is determined as of each
Valuation Date.
ADJUSTABLE TERM INSURANCE RIDER -- The Adjustable Term Insurance Rider is
available to add death benefit coverage to the Policy. The Adjustable Term
Insurance Rider allows the Owner to schedule the pattern of death benefits
appropriate for future needs. The Adjustable Term Insurance Rider is not
guaranteed under the Guaranteed Minimum Death Benefit provision.
AGE -- The Insured's Age at any time is his or her age on the birthday nearest
the Policy Date increased by the number of full Policy years elapsed since
the Policy Date.
BASE DEATH BENEFIT -- The Base Death Benefit will vary according to which death
benefit option is chosen: Under Option 1, the Base Death Benefit equals the
Stated Death Benefit of the Policy. Under Option 2, the Base Death Benefit
equals the Stated Death Benefit of the Policy plus the Account Value.
Under Option 3, which is available only on policies delivered on or before
December 31, 1997, the Base Death Benefit equals the Stated Death Benefit
of the Policy plus the sum of all premiums paid minus Partial Withdrawals
taken under the Policy. The Base Death Benefit may be increased to
maintain compliance with the Federal income tax law definition of life
insurance.
BENEFICIARY(IES) -- The person or persons designated to receive the Death
Proceeds upon the death of the Insured.
CASH SURRENDER VALUE -- The amount of the Account Value plus any refund of sales
charges due.
CUSTOMER SERVICE CENTER -- Our administrative office: P.O. Box 173888, Denver,
CO 80217-3888.
DEATH PROCEEDS -- The amount payable upon the death of the Insured. It equals
the Base Death Benefit plus any Rider benefits, if applicable, minus any
outstanding Policy Loan and accrued loan interest, minus any Policy charges
incurred prior to the date of the insured's death, but not yet
deducted.
DELIVERY PERIOD -- The period which begins on the date the Policy is issued and
ends on the earlier of:
(a) the date the Policy was delivered as long as we receive notice of the
delivery date at our Customer Service Center before the date defined in
(b) or,
(b) the date the Policy is mailed from our Customer Service Center plus the
deemed mailing time. The deemed mailing time is five days, unless
required otherwise by the state in which the Policy is issued.
DIVISION(S) -- The Loan Division, the Guaranteed Interest Division and the
Divisions of the Variable Account which invest in shares of the
Portfolios.
FREE LOOK PERIOD -- The period of time within which the Owner may examine the
Policy and return it for a refund. This is also called the Right to
Examine Policy Period.
GENERAL ACCOUNT -- The account which contains all of our assets other than those
held in the Variable Account or our other separate accounts.
GUARANTEE PERIOD -- The period during which the Stated Death Benefit is
guaranteed under the Guaranteed Minimum Death Benefit provision. The two
available Guarantee Periods are (i) to the Insured's Age 65 or 10 years
from the Policy Date, whichever is later, or (ii) the lifetime of the
Insured. The Guarantee Period will end prior to the selected date
any time the Guarantee Period Annual Premium has not been paid or on any
Monthly Processing Date that the Net Account Value is not diversified
according to our requirements.
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Strategic Advantage 6
<PAGE>
GUARANTEE PERIOD ANNUAL PREMIUM -- The premium payment level required to
maintain the Guarantee Period.
GUARANTEED INTEREST DIVISION -- Part of our General Account to which a portion
of the Account Value may be allocated and which provides guarantees of
principal and interest.
GUARANTEED MINIMUM DEATH BENEFIT -- The optional provision in the Policy which
guarantees that the Stated Death Benefit will remain in force for the
Guarantee Period regardless of the amount of the Net Account Value,
provided certain conditions are met.
INITIAL PREMIUM -- The premium which is required to be paid and received by our
Customer Service Center for coverage to begin. Initial Premium is equal to
the scheduled modal premiums which fall due from the policy effective date
through the Investment Date.
INSURED -- The person on whose life this Policy is issued and upon whose
death the Death Proceeds are payable.
INVESTMENT DATE -- The date we allocate funds to the Policy. We will allocate
the initial Net Premium to the Policy on the next Valuation Date following
the date:
(a) we have received the Initial Premium, and
(b) we have approved the Policy for issue, and
(c) all issue requirements have been met and received in our Customer
Service Center.
LOAN DIVISION -- Part of our General Account in which funds are set aside to
secure outstanding Policy Loans and accrued loan interest when due.
MATURITY DATE -- The date the Policy matures. This is the Policy anniversary on
which the Insured's Age is 100.
MINIMUM ANNUAL PREMIUM -- The premium which must be paid during the first three
Policy years to meet the requirements of the Special Continuation
Period.
MONTHLY PROCESSING DATE -- The date each month on which deductions from the
Account Value are due. The first Monthly Processing Date will be the later
of the Policy Date or the Investment Date. Subsequent Monthly Processing
Dates will be the same date as the Policy Date unless this is not a
Valuation Date, in which case the Monthly Processing Date is the next
Valuation Date.
NASD -- National Association of Securities Dealers, Inc.
NET ACCOUNT VALUE -- The Account Value minus Policy Loans and accrued loan
interest.
NET AMOUNT AT RISK -- (For base Death Benefit) The difference between the
current Base Death Benefit and the amount of the Account Value.
NET CASH SURRENDER VALUE -- The amount available if the Policy is surrendered.
It is equal to the Cash Surrender Value minus Policy Loans and accrued loan
interest.
NET PREMIUM -- Premium amounts paid minus the sales and tax charges. These
charges are deducted from the premiums before the premium is applied to the
Account Value.
OWNER -- The individual, entity, partnership, representative or party who can
exercise all rights over and receive the benefits of the Policy during the
Insured's lifetime.
PARTIAL WITHDRAWAL -- The withdrawal of part of the Net Account Value from the
Policy. A Partial Withdrawal may reduce the amount of Base Death Benefit
and Target Death Benefit in force.
POLICY -- The basic Policy, applications and any Riders or endorsements.
POLICY DATE -- The date upon which the Policy becomes effective. The Policy
Date is used to determine the Monthly Processing Date, Policy months,
Policy years, and Policy monthly, quarterly, semi-annual and annual
anniversaries. Unless otherwise indicated, the term "Policy anniversary"
refers to the annual anniversary of the Policy.
POLICY LOAN -- The total amount borrowed from the Policy, plus any Policy Loan
interest capitalized when due, and less any Policy Loan repayments.
PORTFOLIOS -- The investment options available to the Divisions of the Variable
Account. Each Portfolio has a defined investment objective.
PREMIUM CLASS -- The underwriting class into which the Insured is categorized.
This includes smoking status of the Insured, the approach to medical
examinations we may use in issuing the Policy, as well as any substandard
ratings which may apply. The Premium
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Strategic Advantage 7
<PAGE>
Class for the Policy is listed in the Schedule.
RIDER -- A Rider adds benefits to the Policy.
SCHEDULE -- The pages contained in the Policy which include the information
specific to the Policy, such as the Insured's Age, the Policy Date, etc.
SCHEDULED PREMIUM -- The premium amount specified by the Owner on the
application as the amount intended to be paid at fixed intervals over a
specified period of time. Premiums may be paid on a monthly, quarterly,
semiannual, or annual basis. The Scheduled Premium need not be paid, and
it may be changed at any time. Also, within limits, the Owner may pay
more or less than the Scheduled Premium.
SEC -- The United States Securities and Exchange Commission.
SEGMENT -- The Stated Death Benefit on the Policy Date is the initial
Segment, or Segment 1. Each increase in the Stated Death Benefit (other
than an option change) is a new Segment. The first year for a Segment
begins on the effective date of the Segment and ends one year later. Each
subsequent year begins at the end of the prior Segment year. Each new
Segment may be subject to a new Minimum Annual Premium, new sales charge,
new cost of insurance charges, and new incontestability and suicide
exclusion periods.
SPECIAL CONTINUATION PERIOD -- A three-year period, beginning on the Policy
Date, during which payment of the Minimum Annual Premium will guarantee the
Policy against lapse.
STATED DEATH BENEFIT -- The sum of the Segments under the Policy. The Stated
Death Benefit changes when there is an increase, decrease, or when a
transaction on the Policy causes it to change.
TARGET DEATH BENEFIT -- When an Adjustable Term Insurance Rider is added to the
Policy, the Owner specifies the Target Death Benefit and Stated Death
Benefit in the Policy application; the Adjustable Term Insurance Rider
Death Benefit is the difference between the Target Death Benefit and the
Base Death Benefit. In no event will the Adjustable Term Insurance Rider
Death Benefit be less than zero. The Adjustable Term Insurance Rider
automatically adjusts over time for changes in the Base Death Benefit due
to the Federal income tax law definition of life insurance and to keep the
Target Death Benefit at the desired amount. The Target Death Benefit for
each year is shown in the Schedule when an Adjustable Term Insurance Rider
exists on the Policy.
TARGET PREMIUM --The premium on which the sales charge is calculated.
TRANSACTION DATE -- The date we receive a premium or an acceptable written or
telephone request at our Customer Service Center. If a premium or request
reaches our Customer Service Center on a day which is not a Valuation Date,
or after the close of business on a Valuation Date the Transaction Date
will be the next succeeding Valuation Date.
VALUATION DATE -- Each date as of which the net asset value of the shares of the
Portfolios and the unit values of the Divisions are determined. Valuation
Dates currently occur on each day on which the New York Stock Exchange and
Security Life's Customer Service Center are open for business or as may be
required by law, except for days that a Division's corresponding Portfolio
does not value its shares.
VALUATION PERIOD -- The period which begins at 4:00 p.m. Eastern Time on a
Valuation Date and ends at 4:00 p.m. Eastern Time on the next Valuation
Date.
VARIABLE ACCOUNT -- Security Life Separate Account L1 segregates the assets
funding the Policy from the assets in our General Account. The Variable
Account is divided into Divisions, each of which invests in shares of one
of the Portfolios.
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Strategic Advantage 8
<PAGE>
POLICY SUMMARY
THIS POLICY SUMMARY PROVIDES A BRIEF OVERVIEW OF THE POLICY. FURTHER DETAIL IS
PROVIDED IN THE POLICY AND IN THE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROSPECTUS. THE DISCUSSION IN THIS PROSPECTUS ASSUMES THAT ANY STATE
VARIATION WILL BE COVERED IN A SPECIAL PROSPECTUS SUPPLEMENT OR IN THE FORM OF
POLICY APPROVED IN THAT STATE, AS APPROPRIATE. THE TERMS UNDER WHICH THE
POLICIES ARE ISSUED MAY ALSO VARY FROM THOSE DESCRIBED IN THIS PROSPECTUS BASED
ON PARTICULAR CIRCUMSTANCES. THE DESCRIPTION OF THE POLICY IN THIS PROSPECTUS
IS SUBJECT TO THE TERMS OF THE POLICY PURCHASED BY AN OWNER OR ANY RIDER TO IT.
AN APPLICANT MAY REVIEW A COPY OF THE POLICY AND ANY RIDER ON REQUEST.
GENERAL INFORMATION
The Policy provides life insurance protection on the life of the Insured. As
long as the Policy remains in force, we will pay a death benefit when the
Insured dies. When the Policy reaches the Maturity Date during the lifetime of
the Insured, we will pay a maturity benefit in lieu of a death benefit.
Strategic Advantage is designed primarily for use on a multi-life basis where
the Insureds share common employment or a business relationship. The Policy may
be owned individually or by a corporation, trust, association or similar entity.
The Policy may be used for such purposes as informally funding non-qualified
executive deferred compensation, salary continuation plans, retiree medical
benefits, or other purposes.
DEATH BENEFITS
We will pay the Death Proceeds to the Beneficiary upon the death of the Insured
while the Policy remains in force. The Death Proceeds will be equal to the Base
Death Benefit plus any amounts payable by Rider, reduced by the amount of any
outstanding Policy Loans and any accrued loan interest. See Death Benefits,
page 20.
Normally, when we issue the Policy, the death benefit is equal to the Stated
Death Benefit plus any amount added by Adjustable Term Insurance Rider. The
death benefit at issue may vary from the Stated Death Benefit plus term coverage
for some 1035 exchanges. The minimum Stated Death Benefit for which we will
issue a Policy is $50,000; however, we may lower the minimum Stated Death
Benefit for certain group or sponsored arrangements or corporate
purchasers.
Generally, the Policy will remain in force only as long as the Net Account Value
is sufficient to pay the monthly deductions. However, if the Special
Continuation Period is in effect (during the first three policy years) and
minimum premiums have been paid as specified in the section on Lapse (see Lapse,
page 30) then the Policy and its Riders are guaranteed not to lapse, regardless
of the amount of the Net Account Value.
The Stated Death Benefit of the Policy may also remain in force after the
Special Continuation Period even if the Net Account Value is insufficient to pay
the monthly deductions if the Guaranteed Minimum Death Benefit provision is in
effect and the requirements have been met. See Guaranteed Minimum Death Benefit
Provision, page 22.
BENEFITS AT MATURITY
If the Insured is still living on the Maturity Date, we will pay the Net Account
Value. The Policy will then end. See Benefits at Maturity, page 25.
ADDITIONAL BENEFITS
A variety of additional benefits may be attached to the Policy by Rider. The
charge for these benefits is deducted monthly from the Account Value. See
Additional Benefits, page 23.
PREMIUMS
The Policy is a flexible premium policy, so the amount and frequency of the
premiums may vary, within limits. There are no required premium payments other
than those required to keep the Policy in force or payments required to maintain
certain benefits as described below.
The Initial Premium must be paid in order for us to issue the Policy. The
Minimum Annual Premium must be paid in order to meet the requirements for the
three year Special Continuation Period. If the Owner purchases one of two
Guaranteed Minimum Death Benefit provisions, the Guarantee Period Annual Premium
must be paid to maintain the Guarantee Period.
The Scheduled Premium is selected by the Owner and specified when application is
made for the Policy. The Scheduled Premium may not be sufficient to maintain
the Guarantee Period for one of the Guaranteed Minimum Death Benefit provisions
or to keep the Policy in force.
Since this is a flexible premium life insurance Policy, the amount of premiums
paid will affect the length of time the Policy will stay in force. See Premium
Payments Affect the Coverage, page 19.
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Strategic Advantage 9
<PAGE>
ALLOCATION OF NET PREMIUMS
After certain premium-based charges are deducted from each premium, the balance
(the Net Premium) is added to the Account Value based on the premium allocation
instructions. Net Premiums may be allocated to one or more Divisions of the
Variable Account, or to the Guaranteed Interest Division, or both. However,
amounts can be allocated to no more than 18 Divisions over the life of the
Policy.
On or after the Investment Date, amounts allocated to the Guaranteed Interest
Division will be allocated to that Division upon receipt. Amounts allocated to
the Divisions of the Variable Account will be held in the Division investing in
the Fidelity VIP Money Market Portfolio. At the end of the Delivery plus Free
Look Periods, the amounts allocated to the Guaranteed Interest Division will
remain in that Division; and the funds held in the Fidelity VIP Money Market
Division will be reallocated to other Divisions of the Variable Account
according to the most recent premium allocation instructions. Thereafter, Net
Premiums received will be allocated upon receipt according to the most recent
premium allocation instructions. Allocation percentages must be in whole
numbers, with the sum equaling 100%. No premium will be allocated before the
Investment Date. See Allocation of Net Premiums, page 20.
MAXIMUM NUMBER OF INVESTMENT DIVISIONS
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. See Maximum
Number of Investment Divisions, page 14.
POLICY VALUES
The Policy Account Value is equal to the sum of the amounts in the Guaranteed
Interest Division and in the Divisions of the Variable Account. It also
includes any amount we set aside in the Loan Division as collateral for any
outstanding Policy Loan. The Account Value reflects Net Premiums paid, as well
as deductions for charges. It also will reflect the investment experience of
amounts allocated to the Divisions of the Variable Account, and interest earned
on amounts allocated to the Guaranteed Interest Division and the Loan Division.
Any Partial Withdrawals and any service fees will be deducted from the Account
Value.
The Net Cash Surrender Value of the Policy is equal to the Cash Surrender Value
less the amount of any outstanding Policy Loan and accrued loan interest.
The Cash Surrender Value of the Policy is equal to the Account Value plus any
refund of sales charges due.
The Net Account Value of the Policy is equal to the Account Value less the
amount of any outstanding Policy Loan and accrued loan interest.
DETERMINING THE VALUE IN THE DIVISIONS OF THE VARIABLE ACCOUNT
The amounts included in the Divisions of the Variable Account are measured in
terms of Accumulation Units and Accumulation Unit Values. On any given day, the
value of the amount in a Division of the Variable Account is equal to the
Accumulation Unit Value times the number of Accumulation Units credited to that
Division. Each Division of the Variable Account will have different
Accumulation Unit Values. See Determining the Value of Amounts in the Divisions
of the Variable Account, page 25.
HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION
We determine Accumulation Unit Values for each Division of the Variable Account
as of each Valuation Date. All Policy transactions are effective as of a
Valuation Date. Each Accumulation Unit Value reflects the Division's investment
experience of the underlying Portfolio for the Valuation Period as well as
asset-based charges deducted in connection with the Policy and the expenses of
the Portfolio. See How We Calculate Accumulation Unit Values for Each Division,
page 26.
TRANSFERS OF ACCOUNT VALUES
After the Free Look Period, up to 12 transfers among Divisions of the Variable
Account or to the Guaranteed Interest Division may be made in each Policy year
without charge. There will be a $25 charge for each transfer after 12 in a
Policy year. Transfers resulting from Automatic Rebalancing or Dollar Cost
Averaging are not included in these 12 transfers. The minimum amount we will
transfer is $100 or the balance in the division if less than $100.
Once during the first 30 days of each Policy year, the Owner may transfer
amounts from the Guaranteed Interest Division. Transfers to the Guaranteed
Interest Division are not limited to this 30-day period. See Transfers of
Account Values, page 26.
DOLLAR COST AVERAGING
Dollar Cost Averaging is available by electing this feature at application or at
any other time by completing the appropriate form. We offer Dollar Cost
Averaging to Owners who have at least $10,000 in either of the Divisions
investing in the
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Strategic Advantage 10
<PAGE>
Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited
Maturity Bond Portfolio. There is no charge for this feature. See Dollar Cost
Averaging, page 27.
AUTOMATIC REBALANCING
Automatic Rebalancing is available by electing this feature at application or by
completing the appropriate form. Automatic Rebalancing allows the Owner to
match Account Value allocations over time to specified allocation percentages.
We will charge a fee of $25 each time the automatic rebalancing allocation is
changed in excess of five times per Policy year; otherwise, there is no charge
for this feature. See Automatic Rebalancing, page 27.
LOANS
Loans may be taken against the Policy's Account Value. Unless otherwise
required by state law, the loan must be at least $100. Loan interest accrues at
an annual rate of 3.75%. The Loan Division earns a guaranteed rate of interest
equal to 3% on an annual basis. See Policy Loans, page 28.
PARTIAL WITHDRAWALS
A Partial Withdrawal of Net Account Value may be requested any time after the
first Policy year, within limits. One Partial Withdrawal is allowed each Policy
year. See Partial Withdrawals, page 29.
SURRENDER
The Policy may be surrendered for its Net Cash Surrender Value at any time while
the Insured is living. The Net Cash Surrender Value of the Policy equals the
Cash Surrender Value minus any Policy Loan amounts and accrued loan interest.
We will compute the Net Cash Surrender Value as of the Valuation Date we receive
the request for surrender and the Policy at our Customer Service Center. All
insurance coverage will end on that date. See Surrender, page 29.
RIGHT TO EXCHANGE POLICY
At any time during the first 24 months following the Policy Date, the Owner may
exercise the right to exchange the Policy from one in which the Account Value is
not guaranteed into a guaranteed Policy unless required differently by state
law. See Right to Exchange Policy, page 30.
LAPSE
Insurance coverage will continue as long as the Net Account Value of the Policy
is sufficient to pay all deductions that are taken out of the Account Value each
month.
In addition, during the first three Policy years if the conditions of the
Special Continuation Period have been met, the Policy and all attached Riders
are guaranteed not to lapse, regardless of the Net Account Value.
If a Guaranteed Minimum Death Benefit provision has been elected and the
requirements to maintain the Guarantee Period have been met, the Stated Death
Benefit portion of the Policy will remain in effect after the Special
Continuation Period regardless of the amount of the Net Account Value. However,
if the requirements to maintain the Guarantee Period have not been met, the
Guaranteed Minimum Death Benefit provision will lapse. See Lapse, page 30.
REINSTATEMENT
A lapsed Policy and its Riders may be reinstated within five years of its lapse
if it has not been surrendered and the insured is still living. New evidence of
insurability and payment of certain reinstatement premiums will be required.
The Guaranteed Minimum Death Benefit provision cannot be reinstated after the
Policy has lapsed. We also will reinstate any Policy Loan which existed when
coverage ended, with accrued loan interest to the date of lapse. See
Reinstatement, page 31.
CHARGES AND DEDUCTIONS
Deductions from Premiums: The following charges are deducted from each premium
before it is applied to the Account Value:
(i) Tax Charges-- A charge currently equal to 2.5% of premiums is deducted
for state and local premium taxes. A charge currently equal to 1.5% of
each premium is deducted to cover our estimated cost of the Federal
income tax treatment of deferred acquisition costs. We reserve the right
to increase or decrease the premium expense charges for taxes due to any
change in tax law. We further reserve the right to increase or decrease
the premium expense charge for the Federal deferred acquisition cost due
to any change in the cost to us.
(ii) Sales Charge -- A charge equal to a percentage of each premium is
deducted to cover a portion of our expenses in issuing this Policy. It is
based on the amount of premium paid and the number of years since the
Policy Date or the date of an increase in coverage. For each of the first
five Policy years, this charge is equal to 8% of premiums paid up to
the
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Strategic Advantage 11
<PAGE>
Target Premium and 3% of premiums paid in excess of the Target Premium.
In the sixth Policy year and thereafter, the sales charge is equal to
3% of all premiums paid.
See Deductions from Premiums, page 31.
Deductions from the Variable Account: A mortality and expense risk charge is
assessed against the Divisions of the Variable Account in the amount of 0.75%
per annum (0.002055% per day). We assess this charge to compensate us for
mortality and expense risks under the Policies. See Daily Deductions from the
Variable Account, page 32.
Monthly Deductions from the Account Value: The following charges are deducted
from the Account Value at the beginning of each Policy month:
(i) Initial Policy Charge -- $10 per month for the first five Policy years.
(ii) Monthly Administrative Charge -- $5 per month plus $0.0125 per thousand
of Stated Death Benefit (or Target Death Benefit if greater). The per
thousand charge is limited to $15 per month.
(iii) Cost of Insurance Charge -- A monthly charge based on the Net Amount at
Risk on the life of the Insured. The amount of this charge differs for
Base Death Benefit, any Adjustable Term Insurance Rider, and multiple
Segments.
(iv) Charges for Additional Benefits -- The cost of any additional benefits
added by Rider, other than the Adjustable Term Insurance Rider.
(v) Guaranteed Minimum Death Benefit Charge -- currently $0.005 per
thousand of the Stated Death Benefit during the Guarantee Period. This
charge is guaranteed to never be greater than $.01 per thousand of the
Stated Death Benefit.
See Monthly Deductions from the Account Value, page 32.
Policy Transaction Fees: Policy Transaction Fees are deducted from the
Divisions of the Variable Account and Guaranteed Interest Division in the same
proportion that the Account Value in each Division bears to the Net Account
Value immediately after the transaction for which the charge is made.
(i) Partial Withdrawal fee -- the lesser of $25 or 2% of the amount
requested.
(ii) Transfer fee -- 12 transfers per Policy year are permitted without
fees; for each transfer thereafter, a $25 fee is charged.
(iii) Allocation Changes -- five premium and five automatic rebalancing
allocation changes are permitted each Policy year without fees; for
each change thereafter, a $25 fee is charged.
(iv) Illustrations -- one illustration per Policy year is available without
a fee; for each illustration thereafter, a $25 fee may be charged.
See Policy Transaction Fees, page 33.
Charges from Portfolios: Shares of the Portfolios are purchased at net asset
value, which reflects investment management and other direct expenses that have
already been deducted from the assets of the Portfolio. See Charges from
Portfolios, page 34.
PERSISTENCY REFUND
The Account Value will be credited with a Persistency Refund each Monthly
Processing Date after the tenth Policy anniversary. See Persistency Refund,
page 34.
REFUND OF SALES CHARGES
If the Policy has not lapsed, we will, upon full surrender of the Policy within
the first two Policy years, return a portion of the sales charges previously
deducted from premiums paid in the first policy year. See Refund of Sales
Charges, page 34.
TAX CONSIDERATIONS
Under current Federal income tax law, death benefits of life insurance policies
generally are not subject to income tax. In order for this treatment to apply,
the Policy must qualify as a life insurance contract. The tax code provides for
two tests to qualify a Policy as a life insurance contract. The Owner
irrevocably selects which of these tests will apply to the Policy in the
application. After the Policy Date, the Policy will reflect the test chosen.
See Life Insurance Definition, page 37.
Generally, under current Federal income tax law, Account Value earnings are not
subject to income tax as long as they remain within the Policy. Loans, partial
withdrawals, surrender, lapse, or an exchange of Insured may result in
recognition of ordinary income for tax purposes and may result in penalties if
the Policy is considered a Modified Endowment Contract as explained in Modified
Endowment Contracts, page 19.
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Strategic Advantage 12
<PAGE>
INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS
AND THE GUARANTEED INTEREST DIVISION
SECURITY LIFE OF DENVER INSURANCE COMPANY
Security Life of Denver Insurance Company ("Security Life") is a stock life
insurance company organized under the laws of the State of Colorado in 1929.
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 $XXX billion of life insurance in force. Our total assets
exceeded $XX billion and our shareholder's equity exceeded $XXX 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
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 has consolidated assets
exceeding $XXX billion on a Dutch (modified U.S.) generally accepted accounting
principles basis as of December 31, 1997.
The principal underwriter and distributor for the Policies 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.
SECURITY LIFE SEPARATE ACCOUNT L1
Security Life Separate Account L1 (the "Variable Account") was established on
November 3, 1993, under the Insurance Law of the State of Colorado. It is a
unit investment trust registered with the SEC under the Investment Company Act
of 1940. Such registration does not involve any supervision by the SEC of the
management of the Variable Account or Security Life.
The Variable Account is a separate investment account of Security Life used to
support our variable life insurance policies and for other purposes as permitted
by applicable laws and regulations. The assets of the Variable Account are kept
separate from our General Account and any other separate accounts we may have.
We may offer other variable life insurance contracts that will invest in the
Variable Account which are not discussed in this prospectus. The Variable
Account may also invest in other securities which are not available to the
Policy 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. In accordance with and under the
provisions of Section 10-3-501(2) of the Colorado Revised Statutes, that portion
of the assets of the Variable Account which is equal to the reserves and other
Policy liabilities with respect to the Variable Account is not chargeable with
liabilities arising out of any other business we conduct. This means that, in
the event Security Life were ever to become insolvent, the assets of the
Variable Account are to be used first to pay Variable Account Policy claims.
Only if assets remain in the Variable Account after those claims have been
satisfied can those assets be used to pay other Policy Owners and creditors of
Security Life.
The Variable Account, however, may be subject to liabilities arising from
Divisions of the Variable Account whose assets are attributable to other
variable life Policies offered by the Variable Account. If the assets exceed
the required reserves and other Policy liabilities, we may transfer the excess
to our General Account. If the assets in the Variable Account are insufficient
to satisfy Variable Account Policy Owner claims, Section 10-3-541 provides that
under certain circumstances the amount of those claims which is not satisfied is
to be treated as Policy Owner claims against the general account assets of the
insurance company.
The Variable Account has several Divisions, each of which invests in shares of a
corresponding Portfolio of a mutual fund. Therefore, the investment experience
of a Policy depends on the experience of the Portfolios designated. 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 may be available
to certain pension accounts. They are not available directly to individual
investors.
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Strategic Advantage 13
<PAGE>
Each of the Portfolios is a separate series of an open-end management investment
company which receives investment advice from a registered investment adviser
not otherwise affiliated with Security Life. The Neuberger & Berman Advisers
Management Trust has organized its Portfolio to 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.
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." They may also sell shares to separate accounts to
serve as the underlying investment for both variable annuity and variable life
insurance contracts, known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners
of Policies in which Account Values are allocated to the Variable Account and of
Owners of Policies in which account 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.
MAXIMUM NUMBER OF INVESTMENT DIVISIONS
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division, but exclude the Loan Division. For example, if the Owner has
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 the Owner can subsequently allocate or
transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the
early years of the Policy so as to leave open the option to transfer to 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.
For Policies issued before December 31, 1997, Owners may access a one-time
opportunity to eliminate the policy investment history (for purposes of the 18-
Fund limitation only); thus increasing their future investment options.
However, this procedure may require restricted investment options for a short
period of time and such policies may experience some servicing delays as a
result of the removal of Policy history from the current administrative
system.
INVESTMENT OBJECTIVES OF THE PORTFOLIOS
Each Portfolio has a different investment objective that it tries to achieve by
following its investment strategy. The objectives and policies of each
Portfolio will affect its return and its risks. A summary of the investment
objectives is contained in the description of each Portfolio below. More
detailed information may be found in the current prospectus for each
Portfolio which must accompany this prospectus and should be read in conjunction
with it.
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.L.C. 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.
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
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Strategic Advantage 14
<PAGE>
portfolio is managed using a growth-oriented investment approach. A growth-
oriented approach seeks stocks of companies that are projected to grow at
above-average rates.
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 the company's track
record through all points of the market cycle. 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 or comparable unrated securities.
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 June 30, 1997, the range of market capitalization of the
companies in the Russell Index was $13 million to $1.56 billion; the range of
market capitalization of the companies in the S&P Index at that date was $35
million to $3.025 billion. The combined range was $13 million to $3.025
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 June 30, 1997, the range of market capitalization of these
companies was $100 million to $9.149 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.
It may enter into futures contracts on securities indexes as well as purchase
and sell call and put options on these futures. The Portfolio may borrow
money for the purchase of additional securities, but only from banks. It 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, with the exception of the VIP
II Index 500 Portfolio which is sub-advised by BankersTrust Company. 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
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Strategic Advantage 15
<PAGE>
with reduced risk over the long term by allocating its assets among domestic
and foreign stocks, bonds, and short term, fixed-income 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 option.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. is a registered, open-end management
investment company that was organized as a Maryland corporation on August 19,
1993, and is currently comprised of the five 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 Fund's daily business affairs. INVESCO
Distributors, Inc. ("IDI") provides distribution services for the INVESCO
Variable Investment Funds, Inc. 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 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.
INVESCO VIF Small Company Growth Fund -- seeks long term capital growth
through the investment of 65% or more of its total assets in equity securities
of companies with market capitalization of $1 billion or less at the time of
purchase ("small-cap companies"). The balance of the Fund's assets may be
invested in the equity securities of companies with market capitalizations in
excess of $1 billion, debt securities and short-term investments.
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, Worldwide Real
Estate Fund, Worldwide Emerging Markets Fund, and Worldwide Bond Fund.
Van Eck Worldwide Hard Assets 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 Real Estate Fund -- seeks to maximize total return by
investing primarily in equity securities of domestic and foreign companies
which are principally engaged in the real estate industry or which own
significant real estate assets.
Van Eck Worldwide Bond Fund -- seeks high total return through a flexible
policy of investing globally, primarily in debt securities.
Van Eck Worldwide Emerging Markets Fund -- seeks long term capital
appreciation by investing primarily in equity securities in emerging markets
around the world. Peregrine Asset Management (Hong Kong) Limited
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Strategic Advantage 16
<PAGE>
serves as sub-investment adviser to this Fund.
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 Capital Appreciation Portfolio -- seeks to provide capital appreciation
through investments in common stocks, with emphasis on medium-sized and
smaller emerging growth companies. AIM will be particularly interested in
companies that are likely to benefit from new or innovative products, services
or processes that should enhance such companies' prospects for future growth
in earnings.
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.
THE GUARANTEED INTEREST DIVISION
All or a portion of Net Premiums and transfers of Net Account Value may be made
to the Guaranteed Interest Division. The Guaranteed Interest Division is part
of our General Account and pays interest at a declared rate. 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,
the General Account, the Guaranteed Interest Division, and any interests therein
are not generally subject to regulation under these Acts. As a result, the
staff of the SEC has not reviewed the disclosures 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 law relating to the accuracy and completeness of statements made in
this prospectus. For more details regarding the General Account, see the
Policy.
The amount in the Guaranteed Interest Division at any time is the sum of all Net
Premiums allocated to that Division, all transfers to the Guaranteed Interest
Division and earned interest. This amount is reduced by amounts transferred out
of or withdrawn from the Guaranteed Interest Division and deductions from your
Account Value allocated to the Guaranteed Interest Division.
Amounts may be accumulated in the Guaranteed Interest Division by: (i)
allocating Net Premiums, (ii) transferring amounts from the Divisions of the
Variable Account, (iii) earning interest on amounts in the Guaranteed Interest
Division, and (iv) repaying a Policy Loan to release amounts from the Loan
Division.
From time to time, we declare the interest rate that will apply to all amounts
in the Guaranteed Interest Division. These interest rates will never be less
than the minimum guaranteed interest rate of 3% and will be in effect for at
least 12 months. The interest is credited as of each Valuation Date on the
amount 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.
DETAILED INFORMATION ABOUT THE STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
POLICY
This prospectus describes our standard Strategic Advantage Variable Universal
Life Policy. There may be differences in the Policy because of state
requirements where the Policy is issued. Any such differences will be defined
in the Policy.
The illustrations beginning on page are intended to provide an idea of how the
key financial elements of Strategic Advantage work. The illustrations show
Premiums, Account Values, Cash Surrender Values and Death Benefits.
APPLYING FOR A POLICY
A Strategic Advantage Policy may be purchased by submitting an application to
us. On the Policy Date, the Insured must be no older than Age 85. Before
issuing a Policy or applying Net Premium to the Variable Account or the
Guaranteed Interest Division, we require satisfactory evidence of insurability.
This evidence may include a medical examination, completion of all underwriting
requirements, and satisfaction of issue requirements.
The Policy Date is the date upon which the Policy is effective. The Policy Date
is used to determine Policy years and Policy months regardless of when the
Policy is delivered. In the case
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Strategic Advantage 17
<PAGE>
of certain payroll deduction plans or other automatic investment plans, the
Policy Date may be different from the date the first premium payment is
received. If the Policy Date is prior to the Investment Date, we will charge
monthly deductions from the Policy Date.
The Investment Date is the date we allocate funds to the Policy. We will
allocate the initial Net Premium to the Policy on the next Valuation Date
following the date: (i) we receive the Initial Premium; and (ii) we approve the
Policy for issue; and (iii) all issue requirements have been met and received in
our Customer Service Center.
The Policy is generally available with a minimum Stated Death Benefit of
$50,000; however, we may reduce this amount for certain group or sponsored
arrangements if the average Stated Death Benefit at issuance for the group or
sponsored arrangement is at least $50,000. The maximum Stated Death Benefit
will be limited by our underwriting and reinsurance procedures in effect at the
time of application.
TEMPORARY INSURANCE
If a premium payment in an amount not less than the Scheduled Premium is
received with the application and there has been no material misrepresentation
in the application, temporary insurance equal to the applied-for face amount up
to a maximum amount as described in the binding limited life insurance coverage
form will be in force. Coverage will begin when the binding limited life
insurance coverage form has been completed and signed, a premium has been
accepted by us, and Part I of the application has been completed. Binding
limited life insurance coverage will end on the earliest of the date: (i)
premiums are returned; (ii) five days after notice of termination is mailed to
the Owner's address on the application; (iii) coverage starts under the Policy
resulting from the application; (iv) a Policy resulting from the application is
refused by us; or (v) 90 days after the date the binding limited life insurance
coverage form is signed.
In no event will a death benefit be provided under the temporary insurance
agreement if there was a material misrepresentation in the answers in the
binding limited life insurance coverage form or in the application, a proposed
Insured dies by suicide or intentional self-inflicted injury, or the premium
check is not honored.
PREMIUMS
The amount and frequency of premium payments are flexible, within the limits
described below.
SCHEDULED PREMIUMS
Even though premium amounts are flexible, the Schedule pages of the Policy will
show a "Scheduled Premium." The Scheduled Premium may be chosen by the Owner,
within our limits, when application for the Policy is made. The Scheduled
Premium is the amount which is to be paid over a specified period of time and
may not be sufficient to keep the Policy in force. The Owner may receive premium
reminder notices for the Scheduled Premium on a quarterly, semiannual, or annual
basis.
Alternatively, the premiums, other than the first one, may be paid via
Electronic Funds Transfer each month. The financial institution making the
Electronic Funds Transfer may impose a charge for this service.
The Owner is not required to pay the Scheduled Premium, and it may be changed at
any time subject to the minimum and maximum limits we set. If one of the
Guaranteed Minimum Death Benefit provisions has been chosen, the Scheduled
Premium should not be less than the amount required to maintain the Guarantee
Period.
UNSCHEDULED PREMIUM PAYMENTS
Generally, unscheduled premium payments may be made at any time. We reserve the
right to limit the amount of unscheduled premiums if the payment would result in
an increase in the amount of the Base Death Benefit required by the Federal
income tax law definition of life insurance, or to require suitable evidence of
the insurability of the Insured at the time of the unscheduled premium payment.
Evidence of insurability may also be required if the net amount at risk is
increased as a result of an unscheduled premium payment. Premiums may also be
limited if the Guideline Premium/Cash Value Corridor Test is chosen to comply
with the Federal income tax law definition of life insurance. We will return
premium payments which exceed the "seven-pay" limit for the Policy if we
determine the payment would cause the Policy to immediately become a Modified
Endowment Contract. After the Owner has signed a form acknowledging that the
Owner understands the Policy will be a Modified Endowment Contract, we will
accept the excess premium payments. See Modified Endowment Contracts, page and
Changes to Comply with Law, page 40.
If a Policy Loan is outstanding, any payment which is not a Scheduled Premium
payment received before the Maturity Date is considered a loan repayment, unless
otherwise indicated. Applicable tax and sales charges which are taken from any
premium payment are not deducted from a loan repayment.
MINIMUM ANNUAL PREMIUM
The Minimum Annual Premium must be paid during the first
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Strategic Advantage 18
<PAGE>
three Policy years to meet the requirements for the three year Special
Continuation Period. We determine the Minimum Annual Premium based on the Age,
sex and Premium Class of the Insured, the Stated Death Benefit of the Policy,
and any additional benefits selected. We may reduce the Minimum Annual Premium
for certain group or sponsored arrangements. The Minimum Annual Premium is shown
in the Schedule pages of the Policy.
SPECIAL CONTINUATION PERIOD
The Policy is guaranteed not to lapse, regardless of its Net Account Value if,
on each Monthly Processing Date during the first three Policy years, all
premiums paid, less the sum of Partial Withdrawals and Policy Loans taken,
including accrued loan interest, is greater than or equal to the sum of the
applicable minimum monthly premiums for each Policy month starting with the
first Policy month through and including the Policy month which begins on the
current Monthly Processing Date. The minimum monthly premium is equal to one
twelfth of the Minimum Annual Premium. See Lapse, page 30.
If during the first three Policy years, any charges are not deducted so as to
keep the policy from lapsing under the Special Continuation Period, these
charges are not permanently waived. At the end of the special continuation
period, the aggregate amount of the charges previously not deducted will be due
and deducted at the beginning of Policy year four.
PREMIUM PAYMENTS AFFECT THE COVERAGE
If premium payments are discontinued, either temporarily or permanently, the
Policy will continue in effect until the Net Account Value can no longer cover
the monthly deductions for the benefits selected. At that time, the Policy will
lapse. See Lapse, page 30. If the Minimum Annual Premium requirements are
satisfied, the Policy is guaranteed not to lapse during the first three Policy
years, regardless of its Net Account Value. See Special Continuation Period,
page 19. If one of the Guaranteed Minimum Death Benefit provisions has been
elected, the Stated Death Benefit portion of the Policy will remain in effect
until the end of the Guarantee Period as long as the conditions of the guarantee
are met. See Guaranteed Minimum Death Benefit Provision, page 22.
CHOICE OF DEFINITIONAL TESTS
When applying for the Policy, the Owner will irrevocably choose which of the two
tests for compliance with the Federal income tax law definition of life
insurance will apply to the Policy. These tests are the Cash Value Accumulation
Test and the Guideline Premium/Cash Value Corridor Test. See Life Insurance
Definition, page 37. If the Guideline Premium/Cash Value Corridor Test is
chosen, the allowable premium payments relative to the Policy death benefit will
be limited.
CHOICE OF GUARANTEED MINIMUM DEATH BENEFIT PROVISIONS
The Owner will also have the opportunity to choose from one of two Guaranteed
Minimum Death Benefit provisions, which may extend the period that the Stated
Death Benefit of the Policy will remain in effect if the Divisions of the
Variable Account suffer adverse investment experience. These provisions require
premium payment levels (the Guarantee Period Annual Premium) which are higher
than the Minimum Annual Premium and an extra charge will be deducted from the
Account Value each month during the Guarantee Period. In addition, the Net
Account Value of the Policy must remain diversified according to our
requirements. See Guaranteed Minimum Death Benefit Provision, page 22.
The Guarantee Period Annual Premium depends on which of the two Guarantee
Periods is chosen, as well as the Stated Death Benefit of the Policy, the
Insured's Age, sex, and Premium Class, the death benefit option chosen, and
Rider coverage. For Policies with no other Rider coverage, the Guarantee Period
Annual Premium for the Lifetime Guarantee Period will be equal to the guideline
annual premium determined in accordance with the Federal income tax law
definition of life insurance. The Guarantee Period Annual Premium for the Ten
Year/Age 65 Guarantee Period will be less than the guideline annual premium.
Adding additional benefits to the Policy will increase the Guarantee Period
Annual Premium above those indicated above.
Policy Owners should consider the Guaranteed Minimum Death Benefit provision
when setting the Scheduled Premium.
MODIFIED ENDOWMENT CONTRACTS
Federal income tax law provides special rules for the income taxation of
distributions from life insurance policies which are defined as "Modified
Endowment Contracts." These rules apply to distributions such as Policy Loans,
surrenders and Partial Withdrawals. The application of these rules depends upon
whether premiums have been paid which exceed a defined "seven-pay" limit. See
Modified Endowment Contracts, page 38.
If we determine that the Scheduled Premium will cause the Policy to be a
Modified Endowment Contract on the Policy Date, we will issue the Policy based
on the Scheduled Premium selected, but we will require the Owner to sign a
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Strategic Advantage 19
<PAGE>
form acknowledging that the Policy is a Modified Endowment Contract.
Alternatively, the Scheduled Premium may be reduced to a level which will not
cause the Policy to become a Modified Endowment Contract, and we will issue the
Policy based on the revised Scheduled Premium.
ALLOCATION OF NET PREMIUMS
The balance after certain premium-based charges are deducted from each premium
is called the Net Premium. The Net Premium is added to the Account Value
according to the Owner's instructions. Net Premium amounts allocated to the
Guaranteed Interest Division will be allocated to that Division upon receipt.
During the Delivery and Free Look Periods, Net Premiums allocated to the
Divisions of the Variable Account will be allocated to the Division investing in
the Fidelity VIP Money Market Portfolio. At the end of the Delivery and Free
Look Periods, this portion of the Account Value will automatically be allocated
according to the most recent premium allocation instructions.
Thereafter, Net Premiums received will be allocated upon receipt according to
the most recent instructions. Allocation percentages must be in whole numbers,
with the sum for all Divisions equaling 100%. Premium allocation instructions
may be changed up to five times per Policy year without charge. More than five
Premium allocation changes in a Policy year will be subject to a $25 charge for
each additional change.
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division, but exclude the Loan Division. For example, if the Owner has
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 the Owner can subsequently allocate or
transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the
early years of the Policy 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.
DEATH BENEFITS
Strategic Advantage offers the flexibility to determine the amount of insurance
coverage needed, both now and in the future. It does this by combining the
long-term advantages of permanent life insurance coverage with the flexibility
and short-term advantages of term life insurance. Both permanent and term life
insurance are available in this single Policy, Strategic Advantage.
When a Policy is issued, an initial amount of insurance coverage is determined
according to the application instructions. The death benefit initially consists
of a Stated Death Benefit and, if desired, an additional amount of insurance
coverage which is added by Adjustable Term Insurance Rider. The Stated Death
Benefit is the long-term element of the Policy; the Adjustable Term Insurance
Rider is the term insurance element of the Policy.
The Adjustable Term Insurance Rider provides term insurance coverage which
adjusts automatically to fill the difference between the Target Death Benefit
chosen and the Base Death Benefit. The Adjustable Term Insurance Rider does not
have an externally defined premium and thus no sales charge applies. The cost
is included in the monthly cost of insurance charges discussed below. See
Adjustable Term Insurance Rider, page 24.
As described below, the Base Death Benefit may vary from the Stated Death
Benefit. This may result from choice of death benefit option, increases to
comply with the Federal income tax law definition of life insurance, changes in
the death benefit option, partial withdrawals, requested increases and
decreases, or when a transaction on the Policy causes the Base Death Benefit to
change.
As long as the Policy remains in force, we will pay an amount equal to the Death
Proceeds to the Beneficiary of this Policy when the Insured dies. The Death
Proceeds will consist of the Base Death Benefit as of the date of the Insured's
death, reduced by any outstanding Policy Loan and accrued loan interest (and, if
in the grace period or three year Special Continuation Period, further reduced
by any unpaid charges incurred prior to the date of the Insured's death). The
Death Proceeds will include any amount provided by Rider on the Insured.
DEATH BENEFIT OPTIONS
The Owner may choose from three death benefit options if the Policy was
delivered on or before December 31, 1997, or two death benefit options (Option 1
or Option 2) if delivered thereafter. These options may result in a Base Death
Benefit under the Policy which exceeds the Stated Death Benefit. The death
benefit option may be changed on any Policy anniversary. See Changes In Death
Benefit Option, page 21.
Under Option 1, the Base Death Benefit is the greater of:
(a) the Stated Death Benefit on the date of the Insured's death; or
(b) the Account Value on the date of the Insured's death
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Strategic Advantage 20
<PAGE>
multiplied by the appropriate factor from the Definition of Life Insurance
Factors shown in Appendix A or B.
Under Option 2, the Base Death Benefit is the greater of:
(a) the Stated Death Benefit plus the Account Value on the date of the
Insured's death; or
(b) the Account Value on the date of the Insured's death multiplied by the
appropriate factor from the Definition of Life Insurance Factors shown in
Appendix A or B.
Owners who prefer to have insurance coverage that does not vary in amount, and
lower cost of insurance charges, should choose Option 1. Owners who prefer to
have any favorable investment experience reflected in increased insurance
coverage should choose Option 2.
If the policy was delivered on or before December 31, 1997, the Owner may choose
Option 3.
Under Option 3, the Base Death Benefit is the greater of:
(a) the Stated Death Benefit of the Policy plus the sum of all premiums paid
minus the Partial Withdrawals taken under the Policy; or
(b) the Account Value on the date of the insured's death multiplied by the
appropriate factor from the Definition of Life Insurance Factors shown in
Appendix A or B.
Therefore, the Base Death Benefit generally will increase as premiums are paid
and decrease as Partial Withdrawals are taken. In no event will the Base Death
Benefit be less than the Stated Death Benefit.
Federal income tax law requires the death benefit to be at least as great as the
Account Value times a factor which is defined in the law. The factors are
determined based upon the Insured's Age and possibly Premium Class and sex at
any point in time as well as by the test for compliance selected in the original
Policy application. See Life Insurance Definition, page 37.
If necessary, we will adjust the Policy to continue to qualify as life insurance
under the applicable provisions of the Federal income tax laws in existence at
the time the Policy was issued.
CHANGES IN DEATH BENEFIT OPTION
A change in death benefit option may be requested at least 30 days prior to a
Policy anniversary. The change will be effective as of the Policy anniversary on
or following the date we approve the request. After the request is approved, we
will send a new policy Schedule page which should be attached to the Policy. We
may ask that the Policy be returned to our Customer Service Center so that we
can note the change in the Schedule. The death benefit option change applies to
the entire Stated Death Benefit.
We may not allow a change that would reduce the Stated Death Benefit below the
minimum we require to issue this Policy. After the effective date of the
change, the Stated Death Benefit will be changed according to the following
table:
Changes which involve Option 3 are available on policies delivered on or
before December 31, 1997. The death benefit option change applies to the
entire Stated Death Benefit. For us to approve a change in the death benefit
option from Option 1 to Option 2, or from Option 1 to Option 3, evidence that
the Insured is insurable according to our normal rules of underwriting for
that class of policy must be submitted to us.
OPTION CHANGE STATED DEATH BENEFIT
FROM TO FOLLOWING CHANGE EQUALS:
Option 1 Option 2 Stated Death Benefit prior to change minus the Account
Value as of the effective date of the change.
Option 2 Option 1 Stated Death Benefit prior to change plus the Account
Value as of the effective date of the change.
Option 1 Option 3 Stated Death Benefit prior to change minus (i) the sum
of the premiums paid, plus (ii) Partial Withdrawals
taken as of the effective date of the change.
Option 3 Option 1 Stated Death Benefit prior to change plus (i) the sum
of the premiums paid, minus (ii) Partial Withdrawals
taken as of the effective date of the change.
Option 2 Option 3 Stated Death Benefit prior to change plus (i) the
Account Value as of the effective date of the change,
minus (ii) the sum of the premiums paid minus Partial
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Strategic Advantage 21
<PAGE>
Withdrawals taken as of the effective date of the
change.
Option 3 Option 2 Stated Death Benefit prior to change plus (i) the sum
of the premiums paid minus Partial Withdrawals taken as
of the effective date of the change, minus (ii) the
Account Value as of the effective date of the change.
For purposes of a death benefit option change, the Account Value will be
allocated to each Segment in the same proportion that the Segment bears to the
Stated Death Benefit. See Changes in Death Benefit Amounts, page 22.
We do not adjust the Target Premium when this type of change is made. See Sales
Charges, page 31. These increases and decreases in Stated Death Benefit are made
so that the amount of the Base Death Benefit remains the same on the date of the
change. When the Base Death Benefit remains the same, there is no immediate
change in the Net Amount at Risk, which is the amount on which our cost of
insurance charges are based. See Cost of Insurance Charges, page 32. In
addition, there will be no change to the amount of term insurance if an
Adjustable Term Insurance Rider has been added.
CHANGES IN DEATH BENEFIT AMOUNTS
While the Policy is in force, its Target or Stated Death Benefit may be
increased prior to the Policy anniversary on which the Insured is Age 86. The
Stated Death Benefit may be decreased if the request occurs after the first
Policy anniversary.
An increase or a decrease in the death benefit of the Policy may be requested
by the Owner. This request will be effective as of the next monthly processing
date which is at least five days after the request is received by our Customer
Service Center unless there are underwriting or other requirements. Any change
in coverage may not be for an amount less than $1,000.
After the request is approved, we will send a new Schedule which will include
the Stated Death Benefit, the benefit under any Riders, if applicable, the
guaranteed cost of insurance rates, and the new guideline annual premium. This
notice should be attached to the Policy. We may ask that the Policy be returned
to our Customer Service Center so that we can note the change in the
Schedule.
In some cases, we may not approve a requested change because it would disqualify
the Policy as life insurance under applicable Federal income tax law. If we do
not approve a change, we will provide notification of our decision about making
the change. See Tax Considerations, page 37.
Decreases in the death benefit generally may not decrease the Stated Death
Benefit below the minimum we require to issue this Policy. There may be tax
consequences to the decrease. See Life Insurance Definition, page 37, and
Modified Endowment Contracts, page 38.
Requested reductions in the death benefit or an option change that causes a
reduction will first be applied to reduce the Target Death Benefit. The Stated
Death Benefit will be decreased only after Adjustable Term Insurance Rider
coverage has been reduced to zero. If more than one Segment exists, any
subsequent reduction in Stated Death Benefit will be allocated among Segments in
the same proportion each segment bears to the total Stated Death Benefit prior
to the reduction unless required differently by state law.
Satisfactory evidence that the Insured is still insurable must be provided when
the death benefit is increased.
Unless otherwise indicated, any request for an increase to the Target Death
Benefit will be assumed to also be a request for an increase to the Stated Death
Benefit so that the amount of the Adjustable Term Insurance Rider, if it is
included with the Policy at the time of the increase, will not change. The
Target Death Benefit may be changed only once each year.
A requested increase in the Stated Death Benefit will create a new Segment.
Increases in Stated Death Benefit resulting from death benefit option changes do
not create new Segments, rather, they merely increase the size of the existing
Segment(s). As discussed below, once created, a new Segment can never be
eliminated unless required differently by state law.
If an increase creates a new Segment, premiums paid after the increase will be
allocated to the original and new Segments in the same proportion that the
guideline annual premiums defined by the Federal income tax laws for each
Segment bear to the sum of the guideline annual premiums for all Segments. The
guideline annual premiums will be shown in the Schedule for each coverage
segment. Net Amount at Risk will be allocated to each Segment in the same
proportion that the Segment bears to the total stated Death Benefit.
GUARANTEED MINIMUM DEATH BENEFIT PROVISION
Generally, the length of time the Policy remains in force depends on the Net
Account Value of the Policy. Because the charges that maintain the Policy are
deducted monthly from the Account Value, coverage will last as long as the Net
Account Value is sufficient to pay these charges. The investment experience of
amounts in the Divisions of the
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Strategic Advantage 22
<PAGE>
Variable Account and the interest earned in the Guaranteed Interest Division
will affect the Account Value and, as a result, the length of time the Policy
remains in force without the payment of additional premiums.
When applying for the Policy, one of two Guaranteed Minimum Death Benefit
provisions may be chosen, which may extend the period that the Policy's Stated
Death Benefit will remain in effect if the Divisions of the Variable Account
suffer adverse investment experience. The two options vary primarily by the
length of time which they cover, the Guarantee Period. The first option has a
Guarantee Period of ten Policy years or to the Insured's Age 65, whichever is
later. It protects the Stated Death Benefit of the Policy for a limited number
of Policy years. The second option has a Lifetime Guarantee Period. It
protects the Insured's Stated Death Benefit for the earlier of as long as the
Policy is in force or until the Maturity Date. See Choice of Guaranteed Minimum
Death Benefit Provisions, page 19.
However, the Guaranteed Minimum Death Benefit provision does not apply to the
Adjustable Term Insurance Rider or to any other Riders. Therefore, if the Net
Account Value is insufficient to pay all of the deductions as they come due,
only the Stated Death Benefit portion of the Policy will be guaranteed to stay
in force, any attached Riders will lapse. See Lapse, page 30.
The Guaranteed Minimum Death Benefit provision is not available in some
states.
REQUIREMENTS TO MAINTAIN THE GUARANTEE PERIOD
The Guaranteed Minimum Death Benefit provision requires a premium payment level,
the Guarantee Period Annual Premium, that is higher than the Minimum Annual
Premium. The Guarantee Period Annual Premium will be listed in the Schedule of
the Policy. If the Policy benefits are increased, the Guarantee Period Annual
Premium will also be increased. The Guarantee Period Monthly Premium is one
twelfth of the Guarantee Period Annual Premium.
Although the required Guarantee Period Annual Premium level is different for the
two Guarantee Periods, the mechanics of the Guaranteed Minimum Death Benefit
provision is similar. As of each Monthly Processing Date we will perform a test
to see if sufficient premiums have been paid to keep the guarantee in place. If
(i) the actual premiums paid, minus the amount of any Partial Withdrawals and
any Policy Loan and accrued loan interest, equals or exceeds (ii) the sum of
the Guarantee Period Monthly Premiums for each Policy Month starting with the
first Policy Month to and including the Policy Month that begins on the current
Monthly Processing Date, the Guarantee Period will remain in effect regardless
of the investment experience of the Divisions of the Variable Account. If the
Policy fails to meet this test on any Monthly Processing Date, the Guarantee
Period and therefore the Guaranteed Minimum Death Benefit provision will
terminate.
The Guarantee Period will also be terminated if the Net Account Value on any
Monthly Processing Date is not diversified according to the following rules:
i) No more than 35% of the Net Account Value may be invested in any one
Division, and
ii) The Net Account Value must be invested in at least five Divisions.
These diversification requirements will be satisfied if the Automatic
Rebalancing Feature has been elected and conditions i) and ii) above are met.
The Policy will also be deemed to satisfy the requirements for diversification
if Dollar Cost Averaging is elected and the resulting transfers are directed
into at least four other Divisions with no more than 35% of any transfer
directed to any one Division. See Dollar Cost Averaging, page 27, and Automatic
Rebalancing, page 27.
Once terminated, the Guaranteed Minimum Death Benefit provision cannot be
reinstated.
There is a charge for the Guaranteed Minimum Death Benefit. See Guaranteed
Minimum Death Benefit Charge, page 33. This charge will end at the conclusion
of the Ten Year/Age 65 Guarantee Period if that option has been chosen, and it
will end for either option if the Guaranteed Minimum Death Benefit provision is
terminated.
ADDITIONAL BENEFITS
The Policy may include additional benefits, which are attached to the Policy by
Rider. A charge will be deducted monthly from the Account Value for each
additional benefit chosen. These benefits may be canceled by the Owner at any
time. See Modified Endowment Contracts, page 38, for information on the tax
effect of adding or canceling these benefits. More details will be included in
the Policy if any of these benefits are chosen.
From time to time we may make available Riders other than those listed below.
Contact a Registered Representative for a complete list of the Riders available.
Certain Riders may not be available for all Policies.
ACCIDENTAL DEATH BENEFIT RIDER
This benefit is not available for Policies issued on or after
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Strategic Advantage 23
<PAGE>
May 1, 1998. This Rider will pay the benefit amount selected by the Owner if the
Insured dies as a result of an accident or if the Insured dies within 90 days of
an injury sustained in an accident and the death occurs prior to the Insured's
Age 70.
ADJUSTABLE TERM INSURANCE RIDER
The Death Proceeds may be increased by adding the Adjustable Term Insurance
Rider on the life of the Insured. As the name suggests, the Adjustable Term
Insurance Rider adjusts over time.
At issue, a Schedule of death benefits called the Target Death Benefit is
specified at levels to meet the Owner's projected needs in the future. The
Target Death Benefit may be scheduled to vary as often as each Policy year. The
Target Death Benefit will be listed in the Schedule.
Subject to our rules, the Target Death Benefit Schedule may be changed after
issue. See Changes In Death Benefit Amounts, page 22.
If at any time you cancel a scheduled change or ask for an unscheduled decrease
to your Target Death Benefit, we may deny any future scheduled increases to the
Target Death Benefit.
The amount of Adjustable Term Insurance Rider in force at any time is the amount
needed to fill the difference between the Target Death Benefit specified in the
Schedule and the Base Death Benefit in effect. The Adjustable Term Insurance
Rider is dynamic in that it adjusts daily for variations in the Base Death
Benefit resulting from compliance with the Federal income tax law definition of
life insurance test chosen.
For example, assume the Base Death Benefit increases due to the Federal income
tax law definition of life insurance. The Adjustable Term Insurance Rider will
adjust to provide Death Proceeds equal to the Target Death Benefit in each year:
Base Death Target Death Adjustable Term
Benefit Benefit Insurance Rider Amount
- ------------ ------------ ----------------------
201,500 250,000 48,500
202,500 250,000 47,500
202,250 250,000 47,750
Since the Adjustable Term Insurance Rider is dynamic, it is possible that the
Adjustable Term Insurance Rider amount may be eliminated entirely as a result of
increases in the Base Death Benefit due to the definition of life insurance
requirements. Using the example outlined above, if the Base Death Benefit under
the Policy grew to $250,000, the Adjustable Term Insurance Rider amount would be
reduced to zero. (It can never be reduced below zero.)
Even though the Adjustable Term Insurance Rider amount is reduced to zero, the
Rider will remain in effect until it is removed from the Policy. Therefore, if
the Base Death Benefit under the Policy is subsequently reduced below the Target
Death Benefit, the Adjustable Term Insurance Rider amount will reappear as
needed to maintain the Target Death Benefit at the requested level. Partial
Withdrawals and base decreases may reduce the amount of the Target Death
Benefit. See Partial Withdrawals, page 29.
We generally restrict the amount of the Target Death Benefit to an amount not
more than ten times the Stated Death Benefit. For example, if the Stated Death
Benefit is $100,000 then the maximum amount of Target Death Benefit we will
allow will be $1,000,000.
Given the flexible nature of the Adjustable Term Insurance Rider, there is no
externally defined premium and no tax or sales charges for the coverage.
Instead, a cost of insurance charge is deducted monthly from the Account Value
for the Adjustable Term Insurance Rider amount in effect. The cost of insurance
charge may be lower than the rates applicable to the Base Death Benefit in the
early Policy years, and may be higher in the later Policy years. See Cost of
Insurance Charges, page 32.
ADDITIONAL INSURED RIDER
This benefit is not available for policies issued on or after May 1, 1998. This
Rider provides for death benefits upon the death of immediate family members of
the Insured. A maximum of nine Additional Insured Riders may be added to the
Policy. The minimum amount of coverage for each Rider is $10,000 and the
maximum coverage for all Additional Insured Riders combined equals five times
the Stated Death Benefit of the Policy.
GUARANTEED INSURABILITY RIDER
This benefit is not available for policies issued on or after May 1, 1998. This
Rider will allow the Owner to increase the Stated Death Benefit of the Policy
without providing us with evidence that the Insured remains insurable.
Increases are limited in amount and timing.
RIGHT TO CHANGE INSURED RIDER
This Rider allows the Owner to change the person insured under the Policy. A
change of the Insured may have Federal income tax consequences. If a change of
Insured occurs, the cost of insurance charges in the future may change but the
Account Value will remain unchanged as of the change date.
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Strategic Advantage 24
<PAGE>
There is no charge for this Rider.
WAIVER OF COST OF INSURANCE RIDER
This Rider provides that during the total disability of the Insured, while the
Policy remains in force, the monthly expense charges, cost of insurance charges
and Rider charges will be waived and therefore not deducted from the Account
Value. If this Rider is added to the Policy, Waiver of Specified Premium Rider
may not be added.
WAIVER OF SPECIFIED PREMIUM RIDER
This Rider provides that during the total disability of the Insured, while the
Policy remains in force, a specified premium amount will be credited monthly to
the Policy. The amount of premium to be credited, within limits, is the amount
specified in the application. If this Rider is added to the Policy, the Waiver
of Cost of Insurance Rider may not be added.
BENEFITS AT MATURITY
If the Insured is still living on the Maturity Date, we will pay the Net Account
Value to the Policy Owner. The Net Account Value is the Account Value reduced
by any outstanding Policy Loan and accrued loan interest. The Policy will then
end. The Maturity Date is the Policy anniversary date on which the Insured
attains Age 100.
POLICY VALUES
ACCOUNT VALUE
The amount of the Account Value is the sum of the amounts in the Guaranteed
Interest Division, in the various Divisions of the Variable Account, and the
Loan Division. The Account Value therefore reflects all premiums paid, charges
made, Policy Loans and Partial Withdrawals taken, investment experience of the
Variable Account, and earnings accrued in the Guaranteed Interest and Loan
Divisions.
CASH SURRENDER VALUE
The Cash Surrender Value of the Policy equals the Account Value plus any refund
of sales charges which may be due.
NET CASH SURRENDER VALUE
The Net Cash Surrender Value of the Policy is equal to the Cash Surrender Value
less the amount of any outstanding Policy Loans and accrued loan interest.
NET ACCOUNT VALUE
The Net Account Value of the Policy is equal to the Account Value less the
amount of any outstanding Policy Loans and accrued loan interest.
DETERMINING THE VALUE OF AMOUNTS IN THE DIVISIONS OF THE VARIABLE ACCOUNT
The amounts included in the Divisions of the Variable Account are measured in
terms of Accumulation Units and Accumulation Unit Values. On any given day the
value of the amount in a Division of the Variable Account is equal to the
Accumulation Unit Value times the number of Accumulation Units credited in that
Division to the Policy. Each Division of the Variable Account will have
different Accumulation Unit Values.
Accumulation Units of a Division are purchased whenever premiums or transfer
amounts are allocated to that Division (including transfers from the Loan
Division). Accumulation Units are redeemed when Partial Withdrawals are taken
or amounts are transferred from a Division of the Variable Account (including
transfers to the Loan Division) and to pay the death benefit when the Insured
dies. We also redeem Accumulation Units for the monthly deductions from the
Account Value and Policy transaction charges, if any.
The number of Accumulation Units purchased or redeemed in a Division of the
Variable Account as of any Valuation Date is calculated by dividing the dollar
amount of the transaction by the Division's Accumulation Unit Value calculated
after the close of business that day. The Accumulation Unit Value of each
Division fluctuates with the investment experience of the corresponding
Portfolio and reflects the investment income, realized and unrealized capital
gains and losses, and expenses of the Portfolio. The Accumulation Unit Values
also reflect the mortality and expense risk charges we make each day to the
Variable Account. See How We Calculate Accumulation Unit Values for Each
Division, page 26.
Transactions are processed as of the Transaction Date. The Transaction Date is
the date we receive a premium or an acceptable written or telephone request at
our Customer Service Center. If the premium or request reaches our Customer
Service Center on a day which is not a Valuation Date, or after the close of
business on a Valuation Date, the Transaction Date will be the next succeeding
Valuation Date.
Monthly deductions against the Account Value are made as of the Monthly
Processing Date. Transaction charges are made as of the Transaction Date.
The value of any amount allocated to a Division of our
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Strategic Advantage 25
<PAGE>
Variable Account will go up or down depending on the investment experience of
that Division. For amounts allocated to the Divisions of the Variable Account,
there is no guaranteed minimum cash value.
HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION
We determine Accumulation Unit Values for the Divisions of the Variable Account
as of each Valuation Date. All Policy transactions are performed as of a
Valuation Date.
The Accumulation Unit Value for each Division will generally be set at $10 on
the first Valuation Date that there are Policy transactions in that Division of
the Variable Account. After that, the Accumulation Unit Value as of any
Valuation Date is equal to the Accumulation Unit Value for the preceding
Valuation Date multiplied by the Accumulation Experience Factor for that
Division for the Valuation Period.
We calculate an Accumulation Experience Factor for each Division every Valuation
Date as follows:
1. We take the value of the shares belonging to the Division in the
corresponding Portfolio as of the close of business that Valuation Date
(before giving effect to any Policy transactions for that day, such as
premium payments or surrenders). For this purpose, we use the share value
reported to us by the managers of the Portfolio.
2. We add any dividends or capital gains distributions declared and reinvested
by the Portfolio during the Valuation Period. We subtract from this amount
a charge for taxes, if any.
3. We divide the resulting amount by the value of the shares belonging to the
Division in the corresponding Portfolio as of the close of business on the
preceding Valuation Date. This new amount represents the gross experience
factor per Accumulation Unit, before reduction for the expenses of the
Variable Account.
4. We subtract a charge for the mortality and expense risk assumed by us under
the Policy. The daily charge is .002055% of the Accumulation Unit Value,
which is equivalent to an annual rate of .75% of the Accumulation Unit
Value. If the previous day was not a Valuation Date, then the charge is
adjusted for the additional days between valuations.
The result is the Accumulation Experience Factor for the Valuation Period.
TRANSFERS OF ACCOUNT VALUES
After the Free Look Period ends, up to 12 transfers among the Divisions of the
Variable Account or to the Guaranteed Interest Division may be made in each
Policy year without charge. There is no limit on the number of transfers that
may be made, but we charge a fee of $25 for each additional transfer after the
first 12. Transfers due to the operation of Automatic Rebalancing or Dollar
Cost Averaging are not included in determining the limit on transfers without a
charge.
Transfer requests should be made in writing to our Customer Service Center. The
transfer will take effect as of the Valuation Date we receive the request. The
minimum amount we will transfer on any date is $100. This minimum need not come
from any one Division or be transferred to any one Division as long as the total
amount requested to be transferred equals at least the minimum. However, we
will transfer the entire amount in any Division of the Variable Account from
which a transfer is requested, if the amount remaining in that Division is less
than $100.
We reserve the right to limit excessive trading activity, which can disrupt
Portfolio management strategy and increase Portfolio expenses. For example, we
may refuse to accept or we may 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 their ability to provide maximum investment return to all Owners.
Transfers from the Guaranteed Interest Division may be made only as follows.
Once during the first 30 days of each Policy year, the Owner may transfer
amounts from the Guaranteed Interest Division. Transfer requests received
within 30 days prior to the Policy anniversary will be deemed to occur as of the
Policy anniversary. Transfer requests received on the Policy anniversary or
within the following 30 days will be processed. Transfer requests received at
any other time will not be processed.
Transfer amounts from the Guaranteed Interest Division to the Divisions of the
Variable Account are limited to the greatest of (i) 25% of the balance in the
Guaranteed Interest Division at the time of the first transfer or withdrawal in
a Policy year, (ii) the sum of any amounts transferred and withdrawn from the
Guaranteed Interest Division in the prior Policy year or, (iii) $100.
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Strategic Advantage 26
<PAGE>
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. See Maximum
Number of Investment Divisions, page 14.
If telephone privileges have been elected in an application or written notice
has been sent to our Customer Service Center requesting this privilege,
transfers may be made by telephoning our Customer Service Center. See Telephone
Privileges, page 44.
DOLLAR COST AVERAGING
We offer a feature called Dollar Cost Averaging to Owners who have at least
$10,000 of Account Value invested in either the Division investing in the
Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited
Maturity Bond Portfolio. The main objective of Dollar Cost Averaging is to
protect Policy values from short-term price fluctuations. Since the same dollar
amount is transferred to other Divisions each period, more units are purchased
in a Division if the value per unit is low, and fewer units are purchased if the
value per unit is high. This plan of allocating Policy values reduces the risk
of investing too much when the price of a Portfolio's shares is high and too
little when the price of a Portfolio's shares is low. However, participation in
Dollar Cost Averaging does not assure a profit nor does it protect against a
loss in a declining market.
With Dollar Cost Averaging, a designated dollar amount or a percentage of the
Account Value of the Division investing in the Fidelity VIP Money Market
Portfolio or the Neuberger Berman AMT Limited Maturity Bond Portfolio will be
transferred automatically each period from the selected Division to one or more
other Divisions of the Variable Account. Dollar Cost Averaging transfers may
not be made to or from the Guaranteed Interest Division. Any transfers that are
a result of the Dollar Cost Averaging feature are not counted toward the limit
of 12 transfers that can be made each Policy year without a transfer charge.
There is no charge for this feature.
Dollar Cost Averaging allocations may be designated as dollar amounts or as
whole percentages. The minimum percentage that may be transferred to any one
Division is 1% of the total amount transferred to all selected Divisions. The
transfer amount under Dollar Cost Averaging may be no less than $100.
The first Dollar Cost Averaging date may be specified by the Owner, but must be
at least five days after our receipt of the request for Dollar Cost Averaging.
In no event will Dollar Cost Averaging begin before the end of the Delivery plus
Free Look Periods. Dollar Cost Averaging may occur monthly, quarterly, semi-
annually, or annually as requested by the Owner. Unless specified otherwise,
Dollar Cost Averaging will take place monthly, on the Monthly Processing
Date.
If, on any Dollar Cost Averaging date, the amount in the Division from which
transfers are to be made is equal to or less than the amount to be transferred,
the entire remaining amount will be transferred, and Dollar Cost Averaging will
end. Changes to the Dollar Cost Averaging program may be made once each Policy
year or Dollar Cost Averaging may be canceled completely by sending satisfactory
notice to our Customer Service Center at least five days before the next Dollar
Cost Averaging date. If telephone privileges are in effect, changes to the
Dollar Cost Averaging program can be made by telephoning our Customer Service
Center. See Telephone Privileges, page 44.
A date for Dollar Cost Averaging to terminate may be specified by the Owner.
Termination also may occur when the balance remaining in either the Division
investing in the Fidelity VIP Money Market Portfolio or the Neuberger & Berman
AMT Limited Maturity Bond Portfolio reaches a specified dollar amount.
A Dollar Cost Averaging Program and an Automatic Rebalancing Program may run at
the same time.
AUTOMATIC REBALANCING
The Automatic Rebalancing feature provides a method for maintaining a balanced
approach to investing Account Values and for simplifying the process of asset
allocation over time.
The Automatic Rebalancing feature may be elected with the application or at any
subsequent time by completing the appropriate form. Automatic Rebalancing
matches Account Value allocations over time to the allocation percentages set by
the Owner. During the operation of the Automatic Rebalancing feature, transfers
among the Divisions may occur monthly, quarterly, semi-annually, or annually on
a date specified by the Owner. Unless specified otherwise, Automatic
Rebalancing will take place on the last Valuation Date of each calendar
quarter.
Automatic Rebalancing allocations may be specified for all or some of the
Divisions in which the Account Value is invested. If this feature is elected we
will transfer amounts among the Divisions so that, after the transfers, the
ratio of the Account Value in each Division to the total Account Value of all
Divisions included in Automatic Rebalancing matches the automatic rebalancing
allocation percentage for that Division. This will rebalance the amounts in
Divisions that do not match the Automatic Rebalancing allocation percentages,
which could result, for example, from Divisions which outperform the other
Divisions for that time period.
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Strategic Advantage 27
<PAGE>
If Automatic Rebalancing is elected with the Policy application, the first
transfer will occur on the date specified by the Owner, following the end of the
Delivery and Free Look Periods. If this feature is elected after the Policy
Date, the first transfer will be processed as of the date requested by the Owner
which must be at least five days after receipt at our Customer Service Center
or, if no date is specified, the last Valuation Date of the calendar quarter
after we receive notification at our Customer Service Center and the Delivery
and Free Look Periods have ended.
The allocation percentages for Automatic Rebalancing may be changed at any time
and the Account Value will be reallocated as of the Valuation Date that we
receive the allocation instructions at our Customer Service Center. Any
reduction in the allocation to the Guaranteed Interest Division, however, will
be considered a transfer from the Division and, therefore, must comply with the
maximum transfer amount and time limitations on transfers from the Guaranteed
Interest Division, as described in Transfers of Account Values on page 26. If
we receive an Automatic Rebalancing request which is in conflict with these
provisions, we will ask for revised instructions.
The Owner may terminate the Automatic Rebalancing feature at any time, as long
as we receive notice of the termination at least five days prior to the next
Automatic Rebalancing. If the Guarantee Period is in effect and the Automatic
Rebalancing feature is terminated, diversification of the Net Account Value
still must be maintained for the Guarantee Period to continue. If the Automatic
Rebalancing feature is active, the Guarantee Period is in effect, and a request
is received for an allocation which does not meet the diversification
requirements to maintain the Guarantee Period, we will notify the Owner that the
allocation must be changed. See Guaranteed Minimum Death Benefit Provision, page
22.
Any transfers that are a result of the Automatic Rebalancing feature are not
counted toward the limit of 12 transfers that can be made each Policy year
without a transfer charge. We will charge a fee of $25 each time the Automatic
Rebalancing allocation is changed more than five times per Policy year.
Otherwise there is no charge for this feature.
An Automatic Rebalancing program may be run simultaneously with a Dollar Cost
Averaging program.
POLICY LOANS
At any time after the first Policy anniversary, or as otherwise required by law,
the Owner may borrow against the Policy by using it as security for a loan. The
amount borrowed is called a Policy Loan. Unless otherwise required by state
law, any new Policy Loan must be at least $100. The maximum amount which can be
borrowed as of any Valuation Date equals the Net Account Value less monthly
deductions to the next Policy Anniversary. Maximum loan amounts may be
different if required by state law. A Policy Loan may be requested by
contacting our Customer Service Center.
Loan interest charges on a Policy Loan accrue daily at a annual interest rate of
3.75%. Interest is due in arrears on each Policy anniversary. If the interest
is not paid when it is due, it will be added to the Policy Loan as of the Policy
anniversary.
When an additional loan is requested, the amount taken will be added to the
outstanding Policy Loan so only one loan is outstanding at any time. A Policy
Loan may be fully or partially repaid at any time while the Policy is in force.
Unless otherwise indicated, we will assume that any payments, other than
Scheduled Premiums, constitute Policy Loan repayments and not premiums.
When a Policy Loan is taken, or if the loan interest is not paid on the Policy
anniversary, an amount equal to the Policy Loan amount or interest due is
transferred from the Divisions of the Variable Account and the Guaranteed
Interest Division to the Loan Division to secure the loan. The Loan Division is
part of our General Account, separate from the Guaranteed Interest Division.
When transfers are made to the Loan Division, sufficient units of the Variable
Account Divisions are redeemed to cover the amount of the loan taken from the
Variable Account. We will deduct the amount transferred from each Division in
the same proportion that the Account Value in that Division bears to the Net
Account Value immediately prior to the loan transaction otherwise specified by
the Owner. The amounts in each Division will be determined as of the Valuation
Date we receive the request for a loan. The Loan Division is credited at an
annual rate of 3% in all Policy years.
The amount of interest credited to the Loan Division for the Policy year will be
transferred from the Loan Division on each Policy anniversary. When a loan
repayment is made, an amount equal to the payment is transferred from the Loan
Division. Amounts transferred from the Loan Division will be allocated to the
Divisions of the Variable Account and the Guaranteed Interest Division based on
the current premium allocation instructions unless a different allocation is
requested.
A Loan against the Policy will have a permanent effect on the Account Value and,
therefore, on the benefits under this Policy, even if the Loan is repaid. When
borrowing against the Policy, an amount equal to the Policy Loan is transferred
to the Loan Division where it earns a guaranteed rate of interest. Premiums or
transfer amounts may not be allocated to the Loan Division other than by
borrowing additional
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Strategic Advantage 28
<PAGE>
amounts. If not repaid, the Policy Loan and accrued loan interest will be
deducted from the amount of the Death Proceeds paid or the Cash Surrender Value
paid on surrender. It also may have an effect on the Guarantee Period and on the
length of time the Policy remains in force, since in many cases the Policy will
lapse when the Account Value minus Policy Loans and accrued loan interest is
insufficient to cover the monthly deductions.
If telephone privileges have been elected, a Policy Loan may be requested by
telephoning our Customer Service Center. Any telephone request for a Policy
Loan must be for an amount less than $25,000. See Telephone Privileges, page
44.
Loans may have adverse tax consequences. See Modified Endowment Contracts, page
38.
PARTIAL WITHDRAWALS
A Partial Withdrawal may be requested on any Monthly Processing Date after the
first Policy anniversary by contacting our Customer Service Center. One Partial
Withdrawal is allowed each Policy year.
The minimum Partial Withdrawal is $100. The maximum Partial Withdrawal is the
amount which will leave a Net Account Value of $500. If a withdrawal of more
than this maximum is requested, we will require a full surrender of the Policy.
When a Partial Withdrawal is taken, the amount of the withdrawal plus a service
fee is deducted from the Account Value.
The Stated Death Benefit is not reduced by a Partial Withdrawal taken when: (i)
the Base Death Benefit has been increased to qualify the Policy as life
insurance under the Federal income tax laws (see Life Insurance Definition, page
37) and (ii) the amount withdrawn is no greater than that amount which reduces
the Account Value to the level which no longer requires the Base Death Benefit
to be increased for Federal income tax law purposes.
For a Policy under an Option 1 death benefit, the Stated Death Benefit is not
reduced by a Partial Withdrawal in the circumstances described above. In
addition, if no more than 15 years have elapsed since the Policy Date and the
Insured is not yet Age 81, a Partial Withdrawal of an amount up to 10% of the
Account Value or, if greater, 5% of the Stated Death Benefit, calculated
immediately before the Partial Withdrawal is taken will not reduce the Stated
Death Benefit. Any additional amount withdrawn does reduce the Stated Death
Benefit by that additional amount.
For a Policy under an Option 2 death benefit, a Partial Withdrawal does not
reduce the Stated Death Benefit.
For a Policy under an Option 3 death benefit, the Stated Death Benefit may be
reduced by the amount of the Partial Withdrawal in excess of premiums paid minus
prior Partial Withdrawals taken to the date of the Partial Withdrawal (the
excess will be treated as if the Policy were under death benefit Option 1). See
Death Benefit Options, page 20.
No Partial Withdrawal will be allowed if the Stated Death Benefit remaining in
force after the Partial Withdrawal would be reduced below the minimum we require
to issue this Policy at the time of the reduction. See Group or Sponsored
Arrangements, page 37.
A Partial Withdrawal may also reduce the Target Death Benefit.
Unless otherwise indicated, we will make the withdrawal from the Guaranteed
Interest Division and the Divisions of the Variable Account in the same
proportion that each Division bears to the Net Account Value immediately prior
to the withdrawal. Withdrawals from the Guaranteed Interest Division may not
exceed an amount that is greater than the total withdrawal times the ratio of
the Account Value in the Guaranteed Interest Division to the total Net Account
Value immediately prior to the withdrawal.
A new Schedule reflecting the effect of the withdrawal will be sent if there is
a change to the Stated Death Benefit or to the Target Death Benefit. We may ask
that the Policy be returned to our Customer Service Center to make this change.
The withdrawal and any reductions in death benefits will be effective as of the
Valuation Date we receive the request.
If telephone privileges have been elected, requests for Partial Withdrawals may
be made by telephoning our Customer Service Center. Any telephone request for a
Partial Withdrawal must be for an amount less than $25,000. See Telephone
Privileges, page 44.
Partial Withdrawals may have adverse tax consequences. See Modified Endowment
Contracts, page 38.
SURRENDER
The Policy may be surrendered for its Net Cash Surrender Value at any time while
the Insured is living. In order to surrender the Policy, a written request and
the Policy should be sent to our Customer Service Center. The Net Cash
Surrender Value of the Policy equals the Cash Surrender Value minus Policy Loan
and accrued loan interest amounts. Costs and expenses which have been deducted
from the Net Account Value on the Monthly Processing Date preceding the
surrender will not be added or pro-rated at surrender. We will compute the Net
Cash Surrender Value as of the Valuation Date we receive the request and the
Policy at our
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Strategic Advantage 29
<PAGE>
Customer Service Center. All insurance coverage will end as of that date.
A surrender of the Policy for its Net Cash Surrender Value may have adverse tax
consequences. See Modified Endowment Contracts, page 38.
RIGHT TO EXCHANGE POLICY
During the first 24 months following the Policy Date the Owner has the right to
exchange the Policy from one in which the investment experience is not
guaranteed for a guaranteed Policy, unless required differently by state law.
This is accomplished by transferring the entire amount in the Divisions of the
Variable Account to the Guaranteed Interest Division, and the allocation of all
future premium payments to the Guaranteed Interest Division. When this right is
exercised, we will not allow for the allocation of future premium payments or
transfers to the Divisions of the Variable Account.
This will, in effect, serve as an exchange of the Policy for the equivalent of a
flexible premium universal life insurance policy. No charge will be assessed on
the transfer to exercise this privilege. See The Guaranteed Interest Division,
page 17.
LAPSE
Insurance coverage will continue as long as the Net Account Value of the Policy
is sufficient to pay all the deductions each month. The Policy is guaranteed
not to lapse, regardless of its Net Account Value, if, on each Monthly
Processing Date during the first three Policy years, the sum of premiums paid
less the sum of Partial Withdrawals and Policy Loans and accrued loan interest
is greater than or equal to the sum of the applicable minimum monthly premiums
for each Policy month starting with the first Policy month through and including
the Policy month which begins on the current Monthly Processing Date. The
minimum monthly premium is equal to one twelfth of the Minimum Annual
Premium.
IF THE GUARANTEED MINIMUM DEATH BENEFIT PROVISION IS NOT IN EFFECT
Unless the Guaranteed Minimum Death Benefit provision is in effect, or the
Special Continuation Period is in effect and its requirements have been met, the
Policy including all attached Riders will lapse in its entirety on any Monthly
Processing Date that the Net Account Value of the Policy is not sufficient to
pay all the monthly deductions from the Account Value. A 61-day grace period
will begin on that Monthly Processing Date. See Grace Period, page 30.
If we do not receive full payment of the requested amount in full within the 61
days, the Policy and all Riders attached will lapse without value. We will
withdraw any remaining balance of the Account Value from the Divisions of the
Variable Account and Guaranteed Interest Division. We will deduct any amount
owed to us and inform the Owner that the Policy has ended.
If the Insured dies during the grace period, we will pay the Death Proceeds to
the Beneficiary subject to reductions for Policy Loan amounts, accrued loan
interest and monthly deductions due.
IF THE GUARANTEED MINIMUM DEATH BENEFIT PROVISION IS IN EFFECT
After the Special Continuation Period, if the Guaranteed Minimum Death Benefit
provision is in effect, the Stated Death Benefit of the Policy will not lapse
during the Guarantee Period even if the Net Account Value is not sufficient to
cover all the deductions from the Account Value on any Monthly Processing Date.
See Guaranteed Minimum Death Benefit Provision, page 22.
The benefits provided by Riders attached to the Policy and any amount by which
the Base Death Benefit exceeds the Stated Death Benefit are not protected by the
Guaranteed Minimum Death Benefit provision. Therefore, benefits will lapse if
the Net Account Value is not sufficient to cover all the deductions from the
Account Value on any Monthly Processing Date (unless the policy is in the three-
year Special Continuation Period).
While the Guaranteed Minimum Death Benefit provision applies (unless the policy
is in the three-year Special Continuation Period), the Account Value may be
reduced by monthly deductions, but not below zero. Any monthly deductions
during the Guarantee Period which would reduce the Net Account Value below zero
will be waived permanently.
The Guaranteed Minimum Death Benefit provision will be terminated if the Policy
does not meet the monthly premium or diversification tests as explained in
Guaranteed Minimum Death Benefit Provision, page 22. If the Guaranteed Minimum
Death Benefit provision is terminated, the normal test for lapse will
resume.
GRACE PERIOD
If the following conditions occur as of a Monthly Processing Date, the Policy
will enter into the 61-day Grace Period:
(i) The Net Account Value is zero or less; and
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Strategic Advantage 30
<PAGE>
(ii) The three-year Special Continuation Period has expired or the required
premium has not been paid; and
(iii) The Guarantee Period has expired or been terminated.
We will, at least 30 days before the end of a grace period, notify the Owner or
any assignee in writing at the last known address on our records that the grace
period has begun. The notification will include the amount of premium payment
necessary to reinstate the Policy and all Riders attached. The premium required
to reinstate the Policy is generally the amount of past due charges plus the
amount that will cover estimated monthly deductions for the Policy and all
attached Riders for the following two months. If we receive payment of this
amount before the end of the grace period, we will use it to make the overdue
deductions. Any balance remaining will be applied to the Account Value in the
same manner as other premium payments.
REINSTATEMENT
If the Policy Owner fails to pay sufficient premiums prior to the end of the
Grace Period, the Policy and its Riders, other than the Guaranteed Minimum Death
Benefit provision, may be reinstated within five years after the Grace Period.
Unless otherwise required by state law, we will reinstate the Policy and any
Riders if:
(i) The Policy has not been surrendered for its Net Cash Surrender Value;
(ii) Satisfactory evidence is provided to us that the Insured and the
Insureds under any Riders are still insurable according to our normal
rules of underwriting for this type of Policy; and
(iii) We receive a premium payment sufficient to keep the Policy and any
Riders in force from the beginning of the grace period to the end of
the grace period and for two months following the date of the
reinstatement, unless required differently by state law.
The reinstatement will be effective as of the Monthly Processing Date following
our approval of the reinstatement application. We also will reinstate any
Policy Loan which existed when coverage ended, with accrued loan interest to the
date of lapse. Net Premiums received after reinstatement will be allocated
according to the premium allocation instructions in effect at the start of the
grace period or as otherwise directed by the Owner.
CHARGES, DEDUCTIONS AND REFUNDS
DEDUCTIONS FROM PREMIUMS
Unless a Policy Loan is outstanding (see Policy Loans, page 28), any payment
received before the Maturity Date is considered a premium. Certain expenses are
deducted from premium payments. The Net Premium is then added to the Account
Value. The expenses which are deducted from the premium include the tax and
sales charges.
TAX CHARGES
All states levy taxes on life insurance premium payments. The amount of these
taxes varies from state to state, and may vary from jurisdiction to jurisdiction
within a state. We currently deduct an amount equal to 2.5% of each premium to
pay applicable premium taxes. The 2.5% rate approximates the average tax rate
we expect to pay on premiums from all states.
A charge currently equal to 1.5% of each premium payment is deducted to cover
our estimated cost for the Federal income tax treatment of deferred acquisition
costs determined solely by the amount of life insurance premiums we receive.
This charge for deferred acquisition costs is reasonable in relation to Security
Life's increased Federal income tax burden resulting from the receipt of premium
payments, under Internal Revenue Code Section 848.
Except as limited by state law, we reserve the right to increase or decrease the
premium expense charge for taxes due to any change in tax law. We further
reserve the right to increase or decrease the premium expense charge for the
Federal income tax treatment of deferred acquisition costs due to any change in
the cost to us.
SALES CHARGES
A percentage of each premium is deducted to compensate us for a portion of the
cost of selling the Policy. The percentage deducted is based on the amount of
premium paid and the number of years since the Policy Date or the date of an
increase in coverage. For each of the first five Policy years, this charge is
equal to 8% of premiums paid up to the Target Premium and 3% of premiums paid in
excess of the Target Premium. In the sixth Policy year and thereafter, the
sales charge is equal to 3% of all premiums paid.
Target Premiums are not based on the Scheduled Premium. Target Premiums are
actuarially determined based on the Age, sex and Premium Class of the Insured.
See Premiums,
- --------------------------------------------------------------------------------
Strategic Advantage 31
<PAGE>
page 18. The Target Premium for the Policy and any Segments added since the
Policy Date will be listed in the Schedule.
For a Policy with multiple Segments, premiums paid are allocated to the Segments
in the same proportion as the guideline annual premium (as defined by the
Federal income tax law) for each Segment bears to the total guideline annual
premium for the Stated Death Benefit.
The sales charge covers the cost of distribution, costs of preparing our sales
literature, promotional expenses, and other direct and indirect expenses. The
amount of this charge cannot be specifically related to sales expenses in a
particular year since we recover these costs over the period the Policies remain
in effect. We pay the sales expenses from our own resources, including this
sales charge and any profit we may earn on the other charges deducted under the
Policy. The sales charge may be reduced or waived for certain group or
sponsored arrangements.
DAILY DEDUCTIONS FROM THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
Each day a charge is deducted for mortality and expense risks we assume. This
charge is equal to 0.002055% per day of the amount in the Divisions of the
Variable Account, which is equivalent to an annual rate of 0.75% of the portion
of the Account Value allocated to the Variable Account.
We assess the mortality and expense risk charge to compensate us for assuming
mortality and expense risks under the Policies. The mortality risk we assume is
that Insureds, as a group, may live for a shorter period of time than estimated.
The expense risk we assume is that other expenses we incur in issuing and
administering the Policies and operating the Variable Account will be greater
than the amount we estimated when setting the charges for these expenses. We
will realize a profit from this fee to the extent it is not needed to provide
benefits and pay expenses under the Policies. We may use this profit for other
purposes, including any distribution expenses not covered by the sales charge.
This charge is not assessed against the amount of Account Value which is
allocated to the Guaranteed Interest Division, nor to amounts in the Loan
Division. We credit the Account Value with a persistency refund equivalent to
0.5% per year for each Segment that has been in force for at least ten Policy
years, which effectively reduces the charge for mortality and expense risks.
See Persistency Refund, page 34.
MONTHLY DEDUCTIONS FROM THE ACCOUNT VALUE
The following charges are deducted from the Account Value on each Monthly
Processing Date. These deductions are taken from the Divisions of the Variable
Account and the Guaranteed Interest Division in the same proportion that the
Account Value in each Division bears to the total Net Account Value as of the
Monthly Processing Date.
INITIAL POLICY CHARGE
The initial Policy charge is $10 per month for the first five Policy years and
is guaranteed not to exceed this amount. This charge covers such costs as
application processing, medical examinations, establishment of Policy records,
and insurance underwriting costs. This charge is designed to reimburse us for
expenses and we do not expect to gain from it.
MONTHLY ADMINISTRATIVE CHARGE
This charge is comprised of a per Policy charge of $5 per month plus a charge of
$0.0125 per thousand of Stated Death Benefit or Target Death Benefit, if
greater, and is guaranteed never to exceed this amount. The per thousand charge
is limited to $15 per month. This charge is designed to cover the ongoing costs
of maintaining the Policy, such as premium billing and collections, claim
processing, Policy transactions, record keeping, reporting and other
communications with Owners, other expenses and overhead. This charge is
designed to reimburse us for expenses and we do not expect to gain from it.
COST OF INSURANCE CHARGES
The cost of insurance charges compensate us for providing insurance protection
under the Policy. The cost of insurance charges are calculated monthly, and
equal our current monthly cost of insurance rate times the Net Amount at Risk
for each portion of the death benefit. Net Amount at Risk for each portion of
the death benefit is calculated at the beginning of the Policy month.
The Net Amount at Risk for the Base Death Benefit is equal to the difference
between the current Base Death Benefit and the amount of the Account Value. For
this purpose, the amount of the Account Value is determined after deduction of
charges due on that date, other than cost of insurance charges for the Base
Death Benefit, any Adjustable Term Insurance Rider, and Waiver of Cost of
Insurance Rider.
The Net Amount at Risk for the Adjustable Term Insurance Rider is equal to the
amount of the benefit provided.
- --------------------------------------------------------------------------------
Strategic Advantage 32
<PAGE>
If the Base Death Benefit at the beginning of the month is increased due to the
requirements of Federal income tax law definition of life insurance, Net Amount
at Risk for the Base Death Benefit that month will also increase, but the Net
Amount at Risk for any Adjustable Term Insurance Rider may be reduced.
Therefore, the amount of the cost of insurance charges will vary from month to
month with changes in the Net Amount at Risk, changes in the makeup of the death
benefit, and with the increasing Age of the Insured.
The cost of insurance rates are based on the Age, sex and Premium Class of the
Insured on the Policy Date or at the time a Segment is added, as well as the
length of time the Policy or Segment has been in effect. Unisex rates are used
where appropriate under applicable law, including the state of Montana and
Policies purchased by employers and employee organizations in connection with
employment-related insurance or benefit programs. Net Amount at Risk is
allocated to Segments in the same proportion that each Segment bears to the
total Stated Death Benefit as of the Monthly Processing Date. Separate cost of
insurance rates apply to the Base Death Benefit, the Adjustable Term Insurance
Rider and any additional Segments. We may change these rates from time to time,
but they will never be more than the guaranteed maximum rates set forth in the
Policy. The guaranteed maximum rates for policies are based on the 1980
Commissioners Standard Ordinary Mortality Table.
We may offer Policies on a guaranteed issue basis to certain group or sponsored
arrangements. If an eligible group or sponsored arrangement purchases Policies
on a guaranteed issue basis, the Policies will be issued up to a predetermined
face amount limit, with minimal evidence of insurability. Policies issued on a
guaranteed issue basis may present different mortality costs to us compared to
underwritten Policies. We may charge different cost of insurance rates for
guaranteed issue Policies. The cost of insurance charges may depend on the
issue Age of the Insured, the size of the group, and the total premium to be
paid by the group. Under most guaranteed issue Policies, the overall charges
for insurance will be higher than under a comparable underwritten Policy issued
in the nonsmoker standard or smoker standard class. This means that an Insured
may be able to obtain individual, underwritten insurance coverage at a lower
overall cost.
The guaranteed rates for guarantee issue policies are no greater than 135
percent of the maximum rates that could be charged based on the 1980
Commissioner's Standard Ordinary Mortality Table ("1980 CSO Table"). The
guaranteed rates are higher than 100 percent of the maximum rates in the 1980
CSO Table because we use simplified underwriting procedures whereby the Insured
may not be required to submit to a medical or paramedical examination. The
current cost of insurance rates after the 15th Policy Year are generally lower
than 100 percent of the 1980 CSO Table. Any change in the current cost of
insurance rates will apply to all persons of the same Age and rate class. The
maximum rates for the initial and any new Segment will be printed in the
Schedule which we will provide to you.
CHARGES FOR ADDITIONAL BENEFITS
The cost of any additional benefits added by Rider will be deducted monthly on
the Monthly Processing Date. We may change these charges, but the Schedule
contains tables showing the guaranteed maximum rates. See Additional Benefits,
page 23.
GUARANTEED MINIMUM DEATH BENEFIT CHARGE
If the Guaranteed Minimum Death Benefit is purchased, we currently charge $0.005
per thousand of Stated Death Benefit each month during the Guarantee Period.
This charge is guaranteed never to exceed $0.01 per thousand of Stated Death
Benefit each month.
CHANGES IN MONTHLY CHARGES
Any changes in the cost of insurance charges, charges for additional benefits,
or the guaranteed minimum death benefit charge will be made by class of Insured
and will be based on changes in future expectations about such things as
investment earnings, mortality, the length of time policies will remain in
effect, expenses and taxes. In no event will they exceed the guaranteed maximum
rates defined in the Policy.
POLICY TRANSACTION FEES
In addition to the deductions described above, we charge fees for certain Policy
transactions.
Transaction fees are taken from the Divisions of the Variable Account and the
Guaranteed Interest Division in the same proportion that the Account Value in
each Division bears to the Net Account Value immediately after the transaction
for which the fee is charged.
PARTIAL WITHDRAWAL
A service fee equal to the lesser of $25 or 2% of the amount requested will be
charged against the Account Value for each Partial Withdrawal. See Partial
Withdrawals, page 29.
TRANSFERS
We charge a fee of $25 for each additional transfer after the first 12 in a
Policy year. See Transfers of Account Values,
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Strategic Advantage 33
<PAGE>
page 26. All transfers included in one transfer request count as a single
transfer when we calculate the fee. There will not be a transfer fee for
transfers of Account Value into the Guaranteed Interest Division pursuant to
the Right to Exchange provided by this Policy. See Right to Exchange Policy,
page 30.
ALLOCATION CHANGES
We charge a fee of $25 each time either the premium or the automatic rebalancing
allocation is changed more than five times each per Policy year.
ILLUSTRATIONS
We reserve the right to charge a fee, not to exceed $25, for each Policy
illustration in excess of one per Policy year.
PERSISTENCY REFUND
Long-term Owners of Strategic Advantage will receive a persistency refund.
Each month the Policy or a Segment remains in force after its tenth Policy
anniversary, we will credit the Account Value with a refund equivalent to 0.5%
of the Account Value on an annual basis for that Segment (0.04167% monthly).
For purposes of this calculation, Account Value will be allocated to each
Segment based upon the number of completed Policy years that Segment has been in
force and the size of the guideline annual premium as defined by the Federal
income tax law definition of life insurance.
The persistency refund will be added to the Divisions of the Variable Account
and the Guaranteed Interest Division (but not the loan division) in the same
proportion that the Account Value in each Division bears to the Net Account
Value as of the Monthly Processing Date.
The following is an example of how the persistency refund affects the Account
Value each month if the policy has no loan:
Account Value = $10,000 (all in the Variable Divisions)
Monthly persistency refund Rate = .0004167
Persistency refund = 10,000 x .0004167 = $4.17
<TABLE>
<CAPTION>
Before After
Persistency Persistency
Refund Refund
------ ------
<S> <C> <C>
Variable
Divisions $10,000.00 $10,004.17
</TABLE>
The following is an example of how the persistency refund affects the Account
Value each month if the Policy has a loan:
Account Value = $10,000
Account Value in the Variable Divisions = $6,000
Account Value in the Loan Division = $4,000
Monthly persistency refund Rate = .0004167
Persistency refund = 10,000 x .0004167 = $4.17
<TABLE>
<CAPTION>
Before After
Persistency Persistency
Refund Refund
------ ------
<S> <C> <C>
Variable
Divisions $6,000.00 $6,004.17
Loan $4,000.00 $4,000.00
</TABLE>
REFUND OF SALES CHARGES
If the Policy has not lapsed, we will, upon full surrender of the Policy within
the first two Policy years, refund a portion of the sales charges previously
deducted from premiums paid. In the first Policy year, the amount of the refund
is equal to 5% of the premiums paid. In the second Policy year, the refund is
equal to 2.5% of the premiums paid in the first Policy year. After the second
Policy anniversary, there is no refund of sales charges.
CHARGES FROM PORTFOLIOS
The Variable Account purchases shares of the Portfolios at net asset value.
That price reflects investment management fees and other direct expenses that
have already been deducted from the assets of the Portfolio. The following table
describes these investment management fees and other direct expenses of the
Portfolios.
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Strategic Advantage 34
<PAGE>
PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS)1
<TABLE>
<CAPTION>
Investment Total
Management Portfolio
Portfolio Fees Other Expenses Expenses
--------- ---- -------------- --------
<S> <C> <C> <C>
NEUBERGER & BERMAN ADVISERS MANAGEMENT TRUST 2
Limited Maturity Bond Portfolio 0.65% 0.13% 0.78%
Growth Portfolio 0.83% 0.09% 0.92%
Partners Portfolio 0.84% 0.11% 0.95%
THE ALGER AMERICAN FUND
Alger American Small Capitalization Portfolio 0.85% 0.03% 0.88%
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% 0.24% 1.093
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Growth Portfolio 0.61% 0.08% 0.69%4
VIP Overseas Portfolio 0.76% 0.17% 0.93%4
VIP Money Market Portfolio 0.21% 0.09% 0.30%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager Portfolio 0.64% 0.10% 0.74%4
VIP II Index 500 Portfolio 0.13% 0.15% 0.28%5
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF - Total Return Portfolio 0.75% 0.19% 0.94%6,7
INVESCO VIF - Industrial Income Portfolio 0.75% 0.20% 0.95%6,8
INVESCO VIF - High Yield Portfolio 0.60% 0.27% 0.87%6,9
INVESCO VIF - Utilities Portfolio 0.60% 0.56% 1.16%6,10
INVESCO VIF - Small Company Growth Fund 0.75% 0.25% 1.00%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Hard Assets Fund 1.00% 0.11% 1.11%
Worldwide Real Estate Fund 1.00% 0.25% 1.25%
Worldwide Emerging Markets Fund 1.00% 0.27% 1.27%
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>
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.
- --------------------------------------------------------------------------------
Strategic Advantage 35
<PAGE>
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 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
0.03% of interest expense.
4 A portion of the brokerage commissions the Portfolio paid was used to reduce
its expenses. In addition, certain funds have entered into arrangements with
their custodian and transfer agent expenses. Including these reductions, the
total operating expenses presented in the table would have been 0.67% for Growth
Portfolio, 0.92% for Overseas Portfolio, and 0.73% 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 0.28%, 0.15% and 0.43% respectively
for Index 500 Portfolio on an annualized basis.
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, 1996 and 1995 and the period December 31, 1994. If
such expenses had not been voluntarily absorbed, ratio expenses to average net
assets would have been 1.30%, 2.51% and 16.44%, respectively, and ratio of net
investment income to average net assets would have been 3.08%, 2.41% and
(11.72%), respectively.
8 Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995 and the period ended December 31, 1994.
If such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 1.19%, 2.31% and 32.55%, respectively, and ratio of
net investment income to average net assets would have been 2.63%, 2.22% and
(30.07%), respectively.
9 Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995 and the period ended December 31, 1994.
If such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 1.32%, 2.71% and 30.38% respectively, and ratio of
net investment income to average net assets would have been 8.74%, 7.05% and
(26.92%), respectively.
10 Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995. If such expenses had not been
voluntarily absorbed, ratio expenses to average net assets would have been
5.36%, and 57.13%, respectively, and ratio of net investment income to average
net assets would have been (1.28%), and (52.86), respectively.
- --------------------------------------------------------------------------------
Strategic Advantage 36
<PAGE>
GROUP OR SPONSORED ARRANGEMENTS
This Policy is available for purchase by individuals, corporations, or other
institutions. For group or sponsored arrangements (including home office
employees of Security Life and for special exchange programs which Security Life
may offer from time to time, we may reduce or eliminate the sales charge, the
length of time the sales charge applies, the administrative charge, the minimum
Stated Death Benefit, the maximum Target Death Benefit, the Minimum Annual
Premium, the Target Premium, cost of insurance charges, or other charges
normally assessed to reflect the expected economies resulting from a group or
sponsored arrangement. We also may allow Partial Withdrawals to be taken
without a charge. Group arrangements include those in which a trustee, an
employer, or an association either purchases Policies covering a group of
individuals on a group basis or endorses the Policy to a group of individuals.
Sponsored arrangements include those in which an employer or association allows
us to offer Policies to its employees or members on an individual basis.
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
Policy is approved. We may change these rules from time to time. Any variation
in the sales charge, administrative charge or other charges, fees and privileges
will reflect differences in costs or services and will not be unfairly
discriminatory.
OTHER CHARGES
Under current law we pay no tax on investment income and capital gains reflected
in variable life insurance policy reserves (except to the extent the Federal
deferred acquisition cost may be considered such a tax). Consequently, no
charge is currently being made to any Division of our Variable Account for our
Federal income taxes. We reserve the right, however, to make such a charge in
the future if the tax law changes and we incur Federal income tax which is
attributable to the Variable Account.
We must pay state and local taxes (in addition to applicable taxes based on
premiums) in several states. At the present time, these taxes are not
substantial. However, if these taxes increase, we reserve the right to charge
for such taxes when they are attributable to our Variable Account.
TAX CONSIDERATIONS
The following discussion provides a general description of the Federal income
tax consequences of the Policy, based on our understanding of the present
Federal income tax laws as they are currently interpreted by the Internal
Revenue Service ("IRS"). No representation is made as to the likelihood of
continuation of the present Federal income tax laws or of the current
interpretations by the IRS. This discussion is general in nature, and should
not be considered tax advice. Further, it is not intended to present an
exhaustive survey of all the tax issues that might arise under the Policy.
Because of the complexity of the laws and the fact that tax results will vary
according to the particular circumstances of the Owner, a legal or tax adviser
should be consulted prior to purchasing the Policy.
Strategic Advantage is designed to qualify as a life insurance contract under
the Internal Revenue Code. All terms and provisions of the policy shall be
construed in a manner consistent with that design. The Base Death Benefit in
force at any time shall not be less than the amount of insurance necessary to
achieve such qualification under the applicable provisions of the Internal
Revenue code in existence at the time the policy is issued. We reserve the
right to amend the policy or adjust the amount of insurance when required. We
will send you a copy of any policy amendment.
LIFE INSURANCE DEFINITION
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"), sets
forth the definition of a life insurance contract for Federal tax purposes. The
entire death benefit of a life insurance contract is excludable from gross
income of the beneficiary under Section 101(a)(1) of the Code. However, there
are exceptions to this general rule such as transfers for value and
distributions from a policy owned by a qualified plan. The Secretary of the
Treasury (the "Treasury") is authorized to prescribe regulations implementing
Section 7702. While proposed regulations and other interim guidance have been
issued, final regulations have not been adopted. In short, guidance as to how
Section 7702 is to be adopted is limited. If a Policy were determined not to be
a life insurance contract for purposes of Section 7702, such Policy would not
qualify for the favorable tax treatment normally provided to a life insurance
policy.
Section 7702 provides that if one of two alternate tests are met, a Policy will
be treated as a life insurance policy for Federal income tax purposes. These
tests are referred to as the "Cash Value Accumulation Test" and the "Guideline
Premium/Cash Value Corridor Test."
Under the Cash Value Accumulation Test, there is no limit to the amount that may
be paid in premiums as long as there is enough death benefit in relation to
Account Value at all
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Strategic Advantage 37
<PAGE>
times. The death benefit at all times must be at least equal to an actuarially
determined factor, depending on the Insured's Age, sex, and Premium Class at any
point in time, multiplied by the Account Value. See APPENDIX A, page 59, for a
table of the Cash Value Accumulation Test factors.
The Guideline Premium/Cash Value Corridor Test provides for a maximum premium in
relation to the Death Benefit, and a minimum "corridor" of death benefit in
relation to Account Value. In most situations, the death benefit that results
from the Guideline Premium/Cash Value Corridor Test will ultimately be less than
the amount of death benefit required under the Cash Value Accumulation Test. See
Appendix B, page 67, for a table of the Guideline Premium/Cash Value Corridor
Test factors.
This Policy allows the Owner to choose, at the time of application, which of
these tests we will apply to the Policy. A choice of tests is irrevocable.
Regardless of which test is chosen, we will at all times assure that the Policy
meets the statutory definition which qualifies the Policy as life insurance for
Federal income tax purposes. In addition, as long as the Policy remains in
force, increases in Account Value as a result of interest or investment
experience will not be subject to Federal income tax unless and until there is a
distribution from the Policy, such as a Partial Withdrawal or loan.
The favorable tax treatment of Section 101(a) will not apply to benefits paid at
maturity of the policy (age 100), if any. See Benefits at Maturity, page
25.
Also, any interest payment accrued on Death Proceeds paid either as a lump sum
or other than in one lump sum may be subject to tax. See Settlement Provisions,
page 45.
The Federal government has in the past and may in the future consider or enact
new legislation or regulations that could change the Federal income tax
treatment of life insurance policy income exchanges and transfers, or death
benefits. Any such change could have a retroactive effect. Such concerns
should be addressed by a legal or tax adviser.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations issued by the Secretary of the
Treasury set the standards for measuring the adequacy of this diversification.
To be adequately diversified, each Division of the Variable Account must meet
certain tests. A variable life policy that is not adequately diversified under
these regulations would not be treated as life insurance under Section 7702 of
the Code. If this were to occur, the Owner would be subject to Federal income
tax on the income under the Policy as it is earned. The Portfolios in which the
Variable Account invests have provided assurances that they will meet the
applicable diversification standards.
In certain circumstances, Owners of variable life insurance contracts may be
considered the Owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances,
income and gains from the separate account assets would be includable in the
variable contract Owner's gross income. The IRS has stated in published rulings
that a variable contract Owner will be considered the Owner of separate account
assets if the contract Owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The
Treasury also announced, in connection with the issuance of temporary
regulations concerning diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
policy owner), rather than the insurance company, to be treated as the owner of
the assets in the account." This announcement also stated that guidance would be
issued by way of regulations or rulings on the "extent to which policyholders
may direct their investments to particular subaccounts without being treated as
Owners of the underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that Policy Owners were not owners of separate account assets. For example, the
Owner has additional flexibility in allocating premium payments and Policy
values. These differences could result in an Owner being treated as the owner
of a pro rata portion of the assets of the Variable Account. In addition,
Security Life does not know what standards will be set forth, if any, in the
regulations or rulings which the Treasury has stated it expects to issue.
Security Life therefore reserves the right to modify the Policy as necessary to
attempt to prevent an Owner from being considered the owner of a pro rata share
of the assets of the Variable Account or to otherwise qualify the Policy for
favorable tax treatment.
MODIFIED ENDOWMENT CONTRACTS
Code Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts", which applies to Policies entered into or
materially changed after June 20, 1988.
Due to the Policy's flexibility, classification as a Modified Endowment Contract
will depend on the individual circumstances of each Policy. In general, a
Policy will be a Modified Endowment Contract if the accumulated premiums
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paid at any time during the first seven Policy years exceed the sum of the net
level premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven, level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
death benefit and the Account Value at the time of such change and the
additional premiums paid in the seven years following the material change.
The rules relating to whether a Policy will be treated as a Modified Endowment
Contract are extremely complex and cannot be fully described in the limited
confines of this summary. Therefore, a current or prospective Owner should
consult with a competent adviser to determine whether a Policy transaction will
cause the Policy to be treated as a Modified Endowment Contract. To the extent
possible, to keep the Policy from being treated as a "modified endowment
contract" for Federal tax purposes, the provisions of the Policy shall be
interpreted to prevent the Policy from being subject to such treatment. We
reserve the right to amend the Policy to reflect any clarifications that may be
needed or are appropriate, including any rider, to achieve this objective.
Security Life will monitor Policies and will attempt to notify an Owner on a
timely basis if the Owner's Policy becomes a Modified Endowment Contract.
TAX TREATMENT OF PREMIUMS
No tax deduction is allowed for premiums paid on any life insurance policy
covering the life of any officer or employee, or of any person financially
interested in any business carried on by the taxpayer, when the taxpayer is a
beneficiary (directly or indirectly) under such policy. Consult your tax
adviser for advice on the availability of deductions.
LOANS, LAPSES, SURRENDERS AND WITHDRAWALS
IF THE POLICY IS NOT A MODIFIED ENDOWMENT CONTRACT
If a Policy is not a Modified Endowment Contract, as long as it remains in
force, a loan under the Policy will be treated as indebtedness and no part of
the loan will be subject to current Federal income tax. Interest paid (or
accrued by an accrual basis taxpayer) on the loan may or may not be tax
deductible. Consult your tax adviser for advice on the availability of
deductions.
Any time a Policy is surrendered or lapses, the excess, if any, of the Cash
Surrender Value over the Owner's "investment in the Policy" will be subject to
Federal income tax as ordinary income. "Investment in the Policy" means (i) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from gross
income of the Owner (except that the amount of any loan from, or secured by, a
Policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by a Policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the Owner. It is
important to note that for this calculation, if the Policy terminates while a
Policy loan is outstanding, the total amount of the loan and accrued loan
interest will be treated as a distribution and could be subject to tax under the
above rules. As a result, in certain circumstances this may result in taxable
income to the Owner even though the Policy has no Net Cash Surrender Value.
Proceeds received on a Partial Withdrawal may or may not be taxable depending on
the Owner's particular circumstances. During the first 15 Policy years, the
proceeds from a Partial Withdrawal could be subject to Federal income tax to the
extent the Cash Surrender Value exceeds investment in the Policy. The portion
subject to tax will depend upon the ratio of the death benefit to Account Value
under the Policy and the Age of the Insured at the time of the withdrawal.
After the first 15 Policy years, the proceeds from a Partial Withdrawal will not
be subject to Federal income tax except to the extent such proceeds exceed
investment in the Policy.
IF THE POLICY IS A MODIFIED ENDOWMENT CONTRACT
If a Policy is a Modified Endowment Contract, any pre-death distribution from
the Policy will be taxed on an "income-first" basis, similar to the treatment of
annuities for individuals. Distributions for this purpose include a surrender,
Partial Withdrawal or Policy Loan, including any increase in a loan amount to
pay interest on an existing loan or an assignment or a pledge to secure a loan.
Any such distributions will be considered taxable income to the Owner to the
extent the Account Value exceeds investment in the Policy immediately before the
distribution. All Modified Endowment Contracts that are issued by Security Life
(and its affiliates) to the same Owner during any calendar year are treated as
one Modified Endowment Contract for purposes of determining the amount
includable in the gross income under Code Section 72(c).
A 10% penalty tax will also apply to the taxable portion of a distribution from
a Modified Endowment Contract, unless an exception applies. The penalty tax
will not apply to distributions (i) when the taxpayer is at least 59 1/2 years
of age, (ii) in the case of a disability (as defined in the Code), or (iii)
received as part of a series of substantially equal periodic payments, made at
least annually for the life (or life expectancy) of the taxpayer or the joint
lives (or joint life
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Strategic Advantage 39
<PAGE>
expectancies) of the taxpayer and his or her beneficiary. Since these exclusions
do not apply to corporations or other business entities, the 10% penalty tax
would always apply to these types of Owners. If the Policy is surrendered, the
excess, if any, of the Cash Surrender Value over investment in the Policy will
be subject to Federal income tax and, unless one of the above exceptions
applies, the 10% penalty tax.
If a Policy was not originally a Modified Endowment Contract but later becomes
one, distributions that occur during the Policy year it becomes a Modified
Endowment Contract and any subsequent Policy year will be taxed as described in
the two preceding paragraphs. In addition, any distributions from the Policy
made within two years before it becomes a Modified Endowment Contract will be
treated as having been made in anticipation of the change and will be subject to
tax in this manner. This means that a distribution made from a Policy that is
not a modified endowment could later become taxable as a distribution from a
Modified Endowment Contract. The Treasury has been authorized to prescribe
rules which would address this issue.
ALTERNATIVE MINIMUM TAX
For purposes of the alternative minimum tax adjusted current earnings
adjustment, special rules apply with respect to life insurance contracts. Under
these rules, death benefit proceeds are taken into account, increases in cash
value attributable to investment performance are taken into account currently
and the distribution tax rules apply in a modified form.
SECTION 1035 EXCHANGES
Section 1035 of the Internal Revenue Code generally provides that no gain or
loss shall be recognized on the exchange of one life insurance policy for
another life insurance policy or for an endowment or annuity contract. We
accept 1035 exchanges with outstanding loans. Special rules and procedures
apply to Section 1035 transactions. Prospective owners wishing to take
advantage of Section 1035 should consult their tax adviser prior to initiating
the exchange.
TAX-EXEMPT POLICY OWNERS
Special rules may apply in the case of a Policy owned by a tax-exempt entity.
Accordingly, tax-exempt entities should consult with a tax adviser regarding the
consequences of purchasing and owning a Policy, including the effect, if any, on
the tax-exempt status of the entity and the application of the unrelated
business income tax.
CHANGES TO COMPLY WITH LAW
To assure that the Policy continues to qualify as life insurance under the Code,
we reserve the right to decline to accept all or part of any premium payments,
to decline to change death benefits, or to decline to make Partial Withdrawals
that would cause the Policy to fail to qualify. We also may make changes in the
Policy or its Riders, require additional premium payments, or make distributions
from the Policy to the extent we deem necessary to qualify the Policy as life
insurance for tax purposes. Any such change will apply uniformly to all
policies that are affected. The Policy Owner will be given advance notice of
such changes.
The tax law limits the allowable charges for mortality costs and other expenses
that may be used in making calculations to determine whether a Policy qualifies
as life insurance for Federal income tax purposes. These calculations must be
based upon reasonable mortality charges and other charges reasonably expected to
be paid. The Treasury has issued proposed regulations on the reasonableness
standards for mortality charges. Security Life believes that the charges used
for this purpose in the Policy should meet the current requirement for
reasonableness. Security Life reserves the right to make modifications to the
mortality charges if future regulations contain standards which make
modification necessary in order to continue qualification of the Policy as life
insurance for Federal income tax purposes.
In addition, assuming that the Policy is not intended by the Owner to be or
become a Modified Endowment Contract, we will include an endorsement to the
Policy whereby we reserve the right to amend the Policy, including any Rider, to
assure that the Policy continues to comply with the seven-pay test for
Federal income tax purposes. If at any time the premium paid under the Policy
exceeds the seven-pay limit, we reserve the right to remove such excess premium
or make any appropriate adjustments to the Policy's Account Value and death
benefits. Any death benefit increase will cause an increase in the cost of
insurance charges.
OTHER
The Policies may be used in various arrangements, including qualified plans,
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if the Owner
is contemplating the use of the Policies in any arrangement the value of which
depends in part on its tax consequences, the Owner should be sure to consult a
qualified tax adviser regarding the tax attributes of the particular
arrangement.
We are required to withhold income taxes from any portion of
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Strategic Advantage 40
<PAGE>
the amounts received by individuals in a taxable transaction, unless an election
is made in writing not to have withholding apply. If the election not to have
withholding is made, or if the amount withheld is insufficient, income taxes,
and possibly penalties, may have to be paid later.
Federal estate and gift taxes and state and local inheritance, estate, and other
tax consequences of ownership or receipt of Policy benefits depend on the
particular jurisdiction and the circumstances of each Owner and Beneficiary.
Qualified legal or tax advisers should be consulted for complete information on
Federal, state, local and other tax considerations.
ADDITIONAL INFORMATION ABOUT THE POLICY
VOTING PRIVILEGES
We invest the assets in the Divisions of the Variable Account in shares of the
corresponding Portfolios. See Investment Objectives of the Portfolios, page 14.
We are the legal owner of the shares held in the Variable Account and, as such,
have 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 Investment Company Act of 1940.
Even though we own the shares, to the extent required by the interpretations of
the SEC, we give Owners the opportunity to tell us how to vote the number of
shares that are attributable to their Policies. We will vote those shares at
meetings of Portfolio shareholders according to these instructions. We also
will vote any Portfolio shares that are not attributable to the Policies 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.
Owners may participate in voting only on matters affecting the Portfolios in
which the Owner's assets have been invested. We determine the number of
Portfolio shares in each Division that are attributable to a Policy by dividing
the Account Value allocated to that Division by the net asset value of one share
of the corresponding Portfolio. The number of shares as to which an Owner 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. Owners having a voting interest will be sent proxy material and a form
for giving us voting instructions.
All Portfolio shares are entitled to one vote. The votes of all Portfolios are
cast together on an aggregate basis, except on matters where the interests of
the Portfolios differ. In such cases, voting is on a portfolio-by-portfolio
basis. In these cases, the approval of the shareholders in one Portfolio is not
needed in order to make a decision in another Portfolio. Examples of matters
that would require a portfolio-by-portfolio vote are changes in the fundamental
investment policy of a particular Portfolio or approval of an investment
advisory agreement. Shareholders in a Portfolio not affected by a particular
matter generally would not be entitled to vote on it.
The Boards of the Portfolios and Security Life and any other insurance companies
participating in the Portfolios are required to monitor events to identify any
material conflicts that may arise from the use of the Portfolios for variable
life and variable annuity separate accounts. Conflict might arise as a result
of changes in state insurance law or Federal income tax law, changes in
investment management of any Portfolio, or differences in voting instructions
given by owners of variable life insurance policies and variable annuity
contracts. Shares of these Portfolios may also be sold to certain 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. If there is a material conflict,
we will have an obligation to determine what action should be taken including
the removal of the affected Portfolios from eligibility for investment by the
Variable Account. We will consider taking other action to protect Owners.
However, there could be unavoidable delays or interruptions of operations of the
Variable Account that we 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 semi-annual report to Owners.
Under the Investment Company Act of 1940, certain actions affecting the Variable
Account (such as some of those described under Right To Change Operations) may
require Owner approval. In that case, each Owner will be entitled to one vote
for every $100 of value held in the Divisions of the Variable Account. We will
cast votes attributable to amounts in the Divisions of the Variable Account not
attributable to Policies in the same proportions as votes cast by Owners.
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Strategic Advantage 41
<PAGE>
RIGHT TO CHANGE OPERATIONS
Subject to state limitations, the Company may from time to time change the
investment objective of, or make the following changes to, the Variable Account:
(i) Make additional Divisions available. These Divisions will invest in
Portfolios we find suitable for the Policy.
(ii) 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 Policy. This
may also happen due to a change in laws or regulations, or a change in
a Portfolio's investment objectives or restrictions, or because the
Portfolio is no longer available for investment, or for some other
reason, such as a declining asset base.
(iii) Transfer assets of the Variable Account, which we determine to be
associated with the class of policies to which an Owner's Policy
belongs, to another Variable Account.
(iv) Withdraw the Variable Account from registration under the 1940 Act.
(v) Operate the Variable Account as a management investment company under
the 1940 Act.
(vi) Cause one or more Divisions to invest in a mutual fund other than or
in addition to the Portfolios.
(vii) Discontinue the sale of Policies.
(viii) Terminate any employer or plan trustee agreement with us pursuant to
its terms.
(ix) Restrict or eliminate any voting rights as to the Variable Account.
(x) 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 any changes. If an Owner then wishes to transfer the amount
in that Division to another Division of the Variable Account or to the
Guaranteed Interest Division, they may do so, without charge, by notifying us.
At the same time, changes in Net Premium and deduction allocations may also be
made, without charge.
REPORTS TO OWNERS
We will maintain all records relating to the Variable Account, its Divisions and
the Guaranteed Interest Division. At the end of each Policy year we will send a
report that shows the Total Policy Death Benefit (Base Death Benefit plus
Adjustable Term Insurance Rider Death Benefit, if any), the Account Value, the
Policy Loan plus accrued Loan Interest and Net Cash Surrender Value. We will
also include information about the Divisions of the Variable Account. The
report also shows any transactions involving the Account Value that occurred
during the year such as premium allocations, deductions, and any loans or
withdrawals in that year.
We also will send semi-annual reports to the Owner, which will include financial
information on the Portfolios, including a list of the investments held by each
Portfolio.
Confirmation notices will be sent to the Owner during the year for certain
Policy transactions.
OTHER GENERAL POLICY PROVISIONS
FREE LOOK PERIOD
Owners have the right to examine the Policy. If for any reason the Owner is not
satisfied with the Policy when issued, the Policy may be returned to us or the
Registered Representative within the time limit described below and it will be
deemed void as of the Policy Date. A request to cancel this Policy must be
postmarked no later than 10 days after it is received, or as otherwise specified
by state law. If a Policy is canceled under this provision, we will refund an
amount equal to the full amount of any premiums paid or as otherwise specified
by state law. Insurance coverage ends when the request is sent.
THE POLICY
This Policy is a contract between the Owner and us. The Policy, including a
copy of the original application and any applications for an increase, Riders,
endorsements, Schedule pages, and any reinstatement applications make up the
entire contract. A copy of any application as well as a new Schedule will be
attached or furnished to the Owner for attachment to the Policy at the time of
any change in coverage. In the absence of fraud, all statements made in any
application will be considered representations and are not warranties. No
statement will be used to deny a claim unless it is in an application.
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Strategic Advantage 42
<PAGE>
All changes or amendments to this Policy made by us must be signed by our
president or an officer of the Company and by our secretary or assistant
secretary. No other person is authorized to change the terms or conditions of
this policy.
AGE
This Policy is issued at the Age stated in the Schedule. This is the Insured's
Age nearest birthday, calculated as of the Policy Date. The Age of the Insured
at any time is calculated by adding the number of completed Policy years to the
Age shown in the Schedule.
OWNERSHIP
The original Owner is the person named in the application. The Owner can
exercise all rights and receive the benefits during the Insured's lifetime
before the Maturity Date. This includes the right to change the Owner,
Beneficiaries, and methods for the payment of proceeds. All rights of the Owner
are subject to the rights of any assignee and any irrevocable Beneficiary.
An Owner may name a new Owner by giving us written notice. The effective date
of the change to the new Owner will be the date the notice is signed. The
change will not affect any payment made or action taken by us before recording
the change at our Customer Service Center. A change in ownership may cause
recognition of taxable income or gain, if any, to the old Owner.
BENEFICIARY
The Owner names the Beneficiary when applying for the Policy. The primary
Beneficiary surviving the Insured will receive any Death Proceeds which become
payable. Surviving contingent Beneficiaries are paid Death Proceeds only if no
primary Beneficiary has survived the Insured. If more than one Beneficiary
survives the Insured, they will share the Death Proceeds equally, unless the
designation provides otherwise. If there is no designated Beneficiary
surviving, Death Proceeds will be paid to the Owner or the Owner's estate.
The Beneficiary designation will be on file with us or at a location designated
by us. A new Beneficiary may be named during the Insured's lifetime. We will
pay the proceeds to the most recent Beneficiary designation on file. We will
not be subject to multiple payments.
COLLATERAL ASSIGNMENT
This Policy may be assigned as collateral security by sending written notice to
us. Once it is recorded with us, the rights of the Owner and the Beneficiary
are subject to the assignment, unless the Beneficiary was designated as an
irrevocable Beneficiary prior to the assignment. It is the Owner's
responsibility to make sure the assignment is valid.
INCONTESTABILITY
We can challenge the validity of the insurance Policy if it appears that there
have been material misstatements in the application. However, there are limits
as to how and when we can challenge the Policy:
. We will not contest the statements in the application attached at issue
after the Policy has been in effect, during the Insured's lifetime, for two
years from the Policy Date or the date specified by state law.
. We will not contest the statements in the application for any reinstatement
after the reinstatement has been in effect, during the Insured's lifetime,
for two years from the effective date of such reinstatement.
. We will not contest the statements in the application for any coverage
change that creates a new Segment or increases any benefit with respect to
the Insured (such as an increase in Stated Death Benefit) after the change
has been in effect, during the Insured's lifetime, for two years from the
effective date of the new Segment or increase.
We have the right to rescind this Policy if we issued or reinstated the Policy
based on a statement in an application, including a reinstatement application,
that was false or misleading.
MISSTATEMENTS OF AGE OR SEX
If the Age or sex of the Insured has been misstated, the death benefit will be
adjusted. The death benefit will be adjusted to the amount which would have
been purchased for the Insured's correct Age and sex based on the cost of
insurance charges which were deducted from the Account Value on the last Monthly
Processing Date prior to the Insured's death or as otherwise required by state
law. If unisex cost of insurance rates apply, we will not make an adjustment
for a misstatement of sex.
SUICIDE
If the Insured commits suicide within two years of the Policy Date or date of
reinstatement, the death benefit will be limited to the total of all premiums
that have been paid to the time of death minus the amount of any outstanding
Policy Loan and accrued loan interest and minus any partial withdrawals, unless
otherwise required by law. If the Insured has been
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Strategic Advantage 43
<PAGE>
changed and the new Insured dies by suicide within two years of the change date,
the death benefit will be limited to the Net Account Value as of the change
date, plus the premiums paid since that date, less the sum of any increases in
Policy Loan, accrued loan interest and any partial withdrawals since the change
date. If the Insured commits suicide, while sane or insane, within two years of
the effective date of a new Segment or of an increase in any other benefit, we
will make a limited payment to the beneficiary for the new Segment or other
increase. This payment will equal the cost of insurance and any applicable
monthly expense charges deducted for such increase.
PAYMENT
We will pay the Death Proceeds, Net Cash Surrender Value upon surrender, Partial
Withdrawals, and loan proceeds within seven days after we receive the
information required to process the payment. We also will execute a transfer
among Divisions of the Variable Account as of the Valuation Date on or next
following our receipt of a request at our Customer Service Center. Transfers
from the Guaranteed Interest Division to the Divisions of the Variable Account
will be made only within the time periods indicated in this prospectus. See
Transfers of Account Values, page 26.
We may, however, postpone the processing of any such transactions at any of the
following times:
. When the NYSE is closed for trading;
. When trading on the NYSE is restricted by the SEC;
. 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
. When a governmental body having jurisdiction over the Variable Account
permits such suspension by order.
Rules and regulations of the SEC, if any, are applicable and will govern the
determination as to whether the above conditions exist.
Death Proceeds are determined as of the date of death of the Insured. The Death
Proceeds will not be affected by changes in the values of the Divisions of the
Variable Account subsequent to the date of death of the Insured. We will pay
interest at the rate declared by us or at any higher rate required by law from
the date of death of the Insured to the date of payment.
Death Proceeds are not subject to deferment. However, we may defer for up to
six months payment of any surrender proceeds, withdrawal amounts, or loan
amounts from our Guaranteed Interest Division, unless otherwise required by law.
We will pay interest at the rate declared by us or at any higher rate required
by law from the date we receive a request if we delay payment more than 30 days.
NOTIFICATION AND CLAIMS PROCEDURES
We must receive in writing any election, designation, change, assignment, or
request made. It must be on a form acceptable to us. We are not liable for any
action we take before we receive and record the written notice. We may require
that the policy be returned for any Policy change or upon its surrender.
We, or the Registered Representative, should be informed as soon as possible
following an Insured's death while the Policy is in force. Claim procedure
instructions will be sent immediately. As due proof of death, we may require
proof of Age and a certified copy of a death certificate. We may also require
the Beneficiary and the Insured's next of kin to sign authorization forms as
part of this process. These authorization forms allow us to obtain information
about the Insured, including but not limited to medical records of physicians
and hospitals used by the Insured.
TELEPHONE PRIVILEGES
If telephone privileges have been elected in a form required by us, transfers or
changes in your Dollar Cost Averaging and Automatic Rebalancing options, or
requests for Partial Withdrawals or a Policy Loan may be made by telephoning our
Customer Service Center.
Our Customer Service Center will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may
include, among others, requiring some form of personal identification prior to
acting upon instructions received by telephone, providing written confirmation
of such transactions, and/or tape recording of telephone instructions. A
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.
NON-PARTICIPATING
The Policy does not participate in Security Life's surplus earnings.
- --------------------------------------------------------------------------------
Strategic Advantage 44
<PAGE>
DISTRIBUTION OF THE POLICIES
The principal underwriter and distributor for the policies is 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. We pay
ING America Equities for acting as the principal underwriter under a
Distribution Agreement.
We sell our Policies through Registered Representatives of other broker-dealers,
including VESTAX Securities Corporation, a subsidiary of ING America Insurance
Holdings, Inc., and Locust Street Securities, Inc., an affiliate of Security
Life of Denver Insurance Company, which have entered into selling agreements
with us. These Registered Representatives are also licensed by state insurance
officials to sell our variable life policies. Each of the broker-dealers with
which we enter into selling agreements with are registered with the SEC and are
members of the NASD.
Under these selling agreements, we pay a distribution allowance to the other
broker-dealers, which in turn pay commissions to the Registered Representative
who sells this Policy. During the first Policy year, the distribution allowance
may equal an amount up to 15% of the Target Premium paid and 3% of premiums paid
in excess of the Target Premium. For Policy years two through five, the
distribution allowance may equal an amount up to 10% of Target Premium and 3% of
premiums paid in excess of the Target Premium. For subsequent Policy years the
distribution allowance may equal 3% of premiums paid. Broker-dealers may also
receive annual renewal compensation of up to 0.15% of the Net Account Value
beginning in the sixth Policy year. Compensation arrangements may vary among
broker-dealers and depend on particular circumstances. In addition, we also may
pay override payments, expense allowances, bonuses, special marketing fees,
wholesaler fees, and training allowances. Registered Representatives who meet
specified production levels may qualify, under our sales incentive programs, to
receive non-cash compensation such as expense-paid trips, expense-paid
educational seminars and merchandise.
We pay the distribution allowance from our own resources (including any sales
charges deducted from premiums).
SETTLEMENT PROVISIONS
During the Insured's lifetime, the Owner may elect that the Beneficiary receive
the Death Proceeds other than in one sum. If this election has not been made,
the Beneficiary may do so within 60 days after the Insured's death. The Owner
may also elect to take the Net Cash Surrender Value other than in one sum.
Payments under these options are not affected by the investment experience of
any Division of our Variable Account. Instead, interest accrues pursuant to the
options chosen. Payment options will also be subject to our rules at the time
of selection. Currently, these alternate payment options are available only if
the proceeds applied are $2000 or more and any periodic payment will be at least
$20.
The following payment options are available:
Option I: Payouts for a Designated Period: Payouts will be made in 1, 2, 4 or
12 installments per year as elected for a designated period, which
may be 5 to 30 years. The installment dollar amounts will be equal
except for any excess interest. The amount of the first monthly
payout for each $1,000 of Account Value applied is shown in
Settlement Option Table I in the Policy.
Option II: Life Income with Payouts Guaranteed for a Designated Period: Payouts
will be made in 1, 2, 4 or 12 installments per year throughout the
payee's lifetime, or if longer, for a period of 5, 10, 15, or 20
years as elected. The installment dollar amounts will be equal
except for any excess interest. The amount of the first monthly
payout for each $1,000 of Account Value applied is shown in
Settlement Option Table II in the Policy. This option is available
only for ages shown in this Table.
Option III: Hold at Interest: Amounts may be left on deposit with us to be paid
upon the death of the payee or at any earlier date elected. Interest
on any unpaid balance will be at the rate declared by us or at any
higher rate required by law. Interest may be accumulated or paid in
1, 2, 4 or 12 installments per year, as elected. Money may not be
left on deposit for more than 30 years.
Option IV: Payouts of a Designated Amount: Payouts will be made until proceeds,
together with interest, which will be at the rate declared by us or
at any higher rate required by law, are exhausted. Payouts will be
made in 1, 2, 4, or 12 equal installments per year, as elected.
Option V: Other: The Owner may ask us to apply the money under any option that
we make available at the time the benefit is paid.
The Beneficiary or other person who is entitled to receive payment may name a
successor to receive any amount that we would otherwise pay to that person's
estate if that person died.
The person who is entitled to receive payment may change the successor at any
time.
- --------------------------------------------------------------------------------
Strategic Advantage 45
<PAGE>
We must approve any arrangements that involve a payee who is not a natural
person (for example, a corporation), or a payee who is a fiduciary. Also, the
details of all arrangements will be subject to our rules at the time the
arrangements take effect. This includes rules on the minimum amount we will pay
under an option, minimum amounts for installment payments, withdrawal or
commutation rights (i.e., the rights to receive payments over time, for which we
may offer a lump sum payment), the naming of people who are entitled to receive
payment and their successors, and the ways of proving Age and survival.
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
The following tables illustrate how the key financial elements of the Policy
work, specifically, how the death benefits, Account Values and Cash Surrender
Values could vary over an extended period of time. In addition, each table
compares these values with premiums paid accumulated with interest. The
Policies illustrated include the following:
<TABLE>
<CAPTION>
Sex Age Smoker Status Death Benefit Definition of Life Stated Death Premium Target Death Page
Option Insurance Test Benefit Benefit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Male 45 Nonsmoker 1 CVAT 300,000 $5,750 300,000 48
Male 45 Nonsmoker 1 CVAT 150,000 $5,750 300,000 50
Male 45 Nonsmoker 1 GP 300,000 $5,750 300,000 52
</TABLE>
The tables show how death benefits, Account Values and Cash Surrender Values of
a hypothetical Policy could vary over an extended period of time if the
Divisions of the Variable Account had constant hypothetical gross annual
investment returns of 0%, 6% or 12% over the periods indicated in each table.
The values will differ from those shown in the tables if the annual investment
returns are not absolutely constant. That is, the death benefits, Account
Values and Cash Surrender Values will be different if the returns averaged 0%,
6% or 12% over a period of years but went above or below those figures in
individual Policy years. These illustrations assume that no Policy Loan has
been taken. The amounts shown would differ if female or unisex rates were used.
The third column of each table shows what would happen if an amount equal to the
premiums were invested to earn interest, after taxes, of 5% compounded annually.
All premium payments are illustrated as if they were made at the beginning of
the year.
The amounts shown for death benefits, Account Values and Cash Surrender Values
sections reflect the fact that the net investment return on the Policy is lower
than the gross investment return on the Divisions of the Variable Account. This
results from the charges levied against the Divisions of the Variable Account
(i.e., the mortality and expense risk charge) as well as the premium loads,
administrative charges and Surrender Charges. The difference between the
Account Value and the Cash Surrender Value in the first 14 years is the
Surrender Charge.
The tables illustrate cost of insurance and expense charges at both our current
rates (which are described under Monthly Deductions from the Account Value, page
32) and at the maximum rates we guarantee in the Policies. The amounts shown at
the end of each Policy year reflect a daily charge against the Variable Account
Divisions. This charge includes the charge against the Variable Account for
mortality and expense risks and the effect on each Division's investment
experience of the charge to Portfolio assets for investment management and
direct expenses. The mortality and expense risk fee is 0.75% annually on a
guaranteed basis; illustrations showing current rates reflect a guaranteed
persistency refund equivalent to 0.5% of the Account Value annually beginning
after the 10th Policy anniversary.
The tables also reflect a daily investment advisory fee equivalent to an annual
rate of .7178% of the aggregate average daily net assets of the Portfolios.
This hypothetical rate is representative of the average maximum investment
advisory fee applicable to the Divisions of the Variable Account. Other
expenses of the Portfolios are assumed at the rate of .1735% of the average
daily net
- --------------------------------------------------------------------------------
Strategic Advantage 46
<PAGE>
assets of an investment division including the investment advisory fee. Actual
fees vary by Portfolio and may be subject to agreements by the sponsor to waive
or otherwise reimburse each investment Division for operating expenses which
exceed certain limits. There can be no assurance that the expense reimbursement
arrangements will continue in the future, and any unreimbursed expenses would be
reflected in the values included on the tables.
The effect of these investment management, direct expenses and mortality and
expense risk charges on a 0% gross rate of return would result in a net rate of
return of (1.63)%, on 6% it would be 4.32%, and on 12% it would be 10.28%.
The tables assume the deduction of charges including administrative and sales
charges. The tables reflect the fact that we do not currently make any charge
against the Variable Account for state or Federal taxes. If such a charge is
made in the future, it will take a higher gross rate of return than the rates
shown to produce death benefits, Account Values, and Cash Surrender Values
shown.
We will furnish, upon request, a comparable illustration based on the Age and
sex of the proposed Insured, standard Premium Class assumptions and an initial
Stated Death Benefit, death benefit option and Scheduled Premiums chosen and
consistent with the Policy form. If the Owner purchases a Policy, we will
deliver an individualized illustration reflecting the Scheduled Premium chosen
and the Insured's actual risk class. After issuance we will provide upon
request an illustration of future Policy benefits based on both guaranteed and
current cost factor assumptions and actual Account Value.
- --------------------------------------------------------------------------------
Strategic Advantage 47
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $300000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $ 5750.00
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
------0.00%------ ------12.00%------ ------6.00%------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 3783 4070 300000 4310 4597 300000 4046 4333 300000
2 5750 12377 7438 7582 300000 8995 9139 300000 8200 8344 300000
3 5750 19033 10964 10964 300000 14093 14093 300000 12464 12464 300000
4 5750 26022 14357 14357 300000 19645 19645 300000 16840 16840 300000
5 5750 33361 17612 17612 300000 25691 25691 300000 21324 21324 300000
6 5750 41067 21129 21129 300000 32730 32730 300000 26344 26344 300000
7 5750 49157 24485 24485 300000 40409 40409 300000 31485 31485 300000
8 5750 57653 27667 27667 300000 48786 48786 300000 36739 36739 300000
9 5750 66573 30663 30663 300000 57930 57930 300000 42102 42102 300000
10 5750 75939 33454 33454 300000 67916 67916 300000 47561 47561 300000
15 5750 130281 44926 44926 300000 137457 137457 300000 77974 77974 300000
20 5750 199636 48698 48698 300000 249126 249126 443693 111329 111329 300000
25 5750 288152 39029 39029 300000 416811 416811 658145 146668 146668 300000
30 5750 401124 3345 3345 300000 661736 661736 940989 183808 183808 300000
AGE 65 5750 215655 48068 48068 300000 277552 277552 481830 118242 118242 300000
</TABLE>
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE
WHICH WERE USED TO CALCULATE THE ABOVE VALUES.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF
THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT
EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURI NG THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID
IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage 48
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $300000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $ 5750.00
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
------0.00%------ ------12.00%------ ------6.00%------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 4237 4525 300000 4793 5080 300000 4515 4802 300000
2 5750 12377 8179 8323 300000 9840 9983 300000 8992 9136 300000
3 5750 19033 11869 11869 300000 15212 15212 300000 13473 13473 300000
4 5750 26022 15413 15413 300000 21052 21052 300000 18061 18061 300000
5 5750 33361 18892 18892 300000 27496 27496 300000 22846 22846 300000
6 5750 41067 22707 22707 300000 35052 35052 300000 28257 28257 300000
7 5750 49157 26453 26453 300000 43393 43393 300000 33902 33902 300000
8 5750 57653 30094 30094 300000 52569 52569 300000 39755 39755 300000
9 5750 66573 33610 33610 300000 62654 62654 300000 45808 45808 300000
10 5750 75939 36998 36998 300000 73744 73744 300000 52066 52066 300000
15 5750 130281 52691 52691 300000 151931 151931 309636 88400 88400 300000
20 5750 199636 61750 61750 300000 276689 276689 492783 130289 130289 300000
25 5750 288152 60391 60391 300000 467918 467918 738842 179255 179255 300000
30 5750 401124 39357 39357 300000 752884 752884 1070601 236891 236891 336859
AGE 65 5750 215655 62493 62493 300000 308821 308821 536114 139436 139436 300000
</TABLE>
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES WILL
VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED. CURRENT
MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE NOT
DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS AND POLICY CHARGES MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO
THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND
THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT
THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID
IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage 49
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $150000 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $150000 ANNUAL PREMIUM: $ 5750.00
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
------0.00%------ ------12.00%------ ------6.00%------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 3782 4070 300000 4309 4597 300000 4045 4333 300000
2 5750 12377 7437 7581 300000 8994 9138 300000 8199 8343 300000
3 5750 19033 10962 10962 300000 14092 14092 300000 12463 12463 300000
4 5750 26022 14356 14356 300000 19643 19643 300000 16838 16838 300000
5 5750 33361 17610 17610 300000 25689 25689 300000 21322 21322 300000
6 5750 41067 21127 21127 300000 32727 32727 300000 26341 26341 300000
7 5750 49157 24483 24483 300000 40405 40405 300000 31482 31482 300000
8 5750 57653 27665 27665 300000 48782 48782 300000 36737 36737 300000
9 5750 66573 30661 30661 300000 57927 57927 300000 42100 42100 300000
10 5750 75939 33454 33454 300000 67913 67913 300000 47559 47559 300000
15 5750 130281 44940 44940 300000 137461 137461 300000 77988 77988 300000
20 5750 199636 48770 48770 300000 249132 249132 443704 111399 111399 300000
25 5750 288152 39307 39307 300000 416821 416821 658160 146892 146892 300000
30 5750 401124 4315 4315 300000 661751 661751 941010 184404 184404 300000
AGE 65 5750 215655 48164 48164 300000 277559 277559 481842 118332 118332 300000
</TABLE>
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE
WHICH WERE USED TO CALCULATE THE ABOVE VALUES.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF
THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT
EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID
IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage 50
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $150000 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $150000 ANNUAL PREMIUM: $ 5750.00
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
------0.00%------ ------12.00%------ ------6.00%------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 4418 4705 300000 4985 5272 300000 4701 4989 300000
2 5750 12377 8612 8756 300000 10324 10468 300000 9451 9595 300000
3 5750 19033 12613 12613 300000 16084 16084 300000 14279 14279 300000
4 5750 26022 16480 16480 300000 22372 22372 300000 19249 19249 300000
5 5750 33361 20258 20258 300000 29290 29290 300000 24413 24413 300000
6 5750 41067 24353 24353 300000 37352 37352 300000 30204 30204 300000
7 5750 49157 28357 28357 300000 46237 46237 300000 36229 36229 300000
8 5750 57653 32261 32261 300000 56024 56024 300000 42488 42488 300000
9 5750 66573 36051 36051 300000 66788 66788 300000 48981 48981 300000
10 5750 75939 39712 39712 300000 78588 78588 300000 55703 55703 300000
15 5750 130281 56623 56623 300000 160849 160849 327810 94500 94500 300000
20 5750 199636 67323 67323 300000 290881 290881 518058 139432 139432 300000
25 5750 288152 69398 69398 300000 490145 490145 773939 192595 192595 304108
30 5750 401124 55462 55462 300000 787026 787026 1119152 252826 252826 359519
AGE 65 5750 215655 68550 68550 300000 324367 324367 563100 149318 149318 300000
</TABLE>
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES WILL
VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED. CURRENT
MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE NOT
DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS AND POLICY CHARGES MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO
THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND
THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT
THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID
IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage 51
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $300000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $ 5750.00
GUIDELINE PREMIUM TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
------0.00%------ ------12.00%------ ------6.00%------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 3783 4070 300000 4310 4597 300000 4046 4333 300000
2 5750 12377 7438 7582 300000 8995 9139 300000 8200 8344 300000
3 5750 19033 10964 10964 300000 14093 14093 300000 12464 12464 300000
4 5750 26022 14357 14357 300000 19645 19645 300000 16840 16840 300000
5 5750 33361 17612 17612 300000 25691 25691 300000 21324 21324 300000
6 5750 41067 21129 21129 300000 32730 32730 300000 26344 26344 300000
7 5750 49157 24485 24485 300000 40409 40409 300000 31485 31485 300000
8 5750 57653 27667 27667 300000 48786 48786 300000 36739 36739 300000
9 5750 66573 30663 30663 300000 57930 57930 300000 42102 42102 300000
10 5750 75939 33454 33454 300000 67916 67916 300000 47561 47561 300000
15 5750 130281 44926 44926 300000 137457 137457 300000 77974 77974 300000
20 5750 199636 48698 48698 300000 255148 255148 311281 111329 111329 300000
25 5750 288152 39029 39029 300000 452480 452480 524877 146668 146668 300000
30 5750 401124 3345 3345 300000 775232 775232 829499 183808 183808 300000
AGE 65 5750 215655 48068 48068 300000 287386 287386 344864 118242 118242 300000
</TABLE>
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE
WHICH WERE USED TO CALCULATE THE ABOVE VALUES.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF
THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT
EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID
IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage 52
<PAGE>
PROSPECT: INSURED'S NAME:
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $300000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $ 5750.00
GUIDELINE PREMIUM TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
------0.00%------ ------12.00%------ ------6.00%------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 4237 4525 300000 4793 5080 300000 4515 4802 300000
2 5750 12377 8179 8323 300000 9840 9983 300000 8992 9136 300000
3 5750 19033 11869 11869 300000 15212 15212 300000 13473 13473 300000
4 5750 26022 15413 15413 300000 21052 21052 300000 18061 18061 300000
5 5750 33361 18892 18892 300000 27496 27496 300000 22846 22846 300000
6 5750 41067 22707 22707 300000 35052 35052 300000 28257 28257 300000
7 5750 49157 26453 26453 300000 43393 43393 300000 33902 33902 300000
8 5750 57653 30094 30094 300000 52569 52569 300000 39755 39755 300000
9 5750 66573 33610 33610 300000 62654 62654 300000 45808 45808 300000
10 5750 75939 36998 36998 300000 73744 73744 300000 52066 52066 300000
15 5750 130281 52691 52691 300000 151941 151941 300000 88400 88400 300000
20 5750 199636 61750 61750 300000 283479 283479 345845 130289 130289 300000
25 5750 288152 60391 60391 300000 501350 501350 581566 179255 179255 300000
30 5750 401124 39357 39357 300000 858653 858653 918759 239792 239792 300000
AGE 65 5750 215655 62493 62493 300000 318987 318987 382784 139436 139436 300000
</TABLE>
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES WILL
VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED. CURRENT
MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE NOT
DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS AND POLICY CHARGES MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO
THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND
THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT
THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID
IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage 53
<PAGE>
ADDITIONAL INFORMATION
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>
R. Glenn Hilliard* Chief Executive Officer
Stephen M. Christopher Director, President and Chief Operating Officer
Catherine T. Fitzgerald* Executive Vice President
Keith T. Glover* Executive Vice President
James L. Livingston, Jr. Executive Vice President, Operations
Jeffrey R. Messner Executive Vice President and Chief Marketing Officer
Thomas F. Conroy Director and President, Security Life Reinsurance
Michael W. Cunningham* Director, Executive Vice President
Linda B. Emory* Director, Vice President and Appointed Actuary
Jess A. Skriletz President, Institutional Markets
John R. Barmeyer* Senior Vice President and Chief Legal Officer
Wayne D. Bidelman Senior Vice President
Eugene L. Copeland Senior Vice President and General Counsel, Security
Life Reinsurance and Institutional Markets
Michael Fisher* Senior Vice President, Litigation
Carol D. Hard Senior Vice President, Variable
Philip R. Kruse Senior Vice President, Sales & Marketing
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage 54
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
<S> <C>
Charles LeDoyen** Senior Vice President, Structured Settlements
Timothy P. McCarthy Senior Vice President, Marketing Services
Jeffery W. Seel* Senior Vice President and Chief Investment Officer
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. Baumbush Vice President, Reinsurance Operations
Evelyn A. Bentz Vice President, M Financial Sales
Thomas Kirby Brown Vice President, Institutional Markets
Daniel S. Clements Vice President and Chief Underwriter
Denise S. Dumont Vice President, Utility Services
Linda Elliott Vice President, CIO 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, Institutional Markets
C. Lynn McPherson* Vice President
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage 55
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
<S> <C>
Sue A. Miskie Vice President, Corporate Services
Donna T. Mosely Vice President, Valuation
Daniel G. Patsey Vice President, Strategic Technology
David S. Pendergrass* Vice President and Treasury Officer
Steve Pryde Vice President, Administration, Security Life
Reinsurance
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
Jerome M. Strop Vice President, Strategic Marketing
Gary W. Waggoner Vice President, General Counsel and Secretary
William Wojciechowski Vice President, Business Consulting and Financial
Markets
Stephen J. Yarina Vice President, Treasurer and Chief Financial Officer
Roger O. Beebe Actuarial Officer
Eric Banta Assistant Secretary
Marsha K. Crest Agency Administration Officer
John B. Dickinson Actuarial Officer
Relda A. Fleshman Deputy General Counsel
Shirley A. Knarr Actuarial Officer
Lisa K. Smith Multi-Life Officer
Glen E. Stark Actuarial Officer
William J. Wagner Actuarial Officer
Amy L. Winsor Tax and Finance Officer
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage 56
<PAGE>
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. In addition, we are subject to the
insurance laws and regulations in every jurisdiction in which we do business.
As a result, the provisions of this Policy may vary somewhat from jurisdiction
to jurisdiction.
We are required to submit annual statements, including financial statements, of
our operations and finances to the Insurance Departments of the various
jurisdictions in which we do business to determine solvency and compliance with
state insurance laws and regulations.
We are also subject to various Federal securities laws and regulations.
LEGAL MATTERS
The legal matters in connection with the Policy described in this prospectus
have been passed on by the General Counsel of Security Life and Mayer, Brown and
Platt.
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 Policy or to the Variable Account, and
we do not expect to incur significant losses from such actions. ING America
Equities, Inc., the principal underwriter and distributor of the Policy, is not
engaged in any litigation of any material nature.
EXPERTS
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries at 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 L1 at December 31, 1997, and for each of the two years
in the period ended December 31, 1997, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
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.
Actuarial matters in this prospectus have been examined by Lawrence D. Taylor,
F.S.A, M.A.A.A, who is the Senior Vice President and Chief Actuarial Officer of
Security Life. His opinion on actuarial matters is filed as an exhibit to the
Registration Statement we filed with the SEC.
REGISTRATION STATEMENT
We have filed a Registration Statement relating to the Variable Account and the
variable life insurance policy described in this prospectus with the SEC. The
Registration Statement, which is required by the Securities Act of 1933,
includes additional information that is not required in this prospectus under
the rules and regulations of the SEC. The additional information may be
obtained from the SEC's principal office in Washington, DC. You will have to
pay a fee for the material.
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 administration
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.
- --------------------------------------------------------------------------------
Strategic Advantage 57
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1997,
are prepared in accordance with generally accepted accounting principles and
start on page ?.
The financial statements included for the Security Life Separate Account L1 at
December 31, 1997 and for each of the two years in the period ended December 31,
1997, are prepared in accordance with generally accepted accounting principles
and represent those Divisions that had commenced operations by that date.
The consolidated financial statements of Security Life and Subsidiaries referred
to above have been audited by Ernst & Young LLP. The consolidated financial
statements of Security Life and Subsidiaries should be distinguished from the
financial statements of the Security Life Separate Account L1 and should be
considered only as bearing upon the ability of Security Life and Subsidiaries to
meet its obligations under the Policies. They should not be considered as
bearing upon the investment experience of the Divisions of Security Life
Separate Account L1.
The most current financial statements are those as of the end of the most recent
fiscal year. The Company does not prepare financial statements more often than
annually and believes that any incremental benefit to prospective policy holders
that may result from preparing and delivering more current financial statements,
though unaudited, does not justify the additional cost that would be incurred.
In addition, the Company represents that there have been no significant adverse
changes in the financial condition or operations of the Company between the end
of the most current fiscal year and the date of this prospectus.
- --------------------------------------------------------------------------------
Strategic Advantage 58
<PAGE>
APPENDIX A
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
MALE NONSMOKER
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age Factor Age Factor Age Factor Age Factor
<S> <C> <C> <C> <C> <C> <C> <C>
0 12.574 25 6.095 50 2.671 75 1.396
1 12.681 26 5.904 51 2.589 76 1.372
2 12.341 27 5.717 52 2.509 77 1.349
3 11.996 28 5.533 53 2.433 78 1.328
4 11.655 29 5.354 54 2.360 79 1.307
5 11.316 30 5.179 55 2.290 80 1.288
6 10.979 31 5.008 56 2.223 81 1.270
7 10.644 32 4.843 57 2.159 82 1.253
8 10.311 33 4.682 58 2.097 83 1.236
9 9.982 34 4.527 59 2.038 84 1.221
10 9.660 35 4.376 60 1.982 85 1.207
11 9.345 36 4.231 61 1.928 86 1.195
12 9.041 37 4.091 62 1.877 87 1.183
13 8.750 38 3.955 63 1.828 88 1.172
14 8.476 39 3.825 64 1.781 89 1.161
15 8.218 40 3.699 65 1.736 90 1.151
16 7.973 41 3.577 66 1.694 91 1.141
17 7.740 42 3.461 67 1.654 92 1.131
18 7.517 43 3.348 68 1.615 93 1.120
19 7.301 44 3.240 69 1.579 94 1.109
20 7.091 45 3.136 70 1.544 95 1.097
21 6.886 46 3.036 71 1.511 96 1.083
22 6.684 47 2.939 72 1.480 97 1.069
23 6.484 48 2.847 73 1.450 98 1.054
24 6.288 49 2.757 74 1.422 99 1.040
100 1.000
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 59
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
MALE SMOKER
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age Factor Age Factor Age Factor Age Factor
<S> <C> <C> <C> <C> <C> <C> <C>
0 10.511 25 4.963 50 2.267 75 1.330
1 10.508 26 4.811 51 2.205 76 1.312
2 10.203 27 4.661 52 2.145 77 1.295
3 9.897 28 4.515 53 2.088 78 1.280
4 9.597 29 4.371 54 2.034 79 1.265
5 9.301 30 4.231 55 1.982 80 1.251
6 9.007 31 4.094 56 1.933 81 1.238
7 8.718 32 3.962 57 1.886 82 1.225
8 8.433 33 3.834 58 1.841 83 1.213
9 8.153 34 3.710 59 1.798 84 1.202
10 7.879 35 3.590 60 1.757 85 1.191
11 7.613 36 3.475 61 1.717 86 1.182
12 7.356 37 3.363 62 1.680 87 1.173
13 7.109 38 3.256 63 1.644 88 1.164
14 6.876 39 3.153 64 1.610 89 1.155
15 6.654 40 3.054 65 1.577 90 1.147
16 6.456 41 2.959 66 1.547 91 1.138
17 6.269 42 2.869 67 1.518 92 1.129
18 6.091 43 2.782 68 1.490 93 1.120
19 5.919 44 2.698 69 1.464 94 1.109
20 5.752 45 2.619 70 1.438 95 1.097
21 5.590 46 2.542 71 1.414 96 1.083
22 5.430 47 2.469 72 1.391 97 1.069
23 5.272 48 2.399 73 1.369 98 1.054
24 5.117 49 2.331 74 1.349 99 1.040
100 1.000
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 60
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
FEMALE NONSMOKER
<TABLE>
<CAPTION>
Attained Attained Factor Attained Factor Attained Factor
Age Factor Age Age Age
<S> <C> <C> <C> <C> <C> <C> <C>
0 14.687 25 6.861 50 3.013 75 1.493
1 14.680 26 6.638 51 2.920 76 1.461
2 14.279 27 6.421 52 2.831 77 1.430
3 13.873 28 6.211 53 2.745 78 1.401
4 13.471 29 6.007 54 2.662 79 1.373
5 13.073 30 5.809 55 2.583 80 1.347
6 12.682 31 5.618 56 2.507 81 1.322
7 12.294 32 5.432 57 2.433 82 1.299
8 11.915 33 5.252 58 2.362 83 1.278
9 11.541 34 5.078 59 2.293 84 1.257
10 11.175 35 4.910 60 2.226 85 1.239
11 10.817 36 4.747 61 2.162 86 1.221
12 10.469 37 4.590 62 2.100 87 1.205
13 10.132 38 4.439 63 2.040 88 1.190
14 9.807 39 4.294 64 1.983 89 1.176
15 9.494 40 4.154 65 1.928 90 1.163
16 9.192 41 4.019 66 1.876 91 1.150
17 8.899 42 3.890 67 1.826 92 1.137
18 8.617 43 3.765 68 1.778 93 1.125
19 8.344 44 3.645 69 1.732 94 1.112
20 8.078 45 3.530 70 1.688 95 1.098
21 7.821 46 3.419 71 1.645 96 1.084
22 7.571 47 3.312 72 1.604 97 1.069
23 7.327 48 3.208 73 1.565 98 1.054
24 7.091 49 3.109 74 1.528 99 1.040
100 1.000
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 61
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
FEMALE SMOKER
<TABLE>
<CAPTION>
Attained Factor Attained Factor Attained Factor Attained Factor
Age Age Age Age
<S> <C> <C> <C> <C> <C> <C> <C>
0 13.162 25 6.032 50 2.728 75 1.451
1 13.099 26 5.836 51 2.651 76 1.423
2 12.723 27 5.647 52 2.578 77 1.396
3 12.346 28 5.463 53 2.507 78 1.371
4 11.974 29 5.285 54 2.438 79 1.347
5 11.608 30 5.113 55 2.373 80 1.325
6 11.248 31 4.946 56 2.310 81 1.303
7 10.894 32 4.785 57 2.249 82 1.283
8 10.547 33 4.629 58 2.190 83 1.263
9 10.207 34 4.478 59 2.132 84 1.246
10 9.874 35 4.332 60 2.076 85 1.229
11 9.550 36 4.192 61 2.022 86 1.214
12 9.234 37 4.056 62 1.969 87 1.199
13 8.930 38 3.926 63 1.919 88 1.186
14 8.636 39 3.801 64 1.870 89 1.173
15 8.352 40 3.682 65 1.824 90 1.161
16 8.085 41 3.568 66 1.780 91 1.149
17 7.826 42 3.459 67 1.738 92 1.137
18 7.577 43 3.354 68 1.697 93 1.125
19 7.336 44 3.254 69 1.658 94 1.112
20 7.102 45 3.158 70 1.620 95 1.098
21 6.876 46 3.065 71 1.583 96 1.084
22 6.655 47 2.976 72 1.547 97 1.069
23 6.441 48 2.890 73 1.513 98 1.054
24 6.234 49 2.808 74 1.481 99 1.040
100 1.000
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 62
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
UNISEX 1 NONSMOKER
<TABLE>
<CAPTION>
Attained Factor Attained Factor Attained Factor Attained Factor
Age Age Age Age
<S> <C> <C> <C> <C> <C> <C> <C>
0 12.574 25 6.095 50 2.671 75 1.396
1 12.681 26 5.904 51 2.589 76 1.372
2 12.341 27 5.717 52 2.509 77 1.349
3 11.996 28 5.533 53 2.433 78 1.328
4 11.655 29 5.354 54 2.360 79 1.307
5 11.316 30 5.179 55 2.290 80 1.288
6 10.979 31 5.008 56 2.223 81 1.270
7 10.644 32 4.843 57 2.159 82 1.253
8 10.311 33 4.682 58 2.097 83 1.236
9 9.982 34 4.527 59 2.038 84 1.221
10 9.660 35 4.376 60 1.982 85 1.207
11 9.345 36 4.231 61 1.928 86 1.195
12 9.041 37 4.091 62 1.877 87 1.183
13 8.750 38 3.955 63 1.828 88 1.172
14 8.476 39 3.825 64 1.781 89 1.161
15 8.218 40 3.699 65 1.736 90 1.151
16 7.973 41 3.577 66 1.694 91 1.141
17 7.740 42 3.461 67 1.654 92 1.131
18 7.517 43 3.348 68 1.615 93 1.120
19 7.301 44 3.240 69 1.579 94 1.109
20 7.091 45 3.136 70 1.544 95 1.097
21 6.886 46 3.036 71 1.511 96 1.083
22 6.684 47 2.939 72 1.480 97 1.069
23 6.484 48 2.847 73 1.450 98 1.054
24 6.288 49 2.757 74 1.422 99 1.040
100 1.000
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 63
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
UNISEX 1 SMOKER
<TABLE>
<CAPTION>
Attained Factor Attained Factor Attained Factor Attained Factor
Age Age Age Age
<S> <C> <C> <C> <C> <C> <C> <C>
0 10.511 25 4.963 50 2.267 75 1.330
1 10.508 26 4.811 51 2.205 76 1.312
2 10.203 27 4.661 52 2.145 77 1.295
3 9.897 28 4.515 53 2.088 78 1.280
4 9.597 29 4.371 54 2.034 79 1.265
5 9.301 30 4.231 55 1.982 80 1.251
6 9.007 31 4.094 56 1.933 81 1.238
7 8.718 32 3.962 57 1.886 82 1.225
8 8.433 33 3.834 58 1.841 83 1.213
9 8.153 34 3.710 59 1.798 84 1.202
10 7.879 35 3.590 60 1.757 85 1.191
11 7.613 36 3.475 61 1.717 86 1.182
12 7.356 37 3.363 62 1.680 87 1.173
13 7.109 38 3.256 63 1.644 88 1.164
14 6.876 39 3.153 64 1.610 89 1.155
15 6.654 40 3.054 65 1.577 90 1.147
16 6.456 41 2.959 66 1.547 91 1.138
17 6.269 42 2.869 67 1.518 92 1.129
18 6.091 43 2.782 68 1.490 93 1.120
19 5.919 44 2.698 69 1.464 94 1.109
20 5.752 45 2.619 70 1.438 95 1.097
21 5.590 46 2.542 71 1.414 96 1.083
22 5.430 47 2.469 72 1.391 97 1.069
23 5.272 48 2.399 73 1.369 98 1.054
24 5.117 49 2.331 74 1.349 99 1.040
100 1.000
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 64
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
UNISEX 2 NONSMOKER
<TABLE>
<CAPTION>
Attained Factor Attained Factor Attained Factor Attained Factor
Age Age Age Age
<S> <C> <C> <C> <C> <C> <C> <C>
0 12.943 25 6.234 50 2.733 75 1.418
1 13.032 26 6.037 51 2.649 76 1.392
2 12.683 27 5.845 52 2.568 77 1.368
3 12.327 28 5.657 53 2.490 78 1.345
4 11.975 29 5.473 54 2.415 79 1.323
5 11.626 30 5.294 55 2.343 80 1.303
6 11.278 31 5.120 56 2.275 81 1.283
7 10.934 32 4.950 57 2.209 82 1.265
8 10.593 33 4.786 58 2.146 83 1.247
9 10.256 34 4.627 59 2.085 84 1.231
10 9.926 35 4.474 60 2.027 85 1.216
11 9.604 36 4.325 61 1.972 86 1.202
12 9.292 37 4.182 62 1.918 87 1.190
13 8.994 38 4.043 63 1.868 88 1.178
14 8.710 39 3.910 64 1.819 89 1.166
15 8.443 40 3.782 65 1.773 90 1.155
16 8.188 41 3.658 66 1.729 91 1.144
17 7.945 42 3.539 67 1.687 92 1.133
18 7.712 43 3.424 68 1.647 93 1.122
19 7.487 44 3.314 69 1.609 94 1.110
20 7.267 45 3.208 70 1.573 95 1.097
21 7.053 46 3.106 71 1.538 96 1.084
22 6.843 47 3.007 72 1.506 97 1.069
23 6.637 48 2.912 73 1.475 98 1.054
24 6.433 49 2.821 74 1.445 99 1.040
100 1.000
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 65
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
UNISEX 2 SMOKER
<TABLE>
<CAPTION>
Attained Factor Attained Factor Attained Factor Attained Factor
Age Age Age Age
<S> <C> <C> <C> <C> <C> <C> <C>
0 10.942 25 5.143 50 2.347 75 1.361
1 10.931 26 4.984 51 2.282 76 1.341
2 10.616 27 4.828 52 2.221 77 1.323
3 10.298 28 4.675 53 2.162 78 1.306
4 9.985 29 4.526 54 2.105 79 1.289
5 9.677 30 4.380 55 2.052 80 1.274
6 9.373 31 4.239 56 2.000 81 1.259
7 9.072 32 4.102 57 1.951 82 1.244
8 8.777 33 3.969 58 1.904 83 1.230
9 8.487 34 3.841 59 1.859 84 1.217
10 8.203 35 3.717 60 1.816 85 1.205
11 7.927 36 3.597 61 1.774 86 1.194
12 7.660 37 3.481 62 1.735 87 1.183
13 7.405 38 3.371 63 1.697 88 1.173
14 7.161 39 3.264 64 1.660 89 1.163
15 6.930 40 3.162 65 1.626 90 1.153
16 6.721 41 3.064 66 1.594 91 1.143
17 6.523 42 2.970 67 1.563 92 1.133
18 6.334 43 2.880 68 1.534 93 1.122
19 6.152 44 2.794 69 1.505 94 1.110
20 5.975 45 2.711 70 1.478 95 1.097
21 5.803 46 2.632 71 1.452 96 1.084
22 5.634 47 2.556 72 1.427 97 1.069
23 5.468 48 2.484 73 1.404 98 1.054
24 5.305 49 2.414 74 1.382 99 1.040
100 1.000
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 66
<PAGE>
APPENDIX B
Factors for the
Guideline Premium/Cash Value Corridor Test
For a Life Insurance Policy
<TABLE>
<CAPTION>
Attained Factor Attained Factor Attained Factor Attained Factor
Age Age Age Age
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
1 2.50 26 2.50 51 1.78 76 1.05
2 2.50 27 2.50 52 1.71 77 1.05
3 2.50 28 2.50 53 1.64 78 1.05
4 2.50 29 2.50 54 1.57 79 1.05
5 2.50 30 2.50 55 1.50 80 1.05
6 2.50 31 2.50 56 1.46 81 1.05
7 2.50 32 2.50 57 1.42 82 1.05
8 2.50 33 2.50 58 1.38 83 1.05
9 2.50 34 2.50 59 1.34 84 1.05
10 2.50 35 2.50 60 1.30 85 1.05
11 2.50 36 2.50 61 1.28 86 1.05
12 2.50 37 2.50 62 1.26 87 1.05
13 2.50 38 2.50 63 1.24 88 1.05
14 2.50 39 2.50 64 1.22 89 1.05
15 2.50 40 2.50 65 1.20 90 1.05
16 2.50 41 2.43 66 1.19 91 1.04
17 2.50 42 2.36 67 1.18 92 1.03
18 2.50 43 2.29 68 1.17 93 1.02
19 2.50 44 2.22 69 1.16 94 1.01
20 2.50 45 2.15 70 1.15 95 1.00
21 2.50 46 2.09 71 1.13 96 1.00
22 2.50 47 2.03 72 1.11 97 1.00
23 2.50 48 1.97 73 1.09 98 1.00
24 2.50 49 1.91 74 1.07 99 1.00
100 1.00
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage 67
<PAGE>
APPENDIX C
PERFORMANCE INFORMATION
POLICY PERFORMANCE
The following hypothetical illustrations demonstrate how the actual investment
experience of each Division of the Variable Account affects the Cash Surrender
Value, Account Value and Death Benefit of a Policy. These hypothetical
illustrations are based on the actual historical return of each Portfolio as if
a Policy had been issued on the date indicated. Each Portfolio's Annual Total
Return is based on the total return calculated for each fiscal year. These
Annual Total Return figures reflect the Portfolio's management fees and other
operating expenses but do not reflect the Policy level or Variable Account asset
based charges and deductions, which if reflected, would result in lower total
return figures than those shown.
The illustrations are based on the payment of a $5,750 annual premium, paid at
the beginning of each year, for a hypothetical Policy with a $300,000 face
amount, the Cash Value Accumulation Test, death benefit Option 1, issued to a
standard, nonsmoker male, Age 45. In each case, it is assumed that all premiums
are allocated to the Division illustrated for the period shown. The benefits
are calculated for a specific date. The amount and timing of Premium Payments
and the use of other Policy features, such as Policy Loans, would affect
individual Policy benefits.
The amounts shown for the Cash Surrender Values, Account Values and Death
Benefits take into account the charges against premiums, current cost of
insurance and monthly deductions, the daily charge against the Variable Account
for mortality and expense risks, and each Portfolio's charges and expenses. See
Charges, Deductions and Refunds, page 31. This prospectus also contains
illustrations based on assumed rates of return. See Illustrations of Death
Benefits, Account Values, Surrender Values and Accumulated Premiums, page 46.
- --------------------------------------------------------------------------------
Strategic Advantage 68
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NEUBERGER & BERMAN AMT LIMITED MATURITY BOND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/88 7.17% 4,898 4,610 300,000
12/31/89 10.77% 9,751 9,607 300,000
12/31/90 8.32% 14,565 14,565 300,000
12/31/91 11.34% 20,380 20,380 300,000
12/31/92 5.18% 25,291 25,291 300,000
12/31/93 6.63% 31,272 31,272 300,000
12/31/94 (0.15)% 35,177 35,177 300,000
12/31/95 10.94% 43,404 43,404 300,000
12/31/96 4.31% 49,249 49,249 300,000
12/31/97 6.74% 54,548 56,548 300,000
NEUBERGER & BERMAN AMT GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/88 25.97% 5,771 5,483 300,000
12/31/89 29.47% 12,579 12,435 300,000
12/31/90 (8.19)% 14,847 14,847 300,000
12/31/91 29.73% 24,216 24,216 300,000
12/31/92 9.54% 30,552 30,552 300,000
12/31/93 6.79% 36,917 36,917 300,000
12/31/94 (4.99)% 38,788 38,788 300,000
12/31/95 31.73% 56,401 56,401 300,000
12/31/96 9.14% 65,701 65,701 300,000
12/31/97 29.01% 89,664 89,664 300,000
NEUBERGER & BERMAN AMT PARTNERS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 36.47% 6,260 5,972 300,000
12/31/96 29.57% 13,219 13,076 300,000
12/31/97 31.25% 22,306 22,306 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 68.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage 69
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/89 64.48% 7,567 7,280 300,000
12/31/90 8.71% 12,451 12,307 300,000
12/31/91 57.54% 25,695 25,695 300,000
12/31/92 3.55% 30,392 30,392 300,000
12/31/93 13.28% 38,585 38,585 300,000
12/31/94 (4.38)% 40,650 40,650 300,000
12/31/95 44.31% 64,597 64,597 300,000
12/31/96 4.18% 71,267 71,267 300,000
12/31/97 11.39% 83,576 83,576 300,000
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 (1.54)% 4,495 4,207 300,000
12/31/95 44.45% 12,244 12,100 300,000
12/31/96 11.90% 17,843 17,843 300,000
12/31/97 15.01% 24,828 24,828 300,000
ALGER AMERICAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 4.14% 4,757 4,470 300,000
12/31/91 40.39% 12,256 12,112 300,000
12/31/92 12.38% 17,936 17,936 300,000
12/31/93 22.47% 26,593 26,593 300,000
12/31/94 1.45% 30,651 30,651 300,000
12/31/95 36.37% 47,446 47,446 300,000
12/31/96 13.35% 58,279 58,279 300,000
12/31/97 25.75% 78,236 78,236 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 68.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage 70
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ALGER AMERICAN LEVERAGED ALL CAP
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/96 12.04% 5,123 4,836 300,000
12/31/97 19.68% 10,831 10,687 300,000
FIDELITY VIP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/88 15.58% 5,288 5,000 300,000
12/31/89 31.51% 12,152 12,008 300,000
12/31/90 (11.73)% 13,878 13,878 300,000
12/31/91 45.51% 25,839 25,839 300,000
12/31/92 9.32% 32,257 32,257 300,000
12/31/93 19.37% 43,364 43,364 300,000
12/31/94 (0.02)% 47,268 47,268 300,000
12/31/95 35.36% 69,414 69,414 300,000
12/31/96 14.71% 83,969 83,969 300,000
12/31/97 23.48% 108,283 108,283 300,000
FIDELITY VIP OVERSEAS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/88 8.13% 4,943 4,655 300,000
12/31/89 26.28% 11,220 11,076 300,000
12/31/90 (1.67)% 14,608 14,608 300,000
12/31/91 8.00% 19,797 19,797 300,000
12/31/92 (10.72)% 20,858 20,858 300,000
12/31/93 37.35% 34,391 34,391 300,000
12/31/94 1.72% 39,007 39,007 300,000
12/31/95 9.74% 47,117 47,117 300,000
12/31/96 13.15% 57,667 57,667 300,000
12/31/97 11.56 68,499 68,499 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 68.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage 71
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY VIP MONEY MARKET PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/88 7.39% 4,908 4,620 300,000
12/31/89 9.12% 9,612 9,468 300,000
12/31/90 8.04% 14,376 14,376 300,000
12/31/91 6.09% 19,190 19,190 300,000
12/31/92 3.90% 23,744 23,744 300,000
12/31/93 3.23% 28,666 28,666 300,000
12/31/94 4.25% 34,045 34,045 300,000
12/31/95 5.87% 40,199 40,199 300,000
12/31/96 5.41% 46,407 46,407 300,000
12/31/97 5.51% 52,898 52,898 300,000
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
12/31/90 6.72% 4,877 4,589 300,000
12/31/91 22.56% 10,799 10,655 300,000
12/31/92 11.71% 16,205 16,205 300,000
12/31/93 21.23% 24,227 24,227 300,000
12/31/94 (6.09)% 26,115 26,115 300,000
12/31/95 16.96% 35,319 35,319 300,000
12/31/96 14.60% 45,081 45,081 300,000
12/31/97 20.65% 59,168 59,168 300,000
FIDELITY VIP II INDEX 500 PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
12/31/93 9.74% 5,017 4,729 300,000
12/31/94 1.04% 8,986 8,842 300,000
12/31/95 37.19% 17,559 17,559 300,000
12/31/96 22.82% 26,210 26,210 300,000
12/31/97 32.82% 39,822 39,822 300,000
INVESCO VIF TOTAL RETURN PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
12/31/95 22.79% 5,623 5,335 300,000
12/31/96 12.18% 10,688 10,544 300,000
12/31/97 22.91% 17,752 17,752 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 68.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage 72
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
INVESCO VIF INDUSTRIAL INCOME PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/95 29.25% 5,923 5,636 300,000
12/31/96 22.28% 12,047 11,903 300,000
12/31/97 28.17% 20,271 20,271 300,000
INVESCO VIF HIGH YIELD PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 19.76% 5,482 5,194 300,000
12/31/96 16.59% 10,958 10,814 300,000
12/31/97 17.33% 17,235 17,235 300,000
INVESCO VIF UTILITIES PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 9.08% 4,986 4,699 300,000
12/31/96 12.76% 10,031 9,887 300,000
12/31/97 23.41% 17,019 17,019 300,000
VAN ECK WORLDWIDE BOND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 11.25% 5,087 4,779 300,000
12/31/91 18.39% 10,668 10,524 300,000
12/31/92 (5.25)% 13,536 13,536 300,000
12/31/93 7.79% 18,605 18,605 300,000
12/31/94 (1.32)% 21,946 21,946 300,000
12/31/95 17.30% 30,551 30,551 300,000
12/31/96 2.53% 35,399 35,399 300,000
12/31/97 2.38% 40,235 40,235 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 68.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage 73
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VAN ECK WORLDWIDE HARD ASSETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/91 (2.93)% 4,430 4,143 300,000
12/31/92 (4.09)% 7,954 7,810 300,000
12/31/93 64.83% 19,533 19,533 300,000
12/31/94 (4.78)% 22,054 22,054 300,000
12/31/95 10.99% 28,574 28,574 300,000
12/31/96 18.04% 38,542 38,542 300,000
12/31/97 (1.67)% 41,755 41,755 300,000
VAN ECK WORLDWIDE EMERGING MARKETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 26.82% 5,811 5,523 300,000
12/31/97 (11.61)% 8,521 8,377 300,000
AIM VI GOVERNMENT SECURITIES PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 (3.73)% 4,394 4,106 300,000
12/31/95 15.56% 9,607 9,463 300,000
12/31/96 2.29% 13,576 13,576 300,000
12/31/97 8.16% 18,715 18,715 300,000
AIM VI CAPITAL APPRECIATION PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 2.50% 4,682 4,394 300,000
12/31/95 35.69% 11,731 11,587 300,000
12/31/96 17.58% 18,177 18,177 300,000
12/31/97 13.51% 24,874 24,874 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 68.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage 74
<PAGE>
STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
issued by
Security Life of Denver Insurance Company
and
Security Life Separate Account L1
This prospectus describes Strategic Advantage II, an individual flexible premium
variable universal life insurance policy (the "Policy" or collectively,
"Policies") issued by Security Life of Denver Insurance Company ("Security
Life"). The Policy provides insurance coverage with flexibility in death
benefits and premium payments. The Policy is designed primarily for use on a
multiple-life basis where the Insureds share a common employment or business
relationship, and it may be owned individually or by a corporation, trust,
association or similar entity. The Policy is funded by Security Life Separate
Account L1 (the "Variable Account"). Twenty-three Divisions of the Variable
Account are available under the Policy. A Guaranteed Interest Division, which
guarantees a minimum fixed rate of interest, is also available. Purchasers may
utilize both the Divisions of the Variable Account and the Guaranteed Interest
Division simultaneously. The Loan Division represents amounts we set aside as
collateral for any Policy Loans taken or transferred into the Policy.
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division, but exclude the Loan Division. For example, if the Owner has 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 the Owner can subsequently allocate or
transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the
early years of the Policy 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.
We will pay the Death Proceeds when the Insured dies if the Policy is still in
force. The Death Proceeds will equal the death benefit, reduced by any
outstanding Policy Loan, accrued loan interest, and any charges incurred prior
to the date of the Insured's death but not yet deducted. The death benefit
consists of two elements: the Base Death Benefit and any amount added by Rider.
The Policy will remain in force as long as the Net Account Value remains
positive.
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.
THIS PROSPECTUS SHOULD BE READ AND RETAINED FOR FUTURE REFERENCE.
A PROSPECTUS FOR THE PORTFOLIO OR PORTFOLIOS
BEING CONSIDERED MUST ACCOMPANY THIS PROSPECTUS AND
SHOULD BE READ IN CONJUNCTION HEREWITH.
IN THIS PROSPECTUS "WE," "US" AND "OUR" REFER TO
SECURITY LIFE OF DENVER INSURANCE COMPANY.
THIS POLICY IS NOT AVAILABLE IN ALL JURISDICTIONS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. THE FEATURES OF ANY POLICY ISSUED MAY
VARY DEPENDING ON THE STATE IN WHICH THE CONTRACT IS ISSUED. NO PERSON
IS AUTHORIZED TO MAKE ANY REPRESENTATION REGARDING THE OFFERING DESCRIBED
IN THIS PROSPECTUS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
OR ANY ATTACHED SUPPLEMENT HERETO.
Date of Prospectus: May 1, 1998
<PAGE>
The policy is guaranteed not to lapse during the first three Policy years,
regardless of its Net Account Value if, on each Monthly Processing Date during
the first three Policy years, the sum of premiums paid, less the sum of Partial
Withdrawals and Policy Loans taken including accrued loan interest, is greater
than or equal to the sum of the applicable minimum monthly premiums for each
Policy Month starting with the first Policy Month to and including the Policy
Month which begins on the current Monthly Processing Date. The minimum monthly
premium is equal to one twelfth of the Minimum Annual Premium. If the Guaranteed
Minimum Death Benefit is effective, the Stated Death Benefit portion of the
Policy will remain in force for the Guarantee Period. To continue the Guarantee
Period, the required premiums must be paid and the Net Account Value must remain
diversified.
The Policy permits the Owner to choose from two death benefit options: Option 1,
a fixed benefit that equals the Stated Death Benefit, and Option 2, a benefit
that equals the Stated Death Benefit plus the Account Value. The Base Death
Benefit in force as of any Valuation Date will not be less than the amount
necessary to qualify the Policy as a life insurance contract under the Internal
Revenue Code in existence at the time the Policy is issued.
When applying for the Policy, the Owner irrevocably chooses which of two tests
for compliance with the Federal income tax law definition of life insurance we
will apply to the Policy. These tests are the Cash Value Accumulation Test and
the Guideline Premium/Cash Value Corridor Test. If the Guideline Premium/Cash
Value Corridor Test is chosen, premium amounts will be limited based on the
death benefit of the Policy.
We will not allocate funds to the Policy until we receive the Initial Premium
and we have approved the Policy for issue. Thereafter, the timing and amount of
premium payments may vary, within specified limits. A higher premium level may
be required to keep the Guaranteed Minimum Death Benefit in force. After certain
deductions have been made, Net Premiums may be allocated to one or more of the
Divisions of the Variable Account and to the Guaranteed Interest Division. The
assets of the Divisions of the Variable Account will be used to purchase, at net
asset value, shares of designated Portfolios of various investment companies. A
Policy may be returned according to the terms of the Right to Examine Policy
Period (also called the Free Look Period). Net Premiums allocated to the
Variable Account will be held in the Division investing in the Fidelity VIP
Money Market Portfolio of the Variable Account during the Delivery and Free Look
Periods.
The Policy Account Value is the sum of the amounts in the Divisions of the
Variable Account plus the amount in the Guaranteed Interest Division and the
amount in the Loan Division. The value of the amounts allocated to the Divisions
of the Variable Account will vary with the investment experience of the
corresponding Portfolios; there is no minimum guaranteed cash value for amounts
allocated to the Divisions of the Variable Account. The value of amounts
allocated to the Guaranteed Interest Division will depend on the interest rates
we declare. The Account Value will also reflect deductions for the cost of
insurance and expenses, as well as increases for additional Net Premiums.
Replacing existing insurance coverage with the Policy described in this
prospectus may not be advantageous.
ISSUED BY: Security Life of Denver
Insurance Company
Security Life Center
1290 Broadway
Denver, CO 80203-5699
(800) 525-9852
THROUGH ITS: Security Life Separate Account L1
ADMINISTERED AT: Customer Service Center
P.O. Box 173888
Denver, CO 80217-3888
(800) 848-6362
PROSPECTUS DATED: May 1, 1998
BROKER DEALER: ING America Equities, Inc.
1290 Broadway
Attn: Variable
Denver, CO 80203-5699
(303) 860-2000
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Strategic Advantage II 2
<PAGE>
TABLE OF CONTENTS
DEFINITION OF SPECIAL TERMS USED IN THIS PROSPECTUS...........................6
POLICY SUMMARY................................................................9
GENERAL INFORMATION...........................................................9
DEATH BENEFITS................................................................9
CONTINUATION OF COVERAGE......................................................9
ADDITIONAL BENEFITS...........................................................9
PREMIUMS......................................................................9
ALLOCATION OF NET PREMIUMS...................................................10
MAXIMUM NUMBER OF INVESTMENT DIVISIONS.......................................10
POLICY VALUES................................................................10
DETERMINING THE VALUE IN THE DIVISIONS OF THE VARIABLE ACCOUNT...............10
HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION..................10
TRANSFERS OF ACCOUNT VALUES..................................................10
DOLLAR COST AVERAGING........................................................10
AUTOMATIC REBALANCING........................................................11
LOANS........................................................................11
PARTIAL WITHDRAWALS..........................................................11
SURRENDER....................................................................11
RIGHT TO EXCHANGE POLICY.....................................................11
LAPSE........................................................................11
REINSTATEMENT................................................................11
CHARGES AND DEDUCTIONS.......................................................11
PERSISTENCY REFUND...........................................................12
REFUND OF SALES CHARGES......................................................12
TAX CONSIDERATIONS...........................................................12
INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT
OPTIONS AND THE GUARANTEED INTEREST DIVISION...........................13
SECURITY LIFE OF DENVER INSURANCE COMPANY....................................13
SECURITY LIFE SEPARATE ACCOUNT L1............................................13
MAXIMUM NUMBER OF INVESTMENT DIVISIONS.......................................14
INVESTMENT OBJECTIVES OF THE PORTFOLIOS......................................14
THE GUARANTEED INTEREST DIVISION.............................................17
DETAILED INFORMATION ABOUT THE STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL
LIFE POLICY.............................................................17
APPLYING FOR A POLICY........................................................17
TEMPORARY INSURANCE..........................................................18
PREMIUMS.....................................................................18
Scheduled Premiums......................................................18
Unscheduled Premium Payments............................................18
Minimum Annual Premium..................................................18
Special Continuation Period.............................................19
Premium Payments Affect the Coverage....................................19
Choice of Definitional Tests............................................19
Modified Endowment Contracts............................................19
ALLOCATION OF NET PREMIUMS...................................................19
DEATH BENEFITS...............................................................20
Death Benefit Options...................................................20
Changes in Death Benefit Option.........................................21
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Strategic Advantage II 3
<PAGE>
Changes in Death Benefit Amounts........................................21
BENEFIT......................................................................22
REQUIREMENTS TO MAINTAIN THE GUARANTEE PERIOD................................22
ADDITIONAL BENEFITS..........................................................23
Adjustable Term Insurance Rider.........................................23
Right to Change Insured Rider...........................................24
Waiver of Cost of Insurance Rider.......................................24
Waiver of Specified Premium Rider.......................................24
BENEFITS AT MATURITY.........................................................24
Continuation of Coverage................................................24
POLICY VALUES................................................................24
Account Value...........................................................24
Cash Surrender Value....................................................24
Net Cash Surrender Value................................................24
Net Account Value.......................................................24
DETERMINING THE VALUE OF AMOUNTS IN THE DIVISIONS OF THE VARIABLE ACCOUNT....25
HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION..................25
TRANSFERS OF ACCOUNT VALUES..................................................25
DOLLAR COST AVERAGING........................................................26
AUTOMATIC REBALANCING........................................................27
POLICY LOANS.................................................................27
PARTIAL WITHDRAWALS..........................................................28
SURRENDER....................................................................29
RIGHT TO EXCHANGE POLICY.....................................................29
LAPSE........................................................................29
If the Guaranteed Minimum Death Benefit Is Not in Effect................29
If the Guaranteed Minimum Death Benefit Is in Effect....................30
GRACE PERIOD.................................................................30
REINSTATEMENT................................................................30
CHARGES, DEDUCTIONS AND REFUNDS..............................................30
DEDUCTIONS FROM PREMIUMS.....................................................30
Tax Charges.............................................................31
Sales Charges...........................................................31
DAILY DEDUCTIONS FROM THE VARIABLE ACCOUNT...................................31
Mortality and Expense Risk Charge.......................................31
MONTHLY DEDUCTIONS FROM THE ACCOUNT VALUE....................................31
Initial Policy Charge...................................................31
Monthly Administrative Charge...........................................32
Cost of Insurance Charges...............................................32
Charges for Additional Benefits.........................................32
Changes in Monthly Charges..............................................32
POLICY TRANSACTION FEES......................................................33
Partial Withdrawal......................................................33
Transfers...............................................................33
Allocation Changes......................................................33
Illustrations...........................................................33
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Strategic Advantage II 4
<PAGE>
Continuation of Coverage Administrative Fee.............................33
PERSISTENCY REFUND...........................................................33
REFUND OF SALES CHARGES......................................................34
CHARGES FROM PORTFOLIOS......................................................34
GROUP OR SPONSORED ARRANGEMENTS..............................................37
OTHER CHARGES................................................................37
TAX CONSIDERATIONS...........................................................37
LIFE INSURANCE DEFINITION....................................................37
DIVERSIFICATION REQUIREMENTS.................................................38
MODIFIED ENDOWMENT CONTRACTS.................................................38
TAX TREATMENT OF PREMIUMS....................................................39
LOANS, LAPSES, SURRENDERS AND WITHDRAWALS....................................39
If the Policy Is Not a Modified Endowment Contract......................39
If the Policy Is a Modified Endowment Contract..........................39
ALTERNATIVE MINIMUM TAX......................................................40
SECTION 1035 EXCHANGES.......................................................40
TAX-EXEMPT POLICY OWNERS.....................................................40
CHANGES TO COMPLY WITH LAW...................................................40
OTHER........................................................................40
ADDITIONAL INFORMATION ABOUT THE POLICY......................................41
VOTING PRIVILEGES............................................................41
RIGHT TO CHANGE OPERATIONS...................................................42
REPORTS TO OWNERS............................................................42
OTHER GENERAL POLICY PROVISIONS..............................................42
FREE LOOK PERIOD.............................................................42
THE POLICY...................................................................42
AGE..........................................................................43
OWNERSHIP....................................................................43
BENEFICIARY..................................................................43
COLLATERAL ASSIGNMENT........................................................43
INCONTESTABILITY.............................................................43
MISSTATEMENTS OF AGE OR SEX..................................................43
SUICIDE......................................................................44
PAYMENT......................................................................44
NOTIFICATION AND CLAIMS PROCEDURES...........................................44
TELEPHONE PRIVILEGES.........................................................44
NON-PARTICIPATING............................................................45
DISTRIBUTION OF THE POLICIES.................................................45
SETTLEMENT PROVISIONS........................................................45
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES AND SURRENDER VALUES, AND
ACCUMULATED PREMIUMS...................................................46
ADDITIONAL INFORMATION.......................................................54
DIRECTORS AND OFFICERS.......................................................54
STATE REGULATION.............................................................57
LEGAL MATTERS................................................................57
LEGAL PROCEEDINGS............................................................57
EXPERTS......................................................................57
REGISTRATION STATEMENT.......................................................57
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Strategic Advantage II 5
<PAGE>
YEAR 2000 PREPAREDNESS.......................................................57
FINANCIAL STATEMENTS.........................................................58
APPENDIX A...................................................................62
APPENDIX B...................................................................65
APPENDIX C...................................................................66
PERFORMANCE INFORMATION......................................................66
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Strategic Advantage II 6
<PAGE>
DEFINITION OF SPECIAL
TERMS USED IN THIS
PROSPECTUS
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.
Account Value -- The total of the amounts allocated to the Divisions of the
Variable Account and to the Guaranteed Interest Division, plus any
amount set aside in the Loan Division to secure a Policy Loan.
Accumulation Unit -- A unit of measurement used to calculate the Account Value
in each Division of the Variable Account.
Accumulation Unit Value -- The value of an Accumulation Unit of each Division of
the Variable Account. The Accumulation Unit Value is determined each
Valuation Date.
Adjustable Term Insurance Rider -- The Adjustable Term Insurance Rider is
available to add death benefit coverage to the Policy. The Adjustable
Term Insurance Rider allows the Owner to schedule the pattern of death
benefits appropriate for future needs. The Adjustable Term Insurance
Rider is not guaranteed under the Guaranteed Minimum Death Benefit.
Age -- The Insured's Age at any time is his or her age on the birthday
nearest the Policy Date plus the number of full Policy years since the
Policy Date.
Age 100 -- The Policy anniversary on which the Insured's Age is 100.
Base Death Benefit -- The Base Death Benefit will vary according to which death
benefit option is chosen. Under Option 1, the Base Death Benefit equals
the Stated Death Benefit of the Policy. Under Option 2, the Base Death
Benefit equals the Stated Death Benefit of the Policy plus the Account
Value. The Base Death Benefit may be increased to satisfy the Federal
income tax law definition of life insurance.
Beneficiary(ies) -- The person or persons designated to receive the Death
Proceeds upon the death of the Insured.
Cash Surrender Value -- The amount of the Account Value plus any refund of sales
charges due.
Continuation of Coverage -- A Policy feature which permits the insurance
coverage to continue in force beyond Policy age 100.
Customer Service Center -- Our administrative office: P.O. Box 173888, Denver,
CO 80217-3888.
Death Proceeds -- The amount payable upon the death of the Insured. It equals
the Base Death Benefit plus any Rider benefits, if applicable, minus
any outstanding Policy Loan and accrued loan interest, minus any Policy
charges incurred prior to the date of the insured's death, but not yet
deducted.
Delivery Period -- The period which begins on the date the Policy is
issued and ends on the earlier of:
(a) the date the Policy was delivered so long as we receive notice of
the delivery date at our Customer Service Center before the date
defined in (b) or,
(b) the date the Policy is mailed from our Customer Service Center plus
the deemed mailing time. The deemed mailing time is five days, unless
required otherwise by the state in which the Policy is issued.
Division(s) -- The Loan Division, the Guaranteed Interest Division and the
Divisions of the Variable Account, which invest in shares of the
Portfolios.
Free Look Period -- The period of time within which the Owner may examine
the Policy and return it for a refund. This is also called the Right to
Examine Policy Period.
General Account -- The account which contains all of our assets other than
those held in the Variable Account or our other separate accounts.
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Strategic Advantage II 7
<PAGE>
Guarantee Period -- The period during which the Stated Death Benefit is
guaranteed under the Guaranteed Minimum Death Benefit provision. The
Guarantee Period is to the Insured's Age 65 or 10 years from the Policy
Date, whichever is later. The Guarantee Period will end sooner if the
Guarantee Period Annual Premium has not been paid or if on any Monthly
Processing Date the Net Account Value is not diversified according to
the Policy requirements.
Guarantee Period Annual Premium -- The premium payment level required to
maintain the Guarantee Period.
Guaranteed Interest Division -- Part of our General Account to which a portion
of the Account Value may be allocated and which guarantees principal
and interest.
Guaranteed Minimum Death Benefit -- The Policy provision which guarantees that
the Stated Death Benefit will remain in force for the Guarantee Period
regardless of the amount of the Net Account Value, provided certain
conditions are met.
Initial Premium -- The premium which is required to be paid and received by our
Customer Service Center for coverage to begin. Initial Premium is equal
to the sum of the scheduled modal premiums which fall due from the
policy effective date through the Investment Date.
Insured -- The person on whose life this Policy is issued and upon whose death
the Death Proceeds are payable.
Investment Date -- The date we allocate funds to the Policy. We will allocate
the initial Net Premium to the Policy on the next Valuation Date
following the date:
(a) we have received the Initial Premium, and
(b) we have approved the Policy for issue, and
(c) all issue requirements have been met and received in our Customer
Service Center.
Loan Division -- Part of our General Account in which funds are set aside to
secure outstanding Policy Loans and accrued loan interest when due.
Minimum Annual Premium -- The premium which must be paid during the first three
Policy years to meet the requirements of the Special Continuation
Period.
Monthly Processing Date -- The date each month on which deductions from the
Account Value are due. The first Monthly Processing Date will be the
later of the Policy Date or the Investment Date. Subsequent Monthly
Processing Dates will be the same date as the Policy Date unless this
is not a Valuation Date, in which case the Monthly Processing Date is
the next Valuation Date.
NASD -- National Association of Securities Dealers, Inc.
Net Account Value -- The Account Value minus Policy Loans and accrued loan
interest.
Net Amount at Risk -- (for the Base Death Benefit) The difference between
the current Base Death Benefit and the amount of the Account Value.
Net Cash Surrender Value -- The amount available if the Policy is
surrendered. It is equal to the Cash Surrender Value minus Policy Loans
and accrued loan interest.
Net Premium -- Premium amounts paid minus the sales and tax charges. These
charges are deducted from the premiums before the premium is applied to
the Account Value.
Owner -- The individual, entity, partnership, representative or party who can
exercise all rights over and receive the benefits of the Policy during
the Insured's lifetime.
Partial Withdrawal -- The withdrawal of part of the Net Account Value from the
Policy. A Partial Withdrawal may reduce the amount of Base Death
Benefit and Target Death Benefit in force.
Policy -- The basic Policy, applications, and any Riders or endorsements.
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Strategic Advantage II 8
<PAGE>
Policy Date -- The date upon which the Policy becomes effective. The Policy
Date is used to determine the Monthly Processing Date, Policy months,
Policy years, and Policy monthly, quarterly, semi-annual and annual
anniversaries. Unless otherwise indicated, the term "Policy
anniversary" refers to the annual anniversary of the Policy.
Policy Loan -- The total amounts borrowed from the Policy, plus any Policy Loan
interest capitalized when due, minus any Policy Loan repayments.
Portfolios -- The investment options available to the Divisions of the Variable
Account. Each Portfolio has a defined investment objective.
Premium Class -- The underwriting class into which the Insured is categorized.
This includes smoking status of the Insured, the approach to medical
examinations we may use in issuing the Policy, as well as any
substandard ratings which may apply. The Premium Class for the Policy
is listed in the Schedule.
Rider -- A Rider adds benefits to the Policy.
Schedule -- The pages contained in the Policy which include the information
specific to the Policy, such as the Insured's Age, the Policy Date,
etc.
Scheduled Premium -- The premium amount specified by the Owner on the
application as the amount intended to be paid at fixed intervals over a
specified period of time. Premiums may be paid on a monthly, quarterly,
semiannual, or annual basis. The Scheduled Premium need not be paid and
it may be changed at any time. Also, within limits, the Owner may pay
more or less than the Scheduled Premium.
SEC -- The United States Securities and Exchange Commission.
Segment -- The Stated Death Benefit on the Policy Date is the initial Segment,
or Segment 1. Each increase in the Stated Death Benefit (other than an
option change) is a new Segment. The first year for a Segment begins on
the effective date of the Segment and ends one year later. Each
subsequent year begins at the end of the prior Segment year. Each new
Segment may be subject to a new Minimum Annual Premium, new sales
charge, new cost of insurance charges, and new incontestability and
suicide exclusion periods.
Special Continuation Period -- A three-year period beginning on the Policy
Date, during which payment of the Minimum Annual Premium will guarantee
the policy against lapse.
Stated Death Benefit -- The sum of the Segments under the Policy. The Stated
Death Benefit changes when there is an increase, a decrease, or when a
transaction on the Policy causes it to change.
Target Death Benefit -- When an Adjustable Term Insurance Rider is added to
the Policy, the Owner specifies the Target Death Benefit and Stated
Death Benefit in the Policy application; the Adjustable Term Insurance
Rider Death Benefit is the difference between the Target Death Benefit
and the Base Death Benefit. In no event will the Adjustable Term
Insurance Rider Death Benefit be less than zero. The Adjustable Term
Insurance Rider automatically adjusts over time for changes in the Base
Death Benefit due to the Federal income tax law definition of life
insurance and to keep the Target Death Benefit at the desired amount.
The Target Death Benefit for each year is shown in the Schedule when an
Adjustable Term Insurance Rider exists on the Policy.
Target Premium --The premium on which the sales charge is calculated.
Transaction Date -- The date we receive a premium or an acceptable written or
telephone request at our Customer Service Center. If a premium or
request reaches our Customer Service Center on a day which is not a
Valuation Date, or after the close of business on a Valuation Date, the
Transaction Date will be the next succeeding Valuation Date.
Valuation Date -- Each date as of which the net asset value of the shares of the
Portfolios and the unit values of the Divisions are determined.
Valuation Dates currently occur on each day on which the New York Stock
Exchange and Security Life's Customer Service Center are open for
business or as may be required by law, except for days that a
Division's corresponding Portfolio does not value its shares.
Valuation Period -- The period which begins at 4:00 p.m. Eastern Time on a
Valuation Date and ends at 4:00 p.m. Eastern Time on the next Valuation
Date.
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Strategic Advantage II 9
<PAGE>
Variable Account -- Security Life Separate Account L1 segregates the assets
funding the Policy from the assets in our General Account. The Variable
Account is divided into Divisions, each of which invests in shares of
one of the Portfolios.
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Strategic Advantage II 10
<PAGE>
POLICY SUMMARY
This policy summary provides a brief overview of the Policy. Further detail is
provided in the Policy and in the detailed information appearing elsewhere in
this prospectus. The discussion in this prospectus assumes that any state
variation will be covered in a special prospectus supplement or in the form of
policy approved in that state, as appropriate. The terms under which the
policies are issued may vary from those described in this prospectus based on
particular circumstances. The description of the Policy in this prospectus is
subject to the terms of the Policy purchased by an owner or any rider to it. An
applicant may review a copy of the Policy and any Rider on request.
General Information
The Policy provides life insurance protection on the life of the Insured. As
long as the Policy remains in force, we will pay a death benefit when the
Insured dies. At the Insured's Age 100 the Owner may surrender the Policy or
allow Continuation of Coverage to become effective. If Continuation of Coverage
is effective, we will deduct a one-time administrative fee and the policy will
remain in force. See Continuation of Coverage, page 24.
Strategic Advantage II is designed primarily for use on a multi-life basis where
the Insureds share common employment or a business relationship. The Policy may
be owned individually or by a corporation, trust, association or similar entity.
The Policy may be used for such purposes as informally funding non-qualified
executive deferred compensation, salary continuation plans, retiree medical
benefits, or other purposes.
Death Benefits
We will pay the Death Proceeds to the Beneficiary upon the death of the Insured
while the Policy remains in force. The Death Proceeds will be equal to the Base
Death Benefit plus any amounts payable by Rider, reduced by the amount of any
outstanding Policy Loans and any accrued loan interest. See Death Benefits,
page 20.
Normally, when we issue the Policy, the death benefit is equal to the Stated
Death Benefit plus any amount added by Adjustable Term Insurance Rider. The
death benefit at issue may vary from the Stated Death Benefit plus term coverage
for some 1035 exchanges. The minimum Stated Death Benefit for which we will
issue a Policy is $50,000; however, we may lower the minimum Stated Death
Benefit for certain group or sponsored arrangements or corporate purchasers.
Generally, the Policy will remain in force only as long as the Net Account Value
is sufficient to pay the monthly deductions. However, if the Special
Continuation Period is in effect (during the first three policy years) and
minimum premiums have been paid as specified in the section on Lapse (see Lapse,
page 29) then the Policy and its Riders are guaranteed not to lapse, regardless
of the amount of the Net Account Value.
The Stated Death Benefit of the Policy may also remain in force after the
Special Continuation Period even if the Net Account Value is insufficient to pay
the monthly deductions if the Guaranteed Minimum Death Benefit provision is in
effect and the requirements have been met. See Guaranteed Minimum Death Benefit
Provision, page 22.
Continuation of Coverage
If the Insured is still living at Age 100 and the Continuation of Coverage
feature is in effect, we will deduct a one-time administrative fee and the
policy will remain in force. See Continuation of Coverage, page 24.
Additional Benefits
A variety of additional benefits may be attached to the Policy by Rider. The
charge for these benefits is deducted monthly from the Account Value. See
Additional Benefits, page 23.
Premiums
The Policy is a flexible premium policy, so the amount and frequency of the
premiums may vary, within limits. There are no required premium payments other
than those required to keep the Policy in force or payments required to maintain
certain benefits as described below.
The Initial Premium must be paid in order for us to issue the Policy. The
Minimum Annual Premium must be paid in order to meet the requirements for the
three year
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Strategic Advantage II 11
<PAGE>
Special Continuation Period. The Guarantee Period Annual Premium must be paid to
maintain the Guaranteed Minimum Death Benefit.
The Scheduled Premium is selected by the Owner and specified when application is
made for the Policy. The Scheduled Premium may not be sufficient to maintain the
Guarantee Period for the Guaranteed Minimum Death Benefit provision or to keep
the Policy in force.
Since this is a flexible premium life insurance Policy, the amount of premiums
paid will affect the length of time the Policy will stay in force. See Premium
Payments Affect the Coverage, page 19.
Allocation of Net Premiums
After certain premium-based charges are deducted from each premium, the balance
(Net Premium) is added to the Account Value based on the premium allocation
instructions. Net Premiums may be allocated to one or more Divisions of the
Variable Account, or to the Guaranteed Interest Division, or both. However,
amounts can be allocated to no more than 18 Divisions over the life of the
Policy.
On or after the investment Date, amounts allocated to the Guaranteed Interest
Division will be allocated to that Division upon receipt. Amounts allocated to
the Divisions of the Variable Account will be held in the Division investing in
the Fidelity VIP Money Market Portfolio. At the end of the Delivery plus Free
Look Periods, the amounts allocated to the Guaranteed Interest Division will
remain in that Division; and, the funds held in the Fidelity VIP Money Market
Division will be reallocated to other Divisions of the Variable Account
according to the most recent premium allocation instructions. Thereafter, Net
Premiums will be allocated upon receipt according to the most recent premium
allocation instructions. Allocation percentages must be in whole numbers, with
the sum equaling 100%. No premium will be allocated before the Investment Date.
See Allocation of Net Premiums, page 19.
Maximum Number of Investment Divisions
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. See Maximum
Number of Investment Divisions, page 14.
Policy Values
The Policy Account Value is equal to the sum of the amounts in the Guaranteed
Interest Division and in the Divisions of the Variable Account. It also includes
any amount we set aside in the Loan Division as collateral for any outstanding
Policy Loan. The Account Value reflects Net Premiums paid, as well as deductions
for charges. It also will reflect the investment experience of amounts allocated
to the Divisions of the Variable Account, and interest earned on amounts
allocated to the Guaranteed Interest Division and the Loan Division. Any Partial
Withdrawals and service fees will be deducted from the Account Value.
The Net Cash Surrender Value of the Policy is equal to the Cash Surrender Value
less the amount of any outstanding Policy Loans and accrued loan interest.
The Cash Surrender Value of the Policy is equal to the Account Value plus any
refund of sales charges due.
The Net Account Value of the Policy is equal to the Account Value less the
amount of any outstanding Policy Loan and accrued loan interest.
Determining the Value in the Divisions of the Variable Account
The amounts included in the Divisions of the Variable Account are measured in
terms of Accumulation Units and Accumulation Unit Values. On any given day, the
value of the amount in a Division of the Variable Account is equal to the
Accumulation Unit Value times the number of Accumulation Units credited to that
Division. Each Division of the Variable Account will have different Accumulation
Unit Values. See Determining the Value of Amounts in the Divisions of the
Variable Account, page 25.
How We Calculate Accumulation Unit Values for Each Division
We determine Accumulation Unit Values for each Division of the Variable Account
as of each Valuation Date. All Policy
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Strategic Advantage II 12
<PAGE>
transactions are effective as of a Valuation Date. Each Accumulation Unit Value
reflects the Division's investment experience of the underlying Portfolio for
the Valuation Period as well as asset-based charges deducted in connection with
the Policy and the expenses of the Portfolio. See How We Calculate Accumulation
Unit Values for Each Division, page 25.
Transfers of Account Values
After the Free Look Period, up to 12 transfers among Divisions of the Variable
Account or to the Guaranteed Interest Division may be made in each Policy year
without charge. There will be a $25 charge for each transfer over 12 in a Policy
year. Transfers resulting from Automatic Rebalancing or Dollar Cost Averaging
are not included in the 12 transfers without a charge. The minimum amount we
will transfer is $100 or the balance in the division if less than $100.
Once during the first 30 days of each Policy year, the Owner may transfer
amounts from the Guaranteed Interest Division. Transfers to the Guaranteed
Interest Division are not limited to this 30-day period. See Transfers of
Account Values, page 25.
Dollar Cost Averaging
Dollar Cost Averaging is available by electing this feature at application or at
any other time by completing the appropriate form. We offer Dollar Cost
Averaging to Owners who have at least $10,000 in the Divisions investing in
either of the Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT
Limited Maturity Bond Portfolio. There is no charge for this feature. See Dollar
Cost Averaging, page 26.
Automatic Rebalancing
Automatic Rebalancing is available by electing this feature at application or by
completing the appropriate form. Automatic Rebalancing allows the Owner to match
Account Value allocations over time to specified allocation percentages. We will
charge a fee of $25 each time the automatic rebalancing allocation is changed in
excess of five times per Policy year; otherwise, there is no charge for this
feature. See Automatic Rebalancing, page 27.
Loans
Loans may be taken against the Policy's Account Value. Unless otherwise required
by state law, the loan must be at least $100. Loan interest accrues at an annual
rate of 4.75%. The Loan Division earns a guaranteed rate of interest equal to 4%
on an annual basis. See Policy Loans, page 27.
Partial Withdrawals
A Partial Withdrawal of Net Account Value may be requested any time after the
first Policy year, within limits. One Partial Withdrawal is allowed each Policy
year. See Partial Withdrawals, page 28.
Surrender
The Policy may be surrendered for its Net Cash Surrender Value at any time while
the Insured is living. The Net Cash Surrender Value of the Policy equals the
Cash Surrender Value minus any Policy Loan amounts and accrued loan interest. We
will compute the Net Cash Surrender Value as of the Valuation Date we receive
the request for surrender and the Policy at our Customer Service Center. All
insurance coverage will end on that date. See Surrender, page 29.
Right to Exchange Policy
At any time during the first 24 months following the Policy Date, the Owner may
exercise the right to exchange the Policy from one in which the Account Value is
not guaranteed into a guaranteed Policy unless required differently by state
law. See Right to Exchange Policy, page 29.
Lapse
Insurance coverage will continue as long as the Net Account Value of the Policy
is sufficient to pay all deductions that are taken out of the Account Value each
month.
In addition, during the first three Policy years if the conditions of the
Special Continuation Period have been met, the Policy and all attached Riders
are guaranteed not to lapse, regardless of the Net Account Value.
Also, if the requirements to maintain the Guarantee Period for the Guaranteed
Minimum Death Benefit provision
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Strategic Advantage II 13
<PAGE>
have been met, the Stated Death Benefit portion of the Policy will remain in
effect after the three-year Special Continuation Period regardless of the Net
Account Value. However, if the requirements to maintain the Guarantee Period
have not been met, the Guaranteed Minimum Death Benefit provision will lapse.
See Lapse, page 29.
Reinstatement
A lapsed Policy and its Riders may be reinstated within five years of its lapse
if it has not been surrendered and the Insured is still living. New evidence of
insurability and payment of certain reinstatement premiums will be required. The
Guaranteed Minimum Death Benefit cannot be reinstated after the Policy has
lapsed. We also will reinstate any Policy Loans which existed when coverage
ended, with accrued loan interest to the date of lapse. See Reinstatement, page
30.
Charges and Deductions
Deductions From Premiums: The following charges are deducted from each premium
before it is applied to the Account Value:
(i) Tax Charges-- A charge currently equal to 2.5% of premiums is deducted
for state and local premium taxes. A charge currently equal to 1.5% of
each premium is deducted to cover our estimated cost of the Federal
income tax treatment of deferred acquisition costs. We reserve the
right to increase or decrease the premium expense charges for taxes
due to any change in tax law. We further reserve the right to increase
or decrease the premium expense charge for the Federal deferred
acquisition cost due to any change in the cost to us.
(ii) Sales Charge -- A charge equal to a percentage of each premium is
deducted to cover a portion of our expenses in issuing this Policy.
This charge is based on the amount of premium paid and the number of
years since the Policy Date or the date of an increase in coverage.
For each of the first ten Policy years, this charge is equal to 12% of
premiums paid up to the Target Premium and 3% of premiums paid in
excess of the Target Premium. In the eleventh Policy year and
thereafter, the sales charge is equal to 3% of all premiums paid.
See Deductions from Premiums, page 30.
Deductions From The Variable Account: A mortality and expense risk charge is
assessed against the Divisions of the Variable Account in the amount of 0.75%
per annum (0.002055% per day). We assess this charge to compensate us for
mortality and expense risks under the Policies. See Daily Deductions from the
Variable Account, page 31.
Monthly Deductions From The Account Value: The following charges are deducted
from the Account Value at the beginning of each Policy month:
(i) Initial Policy Charge -- $10 per month for the first three Policy
years.
(ii) Monthly Administrative Charge -- $3 per month plus $0.025 per
thousand of Stated Death Benefit (or Target Death Benefit if
greater). Currently the per thousand charge is limited to $30 per
month.
(iii) Cost of Insurance Charge -- A monthly charge based on the Net Amount
at Risk on the life of the Insured. The amount of this charge differs
for the Base Death Benefit, any Adjustable Term Insurance Rider, and
for multiple Segments.
(iv) Charges for Additional Benefits -- The cost of any additional
benefits added by Rider, other than the Adjustable Term Insurance
Rider.
See Monthly Deductions from the Account Value, page 31.
Policy Transaction Fees: Policy Transaction Fees are deducted from the Divisions
of the Variable Account and Guaranteed Interest Division in the same proportion
that the Account Value in each Division bears to the Net Account Value
immediately after the transaction for which the charge is made.
(i) Partial Withdrawal fee -- $25
(ii) Transfer fee -- twelve transfers per Policy year are permitted
without fees; for each transfer thereafter, a
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Strategic Advantage II 14
<PAGE>
$25 fee is charged.
(iii) Allocation Changes -- five premium and five automatic rebalancing
allocation changes are permitted each Policy year without fees; for
each change thereafter, a $25 fee is charged.
(iv) Illustrations -- one illustration per Policy year is available
without a fee, for each illustration thereafter, a $25 fee may be
charged.
(v) Continuation of Coverage -- a one-time $200 administrative fee will
be charged at Age 100 to activate coverage.
See Policy Transaction Fees, page 33.
Charges From Portfolios: Shares of the Portfolios are purchased at net asset
value, which reflects investment management and other direct expenses that have
already been deducted from the assets of the Portfolio. See Charges from
Portfolios, page 34.
Persistency Refund
The Account Value will be credited with a Persistency Refund each Monthly
Processing Date after the tenth Policy anniversary. See Persistency Refund, page
33.
Refund of Sales Charges
If the Policy has not lapsed, we will, upon full surrender of the Policy within
the first two Policy years, return a portion of the sales charges previously
deducted from premiums paid in the first policy year. See Refund of Sales
Charges, page 34.
Tax Considerations
Under current Federal income tax law, death benefits of life insurance policies
generally are not subject to income tax. In order for this treatment to apply,
the Policy must qualify as a life insurance contract. The tax code provides for
two tests to qualify a Policy as a life insurance contract. The Owner
irrevocably selects which of these tests will apply to the Policy in the
application. After the Policy Date, the Policy will reflect the test chosen. See
Life Insurance Definition, page 37.
Generally, under current Federal income tax law, Account Value earnings are not
subject to income tax as long as they remain within the Policy. Loans, partial
withdrawals, surrender, lapse, or an exchange of Insured may result in
recognition of ordinary income for tax purposes and may result in penalties if
the Policy is considered a Modified Endowment Contract as explained in Modified
Endowment Contracts, page 19.
INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS
AND THE GUARANTEED INTEREST DIVISION
Security Life of Denver Insurance Company
Security Life of Denver Insurance Company ("Security Life") is a stock life
insurance company organized under the laws of the State of Colorado in 1929. 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 $XXX billion of life insurance in force. Our total assets exceeded $X
billion and our shareholder's equity exceeded $XXX 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
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 has consolidated assets
exceeding $XXX billion on a Dutch (modified U.S.) generally accepted accounting
principles basis as of December 31, 1997.
The principal underwriter and distributor for the Policies 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.
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Strategic Advantage II 15
<PAGE>
Security Life Separate Account L1
Security Life Separate Account L1 (the "Variable Account") was established on
November 3, 1993, under the Insurance Law of the State of Colorado. It is a unit
investment trust registered with the SEC under the Investment Company Act of
1940. Such registration does not involve any supervision by the SEC of the
management of the Variable Account or Security Life.
The Variable Account is a separate investment account of Security Life used to
support our variable life insurance policies and for other purposes as permitted
by applicable laws and regulations. The assets of the Variable Account are kept
separate from our General Account and any other separate accounts we may have.
We may offer other variable life insurance contracts that will invest in the
Variable Account which are not discussed in this prospectus. The Variable
Account may also invest in other securities which are not available to the
Policy 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. In accordance with and under the
provisions of Section 10-3-501(2) of the Colorado Revised Statutes, that portion
of the assets of the Variable Account which is equal to the reserves and other
Policy liabilities with respect to the Variable Account is not chargeable with
liabilities arising out of any other business we conduct. This means that in the
event Security Life were ever to become insolvent, the assets of the Variable
Account are to be used first to pay Variable Account policy claims. Only if
assets remain in the Variable Account after those claims have been satisfied can
those assets be used to pay other Policy Owners and creditors of Security Life.
The Variable Account, however, may be subject to liabilities arising from
Divisions of the Variable Account whose assets are attributable to other
variable life policies offered by the Variable Account. If the assets exceed the
required reserves and other policy liabilities, we may transfer the excess to
our General Account. If the assets in the Variable Account are insufficient to
satisfy Variable Account Policy Owner claims, Section 10-3-541 provides that
under certain circumstances the amount of those claims which are not satisfied
are to be treated as Policy Owner claims against the general account assets of
the insurance company.
The Variable Account has several Divisions, each of which invests in shares of a
corresponding Portfolio of a mutual fund. Therefore, the investment experience
of a Policy depends on the experience of the Portfolios designated. 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 may be available
to certain pension accounts. They are not available directly to individual
investors.
Each of the Portfolios is a separate series of an open-end management investment
company which receives investment advice from a registered investment adviser
not otherwise affiliated with Security Life. The Neuberger & Berman Advisers
Management Trust has organized its Portfolio to 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.
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." They may also sell shares to separate accounts to
serve as the underlying investment for both variable annuity and variable life
insurance contracts, known as "mixed funding." As a result, there is a
possibility that a material conflict may arise between the interests of Owners
of Policies in which Account Values are allocated to the Variable Account and
Owners of Policies in which account 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.
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Strategic Advantage II 16
<PAGE>
Maximum Number of Investment Divisions
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division, but exclude the Loan Division. For example, if the Owner has 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 the Owner can subsequently allocate or
transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the
early years of the Policy so as to leave open the option to transfer to 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.
Investment Objectives of the Portfolios
Each Portfolio has a different investment objective that it tries to achieve by
following its investment strategy. The objectives and policies of each Portfolio
will affect its return and its risks. A summary of the investment objectives is
contained in the description of each Portfolio below. More detailed information
may be found in the current prospectus for each Portfolio which must accompany
this prospectus and should be read in conjunction with it.
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.L.C. 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.
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 is
managed using a growth-oriented investment approach. A growth-oriented
approach seeks stocks of companies that are projected to grow at
above-average rates.
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
the company's track record through all points of the market cycle. 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 or
comparable unrated securities.
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.
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Strategic Advantage II 17
<PAGE>
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 June 30, 1997, the range of market
capitalization of the companies in the Russell Index was $13 million to
$1.56 billion; the range of market capitalization of the companies in the
S&P Index at that date was $35 million to $3.025 billion. The combined
range was $13 million to $3.025 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 June 30, 1997, the range of market
capitalization of these companies was $100 million to $9.149 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. It may enter into futures contracts on securities indexes as
well as purchase and sell call and put options on these futures. The
Portfolio may borrow money for the purchase of additional securities, but
only from banks. It 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, with the exception of the VIP
II Index 500 Portfolio which is sub-advised by BankersTrust Company. FMR is the
management arm of Fidelity Investments, which was established in 1946 and is now
America's largest mutual fund manager.
VIP Growth Portfolio -- seeks capital appreciation by investing in common
stocks, although the Portfolio is not limited to any one type of security.
VIP Overseas Portfolio -- seeks long term growth of capital primarily through
investments in foreign securities. The Overseas Portfolio provides a means
for investors to diversify their own portfolios by participating in
companies and economies outside of the United States.
VIP Money Market Portfolio -- seeks as high a level of current income as is
consistent with preserving capital and providing liquidity. The Portfolio
will invest only in high quality U.S. dollar-denominated money market
securities of domestic and foreign issuers.
VIP II Asset Manager Portfolio -- seeks high total return with reduced risk
over the long term by allocating its assets among domestic and foreign
stocks, bonds, and short term, fixed-income instruments.
VIP II Index 500 Portfolio -- seeks to provide investment results that
correspond to the total return (i.e., the combination of capital changes
and income) of common stocks publicly traded in the United States. In
seeking this objective, the Portfolio attempts to duplicate the composition
and total return of the Standard & Poor's Composite Index of 500 Stocks
while keeping transaction costs and other expenses low. The Portfolio is
designed as a long term investment option.
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Investment Funds, Inc. is a registered, open-end management
investment company that was organized as a Maryland corporation on August 19,
1993, and is currently comprised of the five diversified investment Portfolios
described below. INVESCO Funds Group, Inc., the Funds' investment adviser, is
primarily responsible for providing the Portfolios with various administrative
services
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Strategic Advantage II 18
<PAGE>
and supervising the Fund's daily business affairs. INVESCO Distributors, Inc.
("IDI") provides distribution services for the INVESCO Variable Investment
Funds, Inc. 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 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.
INVESCO VIF Small Company Growth Fund -- seeks long term capital growth through
the investment of 65% or more of its total assets in equity securities of
companies with market capitalization of $1 billion or less at the time of
purchase ("small-cap companies"). The balance of the Fund's assets may be
invested in the equity securities of companies with market capitalizations
in excess of $1 billion, debt securities and short-term investments.
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, Worldwide Real
Estate Fund, Worldwide Emerging Markets Fund, and Worldwide Bond Fund.
Van Eck Worldwide Hard Assets 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 Real Estate Fund -- seeks to maximize total return by
investing primarily in equity securities of domestic and foreign companies
which are principally engaged in the real estate industry or which own
significant real estate assets.
Van Eck Worldwide Bond Fund -- seeks high total return through a flexible policy
of investing globally, primarily in debt securities.
Van Eck Worldwide Emerging Markets Fund -- seeks long term capital appreciation
by investing primarily in equity securities in emerging markets around the
world. Peregrine Asset Management (Hong Kong) Limited serves as
sub-investment adviser to this Fund.
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Strategic Advantage II 19
<PAGE>
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 Capital Appreciation Portfolio -- seeks to provide capital appreciation
through investments in common stocks, with emphasis on medium-sized and
smaller emerging growth companies. AIM will be particularly interested in
companies that are likely to benefit from new or innovative products,
services or processes that should enhance such companies' prospects for
future growth in earnings.
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.
The Guaranteed Interest Division
All or a portion of Net Premiums and transfers of Net Account Value may be made
to the Guaranteed Interest Division. The Guaranteed Interest Division is part of
our General Account and pays interest at a declared rate. 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, the
General Account, the Guaranteed Interest Division and any interests therein are
not generally subject to regulation under these Acts. As a result, the staff of
the SEC has not reviewed the disclosures 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 law relating to the accuracy and completeness of statements made in
this prospectus. For more details regarding the General Account, see the Policy.
The amount in the Guaranteed Interest Division at any time is the sum of all Net
Premiums allocated to that Division, all transfers to the Guaranteed Interest
Division and earned interest. This amount is reduced by amounts transferred out
of or withdrawn from the Guaranteed Interest Division and deductions from your
Account Value allocated to the Guaranteed Interest Division.
Amounts may be accumulated in the Guaranteed Interest Division by: (i)
allocating Net Premiums, (ii) transferring amounts from the Divisions of the
Variable Account, (iii) earning interest on amounts in the Guaranteed Interest
Division, and (iv) repaying a Policy Loan to release amounts from the Loan
Division.
From time to time, we declare the interest rate that will apply to all amounts
in the Guaranteed Interest Division. These interest rates will never be less
than the minimum guaranteed interest rate of 4% and will be in effect for at
least 12 months. The interest is credited as of each Valuation Date on the
amount 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.
DETAILED INFORMATION ABOUT THE STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
POLICY
This prospectus describes our standard Strategic Advantage II Variable Universal
Life Policy. There may be differences in the Policy because of state
requirements where the Policy is issued. Any such differences will be defined in
the Policy.
The illustrations beginning on page are intended to provide an idea of how the
key financial elements of Strategic Advantage II work. The illustrations show
Premiums, Account Values, Cash Surrender Values and Death Benefits.
Applying for a Policy
A Strategic Advantage II Policy may be purchased by submitting an application to
us. On the Policy Date, the Insured must be no older than Age 85. Before issuing
a Policy or applying Net Premium to the
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Strategic Advantage II 20
<PAGE>
Variable Account or the Guaranteed Interest Division, we require satisfactory
evidence of insurability. This evidence may include a medical examination,
completion of all underwriting requirements, and satisfaction of issue
requirements.
The Policy Date is the date upon which the Policy is effective. The Policy Date
is used to determine Policy years and Policy months regardless of when the
Policy is delivered. In the case of certain payroll deduction plans or other
automatic investment plans, the Policy Date may be different from the date the
first premium payment is received. If the Policy Date is prior to the Investment
Date, we will charge monthly deductions from the Policy Date.
The Investment Date is the date we allocate funds to the Policy. We will
allocate the initial Net Premium to the Policy on the next Valuation Date
following the date: (i) we receive the Initial Premium and, (ii) approve the
Policy for issue, and (iii) all issue requirements have been met and received in
our Customer Service Center.
The Policy is generally available with a minimum Stated Death Benefit of
$50,000; however, we may reduce this amount for certain group or sponsored
arrangements if the average Stated Death Benefit at issuance for the group or
sponsored arrangement is at least $50,000. The maximum Stated Death Benefit will
be limited by our underwriting and reinsurance procedures in effect at the time
of application.
Temporary Insurance
If a premium payment in an amount not less than the Scheduled Premium is
received with the application and there has been no material misrepresentation
in the application, temporary insurance equal to the applied-for face amount, up
to a maximum amount as described in the binding limited life insurance coverage
form, will be in force. Coverage will begin when the binding limited life
insurance coverage form has been completed and signed, a premium has been
accepted by us, and Part I of the application has been completed. Binding
limited life insurance coverage will end on the earliest of the date: (i)
premiums are returned; (ii) five days after notice of termination is mailed to
the Owner's address on the application; (iii) coverage starts under the Policy
resulting from the application; (iv) a policy resulting from the application is
refused by us; or (v) 90 days after the date the binding limited life insurance
coverage form is signed.
In no event will a death benefit be provided under the temporary insurance
agreement if there was a material misrepresentation: (i) in the answers in the
binding limited life insurance coverage form or in the application, (ii) a
proposed Insured dies by suicide or intentional self-inflicted injury, or (iii)
the premium check is not honored.
Premiums
The amount and frequency of premium payments are flexible, within the limits
described below.
Scheduled Premiums
Even though premium amounts are flexible, the Schedule pages of the Policy will
show a "Scheduled Premium." The Scheduled Premium may be chosen by the Owner,
within our limits, when application for the Policy is made. The Scheduled
Premium is the amount which is to be paid over a specified period of time and
may not be sufficient to keep the Policy in force. The Owner may receive premium
reminder notices for the Scheduled Premium on a quarterly, semiannual, or annual
basis. Alternatively, the premiums, other than the first one, may be paid via
Electronic Funds Transfer each month. The financial institution making the
Electronic Funds Transfer may impose a charge for this service.
The Owner is not required to pay the Scheduled Premium, and it may be changed at
any time subject to the minimum and maximum limits we set. If the Guaranteed
Minimum Death Benefit provision described below is desired by the Owner, the
Scheduled Premium should not be less than the amount required to maintain the
Guarantee Period.
Unscheduled Premium Payments
Generally, unscheduled premium payments may be made at any time. We reserve the
right to limit the amount of unscheduled premiums if the payment would result in
an
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Strategic Advantage II 21
<PAGE>
increase in the amount of the Base Death Benefit required by the Federal income
tax law definition of life insurance, or to require suitable evidence of the
insurability of the Insured at the time of the unscheduled premium payment.
Evidence of insurability may also be required if the net amount at risk is
increased as a result of an unscheduled premium payment. Premiums may also be
limited if the Guideline Premium/Cash Value Corridor Test is chosen to comply
with the Federal income tax law definition of life insurance. We will return
premium payments which exceed the "seven-pay" limit for the Policy if we
determine the payment would cause the Policy to immediately become a Modified
Endowment Contract. After the Owner has signed a form acknowledging that the
Owner understands the Policy will be a Modified Endowment Contract, we will
accept the excess premium payments. See Modified Endowment Contracts, page 38
and Changes to Comply with Law, page 40.
If a Policy Loan is outstanding, any payment which is not a Scheduled Premium
payment received before Age 100 is considered a loan repayment, unless otherwise
indicated. Applicable tax and sales charges which are deducted from any premium
payment are not deducted from a loan repayment.
Minimum Annual Premium
The Minimum Annual Premium must be paid during the first three Policy years to
meet the requirements for the three-year Special Continuation Period. We
determine the Minimum Annual Premium based on the Age, sex and Premium Class of
the Insured, the Stated Death Benefit of the Policy, and any additional benefits
selected. We may reduce the Minimum Annual Premium for certain group or
sponsored arrangements. The Minimum Annual Premium is shown in the Schedule
pages of the Policy.
Special Continuation Period
The Policy is guaranteed not to lapse, regardless of its Net Account Value if,
on each Monthly Processing Date during the first three Policy years, all
premiums paid, less the sum of Partial Withdrawals and Policy Loans taken,
including accrued loan interest, is greater than or equal to the sum of the
applicable minimum monthly premiums for each Policy month, starting with the
first Policy month, through and including the Policy month which begins on the
current Monthly Processing Date. The minimum monthly premium is equal to one
twelfth of the Minimum Annual Premium. See Lapse, page 29.
If during the first three Policy years, any charges are not deducted so as to
keep the Policy from lapsing under the Special Continuation Period, these
charges are not permanently waived. At the end of the Special Continuation
Period, the aggregate amount of the charges previously not deducted will be due
and will be deducted at the beginning of Policy year four.
Premium Payments Affect the Coverage
If premium payments are discontinued, either temporarily or permanently, the
Policy will continue in effect until the Net Account Value can no longer cover
the monthly deductions for the benefits selected. At that time, the Policy will
lapse. See Lapse, page 29. If the Minimum Annual Premium requirements are
satisfied, the Policy is guaranteed not to lapse during the first three Policy
years, regardless of its Net Account Value. See Special Continuation Period,
page 19. Under the Guaranteed Minimum Death Benefit provision, the Stated Death
Benefit portion of the Policy will remain in effect until the end of the
Guarantee Period as long as the conditions of the guarantee are met. See
Guaranteed Minimum Death Benefit Provision, page 22.
Choice of Definitional Tests
When applying for the Policy, the Owner will irrevocably choose which of the two
tests for compliance with the Federal income tax law definition of life
insurance will apply to the Policy. These tests are the Cash Value Accumulation
Test and the Guideline Premium/Cash Value Corridor Test. See Life Insurance
Definition, page 37. If the Guideline Premium/Cash Value Corridor Test is
chosen, the allowable premium payments relative to the Policy death benefit will
be limited.
Guaranteed Minimum Death Benefit Provision
The Owner will have the opportunity to choose whether to place and keep the
Guaranteed Minimum Death Benefit provision in effect. This provision may extend
the period that the Stated Death Benefit of the Policy will remain in effect if
the Divisions of the Variable Account suffer adverse investment experience. This
provision requires a premium payment level (the Guarantee Period Annual Premium)
which is higher than the Minimum Annual Premium.
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Strategic Advantage II 22
<PAGE>
In addition, the Net Account Value of the Policy must be diversified according
to our requirements. See Guaranteed Minimum Death Benefit provision, page 22.
The Guarantee Period Annual Premium depends on the Stated Death Benefit of the
Policy, the Insured's Age, sex, and Premium Class, the death benefit option
chosen, and additional Rider coverage. Adding additional benefits to the Policy
will increase the Guarantee Period Annual Premium above this level.
Policy Owners should consider the Guaranteed Minimum Death Benefit provision
when setting the Scheduled Premium.
Modified Endowment Contracts
Federal income tax law provides special rules for the income taxation of
distributions from life insurance policies which are defined as "Modified
Endowment Contracts." These rules apply to distributions such as Policy Loans,
surrenders and Partial Withdrawals. The application of these rules depends upon
whether premiums have been paid which exceed a defined "seven-pay" limit. See
Modified Endowment Contracts, page 38.
If we determine that the Scheduled Premium will cause the Policy to be a
Modified Endowment Contract on the Policy Date, we will issue the Policy based
on the Scheduled Premium selected, but we will require the Owner to sign a form
acknowledging that the Policy is a Modified Endowment Contract. Alternatively,
the Scheduled Premium may be reduced to a level which will not cause the Policy
to become a Modified Endowment Contract, and we will issue the Policy based on
the revised Scheduled Premium.
Allocation of Net Premiums
The balance after certain premium-based charges are deducted from each premium
is called the Net Premium. The Net Premium is added to the Account Value
according to the Owner's instructions. Net Premium amounts allocated to the
Guaranteed Interest Division will be allocated to that Division upon receipt.
During the Delivery and Free Look Periods, Net Premiums allocated to the
Divisions of the Variable Account will be allocated to the Division investing in
the Fidelity VIP Money Market Portfolio. At the end of the Delivery and Free
Look Periods, this portion of the Account Value will automatically be allocated
according to the most recent premium allocation instructions.
Thereafter, Net Premiums received will be allocated upon receipt according to
the allocation instructions stated in the most recent instructions. Allocation
percentages must be in whole numbers, with the sum for all Divisions equaling
100%. Premium allocation instructions may be changed up to five times per Policy
year without charge. More than five Premium allocation changes in a Policy year
will be subject to a $25 charge for each additional change.
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. The Divisions
include the Divisions of the Variable Account and the Guaranteed Interest
Division, but exclude the Loan Division. For example, if the Owner has 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 the Owner can subsequently allocate or
transfer funds. Therefore, Owners may prefer to utilize fewer Divisions in the
early years of the Policy 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.
Death Benefits
Strategic Advantage II offers the flexibility to determine the amount of
insurance coverage needed, both now and in the future. It does this by combining
the long-term advantages of permanent life insurance coverage with the
flexibility and short-term advantages of term life insurance. Both permanent and
term life insurance are available in this single Policy, Strategic Advantage II.
When a Policy is issued, an initial amount of insurance coverage is determined
according to the application instructions. The death benefit initially consists
of a Stated Death Benefit and, if desired, an additional amount of insurance
coverage which is added by Adjustable Term Insurance Rider. The Stated Death
Benefit is the long-term element of the Policy; the Adjustable Term
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Strategic Advantage II 23
<PAGE>
Insurance Rider is the term insurance element of the Policy.
The Adjustable Term Insurance Rider provides term insurance coverage which
adjusts automatically to fill the difference between the Target Death Benefit
chosen and the Base Death Benefit. The Adjustable Term Insurance Rider does not
have an externally defined premium and thus no sales charge applies. The cost of
this Rider is included in the monthly cost of insurance charges discussed below.
See Adjustable Term Insurance Rider, page 23.
As described below, the Base Death Benefit may vary from the Stated Death
Benefit. This may result from choice of death benefit option, increases to
comply with the Federal income tax law definition of life insurance, changes in
the death benefit option, partial withdrawals, requested increases and
decreases, or when a transaction on the Policy causes the Base Death Benefit to
change.
As long as the Policy remains in force, we will pay an amount equal to the Death
Proceeds to the Beneficiary of this Policy when the Insured dies. The Death
Proceeds will consist of the Base Death Benefit as of the date of the Insured's
death, reduced by any outstanding Policy Loans and accrued loan interest and, if
in the grace period or three-year Special Continuation Period, further reduced
by any unpaid charges incurred prior to the date of the Insured's death. The
Death Proceeds will include any amount provided by Rider on the Insured.
Death Benefit Options
The Owner may choose from two death benefit options (Option 1 or Option 2).
These options may result in a Base Death Benefit under the Policy which exceeds
the Stated Death Benefit. The death benefit option may be changed on any policy
anniversary. See Changes In Death Benefit Option, page 21.
Under Option 1, the Base Death Benefit is the greater of:
(a) the Stated Death Benefit on the date of the Insured's death; or
(b) the Account Value on the date of the Insured's death multiplied by the
appropriate factor from the Definition of Life Insurance Factors shown
in Appendix A or B.
Under Option 2, the Base Death Benefit is the greater of:
(a) the Stated Death Benefit plus the Account Value on the date of the
Insured's death; or
(b) the Account Value on the date of the Insured's death multiplied by the
appropriate factor from the Definition of Life Insurance Factors shown
in Appendix A or B.
Owners who prefer to have insurance coverage that does not vary in amount and
lower cost of insurance charges, should choose Option 1. Owners who prefer to
have any favorable investment experience reflected as increased insurance
coverage should choose Option 2.
Federal income tax law requires the death benefit to be at least as great as the
Account Value times a factor which is defined in the law. The factors are
determined based upon the Insured's Age, and possibly sex, at any point in time
as well as by the test for compliance selected in the original Policy
application. See Life Insurance Definition, page 37.
If necessary, we will adjust the Policy to continue to qualify as life insurance
under the applicable provisions of the Federal income tax laws in existence at
the time the Policy was issued.
Changes in Death Benefit Option
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Strategic Advantage II 24
<PAGE>
A change in death benefit option may be requested at least 30 days prior to a
Policy anniversary. A change in the death benefit option of the Policy will go
into effect as of the Policy anniversary on or following the date we approve the
request for the change. After the request is approved, we will send a new policy
Schedule page which should be attached to the Policy. We may ask that the Policy
be returned to our Customer Service Center so that we can note the change in the
Schedule. The death benefit option change applies to the entire Stated Death
Benefit.
For us to approve a change in the death benefit option from Option 1 to Option
2, evidence that the Insured is insurable according to our normal rules of
underwriting for that class of policy must be submitted to us. We may not allow
a change that would reduce the Stated Death Benefit below the minimum we require
to issue this Policy. After the effective date of the change, the Stated Death
Benefit will be changed according to the following table:
<TABLE>
<CAPTION>
OPTION CHANGE STATED DEATH BENEFIT
FROM TO FOLLOWING CHANGE
EQUALS:
<S> <C> <C>
Option 1 Option 2 Stated Death Benefit prior to change minus the
Account Value as of the effective date of the change.
Option 2 Option 1 Stated Death Benefit prior to change plus the
Account Value as of the effective date of the change.
</TABLE>
For purposes of a death benefit option change, the Account Value will be
allocated to each Segment in the same proportion that the Segment bears to the
Stated Death Benefit. See Changes In Death Benefit Amounts, page 21.
We do not adjust the Target Premium when this type of change is made. See Sales
Charges, page 31. These increases and decreases in Stated Death Benefit are made
so that the amount of the Base Death Benefit remains the same on the date of the
change. When the Base Death Benefit remains the same, there is no immediate
change in the Net Amount at Risk, which is the amount on which our cost of
insurance charges are based. See Cost Of Insurance Charges, page 32. In
addition, there will be no change to the amount of term insurance if an
Adjustable Term Insurance Rider has been added.
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Strategic Advantage II 25
<PAGE>
Death Benefit Option 2 will not be available after Age 100.
Changes in Death Benefit Amounts
While the Policy is in force, its Target or Stated Death Benefit may be
increased prior to the Policy anniversary on which the Insured is Age 86. The
Stated Death Benefit may be decreased if the request occurs after the first
Policy anniversary.
An increase or a decrease in the death benefit of the Policy may be requested by
the Owner. This request will be effective as of the next monthly processing date
after the request is received by our Customer Service Center unless there are
underwriting or other requirements. A change in coverage may not be for an
amount less than $1,000.
After the request is approved, we will send a new Schedule which will include
the Stated Death Benefit, the benefit under any Riders, if applicable, the
guaranteed cost of insurance rates, and the new guideline annual premium. This
notice should be attached to the Policy. We may ask that the Policy be returned
to our Customer Service Center so that we can note the change in the Schedule.
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Strategic Advantage II 26
<PAGE>
In some cases, we may not approve a requested change because it would disqualify
the Policy as life insurance under applicable Federal income tax law. If we do
not approve a change, we will provide notification of our decision about making
the change. See Tax Considerations, page 37.
Decreases in the death benefit generally may not decrease the Stated Death
Benefit below the minimum we require to issue this Policy. There may be tax
consequences to the decrease. See Life Insurance Definition, page 37, and
Modified Endowment Contracts, page 38.
Requested reductions in the death benefit or an option change that causes a
reduction will first be applied to reduce the Target Death Benefit. The Stated
Death Benefit will be decreased only after Adjustable Term Insurance Rider
coverage has been reduced to zero. If more than one Segment exists, any
subsequent reduction in Stated Death Benefit will be allocated among Segments in
the same proportion each segment bears to the total Stated Death Benefit prior
to the reduction unless required differently by state law.
Satisfactory evidence that the Insured is still insurable must be provided when
the death benefit is increased.
Unless otherwise indicated, any request for an increase to the Target Death
Benefit will be assumed to also be a request for an increase to the Stated Death
Benefit so that the amount of the Adjustable Term Insurance Rider, if it is
included with the Policy at the time of the increase, will not change. The
Target Death Benefit may be changed only once each year.
A requested increase in the Stated Death Benefit will create a new Segment.
Increases in Stated Death Benefit resulting from death benefit option changes do
not create new Segments, rather, they merely increase the size of the existing
Segment(s). As discussed below, once created, a new Segment can never be
eliminated unless required differently by state law.
If an increase creates a new Segment, premiums paid after the increase will be
allocated to the original and new Segments in the same proportion that the
guideline annual premiums defined by the Federal income tax laws for each
Segment bear to the sum of the guideline annual premiums for all Segments. The
guideline annual premiums will be shown in the Schedule for each coverage
segment. Net Amount at Risk will be allocated to each Segment in the same
proportion that the Segment bears to the total stated Death Benefit.
Guaranteed Minimum Death Benefit
Generally, the length of time the Policy remains in force depends on the Net
Account Value of the Policy. Because the charges to maintain the Policy are
deducted monthly from the Account Value, coverage will last as long as the Net
Account Value is sufficient to pay these charges. The investment experience of
amounts in the Divisions of the Variable Account and the interest earned in the
Guaranteed Interest Division will affect the Account Value and, as a result, the
length of time the Policy remains in force without payment of additional
premiums.
A Guaranteed Minimum Death Benefit provision is available which may extend the
period that the Policy's Stated Death Benefit will remain in effect if the
Divisions of the Variable Account suffer adverse investment experience. This
provision has a Guarantee Period of ten Policy years or to the Insured's Age 65,
whichever is later. It protects the Stated Death Benefit of the Policy for a
limited number of Policy years.
However, the Guaranteed Minimum Death Benefit provision does not apply to the
Adjustable Term Insurance Rider or to any other Riders. Therefore, if the Net
Account Value is insufficient to pay all of the deductions as they come due,
only the Stated Death Benefit portion of the Policy will be guaranteed to stay
in force under the Guaranteed Minimum Death Benefit provision; and any attached
Riders will lapse. See Lapse, page 29.
The Guaranteed Minimum Death Benefit provision is not available in some states.
Requirements to Maintain the Guarantee Period
The Guaranteed Minimum Death Benefit provision requires that the Net Account
Value must meet certain diversification requirements, and it requires a premium
payment level, the
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Strategic Advantage II 27
<PAGE>
Guarantee Period Annual Premium, that is higher than the
Minimum Annual Premium.
As of each Monthly Processing Date we will perform a test to see if sufficient
premiums have been paid to keep the guarantee in place. The amount of premiums
paid, minus the total of Partial Withdrawals, Policy Loans and accrued loan
interest must equal or exceed the sum of the Guarantee Period Monthly Premiums.
This sum of Guarantee Period Monthly Premiums starts with the first Policy Month
and is through and including the Policy Month that begins on the current Monthly
Processing Date. If the Policy fails to meet this test on any Monthly Processing
Date, the Guarantee Period and therefore the Guaranteed Minimum Death Benefit
provision will lapse.
The Guarantee Period Annual Premium will be listed in the Schedule of the
Policy. If the Policy benefits are increased, the Guarantee Period Annual
Premium also will increase. The Guarantee Period Monthly Premium is one twelfth
of the Guarantee Period Annual Premium.
The Guarantee Period also will lapse if the Net Account Value on any Monthly
Processing Date prior to Maturity Date is not diversified according to the
following rules:
i. No more than 35% of the Net Account Value may be invested in any one
Division, and
ii. The Net Account Value must be invested in at least five Divisions.
These diversification requirements will be satisfied if the Automatic
Rebalancing feature has been elected and conditions i) and ii) above are met.
The Policy will also be deemed to satisfy the requirements for diversification
if Dollar Cost Averaging is elected and the resulting transfers are directed
into at least four other Divisions with no more than 35% of any transfer
directed to any one Division. See Dollar Cost Averaging, page 26, and Automatic
Rebalancing, page 27.
If the Guaranteed Minimum Death Benefit lapses and is not corrected, this
feature will be terminated. Once terminated, the Guaranteed Minimum Death
Benefit provision cannot be reinstated.
There is no charge for the Guaranteed Minimum Death Benefit.
Additional Benefits
The Policy may include additional benefits, which are attached to the Policy by
Rider. A charge will be deducted monthly from the Account Value for each
additional benefit chosen. These benefits may be canceled by the Owner at any
time. See Modified Endowment Contracts, page 38, for information on the tax
effect of adding or canceling these benefits. More details will be included in
the Policy if any of these benefits are chosen.
From time to time we may make available Riders other than those listed below.
Contact a Registered Representative for a complete list of the Riders available.
Certain Riders may not be available for all Policies.
Adjustable Term Insurance Rider
The Death Proceeds may be increased by adding the Adjustable Term Insurance
Rider on the life of the Insured. As the name suggests, the Adjustable Term
Insurance Rider adjusts over time.
At issue, a Schedule of death benefits called the Target Death Benefit is
specified at levels to meet the Owner's projected needs in the future. The
Target Death Benefit may be scheduled to vary as often as each Policy year. The
Target Death Benefit will be listed in the Schedule. Subject to our rules, the
Target Death Benefit Schedule may be changed after issue. See Changes In Death
Benefit Amounts, page 21.
If at any time you cancel a scheduled change or ask for
an unscheduled decrease to your Target Death Benefit, we may deny any future
scheduled increases to the Target Death Benefit.
The amount of Adjustable Term Insurance Rider in force at any time is the amount
needed to fill the difference between the Target Death Benefit specified in the
Schedule and the Base Death Benefit in effect. The Adjustable Term Insurance
Rider is dynamic in that it adjusts daily for variations in the Base Death
Benefit resulting from compliance with the Federal income tax law definition of
life insurance test chosen.
For example, assume the Base Death Benefit increases due to the Federal income
tax law definition of life insurance. The Adjustable Term Insurance Rider will
adjust to provide Death
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Strategic Advantage II 28
<PAGE>
Proceeds equal to the Target Death Benefit in each year:
Base Death Target Death Adjustable Term
Benefit Benefit Insurance Rider Amount
------- ------- ----------------------
201,500 250,000 48,500
202,500 250,000 47,500
202,250 250,000 47,750
Since the Adjustable Term Insurance Rider is dynamic, it is possible that the
Adjustable Term Insurance Rider amount may be eliminated entirely as a result of
increases in the Base Death Benefit due to the definition of life insurance
requirements. Using the example outlined above, if the Base Death Benefit under
the Policy grew to $250,000, the Adjustable Term Insurance Rider amount would be
reduced to zero. (It can never be reduced below zero.)
Even though the Adjustable Term Insurance Rider amount is reduced to zero, the
Rider will remain in effect until it is removed from the Policy. Therefore, if
the Base Death Benefit under the Policy is subsequently reduced below the Target
Death Benefit, the Adjustable Term Insurance Rider amount will reappear as
needed to maintain the Target Death Benefit at the requested level. Partial
Withdrawals and base decreases may reduce the amount of the Target Death
Benefit. See Partial Withdrawals, page 28.
We generally restrict the amount of the Target Death Benefit to an amount not
more than ten times the Stated Death Benefit. For example, if the Stated Death
Benefit is $100,000 then the maximum amount of Target Death Benefit we will
allow will be $1,000,000.
Given the flexible nature of the Adjustable Term Insurance Rider, there is no
externally defined premium and no tax or sales charges for this coverage.
Instead, a cost of insurance charge is deducted monthly from the Account Value
for the Adjustable Term Insurance Rider amount in effect. The cost of insurance
charge may be lower than the rates applicable to the Base Death Benefit in the
early Policy years, and may be higher in the later Policy years. See Cost of
Insurance Charges, page 32. Since there is no defined premium related to the
Adjustable Term Insurance Rider, there are no tax or sales charges associated
with this coverage.
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Strategic Advantage II 29
<PAGE>
and thus the total sales charge paid by the Owner may be less
if coverage is included as an Adjustable Term Insurance Rider rather than the
Base Death Benefit. However, since not all Policy features apply to the
Adjustable Term Insurance Rider, the Owner should consider these features as
well as cost when making his or her purchase decisions.
Right to Change Insured Rider
This Rider allows the Owner to change the person insured under the Policy. A
change of the Insured may have Federal income tax consequences. If a change of
Insured occurs, the cost of insurance charges in the future may change but the
Account Value will remain unchanged as of the change date. There is no charge
for this Rider.
Waiver of Cost of Insurance Rider
This Rider provides that during the total disability of the Insured, while the
Policy remains in force, the monthly expense charges, cost of insurance charges
and Rider charges will be waived and therefore not deducted from the Account
Value. If this Rider is added to the Policy, Waiver of Specified Premium Rider
may not also be added.
Waiver of Specified Premium Rider
This Rider provides that during the total disability of the Insured, while the
Policy remains in force, a specified premium amount will be credited monthly to
the Policy. The amount of premium to be credited, within limits, is the amount
specified in the application. If this Rider is added to the Policy, the Waiver
of Cost of Insurance Rider may not be added.
Benefits at Maturity
If the Insured is still living at Policy Age 100 and the Owner does not desire
to use the Continuation of Coverage feature, the Policy Owner may surrender the
Policy for the Net Account Value. Some portion of this payment may be taxable.
Consult with your tax adviser for advice. The Net Account Value is the Account
Value reduced by any outstanding Policy Loan and accrued loan interest. The
Policy will then end.
Continuation of Coverage
If the Insured is still living at Policy Age 100 and the Continuation of
Coverage feature is in effect, the Net Account Value (except amounts in the loan
division) will be transferred into the Guaranteed Interest Division. A one-time
administrative fee will be assessed against the Policy to cover future expenses.
The insurance coverage under the Policy
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Strategic Advantage II 30
<PAGE>
will continue in force until the time of the Insured's death unless the Policy
lapses or is surrendered.
At Age 100, all Riders except the Adjustable Term Rider terminate. The coverage
provided under the Rider converts to base coverage and the Stated Death Benefit
is redefined. If there is no Rider coverage, the Stated Death Benefit is
unchanged. Any Policy with Death Benefit Option 2 will be converted to Death
Benefit Option 1 at Age 100 when the Continuation of Coverage feature becomes
effective. See Changes in Death Benefit Option page 21.
The Net Account Value funds may not be transferred into the Variable Divisions
after Age 100; thus related investment features such as Dollar Cost Averaging
and Automatic Rebalancing are discontinued.
If there is an outstanding loan on the Policy, loan interest will continue to
accrue. If no payments are made, it is possible that the loan interest may
reduce the account value and cause the Policy to lapse. To avoid this event, you
may make loan or loan interest payments after Age 100. However, no additional
premium payments will be accepted.
During the Continuation of Coverage period you may take policy loans or partial
withdrawals.
The availability of this feature is subject to state approval.
Policy Values
Account Value
The amount of the Account Value is the sum of the amounts in the Guaranteed
Interest Division, in the various Divisions of the Variable Account, and the
Loan Division. The Account Value therefore reflects all premiums paid, charges
made, Policy Loans and Partial Withdrawals taken, investment experience of the
Variable Account, and earnings accrued in the Guaranteed Interest and Loan
Divisions.
Cash Surrender Value
The Cash Surrender Value of the Policy equals the Account Value plus any refund
of sales charges which may be due.
Net Cash Surrender Value
The Net Cash Surrender Value of the Policy is equal to the Cash Surrender Value
less the amount of any outstanding Policy Loans and accrued loan interest.
Net Account Value
The Net Account Value of the Policy is equal to the Account Value less the
amount of any outstanding Policy Loans and accrued loan interest.
Determining the Value of Amounts in the Divisions of the Variable Account
The amounts included in the Divisions of the Variable Account are measured in
terms of Accumulation Units and Accumulation Unit Values. On any given day the
value of the amount in a Division of the Variable Account is equal to the
Accumulation Unit Value times the number of Accumulation Units credited in that
Division to the Policy. Each Division of the Variable Account will have
different Accumulation Unit Values.
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Strategic Advantage II 31
<PAGE>
Accumulation Units of a Division are purchased whenever premiums or transfer
amounts are allocated to that Division (including transfers from the Loan
Division). Accumulation Units are redeemed when Partial Withdrawals are taken or
amounts are transferred from a Division of the Variable Account (including
transfers to the Loan Division) and to pay the death benefit when the Insured
dies. We also redeem Accumulation Units for the monthly deductions from the
Account Value and Policy transaction charges, if any.
The number of Accumulation Units purchased or redeemed in a Division of the
Variable Account as of any Valuation Date is calculated by dividing the dollar
amount of the transaction by the Division's Accumulation Unit Value calculated
after the close of business that day. The Accumulation Unit Value of each
Division fluctuates with the investment experience of the corresponding
Portfolio and reflects the investment income, realized and unrealized capital
gains and losses, and expenses of the Portfolio. The Accumulation Unit Values
also reflect the mortality and expense risk charges we make each day to the
Variable Account. See How We Calculate Accumulation Unit Values for Each
Division, page 25.
Transactions are processed as of the Transaction Date. The Transaction Date is
the date we receive a premium or an acceptable written or telephone request at
our Customer Service Center. If the premium or request reaches our Customer
Service Center on a day which is not a Valuation Date, or after the close of
business on a Valuation Date, the Transaction Date will be the next succeeding
Valuation Date.
Monthly deductions against the Account Value are made as of the Monthly
Processing Date. Transaction charges are made as of the Transaction Date.
The value of any amount allocated to a Division of our Variable Account will go
up or down depending on the investment experience of that Division. For amounts
allocated to the Divisions of the Variable Account, there is no guaranteed
minimum cash value.
How We Calculate Accumulation Unit Values for Each Division
We determine Accumulation Unit Values for the Divisions of the Variable Account
as of each Valuation Date. All Policy transactions are performed as of a
Valuation Date.
The Accumulation Unit Value for each Division will generally be set at $10 on
the first Valuation Date that there are Policy transactions in that Division of
the Variable Account. After that, the Accumulation Unit Value as of any
Valuation Date is equal to the Accumulation Unit Value for the preceding
Valuation Date multiplied by the Accumulation Experience Factor for that
Division for the Valuation Period.
We calculate an Accumulation Experience Factor for each Division every Valuation
Date as follows:
1. We take the value of the shares belonging to the Division in the
corresponding Portfolio as of the close of business that Valuation Date
(before giving effect to any Policy transactions for that day, such as
premium payments or surrenders). For this purpose, we use the share value
reported to us by the managers of the Portfolio.
2. We add any dividends or capital gains distributions declared and
reinvested by the Portfolio during the Valuation Period. We subtract from
this amount a charge for taxes, if any.
3. We divide the resulting amount by the value of the shares belonging to
the Division in the corresponding Portfolio as of the close of business
on the preceding Valuation Date. This new amount represents the gross
experience factor per Accumulation Unit, before reduction for the
expenses of the Variable Account.
4. We subtract a charge for the mortality and expense risk
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Strategic Advantage II 32
<PAGE>
assumed by us under the Policy. The daily charge is .002055% of the
Accumulation Unit Value, which is equivalent to an annual rate of .75% of
the Accumulation Unit Value. If the previous day was not a Valuation
Date, then the charge is adjusted for the additional days between
valuations.
The result is the Accumulation Experience Factor for the Valuation Period.
Transfers of Account Values
After the Free Look Period ends, up to 12 transfers among the Divisions of the
Variable Account or to the Guaranteed Interest Division may be made in each
Policy year without charge. There is no limit on the number of transfers that
may be made, but we charge a fee of $25 for each additional transfer beyond the
first 12. Transfers due to the operation of Automatic Rebalancing or Dollar Cost
Averaging are not included in determining the limit on transfers without a
charge. Transfer requests should be made in writing to our Customer Service
Center. The transfer will take effect as of the Valuation Date we receive the
request. The minimum amount we will transfer on any date is $100. This minimum
need not come from any one Division or be transferred to any one Division as
long as the total amount requested to be transferred equals at least the
minimum. However, we will transfer the entire amount in any Division of the
Variable Account from which a transfer is requested, if the amount remaining in
that Division is less than $100.
We reserve the right to limit excessive trading activity, which can disrupt
Portfolio management strategy and increase Portfolio expenses. For example, we
may refuse to accept or we may 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 their ability to provide maximum investment return to all Owners.
Transfers from the Guaranteed Interest Division may be made only as follows.
Once during the first 30 days of each Policy year, the Owner may transfer
amounts from the Guaranteed Interest Division. Transfer requests received within
30 days prior to the Policy anniversary will be deemed to occur as of the Policy
anniversary. Transfer requests received on the Policy anniversary or within the
following 30 days will be processed. Transfer requests received at any other
time will not be processed.
Transfer amounts from the Guaranteed Interest Division to the Divisions of the
Variable Account are limited to the greatest of (i) 25% of the balance in the
Guaranteed Interest Division at the time of the first transfer or withdrawal in
a Policy year, (ii) the sum of any amounts transferred and withdrawn from the
Guaranteed Interest Division in the prior Policy year or, (iii) $100.
The Owner may utilize a maximum of 18 Divisions for investment over the lifetime
of the Policy until current administrative systems are enhanced. See Maximum
Number of Investment Divisions, page 14.
If telephone privileges have been elected in an application or written notice
has been sent to our Customer Service Center requesting this privilege,
transfers may be made by telephoning our Customer Service Center. See Telephone
Privileges, page 44.
Dollar Cost Averaging
We offer a feature called Dollar Cost Averaging to Owners who have at least
$10,000 of Account Value invested in either the Division investing in the
Fidelity VIP Money Market Portfolio or the Neuberger & Berman AMT Limited
Maturity Bond Portfolio. The main objective of Dollar Cost Averaging is to
protect Policy values from short-term price fluctuations. Since the same dollar
amount is transferred to other Divisions each period, more units are purchased
in a Division if the value per unit is low, and fewer units are purchased if the
value per unit is high. This plan of allocating Policy values reduces the risk
of investing too much when the price of a Portfolio's shares is high and too
little when the price of a Portfolio's shares is low. However, participation in
Dollar Cost Averaging does not assure a profit nor does it protect against a
loss in a declining market.
With Dollar Cost Averaging, a designated dollar amount or a percentage of the
Account Value of the Division investing in the Fidelity VIP Money Market
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Strategic Advantage II 33
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Portfolio or the Neuberger Berman AMT Limited Maturity Bond Portfolio will be
transferred automatically each period from the selected Division to one or more
other Divisions of the Variable Account. Dollar Cost Averaging transfers may not
be made to or from the Guaranteed Interest Division. Any transfers that are a
result of the Dollar Cost Averaging feature are not counted toward the limit of
12 transfers that can be made each Policy year without a transfer charge. There
is no charge for this feature.
Dollar Cost Averaging allocations may be designated in dollar amounts or whole
percentages. The minimum percentage that may be transferred to any one Division
is 1% of the total amount transferred to all selected Divisions. The transfer
amount under Dollar Cost Averaging may be no less than $100.
The first Dollar Cost Averaging date must be at least five days after our
receipt of the request for Dollar Cost Averaging. In no event will Dollar Cost
Averaging begin before the end of the Delivery and Free Look Periods. Dollar
Cost Averaging may occur monthly, quarterly semi-annually, or annually on a date
requested by the Owner. Unless specified otherwise, Dollar Cost Averaging will
take place monthly, on the Monthly Processing Date.
If on any Dollar Cost Averaging date, the amount in the Division from which
transfers are to be made is equal to or less than the amount to be transferred,
the entire remaining amount will be transferred, and Dollar Cost Averaging will
end. Changes to the Dollar Cost Averaging program may be made once each Policy
year or Dollar Cost Averaging may be canceled completely by sending satisfactory
notice to our Customer Service Center at least five days before the next Dollar
Cost Averaging date. If telephone privileges are in effect, changes to the
Dollar Cost Averaging program can be made by telephoning our Customer Service
Center. See Telephone Privileges, page 44.
A date for Dollar Cost Averaging to terminate may be specified by the Owner.
Termination also may occur when the balance remaining in either the Division
investing in the Fidelity VIP Money Market Portfolio or the Neuberger & Berman
AMT Limited Maturity Bond Portfolio reaches a specified dollar amount.
A Dollar Cost Averaging Program and an Automatic Rebalancing Program may run at
the same time.
Automatic Rebalancing
The Automatic Rebalancing feature provides a method for maintaining a balanced
approach to investing Account Values and for simplifying the process of asset
allocation over time.
The Automatic Rebalancing feature may be elected with the application or at any
subsequent time by completing the appropriate form. Automatic Rebalancing
matches Account Value allocations over time to the allocation percentages set by
the Owner. During the operation of the Automatic Rebalancing feature, transfers
among the Divisions may occur monthly, quarterly, semi-annually, or annually on
a date specified by the Owner. Unless specified otherwise, Automatic Rebalancing
will take place on the last Valuation Date of each calendar quarter.
Automatic Rebalancing allocations may be specified for all or some of the
Divisions in which the Account Value is invested. If this feature is elected we
will transfer amounts among the Divisions so that, after the transfers, the
ratio of the Account Value in each Division to the total Account Value of all
Divisions included in Automatic Rebalancing matches the automatic rebalancing
allocation percentage for that Division. This will rebalance the amounts in
Divisions that do not match the allocation percentages, which could result,
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Strategic Advantage II 34
<PAGE>
for example, from Divisions which outperform the other Divisions for that time
period.
If Automatic Rebalancing is elected with the Policy application, the first
transfer will occur on the date specified by the Owner, following the end of the
Delivery and Free Look Periods. If this feature is elected after the Policy
Date, the first transfer will be processed as of the date requested by the Owner
which must be at least five days after receipt at our Customer Service Center,
or, if no date is specified, the last Valuation Date of the calendar quarter
after we receive notification at our Customer Service Center and the Delivery
and Free Look Periods have ended.
The allocation percentages for Automatic Rebalancing may be changed at any time
and the Account Value will be reallocated as of the Valuation Date that we
receive the allocation instructions at our Customer Service Center. Any
reduction in the allocation to the Guaranteed Interest Division, however, will
be considered a transfer from the Division and, therefore, must comply with the
maximum transfer amount and time limitations on transfers from the Guaranteed
Interest Division, as described in Transfers of Account Values on page 25. If we
receive an Automatic Rebalancing request which is in conflict with these
provisions, we will ask for revised instructions.
The Owner may terminate the Automatic Rebalancing feature at any time, as long
as we receive notice of the termination at least five days prior to the next
Automatic Rebalancing. If the Guarantee Period is in effect and the Automatic
Rebalancing feature is terminated, diversification of the Net Account Value
still must be maintained for the Guarantee Period to continue. If the Automatic
Rebalancing feature is active, the Guarantee Period is in effect, and a request
is received for an allocation which does not meet the diversification
requirements to maintain the Guarantee Period, we will notify the Owner that the
allocation must be changed. See Guaranteed Minimum Death Benefit, page 22.
Any transfers that are a result of the Automatic Rebalancing feature are not
counted toward the limit of 12 transfers that can be made each Policy year
without a transfer charge.
We will charge a fee of $25 each time the Automatic Rebalancing allocation is
changed more than five times per Policy year; otherwise there is no charge for
this feature.
An Automatic Rebalancing program may be run simultaneously with a Dollar Cost
Averaging program.
Policy Loans
At any time after the first Policy anniversary, or as otherwise required by law,
the Owner may borrow against the Policy by using it as security for a loan. The
amount borrowed is called a Policy Loan. Unless otherwise required by state law,
any new Policy Loan must be at least $100. The maximum amount which can be
borrowed as of any Valuation Date equals the Net Account Value less monthly
deductions to the next Policy Anniversary. Maximum loan amounts may be different
if required by state law. A Policy Loan may be requested by contacting our
Customer Service Center.
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Strategic Advantage II 35
<PAGE>
Loan interest charges on a Policy Loan accrue daily at a annual interest rate of
4.75%. Interest is due in arrears on each Policy Anniversary. If the interest is
not paid when it is due, it will be added to the Policy Loan as of the Policy
anniversary.
When an additional loan is requested, the amount taken will be added to the
outstanding Policy Loan so only one loan is outstanding at any time. A Policy
Loan may be fully or partially repaid at any time while the Policy is in force.
Unless otherwise indicated, we will assume that any payments, other than
Scheduled Premiums, constitute Policy Loan repayments and not premiums.
When a Policy Loan is taken, or if the loan interest is not paid on the Policy
anniversary, an amount equal to the Policy Loan amount or interest due is
transferred from the Divisions of the Variable Account and the Guaranteed
Interest Division to the Loan Division to secure the loan. The Loan Division is
part of our General Account, separate from the Guaranteed Interest Division.
When transfers are made to the Loan Division sufficient units of the Variable
Account Divisions are redeemed to cover the amount of the loan taken from the
Variable Account. We will deduct the amount transferred from each Division in
the same proportion that the Account Value in that Division bears to the Net
Account Value immediately prior to the loan transaction unless otherwise
specified by the Owner. The amounts in each Division will be determined as of
the Valuation Date we receive the request for a loan. The Loan Division is
credited at an annual rate of 4.00%.
The amount of interest credited to the Loan Division for the Policy year will be
transferred from the Loan Division on Policy anniversaries. When a loan
repayment is made, an amount equal to the payment is transferred from the Loan
Division. Amounts transferred from the Loan Division will be allocated to the
Divisions of the Variable Account and the Guaranteed Interest Division based on
the current premium allocation instructions unless a different allocation is
requested.
A Loan against the Policy will have a permanent effect on the Account Value and,
therefore, on the benefits under this Policy, even if the Loan is repaid. When
borrowing against the Policy, an amount equal to the Policy Loan is transferred
to the Loan Division where it earns a guaranteed rate of interest. Premiums or
transfer amounts may not be allocated to the Loan Division other than by
borrowing additional amounts. If not repaid, the Policy Loan and accrued loan
interest will be deducted from the amount of the Death Proceeds paid, and the
Cash Surrender Value paid on surrender. It also may have an effect on the
Guarantee Period and on the length of time the Policy remains in force, since in
many cases the Policy will lapse when the Account Value minus Policy Loan and
accrued loan interest is insufficient to cover the monthly deductions.
If telephone privileges have been elected, a Policy Loan may be requested by
telephoning our Customer Service Center. Any telephone request for a Policy Loan
must be for an amount less than $25,000. See Telephone Privileges, page 44.
Loans may have adverse tax consequences. See Modified Endowment Contracts,
page 38.
Partial Withdrawals
A Partial Withdrawal may be requested on any Monthly Processing Date after the
first Policy anniversary by contacting our Customer Service Center. One Partial
Withdrawal is allowed each Policy year.
The minimum Partial Withdrawal is $100. The maximum Partial Withdrawal is the
amount which will leave a Net Account Value of $500. If a withdrawal of more
than this maximum is requested, we will require a full surrender of the Policy.
When a Partial Withdrawal is taken, the amount of the withdrawal plus a service
fee is deducted from the Account Value.
The Stated Death Benefit is not reduced by a Partial Withdrawal taken when: (i)
the Base Death Benefit has been increased to qualify the Policy as life
insurance under the Federal income tax laws (see Life Insurance Definition, page
37), and (ii) the amount withdrawn is no greater than that amount which reduces
the Account Value to the level which no longer requires the Base Death Benefit
to be increased for Federal income tax law purposes.
For a Policy under an Option 1 death benefit, the Stated Death Benefit is not
reduced by a Partial Withdrawal in the circumstances described above. In
addition, if no more than 15 years have elapsed since the Policy Date and the
Insured is not yet Age 81, a Partial Withdrawal of an amount up to 10% of the
Account Value or, if greater, 5% of the Stated Death Benefit calculated
immediately before the Partial Withdrawal is taken, will not reduce the Stated
Death Benefit. Any additional amount withdrawn does reduce the Stated Death
Benefit by that additional amount.
For a Policy under an Option 2 death benefit, a Partial Withdrawal does not
reduce the Stated Death Benefit.
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Strategic Advantage II 36
<PAGE>
No Partial Withdrawal will be allowed if the Stated Death Benefit remaining in
force after the Partial Withdrawal would be reduced below the minimum we require
to issue this Policy at the time of the reduction. See Group or Sponsored
Arrangements, page 37.
A Partial Withdrawal may also reduce the Target Death Benefit.
Unless otherwise indicated, we will make the withdrawal from the Guaranteed
Interest Division and the Divisions of the Variable Account in the same
proportion that each Division bears to the Net Account Value immediately prior
to the withdrawal. Withdrawals from the Guaranteed Interest Division may not
exceed an amount that is greater than the total withdrawal times the ratio of
the Account Value in the Guaranteed Interest Division to the total Net Account
Value immediately prior to the withdrawal.
A new Schedule reflecting the effect of the withdrawal will be sent if there is
a change to the Stated Death Benefit or to the Target Death Benefit. We may ask
that the Policy be returned to our Customer Service Center to make this change.
The withdrawal and any reductions in death benefits will be effective as of the
Valuation Date we receive the request.
If telephone privileges have been elected, requests for Partial Withdrawals may
be made by telephoning our Customer Service Center. Any telephone request for a
Partial Withdrawal must be for an amount less than $25,000. See Telephone
Privileges, page 44.
Partial Withdrawals may have adverse tax consequences. See Modified Endowment
Contracts, page 38.
Surrender
The Policy may be surrendered for its Net Cash Surrender Value at any time while
the Insured is living. In order to surrender the Policy, a written request and
the Policy should be sent to our Customer Service Center. The Net Cash Surrender
Value of the Policy equals the Cash Surrender Value minus Policy Loan and
accrued loan interest amounts. Costs and expenses which have been deducted from
the net Account Value on the Monthly Processing Date preceding the surrender
will not be added or pro-rated at surrender. We will compute the Net Cash
Surrender Value as of the Valuation Date we receive the request and Policy at
our Customer Service Center. All insurance coverage will end as of that date.
A surrender of the Policy for its Net Cash Surrender Value may have adverse tax
consequences. See Modified Endowment Contracts, page 38.
Right to Exchange Policy
During the first 24 months following the Policy Date, the Owner has the right to
exchange the Policy from one in which the investment experience is not
guaranteed for a guaranteed Policy, unless required differently by state law.
This is accomplished by transferring the entire amount in the Divisions of the
Variable Account to the Guaranteed Interest Division, and the allocation of all
future premium payments to the Guaranteed Interest Division. When this right is
exercised, we will not allow the allocation of future premium payments or
transfers to the Divisions of the Variable Account.
This will, in effect, serve as an exchange of the Policy for the equivalent of a
flexible premium universal life insurance policy. No charge will be assessed on
the transfer to exercise this exchange privilege. See The Guaranteed Interest
Division, page 17.
Lapse
Insurance coverage will continue as long as the Net Account Value of the Policy
is sufficient to pay all the deductions each month. The Policy is guaranteed not
to lapse, regardless of its Net Account Value, if, on each Monthly Processing
Date during the first three Policy years, the sum of premiums paid less the sum
of Partial Withdrawals and Policy Loans and accrued loan interest is greater
than or equal to the sum of the applicable minimum monthly premiums for each
Policy month starting with the first Policy month through and including the
Policy month which begins on the current Monthly Processing Date. The minimum
monthly premium is equal to one twelfth of the Minimum Annual Premium.
If the Guaranteed Minimum Death Benefit Is Not in Effect
Unless the Guaranteed Minimum Death Benefit provision is in effect, or the
Special Continuation Period is in effect and its requirements have
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Strategic Advantage II 37
<PAGE>
been met, the Policy including all attached Riders will lapse in its entirety on
any Monthly Processing Date that the Net Account Value of the Policy is not
sufficient to pay all the monthly deductions from the Account Value. A 61-day
grace period will begin on that Monthly Processing Date. See Grace Period, page
30.
If we do not receive full payment of the requested amount within the 61 days,
the Policy and all Riders attached will lapse without value. We will withdraw
any remaining balance of the Account Value from the Divisions of the Variable
Account and Guaranteed Interest Division. We will deduct any amount owed to us
and inform the Owner that the Policy has ended.
If the Insured dies during the grace period, we will pay the Death Proceeds to
the Beneficiary subject to reductions for Policy Loan amounts, accrued loan
interest and any monthly deductions due.
If the Guaranteed Minimum Death Benefit Is in Effect
After the Special Continuation Period, if the Guaranteed Minimum Death Benefit
provision is in effect, the Policy will not lapse during the Guarantee Period
even if the Net Account Value is not sufficient to cover all the deductions from
the Account Value on any Monthly Processing Date. See Guaranteed Minimum Death
Benefit, page 22.
The benefits provided by Riders attached to the Policy and any amount by which
the Base Death Benefit exceeds the Stated Death Benefit are not protected by the
Guaranteed Minimum Death Benefit provision. Therefore, these benefits will lapse
if the Net Account Value is not sufficient to cover all the deductions from the
Account Value on any Monthly Processing Date (unless the policy is in the
three-year Special Continuation Period).
While the Guaranteed Minimum Death Benefit provision applies (unless the policy
is in the three-year Special Continuation Period), the Account Value may be
reduced by monthly deductions, but not below zero. Any monthly deductions during
the Guarantee Period which would reduce the Net Account Value below zero will be
waived permanently.
The Guaranteed Minimum Death Benefit provision will be terminated if the Policy
does not meet the monthly premium or diversification tests as explained in
Guaranteed Minimum Death Benefit, page 22. If the Guaranteed Minimum Death
Benefit provision is terminated, the normal test for lapse will resume.
Grace Period
If the following conditions occur as of a Monthly Processing Date, the Policy
will enter into the 61-day Grace Period:
(i) The Net Account Value is zero or less; and
(ii) The three-year Special Continuation Period has expired or the required
premium has not been paid; and
(iii) The Guarantee Period has expired or been terminated.
We will, at least 30 days before the end of a grace period, notify the Owner or
any assignee in writing at the last known address on our records that the grace
period has begun. The notification will include the amount of premium payment
necessary to reinstate the Policy and all Riders attached. The premium required
to reinstate the Policy is generally the amount of past due charges plus the
amount that will cover estimated monthly deductions for the Policy and all
attached Riders for the following two months. If we receive payment of this
amount before the end of the grace period, we will use it to make the overdue
deductions. Any balance remaining will be applied to the Account Value in the
same manner as other premium payments.
Reinstatement
If the Policy Owner fails to pay sufficient premiums prior to the end of the
Grace Period, the Policy and its Riders, other than the Guaranteed Minimum Death
Benefit provision, may be reinstated within five years after the Grace Period.
Unless otherwise required by state law, we will reinstate the Policy and any
Riders if:
(i) The Policy has not been surrendered for its Net Cash Surrender Value;
(ii) Satisfactory evidence is provided to us that the Insured and the
Insureds under any Riders are still insurable according to our normal
rules of underwriting for this type of Policy; and
(iii) We receive a premium payment sufficient to keep the Policy and any
Riders in force from the beginning of the grace period to the end of
the grace period and for two months following the date of the
reinstatement unless required differently by
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Strategic Advantage II 38
<PAGE>
state law.
The reinstatement will be effective as of the Monthly Processing Date following
our approval of the reinstatement application. We also will reinstate any Policy
Loan which existed when coverage ended, with accrued loan interest to the date
of lapse. Net Premiums received after reinstatement will be allocated according
to the premium allocation instructions in effect at the start of the grace
period or as otherwise directed by the Owner.
CHARGES, DEDUCTIONS AND REFUNDS
Deductions from Premiums
Unless a Policy Loan is outstanding (see Policy Loans, page 27), any payment
received before Age 100 is considered a premium. Certain expenses are deducted
from premium payments. The Net Premium is then added to the Account Value. The
expenses which are deducted from the premium include the tax and the sales
charges.
Tax Charges
All states levy taxes on life insurance premium payments. The amount of these
taxes varies from state to state, and may vary from jurisdiction to jurisdiction
within a state. We currently deduct an amount equal to 2.5% of each premium to
pay applicable premium taxes. The 2.5% rate approximates the average tax rate we
expect to pay on premiums from all states.
A charge currently equal to 1.5% of each premium payment is deducted to cover
our estimated cost for the Federal income tax treatment of deferred acquisition
costs determined solely by the amount of life insurance premiums we receive.
This charge for deferred acquisition costs is reasonable in relation to Security
Life's increased Federal income tax burden resulting from the receipt of premium
payments, under Internal Revenue Code Section 848.
Except as limited by state law, we reserve the right to increase or decrease the
premium expense charge for taxes due to any change in tax law. We further
reserve the right to increase or decrease the premium expense charge for the
Federal income tax treatment of deferred acquisition costs due to any change in
the cost to us.
Sales Charges
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Strategic Advantage II 39
<PAGE>
A percentage of each premium is deducted to compensate us for a portion of the
cost of selling the Policy. The percentage deducted is based on the amount of
premium paid and the number of years since the Policy Date or the date of an
increase in coverage. For each of the first ten Policy years, this charge is
equal to 12% of premiums paid up to the Target Premium and 3% of premiums paid
in excess of the Target Premium. Thereafter, the sales charge is equal to 3% of
all premiums paid.
Target Premiums are not based on the Scheduled Premium. Target Premiums are
actuarially determined based on the Age, sex and Premium Class of the Insured.
See Premiums, page 18. The Target Premium for the Policy and any Segments added
since the Policy Date will be listed in the Schedule.
For a Policy with multiple Segments, premiums paid are allocated to the Segments
in the same proportion as the guideline annual premium (as defined by the
Federal income tax law) for each Segment bears to the total guideline annual
premium for the Stated Death Benefit.
The sales charge covers the cost of distribution, costs of preparing our sales
literature, promotional expenses, and other direct and indirect expenses. The
amount of this charge cannot be specifically related to sales expenses in a
particular year since we recover these costs over the period the Policies remain
in effect. We pay the sales expenses from our own resources, including this
sales charge and any profit we may earn on the other charges deducted under the
Policy. The sales charge may be reduced or waived for certain group or sponsored
arrangements.
Daily Deductions from the Variable Account
Mortality and Expense Risk Charge
Each day a charge is deducted for the mortality and expense risks we assume.
This charge is equal to 0.002055% per day of the amount in the Divisions of the
Variable Account, which is equivalent to an annual rate of 0.75% of the portion
of the Account Value allocated to the Variable Account.
We assess the mortality and expense risk charge to compensate us for assuming
mortality and expense risks under the Policies. The mortality risk we assume is
that Insureds, as a group, may live for a shorter period of time than estimated.
The expense risk we assume is that other expenses we incur in issuing and
administering the Policies and operating the Variable Account will be greater
than the amount we estimated when setting the charges for these expenses. We
will realize a profit from this fee to the extent it is not needed to provide
benefits and pay expenses under the Policies. We may use this profit for other
purposes, including any distribution expenses not covered by the sales charge.
This charge is not assessed against the amount of Account Value which is
allocated to the Guaranteed Interest Division, nor to amounts in the Loan
Division. We credit the Account Value with a persistency refund equivalent to
0.6% per year for each Segment that has been in force for at least ten Policy
years, which effectively reduces the charge for mortality and expense risks. See
Persistency Refund, page 33.
Monthly Deductions from the Account Value
The following charges are deducted from the Account Value on each Monthly
Processing Date. These deductions are taken from the Divisions of the Variable
Account and the Guaranteed Interest Division in the same proportion that the
Account Value in each Division bears to the total Net Account Value as of the
Monthly Processing Date.
Initial Policy Charge
The initial Policy charge is $10 per month for the first three Policy years and
is guaranteed not to exceed this amount. This charge covers such costs as
application processing, medical examinations, establishment of Policy records,
and insurance underwriting costs. This charge is designed to reimburse us for
expenses and we do not expect to gain from it.
Monthly Administrative Charge
This charge is comprised of a per Policy charge of $3 per month plus a charge of
$0.025 per thousand of Stated Death Benefit or Target Death Benefit, if greater,
and is guaranteed never to exceed this amount. The per thousand charge currently
is limited to $30 per month. This charge is designed to cover the ongoing costs
of maintaining the Policy, such as premium billing and collections, claim
processing, Policy transactions, record keeping, reporting and other
communications with Owners, other expenses and overhead. This charge is designed
to reimburse us for expenses and we do not expect to gain from it.
Cost of Insurance Charges
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Strategic Advantage II 40
<PAGE>
The cost of insurance charges compensate us for providing insurance protection
under the Policy. The cost of insurance charges are calculated monthly, and
equal our current monthly cost of insurance rate times the Net Amount at Risk
for each portion of the death benefit. Net Amount at Risk for each portion of
the death benefit is calculated at the beginning of the Policy month.
The Net Amount at Risk for the Base Death Benefit is equal to the difference
between the current Base Death Benefit and the amount of the Account Value. For
this purpose, the amount of the Account Value is determined after deduction of
charges due on that date, other than cost of insurance charges for the Base
Death Benefit, any Adjustable Term Insurance Rider, and Waiver of Cost of
Insurance Rider.
The Net Amount at Risk for the Adjustable Term Insurance Rider is equal to the
amount of the benefit provided.
If the Base Death Benefit at the beginning of the month is increased due to the
requirements of Federal income tax law definition of life insurance, Net Amount
at Risk for the Base Death Benefit that month will also increase, but the Net
Amount at Risk for any Adjustable Term Insurance Rider may be reduced.
Therefore, the amount of the cost of insurance charges will vary from month to
month with changes in the Net Amount at Risk, changes in the makeup of the death
benefit, and with the increasing Age of the Insured.
The cost of insurance rates are based on the Age, sex and Premium Class of the
Insured on the Policy Date or at the time a Segment is added, as well as the
length of time the Policy or Segment has been in effect. Unisex rates are used
where appropriate under applicable law, including the state of Montana and
Policies purchased by employers and employee organizations in connection with
employment-related insurance or benefit programs. Net Amount at Risk is
allocated to Segments in the same proportion that each Segment bears to the
total Stated Death Benefit as of the Monthly Processing Date. Separate cost of
insurance rates apply to the Base Death Benefit, the Adjustable Term Insurance
Rider and any additional Segments. We may change these rates from time to time,
but they will never be more than the guaranteed maximum rates set forth in the
Policy. The guaranteed maximum rates for policies are based on the 1980
Commissioners Standard Ordinary Mortality Table.
We may offer Policies on a guaranteed issue basis to certain group or sponsored
arrangements. If an eligible group or sponsored arrangement purchases Policies
on a guaranteed issue basis, the Policies will be issued up to a predetermined
face amount limit, with minimal evidence of insurability. Policies issued on a
guaranteed issue basis may present different mortality costs to us compared to
underwritten Policies. We may charge different cost of insurance rates for
guaranteed issue Policies. The cost of insurance charges may depend on the issue
Age of the Insured, the size of the group, and the total premium to be paid by
the group. Under most guaranteed issue Policies, the overall charges for
insurance will be higher than under a comparable underwritten Policy issued in
the preferred nonsmoker, standard nonsmoker, or standard smoker class. This
means that an Insured may be able to obtain individual, underwritten insurance
coverage at a lower overall cost.
The maximum rates for the initial and any new Segment will be printed in the
Schedule which we will provide to you.
Charges for Additional Benefits
The cost of additional benefits added by Rider will be deducted monthly on the
Monthly Processing Date. We may change these charges, but the Schedule contains
tables showing the guaranteed maximum rates. See Additional Benefits, page 23.
Changes in Monthly Charges
Any changes in the cost of insurance charges or charges for additional benefits,
will be made by class of Insured and will be based on changes in future
expectations about such things as
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Strategic Advantage II 41
<PAGE>
investment earnings, mortality, the length of time policies will remain in
effect, expenses and taxes. In no event will they exceed the guaranteed maximum
rates defined in the Policy.
Policy Transaction Fees
In addition to the deductions described above, we charge fees for certain Policy
transactions.
Transaction fees are taken from the Divisions of the Variable Account and the
Guaranteed Interest Division in the same proportion that the Account Value in
each Division bears to the Net Account Value immediately after the transaction
for which the fee is charged.
Partial Withdrawal
A service fee of $25 will be charged against the Account Value for each
Partial Withdrawal. See Partial Withdrawals, page 28.
Transfers
We charge a fee of $25 for each additional transfer beyond the first 12 in a
Policy year. See Transfers of Account Values, page 25. All transfers included in
one transfer request count as a single transfer when we calculate the fee. There
will not be a transfer fee for transfers of Account Value into the Guaranteed
Interest Division pursuant to the Right to Exchange provided by this Policy. See
Right to Exchange Policy, page 29.
Allocation Changes
We charge a fee of $25 each time the premium or automatic rebalancing
allocation is changed more than five times each Policy year.
Illustrations
We reserve the right to charge a fee, not to exceed $25, for each Policy
illustration in excess of one per Policy year.
Continuation of Coverage Administrative Fee
At Age 100, if the Continuation of Coverage feature is in effect, a one-time
administrative charge of $200 will be assessed to cover the costs expected to be
incurred to maintain and service the Policy for the remainder of the Insured's
lifetime. This charge is in lieu of the normal monthly administrative charge. It
is designed to reimburse us for expenses and we do not expect to gain from it.
Persistency Refund
Long-term Owners of Strategic Advantage II will receive a persistency refund.
Each month the Policy or a Segment remains in force after its tenth Policy
anniversary, we will credit the Account Value with a refund equivalent to 0.6%
of the Account Value on an annual basis for that Segment (0.05% monthly).
However, the persistency refund is not guaranteed to be paid on the Guaranteed
Interest Division. For purposes of this calculation, Account Value will be
allocated to each Segment based upon the number of completed Policy years that
Segment has been in force and the size of the guideline annual premium as
defined by the Federal income tax law definition of life insurance.
The persistency refund will be added to the Divisions of the Variable Account
and the Guaranteed Interest Division but not the loan division in the same
proportion that the Account Value in each Division bears to the Net Account
Value as of the Monthly Processing Date.
The following is an example of how the persistency refund affects the Account
Value each month if the policy has no loan:
Account Value = $10,000 (all in the Variable Divisions)
Monthly persistency refund Rate = .0005
Persistency refund = 10,000 x .0005 = $5.00
<TABLE>
<CAPTION>
Before After
Persistency Persistency
Refund Refund
------ ------
<S> <C> <C>
Variable
Divisions $10,000.00 $10,005.00
</TABLE>
The following is an example of how the persistency refund affects the Account
Value each month if the Policy has a loan:
Account Value = $10,000
Account Value in the Variable Divisions = $6,000
Account Value in the Loan Division = $4,000
Monthly persistency refund Rate = .0005
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Strategic Advantage II 42
<PAGE>
Persistency refund = 10,000 x .0005 = $5.00
<TABLE>
<CAPTION>
Before After
Persistency Persistency
Refund Refund
------ ------
<S> <C> <C>
Variable
Divisions $6,000.00 $6,005.00
Loan $4,000.00 $4,000.00
</TABLE>
Refund of Sales Charges
If the Policy has not lapsed, we will, upon full surrender of the Policy within
the first two Policy years, refund a portion of the sales charges previously
deducted from premiums paid. In the first Policy year, the amount of the refund
is equal to 5% of the premiums paid. In the second Policy year, the refund is
equal to 2.5% of the premiums paid in the first Policy year. After the second
Policy anniversary, there is no refund of sales charges.
Charges from Portfolios
The Variable Account purchases shares of the Portfolios at net asset value. That
price reflects investment management fees and other direct expenses that have
already been deducted from the assets of the Portfolio. The following table
describes these investment management fees and other direct expenses of the
Portfolios.
- --------------------------------------------------------------------------------
Strategic Advantage II 43
<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% 0.13% 0.78%
Growth Portfolio 0.83% 0.09% 0.92%
Partners Portfolio 0.84% 0.11% 0.95%
The Alger American Fund
Alger American Small Capitalization Portfolio 0.85% 0.03% 0.88%
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% 0.24% 1.09%/3/
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 0.61% 0.08% 0.69%/4/
VIP Overseas Portfolio 0.76% 0.17% 0.93%/4/
VIP Money Market Portfolio 0.21% 0.09% 0.30%
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 0.64% 0.10% 0.74%/4/
VIP II Index 500 Portfolio 0.13% 0.15% 0.28%/5/
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - Total Return Portfolio 0.75% 0.19% 0.94%/6,7/
INVESCO VIF - Industrial Income Portfolio 0.75% 0.20% 0.95%/6,8/
INVESCO VIF - High Yield Portfolio 0.60% 0.27% 0.87%/6,9/
INVESCO VIF - Utilities Portfolio 0.60% 0.56% 1.16%/6,10/
INVESCO VIF - Small Company Growth Fund 0.75% 0.25% 1.00%
Van Eck Worldwide Insurance Trust
Worldwide Hard Assets Fund 1.00% 0.11% 1.11%
Worldwide Real Estate Fund 1.00% 0.25% 1.25%
Worldwide Emerging Markets Fund 1.00% 0.27% 1.27%
Worldwide Bond Fund 1.00% 0.12% 1.12%
AIM Variable Insurance Funds, Inc.
AIM VI - Capital Appreciation 0.64% 0.09% 0.73%
</TABLE>
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Strategic Advantage II 44
<PAGE>
<TABLE>
<S> <C> <C> <C>
AIM VI - Government Securities 0.50% 0.41% 0.91%
</TABLE>
/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 is
the share price used to calculate the unit values of the Divisions. For a more
complete description of the Portfolios' costs and expenses, see the prospectuses
for the Portfolios.
/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 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
0.03% of interest expense.
/4/ A portion of the brokerage commissions the Portfolio paid was used to
reduce its expenses. In addition, certain funds have entered into arrangements
with their custodian and transfer agent regarding expenses. Including these
reductions, the total operating expenses presented in the table would have been
0.67% for Growth Portfolio, 0.92% for Overseas Portfolio, and 0.73% 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 0.28%, 0.15% and 0.43% respectively
for Index 500 Portfolio on an annualized basis.
/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, 1996 and 1995 and the period ended December 31, 1994.
If such expenses had not been voluntarily absorbed, ratio expenses to average
net assets would have been 1.30%, 2.51% and 16.44%, respectively, and ratio of
net investment income to average net assets would have been 3.08%, 2.41% and
(11.72%), respectively.
/8/ Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995 and the period ended December 31, 1994.
If such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 1.19%, 2.31% and 32.55%, respectively, and ratio of
net investment income to average net assets would have been 2.63%, 2.22% and
(30.07%), respectively.
/9/ Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995 and the period ended December 31, 1994.
If such expenses had not been voluntarily absorbed, ratio of expenses to average
net assets would have been 1.32%, 2.71% and 30.38% respectively, and ratio of
net investment income to average net assets would have been 8.74%, 7.05% and
(26.92%), respectively.
/10/ Various expenses of the Portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1996 and 1995. If such expenses had not been
voluntarily absorbed, ratio expenses to average net assets would have been
5.36%, and 57.13%, respectively, and ratio of net investment income to average
net assets would have been (1.28%), and (52.86), respectively.
- --------------------------------------------------------------------------------
Strategic Advantage II 45
<PAGE>
Group or Sponsored Arrangements
This Policy is available for purchase by individuals, corporations, or
institutions. For group or sponsored arrangements (including home office
employees of Security Life) and for special exchange programs which Security
Life may offer from time to time, we may reduce or eliminate the sales charge,
the length of time the sales charge applies, the administrative charge, the
minimum Stated Death Benefit, the maximum Target Death Benefit, the Minimum
Annual Premium, the Target Premium, cost of insurance charges, or other charges
normally assessed to reflect the expected economies resulting from a group or
sponsored arrangement. We also may allow Partial Withdrawals to be taken without
a charge. Group arrangements include those in which a trustee, an employer, or
an association either purchases Policies covering a group of individuals on a
group basis or endorses the Policy to a group of individuals. Sponsored
arrangements include those in which an employer or association allows us to
offer Policies to its employees or members on an individual basis.
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
Policy is approved. We may change these rules from time to time. Any variation
in the sales charge, administrative charge or other charges, fees and privileges
will reflect differences in costs or services and will not be unfairly
discriminatory.
Other Charges
Under current law we pay no tax on investment income and capital gains reflected
in variable life insurance policy reserves (except to the extent the Federal
deferred acquisition cost may be considered such a tax). Consequently, no charge
is currently being made to any Division of our Variable Account for our Federal
income taxes. We reserve the right, however, to make such a charge in the future
if the tax law changes and we incur Federal income tax which is attributable to
the Variable Account.
We must pay state and local taxes (in addition to applicable taxes based on
premiums) in several states. At the present time, these taxes are not
substantial. However, if these taxes increase, we reserve the right to charge
for such taxes when they are attributable to our Variable Account.
TAX CONSIDERATIONS
The following discussion provides a general description of the Federal income
tax consequences of the Policy, based on our understanding of the present
Federal income tax laws as they are currently interpreted by the Internal
Revenue Service ("IRS"). No representation is made as to the likelihood of
continuation of the present Federal income tax laws or of the current
interpretations by the IRS. This discussion is general in nature, and should not
be considered tax advice. Further, it is not intended to present an exhaustive
survey of all the tax issues that might arise under the Policy. Because of the
complexity of the laws and the fact that tax results will vary according to the
particular circumstances of the Owner, a legal or tax adviser should be
consulted prior to purchasing the Policy.
Strategic Advantage II is designed to qualify as a life insurance contract under
the Internal Revenue Code. All terms and provisions of the policy shall be
construed in a manner consistent with that design. The Base Death Benefit in
force at any time shall not be less than the amount of insurance necessary to
achieve such qualification under the applicable provisions of the Internal
Revenue Code in existence at the time the Policy is issued. We reserve the right
to amend the policy or adjust the amount of insurance when required. We will
send you a copy of any policy amendment.
Life Insurance Definition
Section 7702 of the Internal Revenue Code of 1986, as amended (the "Code"), sets
forth the definition of a life insurance contract for Federal tax purposes. The
entire death
- --------------------------------------------------------------------------------
Strategic Advantage II 46
<PAGE>
benefit of a life insurance contract is excludable from gross income of the
beneficiary under Section 101(a)(1) of the Code. However, there are exceptions
to this general rule such as transfers for value and distributions from a policy
owned by a qualified plan. The Secretary of the Treasury (the "Treasury") is
authorized to prescribe regulations implementing Section 7702. While proposed
regulations and other interim guidance have been issued, final regulations have
not been adopted. In short, guidance as to how Section 7702 is to be adopted is
limited. If a Policy were determined not to be a life insurance contract for
purposes of Section 7702, such Policy would not qualify for the favorable tax
treatment normally provided to a life insurance policy.
Section 7702 provides that if one of two alternate tests is met, a Policy will
be treated as a life insurance policy for Federal income tax purposes. These
tests are referred to as the "Cash Value Accumulation Test" and the "Guideline
Premium/Cash Value Corridor Test."
Under the Cash Value Accumulation Test, there is no limit to the amount that may
be paid in premiums as long as there is enough death benefit in relation to
Account Value at all times. The death benefit at all times must be at least
equal to an actuarially determined factor, depending on the Insured's Age, sex,
and Premium Class at any point in time, multiplied by the Account Value. See
APPENDIX A, page 62, for a table of the Cash Value Accumulation Test factors.
The Guideline Premium/Cash Value Corridor Test provides for a maximum premium in
relation to the Death Benefit, and a minimum "corridor" of death benefit in
relation to Account Value. In most situations, the death benefit that results
from the Guideline Premium/Cash Value Corridor Test will ultimately be less than
the amount of death benefit required under the Cash Value Accumulation Test. See
APPENDIX B, page 65, for a table of the Guideline Premium/Cash Value Corridor
Test factors.
This Policy allows the Owner to choose, at the time of application, which of
these tests we will apply to the Policy. A choice of tests is irrevocable.
Regardless of which test is chosen, we will at all times assure that the Policy
meets the statutory definition which qualifies the Policy as life insurance for
Federal income tax purposes. In addition, as long as the Policy remains in
force, increases in Account Value as a result of interest or investment
experience will not be subject to Federal income tax unless and until there is a
distribution from the Policy, such as a Partial Withdrawal or loan.
The favorable tax treatment of Section 101(a) will not apply to benefits paid at
maturity of the policy (Age 100). The IRS has not given an official opinion on
policies that continue coverage past age 100. There are no clear guidelines on
how to keep these benefits within the definition of life insurance. However, we
believe our approach is appropriate and in keeping with the spirit of the
current law. See Benefits at Age 100, page 24.
Also, any interest payment accrued on Death Proceeds paid either as a lump sum
or other than in one lump sum may be subject to tax. See Settlement Provisions,
page 45.
The Federal government has in the past and may in the future consider new
legislation or regulations that, if enacted, could change the Federal income tax
treatment of life insurance policy income, exchanges and transfers, or death
benefits. Any such change could have a retroactive effect. Such concerns should
be addressed by your legal or tax adviser.
Diversification Requirements
In addition to meeting the tests required under Section 7702, Section 817(h) of
the Code requires that the investments of separate accounts such as the Variable
Account be adequately diversified. Regulations issued by the Secretary of the
Treasury set the standards for measuring the adequacy of this diversification.
To be adequately diversified, each Division of the Variable Account must meet
certain tests. A variable life Policy that is not adequately diversified under
these regulations would not be treated as life insurance under Section 7702 of
the Code. If this were to occur, the Owner would be subject to Federal income
tax on the income under the Policy as it is earned. The Portfolios in which the
Variable Account invests have provided assurances that they will meet the
applicable diversification standards.
In certain circumstances, Owners of variable life insurance contracts may be
considered the Owners, for Federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includable in the variable
contract Owner's gross income. The IRS has stated in published rulings that a
variable contract Owner will be considered the Owner of separate account assets
if the contract Owner possesses incidents of ownership in those assets, such as
the ability to exercise investment control over the assets. The Treasury also
announced, in connection with the issuance of temporary regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
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Strategic Advantage II 47
<PAGE>
investments to particular subaccounts without being treated as Owners of the
underlying assets."
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the IRS in rulings in which it was determined
that Policy Owners were not owners of separate account assets. For example, the
Owner has additional flexibility in allocating premium payments and Policy
values. These differences could result in an Owner being treated as the owner of
a pro rata portion of the assets of the Variable Account. In addition, Security
Life does not know what standards will be set forth, if any, in the regulations
or rulings which the Treasury has stated it expects to issue. Security Life
therefore reserves the right to modify the Policy as necessary to attempt to
prevent an Owner from being considered the owner of a pro rata share of the
assets of the Variable Account or to otherwise qualify the Policy for favorable
tax treatment.
Modified Endowment Contracts
Code Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts", which applies to Policies entered into or
materially changed after June 20, 1988.
Due to the Policy's flexibility, classification as a Modified Endowment Contract
will depend on the individual circumstances of each Policy. In general, a Policy
will be a Modified Endowment Contract if the accumulated premiums paid at any
time during the first seven Policy years exceed the sum of the net level
premiums which would have been paid on or before such time if the Policy
provided for paid-up future benefits after the payment of seven, level annual
premiums. The determination of whether a Policy will be a Modified Endowment
Contract after a material change generally depends upon the relationship of the
death benefit and the Account Value at the time of such change and the
additional premiums paid in the seven years following the material change.
The rules relating to whether a Policy will be treated as a Modified Endowment
Contract are extremely complex and cannot be fully described in the limited
confines of this summary. Therefore, a current or prospective Owner should
consult with a competent adviser to determine whether a Policy transaction will
cause the Policy to be treated as a Modified Endowment Contract. To the extent
possible, to keep the Policy from being treated as a "modified endowment
contract" for Federal tax purposes, the provisions of the Policy shall be
interpreted to prevent the Policy from being subject to such treatment. We
reserve the right to amend the Policy to reflect any clarifications that may be
needed or are appropriate, including any rider, to achieve this objective.
Security Life will monitor Policies and will attempt to notify an Owner on a
timely basis if the Owner's Policy becomes a Modified Endowment Contract.
Tax Treatment of Premiums
No tax deduction is allowed for premiums paid on any life insurance policy
covering the life of any officer or employee, or of any person financially
interested in any business carried on by the taxpayer, when the taxpayer is a
beneficiary (directly or indirectly) under such policy. Consult your tax adviser
for advice on the availability of deductions.
Loans, Lapses, Surrenders and Withdrawals
If the Policy Is Not a Modified Endowment Contract
If a Policy is not a Modified Endowment Contract, as long as it remains in
force, a loan under the Policy will be treated as indebtedness and no part of
the loan will be subject to current Federal income tax. Interest paid (or
accrued by an accrual basis taxpayer) on the loan may or may not be tax
deductible. Consult your tax adviser for advice on the availability of
deductions.
Any time a Policy is surrendered or lapses, the excess, if any, of the Cash
Surrender Value over the Owner's "investment in the Policy" will be subject to
Federal income tax as ordinary income. "Investment in the Policy" means (i) the
aggregate amount of any premiums or other consideration paid for a Policy, minus
(ii) the aggregate amount received under the Policy which is excluded from gross
income of the Owner (except that the amount of any loan from, or secured by, a
Policy that is a Modified Endowment Contract, to the extent such amount is
excluded from gross income, will be disregarded), plus (iii) the amount of any
loan from, or secured by a Policy that is a Modified Endowment Contract to the
extent that such amount is included in the gross income of the Owner. It is
important to note that for this calculation, if the Policy terminates while a
Policy loan is outstanding, the total amount of the loan and accrued loan
interest will be treated as a distribution and could be subject to tax under the
above rules. As a result, in certain circumstances this may result in taxable
income to the Owner even though the Policy has no Net Cash Surrender Value.
Proceeds received on a Partial Withdrawal may or may not
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Strategic Advantage II 48
<PAGE>
be taxable depending on the Owner's particular circumstances. During the first
15 Policy years, the proceeds from a Partial Withdrawal could be subject to
Federal income tax to the extent the Cash Surrender Value exceeds investment in
the Policy. The portion subject to tax will depend upon the ratio of the death
benefit to Account Value under the Policy and the Age of the Insured at the time
of the withdrawal. After the first 15 Policy years, the proceeds from a Partial
Withdrawal will not be subject to Federal income tax except to the extent such
proceeds exceed investment in the Policy.
If the Policy Is a Modified Endowment Contract
If a Policy is a Modified Endowment Contract, any pre-death distribution from
the Policy will be taxed on an "income-first" basis, similar to the treatment of
annuities for individuals. Distributions for this purpose include a surrender,
Partial Withdrawal or Policy Loan, including any increase in a loan amount to
pay interest on an existing loan or an assignment or a pledge to secure a loan.
Any such distributions will be considered taxable income to the Owner to the
extent the Account Value exceeds investment in the Policy immediately before the
distribution. All Modified Endowment Contracts that are issued by Security Life
(and its affiliates) to the same Owner during any calendar year are treated as
one Modified Endowment Contract for purposes of determining the amount
includable in the gross income under Code Section 72(c).
A 10% penalty tax will also apply to the taxable portion of a distribution from
a Modified Endowment Contract, unless an exception applies. The penalty tax will
not apply to distributions (i) when the taxpayer is at least 59 1/2 years of
age, (ii) in the case of a disability (as defined in the Code), or (iii)
received as part of a series of substantially equal periodic payments, 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 or her beneficiary.
Since these exclusions do not apply to corporations or other business entities,
the 10% penalty tax would always apply to these types of Owners. If the Policy
is surrendered, the excess, if any, of the Cash Surrender Value over investment
in the Policy will be subject to Federal income tax and, unless one of the above
exceptions applies, the 10% penalty tax.
If a Policy was not originally a Modified Endowment Contract but later becomes
one, distributions that occur during the Policy year it becomes a Modified
Endowment Contract and any subsequent Policy year will be taxed as described in
the two preceding paragraphs. In addition, any distributions from the Policy
made within two years before it becomes a Modified Endowment Contract will be
treated as having been made in anticipation of the change and will be subject to
tax in this manner. This means that a distribution made from a Policy that is
not a modified endowment could later become taxable as a distribution from a
Modified Endowment Contract. The Treasury has been authorized to prescribe rules
which would address this issue.
Alternative Minimum Tax
For purposes of the alternative minimum tax adjusted current earnings
adjustment, special rules apply with respect to life insurance contracts. Under
these rules, death benefit proceeds are taken into account, increases in cash
value attributable to investment performance are taken into account currently
and the distribution tax rules apply in a modified form.
Section 1035 Exchanges
Section 1035 of the Internal Revenue Code generally provides that no gain or
loss shall be recognized on the exchange of one life insurance policy for
another life insurance policy or for an endowment or annuity contract. We accept
1035 exchanges with outstanding loans. Special rules and procedures apply to
Section 1035 transactions. Prospective Owners wishing to take advantage of
Section 1035 should consult their tax adviser.
Tax-exempt Policy Owners
Special rules may apply in the case of a Policy owned by a tax-exempt entity.
Accordingly, tax-exempt entities should consult with a tax adviser regarding the
consequences of purchasing and owning a Policy, including the effect, if any, on
the tax-exempt status of the entity and the application of the unrelated
business income tax.
Changes to Comply with Law
To assure that the Policy continues to qualify as life insurance under the Code,
we reserve the right to decline to accept all or part of any premium payments,
to decline to change death benefits, or to decline to make Partial Withdrawals
that would cause the Policy to fail to qualify. We also may make changes in the
Policy or its Riders, require additional premium payments, or make distributions
from the Policy to the extent we deem necessary to qualify the Policy as life
insurance for tax purposes. Any such change will apply uniformly to all policies
that are affected. The Policy Owner will be given advance notice of such
changes.
The tax law limits the allowable charges for mortality costs and other expenses
that may be used in making calculations to determine whether a Policy qualifies
as life insurance for Federal income tax purposes. These calculations must be
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Strategic Advantage II 49
<PAGE>
based upon reasonable mortality charges and other charges reasonably expected to
be paid. The Treasury has issued proposed regulations on the reasonableness
standards for mortality charges. Security Life believes that the charges used
for this purpose in the Policy should meet the current requirement for
reasonableness. Security Life reserves the right to make modifications to the
mortality charges if future regulations contain standards which make
modification necessary in order to continue qualification of the Policy as life
insurance for Federal income tax purposes.
In addition, assuming that the Policy is not intended by the Owner to be or
become a Modified Endowment Contract, we will include an endorsement to the
Policy whereby we reserve the right to amend the Policy, including any Rider, to
assure that the Policy continues to comply with the seven-pay test for Federal
income tax purposes. If at any time the premium paid under the Policy exceeds
the seven-pay limit, we reserve the right to remove such excess premium or make
any appropriate adjustments to the Policy's Account Value and death benefits.
Any death benefit increase will cause an increase in the cost of insurance
charges.
Other
The Policies may be used in various arrangements, including qualified plans,
non-qualified deferred compensation or salary continuance plans, split dollar
insurance plans, executive bonus plans, retiree medical benefit plans and
others. The tax consequences of such plans may vary depending on the particular
facts and circumstances of each individual arrangement. Therefore, if the Owner
is contemplating the use of the Policies in any arrangement the value of which
depends in part on its tax consequences, the Owner should be sure to consult a
qualified tax adviser regarding the tax attributes of the particular
arrangement.
We are required to withhold income taxes from any portion of the amounts
received by individuals in a taxable transaction, unless an election is made in
writing not to have withholding apply. If the election not to have withholding
apply is made, or if the amount withheld is insufficient, income taxes, and
possibly penalties, may have to be paid later.
Federal estate and gift taxes and state and local inheritance, estate, and other
tax consequences of ownership or receipt of Policy benefits depend on the
particular jurisdiction and the circumstances of each Owner and Beneficiary.
Qualified legal or tax advisers should be consulted for complete information on
Federal, state, local, and other tax considerations.
ADDITIONAL INFORMATION ABOUT THE POLICY
Voting Privileges
We invest the assets in the Divisions of the Variable Account in shares of the
corresponding Portfolios. See Investment Objectives of the Portfolios, page 14.
We are the legal owner of the shares held in the Variable Account and, as such,
have 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 Investment Company Act of 1940.
Even though we own the shares, to the extent required by the interpretations of
the SEC, we give Owners the opportunity to tell us how to vote the number of
shares that are attributable to their Policies. We will vote those shares at
meetings of Portfolio shareholders according to these instructions. We also will
vote any Portfolio shares that are not attributable to the Policies 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.
Owners may participate in voting only on matters affecting the Portfolios in
which the Owner's assets have been invested. We determine the number of
Portfolio shares in each Division that are attributable to a Policy by dividing
the Account Value allocated to that Division by the net asset value of one share
of the corresponding Portfolio. The number of shares as to which an Owner 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. Owners having a voting interest will be sent proxy material and a form
for giving us voting instructions.
All Portfolio shares are entitled to one vote. The votes of all Portfolios are
cast together on an aggregate basis, except on matters where the interests of
the Portfolios differ. In such cases, voting is on a portfolio-by-portfolio
basis. In these cases, the approval of the shareholders in one Portfolio is not
needed in order to make a decision in another Portfolio. Examples of matters
that would require a portfolio-by-portfolio vote are changes in the fundamental
investment policy of a particular Portfolio or approval of an investment
advisory agreement. Shareholders in a Portfolio not affected by a particular
matter generally would not be entitled to vote on it.
The Boards of the Portfolios and Security Life and any other insurance companies
participating in the Portfolios are required to monitor events to identify any
material conflicts
- --------------------------------------------------------------------------------
Strategic Advantage II 50
<PAGE>
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 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. If there is a material conflict, we will
have an obligation to determine what action should be taken including the
removal of the affected Portfolios from eligibility for investment by the
Variable Account. We will consider taking other action to protect Owners.
However, there could be unavoidable delays or interruptions of operations of the
Variable Account that we 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 semi-annual report to Owners.
Under the Investment Company Act of 1940, certain actions affecting the Variable
Account (such as some of those described under Right To Change Operations) may
require Owner approval. In that case, each Owner will be entitled to one vote
for every $100 of value held in the Divisions of the Variable Account. We will
cast votes attributable to amounts in the Divisions of the Variable Account not
attributable to Policies in the same proportions as votes cast by Owners.
Right to Change Operations
Subject to state limitations, the Company may from time to time change the
investment objective of, or make the following changes to, the Variable Account:
(i) Make additional Divisions available. These Divisions will invest
in Portfolios we find suitable for the Policy.
(ii) 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 Policy. This may also happen due to a change in laws or
regulations, or a change in a Portfolio's investment objectives
or restrictions, or because the Portfolio is no longer available
for investment, or for some other reason, such as a declining
asset base.
(iii) Transfer assets of the Variable Account, which we determine to be
associated with the class of policies to which an Owner's Policy
belongs, to another Variable Account.
(iv) Withdraw the Variable Account from registration under the 1940
Act.
(v) Operate the Variable Account as a management investment company
under the 1940 Act.
(vi) Cause one or more Divisions to invest in a mutual fund other than
or in addition to the Portfolios.
(vii) Discontinue the sale of Policies.
(viii) Terminate any employer or plan trustee agreement with us pursuant
to its terms.
(ix) Restrict or eliminate any voting rights as to the Variable
Account.
(x) 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 any changes. If an Owner then wishes to transfer the amount
in that Division to another Division of the Variable Account or to the
Guaranteed Interest Division, they may do so, without charge, by notifying us.
At the same time, changes in Net Premium and deduction allocations may also be
made, without charge.
Reports to Owners
We will maintain all records relating to the Variable Account, its Divisions and
the Guaranteed Interest Division. At the end of each Policy year we will send a
report that shows the Total Policy Death Benefit (Base Death Benefit plus
Adjustable Term Insurance Rider Death Benefit, if any), the Account Value, the
Policy Loan plus accrued Loan Interest and Net Cash Surrender Value. We will
also include information about the Divisions of the Variable Account. The report
also shows any transactions involving the Account Value that occurred during the
year such as premium allocations, deductions, and any loans or withdrawals in
that year.
- --------------------------------------------------------------------------------
Strategic Advantage II 51
<PAGE>
We also will send semi-annual reports to the Owner, which will include financial
information on the Portfolios, including a list of the investments held by each
Portfolio.
Confirmation notices will be sent to the Owner during the year for certain
Policy transactions.
OTHER GENERAL POLICY
PROVISIONS
Free Look Period
Owners have the right to examine the Policy. If for any reason the Owner is not
satisfied with the Policy when issued, the Policy may be returned to us or the
Registered Representative within the time limit described below and it will be
deemed void as of the Policy Date. A request to cancel this Policy must be
postmarked no later than 10 days after it is received, or as otherwise specified
by state law. If a Policy is canceled under this provision, we will refund an
amount equal to the full amount of any premiums paid or as otherwise specified
by state law. Insurance coverage ends when the request is sent.
The Policy
This Policy is a contract between the Owner and us. The Policy, including a copy
of the original application and any applications for an increase, Riders,
endorsements, Schedule pages, and any reinstatement applications make up the
entire contract. A copy of any application as well as a new Schedule will be
attached or furnished to the Owner for attachment to the Policy at the time of
any change in coverage. In the absence of fraud, all statements made in any
application will be considered representations and are not warranties. No
statement will be used to deny a claim unless it is in an application.
All changes or amendments to this Policy made by us must be signed by our
president or an officer of the Company and by our secretary or assistant
secretary. No other person is authorized to change the terms or conditions of
this policy.
Age
This Policy is issued at the Age stated in the Schedule. This is the Insured's
Age nearest birthday, calculated as of the Policy Date. The Age of the Insured
at any time is calculated by adding the number of completed Policy years to the
Age shown in the Schedule.
Ownership
The original Owner is the person named in the application. The Owner can
exercise all rights and receive the benefits during the Insured's lifetime
before Age 100. This includes the right to change the Owner, Beneficiaries, and
methods for the payment of proceeds. All rights of the Owner are subject to the
rights of any assignee and any irrevocable Beneficiary.
An Owner may name a new Owner by giving us written notice. The effective date of
the change to the new Owner will be the date the notice is signed. The change
will not affect any payment made or action taken by us before recording the
change at our Customer Service Center. A change in ownership may cause
recognition of taxable income or gain, if any, to the old Owner.
Beneficiary
The Owner names the Beneficiary when applying for the Policy. The primary
Beneficiary surviving the Insured will receive any Death Proceeds which become
payable. Surviving contingent Beneficiaries are paid Death Proceeds only if no
primary Beneficiary has survived the Insured. If more than one Beneficiary
survives the Insured, they will share the Death Proceeds equally, unless the
designation provides otherwise. If there is no designated Beneficiary surviving,
Death Proceeds will be paid to the Owner or the Owner's estate.
The Beneficiary designation will be on file with us or at a location designated
by us. A new Beneficiary may be named during the Insured's lifetime. We will pay
the proceeds to the most recent Beneficiary designation on file. We will not be
subject to multiple payments.
Collateral Assignment
This Policy may be assigned as collateral security by sending written notice to
us. Once it is recorded with us, the rights of the Owner and the Beneficiary are
subject to the assignment, unless the Beneficiary was designated as an
irrevocable Beneficiary prior to the assignment. It is the Owner's
responsibility to make sure the assignment is valid.
Incontestability
We can challenge the validity of the insurance Policy if it appears that there
have been material misstatements in the application. However, there are limits
as to how and when we can challenge the Policy:
. We will not contest the statements in the application
- --------------------------------------------------------------------------------
Strategic Advantage II 52
<PAGE>
attached at issue after the Policy has been in effect, during the
Insured's lifetime, for two years from the Policy Date or the date
specified by state law.
. We will not contest the statements in the application for any
reinstatement after the reinstatement has been in effect, during the
Insured's lifetime, for two years from the effective date of such
reinstatement.
. We will not contest the statements in the application for any coverage
change that creates a new Segment or increases any benefit with
respect to the Insured (such as an increase in Stated Death Benefit)
after the change has been in effect, during the Insured's lifetime,
for two years from the effective date of the new Segment or increase.
We have the right to rescind this Policy if we issued or reinstated the Policy
based on a statement in an application, including a reinstatement application,
that was false or misleading.
Misstatements of Age or Sex
If the Age or sex of the Insured has been misstated, the death benefit will be
adjusted. The death benefit will be adjusted to the amount which would have been
purchased for the Insured's correct Age and sex based on the cost of insurance
charges which were deducted from the Account Value on the last Monthly
Processing Date prior to the Insured's death or as otherwise required by state
law. If unisex cost of insurance rates apply, we will not make an adjustment for
a misstatement of sex.
Suicide
If the Insured commits suicide within two years of the Policy Date or date of
reinstatement, the death benefit will be limited to the total of all premiums
that have been paid to the time of death minus the amount of any outstanding
Policy Loan and accrued loan interest and minus any partial withdrawals, unless
otherwise required by law. If the Insured has been changed and the new Insured
dies by suicide within two years of the change date, the death benefit will be
limited to the Net Account Value as of the change date, plus the premiums paid
since that date, less the sum of any increases in Policy Loan, accrued loan
interest and any Partial Withdrawals since the change date. If the Insured
commits suicide, while sane or insane, within two years of the effective date of
a new Segment or of an increase in any other benefit, we will make a limited
payment to the beneficiary for the new Segment or other increase. This payment
will equal the cost of insurance and any applicable monthly expense charges
deducted for such increase.
Payment
We will pay the Death Proceeds, Net Cash Surrender Value upon surrender, Partial
Withdrawals, and loan proceeds within seven days after we receive the
information required to process the payment. We also will execute a transfer
among Divisions of the Variable Account as of the Valuation Date on or next
following our receipt of a request at our Customer Service Center. Transfers
from the Guaranteed Interest Division to the Divisions of the Variable Account
will be made only within the time periods indicated in this prospectus.
See Transfers of Account Values, page 25.
We may, however, postpone the processing of any such transactions at any of the
following times:
. When the NYSE is closed for trading;
. When trading on the NYSE is restricted by the SEC;
. 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
. When a governmental body having jurisdiction over the Variable Account
permits such suspension by order.
Rules and regulations of the SEC, if any, are applicable and will govern the
determination as to whether the above conditions exist.
Death Proceeds are determined as of the date of death of the Insured. The Death
Proceeds will not be affected by changes in the values of the Divisions of the
Variable Account subsequent to the date of death of the Insured. We will pay
interest at the rate declared by us or at any higher rate required by law from
the date of death of the Insured to the date of payment.
Death Proceeds are not subject to deferment. However, we may defer for up to six
months payment of any surrender proceeds, withdrawal amounts, or loan amounts
from our Guaranteed Interest Division, unless otherwise required by law. We will
pay interest at the rate declared by us or at any higher rate required by law
from the date we receive a request if we delay payment more than 30 days.
Notification and Claims Procedures
We must receive in writing any election, designation, change, assignment, or
request made. It must be on a form acceptable to us. We are not liable for any
action we take before we receive and record the written notice. We may require
that the Policy be returned for any Policy change or upon its surrender.
- --------------------------------------------------------------------------------
Strategic Advantage II 53
<PAGE>
We, or the Registered Representative, should be informed as soon as possible
following an Insured's death while the Policy is in force. Claim procedure
instructions will be sent immediately. As due proof of death, we may require
proof of Age and a certified copy of a death certificate. We may also require
the Beneficiary and the Insured's next of kin to sign authorization forms as
part of this process. These authorization forms allow us to obtain information
about the Insured, including but not limited to, medical records of physicians
and hospitals used by the Insured.
Telephone Privileges
If telephone privileges have been elected in a form required by us, transfers or
changes in your Dollar Cost Averaging and Automatic Rebalancing options, or
requests for Partial Withdrawals or a Policy Loan may be made by telephoning our
Customer Service Center.
Our Customer Service Center will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. Such procedures may include,
among others, requiring some form of personal identification prior to acting
upon instructions received by telephone, providing written confirmation of such
transactions, and/or tape recording of telephone instructions. A 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.
Non-participating
The Policy does not participate in Security Life's surplus earnings.
Distribution of the Policies
The principal underwriter and distributor for the policies is 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. We pay
ING America Equities for acting as the principal underwriter under a
Distribution Agreement.
We sell our Policies through Registered Representatives of other broker-dealers,
including VESTAX Securities Corporation, a subsidiary of ING America Insurance
Holdings, Inc., and Locust Street Securities, Inc., an affiliate of Security
Life of Denver Insurance Company, which have entered into selling agreements
with us. These Registered Representatives are also licensed by state insurance
officials to sell our variable life policies. Each of the broker-dealers with
which we enter into selling agreements are registered with the SEC and are
members of the NASD.
Under these selling agreements, we pay a distribution allowance to the other
broker-dealers, which in turn pay commissions to the Registered Representative
who sells this Policy. During the first Policy year, the distribution allowance
may equal an amount up to 15% of the Target Premium paid and 3% of premiums paid
in excess of the Target Premium. For Policy years two through ten, the
distribution allowance may equal an amount up to 12% of Target Premium and 3% of
premiums paid in excess of the Target Premium. For subsequent Policy years the
distribution allowance may equal 3% of premiums paid. Broker-dealers may also
receive annual renewal compensation of up to 0.15% of the Net Account Value
beginning in the sixth Policy year. Compensation arrangements may vary among
broker-dealers and depend on particular circumstances. In addition, we also may
pay override payments, expense allowances, bonuses, special marketing fees,
wholesaler fees, and training allowances. Registered Representatives who meet
specified production levels may qualify, under our sales incentive programs, to
receive non-cash compensation such as expense-paid trips, expense-paid
educational seminars and merchandise.
We pay the distribution allowance from our own resources (including any sales
charges deducted from premiums).
Settlement Provisions
During the Insured's lifetime, the Owner may elect that the Beneficiary receive
the Death Proceeds other than in one sum. If this election has not been made,
the Beneficiary may do so within 60 days after the Insured's death. The Owner
may take the Net Cash Surrender Value other than in one sum.
Payments under these options are not affected by the investment experience of
any Division of our Variable Account. Instead, interest accrues pursuant to the
options chosen. Payment options will be subject to our rules at the time of
selection. Currently, these alternate payment options are available only if the
proceeds applied are $2000 or more and any periodic payment will be at least
$20.
The following payment options are available:
Option I: Payouts for a Designated Period: Payouts will be made in 1, 2, 4 or
12 installments per year as elected for a designated period, which may
be 5 to 30 years. The installment dollar amounts will be equal except
for any excess interest. The amount of the first monthly payout for
each $1,000 of Account Value applied is shown in
- --------------------------------------------------------------------------------
Strategic Advantage II 54
<PAGE>
Settlement Option Table I in the Policy.
Option II: Life Income with Payouts Guaranteed for a Designated Period: Payouts
will be made in 1, 2, 4 or 12 installments per year throughout the
payee's lifetime, or if longer, for a period of 5, 10, 15, or 20
years as elected. The installment dollar amounts will be equal
except for any excess interest. The amount of the first monthly
payout for each $1,000 of Account Value applied is shown in
Settlement Option Table II in the Policy. This option is available
only for ages shown in this Table.
Option III: Hold at Interest: Amounts may be left on deposit with us to be paid
upon the death of the payee or at any earlier date elected. Interest
on any unpaid balance will be at the rate declared by us or at any
higher rate required by law. Interest may be accumulated or paid in
1, 2, 4 or 12 installments per year, as elected. Money may not be
left on deposit for more than 30 years.
Option IV: Payouts of a Designated Amount: Payouts will be made until proceeds,
together with interest, which will be at the rate declared by us or
at any higher rate required by law, are exhausted. Payouts will be
made in 1, 2, 4, or 12 equal installments per year, as elected.
Option V: Other: The Owner may ask us to apply the money under any option
that we make available at the time the benefit is paid.
The Beneficiary or other person who is entitled to receive payment may name a
successor to receive any amount that we would otherwise pay to that person's
estate if that person died. The person who is entitled to receive payment may
change the successor at any time.
We must approve any arrangements that involve a payee who is not a natural
person (for example, a corporation), or a payee who is a fiduciary. Also, the
details of all arrangements will be subject to our rules at the time the
arrangements take effect. This includes rules on the minimum amount we will pay
under an option, minimum amounts for installment payments, withdrawal or
commutation rights (i.e., the rights to receive payments over time, for which we
may offer a lump sum payment), the naming of people who are entitled to receive
payment and their successors, and the ways of proving Age and survival.
- ---------------------------------------------------
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES AND
SURRENDER VALUES, AND ACCUMULATED PREMIUMS
- ---------------------------------------------------
The following tables illustrate how the key financial elements of the Policy
work, specifically, how the death benefits, Account Values and Cash Surrender
Values could vary over an extended period of time. In addition, each table
compares these values with premiums paid accumulated with interest. The Policies
illustrated include the following:
<TABLE>
<CAPTION>
Definition
Death of Life Stated Target
Smoker Benefit Insurance Death Death
Sex Age Status Option Test Benefit Premium Benefit Page
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Male 45 Nonsmoker 1 CVAT 300,000 $5,750 300,000 48
Preferred
Male 45 Nonsmoker 1 CVAT 150,000 $5,750 300,000 50
Preferred
Male 45 Nonsmoker 1 GP 300,000 $5,750 300,000 52
Preferred
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 55
<PAGE>
The tables show how death benefits, Account Values and Cash Surrender Values of
a hypothetical Policy could vary over an extended period of time if the
Divisions of the Variable Account had constant hypothetical gross annual
investment returns of 0%, 6% or 12% over the periods indicated in each table.
The values will differ from those shown in the tables if the annual investment
returns are not absolutely constant. That is, the death benefits, Account Values
and Cash Surrender Values will be different if the returns averaged 0%, 6% or
12% over a period of years but went above or below those figures in individual
Policy years. These illustrations assume that no Policy Loan has been taken. The
amounts shown would differ if female or unisex rates were used.
The third column of each table shows what would happen if an amount equal to the
premiums were invested to earn interest, after taxes, of 5% compounded annually.
All premium payments are illustrated as if they were made at the beginning of
the year.
The amounts shown for death benefits, Account Values and Cash Surrender Values
sections reflect the fact that the net investment return on the Policy is lower
than the gross investment return on the Divisions of the Variable Account. This
results from the charges levied against the Divisions of the Variable Account
(i.e., the mortality and expense risk charge) as well as the premium loads,
administrative charges and Surrender Charges. The difference between the Account
Value and the Cash Surrender Value in the first 14 years is the Surrender
Charge.
The tables illustrate cost of insurance and expense charges at both our current
rates (which are described under Monthly Deductions from the Account Value, page
31) and at the maximum rates we guarantee in the Policies. The amounts shown at
the end of each Policy year reflect a daily charge against the Variable Account
Divisions. This charge includes the charge against the Variable Account for
mortality and expense risks and the effect on each Division's investment
experience of the charge to Portfolio assets for investment management and
direct expenses. The mortality and expense risk fee is 0.75% annually on a
guaranteed basis; illustrations showing current rates reflect a guaranteed
persistency refund equivalent to 0.6% of the Account Value annually beginning
after the 10th Policy anniversary.
The tables also reflect a daily investment advisory fee equivalent to an annual
rate of .7178% of the aggregate average daily net assets of the Portfolios. This
hypothetical rate is representative of the average maximum investment advisory
fee applicable to the Divisions of the Variable Account. Other expenses of the
Portfolios are assumed at the rate of .1735% of the average daily net assets of
the Portfolio, which is an average of all the Portfolios' other expenses,
including interest expenses. This amounts to .8913% of the average daily net
assets of an investment division including the investment advisory fee. Actual
fees vary by Portfolio and may be subject to agreements by the sponsor to waive
or otherwise reimburse each investment Division for operating expenses which
exceed certain limits. There can be no assurance that the expense reimbursement
arrangements will continue in the future, and any unreimbursed expenses would be
reflected in the values included on the tables.
The effect of these investment management, direct expenses and mortality and
expense risk charges on a 0% gross rate of return would result in a net rate of
return of (1.63)%, on 6% it would be 4.32%, and on 12% it would be 10.28%.
The tables assume the deduction of charges including administrative and sales
charges. The tables reflect the fact that we do not currently make any charge
against the Variable Account for state or Federal taxes. If such a charge is
made in the future, it will take a higher gross rate of return than the rates
shown to produce death benefits, Account Values, and Cash Surrender Values
shown.
We will furnish, upon request, a comparable illustration based on the Age and
sex of the proposed Insured, standard Premium Class assumptions and an initial
Stated Death Benefit, death benefit option and Scheduled Premiums chosen and
consistent with the Policy form. If the Owner purchases a Policy, we will
deliver an individualized illustration reflecting the Scheduled Premium chosen
and the Insured's actual risk class. After issuance we will provide upon request
an illustration of future Policy benefits based on both guaranteed and current
cost factor assumptions and actual Account Value.
- --------------------------------------------------------------------------------
Strategic Advantage II 56
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $300000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $5750.00
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
----------0.00%---------- -----------12.00%----------- -----------6.00%-----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 3177 3464 300000 3652 3939 300000 3414 3701 300000
2 5750 12377 6208 6352 300000 7584 7727 300000 6881 7025 300000
3 5750 19033 9090 9090 300000 11819 11819 300000 10397 10397 300000
4 5750 26022 11940 11940 300000 16517 16517 300000 14086 14086 300000
5 5750 33361 14627 14627 300000 21589 21589 300000 17821 17821 300000
6 5750 41067 17148 17148 300000 27073 27073 300000 21599 21599 300000
7 5750 49157 19480 19480 300000 32995 32995 300000 25402 25402 300000
8 5750 57653 21610 21610 300000 39391 39391 300000 29215 29215 300000
9 5750 66573 23517 23517 300000 46299 46299 300000 33021 33021 300000
10 5750 75939 25179 25179 300000 53761 53761 300000 36797 36797 300000
15 5750 130281 32865 32865 300000 108709 108709 300000 59611 59611 300000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 57
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 5750 199636 31555 31555 300000 199493 199493 345523 81594 81594 300000
25 5750 288152 14530 14530 300000 339337 339337 525972 98775 98775 300000
30 5750 401124 3345 3345 300000 661736 661736 940989 183808 183808 300000
AGE 65 5750 215655 48068 48068 300000 277552 277552 481830 118242 118242 300000
</TABLE>
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE
WHICH WERE USED TO CALCULATE THE ABOVE VALUES.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF
THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT
EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage II 58
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $300000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $5750.00
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
----------0.00%---------- -----------12.00%----------- -----------6.00%-----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 4328 4615 300000 4876 5163 300000 4602 4889 300000
2 5750 12377 8466 8610 300000 10128 10272 300000 9281 9424 300000
3 5750 19033 12457 12457 300000 15836 15836 300000 14079 14079 300000
4 5750 26022 16438 16438 300000 22195 22195 300000 19145 19145 300000
5 5750 33361 20307 20307 300000 29162 29162 300000 24384 24384 300000
6 5750 41067 24066 24066 300000 36806 36806 300000 29805 29805 300000
7 5750 49157 27721 27721 300000 45200 45200 300000 35421 35421 300000
8 5750 57653 31274 31274 300000 54428 54428 300000 41241 41241 300000
9 5750 66573 34724 34724 300000 64578 64578 300000 47276 47276 300000
10 5750 75939 38085 38085 300000 75761 75761 300000 53547 53547 300000
15 5750 130281 56802 56802 300000 158908 158908 311778 93670 93670 300000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 59
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 5750 199636 71175 71175 300000 294920 294920 510802 142427 142427 300000
25 5750 288152 80235 80235 300000 513480 513480 795893 203301 203301 315117
30 5750 401124 82205 82205 300000 862962 862962 1213324 277800 277800 390587
AGE 65 5750 215655 73438 73438 300000 330773 330773 559668 153477 153477 300000
</TABLE>
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES
WILL VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED.
CURRENT MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE
NOT DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS AND POLICY CHARGES MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO
THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND
THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT
THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage II 60
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $150000 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $150000 ANNUAL PREMIUM: $ 5750.00
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
------0.00%------ ------12.00%------ ------6.00%------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 3175 3462 300000 3650 3937 300000 3412 3699 300000
2 5750 12377 6204 6348 300000 7579 7723 300000 6877 7020 300000
3 5750 19033 9084 9084 300000 11812 11812 300000 10390 10390 300000
4 5750 26022 11932 11932 300000 16506 16506 300000 14076 14076 300000
5 5750 33361 14616 14616 300000 21574 21574 300000 17808 17808 300000
6 5750 41067 17134 17134 300000 27054 27054 300000 21583 21583 300000
7 5750 49157 19464 19464 300000 32970 32970 300000 25382 25382 300000
8 5750 57653 21590 51590 300000 39360 39360 300000 29191 29191 300000
9 5750 66573 23494 23494 300000 46262 46262 300000 32992 32992 300000
10 5750 75939 25153 25153 300000 53716 53716 300000 36763 36763 300000
15 5750 130281 32818 32818 300000 108604 108604 300000 59540 59540 300000
20 5750 199636 31481 31482 300000 199302 199302 345191 81467 81467 300000
25 5750 288152 14433 14433 300000 339043 339043 525517 98567 98567 300000
30 5750 401124 - - 300000 544436 544436 765476 103185 103185 300000
AGE 65 5750 215655 29592 29592 300000 222969 222969 377264 85413 85413 300000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 61
<PAGE>
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE
WHICH WERE USED TO CALCULATE THE ABOVE VALUES.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF
THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT
EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID
IN A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage II 62
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $150000 DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $150000 ANNUAL PREMIUM: $5750.00
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
----------0.00%---------- -----------12.00%----------- -----------6.00%-----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 4348 4635 300000 4897 5185 300000 4622 4910 300000
2 5750 12377 8537 8680 300000 10205 10349 300000 9354 9498 300000
3 5750 19033 12587 12587 300000 15987 15987 300000 14220 14220 300000
4 5750 26022 16634 16634 300000 22433 22433 300000 19361 19361 300000
5 5750 33361 20570 20570 300000 29500 29500 300000 24682 24682 300000
6 5750 41067 24396 24396 300000 37253 37253 300000 30189 30189 300000
7 5750 49157 28111 28111 300000 45764 45764 300000 35889 35889 300000
8 5750 57653 31713 31713 300000 55110 55110 300000 41789 41789 300000
9 5750 66573 35200 35200 300000 65377 65377 300000 47892 47892 300000
10 5750 75939 38577 38577 300000 76666 76666 300000 54215 54214 300000
15 5750 130281 57262 57262 300000 160445 160445 314793 94521 94521 300000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 63
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 5750 199636 71590 71590 300000 297431 297431 515150 143526 143526 300000
25 5750 288152 80565 80565 300000 517550 517550 802203 204739 204739 317346
30 5750 401124 82358 82358 300000 869525 869525 1222552 279556 279556 393056
AGE 65 5750 215655 73839 73839 300000 333540 333540 564349 154638 154638 300000
</TABLE>
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES WILL
VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED. CURRENT
MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE NOT
DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A
NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO THE DIVISIONS OF
THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND THE INVESTMENT
EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT THESE
HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage II 64
<PAGE>
PROSPECT: INSURED'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $300000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $5750.00
GUIDELINE PREMIUM TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-------------0.00%---------- -----------12.00%----------- -----------6.00%-----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 3177 3464 300000 3652 3939 300000 3414 3701 300000
2 5750 12377 6208 6352 300000 7584 7727 300000 6881 7025 300000
3 5750 19033 9090 9090 300000 11819 11819 300000 10397 10397 300000
4 5750 26022 11940 11940 300000 16517 16517 300000 14086 14086 300000
5 5750 33361 14627 14627 300000 21589 21589 300000 17821 17821 300000
6 5750 41067 17148 17148 300000 27073 27073 300000 21599 21599 300000
7 5750 49157 19480 19480 300000 32995 32995 300000 25402 25402 300000
8 5750 57653 21610 21610 300000 39391 39391 300000 29215 29215 300000
9 5750 66573 23517 23517 300000 46299 46299 300000 33021 33021 300000
10 5750 75939 25179 25179 300000 53761 53761 300000 36797 36797 300000
15 5750 130281 32865 32865 300000 108709 108709 300000 59611 59611 300000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 65
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 5750 199636 31555 31555 300000 200318 200318 300000 81594 81594 300000
25 5750 288152 14530 14530 300000 361022 361022 418785 98775 98775 300000
30 5750 401124 300000 627392 627392 671310 103488 103488 300000
AGE 65 5750 215655 29671 29671 300000 255758 255758 300000 85555 85555 300000
</TABLE>
THE EXPENSE CHARGES AND COST OF INSURANCE RATES WILL NEVER BE GREATER THAN THOSE
WHICH WERE USED TO CALCULATE THE ABOVE VALUES.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS AND POLICY CHARGES MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO
THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND
THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT
THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage II 66
<PAGE>
PROSPECT: INSURED'S NAME:
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC ADVANTAGE II VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $300000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $5750.00
GUIDELINE PREMIUM TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
--------- 0.00%-------- ----------12.00%-------- ----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED AT ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 5750 6037 4328 4615 300000 4876 5163 300000 4602 4889 300000
2 5750 12377 8466 8610 300000 10128 10272 300000 9281 9424 300000
3 5750 19033 12457 12457 300000 15836 15836 300000 14079 14079 300000
4 5750 26022 16438 16438 300000 22195 22195 300000 19145 19145 300000
5 5750 33361 20307 20307 300000 29162 29162 300000 24384 24384 300000
6 5750 41067 24066 24066 300000 36806 36806 300000 29805 29805 300000
7 5750 49157 27721 27721 300000 45200 45200 300000 35421 35421 300000
8 5750 57653 31274 31274 300000 54428 54428 300000 41241 41241 300000
9 5750 66573 34724 34724 300000 64578 64578 300000 47276 47276 300000
10 5750 75939 38085 38085 300000 75761 75761 300000 53547 53547 300000
15 5750 130281 56802 56802 300000 158917 158917 300000 93670 93670 300000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II
67
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 5750 199636 71175 71175 300000 299239 299239 365071 142427 142427 300000
25 5750 288152 80235 80235 300000 533607 533607 618984 203423 203423 300000
30 5750 401124 82205 82205 300000 924209 924209 988903 283681 283681 303538
AGE 65 5750 215655 73438 73438 300000 337136 337136 404563 153477 153477 300000
</TABLE>
THE CURRENT COST OF INSURANCE RATES ARE SUBJECT TO CHANGE. ACCOUNT VALUES WILL
VARY FROM THOSE ILLUSTRATED IF ACTUAL RATES DIFFER FROM THOSE ASSUMED. CURRENT
MORTALITY CHARGE RATES ARE BASED ON CURRENT MORTALITY EXPERIENCE AND ARE NOT
DEPENDENT UPON FUTURE IMPROVEMENTS IN UNDERLYING MORTALITY.
THE HYPOTHETICAL GROSS RATES OF RETURN SHOWN ARE ILLUSTRATIVE ONLY AND SHOULD
NOT BE DEEMED AS A REPRESENTATION OF PAST OR FUTURE INVESTMENT RESULTS. ACTUAL
INVESTMENT RESULTS AND POLICY CHARGES MAY BE MORE OR LESS THAN THOSE SHOWN AND
WILL DEPEND ON A NUMBER OF FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE TO
THE DIVISIONS OF THE VARIABLE ACCOUNT AND THE GUARANTEED INTEREST DIVISION AND
THE INVESTMENT EXPERIENCE OF THE DIVISIONS. NO REPRESENTATION CAN BE MADE THAT
THESE HYPOTHETICAL GROSS INVESTMENT RETURNS CAN BE ACHIEVED FOR ANY ONE YEAR OR
SUSTAINED OVER ANY PERIOD OF TIME.
THE DEATH BENEFIT, ACCOUNT VALUE AND CASH SURRENDER VALUE FOR A POLICY WOULD BE
DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS ANNUAL RATES OF RETURN AVERAGED
0.00%, 12.00% AND 6.00% OVER A PERIOD OF YEARS BUT VARIED ABOVE OR BELOW THAT
AVERAGE DURING THE PERIOD. THEY WOULD ALSO BE DIFFERENT IF PREMIUMS WERE PAID IN
A DIFFERENT FREQUENCY THAN SHOWN. THE ABOVE VALUES ASSUME NO LOANS OR
WITHDRAWALS ARE TAKEN.
- --------------------------------------------------------------------------------
Strategic Advantage II
68
<PAGE>
ADDITIONAL INFORMATION
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>
R. Glenn Hilliard* Chief Executive Officer
Stephen M. Christopher Director, President and Chief Operating Officer
Catherine T. Fitzgerald* Executive Vice President
Keith T. Glover* Executive Vice President
James L. Livingston, Jr. Executive Vice President, Operations
Jeffrey R. Messner Executive Vice President and Chief Marketing Officer
Thomas F. Conroy Director and President, Security Life Reinsurance
Michael W. Cunningham* Director, Executive Vice President
Linda B. Emory* Director, Vice President and Appointed Actuary
Jess A. Skriletz President, Institutional Markets
John R. Barmeyer Senior Vice President and Chief Legal Officer
Wayne D. Bidelman Senior Vice President
Eugene L. Copeland Senior Vice President and General Counsel, Security Life Reinsurance
and Institutional Markets
Michael Fisher Senior Vice President, Litigation
Carol D. Hard Senior Vice President, Variable
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II
69
<PAGE>
<TABLE>
<S> <C>
Philip R. Kruse Senior Vice President, Sales & Marketing
Charles LeDoyen** Senior Vice President, Structured Settlements
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II
70
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
<S> <C>
Timothy P. McCarthy Senior Vice President, Marketing Services
Jeffery W. Seel* Senior Vice President and Chief Investment Officer
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. Baumbush Vice President, Reinsurance Operations
Evelyn A. Bentz Vice President, M Financial Sales
Thomas Kirby Brown Vice President, Institutional Markets
Daniel S. Clements Vice President and Chief Underwriter
Denise S. Dumont Vice President, Utility Services
Linda Elliott Vice President, CIO 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
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II
71
<PAGE>
<TABLE>
<S> <C>
Greg McGreevey Vice President, Marketing, Institutional Markets
C. Lynn McPherson* Vice President
Sue A. Miskie Vice President, Corporate Services
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II
72
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
<S> <C>
Donna T. Mosely Vice President, Valuation
Daniel G. Patsey Vice President, Strategic Technology
David S. Pendergrass* Vice President and Treasury Officer
Steve Pryde Vice President, Administration, Security Life Reinsurance
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
Jerome M. Strop Vice President, Strategic Marketing
Gary W. Waggoner Vice President, General Counsel and Secretary
William Wojciechowski Vice President, Business Consulting and Financial Markets
Stephen J. Yarina Vice President, Treasurer and Chief Financial Officer
Roger O. Beebe Actuarial Officer
Eric Banta Assistant Secretary
Marsha K. Crest Agency Administration Officer
John B. Dickinson Actuarial Officer
Relda A. Fleshman Deputy General Counsel
Shirley A. Knarr Actuarial Officer
Lisa K. Smith Multi-Life Officer
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 73
<PAGE>
<TABLE>
<S> <C>
Glen E. Stark Actuarial Officer
William J. Wagner Actuarial Officer
Amy L. Winsor Tax and Finance Officer
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II
74
<PAGE>
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. In addition, we are subject to the insurance
laws and regulations in every jurisdiction in which we do business. As a result,
the provisions of this Policy may vary somewhat from jurisdiction to
jurisdiction.
We are required to submit annual statements, including financial statements, of
our operations and finances to the Insurance Departments of the various
jurisdictions in which we do business to determine solvency and compliance with
state insurance laws and regulations.
We are also subject to various Federal securities laws and regulations.
Legal Matters
The legal matters in connection with the Policy described in this prospectus
have been passed on by the General Counsel of Security Life and Mayer, Brown and
Platt.
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 Policy or to the Variable Account, and
we do not expect to incur significant losses from such actions. ING America
Equities, Inc., the principal underwriter and distributor of the Policy, is not
engaged in any litigation of any material nature.
Experts
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries at 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 L1 at December 31, 1997, and for each of the two years
in the period ended December 31, 1997, appearing in this prospectus and
registration statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
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.
Actuarial matters in this prospectus have been examined by Lawrence D. Taylor,
F.S.A., M.A.A.A., who is the Senior Vice President and Chief Actuary. His
opinion on actuarial matters is filed as an exhibit to the Registration
Statement we filed with the SEC.
Registration Statement
We have filed a Registration Statement relating to the Variable Account and the
variable life insurance policy described in this prospectus with the SEC. The
Registration Statement, which is required by the Securities Act of 1933,
includes additional information that is not required in this prospectus under
the rules and regulations of the SEC. The additional information may be obtained
from the SEC's principal office in Washington, DC. You will have to pay a fee
for the material.
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 administration
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.
- --------------------------------------------------------------------------------
Strategic Advantage II 75
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1997
and 1996, and for each of the three years in the period ended December 31, 1996,
are prepared in accordance with generally accepted accounting principles and
start on page 59.
The financial statements included for the Security Life Separate Account L1 at
December 31, 1997 and for each of the two years in the period ended December 31,
1997, are prepared in accordance with generally accepted accounting principles
and represent those Divisions that had commenced operations by that date.
The consolidated financial statements of Security Life and Subsidiaries referred
to above have been audited by Ernst & Young LLP. The consolidated financial
statements of Security Life and Subsidiaries should be distinguished from the
financial statements of the Security Life Separate Account L1 and should be
considered only as bearing upon the ability of Security Life and Subsidiaries to
meet its obligations under the Policies. They should not be considered as
bearing upon the investment experience of the Divisions of Security Life
Separate Account L1.
The most current financial statements are those as of the end of the most recent
fiscal year. The Company does not prepare financial statements more often than
annually and believes that any incremental benefit to prospective policy holders
that may result from preparing and delivering more current financial statements,
though unaudited, does not justify the additional cost that would be incurred.
In addition, the Company represents that there have been no significant adverse
changes in the financial condition or operations of the Company between the end
of the most current fiscal year and the date of this prospectus.
- --------------------------------------------------------------------------------
Strategic Advantage II 76
<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
- --------------------------------------------------------------------------------
Strategic Advantage II 77
<PAGE>
Financial Statements
Security Life Separate Account L1
Year ended December 31,1997
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Strategic Advantage II 78
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
Financials will follow at a later date
- --------------------------------------------------------------------------------
Strategic Advantage II 79
<PAGE>
APPENDIX A
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
<TABLE>
<CAPTION>
Attained
Age Male Female Unisex
-------- ---- ------ ------
<S> <C> <C> <C>
0 11.727 14.234 12.149
1 11.785 14.209 12.194
2 11.458 13.815 11.857
3 11.128 13.417 11.515
4 10.803 13.023 11.178
5 10.481 12.635 10.845
6 10.161 12.253 10.514
7 9.844 11.875 10.187
8 9.530 11.505 9.863
9 9.221 11.141 9.545
10 8.918 10.784 9.233
11 8.623 10.436 8.928
12 8.338 10.098 8.634
13 8.066 9.771 8.353
14 7.808 9.455 8.085
15 7.564 9.150 7.831
16 7.335 8.857 7.592
17 7.118 8.575 7.364
18 6.911 8.302 7.148
19 6.713 8.038 6.939
20 6.521 7.782 6.737
21 6.334 7.534 6.540
22 6.150 7.293 6.347
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 80
<PAGE>
<TABLE>
<S> <C> <C> <C>
23 5.969 7.059 6.158
24 5.791 6.831 5.971
25 5.615 6.611 5.788
26 5.441 6.396 5.608
27 5.271 6.188 5.431
28 5.104 5.986 5.258
29 4.940 5.791 5.089
30 4.781 5.601 4.925
31 4.626 5.418 4.765
32 4.476 5.241 4.610
33 4.330 5.069 4.459
34 4.188 4.902 4.314
35 4.052 4.742 4.173
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 81
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
<TABLE>
<CAPTION>
Attained
Age Male Female Unisex
<S> <C> <C> <C>
36 3.920 4.586 4.037
37 3.793 4.437 3.906
38 3.670 4.293 3.780
39 3.553 4.154 3.658
40 3.439 4.021 3.541
41 3.330 3.894 3.429
42 3.226 3.771 3.322
43 3.125 3.654 3.218
44 3.028 3.541 3.119
45 2.936 3.432 3.023
46 2.846 3.328 2.931
47 2.761 3.227 2.843
48 2.678 3.129 2.758
49 2.599 3.035 2.676
50 2.522 2.945 2.597
51 2.449 2.858 2.522
52 2.378 2.774 2.449
53 2.311 2.693 2.379
54 2.246 2.615 2.312
55 2.184 2.540 2.248
56 2.125 2.468 2.187
57 2.068 2.398 2.128
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 82
<PAGE>
<TABLE>
<S> <C> <C> <C>
58 2.014 2.330 2.071
59 1.962 2.265 2.017
60 1.912 2.201 1.965
61 1.864 2.139 1.915
62 1.818 2.079 1.867
63 1.774 2.022 1.821
64 1.732 1.967 1.777
65 1.692 1.914 1.735
66 1.654 1.863 1.695
67 1.617 1.815 1.657
68 1.583 1.769 1.620
69 1.550 1.724 1.585
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 83
<PAGE>
APPENDIX A (CONT.)
Factors for the
Cash Value Accumulation Test
For a Life Insurance Policy
<TABLE>
<CAPTION>
Attained
Age Male Female Unisex
<S> <C> <C> <C>
70 1.518 1.681 1.552
71 1.488 1.639 1.520
72 1.459 1.599 1.489
73 1.432 1.560 1.460
74 1.406 1.524 1.433
75 1.382 1.490 1.407
76 1.359 1.457 1.383
77 1.338 1.427 1.360
78 1.318 1.398 1.338
79 1.299 1.371 1.318
80 1.281 1.345 1.298
81 1.264 1.321 1.280
82 1.248 1.298 1.262
83 1.233 1.277 1.245
84 1.218 1.257 1.230
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 84
<PAGE>
<TABLE>
<S> <C> <C> <C>
85 1.205 1.238 1.215
86 1.193 1.221 1.202
87 1.181 1.205 1.189
88 1.171 1.190 1.177
89 1.160 1.176 1.166
90 1.151 1.163 1.155
91 1.141 1.150 1.144
92 1.131 1.137 1.133
93 1.120 1.125 1.122
94 1.109 1.112 1.110
95 1.097 1.098 1.097
96 1.083 1.084 1.084
97 1.069 1.069 1.069
98 1.054 1.054 1.054
99 1.040 1.040 1.040
100 1.000 1.000 1.000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 85
<PAGE>
- --------------------------------------------------------------------------------
Strategic Advantage II 86
<PAGE>
APPENDIX B
Factors for the
Guideline Premium/Cash Value Corridor Test
For a Life Insurance Policy
<TABLE>
<CAPTION>
Attained Factor Attained Factor Attained Factor Attained Factor
Age Age Age Age
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
1 2.50 26 2.50 51 1.78 76 1.05
2 2.50 27 2.50 52 1.71 77 1.05
3 2.50 28 2.50 53 1.64 78 1.05
4 2.50 29 2.50 54 1.57 79 1.05
5 2.50 30 2.50 55 1.50 80 1.05
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 87
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
6 2.50 31 2.50 56 1.46 81 1.05
7 2.50 32 2.50 57 1.42 82 1.05
8 2.50 33 2.50 58 1.38 83 1.05
9 2.50 34 2.50 59 1.34 84 1.05
10 2.50 35 2.50 60 1.30 85 1.05
11 2.50 36 2.50 61 1.28 86 1.05
12 2.50 37 2.50 62 1.26 87 1.05
13 2.50 38 2.50 63 1.24 88 1.05
14 2.50 39 2.50 64 1.22 89 1.05
15 2.50 40 2.50 65 1.20 90 1.05
16 2.50 41 2.43 66 1.19 91 1.04
17 2.50 42 2.36 67 1.18 92 1.03
18 2.50 43 2.29 68 1.17 93 1.02
19 2.50 44 2.22 69 1.16 94 1.01
20 2.50 45 2.15 70 1.15 95 1.00
21 2.50 46 2.09 71 1.13 96 1.00
22 2.50 47 2.03 72 1.11 97 1.00
23 2.50 48 1.97 73 1.09 98 1.00
24 2.50 49 1.91 74 1.07 99 1.00
100 1.00
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Strategic Advantage II 88
<PAGE>
APPENDIX C
PERFORMANCE INFORMATION
POLICY PERFORMANCE
The following hypothetical illustrations demonstrate how the actual investment
experience of each Division of the Variable Account affects the Cash Surrender
Value, Account Value and Death Benefit of a Policy. These hypothetical
illustrations are based on the actual historical return of each Portfolio as if
a Policy had been issued on the date indicated. Each Portfolio's Annual Total
Return is based on the total return calculated for each fiscal year. These
Annual Total Return figures reflect the Portfolio's management fees and other
operating expenses but do not reflect the Policy level or Variable Account
asset based charges and deductions, which if reflected, would result in lower
total return figures than those shown.
The illustrations are based on the payment of a $5,750 annual premium, paid at
the beginning of each year, for a hypothetical Policy with a $300,000 face
amount, the Cash Value Accumulation Test, death benefit Option 1, issued to a
preferred nonsmoker male, Age 45. In each case, it is assumed that all premiums
are allocated to the Division illustrated for the period shown. The benefits are
calculated for a specific date. The amount and timing of Premium Payments and
the use of other Policy features, such as Policy Loans, would affect individual
Policy benefits.
The amounts shown for the Cash Surrender Values, Account Values and Death
Benefits take into account the charges against premiums, current cost of
insurance and monthly deductions, the daily charge against the Variable Account
for mortality and expense risks, and each Portfolio's charges and expenses. See
Charges, Deductions and Refunds, page 30. This prospectus also contains
illustrations based on assumed rates of return. See Illustrations of Death
Benefits, Account Values, Surrender Values and Accumulated Premiums, page 46.
- --------------------------------------------------------------------------------
Strategic Advantage II 89
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Neuberger & Berman AMT Limited Maturity Bond Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/88 7.17% 4,983 4,696 300,000
12/31/89 10.77% 10,042 9,898 300,000
12/31/90 8.32% 15,184 15,184 300,000
12/31/91 11.34% 21,519 21,519 300,000
12/31/92 5.18% 26,883 26,883 300,000
12/31/93 6.63% 32,892 32,892 300,000
12/31/94 (0.15)% 36,696 36,696 300,000
12/31/95 10.94% 44,959 44,959 300,000
12/31/96 4.31% 50,773 50,773 300,000
12/31/97 6.74 58,099 58,099 300,000
<CAPTION>
Neuberger & Berman AMT Growth Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/88 25.97% 5,844 5,556 300,000
12/31/89 29.47% 12,865 12,722 300,000
12/31/90 (8.19)% 15,401 15,401 300,000
12/31/91 29.73% 25,402 25,402 300,000
12/31/92 9.54% 32,239 32,239 300,000
12/31/93 6.79% 38,630 38,630 300,000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II
90
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
12/31/94 (4.99)% 40,323 40,323 300,000
12/31/95 31.73% 58,213 58,213 300,000
12/31/96 9.14% 67,537 67,537 300,000
12/31/97 29.01% 91,841 91,841 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 66.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage II
91
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Neuberger & Berman AMT Partners Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/95 36.47% 6,325 6,037 300,000
12/31/96 29.57% 13,495 13,351 300,000
12/31/97 31.25% 22,969 22,969 300,000
<CAPTION>
Alger American Small Capitalization Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/89 64.48% 7,611 7,323 300,000
12/31/90 8.71% 12,691 12,547 300,000
12/31/91 57.54% 26,378 26,378 300,000
12/31/92 3.55% 31,517 31,517 300,000
12/31/93 13.28% 40,239 40,239 300,000
12/31/94 (4.38)% 42,162 42,162 300,000
12/31/95 44.31% 66,510 66,510 300,000
12/31/96 4.18% 73,096 73,096 300,000
12/31/97 11.39% 85,434 85,434 300,000
<CAPTION>
Alger American MidCap Growth Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/94 (1.54)% 4,586 4,298 300,000
12/31/95 44.45% 12,565 12,421 300,000
12/31/96 11.90% 18,501 18,501 300,000
12/31/97 15.01% 26,031 26,031 300,000
<CAPTION>
Alger American Growth Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/90 4.14% 4,845 4,557 300,000
12/31/91 40.39% 12,569 12,426 300,000
12/31/92 12.38% 18,587 18,587 300,000
12/31/93 22.47% 27,843 27,843 300,000
12/31/94 1.45% 32,298 32,298 300,000
12/31/95 36.37% 49,506 49,506 300,000
12/31/96 13.35% 60,439 60,439 300,000
12/31/97 25.75% 80,718 80,718 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 66.
- --------------------------------------------------------------------------------
Strategic Advantage II
92
<PAGE>
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage II
93
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
<TABLE>
<CAPTION>
Alger American Leveraged All Cap
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/96 12.04% 5,206 4,919 300,000
12/31/97 19.68% 11,124 10,981 300,000
<CAPTION>
Fidelity VIP Growth Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/88 15.58% 5,368 5,080 300,000
12/31/89 31.51% 12,449 12,305 300,000
12/31/90 (11.73)% 14,430 14,430 300,000
12/31/91 45.51% 27,125 27,125 300,000
12/31/92 9.32% 34,047 34,047 300,000
12/31/93 19.37% 45,367 45,367 300,000
12/31/94 (0.02)% 49,151 49,151 300,000
12/31/95 35.36% 71,717 71,717 300,000
12/31/96 14.71% 86,420 86,420 300,000
12/31/97 23.48% 111,088 111,088 300,000
<CAPTION>
Fidelity VIP Overseas Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/88 8.13% 5,027 4,740 300,000
12/31/89 26.28% 11,520 11,377 300,000
12/31/90 (1.67)% 15,201 15,201 300,000
12/31/91 8.00% 20,884 20,884 300,000
12/31/92 (10.72)% 22,210 22,210 300,000
12/31/93 37.35% 36,086 36,086 300,000
12/31/94 1.72% 40,622 40,622 300,000
12/31/95 9.74% 48,754 48,754 300,000
12/31/96 13.15% 59,384 59,384 300,000
12/31/97 11.56% 70,304 70,304 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 66.
- --------------------------------------------------------------------------------
Strategic Advantage II
94
<PAGE>
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage II
95
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
Fidelity VIP Money Market Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/88 7.39% 4,993 4,706 300,000
12/31/89 9.12% 9,902 9,758 300,000
12/31/90 8.04% 14,993 14,993 300,000
12/31/91 6.09% 20,290 20,290 300,000
12/31/92 3.90% 25,282 25,282 300,000
12/31/93 3.23% 30,189 30,189 300,000
12/31/94 4.25% 35,526 35,526 300,000
12/31/95 5.87% 41,654 41,654 300,000
12/31/96 5.41% 47,846 47,846 300,000
12/31/97 5.51% 54,352 54,352 300,000
<CAPTION>
Fidelity VIP II Asset Manager Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/90 6.72% 4,963 4,675 300,000
12/31/91 22.56% 11,099 10,955 300,000
12/31/92 11.71% 16,842 16,842 300,000
12/31/93 21.23% 25,455 25,455 300,000
12/31/94 (6.09)% 27,646 27,646 300,000
12/31/95 16.96% 36,998 36,998 300,000
12/31/96 14.60% 46,851 46,851 300,000
12/31/97 20.65% 61,118 61,118 300,000
<CAPTION>
Fidelity VIP II Index 500 Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/93 9.74% 5,101 4,813 300,000
12/31/94 1.04% 9,268 9,124 300,000
12/31/95 37.19% 18,259 18,259 300,000
12/31/96 22.82% 27,523 27,523 300,000
12/31/97 32.82% 41,961 41,961 300,000
<CAPTION>
INVESCO VIF Total Return Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/95 22.79% 5,698 5,410 300,000
12/31/96 12.18% 10,968 10,824 300,000
12/31/97 22.91% 18,402 18,402 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 66. *
- --------------------------------------------------------------------------------
Strategic Advantage II 96
<PAGE>
*These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage II 97
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
INVESCO VIF Industrial Income Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/95 29.25% 5,994 5,706 300,000
12/31/96 22.28% 12,326 12,182 300,000
12/31/97 28.17% 20,933 20,933 300,000
<CAPTION>
INVESCO VIF High Yield Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/95 19.76% 5,559 5,272 300,000
12/31/96 16.59% 11,243 11,099 300,000
12/31/97 17.33% 17,873 17,873 300,000
<CAPTION>
INVESCO VIF Utilities Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/95 9.08% 5,071 4,783 300,000
12/31/96 12.76% 10,322 10,179 300,000
12/31/97 23.41% 17,686 17,686 300,000
<CAPTION>
Van Eck Worldwide Bond Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/90 11.25% 5,170 4,882 300,000
12/31/91 18.39% 10,961 10,817 300,000
12/31/92 (5.25)% 14,109 14,109 300,000
12/31/93 7.79% 19,673 19,673 300,000
12/31/94 (1.32)% 23,392 23,392 300,000
12/31/95 17.30% 32,144 32,144 300,000
12/31/96 2.53% 36,928 36,928 300,000
12/31/97 2.38% 41,696 41,696 300,000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 98
<PAGE>
The assumptions underlying these values are described in Performance
Information, page 66.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage II 99
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Nonsmoker Male Age 45 Cash Value Accumulation Test
Standard Risk Class Death Benefit Option 1
Stated Death Benefit $300,000 Annual Premium $ 5,750
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Van Eck Worldwide Hard Assets Fund
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/91 (2.93)% 4,522 4,235 300,000
12/31/92 (4.09)% 8,240 8,096 300,000
12/31/93 64.83% 20,324 20,324 300,000
12/31/94 (4.78)% 23,229 23,229 300,000
12/31/95 10.99% 30,273 30,273 300,000
12/31/96 18.04% 40,426 40,426 300,000
12/31/97 (1.67)% 43,502 43,502 300,000
<CAPTION>
Van Eck Worldwide Emerging Markets Fund
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/96 26.82% 5,883 5,595 300,000
12/31/97 (11.61)% 8,781 8,637 300,000
<CAPTION>
AIM VI Government Securities Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/94 (3.73)% 4,486 4,198 300,000
12/31/95 15.56 9,910 9,766 300,000
12/31/96 2.29 14,188 14,188 300,000
12/31/97 8.16% 19,825 19,825 300,000
<CAPTION>
AIM VI Capital Appreciation Portfolio
Year Annual Total Cash Surrender Account Death
Ended Return* Value Value Benefit
<S> <C> <C> <C> <C>
12/31/94 2.50% 4,770 4,483 300,000
12/31/95 35.69% 12,043 11,899 300,000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Advantage II 100
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
12/31/96 17.58% 18,846 18,846 300,000
12/31/97 13.51% 26,077 26,077 300,000
</TABLE>
The assumptions underlying these values are described in Performance
Information, page 66.
* These Annual Total Return figures reflect the Portfolio's management fees and
other operating expenses but do not reflect the Policy level or Variable Account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Strategic Advantage II 101
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-
6 Registration Statement of Security Life of Denver Insurance Company and its
Security Life Separate Account L1, filed with the Securities and Exchange
Commission on August 4, 1995 (File No. 33-88148).
UNDERTAKING REGARDING INDEMNIFICATION
Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form S-
6 Registration Statement of Security Life of Denver Insurance Company and its
Security Life Separate Account L1, filed with the Securities and Exchange
Commission on August 4, 1995 (File No. 33-88148).
UNDERTAKING REQUIRED BY SECTION 26(e)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED
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.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference table.
The prospectuses.
Strategic Advantage
Strategic Advantage II
The undertaking to file reports.
The undertaking regarding indemnification.
The undertaking required by Section 26(e)(2)(A) of the Investment Company
Act of 1940, as amended.
The signatures.
Written consents of the following persons:
Lawrence D. Taylor (See Exhibit 6.B).
Mayer, Brown & Platt (See Exhibit 7.B).
________________________________________________________________________________
Strategic Advantage II-1
<PAGE>
The following exhibits:
1.A (1) Resolution of the Executive Committee of the Board of Directors of
Security Life of Denver Insurance Company ("Security Life of Denver")
authorizing the establishment of the Registrant. 1
(2) Not Applicable.
(3) (a) Security Life of Denver Distribution Agreement. 2
(b) Specimen Broker/Dealer Supervisory and Selling Agreement for
Variable Contracts with Compensation Schedules.
(i) Broker/Dealer Supervisory and Selling Agreement for Variable
Contracts with Paine Webber Incorporated. 7
(c) Commission Schedule for Policies.
(4) Not Applicable.
(5) (a) Specimen Variable Universal Life Insurance Policy (Form No. 1197
(VUL))./7/
(i) Specimen Variable Universal Life Insurance Policy issued in
Maryland. (Form No. 1197 (VUL)-MD-5/97)./7/
(ii) Specimen Variable Universal Life Insurance Policy issued in
Massachusetts. (Form No. 1197 (VUL)-MA-5/97)./7/
(iii) Specimen Variable Universal Life Insurance Policy issued in
Texas. (Form No. 1197 (VUL)-TX-5/97)./7/
(iv) Specimen Variable Universal Life Insurance Policy (Form No.
2501 (VUL)-7/97)./8/
(v) Specimen Variable Universal Life Insurance Policy (Form No.
2503 (VUL)-6/98).
(b) Adjustable Term Insurance Rider (Form No. R2000-3/96). 7
(6) (a) Security Life of Denver's Restated Articles of Incorporation./1/
(b-g) Amendments to Articles of Incorporation through June 12,
1987./4/
(h) Security Life of Denver's By-Laws./1/
(i) Bylaws of Security Life of Denver Insurance Company (Restated
with Amendments through September 30, 1997)./10/
(7) Not Applicable.
(8) (a) Participation Agreements 3 and Addendum to Sales Agreement./1/
(i) Participation Agreement by and among AIM Variable Insurance
Funds, Inc., Life Insurance Company, on Behalf of Itself and
its Separate Accounts and Name of Underwriter of Variable
Contracts and Policies.
(b) Amendments to Participation Agreements./1/
(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 Participation Agreement between Security
Life of Denver, Van Eck Worldwide Insurance Trust and Van Eck
Associates Corporation.
(iii) 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./1/
(d) Administrative Services Agreement between Security Life of Denver
and Financial Administrative Services Corporation./2/
(e) Amendment to Administrative Services Agreement between Security
Life of Denver and Financial Administrative Services Corporation.
/5/
(9) Not Applicable.
(10) (a) Specimen Flexible Premium Variable Life Insurance Application
(Form No. Q-1155)./1/
(i) Specimen Variable Life Insurance Application (Form No. Q-2006-
9/97)./8, 10/
(ii) Specimen Variable Life Insurance Application (Form No. Q-1155-
98)./9, 10/
(iii) Specimen Variable Life Insurance Application (Form No. Q-2006-
9/97).
(b) Specimen Flexible Premium Variable Life Insurance Guaranteed
Issue Application (Form No. Q-115695)./1/
________________________________________________________________________________
Strategic Advantage II-2
<PAGE>
2. Included as Exhibit 1.A(5) above.
3.A Opinion and Consent of Eugene L. Copeland as to securities being
registered./5/
4. Not Applicable.
5. Not Applicable.
6.A Opinion and Consent of Shirley A. Knarr./10/
B Opinion and Consent of Lawrence D. Taylor.
7.A Consent of Ernst & Young, LLP./10/
B Consent of Mayer, Brown & Platt.
8. Not Applicable.
_____________
/1/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on August 4, 1995 (File No. 33-88148).
/2/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form N-4 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account A1, filed with the
Securities and Exchange Commission on February 21, 1995 (File No. 33-
72564).
/3/ Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on October 25, 1994 (File No. 33-74190)
/4/ Incorporated herein by reference to the Form N-4 Registration Statement of
Security Life of Denver and its Security Life Separate Account A1, filed
with the Securities and Exchange Commission on December 3, 1993 (File No.
33-72564).
/5/ Incorporated herein by reference to Post-Effective Amendment No. 2 to the
Form N-4 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account A1, filed with the
Securities and Exchange Commission on April 28, 1995 (File No. 33-78444).
/6/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on August 31, 1994 (File No. 33-74190).
/7/ Incorporated herein by reference to Post-Effective Amendment No. 2 to the
form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on April 30, 1997 (File No. 33-88148).
/8/ To be used on or before May 1, 1998.
/9/ To be used on or before May 1, 1998, where Exhibit 1.A(10)(a)(i) has not
been approved.
/10/ Incorporated herein by reference to Post-Effective Amendment No. 3 to the
form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on October 29, 1997 (File No. 33-
88148).
________________________________________________________________________________
Strategic Advantage II-3
<PAGE>
SIGNATURES
Pursuant to Rule 485(a) under Securities Act of 1933, as amended, Security Life
of Denver Insurance Company and the Registrant, Security Life Separate Account
L1, have duly caused this Post-Effective Amendment No. 4 to the Registration
Statement to be signed on their behalf by the undersigned, hereunto duly
authorized, and their seal to be hereunto fixed and attested, all in the City
and County of Denver and the State of Colorado on the 18th day of February,
1998.
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
BY: /s/ Stephen M. Christopher
--------------------------------------------
Stephen M. Christopher
President and Chief Operating Officer
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- ------------------------
Gary W. Waggoner
SECURITY LIFE SEPARATE ACCOUNT L1
(Registrant)
BY: SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
BY: /s/ Stephen M. Christopher
-----------------------------------------------
Stephen M. Christopher
President and Chief Operating Officer
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- ------------------------
Gary W. Waggoner
________________________________________________________________________________
Strategic Advantage II-4
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 4 to the Registration Statement has been signed below by the
following persons in the capacities with Security Life of Denver Insurance
Company and on the date indicated.
PRINCIPAL EXECUTIVE OFFICERS:
/s/ R. Glenn Hilliard
- ---------------------------
R. Glenn Hilliard
Chief Executive Officer
/s/ Stephen M. Christopher
- ---------------------------
Stephen M. Christopher
President and Chief Operating 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
DIRECTORS:
/s/ R. Glenn Hilliard
- ---------------------------
R. Glenn Hilliard
/s/ Thomas F. Conroy
- ---------------------------
Thomas F. Conroy
/s/ Michael W. Cunningham
- ---------------------------
Michael W. Cunningham
/s/ Linda B. Emory
- ---------------------------
Linda B. Emory
/s/ Stephen M. Christopher
- ---------------------------
Stephen M. Christopher
________________________________________________________________________________
Strategic Advantage II-5
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
1.A (1) Resolution of the Executive Committee of the Board of Directors of
Security Life of Denver Insurance Company ("Security Life of Denver")
authorizing the establishment of the Registrant./1/
(2) Not Applicable.
(3) (a) Security Life of Denver Distribution Agreement./2/
(b) Specimen Broker/Dealer Supervisory and Selling Agreement for
Variable Contracts with Compensation Schedules.
(i) Broker/Dealer Supervisory and Selling Agreement for Variable
Contracts with Paine Webber Incorporated./7/
(c) Commission Schedule for Policies.
(4) Not Applicable.
(5) (a) Specimen Variable Universal Life Insurance Policy (Form No. 1197
(VUL)-5/97)./7/
(i) Specimen Variable Universal Life Insurance Policy issued in
Maryland (Form No. 1197)(VUL)-MD-5/97)./7/
(ii) Specimen Variable Universal Life Insurance Policy issued in
Massachusetts (Form No. 1197)(VUL)-MA-5/97)./7/
(iii) Specimen Variable Universal Life Insurance Policy issued in
Texas (Form No. 1197)(VUL)-TX-5/97)./7/
(iv) Specimen Variable Universal Life Insurance Policy (Form No.
2501 (VUL)-7/97)./8/
(v) Specimen Variable Universal Life Insurance Policy (Form No.
2503 (VUL)-6/98).
(b) Adjustable Term Insurance Rider (Form No. R2000-3/96)./7/
(6) (a) Security Life of Denver's Restated Articles of Incorporation./1/
(b-g) Amendments to Articles of Incorporation through June 12, 1987.
/4/
(h) Security Life of Denver's By-Laws./1/
(i) Bylaws of Security Life of Denver Insurance Company (Restated
with Amendments through September 30, 1997)./10/
(7) Not Applicable.
(8) (a) Participation Agreements 3 and Addendum to Sales Agreement./1/
(i) Participation Agreement by and among AIM Variable Insurance
Funds, Inc., Life Insurance Company, on Behalf of Itself and
its Separate Accounts and Name of Underwriter of Variable
Contracts and Policies.
(b) Amendments to Participation Agreements./1/
(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 Participation Agreement between Security
Life of Denver, Van Eck Worldwide Insurance Trust and Van Eck
Associates Corporation.
(iii) 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./1/
(d) Administrative Services Agreement between Security Life of Denver
and Financial Administrative Services Corporation./2/
(e) Amendments to Administrative Services Agreement between Security
Life of Denver and Financial Administrative Services Corporation.
/5/
(9) Not Applicable.
(10) (a) Specimen Flexible Premium Variable Life Insurance Application
(Form No. Q-1155)./1/
________________________________________________________________________________
Strategic Advantage II-6
<PAGE>
(i) Specimen Variable Life Insurance Application (Form No. Q-
2006)./8,10/
(ii) Specimen Variable Life Insurance Application (Form No. Q-1155-
98)./9,10/
(iii) Specimen Variable Life Insurance Application (Form No. Q-2006-
9/97).
(b) Specimen Flexible Premium Variable Life Insurance Guaranteed
Issue Application (Form No. Q-115695)./1/
2. Included as Exhibit 1.A(5) above.
3.A Opinion and Consent of Eugene L. Copeland as to securities being
registered./1/
4. Not Applicable.
5. Not Applicable.
6.A Opinion and Consent of Shirley A. Knarr/10/
B Opinion and Consent of Lawrence D. Taylor
7.A Consent of Ernst & Young LLP./10/
B Consent of Mayer, Brown & Platt.
8. Not Applicable.
__________________
/1/Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form
S-6 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account L1, filed with the Securities and Exchange
Commission on August 4, 1995 (File No. 33-88148).
/2/Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form
N-4 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account A1, filed with the Securities and Exchange
Commission on February 21, 1995 (File No. 33- 72564).
/3/Incorporated herein by reference to Pre-Effective Amendment No. 2 to the Form
S-6 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account L1, filed with the Securities and Exchange
Commission on October 25, 1994 (File No. 33-74190)
/4/Incorporated herein by reference to the Form N-4 Registration Statement of
Security Life of Denver and its Security Life Separate Account A1, filed with
the Securities and Exchange Commission on December 3, 1993 (File No. 33-
72564).
/5/Incorporated herein by reference to Post-Effective Amendment No. 2 to the
Form N-4 Registration Statement of Security Life of Denver Insurance Company
and its Security Life Separate Account A1, filed with the Securities and
Exchange Commission on April 28, 1995 (File No. 33-78444).
/6/Incorporated herein by reference to Pre-Effective Amendment No. 1 to the Form
S-6 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account L1, filed with the Securities and Exchange
Commission on August 31, 1994 (File No. 33-74190).
/7/Incorporated herein by reference to Post-Effective Amendment No. 2 to the
form S-6 Registration Statement of Security Life of Denver Insurance Company
and its Security Life Separate Account L1, filed with the Securities and
Exchange Commission on April 30, 1997 (File No. 33-88148).
/8/To be used on or before May 1, 1998.
/9/To be used on or before May 1, 1998, where Exhibit 1.A(10)(a)(i) has not been
approved.
________________________________________________________________________________
Strategic Advantage II-7
<PAGE>
/10/Incorporated herein by reference to Post-Effective Amendment No. 3 to the
form S-6 Registration Statement of Security Life of Denver Insurance Company
and its Security Life Separate Account L1, filed with the Securities and
Exchange Commission on October 29, 1997 (File No. 33-88148).
________________________________________________________________________________
Strategic Advantage II-8
<PAGE>
EXHIBIT 1.A(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:
--------------------------- ------------------------------
Name: Name:
------------------------- ----------------------------
Title: Title:
------------------------ ---------------------------
Date: Date:
------------------------- ----------------------------
- ------------------------------ ---------------------------------
AGENCY AGENCY
By: By:
--------------------------- ------------------------------
Name: Name:
------------------------- ----------------------------
Title: Title:
------------------------ ---------------------------
Date: Date:
------------------------- ----------------------------
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 1.A(3)(c)
Commissions:
EXPRESSED AS A PERCENT OF PREMIUM ASSET
YEAR UP TO TARGET ABOVE TARGET TRAIL
----- ------------ ------------ -----
1 15% 3% n/a
2-5 12% 3% n/a
6-10 12% 3% 15bp*
11+ 3% 3% 15bp*
* Paid on account value on an annualized basis
<PAGE>
SECURITY LIFE OF DENVER 1.A.(5)(a)(v)
INSURANCE COMPANY
INSURED: JOHN DOE
POLICY DATE: May 1, 1998
POLICY NUMBER: 65000001
INITIAL STATED DEATH BENEFIT: $100,000.00
WE AGREE TO PAY the death benefit to the beneficiary upon the death of the
insured while this policy is in force.
WE ALSO AGREE to provide the other rights and benefits of the policy. These
agreements are subject to the provisions of the policy.
RIGHT TO EXAMINE PERIOD. You have the right to examine and return this policy
within 10 days after receipt. The policy may be returned by delivering or
mailing it to us at our Customer Service Center. Immediately upon return it
will be deemed void as of the policy date. Upon return of the policy to us, we
will refund all premiums paid.
In this policy "you" and "your" refer to the owner of the policy. "We", "us"
and "our" refer to Security Life of Denver Insurance Company.
/s/ Gary W. Waggoner /s/ Stephen M. Christopher
------------------------ ---------------------------
Secretary President
THIS POLICY IS A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY.
DEATH BENEFITS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE. THESE VALUES MAY
INCREASE OR DECREASE BASED ON INVESTMENT EXPERIENCE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. DEATH BENEFITS ARE PAYABLE BY US UPON THE DEATH OF THE
INSURED. THERE IS NO MATURITY DATE. FLEXIBLE PREMIUMS ARE PAYABLE BY YOU DURING
THE LIFETIME OF THE INSURED UNTIL THE POLICY ANNIVERSARY NEAREST THE INSURED'S
100/TH/ BIRTHDAY.
SECURITY LIFE OF DENVER INSURANCE COMPANY
A Stock Company
Customer Service Center
P.O. Box 173888; Denver, Colorado 80217
Toll Free Number: 1(800) 848-6362
Form 2503 (VUL)-6/98
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SCHEDULE.................................................................................................................. 5
DEFINITION OF TERMS....................................................................................................... 6
INSURANCE COVERAGE PROVISIONS............................................................................................. 7
EFFECTIVE DATE OF COVERAGE.............................................................................................. 7
BASE DEATH BENEFIT...................................................................................................... 7
CHANGE IN REQUESTED INSURANCE COVERAGE.................................................................................. 7
Requested Increases in Coverage........................................................................................ 8
Requested Decreases in Coverage........................................................................................ 8
Death Benefit Option Changes........................................................................................... 8
COVERAGE AFTER AGE 100.................................................................................................. 8
PAYOUT OF PROCEEDS...................................................................................................... 9
PREMIUM PROVISIONS........................................................................................................ 9
INITIAL PREMIUM ALLOCATION.............................................................................................. 9
SUBSEQUENT PREMIUM ALLOCATIONS.......................................................................................... 10
CHANGES TO PREMIUM ALLOCATIONS.......................................................................................... 10
SCHEDULED PREMIUMS...................................................................................................... 10
UNSCHEDULED PREMIUMS.................................................................................................... 10
NET PREMIUM............................................................................................................. 10
PREMIUM LIMITATION...................................................................................................... 10
VARIABLE ACCOUNT PROVISION................................................................................................ 11
THE VARIABLE ACCOUNT.................................................................................................... 11
VARIABLE ACCOUNT DIVISIONS.............................................................................................. 11
CHANGES WITHIN THE VARIABLE ACCOUNT..................................................................................... 11
GENERAL ACCOUNT PROVISIONS................................................................................................ 12
THE GENERAL ACCOUNT..................................................................................................... 12
GUARANTEED INTEREST DIVISION............................................................................................ 12
LOAN DIVISION........................................................................................................... 12
</TABLE>
Form 2503 (VUL)-6/98
Page 2
<PAGE>
<TABLE>
<S> <C>
TRANSFER PROVISIONS........................................................................................................ 12
ACCOUNT VALUE PROVISIONS................................................................................................... 12
ACCOUNT VALUES ON THE INVESTMENT DATE.................................................................................... 13
ACCUMULATION UNIT VALUE.................................................................................................. 13
ACCUMULATION EXPERIENCE FACTOR........................................................................................... 13
ACCOUNT VALUE OF THE DIVISIONS OF THE VARIABLE ACCOUNT................................................................... 13
ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION........................................................................ 14
ACCOUNT VALUE OF THE LOAN DIVISION....................................................................................... 14
MONTHLY DEDUCTION AND REFUND............................................................................................... 15
MONTHLY DEDUCTION........................................................................................................ 15
COST OF INSURANCE........................................................................................................ 15
PERSISTENCY REFUND....................................................................................................... 15
LOAN PROVISIONS............................................................................................................ 16
POLICY LOANS............................................................................................................. 16
LOAN INTEREST............................................................................................................ 16
LOAN DIVISION............................................................................................................ 16
PARTIAL WITHDRAWAL PROVISIONS.............................................................................................. 16
SURRENDER PROVISIONS....................................................................................................... 17
SURRENDER VALUE.......................................................................................................... 17
BASIS OF COMPUTATIONS.................................................................................................... 17
FULL SURRENDERS.......................................................................................................... 17
GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS..................................................................... 18
GRACE PERIOD............................................................................................................. 18
THREE YEAR CONTINUATION PERIOD........................................................................................... 18
GUARANTEE PERIOD......................................................................................................... 19
TERMINATION.............................................................................................................. 19
REINSTATEMENT............................................................................................................ 19
DEFERRAL OF PAYMENT...................................................................................................... 20
</TABLE>
Form 2503 (VUL)-6/98
Page 3
<PAGE>
<TABLE>
<S> <C>
GENERAL POLICY PROVISIONS.................................................................................................. 20
THE POLICY............................................................................................................... 20
AGE...................................................................................................................... 20
PROCEDURES............................................................................................................... 21
OWNERSHIP................................................................................................................ 21
BENEFICIARIES............................................................................................................ 21
EXCHANGE RIGHT........................................................................................................... 21
COLLATERAL ASSIGNMENT.................................................................................................... 21
INCONTESTABILITY......................................................................................................... 21
MISSTATEMENT OF AGE OR SEX............................................................................................... 22
SUICIDE EXCLUSION........................................................................................................ 22
PERIODIC REPORTS......................................................................................................... 22
ILLUSTRATION OF BENEFITS AND VALUES...................................................................................... 22
NONPARTICIPATING......................................................................................................... 22
CUSTOMER SERVICE CENTER.................................................................................................. 22
PAYOUTS OTHER THAN AS ONE SUM.............................................................................................. 23
ELECTION................................................................................................................. 23
PAYOUT OPTIONS........................................................................................................... 23
CHANGE AND WITHDRAWAL.................................................................................................... 23
EXCESS INTEREST.......................................................................................................... 24
MINIMUM AMOUNTS.......................................................................................................... 24
SUPPLEMENTARY POLICY..................................................................................................... 24
INCOME PROTECTION........................................................................................................ 24
DEATH OF PRIMARY PAYEE................................................................................................... 24
PAYMENTS OTHER THAN MONTHLY.............................................................................................. 24
SETTLEMENT OPTION TABLES................................................................................................... 25
</TABLE>
Additional benefits or riders, if any, will be listed in the schedule. The
additional provisions will be inserted in the policy.
Form 2503 (VUL)-6/98
Page 4
<PAGE>
SCHEDULE
(Schedule Date: May 1, 1998)
POLICY INFORMATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Policy Number 65000001 Initial Stated Death Benefit $100,000.00
Insured JOHN DOE
Death Benefit Option OPTION 1
Age And Sex 35, Male Minimum Annual Premium $365.76
Premium Class Non-Smoker Guarantee Period Annual Premium
Policy Date May 1, 1998 Initial Scheduled Premium $1,600.00. Annually
Definition of Life Insurance Test Guideline Premium/Cash Value Corridor Test
CUSTOMER SERVICE CENTER: P.O. Box 173888, Denver, Colorado 80217-3888
</TABLE>
Coverage will expire if premiums are insufficient to continue coverage.
Coverage will also be affected by Partial Withdrawals, Policy Loans, changes in
the current cost of insurance rates, the actual credited interest rate for the
Guaranteed Interest Division and the investment experience of the Variable
Account.
Form 2503 (VUL)-6/98
Page 5
<PAGE>
SCHEDULE (Continued)
BENEFIT PROFILE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Segment Guideline Segment
Benefit Issue Effective Annual Target
Description Amount Age Date Premium Premium
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Stated Death Benefit (Segment #1) $100,000.00 35 May 1, 1998 $1,445.24 $3,981.00
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Form 2503 (VUL)-6/98
Page 5A
<PAGE>
SCHEDULE (Continued)
EXPENSE CHARGES
A. PREMIUM EXPENSE CHARGES (As a Percent of all premiums) - Premium expense
charges will equal the sum of the following:
1. Sales Load:
<TABLE>
<CAPTION>
Premiums Paid Premiums Paid in
Up to Segment Target Premium Excess of Segment Target Premium
<S> <C> <C>
Years 1-10 12% 3%
Years 11+ 3% 3%
2. State and Local Taxes: 2.5%
3. Federal Deferred Acquisition Cost Tax: 1.5%
</TABLE>
We reserve the right to increase or decrease the premium expense charges
for taxes due to any change in tax law. We further reserve the right to
increase or decrease the premium expense charges for federal deferred
acquisition cost taxes due to any change in the cost to us.
B. MONTHLY EXPENSE CHARGES - Monthly expense charges will equal the sum of
the following:
Initial Policy Charge: $13 per month for the first 36 months
$3 per month thereafter
Monthly Administrative Charge: $0.025 per thousand of Stated Death
Benefit (or Target Death Benefit,
if greater), for all years.
ANNUAL MORTALITY AND EXPENSE RISK CHARGE (Based on the percentage of assets in
each Variable Account Division)
Mortality And Expense Risk Charge: 0.75%
Form 2503 (VUL)-6/98
Page 5B
<PAGE>
SCHEDULE (Continued)
POLICYHOLDER TRANSACTION CHARGES
<TABLE>
<CAPTION>
<S> <C>
Requests for Sales Illustrations: First illustration each year is free of charge; thereafter $25 for each
illustration requested.
Partial Withdrawal Service Fee: See below
Other Policy Transaction Charges: The charges for transfers between divisions of the Variable Account or between
the Guaranteed Interest Division and the Variable Account Divisions; charges
for premium allocation changes; and charges for other Variable Account
management functions are governed by the Prospectus in effect at the time of
the transaction.
POLICY LOANS
Policy Loan Interest Rate: 4.75% per year
Guaranteed Interest Rate Credited to Loan Division: 4.00% per year
Minimum Loan Amount: $100
Maximum Loan Amount: Refer to the Loan Provisions section
PARTIAL WITHDRAWALS
Minimum Partial Withdrawal Amount: $100
Maximum Partial Withdrawal Amount: Amount which will leave $500 as the Net Account Value
Partial Withdrawal Service Fee: $ 25
Limit on Partial Withdrawals: One per policy year
GUARANTEED INTEREST DIVISION
Guaranteed Interest Rate For Guaranteed Interest Division: 4.00% per year
</TABLE>
Form 2503 (VUL)-6/98
Page 5C
<PAGE>
SCHEDULE (Continued)
To comply with the Definition of Life Insurance Test you have elected, the
policy's Base Death Benefit at any time will be at least equal to the Account
Value times the appropriate factor from this table.
DEFINITION OF LIFE INSURANCE DEATH BENEFIT FACTORS BASED ON
GUIDELINE PREMIUM / CASH VALUE CORRIDOR TEST
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
ATTAINED FACTOR ATTAINED FACTOR ATTAINED FACTOR ATTAINED FACTOR
AGE AGE AGE AGE
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
-----------------------------------------------------------------------------------------------------------------------
1 2.50 26 2.50 51 1.78 76 1.05
-----------------------------------------------------------------------------------------------------------------------
2 2.50 27 2.50 52 1.71 77 1.05
-----------------------------------------------------------------------------------------------------------------------
3 2.50 28 2.50 53 1.64 78 1.05
-----------------------------------------------------------------------------------------------------------------------
4 2.50 29 2.50 54 1.57 79 1.05
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
5 2.50 30 2.50 55 1.50 80 1.05
-----------------------------------------------------------------------------------------------------------------------
6 2.50 31 2.50 56 1.46 81 1.05
-----------------------------------------------------------------------------------------------------------------------
7 2.50 32 2.50 57 1.42 82 1.05
-----------------------------------------------------------------------------------------------------------------------
8 2.50 33 2.50 58 1.38 83 1.05
-----------------------------------------------------------------------------------------------------------------------
9 2.50 34 2.50 59 1.34 84 1.05
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
10 2.50 35 2.50 60 1.30 85 1.05
-----------------------------------------------------------------------------------------------------------------------
11 2.50 36 2.50 61 1.28 86 1.05
-----------------------------------------------------------------------------------------------------------------------
12 2.50 37 2.50 62 1.26 87 1.05
-----------------------------------------------------------------------------------------------------------------------
13 2.50 38 2.50 63 1.24 88 1.05
-----------------------------------------------------------------------------------------------------------------------
14 2.50 39 2.50 64 1.22 89 1.05
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
15 2.50 40 2.50 65 1.20 90 1.05
-----------------------------------------------------------------------------------------------------------------------
16 2.50 41 2.43 66 1.19 91 1.04
-----------------------------------------------------------------------------------------------------------------------
17 2.50 42 2.36 67 1.18 92 1.03
-----------------------------------------------------------------------------------------------------------------------
18 2.50 43 2.29 68 1.17 93 1.02
-----------------------------------------------------------------------------------------------------------------------
19 2.50 44 2.22 69 1.16 94 1.01
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
20 2.50 45 2.15 70 1.15 95 1.00
-----------------------------------------------------------------------------------------------------------------------
21 2.50 46 2.09 71 1.13 96 1.00
-----------------------------------------------------------------------------------------------------------------------
22 2.50 47 2.03 72 1.11 97 1.00
-----------------------------------------------------------------------------------------------------------------------
23 2.50 48 1.97 73 1.09 98 1.00
-----------------------------------------------------------------------------------------------------------------------
24 2.50 49 1.91 74 1.07 99 1.00
-----------------------------------------------------------------------------------------------------------------------
100 and 1.00
older
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
Form 2503 (VUL)-6/98
Page 5D
<PAGE>
SCHEDULE (Continued)
TABLE OF GUARANTEED RATES
Guaranteed Maximum Cost of Insurance Rates Per $1000
(Basic)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Attained Monthly Cost of Attained Monthly Cost of Attained Monthly Cost of Attained Age Monthly Cost of
Age Insurance Rate Age Insurance Rate Age Insurance Rate Age Insurance Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0 0.34845 26 0.14419 51 0.60870 76 5.91225
- --------------------------------------------------------------------------------------------------------------------------------
1 0.08917 27 0.14252 52 0.66377 77 6.46824
- --------------------------------------------------------------------------------------------------------------------------------
2 0.08251 28 0.14169 53 0.72636 78 7.04089
- --------------------------------------------------------------------------------------------------------------------------------
3 0.08167 29 0.14252 54 0.79730 79 7.64551
- --------------------------------------------------------------------------------------------------------------------------------
4 0.07917 30 0.14419 55 0.87326 80 8.30507
- --------------------------------------------------------------------------------------------------------------------------------
5 0.07501 31 0.14836 56 0.95591 81 9.03761
- --------------------------------------------------------------------------------------------------------------------------------
6 0.07167 32 0.15252 57 1.04192 82 9.86724
- --------------------------------------------------------------------------------------------------------------------------------
7 0.06667 33 0.15919 58 1.13378 83 10.80381
- --------------------------------------------------------------------------------------------------------------------------------
8 0.06334 34 0.16669 59 1.23235 84 11.82571
- --------------------------------------------------------------------------------------------------------------------------------
9 0.06167 35 0.17586 60 1.34180 85 12.91039
- --------------------------------------------------------------------------------------------------------------------------------
10 0.06084 36 0.18670 61 1.46381 86 14.03509
- --------------------------------------------------------------------------------------------------------------------------------
11 0.06417 37 0.20004 62 1.60173 87 15.18978
- --------------------------------------------------------------------------------------------------------------------------------
12 0.07084 38 0.21505 63 1.75809 88 16.36948
- --------------------------------------------------------------------------------------------------------------------------------
13 0.08251 39 0.23255 64 1.93206 89 17.57781
- --------------------------------------------------------------------------------------------------------------------------------
14 0.09584 40 0.25173 65 2.12283 90 18.82881
- --------------------------------------------------------------------------------------------------------------------------------
15 0.11085 41 0.27424 66 2.32623 91 20.14619
- --------------------------------------------------------------------------------------------------------------------------------
16 0.12585 42 0.29675 67 2.54312 92 21.57655
- --------------------------------------------------------------------------------------------------------------------------------
17 0.13919 43 0.32260 68 2.77350 93 23.20196
- --------------------------------------------------------------------------------------------------------------------------------
18 0.14836 44 0.34929 69 3.02328 94 25.28174
- --------------------------------------------------------------------------------------------------------------------------------
19 0.15502 45 0.37931 70 3.30338 95 28.27411
- --------------------------------------------------------------------------------------------------------------------------------
20 0.15836 46 0.41017 71 3.62140 96 33.10676
- --------------------------------------------------------------------------------------------------------------------------------
21 0.15919 47 0.44353 72 3.98666 97 41.68475
- --------------------------------------------------------------------------------------------------------------------------------
22 0.15752 48 0.47856 73 4.40599 98 58.01259
- --------------------------------------------------------------------------------------------------------------------------------
23 0.15502 49 0.51777 74 4.87280 99 83.33333
- --------------------------------------------------------------------------------------------------------------------------------
24 0.15169 50 0.55948 75 5.37793
- --------------------------------------------------------------------------------------------------------------------------------
25 0.14752
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The rates shown are for a standard rate class. If the policy is based on a
special rate class (other than standard), the maximum cost of insurance rates
will be adjusted using the rating factor shown in the Benefit Profile of the
Schedule for the special class. If the special rate class is a stated
percentage increase, the maximum cost of insurance rates will be determined by
multiplying the rates for a standard rate class shown above by the rating factor
shown in the Benefit Profile of the Schedule. If the special rate class is a
flat amount per $1,000, the maximum cost of insurance rates will be determined
by adding the flat amount per $1,000 shown in the Benefit Profile of the
Schedule to the rate per $1,000 for the standard rate class shown above. The
rates shown above are based on the 1980 Commissioners' Standard Ordinary Male
Smoker Composite Mortality Table, age nearest birthday.
Form 2503 (VUL)-6/98
Page 5E
<PAGE>
DEFINITION OF TERMS
<TABLE>
<CAPTION>
<S> <C> <C>
ACCOUNT VALUE - The sum of the amounts allocated to the | policy is mailed from our Customer Service Center plus five
Divisions of the Variable Account and to the Guaranteed | days and the Right to Examine Period.
Interest Division, as well as any amount set aside in the |
Loan Division to secure a Policy Loan. | INVESTMENT DATE -The date we allocate funds to your policy.
| We will allocate the initial Net Premium to your policy
ACCUMULATION UNIT - A unit of measurement used to | on the Valuation Date immediately following the latest
calculate the Account Value in each Division of the | of the date: (1) we receive the amount of premium required
Variable Account. | for coverage to begin under the Policy; (2) we have approved
| the policy for issue; and (3) all issue requirements have
ACCUMULATION UNIT VALUE - The value of an Accumulation | been met and received in our Customer Service Center.
Unit of each Division of the Variable Account. The |
Accumulation Unit Value is determined as of each | LOAN DIVISION - Part of our General Account in which funds
Valuation Date. | are set aside to secure any outstanding Policy Loan and
| accrued loan interest when due.
BASE DEATH BENEFIT - The amount of your Account Value |
plus any refund of sales load due. | MONTHLY PROCESSING DATE - The date each month on which the
| monthly deductions from the Account Value are due. The
CASH SURRENDER VALUE - The amount of your Account Value | first Monthly Processing Date will be the policy date or
plus any refund of sales load due. | the Investment Date, if later. Subsequent Monthly Processing
| Dates will be the same date as the policy date each month
CUSTOMER SERVICE CENTER - Our administrative office whose | thereafter unless this is not a Valuation Date, in which case
address is P.O. Box 173888, Denver, CO 80217. | the Monthly Processing Date occurs on the next Valuation Date.
|
DIVISION(S) OF THE VARIABLE ACCOUNT - The investment options | NET ACCOUNT VALUE - The amount of the Account Value minus any
available, each of which invests in shares of one of the | Policy Loan and accrued loan interest.
investment portfolios. |
| NET CASH SURRENDER VALUE - The amount of the Cash Surrender
GENERAL ACCOUNT - The account which contains all of our | Value minus any Policy Loan and accrued loan interest.
assets other than those held in the variable account or |
our other separate accounts. | NET PREMIUM - The Net Premium equals the premium paid minus
| the premium expense charges shown in the Schedule. These
GUARANTEED INTEREST DIVISION - Part of our General Account | charges are deducted from the premiums before the premium is
to which a portion of the Account Value may be allocated | applied to your Account Value.
and which provides guarantees of principal and interest. |
| PARTIAL WITHDRAWAL - The withdrawal of a portion of your
GUIDELINE ANNUAL PREMIUM - The premium used to calculate | Net Account Value from the policy. The Partial Withdrawal
how Net Premium is allocated to each segment of Stated | may reduce the amount of Base Death Benefit in force.
Death Benefit and to determine any persistency refund. |
| POLICY LOAN - The sum of amounts you have borrowed from
INITIAL PERIOD - The Initial Period ends on the earlier of: | your policy, increased by any Policy Loan interest
(a) the date this policy was delivered to you plus the Right | capitalized when due, and reduced by any Policy Loan
to Examine Period, so long as we receive notice of the | repayments.
delivery date at our Customer Service Center before the date |
defined in (b), or (b) the date this |
</TABLE>
Form 2503 (VUL)-6/98
Page 6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
RIGHT TO EXAMINE PERIOD - The period of time within which | decrease or when a transaction on the policy causes it
the owner may examine the policy and return it for a refund. | to change (for example, a partial withdrawal under an
| Option 1 Base Death Benefit may cause the Stated
SCHEDULED PREMIUM - The premium amount which you specify on | Death Benefit to change).
the application as the amount you intend to pay at fixed |
intervals over a specified period of time. Premiums may be | TARGET DEATH BENEFIT - The Target Death Benefit for your
paid on a quarterly, semiannual, or annual basis, as you | policy is defined in the Adjustable Term Rider, if any,
determine. You need not pay the Scheduled Premium, and you | attached to the policy.
may change it at any time. Also, within limits, you may pay |
less or more than the Scheduled Premium. | VALUATION DATE - Each date as of which the net asset
| value of the shares of the investment portfolios and
SEGMENT - The Stated Death Benefit shown on the Benefit | unit values of the Divisions are determined,
Profile of the Schedule is the initial Segment, or Segment 1. |
Each increase in the Stated Death Benefit (other than an | Except for days that a Division's corresponding
option change) is a new Segment. Each new Segment will be | portfolio does not value its shares, a Valuation
shown separately on the Benefit Profile of the Schedule. | Date is any day:
The first year for a Segment begins on the effective date |
of the Segment and ends one year later. Each subsequent | (a) The New York Stock Exchange ("NYSE") is
year begins at the end of the prior Segment year. Each | open for trading and on which Security Life's
new Segment may be subject to new expense charges, cost | Customer Service Center is open for business; or
of insurance charges and incontestability and suicide | (b) as may be required by law.
exclusion periods. |
| VALUATION PERIOD - The period which begins at 4:00 p.m.
STATED DEATH BENEFIT -The sum of the Segments under the | Eastern Time on Valuation Date and ends at 4:00 p.m.
policy. The Stated Death Benefit changes when there is an | Eastern Time on the next succeeding Valuation Date.
increase or a |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
</TABLE>
Form 2503 (VUL)-6/98
Page 6a
<PAGE>
INSURANCE COVERAGE PROVISIONS
EFFECTIVE DATE OF COVERAGE
The policy date shown in the Schedule is the effective date for all coverage
provided in the original application. The effective date is subject to the
payment of the amount of premium required for coverage to begin under the Policy
and the acceptance of the policy by you during the continued insurability of all
persons insured by this policy and any riders attached. The policy date is the
date from which we measure policy years and determine the Monthly Processing
Date. Monthly Processing Dates are the same calendar day of each month as the
policy date unless this is not a Valuation Date in which case the Monthly
Processing Date occurs on the next Valuation Date. A policy anniversary occurs
each year on the same month and day as the policy date unless this is not a
Valuation Date in which case the policy anniversary occurs on the next Valuation
Date. The effective date for new Segments and additional benefits is shown in
the Schedule.
BASE DEATH BENEFIT
The Base Death Benefit will be, at any time, determined as follows:
Option 1: Under Option 1, the Base Death Benefit is the greater of:
(a) the Stated Death Benefit; or
(b) your Account Value multiplied by the appropriate factor from the
Definition of Life Insurance Factors shown in the schedule.
Option 2: Under Option 2, the Base Death Benefit is the greater of:
(a) the Stated Death Benefit plus the Account Value, or
(b) your Account Value multiplied by the appropriate factor from the
Definition of Life Insurance Factors shown in the schedule.
The Stated Death Benefit and the death benefit option are shown in the Schedule
pages.
This policy is designed to qualify as a life insurance contract under the
Internal Revenue Code. All terms and provisions of the policy shall be
construed in a manner consistent with that design. The Base Death Benefit in
force at any time shall not be less than the amount of insurance necessary to
achieve such qualification under the applicable provisions of the Internal
Revenue Code in existence at the time the policy is issued. We reserve the
right to amend the policy or adjust the amount of insurance when required. We
will send you a copy of any policy amendment.
CHANGE IN REQUESTED INSURANCE COVERAGE
You may request that the insurance coverage be increased or decreased.
Decreases are not allowed before the first policy anniversary. The change in
coverage may not be for an amount less than $1,000. The effective date of the
change will be the monthly anniversary immediately following the date your
written application is approved by us. After any change to the Stated Death
Benefit, you will receive an amended Schedule reflecting the change, the benefit
under any riders, if applicable, the guaranteed cost of insurance rates, the
Guideline Annual Premium, and the new target premium.
REQUESTED INCREASES IN COVERAGE
Subject to our limits, you may request an increase in the Stated Death Benefit.
An increase will become effective as of the monthly anniversary after we have
approved your application for increase. You must provide evidence satisfactory
to us that the insured is insurable according to our normal rules of
underwriting for this type of policy. This evidence will include an application
and may include required medical information. An
Form 2503 (VUL)-6/98
Page 7
<PAGE>
increase will consist of a new Segment of Stated Death Benefit. Each new Segment
will result in a new sales load which will be deducted from the premium
allocated to the new Segment. The new Segment may also be subject to new monthly
expense charges, guaranteed minimum death benefit charges, cost of insurance
charges and incontestability and suicide exclusion periods.
REQUESTED DECREASES IN COVERAGE
After the first policy anniversary, you may request a decrease in the Stated
Death Benefit. A decrease will be effective as of the monthly anniversary
immediately following the date your written application is approved by us. A
decrease will first reduce Adjustable Term Insurance Rider coverage, if any is
attached to your policy, and will then reduce each of the Stated Death Benefit
Segments in the same proportion as the Stated Death Benefit is reduced.
The Stated Death Benefit after any change must equal at least the lesser of the
Initial stated Death Benefit or $50,000.
DEATH BENEFIT OPTION CHANGES
Beginning with the first policy anniversary and ending with the policy
anniversary nearest the Insured's 100/th/ birthday, you may request a change to
the death benefit option. Changes must be requested at least 30 days prior to
the policy anniversary. The change will be effective as of the policy
anniversary. A death benefit option change applies to the entire Stated Death
Benefit. For us to approve a change to the death benefit option from Option 1
to Option 2, you must submit evidence to us that the insured is insurable
according to our normal rules of underwriting for this type of policy. This
evidence will include an application and may include required medical
information. We may not allow any change if it would reduce the Stated Death
Benefit below the minimum we require to issue this policy at the time of
reduction. After the effective date of the change, the Stated Death Benefit
will be changed according to the following table:
<TABLE>
<CAPTION>
OPTION CHANGE
<S> <C> <C>
FROM TO STATED DEATH BENEFIT FOLLOWING CHANGE EQUALS:
Option 1 Option 2 Stated Death Benefit prior to such change minus your Account Value as of the
effective date of the change.
Option 2 Option 1 Stated Death Benefit prior to such change plus your Account Value as of the
effective date of the change.
</TABLE>
For purposes of death benefit option changes, your Account Value will be
allocated to each Segment in the same proportion that the Segment bears to the
Stated Death Benefit as of the effective date of the change.
CONTINUATION OF COVERAGE AFTER AGE 100
If the policy is in force on the policy anniversary nearest the Insured's
100/th/ birthday, the policy will continue pursuant to the terms of the policy,
except: on this date, the following will occur: (1) if an Adjustable Term
Rider (ATR) is attached to the policy, the Target Death Benefit defined in the
ATR will become the Stated Death Benefit for the policy and the ATR will
terminate; (2) All other riders attached to the policy will also terminate; (3)
the portion of your Account Value invested in the divisions of the Variable
Account will be transferred into the Guaranteed Interest Division and no further
investment in the divisions of the Variable Account will be allowed;. and (4) If
the death benefit option in force on the policy is Option II, the policy will be
converted to death benefit option 1 in accordance with the procedures outlined
in the Death Benefit Option Changes provision of the policy and no further
changes will be allowed to the death benefit option.
Form 2503 (VUL)-6/98
Page 8
<PAGE>
After the policy anniversary nearest the Insured's 100/th/ birthday, no further
premiums will be accepted and no monthly deductions will be made. However, a
one time administrative fee of $200 will be charged against the policy's
Account. We will continue to credit interest to the Account Value. Policy
loans and withdrawals continue to be available. Any existing policy loan will
continue. Policy loan interest will continue to accrue. Payments on policy
loans and policy loan interest will be accepted. The policy will enter the 61-
day grace period if the surrender value is zero or less.
PAYOUT OF PROCEEDS
The proceeds is the amount we will pay:
a) upon surrender of the policy, or
b) upon the death of the insured.
The proceeds upon surrender of this policy will be the Net Cash Surrender Value.
The insured's age is the age listed in the Schedule increased by the number of
completed policy years since the policy date. The amount of proceeds payable
upon the death of the insured will be the Base Death Benefit in effect on the
date of the insured's death; plus any amounts payable from any additional
benefits provided by rider; minus any outstanding Policy Loan including accrued
but unpaid interest; minus any unpaid monthly deductions incurred prior to the
date of the insured's death, plus any premiums received after the date of the
insured's death. The calculation of the death benefit will be computed as of
the date of the insured's death.
We will determine the amount of proceeds payable upon the death of the insured
when we have received due proof of death satisfactory to us and any other
information which is necessary to process the claim. Any proceeds we pay are
subject to adjustments as provided in the Misstatement of Age or Sex, Suicide
Exclusion and Incontestability provisions.
We will pay proceeds in one sum unless you request an alternate form of payment.
There are many possible methods of payment. The available payout options are
described in the Payouts Other Than As One Sum provision. Contact us or your
registered representative for additional information. Interest will be paid on
the one sum death proceeds from the date of the insured's death to the date of
payment, or until a payout option is selected. Interest will be at the rate we
declare, or at any higher rate required by law.
PREMIUM PROVISIONS
INITIAL PREMIUM ALLOCATION
If the Initial Period has not ended on the Investment Date, Net Premium amounts
designated for allocation to divisions of the Variable Account will be allocated
to the money market division and any Net Premium amount designated for
allocation to the Guaranteed Interest Division will be allocated to that
division. On the Valuation Date immediately following the end of the Initial
Period, the balance of the money market division will be transferred to the
other divisions of the Variable Account according to the allocations shown in
your latest instructions received at our Customer Service Center. The amounts
allocated to the Guaranteed Interest Division will remain in that division.
If the Initial Period has ended on the Investment Date, Net Premium amounts will
be allocated to divisions of the Variable Account and/or Guaranteed Interest
Division in accordance with the allocation shown in your latest instructions
received at our Customer Service Center.
Form 2503 (VUL)-6/98
Page 9
<PAGE>
SUBSEQUENT PREMIUM ALLOCATIONS
After the initial premium allocation, all future scheduled and unscheduled
premiums will be allocated to the investment divisions in accordance with the
allocation shown in the latest instructions received at our Customer Service
Center (unless you otherwise specify in writing) on the Valuation date
immediately following our receipt of the premium at our Customer Service Center.
CHANGES TO PREMIUM ALLOCATIONS
You may change your premium allocation in accordance with the instructions
included in your annual policy prospectus. If the change causes a premium
allocation charge to be incurred according to the schedule, we will deduct the
charge from the divisions of the Variable Account and the Guaranteed Interest
Division in the same proportion that your Account Value of each Division bears
to your Net Account Value. The amount of this charge is shown in the Schedule.
SCHEDULED PREMIUMS
The Scheduled Premium as shown in the Schedule may be paid while this policy is
in force prior to the policy anniversary nearest the Insured's 100/th/ birthday.
You may increase or decrease the amount of the Scheduled Premium, subject to
limits we may set and provisions in the Premium Limitation provision. Under
conditions provided in the Grace Period provision and the Guarantee Period
provision, you may be required to make premium payments to keep the policy in
force. You may pay premiums on a monthly basis through an automated payment
facility. All payment modes are subject to our minimum requirements for the
payment mode selected.
UNSCHEDULED PREMIUMS
You may make unscheduled premium payments at any time the policy is in force
prior to the policy anniversary nearest the Insured's 100/th/ birthday, subject
to the Premium Limitation provision. Unless you tell us otherwise, these premium
payments will first be applied to reduce or pay off any existing Policy Loan
and, as such, premium expense charges will not be deducted. We may limit the
amount of such unscheduled premium payments if the payment would result in an
increase in the Base Death Benefit. If the net amount at risk is increased as a
result of an unscheduled premium, we may require evidence of insurability
satisfactory to us that the insured is insurable according to our normal rules
of underwriting for this type of policy. This evidence will include an
application and may include required medical information. The net amount at
risk is the difference between the Base Death Benefit and your Account Value.
NET PREMIUM
The Net Premium equals the premium paid minus the premium expense charges shown
in the Schedule. Premiums allocated to a new Segment will be subject to a new
sales load. Premiums are allocated in the same proportion that the Guideline
Annual Premium of each Segment bears to the sum of the Guideline Annual
Premiums of all Segments. The Guideline Annual Premium for each Segment is
shown in the Schedule. The target premium for each Segment is also shown in the
Schedule.
PREMIUM LIMITATION
If the Definition of Life Insurance test used for your policy is the Guideline
Premium/Cash Value Corridor Test, we will not accept any premium that causes
your policy not to qualify as a life insurance policy under the Internal Revenue
Code. No premium may be paid after the Insured's death.
Form 2503 (VUL)-6/98
Page 10
<PAGE>
VARIABLE ACCOUNT PROVISION
THE VARIABLE ACCOUNT
The Variable Account is an account established by us, pursuant to the laws of
the State of Colorado, to separate the assets funding the benefits for the class
of policies to which this policy belongs from the other assets of Security Life
of Denver Insurance Company.
The Variable Account is registered as a unit investment trust under the
Investment Company Act of 1940. All income, gains and losses, whether or not
realized, from assets allocated to the Variable Account are credited to or
charged against the Variable Account without regard to income, gains or losses
of our General Account. The assets of the Variable Account are our property but
are separate from our General Account and our other Variable Accounts. That
portion of the assets of the Variable Account which is equal to the reserves and
other policy liabilities with respect to the Variable Account is not subject to
creditor claims against us.
VARIABLE ACCOUNT DIVISIONS
The Variable Account is divided into divisions, each of which invests in a
series fund portfolio designed to meet the objectives of the division. The
current eligible divisions are shown in your annual policy prospectus. We may,
from time to time, add additional divisions. If we do, you may be permitted to
select from these other divisions subject to the terms and conditions we may
impose on those allocations.
We reserve the right to limit the number of divisions in which you may invest
over the life of the policy. This limit, if any, will be listed in the updated
policy prospectus provided to you each year.
CHANGES WITHIN THE VARIABLE ACCOUNT
When permitted by law, and subject to any required notice to you and approval of
the Securities and Exchange Commission ("SEC"), state regulatory authorities or
policy owners, we may from time to time make the following changes to the
Variable Account:
. Make additional divisions available. These divisions will invest in
investment portfolios we find suitable for the policy.
. Eliminate divisions from the Variable Account, combine 2 or more
divisions, or substitute a new portfolio for the portfolio in which a
division invests. A substitution may become necessary if, in our
judgment, a portfolio no longer suits the purposes of the policy. This
may happen due to a change in laws or regulations, or a change in a
portfolio's investment objectives or restrictions. This may also happen
if the portfolio is no longer available for investment, or for some
other reason, such as a declining asset base.
. Transfer assets of the Variable Account , which we determine to be
associated with the class of policies to which your policy belongs, to
another Variable Account.
. Withdraw the Variable Account from registration under the Investment
Company Act of 1940.
. Operate the Variable Account as a management investment company under
the Investment Company Act of 1940.
. Cause one or more divisions to invest in a mutual fund other than or in
addition to the portfolios.
. Discontinue the sale of policies.
. Terminate any employer or plan trustee agreement with us pursuant to
its terms.
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. Restrict or eliminate any voting rights as to the Variable Account.
. Make any changes required by the Investment Company Act of 1940 or the
rules or regulations thereunder.
GENERAL ACCOUNT PROVISIONS
THE GENERAL ACCOUNT
The General Account holds all of our assets other than those held in the
Variable Account or our other separate accounts. The Guaranteed Interest
Division is a part of our General Account.
GUARANTEED INTEREST DIVISION
The Guaranteed Interest Division is another division to which you may allocate
premium or make transfers. The Account Value of the Guaranteed Interest
Division is equal to the Net Premium allocated to this division plus any earned
interest minus deductions taken from this division. Interest is credited at the
guaranteed rate shown in the schedule or may be credited at a higher rate. Any
higher rate is guaranteed to be in effect for at least 12 months.
LOAN DIVISION
The Loan Division is the account which is set aside to secure the Policy Loan,
if any. See the Loan Provision section for information.
TRANSFER PROVISIONS
After the Initial Period and until the policy anniversary nearest the Insured's
100/th/ birthday, your Account Value in each division may be transferred to any
other division of the Variable Account or to the Guaranteed Interest Division
upon your request. On the policy anniversary nearest the Insured's 100/th/
birthday your account value in each division of the Variable Account will be
transferred into the guaranteed Interest Division and no further transfers will
be allowed. One transfer from the Guaranteed Interest Division into the
Variable divisions may be made during the first 30 days of each policy year.
Additional limitations, requirements and charges for transfers will be listed in
and governed by your annual policy prospectus in effect at the time of the
transfer. We reserve the right to modify these limitations, requirements, and
charges from time to time.
ACCOUNT VALUE PROVISIONS
The Account Value is the sum of the current amounts allocated to the divisions
of the Variable Account and to the Guaranteed Interest Division plus your
balance in the Loan Division.
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The Account Value is based on the amount and number of premiums paid, policy and
rider charges assessed, loans and withdrawals taken, monthly deductions, premium
expense charges, transaction charges, and the investment experience or credited
interest of the division to which your Account Value is allocated.
Your Net Account Value is equal to your Account Value minus any Policy Loan and
accrued but unpaid loan interest.
ACCOUNT VALUES ON THE INVESTMENT DATE
The Account Value of each division of the Variable Account and the Guaranteed
Interest Division as of the Investment Date is equal to:
a) The allocation to that division of the first Net Premium paid; minus
b) The portion of any monthly deductions due on the Investment Date
allocated to that division.
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.
We set the Accumulation Unit Value at $10 on the Valuation Date when the first
investments in each division of the Variable Account are made. The Accumulation
Unit Value for a Valuation Period equals the Accumulation Unit Value for the
preceding Valuation Period multiplied by the Accumulation Experience Factor
defined below for the Valuation Period.
The number of units for a given transaction related to a division of the
Variable Account as of a Valuation Date is determined by dividing the dollar
value of that transaction by that division's Accumulation Unit Value for that
date.
ACCUMULATION EXPERIENCE FACTOR
For each division of the Variable Account, the Accumulation Experience Factor
reflects the investment experience of the portfolio in which that division
invests and the charges assessed against that division for a Valuation Period.
The Accumulation Experience Factor is calculated as follows:
a) The net asset value of the portfolio in which that division invests as
of the end of the current Valuation Period; plus
b) The amount of any dividend or capital gains distribution declared and
reinvested in the portfolio in which that division invests during the
current Valuation Period; minus
c) A charge for taxes, if any.
d) The result of (a), (b) and (c) divided by the net asset value of the
portfolio in which that division invests as of the end of the preceding
Valuation Period; minus
e) The daily equivalent of the annual mortality and expense risk charge
shown in the Schedule for each day in the current Valuation Period.
ACCOUNT VALUE OF THE DIVISIONS OF THE VARIABLE ACCOUNT
On subsequent Valuation Dates after the Investment Date, your Account Value of
each division of the Variable Account is calculated as follows:
a) The number of Accumulation Units in that division as of the beginning
of the current Valuation Period multiplied by that division's
Accumulation Unit Value for the current Valuation Period; plus
b) Any additional Net Premiums allocated to that division during the
current Valuation Period; plus
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c) Any Account Value transferred to or minus any Account Value transferred
from the Variable Division during the current Valuation Period
(including the applicable portion of any transfer fee); minus
d) Any Partial Withdrawals allocated to that division and any applicable
withdrawal service fees which are allocated to the Variable division
during the current Valuation Period; plus
e) Any amounts released from the Loan Division as a result of a loan or
loan interest payment, or minus amounts transferred to the Loan
Division as a result of any loans which are allocated to the Variable
Division during the current Valuation Period; minus
f) The portion of the monthly deduction allocated to the Variable
Division, if a Monthly Processing Date occurs during the current
Valuation Period.
ACCOUNT VALUE OF THE GUARANTEED INTEREST DIVISION
On Valuation Dates after the Investment Date, your Account Value of the
Guaranteed Interest Division is calculated as follows:
a) The Account Value of the Guaranteed Interest Division at the end of the
preceding Valuation Period plus interest at the declared rate credited
during the current Valuation Period; plus
b) Any additional Net Premiums allocated to the Guaranteed Interest
Division plus interest credited to these premiums during the current
Valuation Period; plus
c) Any account Value transferred to or minus any Account Value transferred
from the Guaranteed Interest Division during the current Valuation
Period (including the applicable portion of any transfer fee); minus
d) Any Partial Withdrawals taken and any applicable withdrawal service
fees which are allocated to the Guaranteed Interest Division during the
current Valuation Period; plus
e) Any amounts released from the Loan Division as a result of a loan or
loan interest payment, or minus amounts transferred to the Loan
division as a result of any loans which are allocated to the Guaranteed
Interest Division during the current Valuation Period; minus
f) The portion of the monthly deduction allocated to the division, if a
Monthly Processing Date occurs during the current Valuation Period.
ACCOUNT VALUE OF THE LOAN DIVISION
On Valuation Dates after the Investment Date, your Account Value of the Loan
Division is equal to:
a) The Account Value of the Loan Division on the prior Valuation Date;
plus
b) Any interest credited to the Loan Division during the Valuation
Period; plus
c) An amount equal to any additional loans since the prior Valuation
Date; minus
d) Any loan repayments, including payment of loan interest in cash; plus
e) The amount of accrued loan interest if the Valuation Date is a policy
anniversary; minus
f) The amount of interest credited to the Loan Division during the year if
the Valuation Date is a policy anniversary.
On policy anniversaries, any amount of interest credited to the Loan Division
during the year is transferred from the Loan Division to the Variable Account
and Guaranteed Interest Divisions according to your premium allocation then in
effect.
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MONTHLY DEDUCTION AND REFUND
MONTHLY DEDUCTION
The monthly deduction is equal to:
a) the cost of insurance charges for this policy; plus
b) the monthly charges for any other additional benefits provided by
rider; plus
c) the monthly expense charges shown in the Schedule.
The monthly deductions are allocated to the divisions of the Variable Account
and Guaranteed Interest Division in the same proportion that your Account Value
in the division bears to your Net Account Value as of the Monthly Processing
Date. This deduction is taken from your Account Value as of the Monthly
Processing Date. After the policy anniversary nearest the Insured's 100/th/
birthday, no further monthly deductions will be made.
COST OF INSURANCE
The cost of insurance is determined on a monthly basis for each Segment. Such
cost is the monthly cost of insurance rate for the insured's premium class for
each Segment multiplied by the net amount at risk. The net amount at risk is
(a) minus (b) where:
a) is the Base Death Benefit for all Segments as of the Monthly Processing
Date after the monthly deductions (other than cost of insurance charges
for the Base Death Benefit, any Adjustable Term Insurance Rider and any
Waiver of Monthly Deductions Rider), divided by 1 plus the monthly
equivalent of the guaranteed interest rate for the Guaranteed Interest
Division as shown in the Schedule; and
b) is your Account Value as of the Monthly Processing Date after the
monthly deductions (other than the cost of insurance for the Base Death
Benefit, any Adjustable Term Insurance Rider and any Waiver of Monthly
Deduction Rider).
The cost of insurance rates will be determined by us from time to time. They
will be based on the sex and age as of the effective date of coverage, the
duration since the coverage began and the premium class. Any change in rates
will apply to all individuals of the same premium class and whose policies have
been in effect for the same length of time. The rates will never exceed those
rates shown in the Table of Guaranteed Rates in the Schedule as adjusted for any
special premium class.
Each time there is a new Segment, the net amount at risk will be allocated to
each Segment in the same proportion that Segment bears to the Stated Death
Benefit. Different rates will apply to each Segment depending upon the premium
class, the age as of the effective date of the increase and the duration since
the effective date of the increase.
PERSISTENCY REFUND
Each month, we will credit your Net Account Value with a persistency refund for
each Segment of the Stated Death Benefit which remains in force after its 10/th/
Segment year. (Such a Segment is referred to as a qualifying segment.) The
total monthly refund is equal to .006 times the Account Value allocated to the
Divisions of the Variable Account and the Loan Division times the sum of the
persistency factors for the qualifying segments. The persistency factor for a
qualifying segment equals: the qualifying segment's Guideline Annual Premium
multiplied by the number of years the qualifying segment has been in force,
divided by the sum of the Guideline Annual Premium for each qualifying and non-
qualifying segment multiplied by the number of years such segment has been in
force.
The persistency refund will be added to the Divisions of the Variable Account
and the Guaranteed Interest Division in the same proportion that your
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Account Value in each division bears to your Net Account Value as of the Monthly
Processing Date.
LOAN PROVISIONS
POLICY LOANS
You may obtain a policy loan after the first policy anniversary. The maximum
amount you may borrow at any time equals the Net Account Value on the date of
the loan request less all monthly deductions to the next policy anniversary. The
policy loan is a first lien on your policy. The minimum amount you may borrow
is shown in the Schedule. The outstanding policy loan amount is equal to the
loan amount as of the beginning of the policy year plus new loans and minus loan
repayments, plus accrued interest.
LOAN INTEREST
The annual policy loan interest rate is shown in the Schedule. If a loan is
made, interest is due and payable at the end of the policy year. Thereafter,
interest on the loan amount is due annually at the end of each policy year until
the loan is repaid. If interest is not paid when due, it is added to the Policy
Loan.
If the Policy Loan amount plus any accrued interest equals or exceeds the
Account Value, a premium sufficient to keep this policy in force must be paid as
provided in the Grace Period provision.
LOAN DIVISION
When a Policy Loan is taken or when interest is not paid in cash when due, an
amount equal to the loan (or unpaid loan interest, respectively) is transferred
from the divisions of the Variable Account and the Guaranteed Interest Division
to the Loan Division to secure the loan. This amount will be deducted from the
divisions of the Variable Account and the Guaranteed Interest Division in the
same proportion that your Account Value in each division bears to your Net
Account Value as of the date the transfer is effective unless otherwise
specified in your instructions to us. Your Account Value in the Loan Division
will be credited with interest at the interest rate for the Loan Division shown
in the Schedule.
When a loan repayment is made an amount equal to the repayment is transferred
from the Loan Division to the Guaranteed Interest Division and the divisions of
the Variable Account in the same proportion as your current premium allocation
unless you request a different allocation.
PARTIAL WITHDRAWAL PROVISIONS
You may apply for a partial withdrawal of your Account Value on any Monthly
Processing Date after the first policy anniversary by writing to us at our
Customer Service Center. The minimum and maximum partial withdrawal amounts are
shown in the Schedule. When a partial withdrawal is made, the amount of the
withdrawal plus a service fee is deducted from your Account Value. The amount
of the service fee is shown in the Schedule. We limit the number of partial
withdrawals in a policy year and this number is shown in the Schedule.
The Stated Death Benefit is not reduced by a partial withdrawal taken when the
Base Death Benefit has been increased to qualify your policy as life insurance
under the Internal Revenue Code and the amount withdrawn is no greater than that
which reduces your Account Value to the level which no longer requires the Base
Death Benefit to be increased for Internal Revenue Code purposes.
For a policy under an Option 1 death benefit, the Stated Death Benefit is not
reduced by a partial withdrawal in the circumstances described above. In
addition, if no more than 15 years have elapsed since the policy date and the
insured is not yet age 81, a partial withdrawal of an amount up to
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10% of your Account Value or, if greater, 5% of the Stated Death Benefit,
calculated immediately before the partial withdrawal is taken will not reduce
the Stated Death Benefit. Any additional amount withdrawn reduces your Stated
Death Benefit by that additional amount.
For a policy under an Option 2 death benefit, a partial withdrawal does not
reduce your Stated Death Benefit.
Any reduction in death benefit or Account Value will occur as of the date the
partial withdrawal occurs. No partial withdrawal will be allowed if the Stated
Death Benefit remaining in force after any such partial withdrawal would be
reduced below the lesser of the Initial Stated Death Benefit or $50,000.
For a policy under an Option 2 death benefit, a partial withdrawal generally
reduces the Base Death Benefit by the amount of the withdrawal. Under any death
benefit option, if the Base Death Benefit has been increased in order to qualify
your policy as a life insurance contract under the Internal Revenue Code, the
partial withdrawal reduces the Base Death Benefit by an amount greater than the
withdrawal.
You may specify how much of the withdrawal you wish taken from each division of
the Variable Account or from the Guaranteed Interest Division. You may not
withdraw from the Guaranteed Interest division more than the total withdrawal
times the ratio of your Account Value in the Guaranteed Interest Division to
your Net Account Value immediately prior to the withdrawal. Unless you indicate
otherwise, we will make the withdrawal from the amounts in the Guaranteed
Interest Division and the divisions of the Variable Account in the same
proportion that your Account Value in each division bears to your Net Account
Value immediately prior to the withdrawal. The withdrawal service fee is
deducted from each Variable Division and the Guaranteed Interest Division in the
same proportion that your Account Value of each division bears to your Net
Account Value immediately after the withdrawal.
We may send you a new Schedule to reflect the effect of the withdrawal if there
is any change to the Stated Death Benefit. We may ask you to return your policy
to our Customer Service Center to make this change. The withdrawal and the
reductions in death benefits will be effective as of the Valuation Date after we
received your request.
SURRENDER PROVISIONS
SURRENDER VALUE
The Net Cash Surrender Value on any date will be your Account Value plus any
refund of sales load due and minus any Policy Loan including accrued but unpaid
loan interest.
BASIS OF COMPUTATIONS
The Cash Surrender Value under the policy is not less than the minimum required
as of the policy date by the state in which your policy was delivered. A
detailed statement of the method of computation of policy values under the
policy has been filed with the insurance department of the state in which the
policy was delivered, if required.
FULL SURRENDERS
You may surrender your policy after the Right to Examine Period or at any time
during the lifetime of the insured and receive the net Cash Surrender Value. We
will compute the Net Cash Surrender Value as of the next Valuation Date after we
receive both your request and the policy at our Customer Service Center. This
policy will be canceled as of the date we receive your request, and there will
be no further benefits under this policy.
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If you surrender your policy within the first two policy years but after the
Right to Examine Policy Period has ended, the Net Cash Surrender Value will
include a refund of a portion of the sales load which was previously deducted
from your premiums paid. In the first policy year, the refund is equal to 5% of
the premium paid. In the second year, the refund is equal to 2.5% of the
premium paid in the first policy year.
GRACE PERIOD, TERMINATION AND REINSTATEMENT PROVISIONS
GRACE PERIOD
If the following three conditions occur on a Monthly Processing Date, the policy
will enter into the 61 day grace period:
a) The Net Cash Surrender Value is zero or less, and
b) The three year continuation period described below has expired or the
required premium for the three year continuation period has not been
paid, and
c) the guarantee period defined below has expired or been terminated.
We will give you a 61 day grace period from this Monthly Processing Date to make
the required premium payment. The required premium payment then due must be
paid to keep the policy in force. If this amount is not received in full by the
end of the grace period, the policy will lapse without value. The required
premium payment will be equal to past due charges plus an amount we expect to be
sufficient to keep the policy and any riders in force for 2 months following the
receipt of the required premium payment. If we receive at least the required
premium payment during the grace period we will make deductions from the Net
Premium payment for the past due amounts and apply any remaining amount as
premium to the policy.
Notice of the amount of the required premium payment will be mailed to you or
any assignee at the last known address at least 30 days before the end of the
grace period. If the insured dies during the grace period, we will deduct any
overdue monthly deductions from the death proceeds of the policy.
THREE YEAR CONTINUATION PERIOD
During the first 3 policy years, your policy will remain in force regardless of
the Net Account Value, if, on a Monthly Processing Date, the sum of your
premiums paid minus the sum of your partial withdrawals, policy loans and
accrued but unpaid policy loan interest is not less than the sum of the
applicable minimum monthly premiums for each policy month starting with the
first policy month to and including the policy month which begins on the current
Monthly Processing Date. Each minimum monthly premium equals 1/12 of the
minimum annual premium. The minimum annual premium is shown in the Schedule.
We use this premium for each policy month until the effective date of a change
in the Stated Death Benefit. If there is a change, the new Schedule will show
the applicable minimum annual premium for subsequent policy years during the 3
year period.
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GUARANTEE PERIOD
The policy will not terminate during the guarantee period even if the Net
Account Value is zero except as provided below.
Each monthly guarantee period premium equals 1/12 of the guarantee period annual
premium. The guarantee period annual premium is shown in the Schedule. We use
this premium for each policy year until the effective date of a change in the
Stated Death Benefit. If there is a change, a new Schedule will show the
applicable minimum guarantee period annual premium for subsequent policy years.
The guarantee period will expire on the later of the 10/th/ policy anniversary
or the policy anniversary nearest the Insured's 65/th/ birthday. The guarantee
period will terminate prior to the guarantee period expiration date if, on any
Monthly Processing Date:
a) the actual premiums paid, minus the amount of any partial withdrawals
and any policy loan including accrued but unpaid interest are less than
b) the sum of the guarantee monthly premiums for each policy month
starting with the first policy month to and including the policy month
that begins on the current Monthly Processing Date.
The guarantee period will also terminate if your Account Value, on any Monthly
Processing Date, is not diversified according to the following rules:
a) No more than 35% of your Net Account Value may be invested in any one
division; and
b) Your Net Account Value must be invested in at least 5 divisions.
You will satisfy these diversification requirements if: (i) you are
participating in the automatic rebalancing feature defined in and governed by
the policy prospectus in effect on the policy effective date and your automatic
rebalancing allocations comply with the diversifications specified above; or
(ii) you elect dollar cost averaging and direct the resulting transfers into at
least four other divisions with no more than 35% of any transfer being to any
one division.
TERMINATION
All coverage provided by this policy will end as of the earliest of:
a) The date the policy is surrendered;
b) The date of death of the insured; or
c) The date the grace period ends without payment of the required premium.
REINSTATEMENT
The policy may be reinstated within five years after the beginning of the grace
period. The reinstatement will be effective as of the Monthly Processing Date
on or next following the date we approve your written application.
We will reinstate the policy and any riders if the following conditions are met:
a) You have not surrendered the policy for its Net Cash Surrender Value;
b) You submit evidence satisfactory to us that the insured and those
insured under any riders are still insurable according to our normal
rules of underwriting for this type of policy; and
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c) We receive payment of the amount of premium sufficient to keep the
policy and any riders in force from the beginning of the grace period
to the end of the expired grace period and for 2 months after the date
of reinstatement. We will let you know, at the time you request
reinstatement, the amount of premium needed for this purpose.
We will reinstate any policy loan, with accrued loan interest to the end of the
grace period, which existed when coverage ended.
Upon reinstatement, the Net Premium received minus past due amounts will be
allocated to the Divisions of the Variable Account and the Guaranteed Interest
Division according to the premium allocation percentages in effect at the start
of the grace period or as directed by you in writing at the time of
reinstatement.
DEFERRAL OF PAYMENT
Requests for transfers, withdrawals, payment of proceeds for a full surrender
will be mailed within 7 days of receipt of the request in a form acceptable to
us. However, we may postpone the processing of any such Variable Account
transactions for any of the following reasons:
a) The NYSE is closed, other than customary weekend and holiday closings.
b) Trading on the NYSE is restricted by the SEC.
c) The SEC declares that an emergency exists as a result of which disposal
of securities in the Variable Account is not reasonably practicable to
determine your Account Value in the divisions.
d) A governmental body having jurisdiction over the Variable Account by
order permits such suspension.
Rules and regulations of the SEC, if any, are applicable and will govern as to
whether conditions described in (b), (c), or (d) exist.
Death proceeds will be paid within 7 days of determination of the proceeds and
are not subject to deferment. We may defer for up to 6 months payment of any
surrender proceeds, withdrawal or loan amounts from the Guaranteed Interest
Division.
GENERAL POLICY PROVISIONS
THE POLICY
The policy, including the original application and applications for an increase,
riders, endorsements, any Schedule pages, and any reinstatement applications
make up the entire contract between you and us. A copy of the original
application will be attached to the policy at issue. A copy of any application
as well as a new Schedule will be attached or furnished to you for attachment to
the policy at the time of any change in coverage. In the absence of fraud, all
statements made in any application will be considered representations and not
warranties. No statement will be used to deny a claim unless it is in an
application.
AGE
The policy is issued at the age shown in the Schedule. This is the insured's
age nearest birthday on the policy date. The insured's age at any time is the
age shown in the Schedule increased by the number of completed policy years.
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PROCEDURES
We must receive any election, designation, assignment or any other change
request you make in writing, except those specified on the application. It must
be in a form acceptable to us. We may require a return of the policy for any
change or for a full surrender. We are not liable for any action we take before
we receive and record the written request at our Customer Service Center.
In the event of the death of the insured, please let us or our agent know as
soon as possible. Claim procedure instructions will be sent to the beneficiary
immediately. We may require proof of age and a certified copy of the death
certificate. We may require the beneficiary and next of kin to sign
authorizations as part of due proof. These authorization forms allow us to
obtain information about the insured, including, but not limited to, medical
records of physicians and hospitals used by the insured.
OWNERSHIP
The original owner is the person named as the owner in the application. You, as
the owner, can exercise all rights and receive the benefits during the insured's
life. This includes the right to change the owner, beneficiaries, and methods
for the payment of proceeds. All rights of the owner are subject to the rights
of any assignee and any irrevocable beneficiary.
You may name a new owner by sending written notice to us. The effective date of
the change to the new owner will be the date you sign the notice. The change
will not affect any payment made or action taken by us before recording the
change at our Customer Service Center.
BENEFICIARIES
The primary beneficiary surviving the insured will receive any death proceeds
which become payable. Surviving contingent beneficiaries are paid death
proceeds only if no primary beneficiary has survived the insured. If more than
one beneficiary in a class survives the insured, they will share the death
proceeds equally, unless your designation provides otherwise. If there is no
designated beneficiary surviving, you or your estate will be paid the death
proceeds. The beneficiary designation will be on file with us or at a location
designated by us. While you are living, you may name a new beneficiary. The
effective date of the change will be the date the request was signed. We will
pay proceeds to the most recent beneficiary designation on file. We will not be
subject to multiple payments.
EXCHANGE RIGHT
If, for any reason within the first 2 policy years, you want to exchange this
policy for a policy in which values do not vary with the investment experience
of the Variable Account, we will exchange this policy. This transfer will not
be subject to the excess transfer charge. The exchange will be implemented by
transferring your Account Value in all the Divisions of the Variable Account to
the Guaranteed Interest Division and removing your future right to choose to
allocate funds to the divisions of the Variable Account. We will require a
return of this policy before this change will be processed.
COLLATERAL ASSIGNMENT
You may assign this policy as collateral security by written notice to us. Once
it is recorded with us, the rights of the owner and beneficiary are subject to
the assignment. It is your responsibility to make sure the assignment is valid.
INCONTESTABILITY
After this policy has been in force during the insured's life for 2 years from
the policy date, we will not contest the statements in the application attached
at issue.
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After this policy has been in force during the insured's life for 2 years from
the effective date of any new Segment or of an increase in any other benefit
with respect to the insured, we will not contest the statements in the
application for the new Segment or other increase.
After this policy has been in force during the insured's life for 2 years from
the effective date of any reinstatement, we will not contest the statements in
the application for such reinstatement.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the insured has been misstated, the death benefit will be
adjusted. The death benefit will be that which the cost of insurance which was
deducted from your Account Value on the last Monthly Processing Date prior to
the death of the insured would have purchased for the insured's correct age and
sex.
SUICIDE EXCLUSION
If the insured commits suicide, while sane or insane, within 2 years of the
policy date, we will make a limited payment to the beneficiary. We will pay in
one sum the amount of all premiums paid to us during that time, minus any
outstanding policy loan (including accrued but unpaid interest) and partial
withdrawals. If the insured commits suicide, while sane or insane, within 2
years of the effective date of a new Segment or of an increase in any other
benefit, we will make a limited payment to the beneficiary for the new Segment
or other increase. This payment will equal the cost of insurance and any
applicable monthly expense charges deducted for such increase.
PERIODIC REPORTS
We will send you at least once each year a report which shows the current
Account Value, Cash Surrender Value and premium paid since the last report. The
report will also show the allocation of your Account Value as of the date of the
report and the amounts added to or deducted from your Account Value of each
division since the last report. The report will include any other information
that may be currently required by the Insurance supervisory official of the
jurisdiction in which this policy is delivered.
ILLUSTRATION OF BENEFITS AND VALUES
We will send you, upon written request, a hypothetical illustration of future
death benefits and Account Values. This illustration will include the
information as required by the laws or regulations where this policy is
delivered. If you request more than one illustration during a policy year, we
will charge a reasonable fee for each additional illustration. The maximum
amount of this fee is shown in the Schedule.
NONPARTICIPATING
The policy does not participate in our surplus earnings.
CUSTOMER SERVICE CENTER
Our Customer Service Center is at the address shown in the Schedule. Unless you
are otherwise notified:
a) All requests and payments should be sent to us at our Customer Service
Center; and
b) All transactions are effective as of the Valuation Date the required
information is received at our Customer Service Center.
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PAYOUTS OTHER THAN AS ONE SUM
ELECTION
During the insured's lifetime, you may elect that the beneficiary receive the
proceeds upon death of the insured other than in one sum. If you have not made
an election, the beneficiary may do so within 60 days after We receive due proof
satisfactory to us of the insured's death. You may also elect to take the Net
Cash Surrender Value of the policy upon its surrender other than in one sum.
Satisfactory written request must be received at our Customer Service Center
before payment can be made. A payee that is not a natural person may not be
named without our consent. The various methods of settlement are shown below.
PAYOUT OPTIONS
OPTION I. PAYOUTS FOR A DESIGNATED PERIOD. Payouts will be made in 1, 2, 4, or
12 installments per year as elected for a designated period, which may be 5 to
30 years. The installment dollar amounts will be equal except for any excess
interest as described below. The amount of the first monthly payout for each
$1,000 of Account Value applied is shown in Settlement Option Table I.
OPTION II. LIFE INCOME WITH PAYOUTS FOR DESIGNATED PERIOD. Payouts will be
made in 1, 2, 4, or 12 installments per year throughout the payee's lifetime, or
if longer, for a period of 5, 10, 15 or 20 years as elected. The installment
dollar amounts will be equal except for any excess interest, as described below.
The amount of the first monthly payout for each $1,000 of Account Value applied
is shown in Settlement Option Table II. This option is not available for ages
not shown in the Table.
OPTION III. HOLD AT INTEREST. Amounts may be left on deposit with us to be
paid upon the death of the payee or at any earlier date elected. Interest on
any unpaid balance will be at the rate declared by us or at any higher rate
required by law. Interest may be accumulated or paid in 1, 2, 4, or 12
installments per year, as elected. Money may not be left on deposit for more
than 30 years.
OPTION IV. PAYOUTS OF A DESIGNATED AMOUNT. Payouts will be made until
proceeds, together with interest, which will be at the rate declared by us or at
any higher rate required by law, are exhausted. Payouts will be made in 1, 2,
4, or 12 equal installments per year, as elected.
OPTION V. OTHER. Settlement may be made in any other manner as agreed upon in
writing between you (or the beneficiary) and us.
CHANGE AND WITHDRAWAL
You may change an election at any time before the death of the insured or
maturity of the policy. If you have given the beneficiary the right to make
changes or withdrawals, or if the beneficiary has elected the option, the
beneficiary (as primary payee) may take the actions below.
a) Changes may be made from Payout Options I, III, and IV to another
option.
b) Full withdrawals may be made under Payout Option III or IV. Partial
Withdrawals of not less than $300 may be made under Payout Option III.
c) Remaining installments under Payout Option I may be commuted at 3 1/2%
interest and received in one sum.
d) Changes in any contingent payee designation may be made.
A written request must be sent to our Customer Service Center in writing to make
a change or withdrawal. We also may require that you send in the Supplemental
Policy. We may defer payment of commuted and withdrawable amounts for a period
up to 6 months.
Form 2503 (VUL)-6/98
Page 23
<PAGE>
EXCESS INTEREST
If we declare that payout options are to be credited with an interest rate above
that guaranteed, it will apply to Payout Options I, II, III, and IV. The
crediting of excess interest for one period does not guarantee the higher rate
for other periods. Any declared interest rate will be in effect for at least 12
months.
MINIMUM AMOUNTS
The minimum amount which may be applied under any option is $2,000. If the
payments to the payee are ever less than $20, we may change the frequency of
payments so as to result in payments of at least that amount.
SUPPLEMENTARY POLICY
When an option becomes effective, the policy will be surrendered in exchange for
a Supplementary Policy. It will provide for the manner of settlement and rights
of the payees. The Supplementary Policy's effective date will be the date of
the insured's death or the date of other settlement. The first payment under
Options I, II, and IV will be payable as of the effective date. The first
interest payment under Option III will be made as of the end of the interest
payment period elected. Subsequent payments will be made in accordance with the
frequency of payment elected. The Supplementary Policy may not be assigned or
payments made to another without our consent.
INCOME PROTECTION
Unless otherwise provided in the election, a payee does not have the right to
commute, transfer or encumber amounts held or installments to become payable.
To the extent provided by law, the proceeds, amount retained, and installments
are not subject to any payee's debts, policies, or engagements.
DEATH OF PRIMARY PAYEE
Upon the primary payee's death, any payments certain under Option I or II,
interest payments under Option III, or payments under Option IV will be
continued to the contingent payee. Or, amounts may be released in one sum if
permitted by the policy. The final payee will be the estate of the last to die
of the primary payee and any contingent payee.
PAYMENTS OTHER THAN MONTHLY
The tables which follow show monthly installments for Options I and II. To
arrive at annual, semiannual, or quarterly payments, multiply the appropriate
figures by 11.813, 5.957 or 2.991 respectively. Factors for other periods
certain or for other options which may be provided by mutual agreement will be
provided upon reasonable request.
Form 2503 (VUL)-6/98
Page 24
<PAGE>
SETTLEMENT OPTION TABLES
SETTLEMENT OPTION TABLE I
(Per $1,000 of Net Proceeds)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
NO. OF MONTHLY NO. OF MONTHLY
YEARS PAYABLE INSTALLMENTS YEARS PAYABLE INSTALLMENTS
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 $84.65 16 6.76
- -------------------------------------------------------------------------------------------------------------
2 43.05 17 6.47
- -------------------------------------------------------------------------------------------------------------
3 29.19 18 6.20
- -------------------------------------------------------------------------------------------------------------
4 22.27 19 5.97
- -------------------------------------------------------------------------------------------------------------
5 18.12 20 5.75
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
6 15.35 21 5.56
- -------------------------------------------------------------------------------------------------------------
7 13.38 22 5.39
- -------------------------------------------------------------------------------------------------------------
8 11.90 23 5.24
- -------------------------------------------------------------------------------------------------------------
9 10.75 24 5.09
- -------------------------------------------------------------------------------------------------------------
10 9.83 25 4.96
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
11 9.09 26 4.84
- -------------------------------------------------------------------------------------------------------------
12 8.46 27 4.73
- -------------------------------------------------------------------------------------------------------------
13 7.94 28 4.63
- -------------------------------------------------------------------------------------------------------------
14 7.49 29 4.53
- -------------------------------------------------------------------------------------------------------------
15 7.10 30 4.45
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Form 2503 (VUL)-6/98
Page 25
<PAGE>
SETTLEMENT OPTION TABLE II
MALE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
( Per $1,000 of Net Proceeds)
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Payee Monthly Age of Payee Monthly
Nearest Installment Nearest Installment
Birthday When First Birthday When First
Installment is Installment is
Payable Payable
- ------------------------------------------------------------------------------------------------------------------------------------
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
15 3.28 3.28 3.27 3.27 41 4.01 4.00 3.97 3.94
- ------------------------------------------------------------------------------------------------------------------------------------
16 3.29 3.29 3.29 3.28 42 4.06 4.04 4.01 3.98
- ------------------------------------------------------------------------------------------------------------------------------------
17 3.31 3.31 3.30 3.30 43 4.11 4.09 4.06 4.02
- ------------------------------------------------------------------------------------------------------------------------------------
18 3.32 3.32 3.32 3.32 44 4.16 4.14 4.11 4.06
- ------------------------------------------------------------------------------------------------------------------------------------
19 3.34 3.34 3.34 3.33 45 4.22 4.20 4.16 4.11
- ------------------------------------------------------------------------------------------------------------------------------------
20 3.36 3.36 3.35 3.35 46 4.28 4.25 4.21 4.16
- ------------------------------------------------------------------------------------------------------------------------------------
21 3.38 3.38 3.37 3.37 47 4.34 4.31 4.27 4.21
- ------------------------------------------------------------------------------------------------------------------------------------
22 3.40 3.40 3.39 3.39 48 4.41 4.38 4.33 4.26
- ------------------------------------------------------------------------------------------------------------------------------------
23 3.42 3.42 3.41 3.41 49 4.48 4.44 4.39 4.31
- ------------------------------------------------------------------------------------------------------------------------------------
24 3.44 3.44 3.43 3.43 50 4.55 4.51 4.45 4.36
- ------------------------------------------------------------------------------------------------------------------------------------
25 3.46 3.46 3.45 3.45 51 4.62 4.58 4.52 4.42
- ------------------------------------------------------------------------------------------------------------------------------------
26 3.49 3.48 3.48 3.47 52 4.70 4.66 4.58 4.48
- ------------------------------------------------------------------------------------------------------------------------------------
27 3.51 3.51 3.50 3.49 53 4.79 4.74 4.65 4.54
- ------------------------------------------------------------------------------------------------------------------------------------
28 3.54 3.53 3.53 3.52 54 4.88 4.82 4.73 4.60
- ------------------------------------------------------------------------------------------------------------------------------------
29 3.56 3.56 3.55 3.54 55 4.97 4.91 4.80 4.66
- ------------------------------------------------------------------------------------------------------------------------------------
30 3.59 3.59 3.58 3.57 56 5.07 5.00 4.88 4.72
- ------------------------------------------------------------------------------------------------------------------------------------
31 3.62 3.62 3.61 3.60 57 5.17 5.10 4.97 4.78
- ------------------------------------------------------------------------------------------------------------------------------------
32 3.65 3.65 3.64 3.62 58 5.29 5.20 5.05 4.85
- ------------------------------------------------------------------------------------------------------------------------------------
33 3.68 3.68 3.67 3.65 59 5.41 5.31 5.14 4.91
- ------------------------------------------------------------------------------------------------------------------------------------
34 3.72 3.71 3.70 3.68 60 5.53 5.42 5.23 4.97
- ------------------------------------------------------------------------------------------------------------------------------------
35 3.75 3.75 3.73 3.72 61 5.67 5.54 5.33 5.04
- ------------------------------------------------------------------------------------------------------------------------------------
36 3.79 3.78 3.77 3.75 62 5.81 5.67 5.42 5.10
- ------------------------------------------------------------------------------------------------------------------------------------
37 3.83 3.82 3.81 3.78 63 5.97 5.80 5.52 5.16
- ------------------------------------------------------------------------------------------------------------------------------------
38 3.87 3.86 3.85 3.82 64 6.13 5.94 5.62 5.22
- ------------------------------------------------------------------------------------------------------------------------------------
39 3.92 3.90 3.89 3.86 65 6.31 6.08 5.72 5.28
- ------------------------------------------------------------------------------------------------------------------------------------
40 3.96 3.95 3.93 3.90
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Form 2503 (VUL)-6/98
Page 26
<PAGE>
SETTLEMENT OPTION TABLE II/MALE
(Continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
( Per $1,000 of Net Proceeds)
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Payee Age of Payee
Nearest Birthday Nearest Birthday
When First Monthly Installment When First Monthly Installment
Installment is Installment is
Payable Payable
- ------------------------------------------------------------------------------------------------------------------------------------
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Male Certain Certain Certain Certain Male Certain Certain Certain Certain
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
66 6.49 6.23 5.82 5.33 91 14.64 9.64 7.09 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
67 6.69 6.38 5.92 5.38 92 15.00 9.68 7.10 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
68 6.90 6.54 6.02 5.43 93 15.34 9.72 7.10 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
69 7.12 6.71 6.12 5.48 94 15.68 9.75 7.10 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
70 7.35 6.87 6.21 5.52 95 16.00 9.78 7.10 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
71 7.60 7.05 6.30 5.55 96 16.30 9.80 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
72 7.86 7.22 6.39 5.59 97 16.59 9.81 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
73 8.13 7.40 6.47 5.62 98 16.86 9.82 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
74 8.42 7.57 6.55 5.64 99 17.11 9.83 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
75 8.72 7.75 6.62 5.66 100 17.33 9.83 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
76 9.04 7.92 6.69 5.68 101 17.53 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
77 9.37 8.09 6.75 5.70 102 17.69 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
78 9.72 8.26 6.81 5.71 103 17.82 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
79 10.08 8.42 6.86 5.72 104 17.92 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
80 10.44 8.57 6.90 5.73 105 18.00 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
81 10.82 8.71 6.94 5.74 106 18.05
- ------------------------------------------------------------------------------------------------------------------------------------
82 11.21 8.85 6.97 5.74 107 18.08
- ------------------------------------------------------------------------------------------------------------------------------------
83 11.59 8.97 7.00 5.75 108 18.10
- ------------------------------------------------------------------------------------------------------------------------------------
84 11.99 9.09 7.02 5.75 109 18.11
- ------------------------------------------------------------------------------------------------------------------------------------
85 12.38 9.20 7.04 5.75 110 18.11
- ------------------------------------------------------------------------------------------------------------------------------------
86 12.76 9.29 7.05 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
87 13.15 9.38 7.07 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
88 13.53 9.46 7.08 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
89 13.91 9.53 7.08 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
90 14.28 9.59 7.09 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Form 2503 (VUL)-6/98
Page 27
<PAGE>
SETTLEMENT OPTION TABLE II
FEMALE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
( Per $1,000 of Net Proceeds)
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Payee Monthly Age of Payee Monthly
Nearest Installment Nearest Installment
Birthday When First Birthday When First
Installment is Installment is
Payable Payable
- ------------------------------------------------------------------------------------------------------------------------------------
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20 3.26 3.26 3.26 3.25 41 3.76 3.76 3.75 3.73
- ------------------------------------------------------------------------------------------------------------------------------------
21 3.27 3.27 3.27 3.27 42 3.80 3.80 3.78 3.77
- ------------------------------------------------------------------------------------------------------------------------------------
22 3.29 3.29 3.29 3.28 43 3.84 3.84 3.82 3.81
- ------------------------------------------------------------------------------------------------------------------------------------
23 3.31 3.30 3.30 3.30 44 3.88 3.88 3.86 3.84
- ------------------------------------------------------------------------------------------------------------------------------------
24 3.32 3.32 3.32 3.32 45 3.93 3.92 3.91 3.88
- ------------------------------------------------------------------------------------------------------------------------------------
25 3.34 3.34 3.34 3.33 46 3.98 3.97 3.95 3.92
- ------------------------------------------------------------------------------------------------------------------------------------
26 3.36 3.36 3.35 3.35 47 4.03 4.02 4.00 3.97
- ------------------------------------------------------------------------------------------------------------------------------------
27 3.38 3.38 3.37 3.37 48 4.08 4.07 4.05 4.01
- ------------------------------------------------------------------------------------------------------------------------------------
28 3.40 3.40 3.39 3.39 49 4.13 4.12 4.10 4.06
- ------------------------------------------------------------------------------------------------------------------------------------
29 3.42 3.42 3.41 3.41 50 4.19 4.18 4.15 4.11
- ------------------------------------------------------------------------------------------------------------------------------------
30 3.44 3.44 3.43 3.43 51 4.25 4.24 4.21 4.16
- ------------------------------------------------------------------------------------------------------------------------------------
31 3.46 3.46 3.46 3.45 52 4.32 4.30 4.26 4.21
- ------------------------------------------------------------------------------------------------------------------------------------
32 3.49 3.48 3.48 3.48 53 4.38 4.36 4.33 4.27
- ------------------------------------------------------------------------------------------------------------------------------------
33 3.51 3.51 3.51 3.50 54 4.46 4.43 4.39 4.32
- ------------------------------------------------------------------------------------------------------------------------------------
34 3.54 3.54 3.53 3.52 55 4.53 4.51 4.46 4.38
- ------------------------------------------------------------------------------------------------------------------------------------
35 3.57 3.56 3.56 3.55 56 4.61 4.58 4.53 4.44
- ------------------------------------------------------------------------------------------------------------------------------------
36 3.60 3.59 3.59 3.58 57 4.70 4.66 4.60 4.51
- ------------------------------------------------------------------------------------------------------------------------------------
37 3.63 3.62 3.62 3.61 58 4.79 4.75 4.68 4.57
- ------------------------------------------------------------------------------------------------------------------------------------
38 3.66 3.65 3.65 3.64 59 4.88 4.84 4.76 4.64
- ------------------------------------------------------------------------------------------------------------------------------------
39 3.69 3.69 3.68 3.67 60 4.99 4.93 4.84 4.70
- ------------------------------------------------------------------------------------------------------------------------------------
40 3.73 3.72 3.71 3.70 61 5.09 5.03 4.93 4.77
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Form 2503 (VUL)-6/98
Page 28
<PAGE>
SETTLEMENT OPTION TABLE II/FEMALE
(Continued)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
( Per $1,000 of Net Proceeds)
- ------------------------------------------------------------------------------------------------------------------------------------
Age of Payee Age of Payee
Nearest Birthday Nearest Birthday
When First Monthly Installment When First Monthly Installment
Installment is Installment is
Payable Payable
- ------------------------------------------------------------------------------------------------------------------------------------
5 Years 10 Years 15 Years 20 Years 5 Years 10 Years 15 Years 20 Years
Female Certain Certain Certain Certain Female Certain Certain Certain Certain
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
62 5.21 5.14 5.02 4.84 87 12.36 9.22 7.04 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
63 5.33 5.25 5.12 4.91 88 12.81 9.32 7.06 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
64 5.46 5.37 5.21 4.98 89 13.25 9.41 7.07 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
65 5.60 5.50 5.31 5.05 90 13.67 9.48 7.08 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
66 5.75 5.63 5.42 5.12 91 14.07 9.55 7.09 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
67 5.91 5.77 5.53 5.19 92 14.45 9.61 7.09 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
68 6.08 5.91 5.63 5.25 93 14.81 9.66 7.10 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
69 6.26 6.07 5.74 5.32 94 15.16 9.70 7.10 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
70 6.46 6.23 5.86 5.37 95 15.49 9.73 7.10 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
71 6.67 6.40 5.97 5.43 96 15.80 9.76 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
72 6.89 6.58 6.08 5.48 97 16.11 9.79 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
73 7.13 6.76 6.18 5.52 98 16.40 9.80 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
74 7.39 6.95 6.29 5.57 99 16.68 9.82 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
75 7.67 7.14 6.39 5.60 100 16.95 9.82 7.10
- ------------------------------------------------------------------------------------------------------------------------------------
76 7.96 7.34 6.48 5.63 101 17.20 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
77 8.28 7.54 6.57 5.66 102 17.43 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
78 8.61 7.74 6.65 5.68 103 17.62 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
79 8.97 7.94 6.72 5.70 104 17.78 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
80 9.34 8.13 6.79 5.71 105 17.91 9.83
- ------------------------------------------------------------------------------------------------------------------------------------
81 9.73 8.32 6.84 5.72 106 18.00
- ------------------------------------------------------------------------------------------------------------------------------------
82 10.14 8.50 6.89 5.73 107 18.06
- ------------------------------------------------------------------------------------------------------------------------------------
83 10.57 8.67 6.94 5.74 108 18.09
- ------------------------------------------------------------------------------------------------------------------------------------
84 11.01 8.83 6.97 5.74 109 18.11
- ------------------------------------------------------------------------------------------------------------------------------------
85 11.46 8.97 7.00 5.75 110 18.11
- ------------------------------------------------------------------------------------------------------------------------------------
86 11.91 9.10 7.02 5.75
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Form 2503 (VUL)-6/98
Page 29
<PAGE>
THIS POLICY IS A FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE POLICY
DEATH BENEFITS AND OTHER VALUES PROVIDED BY THIS CONTRACT, WHEN BASED ON THE
INVESTMENT EXPERIENCE OF A SEPARATE ACCOUNT, ARE VARIABLE. THESE VALUES MAY
INCREASE OR DECREASE BASED ON INVESTMENT EXPERIENCE AND ARE NOT GUARANTEED AS TO
FIXED DOLLAR AMOUNT. DEATH BENEFITS ARE PAYABLE BY US UPON THE DEATH OF THE
INSURED. THERE IS NO MATURITY DATE. FLEXIBLE PREMIUMS ARE PAYABLE BY YOU
DURING THE LIFETIME OF THE INSURED UNTIL THE POLICY ANNIVERSARY NEAREST THE
INSURED'S 100/TH/ BIRTHDAY.
SECURITY LIFE OF DENVER INSURANCE COMPANY
A Stock Company
CUSTOMER SERVICE CENTER
P.O. Box 173888 Denver, Colorado 80217-3888
Toll Free Number: 1(800) 848-6362
FORM 2503 (VUL) - 6/98
<PAGE>
EXHIBIT 1.A(8)(a)(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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1. AVAILABLE FUNDS............................................... 1
1.1 Availability......................................................... 1
1.2 Addition, Deletion or Modification of Funds.......................... 2
1.3 No Sales to the General Public....................................... 2
SECTION 2. PROCESSING TRANSACTIONS....................................... 2
2.1 Timely Pricing and Orders............................................ 2
2.2 Timely Payments...................................................... 2
2.3 Applicable Price..................................................... 2
2.4 Dividends and Distributions.......................................... 3
2.5 Book Entry........................................................... 3
SECTION 3. COSTS AND EXPENSES............................................ 3
3.1 General.............................................................. 3
3.2 Registration......................................................... 3
3.3 Other (Non-Sales-Related)............................................ 3
3.4 Other (Sales-Related)................................................ 4
3.5 Parties To Cooperate................................................. 4
SECTION 4. LEGAL COMPLIANCE.............................................. 4
4.1 Tax Laws............................................................. 4
4.2 Insurance and Certain Other Laws..................................... 5
4.3 Securities Laws...................................................... 6
4.4 Notice of Certain Proceedings and Other Circumstances................ 6
4.5 SECURITY LIFE To Provide Documents: Information About AVIF........... 7
4.6 AVIF To Provide Documents; Information About SECURITY LIFE........... 7
SECTION 5. MIXED AND SHARED FUNDING...................................... 8
5.1 General.............................................................. 8
5.2 Disinterested Directors.............................................. 8
5.3 Monitoring for Material Irreconcilable Conflicts..................... 9
5.4 Conflict Remedies.................................................... 9
5.5 Notice to SECURITY LIFE.............................................. 10
5.6 Information Requested by Board of Directors.......................... 10
5.7 Compliance with SEC Rules............................................ 10
5.8 Other Requirements................................................... 10
SECTION 6. TERMINATION................................................... 11
6.1 Events of Termination................................................ 11
6.2 Notice Requirement for Termination................................... 11
6.3 Funds To Remain Available............................................ 12
6.4 Survival of Warranties and Indemnifications.......................... 12
6.5 Continuance of Agreement for Certain Purposes........................ 12
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION................... 12
SECTION 8. ASSIGNMENT.................................................... 12
SECTION 9. NOTICES....................................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
SECTION 10. VOTING PROCEDURES............................................ 13
SECTION 11. FOREIGN TAX CREDITS.......................................... 13
SECTION 12. INDEMNIFICATION.............................................. 13
12.1 Of AVIF by SECURITY LIFE and ING.................................... 13
12.2 Of SECURITY LIFE and ING by AVIF.................................... 15
12.3 Effect of Notice.................................................... 16
12.4 Successors.......................................................... 16
SECTION 13. APPLICABLE LAW............................................... 16
SECTION 14. EXECUTION IN COUNTERPARTS.................................... 17
SECTION 15. SEVERABILITY................................................. 17
SECTION 16. RIGHTS CUMULATIVE............................................ 17
SECTION 17. HEADINGS..................................................... 17
SECTION 18. CONFIDENTIALITY.............................................. 17
SECTION 19. TRADEMARKS AND FUND NAMES.................................... 17
SECTION 20. PARTIES TO COOPERATE......................................... 18
</TABLE>
ii
<PAGE>
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.
1
<PAGE>
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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<PAGE>
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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<PAGE>
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.
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<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.
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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 1.A(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 1.A(8)(b)(ii)
SECOND AMENDMENT TO PARTICIPATION AGREEMENT
THIS AGREEMENT is made by and among Security Life of Denver Insurance
Company, Van Eck Worldwide Insurance Trust (formerly 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, the Fund portfolios available to the Separate Accounts are listed
in Exhibit A of the Participation Agreement.
WHEREAS, the Parties have agreed that it is in their interests to make
three additional Fund portfolios available to the separate accounts.
NOW, THEREFORE, in consideration of their mutual promises, Life Company,
Fund and Adviser agree as follows:
The Participation Agreement is hereby amended by substituting for the
original Exhibit A an amended Exhibit A in the form attached hereto which
adds the Worldwide Bond Fund, Worldwide Emerging Markets Fund, and
Worldwide Real Estate Fund to the list of portfolios made available to the
Separate Accounts.
EXECUTED this 25th day of November, 1997.
VAN ECK WORLDWIDE INSURANCE TRUST
Attest: /s/________________________ By: /s/______________________________
Name: Susan I. Grant Name: Thaddeus Leszczynski
Assistant Secretary Vice President and Secretary
VAN ECK ASSOCIATES CORPORATION
Attest: /s/________________________ By: /s/______________________________
Name: Bruce J. Smith Name: Thaddeus Leszczynski
Treasurer Vice President and Secretary
SECURITY LIFE OF DENVER INSURANCE
COMPANY
Attest: /s/________________________ By: /s/______________________________
Name: Anna M. Kautzman, Esq. Name: Carol D. Hard
Assistant General Counsel Senior Vice President
VanEck Amend2
<PAGE>
EXHIBIT A
FUND
- ----
Worldwide Bond Fund
Worldwide Emerging Markets Fund
Worldwide Real Estate Fund
Worldwide Balanced Fund
Worldwide Hard Assets Fund (previously Gold and Natural Resources Fund)
VanEck Amend2
<PAGE>
EXHIBIT 1.A(8)(b)(iii)
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>
only to the interests of the contract owners.
For the purposes of Condition (c), a majority of the
disinterested members of the applicable Board shall determine whether or
not any proposed action adequately remedies any irreconcilable material
conflict, but in no event will the relevant Fund or N&B Management (or
any other investment adviser of the Funds) be required to establish a
new funding medium for any variable contract. Further, no participant
shall be required by this condition (c) to establish a new funding
medium for any variable contract if any offer to do so has been declined
by a vote of a majority of contract owners materially affected by the
irreconcilable material conflict.
d) Any board's determination of the existence of an
irreconcilable material conflict and its implications shall be made
known promptly and in writing to all Participants.
14. a) Participants will provide pass-through voting privileges to
all contract owners so long as the SEC continues to interpret the '40
Act as requiring pass-through voting privileges for variable contract
owners. This condition will apply to UIT-separate accounts investing in
the Successor Trust and to managed separate accounts investing in
Managers Trust to the extent a vote is required with respect to matters
relating to Mangers Trust. Accordingly, the Participants, where
applicable, will vote shares of a Fund held in their separate accounts
in a manner consistent with voting instructions timely received from
variable contract owners. Participants will be responsible for assuring
that each of their separate accounts that participates in the Funds
calculates voting privileges in a manner consistent with other
Participants. The obligation to calculate voting privileges in a manner
consistent with all other separate accounts investing in the Funds will
be a contractual obligation of all Participants under the agreements
governing participation in the Funds. Each Participant will vote shares
for which it has not received timely voting instructions, as well as
shares it owns, in the same proportion as its votes those shares for
which it has received voting instructions.
b) If and to the extent 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 '40 Act or the rules thereunder with respect to mixed and shared
funding on terms and conditions materially different from any exemptions
granted in the order requested, then the Successor Trust, Managers Trust
and/or the Participants, as appropriate, shall take such steps as may be
necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and
Rule 6e-3, as adopted, to the extent such Rules are applicable.
c) No less than annually, the Participants shall submit to the
Boards such reports, materials or data as such Boards may reasonably
request so that the Boards may fully carry out the obligations imposed
upon them by these Conditions. Such reports, materials, and data shall
be submitted more frequently if deemed appropriate by the applicable
Boards.
4. The sales Agreement shall be renamed Fund Participation Agreement.
5. This Assignment and Modification Agreement shall be effective on May 1,
1995, the closing date of the conversion. In the event of a conflict
between the terms of this Assignment and Modification Agreement and the
terms of the Sales Agreement, the terms of this Assignment and
Modification Agreement shall control.
<PAGE>
6. All other terms and conditions of the Sales Agreement remain in full
force and effect.
Executed this 1st day of May, 1995.
NEUBERGER & BERMAN ADVISERS MANAGEMENT
TRUST (A MASSACHUSETTS BUSINESS TRUST)
Attest: /s/ By: /s/
-------------------------- ---------------------------------------
Stanley Egener, Chairman
NEUBERGER & BERMAN ADVISERS MANAGEMENT
TRUST (A DELAWARE BUSINESS TRUST)
Attest: /s/ By: /s/
-------------------------- ---------------------------------------
Stanley Egener, Chairman
ADVISERS MANAGERS TRUST
Attest: /s/ By: /s/
-------------------------- ---------------------------------------
NEUBERGER & BERMAN MANAGEMENT
INCORPORATED
Attest: /s/ By: /s/
-------------------------- ---------------------------------------
SECURITY LIFE OF DENVER INSURANCE
COMPANY
Attest: /s/ By: /s/
-------------------------- ---------------------------------------
<PAGE>
EXHIBIT 1.A(10)(a)(iii)
FLEXIBLE
PREMIUM
VARIABLE
LIFE
INSURANCE
APPLICATION
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
---------------------------
[LOGO OF SECURITY LIFE APPEARS HERE]
<PAGE>
[LOGO OF SECURITY LIFE INC. GROUP APPEARS HERE]
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203
303-860-1290
FLEXIBLE PREMIUM VARIABLE LIFE INSURANCE APPLICATION
INSTRUCTIONS
- --------------------------------------------------------------------------------
FOR ALL APPLICATIONS
. Use the application approved for the state in which the applicant owner
will sign the application.
. Use dark ink to complete the application.
. Print LEGIBLY to avoid issue errors.
. Attach a complete illustration and all schedules associated with this
application to expedite policy issue process and ensure that the policy is
issued accordingly.
. Incomplete applications may require an amendment to be signed upon
delivery, or may be returned, which will delay the issue process.
. The issue state and appropriate application form will be determined by the
state in which the application was signed by the owner-applicant.
- --------------------------------------------------------------------------------
SIGNATURES REQUIRED, Page 10:
. The signature of all proposed insureds (parent or guardian of the proposed
insured if below age 15).
. The signature(s) of the owner. If a corporation is the owner, one officer,
other than the proposed insured, should sign and indicate name of
corporation and title of signing officer.
. The signature of all agent/registered representative(s) included in the
sale. (Page 10 and Registered Representative's Report.)
APPLICATION -- PART I
- --------------------------------------------------------------------------------
SECTION A:
A-3: Exercise Right of Exchange Rider -- complete this box to identify policy
to be exchanged and return the policy along with the application and
medical information on the new proposed insured.
A-4: If the application is employer sponsored, and the policy will be corporate
owned, this question should be answered "No."
- --------------------------------------------------------------------------------
SECTION B: Proposed Insured Information
B-1: The legal name of the insured will appear on the policy as indicated in
this space.
B-4: Insurance age is calculated as age nearest birthday.
- --------------------------------------------------------------------------------
SECTION C AND SECTION D: Owner and Beneficiary Designations
. If you are designating more than one owner and/or beneficiary, use Special
Instructions, Section O, and indicate the second owner's name and/or
percentage of the beneficiary split. For example:
John Doe, Husband, 70%
Mary Doe, Mother, 30%
NOTE: The amount must be stated in percentages. A dollar amount may not be
specified.
. If you are designating a trust as the owner and/or beneficiary, include
the name of the Trustee, the name of the Trust and the date of the Trust.
For example:
John Doe, Trustee, of the Revocable Life Insurance Trust of James Doe,
dated November 1, 1991.
- --------------------------------------------------------------------------------
. When you are designating more than one owner, include the social security
number or tax identification number for each respective owner in Special
Instructions, Section O.
. If you have children as owners or beneficiaries, please refer to the
brochure entitled "Your Minor Child."
- --------------------------------------------------------------------------------
SECTION F: Special Dating Requested
. This section provides an option for indicating a specific age and date on
which the policy applied for will be issued. This date is the POLICY DATE
only, and may differ from the INVESTMENT DATE.
- --------------------------------------------------------------------------------
SECTION J: Premium Information
J-1: Consult your Service Guide for List Bill and EFT guidelines.
J-2: Electronic Funds Transfer (EFT) is a premium payment method which the
payor may elect. If selected, the scheduled premium will automatically be
drafted from the payor's checking account.
J-3: If any Authorized Withdrawal/EFT is collected with this application, the
required premium amount as outlined in the prospectus must be collected in
order to put the policy inforce.
- --------------------------------------------------------------------------------
SECTION K: Suitability
. Must be completed or application will be returned.
. The prospectus date should reflect the date printed on the cover of the
prospectus provided at the time of solicitation.
- --------------------------------------------------------------------------------
SECTION L: 1035 Exchange Information
L-4: For purposes of 1035 Exchanges, this information is required to carry over
the correct cost basis and loan amount.
- --------------------------------------------------------------------------------
SECTION O: Special Instructions
. Used for any additional information (for example, billing and mailing
instructions) and continuing your answers for owner and beneficiary
designations.
. If you are requesting child rider(s) and need to request beneficiary(ies)
other than shown in Section D, please indicate here. Include name(s) of
beneficiary(ies) and relationship.
. May be used to continue answers to question L-12, if necessary.
. Payor, accepting rating on formal application only.
APPLICATION -- PART II
- --------------------------------------------------------------------------------
Medical Information
This part of the application must be completed for each person proposed
for coverage unless the person is medically examined.
- --------------------------------------------------------------------------------
<PAGE>
[LOGO OF SECURITY LIFE ING GROUP Security Life of Denver Insurance Company
APPEARS HERE] 1290 Broadway
Denver, CO 80203
303-860-1290
<TABLE>
<CAPTION>
Application for Flexible Premium Variable Life Insurance to Security Life of Denver Insurance Company
- ------------------------------------------------------------------------------------------------------------------------------
PART I
- ------------------------------------------------------------------------------------------------------------------------------
Please Print All Information Using Dark Ink
==============================================================================================================================
SECTION A - General Information (Complete for all cases)
<C> <S>
A-1 [_] Check here if insurance is for PENSION or similar tax qualified ERISA plan.
A-2 [_] If above statement checked, list plan type
-------------------------------------------------------------------------
(Example: Profit-Sharing; Defined Contribution; etc.)
A-3 [_] Exercise Right of Exchange Rider A-4 Employer Sponsored Plans check one:
Name of Insured under Policy to be Exchanged Policy Number Employee Owned? [_] Yes [_] No
------------------------------------------------ --------------------
==============================================================================================================================
<CAPTION>
SECTION B - Proposed Insured (Complete for all cases. To apply for additional insureds complete Section G)
<S> <C>
B-1 Name (Print full name, include suffix)
(First, Middle, Last, Suffix)
--------------------------------------------------------------------------------------------------------------------------
B-2 Sex B-3 Birthdate B-4 Insurance Age B-5 Birthplace
[_] Male Month Day Year (Age Nearest Birthday) (State)
[_] Female [_][_] [_][_] [_][_][_][_] [_][_]
------------------------------
B-6 Social Security Number B-7 Telephone Number B-8 Height
[_][_][_] - [_][_]-[_][_][_][_] [_][_][_]-[_][_][_]-[_][_][_][_] -----------------------
B-9 Weight
-----------------------
B-10 Address
(Street, Apt. No.)
--------------------------------------------------------------------------------------------------------------------------
(City) (State) (Zip Code)
---------------------------------------------------------------------- ------- [_][_][_][_][_] -- [_][_][_][_]
B-11 Occupation B-12 Describe duties
------------------------------------------------------------- -----------------------------------------------
B-13 Employer Name
Month Year
------------------------------------------------------------- B-14 Employment date: [_][_] [_][_] [_][_]
================================================================================================================================
<CAPTION>
SECTION C - Owner (Complete only if other than Proposed Insured)
<C> <S>
C-1 Owner Name (Print full name, include suffix - if name to appear differently on policy, indicate in Section O)
(First, Middle, Last, Suffix)
--------------------------------------------------------------------------------------------------------------------------
C-2 Relationship to Proposed Insured C-3 Social Security Number or Tax I.D. No. (Include any hyphens)
---------------------------------------- [_][_][_][_][_][_][_][_][_][_][_]
C-4 Owner Address
(Street, Apt. No.)
--------------------------------------------------------------------------------------------------------------------------
(City) (State) (Zip Code)
------------------------------------------------------------------------- ------ [_][_][_][_][_]-[_][_][_][_]
=================================================================================================================================
<CAPTION>
SECTION D - Beneficiaries (Complete for all cases)
<C>
---------------------------------------------------------------------------------------------------------------------------
D-1 Primary Beneficiary(ies) (Print Full Names) Relationship to Proposed Insured Birthdate
---------------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------
Contingent Beneficiary(ies) (Print Full Names) Relationship to Proposed Insured Birthdate
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
SECTION E -- Plan Information (Complete for all cases)
<S> <C> <C>
E-1 Flexible Premium Variable Life Insurance Policy
a. Product Name
-------------------------------------------------------------------------
b. Stated Death Benefit $
-----------------------------------
c. Adjustable Term Rider [_] Yes [_] No
If Yes: Initial Target Death Benefit $
--------------------------------
(Attach Schedule from Illustration for subsequent Target Death Benefit changes.)
d. Scheduled Periodic Premium $ (If premium varies from year to year attach schedule)
------------------------------
e. [_] Option 1 (Stated Death Benefit. If no option selected, Option 1 will apply.)
[_] Option 2 (Stated Death Benefit plus Account Value.)
f. [_] Guideline Premium Cash Value Corridor Test
[_] Cash Value Accumulation Test
g. First Year Pour-In (if any) $
----------------------------
h. Additional Riders
[_] Accidental Death $
---------------------
[_] Additional Insured $ (Complete section G)
-----------------------
[_] Right to Exchange
[_] Waiver of Cost of Insurance
[_] Waiver of Specified Premium $
--------------------
[_] Child's Insurance Rider (# of Units) (Complete section H)
---------
[_] Guaranteed Insurability Rider
----------------------
[_] Other
--------------------------------------------------------------------------------------
===================================================================================================================================
<CAPTION>
SECTION F -- Special Dating Requested
(If neither box checked below, policy will be issued at age nearest birthday as of issue date.)
<S> <C> <C> <C> <C> <C>
Mo Day Year
F-1 [_] Date to Save Age Specify Requested Age F-2 [_] Specific Date [_][_] [_][_] [_][_][_][_]
-------
===================================================================================================================================
<CAPTION>
SECTION G -- Additional Insured Rider
<S> <C>
G-1 Name of Proposed Additional Insured (If more than one additional insured, specify details in special instructions, Section O)
(First, Middle, Last, Suffix)
----------------------------------------------------------------------------------------------------------------------------
G-2 Relationship to proposed insured
--------------------------------------------------------------------------------------------
Month Day Year
G-3 Birthdate [_][_] [_][_] [_][_][_][_] G-4 Social Security Number [_][_][_]-[_][_]-[_][_][_][_]
G-5 Height G-6 Weight G-7 Insurance Age (Age nearest birthday) [_][_]
--------------------- --------------------
G-8 Show beneficiary for additional insured if different from beneficiary named in Section D.
Name: Relationship: Birthdate:
------------------------------------------- ---------------------------------------- --------------------------------
===================================================================================================================================
<CAPTION>
SECTION H -- Child Rider
Birthdate Mo/Day/Yr Height Weight
<S> <C> <C> <C>
H-1 Child
--------------------------------------------------------------------------------------------------------------------------
H-2 Child
--------------------------------------------------------------------------------------------------------------------------
H-3 Child
--------------------------------------------------------------------------------------------------------------------------
H-4 Child
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
================================================================================
SECTION I -- Guaranteed Minimum Death Benefit Option
I-1 Guarantee Period (Select one, if option desired; otherwise there will be
no Guaranteed Period)
[_] Later of ten years or proposed insured's age 65
[_] Lifetime of proposed insured
Note: The Guarantee Period will terminate if:
1. You fail to pay the required Guarantee Period Annual premium defined in
your prospectus; or
2. Your Account Value on any Monthly Processing date is not diversified
according to the following rules:
a. No more than 35% of your Net Account Value may be invested in any
one division; and
b. Your Net Account Value must be invested in at least five divisions.
You will satisfy these diversification requirements if: (i) you
participate in the Automatic Rebalancing feature defined in and
governed by the policy prospectus in effect at the time you elect the
Guarantee Period and your Automatic Rebalancing allocations comply with
the diversifications specified above; or (ii) you elect Dollar Cost
Averaging and direct the resulting transfers into at least four other
Divisions with no more than 35% of any transfer being to any one
division.
There may be other circumstances that will cause the Guarantee Period
to terminate before its scheduled expiration date. See your prospectus
for further information.
- --------------------------------------------------------------------------------
SECTION J -- Premium Information
J-1 Premium Mode (If no option selected - Premium mode will be quarterly)
[_] Annual
[_] Quarterly
[_] Semi-Annual
[_] Monthly (only available for List Bill and Authorized Withdrawal/EFT)
J-2 Payment Method (If no option selected - Payment Method will be Direct Bill
for Annual, Semi-Annual or Quarterly Premium Mode or EFT for Monthly Mode)
[_] Direct Bill (not available for monthly)
[_] Single Premium
[_] List Bill Existing List Bill Number
-------------------------
[_] Authorized Withdrawal (Complete Authorized Withdrawal/EFT Form)
J-3 Premium collected with application
The agent is not authorized to collect any premium before delivering a
policy unless the Binding Limited Life Insurance Coverage form has been
completed and signed by the agent, applicant and proposed insured and a
copy given to the applicant. There is no coverage before delivery of the
policy except as provided by that form.
Yes No
[_] [_] a. Has agent collected any premium (including any
Authorized Withdrawal/EFT Form) with this application?
If yes, total premium (including any pour-in) collected
$
------------------
[_] [_] b. If answer to (a) is "Yes," has agent complied with the
Binding Limited Life Insurance Coverage requirements?
[_] [_] c. Has the applicant signed and received a Binding Limited
Life Insurance Coverage form in connection with this
application? Attach signed copy of Binding Limited Life
Insurance Coverage form.
NOTE: If any Authorized Withdrawal/EFT is collected with this application,
the required premium amount as outlined in the prospectus must be
collected in order to put the policy inforce.
3
<PAGE>
================================================================================
SECTION J - Premium Information (continued)
J-4 Initial Premium Allocation. Please allocate your Initial Premium to the
Guaranteed Interest Division and/or among the Variable Account Divisions.
Please use whole number percentages for each Division elected. You must
allocate at least 1% of your Premium Allocation to each Division in which
you elect to invest. The total must equal 100%.
% GUARANTEED INTEREST DIVISION
-------
VARIABLE ACCOUNT DIVISIONS
- --------------------------------------------------------------------------------
AIM
% V.I. Government Securities
----
% V.I. Capital Appreciation
----
Alger American
% Small Capitalization
----
% MidCap Growth
----
% Growth
----
% Leveraged AllCap
----
Fidelity Investments
% Asset Manager
----
% Growth Portfolio
----
% Overseas
----
% Money Market
----
% Index 500
----
Invesco
% Industrial Income
----
% High Yield
----
% Utilities
----
% Total Return
----
% VIF Small Company Growth
----
Neuberger & Berman
% Limited Maturity Bond
----
% Growth Portfolio
----
% Partners Portfolio
----
Van Eck
% Worldwide Hard Assets
----
% Worldwide Emerging Markets
----
% Worldwide Bond
----
% Worldwide Real Estate
----
================================================================================
SECTION K _ Suitability
a. Have you, the Proposed Insured, and the Owner, if other than the
Proposed Insured, received a current Prospectus dated ________________
for the Variable Life Insurance policy applied for and current
prospectus for each of the Variable Account Divisions? [_] Yes [_] No
b. Do you understand that under the policy applied for the amount or
duration of the death benefit may vary under specified conditions;
policy values may increase or decrease in accordance with the investment
experience of investment divisions in a Separate Account, and may
increase in accordance with the interest credited in the Guaranteed
Interest Division; and the amount payable at the Final Policy Date is
not guaranteed but is dependent on the amount then in the Account Value?
[_] Yes [_] No
c. Do you understand that any personalized illustrations received are based
on hypothetical interest assumptions which may not be indicative of
actual future investment experience of our Separate Account or of actual
interest credited in our Guaranteed Interest Division? [_] Yes [_] No
d. With this in mind, is the policy in accord with your insurance
objectives and your anticipated financial needs? [_] Yes [_] No
4
<PAGE>
================================================================================
SECTION L -- Personal Information
L-1 List life insurance policies on all persons proposed for
coverage (1) now in force or (2) applied for within the last
12 months, or (3) pending now. If NONE, Check this box [_]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
Name of Year A.D. Business or Indicate if Inforce,
Proposed Insured Company Issued Amount Amount Personal Applied for, or Pending
-------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Yes No
<C> <S> <C> <C>
L-2 Has any proposed insured ever been declined for insurance (or
reinstatement) or been offered insurance with restricted benefits or at
other than standard rates? (If "Yes" give details in section L-12) [_] [_]
L-3 Is this insurance to replace, or will it cause any change in, any insurance
or annuity on any person proposed for coverage? (If "Yes" submit a
completed replacement form with this application.) [_] [_]
L-4 a. Is this insurance intended to be a tax free exchange - 1035 Exchange?
(If "Yes" indicate Company in section L-12) [_] [_]
b. If "Yes" will any policy loan be carried over? [_] [_]
L-5 Has any person proposed for coverage:
a. ever smoked cigarettes? (If "Yes," give name and details in section
L-12) [_] [_]
b. ever used tobacco in any form other than cigarettes? (If "Yes" give name
and details in section L-12) [_] [_]
c. ever stopped smoking cigarettes? (If "Yes" give name and date last
smoked in section L-12) [_] [_]
d. ever stopped using tobacco in any form other than cigarettes. (If "Yes"
give name, type and date last used in section L-12) [_] [_]
L-6 Within the last 3 years or within the next 12 months, has any person
proposed for coverage:
a. flown (or planned to fly) other than as a passenger on a regularly
scheduled airline? (If "Yes" complete Aviation Supplement.) [_] [_]
b. had a drivers license denied, revoked, or suspended; had three or more
moving violations; been convicted of an alcohol or drug related driving
offense; been involved in two or more auto accidents? (If "Yes" give
details in section L-12) [_] [_]
c. participated in (or intend to participate in) vehicle racing (on land or
water), ballooning, bobsledding, hang gliding, ultralight aviation,
horse racing, mountaineering, rodeo, scuba/skin diving, skydiving/
parachuting, or bungee cord jumping? (If "Yes" complete Avocation
Supplement) [_] [_]
L-7 List Driver's License No. here State
------------------------ ---------
L-8 Does any person proposed for coverage contemplate traveling or residing
outside the U.S.A. or Canada within the next 12 months? (If "Yes" give
details in section L-12) [_] [_]
L-9 Has any person proposed for coverage been convicted of a felony within the
last 5 years? (If "Yes" give details in section L-12) [_] [_]
L-10 Has any person proposed for coverage:
a. ever had, or now have, any type of heart disease, cancer, leukemia, or
malignant tumor? (If "Yes" give details in section L-12) [_] [_]
b. ever been diagnosed by a licensed member of the medical profession as
having Acquired Immune Deficiency Syndrome (AIDS) or any immune
deficiency or disorder? (Do Not Answer This Question If You Reside In
Nevada.) (If "Yes" give details in section L-12) [_] [_]
L-11 Does any person proposed for coverage now participate in any regular
physical exercise program? [_] [_]
L-12 Details of "YES" Answers to Questions L-2 through L-11
-------------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
================================================================================
SECTION M - Medical Exam Certificate (Complete when submitting medical
examination of another insurance company.)
M-1 The attached examination is on the life of:
---------------------------------
M-2 Name of insurance company for which examination was made and date of
examination:
Company Date of Examination
----------------------------------------------------------------------------
M-3 To the best of the proposed insured's knowledge and belief, are the
statements in the examination true as of today? [_] Yes [_] No
(If "No," explain in "REMARKS")
M-4 Has the proposed insured consulted a doctor or other practitioner or
received medical or surgical advice since the date of the examination?
[_] Yes [_] No (If "Yes," explain in "REMARKS")
----------------------------------------------------------------------------
Remarks to No. M-3 and M-4
----------------------------------------------------------------------------
================================================================================
SECTION N - Financial Information Must be completed where the face amount
exceeds (1) $200,000 for business insurance, (2) $300,000 for an insured 65 and
under, or (3)$100,000 for an insured over 65.
N-1 What is the purpose of the insurance applied for?
---------------------------
If the insurance applied for is personal, what is the proposed insured's:
Annual Earned Income $
------------------------------
Annual Interest & Other Income $
------------------------------
Total Assets $
------------------------------
Total Liabilities $
------------------------------
Total Net Worth $
------------------------------
N-2 If Business Insurance:
Last Year
a. Annual net profit (before taxes, past two years) $
-------------------
2 Years Ago
$
-------------------
b. Business reason for insurance (check at least one box and furnish
details)
[_] Key Person [_] Stock Redemption/Buy and Sell [_] Other
------
c. If Key Person insurance:
(1) Are all partners or key people to be covered?
[_] Yes [_] No (If "No," explain)
---------------------------------------------------
---------------------------------------------------
(2) Does proposed insured have an ownership interest in the
business? [_] Yes [_] No
If "Yes," what is proposed insured's percent of ownership? %
-----
(3) What is proposed insured's annual income? $
---------------------
6
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
<C> <S>
SECTION N -- Financial Information (Continued) Must be completed where the face amount exceeds (1) $200,000 for
business insurance, (2) $300,000 for an insured 65 and under, or (3)$100,000 for an insured over 65.
d. If to fund stock redemption, is there a written agreement? [_] Yes [_] No
(1) What is the book value of the business? $
-------------------------------------
(2) What is the market value of the business? $
--------------------------------------
(3) How was the value determined?
----------------------------------------------------------------
N-3 Is this insurance to guarantee a loan? [_] Yes [_] No
a. If "Yes," is the lender requiring this insurance? [_] Yes [_] No
b. Is the loan finalized? [_] Yes [_] No
c. What is the term of the loan? (Months)
------------------------
d. Name of lender:
-----------------------------------------------------------------------------------
e. Amount of loan:
-----------------------------------------------------------------------------------
f. Purpose of loan:
----------------------------------------------------------------------------------
g. Are others being insured for the same purpose? [_] Yes [_] No
If Yes, who and for what amount?
Amount $
-------------------------------------------------------- --------------------------------
Amount $
-------------------------------------------------------- --------------------------------
N-4 Additional remarks about purpose of the insurance and how the amount of insurance was determined.
-----------------------------------------------------------------------------------------------------------------
Remarks to Section N
-----------------------------------------------------------------------------------------------------------------
==========================================================================================================================
SECTION O -- Special Instructions
- --------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
================================================================================
PART II
================================================================================
Please Print All Information Using Dark Ink
Part II must be completed for each person proposed for coverage unless the
person is medically examined.
================================================================================
SECTION A - Personal Physicians
A-1 For each person proposed for coverage, give the name and address of the
personal physicians and the date and reason the physician was last seen.
If NONE, check here [_]
----
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Proposed Insured's Name Name and Address of Physician Date and Reason Last Seen
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------
---------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
================================================================================
SECTION B -- Medical Information (Complete for each person proposed for
coverage.) (For all of Section B, circle each specific condition and give
details of all "Yes" answers in the Details Section following question B-11.
Give name of disease, symptoms, etc.; the date of onset; the duration; number of
attacks; and name and addresses of medical professional or hospital providing
services.)
B-1 Has any person proposed for coverage ever been treated for, or been told by
a member of the medical profession that the person has:
<TABLE>
<CAPTION>
Yes No
<C> <S> <C> <C>
a. pain, pressure, or discomfort in the chest or arms; high blood
pressure; heart murmur; irregular heartbeat, or any other disease or
disorder of the heart? [_] [_]
b. anemia; leukemia; or any other disorder of the blood, veins or
arteries? [_] [_]
c. asthma; bronchitis; pneumonia; tuberculosis; emphysema; shortness of
breath; chronic cough, or any other disorder of the lungs or
respiratory system? [_] [_]
d. mental or emotional disorder, nervous breakdown; epilepsy; convulsions;
chronic fatigue; fainting spells; paralysis; stroke; or any other
disorder of the brain or nervous system? [_] [_]
e. significant weight loss; ulcer; colitis; diverticulitis; hepatitis;
cirrhosis; persistent diarrhea; or other disease of the liver, gall
bladder, pancreas, stomach or intestines? [_] [_]
f. diabetes; thyroid; recurrent enlarged glands; or other glandular
disease or disorder? [_] [_]
g. arthritis; gout; or any bone, joint, muscle, or skin disorder? [_] [_]
h. polyp, tumor, or cancer? [_] [_]
i. disorder of the urinary tract or kidneys; urethritis; cystitis; sugar,
albumin, or blood in the urine? [_] [_]
j. prostate or testicular disease; venereal disease; herpes; or disease of
the uterus, ovaries or breasts? [_] [_]
k. any disorder of the eyes; ears; nose; or throat? [_] [_]
l. any other health impairment or medically or surgically treated
condition within the last 5 years not mentioned above? [_] [_]
</TABLE>
8
<PAGE>
Yes No
B-2 Has any person proposed for coverage ever been treated for
or been told by a licensed member of the medical profession
that the person has Acquired Immune Deficiency Syndrome (AIDS)
or any disorder or deficiency of the Immune System? (Do Not
Answer This Question If You Reside In Nevada.) [ ] [ ]
B-3 Within the past 10 years, has any person proposed for coverage:
a. tested positive in a test to detect antibodies to the AIDS
virus (Human T-Cell Lymphotrophic virus type III; HTLV-III,
Human Immunodeficiency Virus [HIV])? (Do Not Answer This
Question If You Reside in Connecticut or Maine.) [ ] [ ]
b. had a blood transfusion? [ ] [ ]
B-4 Within the past 5 years, has any person proposed for coverage
been a patient in or had treatment at a hospital, clinic,
sanitarium or other medical facility? [ ] [ ]
B-5 Is any person proposed for coverage now under regular medical
observation by, or taking treatment from, a member of the
medical profession? [ ] [ ]
B-6 Other than as stated in the answers above, has any person
proposed for coverage, within the last 5 years:
a. had a checkup or consultation with a member of the medical
profession? [ ] [ ]
b. had an electrocardiogram, x-ray, blood test or other test? [ ] [ ]
c. been advised by a member of the medical profession to have
any diagnostic test, hospitalization, or surgery which was
not completed? [ ] [ ]
---
B-7 Does any person proposed for coverage have a deformity or an
amputation? [ ] [ ]
B-8 Does any person proposed for coverage now take any medicine
prescribed by a member of the medical profession? [ ] [ ]
B-9 Except as legally prescribed by a physician, has any person
proposed for coverage ever used narcotics, cocaine, marijuana,
or any hallucinatory or mind altering substances in the past
10 years?
B-10 In the last 5 years, has any person proposed for coverage
received treatment for or joined an organization because of
the alcoholism or drug addiction of that person? [ ] [ ]
B-11 Has any parent, brother, or sister of any person proposed for
coverage ever had cancer; diabetes; high blood pressure;
heart or kidney disease; nervous or mental disorder;
tuberculosis; or hereditary disorder? [ ] [ ]
Details of "Yes" answers to questions B-1 through B-11
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Ques. Name of
No. Proposed Insured Complete Details (including, if any, name of physician noted in Section A-1)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
==================================================================================================================================
SECTION C -- Family History
- ----------------------------------------------------------------------------------------------------------------------------------
Living Deceased
Family Member Age State of Health Age at Death/Cause
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Father
- ----------------------------------------------------------------------------------------------------------------------------------
Mother
- ----------------------------------------------------------------------------------------------------------------------------------
Brothers
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Sisters
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
AGREEMENTS
All statements and answers in this application (which includes Part I, Part II,
and supplements and amendments) are true and complete to the best of my
knowledge and belief. I also agree that:
1. The statements and answers in this application will be relied upon and form
the basis of any insurance.
2. No information will be considered as having been given to Security Life
unless it is written in this application. (This paragraph does not apply in
the states of Maine, Missouri, Oregon, South Carolina, and South Dakota.)
3. No agent or any other unauthorized person can make or change any insurance
contract or give up any of Security Life's rights or requirements. Any change
must be in writing and signed by an officer of Security Life.
4. Security Life may amend this application by an appropriate notation in the
space designated "Home Office Corrections" in order to correct errors or
omissions or to conform the application with any policy that may be issued.
The acceptance of the policy constitutes a ratification of such amendments.
In those states, including Maryland, where change in amount, classification,
plan, premium, or benefit requires the written consent of the applicant, no
change may be ratified except by a written acceptance. We reserve the right
to make any changes required by law.
5. Insurance Under Policy Applied For - Except as may be provided in any Binding
Limited Life Insurance Coverage, no policy of Insurance will be in force
until (1) the first policy premium is paid and (2) the policy is delivered
while the facts and health condition of the proposed insured(s) are as
represented in this application. When these conditions are satisfied, the
policy as delivered will then take effect.
6. Binding Limited Life Insurance Coverage - Any pre-delivery insurance coverage
is provided in the Binding Limited Life Insurance Coverage form. That
coverage is available only if: a premium is accepted by the agent; the agent
has authority to accept premium as set out in that form; and the form is
completed and signed by the agent, applicant, and proposed insured.
7. If the contract applied for is for a pension, profit-sharing, HR10, or other
tax qualified plan, any policy issued shall not be transferable other than to
the Insurer, except as directed by the Plan Administrator. Other applicable
provisions may be added to the contract.
8. I certify, under penalty of perjury, that my social security/tax
identification number(s) is shown and is correct and that I am not subject to
back up withholding.
AUTHORIZATION TO OBTAIN AND DISCLOSE INFORMATION
Security Life of Denver Insurance Company ("Security Life") may obtain
information about me or my minor children from: any physicians; medical
practitioner; hospital, clinic or other medical facility; employer; other
insurance companies or institutions; consumer reporting agency; or Medical
Information Bureau, Inc. (MIB, Inc.). The purpose is to evaluate my application
for insurance or benefits. Security Life may obtain an investigative consumer
report and any records or other information available as to diagnosis, treatment
and prognosis of any physical or mental condition.
Security Life may obtain any drug, physical and mental health, and alcohol-
related information which may be protected by federal or state laws and
regulations. As it pertains to alcohol and drug information covered by federal
regulation, this authorization may be revoked at any time by written notice to
Security Life. But any action taken before my written revocation is received by
Security Life will not be affected.
Security Life may make a brief report about me or my children to MIB, Inc.
Security Life may disclose information to: its reinsurers; those who perform
services for Security Life on my application for insurance or benefits: or those
companies to which I have applied or may apply for life or health insurance or
benefits. Disclosure may be made when required or permitted by law.
This is valid for two and one-half years from the date below. An original or
copy may be used by Security Life or its authorized representatives to obtain
information. I have read and received a copy of this authorization. I also have
a copy of the Notice of Information Procedures. It includes the MIB, Inc. and
Fair Credit Reporting Notices.
NOTICE: Any person who knowingly and with intent to injure, defraud, or deceive
any insurance company, files an application, statement or claim containing any
false, incomplete, or misleading information may be guilty of insurance fraud.
Signature of
Proposed Insured Date
-------------------------------------- -----------------
(If below age 15, signature of parent or guardian)
Signature of Owner (If other than proposed insured)
OR (If applicable) Corporate Owner Signature
-----------------------------------
(If a firm or corporation is to be
owner, the signature and title of an
officer other than the proposed insured
is required.)
Signed by Owner at State
--------------
Signature of Spouse
------------------------------------------
Signature of Additional Insured(s) (If proposed for coverage)
- --------------------------------------------------------------------------------
Except for any medical exam form, I certify that I have asked and recorded
completely and accurately the answers to all questions on this application. I
know of nothing else affecting the risk.
Signature of Agent/Registered Rep. Reg. Rep. Number
---------------------------------------------
Signature of Agent/Registered Rep. Reg. Rep. Number
---------------------------------------------
Signature of Agent/Registered Rep. Reg. Rep. Number
---------------------------------------------
- ------------------------------------- ---------------------------------------
Name of Broker/Dealer/Branch/OSJ Address of Broker/Dealer/Branch/OSJ
- --------------------------------------------------------------------------------
HOME OFFICE
CORRECTIONS
(FOR HOME OFFICE
USE ONLY) (Not applicable in West Virginia)
- --------------------------------------------------------------------------------
10
<PAGE>
Registered Representative's Report
(Must be completed and signed for every application)
<TABLE>
<CAPTION>
Yes No
<S> <C> <C>
1) Do you have knowledge or reason to believe that
replacement of existing insurance or annuity may be
involved? [_] [_]
If Yes, explain:
-----------------------------------------
2) How long have you known the proposed insured? ______ Years
Are you related? [_] [_]
If so, how?
----------------------------------------------
3) Does the proposed insured speak English? [_] [_]
Was the application interpreted for and understood by
the proposed insured? [_] [_]
Are all persons proposed for coverage U.S. citizens? [_] [_]
If not, how long in U.S.? _____Mos. _____Yrs.
4) Did proposed insured approach you for this insurance? [_] [_]
5) What is the amount of insurance in force on the spouse
of the proposed insured? $
----------------------------
6) If any proposed insured is a minor, what is the amount
of insurance on:
Father $ Mother $
------------ ------------
Brothers $ Sisters $
------------ ------------
7) Will the applicant accept this policy if it is a "Modified
Endowment" at issue? [_] [_]
8) If a medical exam is required, has it been ordered? [_] [_]
9) What is the source of the first premium payment:
[_] Applicant check
[_] Other (specify):
--------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
10) Writing Registered Representative (Print) Production Credit Split
------------------------------------- Variable
Writing Registered Representative (Sign) Agent Number Percent
-------------------------------------
Date Registered Representative Number: [_][_][_][_][_][_] ------------ -------
------------------- ------------ -------
------------ -------
</TABLE>
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
11) What was the PRIMARY purpose of the insurance?
PERSONAL PLANNING
A [_] Estate/Death Tax
B [_] Family Protection
C [_] Mortgage Protection
D [_] College Funding
E [_] Gift/Charitable
F [_] Retirement Maximizer
G [_] IRP/PPP/PRO
H [_] Savings
I [_] Other
-------------------------------------
BUSINESS PLANNING
J [_] Executive Bonus
K [_] Qualified Plan
L [_] Deferred Compensation
M [_] Buy-Sell
N [_] Key Executive
O [_] Employee Benefit
P [_] Other
-------------------------------------
- --------------------------------------------------------------------------------
12) Who was the PRIMARY decision-maker involved?
PERSONAL PLANNING
A [_] Insured
B [_] Insured and Spouse
C [_] Parent
D [_] Grandparent
E [_] Child(ren)
F [_] Other
--------------------------
BUSINESS PLANNING
G [_] Businessowner
H [_] Attorney
I [_] Accountant
J [_] Board of Directors
K [_] Trustee
L [_] Other
--------------------------
- --------------------------------------------------------------------------------
13) Did the Home Office or Regional Staff assist you? [_] Yes [_] No
(If yes, check all that apply.)
A [_] Illustration
B [_] Case design
C [_] Sample Documents
D [_] Template design
E [_] Estate Analysis
F [_] Business Analysis
G [_] Family Asset Review
H [_] Competition Services
I [_] Legal Consultation
J [_] Other
--------------------------
11
<PAGE>
[LETTERHEAD OF SECURITY LIFE ING GROUP APPEARS HERE]
TO: Security Life of Denver Insurance Company
RE: (S)1035 Exchange of Policy(ies)
-------------------
Gentlemen:
It is my desire to exchange the policy or policies designated above (the "old
policies") to the policy as applied for in the Flexible Premium Variable Life
Insurance Application # _______________________ (the "new policy").
Security Life is authorized and requested to take the steps necessary to
implement the exchange of the old policies for the new Security Life policy and
to transfer values in the old policies to the new policy so as to constitute a
IRC (S)1035 exchange.
I understand that the new insurance from Security Life due to this application
will not commence until the effective date of exchange. The insurance under the
old policy will terminate at this time. On the effective date of exchange, you
are authorized to apply the values of the old policies to my new Security Life
policy.
[_] Please find enclosed the old policy(ies).
[_] Lost Policy Certification
My policy or certificate of insurance has been lost or misplaced. Please
surrender the policy without requiring receipt of the original policy or
certificate. If the original policy or certificate is found, I will return
it to the Home Office of Security Life.
Signature of Owner:
------------------------------------------------------------
Dated:
-------------------------------------
Securities offered through ING America Equities, Inc., Member NASD
<PAGE>
[LETTERHEAD OF SECURITY LIFE APPEARS HERE]
ABSOLUTE ASSIGNMENT OF OWNERSHIP/BENEFICIARY CHANGE
Re: Contract(s) No.
-----------------------------------------------------------
Insured
-------------------------------------------------------------------
Insurer
-------------------------------------------------------------------
I. For consideration received, the undersigned contract owner hereby assigns
and transfers all rights, title and interest, without exception, in the
above contract or contracts to Security Life of Denver Insurance Company
("Security Life"). Accordingly, Security Life has the right to change the
beneficiary to itself, surrender the contracts, and receive the entire
surrender values.
This Absolute Assignment is intended to facilitate an IRC (S)1035 exchange.
The undersigned requests that Security Life and Insurer act so as to
achieve this result.
This certifies that no bankruptcy proceeding, attachments or other lien or
claim is now pending against the contract owner.
Affidavit of Lost Contract
(check the box if contracts are lost or destroyed)
[_] The undersigned certifies that the above contract or contracts has been
lost or destroyed. If found, the above contract or contracts will be
returned to the Insurer.
Certification
Under penalty of perjury, the undersigned certifies that the number shown
below is the contract owner's correct taxpayer identification number.
Signed this ___________ day of _______________________________, 19___.
-------------------------- -----------------------------------------------
Witness Current contract owner and title if
corporation or trustee
-------------------------- -----------------------------------------------
Signature of owner's spouse If a firm or corporation is owner, print its
(Community property states name. Also have an officer sign as owner.
only AZ, CA, ID, LA, NM,
NV, TX, WA, WI) ----------------------------------------------
Social Security Number or Employer
Identification Number
II. This undersigned collateral assignee hereby releases any and all interest
such assignee has in the above contract or contracts.
-------------------------- ----------------------------------------------
Witness Collateral Assignee
III. As the Absolute Assignee and Contract Owner of the above contracts,
Security Life requests that all prior beneficiary designations be revoked
and Security Life be made sole beneficiary of the above contract or
contracts.
SECURITY LIFE OF DENVER INSURANCE COMPANY
Contract Owner and Absolute Assignee
By:
--------------------------------------------------
<PAGE>
(Detach and give to Applicant)
AGREEMENTS
All statements and answers in this application (which includes Part I, Part II,
and supplements and amendments) are true and complete to the best of my
knowledge and belief. I also agree that:
1. The statements and answers in this application will be relied upon and form
the basis of any insurance.
2. No information will be considered as having been given to Security Life
unless it is written in this application. (This paragraph does not apply in
the states of Maine, Missouri, Oregon, South Carolina, and South Dakota.)
3. No agent or any other unauthorized person can make or change any insurance
contract or give up any of Security Life's rights or requirements. Any change
must be in writing and signed by an officer of Security Life.
4. Security Life may amend this application by an appropriate notation in the
space designated "Home Office Corrections" in order to correct errors or
omissions or to conform the application with any policy that may be issued.
The acceptance of the policy constitutes a ratification of such amendments.
In those states, including Maryland, where change in amount, classification,
plan, premium, or benefit requires the written consent of the applicant, no
change may be ratified except by a written acceptance. We reserve the right
to make any changes required by law.
5. Insurance Under Policy Applied For -- Except as may be provided in any
Binding Limited Life Insurance Coverage, no policy of insurance will be in
force until (1) the first policy premium is paid and (2) the policy is
delivered while the facts and health condition of the proposed insured(s) are
as represented in this application. When these conditions are satisfied, the
policy as delivered will then take effect.
6. Binding Limited Life Insurance Coverage -- Any pre-delivery insurance
coverage is provided in the Binding Limited Life Insurance Coverage form.
That coverage is available only if: a premium is accepted by the agent; the
agent has authority to accept premium as set out in that form; and the form
is completed and signed by the agent, applicant, and proposed insured.
7. If the contract applied for is for a pension, profit-sharing, HR10, or other
tax qualified plan, any policy issued shall not be transferable other than to
the Insurer, except as directed by the Plan Administrator. Other applicable
provisions may be added to the contract.
8. I certify, under penalty of perjury, that my social security/tax
identification number(s) is shown and is correct and that I am not subject to
back up withholding.
NOTICE OF INFORMATION PROCEDURES
OUR UNDERWRITING PROCESS
This process is an evaluation of information about you. It is to see
if you qualify for the insurance requested. The information we review may vary
with the insurance applied for. We look at information about you such as: your
age; occupation; health; mode of living; avocation; and other personal
information.
Answers on the application are the principal source of information. We may
contact other people or institutions personally, by phone, or by letter. The
purpose is to confirm or add to information you have provided. For example, we
may obtain information from your doctor, clinic, hospital, or other insurers. In
some cases, your Security Life agent may obtain information on our behalf. A
medical examination or laboratory tests may be requested.
NOTICE
Any person who knowingly and with intent to injure, defraud, or deceive any
insurance company, files an application, statement or claim containing any
false, incomplete, or misleading information may be guilty of insurance fraud.
MIB, INC.
Medical Information Bureau, Inc. ("MIB, Inc.") may provide Security Life with a
brief report about you. This is a nonprofit organization of life insurance
companies which has an information exchange for its members. Information that is
sent to MIB, Inc. by one member may be given to their member companies who have
a business need for it.
Upon your written request, MIB, Inc. will arrange for disclosure of any
information it may have in your file. If you question the accuracy of MIB's
information, you may request a correction according to the procedures in the
Federal Fair Credit Reporting Act. MIB's address is: P.O. Box 105, Essex
Station, Boston, Massachusetts 02112, telephone 617/426-3660.
CONSUMER REPORTS
In some cases, a Security Life representative may prepare a consumer report or
investigative consumer report about you or, Security Life may ask an independent
agency to prepare a consumer report or an investigative consumer report about
you. These reports may include information on your character; general
reputation; personal characteristics such as health, finances, and job, and mode
of living except as may be related directly or indirectly to your sexual
orientation. Any information obtained by the agency may be kept in its file and
later given to others who have a business need for it.
If an investigative consumer report is ordered by Security Life, the report will
include information obtained through interviews with your neighbors, friends, or
others you know. You may request a personal interview. The agency will make a
reasonable attempt to talk to you. It will include that information in its
report. The Federal Fair Credit Reporting Act gives you the right to make a
written request within a reasonable period of time, to receive additional
information from Security Life about the nature and scope of an investigation,
if one is made. We will provide the name, address, and phone number of any
agency we ask to prepare such a report. You may contact the agency directly to
learn about the contents of the report.
DISCLOSURE OF INFORMATION
Information we obtain about you is confidential. As permitted by law, we may
disclose information without further authorization to others such as: consumer
reporting agencies hired to prepare investigative reports; insurance companies
to which you have applied for coverage or benefits; those providing services for
us; those conducting bona fide actuarial, marketing, or scientific studies or
audits; and your attending doctor.
Upon written request, we will give you more information about these procedures.
YOUR RIGHT TO REVIEW INFORMATION
These are procedures by which you can make a written request to review personal
information in our policy file. However, Security Life will not disclose
information to you that was prepared for any anticipated claim or any civil or
criminal proceeding. We also have procedures by which you may request
correction, amendment, or deletion of any information in our files which you
believe to be inaccurate or irrelevant. Upon written request, we will provide
you with further information about these procedures.
We hope this notice helps explain our underwriting process. If you have any
additional questions, discuss them with your agent or contact us directly.
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203
303-860-1290
<PAGE>
[LOGO OF SECURITY LIFE APPEARS HERE]
1290 Broadway
Denver, CO 80203
<PAGE>
EXHIBIT 6.B
[LOGO OF SECURITY LIFE APPEARS HERE]
February 18, 1998
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203-5699
Re: Security Life Separate Account L1
Post-Effective Amendment No. 4; SEC File No. 33-88148
Gentlemen:
In my capacity as Senior Vice President and Chief Actuary of Security Life of
Denver Insurance Company ("Security Life"), I have provided actuarial advice
concerning:
The preparation of Post-Effective Amendment No. 4 to the Registration Statement
on Form S-6 (File No. 33-88148) to be filed by Security Life and its Security
Life Separate Account L1 (the "Separate Account") with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 with respect to the
"Strategic Advantage" and "Strategic Advantage II" variable universal life
insurance policies; and
The preparation of the policy forms for the variable universal life insurance
policies described in Post-Effective Amendment No. 4 (the "Policies").
It is my professional opinion that
1. The aggregate fees and charges under the Policies are reasonable in
relation to the services rendered the expenses expected to be incurred and
the risks assumed by Security Life.
2. The illustrations of death benefits, account value, cash surrender value,
and total premiums paid plus interest at 5 percent shown in the Prospectus,
based on the assumptions stated in the illustration are consistent with the
provisions of the Policies. The rate structures of the Policies have not
been designed so as to make the relationship between premiums and benefits,
as shown in the illustrations included, appear to be correspondingly more
favorable to prospective buyers than other illustrations which could have
been provided at other combinations of ages, sex of the insured, death
benefit option and amount, definition of life insurance test, premium
class, and premium amounts. Insureds of other premium classes may have
higher costs of insurance charges.
3. All other numerical examples shown in the Prospectus are consistent with
the Policies and our other practices, and have not been designed to appear
more favorable to prospective buyers than other examples which could have
been provided.
I hereby consent to the filing of this opinion as an Exhibit to Post-Effective
Amendment No. 4 to the Registration Statement and the use of my name under the
heading "Experts" in the Prospectus.
Sincerely,
/s/
Lawrence D. Taylor, F.S.A., M.A.A.A.
<PAGE>
EXHIBIT 7.B
CONSENT OF
MAYER, BROWN & PLATT
We hereby consent to the reference to our firm under the caption "Legal
Matters" in the Additional Information section comprising a part of Post-
Effective Amendment No. 4 to the Form S-6 Registration Statement of Security
Life Separate Account L1 with respect to File No. 33-88148.
/s/
----------------------------------
MAYER, BROWN & PLATT
Washington, D.C.
February 18, 1998
