<PAGE>
As filed with the Securities and Exchange Commission on January 22, 1999
Registration No. 33-74190
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Post-Effective Amendment No. 8
_________________
SECURITY LIFE SEPARATE ACCOUNT L1
(Exact Name of Trust)
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Name of Depositor)
1290 Broadway
Denver, Colorado 80203-5699
(Address of Depositor's Principal Executive Offices)
Copy to:
GARY W. WAGGONER, ESQ. KIMBERLY J. SMITH, ESQ.
Security Life of Denver Insurance Company Sutherland Asbill & Brennan LLP
1290 Broadway 1275 Pennsylvania Avenue, NW
Denver, Colorado 80203-5699 Washington, D.C. 20004-2415
(202) 383-0314
(Name and Address of Agent for Service)
____________________________
It is proposed that this filing will become effective:
X on April 15, 1999 pursuant to paragraph (a) of Rule 485
_ 60 days after filing pursuant to paragraph (a) of Rule 485
_ on May 1, 1999 pursuant to paragraph (b) of Rule 485
_ immediately upon filing pursuant to paragraph (b) of Rule 485
_ this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of securities being registered: Variable life insurance policies.
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 33-74190)
Cross-Reference Table
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
1, 2 Cover; Security Life of Denver Insurance Company;
Security Life Separate Account L1
3 Inapplicable
4 Security Life of Denver Insurance Company
5, 6 Security Life Separate Account L1
7 Inapplicable
8 Financial Statements
9 Inapplicable
10(a), (b), (c), (d), (e)Policy Summary; Policy Values, Determining the
Value in the Variable Divisions; Charges,
Deductions and Refunds;
Surrender; Partial Withdrawals; The Guaranteed
Interest Division; Transfers of Account Value;
Right to Exchange Policy; Lapse; Reinstatement;
Premiums
10(f) Voting Privileges; Right to Change Operations
10(g), (h) Right to Change Operations
10(i) Tax Considerations; Detailed Information about the
FirstLine II Variable Universal Life Policy;
Other General Policy Provisions; The Guaranteed
Interest Division
11, 12 Security Life Separate Account L1
13 Policy Summary; Charges, Deductions and Refunds;
Group or Sponsored Arrangements or Corporate
Purchasers
ii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
14, 15 Policy Summary; Free Look Period or Right to
Examine Policy; Other General Policy
Provisions; Applying for a Policy
16 Premiums; Allocation of Net Premiums; How We
Calculate Accumulation Unit Values for Each
Division
17 Payment; Surrender; Partial Withdrawal
18 Policy Summary; Tax Considerations; Detailed
Information about the FirstLine II Variable
Universal Life Policy; Security Life Separate
Account L1; Persistency Refund
19 Reports to Policy Owners; Notification and
Claims Procedures; Performance Information
(Appendix C)
20 See 10(g) & 10(a)
21 Policy Loans
22 Policy Summary; Premiums; Grace Period; Security
Life Separate Account L1; Detailed Information
about the FirstLine II Variable Universal
Life Policy
23 Inapplicable
24 Inapplicable
25 Security Life of Denver Insurance Company
26 Inapplicable
27, 28, 29, 30 Security Life of Denver Insurance Company
31, 32, 33, 34 Inapplicable
35 Inapplicable
36 Inapplicable
iii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
37 Inapplicable
38, 39, 40, 41(a) General Policy Provisions; Distribution of
the Policies; Security Life of Denver Insurance
Company
41(b), 41(c), 42, 43 Inapplicable
44 Determining the Value in the Variable Divisions;
How We Calculate Accumulation Unit Values
for Each Division
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the FirstLine II Variable Universal Life
Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the FirstLine II
Variable Universal Life Policy
52 Determining the Value in the Variable Divisions;
Right to Change Operations
53(a) Tax Considerations
53(b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
iv
<PAGE>
Prospectus
FIRSTLINE II VARIABLE 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 42 in this prospectus.
You should read this prospectus and keep it for future reference. A
prospectus for each underlying fund 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(s) with this policy may not be
beneficial to you.
Your Policy
* is a flexible premium variable universal life insurance policy;
* is issued by Security Life of Denver Insurance Company; and
* is returnable by you during the free look period if you are not
satisfied.
Your Policy Premium Payments
* are flexible, so the premium amount and frequency may vary;
* are divided between variable investment divisions and the guaranteed
interest division, based on your instructions;
* are invested into shares of the underlying investment portfolios
under each division; and
* can be invested in up to eighteen investment options over the
policy's lifetime.
Your Account Value
* is the sum of your holdings in the variable divisions, the
guaranteed
interest division and the loan division;
* has no guaranteed minimum cash value under the variable divisions.
The value varies with the value of the matching mutual fund
portfolio;
* has a minimum guaranteed rate of return if you have amounts in the
guaranteed interest division; and
* is subject to various expenses and charges, including possible
surrender charges;
Death Proceeds
* are paid if your policy is still in force when the insured person
dies;
* are equal to the death benefit minus outstanding policy loans,
accrued loan interest and unpaid charges incurred before the insured
person dies;
* 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
* 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.
May 1, 1999
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
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
1290 Broadway
Denver, CO 80203-5699
(800) 848-6362
</TABLE>
2
<PAGE>
TABLE OF CONTENTS
POLICY SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Your Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Free Look Period or Right to Examine Policy . . . . . . . . . . . . . 8
Your Policy Premiums . . . . . . . . . . . . . . . . . . . . . . . . . 8
Allocation of Net Premiums . . . . . . . . . . . . . . . . . . . 8
Variable Divisions . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Policy Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Your Account Value in Variable Divisions. . . . . . . . . . . . . 9
Transfers of Account Values. . . . . . . . . . . . . . . . . . . . . . 9
Special Policy Features . . . . . . . . . . . . . . . . . . . . . . . 10
Additional Benefits . . . . . . . . . . . . . . . . . . . . . . . 10
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . 10
Automatic Rebalancing . . . . . . . . . . . . . . . . . . . . . . 10
Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Partial Withdrawals . . . . . . . . . . . . . . . . . . . . . . . 10
Persistency Refund . . . . . . . . . . . . . . . . . . . . . . . 10
Policy Modification, Termination and Continuation Features . . . . . . 10
Free Look Period or Right to Examine Policy . . . . . . . . . . 10
Right to Exchange Policy . . . . . . . . . . . . . . . . . . . . 10
Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Lapse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . 10
Continuation of Coverage . . . . . . . . . . . . . . . . . . . . 11
Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Charges and Deductions . . . . . . . . . . . . . . . . . . . . . . . 11
Deductions From Premium . . . . . . . . . . . . . . . . . . . . 11
Deductions From The Variable Divisions . . . . . . . . . . . . . 11
Monthly Deductions From Your Account Value . . . . . . . . . . . 11
Policy Transaction Fees . . . . . . . . . . . . . . . . . . . . . 12
Surrender Charges . . . . . . . . . . . . . . . . . . . . . . . 12
Charges from Portfolios . . . . . . . . . . . . . . . . . . . . 12
Tax Considerations . . . . . . . . . . . . . . . . . . . . . . . . . 12
INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS
AND THE GUARANTEED INTEREST DIVISION . . . . . . . . . . . . . . . . 12
Security Life of Denver Insurance Company . . . . . . . . . . . . . . 12
Year 2000 Preparedness . . . . . . . . . . . . . . . . . . . . . . . . 13
Security Life Separate Account L1 . . . . . . . . . . . . . . . . . 13
Variable Account Structure . . . . . . . . . . . . . . . . . . . 13
Order of Variable Account Liabilities . . . . . . . . . . . . . . 13
Variable Divisions . . . . . . . . . . . . . . . . . . . . . . . 13
Investment Portfolios . . . . . . . . . . . . . . . . . . . . . . 13
Objectives of the Investment Portfolios . . . . . . . . . . . . . . . 14
The Guaranteed Interest Division . . . . . . . . . . . . . . . . . . 17
Maximum Number of Investment Options . . . . . . . . . . . . . . . . 18
DETAILED INFORMATION ABOUT THE FIRSTLINE II VARIABLE UNIVERSAL LIFE POLICY. 18
Applying for a Policy . . . . . . . . . . . . . . . . . . . . . . . . 18
Choice of Definitional Tests of Life Insurance. . . . . . . . . . 18
Temporary Insurance . . . . . . . . . . . . . . . . . . . . . . . . . 18
Premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Scheduled Premiums . . . . . . . . . . . . . . . . . . . . . . . 19
Unscheduled Premium Payments. . . . . . . . . . . . . . . . . . . 19
Minimum Annual Premium. . . . . . . . . . . . . . . . . . . . . . 19
Special Continuation Period . . . . . . . . . . . . . . . . . . . 20
3
<PAGE>
Allocation of Net Premiums. . . . . . . . . . . . . . . . . . . . 20
Premium Payments Affect Your Coverage . . . . . . . . . . . . . . . . 20
Guaranteed Minimum Death Benefit Provision. . . . . . . . . . . . 20
Modified Endowment Contracts. . . . . . . . . . . . . . . . . . . 21
Death Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Base Death Benefit. . . . . . . . . . . . . . . . . . . . . . . . 21
Death Benefit Options . . . . . . . . . . . . . . . . . . . . . . 21
Changes in Death Benefit Option . . . . . . . . . . . . . . . . . 22
Changes in Death Benefit Amounts. . . . . . . . . . . . . . . . . 22
Guaranteed Minimum Death Benefit. . . . . . . . . . . . . . . . . 23
Requirements to Maintain the Guarantee Period . . . . . . . . . . 24
Additional Benefits . . . . . . . . . . . . . . . . . . . . . . . . . 24
Adjustable Term Insurance Rider . . . . . . . . . . . . . . . . . 25
Additional Insured Rider. . . . . . . . . . . . . . . . . . . . . 26
Right to Change Insured Rider . . . . . . . . . . . . . . . . . . 26
Waiver of Cost of Insurance Rider . . . . . . . . . . . . . . . . 26
Waiver of Specified Premium Rider . . . . . . . . . . . . . . . . 26
Benefits at Maturity . . . . . . . . . . . . . . . . . . . . . . . . . 26
Continuation of Coverage. . . . . . . . . . . . . . . . . . . . . 26
Policy Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Account Value . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Cash Surrender Value. . . . . . . . . . . . . . . . . . . . . . . 27
Net Cash Surrender Value. . . . . . . . . . . . . . . . . . . . . 27
Net Account Value . . . . . . . . . . . . . . . . . . . . . . . . 27
Determining the Value in the Variable Divisions . . . . . . . . . 27
How We Calculate Accumulation Unit Values for Each Division . . . 28
Transfers of Account Value . . . . . . . . . . . . . . . . . . . . . . 28
Excessive Trading . . . . . . . . . . . . . . . . . . . . . . . . 28
Guaranteed Interest Division Transfers. . . . . . . . . . . . . . 29
Dollar Cost Averaging . . . . . . . . . . . . . . . . . . . . . . . . 29
Changing Dollar Cost Averaging. . . . . . . . . . . . . . . . . . 29
Terminating Dollar Cost Averaging . . . . . . . . . . . . . . . . 30
Automatic Rebalancing . . . . . . . . . . . . . . . . . . . . . . . . 30
Changing Automatic Rebalancing. . . . . . . . . . . . . . . . . . 30
Terminating Automatic Rebalancing . . . . . . . . . . . . . . . . 30
Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Loan Repayment . . . . . . . . . . . . . . . . . . . . . . . . . 31
Loans May Affect Your Benefits. . . . . . . . . . . . . . . . . . 31
Partial Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . 32
Partial Withdrawals Under Death Benefit Option 1. . . . . . . . . 32
Partial Withdrawals Under Death Benefit Option 2. . . . . . . . . 32
Stated Death Benefit and Target Death Benefit Reductions. . . . . 32
Partial Withdrawal Mechanics. . . . . . . . . . . . . . . . . . . 32
Right to Exchange Policy . . . . . . . . . . . . . . . . . . . . . . . 32
Lapse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Grace Period . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Surrender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
General Policy Provisions . . . . . . . . . . . . . . . . . . . . . . 36
Free Look Period or Right to Examine Policy . . . . . . . . . . . 36
Your Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Beneficiary . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Collateral Assignment . . . . . . . . . . . . . . . . . . . . . . 37
Incontestability . . . . . . . . . . . . . . . . . . . . . . . . 37
Misstatements of Age or Gender. . . . . . . . . . . . . . . . . . 37
Suicide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
4
<PAGE>
Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notification and Claims Procedures. . . . . . . . . . . . . . . . 38
Telephone Privileges. . . . . . . . . . . . . . . . . . . . . . . 38
Non-participating . . . . . . . . . . . . . . . . . . . . . . . . 39
Distribution of the Policies. . . . . . . . . . . . . . . . . . . 39
Settlement Provisions . . . . . . . . . . . . . . . . . . . . . . 39
Administrative Information About The Policy . . . . . . . . . . . . . 40
Voting Privileges . . . . . . . . . . . . . . . . . . . . . . . . 40
Material Conflicts . . . . . . . . . . . . . . . . . . . . . . . 41
Right to Change Operations. . . . . . . . . . . . . . . . . . . . 41
Reports to Owners . . . . . . . . . . . . . . . . . . . . . . . . 42
CHARGES, DEDUCTIONS AND REFUNDS . . . . . . . . . . . . . . . . . . . . . . 42
Deductions from Premiums . . . . . . . . . . . . . . . . . . . . . . . 42
Tax Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Sales Charge . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Daily Deductions from the Variable Account . . . . . . . . . . . . . . 43
Mortality and Expense Risk Charge . . . . . . . . . . . . . . . . 43
Monthly Deductions from Your Account Value . . . . . . . . . . . . . . 43
Initial Policy Charge . . . . . . . . . . . . . . . . . . . . . . 43
Monthly Administrative Charge . . . . . . . . . . . . . . . . . . 43
Cost of Insurance Charge. . . . . . . . . . . . . . . . . . . . . 44
Guaranteed Issue . . . . . . . . . . . . . . . . . . . . . . . . 44
Charges for Additional Benefits . . . . . . . . . . . . . . . . . 44
Changes in Monthly Charges. . . . . . . . . . . . . . . . . . . . 44
Policy Transaction Fees . . . . . . . . . . . . . . . . . . . . . . . 45
Partial Withdrawal . . . . . . . . . . . . . . . . . . . . . . . 45
Transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Illustrations . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Continuation of Coverage Administrative Fee . . . . . . . . . . . 45
Persistency Refund . . . . . . . . . . . . . . . . . . . . . . . . . 45
Surrender Charge . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Administrative Surrender Charge . . . . . . . . . . . . . . . . . 46
Sales Surrender Charge. . . . . . . . . . . . . . . . . . . . . . 47
Calculation of Surrender Charge . . . . . . . . . . . . . . . . . 47
Fees and Expenses of the Portfolios . . . . . . . . . . . . . . . . . 48
Portfolio Annual Expenses . . . . . . . . . . . . . . . . . . . . 49
Group or Sponsored Arrangements or Corporate Purchasers . . . . . . . 51
Other Charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Tax Status of the Policy . . . . . . . . . . . . . . . . . . . . . . . 51
Diversification Requirements . . . . . . . . . . . . . . . . . . . . . 51
Modified Endowment Contracts . . . . . . . . . . . . . . . . . . . . . 52
Distributions Other Than Death Benefits from Modified
Endowment Contracts . . . . . . . . . . . . . . . . . . . . . . . 52
Distributions Other Than Death Benefits from Policies
that are not Modified Endowment Contracts . . . . . . . . . . . . 53
Investment in the Policy . . . . . . . . . . . . . . . . . . . . . . . 53
Policy Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Multiple Policies . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Tax Treatment of Policy Benefits . . . . . . . . . . . . . . . . . . . 53
Alternative Minimum Tax . . . . . . . . . . . . . . . . . . . . . . . 53
Section 1035 Exchanges . . . . . . . . . . . . . . . . . . . . . . . . 53
Tax-exempt Policy Owners. . . . . . . . . . . . . . . . . . . . . . . 53
Changes to Comply with the Law . . . . . . . . . . . . . . . . . . . . 54
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Possible Tax Law Changes . . . . . . . . . . . . . . . . . . . . . . . 55
Our Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Withholding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
5
<PAGE>
ILLUSTRATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . 58
State Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . 61
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
APPENDIX A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
APPENDIX B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
APPENDIX C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
6
<PAGE>
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Accumulation unit . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Accumulation unit value . . . . . . . . . . . . . . . . . . . . . . . 27
Adjustable term insurance rider . . . . . . . . . . . . . . . . . . . 21
Age . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Base death benefit. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Beneficiary(ies). . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Cash surrender value. . . . . . . . . . . . . . . . . . . . . . . . . 9
Customer service center . . . . . . . . . . . . . . . . . . . . . . . ii
Continuation of coverage. . . . . . . . . . . . . . . . . . . . . . . 26
Death proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Variable Division(s) . . . . . . . . . . . . . . . . . . . . . . . . 14
Free look period. . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 36
General account . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Guarantee period. . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Guarantee period annual premium . . . . . . . . . . . . . . . . . . . 21
Guaranteed interest division. . . . . . . . . . . . . . . . . . . . . 17
Guaranteed minimum death benefit. . . . . . . . . . . . . . . . . . . 23
Initial premium. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Insured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Investment date . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Loan division . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Minimum annual premium . . . . . . . . . . . . . . . . . . . . . . . 19
Net account value . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Net amount at risk. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Net cash surrender value. . . . . . . . . . . . . . . . . . . . . . . 9
Net premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 20
Owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 37
Partial withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . 20
Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 13
Policy date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Policy loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Portfolios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 13
Rider . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Scheduled premium . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Segment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Special continuation period . . . . . . . . . . . . . . . . . . . . . 20
Stated death benefit. . . . . . . . . . . . . . . . . . . . . . . . . 18
Surrender charge. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Target death benefit. . . . . . . . . . . . . . . . . . . . . . . . . 25
Target premium . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Transaction date. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Valuation date. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Valuation period. . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 28
Variable account. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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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 person's lifetime.
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 insured person. The
policy includes the basic policy, any applications, and any riders or
endorsements. As long as the policy remains in force, we pay a death benefit
if the insured person dies. While your policy is in force, you may access
your policy value by taking loans or partial withdrawals. You may also
surrender your value for its net cash value. When the insured person is age
100, the policy can be surrendered or continued under the continuation of
coverage option. See Continuation of Coverage, page 26.
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
You have the right to examine your policy and return it for a refund of
premiums paid or 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, page 49.
Your Policy Premiums
The policy is a flexible premium policy because the amount and frequency of
the payments you make (premiums) may vary, within limits. You must make
premium payments:
* necessary to keep your policy in force;
* necessary to continue certain benefits; and
* for us to issue your policy.
You choose on your application how much and how often you want to pay your
premiums. Depending on your choices, it may not be enough to keep the
guaranteed minimum death benefit or to keep your policy in force. The amount
of premium you pay affects the length of time your policy stays in force. See
Premiums, page 19.
Allocation of Net Premiums
This policy has premium-based charges which are subtracted from your payments.
The balance, or the net premium, is added 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 over the life of your policy.
We allocate your initial net premium after we:
* receive your initial premium; and
* issue your policy.
You need to divide your investment choices so that the percentages are in
whole numbers equaling 100%. See Allocation of Net Premiums, page 20.
Variable Divisions
Keep in mind that any amount you direct into the guaranteed interest division
earns a minimum fixed interest rate set by us. But if you invest in any of
the following investment portfolios, depending on market conditions, you may
make or lose money. The underlying investment portfolios for the variable
divisions are described in their separate prospectuses. See Investment
Objective of the Portfolios, page 14.
Each investment portfolio has its own investment objective.
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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-High Yield Fund
INVESCO VIF-Industrial Income Fund
INVESCO VIF-Small Company Growth Fund
INVESCO VIF-Total Return Fund
INVESCO VIF-Utilities Fund
Neuberger Berman Advisers Management Trust
AMT Growth Portfolio
AMT Limited Maturity Bond Portfolio
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
See Investment Objectives of the Portfolio, page 14.
Security Life of Denver Guaranteed Interest Division
Policy Values
Your policy account value is the amount you have in the guaranteed interest
division and the amount you have in the variable divisions. 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 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:
* net premiums;
* deductions for charges;
* the investment performance of the amounts you have in the variable
divisions;
* interest earned on amounts you have in the guaranteed interest division;
and
* interest earned and charged on amounts you have in the loan division.
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 trigger a surrender charge.
We deduct a surrender charge from your account value in the event of:
* surrender;
* policy lapse;
* requested reductions in the stated death benefit; or
* certain partial withdrawals.
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 any
outstanding policy loans and the accrued loan interest.
Your Account Value in Variable Divisions
Accumulation units are the way we measure value in the variable divisions.
Accumulation unit value is the value of a unit by of a variable division on
the valuation date. Each variable division has a different accumulation
unit value. See Determining the Value of the Variable Divisions, page 27.
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 charged under the
policy, and the expenses of the investment portfolios. See How We Calculate
Accumulation Unit Values for Each Division, page 28.
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Transfers of Account Values
After the free look period, 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 Values, page 28.
Special Policy Features
Additional Benefits
You may attach additional benefits to your policy by rider. A rider adds
benefits to your policy. We deduct a monthly charge from your account value
for these benefits. See Additional Benefits, page 25.
Dollar Cost Averaging
You may choose to have dollar cost averaging on your policy. 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 29.
Automatic Rebalancing
You may choose to have automatic rebalancing on your policy. Automatic
rebalancing periodically reallocates your net account value among the
investment divisions to maintain your specified percentages. Automatic
rebalancing is free. See Automatic Rebalancing, page 30.
Loans
You may take loans against your policy's cash surrender value. The cash
surrender value is your account value minus any surrender charges. We charge
an annual loan interest rate of 4.75%. We credit a guaranteed annual interest
rate of 4.0% on amounts held in the loan division. See Policy Loans, page 31.
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. Surrender charges may
apply. See Partial Withdrawals, page 32.
Persistency Refund
After your tenth policy anniversary, we credit your account value with a
persistency refund on every monthly processing date. See Persistency Refund,
page 45.
Policy Modification, Termination and Continuation Features
Free Look Period or Right to Examine Policy
You have the right to examine your policy and return it for a refund if you
are not satisfied for any reason during the free look period. See Free Look
Period or Right to Examine Policy, page 36.
Right to Exchange Policy
For 24 months after the policy date you can exchange your policy to a
guaranteed policy, unless state law requires differently. See Right to
Exchange Policy, page 33.
Surrender
You may surrender your policy for its net cash surrender value at any time
while the 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 that date. See Surrender, page 36.
Lapse
In general, insurance coverage continues as long as your policy's net cash
surrender value is enough to pay the monthly deductions. Except, your policy
and its riders are guaranteed not to lapse during the first three years of
your policy if the conditions of the special continuation period have been
met.
If you meet the requirements for the guaranteed minimum death benefit, we
guarantee the stated death benefit, even after the three-year special
continuation period. See Lapse, page 33 and Guaranteed Minimum Death Benefit,
page 21.
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Reinstatement
You may reinstate your policy and its riders within five years of its lapse if
you still own the policy and the insured person is still living.
You will need to give proof that the insured person continues to be
insurable. You will 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 35.
Continuation of Coverage
If the insured person is still living at age 100, you may either surrender
your policy or choose the continuation of coverage feature. If the
continuation of coverage feature is in effect, we will deduct a one-time
administrative fee of $200 and keep your policy in force. Otherwise, at that
time we pay you the net account value. See Continuation of Coverage, page 26.
Death Benefits
At the insured person's death, we pay death proceeds to the beneficiary 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 your
outstanding policy loans and accrued loan interest. The base death benefit
varies according to which death benefit option you choose.
The minimum stated death benefit to issue a policy is $50,000. However, we
may lower this minimum for group or sponsored arrangements, or corporate
purchasers. See Death Benefit, page 21.
You may change your base death benefit while your policy is in force, subject
to certain restrictions. See Changes in Death Benefit Amounts, page 23.
Charges and Deductions
Deductions From Premium
We make the following deductions from each premium payment you make:
1. Tax charges -- We deduct a current charge of 2.5% of premiums
for state and local premium taxes. We deduct a current 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 42.
2. Sales charge -- We deduct a percentage of each premium to cover
a portion of our expenses in issuing your policy. This charge is
based on the insured person's age when the policy becomes
effective, or the date of an increase in coverage.
Age of Sales Charge
Insured Person Percentage
-------------- ----------
0-49 2.25%
50-59 3.25%
60-85 4.25%
See Deductions from Premiums, page 42.
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 43.
Monthly Deductions From Your Account Value
We deduct the following charges from your account value at the beginning of
each policy month:
1. Initial policy charge -- $10 per month for the first three policy
years.
2. Monthly administrative charge -- $3 per month plus $0.025 per $1,000
of stated death benefit, or of the target death benefit, if greater.
Currently, we limit this charge to $30 per month.
3. Cost of insurance charge -- Based on the net amount at risk on the
life of the insured person.
The amount of this charge differs for:
* the segments of the base death benefit; and
* any adjustable term insurance rider.
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<PAGE>
4. Charges for additional benefits -- The cost of any additional
benefits you choose. The adjustable term insurance rider charge is
included in the cost of insurance charge.
See Monthly Deductions from the Account Value, page 43.
Policy Transaction Fees
We deduct policy transaction fees from the variable and guaranteed interest
divisions. We deduct these fees proportionately based on the account value in
each investment division, in which you have amounts, immediately following the
transaction.
The following are the current transaction fees. See Policy Transaction Fees,
page 45.
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 have one free illustration per policy year.
For each illustration beyond that, a $25 fee may apply.
4. Continuation of Coverage -- We will charge a one-time $200
administrative fee when the insured person turns age 100 to activate
continued coverage.
Surrender Charges
During the first fourteen years of your policy, we assess a surrender charge
if you:
* surrender the policy;
* reduce the stated death benefit (other than by changing the death
benefit option);
* let your policy lapse; or
* take a partial withdrawal which reduces your stated death benefit.
The charge is made up of the administrative surrender charge, plus the sales
surrender charge.
The administrative surrender charge is a fixed dollar amount per each $1,000
of stated death benefit. It depends upon the insured person's age at the
policy date, or the effective date of each additional segment. The sales
surrender charge is never more than 50% of one base standard target premium.
See Surrender Charge, page 46.
Charges from Portfolios
The investment portfolios have investment management and other expenses which
are deducted by the portfolio managers. See Charges from Portfolios, page 48.
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 as defined in
the Internal Revenue Code. See Tax Status of the Policy, page 51.
Generally, under current federal income tax law, your account value earnings
are 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:
* partial withdrawals;
* surrender;
* lapse; or
* an exchange of insured person.
In addition to the events listed above, if your policy is a modified endowment
contract, loans against or secured by the policy may cause a tax. A 10%
penalty tax may be imposed on any income tax imposed on a distribution from a
modified endowment contract, as well. See Modified Endowment Contracts, page
52.
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<PAGE>
INFORMATION ABOUT SECURITY LIFE, THE VARIABLE ACCOUNT, THE INVESTMENT OPTIONS
AND THE GUARANTEED INTEREST DIVISION
Security Life of Denver Insurance Company
Security Life of Denver Insurance Company ("Security Life") is a stock life
insurance company organized under the laws of the State of Colorado in 1929.
Our headquarters are located at 1290 Broadway, Denver, Colorado 80203-5699.
We are admitted to do business in the District of Columbia and all states. At
the close of 1997, the company and its consolidated subsidiaries had over
$120.2 billion of life insurance in force. As of December 31, 1997 our total
assets were over $8.5 billion, and our shareholder's equity was over $870
million.
We offer a complete line of life insurance and retirement products, including:
* annuities;
* individual life;
* group life;
* pension products; and
* 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 $307.6 billion on a Dutch (modified U.S.)
generally accepted accounting principles basis, as of December 31, 1997.
The principal underwriter and distributor for our policies is ING America
Equities, Inc. ING America Equities is a wholly owned subsidiary of Security
Life which 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 is committed
to ensuring that information processing and delivery systems will be Year 2000
compliant before December 31, 1999. A project plan has been developed and we
have a project team in place to analyze and remediate our in-house source
code. 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. Completion date is on schedule for June 28, 1999.
Funds have been allocated for the 1998-1999 efforts, and we are confident 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 variable life insurance
contracts 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 has all of our assets other than those held in the variable
account (variable divisions) or any 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
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<PAGE>
account liabilities against variable account assets equal to its reserves and
other liabilities.
The variable account may have liabilities from assets credited to other
variable life policies offered by the variable account. If the assets of
variable account are greater than the 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 an 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 connected 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
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, the company 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 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.
Some investment portfolio advisers (or their affiliates) may pay us
compensation for administration, distribution or other expenses. Currently,
these advisers include AIM, Alger, INVESCO and Neuberger Berman. The
amount of compensation is usually based on assets of the investment
portfolio from contracts that we issue (or administer), and some advisors
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. AIM Advisors, Inc., ("AIM") manages each
Fund's assets under a master investment advisory agreement dated February 28,
1997. AIM was organized in 1976 and is a wholly owned subsidiary of AIM
Management Group, Inc., which is an indirect subsidiary of AMVESCAP PLC,
(formerly INVESCO PLC).
AIM V.I. Capital Appreciation Fund -- seeks to provide growth of capital. The
fund invests principally in common stocks of medium and smaller-sized growth
companies. The fund's portfolio managers focus on companies they believe are
likely to benefit from new or innovative products, services, or processes as
well as those that have experienced above-average, long-term growth in
earnings and have excellent prospects for future growth.
AIM V.I. Government Securities Fund -- seeks to achieve high, current income
consistent with reasonable concern for safety of principal by investing,
normally at least 65% of its total assets in debt securities issued,
guaranteed or otherwise backed by the U.S. Government.
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<PAGE>
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 to obtain long term capital
appreciation. The portfolio invests its assets mostly in companies whose
securities are traded on domestic stock exchange, or in the over-the-counter
market. Generally, the Portfolio invests at least 65% of its total assets in
the securities of companies that have a total market capitalization of $1
billion or greater. This may not be true during temporary defensive periods.
Alger American Leveraged AllCap Portfolio -- seeks long term capital
appreciation. The portfolio may purchase put and call options. It may sell
(write) covered call and put options on securities, and securities indexes to
increase gain, and hedge against the risk of unfavorable price movements. It
may also enter into futures contracts on securities indexes, while purchasing
and selling call and put options on these futures.
The portfolio may borrow money only from banks to purchase more securities.
It may not borrow more than one third of its assets' market value, minus its
liabilities, other than such borrowing. Generally, The Portfolio will invest
85% of its net assets in equity securities of companies of any size. This may
not be true during temporary defensive periods.
Alger American MidCap Growth Portfolio -- seeks long term capital
appreciation. Generally, the portfolio invests at least 65% of its total
assets in equity securities of companies that have total market capitalization
within the range of companies included in the S&P MidCap 400 Index. This may
not be true during temporary defensive periods. The S&P MidCap 400 Index is
designed to track the performance of medium capitalization companies. As of
December 31, 1997, the market capitalization range of these companies was $213
million to $13.737 billion.
Alger American Small Capitalization Portfolio -- seeks to obtain long term
capital appreciation. Generally, the portfolio invests at least 65% of its
total assets in equity securities of companies that have total market
capitalization within the range of companies included in the Russell 2000
Growth Index ("Russell Index"), or the S&P SmallCap 600 Index ("S&P Index").
This may not be true during temporary defensive periods.
Both indexes used are broad indexes of small capitalization stocks. As of
December 31, 1997, the range of market capitalization of the companies in the
Russell Index was $20 million to $2.97 billion. The range of market
capitalization of the companies in the S&P Index on the same date was $21
million to $2.934 billion. The combined range was $20 million to $2.97
billion.
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") generally manages and runs the
funds named here. However, Bankers Trust Company sub-advises VIP II Index 500
Portfolio. FMR is the management arm of Fidelity Investments, which was
established in 1946 and is now America's largest mutual fund manager.
VIP Growth Portfolio -- seeks capital appreciation by investing in common
stocks. However, the portfolio is not limited to any one type of security.
VIP Money Market Portfolio -- seeks as high a level of current income
consistent with preserving capital and providing liquidity. The portfolio
invests only in high quality U.S. dollar-denominated money market securities
of domestic and foreign issuers.
VIP Overseas Portfolio -- seeks long term growth of capital, primarily through
investments in foreign securities. The Overseas portfolio provides a way for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
VIP II Asset Manager Portfolio -- seeks high total return with reduced risk
over the long term. It does this by dividing its assets among domestic and
foreign stocks, bonds, and short-term money market instruments.
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<PAGE>
VIP II Index 500 Portfolio -- seeks to provide investment results that match
the total return of common stocks publicly traded in the United States. Total
return is the combination of capital changes and income. In seeking this
goal, the portfolio attempts to mirror the makeup and total return of the
Standard & Poor's Composite Index of 500 Stocks. At the same time, it tries
to keep transaction costs and other expenses low. The portfolio is designed
as a long-term investment option.
INVESCO Variable Investment Funds, Inc.
INVESCO Variable Investment Funds, Inc. is a registered, open-end management
investment company. It was organized as a Maryland corporation on August 19,
1993. It is currently made up of ten diversified investment portfolios. We
describe five of these investment portfolios here.
INVESCO Funds Group, Inc. is the Funds' 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 Portfolio.
"VIF" refers to INVESCO Variable Insurance Fund. INVESCO Distributors, Inc.
("IDI"), provides distribution services for the INVESCO Variable Investment
Funds, Inc.
INVESCO VIF-High Yield Fund -- seeks a high level of current income by
investing most of its assets in lower rated bonds, other debt securities, and
preferred stock.
The Fund pursues its investment objectives through investment in a variety of
bonds, including long-term, intermediate-term, and short-term bonds.
Potential capital appreciation is a secondary factor in the selection of
investments. This portfolio may not be right for everyone because of the
higher risk of lower-rated "junk" bonds. See the prospectus for the INVESCO
VIF High Yield Portfolio for more information concerning these risks.
INVESCO VIF-Industrial Income Fund -- seeks the best possible current income,
while following sound investment practices. Capital growth potential is a
secondary goal.
The portfolio normally invests at least 65% of its total assets in dividend
paying common stocks. Up to 10% of the portfolio's total assets may be
invested in equity securities that do not pay regular dividends. The
portfolio invests remaining assets in other income-producing securities, such
as corporate bonds. The portfolio has the flexibility to invest in other
types of securities.
INVESCO VIF-Small Company Growth Fund -- seeks long-term capital growth. It
invests in equity securities of companies with market capitalization of $1
billion or less ("small-cap companies"). The fund may invest the rest of its
assets in equity securities of companies with market capitalizations over $1
billion debt securities, and short term investments.
INVESCO VIF-Total Return Fund -- seeks a high total return on investment
through capital appreciation and current income. The portfolio invests in a
combination of equity securities including: common stocks and, to a lesser
degree, securities convertible into common stock; and fixed income securities.
INVESCO VIF-Utilities Fund -- seeks capital appreciation and income. The
portfolio invests mainly in equity securities of companies engaged in the
public utilities business.
Neuberger Berman Advisers Management Trust
The Neuberger Berman Advisers Management Trust (the "Trust", formerly known as
Neuberger & Berman) is a registered, open-end management investment company.
It is organized as a Delaware business trust dated May 23, 1994. The Trust is
made up of separate portfolios, each of which invests all of its net
investable assets in a matching series of Advisers Managers Trust ("AMT" or
"Managers Trust"). The 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. Most investment companies directly purchase and manage their own
securities portfolios. Neuberger Berman Management Incorporated acts as
investment manager to Managers Trust. Neuberger Berman, L.L.C. is the
sub-adviser.
Neuberger Berman AMT Growth Portfolio -- seeks capital appreciation,
regardless of income. It
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invests in small, medium and large capitalization securities believed to have
maximum potential for long-term capital appreciation.
The portfolio managers currently focus on the securities of
medium-capitalization companies. The managers use a growth-oriented investment
approach. A growth-oriented approach seeks stocks of companies that are
expected to grow at above-average rates.
Neuberger Berman AMT Limited Maturity Bond Portfolio -- seeks to increase
total return with the highest current income in keeping with low risk to
principal, and liquidity.
The Limited Maturity Bond Portfolio invests in a diversified portfolio of U.S.
Government and Agency securities and investment grade debt. Financial
institutions, corporations and others may issue these securities.
The Limited Maturity Bond Portfolio may invest up to 10% of its net assets at
the time of investment in below investment grade fixed income securities, or
comparable unrated securities.
The Limited Maturity Bond Portfolio's dollar weighted average portfolio
duration may range up to four years. However, the series may invest in
securities of any duration.
Neuberger Berman AMT Partners Portfolio -- seeks capital growth through an
investment approach designed to increase capital with reasonable risk. Its
investment program seeks securities believed to be undervalued based on low
price to earnings ratio, consistent cash flow, and the company's track record
through all points of the market cycle.
The portfolio may invest up to 15% of the series' net assets at investment
date in below investment grade corporate debt securities or comparable unrated
securities.
Van Eck Worldwide Insurance Trust
Van Eck Worldwide Insurance Trust is an open-end management investment company
organized as a business trust under the laws of the Commonwealth of
Massachusetts on January 7, 1987. Van Eck Associates Corporation serves as
investment adviser and manager to the 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 mostly 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 assets securities." Income is a secondary
consideration. Hard assets include:
* precious metals;
* forest products;
* ferrous and non-ferrous metals;
* gas, petroleum, petrochemical or other hydrocarbons;
* real estate; and
* other basic non-agricultural commodities.
Van Eck Worldwide Real Estate Fund -- seeks high total return by investing in
equity securities of companies that own real estate or that 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 rate 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
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this prospectus. For more details regarding the general account, see your
policy.
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 4% and will be in effect for at least twelve
months. Interest compounds daily at an effective annual rate that equals the
declared rate. We credit interest as of each valuation date. We pay interest
regardless of the actual investment performance of our account. We carry all
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. 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 eighteen variable
divisions, you will not be able to invest in the guaranteed interest division.
DETAILED INFORMATION ABOUT THE FIRSTLINE II VARIABLE UNIVERSAL LIFE POLICY
This prospectus describes our standard FirstLine II variable 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 62 are to show how the FirstLine II
policies work.
Applying for a Policy
You purchase a FirstLine II policy by submitting an application to us. On the
policy date, the insured person must be no older than age 85. The insured
person is the person on whose life we issue a policy and upon whose death we
pay death proceeds. Age is the insured person's age on the birthday nearest
your policy date, plus the number of completed policy years since the policy
date.
Before we issue a policy or apply your net premium to the investment
divisions, we require satisfactory evidence of insurability of the insured
person and payment of your initial premium. This evidence may include a
medical examination and completion of all underwriting requirements.
The investment date is the date we apply your initial net premium to the
policy. It is the valuation date when we have received your initial premium,
your policy is issued, and all issue requirements. Your initial premium is
the premium we must receive before coverage can begin. It is equal to the sum
of the scheduled premiums which are due from your policy date through your
investment date.
We generally require a minimum stated death benefit of $50,000. 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 is when your policy is effective. The policy date determines:
* monthly processing dates;
* policy months;
* policy years; and
* policy anniversaries.
It is not affected by when you receive the policy. In the case of certain
payroll deduction plans or other automatic investment plans, the policy date
may be different from the date we receive the first premium payment. If the
policy date is earlier, we charge monthly deductions from the policy date.
This applies even if the policy date is before the
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investment date. Under certain circumstances, we may back date your policy up
to a maximum of six months from the date we approve your application.
Choice of Definitional Tests of Life Insurance
When you apply for your policy, you choose one of two tests for the federal
income tax definition of life insurance. You cannot change your choice
later. The tests are the Cash Value Accumulation Test and the Guideline
Premium/Cash Value Corridor Test. If you choose the Guideline Premium /Cash
Value Corridor Test, we limit premium payments relative to your policy death
benefit. See Tax Status of Your Policy, page 51.
Temporary Insurance
If you apply and qualify for it, we issue temporary insurance in an amount
equal to the face amount of insurance for which you applied. We describe the
maximum amount of temporary insurance in the binding limited life insurance
coverage form. This temporary insurance is in force as long as you meet all
requirements.
Coverage begins when you have:
1. 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).
3. part I of the application is completed; and
Binding limited life insurance coverage ends on the earliest of:
* the date we return your premiums;
* five days after we mail notice of termination to the address on your
application;
* the date your policy coverage starts;
* the date we refuse to issue you a policy based on your application; or
* 90 days after you sign our binding limited life insurance coverage
form.
There is no death benefit under the temporary insurance agreement if the
person intended to be the insured dies by suicide or self-inflicted injury or
if there is a material misrepresentation:
* in your answers on the binding limited life insurance coverage form;
* in statements on your application; or
* if 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. The schedule pages of your policy show a
scheduled premium. You may select your scheduled premium (within our limits)
when you apply for your policy. The scheduled premium is the amount you
choose to pay over a stated time period. This amount may not be enough to
keep your policy in force. You may receive premium reminder notices for the
scheduled premium on a quarterly, semiannual, or annual basis.
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 are not required to pay the scheduled premium. You can change the amount
of your scheduled premium within our minimum and maximum limits at any time.
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 21.
Unscheduled Premium Payments
Generally speaking, you may make unscheduled premium payments at any time;
however:
1. We may limit the amount of your unscheduled premium payments that
would result in an increase in the base death benefit amount
required by the federal income tax law definition of life insurance,
or we may require suitable evidence that the insured person is
insurable at the time that you make the unscheduled premium payment;
if the death benefit is increased due to your unscheduled premium
payments.
2. We may require proof that the insured person is insurable if the net
amount at risk is increased as a result of your unscheduled premium
payment; and
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3. We will return 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 tell us that it
is acceptable to you that your policy will be a modified endowment
contract.
See Modified Endowment Contracts, page 52 and Changes to Comply with Law, page
54.
If you have an outstanding policy loan and you make an unscheduled premium
payment, we consider this payment a loan repayment, unless you tell us
otherwise. However, if your payment is a loan repayment, we do not take the
tax and sales charges which apply to premium payments.
Minimum Annual Premium
You must pay a minimum annual premium during your first three policy years to
qualify for the special continuation period discussed below.
Your minimum annual premium is based on:
* the insured person's:
-age, gender and premium class;
* the stated death benefit of your policy; and
* any additional benefits you select.
We may reduce the minimum annual premium for group or sponsored arrangements
or for corporate purchasers. Your minimum annual premium is shown in the
schedule pages of your policy.
Special Continuation Period
During the special continuation period, we guarantee that your policy will not
lapse, regardless of its net cash surrender value if on each monthly
processing date during the first three policy years:
* all premiums paid, minus:
* partial withdrawals that you made, minus
* any policy loans you have taken, including accrued loan interest;
* is greater than or equal to the sum of the minimum monthly premiums for
each policy month, starting with the first month of your policy through
the current policy monthly processing date.
The minimum monthly premium is one-twelfth of the minimum annual premium. See
Lapse, page 33.
During the first three years of your policy, if we do not deduct certain
charges so as to keep the policy from lapsing under the special continuation
period, we do not permanently waive them. At the end of the special
continuation period, the total of charges that were not deducted is due. We
deduct them at the beginning of your fourth policy year. If your account
value is not enough to pay charges owing, your policy may lapse. See Lapse,
page 33.
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.
On the investment date we will apply premium payments we have received from
you. 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 average free look
period). If your state provides for return of account value during 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, page 36
After the initial net premium, we divide net premiums among your investment
choices on the valuation date of receipt. We always use your most recent
premium allocation instructions. Your instructions must use only whole
numbers totaling 100%.
You may invest in a maximum of eighteen divisions over the lifetime of your
policy. This eighteen maximum includes the variable divisions and the
guaranteed interest division, but not the loan division. See Maximum Number
of Investment Divisions, page 18.
Premium Payments Affect Your Coverage
If you stop making premium payments or you make insufficient premium payments,
your policy continues in effect only until your net cash surrender value no
longer covers the monthly deductions for your benefits. If this happens, your
policy may lapse. See Lapse, page 33.
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If you pay your minimum annual premium, we guarantee your policy not to lapse
during the first three years of your policy, regardless of your net cash
surrender value. See Special Continuation Period, page 20.
Under the guaranteed minimum death benefit, the stated death benefit portion
of your policy remains effective until the end of the guarantee period if you
meet conditions of the guarantee. See Guaranteed Minimum Death Benefit
Provision, page 24.
Guaranteed Minimum Death Benefit Provision
You may choose whether you want to have and keep the guaranteed minimum death
benefit feature in effect. The feature may increase the length of time that
your policy's stated death benefit remains in effect regardless of investment
performance.
The guaranteed minimum death benefit requires that you pay a premium payment
higher than the minimum annual premium. This is known as the guarantee period
annual premium. When you choose your scheduled premium, you should consider
whether you want the guaranteed minimum death benefit feature. See Guaranteed
Minimum Death Benefit, page 24.
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 the premiums you paid
are greater than the defined "seven-pay" limit. See Modified Endowment
Contracts, page 52.
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 sign a form
stating that you know the policy is a Modified Endowment Contract. And, we
will issue your policy based on the scheduled premium you selected. If you do
not want this, 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 coverage with
the flexibility and short-term advantages of term life insurance. Both
permanent and term life insurance are available with your one FirstLine II
policy.
When we issue your policy, we base the initial insurance coverage on the
instructions in your application. The initial death benefit is a stated death
benefit amount. You can add an adjustable term insurance rider for additional
insurance coverage.
The stated death benefit is the long-term element of your policy. The
adjustable term insurance rider is the term insurance element of your policy.
The adjustable term insurance rider acts as a bridge. It provides term
insurance coverage which automatically adjusts to fill the gap between your
target death benefit and your base death benefit.
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
rider. Both the cost of coverage under the adjustable term rider and the cost
of insurance for the base death benefit generally increase with the age of the
insured person. Use of a term rider reduces sales compensation. See
Adjustable Term Insurance Rider, page 25.
Base Death Benefit
Your base death benefit can be different from your stated death benefit as a
result of:
* your choice of death benefit option;
* increases to satisfy the federal income tax law definition of life
insurance;
* a change in your death benefit option;
* partial withdrawals;
* increases or decreases in the stated death benefit; or
* 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 when the insured person dies. The beneficiary(ies) is(are) the
person (people) you name to receive the death proceeds from your policy. The
death proceeds are:
* your base death benefit; plus
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* any rider benefits; minus
* your outstanding policy loans with accrued loan interest; minus
* outstanding policy charges owing before the insured person's date of
death.
There could be outstanding policy charges if the insured dies while your
policy is in the grace period, or three-year special continuation period.
Death Benefit Options
You have a choice of two death benefit options: option 1 or option 2. Your
choice may result in your having a base death benefit which is greater than
your stated death benefit. You may change your death benefit option on any
policy anniversary. See Changes In Death Benefit Option, page 22.
Under death benefit option 1, your base death benefit is the greater of:
1. your stated death benefit on the date of the insured person's death;
or
2. your account value on the date of the insured person's death
multiplied by the appropriate factor from the "Definition of Life
Insurance Factors" shown in Appendix A or B, depending on the test
you chose to apply to your policy.
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 insured person's death; or
2. your account value on the date of the insured person's death
multiplied by the appropriate factor from the "Definition of Life
Insurance Factors" shown in Appendix A or B.
Under option 1 positive investment performance is 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:
* the insured person's age;
* the insured person's gender; and
* the test you chose for the federal income tax law definition of life
insurance.
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 Option
You may request a change in your death benefit option at any time. 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 death benefit.
For you to change from death benefit option 1 to option 2, you must provide to
us proof that the insured person is insurable under our normal rules of
underwriting for your policy class, except in Florida. We may not allow you
to change the benefit option if it reduces the stated death benefit below the
minimum we require to issue your policy.
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 account value as of the effective
date of the change.
Option 2 Option 1 your stated death benefit before the change
plus your account value as of the effective
date of the change.
We increase or decrease your stated death benefit to keep the amount of your
base death benfit the same
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as on the date you changed your death benefit option. When your base death
benefit remains the same, there is no immediate change in the net amount at
risk so your cost of insurance charges are the same. Additionally, there is
no change to the amount of term insurance if you have an adjustable term
insurance rider. See Cost of Insurance Charges, page 44.
If you change your death benefit option, your account value will be allocated
to each segment in the same proportion that each segment has to your stated
death benefit. See Changes In Death Benefit Amounts, page 23.
We do not charge a surrender charge for a decrease in your stated death
benefit. There is no change to the target premium. See Surrender Charge,
page 46.
If the insured person is 100 years of age or older, and the continuation of
coverage feature is in effect, death benefit option 2 is not available.
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 insured person turns age 86. You may request a decrease
in the stated death benefit only after your first policy anniversary.
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. Any change in your coverage must be for
at least $1,000.
After we approve your request, we send you a new schedule page for your policy
which includes the:
* stated death benefit;
* benefit under any applicable riders;
* guaranteed cost of insurance rates;
* guideline annual premium;
* new surrender charge; and
* target death benefit schedule.
Keep this 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.
In some instances, we do not approve a requested change because it would
disqualify your policy as life insurance under the applicable federal income
tax law. If we disapprove a change, we provide you with a notice of our
decision. See Tax Considerations, page 51.
If you decrease your death benefit, generally it does not decrease your stated
death benefit below $50,000 or the minimum we require to issue the policy.
You may incur tax consequences due to the decrease in your death benefit. See
Life Insurance Definition, page ? and Modified Endowment Contracts, page 52.
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 down to zero. If you have
more than one segment, we divide subsequent decreases in stated death benefit
among your segments. We divide it in the same proportion that each segment
bears to the total stated death benefit before the reduction, unless the law
requires differently.
You must provide satisfactory evidence that the insured person is 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 (if
you have one) 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 an
option change) is a new segment. The segment year begins on the segment
effective date and ends one year later. The following may apply to each new
segment:
* a new minimum annual premium;
* a new sales charge;
* new surrender charges;
* new cost of insurance charges;
* a new incontestability period; and
* a new suicide exclusion period.
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 change,
no new segment is created. Instead, the size of the existing segment(s)
is(are) increased.
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Premiums you pay after an increase are applied to your policy segments in the
same proportion as the guideline annual premiums for each segment bears to the
sum of the guideline annual premiums for all segments.
For each coverage segment, your schedule shows your guideline annual
premiums. We divide 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. Because we deduct charges monthly from your account
value, your coverage lasts as long as your net cash surrender value is enough
to pay these charges and your account value is more than your loan interest
owing during the special continuation period. The amount of your account
values and the length of time your policy remains in force if you pay no
additional premiums depends on:
1. the investment performance of the variable divisions;
2. the interest you earn in the guaranteed interest division; and
3. the amount of your monthly charges.
You choose whether or not to put the guaranteed minimum death benefit in force
on your policy. This feature 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 the longer of
ten policy years or until the insured person is age 65.
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, only the stated death portion of your coverage is guaranteed to stay
in force. Any riders to your policy will lapse.
The guaranteed minimum death benefit feature is not available in some states.
Requirements to Maintain the Guarantee Period
To qualify for the guaranteed minimum death benefit you must pay a higher
premium 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 depends on:
* your policy's stated death benefit;
* the insured person's age, gender, and premium class;
* the death benefit option you chose;
* additional rider coverage on your policy; and
* other additional benefits on your policy.
At each monthly processing date we perform testing to see if you have paid
enough premiums to keep your guarantee in place. Your guarantee period is
effective regardless of your policy's investment performance if:
* actual premiums paid; minus
* the amount of any partial withdrawals you make; minus
* policy loans you take with accrued loan interest; equals or exceeds
* the sum of the guarantee period monthly 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.
If your policy fails to meet this test on any monthly processing date, the
guarantee period, and thus the guaranteed minimum death benefit, lapses. We
show the guarantee period annual premium on your policy schedule. If your
policy benefits increase, the guarantee period annual premium increases.
The guarantee period also ends if your net account value on any monthly
processing date is not diversified as follows:
1. you may invest no more than 35% of your net account value in any one
division, and
2. you must invest your net account value in at least five divisions.
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
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2. you have dollar cost averaging which results in transfers into at
least four other divisions with no more than 35% of any transfer
directed to any one division.
See Dollar Cost Averaging, page 29, and Automatic Rebalancing, page 30.
If you fail to satisfy either the premium test or the diversification test and
you do not correct it, this feature terminates. Once it terminates, you
cannot reinstate this feature.
Additional Benefits
Your policy may include additional benefits, which we attach by rider. 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. Term riders may be scheduled at issue to increase. If you
want to increase your schedule after issue of your rider, new guidelines may
apply.
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 52, 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 on the insured person's life. 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 be scheduled to change at the beginning of any
policy year. We restrict your target death benefit to an amount not more than
ten times your stated death benefit at issue. In other words, if your stated
death benefit is $100,000, then the maximum amount of target death benefit we
allow you is $1,000,000.
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,
including changes resulting from compliance with the federal income tax law
definition of life insurance.
For example, assume your base death benefit increases because of the federal
income tax law definition of life insurance. The adjustable term insurance
rider adjusts to provide death proceeds equal to your target 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, 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 as needed to maintain the target 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 23.
We may deny any future, scheduled increases to your target death benefit if
you cancel a scheduled change, or 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 32.
There is no defined premium for a given amount of 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 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 age and
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premium class of the insured, as well as the 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 Charges, page 44.
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. 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 class
even though satisfactory new evidence of insurability is given to us for the
increased schedule.
Additional Insured Rider
This rider provides death benefits upon the death of immediate family members
other than the insured person. You may add up to nine additional insured
person riders to your policy. The minimum amount of coverage for each rider
is $10,000. The maximum coverage for all additional insured persons is five
times your policy's stated death benefit.
Right to Change Insured Rider
This rider allows you to change the insured person under your policy. You
must provide satisfactory evidence of insurability. A change of the insured
person may have federal income tax consequences. If you change the insured
person, the cost of your future insurance charges may change, but your account
value remains the same as of the date your make this change. Changing the
insured person also means that there will be a new contestability and suicide
periods. There is no charge for this rider.
Waiver of Cost of Insurance Rider
If the insured person becomes totally disabled while your policy is in force,
this rider provides that we waive the monthly expense charges, cost of
insurance charges, and rider charges during the disability. This means that
we do not deduct these amounts from your account value. You must meet all of
our requirements for this rider to apply. If you add this rider to your
policy, you may not add the waiver of specified premium rider.
Waiver of Specified Premium Rider
If the insured person becomes disabled while your policy is in force, this
rider provides that we credit a specified premium amount monthly to your
policy during the total disability of the insured person. There is a waiting
period before this benefit applies. In your application, you select the
amount of premium we credit subject to our limits. If you add this rider to
your policy, you may not add the waiver of cost of insurance rider.
Benefits at Maturity
If the insured person reaches age 100, and you do not want to use the
continuation of coverage feature, you may surrender the policy for the net
account value. Your net account value is your account value minus outstanding
policy loans you may have, and accrued loan interest. Your policy then ends.
Some part of this payment may be taxable. You should consult your tax
adviser.
Continuation of Coverage
The continuation of coverage feature allows insurance coverage to continue in
force beyond when the insured person turns age 100. If the insured person
reaches age 100, and the continuation of coverage feature is in effect, we
transfer your net account value (excludes loan divisions) into the guaranteed
interest division.
Where a state has approved this feature, it is an automatic feature and you do
not need to choose it.
A one-time administrative fee is charged to your policy to cover future
expenses. Your insurance coverage continues in force until the insured
person's death, unless the policy lapses or is surrendered. However, we
deduct no further cost of insurance charges. See Continuation of Coverage
Administrative Fee, page 45.
When the insured person turns age 100, all riders terminate. The coverage
provided under the adjustable term rider changes to base coverage, the
adjustable term rider then terminates and we redefine your stated death
benefit. If you have no rider coverage, your stated death benefit is
unchanged.
If death benefit option 2 is in effect, it is converted to death benefit
option 1 when the insured person turns age 100, under the continuation of
coverage feature. See Changes in Death Benefit Option, page 22.
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Your net account value may not be transferred into the variable divisions
after the insured person turns age 100. Related investment features end,
including dollar cost averaging and automatic rebalancing.
If you have outstanding policy loans, interest continues to accrue. If you
fail to make any payments, it is possible that the loan plus 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 after the
insured person turns age 100. However, we will not accept any additional
premium payments.
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 45.
If you wish to stop coverage after the continuation of coverage feature is in
effect, you may surrender your policy. All normal consequences apply. See
Surrender, page 36, and Surrender Charge, page 46.
The continuation of coverage feature may not be available in all states.
Policy Values
Account Value
Your account value is the total amount you have in the guaranteed interest
division, the variable divisions, and the loan division. Your account value
thus reflects:
* all net premiums paid;
* all fees and charges;
* your policy loans;
* partial withdrawals;
* the variable divisions' investment performance; and
* interest accrued in the guaranteed interest and loan divisions.
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.
Net Account Value
Your policy's net account value is your account value minus the amount of your
outstanding policy loans and any 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.
On any given day, the value of a variable division is the accumulation unit
value for that division times the number of accumulation units owned 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:
* when you take a partial withdrawal;
* when amounts are transferred from a variable division (including
transfers to the loan division);
* for the monthly deductions from your account value;
* for policy transaction charges;
* for surrender charges;
* on surrender; and
* to pay the death benefit when the insured person dies
We calculate the number of variable division accumulation units purchased or
redeemed as of any valuation date 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
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matching portfolio. It reflects:
* investment income;
* realized and unrealized capital gains and losses;
* investment portfolio expenses;
* daily mortality and expense risk charges we make to the variable
account.
See How We Calculate Accumulation Unit Values for Each Division, page 28.
The date of a transaction is the date we receive your premium or an acceptable
request at our customer service center.
If your premium or request reaches our customer service center on a day that
is not a valuation date, or after the close of business on a valuation date,
the transaction is processed the next valuation date. Otherwise, your
transaction is processed on the valuation date.
We make monthly deductions from your account value as of the monthly
processing date. We make transaction charges or surrender charges as of the
effective date of your transaction.
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 perform all policy transactions as of a valuation date.
We generally set the accumulation unit value for each division initially at
$10. 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 division every
valuation date as follows:
1. We take the value of the underlying portfolio shares in the division
as of the close of business on that valuation date. This is done
before adjusting for policy transactions on that date, such as
premium payments or surrenders. We use the share value reported to
us by the managers of the investment portfolio.
2. We add dividends or capital gain distributions declared and
reinvested by the portfolio during the valuation period. If
applicable, we subtract from this amount a charge for taxes.
3. We divide the remaining amount by the value of the shares in the
division at the close of business on the previous valuation date.
This new amount is the gross experience factor per accumulation unit,
before reduction for variable account expenses.
4. We 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, then we adjust the charge for the additional days between
valuations.
The result of these calculations is the accumulation experience factor for the
valuation period.
Transfers of Account Value
After your free look period ends, you may make up to twelve free transfers
among the variable divisions, or the guaranteed interest division, in each
policy year. We do not limit your number of transfers, but we charge a $25
fee for each transfer that you make after the first twelve. We do not include
transfers for automatic rebalancing or dollar cost averaging in the twelve
free transfer limit.
You may make transfer requests in writing, or by phone if you have telephone
privileges, to our customer service center. Your transfer takes effect on the
valuation date we receive your request. The minimum amount we allow you to
transfer on one day is $100. This minimum amount does not need to come from
one division or be transferred to one
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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.
If you elect telephone privileges, you may make transfers by calling our
customer service center. See Telephone Privileges, page 38.
Excessive Trading
Excessive trading activity can disrupt investment portfolio management
strategies and increase portfolio expenses. Thus, we may limit excessive
transfer activity.
Excessive transfers may cause:
* increased trading and transaction costs;
* disruption of planned investment strategies;
* forced and unplanned portfolio turnover;
* lost opportunity costs; and
* 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 refuse to place, or accept
restrictions on, transfers made by third-party agents acting on behalf of
owners. We may do the same for transfers made by a market timing service. We
will make refusals or place restrictions when we determine, in our sole
discretion, that transfers are harmful to the investment portfolios, or
policyowners as a whole.
Guaranteed Interest Division Transfers
Although you may request transfers from the guaranteed interest division at
any time, your transfers are processed and become effective only on your next
policy anniversary.
Transfers from the guaranteed interest division are limited to the largest of:
* 25% of your guaranteed interest division balance at the time of your
first transfer or withdrawal out of it in that policy year;
* the sum of the amounts you have transferred and withdrawn from the
guaranteed interest division in the prior policy year; or
* $100.
Transfers of your account value to the guaranteed interest division are not
restricted.
Dollar Cost Averaging
If your account value has at least $10,000 invested in either the Fidelity VIP
Money Market Division, or the Neuberger Berman AMT Limited Maturity Bond
Division, you can elect dollar cost averaging. The main goal of dollar cost
averaging is to protect your policy values from short-term price changes.
You may add dollar cost averaging to your policy at any time.
With dollar cost averaging, you designate for automatic transfer either a
dollar amount, or a percentage of your account value, from the division
investing in either the Fidelity VIP Money Market Portfolio or the Neuberger
Berman AMT Limited Maturity Bond Portfolio.
We automatically transfer the amount you select for dollar cost averaging each
period from your chosen division to one or more other variable divisions. You
may not make transfers to or from the guaranteed interest division under
dollar cost averaging.
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 value per unit is low, and you
purchase fewer units if the value per unit is high.
Dollar cost averaging does not assure a profit nor does it protect you against
a loss in a declining market.
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 under each dollar cost averaging transfer.
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 before the end of your free look period. Dollar cost averaging may
occur on the same date 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
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toward your twelve free transfer limit per policy year. There is no charge
for this feature.
You may have both a dollar cost averaging program and automatic rebalancing
feature at the same time. You may not use amounts you transfer under dollar
cost averaging as automatic rebalancing amounts.
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 38.
Terminating Dollar Cost Averaging
You may cancel dollar cost averaging by sending satisfactory notice to our
customer service center at least five days before the next dollar cost
averaging date.
Your dollar cost averaging will terminate if:
1. you specify a termination date; or
2. your balance remaining in the division investing in either the
Fidelity VIP Money Market Portfolio, or the Neuberger Berman AMT
Limited Maturity Bond Portfolio 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 transfer the amount remaining in that division.
Dollar cost averaging then ends.
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 or dividing amounts among the investment options you have
chosen.
If you choose this feature, we transfer amounts among the divisions to match
your pre-set allocation percentages on each rebalancing date. After the
transfers, the ratio of your account value in each division to your total
account value for all divisions 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 at any
later time by completing our customer service form. Automatic rebalancing may
occur on the same date monthly, quarterly, semi-annually, or annually.
If you choose automatic rebalancing with your policy application, the first
transfer occurs on the date you select (after your 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, and after your free look period ends.
When you choose automatic rebalancing allocations, you may choose all or some
of the variable divisions up to eighteen total investment options over the
lifetime of your policy.
You may elect both automatic rebalancing and dollar cost averaging at the same
time.
Changing Automatic Rebalancing
You may change your allocation percentages for automatic rebalancing at any
time. Your account value is reallocated as of the valuation date that we
receive your allocation instructions 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 Values on page 28.
If you currently have automatic rebalancing and the guaranteed minimum death
benefit is in effect, and you ask for an allocation which does not meet the
diversification requirements to maintain the guarantee period, we will notify
you that the allocation needs to be changed.
If we receive an automatic rebalancing request which does not meet our
requirements, we will ask you for revised instructions.
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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 the guaranteed minimum death benefit is in effect and
you are terminating the automatic rebalancing feature, you must still meet the
diversification requirements of your net account value for the guarantee
period to continue. See Guaranteed Minimum Death Benefit, page 24.
Transfers made for automatic rebalancing do not count toward your twelve free
transfer limit per policy year. There is no charge for this feature.
Policy Loans
You may borrow against your policy at any time, or as required by law, by
using your policy as security for a loan. 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.any 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.
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 38.
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 4.75%. 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 any one 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 take a policy loan, we transfer an amount equal to your policy loan
amount from the variable and the guaranteed interest divisions 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 4%.
The loan division is part of our general account, separate from the guaranteed
interest division. 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.
Any policy loans you take may have tax consequences. See Distributions
Other Than Death Benefits from Modified Endowment Contracts page 52, and
Distributions Other Than Death Benefits from Policies that are not Modified
Endowment Contracts, page 53.
Loan Repayment
We transfer the amount of interest credited to the loan division for a policy
year from the loan division on your policy anniversaries. When you make a
loan repayment, we transfer an amount equal to your repayment from the loan
division. Unless you tell us otherwise, we allocate these transfer amounts
among the variable divisions and the guaranteed interest division in the same
proportion as your current premium allocation.
Loans and Your Benefits
Even if you repay your loan, it is important for you to know that any loan
against your policy has a permanent effect on your account value. This means
that the benefits under your policy may also be affected.
The loan is a first lien on your policy. This means we deduct your policy
loan and accrued loan interest from the death proceeds payable and the cash
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surrender value payable on surrender.
Failure to repay your loan may affect the guaranteed premiums minimum death
benefit and the length of time your policy remains in force. The policy
lapses (even during the guarantee period) 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.
If you do not repay your policy loan, we deduct your outstanding policy loan
amount and accrued loan interest from the death proceeds payable and the cash
surrender value payable on surrender.
Partial Withdrawals
You may request a partial withdrawal on any monthly processing date after your
first policy anniversary by contacting our customer service center. If you
have telephone privileges, any partial withdrawals you request by telephone
must be for an amount no more than $25,000. See Telephone Privileges, page
38.
You are allowed 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 make is $100. The maximum partial
withdrawal you may make 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. 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 42.
Any partial withdrawals you take may have adverse tax consequences. See
Modified Endowment Contracts, page 52.
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 insured person is not yet age 81, you
may make a partial withdrawal of up to 10% of your account value without
decreasing the stated death benefit. Alternatively, if your account value is
greater, you may withdraw up to 5% of the stated death benefit, calculated
immediately before the partial withdrawal. Any additional amounts withdrawn
will reduce your stated death benefit by that amount.
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.
Stated Death Benefit and Target Death Benefit Reductions
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 and 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 Life Insurance Definition, page ?.
Generally, we reduce the stated death benefit by the amount of the partial
withdrawal. A partial withdrawal may also reduce your target death benefit.
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 51.
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. Withdrawals from the guaranteed interest division may not be for
more than your total withdrawals multiplied by the ratio of your account value
in the guaranteed interest division to your total net account value
immediately before the withdrawal.
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We will send a new schedule showing the effect of your withdrawal if there is
any 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 52, and Distributions Other Than Death Benefits from Policies that are
not Modified Endowment Contracts, page 53.
Right to Exchange Policy
During the first 24 months after your policy date, you have the right to
exchange your policy for a guaranteed policy, unless state law requires
differently. To do this, we transfer the entire 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 17.
Lapse
Your insurance coverage continues as long as your policy net cash surrender
value is enough to pay all deductions each month. We guarantee your policy
not to lapse during the first three policy years, regardless of its net cash
surrender value, if on each monthly processing date during the first three
policy years:
1. the sum of premiums you have paid, less
2. the sum of partial withdrawals and policy loans you have taken,
including accrued loan interest, is greater than or equal to
3. the sum of the minimum monthly premiums for each month, starting
with your first policy month, through the month beginning on the
current monthly processing date.
After the insured person reaches age 100 and 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(s) on which
interest is accruing, your policy will lapse if the accrued interest owed on
the loan is more than the account value.
If the Guaranteed Minimum Death Benefit is Not in Effect
Your policy, including all of its attached riders, lapses entirely on any
monthly processing date where your policy net cash surrender value is not
enough to pay all of the monthly deductions from your account value. See
Special Continuation Period, page 20.
You have a 61-day grace period beginning on that monthly processing date to
avoid lapse of your policy. See Grace Period, page 35. It is important that
you pay the full amount we request within the 61-day grace period. If you do
not, 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 insured person dies during the grace period, we pay death proceeds to
your beneficiary with reductions for policy loans, accrued loan interest, and
monthly deductions owed.
If the Guaranteed Minimum Death Benefit Is 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 Provision,
page 21.
The guaranteed minimum death benefit provision does not protect benefits you
may have under riders attached to your policy. Nor does it protect any amount
where the base death benefit 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 three-year special continuation period and
your account value is more than the interest owing on your loan).
While the guaranteed minimum death benefit applies, we reduce your account
value by monthly
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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 24.
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<TABLE>
Lapse Summary
<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 deductions. monthly charges. If you
charges are delayed until your loan interest owing However, if you have any do not pay enough
the earlier of: 1) when is more than your account riders, they lapse and premium to cover the past
you have enough net cash value. If you do not pay only your base coverage due monthly charges,
surrender value to cover enough premium to cover remains in force. plus the monthly charges
the monthly charge the past due monthly Charges for your base through the end of the
deduction, or 2) until the charges and interest coverage are deducted grace period (at the end
end of the special owing, plus the monthly each month until your of the following two
continuation period. charges and interest remaining account value months), your policy
owing through the end of is not enough to pay these lapses.
the grace period (at the charges. At this point, we
end of the following two permanently waive the
months), your policy monthly charges.
lapses.
</TABLE>
Grace Period
Your policy enters the 61-day grace period if, as of a monthly processing
date:
1. your net cash surrender value is zero (or less); and
2. your minimum guaranteed death benefit guarantee period has expired
or terminated; and
3. the three-year special continuation period has expired; or
4. you have not paid the required premium.
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 you have listed in our
records. We also notify you of the required premium payment amount necessary
to reinstate your policy. This amount is generally the amount of past due
charges, plus the amount that covers your estimated monthly policy deductions
and all riders attached to your policy for the next two months.
If we receive your payment of the required amount before the end of the grace
period, we use it to make the overdue deductions. If there is a remaining
balance, we apply it to your account value in the same manner as your other
premium payments.
Reinstatement
If you do not pay enough in premium before the end of the grace period, you
may still reinstate your policy and its riders (other than the guaranteed
minimum death benefit) within five years after the grace period.
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 the insured person (and
any people insured under your riders) is still insurable
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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, unless state law
requires differently.
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 at the
time your policy lapsed. If you had any policy loans when coverage ended, we
reinstate them with accrued loan interest to the date of 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 while
the insured person is living. You do this by sending a written request and
your policy to our customer service center.
Your policy net cash surrender value is your cash surrender value, minus
policy loans you have taken and accrued loan interest.
We deduct costs and expenses from your net account value on the monthly
processing date before you surrender your policy. We do not add or pro-rate
them at surrender. During the first fourteen policy years we deduct a
surrender charge from your cash surrender value. A new fourteen-year
surrender charge period applies to each additional policy segment created when
you increase your stated death benefit. See Surrender Charge, page 46.
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 that date.
A surrender of your policy for its net cash surrender value may have adverse
tax consequences. See Distributions Other Than Death Benefits from Modified
Endowment Contracts page 52, and Distributions Other Than Death Benefits from
Policies that are not Modified Endowment Contracts, page 53.
General Policy Provisions
Free Look Period or Right to Examine Policy
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 the
specified time limit, we will consider it canceled as of your policy date.
You must send us a written request to cancel your policy that is postmarked no
later than ten days (or as otherwise required by state law) after you receive
your policy.
If you cancel your policy during this free look period, you will receive a
refund as determined under state law. Some states provide for a refund of all
premium paid while others allow a refund of account value plus all charges
deducted. See your policy to determine the refund you would receive. When
you send your cancellation request, your insurance coverage ends.
Your Policy
The entire contract between you and us is the combination of:
* your policy;
* a copy of your original application and any applications for an increase
or a decrease;
* all of your riders;
* endorsements;
* schedule page for policy changes; and
* any reinstatement applications.
If you make a change to your coverage, we give you a copy of your application
and new schedules. If you sent us your policy, we attach these items to your
policy. Otherwise, you need to attach the new application and schedule to
your policy. Unless there is fraud, we consider all statements made in an
your 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 insured person's age stated in your policy
schedule. This is based on the insured person's age as of the nearest
birthday to the
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<PAGE>
policy date. We determine the insured person's age at any given time by
adding the number of completed policy years to the age shown in the schedule.
Ownership
The original owner is the person named in the policy application. If you are
so named on your policy application, then you are considered the owner. As
owner, you can exercise all rights and receive the benefits during the insured
person's lifetime. This includes the right to change the owner,
beneficiaries, or method to pay proceeds.
All rights of ownership are limited by the rights of any person who has been
assigned rights under the policy, and any irrevocable beneficiary.
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 old owner signs the notice. Until
we record this change at our customer service center, we will not change any
of our actions. A change in ownership may cause the old owner to recognize
taxable income on gain.
Beneficiary
You, as owner, name the beneficiary when you apply for your policy. The
primary beneficiary who survives the insured person receives the death proceeds
payable. Other surviving beneficiaries receive death proceeds only if there
is no primary beneficiary who has survived the insured person. If more than
one beneficiary survives the insured person, they share the death proceeds
equally, unless you have told us otherwise. If none of your policy
beneficiaries has survived the insured person, we pay the death proceeds to
you as owner, or to your estate.
Once you tell us who you want as beneficiary, we keep this on file. You may
name a new beneficiary during the insured person's lifetime. We pay the death
proceeds to the most recent beneficiary on file whom you have named. 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 rights
(unless the beneficiary was made a permanent beneficiary under an earlier
assignment) are subject to the assignment. It is the owner's responsibility
to make sure the assignment is valid.
Incontestability
We can question the validity of your insurance policy if there have been
material misstatements in your application. There are limits on how and when
we can question your policy.
* We will not question the statements in your application, attached at
issue, if your policy has been in effect for two years from your policy
date (during the insured person's lifetime) or the date specified by
state law.
* We will not question statements in your application for any
reinstatement, after the reinstatement has been in effect (during the
insured person's lifetime) for two years from the effective date of any
reinstatement.
* We will not question the statements in your application for any coverage
change that creates a new segment, or increases any benefit regarding
the insured person (during the insured person's lifetime), after two
years from the effective date of the new segment or increase.
We may revoke this policy if we issued or reinstated your policy based on a
false or misleading statement in an application. This includes any
reinstatement application.
Misstatements of Age or Gender
If the 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 the insured person's correct age and gender. We base this on
the cost of insurance charges deducted from your account value on the last
monthly processing date before the insured person's death, or as otherwise
required by state law.
If unisex cost of insurance rates apply, we do not make any adjustments for a
misstatement of gender.
Suicide
If the insured person commits suicide, while sane or insane, within two years
of your policy date or date of reinstatement, we limit death benefits 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
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<PAGE>
3. any partial withdrawals you have taken, unless state law requires
otherwise.
If the insured person has been changed, and the new insured person dies by
suicide within two years of the change date, we then limit the death benefit
to:
1. your net cash surrender value as of the change date plus
2. the premiums you paid since the change date less
3. the sum of any increases in policy loans, accrued loan interest, and
partial withdrawals taken since the change date.
We make a limited payment to the beneficiary for
a new segment or other increase if the insured commits suicide, while 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. The payment we make is the cost of
insurance and any applicable monthly expense charges deducted for such
increase.
Payment
Within seven days after we receive all information required to process a
payment, we pay:
* death proceeds;
* net cash surrender value upon surrender;
* partial withdrawals; and
* loan proceeds.
We execute transfers among the variable divisions as of the valuation date of
our receipt of your request at our customer service center.
We may delay processing any of these transactions at any of the following
times:
* when the NYSE is closed for trading;
* when trading on the NYSE is restricted by the SEC;
* when there is an emergency so that it is not reasonably possible to sell
securities in the variable divisions or to determine the value of a
divisions assets; or
* when a governmental body with jurisdiction over the separate account
allows suspension by its order.
Any SEC rules and regulations that apply determine whether these conditions
exist.
We determine death proceeds on the insured person's date of death. The death
proceeds are not affected by changes in the value of the variable divisions
after the date of death. We pay interest at our stated rate, or at any higher
rate required by law, from the insured person's date of death to the date of
payment.
We may delay payment for up to six months from our guaranteed interest
division, unless state law requires otherwise. We may also delay for up to
six months payment of any:
* surrender proceeds;
* withdrawal amounts; or
* loan amounts.
We pay interest at our declared rate, or at any higher rate required by law,
from the date we receive the request if we delay payment more than 30 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 any policy change, or at its surrender.
If the insured person dies while your policy is still in force, please let us
or your registered representative know as soon as possible. We immediately
send you instructions on how to make a claim. As proof of the insured
person's death, we may require you provide proof of the insured person's age,
and a certified copy of the insured person's death certificate.
The beneficiary and the insured person's next of kin may also need to sign
authorization forms. These authorization forms allow us to get information
about the insured person. This information may include medical records of
doctors and hospitals used by the insured person.
Telephone Privileges
You may choose telephone privileges by completing our form. Telephone
privileges allow you to telephone our customer service center to:
* make transfers;
* change features in your dollar cost averaging and automatic
rebalancing programs;
* request partial withdrawals; or
* request a policy loan.
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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,
3. tape recording telephone instructions.
By requesting telephone privileges, you authorize us to record your telephone
calls. 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-participating
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 a 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:
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; and
3. Multi Financial Securities Corp., an affiliate of Security Life of
Denver Insurance Company.
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 95% 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 4% in policy years one
through ten, and up to 2% in policy years over ten. State insurance officials
also license the registered representatives to sell our variable life
policies.
Broker-dealers may receive annual renewal payments of up to 0.15% of the net
account value beginning in the eleventh year of your policy.
Compensation arrangements may vary among broker-dealers and depend on
particular circumstances. In addition to the above-described compensation, we
may pay:
* override payments;
* expense allowances;
* bonuses;
* special marketing fees;
* wholesaler fees; and
* training allowances.
Under our sales incentive programs, registered representatives who meet set
production levels may qualify to receive non-cash payment such as:
* expense-paid trips;
* expense-paid educational seminars; and merchandise
We pay the distribution allowance from our own resources which includes sales
charges deducted from premiums and surrender charges.
Settlement Provisions
You may elect to have the beneficiary receive the death proceeds other than in
one sum. If you make this election, you must do so during the insured
person's lifetime. If you have not made this election, the beneficiary may do
so within 60 days after we receive proof of the insured person's death. You
may also take your net cash surrender value in other than one sum.
The investment performance of any variable divisions do not affect payments
under these settlement options. Instead, interest accrues based on the
options you choose. Payment options are subject to our rules at the time you
make your selection. Currently, these alternate payment options are available
only if the proceeds applied are $2,000 or more. Any periodic payment must be
at least $20.
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You may select from these payment options:
Option I: Payouts for a Designated Period: Payout payments per year may
be made monthly, quarterly, semi-annually, or annually.
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.
Option II: Life Income with Payouts Guaranteed for a Designated Period:
Payout payments per year will be made monthly, quarterly, semi-
annually, or annually.
We make these payments throughout the lifetime of the person
receiving the payment, but for at least five, ten, fifteen,
or twenty years.
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 to receive payment, or at a
chosen earlier date. We will pay interest at our declared rate
on any unpaid balance, or at a higher rate as required by law.
You may choose interest to be accumulated or paid in monthly,
quarterly, semi-annually, or annual installments per year.
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 choices include monthly, quarterly, semi-annual, or
annual payments per year.
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 or other person (successor) who has the right to receive
payments may name someone else to receive any amount that we would otherwise
pay to that person's estate if that person died. The person who has the right
to receive payment may change the other person who is named, at any time.
We must approve any arrangements that involve someone who is to receive
payment who is not a human being (for example, a corporation). We must also
approve any situation involving a person who is to receive payments who is
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:
* minimum amount we pay under an option;
* minimum amounts for installment payments;
* withdrawal rights;
* right to receive payments over time, which we may offer as a lump sum
payment;
* naming of people who have the right to receive payment and the people
who follow them; and
* proving 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 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 vote the
shares in accordance with your instructions at meetings of investment
portfolio shareholders. We vote any portfolio shares that are not
attributable to policies, and any investment portfolio shares where the owner
does not give us instructions, the same way we vote where we did receive owner
instructions.
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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 where you have invested assets as of the record
date 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.
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.
All investment portfolio shares have the right to one vote. The votes of all
investment portfolios are cast together on a collective basis, except on
issues where the interests of the portfolios differ. In these cases, voting
is done on a portfolio-by-portfolio basis.
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.
Material Conflicts
We are required to track events to identify any material conflicts 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:
* state insurance law or federal income tax law changes;
* investment management of an investment portfolio changes; or
* 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 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
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 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 our policy.
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:
* a portfolio no longer suits the purposes of your policy;
* there is a change in laws or regulations;
* there is a change in a portfolio's investment objectives or
restrictions;
* the portfolio is no longer available for investment; or
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* another reason a substitution is appropriate.
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 its terms.
12. Limit or eliminate any voting rights for the separate account.
13. Make any changes required by the 1940 Act, 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 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:
* your total policy death benefit (your stated death benefit plus
adjustable term insurance rider death benefit, if any);
* your account value;
* policy loans, if any, plus accrued interest;
* your net cash surrender value;
* information about the variable divisions;
* 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
with providing the service or benefits associated with the particular policy.
Many charges are not at "cost." For example, the sales charges may not fully
cover all of the sales and distribution expenses actually incurred by us and
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
Any payment we receive we consider a premium if the insured person is not yet
age 100, and you do not have an outstanding loan. After we deduct certain
expenses from your premium payment, we add the remaining net premiums to your
account value.
Tax Charges
Almost all states levy taxes on life insurance premium payments. These
premium taxes vary in amount from state to state, and may vary from
jurisdiction to jurisdiction within a state. We currently deduct an amount
equal to 2.5% of each premium payment you make to cover these premium taxes.
The 2.5% rate approximates the average tax rate we expect to pay on premiums
from 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 in 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.
Sales Charge
We deduct a percentage from each of your premium
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payments to compensate us for selling the policies. We base the deducted
percentage on the insured person's age on the policy date, or the date of an
increase in your coverage:
Segment Issue Age Sales Charge Percentage
----------------- -----------------------
0 - 49 2.25%
50 - 59 3.25%
60 - 85 4.25%
These premium deductions are a part of the total sales charge.
If your policy has multiple segments, we divide the premiums you pay among
your segments. We divide them in the same proportion as the guideline annual
premium (defined by federal income tax law) for each segment has to the total
guideline annual premium for your stated death benefit.
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 recover the sales costs over the period all policies remain in
effect. We pay the sales expenses from our own resources including:
* the sales charge;
* surrender charges we may collect; and
* profit we may earn on other charges we deduct from your policy.
We may reduce or waive the sales charge for certain group or sponsored
arrangements, or for corporate purchasers.
Daily Deductions from the Variable Account
Mortality and Expense Risk Charge
We deduct a charge each day for the mortality and expense risks we take on.
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 an expense risk that other expenses we have
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. If
you do not choose a withdrawal investment division for monthly deductions or
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.
When you apply for a policy or later, you may designate a withdrawal
investment division from which we will take monthly deductions from your
account value. 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 withdrawal investment
division for monthly deductions.
If you change your monthly withdrawal investment division choice, we consider
this an allocation change. You may make five free withdrawal allocation
changes per policy year for free. After the five free withdrawal allocation
changes, we charge you $25 for each additional allocation change per policy
year. The $25 fee is withdrawn from all of your active investment division
with money on a pro-rated basis.
Initial Policy Charge
The initial policy charge is $10 per month for the first three years of your
policy. This charge covers, in part, such costs as:
* application processing;
* medical examinations ;
* establishment of policy records; and
* insurance underwriting costs.
Monthly Administrative Charge
For this policy, we charge a per month administrative charge of $3 plus $0.025
per thousand dollars for the greater of the stated death benefit, or the
target death benefit. We guarantee the "per thousand" charge will
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never increase; and is currently limited to $30 per month. This charge is
designed to cover ongoing costs such as:
* premium billing and collections;
* claim processing;
* policy transactions;
* record keeping;
* reporting and communications with owners; and
* other expenses and overhead.
Cost of Insurance Charge
The cost of insurance charge compensates us for the ongoing costs of providing
insurance coverage, including the expected cost of paying death proceeds that
are more than your account value at the insured person's death.
It is equal to our current monthly cost of insurance rate times the net amount
you have 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 cost of insurance charges for the base death benefit,
adjustable term insurance rider and waiver of cost of 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 person. We allocate
the net amount at risk to your 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.
We base your cost of insurance rates on the insured person's age, gender and
premium class on the policy for each segment date, or the date you add each
additional segment.
We apply unisex rates where appropriate under the law. This currently
includes the state of Montana, and policies purchased by employers and
employee organizations in connection with employment-related insurance or
benefit programs.
Separate cost of insurance rates apply to each segment of the base death
benefit and your adjustable term insurance rider.
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 Mortality Table.
There are no cost of insurance charges after the insured person reaches age
100.
Guaranteed Issue
We may offer policies on a guaranteed issue basis for certain group or
sponsored arrangements. When this happens, we issue these policies up to a
preset face amount with reduced evidence of insurability requirements.
Guaranteed issue policies may carry a different mortality risk to us compared
with policies that are fully underwritten. So, we may charge different cost
of insurance rates for guaranteed issue policies. The cost of insurance rates
under these circumstances may depend on the:
* issue age of the insured people;
* size of the group; and
* total premium the group pays.
Generally, most guaranteed issued policies have higher overall charges for
insurance than a similar underwritten policy issued in the standard
non-tobacco user, or standard tobacco user class. This means that the insured
person in a group or sponsored arrangement could get individually underwritten
insurance coverage at a lower overall cost.
Charges for Additional Benefits
On each monthly processing date, we deduct the cost of additional benefits
under your riders. See Additional Benefits, page 25.
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:
* investment earnings;
* mortality;
* the time policies remain in effect;
* expenses; and
* taxes.
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New monthly charges will never be more than the guaranteed maximum rates shown
in your policy.
Policy Transaction Fees
We also charge fees for certain transactions you may make in your policy. We
take transaction 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 Withdrawal
For our costs, we charge a service fee of $25 against your account value for
each partial withdrawal you take. We may also deduct a surrender charge from
your account value. See Partial Withdrawals, page 32.
Transfers
For our costs, there is a $25 fee for each additional transfer over twelve per
policy year. 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 Values, page 28,
and Right to Exchange Policy, page 33.
Illustrations
We may charge a fee of up to $25 for each policy illustration you request over
one policy illustration per policy year.
Continuation of Coverage Administrative Fee
When the insured person turns age 100, and the continuation of coverage
feature is in effect, we will charge a one-time administrative fee of $200.
This charge is to cover the expected costs to maintain and service your policy
for the remainder of the insured person's lifetime. Because we charge this
administrative fee, we stop charging you the normal monthly administrative
fee.
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.
We add the persistency refund to the variable and guaranteed interest
divisions, if applicable, 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:
* account value = $10,000 (all in the variable divisions)
* monthly persistency refund rate = .0005
* 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:
* account value = $10,000
* account value in the variable divisions = $6,000
* account value in the loan division = $4,000
* monthly persistency refund rate = .0005
* persistency refund = 10,000 x .0005 = $5.00
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Before After
Persistency Persistency
Refund Refund
------ ------
Variable
divisions $6,000.00 $6,005.00
Loan $4,000.00 $4,000.00
Surrender Charge
We charge a surrender charge from your account value if you:
* surrender your policy;
* reduce your stated death benefit;
* allow your policy to lapse in the first fourteen policy years.
We intend the surrender charge to compensate us for issuing and distributing
policies. The surrender charge is made up of two parts:
1. an administrative surrender charge, and
2. a sales surrender charge.
We deduct a portion of the surrender charge from your account value:
* when you request a decrease in your policy's stated death benefit; and
* when you take a partial withdrawal which decreases your stated death
benefit during the first fourteen years of your policy.
The amount we deduct from your account value is the surrender charge in effect
before we make any reduction minus the surrender charge in effect after we
make the reduction for you.
If you change your death benefit option, this may decrease the stated death
benefit. 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 maximum sales surrender charge. All other
increases in the stated death benefit do increase your maximum sales and
administrative surrender charges.
If your maximum surrender charge changes, we send a new schedule showing the
change to you. Maximum surrender charges apply only if you pay enough premium
to reach the minimum and then surrender your policy in full, or your policy
lapses.
Both the administrative surrender charge and the sales surrender charge stay
level for the first seven years following the effective date of your policy,
and any new segment. These charges then decrease at the beginning of each
following policy year by 12.5% of the amount in effect at the end of the
seventh policy year. This continues until your surrender charge reaches zero
at the beginning of your fifteenth policy year, or the year when the insured
person reaches age 98, whichever happens first.
Administrative Surrender Charge
The administrative surrender charge is a dollar amount for each $1,000 of the
stated death benefit. We base this amount on the insured person's age on your
policy date, or on the date you add a new stated death benefit coverage
segment to your policy.
Insured's AgeAdministrative Surrender Charge Per
Thousand of Stated Death Benefit
Insured's Administrative Surrender Charge Per
Age Thousand of Stated Death Benefit
------ ------------------------------
0 - 39 $2.50
40 - 49 $3.50
50 - 59 $4.50
60 - 69 $5.50
70 and above $6.50
For example, if the stated death benefit is $100,000 and the insured person is
age 40 on your policy date, your administrative surrender charge is $350.
During the first fourteen years of your policy your administrative surrender
charge may decrease. This happens if you request a decrease in your stated
death benefit, or you take a partial withdrawal which causes your stated death
benefit to decrease. Your administrative surrender charge decreases in the
same proportion that your stated death benefit decreases. Under these
circumstances we then deduct from your account value the amount by which your
administrative surrender charge decreased.
We designed your administrative surrender charge to cover part of our
administrative expenses for your policy, such as:
* application processing;
* establishing your policy records;
* insurance underwriting; and
* costs associated with developing and operating our systems to administer
your policies.
Sales Surrender Charge
We calculate the sales surrender charge for each segment by applying the
premiums you paid to each segment in the same proportion that the guideline
annual premium for each segment (as defined by the
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federal income tax laws) has to the sum of the guideline annual premiums for
all segments.
The sales surrender charge is:
1. 25% of the premiums you paid up to your target premium for each
segment without any substandard ratings (this is known as the base
standard target premium); plus
2. 5% of the premiums you paid in the first seven policy years following
the effective date of a segment in excess of the base standard target
premium for that segment.
Your sales surrender charge is never greater than 50% of your base standard
target premium. We do not determine target premiums on your scheduled
premium. We determine target premiums actuarially, based on the age and
gender of the insured person. Your policy schedule shows the initial target
premium for your policy and the target premium for any added segments. The
schedule also shows the maximum sales surrender charge for your stated death
benefit.
If your stated death benefit decreases, we reduce your target premium for each
segment in the same proportion that we reduce your stated death benefit. We
do not do this if the reduction is a result of a change in death benefit
option.
If your new target premium for each segment is greater than or equal to the
premiums you paid for that segment, then we reduce your future maximum sales
surrender charge, we do not deduct a sales surrender charge from your account
value.
If your new target premium for each segment is less than the sum of the
premiums you paid for that segment, we reduce the future maximum sales
surrender charge and we deduct a sales surrender charge from your account
value equal to the difference between your sales surrender charge before the
decrease, and your sales surrender charge after the decrease. We recalculate
your new sales surrender charge as if your new target premium was always in
effect for that segment.
We reduce your future maximum sales surrender charge in the same proportion
that we reduce your stated death benefit if:
1. you make a decrease to your stated death benefit more than seven
years after your policy date; or
2. you make a partial withdrawal from your policy which reduces the
stated death benefit, and you make your request more than seven
years after the date you added the additional segment.
Calculation of Surrender Charge Examples
Example 1: Assume the stated death benefit on your policy is $100,000 and the
insured person is age 45 when we issued your policy. The target
premium on your policy is $1,500. The actual surrender charge,
assuming that you pay a $1,000 premium each policy year, is:
Administrative Sales Actual
Policy Year Surrender Charge Surrender Charge Surrender Charge
- ----------- ---------------- ---------------- ----------------
1 $350.00 $250.00 $600.00
2 350.00 400.00 750.00
3 350.00 450.00 800.00
4 350.00 500.00 850.00
5 350.00 550.00 900.00
6 350.00 600.00 950.00
7 350.00 650.00 1000.00
8 306.25 568.75 875.00
9 262.50 487.50 750.00
10 218.75 406.25 625.00
11 175.00 325.00 500.00
12 131.25 243.75 375.00
13 87.50 162.50 250.00
14 43.75 81.25 125.00
15 0.00 0.00 0.00
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<PAGE>
Example 2: If you reduce your stated death benefit on your third policy
anniversary to $90,000, we reduce your target premium
proportionately, and it now equals $1,350 (90% of $1,500).
There is a sales surrender charge of $30 when you reduce your
stated death benefit. This is the difference between your sales
surrender charge immediately before the decrease, and your sales
surrender charge calculated assuming your new target premium was
always in effect for your policy. There is an administrative
surrender charge of $35. This is the difference between your
original administrative surrender charge and 90% of your initial
administrative surrender charge. Using the figures in the example
here, this calculation is: $350 - $315. We deduct both the sales
surrender charge and the administrative surrender charge from the
account value. The resulting actual surrender charge for each
policy year is:
Administrative Sales Actual
Policy Year Surrender Charge Surrender Charge Surrender Charge
- ----------- ---------------- ---------------- ----------------
1 $350.00 $250.00 $600.00
2 350.00 400.00 750.00
3 350.00 450.00 800.00
4 315.00 470.00 785.00
5 315.00 520.00 835.00
6 315.00 570.00 885.00
7 315.00 620.00 935.00
8 275.63 542.50 818.13
9 236.25 465.00 701.25
10 196.88 387.50 584.38
11 157.50 310.00 467.50
12 118.13 232.50 350.63
13 78.75 155.00 233.75
14 39.38 77.50 116.88
15 0.00 0.00 0.00
Fees and Expenses of the 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.
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<TABLE>
Portfolio Annual Expenses (As a Percentage of Portfolio Average Net Assets) /1/
<CAPTION>
Investment Total Portfolio
Portfolio Management Fees Other Expenses Expenses
--------- --------------- -------------- ---------
<S> <C> <C> <C>
AIM Variable Insurance Funds, Inc.
AIM VI - Capital Appreciation 0.63% 0.05% 0.68%
AIM VI - Government Securities 0.50% 0.37% 0.87%
The Alger American Fund
Alger American Growth Portfolio 0.75% 0.04% 0.79%
Alger American Leveraged AllCap Portfolio 0.85% 0.15% 1.00%/3/
Alger American MidCap Growth Portfolio 0.80% 0.04% 0.84%
Alger American Small Capitalization Portfolio 0.85% 0.04% 0.89%
Fidelity Variable Insurance Products Fund
VIP Growth Portfolio 0.60% 0.09% 0.69%/4/
VIP Money Market Portfolio 0.21% 0.10% 0.31%
VIP Overseas Portfolio 0.75% 0.17% 0.92%4
Fidelity Variable Insurance Products Fund II
VIP II Asset Manager Portfolio 0.55% 0.10% 0.65%/4/
VIP II Index 500 Portfolio 0.24% 0.04% 0.28%/5/
INVESCO Variable Investment Funds, Inc.
INVESCO VIF - High Yield Portfolio 0.60% 0.45% 1.05%/6, 9/
INVESCO VIF - Industrial Income Portfolio 0.75% 0.40% 1.15%/6, 8/
INVESCO VIF - Small Company Growth Fund 0.75% 0.50% 1.25%/6, 11/
INVESCO VIF - Total Return Portfolio 0.75% 0.40% 1.15%6,/7/
INVESCO VIF - Utilities Portfolio 0.60% 0.55% 1.15%/6, 10/
Neuberger Berman Advisers Management Trust /2/
Growth Portfolio 0.83% 0.07% 0.90%
Limited Maturity Bond Portfolio 0.65% 0.12% 0.77%
Partners Portfolio 0.80% 0.06% 0.86%
Van Eck Worldwide Insurance Trust
Worldwide Bond Fund 1.00% 0.12% 1.12%
Worldwide Emerging Markets Fund 0.80% 0.00% 0.80%/14/
Worldwide Hard Assets Fund 1.00% 0.17% 1.17%/12/
Worldwide Real Estate Fund 0.00% 0.00% 0.00%/13/
</TABLE>
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<PAGE>
/1/ The investment portfolios provided this portfolio expense information. We
have not independently verified this information. These portfolio expenses
are not direct charges against division assets or reductions from contract
values. Rather, we factor these portfolio expenses when computing each
underlying portfolio's net asset value. We use the share price to calculate
the unit values of the divisions. For a more complete description of the
portfolios' costs and expenses, see the prospectuses for the portfolios.
/2/ Neuberger Berman Advisers Management Trust (the "Trust") is divided into
portfolios ("portfolios"), each of which invests all of its net investable
assets in a corresponding series ("Series") of Advisers Managers Trust. The
figures reported under "Investment Management and Administration Fees" include
the aggregate of the administration fees paid by the portfolio and the
management fees paid by its corresponding Series. Similarly, the "Other
Expenses" includes all other expenses of the portfolio and its corresponding
series. See "Expenses" in the Trust's Prospectus. Expenses may reflect
expense reimbursement. NBMI has voluntarily undertaken to limit the
portfolios' compensation of NBMI and excluding taxes, interest, extraordinary
expense, brokerage commissions and transaction costs, that exceed 1% of the
portfolios' average daily net asset value. These expense reimbursement
policies are subject to termination upon 60 days written notice to the
portfolios.
/3/ The Alger American Leverage AllCap Portfolio's "Other Expenses" includes
0.04% of interest expense.
/4/ A portion of the brokerage commissions that certain funds pay was used to
reduce fund expenses. In addition, certain funds have entered into
arrangements with their custodian whereby credits realized, as a result of
uninvested cash balances were used to reduce custodian expenses. Including
these reductions, the total operating expenses presented in the table would
have been 0.67% for Growth Portfolio, 0.90% for Overseas Portfolio, and 0.64%
for Asset Manager Portfolio.
/5/ FMR agreed to reimburse a portion of Index 500 Portfolio's expenses during
the period. Without this reimbursement, the funds' management fee, other
expenses and total expenses would have been 0.27%, 0.13% and 0.40%
respectively.
/6/ The portfolios' custodian fees were reduced under an expense offset
arrangement. In addition, certain expenses of the portfolios' are being
absorbed voluntarily by INVESCO Funds Group, Inc. ("IFG"). The above ratios
reflect total expenses, less expenses absorbed by IFG, prior to any expense
offset.
/7/ Various expenses of the portfolio were voluntarily absorbed by IFG for the
years ended December 31, 1997, 1996 and 1995. If such expenses had not been
voluntarily absorbed, the ratio of expenses to average net assets would have
been 1.10%, 1.30% and 2.51%, respectively, and the ratio of net investment
income to average net assets would have been 2.89%, 3.08% and 2.41%,
respectively.
/8/ Various expenses of the portfolios were voluntarily absorbed by IFG for
the years ended December 31, 1997, 1996 and 1995. If such expenses had not
been voluntarily absorbed, the ratio of expenses to average net assets would
have been 0.97%, 1.19%, and 2.31%, respectively, and the ratio of net
Investment income to average net assets would have been 2.12%, 2.63% and 2.22%,
respectively.
/9/ Various expenses of the portfolios were voluntarily absorbed by IFG for the
years ended December 31, 1997, 1996 and 1995. If such expenses had not been
voluntarily absorbed, the ratio of expenses to average net assets would have
been 0.94%, 1.32% and 2.71%, respectively, and the ratio of net investment
income to average net assets would have been 8.56%, 8.74% and 7.05%,
respectively.
/10/ Various expenses of the portfolios were voluntarily absorbed by IFG for
the years ended December 31, 1997, 1996 and 1995. If such expenses had not
been voluntarily absorbed, the ratio of expenses to average net assets would
have been 2.07%, 5.36% and 57.13%, respectively, and the ratio of net
investment income to average net assets would have been 1.84%, (1.28%) and
(52.86%) respectively.
/11/ Various expenses of the portfolios were voluntarily absorbed by IFG for
the years ended December 31, 1997. If such expenses had not been voluntarily
absorbed, the ratio of expenses to average net assets would have been 35.99%
and the ratio of net investment income to average net assets would have been
(34.86%).
/12/ Various expenses of the portfolio were voluntarily absorbed by the
portfolio's investment manager. Absent such reimbursement, "Investment
Management Fees," "Other Expenses" and "Total Portfolio Expenses" would have
been 1.0%, 0.18%, and 1.18%, respectively.
/13/ Various expenses of the portfolio were voluntarily absorbed by the
portfolio's investment manager. Absent such reimbursement, "Investment
Management Fees," "Other Expenses" and "Total Portfolio Expenses" would have
been 1.0%, 3.92%, and 4.92%, respectively.
/14/ Various expenses of the portfolio were voluntarily absorbed by the
portfolio's investment manager. Absent such reimbursement, "Investment
Management Fees," "Other Expenses" and "Total Portfolio Expenses" would have
been 1.0%, 0.34%, and 1.34%, respectively.
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Group or Sponsored Arrangements or Corporate Purchasers
Individuals, corporations or other institutions may purchase this policy. For
group or sponsored arrangements (including our home office employees),
corporate purchases, or special exchange programs which we may offer from time
to time, we may reduce or waive the:
* surrender charge, including the surrender charge on partial withdrawals;
* length of time a surrender charge applies;
* administrative charge;
* minimum stated death benefit;
* maximum target death benefit;
* minimum annual premium;
* target premium;
* sales charges;
* cost of insurance charges; or
* 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 where 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.
Sponsored arrangement 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 several states, we must pay state and local taxes, in addition to any
premium taxes which apply. Currently, these taxes are not large. However, if
these taxes increase, we may charge for such taxes when they are chargeable to
our variable divisions .
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
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. However, there is very
little guidance, with respect to policies issued on a substandard basis.
Nevertheless, we believe all our policies satisfy the applicable requirements
and keep within the spirit of the current law. If it is subsequently
determined that a policy does not satisfy the applicable requirements, we may
take appropriate steps to bring the policy into compliance with such
requirements and we reserve the right to restrict policy transactions in order
to do so.
Diversification Requirements
In addition to meeting the Code Section 7702 tests, Code Section 817(h)
requires separate account investments, such as our variable account, to be
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<PAGE>
sufficiently diversified. The Treasury has issued regulations which set the
standards for measuring the sufficiency of any diversification. To be
sufficiently 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 "evidence of ownership" in those assets. "Evidence of
ownership" includes the ability to exercise investment control over the
assets.
The Treasury has made further announcements, in connection with issuing its
temporary regulations concerning diversification. It states that the
diversification regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated
asset account may cause the investor (i.e., the policy owner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that the Treasury will issue further guidance in
the form of regulations or rulings. This guidance will help policyholders
direct their investments to particular subaccounts without being treated as
owners of the underlying assets.
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 the Treasury's
regulations or rulings that it expects to issue. 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.
Modified Endowment Contracts
Under the Internal Revenue Code, certain life insurance contracts are
classified as "modified endowment contracts," with less favorable tax
treatment than other life insurance contracts. Due to the flexibility of the
policies at to premiums and benefits, the individual circumstances of each
policy will determine whether 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 advisor to determine whether a policy
transaction will cause the policy to be classified as a modified endowment
contract.
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 accordingly.
3. A 10% additional income tax may be imposed on the amount subject to
tax. Consult a tax adviser to determine whether you may be subject to
this penalty tax.
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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 and only after the recovery of all
investment in the policy as 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 your aggregate premiums. When a
distribution is taken from the policy, 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.
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.
Tax Treatment of Policy Benefits
We believe that the death benefit under a policy is generally excludable from
the gross income of the beneficiary. However, there are exceptions to this
general rule. Federal, state 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. A tax adviser should
be consulted on 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 out from or secured by a Policy, the tax consequences
depend on whether the policy is a "Modified Endowment Contract."
Special rules may 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.
Alternative Minimum Tax
Special rules apply to life insurance contracts for the corporate alternative
minimum tax. Under these rules, the alternative minimum tax takes into
consideration:
* death benefit proceeds; and
* increases in cash value.
Additionally, distribution tax rules may apply in a modified form.
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
transactions. If you wish to take advantage of Section 1035, you should
consult your tax adviser.
Tax-exempt Policy Owners
Special rules may apply where a policy 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
53
<PAGE>
consequences could include an effect on the tax-exempt status of the entity
and the possibility of the unrelated business income tax.
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:
* make changes to your policy or its riders;
* require you to make additional premium payments; or
* make 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 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 for
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.
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 make
sure that your policy continues 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.
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:
* qualified plans;
* non-qualified deferred compensation or salary continuance plans;
* split dollar insurance plans;
* executive bonus plans;
* retiree medical benefit plans; and
* other plans.
The tax consequences of these plans may vary depending on the particular facts
and circumstances of each arrangement. So, if you want to use any of our
policy in this type of arrangement, you should consult a qualified tax adviser
regarding the tax issues of your particular arrangement.
The favorable tax treatment of Section 101(a) will not apply to benefits paid
at maturity of the policy (Age 100). The IRS has not given an official opinion
on policies that continue coverage past age 100. There are no clear guidelines
on how to keep these benefits within the definition of life insurance.
However, we believe our approach is appropriate and in keeping with the spirit
of the current law.
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.
Depending on your particular jurisdiction and the circumstances of you and
your beneficiary, tax consequences of ownership or receipt of your policy
benefits will vary. These taxes include federal estate and gift taxes, and
state and local inheritance taxes.
If a trustee under a pension or profit-sharing plan, or similar deferred
compensation arrangement, owns a policy, the federal, state and estate tax
consequences could differ. The amounts of life insurance that may be
purchased on behalf of a participant in a pension or profit-sharing plan are
limited. The current cost of insurance for the net amount at risk is treated
as a "current fringe benefit" and must be included annually in the plan
participant's gross income. We report this cost (generally referred to as the
"P.S. 59" cost) to the plan annually. If a policy is distributed to you from
the plan, the cash value is immediately taxable to the extent it exceeds your
basis. If the plan participant dies while covered by the plan and the policy
proceeds are paid to the participant's beneficiary, then the excess of the
death benefit over the cash value is not taxable. However, the balance of the
proceeds will generally be taxable to the extent it exceeds the participant's
cost basis in the policy. Policies owned under these types of plans may be
subject to restrictions under the Employee
54
<PAGE>
Retirement Income Security Act of 1974 ("ERISA"). You should consult a
qualified adviser regarding ERISA.
Possible Tax Law Changes
Although the likelihood of legislative changes is uncertain, there is always
the possibility that the tax treatment of the policy could change by
legislation or otherwise. consult a tax adviser with respect to legislative
developments and their effect on the policy.
Our Income Taxes
Under current law we pay no tax on investment income and capital gains
reflected in variable life insurance policy reserves (except to the extent the
federal deferred acquisition cost may be considered such a tax).
Consequently, no charge is currently being made to any division of our
variable account for our federal income taxes. We reserve the right, however,
to make such a charge in the future if the tax law changes and we incur
federal income tax which is attributable to the variable account.
We must pay state and local taxes (in addition to applicable taxes based on
premiums) in several states. At the present time, these taxes are not
substantial. However, if these taxes increase, we reserve the right to charge
for such taxes when they are attributable to our variable account.
YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON
FEDERAL, STATE, LOCAL, AND OTHER TAX CONSIDERATIONS.
55
<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 policies
illustrated include:
<TABLE>
<CAPTION>
Definition
Death of Life Stated Target
Tobacco User Benefit Insurance Death Death
Gender Age Status Option Test Benefit Premium Benefit
- ------ --- ---------- ------ -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Male 45 Non-tobacco User 1 CVAT 200,000 $3,750 200,000
Preferred
Male 45 Non-tobacco User 1 CVAT 100,000 $3,750 200,000
Preferred
Male 45 Non-tobacco User 1 GP 200,000 $3,750 200,000
Preferred
</TABLE>
The tables show how death benefits, account values, and cash surrender values
of a hypothetical policy could vary over an extended period of time, assuming
the variable divisions had constant hypothetical gross annual investment
returns of 0%, 6%, or 12% over the periods indicated in each table. The
amounts shown would differ if we had used female or unisex rates.
Values would differ from those in the tables if the annual investment returns
were not constant.
These illustrations assume there are no policy loans.
The third column of each table shows what would happen if an amount equal to
the assumed premiums were invested to earned interest after taxes, of 5%
compounded annually.
We illustrate premium payments as if they were made at the beginning of the
year.
The difference between the account value and the cash surrender value in the
first fourteen years of the policy shows the effect of the surrender charge.
The tables show the net investment return on your policy is lower than the
gross investment return on the variable divisions. We show this effect in the
amounts for death benefits, account values and cash surrender values. This
effect is due to deductions from premiums, the mortality and expense risk
charge, monthly deductions, cost of insurance rider charges, and surrender
charges. The tables show charges at our current rates. See Monthly
Deductions from Your Account Value, page 43. The tables also show these
charges at the maximum rates we guarantee in our policies.
The mortality and expense risk investment fee is 0.75% annually on a
guaranteed basis. These illustrations show current rates, which include a
persistency refund of 0.6% of the annual account value beginning after the
tenth policy anniversary.
The tables also reflect the effect on each division's investment performance
of the portfolio charge for management and portfolio expenses.
The tables reflect annual management fees of .6635% of the portfolios'
aggregate average daily net assets. This hypothetical rate is a simple
average of the investment advisory fee applying to the investment portfolios
for the
56
<PAGE>
years ending December 31, 1998. We assume other portfolio expenses at the
rate of .1274% of the portfolios' average daily net assets. This is an
average of all the portfolios' other expenses for the year ending December 31,
1998. These total .8387%. Actual fees vary by portfolio. The sponsor may
have agreements to waive or otherwise pay each investment division for
operating expenses which are greater than certain limits. The table's values
assume that the current expense reimbursement arrangements will continue.
However, they may not.
The effect of these charges and expenses, and mortality and expense risk
charges result in a net rate of return of:
* (1.53)% on a 0% gross rate of return;
* 4.42% on a 6% gross rate of return; and
* 10.38% on a 12% gross rate of return
The tables assume that charges have been deducted. This includes
administrative and sales charges. The tables show 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 a comparable personal illustration
based on:
* the insured person's age and gender;
* standard premium class assumptions;
* initial stated death benefit;
* the chosen death benefit option; and
* scheduled premiums consistent with your policy form.
At issue, we deliver an individualized illustration showing the scheduled
premium you chose and the insured person's actual risk class. 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.
57
<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.
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
Fred S. Hubbell Chairman and Chief Executive Officer
909 Locust St.
Des Moines, IA 50309
Stephen M. Christopher Director and President
Thomas F. Conroy Director, President Security Life Reinsurance
Michael W. Cunningham* Director, Executive Vice President
Linda B. Emory* Director, Executive Vice President and Appointed
Actuary
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
Eugene L. Copeland Senior Vice President and General Counsel, Security
Life Reinsurance and ING Institutional Markets
Michael Fisher Senior Vice President, Litigation
Carol D. Hard Senior Vice President, Variable Product Sales
Philip R. Kruse Senior Vice President, Sales & Marketing
Charles LeDoyen** Senior Vice President, Structured Settlements
58
<PAGE>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
Timothy P. McCarthy Senior Vice President, Marketing Services
Jeffery W. Seel* Senior Vice President, 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
Carole A. Baumbusch Vice President, Special Projects
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
Larry D. Erb Vice President, Information Technology
Martha K. Evans Vice President, Variable Product Sales
Fitz Fisher Vice President, Information Technology
Deborah B. Holden Vice President, Corporate Benefits
Brian Holland Vice President, Sales and International Risk
Management
Kenneth R. Kiefer** Vice President, Operations, Structured Settlements
Richard D. King Vice President, Medical Director
Gregory G. McGreevey Vice President, Marketing
C. Lynn McPherson* Vice President
Sue A. Miskie Vice President, Corporate Services
David S. Pendergrass* Vice President and Treasury Officer
59
<PAGE>
Name and Principal
Business and Address Position and Offices with Security Life of Denver
- -------------------- -------------------------------------------------
Stephen R. Pryde Vice President, Administration
Christiaan M. Rutten Vice President, Structured 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
William Wojciechowski Vice President, Sales and Marketing
Amy L. Winsor Treasurer and Finance Officer
Eric G. Banta Assistant Secretary
Roger O. Beebe Actuarial Officer
Marsha K. Crest Agency Administration Officer
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
60
<PAGE>
State Regulation
We are regulated and supervised by the Division of Insurance of the Department
of Regulatory Agencies of the State of Colorado which periodically examines
our financial condition and operations. In addition, we are subject to the
insurance laws and regulations in every jurisdiction in which we do business.
As a result, the provisions of this policy may vary somewhat from jurisdiction
to jurisdiction.
We are required to submit annual statements, including financial statements,
of our operations and finances to the insurance departments of the various
jurisdictions in which we do business to determine solvency and compliance
with state insurance laws and regulations.
We are also subject to various Federal securities laws and regulations.
Legal Matters
The legal matters in connection with the policy described in this prospectus
have been passed on by the General Counsel of Security Life and Sutherland,
Asbill & Brennan LLP.
Legal Proceedings
Security Life, as an insurance company, is ordinarily involved in litigation.
We do not believe that any current litigation is material to Security Life's
ability to meet its obligations under the policy or to the variable account,
and we do not expect to incur significant losses from such actions. ING
America Equities, Inc., the principal underwriter and distributor of the
policy, is not engaged in any litigation of any material nature.
Experts
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries at December 31, 1997 and 1996, and for each of the
three years in the period ended December 31, 1997, and the financial
statements of the Separate Account L1 at December 31, 1997, and for each of
the three years in the period ended December 31, 1997, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing
elsewhere herein, and are included in reliance upon such reports given upon
the authority of such firm as experts in accounting and auditing.
Actuarial matters in this prospectus have been examined by Lawrence D. Taylor,
F.S.A., M.A.A.A., who is Senior Vice President and Chief Actuary of Security
Life. His opinion on actuarial matters is filed as an exhibit to the
Registration Statement we filed with the SEC.
Registration Statement
We have filed a Registration Statement relating to the Variable Account and
the variable life insurance policy described in this prospectus with the SEC.
The Registration Statement, which is required by the Securities Act of 1933,
includes additional information that is not required in this prospectus under
the rules and regulations of the SEC. The additional information may be
obtained from the SEC's principal office in Washington, DC. You will have to
pay a fee for the material.
61
<PAGE>
FINANCIAL STATEMENTS
(the financial statements will be included as part of the 485(b) filing)
62
<PAGE>
APPENDIX A
(Appendix A will be included as part of the 485(b) filing)
63
<PAGE>
APPENDIX B
(Appendix B will be included as part of the 485(b) filing)
64
<PAGE>
APPENDIX C
(Appendix C will be included as part of the 485(b) filing)
65
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Incorporated herein by reference to Post-Effective Amendment No. 4 to the Form
S-6 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account L1, filed with the Securities and Exchange
Commission on May 1, 1997 (File No. 33-74190).
UNDERTAKING REGARDING INDEMNIFICATION
Incorporated herein by reference to Post-Effective Amendment No. 4 to the Form
S- 6 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account L1, filed with the Securities and Exchange
Commission on May 1, 1997 (File No. 33-74190).
UNDERTAKING REQUIRED BY SECTION 26(e)(2)(A) OF THE INVESTMENT
COMPANY ACT OF 1940, AS AMENDED
Security Life of Denver Insurance Company represents that the fees and charges
deducted under the Policy, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred and the risks assumed
by the Company.
Contents of Registration Statement
This Registration Statement comprises the following papers and documents:
The facing sheet.
Cross-Reference table.
The prospectuses.
FirstLine
FirstLine II
The undertaking to file reports.
The undertaking regarding indemnification.
The undertaking required by Section 26(e)2(A) of the Investment Company
Act of 1940, as amended.
The signatures.
Written consents of the following persons:
Lawrence D. Taylor (See Exhibit 6B).
Ernst & Young, L.L.P. (See Exhibit 7A).
Mayer, Brown & Platt (See Exhibit 7B).
II - 1
<PAGE>
The following exhibits:
1.A (1) Resolution of the Executive Committee of the Board of Directors of
Security Life of Denver Insurance Company ("Security Life of Denver")
authorizing the establishment of the Registrant.
(2) Not Applicable.
(3)(a) Security Life of Denver Distribution Agreement.
(b) Specimen Broker/Dealer Supervisory and Selling Agreement for
Variable Contracts with Compensation Schedule. /5/
(i) Broker/Dealer Supervisory and Selling Agreement for Variable
Contracts with Paine Webber Incorporated. /1/
(c) Commission Schedule for Policies. /5/
(4) Not Applicable.
(5)(a) Specimen Variable Universal Life Insurance Policy (Form No.
1195 (VUL)-5/97). /1/
(i) Specimen Variable Universal Life Policy Issued in
Massachusetts (Form No. 1195 (VUL)-MA-5/97). /1/
(ii)Specimen Variable Universal Life Policy Issued in Maryland.
(Form No. 1195 (VUL)-MA-5/97). /1/
(iii)Specimen Variable Universal Life Policy Issued in Texas.
(Form No. 1195 (VUL)-MA-5/97). /1/
(iv) Specimen Variable Universal Life Insurance Policy (Form
No. 2500 (VUL)-7/97). /2/
(v)Specimen Variable Universal Life Insurance Policy (Form No.
2502 (VUL)-6/98). /5/
(b) Adjustable Term Insurance Rider (Form No. R2000-3/96). /1/
(6)(a) Security Life of Denver's Restated Articles of Incorporation.
(b-g) Amendments to Articles of Incorporation through June 12, 1987.
(h) Security Life of Denver's By-Laws.
(i)Bylaws of Security Life of Denver Insurance Company
(Restated with Amendments through September 30, 1997). /4/
(7) Not Applicable.
(8)(a) Addendum to Sales Agreement.
(i)Participation Agreement by and among AIM Variable Insurance
Funds, Inc., Life Insurance Company, on Behalf of Itself and
its Separate Accounts and Name of Underwriter of Variable
Contracts and Policies. /5/
(ii)Sales Agreement by and among The Alger American Fund, Fred
Alger Management, Inc., and Security Life of Denver
Insurance Company.
(iii)Sales Agreement by and among Neuberger & Berman Advisers
Management Trust, Neuberger & Berman Management
Incorporated, and Security Life of Denver Insurance
Company.
(iv)Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Security Life
of Denver Insurance Company.
(v) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Security
Life of Denver Insurance Company.
(vi)Participation Agreement among INVESCO Variable Investment
Funds, Inc., INVESCO Funds Group, Inc., and Security Life
of Denver Insurance Company.
(vii)Participation Agreement between Van Eck Investment Trust
and the Trust's investment adviser, Van Eck Associates
Corporation, and Security Life of Denver Insurance Company.
(b) Amendments to Participation Agreements.
(i) First Amendment to Fund Participation Agreement between
Security Life of Denver, Van Eck Investment Trust and Van
Eck Associates Corporation. /5/
(ii)Second Amendment to Fund Participation Agreement between
Security Life of Denver,
II - 2
<PAGE>
Van Eck Worldwide Insurance Trust and Van Eck Associates
Corporation. /5/
(iii)Assignment and Modification Agreement between Neuberger &
Berman Advisers Management Trust, Neuberger & Berman
Management Incorporated, Neuberger & Berman Advisers
Management Trust, Advisers Managers Trust and Security
Life of Denver Insurance Company. /5/
(iv) First Amendment to Participation Agreement by and among The
Alger American Fund, Fred Alger Management, Inc., Security
Life of Denver Insurance Company.
(v) First Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company.
(vi) Second Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company.
(vii)First Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver Insurance Company.
(viii)Second Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of Denver
Insurance Company.
(ix) First Amendment to Participation Agreement among Security
Life of Denver Insurance Company, INVESCO Variable
Investment Funds, Inc. and INVESCO Funds Group, Inc.
(c) Service Agreement.
(d) Administrative Services Agreement between Security Life of Denver
and Financial Administrative Services Corporation.
(e) Amendment to Administrative Services Agreement between Security
Life of Denver and Financial Administrative Services Corporation.
(9) Not Applicable.
(10)(a) (i) Specimen Variable Life Insurance Application (Form No.
Q-2006-9/97). /2/
(ii) Specimen Variable Life Insurance Application (Form No.
Q-1155-98). /3/
2. Included as Exhibit 1.A(5) above.
3.A Opinion and Consent of Eugene L. Copeland as to securities being
registered.
B Opinion and Consent of Gary W. Waggoner as to securities being
registered.
4. Not Applicable.
5. Not Applicable.
6.A Opinion and Consent of Shirley A. Knarr. /4/
B Opinion and Consent of Lawrence D. Taylor.
7.A Consent of Ernst & Young L.L.P.
B Consent of Mayer, Brown & Platt.
8. Not Applicable.
_______________
/1/ Incorporated herein by reference to Post-Effective Amendment No. 4 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on April 30, 1997 (File No. 33-88148).
/2/ To be used on or before May 1, 1998.
/3/ To be used on or before May 1, 1998, where Exhibit 1.A(10)(a)(i) has not
been approved.
/4/ Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on October 29, 1997 (File No. 33-74190).
II - 3
<PAGE>
/5/ Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on March 2, 1998 (File No. 33-74190).
II - 4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Security Life of
Denver Insurance Company and the Registrant, Security Life Separate Account
L1, have duly caused this Post-Effective Amendment No. 8 to the Registration
Statement to be signed on their behalf by the undersigned, hereunto duly
authorized, and their seal to be hereunto fixed and attested, all in the City
and County of Denver and the State of Colorado on the 25th day of January,
1999.
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
BY: /s/ Stephen M. Christopher
----------------------
Stephen M. Christopher
President
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- ----------------------------
Gary W. Waggoner
SECURITY LIFE SEPARATE ACCOUNT L1
(Registrant)
BY: SECURITY LIFE OF DENVER
INSURANCE COMPANY
(Depositor)
BY: /s/ Stephen M. Christopher
--------------------------
Stephen M. Christopher
President
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- --------------------------
Gary W. Waggoner
II - 5
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 8 to the Registration Statement has been signed
below by the following persons in the capacities with Security Life of Denver
Insurance Company and on the date indicated.
PRINCIPAL EXECUTIVE OFFICERS:
/s/ Fred S. Hubbell
- ------------------------------
Fred S. Hubbell
Chairman and Chief Executive Officer
/s/ Stephen M. Christopher
- -------------------------------
Stephen M. Christopher
President
PRINCIPAL ACCOUNTING OFFICER:
/s/ Amy L. Winsor
- ------------------------------
Amy L. Winsor
Treasurer and Finance Officer
DIRECTORS:
/s/ Fred S. Hubbell
- ------------------------------
Fred S. Hubbell
/s/ Thomas F. Conroy
- -------------------------------
Thomas F. Conroy
/s/ Stephen M. Christopher
- -------------------------------
Stephen M. Christopher
II - 6
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
1.A(1) Resolution of the Executive Committee of the Board of
Directors of Security Life of Denver Insurance Company
("Security Life of Denver") authorizing the establishment of
the Registrant.
1.A(2) Not Applicable.
1.A(3)(a) Security Life of Denver Distribution Agreement.
1.A(3)(b) Specimen Broker/Dealer Supervisory and Selling Agreement for
Variable Contracts with Compensation Schedule. /5/
1.A(3)(b)(i) Broker/Dealer Supervisory and Selling Agreement for Variable
Contracts with Paine Webber Incorporated. /1/
1.A(3)(c) Commission Schedule for Policies.
1.A(4) Not Applicable.
1.A(5)(a) Specimen Variable Universal Life Insurance Policy (Form No.
1197 (VUL)-5/97). /1/
1.A(5)(a)(i) Specimen Variable Universal Life Insurance Policy issued in
Maryland (Form No. 1195(VUL)-MD-5/97). /1/
1.A(5)(a)(ii) Specimen Variable Universal Life Insurance Policy issued in
Massachusetts (Form No. 1195(VUL)-MA-5/97). /1/
1.A(5)(a)(iii) Specimen Variable Universal Life Insurance Policy issued in
Texas (Form No. 1195(VUL)-TX-5/97). /1/
1.A(5)(a)(iv) Specimen Variable Universal Life Insurance Policy (Form No.
2500 (VUL)-7/97). /2/
1.A(5)(a)(v) Specimen Variable Universal Life Insurance Policy (Form No.
2502 (VUL)-6/98). /5/
1.A(5)(b) Adjustable Term Insurance Rider (Form No. R2000-3/96). /1/
1.A(6)(a) Security Life of Denver's Restated Articles of Incorporation.
1.A(6)(b-g) Amendments to Articles of Incorporation through June 12, 1987.
1.A(6)(h) Security Life of Denver's By-Laws.
1.A(6)(h)(i) Bylaws of Security Life of Denver Insurance Company (Restated
with Amendments through September 30, 1997). /4/
1.A(7) Not Applicable.
1.A(8)(a) Addendum to Sales Agreement.
1.A(8)(a)(i) Participation Agreement by and among AIM Variable Insurance
Funds, Inc., Life Insurance Company, on Behalf of Itself and
its Separate Accounts and Name of Underwriter of Variable
Contracts and Policies. /5/
1.A(8)(a)(ii) Sales Agreement by and among The Alger American Fund, Fred
Alger Management, Inc., and Security Life of Denver Insurance
Company.
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<PAGE>
1.A(8)(a)(iii) Sales Agreement by and among Neuberger & Berman Advisers
Management Trust, Neuberger & Berman Management Incorporated,
and Security Life of Denver Insurance Company.
1.A(8)(a)(iv) Participation Agreement among Variable Insurance Products
Fund, Fidelity Distributors Corporation and Security Life of
Denver Insurance Company.
1.A(8)(a)(v) Participation Agreement among Variable Insurance Products
Fund II, Fidelity Distributors Corporation and Security
Life of Denver Insurance Company.
1.A(8)(a)(vi) Participation Agreement among INVESCO Variable Investment
Funds, Inc., INVESCO Funds Group, Inc., and Security Life of
Denver Insurance Company.
1.A(8)(a)(vii) Participation Agreement between Van Eck Investment Trust and
the Trust's investment adviser, Van Eck Associates Corporation,
and Security Life of Denver Insurance Company.
Amendments to Participation Agreements.
I.A(8)(b)(i) First Amendment to Fund Participation Agreement between
Security Life of Denver, Van Eck Investment Trust and Van Eck
Associates Corporation. /5/
1.A(8)(b)(ii) Second Amendment to Fund Participation Agreement between
Security Life of Denver, Van Eck Worldwide Insurance Trust and
Van Eck Associates Corporation. /5/
1.A(8)(b)(iii) Assignment and Modification Agreement between Neuberger &
Berman Advisers Management Trust, Neuberger & Berman Management
Incorporated, Neuberger & Berman Advisers Management Trust,
Advisers Managers Trust and Security Life of Denver Insurance
Company. /5/
1.A(8)(b)(iv) First Amendment to Participation Agreement by and among The
Alger American Fund, Fred Alger Management, Inc., Security Life
of Denver Insurance Company.
1.A(8)(b)(v) First Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation and
Security Life of Denver Insurance Company.
1.A(8)(b)(vi) Second Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation and
Security Life of Denver Insurance Company.
1.A(8)(b)(vii) First Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company.
1.A(8)(b)(viii) Second Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company.
1.A(8)(b)(ix) First Amendment to Participation Agreement among Security Life
of Denver Insurance Company, INVESCO Variable Investment Funds,
Inc. and INVESCO Funds Group, Inc.
1.A(8)(c) Service Agreement.
1.A(8)(d) Administrative Services Agreement between Security Life of
Denver and Financial Administrative Services Corporation.
1.A(8)(e) Amendments to Administrative Services Agreement between
Security Life of Denver and Financial Administrative Services
Corporation.
1.A(9) Not Applicable.
1.A(10)(a)(i) Specimen Variable Life Insurance Application (Form No.
Q-2006-9/97). /2, 4/
1.A(10)(a)(ii) Specimen Variable Life Insurance Application (Form No.
Q-1155-98). /3, 4/
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<PAGE>
2. Included as Exhibit 1.A(5) above.
3.A Opinion and Consent of Eugene L. Copeland as to securities
being registered.
B Opinion and Consent of Gary W. Waggoner as to securities being
registered.
4. Not Applicable.
5. Not Applicable.
6.A Opinion and Consent of Shirley A. Knarr. /4/
B Opinion and Consent of Lawrence D. Taylor.
7.A Consent of Ernst & Young L.L.P.
B Consent of Mayer, Brown and Platt.
8. Not Applicable.
___________________
/1/ Incorporated herein by reference to Post-Effective Amendment No. 2 to the
form S-6 registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on April 30, 1997 (File No. 33-88148).
/2/ To be used on or before May 1, 1998.
/3/ To be used on or before May 1, 1998, where Exhibit 1.A(10)(a)(i) has not
been approved.
/4/ Incorporated herein by reference to Post-Effective Amendment No. 5 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on October 29, 1997 (File No. 33-74190).
/5/ Incorporated herein by reference to Post-Effective Amendment No. 6 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on March 2, 1998 (File No. 33-74190).
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