As filed with the Securities and Exchange Commission on April 7, 2000.
Registration No. 333-________
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
Initial Registration
-----------------
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)
----------------------------
Title of securities being registered: Strategic Benefit 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-_________)
Cross-Reference Table
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
1, 2 Cover; Security Life of Denver Insurance Company;
Security Life Separate Account L1
3 Inapplicable
4 Security Life of Denver Insurance Company
5, 6 Security Life Separate Account L1
7 Inapplicable
8 Financial Statements
9 Inapplicable
10(a), (b), (c), (d), (e) Policy Summary; Policy Values, Determining the
Values in the Variable Division; Charges and
Deductions; 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
Strategic Benefit Policy; General Policy Provisions;
Guaranteed Interest Division
11, 12 Security Life Separate Account L1
13 Policy Summary; Charges and Deductions;
Group or Sponsored Arrangements, and Corporate
Purchasers
ii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
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 Payment; Surrender; Partial Withdrawals
18 Policy Summary; Tax Considerations; Detailed
Information about the Strategic Benefit Policy;
Security Life Separate Account L1
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 Strategic Benefit Policy
23 Inapplicable
24 Inapplicable
25 Security Life of Denver Insurance Company
26 Inapplicable
27, 28, 29, 30 Security Life of Denver Insurance Company
31, 32, 33, 34 Inapplicable
35 Inapplicable
36 Inapplicable
iii
<PAGE>
Form N-8B-2 Item No. Caption in Prospectus
- -------------------- ---------------------
37 Inapplicable
38, 39, 40, 41(a) General Policy Provisions; Distribution of
the Policies; Security Life of Denver Insurance
Company
41(b), 41(c), 42, 43 Inapplicable
44 Determining Values in the Variable Division;
How We Calculate Accumulation Unit Values
45 Inapplicable
46 Partial Withdrawals; Detailed Information about
the Strategic Benefit Policy
47, 48, 49, 50 Inapplicable
51 Detailed Information about the Strategic Benefit
Policy
52 Determining Values in the Variable Division;
Right to Change Operations
53(a) Tax Considerations
53(b), 54, 55 Inapplicable
56, 57, 58 Inapplicable
59 Financial Statements
iv
<PAGE>
Prospectus
STRATEGIC BENEFIT LIFE INSURANCE
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 and deductions beginning on page 37 in
this prospectus.
You should read this prospectus and keep it for future reference. A prospectus
for each underlying fund portfolio must accompany and should be read together
with this prospectus.
This policy is not available in all jurisdictions. This policy is not offered in
any jurisdiction where this type of offering is not legal. Depending on the
state where it is issued, policy features may vary. You should rely only on the
information contained in this prospectus. We have not authorized anyone to
provide you with information that is different.
Replacing your existing life insurance policy(ies) with this policy may not be
beneficial to you.
YOUR POLICY
o is a flexible premium variable universal life insurance policy;
o is issued by Security Life of Denver Insurance Company;
o is designed primarily for use on a multi-life basis when the insured
people share a common employment or business relationship; and
o is returnable by you during the free look period or right to examine
policy period if you are not satisfied.
YOUR POLICY PREMIUM PAYMENTS
o are flexible, so the premium amount and frequency may vary;
o are allocated to variable investment 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 up to 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 cash value under the variable division. The
value varies with the value of the underlying investment portfolio;
o has a minimum guaranteed rate of return if you have an amount in the
guaranteed interest division; and
o is subject to various expenses and charges.
DEATH PROCEEDS
o are paid if the policy is in force when the insured person dies;
o are equal to the death benefit minus an outstanding policy loan,
accrued loan interest and unpaid charges incurred before the 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 GOVERNMENTAL AGENCY.
DATE OF PROSPECTUS: MAY 1, 2000
<PAGE>
ISSUED BY: Security Life of Denver UNDERWRITTEN BY: ING America Equities, Inc.
Insurance Company 1290 Broadway
Security Life Center Denver, CO 80203-5699
1290 Broadway (303) 860-2000
Denver, CO 80203-5699
(800) 525-9852
THROUGH ITS: Security Life Separate Account L1
ADMINISTERED BY: Customer Service Center
P.O. Box 173888
Denver, CO 80217-3888
(800) 848-6362
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Strategic Benefit 2
<PAGE>
TABLE OF CONTENTS
POLICY SUMMARY.................................................................4
Your Policy...............................................................4
Free Look Period..........................................................4
Your Premium Payments.....................................................4
Charges and Deductions....................................................5
Guaranteed Interest Division..............................................6
Policy Values.............................................................8
Transfers of Account Value................................................8
Special Policy Features...................................................8
Policy Modification, Termination and Continuation
Features..............................................................8
Death Benefits............................................................9
Tax Considerations........................................................9
INFORMATION ABOUT 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.............................................15
Maximum Number of Investment Options.....................................16
DETAILED INFORMATION ABOUT THE
POLICY...................................................................16
Applying for a Policy....................................................16
Temporary Insurance......................................................16
Policy Issuance..........................................................17
Premiums.................................................................17
Premium Payments Affect Your Coverage....................................18
Death Benefits...........................................................19
Adjustable Term Insurance Rider..........................................23
Special Features.........................................................24
Policy Values............................................................25
Transfers of Account Value...............................................26
Dollar Cost Averaging....................................................27
Automatic Rebalancing....................................................28
Policy Loans.............................................................28
Partial Withdrawals......................................................29
Lapse....................................................................31
Reinstatement............................................................31
Surrender................................................................31
General Policy Provisions................................................31
Free Look Period.....................................................32
Your Policy..........................................................32
Age ................................................................32
Ownership............................................................32
Beneficiary(ies).....................................................32
Collateral Assignment................................................33
Incontestability.....................................................33
Misstatements of Age or Gender.......................................33
Suicide..............................................................33
Transaction Processing...............................................33
Notification and Claims Procedures...................................34
Telephone Privileges.................................................34
Non-participation....................................................34
Distribution of the Policies.........................................34
Advertising Practices and Sales Literature
...............................................................35
Settlement Provisions................................................35
Administrative Information About the Policy..............................35
CHARGES AND DEDUCTIONS........................................................37
Deductions from Premiums.................................................37
Monthly Deductions from Account Value....................................38
Policy Transaction Fees..................................................39
Other Charges............................................................40
Group or Sponsored Arrangements or Corporate
Purchasers...........................................................40
TAX CONSIDERATIONS............................................................40
Tax Status of the Policy.................................................40
Diversification Requirements.............................................41
Tax Treatment of Policy Death Benefits...................................41
Modified Endowment Contracts.............................................42
Multiple Policies........................................................42
Distributions Other than Death Benefits from
Modified Endowment Contracts.........................................42
Distributions Other than Death Benefits from
Policies That Are Not Modified Endowment
Contracts............................................................42
Investment in the Policy.................................................42
Policy Loans.............................................................43
Section 1035 Exchanges...................................................43
Tax-exempt Policy Owners.................................................43
Possible Tax Law Changes.................................................43
Changes to Comply with the Law...........................................43
Other....................................................................43
ILLUSTRATIONS.................................................................45
ADDITIONAL INFORMATION........................................................59
Directors and Officers...................................................59
Regulation...............................................................60
Legal Matters............................................................60
Legal Proceedings........................................................60
Experts..................................................................60
Registration Statement...................................................60
APPENDIX A....................................................................62
APPENDIX B....................................................................63
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Strategic Benefit 3
<PAGE>
POLICY SUMMARY
YOUR POLICY
This policy is available only to groups of ten or more insured people. This
policy is for use on a multi-life basis where the insured people share common
employment or a business relationship. The policy may be owned individually or
by a corporation, trust, association or similar entity. SEE POLICY ISSUANCE,
PAGE 17.
Your policy provides life insurance protection on the insured person. The policy
includes the basic policy, applications, and riders or endorsements. As long as
the policy remains in force, we pay a death benefit at the death of the insured
person. While your policy is in force, you may access your policy value by
taking loans or partial withdrawals. You may also surrender your policy for its
surrender value. When the insured person reaches age 100, the policy can be
surrendered or continued under the continuation of coverage option. SEE
CONTINUATION OF COVERAGE, PAGE 24.
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 specified by state law, you have the right to examine your policy
and return it for a refund of all premiums 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 32.
YOUR 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; and
o sufficient to keep your policy in force.
The amount of premium you pay affects the length of time your policy stays in
force. SEE PREMIUMS, PAGE 17.
ALLOCATION OF NET PREMIUMS
This policy has premium-based charges which are subtracted from your payments.
We add the balance, or the net premium, to your policy based on your investment
instructions. You may allocate the net premium among one or more variable
investment options and the guaranteed interest division. SEE ALLOCATION OF NET
PREMIUMS, PAGE 18.
The following table summarizes the policy charges and fees. For details on these
charges, SEE CHARGES AND DEDUCTIONS, PAGE 37.
- --------
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, your agent or
registered representative.
- --------------------------------------------------------------------------------
Strategic Benefit 4
<PAGE>
CHARGES AND DEDUCTIONS
<TABLE>
<S> <C> <C>
CHARGE WHEN DEDUCTED AMOUNT DEDUCTED
Initial Sales Charge From each premium 0.5% of premium received in policy or
payment received after the segment years 2 and later
end of policy year one
Tax Charges From each premium o 2.5% of premium up to target premium in
o State and local taxes payment received the first policy or segment year. 2.5% of
all premium payments in years 2 and later
o Estimated federal tax
treatment of deferred o 1.5% of premium up to target premium in
acquisition costs the first policy or segment year.1.5% of
all premium payments in years 2 and later
These charges are not guaranteed maximum
rates.
Mortality & Expense Risk Monthly from account o 0.07083% of the variable division account
Charge value value during policy years 1 through 10
(equivalent annual rate of 0.85%)
o 0.05000% of the variable division account
value during policy years 11 through 20
(equivalent annual rate of 0.60%)
o 0.00417% of the variable division account
value during policy year 21 and later
(equivalent annual rate of 0.15%)
Monthly Administrative Monthly from account $12 per month for first policy year and $6 per
Charge value month thereafter
Cost of Insurance Charge Monthly from account Varies based on net amount at risk. Sse your
value policy schedule pages
Partial Withdrawal Fee On Transaction date from Up to $25
account value
Transfer Fee On Transaction date from Twelve free transfers per policy year, then $10
account value per transfer
Illustrations On Transaction date from One free illustration per policy year, then $25
account value per illustration
Premium Allocation Change On Transaction date from Twelve free premium allocation changes per
account value policy year, then $25 per change
Deferred Sales Charge From account value at the o 1.75% of premium received in the first
beginning of each policy or policy or segment year up to target
segment year in years 2 premium
through 8
o 1.60% of premium received in the first
policy or segment year, in excess of target
premium
</TABLE>
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Strategic Benefit 5
<PAGE>
<TABLE>
<S> <C> <C>
Continuation of Coverage Policy anniversary nearest One-time $200 administrative fee.
younger insured person's
100th birthday from account
value
Investment Portfolio Expenses From portfolio assets, See detailed list on page 12.
included in daily unit value
</TABLE>
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 15.
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 OBJECTIVES OF THE INVESTMENT
PORTFOLIOS, PAGE 12.
The separate account purchases shares of the investment portfolios at net asset
value. This price reflects investment management fees and other direct expenses
that are deducted from the portfolio assets as described in the following table.
The fees and expenses are shown in both gross amounts and net amounts shown
after any expenses or fees have been voluntarily absorbed by the investment
portfolio advisers.
The information in this table was provided to us by the portfolios, and we have
not independently verified it. 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.
- --------------------------------------------------------------------------------
Strategic Benefit 6
<PAGE>
INVESTMENT PORTFOLIO ANNUAL EXPENSES (AS A PERCENTAGE OF PORTFOLIO AVERAGE NET
ASSETS)
<TABLE>
<CAPTION>
Portfolio Investment 12-b-1 Other Total Fees and Total Net
Management Fees Expenses Portfolio Expenses Portfolio
Fees Expenses Waived or Expenses
Reimbursed
<S> <C> <C> <C> <C> <C> <C>
AIM VARIABLE INSURANCE FUNDS, INC.
AIM V.I. Capital Appreciation Fund 0.62% NA 0.11% 0.73% NA 0.73%
AIM V.I. Government Securities Fund /1/ 0.50% NA 0.40% 0.90% NA 0.80%
THE ALGER AMERICAN FUND
Alger American Small Capitalization Portfolio 0.85% NA 0.05% 0.90% NA 0.90%
FIDELITY VARIABLE INSURANCE PRODUCTS FUND
VIP Growth Portfolio service class /2/ 0.58% 0.10% 0.19% 0.77% 0.02% 0.77 / 0.75
VIP Overseas Portfolio service class /2/ 0.73% 0.10% 0.28% 1.01% 0.03% 1.01 / 0.98
GCG TRUST /3/
Equity/Income Portfolio 0.96% NA 0.00% 0.96% NA 0.96%
Growth Portfolio 1.04% NA 0.00% 1.04% NA 1.04%
Hard Assets Portfolio 0.96% NA 0.00% 0.96% NA 0.96%
Limited Maturity Bond Portfolio 0.56% NA 0.01% 0.57% NA 0.57%
Liquid Assets Money Market 0.56% NA 0.00% 0.56% NA 0.56%
Mid-Cap Growth Portfolio 0.91% NA 0.00% 0.91% NA 0.91%
Research Portfolio 0.91% NA 0.00% 0.91% NA 0.91%
Total Return Portfolio 0.91% NA 0.00% 0.91% NA 0.91%
INVESCO VARIABLE INVESTMENT FUNDS, INC.
INVESCO VIF-Equity Income Fund 0.75% NA 0.44% 1.19% NA 1.19%
INVESCO VIF-High Yield Fund 0.60% NA 0.48% 1.08% NA 1.08%
INVESCO VIF-Small Company Growth Fund /4/ 0.75% NA 3.35% 4.10% 2.34% 1.76%
MERRILL LYNCH
Basic Value Focus Fund 0.60% NA 0.06% 0.66% NA 0.66%
Balanced Capital Focus Fund /5/ 0.60% NA 0.26% 0.86% NA 0.86%
Global Growth Focus Fund /5/ 0.75% NA 0.28% 1.03% NA 1.03%
Index 500 Fund 0.30% NA 0.06% 0.36% NA 0.36%
Small Cap Value Focus Fund 0.75% NA 0.06% 0.81% NA 0.81%
VAN ECK WORLDWIDE INSURANCE TRUST
Worldwide Bond Fund 1.00% NA 0.22% 1.22% NA 1.22%
Worldwide Emerging Markets Fund /6/ 1.00% NA 0.54% 1.54% 0.24% 1.30%
Worldwide Real Estate Fund /7/ 1.00% NA 2.23% 3.23% 1.79% 1.44%
SECURITY LIFE OF DENVER INSURANCE COMPANY
Guaranteed Interest Division NA NA NA NA NA NA
</TABLE>
/1/ Included in "Other Expenses" of the AIM V.I. Government Securities Portfolio
is 0.10% of interest expense.
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Strategic Benefit 7
<PAGE>
/2/ Each Fidelity Service class fund currently pays .10% of its average net
assets as a 12-b-1 fee. This fee could vary; but cannot exceed .25%. The
total Net Portfolio Expenses presented are before and after Fidelity
absorbed a portion of the portfolio and custodian expenses for some
portfolios with part of the brokerage commissions and uninvested cash
balances.
/3/ The GCG Trust pays Directed Services Inc. ("DSI") a monthly management fee
based on the annual rates of the average daily net assets of the investment
portfolios. DSI in turn pays the portfolio managers monthly fees for
managing the assets of the portfolios.
/4/ INVESCO absorbed a portion of VIF Small Company Growth Fund's "Other
Expenses." After this absorption, these expenses were 1.01%.
/5/ Expenses are annualized.
/6/ Van Eck Associates Corporation absorbed expenses in excess of 1.30% of the
Fund's average daily net assets.
/7/ Van Eck Associates Corporation absorbed portfolio and custodian expenses in
excess of 1.50% of the Fund's average daily net assets with part of the
brokerage commissions and uninvested cash balances.
POLICY VALUES
Your 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 8.
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 a unit of a variable investment option
on the valuation date. Each variable investment option has a different
accumulation unit value. SEE DETERMINING THE VALUE IN THE VARIABLE DIVISION,
PAGE 25.
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
THE VALUE IN THE VARIABLE DIVISION, PAGE 25 AND HOW WE CALCULATE ACCUMULATION
UNIT VALUES, PAGE 26.
TRANSFERS OF ACCOUNT VALUE
You may make twelve free transfers among the variable investment options or to
the guaranteed interest division each policy year. We charge $10 for each
transfer over twelve you make in a policy year. There are restrictions on
transfers from the guaranteed interest division. SEE TRANSFERS OF ACCOUNT VALUE,
PAGE 26.
SPECIAL POLICY FEATURES
DESIGNATED DEDUCTION OPTION
You may designate one investment option from which we will deduct all your
monthly and deferred sales charges. SEE DESIGNATED DEDUCTION OPTION, PAGE 24.
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 27.
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 28.
LOANS
You may take loans against your policy's net account value. We charge an annual
loan interest rate of 3.25%. We credit an annual interest rate of 3% on amounts
held in the loan division as collateral for your loan. SEE POLICY LOANS, PAGE
28.
PARTIAL WITHDRAWALS
You may withdraw part of your net account value any time after your first policy
year. 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 29.
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 state law requires differently. There is no charge for
this exchange. SEE RIGHT TO EXCHANGE POLICY, PAGE 24.
SURRENDER
You may surrender your policy for its surrender value at any time while the
insured person is living. All insurance coverage ends on the date we receive
your request. SEE SURRENDER, PAGE 31.
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Strategic Benefit 8
<PAGE>
LAPSE
In general, insurance coverage continues as long as your policy's net account
value is enough to pay the monthly deductions. SEE LAPSE, PAGE 31.
REINSTATEMENT
You may reinstate your policy and rider within five years of its lapse if you
still own the policy and the insured person is still insurable. You will need to
pay required reinstatement premiums.
If you had a policy loan when coverage ended, we will reinstate it with accrued
loan interest to the date of the lapse. SEE REINSTATEMENT, PAGE 31.
POLICY MATURITY
If the insured person is living on the policy anniversary nearest the date when
the insured person reaches age 100 (the maturity date) and you do not choose
continuation of coverage, you must surrender your policy and we will pay the net
account value. Your policy then ends. SEE POLICY MATURITY, PAGE 24.
CONTINUATION OF COVERAGE
If the insured person is living at age 100 and the policy is in force, you may
choose the continuation of coverage feature. If this feature becomes effective,
we will deduct a one-time administrative fee of $200 and keep your policy in
force. SEE CONTINUATION OF COVERAGE, PAGE 24.
DEATH BENEFITS
At the insured person's death, we pay death proceeds to the beneficiary(ies) if
your policy is still in force. Depending on the death benefit option you have
chosen and whether or not you have coverage under an adjustable term insurance
rider, your policy's death benefit may vary.
Generally, we require a minimum target death benefit of $50,000 per policy.SEE
DEATH BENEFITS, PAGE 19.
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 40.
Assuming the policy qualifies as a life insurance contract, under current
federal income tax law, your account value earnings are generally not subject to
income tax as long as they remain within your policy. However depending on
circumstances, the following events may cause taxable consequences for you:
o partial withdrawals;
o surrender; or
o lapse.
In addition to the events listed above, if your policy is a modified endowment
contract, 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 42.
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.
- --------------------------------------------------------------------------------
Strategic Benefit 9
<PAGE>
How the Policy Works
<TABLE>
<S> <C> <C>
YOUR PREMIUM Premium Deductions
You make a premium ---------------------------->
payment
o initial 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 heald in our general account held in our separate account --> investment portfolios --> management fees
| | and other
----------------------------------------- portfolio expenses
|
|
|
LOAN DIVISION |
Amount set aside to <------------| Monthly Deductions o cost of insurance
secure a policy loan | ---------------------> charge
| | o monthly administrative
| | charge
\/ | o mortality and expense
ACCUMULATED VALUE | risk charge
The total value of your --|
policy |
| o partial withdrawal fee
| Transaction Fees o transfer fee
|---------------------> o illustration fee
| o premium allocation
| change charge
| o continuation of
| coverage fee
|
| Annual Fee
---------------------> o deferred sales charge
Years 2 - 8
</TABLE>
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Strategic Benefit 10
<PAGE>
INFORMATION ABOUT SECURITY LIFE, THE SEPARATE ACCOUNT AND THE INVESTMENT OPTIONS
SECURITY LIFE OF DENVER INSURANCE COMPANY
[TO BE UPDATED BY AMENDMENT]
Security Life of Denver Insurance Company ("Security Life") is a stock life
insurance company organized under the laws of the State of Colorado in 1929. Our
headquarters are located at 1290 Broadway, Denver, Colorado 80203-5699. We are
admitted to do business in the District of Columbia and all states except New
York. At the close of 1998, the company and its consolidated subsidiaries had
over $174.3 billion of life insurance in force. As of December 31, 1998, our
total assets were over $10.0 billion, and our shareholder's equity was over $926
million.
We have a complete line of life insurance products, including:
o annuities;
o individual life;
o group life;
o pension products; and
o market life reinsurance.
Security Life is a wholly owned indirect subsidiary of ING Groep, N.V. ("ING").
ING is one of the world's three largest diversified financial services
organizations. ING is headquartered in Amsterdam, The Netherlands. It has
consolidated assets over $461.8 billion on a Dutch (modified U.S.) generally
accepted accounting principles basis, as of December 31, 1998.
The principal underwriter and distributor for our policies is ING America
Equities, Inc. ING America Equities is a stock corporation organized under the
laws of the State of Colorado in 1993. It is a wholly owned subsidiary of
Security Life and is a registered broker-dealer with the SEC and the NASD. ING
America Equities, Inc. is located at 1290 Broadway, Denver, Colorado 80203-5699.
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 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 and
charge losses against the separate account without regard to performance of
other investment accounts.
ORDER OF SEPARATE ACCOUNT LIABILITIES
State law provides that we may not charge general account liabilities against
the separate account's assets equal to its reserves and other liabilities. This
means that if we ever became 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
the investment performance of a policy depends on the performance of the
investment portfolios you choose.
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Strategic Benefit 11
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Each investment portfolio has its own investment objective. These investment
portfolios are not available directly to individual investors. They are
available only as the underlying investments for variable annuity and variable
life insurance contracts and certain pension accounts.
INVESTMENT PORTFOLIOS
Each of the investment portfolios is a separate series of an open-end management
investment company. The investment company receives investment advice from a
registered investment adviser who, other than the GCG Trust and the ING Funds,
is not associated with us.
Currently, some variable investment options invest in a portfolio of the GCG
Trust. Directed Services, Inc. ("DSI") serves as the manager to each portfolio
of the GCG Trust. The GCG Trust and DSI have retained several portfolio managers
to manage the assets of each portfolio of the GCG Trust.
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.These advisers include AIM
Advisors, Inc.; Fidelity Management & Research Company; Fred Alger Management,
Inc.; Directed Services, Inc.; INVESCO Funds Group, Inc. Merrill Lynch Asset
Management, L.P. and Van Eck Associates Corporation.The amount of compensation
is usually based on the aggregate assets of the investment portfolio from
contracts that we issue or administer.Some advisers may pay us more than others.
Merrill Lynch Asset Management, L.P. ("MLAM") is the investment adviser to the
Merrill Variable Funds. MLAM, together with its affiliates, Fund Asset
Management, L.P., Mercury Asset Management International Ltd., and Hotchkis and
Wiley, is a worldwide mutual fund leader, and has a total of $501.68 billion in
investment company and other portfolio assets under management as of the end of
February 1999. It is registered as an investment adviser under the Investment
Advisers Act of 1940. MLAM is an indirect subsidiary of Merrill Lynch & Co.,
Inc. MLAM's principal business address is 800 Scudders Mill Road, Plainsboro,
New Jersey 08536. As the investment adviser, it is paid fees by these Funds for
its services. The fees charged to each of these Funds are set forth in the table
on page 7.
INVESTMENT PORTFOLIOS' OBJECTIVES
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
V.I. Capital Appreciation Fund AIM Variable Insurance Seeks growth of capital through investment in common
Funds, Inc./ AIM Advisors, stocks, with emphasis on medium- and small-sized
Inc. growth companies.
</TABLE>
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Strategic Benefit 12
<PAGE>
IINVESTMENT PORTFOLIOS' OBJECTIVES
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
V.I. Government Securities AIM Variable Insurance Seeks to achieve high current income consistent with
Fund Funds, Inc./ AIM Advisors, reasonable concern for safety of principal by investing in
Inc. debt securities issued, guaranteed or otherwise backed
by the United States Government.
American Small Capitalization The Alger American Fund Seeks long-term capital appreciation by focusing on
Portfolio small, fast-growing companies that offer innovative
products, services or technologies to a rapidly expanding
marketplace.
VIP Growth Portfolio Fidelity Variable Insurance Seeks capital appreciation by investing in common
Products Fund and Variable stocks of companies that it believes have above-average
Insurance Products Fund II/ growth potential, either domestic or foreign issuers.
Fidelity Management &
Research Company
VIP Overseas Portfolio Fidelity Variable Insurance Seeks long-term growth of capital by investing at least
Products Fund and Variable 65% of total assets in foreign securities.
Insurance Products Fund II/
Fidelity Management &
Research Company
Equity/Income Portfolio GCG Trust/ Directed Seeks substantial dividend income as well as long-term
Services, Inc./ T. Rowe Price growth of capital.Invests primarily in common stocks
Associates, Inc. of well-established companies paying above-average
dividends.
Growth Portfolio GCG Trust/ Directed Seeks capital appreciation. Invests primarily in common
Services, Inc./ Janus Capital stocks of growth companies that have favorable
Corporation relationships between price/earnings ratios and growth
rates in sectors offering the potential for above-average
returns.
Hard Assets Portfolio GCG Trust/ Directed Seeks long-term capital appreciation. Invests primarily
Services, Inc./ Baring in hard asset securities.Hard asset companies produce a
International Investment commodity which the portfolio manager is able to price
Limited (an affiliate) on a daily or weekly basis.
Limited Maturity Bond GCG Trust/ Directed Seeks highest current income consistent with low risk to
Portfolio Services, Inc./ ING principal and liquidity. Also seeks to enhance its total
Investment Management, return through capital appreciation when market factors,
L.L.C. (an affiliate) such as falling interest rates and rising bond prices,
indicate that capital appreciation may be available without
significant risk to principal. Invests primarily in
diversified limited maturity debt securities with average
maturity dates of five years or shorter and in no cases more
than seven years.
</TABLE>
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Strategic Benefit 13
<PAGE>
INVESTMENT PORTFOLIOS' OBJECTIVES
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
Liquid Asset Portfolio GCG Trust/Directed Seeks high level of current income consistent with the
Services, Inc./ING preservation of capital and liquidity. Invests primarily in
Investment Management, obligations of the U.S. Government and its agencies and
LLC (an affiliate) instrumentalities, bank obligations, commercial paper
and short-term corporate debt securities. All securities
will mature in less than one year. Sub-advised by ING
Investment Management, LLC (an affiliate).
Mid-Cap Growth Portfolio GCG Trust/ Directed Seeks long-term growth of capital.Invests primarily in
Services, Inc./ Massachusetts equity securities of companies with medium market
Financial Services Company capitalization which the portfolio manager believes have
above-average growth potential.
Research Portfolio GCG Trust/ Directed Seeks long-term growth of capital and future income.
Services, Inc./ Massachusetts Invests primarily in common stocks or securities
Financial Services Company convertible into common stocks of companies believed
to have better than average prospects for long-term
growth.
Total Return Portfolio GCG Trust/ Directed Seeks above-average income (compared to a portfolio
Services, Inc./ Massachusetts entirely invested in equity securities) consistent with the
Financial Services Company prudent employment of capital. Invests primarily in a
combination of equity and fixed income securities.
Global Brand Names ING Investment [TO BE UPDATED BY AMENDMENT]
Management, L.L.C./
[TO BE UPDATED BY
AMENDMENT]
Global Information ING Investment [TO BE UPDATED BY AMENDMENT]
TechnologyManagement, L.L.C./
[TO BE UPDATED BY
AMENDMENT]
VIF-Equity Income Fund INVESCO Variable Seeks high current income, with growth of capital as a
Investment Funds, Inc./ secondary objective by investing at least 65% of its
INVESCO Funds Group, assets in dividend-paying common and preferred stocks.
Inc. The rest of the fund's assets are invested in debt
securities, and lower-grade debt securities.
VIF-High Yield Fund INVESCO Variable Seeks to provide a high level of current income by
Investment Funds, Inc./ investing substantially all of its assets in lower-rated
INVESCO Funds Group, debt securities and preferred stock, including securities
Inc. issued by foreign companies.
</TABLE>
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Strategic Benefit 14
<PAGE>
INVESTMENT PORTFOLIOS' OBJECTIVES
<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
VIF-Small Company Growth INVESCO Variable Seeks investment growth over the long term by investing
Fund Investment Funds, Inc./ at least 80% of its assets in equity securities of
INVESCO Funds Group, companies with market capitalizations of $1 billion or
Inc. less. The remainder of the fund's assets can be invested
in a wide range of securities that may or may not be issued
by small companies.
Basic Value Focus Merrill Lynch/ Seeks capital appreciation and, secondarily, income by
Management, L.P./Merrill management of the Fund believes are undervalued and
Lynch Variable Series therefore represent basic investment value. The Fund seeks
Funds, Inc. special opportunities in securities that are selling at a
discount either from book value or historical price-earnings
ratios, or seem capable of recovering from temporarily
out-of-favor considerations. Particular emphasis is placed
on securities which provide an above-average dividend return
and sell at a below-average price/earnings ratio.
Capital Focus Merrill Lynch Asset Seeks to achieve the highest total investment return
Management, L.P./ Merrill consistent with prudent risk. To do this, management of
Lynch Variable Series Funds, the Fund uses a flexible "fully managed" investment
Inc. policy that shifts the emphasis among equity, debt
(including money market), and convertible securities.
Global Growth Focus Merrill Lynch Asset Seeks long-term growth of capital. The Fund invests in a
Management, L.P./ Merrill diversified portfolio of equity securities of issuers
Lynch Variable Series Funds, located in various countries and the United States,
Inc. placing particular emphasis on companies that have
exhibited above-average growth rates in earnings. Because a
substantial portion of the Fund's assets may be invested on
an international basis, contract owners should be aware of
certain risks, such as fluctuations in foreign exchange
rates, future political and economic developments, different
legal systems, and the possible imposition of exchange
controls or other foreign government laws or restrictions.
An investment in the Fund may be appropriate only for
long-term investors who can assume the risk of loss of
principal, and do not seek current income.
Index 500 Merrill Lynch Asset Seeks investment results that, before expenses,
Management, L.P./ Merrill correspond to the aggregate price and yield performance
Lynch Variable Series Funds, of the Standard & Poor's 500 Composite Stock Price Index
Inc. (the "S&P 500 Index").
</TABLE>
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Strategic Benefit 15
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<TABLE>
<S> <C> <C>
VARIABLE INVESTMENT OPTION INVESTMENT COMPANY/ INVESTMENT OBJECTIVE
ADVISER/ MANAGER/ SUB-
ADVISER
Special Value Focus Merrill Lynch Asset Seeks long term growth of capital by investing in a
Management, L.P./ Merrill diversified portfolio of securities, primarily common
Lynch Variable Series stocks, of relatively small companies that management of
Funds, Inc. the Merrill Variable Funds believes have special
investment value, and of emerging growth companies
regardless of size. Companies are selected by management on
the basis of their long-term potential for expanding their
size and profitability or for gaining increased market
recognition for their securities. Current income is not a
factor in the selection of securities.
Worldwide Bond Fund Van Eck Worldwide Seeks high total return--income plus capital
Insurance Trust/ Van Eck appreciation--by investing globally, primarily in a
Associates Corporation variety of debt securities.
Worldwide Emerging Markets Van Eck Worldwide Seeks long term capital appreciation by investing in
Fund Insurance Trust/ Van Eck equity securities in emerging markets around the world.
Associates Corporation
Worldwide Real Estate Fund Van Eck Worldwide Seeks high total return by investing in equity
Insurance Trust/ Van securities of companies that own significant
Eck Associates real estate or do business principally in real
Corporation estate.
</TABLE>
GUARANTEED INTEREST DIVISION
You may allocate all or a part of the net premium and transfers of 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.
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Strategic Benefit 16
<PAGE>
MAXIMUM NUMBER OF INVESTMENT OPTIONS
You may invest in a total of eighteen investment options over the life of your
policy. Investment options include the guaranteed interest divisions, all of the
variable investment options 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 other investment options 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 Strategic Benefit 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 47 show how the policies work.
APPLYING FOR A POLICY
You purchase this variable universal life policy by submitting an application.
The insured person is the person on whose life we issue a policy and upon whose
death we pay death proceeds. On the policy date, the insured person must be at
least 15 years of age and no older than age 85. We may back-date the policy up
to six months to allow the insured person to give proof of a younger age for the
purposes of your policy. SEE AGE, PAGE 32.
TEMPORARY INSURANCE
If you apply and qualify, we may issue temporary insurance in an amount equal to
the face amount of insurance for which you applied. The maximum amount of
temporary insurance for binding limited life insurance coverage is $3 million,
which includes any in-force coverage you have with us.
Temporary coverage begins when:
o you have completed and signed our binding limited life insurance
coverage form;
o we receive and accept a premium payment of at least your scheduled
premium (selected on your application); and
o part I of the application is completed.
Temporary 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 you a policy based on your application; or
o 90 days after you sign our binding limited life insurance coverage
form.
There is no death benefit under the temporary insurance agreement if:
o there is a material misrepresentation in your answers on the binding
limited life insurance coverage form;
o there is a material misrepresentation in statements on your
application;
o the person or persons intended to be the insured people die by suicide
or self-inflicted injury; or
o the bank does not honor your premium check.
POLICY ISSUANCE
Before we issue a policy we require satisfactory evidence of insurability of the
insured person and payment of your initial premium. This evidence may include
completion of underwriting and issue requirements.
The policy date as shown on your policy schedule determines:
o monthly processing dates;
o policy months;
o policy years; and
o policy anniversaries.
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Strategic Benefit 17
<PAGE>
It is not affected by the date you receive the policy. The policy date may be
different from the date we receive your first premium payment. If the policy
date is earlier, we charge monthly deductions from when we receive your initial
premium.
The policy date is determined one of three ways:
1. the date you designate on your application, subject to our approval;
or
2. the back-date of the policy to save age, subject to our approval and
state law.
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
The federal income tax definition of life insurance is the cash value
accumulation test. SEE TAX STATUS OF THE POLICY, PAGE 40.
PREMIUMS
You may choose the amount and frequency of premium payments, within limits.
We consider payments we receive to be premium payments if you do not have an
outstanding policy 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 (planned) 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,
semiannual 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
method is not available for your initial premium. Your financial institution 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.
UNSCHEDULED PREMIUM PAYMENTS
Generally speaking, you may make unscheduled premium payments at any time,
however:
o 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 person is insurable at
the time of your unscheduled payment if the death benefit is increased
as a result of it;
o we may require proof that the insured person is insurable if your
unscheduled premium payment will cause the net amount at risk to
increase; and
o we will return premium payments which are greater than the "seven-pay"
limit for your policy if they 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 42 AND CHANGES TO COMPLY WITH THE LAW,
PAGE 43.
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 deduct tax or sales charges.
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
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Strategic Benefit 18
<PAGE>
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 17.
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. Your
initial premium is the first premium we receive and apply to your policy. It
must be at least the amount of your scheduled premiums from your policy date
through your investment date.
The investment date is the first date we apply net premium to your policy.
We apply the initial net premium to your policy after:
a) we have received 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 return of your
premium during the free look period, we initially invest amounts you have
designated for the variable division in the GCG Trust Liquid Asset Portfolio. We
later transfer these amounts from the Liquid asset 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 policy delivery receipt and 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. Your
instructions must specify percentages that are whole numbers totaling 100% and
which use no more than eighteen investment options over the life of your policy.
SEE MAXIMUM NUMBER OF INVESTMENT DIVISIONS, PAGE 16.
You may make five free premium allocation changes per year. After the five free
premium allocation changes, we charge you $25 for each additional allocation
change per policy year. If you change your designated deduction option, we
consider this a premium allocation change for which there may be a charge. SEE
DESIGNATED DEDUCTION OPTION, PAGE 24 AND POLICY TRANSACTION FEES, PAGE 39.
PREMIUM PAYMENTS AFFECT YOUR COVERAGE
Your coverage lasts only as long as your net account value is enough to pay the
monthly and annual charges and your account value is more than your outstanding
policy loan plus accrued loan interest. If these conditions are not met, your
policy will enter the 61-day grace period and you must make a premium payment to
avoid lapse. SEE LAPSE, PAGE 31, AND GRACE PERIOD, PAGE 31.
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 42.
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Strategic Benefit 19
<PAGE>
DEATH BENEFITS
You 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 one policy.
Generally we require a minimum group first year premium of at least $250,000.
However, depending on underwriting circumstances, we may reduce the minimum
group first year premium in some cases. We do not require a minimum base death
benefit amount, however we generally require a minimum target death benefit of
$50,000 per policy. We may reduce this minimum if the average initial target
death benefit for the group is at least $50,000.
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 person. Use of the adjustable term insurance rider may
reduce sales compensation but may increase the monthly cost of insurance. SEE
ADJUSTABLE TERM INSURANCE RIDER, PAGE 23.
Death benefits are valued as of the date of death of the insured person.
DEATH BENEFIT SUMMARY
THIS CHART ASSUMES NO DEATH BENEFIT OPTION CHANGES, INCREASES OR DECREASES IN
STATED OR TARGET DEATH BENEFIT AND THAT PARTIAL WITHDRAWALS ARE LESS THAN
PREMIUM RECEIVED.
<TABLE>
<S> <C> <C> <C>
OPTION 1 OPTION 2 OPTION 3
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 life stays level throughout the life stays level throughout the life
of the policy. of the policy. of the policy.
BASE DEATH The greater of the stated The greater of the stated The greater of the stated
BENEFIT death benefit or the account death benefit plus the death benefit plus the sum of
value multiplied by the account value, or the account all premiums we receive
appropriate factor from the value multiplied by the minus partial withdrawals
definition of life insurance appropriate factor from the you have taken, or the
factors. definition of life insurance account value multiplied by
factors. the appropriate 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 The greater of the target The greater of the target 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.
</TABLE>
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Strategic Benefit 20
<PAGE>
<TABLE>
<S> <C> <C> <C>
OPTION 1 OPTION 2 OPTION 3
ADJUSTABLE The adjustable term The adjustable term The adjustable term
TERM insurance rider benefit is the insurance rider benefit is the insurance rider benefit is the
INSURANCE total death benefit minus base total death benefit minus the total death benefit minus the
RIDER BENEFIT death benefit, but not less base death benefit, but not base death benefit, but not
than zero. If the account less than zero. If the account less than zero. If the account
value multiplied by the death value multiplied by the death value multiplied by the death
benefit corridor factor is benefit corridor factor is benefit corridor factor is
greater than the stated death greater than the stated death greater than the stated death
benefit, the adjustable term benefit plus the account benefit plus the sum of all
insurance benefit will value, the adjustable term premiums we receive minus
decrease. It will decrease so insurance rider benefit will partial withdrawals you have
that the base death benefit decrease. It will decrease so taken, the adjustable term
plus the adjustable term that the base death benefit insurance rider benefit will
insurance rider benefit is not plus the adjustable term decrease.It will decrease so
greater than the target death insurance rider benefit is not that the sum of the base death
benefit. If the base death greater than the target death benefit plus the adjustable
benefit becomes greater than benefit plus the account term insurance rider benefit
the target death benefit, the value. If the base death is not greater than the target
adjustable term insurance benefit becomes greater than death benefit plus the sum of
rider benefit is zero. the target death benefit plus all premiums we receive
the account value, the minus partial withdrawals
adjustable term insurance you have taken.If the base
rider benefit is zero. death benefit becomes
greater than the target death
benefit plus the sum of all
premiums we receive minus
partial withdrawals you have
taken, the adjustable term
insurance rider benefit is zero.
</TABLE>
BASE DEATH BENEFIT
Your base death benefit can be different from your stated death benefit as a
result of:
o your choice of death benefit option;
o a change in your death benefit option;
o increases or decreases to the stated death benefit.
As long as your policy is in force, we will pay the death proceeds to your
beneficiary(ies) when the insured person dies. The beneficiary(ies) is(are) the
person (people) you name to receive the death proceeds from your policy. The
death proceeds are:
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 insured person's death.
There could be outstanding policy charges if the insured dies while your policy
is in the grace 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. You may change your death benefit option after
the first policy anniversary and before the continuation of coverage feature
begins. SEE CHANGES IN DEATH BENEFIT OPTIONS, PAGE 21 AND CONTINUATION OF
COVERAGE, PAGE 24.
Federal income tax law requires that your death benefit be at least as much as
your account value multiplied by a factor defined by law. This factor is based
on the insured person's age and gender. SEE APPENDIX A, PAGE 62.
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Strategic Benefit 21
<PAGE>
Under death benefit option 1, your base death benefit is the greater of:
o your stated death benefit on the date of the insured person's death;
or
o your account value on the date of the insured person's death
multiplied by the appropriate factor from the definition of life
insurance factors shown in Appendix A.
Under option 1 positive investment performance is generally reflected in a
reduced net amount at risk. This lowers your policy's total cost of insurance
charges. Option 1 offers insurance coverage that is a set amount with
potentially lower cost of insurance charges over time.
Under death benefit option 2, your base death benefit is the greater of:
o your stated death benefit plus your account value on the date of the
insured person's death; or
o your account value on the date of the insured person's death
multiplied by the appropriate factor from the definition of life
insurance factors shown in Appendix A.
Under option 2, investment performance is reflected in your insurance coverage.
Under death benefit option 3, the base death benefit is the greater of:
o your stated death benefit plus the sum of all premiums we receive
minus partial withdrawals you have taken under your policy; or
o your account value on the date of the insured person's death
multiplied by the appropriate factor from the definition of life
insurance factors shown in Appendix A.
Under option 3, the base death benefit generally will increase as you pay
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 24.
CHANGES IN DEATH BENEFIT OPTIONS
You may request a change in your death benefit option at any time before the
continuation of coverage period. 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 is 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. Or, 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 allow a change to your death benefit option if it reduces the target
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 FROM OPTION 3 TO OPTION 2.
For you to change from death benefit option 1 to option 2, we may require proof
that the insured person is insurable under our normal rules of underwriting.
On the effective date of your option change, your stated death benefit is
changed as follows:
Change Change Stated Death Benefit
From To Following Change:
---- -- -----------------
Option 1 Option 2 your stated death benefit
before the change minus
your account value as of the
effective date of the change.
Option 2 Option 1 your stated death benefit
before the change plus your
account value as of the
effective date of the change.
Option 3 Option 1 your stated death benefit
before the change plus the
sum of the premiums we
receive, minus partial
withdrawals you have taken
as of the effective date of the
change.
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Strategic Benefit 22
<PAGE>
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 38.
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.
CHANGES IN DEATH BENEFIT AMOUNTS
You may increase your target or stated death benefit while your policy is in
force and before the policy anniversary when the insured person turns age 85.
You may request a decrease in the stated death benefit only after your first
policy anniversary.
Contact your agent/registered representative or our customer service center to
request an increase or decrease in death benefit. The change is effective as of
the next monthly processing date after we approve your request. Your requested
change must be for at least $1,000.
After we make your requested change, we will send you a new schedule page. Keep
it with your policy. Or we may ask you to send your policy to us so that we can
make the change for you.
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 40.
If you decrease your death benefit, you may not decrease your target death
benefit below the minimum we require to issue your policy.
There may be tax consequences as a result of a decrease in your death benefit.
SEE TAX STATUS OF THE POLICY, PAGE 40 AND MODIFIED ENDOWMENT CONTRACTS, PAGE 42.
Requested reductions in the death benefit amount will first 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 state law requires differently.
You must provide satisfactory evidence that the insured person is still
insurable in order to increase your death benefit. Unless you tell us
differently, we assume a request to increase your target death benefit is also a
request for an increase to the stated death benefit. Thus, the amount of your
adjustable term insurance rider will not change. You may change your target
death benefit once in a policy year.
The initial death benefit segment, or first segment, is the stated death benefit
on the effective date of your policy. An increase in the stated death benefit
(other than one caused by an option change) will create a new segment. The
segment year begins on the segment effective date and ends one year later. Once
we create a new segment, it is permanent unless state law requires differently.
Each new segment may have:
o a new sales charge;
o a new deferred 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.
Premiums you pay after an increase are applied to your policy segments in the
same proportion as the target premium for each segment bears to the sum of the
target premium for all segments. For each coverage segment, your schedule shows
your target premium which is used to determine your initial sales charge and
deferred sales charge.
ADJUSTABLE TERM INSURANCE RIDER
You may increase your death proceeds by adding an adjustable term insurance
rider to your policy. This rider enables you to schedule the death benefit based
- --------------------------------------------------------------------------------
Strategic Benefit 23
<PAGE>
on 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 scheduled to change at
the beginning of a policy year(s). SEE DEATH BENEFITS, PAGE 19.
The adjustable term insurance rider death benefit is the difference between your
target death benefit and your base death benefit. The death benefit
automatically adjusts daily as your base death benefit changes. Total death
benefit depends on which death benefit option is in effect:
OPTION 1: If option 1 is in effect, the total death benefit is the greater of:
a. the target death benefit; or
b. the account value multiplied by the appropriate factor from the death
benefit corridor factors in the policy.
OPTION 2: If option 2 is in effect, the total death benefit is the greater of:
a. the target death benefit plus the account value; or
b. the account value multiplied by the appropriate factor from the death
benefit corridor factors in the policy.
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 receive 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 changes in your account value. The adjustable term insurance rider adjusts to
provide death proceeds equal to your target death benefit in each year:
Base Death Target Death Adjustable Term
Benefit Benefit Insurance Rider Amount
------- ------- ----------------------
$201,500 $250,000 $48,500
202,500 250,000 47,500
202,250 250,000 47,750
It is possible that the amount of your adjustable term insurance may be zero if
your base death benefit increases enough. Using the same example, if the base
death benefit under your policy grew to $250,000 or more, the adjustable term
insurance coverage 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 22.
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 the amount of your target death benefit. SEE PARTIAL
WITHDRAWALS, PAGE 29, AND CHANGES IN DEATH BENEFIT OPTIONS, PAGE 21.
There is no defined premium for a given amount of adjustable term insurance
coverage. Instead, we deduct a monthly cost of insurance charge from your
account value. The cost of insurance for this rider is calculated as the monthly
cost of insurance rate for the rider coverage multiplied by the adjustable term
death benefit in effect that month. The cost of insurance rates will be
determined by us from time to time. They are based on the issue age, gender, and
rating of the person insured, as well as the length of time since your policy
date. The monthly guaranteed maximum cost of insurance rates for this rider will
be in your policy. SEE COST OF INSURANCE CHARGE, PAGE 38.
The only charge for this coverage is the cost of insurance charge. The total
charges that you pay may be less if you have greater coverage under an
adjustable term insurance rider rather than base death benefit. If the target
death benefit is increased by you after the rider is issued, we use the same
- --------------------------------------------------------------------------------
Strategic Benefit 24
<PAGE>
cost of insurance rate schedule for the entire coverage for this rider. These
rates are based on the original rating even though new evidence of insurability
is given to us for the increased schedule.
Not all policy features apply to the adjustable term insurance rider. Under this
rider, there is no surrender value and a policy loan is not available. The
adjustable term insurance rider does not contribute to the policy account value
nor to investment performance under your policy. The adjustable term insurance
rider provides benefits only at the insured person's death.
SPECIAL FEATURES
DESIGNATED DEDUCTION OPTION
You may designate an investment option from which we will take your monthly
charges and deferred sales charge. You may make this designation at any time.
You may not use the loan division as your designated deduction option.
If you do not choose a designated deduction option, or if the amount in your
designated deduction option is not enough to cover deductions and charges, the
charges will be 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 as of the monthly processing date.
If you change your designated deduction option, we consider it a premium
allocation change for which there may be a charge. SEE POLICY TRANSACTION FEES,
PAGE 39.
RIGHT TO EXCHANGE POLICY
During the first 24 months after your policy date, you have the right to
exchange your policy for a guaranteed policy, unless state law requires
differently. We transfer the amount you have in the variable division to the
guaranteed interest division. We allocate all future net premiums to the
guaranteed interest division. We do not allow future payments or transfers to
the variable division after you exercise this right. We will not charge you for
this exchange. SEE GUARANTEED INTEREST DIVISION, PAGE 15.
POLICY MATURITY
If the insured person reaches age 100 and you do not want the continuation of
coverage feature, you may surrender your policy for the net account value. Your
policy then ends. Some part of this payment may be taxable. You should consult
your tax adviser.
CONTINUATION OF COVERAGE
The continuation of coverage feature allows your insurance coverage to continue
beyond policy maturity. If you allow the continuation of coverage feature to
become effective, we:
o transfer your net account value (excluding the amount in the loan
division) into the guaranteed interest division;
o charge a one-time $200 administrative fee to your policy to cover
future expenses;
o terminate the adjustable term insurance rider and the target death
benefit becomes the stated death benefit;
o convert death benefit option 2 or option 3 to death benefit option 1,
if applicable; and
o terminate investment features.
Your insurance coverage continues until the insured person's death, unless your
policy lapses or is surrendered. However, we deduct no further charges and your
monthly deductions cease. SEE CONTINUATION OF COVERAGE ADMINISTRATIVE FEE, PAGE
39.
Your net account value may not be transferred into the variable division during
the continuation of coverage period, but you may take policy loans or partial
withdrawals.
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, you may repay loans and make loan
interest payments during the continuation of coverage period.
If you wish to stop coverage after the continuation of coverage feature begins,
you may surrender your policy and receive the net account value. All other
consequences of surrender apply. SEE SURRENDER, PAGE 31.
The continuation of coverage feature may not be available in all states. If a
state has approved this feature, it is automatic and you do not need to take any
action to activate it.
The tax consequences of coverage continuing beyond when the insured person
reaches age 100 are uncertain. You should consult a tax adviser as to those
consequences.
- --------------------------------------------------------------------------------
Strategic Benefit 25
<PAGE>
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 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. Your surrender value
is the same as your net account value.
DETERMINING THE VALUE IN THE VARIABLE DIVISION
The amounts in the variable division are measured by accumulation units and
accumulation unit values. The value of a variable investment option is the
accumulation unit value for that option multiplied by the number of accumulation
units you own in that option.
The accumulation unit value is the value 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; and
o investment portfolio expenses.
Each variable investment option has a different accumulation unit value.
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.
Valuation dates are each day the New York Stock Exchange and the company's
customer service center are open for business, except for days on which a
corresponding investment portfolio does not value its shares, or any other day
as required by law. Each valuation date ends at 4 p.m. Eastern Time. Our
customer service center may not be open for business on: New Year's Day, Martin
Luther King, Jr.'s birthday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, the day after Thanksgiving, Christmas Day and the day before
or after Christmas.
You purchase accumulation units when you allocate premium or make transfers to a
variable investment option.This includes transfers from the loan division.
We redeem accumulation units:
o when you take a partial withdrawal;
o when amounts are transferred from a variable investment option
(including transfers to the loan division);
o for the monthly deductions from your account value;
o for policy transaction charges;
o when you surrender your policy; and
o to pay the death proceeds.
To calculate the number of accumulation units purchased or redeemed we:
o divide the dollar amount of your transaction by:
o the accumulation unit value calculated at the close of business on the
valuation date of the transaction.
SEE HOW WE CALCULATE ACCUMULATION UNIT VALUES,
PAGE 26.
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 as of the monthly processing
date. If your monthly processing date is not a valuation date, the monthly
deduction is processed on the next valuation date.
The value of amounts allocated to the variable investment option goes up or down
depending on investment performance.
- --------------------------------------------------------------------------------
Strategic Benefit 26
<PAGE>
FOR AMOUNTS IN THE VARIABLE INVESTMENT OPTIONS, THERE IS NO GUARANTEED MINIMUM
CASH 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, the accumulation
unit value on any valuation date is:
o the accumulation unit value for the preceding valuation date
multiplied by
o the accumulation experience factor for that variable investment option
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:
o We take the share value of the underlying portfolio shares in the
variable investment option as reported to us by the investment
portfolio managers as of the close of business on that valuation date.
o We add dividends or capital gain distributions declared per share and
reinvested by the investment portfolio on the date that the share
value is affected. If applicable, we subtract a charge for taxes from
this amount.
o We divide the remaining amount by the value of the shares in the
underlying investment portfolio for the variable investment option at
the close of business on the previous valuation date.
TRANSFERS OF ACCOUNT VALUE
You may make twelve free transfers among the variable investment options, or the
guaranteed interest division, in each policy year. You may not make transfers
until after your free look period ends if your state requires a refund of
premium during the free look period.
We do not limit your number of transfers, but we charge a $10 fee for each
transfer after the first twelve in a policy year. We do not include transfers
for automatic rebalancing or dollar cost averaging toward your twelve free
transfers. You may not make transfers during the continuation of coverage
period. SEE POLICY TRANSACTION FEES, PAGE 39 AND CONTINUATION OF COVERAGE, PAGE
24.
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 a variable investment option is less
than $100 when you make a transfer request, we transfer the entire amount out of
that variable investment option.
EXCESSIVE TRADING
Excessive trading activity can disrupt investment portfolio management
strategies and increase portfolio expenses by causing:
o increased trading and transaction costs;
o disruption of planned investment strategies;
o forced and unplanned portfolio turnover;
o lost opportunity costs; and
o large asset swings that decrease the 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 a market timing
service. We will refuse or place restrictions on transfers when we determine, in
our sole discretion, that transfers are harmful to the investment portfolios, or
to policyowners as a whole.
GUARANTEED INTEREST DIVISION TRANSFERS
Transfers into the guaranteed interest division are not restricted.
You may transfer from the guaranteed interest division only in the first 30 days
of each policy year. Transfer requests received within 30 days before your
policy anniversary will occur on your policy anniversary. A request received by
us within 30 days after your policy anniversary is effective as of the valuation
date we receive it. Transfer requests made at any other time will not be
processed.
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Strategic Benefit 27
<PAGE>
Transfers from the guaranteed interest division are limited to the largest of:
o 25% of your guaranteed interest division balance at the time of your
first transfer or withdrawal out of it in that policy year;
o the sum of the amounts you have transferred and withdrawn from the
guaranteed interest division in the prior policy year; or
o $100.
DOLLAR COST AVERAGING
You can elect dollar cost averaging if your policy has at least $10,000 invested
in a qualifying source portfolio, either the Liquid Asset Portfolio or the
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 a portfolio's shares is high. It
also reduces the risk of investing too little when the price of an investment
portfolio's shares is low. Since you transfer the same dollar amount to these
investment options each period, you purchase more units when the unit value is
low, and you purchase fewer units when the unit value is high.
You may add dollar cost averaging to your policy at any time. The first dollar
cost averaging date must be at least one day after we receive your dollar cost
averaging request. Dollar cost averaging begins after the end of your free look
period if your state requires a refund of all premium during the free look
period.
With dollar cost averaging, you designate either a dollar amount, or a
percentage of your account value, for automatic transfer from qualifying source
portfolios. Each period, we automatically transfer the amount you select from
your chosen source portfolio to one or more other variable investment options.
You may not make transfers to or from the guaranteed interest division or the
loan division under dollar cost averaging.
The minimum percentage you may transfer to 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 your monthly processing
date.
We do not count dollar cost averaging transfers toward your twelve free
transfers per policy year. There is no charge for this feature.
You may have both dollar cost averaging and automatic rebalancing at the same
time. However, your dollar cost averaging source portfolios cannot be included
in your automatic rebalancing allocation program.
CHANGING DOLLAR COST AVERAGING
You may change your dollar cost averaging program once per policy year. If you
have telephone privileges, you may change the program by telephoning our
customer service center. SEE TELEPHONE PRIVILEGES, PAGE 34.
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 if:
o you specify a termination date; or
o your balance in the source portfolio reaches a dollar amount you set;
or
o the amount in the source portfolio is equal to or less than the amount
to be transferred. We will transfer the remaining amount and end
dollar cost averaging.
AUTOMATIC REBALANCING
Automatic rebalancing is a method of maintaining a consistent approach to
investing account value over time, and simplifying the process of asset
allocation among your chosen investment options.
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Strategic Benefit 28
<PAGE>
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 other investment options for that time period.
You may choose automatic rebalancing 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.
You may have both automatic rebalancing and dollar cost averaging at the same
time. However, the source portfolios for your dollar cost averaging cannot be
included in your automatic rebalancing program. You may not include the loan
division.
CHANGING AUTOMATIC REBALANCING
You may change your allocation percentages for automatic rebalancing at any
time. Your allocation change is effective on the valuation date that we receive
it at our customer service center. If you reduce the amount allocated to the
guaranteed interest division, it is considered a transfer from that division.
You must meet the requirements for the maximum transfer amount and time
limitations on transfers from the guaranteed interest division. SEE TRANSFERS OF
ACCOUNT VALUE, PAGE 26.
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
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 (policy loan) is:
o the total amount you borrow; plus
o loan interest that is capitalized when due; minus
o loan repayments you make.
Unless state law requires differently, a new policy loan must be at least $100.
The maximum amount you can borrow on any valuation date, unless required
differently by state 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 for less than
$25,000 by telephone. SEE TELEPHONE PRIVILEGES, PAGE 34.
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.
When you take a policy loan, we transfer an amount equal to your policy loan
from the specified investment option or proportionately from the variable and
the guaranteed interest divisions to the loan division. We follow this same
process for loan interest due at your policy anniversary. The loan division is
part of our general account, specifically designed to hold collateral for policy
loans and interest. We credit the loan division with interest at an annual rate
of 3%.
Loan interest charges on your policy loan accrue daily at an annual interest
rate of 3.25%. Interest is due in arrears on each policy anniversary. If you do
not pay it when it is due, we add it to your policy loan balance.
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.
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Strategic Benefit 29
<PAGE>
LOAN REPAYMENT
You may repay your policy loan at any time. We assume that payments you make,
other than scheduled premiums, are policy loan repayments. You must tell us if
you want additional payments to be premium payments.
When you make a loan repayment, we transfer an amount equal to your repayment
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
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 or the surrender value payable.
A policy loan may cause your policy to lapse if your account value minus your
policy loan balance and accrued loan interest is not enough to cover your
monthly deductions. 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
42, AND DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT
MODIFIED ENDOWMENT CONTRACTS, PAGE 42.
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, the partial withdrawal must be for an amount 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 34.
You may take only one partial withdrawal per policy year. The minimum partial
withdrawal amount 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,
PAGE 37.
Partial withdrawals do not reduce the stated death benefit if your base death
benefit has been increased to qualify your policy as life insurance under the
federal income tax laws and if you withdraw an amount that is no greater than
the amount that reduces your account value to a level which no longer requires
your base death benefit to be increased to qualify as life insurance for federal
income tax law purposes. SEE TAX STATUS OF THE POLICY, PAGE 40.
We require a minimum target death benefit to issue your policy. You are not
allowed to take a partial withdrawal if it reduces your target death benefit
below this minimum. SEE GROUP OR SPONSORED ARRANGEMENTS OR CORPORATE PURCHASERS,
PAGE 40.
PARTIAL WITHDRAWAL MECHANICS
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 or, 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 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 42, AND
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Strategic Benefit 30
<PAGE>
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 42.
PARTIAL WITHDRAWALS UNDER DEATH BENEFIT OPTION 1
If you selected death benefit option 1, no more than fifteen years have passed
since your policy date and the insured person is not yet age 81, you may make a
partial withdrawal of up to 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 to
satisfy the federal income tax definition of life insurance. If your policy
death benefit has been increased to satisfy the federal income tax definition of
life insurance 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 death benefit or target death benefit. However, 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 received minus the total of your prior partial
withdrawals, then your stated death benefit will not be reduced. However, your
total death benefit will be reduced by at least the amount of your partial
withdrawal.
If your partial withdrawal is more than the amount of premiums we received minus
the total of your prior partial withdrawals, then a two step process is used:
1. Your withdrawal of the amount that makes premiums paid minus all
partial withdrawals equal to zero is taken; then
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; or
o more than 15 years have passed since your policy date; or
o the insured person is 81 years of age or older.
STATED DEATH BENEFIT AND TARGET DEATH BENEFIT REDUCTIONS
Generally, we reduce the stated death benefit by the amount of the partial
withdrawal. A partial withdrawal may reduce your target death benefit.
LAPSE
Your insurance coverage continues as long as your net account value is enough to
pay your deductions each month. If you have an outstanding policy loan, your
policy will lapse if the loan plus accrued interest is more than your account
value. Thus, during the continuation of coverage period, the policy could lapse
if there is an outstanding policy loan even though there are no further monthly
deductions.
GRACE PERIOD
Your policy enters a 61-day grace period if, on a monthly processing date your
net account value is zero (or less).
We notify you that the 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 generally is
the past due charges, plus the amount that covers your estimated monthly policy
and rider deductions for the next two months. If the insured person dies during
the grace period, we do pay death proceeds to your beneficiary(ies) 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. We then 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 rider) 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 has ended.
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Strategic Benefit 31
<PAGE>
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 rider within five years of the
end of the grace period.
Unless state law requires differently, we will reinstate your policy and rider
if:
o you are the owner and you have not surrendered your policy;
o you provide satisfactory evidence that the insured person is still
insurable according to our normal rules of underwriting; and
o we receive enough premium to keep your policy and rider in force from
the beginning to the end of the grace period and for two months after
the reinstatement date.
Reinstatement is effective as of 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
premium allocation instructions which may be those in effect at the start of the
grace period.
SURRENDER
You may surrender your policy for its surrender value any time while the insured
person is living. You will need to send a written request and your policy or a
lost policy form to our customer service center.
We compute your surrender value as of the valuation date we receive your
surrender request and policy. All insurance coverage ends on the date we receive
your surrender request and policy. SEE POLICY VALUES, PAGE 8 AND SETTLEMENT
PROVISIONS, PAGE 35.
We do not pro-rate or add back charges or expenses which we deducted before your
surrender to your account value. You may elect to have your surrender value paid
as other than one payment. SEE SETTLEMENT PROVISIONS, PAGE 35.
A surrender of your policy may have adverse tax consequences. SEE DISTRIBUTIONS
OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS, PAGE 42, AND
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM POLICIES THAT ARE NOT MODIFIED
ENDOWMENT CONTRACTS, PAGE 42.
GENERAL POLICY PROVISIONS
FREE LOOK PERIOD
You have the right to examine your policy and return it (for any reason) to us
within the period shown in the policy. The right to examine your policy (also
called free look period) starts on the date you receive it. If you return your
policy to us within your state's specified time limit, we cancel it as of your
policy date.
If you cancel your policy during this free look period, you will receive a
refund as determined by state law. Generally, there are two types of free look
refunds:
o some states require a return of all premiums received; and
o others 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 will affect when premium we receive before the end
of the free look period is invested into the variable investment options. SEE
ALLOCATION OF NET PREMIUMS, PAGE 18.
YOUR POLICY
Some groups under this policy may choose to use a master policy with policy
certificates, rather than a series of individual policies.
The contract between you and us is the combination of:
othe policy (or certificate);
o a copy of your original application and any applications for benefit
increases or decreases;
o the adjustable term insurance rider;
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Strategic Benefit 32
<PAGE>
o endorsements;
o schedule pages; and
o reinstatement applications.
If you make a change to your coverage, we give you a copy of your changed
application and new schedules. If you send 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 another officer of our company and our secretary or assistant
secretary must sign all changes or amendments to your policy. No other person
may change its terms or conditions.
GUARANTEED ISSUE
We offer this policy only on a guaranteed issue basis, up to a preset face
amount with evidence of insurability.
AGE
We issue your policy at the insured person's age (stated in your policy
schedule) based on the nearest birth date to the policy date. We determine the
insured person's age at any given time by adding the number of completed policy
years to the age calculated at issue. At issue, the insured person must be no
less than age 15 and no more than age 85.
OWNERSHIP
The original owner is the person named as the owner in the policy application.
The owner can exercise all rights and receive benefits during the life of the
insured person. This includes the right to change the owner, beneficiaries, or
method designated to pay proceeds.
As a matter of law, all rights of ownership are limited by the rights of any
person who has been assigned rights under the policy, and any irrevocable
beneficiary(ies).
You may name a new owner by giving us written notice. The effective date of the
change to the new owner is the date the prior owner signs the notice. However,
we will not be liable for any action we take before a change is recorded at our
customer service center. A change in ownership may cause the prior owner to
recognize taxable income on gain under the policy.
BENEFICIARY(IES)
You, as owner, name the beneficiary(ies) when you apply for your policy. The
primary beneficiary(ies) who survives the insured person receives the death
proceeds. Other surviving beneficiaries receive death proceeds only if there is
no surviving primary beneficiary(ies). If more than one beneficiary(ies)
survives the insured person, they share the death proceeds equally, unless you
specify otherwise. If none of your policy beneficiaries has survived the insured
person, we pay the death proceeds to you or to your estate, as owner.
You may name a new beneficiary(ies) during the insured person's lifetime. We pay
death proceeds to the beneficiary(ies) whom you have most recently named and
whom we have on record. 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
After your policy has been in force and the insured person is alive for two
years from your policy date, and from the effective date of any new segment or
an increase in any other benefit, we will not question the validity of
statements in your applicable application.
MISSTATEMENTS OF AGE OR GENDER
If the insured person's age or gender has been misstated, we adjust the death
benefit. We adjust it to the amount which would have been purchased for the
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 insured person's death, or as required by
state law.
If unisex cost of insurance rates apply, we do not make adjustments for a
misstatement of gender.
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Strategic Benefit 33
<PAGE>
SUICIDE
If the insured person commits suicide, while sane or insane within two years of
your policy date, unless otherwise required by state law, we limit the death
benefit to:
1. the total of all premium payments we receive to the time of death;
minus
2. the outstanding policy loan balance and accrued loan interest; minus
3. partial withdrawals taken.
If the person insured under the policy changed, and the new insured person dies
by suicide within two years of the change date, we limit the death benefit to:
1. your net account value as of the change date; plus
2. the premiums we received since the change; minus
3. increases in the policy loan balance, accrued loan interest, and
partial withdrawals since the change date.
We make a limited payment to the beneficiary(ies) for a new segment or other
increase if the insured person commits suicide, while sane or insane within two
years of the effective date of a new segment, or within two years of an increase
in any other benefit, unless otherwise required by state law. The limited
payment is equal to the cost of insurance and monthly expense charges which were
deducted for the increase.
TRANSACTION PROCESSING
Generally, within seven days of when we receive all information required to
process a payment, we pay:
o death proceeds;
o surrender value;
o partial withdrawals; and
o loan proceeds.
We may delay processing these transactions if:
o the NYSE is closed for trading;
o trading on the NYSE is restricted by the SEC;
o there is an emergency so that it is not reasonably possible to sell
securities in the variable 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 death proceeds as of the date of the insured person's death.The
death proceeds are not
affected by subsequent changes in the value of the variable investment options.
We pay interest at our stated rate (or at a higher rate if required by law) from
the insured person's date of death to the date of payment.
We may delay payment from our guaranteed interest division for up to six months,
unless state law requires otherwise, of:
o surrender proceeds;
o withdrawal amounts; or
o loan amounts.
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 request.
NOTIFICATION AND CLAIMS PROCEDURES
Except for certain authorized telephone requests, we must receive any election,
designation, change, assignment or request in writing from the owner.
You must use a form acceptable to us. We are not liable for actions taken before
we receive and record your notice. We may require you to return your policy for
certain policy changes or if you surrender it.
If the insured person dies while your policy is in force, please let us know as
soon as possible. We will send you instructions on how to make a claim. As proof
of the deceased insured person's death, we may require proof of the deceased
insured person's age, and a certified copy of the death certificate.
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Strategic Benefit 34
<PAGE>
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 such as
medical records from 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 to call our customer service center to:
o make transfers;
o change premium allocations;
o change 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:
o requiring personal identification;
o providing written confirmation of transactions; and
o tape recording telephone calls.
By accepting 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 from unauthorized or fraudulent instructions. We may
discontinue this privilege at any time.
NON-PARTICIPATION
Your policy does not participate in the surplus earnings of Security Life.
DISTRIBUTION OF THE POLICIES
The principal underwriter (distributor) for our policies is ING America
Equities, Inc.ING America Equities, Inc. is a wholly owned subsidiary of
Security Life.It is registered as a broker-dealer with the SEC and the NASD.We
pay ING America Equities, Inc. under a distribution agreement.
We sell this policy exclusively through insurance licensed registered
representatives of certain unaffiliated broker-dealers including Merrill Lynch,
Pierce Fenner & Smith Incorporated.
These broker-dealers have entered into selling agreements with us. Under the
selling agreement, we pay a distribution allowance to the broker-dealer, who
pays commissions to the agent/registered representative who sells the policy.
During the first policy or segment year, the distribution allowance is 5% of the
premium we receive up to the target premium. There is no distribution allowance
paid on premium received above target in the first policy or segment year or on
any premium received after the first policy or segment year.
In addition, we make annual renewal payments to the broker-dealer based on a
percentage of each policy's net account value. These payments are 1.00% in
policy years one through ten, 0.75% in policy years eleven through twenty, and
0.20% in all later years.
We also pay wholesaler fees and training allowances.
We pay all distribution and other allowances from our resources which includes
sales charges deducted from premiums.
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. 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 take your surrender value in other than one payment. Likewise, you may
elect to have the beneficiary(ies) receive the death proceeds other than in one
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Strategic Benefit 35
<PAGE>
payment, if you make this election during the insured person's lifetime. If you
have not made this election, the beneficiary(ies) may do so within 60 days after
we receive proof of the insured person's death.
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 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.
ADMINISTRATIVE INFORMATION ABOUT THE POLICY
VOTING PRIVILEGES
We invest the variable investment option's 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 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 changes in
the fundamental investment policy of a particular investment portfolio or
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 in 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 those in which you have invested assets as of the record date
set by the investment portfolio's Board for the meeting. We determine the number
of investment portfolio shares in each variable investment option for your
policy by dividing your account value in that option by the net asset value of
one share of the matching investment portfolio.
MATERIAL CONFLICTS
We are required to track events to identify 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.
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Strategic Benefit 36
<PAGE>
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 division. We cast votes credited to
amounts in the variable division, but not credited to policies, in the same
proportion as votes cast by owners.
RIGHT TO CHANGE OPERATIONS
Subject to state limitations, we may from time to time make any of the following
changes to our separate account:
o change the investment objective;
o offer additional variable investment options which will invest in
portfolios we find appropriate;
o eliminate variable investment options;
o combine two or more variable investment options;
o substitute a new investment portfolio for an existing portfolio.A
substitution may become necessary if, in our judgment:
a) a portfolio no longer suits the purposes of this policy;
b) there is a change in laws or regulations;
c) there is a change in a portfolio's investment objectives or
restrictions;
d) the portfolio is no longer available for investment; or
e) there is another reason we deem a substitution is appropriate;
o transfer assets related to your policy to another separate account;
o withdraw the separate account from registration under the 1940 Act;
o operate the separate account as a management investment company under
the 1940 Act;
o cause one or more variable investment options to invest in a mutual
fund other than, or in addition to, the investment portfolios;
o stop selling these policies;
o end an employer or plan trustee agreement with us under the
agreement's terms;
o limit or eliminate voting rights for the separate account; or
o make 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 surrender value;
o information about the variable investment options; and
o your account transactions during the policy 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 AND DEDUCTIONS
The amount of a charge may not correspond to the cost incurred by us to provide
the service or benefit. For example, the sales charges 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.
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Strategic Benefit 37
<PAGE>
DEDUCTIONS FROM PREMIUMS
We treat payments we receive as premium payments if the insured person is not
yet age 100 and you do not have an outstanding policy loan. After we deduct
certain expenses from your payment, we add the remaining net premium to your
policy.
INITIAL SALES CHARGE AND DEFERRED SALES CHARGE
We deduct charges based on the amount of premium we receive each year your
policy or segment is in effect. The sales charge (and deferred sales charge)
helps cover our costs of distribution, preparing sales literature, promotion
expenses and other direct and indirect expenses to sell the policy.
During the first policy or segment year, we do not deduct an initial sales
charge from your premium payments. However, these payments will be used to
calculate the deferred sales charge which is deducted at the beginning of policy
or segment years two through eight. The amount of this annual deduction is 1.75%
of premium paid during policy or segment year one, up to your policy's target
premium (in your policy schedule pages), plus 1.60% of premium paid during
policy or segment year one in excess of target. This deferred sales charge
deduction ends after policy or segment year eight. Thus, first policy or segment
year premiums, up to target, are subject to the highest rate of sales charge,
equivalent to 12.25% over seven years (1.75% per year times 7 years).
During your second policy or segment year, and in each year thereafter, we
deduct 0.5% of all premium payments we receive before we apply the premium to
your policy. This deduction is the policy initial sales charge. Premium payments
from which we deduct a sales charge are not subject to the deferred sales
charge.
SALES CHARGES
AS A
PREMIUM PERCENTAGE OF
PAID PREMIUM WHEN DEDUCTED
policy/segment 1.75%* beginning of
year 1 up to policy/segment
target years 2 - 8
policy/segment 1.6%* beginning of
year 1 in policy/segment
excess of years 2 - 8
target
policy/segment 0.5% upon receipt of
years 2+ payment
* THESE ARE THE PERCENTAGES USED TO DETERMINE THE ANNUAL DEDUCTION. ONCE
DETERMINED, THE ANNUAL DEDUCTION IS MADE ONCE EACH YEAR FOR SEVEN YEARS.
SALES CHARGE EXAMPLE
(BASED ON TWO YEARS OF PREMIUM PAYMENTS)
Assume a policy has a target premium of $8,000. Premium payments of $10,000 are
made in each of the first two years and there has been no change in death
benefit.
The $10,000 premium payment for the first year incurs an annual deferred sales
charge of $172 deducted in years two through eight:
1.75% of premium up to target plus 1.6% of premium payments over target
[.0175 x $8,000 + (.016 x $2,000) = $172].
The deferred sales charge deduction is made on the monthly processing date at
the policy (or segment) anniversary.
The $10,000 premium payment for the second year incurs a sales charge of $50
when it is received:
0.5% of all premium [.005 x $10,000 = $50].
Deducted Deferred Sales Sales Charge
During Policy Charge on First on Second Year
or Segment Year Premium Premium
Year Of $10,000 Of $10,000
1 $0 $0
2 $172 $50
3 $172 $0
4 $172 $0
5 $172 $0
6 $172 $0
7 $172 $0
8 $172 $0
9 $0 $0
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% to 5%. In the first policy
- --------------------------------------------------------------------------------
Strategic Benefit 38
<PAGE>
or segment year, we deduct 2.5% of each premium payment up to target premium to
cover these taxes. In subsequent years, we deduct 2.5% of all premium payments.
This charge approximates the average tax rate we expect to pay.
To cover our estimated costs for the federal income tax treatment of deferred
acquisition costs, we deduct 1.5% of each premium payment up to target premium
in the first policy or segment year. In subsequent years, we deduct 1.5% of all
premiums. This cost is determined solely by a portion of the amount of life
insurance premiums we receive.
We reserve the right to increase or decrease this charge for state and local
taxes if there are changes in the tax law, within limits set by state law. We
also reserve the right to increase or decrease the charge for the federal income
tax treatment of deferred acquisition costs based on any change in that cost to
us.
MONTHLY DEDUCTIONS FROM ACCOUNT VALUE
We deduct charges from your account value on each monthly processing date.
MORTALITY AND EXPENSE RISK CHARGE
We deduct a charge each month for the mortality and expense risks we assume. The
mortality risk we assume is that insured people, as a group, may live less time
than we estimated. We assume risk that expenses we incur in issuing and
administering the policies and in operating the variable investment options are
greater than the amount we estimated when we set these charges.
This charge is based on the length of time your policy has been in effect and
the amount you have in the variable investment options on the monthly processing
date.
PERCENT OF VARIABLE DIVISION ACCOUNT VALUE
MONTHLY EQUIVALENT
POLICY YEAR CHARGE ANNUAL RATE
1 - 10 0.07083% 0.85%
11 - 20 0.05000% 0.60%
21+ 0.00417% 0.05%
MONTHLY ADMINISTRATIVE CHARGE
We deduct an administrative charge of $12 per month for the first policy year
and $6 per month for each policy year beyond that. The monthly administrative
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, including the expected cost of paying death proceeds that
could be more than your account value.
The cost of insurance rates may depend on the characteristics of the group of
insured people, such as ages, risk class, size of the group and the total
premium the group pays.
The cost of insurance charge is our current monthly cost of insurance rate times
the net amount at risk for each portion of your death benefit. We calculate the
net amount at risk monthly, at the beginning of each policy month. For the base
death benefit, the net amount at risk is calculated using the difference between
the current base death benefit and your account value. We determine your account
value after we deduct your policy charges due on that date, other than cost of
insurance charges.
If your base death benefit at the beginning of a month increases (as a
requirement 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.
Because your target death benefit did not change, the net amount at risk for
your adjustable term insurance rider decreases. The amount of your cost of
insurance charge varies from month to month as a result of changes in your net
amount at risk, changes in the death benefit and the increasing age of the
insured person. We allocate the net amount at risk to all segments in the same
proportion that each segment has to the total stated death benefit for all
coverage as of the monthly processing 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.
- --------------------------------------------------------------------------------
Strategic Benefit 39
<PAGE>
Separate cost of insurance rates apply to each segment of the base death benefit
and your adjustable term insurance rider.
Your cost of insurance rates may change from time to time however, they are
never more than the guaranteed maximum rates shown in your policy. The
guaranteed maximum rates for base coverage 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. This type of group policy may result in higher cost of insurance
charges than those that would apply if the policy were on an individual basis.
POLICY TRANSACTION FEES
We charge fees for certain transactions you may make under your policy. We
deduct these fees from the variable and the guaranteed interest divisions in the
same proportion that your account value in each division has to your net account
value immediately after the transaction.
PARTIAL WITHDRAWALS
To cover our costs, we deduct a service fee of up to $25 from your account value
for each partial withdrawal you take. SEE PARTIAL WITHDRAWALS, PAGE 29.
TRANSFERS
There is a $10 fee for each additional transfer over twelve per policy year to
cover our costs. If you include multiple transfers in one request, it counts as
one transfer. There is no transfer fee if you are exercising the right to
exchange in your policy. SEE TRANSFERS OF ACCOUNT VALUE, PAGE 26, AND RIGHT TO
EXCHANGE POLICY, PAGE 24.
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 five free premium allocation changes per policy year. After five,
we charge you $25 for each additional premium allocation change. If you change
your designated withdrawal investment option, we consider it a premium
allocation charge for which there may be a charge. SEE MONTHLY DEDUCTIONS FROM
YOUR ACCOUNT VALUE, PAGE 38.
CONTINUATION OF COVERAGE ADMINISTRATIVE FEE
When the insured person reaches age 100, if your policy has not been
surrendered, the continuation of coverage period begins. We charge a one-time
administrative fee of $200. We then no longer charge you monthly charges. This
charge compensates us for maintaining and servicing your policy until the death
of the insured person.
DIVISIONS FROM WHICH WE DEDUCT CHARGES, LOANS AND PARTIAL WITHDRAWALS
<TABLE>
<S> <C> <C> <C>
MONTHLY CHARGES: COST OF
INSURANCE CHARGES,
ADMINISTRATIVE FEES AND
ANNUAL DEDUCTION OF POLICY LOANS AND
DEFERRED SALES CHARGE TRANSACTION FEES PARTIAL WITHDRAWALS
CHOICE May choose designated Proportionally among variable May choose any investment
deduction option, including and guaranteed interest divisions option or combination of
guaranteed interest division investment options, subject to
requirements
DEFAULT Proportionally among variable Proportionally among variable Proportionally among variable
and guaranteed interest and guaranteed interest divisions and guaranteed interest divisions
divisions
</TABLE>
- --------------------------------------------------------------------------------
Strategic Benefit 40
<PAGE>
OTHER CHARGES
Under current law, we pay no tax on investment income and capital gains included
in variable life insurance policy reserves. So, no charge is 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
Only groups of individuals, corporations or other institutions may purchase this
policy. These group arrangements include those in which there is a trustee, an
employer or an association. The group may either purchase policies covering a
group of individuals or endorse a policy to a group of individuals. Sponsored
arrangements include those in which an employer or association allows us to
offer policies to its employees or members on an individual basis.
Based on the group underwriting, we may reduce or waive the:
o administrative charge;
o minimum target death benefit;
o target premium;
o sales charges;
o cost of insurance charges; or
o other charges normally assessed.
We can reduce or waive these items due to expected economies based on the
characteristics of the group. Our sales, administration and mortality costs
generally vary with the size and stability of the group, among other factors
which we take into account when we reduce 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.
We will not be unfairly discriminatory in the 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 Internal Revenue
Code Section 7702. However, there is very little guidance, as to how these
requirements are to be 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.
Specifically this policy must meet the requirements of the "cash value
accumulation test" as specified in Code Section 7702.
Under the cash value accumulation test, there is no limit to the amount that may
be paid in premiums as long as there is enough death benefit in relation to
account value at all times. The death benefit at all times must be at least
equal to an actuarially determined factor, depending on the insured person's age
and sex at any point in time, multiplied by the account value. SEE APPENDIX A,
PAGE 62, FOR A TABLE OF THE CASH VALUE ACCUMULATION TEST FACTORS.
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
- --------------------------------------------------------------------------------
Strategic Benefit 41
<PAGE>
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 41.
DIVERSIFICATION REQUIREMENTS
In addition to meeting the Code Section 7702 tests, 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 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.
The following discussion assumes that the policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY DEATH BENEFITS
We believe that the death benefit under a policy is generally excludable from
the gross income of the beneficiary(ies) under section 101(a)(1) of the Code.
However, there are exceptions to this general rule. Additionally, federal and
local transfer, estate inheritance, and other tax consequences of ownership or
receipt of policy proceeds depend on the circumstances of each policy owner or
beneficiary(ies). A tax adviser should be consulted about these consequences.
Generally, the policy owner will not be taxed on any of the policy cash value
until there is a distribution. When distributions from a policy occur, or when a
loan is 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.
- --------------------------------------------------------------------------------
Strategic Benefit 42
<PAGE>
MULTIPLE POLICIES
All modified endowment contracts that are issued by us (or our affiliates) to
the same policy owner during any calendar year are treated as one modified
endowment contract for purposes of determining the amount includable in the
policy owner's income when a taxable distribution occurs.
DISTRIBUTIONS OTHER THAN DEATH BENEFITS FROM MODIFIED ENDOWMENT CONTRACTS
Once a policy is classified as a modified endowment contract, the following tax
rules apply both prospectively and to any distributions made in the prior two
years:
o 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.
o 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.
o 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 other than a policy loan, your
investment in the policy is reduced by the amount of the distribution that is
tax free.
POLICY LOANS
In general, interest on a policy loan will not be deductible. Moreover, the tax
consequences associated with a low cost loan such as the loan available in the
policy are uncertain. Before taking out a policy loan, you should consult a tax
adviser as to the tax consequences.
SECTION 1035 EXCHANGES
Code Section 1035 generally provides that no gain or loss shall be recognized on
the exchange of one life insurance policy for another life insurance policy, or
for an endowment or annuity contract. We accept 1035 exchanges with outstanding
loans. Special rules and procedures apply to Section 1035 exchanges. If you wish
to take advantage of Section 1035, you should consult your tax adviser.
TAX-EXEMPT POLICY OWNERS
Special rules may apply to a policy that is owned by a tax-exempt entity.
Tax-exempt entities should consult their tax adviser regarding the consequences
of purchasing and owning a policy. These consequences could include an effect on
the tax-exempt status of the entity and the possibility of the unrelated
business income tax.
- --------------------------------------------------------------------------------
Strategic Benefit 43
<PAGE>
POSSIBLE TAX LAW CHANGES
Although the likelihood of legislative action is uncertain, there is always the
possibility that the tax treatment of the policy could be changed by legislation
or otherwise. You should consult a tax adviser with respect to legislative
developments and their effect on the policy.
CHANGES TO COMPLY WITH THE LAW
So that your policy continues to qualify as life insurance under the Code, we
reserve the right to refuse to accept all or part of your premium payments, or
to change your death benefit. We may refuse to allow you to make partial
withdrawals that would cause your policy to fail to qualify as life insurance.
We also may:
o make changes to your policy or its riders; or
o take distributions from your policy to the degree that we deem
necessary to qualify your policy as life insurance for tax purposes.
If we make any change of this type, it applies the same way to all affected
policies.
The tax law limits the mortality charge used to calculate whether your policy
qualifies as life insurance for federal income tax purposes. We must base these
calculations on reasonable mortality charges 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 used in the calculation 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
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.
- --------------------------------------------------------------------------------
Strategic Benefit 44
<PAGE>
ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER VALUES, AND
ACCUMULATED PREMIUMS
[TO BE UPDATED BY AMENDMENT]
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 policies illustrated use the
following assumptions:
Death Stated Scheduled Target
Smoker* Benefit Death Annual Death
Gender Age Status Option Benefit Premium Benefit
Male 35 Non-smoker 1 $________ $________ $________
Male 35 Non-smoker 1 $________ $________ $________
Male 45 Non-smoker 1 $________ $________ $________
Male 45 Non-smoker 1 $________ $________ $________
Male 55 Non-smoker 1 $________ $________ $________
Male 55 Non-smoker 1 $________ $________ $________
* "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 tables show how death benefits, account values, and surrender values of a
hypothetical policy could vary over an extended period of time, assuming the
variable divisions had constant hypothetical gross annual investment returns of
0%, 6%, or 12% over the periods indicated in each table. 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 female, unisex or smoker
rates.
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.
These illustrations assume there are no policy loans.
The net investment return on your policy is lower than the gross investment
return on the variable division as a result of the portfolio charge for
management fees and portfolio expenses. We show the effect of the net investment
return in the amounts for death benefits, account values and surrender values.
The tables reflect annual investment management fees of X.XX% 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
X.XX% 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 expense
reimbursements or waivers by investment portfolio managers have been made. The
average of all portfolios' total expenses is X.XX%.
Actual fees vary by portfolio. The portfolio fees and expenses used in the
illustrations are the net amounts shown after expense reimbursements or waivers
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 portfolios' total expenses used in the
illustrations would have been higher (X.XX%, X.XX% and X.XX%, respectively). The
tables assume that the current expense reimbursement arrangements will continue.
- --------------------------------------------------------------------------------
Strategic Benefit 45
<PAGE>
However, they may not continue through 2000.
The effect of these portfolio charges and expenses results in a net rate of
return of:
o X.XX% on a 0% gross rate of return;
o X.XX% on a 6% gross rate of return; and
o X.XX% on a 12% gross rate of return.
The tables assume that charges have been deducted including deductions from
premiums, cost of insurance rider charges, monthly deductions and annual
deferred sales charge, mortality and expense risk charge, administrative and
sales charges. The tables show charges at our current rates. The tables also
show charges at the maximum rates we guarantee in our policies. SEE MONTHLY
DEDUCTIONS FROM YOUR ACCOUNT VALUE, PAGE 38. 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
surrender values.
This Strategic Benefit policy is issued only to groups. For this policy, we
generally deliver an illustration which shows a single life scheduled premium
and risk class representative of the particular group covered by this policy. We
base these hypothetical future benefits on both guaranteed and current cost
factor assumptions and actual account value. However, if we are asked to do so,
we will provide personal illustrations based on:
o each insured person's age and gender;
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 each policy.
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Strategic Benefit 46
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 47
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investment returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 48
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XXX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 49
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 35 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER: $XXX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investment returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 50
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 51
<PAGE>
PROSPECT:INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT: $XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investment returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 52
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 53
<PAGE>
PROSPECT:INSURED PERSON'S NAME
MALE 45 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investment returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 54
<PAGE>
PROSPECT:INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 55
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XXX,XXX DEATH BENEFIT OPTION 1
ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investment returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 56
<PAGE>
PROSPECT:INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING GUARANTEED CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PREMIUM CASH CASH CASH
ACCUMULATED ACCOUNT SURR DEATH ACCOUNT SURR DEATH ACCOUNT SURR DEATH
YEAR PREMIUMS AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The expense charges and cost of insurance rates will never be greater than those
which were used to calculate the above values.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results may be more or less than those shown and will depend on a
number of factors, including the investment allocations made to the variable
investment options of the separate account and the guaranteed interest division
and the investment experience of the investment options. No representation can
be made that these hypothetical gross investment returns can be achieved for any
one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 57
<PAGE>
PROSPECT: INSURED PERSON'S NAME
MALE 55 NON-SMOKER PRESENTED BY:
SECURITY LIFE
STRATEGIC BENEFIT VARIABLE UNIVERSAL LIFE
STATED DEATH BENEFIT:$XX,XXX DEATH BENEFIT OPTION 1
INITIAL ADJUSTABLE TERM RIDER:$XX,XXX ANNUAL PREMIUM:$XX,XXX
CASH VALUE ACCUMULATION TEST
SUMMARY PAGE
ASSUMING CURRENT CHARGES
Assuming Hypothetical Gross Investment Return of:
<TABLE>
-----0.00%----- -----12.00%----- -----6.00%-----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
1
2
3
4
5
6
7
8
9
10
15
20
25
30
AGE 65
</TABLE>
The current cost of insurance rates are subject to change. Account values will
vary from those illustrated if actual rates differ from those assumed. Current
mortality charge rates are based on current mortality experience and are not
dependent upon future improvements in underlying mortality.
The hypothetical gross rates of return shown are illustrative only and should
not be deemed as a representation of past or future investment results. Actual
investment results and policy charges may be more or less than those shown and
will depend on a number of factors, including the investment allocations made to
the variable investment options of the separate account and the guaranteed
interest division and the investment experience of the investment options. No
representation can be made that these hypothetical gross investment returns can
be achieved for any one year or sustained over any period of time.
The death benefit, account value and cash surrender value for a policy would be
different from those shown if the actual gross annual rates of return averaged
0.00%, 12.00% and 6.00% over a period of years but varied above or below that
average during the period. They would also be different if premiums were paid in
a different frequency than shown.
- --------------------------------------------------------------------------------
Strategic Benefit 58
<PAGE>
ADDITIONAL INFORMATION
DIRECTORS AND OFFICERS
Security Life's address and the business address of each director and principal
officer 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 with one asterisk (*) is ING North America Insurance Corporation,
5780 Powers Ferry Road, Atlanta, Georgia 30327-4390. The business address of
each person with two asterisks (**) is Security Life of Denver Insurance
Company, 9140 Arrowpoint Blvd., Suite 400, Charlotte, North Carolina 28273.
Name and Principal Position and Offices with Security Life of
Business and Address Denver
Stephen M. Christopher Chairman, President and Chief Executive Officer
Jess A. Skriletz 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 and Chief Actuary
Jeffrey R. Messner Executive Vice President and Chief Marketing
Officer
John R. Barmeyer* Senior Vice President, Chief Legal Officer
Wayne D. Bidelman Senior Vice President, CCRC
Arnold A. Dicke Senior Vice President, Chief Actuary, ING
Reinsurance
Charles LeDoyen** Senior Vice President, Structured Settlements
Terry L. Morrison Senior Vice President, New Business Operations
Jeffery W. Seel* Senior Vice President, Chief Investment Officer
Mark A. Smith Senior Vice President, Insurance Services
Lawrence D. Taylor Senior Vice President, Product Management
William D. Tyler* Senior Vice President, Chief Information Officer
Gary W. Waggoner Vice President, General Counsel and Corporate
Secretary
- --------------------------------------------------------------------------------
Strategic Benefit 59
<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
[TO BE UPDATED BY AMENDMENT]
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 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.
- --------------------------------------------------------------------------------
Strategic Benefit 60
<PAGE>
[FINANCIAL STATEMENTS TO BE FILED BY SUBSEQUENT AMENDMENT]
- --------------------------------------------------------------------------------
Strategic Benefit 61
<PAGE>
APPENDIX A
FACTORS FOR THE
CASH VALUE ACCUMULATION TEST
FOR A LIFE INSURANCE POLICY
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Male Male Male
Attained or Unisex Unisex Attained or Unisex Unisex Attained or Unisex Unisex
Age 100/0 Female 80/20 Age 100/0 Female 80/20 Age 100/0 Female 80/20
0 11.727 14.234 12.149
1 11.785 14.209 12.194 34 4.188 4.902 4.314 67 1.617 1.815 1.657
2 11.458 13.815 11.857 35 4.052 4.742 4.173 68 1.583 1.769 1.620
3 11.128 13.417 11.515 36 3.920 4.586 4.037 69 1.550 1.724 1.585
4 10.803 13.023 11.178 37 3.793 4.437 3.906 70 1.518 1.681 1.552
5 10.481 12.635 10.845 38 3.670 4.293 3.780 71 1.488 1.639 1.520
6 10.161 12.253 10.514 39 3.553 4.154 3.658 72 1.459 1.599 1.489
7 9.8441 1.875 10.187 40 3.439 4.021 3.541 73 1.432 1.560 1.460
8 9.5301 1.505 9.863 41 3.330 3.894 3.429 74 1.406 1.524 1.433
9 9.2211 1.141 9.545 42 3.226 3.771 3.322 75 1.382 1.490 1.407
10 8.9181 0.784 9.233 43 3.125 3.654 3.218 76 1.359 1.457 1.383
11 8.6231 0.436 8.928 44 3.028 3.541 3.119 77 1.338 1.427 1.360
12 8.3381 0.098 8.634 45 2.936 3.432 3.023 78 1.318 1.398 1.338
13 8.066 9.771 8.353 46 2.846 3.328 2.931 79 1.299 1.371 1.318
14 7.808 9.455 8.085 47 2.761 3.227 2.843 80 1.281 1.345 1.298
15 7.564 9.150 7.831 48 2.678 3.129 2.758 81 1.264 1.321 1.280
16 7.335 8.857 7.592 49 2.599 3.035 2.676 82 1.248 1.298 1.262
17 7.118 8.575 7.364 50 2.522 2.945 2.597 83 1.233 1.277 1.245
18 6.911 8.302 7.148 51 2.449 2.858 2.522 84 1.218 1.257 1.230
19 6.713 8.038 6.939 52 2.378 2.774 2.449 85 1.205 1.238 1.215
20 6.521 7.782 6.737 53 2.311 2.693 2.379 86 1.193 1.221 1.202
21 6.334 7.534 6.540 54 2.246 2.615 2.312 87 1.181 1.205 1.189
22 6.150 7.293 6.347 55 2.184 2.540 2.248 88 1.171 1.190 1.177
23 5.969 7.059 6.158 56 2.125 2.468 2.187 89 1.160 1.176 1.166
24 5.791 6.831 5.971 57 2.068 2.398 2.128 90 1.151 1.163 1.155
25 5.615 6.611 5.788 58 2.014 2.330 2.071 91 1.141 1.150 1.144
26 5.441 6.396 5.608 59 1.962 2.265 2.017 92 1.131 1.137 1.133
27 5.271 6.188 5.431 60 1.912 2.201 1.965 93 1.120 1.125 1.122
28 5.104 5.986 5.258 61 1.864 2.139 1.915 94 1.109 1.112 1.110
29 4.940 5.791 5.089 62 1.818 2.079 1.867 95 1.097 1.098 1.097
30 4.781 5.601 4.925 63 1.774 2.022 1.821 96 1.083 1.084 1.084
31 4.626 5.418 4.765 64 1.732 1.967 1.777 97 1.069 1.069 1.069
32 4.476 5.241 4.610 65 1.692 1.914 1.735 98 1.054 1.054 1.054
33 4.330 5.069 4.459 66 1.654 1.863 1.695 99 1.040 1.040 1.040
100 1.000 1.000 1.000
</TABLE>
- --------------------------------------------------------------------------------
Strategic Benefit 62
<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 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.
The illustrations are based on the payment of a $X,XXX annual premium, received
at the beginning of each year, for a hypothetical policy with a $XXX,XXX face
amount death benefit Option 1, issued on a nonsmoker male, age 45. 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, PAGE 37. This prospectus also contains illustrations based on assumed
rates of return. SEE ILLUSTRATIONS OF DEATH BENEFITS, ACCOUNT VALUES, SURRENDER
VALUES AND ACCUMULATED PREMIUMS, PAGE 45.
Past performance is not an indication of future results. Actual investment
results may be more or less than those shown in the hypothetical illustrations.
[TO BE UPDATED BY SUBSEQUENT AMENDMENT]
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Strategic Benefit 63
<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
1.A(6)(b-g) and the By-Laws listed as Exhibits 1.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.
Cross-Reference table.
- --------------------------------------------------------------------------------
Strategic Benefit II - 1
<PAGE>
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./6/
(ii) Amendment to Security Life of Denver Insurance Company
Distribution Agreement./9/
(b) Compensation Schedule to Selling Agreement with Merrill Lynch./10/
(c) Commission Schedule for Policies./10/
(4) Not Applicable.
(5) (a) Strategic Benefit Variable Universal Life Insurance Policy
(Form No. 2507(VUL)-5/00)./10/
(b) Adjustable Term Insurance Rider (Form No. R2006-3/00)./5/
(c) Certificate of Insurance./5/
(6) (a) Security Life of Denver's Restated Articles of Incorporation./1/
(b-g) Amendments to Articles of Incorporation through June 12, 1987./1/
(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/
- --------------------------------------------------------------------------------
Strategic Benefit II - 2
<PAGE>
(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./7/
(ix) Specimen Fund Participation Agreement between Merrill Lynch
Variable Series Funds, Inc. and Security Life of Denver
Insurance Company./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/
(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./4/
(xii) Fourth Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company./4/
(xiii) Fourth Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver Insurance
Company./4/
(xiv) Amendment No. 2 to Participation Agreement among AIM
Variable Insurance Funds, Inc., Security Life of Denver
Insurance Company and ING America Equities, Inc./4/
- --------------------------------------------------------------------------------
Strategic Benefit II - 3
<PAGE>
(xv) Fourth Amendment to Participation Agreement among Security
Life of Denver Insurance Company, INVESCO Variable
Investment Funds, Inc. and INVESCO Funds Group, Inc./6/
(xvi) Amendment No. 3 to Participation Agreement among AIM
Variable Insurance Funds, Inc., Security Life of Denver
Insurance Company and ING America Equities, Inc./6/
(xvii) Fifth Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company./6/
(xviii)Fifth Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver Insurance
Company./6/
(xix) Amendment No. 4 to Participation Agreement among AIM
Variable Insurance Funds, Inc., Security Life of Denver
Insurance Company and ING America Equities, Inc.
(xx) Sixth Amendment to Participation Agreement among Variable
Insurance Products Fund, Fidelity Distributors Corporation
and Security Life of Denver Insurance Company.
(xxi) Sixth Amendment to Participation Agreement among Variable
Insurance Products Fund II, Fidelity Distributors
Corporation and Security Life of Denver Insurance Company.
(xxii) Fifth Amendment to Participation Agreement among Security
Life of Denver Insurance Company, INVESCO Variable
Investment Funds, Inc. and INVESCO Funds Group, Inc.
(c) (i) Service Agreement between Fred Alger Management, Inc. and
Security Life of Denver Insurance Company./1/
(ii) Expense Allocation Agreement between A I M Advisors, Inc.,
AIM Distributors, Inc. and Security Life of Denver./9/
(iii) Service Agreement between INVESCO Funds Group, Inc. and
Security Life of Denver Insurance Company./9/
(iv) Service Agreement between Neuberger & Berman Management
Incorporated and Security Life of Denver Insurance
Company./9/
(v) Service Agreement between Fidelity Investments
Institutional Operations Company, Inc. and Security Life of
Denver Insurance Company./9/
(vi) Side Letter between Van Eck Worldwide Insurance Trust and
Security Life of Denver./9/
(vii) Specimen Administrative Services Agreement among Security
Life of Denver Insurance Company and Merrill Lynch Asset
Management, L.P./10/
(9) Not Applicable.
(10) Specimen Guaranteed Issue Variable Life Insurance Application with
Guaranteed Issue Binding Limited Life Insurance Coverage Form
(Form Nos. Q2009-11/97 and Q-1112 B-6/98)./10/
2. Included as Exhibit 1.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.A Consent of Ernst & Young L.L.P. [To be Filed by Amendment.]
B Consent of Sutherland Asbill & Brennan LLP. [To be Filed by Amendment.]
8. Not Applicable.
11. Issuance, Transfer and Redemption Procedures Memorandum.
- --------------------------------------------------------------------------------
Strategic Benefit II - 4
<PAGE>
_______________
/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 L1, 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 L1, 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 L1, filed with the
Securities and Exchange Commission on March 2, 1998 (File No. 33-74190).
/4/ 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 May 10, 1999 (File No. 333-72753).
/5/ 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 L1, filed with the Securities and
Exchange Commission on November 8, 1999 (File No. 333-90577).
/6/ Incorporated herein by reference to the Pre-Effective Amendment No. 1 to
the Form S-6 Registration Statement of Security Life of Denver Insurance
Company and its Security Life Separate Account L1, filed with the
Securities and Exchange Commission on December 3, 1999 (File No.
333-90577).
/7/ 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).
/8/ 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).
/9/ Incorporated herein by reference to the 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 L1, filed with the
Securities and Exchange Commission on April 23, 1999 (File No. 33-74190).
/10/ 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 March 2, 2000 (File No. 333-90577).
- --------------------------------------------------------------------------------
Strategic Benefit 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 L1,
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 L1
(Registrant)
BY: SECURITY LIFE OF DENVER INSURANCE COMPANY
(Depositor)
BY: /s/ Stephen M. Christopher
----------------------------------
Stephen M. Christopher
President
(Seal)
ATTEST:
/s/ Gary W. Waggoner
- -------------------------
Gary W. Waggoner
- --------------------------------------------------------------------------------
Strategic Benefit 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 and Controller
DIRECTORS:
/s/ P. Randall. Lowery
- -----------------------------------------------
P. Randall Lowery
/s/ Michael W. Cunningham
- -----------------------------------------------
Michael W. Cunningham
- --------------------------------------------------------------------------------
Strategic Benefit 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.
- --------------------------------------------------------------------------------
Strategic Benefit II - 8
[logo of Security Life of Denver appears here] EXHIBIT 3.A
April 7, 2000
Security Life of Denver
Insurance Company
Security Life Center
1290 Broadway
Denver, Colorado 80203-5699
Dear Sirs:
This opinion is furnished in connection with the Form S-6 Registration Statement
being filed by Security Life of Denver Insurance Company ("Security Life") under
the Securities Act of 1933, as amended (the "Act"), for the offering of
interests ("Interests") in Security Life Separate Account L1 ("Separate Account
L1") under the Flexible Premium Variable Life Insurance Policies ("Policies") to
be issued by Security Life. The securities being registered under the Act are to
be offered in the manner described in the Registration Statement.
I have examined or supervised the examination of all such corporate records of
Security Life and such other documents and such laws as I consider appropriate
as a basis for the opinion hereinafter expressed. On the basis of such
examination, it is my opinion that:
1. Security Life is a corporation duly organized and validly existing
under the laws of the State of Colorado.
2. Separate Account L1 was duly created as a separate investment account
of Security Life pursuant to the laws of the State of Colorado.
3. The assets of Separate Account L1 will be owned by Security Life. Under
Colorado law and the provisions of the Policies, the income, gains and
losses, whether or not realized, from assets allocated to Separate
Account L1 must be credited to or charged against such Account, without
regard to the other income, gains or losses of Security Life.
4. The Policies provide that the assets of Separate Account L1 may not be
charged with liabilities arising out of any other business Security
Life may conduct, except to the extent that assets of Separate Account
L1 exceed its liabilities arising under the Policies.
<PAGE>
April 7, 2000
Page 2
5. The Policies and the Interests in Separate Account L1 to be issued
under the Policies have been duly authorized by Security Life; and the
Policies, including the Interests therein, when issued and delivered,
will constitute validly issued and binding obligations of Security Life
in accordance with their terms.
I hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name under the caption "Legal Matters" in the
Prospectus contained in the Registration Statement.
Very truly yours,
/s/ Gary W. Waggoner
Gary W. Waggoner
Vice President, General Counsel
and Corporate Secretary
EXHIBIT 11
STRATEGIC BENEFIT VUL
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
Strategic Benefit 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 for use on multi-life basis when the insured people share
a common employment or business relationship.
I. PROCEDURES RELATING TO ISSUANCE AND PURCHASE OF THE POLICIES
A. Offering of the Policy
The policy is offered only to corporate entities or qualifying groups
of ten or more insured people who may be individual owners ("owners")
who satisfy certain suitability standards. The policy may be purchased
to insure the life of a person (an "insured") in whom the owner has an
insurable interest. Security Life requires satisfactory evidence of
insurability, which may include a medical examination of the insured.
The issue ages are 15 through 85. Age is determined by the insured's
age as of the birthday nearest the policy date.
Generally, a minimum total group first year premium of at least
$250,000 is required. However, depending on underwriting circumstances,
the minimum total group first year premium may be reduced. There is no
minimum required base death benefit, although a minimum target death
benefit of $50,000 per policy is required. The minimum target death
benefit on some policies may be less as long as the average target
death benefit for the group at policy issuance is at least $50,000.
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 for 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 insured in a premium class when the policy is
issued, based on underwriting. This original premium class applies to
the initial stated death benefit.
1
<PAGE>
The cost of insurance charge for a policy is based on the age at issue,
sex, premium class of the insured, 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 0-85); and Standard Non-smoker (ages 20-85). Security Life's
definition of "Smoker" includes the use of cigarettes, cigars, pipes,
chewing tobacco, nicotine chewing gun or patch, snuff or any other
tobacco or nicotine-based product or, insureds may be placed in a
substandard rate class, with a higher mortality risk than the standard
smoker or standard non-smoker classes.
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 non-tobacco 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 non-tobacco or tobacco class are generally
lower than guaranteed cost of insurance for an insured of the same age
and sex and tobacco 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.
2
<PAGE>
C. Death Benefit
The policy provides coverage on a named insured and a Death Benefit
payable upon the death of the insured. The policy will remain in force
as long as the policy's cash surrender value is sufficient to cover the
charges due.
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 decrease in stated death benefit is $1,000, and
any decrease in stated death benefit will become effective on the
monthly processing date next following the date that notice requesting
the decrease is received and 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; any 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 will
require 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 be adjusted to 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 age of the insured at the time of the
increase. The following rules will 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 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.
3
<PAGE>
For the purposes of determining the risk amount associated with a
stated death benefit, Security Life will attribute the total net amount
at risk for the total stated death benefit. If there is a decrease in
stated death benefit after an increase, the decrease is applied first
to decrease prior increases in stated death benefit 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.
D. 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.
An owner's policy coverage will become effective on the policy date,
which may be specified on the application. The Policy Date is used to
determine the monthly processing date, coverage effective date and
policy anniversaries.
The policy date is: 1) the date specified on the application, 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, 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. The
monthly deductions for the backdated period are deducted on the policy
date.
The initial premium payment must be at least equal to the sum of 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 Security Life. If a
premium payment is rejected, Security Life will return it promptly,
without adjustment.
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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 - 9/14). The monthly processing date is the same as the policy
date for each succeeding month. The monthly deductions are made on 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.
E. Allocation of Net Premiums
On the investment date, the account value equals the initial premium
payment minus 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 cash 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, semi-annually 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
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 owner's most recent allocation instructions.
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
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at any time by sending a notice to the home office or, if telephone
privileges are in effect, the request can be received by phone. The
change applies to all premium payments received with or after receipt
of the owner's notice.
F. 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
Liquid Asset Portfolio. Later, these amounts are transferred from the
Liquid Asset Portfolio to the selected variable investment options, at
the earlier of:
1) five days after we mailed your policy and you 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.
G. 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 the home office.
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.
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.
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The owner may specify that a specific unscheduled payment is to be a
repayment of policy debt.
H. 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, the policy will be
in default. In addition, if on a monthly processing date the
outstanding policy debt exceeds the account value, the policy will be
in default. The owner, and any 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 ("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 insured 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 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.
I. 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.
J. Repayment of a Loan
An owner may repay all or part of his/her policy debt at any time while
the 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.
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K. Policy Riders
Rider benefits may be available to be added to the policy. Monthly
charges for the rider will be deducted from the account value as part
of the monthly deductions. The only rider available is the Adjustable
Term Insurance Rider.
Additional rules and limits apply to the rider benefits and are set
forth in the rider.
II. TRANSFERS AMONG INVESTMENT OPTIONS
Several investment options of the Separate Account are available for
allocation of net premiums paid under the policy, 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, Inc., The Alger American Fund,
Fidelity Variable Insurance Products Fund and Variable Insurance Products
Fund II, the GCG Trust, INVESCO Variable Investment Funds, Inc., Neuberger
Berman Advisors Management Trust, Van Eck Worldwide Insurance Trust and
Merrill Lynch Asset Management, L.P. 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 be made between
investment options in a policy year. Currently, Security Life assesses an
excess transfer charge of $10 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.
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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 insured's death, plus rider
benefits, minus outstanding policy debt, minus unpaid monthly
deductions incurred prior to the date of death. If the 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 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 insured would have purchased for the correct sex and age.
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 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.
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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, which includes the account value or
the applicable percentage of account value on the date of the 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 insured's
death. Under Option 3, the base death benefit is the greater of the
stated death benefit plus the sum of all premiums received minus
partial withdrawals, or the account value multiplied by the applicable
percentage of the account value on the date of the insured's death.
The "applicable percentage" is the appropriate factor from the
Definition of Life Insurance factors shown in the policy's appendix A.
A table showing the applicable percentages for attained ages 0 to 95 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 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 amount will be the stated death
benefit before the change plus the sum of premiums received minus
partial withdrawals taken as of the effective date of the change.
C. Policy Loan
After the first monthly processing date and while the 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
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.
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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 3.25%.
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 total policy debt.
D. Partial Withdrawals
An owner may make partial cash surrenders (known as partial
withdrawals) under 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.
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 withdrawal requests will be processed as of the valuation date
the request is received by Security Life, and generally will be paid
within seven calendar days.
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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,
(3) mortality and expense charge, and (4) charges for 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 investment option, 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
$200 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 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
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 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.
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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 $2,000 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 arrangements that involve a payee who is not a
natural person (for example, a corporation), or a payee who is a
fiduciary. Also, the details of all arrangements will be subject to our
rules at the time the arrangements take effect. This includes rules on
the minimum amount we will pay under an option, minimum amounts for
installment payments, withdrawal or commutation rights (i.e., the
rights to receive payments over time, for which we may offer a lump sum
payment), the naming of people who are entitled to receive payment and
their successors, and the ways of proving Age and survival.
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