As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. 333-34404
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
Pre-Effective Amendment No. 1
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SECURITY LIFE SEPARATE ACCOUNT L1
(Exact Name of Trust)
SECURITY LIFE OF DENVER INSURANCE COMPANY
(Name of Depositor)
1290 Broadway
Denver, Colorado 80203-5699
(Address of Depositor's Principal Executive Offices)
Copy to:
GARY W. WAGGONER, ESQ. 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)
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Title of securities being registered: Estate Designer variable life insurance
policies.
Approximate date of proposed public offering: as soon as practicable after the
effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
SECURITY LIFE SEPARATE ACCOUNT L1 (File No. 333-34404)
Cross-Reference Table
Form N-8B-2 Item No. Caption in Prospectus
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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
Values in the Variable Divisions;
Charges, Deductions and Refunds;
Surrender; Partial Withdrawals; 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 Policy; General Policy Provisions;
Guaranteed Interest Division
11, 12 Security Life Separate Account L1
13 Policy Summary; Charges, Deductions and Refunds;
and Group or Sponsored Arrangements, or
Corporate Purchasers
ii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
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14, 15 Policy Summary; Free Look Period; General Policy
Provisions; Applying for a Policy
16 Premiums; Allocation of Net Premiums; How We
Calculate Accumulation Unit Values
17 Premium Payments Affect Your Coverage; Surrender;
Partial Withdrawals
18 Policy Summary; Tax Considerations; Detailed
Information about the Policy; Security Life
Separate Account L1; Persistency Refund
19 Reports to Owners; Notification and
Claims Procedures; Performance Information
(Appendix B)
20 See 10(g) & 10(a)
21 Policy Loans
22 Policy Summary; Premiums; Grace Period; Security
Life Separate Account L1; Detailed Information
about the 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
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Form N-8B-2 Item No. Caption in Prospectus
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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 Values in the Variable Divisions;
How We Calculate Accumulation Unit Values
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the Policy
52 Determining Values 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
ESTATE DESIGNER
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 investment portfolio must accompany and should be read
together with this prospectus.
This policy is not available in all jurisdictions. This policy is not offered in
any jurisdiction where this type of offering is not legal. Depending on the
state where it is issued, policy features may vary. You should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information that is different.
We offer other products to insure the lives of two people which may or may not
better match your needs and interests.
Replacing your existing life insurance policy(ies) with this policy may not be
beneficial to you.
YOUR POLICY
o is a flexible premium variable joint and survivor universal life
insurance policy;
o is issued on two lives on whom insurance coverage may continue, in
whole or in part, until both have died;
o is issued by Security Life of Denver Insurance Company;
o is guaranteed not to lapse during the first five policy years if you
meet certain requirements; and
o is returnable by you during the free look period if you are not
satisfied.
YOUR PREMIUM PAYMENTS
o are flexible, so the premium amount and frequency may vary;
o are allocated to variable investment options and the guaranteed
interest division, based on your instructions;
o are invested in shares of the underlying investment portfolios under
each variable investment option; and
o can be invested in as many as eighteen investment options over the
policy's lifetime.
YOUR ACCOUNT VALUE
o is the sum of your holdings in the variable division, the guaranteed
interest division and the loan division;
o has no guaranteed minimum value under the variable division. The
value varies with the value of the underlying investment portfolio;
o has a minimum guaranteed rate of return for amounts in the guaranteed
interest division; and
o is subject to specified expenses and charges.
DEATH PROCEEDS
o are paid if the policy is in force at the death of the second of the
two insured people;
o are equal to the death benefit minus an outstanding policy loan,
accrued loan interest and unpaid charges incurred before the second
insured person dies;
o are calculated under your choice of options;
* Option 1- a fixed minimum death benefit;
* Option 2- a stated death benefit plus your account value;
* Option 3- a stated death benefit plus the sum of the
premiums we receive minus partial withdrawals; and
o are generally not federally income taxed if your policy continues to
meet the federal income tax definition of life insurance.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED THESE
SECURITIES OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS LIFE INSURANCE POLICY IS NOT A BANK DEPOSIT OR OBLIGATION, FEDERALLY
INSURED OR BACKED BY ANY BANK OR GOVERNMENT AGENCY.
DATE OF PROSPECTUS MAY 1, 2000
<PAGE>
ISSUED BY: Security Life of Denver UNDERWRITTEN BY: ING America Equities, Inc.
Insurance Company 1290 Broadway
ING Security Life Center Denver, CO 80203-5699
1290 Broadway (303) 860-2000
Denver, CO 80203-5699
(800) 525-9852
THROUGH ITS: Security Life Separate Account L1
ADMINISTERED BY: Customer Service Center
P.O. Box 173888
Denver, CO 80217-3888
(800) 848-6362
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Estate Designer 2
<PAGE>
TABLE OF CONTENTS
POLICY SUMMARY.................................................................4
Your Policy..............................................................4
Free Look Period.........................................................4
Premium Payments.........................................................4
Charges and Deductions...................................................4
Variable Division........................................................5
Fees and Expenses of the Investment Portfolios...........................5
Guaranteed Interest Division.............................................7
Policy Values............................................................7
Transfers of Account Value...............................................7
Special Policy Features..................................................7
Policy Modification, Termination and Continuation
Features............................................................8
Death Benefits...........................................................9
Tax Considerations.......................................................9
SECURITY LIFE, THE SEPARATE ACCOUNT
AND THE INVESTMENT OPTIONS..............................................11
Security Life of Denver Insurance Company...............................11
Security Life Separate Account L1.......................................11
Investment Portfolio Objectives.........................................12
Guaranteed Interest Division............................................17
Maximum Number of Investment Options....................................17
DETAILED INFORMATION ABOUT THE
POLICY..................................................................17
Applying for a Policy...................................................17
Temporary Insurance.....................................................18
Policy Issuance.........................................................18
Premiums................................................................19
Premium Payments Affect Your Coverage...................................20
Death Benefits..........................................................21
Riders..................................................................25
Special Features........................................................27
Policy Values...........................................................29
Transfers of Account Value..............................................30
Dollar Cost Averaging...................................................31
Automatic Rebalancing...................................................32
Policy Loans............................................................33
Partial Withdrawals.....................................................34
Lapse...................................................................35
Reinstatement...........................................................36
Surrender...............................................................36
General Policy Provisions...............................................36
Free Look Period...................................................36
Your Policy........................................................37
Age ..............................................................37
Ownership..........................................................37
Beneficiary(ies)...................................................37
Collateral Assignment..............................................38
Incontestability...................................................38
Misstatements of Age or Gender.....................................38
Suicide............................................................38
Transaction Processing.............................................38
Telephone Privileges...............................................39
Non-participation..................................................39
Distribution of the Policies.......................................39
Advertising Practices and Sales Literature
.............................................................40
Settlement Provisions..............................................40
Administrative Information About the Policy.............................40
CHARGES, DEDUCTIONS AND REFUNDS...............................................42
Deductions from Premiums................................................42
Daily Deductions from the Separate Account..............................43
Monthly Deductions from Account Value...................................43
Policy Transaction Fees.................................................45
Persistency Refund......................................................45
Refund of Sales Charge..................................................46
Group or Sponsored Arrangements, or Corporate
Purchasers.........................................................46
TAX CONSIDERATIONS............................................................47
Tax Status of the Policy................................................47
Diversification Requirements............................................47
Tax Treatment of Policy Death Benefits..................................48
Modified Endowment Contracts............................................48
Multiple Policies.......................................................48
Distributions Other than Death Benefits from
Modified Endowment Contracts.......................................48
Distributions Other than Death Benefits from
Policies That Are Not Modified Endowment
Contracts..........................................................49
Investment in the Policy................................................49
Policy Loans............................................................49
Section 1035 Exchanges..................................................49
Tax-exempt Policy Owners................................................49
Possible Tax Law Changes................................................49
Changes to Comply with the Law..........................................50
Other...................................................................50
ILLUSTRATIONS.................................................................52
ADDITIONAL INFORMATION........................................................56
Directors and Officers..................................................56
Regulation..............................................................57
Legal Matters...........................................................57
Legal Proceedings.......................................................57
Experts.................................................................57
Registration Statement..................................................57
INDEX OF SPECIAL TERMS........................................................58
FINANCIAL STATEMENTS..........................................................59
APPENDIX A...................................................................160
APPENDIX B...................................................................161
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Estate Designer 3
<PAGE>
POLICY SUMMARY
YOUR POLICY
Your policy provides life insurance protection on the lives of two insured
people and insurance coverage may continue until both have died. The policy
includes the basic policy, applications and riders or endorsements. As long as
the policy remains in force, we pay a death benefit after the death of the
second of the insured people. While your policy is in force, you may access a
portion of your policy value by taking loans or partial withdrawals. You may
surrender your policy for its net cash surrender value. At the policy
anniversary nearest the younger insured person's 100th birthday you may
surrender the policy or continue it under the continuation of coverage option.
SEE CONTINUATION OF COVERAGE, PAGE 28.
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
Within limits as specified by law, you have the right to examine your policy and
return it for a refund of all premium payments we have received or the account
value, if you are not satisfied for any reason. The policy is then void. SEE
FREE LOOK PERIOD, PAGE 36.
PREMIUM PAYMENTS
The policy is a flexible premium policy because the amount and frequency of the
premium payments you make may vary within limits. You must make premium
payments:
o for us to issue your policy;
o sufficient to keep your policy in force; and
o as necessary to continue certain benefits.
Depending on the amount of premium you choose to pay, it may not be enough to
keep your policy or certain riders in force. SEE PREMIUMS, PAGE 19.
ALLOCATION OF NET PREMIUMS
This policy has premium-based charges which are subtracted from your payments.
We add the balance, or net premium, to your policy based on your investment
instructions. You may allocate the net premium among one or more variable
investment options and the guaranteed interest division. SEE ALLOCATION OF NET
PREMIUMS, PAGE 20.
CHARGES AND DEDUCTIONS
All charges presented here are current unless stated otherwise.
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This summary highlights some important points about your policy. The policy is
more fully described in the attached, complete prospectus. Please read it
carefully. "We," "us," "our" and the "company" refer to Security Life of Denver
Insurance Company. "You" and "your" refer to the policy owner. The owner is the
individual, entity, partnership, representative or party who may exercise all
rights over the policy and receive the policy benefits during the insured
people's lifetimes.
State variations are covered in a special policy form used 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 or your
agent/registered representative.
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Estate Designer 4
<PAGE>
CHARGES
Other Than Investment Portfolio Annual Expenses
(SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE 42)
<TABLE>
<CAPTION>
- -------------------------------------- ------------------------------------ ----------------------------------------
CHARGE WHEN CHARGE IS DEDUCTED AMOUNT DEDUCTED
- -------------------------------------- ------------------------------------ ----------------------------------------
<S> <C> <C>
Tax Charges Each premium payment received 2.5% for state and local taxes; 1.5%
for estimated federal income tax
treatment of deferred acquisition
costs.
- -------------------------------------- ------------------------------------ ----------------------------------------
Sales Charge Each premium payment received Percentage of policy or segment
premium up to target premium and above
target premium: year 1 up to target
8%, above target 4%; year 2-7 up to
target 8%, above target 1.5%; year 8+,
1.5% of all premium received.
- -------------------------------------- ------------------------------------ ----------------------------------------
Mortality & Expense Risk Charge Daily, included in unit value 0.002055% daily (0.75% annually)
- -------------------------------------- ------------------------------------ ----------------------------------------
Policy Charge Monthly from account value $15 per month for first ten policy
years and $9 per month thereafter.
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Monthly Administrative Charge Monthly from account value $0.06 per $1,000 death benefit for the
first ten policy years, $0.01 per
$1,000 death benefit for each policy
year. Applies to first $2,500,000 of
death benefit thereafter. These
maximum rates are guaranteed.
- -------------------------------------- ------------------------------------ ----------------------------------------
Cost of Insurance Charge Monthly from account value Varies based on current cost of
insurance rates and net amount at risk.
- -------------------------------------- ------------------------------------ ----------------------------------------
Rider Charges Monthly from account value Varies depending on the rider benefits
you choose.
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Partial Withdrawal Fee Transaction date from account value Up to $25.
- -------------------------------------- ------------------------------------ ----------------------------------------
Transfer Fee Transaction date from account value Twelve free transfers per policy year,
then $25 per transfer.
- -------------------------------------- ------------------------------------ ----------------------------------------
Illustration Fee Transaction date from account value One free illustration per policy year,
then a $25 fee may apply.
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Premium Allocation Change Charge Transaction date from account value Twelve free premium allocation changes
per policy year, then $25 per change.
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Continuation of Coverage Policy anniversary nearest younger One-time $400 administrative fee.
Administrative Fee insured person's 100th birthday
from account value
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</TABLE>
VARIABLE DIVISION
If you invest in the variable investment options, you may make or lose money
depending on market conditions. The variable investment options are described in
the prospectuses for the underlying investment portfolios. Each investment
portfolio has its own investment objective. SEE INVESTMENT PORTFOLIO OBJECTIVES,
PAGE 12.
FEES AND EXPENSES OF THE INVESTMENT
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Estate Designer 5
<PAGE>
PORTFOLIOS
The separate account purchases shares of the underlying investment portfolios at
net asset value. This price reflects investment management fees and other direct
expenses deducted from the portfolio assets. This table describes these fees and
expenses in gross amounts and net amounts after waiver or reimbursement of fees
or expenses by the investment portfolio advisers. Waivers or reimbursements are
voluntary and subject to change. The portfolio expense information was provided
to us by the portfolios and we have not independently verified this information.
These expenses are not direct charges against variable division assets or
reductions from contract values; rather these expenses are included in computing
each underlying portfolio's net asset value, which is the share price used to
calculate the unit values of the variable investment options. For a more
complete description of the portfolios' costs and expenses, see the prospectuses
for the portfolios.
INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
Fees and
Investment Total Expenses Total Net
Management Other Portfolio Waived or Portfolio
Portfolio Fees Expenses Expenses Reimbursed Expenses
--------- ---- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund 0.62% 0.11% 0.73% NA 0.73%
AIM V.I. Government Securities Fund 0.50% 0.40%/1/ 0.90% NA 0.90%
THE ALGER AMERICAN FUND
Alger American Growth Portfolio 0.75% 0.04% 0.79% NA 0.79%
Alger American Leveraged AllCap Portfolio 0.85% 0.08%/2/ 0.93% NA 0.93%
Alger American MidCap Growth Portfolio 0.80% 0.05% 0.85% NA 0.85%
Alger American Small Capitalization Portfolio 0.85% 0.05% 0.90% NA 0.90%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Growth Portfolio 0.58% 0.08% 0.66% NA 0.66%/3/
VIP Money Market Portfolio 0.18% 0.09% 0.27% NA 0.27%
VIP Overseas Portfolio 0.73% 0.18% 0.91% NA 0.91%/3/
FIDELITY VARIABLE INSURANCE PRODUCTS FUND II
VIP II Asset Manager Portfolio 0.53% 0.10% 0.63% NA 0.63%/3/
VIP II Index 500 Portfolio 0.24% 0.10% 0.34% 0.06% 0.28%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-Equity Income Fund /4/ 0.75% 0.44% 1.19% 0.02% 1.17%
INVESCO VIF-High Yield Fund /5/ 0.60% 0.48% 1.08% 0.01% 1.07%
INVESCO VIF-Small Company Growth Fund /6/ 0.75% 3.35% 4.10% 2.39% 1.71%
INVESCO VIF-Total Return Fund/7/ 0.75% 0.55% 1.30% 0.13% 1.17%
INVESCO VIF-Utilities Fund /8/ 0.60% 1.08% 1.68% 0.47% 1.21%
NEUBERGER BERMAN ADVISERS MANAGEMENT TRUST
Growth Portfolio 0.84% 0.08% 0.92% NA 0.92%
Limited Maturity Bond Portfolio 0.65% 0.11% 0.76% NA 0.76%
Partners Portfolio 0.80% 0.07% 0.87% NA 0.87%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund 1.00% 0.22% 1.22% NA 1.22%
Worldwide Emerging Markets Fund 1.00% 0.54% 1.54% 0.20%/9/ 1.34%
Worldwide Hard Assets Fund 1.00% 0.26% 1.26% NA 1.26%
Worldwide Real Estate Fund 1.00% 2.23% 3.23% 1.79%/10/ 1.44%
</TABLE>
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Estate Designer 6
<PAGE>
/1/ Included in AIM V.I. Government Securities Fund's "Other Expenses" is
0.10% of interest expense.
/2/ Included in Alger American Leveraged AllCap portfolio's "Other Expenses"
is 0.01% of interest expense.
/3/ Fidelity absorbed a portion of the portfolio and custodian expenses for
some portfolios with part of the brokerage commissions and un-invested
cash balances. After this absorption, "Total Portfolio Expenses" are 0.65%
for Growth portfolio, 0.87% for Overseas portfolio and 0.62% for Asset
Manager portfolio.
/4/ INVESCO absorbed a portion of VIF-Equity Income Fund's "Other Expenses"
and "Total Portfolio Expenses." After this absorption, these expenses are
0.42% and 1.17% respectively.
/5/ INVESCO absorbed a portion of VIF-High Yield Fund's "Other Expenses" and
"Total Portfolio Expenses." After this absorption, these expenses are
0.47% and 1.07% respectively.
/6/ INVESCO absorbed a portion of VIF-Small Company Growth Fund's "Other
Expenses" and "Total Portfolio Expenses." After this absorption, these
expenses are 0.96% and 1.71%, respectively.
/7/ INVESCO absorbed a portion of VIF-Total Return Fund's "Other
Expenses" and "Total Portfolio Expenses." After this absorption, these
expenses are 0.42% and 1.17%, respectively.
/8/ INVESCO absorbed a portion of VIF-Utilities Fund's "Other Expenses" and
"Total Portfolio Expenses." After this absorption, these expenses are
0.61% and 1.21%, respectively.
/9/ Van Eck Associates Corporation absorbed expenses exceeding 1.30% of the
Fund's average daily assets, effective May 13, 1999.
/10/ Van Eck Associates Corporation absorbed certain expenses exceeding 1.50%.
The fund's expenses were also reduced by a fee arrangement based on cash
balances left on deposit with the custodian and a directed brokerage
arrangement where the fund directs certain portfolio trades to a broker
that, in turn, pays a potion of the fund's expenses.
GUARANTEED INTEREST DIVISION
The guaranteed interest division guarantees principal and is part of our general
account. Any amount you direct into the guaranteed interest division is credited
with interest at a fixed rate. SEE GUARANTEED INTEREST DIVISION, PAGE 17.
POLICY VALUES
Your policy account value is the amount you have in the guaranteed interest
division, plus the amount you have in each variable investment option. If you
have an outstanding policy loan, your account value includes the amount in the
loan division. SEE POLICY VALUES, PAGE 29 AND PARTIAL WITHDRAWALS, PAGE 34.
YOUR ACCOUNT VALUE IN THE VARIABLE DIVISION
Accumulation units are the way we measure value in the variable division.
Accumulation unit value is the value of one unit of a variable investment option
on a valuation date. Each variable investment option has a different
accumulation unit value. SEE DETERMINING VALUES IN THE VARIABLE DIVISION, PAGE
29.
The accumulation unit value for each variable investment option reflects the
investment performance of the underlying investment portfolio during the
valuation period. Each accumulation unit value reflects asset-based charges
under the policy and the expenses of the investment portfolios. SEE DETERMINING
VALUES IN THE VARIABLE DIVISION, PAGE 29 AND HOW WE CALCULATE ACCUMULATION UNIT
VALUES, PAGE 30.
TRANSFERS OF ACCOUNT VALUE
With some limitations, you may make twelve free transfers among the variable
investment options or to the guaranteed interest division each policy year. We
charge $25 for each transfer over twelve in a policy year. There are
restrictions on transfers from the guaranteed interest division. SEE TRANSFERS
OF ACCOUNT VALUE, PAGE 30 AND POLICY TRANSACTION FEES, PAGE 45.
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Estate Designer 7
<PAGE>
SPECIAL POLICY FEATURES
DESIGNATED DEDUCTION INVESTMENT OPTION
You may designate one investment option from which we will deduct all of your
monthly deductions. SEE DESIGNATED DEDUCTION INVESTMENT OPTION, PAGE 27.
RIDERS
You may attach additional benefits to your policy by rider. In most cases, we
deduct a monthly charge from your account value for these benefits. SEE RIDERS,
PAGE 25.
DOLLAR COST AVERAGING
Dollar cost averaging is a systematic plan of transferring account values to
selected investment options. 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 31.
AUTOMATIC REBALANCING
Automatic rebalancing periodically reallocates your net account value among your
selected investment options to maintain your specified distribution of account
value among those investment options. Automatic rebalancing is free. SEE
AUTOMATIC REBALANCING, PAGE 32.
LOANS
You may take loans against your policy's net account value. We charge an annual
loan interest rate of 3.75%. We credit an annual interest rate of 3% on amounts
held in the loan division as collateral for your loan. Beginning in your
eleventh policy year, where permitted by law, we may include amounts in the loan
division for calculation of your policy's persistency refund. SEE POLICY LOANS,
PAGE 33.
Loans may have tax consequences. SEE TAX CONSIDERATIONS, PAGE 47.
PARTIAL WITHDRAWALS
You may withdraw part of your net account value any time after your first policy
anniversary. You may make only one partial withdrawal per policy year. Partial
withdrawals may reduce your policy's death benefit and will reduce your account
value. SEE PARTIAL WITHDRAWALS, PAGE 34.
Partial withdrawals may have tax consequences. SEE TAX CONSIDERATIONS, PAGE 47.
PERSISTENCY REFUND
Beginning in your eleventh policy year, where permitted by law, we add a
persistency refund to your account value. SEE PERSISTENCY REFUND, PAGE 45.
REFUND OF SALES CHARGE
We guarantee that if you surrender your policy within the first two policy years
and it has not lapsed, we will refund some of the sales charge we previously
deducted from the premiums we received in your first policy year. SEE REFUND OF
SALES CHARGE, PAGE 46.
POLICY MODIFICATION, TERMINATION AND CONTINUATION FEATURES
RIGHT TO EXCHANGE POLICY
For 24 months after the policy date you may exchange your policy for a
guaranteed policy, unless law requires differently. There is no charge for this
exchange. SEE RIGHT TO EXCHANGE POLICY, PAGE 28.
POLICY SPLIT OPTION
Under certain circumstances, you may split your policy into two separate life
insurance policies each insuring the life of one insured person. This split may
occur upon divorce between the two insured people, business dissolution, or a
possible adverse future change in the tax law, unless law requires otherwise.
The policy split option is free. SEE POLICY SPLIT OPTION, PAGE 27.
SURRENDER
You may surrender your policy for its net cash surrender value at any time
before the death of both of the insured people. All insurance coverage ends on
the date we receive your request. SEE SURRENDER, PAGE 36.
LAPSE
In general, insurance coverage continues as long as your net account value is
enough to pay the monthly deductions. However, your policy and its riders are
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Estate Designer 8
<PAGE>
guaranteed not to lapse during the first five years of your policy if the
conditions of the special continuation period have been met. SEE LAPSE, PAGE 35
AND SPECIAL CONTINUATION PERIOD, PAGE 20.
REINSTATEMENT
You may reinstate your policy and its riders within five years of its lapse if
you still own the policy and the insured people are still living and meet our
underwriting requirements.
You will need to give proof of insurability. You will also need to pay required
reinstatement premiums.
If you had a policy loan existing when coverage ended, we will reinstate it with
accrued loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 36.
POLICY MATURITY
If at least one of the insured people is still living on the maturity date or
the policy anniversary nearest the younger insured person's 100th birthday and
you do not choose to let the continuation of coverage feature become effective,
you must surrender your policy. We will pay the net account value. Your policy
then ends. SEE POLICY MATURITY, PAGE 28.
CONTINUATION OF COVERAGE
At the policy anniversary nearest the younger insured person's 100th birthday,
you may choose to let the continuation of coverage feature become effective. If
you do so, we will deduct a one-time administrative fee of $400 and keep your
policy in force. SEE CONTINUATION OF COVERAGE, PAGE 28.
DEATH BENEFITS
After the death of both of the insured people, we pay death proceeds to the
beneficiary(ies) if your policy is still in force. Based on the death benefit
option you have chosen, the base death benefit varies.
We generally require a minimum target death benefit of $500,000 to issue your
policy. If you have an adjustable term insurance rider, the minimum stated death
benefit required is $1,000 so long as the target death benefit is $500,000. SEE
APPLYING FOR A POLICY, PAGE 17 AND DEATH BENEFITS, PAGE 21.
You may change your death benefit amount while your policy is in force, subject
to certain restrictions. SEE CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 24.
TAX CONSIDERATIONS
Under current federal income tax law, death benefits of life insurance policies
generally are not subject to income tax. In order for this treatment to apply,
the policy must qualify as a life insurance contract. We believe it is
reasonable to conclude that the policy will qualify as a life insurance
contract. SEE TAX STATUS OF THE POLICY, PAGE 47.
Assuming the policy qualifies as a life insurance contract under current federal
income tax law, your account value earnings are generally not subject to income
tax as long as they remain within your policy. However depending on
circumstances, the following events may cause taxable consequences for you:
o partial withdrawals;
o surrender; or
o lapse.
In addition, if your policy is a modified endowment contract, a loan against or
secured by the policy may cause income taxation. A penalty tax may be imposed on
a distribution from a modified endowment contract as well. SEE MODIFIED
ENDOWMENT CONTRACTS, PAGE 48.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
You should consult a qualified legal or tax adviser before you purchase your
policy.
- --------------------------------------------------------------------------------
Estate Designer 9
<PAGE>
HOW THE POLICY WORKS
<TABLE>
<S> <C> <C>
YOUR PREMIUM Premium Deductions
You make a premium ---------------------------->
payment
o sales charge
o tax charges
<----------------------------
NET PREMIUM
We allocate the net
premium to the investment
options you choose
|
|
-----------------------------------------
| |
\/ \/
GUARANTEED VARIABLE INVESTMENT INVESTMENT PORTFOLIOS The investment
INTEREST DIVISION OPTIONS The variable investment manager deducts
Amounts you allocate Amounts you allocate are <-- options invest in investment
are held in our general account held in our separate account --> investment portfolios ------> management fees
| | and other
----------------------------------------- portfolio expenses
|
|
o persistency refund Refunds |
o refund of sales ------------>| Monthly Deductions o policy charge
charge (if surrendered | ---------------------> o cost of insurance
in years 1 - 3) | | charge
| | o monthly administrative
\/ | charge
ACCUMULATED VALUE | o rider charges
The total value of your --|
policy |
| | Separate Account
| | Deductions
| |---------------------> o mortality and expense
\/ | risk charge
LOAN DIVISION |
Amount set aside to |
secure a policy loan |
|
| Transaction Fees o partial withdrawal fee
---------------------> o transfer fee
o illustration fee
o premium allocation
change charge
o continuation of
coverage administrative fee
</TABLE>
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Estate Designer 10
<PAGE>
SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
SECURITY LIFE OF DENVER INSURANCE COMPANY
Security Life of Denver Insurance Company (Security Life) is a stock life
insurance company organized under the laws of the State of Colorado in 1929. Our
headquarters are located at 1290 Broadway, Denver, Colorado 80203-5699. We are
admitted to do business in the District of Columbia and all states except New
York. At the close of 1999, the company and its consolidated subsidiaries had
over $184.2 billion of life insurance in force. As of December 31, 1999 our
total assets were over $11.3 billion and our shareholder's equity was over $899
million.
We have a complete line of life insurance products, including:
o annuities;
o individual life;
o group life;
o pension products; and
o market life reinsurance.
Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING").
ING is one of the world's three largest diversified financial services
organizations. ING is headquartered in Amsterdam, The Netherlands. It has
consolidated assets over $495.0 billion on a Dutch (modified U.S.) generally
accepted accounting principles basis, as of December 31, 1999.
The principal underwriter and distributor for our policies is ING America
Equities, Inc. ING America Equities is a stock corporation organized under the
laws of the State of Colorado in 1993. It is a wholly owned subsidiary of
Security Life and is registered as a broker-dealer with the SEC and the NASD.
ING America Equities, Inc. is located at 1290 Broadway, Denver, Colorado
80203-5699.
SECURITY LIFE SEPARATE ACCOUNT L1
SEPARATE ACCOUNT STRUCTURE
We established Security Life Separate Account L1 (the separate 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 separate account or Security Life.
The separate account is used to support our variable life insurance policies and
for other purposes allowed by law and regulation. We keep the separate account
assets separate from our general account and other separate accounts. We may
offer other variable life insurance contracts with different benefits and
charges that invest in the separate account. We do not discuss these contracts
in this prospectus. The separate account may invest in other securities not
available for the policy described in this prospectus.
The company owns all the assets in the separate account. We credit gains to or
charge losses against the separate account without regard to performance of
other investment accounts.
ORDER OF SEPARATE ACCOUNT LIABILITIES
Law provides that we may not charge general account liabilities against separate
account assets equal to its reserves and other liabilities. This means that if
we ever become insolvent, the separate account assets will be used first to pay
separate account policy claims. Only if separate account assets remain after
these claims have been satisfied can these assets be used to pay other policy
owners and creditors.
The separate account may have liabilities from assets credited to other variable
life policies offered by the separate account. If the assets of the separate
account are greater than required reserves and policy liabilities, we may
transfer the excess to our general account.
INVESTMENT OPTIONS
Investment options include the variable and the guaranteed interest divisions,
but not the loan division. The separate account has several variable investment
options which invest in shares of underlying investment portfolios. This means
that the investment performance of a policy depends on the performance of the
investment portfolios you choose. Each investment portfolio has its own
investment objective. These investment portfolios are not available directly to
individual investors.
- --------------------------------------------------------------------------------
Estate Designer 11
<PAGE>
They are available only as underlying investments for variable annuity and
variable life insurance contracts and certain pension accounts.
INVESTMENT PORTFOLIOS
Each of the investment portfolios is a separate series of an open-end management
investment company. The investment company receives investment advice from a
registered investment adviser who is not associated with us.
The investment portfolios sell shares to separate accounts of insurance
companies. These insurance companies may or may not be affiliated with us. This
is known as "shared funding." Investment portfolios may sell shares as the
underlying investment for both variable annuity and variable life insurance
contracts. This process is known as "mixed funding."
The investment portfolios may sell shares to certain qualified pension and
retirement plans that qualify under Section 401 of the Internal Revenue Code
("IRC"). As a result, a material conflict of interest may arise between
insurance companies, owners of different types of contracts and retirement plans
or their participants.
If there is a material conflict, we will consider what should be done, including
removing the investment portfolio from the separate 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.
INVESTMENT PORTFOLIO OBJECTIVES
Each investment portfolio has a different investment objective that it tries to
achieve by following its own investment strategy. The objectives and policies of
each investment portfolio affect its return and its risks. With this prospectus,
you must receive the current prospectus for each investment portfolio. We
summarize the investment objectives for each investment portfolio here. You
should read each investment portfolio prospectus.
Certain investment portfolios offered under this policy have investment
objectives and policies similar to other funds managed by the portfolio's
investment adviser. The investment results of a portfolio may be higher or lower
than those of other funds managed by the same adviser. There is no assurance and
no representation is made that the investment results of any investment
portfolio will be comparable to those of another fund managed by the same
investment adviser.
Some investment portfolio advisers (or their affiliates) may pay us compensation
for servicing, administration or other expenses. The amount of compensation is
usually based on the aggregate assets of the investment portfolio from contracts
that we issue or administer. Some advisers may pay us more or less than others
and our affiliates may pay us significantly more.
- --------------------------------------------------------------------------------
Estate Designer 12
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO OBJECTIVES
- ------------------------------------ ------------------------------ --------------------------------------------------------
Variable Investment Option Investment Company/ Adviser/ Investment Objective
Manager/ Sub-Adviser
- ------------------------------------ ------------------------------ --------------------------------------------------------
<S> <C> <C>
AIM V.I. Capital Appreciation Fund Investment Company: Seeks growth of capital through investment in common
AIM Variable Insurance Funds stocks.
Investment Adviser:
A I M Advisors, Inc.
- ------------------------------------ ------------------------------ --------------------------------------------------------
AIM V.I. Government Securities Fund Investment Company: Seeks to achieve high current income consistent with
AIM Variable Insurance Funds reasonable concern for safety of principal.
Investment Adviser:
A I M Advisors, Inc.
- ------------------------------------ ------------------------------ --------------------------------------------------------
Alger American Growth Portfolio Investment Company: Seeks long-term capital appreciation by focusing on
The Alger American Fund growing companies that generally have broad product
Investment Adviser: lines, markets, financial resources and depth of
Fred Alger Management, Inc. management. Under normal circumstances, the portfolio
invests primarily in the equity securities of large
companies. The portfolio considers a large company to
have a market capitalization of $1 billion or greater.
- ------------------------------------ ------------------------------ --------------------------------------------------------
Alger American Leveraged AllCap Investment Company: Seeks long term-term capital appreciation by
Portfolio The Alger American Fund investing, under normal circumstances, in the equity
Investment Adviser: securities of companies of any size which demonstrate
Fred Alger Management, Inc. promising growth potential. The portfolio can
leverage, that is, borrow money, up to one-third of
its total assets to buy additional securities. By
borrowing money, the portfolio has the potential to
increase its returns if the increase in the value of
the securities purchased exceeds the cost of
borrowing, including interest paid on the money
borrowed.
- ------------------------------------ ------------------------------ --------------------------------------------------------
Alger American MidCap Growth Investment Company: Seeks long-term capital appreciation by focusing on
Portfolio The Alger American Fund midsize companies with promising growth potential.
Investment Adviser: Under normal circumstances, the portfolio invests
Fred Alger Management, Inc. primarily in the equity securities of companies having
a market capitalization within the range of companies
in the S&P MidCap 400 Index.
- ------------------------------------ ------------------------------ --------------------------------------------------------
Alger American Small Seeks long-term capital appreciation by focusing on
Capitalization Portfolio Investment Company: small, fast-growing companies that offer innovative
The Alger American Fund products, services or technologies to a rapidly
Investment Adviser: expanding marketplace. Under normal circumstances,
Fred Alger Management, Inc. the portfolio invests primarily in the equity
securities of small capitalization companies. A small
capitalization company is one that has a market
capitalization within the range of the Russell 2000
Growth Index or the S&P SmallCap 600 Index.
- ------------------------------------ ------------------------------ --------------------------------------------------------
- --------------------------------------------------------------------------------
Estate Designer 13
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO OBJECTIVES
- ------------------------------------ ------------------------------ --------------------------------------------------------
Variable Investment Option Investment Company/ Adviser/ Investment Objective
Manager/ Sub-Adviser
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIP Growth Portfolio Investment Company: Fidelity Seeks capital appreciation by investing in common
Variable Insurance Products stocks of companies that it believes have
Fund above-average growth potential, either domestic or
Investment Manager: foreign issuers.
Fidelity Management &
Research Company
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIP Money Market Portfolio Investment Company: Fidelity Seeks as high a level of current income as is
Variable Insurance Products consistent with the preservation of capital and
Fund liquidity by investing in U.S. dollar-denominated
Investment Manager: money market securities, including U.S. Government
Fidelity Management & securities and repurchase agreements, and entering
Research Company into reverse repurchase agreements.
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIP Overseas Portfolio Investment Company: Fidelity Seeks long-term growth of capital by investing at
Variable Insurance Products least 65% of total assets in foreign securities.
Fund
Investment Manager:
Fidelity Management &
Research Company
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIP II Asset Manager Portfolio Investment Company: Fidelity Seeks high total return with reduced risk over the
Variable Insurance Products long term by allocating its assets among stocks,
Fund II bonds, and short-term instruments.
Investment Manager:
Fidelity Management &
Research Company
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIP II Index 500 Portfolio Investment Company: Fidelity Seeks investment results that correspond to the total
Variable Insurance Products return of common stocks publicly traded in the United
Fund II States as represented by the S&P(R) 500.
Investment Manager:
Fidelity Management &
Research Company
Sub-Adviser:
Bankers Trust Company
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIF-Equity Income Fund Investment Company: INVESCO Seeks high current income, with growth of capital as a
Variable Investment Funds, secondary objective by investing at least 65% of its
Inc. assets in dividend-paying common and preferred
Investment Adviser: stocks. The rest of the fund's assets are invested in
INVESCO Funds Group, Inc. debt securities, and lower-grade debt securities.
Sub-Adviser:
INVESCO Capital Management,
Inc.
- ------------------------------------ ------------------------------ --------------------------------------------------------
- --------------------------------------------------------------------------------
Estate Designer 14
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO OBJECTIVES
- ------------------------------------ ------------------------------ --------------------------------------------------------
Variable Investment Option Investment Company/ Adviser/ Investment Objective
Manager/ Sub-Adviser
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIF-High Yield Fund Investment Company: INVESCO Seeks to provide a high level of current income by
Variable Investment Funds, investing substantially all of its assets in
Inc. lower-rated debt securities and preferred stock,
Investment Adviser: including securities issued by foreign companies.
INVESCO Funds Group, Inc.
Sub-Adviser:
INVESCO Capital Management,
Inc.
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIF-Small Company Growth Fund Investment Company: INVESCO Seeks long-term capital growth by investing at least
Variable Investment Funds, 65% of its assets in equity securities of companies
Inc. with market capitalizations of $2 billion or less.
Investment Adviser: The remainder of the fund's assets can be invested in
INVESCO Funds Group, Inc. a wide range of securities that may or may not be
Sub-Adviser: issued by small companies.
INVESCO Capital Management,
Inc.
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIF-Total Return Fund Investment Company: INVESCO Seeks to provide high total return through both growth
Variable Investment Funds, and current income by investing at least 30% of its
Inc. assets in common stocks of companies with a strong
Investment Adviser: history of paying regular dividends and 30% of its
INVESCO Funds Group, Inc. assets in debt securities. The remaining 40% of the
Sub-Adviser: fund is allocated among these and other investments at
INVESCO Capital Management, INVESCO's discretion, based upon current business,
Inc. economic and market conditions.
- ------------------------------------ ------------------------------ --------------------------------------------------------
VIF-Utilities Fund Investment Company: INVESCO Seeks capital appreciation and income by investing at
Variable Investment Funds, least 80% of its assets in companies doing business in
Inc. the utilities economic sector. The remainder of the
Investment Adviser: fund's assets are not required to be invested in the
INVESCO Funds Group, Inc. utilities economic sector.
Sub-Adviser:
INVESCO Capital Management,
Inc..
- ------------------------------------ ------------------------------ --------------------------------------------------------
Growth Portfolio Investment Company: Seeks growth of capital by investing mainly in common
Neuberger Berman Advisers stock mid-capitalization companies.
Management Trust
Investment Adviser:
Neuberger Berman Management
Inc.
Sub-Adviser:
Neuberger Berman, LLC
- ------------------------------------ ------------------------------ --------------------------------------------------------
- --------------------------------------------------------------------------------
Estate Designer 15
<PAGE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENT PORTFOLIO OBJECTIVES
- ------------------------------------ ------------------------------ --------------------------------------------------------
Variable Investment Option Investment Company/ Adviser/ Investment Objective
Manager/ Sub-Adviser
- ------------------------------------ ------------------------------ --------------------------------------------------------
Limited Maturity Bond Portfolio Investment Company: Seeks the highest available current income consistent
Neuberger Berman Advisers with liquidity and low risk to principal by investing
Management Trust mainly in investment-grade bonds and other debt
Investment Adviser: securities from U.S. Government and corporate issuers.
Neuberger Berman Management
Inc.
Sub-Adviser:
Neuberger Berman, LLC
- ------------------------------------ ------------------------------ --------------------------------------------------------
Partners Portfolio Investment Company: Seeks growth of capital by investing mainly in common
Neuberger Berman Advisers stock of mid- to large-capitalization companies.
Management Trust
Investment Adviser:
Neuberger Berman Management
Inc.
Sub-Adviser:
Neuberger Berman, LLC
- ------------------------------------ ------------------------------ --------------------------------------------------------
Worldwide Bond Fund Investment Company: Seeks high total return--income plus capital
Van Eck Worldwide Insurance appreciation--by investing globally, primarily in a
Trust variety of debt securities.
Investment Adviser and
Manager:
Van Eck Associates
Corporation
- ------------------------------------ ------------------------------ --------------------------------------------------------
Worldwide Emerging Markets Fund Investment Company: Seeks long-term capital appreciation by investing in
Van Eck Worldwide Insurance equity securities in emerging markets around the world.
Trust
Investment Adviser and
Manager:
Van Eck Associates
Corporation
- ------------------------------------ ------------------------------ --------------------------------------------------------
Worldwide Hard Assets Fund Investment Company: Seeks long-term capital appreciation by investing
Van Eck Worldwide Insurance primarily in "hard asset securities." Hard assets
Trust include precious metals, natural resources, real
Investment Adviser and estate and commodities. Income is a secondary
Manager: consideration.
Van Eck Associates
Corporation
- ------------------------------------ ------------------------------ --------------------------------------------------------
Worldwide Real Estate Fund Investment Company: Seeks high total return by investing in equity
Van Eck Worldwide Insurance securities of companies that own significant real
Trust estate or that principally do business in real estate.
Investment Adviser and
Manager:
Van Eck Associates
Corporation
- ------------------------------------ ------------------------------ --------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 16
<PAGE>
GUARANTEED INTEREST DIVISION
You may allocate all or a part of your net premium and transfer your net account
value into the guaranteed interest division. The guaranteed interest division
guarantees principal and is part of our general account. It pays interest at a
fixed rate that we declare.
The general account contains all of our assets other than those held in the
separate account (variable investment options) or other separate accounts.
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 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.
The amount you have in the guaranteed interest division is all of the net
premium you allocate to that division, plus transfers you make 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. This interest rate is never less than the minimum guaranteed
interest rate of 3% 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 to the guaranteed interest division on a daily basis. We pay
interest regardless of the actual investment performance of our account. We bear
all of the investment risk for the guaranteed interest division.
MAXIMUM NUMBER OF INVESTMENT OPTIONS
There are three divisions: the variable division, the guaranteed interest
division and the loan division. Under the variable division, there are numerous
variable investment options. SEE SECURITY LIFE SEPARATE ACCOUNT L1, PAGE 11 AND
INVESTMENT PORTFOLIO OBJECTIVES, PAGE 12.
You may invest in a total of eighteen investment options over the life of your
policy. Investment options include the variable and the guaranteed interest
divisions, but not the loan division.
As an example, if you have had funds in seventeen variable investment options
and the guaranteed interest division, these are the only investment options to
which you may later add or transfer funds. However, you could still take a
policy loan and access the loan division.
You may want to use fewer investment options in the early years of your policy,
so that you can invest in others in the future. If you invest in eighteen
variable investment options, you will not be able to invest in the guaranteed
interest division.
DETAILED INFORMATION ABOUT THE POLICY
This prospectus describes our standard Estate Designer 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 51 show how the policies work.
We offer other products to insure the lives of two people which may or may not
better match your needs and interests.
APPLYING FOR A POLICY
You purchase this variable universal life policy by submitting an application to
us. On the policy date, the joint equivalent age of the two insured people must
be no less than 15 and no more than age 85. The individual age of each insured
person must be no
- --------------------------------------------------------------------------------
Estate Designer 17
<PAGE>
more than 90 years of age on the policy date. There is no maximum age difference
between the two insured people.
The insured people are the two people on whose lives we issue the policy. The
insured people share some relationship and commonly include, among others:
husband and wife; business partners; parent and child; grandparent and
grandchild; and siblings. Upon the death of the second of the two insured people
we pay the death proceeds. SEE AGE, PAGE 37.
You may request that we back-date the policy up to six months to allow either or
both of the insured people to give proof of a younger age for the purposes of
your policy.
We may reduce the minimum 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 death benefit.
TEMPORARY INSURANCE
If you apply and qualify, we may issue temporary insurance in an amount equal to
the face amount of the permanent insurance for which you applied. The maximum
amount of temporary insurance for binding limited life insurance coverage is $3
million, which includes any other in-force coverage you have with us.
Temporary coverage begins when:
1. you have completed and signed our binding limited life insurance
coverage form;
2. we receive and accept a premium payment of at least your scheduled
premium (selected on your application); and
3. part I of the application is complete.
Temporary life insurance coverage ends on the earliest of:
o the date we return your premium payments;
o five days after we mail notice of termination to the address on your
application;
o the date your policy coverage starts;
o the date we refuse to issue a policy based on your application; or
o 90 days after you sign our binding limited life insurance coverage
form.
There is no death benefit under the temporary insurance agreement if:
o there is a material misrepresentation in your answers on the binding
limited life insurance coverage form;
o there is a material misrepresentation in statements on your
application;
o the person or persons intended to be the insured people die by
suicide or self-inflicted injury; or
o the bank does not honor your premium check.
POLICY ISSUANCE
Before we issue a policy, we require satisfactory evidence of insurability of
both insured people and payment of your initial premium. This evidence may
include a medical examination and completion of all underwriting and issue
requirements.
The policy date shown on your policy schedule determines:
o monthly processing dates;
o policy months;
o policy years; and
o policy anniversaries.
The policy date is not affected by when you receive the policy. We charge
monthly deductions from the policy date unless your policy specifies otherwise.
The policy date is determined one of three ways:
1. the date you designate on your application,
subject to our approval;
2. the back-date of the policy to save age, subject to our approval and
law; or
3. if there is no designated date or back-date, the policy date is:
o the date all underwriting and administrative requirements have
been met if we receive your initial premium before we issue your
policy; or
o the date we receive your initial premium if it is after we
approve your policy for issue.
DEFINITION OF LIFE INSURANCE
We apply a test to make sure that your policy meets the federal income tax
definition of life insurance.
- --------------------------------------------------------------------------------
Estate Designer 18
<PAGE>
The guideline premium/cash value corridor test applies to your policy. We may
limit premium payments relative to your policy death benefit under this test.
SEE TAX STATUS OF THE POLICY, PAGE 47.
PREMIUMS
You may choose the amount and frequency of premium payments, within limits. You
cannot make premium payments after the death of the second of the insured people
or after the continuation of coverage period begins. SEE CONTINUATION OF
COVERAGE, PAGE 28.
We consider any payment we receive to be a premium if you do not have an
outstanding loan and your policy is not in the continuation of coverage period.
After we deduct certain charges from your premium payment, we add the remaining
net premium to your policy.
SCHEDULED PREMIUMS
Your premiums are flexible. You may select your scheduled premium (within our
limits) when you apply for your policy. The scheduled premium, shown in your
policy and schedule, is the amount you choose to pay over a stated time period.
THIS AMOUNT MAY OR MAY NOT BE ENOUGH TO KEEP YOUR POLICY IN FORCE. You may
receive premium reminder notices for the scheduled premium on a quarterly,
semi-annual or annual basis. You are not required to pay the scheduled premium.
You may choose to pay your premium by electronic funds transfer each month. This
option is not available for your initial premium. The financial institution that
makes your electronic funds transfer may charge for this service.
You can change the amount of your scheduled premium within our minimum and
maximum limits at any time. If you fail to pay your scheduled premium or if you
change the amount of your scheduled premium, your policy performance will be
affected. During the special continuation period, your scheduled premium should
not be less than the minimum annual premium shown in your policy.
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. We may
require satisfactory evidence that the insured people are 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 at least one insured person is insurable if
your unscheduled premium payment will cause the net amount at risk to
increase; and
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 have
acknowledged in writing the new modified endowment contract status
for your policy.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 48 AND CHANGES TO COMPLY WITH THE LAW,
PAGE 50.
If you have an outstanding policy loan and you make an unscheduled payment, we
will consider it a loan repayment, unless you tell us otherwise. If your payment
is a loan repayment, we do not take tax or sales charges which apply to premium
payments.
TARGET PREMIUM
Target premium is not based on your scheduled premium. Target premium is
actuarially determined based on the age, gender and premium class of the insured
person. The target premium is used in determining your initial sales charge,
deferred sales charge and the sales compensation we pay. It may or may not be
enough to keep your policy in force. You are not required to pay the target
premium and there is no penalty for paying more or less. The target premium for
your policy and additional segments are listed in the policy schedule we provide
to you. SEE PREMIUMS, PAGE 19.
MINIMUM ANNUAL PREMIUM
To qualify for the special continuation period, you must pay a minimum annual
premium during each of your first five policy years.
Your minimum annual premium is based on:
- --------------------------------------------------------------------------------
Estate Designer 19
<PAGE>
o each insured person's age, gender and premium class;
o the stated death benefit of your policy; and
o riders on your policy.
Your minimum annual premium is shown in the schedule pages of your policy. We
may reduce the minimum annual premium for group or sponsored arrangements, or
for corporate purchasers.
SPECIAL CONTINUATION PERIOD
The special continuation period is the first five policy years. Under the
special continuation period, we guarantee that your policy will not lapse,
regardless of its net account value, if on a monthly processing date:
o the sum of all premiums you have paid, minus partial withdrawals that
you have taken, minus policy loans that you have taken, including
accrued loan interest is greater than or equal to;
o the minimum monthly premiums for each policy month from 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.
During the first five years of your policy if there is not enough net account
value to pay the monthly deductions and you have satisfied our requirements, we
do not allow your policy to lapse. We do not permanently waive policy charges.
Instead, we continue to deduct these charges which may result in a negative net
account value, unless you pay enough premium to prevent this. The negative
balance is your unpaid monthly deductions owing. At the end of the special
continuation period to avoid lapse of your policy you must pay enough premium to
bring the net account value to zero plus the amount that covers your estimated
monthly deductions for the following two months. SEE LAPSE, PAGE 35.
INVESTMENT DATE AND ALLOCATION OF NET PREMIUMS
The net premium is the balance remaining after we deduct tax and sales charges
from your premium payment.
Insurance coverage does not begin until we receive your initial premium. It must
be at least equal to the sum of the scheduled premiums which are due from your
policy date through your investment date. The investment date is the first date
we apply the net premium we have received to your policy. If we receive your
initial premium after we approve your policy for issue, the investment date is
the date we receive your initial premium.
We apply the net premium to your policy after:
a) we receive the required amount of premium;
b) all issue requirements have been received by our customer service
center; and
c) we have approved your policy for issue.
Amounts you designate for the guaranteed interest division will be allocated to
that division on the investment date. If your state requires the return of your
premium during the free look period, we initially invest amounts you have
designated for the variable division in the Fidelity VIP Money Market Portfolio.
We later transfer these amounts from the Money Market Portfolio to your selected
variable investment options, based on your most recent premium allocation
instructions, at the earlier of the following dates:
o five days after we mailed your policy plus your state free look
period has ended; or
o we have received your delivery receipt plus your state free look
period has ended.
If your state provides for return of account value during the free look period
or no free look period, we invest amounts you designated for the variable
division directly into your selected variable investment options.
We allocate all later premium payments to your policy on the valuation date of
receipt. We use your most recent premium allocation instructions specified in
whole numbers totaling 100% and using up to eighteen investment options over the
life of your policy. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 17.
You may make twelve free premium allocation changes per year, after which a $25
transaction fee applies. If you change your designated deduction investment
option from which monthly deductions are taken, we consider this a premium
allocation change for which there may be a charge. SEE DESIGNATED DEDUCTION
INVESTMENT OPTION, PAGE 27 AND POLICY TRANSACTION FEES, PAGE 45.
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Estate Designer 20
<PAGE>
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
Unless your policy is in the special continuation period, your coverage lasts
only as long as your net account value is enough to pay the monthly charges and
your account value is more than your outstanding policy loan plus accrued loan
interest. If you do not meet these conditions, your policy will enter the 61-day
grace period and you must make a premium payment to avoid lapse. SEE LAPSE, PAGE
35 AND GRACE PERIOD, PAGE 35.
If you pay your minimum premium each year during the first five policy years and
take no policy loan or withdrawals, we guarantee your policy and riders will not
lapse during the special continuation period, regardless of your net account
value. SEE SPECIAL CONTINUATION PERIOD, PAGE 20.
MODIFIED ENDOWMENT CONTRACTS
There are special federal income tax rules for distributions from life insurance
policies which are modified endowment contracts. These rules apply to policy
loans, surrenders and partial withdrawals. Whether or not these rules apply
depends upon whether or not the premiums we receive are greater than the
"seven-pay" limit.
If we find that your scheduled premium causes your policy to be a modified
endowment contract on your policy date, we will require you to acknowledge that
you know the policy is a modified endowment contract. We will issue your policy
based on the scheduled premium you selected. If you do not want your policy to
be issued as a modified endowment contract, you may reduce your scheduled
premium to a level which does not cause your policy to be a modified endowment
contract. We will then issue your policy based on the revised scheduled premium.
SEE MODIFIED ENDOWMENT CONTRACTS, PAGE 48.
DEATH BENEFITS
As a joint and survivor universal life insurance policy, your policy has a joint
nature to the death benefit. We do not pay death proceeds until the death of
both of the insured people. Your death benefit is calculated as of the date of
death of the second of the insured people.
You can decide the amount of insurance you need, now and in the future. You can
combine the long-term advantages of permanent life insurance (base coverage)
with the flexibility and short-term advantages of term life insurance. Both
permanent and term life insurance are available with your one policy.
Generally, we require a minimum target death benefit of $500,000. If you have an
adjustable term insurance rider, the minimum stated death benefit to issue a
policy is $1,000 as long as your target death benefit is at least $500,000. SEE
CHANGES IN DEATH BENEFIT AMOUNTS, PAGE 24.
It may be to your economic advantage to include part of your insurance coverage
under the adjustable term insurance rider. Both the cost of insurance under the
adjustable term insurance rider and the cost of insurance for the base death
benefit are deducted monthly from your account value and generally increase with
the age of the insured people. Use of the adjustable term insurance rider may
reduce the distribution allowance, but may increase the monthly cost of
insurance. SEE ADJUSTABLE TERM INSURANCE RIDER, PAGE 25.
DEATH BENEFIT SUMMARY
THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES AND NO REQUESTED OR SCHEDULED
INCREASES OR DECREASES IN STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL
WITHDRAWALS ARE LESS THAN THE PREMIUM WE RECEIVE.
<TABLE>
<CAPTION>
OPTION 1 OPTION 2 OPTION 3
===================== ===================================== ==================================== ===============================
<S> <C> <C> <C>
STATED DEATH The amount of policy death The amount of policy death The amount of policy death
BENEFIT benefit at issue, not including benefit at issue, not including benefit at issue, not including
rider coverage. This amount rider coverage. This amount rider coverage. This amount
stays level throughout the stays level throughout the stays level throughout the life
life of the policy. life of the policy. of the policy.
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Estate Designer 21
<PAGE>
<CAPTION>
OPTION 1 OPTION 2 OPTION 3
===================== ===================================== ==================================== ===============================
<S> <C> <C> <C>
BASE DEATH The greater of the stated The greater of the stated The greater of the stated death
BENEFIT death benefit or the account death benefit plus the benefit plus the sum of all
value multiplied by the account value or the account premiums we receive minus
appropriate factor from the value multiplied by the partial withdrawals you have
definition of life insurance appropriate factor from the taken, or the account value
factors. definition of life insurance multiplied by the appropriate
factors. factor from the definition of
life insurance factors.
TARGET DEATH Stated death benefit plus Stated death benefit plus Stated death benefit plus
BENEFIT adjustable term insurance adjustable term insurance adjustable term insurance
rider benefit. This amount rider benefit. This amount rider benefit. This amount
remains level throughout the remains level throughout the remains level throughout the
life of the policy. life of the policy. life of the policy.
TOTAL DEATH It is the greater of the target It is the greater of the target It is the greater of the target
BENEFIT death benefit or the base death benefit plus the death benefit plus the sum of
death benefit. account value or the base all premiums we receive
death benefit. minus partial withdrawals you
have taken or the base death
benefit.
ADJUSTABLE The adjustable term The adjustable term The adjustable term insurance
TERM insurance rider benefit is the insurance rider benefit is the rider benefit is the total death
INSURANCE total death benefit minus total death benefit minus the benefit minus the base death
RIDER BENEFIT base death benefit, but it will base death benefit, but it will benefit, but it will not be less
not be less than zero. If the not be less than zero. If the than zero. If the account
account value multiplied by account value multiplied by value multiplied by the death
the death benefit corridor the death benefit corridor benefit corridor factor is
factor is greater than the factor is greater than the greater than the stated death
stated death benefit, the stated death benefit plus the benefit plus the sum of all
adjustable term insurance account value, the adjustable premiums we receive minus
benefit will be decreased. It term insurance rider benefit partial withdrawals you have
will be decreased so that the will be decreased. It will be taken, the adjustable term
sum of the base death benefit decreased so that the sum of insurance rider benefit will be
and the adjustable term the base death benefit and decreased. It will be
insurance rider benefit is not the adjustable term insurance decreased so that the sum of
greater than the target death rider benefit is not greater the base death benefit and the
benefit. If the base death than the target death benefit adjustable term insurance
benefit becomes greater than plus the account value. If the rider benefit is not greater
the target death benefit, then base death benefit becomes than the target death benefit
the adjustable term insurance greater than the target death plus the sum of all premiums
rider benefit is zero. benefit plus the account we receive minus partial
value, then the adjustable withdrawals you have taken.
term insurance rider benefit If the base death benefit
is zero. becomes greater than the
target death benefit plus the
sum of all premiums we receive
minus partial withdrawals you
have taken, then the adjustable
term insurance rider benefit is
zero.
</TABLE>
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Estate Designer 22
<PAGE>
BASE DEATH BENEFIT
Your base death benefit can be different from your stated death benefit as a
result of:
o your choice of death benefit option;
o increases or decreases in the stated death benefit; or
o a change in your death benefit option.
Federal income tax law requires that your death benefit be at least as much as
your account value multiplied by a factor defined by law. This factor is based
on:
o the insured person's age;
o the insured person's gender.
o the cash value accumulation test for the federal income tax law
definition of life insurance. SEE APPENDIX A, PAGE 160.
As long as your policy is in force, we will pay the death proceeds to your
beneficiary(ies) calculated at the date of the death of the second of the
insured people. The beneficiary(ies) is(are) the person (people) you name to
receive the death proceeds from your policy. The death proceeds are:
o your base death benefit; plus
o rider benefits; minus
o your outstanding policy loan with accrued loan interest; minus
o outstanding policy charges incurred before the death of the second of
the two insured people.
There could be outstanding policy charges if the date of death of the second of
the insured people happens while your policy is in the grace period or in the
five-year special continuation period.
DEATH BENEFIT OPTIONS
You have a choice of three death benefit options: option 1, option 2 or option 3
(described below). You may choose death benefit option 3 only prior to the issue
of your policy. Your choice may result in your base death benefit being greater
than your stated death benefit.
Under death benefit option 1, your base death benefit is the greater of:
1. your stated death benefit on the date of the death of the second of
the insured people; or
2. your account value on the date of death of the second of the insured
people multiplied by the appropriate factor from the definition of
life insurance factors shown in Appendix A.
Under option 1, positive investment performance generally reduces your net
amount at risk, which lowers your policy's cost of insurance charge. Option 1
offers insurance coverage that is a set amount with potentially lower cost of
insurance charges over time.
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
death of the second of the insured people; or
2. your account value on the date of death of the second of the insured
people multiplied by the appropriate factor from the definition of
life insurance factors shown in Appendix A.
Under option 2, investment performance is reflected in your insurance coverage.
If you choose death benefit option 3, the base death benefit is the greater of:
1. your stated death benefit plus the sum of all premiums we have
received minus partial withdrawals you have taken under your policy;
or
2. your account value on the date of death of the second of the insured
people multiplied by the appropriate factor from the definition of
life insurance factors shown in Appendix A.
Under option 3, the base death benefit generally will increase as we receive
premiums and decrease if you take partial withdrawals. In no event will your
base death benefit be less than your stated death benefit.
Death benefit options 2 and 3 are not available during the continuation of
coverage period. If you select option 2 or 3 on your policy, it automatically
converts to death benefit option 1 when the continuation of coverage period
begins. SEE CONTINUATION OF COVERAGE, PAGE 28.
CHANGES IN DEATH BENEFIT OPTIONS
You may request a change in your death benefit option at any time on or after
your first monthly
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Estate Designer 23
<PAGE>
processing date and before the continuation of coverage period begins. A death
benefit option change applies to your entire stated or base death benefit.
Changing your death benefit option may reduce or increase your target death
benefit, as well as your stated death benefit.
Your death benefit option change is effective on your next monthly processing
date after we approve it, so long as at least one day remains before your
monthly processing date. If less than one day remains before your monthly
processing date, your death benefit option change will be effective on your
second following monthly processing date.
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 make this change for you.
We may not approve a death benefit option change if it reduces the target or
stated death benefit below the minimum we require to issue your policy.
You may change from death benefit option 1 to option 2, from option 2 to option
1 or from option 3 to option 1. You may not change from death benefit option 1
or 2 to option 3, or option 3 to option 2. For you to change from death benefit
option 1 to option 2, we may require proof that the insured people are insurable
under our normal rule of underwriting.
On the effective date of your option change, your stated death benefit changes
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.
Option 3 Option 1 your stated death benefit before the change plus
the sum of the premiums we have received, minus
partial withdrawals you have taken as of the
effective date of the change.
We increase or decrease your stated death benefit to keep the net amount at risk
the same on the date of your death benefit option change. There is no change to
the amount of coverage under your adjustable term insurance rider. SEE COST OF
INSURANCE CHARGE, PAGE 44.
If you change your death benefit option, we adjust the stated death benefit for
each of your segments by allocating your account value to each benefit segment.
For example, if you change from death benefit option 1 to option 2, your stated
death benefit is decreased by the amount of your account value allocation to
that segment. If you change from death benefit option 2 to option 1, your stated
death benefit is increased by the amount allocated to that segment.
Changing your death benefit option may have tax consequences. You should consult
a tax adviser before making changes.
CHANGES IN DEATH BENEFIT AMOUNTS
Contact your agent/registered representative or our customer service center to
request a change in your policy's death benefit. The request is effective on the
next monthly processing date after we receive and approve your request. There
may be underwriting or other requirements which must be met before your request
can be approved. Your requested change must be for at least $1,000.
After we make your requested change, we will send you a new schedule page.
We may not approve a requested change if it will disqualify your policy as life
insurance under federal income tax law. If we disapprove a change for any
reason, we provide you with a notice of our decision. SEE TAX CONSIDERATIONS,
PAGE 47.
You may request a decrease in the stated death benefit only after your first
policy anniversary.
If you decrease your death benefit, you may not
- --------------------------------------------------------------------------------
Estate Designer 24
<PAGE>
decrease your target death benefit below the minimum we require to issue your
policy. You cannot decrease the stated death benefit below $1,000.
There may be tax consequences as a result of a change in your death benefit
amount. You should consult a tax adviser before changing your death benefit
amount. SEE TAX STATUS OF THE POLICY, PAGE 47 AND MODIFIED ENDOWMENT CONTRACTS,
PAGE 48.
Requested reductions in the death benefit will be applied first to decrease the
target death benefit. We decrease your stated death benefit only after your
adjustable term insurance rider coverage is reduced to zero. If you have more
than one segment, we divide decreases in stated death benefit among your benefit
segments pro rata unless law requires differently.
You may increase your target or stated death benefit after your first monthly
processing date and before the policy anniversary when the joint equivalent age
of the insured people is 85.
You must provide satisfactory evidence that the insured people are still
insurable to increase your death benefit. Unless you tell us differently, we
assume your request for an increase in your target death benefit is also a
request for an increase to your stated death benefit. Thus, the amount of your
adjustable term insurance rider will not change. You may change your target
death benefit once in a policy year. Keep it with your policy. We may ask you to
send your policy to us so that we can make the change for you.
The initial death benefit segment, or first segment, is the stated death benefit
on your policy's effective date. A requested increase in stated death benefit
will cause a new segment to be created. Once we create a new segment, it is
permanent unless law requires differently. The segment year runs from the
segment effective date to its anniversary.
Each new segment may have:
o a new minimum annual premium during the special continuation period;
o a new sales charge;
o new cost of insurance charges, guaranteed and current;
o a new incontestability period;
o a new suicide exclusion period; and
o a new target premium.
We allocate the net amount at risk among segments in the same proportion that
each segment bears to the total stated death benefit. Premiums we receive after
an increase are applied to your policy segments in the same proportion as the
target premium for each segment bears to the total target premium for all
segments. For each coverage segment, your schedule page shows your target
premium which is used to determined your sales charge.
RIDERS
Your policy may include benefits, attached by a rider. A rider may have an
additional cost. You may cancel riders at any time.
Periodically we may offer other riders not listed here. Contact your
agent/registered representative for a complete list of riders available.
Adding or canceling riders may have tax consequences. SEE MODIFIED ENDOWMENT
CONTRACTS, PAGE 48.
ADJUSTABLE TERM INSURANCE RIDER
You may increase your death proceeds by adding an adjustable term insurance
rider. This rider allows you to schedule the pattern of death benefits
appropriate for anticipated needs. As the name suggests, the adjustable term
insurance rider adjusts over time to maintain your desired level of coverage.
You specify a target death benefit when you apply for this rider. The target
death benefit can be level for the life of your policy or can be scheduled to
change at the beginning of a selected policy year(s). SEE DEATH BENEFITS, PAGE
21.
We generally require a minimum target death benefit of $500,000 to issue a
policy. If you have an adjustable term insurance rider, the minimum stated death
benefit to issue a policy is $1,000 as long as your target death benefit is at
least $500,000.
The adjustable term insurance rider death benefit is the difference between your
target death benefit and your base death benefit, but not less than zero. The
rider's death benefit automatically adjusts daily as your base death benefit
changes. Your death benefit depends on which death benefit option is in effect:
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Estate Designer 25
<PAGE>
OPTION 1: If option 1 is in effect, the total death benefit is the
greater of:
a. the target death benefit; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
OPTION 2: If option 2 is in effect, the total death benefit is the
greater of:
a. the target death benefit plus the account value; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
OPTION 3: If option 3 is in effect, the total death benefit is the
greater of:
a. the target death benefit plus the sum of the premiums
we have received minus partial withdrawals you have
taken; or
b. the account value multiplied by the appropriate factor
from the death benefit corridor factors in the policy.
For example, under option 1, assume your base death benefit changes as a result
of a change in your account value. The adjustable term insurance rider adjusts
to provide death benefits equal to your target death benefit in each year:
Base Death Target Death Adjustable Term
Benefit Benefit Insurance Rider Amount
------- ------- ----------------------
$501,500 $550,000 $48,500
502,500 550,000 47,500
502,250 550,000 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 $550,000 or more, the adjustable term
insurance would be 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 drops below your target death benefit, the adjustable term
insurance rider coverage reappears to maintain your 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 24.
We may deny future, scheduled increases to your target death benefit if you
cancel a scheduled change or if you ask for an unscheduled decrease in your
target death benefit.
Partial withdrawals, changes from death benefit option 1 to option 2 and base
decreases may reduce your target death benefit. SEE PARTIAL WITHDRAWALS, PAGE 34
AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 23.
There is no defined premium for a given amount of adjustable term insurance
coverage. Instead, we deduct a separate monthly cost of insurance charge from
your account value. The cost of insurance for this rider is calculated as the
monthly cost of insurance rate for the rider coverage multiplied by the
adjustable term death benefit in effect at the monthly processing date. The cost
of insurance rates are determined by us from time to time. They are based on the
issue ages, genders and premium classes of the insured people, as well as the
length of time since your policy date.
The only charge for this coverage is the cost of insurance charge. The total
charges you pay may be less if you have greater coverage under an adjustable
term insurance rider rather than as base death benefit. The monthly guaranteed
maximum cost of insurance rates for this rider are in your policy. SEE COST OF
INSURANCE CHARGE, PAGE 44.
If the target death benefit is increased by you after the adjustable term
insurance rider is issued, we use the same cost of insurance rate schedule for
the entire coverage for this rider. These rates are based on the original
premium classes even though satisfactory new evidence of insurability is
required for the increased schedule. The monthly guaranteed maximum cost of
insurance rates for this rider will be stated in the policy. SEE COST OF
INSURANCE CHARGE, PAGE 44.
Not all policy features apply to the adjustable term insurance rider. The rider
does not contribute to the policy account value nor to surrender value. It does
not affect investment performance and cannot be used for a policy loan. The
adjustable term insurance
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Estate Designer 26
<PAGE>
rider provides benefits only at the death of the second of the insured people.
SINGLE LIFE TERM INSURANCE RIDER
This rider provides a benefit upon the death of one of the primary insured
people under your policy. You may choose to add a single life term insurance
rider for just one insured person. Alternatively, you may add two single life
term insurance riders: one for each insured person. You may add this rider to
your policy at any time if both insured people are alive and insurable according
to our rules.
We will issue the single life term insurance rider on an insured person who is
between the ages of 15 and 85. Coverage may continue until the earlier of when:
o the insured person covered by this rider reaches age 100;
o the continuation of coverage provision becomes effective;
o the insured person covered by this rider dies;
o the grace period expires; or
o the policy is surrendered.
SEE CONTINUATION OF COVERAGE, PAGE 28.
The minimum amount of coverage for a single life term insurance rider is $1,000.
The maximum coverage under this rider is subject to our underwriting
determinations. At issue, you may schedule the rider's death benefit to increase
or decrease.
Your request for an increase or decrease in rider coverage is effective on the
next monthly processing date after we approve your request. There may be
underwriting or other requirements which must be met before we approve your
request. A requested change in your coverage must be for at least $1,000.
If you schedule or request an increase after issue, the person insured under
this rider will be subject again to our underwriting requirements.
The charge for this rider is based on the age, gender, premium class and
underwriting characteristics of the insured person. The charge for this rider is
deducted on each monthly processing date as a cost per each $1,000 of the net
amount at risk under the rider. See the policy schedule pages for information on
your actual cost.
SPECIAL FEATURES
DESIGNATED DEDUCTION INVESTMENT OPTION
You may designate an investment option from which we will deduct your monthly
charges. You may make this designation at any time. You may not use the loan
division as your designated deduction option.
You may elect not to choose a designated deduction investment option or the
amount in your designated deduction investment option may not be enough to cover
the monthly deductions. If so, these charges are taken from the variable and
guaranteed interest divisions in the same proportion that your account value in
each has to your total net account value on the monthly processing date.
If you change your designated deduction investment option, we consider this a
premium allocation change for which there may be a charge. SEE POLICY
TRANSACTION FEES, PAGE 45.
POLICY SPLIT OPTION
Under certain circumstances, you may exchange your policy for two single life
insurance policies: one on each of the two insured people. The policy split
option has its own insurability requirements which may be met at or before the
time your policy is split. Evidence of insurability is required for a new single
life policy where coverage is greater than 50% of your original policy death
benefit or for an insured person who is subject to certain underwriting ratings.
On the effective date of the policy split, the available death benefit under
your policy will be divided between the two new single life insurance policies.
You may take less than the maximum death benefit amount available.
Unless law requires otherwise, you may use the policy split option if:
a) three months following the effective date of a final divorce decree
regarding the marriage of the two insured people;
b) there is a change to the federal estate tax law which results in
either:
i) removal of the unlimited marital deduction provision; or
ii) a reduction in the current maximum federal estate tax of at
least 50% after your policy date; or
c) there is a dissolution of business conducted or owned by the two
insured people.
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Estate Designer 27
<PAGE>
You must send us written notice of your election to use the policy split option
within 180 days of the occurrence of an eligible event. You must provide
satisfactory evidence that the event has occurred.
The effective date of the policy split is the first monthly processing date
after we approve it. The insurance coverage under the two individual life
insurance policies will start on the effective date of the policy split only if
both insured people are alive on that date. If either insured person is not
alive on that date, your exchange is void.
All terms and conditions of the new policies apply once your policy is split and
they may differ from those of this policy. Consult your new single life
insurance policies.
The premiums for each new policy will be based on each insured person's age,
gender and premium class at the time of the split of your policy. Premiums will
be due for each new policy under the terms of the new policy. The account value
of the old policy will be allocated to the new policies on the effective date in
the same proportion that the face amount was divided between the two single life
insurance policies, unless we agree to a different allocation. If this
allocation causes an increase in the face amount of either of the new single
life policies, we may limit the account value you may apply to each new policy.
Any remaining account value will be paid to you in cash and may be taxable. The
refund of sales charge does not apply on a policy split.
If you have an outstanding policy loan it will be divided and transferred to
each new single life insurance policy in the same proportion as your account
value is allocated. Any remaining loan balance must be paid before the effective
date of the policy split. Any person or entity to which you have assigned your
policy must agree to the policy split. An assignment of your policy generally
will apply to each new single life insurance policy.
If you have a single life term insurance rider on your policy at the date of the
policy split, you may have a term insurance rider insuring the same insured
person if that rider is available on the new policy. Other riders may or may not
be available on the new policies and may be subject to new proof of
insurability.
Exercising the policy split option may be treated as a taxable transaction.
Moreover, the two single life insurance policies could be treated as modified
endowment contracts. SEE TAX CONSIDERATIONS, PAGE 47.
You may not split your policy into two single life insurance policies if any of
the following has happened:
a) the continuation of coverage period has begun;
b) one of the insured people has died;
c) your policy grace period has ended; or
d) your policy has been terminated or surrendered.
You should consult a tax adviser before exercising the policy split option.
RIGHT TO EXCHANGE POLICY
During the first 24 months after your policy date, you have the right to
exchange your policy for a guaranteed policy, unless law requires differently.
We transfer the amount you have in the variable division to the guaranteed
interest division. We allocate all of your future net premiums only to the
guaranteed interest division. We do not allow future payments or transfers to
the variable investment options after you exercise this right.
We will not charge you for this exchange. SEE GUARANTEED INTEREST DIVISION, PAGE
17.
POLICY MATURITY
You may surrender your policy at any time. At the policy anniversary nearest the
younger insured person's 100th birthday if you do not choose to let the
continuation of coverage feature become effective, the policy matures. You may
then surrender the policy for the net account value and end coverage. Part of
this payment may be taxable. You should consult your tax adviser.
CONTINUATION OF COVERAGE
The continuation of coverage feature allows your insurance coverage to continue
in force beyond policy maturity. If on the policy anniversary nearest the
younger insured person's 100th birthday you choose to allow the continuation of
coverage feature to become effective, we:
o convert target death benefit to stated death benefit;
o convert death benefit option 2 or 3 to death benefit option 1, if
applicable;
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Estate Designer 28
<PAGE>
o terminate all riders;
o deduct a one-time $400 administrative fee to
cover future expenses;
o transfer your net account value (excluding the amount in the loan
division) into the guaranteed interest division; and
o terminate dollar cost averaging and automatic rebalancing.
Your insurance coverage continues in force until the death of the second of the
insured people, unless the policy lapses or is surrendered. However:
o we accept no more premium payments;
o we deduct no further charges;
o your monthly deductions cease; and
o you may not make transfers into the variable division.
During the continuation of coverage period, you may take policy loans or partial
withdrawals from your policy. If we pay a persistency refund on the guaranteed
interest division, it will be credited to your policy. SEE PERSISTENCY REFUND,
PAGE 45.
If you have an outstanding policy loan, interest continues to accrue. If you
fail to make sufficient loan or loan interest payments, it is possible that the
loan balance plus accrued interest may become greater than your account value
and cause your policy to lapse. To avoid this lapse, you may make loan and loan
interest payments during the continuation of coverage period.
If you wish to stop coverage during the continuation of coverage period, you may
surrender your policy and receive the net account value. All normal consequences
of surrender apply. SEE SURRENDER, PAGE 36.
The continuation of coverage feature may not be available in all states. If a
state has approved this feature, it is an automatic feature and you do not need
to take any action to activate it.
The tax consequences of coverage continuing beyond the younger insured's
person's 100th birthday are uncertain. You should consult a tax adviser as to
those consequences.
POLICY VALUES
ACCOUNT VALUE
Your account value is the total amount you have in the guaranteed interest
division, the variable division and the loan division. Your account value
reflects:
o net premiums applied;
o charges deducted;
o partial withdrawals taken;
o investment performance of the variable investment options;
o interest earned on the guaranteed interest division; and
o interest earned on the loan division.
NET ACCOUNT VALUE
Your policy's net account value is your account value minus the amount of your
outstanding policy loan and accrued loan interest, if any.
CASH SURRENDER VALUE
Your cash surrender value is your account value plus any refund of sales charge
due.
NET CASH SURRENDER VALUE
Your net cash surrender value is your cash surrender value minus the amount of
your outstanding policy loan and accrued loan interest, if any.
DETERMINING VALUES IN THE VARIABLE DIVISION
The amounts in the variable division are measured by accumulation units and
accumulation unit values. The value of each variable investment option is the
accumulation unit value for that option multiplied by the number of accumulation
units you own in that option. Each variable investment option has a different
accumulation unit value.
The accumulation unit value is the value of one accumulation unit determined on
each valuation date. The accumulation unit value of each variable investment
option varies with the investment performance of the underlying portfolio. It
reflects:
o investment income;
o realized and unrealized gains and losses;
o investment portfolio expenses; and
o daily mortality and expense risk charges we take from the separate
account.
SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES, PAGE 30.
You purchase accumulation units when you allocate premium or make transfers to a
variable investment
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option, including transfers from the loan division.
We redeem accumulation units:
o when amounts are transferred from a
variable investment option (including transfers to the loan
division);
o for your policy's monthly deductions from your account value;
o for policy transaction charges;
o when you take a partial withdrawal;
o when you surrender your policy; and
o to pay the death proceeds.
We calculate the number of accumulation units purchased or sold by:
1. dividing the dollar amount of your transaction by:
2. the accumulation unit value for that variable investment option
calculated at the close of business on the valuation date of the
transaction.
A valuation date is one on which the net asset value of the investment portfolio
shares and unit values of the variable investment options are determined. A
valuation date is each day the New York Stock Exchange and the company's
customer service center are open for business, except for days on which an
investment portfolio does not value its shares or any other day as required by
law. Each valuation date ends at 4:00 p.m. Eastern time.
The date of a transaction is the date we receive your premium or transaction
request at our customer service center, so long as the date of receipt is a
valuation date. We use the accumulation unit value which is next calculated
after we receive your premium or transaction request and we use the number of
accumulation units attributable to your policy on the date of receipt.
We take monthly deductions from your account value on the monthly processing
date. If your monthly processing date is not a valuation date, the monthly
deduction is processed on the next valuation date.
The value of amounts allocated to the variable investment options goes up or
down depending on investment performance of the underlying investment portfolio.
FOR AMOUNTS IN THE VARIABLE INVESTMENT OPTIONS, THERE IS NO GUARANTEED MINIMUM
VALUE. HOW WE CALCULATE ACCUMULATION UNIT VALUES
We determine accumulation unit values on each valuation date.
We generally set the accumulation unit value for a variable investment option at
$10 when the investment option is first opened. After that first date, the
accumulation unit value on any valuation date is:
1. the accumulation unit value for the preceding valuation date
multiplied by
2. the variable investment option's accumulation experience factor 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 variable investment
option every valuation date as follows:
1. We take the share value of the underlying portfolio shares as
reported to us by the investment portfolio managers as of the close
of business on that valuation date.
2. We add dividends or capital gain distributions declared per share and
reinvested by the investment portfolio on the date that the share
value is affected. If applicable, we subtract a charge for taxes.
3. We divide the resulting amount by the value of the shares in the
underlying investment portfolio at the close of business on the
previous valuation date.
4. We then subtract the mortality and expense risk charge under your
policy. The daily charge is .002055% (.75% annually) of the
accumulation unit value. If the previous day was not a valuation
date, the charge is multiplied by the number of days since the last
valuation date.
TRANSFERS OF ACCOUNT VALUE
You may make twelve free transfers among the variable investment options or the
guaranteed interest
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division in each policy year, with a $25 fee per transaction after that. If your
state requires a refund of premium during the free look period, you may not make
transfers until after your free look period ends. We do not limit the number of
transfers you may make. Transfers for automatic rebalancing or dollar cost
averaging do not count toward your twelve free transfers. You may not make
transfers during the continuation of coverage period. SEE POLICY TRANSACTION
FEES, PAGE 45 AND CONTINUATION OF COVERAGE, PAGE 28.
You may make transfer requests in writing, or by telephone 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 you may transfer is
$100. This minimum does not need to come from one investment option or be
transferred to one investment option as long as the total amount you transfer is
at least $100. However, if the amount remaining in an investment option is less
than $100 and you make a transfer request from that investment option, we
transfer the entire amount.
EXCESSIVE TRADING
Excessive trading activity can disrupt investment portfolio management
strategies and increase portfolio expenses through:
o increased trading and transaction costs;
o forced and unplanned portfolio turnover;
o lost opportunity costs; and
o large asset swings that decrease the investment portfolio's ability
to provide maximum investment return to all policyowners.
In response to excessive trading, we may place restrictions or refuse transfers
made by third-party agents acting on behalf of owners such as market timing
services. We will refuse or place restrictions on transfers when we determine,
in our sole discretion, that transfers are harmful to the investment portfolios
or to policyowners as a whole.
GUARANTEED INTEREST DIVISION TRANSFERS
Transfers into the guaranteed interest division in each policy year are not
restricted.
You may transfer amounts from the guaranteed interest division only in the first
30 days of each policy year. Transfer requests received within 30 days before
your policy anniversary will be processed on your policy anniversary. A request
received by us within 30 days after your policy anniversary is effective on the
valuation date we receive it. Transfer requests made at any other time will not
be processed.
Transfers from the guaranteed interest division in each policy year are limited
to the largest of:
o 25% of your guaranteed interest division balance at the time of your
first transfer or withdrawal out of it in that policy year;
o the sum of the amounts you have transferred and withdrawn from the
guaranteed interest division in the prior policy year; or
o $100.
DOLLAR COST AVERAGING
If your policy has at least $10,000 invested in either qualifying source
investment portfolio, you may elect dollar cost averaging. The qualifying source
investment portfolios are the Fidelity VIP Money Market Portfolio or the
Neuberger Berman AMT Limited Maturity Bond Portfolio. The main goal of dollar
cost averaging is to protect your policy values from short-term price changes.
DOLLAR COST AVERAGING DOES NOT ASSURE A PROFIT NOR DOES IT PROTECT YOU AGAINST A
LOSS IN A DECLINING MARKET.
This systematic plan of transferring account values is intended to reduce the
risk of investing too much when the price of an investment portfolio's shares is
high. It is intended to reduce 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 investment options each period, you purchase more units in an
investment option when the unit value is low and you purchase fewer units if the
unit value is high.
We do not count dollar cost averaging transfers toward your twelve free
transfers per policy year. There is no charge for this feature.
You may add dollar cost averaging to your policy at any time. The first dollar
cost averaging date must be at least one day after we receive your dollar cost
averaging request. If your state requires refund of all premiums we receive
during the free look period, dollar cost averaging cannot begin until your free
look period has ended.
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With dollar cost averaging, you designate either a dollar amount or a percentage
of your account value for automatic transfer from a qualifying source investment
portfolio. Each period we automatically transfer the amount you select from your
chosen source investment portfolio to one or more other variable investment
options. You may not use the guaranteed interest division or the loan division
in dollar cost averaging.
The minimum percentage you may transfer to any one investment option is 1% of
the total amount you transfer. You must transfer at least $100 on each dollar
cost averaging transfer date.
Dollar cost averaging may occur on the same day of the month on a monthly,
quarterly, semi-annual or annual basis. Unless you tell us otherwise, dollar
cost averaging automatically takes place monthly on the monthly processing date.
You may have both dollar cost averaging and automatic rebalancing at the same
time. However, the dollar cost averaging source investment portfolio cannot be
included in your automatic rebalancing program.
CHANGING DOLLAR COST AVERAGING
You may change your dollar cost averaging program one time per policy year. If
you have telephone privileges, you may change the program by telephoning our
customer service center. SEE TELEPHONE PRIVILEGES, PAGE 39.
TERMINATING DOLLAR COST AVERAGING
You may cancel dollar cost averaging by sending satisfactory notice to our
customer service center. We must receive it at least one day before the next
dollar cost averaging date.
Dollar cost averaging will terminate on the date:
1. you specify; or
2. your balance in the source investment portfolio reaches a dollar
amount you set; or
3. the amount in the source investment portfolio is equal to or less
than the amount to be transferred on a dollar cost averaging date. We
will transfer the remaining amount and dollar cost averaging ends.
AUTOMATIC REBALANCING
Automatic rebalancing is a method of maintaining a consistent approach to
investing account values over time and simplifying the process of asset
allocation among your chosen investment options.
Transfers made for automatic rebalancing do not count toward your twelve free
transfers per policy year. There is no charge for this feature.
If you choose this feature, on each rebalancing date we transfer amounts among
the investment options to match your pre-set automatic rebalancing allocation.
After the transfer, the ratio of your account value in each investment option to
your total account value for all investment options included in automatic
rebalancing matches the automatic rebalancing allocation percentage you set for
that investment option. This action rebalances the amounts in the investment
options that do not match your set allocation. This mismatch can happen if an
investment option outperforms the other investment options for that time period.
You may choose the automatic rebalancing feature on your application or later by
completing our customer service form. Automatic rebalancing may occur on the
same day of the month on a monthly, quarterly, semi-annual or annual basis. If
you do not specify a frequency, automatic rebalancing will occur quarterly.
The first transfer occurs on the date you select (after your free look period
ends if your state requires return of premium during the free look period). If
you do not request a date, processing is on the last valuation date of the
calendar quarter in which we receive your request.
When you choose automatic rebalancing allocations, you may choose up to eighteen
total investment options. SEE MAXIMUM NUMBER OF INVESTMENT OPTIONS, PAGE 17.
You may have both automatic rebalancing and dollar cost averaging at the same
time. However, the source investment portfolio for your dollar cost averaging
cannot be included in your automatic rebalancing program. You may not include
the loan division in your automatic rebalancing program.
CHANGING AUTOMATIC REBALANCING
You may change your allocation percentages for
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automatic rebalancing at any time. Your allocation change is effective on the
valuation date that we receive it at our customer service center. If you reduce
the amount allocated to the guaranteed interest division, it is considered a
transfer from that division. You must meet the requirements for the maximum
transfer amount and time limitations on transfers from the guaranteed interest
division. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 30.
TERMINATING AUTOMATIC REBALANCING
You may terminate automatic rebalancing at any time, as long as we receive your
notice of termination at least one day before the next automatic rebalancing
date.
POLICY LOANS
The loan division is part of our general account specifically designed to hold
money used as collateral for loans and loan interest.
You may borrow from your policy at any time after the first monthly processing
date, by using your policy as security for a loan, or as otherwise required by
law. The amount you borrow is called a policy loan. Your policy loan is:
1. the total amount you borrow from your policy; plus
2. policy loan interest that is capitalized when due; minus
3. policy loan or interest repayments you make.
Unless law requires differently, a new policy loan must be at least $100. The
maximum amount you may borrow on any valuation date, unless required differently
by law, is your net account value minus the monthly deductions to your next
policy anniversary or 13 monthly deductions if you take a loan within thirty
days before 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 of less than
$25,000 by telephoning our customer service center. SEE TELEPHONE PRIVILEGES,
PAGE 39.
When you request a loan you may specify one investment option from which the
loan will be taken. If you do not specify one, the loan will be taken
proportionately from each active investment option you have, including the
guaranteed interest division.
Loan interest charges on your policy loan accrue daily at an annual interest
rate of 3.75%. Interest is due in arrears on each policy anniversary. If you do
not pay your interest when it is due, we add it to your policy loan balance.
When you take a policy loan, we transfer an amount equal to your policy loan to
the loan division. We follow this same process for loan interest due at your
policy anniversary. We credit the loan division with interest at an annual rate
of 3%.
If you request an additional loan, we add the new loan amount to your existing
policy loan. This way, there is only one loan outstanding on your policy at any
time.
LOAN REPAYMENT
You may repay your policy loan at any time while your policy is in force. We
assume that payments you make, other than scheduled premiums, are policy loan
repayments. You must tell us if you want payments to be premium payments.
When you make a loan repayment, we transfer an amount equal to your payment from
the loan division to the variable investment options and the guaranteed interest
division in the same proportion as your current premium allocation, unless you
tell us otherwise.
EFFECTS OF A POLICY LOAN ON YOUR POLICY
Taking a loan decreases the amount you have in the investment options. Accruing
loan interest will change your net account value as compared to what it would
have been if you did not take a loan.
Even if you repay your loan, it has a permanent effect on your account value.
The benefits under your policy may be affected.
The loan is a first lien on your policy. If you do not repay your policy loan,
we deduct your outstanding policy loan and accrued loan interest from the death
proceeds payable or the cash surrender value payable on surrender.
Failure to repay your loan may affect the length of
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time your policy remains in force. If you do not make loan payments your policy
could lapse. POLICY LOANS MAY CAUSE YOUR POLICY TO LAPSE IF YOUR NET ACCOUNT
VALUE IS NOT ENOUGH TO PAY YOUR DEDUCTIONS EACH MONTH. SEE LAPSE, PAGE 35.
Policy loans may have tax consequences. If your policy lapses with a loan
outstanding, you may have further tax consequences. SEE DISTRIBUTIONS OTHER THAN
DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 48, AND DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED ENDOWMENT
CONTRACTS, PAGE 49.
If you use the continuation of coverage feature and you have a policy loan, loan
interest continues to accrue.
PARTIAL WITHDRAWALS
You may request a partial withdrawal to be processed on any valuation date after
your first policy anniversary by contacting our customer service center. You
make a partial withdrawal when you withdraw part of your net account value. If
your request is by telephone, it must be for less than $25,000 and may not cause
a decrease in your death benefit. Otherwise, your request must be in writing.
SEE TELEPHONE PRIVILEGES, PAGE 39.
You may take only one partial withdrawal per policy year. The minimum partial
withdrawal you may take is $100. The maximum partial withdrawal you may take is
the amount which leaves $500 as your net account value. If you request a
withdrawal of more than this maximum, we require you to surrender your policy or
reduce the withdrawal.
When you take a partial withdrawal, we deduct your withdrawal amount plus a
service fee from your account value. SEE CHARGES, DEDUCTIONS AND REFUNDS, PAGE
42.
Unless you tell us otherwise, we will make a partial withdrawal from the
guaranteed interest division and the variable investment options in the same
proportion that each has to your net account value immediately before your
withdrawal. You may select one investment option from which your partial
withdrawal will be taken. If you select the guaranteed interest division,
however, the amount withdrawn from it may not be for more than your total
withdrawal multiplied by the ratio of your account value in the guaranteed
interest division to your total net account value immediately before the partial
withdrawal transaction.
Partial withdrawals may have adverse tax consequences. SEE DISTRIBUTIONS OTHER
THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 48, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 49.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 1
If you selected death benefit option 1, it is your first partial withdrawal of
the policy year, no more than fifteen years have passed since your policy date
and the joint equivalent age of the insured people is not yet age 81, you may
make a partial withdrawal of up to the greater of 10% of your account value, or
5% of your stated death benefit without decreasing your stated death benefit.
Otherwise, amounts you withdraw will reduce your stated death benefit by the
amount of the withdrawal unless your policy death benefit has been increased due
to the federal income tax definition of life insurance. If your policy death
benefit has been increased due to the federal income tax definition of life
insurance at the time of the partial withdrawal, then at least part of your
partial withdrawal may be made without reducing your stated death benefit.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 2
If you have selected death benefit option 2, a partial withdrawal does not
reduce your stated or target death benefit. However because your account value
is reduced, we reduce the total death benefit by at least the partial withdrawal
amount.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 3
If you have selected death benefit option 3 and your partial withdrawal is less
than the total of premiums we have received minus the total of your partial
withdrawals, then your stated death benefit will not be reduced. However because
your account value is reduced, your total death benefit will be reduced.
If your partial withdrawal is more than the amount of premiums we have received
minus the total of your prior partial withdrawals, a two step process is used:
1. Your withdrawal of the amount that makes premiums received minus all
partial withdrawals equal to zero is taken; then
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2. The excess withdrawal amount you requested will reduce your stated
death benefit if:
o the excess amount is greater than 10% of your account value
after step "1" above; or
o the excess amount is greater than 5% of your stated death
benefit.
STATED DEATH BENEFIT AND TARGET DEATH BENEFIT
REDUCTIONS
Regardless of your chosen death benefit option, partial withdrawals do not
reduce your stated death benefit if:
o your base death benefit has been increased to qualify your policy as
life insurance under the federal income tax laws; and
o you withdraw an amount that is no greater than the amount that
reduces your account value to a level which no longer requires your
base death benefit to be increased to qualify as life insurance for
federal income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE
47.
We require a minimum stated death benefit and a minimum target death benefit to
issue your policy. You may not take a partial withdrawal if it reduces your
stated death benefit or target death benefit below this minimum. SEE POLICY
ISSUANCE, PAGE 46.
We will send a new policy schedule page for your policy showing the effect of
your withdrawal if there is any change to your stated death benefit or your
target death benefit.
In order 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 48, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES
THAT ARE NOT MODIFIED ENDOWMENT CONTRACTS, PAGE 49.
LAPSE
Your insurance coverage continues as long as your net account value is enough to
pay your deductions each month. Lapse does not apply if the special continuation
period is in effect and you have met all requirements. SEE SPECIAL CONTINUATION
PERIOD, PAGE 20.
If the continuation of coverage feature is active, your policy could still lapse
if there is an outstanding policy loan even though there are no further monthly
deductions.
GRACE PERIOD
Your policy enters a 61-day lapse grace period if, on a monthly processing date:
1. your net account value is zero (or less); and
2. the five-year special continuation period has expired, or you have
not paid the required special continuation period premium.
We notify you that your policy is in a grace period at least 30 days before it
ends. We send this notice to you (or a person to whom you have assigned your
policy) at your last known address in our records. We notify you of the premium
payment necessary to prevent your policy from lapsing. This amount is generally
the past due charges, plus your estimated monthly policy and rider deductions
for the next two months. If the death of the second of the insured people occurs
during the grace period we do pay death proceeds to your beneficiary(ies), but
with reductions for your policy loan balance, accrued loan interest and monthly
deductions owed.
If we receive payment of the required amount before the end of the grace period,
we apply it to your account value in the same manner as your other premium
payments, then we deduct the overdue amounts from your account balance.
If you do not pay the full amount within the 61-day grace period, your policy
and its riders lapse without value. We withdraw your remaining account balance
from the variable and guaranteed interest divisions. We deduct amounts you owe
us and inform you that your policy coverage has ended.
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LAPSE SUMMARY
SPECIAL CONTINUATION PERIOD
================================================================
IF YOU MEET THE IF YOU DO NOT MEET THE
REQUIREMENTS REQUIREMENTS OR IT IS
NO LONGER IN EFFECT
Your policy does not Your policy enters the
lapse if you do not grace period if your net
have enough net account value is not
account value to pay enough to pay the
the monthly charges. monthly charges, or if
The charges are your loan plus accrued
deducted and may loan interest is more
cause a negative than your account
account value until the value. If you do not
earlier of: 1) the date pay enough premium to
you have enough net cover the past due
account value, or 2) monthly charges and
until the end of the interest due, plus the
special continuation monthly charges and
period. interest due through the
end of the grace period,
your policy lapses.
REINSTATEMENT
If you do not pay enough premium before the end of the grace period, your policy
lapses. You may still reinstate your policy and its riders within five years of
the end of the grace period if you still own the policy and both of the insured
people are still living and meet our underwriting requirements.
Unless law requires differently, we will reinstate your policy and riders if:
1. you have not surrendered your policy;
2. you provide satisfactory evidence to us that both insured people are
alive and that each is still insurable according to our normal rules
of underwriting; 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.
When your policy lapses, we will not reinstate your policy if one insured person
has died or become uninsurable since your policy date. If one insured person was
uninsurable at the issue of your policy and remains uninsurable, we will review
the underwriting requirements applicable to each insured person at the time you
request reinstatement to determine whether or not your policy may be reinstated.
Reinstatement is effective on the monthly processing date following our approval
of your reinstatement application. If you had a policy loan when coverage ended,
we reinstate it with accrued loan interest to the date of lapse. The cost of
insurance charges at the time of reinstatement are adjusted to reflect the time
since the lapse.
We apply net premiums received after reinstatement according to your most recent
instructions which may be the premium allocation instructions in effect at the
start of the grace period.
SURRENDER
You may surrender your policy for its net cash surrender value any time before
the death of the second of the insured people. You may take your net cash
surrender value in other than one payment. We compute your net cash surrender
value as of the valuation date we receive your written surrender request and
policy at our customer service center. All insurance coverage ends on the date
we receive your surrender request and policy. SEE POLICY VALUES, PAGE 29 AND
SETTLEMENT PROVISIONS, PAGE 40.
We do not pro-rate or add back charges or expenses which we deducted before your
surrender; but to your account value a refund of sales charge may apply. SEE
REFUND OF SALES CHARGE, PAGE 46.
A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 48, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 49.
GENERAL POLICY PROVISIONS
FREE LOOK PERIOD
You have the right to examine your policy. The right to examine your policy,
often called the free look period, starts on the date you receive your policy
and is a length of time specified by law. If for any reason you do not want it,
you may return your policy to us or your agent/registered representative within
the period shown on the policy's face page. If you return your policy to us
within that time period, we will consider it canceled as of your policy date.
If you cancel your policy during this free look period,
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you will receive a refund as determined under law.
Generally, there are two types of free look refunds:
o some states require a return of all premiums we receive;
o other states require payment of account value plus a refund of all
charges deducted.
Your policy will specify what type of free look refund applies in your state.
The type of free look refund in your state will affect when the net premium we
receive before the end of the free look period is invested into the variable
investment options. SEE ALLOCATION OF NET PREMIUMS, PAGE 20.
YOUR POLICY
The entire contract between you and us is the combination of:
o your policy;
o a copy of your original application and any applications for benefit
increases or decreases;
o all of your riders;
o endorsements;
o policy schedule pages; and
o reinstatement applications.
If you make a change to your coverage, we give you a copy of your changed
application and new policy schedules. If you send your policy to us, we attach
these items to your policy and return it to you. Otherwise, you need to attach
them to your policy.
Unless there is fraud, we consider all statements made in an application to be
representations and not guarantees. We use no statement to deny a claim, unless
it is in an application.
A president or an officer of our company and our secretary or assistant
secretary must sign all changes or amendments we make to your policy. No other
person may change the terms or conditions of your policy.
AGE
The age stated in your policy schedule is the joint equivalent age of the
insured people we use to issue your policy. The joint equivalent age is the sum
of both insured people's ages adjusted for the difference in ages and gender,
divided by two and rounded down.
The insured people must each be no more than 90 years of age at policy issue.
The minimum joint equivalent age must be no less than 15. The maximum joint
equivalent age must be no more than 85. There is no limit on the difference in
the insured people's ages. Age is measured as the age of the insured person on
the birthday nearest the policy anniversary.
Generally, we use the joint equivalent age to calculate rates, charges and
values. We determine the joint equivalent age at any given time by adding the
number of completed policy years to the age calculated at issue and shown in the
schedule.
The younger insured person's 100th birthday is the 100th anniversary of the
younger insured person's birth regardless if he/she has survived. The policy
anniversary nearest to this date is the date used for policy maturity and
continuation of coverage.
OWNERSHIP
The original owner is the person named as the owner in the policy application.
The owner can exercise all rights and receive benefits until the death of the
second of the insured people while the policy is still in force. This includes
the right to change the owner, beneficiary(ies) or the method designated to pay
death proceeds.
As a matter of law, all rights of ownership are limited by the rights of any
person who has been assigned rights under the policy and any irrevocable
beneficiary(ies).
You may name a new owner by giving us written notice. The effective date of the
change to the new owner is the date the prior owner signs the notice. However,
we will not be liable for any action we take before a change is recorded at our
customer service center. A change in ownership may cause the prior owner to
recognize taxable income on gain under the policy.
BENEFICIARY(IES)
You, as owner, name the beneficiary(ies) when you apply for your policy. The
primary beneficiary(ies) who survives both of the insured people receives the
death proceeds. The other surviving beneficiary(ies) receives death proceeds
only if there is no surviving primary beneficiary(ies). If more than one
beneficiary(ies) survives both insured people, they share the death proceeds
equally, unless you have told us otherwise. If none of your policy beneficiaries
has survived both insured people, we
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Estate Designer 37
<PAGE>
pay the death proceeds to you or to your estate, as owner.
Once you tell us who the beneficiary(ies) is/are, we keep this information on
file. You may name a new beneficiary(ies) any time before the death of the
second of the insured people. We pay the death proceeds to the beneficiary(ies)
whom you have most recently named according to our records. We do not make
payments to multiple sets of beneficiaries.
COLLATERAL ASSIGNMENT
You may assign your policy by sending written notice to us. After we record the
assignment, your rights as owner and the beneficiary's(ies') rights (unless the
beneficiary(ies) was made an irrevocable beneficiary(ies) under an earlier
assignment) are subject to the assignment. It is your responsibility to make
sure the assignment is valid.
INCONTESTABILITY
If your policy has been in force and both insured people are alive for two years
from your policy date, we will not question the validity of the statements in
your application. If your policy has been in force and both insured people are
alive for two years from the effective date of a new segment or from the
effective date of an increase in any other benefit, with respect to the insured
people (such as an increase in stated death benefit) we will not contest the
statements in your application for the new segment or other increase.
If this policy has been in force and both insured people are alive for two years
from the effective date of reinstatement, we will not contest the statements in
your application for reinstatement.
MISSTATEMENTS OF AGE OR GENDER
If an insured person's age or gender has been misstated, we adjust the death
benefit to the amount which would have been purchased for each insured person's
correct age and gender. We base the adjusted death benefit on the cost of
insurance charges deducted from your account value on the last monthly
processing date before the death of the second of the insured people, or as
otherwise required by law.
If unisex cost of insurance rates apply, we do not make any adjustments for a
misstatement of gender.
SUICIDE
If either insured person commits suicide (while that insured person is sane or
insane) within two years of your policy date, unless otherwise required by law,
we limit death proceeds payable in one sum to:
1. the total of all premiums we receive to the time of death; minus
2. outstanding policy loan amounts and accrued loan interest; minus
3. partial withdrawals you have taken.
We make a limited payment to the beneficiary(ies) for a new segment or other
increase if the death of the second of the insured people is due to suicide
(while that insured person is sane or insane), within two years of the effective
date of a new segment or within two years of an increase in any other benefit,
unless otherwise required by law. The limited payment we make is equal to the
cost of insurance and monthly expense charges which were deducted for such
increase.
TRANSACTION PROCESSING
Generally, within seven days of when we receive all information required to
process a payment, we pay:
o death proceeds;
o net cash surrender value upon surrender
o partial withdrawals; and
o loan proceeds.
We may delay processing these transactions if:
o the NYSE is closed for trading; or
o trading on the NYSE is restricted by
the SEC;
o there is an emergency so that it is not reasonably possible to sell
securities in the variable investment options or to determine the
value of a variable investment option's assets; or
o a governmental body with jurisdiction over the separate account
allows suspension by its order.
SEC rules and regulations determine whether or not these conditions exist.
We execute transfers among the variable investment options as of the valuation
date of our receipt of your request at our customer service center.
We determine the death benefit as of the date of death of the second of the
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Estate Designer 38
<PAGE>
insured people. The death proceeds are not affected by changes in the value of
the variable investment options after that date.
We may delay payment from our guaranteed interest division for up to six months,
unless state law requires otherwise, of surrender proceeds, withdrawal amounts
or loan amounts. If we delay payment more than 30 days, we pay interest at our
declared rate (or at a higher rate if required by law) from the date we receive
your complete request.
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.
Your must use a form acceptable to us. We are not liable for actions taken
before we receive and record the written notice. We may require you to return
your policy for policy changes and at the time of surrender.
If an insured person dies while your policy is in force, please let us or your
agent/registered representative know as soon as possible. We will immediately
send you instructions on how to make a claim at the death of the second of the
insured people or at either insured person's death if you have a single life
term insurance rider. As proof of the insured person's death, we may require you
to provide proof of the deceased insured person's age and a certified copy of
the death certificate.
The beneficiary(ies) and the deceased insured person's next of kin may need to
sign authorization forms. These forms allow us to get information about the
deceased insured person. This information may include medical records of doctors
and hospitals used by the deceased insured person.
TELEPHONE PRIVILEGES
Telephone privileges are automatically provided to you and your agent/registered
representative, unless you decline it on the application or contact our customer
service center. Telephone privileges allow you or your agent/registered
representative, if applicable, to call our customer service center to:
o make transfers;
o change premium allocations;
o change features in your dollar cost averaging and automatic
rebalancing programs;
o request partial withdrawals; or
o request a policy loan.
Our customer service center uses reasonable procedures to make sure that
instructions received by telephone are genuine. These procedures may include:
1. requiring some form of personal identification;
2. providing written confirmation of any transactions; and
3. tape recording telephone calls.
By accepting automatic telephone privileges, you authorize us to record your
telephone calls with us. If we use reasonable procedures to confirm
instructions, we are not liable for losses due to unauthorized or fraudulent
instructions. We may discontinue this privilege at any time.
NON-PARTICIPATION
Your policy does not participate in the surplus earnings of Security Life.
DISTRIBUTION OF THE POLICIES
The principal underwriter (distributor) for our policies is ING America
Equities, Inc., a wholly owned subsidiary of Security Life. It is registered as
a broker-dealer with the SEC and the NASD. We pay ING America Equities, Inc. for
acting as the principal underwriter under a distribution agreement.
We sell our policies through licensed insurance agents who are registered
representatives of other broker-dealers including, but not limited to:
1. VESTAX Securities Corporation, an indirect affiliate of Security Life
of Denver Insurance Company;
2. Locust Street Securities, Inc., an indirect affiliate of Security
Life of Denver Insurance Company;
3. Multi-Financial Securities, Corp., an indirect affiliate of Security
Life of Denver Insurance Company; and
4. IFG Network Securities, Inc., an indirect affiliate of Security Life
of Denver
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Estate Designer 39
<PAGE>
Insurance Company.
All broker-dealers who sell this policy have entered into selling agreements
with us. Under these selling agreements, we pay a distribution allowance to
broker-dealers, who then pay their agents/registered representatives who sell
this policy.
This policy offers a choice of two structures for the distribution allowances,
but the structure choice does not affect fees or charges on your policy.
Under the levelized structure, the distribution allowance in policy years one
through seven is 12% of the premium we receive up to target premium and 4% of
premium we receive in excess of target premium. In policy year eight and
thereafter, the distribution allowance is 2% of all premium we receive.
Under the modified structure, the distribution allowance in policy year one is
30% of premium we receive up to target premium and 2% of premium in excess of
target premium. In policy years two through seven it is 7.5% of premium up to
target premium and 4% of premium we receive in excess of target premium. In
policy year eight and thereafter, it is 2% of all premium we receive.
Broker-dealers receive annual renewal payments (trails) of 0.20% of the average
net account value for the first ten policy years; 0.15% of average net account
value for policy years eleven through twenty and 0.10% of average net account
value each policy year thereafter. If both insured people die before the seventh
policy anniversary and your policy is in force, we make a one-time additional
compensation payment for the initial sale of your policy.
In addition to the distribution allowances, we may pay wholesaler fees or
marketing and training allowances. We pay all allowances from our resources
which include sales charges deducted from premium payments.
ADVERTISING PRACTICES AND SALES LITERATURE
We may use advertisements and sales literature to promote this product,
including:
o articles on variable life insurance and other information published
in business or financial publications;
o indices or rankings of investment securities; and
o comparisons with other investment vehicles, including tax
considerations.
We may use information regarding the past performance of the variable investment
options. However, past performance is not indicative of future performance of
the investment options or the policies and is not reflective of the actual
investment experience of policyowners.
We may feature certain investment options and their managers, as well as
describe asset levels and sales volumes. We may refer to past, current, or
prospective economic trends, and investment performance or other information we
believe may be of interest to our customers.
SETTLEMENT PROVISIONS
You may elect to have the beneficiary(ies) receive the death proceeds other than
in one payment. If you make this election, you must do so before the death of
the second of the insured people. If you have not made this election, the
beneficiary(ies) may do so within 60 days after we receive proof of death of the
second of the insured people.
You may take your surrender proceeds in other than one payment.
The investment performance of the variable investment options does not affect
payments under these settlement options. Instead, interest accrues at a fixed
rate based on the option you choose. Payment options are subject to our rules at
the time you make your selection. Currently, a periodic payment must be at least
$20 and the total proceeds must be $2,000 or more.
OPTION I: PAYOUTS FOR A DESIGNATED PERIOD
OPTION II: LIFE INCOME WITH PAYOUTS GUARANTEED FOR A DESIGNATED PERIOD
OPTION III: HOLD AT INTEREST
OPTION IV: PAYOUTS OF A DESIGNATED AMOUNT
OPTION V: OTHER OPTIONS WE OFFER AT THE TIME WE PAY THE BENEFIT
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Estate Designer 40
<PAGE>
ADMINISTRATIVE INFORMATION ABOUT THE POLICY
VOTING PRIVILEGES
We invest the variable investment options' assets in shares of investment
portfolios. We are the legal owner of the shares held in the separate account
and we have the right to vote on certain issues. Among other things, we may vote
on issues described in the fund's current prospectus or issues requiring a vote
by shareholders under the Investment Company Act of 1940.
Even though we own the shares, we give you the opportunity to tell us how to
vote the number of shares attributable to your policy.
We count fractional shares. If you have a voting interest, we send you proxy
material and a form on which to give us your voting instructions.
Each investment portfolio share has the right to one vote. The votes of all
investment portfolio shares are cast together on a collective basis, except on
issues for which the interests of the portfolios differ. In these cases, voting
is done on a portfolio-by-portfolio basis.
Examples of issues that require a portfolio-by-portfolio vote are:
1. changes in the fundamental investment policy of a particular
investment portfolio; or
2. approval of an investment advisory agreement.
We vote the shares in accordance with your instructions at meetings of
investment portfolio shareholders. We vote any investment portfolio shares that
are not attributable to policies and any investment portfolio shares for which
the owner does not give us instructions, the same way we vote as if we did
receive owner instructions.
We reserve the right to vote investment portfolio shares without getting
instructions from policy owners if the federal securities laws, regulations or
their interpretations change to allow this.
You may instruct us only on matters relating to the investment portfolios
corresponding to variable investment options in which you have invested assets
as of the record date set by the investment portfolio's board for the
portfolio's shareholders meeting. We determine the number of investment
portfolio shares in each variable investment option that we attribute to your
policy by dividing your account value allocated to that variable investment
option by the net asset value of one share of the matching investment portfolio.
MATERIAL CONFLICTS
We are required to track events to identify any material conflicts arising from
using investment portfolios for both variable life and variable annuity separate
accounts. The boards of the investment portfolios, Security Life and other
insurance companies participating in the investment portfolios, have this same
duty. There may be a material conflict if:
o state insurance law or federal income tax law changes;
o investment management of an investment portfolio changes; or
o voting instructions given by owners of variable life insurance
policies and variable annuity contracts differ.
The investment portfolios may sell shares to certain qualified pension and
retirement plans qualifying under Code Section 401. These include cash or
deferred arrangements under Code Section 401(k). Therefore, there is a
possibility that a material conflict may arise between the interests of owners
in general or between certain classes of owners; and these retirement plans or
participants in these retirement plans.
If there is a material conflict, we have the duty to determine appropriate
action including removing the portfolios involved from our variable investment
options. We may take other action to protect policy owners. This could mean
delays or interruptions of the variable operations.
When state insurance regulatory authorities require it, we may ignore voting
instructions relating to changes in an investment portfolio's adviser or its
investment policies. If we do ignore voting instructions, we give you a summary
of our actions in our 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 investment options. We cast votes
credited to amounts in the variable investment options, but not credited to
policies in the same proportion as votes cast by owners.
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Estate Designer 41
<PAGE>
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 variable investment options which will invest in
portfolios we find appropriate for policies we issue.
3. Eliminate variable investment options.
4. Combine two or more variable investment options.
5. Substitute a new investment portfolio for a portfolio in which the
division currently invests. A substitution may become necessary if,
in our judgment:
o a portfolio no longer suits the purposes of your policy;
o there is a change in laws or regulations;
o there is a change in a portfolio's investment objectives or
restrictions;
o the portfolio is no longer available for investment; or
o another reason we deem a substitution is appropriate.
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 variable investment options to invest in a mutual
fund other than, or in addition to, the investment portfolios.
10. Stop selling these policies.
11. End any employer or plan trustee agreement with us under the
agreement's terms.
12. Limit or eliminate any voting rights for the separate account.
13. Make any changes required by the 1940 Act or its rules or
regulations.
We will not make a change until it is effective with the SEC and approved by the
appropriate state insurance departments, if necessary. We will notify you of
changes. If you wish to transfer the amount you have in the affected investment
option to another variable investment option or to the guaranteed interest
division, you may do so free of charge. Just notify us at our customer service
center.
REPORTS TO OWNERS
At the end of each policy year we send a report to you that shows:
o your total net policy death benefit (your stated death benefit plus
adjustable term insurance rider death benefit, if any);
o your account value;
o your policy loan, if any, plus accrued interest;
o your net cash surrender value;
o information about the variable investment options; and
o your account transactions during the year showing net premiums,
transfers, deductions, loan amounts and 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 correspond to the cost incurred by us to provide
the service or benefit. For example, the sales charge may not cover all of our
sales and distribution expenses. Some proceeds from other charges, including the
mortality and expense risk charge or cost of insurance charges, may be used to
cover such expenses.
DEDUCTIONS FROM PREMIUMS
We treat payments we receive as premium payments if you do not have an
outstanding loan and your policy is not in the continuation of coverage period.
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Estate Designer 42
<PAGE>
After we deduct certain expenses from your payment, we add the remaining net
premium to your policy.
SALES CHARGE
We deduct a percentage from each premium payment to compensate us for the costs
we incur in selling the policies. The sales charge helps cover the costs of
distribution, preparing our sales literature, promotional expenses and other
direct and indirect expenses.
We base the percentage on the time expired since your policy date, or addition
of a segment and on your premium payments up to and above a target premium. The
sales charge deducted from your premium payments after an increase in stated
death benefit is based on each segment's target premium and the length of time
that the segment has been in effect.
Your policy schedule page shows the target premium for your policy.
Sales Charge Percentage
Policy or Up to Policy or Above Policy or
Segment Segment Segment
Year Target Premium Target Premium
---- -------------- --------------
1 8% 4%
2 - 7 8% 1.5%
8 + 1.5% 1.5%
For example, if this policy is issued to insure a male, age 85 who is
uninsurable, and a female, age 85 who is insurable but in a substandard
underwriting rating class, the target premium for sales charge purposes is $590
for each $1,000 of stated death benefit. We believe this amount represents the
maximum target premium and that most policies will have a much lower target
premium. SEE TARGET PREMIUM, PAGE 19 AND ILLUSTRATIONS OF DEATH BENEFITS,
ACCOUNT VALUES, SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE 51.
We may reduce or waive the sales charge for certain group or sponsored
arrangements, or for corporate purchasers. SEE GROUP OR SPONSORED ARRANGEMENTS,
OR CORPORATE PURCHASERS, PAGE 46.
SEE REFUND OF SALES CHARGE, PAGE 46.
TAX CHARGES
We pay state and local taxes in almost all states. These taxes vary in amount
from state to state and may vary from jurisdiction to jurisdiction within a
state. Currently, state and local taxes range from 0.5% to 5% with some states
not imposing these types of taxes. We deduct 2.5% of each premium payment to
cover these taxes. This rate approximates the average tax rate we expect to pay
in all states.
We also deduct 1.5% of each premium payment to cover our estimated costs for the
federal income tax treatment of deferred acquisition costs. This cost is
determined solely by the amount of life insurance premiums we receive.
We reserve the right to increase or decrease your premium expense charge for
taxes as a result of changes in the tax law, within limits set by 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.
DAILY DEDUCTIONS FROM THE SEPARATE ACCOUNT
MORTALITY AND EXPENSE RISK CHARGE
We deduct 0.002055% per day (0.75% annually) of the amount you have in the
variable investment options for the mortality and expense risks we assume. This
charge is deducted as part of the calculation of the daily unit values for the
variable investment options and does not appear as a separate charge on your
statement or confirmation.
The mortality risk is that insured people, as a group, may live less time than
we estimated. The expense risk is that the costs of issuing and administering
the policies and in operating the variable division are greater than the amount
we estimated.
The mortality and expense risk charge does not apply to your account value in
the guaranteed interest division or the loan division.
MONTHLY DEDUCTIONS FROM ACCOUNT VALUE
We deduct charges from your account value on each monthly processing date until
the maturity date or when the continuation of coverage period begins.
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Estate Designer 43
<PAGE>
POLICY CHARGE
The initial policy charge is $15 per month for the first ten years of your
policy. After the first ten years of your policy, the policy charge is $9 per
month.
This charge compensates us for such costs as:
o application processing;
o medical examinations;
o establishment of policy records; and
o insurance underwriting costs.
MONTHLY ADMINISTRATIVE CHARGE
We charge a per month administrative charge of $0.06 per $1,000 for the first
ten policy years for the greater of target or stated death benefit. We charge
$0.01 per $1,000 for each policy year after the tenth for the greater of target
or stated death benefit. We limit the per $1,000 charge to $150 per month for
the first ten policy years and $25 per month for each policy year thereafter.
This charge applies to the first $2,500,000 of death benefit.
This charge is designed to compensate us for ongoing costs such as:
o premium billing and collections;
o claim processing;
o policy transactions;
o record keeping;
o reporting and communications with policy owners; and
o other expenses and overhead.
COST OF INSURANCE CHARGE
The cost of insurance charge compensates us for the ongoing costs of providing
insurance coverage under the policy, including the expected cost of paying death
proceeds that may be more than your account value at the death of the second of
the insured people.
The cost of insurance charge is equal to our current monthly cost of insurance
rate multiplied by the net amount at risk for each portion of your death
benefit. We calculate the net amount at risk monthly, at the beginning of each
policy month. For the base death benefit, the net amount at risk is calculated
using the difference between the current base death benefit and your account
value. We determine your account value after we deduct your policy and rider
charges due on that date other than cost of insurance charges for the base death
benefit and adjustable term insurance rider.
If your base death benefit at the beginning of a month increases (due to
requirements of the federal income tax law definition of life insurance), the
net amount at risk for your base death benefit for that month also increases.
Similarly, the net amount at risk for your adjustable term insurance rider
decreases. This means that your cost of insurance charge varies from month to
month with changes in your net amount at risk, changes in the death benefit and
with the increasing age of the insured people. We allocate the net amount at
risk to 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 current cost of insurance rates on the insured people's ages,
genders and premium classes on the policy and each segment date.
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:
o each segment of the base death benefit;
o your adjustable term insurance rider; and
o single life term insurance riders.
We may make changes in the cost of insurance or rider charges for a class of
insured persons. We base the new charge on changes in expectations about:
o investment earnings;
o mortality;
o the time policies remain in effect;
o expenses; and
o taxes.
These rates are never more than the guaranteed maximum rates shown in your
policy. The guaranteed maximum rates are based on the 1980 Commissioner's
Standard Ordinary Sex Distinct Mortality Table.
The maximum rates for the initial and each new segment will be printed in your
schedule pages.
There are no cost of insurance charges during the continuation of coverage
period.
RIDER CHARGES
On each monthly processing date, we deduct the cost of benefits under your
riders including the single life
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Estate Designer 44
<PAGE>
term insurance rider. Rider charges do not include the adjustable term insurance
rider. SEE RIDERS, PAGE 25.
POLICY TRANSACTION FEES
We also charge fees for certain transactions under your policy. We take these
fees from the variable and guaranteed interest divisions pro rata to the account
value in each investment option.
PARTIAL WITHDRAWALS
We deduct the lesser of a $25 service fee or 2% of the requested partial
withdrawal from your account value for each partial withdrawal you take to cover
our costs. SEE PARTIAL WITHDRAWALS, PAGE 34.
TRANSFERS
There is a $25 fee to cover our costs for each transfer over twelve free
transfers per policy year. If you include multiple transfers in one transfer
request, it counts as one transfer. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 30.
ILLUSTRATIONS
The first policy illustration you request in a policy year is free. After that,
we charge a fee of up to $25 for each additional policy illustration.
PREMIUM ALLOCATION CHANGE
You may make twelve free premium allocation changes per policy year. After the
twelve free changes, we charge $25 for each additional premium allocation change
in that policy year. If you change your designated deduction investment option,
we consider it a premium allocation change. SEE MONTHLY DEDUCTIONS FROM ACCOUNT
VALUE, PAGE 43.
CONTINUATION OF COVERAGE ADMINISTRATIVE FEE
At the policy anniversary nearest the younger insured person's 100th birthday,
if your policy has not been surrendered, the continuation of coverage period
begins.
We will charge a one-time administrative fee of $400. This charge compensates us
for maintaining and servicing your policy until the death of the second of the
insured people. We then no longer charge monthly charges.
DIVISIONS FROM
WHICH WE DEDUCT CHARGES,
LOANS AND PARTIAL WITHDRAWALS
<TABLE>
<CAPTION>
MONTHLY CHARGES: COST OF LOANS AND
INSURANCE CHARGES, RIDER TRANSACTION FEES PARTIAL WITHDRAWALS
CHARGES, ADMINISTRATIVE FEES
- ------------- --------------------------------------------- -------------------------------- ------------------------------------
<S> <C> <C> <C>
Choice May choose a designated deduction Proportionally among May choose any investment
investment option, including variable and guaranteed option or combination of
guaranteed interest division interest divisions investment options
Default Proportionally among variable and Proportionally among Proportionally among variable
guaranteed interest divisions variable and guaranteed and guaranteed interest divisions
interest divisions
- ------------- --------------------------------------------- -------------------------------- ------------------------------------
</TABLE>
PERSISTENCY REFUND
Where 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 of 0.05% of account value. This refund
is 0.6% of your account value on an annual basis.
We do not guarantee that we will pay a persistency refund on the guaranteed
interest division. If we pay a persistency refund on the guaranteed interest
division, we will pay it even if your policy is in the continuation of coverage
period.
If applicable, we add the persistency refund to the variable and guaranteed
interest divisions, but not the loan division, in the same proportion that your
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Estate Designer 45
<PAGE>
account value in each investment option has to your net account value as of the
monthly processing date.
Here are two examples of how the persistency refund may affect your account
value:
EXAMPLE 1: YOUR POLICY HAS NO LOAN:
o account value = $10,000 (all in the variable division)
o monthly persistency refund rate = .0005
o persistency refund = 10,000 x .0005 = $5.00
Value Before Value After
Persistency Persistency
Refund Refund
------ ------
Variable
Division $10,000.00 $10,005.00
EXAMPLE 2: YOUR POLICY DOES HAVE A LOAN:
o account value = $10,000
o account value in the variable division = $6,000
o account value in the loan division = $4,000
o monthly persistency refund rate = .0005
o persistency refund = 10,000 x .0005 = $5.00
Value Before Value After
Persistency Persistency
Refund Refund
------ ------
Variable
Division $6,000.00 $6,005.00
Loan $4,000.00 $4,000.00
REFUND OF SALES CHARGE
If you surrender your policy within the first two policy years (guaranteed) and
it has not lapsed, we will refund a portion of the sales charge previously
deducted from your premium payments. We base the refund on premium payments we
receive in your first policy year. The refund of sales charge is not available
if your policy was purchased with the proceeds of a policy issued by us or one
of our affiliates.
<TABLE>
<CAPTION>
====================================================================================================
Refund of Sales Charge as a Percentage of
First Policy Year Premium
======================================================================================
We Currently Pay
We Guarantee
Policy Year a Minimum of ------------------------------------------------------
Up to Target Premium Above Target Premium
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 5% 10% 8%
- ----------------------------------------------------------------------------------------------------
2 2.5% 10% 4%
- ----------------------------------------------------------------------------------------------------
3 N/A 10% N/A
- ----------------------------------------------------------------------------------------------------
4+ N/A N/A N/A
====================================================================================================
</TABLE>
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 investment option for our federal income taxes.
If the tax law changes and we have federal income tax chargeable to the variable
investment options, we may make such a charge in the future.
GROUP OR SPONSORED ARRANGEMENTS, OR CORPORATE PURCHASERS
Individuals, corporations or other institutions may purchase this policy. For
group or sponsored arrangements (including employees and certain family members
of employees of Security Life, its affiliates and appointed sales agents),
corporate purchasers or special exchange programs which we may offer from time
to time, we may reduce or waive the:
o administrative charge;
o minimum stated death benefit;
o minimum target death benefit;
o minimum annual premium;
o target premium;
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Estate Designer 46
<PAGE>
o sales charges;
o cost of insurance charges; or
o other charges normally assessed.
We can reduce or waive these items based on expected economies. Group
arrangements include those in which there is a trustee, an employer or an
association. The group may purchase multiple policies covering a group of
individuals. Sponsored arrangements include those in which an employer or
association allows us to offer policies to its employees or members on an
individual basis.
Our sales, administration and mortality costs generally vary with the size and
stability of the group, among other factors. We take all these factors into
account when we reduce charges. A group or sponsored arrangement must meet
certain requirements to qualify for reduced charges. We make reductions to
charges based on our rules in effect when we approve a policy application. We
may change these rules from time to time.
Each sponsored arrangement or corporation may have different group premium
payments and premium requirements.
We will not be unfairly discriminatory in any variation in the administrative
charge, or other charges, fees and privileges. These variations are based on
differences in costs or services.
TAX CONSIDERATIONS
The following summary provides a general description of the federal income tax
considerations associated with the policy and does not purport to be complete or
to cover all tax situations. This discussion is not intended as tax advice.
Counsel or other competent tax advisers should be consulted for more complete
information. This discussion is based upon our understanding of the present
federal income tax laws. No representation is made as to the likelihood of
continuation of the present federal income tax laws or as to how they may be
interpreted by the Internal Revenue Service.
TAX STATUS OF THE POLICY
This policy is designed to qualify as a life insurance contract under the
Internal Revenue Code. All terms and provisions of the policy shall be construed
in a manner which is consistent with that design. In order to qualify as a life
insurance contract for federal income tax purposes and to receive the tax
treatment normally accorded life insurance contracts under federal tax law, a
policy must satisfy certain requirements which are set forth in the Internal
Revenue Code. Specifically, the policy must meet the requirements of the
"guideline premium/cash value corridor test," as specified in Code section 7702.
The guideline premium/cash value corridor test provides for a maximum premium in
relation to the death benefit, and a minimum "corridor" of death benefit in
relation to account value. SEE APPENDIX A, PAGE 161 FOR A TABLE OF THE GUIDELINE
PREMIUM/CASH VALUE CORRIDOR TEST FACTORS.
There is very little guidance with respect to policies issued on a last survivor
basis as to how these requirements are applied. Nevertheless, we believe it is
reasonable to conclude that our policies satisfy the applicable requirements. If
it is subsequently determined that a policy does not satisfy the applicable
requirements, we will take appropriate and reasonable steps to bring the policy
into compliance with such requirements and we reserve the right to restrict
policy transactions or modify your policy in order to do so.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 guideline premium/cash corridor
test, Code Section 817(h) requires separate account investments, such as our
separate account, to be adequately diversified. The Treasury has issued
regulations which set the standards for measuring the adequacy of any
diversification. To be adequately diversified, each variable investment option
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 investment options' 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
- --------------------------------------------------------------------------------
Estate Designer 47
<PAGE>
are includable in the gross income from your policy under these circumstances.
The IRS has stated in published rulings that a variable contract owner is
considered the owner of separate account assets if the contract owner has
"indicia of ownership" in those assets. "Indicia of ownership" includes the
ability to exercise investment control over the assets.
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 separate account assets. We do not know what standards will be set
forth in the future, if any, in Treasury regulations or rulings. We reserve the
right to modify your policy, as necessary, to try to prevent you from being
considered the owner of a pro rata share of the separate account assets, or to
otherwise qualify your policy for favorable tax treatment.
We will at all times assure that the policy meets the statutory definition which
qualifies the policy as life insurance for federal income tax purposes. In
addition, as long as the policy remains in force, increases in account value as
a result of interest or investment experience will not be subject to federal
income tax unless and until there is a distribution from the policy, such as a
partial withdrawal or loan. SEE TAX TREATMENT OF POLICY DEATH BENEFITS, PAGE ?.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY DEATH BENEFITS
We believe that the death benefit under a policy is generally excludable from
the gross income of the beneficiary(ies) under section 101(a)(1) of the Code.
However, there are exceptions to this general rule. Additionally, federal and
local transfer, estate inheritance and other tax consequences of ownership or
receipt of policy proceeds depend on the circumstances of each policy owner or
beneficiary(ies). A tax adviser should be consulted about these consequences.
Generally, the policy owner will not be taxed on any of the policy account value
until there is a distribution. When distributions from a policy occur, or when
loan amounts are taken from or secured by a policy, the tax consequences depend
on whether or not the policy is a "modified endowment contract."
Special rules also apply if you are subject to the alternative minimum tax. You
should consult a tax adviser if you are subject to the alternative minimum tax.
MODIFIED ENDOWMENT CONTRACTS
Under the Internal Revenue Code, certain life insurance contracts are classified
as "modified endowment contracts" and are given less favorable tax treatment
than other life insurance contracts. Due to the flexibility of the policies as
to premiums and benefits, the individual circumstances of each policy will
determine whether or not it is classified as a modified endowment contract. The
rules are too complex to be summarized here, but generally depend on the amount
of premiums we receive during the first seven policy years. Certain changes in a
policy after it is issued could also cause it to be classified as a modified
endowment contract. A current or prospective policy owner should consult with a
competent adviser to determine whether or not a policy transaction will cause
the policy to be classified as a modified endowment contract.
If a policy becomes a modified endowment contract, distributions that occur
during the policy year will be taxed as distributions from a modified endowment
contract. In addition, distributions for a policy within two years before it
becomes a modified endowment contract will be taxed in this manner. This means
that a distribution made from a policy that is not a modified endowment contract
could later become taxable as a distribution from a modified endowment contract.
MULTIPLE POLICIES
All modified endowment contracts that are issued by us (or our affiliates) to
the same policy owner during any calendar year are treated as one modified
endowment contract for purposes of determining the amount includable in the
policy owner's income when a taxable distribution occurs.
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Estate Designer 48
<PAGE>
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. Loan amounts taken from or secured by a policy classified as a
modified endowment contract are treated as distributions and taxed
first as distributions of gain taxable as ordinary income and as
tax-free recovery of the policy owner's investment in the policy only
after all gain has been distributed.
3. A 10% additional income tax penalty may be imposed on the
distribution amount subject to income tax. Consult a tax adviser to
determine whether or not you may be subject to this penalty tax.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS
Distributions other than death benefits from a policy that is not classified as
a modified endowment contract are generally treated first as a recovery of the
policy owner's investment in the policy. Only after the recovery of all
investment in the policy, is there taxable income. However, certain
distributions which must be made in order to enable the policy to continue to
qualify as a life insurance contract for federal income tax purposes, if policy
benefits are reduced during the first fifteen policy years, may be treated in
whole or in part as ordinary income subject to tax.
Loan amounts from or secured by a policy that is not a modified endowment
contract are generally not treated as distributions. Finally, neither
distributions from, nor loan amounts from or secured by, a policy that is not a
modified endowment contract are subject to the 10% additional income tax.
INVESTMENT IN THE POLICY
Your investment in the policy is generally the total of your aggregate premiums.
When a distribution is taken from the policy, 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.
If a loan from a policy is outstanding when the policy is canceled or lapses,
then the amount of the outstanding indebtedness will be added to the amount
treated as a distribution from the policy and will be taxed accordingly.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss shall be recognized on
the exchange of one life insurance policy for another life insurance policy or
for an endowment or annuity contract. We accept 1035 exchanges with outstanding
loans. Special rules and procedures apply to Section 1035 exchanges. If you wish
to take advantage of Section 1035, you should consult your tax adviser.
TAX-EXEMPT POLICY OWNERS
Special rules may apply to a policy that is owned by a tax-exempt entity.
Tax-exempt entities should consult their tax adviser regarding the consequences
of purchasing and owning a policy. These consequences could include an effect on
the tax-exempt status of the entity and the possibility of the unrelated
business income tax.
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative action is
- --------------------------------------------------------------------------------
Estate Designer 49
<PAGE>
uncertain, there is always the possibility that the tax treatment of the policy
could be changed by legislation or otherwise. You should consult a tax adviser
with respect to legislative developments and their effect on the policy.
CHANGES TO COMPLY WITH THE LAW
So that your policy continues to qualify as life insurance under the Code, we
reserve the right to refuse to accept all or part of your premium payments or to
change your death benefit. We may refuse to allow you to make partial
withdrawals that would cause your policy to fail to qualify as life insurance.
We also may:
o make changes to your policy or its riders; or
o take distributions from your policy to the degree that we deem
necessary to qualify your policy as life insurance for tax purposes.
If we make any change of this type, it applies the same way to all affected
policies.
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 as permitted, other charges reasonably expected to be
paid. The Treasury issued proposed regulations on what it considers reasonable
mortality charges. We believe that the charges used for your policy should meet
the Treasury's current requirement for "reasonableness." We reserve the right to
make changes to the mortality charges if future regulations have standards which
make changes necessary in order to continue to qualify your policy as life
insurance for federal income tax purposes.
Additionally, assuming that you do not want your policy to be or to become a
modified endowment contract, we include a policy endorsement under which we have
the right to amend your policy, including riders. We do this to attempt to
enable your policy to continue to meet the seven-pay test for federal income tax
purposes. If the policy premium you pay is more than the seven-pay limit, we
have the right to remove any excess premium or to make any appropriate
adjustments to your policy's account value and death benefit. It is not clear,
however, whether we can take effective action pursuant to this endorsement under
all possible circumstances to prevent a policy that has exceeded the premium
limitation from being classified as a modified endowment contract.
Any increase in your death benefit will cause an increase in your cost of
insurance charges.
OTHER
Policy owners may use our policies in various arrangements, including:
o qualified plans;
o non-qualified deferred compensation or salary continuance plans;
o split dollar insurance plans;
o executive bonus plans;
o retiree medical benefit plans; and
o other plans.
The tax consequences of these plans may vary depending on the particular facts
and circumstances of each arrangement. If you want to use any of your policies
in this type of arrangement, you should consult a qualified tax adviser
regarding the tax issues of your particular arrangement.
In recent years, Congress has adopted new rules relating to life insurance owned
by businesses. Any business contemplating the purchase of a new policy or a
change in an existing policy should consult a tax adviser.
The IRS requires us to withhold income taxes from any portion of the amounts
individuals receive in a taxable transaction. We do not withhold income taxes if
you elect in writing not to have withholding apply. If the amount withheld for
you is insufficient to cover income taxes, you may have to pay income taxes and
possibly penalties later.
The transfer of the policy or designation of a beneficiary may have federal,
state and/or local transfer and inheritance tax consequences, including the
imposition of gift, estate and generation-skipping transfer taxes. For example
the transfer of the policy to, or the designation as a beneficiary of, or the
payment of proceeds to a person who is assigned to a generation which is two or
more generations below the generation assignment of the policy owner may have
generation skipping transfer tax consequences under federal tax law. The
individual situation of each policy owner or beneficiary will determine the
extent, if any, to which federal, state and local transfer and inheritance taxes
may be imposed and how ownership or receipt of policy proceeds will be
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Estate Designer 50
<PAGE>
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
YOU SHOULD CONSULT QUALIFIED LEGAL OR TAX ADVISERS FOR COMPLETE INFORMATION ON
FEDERAL, STATE, LOCAL AND OTHER TAX CONSIDERATIONS.
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Estate Designer 51
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, CASH SURRENDER VALUES AND
ACCUMULATED
PREMIUMS
The following tables are intended to show how the policy works, including how
benefits and values can vary over time. Each table compares these values with
total premiums we receive with interest. The policy illustrated uses the
following assumptions:
<TABLE>
<CAPTION>
Definition
Death of Life Stated Target
Smoker Benefit Insurance Death Death
Gender Age Status* Option Test Benefit Premium Benefit
------ --- ------ ------ ---- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Male 50 Nonsmoker 1 GP 1,000,000 $13,000 1,000,000
Preferred
Female 50 Nonsmoker
Preferred
</TABLE>
- -------------------
* "Smoker" includes the use of cigarettes, cigars, pipes, chewing tobacco,
nicotine chewing gum or patch, snuff or any other tobacco or nicotine-based
product.
The target premium for the illustrated policy is $15,906.14 (approximately $16
per $1,000 of stated death benefit).
The tables show how death benefits, account values and net cash surrender values
of a hypothetical policy could vary over an extended period of time, assuming
the variable division had constant hypothetical gross annual investment returns
of 0%, 12%, or 6% over the periods indicated in each table. Values would differ
from those shown in the tables if the annual investment returns were not
constant. The amounts shown would differ if we had used two females, two males
or smoker rates.
These illustrations assume there is no policy loan.
We illustrate premium payments as if they were made at the beginning of the
year. The third column of each table shows what would happen if an amount equal
to the assumed premiums earned interest, after taxes, of 5% compounded annually.
The net investment return on your policy is lower than the gross investment
return on the variable investment options as a result of the mortality and
expense risk charge, the portfolio management fees and portfolio expenses. We
show the effect of the net investment return in the amounts for death benefits,
account values and cash surrender values.
The tables reflect annual investment management fees of 0.66% of the portfolios'
aggregate average daily net assets. This hypothetical rate is a simple average
of the investment advisory fees applying to the investment portfolios for the
year ending December 31, 1999. We assume other portfolio expenses at the rate of
0.31% of the portfolios' average daily net assets. This is an average of all the
portfolios' other expenses for the year ending December 31, 1999 after any
expense reimbursements or waivers by investment portfolio managers has been
made. The average of all portfolios' total expenses is 0.97%.
Actual fees vary by portfolio. The portfolio fees and expenses used in the
illustrations are the net amounts shown after absorption of fees and expenses by
the portfolio's investment manager. Absent such expense reimbursements or
waivers, the total average investment management fees, average other portfolio
expenses and the average of all
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Estate Designer 52
<PAGE>
portfolios' total expenses used in the illustrations would have been higher
(0.71%, 0.47% and 1.18%, respectively). The tables assume that the current
expense reimbursement arrangements will continue. However, they may not continue
through 2000.
The effect of these portfolio charges and expenses, and mortality and expense
risk charges result in a net rate of return of:
o (1.71 )% on a 0% gross rate of return;
o 10.20% on a 12% gross rate of return; and
o 4.25% on a 6% gross rate of return.
The tables assume that charges have been deducted including deductions for
premiums, cost of insurance rider charges, monthly deductions, mortality and
expense risk charge, administrative and sales charges. The tables show charges
at our current rates which includes a persistency refund. The tables also show
charges at the maximum rates we guarantee in our policies. SEE MONTHLY
DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 43. The tables reflect that we do not
currently charge against the separate account for state or federal taxes. If we
charge for the taxes in the future, it will take a higher gross rate of return
than the rates shown to produce the same death benefits, account values and cash
surrender values.
If we are asked to do so, we will give you a comparable personal illustration
based on:
o the insured people's ages and genders;
o standard premium class assumptions;
o initial stated death benefit;
o the chosen death benefit option;
o scheduled premiums consistent with the policy form; and
o special features elected on your policy.
At issue, we deliver an individualized illustration showing the scheduled
premium you chose and the insured people's actual risk classes. After we issue
the policy, if you ask us to, we will give you an illustration of future policy
benefits. We base these hypothetical future benefits on both guaranteed and
current cost factor assumptions and actual account value.
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Estate Designer 53
<PAGE>
PROSPECT: INSURED PERSON NO. 1'S NAME
MALE 50 NONSMOKER PREFERRED PRESENTED BY:
INSURED PERSON NO. 2'S NAME
FEMALE 50 NONSMOKER PREFERRED
SECURITY LIFE
ESTATE DESIGNER VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $1,000,000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $13,000.00
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13000 13650 10320 10970 1000000 11623 12273 1000000 10972 11622 1000000
2 13000 27983 20390 20715 1000000 24354 24679 1000000 22333 22658 1000000
3 13000 43032 30200 30200 1000000 38290 38290 1000000 34086 34086 1000000
4 13000 58833 39733 39733 1000000 53536 53536 1000000 46227 46227 1000000
5 13000 75425 48975 48975 1000000 70204 70204 1000000 58753 58753 1000000
6 13000 92846 57906 57906 1000000 88418 88418 1000000 71657 71657 1000000
7 13000 111138 66506 66506 1000000 108315 108315 1000000 84930 84930 1000000
8 13000 130345 75588 75588 1000000 130979 130979 1000000 99448 99448 1000000
9 13000 150513 84285 84285 1000000 155746 155746 1000000 114360 114360 1000000
10 13000 171688 92574 92574 1000000 182813 182813 1000000 129656 129656 1000000
15 13000 294547 132885 132885 1000000 375594 375594 1000000 220538 220538 1000000
20 13000 451350 152978 152978 1000000 689873 689873 1000000 319494 319494 1000000
25 13000 651475 133249 133249 1000000 1223815 1223815 1309483 416815 416815 1000000
30 13000 906890 16188 16188 1000000 2113789 2113789 2219478 485907 485907 1000000
AGE 65 13000 322925 138918 138918 1000000 426528 426528 1000000 239886 239886 1000000
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and are not a
representation of past or future investment results. Actual investment results
may be different from those shown and will depend on a number of factors,
including selected investment allocations and investment experience. No
representation is made that these hypothetical gross investment returns can be
achieved or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
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Estate Designer 54
<PAGE>
PROSPECT: INSURED PERSON NO. 1'S NAME
MALE 50 NONSMOKER PREFERRED PRESENTED BY:
INSURED PERSON NO. 2'S NAME
FEMALE 50 NONSMOKER PREFERRED
SECURITY LIFE
ESTATE DESIGNER VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $1,000,000 DEATH BENEFIT OPTION 1
ANNUAL PREMIUM: $13,000.00
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
<CAPTION>
-----------0.00%-------- ---------12.00%--------- -----------6.00%----------
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 13000 13650 10320 11620 1000000 11623 12923 1000000 10972 12272 1000000
2 13000 27983 20390 21690 1000000 24354 25654 1000000 22333 23633 1000000
3 13000 43032 30200 31500 1000000 38290 39590 1000000 34086 35386 1000000
4 13000 58833 39733 39733 1000000 53536 53536 1000000 46227 46227 1000000
5 13000 75425 49080 49080 1000000 70314 70314 1000000 58861 58861 1000000
6 13000 92846 58263 58263 1000000 88801 88801 1000000 72027 72027 1000000
7 13000 111138 67279 67279 1000000 109170 109170 1000000 85745 85745 1000000
8 13000 130345 76960 76960 1000000 132540 132540 1000000 100916 100916 1000000
9 13000 150513 86456 86456 1000000 158281 158281 1000000 116714 116714 1000000
10 13000 171688 95765 95765 1000000 186632 186632 1000000 133162 133162 1000000
15 13000 294547 146381 146381 1000000 392994 392994 1000000 236032 236032 1000000
20 13000 451350 191700 191700 1000000 737872 737872 1000000 364403 364403 1000000
25 13000 651475 226808 226808 1000000 1316264 1316264 1408402 521899 521899 1000000
30 13000 906890 241640 241640 1000000 2282915 2282915 2397061 714510 714510 1000000
AGE 65 13000 322925 155992 155992 1000000 448575 448575 1000000 259565 259565 1000000
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and are not a
representation of past or future investment results. Actual investment results
and policy charges may be different from those shown and will depend on a number
of factors, including the investment allocations and investment experience. No
representation is made that these hypothetical gross investment returns can be
achieved or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
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Estate Designer 55
<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
- -------------------- -------------------------------------------------
Stephen M. Christopher Chairman, President and Chief Executive Officer
Jess A. Skriletz Director, Chief Executive Officer and General
Manager, ING Reinsurance and ING
Institutional Markets
Michael W. Cunningham* Director, Executive Vice President
Mark A. Tullis* Director
P. Randall Lowery* Director
Thomas F. Conroy President, ING Reinsurance International
Gregory G. McGreevey President, ING Institutional Markets
Jerome J. Cwiok* Executive Vice President and Chief Operating
Officer
James L. Livingston, Jr. Executive Vice President, CFO and Chief Actuary
Jeffrey R. Messner Executive Vice President and Chief Marketing
Officer
John R. Barmeyer* Senior Vice President, ING US Legal Services
Peter Bell Senior Vice President, Risk Selection and
Medical Director, ING Reinsurance
Wayne D. Bidelman Senior Vice President, CCRC, ING Reinsurance
R. Thomas Daniel* Senior Vice President, Marketing
Arnold A. Dicke Senior Vice President and Chief Actuary, ING
Reinsurance
Charles E. LeDoyen** Senior Vice President, Structured Settlements
Terry L. Morrison Senior Vice President, New Business Operations
Derek J. Reynolds* Senior Vice President and Chief Information
Officer
Jeffrey W. Seel* Senior Vice President, Chief Investment Officer
Mark A. Smith Senior Vice President, Insurance Services
Lawrence D. Taylor Senior Vice President, Product Management
Gretta Ytterbo Senior Vice President, ING US Legal Services
Gary W. Waggoner Vice President, General Counsel and Corporate
Secretary
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Estate Designer 56
<PAGE>
REGULATION
We are regulated and supervised by the Division of Insurance of the Department
of Regulatory Agencies of the State of Colorado which periodically examines our
financial condition and operations. In addition, we are subject to the insurance
laws and regulations in every jurisdiction in which we do business. As a result,
the provisions of this policy may vary somewhat from jurisdiction to
jurisdiction.
We are required to submit annual statements, including financial statements, of
our operations and finances to the insurance departments of the various
jurisdictions in which we do business to determine solvency and compliance with
state insurance laws and regulations.
We are also subject to various federal securities laws and regulations.
LEGAL MATTERS
The legal matters in connection with the policy described in this prospectus
have been passed on by the General Counsel of Security Life. Sutherland Asbill &
Brennan LLP has provided advice on certain matters relating to the federal
securities laws.
LEGAL PROCEEDINGS
Security Life, as an insurance company, is ordinarily involved in litigation. We
do not believe that any current litigation is material to Security Life's
ability to meet its obligations under the policy or to the separate 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, 1999 and 1998, and for each of the
three years in the period ended December 31, 1999, and the financial statements
of the Security Life Separate Account L1 at December 31, 1999, and for each of
the three years in the period ended December 31, 1999, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given on the authority of
such firm as experts in accounting and auditing.
Actuarial matters in this prospectus have been examined by James L. Livingston,
Jr., F.S.A., M.A.A.A., who is Executive Vice President, CFO 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 separate account and the
variable life insurance policy described in this prospectus with the SEC. The
Registration Statement, which is required by the Securities Act of 1933,
includes additional information that is not required in this prospectus under
the rules and regulations of the SEC. The additional information may be obtained
from the SEC's principal office in Washington, DC. There is a charge for this
material.
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Estate Designer 57
<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..............................................7
Accumulation unit.........................................29
Accumulation unit value....................................7
Adjustable term insurance rider...........................25
Base death benefit........................................23
Beneficiary(ies)..........................................23
Cash surrender value......................................29
Continuation of coverage..................................28
Death proceeds............................................23
Divisions.................................................17
Free look period..........................................36
General account...........................................17
Guaranteed interest division..............................17
Initial premium...........................................20
Investment date...........................................20
Investment options........................................11
Joint equivalent age......................................37
Loan division.............................................33
Minimum annual premium....................................19
Net account value.........................................29
Net amount at risk........................................44
Net cash surrender value..................................29
Net premium................................................4
Partial withdrawal........................................20
Policy.....................................................4
Policy date...............................................18
Policy loan...............................................33
Portfolios................................................11
Scheduled premium.........................................19
Segment...................................................25
Separate account L1.......................................11
Special continuation period...............................20
Stated death benefit......................................18
Target death benefit......................................25
Target premium............................................43
Total death benefit.......................................25
Transaction date..........................................30
Valuation date............................................29
Valuation period..........................................30
Variable division.........................................17
Variable investment option................................11
Younger insured person's 100th birthday...................37
- --------------------------------------------------------------------------------
Estate Designer 58
<PAGE>
FINANCIAL STATEMENTS
The consolidated financial statements of Security Life of Denver Insurance
Company and Subsidiaries ("Security Life and Subsidiaries") at December 31, 1999
and 1998, and for each of the three years in the period ended December 31, 1999,
are prepared in accordance with accounting principles generally accepted in the
United States and start on page 60.
The financial statements included for the Security Life Separate Account L1 at
December 31, 1999 and for each of the three years in the period ended December
31, 1999, are prepared in accordance with accounting principles generally
accepted in the United States and represent those divisions that had commenced
operations by that date.
The consolidated financial statements of Security Life and Subsidiaries, as well
as the financial statements included for the Security Life Separate Account L1
referred to above have been audited by Ernst & Young LLP. The consolidated
financial statements of Security Life and Subsidiaries should be distinguished
from the financial statements of the Security Life Separate Account L1 and
should be considered only as bearing upon the ability of Security Life and
Subsidiaries to meet its obligations under the policies. They should not be
considered as bearing upon the investment experience of the divisions of
Security Life Separate Account L1.
- --------------------------------------------------------------------------------
Estate Designer 59
<PAGE>
Consolidated Financial Statements
Security Life of Denver
Insurance Company
and Subsidiaries
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Estate Designer 60
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Financial Statements
Years ended December 31, 1999, 1998 and 1997
CONTENTS
Report of Independent Auditors ...............................................62
Audited Consolidated Financial Statements
Consolidated Balance Sheets ..................................................63
Consolidated Statements of Income ............................................65
Consolidated Statements of Comprehensive Income...............................66
Consolidated Statements of Stockholder's Equity ..............................67
Consolidated Statements of Cash Flows ........................................68
Notes to Consolidated Financial Statements ...................................70
- --------------------------------------------------------------------------------
Estate Designer 61
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholder
Security Life of Denver Insurance Company
We have audited the accompanying consolidated balance sheets of Security Life of
Denver Insurance Company (a wholly owned subsidiary of ING America Insurance
Holdings, Inc.) and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of income, comprehensive income, stockholder's
equity, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Security Life of
Denver Insurance Company and subsidiaries at December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
/s/ Ernst & Young LLP
April 14, 2000
- --------------------------------------------------------------------------------
Estate Designer 62
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------ ---------------
<S> <C> <C>
ASSETS
Investments (Notes 2 and 3):
Fixed maturities, at fair value (amortized cost:
1999--$3,649,485; 1998--$3,383,582) $ 3,486,939 $ 3,503,530
Equity securities, at fair value (cost: 1999--$5,161;
1998--$6,761) 7,944 8,400
Mortgage loans on real estate 1,006,443 784,108
Investment real estate, at cost, less accumulated
depreciation (1999--$561; 1998--$706) 1,028 1,740
Policy loans 961,586 925,623
Other long-term investments 37,284 17,671
Short-term investments 186,917 747
------------ ---------------
Total investments 5,688,141 5,241,819
Cash 48,630 31,644
Accrued investment income 78,866 52,440
Reinsurance recoverable:
Paid benefits 19,738 11,364
Unpaid benefits 28,060 24,312
Prepaid reinsurance premiums (Note 8) 3,666,882 3,329,901
Deferred policy acquisition costs (DPAC) 982,713 778,126
Property and equipment, at cost, less accumulated
depreciation (1999--$28,522; 1998--$25,981) 34,704 36,141
Federal income tax recoverable (Note 9) 27,663 -
Indebtedness from related parties 33,220 4,339
Other assets 134,913 113,019
Separate account assets (Note 6) 644,975 423,474
------------ ---------------
Total assets $11,388,505 $10,046,579
============ ===============
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 63
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
-------------------- --------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Future policy benefits:
Life and annuity reserves $ 5,313,006 $ 4,857,141
Guaranteed investment contracts 3,885,219 3,210,012
Policyholders' funds 79,648 81,064
Advance premiums 192 272
Accrued dividends and dividends on deposit 21,603 21,268
Policy and contract claims 155,679 130,100
-------------------- --------------------
Total future policy benefits 9,455,347 8,299,857
Accounts payable and accrued expenses 126,857 108,165
Indebtedness to related parties 34,231 13,755
Long-term debt to related parties (Note 10) 100,000 100,000
Accrued interest on long-term debt to related
parties (Note 10) 11,098 5,387
Other liabilities 98,225 109,593
Federal income taxes payable (Note 9) - 106
Deferred federal income taxes (Note 9) 18,679 60,062
Separate account liabilities (Note 6) 644,975 423,474
-------------------- --------------------
Total liabilities 10,489,412 9,120,399
Commitments and contingencies
(Notes 8 and 13)
Stockholder's equity (Note 11):
Common stock, $20,000 par value:
Authorized--149 shares
Issued and outstanding--144 shares 2,880 2,880
Additional paid-in capital 345,722 315,722
Retained earnings 614,785 563,553
Accumulated other comprehensive income (loss) (64,294) 44,025
-------------------- --------------------
Total stockholder's equity 899,093 926,180
-------------------- --------------------
Total liabilities and stockholder's equity $11,388,505 $10,046,579
==================== ====================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 64
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Income
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Revenues:
Traditional life insurance premiums $ 104,133 $ 120,675 $ 122,429
Universal life and investment product charges 247,066 229,226 217,108
Reinsurance premiums assumed 526,563 431,267 446,434
---------------- ---------------- ----------------
877,762 781,168 785,971
Reinsurance premiums ceded (147,068) (143,211) (124,815)
---------------- ---------------- ----------------
730,694 637,957 661,156
Net investment income 394,167 361,996 340,898
Net realized gains (losses) on investments (39,495) 10,818 28,645
Other revenues 18,304 11,771 6,743
---------------- ---------------- ----------------
1,103,670 1,022,542 1,037,442
Benefits and expenses:
Benefits:
Traditional life insurance:
Death benefits 357,472 239,921 299,305
Other benefits 72,286 77,209 79,849
Universal life and investment contracts:
Interest credited to account balances 258,167 236,136 217,614
Death benefits incurred in excess of account
balances 95,444 63,103 73,260
Increase in future policy benefits 95,511 102,875 72,685
Reinsurance recoveries (127,238) (84,506) (98,376)
Product conversions 3,701 10,578 7,014
---------------- ---------------- ----------------
755,343 645,316 651,351
Expenses:
Commissions 81,539 49,569 46,516
Insurance operating expenses 91,172 125,194 89,075
Amortization of deferred policy acquisition costs 98,051 105,639 116,495
---------------- ---------------- ----------------
1,026,105 925,718 903,437
---------------- ---------------- ----------------
Income before federal income taxes 77,565 96,824 134,005
Federal income taxes (Note 9) 26,333 34,066 47,019
---------------- ---------------- ----------------
Net income $ 51,232 $ 62,758 $ 86,986
================ ================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 65
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Comprehensive Income
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net income $ 51,232 $ 62,758 $ 86,986
---------------- ---------------- ----------------
Other comprehensive income:
Unrealized gains (losses) on securities:
Net change in unrealized holding gains (losses), net of tax (150,423) (11,251) 28,367
Reclassification adjustment for realized gains
included in net income, net of tax (32,454) (5,010) (4,601)
Effect on DPAC of unrealized gains and
losses on fixed maturities, net of tax 82,098 7,236 (37,522)
Reclassification effect on DPAC of realized gains
and losses included in net income, net of tax (7,073) 3,075 5,976
Net change in pension liability, net of tax (467) (963) -
---------------- ---------------- ----------------
Total other comprehensive income (loss) (108,319) (6,913) (7,780)
---------------- ---------------- ----------------
Comprehensive income (loss) $ (57,087) $ 55,845 $ 79,206
================ ================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 66
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Stockholder's Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
================== ================= ==================
<S> <C> <C> <C>
Common stock:
Balance at beginning and end of year $ 2,880 $ 2,880 $ 2,880
================== ================= ==================
Additional paid-in capital:
Balance at beginning of year $315,722 $315,722 $302,722
Capital contributions 30,000 - 13,000
------------------ ----------------- ------------------
Balance at end of year $345,722 $315,722 $315,722
================== ================= ==================
Accumulated other comprehensive income (loss):
Net unrealized gains on investments:
Balance at beginning of year $ 44,988 $ 50,938 $ 58,718
Unrealized gains (losses) on securities:
Change in unrealized gains (losses),
net of tax (182,877) (16,261) 23,766
Effect on DPAC of unrealized gains and
losses on fixed maturities, net of tax 75,025 10,311 (31,546)
------------------ ----------------- ------------------
Balance at end of year (62,864) 44,988 50,938
Accumulated net pension liability:
Balance at beginning of year (963) - -
Net change in pension liability, net of tax (467) (963) -
------------------ ----------------- ------------------
Balance at end of year (1,430) (963) -
------------------ ----------------- ------------------
Total accumulated other comprehensive
income (loss) $(64,294) $ 44,025 $ 50,938
================== ================= ==================
Retained earnings:
Balance at beginning of year $563,553 $500,795 $413,809
Net income 51,232 62,758 86,986
------------------ ----------------- ------------------
Balance at end of year $614,785 $563,553 $500,795
================== ================= ==================
Total stockholder's equity $899,093 $926,180 $870,335
================== ================= ==================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 67
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------- ------------------- -------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 51,232 $ 62,758 $ 86,986
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in future policy benefits 624,769 874,765 995,632
Net (increase) decrease in federal income taxes (69,152) 12,061 (12,317)
Increase in accounts payable and accrued
expenses 6,088 55,361 21,033
Increase in accrued interest on long-term debt 5,711 259 1,428
Increase in accrued investment income (26,426) (2,714) (4,300)
(Increase) decrease in reinsurance recoverable (12,122) (9,518) 3,733
Increase in prepaid reinsurance premiums (336,981) (585,038) (793,851)
Net realized investment (gains) losses 39,495 (10,818) (28,645)
Depreciation and amortization expense 2,567 3,174 3,630
Policy acquisition costs deferred (187,214) (184,993) (174,374)
Amortization of deferred policy acquisition
costs 98,049 105,639 116,495
Increase in accrual for postretirement benefits 769 675 557
Other, net 51,980 (7,053) 43,538
----------------- ------------------- -------------------
Net cash provided by operating activities 248,765 314,558 259,545
INVESTING ACTIVITIES
Securities available-for-sale:
Sales:
Fixed maturities 2,300,734 5,015,989 2,279,598
Equity securities 2,053 2,251 648
Maturities--fixed maturities 193,664 274,463 410,632
Purchases:
Fixed maturities (2,816,711) (5,670,994) (2,919,145)
Equity securities - (2,089) (2,561)
Sale, maturity or repayment of investments:
Mortgage loans on real estate 47,851 51,235 38,756
Investment real estate 1,109 - -
Other long-term investments 70,790 10,678 2,002
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 68
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Consolidated Statements of Cash Flows (continued)
(Dollars in Thousands)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1999 1998 1997
----------------- ------------------- -------------------
<S> <C> <C> <C>
Investing activities (continued)
Purchase or issuance of investments:
Mortgage loans on real estate $(271,686) $(259,945) $(163,528)
Investment real estate - (13) (35)
Policy loans, net (35,963) (50,218) (80,094)
Other long-term investments (88,661) (14,042) (5,248)
Short-term investments, net (186,174) 55,115 (48,447)
Additions to property and equipment (1,247) (1,418) (2,687)
Disposals of property and equipment 147 68 145
----------------- ------------------- -------------------
Net cash used by investing activities (784,094) (588,920) (489,964)
Financing activities
(Decrease) increase in indebtedness to related parties (8,406) 29,156 5,217
Cash contributions from parent 30,000 - 13,000
Receipts from interest-sensitive products
credited to policyholder account balances 829,493 505,728 555,223
Return of policyholder account balances on
interest-sensitive policies (298,772) (251,177) (334,543)
----------------- ------------------- -------------------
Net cash provided by financing activities 552,315 283,707 238,897
----------------- ------------------- -------------------
Net increase in cash 16,986 9,345 8,478
Cash at beginning of year 31,644 22,299 13,821
----------------- ------------------- -------------------
Cash at end of year $ 48,630 $ 31,644 $ 22,299
================= =================== ===================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 69
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1999
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts and
operations, after intercompany eliminations, of Security Life of Denver
Insurance Company (Security Life) and its wholly owned subsidiaries: Midwestern
United Life Insurance Company (Midwestern United); First ING Life Insurance
Company of New York (First ING); First Secured Mortgage Deposit Corporation;
Tailored Investment Notes Trust 1999-1 (Trust); and ING America Equities, Inc.
NATURE OF OPERATIONS
Security Life of Denver Insurance Company and its subsidiaries (the Company) is
a wholly owned subsidiary of ING America Insurance Holdings, Inc. (ING America).
The Company focuses on three markets, the advanced market, reinsurance to other
insurers, and the investment products market. The life insurance products
offered for the advanced market include wealth transfer and estate planning,
executive benefits, charitable giving and corporate owned life insurance. These
products include traditional life, interest-sensitive life, universal life and
variable life. Operations are conducted almost entirely on the general agency
basis and the Company is presently licensed in all states (approved for
reinsurance only in New York), the District of Columbia and the Virgin Islands.
In the reinsurance market, the Company offers financial security to clients
through a mix of total risk management and traditional life insurance services.
In the investment products market, the Company offers guaranteed investment
contracts, funding agreements and Trust notes to institutional buyers.
The significant accounting policies followed by the Company that materially
affect the financial statements are summarized below:
BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States
(U.S. GAAP) which, as to the insurance companies included in the consolidation,
differ from statutory accounting practices prescribed or permitted by state
insurance regulatory authorities.
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
- --------------------------------------------------------------------------------
Estate Designer 70
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING CHANGES
During 1998, the Company adopted FASB Statement No. 132, Employers' Disclosures
about Pensions and Other Postretirement Benefits, which standardizes the
disclosure requirements for pension and other postretirement benefits. This
Statement is effective for years beginning after December 15, 1997, with the
restatement of disclosures for prior periods provided for comparative purposes,
unless prior period information is not readily available.
During 1998, the Company adopted FASB Statement No. 130, Reporting Comprehensive
Income, which requires an entity to divide comprehensive income into net income
and other comprehensive income in the period recognized. This Statement is
effective for fiscal years beginning after December 15, 1997, with the
restatement of prior period disclosures for comparative purposes. As a result of
implementing this Statement, the Company has classified items of other
comprehensive income by their nature in the statements of comprehensive income
and the accumulated balance of other comprehensive income in the equity section
of the balance sheet. This Statement affects the presentation of the financial
statements, with no effect on the valuation of total stockholder's equity.
During 1999, the Company adopted Statement of Position 97-3, Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments. This
Statement is effective for fiscal years beginning after December 31, 1998 and
requires a liability to be recognized for the future guaranty fund assessments
based on estimates of insurance company insolvencies provided by the National
Organization of Life and Health Insurance Guaranty Associations (NOLHGA) and
premiums written in each state. The Statement also requires that when it is
probable a paid or accrued assessment will result in an amount that is
recoverable from premium tax offsets or policy surcharges, an asset be
recognized at the time the liability is recorded. Additional disclosures are
also required, including the amount of the liability, the amount of the related
asset for premium tax offsets or policy surcharges, the periods over which the
assessments are expected to be paid, and the period over which the recorded
premium tax offsets or policy surcharges are expected to be realized. Prior
period financial statements presented for comparative purposes are not restated.
The adoption of this Statement had no effect on the valuation of total
stockholder's equity.
- --------------------------------------------------------------------------------
Estate Designer 71
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PENDING ACCOUNTING STANDARDS
During 1998, the FASB issued Statement No. 133, Accounting for Derivative
Financial Instruments and Hedging Activities, which establishes a new model for
accounting and reporting for derivatives and hedging activities. Statement 133
requires all derivatives to be recognized on the balance sheet and measured at
fair value. Based on the type of hedging relationship (fair value, cash flow, or
foreign currency), Statement 133 requires the recognition of offsetting changes
in value or cash flows of both the derivative and the hedged item in earnings in
the same period. Changes in the fair value of derivatives that are not
designated as hedges or that do not meet the hedge accounting criteria in
Statement 133 are included in earnings in the period of change. During 1999, the
FASB issued Statement 137 which delays the implementation of Statement 133 to
years beginning after June 15, 2000. Upon the initial application of Statement
133, all derivatives are required to be recognized in the balance sheet as
either assets or liabilities and measured at fair value. The Company plans to
adopt this Statement during 2001, and the effect of implementation on the
Company's financial statements has not yet been determined.
INVESTMENTS
Investments are presented on the following bases:
The carrying value of fixed maturities depends on the classification of
the security: securities held-to-maturity, securities
available-for-sale, and trading securities. Management determines the
appropriate classification of debt securities at the time of purchase.
The Company does not hold any securities classified as held-to-maturity
or trading securities.
Debt securities and marketable equity securities are classified as
available-for-sale. Available-for-sale securities are stated at fair
value, with the unrealized gains and losses, and deferred policy
acquisition cost adjustments, reported net of tax as a component of
other comprehensive income in stockholder's equity.
- --------------------------------------------------------------------------------
Estate Designer 72
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The amortized cost of debt securities is adjusted for amortization of
premiums and accretion of discounts to maturity, or in the case of
mortgage-backed securities, over the estimated life of the security.
Such amortization is included in interest income from investments.
Interest and dividends are included in net investment income as earned.
Mortgage loans are carried at the unpaid balances less an allowance for
credit losses. Investment real estate is carried at cost, less
accumulated depreciation. Policy loans are carried at unpaid balances.
Derivatives hedging fixed maturity assets are reported on the balance
sheet at market value with fixed maturity securities. Derivatives
hedging liabilities are reported on the balance sheet at amortized cost
with other investments.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains on investments.
The cost of securities sold is based on the specific identification
method.
RECOGNITION OF PREMIUM REVENUES
Premiums for traditional life insurance products, which include those products
with fixed and guaranteed premiums and benefits and consist principally of whole
life insurance policies, are recognized as revenue when due. Revenues for
universal life insurance policies and for investment products consist of policy
charges for the cost of insurance, policy administration charges, and surrender
charges assessed against policyholder account balances during the year.
DEFERRED POLICY ACQUISITION COSTS
Commissions, reinsurance allowances, and other costs of acquiring traditional
life insurance, including reinsurance assumed, universal life insurance
(including interest-sensitive products) and investment products that vary with
and are primarily related to the production of new and renewal business, have
been deferred. Traditional life insurance acquisition costs are being amortized
using assumptions consistent with those used in computing policy benefit
reserves. The period of amortization is normally over the premium-paying period.
In the case of policies with no first-year premium, the period of amortization
includes the first year, in addition to the premium-paying period. For universal
life insurance and investment products, acquisition costs are being amortized
generally in proportion to the present value (using the assumed crediting rate)
of expected gross margins from surrender charges, investments, mortality, and
expenses. This amortization is adjusted retrospectively when estimates of
current or future gross margins to be realized from a group of products are
revised.
- --------------------------------------------------------------------------------
Estate Designer 73
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred policy acquisition costs are adjusted to reflect changes that would
have been necessary if unrealized investment gains and losses related to
available-for-sale securities had been realized. The Company has reflected those
adjustments in the asset balance with the offset as a direct adjustment to
accumulated other comprehensive income in stockholder's equity.
FUTURE POLICY BENEFITS
Benefit reserves for traditional life insurance products (other than reinsurance
assumed) are computed using a net level premium method including assumptions as
to investment yields, mortality, withdrawals and other assumptions based on
Company and industry experience. These assumptions include provisions for
adverse deviation and are modified as necessary to reflect anticipated trends.
Reserve interest assumptions are those deemed appropriate at the time of policy
issue, and range from 3% to 7.5%. Policy benefit claims are charged to expense
in the year that the claims are incurred.
Benefit reserves for reinsurance assumed are computed using pricing assumptions
with provisions for adverse deviation. Benefits for level-term reinsurance
assumed are computed to recognize profits in proportion with revenue. Benefit
reserves for all other reinsurance assumed are computed to recognize profits in
proportion to the coverage provided.
Benefit reserves for universal life-type policies (including fixed premium
interest-sensitive products) and investment products are computed under a
retrospective deposit method and represent policy account balances before
applicable surrender charges. Policy benefits and claims that are charged to
expense include benefit claims incurred during the year in excess of related
policy account balances. Interest crediting rates for universal life and
investment products range from 3.51% to 7.61% during 1999, 3.80% to 7.81% during
1998, and 4.60% to 7.81% during 1997.
Included in life and annuity reserves is an unearned revenue reserve that
reflects the unamortized balance of excess heaped expense loads over ultimate
renewal expense loads on universal life and investment products. These excess
fees have been deferred and are being recognized in income over the periods
benefited, using the same assumptions and factors used to amortize deferred
policy acquisition costs.
- --------------------------------------------------------------------------------
Estate Designer 74
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
POLICY AND CONTRACT CLAIMS
The liabilities for unpaid claims include estimates of amounts due on reported
claims and claims that have been incurred but were not reported as of December
31. Such estimates are based on actuarial projections applied to historical
claim payment data and are considered reasonable and adequate to discharge the
Company's obligations for claims incurred but unpaid as of December 31.
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost less accumulated depreciation.
Impairment losses are recorded when indicators of impairment are present and the
estimated undiscounted cash flows are less than the assets' carrying value.
Depreciation for major classes of assets is calculated on a straight-line basis.
PARTICIPATING INSURANCE
The Company accrues a liability for earnings on participating policies that
cannot inure to the benefit of the Company's stockholder. The liability is
determined based on earnings on participating policies in excess of 10% of
profits on participating business before payment of policyholder dividends. The
liability for these undistributed earnings was $5,497,000 and $5,816,000 at
December 31, 1999 and 1998, respectively. Participating business approximates
.2% of the Company's ordinary life insurance in force and 1.5% of premium
income. Earnings for participating insurance are based on the actual earnings of
the participation block of policies. Expenses and taxes are allocated based on
the amount of participating insurance in force. Investment income is allocated
based on the yield of the participating investment portfolio. The amount of
dividends to be paid is determined annually by the Board of Directors. Amounts
allocable to participating policyholders are based on published dividend
projections or expected dividend scales. Dividends of $3,424,000, $3,233,000,
and $3,377,000 were incurred in 1999, 1998, and 1997, respectively.
FEDERAL INCOME TAXES
Deferred federal income taxes have been provided or credited to reflect
significant temporary differences between income reported for tax and financial
reporting purposes using reasonable assumptions.
- --------------------------------------------------------------------------------
Estate Designer 75
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH FLOW INFORMATION
Cash includes cash on hand and demand deposits. Included as a component of
operating activities is interest paid of $2,672,000, $10,121,000, and
$10,110,000 for 1999, 1998, and 1997, respectively.
GUARANTY FUND ASSESSMENTS
Insurance companies are assessed the costs of funding the insolvencies of other
insurance companies by the various state guaranty associations, generally based
on the amount of premium companies collect in that state. The Company accrues
the cost of future guaranty fund assessments based on estimates of insurance
company insolvencies provided by the National Organization of Life and Health
Insurance Guaranty Associations (NOLHGA) and the amount of premiums written in
each state. The guaranty fund assessment liability at December 31, 1999 and 1998
was $17,644,000 and $13,338,000, respectively. The assessment is expected to be
paid over the next five or more years. The related premium tax credit offsets
are $15,339,000 and $11,891,000 at December 31, 1999 and 1998, respectively. The
premium tax credit offsets are expected to be realized over the next five years.
RECLASSIFICATIONS
Certain amounts in the 1997 financial statements have been reclassified to
conform to the 1999 and 1998 presentation.
- --------------------------------------------------------------------------------
Estate Designer 76
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows at December 31, 1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------------------------
Cost or Gross Gross
amortized unrealized unrealized Fair
cost gains losses value
----------------- ------------------ ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 98,354 $ 42 $ 7,795 $ 90,601
States, municipalities and political
subdivisions 21,412 - 4,408 17,004
Public utilities securities 276,742 272 19,532 257,482
Debt securities issued by foreign
governments 452 - - 452
Corporate securities 1,431,446 4,131 77,293 1,358,284
Mortgage-backed securities 1,075,807 24,064 56,493 1,043,378
Other asset-backed securities 745,231 7,626 33,635 719,222
Redeemable preferred stocks - - - -
Derivatives hedging fixed maturities
(Note 3) 41 475 - 516
----------------- ------------------ ----------------- -----------------
Total fixed maturities 3,649,485 36,610 199,156 3,486,939
Preferred stocks (nonredeemable) 2,651 329 24 2,956
Common stocks 2,510 2,573 95 4,988
----------------- ------------------ ----------------- -----------------
Total equity securities 5,161 2,902 119 7,944
----------------- ------------------ ----------------- -----------------
Total $3,654,646 $39,512 $199,275 $3,494,883
================= ================== ================= =================
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 77
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------
Cost or Gross Gross
amortized unrealized unrealized Fair
cost gains losses value
----------------- ------------------ ----------------- -----------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 166,611 $ 3,829 $ 589 $ 169,851
States, municipalities and political
subdivisions 23,368 959 1,803 22,524
Public utilities securities 172,968 4,885 904 176,949
Debt securities issued by foreign
governments 952 - - 952
Corporate securities 1,251,462 46,292 23,512 1,274,242
Mortgage-backed securities 1,132,058 75,159 6,922 1,200,295
Other asset-backed securities 635,539 19,968 3,578 651,929
Redeemable preferred stocks 312 42 - 354
Derivatives hedging fixed maturities
(Note 3) 312 6,434 312 6,434
----------------- ------------------ ----------------- -----------------
Total fixed maturities 3,383,582 157,568 37,620 3,503,530
Preferred stocks (nonredeemable) 4,251 6 52 4,205
Common stocks 2,510 1,780 95 4,195
----------------- ------------------ ----------------- -----------------
Total equity securities 6,761 1,786 147 8,400
----------------- ------------------ ----------------- -----------------
Total $3,390,343 $159,354 $37,767 $3,511,930
================= ================== ================= =================
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 78
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
The amortized cost and fair value of investments in fixed maturities at December
31, 1999, by contractual maturity, are shown in the following table (in
thousands). Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.
AMORTIZED
COST FAIR VALUE
--------------- --------------------
Available for sale:
Due in one year or less $ 9,637 $ 9,174
Due after one year through five years 247,473 245,401
Due after five years through ten years 749,169 716,715
Due after ten years 822,127 752,532
--------------- --------------------
1,828,406 1,723,822
Mortgage-backed securities 1,075,807 1,043,379
Other asset-backed securities 745,231 719,222
Derivatives 41 516
--------------- --------------------
Total available-for-sale $3,649,485 $3,486,939
=============== ====================
Changes in unrealized gains (losses) on investments in available-for-sale
securities for the years ended December 31, 1999, 1998 and 1997 are summarized
as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------------------------------------------
Fixed Equity Total
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Gross unrealized gains $ 36,610 $2,902 $ 39,512
Gross unrealized (losses) (199,156) (119) (199,275)
-------------------- -------------------- --------------------
Net unrealized gains (losses) (162,546) 2,783 (159,763)
Deferred income tax 56,891 (974) 55,917
-------------------- -------------------- --------------------
Net unrealized gains (losses) after taxes (105,655) 1,809 (103,846)
Less:
Balance at beginning of year 77,966 1,065 79,031
-------------------- -------------------- --------------------
Change in net unrealized gains
(losses) $(183,621) $ 744 $(182,877)
==================== ==================== ====================
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 79
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
DECEMBER 31, 1998
----------------------------------------
Fixed Equity Total
---------- -------------- --------------
Gross unrealized gains $157,568 $1,786 $159,354
Gross unrealized (losses) (37,620) (147) (37,767)
---------- -------------- --------------
Net unrealized gains 119,948 1,639 121,587
Deferred income tax (41,982) (574) (42,556)
---------- -------------- --------------
Net unrealized gains after taxes 77,966 1,065 79,031
Less:
Balance at beginning of year 94,470 822 95,292
---------- -------------- --------------
Change in net unrealized gains
(losses) $ (16,504) $ 243 $ (16,261)
========== ============== ==============
DECEMBER 31, 1997
----------------------------------------
Fixed Equity Total
---------- -------------- --------------
Gross unrealized gains $161,625 $1,513 $163,138
Gross unrealized (losses) (16,282) (248) (16,530)
---------- -------------- --------------
Net unrealized gains 145,343 1,265 146,608
Deferred income tax (50,873) (443) (51,316)
---------- -------------- --------------
Net unrealized gains after taxes 94,470 822 95,292
Less:
Balance at beginning of year 71,237 289 71,526
---------- -------------- --------------
Change in net unrealized gains
(losses) $ 23,233 $ 533 $ 23,766
========== ============== ==============
As part of its overall investment management strategy, the Company has entered
into agreements to purchase $140,600,000 in mortgage loans as of December 31,
1999. These agreements were settled during 2000. The Company had no agreements
to sell securities at December 31, 1999.
- --------------------------------------------------------------------------------
Estate Designer 80
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2. INVESTMENTS (CONTINUED)
Major categories of investment income for the years ended December 31 are
summarized as follows (in thousands):
1999 1998 1997
------------ -------------- ---------------
Fixed maturities $288,694 $278,227 $259,936
Mortgage loans on real estate 66,687 47,567 40,908
Policy loans 60,284 58,016 56,087
Other investments 2,068 2,911 3,159
------------ -------------- ---------------
417,733 386,721 360,090
Investment expenses (23,566) (24,725) (19,192)
------------ -------------- ---------------
Net investment income $394,167 $361,996 $340,898
============ ============== ===============
Net realized gains (losses) on investments for the years ended December 31 are
summarized as follows (in thousands):
1999 1998 1997
------------ -------------- ---------------
Fixed maturities $(41,679) $ 9,691 $27,717
Equity securities 142 168 (57)
Real estate and other 2,042 959 985
------------ -------------- ---------------
Net realized gains (losses) on
investments $(39,495) $10,818 $28,645
============ ============== ===============
During 1999, 1998 and 1997, fixed maturities and marketable equity securities
available-for-sale were sold with fair values at the date of sale of
$2,300,481,000, $5,018,240,000 and $2,281,886,000, respectively. Gross gains of
$20,117,000, $44,314,000 and $41,017,000 and gross losses of $61,654,000,
$34,455,000 and $13,357,000 were realized on those sales in 1999, 1998 and 1997,
respectively.
At December 31, 1999 and 1998, bonds with an amortized cost of $28,755,000 and
$29,081,000, respectively, were on deposit with various state insurance
departments to meet regulatory requirements.
- --------------------------------------------------------------------------------
Estate Designer 81
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
The Company enters into interest rate and currency contracts, including swaps,
caps, floors, and options, to reduce and manage risks, which include the risk of
a change in the value, yield, price, cash flows, exchange rates or quantity of,
or a degree of exposure with respect to, assets, liabilities, or future cash
flows which the Company has acquired or incurred. Hedge accounting practices are
supported by cash flow matching, scenario testing and duration matching.
Interest rate swap agreements generally involve the exchange of fixed and
floating interest payments over the life of the agreement without an exchange of
the underlying principal amount. Currency swap agreements generally involve the
exchange of local and foreign currency payments over the life of the agreements
without an exchange of the underlying principal amount. Interest rate cap and
interest rate floor agreements owned entitle the Company to receive payments to
the extent reference interest rates exceed or fall below strike levels in the
contracts based on the notional amounts.
Premiums paid for the purchase of interest rate contracts are included in other
assets and are being amortized to interest expense over the remaining terms of
the contracts or in a manner consistent with the financial instruments being
hedged. Amounts paid or received, if any, from such contracts are included in
interest expense or income. Accrued amounts payable to or receivable from
counterparties are included in other liabilities or assets.
Gains and losses as a result of early terminations of interest rate contracts
are amortized to investment income over the remaining term of the items being
hedged to the extent the hedge is considered to be effective; otherwise, they
are recognized upon termination.
Interest rate contracts that are matched or otherwise designated to be
associated with other financial instruments are recorded at fair value if the
related financial instruments mature, are sold, or are otherwise terminated or
if the interest rate contracts cease to be effective hedges.
The Company manages the potential credit exposure from interest rate contracts
through careful evaluation of the counterparties' credit standing, collateral
agreements, and master netting agreements.
The Company is exposed to credit loss in the event of nonperformance by
counterparties on interest rate contracts; however, the Company does not
anticipate nonperformance by any of these counterparties. The amount of such
exposure is generally the unrealized gains in such contacts.
- --------------------------------------------------------------------------------
Estate Designer 82
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
The table below summarizes the Company's interest rate contracts at December 31,
1999 and 1998 (in thousands):
DECEMBER 31, 1999
----------------------------------------------
Notional Amortized Fair Balance
amount cost value sheet
---------- ---------- ----------- -----------
Interest rate contracts:
Swaps $1,340,582 $ (125) $19,014 $ 311
Swaps--affiliates 1,034,535 125 (18,869) 125
---------- ---------- ----------- -----------
Total swaps 2,375,117 - 145 436
Caps owned 50,525 80 17 40
Caps owned--affiliates 20,525 (39) (17) (40)
---------- ---------- ----------- -----------
Total caps owned 71,050 41 - -
Floors owned 90,500 252 172 332
Floors owned--affiliates - - - -
---------- ---------- ----------- -----------
Total floors owned 90,500 252 172 332
Options owned 302,000 4,000 7,118 4,000
Options owned--affiliates 277,000 (3,210) (6,198) (3,210)
---------- ---------- ----------- -----------
Total options owned 579,000 790 920 790
---------- ---------- ----------- -----------
Forwards owned 152,300 - 37 -
Forwards owned--affiliates 144,300 - (32) -
---------- ---------- ----------- -----------
Total forwards owned 296,600 - 5 -
---------- ---------- ----------- -----------
Total derivatives $3,412,267 $1,083 $ 1,242 $1,558
========== ========== =========== ===========
- --------------------------------------------------------------------------------
Estate Designer 83
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
3. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING
(CONTINUED)
DECEMBER 31, 1998
---------------------------------------------
Notional Amortized Fair Balance
amount cost value sheet
------------ --------- ---------- ----------
Interest rate contracts:
Swaps $ 767,873 $ (155) $(2,952) $(2,952)
Swaps--affiliates 734,176 155 5,440 5,440
------------ --------- ---------- ----------
Total swaps 1,502,049 - 2,488 2,488
Caps owned 560,000 312 11 11
Caps owned--affiliates - - - -
------------ --------- ---------- ----------
Total caps owned 560,000 312 11 11
Floors owned 422,485 (72) 3,768 3,768
Floors owned--affiliates 8,485 72 167 167
------------ --------- ---------- ----------
Total floors owned 430,970 - 3,935 3,935
Options owned 418,300 5,268 2,664 2,664
Options owned--affiliates 418,300 (5,268) (2,664) (2,664)
------------ --------- ---------- ----------
Total options owned 836,600 - - -
------------ --------- ---------- ----------
Forwards owned - - - -
Forwards owned--affiliates - - - -
------------ --------- ---------- ----------
Total forwards owned - - - -
------------ --------- ---------- ----------
Total derivatives $3,329,619 $ 312 $ 6,434 $ 6,434
============ ========= ========== ==========
4. CONCENTRATIONS OF CREDIT RISK
At December 31, 1999, the Company held less-than-investment-grade bonds
classified as available-for-sale with a carrying value and market value of
$319,122,000. These holdings amounted to 9.1% of the Company's investments in
fixed maturity securities and 2.8% of total assets. The holdings of
less-than-investment-grade bonds are widely diversified and of satisfactory
quality based on the Company's investment policies and credit standards.
At December 31, 1999, the Company's mortgages involved a concentration of
properties located in Florida (15.2%), Texas (9.9%), and Georgia (6.2%). The
remaining mortgages relate to properties located in 36 other states. The
portfolio is well diversified, covering many different types of income-producing
properties on which the Company has first mortgage liens. The maximum mortgage
outstanding on any individual property is $24,076,000.
- --------------------------------------------------------------------------------
Estate Designer 84
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS
PENSION PLANS AND POSTRETIREMENT BENEFITS
The Company has a qualified noncontributory defined benefit retirement plan
covering substantially all employees. In addition, the Company maintains a
non-qualified unfunded Supplemental Employees' Retirement Plan (SERP). In
addition to providing pension plans, the Company provides certain health care
and life insurance benefits for retired employees.
The funded status and the amounts recognized in the balance sheets for the
defined benefit plans and other postretirement benefit plans are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
------------------------------------------ ------------------------------------------
Qualified Post- Qualified Post-
plan SERP retirement plan SERP retirement
------------- ------------- -------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Projected benefit obligation $(36,352) $(11,803) $ (6,256) $(38,685) $(8,320) $ (8,949)
Less plan assets at fair value 50,495 - - 47,230 - -
------------- ------------- -------------- ------------- ----------- --------------
Plan assets in excess (deficient)
of projected benefit obligation $ 14,143 $(11,803) $ (6,256) $ 8,545 $(8,320) $ (8,949)
============= ============= ============== ============= =========== ==============
Net asset (liability) $ 1,200 $ (6,501) $(12,813) $ 1,240 $(4,918) $(12,044)
============= ============= ============== ============= =========== ==============
</TABLE>
As of December 31, 1999 and 1998, the Company recognized an additional minimum
net liability on the SERP of $2,200,000 and $1,482,000, respectively, as this
plan is unfunded and the actuarial present value of accumulated benefit
obligation exceeds the net pension liability. Prior to 1998, the change in the
additional minimum net liability was reported in net income. Beginning in 1998,
the change in the additional minimum net liability is recorded net of tax as a
component of other comprehensive income directly in stockholder's equity.
- --------------------------------------------------------------------------------
Estate Designer 85
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
The net periodic pension cost, employer contributions, plan participant
contributions, and benefits paid for the defined benefit plans are as follows
(in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------- --------------------------------- ---------------------------------
Qualified Post- Qualified Post- Qualified Post-
plan SERP retirement plan SERP retirement plan SERP retirement
---------- -------- ------------ ------------ -------- ----------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net periodic pension
expense $ 40 $1,971 $1,236 $ 82 $1,109 $893 $607 $1,502 $755
Employer contributions - 387 467 - 325 218 - 317 198
Plan participants'
contributions - - 94 - - 77 - - 71
Benefits paid 1,238 387 561 890 325 296 811 317 268
</TABLE>
Assumptions used in accounting for the defined benefit plans as of December 31,
1999, 1998, and 1997 were as follows:
1999 1998 1997
-------- ----------- ------------
Weighted-average discount rate 8.00% 6.75% 7.25%
Rate of increase in compensation level 5.00% 4.00% 4.25%
Expected long-term rate of return on assets 9.25% 9.50% 9.50%
Plan assets of the defined benefit plans at December 31, 1999 are invested
primarily in U.S. government securities, corporate bonds, mutual funds, mortgage
loans, money market funds and common stock. Certain of the Qualified Plan's
investments are held in the ING-NA Master Trust, which was established in 1998
for the investment of assets of the Plan and several other ING-NA-sponsored
retirement plans.
The annual assumed rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) for the medical plan is 9.5% graded to 5.5%
over eight years. The health care cost trend rate assumption has a significant
effect on the amounts reported. For example, increasing the assumed health care
cost trend rates by one percentage point in each year would increase the
accumulated postretirement benefit obligation for the medical plan as of
December 31, 1999 by $1,217,000 and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1999 by
$235,000. Decreasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated postretirement benefit
obligation for the medical plan as of December 31, 1999 by $(981,000)
- --------------------------------------------------------------------------------
Estate Designer 86
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
5. EMPLOYEE BENEFIT PLANS (CONTINUED)
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for 1999 by $(185,000).
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.00% at December 31, 1999, 6.75% at
December 31, 1998 and 7.50% at December 31, 1997.
Effective January 1, 2000, the Postretirement Benefit Plan was amended, causing
the Company's current year projected benefit obligation to decrease.
401(K) PLAN
The Security Life of Denver Insurance Company Savings Incentive Plan (the
Savings Plan) is a defined contribution plan which is available to substantially
all home office employees. Participants may make contributions to the plan
through salary reductions up to a maximum of $10,000 for both 1999 and 1998, and
$9,500 for 1997. Such contributions are not currently taxable to the
participants. The Company matches 100% of the first 3% of participants'
contributions, plus 50% of contributions which exceed 3% of participants'
compensation, subject to a maximum matching percentage of 4 1/2% of the
individual's salary. Company matching contributions were $1,423,000 for 1999,
$1,343,000 for 1998, and $1,211,000 for 1997.
Plan assets of the Savings Plan at December 31, 1999 are invested in a group
deposit administration contract (the Contract) with the Company, various stock
funds maintained by the Principal Financial Group, and loans to participants.
The Contract is a policyholder liability of the Company and had a balance of
$28.7 million and $27.8 million at December 31, 1999 and 1998, respectively.
Effective January 1, 2000, the Plan was merged into the ING Savings Plan, a
defined contribution plan sponsored by the Company's parent.
6. SEPARATE ACCOUNTS
Separate account assets and liabilities represent funds segregated by the
Company for the benefit of certain policy and contract holders who bear the
investment risk. Revenues and expenses on the separate account assets and
related liabilities equal the benefits paid to the separate account policy and
contract holders, and are excluded from the amounts reported in the consolidated
statements of income except for benefits paid in excess of policyholder account
values and fees charged for surrender, administration services and mortality
risk.
- --------------------------------------------------------------------------------
Estate Designer 87
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
7. LEASES
In 1997, the Company terminated a significant operating lease agreement relating
to electronic data processing equipment due to outsourcing of computer
operations. The Company incurred $4,819,000 in lease expense in 1997 related to
that agreement prior to termination. The Company does not have any other
significant lease obligations. Total rental expense for all equipment leases was
approximately $0 for the years ended December 31, 1999 and 1998, and $4,993,000
for the year ended December 31, 1997.
8. REINSURANCE
The Company is involved in both ceded and assumed reinsurance with other
companies for the purpose of diversifying risk and limiting exposure on larger
risks. As of December 31, 1999, the Company's retention limit for acceptance of
risk on life insurance policies had been set at various levels up to $3,000,000.
Reinsurance premiums, commissions, and expense reimbursements related to
reinsured business are accounted for on bases consistent with those used in
accounting for the original policies issued and the terms of the reinsurance
contracts. Reserves are based on the terms of the reinsurance contracts, and are
consistent with the risks assumed.
To the extent that the assuming companies become unable to meet their
obligations under these treaties, the Company remains contingently liable to its
policyholders for the portion retroceded. Consequently, allowances are
established for amounts deemed uncollectible. To minimize its exposure to
significant losses from retrocessionaire insolvencies, the Company evaluates the
financial condition of the retrocessionaire and monitors concentrations of
credit risk. The use of reinsurance pools with more than 30 retrocessionaires
from 10 different countries also minimizes the Company's exposure to significant
losses from retrocessionaire insolvencies.
The Company assumes and cedes, on a coinsurance basis, guaranteed investment
contracts (GICs) to and from affiliates under common ownership. As of December
31, 1999, $3.3 billion of an affiliate's invested assets were held in trust
pursuant to these agreements.
- --------------------------------------------------------------------------------
Estate Designer 88
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
8. REINSURANCE (CONTINUED)
These GIC transactions are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------ -------------------------------
Policy Policy
Deposits liabilities Deposits liabilities
---------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Direct (nonaffiliated) $1,805,434 $3,787,729 $2,773,952 $3,112,460
Assumed from affiliate:
Life Insurance Company of Georgia - 97,490 - 97,552
---------------- --------------- --------------- ----------------
1,805,434 3,885,219 2,773,952 3,210,012
Ceded to affiliates:
Columbine Life Insurance Company (129,768) - (2,547,743) (2,696,409)
Life Insurance Company of Georgia (683,100) (663,325) (225,083) (512,477)
First Columbine Life Insurance Company (650,300) (2,888,079) (1,126) (1,126)
---------------- --------------- --------------- ----------------
Net $ 342,266 $ 333,815 $ - $ -
================ =============== =============== ================
</TABLE>
Ceded GIC policy liabilities totaling $3,551 and $3,210 million as of December
31, 1999 and 1998, respectively, are classified as part of prepaid reinsurance
premiums.
During 1999 and 1998, the Company had ceded blocks of insurance under
reinsurance treaties to provide funds for financial and other purposes. These
reinsurance transactions, generally known as "financial reinsurance," represent
financial arrangements and, in accordance with U.S. GAAP, are not reflected in
the accompanying financial statements except for the risk fees paid to or
received from reinsurers. Financial reinsurance has the effect of increasing
current statutory surplus while reducing future statutory surplus as amounts are
recaptured from reinsurers. During 1998, the Company entered into a new
financial reinsurance contract with an affiliated company.
9. INCOME TAXES
The Company files a consolidated federal income tax return with its parent and
other U.S. affiliates and subsidiaries. The affiliated companies that join in
the filing of the consolidated federal income tax return have an agreement for
the allocation of taxes between members that join in the consolidated return.
The agreement specifies that the separate return payable or the separate return
receivable of each member will be the federal income tax payable or receivable
that the member would have had for the period had it filed a separate return.
- --------------------------------------------------------------------------------
Estate Designer 89
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax assets and liabilities are as follows (in thousands):
DECEMBER 31
1999 1998
------------- ---------------
Deferred tax liabilities:
Deferred policy acquisition costs $(344,540) $(272,970)
Unrealized gains/losses - (42,556)
------------- ---------------
Total deferred tax liabilities (344,540) (315,526)
Deferred tax assets:
Benefit reserves and surplus relief 90,895 102,177
Tax-basis deferred policy acquisition costs 90,508 83,836
Investment income 22,201 13,712
Unrealized gains 55,917 -
Nonqualified deferred compensation 14,181 14,667
Postretirement employee benefits 2,542 2,501
Separate accounts 26,961 18,775
Other, net 22,656 19,796
------------- ---------------
Total deferred tax assets 325,861 255,464
------------- ---------------
Net deferred tax liabilities $ (18,679) $ (60,062)
============= ===============
The components of federal income tax expense consist of the following (in
thousands):
DECEMBER 31
1999 1998 1997
-------------- --------------- ---------------
Current $ 9,399 $24,111 $37,542
Deferred 16,934 9,955 9,477
-------------- --------------- ---------------
Federal income tax expense $26,333 $34,066 $47,019
============== =============== ===============
The Company's effective income tax rate did not vary significantly from the
statutory federal income tax rate.
- --------------------------------------------------------------------------------
Estate Designer 90
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
9. INCOME TAXES (CONTINUED)
The Company had net income tax payments of $28,723,000 during 1999, $18,283,000
during 1998, and $55,468,000 during 1997 for current income tax payments and
settlements of prior year returns.
The Policyholder's Surplus Account is an accumulation of certain special
deductions for income tax purposes and a portion of the "gains from operations"
which were not subject to current taxation under the Life Insurance Tax Act of
1959. At December 31, 1984, the balance in this account for tax return purposes
was approximately $70,800,000. The Tax Reform Act of 1984 provides that no
further accumulations will be made in this account. If amounts accumulated in
the Policyholder's Surplus Account exceed certain limits, or if distributions to
the stockholder exceed amounts in the Stockholder's Surplus Account, to the
extent of such excess amount or excess distributions, as determined for income
tax purposes, amounts in the Policyholder's Surplus Account would become subject
to income tax at rates in effect at that time. Should this occur, the maximum
tax which would be paid at the current tax rate is $24,780,000. The Company does
not anticipate any such action or foresee any events which would result in such
tax; accordingly, a deferred tax liability has not been established.
10. LONG-TERM DEBT
Long-term indebtedness to related parties for $100,000,000 represents the
cumulative cash draws on a $100,000,000 commitment from ING America Insurance
Holdings, Inc. through December 31, 1999. This subordinated note bears interest
at a variable rate equal to the prevailing rate for 10-year U.S. Treasury Bonds
plus 1/4% adjusted annually.
The repayment of this note requires approval of the Commissioner of Insurance of
the State of Colorado and is payable only out of surplus funds of the Company
and only at such time as the surplus of the Company, after payment is made, does
not fall below the prescribed level.
The principal and interest is scheduled to be repaid in five annual installments
beginning April 15, 2000 and continuing through April 15, 2004, with the option
of prepaying any outstanding principal and accrued interest. As of December 31,
1999, the Company accrued interest of $11,098,000. Upon receiving approval from
the Commissioner of Insurance of the State of Colorado, the Company made a
$5,128,000 payment for accrued interest during 1998. The Company recognized
interest expense of $5,711,000, $5,387,000, and $5,096,000 for the years ended
December 31, 1999, 1998, and 1997, respectively.
- --------------------------------------------------------------------------------
Estate Designer 91
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
10. LONG-TERM DEBT (CONTINUED)
Future minimum payments, assuming a current effective interest rate of 6.65%,
are as follows (in thousands):
TOTAL
YEAR PAYMENTS
- ----------------------------------------- ------------------
2000 $ 26,838
2001 26,838
2002 26,838
2003 26,838
2004 26,838
------------------
Total 134,190
Less imputed interest (34,190)
------------------
Principal outstanding $100,000
==================
11. STATUTORY ACCOUNTING INFORMATION AND PRACTICES
Security Life and its insurance subsidiaries prepare their statutory-basis
financial statements in accordance with accounting practices prescribed or
permitted by their state of domicile. "Prescribed" statutory accounting
practices include state laws, regulations and general administrative rules, as
well as a variety of publications of the National Association of Insurance
Commissioners (NAIC). "Permitted" statutory accounting practices encompass all
accounting practices that are not prescribed; such practices may differ from
state to state, and from company to company within the state, and may change in
the future.
During 1998, the NAIC completed the process of codifying statutory accounting
practices ("Codification"). Codification will likely change, to some extent,
prescribed statutory accounting practices and may result in changes to the
accounting practices that Security Life uses to prepare its statutory-basis
financial statements. Codification will require adoption by the various states
before it becomes the prescribed statutory basis of accounting for insurance
companies domiciled within those states. Accordingly, before Codification
becomes effective for Security Life, the State of Colorado must adopt
Codification as the prescribed basis of accounting on which domestic insurers
must report their statutory-basis results to the Insurance Department. At this
time it is anticipated that the State of Colorado will adopt Codification.
- --------------------------------------------------------------------------------
Estate Designer 92
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
11. STATUTORY ACCOUNTING INFORMATION AND PRACTICES (CONTINUED)
Prescribed statutory reserve methodology does not fully encompass universal
life-type products. The NAIC, however, has promulgated a Model Regulation
regarding Universal Life Reserves. The Colorado Division of Insurance has not
adopted the regulation, but requires that reserves be held which are at least as
great as those required by Colorado Statutes. The NAIC UL Model Regulation is
used by the Company to provide reserves consistent with the principles of this
article. Because the reserves satisfy the requirements prescribed by the State
of Colorado for the valuation of universal life insurance, the Company is
permitted to compute reserves in accordance with this model regulation.
The NAIC prescribes Risk-Based Capital (RBC) requirements for life/health
insurance companies. At December 31, 1999, the Company exceeded all minimum RBC
requirements.
Combined capital and surplus, determined in accordance with statutory accounting
practices (SAP), was $434,983,000 and $386,607,000 at December 31, 1999 and
1998, respectively. Combined net income, determined in accordance with SAP, was
$18,635,000, $11,712,000, and $22,261,000 for the years ended December 31, 1999,
1998, and 1997, respectively.
Security Life is required to maintain a minimum total statutory capital and
surplus in the state of domicile of $1,500,000. Midwestern United is required to
maintain minimum statutory capital of $200,000 and surplus of $250,000 in the
state of domicile. First ING is required to maintain minimum statutory capital
of $1,000,000 and paid-in surplus of at least 50% of paid-in capital in the
state of domicile. Each company exceeded its respective minimum statutory
capital and surplus requirements at December 31, 1999. Additionally, the amount
of dividends which can be paid by each company to its stockholder without prior
approval of the various state insurance departments is generally limited to the
greater of 10% of statutory surplus or the statutory net gain from operations.
- --------------------------------------------------------------------------------
Estate Designer 93
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS
In cases where quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques. Those techniques
are significantly affected by the assumptions used, including the discount rate
and estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the instruments.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company. Life insurance liabilities that contain
mortality risk and all nonfinancial instruments are excluded from disclosure
requirements. However, the fair values of liabilities under all insurance
contracts are taken into consideration in the Company's overall management of
interest rate risk, such that the Company's exposure to changing interest rates
is minimized through the matching of investment maturities with amounts due
under insurance contracts.
- --------------------------------------------------------------------------------
Estate Designer 94
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and fair values of the Company's financial instruments at
December 31, 1999 and 1998 are summarized below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
1999 1998
---------------------------------- --- ------------------------------------
Carrying Carrying
amount Fair value amount Fair value
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Fixed maturities (Note 2) $3,486,939 $3,486,939 $3,503,530 $3,503,530
Equity securities (Note 2) 7,944 7,944 8,400 8,400
Mortgage loans 1,006,443 975,436 784,108 832,629
Policy loans 961,586 961,586 925,623 925,623
Short-term investments 186,917 186,917 747 747
Cash 48,630 48,630 31,644 31,644
Indebtedness from
related parties 33,220 33,220 4,339 4,339
Separate account assets 644,975 644,975 423,474 423,474
LIABILITIES
Supplemental contracts
without life contingencies 3,778 3,778 3,966 3,966
Other policyholder funds left
on deposit 431,706 431,706 98,638 98,638
Individual and group
annuities, net of reinsurance 149,089 152,824 87,096 86,007
Indebtedness to related
parties 34,231 34,231 13,755 13,755
Long-term debt to related
parties 100,000 100,000 100,000 100,000
Accrued interest on
long-term debt to related
parties 11,098 11,098 5,387 5,387
Separate account liabilities 644,975 644,975 423,474 423,474
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 95
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying values of all other financial instruments approximate their fair
values.
The following methods and assumptions were used by the Company in estimating the
"fair value" disclosures for financial instruments:
FIXED MATURITIES AND EQUITY SECURITIES: The fair values for fixed maturities
(including redeemable preferred stocks) are based on quoted market prices,
where available. For fixed maturities not actively traded, fair values are
estimated using values obtained from independent pricing services or, in the
case of private placements and collateralized mortgage obligations and other
mortgage derivative investments, are estimated by discounting expected
future cash flows. The discount rates used vary as a function of factors
such as yield, credit quality and maturity which fall within a range between
4.2% and 22.9% over the total portfolio. The fair values of equity
securities are based on quoted market prices.
MORTGAGE LOANS: Estimated market values for commercial real estate loans are
generated using a discounted cash flow approach. Loans in good standing are
discounted using interest rates determined by U.S. Treasury yields on
December 31 and spreads implied by independent published surveys. The same
is applied on new loans with similar characteristics. The amortizing
features of all loans are incorporated in the valuation. Where data on
option features is available, option values are determined using a binomial
valuation method, and are incorporated into the mortgage valuation.
Restructured loans are valued in the same manner; however, these are
discounted at a greater spread to reflect increased risk.
All residential loans are valued at their outstanding principal balances,
which approximate their fair values.
POLICY LOANS: The carrying amounts reported in the balance sheets for these
financial instruments approximate their fair values.
DERIVATIVE FINANCIAL INSTRUMENTS: Fair values for on-balance-sheet
derivative financial instruments (caps and floors) and off-balance-sheet
derivative financial instruments (swaps) are based on broker/dealer
valuations or on internal discounted cash flow pricing models taking into
account current cash flow assumptions and the counterparties' credit
standing.
- --------------------------------------------------------------------------------
Estate Designer 96
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
12. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
OTHER INVESTMENT-TYPE INSURANCE CONTRACTS: The fair values of the Company's
deferred annuity contracts are estimated based on the cash surrender value.
The carrying values of other liabilities, including immediate annuities,
dividend accumulations, supplementary contracts without life contingencies
and premium deposits, approximate their fair values.
OFF-BALANCE-SHEET INSTRUMENTS: The Company accepted additional deposits on
existing synthetic guaranteed investment contracts in the amounts of
$70,000,000 and $66,480,000 in 1999 and 1998, respectively, from trustees of
401(k) plans. Pursuant to the terms of these contracts, the trustees own and
retain the assets related to these contracts. Such contracts had a value of
$471,380,000 and $433,689,000 at December 31, 1999 and 1998, respectively.
Under synthetic guaranteed investment contracts, the synthetic issuer may
assume interest rate risk on individual plan participant initiated
withdrawals from stable value options of 401(k) plans. Approximately 90% of
the synthetic guaranteed investment contract book values are on a
participating basis and have a credited interest rate reset mechanism which
passes such interest rate risk to plan participants.
LETTERS OF CREDIT: The Company is the beneficiary of letters of credit
totaling $198,726,000 which have a market value to the Company of $0 and two
lines of credit totaling $307,902,000 which have a market value to the
Company of $0 (see Note 14).
13. COMMITMENTS AND CONTINGENCIES
The Company is a party to pending or threatened lawsuits arising from the normal
conduct of its business. Due to the climate in insurance and business
litigation, suits against the Company sometimes include substantial additional
claims, consequential damages, punitive damages and other similar types of
relief. While it is not possible to forecast the outcome of such litigation, it
is the opinion of management that the disposition of such lawsuits will not have
a material adverse effect on the Company's financial position or interfere with
its operations.
- --------------------------------------------------------------------------------
Estate Designer 97
<PAGE>
Security Life of Denver Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements (continued)
13. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company has an accrued liability of $38,000,000 at December 31, 1999 related
to certain potential litigation similar to that faced by other major life
insurers. This litigation relates to sales practices of interest-sensitive
policies. The Company is vigorously defending its position in these cases. While
it is not possible to forecast the outcome of such litigation, it is the opinion
of management that the disposition of such lawsuits will not have a material
adverse effect on the Company's financial position or interfere with its
operations.
14. OTHER FINANCING ARRANGEMENTS
The Company has a $167,902,000 line of credit issued by the Company's parent to
provide short-term liquidity. The Company has an additional non-affiliated line
of credit of $140,000,000, also to provide short-term liquidity, which expires
July 31, 2000. The amount of funds available under this line is reduced by
borrowings of certain affiliates also party to the agreement. The outstanding
borrowings under these agreements were $16,200,000 and $0 at December 31, 1999
and 1998, respectively. The weighted-average balance outstanding of short-term
debt was $13.1 million during 1999. The weighted-average interest rate paid on
this debt during 1999 was 5.20% (see Note 12).
The Company is the beneficiary of letters of credit totaling $198,726,000 that
were established in accordance with the terms of reinsurance agreements. Such
letters of credit are unconditional and irrevocable, and provide for automatic
renewal for the following year at December 31. The letters were unused during
both 1999 and 1998.
- --------------------------------------------------------------------------------
Estate Designer 98
<PAGE>
Financial Statements
Security Life Separate Account L1
of Security Life of Denver
Insurance Company
Years ended December 31, 1999, 1998 and 1997
with Report of Independent Auditors
- --------------------------------------------------------------------------------
Estate Designer 99
<PAGE>
Security Life Separate Account L1
Financial Statements
Years ended December 31, 1999, 1998 and 1997
CONTENTS
Report of Independent Auditors ..............................................101
Audited Financial Statements
Statement of Net Assets .....................................................102
Statement of Operations .....................................................109
Statement of Changes in Net Assets ..........................................129
Notes to Financial Statements ...............................................149
- --------------------------------------------------------------------------------
Estate Designer 100
<PAGE>
Report of Independent Auditors
Policyholders
Security Life Separate Account L1 of
Security Life of Denver Insurance Company
We have audited the accompanying statement of net assets of Security Life
Separate Account L1 of Security Life of Denver Insurance Company (comprising,
respectively, the Neuberger Berman Advisers Management Trust (comprising the
Limited Maturity Bond, Growth and Partners Divisions) ("NB"), the Alger American
Fund (comprising the American Small Capitalization, American MidCap Growth,
American Growth and American Leveraged AllCap Divisions) ("Alger"), the Fidelity
Variable Insurance Products Fund and Variable Insurance Products Fund II
(comprising the Asset Manager, Growth, Overseas, Money Market and Index 500
Divisions) ("Fidelity"), the INVESCO Variable Investment Funds, Inc. (comprising
the Total Return, Equity Income, High Yield, Utilities and Small Company Growth
Divisions) ("INVESCO"), the Van Eck Worldwide Trust (comprising the Worldwide
Hard Assets, Worldwide Bond, Worldwide Emerging Markets and Worldwide Real
Estate Divisions) ("Van Eck") and AIM Advisors, Inc. (comprising the Capital
Appreciation and Government Securities Divisions) ("AIM")) as of December 31,
1999, and the related statements of operations and changes in net assets for
each of the three years in the period then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1999, by
correspondence with the transfer agents. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Security Life Separate Account
L1 at December 31, 1999, and the results of its operations and changes in its
net assets for each of the three years in the period then ended, in conformity
with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
April 7, 2000
- --------------------------------------------------------------------------------
Estate Designer 101
<PAGE>
Security Life Separate Account L1
Statement of Net Assets
December 31, 1999
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS NB ALGER FIDELITY INVESCO VAN ECK AIM
------------- ------------ ------------- --------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $520,874,988 $53,597,588 $109,451,239 $294,325,533 $44,538,862 $6,258,525 $12,703,241
------------- ------------ ------------- --------------- ------------- ------------ -------------
Total assets 520,874,988 53,597,588 109,451,239 294,325,533 44,538,862 6,258,525 12,703,241
------------- ------------ ------------- --------------- ------------- ------------ -------------
LIABILITIES
Due to (from) Security Life of
Denver (427,980) (99,394) (63,161) (120,210) (99,549) (45,652) (14)
------------- ------------ ------------- --------------- ------------- ------------ -------------
Total Liabilities (427,980) (99,394) (63,161) (120,210) (99,549) (45,652) (14)
------------- ------------ ------------- --------------- ------------- ------------ -------------
Net assets $521,302,968 $53,696,982 $109,514,400 $294,445,743 $44,638,411 $6,304,177 $12,703,255
============= ============ ============= =============== ============= ============ =============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $521,302,968 $53,696,982 $109,514,400 $294,445,743 $44,638,411 $6,304,177 $12,703,255
------------- ------------ ------------- --------------- ------------- ------------ -------------
TOTAL POLICYHOLDER RESERVES $521,302,968 $53,696,982 $109,514,400 $294,445,743 $44,638,411 $6,304,177 $12,703,255
============= ============ ============= =============== ============= ============ =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 102
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
NB
--------------------------------------------------------------------------
Total Limited
NB Maturity Bond Growth Partners
------------------ ------------------- --------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $53,597,588 $11,200,520 $13,066,321 $29,330,747
------------------ ------------------- --------------- -------------------
Total assets 53,597,588 11,200,520 13,066,321 29,330,747
------------------ ------------------- --------------- -------------------
LIABILITIES
Due to (from) Security Life of Denver (99,394) (308) (9,833) (89,253)
------------------ ------------------- --------------- -------------------
Total Liabilities (99,394) (308) (9,833) (89,253)
------------------ ------------------- --------------- -------------------
Net assets $53,696,982 $11,200,828 $13,076,154 $29,420,000
================== =================== =============== ===================
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $53,696,982 $11,200,828 $13,076,154 $29,420,000
------------------ ------------------- --------------- -------------------
TOTAL POLICYHOLDER RESERVES $53,696,982 $11,200,828 $13,076,154 $29,420,000
================== =================== =============== ===================
Number of divisional units outstanding
(Note G) 889,159.604 434,338.368 1,212,133.448
=================== =============== ===================
Value per divisional unit $12.60 $30.11 $24.27
=================== =============== ===================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 103
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
ALGER
--------------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
---------------- ------------------ --------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $109,451,239 $27,748,150 $17,280,636 $41,361,603 $23,060,850
---------------- ------------------ --------------- ---------------- -----------------
Total assets 109,451,239 27,748,150 17,280,636 41,361,603 23,060,850
---------------- ------------------ --------------- ---------------- -----------------
LIABILITIES
Due to (from) Security Life of Denver (63,161) (31,605) (6,851) (21,895) (2,810)
---------------- ------------------ --------------- ---------------- -----------------
Total Liabilities (63,161) (31,605) (6,851) (21,895) (2,810)
---------------- ------------------ --------------- ---------------- -----------------
Net assets $109,514,400 $27,779,755 $17,287,487 $41,383,498 $23,063,660
================ ================== =============== ================ =================
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $109,514,400 $27,779,755 $17,287,487 $41,383,498 $23,063,660
---------------- ------------------ --------------- ---------------- -----------------
TOTAL POLICYHOLDER RESERVES $109,514,400 $27,779,755 $17,287,487 $41,383,498 $23,063,660
================ ================== =============== ================ =================
Number of divisional units outstanding
(Note G) 1,055,757.484 576,738.314 1,257,371.637 425,281.099
================== =============== ================ =================
Value per divisional unit $26.31 $29.97 $32.91 $54.23
================== =============== ================ =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 104
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
FIDELITY
---------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $294,325,533 $13,585,360 $58,152,709 $34,884,083 $34,799,038 $152,904,343
---------------------------------------------------------------------------------------------
Total assets 294,325,533 13,585,360 58,152,709 34,884,083 34,799,038 152,904,343
---------------------------------------------------------------------------------------------
LIABILITIES
Due to (from) Security Life of Denver (120,210) (5,098) (5,121) (100,198) 1,630 (11,423)
---------------------------------------------------------------------------------------------
Total Liabilities (120,210) (5,098) (5,121) (100,198) 1,630 (11,423)
---------------------------------------------------------------------------------------------
Net assets $294,445,743 $13,590,458 $58,157,830 $34,984,281 $34,797,408 $152,915,766
=============================================================================================
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $294,445,743 $13,590,458 $58,157,830 $34,984,281 $34,797,408 $152,915,766
---------------------------------------------------------------------------------------------
TOTAL POLICYHOLDER RESERVES $294,445,743 $13,590,458 $58,157,830 $34,984,281 $34,797,408 $152,915,766
=============================================================================================
Number of divisional units outstanding
(Note G) 722,717.906 1,676,236.646 1,716,617.627 2,763,648.297 4,772,484.597
================================================================================
Value per divisional unit $18.80 $34.70 $20.38 $12.59 $32.04
================================================================================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 105
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
INVESCO
---------------------------------------------------------------------------------------------
Small
Total Total Equity Company
INVESCO Return Income High Yield Utilities Growth
--------------- -------------- -------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $44,538,862 $10,386,525 $16,189,342 $9,419,547 $4,140,713 $4,402,735
--------------- -------------- -------------- -------------- --------------- --------------
Total assets 44,538,862 10,386,525 16,189,342 9,419,547 4,140,713 4,402,735
--------------- -------------- -------------- -------------- --------------- --------------
LIABILITIES
Due to (from) Security Life of Denver (99,549) (125) (31,211) (1,130) (602) (66,481)
--------------- -------------- -------------- -------------- --------------- --------------
Total Liabilities (99,549) (125) (31,211) (1,130) (602) (66,481)
--------------- -------------- -------------- -------------- --------------- --------------
Net assets $44,638,411 $10,386,650 $16,220,553 $9,420,677 $4,141,315 $4,469,216
=============== ============== ============== ============== =============== ==============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $44,638,411 $10,386,650 $16,220,553 $9,420,677 $4,141,315 $4,469,216
--------------- -------------- -------------- -------------- --------------- --------------
TOTAL POLICYHOLDER RESERVES $44,638,411 $10,386,650 $16,220,553 $9,420,677 $4,141,315 $4,469,216
=============== ============== ============== ============== =============== ==============
Number of divisional units outstanding
(Note G) 602,187.614 621,047.937 536,863.946 189,409.984 212,503.210
============== ============== ============== =============== ==============
Value per divisional unit $17.25 $26.12 $17.55 $21.86 $21.03
============== ============== ============== =============== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 106
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
<TABLE>
<CAPTION>
VAN ECK
---------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Hard Worldwide Emerging Real
Van Eck Assets Bond Markets Estate
---------------- --------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Investments in mutual funds at
market value (Note C) $6,258,525 $2,305,855 $335,746 $3,067,087 $549,837
---------------- --------------- --------------- -------------- ---------------
Total assets 6,258,525 2,305,855 335,746 3,067,087 549,837
---------------- --------------- --------------- -------------- ---------------
LIABILITIES
Due to (from) Security Life of Denver (45,652) (223) 1,543 (46,972) -
---------------- --------------- --------------- -------------- ---------------
Total Liabilities (45,652) (223) 1,543 (46,972) -
---------------- --------------- --------------- -------------- ---------------
Net assets $6,304,177 $2,306,078 $334,203 $3,114,059 $549,837
================ =============== =============== ============== ===============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $6,304,177 $2,306,078 $334,203 $3,114,059 $549,837
---------------- --------------- --------------- -------------- ---------------
TOTAL POLICYHOLDER RESERVES $6,304,177 $2,306,078 $334,203 $3,114,059 $549,837
================ =============== =============== ============== ===============
Number of divisional units outstanding
(Note G) 236,972.429 33,114.078 228,819.195 64,967.173
=============== =============== ============== ===============
Value per divisional unit $9.73 $10.09 $13.61 $8.46
=============== =============== ============== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 107
<PAGE>
Security Life Separate Account L1
Statement of Net Assets (continued)
December 31, 1999
AIM
---------------------------------------
Total Capital Government
AIM Appreciation Securities
------------ ------------ -------------
ASSETS
Investments in mutual funds at
market value (Note C) $12,703,241 $5,308,909 $7,394,332
------------ ------------ -------------
Total assets 12,703,241 5,308,909 7,394,332
------------ ------------ -------------
LIABILITIES
Due to (from) Security Life of Denver (14) (13) (1)
------------ ------------ -------------
Total Liabilities (14) (13) (1)
------------ ------------ -------------
Net assets $12,703,255 $5,308,922 $7,394,333
============ ============ =============
POLICYHOLDER RESERVES
Reserves attributable to the
policyholders (Note B) $12,703,255 $5,308,922 $7,394,333
------------ ------------ -------------
TOTAL POLICYHOLDER RESERVES $12,703,255 $5,308,922 $7,394,333
============ ============ =============
Number of divisional units outstanding
(Note G) 323,846.032 715,905.149
============ =============
Value per divisional unit $16.39 $10.33
============ =============
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 108
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
------------- ------------- ------------- ------------- ------------- -----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $18,884,169 $2,123,919 $ 7,325,481 $ 7,908,482 $1,183,695 $ 30,826 311,766
Less valuation period deductions
(Note B) 2,908,885 371,218 557,411 1,629,301 272,130 27,814 51,011
------------- ------------- ------------- ------------- ------------- ---------- -----------
Net investment income (loss) 15,975,284 1,752,701 6,768,070 6,279,181 911,565 3,012 260,755
------------- ------------- ------------- ------------- ------------- ---------- -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 18,191,446 557,950 5,023,269 11,358,812 1,094,239 73,144 84,032
Net unrealized gains (losses) on
investments 55,998,041 3,797,732 17,500,945 30,152,442 2,135,798 1,374,192 1,036,932
------------- ------------- ------------- ------------- ------------- ---------- -----------
Net realized and unrealized gains
(losses) on investments 74,189,487 4,355,682 22,524,214 41,511,254 3,230,037 1,447,336 1,120,964
------------- ------------- ------------- ------------- ------------- ---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $90,164,771 $6,108,383 $29,292,284 $47,790,435 $4,141,602 $1,450,348 $1,381,719
============= ============= ============= ============= ============= ========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 109
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
NB
---------------------------------------------------------------------
Total Limited
NB Maturity Bond Growth Partners
--------------------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $2,123,919 $911,596 $ 453,085 $ 759,238
Less valuation period deductions
(Note B) 371,218 108,699 70,308 192,211
--------------------------------- ---------------- ----------------
Net investment income (loss) 1,752,701 802,897 382,777 567,027
--------------------------------- ---------------- ----------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 557,950 (293,615) 318,964 532,601
Net unrealized gains (losses) on
investments 3,797,732 (423,477) 3,714,218 506,991
--------------------------------- ---------------- ----------------
Net realized and unrealized gains
(losses) on investments 4,355,682 (717,092) 4,033,182 1,039,592
--------------------------------- ---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $6,108,383 $ 85,805 $4,415,959 $1,606,619
================================= ================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 110
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
ALGER
-----------------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
--------------- ------------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 7,325,481 $2,200,048 $1,636,538 $2,764,203 $ 724,692
Less valuation period deductions
(Note B) 557,411 141,734 88,955 233,373 93,349
--------------- ------------------- ---------------- ---------------- -----------------
Net investment income (loss) 6,768,070 2,058,314 1,547,583 2,530,830 631,343
--------------- ------------------- ---------------- ---------------- -----------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 5,023,269 94,825 322,974 2,007,625 2,597,845
Net unrealized gains (losses) on
investments 17,500,945 5,993,398 2,015,333 4,584,649 4,907,565
--------------- ------------------- ---------------- ---------------- -----------------
Net realized and unrealized gains
(losses) on investments 22,524,214 6,088,223 2,338,307 6,592,274 7,505,410
--------------- ------------------- ---------------- ---------------- -----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $29,292,284 $8,146,537 $3,885,890 $9,123,104 $8,136,753
=============== =================== ================ ================ =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 111
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
FIDELITY
---------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
--------------- ------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 7,908,482 $ 798,528 $ 3,508,501 $ 820,014 $1,277,704 $ 1,503,735
Less valuation period deductions
(Note B) 1,629,301 83,646 308,868 188,207 188,211 860,369
--------------- ------------- --------------- -------------- --------------- --------------
Net investment income (loss) 6,279,181 714,882 3,199,633 631,807 1,089,493 643,366
--------------- ------------- --------------- -------------- --------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 11,358,812 122,474 7,459,882 553,230 - 3,223,226
Net unrealized gains (losses) on
investments 30,152,442 316,538 3,509,953 8,740,414 - 17,585,537
--------------- ------------- --------------- -------------- --------------- --------------
Net realized and unrealized gains
(losses) on investments 41,511,254 439,012 10,969,835 9,293,644 - 20,808,763
--------------- ------------- --------------- -------------- --------------- --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $47,790,435 $1,153,894 $14,169,468 $9,925,451 $1,089,493 $21,452,129
=============== ============= =============== ============== =============== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 112
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
INVESCO
-----------------------------------------------------------------------------------------------
Total Total Equity Small Company
INVESCO Return Income High Yield Utilities Growth
--------------- --------------- --------------- ------------- ------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $1,183,695 $ 276,071 $ 252,055 $618,531 $ 37,038 $ -
Less valuation period deductions
(Note B) 272,130 71,255 97,430 65,338 23,769 14,338
--------------- --------------- --------------- ------------- ------------- ------------------
Net investment income (loss) 911,565 204,816 154,625 553,193 13,269 (14,338)
--------------- --------------- --------------- ------------- ------------- ------------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,094,239 286,623 506,767 (241,611) 304,911 237,549
Net unrealized gains (losses) on
investments 2,135,798 (923,083) 965,264 379,005 179,598 1,535,014
--------------- --------------- --------------- ------------- ------------- ------------------
Net realized and unrealized gains
(losses) on investments 3,230,037 (636,460) 1,472,031 137,394 484,509 1,772,563
--------------- --------------- --------------- ------------- ------------- ------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $4,141,602 $(431,644) $1,626,656 $690,587 $497,778 $1,758,225
=============== =============== =============== ============= ============= ==================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 113
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
VAN ECK
----------------------------------------------------------------------------------
Worldwide
Total Worldwide Worldwide Emerging Worldwide
Van Eck Hard Assets Bond Markets Real Estate
--------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 30,826 $ 16,585 $ 12,446 - $ 1,795
Less valuation period deductions
(Note B) 27,814 12,646 2,550 10,886 1,732
--------------- --------------- --------------- ---------------- ----------------
Net investment income (loss) 3,012 3,939 9,896 (10,886) 63
--------------- --------------- --------------- ---------------- ----------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 73,144 (313,009) (25,853) 410,384 1,622
Net unrealized gains (losses) on
investments 1,374,192 592,123 (9,920) 809,962 (17,973)
--------------- --------------- --------------- ---------------- ----------------
Net realized and unrealized gains
(losses) on investments 1,447,336 279,114 (35,773) 1,220,346 (16,351)
--------------- --------------- --------------- ---------------- ----------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,450,348 $283,053 $(25,877) $1,209,460 $(16,288)
=============== =============== =============== ================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 114
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1999
AIM
--------------------------------------
Total Capital Government
AIM Appreciation Securities
---------- ------------ --------------
INVESTMENT INCOME
Dividends from mutual funds $ 311,766 $ 113,467 $ 198,299
Less valuation period deductions
(Note B) 51,011 19,289 31,722
---------- ------------ --------------
Net investment income (loss) 260,755 94,178 166,577
---------- ------------ --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 84,032 92,256 (8,224)
Net unrealized gains (losses) on
investments 1,036,932 1,257,369 (220,437)
---------- ------------ --------------
Net realized and unrealized gains
(losses) on investments 1,120,964 1,349,625 (228,661)
---------- ------------ --------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $1,381,719 $1,443,803 $(62,084)
========== ============ ==============
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 115
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1998
<TABLE>
<CAPTION>
TOTAL
ALL TOTAL TOTAL TOTAL TOTAL TOTAL TOTAL
DIVISIONS NB ALGER FIDELITY INVESCO VAN ECK AIM
-------------- ------------ ------------- -------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $17,747,833 $4,273,690 $ 4,617,072 $ 6,943,854 $1,625,860 $ 189,620 $ 97,737
Less valuation period deductions
(Note B) 1,740,661 291,487 290,412 971,160 162,321 11,393 13,888
-------------- ------------ ------------- -------------- ------------- ------------ -----------
Net investment income (loss) 16,007,172 3,982,203 4,326,660 5,972,694 1,463,539 178,227 83,849
-------------- ------------ ------------- -------------- ------------- ------------ -----------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 8,536,274 347,823 1,685,294 6,403,348 355,780 (260,570) 4,599
Net unrealized gains (losses) on
investments 18,766,977 (2,323,636) 5,825,800 15,230,082 248,681 (368,037) 154,087
-------------- ------------ ------------- -------------- ------------- ------------ -----------
Net realized and unrealized gains
(losses) on investments 27,303,251 (1,975,813) 7,511,094 21,633,430 604,461 (628,607) 158,686
-------------- ------------ ------------- -------------- ------------- ------------ -----------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $43,310,423 $2,006,390 $11,837,754 $27,606,124 $2,068,000 $(450,380) $242,535
============== ============ ============= ============== ============= ============ ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 116
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
NB
--------------------------------------------------------------------------------
Total Limited Government
NB Maturity Growth Income Partners
Bond
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $4,273,690 $409,268 $1,579,109 $136,565 $2,148,748
Less valuation period deductions
(Note B) 291,487 87,183 52,660 3,213 148,431
--------------- --------------- --------------- --------------- ---------------
Net investment income (loss) 3,982,203 322,085 1,526,449 133,352 2,000,317
--------------- --------------- --------------- --------------- ---------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 347,823 10,003 (264,148) (53,894) 655,862
Net unrealized gains (losses) on
investments (2,323,636) 59,369 (81,576) (60,954) (2,240,475)
--------------- --------------- --------------- --------------- ---------------
Net realized and unrealized gains
(losses) on investments (1,975,813) 69,372 (345,724) (114,848) (1,584,613)
--------------- --------------- --------------- --------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $2,006,390 $391,457 $1,180,725 $ 18,504 $ 415,704
=============== =============== =============== =============== ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 117
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
ALGER
------------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
---------------- ----------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 4,617,072 $1,681,373 $ 593,045 $2,196,712 $ 145,942
Less valuation period deductions
(Note B) 290,412 95,588 53,316 113,376 28,132
---------------- ----------------- --------------- ---------------- ---------------
Net investment income (loss) 4,326,660 1,585,785 539,729 2,083,336 117,810
---------------- ----------------- --------------- ---------------- ---------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,685,294 186,963 316,932 915,872 265,527
Net unrealized gains (losses) on
investments 5,825,800 166,990 1,022,340 3,099,428 1,537,042
---------------- ----------------- --------------- ---------------- ---------------
Net realized and unrealized gains
(losses) on investments 7,511,094 353,953 1,339,272 4,015,300 1,802,569
---------------- ----------------- --------------- ---------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM $11,837,754 $1,939,738 $1,879,001 $6,098,636 $1,920,379
OPERATIONS
================ ================= =============== ================ ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 118
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
FIDELITY
---------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
-------------- -------------- ------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 6,943,854 $ 808,986 $2,663,618 $1,015,626 $830,137 $ 1,625,487
Less valuation period deductions
(Note B) 971,160 63,669 183,002 129,504 116,932 478,053
-------------- -------------- ------------- -------------- ------------ ---------------
Net investment income (loss) 5,972,694 745,317 2,480,616 886,122 713,205 1,147,434
-------------- -------------- ------------- -------------- ------------ ---------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 6,403,348 20,247 1,534,000 298,379 - 4,550,722
Net unrealized gains (losses) on
investments 15,230,082 315,702 4,444,805 707,398 - 9,762,177
-------------- -------------- ------------- -------------- ------------ ---------------
Net realized and unrealized gains
(losses) on investments 21,633,430 335,949 5,978,805 1,005,777 - 14,312,899
-------------- -------------- ------------- -------------- ------------ ---------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $27,606,124 $1,081,266 $8,459,421 $1,891,899 $713,205 $15,460,333
============== ============== ============= ============== ============ ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 119
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------------------
Total Total Equity Small Company
INVESCO Return Income High Yield Utilities Growth
---------------- -------------- ------------ -------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $1,625,860 $312,534 $ 514,174 $769,805 $ 29,058 $ 289
Less valuation period deductions
(Note B) 162,321 40,898 60,678 49,140 10,730 875
---------------- -------------- ------------ -------------- ------------- ----------------
Net investment income (loss) 1,463,539 271,636 453,496 720,665 18,328 (586)
---------------- -------------- ------------ -------------- ------------- ----------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 355,780 136,473 342,342 (151,382) 35,245 (6,898)
Net unrealized gains (losses) on
investments 248,681 73,689 359,519 (541,125) 282,500 74,098
---------------- -------------- ------------ -------------- ------------- ----------------
Net realized and unrealized gains
(losses) on investments 604,461 210,162 701,861 (692,507) 317,745 67,200
---------------- -------------- ------------ -------------- ------------- ----------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $2,068,000 $481,798 $1,155,357 $ 28,158 $336,073 $66,614
================ ============== ============ ============== ============= ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 120
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
VAN ECK
---------------------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Worldwide Hard Worldwide Emerging Real
Van Eck Balanced Assets Bond Markets Estate
----------------- -------------- --------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 189,620 $45,674 $ 143,946 $ - $ - $ -
Less valuation period deductions
(Note B) 11,393 1,050 8,170 212 1,736 225
----------------- -------------- --------------- -------------- -------------- -------------
Net investment income (loss) 178,227 44,624 135,776 (212) (1,736) (225)
----------------- -------------- --------------- -------------- -------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments (260,570) 4,682 (162,110) 130 (101,436) (1,836)
Net unrealized gains (losses) on
investments (368,037) (23,403) (395,698) 3,953 47,140 (29)
----------------- -------------- --------------- -------------- -------------- -------------
Net realized and unrealized gains
(losses) on investments (628,607) (18,721) (557,808) 4,083 (54,296) (1,865)
----------------- -------------- --------------- -------------- -------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $(450,380) $25,903 $(422,032) $3,871 $(56,032) $(2,090)
================= ============== =============== ============== ============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 121
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1998
AIM
-----------------------------------------
Total Capital Government
AIM Appreciation Securities
------------ ------------- ------------
INVESTMENT INCOME
Dividends from mutual funds $ 97,737 $ 27,109 $ 70,628
Less valuation period deductions
(Note B) 13,888 3,056 10,832
--------- -------------- --------------
Net investment income (loss) 83,849 24,053 59,796
--------- -------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 4,599 (3,315) 7,914
Net unrealized gains (losses) on
investments 154,087 119,225 34,862
--------- -------------- --------------
Net realized and unrealized gains
(losses) on investments 158,686 115,910 42,776
--------- -------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $242,535 $139,963 $102,572
========= ============== ==============
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 122
<PAGE>
Security Life Separate Account L1
Statement of Operations
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
-------------- ------------- -------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 4,158,702 $ 678,740 $ 323,895 $2,094,346 $1,039,818 $21,903
Less valuation period deductions
(Note B) 813,630 135,310 141,930 461,022 67,625 7,743
-------------- ------------- -------------- --------------- --------------- --------------
Net investment income (loss) 3,345,072 543,430 181,965 1,633,324 972,193 14,160
-------------- ------------- -------------- --------------- --------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 3,199,375 406,286 894,818 1,320,426 523,956 53,889
Net unrealized gains (losses) on
investments 10,643,150 2,273,595 1,647,989 6,476,412 298,662 (53,508)
-------------- ------------- -------------- --------------- --------------- --------------
Net realized and unrealized gains
(losses) on investments 13,842,525 2,679,881 2,542,807 7,796,838 822,618 381
-------------- ------------- -------------- --------------- --------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $17,187,597 $3,223,311 $2,724,772 $9,430,162 $1,794,811 $14,541
============== ============= ============== =============== =============== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 123
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
NB
------------------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
--------------- ------------------- -------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 678,740 $156,667 $183,497 $ 72,086 $ 266,490
Less valuation period deductions
(Note B) 135,310 33,725 24,959 10,366 66,260
--------------- ------------------- -------------- ---------------- ---------------
Net investment income (loss) 543,430 122,942 158,538 61,720 200,230
--------------- ------------------- -------------- ---------------- ---------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 406,286 (20,056) 14,997 25,762 385,583
Net unrealized gains (losses) on
investments 2,273,595 159,151 533,906 26,882 1,553,656
--------------- ------------------- -------------- ---------------- ---------------
Net realized and unrealized gains
(losses) on investments 2,679,881 139,095 548,903 52,644 1,939,239
--------------- ------------------- -------------- ---------------- ---------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $3,223,311 $262,037 $707,441 $114,364 $2,139,469
=============== =================== ============== ================ ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 124
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
ALGER
-----------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
-------------- ------------------ -------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $ 323,895 $218,789 $ 55,945 $ 49,161 $ -
Less valuation period deductions
(Note B) 141,930 51,004 28,138 48,785 14,003
-------------- ------------------ -------------- ---------------- -----------------
Net investment income (loss) 181,965 167,785 27,807 376 (14,003)
-------------- ------------------ -------------- ---------------- -----------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 894,818 114,651 228,363 237,727 314,077
Net unrealized gains (losses) on
investments 1,647,989 483,518 246,489 970,056 (52,074)
-------------- ------------------ -------------- ---------------- -----------------
Net realized and unrealized gains
(losses) on investments 2,542,807 598,169 474,852 1,207,783 262,003
-------------- ------------------ -------------- ---------------- -----------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $2,724,772 $765,954 $502,659 $1,208,159 $248,000
============== ================== ============== ================ =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 125
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
FIDELITY
-------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $2,094,346 $204,696 $ 274,868 $451,874 $764,538 $ 398,370
Less valuation period deductions
(Note B) 461,022 27,097 91,298 60,714 107,253 174,660
------------- ------------- ------------- ------------- ------------- -------------
Net investment income (loss) 1,633,324 177,599 183,570 391,160 657,285 223,710
------------- ------------- ------------- ------------- ------------- -------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 1,320,426 33,000 662,436 332,544 - 292,446
Net unrealized gains (losses) on
investments 6,476,412 350,408 1,347,793 (305,456) - 5,083,667
------------- ------------- ------------- ------------- ------------- -------------
Net realized and unrealized gains
(losses) on investments 7,796,838 383,408 2,010,229 27,088 - 5,376,113
------------- ------------- ------------- ------------- ------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $9,430,162 $561,007 $2,193,799 $418,248 $657,285 $5,599,823
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 126
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
-------------------------------------------------------------------------------
Total Total Equity
INVESCO Return Income High Yield Utilities
--------------- --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
INVESTMENT INCOME
Dividends from mutual funds $1,039,818 $ 76,461 $417,376 $519,369 $ 26,612
Less valuation period deductions
(Note B) 67,625 12,921 27,525 23,478 3,701
--------------- --------------- --------------- --------------- --------------
Net investment income (loss) 972,193 63,540 389,851 495,891 22,911
--------------- --------------- --------------- --------------- --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 523,956 46,241 116,951 269,799 90,965
Net unrealized gains (losses) on
investments 298,662 203,429 324,767 (253,231) 23,697
--------------- --------------- --------------- --------------- --------------
Net realized and unrealized gains
(losses) on investments 822,618 249,670 441,718 16,568 114,662
--------------- --------------- --------------- --------------- --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $1,794,811 $313,210 $831,569 $512,459 $137,573
=============== =============== =============== =============== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 127
<PAGE>
Security Life Separate Account L1
Statement of Operations (continued)
Year Ended December 31, 1997
VAN ECK
---------------------------------------
Total Worldwide Worldwide
Van Eck Balanced Hard Assets
--------- ------------ --------------
INVESTMENT INCOME
Dividends from mutual funds $21,903 $ 9,006 $ 12,897
Less valuation period deductions
(Note B) 7,743 3,329 4,414
--------- ------------ --------------
Net investment income (loss) 14,160 5,677 8,483
--------- ------------ --------------
REALIZED AND UNREALIZED GAINS
(LOSSES) ON INVESTMENTS
Net realized gains (losses) on
investments 53,889 37,785 16,104
Net unrealized gains (losses) on
investments (53,508) 4,122 (57,630)
--------- ------------ --------------
Net realized and unrealized gains
(losses) on investments 381 41,907 (41,526)
--------- ------------ --------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS $14,541 $47,584 $(33,043)
========= ============ ==============
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 128
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
------------- -------------- -------------- ------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $15,975,284 $ 1,752,701 $ 6,768,070 $ 6,279,181 $ 911,565 $ 3,012 $ 260,755
Net realized gains (losses) on
investments 18,191,446 557,950 5,023,269 11,358,812 1,094,239 73,144 84,032
Net unrealized gains (losses) on
investments 55,998,041 3,797,732 17,500,945 30,152,442 2,135,798 1,374,192 1,036,932
------------- -------------- -------------- ------------- ------------- ----------- --------------
Increase in net assets from
operations 90,164,771 6,108,383 29,292,284 47,790,435 4,141,602 1,450,348 1,381,719
------------- -------------- -------------- ------------- ------------- ----------- --------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 162,042,407 9,691,552 19,246,531 115,810,413 12,770,723 1,311,620 3,211,568
Cost of insurance and
administrative charges (20,649,015) (2,172,531) (3,837,369) (11,622,709) (2,460,819) (173,456) (382,131)
Benefit payments (542,037) - - (542,037) - - -
Surrenders (15,066,657) (1,529,928) (3,447,763) (7,887,081) (1,567,128) (33,331) (601,426)
Net transfers among divisions
(including the loan division
and guaranteed interest
division in the general
account) 91,435 (5,513,893) 13,797,533 (17,535,989) 2,140,348 1,919,235 5,284,201
Other 231,958 45,648 34,663 146,782 (17,068) 12,762 9,171
------------- -------------- -------------- ------------- ------------- ----------- --------------
Increase from principal
transactions 126,108,091 520,848 25,793,595 78,369,379 10,866,056 3,036,830 7,521,383
------------- -------------- -------------- ------------- ------------- ----------- --------------
Total increase in net assets 216,272,862 6,629,231 55,085,879 126,159,814 15,007,658 4,487,178 8,903,102
Net assets at beginning of year 305,030,106 47,067,751 54,428,521 168,285,929 29,630,753 1,816,999 3,800,153
------------- -------------- -------------- ------------- ------------- ----------- --------------
Net assets at end of year $521,302,968 $53,696,982 $109,514,400 $294,445,743 $44,638,411 $6,304,177 $12,703,255
============= ============== ============== ============= ============= =========== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 129
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
NB
--------------------------------------------------------------------------
Total Limited
NB Maturity Bond Growth Partners
------------------ --------------- ------------------ ------------------
<S> <C> <C> <C> <C>
INCREASE IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 1,752,701 $ 802,897 $ 382,777 $ 567,027
Net realized gains (losses) on
investments 557,950 (293,615) 318,964 532,601
Net unrealized gains (losses) on
investments 3,797,732 (423,477) 3,714,218 506,991
------------------ --------------- ------------------ ------------------
Increase in net assets from
operations 6,108,383 85,805 4,415,959 1,606,619
------------------ --------------- ------------------ ------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 9,691,552 2,691,658 1,968,259 5,031,635
Cost of insurance and
administrative charges (2,172,531) (532,487) (382,030) (1,258,014)
Benefit payments
Surrenders (1,529,928) (1,033,731) (175,255) (320,942)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (5,513,893) (5,610,959) (1,798,195) 1,895,261
Other 45,648 22,193 21,256 2,199
------------------ --------------- ------------------ ------------------
Increase from principal
transactions 520,848 (4,463,326) (365,965) 5,350,139
------------------ --------------- ------------------ ------------------
Total increase in net assets 6,629,231 (4,377,521) 4,049,994 6,956,758
Net assets at beginning of year 47,067,751 15,578,349 9,026,160 22,463,242
------------------ --------------- ------------------ ------------------
Net assets at end of year $53,696,982 $11,200,828 $13,076,154 $29,420,000
================== =============== ================== ==================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 130
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
ALGER
------------------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
------------------ ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 6,768,070 $ 2,058,314 $ 1,547,583 $ 2,530,830 $ 631,343
Net realized gains (losses) on
investments 5,023,269 94,825 322,974 2,007,625 2,597,845
Net unrealized gains (losses) on
investments 17,500,945 5,993,398 2,015,333 4,584,649 4,907,565
------------------ ----------------- ---------------- ---------------- -----------------
Increase in net assets from
operations 29,292,284 8,146,537 3,885,890 9,123,104 8,136,753
------------------ ----------------- ---------------- ---------------- -----------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 19,246,531 4,618,903 3,508,936 7,654,291 3,464,401
Cost of insurance and
administrative charges (3,837,369) (957,053) (661,896) (1,597,077) (621,343)
Benefit payments
Surrenders (3,447,763) (986,740) (286,174) (1,594,894) (579,955)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 13,797,533 1,461,610 1,637,697 4,904,801 5,793,425
Other 34,663 (6,873) (17,173) (10,341) 69,050
------------------ ----------------- ---------------- ---------------- -----------------
Increase from principal
transactions 25,793,595 4,129,847 4,181,390 9,356,780 8,125,578
------------------ ----------------- ---------------- ---------------- -----------------
Total increase in net assets 55,085,879 12,276,384 8,067,280 18,479,884 16,262,331
Net assets at beginning of year 54,428,521 15,503,371 9,220,207 22,903,614 6,801,329
------------------ ----------------- ---------------- ---------------- -----------------
Net assets at end of year $109,514,400 $27,779,755 $17,287,487 $41,383,498 $23,063,660
================== ================= ================ ================ =================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 131
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
FIDELITY
-----------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
--------------- --------------- -------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 6,279,181 $ 714,882 $ 3,199,633 $ 631,807 $ 1,089,493 $ 643,366
Net realized gains (losses) on
investments 11,358,812 122,474 7,459,882 553,230 - 3,223,226
Net unrealized gains (losses) on
investments 30,152,442 316,538 3,509,953 8,740,414 - 17,585,537
--------------- --------------- -------------- --------------- -------------- ----------------
Increase in net assets from
operations 47,790,435 1,153,894 14,169,468 9,925,451 1,089,493 21,452,129
--------------- --------------- -------------- --------------- -------------- ----------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 115,810,413 3,791,052 9,969,268 5,963,624 62,143,060 33,943,409
Cost of insurance and
administrative charges (11,622,709) (604,489) (1,912,531) (1,071,163) (2,273,369) (5,761,157)
Benefit payments (542,037) - - - (542,037) -
Surrenders (7,887,081) (641,428) (1,308,922) (1,227,419) (1,281,819) (3,427,493)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (17,535,989) (349,280) 4,285,808 788,107 (42,741,942) 20,481,318
Other 146,782 3,430 54,597 23,794 (8,230) 73,191
--------------- --------------- -------------- --------------- -------------- ----------------
Increase from principal
transactions 78,369,379 2,199,285 11,088,220 4,476,943 15,295,663 45,309,268
--------------- --------------- -------------- --------------- -------------- ----------------
Total increase in net assets 126,159,814 3,353,179 25,257,688 14,402,394 16,385,156 66,761,397
Net assets at beginning of year 168,285,929 10,237,279 32,900,142 20,581,887 18,412,252 86,154,369
--------------- --------------- -------------- --------------- -------------- ----------------
Net assets at end of year $294,445,743 $13,590,458 $58,157,830 $34,984,281 $34,797,408 $152,915,766
=============== =============== ============== =============== ============== ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 132
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
INVESCO
------------------------------------------------------------------------------------------
Total Total Equity Small Company
INVESCO Return Income High Yield Utilities Growth
----------- --------------- --------------- --------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 911,565 $ 204,816 $ 154,625 $ 553,193 $ 13,269 $ (14,338)
Net realized gains (losses) on
investments 1,094,239 286,623 506,767 (241,611) 304,911 237,549
Net unrealized gains (losses) on
investments 2,135,798 (923,083) 965,264 379,005 179,598 1,535,014
----------- --------------- --------------- --------------- -------------- --------------
Increase (decrease) in net assets from
operations 4,141,602 (431,644) 1,626,656 690,587 497,778 1,758,225
----------- --------------- --------------- --------------- -------------- --------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 12,770,723 4,580,034 4,374,844 1,987,501 1,127,118 701,226
Cost of insurance and
administrative charges (2,460,819) (764,047) (922,117) (471,532) (198,877) (104,246)
Benefit payments
Surrenders (1,567,128) (239,246) (333,959) (155,182) (820,016) (18,725)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 2,140,348 (854,496) 643,961 (518,177) 1,491,088 1,377,972
Other (17,068) (9,279) (21,837) 4,698 3,264 6,086
----------- --------------- --------------- --------------- -------------- --------------
Increase from principal
transactions 10,866,056 2,712,966 3,740,892 847,308 1,602,577 1,962,313
----------- --------------- --------------- --------------- -------------- --------------
Total increase in net assets 15,007,658 2,281,322 5,367,548 1,537,895 2,100,355 3,720,538
Net assets at beginning of year 29,630,753 8,105,328 10,853,005 7,882,782 2,040,960 748,678
----------- --------------- --------------- --------------- -------------- --------------
Net assets at end of year $44,638,411 $10,386,650 $16,220,553 $9,420,677 $4,141,315 $4,469,216
=========== =============== =============== =============== ============== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 133
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1999
<TABLE>
<CAPTION>
VAN ECK
---------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Hard Worldwide Emerging Real
Van Eck Assets Bond Markets Estate
--------------- --------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 3,012 $ 3,939 $ 9,896 $ (10,886) $ 63
Net realized gains (losses) on
investments 73,144 (313,009) (25,853) 410,384 1,622
Net unrealized gains (losses) on
investments 1,374,192 592,123 (9,920) 809,962 (17,973)
--------------- --------------- --------------- ---------------- ---------------
Increase (decrease) in net assets from
operations 1,450,348 283,053 (25,877) 1,209,460 (16,288)
--------------- --------------- --------------- ---------------- ---------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 1,311,620 441,045 253,322 416,537 200,716
Cost of insurance and
administrative charges (173,456) (86,064) (17,509) (56,532) (13,351)
Benefit payments
Surrenders (33,331) (23,325) - (5,545) (4,461)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 1,919,235 602,367 (80,721) 1,091,100 306,489
Other 12,762 15,247 (819) (2,117) 451
--------------- --------------- --------------- ---------------- ---------------
Increase from principal
transactions 3,036,830 949,270 154,273 1,443,443 489,844
--------------- --------------- --------------- ---------------- ---------------
Total increase in net assets 4,487,178 1,232,323 128,396 2,652,903 473,556
Net assets at beginning of year 1,816,999 1,073,755 205,807 461,156 76,281
--------------- --------------- --------------- ---------------- ---------------
Net assets at end of year $6,304,177 $2,306,078 $334,203 $3,114,059 $549,837
=============== =============== =============== ================ ===============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 134
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1999
AIM
--------------------------------------
Total Capital Government
AIM Appreciation Securities
------------ ------------- -----------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 260,755 $ 94,178 $ 166,577
Net realized gains (losses) on
investments 84,032 92,256 (8,224)
Net unrealized gains (losses) on
investments 1,036,932 1,257,369 (220,437)
------------ ------------- -----------
Increase (decrease) in net assets from
operations 1,381,719 1,443,803 (62,084)
------------ ------------- -----------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 3,211,568 1,497,094 1,714,474
Cost of insurance and
administrative charges (382,131) (216,619) (165,512)
Benefit payments
Surrenders (601,426) (18,584) (582,842)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 5,284,201 1,391,719 3,892,482
Other 9,171 7,073 2,098
------------ ------------- -----------
Increase from principal
transactions 7,521,383 2,660,683 4,860,700
------------ ------------- -----------
Total increase in net assets 8,903,102 4,104,486 4,798,616
Net assets at beginning of year 3,800,153 1,204,436 2,595,717
------------ ------------- -----------
Net assets at end of year $12,703,255 $5,308,922 $7,394,333
============ ============= ===========
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 135
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1998
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck AIM
------------ ----------------------------------------- ------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 16,007,172 $ 3,982,203 $ 4,326,660 $ 5,972,694 $ 1,463,539 $ 178,227 $ 83,849
Net realized gains (losses) on
investments 8,536,274 347,823 1,685,294 6,403,348 355,780 (260,570) 4,599
Net unrealized gains (losses) on
investments 18,766,977 (2,323,636) 5,825,800 15,230,082 248,681 (368,037) 154,087
------------ ----------------------------------------- ------------- ------------------------
Increase (decrease) in net assets
from operations 43,310,423 2,006,390 11,837,754 27,606,124 2,068,000 (450,380) 242,535
------------ ----------------------------------------- ------------- ------------------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 128,820,440 12,563,792 13,089,164 92,335,231 8,092,294 875,501 1,864,458
Cost of insurance and
administrative charges (14,458,798) (2,063,802) (2,525,683) (8,200,381) (1,481,570) (108,634) (78,728)
Benefit payments (306,862) (11,220) (26,492) (259,989) (9,161) - -
Surrenders (10,842,736) (725,767) (859,454) (8,654,377) (586,533) (15,198) (1,407)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (3,936,799) 8,461,193 4,831,250 (25,231,056) 6,011,967 216,552 1,773,295
Other (41,582) (87,331) (18,626) 54,208 9,107 1,060 -
------------ ----------------------------------------- ------------- ------------------------
Increase (decrease) from principal
transactions 99,233,663 18,136,865 14,490,159 50,043,636 12,036,104 969,281 3,557,618
------------ ----------------------------------------- ------------- ------------------------
Total increase (decrease) in net
assets 142,544,086 20,143,255 26,327,913 77,649,760 14,104,104 518,901 3,800,153
Net assets at beginning of year 162,486,020 26,924,496 28,100,608 90,636,169 15,526,649 1,298,098 -
------------ ----------------------------------------- ------------- ------------------------
Net assets at end of year $305,030,106 $47,067,751 $54,428,521 $168,285,929 $29,630,753 $1,816,999 $3,800,153
============ ========================================= ============= ========================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 136
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
NB
-----------------------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
----------------- ------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 3,982,203 $ 322,085 $1,526,449 $133,352 $ 2,000,317
Net realized gains (losses) on
investments 347,823 10,003 (264,148) (53,894) 655,862
Net unrealized gains (losses) on
investments (2,323,636) 59,369 (81,576) (60,954) (2,240,475)
----------------- ------------------- ---------------- ---------------- ----------------
Increase (decrease) in net assets
from operations 2,006,390 391,457 1,180,725 18,504 415,704
----------------- ------------------- ---------------- ---------------- ----------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 12,563,792 3,839,599 2,578,265 31,593 6,114,335
Cost of insurance and
administrative charges (2,063,802) (492,782) (393,894) (14,839) (1,162,287)
Benefit payments (11,220) - - - (11,220)
Surrenders (725,767) (15,922) (419,497) (3,243) (287,105)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 8,461,193 5,212,588 513,663 (894,126) 3,629,068
Other (87,331) (31,757) 3,226 (31,566) (27,234)
----------------- ------------------- ---------------- ---------------- ----------------
Increase (decrease) from principal
transactions 18,136,865 8,511,726 2,281,763 (912,181) 8,255,557
----------------- ------------------- ---------------- ---------------- ----------------
Total increase (decrease) in net assets 20,143,255 8,903,183 3,462,488 (893,677) 8,671,261
Net assets at beginning of year 26,924,496 6,675,166 5,563,672 893,677 13,791,981
----------------- ------------------- ---------------- ---------------- ----------------
Net assets at end of year $47,067,751 $15,578,349 $9,026,160 $ - $22,463,242
================= =================== ================ ================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 137
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
ALGER
----------------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
----------------- ------------------ --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 4,326,660 $ 1,585,785 $ 539,729 $ 2,083,336 $ 117,810
Net realized gains (losses) on
investments 1,685,294 186,963 316,932 915,872 265,527
Net unrealized gains (losses) on
investments 5,825,800 166,990 1,022,340 3,099,428 1,537,042
----------------- ------------------ --------------- ---------------- ----------------
Increase (decrease) in net assets
from operations 11,837,754 1,939,738 1,879,001 6,098,636 1,920,379
----------------- ------------------ --------------- ---------------- ----------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 13,089,164 4,154,774 2,573,424 5,298,963 1,062,003
Cost of insurance and
administrative charges (2,525,683) (803,988) (473,224) (989,260) (259,211)
Benefit payments (26,492) (14,248) (12,244) - -
Surrenders (859,454) (196,345) (376,263) (216,867) (69,979)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 4,831,250 (35,168) 528,261 3,094,366 1,243,791
Other (18,626) (504) (14,286) 1,597 (5,433)
----------------- ------------------ --------------- ---------------- ----------------
Increase (decrease) from principal
transactions 14,490,159 3,104,521 2,225,668 7,188,799 1,971,171
----------------- ------------------ --------------- ---------------- ----------------
Total increase (decrease) in net assets 26,327,913 5,044,259 4,104,669 13,287,435 3,891,550
Net assets at beginning of year 28,100,608 10,459,112 5,115,538 9,616,179 2,909,779
----------------- ------------------ --------------- ---------------- ----------------
Net assets at end of year $54,428,521 $15,503,371 $9,220,207 $22,903,614 $6,801,329
================= ================== =============== ================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 138
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
FIDELITY
---------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
--------------- -------------- --------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 5,972,694 $ 745,317 $ 2,480,616 $ 886,122 $ 713,205 $ 1,147,434
Net realized gains (losses) on
investments 6,403,348 20,247 1,534,000 298,379 - 4,550,722
Net unrealized gains (losses) on
investments 15,230,082 315,702 4,444,805 707,398 - 9,762,177
--------------- -------------- --------------- -------------- --------------- --------------
Increase (decrease) in net assets
from operations 27,606,124 1,081,266 8,459,421 1,891,899 713,205 15,460,333
--------------- -------------- --------------- -------------- --------------- --------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 92,335,231 2,713,832 8,443,426 5,709,711 55,421,815 20,046,447
Cost of insurance and
administrative charges (8,200,381) (490,838) (1,358,671) (939,010) (1,769,895) (3,641,967)
Benefit payments (259,989) - (8,890) (8,379) (240,733) (1,987)
Surrenders (8,654,377) (652,157) (2,494,098) (438,536) (2,335,262) (2,734,324)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (25,231,056) 1,440,884 1,798,160 2,169,798 (48,429,964) 17,790,066
Other 54,208 7,219 (14,128) (29,375) 39,827 50,665
--------------- -------------- --------------- -------------- --------------- --------------
Increase (decrease) from principal
transactions 50,043,636 3,018,940 6,365,799 6,464,209 2,685,788 31,508,900
--------------- -------------- --------------- -------------- --------------- --------------
Total increase (decrease) in net assets 77,649,760 4,100,206 14,825,220 8,356,108 3,398,993 46,969,233
Net assets at beginning of year 90,636,169 6,137,073 18,074,922 12,225,779 15,013,259 39,185,136
--------------- -------------- --------------- -------------- --------------- --------------
Net assets at end of year $168,285,929 $10,237,279 $32,900,142 $20,581,887 $18,412,252 $86,154,369
=============== ============== =============== ============== =============== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 139
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
INVESCO
--------------------------------------------------------------------------------------------
Small
Total Total Equity Company
INVESCO Return Income High Yield Utilities Growth
-------------- -------------- --------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 1,463,539 $ 271,636 $ 453,496 $ 720,665 $ 18,328 $ (586)
Net realized gains (losses) on
investments 355,780 136,473 342,342 (151,382) 35,245 (6,898)
Net unrealized gains (losses) on
investments 248,681 73,689 359,519 (541,125) 282,500 74,098
-------------- -------------- --------------- -------------- --------------- -------------
Increase (decrease) in net assets
from operations 2,068,000 481,798 1,155,357 28,158 336,073 66,614
-------------- -------------- --------------- -------------- --------------- -------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 8,092,294 2,104,849 3,170,236 2,297,048 435,105 85,056
Cost of insurance and
administrative charges (1,481,570) (425,176) (567,563) (389,895) (87,692) (11,244)
Benefit payments (9,161) - (9,161) - - -
Surrenders (586,533) (56,509) (192,220) (329,292) (8,210) (302)
Net transfers among divisions
(including the loan division and
Guaranteed interest division in
the general account) 6,011,967 2,955,200 1,315,595 931,519 201,017 608,636
Other 9,107 556 22,617 (18,840) 4,856 (82)
-------------- -------------- --------------- -------------- --------------- -------------
Increase (decrease) from principal
transactions 12,036,104 4,578,920 3,739,504 2,490,540 545,076 682,064
-------------- -------------- --------------- -------------- --------------- -------------
Total increase (decrease) in net assets 14,104,104 5,060,718 4,894,861 2,518,698 881,149 748,678
Net assets at beginning of year 15,526,649 3,044,610 5,958,144 5,364,084 1,159,811 -
-------------- -------------- --------------- -------------- --------------- -------------
Net assets at end of year $29,630,753 $8,105,328 $10,853,005 $7,882,782 $2,040,960 $748,678
============== ============== =============== ============== =============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 140
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
<TABLE>
<CAPTION>
VAN ECK
--------------------------------------------------------------------------------------------
Worldwide Worldwide Worldwide
Total Worldwide Hard Worldwide Emerging Real
Van Eck Balanced Assets Bonds Markets Estate
--------------- -------------- ---------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 178,227 $ 44,624 $ 135,776 $ (212) $ (1,736) $ (225)
Net realized gains (losses) on
investments (260,570) 4,682 (162,110) 130 (101,436) (1,836)
Net unrealized gains (losses) on
investments (368,037) (23,403) (395,698) 3,953 47,140 (29)
--------------- -------------- ---------------- -------------- -------------- -------------
Increase (decrease) in net assets
from operations (450,380) 25,903 (422,032) 3,871 (56,032) (2,090)
--------------- -------------- ---------------- -------------- -------------- -------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 875,501 (1,347) 571,430 129,336 137,102 38,980
Cost of insurance and
administrative charges (108,634) (9,423) (86,867) (1,544) (7,777) (3,023)
Benefit payments - - - 0 0 0
Surrenders (15,198) (3,105) (11,871) 0 0 (222)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 216,552 (399,466) 111,286 74,151 387,960 42,621
Other 1,060 90 1,059 (7) (97) 15
--------------- -------------- ---------------- -------------- -------------- -------------
Increase (decrease) from principal
transactions 969,281 (413,251) 585,037 201,936 517,188 78,371
--------------- -------------- ---------------- -------------- -------------- -------------
Total increase (decrease) in net assets 518,901 (387,348) 163,005 205,807 461,156 76,281
Net assets at beginning of year 1,298,098 387,348 910,750 - - -
--------------- -------------- ---------------- -------------- -------------- -------------
Net assets at end of year $1,816,999 $ - $1,073,755 $205,807 $ 461,156 $76,281
=============== ============== ================ ============== ============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 141
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1998
AIM
--------------------------------------
Total Capital Government
AIM Appreciation Securities
------------ ------------ ------------
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income (loss) $ 83,849 $ 24,053 $ 59,796
Net realized gains (losses) on
investments 4,599 (3,315) 7,914
Net unrealized gains (losses) on
investments 154,087 119,225 34,862
------------ ------------ ------------
Increase (decrease) in net assets
from operations 242,535 139,963 102,572
------------ ------------ ------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 1,864,458 329,635 1,534,823
Cost of insurance and
administrative charges (78,728) (28,940) (49,788)
Benefit payments - - -
Surrenders (1,407) (1,407) -
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 1,773,295 765,185 1,008,110
Other - - -
------------ ------------ ------------
Increase (decrease) from principal
transactions 3,557,618 1,064,473 2,493,145
------------ ------------ ------------
Total increase (decrease) in net assets 3,800,153 1,204,436 2,595,717
Net assets at beginning of year - - -
------------ ------------ ------------
Net assets at end of year $3,800,153 $1,204,436 $2,595,717
============ ============ ============
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 142
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets
Year Ended December 31, 1997
<TABLE>
<CAPTION>
Total
All Total Total Total Total Total
Divisions NB Alger Fidelity INVESCO Van Eck
------------ -------------- -------------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 3,345,072 $ 543,430 $ 181,965 $ 1,633,324 $ 972,193 $ 14,160
Net realized gains (losses) on
investments 3,199,375 406,286 894,818 1,320,426 523,956 53,889
Net unrealized gains (losses) on
investments 10,643,150 2,273,595 1,647,989 6,476,412 298,662 (53,508)
------------ -------------- -------------- -------------- --------------- -------------
Increase (decrease) in net assets from
operations 17,187,597 3,223,311 2,724,772 9,430,162 1,794,811 14,541
------------ -------------- -------------- -------------- --------------- -------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 104,747,260 5,555,766 6,944,048 89,309,110 2,683,620 254,716
Cost of insurance and
administrative charges (8,284,944) (957,887) (1,466,664) (5,155,026) (614,145) (91,222)
Benefit payments (406,386) (20,591) (63,369) (322,263) (163) -
Surrenders (1,977,696) (146,698) (412,252) (1,294,484) (112,699) (11,563)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (6,642,529) 8,721,432 9,006,938 (32,708,946) 7,796,299 541,748
Other 5,891 9,817 11,046 (21,999) 11,180 (4,153)
------------ -------------- -------------- -------------- --------------- -------------
Increase (decrease) from principal
transactions 87,441,596 13,161,839 14,019,747 49,806,392 9,764,092 689,526
------------ -------------- -------------- -------------- --------------- -------------
Total increase (decrease) in net assets 104,629,193 16,385,150 16,744,519 59,236,554 11,558,903 704,067
Net assets at beginning of year 57,856,827 10,539,346 11,356,089 31,399,615 3,967,746 594,031
------------ -------------- -------------- -------------- --------------- -------------
Net assets at end of year $162,486,020 $26,924,496 $28,100,608 $90,636,169 $15,526,649 $1,298,098
============ ============== ============== ============== =============== =============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 143
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
NB
-----------------------------------------------------------------------------------------
Total Limited Government
NB Maturity Bond Growth Income Partners
----------------- ------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 543,430 $ 122,942 $ 158,538 $ 61,720 $ 200,230
Net realized gains (losses) on
investments 406,286 (20,056) 14,997 25,762 385,583
Net unrealized gains (losses) on
investments 2,273,595 159,151 533,906 26,882 1,553,656
----------------- ------------------- ---------------- ---------------- ----------------
Increase (decrease) in net assets from
operations 3,223,311 262,037 707,441 114,364 2,139,469
----------------- ------------------- ---------------- ---------------- ----------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 5,555,766 1,332,125 1,158,704 324,257 2,740,680
Cost of insurance and
administrative charges (957,887) (163,472) (219,117) (62,075) (513,223)
Benefit payments (20,591) - - - (20,591)
Surrenders (146,698) (3,761) (71,838) (792) (70,307)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 8,721,432 2,758,363 2,141,068 (1,023,987) 4,845,988
Other 9,817 (2,202) 11,700 (6,404) 6,723
----------------- ------------------- ---------------- ---------------- ----------------
Increase (decrease) from principal
transactions 13,161,839 3,921,053 3,020,517 (769,001) 6,989,270
----------------- ------------------- ---------------- ---------------- ----------------
Total increase (decrease) in net assets 16,385,150 4,183,090 3,727,958 (654,637) 9,128,739
Net assets at beginning of year 10,539,346 2,492,076 1,835,714 1,548,314 4,663,242
----------------- ------------------- ---------------- ---------------- ----------------
Net assets at end of year $26,924,496 $6,675,166 $5,563,672 $ 893,677 $13,791,981
================= =================== ================ ================ ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 144
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
ALGER
--------------------------------------------------------------------------------------
American American American
Total Small MidCap American Leveraged
Alger Capitalization Growth Growth AllCap
----------------- ------------------ --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 181,965 $ 167,785 $ 27,807 $ 376 $ (14,003)
Net realized gains (losses) on
investments 894,818 114,651 228,363 237,727 314,077
Net unrealized gains (losses) on
investments 1,647,989 483,518 246,489 970,056 (52,074)
----------------- ------------------ --------------- --------------- ----------------
Increase (decrease) in net assets from
operations 2,724,772 765,954 502,659 1,208,159 248,000
----------------- ------------------ --------------- --------------- ----------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 6,944,048 2,630,863 1,276,492 2,334,377 702,316
Cost of insurance and
administrative charges (1,466,664) (526,742) (299,891) (479,902) (160,129)
Benefit payments (63,369) - (62,593) (776) -
Surrenders (412,252) (255,386) (74,317) (58,850) (23,699)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 9,006,938 3,518,384 1,419,061 2,796,911 1,272,582
Other 11,046 (6,069) 19,072 2,082 (4,039)
----------------- ------------------ --------------- --------------- ----------------
Increase (decrease) from principal
transactions 14,019,747 5,361,050 2,277,824 4,593,842 1,787,031
----------------- ------------------ --------------- --------------- ----------------
Total increase (decrease) in net assets 16,744,519 6,127,004 2,780,483 5,802,001 2,035,031
Net assets at beginning of year 11,356,089 4,332,108 2,335,055 3,814,178 874,748
----------------- ------------------ --------------- --------------- ----------------
Net assets at end of year $28,100,608 $10,459,112 $5,115,538 $9,616,179 $2,909,779
================= ================== =============== =============== ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 145
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
FIDELITY
-------------------------------------------------------------------------------------------
Total Asset Money
Fidelity Manager Growth Overseas Market Index 500
-------------- ------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 1,633,324 $ 177,599 $ 183,570 $ 391,160 $ 657,285 $ 223,710
Net realized gains (losses) on
investments 1,320,426 33,000 662,436 332,544 - 292,446
Net unrealized gains (losses) on
investments 6,476,412 350,408 1,347,793 (305,456) - 5,083,667
----------- ------------- -------------- -------------- -------------- --------------
Increase (decrease) in net assets from
operations 9,430,162 561,007 2,193,799 418,248 657,285 5,599,823
----------- ------------- -------------- -------------- -------------- --------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 89,309,110 2,162,759 4,558,270 2,410,373 73,366,740 6,810,968
Cost of insurance and
administrative charges (5,155,026) (242,289) (813,161) (525,615) (2,213,630) (1,360,331)
Benefit payments (322,263) (20,969) (548) (1,233) (257,371) (42,142)
Surrenders (1,294,484) (92,218) (135,829) (91,869) (870,621) (103,947)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) (32,708,946) 2,215,879 5,219,755 5,730,183 (63,929,591) 18,054,828
Other (21,999) 7,567 3,217 10,563 (35,219) (8,127)
----------- ------------- -------------- -------------- -------------- --------------
Increase (decrease) from principal
transactions 49,806,392 4,030,729 8,831,704 7,532,402 6,060,308 23,351,249
----------- ------------- -------------- -------------- -------------- --------------
Total increase (decrease) in net assets 59,236,554 4,591,736 11,025,503 7,950,650 6,717,593 28,951,072
Net assets at beginning of year 31,399,615 1,545,337 7,049,419 4,275,129 8,295,666 10,234,064
----------- ------------- -------------- -------------- -------------- --------------
Net assets at end of year $90,636,169 $6,137,073 $18,074,922 $12,225,779 $15,013,259 $39,185,136
=========== ============= ============== ============== ============== ==============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 146
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
<TABLE>
<CAPTION>
INVESCO
-----------------------------------------------------------------------------------
Total Total Equity
INVESCO Return Income High Yield Utilities
----------------- ---------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 972,193 $ 63,540 $ 389,851 $ 495,891 $ 22,911
Net realized gains (losses) on
investments 523,956 46,241 116,951 269,799 90,965
Net unrealized gains (losses) on
investments 298,662 203,429 324,767 (253,231) 23,697
----------------- ---------------- --------------- -------------- ----------------
Increase (decrease) in net assets from
operations 1,794,811 313,210 831,569 512,459 137,573
----------------- ---------------- --------------- -------------- ----------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 2,683,620 517,831 1,250,551 835,890 79,348
Cost of insurance and
administrative charges (614,145) (133,107) (266,208) (177,612) (37,218)
Benefit payments (163) - - (163) -
Surrenders (112,699) (28,672) (37,810) (9,783) (36,434)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 7,796,299 1,498,300 2,804,344 2,695,587 798,068
Other 11,180 2,581 6,081 2,305 213
----------------- ---------------- --------------- -------------- ----------------
Increase (decrease) from principal
transactions 9,764,092 1,856,933 3,756,958 3,346,224 803,977
----------------- ---------------- --------------- -------------- ----------------
Total increase (decrease) in net assets 11,558,903 2,170,143 4,588,527 3,858,683 941,550
Net assets at beginning of year 3,967,746 874,467 1,369,617 1,505,401 218,261
----------------- ---------------- --------------- -------------- ----------------
Net assets at end of year $15,526,649 $3,044,610 $5,958,144 $5,364,084 $1,159,811
================= ================ =============== ============== ================
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 147
<PAGE>
Security Life Separate Account L1
Statement of Changes in Net Assets (continued)
Year Ended December 31, 1997
VAN ECK
--------------------------------------
Worldwide
Total Worldwide Hard
Van Eck Balanced Assets
----------- ----------- -------------
INCREASE (DECREASE) IN NET ASSETS
OPERATIONS
Net investment income (loss) $ 14,160 $ 5,677 $ 8,483
Net realized gains (losses) on
investments 53,889 37,785 16,104
Net unrealized gains (losses) on
investments (53,508) 4,122 (57,630)
----------- ----------- -------------
Increase (decrease) in net assets from
operations 14,541 47,584 (33,043)
----------- ----------- -------------
CHANGES FROM PRINCIPAL
TRANSACTIONS
Net premiums 254,716 65,167 189,549
Cost of insurance and
administrative charges (91,222) (44,774) (46,448)
Benefit payments - - -
Surrenders (11,563) (7,995) (3,568)
Net transfers among divisions
(including the loan division and
guaranteed interest division in
the general account) 541,748 (120) 541,868
Other (4,153) (319) (3,834)
----------- ----------- -------------
Increase (decrease) from principal
transactions 689,526 11,959 677,567
----------- ----------- -------------
Total increase (decrease) in net assets 704,067 59,543 644,524
Net assets at beginning of year 594,031 327,805 266,226
----------- ----------- -------------
Net assets at end of year $1,298,098 $387,348 $910,750
=========== =========== =============
See accompanying notes.
- --------------------------------------------------------------------------------
Estate Designer 148
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements
December 31, 1999
NOTE A. ORGANIZATION
Security Life Separate Account L1 (the "Separate Account") was established by
resolution of the Board of Directors of Security Life of Denver Insurance
Company (the "Company") on November 3, 1993. The Separate Account is organized
as a unit investment trust registered with the Securities and Exchange
Commission under the Investment Company Act of 1940.
The Separate Account supports the operations of the FirstLine Variable Universal
Life, FirstLine II Variable Universal Life, Strategic Advantage Variable
Universal Life, Strategic Advantage II Variable Universal Life, and Variable
Survivorship Universal Life policies ("Variable Universal Life Policies")
offered by the Company. The Separate Account may be used to support other
variable life policies as they are offered by the Company. The assets of the
Separate Account are the property of the Company. However, the portion of the
Separate Account's assets attributable to the policies will not be used to
satisfy liabilities arising out of any other operations of the Company.
As of December 31, 1999, the Separate Account offered twenty-three investment
divisions available to the policyholders, each of which invests in an
independently managed mutual fund portfolio ("Fund"). The Funds are as follows:
PORTFOLIO MANAGERS/PORTFOLIOS (FUNDS)
Neuberger Berman Management Incorporated (NB)
Neuberger Berman Limited Maturity Bond Portfolio
Neuberger Berman Growth Portfolio
Neuberger Berman Partners Portfolio
Fred Alger Management, Inc. (Alger)
Alger American Small Capitalization Portfolio
Alger American MidCap Growth Portfolio
Alger American Growth Portfolio
Alger American Leveraged AllCap Portfolio
Fidelity Management & Research Company (Fidelity)
Fidelity Investments VIP II Asset Manager Portfolio
Fidelity Investments VIP Growth Portfolio
Fidelity Investments VIP Overseas Portfolio
Fidelity Investments VIP Money Market Portfolio
Fidelity Investments VIP II Index 500 Portfolio
- --------------------------------------------------------------------------------
Estate Designer 149
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE A. ORGANIZATION (CONTINUED)
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Total Return Portfolio
INVESCO VIF Equity Income Portfolio (formerly known as "INVESCO VIF
Industrial Income Portfolio")
INVESCO VIF High Yield Portfolio
INVESCO VIF Utilities Portfolio
INVESCO VIF Small Company Growth Portfolio
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Hard Assets Portfolio (formerly known as "Van Eck Gold
and Natural Resources Portfolio")
Van Eck Worldwide Bond Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Real Estate Portfolio
AIM Advisors, Inc. (AIM)
AIM VI--Capital Appreciation Portfolio
AIM VI--Government Securities Portfolio
Effective May 1, 1997, the Divisions of the Separate Account investing in the
Neuberger Berman Government Income Portfolio and the Van Eck Worldwide Balanced
Portfolio stopped accepting new investments. These divisions were discontinued
during 1998.
Effective February 19, 1998, six new divisions became available to the
policyholders for investment in the following funds:
Van Eck Associates Corporation (Van Eck)
Van Eck Worldwide Bond Portfolio
Van Eck Worldwide Emerging Markets Portfolio
Van Eck Worldwide Real Estate Portfolio
AIM Advisors, Inc. (AIM)
AIM VI--Capital Appreciation Portfolio
AIM VI--Government Securities Portfolio
INVESCO Funds Group, Inc. (INVESCO)
INVESCO VIF Small Company Growth Portfolio
- --------------------------------------------------------------------------------
Estate Designer 150
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE A. ORGANIZATION (CONTINUED)
The Variable Universal Life Policies allow the policyholders to specify the
allocation of their net premium to the various Funds. They can also transfer
their account values among the Funds. The Variable Universal Life Policies also
provide the policyholders the option to allocate their net premiums, or to
transfer their account values, to a Guaranteed Interest Division ("GID") in the
Company's general account. The GID guarantees a rate of interest to the
policyholder, and it is not variable in nature. Therefore, it is not included in
these Separate Account statements.
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Separate Account have been prepared
on the basis of accounting principles generally accepted in the United States
("U.S. GAAP"). The preparation of financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
The significant accounting principles followed by the Separate Account and the
methods of applying those principles are presented below or in the footnotes
which follow:
INVESTMENT VALUATION--The investments in shares of the Funds are valued at the
closing net asset value (market value) per share as determined by the Funds on
the day of measurement.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME--The investments in shares
of the Funds are accounted for on the date the order to buy or sell is
confirmed. Dividend income and distributions of capital gains are recorded on
the ex-dividend date. Realized gains and losses from sales transactions are
reported using the first-in, first-out ("FIFO") method of accounting for cost.
The difference between cost and current market value of investments owned on the
day of measurement is recorded as unrealized gain or loss on investment.
VALUATION PERIOD DEDUCTIONS--Charges are made directly against the assets of the
Separate Account divisions and are reflected daily in the computation of the
unit values of the divisions.
- --------------------------------------------------------------------------------
Estate Designer 151
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
A daily deduction, at an annual rate of .75% of the daily asset value of the
Separate Account divisions, is charged to the Separate Account for mortality and
expense risks assumed by the Company. Total mortality and expense charges for
the years ended December 31, 1999, 1998 and 1997 were $2,908,885, $1,740,661,
and $813,630, respectively.
POLICYHOLDER RESERVES--Policyholder reserves are recorded in the Separate
Account at the aggregate account values of the policyholders invested in the
Separate Account divisions. To the extent that benefits to be paid to the
policyholders exceed their account values, the Company will contribute
additional funds to the benefit proceeds.
- --------------------------------------------------------------------------------
Estate Designer 152
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS
Fund shares are purchased at net asset value with net premiums (premium
payments, less sales and tax loads charged by the Company) and divisional
transfers from other divisions. Fund shares are redeemed for the payment of
benefits, for surrenders, for transfers to other divisions, and for charges by
the Company for certain cost of insurance and administrative charges. The cost
of insurance and administrative charges for the years ended December 31, 1999,
1998 and 1997 were $20,649,015, $14,458,798, and $8,284,944, respectively.
Dividends made by the Funds are reinvested in the Funds.
The following is a summary of Fund shares owned as of December 31, 1999:
<TABLE>
<CAPTION>
NUMBER NET VALUE
OF ASSET OF SHARES COST OF
FUND SHARES VALUE AT MARKET SHARES
- ------------------------------------------- ----------------- ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 845,960.694 $13.24 $ 11,200,520 $ 11,380,242
Growth 350,585.486 $37.27 13,066,321 8,836,640
Partners 1,493,418.911 $19.64 29,330,747 28,931,311
Fred Alger Management, Inc.:
American Small Capitalization 503,139.614 $55.15 27,748,150 21,103,331
American MidCap Growth 536,166.146 $32.23 17,280,636 13,903,676
American Growth 642,460.430 $64.38 41,361,603 32,482,027
American Leveraged AllCap 397,806.619 $57.97 23,060,850 16,645,127
Fidelity Management & Research Co.:
Asset Manager 727,657.184 $18.67 13,585,360 12,533,037
Growth 1,058,669.574 $54.93 58,152,709 48,588,495
Overseas 1,271,285.820 $27.44 34,884,083 25,474,948
Money Market 34,799,038.450 $1.00 34,799,038 34,799,038
Index 500 913,352.492 $167.41 152,904,343 119,231,939
INVESCO Funds Group, Inc.:
Total Return 666,657.538 $15.58 10,386,525 11,019,270
Equity Income 770,554.123 $21.01 16,189,342 14,534,380
High Yield 818,379.460 $11.51 9,419,547 9,910,525
Utilities 197,458.930 $20.97 4,140,713 3,647,584
Small Company Growth 200,033.388 $22.01 4,402,735 2,793,624
Van Eck Associates Corporation:
Worldwide Hard Assets 210,388.243 $10.96 2,305,855 2,157,787
Worldwide Bond 31,407.502 $10.69 335,746 341,712
Worldwide Emerging Markets 215,083.218 $14.26 3,067,087 2,209,985
Worldwide Real Estate 60,091.435 $9.15 549,837 567,839
AIM Advisors, Inc.:
Capital Appreciation 149,210.483 $35.58 5,308,909 3,932,316
Government Securities 695,609.783 $10.63 7,394,332 7,579,908
------------------ ------------------
Total $520,874,988 $432,604,741
================== ==================
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 153
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE C. INVESTMENTS (CONTINUED)
For the year ended December 31, 1999, the cost of purchases (plus reinvested
dividends) and sales of investments are as follows:
<TABLE>
<CAPTION>
BEGINNING END
FUND OF YEAR PURCHASES SALES OF YEAR
- ------------------------------------------- ----------------- ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond $ 15,334,595 $ 6,135,221 $ (10,089,574) $ 11,380,242
Growth 8,510,696 5,560,097 (5,234,153) 8,836,640
Partners 22,570,797 9,683,589 (3,323,075) 28,931,311
Fred Alger Management, Inc.:
American Small Capitalization 14,851,950 14,105,718 (7,854,337) 21,103,331
American MidCap Growth 7,858,579 7,048,332 (1,003,235) 13,903,676
American Growth 18,608,688 18,809,746 (4,936,407) 32,482,027
American Leveraged AllCap 5,293,171 16,455,429 (5,103,473) 16,645,127
Fidelity Management & Research Co.:
Asset Manager 9,501,494 7,672,857 (4,641,314) 12,533,037
Growth 26,845,882 67,064,022 (45,321,409) 48,588,495
Overseas 19,913,166 15,724,213 (10,162,431) 25,474,948
Money Market 18,412,252 113,113,411 (96,726,625) 34,799,038
Index 500 70,067,500 54,287,747 (5,123,308) 119,231,939
INVESCO Funds Group, Inc.:
Total Return 7,814,990 5,666,870 (2,462,590) 11,019,270
Equity Income 10,163,306 6,427,991 (2,056,917) 14,534,380
High Yield 8,752,765 4,424,859 (3,267,099) 9,910,525
Utilities 1,727,429 2,817,915 (897,760) 3,647,584
Small Company Growth 674,581 2,769,372 (650,329) 2,793,624
Van Eck Associates Corporation:
Worldwide Hard Assets 1,517,809 2,248,842 (1,608,864) 2,157,787
Worldwide Bond 201,853 461,651 (321,792) 341,712
Worldwide Emerging Markets 414,017 5,282,900 (3,486,932) 2,209,985
Worldwide Real Estate 76,310 592,249 (100,720) 567,839
AIM Advisors, Inc.
Capital Appreciation 1,085,211 3,341,733 (494,628) 3,932,316
Government Securities 2,560,855 7,659,984 (2,640,931) 7,579,908
----------------- ------------------- ------------------ ------------------
Total $272,757,896 $377,354,748 $(217,507,903) $432,604,741
================= =================== ================== ==================
</TABLE>
Aggregate proceeds from sales of investments for the year ended December 31,
1999 were $235,699,349.
- --------------------------------------------------------------------------------
Estate Designer 154
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE D. OTHER POLICY DEDUCTIONS
The Variable Universal Life policies provide for certain deductions for sales
and tax loads from premium payments received from the policyholders and for
surrender charges and taxes from amounts paid to policyholders. Such deductions
are taken before the purchase of divisional units or after the redemption of
divisional units of the Separate Account. Such deductions are not included in
the Separate Account financial statements.
NOTE E. POLICY LOANS
The Variable Universal Life policies allow the policyholders to borrow against
their policies by using them as collateral for a loan. At the time of borrowing
against the policies, an amount equal to the loan amount is transferred from the
Separate Account divisions to a Loan Division in the Company's General Account
to secure the loan. As payments are made on the policy loan, amounts are
transferred back from the Loan Division to the Separate Account divisions.
Interest is credited to the balance in the Loan Division at a fixed rate. The
Loan Division is not variable in nature and is not included in these Separate
Account statements.
NOTE F. FEDERAL INCOME TAXES
The Separate Account is not taxed separately because the operations of the
Separate Account are part of the total operations of the Company. The Company is
taxed as a life insurance company under the Internal Revenue Code. The Separate
Account is not taxed as a "Regulated Investment Company" under subchapter "M" of
the Internal Revenue Code.
- --------------------------------------------------------------------------------
Estate Designer 155
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1999:
<TABLE>
<CAPTION>
(DECREASE)
FOR
OUTSTANDING INCREASE WITHDRAWALS OUTSTANDING
AT BEGINNING FOR PAYMENTS AND OTHER AT END
DIVISION OF YEAR RECEIVED DEDUCTIONS OF YEAR
- ------------------------------------------- ----------------- ----------------- -------------------- ------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 1,245,559.121 421,349.898 (777,749.415) 889,159.604
Growth 447,486.376 233,319.969 (246,467.977) 434,338.368
Partners 986,298.018 385,667.451 (159,832.021) 1,212,133.448
Fred Alger Management, Inc.:
American Small Capitalization 838,692.418 603,898.891 (386,833.825) 1,055,757.484
American MidCap Growth 402,532.472 225,361.191 (51,155.349) 576,738.314
American Growth 923,696.066 585,374.403 (251,698.832) 1,257,371.637
American Leveraged AllCap 221,642.446 410,084.371 (206,445.718) 425,281.099
Fidelity Management & Research Co.:
Asset Manager 600,255.213 393,745.577 (271,282.884) 722,717.906
Growth 1,293,480.338 2,233,512.279 (1,850,755.971) 1,676,236.646
Overseas 1,429,659.907 963,512.218 (676,554.498) 1,716,617.627
Money Market 1,526,404.399 9,068,762.545 (7,831,518.647) 2,763,648.297
Index 500 3,215,990.519 1,840,375.191 (283,881.113) 4,772,484.597
INVESCO Funds Group, Inc.:
Total Return 450,557.216 300,554.107 (148,923.709) 602,187.614
Equity Income 473,616.752 252,971.948 (105,540.763) 621,047.937
High Yield 486,858.648 226,071.484 (176,066.186) 536,863.946
Utilities 110,379.616 140,069.045 (61,038.677) 189,409.984
Small Company Growth 67,506.441 210,114.805 (65,118.036) 212,503.210
Van Eck Associates Corporation:
Worldwide Hard Assets 132,513.824 246,466.322 (142,007.717) 236,972.429
Worldwide Bond 18,656.317 43,237.412 (28,779.651) 33,114.078
Worldwide Emerging Markets 67,354.295 582,654.548 (421,189.648) 228,819.195
Worldwide Real Estate 8,765.232 67,514.147 (11,312.206) 64,967.173
AIM Advisors, Inc.:
Capital Appreciation 105,457.867 263,795.629 (45,407.464) 323,846.032
Government Securities 246,150.062 723,064.769 (253,309.682) 715,905.149
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 156
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1998:
<TABLE>
<CAPTION>
(DECREASE)
FOR
OUTSTANDING INCREASE WITHDRAWALS OUTSTANDING
AT BEGINNING FOR PAYMENTS AND OTHER AT END
DIVISION OF YEAR RECEIVED DEDUCTIONS OF YEAR
- ------------------------------------------ ------------------ ------------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 552,985.394 801,233.327 (108,659.600) 1,245,559.121
Growth 316,146.084 250,854.619 (119,514.327) 447,486.376
Government Income 75,811.559 58.537 (75,870.096) -
Partners 626,285.721 455,096.290 (95,083.993) 986,298.018
Fred Alger Management, Inc.:
American Small Capitalization 648,733.740 333,770.247 (143,811.569) 838,692.418
American MidCap Growth 288,809.482 167,037.228 (53,314.238) 402,532.472
American Growth 569,990.309 442,313.190 (88,607.433) 923,696.066
American Leveraged AllCap 148,542.639 102,168.282 (29,068.475) 221,642.446
Fidelity Management & Research Co.:
Asset Manager 410,906.106 270,972.780 (81,623.673) 600,255.213
Growth 983,842.388 614,542.294 (304,904.344) 1,293,480.338
Overseas 950,328.899 861,220.218 (381,889.210) 1,429,659.907
Money Market 1,303,059.881 5,059,561.984 (4,836,217.466) 1,526,404.399
Index 500 1,863,056.104 1,617,935.444 (265,001.029) 3,215,990.519
INVESCO Funds Group, Inc.:
Total Return 184,042.238 307,178.543 (40,663.565) 450,557.216
Equity Income 297,553.033 216,644.366 (40,580.647) 473,616.752
High Yield 333,501.857 283,205.205 (129,848.414) 486,858.648
Utilities 78,118.685 41,701.114 (9,440.183) 110,379.616
Small Company Growth - 71,535.065 (4,028.624) 67,506.441
Van Eck Associates Corporation:
Worldwide Balanced 32,139.282 190.627 (32,329.909) -
Worldwide Hard Assets 77,046.773 68,491.375 (13,024.324) 132,513.824
Worldwide Bond - 18,882.425 (226.108) 18,656.317
Worldwide Emerging Markets - 105,064.405 (37,710.110) 67,354.295
Worldwide Real Estate - 9,848.072 (1,082.840) 8,765.232
AIM Advisors, Inc.:
Capital Appreciation - 108,895.839 (3,437.972) 105,457.867
Government Securities - 261,432.015 (15,281.953) 246,150.062
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 157
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE G. SUMMARY OF CHANGES IN UNITS (CONTINUED)
The following schedule summarizes the changes in divisional units for the year
ended December 31, 1997:
<TABLE>
<CAPTION>
(DECREASE)
FOR
OUTSTANDING INCREASE WITHDRAWALS OUTSTANDING
AT BEGINNING FOR PAYMENTS AND OTHER AT END
DIVISION OF YEAR RECEIVED DEDUCTIONS OF YEAR
- ------------------------------------------- ----------------- ------------------ -------------------- -----------------
<S> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond 218,725.891 334,572.082 (312.579) 552,985.394
Growth 133,567.983 187,433.957 (4,855.856) 316,146.084
Government Income 142,773.403 30,012.660 (96,974.504) 75,811.559
Partners 275,892.457 354,159.052 (3,765.788) 626,285.721
Fred Alger Management, Inc.:
American Small Capitalization 297,073.322 368,659.345 (16,998.927) 648,733.740
American MidCap Growth 150,480.473 143,410.236 (5,081.227) 288,809.482
American Growth 282,175.287 292,019.948 (4,204.926) 569,990.309
American Leveraged AllCap 53,044.470 96,743.489 (1,245.320) 148,542.639
Fidelity Management & Research Co.:
Asset Manager 123,908.168 294,115.342 (7,117.404) 410,906.106
Growth 470,285.667 522,440.765 (8,884.044) 983,842.388
Overseas 367,948.109 589,863.772 (7,482.982) 950,328.899
Money Market 753,707.969 6,017,484.702 (5,468,132.790) 1,303,059.881
Index 500 640,890.650 1,227,420.261 (5,254.807) 1,863,056.104
INVESCO Funds Group, Inc.:
Total Return 64,490.483 121,436.060 (1,884.305) 184,042.238
Equity Income 87,035.356 212,619.908 (2,102.231) 297,553.033
High Yield 108,999.107 225,144.290 (641.540) 333,501.857
Utilities 18,008.490 63,007.328 (2,897.133) 78,118.685
Van Eck Associates Corporation:
Worldwide Balanced 29,808.787 5,838.562 (3,508.067) 32,139.282
Worldwide Hard Assets 21,966.093 55,323.208 (242.528) 77,046.773
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 158
<PAGE>
Security Life Separate Account L1
Notes to Financial Statements (continued)
NOTE H. NET ASSETS
Net assets at December 31, 1999 consisted of the following:
<TABLE>
<CAPTION>
ACCUMULATED NET
ACCUMULATED NET REALIZED UNREALIZED
INVESTMENT GAINS GAINS
PRINCIPAL INCOME (LOSSES) ON (LOSSES) ON
DIVISION TRANSACTIONS (LOSS) INVESTMENTS INVESTMENTS NET ASSETS
- ------------------------------------ ----------------- --------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Neuberger Berman Management Inc.:
Limited Maturity Bond $ 10,334,928 $ 1,357,452 $ (311,830) $ (179,722) $ 11,200,828
Growth 6,662,216 2,132,968 51,289 4,229,681 13,076,154
Partners 24,515,009 2,799,524 1,706,031 399,436 29,420,000
Fred Alger Management, Inc.:
American Small Capitalization 16,912,254 3,798,599 424,083 6,644,819 27,779,755
American MidCap Growth 10,911,311 2,117,608 881,608 3,376,960 17,287,487
American Growth 24,684,957 4,633,321 3,185,644 8,879,576 41,383,498
American Leveraged AllCap 12,723,008 733,681 3,191,248 6,415,723 23,063,660
Fidelity Management & Research Co.:
Asset Manager 10,710,354 1,643,524 184,257 1,052,323 13,590,458
Growth 32,968,928 5,944,777 9,679,911 9,564,214 58,157,830
Overseas 22,436,070 1,918,003 1,221,073 9,409,135 34,984,281
Money Market 32,057,869 2,739,539 - - 34,797,408
Index 500 108,954,555 2,164,790 8,124,017 33,672,404 152,915,766
INVESCO Funds Group, Inc.:
Total Return 9,954,690 564,724 499,981 (632,745) 10,386,650
Equity Income 12,471,276 1,096,169 998,146 1,654,962 16,220,553
High Yield 8,030,598 1,920,186 (39,129) (490,978) 9,420,677
Utilities 3,156,961 58,753 432,472 493,129 4,141,315
Small Company Growth 2,644,377 (14,924) 230,652 1,609,111 4,469,216
Van Eck Associates Corporation:
Worldwide Hard Assets 2,458,760 148,762 (449,512) 148,068 2,306,078
Worldwide Bond 356,209 9,684 (25,724) (5,966) 334,203
Worldwide Emerging Markets 1,960,631 (12,622) 308,948 857,102 3,114,059
Worldwide Real Estate 568,214 (162) (213) (18,002) 549,837
AIM Advisors, Inc.:
Capital Appreciation 3,725,157 118,230 88,942 1,376,593 5,308,922
Government Securities 7,353,846 226,373 (310) (185,576) 7,394,333
----------------- --------------- ----------------- --------------- ---------------
Total $366,552,178 $36,098,959 $30,381,584 $88,270,247 $521,302,968
================= =============== ================= =============== ===============
</TABLE>
- --------------------------------------------------------------------------------
Estate Designer 159
<PAGE>
APPENDIX A
FACTORS FOR THE
GUIDELINE PREMIUM/CASH VALUE CORRIDOR TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<CAPTION>
Attained Attained Attained Attained
Age of Younger Age of Younger Age of Younger Age of Younger
Insured Factor Insured Factor Insured Factor Insured Factor
<S> <C> <C> <C> <C> <C> <C> <C>
0 2.50 25 2.50 50 1.85 75 1.05
1 2.50 26 2.50 51 1.78 76 1.05
2 2.50 27 2.50 52 1.71 77 1.05
3 2.50 28 2.50 53 1.64 78 1.05
4 2.50 29 2.50 54 1.57 79 1.05
5 2.50 30 2.50 55 1.50 80 1.05
6 2.50 31 2.50 56 1.46 81 1.05
7 2.50 32 2.50 57 1.42 82 1.05
8 2.50 33 2.50 58 1.38 83 1.05
9 2.50 34 2.50 59 1.34 84 1.05
10 2.50 35 2.50 60 1.30 85 1.05
11 2.50 36 2.50 61 1.28 86 1.05
12 2.50 37 2.50 62 1.26 87 1.05
13 2.50 38 2.50 63 1.24 88 1.05
14 2.50 39 2.50 64 1.22 89 1.05
15 2.50 40 2.50 65 1.20 90 1.05
16 2.50 41 2.43 66 1.19 91 1.04
17 2.50 42 2.36 67 1.18 92 1.03
18 2.50 43 2.29 68 1.17 93 1.02
19 2.50 44 2.22 69 1.16 94 1.01
20 2.50 45 2.15 70 1.15 95 1.00
21 2.50 46 2.09 71 1.13 96 1.00
22 2.50 47 2.03 72 1.11 97 1.00
23 2.50 48 1.97 73 1.09 98 1.00
24 2.50 49 1.91 74 1.07 99 1.00
100 1.00
</TABLE>
THE POLICY'S BASE DEATH BENEFIT AT ANY TIME WILL BE AT LEAST EQUAL TO THE
ACCOUNT VALUE TIMES THE APPROPRIATE FACTOR FROM THIS TABLE.
- --------------------------------------------------------------------------------
Estate Designer 160
<PAGE>
APPENDIX B
PERFORMANCE INFORMATION
POLICY PERFORMANCE
The following hypothetical illustrations demonstrate how the actual investment
experience of each variable investment option of the separate account affects
the cash surrender value, account value and death benefit of a policy. These
hypothetical illustrations are based on the actual historical return of each
portfolio as if a policy had been issued on the date indicated. Each portfolio's
annual total return is based on the total return calculated for each fiscal
year. These annual total return figures reflect the net portfolio's management
fees after any voluntary waiver and other operating expenses but do not reflect
the policy level or separate account asset-based charges and deductions, which
if reflected, would result in lower total return figures than those shown.
The illustrations are based on the payment of a $13,000 annual premium, received
at the beginning of each year, for a hypothetical policy with a $1,000,000
stated death benefit, the guideline premium test, death benefit option 1, issued
to a preferred, nonsmoker male, age 50 and a preferred, nonsmoker female, age
50. It is assumed that all premiums are allocated to the variable investment
option illustrated for the period shown. The benefits are calculated for a
specific date. The amount and timing of premium payments and the use of other
policy features, such as policy loans, would affect individual policy benefits.
The amounts shown for the cash surrender values, account values and death
benefits take into account the charges against premiums, current cost of
insurance and monthly deductions, the daily charge against the separate account
for mortality and expense risks, and each portfolio's charges and expenses. SEE
CHARGES, DEDUCTIONS AND REFUNDS, PAGE 42. This prospectus also contains
illustrations based on assumed rates of return. SEE ILLUSTRATIONS OF DEATH
BENEFITS, ACCOUNT VALUES, CASH SURRENDER VALUES AND ACCUMULATED PREMIUMS, PAGE
51.
Past performance is not an indication of future results. Actual investment
results may be ore or less than those shown in the hypothetical illustrations.
- --------------------------------------------------------------------------------
Estate Designer 161
<PAGE>
HYPOTHETICAL ILLUSTRATIONS
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
AIM V.I. CAPITAL APPRECIATION FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 2.50% 11,997 10,697 1,000,000
12/31/95 35.69% 29,926 28,626 1,000,000
12/31/96 17.58% 46,867 45,567 1,000,000
12/31/97 13.51% 62,945 62,945 1,000,000
12/31/98 19.30% 86,741 86,741 1,000,000
12/31/99 44.61% 139,434 139,434 1,000,000
AIM V.I. GOVERNMENT SECURITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 -3.73% 11,321 10,021 1,000,000
12/31/95 15.56% 24,829 23,529 1,000,000
12/31/96 2.29% 35,698 34,398 1,000,000
12/31/97 8.16% 47,957 47,957 1,000,000
12/31/98 7.66% 62,199 62,199 1,000,000
12/31/99 -1.32% 70,907 70,907 1,000,000
ALGER AMERICAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 4.14% 12,175 10,875 1,000,000
12/31/91 40.39% 31,184 29,884 1,000,000
12/31/92 12.38% 46,231 44,931 1,000,000
12/31/93 22.47% 67,188 67,188 1,000,000
12/31/94 1.45% 77,947 77,947 1,000,000
12/31/95 36.37% 119,546 119,546 1,000,000
12/31/96 13.35% 146,065 146,065 1,000,000
12/31/97 25.75% 196,261 196,261 1,000,000
12/31/98 48.07% 304,991 304,991 1,000,000
12/31/99 33.74% 419,773 419,773 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 162
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 12.04% 13,033 11,733 1,000,000
12/31/97 19.68% 27,720 26,420 1,000,000
12/31/98 57.83% 59,202 57,902 1,000,000
12/31/99 78.06% 120,907 120,907 1,000,000
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/94 -1.54% 11,558 10,258 1,000,000
12/31/95 44.45% 31,179 29,879 1,000,000
12/31/96 11.90% 46,032 44,732 1,000,000
12/31/97 15.01% 62,831 62,831 1,000,000
12/31/98 30.30% 94,649 94,649 1,000,000
12/31/99 31.85% 137,426 137,426 1,000,000
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 8.71% 12,671 11,371 1,000,000
12/31/91 57.54% 35,676 34,376 1,000,000
12/31/92 3.55% 47,278 45,978 1,000,000
12/31/93 13.28% 63,279 63,279 1,000,000
12/31/94 -4.38% 69,724 69,724 1,000,000
12/31/95 44.31% 114,762 114,762 1,000,000
12/31/96 4.18% 129,251 129,251 1,000,000
12/31/97 11.39% 155,181 155,181 1,000,000
12/31/98 15.53% 190,695 190,695 1,000,000
12/31/99 43.42% 287,435 287,435 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 163
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
FIDELITY VIP GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 -11.73% 10,454 9,154 1,000,000
12/31/91 45.51% 29,807 28,507 1,000,000
12/31/92 9.32% 43,499 42,199 1,000,000
12/31/93 19.37% 62,234 62,234 1,000,000
12/31/94 -0.02% 71,892 71,892 1,000,000
12/31/95 35.36% 110,517 110,517 1,000,000
12/31/96 14.71% 137,542 137,542 1,000,000
12/31/97 23.48% 182,257 182,257 1,000,000
12/31/98 39.49% 267,882 267,882 1,000,000
12/31/99 37.44% 380,760 380,760 1,000,000
FIDELITY VIP MONEY MARKET PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 8.04% 12,599 11,299 1,000,000
12/31/91 6.09% 24,207 22,907 1,000,000
12/31/92 3.90% 35,606 34,306 1,000,000
12/31/93 3.23% 45,651 45,651 1,000,000
12/31/94 4.25% 57,823 57,823 1,000,000
12/31/95 5.87% 71,517 71,517 1,000,000
12/31/96 5.41% 85,523 85,523 1,000,000
12/31/97 5.51% 101,147 101,147 1,000,000
12/31/98 5.46% 117,437 117,437 1,000,000
12/31/99 5.17% 134,095 134,095 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 164
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
FIDELITY VIP OVERSEAS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 -1.67% 11,544 10,244 1,000,000
12/31/91 8.00% 23,498 22,198 1,000,000
12/31/92 -10.72% 30,080 28,780 1,000,000
12/31/93 37.35% 53,400 53,400 1,000,000
12/31/94 1.72% 64,232 64,232 1,000,000
12/31/95 9.74% 81,136 81,136 1,000,000
12/31/96 13.15% 102,654 102,654 1,000,000
12/31/97 11.56% 125,958 125,958 1,000,000
12/31/98 12.81% 153,456 153,456 1,000,000
12/31/99 42.55% 232,976 232,976 1,000,000
FIDELITY VIP II ASSET MANAGER PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 6.72% 12,455 11,155 1,000,000
12/31/91 22.56% 27,664 26,364 1,000,000
12/31/92 11.71% 42,057 40,757 1,000,000
12/31/93 21.23% 61,477 61,477 1,000,000
12/31/94 -6.09% 66,788 66,788 1,000,000
12/31/95 16.96% 89,482 89,482 1,000,000
12/31/96 14.60% 113,474 113,474 1,000,000
12/31/97 20.65% 149,233 149,233 1,000,000
12/31/98 15.05% 183,105 183,105 1,000,000
12/31/99 11.09% 214,117 214,117 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 165
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
FIDELITY VIP II INDEX 500 PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/93 9.74% 12,783 11,483 1,000,000
12/31/94 1.04% 23,280 21,980 1,000,000
12/31/95 37.19% 45,507 44,207 1,000,000
12/31/96 22.82% 66,498 66,498 1,000,000
12/31/97 32.82% 101,327 101,327 1,000,000
12/31/98 28.31% 142,227 142,227 1,000,000
12/31/99 20.51% 182,470 182,470 1,000,000
INVESCO VIF-EQUITY INCOME FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 29.25% 14,906 13,606 1,000,000
12/31/96 22.28% 30,577 29,277 1,000,000
12/31/97 28.17% 51,849 50,549 1,000,000
12/31/98 15.30% 69,650 69,650 1,000,000
12/31/99 14.84% 91,121 91,121 1,000,000
INVESCO VIF-HIGH YIELD FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 19.76% 13,873 12,573 1,000,000
12/31/96 16.59% 27,997 26,697 1,000,000
12/31/97 17.33% 44,522 43,222 1,000,000
12/31/98 1.42% 53,818 53,818 1,000,000
12/31/99 9.20% 69,451 69,451 1,000,000
INVESCO VIF-SMALL COMPANY GROWTH FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/98 16.38% 13,505 12,205 1,000,000
12/31/99 91.06% 44,692 43,392 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 166
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
INVESCO VIF-TOTAL RETURN FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 22.79% 14,202 12,902 1,000,000
12/31/96 12.18% 27,336 26,036 1,000,000
12/31/97 22.91% 45,796 44,496 1,000,000
12/31/98 9.56% 59,570 59,570 1,000,000
12/31/99 -3.40% 66,888 66,888 1,000,000
INVESCO VIF-UTILITIES FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 9.08% 12,711 11,411 1,000,000
12/31/96 12.76% 25,804 24,504 1,000,000
12/31/97 23.41% 44,103 42,803 1,000,000
12/31/98 25.48% 66,202 66,202 1,000,000
12/31/99 19.13% 90,469 90,469 1,000,000
NEUBERGER BERMAN GROWTH PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 -8.19% 10,837 9,537 1,000,000
12/31/91 29.73% 27,153 25,853 1,000,000
12/31/92 9.54% 40,699 39,399 1,000,000
12/31/93 6.79% 52,645 52,645 1,000,000
12/31/94 -4.99% 59,245 59,245 1,000,000
12/31/95 31.73% 90,995 90,995 1,000,000
12/31/96 9.14% 109,678 109,678 1,000,000
12/31/97 29.01% 154,756 154,756 1,000,000
12/31/98 15.53% 190,207 190,207 1,000,000
12/31/99 50.40% 300,730 300,730 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 167
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
NEUBERGER BERMAN LIMITED MATURITY BOND PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 8.32% 12,629 11,329 1,000,000
12/31/91 11.34% 25,398 24,098 1,000,000
12/31/92 5.18% 37,278 35,978 1,000,000
12/31/93 6.63% 48,944 48,944 1,000,000
12/31/94 -0.15% 58,622 58,622 1,000,000
12/31/95 10.94% 75,851 75,851 1,000,000
12/31/96 4.31% 89,113 89,113 1,000,000
12/31/97 6.74% 106,138 106,138 1,000,000
12/31/98 4.39% 121,413 121,413 1,000,000
12/31/99 1.48% 133,374 133,374 1,000,000
NEUBERGER BERMAN PARTNERS PORTFOLIO
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/95 36.47% 15,692 14,392 1,000,000
12/31/96 29.57% 33,364 32,064 1,000,000
12/31/97 31.25% 56,708 55,408 1,000,000
12/31/98 4.21% 67,923 67,923 1,000,000
12/31/99 7.37% 83,314 83,314 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 168
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
VAN ECK WORLDWIDE BOND FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/90 11.25% 12,947 11,647 1,000,000
12/31/91 18.39% 27,329 26,029 1,000,000
12/31/92 -5.25% 35,477 34,177 1,000,000
12/31/93 7.79% 47,554 47,554 1,000,000
12/31/94 -1.32% 56,568 56,568 1,000,000
12/31/95 17.30% 77,840 77,840 1,000,000
12/31/96 2.53% 89,608 89,608 1,000,000
12/31/97 2.38% 102,282 102,282 1,000,000
12/31/98 12.75% 126,868 126,868 1,000,000
12/31/99 -7.82% 126,089 126,089 1,000,000
VAN ECK WORLDWIDE EMERGING MARKETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/96 26.82% 14,641 13,341 1,000,000
12/31/97 -11.61% 22,102 20,802 1,000,000
12/31/98 -34.15% 21,494 20,194 1,000,000
12/31/99 100.28% 61,101 61,101 1,000,000
VAN ECK WORLDWIDE HARD ASSETS FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/91 -2.93% 11,408 10,108 1,000,000
12/31/92 -4.09% 20,831 19,531 1,000,000
12/31/93 64.83% 50,524 49,224 1,000,000
12/31/94 -4.78% 56,169 56,169 1,000,000
12/31/95 10.99% 73,190 73,190 1,000,000
12/31/96 18.04% 97,817 97,817 1,000,000
12/31/97 -1.67% 105,417 105,417 1,000,000
12/31/98 -30.93% 79,666 79,666 1,000,000
12/31/99 21.00% 109,026 109,026 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
- --------------------------------------------------------------------------------
Estate Designer 169
<PAGE>
HYPOTHETICAL ILLUSTRATIONS (continued)
Nonsmoker Male Age 50 Preferred Risk Class
Nonsmoker Female Age 50 Preferred Risk Class Death Benefit Option 1
Stated Death Benefit $1,000,000 Annual Premium $13,000
- --------------------------------------------------------------------------------
VAN ECK WORLDWIDE REAL ESTATE FUND
Year Annual Total Cash Surrender Account Death
Ended: Return* Value Value Benefit
12/31/98 -11.35% 10,495 9,195 1,000,000
12/31/99 -2.01% 20,377 19,077 1,000,000
The assumptions underlying these values are described in Performance
Information, page 161.
* These annual total return figures reflect the portfolio's management fees and
other operating expenses but do not reflect the policy level or separate account
asset-based charges and deductions which, if reflected, would result in lower
total return figures than those shown.
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Estate Designer 170
<PAGE>
PART II
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities Exchange
Act of 1934, the undersigned Registrant hereby undertakes to file with the
Securities and Exchange Commission such supplementary and periodic information,
documents, and reports as may be prescribed by any rule or regulation of the
Commission heretofore or hereafter duly adopted pursuant to authority conferred
in that section.
UNDERTAKING REGARDING INDEMNIFICATION
Please refer to the Articles of Incorporation listed as Exhibits 1.A(6)(a) and
I.A(6)(b-g) and the By-Laws listed as Exhibits I.A(6)(h) and 1.A(6)(h)(i).
Security Life of Denver's (the "corporation") Certificate of Incorporation and
bylaws provide that the corporation shall have every power and duty of
indemnification of directors, officers, employees and agents, without
limitation, provided by the laws of the state of Colorado. Under Colorado law,
the corporation has the power to indemnify such persons against expenses,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with any threatened, pending or completed action,
suit or proceeding, if such person acted in good faith and in a manner which
that person reasonably believed to be in or not opposed to the best interest of
the corporation and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of actions by
or in the right of the corporation, such indemnification cannot be made where
such person is adjudged liable to the corporation, except pursuant to a court
order. The corporation is required to indemnify directors, officers, employees
and agents against expense actually and reasonably incurred in connection with
actions where such persons have been successful on the merits or otherwise in
defense of such actions.
Insofar as indemnification for liability arising under the Securities Act of
1933 (the "Act") may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the securities and Exchange
commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling preceding, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
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.
- --------------------------------------------------------------------------------
Estate Designer II - 1
<PAGE>
Cross-Reference table.
The prospectus.
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:
James L. Livingston, Jr.
(See Exhibit 6B). [TO BE FILED BY AMENDMENT)
Ernst & Young, L.L.P.
(See Exhibit 7A). [TO BE FILED BY AMENDMENT)
Sutherland Asbill & Brennan LLP
(See Exhibit 7B). [TO BE FILED BY AMENDMENT]
The following exhibits:
1.
A.
(1) Resolution of the Executive Committee of the Board of Directors
of Security Life of Denver Insurance Company ("Security Life of
Denver") authorizing the establishment of the Registrant./1/
(2) Not Applicable.
(3)
(a) Security Life of Denver Distribution Agreement./1/
(i) Amendment to Security Life of Denver Insurance
Company Distribution Agreement./8/
(ii) Amendment to Security Life of Denver Insurance
Company Distribution Agreement./11/
(b) Specimen Amendment to Broker/Dealer Supervisory and
Selling Agreement for Variable Contracts with
Compensation Schedule./11/
(c) Commission Schedule for Policies./11/
(4) Not Applicable.
(5)
(a) Specimen Estate Designer Universal Life Insurance Policy
(Form No.2506(JTVUL)- 5/00)./11/
(b) Adjustable Term Insurance Rider (Form No. R2007-5/00)./4/
(c) Single Life Term Insurance Rider (Form No.R2004-8/99)./4/
(6)
(a) Security Life of Denver's Restated Articles of
Incorporation./1/
(b-g) Amendments to Articles of Incorporation through June 12,
1987./1/
- --------------------------------------------------------------------------------
Estate Designer II - 2
<PAGE>
(h) Security Life of Denver's By-Laws./1/
(i) Bylaws of Security Life of Denver Insurance
Company (Restated with Amendments through
September 30, 1997)./2/
(7) Not Applicable.
(8)
(a) Participation Agreements
(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./3/
(ii) Sales Agreement by and among The Alger American
Fund, Fred Alger Management, Inc., and Security
Life of Denver Insurance Company./1/
(iii) Sales Agreement by and among Neuberger & Berman
Advisers Management Trust, Neuberger & Berman
Management Incorporated, and Security Life of
Denver Insurance Company./1/
(iv) Participation Agreement among Variable Insurance
Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance
Company./1/
(v) Participation Agreement among Variable Insurance
Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver
Insurance Company./1/
(vi) Participation Agreement among INVESCO Variable
Investment Funds, Inc., INVESCO Funds Group,
Inc., and Security Life of Denver Insurance
Company./1/
(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./1/
(viii) Specimen Participation Agreement among Security
Life of Denver Insurance Company, The GCG Trust
and Directed Services, Inc./10/
(b)
(i) First Amendment to Fund Participation Agreement
between Security Life of Denver, Van Eck
Investment Trust and Van Eck Associates
Corporation./3/
(ii) Second Amendment to Fund Participation Agreement
between Security Life of Denver, Van Eck
Worldwide Insurance Trust and Van Eck Associates
Corporation./3/
(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./3/
(iv) First Amendment to Participation Agreement by
and among The Alger American Fund, Fred Alger
Management, Inc., Security Life of Denver
Insurance Company./1/
(v) First Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./1/
(vi) Second Amendment to Participation Agreement
among Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./1/
(vii) First Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./1/
(viii) Second Amendment to Participation Agreement
among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Security
Life of Denver Insurance Company./1/
(ix) First Amendment to Participation Agreement among
Security Life of Denver Insurance Company,
INVESCO Variable Investment Funds, Inc. and
INVESCO Funds Group, Inc./1/
- --------------------------------------------------------------------------------
Estate Designer II - 3
<PAGE>
(x) Third Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./8/
(xi) Third Amendment to Participation Agreement among
Security Life of Denver Insurance Company,
INVESCO Variable Investment Funds, Inc. and
INVESCO Funds Group, Inc./8/
(xii) Fourth Amendment to Participation Agreement
among Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Company./8/
(xiii) Fourth Amendment to Participation Agreement
among Variable Insurance Products Fund II,
Fidelity Distributors Corporation and Security
Life of Denver Insurance Company./8/
(xiv) Amendment No. 2 to Participation Agreement among
AIM Variable Insurance Funds, Inc., Security
Life of Denver Insurance Company and ING America
Equities, Inc./8/
(xv) Fourth Amendment to Participation Agreement
among Security Life of Denver Insurance Company,
INVESCO Variable Investment Funds, Inc. and
INVESCO Funds Group, Inc./9/
(xvi) Amendment No. 3 to Participation Agreement among
AIM Variable Insurance Funds, Inc., Security
Life of Denver Insurance Company and ING America
Equities, Inc./9/
(xvii) Fifth Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./9/
(xviii) Fifth Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./9/
(xix) Amendment No. 4 to Participation Agreement among
AIM Variable Insurance Funds, Inc., Security
Life of Denver Insurance Company and ING America
Equities, Inc./11/
(xx) Sixth Amendment to Participation Agreement among
Variable Insurance Products Fund, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./11/
(xxi) Sixth Amendment to Participation Agreement among
Variable Insurance Products Fund II, Fidelity
Distributors Corporation and Security Life of
Denver Insurance Company./11/
(xxii) Fifth Amendment to Participation Agreement among
Security Life of Denver Insurance Company,
INVESCO Variable Investment Funds, Inc. and
INVESCO Funds Group, Inc./11/
(c)
(i) Service Agreement between Fred Alger Management,
Inc. and Security Life of Denver Insurance
Company./6/
(ii) Expense Allocation Agreement Between A I M
Advisors, Inc., AIM Distributors, Inc. and
Security Life of Denver./7/
(iii) Service Agreement between INVESCO Funds Group,
Inc. and Security Life of Denver Insurance
Company./7/
(iv) Service Agreement between Neuberger & Berman
Management Incorporated and Security Life of
Denver Insurance Company./7/
(v) Service Agreement between Fidelity Investments
Institutional Operations Company, Inc. and
Security Life of Denver Insurance Company./7/
(vi) Side Letter between Van Eck Worldwide Insurance
Trust and Security Life of Denver./7/
(9) Not Applicable.
- --------------------------------------------------------------------------------
Estate Designer II - 4
<PAGE>
(10) Specimen Estate Designer Life Insurance Application with Binding
Limited Life Insurance Coverage Form (Form No. Q2006-9/97)./11/
2. Included as Exhibit l.A(5) above.
3.
A. Opinion and consent of Gary W. Waggoner as to securities being
registered.
4. Not Applicable.
5. Not Applicable.
6.
A. Opinion and consent of James L. Livingston, Jr. [TO BE FILED BY
AMENDMENT]
7.
B. Consent of Ernst & Young L.L.P. (TO BE FILED BY AMENDMENT]
C. Consent of Sutherland Asbill & Brennan LLP. [TO BE FILED BY AMENDMENT]
8. Not Applicable.
11. Issuance, Transfer and Redemption Procedures Memorandum.
- -------------
/1/ Incorporated herein by reference to Post-Effective Amendment No. 7 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on April 27, 1998 (File No. 33-74190).
/2/ 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 Ll, filed with the
Securities and Exchange Commission on October 29, 1998 (File No. 33-74190).
/3/ 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 Ll, filed with the
Securities and Exchange Commission on March 2, 1998 (File No. 33-74190).
/4/ Incorporated herein by reference to the Initial Registration to the Form
S-6 Registration Statement of Security Life of Denver Insurance Company and
its Security Life Separate Account Ll, filed with the Securities and
Exchange Commission on February 22, 1999 (File No. 333-72753).
/5/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form. S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on March 30, 1999 (File Nc. 333-72753).
/6/ Incorporated herein by reference to Post-Effective Amendment 140. 7 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on April 27, 1998 (File No. 33-74190).
/7/ Incorporated herein by reference to Post-Effective Amendment No. 10 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on April 23, 1999 (File No. 33-74190).
/8/ Incorporated herein by reference to Pre-Effective Amendment No. 2 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on May 10, 1999 (File No. 333-72753).
/9/ Incorporated herein by reference to Pre-Effective Amendment No. 1 to the
Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account Ll, filed with the
Securities and Exchange Commission on December 3, 1999 (File No.
333-90577).
/10/ Incorporated herein by reference to the Pre-Effective Amendment No. 2 to
the Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on February 2, 2000 (File No.
333-90577).
/11/ Incorporated herein by reference to the Post-Effective Amendment No. 1 to
the Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on February 29, 2000 (File No.
333-72753).
- --------------------------------------------------------------------------------
Estate Designer II - 5
<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 Ll,
have duly caused this 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
7th day of April, 2000.
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 Ll
(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
- --------------------------------------------------------------------------------
Estate Designer II - 6
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this 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/ Stephen M. Christopher
- ---------------------------
Stephen M. Christopher
President, Chief Executive Officer and Director
/s/ James L. Livingston, Jr.
- --------------------------
James L. Livingston, Jr.
Executive Vice President and Chief Financial Officer
PRINCIPAL ACCOUNTING OFFICER:
/s/ Shari A. Enger
- ---------------------------
Shari A. Enger
Vice President - Controller
DIRECTORS:
/s/ P. Randall Lowery
- ---------------------------
P. Randall Lowery
/s/ Michael W. Cunningham
- ---------------------------
Michael W. Cunningham
- --------------------------------------------------------------------------------
Estate Designer II - 7
<PAGE>
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- ----------- ----------------------
3. A. Opinion and consent of Gary W. Waggoner as to securities being
registered.
11. Issuance, Transfer and Redemption Procedures Memorandum.
- --------------------------------------------------------------------------------
Estate Designer II - 8
Exhibit 1.A(3)(b)(i)
SCHEDULE J
COMPENSATION SCHEDULE
TO SELLING AGREEMENT FOR SECURITY LIFE
ESTATE DESIGNER
JOINT SURVIVOR VARIABLE UNIVERSAL LIFE
This Schedule is an attachment to the ING America Equities, Inc. ("ING AMERICA
EQUITIES") Selling Agreement by and among the parties pursuant to paragraph 17
of that Selling Agreement, effective as of May 1, 2000, or the date that Selling
Broker-Dealer submits an application for this product, whichever is later. The
provisions of this Schedule shall apply only to Security Life ESTATE DESIGNER
policies solicited and issued while this Schedule is in effect. All compensation
payable under this Schedule shall be subject to the terms and conditions
contained herein at the time of issue of the policy by Security Life of Denver
Insurance Company ("SECURITY Life").
1. Commission Structure - Option L (Levelized):
<TABLE>
<CAPTION>
----------- ------------- ---------- ------------------------------------------------
PCA SCA RCA Trail
----------- ------------- ---------- ------------------------------------------------
Years 1 - 7 Years 1 - 7 Years 8+ Years Years Years 21+
1 - 10 11 - 20
----------- ------------- ---------- --------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
12% 4% 2% 0.20% net 0.15% net 0.10% net
account value account value account value
----------- ------------- ---------- --------------- --------------- ----------------
</TABLE>
PCA (PRIMARY COMMISSIONABLE AMOUNT) is equal to the first year's target
premium (shown on policy schedule pages and illustrations). Gross
premiums paid up to the PCA in any year are commissioned at the full
PCA rate. If the gross premium paid in one year is less than the PCA,
that difference is carried over to the next year. A new PCA is
generated any time a new base coverage segment is created. Note that a
death benefit option change does not create a new PCA. Premium dollars
are allocated first to PCA, then to SCA, and then to RCA.
SCA (SECONDARY COMMISSIONABLE AMOUNT) is equal to the difference
between the gross premium received in each segment year in years one
through seven and the corresponding PCA for that year.
RCA (RENEWABLE COMMISSIONABLE AMOUNT) equals the gross premium received
per segment year in years 8 and thereafter.
Schedule J Page 1 of 4
<PAGE>
2. Commission Structure - Option M (Modified):
<TABLE>
<CAPTION>
---------------------------- ------------------------- ------------ ---------------------------------------
PCA SCA RCA Trail
---------------------------- ------------------------- ------------ ---------------------------------------
Year 1 Years Year 1 Years Years 8+ Years Years Years
2 - 7 2 - 7 1 - 10 11 - 20 21+
--------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
30% 7.5% 2% 4% 2% 0.20% net 0.15% net 0.10% net
account account account
value value value
--------------- ------------ ------------ ------------ ------------ ------------ ------------ -------------
</TABLE>
PCA (PRIMARY COMMISSIONABLE AMOUNT) is equal to the first year's target
premium (shown on policy schedule pages and illustrations). A new PCA
is generated any time a new base coverage segment is created. Note that
a death benefit option change does not create a new PCA. Premium
dollars are allocated first to PCA, then to SCA, and then to RCA.
SCA (SECONDARY COMMISSIONABLE AMOUNT) is equal to the difference
between the gross premium received in each segment year in years one
through seven and the corresponding PCA for that year.
RCA (RENEWABLE COMMISSIONABLE AMOUNT) equals the gross premium received
per segment year in years 8 and thereafter.
3. Premium Receipt: Premium received within 15 days prior to a policy
anniversary will result in the agent receiving commissions at the same
rate as if the premium was paid on the anniversary date.
4. Selection of Commission Structure: is made at the time of policy
application and cannot be changed once the application is received by
Security Life. If no commission structure is requested on the
application, Option L will apply.
5. Trail Commissions: are payable at each policy (not segment) anniversary
based on the policy's average net account value at the end of each of
the prior twelve months.
The trail commission is payable annually at the end of a policy year
provided the policy is in force, and not subject to grace period
provisions, on that date.
6. Riders: Commissionable riders will have a separate target premium which
is set at issue and is level thereafter. The Adjustable Term Insurance
Rider has no target premium associated with it.
7. Commission Calculation: Commissions shall be calculated only on premium
actually received an accepted by SECURITY LIFE. Commissions shall be
paid only on an earned basis. Outstanding loan amounts carried over as
part of a 1035 exchange are not considered commissionable premium.
Schedule J Page 2 of 4
<PAGE>
8. Premium Allocation: If the Stated Death Benefit has been increased
since the policy date, premiums received are allocated to the coverage
segments in the same proportion that the commission target premium for
each segment bears to the total commission target premium of the
policy.
9. Death Benefit Increases: If a premium payment accompanies a request for
a Stated Death Benefit increase or is received while a request is
pending, the payment will be applied to the policy but commissions
shall not be payable until the increase is effective. The commission
shall then be payable based on the premium being allocated among all
segments as it would normally and the new target premium after the
increase.
10. Compensation Payments: Compensation on initial premiums shall be due to
the SELLING BROKER-DEALER at the time of the issuance of the policy.
Thereafter, it shall be payable at the time of the receipt and
acceptance of premium by SECURITY LIFE, except that the amount, and the
time of payment of compensation on stated death benefit increases,
replacements, reissues, changes, conversions, exchanges, term renewals,
term conversions, premiums paid in advance, policies issued on a
"guaranteed issue" basis, policies requiring facultative reinsurance
arrangements, and other special cases and programs shall be governed by
SECURITY LIFE'S underwriting and administrative rules then in effect.
The Compensation shall be payable to the SELLING BROKER-DEALER in
accordance with the Schedule J in effect at the time of issue of the
policy.
11. Commission Chargeback: In the event that a policy (for which a
commission has been paid) is lapsed or surrendered by the Policy Owner
during the first six months, or is returned to SECURITY LIFE for refund
of premium during the Free Look Period as described in the policy,
SECURITY LIFE and ING AMERICA Equities shall require reimbursement from
SELLING BROKER-DEALER equal to 100% of the commissions paid. If a
premium payment for which a commission has been paid is refunded by
SECURITY LIFE, a reimbursement of the commission paid on the amount
refunded will be due from the SELLING BROKER-DEALER. Further, if a
policy is surrendered or has a death benefit reduction during the first
three policy years, a commission chargeback applies.
<TABLE>
<CAPTION>
------------------------------------------- -------------------------------------------
OPTION L OPTION M
------------------------------------------- -------------------------------------------
Premiums Received in PCA RCA & SCA PCA RCA & SCA
---------------------- --------------------- ------------------- ---------------------- --------------------
<S> <C> <C> <C> <C>
Months 12% 4% 30% 2%
1 - 6
---------------------- --------------------- ------------------- ---------------------- --------------------
Months N/A N/A 30% 2%
7 - 12
---------------------- --------------------- ------------------- ---------------------- --------------------
Months N/A N/A 14% 0.94%
13-24
---------------------- --------------------- ------------------- ---------------------- --------------------
Months N/A N/A 4% 0.27%
25-36
---------------------- --------------------- ------------------- ---------------------- --------------------
</TABLE>
Schedule J Page 3 of 4
<PAGE>
The reimbursement may be deducted by ING AMERICA EQUITIES from the
next, or any subsequent, commission payment to SELLING BROKER-DEALER.
If the amount to be reimbursed exceeds compensation otherwise due,
SELLING BROKER-DEALER shall promptly reimburse ING AMERICA EQUITIES
before the next commission cycle.
12. Internal Exchanges: Commissions on the exchange of any policy issued by
SECURITY LIFE or any other ING affiliate for an ESTATE DESIGNER policy,
if any, will be paid in accordance with the internal exchange
procedures in effect at SECURITY LIFE on the date the exchange is
completed. The commission rates and/or target premiums may be adjusted
in accordance with the rules in effect at the time of the exchange. If
the Representative responsible for the exchange is not the producer of
the original policy, and the original producer is still active with
SECURITY LIFE, no commission will be payable to the Representative or
the SELLING BROKER-DEALER.
13. Commission Payment for Early Second Death:
In the event that the death of both insured persons under a policy
occurs in the first seven policy years, SELLING BROKER/DEALER shall be
entitled to compensation on the policy subject to the following rules:
o The policy when sold was a commissionable policy (i.e., not an
internal exchange as defined in section 12 above)
o The policy must be in active status with SECURITY LIFE and some
premium must have been paid into the policy during the 12 months
prior to the death of the second insured person
o The payment due if these conditions are met is the present value of
the remaining premium-based commissions from the policy month in
which the second death occurred through the end of policy year
seven, as calculated by SECURITY LIFE at 10.5%.
o The calculation shall use the premium stream, payment mode and
commission structure as reflected on the "as sold" illustration on
file at SECURITY LIFE
o This payment is due to SELLING BROKER/DEALER only after payment of
the death benefit under the policy has been determined and made by
SECURITY LIFE to policy beneficiaries
o Trail commissions are excluded from the calculation for this
payment and are not payable after termination of the policy whether
terminated by death or otherwise.
Schedule J Page 4 of 4
Exhibit 1.A(3)(d)
MASTER SALES AND SUPERVISORY AGREEMENT
LIFE INSURANCE
THIS MASTER SALES AND SUPERVISORY AGREEMENT (the "Agreement") is made this ___
day of _____________, 20__, by and among Security Life of Denver Insurance
Company, Southland Life Insurance Company, Equitable Life Insurance Company of
Iowa and USG Annuity & Life Company (collectively, the "ING Insurers"), ING
America Equities, Inc. (the "ING Broker-Dealer"), ______________________(the
"Distributor") and the Distributor Agency or Distributor Agencies identified on
the signature page (the "Distributor Agency(ies)").
WITNESSETH
WHEREAS, the ING Insurers issue various life insurance contracts, both
registered under the federal securities laws and non-registered, (the
"Contracts"), and offer for sale such Contracts in accordance with federal
securities laws and/or the applicable laws of those states in which the
Contracts have been qualified for sale; and
WHEREAS, the ING Insurers have authorized the ING Broker-Dealer (which is
registered with the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1934 (the "1934 Act") and is a member of the National
Association of Securities Dealers (the "NASD") as principal underwriter and
distributor of the variable Contracts to enter into, subject to the consent of
the ING Insurers, with distributors for the distribution of the Contracts; and
WHEREAS, the Distributor distributes registered and non-registered life
insurance contracts through its registered representatives (the
"Representatives") affiliated with the Distributor Agency(ies) in accordance
with applicable federal securities laws and applicable laws of those states in
which the Distributor does business; and
WHEREAS, the Distributor proposes to undertake certain supervisory and
administrative obligations discussed below in connection with the distribution
of the Contracts and is authorized to enter into dealer agreements for
distribution of Contracts;
NOW, THEREFORE, in consideration of the premises and of the mutual covenants and
promises herein contained, the parties agree as follows:
1. Relationship of Parties. As set forth on Schedule 1, the ING Insurers
are the issuers of the Contracts covered by this Agreement. Each Insurer
shall have control over the offering of its Contracts and shall control
the availability and rules regarding the offering of the Contracts. The
ING Broker-Dealer is the principal underwriter and distributor of the
respective Contracts (also as set forth on Schedule 1). The Distributor
represents it is a registered broker-dealer under the 1934 Act and a
member of the NASD. The ING Insurers hereby authorize the Distributor
Agency under the insurance laws and each ING Insurer and ING
Broker-Dealer authorizes the Distributor under the securities laws to
distribute the Contracts. The Distributor agrees to supervise its
Representatives in connection with the distribution, solicitation and
sale of the Contracts and to perform other services as described below.
2. Responsibilities of the ING Insurers. The ING Insurers agree to:
(a) After receipt of the required license appointment application
forms, request all state life insurance appointments needed in
order for the Distributor Agency(ies) and its Representatives to
act as representatives of the ING Insurers.
1
<PAGE>
(b) Review, accept, modify or reject applications for policies
received from the Distributor Agency(ies) and its
Representatives.
(c) Pay compensation to the Distributor and or Distributor Agencies
as outlined in Section 6 and on the Compensation Schedule.
(d) Provide service to policyowners and relevant information to the
Distributor, Distributor Agency(ies) and its Representatives
regarding the policies written under this agreement, on a
reasonable basis, as done in the normal course of business.
(e) Accept sole responsibility for reviewing and paying, or declining
to pay, all claims, according to the ING Insurers' normal
business practices and administrative policies and procedures.
3. Authority and Duties of the Distributor. The Distributor agrees that it
shall, at all times when performing functions under this Agreement, be
registered as a securities broker-dealer with the SEC and will maintain
its membership with the NASD. Additionally, the Distributor shall be
licensed or registered as a securities broker-dealer in the states
requiring such a license or registration in connection with supervision
and other services pertaining to its Contract sales activities. The
Distributor shall distribute the Contracts and shall have all attendant
duties, responsibilities and liabilities associated with that function
for compliance, supervision and servicing purposes. The Distributor
agrees to use its best efforts to find suitable purchasers for the
Contracts.
(a) Selection and Supervision of Representatives. The Distributor
shall select and employ Representatives and shall have full
responsibility for the training, supervision and control of such
Representatives as contemplated by Section 15(b)(4)(E) of the
1934 Act and applicable NASD Rules. Such Representatives shall be
subject to the control of the Distributor with respect to such
persons' securities-regulated activities in connection with the
Contracts (where such Contracts require such regulation). In the
case of registered Contracts, the Distributor shall cause its
Representatives to be NASD registered representatives,
appropriately licensed with the applicable state and appointed by
the relevant ING Insurers before such Representatives engage in
the solicitation of applications for such registered Contracts
and in the case of all registered and non-registered Contracts,
shall cause such Representatives to limit solicitation of
applications to jurisdictions where such Representatives are
licensed and appointed and where the Contracts being solicited
have been approved for sale.
The ING Insurers and Broker-Dealer shall not have any
responsibility for the supervision of any Representative or any
other associated person or affiliate of the Distributor. If the
act or omission of a Representative or any other associated
person or affiliate of the Distributor is the proximate cause of
any claim, damage or liability (including reasonable attorneys'
fees) to an ING Insurer or ING Broker-Dealer, the Distributor
shall be entirely responsible and liable therefor.
(b) Notice of Representative's Noncompliance. In the event a
Representative fails or refuses to submit to the supervision of
the Distributor, ceases to be a Representative of the
Distributor, or fails to meet the rules and standards imposed by
the Distributor on its Representatives, the Distributor shall
communicate such fact to the ING Insurers and ING Broker-Dealer
in writing immediately, and shall immediately notify such
Representative that he or she is no longer authorized to sell the
Contracts.
(c) Compliance with NASD Registration and Conduct Rules and Federal
and State Securities Laws. In the case of registered Contracts,
the Distributor shall fully comply with the
2
<PAGE>
requirements of the 1934 Act and all other applicable federal or
state laws and with the rules of the NASD and shall establish
such rules and procedures as may be necessary to cause diligent
supervision of the securities activities of its Representatives.
The Distributor agrees to maintain appropriate books, records and
supervisory procedures as are required by the SEC, NASD and other
regulatory agencies having jurisdiction.
(d) Purchaser Suitability. In the case of all Contracts, the
Distributor shall be responsible for suitability and shall take
reasonable steps to ensure that its Representatives make
recommendations to applicants to purchase Contracts only if there
are reasonable grounds to believe the purchase of each Contract
is suitable for the applicant. The procedure shall include review
of all proposals and applications for Contracts for suitability
and completeness and correctness as to form as well as review and
endorsement on an internal record of the Distributor of the
transactions. Neither the Distributor nor its Representatives
shall engage, directly or indirectly, in the twisting or other
solicitation of the policyowners of the ING Insurers for the
purpose of inducing the termination or replacement of policies or
contracts issued by the ING Insurers unless such termination is
in the best interests of the policyowner.
(e) Prospectus and Statement of Additional Information. In the case
of registered Contracts, the ING Broker-Dealer shall provide the
Distributor with prospectuses and any supplements or amendments
thereto, and the Statement of Additional Information ("SAI")
describing the Contracts subject to this Agreement. Each ING
Insurer, with regard to Contracts it issues, is responsible for
maintaining in effect, in accordance with the requirements of the
SEC, each Registration Statement of which the prospectus is a
part. Each ING Insurer shall immediately notify the Distributor
of the issuance of any stop order or any federal or state
regulatory proceeding which would prevent the sale of their
respective Contracts in any state or jurisdiction. The
Distributor shall ensure compliance with the prospectus delivery
requirements of the 1933 Act. The Distributor agrees to deliver a
copy of the SAI concurrently with a copy of the prospectus to
Contract applicants in jurisdictions where such delivery may be
required.
(f) Advertising and Sales Promotion Materials. In the case of
registered Contracts, the Distributor and the Distributor
Agency(ies) shall perform the selling functions authorized by
this Agreement only in accordance with the terms and conditions
of the then current prospectus applicable to the Contracts and
shall make no representations not included in the prospectus or
in any authorized supplemental material, including illustrations.
In the case of all Contracts, the Distributor shall use, and
shall cause the Distributor Agency(ies) and its Representatives
to use, in the solicitation and sale of the Contracts, only those
advertising and sales materials, including illustrations, that
are or have been approved by the appropriate ING Insurer and ING
Broker-Dealer. In the event that the Distributor, Distributor
Agency(ies) or any of its Representatives create advertising and
sales promotion materials with respect to the Contracts, the
materials may only be used with the prior written approval of the
appropriate ING Insurer and ING Broker-Dealer.
(g) Securing Applications. Each application for a Contract shall be
made only on an application form provided by the appropriate ING
Insurer. The Distributor shall review all such applications for
completeness and for compliance with the conditions herein
including, in the case of registered Contracts, the suitability
and prospectus delivery requirements set forth above under
Sections 2(d) and (e). All payments collected by the Distributor,
or any of its Representatives, shall be remitted promptly, in
full, without deduction or reduction, together with such
application form and any other required documentation directly to
the appropriate ING Insurer at the address indicated on such
application or to such other address as may be designated by such
ING Insurer. All such payments and documents shall be the
property of the ING Insurers. Checks or
3
<PAGE>
money orders in payment of such Contracts should be made payable
to the order of the ING Insurer issuing the Contracts. The ING
Insurers reserve the right to reject, in their sole discretion,
any Contract application and return any payment made in
connection with an application which is rejected. Unless
otherwise agreed, Contracts issued on applications accepted by an
ING Insurer shall be forwarded to the Representative of the
Distributor for prompt delivery to the policyowner.
4. Authority and Duties of the Distributor Agency(ies)
(a) Responsibilities of the Distributor Agency(ies)
i. The Distributor agrees to procure applications for the ING
Insurer's Contracts. Production must be through the
Distributor Agency(ies) and Representatives of the
Distributor Agency(ies), which are duly licensed and
appointed by the ING Insurers in the applicable states.
ii. The Distributor Agency(ies) shall recommend
Representatives for appointment by the ING Insurers by
causing such Representatives to complete any and all
application forms required by the ING Insurers and to
submit any other requirements that may be required under
applicable law or by the ING Insurers. The Distributor
Agency(ies) covenants and agrees that it and all of its
Representatives appointed pursuant to this Agreement shall
not solicit nor aid, directly or indirectly, in the
solicitation of any application for any Contract until
they are fully licensed by the proper authorities and
appointed by the relevant ING Insurers under the
applicable insurance laws within the applicable
jurisdictions where the Distributor Agency(ies) and its
Representatives propose to offer Contracts. The
Distributor Agency(ies) further covenants and agrees that
solicitations will only take place where the applicable
ING Insurer is authorized to conduct business and where
the Contracts may be lawfully sold.
iii. The Distributor Agency(ies) shall periodically provide the
ING Insurers with a list of all Representatives appointed
by the Distributor Agency(ies) and the jurisdictions where
such Representatives are licensed to solicit sales of the
Contracts. The Distributor Agency(ies) shall provide
immediate notice to the ING Insurers of any
Representatives terminating their relationship with the
Distributor Agency(ies). Upon such notice, the
Representative's appointment with the ING Insurers shall
be terminated and the Representative will no longer be
authorized to represent the ING Insurers as contemplated
by this Agreement. Notwithstanding such termination, the
ING Insurers or any of them may, in their sole discretion
reappoint and/or re-contract such Representatives.
iv. The Distributor Agency(ies) shall prepare and transmit the
appropriate appointment forms to the applicable ING
Insurer at the address provided on the license appointment
form. The ING Insurers may refuse, by written notice to
the Distributor Agency(ies), for any reason, to apply for
the appointment of a Representative and may cancel any
existing appointment at any time. Upon receipt of such
notice, the Distributor Agency(ies) agrees to immediately
cause such Representative to cease solicitation of sales
for the Contracts.
v. The Distributor Agency(ies) shall supervise all
Representatives appointed pursuant to this Agreement to
solicit sales of the Contracts and shall bear
responsibility for all acts and omissions of each
Representative. The Distributor Agency(ies) shall comply
with and exercise all responsibilities required by
applicable federal and state law and regulations. The
Distributor Agency(ies)
4
<PAGE>
shall train and supervise its Representatives to ensure
that purchase of a Contract is only recommended to an
applicant if there are reasonable grounds to believe the
purchase of the Contract is suitable for that applicant.
While not limited to the following, a determination of
suitability shall be based on information furnished to a
Representative after reasonable inquiry of such applicant
concerning the applicant's insurance and investment
objectives, financial situation and needs, and the
likelihood that the applicant will continue to make any
premium payments contemplated by the Contract and will
keep the Contract in force.
vi. The Distributor Agency(ies) agrees to treat money received
or collected for the ING Insurer who issued the Contract
as property held in trust, and to remit such money
promptly in full, together with the application form and
any other required documentation, to such ING Insurer's
Customer Service Center at the address shown on the
application form for the Contract. All such payment and
documents shall be the property of the applicable ING
Insurer.
vii. The Distributor Agency(ies) agrees to adhere to the "cash
with application" requirements as set forth in each ING
Insurer's rules and regulations, copies of which the
Distributor Agency(ies) acknowledges it has received. The
Distributor Agency(ies) further agrees, when applicable,
to provide the proper form of interim coverage and inform
the applicant of the specific conditions of the coverage.
viii. The Distributor Agency(ies) agrees to comply with the
underwriting and issue requirements of the ING Insurers,
as published by the ING Insurers, and the applicable
insurance laws and regulations of the state or states in
which the Distributor Agency(ies) operates. Such laws and
regulations include, but are not limited to, those
pertaining to client funds, privacy and confidentiality,
licensing, rebating, replacements, exchanges, solicitation
and advertising.
ix. The Distributor Agency(ies) agrees to inform the ING
Insurers of all material facts of which it is aware
relating to insurance of insureds or proposed insureds.
(b) Limitation of Authority.
i. The Distributor Agency(ies) shall have no authority and
agrees not to bind any ING Insurer by any promise or
agreement; incur any debt, expense, or liability whatever
in its name or account; or receive any money due or to
become due to ING Insurer except first premiums on
applications or Contracts and except where an ING Insurer
otherwise agrees in writing.
ii. The Distributor Agency(ies) shall have no authority and
agrees not to deliver any policy or allow any policy to be
delivered until the first premium has been paid in full.
No delivery shall take place if, after an inquiry, the
Distributor Agency(ies) or Representative is aware that
any person proposed for insurance is not in the same
condition of health, habits, occupation and other facts as
are represented in the application.
iii. The Distributor Agency(ies) shall have no authority and
agrees not to make, modify or discharge any Contract, or
bind an Insurer by making any promises respecting any
Contract, except when authorized in writing to do so by an
authorized officer of an ING Insurer.
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iv. The Distributor Agency(ies) shall have no authority and
agrees not to authorize or allow a Representative to do
any act prohibited under this Agreement.
c) General Provisions.
i. The Distributor Agency(ies) may not assign the rights to
procure applications or be relieved of the obligations of
the Distributor Agency(ies) under this Agreement without
an ING Insurer's prior written consent.
ii. There is no intention by either party under this
Agreement, to create any third party beneficiary of this
Agreement.
iii. The Distributor Agency(ies) shall be solely responsible
for hiring any staff it may desire and for maintaining
office space and meeting necessary expenses without
reimbursement from any ING Insurer.
iv. The Distributor Agency(ies) and its Representatives shall
be free to exercise independent judgment as to the time,
place and means of performing all acts under this
Agreement, and the relationship of the Distributor
Agency(ies) and its Representatives to the ING Insurers
shall be that of an independent contractor. Nothing in
this Agreement shall be construed to create the
relationship of employer and employee between the
Distributor Agency(ies) (or any of its Representatives)
and an ING Insurer.
v. Each ING Insurer and the Distributor Agency(ies) recognize
and respect each other's respective interest in providing
continuing service to those who purchase Contracts. Each
party agrees to provide the others relevant information
regarding the Contracts on a reasonable basis, as done in
the normal course of business.
vi. Failure of the Distributor Agency(ies) or any ING Insurer
to insist upon strict compliance with any of the
conditions of this Agreement shall not be construed as a
waiver of any such conditions.
vii. No oral promises or representations shall be binding nor
shall this Agreement be modified except by agreement in
writing, executed on behalf of the ING Insurers and the
ING Broker-Dealer by duly authorized officers of each of
them.
viii. This Agreement supersedes all previous contracts and
agreements between or among the Distributor Agency(ies)
and the ING Insurers made for the procurement of
Contracts, but it shall not affect the economic
obligations of either party under such previous contracts
and agreements.
ix. The provisions under this Section shall survive any
termination of this Agreement.
x. The Distributor Agency(ies) hereby grants a limited Power
of Attorney to the Distributor, to execute any amendments,
modifications or waivers with respect to this Agreement.
5. Property of ING Insurers. All money payable in connection with any of
the Contracts whether as premium, purchase payment or otherwise and
whether paid by or on behalf of any policyowner or anyone else having an
interest in the Contracts is the property of the ING Insurer which
issued the Contract and shall be transmitted immediately in accordance
with the administrative
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procedures of such ING Insurer without any
deduction or offset for any reason including, but not limited to, any
deduction or offset for compensation claimed by the Distributor or the
Distributor Agency(ies).
6. Compensation.
(a) While this Agreement is in force, the ING Broker-Dealer shall
arrange for payment to the Distributor of compensation payable on
sales of the registered Contracts solicited in accordance with
the Compensation Schedule attached hereto, as in effect at the
time the Contract premiums or purchase payments (both referred to
as "Premiums") are received by an ING Insurer. Payment of
compensation for sales of non-registered Contracts is payable to
the Distributor Agency(ies) in accordance with the Compensation
Schedule attached hereto. No compensation of any kind may be
earned, paid, credited or accrued in any way with respect to
sales in the State of New York.
(b) After termination of this Agreement, payment of compensation
shall be made in the same manner as if the Agreement had remained
in force. However, the Distributor shall continue to be liable
for any charge-backs pursuant to the provisions of the
Compensation Schedules and for any other amount advanced by or
otherwise due an ING Insurer or ING Broker-Dealer.
(c) The ING Insurers shall not have responsibility for payment of any
compensation whatsoever to any Representative of the Distributor.
Compensation from the Distributor Agency(ies) to the
Representative for Contracts solicited and sold by the
Representative shall be governed by a separate agreement between
the Distributor and its Representative, and to the extent deemed
necessary by the Distributor, by an agreement between the
Distributor and the Distributor Agency(ies).
(d) The Distributor represents that no commissions or other
compensation based upon a percentage of premiums or based upon a
percentage of assets or other valuable consideration will be paid
for services rendered in soliciting the purchase of the Contracts
to any person or entity which is not duly licensed and registered
by the required authority and appointed by the ING Insurers to
sell the Contracts in the state of such solicitation or sale;
provided, however, that this representation shall not prohibit
the payment of compensation to the surviving spouse or other
beneficiary of a person entitled to receive such compensation
pursuant to a bona fide written contract that calls for such
payment. The Distributor agrees that no compensation of any kind
other than described in this Section 6 of this Agreement is
payable by an ING Insurer or ING Broker-Dealer to the
Distributor.
(e) The amount of compensation, if any, and its time of payment for
replacements, changes, conversions, exchanges, term renewals,
term conversions, premiums paid in advance, policies issued on a
"guaranteed issue" basis, or other special cases and programs,
shall be governed by the ING Insurer's underwriting and
administrative rules then in effect.
7. Refund of Compensation. No compensation shall be payable, and the
Distributor and the Distributor Agency(ies) jointly and severally agree
to reimburse the ING Broker-Dealer promptly, and in any event within 30
days, for any compensation paid to the Distributor or its
Representatives under each of the following conditions: a) if an ING
Insurer, in its sole discretion, determines not to issue the Contract
applied for; b) if an ING Insurer refunds the premiums or purchase
payments upon the applicant's surrender or withdrawal pursuant to any
"free-look" privilege; c) if an ING Insurer refunds the premiums or
purchase payments paid by applicant as a result of a complaint by
applicant, recognizing that the ING Insurer has sole
7
<PAGE>
discretion to refund premiums or purchase payments; d) if an ING Insurer
determines that any person signing an application who is required to be
licensed and appointed or any other person or entity receiving
compensation for soliciting purchase of the Contracts is not duly
licensed and appointed to sell the Contracts in the jurisdiction of such
sale or attempted sale; and e) as may be otherwise provided in the
Compensation Schedule.
8. Indebtedness and Right of Setoff. Nothing contained herein shall be
construed as giving the Distributor or its Representatives the right to
incur any indebtedness on behalf of the ING Insurers or the ING
Broker-Dealer. The Distributor hereby authorizes any ING Insurer and ING
Broker-Dealer to set off liabilities, however created, of the
Distributor and its Representatives to any ING Insurer and/or ING
Broker-Dealer against any and all amounts otherwise payable to the
Distributor.
9. Termination.
(a) This Agreement may not be assigned except by written mutual
consent and shall continue for an indefinite term, subject to the
termination by any party upon ten-days' advance written notice to
the other parties (subject to any longer time period if
prescribed by state law), except that in the event that an ING
Broker-Dealer or the Distributor ceases to be a registered
broker-dealer or a member of the NASD, this Agreement shall
immediately terminate.
(b) This Agreement shall be immediately terminated upon:
i. A breach of this Agreement by the Distributor.
ii. The sale, dissolution, termination or other
discontinuation of the Distributor, unless the ING
Insurers and the ING Broker-Dealer have given written
permission to the continuation of this Agreement, which
consent will not be unreasonably withheld.
iii. Bankruptcy of the Distributor.
(c) Upon termination of this Agreement, all authorizations, rights
and obligations shall cease, except the agreements in Sections 3,
4, 5, 6, 7, 8,12, 13, and 14 and the payment of any accrued but
unpaid compensation to the Distributor or refund of compensation
due to the ING Broker-Dealer and the ING Insurers.
(d) Also, upon termination of this Agreement, Distributor agrees to
return to the ING Insurers all marketing materials, including
illustration software, as well as all applicable confidential
items listed in Section 13 of this Agreement that may be in the
possession of the Distributor or its Representatives.
10. Non-Employee Relationship. For the purpose of compliance with any
applicable federal or state securities laws or regulations, the
Distributor acknowledges and agrees that in performing the services
covered by this Agreement, it is acting in the capacity of an
independent "broker" or "dealer" as defined in the By-Laws of the NASD
and not as an agent or employee of the ING Insurers or the ING
Broker-Dealer or any registered investment company. In furtherance of
its responsibilities as a broker or dealer, The Distributor acknowledges
that it is responsible for statutory and regulatory compliance in
securities transactions involving any business produced by its
Representatives concerning the Contracts.
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<PAGE>
11. Non-Exclusivity. The Distributor agrees that no territory or Contract is
assigned exclusively hereunder and that the ING Insurers and ING
Broker-Dealer reserve the right in their discretion to enter into
selling agreements with other broker-dealers and distributors, and to
contract with or establish one or more insurance agencies in any
jurisdiction in which the Distributor transacts business hereunder.
12. Cooperation in Investigation. The Distributor, the Distributor
Agency(ies), the ING Broker-Dealer and the ING Insurers jointly agree to
cooperate fully in any insurance, securities or other regulatory
investigation or proceeding or judicial proceeding arising in connection
with any Contract without limiting the foregoing:
(a) The Distributor shall promptly notify the ING Insurers and the
ING Broker-Dealer of any customer complaint or notice of any
regulatory authority investigation or proceeding or judicial
proceeding which it might receive with respect to any Contract.
(b) In the case of a substantive customer complaint, the parties
shall cooperate in investigating and responding to such
complaint. Any response shall be sent to the other parties to
this Agreement for approval not less than five business days
prior to its being sent to the customer or regulatory authority,
except that if a more prompt response is required, the proposed
response shall be communicated by telephone, email or facsimile
transmission.
13. Confidentiality of Information. Distributor and the Distributor
Agency(ies) acknowledge that each may acquire information relating to
the products, strategies, systems, marketing plans, customers and
personnel of ING Insurers and the ING Broker-Dealer and that such
information is considered by the ING Insurers and the ING Broker-Dealer
to be confidential and proprietary. The Distributor and the Distributor
Agency(ies) shall hold all such information in strictest confidence and
shall not (and shall cause its Representatives to not) (a) disclose such
information to any third party; or (b) utilize such information for
their commercial benefit or to the detriment of the ING Insurers or the
ING Broker-Dealer. The Distributor and the Distributor Agency(ies)
acknowledge that a breach of this provision would result in significant
and irreparable harm to the ING Insurers and the ING Broker-Dealer and
hereby agree and consent to an injunction in addition to any other
remedies that the ING Insurers and the ING Broker-Dealer may have at law
or in equity.
14. Indemnification.
(a) The ING Insurers and ING Broker-Dealer (referred to jointly in
this Section 13 as "ING") agree to indemnify and hold harmless
the Distributor and the Distributor Agencies (referred to jointly
in this Section 13 as the "Selling Group") and such associated
persons as its officers, directors, agents and employees, against
any losses, claims, damages or liabilities, joint or several, to
which Selling Group or such associated persons may become subject
under the 1933 Act, the 1934 Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar
as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact required
to be stated therein or necessary to make the statements therein
not misleading contained (i) in any Registration Statement, any
prospectus or any document executed by ING specifically for the
purpose of qualifying a Contract for sale under the laws of any
jurisdiction or (ii) in any written information or sales material
authorized for and supplied or furnished to Selling Group and its
Representatives by ING, their employees or agents, in connection
with the sale of the Contracts. ING shall reimburse Selling Group
and each such associated person for legal or other expenses
reasonably incurred by Selling Group or
9
<PAGE>
such associated person in connection with investigating or
defending any such loss, claim, damage, liability or action.
(b) The Selling Group jointly and severally agree to indemnify and
hold harmless ING and their affiliates and such associated
persons as their officers, directors, agents and employees,
against any losses, claims, damages or liabilities to which ING
and any such associated person may become subject under the 1933
Act, the 1934 Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon:
i. any unauthorized use of sales materials or any oral or
written misrepresentations or any unlawful sales practices
concerning a Contract by the Selling Group, its officers,
directors, employees, agents, Representatives or
associated persons; and
ii. claims by agents or Representatives or employees of the
Selling Group for commissions or other compensation or
remuneration of any type; and
iii. failure by agents, Representatives or employees of the
Selling Group to comply with all applicable state
insurance laws and regulations including but not limited
to state licensing requirements, rebate statutes and
replacement regulations, and the provisions of this
Agreement; and
iv. telephone instructions by a Representative to ING in
connection with any Contract.
The Selling Group shall reimburse ING and any director, officer,
employee or agent for any legal or other expenses reasonably
incurred by ING or such associated person in connection with
investigating or defending any such loss, claim, damage,
liability or action. This indemnity provision shall be in
addition to any liability which the Selling Group may otherwise
have.
(c) After a party entitled to indemnification receives notice of the
commencement of any action, if a claim in respect thereof is to
be made against any person obligated to provide indemnification,
such indemnified party shall notify the indemnifying party in
writing of the commencement thereof as soon as practicable
thereafter. However, the omission to so notify the indemnifying
party shall not relieve it from any liability except to the
extent that the omission results in a failure of actual notice to
the indemnifying party, and such indemnifying party is damaged
solely as a result of the failure to give such notice.
15. Fidelity Bond and Errors and Omissions Insurance. The Distributor shall
secure and maintain a fidelity bond (including coverage for larceny and
embezzlement), issued by a reputable bonding company, covering all of
its directors, officers, agents, Representatives, associated persons and
employees who have access to funds of an ING Insurer or ING
Broker-Dealer. This bond shall be maintained at the Distributor's
expense in at least the amount prescribed under Article III, Section 32
of the NASD Rules of Fair Practice or future amendments thereto. The
Distributor shall provide the ING Broker-Dealer with a copy of said bond
or verification of an applicable exception upon request. The Distributor
shall also secure and maintain errors and omissions insurance acceptable
to the Insurer and covering the Distributor and its Representatives. The
Distributor hereby assigns any proceeds received from a fidelity bonding
company, errors and omissions or other liability coverage, to an ING
Insurer or ING Broker-Dealer as their interest may appear, to the extent
of their loss due to activities covered by the bond, policy or other
liability coverage. If there is any deficiency amount, whether due to a
deductible or otherwise,
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<PAGE>
the Distributor hereby indemnifies and holds harmless an ING Insurer and
ING Broker-Dealer from any such deficiency and from the costs of
collection thereof, including reasonable attorneys' fees. Alternatively,
in the event that the Distributor self-insures this liability, it shall
submit such proof to the ING Insurers and the ING Broker-Dealer as such
parties deem satisfactory to demonstrate the adequacy of such financial
resources.
16. Notices. All notices required hereunder shall be duly given if mailed
to:
Office of General Counsel
ATTN: Variable Attorney
c/o Security Life of Denver
ING Insured Investor Group
1290 Broadway
Denver, CO 80203
All notices to the Distributor shall be duly given if mailed to:
[Distributor name and address]
17. Disputes; Arbitration.
(a) If a dispute arises between the parties, the parties agree that
their respective representatives shall meet and consult in good
faith and attempt to settle the dispute, within thirty (30) days
of written notice thereof, as a condition precedent to the
initiation of arbitration proceedings as set forth herein.
Notwithstanding any other provision of this Agreement to the
contrary, the parties hereto agree that any and all disputes with
respect to any claim pursuant to the provisions of this
Agreement, shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration
Association by a panel of three (3) arbitrators appointed
pursuant to such Rules, and judgment upon the award rendered by
such arbitrators may be entered in any court having jurisdiction.
Such arbitrators shall not have the authority or power to reform,
alter, amend or modify any of the terms or conditions of this
Agreement or to enter an award which reforms, alters, amends or
modifies such terms or conditions. Notwithstanding the forgoing,
the arbitrators shall have no authority to award any punitive
damages except upon proof of fraud with intent to deceive. The
decision of such arbitrators shall be in writing, setting forth
both findings of fact and conclusions of law, and shall be final
and conclusive upon the parties; and no suit at law or in equity
based on such dispute, controversy or claim shall be instituted
by any party hereto, other than to enforce the award of such
arbitrators. Such arbitration shall be conducted in Denver,
Colorado or in such other location as the parties thereto may
agree.
(b) In the event of a dispute, the prevailing party shall be entitled
to be reimbursed by the non-prevailing party or parties for such
prevailing party's reasonable attorney's fees and other expenses.
(c) The parties agree that as precondition to the commencement of
arbitration by any party, the dispute must be submitted to
non-binding mediation with a mediator agreed to by both parties.
If the parties cannot agree on a mediator within fourteen (14)
days from the date of a request for mediation, the dispute will
be mediated by a person selected in accordance with the rules of
the American Arbitration Association.
18. Governing Law and Venue. This Agreement shall be governed by and
construed in accordance with the laws of the State of Colorado.
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19. Entire Agreement; Amendment of Agreement. This Agreement including any
Exhibits and Schedules attached hereto contains the entire agreement
among the parties concerning the subject matter hereof and supercedes
any and all prior agreements, understandings, negotiations,
correspondence or other written or oral communications among the parties
respecting the subject matter. The ING Insurers or the ING Broker-Dealer
may amend this Agreement, including any Exhibits and Schedules hereto,
upon at least ten (10) days' prior written notice to the Distributor,
unless otherwise stated in such Schedule. The submission of an
application for the Contracts by the Distributor after the effective
date of any such amendment shall constitute agreement to such amendment.
Additional Distributor Agencies may be added as parties to this
Agreement at any time by a written amendment signed by the ING Insurers,
the ING Broker-Dealer, the Distributor and such additional Distributor
Agencies. All Distributor Agencies, which are parties to this Agreement
at the time of such amendment, hereby consent and agree in advance to
the addition of such additional Distributor Agencies.
20. Binding Effect. This Agreement shall be binding on and shall inure to
the benefit of the parties to it and their respective successors in
interest. If any provision of the Agreement conflicts with any other
provision, or if any provision shall be held of made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
21. Effective Date. This Agreement shall be effective as of the date it is
fully executed by all parties.
22. Execution in Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which taken together will
constitute one and the same instrument.
In reliance on the representations set forth and in consideration of the
undertakings described, the parties represented below do hereby contract and
agree.
[ING Insurers] [ING Broker-Dealer]
By: _________________________ By: _________________________
Title: ________________________ Title: ________________________
[Distributor]
By: __________________________
Name: ________________________
Title: _________________________
Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
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<PAGE>
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
[Distributor Agency] [Distributor Agency]
By: __________________________ By: __________________________
Name: ________________________ Name: ________________________
Title: _________________________ Title: _________________________
Date: _________________________ Date: _________________________
13
EXHIBIT 6.A
[letterhead of Security Life here]
April 27, 2000
Security Life of Denver Insurance Company
1290 Broadway
Denver, CO 80203-5699
Re: Security Life Separate Account L1
Pre-Effective Amendment No. 1; SEC File No. 333-34404
Gentlemen:
In my capacity as Executive Vice President, CFO and Chief Actuary of Security
Life of Denver Insurance Company ("Security Life"), I have provided actuarial
advice concerning:
The preparation of Pre-Effective Amendment No. 1 to the Registration Statement
on Form S-6 (File No. 333-34404) to be filed by Security Life and its Security
Life Separate Account L1 (the "Separate Account") with the Securities and
Exchange Commission ("SEC") under the Securities Act of 1933 with respect to the
Estate Designer variable universal life insurance policies; and
The preparation of the policy forms for the Estate Designer variable universal
life insurance policies described in Pre-Effective Amendment No. 1 (the
"Policies").
It is my professional opinion that
1. The aggregate fees and charges under the Policies are reasonable in
relation to the services rendered the expenses expected to be incurred
and the risks assumed by Security Life.
2. The illustrations of death benefits, account value, cash surrender
value, and total premiums paid plus interest at 5 percent shown in the
Prospectus, based on the assumptions stated in the illustration are
consistent with the provisions of the Policies. The rate structures of
the Policies have not been designed so as to make the relationship
between premiums and benefits, as shown in the illustrations included,
appear to be correspondingly more favorable to prospective buyers than
other illustrations which could have been provided at other combinations
of ages, sex of the insured, death benefit option and amount, definition
of life insurance test, premium class, and premium amounts. Insureds of
other premium classes may have higher costs of insurance charges.
3. All other numerical examples shown in the Prospectus are consistent with
the Policies and our other practices, and have not been designed to
appear more favorable to prospective buyers than other examples which
could have been provided.
I hereby consent to the filing of this opinion as an Exhibit to Pre-Effective
Amendment No. 1 to the Registration Statement and the use of my name under the
heading "Experts" in the Prospectus.
Sincerely,
/s/ James L. Livingston, Jr.
James L. Livingston, Jr., F.S.A., M.A.A.A.
JLL:tls
Exhibit 7.A
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Experts" and
"Financial Statements" and to the use of our reports dated April 7, 2000 and
April 14, 2000 (with respect to the financial statements of Security Life
Separate Account L1 and the consolidated financial statements of Security Life
of Denver Insurance Company and Subsidiaries, respectively), in Pre-Effective
Amendment No. 1 to the Registration Statement (Form S-6 No. 333-34404) and
related Prospectus of Security Life of Denver Insurance Company and Security
Life Separate Account L1 dated May 1, 2000.
/s/ ERNST & YOUNG LLP
Denver, Colorado
April 27, 2000
[SUTHERLAND ASBILL & BRENNAN LLP]
CONSENT OF SUTHERLAND ASBILL & BRENNAN LLP
We consent to the reference to our firm in the prospectus included in
Pre-Effective Amendment No. 1 to the Registration Statement on Form S-6 for
Security Life of Denver Separate Account L1 (File No. 333-34404). In giving this
consent, we do not admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of 1933.
SUTHERLAND ASBILL & BRENNAN LLP
By: /s/ Kimberly J. Smith
--------------------------
Kimberly J. Smith
Washington, D.C.
April 27, 2000
Exhibit 11
DESCRIPTION OF ISSUANCE, TRANSFER, AND REDEMPTION PROCEDURES
FOR POLICIES PURSUANT TO RULE 6E-3(T)(B)(12)(III)
This document sets forth the administrative procedures that will be followed by
Security Life of Denver ("Security Life") in connection with the issuance of its
joint and survivor flexible premium variable universal life insurance policies
(the "policies") issued through Security Life Separate Account L1 (the "Separate
Account"), the transfer of assets held under the policies, and the redemption of
interests in policies.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES
A. Offering of the Policy
The policy is offered on two lives to persons or entities who satisfy
certain suitability standards ("owners"). The policy may be purchased
to insure the lives of two individuals ("insureds") in whom the owner
has an insurable interest. Security Life requires satisfactory
evidence of each of the insured's insurability, which may include a
medical examination. The issue ages are 0 through 90. Age is
determined by the insured's age as of the birthday nearest the policy
date. The joint equivalent age is based on the sum of the insureds'
ages divided by two. It must be at least 15 and cannot exceed age 85
at the time of policy issue.
For Estate Designer ("ED"), the minimum stated death benefit is
$1,000; however, the required minimum total death benefit is
$500,000. The total death benefit includes stated death benefit plus
coverage provided under a term rider.
Acceptance of an application depends on Security Life's underwriting
rules. Security Life reserves the right to reject an application for
any reason.
If a policy has more than one owner (joint owners), then transactions
under the policy except telephone transfers of account value require
the authorization of all owners.
B. Cost of Insurance Charges Structure, Payments and Underwriting
Standards
Security Life places the insureds in a premium class when the policy
is issued, based on underwriting. This original premium class applies
to the initial stated death benefit.
The current cost of insurance charge for a policy is based on the age
at issue, sex, premium class of the insureds, and on the policy year.
Therefore the charge varies from time to time. Security Life places
insureds in the following premium classes, based on underwriting:
Standard Smoker (ages 15-90); Standard Nonsmoker (ages 15-90), or
Preferred (ages 15-90). Security Life's definition of "smoker"
includes the use of cigarettes, cigars, pipes, chewing tobacco,
nicotine gum or patch, snuff, or any other tobacco or nicotine-based
product. Or,
Estate Designer May 1, 2000
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insureds may be placed in a substandard rate class, with a higher
mortality risk than the standard smoker or standard nonsmoker
classes.
Additionally, an uninsurable rating may be assessed to an individual
that is rated higher than table P. The uninsurable rating will be
handled in the unideath calculation the same way a table rating is
except the percentage will be higher. The uninsurable rating is
capped at the later of age 65 or 15 years from issue.
Security Life guarantees that the cost of insurance rates used to
calculate the monthly cost of insurance charge will not exceed the
maximum cost of insurance set forth in the policies. The guaranteed
cost of insurance rate for standard classes are based on the 1980
Commissioners' Standard ordinary mortality Tables, Male or Female,
Smoker or Nonsmoker Mortality Premiums (1980 CSO Tables). The
guaranteed cost of insurance rates for substandard classes are based
on multiples of or additives to the 1980 CSO Tables.
At any time, Security Life's current cost of insurance may be less
than the guaranteed cost of insurance that is set forth in the
policy. Current cost of insurance rates are determined based on
expectations as to future mortality, investment earnings, expenses,
taxes, and persistency experience. These rates may change from time
to time.
Cost of insurance rates (whether guaranteed or current) for an
insured in a standard nonsmoker class are equal to or lower than
guaranteed cost of insurance for an insured of the same age and sex
in a standard tobacco class. Cost of insurance rates (whether
guaranteed or current) for an insured in a standard nonsmoker or
smoker class are generally lower than guaranteed cost of insurance
for an insured of the same age and sex and smoker status in a
substandard class.
The cost of insurance will not be the same for all policies.
Insurance is based on the principle of pooling and distribution of
mortality risks which assumes that each owner is charged a cost of
insurance commensurate with the insured's mortality risk as
actuarially determined, reflecting factors such as age, sex, health,
and underwriting method. A uniform cost of insurance charge for all
insureds would discriminate unfairly in favor of those insureds
representing higher risks. However, there will be a uniform cost of
insurance charge for all insureds of the same issue age, sex, policy
duration and underwriting classification.
If the insured's age or sex has been misstated in the application for
the policy or in any application for supplemental or rider benefits,
and if the misstatement becomes known during the lifetime of the
insured, then policy values will be adjusted to reflect the correct
monthly deductions (based on the correct age or sex) since the policy
date. If the policy's values are insufficient to cover the monthly
deduction on the prior monthly date, the grace period will be deemed
to have begun, and notification will be sent to the owner at least 61
days prior to the end of the grace period. See "Policy Termination
and Grace Period," below.
The policy provides coverage on two insureds and a Death Benefit
payable upon the death of the second insured. The policy will remain
in force as long as the policy's cash surrender value is sufficient
to cover the charges due. Security Life guarantees a policy will
remain in force
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during the special continuation period, regardless of the cash
surrender value, if the total premium paid to date, minus partial
withdrawals and policy debt equals or exceeds the minimum monthly
premium (shown in the policy) multiplied by the number of complete
policy months, including the current policy month. The special
continuation period is five years from the policy date.
The minimum monthly premium is based on the joint equivalent age, sex
and premium class of each insured, the stated death benefit and
supplemental or rider benefits. The minimum monthly premium may
change as a result of changes to the stated death benefit, the death
benefit option, ratings, and supplemental or rider benefits. Security
Life will notify the owner of change in the minimum monthly premium.
On or after one year from the policy date, the owner may request a
reduction in the stated death benefit, by written notice to Security
Life, subject to the following rules. If a change in the stated death
benefit would result in total premiums paid exceeding the premium
limitations prescribed under current tax law to qualify the policy as
a life insurance contract, Security Life will refund promptly to the
owner the excess above the premium limitations.
The minimum amount of a stated death benefit decrease is $1,000. The
decrease will become effective on the monthly processing date next
following the date that the decrease is approved by Security Life.
Security Life reserves the right to decline a requested decrease in
the stated death benefit if compliance with the guideline premium
limitations under current tax law resulting from this decrease would
result in immediate termination of the policy, or if to effect the
requested decrease, payments to the owner would have to be made from
the accumulated value for compliance with the guideline premium
limitations, and the amount of such payments would exceed the cash
surrender value under the policy.
At any time, the owner may request an increase in the stated death
benefit. An increase in the stated death benefit must be at least
$1,000 (unless the increase is effected pursuant to a rider providing
for automatic increases in stated death benefit), and an application
must be submitted. An increase that is not guaranteed by rider
requires satisfactory evidence of insurability and must meet Security
Life's underwriting rules. The increase in stated death benefit will
become effective on the next monthly processing date after the
request is approved. The account value will reflect a monthly
deduction (as of the effective date) based on the increased stated
death benefit.
Security Life will determine a cost of insurance rate for each
increase in coverage based on the joint equivalent age of the
insureds at the time of the increase. The following rules apply to
determine the risk amount for each rate.
When an increase in stated death benefit is requested, Security Life
conducts underwriting before approving the increase to determine
whether a different premium class will apply to the increase. If the
premium class for the increase has lower cost of insurance rates than
the original premium class, then the premium class for the increase
will also be applied to the initial stated death benefit. If the
premium class for the increase has higher cost of insurance
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rates than the original premium class, the premium class for the
increase will apply only to the increase in stated death benefit, and
the original premium class will continue to apply to the initial
stated death benefit.
To determine the risk amount associated with a stated death benefit,
Security Life generally will attribute the account value solely to
the initial stated death benefit. However, if the account value
exceeds the initial stated death benefit, the excess will be
attributed to the increases in stated death benefit in the order of
the increases. If there is a stated death benefit decrease after an
increase, the decrease is applied first to prior stated death benefit
increases, starting with the most recent increase.
The policy will be offered and sold pursuant to an established
mortality structure and underwriting standards in accordance with
state insurance laws. Where state insurance laws prohibit the use of
actuarial tables that distinguish between men and women in
determining premiums and policy benefits for their insured resident,
Security Life will comply.
C. Application and Payment Processing
To purchase a policy, an application must be completed and submitted
through an authorized Security Life agent. Temporary life insurance
coverage may be provided prior to the policy date under the terms of
a temporary insurance agreement. In accordance with Security Life's
underwriting rules, temporary life insurance coverage may not exceed
$3,000,000 and will not remain in effect for more than ninety (90)
days.
The Policy Date is used to determine the monthly processing date,
coverage effective date and policy anniversaries. The insurance
coverage becomes effective on the policy date, which may be specified
on the application.
The policy date is: 1) the date specified on the application, and 2)
the back-date of the policy to save age or, if neither 1) or 2)
apply, it is the date all underwriting and administrative
requirements are met if the initial premium has been received.
Otherwise it is the date the initial premium is received by Security
Life.
The Investment Date is the date that Security Life first applies
premium to the Policy. It is the first valuation date following
Security Life's 1) receipt of the initial premium AND 2) approval of
the policy for issue, AND 3) receipt of all issue requirements.
As provided under state insurance law, the owner may be permitted to
backdate the policy, to preserve insurance age. In no case may the
policy date be more than six months prior to the application date.
Monthly deductions for the backdated period are deducted on the
policy date. The initial premium payment must be at least equal to
the scheduled premiums from the policy date through the investment
date.
Planned periodic premiums and unscheduled premiums that are not
underwritten will be credited to the policy and the net premium
invested on the valuation date they are received by
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Security Life. If premium payment is rejected, Security Life will
return it promptly, without adjustment.
The policy date is the date from which policy months, years, and
anniversaries are measured. A policy month is a one-month period
beginning with a monthly processing date and ending with the day
immediately preceding the next following monthly processing date
(i.e., 8/15 - 9/15). The monthly processing date is the same as the
policy date for each succeeding month. The monthly deductions are
made each monthly processing date.
A policy year is twelve months commencing with the policy date and
ending with the day immediately preceding the next annual date (i.e.,
8/15/1999 - 8/14/2000).
The issue date, if the same as the policy date, is the date from
which the suicide and contestable periods start. It is shown in the
policy.
D. Allocation of Net Premiums
On the investment date, the account value equals the initial premium
payment minus the premium expense charges, minus monthly deductions
made as the policy date (up to six months for backdated policies). On
each investment date thereafter, the account value is the sum of the
amounts in the variable investment options, the guaranteed interest
division, and the loan division. The account value will vary with the
performance of the selected investment options, interest credited on
amounts in the guaranteed interest division, interest credited on
amounts in the loan division, charges, transfers, partial
withdrawals, loans and loan repayments. The net account value is
account value minus outstanding policy debt. Cash surrender value is
account value plus the applicable refund of sales charge. Net cash
surrender value is the cash surrender value minus outstanding policy
debt.
When applying for a policy, the owner selects a plan for paying
premium payments at specified intervals, e.g., quarterly,
semiannually or annually, until the maturity date. If the owner
elects, Security Life will arrange for payment of planned period
premiums on a monthly basis under a pre-authorized electronic funds
transfer (bank draft) arrangement. The owner is not required to pay
premium in accordance with the plan, but can pay more or less than
planned or skip a planned periodic premium entirely. Currently, there
is no minimum amount for each premium payment. Security Life may
establish a minimum amount effective 90 days after sending a written
notice to the owner. Subject to certain limits (described below), the
owner can change the amount and frequency of planned periodic
premiums at any time by sending a notice to Security Life. However,
Security Life reserves the right to limit the amount of a premium
payment or the total premium paid.
In the application, the owner specifies the percentage of net premium
to be allocated to each investment option including the guaranteed
interest division ("G.I.D."). Net premiums generally will be invested
on the valuation date that Security Life receives them and in
accordance with the most recent allocations instructions.
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The net premium allocation percentages specified in the application
will apply to subsequent premium payments until the owner instructs
otherwise. The minimum percentage that may be specified for an
investment option is 1%, and all percentages must be whole numbers.
The sum of allocations must equal 100%. Security Life limits the
number of investment options (18) to which account value may be
allocated over the life of the policy. An owner can change the
allocation percentages at any time by sending a notice to Security
Life or, if telephone privileges are in effect, the request can be
received by telephone. The change applies to all premium payments
received with or after receipt of the owner's notice.
E. Free Look
Some states mandate that if an owner exercises his/her free look
right he/she is entitled to a full premium refund. Other states
mandate that if the owner exercises his/her free look option he/she
is entitled to receive the value of the fund allocations plus a
refund of the policy charges previously deducted.
Amounts you designate for the guaranteed interest division will be
invested into that division on the investment date. If the owner's
state requires return of premium during the free look period, amounts
designated for the variable division are initially invested into the
Fidelity VIP Money Market Portfolio. Later, these amounts are
transferred from the Money Market Portfolio to the selected variable
investment options, at the earlier of:
1) five days after we mailed your policy and your state free
look period has ended; or
2) you have actually received your policy, we have received
your delivery receipt and your state free look period has
ended.
If the owner's state provides for return of account value during the
free look period or no free look period, amounts designated for the
variable division are invested directly into the selected variable
investment options.
F. Additional Payment
Additional unscheduled premium payments can be made at any time while
the policy is in force. Premium payments after the initial premium
payment must be made to Security Life.
Security Life has the right to limit the number and amount of such
premium payments. Total premium payments paid in a policy year may
not exceed guideline premium payment limitations for life insurance
set forth in the Internal Revenue Code. Security Life will promptly
refund the portion of any premium payment that is determined to be in
excess of the premium payment limit established by law to qualify a
policy as a contract for life insurance.
Security Life reserves the right to reject a requested increase in
planned periodic premiums, or unscheduled premium. Security Life also
reserves the right to require satisfactory evidence of insurability
prior to accepting a premium which increases the risk amount of the
policy. No premium payment will be accepted after the maturity date.
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The payment of premiums may cause a policy to be a Modified Endowment
Contract ("M.E.C.") under the Internal Revenue Code. If acceptance of
a premium paid would, in Security Life's view, cause the policy to
become a M.E.C., then to the extent feasible Security Life will not
accept that portion of the premium that would cause the policy to
become a M.E.C. unless the owner confirms in writing that it is
his/her intent to convert the policy to a M.E.C. Security Life may
return the excess portion of the payment pending receipt of
instructions from the owner.
The owner may specify that a specific unscheduled payment is to be a
repayment of policy debt.
G. Policy Termination and Grace Period
The policy terminates at the earliest of: 1) the end of the grace
period, 2) the surrender of the policy or, 3) the fulfillment of
Security Life's obligations under the policy (i.e., payment of the
death benefit proceeds).
If the cash surrender value on a monthly processing date is less than
the amount of the monthly deduction to be deducted and the special
continuation period is not in effect, the policy will be in default.
In addition, if on a monthly processing date the cash value less
policy debt exceeds the amount of the monthly deduction due for the
following policy month, the policy will be in default whether or not
the special continuation period is in effect. An owner, and assignee
of record, will be sent notice of the default.
If a policy goes into default, the owner will be allowed a 61-day
grace period to pay a premium payment sufficient to cover the monthly
deductions due during the grace period and for two additional months,
or a sufficient amount to avoid termination caused by a high
outstanding loan balance. Security Life will send notice of the
amount required to be paid ("grace period premium payment") to the
owner's last known address and the address of the assignee of record.
The grace period will begin when the notice is sent. The policy will
remain in effect during the grace period. If the second insured
person should die during the grace period, the death benefit proceeds
will be payable to the beneficiary, but the amount paid will be
reduced for the monthly deductions which were due as of the date of
the insured's death and for outstanding policy debt. If the grace
period premium payment is not paid by the end of the grace period,
the policy will lapse. It will have no value and no benefits will be
payable.
H. Reinstatement of a Policy Terminated for Insufficient Values
The policy may be reinstated within five years after lapse and before
the maturity date, subject to compliance with certain conditions,
including a necessary premium payment and submission of satisfactory
evidence of insurability.
I. Repayment of a Loan
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An owner may repay all or part of his/her policy debt at any time
while at least one insured person is living and the policy is in
force. Loan repayments must be sent to the home office and will be
credited as of the date received. The owner may instruct Security
Life that a specific unscheduled payment is to be applied as a loan
repayment. When a loan repayment is made, account value in the loan
division in an amount equal to the repayment, is transferred from the
loan division to the investment options according to the owner's
current net premium allocation instructions.
J. Policy Riders
Rider benefits may be available to be added to the policy. Monthly
charges for riders, if any, will be deducted from the account value
as part of the monthly deductions. The following rider benefits may
be available: Adjustable Term Insurance Rider and Single Life Term
Rider.
Additional rules and limits apply to these benefits and are set forth
in the applicable endorsement or rider.
II TRANSFERS AMONG INVESTMENT OPTIONS
Several investment options of the Separate Account are available for
allocation of net premiums, subject to certain limitations set forth in
the policy. Each invests in shares or units of an underlying portfolio.
Currently, available investment options invest in portfolios of AIM
Variable Insurance Funds, The Alger American Fund, Fidelity
Variable Insurance Products Fund and Variable Insurance Products Fund II,
INVESCO Variable Investment Funds, Inc., Neuberger Berman Advisors
Management Trust and Van Eck Worldwide Insurance Trust. All Funds are
registered under the Investment Company Act of 1940 as open-end
management investment companies. Additional funds may be made available
in the future.
After the free-look period and prior to the maturity date, the owner may
transfer all or part of the account value from the investment options to
other investment options, or to the guaranteed interest division. An
amount may be transferred from the guaranteed interest division to the
variable investment options, subject to some restrictions. The minimum
transfer amount is the lesser of $100 or the entire amount in that
investment option. A transfer request that would reduce the amount in an
investment option below $100 will be treated as a transfer request for
the entire amount. Transfers from the guaranteed interest division are
permitted only within the first 30 days of a policy year. Transfer
requests received within 30 days prior to a policy anniversary will be
processed on the policy anniversary. Such transfers are limited in amount
to the greatest of: 25% of the balance in the guaranteed interest
division on the policy anniversary; the total withdrawn in the prior
policy year; or $100. With the exception of the Right to Exchange
(described below), Security Life reserves the right to limit the number
or frequency of transfers permitted in the future.
Security Life will make the transfer as of the end of the valuation
period during which such transfer is received by Security Life.
Currently, there is a limit on the number (12) of free transfers that can
Estate Designer May 1, 2000
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be made between investment options in a policy year. Currently, Security
Life assesses an excess transfer charge of $25 for each transfer in
excess of the first twelve transfers during a policy year. The excess
transfer charge will be deducted from the investment option from which
the requested transfer is being made.
Transfer requests will be accepted by telephone, provided the appropriate
authorization has been provided to Security Life. Security Life reserves
the right to suspend telephone transfer privileges at any time, for any
reason, if Security Life deems such suspension to be in the best
interests of owners.
During the first twenty-four policy months following the policy date, and
within sixty days of the later of notification of a change in the
investment policy of the separate account or the effective date of such
change, the owner may exercise a one-time Right to Exchange the policy by
requesting that all of the variable account value be transferred to the
guaranteed interest division. Exercise of the Right to Exchange is not
subject to the excess transfer charge. Following the exercise of the
Right to Exchange, premium may not be allocated to the variable account,
and transfers of account value to the variable account will not be
permitted. The other terms and conditions of the policy will continue to
apply.
Transfers may also be effected pursuant to the dollar cost averaging or
auto rebalancing feature if elected by the owner as described in the
current prospectus.
III. REDEMPTION PROCEDURES, SURRENDER AND RELATED TRANSACTIONS
A. Surrender for Cash Surrender Value
An owner may surrender the policy at any time for its cash surrender
value by submitting notice to the home office. Security Life may
require return of the policy. A surrender request will be processed
as of the valuation date the surrender notice and all required
documents are received. Payment generally will be made within seven
calendar days. An owner's policy will terminate and cease to be in
force if it is surrendered. It cannot be reinstated later.
B. Death Claims
The death benefit proceeds are equal to the sum of the base death
benefit for each coverage segment under the death benefit option
selected, calculated on the date of the second insured's death, plus
supplemental or rider benefits, minus outstanding policy debt minus
unpaid monthly deductions incurred prior to the date of death. If an
insured's age or sex has been misstated in the application for the
policy or in an application for supplemental or rider benefits, and
if the misstatement becomes known after the death of the second
insured person, then the death benefit under the policy or such
supplemental or rider benefits will be that which the cost of
insurance charge which was deducted from the account value on the
last monthly processing date prior to the death of the second insured
would have purchased for the correct sex and age.
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Security Life will pay interest at the rate declared by us or at a
higher rate required by law.
Security Life will usually pay the death benefit proceeds to the
beneficiary within seven days after receipt at its Home Office of due
proof of death of the second insured and all other requirements
necessary to make payment. If the payment of the death benefit of a
policy is contested, payment of proceeds may be delayed.
The death benefit payable depends on the death benefit option in
effect on the date of death. Subject to certain conditions, owners
may change the death benefit option. Under option 1, the base death
benefit is the greater of the specified amount or the applicable
percentage of account value on the date of the second insured's
death. Under option 2, the base death benefit is the greater of the
specified amount plus the account value on the date of death or the
applicable percentage of the account value on the date of the second
insured's death. Under option 3, the base death benefit is the
greater of the specified amount plus the sum of all premiums
received, minus partial withdrawals or the applicable percentage of
the account value on the date of the second insured's death.
The "applicable percentage" is the appropriate factor from the
Definition of Life Insurance factors shown in the policy's appendix A
or B. A table showing the applicable percentages for attained ages 0
to 100 is set forth in the policy.
On or after one year from the policy date, the owner may change the
death benefit option on the policy, by notice to Security Life,
subject to the following rules. A change in the Death Benefit Option
may be requested at least one day prior to a policy anniversary.
After the change, the specified death benefit amount must still
comply with the minimum to issue a policy. The effective date of the
change will be the next monthly processing date next following the
day that Security Life approves the request. Security Life may
require satisfactory evidence of insurability for some changes.
An owner may change from death benefit option 1 to option 2, from
option 2 to option 1, or from option 3 to option 1. NO change from
death benefit option 1 or 2 to option 3, or option 3 to option 2 is
permitted.
When a change from option 1 to option 2 is made, the specified death
benefit amount after the change is effected will be the specified
death benefit amount before the change minus the account value on the
effective date of the change. When a change from Option 2 to Option 1
is made, the specified death benefit amount after the change will be
the specified death benefit amount before the change plus the account
value on the effective date of the change. When a change from Option
3 to Option 1 is made, the specified death benefit will be the
specified death benefit before the change plus the sum of premiums
received minus partial withdrawals taken as of the effective date of
the change.
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C. Policy Loan
After the first monthly processing date and while at least one
insured is living, provided the policy is not in the grace period,
the owner may borrow against the policy by submitting a request to
the home office. The minimum amount of a loan is $100. The maximum
loan amount is the net cash surrender value less monthly deductions
to the next policy anniversary or 13 monthly deductions if the loan
request is received within 30 days prior to a policy anniversary.
Maximum loan amounts may be different if required by state law.
An outstanding loan reduces the amount available for a new loan. A
loan is processed as of the date the loan request is approved. Loan
proceeds generally will be sent to the owner within seven calendar
days.
When a policy loan is made, an amount sufficient to secure the loan
is transferred out of the investment options and into the policy's
loan division. Thus, a loan will have no immediate effect on the
account value, but other policy values, such as the cash surrender
value and the death benefit proceeds, will be reduced immediately by
the amount borrowed. This transfer is made from the account value in
each investment option in proportion to the account value in each on
the date of the loan, unless the owner specifies that transfers be
made from a specific investment option. An amount equal to due and
unpaid loan interest which exceeds interest credited to the loan
division will be transferred to the loan division on each policy
anniversary. Such interest will be transferred from each investment
option in the same proportion that account value in each bears to the
total unloaned account value.
The loan account will be credited with interest at an effective
annual rate of not less than the annual loan interest rate of 3%.
Loan interest accrues daily at a compound annual interest rate of
3.75%. Interest is due in arrears on each policy anniversary.
Outstanding loan amounts (including unpaid interest added to the
loan) plus accrued interest not yet due equals the policy debt.
D. Partial Withdrawals
An owner may make partial cash surrenders (known as partial
withdrawals) from the policy at any time after the first policy
anniversary. An owner must submit a request to the home office. Each
partial withdrawal must be at least $100. The maximum partial
withdrawal is the amount which will leave $500 as the net cash
surrender value. When a partial withdrawal is taken, the amount of
the withdrawal plus a service fee is deducted from the account value.
This service fee is 2% of the amount of the withdrawal, up to a
maximum fee of $25. As of the date Security Life processes the
partial withdrawal, the cash value will be reduced by the partial
withdrawal amount.
Unless the owner requests that a partial cash surrender be deducted
from specified investment options, it will be deducted from the
investment options on a pro-rata basis in proportion to the account
value in each.
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If death benefit Option 1 is in effect, Security Life may reduce the
specified death benefit amount. Security Life may reject a partial
withdrawal request if it would reduce the specified death benefit
amount below the minimum amount required to issue the policy, or if
the partial withdrawal would cause the policy to fail to qualify as a
life insurance contract under applicable tax laws, as interpreted by
Security Life.
Partial withdrawals will be processed as of the valuation date the
request is received by Security Life, and generally will be paid
within seven calendar days.
E. Monthly Charges
On each monthly processing date, Security Life will deduct from the
account value the monthly deductions due, commencing as of the policy
date. An owner's policy date is the date used to determine the
applicable monthly processing date. The monthly deduction consists of
(1) cost of insurance charges, (2) the monthly administrative charge,
and (3) charges for supplemental or rider benefits. The monthly
deduction is deducted from the investment options, including the
guaranteed interest division pro rata based on the account value in
each, unless the owner has selected a designated deduction investment
option for the policy.
F. Continuation of Coverage
The maturity date is generally the insured's 100th birthday, and is
shown in the policy.
At the policy's maturity date, the owner may surrender the policy for
its net cash surrender value. Or, he/she may allow insurance coverage
to continue under the continuation of coverage feature. If the policy
is in effect and not surrendered, the target death benefit, which
includes term rider coverage, becomes the specified death benefit
amount. All riders are terminated. Policies with death benefit
options 2 or 3 become policies with death benefit option 1. A
one-time fee of $400 is deducted to cover all future costs of the
policy and the account value is transferred into the Guaranteed
Interest Division. No further premium payments can be made, however,
loan and interest payments are accepted. All variable investment
features terminate. Loans and partial withdrawals may be taken. The
policy will continue until the death of the second insured person, so
long as it does not lapse.
G. Settlement Options
During the insured's lifetime, the owner may elect that the
beneficiary receive the death proceeds other than in one sum. If this
election has not been made, the beneficiary may do so within 60 days
after the second insured person's death. The owner may also elect to
take the net cash surrender value under one of these options.
Option I: Payouts for a Designated Period: Payouts will be made in
1, 2, 4 or 12 installments per year as elected for a
designated period, which may be 5 to 30 years. The
installment dollar amounts will be equal except for any
excess interest. The amount of the first monthly payout
for each $1,000
Estate Designer May 1, 2000
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of account value applied is shown in Settlement Option
Table I in the policy.
Option II: Life Income with Payouts Guaranteed for a Designated
Period: Payouts will be made in 1, 2, 4 or 12 installments
per year throughout the payee's lifetime, or if longer,
for a period of 5, 10, 15, or 20 years as elected. The
installment dollar amounts will be equal except for any
excess interest. The amount of the first monthly payout
for each $1,000 of account value applied is shown in
Settlement Option Table II in the policy. This option is
not available for ages not shown in this Table.
Option III:Hold at Interest: Amounts may be left on deposit with us
to be paid upon the death of the payee or at any earlier
date elected. Interest on any unpaid balance will be at
the rate declared by us or at any higher rate required by
law. Interest may be accumulated or paid in 1, 2, 4 or 12
installments per year, as elected. Money may not be left
on deposit for more than 30 years.
Option IV: Payouts of a Designated Amount: Payouts will be made until
proceeds, together with interest, which will be at the
rate declared by us or at any higher rate required by law,
are exhausted. Payouts will be made in 1, 2, 4, or 12
equal installments per year, as elected.
Option V: Other: The owner may ask us to apply the money under any
other option that we make available at the time the
benefit is paid.
Payments under these options are not affected by the investment
experience of any division of our variable account. Instead, interest
accrues pursuant to the options chosen. Payment options will also be
subject to our rules at the time of selection. These alternate
payment options are only available if the proceeds applied are $2000
or more and a periodic payment will be at least $20.
The beneficiary or any other person who is entitled to receive
payment may name a successor to receive any amount that we would
otherwise pay to that person's estate if that person died. The person
who is entitled to receive payment may change the successor at any
time.
We must approve an arrangement that involve a payee who is not a
natural person (for example, a corporation), or a payee who is a
fiduciary. Also, the details of all arrangements will be subject to
our rules at the time the arrangements take effect. This includes
rules on the minimum amount we will pay under an option, minimum
amounts for installment payments, withdrawal or commutation rights
(i.e., the rights to receive payments over time, for which we may
offer a lump sum payment), the naming of people who are entitled to
receive payment and their successors, and the ways of proving Age and
survival.
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