Prospectus
VARIABLE SURVIVORSHIP UNIVERSAL LIFE
A FLEXIBLE PREMIUM VARIABLE UNIVERSAL LIFE INSURANCE POLICY
issued by
SECURITY LIFE OF DENVER INSURANCE COMPANY
AND
SECURITY LIFE SEPARATE ACCOUNT L1
Consider carefully the policy charges, deductions, and refunds beginning on page
51 in this prospectus.
You should read this prospectus and keep it for future reference. A prospectus
for each underlying investment portfolio must accompany and should be read
together with this prospectus.
This policy is not available in all jurisdictions. This policy is not offered in
any jurisdiction where this type of offering is not legal. Depending on the
state where it is issued, policy features may vary. You should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information that is different.
Replacing your existing life insurance policy(ies) with this policy may not be
beneficial to you.
YOUR POLICY
o is a flexible premium variable joint and survivor universal life
insurance policy;
o is issued on two lives on whom insurance coverage may continue,
in whole or in part, until both have died;
o is issued by Security Life of Denver Insurance Company;
o is guaranteed not to lapse during the first five policy years if
you meet certain requirements; and
o is returnable by you during the free look period or right to
examine policy period if you are not satisfied.
YOUR POLICY PREMIUM PAYMENTS
o are flexible, so the premium amount and frequency may vary;
o are allocated to variable investment divisions and the guaranteed
interest division, based on your instructions;
o are invested in shares of the underlying investment portfolios
under each variable division; and
o can be invested in up to eighteen investment options over the
policy's lifetime.
YOUR ACCOUNT VALUE
o is the sum of your holdings in the variable divisions, the
guaranteed interest division and the loan division;
o has no guaranteed minimum cash value under the variable
divisions. The value varies with the value of the matching
investment portfolio;
o has a minimum guaranteed rate of return if you have an amount in
the guaranteed interest division; and
o is subject to various expenses and charges, including possible
surrender charges.
DEATH PROCEEDS
o are paid if the policy is still in force at the second death of the
two insured people;
o are equal to the death benefit minus outstanding policy loans,
accrued loan interest and unpaid charges incurred before the second
insured person dies;
o are calculated under your choice of options;
* Option 1- a fixed minimum death benefit
* Option 2- a stated death benefit plus your account value; and
o enhanced death benefit corridor option - available with either
option 1 or option 2 to increase death benefit coverage based on
life expectancy with sufficient funding; and
o are generally not federally income taxed if your policy continues
to meet the federal income tax definition of life insurance.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
DATE OF PROSPECTUS MAY 14, 1999
Form V-91-99
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ISSUED BY: Security Life of Denver UNDERWRITTEN BY: ING America Equities, Inc.
Insurance Company 1290 Broadway
Security Life Center Denver, CO 80203-5699
1290 Broadway (303) 860-2000
Denver, CO 80203-5699
(800) 525-9852
THROUGH ITS: Security Life Separate Account L1
ADMINISTERED BY: Customer Service Center
P.O. Box 173888
Denver, CO 80217-3888
(800) 848-6362
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Variable Survivorship 2
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TABLE OF CONTENTS
POLICY SUMMARY.................................................................8
Your Policy...........................................................8
Free Look Period or Right to Examine Policy Period....................8
Your Policy Premiums..................................................8
Allocation of Net Premiums...................................8
Charges and Deductions................................................9
Deductions from Premium......................................9
Deductions from the Variable Divisions.......................9
Monthly Deductions from Your Account Value...................9
Policy Transaction Fees......................................9
Surrender Charges...........................................10
Fees and Expenses of the Investment Portfolios.......................10
Investment Portfolio Annual Expenses........................11
Variable Divisions...................................................13
Policy Values........................................................13
Your Account Value in the Variable Divisions................14
Transfers of Account Value...........................................14
Special Policy Features..............................................14
Additional Benefits.........................................14
Dollar Cost Averaging.......................................14
Automatic Rebalancing.......................................14
Loans.......................................................14
Partial Withdrawals.........................................14
Persistency Refund..........................................14
Policy Modification, Termination and Continuation Features...........14
Right to Exchange Policy....................................14
Policy Split Option.........................................15
Surrender...................................................15
Lapse.......................................................15
Reinstatement...............................................15
Continuation of Coverage....................................15
Death Benefits.......................................................15
Tax Considerations...................................................15
INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS
AND THE GUARANTEED INTEREST DIVISION.................................16
Security Life of Denver Insurance Company............................16
Year 2000 Preparedness...............................................16
Security Life Separate Account L1....................................17
Variable Account Structure..................................17
Order of Variable Account Liabilities.......................17
Variable Divisions..........................................17
Investment Portfolios.......................................17
Objectives of the Investment Portfolios..............................18
The Guaranteed Interest Division.....................................22
Maximum Number of Investment Divisions...............................22
DETAILED INFORMATION ABOUT THE VARIABLE SURVIVORSHIP UNIVERSAL LIFE POLICY....23
Applying for a Policy................................................23
Policy Issuance.............................................23
Definition of Life Insurance................................23
Temporary Insurance..................................................23
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Variable Survivorship 3
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Premiums ............................................................24
Scheduled Premiums..........................................24
Unscheduled Premium Payments................................24
Minimum Annual Premium......................................24
Special Continuation Period.................................25
Allocation of Net Premiums..................................25
Premium Payments Affect Your Coverage................................25
Modified Endowment Contracts................................26
Death Benefits.......................................................26
Base Death Benefit..........................................27
Death Benefit Options.......................................28
Changes in Death Benefit Options............................28
Enhanced Death Benefit Corridor Option......................29
Changes in Death Benefit Amounts............................29
Guaranteed Minimum Death Benefit............................30
Requirements to Maintain the Guarantee Period...............31
Additional Benefits..................................................32
Adjustable Term Insurance Rider.............................32
Single Life Term Rider......................................33
Special Features.....................................................33
Policy Maturity.............................................33
Policy Split Option.........................................34
Right to Exchange Policy....................................35
Continuation of Coverage....................................35
Policy Values........................................................35
Account Value...............................................35
Net Account Value...........................................35
Cash Surrender Value........................................35
Net Cash Surrender Value....................................36
Determining the Value in the Variable Divisions.............36
How We Calculate Accumulation Unit Values for Each Division.36
Transfers of Account Value...........................................37
Excessive Trading...........................................37
Guaranteed Interest Division Transfers......................37
Dollar Cost Averaging................................................38
Changing Dollar Cost Averaging..............................38
Terminating Dollar Cost Averaging...........................38
Automatic Rebalancing................................................39
Changing Automatic Rebalancing..............................39
Terminating Automatic Rebalancing...........................39
Policy Loans.........................................................39
Loan Repayment..............................................40
Loans and Your Benefits.....................................40
Partial Withdrawals..................................................41
Partial Withdrawals under Death Benefit Option 1............41
Partial Withdrawals under Death Benefit Option 2............41
Stated Death Benefit and Target Death Benefit Reductions....41
Partial Withdrawal Mechanics................................41
Lapse................................................................42
Grace Period................................................42
If You Have the Guaranteed Minimum Death Benefit in Effect..42
Reinstatement........................................................43
Surrender............................................................44
General Policy Provisions............................................44
Free Look Period or Right to Examine Policy Period..........44
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Variable Survivorship 4
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Your Policy.................................................45
Age.........................................................45
Ownership...................................................45
Beneficiary(ies)............................................45
Collateral Assignment.......................................46
Incontestability............................................46
Misstatements of Age or Gender..............................46
Suicide.....................................................46
Transaction Processing......................................46
Notification and Claims Procedures..........................47
Telephone Privileges........................................47
Non-participation...........................................47
Distribution of the Policies................................47
Settlement Provisions.......................................48
Administrative Information About the Policy..........................49
Voting Privileges...........................................49
Material Conflicts..........................................50
Right to Change Operations..................................50
Reports to Owners...........................................51
CHARGES, DEDUCTIONS AND REFUNDS...............................................51
Deductions from Premiums.............................................51
Tax Charges.................................................51
Sales Charge................................................52
Daily Deductions from the Variable Account...........................52
Mortality and Expense Risk Charge...........................52
Monthly Deductions from Your Account Value...........................52
Policy Charge...............................................53
Monthly Administrative Charge...............................53
Cost of Insurance Charge....................................53
Guaranteed Minimum Death Benefit Charge.....................54
Charges for Additional Benefits.............................54
Changes in Monthly Charges..................................54
Continuation of Coverage Administrative Fee.................54
Policy Transaction Fees..............................................54
Partial Withdrawals.........................................54
Transfers...................................................54
Illustrations...............................................54
Premium Allocation Change...................................54
Persistency Refund...................................................55
Surrender Charge.....................................................55
Group or Sponsored Arrangements or Corporate Purchasers..............56
Other Charges........................................................57
TAX CONSIDERATIONS............................................................57
Tax Status of the Policy.............................................57
Diversification Requirements.........................................57
Tax Treatment of Policy Death Benefits...............................58
Modified Endowment Contracts.........................................58
Multiple Policies....................................................58
Distributions Other than Death Benefits from Modified Endowment
Contracts..........................................................58
Distributions Other than Death Benefits from Policies That Are Not
Modified Endowment Contracts.......................................59
Investment in the Policy.............................................59
Policy Loans.........................................................59
Section 1035 Exchanges...............................................59
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Variable Survivorship 5
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Tax-exempt Policy Owners.............................................59
Changes to Comply with the Law.......................................59
Other................................................................60
ILLUSTRATIONS.................................................................61
ADDITIONAL INFORMATION........................................................65
Directors and Officers...............................................65
Regulation...........................................................68
Legal Matters........................................................68
Legal Proceedings....................................................68
Experts ............................................................68
Registration Statement...............................................68
FINANCIAL STATEMENTS..........................................................69
APPENDIX A...................................................................170
APPENDIX B...................................................................171
APPENDIX C...................................................................172
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Variable Survivorship 6
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INDEX OF SPECIAL TERMS
The following special terms are used in this prospectus. We explain each term on
the page(s) listed in the body of this prospectus and in the summary, if
applicable:
Account value.................................................................13
Accumulation unit.............................................................36
Accumulation unit value.......................................................36
Adjustable term insurance rider...............................................26
Age...........................................................................23
Base death benefit............................................................27
Beneficiary(ies)..............................................................15
Cash surrender value..........................................................13
Customer service center........................................................2
Continuation of coverage......................................................35
Death proceeds................................................................28
Free look period..............................................................44
General account...............................................................17
Guarantee period..............................................................31
Guarantee period annual premium...............................................31
Guaranteed interest division..................................................22
Guaranteed minimum death benefit..............................................30
Initial premium...............................................................23
Insured.......................................................................23
Investment date...............................................................23
Investment division...........................................................22
Joint equivalent age..........................................................45
Loan division.................................................................13
Minimum annual premium........................................................24
Monthly processing date.......................................................25
Net account value.............................................................36
Net amount at risk............................................................13
Net cash surrender value......................................................36
Net premium................................................................8, 25
Owner......................................................................8, 45
Partial withdrawal............................................................25
Policy.....................................................................8, 17
Policy date...................................................................23
Policy loan...................................................................39
Portfolios................................................................13, 17
Rider.....................................................................14, 32
Scheduled benefits............................................................24
Scheduled premium.............................................................24
Segment.......................................................................30
Special continuation period...................................................25
Stated death benefit..........................................................23
Surrender charge..............................................................13
Surrender target premium......................................................55
Target death benefit..........................................................32
Target premium................................................................55
Total death benefit...........................................................32
Transaction date..............................................................36
Valuation date................................................................14
Valuation period..........................................................14, 37
Variable account..............................................................17
Variable division(s)..........................................................17
Younger insured person's 100th birth date.....................................45
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Variable Survivorship 7
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POLICY SUMMARY
THIS SUMMARY HIGHLIGHTS SOME OF THE IMPORTANT POINTS ABOUT YOUR POLICY. THE
POLICY IS MORE FULLY DESCRIBED IN THE ATTACHED, COMPLETE PROSPECTUS. PLEASE READ
THE PROSPECTUS CAREFULLY. "WE," "US," "OUR," AND THE "COMPANY" REFER TO SECURITY
LIFE OF DENVER INSURANCE COMPANY. "YOU" AND "YOUR" REFER TO THE POLICY OWNER.
THE OWNER IS THE INDIVIDUAL, ENTITY, PARTNERSHIP, REPRESENTATIVE OR PARTY WHO
MAY EXERCISE ALL RIGHTS OVER THE POLICY AND RECEIVE THE POLICY BENEFITS DURING
THE INSURED PEOPLE'S LIFETIMES.
ANY STATE VARIATIONS ARE COVERED IN A SPECIAL POLICY FORM FOR USE IN THAT STATE.
THIS PROSPECTUS PROVIDES A GENERAL DESCRIPTION OF THE POLICY. YOUR ACTUAL POLICY
AND ANY RIDERS ARE THE CONTROLLING DOCUMENTS. IF YOU WOULD LIKE TO REVIEW A COPY
OF THE POLICY AND RIDERS, CONTACT OUR CUSTOMER SERVICE CENTER.
YOUR POLICY
Your policy provides life insurance protection on the lives of two insured
people. It is issued based on both insured people's lives and insurance coverage
may continue, in whole or in part, until both have died. The policy includes the
basic policy, applications, and any riders or endorsements. As long as the
policy remains in force, we pay a death benefit at the second death of the
insured people. While your policy is in force, you may access a portion of your
policy value by taking loans or partial withdrawals. You may also surrender your
policy for its net cash surrender value. At the policy anniversary nearest the
younger insured person's 100th birth date, the policy can be surrendered or
continued under the continuation of coverage option. SEE CONTINUATION OF
COVERAGE, PAGE 35.
Life insurance is not a short-term investment. You should evaluate your need for
life insurance coverage and this policy's long-term investment potential and
risks before purchasing a policy.
FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY PERIOD
You have the right to examine your policy and return it for a refund of premiums
paid or the account value, as specified by state law, if you are not satisfied
for any reason. The policy is then void. SEE FREE LOOK PERIOD OR RIGHT TO
EXAMINE POLICY PERIOD, PAGE 44.
YOUR POLICY PREMIUMS
The policy is a flexible premium policy because the amount and frequency of the
premium payments you make may vary within limits. You must make premium
payments:
o for us to issue your policy;
o sufficient to keep your policy in force; and
o as necessary to continue certain benefits.
On your application, you choose how much and how often you want to pay premiums.
Depending on your choices, it may not be enough to keep your policy or certain
riders in force. The amount of premium you pay affects the length of time your
policy stays in force. SEE PREMIUMS, PAGE 24.
ALLOCATION OF NET PREMIUMS
This policy has premium-based charges which are subtracted from your payments.
We add the balance, or the net premium, to your policy based on your investment
instructions. You may allocate the net premiums among one or more variable
divisions, the guaranteed interest division, or both. You may not invest in more
than eighteen investment divisions, including the guaranteed interest division,
over the life of your policy.
We apply net premium payments we have received from you to your policy after we:
o receive your initial premium;
o have the information we require;
o approve your policy application; and
o issue your policy.
You need to allocate your premiums to your investment choices in percentages
that are whole numbers and which total 100%. SEE ALLOCATION OF NET PREMIUMS,
PAGE 25.
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Variable Survivorship 8
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CHARGES AND DEDUCTIONS
DEDUCTIONS FROM PREMIUM
We make the following deductions from each premium payment you make:
1. Tax charges -- We currently deduct a charge of 2.5% of premiums for
state and local taxes. We currently deduct a charge of 1.5% of each
premium to cover our estimated cost of the federal income tax treatment
of deferred acquisition costs. SEE TAX CHARGES, PAGE 51.
2. Sales charge -- We deduct a percentage of each premium to cover a
portion of our expenses in selling your policy. This charge is based on
the length of time since your policy or a segment became effective.
Sales Charge Percentage
-----------------------
To Segment Above Segment
Segment Target Target
Year Premium Premium
---- ------- -------
1 - 5 5.5% 2%
6 + 2% 2%
SEE DEDUCTIONS FROM PREMIUMS, PAGE 51.
DEDUCTIONS FROM THE VARIABLE DIVISIONS
We assess a mortality and expense risk charge of 0.75% per year or 0.002055% per
day against the variable divisions. This charge compensates us for mortality and
expense risks under the policies. SEE DAILY DEDUCTIONS FROM THE VARIABLE
ACCOUNT, PAGE 52.
MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE
We deduct the following charges from your account value at the beginning of each
policy month:
1. Policy charge -- $15 per month for the first ten policy years and $9
per month for each policy year after the tenth.
2. Monthly administrative charge-- A charge of no less than $0.07 and no
more than $0.095 per $1,000 for the first ten policy years. We charge
$0.023 per $1,000 for each policy year after the tenth. The exact per
$1,000 charge for your policy is based on the insured people's issue
ages and policy duration.
3. Cost of insurance charge -- Based on the net amount at risk on the
lives of the insured people.
The amount of this charge may differ for:
o each segment of the base death benefit; and
o the adjustable term insurance rider.
4. Guaranteed minimum death benefit (if applicable) -- $0.005 per $1,000
of stated death benefit per month.
5. Charges for additional benefits -- The cost of additional benefits you
choose. The adjustable term insurance rider charge is included in the
cost of insurance charge.
SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 52.
POLICY TRANSACTION FEES
We deduct policy transaction fees from your account value at the time of the
transaction.
The following are the current transaction fees. SEE POLICY TRANSACTION FEES,
PAGE 54.
1. Partial withdrawal fee -- $25.
2. Transfer fee -- We allow twelve free transfers among investment
divisions per policy year. For each transfer beyond that, a $25 fee
applies.
3. Illustrations -- You may request one free illustration per policy year.
For each illustration beyond that, a $25 fee may apply.
4. Premium Allocation Change - You may make five free premium allocation
changes per policy year. For each premium allocation change beyond
that, a $25 fee applies.
5. Continuation of Coverage - We will charge a one-time $400
administrative fee at the policy anniversary nearest the younger
insured person's 100th birth date to activate continued coverage.
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Variable Survivorship 9
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SURRENDER CHARGES
During the first nine years of your policy or an additional segment, we assess a
surrender charge if you:
o surrender the policy;
o reduce the stated death benefit (other than by changing the death
benefit option);
o let your policy lapse; or
o take a partial withdrawal which reduces your stated death benefit.
The surrender charge is a percentage of your target premium. It depends upon the
insured people's ages at the policy date. SEE SURRENDER CHARGE, PAGE 55.
FEES AND EXPENSES OF THE INVESTMENT PORTFOLIOS
The variable account purchases shares of the investment portfolios at net asset
value. This price reflects investment management fees and other direct expenses
that are deducted from the portfolio assets. The following table describes these
investment management fees and other direct expenses of the investment
portfolios. The fees and expenses are shown in both gross amounts and net
amounts shown after any expenses or fees have been absorbed by the investment
portfolio advisers.
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Variable Survivorship 10
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<TABLE>
<CAPTION>
INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET ASSETS) /1/
Fees and
Investment Total Expenses Total Net
Management Other Portfolio Waived or Portfolio
Portfolio Fees Expenses Expenses Reimbursed Expenses
AIM VARIABLE INSURANCE FUNDS, INC.
<S> <C> <C> <C> <C> <C>
AIM V.I. Capital Appreciation Fund 0.62% 0.05% 0.67% NA 0.67%
AIM V.I. Government Securities Fund 0.50% 0.26% 0.76% NA 0.76%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio 0.75% 0.04% 0.79% NA 0.79%
Alger American Leveraged AllCap Portfolio 0.85% 0.11%/2/ 0.96% NA 0.96%
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84% NA 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.04% 0.89% NA 0.89%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Growth Portfolio 0.59% 0.09% 0.68% NA 0.68%/4/
VIP Money Market Portfolio 0.20% 0.10% 0.30% NA 0.30%
VIP Overseas Portfolio 0.74% 0.17% 0.91% NA 0.91%/4/
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager Portfolio 0.54% 0.10% 0.64% NA 0.64%/4/
VIP II Index 500 Portfolio 0.24% 0.11% 0.35% 0.07% 0.28%/5/
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-Equity Income Fund (formerly VIF-Industrial Income Portfolio) 0.75% 0.42% 1.17%/3/ 0.24%/6/ 0.93%
INVESCO VIF-High Yield Fund 0.60% 0.47% 1.07% NA 1.07%
INVESCO VIF-Small Company Growth Fund 0.75% 11.92% 12.67%/3/ 10.80%/7/ 1.87%
INVESCO VIF-Total Return Fund 0.75% 0.49% 1.24%/3/ 0.23%/8/ 1.01%
INVESCO VIF-Utilities Fund 0.60% 1.24% 1.84%/3/ 0.76%/9/ 1.08%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Growth Portfolio 0.83% 0.09% 0.92% NA 0.92%
Limited Maturity Bond Portfolio 0.65% 0.11% 0.76% NA 0.76%
Partners Portfolio 0.78% 0.06% 0.84% NA 0.84%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund 1.00% 0.15% 1.15% NA 1.15%
Worldwide Emerging Markets Fund 1.00% 0.61% 1.61%/3/ 0.31%/10/ 1.30%
Worldwide Hard Assets Fund 1.00% 0.20% 1.20%/3/ NA/11/ 1.20%
Worldwide Real Estate Fund 1.00% 4.32% 5.32%/3/ 4.43%/12/ 0.89%
</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/ Included in other expenses of the Alger American Leveraged AllCap Portfolio
is 0.03% of interest expense.
/3/ Certain expenses of the Fund are being voluntarily absorbed by the Funds.
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Variable Survivorship 11
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/4/ A Portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into arrangements
with their custodian whereby credits realized, as a result of uninvested cash
balances were used to reduce custodian expenses. Including these reductions, the
total portfolio expenses presented in the table would have been 0.66% for Growth
Portfolio, 0.89% for Overseas portfolio and 0.63% 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' total portfolio expenses
would have been 0.35%.
/6/ Certain expenses of the VIF-Equity Income Fund (formerly VIF-Industrial
Income Fund) are being absorbed voluntarily by INVESCO Funds Group, Inc.
pursuant to a commitment to the Fund. After absorption, the VIF-Equity Income
Fund's "Other Expenses" and "Total Portfolio Expenses" were 0.18% and 0.93%
respectively. This commitment can be changed at any time following
consultation with the board of directors.
/7/ Certain expenses of the VIF-Small Company Growth Fund are being absorbed
voluntarily by INVESCO Funds Group, Inc. pursuant to a commitment to the Fund.
After absorption, the VIF-Small Company Growth Fund's "Other Expenses" and
"Total Portfolio Expenses" were 1.12% and 1.87% respectively. This commitment
can be changed at any time following consultation with the board of directors.
/8/ Certain expenses of the VIF-Total Return Fund are being absorbed voluntarily
by INVESCO Funds Group, Inc. pursuant to a commitment to the Fund. After
absorption, the VIF-Total Return Fund's "Other Expenses" and "Total Portfolio
Expenses" were 0.42% and 1.17% respectively. This commitment can be changed at
any time following consultation with the board of directors.
/9/ Certain expenses of the VIF-Utilities Fund are being absorbed voluntarily by
INVESCO Funds Group, Inc. pursuant to a commitment to the Fund. After
absorption, the VIF-Utilities Fund's "Other Expenses" and "Total Portfolio
Expenses" were 0.48% and 1.08% respectively. This commitment can be changed at
any time following consultation with the board of directors.
/10/ Van Eck Associates Corporation (the "Advisor") absorbed expenses exceeding
1.50% of the Fund's average daily net assets. Due to this arrangement, the
actual expenses incurred were "Total Portfolio Expenses" of 1.50% as of December
31, 1998. Effective May 13, 1999, the Adviser has voluntarily agreed to limit
the Worldwide Emerging Markets Fund's total annual operating expenses to 1.30%
of the Fund's average daily net assets.
/11/ The Fund's "Other Expenses" were reduced by a fee arrangement based on cash
balances left on deposit with the custodian and a directed brokerage arrangement
where the Fund directs certain portfolio trades to a broker that, in turn, pays
a portion of the Fund's expenses. Due to this arrangement the actual expenses
incurred were "Other Expenses" of 0.16% and "Total Portfolio Expenses" of 1.16%.
/12/ Van Eck Associates Corporation (the "Advisor") waived its management fees
and assumed certain expenses for the period January 1, 1998 to February 28,
1998. The Advisor also assumed expenses exceeding 1.00% of the Fund's average
daily net assets for the period March 1,1998 to December 31, 1998. The Fund's
expenses were also reduced by a fee arrangement based on cash balances left on
deposit with the custodian and a directed brokerage arrangement where the fund
directs certain portfolio trades to a broker that, in turn, pays a portion of
the Fund's expenses. Due to this arrangement the actual expenses incurred were
"Investment Management Fees" of 0.00%, "Other Expenses" of 0.89% and "Total
Portfolio Expenses" of 0.89%.
/13/ Neuberger Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("Portfolios"), each of which invests all of its net investable
assets in a corresponding series ("Series") of Advisers Managers Trust. The
figures reported under "Investment Management and Administration Fees" include
the aggregate of the administration fees paid by the Portfolio and the
management fees paid by its corresponding Series. Similarly, the "Other
Expenses" includes all other expenses of the Portfolio and its corresponding
Series. See "Expenses" in the Trust's Prospectus. Expenses may reflect expense
reimbursement. NBMI has undertaken to reimburse certain operating expenses,
including compensation of NBMI and excluding taxes, interest, extraordinary
expense, brokerage commissions and transaction costs, that exceed, in the
aggregate, 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.
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Variable Survivorship 12
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VARIABLE DIVISIONS
Any amount you direct into the guaranteed interest division is credited with
interest at a fixed rate set by us. If you invest in any of the following
variable divisions, depending on market conditions, you may
make or lose money. The variable divisions are described in the prospectuses for
the underlying investment portfolios.
Each variable division investment portfolio has its own investment objective.
SEE OBJECTIVES OF THE INVESTMENT PORTFOLIOS, PAGE 18.
AIM VARIABLE INSURANCE FUNDS
AIM V.I. Capital Appreciation Fund
AIM V.I. Government Securities Fund
THE ALGER AMERICAN FUND
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Alger American MidCap Growth Portfolio
Alger American Small Capitalization Portfolio
FIDELITY VARIABLE INSURANCE PRODUCTS FUND & VARIABLE INSURANCE PRODUCTS FUND II
VIP Growth Portfolio
VIP Money Market Portfolio
VIP Overseas Portfolio
VIP II Asset Manager Portfolio
VIP II Index 500 Portfolio
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-Equity Income Fund (formerly, INVESCO VIF- Industrial Income
Portfolio)
INVESCO VIF-High Yield Fund
INVESCO VIF-Small Company Growth Fund
INVESCO VIF-Total Return Fund
INVESCO VIF-Utilities Fund
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman AMT Growth Portfolio
Neuberger Berman AMT Limited Maturity Bond Portfolio
Neuberger Berman AMT Partners Portfolio
VAN ECK WORLDWIDE INSURANCE TRUST
Van Eck Worldwide Bond Fund
Van Eck Worldwide Emerging Markets Fund
Van Eck Worldwide Hard Assets Fund
Van Eck Worldwide Real Estate Fund
POLICY VALUES
Your policy account value is the amount you have in the guaranteed interest
division, plus the amount you have in each variable division. If you have
outstanding policy loans, your account value includes the amount in the loan
division. The loan division is part of our general account specifically designed
to hold money used as collateral for loans and loan interest. The general
account contains all of our assets other than those held in the variable
account, or our other separate accounts.
Your account value reflects:
o net premiums;
o deductions for charges;
o the investment performance of the amounts you have in the variable
divisions;
o interest earned on the amount you have in the guaranteed interest
division;
o interest earned and charged on the amount you have in the loan
division; and
o partial withdrawals.
We subtract charges and partial withdrawals you take from your account value.
You make a partial withdrawal when you withdraw part of your net cash surrender
value. Partial withdrawals may reduce the amount of base death benefit which may
trigger a surrender charge.
We may deduct a surrender charge from your account value in the event of:
o surrender;
o policy lapse;
o requested reductions in the stated death benefit; or
o certain partial withdrawals.
SEE SURRENDER CHARGE, PAGE 10.
Your cash surrender value is equal to your account value minus any surrender
charge.
Your net cash surrender value is equal to the cash surrender value minus
outstanding policy loans and accrued loan interest, if any.
Your net account value is equal to the account value minus outstanding policy
loans and accrued loan interest, if any.
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YOUR ACCOUNT VALUE IN THE VARIABLE DIVISIONS
Accumulation units are the way we measure value in the variable divisions.
Accumulation unit value is the value of a unit of a variable division on the
valuation date. Each variable division has a different accumulation unit value.
SEE DETERMINING THE VALUE IN THE VARIABLE DIVISIONS, PAGE 36.
On each valuation date, we determine the accumulation unit values. The
accumulation unit value for each variable division reflects the investment
performance of the matching investment portfolio during the valuation period.
The valuation period is the time beginning at 4:00 p.m. Eastern time on a
valuation date and ending at 4:00 p.m. Eastern time on the next valuation date.
Each accumulation unit value reflects asset-based charges under the policy, and
the expenses of the investment portfolios. SEE HOW WE CALCULATE ACCUMULATION
UNIT VALUES FOR EACH DIVISION, PAGE 36.
TRANSFERS OF ACCOUNT VALUE
You may make up to twelve free transfers among the variable divisions or to the
guaranteed interest division per policy year. We charge $25 for each transfer
over twelve you make in a policy year. This charge does not apply to any
automatic rebalancing or dollar cost averaging transfers: they are free. There
are restrictions on transfers to or from the guaranteed interest division. SEE
TRANSFERS OF ACCOUNT VALUE, PAGE 37.
SPECIAL POLICY FEATURES
ADDITIONAL BENEFITS
You may attach certain additional benefits to your policy by rider. A rider
changes benefits under your policy. In most cases, we deduct a monthly charge
from your account value for these benefits. SEE ADDITIONAL BENEFITS, PAGE 32.
DOLLAR COST AVERAGING
You may choose dollar cost averaging on your application or complete a customer
service form. Dollar cost averaging is a systematic plan of transferring account
values to selected investment divisions. It is intended to protect your policy's
value from short-term price fluctuations. However, dollar cost averaging does
not assure a profit, nor does it protect against a loss in a declining market.
Dollar cost averaging is free. SEE DOLLAR COST AVERAGING, PAGE 38.
AUTOMATIC REBALANCING
You may choose automatic rebalancing on your policy. Automatic rebalancing
periodically reallocates your net account value among the investment divisions
to maintain your specified distribution of account value among those divisions.
Automatic rebalancing is free. SEE AUTOMATIC REBALANCING, PAGE 39.
LOANS
You may take loans against your policy's net cash surrender value. We charge an
annual loan interest rate of 3.75%. We credit an annual interest rate of 3% on
amounts held in the loan division as collateral for your loan. Beginning in your
eleventh policy year, where permitted by law, we may include amounts in the loan
division for calculation of your policy's persistency refund. SEE POLICY LOANS,
PAGE 39.
PARTIAL WITHDRAWALS
You may withdraw part of your net cash surrender value any time after your first
policy year. You may make only one partial withdrawal per policy year. Partial
withdrawals may reduce the death benefit and will reduce your account value.
Surrender charges may apply. SEE PARTIAL WITHDRAWALS, PAGE 41.
PERSISTENCY REFUND
After your tenth policy anniversary, where permitted by state law, we credit
your account value with a persistency refund on every monthly processing date.
SEE PERSISTENCY REFUND, PAGE 55.
POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES
RIGHT TO EXCHANGE POLICY
For 24 months after the policy date you can exchange your policy for a
guaranteed policy, unless state law requires differently. The right to exchange
your policy is free. SEE RIGHT TO EXCHANGE POLICY, PAGE 35.
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Variable Survivorship 14
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POLICY SPLIT OPTION
You may split your policy into two separate life insurance policies each
insuring the life of one insured person under certain circumstances. This split
may occur upon divorce between the two insured people, business dissolution, or
a possible adverse future change in the tax law, unless state law requires
otherwise. The policy split option is free. SEE POLICY SPLIT OPTION, PAGE 34.
SURRENDER
You may surrender your policy for its net cash surrender value at any time while
an insured person is living.
We calculate your net cash surrender value on the valuation date we receive your
request and policy at our customer service center. All insurance coverage ends
on the date we receive your request. You must return your policy or a lost
policy form to us. SEE SURRENDER, PAGE 44.
LAPSE
In general, insurance coverage continues as long as your policy's net cash
surrender value is enough to pay the monthly deductions. However, your policy
and its riders are guaranteed not to lapse during the first five years of your
policy if the conditions of the special continuation period have been met. SEE
LAPSE, PAGE 42.
REINSTATEMENT
You may reinstate your policy and its riders within five years of its lapse if
you still own the policy and the insured people meet the same underwriting
requirements as were met at policy issue.
You will need to give proof of insurability as at policy issue. You will also
need to pay required reinstatement premiums.
If the guaranteed minimum death benefit lapses and you do not correct it, this
feature terminates. Once it terminates, you cannot reinstate this feature.
We will reinstate any policy loans existing when coverage ended, with accrued
loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 43.
CONTINUATION OF COVERAGE
At the policy anniversary nearest younger insured person's 100th birth date, you
may choose to let the continuation of coverage feature become effective. If the
continuation of coverage feature becomes effective, we will deduct a one-time
administrative fee of $400 and keep your policy in force. SEE CONTINUATION OF
COVERAGE, PAGE 35.
DEATH BENEFITS
At the second death of the two insured people, we pay death proceeds to the
beneficiary(ies) if your policy is still in force. The beneficiary(ies) is(are)
the person or people you name to receive the death proceeds. The death proceeds
equal the base death benefit plus amounts payable by rider, minus the amount of
any outstanding policy loan and accrued loan interest. Based on the death
benefit option you have chosen, the base death benefit varies.
The base death benefit does not include any adjustable term insurance rider you
may have on your policy. The target death benefit includes any adjustable term
insurance rider you may have on your policy plus your base death benefit. The
total death benefit is at least equal to or greater than your target death
benefit.
The minimum target death benefit to issue your policy is $250,000. If you have
an adjustable term rider the minimum stated death benefit to issue a policy is
$100,000. However, we may lower this minimum for group or sponsored
arrangements, or corporate purchasers. The death benefit at issue may vary from
the stated death benefit plus adjustable term insurance coverage for some 1035
exchanges. SEE DEATH BENEFIT, PAGE 26.
You may change your base death benefit amount while your policy is in force,
subject to certain restrictions. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 29.
TAX CONSIDERATIONS
Under current federal income tax law, death benefits of life insurance policies
generally are not subject to income tax. In order for this treatment to apply,
the policy must qualify as a life insurance contract. We believe it is
reasonable to conclude that the policy will qualify as a life insurance
contract. SEE TAX STATUS OF THE POLICY, PAGE 57.
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Variable Survivorship 15
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Assuming the policy qualifies as a life insurance contract, under current
federal income tax law, your account value earnings are generally not subject to
income tax as long as they remain within your policy. However depending on
circumstances, the following events may cause taxable consequences for you:
o partial withdrawals;
o surrender; or
o lapse.
In addition to the events listed above, if your policy is a modified endowment
contract, loans against or secured by the policy may cause income taxation. A
penalty tax may be imposed on a distribution from a modified endowment contract
as well. SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 58.
You should consult a qualified legal or tax adviser before you purchase your
policy.
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. At the close of 1998, the company and its consolidated subsidiaries had
over $174.3 billion of life insurance in force. As of December 31, 1998, our
total assets were over $10.0 billion, and our shareholder's equity was over $926
million.
We have a complete line of life insurance products, including:
o annuities;
o individual life;
o group life;
o pension products; and
o market life reinsurance.
Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING").
ING is one of the world's three largest diversified financial services
organizations. ING is headquartered in Amsterdam, The Netherlands. It has
consolidated assets over $461.8 billion on a Dutch (modified U.S.) generally
accepted accounting principles basis, as of December 31, 1998.
The principal underwriter and distributor for our policies is ING America
Equities, Inc. ING America Equities is a stock corporation organized under the
laws of the State of Colorado in 1993. It is a wholly owned subsidiary of
Security Life and is a registered broker-dealer with the SEC and the NASD. ING
America Equities, Inc. is located at 1290 Broadway, Denver, Colorado 80203-5699.
YEAR 2000 PREPAREDNESS
Security Life of Denver Insurance Company is aware of the computer problems that
may exist surrounding the Year 2000. Our senior management projects information
processing and delivery systems to have a Year 2000 readiness interim target
completion date of June 29, 1999 with a final completion date of December 31,
1999.
The Year 2000 problem originates from the predominant use in computer programs
of a two-digit field to capture the year, for example 99 instead of 1999. When
we reach the year 2000 many of these programs will assume the year 00 is
actually 1900 rather than 2000. This incorrect assumption can lead to erroneous
results, false calculations or system failures. This is not only a computer
problem, but also applies to other machinery or equipment containing computer
chips which calculate dates for correct performance, the so-called "embedded
systems." That is why errors, ranging from telephone shutdown to other services
may occur as well. This potential risk is often referred to as the "Millennium
Bug" or the "Year 2000 problem."
The problem is made more complex by the many lines of code that can be affected
in a single system, the number of systems required to support business
activities and the interdependence of both the internal and external systems
involved in exchanging data. This is particularly true for the financial
services industry, where information is at the heart of the business and which
depends heavily on the uninterrupted transfer of data world-wide, bank-to-bank
and with clearing houses, exchanges and
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Variable Survivorship 16
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agencies. If the potential problems are not addressed, this could in some cases
result in business system failure. From a financial perspective, this could, for
instance, lead to incorrect interest calculations or over/under payments.
A project plan has been implemented and our project team has analyzed and
remediated our in-house source code. We completed the remediation in
December, 1998. The project plan covers Security Life, ING America Equities,
Inc., Midwestern United Life Insurance Company, and First ING Life Insurance
Company of New York. We will follow our normal project management methodology
including communication with senior management on a monthly and as-needed basis.
Our targeted completion date is scheduled for June 29, 1999, but there is no
assurance that Security Life will be successful, or that interaction with other
service providers will not impact our services at that time.
Security Life has completed an inventory and assessment of all vendor products.
We are in the process of verifying that each vendor product is Year 2000 ready.
Funds have been allocated for the 1999 efforts, and we believe we have
sufficient resources to ensure Year 2000 processing capabilities.
SECURITY LIFE SEPARATE ACCOUNT L1
VARIABLE ACCOUNT STRUCTURE
We established Security Life Separate Account L1 (the "variable account") on
November 3, 1993, under Colorado's insurance law. It is a unit investment trust,
registered with the SEC under the Investment Company Act of 1940. The SEC does
not supervise our management of the variable account or Security Life.
The variable account is a separate investment account. It is used to support our
variable life insurance policies and for other purposes allowed by law and
regulation. We keep the variable account assets separate from our general
account and other separate accounts. We may offer other variable life insurance
contracts with different benefits and charges that invest in the variable
account. We do not discuss these contracts in this prospectus. The variable
account may invest in other securities not available for the policy described in
this prospectus. The general account contains all of our assets other than those
held in the variable account (variable divisions) or other separate accounts.
The company owns all the assets in the variable account. We credit gains to or
charge losses against the variable account without regard to performance of
other investment accounts.
ORDER OF VARIABLE ACCOUNT LIABILITIES
State law provides that we may not charge general account liabilities against
variable account assets equal to its reserves and other liabilities. This means
that in the event we were ever to become insolvent, the variable account assets
will be used first to pay variable account policy claims. Only if assets remain
in the variable account after these claims have been satisfied can these assets
be used to pay other policy owners and our creditors.
The variable account may have liabilities from assets credited to other variable
life policies offered by the variable account. If the assets of the variable
account are greater than required reserves and policy liabilities, we may
transfer the excess to our general account.
VARIABLE DIVISIONS
The variable account has several divisions. Each division invests in shares of a
matching investment portfolio. This means that the investment performance of a
policy depends on the performance of the investment portfolios you choose. Each
investment portfolio has its own investment objective. These investment
portfolios are not available directly to individual investors. They are only
available as the underlying investments for variable annuity and variable life
insurance contracts and certain pension accounts.
INVESTMENT PORTFOLIOS
Each of the investment portfolios is a separate series of an open-end management
investment company. The investment company receives investment advice from a
registered investment adviser who is not associated with us.
The investment portfolios sell shares to separate accounts of insurance
companies. These insurance companies may or may not be affiliated with us. This
is known as "shared funding." Investment portfolios may sell shares as the
underlying investment for both variable annuity and variable life
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Variable Survivorship 17
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insurance contracts. This process is known as "mixed funding."
The investment portfolios may sell shares to certain qualified pension and
retirement plans that qualify under Section 401 of the Internal Revenue Code
("IRC"). As a result, a material conflict of interest may arise between
insurance companies, owners of different types of contracts and retirement
plans, or their participants.
If there is a material conflict, we will consider what should be done, including
removing the investment portfolio from the variable account. There are certain
risks with mixed and shared funding, and with selling shares to qualified
pension and retirement plans. See the investment portfolios' prospectuses.
OBJECTIVES OF THE INVESTMENT PORTFOLIOS
Each investment portfolio has a different investment objective that it tries to
achieve by following its own investment strategy. The objectives and policies of
each investment portfolio affect its return and its risks. With this prospectus,
you must receive the current prospectus for each investment portfolio. We
summarize the investment objectives for each investment portfolio here. You
should read each investment portfolio prospectus.
Certain investment portfolios offered under this policy have investment
objectives and policies similar to other funds managed by the portfolio's
investment adviser. The investment results of a portfolio may be higher or lower
than those of other funds managed by the same adviser. There is no assurance,
and no representation is made, that the investment results of any investment
portfolio will be comparable to those of another fund managed by the same
investment adviser.
Some investment portfolio advisers (or their affiliates) may pay us compensation
for servicing, administration or other expenses. Currently, these advisers
include A I M Advisors, Inc.; Fidelity Investments(R); Fred Alger Management,
Inc.; INVESCO Funds Group, Inc.; Neuberger Berman Management Inc.; and Van Eck
Global. The amount of compensation is usually based on the aggregate assets of
the investment portfolio from contracts that we issue or administer. Some
advisers may pay us more than others.
AIM VARIABLE INSURANCE FUNDS, INC.
AIM Variable Insurance Funds, Inc. is a registered, open-end, series, management
investment company. A I M Advisors, Inc., ("AIM") serves as each fund's
investment adviser. AIM has acted as an investment adviser since its
organization in 1976. Today, AIM, together with its subsidiaries, advises or
manages over 110 investment portfolios encompassing a broad range of investment
objectives.
AIM V.I. Capital Appreciation Fund -- seeks growth of capital through
investment in common stocks, with emphasis on medium- and small-sized
growth companies.
AIM V.I. Government Securities Fund -- seeks to achieve high current income
consistent with reasonable concern for safety of principal by investing in
debt securities issued, guaranteed or otherwise backed by the United States
Government.
THE ALGER AMERICAN FUND
The Alger American Fund is a registered investment company organized on April 6,
1988. It is a multi-series Massachusetts business trust. The Fund's investment
manager is Fred Alger Management, Inc., which has provided investment advisory
services since 1964.
Alger American Growth Portfolio -- seeks long-term capital appreciation.
The portfolio focuses on growing companies that generally have broad
product lines, markets, financial resources and depth of management. Under
normal circumstances, the portfolio invests primarily in equity securities
of large companies. The portfolio considers a large company to have a
market capitalization of $1 billion or greater.
Alger American Leveraged AllCap Portfolio -- seeks long-term capital
appreciation.
Under normal circumstances, the portfolio invests in the equity securities
of companies of any size which demonstrate promising growth potential.
The portfolio can leverage, that is, borrow money, to buy additional
securities. By borrowing money, the portfolio has the potential to increase
its returns if the increase in the value
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of the securities purchased exceeds the cost of borrowing, including
interest paid for the money borrowed.
Alger American MidCap Growth Portfolio -- seeks long-term capital appreciation.
The portfolio focuses on midsize companies with promising growth potential.
Under normal circumstances, the portfolio invests primarily in equity
securities of companies having a market capitalization within the range of
companies in the S&P(R) MidCap 400 Index.
Alger American Small Capitalization Portfolio -- seeks long-term capital
appreciation.
The portfolio focuses on small, fast-growing companies that offer
innovative products, services or technologies to a rapidly expanding
marketplace. Under normal circumstances, the portfolio invests primarily in
equity securities of small capitalization companies. A small capitalization
company is one that has a market capitalization within the range of the
Russell(R) 2000 Growth Index or the S&P(R) SmallCap 600 Index.
FIDELITY VARIABLE INSURANCE PRODUCTS FUND AND VARIABLE INSURANCE PRODUCTS FUND
II
Fidelity Variable Insurance Products Fund ("VIP" established November 13, 1981)
and Variable Insurance Products Fund II ("VIP II" established March 21, 1988)
are open-end, diversified, management investment companies. These funds are
organized as Massachusetts business trusts.
Fidelity Management & Research Company ("FMR") manages and provides investment
and other services to the funds named here. However, Bankers Trust Company also
provides sub-advisory services for VIP II Index 500 Portfolio. FMR is the
management arm of Fidelity Investments(R), which was established
in 1946, and is one of America's largest mutual fund managers.
VIP Growth Portfolio -- seeks capital appreciation.
FMR's principal investment strategies include:
o Investing primarily in common stocks.
o Investing in companies that it believes have above-average growth
potential (stocks of these companies are often called "growth"
stocks).
o Investing in domestic and foreign
issuers.
o Using fundamental analysis of each issuer's financial condition
and industry position and market and economic conditions to select
investments.
VIP Money Market Portfolio -- seeks as high a level of current income as is
consistent with the preservation of capital and liquidity.
FMR's principal investment strategies include:
o Investing in U.S. dollar-denominated money market securities,
including U.S. Government securities and repurchase agreements,
and entering into reverse repurchase agreements.
o Investing more than 25% of total assets in the financial services
industry.
o Investing in compliance with industry- standard requirements for
money market funds for the quality, maturity and diversification
of investments.
VIP Overseas Portfolio -- seeks long-term growth of capital.
FMR's principal investment strategies include:
o Investing at least 65% of total assets in foreign securities.
o Investing primarily in common stocks.
o Allocating investments across countries and regions considering
the size of the market in each country and region relative to the
size of the international market as a whole.
o Using fundamental analysis of each issuer's financial condition
and industry position and market and economic conditions to select
investments.
VIP II Asset Manager Portfolio -- seeks high total return with reduced risk
over the long term by allocating its assets among stocks, bonds, and
short-term instruments. FMR's principal investment strategies include:
o Allocating the fund's assets among stocks, bonds, and short-term
and money market instruments.
o Maintaining a neutral mix over time of 50% of assets in stocks,
40% of assets in bonds, and 10% of assets in short-term and money
market instruments.
o Adjusting allocation among asset classes gradually within the
following ranges: stock class (30 - 70%), bond class (20 - 60%),
and short-term/money market class (0 - 50%).
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o Investing in domestic and foreign issuers.
o Analyzing an issuer using fundamental and/or quantitative factors
and evaluating each security's current price relative to estimated
long-term value in selecting instruments.
VIP II Index 500 Portfolio -- seeks investment results that correspond to the
total return of common stocks publicly traded in the United States as
represented by the S&P(R) 500.
Bankers Trust Company ("BT")'s principal investment strategies include:
o Investing at least 80% of assets in common stocks included in the
S&P(R) 500.
o Lending securities to earn income for the fund.
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO Variable Investment Funds, Inc. is a registered, open-end management
investment company. It was organized as a Maryland corporation on August 19,
1993. It is currently made up of ten diversified investment portfolios. Five of
these investment portfolios are described here.
INVESCO Funds Group, Inc. is the Fund's investment adviser. As the adviser, it
is mostly responsible for providing the portfolios with investment management,
various administrative services, and supervising the Fund's daily business
affairs.
INVESCO Capital Management, Inc. sub-advises the Total Return Fund. "VIF" refers
to INVESCO Variable Investment Fund. INVESCO Distributors, Inc. ("IDI"),
provides distribution services for the INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Equity Income Fund (Formerly, INVESCO VIF-Industrial Income
Portfolio) -- seeks high current income, with growth of capital as a
secondary objective.
The fund normally invests at least 65% of its assets in dividend-paying
common and preferred stocks, although in recent years that percentage has
been somewhat higher. Stocks held by the fund generally are expected to
produce a relatively high level of income and a consistent, stable return.
Although it focuses on the stocks of larger companies with a strong record
of paying dividends, the fund also may invest in companies that have not
paid regular dividends. The fund's equity investments are limited to stocks
that can be traded easily in the United States; it may, however, invest in
foreign securities in the form of American Depository Receipts (ADRs).
The rest of the fund's assets are invested in debt securities, generally
corporate bonds that are rated investment grade or better. The fund also
may invest up to 15% of its assets in lower-grade debt securities commonly
known as "junk bonds," which generally offer higher interest rates, but are
riskier investments than investment grade securities.
INVESCO VIF-High Yield Fund -- seeks to provide a high level of current income.
It invests substantially all of its assets in lower- rated debt securities,
commonly called "junk bonds," and preferred stock, including securities
issued by foreign companies. Although these securities carry with them
higher risks, they generally provide higher yields-- and therefore higher
income--than higher-rated debt securities.
INVESCO VIF-Small Company Growth Fund -- seeks investment growth over the long
term.
The fund normally invests at least 80% of its assets in equity securities
of companies with market capitalizations of $1 billion or less. INVESCO
uses a bottom-up investment approach to the fund's investment portfolio,
focusing on companies that are in the developing stages of their life
cycles. Using this approach, INVESCO tries to identify companies that it
believes are undervalued in the marketplace, have earnings which may be
expected to grow faster than the U.S. economy in general, and/or offer the
potential for accelerated earnings growth due to rapid growth of sales, new
products, management changes, or structural changes in the economy. The
prices of securities issued by these small companies tend to rise and fall
more rapidly than those of more established companies.
The remainder of the fund's assets can be invested in a wide range of
securities that may or may not be issued by small companies. In addition to
equity securities, the fund can invest in foreign securities and debt
securities, including so-called "junk bonds."
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INVESCO VIF-Total Return Fund -- seeks to provide high total return through both
growth and current income.
It normally invests at least 30% of its assets in common stocks of
companies with a strong history of paying regular dividends and 30% of its
assets in debt securities. Debt securities include obligations of the
United States Government and government agencies. The remaining 40% of the
fund is allocated among these and other investments at INVESCO's
discretion, based upon current business, economic and market conditions.
INVESCO VIF-Utilities Fund -- seeks capital appreciation and income.
The fund normally invests at least 80% of its assets in companies doing
business in the utilities economic sector. The remainder of the fund's
assets are not required to be invested in the utilities economic sector.
The fund is aggressively managed. Although the fund can invest in debt
securities, it primarily invests in equity securities that INVESCO believes
will rise in price faster than other investments, as well as options and
other investments whose value is based upon the values of equity
securities.
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Neuberger Berman Advisers Management Trust (the "Trust,") is a registered,
open-end management investment company. It was organized as a Delaware business
trust on May 23, 1994. The Trust is made up of separate portfolios
("Portfolios"), each of which invests all of its net investable assets in a
matching series ("Series") of Advisers Managers Trust ("Managers Trust").
Managers Trust is a diversified, open-end management investment company
organized as a New York common law trust on May 24, 1994.
This master feeder structure is different from that of many other investment
companies which directly purchase and manage their own securities portfolios.
Neuberger Berman Management Incorporated acts as investment manager to Managers
Trust. Neuberger Berman, LLC is the sub-adviser.
The investments for the Portfolio are managed by the same portfolio manager(s)
who manage one or more other mutual funds that have similar names, investment
objectives and investment styles as the Portfolio. You should be aware that the
Portfolio is likely to differ from the other mutual funds in size, cash flow
pattern and tax matters. Accordingly, the holdings and performance of the
Portfolio can be expected to vary from those of the other mutual funds.
Shares of the separate Portfolios of Neuberger Berman Advisers Management Trust
are sold only through the currently effective prospectus and are not available
to the general public. Shares of the AMT Portfolios may be purchased only by
life insurance companies to be used with their separate accounts which fund
variable annuity and variable life insurance policies.
Neuberger Berman Growth Portfolio -- seeks growth of capital. It invests mainly
in common mid-capitalization securities.
The portfolio managers currently focus on the securities of
mid-capitalization companies. The managers use a growth-oriented investment
approach. A growth-oriented approach seeks stocks of companies that are
fast-growing in emerging or rapidly evolving industries.
Neuberger Berman Limited Maturity Bond Portfolio -- seeks the highest available
current income consistent with liquidity and low risk to principal; total
return is secondary goal.
The Limited Maturity Bond Portfolio invests mainly in investment-grade
bonds and other debt securities from U.S. Government and corporate issuers.
These may include mortgage-and asset-backed securities.
The portfolio may invest up to 10% of its net assets, measured at the time
of investment, in below investment grade fixed income securities, or
comparable unrated securities.
The Limited Maturity Bond Portfolio maintains an average portfolio duration
of four years or less. However, the series may invest in securities of any
duration.
Neuberger Berman Partners Portfolio -- seeks growth of capital. The Portfolio
invests mainly in common stocks of mid- to large-capitalization companies.
Its investment program seeks securities believed to be undervalued based on
strong fundamentals,
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Variable Survivorship 21
<PAGE>
including low price to earnings ratio, consistent cash flow, and the
company's track record through all points of the market cycle.
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. On April 12, 1995, Van Eck Investment Trust
changed its name to Van Eck Worldwide Insurance Trust. Van Eck Associates
Corporation serves as investment adviser and manager to the funds.
Van Eck Worldwide Bond Fund -- seeks high total return--income plus capital
appreciation--by investing globally, primarily in a variety of debt
securities.
Van Eck Worldwide Emerging Markets Fund -- seeks long term capital appreciation
by investing in equity securities in emerging markets around the world.
Van Eck Worldwide Hard Assets Fund -- seeks long term capital appreciation by
investing primarily in "hard asset securities." Income is a secondary
consideration. Hard assets include:
o precious metals;
o natural resources;
o real estate; and
o commodities.
Van Eck Worldwide Real Estate Fund -- seeks high total return by investing in
equity securities of companies that own significant real estate or
principally do business in real estate.
THE GUARANTEED INTEREST DIVISION
You may allocate all or a part of the net premiums and transfers of your net
account value into the guaranteed interest division. The guaranteed interest
division is part of our general account which guarantees principal. It pays
interest at a fixed rate that we declare.
The general account supports our non-variable insurance and annuity obligations.
We have not registered interests in the guaranteed interest division under the
Securities Act of 1933. Also, we have not registered the guaranteed interest
division or the general account as an investment company under the Investment
Company Act of 1940 (because of exemptive and exclusionary provisions). This
means that the general account, the guaranteed interest division and its
interests are generally not subject to regulation under these Acts.
The SEC staff has not reviewed the disclosures included in this prospectus
relating to the general account and the guaranteed interest division. These
disclosures, however, may be subject to certain requirements of the federal
securities law regarding accuracy and completeness of statements made in this
prospectus.
The amount you have in the guaranteed interest division is the sum of net
premiums you allocate to that division, plus transfers you made to the
guaranteed interest division, plus interest earned.
Amounts you transfer out of or withdraw from the guaranteed interest division
reduce this amount. It is also reduced by deductions for charges from your
account value allocated to the guaranteed interest division.
We declare the interest rate that applies to all amounts in the guaranteed
interest division. These interest rates are never less than the minimum
guaranteed interest rate of 3% and will be in effect for periods of at least
twelve months. Interest compounds daily at an effective annual rate that equals
the declared rate. We credit interest to the guaranteed interest division on a
daily basis. We pay interest regardless of the actual investment performance of
our account. We bear all of the investment risk for the guaranteed interest
division.
MAXIMUM NUMBER OF INVESTMENT DIVISIONS
You may invest in a total of eighteen divisions over the lifetime of your
policy. Investment divisions include the variable and the guaranteed interest
divisions, but not the loan division. The loan division does not count toward
the eighteen division maximum.
As an example, if you have had funds in seventeen variable divisions and the
guaranteed interest division (or eighteen variable divisions), these are the
only divisions to which you may later add or transfer funds. You may want to use
fewer divisions in the early years of your policy, so that you can invest in
other divisions in the future. Further, if you invest in
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Variable Survivorship 22
<PAGE>
eighteen variable divisions, you will not be able to invest in the guaranteed
interest division.
DETAILED INFORMATION ABOUT THE VARIABLE SURVIVORSHIP UNIVERSAL LIFE POLICY
This prospectus describes our standard Variable Survivorship Universal Life
insurance policy. There may be differences in the policy because of state
requirements where we issue your policy. We will describe any such differences
in your policy.
The illustrations beginning on page 61 show how the Variable Survivorship
policies work.
APPLYING FOR A POLICY
You purchase a Variable Survivorship policy by submitting an application to us.
On the policy date, the joint equivalent age of the two insured people must be
no older than age 85. The insured people are the two people on whose lives we
issue the policy. The insured people share some relationship and commonly
include, among others: husband and wife; business partners; parent and child;
grandparent and grandchild; and siblings. Upon the second death of the insured
people we pay the death proceeds. Age is each insured person's age on the
birthday nearest the policy date plus the number of completed policy years since
the policy date.
The individual age of each insured person must be no more than 90 years of age
on the policy date. There is no maximum age difference between the two insured
people. We may back-date the policy up to six months to allow either or both of
the insured people to give proof of a younger age for the purposes of your
policy.
POLICY ISSUANCE
Before we issue a policy or apply your net premium to the investment divisions,
we require satisfactory evidence of insurability of both insured people and
payment of your initial premium. This evidence may include a medical examination
and completion of all underwriting and issue requirements.
The investment date is the first date we apply the net premium payments we have
received from you to your policy. Your initial premium is the premium we must
receive before coverage can begin. The initial premium is the first premium we
receive and apply to your policy. It must be at least equal to the sum of the
scheduled premiums which are due from your policy date through your investment
date.
If you have a policy with no adjustable term insurance rider, your stated death
benefit may be no less than $250,000. If you choose to have an adjustable term
insurance rider, your stated death benefit may be as little as $100,000, as long
as your target death benefit is at least $250,000. SEE CHANGES IN DEATH BENEFIT
AMOUNTS, PAGE 29.
We may reduce the minimum stated death benefit for group or sponsored
arrangements or corporate purchasers. Our underwriting and reinsurance
procedures in effect at the time you apply limit the maximum stated death
benefit.
The policy date as shown on your policy schedule determines:
o monthly processing dates;
o policy months;
o policy years; and
o policy anniversaries.
It is not affected by the date you receive the policy. The policy date may be
different from the date we receive your first premium payment. If the policy
date is earlier, we charge monthly deductions from the policy date.
DEFINITION OF LIFE INSURANCE
We apply a test to make sure that your policy meets the federal tax definition
of life insurance. The guideline premium/cash value corridor test applies to
your policy. We may limit premium payments relative to your policy death benefit
under this test. SEE TAX STATUS OF THE POLICY, PAGE 57.
TEMPORARY INSURANCE
If you apply and qualify, we may issue temporary insurance in an amount equal to
the face amount of insurance for which you applied. The maximum amount of
temporary insurance for binding limited life insurance coverage is $3 million,
which includes any in force coverage with us. This temporary insurance is in
force as long as you meet all requirements.
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Variable Survivorship 23
<PAGE>
Coverage begins when:
1. you have completed and signed our binding limited life insurance
coverage form;
2. we receive and accept a premium payment of at least your scheduled
premium (selected on your application); and
3. part I of the application is completed.
Binding limited life insurance coverage ends on the earliest of:
o the date we return your premiums;
o five days after we mail notice of termination to the address on your
application;
o the date your policy coverage starts;
o the date we refuse to issue you a policy based on your application; or
o 90 days after you sign our binding limited
life insurance coverage form.
There is no death benefit under the temporary insurance agreement if:
o there is a material misrepresentation in your answers on the binding
limited life insurance coverage form;
o there is a material misrepresentation in statements on your
application;
o the person or persons intended to be the insured people die by suicide
or self- inflicted injury; or
o the bank does not honor your premium check.
PREMIUMS
You may choose the amount and frequency of premium payments, within limits.
SCHEDULED PREMIUMS
Your premiums are flexible. You may select your scheduled premium (within our
limits) when you apply for your policy. The scheduled premium, shown in your
policy and schedule, is the amount you choose to pay over a stated time period.
THIS AMOUNT MAY OR MAY NOT BE ENOUGH TO KEEP YOUR POLICY IN FORCE. You may
receive premium reminder notices for the scheduled premium on a monthly,
quarterly, semiannual, or annual basis. You are not required to pay the
scheduled premium.
Alternatively, you may choose to pay your premium by electronic funds transfer
each month. This option is not available for your initial premium. The financial
institution that makes your electronic funds transfer may charge for this
service.
You can change the amount of your scheduled premium within our minimum and
maximum limits at any time. If you fail to pay your scheduled premium or if you
change the amount of your scheduled premium, your policy performance will be
affected. During the special continuation period, your scheduled premium should
not be less than the minimum annual premium shown in your policy. If you want
the guaranteed minimum death benefit, your scheduled premium should not be less
than the guarantee period annual premium shown in your policy. SEE GUARANTEED
MINIMUM DEATH BENEFIT, PAGE 30.
UNSCHEDULED PREMIUM PAYMENTS
Generally speaking, you may make unscheduled premium payments at any time,
however, we will return all or part of premium payments which are greater than
the "seven-pay" limit for your policy if your payment would cause your policy to
become a modified endowment contract, unless you send us notice acknowledging
the new modified endowment contract status for your policy.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 58 AND CHANGES TO COMPLY WITH THE LAW,
PAGE 59.
If you have an outstanding policy loan and you make an unscheduled payment, we
will consider this payment a loan repayment, unless you tell us otherwise. If
your payment is a loan repayment, we do not take out the tax and sales charges
which apply to premium payments.
MINIMUM ANNUAL PREMIUM
You must pay a minimum annual premium during your first five policy years to
qualify for the special continuation period.
Your minimum annual premium is based on:
o each insured person's age, gender, premium class and any rating;
o the stated death benefit of your policy; and
o any additional benefits you select.
Your minimum annual premium is shown in the schedule pages of your policy. We
may reduce the minimum annual premium for group, or sponsored arrangements or
for corporate purchasers.
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Variable Survivorship 24
<PAGE>
SPECIAL CONTINUATION PERIOD
The special continuation period is during the first five policy years. Under the
special continuation period, we guarantee that your policy will not lapse,
regardless of its net cash surrender value, if on a monthly processing date:
o the sum of all premiums you have paid, minus partial withdrawals that
you have taken, minus policy loans that you have taken, including
accrued loan interest is greater than or equal to;
o the minimum monthly premiums for each policy month, starting with the
first month of your policy through the current policy monthly
processing date.
On the monthly processing date, we deduct the monthly deductions from your
account value.
The minimum monthly premium is one-twelfth of the minimum annual premium.
During the first five years of your policy, if there is not enough net cash
surrender value to pay the monthly deductions and you have satisfied our
requirements, we do not permanently waive certain charges. Instead, we continue
to deduct these charges. This deduction may result in your policy having a
negative net cash surrender value, unless you pay enough premium to prevent
this. The negative balance is your unpaid monthly deductions owing. At the end
of the special continuation period to avoid lapse of your policy, you must pay
enough
premium to bring the net cash surrender value to zero plus the amount that
covers your estimated monthly deductions for the following two months. SEE
LAPSE, PAGE 42.
ALLOCATION OF NET PREMIUMS
The net premium is the balance remaining after we take premium-based charges
from your premium payment. We add the net premium to your account value
according to your instructions.
We apply net premiums we have received from you to your policy after:
a) we receive the amount of premium required for your insurance coverage
to begin;
b) all issue requirements have been met and received by our customer
service center;
c) we approve your policy application; and
d) your policy is issued.
All amounts you designated for the guaranteed interest division will be
allocated to that division. If your state requires return of your premium during
the free look period, we invest amounts you have designated for the variable
divisions into the Fidelity VIP Money Market Division until 15 days after we
issue your policy (deemed delivery time, plus a typical free look period which
varies by state). If your state provides for return of account value during the
free look period and for premium payments after the end of the free look period,
we invest amounts you designated for the variable divisions directly into your
selected investment portfolios. SEE FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY
PERIOD, PAGE 44.
We allocate premium payments received after we apply your initial net premium
payment to your policy on the valuation date of receipt. We always use your most
recent premium allocation instructions. Your instructions must specify
percentages that are whole numbers totaling 100%.
You may invest in a maximum of eighteen divisions over the lifetime of your
policy. This eighteen investment division maximum includes the variable
divisions and the guaranteed interest division, but not the loan division. SEE
MAXIMUM NUMBER OF INVESTMENT DIVISIONS, PAGE 22.
You may make five free premium allocation changes per year. After the five free
premium allocation changes, we charge you $25 for each additional allocation
change per policy year. The $25 fee is withdrawn from each investment division
pro rata to the amount in each division.
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
Unless you have the guaranteed minimum death benefit feature or are in the
special continuation period, your coverage lasts only as long as your net cash
surrender value is enough to pay the monthly charges and your cash surrender
value is more than your outstanding policy loan plus accrued loan interest. If
this happens, your policy will enter the 61-day grace period and you must make a
premium payment to avoid lapse. SEE LAPSE, PAGE 42, AND GRACE PERIOD, PAGE 42.
If you pay your minimum annual premium each year during the first five policy
years, we guarantee your policy and riders will not lapse during the special
continuation period, regardless of your net cash
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Variable Survivorship 25
<PAGE>
surrender value. SEE SPECIAL CONTINUATION PERIOD, PAGE 25.
Under the guaranteed minimum death benefit, the base death benefit portion of
your policy remains effective until the end of the guarantee period. The
guaranteed minimum death benefit feature does not apply to riders which can
lapse and terminate during the guarantee period. You must meet all conditions of
the guarantee. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 30.
MODIFIED ENDOWMENT CONTRACTS
There are special federal income tax rules for distributions from certain life
insurance policies known as "modified endowment contracts." These rules apply to
distributions such as policy loans, surrenders, and partial withdrawals.
Whether or not these rules apply depends upon whether or not the premiums you
paid are greater than the "seven-pay" limit. SEE MODIFIED ENDOWMENT CONTRACTS,
PAGE 58.
If we find that your scheduled premium causes your policy to be a modified
endowment contract on your policy date, we will require you to acknowledge that
you know the policy is a modified endowment contract. We will issue your policy
based on the scheduled premium you selected. If you do not want your policy to
be issued as a modified endowment contract, you may reduce your scheduled
premium to a level which does not cause your policy to be a modified endowment
contract. We will then issue your policy based on the revised scheduled premium.
DEATH BENEFITS
You can decide the amount of insurance you need, now and in the future. You can
combine the long-term advantages of permanent life insurance base coverage with
the flexibility and short-term advantages of term life insurance. Both permanent
and term life insurance are available under your Variable Survivorship policy.
When we issue your policy, we base the initial insurance coverage on the
instructions in your application. The initial death benefit is the stated death
benefit amount. You can add an adjustable term insurance rider or single life
term rider for additional insurance coverage.
The stated death benefit is the permanent element of your policy. The adjustable
term insurance rider is the term insurance element of your policy.
As a Variable Survivorship policy, your policy has a joint nature to the death
benefits. This means that we do not pay death proceeds until the second death of
the insured people. Your death benefit is calculated as of the date of the
second death of the insured people. The adjustable term insurance rider acts as
a bridge. It provides term insurance coverage which automatically adjusts to
fill the gap between your total death benefit and your base death benefit
depending on which death benefit option you choose. If you have a policy with no
term rider, your stated death benefit may be no less than $250,000. If you
choose to have an adjustable term insurance rider, your stated death benefit may
be as low as $100,000, as long as your target death benefit is at least
$250,000.
We do not guarantee coverage provided by the adjustable term insurance rider
under the guaranteed minimum death benefit. It may be to your economic advantage
to include part of your insurance coverage under the adjustable term insurance
rider. Both the cost of insurance under the adjustable term insurance rider and
the cost of insurance for the base death benefit are deducted monthly from your
account value and generally increase with the age of the insured people. Use of
the adjustable term insurance rider may reduce sales compensation. SEE
ADJUSTABLE TERM INSURANCE RIDER, PAGE 32.
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Variable Survivorship 26
<PAGE>
DEATH BENEFIT SUMMARY
THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES AND NO REQUESTED OR SCHEDULED
INCREASES OR DECREASES IN STATED OR TARGET DEATH BENEFIT.
<TABLE>
<CAPTION>
OPTION 1 OPTION 2
===================== ============================================= =================================================
<S> <C> <C>
STATED DEATH The amount of policy death benefit at The amount of policy death benefit at issue,
BENEFIT issue, not including rider coverage. This not including rider coverage. This amount
amount stays level throughout the life of stays level throughout the life of the contract.
the contract.
BASE DEATH The greater of the stated death benefit, or The greater of the stated death benefit, plus
BENEFIT the account value multiplied by the death the account value or the account value
benefit corridor factor. multiplied by the death benefit corridor
factor.
TARGET DEATH Stated death benefit plus adjustable term Stated death benefit plus adjustable term
BENEFIT insurance rider benefit. This amount insurance rider benefit. This amount remains
remains level throughout the life of the level throughout the life of the policy.
policy.
TOTAL DEATH This is the total death proceeds. It is the This is the total death proceeds. It is the
BENEFIT greater of the target death benefit or the greater of the target death benefit plus the
base death benefit. account value or the base death benefit.
ADJUSTABLE The adjustable term insurance rider benefit The adjustable term insurance rider benefit is
TERM is the total death benefit minus base death the total death benefit minus the base death
INSURANCE benefit, but it will not be less than zero. If benefit, but it will not be less than zero. If the
RIDER BENEFIT the account value multiplied by the death account value multiplied by the death benefit
benefit corridor factor is greater than the corridor factor is greater than the stated death
stated death benefit, the adjustable term benefit plus the account value, the adjustable
insurance benefit will be decreased. It term insurance rider benefit will be decreased.
will be decreased so that the sum of the It will be decreased so that the sum of the
base death benefit and the adjustable term base death benefit and the adjustable term
insurance rider benefit is not greater than insurance rider benefit is not greater than the
the target death benefit. If the base death target death benefit plus the account value. If
benefit becomes greater than the target the base death benefit becomes greater than
death benefit, then the adjustable term the target death benefit plus the account
insurance rider benefit is zero. value, then the adjustable term insurance rider
benefit is zero.
</TABLE>
BASE DEATH BENEFIT
Your base death benefit can be different from your stated death benefit as a
result of:
o your choice of death benefit option;
o your choice of the enhanced death benefit corridor option;
o a change in your death benefit option;
o increases to satisfy the federal income tax law definition of life
insurance;
o partial withdrawals;
o increases or decreases in the stated death benefit; or
o a transaction which causes the base death benefit to change.
As long as your policy is in force, we will pay the death proceeds to your
beneficiary(ies) at the date of the second death of the insured people. The
beneficiary(ies) is(are) the person (people) you name
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Variable Survivorship 27
<PAGE>
to receive the death proceeds from your policy. The death proceeds are:
o your base death benefit; plus
o any rider benefits; minus
o your outstanding policy loan with accrued loan interest; minus
o outstanding policy charges due before the second death of the insured
people.
There could be outstanding policy charges if the date of the second death of the
insured people happens while your policy is in the grace period or in the
five-year special continuation period.
DEATH BENEFIT OPTIONS
You have a choice of two death benefit options in addition to the enhanced death
benefit corridor option: option 1 or option 2 (described below). Your choice may
result in your having a base death benefit, which is greater than your stated
death benefit. Your death benefit is calculated as of the date of the second
death of the insured people. You may change your death benefit option after the
policy date and before the continuation of coverage feature begins. You may not
change your enhanced death benefit corridor option. You must choose whether or
not you want the enhanced death benefit corridor option before we issue your
policy. SEE CHANGES IN DEATH BENEFIT OPTION 1 OR 2, PAGE 28.
Under death benefit option 1, your base death benefit is the greater of:
1. your stated death benefit on the date of the second death of the
insured people; or
2. your account value on the date of the second death of the insured
people multiplied by the appropriate factor from the definition of life
insurance factors shown in Appendix A or B depending on whether or not
you elect the enhanced death benefit option.
Under death benefit option 2, your base death benefit is the greater of:
1. your stated death benefit plus your account value on the date of the
second death of the insured people; or
2. your account value on the date of the second death of the insured
people multiplied by the appropriate factor from the definition of life
insurance factors shown in Appendix A or B depending on whether or not
you elect the enhanced death benefit option.
Under option 1 positive investment performance is generally reflected in a
reduced net amount at risk. This lowers your policy's total cost of insurance
charges. Option 1 offers insurance coverage that is a set amount with
potentially lower cost of insurance charges over time. You should choose option
2 if you want to have investment performance reflected in your insurance
coverage.
Federal income tax law requires that your death benefit be at least as much as
your account value multiplied by a factor defined by law. This factor is based
on:
o the younger insured person's age; and
o the guideline premium/cash value corridor test for the federal income
tax law definition of life insurance; and
o the enhanced death benefit corridor option, if elected.
We will adjust your policy to continue to qualify as life insurance under the
federal income tax laws in existence at the time the policy was issued.
CHANGES IN DEATH BENEFIT OPTIONS
You may request a change in your death benefit option 1 or 2 after the policy
date and before the continuation of coverage feature. Your death benefit option
change is effective on your next monthly anniversary after we accept and approve
your requested change, so long as at least five days remain before your monthly
anniversary. If fewer than five days remain before your monthly anniversary,
your death benefit option change is effective on your next monthly anniversary.
After we approve your request, we send a new policy schedule page to you. You
should attach it to your policy. We may ask you to return your policy to our
customer service center so that we can note the change in your schedule. A death
benefit option change applies to your entire stated or base death benefit.
Changing your death benefit option may reduce or increase your target death
benefit, as well as your stated death benefit.
We may not allow you to change the death benefit option if it reduces the target
or stated death benefit below the minimum we require to issue your policy.
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Variable Survivorship 28
<PAGE>
On the effective date of your option change, your stated death benefit is
changed as follows:
Change Change Stated Death Benefit
From To Following Change:
---- -- -----------------
Option 1 Option 2 your stated death benefit
before the change minus
your gross account value as
of the effective date of the
change.
Option 2 Option 1 your stated death benefit
before the change plus your
gross account value as of the
effective date of the change.
We increase or decrease your stated death benefit to keep the net amount at risk
the same on the date you change your death benefit option. Additionally, there
is no change to the amount of term insurance if you have an adjustable term
insurance rider. SEE COST OF INSURANCE CHARGE, PAGE 53.
If you change your death benefit option, we adjust the stated death benefit for
each of your segments by allocating your account value to each benefit segment.
For example, if you change from death benefit option 1 to option 2, your stated
death benefit is decreased by the amount of your account value allocation to
that segment. If you change from death benefit option 2 to option 1, your stated
death benefit is increased by the amount allocated to that segment.
We do not impose a surrender charge for any decrease in your stated death
benefit due to your changing your death benefit option. There is no change to
the target premium. SEE SURRENDER CHARGE, PAGE 55.
Death benefit option 2 is not available during the continuation of coverage
period. If you select this on your policy, it automatically converts to death
benefit option 1 upon the policy anniversary nearest the younger insured
person's 100th birth date.
ENHANCED DEATH BENEFIT CORRIDOR OPTION
You may elect, at any time prior to the issuance of your policy, the enhanced
death benefit corridor option.
This option generally provides an opportunity for an increased death benefit on
the lives of the insured people at certain ages. Under death benefit option 1
and 2 to calculate your base death benefit value, the account value is
multiplied by a factor shown in Appendix A or B depending on whether or not you
elect this option. The result of this calculation is the base death benefit if
it exceeds the stated death benefit. Under the enhanced death benefit corridor
option, we calculate the base death benefit using the factors shown on Appendix
B-Enhanced. SEE DEATH BENEFIT OPTIONS, PAGE 28.
There is no separate charge for this feature. However, the same account value
may generate a higher base death benefit under policies with this option than on
policies not electing the option. Cost of insurance charges are based on the net
amount at risk, which is the difference between the account value and the base
death benefit. Therefore, as a result of the increased death benefit, the cost
of insurance charges may be higher for policies electing this option. Your
registered representative/agent can provide you with a personalized illustration
to show the difference between a policy with this option and one without it. If
your policy does not have sufficient account value, electing this option may
have no effect on the base death benefit.
Adding this option to your policy does not affect the operation of your policy's
riders, including the adjustable term insurance rider. When the base death
benefit is more than the stated death benefit, transactions which reduce your
account value (such as a partial withdrawal) also reduce the death benefit. The
dollar reduction to the death benefit under these circumstances is greater for
policies with the enhancement option than on those without the option.
Once elected, this option cannot be deleted from your policy. You may lose the
benefit of this option if your account value falls below the minimum level
needed to keep it in effect. Once elected, this option continues as long as
coverage on the original insured people continues.
CHANGES IN DEATH BENEFIT AMOUNTS
You may want to increase the target or stated death benefit under your policy.
You may do this while your policy is in force and before the policy anniversary
when the joint equivalent age of the insured people is 85.
Contact our customer service center to request an increase or decrease in your
policy death benefit. The request is effective as of the next monthly processing
date after we receive your request and approve it, unless there are underwriting
or other requirements which must be met before your request
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Variable Survivorship 29
<PAGE>
is effective. Any requested change in your coverage must be for at least $1,000.
After we approve your request, we will send you a new schedule page for your
policy which includes the:
o stated death benefit;
o benefit under applicable riders;
o guaranteed cost of insurance rates of each segment;
o new surrender charge; and
o target death benefit schedule.
Keep the new schedule with your policy. We may ask you to send your policy to us
so that we can note the change in your schedule.
We may not approve a requested change because it will disqualify your policy as
life insurance under the applicable federal income tax law. If we disapprove a
change for any reason, we provide you with a notice of our decision. SEE TAX
CONSIDERATIONS, PAGE 57.
If your policy does not have an adjustable term insurance rider, your stated
death benefit may be no less than $250,000. If you choose to have an adjustable
term insurance rider, your stated death benefit may be as low as $100,000 as
long as your target death benefit is at least $250,000.
There may be tax consequences as a result of a decrease in your death benefit,
as well as a possible surrender charge. SEE TAX STATUS OF THE POLICY, PAGE 57
AND MODIFIED ENDOWMENT CONTRACTS, PAGE 58.
Requested reductions in the death benefit will first be applied to decrease the
target death benefit. We decrease your stated death benefit only after your
adjustable term insurance rider coverage is reduced to zero. If you have more
than one segment, we divide subsequent decreases in stated death benefit among
your benefit segments pro rata unless state law requires differently. You must
provide satisfactory evidence that the insured people are still insurable in
order to increase your death benefit.
Unless you tell us differently, we assume any request you make for an increase
in your target death benefit is also a request for an increase to the stated
death benefit. Thus, the amount of your adjustable term insurance rider will not
change.
You may change the target death benefit only once in a policy year.
The initial, or first segment, is the stated death benefit on the effective date
of the policy. An increase in the stated death benefit (other than one caused by
an option change) will cause a new segment to be created. The segment year
begins on the segment effective date and ends one year later. The following may
apply to each new segment:
o a new minimum annual premium during the first five years of your
policy;
o a new sales charge;
o new surrender charges;
o new cost of insurance charges, guaranteed and current;
o a new incontestability period;
o a new suicide exclusion period; and
o a new target premium.
A requested increase in your stated death benefit creates a new segment. Once we
create a new segment, it is permanent unless state law requires differently. If
an option change causes the stated death benefit to increase, no new segment is
created. Instead, the size of each existing segment(s) is(are) changed. If it
causes the stated death benefit to decrease, each segment is decreased.
To determine the applicable sales charge, premiums you pay after an increase are
applied to your policy segments in the same proportion as the target premium for
each segment bears to the sum of the target premium for all segments.
We allocate the net amount at risk among segments in the same proportion that
each segment bears to the total stated death benefit.
GUARANTEED MINIMUM DEATH BENEFIT
Usually, how long your policy remains in force depends on your policy's net cash
surrender value. Your coverage lasts only as long as your net cash surrender
value is enough to pay the monthly charges and your cash surrender value is more
than your outstanding policy loan and accrued loan interest. Your account value
and the length of time your policy remains in force depend on:
1. timing and amount of any premium payments;
2. the investment performance of the variable divisions;
3. the interest you earn in the guaranteed interest division;
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4. the amount of your monthly charges;
5. partial withdrawals you take; and
6. loan activity you may have.
The guaranteed minimum death benefit may only be put in force at the issue of
your policy. This option extends the period that your policy's stated death
benefit remains in effect even if the variable divisions have poor investment
performance. It has a guarantee period that lasts until the policy anniversary
nearest the younger insured person's 100th birth date, so long as you have met
all requirements.
The guaranteed minimum death benefit coverage does not apply to any riders,
including the adjustable term insurance rider. Therefore, if your net cash
surrender value is not enough to pay the deductions as they come due on your
policy and if your policy is no longer in the special continuation period, only
the stated death benefit portion of your coverage is guaranteed to stay in
force. All riders will end.
The guaranteed minimum death benefit feature is not available in some states.
If you choose the guaranteed minimum death benefit feature, we currently charge
the guaranteed rate of $0.005 per $1,000 of your stated death benefit each month
during the guarantee period.
REQUIREMENTS TO MAINTAIN THE GUARANTEE PERIOD
To qualify for the guaranteed minimum death benefit you must pay an annual
premium higher than the minimum annual premium. This higher premium is called
the guarantee period annual premium. The guarantee period monthly premium is
equal to one-twelfth of the guarantee period annual premium. Your net account
value must also meet certain diversification requirements.
Your guarantee period annual premium is based on a percentage of the guideline
level premium, which is calculated under the federal tax laws. Your guideline
level annual premium depends on:
o your policy's target death benefit;
o each insured person's age, gender, premium class and underwriting
characteristics;
o the death benefit option you chose;
o additional rider coverage on your policy; and
o other additional benefits on your policy.
At each monthly processing date we test to see if you have paid enough premium
to keep your guarantee in place. We calculate:
o actual premiums paid; minus
o the amount of any partial withdrawals you make; minus
o policy loans you take with accrued loan interest. This amount must
equal or exceed;
o the sum of the guarantee period monthly premium payments for each
policy month starting with your first policy month through the end of
the policy month that begins on the current monthly processing date.
You must continually meet the requirements of the guarantee period for this
feature to remain in effect. We show the guarantee period annual premium on your
policy schedule. If your policy benefits increase, the guarantee period annual
premium increases. If your policy fails to meet this test on any monthly
processing date, the guarantee period ends, and thus the guaranteed minimum
death benefit lapses.
The guarantee period ends if your net account value on any monthly processing
date is not diversified as follows:
1. you must invest your net account value in at least five investment
divisions; and
2. you may invest no more than 35% of your net account value in any one
division.
Your policy will continue to meet the diversification requirements if:
1. you have automatic rebalancing and you meet the two diversification
tests listed above; or
2. you have dollar cost averaging which results in transfers into at least
four additional investment divisions with no more than 35% of any
transfer directed to any one division.
SEE DOLLAR COST AVERAGING, PAGE 38, AND AUTOMATIC REBALANCING, PAGE 39.
If you fail to satisfy either the premium test or the diversification test and
you do not correct it, this feature terminates. If you choose the guaranteed
minimum death benefit, you must make sure your policy satisfies the
premium test and diversification test. Once it terminates, you cannot reinstate
the guaranteed minimum death benefit feature. The
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guarantee period annual premium then no longer applies to your policy.
ADDITIONAL BENEFITS
Your policy may include additional benefits, which we attach by rider. A rider
changes benefits under your policy and may or may not add an additional cost to
your policy. If applicable, we deduct a monthly charge from your account value
for each rider you choose. You may cancel these rider benefits at any time. If
you choose any of these benefits your policy will include the details. Not all
riders are available for all policies. You may schedule your term rider coverage
to increase or decrease at issue. If you want to increase your scheduled
benefits after issue of your rider, new guidelines may apply. Scheduled benefits
are the kind and amount of benefits you choose under your policy over a stated
period of time.
Periodically we may offer other riders than those listed here. You should
contact your registered representative for a complete list of the riders now
available.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 58, FOR INFORMATION ON THE POSSIBLE TAX
EFFECTS OF ADDING OR CANCELING THESE BENEFITS.
ADJUSTABLE TERM INSURANCE RIDER
You may increase your death proceeds by adding an adjustable term insurance
rider. The amount we pay is the term death benefit in force at the time of the
second death of the two people. As the name suggests, the adjustable term
insurance rider adjusts over time.
You specify a target death benefit when you apply for this rider. The target
death benefit can be level or can be scheduled to change at the beginning of any
policy year. We generally restrict your target death benefit to an amount not
more than four times your stated death benefit at issue. Under certain
circumstances, we will be willing to allow you to specify a target death benefit
of up to eight times your stated death benefit during the first four policy
years. After this four-year period, the normal target death benefit maximum
would apply.
The death benefit for the adjustable term insurance rider is the difference
between your total death benefit and your base death benefit. The death benefit
automatically adjusts daily as your base death benefit changes. Total death
benefit depends on which death benefit option is in effect:
OPTION 1: If option 1 is in effect, the total death benefit is the
greater of:
a. the target death benefit, or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
OPTION 2: If option 2 is in effect, the total death benefit is the
greater of:
a. the target death benefit plus the account value; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
For example, under option 1, assume your base death benefit increases as a
result of an increase in your account value. The adjustable term insurance rider
adjusts to provide death proceeds equal to your total death benefit in each
year:
Base Death Total Death Adjustable Term
Benefit Benefit Insurance Rider Amount
------- ------- ----------------------
$201,500 $250,000 $48,500
202,500 250,000 47,500
202,250 250,000 47,750
It is possible that the amount of your adjustable term insurance may be zero if
your base death benefit increases enough. Using the same example, if the base
death benefit under your policy grew to $250,000 or more, the adjustable term
insurance would be zero.
The adjustable term insurance can never be less than zero. Even when the
adjustable term insurance is reduced to zero, your rider remains in effect until
you remove it from your policy. Therefore, if later the base death benefit is
reduced below your target death benefit, the adjustable term insurance rider
amount reappears to maintain the total death benefit.
You may change the target death benefit schedule after it is issued, based on
our rules. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 29.
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We may deny any future, scheduled increases to your target death benefit if you
cancel a scheduled change, or if you ask for an unscheduled decrease in your
target death benefit.
Partial withdrawals, changes from death benefit option 1 to death benefit option
2, and base decreases may reduce the amount of your target death benefit. SEE
PARTIAL WITHDRAWALS, PAGE 41 AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 28.
There is no defined premium for a given amount of adjustable term insurance
coverage. Instead, we deduct a monthly cost of insurance charge from your
account value. The cost of insurance for this rider is calculated as the monthly
cost of insurance rate for the rider coverage multiplied by the adjustable term
death benefit in effect that month. The cost of insurance rates will be
determined by us from time to time. They will be based on the issue ages,
genders and premium classes of the insured people, as well as the length of time
since your policy date. The monthly guaranteed maximum cost of insurance rates
for this rider will be in the policy. SEE COST OF INSURANCE CHARGE, PAGE 53.
There are no sales or surrender charges for this coverage. This means that an
increase in your target death benefit which does not increase your stated death
benefit does not increase the total surrender charge for your policy. Further, a
decrease in your adjustable term insurance rider coverage does not cause a
surrender charge to be assessed. If the target death benefit schedule is
increased by you after the rider is issued, we use the same rates for the entire
coverage for this rider. These rates are based on the original premium classes
even though satisfactory new evidence of insurability is given to us for the
increased schedule.
SINGLE LIFE TERM RIDER
This rider provides a benefit upon the death of one of the primary insured
people under your policy. You may choose to add a single life term rider to just
one insured person; or, you may add two single life term riders: one for each
insured person under your policy. You may add this rider when your policy is
issued or at a later time. The insured person must be insurable according to our
rules.
We will issue the single life term rider for an insured person who is age 85 or
younger. Coverage may continue under this rider until the earlier of when:
o the insured person covered by this rider reaches age 100;
o the continuation of coverage provision becomes effective
o the guaranteed minimum death benefit, if applicable, terminates this
rider; or
o the insured person covered by this rider dies. SEE CONTINUATION OF
COVERAGE, PAGE 35 and GUARANTEED MINIMUM DEATH BENEFIT, PAGE 30.
The minimum amount of coverage for each single life term rider is $1,000. The
maximum coverage for an insured person under this rider is subject to our
underwriting determinations. We can schedule the death benefit for your single
life term rider when we issue it. You may increase or decrease coverage under
this rider.
Your request for an increase or decrease in coverage is effective as of the next
monthly processing date after we approve your request, unless there are
underwriting or other requirements which must be met before your request is
effective. Any requested change in your coverage must be for at least $1,000. If
you schedule or request an increase after issue, the insured person under this
rider will again be subject to our underwriting requirements. The charge for
this rider is based on the age, gender, premium class, and underwriting
characteristics of the insured person covered by this rider.
The charge for this rider is deducted on each monthly processing date. It is
charged as a cost per each $1,000 of the net amount at risk under this rider.
See the schedule pages attached to your policy for information on your actual
cost. There are no surrender charges for decreases in the amount of coverage
under the single life term rider.
SPECIAL FEATURES
POLICY MATURITY
You can surrender your policy at anytime. At the policy anniversary nearest the
younger insured person's 100th birth date if you do not want the continuation of
coverage feature, you may surrender the policy for the net account value. Your
policy then ends. Some part of this payment may be taxable. You should consult
your tax adviser.
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<PAGE>
POLICY SPLIT OPTION
Provided certain circumstances in your policy are met, you may exchange your
policy for a single life insurance policy on each person insured. The policy
split option has its own insurability requirements which my be met at or before
the time your policy is split. Evidence of insurability on an insured person is
required to make this exchange if:
o there is n overall increase in death benefit amounts; and
o neither single life policy coverage is greater than 50% of the original
death benefit.
On the effective date of the exchange, the available death benefit under your
policy will be divided between the two single life insurance policies. The
maximum amount you may allocate to each single life policy without underwriting
is 50% of your available death benefit amount. The sum of the face amounts for
the two single life insurance policies may not be more than the total death
benefit amount under your original policy. You are not required to use the
maximum death benefit amount available for either insured person.
You may split your policy to provide coverage of more than 50% of the total
death benefit under your original policy for one insured person. To do so, you
must provide proof that the insured person is insurable at the time of the
policy split. For coverage of 50% or less of the total death benefit under your
original policy, you do not need to provide proof of insurability.
Unless state law requires otherwise, you may use the policy split option if:
a) there is a final divorce decree regarding the marriage of the two
insured people;
b) there is a change to the federal estate tax law which results in
either:
i) removal of the unlimited marital deduction provision; or
ii) a reduction in the current maximum federal estate tax of at least
a 50% reduction after your policy date; or
c) there is a dissolution of business carried on or owned by the two
insured people.
You must send us written notice of your election to split your policy under the
policy split option within 180 days of the occurrence of these stated events.
You must provide satisfactory evidence that the contingent event has occurred.
The effective date of the exchange is the first monthly processing date after we
have approved your policy exchange. The insurance under the two individual life
insurance policies will start on the effective date of your exchange only if
both insured people are alive on that date. The new single life insurance
policies will not provide insurance coverage until that time. If either insured
person is not alive on that date, your exchange is void.
All terms and conditions under the new policies apply once your policy is split.
Consult your new single life insurance policies upon split.
The premiums under each new policy will be based on each insured person's age,
gender and premium class at the time of the split of your policy. Premiums will
be due for each new policy under the terms of the new policy as of the effective
date of the exchange. The surrender value of the old policies will be allocated
to the new policies on the effective date of the exchange in the same proportion
that the face amount was divided between the two single life insurance policies,
unless we agree to a different allocation. If this allocation would cause an
increase in the face amount of either new single life insurance policy, we may
limit the amount of surrender value you may apply to each new policy. Any
remaining surrender value will be paid to you in cash, and may be taxable.
Any loan on your policy will be divided and transferred to each new single life
insurance policy in the same proportion as your cash value is allocated. Any
remaining outstanding loan balance must be paid in cash before the effective
date of the exchange. Any person or entity to which you have assigned your
policy must agree to the exchange. Any assignment of your policy will apply to
each new single life insurance policy.
If you have a single life term insurance rider on your policy at the date of the
policy split, you may have a term insurance rider insuring the same insured
person if such a rider is available on the new policy. Any other riders on new
policies are subject to the availability of the riders under the new policy and
new proof of insurability of the insured people.
Your right to split your policy into two single life insurance policies ends on
the earliest of:
a) the policy anniversary nearest the younger insured person's 100th birth
date; or
b) the first death of the insured people;
c) the end of your policy grace period; or
d) the termination or surrender of your policy.
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Exercising the policy split option may be treated as a taxable transaction.
Moreover, the two single life insurance policies that result from a policy split
could be treated as a modified endowment contract. SEE TAX CONSIDERATIONS, PAGE
57. You should consult a tax adviser when exercising the policy split option.
RIGHT TO EXCHANGE POLICY
During the first 24 months after your policy date, you have the right to
exchange your policy to a guaranteed policy, unless state law requires
differently. To do this, we transfer the amount you have in the variable
divisions to the guaranteed interest division. We allocate all of your future
net premiums only to the guaranteed interest division. We do not allow any
future payments or transfers to the variable divisions when you exercise this
right.
We will not charge you for the transfer to make this exchange. SEE THE
GUARANTEED INTEREST DIVISION, PAGE 22.
CONTINUATION OF COVERAGE
The continuation of coverage feature allows insurance coverage to continue in
force beyond the policy anniversary nearest the younger insured person's 100th
birth date. If you choose to allow the continuation of coverage feature to
become effective, we:
o transfer your net account value (excluding the amount in the loan
division) into the guaranteed interest division;
o charge a one-time $400 administrative fee to your policy to cover
future expenses;
o terminate all riders;
o convert death benefit option 2 to death benefit option 1, if
applicable; and
o terminate investment features such as dollar cost averaging and
automatic rebalancing.
At the policy anniversary nearest the younger insured person's 100th birth date,
if you have then in effect, an adjustable term insurance rider, the target death
benefit becomes the stated death benefit. All riders, including the adjustable
term insurance rider, then terminate. If you have no adjustable term insurance
rider coverage, your stated death benefit is unchanged. You may make no further
premium payments.
Your insurance coverage continues in force until the second death of the insured
people, unless the policy lapses or is surrendered. However, we deduct no
further cost of insurance charges. Your monthly deductions also cease when
continuation of coverage begins. SEE CONTINUATION OF COVERAGE ADMINISTRATIVE
FEE, PAGE 54.
Your net account value may not be transferred into the variable divisions after
the policy anniversary nearest the younger insured person's 100th birth date.
During the continuation of coverage period, you may take policy loans or partial
withdrawals from your policy. If we are paying a persistency refund on the
guaranteed interest division, and your policy is in the continuation of coverage
period, we credit you with the persistency refund. SEE PERSISTENCY REFUND, PAGE
55.
If you have outstanding policy loans, interest continues to accrue. If you fail
to make sufficient loan payments or loan interest payments, it is possible that
the loan plus accrued interest may become greater than your account value and
cause your policy to lapse. To avoid this, you may repay loans and make loan
interest payments during the continuation of coverage period. However, we will
not accept any additional premium payments.
If you wish to stop coverage after the continuation of coverage feature begins,
you may surrender your policy and receive the net account value. There is no
surrender charge after the policy anniversary nearest the younger insured
person's 100th birth date. All normal consequences of surrender apply. SEE
SURRENDER, PAGE 44, AND SURRENDER CHARGE, PAGE 55.
The continuation of coverage feature may not be available in all states. If a
state has approved this feature, it is an automatic feature and you do not need
to take any action to activate it.
The tax consequences of coverage continuing beyond the younger insured's
person's 100th birth date are uncertain. You should consult a tax adviser as to
those consequences.
POLICY VALUES
ACCOUNT VALUE
Your account value is the total amount you have in the guaranteed interest
division, the variable
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<PAGE>
divisions, and the loan division. Your account value reflects:
o net premiums;
o deductions for charges;
o partial withdrawals;
o investment performance of the variable divisions;
o interest earned on the amount you have in the guaranteed interest
division; and
o interest earned on the amounts you have in the loan division.
NET ACCOUNT VALUE
Your policy's net account value is your account value minus the amount of your
outstanding policy loans and accrued loan interest.
CASH SURRENDER VALUE
Your cash surrender value is your account value minus any surrender charge.
NET CASH SURRENDER VALUE
Your net cash surrender value is your cash surrender value minus the amount of
your outstanding policy loans and accrued loan interest.
DETERMINING THE VALUE IN THE VARIABLE DIVISIONS
The amounts included in the variable divisions are measured by accumulation
units and accumulation unit values.
The value of a variable division is the accumulation unit value for that
division times the number of accumulation units you own in that division. Each
variable division has a different accumulation unit value.
You purchase accumulation units of a division whenever you allocate premium or
make transfers to that division. This includes transfers from the loan division.
We redeem accumulation units from the variable divisions:
o when you take a partial withdrawal;
o when amounts are transferred from a variable division (including
transfers to the loan division);
o for the monthly deductions from your account value;
o for policy transaction charges;
o for surrender charges;
o on surrender; and
o to pay the death benefit upon the second death of the insured people.
We calculate the number of variable division accumulation units purchased or
redeemed by:
1. dividing the dollar amount of your transaction by:
2. the division's accumulation unit value calculated at the close of
business on the valuation date of the transaction.
The accumulation unit value is the value of an accumulation unit determined as
of each valuation date. The accumulation unit value of each division varies with
the investment performance of the matching portfolio. It reflects:
o investment income;
o realized and unrealized capital gains and losses;
o investment portfolio expenses; and
o daily mortality and expense risk charges we take from the variable
account.
SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION, PAGE 36.
The date of a transaction is the date we receive your premium, an acceptable
request or other transaction request at our customer service center, so long as
the date of receipt is a valuation date. Each valuation date ends at 4:00 p.m.
Eastern time. We use the accumulation unit value which is next calculated after
we receive your premium or transaction request and we use the number of
accumulation units attributable to your policy on the date of receipt.
We take monthly deductions from your account value as of the monthly processing
date. If your monthly processing date is not a valuation date, the monthly
deduction is processed on the next valuation date.
The value of amounts allocated to the variable divisions goes up or down
depending on investment performance.
For amounts in the variable divisions, there is no guaranteed minimum cash
value.
HOW WE CALCULATE ACCUMULATION UNIT VALUES FOR EACH DIVISION
We determine accumulation unit values for the variable divisions on each
valuation date.
We generally set the accumulation unit value for a division at $10 on the date
when the division is first
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Variable Survivorship 36
<PAGE>
opened and begins accepting amounts. After that, the accumulation unit value on
any valuation date is:
1. the accumulation unit value for the preceding valuation date multiplied
by
2. the accumulation experience factor for that division for the valuation
period.
Every valuation period begins at 4:00 p.m. Eastern time on a valuation date and
ends at 4:00 p.m. Eastern time on the next valuation date.
We calculate an accumulation experience factor for each investment division
every valuation date as follows:
1. We take the share value of the underlying portfolio shares in the
division as reported to us by the investment portfolio managers as of
the close of business on that valuation date.
2. We add dividends or capital gain distributions declared per share and
reinvested by the investment portfolio on the date that the share value
is affected. If applicable, we subtract a charge for taxes from this
amount.
3. We divide the remaining amount by the value of the shares in the
underlying investment portfolio for the variable division at the close
of business on the previous valuation date.
4. We then subtract a charge for the mortality and expense risk which we
assume under your policy. The daily charge is .002055% of the
accumulation unit value. This is an annual rate of .75% of the
accumulation unit value. If the previous day was not a valuation date,
the charge is multiplied by the additional number of days since the
prior valuation date.
The result of these calculations is the accumulation experience factor for the
valuation period.
TRANSFERS OF ACCOUNT VALUE
You may make up to twelve free transfers among the variable divisions, or the
guaranteed interest division, in each policy year. You may not make transfers
until after your free look period ends if your state requires a refund of
premium during the free look period. We do not limit your number of transfers,
but we charge a $25 fee for each transfer that you make after the first twelve
in each policy year. We do not include transfers for automatic rebalancing or
dollar cost averaging toward your twelve free transfers.
You may make transfer requests in writing, or by telephone if you have telephone
privileges, to our customer service center. You may not make transfers during
the continuation of coverage period. Your transfer takes effect on the valuation
date we receive your request. The minimum amount you may transfer is $100. This
minimum does not need to come from one division or be transferred to one
division as long as the total amount you transfer is at least $100. However, if
the amount remaining in a variable division is less than $100 when you make a
transfer request, we transfer the entire amount out of that division.
EXCESSIVE TRADING
Excessive trading activity can disrupt investment portfolio management
strategies and increase portfolio expenses. Thus, we limit excessive transfer
activity.
Excessive transfers may cause:
o increased trading and transaction costs;
o disruption of planned investment strategies;
o forced and unplanned portfolio turnover;
o lost opportunity costs; and
o the investment portfolios to have large asset swings that decrease
their ability to provide maximum investment return to all policyowners.
In response to excessive trading, we may place restrictions or refuse transfers
made by third-party agents acting on behalf of owners such as a market timing
service. We will refuse or place restrictions on transfers when we determine, in
our sole discretion, that transfers are harmful to the investment portfolios, or
to policyowners as a whole.
GUARANTEED INTEREST DIVISION TRANSFERS
You may transfer from the guaranteed interest division only in the first 30 days
of each policy year. Transfer requests received within 30 days before your
policy anniversary are deemed to occur on your policy anniversary. A request
received by us within 30 days after your policy anniversary is effective as
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Variable Survivorship 37
<PAGE>
of the valuation date we receive it. Transfer requests made at any other time
will not be processed.
Transfers from the guaranteed interest division are limited to the largest of:
o 25% of your guaranteed interest division balance at the time of your
first transfer or withdrawal out of it in that policy year;
o the sum of the amounts you have transferred and withdrawn from the
guaranteed interest division in the prior policy year; or
o $100.
Transfers of your account value into the guaranteed interest division are not
restricted.
DOLLAR COST AVERAGING
If your policy has at least $10,000 invested in either the Fidelity VIP Money
Market Portfolio, or the Neuberger Berman AMT Limited Maturity Bond Portfolio,
you can elect dollar cost averaging. The main goal of dollar cost averaging is
to protect your policy values from short-term price changes.
DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A
LOSS IN A DECLINING MARKET.
This systematic plan of transferring account values is intended to reduce the
risk of investing too much when the price of an investment portfolio's shares is
high. It also reduces the risk of investing too little when the price of an
investment portfolio's shares is low.
Since you transfer the same dollar amount to other divisions each period, you
purchase more units in a division if the unit value is low, and you purchase
fewer units if the unit value is high.
You may add dollar cost averaging to your policy at any time. The first dollar
cost averaging date must be at least five days after we receive your dollar cost
averaging request. Dollar cost averaging cannot begin until after the end of
your free look period if your state requires refund of all premiums paid during
the free look period.
With dollar cost averaging, you designate either a dollar amount, or a
percentage of your account value, for automatic transfer from either the
division invested in either the Fidelity VIP Money Market Portfolio or the
Neuberger Berman AMT Limited Maturity Bond Portfolio for automatic transfer.
Each period, we automatically transfer the amount you select from your chosen
source division to one or more other variable divisions. You may not make
transfers to or from the guaranteed interest division or the loan division under
dollar cost averaging.
The minimum percentage you may transfer to any one division is 1% of the total
amount you transfer to all divisions you select. You must transfer at least $100
for each dollar cost averaging transfer.
Dollar cost averaging may occur on the same day of the month either monthly,
quarterly, semi-annually, or annually. Unless you tell us otherwise, dollar cost
averaging automatically takes place monthly, on the monthly processing date.
We do not count dollar cost averaging transfers toward your twelve free
transfers per policy year. There is no charge for this feature.
You may have both dollar cost averaging and automatic rebalancing at the same
time. The dollar cost averaging division from which your transfer will be taken
cannot be included in your automatic rebalancing program.
CHANGING DOLLAR COST AVERAGING
You may change your dollar cost averaging program one time per policy year. If
you have telephone privileges, you may make changes to the dollar cost averaging
program by telephoning our customer service center. SEE TELEPHONE PRIVILEGES,
PAGE 47.
TERMINATING DOLLAR COST AVERAGING
You may cancel dollar cost averaging by sending satisfactory notice to our
customer service center. We must receive it at least five days before the next
dollar cost averaging date.
Dollar cost averaging will terminate if:
1. you specify a termination date; or
2. your balance remaining in the division from which your dollar cost
averaging transfers are taken reaches a dollar amount you set; or
3. on any dollar cost averaging date, the amount in the division from
which you want to make a transfer is equal to or less than the amount
to be transferred. We will transfer the remaining amount and dollar
cost averaging ends.
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<PAGE>
AUTOMATIC REBALANCING
Automatic rebalancing provides you with a method for maintaining a consistent
approach to investing account values over time, and simplifying the process of
asset allocation by dividing amounts among the investment options you have
chosen.
Transfers made for automatic rebalancing do not count toward your twelve free
transfers per policy year. There is no charge for this feature.
If you choose this feature, on each rebalancing date we transfer amounts among
the divisions to match your pre-set automatic rebalancing allocation
percentages. After the transfers, the ratio of your account value in each
division to your total account value for all divisions included in automatic
rebalancing matches the automatic rebalancing allocation percentage for that
division. This action rebalances the amounts in the investment divisions that do
not match your set allocation. This happens if an investment division
outperforms other divisions for that time period.
You may choose the automatic rebalancing feature on your application or later by
completing our customer service form. Automatic rebalancing may occur on the
same day of the month either monthly, quarterly, semi-annually, or annually. If
you do not specify, automatic rebalancing will occur quarterly.
If you choose automatic rebalancing on your policy application, the first
transfer occurs on the date you select (after your free look period if your
state requires return of all premiums paid during the free look period). If you
elect this feature after your policy date, we process the first transaction on
the date you have requested. If you requested no date, processing is on the last
valuation date of the calendar quarter we receive your notice at our customer
service center.
When you choose automatic rebalancing allocations, you may choose up to eighteen
total investment divisions. SEE MAXIMUM NUMBER OF INVESTMENT DIVISIONS, PAGE 22.
You may have both automatic rebalancing and dollar cost averaging at the same
time. The division from which your dollar cost averaging transfers are taken
cannot be included in your automatic rebalancing allocating program. You may not
include the loan division in your automatic rebalancing allocations.
CHANGING AUTOMATIC REBALANCING
You may change your allocation percentages for automatic rebalancing at any
time. Your allocation change is effective on the valuation date that we receive
it at our customer service center. If you reduce the amount allocated to the
guaranteed interest division, it is considered a transfer from that division.
You must meet the requirements for the maximum transfer amount and time
limitations on transfers from the guaranteed interest division. SEE TRANSFERS OF
ACCOUNT VALUE, PAGE 37.
If you have automatic rebalancing and the guaranteed minimum death benefit and
you ask for an allocation which does not meet the guaranteed minimum death
benefit diversification requirements, we will notify you that the allocation
needs to be changed and ask you for revised instructions.
TERMINATING AUTOMATIC REBALANCING
You may terminate automatic rebalancing at any time, as long as we receive your
notice of termination at least five days before the next automatic rebalancing
date. If you have the guaranteed minimum death benefit and you terminate the
automatic rebalancing feature, you still must meet the diversification
requirements of your net account value for the guarantee period to continue. SEE
GUARANTEED MINIMUM DEATH BENEFIT, PAGE 30.
POLICY LOANS
You may borrow against your policy at any time after the first monthly
processing date, by using your policy as security for a loan, or as otherwise
required by law. The amount you borrow is called a policy loan. Your policy loan
is:
1. the total amount you borrow from your policy; plus
2. any policy loan interest that is capitalized when due; minus
3. policy loan repayments you make.
Unless state law requires differently, any new policy loan you take must be at
least $100. The maximum amount you can borrow on any valuation date, unless
required differently by state law, is your net cash surrender value minus the
monthly deductions to your next policy anniversary.
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Variable Survivorship 39
<PAGE>
Your request for a policy loan must be directed to our customer service center.
If you have telephone privileges, you may request a policy loan for less than
$25,000 by telephoning our customer service center. SEE TELEPHONE PRIVILEGES,
PAGE 47.
Based on our administrative system, we may have other rules for policy loans.
For example, we may require that your loan request be for a dollar amount rather
than a percentage to be taken from a specific division.
Loan interest charges on your policy loan accrue daily at an annual interest
rate of 3.75%. Interest is due in arrears on each policy anniversary. If you do
not pay your interest when it is due, we add it to your policy loan on your
policy anniversary.
If you request an additional loan, we add the amount you request to your
existing outstanding policy loan. This way, there is only one loan outstanding
on your policy at any time.
You may repay all or part of your policy loan at any time while your policy is
in force. We assume that any payments you make, other than your scheduled
premiums, are policy loan repayments. You must tell us otherwise if you want us
to consider additional payments as premiums.
When you request a loan you may specify one investment division from which the
loan will be taken. If you do not specify one, the loan will be taken
proportionately from each active investment division you have.
When you take a policy loan, we transfer an amount equal to your policy loan
amount from the variable and the guaranteed interest divisions in the same
proportion they represent of your total net account value to the loan division.
We follow this same process for loan interest in the amount due at your policy
anniversary. We credit the loan division with interest at an annual rate of 3%.
After your tenth policy year, the loan division is credited with a persistency
refund at an annual rate of 0.60%.
The loan division is part of our general account, separate from the guaranteed
interest division. When we make transfers to the loan division, we redeem
sufficient units of the variable divisions to cover the amount of the loan which
you take from the variable account. Unless you tell us otherwise, we deduct the
amount transferred from each division in the same proportion that your account
value in that division has to your net account value immediately before the loan
transaction. We determine the amounts in each division as of the valuation date
when we receive your loan request.
Policy loans may cause your policy to lapse if your net cash surrender value is
not enough to pay all deductions each month. SEE LAPSE, PAGE 42.
Any policy loans you take may have tax consequences. SEE DISTRIBUTIONS OTHER
THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 58, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 59.
LOAN REPAYMENT
We transfer the amount of interest credited to the loan division for a policy
year from the loan division on your policy anniversary. When you make a loan
repayment, we transfer an amount equal to your repayment from the loan division
up to the amount of your policy loan. Unless you tell us otherwise, we allocate
these transfers among the variable divisions and the guaranteed interest
division in the same proportion as your current premium allocation.
LOANS AND YOUR BENEFITS
Taking a loan decreases the amount you have in the variable divisions. Accruing
loan interest will change your net account value as compared to what it would
have been if you did not take a loan.
Even if you repay your loan, it has a permanent effect on your account value.
This means that the benefits under your policy may be affected.
The loan is a first lien on your policy. This means we deduct your outstanding
policy loan and accrued loan interest from the death benefit payable and the
cash surrender value payable on surrender.
Failure to repay your loan may affect the guaranteed minimum death benefit
feature and the length of time your policy remains in force. The policy lapses
(FOR EXCEPTIONS, SEE SPECIAL CONTINUATION PERIOD, PAGE 25 AND GUARANTEED MINIMUM
DEATH BENEFIT, PAGE 30) when the cash surrender value minus policy loans and
accrued loan interest is not enough to cover your monthly deductions. If your
policy lapses with a loan outstanding, you may have adverse tax consequences.
SEE DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS,
PAGE 58, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT
MODIFIED ENDOWMENT CONTRACTS, PAGE 59.
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Variable Survivorship 40
<PAGE>
If you use the continuation of coverage feature and you have a policy loan, loan
interest continues to accrue. If you do not make loan payments your policy could
lapse.
If you do not repay your policy loan, we deduct the outstanding policy loan
amount and accrued loan interest from the death benefits payable, or the cash
surrender value payable upon surrender.
PARTIAL WITHDRAWALS
You may request a partial withdrawal on any valuation date after your first
policy anniversary by contacting our customer service center. If you request
partial withdrawals by telephone, the partial withdrawal must be for an amount
less than $25,000 and may not cause a decrease in your death benefit; otherwise,
your partial withdrawal request must be in writing. SEE TELEPHONE PRIVILEGES,
PAGE 47.
You may take only one partial withdrawal per policy year. We may set rules on
partial withdrawals, based on our administrative system. For example, we may
require that you specify a dollar amount rather than a percentage to be taken
from a specific division.
The minimum partial withdrawal you may take is $100. The maximum partial
withdrawal you may take is the amount which leaves $500 as your net cash
surrender value. If you request a withdrawal of more than this maximum, we
require you to surrender your policy. When you take a partial withdrawal, we
deduct your withdrawal amount plus a service fee from your account value. If
applicable, we deduct a surrender charge from your account value if your partial
withdrawal causes a reduction in your stated death benefit. SEE CHARGES,
DEDUCTIONS AND REFUNDS, PAGE 51.
Partial withdrawals may have adverse tax consequences. SEE DISTRIBUTIONS OTHER
THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 58 AND DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT
CONTRACTS, PAGE 59.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 1
If you selected death benefit option 1, and if no more than fifteen years have
passed since your policy date and the joint equivalent age of the insured people
is not yet age 81, you may make a partial withdrawal of up to the greater of 10%
of your account value, or 5% of your stated death benefit without decreasing the
stated death benefit.
Any additional amounts you withdraw will reduce your stated death benefit by the
amount of the withdrawal.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 2
If you have selected death benefit option 2, a partial withdrawal does not
reduce your stated death benefit or target death benefit. However, we reduce the
total death benefit by at least the partial withdrawal amount because your
account value is reduced.
STATED DEATH BENEFIT AND TARGET DEATH BENEFIT REDUCTIONS
Generally, we reduce the stated death benefit by the amount of the partial
withdrawal. A partial withdrawal may reduce your target death benefit.
Partial withdrawals do not reduce the stated death benefit if your base death
benefit has been increased to qualify your policy as life insurance under the
federal income tax laws, if you withdraw an amount that is no greater than the
amount that reduces your account value to a level which no longer requires your
base death benefit to be increased to qualify as life insurance for federal
income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE 57.
We require a minimum stated death benefit and a minimum target death benefit to
issue your policy. You are not allowed to take a partial withdrawal if it
reduces your stated death benefit or target death benefit below this minimum.
SEE GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS, PAGE 56.
PARTIAL WITHDRAWAL MECHANICS
Unless you tell us otherwise, we will make a partial withdrawal from the
guaranteed interest division and the variable divisions in the same proportion
that each division has to your net account value immediately before your
withdrawal. The amount withdrawn from the guaranteed interest division may not
be for more than your total withdrawal multiplied by the ratio of your account
value in the guaranteed interest division to your total net account value
immediately before the partial withdrawal transaction.
We will send a new schedule page for your policy showing the effect of your
withdrawal if there is any
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Variable Survivorship 41
<PAGE>
change to your stated death benefit or your target death benefit.
To make this change, we may ask that you return the policy to our customer
service center. Your withdrawal and any reductions in the death benefits are
effective as of the valuation date on which we receive your request. SEE
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE
58, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT
MODIFIED ENDOWMENT CONTRACTS, PAGE 59.
LAPSE
Your insurance coverage continues as long as your net cash surrender value is
enough to pay all deductions each month and your cash surrender value is more
than your outstanding policy loan plus accrued loan interest. Lapse does not
apply if either the guaranteed minimum death benefit or the special continuation
period is in effect and you have met all requirements. SEE SPECIAL CONTINUATION
PERIOD, PAGE 25 AND GUARANTEED MINIMUM DEATH BENEFIT, PAGE 30.
If the continuation of coverage feature is active, the policy could lapse even
though there are no further monthly deductions. If there is an outstanding
policy loan, your policy will lapse if the loan plus the accrued interest owed
is more than the account value.
GRACE PERIOD
Your policy enters the 61-day lapse grace period if, on a monthly processing
date:
1. your net cash surrender value is zero (or less) or your cash surrender
value is less than your outstanding policy loan plus accrued loan
interest; and
2. the five-year special continuation period has expired, or you have not
paid the required special continuation period premium; and
3. you do not have the guaranteed minimum death benefit rider or it has
expired or terminated.
We notify you that the policy is in a grace period at least 30 days before the
grace period ends. We provide this notice to you, or a person to whom you have
assigned your policy, at the last address in our records. We notify you of the
required premium payment necessary to prevent your policy from lapsing. This
amount is generally the amount of past due charges, plus the amount that covers
your estimated monthly policy and rider deductions for the next two months. If
the second death of the insured people occurs during the grace period, we pay
death proceeds to your beneficiary(ies) with reductions for policy loans,
accrued loan interest and monthly deductions owed. We will send you a lapse
notice if the guaranteed minimum death benefit is going to lapse. If we receive
your payment of the required amount before the end of the grace period, we apply
it to your account value in the same manner as your other premium payments, then
we take the overdue deductions from your account balance.
If you do not pay the full amount we request within the 61-day grace period,
your policy and all of its riders lapse without value. We then withdraw your
remaining account balance from the variable divisions and the guaranteed
interest division. We deduct amounts which you owe us, including any surrender
charge and inform you that the policy has ended.
If the second death of the insured people occurs during the grace period, we pay
death proceeds to your beneficiary(ies) with reductions for policy loans,
accrued loan interest, and monthly deductions owed.
IF YOU HAVE THE GUARANTEED MINIMUM DEATH BENEFIT IN EFFECT
After the special continuation period has ended, and if the guaranteed minimum
death benefit is in effect, your policy's stated death benefit will not lapse
during the guarantee period. This is true even if your net cash surrender value
is not enough to cover all of the deductions from your account value on any
monthly processing date. SEE GUARANTEED MINIMUM DEATH BENEFIT, PAGE 30.
The guaranteed minimum death benefit does not protect benefits you may have
under riders attached to your policy. Nor does it protect any amount of the base
death benefit which is more than the stated death benefit. These benefits lapse
if on any monthly processing date, your policy net cash surrender value is not
enough to pay all monthly deductions from your account value (unless your policy
is in the five-year special continuation period and your account value is more
than the interest due on your loan).
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Variable Survivorship 42
<PAGE>
While the guaranteed minimum death benefit applies, we reduce your account value
by monthly deductions, but not below zero. We permanently waive monthly
deductions during the guarantee period which would reduce your account value
below zero.
The guaranteed minimum death benefit terminates if your policy does not meet the
monthly premium or diversification tests. If your guaranteed minimum death
benefit terminates, the normal test for lapse then resumes. SEE REQUIREMENTS TO
MAINTAIN THE GUARANTEE PERIOD, PAGE 31.
LAPSE SUMMARY
<TABLE>
<CAPTION>
SPECIAL CONTINUATION PERIOD GUARANTEED MINIMUM DEATH BENEFIT
========================================================= ===========================================================
IF YOU MEET THE IF YOU DO NOT MEET THE IF YOU MEET THE IF YOU DO NOT MEET THE
REQUIREMENTS REQUIREMENTS REQUIREMENTS REQUIREMENTS
<S> <C> <C> <C>
Your policy does not Your policy enters the Your policy does not Your policy enters the
lapse if you do not have grace period if your net lapse if you do not have grace period if your net
enough net cash cash surrender value is enough net cash cash surrender value is
surrender value to pay the not enough to pay the surrender value to pay the not enough to pay the
monthly charges. The monthly charges, or if monthly charges. monthly charges, or if
charges are delayed until your loan plus accrued However, if you have any your loan plus accrued loan
the earlier of: 1) the date loan interest is more riders, they lapse after the interest is more than your
you have enough net account than your cash surrender grace period and only cash surrender value. If
surrender value to cover value. If you do not pay your base coverage you do not pay enough
the monthly charge, or 2) enough premium to cover remains in force. premium to cover the past
until the end of the the past due monthly charges Charges for your base due monthly charges and
special continuation and interest due, plus the coverage are then interest due, plus the
period. monthly charges and deducted each month to monthly charges and
interest due through the the extent that there is interest due through the
end of the grace period sufficient net account end of the grace period
(at the end of the value to pay these (at the end of the
following two months), charges. If there is not following two months),
your policy lapses. sufficient net account your policy lapses.
value to pay a charge, it is
permanently waived.
</TABLE>
REINSTATEMENT
If you do not pay enough premium before the end of the grace period, your policy
lapses. You may still reinstate your policy and its riders (other than the
guaranteed minimum death benefit) within five years after the grace period ends.
Unless state law requires differently, we will reinstate your policy and riders
if:
1. you have not surrendered your policy for its net cash surrender value;
2. you provide satisfactory evidence to us that both insured people are
alive and that each insured person (and any people insured under your
riders) is still insurable according to our normal rules of
underwriting for your type of policy; and
3. we receive enough premium from you to keep your policy and its riders
in force from the beginning to the end of the grace period and for two
months after the reinstatement date.
If one insured person has either died or has become uninsurable since your
policy date, when your policy lapses, we will not reinstate your policy. If one
insured person was uninsurable at the issue of your policy and remains
uninsurable, we will review
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Variable Survivorship 43
<PAGE>
underwriting requirements applicable to each insured person at the time of
reinstatement to determine whether your policy may be reinstated. Each surviving
insured person may apply for individual insurance coverage at that point with
proof of insurability.
Reinstatement is effective as of the monthly processing date following our
approval of your reinstatement application. When we reinstate your policy, we
also reinstate the surrender charges for the amount and time remaining when your
policy lapsed. If you had a policy loan when coverage ended, we reinstate it
with accrued loan interest to the date of lapse. The cost of insurance charges
in effect at the time of reinstatement for the age of each insured person are
adjusted to reflect the time since the lapse.
We apply the net premiums received after reinstatement according to the premium
allocation instructions in effect at the start of the grace period, unless you
tell us otherwise.
SURRENDER
You may surrender your policy for its net cash surrender value any time before
the second death of the insured people. You do this by sending a written request
and your policy or a lost policy form to our customer service center.
Your policy net cash surrender value is your cash surrender value, minus policy
loans you have taken including accrued loan interest.
We compute your net cash surrender value as of the valuation date we receive
your surrender request and policy at our customer service center. All insurance
coverage ends on the date we receive your surrender request and policy.
We do not pro-rate or add back charges and expenses deducted from your account
value which we deducted on the monthly anniversary before the date your
surrender is processed. If you surrender your policy during the first nine
policy years or segment years we deduct a surrender charge from your net account
value. If you surrender your policy during the early policy years, you may have
little or no net cash surrender value. SEE SURRENDER CHARGE, PAGE 55.
A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 58, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 59.
GENERAL POLICY PROVISIONS
FREE LOOK PERIOD OR RIGHT TO EXAMINE POLICY PERIOD
You have the right to examine your policy. If for any reason you do not want it,
you may return your policy to us or your registered representative within the
period shown in the policy. If you return your policy to us within your state's
specified time limit, we will consider it canceled as of your policy date.
If you cancel your policy during this free look period, you will receive a
refund as determined under state law.
Generally, there are two types of free look refunds. Some states require a
return of all premiums paid while others permit payment of the account value
plus a refund of all charges deducted. Your policy will specify what free look
refund applies in your state. The type of free look refund allowed in your state
will affect when your initial net premium and any additional net premiums we
receive from you before the end of the free look period are invested into the
variable divisions you selected.
Your state may require us to return the premiums you have paid if you cancel
your policy during the free look period. In this case, that portion of your
initial net premium and any net premium we receive from you during the free look
period that you have allocated to the variable divisions will then be held in
the division investing in the Fidelity Money Market Portfolio for 15 days after
we issue your policy (5 days deemed delivery time plus a typical free look
period of 10 days), unless state law requires otherwise, if:
o you made a premium payment before we issued your policy; and
o you have provided all information and documents we have requested.
At the end of 15 days, your account value will be allocated among your chosen
variable divisions, based on your most recent premium allocation instructions.
Your state may require us to return your account value plus a refund of all
charges deducted during the
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Variable Survivorship 44
<PAGE>
free look period. In this case, that portion of your initial net premium that
you have allocated to the variable divisions will then be invested according to
your most recent premium allocation instructions on the date we issue your
policy if:
o you made a premium payment before we issued your policy; and
o you have provided all information and documents we have requested.
Amounts you allocated to the guaranteed interest division will be invested into
that division when we issue your policy if you have made a premium payment and
have no outstanding information or document requests from us. Once we have
applied your net premium to your selected investment divisions, you may transfer
funds between investment divisions and activate policy investment features such
as automatic rebalancing or dollar cost averaging.
YOUR POLICY
The entire contract between you and us is the combination of:
o your policy;
o a copy of your original application and any applications for benefit
increases or decreases;
o all of your riders;
o endorsements;
o schedule pages; and
o reinstatement applications.
If you make a change to your coverage, we give you a copy of your changed
application and new schedules. If you send us your policy, we attach these items
to your policy and return it to you. Otherwise, you need to attach them to your
policy.
Unless there is fraud, we consider all statements made in an application to be
representations and not guarantees. We use no statement to deny a claim, unless
it is in an application.
A president or an officer of our company and our secretary or assistant
secretary must sign all changes or amendments we make to your policy. No other
person may change the terms or conditions of your policy.
AGE
We issue your policy at the joint equivalent age of the insured people stated in
your policy schedule. The joint equivalent age of the insured people is based on
the sum of both insured people's ages adjusted for the difference in ages and
gender, divided by two and rounded up.
The younger insured person's 100th birth date is the 100th anniversary of the
younger insured person's birth regardless if he/she has survived. The policy
anniversary nearest to this date is the date used for policy purposes.
The insured people must each be less than 90 years of age at policy issue. The
maximum joint equivalent age of the insured people must be no more than 85.
There is no limit to the difference in the insured people's ages. Age is
measured as the age of the insured person on the birth date nearest the policy
anniversary.
To process joint life insurance, we use the joint equivalent age to calculate
rates, charges and values. We determine the joint equivalent age at any given
time by adding the number of completed policy years to the age calculated at
issue and shown in the schedule.
OWNERSHIP
The original owner is the person named as the owner in the policy application.
The owner can exercise all rights and receive the benefits until the second
death of the insured people. This includes the right to change the owner,
beneficiaries, or method to pay proceeds.
As a matter of law, all rights of ownership are limited by the rights of any
person who has been assigned rights under the policy, and any irrevocable
beneficiary(ies).
You may name a new owner by giving us written notice. The effective date of the
change to the new owner is the date the prior owner signs the notice. However,
we will not be liable for any action we take before a change is recorded at our
customer service center. A change in ownership may cause the prior owner to
recognize taxable income on gain under the policy.
BENEFICIARY(IES)
You, as owner, name the beneficiary(ies) when you apply for your policy. The
primary beneficiary(ies) who survives both of the insured people receives the
death proceeds. Other surviving beneficiary(ies) receive death proceeds only if
there is no surviving primary beneficiary(ies). If more than one
- --------------------------------------------------------------------------------
Variable Survivorship 45
<PAGE>
beneficiary(ies) survives both insured people, they share the death proceeds
equally, unless you have told us otherwise. If none of your policy beneficiaries
has survived both insured people, we pay the death proceeds to you or to your
estate, as owner.
Once you tell us who the beneficiary(ies) is/are, we keep this information on
file. You may name a new beneficiary(ies) any time before the second death of
the insured people. We pay the death proceeds to the most recent
beneficiary(ies) whom you have most recently named and which we have on record.
We do not make multiple payments.
COLLATERAL ASSIGNMENT
You may assign your policy as security by sending written notice to us. After we
record the assignment, your rights as owner and the beneficiary's(ies') rights
(unless the beneficiary(ies) were made an irrevocable beneficiary(ies) under an
earlier assignment) are subject to the assignment. It is your responsibility to
make sure the assignment is valid.
INCONTESTABILITY
After your policy has been in force while both insured people are alive for two
years from your policy date, we will not question the validity of the statements
in your application. After your policy has been in force while both insured
people are alive for two years from the effective date of any new segment or
from the effective date of an increase in any other benefit, we will not contest
the statements in your application for the new segment or other increase.
After this policy has been in force while both insured people are alive for two
years from the effective date of any reinstatement, we will not contest the
statements in your application for reinstatement.
MISSTATEMENTS OF AGE OR GENDER
If either insured person's age or gender has been misstated, we adjust the death
benefit. We adjust death benefits to the amount which would have been purchased
for each insured person's correct age and gender. We base the adjusted death
benefit on the cost of insurance charges deducted from your account value on the
last monthly processing date before the second death of the insured people, or
as otherwise required by state law.
SUICIDE
If either insured person commits suicide, while that insured person is sane or
insane within two years of your policy date, unless otherwise required by state
law, we limit death benefits payable in one sum to:
1. the total of all premiums paid to the time of death; minus
2. the amount of outstanding policy loans and accrued loan interest; minus
3. any partial withdrawals you have taken
We make a limited payment to the beneficiary(ies) for a new segment or other
increase if the second death of the insured people is due to suicide, while that
insured person is sane or insane within two years of the effective date of a new
segment, or within two years of an increase in any other benefit, unless
otherwise required by state law. The limited payment we make is equal to the
cost of insurance and monthly expense charges which were deducted for such
increase.
TRANSACTION PROCESSING
Generally, within seven days of when we receive all information required to
process a payment, we pay:
o death proceeds;
o net cash surrender value upon surrender;
o partial withdrawals; and
o loan proceeds.
We may delay processing these transactions if:
o the NYSE is closed for trading;
o trading on the NYSE is restricted by the SEC;
o there is an emergency so that it is not reasonably possible to sell
securities in the variable divisions or to determine the value of an
investment division's assets; or
o a governmental body with jurisdiction over the separate account allows
suspension by its order.
Any SEC rules and regulations that apply determine whether or not these
conditions exist.
We execute transfers among the variable divisions as of the valuation date of
our receipt of your request at our customer service center.
We determine death proceeds as of the date of the second death of the insured
people. The death
- --------------------------------------------------------------------------------
Variable Survivorship 46
<PAGE>
proceeds are not affected by changes in the value of the variable divisions
after the second death of the insured people. We pay interest at our stated rate
(or at a higher rate if required by law) from the date of the second death of
the insured people to the date of payment.
We may delay payment from our guaranteed interest division for up to six months,
unless state law requires otherwise, of:
o surrender proceeds;
o withdrawal amounts; or
o loan amounts.
We pay interest at our declared rate (or at a higher rate if required by law)
from the date we receive the request if we delay payment more than 30 calendar
days.
NOTIFICATION AND CLAIMS PROCEDURES
Except for certain authorized telephone requests, we must receive in writing any
election, designation, change, assignment or request made by the owner.
You must use a form acceptable to us. We are not liable for actions taken before
we receive and record the written notice. We may require you to return your
policy for policy change, or at the time of surrender.
If an insured person dies while your policy is in force, please let us or your
registered representative know as soon as possible. We will immediately send you
instructions on how to make a claim upon the second death of the insured people,
or at either insured person's death if you have a single life term rider. As
proof of a deceased insured person's death, we may require you to provide proof
of the deceased insured person's age, and a certified copy of the deceased
insured person's death certificate.
The beneficiary(ies) and the deceased insured person's next of kin may need to
sign authorization forms. These forms allow us to get information about the
deceased insured person. This information may include medical records of doctors
and hospitals used by the deceased insured person.
TELEPHONE PRIVILEGES
Telephone privileges are automatically provided to you and your agent or
registered representative, unless you tell us otherwise. If you do not wish to
have this feature, decline it on the application or contact our customer service
center. Telephone privileges allow you or your agent or registered
representative, if applicable, to call our customer service center to:
o make transfers;
o change premium allocations;
o change features in your dollar cost averaging and automatic rebalancing
programs;
o request partial withdrawals; or
o request a policy loan.
Our customer service center uses reasonable procedures to make sure that
instructions received by telephone are genuine. These procedures may include:
1. requiring some form of personal identification;
2. providing written confirmation of any transactions; and
3. tape recording telephone calls.
By accepting automatic telephone privileges, you authorize us to record your
telephone calls to us. If we use reasonable procedures to confirm instructions,
we are not liable for losses due to unauthorized or fraudulent instructions. We
may discontinue this privilege at any time.
NON-PARTICIPATION
Your policy does not participate in the surplus earnings of Security Life.
DISTRIBUTION OF THE POLICIES
The principal underwriter (distributor) for our policies is ING America
Equities, Inc. ING America Equities, Inc. is a wholly owned subsidiary of
Security Life. It is registered as a broker-dealer with the SEC and the NASD. We
pay ING America Equities, Inc. for acting as the principal underwriter under a
distribution agreement.
We sell our policies through registered representatives of other broker-dealers
including, but not limited to:
1. VESTAX Securities Corporation, a subsidiary of ING America Insurance
Holdings, Inc.;
2. Locust Street Securities, Inc., an affiliate of Security Life of Denver
Insurance Company;
- --------------------------------------------------------------------------------
Variable Survivorship 47
<PAGE>
3. Multi-Financial Services, Inc., an affiliate of Security Life of Denver
Insurance Company; and
4. IFG Network Securities, Inc., a subsidiary of Investors Financial
Group, Inc., which is a subsidiary of ING America Insurance Holdings,
Inc.
These broker-dealers have entered into selling agreements with us. They are
registered with the SEC and the NASD.
Under these selling agreements, we pay a distribution allowance to other
broker-dealers, who then pay commissions to the registered representative who
sells this policy. The distribution allowance may be
up to 90% of the first target premium that you pay. For premiums that you pay
over your first target premium, the distribution allowance may be up to 5% in
policy years one through five, and up to 2% after the fifth policy year.
Broker-dealers may receive annual renewal payments of up to 0.2% of the net
account value in policy years five through twenty.
Compensation arrangements vary among broker-dealers and depend on particular
circumstances. In addition to the above-described compensation, we may pay:
o override payments;
o expense allowances;
o bonuses;
o special marketing fees;
o wholesaler fees and marketing allowances; and
o training allowances.
Under our sales incentive programs, as permitted by law, registered
representatives may receive other compensation such as:
o expense-paid trips;
o expense-paid educational seminars; and
o merchandise.
We pay all distribution and other allowances from our own resources which
includes sales charges deducted from premiums and surrender charges.
ADVERTISING PRACTICES AND SALES LITERATURE
We may use advertisements and sales literature to promote this product,
including:
o articles on variable life insurance and other information published in
business or financial publications;
o indices or rankings of investment securities; and
o comparisons with other investment vehicles, including tax
considerations.
We may use information regarding the past performance of the variable investment
divisions. But past performance is not indicative of future performance of the
investment divisions or the policies and is not reflective of the actual
investment experience of individual policyowners.
We may feature certain investment divisions and their managers, as well as
describe asset levels and sales volumes for our products. We may refer to past,
current, or prospective economic trends and investment performance or other
information we believe may be of interest to our customers.
SETTLEMENT PROVISIONS
You may elect to have the beneficiary(ies) receive the death proceeds other than
in one payment. If you make this election, you must do so before the second
death of the insured people. If you have not made this election, the
beneficiary(ies) may do so within 60 days after we receive proof of the second
death of the insured people.
You may take your net cash surrender value in other than one payment.
The investment performance of the variable divisions does not affect payments
under these settlement options. Instead, interest accrues at a fixed rate based
on the option you choose. Payment options are subject to our rules at the time
you make your selection. A periodic payment must be at least $20. Currently,
these alternate payment options are available if the proceeds are $2,000 or
more.
Option I: PAYOUTS FOR A DESIGNATED PERIOD: Payout payments may be made on a
monthly, quarterly, semi-annual, or annual basis.
These payments may last for a period from five to thirty years. The
installment dollar amounts are equal except for any excess
interest. Settlement Option Table I in your policy shows the amount
of the first monthly payout for each $1,000 of account value
applied.
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Variable Survivorship 48
<PAGE>
Option II: LIFE INCOME WITH PAYOUTS GUARANTEED FOR A DESIGNATED PERIOD:
Payout payments may be made on a monthly, quarterly, semi-annual,
or annual basis.
We make these payments throughout the lifetime of the person
receiving the payment, or if longer for guaranteed periods of five,
ten, fifteen, or twenty years. You may choose the length of time to
receive the guaranteed payments. If you choose a longer guaranteed
period, this will decrease the amount of your periodic payments.
The installment dollar amounts are equal except for any excess
interest. The Settlement Option Table II in your policy shows the
amount of the first monthly payout for each $1,000 of account value
applied. This option is available only for the ages shown in this
table.
Option III: HOLD AT INTEREST: Amounts may be left on deposit with us to be
paid at the death of the person you choose to receive the payment,
or at a chosen earlier date. We will pay interest at our declared
rate on any unpaid balance (or at a higher rate if required by
law). You may choose interest to be accumulated or be paid on a
monthly, quarterly, semi-annual, or annual basis.
You may not leave money on deposit for more than 30 years.
Option IV: PAYOUTS OF A DESIGNATED AMOUNT: Payouts will be made until
proceeds, including interest, are exhausted. Interest is at a rate
we declare (or at a higher rate as required by law). Payout payment
choices are on a monthly, quarterly, semi-annual, or annual basis.
Option V: OTHER: You, as owner, may ask us to apply money under any options
we offer at the time we pay the benefit.
The beneficiary(ies) or other person (successor to the beneficiary(ies)) who has
the right to receive payments may name someone else to receive amounts that we
would otherwise pay to the beneficiary's(ies') estate if he/she/they die(s). The
person who has the right to receive payment may name another person, at any
time. Designating another person to receive payment may have income, gift or
estate tax consequences. Consult a professional tax adviser before making this
designation.
We must approve an arrangement that involves someone who is to receive payment
who is not a human being (for example, a corporation). We must approve a
situation involving a person who is to receive payment while acting on behalf of
another, called a fiduciary. We base the details of all arrangements on our
rules at the time the arrangements are effective. This includes rules on the:
o minimum amount we pay under an option;
o minimum amounts for installment payments;
o withdrawal rights;
o right to receive payments over time, which we may offer as a lump sum
payment;
o naming of people who have the right to receive payment and their
successors; and
o proof of age and survival.
ADMINISTRATIVE INFORMATION ABOUT THE POLICY
VOTING PRIVILEGES
We invest the variable divisions' assets in shares of investment portfolios. We
are the legal owner of the shares held in the variable account and we have the
right to vote on certain issues. Among other things, we may vote on issues
described in the fund's current prospectus, or issues requiring a vote by
shareholders under the Investment Company Act of 1940.
Even though we own the shares, we give you the opportunity to tell us how to
vote the number of shares attributable to your account value.
We count fractional shares. If you have a voting interest, we send you proxy
material and a form on which to give us your voting instructions.
Each investment portfolio's shares have the right to one vote. The votes of all
investment portfolios are cast together on a collective basis, except on issues
for which the interests of the portfolios differ. In these cases, voting is done
on a portfolio-by-portfolio basis.
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Variable Survivorship 49
<PAGE>
Examples of issues that require a portfolio-by-portfolio vote are:
1. changes in the fundamental investment policy of a particular investment
portfolio; or
2. approval of an investment advisory agreement.
We vote the shares in accordance with your instructions at meetings of
investment portfolio shareholders. We vote any investment portfolio shares that
are not attributable to policies, and any investment portfolio shares for which
the owner does not give us instructions, the same way we vote as if we did
receive owner instructions.
We reserve the right to vote investment portfolio shares without getting
instructions from policy owners if the federal securities laws, regulations, or
their interpretations change to allow this.
You may only instruct us on matters relating to the investment portfolios
corresponding to divisions in which you have invested assets as of the record
date set by the investment portfolio's board for the portfolio's shareholders
meeting. We determine the number of investment portfolio shares in each division
that we attribute to your policy by dividing your account value allocated to
that division by the net asset value of one share of the matching investment
portfolio.
MATERIAL CONFLICTS
We are required to track events to identify any material conflicts arising from
using investment portfolios for both variable life and variable annuity separate
accounts. The boards of the investment portfolios, Security Life, and other
insurance companies participating in the investment portfolios, have this same
duty. There may be a material conflict if:
o state insurance law or federal income tax law changes;
o investment management of an investment portfolio changes; or
o voting instructions given by owners of variable life insurance policies
and variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or
deferred arrangements under Code Section 401(k). Therefore, there is a
possibility that a material conflict may arise between the interests of owners
in general, or between certain classes of owners, and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine appropriate
action, including removing the portfolios involved from our variable investment
options. We may take other action to protect policy owners. This could mean
delays or interruptions of the variable operations.
When state insurance regulatory authorities require us, we may ignore voting
instructions relating to changes in an investment portfolio's adviser or its
investment policies. If we do ignore voting instructions, we give you a summary
of our actions in the next semi-annual report to owners.
Under the Investment Company Act of 1940, we must get your approval for certain
actions involving our separate account. In this case, you have one vote for
every $100 of value you have in the variable divisions. We cast votes credited
to amounts in the variable divisions, but not credited to policies in the same
proportion as votes cast by owners.
RIGHT TO CHANGE OPERATIONS
Subject to state limitations, we may from time to time make any of the following
changes to our separate account:
1. Change the investment objective.
2. Offer additional divisions which will invest in portfolios we find
appropriate for policies we issue.
3. Eliminate variable divisions.
4. Combine two or more variable divisions.
5. Substitute a new investment portfolio for a portfolio in which the
division currently invests. A substitution may become necessary if, in
our judgment:
o a portfolio no longer suits the purposes of your policy;
o there is a change in laws or regulations;
o there is a change in a portfolio's investment objectives or
restrictions;
o the portfolio is no longer available for investment; or
o another reason we deem a substitution is appropriate.
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Variable Survivorship 50
<PAGE>
6. Transfer assets related to your policy class to another separate
account.
7. Withdraw the separate account from registration under the 1940 Act.
8. Operate the separate account as a management investment company under
the 1940 Act.
9. Cause one or more divisions to invest in a mutual fund other than, or
in addition to, the investment portfolios.
10. Stop selling these policies.
11. End any employer or plan trustee agreement with us under the
agreement's terms.
12. Limit or eliminate any voting rights for the separate account.
13. Make any changes required by the 1940 Act, or its rules or regulations.
We will not make a change until it is effective with the SEC and approved by the
appropriate state insurance departments, if necessary. We will notify you of
changes. If you then wish to transfer the amount you have in the affected
division to another variable division, or to the guaranteed interest division,
you may do so free of charge. Just notify us at our customer service center.
REPORTS TO OWNERS
At the end of each policy year we send a report to you that shows:
o your total net policy death benefit (your stated death benefit plus
adjustable term insurance rider death benefit, if any);
o your account value;
o your policy loans, if any, plus accrued interest;
o your net cash surrender value;
o information about the variable divisions; and
o your account transactions during the previous year showing net
premiums, transfers, deductions, loans, or withdrawals.
We also send semi-annual reports with financial information on the investment
portfolios, including a list of the investment holdings of each portfolio to
you.
We send confirmation notices to you throughout the year for certain policy
transactions.
CHARGES, DEDUCTIONS AND REFUNDS
The amount of a charge may not exactly correspond to the cost incurred by us to
provide the service or benefits associated with the particular policy. Many
charges are not at "cost." For example, the sales charges may not cover all of
the sales and distribution expenses actually incurred by us. Proceeds from other
charges, including the mortality and expense risk charge or cost of insurance
charges, may be used in part to cover such expenses.
DEDUCTIONS FROM PREMIUMS
We consider any payment we receive to be a premium if the policy anniversary
nearest the younger insured person's 100th birth date has not occurred and you
do not have an outstanding loan. After we deduct certain expenses from your
premium payment, we add the remaining net premium to your account value.
TAX CHARGES
We pay state and local taxes in almost all states. These taxes vary in amount
from state to state and may vary from jurisdiction to jurisdiction within a
state. Currently, state and local taxes range from 0.5% to 5% with some states
not imposing these types of taxes. We currently deduct an amount equal to 2.5%
of each premium payment you make to cover these taxes. The 2.5% rate
approximates the average tax rate we expect to pay in all states.
We also currently deduct an amount equal to 1.5% of each premium payment you
make to cover our estimated costs for the federal income tax treatment of
deferred acquisition costs. This cost is determined solely by the amount of life
insurance premiums we receive.
We reserve the right to increase or decrease your premium expense charge for
taxes as a result of changes in the tax law, within limits set by state law. We
also reserve the right to increase or decrease your premium expense charge for
the federal income tax treatment of deferred acquisition costs based on any
change in that cost to us.
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Variable Survivorship 51
<PAGE>
SALES CHARGE
We deduct a percentage from each of your premium payments to compensate us for
the costs we incur in selling the policies. We base the percentage on the time
expired since your policy date or addition of a segment and on your premium up
to and above a target premium:
Sales Charge Percentage
-----------------------
Up to Segment Above Segment
Segment Target Target
Year Premium Premium
---- ------- -------
1 - 5 5.5% 2%
6 + 2% 2%
We determine the target premium for each policy based on the insured people's
ages, genders, ratings and your stated death benefit. Your schedule page shows
the target premium for your policy.
For example, if this policy is issued to insure a male, age 85 who is
uninsurable, and a female, age 85 who is insurable but in a substandard
underwriting rating class, the target premium for sales charge purposes is $66
for each $1,000 of stated death benefit. We believe this amount represents the
maximum target premium; although most policies we issue will have a much lower
target premium. SEE SURRENDER CHARGE, PAGE 55 AND ILLUSTRATIONS OF DEATH
BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 61.
The sales charge covers the costs of distribution, preparing our sales
literature, promotional expenses, and other direct and indirect expenses. The
amount charged is not specifically related to sales expenses in a particular
year.
We may reduce or waive the sales charge for certain group or sponsored
arrangements or for corporate purchasers.
To determine your applicable sales charge, premiums you pay after an increase in
stated death benefit are allocated to your policy segments in the same
proportion as the target premium for each segment bears to the sum of the target
premium for all segments.
DAILY DEDUCTIONS FROM THE VARIABLE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
We deduct a charge each day for the mortality and expense risks we assume. This
charge is 0.002055% per day of the amount you have in the variable divisions.
This is an annual rate of 0.75%. The mortality risk we assume is that insured
people, as a group, may live less time than we estimated. We assume risk that
expenses we incur in issuing and administering the policies and in operating the
variable divisions are greater than the amount we estimated when we set these
charges.
The mortality and expense risk charge does not apply to your account value which
is invested in the guaranteed interest division or the loan division.
MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE
We deduct charges from your account value on each monthly processing date. On or
before November 1, 1999, we will make available to you the option to designate a
single withdrawal investment division from which we will take your monthly
deductions. You may designate a withdrawal investment division at policy
application or at a later time. You may choose to have us withdraw the monthly
deduction from the guaranteed interest division or the variable divisions in
which you have amounts. You may not use the loan division as your designated
withdrawal investment division from which to deduct monthly deductions.
If you do not choose a withdrawal investment division from which to deduct
monthly deductions, or if the amount you have in your designated withdrawal
investment division is not enough to cover the monthly deductions, these charges
are taken from the variable and guaranteed interest divisions in the same
proportion that your account value in each division has to your total net
account value as of the monthly processing date.
If you change your designated withdrawal investment division from which monthly
deductions are deducted, we may consider this a premium allocation change for
which there may be a charge. SEE POLICY TRANSACTION FEES, PAGE 54.
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Variable Survivorship 52
<PAGE>
DIVISIONS FROM
WHICH WE DEDUCT CHARGES
<TABLE>
<CAPTION>
MONTHLY CHARGES: COST OF INSURANCE LOANS AND
CHARGES, RIDER CHARGES, TRANSACTION FEES PARTIAL WITHDRAWALS
ADMINISTRATION FEES
- --------------- --------------------------------------- ------------------------ --------------------------------
<S> <C> <C> <C>
Choice May choose one withdrawal investment Proportionally among May choose one
division, including guaranteed interest variable divisions and withdrawal investment
division when this option is available guaranteed interest division, or combination of
division investment divisions,
subject to requirements
Default Proportionally among variable divisions Proportionally among Proportionally among
and guaranteed interest division variable divisions and variable divisions and
guaranteed interest guaranteed interest division
division
- --------------- --------------------------------------- ------------------------ --------------------------------
</TABLE>
POLICY CHARGE
The initial policy charge is $15 per month for the first ten years of your
policy. After the first ten years of your policy, the policy charge is $9 per
month. This charge compensates us for such costs as:
o application processing;
o medical examinations;
o establishment of policy records; and
o insurance underwriting costs.
MONTHLY ADMINISTRATIVE CHARGE
For this policy, we charge a per month administrative charge of no less than
$0.07 and no more than $0.095 per $1,000 for the greater of the stated death
benefit, or the target death benefit, for the first ten policy years. We charge
$0.023 per $1,000 for each policy year after the tenth for the greater of the
stated death benefit or the target death benefit. The exact per $1,000 charge
for your policy is based on the insured people's issue ages and policy duration.
This charge is designed to compensate us for ongoing costs such as:
o premium billing and collections;
o claim processing;
o policy transactions;
o record keeping;
o reporting and communications with policy owners; and
o other expenses and overhead.
COST OF INSURANCE CHARGE
The cost of insurance charge compensates us for the ongoing costs of providing
insurance coverage under the policy, including the expected cost of paying death
proceeds that are more than your account value at the second death of the
insured people.
We base the cost of insurance charge rates on the insured people's ages,
genders, ratings and premium classes on the policy for each segment date, or on
the date you add a base coverage segment.
The cost of insurance charge is equal to our current monthly cost of insurance
rate times the net amount at risk for each portion of your death benefit. We
calculate the net amount at risk monthly, at the beginning of each policy month.
For the base death benefit, the net amount at risk is calculated using the
difference between the current base death benefit and your account value. We
determine the amount of your account value after we deduct your policy and rider
charges due on that date other than cost of insurance charges for the base death
benefit and adjustable term insurance rider.
If your base death benefit at the beginning of a month increases (due to
requirements of the federal income tax law definition of life insurance), the
net amount at risk for your base death benefit for that month also increases.
Similarly, the net amount at risk for your adjustable term insurance rider
decreases. This means that the amount of your cost of insurance charge varies
from month to month with changes in your net amount at risk, changes in the
death benefit and with the increasing age of the insured people. We allocate the
net amount at risk to any segments in the same proportion that each segment has
to the total stated death benefit for all coverage segments as of the monthly
processing date.
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Variable Survivorship 53
<PAGE>
We base your cost of insurance rates on the insured people's ages, genders,
ratings and premium classes on the policy for each segment date, or on the date
you add a base coverage segment.
Separate cost of insurance rates apply to:
o each segment of the base death benefit;
o your adjustable term insurance rider; and
o single life term riders.
These rates are never more than the guaranteed maximum rates shown in your
policy; however, they may change from time to time. The guaranteed maximum rates
are based on the 1980 Commissioner's Standard Ordinary Sex Distinct
Mortality Table.
The maximum rates for the initial and any new segment will be printed in the
schedule which we will provide to you.
There are no cost of insurance charges after the policy anniversary nearest the
younger insured person's 100th birth date.
GUARANTEED MINIMUM DEATH BENEFIT CHARGE
If you choose the guaranteed minimum death benefit feature, we currently charge
$0.005 per $1,000 of stated death benefit each month during the guarantee
period. We guarantee it never to exceed $0.005 per $1,000 of death benefit.
CHARGES FOR ADDITIONAL BENEFITS
On each monthly processing date, we deduct the cost of additional benefits under
your riders, including the adjustable term insurance rider and the single life
term rider. SEE ADDITIONAL BENEFITS, PAGE 32.
CHANGES IN MONTHLY CHARGES
Changes we make in the cost of insurance charges or charges for additional
benefits are for a class of insured persons. We base the new charge on changes
in expectations about:
o investment earnings;
o mortality;
o the time policies remain in effect;
o expenses; and
o taxes.
New monthly charges will never be more than the guaranteed maximum rates shown
in your policy.
CONTINUATION OF COVERAGE ADMINISTRATIVE FEE
At the policy anniversary nearest the younger insured person's 100th birth date,
if your policy has not been surrendered, the continuation of coverage period
begins. We will charge a one-time administrative fee of $400. This charge
compensates us for maintaining and servicing your policy until the second death
of the insured people. We then no longer charge you a monthly administrative
fee.
POLICY TRANSACTION FEES
We also charge fees for certain transactions you may make under your policy. We
take these fees from the variable and the guaranteed interest divisions in the
same proportion that your account value in each division has to your net account
value immediately after the transaction.
PARTIAL WITHDRAWALS
We charge a service fee of $25 against your account value for each partial
withdrawal you take to cover our costs. We may also deduct a surrender charge
from your account value. SEE PARTIAL WITHDRAWALS, PAGE 41.
TRANSFERS
There is a $25 fee for each additional transfer over twelve per policy year to
cover our costs. If you include multiple transfers in one transfer request, it
counts as one transfer. There is no transfer fee if you are transferring your
account value into the guaranteed interest division under the right to exchange
feature in your policy. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 37, AND RIGHT TO
EXCHANGE POLICY, PAGE 35.
ILLUSTRATIONS
The first policy illustration you request in a policy year is free. After that,
we may charge a fee of up to $25 for each additional policy illustration you
request.
PREMIUM ALLOCATION CHANGE
You may make five free premium allocation changes per policy year. After the
five free premium allocation changes, we charge you $25 for each additional
premium allocation change per policy year.
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Variable Survivorship 54
<PAGE>
PERSISTENCY REFUND
Where state law allows us, we pay long-term policy owners a persistency refund.
Each month your policy remains in force after your tenth policy anniversary, we
credit your account value with a refund. This refund equals 0.6% of your account
value on an annual basis. On a monthly basis, this equals 0.05%.
We do not guarantee that we will pay a persistency refund on the guaranteed
interest division.
If applicable, we add the persistency refund to the variable and guaranteed
interest divisions, but not the loan division, in the same proportion that your
account value in each division has to your net account value as of the monthly
processing date. If we pay a persistency refund on the guaranteed interest
division, we will pay it to you if your policy is in the continuation of
coverage period.
Here are two examples of how the persistency refund may affect your account
value each month:
EXAMPLE 1: YOUR POLICY HAS NO LOAN:
o account value = $10,000 (all in the variable divisions)
o monthly persistency refund rate = .0005
o persistency refund = 10,000 x .0005 = $5.00
Before After
Persistency Persistency
Refund Refund
------ ------
Variable
divisions $10,000.00 $10,005.00
EXAMPLE 2: YOUR POLICY DOES HAVE A LOAN:
o account value = $10,000
o account value in the variable divisions = $6,000
o account value in the loan division = $4,000
o monthly persistency refund rate = .0005
o persistency refund = 10,000 x .0005 = $5.00
Before After
Persistency Persistency
Refund Refund
------ ------
Variable
divisions $6,000.00 $6,005.00
Loan $4,000.00 $4,000.00
SURRENDER CHARGE
We may deduct a surrender charge from your account value during the first nine
years of your policy or coverage segment if you:
o surrender your policy;
o reduce your stated death benefit;
o allow your policy to lapse; or
o take a partial withdrawal which decreases your stated death benefit.
The surrender charge compensates us for issuing and distributing policies. We
deduct surrender charges proportionately based on the account value in each
investment division in which you have amounts invested immediately following the
transaction.
For purposes of the surrender charge, we determine the surrender target premium
for each policy based on the insured people's issue ages, genders and your
stated death benefit. The surrender target premium does not vary based on
ratings. Your schedule page shows the surrender charge amounts for your policy.
If you change your death benefit option, this may decrease your stated death
benefit. Under these circumstances, we do not deduct a surrender charge from
your account value, and we do not reduce future surrender charges.
If you change your death benefit option, this may increase the stated death
benefit. We do not increase your surrender charge in this case. However, all
other increases in your stated death benefit create a new segment which will be
subject to its own nine year surrender charge period.
If your surrender charge changes, we send you a new schedule showing the change.
The surrender charge remains level for the first five years of each coverage
segment and then decreases through the ninth year. Thereafter, the surrender
charge is zero. For purposes of calculating surrender charges, target premium is
premium attributable to base death benefit coverage.
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Variable Survivorship 55
<PAGE>
For example, if this policy is issued to insure a male, age 85, and a female,
age 85, the target premium for surrender charge purposes is $61 for each $1,000
of stated death benefit. We believe this amount represents the maximum surrender
charge target premium; although most policies we issue will have a much lower
surrender charge target premium. SEE SALES CHARGE, PAGE 52 AND ILLUSTRATIONS OF
DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE
61.
SURRENDER CHARGES AS A PERCENTAGE OF SURRENDER TARGET PREMIUM
<TABLE>
<CAPTION>
JOINT EQUIVALENT AGE YEARS 1 - 5 YEAR 6 YEAR 7 YEAR 8 YEAR 9
- -------------------- ----------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
15 - 78 100% 80% 60% 40% 20%
79 93% 80% 60% 40% 20%
80 85% 70% 55% 40% 20%
81 78% 65% 50% 35% 20%
82 72% 60% 45% 30% 20%
83 65% 50% 40% 30% 20%
84 60% 45% 35% 25% 15%
85 54% 40% 30% 20% 10%
</TABLE>
You should review the surrender charge table in the schedule pages of your
policy for your specific surrender charge amount each year.
If you increase your stated death benefit (other than by a death benefit option
change), we will send a new schedule page to you. You should attach this new
page to your policy. In some instances, we may ask you to send your policy to us
so that we can make this change for you.
GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS
Individuals, corporations or other institutions may purchase this policy. For
group or sponsored arrangements (including employees of Security Life of Denver,
its affiliates and appointed sales agents) corporate purchasers, or special
exchange programs which we may offer from time to time, we may reduce or waive
the:
o surrender charge, including the surrender charge on partial
withdrawals;
o length of time a surrender charge applies;
o administrative charge;
o minimum stated death benefit;
o minimum target death benefit;
o minimum annual premium;
o target premium;
o sales charges;
o cost of insurance charges; or
o other charges normally assessed.
We can reduce or waive these items due to expected economies under a group or
sponsored arrangement or with a corporate purchaser. Group arrangements include
those in which there is a trustee, an employer or an association. The group
either purchases policies covering a group of individuals on a group basis or
endorses a policy to a group of individuals. Sponsored arrangements include
those in which an employer or association allows us to offer policies to its
employees or members on an individual basis.
Our sales, administration and mortality costs generally vary with the size and
stability of the group, among other factors. We take all these factors into
account when we reduce charges. A group or sponsored arrangement must meet
certain requirements to qualify for reduced charges. We make reductions to
charges based on our rules in effect when we approve a policy application form.
We may change these rules from time to time.
- --------------------------------------------------------------------------------
Variable Survivorship 56
<PAGE>
Sponsored arrangements or corporations may have different group premium payments
and premium requirements.
We will not be unfairly discriminatory in any variation in the surrender charge,
administrative charge, or other charges, fees and privileges. These variations
are based on differences in costs or services.
OTHER CHARGES
Under current law, we pay no tax on investment income and capital gains included
in variable life insurance policy reserves. This means that no charge is
currently made to any variable division for our federal income taxes. If the tax
law changes and we have federal income tax chargeable to the variable divisions,
we may make such a charge in the future.
In most states, we must pay state and local taxes. If these taxes increase, we
may charge for such taxes.
TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the policy and does not purport to be complete or
to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisers should be consulted for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws. No representation is made as to the likelihood of
continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
This policy is designed to qualify as a life insurance contract under the
Internal Revenue Code. All terms and provisions of the policy shall be construed
in a manner which is consistent with that design. In order to qualify as a life
insurance contract for federal income tax purposes and to receive the tax
treatment normally accorded life insurance contracts under federal tax law, a
policy must satisfy certain requirements which are set forth in the Internal
Revenue Code. Specifically, the policy must meet the requirements of the
"guideline premium/cash value corridor test," as specified in Code section 7702.
The guideline premium/cash value corridor test provides for a maximum premium in
relation to the death benefit, and a minimum "corridor" of death benefit in
relation to account value. SEE APPENDIX A OR B, PAGE 171 FOR A TABLE OF THE
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST FACTORS.
There is very little guidance with respect to policies issued on a last survivor
basis, however, we believe it is reasonable to conclude that our policies
satisfy the applicable requirements. If it is subsequently determined that a
policy does not satisfy the applicable requirements, we will take appropriate
and reasonable steps to bring the policy into compliance with such requirements
and we reserve the right to restrict policy transactions or modify your policy
in order to do so.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 guideline premium/cash corridor
test, Code Section 817(h) requires separate account investments, such as our
variable account, to be adequately diversified. The Treasury has issued
regulations which set the standards for measuring the adequacy of any
diversification. To be adequately diversified, each variable division must meet
certain tests. If your variable life policy is not adequately diversified under
these regulations, it is not treated as life insurance under Code Section 7702.
You would then be subject to federal income tax on your policy income as you
earn it. Our variable divisions' investment portfolios have promised they will
meet the diversification standards that apply to your policy.
In certain circumstances, you, as owner of a variable life insurance contract,
may be considered the owner for federal income tax purposes of the separate
account assets used to support your contract. Any income and gains from the
separate account assets are includable in the gross income from your policy
under these circumstances. The IRS has stated in published rulings that a
variable contract owner is considered the owner of separate account assets if
the contract owner has "indicia of ownership" in those assets. "Indicia of
ownership" includes the ability to exercise investment control over the assets.
- --------------------------------------------------------------------------------
Variable Survivorship 57
<PAGE>
Your ownership rights under your policy are similar to, but different in some
ways from those described by the IRS in rulings in which it determined that
policy owners are not owners of separate account assets. For example, you have
flexibility in allocating your premium payments and in your policy values. These
differences could result in the IRS treating you as the owner of a pro rata
share of the variable account assets. We do not know what standards will be set
forth in the future, if any, in Treasury regulations or rulings. We reserve the
right to modify your policy, as necessary, to try to prevent you from being
considered the owner of a pro rata share of the variable account assets, or to
otherwise qualify your policy for favorable tax treatment.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY DEATH BENEFITS
We believe that the death benefit under a policy is generally excludable from
the gross income of the beneficiary(ies) under section 101(a)(1) of the Code.
However, there are exceptions to this general rule. Additionally, federal and
local transfer, estate inheritance, and other tax consequences of ownership or
receipt of policy proceeds depend on the circumstances of each policy owner or
beneficiary(ies). A tax adviser should be consulted about these consequences.
Generally, the policy owner will not be taxed on any of the policy cash value
until there is a distribution. When distributions from a policy occur, or when
loans are taken from or secured by a policy, the tax consequences depend on
whether or not the policy is a "modified endowment contract."
Special rules also apply if you are subject to the alternative minimum tax. You
should consult a tax adviser if you are subject to the alternative minimum tax.
MODIFIED ENDOWMENT CONTRACTS
Under the Internal Revenue Code, certain life insurance contracts are classified
as "modified endowment contracts," and are given less favorable tax treatment
than other life insurance contracts. Due to the flexibility of the policies as
to premiums and benefits, the individual circumstances of each policy will
determine whether or not it is classified as a modified endowment contract. The
rules are too complex to be summarized here, but generally depend on the amount
of premiums paid during the first seven policy years. Certain changes in a
policy after it is issued could also cause it to be classified as a modified
endowment contract. A current or prospective policy owner should consult with a
competent adviser to determine whether or not a policy transaction will cause
the policy to be classified as a modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts that are issued by us (or our affiliates) to
the same policy owner during any calendar year are treated as one modified
endowment contract for purposes of determining the amount includable in the
policy owner's income when a taxable distribution occurs.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS
Once a policy is classified as a modified endowment contract, the following tax
rules apply both prospectively and to any distributions made in the prior two
years:
1. All distributions other than death benefits, including distributions
upon surrender and withdrawals, from a modified endowment contact will
be treated first as distributions of gain taxable as ordinary income
and as tax-free recovery of the policy owner's investment in the policy
only after all gain has been distributed.
2. Loans taken from or secured by a policy classified as a modified
endowment contract are treated as distributions and taxed first as
distributions of gain taxable as ordinary income and as tax-free
recovery of the policy owner's investment in the policy only after all
gain has been distributed.
3. A 10% additional income tax penalty may be imposed on the distribution
amount subject to income tax. Consult a tax adviser to determine
whether or not you may be subject to this penalty tax.
- --------------------------------------------------------------------------------
Variable Survivorship 58
<PAGE>
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS
Distributions other than death benefits from a policy that is not classified as
a modified endowment contract are generally treated first as a recovery of the
policy owner's investment in the policy. Only after the recovery of all
investment in the policy, is there taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for federal income tax purposes, if policy
benefits are reduced during the first fifteen policy years, may be treated in
whole or in part as ordinary income subject to tax.
Loans from or secured by a policy that is not a modified endowment contract are
generally not treated as distributions. Finally, neither distributions from, nor
loans from or secured by, a policy that is not a modified endowment contract are
subject to the 10% additional income tax.
INVESTMENT IN THE POLICY
Your investment in the policy is generally the total of your aggregate premiums.
When a distribution is taken from the policy other than a policy loan, your
investment in the policy is reduced by the amount of the distribution that is
tax free.
POLICY LOANS
In general, interest on a policy loan will not be deductible. Before taking out
a policy loan, you should consult a tax adviser as to the tax consequences.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss shall be recognized on
the exchange of one life insurance policy for another life insurance policy, or
for an endowment or annuity contract. We accept 1035 exchanges with outstanding
loans. Special rules and procedures apply to Section 1035 exchanges. If you wish
to take advantage of Section 1035, you should consult your tax adviser.
TAX-EXEMPT POLICY OWNERS
Special rules may apply to a policy that is owned by a tax-exempt entity.
Tax-exempt entities should consult their tax adviser regarding the consequences
of purchasing and owning a policy. These consequences could include an effect on
the tax-exempt status of the entity and the possibility of the unrelated
business income tax.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative action is uncertain, there is always the
possibility that the tax treatment of the policy could be changed by legislation
or otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
CHANGES TO COMPLY WITH THE LAW
So that your policy continues to qualify as life insurance under the Code, we
reserve the right to refuse to accept all or part of your premium payments, or
to change your death benefit. We may refuse to allow you to make partial
withdrawals that would cause your policy to fail to qualify as life insurance.
We also may:
o make changes to your policy or its riders; or
o take distributions from your policy to the degree that we deem
necessary to qualify your policy as life insurance for tax purposes.
If we make any change of this type, it applies the same way to all affected
policies. We will give you advance notice of this change.
The tax law limits the amount we can charge for mortality costs and other
expenses used to calculate whether your policy qualifies as life insurance for
federal income tax purposes. We must base these calculations on reasonable
mortality charges and other charges reasonably expected to be paid. The Treasury
issued proposed regulations on what it considers reasonable mortality charges.
We believe that the charges used for your policy should meet the Treasury's
current requirement for "reasonableness." We reserve the right to make changes
to the mortality charges if future regulations have standards which make changes
necessary in order to continue to qualify your policy as life insurance for
federal income tax purposes.
- --------------------------------------------------------------------------------
Variable Survivorship 59
<PAGE>
Additionally, assuming that you do not want your policy to be or to become a
modified endowment contract, we include a policy endorsement under which we have
the right to amend your policy, including riders. We do this to attempt to
enable your policy to continue to meet the seven-pay test for federal income tax
purposes. If the policy premium you pay is more than the seven-pay limit, we
have the right to remove any excess premium or to make any appropriate
adjustments to your policy's account value and death benefit. It is not clear,
however, whether we can take effective action pursuant to this endorsement under
all possible circumstances to prevent a policy that has exceeded the premium
limitation from being classified as a modified endowment contract.
Any increase in your death benefit will cause an increase in your cost of
insurance charges.
OTHER
Policy owners may use our policies in various arrangements, including:
o qualified plans;
o non-qualified deferred compensation or salary continuance plans;
o split dollar insurance plans;
o executive bonus plans;
o retiree medical benefit plans; and
o other plans.
The tax consequences of these plans may vary depending on the particular facts
and circumstances of each arrangement. If you want to use any of your policies
in this type of arrangement, you should consult a qualified tax adviser
regarding the tax issues of your particular arrangement.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
The IRS requires us to withhold income taxes from any portion of the amounts
individuals receive in a taxable transaction. We do not withhold income taxes if
you elect in writing not to have withholding apply. If the amount withheld for
you is insufficient to cover income taxes, you may have to pay income taxes and
possibly penalties later.
The transfer of the policy or designation of a beneficiary may have federal,
state, and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate, and generation-skipping transfer taxes. For example,
the transfer of the policy to, or the designation as a beneficiary of, or the
payment of proceeds to, a person who is assigned to a generation which is two or
more generations below the generation assignment of the policy owner may have
generation skipping transfer tax consequences under federal tax law. The
individual situation of each policy owner or beneficiary will determine the
extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of policy proceeds will be
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON
FEDERAL, STATE, LOCAL, AND OTHER TAX CONSIDERATIONS.
- --------------------------------------------------------------------------------
Variable Survivorship 60
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
The following tables are intended to show how the policy works. This includes
how benefits and values can vary over a long period of time. Each table also
compares these values with total premiums paid with interest. The policy
illustrated includes:
<TABLE>
<CAPTION>
Definition
Death of Life Stated Target
Smoker User Benefit Insurance Death Death
Gender Age Status Option Test Benefit Premium Benefit
------ --- ------ ------ ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Male 50 Non-smoker 1 GP 1,000,000 $13,000 1,000,000
Preferred
Female 50 Non-smoker
Preferred
</TABLE>
For sales charge purposes, the target premium for the illustrated policy is
$7,995.92 (approximately $8 per $1,000 of stated death benefit). For surrender
charge purposes, the target premium for the illustrated policy is $8,885.29
(approximately $9 per $1,000 of stated death benefit).
The tables show how death benefits, account values, and cash surrender values of
a hypothetical policy could vary over an extended period of time, assuming the
variable divisions had constant hypothetical gross annual investment returns of
0%, 12%, or 6% over the periods indicated in each table.
Values would differ from those shown in the tables if the annual investment
returns were not constant. The amounts shown would differ if we had used two
females or two males.
These illustrations assume there is no policy loan.
We illustrate premium payments as if they were made at the beginning of the
year. The third column of each table shows what would happen if an amount equal
to the assumed premiums earned interest, after taxes, of 5% compounded annually.
The difference between the account value and the cash surrender value in the
first nine years of the policy show the effect of the surrender charge.
The net investment return on your policy is lower than the gross investment
return on the variable divisions. This is due to the mortality and expense risk
charge, and the portfolio charge for management fees and portfolio expenses. We
show the effect of the net investment return in the amounts for death benefits,
account values and cash surrender values.
The tables reflect annual investment management fees of 0.6643% of the
portfolios' aggregate average daily net assets. This hypothetical rate is a
simple average of the investment advisory fees applying to the investment
portfolios for the year ending December 31, 1998. We assume other portfolio
expenses at the rate of 0.2531% of the portfolios' average daily net assets.
This is an average of all the portfolios' other expenses for the year ending
December 31, 1998 after any absorption by investment portfolio managers has been
made. The average of all portfolios' total expenses is 0.9174%.
- --------------------------------------------------------------------------------
Variable Survivorship 61
<PAGE>
Actual fees vary by portfolio. The portfolio fees and expenses used in the
illustrations are the net amounts shown after absorption of fees and expenses by
the portfolio's investment manager. Absent such absorption, the total average
investment management fees, average other portfolio expenses and the average of
all portfolios' total expenses used in the illustrations would have been higher
(0.7126%, 0.9213% and 1.6339%, respectively). The tables assume that the
current expense reimbursement arrangements will continue. However, they may not
continue through 1999.
The effect of these portfolio charges and expenses, and mortality and expense
risk charges results in a net rate of return of:
o (1.66)% on a 0% gross rate of return;
o 10.25% on a 12% gross rate of return; and
o 4.30% on a 6% gross rate of return.
The tables assume that charges have been deducted including deductions for
premiums, cost of insurance rider charges, monthly deductions and administrative
and sales charges. The tables show charges at our current rates which includes a
persistency refund. The tables also show charges at the maximum rates we
guarantee in our policies. SEE MONTHLY DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE
52. The tables reflect that we do not currently charge against the variable
account for state or federal taxes. If we charge for the taxes in the future, it
will take a higher gross rate of return than the rates shown to produce the same
death benefits, account values, and cash surrender values.
If we are asked to do so, we will give you a comparable personal illustration
based on:
o the insured people's ages and genders;
o standard premium class assumptions;
o initial stated death benefit;
o the chosen death benefit option;
o scheduled premiums consistent with your policy form; and
o special features elected on your policy.
At issue, we deliver an individualized illustration showing the scheduled
premium you chose and the insured people's actual risk classes. After we issue
the policy, if you ask us to, we will give you an illustration of future policy
benefits. We base these hypothetical future benefits on both guaranteed and
current cost factor assumptions and actual account value.
- --------------------------------------------------------------------------------
Variable Survivorship 62
<PAGE>
PROSPECT: INSURED PERSON NO. 1'S NAME
MALE 50 NON-SMOKER PREFERRED PRESENTED BY:
INSURED PERSON NO. 2'S NAME
FEMALE 50 NON-SMOKER PREFERRED
SECURITY LIFE
VARIABLE SURVIVORSHIP UNIVERSAL LIFE
STATED DEATH BENEFIT: $1,000,000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $13,000.00
GUIDELINE PREMIUM/CASH VALUE
CORRIDOR 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 13000 13650 10651 1766 1000000 12003 3118 1000000 11327 2442 1000000
2 13000 27983 21053 12167 1000000 25159 16274 1000000 23065 14180 1000000
3 13000 43032 31193 22307 1000000 39571 30686 1000000 35216 26331 1000000
4 13000 58833 41057 32172 1000000 55348 46463 1000000 47780 38895 1000000
5 13000 75425 50630 41744 1000000 72611 63726 1000000 60753 51868 1000000
6 13000 92846 60166 53058 1000000 91799 84691 1000000 74423 67314 1000000
7 13000 111138 69368 64037 1000000 112781 107449 1000000 88502 83171 1000000
8 13000 130345 78215 74660 1000000 135722 132168 1000000 102988 99434 1000000
9 13000 150513 86687 84910 1000000 160807 159030 1000000 117875 116098 1000000
10 13000 171688 94758 94758 1000000 188239 188239 1000000 133153 133153 1000000
15 13000 294547 134217 134217 1000000 384197 384197 1000000 224292 224292 1000000
20 13000 451350 153589 153589 1000000 704980 704980 1000000 323952 323952 1000000
25 13000 651475 133167 133167 1000000 1251143 1251143 1338723 422763 422763 1000000
30 13000 906890 15157 15157 1000000 2162731 2162731 2270867 495073 495073 1000000
AGE 65 13000 322925 140097 140097 1000000 436085 436085 1000000 243737 243737 1000000
</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.
- --------------------------------------------------------------------------------
Variable Survivorship 63
<PAGE>
PROSPECT: INSURED PERSON NO. 1'S NAME:
MALE 50 NON-SMOKER PREFERRED PRESENTED BY:
INSURED PERSON NO. 2'S NAME
FEMALE 50 NON-SMOKER PREFERRED
SECURITY LIFE
VARIABLE SURVIVORSHIP UNIVERSAL LIFE
STATED DEATH BENEFIT: $1,000,000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $13,000.00
GUIDELINE PREMIUM/CASH VALUE
CORRIDOR 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 13000 13650 10651 1766 1000000 12003 3118 1000000 11327 2442 1000000
2 13000 27983 21053 12167 1000000 25159 16274 1000000 23065 14180 1000000
3 13000 43032 31193 22307 1000000 39571 30686 1000000 35216 26331 1000000
4 13000 58833 41138 32253 1000000 55433 46548 1000000 47864 38978 1000000
5 13000 75425 50916 42030 1000000 72920 64035 1000000 61051 52166 1000000
6 13000 92846 60800 53692 1000000 92505 85397 1000000 75093 67984 1000000
7 13000 111138 70512 65181 1000000 114091 108760 1000000 89729 84398 1000000
8 13000 130345 80049 76495 1000000 137880 134326 1000000 104983 101429 1000000
9 13000 150513 89408 87631 1000000 164094 162317 1000000 120874 119097 1000000
10 13000 171688 98586 98586 1000000 192977 192977 1000000 137425 137425 1000000
15 13000 294547 148683 148683 1000000 403485 403485 1000000 241139 241139 1000000
20 13000 451350 193392 193392 1000000 755907 755907 1000000 370654 370654 1000000
25 13000 651475 227919 227919 1000000 1348180 1348180 1442552 529977 529977 1000000
30 13000 906890 242278 242278 1000000 2340256 2340256 2457269 725721 725721 1000000
AGE 65 13000 322925 158180 158180 1000000 460228 460228 1000000 264872 264872 1000000
</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 investments 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.
- --------------------------------------------------------------------------------
Variable Survivorship 64
<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>
Stephen M. Christopher Chairman, President and Chief Executive Officer
Thomas F. Conroy Director, President, Security Life Reinsurance
Michael W. Cunningham* Director, Executive Vice President
Linda B. Emory* Director
James L. Livingston, Jr. Executive Vice President and Chief Operating Officer
Jeffrey R. Messner Executive Vice President and Chief Marketing Officer
Jess A. Skriletz President, ING Institutional Markets
John R. Barmeyer* Senior Vice President, Chief Legal Officer
Wayne D. Bidelman Senior Vice President, CCRC
Eugene L. Copeland Senior Vice President and General Counsel, Security Life
Reinsurance and ING Institutional Markets
Arnold A. Dicke Senior Vice President, Chief Actuary, ING Reinsurance
Carol D. Hard Senior Vice President, Variable Products
Philip R. Kruse Senior Vice President
Charles LeDoyen** Senior Vice President, Structured Settlements
Timothy P. McCarthy Senior Vice President, Marketing Services
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 65
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
<S> <C>
Gregory G. McGreevey Senior Vice President, New Products and Market
Development, ING Institutional Markets
Jeffery W. Seel* Senior Vice President, Chief Investment Officer
Lawrence D. Taylor Senior Vice President, Chief Actuary
Louis N. Trapolino Senior Vice President, Distribution
William D. Tyler* Senior Vice President, Chief Information Officer
Katherine Anderson Vice President, Chief Product Actuary
Evelyn A. Bentz Vice President, M Financial Sales
Thomas Kirby Brown, Jr. Vice President, Operations, ING Institutional Markets
Douglas W. Campbell Vice President, Agency Sales
Daniel S. Clements Vice President and Chief Underwriter
Stanley F. Eckert Vice President, National Marketing
Shari A. Enger Vice President -- Controller
Larry D. Erb Vice President, Information Technology
Martha K. Evans Vice President, Variable Operations
Fitz Fisher Vice President, Information Technology
Craig Fowler Vice President, Risk Management and Chief Actuary, ING
Institutional Markets
Deborah B. Holden* Vice President, Corporate Benefits
Brian Holland Vice President, Domestic and International Risk
Management
Kenneth R. Kiefer** Vice President, Operations, Structured Settlements
Richard D. King Vice President, Medical Director
Stephen F. Kraysler Vice President, Structured Reinsurance
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 66
<PAGE>
<TABLE>
<CAPTION>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
<S> <C>
C. Lynn McPherson* Vice President
Sue A. Miskie Vice President, Corporate Services
David S. Pendergrass* Vice President and Treasury Officer
Stephen R. Pryde Vice President, Business Operations
Christiaan M. Rutten Vice President, International Reinsurance
Casey J. Scott Vice President, National Marketing
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 Corporate Secretary
Amy L. Winsor Vice President and Treasurer
William Wojciechowski* Vice President, CCRC
Eric G. Banta Assistant Secretary
Roger O. Beebe Actuarial Officer
Marsha K. Crest Agency Administration Officer
Kim M. Curley Appointed Actuary
John B. Dickinson Actuarial Officer
Relda A. Fleshman Deputy General Counsel
Shirley A. Knarr Actuarial Officer
Glen E. Stark Actuarial Officer
William J. Wagner Actuarial Officer
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 67
<PAGE>
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. Sutherland Asbill &
Brennan LLP has provided advice on certain matters relating to the federal
securities laws.
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, 1998 and 1997, and for each of the
three years in the period ended December 31, 1998, and the financial statements
of the Security Life Separate Account L1 at December 31, 1998, and for each of
the three years in the period ended December 31, 1998, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given on the authority
of such firm as experts in accounting and auditing.
Actuarial matters in this prospectus have been examined by William J. Wagner,
F.S.A., M.A.A.A., who is an 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. There is a charge for this
material.
- --------------------------------------------------------------------------------
Variable Survivorship 68
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1998
and 1997, and for each of the three years in the period ended December 31, 1998,
are prepared in accordance with generally accepted accounting principles and
start on page 70.
The financial statements included for the Security Life Separate Account L1 at
December 31, 1998 and for each of the three years in the period ended December
31, 1998, 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, as well
as the financial statements included for the Security Life Separate Account L1
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.
- --------------------------------------------------------------------------------
Variable Survivorship 69
<PAGE>
Consolidated Financial Statements
Security Life of Denver
Insurance Company
and Subsidiaries
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Variable Survivorship 70
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors ...............................................72
Audited Consolidated Financial Statements
Consolidated Balance Sheets ..................................................73
Consolidated Statements of Income ............................................75
Consolidated Statements of Comprehensive Income...............................76
Consolidated Statements of Stockholder's Equity ..............................77
Consolidated Statements of Cash Flows ........................................78
Notes to Consolidated Financial Statements ...................................80
- --------------------------------------------------------------------------------
Variable Survivorship 71
<PAGE>
[Logo of Ernst & Young LLP appears here]
Report of Independent Auditors
Board of Directors and Stockholder
Security Life of Denver Insurance Company
We have audited the accompanying consolidated balance sheets of Security Life of
Denver Insurance Company (a wholly-owned subsidiary of ING America Insurance
Holdings, Inc.) and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Life of
Denver Insurance Company and subsidiaries at December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
Denver, Colorado /s/ Ernst & Young LLP
April 5, 1999
- --------------------------------------------------------------------------------
Variable Survivorship 72
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
--------------------------------
<S> <C> <C>
Assets
Investments (Notes 2 and 3):
Fixed maturities, at fair value (amortized cost:
1998--$3,383,582; 1997--$3,007,012) $ 3,503,530 $3,152,355
Equity securities, at fair value (cost: 1998--$6,761;
1997--$6,754) 8,400 8,019
Mortgage loans on real estate 784,108 576,620
Investment real estate, at cost, less accumulated
depreciation (1998--$706; 1997--$667) 1,740 1,767
Policy loans 925,623 875,405
Other long-term investments 17,671 14,307
Short-term investments 747 55,466
--------------------------------
Total investments 5,241,819 4,683,939
Cash 31,644 22,299
Accrued investment income 52,440 49,726
Reinsurance recoverable:
Paid benefits 11,364 11,170
Unpaid benefits 24,312 14,988
Prepaid reinsurance premiums (Note 8) 3,329,901 2,744,863
Deferred policy acquisition costs (DPAC) 778,126 682,905
Property and equipment, at cost, less accumulated
depreciation (1998--$25,981; 1997--$22,925) 36,141 37,943
Federal income tax recoverable (Note 9) -- 5,722
Indebtedness from related parties 4,339 2,443
Other assets 113,019 87,298
Separate account assets (Note 6) 423,474 263,035
--------------------------------
Total assets $10,046,579 $8,606,331
================================
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 73
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1998 1997
-----------------------------------------
<S> <C> <C>
Liabilities and stockholder's equity Liabilities:
Future policy benefits:
Life and annuity reserves $ 4,857,141 $4,328,577
Guaranteed investment contracts 3,210,012 2,634,654
Policyholders' funds 81,064 82,291
Advance premiums 272 365
Accrued dividends and dividends on deposit 21,268 21,129
Policy and contract claims 130,100 103,525
----------- ----------
Total future policy benefits 8,299,857 7,170,541
Accounts payable and accrued expenses 108,165 99,335
Indebtedness to related parties 13,755 7,704
Long-term debt to related parties (Note 10) 100,000 75,000
Accrued interest on long-term debt to related
parties (Note 10) 5,387 5,128
Other liabilities 109,593 61,424
Federal income taxes payable (Note 9) 106 --
Deferred federal income taxes (Note 9) 60,062 53,829
Separate account liabilities (Note 6) 423,474 263,035
----------- ----------
Total liabilities 9,120,399 7,735,996
Commitments and contingencies
(Notes 8 and 13)
Stockholder's equity (Note 11): Common stock, $20,000 par value:
Authorized - 149 shares
Issued and outstanding - 144 shares 2,880 2,880
Additional paid-in capital 315,722 315,722
Retained earnings 563,553 500,795
Accumulated other comprehensive income 44,025 50,938
----------- ----------
Total stockholder's equity 926,180 870,335
----------- ----------
Total liabilities and stockholder's equity $10,046,579 $8,606,331
=========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 74
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Income
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Revenues:
Traditional life insurance premiums $ 120,675 $ 122,429 $ 118,200
Universal life and investment product charges 229,226 217,108 202,081
Reinsurance premiums assumed 431,267 446,434 339,335
----------- ----------- ---------
781,168 785,971 659,616
Reinsurance premiums ceded (143,211) (124,815) (117,880)
----------- ----------- ---------
637,957 661,156 541,736
Net investment income 361,996 340,898 312,121
Net realized gains on investments 10,818 28,645 4,770
Other revenues 11,771 6,743 526
----------- ----------- ---------
1,022,542 1,037,442 859,153
Benefits and expenses:
Benefits:
Traditional life insurance:
Death benefits 239,921 299,305 235,828
Other benefits 77,209 79,849 71,939
Universal life and investment contracts:
Interest credited to account balances 236,136 217,614 186,908
Death benefits incurred in excess of account
balances 63,103 73,260 54,004
Increase in future policy benefits 102,875 72,685 121,946
Reinsurance recoveries (84,506) (98,376) (80,276)
Product conversions 10,578 7,014 16,379
----------- ----------- ---------
645,316 651,351 606,728
Expenses:
Commissions 49,569 46,516 25,846
Insurance operating expenses 125,194 89,075 69,580
Amortization of deferred policy acquisition costs 105,639 116,495 94,685
----------- ----------- ---------
925,718 903,437 796,839
----------- ----------- ---------
Income before federal income taxes 96,824 134,005 62,314
Federal income taxes (Note 9) 34,066 47,019 21,876
----------- ----------- ---------
Net income $ 62,758 $ 86,986 $ 40,438
=========== =========== =========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 75
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------------
<S> <C> <C> <C>
Net income $ 62,758 $ 86,986 $ 40,438
-------- -------- --------
Other comprehensive income:
Unrealized gains (losses) on securities:
Net change in unrealized holding gains (losses), net of tax (11,251) 28,367 (25,294)
Reclassification adjustment for realized gains
included in net income, net of tax (5,010) (4,601) (2,422)
Effect on DPAC of unrealized gains and
losses on fixed maturities, net of tax 7,236 (37,522) 13,461
Reclassification effect on DPAC of realized gains and
losses included in net income, net of tax 3,075 5,976 --
Net change in pension liability, net of tax (963) -- --
-------- -------- --------
Total other comprehensive income (6,913) (7,780) (14,255)
-------- -------- --------
Comprehensive income $ 55,845 $ 79,206 $ 26,183
======== ======== ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 76
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Stockholder's Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 2,880 $ 2,880 $ 2,880
========= ========= =========
Additional paid-in capital:
Balance at beginning of year $ 315,722 $ 302,722 $ 297,422
Capital contributions -- 13,000 5,300
--------- --------- ---------
Balance at end of year $ 315,722 $ 315,722 $ 302,722
========= ========= =========
Accumulated other comprehensive income:
Net unrealized gains on investments:
Balance at beginning of year $ 50,938 $ 58,718 $ 72,973
Unrealized gains (losses) on securities:
Change in unrealized gains (losses),
net of tax (16,261) 23,766 (27,716)
Effect on DPAC of unrealized gains and
losses on fixed maturities, net of tax 10,311 (31,546) 13,461
--------- --------- ---------
Balance at end of year 44,988 50,938 58,718
Accumulated net pension liability:
Balance at beginning of year -- -- --
Net change in pension liability, net of tax (963) -- --
--------- --------- ---------
Balance at end of year (963) -- --
--------- --------- ---------
Total accumulated other comprehensive income $ 44,025 $ 50,938 $ 58,718
========= ========= =========
Retained earnings:
Balance at beginning of year $ 500,795 $ 413,809 $ 373,371
Net income 62,758 86,986 40,438
--------- --------- ---------
Balance at end of year $ 563,553 $ 500,795 $ 413,809
========= ========= =========
Total stockholder's equity $ 926,180 $ 870,335 $ 778,129
========= ========= =========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 77
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
--------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 62,758 $ 86,986 $ 40,438
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in future policy benefits 874,765 995,632 585,581
Net decrease (increase) in federal income taxes 12,061 (12,317) 78,668
Increase (decrease) in accounts payable and
accrued expenses 55,361 21,033 (1,361)
Increase in accrued interest on long-term debt 259 1,428 3,676
Increase in accrued investment income (2,714) (4,300) (7,294)
(Increase) decrease in reinsurance recoverable (9,518) 3,733 (5,214)
Increase in prepaid reinsurance premiums (585,038) (793,851) (336,053)
Net realized investment gains (10,818) (28,645) (4,770)
Depreciation and amortization expense 3,174 3,630 3,857
Policy acquisition costs deferred (184,993) (174,374) (152,299)
Amortization of deferred policy acquisition
costs 105,639 116,495 94,685
Increase in accrual for postretirement benefits 675 557 484
Other, net (7,053) 43,538 (15,539)
--------- --------- ---------
Net cash provided by operating activities 314,558 259,545 284,859
INVESTING ACTIVITIES Securities available-for-sale:
Sales:
Fixed maturities 5,015,989 2,279,598 334,482
Equity securities 2,251 648 4,198
Maturities--fixed maturities 274,463 410,632 727,937
Purchases:
Fixed maturities (5,670,994) (2,919,145) (1,522,369)
Equity securities (2,089) (2,561) (428)
Sale, maturity or repayment of investments:
Mortgage loans on real estate 51,235 38,756 18,102
Investment real estate -- -- 1,354
Other long-term investments 10,678 2,002 --
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 78
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1998 1997 1996
----------------------------------------------
<S> <C> <C> <C>
Investing activities (continued)
Purchase or issuance of investments:
Mortgage loans on real estate $(259,945) $(163,528) $(186,228)
Investment real estate (13) (35) --
Policy loans, net (50,218) (80,094) (41,071)
Other long-term investments (14,042) (5,248) 809
Short-term investments, net 55,115 (48,447) 3,942
Additions to property and equipment (1,418) (2,687) (4,482)
Disposals of property and equipment 68 145 2,389
--------- --------- ---------
Net cash used by investing activities (588,920) (489,964) (661,365)
FINANCING ACTIVITIES
Increase in indebtedness to related parties 29,156 5,217 42,206
Cash contributions from parent -- 13,000 5,300
Receipts from interest sensitive products
credited to policyholder account balances 505,728 555,223 434,726
Return of policyholder account balances on
interest sensitive policies (251,177) (334,543) (123,949)
--------- --------- ---------
Net cash provided by financing activities 283,707 238,897 358,283
--------- --------- ---------
Net increase (decrease) in cash 9,345 8,478 (18,223)
Cash at beginning of year 22,299 13,821 32,044
--------- --------- ---------
Cash at end of year $ 31,644 $ 22,299 $ 13,821
========= ========= =========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 79
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1998
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
operations, after intercompany eliminations, of Security Life of Denver
Insurance Company (Security Life) and its wholly-owned subsidiaries: Midwestern
United Life Insurance Company (Midwestern United); First ING Life Insurance
Company of New York (First ING); First Secured Mortgage Deposit Corporation; and
ING America Equities, Inc.
NATURE OF OPERATIONS
Security Life of Denver Insurance Company and its subsidiaries (the Company) is
a wholly-owned subsidiary of ING America Insurance Holdings, Inc. (ING America).
The Company focuses on two markets, the advanced market and reinsurance to other
insurers. The life insurance products offered for the advanced market include
wealth transfer and estate planning, executive benefits, charitable giving and
corporate owned life insurance. These products include traditional life,
interest sensitive life, universal life and variable life. Operations are
conducted almost entirely on the general agency basis and the Company is
presently licensed in all states (approved for reinsurance only in New York),
the District of Columbia and the Virgin Islands. In the reinsurance market, the
Company offers financial security to clients through a mix of total risk
management and traditional life insurance services.
The significant accounting policies followed by the Company that materially
affect the financial statements are summarized below:
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles (GAAP) which, as to the
insurance companies included in the consolidation, differ from statutory
accounting practices prescribed or permitted by state insurance regulatory
authorities.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
- --------------------------------------------------------------------------------
Variable Survivorship 80
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES
During June 1996, the Financial Accounting Standards Board (FASB) issued
Statement No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities. This Statement was effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after December 31, 1996. Also in 1996, the FASB issued Statement No. 127, which
delayed certain provisions of FAS 125 dealing with transactions such as
securities lending, repurchase and dollar repurchase agreements until 1998. The
portion of FAS 125 that became effective in 1997 requires the entity to
recognize financial and servicing assets it controls and the liabilities it has
incurred and to derecognize financial assets when control has been surrendered
in accordance with the criteria provided in the Statement. The application of
the new rules did not have a material impact on the financial statements of the
Company.
Effective January 1, 1996, the Company adopted FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the valuation for
long-lived assets that are identified for disposal. Adoption of this standard
resulted in an insignificant impact to net income and stockholder's equity.
During 1998, the Company adopted FASB Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, which standardizes the
disclosure requirements for pension and other postretirement benefits. This
Statement is effective for years beginning after December 15, 1997, with the
restatement of disclosures for prior periods provided for comparative purposes,
unless prior period information is not readily available.
During 1998, the Company adopted FASB Statement No. 130, Reporting Comprehensive
Income, which requires an entity to divide comprehensive income into net income
and other comprehensive income in the period recognized. This Statement is
effective for fiscal years beginning after December 15, 1997, with the
restatement of prior period disclosures for comparative purposes. As a result of
implementing this Statement, the Company has classified items of other
comprehensive income by their nature in the statements of comprehensive income
and the accumulated balance of other comprehensive income in the equity section
of the balance sheet. This Statement affects the presentation of the financial
statements, with no effect on the valuation of total stockholder's equity.
- --------------------------------------------------------------------------------
Variable Survivorship 81
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENDING ACCOUNTING STANDARDS
During 1998, the FASB issued Statement No. 133, Accounting for Derivative
Financial Instruments and Hedging Activities, which establishes a new model for
accounting and reporting for derivatives and hedging activities. Statement 133
requires all derivatives to be recognized on the balance sheet and measured at
fair value. Based on the type of hedging relationship (fair value, cash flow, or
foreign currency), Statement 133 requires the recognition of offsetting changes
in value or cash flows of both the derivative and the hedged item in earnings in
the same period. Changes in the fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria in
Statement 133 are included in earnings in the period of change. The
implementation of this Statement is required for years beginning after June 15,
1999, and upon the initial application of the Statement all derivatives are
required to be recognized in the balance sheet as either assets or liabilities
and measured at fair value. The Company plans to adopt this Statement during
2000, and the effect of implementation on the Company's financial statements has
not yet been determined.
INVESTMENTS
Investments are presented on the following bases:
The carrying value of fixed maturities depends on the classification of the
security: securities held-to-maturity, securities available-for-sale, and
trading securities. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as
of each balance sheet date.
The Company does not hold any securities classified as held-to-maturity or
trading securities.
Debt securities and marketable equity securities are classified as
available-for-sale. Available-for-sale securities are stated at fair
value, with the unrealized gains and losses, and deferred policy
acquisition cost adjustments, reported net of tax as a component of other
comprehensive income in stockholder's equity.
- --------------------------------------------------------------------------------
Variable Survivorship 82
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The amortized cost of debt securities classified as held-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion
of discounts to maturity, or in the case of mortgage-backed securities,
over the estimated life of the security. Such amortization is included in
interest income from investments. Interest and dividends are included in
net investment income as earned.
Mortgage loans are carried at the unpaid balances less an allowance for
credit losses. Investment real estate is carried at cost, less accumulated
depreciation. Policy loans are carried at unpaid balances. Derivatives are
accounted for on the same basis as the asset hedged.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains on investments. The
cost of securities sold is based on the specific identification method.
RECOGNITION OF PREMIUM REVENUES
Premiums for traditional life insurance products, which include those products
with fixed and guaranteed premiums and benefits and consist principally of whole
life insurance policies, are recognized as revenue when due. Revenues for
universal life insurance policies and for investment products consist of policy
charges for the cost of insurance, policy administration charges, and surrender
charges assessed against policyholder account balances during the year.
DEFERRED POLICY ACQUISITION COSTS
Commissions, reinsurance allowances, and other costs of acquiring traditional
life insurance, including reinsurance assumed, universal life insurance
(including interest sensitive products) and investment products that vary with
and are primarily related to the production of new and renewal business, have
been deferred. Traditional life insurance acquisition costs are being amortized
using assumptions consistent with those used in computing policy benefit
reserves. The period of amortization is normally over the premium-paying period.
In the case of policies with no first year premium, the period of amortization
includes the first year, in addition to the premium-paying period. For universal
life insurance and investment products, acquisition costs are being amortized
generally in proportion to the present value (using the assumed crediting
- --------------------------------------------------------------------------------
Variable Survivorship 83
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
rate) of expected gross margins from surrender charges, investments, mortality,
and expenses. This amortization is adjusted retrospectively when estimates of
current or future gross margins to be realized from a group of products are
revised.
Deferred policy acquisition costs are adjusted to reflect changes that would
have been necessary if unrealized investment gains and losses related to
available-for-sale securities had been realized. The Company has reflected those
adjustments in the asset balance with the offset as a direct adjustment to
accumulated other comprehensive income in stockholder's equity.
FUTURE POLICY BENEFITS
Benefit reserves for traditional life insurance products (other than reinsurance
assumed) are computed using a net level premium method including assumptions as
to investment yields, mortality, withdrawals and other assumptions based on
Company and industry experience. These assumptions include provisions for
adverse deviation and are modified as necessary to reflect anticipated trends.
Reserve interest assumptions are those deemed appropriate at the time of policy
issue, and range from 3% to 7.5%. Policy benefit claims are charged to expense
in the year that the claims are incurred.
Benefit reserves for reinsurance assumed are computed using pricing assumptions
with provisions for adverse deviation. Benefits for level-term reinsurance
assumed are computed to recognize profits in proportion with revenue. Benefit
reserves for all other reinsurance assumed are computed to recognize profits in
proportion to the coverage provided.
Benefit reserves for universal life-type policies (including fixed premium
interest sensitive products) and investment products are computed under a
retrospective deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims that are charged to
expense include benefit claims incurred during the year in excess of related
policy account balances. Interest crediting rates for universal life and
investment products range from 3.80% to 7.81% during 1998, 4.60% to 7.81% during
1997, and 4.60% to 7.45% during 1996.
Included in life and annuity reserves is an unearned revenue reserve that
reflects the unamortized balance of excess heaped expense loads over ultimate
renewal expense loads on universal life and investment products. These excess
fees have been deferred and are being recognized in income over the periods
benefitted, using the same assumptions and factors used to amortize deferred
policy acquisition costs.
- --------------------------------------------------------------------------------
Variable Survivorship 84
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY AND CONTRACT CLAIMS
The liabilities for unpaid claims include estimates of amounts due on reported
claims and claims that have been incurred but were not reported as of December
31. Such estimates are based on actuarial projections applied to historical
claim payment data and are considered reasonable and adequate to discharge the
Company's obligations for claims incurred but unpaid as of December 31.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Impairment losses are recorded when indicators of impairment are present and the
estimated undiscounted cash flows are less than the assets' carrying value.
Depreciation for major classes of assets is calculated on a straight-line basis.
PARTICIPATING INSURANCE
The Company accrues a liability for earnings on participating policies that
cannot inure to the benefit of the Company's stockholder. The liability is
determined based on earnings on participating policies in excess of 10% of
profits on participating business before payment of policyholder dividends. The
liability for these undistributed earnings was $5,816,000 and $6,074,000 at
December 31, 1998 and 1997, respectively. Participating business approximates
.2% of the Company's ordinary life insurance in force and 1.4% of premium
income. Earnings for participating insurance are based on the actual earnings of
the participation block of policies. Expenses and taxes are allocated based on
the amount of participating insurance in force. Investment income is allocated
based on the yield of the participating investment portfolio. The amount of
dividends to be paid is determined annually by the Board of Directors. Amounts
allocable to participating policyholders are based on published dividend
projections or expected dividend scales. Dividends of $3,233,000; $3,377,000;
and $3,307,000 were incurred in 1998, 1997, and 1996, respectively.
FEDERAL INCOME TAXES
Deferred federal income taxes have been provided or credited to reflect
significant temporary differences between income reported for tax and financial
reporting purposes using reasonable assumptions.
- --------------------------------------------------------------------------------
Variable Survivorship 85
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH FLOW INFORMATION
Cash includes cash on hand and demand deposits. Included as a component of
operating activities is interest paid of $10,121,000; $10,110,000; and
$1,016,000 for 1998, 1997, and 1996, respectively.
GUARANTY FUND ASSESSMENTS
Insurance companies are assessed the costs of funding the insolvencies of other
insurance companies by the various state guaranty associations, generally based
on the amount of premium companies collect in that state. The Company accrues
the cost of future guaranty fund assessments based on estimates of insurance
company insolvencies provided by the National Organization of Life and Health
Insurance Guaranty Associations (NOLHGA) and the amount of premiums written in
each state. The Company reduces the accrual by credits allowed in some states to
reduce future premium taxes by a portion of assessments in that state.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1996 financial statements have been reclassified
to conform to the 1998 presentation.
- --------------------------------------------------------------------------------
Variable Survivorship 86
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 166,611 $ 3,829 $ 589 $ 169,851
States, municipalities and political
subdivisions 23,368 959 1,803 22,524
Public utilities securities 172,968 4,885 904 176,949
Debt securities issued by foreign
governments 952 -- -- 952
Corporate securities 1,251,462 46,292 23,512 1,274,242
Mortgage-backed securities 1,132,058 75,159 6,922 1,200,295
Other asset-backed securities 635,539 19,968 3,578 651,929
Redeemable preferred stocks 312 42 -- 354
Derivatives hedging fixed maturities
(Note 3) 312 6,434 312 6,434
---------- -------- ------- ----------
Total fixed maturities 3,383,582 157,568 37,620 3,503,530
Preferred stocks (nonredeemable) 4,251 6 52 4,205
Common stocks 2,510 1,780 95 4,195
---------- -------- ------- ----------
Total equity securities 6,761 1,786 147 8,400
---------- -------- ------- ----------
Total $3,390,343 $159,354 $37,767 $3,511,930
========== ======== ======= ==========
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 87
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
December 31, 1997
------------------------------------------------------
Cost or Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 51,387 $ 1,629 $ 39 $ 52,977
States, municipalities and political
subdivisions 43,185 1,023 128 44,080
Public utilities securities 151,642 5,030 1,216 155,456
Debt securities issued by foreign
governments 3,272 -- -- 3,272
Corporate securities 1,147,380 48,001 6,539 1,188,842
Mortgage-backed securities 1,165,376 89,539 6,661 1,248,254
Other asset-backed securities 443,473 13,285 584 456,174
Redeemable preferred stocks -- -- -- --
Derivatives hedging fixed maturities
(Note 3) 1,297 3,118 1,115 3,300
---------- -------- ------- ----------
Total fixed maturities 3,007,012 161,625 16,282 3,152,355
Preferred stocks (nonredeemable) 3,368 67 122 3,313
Common stocks 3,386 1,446 126 4,706
---------- -------- ------- ----------
Total equity securities 6,754 1,513 248 8,019
---------- -------- ------- ----------
Total $3,013,766 $163,138 $16,530 $3,160,374
========== ======== ======= ==========
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 88
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of investments in fixed maturities at December
31, 1998, by contractual maturity, are shown in the following table (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
Amortized
Cost Fair Value
------------------------------
Available for sale:
Due in one year or less $ 18,024 $ 18,156
Due after one year through five years 187,198 183,735
Due after five years through ten years 695,842 702,563
Due after ten years 714,609 740,418
---------- ----------
1,615,673 1,644,872
Mortgage-backed securities 1,132,058 1,200,295
Other asset-backed securities 635,539 651,929
Derivatives 312 6,434
---------- ----------
Total available-for-sale $3,383,582 $3,503,530
========== ==========
Changes in unrealized gains (losses) on investments in available-for-sale
securities for the years ended December 31, 1998, 1997 and 1996 are summarized
as follows (in thousands):
December 31, 1998
--------------------------------------------
Fixed Equity Total
--------------------------------------------
Gross unrealized gains $ 157,568 $ 1,786 $ 159,354
Gross unrealized (losses) (37,620) (147) (37,767)
--------- ------- ---------
Net unrealized gains 119,948 1,639 121,587
Deferred income tax (41,982) (574) (42,556)
--------- ------- ---------
Net unrealized gains after taxes 77,966 1,065 79,031
Less:
Balance at beginning of year 94,470 822 95,292
--------- ------- ---------
Change in net unrealized gains
(losses) $ (16,504) $ 243 $ (16,261)
========= ======= =========
- --------------------------------------------------------------------------------
Variable Survivorship 89
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
December 31, 1997
------------------------------------------
Fixed Equity Total
------------------------------------------
Gross unrealized gains $ 161,625 $ 1,513 $ 163,138
Gross unrealized (losses) (16,282) (248) (16,530)
--------- ------- ---------
Net unrealized gains 145,343 1,265 146,608
Deferred income tax (50,873) (443) (51,316)
--------- ------- ---------
Net unrealized gains after taxes 94,470 822 95,292
Less:
Balance at beginning of year 71,237 289 71,526
--------- ------- ---------
Change in net unrealized gains
(losses) $ 23,233 $ 533 $ 23,766
========= ======= =========
December 31, 1996
------------------------------------------
Fixed Equity Total
------------------------------------------
Gross unrealized gains $ 140,089 $ 822 $ 140,911
Gross unrealized (losses) (30,493) (376) (30,869)
--------- ------- ---------
Net unrealized gains 109,596 446 110,042
Deferred income tax (38,359) (157) (38,516)
--------- ------- ---------
Net unrealized gains after taxes 71,237 289 71,526
Less:
Balance at beginning of year 99,389 (147) 99,242
--------- ------- ---------
Change in net unrealized gains
(losses) $ (28,152) $ 436 $ (27,716)
========= ======= =========
As part of its overall investment management strategy, the Company has entered
into agreements to purchase $79,175,000 in mortgage loans as of December 31,
1998. These agreements were settled during 1999. The Company had no agreements
to sell securities at December 31, 1998.
- --------------------------------------------------------------------------------
Variable Survivorship 90
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Major categories of investment income for the years ended December 31 are
summarized as follows (in thousands):
1998 1997 1996
---------------------------------------------
Fixed maturities $ 278,227 $ 259,936 $ 240,931
Mortgage loans on real estate 47,567 40,908 29,143
Policy loans 58,016 56,087 52,205
Other investments 2,911 3,159 2,197
--------- --------- ---------
386,721 360,090 324,476
Investment expenses (24,725) (19,192) (12,355)
--------- --------- ---------
Net investment income $ 361,996 $ 340,898 $ 312,121
========= ========= =========
Net realized gains (losses) on investments for the years ended December 31 are
summarized as follows (in thousands):
1998 1997 1996
----------------------------------------------
Fixed maturities $ 9,691 $ 27,717 $4,540
Equity securities 168 (57) 79
Real estate and other 959 985 151
------- -------- ------
Net realized gains on
investments $10,818 $ 28,645 $4,770
======= ======== ======
During 1998, 1997 and 1996, fixed maturities and marketable equity securities
available-for-sale were sold with fair values at the date of sale of
$5,018,240,000; $2,281,886,000 and $334,482,000, respectively. Gross gains of
$44,314,000; $41,017,000 and $7,248,000 and gross losses of $34,455,000;
$13,357,000 and $2,629,000 were realized on those sales in 1998, 1997 and 1996,
respectively.
At December 31, 1998 and 1997, bonds with an amortized cost of $29,081,000 and
$28,434,000, respectively, were on deposit with various state insurance
departments to meet regulatory requirements.
- --------------------------------------------------------------------------------
Variable Survivorship 91
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
The Company enters into interest rate and currency contracts, including swaps,
caps, floors, and options, to reduce and manage risks which include the risk of
a change in the value, yield, price, cash flows, exchange rates or quantity of,
or a degree of exposure with respect to assets, liabilities, or future cash
flows which the Company has acquired or incurred. Hedge accounting practices are
supported by cash flow matching, scenario testing and duration matching.
Interest rate swap agreements generally involve the exchange of fixed and
floating interest payments over the life of the agreement without an exchange of
the underlying principal amount. Currency swap agreements generally involve the
exchange of local and foreign currency payments over the life of the agreements
without an exchange of the underlying principal amount. Interest rate cap and
interest rate floor agreements owned entitle the Company to receive payments to
the extent reference interest rates exceed or fall below strike levels in the
contracts based on the notional amounts.
Premiums paid for the purchase of interest rate contracts are included in other
assets and are being amortized to interest expense over the remaining terms of
the contracts or in a manner consistent with the financial instruments being
hedged. Amounts paid or received, if any, from such contracts are included in
interest expense or income. Accrued amounts payable to or receivable from
counterparties are included in other liabilities or assets.
Gains and losses as a result of early terminations of interest rate contracts
are amortized to investment income over the remaining term of the items being
hedged to the extent the hedge is considered to be effective; otherwise, they
are recognized upon termination.
Interest rate contracts that are matched or otherwise designated to be
associated with other financial instruments are recorded at fair value if the
related financial instruments mature, are sold, or are otherwise terminated or
if the interest rate contracts cease to be effective hedges.
The Company manages the potential credit exposure from interest rate contracts
through careful evaluation of the counterparties' credit standing, collateral
agreements, and master netting agreements.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate contracts; however, the Company does not
anticipate nonperformance by any of these counterparties. The amount of such
exposure is generally the unrealized gains in such contacts.
- --------------------------------------------------------------------------------
Variable Survivorship 92
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
The table below summarizes the Company's interest rate contracts at December 31,
1998 and 1997 (in thousands):
December 31, 1998
-------------------------------------------------
Notional Amortized Fair Balance
Amount Cost Value Sheet
-------------------------------------------------
Interest rate contracts:
Swaps $ 767,873 $ (155) $(2,952) $(2,952)
Swaps-affiliates 734,176 155 5,440 5,440
---------- ------- ------- -------
Total swaps 1,502,049 -- 2,488 2,488
Caps owned 560,000 312 11 11
---------- ------- ------- -------
Total caps owned 560,000 312 11 11
Floors owned 422,485 (72) 3,768 3,768
Floors owned-affiliates 8,485 72 167 167
---------- ------- ------- -------
Total floors owned 430,970 -- 3,935 3,935
Options owned 418,300 5,268 2,664 2,664
Options owned-affiliates 418,300 (5,268) (2,664) (2,664)
---------- ------- ------- -------
Total options owned 836,600 -- -- --
---------- ------- ------- -------
Total derivatives $3,329,619 $ 312 $ 6,434 $ 6,434
========== ======= ======= =======
- --------------------------------------------------------------------------------
Variable Survivorship 93
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
December 31, 1997
-----------------------------------------------
Notional Amortized Fair Balance
Amount Cost Value Sheet
----------------------------------------------
Interest rate contracts:
Swaps $ 913,630 $ (185) $ (625) $ (625)
Swaps-affiliates 879,745 185 1,429 1,429
---------- ------- ------- -------
Total swaps 1,793,375 -- 804 804
Caps owned 760,000 986 766 766
---------- ------- ------- -------
Total caps owned 760,000 986 766 766
Floors owned 354,000 311 1,730 1,730
Floors owned-affiliates -- -- -- --
---------- ------- ------- -------
Total floors owned 354,000 311 1,730 1,730
Options owned 384,300 6,192 4,312 4,312
Options owned-affiliates 384,300 (6,192) (4,312) (4,312)
---------- ------- ------- -------
Total options owned 768,600 -- -- --
---------- ------- ------- -------
Total derivatives $3,675,975 $ 1,297 $ 3,300 $ 3,300
========== ======= ======= =======
4. CONCENTRATIONS OF CREDIT RISK
At December 31, 1998, the Company held less-than-investment-grade bonds
classified as available-for-sale with a carrying value and market value of
$277,793,000. These holdings amounted to 7.9% of the Company's investments in
fixed maturity securities and 2.8% of total assets. The holdings of
less-than-investment-grade bonds are widely diversified and of satisfactory
quality based on the Company's investment policies and credit standards.
At December 31, 1998, the Company's mortgages involved a concentration of
properties located in Florida (15.5%), Texas (9.7%), and Georgia (7.5%). The
remaining mortgages relate to properties located in 35 other states. The
portfolio is well diversified, covering many different types of income-producing
properties on which the Company has first mortgage liens. The maximum mortgage
outstanding on any individual property is $16,068,000.
- --------------------------------------------------------------------------------
Variable Survivorship 94
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS
PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has a qualified noncontributory defined benefit retirement plan
covering substantially all employees. In addition, the Company maintains a
non-qualified unfunded Supplemental Employees' Retirement Plan (SERP). In
addition to providing pension plans, the Company provides certain health care
and life insurance benefits for retired employees.
The funded status and the amounts recognized in the balance sheets for the
defined benefit plans and other postretirement benefit plans are as follows (in
thousands):
<TABLE>
<CAPTION>
December 31
1998 1997
--------------------------------------- ----------------------------------
Qualified Post- Qualified Post-
Plan SERP Retirement Plan SERP Retirement
--------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C>
Projected benefit obligation $ (38,685) $ (8,320) $ (8,949) $(37,801) $(9,154) $ (7,590)
Less plan assets at fair value 47,230 -- -- 40,150 -- --
---------- ----------- --------- -------- ------- --------
Plan assets in excess (deficient)
of projected benefit obligation $ 8,545 $ (8,320) $ (8,949) $ 2,349 $(9,154) $ (7,590)
========== =========== ========= ======== ======= ========
Net asset (liability) $ 1,240 $ (4,918) $ (12,044) $ 1,322 $(4,135) $(11,369)
========== =========== ========= ======== ======= ========
</TABLE>
As of December 31, 1998 and 1997, the Company recognized an additional minimum
net liability on the SERP of $1,482,000 and $3,848,000, respectively, as this
plan is unfunded and the actuarial present value of accumulated benefit
obligation exceeds the net pension liability. Prior to 1998, the change in the
additional minimum net liability was reported in net income. Beginning in 1998,
the change in the additional minimum net liability is recorded net of tax as a
component of other comprehensive income directly in stockholder's equity, net of
tax.
- --------------------------------------------------------------------------------
Variable Survivorship 95
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The net periodic pension cost, employer contributions, plan participant
contributions, and benefits paid for the defined benefit plans are as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
-------------------------------- --------------------------------- ----------------------------------
Qualified Post- Qualified Post- Qualified Post-
Plan SERP Retirement Plan SERP Retirement Plan SERP Retirement
-------------------------------- --------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net periodic pension
expense $ 82 $1,109 $893 $607 $1,502 $755 $ 390 $1,109 $669
Employer contributions -- 325 218 -- 317 198 -- 320 Not available
Plan participants'
contributions -- -- 77 -- -- 71 -- -- Not available
Benefits paid 890 325 296 811 317 268 1,466 320 187
</TABLE>
The information for employer and plan participant contributions to the
postretirement plan for 1996 is not readily available.
Assumptions used in accounting for the defined benefit plans as of December 31,
1998, 1997, and 1996 were as follows:
1998 1997 1996
-------------------------
Weighted-average discount rate 6.75% 7.25% 7.50%
Rate of increase in compensation level 4.00% 4.25% 4.50%
Expected long-term rate of return on assets 9.50% 9.50% 9.50%
Plan assets of the defined benefit plans at December 31, 1998 are invested
primarily in U.S. government securities, corporate bonds, mutual funds, mortgage
loans, money market funds and common stock.
The annual assumed rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) for the medical plan is 9.75% graded to
5.25% over 9 years. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation for the medical plan as of
December 31, 1998 by $1,015,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1998 by
$136,000. Decreasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation for the medical plan as of December 31, 1998 by $(862,000) and the
aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1998 by $(113,000).
- --------------------------------------------------------------------------------
Variable Survivorship 96
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 6.75% at December 31, 1998 and 7.50% at
December 31, 1997 and December 31, 1996.
401(K) PLAN
The Security Life of Denver Insurance Company Savings Incentive Plan (the
Savings Plan) is a defined contribution plan which is available to substantially
all home office employees. Participants may make contributions to the plan
through salary reductions up to a maximum of $10,000 for 1998, and $9,500 for
both 1997 and 1996. Such contributions are not currently taxable to the
participants. The Company matches 100% of the first 3% of participants'
contributions, plus 50% of contributions which exceed 3% of participants'
compensation, subject to a maximum matching percentage of 4 1/2% of the
individual's salary. Company matching contributions were $1,343,000 for 1998,
$1,211,000 for 1997, and $1,143,000 for 1996.
Plan assets of the Savings Plan at December 31, 1998 are invested in a group
deposit administration contract (the Contract) with the Company, various stock
funds maintained by the Principal Financial Group, and loans to participants.
The Contract is a policyholder liability of the Company and had a balance of
$27.8 million and $26.6 million at December 31, 1998 and 1997, respectively.
6. SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds segregated by the
Company for the benefit of certain policy and contract holders who bear the
investment risk. Revenues and expenses on the separate account assets and
related liabilities equal the benefits paid to the separate account policy and
contract holders, and are excluded from the amounts reported in the consolidated
statements of income except for fees charged for administration services and
mortality risk.
- --------------------------------------------------------------------------------
Variable Survivorship 97
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LEASES
In 1997, the Company terminated a significant operating lease agreement relating
to electronic data processing equipment due to outsourcing of computer
operations. The Company incurred $4,819,000 in lease expense in 1997 related to
that agreement prior to termination. The Company does not have any other
significant lease obligations. Total rental expense for all equipment leases was
approximately $0, $4,993,000 and $6,151,000 for the years ended December 31,
1998, 1997 and 1996, respectively.
8. REINSURANCE
The Company is involved in both ceded and assumed reinsurance with other
companies for the purpose of diversifying risk and limiting exposure on larger
risks. As of December 31, 1998, the Company's retention limit for acceptance of
risk on life insurance policies had been set at various levels up to $1,500,000.
Reinsurance premiums, commissions, and expense reimbursements related to
reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Reserves are based on the terms of the reinsurance contracts, and are
consistent with the risks assumed.
To the extent that the assuming companies become unable to meet their
obligations under these treaties, the Company remains contingently liable to its
policyholders for the portion retroceded. Consequently, allowances are
established for amounts deemed uncollectible. To minimize its exposure to
significant losses from retrocessionaire insolvencies, the Company evaluates the
financial condition of the retrocessionaire and monitors concentrations of
credit risk arising from similar geographic regions, activities, or economic
characteristics of the reinsurers. The use of reinsurance pools with
retrocessionaires also minimizes the Company's exposure to significant losses
from retrocessionaire insolvencies.
The Company assumes and cedes, on a coinsurance basis, guaranteed investment
contracts (GICs) to and from affiliates under common ownership. As of December
31, 1998, $2.7 billion of an affiliate's invested assets were held in trust
pursuant to these agreements.
- --------------------------------------------------------------------------------
Variable Survivorship 98
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. REINSURANCE (CONTINUED)
These GIC transactions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------------
Policy Policy
Deposits Liabilities Deposits Liabilities
------------------------------------------------------------
<S> <C> <C> <C> <C>
Direct (nonaffiliated) $ 2,773,952 $ 3,112,460 $ 1,673,471 $2,527,957
Assumed from Life Insurance Company of
Georgia -- 97,552 35,000 106,698
----------- ----------- ----------- ---------
2,773,952 3,210,012 1,708,471 2,634,655
Ceded to Columbine Life Insurance Company (2,547,743) (2,696,409) (1,479,371) (2,231,118)
Ceded to Life Insurance Company of Georgia (225,083) (512,477) (116,100) (403,537)
Ceded to First Columbine Life Insurance
Company (1,126) (1,126) -- --
----------- ----------- ----------- ---------
Net $ -- $ -- $ 113,000 $ --
=========== =========== =========== ==========
</TABLE>
Ceded GIC policy liabilities totaling $3,210 and $2,635 million as of December
31, 1998 and 1997, respectively, are classified as part of prepaid reinsurance
premiums.
During 1998 and 1997, the Company had ceded blocks of insurance under
reinsurance treaties to provide funds for financial and other purposes. These
reinsurance transactions, generally known as "financial reinsurance," represent
financial arrangements and, in accordance with generally accepted accounting
principles, are not reflected in the accompanying financial statements except
for the risk fees paid to or received from reinsurers. Financial reinsurance has
the effect of increasing current statutory surplus while reducing future
statutory surplus as amounts are recaptured from reinsurers. During 1998, the
Company entered into a new financial reinsurance contract with an affiliated
company.
9. INCOME TAXES
The Company files a consolidated federal income tax return with its parent and
other U.S. affiliates and subsidiaries, with the exception of First ING. The
affiliated companies that join in the filing of the consolidated federal income
tax return have an agreement for the allocation of taxes between members that
join in the consolidated return. The agreement specifies that the separate
return payable or the separate return receivable of each member will be the
federal income tax payable or receivable that the member would have had for the
period had it filed a separate return.
- --------------------------------------------------------------------------------
Variable Survivorship 99
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
December 31
1998 1997
------------------------
Deferred tax liabilities:
Deferred policy acquisition costs $(272,970) $(239,678)
Unrealized gains/losses (42,556) (51,312)
--------- ---------
Total deferred tax liabilities (315,526) (290,990)
Deferred tax assets:
Benefit reserves and surplus relief 102,177 111,610
Tax-basis deferred policy acquisition costs 83,836 71,241
Investment income 13,712 13,459
Unearned investment income -- 9,208
Nonqualified deferred compensation 14,667 14,129
Postretirement employee benefits 2,501 3,979
Separate accounts 18,775 8,571
Other, net 19,796 4,964
--------- ---------
Total deferred tax assets 255,464 237,161
--------- ---------
Net deferred tax liabilities $ (60,062) $ (53,829)
========= =========
The components of federal income tax expense consist of the following (in
thousands):
December 31
1998 1997 1996
---------------------------------
Current $24,111 $37,542 $10,340
Deferred 9,955 9,477 11,536
------- ------- -------
Federal income tax expense $34,066 $47,019 $21,876
======= ======= =======
The Company's effective income tax rate did not vary significantly from the
statutory federal income tax rate.
- --------------------------------------------------------------------------------
Variable Survivorship 100
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The Company had net income tax payments (receipts) of $18,283,000 during 1998,
$55,468,000 during 1997, and $(61,467,000) during 1996 for current income tax
payments and settlements of prior year returns.
The Policyholder's Surplus Account is an accumulation of certain special
deductions for income tax purposes and a portion of the "gains from operations"
which were not subject to current taxation under the Life Insurance Tax Act of
1959. At December 31, 1984, the balance in this account for tax return purposes
was approximately $70,800,000. The Tax Reform Act of 1984 provides that no
further accumulations will be made in this account. If amounts accumulated in
the Policyholder's Surplus Account exceed certain limits, or if distributions to
the stockholder exceed amounts in the Stockholder's Surplus Account, to the
extent of such excess amount or excess distributions, as determined for income
tax purposes, amounts in the Policyholder's Surplus Account would become subject
to income tax at rates in effect at that time. Should this occur, the maximum
tax which would be paid at the current tax rate is $24,780,000. The Company does
not anticipate any such action or foresee any events which would result in such
tax; accordingly, a deferred tax liability has not been established.
10. LONG-TERM DEBT
Long-term indebtedness to related parties for $100,000,000 represents the
cumulative cash draws on a $100,000,000 commitment from ING America Insurance
Holdings, Inc. through December 31, 1998. This subordinated note bears interest
at a variable rate equal to the prevailing rate for 10-year U.S. Treasury Bonds
plus 1/4% adjusted annually.
The repayment of this note requires approval of the Commissioner of Insurance of
the State of Colorado and is payable only out of surplus funds of the Company
and only at such time as the surplus of the Company, after payment is made, does
not fall below the prescribed level.
The principal and interest is scheduled to be repaid in five annual installments
beginning April 15, 2000 and continuing through April 15, 2004, with the option
of prepaying any outstanding principal and accrued interest. As of December 31,
1998, the Company accrued interest of $5,387,000. Upon receiving approval from
the Commissioner of Insurance of the State of Colorado, the Company made a
$5,128,000 payment for accrued interest during 1998. The Company recognized
interest expense of $5,387,000; $5,096,000; and $3,644,000 for the years ended
December 31, 1998, 1997, and 1996, respectively.
- --------------------------------------------------------------------------------
Variable Survivorship 101
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. LONG-TERM DEBT (CONTINUED)
Future minimum payments, assuming a current effective interest rate of 5.41%,
are as follows (in thousands):
Total
YEAR Payments
- ---------------------------------------------------------
2000 $ 25,946
2001 25,946
2002 25,946
2003 25,946
2004 25,946
--------
Total 129,730
Less imputed interest (29,730)
--------
Present value of payments $100,000
=============
11. STATUTORY ACCOUNTING INFORMATION AND PRACTICES
Security Life and its insurance subsidiaries prepare their statutory-basis
financial statements in accordance with accounting practices prescribed or
permitted by their state of domicile. "Prescribed" statutory accounting
practices include state laws, regulations and general administrative rules, as
well as a variety of publications of the National Association of Insurance
Commissioners (NAIC). "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ from
state to state, from company to company within the state, and may change in the
future.
During 1998, the NAIC completed the process of codifying statutory accounting
practices ("Codification"). Codification will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that Security Life uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domiciled within those states. Accordingly, before Codification
becomes effective for Security Life, the State of Colorado must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Insurance Department. At this
time it is unknown whether the State of Colorado will adopt Codification.
- --------------------------------------------------------------------------------
Variable Survivorship 102
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STATUTORY ACCOUNTING INFORMATION AND PRACTICES (CONTINUED)
Prescribed statutory reserve methodology does not fully encompass universal
life-type products. The NAIC, however, has promulgated a Model Regulation
regarding Universal Life Reserves. The Colorado Division of Insurance has not
adopted the regulation, but requires that reserves be held which are at least as
great as those required by Colorado Statutes. The NAIC UL Model Regulation is
used by the Company to provide reserves consistent with the principles of this
article. Because the reserves satisfy the requirements prescribed by the State
of Colorado for the valuation of universal life insurance, the Company is
permitted to compute reserves in accordance with this model regulation.
The NAIC prescribes Risk-Based Capital (RBC) requirements for life/health
insurance companies. At December 31, 1998, the Company exceeded all minimum RBC
requirements.
Combined capital and surplus, determined in accordance with statutory accounting
practices (SAP), was $386,607,000 and $403,239,000 at December 31, 1998 and
1997, respectively. Combined net income, determined in accordance with SAP, was
$11,712,000; $22,261,000; and $9,141,000 for the years ended December 31, 1998,
1997, and 1996, respectively.
Security Life is required to maintain a minimum total statutory capital and
surplus in the state of domicile of $1,500,000. Midwestern United is required to
maintain minimum statutory capital of $200,000 and surplus of $250,000 in the
state of domicile. First ING is required to maintain minimum statutory capital
of $1,000,000 and paid-in surplus of at least 50% of paid-in capital in the
state of domicile. Each company exceeded its respective minimum statutory
capital and surplus requirements at December 31, 1998. Additionally, the amount
of dividends which can be paid by each company to its stockholder without prior
approval of the various state insurance departments is generally limited to the
greater of 10% of statutory surplus or the statutory net gain from operations.
- --------------------------------------------------------------------------------
Variable Survivorship 103
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company. Life insurance liabilities that contain
mortality risk and all nonfinancial instruments are excluded from disclosure
requirements. However, the fair values of liabilities under all insurance
contracts are taken into consideration in the Company's overall management of
interest rate risk, such that the Company's exposure to changing interest rates
is minimized through the matching of investment maturities with amounts due
under insurance contracts.
- --------------------------------------------------------------------------------
Variable Survivorship 104
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1998 and 1997 are summarized below (in thousands):
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------------------- ------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------------------------- ------------------------------
<S> <C> <C> <C> <C>
Assets
Fixed maturities (Note 2) $3,503,530 $3,503,530 $3,152,355 $3,152,355
Equity securities (Note 2) 8,400 8,400 8,019 8,019
Mortgage loans 784,108 832,629 576,620 630,019
Policy loans 925,623 925,623 875,405 875,405
Short-term investments 747 747 55,466 55,466
Cash 31,644 31,644 22,299 22,299
Indebtedness from
related parties 4,339 4,339 2,443 2,443
Separate account assets 423,474 423,474 263,035 263,035
LIABILITIES
Supplemental contracts
without life contingencies 3,966 3,966 4,240 4,240
Other policyholder funds left
on deposit 98,638 98,638 99,545 99,545
Individual and group
annuities, net of reinsurance 87,096 86,007 43,313 43,077
Indebtedness to related
parties 13,755 13,755 7,704 7,704
Long-term debt to related
parties 100,000 100,000 75,000 75,000
Accrued interest on
long-term debt to related
parties 5,387 5,387 5,128 5,128
Separate account liabilities 423,474 423,474 263,035 263,035
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 105
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values of all other financial instruments approximate their fair
values.
The following methods and assumptions were used by the Company in estimating the
"fair value" disclosures for financial instruments:
FIXED MATURITIES AND EQUITY SECURITIES: The fair values for fixed maturities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturities not actively traded, fair values are
estimated using values obtained from independent pricing services or, in the
case of private placements and collateralized mortgage obligations and other
mortgage derivative investments, are estimated by discounting expected
future cash flows. The discount rates used vary as a function of factors
such as yield, credit quality and maturity which fall within a range between
4.5% - 14.0% over the total portfolio. The fair values of equity securities
are based on quoted market prices.
MORTGAGE LOANS: Estimated market values for commercial real estate loans are
generated using a discounted cash flow approach. Loans in good standing are
discounted using interest rates determined by U.S. Treasury yields on
December 31 and spreads implied by independent published surveys. The same
is applied on new loans with similar characteristics. The amortizing
features of all loans are incorporated in the valuation. Where data on
option features is available, option values are determined using a binomial
valuation method, and are incorporated into the mortgage valuation.
Restructured loans are valued in the same manner; however, these are
discounted at a greater spread to reflect increased risk.
All residential loans are valued at their outstanding principal balances,
which approximate their fair values.
POLICY LOANS: The carrying amounts reported in the balance sheets for these
financial instruments approximate their fair values.
DERIVATIVE FINANCIAL INSTRUMENTS: Fair values for on-balance-sheet
derivative financial instruments (caps and floors) and off-balance-sheet
derivative financial instruments (swaps) are based on broker/dealer
valuations or on internal discounted cash flow pricing models taking into
account current cash flow assumptions and the counterparties' credit
standing.
- --------------------------------------------------------------------------------
Variable Survivorship 106
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER INVESTMENT-TYPE INSURANCE CONTRACTS: The fair values of the Company's
deferred annuity contracts are estimated based on the cash surrender value.
The carrying values of other liabilities, including immediate annuities,
dividend accumulations, supplementary contracts without life contingencies
and premium deposits, approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS: The Company accepted additional deposits on
existing synthetic guaranteed investment contracts in the amounts of
$66,480,000 and $1,000,000 in 1998 and 1997, respectively, from trustees of
401(k) plans. Pursuant to the terms of these contracts, the trustees own and
retain the assets related to these contracts. Such assets had a value of
$433,689,000 and $493,757,000 at December 31, 1998 and 1997, respectively.
Under synthetic guaranteed investment contracts, the synthetic issuer may
assume interest rate risk on individual plan participant initiated
withdrawals from stable value options of 401(k) plans. Approximately 85% of
the synthetic guaranteed investment contract book values are on a
participating basis and have a credited interest rate reset mechanism which
passes such interest rate risk to plan participants.
LETTERS OF CREDIT
The Company is the beneficiary of letters of credit totaling $197,254,000
which have a market value to the Company of $0 and two lines of credit
totaling $284,471,000 which have a market value to the Company of $0 (see
Note 14).
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to pending or threatened lawsuits arising from the normal
conduct of its business. Due to the climate in insurance and business
litigation, suits against the Company sometimes include substantial additional
claims, consequential damages, punitive damages and other similar types of
relief. While it is not possible to forecast the outcome of such litigation, it
is the opinion of management that the disposition of such lawsuits will not have
a material adverse effect on the Company's financial position or interfere with
its operations.
- --------------------------------------------------------------------------------
Variable Survivorship 107
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
In 1998, the Company established an accrued liability of $40,000,000 related to
certain potential litigation similar to that faced by other major life insurers.
This litigation relates to sales practices of interest sensitive policies. The
Company is vigorously defending its position in these cases. No such litigation
reserve was established in 1997. While it is not possible to forecast the
outcome of such litigation, it is the opinion of management that the disposition
of such lawsuits will not have a material adverse effect on the Company's
financial position or interfere with its operations.
14. OTHER FINANCING ARRANGEMENTS
The Company has a $144,471,000 line of credit issued by the Company's parent to
provide short-term liquidity. The Company has an additional non-affiliated line
of credit of $140,000,000, also to provide short-term liquidity, which expires
July 31, 1999. The amount of funds available under this line is reduced by
borrowings of certain affiliates also party to the agreement. There were no
outstanding borrowings under either of these agreements at December 31, 1998 or
1997. The weighted-average balance outstanding of short-term debt was $37.5
million during 1998. The weighted-average interest rate paid on this debt during
1998 was 5.63% (see Note 12).
The Company is the beneficiary of letters of credit totaling $197,254,000 that
were established in accordance with the terms of reinsurance agreements. Such
letters of credit are unconditional, irrevocable, and provide for automatic
renewal for the following year at December 31. The letters were unused during
both 1998 and 1997.
15. YEAR 2000 (UNAUDITED)
The Company has initiated a program to prepare its computer systems and
applications for the year 2000. This program includes all systems utilized by
the Company as well as the systems of other companies that interface with the
Company. The Company has completed modification and preliminary testing of
portions of its software so that its computer systems will function properly
with respect to dates in the year 2000 and thereafter. The total Year 2000
project cost is estimated at approximately $6.4 million. To date the Company has
incurred approximately $2.6 million for the above activities. Accordingly, the
Company does not expect the amounts required for this project to have a material
effect on its financial position.
- --------------------------------------------------------------------------------
Variable Survivorship 108
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
15. YEAR 2000 (UNAUDITED) (CONTINUED)
The project is estimated to be completed no later than June 1999, which is prior
to any anticipated impact on its operating systems. The Company believes that
with modifications to existing software, and conversions to new software, the
Year 2000 will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed in a timely manner, it could have a material impact on the operations
of the Company.
The Company has initiated formal communications and interface testing plans with
all of its suppliers and customers to determine the extent to which its
interface systems are vulnerable to those third parties' failure to have their
systems Year 2000 compatible and will act accordingly to prevent operational
disruptions.
- --------------------------------------------------------------------------------
Variable Survivorship 109
<PAGE>
Financial Statements
Security Life Separate Account L1
of Security Life of Denver
Insurance Company
Years ended December 31, 1998, 1997 and 1996
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Variable Survivorship 110
<PAGE>
Security Life Separate Account L1
Financial Statements
Years ended December 31, 1998, 1997 and 1996
CONTENTS
Report of Independent Auditors ..............................................112
Audited Financial Statements
Statement of Net Assets .....................................................113
Statements of Operations ....................................................120
Statements of Changes in Net Assets .........................................139
Notes to Financial Statements ...............................................158
- --------------------------------------------------------------------------------
Variable Survivorship 111
<PAGE>
[Logo of Ernst & Young LLP appears here]
Report of Independent Auditors
Policyholders
Security Life Separate Account L1 of
Security Life of Denver Insurance Company
We have audited the accompanying statement of net assets of Security Life
Separate Account L1 (comprising, respectively, the Neuberger Berman Advisers
Management Trust (comprising the Limited Maturity Bond, Growth, Government
Income and Partners Divisions) ("NB"), the Alger American Fund (comprising the
American Small Capitalization, American MidCap Growth, American Growth and
American Leveraged AllCap Divisions) ("Alger"), the Fidelity Variable Insurance
Products Fund and Variable Insurance Products Fund II (comprising the Asset
Manager, Growth, Overseas, Money Market and Index 500 Divisions) ("Fidelity"),
the INVESCO Variable Investment Funds, Inc. (comprising the Total Return,
Industrial Income, High Yield, Utilities and Small Company Growth Divisions)
("INVESCO"), the Van Eck Worldwide Trust (comprising the Worldwide Balanced,
Worldwide Hard Assets, Worldwide Bond, Worldwide Emerging Markets and Worldwide
Real Estate Divisions) ("Van Eck") and AIM Advisors, Inc. (comprising the
Capital Appreciation and Government Securities Divisions) ("AIM")) as of
December 31, 1998, and the related statements of operations and changes in net
assets for each of the three years in the period then ended. These financial
statements are the responsibility of the Separate Account's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998, by correspondence with
the transfer agents. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Life Separate Account
L1 at December 31, 1998, and the results of its operations and changes in its
net assets for each of the three years in the period then ended, in conformity
with generally accepted accounting principles.
Denver, Colorado /s/ Ernst & Young LLP
April 5, 1999
- --------------------------------------------------------------------------------
Variable Survivorship 112
<PAGE>
Security Life Separate Account L1
Statement of Net Assets
December 31, 1998
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
------------ ----------- ----------- ------------ ----------- ---------- ----------
Net assets $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
============ =========== =========== ============ =========== ========== ==========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
------------ ----------- ----------- ------------ ----------- ---------- ----------
TOTAL POLICYHOLDER RESERVES $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
============ =========== =========== ============ =========== ========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 113
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
NB
-------------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------- ----------------- --------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $ 47,067,751 $ 15,578,349 $ 9,026,160 $ -- $22,463,242
------------ -------------- ------------ ----------- -----------
Net assets $ 47,067,751 $ 15,578,349 $ 9,026,160 $ -- $22,463,242
============ ============== ============ =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $ 47,067,751 $ 15,578,349 $ 9,026,160 $ -- $22,463,242
------------ -------------- ------------ ----------- -----------
TOTAL POLICYHOLDER RESERVES $ 47,067,751 $ 15,578,349 $ 9,026,160 $ -- $22,463,242
============ ============== ============ =========== ===========
Number of division units outstanding
(Note G) 1,245,559.121 447,486.376 -- 986,298.018
============== ============ =========== ===========
Value per divisional unit $ 12.51 $ 20.17 $ -- $ 22.78
============== ============ =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 114
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Alger
------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
---------------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
----------- ----------- ---------- ----------- ----------
Net assets $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
=========== =========== ========== =========== ==========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
----------- ----------- ---------- ----------- ----------
TOTAL POLICYHOLDER RESERVES $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
=========== =========== ========== =========== ==========
Number of division units outstanding
(Note G) 838,692.418 402,532.472 923,696.066 221,642.446
=========== ========== =========== ==========
Value per divisional unit $ 18.49 $ 22.91 $ 24.80 $ 30.69
=========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 115
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Fidelity
----------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
------------ ----------- ----------- ----------- ----------- -----------
Net assets $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
============ =========== =========== =========== =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
------------ ----------- ----------- ----------- ----------- -----------
TOTAL POLICYHOLDER RESERVES $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
============ =========== =========== =========== =========== ===========
Number of division units outstanding
(Note G) 600,255.213 1,293,480.338 1,429,659.907 1,526,404.399 3,215,990.519
=========== =========== =========== =========== ===========
Value per divisional unit $ 17.05 $ 25.44 $ 14.40 $ 12.06 $ 26.79
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 116
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
INVESCO
----------------------------------------------------------------------------------------
Small
Total Total Industrial Company
INVESCO Return Income High Yield Utilities Growth
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
------------ ----------- ----------- ----------- ----------- -----------
Net assets $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
============ =========== =========== =========== =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
------------ ----------- ----------- ----------- ----------- -----------
TOTAL POLICYHOLDER RESERVES $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
============ =========== =========== =========== =========== ===========
Number of division units outstanding
(Note G) 450,557.216 473,616.752 486,858.648 110,379.616 67,506.441
=========== =========== =========== =========== ===========
Value per divisional unit $ 17.99 $ 22.92 $ 16.19 $ 18.49 $ 11.09
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 117
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
<TABLE>
<CAPTION>
Van Eck
-----------------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Worldwide Hard Worldwide Emerging Real
Van Eck Balanced Assets Bond Markets Estate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Investments in mutual funds at
market value (Note C) $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
------------ ----------- ----------- ----------- ----------- -----------
Net assets $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
============ =========== =========== =========== =========== ===========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
------------ ----------- ----------- ----------- ----------- -----------
TOTAL POLICYHOLDER RESERVES $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
============ =========== =========== =========== =========== ===========
Number of division units outstanding
(Note G) 0.000 132,513.824 18,656.317 67,354.295 8,765.232
=========== =========== =========== =========== ===========
Value per divisional unit $ 0.00 $ 8.10 $ 11.03 $ 6.85 $ 8.70
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 118
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1998
AIM
---------------------------------------
Total Capital Government
AIM Appreciation Securities
---------------------------------------
Assets
Investments in mutual funds at
market value (Note C) $3,800,153 $1,204,436 $2,595,717
---------- ---------- ----------
Net assets $3,800,153 $1,204,436 $2,595,717
========== ========== ==========
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $3,800,153 $1,204,436 $2,595,717
---------- ---------- ----------
TOTAL POLICYHOLDER RESERVES $3,800,153 $1,204,436 $2,595,717
========== ========== ==========
Number of division units outstanding
(Note G) 105,457.867 246,150.062
========== ==========
Value per divisional unit $ 11.42 $ 10.55
========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 119
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $17,747,833 $ 4,273,690 $ 4,617,072 $ 6,943,854 $1,625,860 $ 189,620 $ 97,737
Less valuation period deductions
(Note B) 1,740,661 291,487 290,412 971,160 162,321 11,393 13,888
----------- ----------- ----------- ----------- ---------- --------- --------
Net investment income (loss) 16,007,172 3,982,203 4,326,660 5,972,694 1,463,539 178,227 83,849
----------- ----------- ----------- ----------- ---------- --------- --------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 8,536,274 347,823 1,685,294 6,403,348 355,780 (260,570) 4,599
Net unrealized gains (losses) on
investments 18,766,977 (2,323,636) 5,825,800 15,230,082 248,681 (368,037) 154,087
----------- ----------- ----------- ----------- ---------- --------- --------
Net realized and unrealized gains
(losses) on investments 27,303,251 (1,975,813) 7,511,094 21,633,430 604,461 (628,607) 158,686
----------- ----------- ----------- ----------- ---------- --------- --------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $43,310,423 $ 2,006,390 $11,837,754 $27,606,124 $2,068,000 $(450,380) $242,535
=========== =========== =========== =========== ========== ========= ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 120
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
NB
-------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 4,273,690 $ 409,268 $1,579,109 $ 136,565 $2,148,748
Less valuation period deductions
(Note B) 291,487 87,183 52,660 3,213 148,431
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 3,982,203 322,085 1,526,449 133,352 2,000,317
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 347,823 10,003 (264,148) (53,894) 655,862
Net unrealized gains (losses) on
investments (2,323,636) 59,369 (81,576) (60,954) (2,240,475)
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments (1,975,813) 69,372 (345,724) (114,848) (1,584,613)
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 2,006,390 $ 391,457 $1,180,725 $ 18,504 $ 415,704
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 121
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Alger
-------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 4,617,072 $ 1,681,373 $ 593,045 $ 2,196,712 $ 145,942
Less valuation period deductions
(Note B) 290,412 95,588 53,316 113,376 28,132
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 4,326,660 1,585,785 539,729 2,083,336 117,810
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,685,294 186,963 316,932 915,872 265,527
Net unrealized gains (losses) on
investments 5,825,800 166,990 1,022,340 3,099,428 1,537,042
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 7,511,094 353,953 1,339,272 4,015,300 1,802,569
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $11,837,754 $ 1,939,738 $1,879,001 $ 6,098,636 $1,920,379
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 122
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity
---------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 6,943,854 $ 808,986 $ 2,663,618 $ 1,015,626 $ 830,137 $ 1,625,487
Less valuation period deductions
(Note B) 971,160 63,669 183,002 129,504 116,932 478,053
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 5,972,694 745,317 2,480,616 886,122 713,205 1,147,434
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 6,403,348 20,247 1,534,000 298,379 -- 4,550,722
Net unrealized gains (losses) on
investments 15,230,082 315,702 4,444,805 707,398 -- 9,762,177
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 21,633,430 335,949 5,978,805 1,005,777 -- 14,312,899
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 27,606,124 $ 1,081,266 $ 8,459,421 $ 1,891,899 $ 713,205 $15,460,333
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 123
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------------------
Small
Total Total Industrial Company
INVESCO Return Income High Yield Utilities Growth
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 1,625,860 $ 312,534 $ 514,174 $ 769,805 $ 29,058 $ 289
Less valuation period deductions
(Note B) 162,321 40,898 60,678 49,140 10,730 875
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 1,463,539 271,636 453,496 720,665 18,328 (586)
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 355,780 136,473 342,342 (151,382) 35,245 (6,898)
Net unrealized gains (losses) on
investments 248,681 73,689 359,519 (541,125) 282,500 74,098
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 604,461 210,162 701,861 (692,507) 317,745 67,200
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 2,068,000 $ 481,798 $ 1,155,357 $ 28,158 $ 336,073 $ 66,614
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 124
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Van Eck
-----------------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Worldwide Hard Worldwide Emerging Real
Van Eck Balanced Assets Bond Markets Estate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 189,620 $ 45,674 $ 143,946 $ -- $ -- $ --
Less valuation period deductions
(Note B) 11,393 1,050 8,170 212 1,736 225
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 178,227 44,624 135,776 (212) (1,736) (225)
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments (260,570) 4,682 (162,110) 130 (101,436) (1,836)
Net unrealized gains (losses) on
investments (368,037) (23,403) (395,698) 3,953 47,140 (29)
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments (628,607) (18,721) (557,808) 4,083 (54,296) (1,865)
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ (450,380) $ 25,903 $ (422,032) $ 3,871 $ (56,032) $ (2,090)
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 125
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
AIM
---------------------------------------
Total Capital Government
AIM Appreciation Securities
---------------------------------------
Investment income
Dividends from mutual funds $ 97,737 $ 27,109 $ 70,628
Less valuation period deductions
(Note B) 13,888 3,056 10,832
---------- ---------- ----------
Net investment income (loss) 83,849 24,053 59,796
---------- ---------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 4,599 (3,315) 7,914
Net unrealized gains (losses) on
investments 154,087 119,225 34,862
---------- ---------- ----------
Net realized and unrealized gains
(losses) on investments 158,686 115,910 42,776
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 242,535 $ 139,963 $ 102,572
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 126
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 4,158,702 $ 678,740 $ 323,895 $ 2,094,346 $ 1,039,818 $ 21,903
Less valuation period deductions
(Note B) 813,630 135,310 141,930 461,022 67,625 7,743
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 3,345,072 543,430 181,965 1,633,324 972,193 14,160
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 3,199,375 406,286 894,818 1,320,426 523,956 53,889
Net unrealized gains (losses) on
investments 10,643,150 2,273,595 1,647,989 6,476,412 298,662 (53,508)
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 13,842,525 2,679,881 2,542,807 7,796,838 822,618 381
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 17,187,597 $ 3,223,311 $ 2,724,772 $ 9,430,162 $ 1,794,811 $ 14,541
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 127
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
NB
--------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 678,740 $ 156,667 $ 183,497 $ 72,086 $ 266,490
Less valuation period deductions
(Note B) 135,310 33,725 24,959 10,366 66,260
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 543,430 122,942 158,538 61,720 200,230
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 406,286 (20,056) 14,997 25,762 385,583
Net unrealized gains (losses) on
investments 2,273,595 159,151 533,906 26,882 1,553,656
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 2,679,881 139,095 548,903 52,644 1,939,239
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 3,223,311 $ 262,037 $ 707,441 $ 114,364 $2,139,469
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 128
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Alger
------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 323,895 $ 218,789 $ 55,945 $ 49,161 $ --
Less valuation period deductions
(Note B) 141,930 51,004 28,138 48,785 14,003
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 181,965 167,785 27,807 376 (14,003)
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 894,818 114,651 228,363 237,727 314,077
Net unrealized gains (losses) on
investments 1,647,989 483,518 246,489 970,056 (52,074)
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 2,542,807 598,169 474,852 1,207,783 262,003
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 2,724,772 $ 765,954 $ 502,659 $ 1,208,159 $ 248,000
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 129
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Fidelity
----------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 2,094,346 $ 204,696 $ 274,868 $ 451,874 $ 764,538 $ 398,370
Less valuation period deductions
(Note B) 461,022 27,097 91,298 60,714 107,253 174,660
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 1,633,324 177,599 183,570 391,160 657,285 223,710
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,320,426 33,000 662,436 332,544 -- 292,446
Net unrealized gains (losses) on
investments 6,476,412 350,408 1,347,793 (305,456) -- 5,083,667
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 7,796,838 383,408 2,010,229 27,088 -- 5,376,113
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 9,430,162 $ 561,007 $ 2,193,799 $ 418,248 $ 657,285 $ 5,599,823
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 130
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
---------------------------------------------------------------------------
Total Total Industrial
INVESCO Return Income High Yield Utilities
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 1,039,818 $ 76,461 $ 417,376 $ 519,369 $ 26,612
Less valuation period deductions
(Note B) 67,625 12,921 27,525 23,478 3,701
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 972,193 63,540 389,851 495,891 22,911
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 523,956 46,241 116,951 269,799 90,965
Net unrealized gains (losses) on
investments 298,662 203,429 324,767 (253,231) 23,697
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 822,618 249,670 441,718 16,568 114,662
----------- ----------- ---------- ----------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 1,794,811 $ 313,210 $ 831,569 $ 512,459 $ 137,573
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 131
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
Van Eck
------------------------------------------
Total Worldwide Worldwide
Van Eck Balanced Hard Assets
------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 21,903 $ 9,006 $ 12,897
Less valuation period deductions
(Note B) 7,743 3,329 4,414
---------- ---------- ----------
Net investment income (loss) 14,160 5,677 8,483
---------- ---------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 53,889 37,785 16,104
Net unrealized gains (losses) on
investments (53,508) 4,122 (57,630)
---------- ---------- ----------
Net realized and unrealized gains
(losses) on investments 381 41,907 (41,526)
---------- ---------- ----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $ 14,541 $ 47,584 $ (33,043)
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 132
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 1,183,779 $ 292,143 $ 56,842 $ 593,973 $ 238,653 $ 2,168
Less valuation period deductions
(Note B) 241,127 50,116 44,898 128,637 14,752 2,724
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 942,652 242,027 11,944 465,336 223,901 (556)
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 401,852 86,478 62,058 97,833 143,358 12,125
Net unrealized gains (losses) on
investments 2,675,307 557,274 396,915 1,736,167 (43,084) 28,035
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 3,077,159 643,752 458,973 1,834,000 100,274 40,160
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 4,019,811 $ 885,779 $ 470,917 $ 2,299,336 $ 324,175 $ 39,604
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 133
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
NB
--------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 292,143 $ 127,305 $ 76,287 $ 35,420 $ 53,131
Less valuation period deductions
(Note B) 50,116 13,218 9,400 8,882 18,616
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 242,027 114,087 66,887 26,538 34,515
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 86,478 (16,561) (22,601) 3,867 121,773
Net unrealized gains (losses) on
investments 557,274 (29,330) 65,061 443 521,100
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 643,752 (45,891) 42,460 4,310 642,873
----------- ----------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 885,779 $ 68,196 $ 109,347 $ 30,848 $ 677,388
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 134
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Alger
---------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 56,842 $ 7,668 $ 10,435 $ 37,109 $ 1,630
Less valuation period deductions
(Note B) 44,898 18,457 7,398 16,087 2,956
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 11,944 (10,789) 3,037 21,022 (1,326)
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 62,058 8,187 9,936 22,907 21,028
Net unrealized gains (losses) on
investments 396,915 58,340 89,398 227,107 22,070
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 458,973 66,527 99,334 250,014 43,098
----------- ----------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 470,917 $ 55,738 $ 102,371 $ 271,036 $ 41,772
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 135
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Fidelity
-------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
------------- ------------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 593,973 $ 9,800 $ 109,786 $ 27,966 $ 246,349 $ 200,072
Less valuation period deductions
(Note B) 128,637 3,818 25,455 16,972 35,006 47,386
------------ ----------- ----------- ----------- ----------- -----------
Net investment income (loss) 465,336 5,982 84,331 10,994 211,343 152,686
------------ ----------- ----------- ----------- ----------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 97,833 7,905 9,661 34,235 -- 46,032
Net unrealized gains (losses) on
investments 1,736,167 63,068 273,435 238,529 -- 1,161,135
------------ ----------- ----------- ----------- ----------- -----------
Net realized and unrealized gains
(losses) on investments 1,834,000 70,973 283,096 272,764 -- 1,207,167
------------ ----------- ----------- ----------- ----------- -----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 2,299,336 $ 76,955 $ 367,427 $ 283,758 $ 211,343 $ 1,359,853
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 136
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
INVESCO
-----------------------------------------------------------------------
Total Total Industrial
INVESCO Return Income High Yield Utilities
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Investment income
Dividends from mutual funds $ 238,653 $ 25,285 $ 93,816 $ 114,676 $ 4,876
Less valuation period deductions
(Note B) 14,752 3,402 4,272 6,357 721
----------- ----------- ---------- ----------- ----------
Net investment income (loss) 223,901 21,883 89,544 108,319 4,155
----------- ----------- ---------- ----------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 143,358 28,264 30,929 82,830 1,335
Net unrealized gains (losses) on
investments (43,084) 10,956 (7,082) (53,402) 6,444
----------- ----------- ---------- ----------- ----------
Net realized and unrealized gains
(losses) on investments 100,274 39,220 23,847 29,428 7,779
----------- ----------- ---------- ----------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 324,175 $ 61,103 $ 113,391 $ 137,747 $ 11,934
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 137
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1996
Van Eck
----------------------------------------
Total Worldwide Worldwide
Van Eck Balanced Hard Assets
----------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 2,168 $ 169 $ 1,999
Less valuation period deductions
(Note B) 2,724 1,304 1,420
---------- ---------- ----------
Net investment income (loss) (556) (1,135) 579
---------- ---------- ----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 12,125 2,984 9,141
Net unrealized gains (losses) on
investments 28,035 19,343 8,692
---------- ---------- ----------
Net realized and unrealized gains
(losses) on investments 40,160 22,327 17,833
---------- ---------- ----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 39,604 $ 21,192 $ 18,412
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 138
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
--------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 16,007,172 $ 3,982,203 $ 4,326,660 $ 5,972,694 $ 1,463,539 $ 178,227 $ 83,849
Net realized gains (losses) on
investments 8,536,274 347,823 1,685,294 6,403,348 355,780 (260,570) 4,599
Net unrealized gains (losses) on
investments 18,766,977 (2,323,636) 5,825,800 15,230,082 248,681 (368,037) 154,087
------------ ----------- ----------- ------------ ----------- ---------- ----------
Increase (decrease) in net assets
from operations 43,310,423 2,006,390 11,837,754 27,606,124 2,068,000 (450,380) 242,535
------------ ----------- ----------- ------------ ----------- ---------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 128,820,440 12,563,792 13,089,164 92,335,231 8,092,294 875,501 1,864,458
Cost of insurance and
administrative charges (14,458,798) (2,063,802) (2,525,683) (8,200,381) (1,481,570) (108,634) (78,728)
Benefit payments (306,862) (11,220) (26,492) (259,989) (9,161) -- --
Surrenders (10,842,736) (725,767) (859,454) (8,654,377) (586,533) (15,198) (1,407)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (3,936,799) 8,461,193 4,831,250 (25,231,056) 6,011,967 216,552 1,773,295
Other (41,582) (87,331) (18,626) 54,208 9,107 1,060 --
------------ ----------- ----------- ------------ ----------- ---------- ----------
Increase (decrease) from principal
transactions 99,233,663 18,136,865 14,490,159 50,043,636 12,036,104 969,281 3,557,618
------------ ----------- ----------- ------------ ----------- ---------- ----------
Total increase (decrease) in net assets 142,544,086 20,143,255 26,327,913 77,649,760 14,104,104 518,901 3,800,153
Net assets at beginning of year 162,486,020 26,924,496 28,100,608 90,636,169 15,526,649 1,298,098 --
------------ ----------- ----------- ------------ ----------- ---------- ----------
Net assets at end of year $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
============ =========== =========== ============ =========== ========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 139
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
NB
-----------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------- --------------- ------------- --------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 3,982,203 $ 322,085 $1,526,449 $ 133,352 $2,000,317
Net realized gains (losses) on
investments 347,823 10,003 (264,148) (53,894) 655,862
Net unrealized gains (losses) on
investments (2,323,636) 59,369 (81,576) (60,954) (2,240,475)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets
from operations 2,006,390 391,457 1,180,725 18,504 415,704
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 12,563,792 3,839,599 2,578,265 31,593 6,114,335
Cost of insurance and
administrative charges (2,063,802) (492,782) (393,894) (14,839) (1,162,287)
Benefit payments (11,220) -- -- -- (11,220)
Surrenders (725,767) (15,922) (419,497) (3,243) (287,105)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 8,461,193 5,212,588 513,663 (894,126) 3,629,068
Other (87,331) (31,757) 3,226 (31,566) (27,234)
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 18,136,865 8,511,726 2,281,763 (912,181) 8,255,557
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 20,143,255 8,903,183 3,462,488 (893,677) 8,671,261
Net assets at beginning of year 26,924,496 6,675,166 5,563,672 893,677 13,791,981
----------- ----------- ---------- ----------- ----------
Net assets at end of year $47,067,751 $15,578,349 $9,026,160 $ -- $22,463,242
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 140
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Alger
----------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 4,326,660 $ 1,585,785 $ 539,729 $ 2,083,336 $ 117,810
Net realized gains (losses) on
investments 1,685,294 186,963 316,932 915,872 265,527
Net unrealized gains (losses) on
investments 5,825,800 166,990 1,022,340 3,099,428 1,537,042
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets
from operations 11,837,754 1,939,738 1,879,001 6,098,636 1,920,379
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 13,089,164 4,154,774 2,573,424 5,298,963 1,062,003
Cost of insurance and
administrative charges (2,525,683) (803,988) (473,224) (989,260) (259,211)
Benefit payments (26,492) (14,248) (12,244) -- --
Surrenders (859,454) (196,345) (376,263) (216,867) (69,979)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 4,831,250 (35,168) 528,261 3,094,366 1,243,791
Other (18,626) (504) (14,286) 1,597 (5,433)
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 14,490,159 3,104,521 2,225,668 7,188,799 1,971,171
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 26,327,913 5,044,259 4,104,669 13,287,435 3,891,550
Net assets at beginning of year 28,100,608 10,459,112 5,115,538 9,616,179 2,909,779
----------- ----------- ---------- ----------- ----------
Net assets at end of year $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 141
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Fidelity
-------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 5,972,694 $ 745,317 $ $ 886,122 $ 713,205 $ 1,147,434
2,480,616
Net realized gains (losses) on
investments 6,403,348 20,247 1,534,000 298,379 -- 4,550,722
Net unrealized gains (losses) on
investments 15,230,082 315,702 4,444,805 707,398 -- 9,762,177
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations 27,606,124 1,081,266 8,459,421 1,891,899 713,205 15,460,333
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 92,335,231 2,713,832 8,443,426 5,709,711 55,421,815 20,046,447
Cost of insurance and
administrative charges (8,200,381) (490,838) (1,358,671) (939,010) (1,769,895) (3,641,967)
Benefit payments (259,989) -- (8,890) (8,379) (240,733) (1,987)
Surrenders (8,654,377) (652,157) (2,494,098) (438,536) (2,335,262) (2,734,324)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (25,231,056) 1,440,884 1,798,160 2,169,798 (48,429,964) 17,790,066
Other 54,208 7,219 (14,128) (29,375) 39,827 50,665
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 50,043,636 3,018,940 6,365,799 6,464,209 2,685,788 31,508,900
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 77,649,760 4,100,206 14,825,220 8,356,108 3,398,993 46,969,233
Net assets at beginning of year 90,636,169 6,137,073 18,074,922 12,225,779 15,013,259 39,185,136
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 142
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------------------
Small
Total Total Industrial Company
INVESCO Return Income High Yield Utilities Growth
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 1,463,539 $ 271,636 $ 453,496 $ 720,665 $ 18,328 $ (586)
Net realized gains (losses) on
investments 355,780 136,473 342,342 (151,382) 35,245 (6,898)
Net unrealized gains (losses) on
investments 248,681 73,689 359,519 (541,125) 282,500 74,098
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations 2,068,000 481,798 1,155,357 28,158 336,073 66,614
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 8,092,294 2,104,849 3,170,236 2,297,048 435,105 85,056
Cost of insurance and
administrative charges (1,481,570) (425,176) (567,563) (389,895) (87,692) (11,244)
Benefit payments (9,161) -- (9,161) -- -- --
Surrenders (586,533) (56,509) (192,220) (329,292) (8,210) (302)
Net transfers among divisions
(including the loan division and
Guaranteed interest division in
the general account) 6,011,967 2,955,200 1,315,595 931,519 201,017 608,636
Other 9,107 556 22,617 (18,840) 4,856 (82)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 12,036,104 4,578,920 3,739,504 2,490,540 545,076 682,064
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 14,104,104 5,060,718 4,894,861 2,518,698 881,149 748,678
Net assets at beginning of year 15,526,649 3,044,610 5,958,144 5,364,084 1,159,811 --
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 29,630,753 $ 8,105,328 $10,853,005 $ 7,882,782 $ 2,040,960 $ 748,678
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 143
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Van Eck
-------------------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Worldwide Hard Worldwide Emerging Real
Van Eck Balanced Assets Bonds Markets Estate
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 178,227 $ 44,624 $ 135,776 $ (212) $ (1,736) $ (225)
Net realized gains (losses) on
investments (260,570) 4,682 (162,110) 130 (101,436) (1,836)
Net unrealized gains (losses) on
investments (368,037) (23,403) (395,698) 3,953 47,140 (29)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets
from operations (450,380) 25,903 (422,032) 3,871 (56,032) (2,090)
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 875,501 (1,347) 571,430 129,336 137,102 38,980
Cost of insurance and
administrative charges (108,634) (9,423) (86,867) (1,544) (7,777) (3,023)
Benefit payments -- -- -- -- -- --
Surrenders (15,198) (3,105) (11,871) -- -- (222)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 216,552 (399,466) 111,286 74,151 387,960 42,621
Other 1,060 90 1,059 (7) (97) 15
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 969,281 (413,251) 585,037 201,936 517,188 78,371
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 518,901 (387,348) 163,005 205,807 461,156 76,281
Net assets at beginning of year 1,298,098 387,348 910,750 -- -- --
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 1,816,999 $ -- $ 1,073,755 $ 205,807 $ 461,156 $ 76,281
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 144
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
AIM
---------------------------------------
Total Capital Government
AIM Appreciation Securities
---------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 83,849 $ 24,053 $ 59,796
Net realized gains (losses) on
investments 4,599 (3,315) 7,914
Net unrealized gains (losses) on
investments 154,087 119,225 34,862
---------- ---------- ----------
Increase (decrease) in net assets
from operations 242,535 139,963 102,572
---------- ---------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 1,864,458 329,635 1,534,823
Cost of insurance and
administrative charges (78,728) (28,940) (49,788)
Benefit payments -- -- --
Surrenders (1,407) (1,407) --
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 1,773,295 765,185 1,008,110
Other -- -- --
---------- ---------- ----------
Increase (decrease) from principal
transactions 3,557,618 1,064,473 2,493,145
---------- ---------- ----------
Total increase (decrease) in net assets 3,800,153 1,204,436 2,595,717
Net assets at beginning of year -- -- --
---------- ---------- ----------
Net assets at end of year $3,800,153 $1,204,436 $2,595,717
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 145
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
-------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 3,345,072 $ 543,430 $ 181,965 $ 1,633,324 $ 972,193 $ 14,160
Net realized gains (losses) on
investments 3,199,375 406,286 894,818 1,320,426 523,956 53,889
Net unrealized gains (losses) on
investments 10,643,150 2,273,595 1,647,989 6,476,412 298,662 (53,508)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from
operations 17,187,597 3,223,311 2,724,772 9,430,162 1,794,811 14,541
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 104,747,260 5,555,766 6,944,048 89,309,110 2,683,620 254,716
Cost of insurance and
administrative charges (8,284,944) (957,887) (1,466,664) (5,155,026) (614,145) (91,222)
Benefit payments (406,386) (20,591) (63,369) (322,263) (163) --
Surrenders (1,977,696) (146,698) (412,252) (1,294,484) (112,699) (11,563)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (6,642,529) 8,721,432 9,006,938 (32,708,946) 7,796,299 541,748
Other 5,891 9,817 11,046 (21,999) 11,180 (4,153)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 87,441,596 13,161,839 14,019,747 49,806,392 9,764,092 689,526
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 104,629,193 16,385,150 16,744,519 59,236,554 11,558,903 704,067
Net assets at beginning of year 57,856,827 10,539,346 11,356,089 31,399,615 3,967,746 594,031
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $162,486,020 $26,924,496 $28,100,608 $90,636,169 $15,526,649 $ 1,298,098
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 146
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
NB
------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 543,430 $ 122,942 $ 158,538 $ 61,720 $ 200,230
Net realized gains (losses) on
investments 406,286 (20,056) 14,997 25,762 385,583
Net unrealized gains (losses) on
investments 2,273,595 159,151 533,906 26,882 1,553,656
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from
operations 3,223,311 262,037 707,441 114,364 2,139,469
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 5,555,766 1,332,125 1,158,704 324,257 2,740,680
Cost of insurance and
administrative charges (957,887) (163,472) (219,117) (62,075) (513,223)
Benefit payments (20,591) -- -- -- (20,591)
Surrenders (146,698) (3,761) (71,838) (792) (70,307)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 8,721,432 2,758,363 2,141,068 (1,023,987) 4,845,988
Other 9,817 (2,202) 11,700 (6,404) 6,723
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 13,161,839 3,921,053 3,020,517 (769,001) 6,989,270
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 16,385,150 4,183,090 3,727,958 (654,637) 9,128,739
Net assets at beginning of year 10,539,346 2,492,076 1,835,714 1,548,314 4,663,242
----------- ----------- ---------- ----------- ----------
Net assets at end of year $26,924,496 $ 6,675,166 $5,563,672 $ 893,677 $13,791,981
=========== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 147
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Alger
------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
--------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 181,965 $ 167,785 $ 27,807 $ 376 $ (14,003)
Net realized gains (losses) on
investments 894,818 114,651 228,363 237,727 314,077
Net unrealized gains (losses) on
investments 1,647,989 483,518 246,489 970,056 (52,074)
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from
operations 2,724,772 765,954 502,659 1,208,159 248,000
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 6,944,048 2,630,863 1,276,492 2,334,377 702,316
Cost of insurance and
administrative charges (1,466,664) (526,742) (299,891) (479,902) (160,129)
Benefit payments (63,369) -- (62,593) (776) --
Surrenders (412,252) (255,386) (74,317) (58,850) (23,699)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 9,006,938 3,518,384 1,419,061 2,796,911 1,272,582
Other 11,046 (6,069) 19,072 2,082 (4,039)
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 14,019,747 5,361,050 2,277,824 4,593,842 1,787,031
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 16,744,519 6,127,004 2,780,483 5,802,001 2,035,031
Net assets at beginning of year 11,356,089 4,332,108 2,335,055 3,814,178 874,748
----------- ----------- ---------- ----------- ----------
Net assets at end of year $28,100,608 $10,459,112 $5,115,538 $ 9,616,179 $2,909,779
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 148
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Fidelity
-----------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
-----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 1,633,324 $ 177,599 $ 183,570 $ 391,160 $ 657,285 $ 223,710
Net realized gains (losses) on
investments 1,320,426 33,000 662,436 332,544 -- 292,446
Net unrealized gains (losses) on
investments 6,476,412 350,408 1,347,793 (305,456) -- 5,083,667
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) in net assets from
operations 9,430,162 561,007 2,193,799 418,248 657,285 5,599,823
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 89,309,110 2,162,759 4,558,270 2,410,373 73,366,740 6,810,968
Cost of insurance and
administrative charges (5,155,026) (242,289) (813,161) (525,615) (2,213,630) (1,360,331)
Benefit payments (322,263) (20,969) (548) (1,233) (257,371) (42,142)
Surrenders (1,294,484) (92,218) (135,829) (91,869) (870,621) (103,947)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (32,708,946) 2,215,879 5,219,755 5,730,183 (63,929,591) 18,054,828
Other (21,999) 7,567 3,217 10,563 (35,219) (8,127)
------------ ----------- ----------- ----------- ----------- -----------
Increase (decrease) from principal
transactions 49,806,392 4,030,729 8,831,704 7,532,402 6,060,308 23,351,249
------------ ----------- ----------- ----------- ----------- -----------
Total increase (decrease) in net assets 59,236,554 4,591,736 11,025,503 7,950,650 6,717,593 28,951,072
Net assets at beginning of year 31,399,615 1,545,337 7,049,419 4,275,129 8,295,666 10,234,064
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 90,636,169 $ 6,137,073 $18,074,922 $12,225,779 $15,013,259 $39,185,136
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 149
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------
Total Total Industrial
INVESCO Return Income High Yield Utilities
--------------- --------------- --------------- --------------- ---------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 972,193 $ 63,540 $ 389,851 $ 495,891 $ 22,911
Net realized gains (losses) on
investments 523,956 46,241 116,951 269,799 90,965
Net unrealized gains (losses) on
investments 298,662 203,429 324,767 (253,231) 23,697
----------- ----------- ---------- ----------- ----------
Increase (decrease) in net assets from
operations 1,794,811 313,210 831,569 512,459 137,573
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 2,683,620 517,831 1,250,551 835,890 79,348
Cost of insurance and
administrative charges (614,145) (133,107) (266,208) (177,612) (37,218)
Benefit payments (163) -- -- (163) --
Surrenders (112,699) (28,672) (37,810) (9,783) (36,434)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 7,796,299 1,498,300 2,804,344 2,695,587 798,068
Other 11,180 2,581 6,081 2,305 213
----------- ----------- ---------- ----------- ----------
Increase (decrease) from principal
transactions 9,764,092 1,856,933 3,756,958 3,346,224 803,977
----------- ----------- ---------- ----------- ----------
Total increase (decrease) in net assets 11,558,903 2,170,143 4,588,527 3,858,683 941,550
Net assets at beginning of year 3,967,746 874,467 1,369,617 1,505,401 218,261
----------- ----------- ---------- ----------- ----------
Net assets at end of year $15,526,649 $ 3,044,610 $5,958,144 $ 5,364,084 $1,159,811
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 150
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
Van Eck
--------------------------------------
Worldwide
Total Worldwide Hard
Van Eck Balanced Assets
---------- ---------- ----------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 14,160 $ 5,677 $ 8,483
Net realized gains (losses) on
investments 53,889 37,785 16,104
Net unrealized gains (losses) on
investments (53,508) 4,122 (57,630)
---------- ---------- ----------
Increase (decrease) in net assets from
operations 14,541 47,584 (33,043)
---------- ---------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 254,716 65,167 189,549
Cost of insurance and
administrative charges (91,222) (44,774) (46,448)
Benefit payments -- -- --
Surrenders (11,563) (7,995) (3,568)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 541,748 (120) 541,868
Other (4,153) (319) (3,834)
---------- ---------- ----------
Increase (decrease) from principal
transactions 689,526 11,959 677,567
---------- ---------- ----------
Total increase (decrease) in net assets 704,067 59,543 644,524
Net assets at beginning of year 594,031 327,805 266,226
---------- ---------- ----------
Net assets at end of year $1,298,098 $ 387,348 $ 910,750
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 151
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
-----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 942,652 $ 242,027 $ 11,944 $ 465,336 $ 223,901 $ (556)
Net realized gains (losses) on
investments 401,852 86,478 62,058 97,833 143,358 12,125
Net unrealized gains (losses) on
investments 2,675,307 557,274 396,915 1,736,167 (43,084) 28,035
------------ ----------- ----------- ----------- ----------- -----------
Increase in net assets from
operations 4,019,811 885,779 470,917 2,299,336 324,175 39,604
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 44,534,972 2,246,849 2,646,310 38,833,137 609,861 198,815
Cost of insurance and
administrative charges (2,843,666) (378,501) (531,589) (1,733,703) (158,637) (41,236)
Benefit payments (9,641) -- (9,457) (184) -- --
Surrenders (139,851) (10,863) (32,300) (89,374) (5,730) (1,584)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (905,917) 3,446,134 6,535,350 (13,409,127) 2,217,943 303,783
Other (25,415) 4,193 (1,186) (29,113) 1,108 (417)
------------ ----------- ----------- ----------- ----------- -----------
Increase from principal
transactions 40,610,482 5,307,812 8,607,128 23,571,636 2,664,545 459,361
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net assets 44,630,293 6,193,591 9,078,045 25,870,972 2,988,720 498,965
Net assets at beginning of year 13,226,534 4,345,755 2,278,044 5,528,643 979,026 95,066
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 57,856,827 $10,539,346 $11,356,089 $31,399,615 $ 3,967,746 $ 594,031
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 152
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
NB
---------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
---------------------------------------------------------------------------
INCREASE IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 242,027 $ 114,087 $ 66,887 $ 26,538 $ 34,515
Net realized gains (losses) on
investments 86,478 (16,561) (22,601) 3,867 121,773
Net unrealized gains (losses) on
investments 557,274 (29,330) 65,061 443 521,100
----------- ----------- ---------- ----------- ----------
Increase in net assets from
operations 885,779 68,196 109,347 30,848 677,388
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 2,246,849 317,539 634,087 372,680 922,543
Cost of insurance and
administrative charges (378,501) (74,422) (101,596) (56,065) (146,418)
Benefit payments -- -- -- -- --
Surrenders (10,863) (1,157) (2,385) (48) (7,273)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 3,446,134 398,684 433,683 368,389 2,245,378
Other 4,193 (272) (579) 41 5,003
----------- ----------- ---------- ----------- ----------
Increase from principal
transactions 5,307,812 640,372 963,210 684,997 3,019,233
----------- ----------- ---------- ----------- ----------
Total increase in net assets 6,193,591 708,568 1,072,557 715,845 3,696,621
Net assets at beginning of year 4,345,755 1,783,508 763,157 832,469 966,621
----------- ----------- ---------- ----------- ----------
Net assets at end of year $10,539,346 $ 2,492,076 $1,835,714 $ 1,548,314 $4,663,242
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 153
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Alger
---------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
---------------------------------------------------------------------
Increase (decrease) in net assets
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 11,944 $ (10,789) $ 3,037 $ 21,022 $ (1,326)
Net realized gains (losses) on
investments 62,058 8,187 9,936 22,907 21,028
Net unrealized gains (losses) on
investments 396,915 58,340 89,398 227,107 22,070
----------- ----------- ---------- ----------- ----------
Increase in net assets from
operations 470,917 55,738 102,371 271,036 41,772
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 2,646,310 792,375 410,528 1,189,559 253,848
Cost of insurance and
administrative charges (531,589) (209,010) (92,306) (193,812) (36,461)
Benefit payments (9,457) (4,658) -- -- (4,799)
Surrenders (32,300) (7,839) (10,926) (9,795) (3,740)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 6,535,350 2,581,122 1,649,714 1,717,965 586,549
Other (1,186) (3,605) 587 1,213 619
----------- ----------- ---------- ----------- ----------
Increase from principal
transactions 8,607,128 3,148,385 1,957,597 2,705,130 796,016
----------- ----------- ---------- ----------- ----------
Total increase in net assets 9,078,045 3,204,123 2,059,968 2,976,166 837,788
Net assets at beginning of year 2,278,044 1,127,985 275,087 838,012 36,960
----------- ----------- ---------- ----------- ----------
Net assets at end of year $11,356,089 $ 4,332,108 $2,335,055 $ 3,814,178 $ 874,748
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 154
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
Fidelity
-----------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
-----------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 465,336 $ 5,982 $ 84,331 $ 10,994 $ 211,343 $ 152,686
Net realized gains (losses) on
investments 97,833 7,905 9,661 34,235 -- 46,032
Net unrealized gains (losses) on
investments 1,736,167 63,068 273,435 238,529 -- 1,161,135
------------ ----------- ----------- ----------- ----------- -----------
Increase in net assets from
operations 2,299,336 76,955 367,427 283,758 211,343 1,359,853
------------ ----------- ----------- ----------- ----------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 38,833,137 202,285 1,158,382 537,007 36,012,540 922,923
Cost of insurance and
administrative charges (1,733,703) (59,703) (298,466) (145,781) (938,219) (291,534)
Benefit payments (184) -- -- -- -- (184)
Surrenders (89,374) (973) (9,215) (8,511) (56,983) (13,692)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (13,409,127) 1,199,005 4,485,230 2,637,971 (28,785,556) 7,054,223
Other (29,113) 277 (47) (13) (27,783) (1,547)
------------ ----------- ----------- ----------- ----------- -----------
Increase from principal
transactions 23,571,636 1,340,891 5,335,884 3,020,673 6,203,999 7,670,189
------------ ----------- ----------- ----------- ----------- -----------
Total increase in net assets 25,870,972 1,417,846 5,703,311 3,304,431 6,415,342 9,030,042
Net assets at beginning of year 5,528,643 127,491 1,346,108 970,698 1,880,324 1,204,022
------------ ----------- ----------- ----------- ----------- -----------
Net assets at end of year $ 31,399,615 $ 1,545,337 $ 7,049,419 $ 4,275,129 $ 8,295,666 $10,234,064
============ =========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 155
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
<TABLE>
<CAPTION>
INVESCO
----------------------------------------------------------------------
Total Total Industrial
INVESCO Return Income High Yield Utilities
----------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
<S> <C> <C> <C> <C> <C>
OPERATIONS
Net investment income (loss) $ 223,901 $ 21,883 $ 89,544 $ 108,319 $ 4,155
Net realized gains (losses) on
investments 143,358 28,264 30,929 82,830 1,335
Net unrealized gains (losses) on
investments (43,084) 10,956 (7,082) (53,402) 6,444
----------- ----------- ---------- ----------- ----------
Increase in net assets from
operations 324,175 61,103 113,391 137,747 11,934
----------- ----------- ---------- ----------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 609,861 199,674 243,848 121,818 44,521
Cost of insurance and
administrative charges (158,637) (45,283) (55,233) (48,934) (9,187)
Benefit payments -- -- -- -- --
Surrenders (5,730) (2,038) (2,171) (1,386) (135)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 2,217,943 506,505 810,269 750,404 150,765
Other 1,108 943 (126) 277 14
----------- ----------- ---------- ----------- ----------
Increase from principal
transactions 2,664,545 659,801 996,587 822,179 185,978
----------- ----------- ---------- ----------- ----------
Total increase in net assets 2,988,720 720,904 1,109,978 959,926 197,912
Net assets at beginning of year 979,026 153,563 259,639 545,475 20,349
----------- ----------- ---------- ----------- ----------
Net assets at end of year $ 3,967,746 $ 874,467 $1,369,617 $ 1,505,401 $ 218,261
=========== =========== ========== =========== ==========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 156
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1996
Van Eck
-----------------------------------------
Total Worldwide Worldwide
Van Eck Balanced Hard Assets
-----------------------------------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ (556) $ (1,135) $ 579
Net realized gains (losses) on
investments 12,125 2,984 9,141
Net unrealized gains (losses) on
investments 28,035 19,343 8,692
---------- ---------- ----------
Increase in net assets from
operations 39,604 21,192 18,412
---------- ---------- ----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 198,815 135,181 63,634
Cost of insurance and
administrative charges (41,236) (29,480) (11,756)
Benefit payments -- -- --
Surrenders (1,584) (1,584) --
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 303,783 126,152 177,631
Other (417) (468) 51
---------- ---------- ----------
Increase from principal
transactions 459,361 229,801 229,560
---------- ---------- ----------
Total increase in net assets 498,965 250,993 247,972
Net assets at beginning of year 95,066 76,812 18,254
---------- ---------- ----------
Net assets at end of year $ 594,031 $ 327,805 $ 266,226
========== ========== ==========
See accompanying notes.
- --------------------------------------------------------------------------------
Variable Survivorship 157
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements
December 31, 1998
NOTE A. ORGANIZATION
Security Life Separate Account L1 (the "Separate Account") was established by
resolution of the Board of Directors of Security Life of Denver Insurance
Company (the "Company") on November 3, 1993. The Separate Account is organized
as a unit investment trust registered with the Securities and Exchange
Commission under the Investment Company Act of 1940.
The Separate Account supports the operations of the FirstLine and Strategic
Advantage Variable Universal Life ("FirstLine and Strategic Advantage") policies
offered by the Company. The Separate Account may be used to support other
variable life policies as they are offered by the Company. The assets of the
Separate Account are the property of the Company. However, the portion of the
Separate Account's assets attributable to the policies will not be used to
satisfy liabilities arising out of any other operations of the Company.
As of December 31, 1998, the Separate Account offered twenty-three investment
divisions available to the policyholders, each of which invests in an
independently managed mutual fund portfolio ("Fund"). The Funds are as follows:
PORTFOLIO MANAGERS/PORTFOLIOS (FUNDS)
Neuberger Berman Management Incorporated (NB)
Neuberger Berman Limited Maturity Bond Portfolio
Neuberger Berman Growth Portfolio
Neuberger Berman Partners Portfolio
Fred Alger Management, Inc. (Alger)
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Fidelity Management & Research Company (Fidelity)
Fidelity Investments VIP II Asset Manager Portfolio
Fidelity Investments VIP Growth Portfolio
Fidelity Investments VIP Overseas Portfolio
Fidelity Investments VIP Money Market Portfolio
Fidelity Investments VIP II Index 500 Portfolio
- --------------------------------------------------------------------------------
Variable Survivorship 158
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE A. ORGANIZATION (CONTINUED)
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Total Return Portfolio
INVESCO VIF Industrial Income Portfolio
INVESCO VIF High Yield Portfolio
INVESCO VIF Utilities Portfolio
INVESCO VIF Small Company Growth Portfolio
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Hard Assets Portfolio (formerly known as "Van Eck Gold
and Natural Resources Portfolio")
Van Eck Worldwide Real Estate Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Bond Portfolio
AIM Advisors, Inc. (AIM)
AIM VI - Capital Appreciation Portfolio
AIM VI - Government Securities Portfolio
Effective May 1, 1997, the Divisions of the Separate Account investing in the
Neuberger Berman Government Income Portfolio and the Van Eck Worldwide Balanced
Portfolio stopped accepting new investments. These divisions were discontinued
during 1998.
Effective February 19, 1998, six new divisions became available to the
policyholders for investment in the following funds:
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Real Estate Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Bond Portfolio
AIM Advisors, Inc. (AIM)
AIM VI - Capital Appreciation Portfolio
AIM VI - Government Securities Portfolio
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Small Company Growth Portfolio
- --------------------------------------------------------------------------------
Variable Survivorship 159
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE A. ORGANIZATION (CONTINUED)
The FirstLine and FirstLine policies allow the policyholders to specify the
allocation of their net premium to the various Funds. They can also transfer
their account values among the Funds. The FirstLine and Strategic Advantage
products also provide the policyholders the option to allocate their net
premiums, or to transfer their account values, to a Guaranteed Interest Division
("GID") in the Company's general account. The GID guarantees a rate of interest
to the policyholder, and it is not variable in nature. Therefore, it is not
included in these Separate Account statements.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Separate Account have been prepared
on the basis of generally accepted accounting principles ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
The significant accounting principles followed by the Separate Account and the
methods of applying those principles are presented below or in the footnotes
which follow:
INVESTMENT VALUATION--The investments in shares of the Funds are valued at the
closing net asset value (market value) per share as determined by the Funds on
the day of measurement.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--The investments in shares
of the Funds are accounted for on the date the order to buy or sell is
confirmed. Dividend income and distributions of capital gains are recorded on
the ex-dividend date. Realized gains and losses from sales transactions are
reported using the first-in, first-out ("FIFO") method of accounting for cost.
The difference between cost and current market value of investments owned on the
day of measurement is recorded as unrealized gain or loss on investment.
VALUATION PERIOD DEDUCTIONS--Charges are made directly against the assets of the
Separate Account divisions and are reflected daily in the computation of the
unit values of the divisions.
- --------------------------------------------------------------------------------
Variable Survivorship 160
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A daily deduction, at an annual rate of .75% of the daily asset value of the
Separate Account divisions, is charged to the Separate Account for mortality and
expense risks assumed by the Company. Total mortality and expense charges for
the years ended December 31, 1998, 1997 and 1996 were $1,740,661; $813,630 and
$241,127, respectively.
POLICYHOLDER RESERVES--Policyholder reserves are recorded in the Separate
Account at the aggregate account values of the policyholders invested in the
Separate Account divisions. To the extent that benefits to be paid to the
policyholders exceed their account values, the Company will contribute
additional funds to the benefit proceeds.
- --------------------------------------------------------------------------------
Variable Survivorship 161
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS
Fund shares are purchased at net asset value with net premiums (premium
payments, less sales and tax loads charged by the Company) and divisional
transfers from other divisions. Fund shares are redeemed for the payment of
benefits, for surrenders, for transfers to other divisions, and for charges by
the Company for certain cost of insurance and administrative charges. The cost
of insurance and administrative charges for the years ended December 31, 1998,
1997 and 1996 were $14,458,798; $8,284,944 and $2,843,666, respectively.
Dividends made by the Funds are reinvested in the Funds.
The following is a summary of Fund shares owned as of December 31, 1998:
<TABLE>
<CAPTION>
Number Net Value
of Asset of Shares Cost of
FUND Shares Value at Market Shares
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 1,127,232.206 $13.82 $ 15,578,349 $ 15,334,595
Growth 343,330.535 $26.29 9,026,160 8,510,696
Government Income -- $11.14 -- --
Partners 1,186,647.771 $18.93 22,463,242 22,570,797
Fred Alger Management, Inc.:
American Small Capitalization 352,589.754 $43.97 15,503,371 14,851,950
American MidCap Growth 319,369.785 $28.87 9,220,207 7,858,579
American Growth 430,357.281 $53.22 22,903,614 18,608,688
American Leveraged AllCap 194,880.482 $34.90 6,801,329 5,293,171
Fidelity Management & Research Co.:
Asset Manager 563,726.801 $18.16 10,237,279 9,501,494
Growth 733,232.497 $44.87 32,900,142 26,845,882
Overseas 1,026,528.069 $20.05 20,581,887 19,913,166
Money Market 18,412,252.400 $1.00 18,412,252 18,412,252
Index 500 609,942.422 $141.25 86,154,369 70,067,500
INVESCO Funds Group, Inc.:
Total Return 488,861.727 $16.58 8,105,328 7,814,990
Industrial Income 583,181.351 $18.61 10,853,005 10,163,306
High Yield 696,358.875 $11.32 7,882,782 8,752,765
Utilities 114,789.679 $17.78 2,040,960 1,727,429
Small Company Growth 64,989.440 $11.52 748,678 674,581
Van Eck Associates Corporation:
Worldwide Balanced -- $12.03 -- --
Worldwide Hard Assets 116,712.440 $9.20 1,073,755 1,517,809
Worldwide Bond 16,759.491 $12.28 205,807 201,853
Worldwide Emerging Markets 64,769.133 $7.12 461,156 414,017
Worldwide Real Estate 7,995.940 $9.54 76,281 76,310
AIM Advisors, Inc.:
Capital Appreciation 47,795.065 $25.20 1,204,436 1,085,211
Government Securities 232,175.030 $11.18 2,595,717 2,560,855
----------------- -----------------
Total $305,030,106 $272,757,896
================= =================
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 162
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS (CONTINUED)
For the year ended December 31, 1998, the cost of purchases (plus reinvested
dividends) and sales of investments are as follows:
<TABLE>
<CAPTION>
Beginning End
FUND of Year Purchases Sales of Year
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond $6,490,167 $11,289,258 ($2,444,830) $15,334,595
Growth 4,895,677 7,029,074 (3,414,055) 8,510,696
Government Income 833,365 137,502 (970,867) --
Partners 11,515,832 13,300,529 (2,245,564) 22,570,797
Fred Alger Management, Inc.:
American Small Capitalization 10,791,047 8,512,969 (4,452,066) 14,851,950
American MidCap Growth 4,680,691 5,007,799 (1,829,911) 7,858,579
American Growth 8,426,205 12,330,367 (2,147,884) 18,608,688
American Leveraged AllCap 2,939,669 4,357,148 (2,003,646) 5,293,171
Fidelity Management & Research Co.:
Asset Manager 5,638,123 5,278,809 (1,415,438) 9,501,494
Growth 16,477,099 23,941,147 (13,572,364) 26,845,882
Overseas 12,237,937 23,905,882 (16,230,653) 19,913,166
Money Market 14,300,455 74,696,311 (70,584,514) 18,412,252
Index 500 32,789,297 45,050,855 (7,772,652) 70,067,500
INVESCO Funds Group, Inc.:
Total Return 2,812,500 5,585,718 (583,228) 7,814,990
Industrial Income 5,602,678 5,964,437 (1,403,809) 10,163,306
High Yield 4,793,052 10,924,985 (6,965,272) 8,752,765
Utilities 1,129,569 919,214 (321,354) 1,727,429
Small Company Growth -- 775,726 (101,145) 674,581
Van Eck Associates Corporation:
Worldwide Balanced 364,193 72,504 (436,697) --
Worldwide Hard Assets 959,451 1,175,104 (616,746) 1,517,809
Worldwide Bond -- 222,604 (20,751) 201,853
Worldwide Emerging Markets -- 771,909 (357,892) 414,017
Worldwide Real Estate -- 95,356 (19,046) 76,310
AIM Advisors, Inc.
Capital Appreciation -- 1,174,137 (88,926) 1,085,211
Government Securities -- 2,744,143 (183,288) 2,560,855
--------------- ------------ -------------- ------------
Total $147,677,007 $265,263,487 ($140,182,598) $272,757,896
=============== ============ ============== ============
</TABLE>
Aggregate proceeds from sales of investments for the year ended December 31,
1998 were $148,718,872.
- --------------------------------------------------------------------------------
Variable Survivorship 163
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE D. OTHER POLICY DEDUCTIONS
The FirstLine and Strategic Advantage products provide for certain deductions
for sales and tax loads from premium payments received from the policyholders
and for surrender charges and taxes from amounts paid to policyholders. Such
deductions are taken before the purchase of divisional units or after the
redemption of divisional units of the Separate Account. Such deductions are not
included in the Separate Account financial statements.
NOTE E. POLICY LOANS
The FirstLine and Strategic Advantage policies allow the policyholders to borrow
against their policies by using them as collateral for a loan. At the time of
borrowing against the policies, an amount equal to the loan amount is
transferred from the Separate Account divisions to a Loan Division in the
Company's General Account to secure the loan. As payments are made on the policy
loan, amounts are transferred back from the Loan Division to the Separate
Account divisions. Interest is credited to the balance in the Loan Division at a
fixed rate. The Loan Division is not variable in nature and is not included in
these Separate Account statements.
NOTE F. FEDERAL INCOME TAXES
The Separate Account is not taxed separately because the operations of the
Separate Account are part of the total operations of the Company. The Company is
taxed as a life insurance company under the Internal Revenue Code. The Separate
Account is not taxed as a "Regulated Investment Company" under subchapter "M" of
the Internal Revenue Code.
- --------------------------------------------------------------------------------
Variable Survivorship 164
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
(Decrease)
for
Outstanding Increase Withdrawals Outstanding
At Beginning for Payments and Other At End
Division of Year Received Deductions of Year
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 552,985.394 801,233.327 (108,659.600) 1,245,559.121
Growth 316,146.084 250,854.619 (119,514.327) 447,486.376
Government Income 75,811.559 58.537 (75,870.096) --
Partners 626,285.721 455,096.290 (95,083.993) 986,298.018
Fred Alger Management, Inc.:
American Small Capitalization 648,733.740 333,770.247 (143,811.569) 838,692.418
American MidCap Growth 288,809.482 167,037.228 (53,314.238) 402,532.472
American Growth 569,990.309 442,313.190 (88,607.433) 923,696.066
American Leveraged AllCap 148,542.639 102,168.282 (29,068.475) 221,642.446
Fidelity Management & Research Co.:
Asset Manager 410,906.106 270,972.780 (81,623.673) 600,255.213
Growth 983,842.388 614,542.294 (304,904.344) 1,293,480.338
Overseas 950,328.899 861,220.218 (381,889.210) 1,429,659.907
Money Market 1,303,059.881 5,059,561.984 (4,836,217.466) 1,526,404.399
Index 500 1,863,056.104 1,617,935.444 (265,001.029) 3,215,990.519
INVESCO Funds Group, Inc.:
Total Return 184,042.238 307,178.543 (40,663.565) 450,557.216
Industrial Income 297,553.033 216,644.366 (40,580.647) 473,616.752
High Yield 333,501.857 283,205.205 (129,848.414) 486,858.648
Utilities 78,118.685 41,701.114 (9,440.183) 110,379.616
Small Company Growth -- 71,535.065 (4,028.624) 67,506.441
Van Eck Associates Corporation:
Worldwide Balanced 32,139.282 190.627 (32,329.909) --
Worldwide Hard Assets 77,046.773 68,491.375 (13,024.324) 132,513.824
Worldwide Bond -- 18,882.425 (226.108) 18,656.317
Worldwide Emerging Markets -- 105,064.405 (37,710.110) 67,354.295
Worldwide Real Estate -- 9,848.072 (1,082.840) 8,765.232
AIM Advisors, Inc.:
Capital Appreciation -- 108,895.839 (3,437.972) 105,457.867
Government Securities -- 261,432.015 (15,281.953) 246,150.062
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 165
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
(Decrease)
for
Outstanding Increase Withdrawals Outstanding
At Beginning for Payments and Other At End
Division of Year Received Deductions of Year
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 218,725.891 334,572.082 (312.579) 552,985.394
Growth 133,567.983 187,433.957 (4,855.856) 316,146.084
Government Income 142,773.403 30,012.660 (96,974.504) 75,811.559
Partners 275,892.457 354,159.052 (3,765.788) 626,285.721
Fred Alger Management, Inc.:
American Small Capitalization 297,073.322 368,659.345 (16,998.927) 648,733.740
American MidCap Growth 150,480.473 143,410.236 (5,081.227) 288,809.482
American Growth 282,175.287 292,019.948 (4,204.926) 569,990.309
American Leveraged AllCap 53,044.470 96,743.489 (1,245.320) 148,542.639
Fidelity Management & Research Co.:
Asset Manager 123,908.168 294,115.342 (7,117.404) 410,906.106
Growth 470,285.667 522,440.765 (8,884.044) 983,842.388
Overseas 367,948.109 589,863.772 (7,482.982) 950,328.899
Money Market 753,707.969 6,017,484.702 (5,468,132.790) 1,303,059.881
Index 500 640,890.650 1,227,420.261 (5,254.807) 1,863,056.104
INVESCO Funds Group, Inc.:
Total Return 64,490.483 121,436.060 (1,884.305) 184,042.238
Industrial Income 87,035.356 212,619.908 (2,102.231) 297,553.033
High Yield 108,999.107 225,144.290 (641.540) 333,501.857
Utilities 18,008.490 63,007.328 (2,897.133) 78,118.685
Van Eck Associates Corporation:
Worldwide Balanced 29,808.787 5,838.562 (3,508.067) 32,139.282
Worldwide Hard Assets 21,966.093 55,323.208 (242.528) 77,046.773
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 166
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1996:
<TABLE>
<CAPTION>
(Decrease)
for
Outstanding Increase Withdrawals Outstanding
at Beginning or Payments and Other at End
Division of Year Received Deductions of Year
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 162,009.578 57,300.933 (584.620) 218,725.891
Growth 60,162.107 74,132.806 (726.930) 133,567.983
Government Income 77,187.706 65,930.987 (345.290) 142,773.403
Partners 73,535.288 203,456.199 (1,099.030) 275,892.457
Fred Alger Management, Inc.:
American Small Capitalization 80,027.266 218,770.486 (1,724.430) 297,073.322
American MidCap Growth 19,692.860 131,814.883 (1,027.270) 150,480.473
American Growth 69,805.233 214,057.614 (1,687.560) 282,175.287
American Leveraged AllCap 2,494.731 51,210.999 (661.260) 53,044.470
Fidelity Management & Research Co.:
Asset Manager 11,627.088 112,576.840 (295.760) 123,908.168
Growth 102,248.988 369,855.299 (1,818.620) 470,285.667
Overseas 93,906.733 275,584.696 (1,543.320) 367,948.109
Money Market 178,653.159 3,174,656.740 (2,599,601.930) 753,707.969
Index 500 91,903.027 551,031.963 (2,044.340) 640,890.650
INVESCO Funds Group, Inc.:
Total Return 12,602.664 52,659.359 (771.540) 64,490.483
Industrial Income 20,026.102 67,339.104 (329.850) 87,035.356
High Yield 45,708.358 63,646.889 (356.140) 108,999.107
Utilities 1,879.859 16,197.511 (68.880) 18,008.490
Van Eck Associates Corporation:
Worldwide Balanced 7,739.274 22,412.363 (342.850) 29,808.787
Worldwide Hard Assets 1,765.913 20,257.020 (56.840) 21,966.093
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 167
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE H. NET ASSETS
Net assets at December 31, 1998 consisted of the following:
<TABLE>
<CAPTION>
Accumulated Net
Accumulated Net Realized Unrealized
Investment Gains Gains
Principal Income (Losses) On (Losses) On
Division Transactions (Loss) Investments Investments Net Assets
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond $ 14,798,256 $ 554,555 $ (18,215) $ 243,753 $ 15,578,349
Growth 7,028,181 1,750,191 (267,675) 515,463 9,026,160
Government Income (197,709) 219,245 (21,536) - -
Partners 19,164,868 2,232,497 1,173,430 (107,553) 22,463,242
Fred Alger Management, Inc.:
American Small Capitalization 12,782,408 1,740,285 329,258 651,420 15,503,371
American MidCap Growth 6,729,922 570,025 558,634 1,361,626 9,220,207
American Growth 15,328,177 2,102,491 1,178,019 4,294,927 22,903,614
American Leveraged AllCap 4,597,430 102,339 593,403 1,508,157 6,801,329
Fidelity Management & Research Co.:
Asset Manager 8,511,070 928,642 61,784 735,783 10,237,279
Growth 21,880,758 2,745,144 2,220,029 6,054,211 32,900,142
Overseas 17,959,130 1,286,196 667,842 668,719 20,581,887
Money Market 16,762,206 1,650,046 - - 18,412,252
Index 500 63,645,284 1,521,424 4,900,792 16,086,869 86,154,369
INVESCO Funds Group, Inc.:
Total Return 7,241,724 359,909 213,358 290,337 8,105,328
Industrial Income 8,730,383 941,544 491,379 689,699 10,853,005
High Yield 7,183,287 1,366,993 202,483 (869,981) 7,882,782
Utilities 1,554,382 45,485 127,560 313,533 2,040,960
Small Company Growth 682,064 (586) (6,898) 74,098 748,678
Van Eck Associates Corporation:
Worldwide Balanced (94,857) 49,411 45,446 - -
Worldwide Hard Assets 1,509,491 144,822 (136,502) (444,056) 1,073,755
Worldwide Bond 201,935 (212) 130 3,954 205,807
Worldwide Emerging Markets 517,189 (1,736) (101,436) 47,139 461,156
Worldwide Real Estate 78,370 (225) (1,836) (28) 76,281
AIM Advisors, Inc.:
Capital Appreciation 1,064,475 24,052 (3,314) 119,223 1,204,436
Government Securities 2,493,145 59,796 7,914 34,862 2,595,717
------------ ----------- ----------- ----------- ------------
Total $240,151,569 $20,392,333 $12,214,049 $32,272,155 $305,030,106
============ =========== =========== =========== ============
</TABLE>
- --------------------------------------------------------------------------------
Variable Survivorship 168
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE I. YEAR 2000 (UNAUDITED)
The Company has initiated a program to prepare the Company's computer systems
and applications for the year 2000. This program includes all systems utilized
by the Company as well as the systems of other companies that interface with the
Company. The Company has completed an assessment and is in the process of
modifying portions of its software so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. Accordingly, the
Company does not expect the amounts required for this project to have a material
effect on its financial position.
The project is estimated to be completed no later than June 1999, which is prior
to any anticipated impact on its operating systems. The Company believes that
with modifications to existing software, and conversions to new software, the
Year 2000 will not pose significant operational problems for its computer
software systems. However, if such modifications and conversions are not made,
or are not completed in a timely manner, it could have a material impact on the
operations of the Company.
The Company has initiated formal communications and interface testing plans with
all of its suppliers and customers to determine the extent to which its
interface systems are vulnerable to those third parties' failure to have their
systems Year 2000 compatible and will act accordingly to prevent operational
disruptions.
- --------------------------------------------------------------------------------
Variable Survivorship 169
<PAGE>
APPENDIX A
FACTORS FOR THE
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age of Younger Factor Age of Younger Age of Younger Age of Younger
Insured Insured Factor Insured Factor Insured Factor
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
1 2.50 26 2.50 51 1.78 76 1.05
2 2.50 27 2.50 52 1.71 77 1.05
3 2.50 28 2.50 53 1.64 78 1.05
4 2.50 29 2.50 54 1.57 79 1.05
5 2.50 30 2.50 55 1.50 80 1.05
6 2.50 31 2.50 56 1.46 81 1.05
7 2.50 32 2.50 57 1.42 82 1.05
8 2.50 33 2.50 58 1.38 83 1.05
9 2.50 34 2.50 59 1.34 84 1.05
10 2.50 35 2.50 60 1.30 85 1.05
11 2.50 36 2.50 61 1.28 86 1.05
12 2.50 37 2.50 62 1.26 87 1.05
13 2.50 38 2.50 63 1.24 88 1.05
14 2.50 39 2.50 64 1.22 89 1.05
15 2.50 40 2.50 65 1.20 90 1.05
16 2.50 41 2.43 66 1.19 91 1.04
17 2.50 42 2.36 67 1.18 92 1.03
18 2.50 43 2.29 68 1.17 93 1.02
19 2.50 44 2.22 69 1.16 94 1.01
20 2.50 45 2.15 70 1.15 95 1.00
21 2.50 46 2.09 71 1.13 96 1.00
22 2.50 47 2.03 72 1.11 97 1.00
23 2.50 48 1.97 73 1.09 98 1.00
24 2.50 49 1.91 74 1.07 99 1.00
100 1.00
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Variable Survivorship 170
<PAGE>
APPENDIX B
ENHANCED DEATH BENEFIT CORRIDOR
FACTORS FOR THE
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age of Younger Factor Age of Younger Age of Younger Age of Younger
Insured Insured Factor Insured Factor Insured Factor
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
1 2.50 26 2.50 51 1.78 76 1.05
2 2.50 27 2.50 52 1.71 77 1.05
3 2.50 28 2.50 53 1.64 78 1.05
4 2.50 29 2.50 54 1.57 79 1.09
5 2.50 30 2.50 55 1.50 80 1.14
6 2.50 31 2.50 56 1.46 81 1.18
7 2.50 32 2.50 57 1.42 82 1.22
8 2.50 33 2.50 58 1.38 83 1.26
9 2.50 34 2.50 59 1.34 84 1.31
10 2.50 35 2.50 60 1.30 85 1.35
11 2.50 36 2.50 61 1.28 86 1.33
12 2.50 37 2.50 62 1.26 87 1.31
13 2.50 38 2.50 63 1.24 88 1.29
14 2.50 39 2.50 64 1.22 89 1.27
15 2.50 40 2.50 65 1.20 90 1.26
16 2.50 41 2.43 66 1.19 91 1.24
17 2.50 42 2.36 67 1.18 92 1.22
18 2.50 43 2.29 68 1.17 93 1.19
19 2.50 44 2.22 69 1.16 94 1.16
20 2.50 45 2.15 70 1.15 95 1.12
21 2.50 46 2.09 71 1.13 96 1.11
22 2.50 47 2.03 72 1.11 97 1.09
23 2.50 48 1.97 73 1.09 98 1.06
24 2.50 49 1.91 74 1.07 99 1.03
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.
- --------------------------------------------------------------------------------
Variable Survivorship 171
<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 net portfolio's management fees after
any voluntary waiver 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 $13,000 annual premium, paid at
the beginning of each year, for a hypothetical policy with a $1,000,000 face
amount, the guideline premium test, death benefit option 1, issued to a
preferred, non-smoker male, age 50 and a preferred, non-smoker female, age 50.
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 51. This prospectus also contains
illustrations based on assumed rates of return. SEE ILLUSTRATIONS OF DEATH
BENEFITS, ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 61.
- --------------------------------------------------------------------------------
Variable Survivorship 172
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 2.50% 2,151 11,036 1,000,000
12/31/95 35.69% 20,673 29,559 1,000,000
12/31/96 17.58% 38,171 47,056 1,000,000
12/31/97 13.51% 56,208 65,093 1,000,000
12/31/98 19.30% 80,917 89,802 1,000,000
AIM V.I. GOVERNMENT SECURITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 (3.73)% 1,450 10,335 1,000,000
12/31/95 15.56% 15,397 24,282 1,000,000
12/31/96 2.29% 26,616 35,501 1,000,000
12/31/97 8.16% 40,703 49,589 1,000,000
12/31/98 7.66% 55,522 64,407 1,000,000
ALGER AMERICAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 4.14% 2,336 11,221 1,000,000
12/31/91 40.39% 21,976 30,861 1,000,000
12/31/92 12.38% 37,516 46,401 1,000,000
12/31/93 22.47% 60,600 69,485 1,000,000
12/31/94 1.45% 71,811 80,696 1,000,000
12/31/95 36.37% 117,130 124,238 1,000,000
12/31/96 13.35% 146,812 152,143 1,000,000
12/31/97 25.75% 200,125 203,679 1,000,000
12/31/98 48.07% 313,916 315,693 1,000,000
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 12.04% 3,226 12,111 1,000,000
12/31/97 19.68% 18,394 27,279 1,000,000
12/31/98 57.83% 50,930 59,815 1,000,000
The assumptions underlying these values are described in Performance
Information, page 172.
* 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.
- --------------------------------------------------------------------------------
Variable Survivorship 173
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 (1.54)% 1,696 10,581 1,000,000
12/31/95 44.45% 21,969 30,854 1,000,000
12/31/96 11.90% 37,307 46,192 1,000,000
12/31/97 15.01% 56,090 64,976 1,000,000
12/31/98 30.30% 89,105 97,990 1,000,000
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 64.48% 9,158 18,043 1,000,000
12/31/90 8.71% 22,242 31,127 1,000,000
12/31/91 57.54% 56,838 65,723 1,000,000
12/31/92 3.55% 69,632 78,518 1,000,000
12/31/93 13.28% 91,451 100,336 1,000,000
12/31/94 (4.38)% 98,461 105,569 1,000,000
12/31/95 44.31% 161,802 167,133 1,000,000
12/31/96 4.18% 180,581 184,135 1,000,000
12/31/97 11.39% 213,927 215,704 1,000,000
12/31/98 15.53% 259,929 259,929 1,000,000
FIDELITY VIP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 31.51% 5,425 14,310 1,000,000
12/31/90 (11.73)% 13,018 21,903 1,000,000
12/31/91 45.51% 38,443 47,328 1,000,000
12/31/92 9.32% 54,078 62,963 1,000,000
12/31/93 19.37% 78,445 87,331 1,000,000
12/31/94 (0.02)% 90,393 97,501 1,000,000
12/31/95 35.36% 140,552 145,883 1,000,000
12/31/96 14.71% 175,056 178,611 1,000,000
12/31/97 23.48% 230,639 232,416 1,000,000
12/31/98 39.49% 337,128 337,128 1,000,000
The assumptions underlying these values are described in Performance
Information, page 172.
* 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.
- --------------------------------------------------------------------------------
Variable Survivorship 174
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
FIDELITY VIP MONEY MARKET PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
12/31/89 9.12% 2,897 11,782 1,000,000
12/31/90 8.04% 15,332 24,218 1,000,000
12/31/91 6.09% 27,888 36,774 1,000,000
12/31/92 3.90% 40,039 48,924 1,000,000
12/31/93 3.23% 52,166 61,051 1,000,000
12/31/94 4.25% 67,385 74,493 1,000,000
12/31/95 5.87% 84,445 89,776 1,000,000
12/31/96 5.41% 101,807 105,361 1,000,000
12/31/97 5.51% 119,987 121,764 1,000,000
12/31/98 5.46% 138,853 138,853 1,000,000
FIDELITY VIP OVERSEAS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 26.28% 4,834 13,719 1,000,000
12/31/90 (1.67)% 14,997 23,883 1,000,000
12/31/91 8.00% 28,202 37,087 1,000,000
12/31/92 (10.72)% 33,350 42,235 1,000,000
12/31/93 37.35% 63,435 72,320 1,000,000
12/31/94 1.72% 76,942 84,050 1,000,000
12/31/95 9.74% 98,161 103,493 1,000,000
12/31/96 13.15% 124,999 128,553 1,000,000
12/31/97 11.56% 152,694 154,471 1,000,000
12/31/98 12.75% 185,110 185,110 1,000,000
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
12/31/90 6.72% 2,626 11,512 1,000,000
12/31/91 22.56% 18,334 27,219 1,000,000
12/31/92 11.71% 33,197 42,082 1,000,000
12/31/93 21.23% 54,692 63,577 1,000,000
12/31/94 (6.09)% 60,262 69,147 1,000,000
12/31/95 16.96% 85,943 93,051 1,000,000
12/31/96 14.60% 113,014 118,345 1,000,000
12/31/97 20.65% 151,354 154,908 1,000,000
12/31/98 15.05% 187,651 189,428 1,000,000
The assumptions underlying these values are described in Performance
Information, page 172.
* 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.
- --------------------------------------------------------------------------------
Variable Survivorship 175
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
FIDELITY VIP II INDEX 500 PORTFOLIO
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
12/31/93 9.74% 2,967 11,852 1,000,000
12/31/94 1.04% 13,798 22,683 1,000,000
12/31/95 37.19% 36,761 45,646 1,000,000
12/31/96 22.82% 59,880 68,765 1,000,000
12/31/97 32.82% 96,010 104,895 1,000,000
12/31/98 28.31% 140,573 147,682 1,000,000
INVESCO VIF-EQUITY INCOME FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 29.25% 5,169 14,054 1,000,000
12/31/96 22.28% 21,357 30,243 1,000,000
12/31/97 28.17% 43,336 52,221 1,000,000
12/31/98 15.30% 63,157 72,042 1,000,000
INVESCO VIF-HIGH YIELD FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 19.76% 4,097 12,982 1,000,000
12/31/96 16.59% 18,683 27,568 1,000,000
12/31/97 17.33% 35,751 44,636 1,000,000
12/31/98 1.42% 46,773 55,659 1,000,000
INVESCO VIF-SMALL COMPANY GROWTH FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/98 16.38% 3,716 12,601 1,000,000
INVESCO VIF-TOTAL RETURN FUND
Year Annual Total Cash Surrender Account Benefit
Ended Return * Value Value Death
12/31/95 22.79% 4,439 13,325 1,000,000
12/31/96 12.18% 17,999 26,885 1,000,000
12/31/97 22.91% 37,070 45,955 1,000,000
12/31/98 9.56% 52,724 61,609 1,000,000
The assumptions underlying these values are described in Performance
Information, page 172.
* 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.
- --------------------------------------------------------------------------------
Variable Survivorship 176
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
INVESCO VIF-UTILITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 9.08% 2,892 11,778 1,000,000
12/31/96 12.76% 16,410 25,295 1,000,000
12/31/97 23.41% 35,312 44,197 1,000,000
12/31/98 25.48% 59,578 68,463 1,000,000
NEUBERGER BERMAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 29.47% 5,194 14,079 1,000,000
12/31/90 (8.19)% 13,707 22,592 1,000,000
12/31/91 29.73% 34,127 43,012 1,000,000
12/31/92 9.54% 49,512 58,397 1,000,000
12/31/93 6.79% 64,336 73,221 1,000,000
12/31/94 (4.99)% 72,208 79,316 1,000,000
12/31/95 31.73% 112,839 118,170 1,000,000
12/31/96 9.14% 136,324 139,878 1,000,000
12/31/97 29.01% 191,467 193,244 1,000,000
12/31/98 15.53% 234,166 234,166 1,000,000
NEUBERGER BERMAN LIMITED MATURITY BOND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/89 10.77% 3,083 11,968 1,000,000
12/31/90 8.32% 15,597 24,482 1,000,000
12/31/91 11.34% 30,030 38,915 1,000,000
12/31/92 5.18% 42,885 51,771 1,000,000
12/31/93 6.63% 57,210 66,095 1,000,000
12/31/94 (0.15)% 69,215 76,323 1,000,000
12/31/95 10.94% 90,790 96,121 1,000,000
12/31/96 4.31% 107,272 110,826 1,000,000
12/31/97 6.74% 127,206 128,983 1,000,000
12/31/98 4.39% 144,919 144,919 1,000,000
NEUBERGER BERMAN PARTNERS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 36.47% 5,985 14,871 1,000,000
12/31/96 29.57% 24,245 33,130 1,000,000
12/31/97 31.25% 48,369 57,254 1,000,000
12/31/98 4.21% 61,375 70,260 1,000,000
The assumptions underlying these values are described in Performance
Information, page 172.
* 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.
- --------------------------------------------------------------------------------
Variable Survivorship 177
<PAGE>
HYPOTHETICAL ILLUSTRATION (Continued)
Non-smoker Male Age 50 Preferred Risk Class
Non-smoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
VAN ECK WORLDWIDE BOND FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 11.25% 3,137 12,022 1,000,000
12/31/91 18.39% 17,989 26,874 1,000,000
12/31/92 (5.25)% 26,394 35,279 1,000,000
12/31/93 7.79% 40,294 49,180 1,000,000
12/31/94 (1.32)% 49,699 58,584 1,000,000
12/31/95 17.30% 73,915 81,023 1,000,000
12/31/96 2.53% 88,240 93,571 1,000,000
12/31/97 2.38% 102,617 106,172 1,000,000
12/31/98 12.75% 129,295 131,072 1,000,000
VAN ECK WORLDWIDE EMERGING MARKETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 26.82% 4,895 13,780 1,000,000
12/31/97 (11.61)% 12,583 21,469 1,000,000
12/31/98 (34.15)% 11,937 20,822 1,000,000
VAN ECK WORLDWIDE HARD ASSETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/91 (2.93)% 1,540 10,425 1,000,000
12/31/92 (4.09)% 11,260 20,146 1,000,000
12/31/93 64.83% 41,942 50,827 1,000,000
12/31/94 (4.78)% 49,187 58,072 1,000,000
12/31/95 10.99% 66,881 75,766 1,000,000
12/31/96 18.04% 94,565 101,674 1,000,000
12/31/97 (1.67)% 104,541 109,872 1,000,000
12/31/98 (30.93)% 79,064 82,618 1,000,000
VAN ECK WORLDWIDE REAL ESTATE FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/98 (11.35)% 593 9,478 1,000,000
The assumptions underlying these values are described in Performance
Information, page 172.
*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.
- --------------------------------------------------------------------------------
Variable Survivorship 178
